##### 









United States


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-K


FOR ANNUAL AND TRANSITION REPORTS


PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES EXCHANGE ACT OF 1934


|           |  |                                                                                              
|---------- |  | ---------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                              
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934     
|          
|           |  | For the fiscal year ended December 25, 2004                                                  
|          
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the transition period
    from           to                                              

Commission file number 001-11655





HearUSA, Inc.


Exact Name of Registrant as Specified in Its Charter


|                                                                                              |  |                                         
|--------------------------------------------------------------------------------------------- |  | ----------------------------------------
|Delaware                                                                                      |  | 22-2748248                              
|(State of Other Jurisdiction of
    Incorporation or Organization)                            |  | (I.R.S. Employer
    Identification No.)
|1250 Northpoint Parkway,
    West Palm Beach, Florida(Address of Principal Executive Offices) |  | 33407(Zip Code)                         

Registrants Telephone Number, Including Area Code


(561) 478-8770


Securities registered pursuant to Section 12(b) of the
Act:


|                                        |  |                                          
|--------------------------------------- |  | -----------------------------------------
|Title of each class                     |  | Name of each exchange on which registered
|                                        |  |                                          
|Common Stock, par value $0.10 per share |  | American Stock Exchange                  

Securities registered pursuant to Section 12(g) of the
Act:


None


þ o


o




o þ






DOCUMENTS INCORPORATED BY REFERENCE














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##### 



PART I


Item 1.     Business








Facilities and Services








| |   |                                                                         
| | - | ------------------------------------------------------------------------
| |  | Comprehensive hearing testing using standardized practice
    guidelines
|
| |  | Interactive hearing aid selection and fitting process                   
|
| |  | Aural rehabilitation and follow up care                                 
|
| |  | Standardized reporting and physician communications                     





Products




1



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Managed Care, Institutional Contracts and Benefit
Providers










2



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##### 



Marketing






| |   |                                                                                                                                                                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Newspaper and Special Events: HearUSA places print ads in its
    markets promoting different hearing aids at a variety of
    technology levels and prices along with special limited time
    events. Advertising also emphasizes the need to seek help for
    hearing loss as well as the qualitative differences and
    advantages offered by HearUSA.                 
|
| |  | Direct Marketing: Utilizing HearUSAs database, HearUSA
    makes direct mailings and offers free seminars in its markets on
    hearing and hearing loss.                                                                                                                                                                                                                   
|
| |  | Physician Marketing: HearUSA attempts to educate both physicians
    and their patients on the need for regular hearing testing and
    the importance of hearing aids and other assistive listening
    devices. HearUSA works to further its image as a provider of
    highly professional services, quality products, and
    comprehensive post-sale consumer education.
|
| |  | Telemarketing: HearUSA has a domestic national call center,
    which supports all HearUSA centers. The national call center is
    responsible for both inbound and outbound telemarketing.                                                                                                                                                                                 

Revenues




Segments












3



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Distinguishing Features












4



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##### 









Competition










5



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##### 



Reliance on Manufacturers






Regulation












6



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7



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Product and Professional Liability




8



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Seasonality




Employees




Where to Find More Information




Item 2.     Properties




Item 3.     Legal
Proceedings




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




9



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##### 



EXECUTIVE OFFICERS OF THE COMPANY




|                                                                      |  |     |    |                      |  |  |      | 
|--------------------------------------------------------------------- |  | --- | -- | -------------------- |  |  | ---- | 
|                                                                      |  |     |    | First Served        
|Name and Position                                                     |  | Age |    | as Executive Officer
|                                                                      |  |     |    |                     
|Paul A. Brown, M.D.
    Chairman of the Board                         |  |     | 66 |                      |  |  | 1986 | 
|Stephen J. Hansbrough
    President/ Chief Executive Officer Director |  |     | 57 |                      |  |  | 1993 | 
|Gino Chouinard
    Executive Vice President Chief Financial Officer   |  |     | 36 |                      |  |  | 2002 | 
|Kenneth Schofield
    Chief Operating Officer                         |  |     | 40 |                      |  |  | 2004 | 
|Donna L. Taylor Senior Vice President of Operations                   |  |     | 48 |                      |  |  | 2000 | 











10



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##### 







PART II


Item 5.     Market for
Registrants Common Equity and Related Stockholder
Matters




|               |  |              |      |     |  |   |      | 
|-------------- |  | ------------ | ---- | --- |  | - | ---- | 
|               |  | Common Stock
|               |  |             
|Fiscal Quarter |  | High         |      | Low
|               |  |              |      |    
|2004           |  |              |      |     |  |   |      | 
|First          |  | $            | 2.90 |     |  | $ | 2.08 | 
|Second         |  | $            | 2.10 |     |  | $ | 1.53 | 
|Third          |  | $            | 1.77 |     |  | $ | 1.05 | 
|Fourth         |  | $            | 1.61 |     |  | $ | 1.15 | 
|2003           |  |              |      |     |  |   |      | 
|First          |  | $            | 0.44 |     |  | $ | 0.25 | 
|Second         |  | $            | 0.83 |     |  | $ | 0.33 | 
|Third          |  | $            | 1.67 |     |  | $ | 0.75 | 
|Fourth         |  | $            | 2.80 |     |  | $ | 1.14 | 



Dividend Policy




11



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##### 



Item 6.     Selected
Financial Data




OPERATING STATEMENT DATA:


|                                                                                                                                     |  |             |            |             |  |             |            |             |  |             |            |   |  |   |            |   |  |   |            |  
|------------------------------------------------------------------------------------------------------------------------------------ |  | ----------- | ---------- | ----------- |  | ----------- | ---------- | ----------- |  | ----------- | ---------- | - |  | - | ---------- | - |  | - | ---------- | -
|                                                                                                                                     |  | Year Ended 
|                                                                                                                                     |  |            
|                                                                                                                                     |  | December 25 |            | December 27 |  | December 28 |            | December 29 |  | December 29
|                                                                                                                                     |  | 2004        |            | 2003        |  | 2002(1)     |            | 2001        |  | 2000       
|                                                                                                                                     |  |             |            |             |  |             |            |             |  |            
|Net revenues                                                                                                                         |  | $           | 72,300,623 |             |  | $           | 70,545,154 |             |  | $           | 57,230,128 |   |  | $ | 48,796,110 |   |  | $ | 56,114,832 |  
|Total operating costs and expenses                                                                                                   |  |             | 70,512,939 |             |  |             | 68,645,516 |             |  |             | 61,713,300 |   |  |   | 56,995,460 |   |  |   | 59,696,818 |  
|                                                                                                                                     |  |             |            |             |  |             |            |             |  |             |            |   |  |   |            |   |  |   |            |  
|Income (loss) from operations                                                                                                        |  |             | 1,787,684  |             |  |             | 1,899,638  |             |  |             | (4,483,172 | ) |  |   | (8,199,350 | ) |  |   | (3,581,986 | )
|Non-operating income (expenses):                                                                                                     |  |             |            |             |  |             |            |             |  |             |            |   |  |   |            |   |  |   |            |  
|Interest income                                                                                                                      |  |             | 17,543     |             |  |             | 20,836     |             |  |             | 114,152    |   |  |   | 222,349    |   |  |   | 294,132    |  
|Interest expense (including approximately $2,127,000 and
    $517,000, in 2004 and 2003, of non-cash debt discount
    amortization) |  |             | (4,563,729 | )           |  |             | (2,828,327 | )           |  |             | (1,722,467 | ) |  |   | (652,530   | ) |  |   | (28,723    | )
|                                                                                                                                     |  |             |            |             |  |             |            |             |  |             |            |   |  |   |            |   |  |   |            |  
|Loss before equity in loss of affiliated company                                                                                     |  |             | (2,758,502 | )           |  |             | (907,583   | )           |  |             | (6,092,010 | ) |  |   | (8,629,531 | ) |  |   | (3,316,577 | )
|Equity in loss of affiliated company                                                                                                 |  |             |           |             |  |             |           |             |  |             | (630,801   | ) |  |   |           |   |  |   |           |  
|                                                                                                                                     |  |             |            |             |  |             |            |             |  |             |            |   |  |   |            |   |  |   |            |  
|Loss from continuing operations                                                                                                      |  |             | (2,758,502 | )           |  |             | (907,583   | )           |  |             | (6,722,811 | ) |  |   | (8,629,531 | ) |  |   | (3,316,577 | )
|Discontinued operations                                                                                                              |  |             |           |             |  |             | (201,536   | )           |  |             | (157,658   | ) |  |   |           |   |  |   |           |  
|Dividends on preferred stock                                                                                                         |  |             | (708,159   | )           |  |             | (626,956   | )           |  |             | (696,541   | ) |  |   | (812,205   | ) |  |   | (1,346,872 | )
|                                                                                                                                     |  |             |            |             |  |             |            |             |  |             |            |   |  |   |            |   |  |   |            |  
|Net loss applicable to common stockholders                                                                                           |  | $           | (3,466,661 | )           |  | $           | (1,736,345 | )           |  | $           | (7,577,010 | ) |  | $ | (9,441,736 | ) |  | $ | (4,663,449 | )
|                                                                                                                                     |  |             |            |             |  |             |            |             |  |             |            |   |  |   |            |   |  |   |            |  
|Loss per common share Basic and diluted, loss from continuing
    operations, including dividends on preferred stock                 |  | $           | (0.11      | )           |  | $           | (0.05      | )           |  | $           | (0.33      | ) |  | $ | (0.72      | ) |  | $ | (0.39      | )
|                                                                                                                                     |  |             |            |             |  |             |            |             |  |             |            |   |  |   |            |   |  |   |            |  
|Basis and diluted, net loss applicable to common stockholders                                                                        |  | $           | (0.11      | )           |  | $           | (0.06      | )           |  | $           | (0.34      | ) |  | $ | (0.72      | ) |  | $ | (0.39      | )
|                                                                                                                                     |  |             |            |             |  |             |            |             |  |             |            |   |  |   |            |   |  |   |            |  
|Weighted average number of common shares outstanding                                                                                 |  |             | 30,426,829 |             |  |             | 30,424,262 |             |  |             | 22,534,393 |   |  |   | 13,120,137 |   |  |   | 11,834,388 |  
|                                                                                                                                     |  |             |            |             |  |             |            |             |  |             |            |   |  |   |            |   |  |   |            |  
|Cash dividends per common share                                                                                                      |  |             | None       |             |  |             | None       |             |  |             | None       |   |  |   | None       |   |  |   | None       |  
|                                                                                                                                     |  |             |            |             |  |             |            |             |  |             |            |   |  |   |            |   |  |   |            |  






|    |                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | As discussed in Note 5 to the Consolidated Financial Statements,
    effective June 30, 2002, the Company completed its business
    combination with Helix.

