UNITED
STATES
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
|
September 25, 2010
|
|
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
001-11655
HearUSA,
Inc.
|
(Exact
Name of Registrant as Specified in Its Charter)
|
|
|
|
Delaware
|
|
22-2748248
|
(State
or 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 mark
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
þ
No
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes
o
No
o
Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See definition
of “large accelerated filer,” and “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange act. (Check one):
Large accelerated
filer
o
Accelerated
filer
o
Non-accelerated
filer
o
Smaller
reporting Company
þ
Indicate
by check mark whether the registrant is a shell company (as defined by Rule
12b-2 of the Exchange Act). Yes
o
No
þ
On
November 5, 2010, 45,447,433 shares of the Registrant’s Common Stock were
outstanding.
INDEX
|
|
|
Page
|
PART
I.
|
|
FINANCIAL
INFORMATION
|
|
|
|
|
|
|
|
|
Item
1.
|
Financial
Statements:
|
|
|
|
|
|
|
|
|
|
Consolidated
Balance Sheets
|
|
|
|
|
September
25, 2010 and December 26, 2009
|
3
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Operations
Nine
months ended September 25, 2010 and September 26, 2009
|
4
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Operations
Three
months ended September 25, 2010 and September 26, 2009
|
5
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Cash Flows
Nine
months ended September 25, 2010 and September 26, 2009
|
6
|
|
|
|
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
7
|
|
|
|
|
|
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
21
|
|
|
|
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
36
|
|
|
|
|
|
|
|
Item 4.
|
Controls
and Procedures
|
37
|
|
|
|
|
|
|
PART II.
|
|
OTHER
INFORMATION
|
|
|
|
|
|
|
|
|
Item
1A.
|
Risk
Factors
|
38
|
|
|
|
|
|
|
|
Item
6.
|
Exhibits
|
39
|
|
|
|
|
|
|
|
|
Signatures
|
40
|
|
Part
I – Financial Information
Item
1. Financial Statements
HearUSA,
Inc.
Consolidated
Balance Sheets
(unaudited)
|
|
September 25,
|
|
|
December 26,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands, except per
share amounts)
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
4,491
|
|
|
$
|
7,037
|
|
Short-term
marketable securities
|
|
|
900
|
|
|
|
4,106
|
|
Accounts
and notes receivable, less allowance for doubtful accounts of $524 and
$616
|
|
|
4,734
|
|
|
|
5,554
|
|
Inventories
|
|
|
1,459
|
|
|
|
1,844
|
|
Prepaid
expenses and other
|
|
|
405
|
|
|
|
464
|
|
Total
current assets
|
|
|
11,989
|
|
|
|
19,005
|
|
Property
and equipment, net
|
|
|
3,344
|
|
|
|
4,021
|
|
Goodwill
|
|
|
51,928
|
|
|
|
51,495
|
|
Intangible
assets, net
|
|
|
12,327
|
|
|
|
12,816
|
|
Deposits
and other
|
|
|
672
|
|
|
|
731
|
|
Restricted
cash and cash equivalents
|
|
|
2,258
|
|
|
|
3,245
|
|
Total
Assets
|
|
$
|
82,518
|
|
|
$
|
91,313
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
10,479
|
|
|
$
|
7,070
|
|
Accrued
expenses
|
|
|
1,906
|
|
|
|
2,253
|
|
Accrued
salaries and other compensation
|
|
|
2,879
|
|
|
|
3,520
|
|
Current
maturities of long-term debt
|
|
|
5,078
|
|
|
|
5,983
|
|
Income
taxes payable
|
|
|
-
|
|
|
|
1,974
|
|
Dividends
payable
|
|
|
35
|
|
|
|
35
|
|
Total
current liabilities
|
|
|
20,377
|
|
|
|
20,835
|
|
Long-term
debt
|
|
|
32,486
|
|
|
|
36,139
|
|
Deferred
income taxes
|
|
|
7,995
|
|
|
|
7,335
|
|
Total
long-term liabilities
|
|
|
40,481
|
|
|
|
43,474
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
|
|
|
|
|
|
Preferred
stock (aggregate liquidation preference $2,330, $1 par, 7,500,000 shares
authorized)
|
|
|
|
|
|
|
|
|
Series
H Junior Participating (none outstanding)
|
|
|
-
|
|
|
|
-
|
|
Series
J (233 shares outstanding)
|
|
|
-
|
|
|
|
-
|
|
Total
preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Common
stock: $.10 par; 75,000,000 shares authorized 45,451,160 and 45,381,750
shares issued
|
|
|
4,545
|
|
|
|
4,538
|
|
Additional
paid-in capital
|
|
|
138,655
|
|
|
|
137,863
|
|
Accumulated
deficit
|
|
|
(121,709
|
)
|
|
|
(114,982
|
)
|
Treasury
stock, at cost: 523,662 common shares
|
|
|
(2,485
|
)
|
|
|
(2,485
|
)
|
Total
HearUSA, Inc. Stockholders’ Equity
|
|
|
19,006
|
|
|
|
24,934
|
|
Noncontrolling
interest
|
|
|
2,654
|
|
|
|
2,070
|
|
Total
Stockholders’ equity
|
|
|
21,660
|
|
|
|
27,004
|
|
Total
Liabilities and Stockholders’ Equity
|
|
$
|
82,518
|
|
|
$
|
91,313
|
|
See
accompanying notes to consolidated financial statements
HearUSA,
Inc
Consolidated
Statements of Operations
Nine
Months Ended September 25, 2010 and September 26, 2009
(unaudited)
|
|
September 25,
|
|
|
September 26,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands, except per
share amounts)
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
|
|
|
|
|
Hearing
aids and other products
|
|
$
|
57,067
|
|
|
$
|
61,172
|
|
Services
|
|
|
4,870
|
|
|
|
6,043
|
|
Total
net revenues
|
|
|
61,937
|
|
|
|
67,215
|
|
|
|
|
|
|
|
|
|
|
Operating
costs and expenses
|
|
|
|
|
|
|
|
|
Hearing
aids and other products
|
|
|
15,057
|
|
|
|
14,998
|
|
Services
|
|
|
1,272
|
|
|
|
1,325
|
|
Total
cost of products sold and services excluding depreciation and
amortization
|
|
|
16,329
|
|
|
|
16,323
|
|
|
|
|
|
|
|
|
|
|
Center
operating expenses
|
|
|
35,658
|
|
|
|
33,510
|
|
General
and administrative expenses
|
|
|
11,215
|
|
|
|
11,387
|
|
Depreciation
and amortization
|
|
|
1,653
|
|
|
|
1,731
|
|
Total
operating costs and expenses
|
|
|
64,855
|
|
|
|
62,951
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
|
(2,918
|
)
|
|
|
4,264
|
|
Non-operating
income (expenses)
|
|
|
|
|
|
|
|
|
Gain
on foreign exchange
|
|
|
18
|
|
|
|
499
|
|
Interest
income
|
|
|
13
|
|
|
|
6
|
|
Interest
expense
|
|
|
(2,681
|
)
|
|
|
(3,728
|
)
|
Income
(loss) from continuing operations before income tax
expense
|
|
|
(5,568
|
)
|
|
|
1,041
|
|
Income
tax expense
|
|
|
(471
|
)
|
|
|
(630
|
)
|
Income
(loss) from continuing operations
|
|
|
(6,039
|
)
|
|
|
411
|
|
Discontinued
operations attributable to HearUSA, Inc.
|
|
|
|
|
|
|
|
|
Income
from discontinued operations, net of income tax benefit of $261 in
2009
|
|
|
-
|
|
|
|
1,144
|
|
Gain
on sale of discontinued operations
|
|
|
-
|
|
|
|
2,158
|
|
Income
tax expense on sale of discontinued operations
|
|
|
-
|
|
|
|
(1,632
|
)
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations
|
|
|
-
|
|
|
|
1,670
|
|
Net
income (loss)
|
|
|
(6,039
|
)
|
|
|
2,081
|
|
|
|
|
|
|
|
|
|
|
Net
income attributable to noncontrolling interest
|
|
|
(584
|
)
|
|
|
(429
|
)
|
Net
income (loss) attributable to HearUSA, Inc.
|
|
|
(6,623
|
)
|
|
|
1,652
|
|
Dividends
on preferred stock
|
|
|
(104
|
)
|
|
|
(102
|
)
|
|
|
|
|
|
|
|
|
|
Net
Income (loss) attributable to HearUSA, Inc. common
stockholders
|
|
$
|
(6,727
|
)
|
|
$
|
1,550
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations attributable to HearUSA, Inc. common
stockholders per common share – basic and diluted
|
|
$
|
(0.15
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
Net
income (loss) attributable to HearUSA, Inc. common stockholders per common
share – basic and diluted
|
|
$
|
(0.15
|
)
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares of common stock outstanding –
basic
|
|
|
44,904
|
|
|
|
44,831
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares of common stock outstanding
–diluted
|
|
|
44,904
|
|
|
|
45,416
|
|
|
|
|
|
|
|
|
|
|
Amounts
attributable to HearUSA, Inc. common stockholders:
|
|
|
|
|
|
|
|
|
Loss
from continuing operations, net of tax
|
|
$
|
(6,623
|
)
|
|
$
|
(18
|
)
|
Discontinued
operations, net of tax
|
|
|
-
|
|
|
|
1,670
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) attributable to HearUSA, Inc.
|
|
$
|
(6,623
|
)
|
|
$
|
1,652
|
|
See
accompanying notes to consolidated financial statements
HearUSA,
Inc
Consolidated
Statements of Operations
Three
Months Ended September 25, 2010 and September 26, 2009
(unaudited)
|
|
September 25,
|
|
|
September 26,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands, except per
share amounts)
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
|
|
|
|
|
Hearing
aids and other products
|
|
$
|
19,276
|
|
|
$
|
19,616
|
|
Services
|
|
|
1,657
|
|
|
|
2,212
|
|
Total
net revenues
|
|
|
20,933
|
|
|
|
21,828
|
|
|
|
|
|
|
|
|
|
|
Operating
costs and expenses
|
|
|
|
|
|
|
|
|
Hearing
aids and other products
|
|
|
5,188
|
|
|
|
4,543
|
|
Services
|
|
|
436
|
|
|
|
441
|
|
Total
cost of products sold and services excluding depreciation and
amortization
|
|
|
5,624
|
|
|
|
4,984
|
|
|
|
|
|
|
|
|
|
|
Center
operating expenses
|
|
|
12,047
|
|
|
|
10,811
|
|
General
and administrative expenses
|
|
|
3,429
|
|
|
|
3,694
|
|
Depreciation
and amortization
|
|
|
519
|
|
|
|
593
|
|
Total
operating costs and expenses
|
|
|
21,619
|
|
|
|
20,082
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
|
(686
|
)
|
|
|
1,746
|
|
Non-operating
income (expenses)
|
|
|
|
|
|
|
|
|
Gain
on foreign exchange
|
|
|
3
|
|
|
|
99
|
|
Interest
income
|
|
|
6
|
|
|
|
4
|
|
Interest
expense
|
|
|
(891
|
)
|
|
|
(1,137
|
)
|
Income
(loss) from continuing operations before income tax
expense
|
|
|
(1,568
|
)
|
|
|
712
|
|
Income
tax expense
|
|
|
(31
|
)
|
|
|
(210
|
)
|
Income
(loss) from continuing operations
|
|
|
(1,599
|
)
|
|
|
502
|
|
Discontinued
operations attributable to HearUSA, Inc.
|
|
|
|
|
|
|
|
|
Income
from discontinued operations
|
|
|
-
|
|
|
|
(15
|
)
|
Gain
on sale of discontinued operations
|
|
|
-
|
|
|
|
529
|
|
Income
tax expense on sale of discontinued operations
|
|
|
-
|
|
|
|
(87
|
)
|
Income
from discontinued operations
|
|
|
-
|
|
|
|
427
|
|
Net
income (loss)
|
|
|
(1,599
|
)
|
|
|
929
|
|
|
|
|
|
|
|
|
|
|
Net
income attributable to noncontrolling interest
|
|
|
(272
|
)
|
|
|
(182
|
)
|
Net
income (loss) attributable to HearUSA, Inc.
|
|
|
(1,871
|
)
|
|
|
747
|
|
Dividends
on preferred stock
|
|
|
(34
|
)
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
Net
Income (loss) attributable to HearUSA, Inc. common
stockholders
|
|
$
|
(1,905
|
)
|
|
$
|
713
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations attributable to HearUSA, Inc. common
stockholders per common share – basic and diluted
|
|
$
|
(0.04
|
)
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
Net
Income (loss) attributable to HearUSA, Inc. common stockholders per common
share – basic and diluted
|
|
$
|
(0.04
|
)
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares of common stock outstanding –
basic
|
|
|
44,925
|
|
|
|
44,838
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares of common stock outstanding –
diluted
|
|
|
44,925
|
|
|
|
45,810
|
|
|
|
|
|
|
|
|
|
|
Amounts
attributable to HearUSA, Inc. common stockholders:
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations, net of tax
|
|
$
|
(1,871
|
)
|
|
$
|
320
|
|
Discontinued
operations, net of tax
|
|
|
-
|
|
|
|
427
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) attributable to HearUSA, Inc.
|
|
$
|
(1,871
|
)
|
|
$
|
747
|
|
See
accompanying notes to consolidated financial statements
HearUSA,
Inc.
