##### 



SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)



|x |  |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|- |  |  | ----------------------------------------------------------------------------------------

For the quarterly period ended
March 29, 2003

OR



|o |  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|- |  |  | -----------------------------------------------------------------------------------------

For the transition period from

to

Commission file number
0-16453

HearUSA, Inc.
(Exact Name of Registrant as Specified in Its Charter)

|                                                  |  |                    
|------------------------------------------------- |  | -------------------
|Delaware                                          |  | 22-2748248         
|                                                 
|(State of Other Jurisdiction of                   |  | (I.R.S. Employer   
|Incorporation or Organization)                    |  | Identification No.)
|                                                 
|1250 Northpoint
Parkway, West Palm Beach, Florida |  | 33407              
|                                                 
|(Address of Principal Executive Offices)          |  | (Zip Code)         

Registrants
Telephone Number, Including Area Code
(561) 478-8770



Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report

Indicate by check whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days     Yes
ü
No

Indicate by check whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes
   
No
ü

On April 25, 2003, 30,423,616 shares of the Registrants Common Stock were
outstanding, including 3,406,460 exchangeable shares of HEARx Canada, Inc.



---



##### 



INDEX

|        |         |                                                             |  |  |       |  |      |  | 
|------- | ------- | ----------------------------------------------------------- |  |  | ----- |  | ---- |  | 
|        |         |                                                             |  |  |       |  | Page
|PART
I  |         | FINANCIAL INFORMATION                                       |  |  |       | 
|       
|        | Item 1  | Financial Statements:                                       |  |  |       | 
|       
|        |         | Consolidated Balance  Sheets                                |  |  |       | 
|        |         | March 29, 2003 and December 28, 2002                        |  |  | 3     | 
|       
|        |         | Consolidated Statements of Operations                       |  |  |       | 
|        |         | Three months ended March 29, 2003 and March 30, 2002        |  |  | 4     | 
|       
|        |         | Consolidated Statements of Cash Flows                       |  |  |       | 
|        |         | Three months ended March 29, 2003 and March 30, 2002        |  |  | 5     | 
|       
|        |         | Notes to Consolidated Financial Statements                  |  |  | 6-11  | 
|       
|        | Item 2  | Management's Discussion and Analysis of Financial Condition |  |  |       | 
|        |         | and Results of Operations                                   |  |  | 12-17 | 
|       
|        | Item 3  | Quantitative and Qualitative Disclosures About Market Risk  |  |  | 18    | 
|       
|        | Item 4: | Controls and Procedures                                     |  |  | 18    | 
|       
|PART II |         | OTHER INFORMATION                                           |  |  |       | 
|       
|        | Item 6  | Exhibits and Reports on Form 8-K                            |  |  | 19-21 | 
|       
|        |         | Signatures                                                  |  |  | 22    | 
|        |         |                                                             |  |  |       | 
|        |         | Certifications Pursuant to Section 302 of the               |  |  |       | 
|        |         | Sarbanes - Oxley Act of 2002                                |  |  | 23-24 | 
|       
|        |         | Exhibit Index                                               |  |  | 25    | 

2



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##### 



Part I  Financial Information

Item 1. Financial Statements

HearUSA, Inc.
Consolidated Balance Sheets
ASSETS

|                                        |                                                                                                  |                                                                                   |                                                                                                  |                                                      |             |             |            |              |             |           |            | 
|--------------------------------------- | ------------------------------------------------------------------------------------------------ | --------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------ | ---------------------------------------------------- | ----------- | ----------- | ---------- | ------------ | ----------- | --------- | ---------- | 
|                                        |                                                                                                  |                                                                                   |                                                                                                  |                                                      |             | March 29,   |            | December 28,
|                                        |                                                                                                  |                                                                                   |                                                                                                  |                                                      |             | 2003        |            | 2002        
|                                        |                                                                                                  |                                                                                   |                                                                                                  |                                                      |             |             |            |             
|                                        |                                                                                                  |                                                                                   |                                                                                                  |                                                      |             | (unaudited) |            |              |             |          
|Current assets:                         |                                                                                                  |                                                                                   |                                                                                                  |                                                      |             |             |            |             
|                                        | Cash and cash equivalents                                                                        |                                                                                   | $                                                                                                | 6,947,333                                            |             |             | $          | 2,527,671    |            
|                                        | Investment securities                                                                            |                                                                                   |                                                                                                  | 553,034                                              |             |             |            | 550,046      |            
|                                        | Accounts and notes receivable, less allowance for
doubtful accounts of $1,261,277 and $1,342,897 |                                                                                   |                                                                                                  | 8,177,921                                            |             |             |            | 7,145,692    |            
|                                        | Inventories                                                                                      |                                                                                   |                                                                                                  | 1,077,751                                            |             |             |            | 980,120      |            
|                                        | Prepaid expenses and other                                                                       |                                                                                   |                                                                                                  | 1,047,209                                            |             |             |            | 912,959      |            
|                                        |                                                                                                  |                                                                                   |                                                                                                  |                                                      |             |             |            |             
|                                        |                                                                                                  |                                                                                   |                                                                                                  | Total current assets                                 |             |             | 17,803,248 |              |             |           | 12,116,488 | 
|                                       
|Property and equipment  net            |                                                                                                  |                                                                                   | 6,931,805                                                                                        |                                                      |             |             | 7,240,249  |             
|Intangibles, net (Note 4)               |                                                                                                  |                                                                                   | 45,023,500                                                                                       |                                                      |             |             | 45,026,088 |             
|Deposits and other                      |                                                                                                  |                                                                                   | 483,037                                                                                          |                                                      |             |             | 482,982    |             
|                                        |                                                                                                  |                                                                                   |                                                                                                  |                                                      |             |             |            |             
|                                        |                                                                                                  | $                                                                                 | 70,241,590                                                                                       |                                                      |             | $           | 64,865,807 |             
|                                        |                                                                                                  |                                                                                   |                                                                                                  |                                                      |             |             |            |             
|LIABILITIES AND STOCKHOLDERS EQUITY   
|Current liabilities:                    |                                                                                                  |                                                                                   |                                                                                                  |                                                      |             |             |            |             
|                                        |                                                                                                  | Accounts payable                                                                  |                                                                                                  | $                                                    | 13,512,965  |             |            | $            | 10,938,056  |          
|                                        |                                                                                                  | Accrued expenses                                                                  |                                                                                                  |                                                      | 4,140,884   |             |            |              | 3,738,857   |          
|                                        |                                                                                                  | Accrued salaries and other compensation                                           |                                                                                                  |                                                      | 1,633,783   |             |            |              | 2,382,495   |          
|                                        |                                                                                                  | Current maturities of long term debt                                              |                                                                                                  |                                                      | 3,969,514   |             |            |              | 4,073,285   |          
|                                        |                                                                                                  | Dividends payable                                                                 |                                                                                                  |                                                      | 1,128,541   |             |            |              | 1,215,167   |          
|                                        |                                                                                                  |                                                                                   |                                                                                                  |                                                      |             |             |            |             
|                                        |                                                                                                  |                                                                                   |                                                                                                  | Total current liabilities                            |             |             | 24,385,687 |              |             |           | 22,347,860 | 
|                                        |                                                                                                  |                                                                                   |                                                                                                  |                                                      |             |             |            |             
|Long term debt, less current maturities |                                                                                                  |                                                                                   | 25,004,075                                                                                       |                                                      |             |             | 22,082,389 |             
|                                        |                                                                                                  |                                                                                   |                                                                                                  |                                                      |             |             |            |             
|Commitments and contingencies (Note 6)  |                                                                                                  |                                                                                   |                                                                                                 |                                                      |             |             |           |             
|Stockholders equity:                   |                                                                                                  |                                                                                   |                                                                                                  |                                                      |             |             |            |             
|                                        | Preferred stock:                                                                                 |                                                                                   |                                                                                                  |                                                      |             |             |            |              |            
|                                        |                                                                                                  |                                                                                   | (Aggregate liquidation preference $8,021,541 and $8,108,167) $1
par, 5,000,000 shares authorized |                                                      |             |             |            |              |             |           |           
|                                        |                                                                                                  |                                                                                   |                                                                                                  | Series J (233 & 233 shares outstanding)              |             |             | 233        |              |             |           | 233        | 
|                                        |                                                                                                  |                                                                                   |                                                                                                  | Series H Junior Participating (0 shares outstanding) |             |             |           |              |             |           |           | 
|                                        |                                                                                                  |                                                                                   |                                                                                                  | 1998 Convertible (4,563 shares outstanding)          |             |             | 4,563      |              |             |           | 4,563      | 
|                                        |                                                                                                  |                                                                                   |                                                                                                  |                                                      |             |             |            |             
|                                        |                                                                                                  |                                                                                   |                                                                                                  | Total preferred stock                                |             |             | 4,796      |              |             |           | 4,796      | 
|                                        |                                                                                                  | Common stock: $.10 par; 50,000,000 -
shares authorized;                           |                                                                                                  |                                                      |             |             |            |              |             |          
|                                        |                                                                                                  |                                                                                   | 27,490,485 and 24,457,055 shares issued                                                          |                                                      |             | 2,749,048   |            |              |             | 2,445,705 |           
|                                        |                                                                                                  |                                                                                   | Stock subscription                                                                               |                                                      |             | (412,500    | )          |              |             | (412,500  | )         
|                                        |                                                                                                  | Additional paid-in capital                                                        |                                                                                                  |                                                      | 117,011,338 |             |            |              | 117,314,681 |          
|                                        |                                                                                                  | Accumulated deficit                                                               |                                                                                                  |                                                      | (96,564,218 | )           |            |              | (96,765,446 | )        
|                                        |                                                                                                  | Accumulated Other comprehensive income  currency
translation adjustment (Note 1) |                                                                                                  |                                                      | 548,505     |             |            |              | 331,763     |          
|                                        |                                                                                                  | Treasury stock, at cost:523,662 & 518,660 common shares                           |                                                                                                  |                                                      | (2,485,141  | )           |            |              | (2,483,441  | )        
|                                        |                                                                                                  |                                                                                   |                                                                                                  |                                                      |             |             |            |             
|                                        |                                                                                                  |                                                                                   |                                                                                                  | Total stockholders equity                           |             |             | 20,851,828 |              |             |           | 20,435,558 | 
|                                        |                                                                                                  |                                                                                   |                                                                                                  |                                                      |             |             |            |             
|                                        |                                                                                                  | $                                                                                 | 70,241,590                                                                                       |                                                      |             | $           | 64,865,807 |             
|                                        |                                                                                                  |                                                                                   |                                                                                                  |                                                      |             |             |            |             