12



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##### 



BALANCE SHEET DATA:


|                                                   |                                                                                       |             |            |             |  |             |            |             |  |             |             |            |     |   |            |           |  |   |            |         | 
|-------------------------------------------------- | ------------------------------------------------------------------------------------- | ----------- | ---------- | ----------- |  | ----------- | ---------- | ----------- |  | ----------- | ----------- | ---------- | --- | - | ---------- | --------- |  | - | ---------- | ------- | 
|                                                   |                                                                                       | As of      
|                                                   |                                                                                       |            
|                                                   |                                                                                       | December 25 |            | December 27 |  | December 28 |            | December 29 |  | December 29
|                                                   |                                                                                       | 2004        |            | 2003        |  | 2002(1)     |            | 2001        |  | 2000       
|                                                   |                                                                                       |             |            |             |  |             |            |             |  |            
|Total assets                                       |                                                                                       | $           | 59,301,815 |             |  | $           | 66,183,350 |             |  | $           | 64,996,870  |            |     | $ | 21,341,522 |           |  | $ | 21,872,123 |        
|Working capital (deficit)                          |                                                                                       |             | (4,898,459 | )           |  |             | (2,330,035 | )           |  |             | (10,231,372 | )          |     |   | (738,562   | )         |  |   | 2,350,832  |        
|Long-term debt:                                    |                                                                                       |             |            |             |  |             |            |             |  |             |             |            |     |   |            |           |  |   |            |        
|                                                   | Long-term debt, net of current maturities                                             |             |            | 17,296,125  |  |             |            | 20,579,977  |  |             |             | 22,082,389 | (2) |   |            | 8,750,999 |  |   |            | 175,887 | 
|                                                   | Convertible subordinated notes, net of debt discount of
    $5,443,879 and $7,423,596 |             |            | 2,056,121   |  |             |            | 76,404      |  |             |             |           |     |   |            |          |  |   |            |        | 
|Mandatorily redeemable convertible preferred stock |                                                                                       |             | 4,709,921  |             |  |             | 4,600,107  |             |  |             |            |            |     |   |           |           |  |   |           |        






|    |                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | As discussed in Note 5 to the Consolidated Financial Statements,
    effective June 30, 2002, the Company completed its business
    combination with Helix.
|   
|(2) | Includes $110,890 of long-term debt of discontinued operations.                                                                                             

13



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##### 





|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Results of
    Operations and Financial Condition

GENERAL










RESULTS OF OPERATIONS


2004 Compared to 2003






14



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2003 Compared to 2002






15



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16



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LIQUIDITY AND CAPITAL RESOURCES








17



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18



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##### 







Payments Due by Period


|                                                                                  |  |       |            |             |  |             |            |             |  |           |            |  |  |   |           |  |  |   |         | 
|--------------------------------------------------------------------------------- |  | ----- | ---------- | ----------- |  | ----------- | ---------- | ----------- |  | --------- | ---------- |  |  | - | --------- |  |  | - | ------- | 
|Contractual                                                                       |  |       |            | Less than 1 |  |             |            |             |  | More than
|Obligations                                                                       |  | Total |            | Year        |  | 1  3 Years |            | 4  5 Years |  | 5 Years  
|                                                                                  |  |       |            |             |  |             |            |             |  |          
|Long-term debt(1)                                                                 |  | $     | 21,449,000 |             |  | $           | 4,153,000  |             |  | $         | 17,103,000 |  |  | $ | 193,000   |  |  | $ |        | 
|Interest to be paid on long-term debt(2)                                          |  |       | 985,000    |             |  |             | 638,000    |             |  |           | 344,000    |  |  |   | 3,000     |  |  |   |        | 
|Operating leases                                                                  |  |       | 15,373,000 |             |  |             | 5,977,000  |             |  |           | 6,346,000  |  |  |   | 2,656,000 |  |  |   | 394,000 | 
|Convertible subordinated notes(3)                                                 |  |       | 7,500,000  |             |  |             |           |             |  |           | 5,000,000  |  |  |   | 2,500,000 |  |  |   |        | 
|Interest to be paid on convertible subordinated notes(3)                          |  |       | 1,766,000  |             |  |             | 838,000    |             |  |           | 821,000    |  |  |   | 107,000   |  |  |   |        | 
|Mandatorily redeemable convertible preferred stock and
    redemption premiums(4) |  |       | 4,928,000  |             |  |             |           |             |  |           | 4,928,000  |  |  |   |          |  |  |   |        | 
|Premiums to be paid on mandatorily redeemable convertible
    preferred stock     |  |       | 1,051,000  |             |  |             | 570,000    |             |  |           | 481,000    |  |  |   |          |  |  |   |        | 
|Employment agreements                                                             |  |       | 1,845,000  |             |  |             | 503,000    |             |  |           | 1,342,000  |  |  |   |           |  |  |   |         | 
|Purchase obligations                                                              |  |       | 1,314,000  |             |  |             | 774,000    |             |  |           | 540,000    |  |  |   |          |  |  |   |        | 
|                                                                                  |  |       |            |             |  |             |            |             |  |           |            |  |  |   |           |  |  |   |         | 
|Total contractual cash obligations                                                |  | $     | 56,211,000 |             |  | $           | 13,453,000 |             |  | $         | 36,905,000 |  |  | $ | 5,459,000 |  |  | $ | 394,000 | 
|                                                                                  |  |       |            |             |  |             |            |             |  |           |            |  |  |   |           |  |  |   |         | 






|    |                                                                                                                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Approximately $5.1 million (Tranches A, B and C) can be
    repaid through preferred pricing reductions from Siemens,
    including $2.9 million in less than 1 year and
    $2.2 million in years 1  3.                                                                                     
|   
|(2) | Interest on long-term debt excludes $1,814,000 of accrued but
    unpaid interest on Tranche D presented with long-term debt in
    (1) above. In addition, approximately $550,000 of interest on
    Tranches A, B and C can be repaid through preferred pricing
    reductions from Siemens.
|   
|(3) | These notes and corresponding interest can be repaid at the
    option of the Company in common stock at the time payment
    becomes due. (See Note 7  Notes to the Consolidated
    Financial Statements, included herein.)                                                                
|   
|(4) | Includes approximately $365,000 of the 8% premium payable upon
    redemption in December 2006, of which $147,000 has been accreted
    as of December 25, 2004.                                                                                                                              



19



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CRITICAL ACCOUNTING POLICIES




Goodwill




Revenue recognition






Allowance for doubtful accounts






20



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Sales returns




RECENT ACCOUNTING PRONOUNCEMENT


Share-Based
Payment, Accounting for
Stock Based Compensation Accounting for Stock Issued to
Employees.


Forward Looking Statements


This Annual Report on Form 10-K and, in particular, this
management discussion and analysis contain or incorporate a
number of forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Act of 1934. These statements
include those relating to the Companys belief that it
could obtain comparable products from other manufacturers in the
event of a disruption of supply from Siemens and that its
current cash and cash equivalents and cash flow from operations
at current net revenue levels will be sufficient to support the
Companys operational needs through the next twelve months.
These forward-looking statements are based on current
expectations, estimates, forecasts and projections about the
industry and markets in which we operate and managements
beliefs and assumptions. Any statements that are not statements
of historical fact should be considered forward-looking
statements and should be read in conjunction with our
consolidated financial statements and notes to the consolidated
financial statements included in this report. The statements are
not guarantees of future performance and involve certain risks,
uncertainties and assumptions that are difficult to predict. We
do not intend to update publicly any forward-looking statements
whether as a result of new information, future events or
otherwise.




|         |                                                              
|-------- | -------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosure About Market
    Risk



21



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Long-Term Debt and Convertible Subordinated Notes


|                            |                                                                          |              |             |             |             |           |            |           |            |            |            |       |          |       |            |   |          |   |            |   |            |   |          |   |          |   |             |   |             |  
|--------------------------- | ------------------------------------------------------------------------ | ------------ | ----------- | ----------- | ----------- | --------- | ---------- | --------- | ---------- | ---------- | ---------- | ----- | -------- | ----- | ---------- | - | -------- | - | ---------- | - | ---------- | - | -------- | - | -------- | - | ----------- | - | ----------- | -
|                            |                                                                          |              |             | Fixed Rate  |             |          
|                            |                                                                          |              |             |             |             |          
|                            |                                                                          |              |             | Yr 1  2    |             |           |            |          
|                            |                                                                          | Variable     |             | 11%         |             |           |            |          
|                            |                                                                          | Rate         |             | Yr 3  5 8% |             |           |            |          
|                            |                                                                          | Prime Rate   |             | due         |             |           |            | 10% note  |            |            |            |      
|                            |                                                                          | +1% note due |             | November    |             | 10% notes |            | 10% notes |            | due Dec 1, |            | Other |          |      
|                            |                                                                          | April 2007   |             | 2008        |             | due 2008  |            | due 2007  |            | 2006       |            | notes |          | Total
|                            |                                                                          |              |             |             |             |           |            |           |            |            |            |       |          |      
|As of December 25,
    2004 |                                                                          |              |             |             |             |           |            |           |            |            |            |       |          |       |            |   |          |   |            |   |            |   |          |   |          |   |             |  
|                            | Estimated cash inflow (outflow) by fiscal year of principal
    maturity |              |             | $           |             |           |            | $         |            |            |            | $     |          |       |            | $ |          |   |            | $ |            |   |          | $ |          |   |             | $ |            
|                            |                                                                          | 2005         |             |             | (220,000    | )         |            |           |           |            |            |       | (595,000 | )     |            |   | (621,000 | ) |            |   | (2,300,000 | ) |          |   | (416,000 | ) |             |   | (4,152,000  | )
|                            |                                                                          | 2006         |             |             |            |           |            |           | (2,500,000 | )          |            |       | (657,000 | )     |            |   | (621,000 | ) |            |   | (1,300,000 | ) |          |   | (53,000  | ) |             |   | (5,131,000  | )
|                            |                                                                          | 2007         |             |             | (13,370,000 | )         |            |           | (2,500,000 | )          |            |       | (726,000 | )     |            |   | (320,000 | ) |            |   |           |   |          |   | (57,000  | ) |             |   | (16,973,000 | )
|                            |                                                                          | 2008         |             |             |            |           |            |           | (2,500,000 | )          |            |       | (193,000 | )     |            |   |         |   |            |   |           |   |          |   |         |   |             |   | (2,693,000  | )
|                            |                                                                          |              |             |             |             |           |            |           |            |            |            |       |          |       |            |   |          |   |            |   |            |   |          |   |          |   |             |  
|Total                       |                                                                          |              | (13,590,000 | )           |             |           | (7,500,000 | )         |            |            | (2,171,000 | )     |          |       | (1,562,000 | ) |          |   | (3,600,000 | ) |            |   | (526,000 | ) |          |   | (28,949,000 | )
|                            |                                                                          |              |             |             |             |           |            |           |            |            |            |       |          |       |            |   |          |   |            |   |            |   |          |   |          |   |             |  
|Estimated fair value        |                                                                          |              | (13,590,000 | )           |             |           | (7,500,000 | )         |            |            | (2,171,000 | )     |          |       | (1,562,000 | ) |          |   | (3,600,000 | ) |            |   | (526,000 | ) |          |   | (28,949,000 | )
|                            |                                                                          |              |             |             |             |           |            |           |            |            |            |       |          |       |            |   |          |   |            |   |            |   |          |   |          |   |             |  
|Carrying Value              |                                                                          |              | (13,590,000 | )           |             |           | (7,500,000 | )         |            |            | (2,171,000 | )     |          |       | (1,562,000 | ) |          |   | (3,600,000 | ) |            |   | (526,000 | ) |          |   | (28,949,000 | )
|                            |                                                                          |              |             |             |             |           |            |           |            |            |            |       |          |       |            |   |          |   |            |   |            |   |          |   |          |   |             |  

22



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##### 



Item 8.     Financial
Statements and Supplementary Data


|                                                                                                                             |                                                                                                                                                   |      |    |       | 
|---------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | -- | ----- | 
|                                                                                                                             |                                                                                                                                                   | Page
|                                                                                                                             |                                                                                                                                                   |     
|Index to Financial Statements                                                                                                |                                                                                                                                                   |      |    |      
|Financial Statements:                                                                                                        |                                                                                                                                                   |      |    |      
|                                                                                                                             | Report of Independent Registered Public Accounting Firm                                                                                           |      |    | 24    | 
|                                                                                                                             | Consolidated Balance Sheets at December 25, 2004 and
    December 27, 2003                                                                        |      |    | 25    | 
|                                                                                                                             | Consolidated Statements of Operations for the years ended
    December 25, 2004, December 27, 2003, and
    December 28, 2002                     |      |    | 26    | 
|                                                                                                                             | Consolidated Statements of Changes in Stockholders Equity
    for the years ended December 25, 2004, December 27,
    2003 and December 28, 2002 |      |    | 28    | 
|                                                                                                                             | Consolidated Statements of Cash Flows for the years ended
    December 25, 2004, December 27, 2003, and
    December 28, 2002                     |      |    | 29-30 | 
|                                                                                                                             | Notes to Consolidated Financial Statements                                                                                                        |      |    | 31-55 | 
|Financial Statement Schedule:                                                                                                |                                                                                                                                                   |      |    |      
|II Valuation and Qualifying Accounts  For the years
    ended December 25, 2004 December 27, 2003 and
    December 28, 2002 |                                                                                                                                                   |      | 56 |      

23



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##### 



Report of Independent Registered Public Accounting Firm





















24



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##### 



HearUSA, Inc.


