HearUSA,
Inc.
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
Restated see |
|
|
|
|
|
|
Note 22 |
|
|
|
|
|
|
December 31, |
|
|
December 25, |
|
ASSETS (Note 6) |
|
2005 |
|
|
2004 |
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
6,706,944 |
|
|
$ |
2,615,379 |
|
Restricted cash and cash equivalents (Note 2) |
|
|
431,000 |
|
|
|
435,000 |
|
Accounts and notes receivable, less allowance for
doubtful accounts of $413,386 and $373,583 |
|
|
6,715,933 |
|
|
|
5,997,245 |
|
Inventories |
|
|
1,604,943 |
|
|
|
801,234 |
|
Prepaid expenses and other |
|
|
1,627,407 |
|
|
|
557,435 |
|
Current assets held for sale |
|
|
|
|
|
|
77,458 |
|
|
|
|
Total current assets |
|
|
17,086,227 |
|
|
|
10,483,751 |
|
Property and equipment, net (Notes 3 and 6) |
|
|
3,474,381 |
|
|
|
3,346,788 |
|
Goodwill (Notes 4 and 5) |
|
|
36,394,959 |
|
|
|
33,210,380 |
|
Intangible assets, net (Notes 4 and 5) |
|
|
11,440,345 |
|
|
|
11,094,169 |
|
Deposits and other |
|
|
585,633 |
|
|
|
551,148 |
|
Long-term assets held for sale (Note 19) |
|
|
|
|
|
|
736,125 |
|
|
|
|
|
|
$ |
68,981,545 |
|
|
$ |
59,422,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
8,499,812 |
|
|
$ |
6,644,600 |
|
Accrued expenses |
|
|
2,344,419 |
|
|
|
2,424,147 |
|
Accrued salaries and other compensation |
|
|
2,589,877 |
|
|
|
1,982,559 |
|
Current maturities of long-term debt (Note 6) |
|
|
5,192,108 |
|
|
|
4,152,908 |
|
Current maturities of convertible subordinated notes, net of debt
discount of $1,847,853 (Note 7) |
|
|
652,147 |
|
|
|
|
|
Current maturities of subordinated notes, net of debt discount of
$868,345 (Note 8) |
|
|
891,655 |
|
|
|
|
|
Dividends payable (Notes 9 and 10C) |
|
|
34,562 |
|
|
|
177,996 |
|
|
|
|
Total current liabilities |
|
|
20,204,580 |
|
|
|
15,382,210 |
|
|
|
|
Long-term debt (Note 6) |
|
|
19,970,099 |
|
|
|
17,296,125 |
|
Convertible
subordinated notes, net of debt discount of $1,565,187 and $5,443,879
(Note 7) |
|
|
3,434,813 |
|
|
|
2,056,121 |
|
Subordinated notes, net of debt discount of $512,350 (Note 8) |
|
|
2,787,650 |
|
|
|
|
|
Warrant liability (Note 8) |
|
|
1,347,217 |
|
|
|
|
|
|
|
|
Total long-term liabilities |
|
|
27,539,779 |
|
|
|
19,352,246 |
|
|
|
|
Commitments and contingencies (Notes 3,6,7,9,11 and 15) |
|
|
|
|
|
|
|
|
|
|
|
Mandatorily redeemable convertible preferred stock (Note 9) |
|
|
|
|
|
|
4,709,921 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
|
|
|
|
|
|
Preferred stock (aggregate liquidation preference $2,330,000 and
$2,330,000, $1 par, 7,500,000 shares authorized (Note 10)
Series H Junior Participating (none outstanding) |
|
|
|
|
|
|
|
|
Series J (233 shares outstanding) (Note 10C) |
|
|
233 |
|
|
|
233 |
|
|
|
|
Total preferred stock |
|
|
233 |
|
|
|
233 |
|
|
|
|
|
|
|
|
|
|
Common stock: $0.10 par; 75,000,000 shares authorized: 31,893,200
and 30,060,690 shares issued (Notes 4,5,7,9,10 and 11) |
|
|
3,189,320 |
|
|
|
3,006,069 |
|
Stock subscription (Note 10B) |
|
|
(412,500 |
) |
|
|
(412,500 |
) |
Additional paid-in capital |
|
|
121,934,658 |
|
|
|
120,197,937 |
|
Accumulated deficit |
|
|
(103,252,279 |
) |
|
|
(101,968,452 |
) |
Accumulated other comprehensive income |
|
|
2,262,895 |
|
|
|
1,639,838 |
|
Treasury stock, at cost: 523,662 common shares |
|
|
(2,485,141 |
) |
|
|
(2,485,141 |
) |
|
|
|
Total stockholders equity |
|
|
21,237,186 |
|
|
|
19,977,984 |
|
|
|
|
|
|
$ |
68,981,545 |
|
|
$ |
59,422,361 |
|
|
|
|
See accompanying notes to consolidated financial statements
17
HearUSA, Inc.
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
Restated see |
|
|
|
|
|
|
|
|
|
|
|
Note 22 |
|
|
|
December 31, |
|
|
December 25, |
|
|
December 27, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
|
Net revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Hearing aids and other products |
|
$ |
71,445,381 |
|
|
$ |
63,227,775 |
|
|
$ |
60,927,044 |
|
Services |
|
|
5,226,622 |
|
|
|
5,521,767 |
|
|
|
6,153,064 |
|
|
|
|
Total net revenues |
|
|
76,672,003 |
|
|
|
68,749,542 |
|
|
|
67,080,108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Hearing aids and other products |
|
|
20,972,635 |
|
|
|
17,511,405 |
|
|
|
18,836,929 |
|
Services |
|
|
1,793,944 |
|
|
|
1,718,287 |
|
|
|
128,759 |
|
|
|
|
Total cost of products sold and services |
|
|
22,766,579 |
|
|
|
19,229,692 |
|
|
|
18,965,688 |
|
Center operating expenses |
|
|
36,555,590 |
|
|
|
34,890,950 |
|
|
|
32,591,897 |
|
General and administrative expenses |
|
|
11,660,725 |
|
|
|
10,218,283 |
|
|
|
10,470,717 |
|
Depreciation and amortization |
|
|
1,974,193 |
|
|
|
2,072,237 |
|
|
|
2,783,877 |
|
|
|
|
Total operating costs and expenses |
|
|
72,957,087 |
|
|
|
66,411,162 |
|
|
|
64,812,179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
3,714,916 |
|
|
|
2,338,380 |
|
|
|
2,267,929 |
|
Non-operating income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
Gain from insurance settlement |
|
|
430,122 |
|
|
|
|
|
|
|
|
|
Interest income |
|
|
53,921 |
|
|
|
17,543 |
|
|
|
20,836 |
|
Interest expense (including approximately
$2,540,000, $2,127,000 and $517,000, in 2005,
2004 and 2003, of non-cash debt discount
amortization and a non-cash reduction of
approximately $513,000 in interest expense
for the decrease in the fair value of the
warrant liability) |
|
|
(4,640,558 |
) |
|
|
(4,563,729 |
) |
|
|
(2,828,327 |
) |
|
|
|
Loss from continuing operations before income
taxes |
|
|
(441,599 |
) |
|
|
(2,207,806 |
) |
|
|
(539,562 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
|
(78,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations |
|
|
(519,599 |
) |
|
|
(2,207,806 |
) |
|
|
(539,562 |
) |
|
|
|
Discontinued operations (Note 19)
Gain on disposition of assets |
|
|
332,470 |
|
|
|
|
|
|
|
|
|
Loss from discontinued operations |
|
|
(396,023 |
) |
|
|
(550,696 |
) |
|
|
(569,827 |
) |
|
|
|
Net loss from discontinued operations |
|
|
(63,553 |
) |
|
|
(550,696 |
) |
|
|
(569,827 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
(583,152 |
) |
|
|
(2,758,502 |
) |
|
|
(1,109,389 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends on preferred stock (Notes 9 and 10C) |
|
|
(700,675 |
) |
|
|
(708,159 |
) |
|
|
(626,956 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to common stockholders |
|
$ |
(1,283,827 |
) |
|
$ |
(3,466,661 |
) |
|
$ |
(1,736,345 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations,
including dividends on preferred stock,
applicable to common stockholders basic and
diluted |
|
$ |
(0.04 |
) |
|
$ |
(0.10 |
) |
|
$ |
(0.04 |
) |
|
|
|
Net loss applicable to common stockholders
per common share basic and diluted (Note 1) |
|
$ |
(0.04 |
) |
|
$ |
(0.11 |
) |
|
$ |
(0.06 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares of
common stock outstanding (Notes 1, 10 and 11) |
|
|
31,610,793 |
|
|
|
30,426,829 |
|
|
|
30,424,262 |
|
|
|
|
See accompanying notes to consolidated financial statements
18
HearUSA, Inc.
Consolidated Statements of Changes in Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
Year Ended |
|
|
Year Ended |
|
|
|
December 31, 2005 |
|
|
December 25, 2004 |
|
|
December 27, 2003 |
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
|
|
Preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
|
|
233 |
|
|
$ |
233 |
|
|
|
233 |
|
|
$ |
233 |
|
|
|
4,796 |
|
|
$ |
4,796 |
|
Exchange/redemption of preferred
stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,563 |
) |
|
|
(4,563 |
) |
|
|
|
Balance, end of year |
|
|
233 |
|
|
$ |
233 |
|
|
|
233 |
|
|
$ |
233 |
|
|
|
233 |
|
|
$ |
233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
|
|
30,060,676 |
|
|
$ |
3,006,068 |
|
|
|
29,528,450 |
|
|
$ |
2,952,845 |
|
|
|
24,457,055 |
|
|
$ |
2,445,705 |
|
Exercise of employee stock options |
|
|
130,000 |
|
|
|
13,000 |
|
|
|
6,250 |
|
|
|
625 |
|
|
|
20 |
|
|
|
2 |
|
Issuance of common stock for
exchangeable shares |
|
|
102,524 |
|
|
|
10,252 |
|
|
|
525,976 |
|
|
|
52,598 |
|
|
|
5,071,375 |
|
|
|
507,138 |
|
Warrant exercise |
|
|
1,600,000 |
|
|
|
160,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year |
|
|
31,893,200 |
|
|
$ |
3,189,320 |
|
|
|
30,060,676 |
|
|
$ |
3,006,068 |
|
|
|
29,528,450 |
|
|
$ |
2,952,845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
|
|
523,662 |
|
|
$ |
(2,485,141 |
) |
|
|
523,662 |
|
|
$ |
(2,485,141 |
) |
|
|
518,660 |
|
|
$ |
(2,483,441 |
) |
Purchase of treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,002 |
|
|
|
(1,700 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year |
|
|
523,662 |
|
|
$ |
(2,485,141 |
) |
|
|
523,662 |
|
|
$ |
(2,485,141 |
) |
|
|
523,662 |
|
|
$ |
(2,485,141 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock subscription |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
|
|
|
|
|
$ |
(412,500 |
) |
|
|
|
|
|
$ |
(412,500 |
) |
|
|
|
|
|
$ |
(412,500 |
) |
|
|
|
Balance, end of Year |
|
|
|
|
|
$ |
(412,500 |
) |
|
|
|
|
|
$ |
(412,500 |
) |
|
|
|
|
|
$ |
(412,500 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
|
|
|
|
|
$ |
120,197,937 |
|
|
|
|
|
|
$ |
120,226,050 |
|
|
|
|
|
|
$ |
117,314,681 |
|
Exchange/redemption of preferred
stock, including issuance costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,759,324 |
) |
Value of warrants and beneficial
conversion feature issued with
convertible subordinated notes
payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,708,229 |
|
Value of warrants issued with debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
429,339 |
|
Exercise of employee stock options |
|
|
|
|
|
|
55,000 |
|
|
|
|
|
|
|
3,563 |
|
|
|
|
|
|
|
13 |
|
Issuance of common stock for
exchangeable shares |
|
|
|
|
|
|
(10,252 |
) |
|
|
|
|
|
|
(52,598 |
) |
|
|
|
|
|
|
(507,138 |
) |
Proceeds of Board of Directors stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,250 |
|
Exercise of warrants |
|
|
|
|
|
|
1,665,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting expense |
|
|
|
|
|
|
26,973 |
|
|
|
|
|
|
|
12,672 |
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,250 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year |
|
|
|
|
|
$ |
121,934,658 |
|
|
|
|
|
|
$ |
120,197,937 |
|
|
|
|
|
|
$ |
120,226,050 |
|
|
|
|
See accompanying notes to consolidated financial statements
19
HearUSA, Inc.