Consolidated
Statements of Cash Flows
Nine
Months Ended September 25, 2010 and September 26, 2009
(unaudited)
|
|
September 25,
|
|
|
September 26,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(6,039
|
)
|
|
$
|
2,081
|
|
Adjustments
to reconcile net income (loss) to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
1,653
|
|
|
|
1,865
|
|
Stock-based
compensation
|
|
|
785
|
|
|
|
623
|
|
Gain
on foreign exchange
|
|
|
(18
|
)
|
|
|
(499
|
)
|
Gain
on sale of discontinued operations, net of tax expense
|
|
|
-
|
|
|
|
(526
|
)
|
Provision
for doubtful accounts
|
|
|
362
|
|
|
|
354
|
|
Deferred
income tax expense
|
|
|
471
|
|
|
|
630
|
|
Interest
on discounted notes payable
|
|
|
143
|
|
|
|
252
|
|
Non-cash
(gain) loss on warrant liability
|
|
|
(174
|
)
|
|
|
171
|
|
Principal
payments on long-term debt made through rebate credits
|
|
|
(2,293
|
)
|
|
|
(2,485
|
)
|
Other
|
|
|
3
|
|
|
|
21
|
|
(Increase)
decrease in:
|
|
|
|
|
|
|
|
|
Accounts
and notes receivable
|
|
|
597
|
|
|
|
(354
|
)
|
Inventories
|
|
|
325
|
|
|
|
(352
|
)
|
Prepaid
expenses and other
|
|
|
136
|
|
|
|
(130
|
)
|
Increase
(decrease) in:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
|
1,303
|
|
|
|
4,172
|
|
Accrued
salaries and other compensation
|
|
|
(640
|
)
|
|
|
(538
|
)
|
Net
cash provided by (used in) operating activities
|
|
|
(3,386
|
)
|
|
|
5,285
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(333
|
)
|
|
|
(681
|
)
|
Purchase
of intangible assets
|
|
|
(47
|
)
|
|
|
(208
|
)
|
Net
proceeds from sale of Canada assets
|
|
|
-
|
|
|
|
22,747
|
|
Net
proceeds from the sale (purchases) of short-term marketable
securities
|
|
|
3,206
|
|
|
|
(6,402
|
)
|
Letter
of credit – restricted cash
|
|
|
1,000
|
|
|
|
(3,000
|
)
|
Business
acquisitions
|
|
|
(263
|
)
|
|
|
(1,313
|
)
|
Net
cash provided by investing activities
|
|
|
3,563
|
|
|
|
11,143
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of long-term debt
|
|
|
200
|
|
|
|
-
|
|
Principal
payments on long-term debt
|
|
|
(2,846
|
)
|
|
|
(3,520
|
)
|
Principal
payments on Siemens debt
|
|
|
-
|
|
|
|
(8,097
|
)
|
Proceeds
from the exercise of stock options
|
|
|
-
|
|
|
|
13
|
|
Dividends
paid on preferred stock
|
|
|
(104
|
)
|
|
|
(102
|
)
|
Net
cash used in financing activities
|
|
|
(2,750
|
)
|
|
|
(11,706
|
)
|
|
|
|
|
|
|
|
|
|
Effects
of exchange rate changes on cash
|
|
|
27
|
|
|
|
161
|
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(2,546
|
)
|
|
|
4,883
|
|
Cash
and cash equivalents at the beginning of period
|
|
|
7,037
|
|
|
|
3,553
|
|
Cash
and cash equivalents at the end of period
|
|
$
|
4,491
|
|
|
$
|
8,436
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flows information:
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
249
|
|
|
$
|
549
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for income taxes
|
|
$
|
1,923
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental
schedule of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Principal
payments on long-term debt made through rebate credits
|
|
$
|
(2,293
|
)
|
|
$
|
(2,485
|
)
|
|
|
|
|
|
|
|
|
|
Issuance
of notes payable in exchange for business acquisitions
|
|
$
|
216
|
|
|
$
|
1,217
|
|
|
|
|
|
|
|
|
|
|
Issuance
of capital lease in exchange for property and equipment
|
|
$
|
23
|
|
|
$
|
357
|
|
See
accompanying notes to consolidated financial statements
HearUSA,
Inc
Notes to
Consolidated Financial Statements
(unaudited)
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 8 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 nine month period ended
September 25, 2010 are not necessarily indicative of the results that may be
expected for the year ending December 25, 2010. 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 26, 2009.
1.
|
Description
of the Company and Summary of Significant Accounting
Policies
|
The
Company
HearUSA
Inc. (“HearUSA” or the “Company”), a Delaware corporation, was established in
1986. As of September 25, 2010, the Company has 176 company-owned hearing care
centers in eleven states. The Company also sponsors a network of approximately
2,000 credentialed audiology providers that participate in selected hearing
benefit programs contracted by the Company with employer groups, health insurers
and benefit sponsors. The centers and the network providers provide
audiological products and services for the hearing
impaired. The Company is also the administrator of the American
Association of Retired Persons (“AARP”) Hearing Care program, the only hearing
aid program endorsed by AARP, designed to help members of AARP who have hearing
loss. Under this program, the Company has agreed to provide to the members of
AARP in the fifty states, the District of Columbia, and the five U.S.
Territories, discounts on hearing aids and related services through the
Company’s company-owned centers and independent network of participating hearing
care providers. Hearing aids sold under the program include a three year limited
warranty and a three year supply of batteries included in the price of the
hearing aid.
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. Certain
reclassifications have been made to prior period financial statement amounts to
conform to the current presentation.
The
Company’s 50%-owned joint venture, HEARx West, LLC, generated net income during
the three and nine months ended September 25, 2010, of approximately $544,000
and $1.2 million, respectively, and $417,000 and $878,000 during the three and
nine months ended September 26, 2009, respectively. Because the Company is the
general manager of HEARx West and its day to day operations, the Company has
significant control over the joint venture. Therefore, the accounts
of HEARx West, LLC and its wholly owned subsidiary, HEARx West, Inc., are
consolidated in these financial statements.
The
Company’s HEARx West joint venture partners are the Permanente Federation LLC
and Kaiser Foundation Health Plan, Inc. In accordance with Financial Accounting
Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810-10,
“Consolidations” (see Note 5 - Noncontroliing Interest), the Company
records 50% of the joint venture’s net income (loss) as income (loss)
attributable to noncontrolling interests in the Company’s consolidated
statements of operations with a corresponding noncontrolling interest in
stockholders’ equity on its consolidated balance sheets. The
Company’s accompanying consolidated financial statements reflect this
guidance.
The
Company sold the assets of Helix Hearing Care of America Corp. and the stock of
3371727 Canada Inc., both indirect wholly owned subsidiaries of the Company, on
April 27, 2009 as discussed in Note 2.
HearUSA,
Inc
Notes to
Consolidated Financial Statements
(unaudited)
Net income (loss)
attributable to controlling interest per common share
Basic
earnings per share (“EPS”) is computed by dividing net income or loss
attributable to HearUSA, Inc. common stockholders by the weighted average of
common shares outstanding for the period. Basic EPS from continuing operations
is computed by dividing income (loss) from continuing operations attributable to
HearUSA, Inc.’s common stockholders, by the weighted average of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock (warrants to
purchase common stock, restricted stock units and options) were exercised or
converted into common stock. Potential common shares in the diluted EPS
computation are excluded where their effect would be antidilutive.
Common
stock equivalents for outstanding options and warrants to purchase common stock,
of approximately 869,000 and 1.3 million, were excluded from the computation of
earnings per share – diluted for the three and nine months ended September 25,
2010, respectively, because the loss from continuing operations attributable to
HearUSA, Inc. would make them anti-dilutive.
For
purposes of computing net income/loss attributable to HearUSA, Inc. per common
stockholder – basic and diluted, for both the three and nine months ended
September 26, 2009, the weighted average number of shares of common stock
outstanding includes the effect of the 493,043 exchangeable shares of HEARx
Canada, Inc., as if they were outstanding common stock of the
Company. These exchangeable shares were exchanged for common stock of
the Company in December 2009.
Comprehensive income
(loss)
Comprehensive
income (loss) 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 (loss) for the three and nine months ended September
26, 2009 represents foreign currency translation adjustments.
Components
of comprehensive income (loss) are as follows:
|
|
Nine months Ended
|
|
|
Three Months Ended
|
|
Dollars in thousands
|
|
September 25,
2010
|
|
|
September 26,
2009
|
|
|
September 25,
2010
|
|
|
September 26,
2009
|
|
Net income
(loss) for the period
|
|
$
|
(6,039
|
)
|
|
$
|
2,081
|
|
|
$
|
(1,599
|
)
|
|
$
|
929
|
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
-
|
|
|
|
89
|
|
|
|
-
|
|
|
|
-
|
|
Comprehensive
income (loss) for the period
|
|
$
|
(6,039
|
)
|
|
$
|
2,170
|
|
|
$
|
(1,599
|
)
|
|
$
|
929
|
|
Comprehensive
income attributable to noncontrolling interest
|
|
|
(584
|
)
|
|
|
(429
|
)
|
|
|
(272
|
)
|
|
|
(182
|
)
|
Comprehensive
income (loss) attributable to HearUSA, Inc.
|
|
$
|
(6,623
|
)
|
|
$
|
1,741
|
|
|
$
|
(1,871
|
)
|
|
$
|
747
|
|
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in
the United States (“GAAP”)
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.
Revenue is reported at estimated net realizable
amounts from patients, third-party payors and others for services rendered and
include an estimate of uncollectible amounts. Third party
payors can impose a limit on the time a claim can be billed by the Company and
can audit claims they have paid which may result in a
repayment. Estimates of uncollectible amounts are considered in the
recognition of revenue in the period the related services are rendered, and such
amounts are later adjusted if adjustments become known and
estimable.
HearUSA,
Inc
Notes to
Consolidated Financial Statements
(unaudited)
2.
Discontinued Operations
On
April 27, 2009, the Company sold the assets of Helix Hearing Care of
America Corp. and the stock of 3371727 Canada Inc. (“Canada”), both indirect
wholly owned subsidiaries of the Company, to an unrelated company, for cash
consideration of approximately $23.1 million, which resulted in a gain on sale
of approximately $931,000, net of applicable tax, for the year ended December
26, 2009. The Company incurred approximately $524,000 of legal and financial
advisory fees in connection with the sale, which are included in the net gain on
sale. The Company repaid approximately $8.1 million of Siemens debt
from the proceeds of this transaction during 2009, as required under the
agreement with Siemens.
In
connection with the sale, we agreed to provide certain transitional services to
the purchaser for eighteen months pursuant to a support agreement. HearUSA
agreed to provide training, installation and support services for
eighteen months in exchange for monthly payments totaling approximately
$1.2 million and transition support services for up to nine months for
quarterly payments totaling approximately $331,000. Pursuant to a separate
agreement between HearUSA and a third party, HearUSA sold the right to the
approximately $1.2 million to be received over eighteen months under
the support agreement in exchange for a lump-sum payment of approximately
$1.1 million at the closing of the asset sale. The fees earned
from these services are accounted for as contract service revenues, as the
services are provided. We believe the majority of these services have
already been provided. Approximately $191,000 and $700,000 was
recorded as contract service revenue in the three and nine months ended
September 25, 2010, respectively.
As a
result of the sale, the operations of the Canadian division have been
discontinued and, accordingly, these operating results are segregated and
reported as discontinued operations in the accompanying consolidated statements
of operations.
The
Canadian division’s results of operations for the three and nine months ended
September 26, 2009 were as follows:
|
|
For the nine
months ended
|
|
|
For the three months
ended
|
|
|
|
September 26,
2009
|
|
|
September 26, 2009
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
4,533
|
|
|
$
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
Cost
and expenses
|
|
|
3,650
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before provision of income taxes
|
|
|
883
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
Income
tax expense (benefit)
|
|
|
(261
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations
|
|
|
1,144
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
Gain
on sale of discontinued operations
|
|
|
526
|
|
|
|
442
|
|
Income
from discontinued operations
|
|
$
|
1,670
|
|
|
$
|
427
|
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations - basic
|
|
$
|
0.03
|
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations - diluted
|
|
$
|
0.03
|
|
|
$
|
(0.00
|
)
|
The
Company received approximately $529,000 in escrow funds in July 2009 and
$299,000 in October of 2009.
HearUSA,
Inc
Notes to
Consolidated Financial Statements
(unaudited)
3. Business
Acquisitions
During
the first nine months of 2010, the Company acquired the assets of one hearing
care center in Michigan in one transaction. Consideration paid was
cash of approximately $263,000 and notes payable with an estimated fair value of
approximately $216,000. In connection with the acquisition, the
Company used approximately $200,000 of its acquisition line of credit with
Siemens (see Note 4 – Long-term Debt). The Company has recorded its
preliminary purchase price allocation using the fair values of the assets
acquired based on management’s best estimates. Accordingly, the
following estimates may change as further information becomes
available. The acquisition resulted in additions to goodwill of
approximately $401,000, fixed assets of approximately $7,000 and customer lists
and non-compete agreements of approximately $71,000. This acquisition
is not considered material to our results of operations, either individually or
in the aggregate, and therefore, no pro forma information is
presented.
The
operating results of the acquired business are included in our consolidated
statements of operations from the effective date of the
acquisition.
The
allocated value of the customer lists, non-compete agreements and contracts from
acquired businesses are recorded as intangible assets on the consolidated
balance sheet.
Goodwill
of $401,000 recorded for tax purposes is deductible over a 15 year
period.
4.
Long-term Debt
Long-term
debt consists of the following:
|
|
September 25,
|
|
|
December 26,
|
|
Dollars in thousands
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Notes
payable to Siemens
|
|
|
|
|
|
|
Tranche
B
|
|
$
|
4,196
|
|
|
$
|
4,387
|
|
Tranche
C
|
|
|
28,968
|
|
|
|
30,870
|
|
Total
notes payable to Siemens
|
|
|
33,164
|
|
|
|
35,257
|
|
Notes
payable from business acquisitions and other
|
|
|
4,400
|
|
|
|
6,865
|
|
|
|
|
37,564
|
|
|
|
42,122
|
|
Less
current maturities
|
|
|
5,078
|
|
|
|
5,983
|
|
|
|
$
|
32,486
|
|
|
$
|
36,139
|
|
The
approximate aggregate maturities of principal on long-term debt obligations are
as follows (dollars in thousands):
For the
twelve months ended September:
|
|
|
|
2011
|
|
$
|
5,218
|
|
2012
|
|
|
3,781
|
|
2013
|
|
|
2,665
|
|
2014
|
|
|
2,442
|
|
2015
|
|
|
23,641
|
|
Notes payable to
Siemens
The
Company has entered into credit, supply, investor rights and security agreements
with Siemens Hearing Instruments, Inc. (“Siemens”). The term of the
current agreements extends to February 2015.