Consolidated Balance Sheets


|                                                                                                                           |                                                                                                               |                                                  |                            |              |     |            |            |             |     |            | 
|-------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------- | ------------------------------------------------ | -------------------------- | ------------ | --- | ---------- | ---------- | ----------- | --- | ---------- | 
|                                                                                                                           |                                                                                                               | December 25,                                     |                            | December 27,
|                                                                                                                           |                                                                                                               | 2004                                             |                            | 2003        
|                                                                                                                           |                                                                                                               |                                                  |                            |             
|ASSETS (Note 6)                                                                                                           
|Current assets                                                                                                             |                                                                                                               |                                                  |                            |              |     |            |            |            
|Cash and cash equivalents                                                                                                  |                                                                                                               | $                                                | 2,615,379                  |              |     | $          | 6,714,881  |            
|Restricted Cash and investment securities (Note 2)                                                                         |                                                                                                               |                                                  | 435,000                    |              |     |            | 435,000    |            
|Accounts and notes receivable, less allowance for doubtful
    accounts of $373,583 and $490,881                           |                                                                                                               |                                                  | 5,876,699                  |              |     |            | 6,539,149  |            
|Inventories                                                                                                                |                                                                                                               |                                                  | 877,206                    |              |     |            | 979,092    |            
|Prepaid expenses and other                                                                                                 |                                                                                                               |                                                  | 558,921                    |              |     |            | 1,115,393  |            
|                                                                                                                           |                                                                                                               |                                                  |                            |              |     |            |            |            
|                                                                                                                           |                                                                                                               |                                                  | Total current assets       |              |     | 10,363,205 |            |             |     | 15,783,515 | 
|Property and equipment, net(Notes 3 & 6)                                                                                   |                                                                                                               |                                                  | 3,493,862                  |              |     |            | 4,969,265  |            
|Goodwill(Notes 4 and 5)                                                                                                    |                                                                                                               |                                                  | 33,652,380                 |              |     |            | 33,222,779 |            
|Intangible assets, net(Notes 4 and 5)                                                                                      |                                                                                                               |                                                  | 11,242,444                 |              |     |            | 11,577,097 |            
|Deposits and other                                                                                                         |                                                                                                               |                                                  | 549,924                    |              |     |            | 630,694    |            
|                                                                                                                           |                                                                                                               |                                                  |                            |              |     |            |            |            
|                                                                                                                           |                                                                                                               | $                                                | 59,301,815                 |              |     | $          | 66,183,350 |            
|                                                                                                                           |                                                                                                               |                                                  |                            |              |     |            |            |            
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                      
|Current liabilities                                                                                                        |                                                                                                               |                                                  |                            |              |     |            |            |            
|                                                                                                                           | Accounts payable                                                                                              |                                                  | $                          | 6,644,600    |     |            | $          | 6,750,234   |    
|                                                                                                                           | Accrued expenses                                                                                              |                                                  |                            | 2,303,601    |     |            |            | 2,492,094   |    
|                                                                                                                           | Accrued salaries and other compensation                                                                       |                                                  |                            | 1,982,559    |     |            |            | 1,706,252   |    
|                                                                                                                           | Current maturities of long-term debt (Note 6)                                                                 |                                                  |                            | 4,152,908    |     |            |            | 6,436,271   |    
|                                                                                                                           | Dividends payable (Notes 8, 9C and 9D)                                                                        |                                                  |                            | 177,996      |     |            |            | 728,699     |    
|                                                                                                                           |                                                                                                               |                                                  |                            |              |     |            |            |            
|                                                                                                                           |                                                                                                               |                                                  | Total current liabilities  |              |     | 15,261,664 |            |             |     | 18,113,550 | 
|                                                                                                                           |                                                                                                               |                                                  |                            |              |     |            |            |            
|Long-term debt(Note 6)                                                                                                     |                                                                                                               |                                                  | 17,296,125                 |              |     |            | 20,579,977 |            
|Convertible subordinated notes, net of debt discount of
    $5,443,879 and $7,423,596(Note 7)                              |                                                                                                               |                                                  | 2,056,121                  |              |     |            | 76,404     |            
|                                                                                                                           |                                                                                                               |                                                  |                            |              |     |            |            |            
|                                                                                                                           |                                                                                                               |                                                  | Total long-term debt       |              |     | 19,352,246 |            |             |     | 20,656,381 | 
|                                                                                                                           |                                                                                                               |                                                  |                            |              |     |            |            |            
|Commitments and contingencies(Notes 3,6,7,8,10
    and 14)                                                                 |                                                                                                               |                                                  |                           |              |     |            |           |            
|                                                                                                                           |                                                                                                               |                                                  |                            |              |     |            |            |            
|Mandatorily redeemable convertible preferred stock(Note 8)                                                                 |                                                                                                               |                                                  | 4,709,921                  |              |     |            | 4,600,107  |            
|                                                                                                                           |                                                                                                               |                                                  |                            |              |     |            |            |            
|Stockholders equity                                                                                                       |                                                                                                               |                                                  |                            |              |     |            |            |            
|Preferred stock:                                                                                                           |                                                                                                               |                                                  |                            |              |     |            |            |            
|                                                                                                                           | (Aggregate liquidation preference $2,330,000 and $2,330,000,
    $1 par, 5,000,000 shares authorized (Note 9) |                                                  |                            |              |     |            |            |             |    
|                                                                                                                           |                                                                                                               | Series H Junior Participating (none outstanding) |                            |              |    |            |            |             |    |           
|                                                                                                                           |                                                                                                               | Series J (233 shares outstanding)                |                            |              | 233 |            |            |             | 233 |           
|                                                                                                                           |                                                                                                               |                                                  |                            |              |     |            |            |            
|                                                                                                                           |                                                                                                               |                                                  | Total preferred stock      |              |     | 233        |            |             |     | 233        | 
|Common stock: $0.10 par; 50,000,000 shares authorized 30,060,690
    and 29,528,450 shares issued (Notes 4,5,7,8,9 and 10) |                                                                                                               |                                                  | 3,006,069                  |              |     |            | 2,952,845  |            
|                                                                                                                           | Stock subscription (Note 9B)                                                                                  |                                                  |                            | (412,500     | )   |            |            | (412,500    | )  
|                                                                                                                           | Additional paid-in capital                                                                                    |                                                  |                            | 120,197,937  |     |            |            | 120,226,050 |    
|                                                                                                                           | Accumulated deficit                                                                                           |                                                  |                            | (101,968,452 | )   |            |            | (98,501,791 | )  
|                                                                                                                           | Accumulated other comprehensive income                                                                        |                                                  |                            | 1,639,838    |     |            |            | 1,033,616   |    
|                                                                                                                           | Treasury stock, at cost: 523,662 common shares                                                                |                                                  |                            | (2,485,141   | )   |            |            | (2,485,141  | )  
|                                                                                                                           |                                                                                                               |                                                  |                            |              |     |            |            |            
|                                                                                                                           |                                                                                                               |                                                  | Total stockholders equity |              |     | 19,977,984 |            |             |     | 22,813,312 | 
|                                                                                                                           |                                                                                                               |                                                  |                            |              |     |            |            |            
|                                                                                                                           |                                                                                                               | $                                                | 59,301,815                 |              |     | $          | 66,183,350 |            
|                                                                                                                           |                                                                                                               |                                                  |                            |              |     |            |            |            

See accompanying notes to consolidated financial
statements


25



---



##### 



HearUSA, Inc.


Consolidated Statements of Operations


|                                                                                                                      |                                     |                                    |            |              |            |              |            |            |            |   |            |            |            | 
|--------------------------------------------------------------------------------------------------------------------- | ----------------------------------- | ---------------------------------- | ---------- | ------------ | ---------- | ------------ | ---------- | ---------- | ---------- | - | ---------- | ---------- | ---------- | 
|                                                                                                                      |                                     | Year Ended                        
|                                                                                                                      |                                     |                                   
|                                                                                                                      |                                     | December 25,                       |            | December 27, |            | December 28,
|                                                                                                                      |                                     | 2004                               |            | 2003         |            | 2002        
|                                                                                                                      |                                     |                                    |            |              |            |             
|Net revenues                                                                                                          |                                     | $                                  | 72,300,623 |              |            | $            | 70,545,154 |            |            | $ | 57,230,128 |           
|                                                                                                                      |                                     |                                    |            |              |            |              |            |            |            |   |            |           
|Operating costs and expenses:                                                                                         |                                     |                                    |            |              |            |              |            |            |            |   |            |           
|                                                                                                                      | Cost of products sold               |                                    |            | 20,464,789   |            |              |            | 20,097,594 |            |   |            | 16,428,569 |           
|                                                                                                                      | Center operating expenses           |                                    |            | 37,518,850   |            |              |            | 35,059,925 |            |   |            | 31,577,182 |           
|                                                                                                                      | General and administrative expenses |                                    |            | 10,218,284   |            |              |            | 10,470,717 |            |   |            | 11,185,160 |           
|                                                                                                                      | Depreciation and amortization       |                                    |            | 2,311,016    |            |              |            | 3,017,280  |            |   |            | 2,522,389  |           
|                                                                                                                      |                                     |                                    |            |              |            |              |            |            |            |   |            |           
|                                                                                                                      |                                     | Total operating costs and expenses |            |              | 70,512,939 |              |            |            | 68,645,516 |   |            |            | 61,713,300 | 
|                                                                                                                      |                                     |                                    |            |              |            |              |            |            |            |   |            |           
|Income (loss) from operations                                                                                         |                                     |                                    | 1,787,684  |              |            |              | 1,899,638  |            |            |   | (4,483,172 | )         
|Non-operating income (expense):                                                                                       |                                     |                                    |            |              |            |              |            |            |            |   |            |           
|Interest income                                                                                                       |                                     |                                    | 17,543     |              |            |              | 20,836     |            |            |   | 114,152    |           
|Interest expense (including approximately                                                                             |                                     |                                    |            |              |            |              |            |            |            |   |            |           
|$2,127,000 and $517,000, in 2004 and 2003, of                                                                         |                                     |                                    |            |              |            |              |            |            |            |   |            |           
|non-cash debt discount amortization)                                                                                  |                                     |                                    | (4,563,729 | )            |            |              | (2,828,327 | )          |            |   | (1,722,990 | )         
|                                                                                                                      |                                     |                                    |            |              |            |              |            |            |            |   |            |           
|Loss before equity in loss of affiliated company                                                                      |                                     |                                    | (2,758,502 | )            |            |              | (907,853   | )          |            |   | (6,092,010 | )         
|Equity in loss of affiliated company (Note 1)                                                                         |                                     |                                    |           |              |            |              |           |            |            |   | (630,801   | )         
|                                                                                                                      |                                     |                                    |            |              |            |              |            |            |            |   |            |           
|Loss from continuing operations                                                                                       |                                     |                                    | (2,758,502 | )            |            |              | (907,853   | )          |            |   | (6,722,811 | )         
|Discontinued operations (Note 18)                                                                                     |                                     |                                    |            |              |            |              |            |            |            |   |            |           
|Loss from discontinued operations (including loss on disposal of
    $105,296 in 2003)                                |                                     |                                    |           |              |            |              | (201,536   | )          |            |   | (157,658   | )         
|                                                                                                                      |                                     |                                    |            |              |            |              |            |            |            |   |            |           
|Net loss                                                                                                              |                                     |                                    | (2,758,502 | )            |            |              | (1,109,389 | )          |            |   | (6,880,469 | )         
|Dividends on preferred stock (Notes 8, 9C)                                                                            |                                     |                                    | (708,159   | )            |            |              | (626,956   | )          |            |   | (696,541   | )         
|                                                                                                                      |                                     |                                    |            |              |            |              |            |            |            |   |            |           
|Loss applicable to common stockholders                                                                                |                                     | $                                  | (3,466,661 | )            |            | $            | (1,736,345 | )          |            | $ | (7,577,010 | )         
|                                                                                                                      |                                     |                                    |            |              |            |              |            |            |            |   |            |           
|Loss from continuing operations, including dividends on
    preferred stock, per common share  basic and
    diluted |                                     | $                                  | (0.11      | )            |            | $            | (0.05      | )          |            | $ | (0.33      | )         
|                                                                                                                      |                                     |                                    |            |              |            |              |            |            |            |   |            |           
|Net loss applicable to common stockholders per common
    share  basic and diluted (Note 1)                          |                                     | $                                  | (0.11      | )            |            | $            | (0.06      | )          |            | $ | (0.34      | )         
|                                                                                                                      |                                     |                                    |            |              |            |              |            |            |            |   |            |           
|Weighted average number of shares of common stock outstanding
    (Notes 1, 9 and 10)                                 |                                     |                                    | 30,426,829 |              |            |              | 30,424,262 |            |            |   | 22,524,393 |           
|                                                                                                                      |                                     |                                    |            |              |            |              |            |            |            |   |            |           

See accompanying notes to consolidated financial
statements


26



---



##### 



HearUSA, Inc.