Consolidated Statements of Changes in Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
Restated see Note 22 |
|
|
|
December 31, 2005 |
|
|
December 25, 2004 |
|
|
December 27, 2003 |
|
|
|
Amount |
|
|
Amount |
|
|
Amount |
|
Accumulated deficit: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
|
$ |
(101,968,452 |
) |
|
$ |
(98,501,791 |
) |
|
$ |
(96,765,446 |
) |
Net loss |
|
|
(583,152 |
) |
|
|
(2,758,502 |
) |
|
|
(1,109,389 |
) |
Dividends on preferred stock |
|
|
(700,675 |
) |
|
|
(708,159 |
) |
|
|
(626,956 |
) |
|
|
|
Balance, end of year |
|
$ |
(103,252,279 |
) |
|
$ |
(101,968,452 |
) |
|
$ |
(98,501,791 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
|
$ |
1,639,838 |
|
|
$ |
1,033,616 |
|
|
$ |
462,825 |
|
Foreign currency translation adjustment |
|
|
623,057 |
|
|
|
606,222 |
|
|
|
570,791 |
|
|
|
|
Balance, end of year |
|
$ |
2,262,895 |
|
|
$ |
1,639,838 |
|
|
$ |
1,033,616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(583,152 |
) |
|
$ |
(2,758,502 |
) |
|
$ |
(1,109,389 |
) |
Foreign currency translation adjustment |
|
|
623,057 |
|
|
|
606,222 |
|
|
|
570,791 |
|
|
|
|
Comprehensive income (loss) |
|
$ |
39,905 |
|
|
$ |
(2,152,280 |
) |
|
$ |
(538,598 |
) |
|
|
|
See
accompanying notes to consolidated financial statements
20
HearUSA, Inc.
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
Restated see |
|
|
|
|
|
|
|
|
|
Note 22 |
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 25, |
|
|
December 27, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(583,152 |
) |
|
$ |
(2,758,502 |
) |
|
$ |
(1,109,389 |
) |
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Debt discount amortization |
|
|
2,540,120 |
|
|
|
2,127,054 |
|
|
|
516,992 |
|
Depreciation and amortization |
|
|
1,974,193 |
|
|
|
2,072,237 |
|
|
|
2,783,877 |
|
Interest on Siemens Tranche D |
|
|
964,361 |
|
|
|
655,568 |
|
|
|
710,027 |
|
Provision for doubtful accounts |
|
|
354,107 |
|
|
|
430,454 |
|
|
|
801,303 |
|
Loss from discontinued operations |
|
|
63,553 |
|
|
|
550,696 |
|
|
|
569,827 |
|
Consulting expense |
|
|
26,969 |
|
|
|
12,672 |
|
|
|
|
|
Principal payments on long-term debt made through preferred
pricing reductions |
|
|
(2,922,537 |
) |
|
|
(2,920,804 |
) |
|
|
(2,920,804 |
) |
(Gain) loss on disposition of equipment |
|
|
(50,650 |
) |
|
|
53,836 |
|
|
|
648 |
|
Decrease in fair value of warrant liability |
|
|
(513,293 |
) |
|
|
|
|
|
|
|
|
Executive compensation expense |
|
|
|
|
|
|
8,250 |
|
|
|
|
|
(Increase) decrease in: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts and notes receivable |
|
|
(982,851 |
) |
|
|
(467,068 |
) |
|
|
(842,031 |
) |
Inventories |
|
|
(862,815 |
) |
|
|
99,475 |
|
|
|
(6,532 |
) |
Prepaid expenses and other |
|
|
(606,766 |
) |
|
|
636,835 |
|
|
|
124,212 |
|
Increase (decrease) in: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
|
1,632,714 |
|
|
|
(361,241 |
) |
|
|
(4,671,611 |
) |
Accrued salaries and other compensation |
|
|
595,860 |
|
|
|
261,810 |
|
|
|
(123,107 |
) |
|
|
|
Net cash provided by (used in) continuing activities |
|
|
1,629,813 |
|
|
|
401,272 |
|
|
|
(4,166,588 |
) |
Net cash provided by (used in) discontinued operations |
|
|
(113,457 |
) |
|
|
(356,598 |
) |
|
|
(666,013 |
) |
|
|
|
Net cash provided by (used in) operating activities |
|
|
1,516,356 |
|
|
|
44,674 |
|
|
|
(4,832,601 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
(1,184,400 |
) |
|
|
(342,767 |
) |
|
|
(221,854 |
) |
Capital expenditures from discontinued operations |
|
|
(13,332 |
) |
|
|
(39,906 |
) |
|
|
(46,025 |
) |
Proceeds from sale of discontinued operations |
|
|
1,101,385 |
|
|
|
104,628 |
|
|
|
1,880,244 |
|
Business acquisitions |
|
|
(1,589,411 |
) |
|
|
|
|
|
|
(251,533 |
) |
|
|
|
Net cash provided by (used in) investing activities |
|
|
(1,685,758 |
) |
|
|
(278,045 |
) |
|
|
1,360,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt |
|
|
5,000,000 |
|
|
|
|
|
|
|
3,500,000 |
|
Proceeds from subordinated notes, net of issuing cost of $330,000 |
|
|
5,170,000 |
|
|
|
|
|
|
|
|
|
Proceeds from convertible notes, net of issuing costs of $266,000 |
|
|
|
|
|
|
500,000 |
|
|
|
8,734,000 |
|
Payments on long-term debt from discontinued operations |
|
|
|
|
|
|
|
|
|
|
(29,822 |
) |
Principal payments on long-term debt |
|
|
(1,708,256 |
) |
|
|
(3,310,477 |
) |
|
|
(1,160,696 |
) |
Principal payments on subordinated notes |
|
|
(440,000 |
) |
|
|
|
|
|
|
|
|
Principal payments on convertible subordinated notes |
|
|
|
|
|
|
|
|
|
|
(2,000,000 |
) |
Acquisition of treasury stock |
|
|
|
|
|
|
|
|
|
|
(1,700 |
) |
Exchange and redemption of capital stock |
|
|
(4,928,041 |
) |
|
|
|
|
|
|
(200,877 |
) |
Proceeds from exercise of employee stock options |
|
|
68,000 |
|
|
|
4,189 |
|
|
|
15 |
|
Proceeds from Board of Director sale of stock |
|
|
|
|
|
|
|
|
|
|
40,250 |
|
Proceeds from the exercise of warrants |
|
|
1,825,000 |
|
|
|
|
|
|
|
|
|
Dividends on preferred stock |
|
|
(770,196 |
) |
|
|
(1,149,048 |
) |
|
|
(1,076,317 |
) |
|
|
|
Net cash provided by (used in) financing activities |
|
|
4,216,507 |
|
|
|
(3,955,336 |
) |
|
|
7,804,853 |
|
|
|
|
See accompanying notes to consolidated financial statements
21
HearUSA, Inc.
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
Restated see |
|
|
|
|
|
|
|
|
|
Note 22 |
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 25, |
|
|
December 27, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
|
Effects of exchange rate changes on cash |
|
|
44,460 |
|
|
|
89,205 |
|
|
|
(28,226 |
) |
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
4,091,565 |
|
|
|
(4,099,502 |
) |
|
|
4,304,858 |
|
Cash and cash equivalents at beginning of year |
|
|
2,615,379 |
|
|
|
6,714,881 |
|
|
|
2,410,023 |
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
6,706,944 |
|
|
$ |
2,615,379 |
|
|
$ |
6,714,881 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
1,244,049 |
|
|
$ |
1,263,473 |
|
|
$ |
424,337 |
|
Supplemental schedule of non-cash investing and financing
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments on long-term debt through preferred pricing
reductions |
|
$ |
2,922,537 |
|
|
$ |
2,920,804 |
|
|
$ |
2,920,804 |
|
Issuance of note payable and assumption of accounts payable
in exchange business acquisitions |
|
$ |
2,250,000 |
|
|
$ |
|
|
|
$ |
100,492 |
|
Issuance of capital lease in exchange for property and equipment |
|
$ |
141,913 |
|
|
$ |
|
|
|
$ |
401,883 |
|
Purchase of equipment with volume discount credit |
|
$ |
|
|
|
$ |
158,800 |
|
|
$ |
|
|
See accompanying notes to consolidated financial statements
22
1. Description of the Company and Summary of Significant Accounting Policies
The Company
HearUSA Inc. (HearUSA or the Company), a Delaware corporation, was organized in 1986.
As of December 31, 2005, the Company has a network of more than 133 company-owned hearing care centers in
eight states and the Province of Ontario, Canada. The Company also sponsors a network of
approximately 1,400 credentialed audiology providers that participate in selected hearing benefit
programs contracted by the Company with employer groups, health insurers and benefit sponsors in 49
states. The centers and the network providers provide audiological products and services for the
hearing impaired.
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.
During 2005 and 2004, HEARx West generated net income of approximately $2,330,000 and $1,385,000.
The HEARx West members deficit decreased from approximately $3,206,000 at the end of 2004 to
approximately $876,000 at the end of 2005. According to the Companys agreement with the
Permanente Federation, the Company included in its consolidated statement of operations 100% of the
losses incurred by the venture since its inception and will receive 100% of the net income of the
venture until the members deficit is eliminated. At such time as the members deficit is
eliminated and the venture continues to be profitable, the Company will begin recording a minority
interest, corresponding to 50% of the ventures net income, as an expense in the Companys
consolidated statement of operations and with a corresponding liability on its consolidated balance
sheet.
Revenue Recognition
Revenues from the sale of audiological products are recognized at the time of delivery to the
patient. Revenues from hearing care services are recognized at the time those services are
performed.
The Company has capitation contracts with certain health care organizations under which the Company
is paid an amount for each enrollee of the health maintenance organization to provide to the
enrollee a discount on certain hearing products and services. The amount paid to the Company by
the healthcare organization is calculated on a per-capita basis and is referred to as capitation
revenue. Capitation revenue is earned as a result of agreeing to provide services to members
without regard to the actual amount of service provided. Revenue is recorded in the period that the
beneficiaries are entitled to hearing care services.
Foreign Currency Translation
The consolidated financial statements for the Companys Canadian subsidiaries are translated into
U.S. dollars at current exchange rates. For assets and liabilities, the year-end rate is used. For
revenues, expenses, gains and losses the average rate for the period is used. Unrealized currency
adjustments in the Consolidated Balance Sheet are accumulated in stockholders equity as a
component of accumulated other comprehensive income.
Comprehensive Income (Loss)
Comprehensive income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. The Companys other comprehensive income
represents foreign currency translation adjustment.
23
Fiscal year
The Companys fiscal year ends on the last Saturday in December and customarily consists of four
13-week quarters for a total of 52 weeks. Every sixth year includes 53 weeks. The current year
includes 53 weeks with the additional week included in the first quarter of 2005. The next year
with 53 weeks will be 2011.
Concentration of credit risk
The Company maintains its cash deposits at commercial banks. We place our cash and cash
equivalents with high quality financial institutions. At times, our account balances may exceed
federally insured limits. Management believes the Company is not exposed to any significant risk
on its cash accounts.
Allowance for doubtful accounts
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 customers trade accounts receivable.
Inventories
Inventories, which consist of hearing aids, batteries, special hearing devices and related items,
are priced at the lower of cost (first-in, first-out) or market.
Property and equipment
Property and equipment is stated at cost. Depreciation is provided on the straight-line method
over the estimated useful lives of the depreciable assets. Leasehold improvements are amortized
over the shorter of the term of the lease or the useful life of the asset.
Goodwill and other intangible assets
Under Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible
Assets, effective in 2002, goodwill amortization ceased and goodwill is subject to impairment
assessments. A fair-value-based test is applied at the reporting unit level. This test requires
various judgments and estimates. A goodwill impairment loss would be recorded for any goodwill that
is determined to be impaired. The Company utilized an independent appraisal firm to test goodwill
for impairment as of the first day of the Companys fourth quarter during 2004 and 2005, and each
of these tests indicated no impairment. Other intangible assets include finite lived intangible
assets, such as patient files and customer lists, which are amortized over the estimated useful
life of the assets of 15 years, generally based upon estimated undiscounted future cash flows
resulting from use of the asset. Indefinite lived assets include trademarks and tradenames, which
are not amortized.
Pre-opening costs
The costs associated with the opening of new centers are expensed as incurred.
Long-lived assets impairments and disposals
The Company reviews the carrying values of its long-lived and identifiable intangible assets for
possible impairment whenever events or changes in circumstances indicate that the carrying amounts
of the assets may not be recoverable through the estimated undiscounted future cash flows resulting
from the use of these assets. At December 31, 2005 no long-lived assets were held for disposal. At
December 25, 2004, long-lived assets of approximately $736,000 were held for disposal and sold in
May 2005 (See Note 19 Discontinued Operations). No impairment losses were recorded in the
consolidated statement of operations.
24
Convertible Instruments, Warrants, Amortization of Debt Discount and Fair Value
Determination
In 2003 the Company issued debt instruments which are convertible into its common stock and
included the issuance of warrants. These financing transactions are recorded in accordance with
Emerging Issues Task Force Issue No. 98-5 Accounting for Convertible Securities with Beneficial
Conversion Features or Contingently Adjustable Conversion Ratios and 00-27 Application of Issue
No. 98-5 to Certain Convertible Instruments. Accordingly, the beneficial conversion feature
embedded in the convertible instrument and the value allocated to the related warrants based upon a
relative fair value allocation of the proceeds of the instrument is recognized on the consolidated
balance sheet as debt discount. The debt discount is amortized as interest expense over the life
of the instrument.
Subordinated Notes, Warrants, Amortization of Debt Discount and Fair Value Determination
In August 2005 the Company issued subordinated notes that included the issuance of warrants. The
Company has agreed to register the common shares underlying the warrant shares and to maintain such
registration so that the Warrant holders may sell their shares if the Note Warrants are exercised.