HearUSA,
Inc
Notes to
Consolidated Financial Statements
(unaudited)
Pursuant
to these agreements, Siemens has extended to the Company a $50 million
credit facility and the Company has agreed to purchase at least 90% of its
hearing aid purchases from Siemens and its affiliates. If the 90% minimum
purchase requirement is met, the Company earns rebates which are then used to
liquidate principal and interest payments due under the credit
agreement.
Credit
Agreement
The
credit agreement includes a revolving credit facility of $50 million that
bears interest at 9.5%, matures in February 2015 and is secured by substantially
all of the Company’s assets. Amounts available to be borrowed under the credit
facility are to be used solely for acquisitions unless otherwise approved by
Siemens. Borrowings under the credit facility are accessed through
Tranche B and Tranche C. Borrowing for acquisitions under Tranche B
is generally based upon a formula equal to 1/3 of 70% of the acquisition
target’s trailing 12 months revenues, and any amount greater than that may
be borrowed under Tranche C with Siemens’ approval. Principal borrowed under
Tranche B was repaid quarterly at a rate of $65 per Siemens unit purchased by
the acquired businesses through September 2009. In October 2009, the
parties agreed to reduce the rebate to a rate of $50 per Siemens’ unit purchased
by the acquired businesses in exchange for more favorable pricing. Principal
borrowed under Tranche C is repaid at $500,000 per quarter. The required
quarterly principal and interest payments on Tranches B and C are forgiven by
Siemens through rebate credits of similar amounts as long as 90% of hearing aid
units purchased by the Company are from Siemens. Amounts not forgiven
through rebate credits are payable in cash each quarter. The Company
has met the minimum purchase requirements of the arrangement since inception of
the arrangement with Siemens.
The
credit agreement requires that the Company reduce the principal balance by
making annual payments in an amount equal to 20% of Excess Cash Flow (as defined
in the credit agreement), and by paying Siemens 50% of the proceeds of any net
asset sales (as defined) and 25% of proceeds from any equity offerings the
Company may complete. The Company did not have any Excess Cash Flow (as defined)
in the first nine months of 2010 or fiscal 2009. In 2009 the Company
paid Siemens approximately $8.1 million of the proceeds received from the sale
of the Company’s Canadian operations in 2009.
The
credit facility also 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, merger or sale of assets, the modification of material agreements,
changes in capital structure and making certain payments. If the
Company cannot maintain compliance with the covenants, Siemens may terminate
future funding under the credit agreement and declare all then outstanding
amounts under the agreement immediately due and payable. At September
25, 2010 the Company was in compliance with the Siemens loan
covenants.
Supply
Agreement
The
supply agreement extends to February 2015 and requires the Company to purchase
at least 90% of its hearing aid purchases from Siemens and its
affiliates. The 90% requirement is computed on a cumulative
four consecutive quarters. The Company has met the minimum purchase requirements
of the supply agreement since inception of the arrangement with
Siemens. Approximately $45.6 million has been rebated since the
Company entered into this arrangement in December 2001.
Additional
quarterly volume rebates of $156,250, $312,500 or $468,750 can be earned by
meeting certain quarterly volume tests. These rebates reduce the principal due
on the credit facility. Additional volume rebates of $468,750 were recorded in
each of the first nine months of 2010 and 2009.
All
rebates earned are accounted for as a reduction of cost of products
sold.
HearUSA,
Inc
Notes to
Consolidated Financial Statements
(unaudited)
The
following table summarizes the rebate structure:
|
|
Calculation of Pro forma Rebates to HearUSA when at least 90% of
Units Purchased are from Siemens (1)
|
|
|
|
Quarterly Siemens Unit Sales Compared to Prior Years' Comparable Quarters
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90% but
< 95%
|
|
|
95% to
100%
|
|
|
>
100% < 125%
|
|
|
125%
and >
|
|
Acquisition
rebate (2)
|
|
$50/
unit
|
|
|
$50/
unit
|
|
|
$50/
unit
|
|
|
$50/
unit
|
|
|
|
Plus
|
|
|
Plus
|
|
|
Plus
|
|
|
Plus
|
|
Notes
payable rebate
|
|
$
|
500,000
|
|
|
$
|
500,000
|
|
|
$
|
500,000
|
|
|
$
|
500,000
|
|
Additional
volume rebate
|
|
|
-
|
|
|
|
156,250
|
|
|
|
312,500
|
|
|
|
468,750
|
|
Interest
forgiveness rebate (3)
|
|
|
1,187,500
|
|
|
|
1,187,500
|
|
|
|
1,187,500
|
|
|
|
1,187,500
|
|
|
|
$
|
1,687,500
|
|
|
$
|
1,843,750
|
|
|
$
|
2,000,000
|
|
|
$
|
2,156,250
|
|
(1)
Calculated using trailing twelve month units purchased by the
Company
(2)
Siemens units purchased from acquired businesses ($65 per unit through September
2009 and $50 per unit thereafter)
(3)
Assuming the $50 million line of credit is fully utilized
The
following table shows the rebates received from Siemens pursuant to the supply
agreement during each of the following periods:
|
|
Nine Months Ended
|
|
|
Three Months Ended
|
|
Dollars in thousands
|
|
September 25,
2010
|
|
|
September 26,
2009
|
|
|
September 25,
2010
|
|
|
September 26,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portion
applied against quarterly principal payments
|
|
$
|
2,293
|
|
|
$
|
2,485
|
|
|
$
|
758
|
|
|
$
|
825
|
|
Portion
applied against quarterly interest payments
|
|
|
2,447
|
|
|
|
2,954
|
|
|
|
807
|
|
|
|
861
|
|
|
|
$
|
4,740
|
|
|
$
|
5,439
|
|
|
$
|
1,565
|
|
|
$
|
1,686
|
|
The
supply agreement may be terminated by either party upon a material breach of the
agreement by the other party. In addition, HearUSA may terminate the
supply agreement in the event Siemens acquires a business which is directly
competitive to the business of the Company. Termination of the supply
agreement or a material breach of the supply agreement by the Company may be
deemed to be a breach of the credit agreement and Siemens would have the right
to declare all amounts outstanding under the credit facility immediately due and
payable. Termination of the supply agreement could have a material
adverse effect on the Company’s financial condition and continued
operations.
Investor Rights
Agreement
Pursuant
to the investor rights agreement, the Company granted Siemens:
|
·
|
Resale
registration rights covering the 6.4 million shares of common stock
acquired by Siemens on December 23, 2008. The Company completed the
registration of these shares for resale in the second quarter of
2009.
|
|
·
|
Right
of first refusal in the event the Company chooses to issue equity or if
there is a proposed Company change of control transaction involving a
person in the hearing aid
industry.
|
HearUSA,
Inc
Notes to
Consolidated Financial Statements
(unaudited)
|
·
|
Rights
to have a representative of Siemens attend meetings of the Board of
Directors of the Company as a nonvoting
observer.
|
A willful
breach of the Company’s resale registration obligations under the investor
rights agreement may be deemed to be a breach of the credit agreement and
Siemens would have the right to declare all amounts outstanding under the credit
facility immediately due and payable.
Notes payable from business
acquisitions and other
Notes
payable from business acquisitions and other are primarily notes payable related
to acquisitions of hearing care centers and total approximately
$3.7 million and $5.9 million at September 25, 2010 and December 26, 2009,
respectively. They have a face value of $3.9 million and $6.2 million
at September 25, 2010 and December 26, 2009, respectively, and are payable in
monthly or quarterly installments of principal and interest varying from $3,000
to $71,000 over periods varying from two to five years, bearing interest at
rates varying from 5% to 7%. The notes have been discounted using market rates
ranging from 9.5% to 10%. The discounts are being accreted over the term of the
notes on an effective interest method. Discount accretion of
approximately $143,000 and $252,000 has been included in interest expense in the
nine months ended September 25, 2010 and September 26, 2009.
Other
notes payable relate mostly to capital leases totaling approximately $708,000
and $954,000 at September 25, 2010 and December 26, 2009, respectively, payable
in monthly or quarterly installments varying from $400 to $10,000 over periods
varying from one to five years and bearing interest at rates varying from
4.6% to 16.7%.
5.
Noncontrolling Interest
The
Company accounts and reports for noncontrolling interests in partially owned
consolidated subsidiaries and the loss of control of subsidiaries under FASB ASC
810-10, “Consolidations.” The guidance requires that: (1) a noncontrolling
interest, previously referred to as a minority interest, is to be reported as
part of equity in the consolidated financial statements; (2) losses are to be
allocated to a noncontrolling interest even when such allocation might result in
a deficit balance, thereby reducing the losses attributed to the controlling
interest; (3) changes in ownership interest are to be treated as equity
transactions if control is maintained; (4) changes in ownership interest
resulting in a gain or loss are to be recognized in earnings if control is
gained or lost; and (5) in a business combination the noncontrolling interest’s
share of net assets acquired is to be recorded at fair value, plus its share of
goodwill.
A
reconciliation of noncontrolling interest of our subsidiary HEARx West, LLC for
the nine months ended September 25, 2010 is as follows:
|
|
Amount
(thousands)
|
|
Balance
at December 26, 2009
|
|
$
|
2,070
|
|
Joint
venture earnings
|
|
|
584
|
|
Dividends
to joint venture partners
|
|
|
-
|
|
Balance
at September 25, 2010
|
|
$
|
2,654
|
|
6. Fair
Value
As of
September 25, 2010 and December 26, 2009, the fair value of the Company’s
long-term debt is estimated at $37.6 million and $43.3 million, respectively,
based on discounted cash flows and the application of the fair value interest
rates applied to the expected cash flows, which is consistent with its carrying
value. The Company has determined that the long-term debt is defined as Level 2
in the fair value hierarchy. Fair value estimates are made at a specific point
in time, based on relevant market information about the financial
instrument.
HearUSA,
Inc
Notes to
Consolidated Financial Statements
(unaudited)
The book
values of cash equivalents, accounts receivable and accounts payable approximate
their respective fair values due to the short-term nature of these instruments.
These are Level 1 in the fair value hierarchy.
The
inputs used in measuring fair value into the fair value hierarchy are as
follows:
|
Level
1
|
Quoted
prices (unadjusted) in active markets for identical assets or
liabilities;
|
|
Level
2
|
Inputs
other than quoted prices included in Level 1 that are either directly or
indirectly observable;
|
|
Level
3
|
Unobservable
inputs in which little or no market activity exists, therefore requiring
an entity to develop its own assumptions about the assumptions that market
participants would use in pricing.
|
Assets or
liabilities that have recurring fair value measurements are shown below as of
September 25, 2010 (in thousands):
Description
|
|
Total as of
September 25,
2010
|
|
|
Level 1
|
|
|
Level 2
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
marketable securities
|
|
$
|
900
|
|
|
$
|
900
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant
liability included in accounts payable
|
|
$
|
48
|
|
|
$
|
-
|
|
|
$
|
48
|
|
The
Company’s short-term marketable securities primarily consist of money market
mutual funds invested in U.S. treasury securities generally maturing in three
months or less. These securities are classified as available for sale. There was
no unrealized gain or loss as of or for the quarter ended September 25,
2010.
There are
no assets or liabilities measured at fair value on a non-recurring basis during
the first nine months of 2010, except for the assets acquired in the business
acquisition described in Note 3.
The fair
value of financial instruments represents the amount at which the instrument
could be exchanged in a current transaction between willing parties, other than
in a forced sale or liquidation. Fair value estimates are made at a specific
point in time, based on relevant market information about the financial
instrument. These estimates are subjective in nature and involve uncertainties
and matters of significant judgment, and therefore cannot be determined with
precision. The assumptions used have a significant effect on the estimated
amounts reported.
Effective
December 28, 2008 we adopted guidance related to determining whether an
instrument or embedded feature is indexed to an entity’s own stock. This
guidance applies to any freestanding financial instruments or embedded features
that have the characteristics of a derivative and to any freestanding financial
instruments that are potentially settled in an entity’s own common stock. As a
result of adopting this accounting guidance, outstanding common stock purchase
warrants to purchase 200,000 common shares that were previously treated as
equity pursuant to the derivative treatment exemption, were no longer afforded
equity treatment. These warrants have an exercise price of $0.60 per share and
expire on October 1, 2010. As such, effective December 28, 2008 we reclassified
the fair value of these common stock purchase warrants, which have exercise
price reset features, from equity to liability status as if these warrants were
treated as a derivative liability since their date of issue in December 2003. On
December 28, 2008, we reclassified from additional paid-in capital, as a
cumulative effect adjustment, $56,000 to beginning accumulated deficit and
$52,000 to a warrant liability to recognize the fair value of these warrants on
such date. The fair value of these common stock purchase warrants decreased from
$222,000 as of December 26, 2009 to $48,000 as of September 25, 2010. We
recognized a gain of $174,000 for the change in the fair value of these warrants
for the nine months ended September 25, 2010. These warrants
subsequently expired on October 1, 2010.
HearUSA,
Inc
Notes to
Consolidated Financial Statements
(unaudited)
These
common stock purchase warrants were initially issued in connection with our
December 2003 issuance of convertible debt, which was subsequently paid. The
common stock purchase warrants were not issued with the intent of effectively
hedging any future cash flow, fair value of any asset, liability or any net
investment in a foreign operation. The warrants do not qualify for hedge
accounting, and as such, all changes in the fair value of these warrants are
recognized currently in earnings until such time as the warrants are exercised
or expire.
These
common stock purchase warrants do not trade in an active securities market, and
as such, we estimate the fair value of these warrants using the Black-Scholes
option pricing model using the following assumptions:
|
|
September 25,
|
|
|
|
2010
|
|
Risk
free interest rate
|
|
|
0.09
|
%
|
Expected
life in years
|
|
|
0.02
|
|
Expected
volatility
|
|
|
86
|
%
|
Expected
volatility is based primarily on historical volatility. Historical volatility
was computed using daily pricing observations for recent periods that correspond
to expected term of these warrants. We believe this method produces an estimate
that is representative of our expectations of future volatility over the
expected term of these warrants. We currently have no reason to believe future
volatility over the expected remaining life of these warrants is likely to
differ materially from historical volatility. The expected life is based on the
remaining term of the warrants. The risk-free interest rate is based on ninety
days U.S. Treasury note rates.