Consolidated Statements of Changes in Stockholders
Equity


|                            |                            |                                                                                                            |  |                   |         |                   |   |             |         |        |  |            |           |   |   |             |            |   |  |            |           |   |   |             |            |  
|--------------------------- | -------------------------- | ---------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | ----------------- | - | ----------- | ------- | ------ |  | ---------- | --------- | - | - | ----------- | ---------- | - |  | ---------- | --------- | - | - | ----------- | ---------- | -
|                            |                            | Year Ended                                                                                                 |  | Year Ended        |         | Year Ended       
|                            |                            | December 25, 2004                                                                                          |  | December 27, 2003 |         | December 28, 2002
|                            |                            |                                                                                                            |  |                   |         |                  
|                            |                            | Shares                                                                                                     |  | Amount            |         | Shares            |   | Amount      |         | Shares |  | Amount    
|                            |                            |                                                                                                            |  |                   |         |                   |   |             |         |        |  |           
|Preferred stock             |                            |                                                                                                            |  |                   |         |                   |   |             |         |        |  |            |           |   |   |             |            |   |  |            |           |   |   |            
|                            | Balance, beginning of year |                                                                                                            |  | 233               |         |                   | $ | 233         |         |        |  | 4,796      |           |   | $ | 4,796       |            |   |  | 5,010      |           |   | $ | 5,010       |           
|                            |                            | Exchange/redemption of preferred stock                                                                     |  |                   |        |                   |   |             |        |        |  |            | (4,563    | ) |   |             | (4,563     | ) |  |            | (214      | ) |   |             | (214       | )
|                            |                            |                                                                                                            |  |                   |         |                   |   |             |         |        |  |            |           |   |   |             |            |   |  |            |           |   |   |            
|                            | Balance, end of year       |                                                                                                            |  | 233               |         |                   | $ | 233         |         |        |  | 233        |           |   | $ | 233         |            |   |  | 4,796      |           |   | $ | 4,796       |           
|                            |                            |                                                                                                            |  |                   |         |                   |   |             |         |        |  |            |           |   |   |             |            |   |  |            |           |   |   |            
|Common stock                |                            |                                                                                                            |  |                   |         |                   |   |             |         |        |  |            |           |   |   |             |            |   |  |            |           |   |   |            
|                            | Balance, beginning of year |                                                                                                            |  | 29,528,450        |         |                   | $ | 2,952,845   |         |        |  | 24,457,055 |           |   | $ | 2,445,705   |            |   |  | 14,559,403 |           |   | $ | 1,455,940   |           
|                            |                            | Exchange/redemption of preferred stock                                                                     |  |                   |        |                   |   |             |        |        |  |            |          |   |   |             |           |   |  |            | 136,018   |   |   |             | 13,602     |  
|                            |                            | Exercise of employee stock options                                                                         |  |                   | 6,250   |                   |   |             | 625     |        |  |            | 20        |   |   |             | 2          |   |  |            |          |   |   |             |           |  
|                            |                            | Settlement of liability with common stock                                                                  |  |                   |        |                   |   |             |        |        |  |            |          |   |   |             |           |   |  |            | 141,480   |   |   |             | 14,148     |  
|                            |                            | Issuance of common stock                                                                                   |  |                   |        |                   |   |             |        |        |  |            |          |   |   |             |           |   |  |            | 1,500,000 |   |   |             | 150,000    |  
|                            |                            | Issuance of common stock for exchangeable shares                                                           |  |                   | 525,990 |                   |   |             | 52,599  |        |  |            | 5,071,375 |   |   |             | 507,138    |   |  |            |          |   |   |             |           |  
|                            |                            | Issuance common stock  Helix combination                                                                  |  |                   |        |                   |   |             |        |        |  |            |           |   |   |             |            |   |  |            | 8,120,154 |   |   |             | 812,015    |  
|                            |                            |                                                                                                            |  |                   |         |                   |   |             |         |        |  |            |           |   |   |             |            |   |  |            |           |   |   |            
|                            | Balance, end of year       |                                                                                                            |  | 30,060,690        |         |                   | $ | 3,006,069   |         |        |  | 29,528,450 |           |   | $ | 2,952,845   |            |   |  | 24,457,055 |           |   | $ | 2,445,705   |           
|                            |                            |                                                                                                            |  |                   |         |                   |   |             |         |        |  |            |           |   |   |             |            |   |  |            |           |   |   |            
|Treasury stock              |                            |                                                                                                            |  |                   |         |                   |   |             |         |        |  |            |           |   |   |             |            |   |  |            |           |   |   |            
|                            | Balance, beginning of year |                                                                                                            |  | 523,662           |         |                   | $ | (2,485,141  | )       |        |  | 518,660    |           |   | $ | (2,483,441  | )          |   |  | 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  | )          |   |  | 518,660    |           |   | $ | (2,483,441  | )         
|                            |                            |                                                                                                            |  |                   |         |                   |   |             |         |        |  |            |           |   |   |             |            |   |  |            |           |   |   |            
|Stock subscription          |                            |                                                                                                            |  |                   |         |                   |   |             |         |        |  |            |           |   |   |             |            |   |  |            |           |   |   |            
|                            | Balance, beginning of year |                                                                                                            |  |                   |         |                   | $ | (412,500    | )       |        |  |            |           |   | $ | (412,500    | )          |   |  |            |           |   | $ | (412,500    | )         
|                            |                            | Stock Subscription                                                                                         |  |                   |         |                   |   |             |        |        |  |            |           |   |   |             |           |   |  |            |           |   |   |             |           |  
|                            |                            |                                                                                                            |  |                   |         |                   |   |             |         |        |  |            |           |   |   |             |            |   |  |            |           |   |   |            
|                            | Balance, End of Year       |                                                                                                            |  |                   |         |                   | $ | (412,500    | )       |        |  |            |           |   | $ | (412,500    | )          |   |  |            |           |   | $ | (412,500    | )         
|                            |                            |                                                                                                            |  |                   |         |                   |   |             |         |        |  |            |           |   |   |             |            |   |  |            |           |   |   |            
|Additional paid-in capital: |                            |                                                                                                            |  |                   |         |                   |   |             |         |        |  |            |           |   |   |             |            |   |  |            |           |   |   |            
|                            | Balance, beginning of year |                                                                                                            |  |                   |         |                   | $ | 120,226,050 |         |        |  |            |           |   | $ | 117,314,681 |            |   |  |            |           |   | $ | 91,438,475  |           
|                            |                            | Exchange/redemption of preferred stock, including issuance costs                                           |  |                   |         |                   |   |             |         |        |  |            |           |   |   |             | (4,759,324 | ) |  |            |           |   |   |             | (277,388   | )
|                            |                            | 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                                                                         |  |                   |         |                   |   |             | 3,563   |        |  |            |           |   |   |             | 13         |   |  |            |           |   |   |             |           |  
|                            |                            | Issuance of common stock for exchangeable shares                                                           |  |                   |         |                   |   |             | (52,598 | )      |  |            |           |   |   |             | (507,138   | ) |  |            |           |   |   |             |           |  
|                            |                            | Proceeds of Board of Directors stock                                                                      |  |                   |         |                   |   |             |        |        |  |            |           |   |   |             | 40,250     |   |  |            |           |   |   |             |           |  
|                            |                            | Settlement of liability with common stock                                                                  |  |                   |         |                   |   |             |        |        |  |            |           |   |   |             |           |   |  |            |           |   |   |             | 65,081     |  
|                            |                            | Issuance common stock  Helix combination                                                                  |  |                   |         |                   |   |             |        |        |  |            |           |   |   |             |           |   |  |            |           |   |   |             | 24,317,835 |  
|                            |                            | Consulting expense                                                                                         |  |                   |         |                   |   |             | 12,672  |        |  |            |           |   |   |             |            |   |  |            |           |   |   |             |            |  
|                            |                            | Fair value of options and warrants  Helix combination                                                     |  |                   |         |                   |   |             |        |        |  |            |           |   |   |             |           |   |  |            |           |   |   |             | 380,428    |  
|                            |                            | Compensation expense                                                                                       |  |                   |         |                   |   |             | 8,250   |        |  |            |           |   |   |             |           |   |  |            |           |   |   |             | 40,250     |  
|                            |                            | Issuance of common stock                                                                                   |  |                   |         |                   |   |             |        |        |  |            |           |   |   |             |           |   |  |            |           |   |   |             | 1,350,000  |  
|                            |                            |                                                                                                            |  |                   |         |                   |   |             |         |        |  |            |           |   |   |             |            |   |  |            |           |   |   |            
|                            | Balance, end of year       |                                                                                                            |  |                   |         |                   | $ | 120,197,937 |         |        |  |            |           |   | $ | 120,226,050 |            |   |  |            |           |   | $ | 117,314,681 |           
|                            |                            |                                                                                                            |  |                   |         |                   |   |             |         |        |  |            |           |   |   |             |            |   |  |            |           |   |   |            

See accompanying notes to consolidated financial
statements


27



---



##### 



HearUSA, Inc.


Consolidated Statements of Changes in Stockholders
Equity


|                                        |                            |                                         |            |                   |            |                   |            |             |            |   |            |             |            |  
|--------------------------------------- | -------------------------- | --------------------------------------- | ---------- | ----------------- | ---------- | ----------------- | ---------- | ----------- | ---------- | - | ---------- | ----------- | ---------- | -
|                                        |                            | Year Ended                             
|                                        |                            |                                        
|                                        |                            | December 25, 2004                       |            | December 27, 2003 |            | December 28, 2002
|                                        |                            |                                         |            |                   |            |                  
|                                        |                            | Amount                                  |            | Amount            |            | Amount           
|                                        |                            |                                         |            |                   |            |                  
|Accumulated deficit:                    |                            |                                         |            |                   |            |                   |            |             |            |   |            |            
|                                        | Balance, beginning of year |                                         | $          | (98,501,791       | )          |                   | $          | (96,765,446 | )          |   | $          | (89,188,436 | )         
|                                        |                            | Net loss                                |            |                   | (2,758,502 | )                 |            |             | (1,109,389 | ) |            |             | (6,880,469 | )
|                                        |                            | Preferred stock dividends               |            |                   | (708,159   | )                 |            |             | (626,956   | ) |            |             | (696,451   | )
|                                        |                            |                                         |            |                   |            |                   |            |             |            |   |            |            
|                                        | Balance, end of year       |                                         | $          | (101,968,452      | )          |                   | $          | (98,501,791 | )          |   | $          | (96,765,446 | )         
|                                        |                            |                                         |            |                   |            |                   |            |             |            |   |            |            
|Accumulated other comprehensive income: |                            |                                         |            |                   |            |                   |            |             |            |   |            |            
|                                        | Balance, beginning of year |                                         | $          | 1,033,616         |            |                   | $          | 462,825     |            |   | $          |            |           
|                                        |                            | Foreign currency translation adjustment |            |                   | 606,222    |                   |            |             | 570,791    |   |            |             | 462,825    |  
|                                        |                            |                                         |            |                   |            |                   |            |             |            |   |            |            
|                                        | Balance, end of year       |                                         | $          | 1,639,838         |            |                   | $          | 1,033,616   |            |   | $          | 462,825     |           
|                                        |                            |                                         |            |                   |            |                   |            |             |            |   |            |            
|Comprehensive income (loss):            |                            |                                         |            |                   |            |                   |            |             |            |   |            |            
|Net loss                                |                            | $                                       | (2,758,502 | )                 |            | $                 | (1,109,389 | )           |            | $ | (6,880,469 | )          
|Other comprehensive income              |                            |                                         | 606,222    |                   |            |                   | 570,791    |             |            |   | 462,825    |            
|                                        |                            |                                         |            |                   |            |                   |            |             |            |   |            |            
|Comprehensive loss                      |                            | $                                       | (2,152,280 | )                 |            | $                 | (538,598   | )           |            | $ | (6,417,644 | )          
|                                        |                            |                                         |            |                   |            |                   |            |             |            |   |            |            

See accompanying notes to consolidated financial
statements


28



---



##### 



HearUSA, Inc.