These financing transactions are recorded in accordance with Emerging Issues Task Force Issue No
00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in a
Companys Own Stock. Accordingly, the liability created by the Companys agreement to register
and keep the underlying shares registered during the three year period has been recorded as a
warrant liability using a Black-Scholes option pricing model. Any gains or losses resulting from
the changes in fair value from period to period are included in income as interest expense
Advertising Costs
Costs for newspaper, television, and other media advertising are expensed as incurred and were
$5,642,000, $5,493,000 and $4,514,000 in 2005, 2004, and 2003, respectively.
Sales return policy
The Company provides to all patients purchasing hearing aids a specific return period, which is a
minimum of 30 days, if the patient is dissatisfied with the product. The Company provides an
allowance in accrued expenses for returns. The return period can be extended to 60 days if the
patient attends the Companys H.E.L.P. program.
Warranties
The Company provides its patients with warranties on hearing aids varying from one to three years.
The first year of the warranty is always covered by the manufacturers warranty. The warranties
provided for the second and third year require a co-payment from the patients, usually covering the
cost of the repair or replacement to the Company. When the cost of repair or replacement to the
Company is estimated to exceed the patient co-pay, the Company provides an allowance in accrued
expenses to cover the future excess cost. Historically such amounts have been minimal.
Income taxes
Deferred taxes are provided for temporary differences arising from the differences between
financial statement and income tax bases of assets and liabilities. Deferred tax assets and
liabilities are measured using enacted tax rates. Valuation allowances are established when
necessary to reduce deferred tax assets and liabilities to amounts considered more likely than not
to be realized.
25
Net loss per common share
Net loss per common share is calculated in accordance with SFAS No. 128 Earnings Per Share which
requires companies to present basic and diluted earnings per share. Net loss per common share
basic is based on the weighted average number of common shares outstanding during the year. Net
loss per common share diluted is based on the weighted average number of common shares and
dilutive potential common shares outstanding during the year. Under the if-converted method,
securities are assumed to be converted at the beginning of the period and the resulting common
shares are included in the denominator of the diluted earnings per share calculation for the entire
period presented. Convertible preferred stock, stock options and stock warrants are excluded from
the computations of net loss per common share because the effect of their inclusion would be
anti-dilutive.
Due to the Companys losses, the following common stock equivalents for convertible debt,
mandatorily redeemable convertible preferred stock, outstanding options and warrants to purchase
common stock, of 7,699,153, 9,738,372, and 18,984,654, respectively, were excluded from the
computation of net loss per common share diluted at December 31, 2005, December 25, 2004 and
December 27, 2003 because they were anti-dilutive. For purposes of computing net loss per common
share basic and diluted, for the years ended December 31, 2005 and December 25, 2004, the
weighted average number of shares of common stock outstanding includes the effect of the 790,358
and 892,872, respectively, of exchangeable shares of HEARx Canada, Inc., as if they were
outstanding common stock of the Company on June 30, 2002, the effective date of the Helix
combination for financial reporting purposes.
Stock-based compensation-Restated
The Company has granted stock options to employees and directors under stock option plans that are
more fully described in Note 10. The Company accounts for those plans using the intrinsic value
method under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees. No stock-based employee compensation cost has been reflected in net loss, as all
options granted under those plans had an exercise price greater than or equal to the market value
of the underlying common stock on the date of grant. The following table illustrates the effect on
net loss and loss per share if the Company had applied the fair value recognition provisions of
SFAS No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation (See
Note 18 Recent Accounting Pronouncement):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restated |
|
|
|
December 31, |
|
|
December 25, |
|
|
December 27, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
|
Loss applicable to common stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
As reported |
|
$ |
(1,283,827 |
) |
|
$ |
(3,466,661 |
) |
|
$ |
(1,736,345 |
) |
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards, net of tax effects |
|
|
(1,529,000 |
) |
|
|
(887,000 |
) |
|
|
(447,000 |
) |
|
|
|
Pro forma, net loss |
|
$ |
(2,812,827 |
) |
|
$ |
(4,353,661 |
) |
|
$ |
(2,183,345 |
) |
|
|
|
Loss per share |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to common stockholders per common
share basic and diluted |
|
$ |
(0.04 |
) |
|
$ |
(0.11 |
) |
|
$ |
(.06 |
) |
|
|
|
Net loss applicable to common stockholders per common
share basic and diluted pro forma |
|
$ |
(0.09 |
) |
|
$ |
(0.14 |
) |
|
$ |
(.07 |
) |
|
|
|
26
For purposes of the above disclosure, the determination of the fair value of stock options
granted in 2005, 2004, and 2003, was based on the assumption of no expected dividends on the
underlying common stock and the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
Risk free interest rate |
|
|
4.39 |
% |
|
|
4.16 |
% |
|
|
2.90 |
% |
Expected life, in years |
|
|
5-10 |
|
|
|
5-10 |
|
|
|
5-10 |
|
Expected volatility |
|
|
96 |
% |
|
|
92 |
% |
|
|
98 |
% |
Statements of Cash Flows
For the purposes of the Statements of Cash Flows, temporary cash investments which are not
restricted as to their use and have an original maturity of ninety days or less are considered cash
equivalents.
Estimates
The preparation of the financial statements in conformity with generally accepted accounting
principles in the United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications
Certain amounts in the 2004 and 2003 financial statements have been reclassified in order to
conform to the 2005 presentation.
2. Restricted Cash and Cash Equivalents
Restricted cash and cash equivalents at December 31, 2005 and December 25, 2004 consist of
certificates of deposit with contractual maturities of one year or less of $431,000 and $435,000.
Restricted cash and cash equivalents was pledged as collateral to a financial institution for
automated clearing house exposure.
3. Property and Equipment and Leases
Property and equipment consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range of |
|
|
December 31, |
|
|
December 25, |
|
|
|
Useful Lives |
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment, furniture and fixtures |
|
5 -10 years |
|
$ |
10,868,588 |
|
|
$ |
10,305,606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasehold Improvements |
|
5 -10 years |
|
|
7,665,710 |
|
|
|
7,391,414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Computer systems |
|
3 years |
|
|
4,806,302 |
|
|
|
4,435,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction in progress |
|
|
N/A |
|
|
|
34,583 |
|
|
|
23,498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,375,183 |
|
|
|
22,155,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less accumulated depreciation and amortization |
|
|
|
|
|
|
19,900,802 |
|
|
|
18,808,847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,474,381 |
|
|
$ |
3,346,788 |
|
|
|
|
|
|
|
|
27
Total estimated future depreciation expense for the Companys current property and equipment
are as follows:
|
|
|
|
|
|
|
Amount |
|
2006 |
|
$ |
1,095,000 |
|
2007 |
|
|
779,000 |
|
2008 |
|
|
583,000 |
|
2009 |
|
|
334,000 |
|
2010 |
|
|
227,000 |
|
Thereafter |
|
|
134,000 |
|
The Company leases facilities primarily for hearing centers. These are located in retail shopping
areas having terms expiring at various dates through fiscal 2010. The Company recognizes rent
expense on a straight line basis over the lease term. The leases have renewal clauses of 1 to 10
years at the option of the Company. The difference between the straight-line and cash payments,
which is due to escalating rents in the lease contracts, is included in accrued expenses in the
accompanying consolidated balance sheet. Equipment and building rent expense under operating
leases in 2005, 2004 and 2003 was approximately $5,851,000, $5,793,000 and $5,836,000,
respectively.
Approximate future minimum rental commitments under operating leases are as follows:
|
|
|
|
|
|
|
Amount |
|
2006 |
|
$ |
5,368,000 |
|
2007 |
|
|
4,592,000 |
|
2008 |
|
|
3,709,000 |
|
2009 |
|
|
2,458,000 |
|
2010 |
|
|
1,722,000 |
|
Thereafter |
|
|
1,086,000 |
|
4. Goodwill and Intangible Assets
A summary of changes in the Companys goodwill during the years ended December 31, 2005 and
December 25, 2004, by business segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 25, |
|
|
Additions & |
|
|
Currency |
|
|
December 31, |
|
|
|
2004 |
|
|
Adjustments |
|
|
Translation |
|
|
2005 |
|
|
|
|
Centers |
|
$ |
32,330,000 |
|
|
$ |
2,806,000 |
|
|
$ |
379,000 |
|
|
$ |
35,515,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Network |
|
|
880,000 |
|
|
|
|
|
|
|
|
|
|
|
880,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
33,210,000 |
|
|
$ |
2,806,000 |
|
|
$ |
379,000 |
|
|
$ |
36,395,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 27, |
|
|
Additions & |
|
|
Currency |
|
|
December 25, |
|
|
|
2003 |
|
|
Adjustments |
|
|
Translation |
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Centers |
|
$ |
31,901,000 |
|
|
$ |
|
|
|
$ |
429,000 |
|
|
$ |
32,330,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Network |
|
|
880,000 |
|
|
|
|
|
|
|
|
|
|
|
880,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
32,781,000 |
|
|
$ |
|
|
|
$ |
429,000 |
|
|
$ |
33,210,000 |
|
|
|
|
28
As of December 31, 2005 and December 25, 2004, intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 25, |
|
|
|
2005 |
|
|
2004 |
|
Amortizable intangible assets: |
|
|
|
|
|
|
|
|
Patient files and customer lists |
|
$ |
6,370,000 |
|
|
$ |
5,505,000 |
|
Accumulated amortization |
|
|
(2,340,000 |
) |
|
|
(1,766,000 |
) |
|
|
|
Amortizable intangible assets, net |
|
|
4,030,000 |
|
|
|
3,739,000 |
|
Trademark and trade names |
|
|
7,410,000 |
|
|
|
7,355,000 |
|
|
|
|
|
|
$ |
11,440,000 |
|
|
$ |
11,094,000 |
|
|
|
|
The aggregate amortization expense was as follows in 2005, 2004 and 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
|
Amortization expense |
|
$ |
623,000 |
|
|
$ |
478,000 |
|
|
$ |
430,000 |
|
Total estimated future amortization expenses for the Companys current intangible assets are as
follows:
|
|
|
|
|
|
|
Amount |
|
2006 |
|
$ |
718,000 |
|
2007 |
|
|
484,000 |
|
2008 |
|
|
466,000 |
|
2009 |
|
|
436,000 |
|
2010 |
|
|
409,000 |
|
Thereafter |
|
|
1,495,000 |
|
5. Business Acquisitions
During 2005, the Company acquired the assets of six hearing care centers in Michigan, New Jersey,
New York and California in four separate transactions. Consideration paid was cash of $1 million
and notes payable in the amount of $850,000. The acquisitions resulted in additions to goodwill of
approximately $1.3 million, fixed assets of approximately $17,000 and intangible customer lists and
non-compete of approximately $486,000. The notes bear interest at 5 percent and are payable in
quarterly installments of $45,800 plus accrued interest, through September 2009.
In May 2005, the Company also acquired the assets of a hearing care network in Florida, including
network. Consideration of $350,000 cash and a three-year convertible note payable $1.4 million was
paid for network contracts of approximately $340,000 and goodwill of approximately $1.4 million.
The note bears interest at 7 percent and is payable in 36 monthly installments of $38,889 plus
interest, beginning on June 1, 2005. After September 30, 2005 the payee has the right to convert
all or any portion of the unpaid principal, and accrued interest, on the note into the number of
shares of the Companys common stock as determined by dividing such sum of unpaid principal and
accrued interest to be converted by $1.74 (the market price of the Companys common stock on the
date of the acquisition).
29
6. Long-term Debt (Also see Notes 7 and 8)
Long-term debt consists of the following, before and after reflecting the new amended and restated
agreements signed on February 10, 2006 with Siemens See a) below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before |
|
|
After |
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
December 25, |
|
|
|
2005 |
|
|
2005 |
|
|
2004 |
|
Notes payable to a Siemens see (a) below: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tranche A |
|
$ |
1,299,984 |
|
|
$ |
2,239,851 |
|
|
$ |
3,599,988 |
|
|
|
|
|
|
|
|
|
|
|
Tranche B |
|
|
39,867 |
|
|
|
|
|
|
|
62,400 |
|
|
|
|
|
|
|
|
|
|
|
Tranche C |
|
|
900,000 |
|
|
|
20,875,256 |
|
|
|
1,500,000 |
|
|
|
|
|
|
|
|
|
|
|
Tranche D (including accrued interest of
$1,298,865 and $1,813,971) |
|
|
14,298,865 |
|
|
|
|
|
|
|
13,590,284 |
|
|
|
|
|
|
|
|
|
|
|
Tranche E |
|
|
1,576,391 |
|
|
|
|
|
|
|
2,171,329 |
|
|
|
|
|
|
|
|
|
|
|
Tranche F |
|
|
5,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
91,685 |
|
|
|
|
|
|
|
|
|
|
|
Total notes payable to Siemens |
|
|
23,115,107 |
|
|
|
23,115,107 |
|
|
|
21,015,686 |
|
|
|
|
|
|
|
|
|
|
|
Notes payable to others |
|
|
2,047,100 |
|
|
|
2,047,100 |
|
|
|
433,347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,162,207 |
|
|
|
25,162,207 |
|
|
|
21,449,033 |
|
|
|
|
|
|
|
|
|
|
|
Less current maturities |
|
|
5,192,108 |
|
|
|
5,392,253 |
|
|
|
4,152,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
19,970,099 |
|
|
$ |
19,769,954 |
|
|
$ |
17,296,125 |
|
|
|
|
|
|
|
|
|
|
|
The approximate aggregate maturities on long-term debt obligations in years subsequent to 2005
are as follows:
|
|
|
|
|
|
|
Amount |
|
2006 |
|
$ |
5,192,000 |
|
2007 |
|
|
4,820,000 |
|
2008 |
|
|
4,533,000 |
|
2009 |
|
|
4,320,000 |
|
2010 |
|
|
5,042,000 |
|
Thereafter |
|
|
1,255,000 |
|
a) |
|
On December 7, 2001, the Company obtained a secured credit facility from Siemens comprised of
(a) a $10,875,000 secured five-year term loan credit facility (the Tranche A Loan); (b) a
$25,000,000 secured five-year revolving loan credit facility (the Tranche B Loan); (c) a
$3,000,000 secured five-year term loan facility (the Tranche C Loan) and (d) a $13,000,000
secured five-year term loan credit facility (the Tranche D Loan). On March 14, 2003, the
Company obtained an additional $3,500,000 secured five-year term loan from Siemens bearing
interest at a rate of 10% annually (the Tranche E Loan). The Tranche E Loan was obtained
pursuant to an amendment to the Companys credit agreement with Siemens and is otherwise
subject to the terms and conditions of the credit agreement and related security agreement.