7. Stock-based
Compensation
Under the
terms of the Company’s equity compensation plans, employees and non-employee
directors may be granted options to purchase the Company’s common stock at a
price equal to the closing price of the Company’s common stock on the date the
option is granted as well as restricted stock and restricted stock units. We
recognize stock-based compensation expense based on the estimated grant date
fair value using a Black-Scholes valuation model. Stock-based compensation
expense is included in general and administrative expenses and totaled
approximately $259,000 and $785,000 (of which approximately $16,000 and $88,000
relates to restricted stock units) in the three and nine months ended September
25, 2010, respectively, and $226,000 and $623,000 (of which approximately
$16,000 and $48,000 relates to restricted stock units) in the three and nine
months ended September 26, 2009, respectively.
In the
first nine months of 2010, the Company granted 443,750 options at exercise
prices between $1.35 and $1.74 to certain employees. These options
vest ratably over the next four years. The Company also granted a
total of 180,000 options at an exercise price of $1.00 to non-employee directors
upon their re-election to the board consistent with the non-employee director
compensation program. These options vest ratably over the next three
years. In the first nine months of 2009, the Company granted 900,000
options at an exercise price of $0.53 to certain employees. These
options vest ratably over the next three years.
HearUSA,
Inc
Notes to
Consolidated Financial Statements
(unaudited)
The
expected term of the options represents the estimated period of time from grant
until exercise and is based on historical experience of similar awards, giving
consideration to the contractual terms, vesting schedules and expectations of
future employee behavior. Expected stock price volatility is based on
historical volatility of our stock for a period of at least equal to the
expected term. The risk-free interest rate is based on the implied
yield available on United States Treasury zero-coupon issues with an equivalent
remaining term. We have not paid dividends in the past and do not
plan to pay any dividends in the foreseeable future.
Stock-based payment award
activity
The
following table provides additional information regarding options outstanding
and options that were exercisable as of September 25, 2010 (options and
intrinsic value in thousands):
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Contractual
Term
|
|
|
Aggregate
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
(in years)
|
|
|
Intrinsic Value
|
|
Outstanding
at December 26, 2009
|
|
|
6,267
|
|
|
$
|
1.16
|
|
|
|
|
|
|
|
-
|
|
Granted
|
|
|
624
|
|
|
|
1.26
|
|
|
|
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
Forfeited/expired/cancelled
|
|
|
(99
|
)
|
|
|
2.66
|
|
|
|
|
|
|
|
-
|
|
Outstanding
at September 25, 2010
|
|
|
6,792
|
|
|
$
|
1.14
|
|
|
|
5.68
|
|
|
$
|
762
|
|
Exercisable
at September 25, 2010
|
|
|
4,771
|
|
|
$
|
1.16
|
|
|
|
4.41
|
|
|
$
|
553
|
|
The
aggregate intrinsic value is calculated as the difference between the exercise
price of the underlying awards and the quoted price of our common stock for the
options that were in-the-money at September 25, 2010. There was approximately
$1.7 million of total unrecognized compensation cost related to share-based
compensation under our stock award plans as of September 25, 2010. That cost is
expected to be recognized over the remaining average life of 6 years as of
September 25, 2010. At September 25, 2010, the aggregate intrinsic value of the
employee and non-employee director options outstanding and exercisable was
approximately $762,000, of which $49,000 is non-employee director aggregate
intrinsic value.
A summary
of the status and changes in our non-vested options related to our equity
incentive plans as of and during the nine month months ended September 25,
2010 is presented below:
|
|
|
|
|
Weighted
Average
|
|
|
|
|
|
|
Grant-
Date
|
|
|
|
Shares
(in
thousands)
|
|
|
Fair
Value
|
|
Non-vested
at December 26, 2009
|
|
|
2,151
|
|
|
$
|
1.10
|
|
Granted
|
|
|
624
|
|
|
|
1.26
|
|
Vested
|
|
|
(724
|
)
|
|
|
1.22
|
|
Forfeited
unvested
|
|
|
(30
|
)
|
|
|
1.70
|
|
Non-vested
at September 25, 2010
|
|
|
2,021
|
|
|
$
|
1.10
|
|
HearUSA,
Inc
Notes to
Consolidated Financial Statements
(unaudited)
Restricted stock
units
The
Company began granting restricted stock units pursuant to its 2002 Flexible
Stock Plan and Amended and Restated 2007 Incentive Compensation Plan in 2008.
Restricted stock units are awards that, upon vesting, will result in the
delivery to the holder of shares of the Company’s common stock. Some restricted
stock units are service-based and vest ratably over a period of time, and some
are performance-based and subject to forfeiture if certain performance criteria
are not met.
In March
2010, 318,750 performance-based restricted stock units were granted to
management. The Company did not record stock-based compensation for
these awards in the first nine months of 2010 because it was not probable that
the performance measurements would be met. No restricted stock units
were granted in the first nine months of 2009.
Using the
most probable award, the Company recorded approximately $88,000 and $48,000 in
stock-based compensation expense which is included in total stock-based
compensation expense of approximately $785,000 and $623,000 in the first nine
months of 2010 and 2009, respectively.
A summary
of the Company’s restricted stock unit activity and related information for the
nine months ended September 25, 2010 is as follows:
|
|
Service-based
|
|
|
|
|
|
|
Restricted Stock Units
(1)
|
|
|
Performance-based
Restricted Stock Units (1)
|
|
Outstanding
Balance at December 26, 2009
|
|
|
91,000
|
|
|
|
190,000
|
|
Awarded
|
|
|
-
|
|
|
|
-
|
|
Vested
|
|
|
(45,500
|
)
|
|
|
(62,210
|
)
|
Forfeited
|
|
|
-
|
|
|
|
(3,368
|
)
|
Outstanding
at September 25, 2010
|
|
|
45,500
|
|
|
|
124,422
|
|
(1) Each
stock unit represents the fair market value of one share of common
stock.
The fair
value of the 107,710 shares vested during 2010 was approximately $119,000. The
weighted average grant-date fair value per share for the restricted stock units
was $1.03 with a weighted average remaining contractual term of 1.4 years at
September 25, 2010.
8.
Income Taxes
Deferred income taxes have
been provided for temporary differences between the tax basis of assets and
liabilities and their reported amounts in the financial statements. In assessing
the realizability of deferred tax assets, management assesses the likelihood
that deferred tax assets will be recovered from future taxable income, and to
the extent that recovery is not likely or there is insufficient operating
history, a valuation allowance is established. We adjust the valuation allowance
in the period management determines it is more likely than not that deferred tax
assets will or will not be realized.
The Company has certain temporary
differences arising primarily from differences in the amortization of intangible
assets and goodwill and depreciation of fixed assets. The deferred tax assets
for U.S. income tax purposes have been offset by a valuation allowance because
it was determined that these assets were not likely to be
realized. During the third quarter of 2010, the Company recorded a
deferred tax expense of approximately $220,000 compared to approximately
$210,000 in the third quarter of 2009 related to the estimated deduction of tax
deductible goodwill from its U.S. operations. The deferred income tax expense
was recorded because it cannot be offset by temporary differences as it relates
to infinite-lived assets and the timing of reversing the liability is unknown.
The Company has generated net operating loss carryforwards of approximately
$47.4 million for U.S. income tax purposes.
In the
third quarter of 2010, income tax benefits totaling $189,000 related to the 2009
tax expense were recorded based on the finalization of the US and Canadian
income tax returns.
HearUSA,
Inc
Notes to
Consolidated Financial Statements
(unaudited)
9. Segments
As the
Company’s business has changed, the segments reviewed by the Company’s
management have changed. The E-Commerce business is no longer
considered a separate segment of the Company and has been integrated into the
Centers segment. The 2009 summary has been reclassified to reflect
these changes.
The
following operating segments represent identifiable components of the Company
for which separate financial information is available. The following table
represents key financial information for each of the Company’s business
segments, which include the operation and management of centers; and the
establishment, maintenance and support of an affiliated network of independent
providers. The centers offer people afflicted with hearing loss a complete range
of services and products, including diagnostic audiological testing and the
latest technology in hearing aids and listening devices to improve their quality
of life. Center hearing aids and other products revenues
include hearing devices sold by our centers under the AARP
program. The network, unlike the Company-owned centers, is comprised
of hearing care practices owned by independent audiologists. Hearing
aids and other products revenues attributable to the Network relate to units
sold under the AARP program through our network. Network service revenues are
mainly derived from administrative fees paid by employer groups, health insurers
and benefit sponsors to administer their benefit programs as well as maintain
the affiliated provider network. Since the sale of the Company’s Canadian
operations in April 2009, all of the Company’s business units are located in the
United States.
The
following is the Company’s segment information:
Dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Centers (1)
|
|
|
Network
|
|
|
Corporate
|
|
|
Total
|
|
Hearing
aids and other products revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
months ended September 25, 2010
|
|
$
|
56,897
|
|
|
$
|
170
|
|
|
$
|
-
|
|
|
$
|
57,067
|
|
Nine
months ended September 26, 2009
|
|
$
|
61,172
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
61,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
months ended September 25, 2010
|
|
$
|
2,907
|
|
|
$
|
1,263
|
|
|
$
|
700
|
|
|
$
|
4,870
|
|
Nine
months ended September 26, 2009
|
|
$
|
3,730
|
|
|
$
|
1,841
|
|
|
$
|
472
|
|
|
$
|
6,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
months ended September 25, 2010
|
|
$
|
9,153
|
|
|
$
|
(1,211
|
)
|
|
$
|
(10,860
|
)
|
|
$
|
(2,918
|
)
|
Nine
months ended September 26, 2009
|
|
$
|
14,824
|
|
|
$
|
829
|
|
|
$
|
(11,389
|
)
|
|
$
|
4,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
months ended September 25, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
$
|
1,294
|
|
|
$
|
14
|
|
|
$
|
345
|
|
|
|
1,653
|
|
Total
assets
|
|
$
|
65,975
|
|
|
$
|
913
|
|
|
$
|
15,630
|
|
|
$
|
82,518
|
|
Capital
expenditures
|
|
$
|
284
|
|
|
|
-
|
|
|
$
|
96
|
|
|
$
|
380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
months ended September 26, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
amortization
|
|
$
|
1,257
|
|
|
$
|
-
|
|
|
$
|
474
|
|
|
$
|
1,731
|
|
Total
assets
|
|
$
|
66,398
|
|
|
$
|
919
|
|
|
$
|
28,283
|
|
|
$
|
95,600
|
|
Capital
expenditures
|
|
$
|
509
|
|
|
|
-
|
|
|
$
|
380
|
|
|
$
|
889
|
|
HearUSA,
Inc
Notes to
Consolidated Financial Statements
(unaudited)
|
(1)
|
Amounts
in 2009 were reclassified for purposes of reporting the integration of our
e-commerce business into the Centers
segment.
|
Hearing
aids and other products revenues consisted of the following:
|
|
Nine months ended
|
|
|
|
September 25,
|
|
|
September 26,
|
|
|
|
2010
|
|
|
2009
|
|
Hearing
aid revenues
|
|
|
96.5
|
%
|
|
|
97.1
|
%
|
Other
products revenues
|
|
|
3.5
|
%
|
|
|
2.9
|
%
|
Services
revenues consisted of the following:
|
|
Nine months ended
|
|
|
|
September 25,
|
|
|
September 26,
|
|
|
|
2010
|
|
|
2009
|
|
Hearing
aid repairs
|
|
|
48.2
|
%
|
|
|
42.8
|
%
|
Testing
and other income
|
|
|
51.8
|
%
|
|
|
57.2
|
%
|
Income
(loss) from operations at the segment level is computed before the following,
the sum of which is included in the column “Corporate” as loss from
operations:
|
|
Nine months ended
|
|
|
|
September 25,
|
|
|
September 26,
|
|
Dollars in thousands
|
|
2010
|
|
|
2009
|
|
Contract
service revenue on Canadian support agreement
|
|
$
|
(700
|
)
|
|
|
(472
|
)
|
General
and administrative expense
|
|
|
11,215
|
|
|
|
11,387
|
|
Corporate
depreciation and amortization
|
|
|
345
|
|
|
|
474
|
|
Corporate
loss from operations
|
|
$
|
10,860
|
|
|
$
|
11,389
|
|
10. Liquidity
The
Company used approximately $3.4 million for operating activities during the nine
months ended September 25, 2010 primarily as a result of the net loss of $6.0
million and the payment of $1.9 million in Canadian income taxes accrued in the
prior year. The Company also used approximately $2.8 million to repay
long-term debt during the same period and generated $3.2 million from the sale
of short term marketable securities.
Cash,
cash equivalents and short term marketable securities totaled approximately $5.4
million as of September 25, 2010. Approximately $2.4 million of
the current maturities of long-term debt to Siemens may be repaid through rebate
credits.
The
Company believes that current cash and cash equivalents and expected increases
in revenues generated by its new marketing initiatives and the continued growth
of the AARP program will be sufficient to support the Company’s operating and
investing activities through the next twelve months. However, there
can be no assurance that the Company will generate the expected increased cash
flows from operations or that unexpected cash needs will not arise for which the
cash, cash equivalents and cash flow from operations will be sufficient or that
the Company can maintain compliance with the Siemens loan
covenants. In the event of a shortfall in cash, the Company may
reduce its marketing expenditures and other costs and might consider short-term
debt, or additional equity or debt offerings. There can be no
assurance however, that the Company can reduce its costs sufficiently to offset
cash shortfalls or that any debt or equity financing will be available to the
Company on favorable terms or at all.
HearUSA,
Inc
Notes to
Consolidated Financial Statements
(unaudited)
RECENT
ACCOUNTING PRONOUNCEMENTS
In
January 2010, the Financial Accounting Standards Board (the “FASB”) issued
Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about
Fair Value Measurements” (ASU 2010-06”). ASU 2010-06 amends the guidance on fair
value measurement disclosures to add new requirements for disclosures about
transfers into and out of the Level 1 and 2 categories in the fair value
measurement hierarchy, and separate disclosures about purchases, sales,
issuances, and settlements relating to Level 3 measurements. The amended
guidance also clarifies existing fair value disclosures about the level of
disaggregation and about inputs and valuation techniques used to measure fair
value. The new requirements for disclosures and clarifications of existing
disclosures were effective for interim and annual reporting periods beginning
after December 15, 2009, except for the disclosures about purchases, sales,
issuances, and settlements in the roll forward of activities in Level 3 fair
value measurements, which are effective for interim and annual reporting periods
beginning after December 15, 2010. The adoption of this amended guidance has not
required significant additional disclosures by the Company.