See accompanying notes to the consolidated financial statements

3



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##### 



HearUSA, Inc.
Consolidated Statements of Operations
Three Months Ended March 29, 2003 and March 30, 2002

|                                                               |                                     |                                    |            |             |            |             |            |            |            | 
|-------------------------------------------------------------- | ----------------------------------- | ---------------------------------- | ---------- | ----------- | ---------- | ----------- | ---------- | ---------- | ---------- | 
|                                                               |                                     |                                    |            | March 29    |            | March 30,  
|                                                               |                                     |                                    |            | 2003        |            | 2002       
|                                                               |                                     |                                    |            |             |            |            
|                                                               |                                     |                                    |            | (unaudited) |            | (unaudited)
|                                                              
|Net Revenues                                                   |                                     | $                                  | 18,580,271 |             |            | $           | 12,010,016 |           
|                                                               |                                     |                                    |            |             |            |             |            |           
|Operating costs and expenses:                                  |                                     |                                    |            |             |            |             |            |           
|                                                               | Cost of products sold               |                                    |            | 5,559,602   |            |             |            | 3,405,098  |           
|                                                               | Center operating expenses           |                                    |            | 8,616,499   |            |             |            | 6,759,936  |           
|                                                               | General and administrative expenses |                                    |            | 2,568,963   |            |             |            | 2,386,551  |           
|                                                               | Depreciation and amortization       |                                    |            | 963,036     |            |             |            | 523,598    |           
|                                                               |                                     |                                    |            |             |            |             |            |           
|                                                               |                                     | Total operating costs and expenses |            |             | 17,708,100 |             |            |            | 13,075,183 | 
|                                                               |                                     |                                    |            |             |            |             |            |           
|Income (loss) from operations                                  |                                     |                                    | 872,171    |             |            |             | (1,065,167 | )         
|Non-operating income (expense):                                |                                     |                                    |            |             |            |             |            |           
|Interest income                                                |                                     |                                    | 4,218      |             |            |             | 22,066     |           
|Interest expense                                               |                                     |                                    | (526,837   | )           |            |             | (280,230   | )         
|                                                               |                                     |                                    |            |             |            |             |            |           
|Income (loss) before equity in loss of affiliated
company      |                                     |                                    | 349,552    |             |            |             | (1,323,331 | )         
|Equity in loss of affiliated company                           |                                     |                                    |           |             |            |             | (61,405    | )         
|Net income (loss)                                              |                                     |                                    | 349,552    |             |            |             | (1,384,736 | )         
|                                                               |                                     |                                    |            |             |            |             |            |           
|Dividends on preferred stock                                   |                                     |                                    | (148,324   | )           |            |             | (168,069   | )         
|                                                               |                                     |                                    |            |             |            |             |            |           
|Net income (loss) applicable to common
stockholders            |                                     | $                                  | 201,228    |             |            | $           | (1,552,805 | )         
|                                                               |                                     |                                    |            |             |            |             |            |           
|Net income (loss) per common share  basic                     |                                     | $                                  | 0.01       |             |            | $           | (0.11      | )         
|                                                               |                                     |                                    |            |             |            |             |            |           
|Net income (loss) per common share  diluted                   |                                     | $                                  | 0.01       |             |            | $           | (0.11      | )         
|                                                               |                                     |                                    |            |             |            |             |            |           
|Weighted average number of shares of
Common stock outstanding: |                                     |                                    |            |             |            |             |            |           
|                                                               | Basic                               |                                    |            | 30,426,106  |            |             |            | 14,057,243 |           
|                                                               |                                     |                                    |            |             |            |             |            |           
|                                                               | Diluted                             |                                    |            | 55,836,097  |            |             |            | 14,057,243 |           
|                                                               |                                     |                                    |            |             |            |             |            |           

See accompanying notes to the consolidated financial statements

4



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##### 



HearUSA, Inc.
Consolidated Statements of Cash Flows
Three Months Ended March 29, 2003 and March 30, 2002

|                                                                                         |                                                                |   |                                                                                                     |            |                |   |                |            |   |           | 
|---------------------------------------------------------------------------------------- | -------------------------------------------------------------- | - | --------------------------------------------------------------------------------------------------- | ---------- | -------------- | - | -------------- | ---------- | - | --------- | 
|                                                                                         |                                                                |   |                                                                                                     |            | March 29, 2003 |   | March 30, 2002
|                                                                                         |                                                                |   |                                                                                                     |            |                |   |               
|                                                                                         |                                                                |   |                                                                                                     |            | (unaudited)    |   | (unaudited)   
|                                                                                        
|Cash flows from operating activities:                                                    |                                                                |   |                                                                                                     |            |                |   |                |           
|Net income(loss)                                                                         |                                                                | $ | 349,552                                                                                             |            |                | $ | (1,384,736     | )         
|Adjustments to reconcile net income (loss) to net cash provided by operating
activities: |                                                                |   |                                                                                                     |            |                |   |                |           
|                                                                                         | Depreciation and amortization                                  |   |                                                                                                     | 963,036    |                |   |                | 523,598    |  
|                                                                                         | Provision for doubtful accounts                                |   |                                                                                                     | 67,550     |                |   |                | 39,750     |  
|                                                                                         | Loss on disposition of equipment                               |   |                                                                                                     |           |                |   |                | 911        |  
|                                                                                         | Equity loss in affiliated company                              |   |                                                                                                     |           |                |   |                | 61,405     |  
|                                                                                         | Compensation expense from the issuance
of capital stock        |   |                                                                                                     |           |                |   |                | 40,250     |  
|Changes in assets and liabilities:                                                       |                                                                |   |                                                                                                     |            |                |   |                |           
|                                                                                         | (Increase) decrease in:                                        |   |                                                                                                     |            |                |   |                |            |  
|                                                                                         | Accounts and notes receivable                                  |   |                                                                                                     | (1,099,779 | )              |   |                | 1,267,318  |  
|                                                                                         | Inventories                                                    |   |                                                                                                     | (97,631    | )              |   |                | 65,889     |  
|                                                                                         | Prepaid expenses and other                                     |   |                                                                                                     | (115,739   | )              |   |                | 91,344     |  
|Increase (decrease) in:                                                                  |                                                                |   |                                                                                                     |            |                |   |                |           
|                                                                                         | Accounts payable and accrued expenses                          |   |                                                                                                     | 2,976,936  |                |   |                | (92,181    | )
|                                                                                         | Accrued salaries and other                                     |   |                                                                                                     | (748,712   | )              |   |                | (215,796   | )
|                                                                                         |                                                                |   |                                                                                                     |            |                |   |                |           
|Net cash provided by operating activities                                                |                                                                |   | 2,295,213                                                                                           |            |                |   | 397,752        |           
|                                                                                         |                                                                |   |                                                                                                     |            |                |   |                |           
|Cash flow from investing activities:                                                     |                                                                |   |                                                                                                     |            |                |   |                |           
|                                                                                         | Purchase of property and equipment                             |   |                                                                                                     | (113,958   | )              |   |                | (199,240   | )
|                                                                                         | Purchase of pre-combination investment in Helix                |   |                                                                                                     |           |                |   |                | (2,000,000 | )
|                                                                                         | Cost of business combination                                   |   |                                                                                                     |           |                |   |                | (97,937    | )
|                                                                                         |                                                                |   |                                                                                                     |            |                |   |                |           
|Net cash used in investing activities                                                    |                                                                |   | (113,958                                                                                            | )          |                |   | (2,297,177     | )         
|                                                                                         |                                                                |   |                                                                                                     |            |                |   |                |           
|Cash flows from financing activities:                                                    |                                                                |   |                                                                                                     |            |                |   |                |           
|                                                                                         | Proceeds from issuance of:                                     |   |                                                                                                     |            |                |   |                |            |  
|                                                                                         | Long-term debt                                                 |   |                                                                                                     | 3,500,000  |                |   |                |           |  
|                                                                                         | Principal payments: Long-term debt                             |   |                                                                                                     | (1,077,288 | )              |   |                | (1,036,174 | )
|                                                                                         | Purchase of treasury stock                                     |   |                                                                                                     | (1,700     | )              |   |                |           |  
|                                                                                         | Exchange & redemption of capital stock                         |   |                                                                                                     |           |                |   |                | (301,093   | )
|                                                                                         | Proceeds from issuance of capital stock,
net of offering costs |   |                                                                                                     |           |                |   |                | 1,500,000  |  
|                                                                                         | Dividends on preferred stock                                   |   |                                                                                                     | (234,950   | )              |   |                | (45,047    | )
|                                                                                         |                                                                |   |                                                                                                     |            |                |   |                |           
|Net cash provided by financing activities                                                |                                                                |   | 2,186,062                                                                                           |            |                |   | 117,686        |           
|Effects of exchange rate changes on cash                                                 |                                                                |   | 52,345                                                                                              |            |                |   |               |           
|                                                                                         |                                                                |   |                                                                                                     |            |                |   |                |           
|Net increase (decrease) in cash and cash
equivalents                                     |                                                                |   | 4,419,662                                                                                           |            |                |   | (1,781,739     | )         
|Cash and cash equivalents at beginning of period                                         |                                                                |   | 2,527,671                                                                                           |            |                |   | 5,561,608      |           
|                                                                                         |                                                                |   |                                                                                                     |            |                |   |                |           
|Cash and cash equivalents at end of period                                               |                                                                | $ | 6,947,333                                                                                           |            |                | $ | 3,779,869      |           
|                                                                                         |                                                                |   |                                                                                                     |            |                |   |                |           
|Supplemental disclosure of non-cash investing and financing activities:                  |                                                                |   |                                                                                                     |            |                |   |                |           
|                                                                                         |                                                                |   | Purchase of investment in affiliated company by
exchanging notes receivable from affiliated
company |            | $              |  |                |            | $ | 2,700,000 | 