On December 28, 2005, the Company obtained an additional $5,000,000, bearing interest at prime
plus 1% and having a five-year term (the Tranche F Loan). The Tranche F loan was obtained
pursuant to a term sheet signed on December 28, 2005, which indicates the intention of both
parties to extend their relationship and amend and restate the existing credit, supply and
security agreements for an additional five years. At December 31, 2005 $1,299,984, $39,867,
$900,000, $14,298,865, $1,576,391 and $5,000,000, representing principal on the Tranche A,
Tranche B, Tranche C, Tranche D, Tranche E and Tranche F Loans, respectively, were
outstanding. |
|
|
|
On February 10, 2006, HearUSA, Inc. (the Company) entered into an Amended and Restated
Credit Agreement (the Amended Credit Agreement), Amended and Restated Supply Agreement
(the Amended Supply Agreement) and an Amended and Restated Security Agreement with Siemens
Hearing Instruments, Inc. (Siemens). Pursuant to the amended agreements, the |
30
parties will continue their strategic relationship for an additional five-year term. The
parties have restructured the outstanding $23.1 million indebtedness of the Company to
Siemens under the original credit agreement. The new facility is for a total of $26
million, including the currently outstanding $23.1 million, and is structured in three
tranches.
The new Tranche A, with a principal balance of approximately $2.2 million and interest of
10% per annum, is payable in three quarterly installments commencing with the first quarter
of 2006, which quarterly payments are subject to rebate credits as described below. This
note is a consolidation of the old Tranches A, B and C.
The new Tranche B is a revolving credit line established to accommodate funding for certain
acquisitions by the Company. Pursuant to the Amended Credit Agreement, the Company may
borrow under Tranche B up to the $26 million limit, less any amounts then outstanding under
Tranche A and Tranche C.
The new Tranche C, which is a consolidation of the old Tranches D, E and F, has a principal
balance on the closing date of approximately $20.9 million, an interest rate of prime plus
1% per annum, and is payable in monthly installments of principal and interest of $130,000
commencing February 2006. In addition, the Company must make quarterly installment payments
on Tranche C of $730,000 plus interest thereon commencing with the fourth quarter of 2006,
which quarterly payments are also subject to rebate credits as described below. Additional
loans may be made to the Company under Tranche C for certain acquisitions. The monthly
installment payments are intended to repay approximately $6.6 million of the Tranche C
principal balance.
The remaining principal balance of Tranche C, as well as Tranche A and Tranche B, with
interest, will continue to be eligible for repayment utilizing rebates on purchases of
hearing aids from Siemens, provided that the Company purchases under the Amended Supply
Agreement certain percentages of hearing aids it sold. The Amended Credit Agreement also
contemplates that the Company will reduce the Tranche C loan balance by making annual
payments in an amount equal to 20% of Excess Cash Flow (as that term is defined in the
Amended Credit Agreement), and by paying Siemens 25% of proceeds from equity offerings the
Company may complete. During 2005, the Company made $267,000 in payments to Siemens
pursuant to its 2004 excess cash flow. The estimated payment for 2006 based on 2005 excess
cash flow is $237,000.
Substantially all of the Companys assets to collateralize repayment of the Siemens notes
payable.
The following table shows the preferred pricing reductions received from Siemens pursuant to
the supply agreement and the application of such pricing reductions against principal and
interest payments on Tranches A, B and C during each of the years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
|
Preferred pricing
reductions recorded as
a reduction of cost of
products sold |
|
$ |
3,311,000 |
|
|
$ |
3,641,000 |
|
|
$ |
3,947,000 |
|
|
|
|
Portion applied
against quarterly
principal payments |
|
$ |
(2,922,000 |
) |
|
$ |
(2,921,000 |
) |
|
$ |
(2,921,000 |
) |
Portion applied
against quarterly
interest payments |
|
|
(389,000 |
) |
|
|
(720,000 |
) |
|
|
(1,026,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(3,311,000 |
) |
|
$ |
(3,641,000 |
) |
|
$ |
(3,947,000 |
) |
|
|
|
In connection with the Amended Credit Agreement, HearUSA and Siemens entered into the
Amended Supply Agreement, pursuant to which HearUSA agreed to purchase from Siemens certain
minimum percentages of HearUSA company-owned centers hearing aid purchases for a period of
five years at specified prices. If the Company fails to purchase the required minimum
31
|
|
under the Amended Supply Agreement, Siemens could declare a breach of the Amended
Credit Agreement and Siemens would have the right to declare all amounts outstanding under
the credit facility immediately due and payable. |
|
|
|
Pursuant to the agreements with Siemens, a change of control of the Company (as defined)
will constitute an event of default upon which Siemens may cancel its commitments under the
credit agreement and declare the entire outstanding amounts under the credit facilities to
be immediately due and payable. |
7. Convertible Subordinated Notes
In December 2003, the Company completed a private placement of $7.5 million five-year convertible
subordinated notes with warrants to purchase 2,642,750 shares of the Companys common stock. The
notes could not be converted and warrants to purchase 2,142,750 shares could not be exercised for a
two-year period. The remaining warrants to purchase 500,000 shares were exercisable after May 31,
2005 at $1.75 per share. Beginning December 2005 the notes could have been converted at $1.75 per
share and the lender warrants would have been exercised for up to 2,142,750 shares at $1.75 per
share. The quoted closing market price of the Companys common stock on the commitment date was
$2.37 per share. The notes bear interest at 11 percent annually for the first two years and then
at 8 percent through the remainder of their term. The Company recorded a debt discount of
approximately $7,488,000 consisting of intrinsic value of the beneficial conversion of
approximately $4,519,000 and the portion of the proceeds allocated to the warrants issued to the
lenders of approximately $2,969,000, using a Black-Scholes option pricing model, based on the
relative fair values of the lender warrants and the notes. The debt discount is being amortized as
interest expense over the five-year term of the note using the effective interest method. The
notes are subordinate to the Siemens notes payable.
In addition to the 2,642,750 lender warrants issued to the investors in the $7.5 million financing,
the Company also issued 117,143 common stock purchase warrants with the same terms as the lender
warrants and paid cash of approximately $206,000 to third parties as finder fees and financing
costs. These warrants were valued at approximately $220,000 using a Black-Scholes option pricing
model. The total of such costs of approximately $426,000 is being amortized as interest expense
using the effective interest method over the five year term of the notes.
For the first two years of the term beginning on March 25, 2004, the Company is making quarterly
payments of interest only. Beginning March 25, 2006, the Company will make twelve equal quarterly
payments of principal plus interest. Payments of principal and interest may be made, at the
Companys option, in cash or with the Companys common stock. If payments are made using the
Companys common stock, the shares to be issued would be computed at 90% of the average closing
price for the 20 day trading period immediately preceding the payment date. Approximate annual
aggregate amount of maturities of such notes in future years is $2,500,000 in each of 2006, 2007
and 2008.
During 2005 and 2004, approximately $2,948,000 and $2,170,000, respectively, of prepaid financing
fees and debt discount was amortized as interest expense, including a non-cash portion of
approximately $2,151,000 and $1,595,000, respectively. The future non-cash debt discount and
prepaid finder fees to be amortized as interest expense over the next five years are approximately
$1,763,000 in 2006, $1,145,000 in 2007 and $434,000 in 2008. In the event the investors convert or
exercise the debt or warrants, the Company will be required to expense the remaining debt discount
and prepaid financing fees in the period in which the conversion payment or exercise occurs.
8. Subordinated Notes and Warrant Liability-Restated
On August 22, 2005, the Company completed a private placement of $5.5 million three-year
subordinated notes (Subordinated Notes) with warrants (Note Warrants) to purchase 1,499,960
shares of the Companys common stock expiring on November 22, 2008. The Note Warrants to purchase
1,124,970 shares) are exercisable subsequent to August 22, 2005 at $2.00 per share and the
remaining Warrants to purchase 374,990 shares, are exercisable after January 1, 2006 at $2.00 per
share. The quoted closing
32
market price of the Companys common stock on the commitment date was $1.63 per share. The notes
bear interest at 7 percent per annum. Proceeds from this financing were used to redeem all of the
Companys 1998-E Series Convertible Preferred Stock (See Note 9 Mandatorily Redeemable
Convertible Preferred Stock). The Company has agreed to register the common shares underlying the
warrant shares during the three year period ending September 2008 and to maintain such registration
so that the Warrant holders may sell their shares if the Note Warrants are exercised. The
liability created by the Companys agreement to register and keep the underlying shares registered
during the three year period was originally recorded as a warrant liability of $1.9 million based
on the fair value of the warrants, using a Black-Scholes option pricing model. Any gains or losses
resulting from the changes in fair value from period to period are included in income as interest
expense. As the holders exercise their Note Warrants the applicable portion of the liability will
be reclassified to additional paid in capital. The notes are subordinate to the Siemens notes
payable.
The Company recorded a debt discount of approximately $1.9 million based on the portion of the
proceeds allocated to the fair value of the Note Warrants, using a Black-Scholes option pricing
model. The debt discount is being amortized as interest expense over the three-year term of the
notes using the effective interest method.
In addition to the Note Warrants, the Company also issued 55,000 common stock purchase warrants
with the same terms as the Note Warrants and paid cash of approximately $330,000 to third parties
as finder fees and financing costs. These warrants were originally valued at approximately $66,000
using a Black-Scholes option pricing model. The total of such costs of approximately $396,000 is
being amortized as interest expense using the effective interest method over the three year term of
the notes.
On the date of issuance of the Subordinated Notes, the Company prepaid interest for the first four
months of the note. On December 22, 2005, the Company began making quarterly payments of principal
corresponding to 8 percent of the original principal amount plus interest and a premium of 2
percent of the principal payment made. Approximate annual aggregate amount of maturities of such
notes maturing in future years is $1,760,000 in 2006, $1,760,000 in 2007 and $1,540,000 in 2008.
During 2005 approximately $595,000 of prepaid financing fees and debt discount was amortized as
interest expense, including a non-cash portion of approximately $389,000. The future non-cash debt
discount and prepaid finder fees to be amortized as interest expense over the following three years
are approximately $850,000 in 2006, $496,000 in 2007 and $126,000 in 2008. In the event the
Company retires the Subordinated Notes, the Company will be required to expense the debt discount
and prepaid financing fees in the period in which the payment occurs.
At December 31, 2005, the fair value of the Note Warrants, using a Black-Scholes option pricing
model resulted in a decrease in the fair value of the warrant liability of approximately $513,000
which was recorded as a reduction in interest expense.
9. Mandatorily Redeemable Convertible Preferred Stock
On August 27, 2003, the Company exchanged all 4,563 outstanding shares of its 1998 Convertible
Preferred Stock for 4,563 shares of Series E Convertible Preferred Stock (E Series Convertible
Preferred Stock). If the E Series Convertible Preferred Stock had not converted or redeemed by
December 18, 2006 it would have been redeemed by the Company on December 18, 2006 for a price equal
to 108% of its stated value plus accrued and unpaid premiums. The E Series Convertible Preferred
Stock was presented as Mandatorily Redeemable Convertible Preferred Stock in the accompanying
consolidated balance sheet. The Company had the right to redeem the newly designated preferred
stock at its stated value plus accrued but unpaid premiums for sixteen months and thereafter until
the redemption date at 108% of its stated value plus accrued but unpaid premiums.
In September 2005 the Company used the proceeds from an August 2005 private placement (See Note 8
Subordinated Notes and Warrant Liability) to redeem all of the Series E Convertible Preferred
Stock for approximately $4.9 million, which included approximately $135,000 of unpaid premium.
33
10. Stockholders Equity
A. Private Placement
On March 29, 2002, the Company closed a private placement of 1.5 million shares of common stock and
1.5 million common stock purchase stock warrants for an aggregate sales price of $1.5 million. The
offers and sales were made only to accredited investors as defined in Rule 501(a) of Regulation D
and the Company relied on Regulation D and Section 4(2) of the Securities Act of 1933 to issue the
securities without registration. The warrants may be exercised at any time until March 29, 2005 to
purchase shares of common stock for an exercise price of $1.15 per share. The Company registered
the common stock for resale in 2004.
