HearUSA, Inc. (EAR)
Interview with: Dr. Paul A. Brown, Chairman
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Hear in the USA and beyond

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HearUSA, Inc.

1250 North Point Parkway
West Palm Beach, FL  35407
Phone: 561-478-8770


Dr. Paul A. Brown

Interview Conducted By:
Diane Reynolds, Co Publisher

November 2002

Bio of Paul A. Brown, M.D.

Dr. Paul A. Brown is Chairman of HearUSA, Inc.  He is a physician by training but a businessman by instinct.    His medical background is that he is a fully trained pathologist.  He discovered early on in his career that his patients had flat electrocardiograms and rarely talked back to him.  So he decided to go into business and borrowed $500.00 to set up a medical laboratory business in New York City in 1969.  It grew into the world’s largest clinical laboratory and was acquired by Corning in 1982 for approximately $140 million.  The stock increased from $.40 cents to $40.00 during a 12-year period.  He tried semi-retirement and went stark raving mad, having gone from 3600 employees in three countries to one employee living with him in Ridgewood, NJ who didn’t think she was an employee.  In 1987, he decided to go back into business and found another segment in the healthcare field to change--hearing care.  Dr. Brown was attracted to hearing care for the same four reasons he was attracted to the laboratory business.  One:  It was a large, highly fragmented industry with annual revenues of approximately $2.5 billion a year.  There are currently 11,000 providers, down from 14,000 when the company started.  It meets the criteria of what people call a cottage industry.   Two: It is an unregulated business. To go into this business in some states you just have to be able to spell hearing aid and you can open your practice.  There are no federal or state inspections of hearing care facilities anywhere in the United States.   Three: Fraud and abuse.  The industry has long had a reputation of being a cross between aluminum siding and used car dealers.  Four: As a result of the fraud and abuse, the healthcare industry refused to reimburse a patient for a hearing aid or reimburse a dispenser of hearing aids for a portion of the cost of a patient’s hearing aid.  Those were exactly the same four areas that got Dr. Brown excited about the clinical lab business when he was in training at Columbia Presbyterian.  So, having changed the lab business with his first company now called Quest Diagnostics (DGX) trading on the NYSE with annual revenues in excess of $4 billion, he decided to change another field that had the same problems.

CEOCFOinterviews:  Please tell my readers a little bit about the company and how it stands today.

Dr. Brown: Well, about a year ago, we discovered that a $50 million dollar company was not getting much attention on Wall Street and our facilities were limited to four states, which precluded us from national contracts.  We decided if we could combine with the number three player in the industry we would end up being an $80 million dollar company.  Large enough to begin to get some attention on Wall Street and at the same time be able to service the entire country.  So, in July of this year we combined acquired Helix Hearing Care and changed our name to HearUSA, Inc.  We now have 200 company owned or managed centers in 11 states and 2 Canadian provinces and 2,000 affiliated providers in 49 states.  With the combination of the affiliated providers and the company owned stores, we are the number three player in Hearing Care in the U.S.  The first is Miracle Ear owned by an Italian Company, the second is Beltone owned by a Danish Company and then HearUSA, Inc. followed by 9,000 small independent providers. 

CEOCFOinterviews: As far as the ticker symbol and stock exchange, did that stay the same?

Dr. Brown: Yes, that stayed the same.  The Stock Exchange is still the American Stock Exchange and the symbol is still EAR.

CEOCFOinterviews: How has the merger affected the management team?

Dr. Brown: This was a merger of two different strategies, corporate cultures, and languages.     In any transaction like this, a few key people stay while others go their own way for whatever reason. 

CEOCFOinterviews: With everything, there is two of everything, how does that address your budget or the finances of the company?

Dr. Brown: We currently have three priorities in our goal to shift from being market driven to being profit driven.  The first is to consolidate the two companies and complete the entire integration process, most of which should be completed in our third quarter with the balance by year-end.  This obviously is a rather aggressive target considering the merger just, took place July 11th.  At this point, we are fairly comfortable that by October 1st all of their U.S. based centers will be completely converted to the HearUSA, Inc. West Palm Beach, Florida information technology system.  We will thus have complete control over all center operations in the United States.  At the same time, we will begin converting the Ontario centers and finally the Quebec centers (where the computer system has to be rewritten in French for the Quebec Province).   The Second is that we have a $25 million dollar line of credit that is available to us to make acquisitions from Siemens.   Our acquisitions are going to be “roll-ins”  “not roll ups”.  We are looking at making acquisitions within an eight to ten mile radius of an existing center and then have patients serviced out of our centers creating a very high profit margin (approaching 40%). What makes our Siemens’ money so exciting is that our deal with the manufacturer is that there is no principal payment or interest payment provided we buy 90% of our products from them.  With the current economy, we have a number of individuals who are looking to be acquired.  The third priority is that I have been given the responsibility to increase our contracting with healthcare providers now that we have a nationwide network.  In other words, profitability of the company is going to be derived from completing the consolidation phase, starting the acquisition program and additional healthcare provider contracting.  