In July
2010, the FASB issued ASU 2010-20, “Receivables (Topic 310): Disclosures about
the Credit Quality of Financing Receivables and the Allowance for Credit
Losses”, which amends Subtopic 310-30 by requiring an entity to provide enhanced
and disaggregated disclosures about the credit quality of an entity’s financing
receivables and its allowance for credit losses. The objective of enhancing
these disclosures is to improve financial statement users’ understanding of both
the nature of an entity’s credit risk associated with its financing receivables
and the entity’s assessment of that risk in estimating its allowance for credit
losses as well as changes in the allowance and the reason for those changes. The
update is effective for the first interim or annual period ending on or after
December 15, 2010. We do not expect adoption of FASB ASU 2010-20 to have a
material impact on our financial position and results of operations, as it is a
disclosure standard.
In June
2009, the FASB issued guidance for determining the primary beneficiary of a
variable interest entity (“VIE”). In December 2009, the FASB issued ASU 2009-17,
“Improvements to Financial Reporting by Enterprises Involved with Variable
Interest Entities” (“ASU 2009-17”). ASU 2009-17 provides amendments to ASC 810
to reflect the revised guidance. The amendments in ASU 2009-17 replace the
quantitative-based risks and rewards calculation for determining which reporting
entity, if any, has a controlling financial interest in a VIE with an approach
focused on identifying which reporting entity has the power to direct the
activities of a VIE that most significantly impact the entity’s economic
performance and (i) the obligation to absorb losses of the entity or (ii) the
right to receive benefits from the entity. The amendments in ASU 2009-17 also
require additional disclosures about a reporting entity’s involvement with VIEs.
ASU 2009-17 is effective for annual reporting periods beginning after November
15, 2009. We do not anticipate that the adoption of this guidance will have a
material impact on our financial position and results of operations or require
additional disclosures.
In
September 2009, the FASB ratified ASU No. 2009-13 (formerly referred to as
Emerging Issues Task Force Issue No. 08-1), “Revenue Arrangements with Multiple
Deliverables.” ASU No. 2009-13 requires the allocation of
consideration among separately identified deliverables contained within an
arrangement based on their related selling prices. ASU No. 2009-13
will be effective for revenue arrangements entered into or materially modified
in fiscal years beginning on or after June 15, 2010. Early adoption
is permitted. The Company does not anticipate that the adoption of
this guidance will have a material effect on our financial position and results
of operations or require additional disclosures.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations
Forward Looking
Statements
This Form 10-Q and, in particular,
this management’s discussion and analysis contain a number of
forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Act of 1934. These statements include those relating to
the Company’s belief that future volatility over the expected remaining life of
the outstanding common stock purchase warrants will not differ materially from
historical volatility, that current cash and cash equivalents and expected
increases in revenues generated by the Company’s new marketing initiatives and
the continued growth of the AARP program will be sufficient to support the
Company’s operating and investing activities through the next twelve months, the
expectation that adoption of ASU 2009-17, 2009-13 and 2010-20 will not have a
material impact on our financial position and results or require additional
disclosure, that marketing expenditures will decline to traditional levels
beginning in the fourth quarter of 2010, that insurance revenues will remain
stable for the remainder of 2010, that the agreements reached with several
managed care plans to provide new or expanded hearing aid benefits to an
additional 400,000 members beginning January 1, 2011 will increase revenues in
2011, and that it will not be necessary to fund separately the
Company’s new marketing initiatives and the AARP program going
forward. These forward-looking statements are based on current
expectations, estimates, forecasts and projections about the industry and
markets in which we operate and management’s beliefs and
assumptions. The forward-looking statements contained in this report
are not guarantees of future performance and involve certain risks,
uncertainties and assumptions that are difficult to predict, including, but not
limited to, that the Company’s marketing initiatives will not be effective in
increasing sales under the AARP program, that marketing expenditures for the
remainder of 2010 will need to be increased to drive company-owned store
revenues or otherwise, that the Company’s underlying assumptions with respect to
the new managed care agreements will not materialize, that volatility over the
expected remaining life of the outstanding common stock purchase warrants will
materially increase, and other risks described in this report and in the
Company’s annual report on Form 10-K for fiscal year 2009 filed with the
Securities and Exchange Commission.
Revenues
in the third quarter of 2010 declined slightly when compared to the second
quarter of 2010 as a result of an increase in product orders received but not
yet delivered to the customers and one less selling
day. Marketing costs for the quarter remained $1.0 million
above previous levels because of the Company’s new marketing initiatives and the
launch of the AARP program. The Company believes its marketing
initiatives have been successful in creating momentum for its existing business
and the AARP program. These efforts helped increase second quarter
2010 revenues by 9% and third quarter 2010 revenues by 7% versus the first
quarter of 2010. In addition, the Company has reached agreement with
several managed care plans to provide new or expanded hearing aid benefits to an
additional 400,000 members beginning January 1, 2011.
AARP has
increasingly included information on the hearing program in the mailings and
publications it uses to inform its 40 million members of the various AARP
programs and partnerships. This has led to an over 300% increase in
calls received at the AARP call center inquiring about the hearing program in
the third quarter of 2010. The Company believes that it will not be
necessary to separately fund its new marketing initiatives and the AARP program
going forward. Marketing expenditures are expected to decline to
traditional levels beginning in the fourth quarter of 2010. The
increasing role AARP has begun to play in educating its members on the program
will allow the Company to combine its AARP initiatives with its other marketing
programs.
RESULTS
OF OPERATIONS
For the three months ended
September 25, 2010 compared to the three months ended September 26,
2009
Revenues
Dollars
in thousands
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
% Change
|
|
Hearing
aids and other products
|
|
$
|
19,276
|
|
|
$
|
19,616
|
|
|
$
|
(340
|
)
|
|
|
(1.7
|
)%
|
Services
|
|
|
1,657
|
|
|
|
2,212
|
|
|
|
(555
|
)
|
|
|
(25.1
|
)%
|
Total
net revenues
|
|
$
|
20,933
|
|
|
$
|
21,828
|
|
|
$
|
(895
|
)
|
|
|
(4.1
|
)%
|
The
$895,000, or 4.1%, decrease in net revenue in the 2010 third quarter from the
third quarter 2009 is principally a result of the loss of revenue related to a
number of insurance plans eliminating, changing or limiting their hearing care
benefits. These changes adversely affected both hearing aids
and services revenue.
The
Company expects revenues from insurance plans to remain stable for the remainder
of 2010. While there can be no assurance, it appears that the cancellations and
reductions in benefits seen at the end of 2009 is not a trend that is continuing
into 2010 and beyond. The Company has in fact reached agreement with several
managed care plans to provide new or expanded hearing aid benefits to an
additional 400,000 members beginning January 1, 2011 which are expected to
increase revenues in 2011.
Cost
of Products Sold and Services
Dollars
in thousands
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
%
|
|
Hearing
aids and other products
|
|
$
|
5,188
|
|
|
$
|
4,543
|
|
|
$
|
645
|
|
|
|
14.2
|
%
|
Services
|
|
|
436
|
|
|
|
441
|
|
|
|
(5
|
)
|
|
|
(1.1
|
)%
|
Total cost of products sold and
services
|
|
$
|
5,624
|
|
|
$
|
4,984
|
|
|
$
|
640
|
|
|
|
12.8
|
%
|
Percent of total net
revenues
|
|
|
26.9
|
%
|
|
|
22.8
|
%
|
|
|
4.1
|
%
|
|
|
18.0
|
%
|
The cost
of products sold includes the effect of rebate credits pursuant to our
agreements with Siemens.
The
following table reflects the components of the rebate credits which are included
in the above cost of products sold for hearing aids (see Note 4 – Long-term
Debt, Notes to Consolidated Financial Statements included herein):
Dollars
in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
%
|
|
Rebates
offsetting base required payments on Tranche C
|
|
$
|
500
|
|
|
$
|
500
|
|
|
$
|
-
|
|
|
|
-
|
|
Volume
rebates used to reduce Tranche C principal
|
|
|
156
|
|
|
|
152
|
|
|
|
4
|
|
|
|
2.6
|
%
|
Rebates
offsetting required payments on Tranche B for purchases made by acquired
centers
|
|
|
102
|
|
|
|
173
|
|
|
|
(71
|
)
|
|
|
(41.0
|
)%
|
Rebates offsetting interest on Tranches B and
C
|
|
|
807
|
|
|
|
861
|
|
|
|
(54
|
)
|
|
|
(6.3
|
)%
|
Total rebate credits
|
|
$
|
1,565
|
|
|
$
|
1,686
|
|
|
$
|
(121
|
)
|
|
|
(7.2
|
)%
|
Percent of total net
revenues
|
|
|
7.5
|
%
|
|
|
7.7
|
%
|
|
|
(0.2
|
)%
|
|
|
(2.6
|
)%
|
The
$71,000 reduction in rebates earned on Tranche B was due to the negotiated
decrease in the per unit rebates from $65 to $50 and a decline in Siemens units
purchased. The rebates per unit were decreased in exchange for better overall
pricing. The $54,000 decrease in interest forgiven is due to a
decrease in Siemens indebtedness primarily resulting from the repayment of
approximately $8.1 million from the proceeds of the sale of the Canadian
operations in 2009. Cost of products sold as a percent of total net revenues
before the impact of the Siemens rebate credits was 34.4% in the third quarter
of 2010 compared to 30.6% in the third quarter of 2009. The
increase in cost of sales as a percentage of revenue is primarily the result of
the lost insurance business and product mix. This lost insurance
business traditionally generated higher margins.
Expenses
Dollars
in thousands
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
%
|
|
Center
operating expenses
|
|
$
|
12,047
|
|
|
$
|
10,811
|
|
|
$
|
1,236
|
|
|
|
11.4
|
%
|
Percent
of total net revenues
|
|
|
57.6
|
%
|
|
|
49.5
|
%
|
|
|
8.1
|
%
|
|
|
16.4
|
%
|
General
and administrative expenses
|
|
$
|
3,429
|
|
|
$
|
3,694
|
|
|
$
|
(265
|
)
|
|
|
(7.2
|
)%
|
Percent
of total net revenues
|
|
|
16.4
|
%
|
|
|
16.9
|
%
|
|
|
(0.5
|
)%
|
|
|
(3.0
|
)%
|
Depreciation
and amortization
|
|
$
|
519
|
|
|
$
|
593
|
|
|
$
|
(74
|
)
|
|
|
(12.5
|
)%
|
Percent
of total net revenues
|
|
|
2.5
|
%
|
|
|
2.7
|
%
|
|
|
(0.2
|
)%
|
|
|
(7.4
|
)%
|
The $1.2
million increase in center operating expenses in the third quarter of 2010 as
compared with the third quarter of 2009 is primarily attributable to a $252,000
increase in compensation due to the 5% salary reduction implemented in 2009 but
reinstated in 2010 and changes in the commission payment methodology that were
mostly offset by lower base pay, a $587,000 increase in marketing expense and a
$197,000 increase in AARP program costs. The Company spent
approximately $1.1 million marketing the AARP program during the third quarter
of 2010. AARP advertising and program costs totaled $1.4 million in
the third quarter of 2010 compared to $189,000 in the third quarter of
2009.
AARP has
increasingly included information on the hearing program in the mailings and
publications it uses to inform its 40 million members of the various AARP
programs and partnerships. This has led to an over 300% increase in
calls received at the AARP call center inquiring about the hearing program in
the third quarter of 2010. The Company believes that it will not be
necessary to separately fund its new marketing initiatives and the AARP program
going forward. Marketing expenditures are expected to decline
to traditional levels beginning in the fourth quarter of 2010. The increasing
role AARP has begun to play in educating its members on the program will allow
the Company to combine its AARP initiatives with its other marketing
programs.
General
and administrative expenses decreased by approximately $265,000 in the third
quarter of 2010 as compared to the third quarter of 2009. This
decrease is primarily the result of reductions in staffing, maintenance and
communication expenses.
Interest
Expense
Dollars
in thousands
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
%
|
|
Notes
payable from business acquisitions and others (1)
|
|
$
|
84
|
|
|
$
|
276
|
|
|
$
|
(192
|
)
|
|
|
(69.6
|
)%
|
Siemens
Tranches B and C – interest forgiven (2)
|
|
|
807
|
|
|
|
861
|
|
|
|
(54
|
)
|
|
|
(6.3
|
)%
|
Total
interest expense
|
|
$
|
891
|
|
|
$
|
1,137
|
|
|
$
|
(246
|
)
|
|
|
(21.6
|
)%
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
%
|
|
Total
cash interest expense (3)
|
|
$
|
77
|
|
|
$
|
86
|
|
|
$
|
(9
|
)
|
|
|
(10.5
|
)%
|
Total
non-cash interest expense (4)
|
|
|
814
|
|
|
|
1,051
|
|
|
|
(237
|
)
|
|
|
(22.5
|
)%
|
Total
interest expense
|
|
$
|
891
|
|
|
$
|
1,137
|
|
|
$
|
(246
|
)
|
|
|
(21.6
|
)%
|
(1)
|
Includes
$42,000 and $74,000 in the third quarter of 2010 and 2009, respectively,
of non-cash interest expense related to recording of notes at their
present value by discounting future payments to market rate of interest
(see Note 4 – Long-term Debt, Notes to Consolidated Financial Statements
included herein)
as
well as a $34,000 reduction of non-cash interest expense in the third
quarter of 2010 and a $74,000 increase in non-cash interest expense in
2009 related to recording warrants at their estimated fair
value.
|
(2)
|
The
interest expense on Tranches B and C is forgiven by Siemens as long as the
supply agreement minimum purchase requirements are met and the
corresponding rebate credit is recorded as a reduction of the cost of
products sold (see Note 4 – Long-term Debt, Notes to Consolidated
Financial Statements and Liquidity and Capital Resources, include
herein).
|
(3)
|
Represents
the sum of the cash interest portion paid on the notes payable for
business acquisitions and others.
|
(4)
|
Represents
the sum of the non-cash interest expense related to recording the notes
payable for business acquisitions at their present value by discounting
future payments to the market rate of interest
,
interest on Siemens Tranches B and C offset by rebates, net of the
reduction of non-cash interest expense in 2010 related to recording
warrants at their estimated fair
value.
|
The
decrease in interest expense in the third quarter of 2010 is primarily
attributable to decreases in notes payable outstanding and a reduction of
non-cash interest which resulted from the change in the fair value of
warrants.