B. Stock Subscription
On April 1, 2001, the Company sold 200,000 shares of the Companys common stock to an investment
banker for $2.0625 per share, and received a secured, nonrecourse promissory note receivable for
the principal amount of $412,500. The note receivable is collateralized by the common stock
purchased which is held in escrow. The principal amount of the note and accrued interest is
payable on April 1, 2006. The note bears interest at the prime rate published by the Wall Street
Journal adjusted annually. At December 25, 2004, the interest rate of the note was 5.25%. The
note receivable under the caption Stock Subscription is part of stockholders equity in the
accompanying consolidated balance sheets.
C. Series J Preferred Stock
On December 13, 2001, the Company completed an exchange and redemption of all of the 418 shares of
outstanding Series I Convertible Preferred Stock and 203,390 associated common stock purchase
warrants for $1,951,000 in cash, 233 shares of newly created Series J Preferred Stock, and 470,530
shares of Common Stock. The cost of the transaction included legal and broker fees of
approximately $47,500 in cash and 136,180 shares of Common Stock issued to the broker. The fair
value of the cash, shares of Series J Preferred Stock, and common stock transferred to the holders
of the Series I Convertible Preferred Stock approximated the carrying value of the Series I
Convertible Preferred Stock and the related dividends payable of approximately $4.7 million.
The Series J Preferred Stock has a stated value of $10,000 per share and is non-convertible and
non-voting. The holders of the Series J Preferred Stock are entitled to receive cumulative
dividends, in cash, at a rate of 6% per year. Dividends earned but not paid on the applicable
dividend payment date will bear interest at a rate of 18% per year payable in cash unless the
holders and the Company agree that such amounts may be paid in shares of common stock.
At any time the Company has the right to redeem all or a portion of the Series J Preferred Stock
for a redemption price equal to the stated value plus accrued and unpaid dividends. If there is a
change in control of the Company, only upon or after the approval thereof by the Companys Board of
Directors, the holders of the Series J Preferred Stock have the right to require the Company to
redeem the Series J Preferred Stock at a price of 120% of the stated value plus any accrued and
unpaid dividends. The parties agreed that the transaction with Helix would not be deemed to be a
change in control for this purpose.
In the event of liquidation, dissolution or winding up of the Company prior to the redemption of
the Series J Preferred Stock, holders of the Series J Preferred Stock will be entitled to receive
the stated value per share plus any accrued and unpaid dividends before any distribution or payment
is made to the holders of any junior securities but after payment is made to the holders of the
1998 Convertible Preferred Stock, if any. In the event that the assets of the Company are
insufficient to pay the full amount due the holders of the Series J Preferred Stock and any holders
of securities equal in ranking, such holders will be entitled to share ratably in all assets
available for distribution.
In connection with this transaction, the Company also entered into a Registration Rights Agreement
with the holder under which the Company was required to file a registration statement on Form S-3
covering the resale of the 470,530 shares of common stock issued in this transaction no later than
180 days from December 13, 2001. During November 2003 the Company agreed to pay $25,000 to the
holder during 2004 as settlement for not filing timely such registration statement. The 470,530
shares of common stock
34
issued in the transaction, together with 129,470 shares of common stock then held by the same
holder, were placed in escrow and subject to resale restrictions based on the trading price of the
common stock. Those shares have all been released from escrow and most have been sold into the
public market. During 2005, 2004 and 2003, approximately $141,000, $143,000 and $140,000 of the
6% dividend on the Series J Preferred Stock is included in the caption Dividends on Preferred Stock
in the accompanying Consolidated Statements of Operations.
D. Shareholder Rights Plan
On December 14, 1999, the Board of Directors approved the adoption of a Shareholder Rights Plan, in
which a dividend of one preferred share purchase right ( a Right) for each outstanding share of
common stock was declared, and payable to the stockholders of record on December 31, 1999.
The Shareholder Rights Plan as amended and restated on July 11, 2002, in connection with the
combination with Helix to, among other things, give effect to the issuance of the exchangeable
shares as voting stock of the Company, and to otherwise take into account the effects of the
combination. The Rights will be exercisable only if a person or group acquires 15% or more of the
Companys common stock or announces a tender offer which would result in ownership of 15% or more
of the common stock. The Rights entitle the holder to purchase one one-hundredth of a share of
Series H Junior Participating Preferred Stock at an exercise price of $28.00 and will expire on
December 31, 2009 (See Note 10E).
Following the acquisition of 15% or more of the Companys common stock by a person or group without
the prior approval of the Board of Directors, the holders of the Rights (other than the acquiring
person) would be entitled to purchase shares of common stock (or common stock equivalents) at
one-half the then current market price of the common stock, or at the election of the Board of
Directors, to exchange each Right for one share of the Companys common stock (or common stock
equivalent). In the event of a merger or other acquisition of the Company without the prior
approval of the Board of Directors, each Right will entitle the holder (other than the acquiring
person), to buy shares of common stock of the acquiring entity at one-half of the market price of
those shares. The Company would be able to redeem the Rights at $0.01 per Right at any time until
a person or group acquires 15% or more of the Companys common stock. The Board of Directors
exempted the Helix transaction from the operation of the Plan.
E. Series H Junior Participating Preferred Stock
See Shareholder Rights Plan, above, and Exchangeable Right Plan, below. The Series H Junior
Participating Preferred Stock is subject to the rights of the holders of any shares of any series
of preferred stock of the Company ranking prior and superior to the Series H Junior participating
Preferred Stock with respect to dividends. The holders of shares of Series H Junior Participating
Preferred, in preference to the holders of shares of common stock, and any other junior stock,
shall be entitled to receive dividends, when, as and if declared by the Board of Directors out of
funds legally available therefore.
F. Exchangeable Rights Plan
On July 11, 2002, in connection with the combination with Helix, HEARx Canada, Inc., an indirect
subsidiary of the Company, adopted a Rights Agreement (the Exchangeable Rights Plan)
substantially equivalent to the Companys Shareholder Rights Plan (See Note 10D). Under the
Exchangeable Rights Plan, each exchangeable share (See Note 10I) issued has an associated right (an
Exchangeable Share Right) entitling the holder of such Exchangeable Share Right to acquire
additional exchangeable shares on terms and conditions substantially the same as the terms and
conditions upon which a holder of shares of common stock is entitled to acquire either one
one-hundredth of a share of the Companys Series H Junior Participating Preferred Stock or, in
certain circumstances, shares of common stock under the Companys Shareholder Rights Plan. The
definitions of beneficial ownership, the calculation of percentage ownership and the number of
shares outstanding and related provisions of the Companys Shareholder Rights Plan and the
Exchangeable Rights Plan apply, as appropriate, to shares of common stock and exchangeable shares
as though they were the same security. The Exchangeable Share Rights are intended to have
characteristics essentially equivalent in economic effect to the Rights granted under the Companys
Shareholder Rights Plan.
35
G. Warrants
In 2005 1,600,000 warrants were exercised and 131,695 warrants expired. No warrants were exercised
in 2004.
The aggregate number of common shares reserved for issuance upon the exercise of warrants is
5,114,853 as of December 31, 2005. The expiration date and exercise prices of the outstanding
warrants are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
Expiration |
|
|
Exercise |
|
|
|
Warrants |
|
|
Date |
|
|
Price |
|
|
|
|
|
|
|
2,759,893 |
|
|
|
2008 |
|
|
|
1.75 |
|
|
|
|
240,000 |
|
|
|
2010 |
|
|
|
1.25 |
|
|
|
|
560,000 |
|
|
|
2010 |
|
|
|
1.31 |
|
|
|
|
1,554,960 |
|
|
|
2010 |
|
|
|
2.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,114,853 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
H. Aggregate and Per Share Cumulative Preferred Dividends
As of December 31, 2005, there were no arrearages in cumulative preferred dividends/premiums. As
of December 25, 2004, the aggregate and per share amount of arrearages in cumulative preferred
dividends/premiums was approximately $178,000 and $.01/share.
I. Exchangeable Shares
Immediately following the effective combination of the Company and Helix, each outstanding Helix
common share, other than shares held by dissenting Helix Stockholders who were paid the fair value
of their shares and shares held by the Company, were automatically exchanged for, at the election
of the holder, 0.3537 fully-paid and non-assessable exchangeable shares (Exchangeable Shares) of
HEARx Canada, Inc., or 0.3537 shares of HearUSA, Inc. common stock. The Exchangeable Shares are
the economic equivalent of HearUSA, Inc. common stock. Each Exchangeable Share will be exchanged
at any time at the option of the holder, for one share of HearUSA, Inc. common stock, subject to
any anti-dilution adjustments. Until exchanged for HearUSA, Inc. common stock; (i) each
Exchangeable Share outstanding will entitle the holder to one vote per share at all meetings of
HearUSA, Inc. common stockholders; (ii) if any dividends are declared on HearUSA, Inc. common
stock, an equivalent dividend must be declared on such exchangeable shares and (iii) in the event
of the liquidation, dissolution or winding-up of HEARx Canada, Inc., such exchangeable shares will
be exchanged for an equivalent number of shares of HearUSA, Inc. common stock. The exchangeable
shares will be subject to mandatory exchange on July 27, 2006, the fifth anniversary of the
transaction.
11. Stock Plans
The Company has the following stock plans:
A. Employee Stock Option Plans
The 1987 Stock Option Plan is administered by the Companys Board of Directors. A maximum of
250,000 shares of common stock were authorized for issuance under this plan. All employees of the
Company, other than its then principal stockholder (Dr. Paul A. Brown) were eligible to receive
options under this plan at the sole discretion of the Board of Directors. Both incentive and
non-incentive stock options could be granted. This plan expired June 2, 1997 and no further option
grants can be made under this plan. The expiration of the plan did not affect the outstanding
options which remain in full force as if the plan had not expired.
36
The 1995 Flexible Stock Plan is also administered by the Companys Board of Directors. An original
maximum of 250,000 shares of the Companys common stock were authorized for issuance under this
plan. On June 6, 2000 the shareholders approved an increase of 500,000 shares of the Companys
common stock available under this plan. The plan authorizes an annual increase in authorized shares
equal to 10% of the number of shares authorized as of the prior year. Currently an aggregate of
4,895 shares remain as authorized but not yet subject to a plan grant under the plan. All
employees of the Company are eligible to receive incentive stock options, non-qualified stock
options, stock appreciation rights, restricted shares, performance shares, and other stock-based
awards under this plan at the sole discretion of the Board of Directors. This plan expired in 2005
and no further grants can be made under this plan. The expiration of the plan did not affect the
outstanding options granted under this plan which remain in full force in accordance with their
terms.
In 2002, the Board of Directors adopted and the Companys stockholders approved, the 2002 Flexible
Stock Plan. This plan is administered by the Companys Board of Directors. A maximum of 3,000,000
shares of the Companys common stock were originally authorized for issuance under this plan. The
plan authorizes an annual increase in authorized shares equal to 10% of the number of shares
subject to the plan as of the prior year beginning in fiscal year 2003 not to exceed 5,000,000
shares in the aggregate. All employees of the Company are eligible to receive incentive stock
options, non-qualified stock options, stock appreciation rights, restricted shares, performance
shares, and other stock-based awards under this plan at the sole discretion of the Board of
Directors.
As of December 31, 2005, employees of the Company held options permitting them to purchase an
aggregate 5,258,770 shares of common stock at prices ranging from $0.35 to $18.75 per share.
Options are exercisable for periods ranging from four to ten years commencing one year following
the date of grant and are generally exercisable in cumulative annual installments of 25 percent per
year.
