HEARUSA INC - 10-Q Quarterly Report

Indicate by check üwhether 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 July 28, 2003, 30,423,636 shares of the Registrant’s Common Stock were outstanding, including 2,518,343 exchangeable shares of HEARx Canada, Inc.


		Page
PART I.	FINANCIAL INFORMATION

	Item 1. Financial Statements:

	Consolidated Balance Sheets
	June 28, 2003 and December 28, 2002	3

	Consolidated Statements of Operations
	Six months ended June 28, 2003 and June 29, 2002	4

	Consolidated Statements of Operations
	Three months ended June 28, 2003 and June 29, 2002	5

	Consolidated Statements of Cash Flows
	Six months ended June 28, 2003 and June 29, 2002	6

	Notes to Consolidated Financial Statements	7-13

	Item 2. Management's Discussion and Analysis of Financial Condition
	and Results of Operations	14-20

	Item 3. Quantitative and Qualitative Disclosures About Market Risk	21

	Item 4: Controls and Procedures	21

PART II.	OTHER INFORMATION

	Item 4. Submission of Matters to a Vote of Security Holders	22

	Item 6. Exhibits and Reports on Form 8-K	22-24

	Signatures	25

	Exhibit Index	26


					June 28,			December 28,
					2003			2002

Current assets:					(unaudited)			(audited)
	Cash and cash equivalents				$	5,147,202		$	2,410,023
	Investment securities					435,000			435,000
	Accounts and notes receivable, less allowance for doubtful accounts of $447,206 and $587,322					6,457,078			5,963,677
	Inventories					1,037,328			945,743
	Prepaid expenses and other					738,394			889,197
	Assets of discontinued operations (Note 7)					1,945,681			1,472,849

				Total current assets		15,760,683			12,116,489
Property and equipment – net						5,930,689			6,910,966
Intangibles, net (Note 4)						43,964,204			44,211,588
Deposits and other						500,620			482,982
Other assets of discontinued operations (Note 7)						1,260,435			1,143,783

					$	67,416,631		$	64,865,808

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
		Accounts payable			$	11,204,218		$	9,675,004
		Accrued expenses				2,851,455			4,665,547
		Accrued salaries and other compensation				1,395,247			1,868,772
		Current maturities of long term debt				3,870,834			4,017,007
		Dividends payable				1,243,080			1,215,167
		Liabilities of discontinued operations (Note 7)				1,420,951			906,364

				Total current liabilities		21,985,785			22,347,861

Long term debt, less current maturities						24,262,055			21,971,499

Long term debt, less current maturities of discontinued operations						95,481			110,890

Commitments and contingencies (Note 6)						—			—
Stockholders’ equity:
	Preferred stock:
			(Aggregate liquidation preference $8,136,080 and $8,108,167) $1 par, 5,000,000 shares authorized
				Series J (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 28,107,452 and 24,457,055 shares issued				2,810,745			2,445,705
			Stock subscription			(412,500	)		(412,500	)
		Additional paid-in capital				116,898,972			117,314,681
		Accumulated deficit				(96,074,053	)		(96,765,446	)
		Accumulated other comprehensive income – currency translation adjustment (Note 1)				330,491			331,763
		Treasury stock, at cost:523,662 & 518,660 common shares				(2,485,141	)		(2,483,441	)

				Total stockholders’ equity		21,073,310			20,435,558

					$	67,416,631		$	64,865,808

HearUSA, Inc.
Consolidated Statements of Operations
Six Months Ended June 28, 2003 and June 29, 2002


			June 28,			June 29,
			2003			2002

			(unaudited)			(unaudited)
Net Revenues			$	36,388,106		$	24,671,048

Operating costs and expenses:
	Cost of products sold			10,456,496			6,690,569
	Center operating expenses			17,134,807			13,543,870
	General and administrative expenses			4,872,128			4,864,854
	Depreciation and amortization			1,634,574			1,040,735

		Total operating costs and expenses		34,098,005			26,140,028

Income (loss) from operations				2,290,101			(1,468,980	)
Non-operating income (expense):
Interest income				11,961			92,752
Interest expense				(1,115,538	)		(623,625	)

Income (loss) before equity in loss of affiliated company				1,186,524			(1,999,853	)
Equity in loss of affiliated company				—			(88,420	)

Income (loss ) from continuing operations				1,186,524			(2,088,273	)
Discontinued operations
Loss from discontinued operations –(including loss on disposal of $105,296)				(197,706	)		—

Net income (loss) before dividends on preferred stock				988,818			(2,088,273	)
Dividends on preferred stock				(297,425	)		(310,705	)

Net income (loss) applicable to common stockholders			$	691,393		$	(2,398,978	)

Net income (loss) per common share — basic			$	0.02		$	(0.16	)