See accompanying notes to the consolidated financial statements

5



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##### 



HearUSA, Inc.
Notes to Consolidated Financial Statements

The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments, consisting of normal recurring accruals, considered
necessary for a fair presentation have been included. Operating results
for the three month period ended March 29, 2003 are not necessarily
indicative of the results that may be expected for the year ending December
27, 2003. For further information, refer to the audited consolidated
financial statements and footnotes thereto included in the Companys annual
report on Form 10-K for the year ended December 28, 2002.

1.     Summary of Significant Accounting Policies

Helix Transaction

On July 27, 2001, the Company and Helix Hearing Care of America Corp., a
Canadian corporation (Helix), signed a definitive merger agreement, which
was subsequently amended and restated as of November 6, 2001. Helix owned
or managed, prior to the combination, 126 hearing healthcare clinics
located in Massachusetts, New York, Ohio, Michigan, Wisconsin, Minnesota,
Washington and Missouri as well as in the Provinces of Ontario and Quebec.
The transaction was approved by the stockholders of both HEARx and Helix on
June 26, 2002 and by the Canadian courts on June 28, 2002. The transaction
closed on July 11, 2002, and is effective June 30, 2002,the first day of
the Companys third quarter of 2002, for financial reporting purposes. In
connection with the completion of the business combination, on July 8, 2002
the Company changed its name from HEARx Ltd. to HearUSA, Inc. and increased
its authorized capital. The Companys common stock continues to trade on
the American Stock Exchange under the symbol EAR.

As of March 29, 2003, 3,456,793 exchangeable shares of HEARx Canada, Inc.,
an indirect subsidiary of the Company, were issued or will be issued to
certain former common shareholders of Helix in connection with the
combination. Each exchangeable share of HEARx Canada, Inc. is
exchangeable for one share of the Companys common stock. The
exchangeable shares are traded on the Toronto Stock Exchange under the symbol HUX.

Earnings Per Share

For purposes of computing net income per common share  basic and diluted,
for the three months ended March 29, 2003, the weighted average
number of shares of common stock outstanding includes the effect of the 3,456,793
exchangeable shares of HEARx Canada, Inc. described above, as if they were
outstanding common stock of the Company on June 30, 2002, the effective
date of the combination for financial reporting purposes. For computing net
income earnings per share  diluted for the three months ended March 29,
2003, 25,409,991 shares were included for convertible preferred stock.

Basis of Consolidation

The consolidated financial statements include the accounts of the Company
and its wholly owned and majority controlled subsidiaries. Intercompany
accounts and transactions have been eliminated in consolidation.

6



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##### 



HearUSA, Inc.
Notes to Consolidated Financial Statements

Investment in Affiliated Company

Prior to the closing of the combination with Helix, the Company owned
approximately 10.5 percent of the common stock of Helix. The Company
accounted for this investment using the equity method because the Company
had the ability to exercise significant influence over the operational and
financial policies of Helix as a result of the terms of the merger
agreement with Helix and the use of certain proceeds of the Companys
credit facility with Siemens Hearing Instruments, Inc. (Siemens) to repay
certain debts of Helix. Under the equity method, the Company recorded its
proportionate share of profits and losses of the affiliated company based
on its percentage interest in the affiliated company.

Comprehensive Income

Comprehensive income is defined to include all changes in equity except
those resulting from investments by owners and distributions to owners.
The Companys other comprehensive income represents a foreign currency
translation adjustment.

Comprehensive income (loss) and the components of other comprehensive
income are as follows:

|                                           |  |           |         |           |  |   |            |  
|------------------------------------------ |  | --------- | ------- | --------- |  | - | ---------- | -
|                                           |  | March 29, |         | March 30,
|                                           |  | 2003      |         | 2002     
|                                           |  |           |         |          
|Comprehensive income (loss):               |  |           |         |           |  |   |            |  
|Net income (loss) for period               |  | $         | 349,552 |           |  | $ | (1,384,736 | )
|                                           |  |           |         |           |  |   |            |  
|Other comprehensive income:                |  |           |         |           |  |   |            |  
|Foreign currency translation adjustments   |  |           | 216,742 |           |  |   | 15,085     |  
|                                           |  |           |         |           |  |   |            |  
|Comprehensive income (loss) for the period |  | $         | 566,294 |           |  | $ | (1,369,651 | )
|                                           |  |           |         |           |  |   |            |  

Reclassifications

Certain amounts in the 2002 consolidated financial statements have been
reclassified in order to conform to the 2003 presentation.

Segments

Since the closing of the Helix transaction, the Company operates in three
business segments, which include the operation and management of centers,
the establishment, maintenance and support of an affiliated network and
the operation of an e-commerce business . The Companys business units are
located in the United States and Canada.