Income
Taxes
The
Company has generated net operating loss carryforwards of approximately $47.4
million for U.S. income tax purposes. The Company has temporary differences
between the financial statement and tax reporting arising primarily from
differences in the amortization of intangible assets and goodwill and
depreciation of fixed assets. The deferred tax assets for U.S. income tax
purposes have been offset by a valuation allowance because it was determined
that these assets were not likely to be realized. During the third
quarter of 2010, the Company recorded a deferred tax expense of approximately
$220,000 compared to approximately $210,000 in the third quarter of 2009 related
to the estimated deduction of tax deductible goodwill from its U.S. operations.
The deferred income tax expense was recorded because it cannot be offset by
temporary differences as it relates to infinite-lived assets and the timing of
reversing the liability is unknown. Deferred income tax expense will continue to
be recorded until the tax deductible goodwill is fully amortized.
In the
third quarter of 2010, income tax benefits totaling $189,000 related to the 2009
tax expense were recorded based on the finalization of the US and Canadian tax
returns.
Net
Income attributable to noncontrolling interest
During
the third quarters of 2010 and 2009, the Company’s 50% owned joint venture,
HEARx West, LLC, generated net income of approximately $544,000 and $417,000,
respectively. The Company records 50% of the venture’s net income as net income
attributable to noncontrolling interest in the income of a joint venture in the
Company’s consolidated statements of operations. The net income attributable to
noncontrolling interest for the third quarter of 2010 and 2009 was approximately
$272,000 and $182,000, respectively.
Discontinued
Operations
On April
27, 2009, the Company sold the assets of Helix Hearing Care of America Corp. and
the stock of 3371727 Canada Inc., both indirect wholly owned subsidiaries of the
Company, for cash consideration of approximately $23.1 million. This
sale resulted in a gain on sale of approximately $931,000, net of applicable
tax, for the year ended December 26, 2009.
The
Company had income from discontinued operations of $427,000 during the third
quarter of 2009.
For the nine months ended
September 25, 2010 compared to the nine months ended September 26,
2009
Revenues
Dollars
in thousands
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
% Change
|
|
Hearing
aids and other products
|
|
$
|
57,067
|
|
|
$
|
61,172
|
|
|
$
|
(4,105
|
)
|
|
|
(6.7
|
)%
|
Services
|
|
|
4,870
|
|
|
|
6,043
|
|
|
|
(1,173
|
)
|
|
|
(19.4
|
)%
|
Total
net revenues
|
|
$
|
61,937
|
|
|
$
|
67,215
|
|
|
$
|
(5,278
|
)
|
|
|
(7.9
|
)%
|
The $5.3
million, or 7.9%, decrease in net revenue from the first nine months of 2009 is
principally a result of the loss of revenue related to a number of insurance
plans eliminating, changing or limiting their hearing care
benefits. These changes adversely affected both hearing aids and
services revenue.
Cost
of Products Sold and Services
Dollars
in thousands
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
%
|
|
Hearing
aids and other products
|
|
$
|
15,057
|
|
|
$
|
14,998
|
|
|
$
|
59
|
|
|
|
0.4
|
%
|
Services
|
|
|
1,272
|
|
|
|
1,325
|
|
|
|
(53
|
)
|
|
|
(4.0
|
)%
|
Total
cost of products sold and services
|
|
$
|
16,329
|
|
|
$
|
16,323
|
|
|
$
|
6
|
|
|
|
0.0
|
%
|
Percent
of total net revenues
|
|
|
26.4
|
%
|
|
|
24.3
|
%
|
|
|
2.1
|
%
|
|
|
8.6
|
%
|
The cost
of products sold includes the effect of rebate credits pursuant to our
agreements with Siemens.
The
following table reflects the components of the rebate credits which are included
in the above cost of products sold for hearing aids (see Note 4 – Long-term
Debt, Notes to Consolidated Financial Statements included herein):
Dollars
in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
%
|
|
Rebates
offsetting base required payments on Tranche C
|
|
$
|
1,500
|
|
|
$
|
1,500
|
|
|
$
|
-
|
|
|
|
-
|
|
Volume
rebates used to reduce Tranche C principal
|
|
|
469
|
|
|
|
472
|
|
|
|
(3
|
)
|
|
|
(0.6
|
)%
|
Rebates
offsetting required payments on Tranche B for purchases made by acquired
centers
|
|
|
324
|
|
|
|
513
|
|
|
|
(189
|
)
|
|
|
(36.8
|
)%
|
Rebates
offsetting interest on Tranches B and C
|
|
|
2,447
|
|
|
|
2,954
|
|
|
|
(507
|
)
|
|
|
(17.2
|
)%
|
Total
rebate credits
|
|
$
|
4,740
|
|
|
$
|
5,439
|
|
|
$
|
(699
|
)
|
|
|
(12.9
|
)%
|
Percent
of total net revenues
|
|
|
7.7
|
%
|
|
|
8.1
|
%
|
|
|
(0.4
|
)%
|
|
|
(4.9
|
)%
|
The
$189,000 reduction in volume rebates earned was due to the negotiated decrease
in the per unit rebates from $65 to $50 and a decline in Siemens units
purchased. The $507,000 decrease in interest forgiven is due to a decrease in
Siemens indebtedness primarily resulting from the repayment of approximately
$8.1 million from the proceeds of the sale of the Canadian operations in 2009.
Cost of products sold as a percent of total net revenues before the impact of
the Siemens rebate credits was 34.1% in the first nine months of 2010 compared
to 32.4% in the first nine months of 2009. The increase in cost of sales as a
percentage of revenue is primarily the result of the lost insurance business and
product mix. The lost insurance business has traditionally generated
higher margins.
Expenses
Dollars
in thousands
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
%
|
|
Center
operating expenses
|
|
$
|
35,658
|
|
|
$
|
33,510
|
|
|
$
|
2,148
|
|
|
|
6.4
|
%
|
Percent
of total net revenues
|
|
|
57.6
|
%
|
|
|
49.9
|
%
|
|
|
7.7
|
%
|
|
|
15.4
|
%
|
General
and administrative expenses
|
|
$
|
11,215
|
|
|
$
|
11,387
|
|
|
$
|
(172
|
)
|
|
|
(1.5
|
)%
|
Percent
of total net revenues
|
|
|
18.1
|
%
|
|
|
16.9
|
%
|
|
|
1.2
|
%
|
|
|
7.1
|
%
|
Depreciation
and amortization
|
|
$
|
1,653
|
|
|
$
|
1,731
|
|
|
$
|
(78
|
)
|
|
|
(4.5
|
)%
|
Percent
of total net revenues
|
|
|
2.7
|
%
|
|
|
2.6
|
%
|
|
|
0.1
|
%
|
|
|
3.8
|
%
|
The $2.1
million increase in center operating expenses in the first nine months of 2010
as compared with the first nine months of 2009 is primarily attributable to a
$1.1 million increase in marketing expense and a $669,000 increase in AARP
program costs. AARP advertising and program costs totaled $3.3
million in the first nine months of 2010 compared to $424,000 in the first nine
months of 2009.
General
and administrative expenses decreased by approximately $172,000 in the first
nine months of 2010 as compared to the first nine months of
2009. This decrease is primarily the result of reductions in
communication, maintenance and shareholder relation expenses of approximately
$510,000. This decrease was partially offset by approximately $338,000 in
severance charges, additional employee stock-based compensation and professional
fees.
Interest
Expense
Dollars
in thousands
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
%
|
|
Notes
payable from business acquisitions and others (1)
|
|
$
|
234
|
|
|
$
|
774
|
|
|
$
|
(540
|
)
|
|
|
(69.8
|
)%
|
Siemens
Tranches B and C – interest forgiven (2)
|
|
|
2,447
|
|
|
|
2,954
|
|
|
|
(507
|
)
|
|
|
(17.2
|
)%
|
Total
interest expense
|
|
$
|
2,681
|
|
|
$
|
3,728
|
|
|
$
|
(1,047
|
)
|
|
|
(28.1
|
)%
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
%
|
|
Total
cash interest expense (3)
|
|
$
|
266
|
|
|
$
|
412
|
|
|
$
|
(146
|
)
|
|
|
(35.4
|
)%
|
Total
non-cash interest expense (4)
|
|
|
2,415
|
|
|
|
3,316
|
|
|
|
(901
|
)
|
|
|
(27.2
|
)%
|
Total
interest expense
|
|
$
|
2,681
|
|
|
$
|
3,728
|
|
|
$
|
(1,047
|
)
|
|
|
(28.1
|
)%
|
(1)
|
Includes
$143,000 and $252,000 in the first nine months of 2010 and 2009,
respectively, of non-cash interest expense related to recording of notes
at their present value by discounting future payments to market rate of
interest (see Note 4 – Long-term Debt, Notes to Consolidated Financial
Statements included herein)
as
well as a $174,000 reduction of non-cash interest expense in
2010 and a $171,000 increase in non-cash interest expense in 2009 related
to recording warrants at their estimated fair
value.
|
(2)
|
The
interest expense on Tranches B and C is forgiven by Siemens as long as the
supply agreement minimum purchase requirements are met and the
corresponding rebate credit is recorded as a reduction of the cost of
products sold (see Note 4 – Long-term Debt, Notes to Consolidated
Financial Statements and Liquidity and Capital Resources, include
herein).
|
(3)
|
Represents
the sum of the cash interest portion paid on the notes payable for
business acquisitions and others.
|
(4)
|
Represents
the sum of the non-cash interest expense related to recording the notes
payable for business acquisitions at their present value by discounting
future payments to the market rate of interest, interest on Siemens
Tranches B and C offset by rebates, net of the reduction of non-cash
interest expense in 2010 related to recording warrants at their estimated
fair value.
|
The
decrease in interest expense in the first nine months of 2010 is attributable to
decreases in the Siemens loan balances following the repayment of approximately
$8.1 million from the proceeds of the sale of the Canadian operations in 2009
and scheduled debt payments.
Income
Taxes
The
Company has generated net operating loss carryforwards of approximately $47.4
million for U.S. income tax purposes. The Company has temporary differences
between the financial statement and tax reporting arising primarily from
differences in the amortization of intangible assets and goodwill and
depreciation of fixed assets. The deferred tax assets for U.S. income tax
purposes have been offset by a valuation allowance because it was determined
that these assets were not likely to be realized. During the first
nine months of 2010, the Company recorded a deferred tax expense of
approximately $661,000 compared to approximately $630,000 in the first nine
months of 2009 related to the estimated deduction of tax deductible goodwill
from its U.S. operations. The deferred income tax expense was recorded because
it cannot be offset by temporary differences as it relates to infinite-lived
assets and the timing of reversing the liability is unknown. Deferred income tax
expense will continue to be recorded until the tax deductible goodwill is fully
amortized.
In the
third quarter of 2010, income tax benefits totaling $189,000 related to the 2009
tax expense were recorded based on the finalization of the US and Canadian tax
returns.
Net
Income attributable to noncontrolling interest
During
the first nine months of 2010 and 2009, the Company’s 50% owned joint venture,
HEARx West, LLC, generated net income of approximately $1.2 million and
$878,000, respectively. The Company records 50% of the venture’s net income as
net income attributable to noncontrolling interest in the income of a joint
venture in the Company’s consolidated statements of operations. The net income
attributable to noncontrolling interest for each of the first nine months of
2010 and 2009 was approximately $584,000 and $429,000,
respectively.
Discontinued
Operations
On April
27, 2009, the Company sold the assets of Helix Hearing Care of America Corp. and
the stock of 3371727 Canada Inc., both indirect wholly owned subsidiaries of the
Company, for cash consideration of approximately $23.1 million. This
sale resulted in a gain on sale of approximately $931,000, net of applicable
tax, for the year ended December 26, 2009.
The
Company had income from discontinued operations of $1.7 million during the first
nine months of 2009.
LIQUIDITY
AND CAPITAL RESOURCES
Siemens
The
Company has entered into credit, supply, investor rights and security agreements
with Siemens Hearing Instruments, Inc. (“Siemens”). The term of the
current agreements extends to February 2015.
Pursuant
to these agreements, Siemens has extended to the Company a $50 million
credit facility and the Company has agreed to purchase at least 90% of its
hearing aid purchases from Siemens and its affiliates. If the 90% minimum
purchase requirement is met, the Company earns rebates which are then used to
liquidate principal and interest payments due under the credit
agreement.
Credit
Agreement
The
credit agreement includes a revolving credit facility of $50 million that
bears interest at 9.5%, matures in February 2015 and is secured by substantially
all of the Company’s assets. As of September 25, 2010, there was approximately
$33.1 million outstanding under the credit agreement. Amounts
available to be borrowed under the credit facility are to be used solely for
acquisitions unless otherwise approved by Siemens. Borrowings under
the credit facility are accessed through Tranche B and Tranche
C. Borrowing for acquisitions under Tranche B is generally based upon
a formula equal to 1/3 of 70% of the acquisition target’s trailing
12 months revenues, and any amount greater than that may be borrowed under
Tranche C with Siemens’ approval. Principal borrowed under Tranche B was repaid
quarterly at a rate of $65 per Siemens unit purchased by the acquired businesses
through September 2009. In October 2009, the parties agreed to reduce
the rebate to a rate of $50 per Siemens’ unit purchased by the acquired
businesses in exchange for more favorable pricing. Principal borrowed under
Tranche C is repaid at $500,000 per quarter. The required quarterly principal
and interest payments on Tranches B and C are forgiven by Siemens through rebate
credits of similar amounts as long as 90% of hearing aid units purchased by the
Company are from Siemens. Amounts not forgiven through rebate credits
are payable in cash each quarter. The Company has met the minimum
purchase requirements of the arrangement since inception of the arrangement with
Siemens.
