Interview with: Paul A. Brown, M.D., Founder and Chairman - featuring: their company-owned hearing care centers, which offer a complete range of quality hearing aids, with an emphasis on the latest digital technology, located in California, Florida, New York, New Jersey, Massachusetts, Ohio, Michigan, Missouri and the province of Ontario Canada. The company also derives revenues from its HearUSA Hearing Care Network, comprised of 1,400 affiliated audiologists in 49 states.

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With more health insurance companies offering coverage for hearing aids and the corporate world also adding hearing aid benefits to current or retired employees, HearUSA is poised for growth in a business that has no shortage of consumers

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Healthcare Services
Services Retail
(EAR-AMEX)


HearUSA, Inc.

1250 Northpoint Parkway
West
Palm Beach, FL 33407

Phone: 561-478-8770



Paul A. Brown, M.D.
Founder and Chairman

Interview conducted by:
Walter Banks, Publisher
CEOCFOinterviews.com
Published - January 18, 2007

BIO:
Paul A. Brown, M.D., age 68.  Dr. Brown holds an A.B. from Harvard College and an M.D. from Tufts University School of Medicine. Dr. Brown founded HearUSA in 1986 and has served as Chairman of the Board since that time and Chief Executive Officer until July 2002. From 1970 to 1984, Dr. Brown was Chairman of the Board and Chief Executive Officer of MetPath Inc. (“MetPath”), a New Jersey-based corporation offering a full range of clinical laboratory services to physicians and hospitals, which he founded in 1967 while a resident in pathology at Columbia Presbyterian Medical Center in New York City. MetPath developed into the largest clinical laboratory in the world with over 3,000 employees and was listed on the American Stock Exchange prior to being sold to Corning in 1982 for $140 million. That lab is now called Quest Diagnostics (NYS-DGX) with over $5 billion in annual revenues. Dr. Brown is formerly Chairman of the Board of Overseers of Tufts University School of Medicine, an Emeritus member of the Board of Trustees of Tufts University, a past member of the Visiting Committee of Boston University School of Medicine and is currently a part-time lecturer in pathology and a member of the Visiting Committee at Columbia University College of Physicians and Surgeons.

Company Profile:

HearUSA provides hearing care to patients primarily through its company-owned hearing care centers, which offer a complete range of quality hearing aids, with an emphasis on the latest digital technology. HearUSA Centers are located in California, Florida, New York, New Jersey, Massachusetts, Ohio, Michigan, Missouri and the province of Ontario Canada. The company also derives revenues from its HearUSA Hearing Care Network, comprised of 1,400 affiliated audiologists in 49 states, as well as its website that enables online purchases of hearing related products, such as batteries, hearing aid accessories and assistive listening devices. For further information, click on “investor information” at HearUSA’s website www.hearusa.com.

CEOCFO
: Dr. Brown, you believe your stock price doesn’t reflect the true value of your company. Why do you say that?
Dr. Brown: “Other companies in our industry are trading at 1 to 3 times annual revenues. HearUSA, at its current price of $1.58 (with the most recent year revenues of $89 million) is trading at times revenue. Therefore, we could be trading at up to 6 times more if we were in line with the industry leader. Certainly, if we were trading at even 1 times revenue we’d be a $2.00 - $3.00 stock.”

CEOCFO: In your latest revenue release, you stated increases of 20.5% for the just completed 4th quarter. Is that correct?
Dr. Brown: “Yes. We’ve told our shareholders to expect 15% to 20% growth per year. For the last fiscal year, we ended with $88.8 million, which was an increase over 2005 of 15.8% in revenue and as you stated in the 4th quarter, we had revenue of $22.8 million, which was up from $19 million or an increase of 20.5%. We have given guidance for 2007 of the same expected 15% to 20% growth rate. This would bring revenues for this year (2007) to between $102 - $107 million.”

CEOCFO: What percentage of your current shareholders are institutions?
Dr. Brown: “As you know, I started what became Quest Diagnostics Incorporated (NYSE: DGX) almost 40 years ago which made a number of investors a lot of money. As a result of that success, HearUSA has attracted over 9,000 retail customers and only have approximately 15% of the company held in institutional hands. I believe that is one of the reasons that we have such a low market value. We are very anxious to increase the institutional ownership to two-thirds. We have just been invited to the February Roth Capital Partners conference, where the company will be making a presentation. That will certainly be followed by one-on-one meetings, which we expect will enhance the ownership of the company by institutions.”

CEOCFO: That would be exciting. Does your new $50 million credit facility with Siemens’ help or hurt the company when dealing with the investment community?
Dr. Brown: “HearUSA is in a unique situation where we have announced that Siemens ICN (NYSE: SI) has increased our line of credit from $26 million to $50 million. What makes it unusual is that of the $50 million, $30 million does not ever have to be paid back nor do we have to pay interest on that money…providing we purchase at least 90% of our products from Siemens. All of that money is dedicated toward making acquisitions. The second portion of the line of credit for $20 million at 5% interest…also for acquisitions. No investment banking firm could have matched those fund raising terms…which may be why it is difficult to get analyst coverage and interest from an investment banking firm.”