The following table summarizes the transactions of the Companys employee stock option plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
|
|
|
|
|
|
December 31, 2005 |
|
|
December 25, 2004 |
|
|
December 27, 2003 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Exercise |
|
|
|
|
|
|
Exercise |
|
|
|
|
|
|
Exercise |
|
|
|
Shares |
|
|
Price |
|
|
Shares |
|
|
Price |
|
|
Shares |
|
|
Price |
|
|
|
|
Outstanding at beginning of
year |
|
|
5,296,987 |
|
|
$ |
1.49 |
|
|
|
3,387,755 |
|
|
$ |
1.78 |
|
|
|
2,168,290 |
|
|
$ |
3.04 |
|
Granted |
|
|
360,000 |
|
|
$ |
1.63 |
|
|
|
2,495,000 |
|
|
$ |
1.36 |
|
|
|
1,785,000 |
|
|
$ |
0.46 |
|
Exercised |
|
|
130,000 |
|
|
$ |
.52 |
|
|
|
6,250 |
|
|
$ |
.67 |
|
|
|
20 |
|
|
$ |
0.77 |
|
Forfeited |
|
|
268,217 |
|
|
$ |
4.66 |
|
|
|
592,018 |
|
|
$ |
2.69 |
|
|
|
565,515 |
|
|
$ |
2.47 |
|
|
|
|
Outstanding at end of year |
|
|
5,258,770 |
|
|
$ |
1.36 |
|
|
|
5,296,987 |
|
|
$ |
1.49 |
|
|
|
3,387,755 |
|
|
$ |
1.78 |
|
|
|
|
Exercisable at end of year |
|
|
2,265,944 |
|
|
|
|
|
|
|
1,538,540 |
|
|
|
|
|
|
|
1,418,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value of
options granted during year |
|
$ |
1.35 |
|
|
|
|
|
|
$ |
1.20 |
|
|
|
|
|
|
$ |
0.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
The following table summarizes information about fixed employee stock options outstanding at
December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Weighted |
|
|
Options |
|
|
Weighted |
|
|
|
|
|
|
|
Remaining |
|
|
Average |
|
|
Exercisable |
|
|
Average |
|
|
|
Options |
|
|
Contractual |
|
|
Exercise |
|
|
At December 31, |
|
|
Exercise |
|
Range of Exercise Price |
|
Outstanding |
|
|
Life |
|
|
Price |
|
|
2005 |
|
|
Price |
|
|
$.35 - $.77 |
|
|
1,762,900 |
|
|
|
6.2 |
|
|
$ |
0.50 |
|
|
|
996,023 |
|
|
$ |
.55 |
|
$.78 - $2.00 |
|
|
3,046,730 |
|
|
|
8.5 |
|
|
$ |
1.36 |
|
|
|
877,031 |
|
|
$ |
1.30 |
|
$2.01 - $5.40 |
|
|
294,511 |
|
|
|
5.2 |
|
|
$ |
3.14 |
|
|
|
238,261 |
|
|
$ |
3.34 |
|
$5.41 - $8.75 |
|
|
141,269 |
|
|
|
1.3 |
|
|
$ |
7.20 |
|
|
|
141,269 |
|
|
$ |
7.21 |
|
$8.76 - $18.75 |
|
|
13,360 |
|
|
|
1.3 |
|
|
$ |
15.90 |
|
|
|
13,360 |
|
|
$ |
15.91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,258,770 |
|
|
|
|
|
|
|
|
|
|
|
2,265,944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The stock options are exercisable in the following years:
|
|
|
|
|
2006 |
|
|
3,366,770 |
|
2007 |
|
|
1,093,750 |
|
2008 |
|
|
708,250 |
|
2009 |
|
|
90,000 |
|
|
|
|
|
|
|
|
5,258,770 |
|
|
|
|
|
B. Non-Employee Director Plan
In April 1993, the stockholders of the Company approved the adoption of the HearUSA Inc.
Non-qualified Stock Option Plan for Non-Employee Directors (Directors Plan). The Directors Plan
terminated in accordance with its terms in 2003.
As of December 31, 2005, three directors hold options as follows: 4,500 at $4.00, 4,500 shares at
$5.00, 10,500 at $7.50, and 3,000 shares at prices ranging from $12.50 to $58.75 per share.
C. Non-Employee Director Non-Plan Grant
On April 1, 2003 options to purchase 125,000 shares of common stock were granted to members of the
Board of Directors, at an exercise price of $0.35, which was equal to the quoted closing price of
the common stock on the grant date. The options vested after one year and have a ten-year life.
12. Major Customers and Suppliers
During 2005, 2004 and 2003 no customer accounted for more than 10% or more of net revenues.
During 2005, 2004 and 2003, the Company purchased approximately 93.1%, 88.7% and 88.7%,
respectively, of all hearing aids sold by the Company from Siemens. As described in Note 6, the
Company is a party to a supply agreement with Siemens whereby the Company has agreed to purchase
minimum levels from Siemens. Although there are a limited number of manufacturers of hearing aids,
management believes that other suppliers could provide similar hearing aids on comparable terms.
In the
38
event of a disruption of supply from Siemens, the Company could obtain comparable products from
other manufacturers. The Company has not experienced any significant disruptions in supply in
the past.
13. Related Party Transactions
The Company is a party to a capitation contract with an affiliate of its minority owner, the
Permanente Federation LLC (the Kaiser Plan a member of its subsidiary, HEARx West, LLC. Under
the terms of the contract, HEARx West is paid an amount per enrollee of the Kaiser Plan, to provide
a once every three years benefit on certain hearing products and services. During 2005, 2004 and
2003 approximately $6,886,000 $6,451,000 and $6,095,000, respectively, of capitation revenue from
this contract is included in net revenue in the accompanying consolidated statements of operations.
As mentioned in Note 19 Discontinued Operations, on July 15, 2003, the Company sold its three
Quebec subsidiaries to private entities owned and controlled by Steve Forget, a former Helix
officer and director. Mr. Forget served as an officer of HearUSA until October 2002 and as a
director until May 2003. Prior to the disposition, the Quebec subsidiaries provided management
services to a single client, Forget & Sauvé, audioprothesistes, s.e.n.c. operating under the name
Le Groupe Forget ( Le Groupe Forget ). Le Groupe Forget is controlled by Steve Forget. Le
Groupe Forget operates a network of 16 hearing healthcare centers in the Province of Quebec. The
services provided to Le Groupe Forget by the Quebec subsidiaries included inventory purchasing and
management, office service support, general administration and patient management software and
related training. The aforementioned services were rendered to Le Groupe Forget by the Quebec
subsidiaries pursuant to management agreements entered into by each of the subsidiaries and Le
Groupe Forget. During the year ended, December 27, 2003 revenues of approximately $2,559,000 were
earned from services to Le Groupe Forget. These revenues are presented, net of related expenses,
under Discontinued Operations in the Consolidated Statements of Operations.
14. Income Taxes-Restated
The components of loss before discontinued operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restated |
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
|
Domestic |
|
$ |
(1,425,000 |
) |
|
$ |
(3,142,000 |
) |
|
$ |
(727,000 |
) |
Foreign |
|
|
905,000 |
|
|
|
934,000 |
|
|
|
187,000 |
|
|
|
|
Total loss before loss of discontinued operations |
|
$ |
(520,000 |
) |
|
$ |
(2,208,000 |
) |
|
$ |
(540,000 |
) |
|
|
|
The Company has accounted for certain items (principally depreciation and the allowance for
doubtful accounts) for financial reporting purposes in periods different from those for tax
reporting purposes. The beneficial conversion feature has been reclassed for all periods presented
in accordance with EITF Issue No. 05-8, Income Tax Consequences of Issuing Convertible Debt with a
Beneficial Conversion Feature.
39
Deferred tax assets (liabilities) are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
Restated |
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
$ |
1,367,000 |
|
|
$ |
1,285,000 |
|
Allowance for doubtful accounts |
|
|
142,000 |
|
|
|
129,000 |
|
Joint Venture |
|
|
(881,000 |
) |
|
|
(985,000 |
) |
Beneficial conversion feature |
|
|
(775,000 |
) |
|
|
(1,236,000 |
) |
Decrease in fair value of warrant liability |
|
|
(193,000 |
) |
|
|
|
|
Amortization |
|
|
(1,321,000 |
) |
|
|
(184,000 |
) |
Other |
|
|
364,000 |
|
|
|
279,000 |
|
Net operating loss carryforwards |
|
|
28,452,000 |
|
|
|
28,441,000 |
|
|
|
|
|
|
|
27,155,000 |
|
|
|
27,729,000 |
|
Less valuation allowance |
|
|
(27,155,000 |
) |
|
|
(27,729,000 |
) |
|
|
|
Net deferred tax asset |
|
$ |
|
|
|
$ |
|
|
|
|
|
At December 31, 2005 the Company had net operating loss carryforwards of approximately
$76,000,000 for U.S. Federal tax purposes, and approximately $2,500,000 of operating loss
carryforwards in Canada. Included in the U.S. Federal tax net operating loss carryforwards are
approximately $8,300,000 related to U.S. subsidiaries of Helix pre-combination whose annual
utilization would be limited due to the ownership change of Helix in connection with the
combination with the Company. Should tax benefits ever be realized from such Helix pre-combination
net operating loss carryforwards, the valuation allowance would be reduced and the benefit would be
recorded as a reduction of the goodwill resulting from the Helix combination.
The losses are available for carryforward for twenty year periods and expire in years through 2026.
Any future significant changes in ownership of the Company may limit the annual utilization of the
tax net operating loss carryforwards.
The provision for income taxes on loss from continuing operations differ from the amount computed
using the Federal statutory income tax rate as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restated |
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision at Federal statutory rate |
|
$ |
(177,000 |
) |
|
$ |
(751,000 |
) |
|
$ |
(183,000 |
) |
State income taxes, net of Federal
income tax effect |
|
|
(16,000 |
) |
|
|
(80,000 |
) |
|
|
(20,000 |
) |
Nondeductible expenses |
|
|
32,000 |
|
|
|
29,000 |
|
|
|
23,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in valuation allowance |
|
|
574,000 |
|
|
|
802,000 |
|
|
|
256,000 |
|
Other |
|
|
(335,000 |
) |
|
|
|
|
|
|
(76,000 |
) |
|
|
|
Income tax provision |
|
$ |
78,000 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
No income tax provision is applicable to the loss from discontinued operations. Provision has
not been made for U.S. or additional foreign taxes on undistributed earnings of the Companys
Canadian subsidiaries. Such earnings have been and will continue to be reinvested but could become
subject to additional tax if they were remitted as dividends, or were loaned to the Company, or if
the Company should sell its stock in the foreign subsidiaries. Such undistributed earnings are not
significant at December 31, 2005.
15. Commitments and Contingencies
The Company established the HearUSA Inc. 401(k) plan in October 1998. All employees who have
attained age 21 with at least three months of service are eligible to participate in the plan. The
Companys contribution to the plan is determined from year to year by the Board of Directors. The
Companys
40
contributions to the plan were approximately $56,900, $67,800 and $44,800 for the years
2005, 2004 and 2003, respectively.
In August 2005, the Company entered into employment agreements with four of its executive officers
that provide for annual salaries, severance payments, and accelerated vesting of stock options upon
termination of employment under certain circumstances or a change in control, as defined.
The Company also entered into change of control agreements with several of its other officers which
provide for severance payments and acceleration of stock option vesting upon termination of
employment after a change in control, as defined.
16. Quarterly Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restated |
|
|
Restated |
|
Year Ended |
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
December 31, 2005 |
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Net revenues |
|
$ |
19,030,585 |
|
|
$ |
19,058,460 |
|
|
$ |
19,615,555 |
|
|
$ |
18,967,403 |
|
Operating costs and expenses |
|
|
18,015,611 |
|
|
|
17,863,348 |
|
|
|
18,353,874 |
|
|
|
18,724,254 |
|
|
Income (loss) from operations |
|
|
1,014,974 |
|
|
|
1,195,112 |
|
|
|
1,261,681 |
|
|
|
243,149 |
|
|
Net income (loss) applicable to
common stockholders |
|
$ |
(445,068 |
) |
|
$ |
154,076 |
|
|
$ |
(164,453 |
) |
|
$ |
(828,382 |
) |
|
Net loss from continuing
operations, including
dividends on preferred stock,
applicable to common
stockholders- basic and
diluted |
|
$ |
(0.01 |
) |
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
(0.03 |
) |
|
Net loss applicable to common
stockholders per common share
- basic and diluted (Note 1) |
|
$ |
(0.01 |
) |
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
(0.03 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
December 25, 2004 |
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Net revenues |
|
$ |
16,048,307 |
|
|
$ |
17,190,923 |
|
|
$ |
17,535,395 |
|
|
$ |
17,974,917 |
|
Operating costs and expenses |
|
|
16,228,093 |
|
|
|
16,713,585 |
|
|
|
16,316,981 |
|
|
|
17,152,503 |
|
|
Income (loss) from operations |
|
|
(179,786 |
) |
|
|
477,338 |
|
|
|
1,218,414 |
|
|
|
822,414 |
|
|
Net income (loss) applicable to
common stockholders |
|
$ |
(1,615,869 |
) |
|
$ |
(948,008 |
) |
|
$ |
(233,413 |
) |
|
$ |
(669,371 |
) |
|
Net loss from continuing
operations, including
dividends on preferred stock,
applicable to common
stockholders- basic and
diluted |
|
$ |
(0.05 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.02 |
) |
|
Net loss applicable to common
stockholders per common share
- basic and diluted (Note 1) |
|
$ |
(0.05 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.02 |
) |
|
a) In the third quarter of 2005 an adjustment was made to record an increase in the
amount of the warrant liability of approximately $76,000 which was recorded as an increase in
interest expense.
b) The fourth quarter of 2005 has been restated for the decrease in the amount of the warrant
liability of approximately $598,000 which was recorded as a decrease in interest expense.
41
17. Fair Value of Financial Instruments
SFAS 107 requires the disclosure of fair value of financial instruments. The estimated fair value
amounts have been determined by the Companys management using available market information and
other valuation methods. However, considerable judgment is required to interpret market data in
developing the estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Company could realize in a current market exchange. The
use of different market assumptions and/or estimation methods may have a material effect on the
estimated fair value amounts. Furthermore, the Company does not intend to dispose of a significant
portion of its financial instruments and thus, any aggregate unrealized gains or losses should not
be interpreted as a forecast of future earnings and cash flows. SFAS 107 excludes certain financial
instruments from its disclosure requirements, such as leases. In addition, disclosure of fair
value estimates are not required for nonfinancial assets and liabilities, such as fixed assets,
intangibles and anticipated future business. As a result, the following fair values are not
comprehensive and therefore do not reflect the underlying value of the Company.