Consolidated Statements of Cash Flows


|                                                                                                         |                                                                                                         |                                         |            |              |          |              |            |            |            |   |             |            |           | 
|-------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------- | --------------------------------------- | ---------- | ------------ | -------- | ------------ | ---------- | ---------- | ---------- | - | ----------- | ---------- | --------- | 
|                                                                                                         |                                                                                                         | Year Ended                             
|                                                                                                         |                                                                                                         |                                        
|                                                                                                         |                                                                                                         | December 25,                            |            | December 27, |          | December 28,
|                                                                                                         |                                                                                                         | 2004                                    |            | 2003         |          | 2002        
|                                                                                                         |                                                                                                         |                                         |            |              |          |             
|Cash flows from operating activities                                                                     |                                                                                                         |                                         |            |              |          |              |            |            |            |   |             |           
|Net loss                                                                                                 |                                                                                                         | $                                       | (2,758,502 | )            |          | $            | (1,109,389 | )          |            | $ | (6,880,469  | )         
|Loss from discontinued operations                                                                        |                                                                                                         |                                         |           |              |          |              | (201,536   | )          |            |   | (157,658    | )         
|                                                                                                         |                                                                                                         |                                         |            |              |          |              |            |            |            |   |             |           
|Loss from continuing operations                                                                          |                                                                                                         |                                         | (2,758,502 | )            |          |              | (907,853   | )          |            |   | (6,722,811  | )         
|Adjustments to reconcile net loss to net cash provided by
    (used in) operating activities:            |                                                                                                         |                                         |            |              |          |              |            |            |            |   |             |           
|                                                                                                         | Depreciation and amortization                                                                           |                                         |            | 2,311,016    |          |              |            | 3,017,280  |            |   |             | 2,522,389  |          
|                                                                                                         | Provision for doubtful accounts                                                                         |                                         |            | 430,454      |          |              |            | 801,303    |            |   |             | 796,523    |          
|                                                                                                         | Debt discount amortization                                                                              |                                         |            | 2,127,054    |          |              |            | 516,992    |            |   |             |           |          
|                                                                                                         | Principal payments on long-term debt made through preferred
    pricing reductions                      |                                         |            | (2,920,804   | )        |              |            | (2,920,804 | )          |   |             | (3,100,004 | )        
|                                                                                                         | Interest on Siemens Tranche D                                                                           |                                         |            | 655,568      |          |              |            | 710,027    |            |   |             | 447,499    |          
|                                                                                                         | Loss on disposition of equipment                                                                        |                                         |            | 53,836       |          |              |            | 648        |            |   |             | 178,369    |          
|                                                                                                         | Equity loss in affiliated company                                                                       |                                         |            |             |          |              |            |           |            |   |             | 630,801    |          
|                                                                                                         | Compensation expense from the issuance of capital stock                                                 |                                         |            |             |          |              |            |           |            |   |             | 40,250     |          
|                                                                                                         | Executive compensation expense                                                                          |                                         |            | 8,250        |          |              |            |           |            |   |             |           |          
|                                                                                                         | Consulting expense                                                                                      |                                         |            | 12,672       |          |              |            |           |            |   |             |           |          
|                                                                                                         |                                                                                                         |                                         |            |              |          |              |            |            |            |   |             |           
|Net cash provided by (used in) continuing activities before
    changes in non-cash working capital item |                                                                                                         |                                         | (80,456    | )            |          |              | 1,217,593  |            |            |   | (5,207,004  | )         
|                                                                                                         | (Increase) decrease in:                                                                                 |                                         |            |              |          |              |            |            |            |   |             |            |          
|                                                                                                         |                                                                                                         | Accounts and notes receivable           |            |              | (398,433 | )            |            |            | (842,031   | ) |             |            | 1,015,235 | 
|                                                                                                         |                                                                                                         | Inventories                             |            |              | 105,305  |              |            |            | (33,531    | ) |             |            | 281,146   | 
|                                                                                                         |                                                                                                         | Prepaid expenses and other              |            |              | 638,235  |              |            |            | 125,874    |   |             |            | 211,272   | 
|                                                                                                         | Increase (decrease) in:                                                                                 |                                         |            |              |          |              |            |            |            |   |             |            |          
|                                                                                                         |                                                                                                         | Accounts payable and accrued expenses   |            |              | (481,787 | )            |            |            | (4,761,611 | ) |             |            | 862,123   | 
|                                                                                                         |                                                                                                         | Accrued salaries and other compensation |            |              | 261,810  |              |            |            | (123,107   | ) |             |            | 1,234,601 | 
|                                                                                                         |                                                                                                         |                                         |            |              |          |              |            |            |            |   |             |           
|Net cash provided by (used in) continuing activities                                                     |                                                                                                         |                                         | 44,674     |              |          |              | (4,416,813 | )          |            |   | (1,602,607  | )         
|Net cash provided by (used in) discontinued operations                                                   |                                                                                                         |                                         |           |              |          |              | (415,788   | )          |            |   | (198,346    | )         
|                                                                                                         |                                                                                                         |                                         |            |              |          |              |            |            |            |   |             |           
|Net cash provided by (used in) continuing activities                                                     |                                                                                                         |                                         | 44,674     |              |          |              | (4,832,601 | )          |            |   | (1,800,953  | )         
|                                                                                                         |                                                                                                         |                                         |            |              |          |              |            |            |            |   |             |           
|Cash flows from investing activities                                                                     |                                                                                                         |                                         |            |              |          |              |            |            |            |   |             |           
|                                                                                                         | Purchase of property and equipment                                                                      |                                         |            | (382,673     | )        |              |            | (259,683   | )          |   |             | (480,647   | )        
|                                                                                                         | Capital expenditures from discontinued operations                                                       |                                         |            |             |          |              |            | (8,196     | )          |   |             |           |          
|                                                                                                         | Proceeds from sale of discontinued operations                                                           |                                         |            | 104,628      |          |              |            | 1,880,244  |            |   |             |           |          
|                                                                                                         | Business acquisitions                                                                                   |                                         |            |             |          |              |            | (251,533   | )          |   |             | (113,685   | )        
|                                                                                                         | Purchase of investments                                                                                 |                                         |            |             |          |              |            |           |            |   |             | (5,542,524 | )        
|                                                                                                         | Proceeds from maturities of investments                                                                 |                                         |            |             |          |              |            |           |            |   |             | 5,257,524  |          
|                                                                                                         | Issuance of note receivable and advance to Helix pre-combination
    net of cash acquired of $1,162,803 |                                         |            |             |          |              |            |           |            |   |             | (8,384,122 | )        
|                                                                                                         | Purchase of pre-combination investment in Helix                                                         |                                         |            |             |          |              |            |           |            |   |             | (2,000,000 | )        
|                                                                                                         | Cost of business combination                                                                            |                                         |            |             |          |              |            |           |            |   |             | (1,570,683 | )        
|                                                                                                         |                                                                                                         |                                         |            |              |          |              |            |            |            |   |             |           
|Net cash provided by (used in) investing activities                                                      |                                                                                                         |                                         | (278,045   | )            |          |              | 1,360,832  |            |            |   | (12,834,137 | )         
|                                                                                                         |                                                                                                         |                                         |            |              |          |              |            |            |            |   |             |           
|Cash flows from financing activities                                                                     |                                                                                                         |                                         |            |              |          |              |            |            |            |   |             |           
|                                                                                                         | Proceeds from issuance of long-term debt                                                                |                                         |            | 500,000      |          |              |            | 3,500,000  |            |   |             | 13,227,095 |          
|                                                                                                         | Proceeds from convertible notes, net of issuing costs of $266,000                                       |                                         |            |             |          |              |            | 8,734,000  |            |   |             |           |          
|                                                                                                         | Payments on long-term debt from discontinued operations                                                 |                                         |            |             |          |              |            | (29,822    | )          |   |             | (26,473    | )        
|                                                                                                         | Principal payments on long-term debt                                                                    |                                         |            | (3,310,477   | )        |              |            | (1,160,696 | )          |   |             | (1,826,839 | )        
|                                                                                                         | Principal payments on convertible subordinated notes                                                    |                                         |            |             |          |              |            | (2,000,000 | )          |   |             |           |          
|                                                                                                         | Acquisition of treasury stock                                                                           |                                         |            |             |          |              |            | (1,700     | )          |   |             |           |          
|                                                                                                         | Exchange & redemption of capital stock                                                                  |                                         |            |             |          |              |            | (200,877   | )          |   |             | (264,000   | )        
|                                                                                                         | Proceeds from exercise of employee stock options                                                        |                                         |            | 4,189        |          |              |            | 15         |            |   |             |           |          
|                                                                                                         | Proceeds from Board of Director sale of stock                                                           |                                         |            |             |          |              |            | 40,250     |            |   |             |           |          
|                                                                                                         | Proceeds from issuance of capital stock, net of offering costs                                          |                                         |            |             |          |              |            |           |            |   |             | 1,500,000  |          
|                                                                                                         | Dividends on preferred stock                                                                            |                                         |            | (1,149,048   | )        |              |            | (1,076,317 | )          |   |             | (1,002,427 | )        
|                                                                                                         |                                                                                                         |                                         |            |              |          |              |            |            |            |   |             |           
|Net cash provided by (used in) financing activities                                                      |                                                                                                         |                                         | (3,955,336 | )            |          |              | 7,804,853  |            |            |   | 11,607,356  |           
|                                                                                                         |                                                                                                         |                                         |            |              |          |              |            |            |            |   |             |           

See accompanying notes to consolidated financial
statements


29



---



##### 



HearUSA, Inc.


Consolidated Statements of Cash Flows


|                                                                                                  |  |              |            |              |  |              |           |   |  |   |            |  
|------------------------------------------------------------------------------------------------- |  | ------------ | ---------- | ------------ |  | ------------ | --------- | - |  | - | ---------- | -
|                                                                                                  |  | Year Ended  
|                                                                                                  |  |             
|                                                                                                  |  | December 25, |            | December 27, |  | December 28,
|                                                                                                  |  | 2004         |            | 2003         |  | 2002        
|                                                                                                  |  |              |            |              |  |             
|Effects of exchange rate changes on cash                                                          |  |              | 89,205     |              |  |              | (28,226   | ) |  |   | (123,851   | )
|                                                                                                  |  |              |            |              |  |              |           |   |  |   |            |  
|Net increase (decrease) in cash and cash equivalents                                              |  |              | (4,099,502 | )            |  |              | 4,304,858 |   |  |   | (3,151,585 | )
|Cash and cash equivalents at beginning of year                                                    |  |              | 6,714,881  |              |  |              | 2,410,023 |   |  |   | 5,561,608  |  
|                                                                                                  |  |              |            |              |  |              |           |   |  |   |            |  
|Cash and cash equivalents at end of year                                                          |  | $            | 2,615,379  |              |  | $            | 6,714,881 |   |  | $ | 2,410,023  |  
|                                                                                                  |  |              |            |              |  |              |           |   |  |   |            |  
|Supplemental disclosure of cash flow information:                                                 |  |              |            |              |  |              |           |   |  |   |            |  
|Cash paid for interest                                                                            |  | $            | 1,263,473  |              |  | $            | 424,337   |   |  | $ | 81,252     |  
|Cash paid for income taxes                                                                        |  |              | 155,947    |              |  |              |          |   |  |   |           |  
|Supplemental schedule of non-cash investing and financing
    activities:                         |  |              |            |              |  |              |           |   |  |   |            |  
|Preferred stock dividend paid upon conversion in kind by
    issuance of additional common stock  |  | $            |           |              |  | $            |          |   |  | $ | 69,973     |  
|Issuance of note payable and assumption of accounts payable in
    exchange business acquisitions |  |              |           |              |  |              | 100,492   |   |  |   | 225,000    |  
|Issuance of capital lease in exchange for property and equipment                                  |  |              |           |              |  |              | 401,883   |   |  |   | 290,434    |  
|Purchase of equipment with volume discount credit                                                 |  |              | 158,800    |              |  |              |          |   |  |   |           |  
|See Note 5 for impact of Helix combination                                                        |  |              |            |              |  |              |           |   |  |   |            |  

See accompanying notes to consolidated financial
statements


30



---



##### 



HearUSA, Inc.


Notes to Consolidated Financial Statements


1.     Description of the Company
and Summary of Significant Accounting Policies


The Company




Basis of Consolidation






Investment in Affiliated Company




Foreign Currency Translation




Comprehensive Income (Loss)




31



---



##### 



HearUSA, Inc.


Notes to Consolidated Financial
Statements  (Continued)


Fiscal year




Concentration of credit risk




Investment securities




Allowance for doubtful accounts




Inventories




Property and equipment




Goodwill and other intangible assets




32



---



##### 



HearUSA, Inc.


Notes to Consolidated Financial
Statements  (Continued)


Pre-opening costs




Long-lived assets  impairments and disposals




Convertible Instruments, Warrants, Amortization of Warrant
and Fair Value Determination




Advertising Costs




Sales return policy




Warranties




Revenue Recognition




33



---



##### 



HearUSA, Inc.


Notes to Consolidated Financial
Statements  (Continued)




Income taxes




Net loss per common share






Stock-based compensation




34



---



##### 



HearUSA, Inc.