|                                                     |                      |   |            |            |            |   |         |   |           |   |         |           |  |   |            |            |  |   |            |            | 
|---------------------------------------------------- | -------------------- | - | ---------- | ---------- | ---------- | - | ------- | - | --------- | - | ------- | --------- |  | - | ---------- | ---------- |  | - | ---------- | ---------- | 
|                                                     |                      |   | Centers    |            | E-commerce |   | Network |   | Corporate |   | Total  
|                                                     |                      |   |            |            |            |   |         |   |           |   |        
|Net Revenues                                         |                      |   |            |            |            |   |         |   |           |   |         |           |  |   |            |            |  |   |            |           
|3 months ended 3/29/03                               |                      | $ | 18,292,000 |            |            | $ | 19,000  |   |           | $ | 269,000 |           |  | $ |           |            |  | $ | 18,580,000 |           
|3 months ended 3/30/02                               |                      |   | 12,010,000 |            |            |   |        |   |           |   |        |           |  |   |           |            |  |   | 12,010,000 |           
|                                                    
|Income (Loss) from
Operations                        |                      |   |            |            |            |   |         |   |           |   |         |           |  |   |            |            |  |   |            |           
|3 months ended 3/29/03                               |                      |   | 3,922,000  |            |            |   | (14,000 | ) |           |   | 130,000 |           |  |   | (3,166,000 | )          |  |   | 872,000    |           
|3 months ended 3/30/02                               |                      |   | 1,498,000  |            |            |   |        |   |           |   |        |           |  |   | (2,563,000 | )          |  |   | (1,065,000 | )         
|                                                    
|3 months ended 3/29/03
Depreciation and
amortization |                      |   | 482,000    |            |            |   |        |   |           |   | 1,000   |           |  |   | 480,000    |            |  |   | 963,000    |           
|                                                     | Identifiable assets  |   |            | 45,650,000 |            |   |         |  |           |   |         | 1,857,000 |  |   |            | 22,735,000 |  |   |            | 70,242,000 | 
|                                                     | Capital Expenditures |   |            | 103,000    |            |   |         |  |           |   |         |          |  |   |            | 11,000     |  |   |            | 114,000    | 
|                                                    
|3 months ended 3/30/02
Depreciation and
amortization |                      |   | 347,000    |            |            |   |        |   |           |   |        |           |  |   | 177,000    |            |  |   | 524,000    |           
|                                                     | Identifiable assets  |   |            | 6,011,000  |            |   |         |  |           |   |         |          |  |   |            | 13,811,000 |  |   |            | 19,822,000 | 
|                                                     | Capital Expenditures |   |            | 159,000    |            |   |         |  |           |   |         |          |  |   |            | 40,000     |  |   |            | 199,000    | 

7



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##### 



HearUSA, Inc.
Notes to Consolidated Financial Statements

Income (Loss) from Operations at the segment level are computed before general
and administrative expenses.

Stock-based compensation

The Company has granted stock options to employees and directors under
stock option plans. The Company accounts for those plans using the
intrinsic value method under Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees. Stock-based employee
compensation cost reflected in net income (loss) is not significant, as all
options granted under those plans had an exercise price greater than or
equal to the market value of the underlying common stock on the date of
grant. The following table illustrates the effect on net income (loss) and
income (loss) per share if the Company had applied the fair value
recognition provisions of SFAS No. 123, (SFAS 123) Accounting for
Stock-Based Compensation, to stock-based employee compensation:

|                                                    |                                                                                                                 |   |           |         |           |   |            |            |  
|--------------------------------------------------- | --------------------------------------------------------------------------------------------------------------- | - | --------- | ------- | --------- | - | ---------- | ---------- | -
|                                                    |                                                                                                                 |   | March 29, |         | March 30,
|                                                    |                                                                                                                 |   | 2003      |         | 2002     
|                                                    |                                                                                                                 |   |           |         |          
|Net income (loss) applicable to Common Stockholders |                                                                                                                 | $ | 201,228   |         |           | $ | (1,552,805 | )         
|                                                    | As reported                                                                                                     |   |           |         |           |   |            |            |  
|                                                    | Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards |   |           | (45,000 | )         |   |            | (98,000    | )
|                                                    |                                                                                                                 |   |           |         |           |   |            |           
|                                                    | Pro forma                                                                                                       |   | $         | 156,228 |           |   | $          | (1,650,805 | )
|                                                    |                                                                                                                 |   |           |         |           |   |            |           
|Income (loss) per share  basic and diluted         |                                                                                                                 |   |           |         |           |   |            |           
|                                                    | As reported                                                                                                     |   | $         | 0.01    |           |   | $          | (0.11      | )
|                                                    | Pro forma                                                                                                       |   | $         | 0.01    |           |   | $          | (0.12      | )

For purposes of the above disclosure, the determination of the fair value
of stock options granted in 2003 and 2002 was based on the following: (i) a
risk free interest rate of 3.42%, and 3.20% respectively; (ii) expected
option lives ranging from 5 to 7 years; (iii) expected volatility in the
market price of the Companys common stock of 95%, and 99% respectively;
and (iv) no dividends on the underlying common stock.

2.     Stockholders Equity

Conversion of Preferred Stock into shares of Common Stock

During the quarter ended March 29, 2003, no shares of the 1998 Convertible
Preferred Stock were converted. During the quarter ended March 30, 2002,
214 shares of the 1998 Convertible Preferred Stock plus accrued dividends
of approximately $70,000 and an 8% premium of approximately $17,000 were
redeemed for cash of approximately $301,000.

Common Stock

During the quarter ended March 29, 2003 no warrants or employee stock
options were exercised.

8



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##### 



HearUSA, Inc.
Notes to Consolidated Financial Statements

Private Placement

On March 29, 2002, the Company
closed on a private placement of 1.5 million shares of common stock and 1.5 million common stock purchase stock warrants
for an aggregate sales price of $1.5 million. The offers and sales were
made only to accredited investors as defined in Rule 501(a) of Regulation
D and the Company relied on Regulation D and Section 4(2) of the Securities
Act of 1933 to issue the securities without registration. The warrants may
be exercised at any time until March 29, 2005 to purchase shares of common
stock for an exercise price of $1.15 per share. The Company has undertaken
to register the common stock for resale.

All members of the board of directors of the Company, as of March 29, 2002,
participated in the private placement, purchasing 805,000 of the
1,500,000 shares of common stock. Because the shares were sold at a $0.05 per share
discount to the quoted market price of $1.05 per share, additional
compensation expense of approximately $40,000 was incurred for the quarter
ended March 30, 2002. The fair value of the warrants was not significant.

3.     Investment in and Advances to Affiliated Company

On November 16, 2001, the Company loaned $700,000 to Helix for use by
Helix as part of the $3.5 million acquisition of substantially all of the
capital stock of Auxiliary Benefits Corporation, a Colorado corporation
doing business as National Ear Care Plan (NECP). The note was secured by
substantially all of the assets of NECP, bore interest at a rate of prime
plus 1% (6% at December 29, 2001) per annum and originally matured on
November 16, 2002. On January 10, 2002, the Company loaned to Helix an
additional $2 million to complete the NECP transaction. On January 14,
2002, the Company and Helix entered into a subscription agreement pursuant
to which the Company purchased 4,853,932 common shares of Helix for an
aggregate purchase price of $2.7 million. The purchase price was paid
using the $2.7 million in loans to Helix. Upon consummation of the
purchase of the 4,853,932 Helix common shares, the Company became an
approximate 10.5 percent owner of Helix common shares. Prior to the closing
of the combination with Helix, the Company accounted for this investment
using the equity method. Approximately $61,000 was recorded as equity in
loss of affiliated company for the three months ended March 30, 2002,
representing the Companys equity in the net loss of Helix from the
January 14, 2002 acquisition date to March 30, 2002.

In connection with the combination with Helix, the fiscal year end of Helix
for financial reporting purposes was changed from November 30 to the last
Saturday in December to conform to the Companys fiscal year end. As a
result, the following components of the Companys consolidated statement of
operations for the three months ended March 30, 2002 would be restated for
the effect on the Companys equity in Helixs net loss.

|                                                         |  |                    |            |  
|-------------------------------------------------------- |  | ------------------ | ---------- | -
|                                                         |  | Three Months Ended
|                                                         |  |                   
|                                                         |  | March 30, 2002    
|                                                        
|Equity in net loss of affiliated company,                |  | $                  | (61,405    | )
|Equity in net loss of affiliated company,
as restated    |  | $                  | (72,086    | )
|Net loss applicable to common stockholders               |  | $                  | (1,552,805 | )
|Net loss applicable to common stockholders,
as restated  |  | $                  | (1,563,486 | )
|Net loss per common share-basic and diluted              |  | $                  | (0.11      | )
|Net loss per common share-basic and diluted,
as restated |  | $                  | (0.11      | )

9



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##### 



HearUSA, Inc.
Notes to Consolidated Financial Statements

4.     Goodwill and Other Intangible Assets

At March 29, 2003 and December 28, 2002, the Company had goodwill of
approximately $32,459,000. The Company acquired goodwill of approximately
$2,485,000 resulting from its purchase of 10.5% of Helix in January 2002,
and approximately $29,915,000 resulting from the Helix combination
effective June 30, 2002, for total goodwill of approximately $32,459,000.
In addition, approximately $7,200,000 of trademarks and tradenames, not
subject to amortization, were acquired in the Helix combination.

As of both March 29, 2003 and December 28, 2002, the gross carrying amount
of the Companys intangible assets subject to amortization, which consist
of patient files, was $6,115,000, and the accumulated amortization was
approximately $893,000 and $748,000, respectively. For each quarter ended
March 29, 2003 and March 30, 2002, the aggregate amortization expense for
these assets was approximately $145,000 and $21,000, respectively. At March
29, 2003, the estimated amortization expense for the next five fiscal years
is approximately: 2003  $434,000, 2004  $544,000, 2005  $529,000, 2006 -
$511,000, 2007- $504,000, and thereafter  $2,713,000.