At December 31, 2005 and December 25, 2004, the fair value of cash and cash equivalents, restricted
cash, investment securities, accounts and notes receivable, accounts payable and accrued expenses
approximated their carrying value based on the short-term nature of these instruments. The fair
value of the Companys long-term debt and debt-related derivative instruments is estimated based on
discounted cash flows and the application of the fair value interest rates applied to the expected
cash flows. The carrying amounts and related estimated fair values for the Companys debt and
debt-related derivative instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005 |
|
|
December 25, 2004 |
|
|
|
Book Value |
|
|
Fair Value |
|
|
Book Value |
|
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
$ |
25,162,000 |
|
|
$ |
24,974,000 |
|
|
$ |
21,449,000 |
|
|
$ |
21,449,000 |
|
Convertible
subordinated notes |
|
$ |
7,500,000 |
|
|
$ |
7,273,000 |
|
|
$ |
7,500,000 |
|
|
$ |
7,500,000 |
|
Subordinated notes |
|
$ |
5,060,000 |
|
|
$ |
4,943,000 |
|
|
$ |
|
|
|
$ |
|
|
Mandatorily
subordinated
redeemable
convertible
preferred stock |
|
$ |
|
|
|
$ |
|
|
|
$ |
4,710,000 |
|
|
$ |
4,710,000 |
|
18. Recent Accounting Pronouncements
In December 2004, SFAS No. 123(R), Share-Based Payment, which addresses the accounting for
employee stock options, was issued. SFAS No. 123(R) revises the disclosure provisions of SFAS 123,
Accounting for Stock Based Compensation and supersedes APB Opinion 25, Accounting for Stock
Issued to Employees. SFAS 123(R) requires that the cost of all employee stock options, as well as
other equity-based compensation arrangements, be reflected in the financial statements based on the
estimated fair value of the awards. This statement is effective for all public entities the
beginning of the first interim period that begins after December 15, 2005. The Company plans to
implement SFAS 123 (R) on its effective date. Based on the outstanding number of employee stock
options and excluding the impact of any future grants at December 15, 2005, the total stock-based
employee compensation expense determined under the fair value method that would be reflected in the
consolidated financial statements is approximately $1,529,000 in 2005 (See Note 1 Description of
the Company and Summary of Significant Accounting Policies- stock-based compensation) and $930,000
in 2006. This additional expense will not affect the Companys operation cash flows.
In June 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections- A
Replacement of APB Opinion No. 20 and FASB Statement No. 3 (SFAS 154). This statement requires
that a voluntary change in accounting principle be applied retroactively with all prior period
financial
42
statements presented on the basis of the new accounting principal, unless it is
impractical to do so. SFAS 154 also requires that a change in method of depreciating or amortizing
a long-lived nonfinancial asset be
accounted for prospectively as a change in estimate, and correction of errors in previously issued
financial statements should be termed a restatement. The new standard is effective for
accounting changes and a correction of errors made in fiscal years beginning after December 15,
2005. We will adopt this pronouncement in fiscal year 2006.
19. Discontinued Operations
On July 15, 2003, the Company sold 100% of the shares of the Companys three subsidiaries and
selected assets associated with the management of the centers located in the Canadian Province of
Quebec (Quebec) to private entities owned and controlled by Steve Forget, a former Helix officer
and director. Mr. Forget served as an officer of HearUSA until October 2002 and as a director
until May 2003. The sale agreement provided for payments to the Company of approximately $1.7
million, representing, in part, payment of pre-existing debt owed the Company by Forget & Sauve of
approximately $1.6 million. The Company received an initial cash payment of $700,000 at closing
and $1 million over the five following months.
The operating results of Quebec are presented as discontinued operations. The sale resulted in a
loss on disposal of approximately $105,000. Net revenues of the discontinued operations for the
years ended December 27, 2003 were approximately $2.6 million. Net losses from discontinued
operations applicable to common stockholders per common shares-basic and diluted were $ (0.01) for
2003. Pre-tax net losses of the discontinued operation were approximately $96,000 and $158,000, for
the 2003 period through disposal.
In June 2005, the Company sold the assets of a group of hearing care centers in the states of
Minnesota, Washington and Wisconsin, including goodwill, customer list and selected assets with a
net book value of approximately $735,000, for approximately $1.1 million in cash, resulting in a
gain on disposition of assets of approximately $365,000. The Company received proceeds totaling
approximately $786,000 in June 2005 and had an outstanding receivable of approximately $314,000
which was received in the third quarter of 2005.
The assets sold and related operating results have been presented as discontinued operations and
the consolidated financial statements have been reclassified to segregate the assets and operating
results for all periods presented in accordance with SFAS No. 144 Accounting for the Impairment or
Disposal of Long-Lived Assets, including $145,850 of property and equipment, $442,000 of goodwill
and $148,275 of net intangibles as of December 25, 2004. The assets and operating expenses of
these hearing care centers sold were reported under the center segment.
Net revenues, pre-tax net losses and net loss from discontinued operations applicable to common
stockholders-basic and diluted of the discontinued operations for the years ended December 31,
2005, December 25, 2004 and December 27, 2003 were approximately as follows:
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
|
Net revenues of discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quebec discontinued operations |
|
$ |
|
|
|
$ |
|
|
|
$ |
2,600,000 |
|
Minnesota, Washington and Wisconsin
discontinued operations |
|
|
1,825,000 |
|
|
|
3,551,000 |
|
|
|
3,465,000 |
|
|
|
|
Combined net revenues |
|
$ |
1,825,000 |
|
|
$ |
3,551,000 |
|
|
$ |
6,065,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax net losses of discontinued
operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quebec discontinued operations |
|
$ |
|
|
|
$ |
|
|
|
$ |
202,000 |
|
Minnesota, Washington and Wisconsin
discontinued operations |
|
|
396,000 |
|
|
|
551,000 |
|
|
|
368,000 |
|
|
|
|
Combined pre-tax net losses |
|
$ |
396,000 |
|
|
$ |
551,000 |
|
|
$ |
570,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from discontinued operations
applicable to common stockholders-basis and
diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quebec discontinued operations |
|
$ |
|
|
|
$ |
|
|
|
$ |
(0.01 |
) |
Minnesota, Washington and Wisconsin
discontinued operations |
|
|
0.00 |
|
|
|
(0.01 |
) |
|
|
(0.01 |
) |
|
|
|
Combined net loss from discontinued
operations applicable to common
stockholders-basic and diluted |
|
$ |
0.00 |
|
|
$ |
(0.01 |
) |
|
$ |
(0.02 |
) |
|
|
|
44
20. Segments
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 Companys business segments, which include the operation and management
of centers, the establishment, maintenance and support of an affiliated network and the operation
of an e-commerce business. The centers offer people afflicted with hearing loss a complete range of
services and products, including diagnostic audiological testing, the latest technology in hearing
aids and listening devices to improve their quality of life. The network, unlike the Company-owned
centers, is comprised of hearing care practices owned by independent audiologists. The network
revenues are mainly derived from administrative fees paid by employer groups, health insurers and
benefit sponsors to administer their benefit programs as well as maintaining an affiliated provider
network. E-commerce offers on-line product sales of hearing aid related products, such as
batteries, hearing aid accessories and assistive listening devices. The Companys business units
are located in the United States and Canada. The following is the Companys segment information by
year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Centers |
|
|
E-commerce |
|
|
Network |
|
|
Corporate |
|
|
Total |
|
Hearing aids and other products revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
$ |
71,365,000 |
|
|
$ |
80,000 |
|
|
|
|
|
|
|
|
|
|
$ |
71,445,000 |
|
2004 |
|
$ |
63,149,000 |
|
|
$ |
79,000 |
|
|
|
|
|
|
|
|
|
|
$ |
63,228,000 |
|
2003 |
|
$ |
60,858,000 |
|
|
$ |
69,000 |
|
|
|
|
|
|
|
|
|
|
$ |
60,927,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
$ |
3,805,000 |
|
|
|
|
|
|
$ |
1,422,000 |
|
|
|
|
|
|
$ |
5,227,000 |
|
2004 |
|
$ |
4,413,000 |
|
|
|
|
|
|
$ |
1,109,000 |
|
|
|
|
|
|
$ |
5,522,000 |
|
2003 |
|
$ |
5,100,000 |
|
|
|
|
|
|
$ |
1,053,000 |
|
|
|
|
|
|
$ |
6,153,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
15,137,000 |
|
|
|
(105,000 |
) |
|
|
549,000 |
|
|
|
(11,866,000 |
) |
|
|
3,715,000 |
|
2004 |
|
|
12,310,000 |
|
|
|
(27,000 |
) |
|
|
447,000 |
|
|
|
(10,392,000 |
) |
|
|
2,338,000 |
|
2003 |
|
|
13,063,000 |
|
|
|
(49,000 |
) |
|
|
504,000 |
|
|
|
(11,250,000 |
) |
|
|
2,268,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization |
|
|
1,764,000 |
|
|
|
|
|
|
|
5,000 |
|
|
|
205,000 |
|
|
|
1,974,000 |
|
Total assets |
|
|
50,119,000 |
|
|
|
|
|
|
|
1,131,000 |
|
|
|
17,732,000 |
|
|
|
68,982,000 |
|
Capital expenditures |
|
|
970,000 |
|
|
|
|
|
|
|
|
|
|
|
228,000 |
|
|
|
1,198,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization |
|
|
1,893,000 |
|
|
|
|
|
|
|
5,000 |
|
|
|
174,000 |
|
|
|
2,072,000 |
|
Total assets |
|
|
47,241,000 |
|
|
|
|
|
|
|
1,722,000 |
|
|
|
10,459,000 |
|
|
|
59,422,000 |
|
Capital expenditures |
|
|
318,000 |
|
|
|
|
|
|
|
3,000 |
|
|
|
62,000 |
|
|
|
383,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization |
|
|
2,002,000 |
|
|
|
|
|
|
|
3,000 |
|
|
|
779,000 |
|
|
|
2,784,000 |
|
Total assets |
|
|
44,100,000 |
|
|
|
|
|
|
|
1,149,000 |
|
|
|
20,934,000 |
|
|
|
66,183,000 |
|
Capital expenditures |
|
|
174,000 |
|
|
|
|
|
|
|
|
|
|
|
94,000 |
|
|
|
268,000 |
|
45
Hearing aids and other products revenues consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
|
Hearing aid revenues |
|
|
95.5 |
% |
|
|
94.6 |
% |
|
|
96.8 |
% |
Other products revenues |
|
|
4.5 |
% |
|
|
5.4 |
% |
|
|
3.2 |
% |
Services revenues consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
|
Hearing aid repairs |
|
|
53.4 |
% |
|
|
50.1 |
% |
|
|
60.5 |
% |
Testing and other income |
|
|
46.6 |
% |
|
|
49.9 |
% |
|
|
39.5 |
% |
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
|
General and administrative
expense |
|
$ |
11,661,000 |
|
|
$ |
10,218,000 |
|
|
$ |
10,471,000 |
|
Deprecation and amortization |
|
$ |
205,000 |
|
|
$ |
174,000 |
|
|
$ |
779,000 |
|
|
|
|
Corporate loss from
operations |
|
$ |
11,866,000 |
|
|
$ |
10,392,000 |
|
|
$ |
11,250,000 |
|
|
|
|
Information concerning geographic areas:
As of and for the Years Ended December 31, 2005 and December 25, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
Canada |
|
|
United States |
|
|
Canada |
|
|
|
2005 |
|
|
2005 |
|
|
2004 |
|
|
2004 |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Hearing aid and
other product
revenues |
|
|
63,500,000 |
|
|
|
7,945,000 |
|
|
|
56,743,000 |
|
|
|
6,485,000 |
|
Service revenues |
|
|
4,835,000 |
|
|
|
392,000 |
|
|
|
5,212,000 |
|
|
|
310,000 |
|
Long-lived assets |
|
|
41,587,000 |
|
|
|
10,308,000 |
|
|
|
39,235,000 |
|
|
|
9,704,000 |
|
Total assets |
|
|
55,771,000 |
|
|
|
13,211,000 |
|
|
|
47,658,000 |
|
|
|
11,764,000 |
|
Net revenues by geographic area are allocated based on the location of the subsidiary
operations.
21. Liquidity
During 2005, the working capital deficit decreased $1.8 million to $3.1 million as of December 31,
2005 from $4.9 million as of December 27, 2004. The decrease in the deficit is attributable to
an excess of approximately $4.0 million in cash from operations and financing activities over cash
used for investing activities offset by an increase in current maturities of long-term debt,
convertible subordinated debt and subordinated notes of approximately $2.8 million. The working
capital deficit of $3.1 million includes approximately $3.0 million representing the current
maturities of the long-term debt to Siemens which may be repaid through preferred pricing
reductions and approximately $652,000 ($2.5 million in current maturities, net of $1.5 million of
debt discount) related to the $7.5 million convertible subordinated notes that can be repaid by
either cash or stock, at the option of the Company. In 2005, the Company generated income from
operations of approximately $3.7 million compared to $2.3 million in 2004. Cash and cash
equivalents as of December 31, 2005 were approximately $6.7 million.