Notes to Consolidated Financial
Statements  (Continued)




|                                       |                                                                                                                                             |              |   |              |   |              |   |            |   |  |   |            |  
|-------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------- | ------------ | - | ------------ | - | ------------ | - | ---------- | - |  | - | ---------- | -
|                                       |                                                                                                                                             | December 25, |   | December 27, |   | December 28,
|                                       |                                                                                                                                             | 2004         |   | 2003         |   | 2002        
|                                       |                                                                                                                                             |              |   |              |   |             
|Loss applicable to common stockholders |                                                                                                                                             |              |   |              |   |              |   |            |   |  |   |           
|                                       | As reported                                                                                                                                 |              | $ | (3,466,661   | ) |              | $ | (1,736,345 | ) |  | $ | (7,577,010 | )
|                                       | Deduct: Total stock-based employee compensation expense
    determined under fair value based method for all awards, net of
    tax effects |              |   | (887,000     | ) |              |   | (447,000   | ) |  |   | (394,990   | )
|                                       |                                                                                                                                             |              |   |              |   |              |   |            |   |  |   |           
|                                       | Pro forma, net loss                                                                                                                         |              |   | (4,353,661   | ) |              |   | (2,183,345 | ) |  |   | (7,972,000 | )
|                                       |                                                                                                                                             |              |   |              |   |              |   |            |   |  |   |           
|Loss per share                         |                                                                                                                                             |              |   |              |   |              |   |            |   |  |   |           
|                                       | Basic-as reported                                                                                                                           |              | $ | (0.11        | ) |              | $ | (0.06      | ) |  | $ | (0.34      | )
|                                       |                                                                                                                                             |              |   |              |   |              |   |            |   |  |   |           
|                                       | Basic-pro forma                                                                                                                             |              | $ | (0.14        | ) |              | $ | (0.07      | ) |  | $ | (0.35      | )
|                                       |                                                                                                                                             |              |   |              |   |              |   |            |   |  |   |           
|                                       | Diluted-as reported                                                                                                                         |              | $ | (0.11        | ) |              | $ | (0.06      | ) |  | $ | (0.34      | )
|                                       |                                                                                                                                             |              |   |              |   |              |   |            |   |  |   |           
|                                       | Diluted-pro forma                                                                                                                           |              | $ | (0.14        | ) |              | $ | (0.07      | ) |  | $ | (0.35      | )
|                                       |                                                                                                                                             |              |   |              |   |              |   |            |   |  |   |           



Statements of Cash Flows




Estimates




Reclassifications




2.     Cash and Cash Equivalents and
Investment Securities






35



---



##### 



HearUSA, Inc.


Notes to Consolidated Financial
Statements  (Continued)






3. Property and Equipment and Leases




|                                               |  |              |            |              |  |              |            |  |  |   |            | 
|---------------------------------------------- |  | ------------ | ---------- | ------------ |  | ------------ | ---------- |  |  | - | ---------- | 
|                                               |  | Range of     |            | December 25, |  | December 27,
|                                               |  | Useful Lives |            | 2004         |  | 2003        
|                                               |  |              |            |              |  |             
|Equipment, furniture and fixtures              |  |              | 5-10 years |              |  | $            | 11,272,840 |  |  | $ | 11,308,356 | 
|Leasehold Improvements                         |  |              | 5-10 years |              |  |              | 7,474,625  |  |  |   | 7,543,354  | 
|Computer systems                               |  |              | 3 years    |              |  |              | 4,634,538  |  |  |   | 4,546,162  | 
|Leasehold improvements in progress             |  |              | N/A        |              |  |              | 23,498     |  |  |   | 108,210    | 
|                                               |  |              |            |              |  |              |            |  |  |   |            | 
|                                               |  |              |            |              |  |              | 23,405,501 |  |  |   | 23,506,082 | 
|Less accumulated depreciation and amortization |  |              |            |              |  |              | 19,911,639 |  |  |   | 18,536,817 | 
|                                               |  |              |            |              |  |              |            |  |  |   |            | 
|                                               |  |              |            |              |  | $            | 3,493,862  |  |  | $ | 4,969,265  | 
|                                               |  |              |            |              |  |              |            |  |  |   |            | 





4.     Goodwill and Intangible
Assets




|        |  |              |            |             |  |             |   |              |  |   |         |  |  |   |            | 
|------- |  | ------------ | ---------- | ----------- |  | ----------- | - | ------------ |  | - | ------- |  |  | - | ---------- | 
|        |  | December 27, |            | Additions & |  | Currency    |   | December 25,
|        |  | 2003         |            | Adjustments |  | Translation |   | 2004        
|        |  |              |            |             |  |             |   |             
|Centers |  | $            | 32,343,000 |             |  | $           |  |              |  | $ | 429,000 |  |  | $ | 32,772,000 | 
|Network |  |              | 880,000    |             |  |             |  |              |  |   |        |  |  |   | 880,000    | 
|        |  |              |            |             |  |             |   |              |  |   |         |  |  |   |            | 
|        |  | $            | 33,223,000 |             |  | $           |   |              |  | $ | 429,000 |  |  | $ | 33,652,000 | 
|        |  |              |            |             |  |             |   |              |  |   |         |  |  |   |            | 

36



---



##### 



HearUSA, Inc.


Notes to Consolidated Financial
Statements  (Continued)




|        |  |              |            |              |  |             |         |              |  |   |         |  |  |   |            | 
|------- |  | ------------ | ---------- | ------------ |  | ----------- | ------- | ------------ |  | - | ------- |  |  | - | ---------- | 
|        |  | December 28, |            | Additions &  |  | Currency    |         | December 27,
|        |  | 2002         |            | Adjustments) |  | Translation |         | 2003        
|        |  |              |            |              |  |             |         |             
|Centers |  | $            | 31,734,000 |              |  | $           | 140,000 |              |  | $ | 469,000 |  |  | $ | 32,343,000 | 
|Network |  |              | 880,000    |              |  |             |        |              |  |   |        |  |  |   | 880,000    | 
|        |  |              |            |              |  |             |         |              |  |   |         |  |  |   |            | 
|        |  | $            | 32,614,000 |              |  | $           | 140,000 |              |  | $ | 469,000 |  |  | $ | 33,223,000 | 
|        |  |              |            |              |  |             |         |              |  |   |         |  |  |   |            | 



|                                   |  |              |            |              |  |   |            |  
|---------------------------------- |  | ------------ | ---------- | ------------ |  | - | ---------- | -
|                                   |  | December 25, |            | December 27,
|                                   |  | 2004         |            | 2003        
|                                   |  |              |            |             
|Amortizable intangible assets:     |  |              |            |              |  |   |            |  
|Patient files and customer lists   |  | $            | 5,632,000  |              |  | $ | 5,537,000  |  
|Accumulated amortization           |  |              | (1,745,000 | )            |  |   | (1,227,000 | )
|                                   |  |              |            |              |  |   |            |  
|Amortizable intangible assets, net |  |              | 3,887,000  |              |  |   | 4,310,000  |  
|Trademark and trade names          |  |              | 7,355,000  |              |  |   | 7,267,000  |  
|                                   |  |              |            |              |  |   |            |  
|                                   |  | $            | 11,242,000 |              |  | $ | 11,577,000 |  
|                                   |  |              |            |              |  |   |            |  



5.     Business Acquisitions


Helix Acquisition






37



---



##### 



HearUSA, Inc.


Notes to Consolidated Financial
Statements  (Continued)






|                          |                       |   |             |            | 
|------------------------- | --------------------- | - | ----------- | ---------- | 
|Current assets            |                       | $ | 6,481,000   |           
|Property and equipment    |                       |   | 2,446,000   |           
|Intangible assets         |                       |   | 11,810,000  |           
|Goodwill                  |                       |   | 29,915,000  |           
|                          |                       |   |             |           
|                          | Total assets acquired |   |             | 50,652,000 | 
|Current liabilities       |                       |   | (8,591,000  | )         
|Long-term debt            |                       |   | (14,003,000 | )         
|Total liabilities assumed |                       |   | (22,594,000 | )         
|                          |                       |   |             |           
|                          | Purchase price        |   | $           | 28,058,000 | 
|                          |                       |   |             |           





|                                           |  |                   |             |  
|------------------------------------------ |  | ----------------- | ----------- | -
|                                           |  | Year Ended       
|                                           |  | December 28, 2002
|                                           |  |                  
|Net revenue                                |  | $                 | 74,195,000  |  
|                                           |  |                   |             |  
|Net loss applicable to common stockholders |  |                   | (12,694,000 | )
|                                           |  |                   |             |  
|Loss per common share: Basic and diluted   |  | $                 | (0.43       | )
|                                           |  |                   |             |  

Investment in and Advances to Affiliated Company




38



---



##### 



HearUSA, Inc.


Notes to Consolidated Financial
Statements  (Continued)




Other Business Acquisitions






6.     Long-term Debt (Also see Note
7)




|                                            |                                                                        |              |            |              |  |   |            |            | 
|------------------------------------------- | ---------------------------------------------------------------------- | ------------ | ---------- | ------------ |  | - | ---------- | ---------- | 
|                                            |                                                                        | December 25, |            | December 27,
|                                            |                                                                        | 2004         |            | 2003        
|                                            |                                                                        |              |            |             
|Notes payable to a Siemens  see (a) below: |                                                                        |              |            |              |  |   |            |           
|                                            | Tranche A                                                              |              | $          | 3,599,988    |  |   | $          | 5,899,992  | 
|                                            | Tranche B                                                              |              |            | 62,400       |  |   |            | 83,200     | 
|                                            | Tranche C                                                              |              |            | 1,500,000    |  |   |            | 2,100,000  | 
|                                            | Tranche D (including accrued interest of $1,813,971 and
    $1,158,403 |              |            | 13,590,284   |  |   |            | 14,158,403 | 
|                                            | Tranche E                                                              |              |            | 2,171,329    |  |   |            | 3,500,000  | 
|                                            | Other                                                                  |              |            | 91,685       |  |   |            | 196,165    | 
|                                            |                                                                        |              |            |              |  |   |            |           
|Total notes payable to Siemens              |                                                                        |              | 21,015,686 |              |  |   | 25,937,760 |           
|Other                                       |                                                                        |              | 433,347    |              |  |   | 1,078,488  |           
|                                            |                                                                        |              |            |              |  |   |            |           
|                                            |                                                                        |              | 21,449,033 |              |  |   | 27,016,248 |           
|Less current maturities                     |                                                                        |              | 4,152,908  |              |  |   | 6,436,271  |           
|                                            |                                                                        |              |            |              |  |   |            |           
|                                            |                                                                        | $            | 17,296,125 |              |  | $ | 20,579,977 |           
|                                            |                                                                        |              |            |              |  |   |            |           





| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | On December 7, 2001, HearUSA entered into a credit
    agreement (credit facility) with Siemens pursuant to
    which Siemens agreed to provide a $51,875,000 secured credit
    facility. The credit facility is comprised of (a) a
    $10,875,000 five-year term loan credit facility (the
    Tranche A Loan); (b) a $25,000,000 five-year revolving
    loan credit facility (the Tranche B Loan); (c) a
    $3,000,000 five-year term loan facility (the Tranche C
    Loan); and (d) a $13,000,000 five-year term loan credit
    facility (the Tranche D Loan). The credit facility is
    secured by all of the assets of the Company.
|
| |    | The Tranche A and C Loans are payable in equal quarterly amounts
    over five years, through their maturity dates of December 2006
    and June 2007, respectively. The Tranche B Loan is payable
    quarterly and payments are calculated as 5% of the                                                                                                                                                                                                                                                                                                                                                                                        

39



---



##### 



HearUSA, Inc.