5.     Recent Accounting Pronouncements

In December 2002, the FASB issued SFAS, No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure. This statement
amends SFAS 123, Accounting for Stock-Based Compensation, to provide
alternative methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee compensation. In
addition, this statement amends the disclosure requirements of SFAS 123 to
require prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based accounting for
employee compensation and the effect of the method used on reported
results. SFAS 148 is generally effective for financial statements for
fiscal years ending after December 15, 2002. The effect of the adoption of
SFAS 148 on the Companys financial position and results of operations was
not material as the Company continues to use the intrinsic value method.

In November 2002, the FASB issued FASB Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees and Indebtedness of Others (FIN 45). FIN 45 elaborates on the
disclosures that a guarantor should make in its interim and annual
financial statements regarding its obligations relating to the issuance of
certain guarantees. It also requires a guarantor to recognize, at the
inception of a guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. The initial recognition and
measurement provisions of this interpretation are applicable on a
prospective basis to guarantees issued or modified after December 31, 2002.
The impact of adopting FIN 45 on the Companys financial position and
results of operations was not material.

In January 2003, the FASB issued FIN 46, Consolidation of Variable
Interest Entities, which clarifies the application of Accounting Research
Bulletin No. 51, Consolidated Financial Statements, to certain entities
in which equity investors do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the entity
to finance its activities without additional subordinated financial support
from other parties. FIN 46 is applicable immediately for variable interest
entities created after January 31, 2003. For variable interest entities
created prior to January 31, 2003, the provisions of FIN 46 are applicable
no later than July 1, 2003. This Interpretation did not have a material
effect on the Companys consolidated financial statements.

10



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HearUSA, Inc.
Notes to Consolidated Financial Statements

6.     Liquidity

As of March 29, 2003, the Company has an excess of current liabilities over
current assets of approximately $6.6 million. For the three months ended
March 29, 2003, the Company generated net income of approximately $350,000.
The Company is dependent upon generating sufficient cash flow from
operations or financings to repay its liabilities. Additionally, the
Companys supply agreement with Siemens requires full payment for hearing
aids purchased from Siemens within 60 days. As of March 29, 2003, the
Company was not in compliance with those payment provisions. Upon such
noncompliance, Siemens may declare the Company to be in default of the
supply agreement by written notification, which, if not cured within 60
days of the date of written notification, would be an event of default
under the Companys $51,875,000 secured credit facility with Siemens and
Siemens would have the right to declare all amounts outstanding under the
credit facility immediately due and payable. The Company has obtained a
waiver of the non-compliance with the 60-day payment term of the supply
agreement from Siemens as of March 29, 2003. Future non-compliance with
the supply agreement could have a material adverse effect on the Companys
financial condition and continued operations. As a result of the
completion of the combination with Helix and significant cost cutting
initiatives taken throughout 2002, the Company believes that funds
available under the Siemens credit facility, current cash, investment
securities and revenues from operations, at current net revenue levels,
will be sufficient to support the Companys operational needs through the
next twelve months, although there can be no assurance that the Company can
maintain compliance with Siemens loan covenants, that net revenue levels
will remain at or higher than current levels or that unexpected capital
needs will not arise for which the credit facility, cash, investments and
revenues from operations will be sufficient. Should the Company determine
that additional financing is necessary one or more of the following
opportunities will be evaluated: accounts receivable financing, short term
debt or additional equity or debt offerings. There can be no assurance,
however, that such financing would be available to the Company on favorable
terms or at all.

On March 14, 2003, the Company obtained additional funding of $3,500,000 in
the form of a five-year note payable to Siemens (Tranche E) with 10%
interest. The Company is required to make monthly payments of interest
only in the first year. In years two through five, the Company must make
monthly principal and interest payments. The additional funding was
obtained pursuant to an amendment to the Companys credit agreement with
Siemens and is otherwise subject to the terms and conditions of the credit
agreement and related security agreement.

11



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##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

GENERAL

As a result of the recent combination with Helix, the Company has a network
consisting of 173 company owned or managed centers in 11 states and 2
Canadian provinces and approximately 1400 affiliated providers in 49
states. The Company intends, as its long-term goal, to establish a
nationwide network of affiliated providers and company-owned hearing care
centers.

RESULTS OF OPERATIONS

For the three months ended March 29, 2003 compared to the three months
ended March 30, 2002

Net revenues increased $6,570,255, or 54.70%, to $18,580,271 in the first
quarter of 2003 from $12,010,016 in the comparable quarter of 2002. The
increase in revenues is related to Helixs revenues of approximately
$6,400,00 for the first quarter 2003. HearUSAs net revenues, excluding
Helix, for the first quarter 2003, remain relatively constant, at
$12,144,681 from $12,010,016 for the comparable quarter of 2002.

Cost of products sold increased $2,154,504, or 63.3%, to $5,559,602 in the
first quarter of 2003 from $3,405,098 in the comparable quarter of 2002.
The increase in cost of goods sold is related to Helixs cost of goods of
approximately $2,230,000 for the first quarter 2003. HearUSAs cost of
goods sold, excluding Helix, decreased $75,171 to $3,329,927 in the first
quarter of 2003 from $3,405,098 in the comparable quarter of 2002. This
decrease in cost of goods sold is primarily the result of preferred pricing
reductions of approximately $1,005,000 in the first quarter of 2003 from
$847,000 in the first quarter of 2002 from Siemens for achieving certain
sales levels pursuant to the supply agreement with the Company. Such
pricing reductions from Siemens are accounted for as reductions of cost of
products sold for financial reporting purposes. The cost of products sold
as a percent of net revenues was 29.9% and 28.4% for the first quarter of
2003 and 2002, respectively. This was due to Helixs cost of goods sold
being approximately 36% of net revenues for the first quarter of 2003.

Center operating expenses increased $1,856,563, or 27.5%, to $8,616,499 in
the first quarter of 2003 from $6,759,936 in the comparable quarter of
2002. This increase is related to Helixs center operating expenses of
approximately $2,758,000 for the first quarter of 2003. HearUSAs center
operating expenses, excluding Helix, decreased approximately $901,000 to
approximately $5,859,000 for the first quarter of 2003 from $6,759,936 for
the comparable quarter of 2002. This decrease is attributable to the cost
reduction program the Company first implemented in May 2001. The Company
reduced its marketing programs, reducing center advertising expense to
$809,632, or 4.4% of revenue, in the first quarter of 2003, down from
$1,449,243, or 12.1% in the comparable quarter of 2002. In addition, Center
wages expense and regional office costs also decreased $109,812 or 3.4%,
and $159,690 or 34.4%, respectively, to $3,153,763 and $304,085,
respectively, in the first quarter of 2003 from $3,263,575 and $463,775,
respectively from the comparable quarter of 2002.

General and administrative expenses increased $182,412, or 7.7%, to
$2,568,963 in the first quarter of 2003 from $2,386,551 in the comparable
quarter of 2002. This increase is related to Helixs corporate general and
administration expense of approximately $142,000 in the first quarter of
2003. HearUSA general and administrative expenses, excluding Helix,
increased $40,165 to $2,426,716 in the first quarter of 2003 from
$2,386,551 in the comparable quarter of 2002.

Depreciation and amortization expense increased $439,438, or 83.9%, to
$963,036 in the first quarter of 2003 from $523,598 in the comparable
period of 2002. This increase is related to Helixs

12



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##### 



depreciation and
amortization expense of approximately $81,000 for the first quarter 2003,
and approximately $122,000 of additional amortization of certain intangible
assets acquired in the combination. HearUSA depreciation and amortization
expenses, excluding Helix, increased $236,519 to $760,117 in the first
quarter of 2003 from $523,598 in the comparable quarter of 2002, which was
primarily the result of new equipment purchased during 2002 and the first
quarter of 2003.

Interest income decreased $17,848, or 80.9%, to $4,218 in the first
quarter of 2003 from $22,066 in the comparable quarter of 2002. This
decrease is primarily attributable to the decline in average interest
rates earned primarily on cash and investments and a reduction in the
average daily balance of cash and investments. Interest expense increased
$246,607 to $526,837 in the first quarter of 2003 from $280,230 in the
comparable quarter of 2002. This increase is attributable to
approximately $106,000 of Helixs interest expense and an increase of
approximately $141,000 in interest on the credit facility with Siemens.

LIQUIDITY AND CAPITAL RESOURCES

Working capital increased $3,648,933 to a negative $6,582,439 as of March
29, 2003 from a negative $10,231,372 as of December 28, 2002. The working
capital of negative $6,582,439 includes approximately $1.1 million of
dividends payable at March 29, 2003, which at the option of the Company may
be paid in shares of the Companys common stock rather than cash, and
approximately $2.9 million which represents the current portion of the
long-term debt to Siemens, which may be repaid through preferred pricing
reductions. .