Net income (loss) per common share — diluted			$	0.02		$	(0.16	)

Weighted average number of shares of Common stock outstanding:
	Basic			30,424,872			14,799,001

	Diluted			52,323,137			14,799,001

HearUSA, Inc.
Consolidated Statements of Operations
Three Months Ended June 28, 2003 and June 29, 2002


			June 28,			June 29,
			2003			2002

			(unaudited)			(unaudited)
Net Revenues			$	18,976,378		$	12,661,032

Operating costs and expenses:
	Cost of products sold			5,640,257			3,285,471
	Center operating expenses			8,719,105			6,783,935
	General and administrative expenses			2,426,000			2,478,302
	Depreciation and amortization			725,656			517,137

		Total operating costs and expenses		17,511,018			13,064,845

Income (loss) from operations				1,465,360			(403,813	)
Non-operating income (expense):
Interest income				7,743			69,986
Interest expense				(592,653	)		(342,696	)

Income (loss) before equity in loss of affiliated company				880,450			(676,523	)
Equity in loss of affiliated company				—			(27,015	)

Income (loss ) from continuing operations				880,450			(703,538	)
Discontinued operations
Loss from discontinued operations –(including loss on disposal of $105,296)				(241,184	)		—

Net income (loss) before dividends on preferred stock				639,266			(703,538	)
Dividends on preferred stock				(149,101	)		(142,636	)

Net income (loss) applicable to common stockholders			$	490,165		$	(846,174	)

Net income (loss) per common share — basic			$	0.02		$	(0.05	)

Net income (loss) per common share — diluted			$	0.01		$	(0.05	)

Weighted average number of shares of Common stock outstanding:
	Basic			30,423,639			15,540,743

	Diluted			48,619,906			15,540,743

HearUSA, Inc.
Consolidated Statements of Cash Flows
Six Months Ended June 28, 2003 and June 29, 2002


				June 28, 2003			June 29, 2002

				(unaudited)			(unaudited)
Cash flows from operating activities:
Net income(loss)				$	988,818		$	(2,088,273	)
	Loss from discontinued operations				197,706			—

Net income (loss) from continuing operations					1,186,524			(2,088,273	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
		Depreciation and amortization			1,634,574			1,040,735
		Provision for doubtful accounts			171,291			79,500
		Loss on disposition of equipment			146			44,154
		Equity loss in affiliated company			—			88,420
		Compensation expense from the issuance of capital stock			—			40,250
Changes in assets and liabilities:
(Increase) decrease in:
		Accounts and notes receivable			(614,568	)		1,174,271
		Inventories			(78,734	)		80,353
		Prepaid expenses and other			132,662			195,844
Increase (decrease) in:
		Accounts payable and accrued expenses			1,513,139			15,633
		Accrued salaries and other			(1,716,281	)		(21,344	)

Net cash provided by continuing operations					2,228,753			649,543
Net cash used by discontinued operations					(398,544	)		—

Net cash provided by operating activities					1,830,209			649,543

Cash flow from investing activities:
		Purchase of property and equipment			(119,758	)		(348,772	)
		Capital expenditure from discontinued operations			(8,196	)		—
		Purchase of investment securities			—			(1,750,248	)
		Iissuance of note receivable in affliated company			—			(9,418,838	)
		Purchase of pre-combination investment in Helix			—			(2,000,000	)
		Cost of business combination			—			(859,148	)

Net cash used in investing activities					(127,954	)		(14,377,006	)

Cash flows from financing activities:
		Proceeds from issuance of:
		Long-term debt			3,500,000			13,069,006
		Principal payments of debt of discontinued operations			(29,822	)		—
		Principal payments: Long-term debt			(2,266,537	)		(2,126,099	)
		Purchase of treasury stock			(1,700	)		—
		Redemption of preferred stock, net of costs			(90,847	)		(351,093	)
		Proceeds from issuance of employee stock options			13			—
		Proceeds from issuance of capital stock			40,250			1,500,000
		Dividends on preferred stock			(269,512	)		(379,997	)

Net cash provided by financing activities					881,845			11,711,817

Effects of exchange rate changes on cash					153,079			—

Net increase (decrease) in cash and cash equivalents					2,737,179			(2,015,646	)
Cash and cash equivalents at beginning of period					2,410,023			5,561,608

Cash and cash equivalents at end of period				$	5,147,202		$	3,545,962

Supplemental disclosure of non-cash investing and financing activities:
			Purchase of investment in affiliated company by exchanging notes receivable from affiliated company


Delaware		22-2748248

(State of Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)


1250 Northpoint Parkway, West Palm Beach, Florida		33407

(Address of Principal Executive Offices)	(Zip Code)


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


[ ]		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934


HearUSA, Inc.

(Exact Name of Registrant as Specified in Its Charter)


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



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