Notes to Consolidated Financial
Statements  (Continued)




| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | aggregate outstanding balance. Any remaining Tranche B Loan
    principal and interest is due and payable on the final maturity
    date of December 2007. Interest of 10% is due and payable each
    quarter for the Tranche A, B and C loans. Principal and
    interest, at prime rate (5.25% at December 25, 2004) plus
    1%, on the Tranche D Loan is payable on the final maturity
    date of April 2007. The Company is also required to make
    additional payments on the Tranche D Loan under the
    following conditions: The Company must make a payment equal to
    25% of net proceeds it receives from the issuance of stock or
    stock equivalents. In addition, within 120 days of any
    fiscal year end, the Company must make a payment equal to 20% of
    Excess Cash Flow (as defined in the credit agreement) for such
    fiscal year end. As of December 25, 2004, based on the 2004
    Excess Cash Flow these additional maturities totaled
    approximately $220,000. Quarterly principal and interest
    payments on the Tranche A, B and C Loans may be paid
    through preferred pricing reductions received from Siemens by
    HearUSA as long as the Company purchases certain minimum
    percentages of its requirements of hearing aids from Siemens
    pursuant to the supply agreement discussed below. HearUSA
    records a preferred pricing receivable and reduces cost of
    products sold for the preferred pricing earned as it meets
    minimum purchase percentages from Siemens. The preferred pricing
    receivable is then applied against the quarterly principal
    payments and related interest when they become due. The loans
    may be prepaid in whole or in part at any time without penalty.
|
| |  | Further, on March 14, 2003, the Company obtained additional
    funding of $3,500,000 in the form of a five-year note payable to
    Siemens (the Tranche E Loan) with 10% interest. The Company
    is required to make monthly payments of interest only in the
    first year. In years two through five, the Company must make
    monthly principal and interest payments. The additional funding
    was obtained pursuant to an amendment to the Companys
    credit agreement with Siemens and is otherwise subject to the
    terms and conditions of the credit agreement and related
    security agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | Approximately $24,938,000 is available to the Company for
    acquisitions under the Tranche B loan as of
    December 25, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | 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:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

|                                                                                  |  |      |            |      |  |      |            |   |  |   |            |  
|--------------------------------------------------------------------------------- |  | ---- | ---------- | ---- |  | ---- | ---------- | - |  | - | ---------- | -
|                                                                                  |  | 2004 |            | 2003 |  | 2002
|                                                                                  |  |      |            |      |  |     
|Preferred pricing reductions recorded as a reduction of cost of
    products sold |  | $    | 3,641,000  |      |  | $    | 3,947,000  |   |  | $ | 3,765,000  |  
|                                                                                  |  |      |            |      |  |      |            |   |  |   |            |  
|Portion applied against quarterly principal payments                              |  | $    | (2,921,000 | )    |  | $    | (2,921,000 | ) |  | $ | (3,100,000 | )
|Portion applied against quarterly interest payments                               |  |      | (720,000   | )    |  |      | (1,026,000 | ) |  |   | (1,315,000 | )
|Portion applied to accounts receivable                                            |  |      |            |      |  |      |           |   |  |   | 650,000    |  
|                                                                                  |  |      |            |      |  |      |            |   |  |   |            |  
|                                                                                  |  | $    | (3,641,000 | )    |  | $    | (3,947,000 | ) |  | $ | (3,765,000 | )
|                                                                                  |  |      |            |      |  |      |            |   |  |   |            |  



| |  |                                                                                                                                                                                                                                                                                                                                                       
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In connection with the credit facility, HearUSA and Siemens
    entered into a supply agreement dated as of December 7,
    2001, pursuant to which HearUSA agreed to purchase from Siemens
    certain minimum percentages of HearUSA company-owned
    centers hearing aid purchases for a period of ten years
    (an initial five year term which

40



---



##### 



HearUSA, Inc.


Notes to Consolidated Financial
Statements  (Continued)




| |  |                                                                                                                                
| |  | -------------------------------------------------------------------------------------------------------------------------------
| |  | can be extended for an additional five year term on the same
    terms and conditions as the initial term) at specified prices.



| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.
    Furthermore, under the circumstances that the surviving entity
    of such change of control is a manufacturer of hearing aids or
    related products or owns, directly or indirectly, a manufacturer
    of hearing aids or related products, the surviving entity will
    have to pay Siemens a $50 million breakup fee.
|
| |  | The Siemens credit facility imposes certain financial and other
    covenants on the Company, which are customary for loans of this
    size and nature. If the Company cannot maintain compliance with
    these covenants, Siemens may terminate future funding under the
    credit facility and declare all then outstanding amounts under
    the facility immediately due and payable. Management believes as
    of December 25, 2004 the Company was in compliance with the
    covenants of this agreement.                                                                                                                                            

7.     Convertible Subordinated
Notes








41



---



##### 



HearUSA, Inc.


Notes to Consolidated Financial
Statements  (Continued)










8.     Mandatorily Redeemable
Convertible Preferred Stock




42



---



##### 



HearUSA, Inc.


Notes to Consolidated Financial
Statements  (Continued)








9. Stockholders Equity


A. Private Placement






43



---



##### 



HearUSA, Inc.


Notes to Consolidated Financial
Statements  (Continued)




B. Stock Subscription




C. Series J Preferred Stock












44



---



##### 



HearUSA, Inc.


Notes to Consolidated Financial
Statements  (Continued)




D. Shareholder Rights Plan






E. Series H Junior Participating Preferred Stock




F. Exchangeable Right Plan




45



---



##### 



HearUSA, Inc.


Notes to Consolidated Financial
Statements  (Continued)




G. Warrants






|            |           |            |  |          |      |  |  |  |      | 
|----------- | --------- | ---------- |  | -------- | ---- |  |  |  | ---- | 
|Outstanding |           | Expiration |  | Exercise
|Warrants    |           | Date       |  | Price   
|            |           |            |  |         
|            | 131,695   |            |  |          | 2005 |  |  |  | 4.46 | 
|            | 1,500,000 |            |  |          | 2005 |  |  |  | 1.15 | 
|            | 100,000   |            |  |          | 2005 |  |  |  | 1.00 | 
|            | 2,759,893 |            |  |          | 2008 |  |  |  | 1.75 | 
|            | 50,000    |            |  |          | 2007 |  |  |  | 3.00 | 
|            | 240,000   |            |  |          | 2010 |  |  |  | 1.25 | 
|            | 560,000   |            |  |          | 2010 |  |  |  | 1.31 | 
|            |           |            |  |          |      |  |  |  |      | 
|            | 5,341,588 |            |  |          |      |  |  |  |      | 
|            |           |            |  |          |      |  |  |  |      | 

H. Aggregate and Per Share Cumulative Preferred
Dividends




I. Exchangeable Shares




46



---



##### 



HearUSA, Inc.


Notes to Consolidated Financial
Statements  (Continued)




10.     Stock Plans




A. Employee Stock Option Plans










47



---



##### 



HearUSA, Inc.


Notes to Consolidated Financial
Statements  (Continued)




|                                                           |  |                   |           |                   |  |                   |      |          |  |        |           |          |  |   |      |  |  |   |           |  |  |   |      | 
|---------------------------------------------------------- |  | ----------------- | --------- | ----------------- |  | ----------------- | ---- | -------- |  | ------ | --------- | -------- |  | - | ---- |  |  | - | --------- |  |  | - | ---- | 
|                                                           |  | Year Ended       
|                                                           |  |                  
|                                                           |  | December 25, 2004 |           | December 27, 2003 |  | December 28, 2002
|                                                           |  |                   |           |                   |  |                  
|                                                           |  |                   |           | Weighted          |  |                   |      | Weighted |  |        |           | Weighted
|                                                           |  |                   |           | Average           |  |                   |      | Average  |  |        |           | Average 
|                                                           |  |                   |           | Exercise          |  |                   |      | Exercise |  |        |           | Exercise
|                                                           |  | Shares            |           | Price             |  | Shares            |      | Price    |  | Shares |           | Price   
|                                                           |  |                   |           |                   |  |                   |      |          |  |        |           |         
|Outstanding at beginning of year                           |  |                   | 3,387,755 |                   |  | $                 | 1.78 |          |  |        | 2,168,290 |          |  | $ | 3.04 |  |  |   | 1,574,222 |  |  | $ | 3.32 | 
|Granted                                                    |  |                   | 2,495,000 |                   |  | $                 | 1.36 |          |  |        | 1,785,000 |          |  | $ | 0.46 |  |  |   | 644,342   |  |  | $ | 2.50 | 
|Exercised                                                  |  |                   | 6,250     |                   |  | $                 | 0.67 |          |  |        | 20        |          |  | $ | 0.77 |  |  |   |          |  |  |   |     | 
|Forfeited                                                  |  |                   | 537,198   |                   |  | $                 | 2.69 |          |  |        | 565,515   |          |  | $ | 2.47 |  |  |   | 50,274    |  |  | $ | 4.85 | 
|                                                           |  |                   |           |                   |  |                   |      |          |  |        |           |          |  |   |      |  |  |   |           |  |  |   |      | 
|Outstanding at end of year                                 |  |                   | 5,296,987 |                   |  | $                 | 1.49 |          |  |        | 3,387,755 |          |  | $ | 1.78 |  |  |   | 2,168,290 |  |  | $ | 3.04 | 
|                                                           |  |                   |           |                   |  |                   |      |          |  |        |           |          |  |   |      |  |  |   |           |  |  |   |      | 
|Exercisable at end of year                                 |  |                   | 1,538,540 |                   |  |                   |      |          |  |        | 1,418,012 |          |  |   |      |  |  |   | 1,657,467 |  |  |   |      | 
|                                                           |  |                   |           |                   |  |                   |      |          |  |        |           |          |  |   |      |  |  |   |           |  |  |   |      | 
|Weighted average fair value of options granted during year |  | $                 | 1.20      |                   |  |                   |      |          |  | $      | 0.37      |          |  |   |      |  |  | $ | 0.52      |  |  |   |      | 
|                                                           |  |                   |           |                   |  |                   |      |          |  |        |           |          |  |   |      |  |  |   |           |  |  |   |      | 



|                        |  |             |           |                  |  |                |     |             |  |                |       |  |  |  |           |  |  |   |       | 
|----------------------- |  | ----------- | --------- | ---------------- |  | -------------- | --- | ----------- |  | -------------- | ----- |  |  |  | --------- |  |  | - | ----- | 
|                        |  |             |           | Weighted         |  |                |     | Options     |  |               
|                        |  |             |           | Average          |  | Weighted       |     | Exercisable |  | Weighted      
|                        |  | Options     |           | Remaining        |  | Average        |     | At December |  | Average       
|Range of Exercise Price |  | Outstanding |           | Contractual Life |  | Exercise Price |     | 25, 2004    |  | Exercise Price
|                        |  |             |           |                  |  |                |     |             |  |               
|$ .35  $  .77          |  |             | 1,875,710 |                  |  |                | 7.2 |             |  | $              | 0.50  |  |  |  | 702,362   |  |  | $ | .59   | 
|$ .78  $ 2.00          |  |             | 2,739,390 |                  |  |                | 9.3 |             |  | $              | 1.31  |  |  |  | 229,291   |  |  | $ | 1.21  | 
|$2.01  $ 5.40          |  |             | 409,026   |                  |  |                | 4.8 |             |  | $              | 3.05  |  |  |  | 334,026   |  |  | $ | 3.22  | 
|$5.41  $ 8.75          |  |             | 259,421   |                  |  |                | 1.7 |             |  | $              | 7.32  |  |  |  | 259,421   |  |  | $ | 7.32  | 
|$8.76  $18.75          |  |             | 13,440    |                  |  |                | 2.4 |             |  | $              | 15.90 |  |  |  | 13,440    |  |  | $ | 15.90 | 
|                        |  |             |           |                  |  |                |     |             |  |                |       |  |  |  |           |  |  |   |       | 
|                        |  |             | 5,296,987 |                  |  |                |     |             |  |                |       |  |  |  | 1,538,540 |  |  |   |       | 
|                        |  |             |           |                  |  |                |     |             |  |                |       |  |  |  |           |  |  |   |       | 



|     |  |  |           | 
|---- |  |  | --------- | 
|2005 |  |  | 2,636,067 | 
|2006 |  |  | 1,022,170 | 
|2007 |  |  | 1,015,000 | 
|2008 |  |  | 623,750   | 
|     |  |  |           | 
|     |  |  | 5,296,987 | 
|     |  |  |           | 

B. Non-Employee Director Plan






48



---



##### 



HearUSA, Inc.


Notes to Consolidated Financial
Statements  (Continued)


C. Non-Employee Director Non-Plan Grant




D. Stock Bonus Plan




11.     Major Customers and
Suppliers






12.     Related Party
Transactions






49



---



##### 



HearUSA, Inc.