On December 7, 2001, the Company obtained a secured credit facility from
Siemens comprised of (a) a $10,875,000 secured five-year term loan credit
facility (the Tranche A Loan); (b) a $25,000,000 secured five-year
revolving loan credit facility (the Tranche B Loan); (c) a $3,000,000
secured five-year term loan credit facility (the Tranche C Loan) and (d) a
$13,000,000 secured five-year term loan credit facility (the Tranche D
Loan). On March 14, 2003, the Company obtained an additional $3,500,000
secured five-year term loan from Siemens bearing interest at a rate of 10%
annually (the Tranche E Loan). The Tranche E Loan was obtained pursuant to
an amendment to the Companys credit agreement with Siemens and is
otherwise subject to the terms and conditions of the credit agreement and
related security agreement. At March 29, 2003, $7,625,000, $104,000,
$2,550,000, $13,000,000 and $3,500,000, representing the Tranche A, Tranche
B, Tranche C, Tranche D, and Tranche E Loans, respectively, were
outstanding. As of March 29, 2003, approximately $24,900,000 is available
to the Company for acquisitions under Tranche B of the credit facility.

The Tranche A Loan proceeds were used as follows: (i) the repayment of
$6,875,000 owed at December 7, 2001 to Siemens by the Company under the
April 23, 2001 agreement (which included a $7.5 million line of credit),
(ii) a $2,000,000 loan from the Company to Helix to fund the NECP
acquisition (see Note 3 of the Notes to Consolidated Financial Statements)
and (iii) $2,000,000 for the exchange and redemption of all of the
outstanding Series I Convertible Preferred Stock. The Tranche B Loan
proceeds of $104,000 were used for the December 2002 asset acquisition of
three centers of Hear America, Inc. The Tranche C Loan proceeds have been
used to repay a term loan payable by Helix to Siemens. The Tranche D Loan
proceeds were used to repay all of Helixs existing convertible debt and
portions of its non-convertible debt. The Tranche E Loan proceeds are
being used for general operating purposes. The Siemens credit facility
imposes certain financial and other covenants on the Company, which are
customary for loans of this size and nature including restrictions on the
conduct of the Companys business, the incurrence of indebtedness, the
merger or sale of assets, the modification of material agreements, changes
in capital structure, making certain payments and paying dividends. If the
company cannot maintain compliance with these covenants, Siemens may
terminate future funding under the credit facility and declare all then
outstanding amounts under the facility immediately due and payable.

The Tranche A, B and C Loans are payable quarterly over five years with the
outstanding principal and

13



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##### 



interest at 10%, due and payable on the final
maturity date. Principal and interest, at the prime rate (as defined) plus
1%, on the Tranche D Loan is payable on the final maturity date. The
Company is required to make monthly payments of interest only on the
Tranche E Loan in the first year. In years two through five, the Company
must make monthly principal and interest payments. Quarterly
principal and interest payments on the Tranche A, B and C Loans may be paid
through preferred pricing reductions received from Siemens by HearUSA as
long as the Company purchases certain minimum percentages of its
requirements of hearing aids from Siemens.

As March 29, 2003, the Company has an excess of current liabilities over
current assets of approximately $6.6 million. For the three months ended
March 29, 2003, the Company generated net income of $349,552. The Company
is dependent upon generating sufficient cash flow from operations or
financings to repay its liabilities. Additionally, the Companys supply
agreement with Siemens requires full payment for hearing aids purchased
from Siemens within 60 days. As of March 29, 2003, the Company was not in
compliance with those payment provisions. Upon such noncompliance,
Siemens may declare the Company to be in default of the supply agreement by
written notification, which, if not cured within 60 days of the date of
written notification, would be an event of default under the Companys
credit facility with Siemens and Siemens would have the right to declare
all amounts outstanding under the credit facility immediately due and
payable. The Company has obtained a waiver of the non-compliance with the
60-day payment term of the supply agreement from Siemens as of March 29,
2003. Future non-compliance with the supply agreement could have a
material adverse effect on the Companys financial condition and continued
operations.

As a result of the completion of the combination with Helix and significant
cost cutting initiatives taken throughout 2002, the Company believes that
funds available under the Siemens credit facility, current cash, investment
securities and revenues from operations, at current net revenue levels,
will be sufficient to support the Companys operational needs through the
next twelve months, although there can be no assurance that the Company can
maintain compliance with the Siemens loan covenants, that net revenue
levels will remain at or higher than current levels or that unexpected
capital needs will not arise for which the credit facility, cash,
investments and revenues from operations will be sufficient. In the event
the Company needs to raise additional money to fund unexpected cash needs
or otherwise to meet requirements, one or more of the following
opportunities will be evaluated: accounts receivable financing, short term
debt or additional equity or debt offerings. There can be no assurance
however, that such financing would be available to the Company on favorable
terms or at all.

Below is a chart setting forth the Companys contractual cash payment
obligations which have been aggregated to facilitate a basic understanding
of the Companys liquidity as of March 29, 2003:

|                                   |  |       |            |      |  |                        |           |       |  |       |            |         |  |   |            |  |  |   |   | 
|---------------------------------- |  | ----- | ---------- | ---- |  | ---------------------- | --------- | ----- |  | ----- | ---------- | ------- |  | - | ---------- |  |  | - | - | 
|                                   |  |       |            |      |  | Payments Due by Period
|                                   |  |       |            |      |  | Less                   |           |       |  |       |            |         |  |   |            |  |  |  
|Contractual                        |  |       |            |      |  | than 1                 |           | 1 - 3 |  | 4 - 5 |            | After 5
|Obligations                        |  | Total |            | Year |  | Years                  |           | Years |  | Years
|                                   |  |       |            |      |  |                        |           |       |  |      
|Long-Term Debt                     |  | $     | 28,974,000 |      |  | $                      | 3,970,000 |       |  | $     | 10,506,000 |         |  | $ | 14,498,000 |  |  | $ |  | 
|Operating Leases                   |  |       | 15,813,000 |      |  |                        | 5,594,000 |       |  |       | 9,026,000  |         |  |   | 1,193,000  |  |  |   |  | 
|                                   |  |       |            |      |  |                        |           |       |  |       |            |         |  |   |            |  |  |   |   | 
|Total Contractual Cash
Obligations |  | $     | 44,787,000 |      |  | $                      | 9,564,000 |       |  | $     | 19,532,000 |         |  | $ | 15,691,000 |  |  | $ |  | 
|                                   |  |       |            |      |  |                        |           |       |  |       |            |         |  |   |            |  |  |   |   | 

14



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##### 



Net cash provided by operating activities increased from $397,752 in the
first quarter of 2002 to $2,295,213 in the first quarter of 2003. The
increase in net cash provided by operating activities was primarily the
result of a change from a net loss of $1,384,736 to net income of
$349,552 between periods, a net increase in accounts receivable,
inventories and prepaid expenses of approximately $2,738,000 and an
increase in accounts payable and accrued expenses of the periods of
approximately $2,536,000.

Net cash used by investing activities decreased from $2,297,177 in the
first quarter of 2002, $113,958 in the first quarter of 2003. Cash used
to purchase a common stock investment in Helix prior to the combination
totaled approximately $2,000,000 in January 2002. Costs incurred for the
Helix acquisition during the first quarter of 2002 were approximately
$100,000.

Net cash provided by financing activities increased from $117,686 in the
first quarter of 2002 to $2,186,062 in the first quarter of 2003. This
increase is primarily the result of the net proceeds of $3,500,000 from
the Siemens Tranche E Loan in 2003, offset by approximately $725,000 in
repayments under the Siemens Tranche A and Tranche C loans, compared to
net proceeds of $1,500,000 from the 2002 private placement of common
stock.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions in certain circumstances that affect
amounts reported in the accompanying consolidated financial statements
and related footnotes. In preparing these financial statements,
management has made its best estimates of certain amounts included in the
financial statements.On an ongoing basis, management evaluates these
estimates, including those related to allowances for doubtful accounts
receivable and sales returns. Management bases these estimates on
historical experience and on various other assumptions that are believed
to be reasonable under the circumstances. These estimates form the basis
for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Management believes
the following critical accounting policies affect the significant
judgments and estimates used in the preparation of the financial
statements. Application of these accounting policies involves the
exercise of judgment and use of assumptions as to future uncertainties
and, as a result, actual results could differ from these estimates.