The
credit agreement requires that the Company reduce the principal balance by
making annual payments in an amount equal to 20% of Excess Cash Flow (as defined
in the credit agreement), and by paying Siemens 50% of the proceeds of any net
asset sales (as defined) and 25% of proceeds from any equity offerings the
Company may complete. The Company did not have any Excess Cash Flow (as defined)
in the first nine months of 2010 or fiscal 2009. In 2009 the Company
paid Siemens approximately $8.1 million of the proceeds received from the sale
of the Company’s Canadian operations in 2009.
The
credit facility also 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, merger or sale of assets, the modification of material agreements,
changes in capital structure and making certain payments. If the
Company cannot maintain compliance with the covenants, Siemens may terminate
future funding under the credit agreement and declare all then outstanding
amounts under the agreement immediately due and payable. At September
25, 2010 the Company was in compliance with the Siemens loan
covenants.
Supply
Agreement
The
supply agreement requires the Company to purchase at least 90% of its hearing
aid purchases from Siemens and its affiliates. The 90%
requirement is computed on a cumulative four consecutive quarters. The Company
has met the minimum purchase requirements of the supply agreement since
inception of the arrangement with Siemens. If the minimum purchase
requirement is met, the Company earns rebates used to liquidate principal and
interest under the credit agreement. Approximately $45.6 million
has been rebated since the Company entered into this arrangement in
December 2001.
Additional
quarterly volume rebates of $156,250, $312,500 or $468,750 can be earned by
meeting certain quarterly volume tests. These rebates reduce the principal due
on the credit facility. Additional volume rebates of $468,750 were recorded in
each of the first nine months of 2010 and 2009.
All
rebates earned are accounted for as a reduction of cost of products
sold.
The
following table summarizes the rebate structure:
|
|
Calculation
of Pro forma Rebates to HearUSA when at least 90%
of
Units
Purchased are from Siemens (1)
|
|
|
|
Quarterly
Siemens Unit Sales Compared to Prior Years' Comparable
Quarters
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90% but
< 95%
|
|
|
95% to
100%
|
|
|
>
100% < 125%
|
|
|
125%
and >
|
|
Acquisition
rebate (2)
|
|
$
|
50/
unit
|
|
|
$
|
50/
unit
|
|
|
$
|
50/
unit
|
|
|
$
|
50/
unit
|
|
|
|
Plus
|
|
|
Plus
|
|
|
Plus
|
|
|
Plus
|
|
Notes
payable rebate
|
|
$
|
500,000
|
|
|
$
|
500,000
|
|
|
$
|
500,000
|
|
|
$
|
500,000
|
|
Additional
volume rebate
|
|
|
-
|
|
|
|
156,250
|
|
|
|
312,500
|
|
|
|
468,750
|
|
Interest
forgiveness rebate (3)
|
|
|
1,187,500
|
|
|
|
1,187,500
|
|
|
|
1,187,500
|
|
|
|
1,187,500
|
|
|
|
$
|
1,687,500
|
|
|
$
|
1,843,750
|
|
|
$
|
2,000,000
|
|
|
$
|
2,156,250
|
|
(1)
Calculated using trailing twelve month units purchased by the
Company
(2)
Siemens units purchased from acquired businesses ($65 per unit through September
2009 and $50 per unit thereafter)
(3)
Assuming the $50 million line of credit is fully utilized
The
following table shows the rebates received from Siemens pursuant to the supply
agreement during each of the following periods:
|
|
Nine
months Ended
|
|
|
Three Months Ended
|
|
Dollars in thousands
|
|
September 25,
2010
|
|
|
September 26,
2009
|
|
|
September 25,
2010
|
|
|
September 26,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portion
applied against quarterly principal payments
|
|
$
|
2,293
|
|
|
$
|
2,485
|
|
|
$
|
758
|
|
|
$
|
825
|
|
Portion
applied against quarterly interest payments
|
|
|
2,447
|
|
|
|
2,954
|
|
|
|
807
|
|
|
|
861
|
|
|
|
$
|
4,740
|
|
|
$
|
5,439
|
|
|
$
|
1,565
|
|
|
$
|
1,686
|
|
The
supply agreement may be terminated by either party upon a material breach of the
agreement by the other party. In addition, HearUSA may terminate the
supply agreement in the event Siemens acquires a business which is directly
competitive to the business of the Company. Termination of the supply
agreement or a material breach of the supply agreement by the Company may be
deemed to be a breach of the credit agreement and Siemens would have the right
to declare all amounts outstanding under the credit facility immediately due and
payable. Termination of the supply agreement could have a material
adverse effect on the Company’s financial condition and continued
operations.
Investor Rights
Agreement
Pursuant
to the investor rights agreement, the Company granted Siemens:
|
·
|
Resale
registration rights covering the 6.4 million shares of common stock
acquired by Siemens on December 23, 2008 under the Siemens Purchase
Agreement. The Company completed the registration of these shares for
resale in the second quarter of
2009.
|
|
·
|
Rights
of first refusal in the event the Company chooses to issue equity or if
there is a proposed Company change of control transaction involving a
person in the hearing aid
industry.
|
|
·
|
Rights
to have a representative of Siemens’ attend meetings of the Board of
Directors of the Company as a nonvoting
observer.
|
A willful
breach of the Company’s resale registration obligations under the investor
rights agreement may be deemed to be a breach of the credit agreement and
Siemens would have the right to declare all amounts outstanding under the credit
facility immediately due and payable.
Cash
Flows
The
Company used approximately $3.4 million for operating activities during the nine
months ended September 25, 2010 primarily as a result of the net loss of $6.0
million and the payment of $1.9 million in Canadian income taxes accrued in the
prior year. The Company also used approximately $2.8 million to repay
long-term debt during the same period and generated $3.2 million from the sale
of short term marketable securities.
Cash,
cash equivalents and short term marketable securities totaled approximately $5.4
million as of September 25, 2010. Approximately $2.4 million of
the current maturities of long-term debt to Siemens may be repaid through rebate
credits.
The
Company believes that current cash and cash equivalents and expected increases
in revenues generated by its new marketing initiatives and the continued growth
of the AARP program will be sufficient to funds its operating activities through
the next twelve months. However, there can be no assurance that the Company will
generate the expected increased cash flows from operations or that unexpected
cash needs will not arise for which the cash, cash equivalents and cash flow
from operations will be sufficient or that the Company can maintain compliance
with the Siemens loan covenants. In the event of a shortfall in cash,
the Company may reduce its marketing expenditures and other costs and might
consider short-term debt, or additional equity or debt
offerings. There can be no assurance however, that the Company can
reduce its costs sufficiently to offset cash shortfalls or that any debt or
equity financing will be available to the Company on favorable terms or at
all.
Contractual
Obligations
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 September 25, 2010.
|
|
Payments due by period
(000’s)
|
|
|
|
|
|
|
Less
|
|
|
|
|
|
|
|
|
More
|
|
|
|
|
|
|
than
1
|
|
|
|
1
– 3
|
|
|
|
4
– 5
|
|
|
Than
5
|
|
Contractual
obligations
|
|
Total
|
|
|
year
|
|
|
years
|
|
|
Years
|
|
|
years
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Long-term
debt (1 and 3)
|
|
|
37,747
|
|
|
|
5,218
|
|
|
|
6,446
|
|
|
|
26,083
|
|
|
|
-
|
|
Subtotal
of obligations recorded on balance sheet
|
|
|
37,747
|
|
|
|
5,218
|
|
|
|
6,446
|
|
|
|
26,083
|
|
|
|
-
|
|
Interest
to be paid on long-term debt (2 and 3)
|
|
|
12,015
|
|
|
|
3,282
|
|
|
|
5,485
|
|
|
|
3,248
|
|
|
|
-
|
|
Operating
leases
|
|
|
16,811
|
|
|
|
5,841
|
|
|
|
6,901
|
|
|
|
3,613
|
|
|
|
456
|
|
Employment
agreements
|
|
|
3,028
|
|
|
|
1,670
|
|
|
|
1,358
|
|
|
|
-
|
|
|
|
-
|
|
Purchase
obligations (4)
|
|
|
2,615
|
|
|
|
1,051
|
|
|
|
1,564
|
|
|
|
-
|
|
|
|
-
|
|
Total
contractual cash obligations
|
|
|
72,216
|
|
|
|
17,062
|
|
|
|
21,754
|
|
|
|
32,944
|
|
|
|
456
|
|
(1)
|
Approximately
$33.1 million can be repaid through rebate credits from Siemens, including
$2.4 million in less than 1 year and $4.8 million in years 1-3 and $25.6
million in years 4-5.
|
(2)
|
Interest
on long-term debt includes the interest on Tranches B and C that can be
repaid through rebate credits from Siemens, including $3.0 million in less
than 1 year and $5.4 million in years 1-3 and $2.9 million in years
4-5. Interest repaid through rebate credits was $2.4 million in
the first nine months of 2010. (See Note 4 – Long-Term Debt, Notes to
Consolidated Financial Statements included
herein).
|
(3)
|
Principal
and interest payments on long-term debt are based on cash payments and not
the carrying value of the discounted notes. (See Note 4 – Long-Term Debt,
Notes to Consolidated Financial Statements included
herein)
|
(4)
|
Purchase obligations includes the
contractual commitment for AARP campaigns to educate and promote hearing
loss awareness and prevention and the contractual commitment to AARP for
public marketing funds for the AARP Health Care Options General Program,
including $900,000 in less than 1
year.
|
CRITICAL
ACCOUNTING POLICIES
Management
believes the following critical accounting policies affect the significant
judgments and estimates used in the preparation of the consolidated financial
statements:
Goodwill
The
Company evaluates goodwill and certain intangible assets with indefinite lives
not being amortized for impairment annually or more frequently if impairment
indicators arise. Indicators at the Company include but are not limited to:
sustained operating losses or a trend of poor operating performance, a decrease
in the company’s market capitalization below its book value and an expectation
that a reporting unit will be sold or otherwise disposed of. If one
or more indicators of impairment exist, the Company performs an evaluation to
identify potential impairments. If impairment is identified, the
Company measures and records the amount of impairment losses. The Company
performs this annual analysis on the first day of its fourth
quarter.
A
two-step impairment test is performed on goodwill. In order to do
this, management applied judgment in determining its "reporting units", which
represent distinct parts of the Company’s business. As of September
25, 2010, the reporting units determined by management are the centers and the
network. The definition of the reporting units affects the Company’s goodwill
impairment assessments. In the first step, the Company compares the fair value
of each reporting unit to its carrying value. Calculating the fair
value of the reporting units requires significant estimates and long-term
assumptions. The Company utilized an independent appraisal firm to
test goodwill for impairment as of the first day of the Company’s fourth quarter
during 2009 and 2008, and each of these tests indicated no
impairment. The Company estimates the fair value of its reporting
units by applying a weighted average of two methods: quoted market price and
discounted cash flow.
If the
carrying value of the reporting unit exceeds its fair value, additional steps
are required to calculate an impairment charge. The second step of the goodwill
impairment test compares the implied fair value of the reporting unit’s goodwill
with the carrying value of the goodwill. If the carrying amount of
the reporting unit’s goodwill exceeds the implied fair value of that goodwill,
an impairment loss is recognized in an amount equal to that
excess. The implied fair value of goodwill is the fair value of the
reporting unit allocated to all of the assets and liabilities of that unit as if
the reporting unit had been acquired in a business combination and the fair
value of the reporting unit was the purchase price paid to acquire the reporting
unit. Significant changes in key assumptions about the business and
its prospects, or changes in market conditions, stock price, interest rates or
other externalities, could result in an impairment charge.
Judgments
regarding the existence of impairment indicators are based on legal factors,
market conditions and operational performance of the acquired businesses. Future
events could cause us to conclude that impairment indicators exist and that
goodwill associated with the acquired businesses is impaired. Additionally, as
the valuation of identifiable goodwill requires significant estimates and
judgment about future performance, cash flows and fair value, our future results
could be affected if these current estimates of future performance and fair
value change. Any resulting impairment loss could have a material adverse impact
on our financial condition and results of operations. As of September
25, 2010, none of our reporting units with goodwill were at risk of failing step
one of the goodwill impairment test.
Revenue
recognition
HearUSA
has company-owned centers in its core markets and a network of affiliated
providers who provide products and services to customers that are located
outside its core markets. HearUSA enters into provider
agreements with benefit providers (third party payors such as insurance
companies, managed care companies, employer groups, etc.) under (a) a discount
arrangement on products and service; (b) a fee for service arrangement; and (c)
a per capita basis or capitation arrangement, which is a fixed per member per
month fee received from the benefit providers.
All
contracts are for one calendar year and are usually cancelable with ninety days
or less notice by either party. Under the discount arrangements, the
Company provides the products and services to the eligible members of a benefit
provider at a pre-determined discount or customary price and the member pays the
Company directly for the products and services. Under the fee for service
arrangements, the Company provides the products and services to the eligible
members at its customary price less the benefit they are allowed (a specific
dollar amount), which the member pays directly to the Company. The
Company then bills the benefit provider the agreed upon benefit for the
service.
Under the
capitation agreements, the Company agrees with the benefit provider to provide
their eligible members with a pre-determined discount. Revenue under
capitation agreements is derived from the sales of products and services to
members of the plan and from a capitation fee paid to the Company by the benefit
provider at the beginning of each month. The members that are
purchasing products and services pay the customary price less the pre-determined
discount. The revenue from the sales of products to these
members is recorded at the customary price less applicable discount in the
period that the product is delivered. The direct expenses consisting
primarily of the cost of goods sold and commissions on sales are recorded in the
same period. Other indirect operating expenses are recorded in the period which
they are incurred.
The
capitation fee revenue is calculated based on the total members in the benefit
provider’s plan at the beginning of each month and is
non-refundable. Only a small percentage of these members may ever
purchase product or services from the Company. The capitation fee
revenue is earned as a result of agreeing to provide services to members without
regard to the actual amount of service provided. That revenue is
recorded monthly in the period that the Company has agreed to see any eligible
members.