CEOCFO: What are you doing with the Siemens’ Funds?
Dr. Brown: “Last year we bought $15.8 million of trailing 12 months revenue. We have already announced for 2007 that we have letters of intent for acquisitions with trailing 12-month revenue of $3.9 million, which we expect to close in the 1st Quarter. The company expects that of our continued growth of 15% - 20% one-half will come from acquisitions and the balance from organic growth. Therefore, having the funds from Siemens…and not having to pay most of it back…will allow us not only to grow the business, but to improve our bottom line as well.”

CEOCFO: You have touched on some areas that analysts were looking at last year, one of which was for you to redo your Siemens agreement and you have accomplished that; what is left?
Dr. Brown: “Our 2003 and 2005 financings are costing the company both interest and non-cash charges. We have told the investment community that if we can get those eliminated that would add approximately $3 million to the bottom line. The new Siemens deal is also expected to add approximately $2 million to the bottom line from increased volume discounts and cancelled interest on debt that we no longer have.”

CEOCFO: Are you going to run out of acquisition candidates?
Dr. Brown: “There is no shortage of candidates interested in being acquired. There are 9,000 private practitioners in the United States. Of those, there are 3,000 that are located in the 8 states where we operate. Of those 3,000 practitioners, 20% are actually doing $ million per year. That means that there are 600 private practitioners doing $500 thousand per year or $300 million worth of business. Those are our targets of opportunity for acquisitions…no shortage of acquisition possibilities and no shortage of money to effect the acquisitions.”

CEOCFO: Is HearUSA up to the challenge of integrating and making these acquisitions profitable?
Dr. Brown: “Historically, rollups have not worked for three reasons; one is that the people doing the buying don’t know what they are buying; two, they don’t have any systems to put into place to control what they’ve bought; and three, they don’t have any ability to grow the business after they make the acquisition. Well, none of those three applies to us, because we’ve been in this business for 20 years and now as the third largest provider of hearing care in the United States we know what we are buying. Secondly, we have computer systems that go into these centers within several weeks, so we can control the purchases, payroll and all of their expenses…giving us the ability to know what is going on. Lastly, with our sophisticated nationwide call center and the fact that 65% of our business comes from contracts with healthcare providers, we can begin to add business to those centers and make them more profitable.”

CEOCFO: Have you seen a change over the past year, in the way insurance companies are responding to the needs of the hearing impaired and has any government legislation effected that position?
Dr. Brown: “I think that Part D, under Medicare, which is covering prescription drugs, has caused a definite increase in patients shifting from Medicare to Managed Care. Therefore, we have seen our customers like Kaiser Permanente, Horizon Insurance, Oxford, Empire and Humana Inc. for example are signing up more patients. As they get more patients, since they are contracted with us, we automatically get more business. With more health insurance companies offering coverage for hearing aids and the corporate world also adding hearing aid benefits to current or retired employees, HearUSA is poised for growth in a business that has no shortage of consumers…either the elderly are hearing impaired and there certainly are more elderly people every day, or young people are destroying their hearing with IPods and various other devices. They are going to be coming to us eventually.”

CEOCFO: Well, it is clear that there is a market for your products/services and that you have access to enough capital to carry out the company's plans, but do you have the right management in place?
Dr. Brown: “I believe that we have one of the most experienced and dedicated executive groups in the field of hearing care working 24/7 to develop and execute a corporate strategy that will clearly increase shareholder value. The experience at HearUSA of just a few of our key individuals include; CEO...11 years; Exec VP/CFO....6 yrs; COO...10 years; SVP-Corporate Communications-12 years;  SVP- Professional Services- 20 years, and VP-Business Integration-20 years.”

CEOCFO: In closing, could you touch on the international part of your business and address investors?
Dr. Brown: “Although we are called HearUSA, we have $10 million of our revenue generated from the Ontario province in Canada. Since we can’t run those centers as HearUSA they are called Helix. We expect to stay there, grow that business organically and make acquisitions up there as well. I don’t really see us going off into other international markets. I think what we have to do now is concentrate on increasing shareholder value. That means continuing to grow our revenues and become very profitable.”


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“Historically, rollups have not worked for three reasons; one is that the people doing the buying don’t know what they are buying; two, they don’t have any systems to put into place to control what they’ve bought; and three, they don’t have any ability to grow the business after they make the acquisition. Well, none of those three applies to us, because we’ve been in this business for 20 years and now as the third largest provider of hearing care in the United States we know what we are buying. Secondly, we have computer systems that go into these centers within several weeks, so we can control the purchases, payroll and all of their expenses…giving us the ability to know what is going on. Lastly, with our sophisticated nationwide call center and the fact that 65% of our business comes from contracts with healthcare providers, we can begin to add business to those centers and make them more profitable.” - Paul A. Brown, M.D.

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