Goodwill and Intangible Assets:

The majority of the Companys goodwill and other intangible assets
resulted from the combination with Helix. On at least an annual basis,
the Company is required to assess whether its goodwill is impaired. In
order to do this, management applied judgment in determining its
reporting units, which represent distinct parts of the Companys
business. The definition of the Companys reporting units affects the
Companys goodwill impairment assessments. The Companys annual goodwill
impairment assessment involves estimating the fair value of a reporting
unit and comparing it with its carrying amount. If the carrying value of
the reporting unit exceeds its fair value, additional steps are required
to calculate a potential impairment loss. Calculating the fair value of
the reporting units requires significant estimates and long-term
assumptions. Any changes in key assumptions about the business and its
prospects, or changes in market conditions, interest rates or other
externalities, could result in an impairment charge. The Company
estimates the fair value of its reporting units by applying a weighted
average of three methods: quoted market price, external transactions, and
discounted cash flow.

15



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##### 



Revenue Recognition

HearUSA recognizes revenues from the sale of audiological products at the
time of delivery and revenues from hearing care services at the time
those services are performed.

The Company has capitation contracts with certain health care
organizations under which the Company is paid an amount for each enrollee
of the health maintenance organization to provide to the enrollee a once
every three years discount on certain hearing products and services. The
amount paid to the Company by the healthcare organization is calculated
on a per-capita basis and is referred to as capitation revenue. The
Company defers recognition of capitation revenue until the earlier of the
actual utilization by the member populations of the benefit, or the end
of the contract term.

Sales returns

The Company provides to all patients purchasing hearing aids a specific
return period of at least 30 days if the patient is dissatisfied with
the product. The Company provides an allowance in accrued expenses for
returns. The return period can be extended to 60 days if the patient
attends the Companys H.E.L.P. program.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2002, the FASB issued SFAS, No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure. This statement
amends SFAS 123, Accounting for Stock-Based Compensation, to provide
alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation.
In addition, this statement amends the disclosure requirements of SFAS
123 to require prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based accounting for
employee compensation and the effect of the method used on reported
results. SFAS 148 is generally effective for financial statements for
fiscal years ending after December 15, 2002. The effect of the adoption
of SFAS 148 on the Companys financial position and results of operations
was not material as the Company continues to use the intrinsic value
method.

In November 2002, the FASB issued FASB Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees and Indebtedness of Others (FIN 45). FIN 45 elaborates on
the disclosures that a guarantor should make in its interim and annual
financial statements regarding its obligations relating to the issuance
of certain guarantees. It also requires a guarantor to recognize, at the
inception of a guarantee, a liability for the fair value of the
obligation undertaken in issuing the guarantee. The initial recognition
and measurement provisions of this interpretation are applicable on a
prospective basis to guarantees issued or modified after December 31,
2002. The impact of adopting FIN 45 on the Companys financial position
and results of operations was not material.

In January 2003, the FASB issued FIN 46, Consolidation of Variable
Interest Entities, which clarifies the application of Accounting
Research Bulletin No. 51, Consolidated Financial Statements, to certain
entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk
for the entity to finance its activities without additional subordinated
financial support from other parties. FIN 46 is applicable immediately
for variable interest entities created after January 31, 2003. For
variable interest entities created prior to January 31, 2003, the
provisions of FIN 46 are applicable no later than July 1, 2003. This
Interpretation did not have a material effect on the consolidated
financial statements of the Company.

16



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##### 



CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Except for historical information provided in this discussion and
analysis, the discussion includes forward-looking statements, including
statements regarding the Companys goal of establishing a nationwide
network; the Companys expectation concerning the effect of cost control
measures; funds available under credit facility, current cash, investment
securities and revenues from operations being sufficient to support the
Companys operational needs; and the impact of recent accounting
pronouncements. Such statements involve certain risks and uncertainties
that could cause actual results to differ materially from those in the
forward-looking statements. Potential risks and uncertainties include
industry and market conditions, especially those affecting managed health
care; unforeseen capital requirements; trends in market sales; and the
success of the HEARx West joint venture with The Permanente Federation.

17



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##### 



Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company does not engage in derivative transactions or issue
variable rate debt. The Company is exposed to foreign currency exchange
rates as a result of its combination with Helix. The Company is not
hedging that exposure. Differences in the fair value of investment
securities are not material, therefore the related market risk is not
significant. The Companys exposure to market risk for changes in
interest rates relates primarily to the Companys long-term debt. The
following table presents the Companys financial instruments for which
fair value is subject to changing market interest rates:

|                                                                                          |  |            |             |            |  |                |            |            |  |             |            |   |  |  |            |   |  |  |            |  
|----------------------------------------------------------------------------------------- |  | ---------- | ----------- | ---------- |  | -------------- | ---------- | ---------- |  | ----------- | ---------- | - |  |  | ---------- | - |  |  | ---------- | -
|                                                                                          |  |            |             |            |  | Long-Term Debt
|                                                                                          |  | Variable   |             |           
|                                                                                          |  | Rate       |             | Fixed Rate
|                                                                                          |  | Prime rate |             |           
|                                                                                          |  | + 1% note  |             | 10% notes  |  | 10% notes      |            | 10% note   |  |             |            |  
|                                                                                          |  | due April  |             | due        |  | due            |            | due Dec 1, |  |             |            |  
|                                                                                          |  | 2007       |             | 2008       |  | 2007           |            | 2006       |  | Other notes
|As of March 29, 2003
Estimated cash
inflow (outflow) by
fiscal year of
principal maturity |  |            |             |            |  |                |            |            |  |             |            |   |  |  |            |   |  |  |            |  
|2003                                                                                      |  |            |            |            |  |                |           |            |  |             | (619,000   | ) |  |  | (2,300,000 | ) |  |  | (1,051,000 | )
|2004                                                                                      |  |            |            |            |  |                | (555,000   | )          |  |             | (616,000   | ) |  |  | (2,300,000 | ) |  |  | (788,000   | )
|2005                                                                                      |  |            |            |            |  |                | (807,000   | )          |  |             | (613,000   | ) |  |  | (2,300,000 | ) |  |  | (270,000   | )
|2006                                                                                      |  |            |            |            |  |                | (892,000   | )          |  |             | (610,000   | ) |  |  | (725,000   | ) |  |  | (30,000    | )
|2007                                                                                      |  |            | (13,000,000 | )          |  |                | (1,246,000 | )          |  |             | (196,000   | ) |  |  |           |   |  |  | (56,000    | )
|                                                                                          |  |            |             |            |  |                |            |            |  |             |            |   |  |  |            |   |  |  |            |  
|Total                                                                                     |  |            | (13,000,000 | )          |  |                | (3,500,000 | )          |  |             | (2,654,000 | ) |  |  | (7,625,000 | ) |  |  | (2,195,000 | )
|                                                                                          |  |            |             |            |  |                |            |            |  |             |            |   |  |  |            |   |  |  |            |  
|Estimated fair value                                                                      |  |            | (13,000,000 | )          |  |                | (3,500,000 | )          |  |             | (2,654,000 | ) |  |  | (7,625,000 | ) |  |  | (2,195,000 | )
|                                                                                          |  |            |             |            |  |                |            |            |  |             |            |   |  |  |            |   |  |  |            |  
|Carrying value                                                                            |  |            | (13,000,000 | )          |  |                | (3,500,000 | )          |  |             | (2,654,000 | ) |  |  | (7,625,000 | ) |  |  | (2,195,000 | )
|                                                                                          |  |            |             |            |  |                |            |            |  |             |            |   |  |  |            |   |  |  |            |  

Item 4. Controls and Procedures



| | a. |  | Within the 90 days prior to the date of this report,
the Company evaluated the effectiveness of its disclosure
controls and procedures pursuant to Exchange Act Rule 13a-14.
Based upon that evaluation, the Companys Chief Executive Officer
and Chief Financial Officer concluded that the Companys
disclosure controls and procedures are effective in timely
alerting them to material information relating to the Company
required to be included in its periodic SEC filings.
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | There have been no significant changes in the Companys
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of the evaluation
referenced above.                                                                                                                                                                                                                                                                           