46
The Company believes that current cash and cash equivalents and cash flow from operations, at
current net revenue levels, will be sufficient to support the Companys operational needs through
the next twelve
months, although there can be no assurance that the Company can maintain compliance with the
Siemens loan covenants, that net revenue levels will remain at or higher than current levels or
that unexpected cash needs will not arise for which the cash, cash equivalents and cash flow from
operations will not be sufficient. In the event of a shortfall in cash, the Company might consider
short-term debt, or additional equity or debt offerings. There can be no assurance however, that
such financing will be available to the Company on favorable terms or at all. The Company also is
continuing its aggressive cost controls and sales and gross margin improvements.
22. Restatement
The Company is filing this Amendment No. 1 on Form 10-K/A to the Companys Annual Report on Form
10-K for the fiscal year ended December 31, 2005, to correct an error relating to the valuation of
the warrant liability appearing on the consolidated balance sheets. This liability arose as a
result of the Companys agreement to register the common shares underlying certain warrants and
keep them registered during the three year term of the warrants. The Company is required to value
this liability based on the fair value of the warrants using a Black-Scholes option pricing model.
Changes in fair value of the warrant liability from period to period must be recorded as reductions
or additions to interest expense. As the warrant holders exercise the warrants, the applicable
portion of the remaining liability is reclassified to additional paid in capital. For the 2005
fiscal year, the Company originally recorded $1.9 million related to the warrant liability. Due to
the fluctuation in the Companys common stock price at the end of 2005 the warrant liability should
have been reduced to approximately $1.3 million and the Company should have reduced interest
expense by approximately $513,000 in its consolidated statements of operations. Instead the
Company recorded an increase of approximately $9,000. The correction of this error resulted in an
increase to the previously reported warrant liability balance at October 1, 2005 and an increase of
the previously reported interest expense for the quarter ended October 1, 2005 of approximately
$76,000. The correction of this error also resulted in a decrease to the previously reported
warrant liability balance at December 31, 2005 and decrease of the previously reported interest
expense for the quarter ended December 31, 2005 of approximately $598,000. These corrections
resulted in a reduction of the net loss applicable to common stockholders previously reported of
approximately $1.8 million to approximately $1.3 million
for the year ended December 31, 2005.
47
HearUSA Inc.
Schedule II Valuation and Qualifying Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restated |
|
|
Restated |
|
|
|
Balance at |
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
Beginning |
|
|
|
|
|
|
|
|
|
|
End |
|
|
|
Of Period |
|
|
Additions |
|
|
Deductions |
|
|
Of Period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
373,583 |
|
|
$ |
354,107 |
|
|
$ |
(314,304 |
) |
|
$ |
413,386 |
|
Allowance for sales returns (1) |
|
$ |
425,116 |
|
|
$ |
17,287 |
|
|
$ |
(1,818 |
) |
|
$ |
440,585 |
|
Valuation allowance |
|
$ |
27,729,000 |
|
|
$ |
|
|
|
$ |
(574,000 |
) |
|
$ |
27,155,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 25, 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
490,881 |
|
|
$ |
430,454 |
|
|
$ |
(547,752 |
) |
|
$ |
373,583 |
|
Allowance for sales returns |
|
$ |
445,147 |
|
|
$ |
71,061 |
|
|
$ |
(91,092 |
) |
|
$ |
425,116 |
|
Valuation allowance |
|
$ |
28,531,000 |
|
|
$ |
|
|
|
$ |
(802,000 |
) |
|
$ |
27,729,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 27, 2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
578,323 |
|
|
$ |
801,303 |
|
|
$ |
(888,745 |
) |
|
$ |
490,881 |
|
Allowance for sales returns |
|
$ |
789,539 |
|
|
$ |
32,830 |
|
|
$ |
(377,222 |
) |
|
$ |
445,147 |
|
Valuation allowance |
|
$ |
28,787,000 |
|
|
$ |
|
|
|
$ |
(256,000 |
) |
|
$ |
28,531,000 |
|
|
|
|
(1) |
|
Allowance for sales returns is included in accounts payable on the Consolidated Balance
Sheets. |
48
Item 9A. Controls and Procedures
In connection with the preparation and filing of this Amendment No. 1 to the Companys annual
report on Form 10-K/A, the Companys management, with the participation of the Companys chief
executive officer and chief financial officer, evaluated the effectiveness of the Companys
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act) as of December 31, 2005. Management reviewed in particular the Companys
procedures relating to the calculation of the warrant liability described, and the related
restatement reflected in, this Form 10-K/A (see, especially, Note 8 to Notes to Consolidated
Financial Statements). In light of the restatement necessitated by the error in the calculation of
the warrant liability, the Companys chief executive officer and chief financial officer concluded
that, as of December 31, 2005, the Companys disclosure controls and procedures were not effective.
The Company is currently evaluating steps that it can take to remediate any deficiencies in its
disclosure controls and procedures, especially as they may relate to the calculation and
documentation of warrant liability and other related matters.
No change in the Companys internal control over financial reporting (as defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended December 31, 2005
that has materially affected, or is reasonably likely to materially affect, the Companys internal
control over financial reporting.
49
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Report on Form 8-K
(a) |
|
The following documents are filed as part of this report: |
|
(i) |
|
Consolidated Balance Sheets as of December 31, 2005 and December 25,
2004. Consolidated Statements of Operations for the years ended December 31, 2005,
December 25, 2004 and December 27, 2003. |
|
|
(ii) |
|
Consolidated Statements of Changes in Stockholders Equity for the
years ended December 31, 2005, December 25, 2004 and December 27, 2003. |
|
|
(iii) |
|
Consolidated Statements of Cash Flows for the years ended December
31, 2005, December 25, 2004 and December 27, 2003. |
|
|
(iv) |
|
Notes to Consolidated Financial Statements |
|
(2) |
|
Financial statement schedule: |
Schedule II Valuation and Qualifying Accounts
2.1 |
|
Plan of Arrangement, including exchangeable share provisions (incorporated herein
by reference to Exhibit 2.3 to the Companys Joint Proxy Statement/Prospectus on
Form S-4 (Reg. No. 333-73022)). |
|
3.1 |
|
Restated Certificate of Incorporation of HEARx Ltd., including certain certificates
of designations, preferences and rights of certain preferred stock of the Company
(incorporated herein by reference to Exhibit 3 to the Companys 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 Companys 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 Companys 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 Companys Current Report on Form 8-K, filed July 17, 2002 (File No.
001-11655)). |
|
3.5 |
|
Certificate of Designations, Preferences and Rights of the Companys 1999 Series H
Junior Participating Preferred Stock (incorporated herein by reference to Exhibit 4
to the Companys Current Report on Form 8-K, filed December 17, 1999 (File No.
001-11655)). |
|
3.6 |
|
Certificate of Designations, Preferences and Rights of the Companys Special Voting
Preferred Stock (incorporated herein by reference to Exhibit 3.2 to the Companys
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 Companys
1999 Series H Junior Participating Preferred Stock (incorporated herein by
reference to Exhibit 4 to the Companys Current Report on Form 8-K, filed July 17,
2002 (File No. 001-11655)). |
|
3.8 |
|
Certificate of Designations, Preferences and Rights of the Companys 1998-E
Convertible Preferred Stock (incorporated herein by reference to Exhibit 4.1 to the
Companys 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 Companys Quarterly Report
on Form 10-Q for the quarter ended June 26, 2004). |
|
3.10 |
|
Amended and Restated By-Laws of HearUSA, Inc. (effective May 9, 2005) (incorporated
herein by reference to Exhibit 3.1 to the Companys Current Report on Form 8-K,
filed May 13, 2005). |
50
4.1 |
|
Amended and Restated Rights Agreement, dated July 11, 2002 between HEARx and the
Rights Agent, which includes an amendment to the Certificate of Designations,
Preferences and Rights of the Companys 1999 Series H Junior Participating
Preferred Stock (incorporated herein by reference to Exhibit 4.9.1 to the Companys
Joint Proxy/Prospectus on Form S-4 (Reg. No. 333-73022)). |
|
4.2 |
|
Form of Support Agreement among HEARx Ltd., HEARx Canada, Inc. and HEARx
Acquisition ULC (incorporated herein by reference to Exhibit 99.3 to the Companys
Joint Proxy Statement/Prospectus on Form S-4 (Reg No. 333-73022)). |
|
4.3 |
|
Form of 2003 Convertible Subordinated Note due November 30, 2008 (incorporated
herein by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K,
filed December 31, 2003). |
|
9.1 |
|
Form of Voting and Exchange Trust Agreement among HearUSA, Inc., HEARx Canada, Inc
and HEARx Acquisition ULC and ComputerShare Trust Company of Canada (incorporated
herein by reference to Exhibit 9.1 to the Companys Joint Proxy
Statement/Prospectus on Form S-4 (Reg. No. 333-73022)). |
|
10.1 |
|
HEARx Ltd. 1987 Stock Option Plan (incorporated herein by reference to Exhibit
10.11 to the Companys Registration Statement of Form S-18 (Reg. No. 33-17041-NY))# |
|
10.2 |
|
HEARx Ltd. Stock Option Plan for Non-Employee Directors and Form of Option
Agreement (incorporated herein by reference to Exhibits 10.35 and 10.48 to
Post-Effective Amendment No. 1 to the Companys Registration Statement of Form S-18
(Reg. No. 33-17041-NY))# |
|
10.3 |
|
1995 Flexible Employee Stock Plan (incorporated herein by reference to Exhibit 4 to
the Companys 1995 Proxy Statement)# |
|
10.4 |
|
Employment Agreement, dated August 31, 2005 with Dr. Paul A. Brown (incorporated
herein by reference to Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q,
for the quarter ended October 1, 2005.)# |
|
10.5 |
|
Employment Agreement, dated August 31, 2005 with Stephen J. Hansbrough
(incorporated herein by reference to Exhibit 10.2 to the Companys Quarterly Report
on Form 10-Q, for the quarter ended October 1, 2005.)# |
|
10.6 |
|
Employment Agreement, dated August 31, 2005 with Gino Chouinard (incorporated
herein by reference to Exhibit 10.3 to the Companys Quarterly Report on Form 10-Q,
for the quarter ended October 1, 2005.)# |
|
10.7 |
|
Employment Agreement, dated August 31, 2005 with Ken Schofield (incorporated herein
by reference to Exhibit 10.4 to the Companys Quarterly Report on Form 10-Q, for
the quarter ended October 1, 2005.)# |
|
10.8 |
|
Form of Change in Control Agreement (incorporated herein by reference to Exhibit
10.5 to the Companys Quarterly Report on Form 10-Q for the quarter ended October
1, 2005.)# |
|
10.9 |
|
Credit Agreement, dated December 7, 2001 between HEARx Ltd and Siemens Hearing
Instruments, Inc (incorporated herein by reference to Exhibit 10.1 to the Companys
Current Report on Form 8-K, filed December 26, 2001) |
|
10.10 |
|
Security Agreement, dated December 7, 2001 between HEARx Ltd and Siemens Hearing
Instruments, Inc (incorporated herein by reference to Exhibit 10.2 to the Companys
Current Report on Form 8-K, December 26, 2001) |
|
10.11 |
|
Supply Agreement, dated December 7, 2001 between HEARx Ltd and Siemens Hearing
Instruments, Inc (incorporated herein by reference to Exhibit 10.3 to the Companys
Current Report on Form 8-K, December 26, 2001) |
|
10.12 |
|
HearUSA 2002 Flexible Stock Plan (incorporated herein by reference to Exhibit 10.9
to the Companys Joint Proxy Statement/Prospectus on Form S-4 (Reg. No. 333-73022)# |
|
10.13 |
|
Amendment to Security Agreement, dated March 12, 2003 between HearUSA, Inc. and
Siemens Hearing Instruments, Inc. (incorporated herein by reference to Exhibit 10.2
to the Companys Form 10Q for the period ended March 29, 2003). |
|
10.14 |
|
Amendment to Credit Agreement, dated March 12, 2003 between HearUSA, Inc. and
Siemens Hearing Instruments, Inc. (incorporated herein by reference to Exhibit 10.1
to the Companys Form 10-Q for the period ended March 29, 2003). |
51
10.15 |
|
Purchase Agreement dated August 19, 2005 by and among HearUSA, Inc. and the
purchasers named therein (incorporated by reference to Exhibit 10.1 to the
Companys Registration Statement on Form S-3/A filed October 7, 2005). |
|
10.16 |
|
Form of Registration Rights Agreement by and among HearUSA, Inc. and the purchasers
named in the Purchase Agreement dated August 19, 2005 (incorporated by reference to
Exhibit 10.2 to the Companys Registration Statement on Form S-3/A filed October 7,
2005). |
|
10.17 |
|
Asset Purchase Agreement dated June 15, 2005, between HearUSA, Inc. and Sonus-USA,
Inc. (incorporated herein by reference to Exhibit 10.5 to the Companys Quarterly
Report on Form 10-Q for the quarter ended July 2, 2005). |
|
21 |
|
List of Subsidiaries* |
|
23 |
|
Consent of the Independent Public Accountants |
|
31.1 |
|
CEO Certification, pursuant to Section 30 2 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 |
# |
|
Denotes compensatory plan or arrangement for Company officer or director. |
|
* |
|
Previously filed. |
52
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this Amendment No. 1 to Form 10-K to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
|
|
|
|
|
HearUSA, Inc.
(Registrant)
|
|
Date: May 11, 2006 |
By: |
/s/ Stephen J. Hansbrough
|
|
|
|
Stephen J. Hansbrough |
|
|
|
President and Chief Executive Officer |
|
|
53