CEOCFOinterviews: I think the biggest thing was before when we talked was the insurance coverage, Medicare only covered the visits not the physicians, some covered the actual hearing aids themselves.  There are all different types, so you are trying to round everything off where they will cover all aspects of this?

Dr. Brown: What is happening is very interesting.  As the hearing-impaired population gets younger, there is an increasing demand for hearing care coverage.  Fifteen percent of the college age children now have a hearing loss equivalent to their parents and that’s beginning to get legislative attention.  In fact, Connecticut is now mandating hearing aid coverage of $1,000 every two years provided the patient is under age 16.  We understand there is legislation pending that is similar to that in the state of New Jersey.  As the working population becomes hearing impaired there will be coverage from health insurance on a much broader base.  As far as the retired population, who is definitely hearing impaired, Medicare pays nothing for hearing care.  If a Medicare patient belongs to a managed care company, there is partial coverage depending on which company is covering the insurance.  Also getting interest from the managed care and the regular insurance companies are “value added” programs which would give their members discounts toward hearing aids at no cost to the insurance company.  When the company started, the first time hearing aid wearer was age 78; now our first time hearing aid wearer is age 68.  That number is going to drop in the next decade to 58 and then finally into the 40’s.  People will be getting hearing aids the same time they get their reading glasses…if they want to stay in touch.  By then I predict it will be completely covered by insurance companies.

CEOCFOinterviews: Why do they account for the hearing age loss to be at such a younger age?

Dr. Brown:  This is a result of walkmans, cell phones, boom boxes and more environmental trauma than ever before. If you are wearing a CD player with a headset you have absolutely no idea what the decibel level that is being delivered to the inner ear is.  There have been some interesting studies of people driving from Manhattan to Long Island.  At the end of the ride, they have turned the radio up louder and louder as they get closer to home.  When they get into the car in the morning, the radio is on blasting and they want to know which one of the kids turned up the radio.  Well, the ear had become desensitized during the commute and during that period of time they were damaging their hearing.

CEOCFOinterviews: Hearing aids used to wrap around the ear and it was visible. Now there is a digital hearing aid?

Dr. Brown:  Well, there are two technological advances. One is that hearing aids are smaller. In fact, they are so small that they can be hidden behind an aspirin.  At the same time, hearing aids have become digital.  I have just received my first hearing aid…a Siemens’ Triano.  It fits behind the ear, but is so small it is barely visible and very comfortable.  We went out to a restaurant that had a band playing eight feet away from our table and a bar behind us with a normal Friday night crowd I had no problem hearing at the table.  Digital technology can separate out those sounds, which are not the spoken word and control the direction of sounds you want to amplify.  It is only the behind the ear technology that gives you the three different microphone direction capability.

CEOCFOinterviews: It does work better if you get the hearing aid that goes behind the ear instead of inside?

Dr. Brown:  I’ve tried several models and I told our staff that I wanted the following:  a. for it to work and b. for it to be comfortable.  This is the same thing our patients are looking for.  Unfortunately, the American population is very concerned about vanity.   If you are hearing impaired and you keep asking everyone to keep repeating themselves, they know you can’t hear and a hearing aid will make that go away, not accentuate your disability.

CEOCFOinterviews: That is a good sign that you have the opportunity to try them out.  As a patient comes into you, you still want to give the same quality and attention to each patient you encounter.  Are you still able to give your patients the same quality as you expand?