18



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##### 



Part II Other Information

Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibits:



| | 2.1 | The Amended and Restated Merger Agreement, dated November 6,
2001, between HEARx and Helix Hearing Care of America Corp.
(incorporated herein by reference as Exhibit 2.1 to the Companys
Joint Proxy Statement/Prospectus on Form S-4 (Reg. No. 333-73022)).                                             
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2.2 | Interim Order issued by the Superior Court of Quebec and
Notice of Application (incorporated herein by reference as Exhibit
2.2 to the Companys Joint Proxy Statement/Prospectus Form S-4 (Reg.
No. 333-73022)).                                                                                          
|
| | 2.3 | Plan of Arrangement, including exchangeable share provisions
(incorporated herein by reference as Exhibit 2.3 to the Companys
Joint Proxy Statement/Prospectus on Form S-4 (Reg. No. 333-73022)                                                                                                           
|
| | 3.1 | Restated Certificate of Incorporation of HEARx Ltd.,
including certain certificates of designations, preferences and
rights of certain preferred stock of the Company (incorporated
herein by reference as Exhibit 3 to the Companys Current Report on
Form 8-K, filed May 17, 1996 (File No. 001-11655)).
|
| | 3.2 | Amendment to the Restated Certificate of Incorporation
(incorporated herein by reference as Exhibit 3.1A to the Companys
Quarterly Report on Form 10-Q for the period ended June 28, 1996
(File No. 001-11655)).                                                                                          
|
| | 3.3 | Amendment to Restated Certificate of Incorporation including
one for ten reverse stock split and reduction of authorized shares
(incorporated herein as Exhibit 3.5 to the Companys Quarterly
Report on Form 10-Q for the period ending July 2, 1999 (File No.
001-11655)).                               
|
| | 3.4 | Amendment to Restated Certificate of Incorporation including
an increase in authorized shares and change of name (incorporated
herein by reference as Exhibit 3.1 to the Companys Current Report
on Form 8-K, filed July 17, 2002 (File No. 001-11655)).                                                  
|
| | 3.5 | Certificate of Designations, Preferences and Rights of the
Companys 1998 Convertible Preferred Stock (incorporated herein by
reference as Exhibit 3 to the Companys Current Report on Form 8-K,
filed August 27, 1998 (File No. 001-11655)).                                                             
|
| | 3.6 | Certificate of Designations, Preferences and Rights of the
Companys 1999 Series H Junior Participating Preferred Stock
(incorporated herein by reference as Exhibit 4 to the Companys
Current Report on Form 8-K, filed December 17, 1999 (File No.
001-11655)).                                         
|
| | 3.7 | Certificate of Designations, Preferences and Rights of the
Companys Special Voting Preferred Stock (incorporated herein by
reference as Exhibit 3.2 to the Companys Current Report on Form
8-K, filed July 19, 2002 (File No. 001-11655)).                                                               

19



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##### 





| | 3.8 | Amendment to Certificate of Designations, Preferences and
Rights of the Companys 1999 Series H Junior Participating
Preferred Stock (incorporated herein by reference as Exhibit 4 to
the Companys Current Report on Form 8-K, filed July 17, 2002 (File
No. 001-11655)).             
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 3.9 | Amended and Restated By-Laws of HearUSA, Inc. (incorporated
by reference as Exhibit 3.9 to the Companys Annual Report on Form
10-K for the period ended December 28, 2002 (File No. 001-11655)).                                                                                       
|
| | 4.1 | Specimen of Certificate representing Common Stock
(incorporated herein by reference as Exhibit 4.1 to the Companys
Registration Statement on Form S-18, filed September 4, 1987
(Registration No. 33-17041-NY)).                                                                       
|
| | 4.2 | Securities Purchase Agreement, dated August 27, 1998, between
HEARx Ltd. and each purchaser set forth on the signature pages
thereto (incorporated herein by reference as Exhibit 4.1 to the
Companys Current Report on Form 8-K, filed August 27, 1998
(Registration No. 001-11655)). 
|
| | 4.3 | Registration Rights Agreement, dated August 27, 1998, between
HEARx Ltd. and each purchaser set forth on the signature pages
thereto (incorporated herein by reference as Exhibit 4.2 to the
Companys Current Report on Form 8-K, filed August 27, 1998
(Registration No. 001-11655)). 
|
| | 4.4 | Form of Placement Agent Warrant (to purchase up to 1,125,000
shares of Common Stock at an exercise price equal to $1.80 per
share) (incorporated herein by reference as Exhibit 4.3 to the
Companys Current Report on Form 8-K, filed August 27, 1998
(Registration No. 001-11655)).   
|
| | 4.5 | Securities Purchase Agreement, dated May 9, 2000, between
HEARx Ltd. and each of the purchasers set forth on the signature
pages thereto (incorporated herein by reference as Exhibit 4.1 to
the Companys Current Report on Form 8-K, filed May 9, 2000
(Registration No. 001-11655)). 
|
| | 4.6 | Registration Rights Agreement, dated May 9, 2000, between
HEARx Ltd. and each of the purchasers set forth on the signatures
pages thereto (incorporated herein by reference as Exhibit 4.2 to
the Companys Current Report on Form 8-K, filed May 9, 2000
(Registration No. 001-11655)).
|
| | 4.7 | Form of Placement Agent Warrant (to purchase up to 203,390
shares of Common Stock at an exercise price equal to $4.46 per
share) (incorporated herein by reference as Exhibit 4.3 to the
Companys Current Report on Form 8-K, filed May 9, 2000
(Registration No. 001-11655)).         
|
| | 4.8 | Exchange and Redemption Agreement, dated as of December 4,
2001, by and between HEARx Ltd. and Advantage Fund II Ltd.
(incorporated herein by reference as Exhibit 10.1 to the Companys
Current Report on Form 8-K, filed December 26, 2001 (Registration
No. 001-11655)).             
|
| | 4.9 | Registration Rights Agreement, dated as of December 13, 2001,
by and between HEARx Ltd. and Advantage Fund II Ltd. (incorporated
herein by reference as Exhibit 10.3 to the Companys Current Report
on Form 8-K, filed December 26, 2001 (Registration No. 001-11655)).                

20



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##### 





|4.10 | Escrow Agreement, dated as of December 13, 2001, by and among
HEARx Ltd., Advantage Fund II Ltd. and American Stock Transfer &
Trust Company, as Escrow Agent (incorporated herein by reference as
Exhibit 10.2 to the Companys Current Report on Form 8-K, filed
December 26, 2001 (Registration No. 001-11655)).                                                                          
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|4.11 | Release, dated as of December 13, 2001, by and between HEARx
Ltd. and Advantage Fund II Ltd. (incorporated herein by reference as
Exhibit 10.4 to the Companys Current Report on Form 8-K, filed
December 26, 2001 (Registration No. 001-11655)).                                                                                                                                           
|    
|4.12 | Amended and Restated Rights Agreement, dated July 11, 2002,
between HEARx Ltd. and the Rights Agent, which includes an
amendment to the Certificate of Designations, Preferences and Rights
of the Companys 1999 Series H Junior Participating Preferred Stock
(incorporated herein by reference as Exhibit 4.9.1 to the Companys
Joint Proxy/Prospectus on Form S-4 (Reg. No. 333-73022)).
|    
|4.13 | Form of Support Agreement among HEARx Ltd., HEARx Canada,
Inc. and HEARx Acquisition ULC (incorporated herein by reference as
Exhibit 99.3 to the Companys Joint Proxy Statement/Prospectus on
Form S-4 (Reg No. 333-73022)).                                                                                                                                                               
|    
|10.1 | Amendment to Credit Agreement, dated as of March 12, 2003,
between HearUSA, Inc. and Siemens Hearing Instruments, Inc.                                                                                                                                                                                                                                                                       
|    
|10.2 | Amendment to Security Agreement, dated as of March 12, 2003,
between HearUSA, Inc. and Siemens Hearing Instruments, Inc.                                                                                                                                                                                                                                                                     
|    
|99.1 | CEO Certification, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                
|    
|99.2 | CFO Certification, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                
|    



|(b) |  | Reports on Form 8-K:                                                                                                                
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | An Item 5 current report on Form 8-K, dated March 19, 2003, was filed
with the Securities and Exchange Commission on March 19, 2003.

21



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##### 



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

HearUSA, Inc..
(Registrant)

|                   |  |                                                                                    
|------------------ |  | -----------------------------------------------------------------------------------
|Date: May 13, 2003 |  | By: /s/ Stephen
J. Hansbrough
    Stephen J. Hansbrough
    Chief Executive Officer
|                  
|Date: May 13, 2003 |  | By: /s/ Gino
Chouinard
    Gino Chouinard
    Chief Financial Officer              

22



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##### 



Sarbanes-Oxley Section 302 Certification

I, Stephen J. Hansbrough, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of HearUSA, Inc.;

2.     Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



| |  | a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | b) evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the Evaluation Date); and                                                                                                  
|
| |  | c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

5.     The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):



| |  | a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                        

6.     The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: May 13, 2003

/s/Stephen J.
Hansbrough
Stephen J. Hansbrough

Chief Executive Officer

23



---



##### 



Sarbanes-Oxley Section 302 Certification

I, Gino Chouinard, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of HearUSA, Inc.;

2.     Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



| |  | a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | b) evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the Evaluation Date); and                                                                                                  
|
| |  | c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

5.     The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):



| |  | a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                        

6.     The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: May 13, 2003

/s/ Gino
Chouinard
Gino Chouinard
Chief Financial Officer

24



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##### 



Exhibit Index



| | 10.1 |  | Amendment to Credit Agreement                  
| | ---- |  | -----------------------------------------------
|
| | 10.2 |  | Amendment to Security Agreement                
|
| | 99.1 |  | Section 906 of Sarbanes Oxley CEO Certification
|
| | 99.2 |  | Section 906 of Sarbanes Oxley CFO Certification

25