The
Company records each transaction at its customary price for the three types of
arrangements, less any applicable discounts from the arrangements in the center
business segment. The products sold are recorded under the hearing
aids and other products line item and the services are recorded under the
service line item on the consolidated statement of
operations. Revenue and expense are recorded when the product has
been delivered, net of an estimate for return allowances. Revenue and expense
from services and repairs are recorded when the services or repairs have been
performed. Capitation revenue is recorded as revenue from hearing
aids since it relates to the discount given to the members.
Revenues
are considered earned by the Company at the time delivery of product or services
have been provided to its customers (when the Company is entitled to the
benefits of the revenues).
When the
arrangements are related to members of benefit providers that are located
outside the Company-owned centers’ territories, the revenues generated under
these arrangements are included under the network business
segment. The Company records a receivable for the amounts due from
the benefit providers and a payable for the amounts owed to the affiliated
providers. The Company only pays the affiliated provider when the
funds are received from the benefit provider. The Company records
revenue equal to the minimal fee for processing and administrative fees.
The costs associated
with these services are operating costs, mostly for the labor of the network
support staff and are recorded when incurred.
No
contract costs are capitalized by the Company.
Allowance for doubtful
accounts
Certain
of the accounts receivable of the Company are from health insurance and managed
care organizations and government agencies. These organizations could
take up to nine months before paying a claim made by the Company, impose a limit
on the time the claim can be billed and can audit claims after they have been
paid. The Company provides an allowance for doubtful accounts equal
to the estimated uncollectible amounts. That estimate is based on historical
collection experience, current economic and market conditions, and a review of
the current status of each customer's trade accounts receivable
.
Changes
in estimates are recognized in the periods they become known and
estimable.
In order
to calculate that allowance, the Company first identifies any known
uncollectible amounts in its accounts receivable listing and charges them
against the allowance for doubtful accounts. Then a specific percent
per plan and per aging categories is applied against the remaining receivables
to estimate the needed allowance. Any change in the percent
assumptions per plan and aging categories results in a change in the allowance
for doubtful accounts. For example, an increase of 10% in the percent
applied against the remaining receivables would increase the allowance for
doubtful accounts by approximately $71,000.
Sales
returns
The
Company offers all its customers a full 30-day return period or the return
period applicable to state guidelines if longer than 30 days. For
patients who participate in the family hearing counseling program, the return
period is extended to 60 days. Under the AARP program, patients who
are members of AARP have a return period of 90 days if the patient is
dissatisfied with the product. The Company calculates its
allowance for returns using estimates based upon actual historical returns. The
cost of the hearing aid is reimbursed to the Company by the
manufacturer.
Impairment of Long-Lived
Assets
Long-lived
assets are subject to a review for impairment if events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. If the future undiscounted cash flows generated by an asset or
asset group is less than its carrying amount, it is considered to be impaired
and would be written down to its fair value. Currently we have not experienced
any events that would indicate a potential impairment of these assets, but if
circumstances change we could be required to record a loss for the impairment of
long-lived assets.
Stock-based
compensation
Share-based
payments are accounted for using fair value in accordance with applicable
generally accepted accounting principles. To determine the fair value
of our stock option awards, we use the Black-Scholes option pricing model, which
requires management to apply judgment and make assumptions to determine the fair
value of our awards. These assumptions include estimating the length of time
employees will retain their vested stock options before exercising them (the
“expected term”), the estimated volatility of the price of our common stock over
the expected term and an estimate of the number of options that will ultimately
be forfeited.
The
expected term is based on historical experience of similar awards, giving
consideration to the contractual terms, vesting schedules and expectations of
future employee behavior. Expected stock price volatility is based on a
historical volatility of our common stock for a period at least equal to the
expected term. Estimated forfeitures are calculated based on historical
experience. Changes in these assumptions can materially affect the estimate of
the fair value of our share-based payments and the related amount recognized in
our consolidated financial statements.
Income
taxes
Income
taxes are calculated using the asset and liability method. Under this method,
deferred tax assets and liabilities are recognized based on the difference
between the carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using the
enacted tax rates. A valuation allowance is established against the
deferred tax assets when it is more likely than not that some portion or all of
the deferred taxes may not be realized.
Both the
calculation of the deferred tax assets and liabilities, as well as the decision
to establish a valuation allowance requires management to make estimates and
assumptions. Although we do not believe there is a reasonable likelihood that
there will be a material change in the estimates and assumptions used, if actual
results are not consistent with the estimates and assumptions, the balances of
the deferred tax assets, liabilities and valuation allowance could be
significantly different.
RECENT
ACCOUNTING PRONOUNCEMENTS
In
January 2010, the Financial Accounting Standards Board (the “FASB”) issued
Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about
Fair Value Measurements” (ASU 2010-06”). ASU 2010-06 amends the guidance on fair
value measurement disclosures to add new requirements for disclosures about
transfers into and out of the Level 1 and 2 categories in the fair value
measurement hierarchy, and separate disclosures about purchases, sales,
issuances, and settlements relating to Level 3 measurements. The amended
guidance also clarifies existing fair value disclosures about the level of
disaggregation and about inputs and valuation techniques used to measure fair
value. The new requirements for disclosures and clarifications of existing
disclosures are effective for interim and annual reporting periods beginning
after December 15, 2009, except for the disclosures about purchases, sales,
issuances, and settlements in the roll forward of activities in Level 3 fair
value measurements, which are effective for interim and annual reporting periods
beginning after December 15, 2010. The adoption of this guidance did not require
significant additional disclosures by the Company.
In July
2010, the FASB issued ASU 2010-20, “Receivables (Topic 310): Disclosures about
the Credit Quality of Financing Receivables and the Allowance for Credit
Losses”, which amends Subtopic 310-30 by requiring an entity to provide enhanced
and disaggregated disclosures about the credit quality of an entity’s financing
receivables and its allowance for credit losses. The objective of enhancing
these disclosures is to improve financial statement users’ understanding of both
the nature of an entity’s credit risk associated with its financing receivables
and the entity’s assessment of that risk in estimating its allowance for credit
losses as well as changes in the allowance and the reason for those changes. The
update is effective for the first interim or annual period ending on or after
December 15, 2010. We do not expect adoption of FASB ASU 2010-20 to have a
material impact on our financial position and results of operations, as it is a
disclosure standard.
In June
2009, the FASB issued guidance for determining the primary beneficiary of a
variable interest entity (“VIE”). In December 2009, the FASB issued ASU 2009-17,
“Improvements to Financial Reporting by Enterprises Involved with Variable
Interest Entities” (“ASU 2009-17”). ASU 2009-17 provides amendments to ASC 810
to reflect the revised guidance. The amendments in ASU 2009-17 replace the
quantitative-based risks and rewards calculation for determining which reporting
entity, if any, has a controlling financial interest in a VIE with an approach
focused on identifying which reporting entity has the power to direct the
activities of a VIE that most significantly impact the entity’s economic
performance and (i) the obligation to absorb losses of the entity or (ii) the
right to receive benefits from the entity. The amendments in ASU 2009-17 also
require additional disclosures about a reporting entity’s involvement with VIEs.
ASU 2009-17 is effective for annual reporting periods beginning after November
15, 2009. We do not anticipate that the adoption of this guidance will have a
material impact on our financial position and results of operations or require
additional disclosures.
In
September 2009, the FASB ratified ASU No. 2009-13 (formerly referred to as
Emerging Issues Task Force Issue No. 08-1), “Revenue Arrangements with Multiple
Deliverables.” ASU No. 2009-13 requires the allocation of
consideration among separately identified deliverables contained within an
arrangement, based on their related selling prices. ASU No. 2009-13
will be effective for revenue arrangements entered into or materially modified
in fiscal years beginning on or after June 15, 2010. Early adoption
is permitted. The Company does not anticipate that the adoption of
this guidance will have a material effect on our financial position and results
of operations or require additional disclosures.
Item
1A. Risk Factors
In
addition to the information set forth below and elsewhere in this Form 10-Q, you
should carefully consider the factors discussed under “Forward Looking
Statements” above and under “Risk Factors” in our annual report on Form 10-K for
the fiscal year 2009 as well as the risk factor set forth below. These risks
could materially and adversely affect our business, financial condition and
results of operations and are not the only risks we face. Our operations could
also be affected by additional factors that are not presently known to us or by
factors that we currently consider immaterial to our business.
The
AARP program is still in its early stages and there can be no assurance that the
program will generate the expected increases to Company revenue over time or at
all.
The
success of the AARP program is and will remain subject to several risks and
variables over the next several quarters some of which cannot be ascertained
with certainty at this time. Among those risks are risks related
to:
·
|
the
effectiveness of the Company’s marketing initiatives to generate interest
of AARP members in the program;
|
·
|
the
Company’s ability to capitalize on the increased number of calls to the
AARP call center by converting those calls to
appointments;
|
·
|
whether
AARP member appointments will result in identified needs and related
sales;
|
·
|
the
Company’s ability to expand the number of qualified network providers in
order to extend the program to AARP members in all 50 states and the U.S.
territories in accordance with the terms of the Company’s agreement with
AARP and AARP Services, Inc. (“ASI”);
and
|
·
|
the
Company’s ability to fund its performance obligations under the Company’s
agreements with AARP and ASI.
|
Failure
of the AARP program to generate expected increases in revenues could have a
material adverse effect on the financial condition of the Company.
Item
3.
Quantitative and Qualitative
Disclosure About Market Risk
The
Company does not engage in derivative transactions. 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 and cash flows are subject to changing market interest
rates:
|
|
Fixed
Rate
|
|
|
Variable
Rate
|
|
|
Total
|
|
|
|
9.5%
|
|
|
4.6%
to 16.7%
|
|
|
|
|
|
|
Due
February 2015
|
|
|
Other
|
|
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
(000’s)
|
|
|
(000’s)
|
|
|
(000’s)
|
|
2010
|
|
|
(605
|
)
|
|
|
(920
|
)
|
|
|
(1,525
|
)
|
2011
|
|
|
(2,411
|
)
|
|
|
(2,639
|
)
|
|
|
(5,050
|
)
|
2012
|
|
|
(2,416
|
)
|
|
|
(704
|
)
|
|
|
(3,120
|
)
|
2013
|
|
|
(2,350
|
)
|
|
|
(247
|
)
|
|
|
(2,597
|
)
|
2014
|
|
|
(2,334
|
)
|
|
|
(73
|
)
|
|
|
(2,407
|
)
|
Thereafter
|
|
|
(23,048
|
)
|
|
|
-
|
|
|
|
(23,048
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(33,164
|
)
|
|
|
(4,583
|
)
|
|
|
(37,747
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
fair value
|
|
|
(33,164
|
)
|
|
|
(4,400
|
)
|
|
|
(37,564
|
)
|
Item
4.
|
Controls
and Procedures
|
The
Company’s management, with the participation of the Company’s chief executive
officer and chief financial officer, evaluated the effectiveness of the
Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act) as of September 25,
2010. The Company’s chief executive officer and chief financial
officer concluded that, as of September 25, 2010, the Company’s disclosure
controls and procedures were effective.
No change
in the Company’s internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Securities Exchange Act) occurred during the
fiscal quarter ended September 25, 2010 that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
Part
II Other Information
Item
6. Exhibits
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 to 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 to 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 to
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 to
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 1999 Series H
Junior Participating Preferred Stock (incorporated herein by reference to
Exhibit 4 to the Company’s Current Report on Form 8-K, filed December 17,
1999 (File No. 001-11655)).
|
3.6
|
Certificate
of Designations, Preferences and Rights of the Company’s Special Voting
Preferred Stock (incorporated herein by reference to Exhibit 3.2 to the
Company’s Current Report on Form 8-K, filed July 19, 2002 (File No.
001-11655)).
|
3.7
|
Amendment
to Certificate of Designations, Preferences and Rights of
the Company’s 1999 Series H Junior Participating
Preferred Stock (incorporated herein by reference to Exhibit 4
to the Company’s Current Report on Form 8-K, filed July 17, 2002 (File No.
001-11655)).
|
3.8
|
Certificate
of Designations, Preferences and Rights of the Company’s 1998-E
Convertible Preferred Stock (incorporated herein by reference to Exhibit
4.1 to the Company’s Current Report on Form 8-K, filed August 28, 2003
(File No. 001-11655)).
|
3.9
|
Amendment
of Restated Certificate of Incorporation (increasing authorized capital)
(incorporated herein by reference to Exhibit 3.9 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended June 26,
2004).
|
3.10
|
Amendment
to Certificate of Designation of Series H Junior Participating Preferred
Stock of HearUSA, Inc. (increasing the number of authorized series H
Shares (incorporated herein by reference to Exhibit 3.1 to the
Company’s Current Report on Form 8-K, filed November 17,
2009)).
|
3.11
|
Amended
and Restated By-Laws of HearUSA, Inc. (effective October 16, 2009)
(incorporated herein by reference to the Company’s Report Filed on Form
8-K, filed October 27, 2009).
|
4.1
|
Amended
and Restated Rights Agreement, November 16, 2009 between the Company and
American Stock Transfer and Trust Company LLC, as Rights Agent
(incorporated herein by reference to Exhibit 4.4 to the Company’s Current
Report on Form 8-K, filed November 17, 2009).
|
31.1
|
CEO
Certification, pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
31.2
|
CFO
Certification, pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
32
|
CEO
and CFO Certification, pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
|
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)
|
|
|
November
9, 2010
|
|
|
|
|
/s/Stephen J. Hansbrough
|
|
Stephen
J. Hansbrough
|
|
Chairman
and Chief Executive Officer
|
|
HearUSA,
Inc.
|
|
|
|
/s/Francisco Puñal
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|
Francisco
Puñal
|
|
Senior
Vice President and
|
|
Chief
Financial Officer
|
|
HearUSA,
Inc.
|
Hearusa (AMEX:EAR)
Gráfica de Acción Histórica
De May 2024 a Jun 2024
Hearusa (AMEX:EAR)
Gráfica de Acción Histórica
De Jun 2023 a Jun 2024