Dr. Brown:  There are three things that make our company unique.  The first thing is we are the only accredited preferred provider organization in hearing care in the United States.  The Joint Commission on Accreditation of Healthcare Organizations (JCAHO) accredits hospitals and nursing homes, etc.  The second thing is that we have 170 contracts with healthcare providers and are getting capitation payments for over a million people per month (whether they buy a hearing aid or not).  Insurance companies are signing up with us because of that accreditation.  The third is the relationship we have with Siemens.  They have agreed to put up to $70 million dollars for the expansion of the company.  They are not getting any shares of the company, nor are they getting a seat on the board, nor a first right of refusal to acquire the company.  Of the first $50 million dollars in debt, $40 million dollars does not have to be paid back as long as we buy 90% of our hearing aids from them.   The remaining $30 million or so is earned by our helping the Siemens’ customers improve their business. 

CEOCFOinterviews: Now, if another acquisition of this size were to come along, would you take it or do you feel more comfortable with the smaller ones to expand in that way?

Dr. Brown: Well, there aren’t any other large acquisitions of this size.  There are now 9,000 small individuals with revenues of $250,000 to $300,000/center.  These are the acquisitions we would like to make, providing they are in the neighborhood of our current centers.

CEOCFOinterviews: It isn’t always acquiring the large companies but acquiring a lot of smaller ones to make one very good large one.

Dr. Brown: We are considering anyone within an 8 to 10 mile radius as a potential target.  We have told our shareholders that our revenue target for next year is $100 million dollars of which a portion of that will certainly come from acquisitions.  We have a stock that is currently trading at .2x this years sales.  Something is wrong with the picture.  This stock has to go up.

CEOCFOinterviews: To a potential investor looking at this company, what would you say to get him/her excited about the company?

Dr. Brown: Well, you have a two and half billion-dollar existing market today that the Federal government says is going to grow over the next few years to a ten billion dollar business.  It is not unreasonable that some company is going to have a billion dollars in sales.  Reason number one--the size of the market.   Reason number two--is the availability of capital to execute the plan—money available from our strategic financing partner.  Reason number three--is the experience of the management.  The first business that I started with $500 is going to do over $4 billion dollars in the clinical laboratory field.  I changed the clinical lab field I am determined to change the hearing aid industry.  Our CEO, Steve Hansbrough, who has been with the company nine years is the former CEO of the Dart Group.  While there, he was responsible for over 220 retail outlets with more than 5,000 employees.  Reason Number Four--we are clearly undervalued.  The market value of this company is $12 million dollars for a company with a running rate close to $70 million dollars a year indicates it is an incredible time to go ahead and buy this stock. 

CEOCFOinterviews: Do you feel that you’re growing too fast, or is it at a pace you can keep up with?

Dr. Brown: Well, the only thing that I can tell you is that we were able to implement our computer system into 60 some odd stores in a 90-day period.   All we need now are patients in the door.  The staff is there.  The systems are there.  Growth is not going to be from starting new stores but from attracting more patients.

CEOCFOinterviews: Do you have any closing comments?

Dr. Brown:  Anyone who would like to talk to me in more detail can call me at 1-800-323-3277 ext. 123, I would be glad to answer any of their questions.  We have thousands of individual shareholders many of whom turned out to be satisfied customers.  There are only a few institutional shareholders.  Over the next few years, we hope to be able to change that, but in the interim, I will take the phone calls.


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September 9, 2004—HearUSA, Inc. (AMEX: EAR)
today announced it has restructured its executive management team to manage anticipated growth and facilitate reporting relationships.

Posted: 9/13/04 - CEOCFOinterviews.com


WEST PALM BEACH, Fla., June 28, 2004 HearUSA, Inc. (AMEX: EAR) announced today that revenues for the quarter ended June 26, 2004 are expected to be approximately $18.2 million, an increase of approximately 7% over the $17 million reported for the first quarter of this fiscal year.   Additional revenue from the recently announced contract with the Department of Veterans Affairs will be recognized in future reporting periods.  It is anticipated that a press release covering second quarter results will be issued on August 10th.

Posted: 7/1/04 - CEOCFOinterviews.com


WEST PALM BEACH, Fla., December 19, 2003HearUSA, Inc. (AMEX: EAR) announced today that it has completed a private placement of $7.5 million of five year convertible subordinated notes with five-year common stock purchase warrants. The notes and warrants may not be converted or exercised for a two year period. Thereafter, the $7.5 million notes may be converted at $1.75 per share and the 2.1 million warrants may be exercised at $1.75. The notes bear interest at 11 percent per annum for the first two years and then at 8 percent per annum through the remainder of their term. The participants in the financing included several institutional investors led by SIAR Capital and individuals.

Posted: 2/1/04 - CEOCFOinterviews.com

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