Notes to Consolidated Financial
Statements  (Continued)




13.     Income Taxes




|                                                         |  |      |            |      |  |      |            |   |  |   |            |  
|-------------------------------------------------------- |  | ---- | ---------- | ---- |  | ---- | ---------- | - |  | - | ---------- | -
|                                                         |  | 2004 |            | 2003 |  | 2002
|                                                         |  |      |            |      |  |     
|Domestic                                                 |  | $    | (3,693,000 | )    |  | $    | (1,095,000 | ) |  | $ | (6,086,000 | )
|Foreign                                                  |  |      | 934,000    |      |  |      | 187,000    |   |  |   | (6,000     | )
|                                                         |  |      |            |      |  |      |            |   |  |   |            |  
|Total loss before equity in losses of affiliated company |  | $    | (2,759,000 | )    |  | $    | (908,000   | ) |  | $ | (6,092,000 | )
|                                                         |  |      |            |      |  |      |            |   |  |   |            |  



|                                 |  |      |             |      |  |   |             |  
|-------------------------------- |  | ---- | ----------- | ---- |  | - | ----------- | -
|                                 |  | 2004 |             | 2003
|                                 |  |      |             |     
|Depreciation                     |  | $    | 1,285,000   |      |  | $ | 1,082,000   |  
|Allowance for doubtful accounts  |  |      | 129,000     |      |  |   | 164,000     |  
|Joint Venture                    |  |      | (985,000    | )    |  |   | (1,045,000  | )
|Other                            |  |      | (295,000    | )    |  |   | 106,000     |  
|Net operating loss carryforwards |  |      | 28,649,000  |      |  |   | 31,487,000  |  
|                                 |  |      |             |      |  |   |             |  
|                                 |  |      | 29,173,000  |      |  |   | 28,804,000  |  
|Less valuation allowance         |  |      | (29,173,000 | )    |  |   | (28,804,000 | )
|                                 |  |      |             |      |  |   |             |  
|Net deferred tax asset           |  | $    |            |      |  | $ |            |  
|                                 |  |      |             |      |  |   |             |  





50



---



##### 



HearUSA, Inc.


Notes to Consolidated Financial
Statements  (Continued)




|                                                     |                                |      |          |           |   |      |          |        |  |   |            |        | 
|---------------------------------------------------- | ------------------------------ | ---- | -------- | --------- | - | ---- | -------- | ------ |  | - | ---------- | ------ | 
|                                                     |                                | 2004 |          | 2003      |   | 2002
|                                                     |                                |      |          |           |   |     
|Provision at Federal statutory rate                  |                                | $    | (938,000 | )         |   | $    | (309,000 | )      |  | $ | (2,286,000 | )     
|State income taxes, net of Federal income tax effect |                                |      | (100,000 | )         |   |      | (40,000  | )      |  |   | (236,000   | )     
|Nondeductible expenses:                              |                                |      |          |           |   |      |          |        |  |   |            |       
|                                                     | Beneficial conversion feature  |      |          | 1,089,000 |   |      |          |       |  |   |            |       | 
|                                                     | Amortization of customer lists |      |          | (390,000  | ) |      |          |       |  |   |            |       | 
|                                                     | Other                          |      |          | (32,000   | ) |      |          | 23,000 |  |   |            | 22,000 | 
|Increase in valuation allowance                      |                                |      | 369,000  |           |   |      | 380,000  |        |  |   | 2,566,000  |       
|Other                                                |                                |      | (62,000  | )         |   |      | (54,000  | )      |  |   | (66,000    | )     
|                                                     |                                |      |          |           |   |      |          |        |  |   |            |       
|Income tax provision                                 |                                | $    |         |           |   | $    |         |        |  | $ |           |       
|                                                     |                                |      |          |           |   |      |          |        |  |   |            |       



14.     Commitments and
Contingencies






15.     Quarterly Financial Data
(Unaudited)


|                                                    |  |               |            |         |  |               |            |         |  |   |            |   |  |  |            |  
|--------------------------------------------------- |  | ------------- | ---------- | ------- |  | ------------- | ---------- | ------- |  | - | ---------- | - |  |  | ---------- | -
|Year Ended                                          |  |               |            | Second  |  |               |            | Fourth 
|December 25, 2004                                   |  | First Quarter |            | Quarter |  | Third Quarter |            | Quarter
|                                                    |  |               |            |         |  |               |            |        
|Net revenues                                        |  | $             | 16,934,600 |         |  | $             | 18,149,883 |         |  | $ | 18,430,846 |   |  |  | 18,785,294 |  
|Operating costs and expenses                        |  |               | 17,203,335 |         |  |               | 17,769,942 |         |  |   | 17,352,256 |   |  |  | 18,187,406 |  
|                                                    |  |               |            |         |  |               |            |         |  |   |            |   |  |  |            |  
|Income (loss) from operations                       |  |               | (268,735   | )       |  |               | 379,941    |         |  |   | 1,078,590  |   |  |  | 597,888    |  
|                                                    |  |               |            |         |  |               |            |         |  |   |            |   |  |  |            |  
|Net income (loss) applicable to common stockholders |  |               | (1,615,869 | )       |  |               | (948,008   | )       |  |   | (233,413   | ) |  |  | (669,371   | )
|                                                    |  |               |            |         |  |               |            |         |  |   |            |   |  |  |            |  
|Net income (loss) per share  basic                 |  |               | (0.05      | )       |  |               | (0.03      | )       |  |   | (.01       | ) |  |  | (.02       | )
|                                                    |  |               |            |         |  |               |            |         |  |   |            |   |  |  |            |  
|Net income (loss) per share  diluted               |  |               | (0.05      | )       |  |               | (0.03      | )       |  |   | (.01       | ) |  |  | (.02       | )
|                                                    |  |               |            |         |  |               |            |         |  |   |            |   |  |  |            |  

51



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##### 



HearUSA, Inc.


Notes to Consolidated Financial
Statements  (Continued)


|                                                    |  |               |            |         |  |               |            |            |  |   |            |   |  |  |            |  
|--------------------------------------------------- |  | ------------- | ---------- | ------- |  | ------------- | ---------- | ---------- |  | - | ---------- | - |  |  | ---------- | -
|Year Ended                                          |  |               |            | Second  |  |               |            | Fourth    
|December 27, 2003                                   |  | First Quarter |            | Quarter |  | Third Quarter |            | Quarter(a)
|                                                    |  |               |            |         |  |               |            |           
|Net revenues                                        |  | $             | 17,411,728 |         |  | $             | 18,976,378 |            |  | $ | 17,276,558 |   |  |  | 16,880,490 |  
|Operating costs and expenses                        |  |               | 16,586,981 |         |  |               | 17,511,018 |            |  |   | 17,031,184 |   |  |  | 17,516,327 |  
|                                                    |  |               |            |         |  |               |            |            |  |   |            |   |  |  |            |  
|Income (loss) from operations                       |  |               | 824,741    |         |  |               | 1,465,360  |            |  |   | 245,374    |   |  |  | (635,837   | )
|                                                    |  |               |            |         |  |               |            |            |  |   |            |   |  |  |            |  
|Net income (loss) applicable to common stockholders |  |               | 201,228    |         |  |               | 490,165    |            |  |   | (389,442   | ) |  |  | (2,038,296 | )
|                                                    |  |               |            |         |  |               |            |            |  |   |            |   |  |  |            |  
|Net income (loss) per share  basic                 |  |               | .01        |         |  |               | .02        |            |  |   | (.01       | ) |  |  | (.07       | )
|                                                    |  |               |            |         |  |               |            |            |  |   |            |   |  |  |            |  
|Net income (loss) per share  diluted               |  |               | .01        |         |  |               | .02        |            |  |   | (.01       | ) |  |  | (.07       | )
|                                                    |  |               |            |         |  |               |            |            |  |   |            |   |  |  |            |  






| |    |                                                                                                                                                                      
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | In the 4th quarter of 2003 an adjustment of approximately
    $277,000 was made to record insurance discounts which reduced
    accounts receivable and net revenues.

16.     Fair Value of Financial
Instruments








Cash and cash equivalents


Restricted cash


Investment securities


Accounts and notes receivable


Accounts payable and accrued expenses


Long-term debt


52



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##### 



HearUSA, Inc.


Notes to Consolidated Financial
Statements  (Continued)




Convertible subordinated notes


Manditorily redeemable convertible preferred
stock


17.     Recent Accounting
Pronouncement


Share-Based
Payment, Accounting for Stock
Based Compensation Accounting for Stock Issued to Employees.


18.     Discontinued Operations






53



---



##### 



HearUSA, Inc.


Notes to Consolidated Financial
Statements  (Continued)


19.     Segments




|                              |  |         |            |            |  |         |         |           |  |       |           |  |  |  |             |   |  |   |            |  
|----------------------------- |  | ------- | ---------- | ---------- |  | ------- | ------- | --------- |  | ----- | --------- |  |  |  | ----------- | - |  | - | ---------- | -
|                              |  | Centers |            | E-commerce |  | Network |         | Corporate |  | Total
|                              |  |         |            |            |  |         |         |           |  |      
|Net revenues                  |  |         |            |            |  |         |         |           |  |       |           |  |  |  |             |   |  |   |            |  
|2004                          |  | $       | 71,113,000 |            |  | $       | 79,000  |           |  | $     | 1,109,000 |  |  |  |            |   |  | $ | 72,301,000 |  
|2003                          |  | $       | 69,423,000 |            |  | $       | 69,000  |           |  | $     | 1,053,000 |  |  |  |            |   |  | $ | 70,545,000 |  
|2002                          |  | $       | 56,572,000 |            |  | $       | 27,000  |           |  | $     | 631,000   |  |  |  |            |   |  | $ | 57,230,000 |  
|Income (loss) from operations |  |         |            |            |  |         |         |           |  |       |           |  |  |  |             |   |  |   |            |  
|2004                          |  |         | 11,760,000 |            |  |         | (27,000 | )         |  |       | 447,000   |  |  |  | (10,392,000 | ) |  |   | 1,788,000  |  
|2003                          |  |         | 12,695,000 |            |  |         | (49,000 | )         |  |       | 504,000   |  |  |  | (11,250,000 | ) |  |   | 1,900,000  |  
|2002                          |  |         | 8,113,000  |            |  |         | (27,000 | )         |  |       | 223,000   |  |  |  | (12,792,000 | ) |  |   | (4,483,000 | )
|2004                          |  |         |            |            |  |         |         |           |  |       |           |  |  |  |             |   |  |   |            |  
|Depreciation and amortization |  |         | 2,132,000  |            |  |         |        |           |  |       | 5,000     |  |  |  | 174,000     |   |  |   | 2,311,000  |  
|Total assets                  |  |         | 47,241,000 |            |  |         |        |           |  |       | 1,722,000 |  |  |  | 10,339,000  |   |  |   | 59,302,000 |  
|Capital expenditures          |  |         | 159,000    |            |  |         |        |           |  |       | 3,000     |  |  |  | 62,000      |   |  |   | 224,000    |  
|2003                          |  |         |            |            |  |         |         |           |  |       |           |  |  |  |             |   |  |   |            |  
|Depreciation and amortization |  |         | 2,235,000  |            |  |         |        |           |  |       | 3,000     |  |  |  | 779,000     |   |  |   | 3,017,000  |  
|Total assets                  |  |         | 44,100,000 |            |  |         |        |           |  |       | 1,149,000 |  |  |  | 20,934,000  |   |  |   | 66,183,000 |  
|Capital expenditures          |  |         | 175,000    |            |  |         |        |           |  |       |          |  |  |  | 487,000     |   |  |   | 662,000    |  
|2002                          |  |         |            |            |  |         |         |           |  |       |           |  |  |  |             |   |  |   |            |  
|Depreciation and amortization |  |         | 1,526,000  |            |  |         |        |           |  |       | 1,000     |  |  |  | 995,000     |   |  |   | 2,522,000  |  
|Total assets                  |  |         | 45,304,000 |            |  |         |        |           |  |       | 2,308,000 |  |  |  | 17,385,000  |   |  |   | 64,997,000 |  
|Capital expenditures          |  |         | 229,000    |            |  |         |        |           |  |       | 1,000     |  |  |  | 541,000     |   |  |   | 771,000    |  



54



---



##### 



HearUSA, Inc.


Notes to Consolidated Financial
Statements  (Continued)






|                  |  |               |            |        |  |               |            |        |  |  |            |  |  |  |            | 
|----------------- |  | ------------- | ---------- | ------ |  | ------------- | ---------- | ------ |  |  | ---------- |  |  |  | ---------- | 
|                  |  | United States |            | Canada |  | United States |            | Canada
|                  |  | 2004          |            | 2004   |  | 2003          |            | 2003  
|                  |  | $             |            | $      |  | $             |            | $     
|                  |  |               |            |        |  |               |            |       
|Net revenues      |  |               | 65,506,000 |        |  |               | 6,795,000  |        |  |  | 65,359,000 |  |  |  | 5,186,000  | 
|Long-lived assets |  |               | 38,688,000 |        |  |               | 9,700,000  |        |  |  | 40,137,000 |  |  |  | 9,632,000  | 
|Net assets        |  |               | 47,539,000 |        |  |               | 11,763,000 |        |  |  | 54,893,000 |  |  |  | 11,290,000 | 



20.     Liquidity






55



---



##### 



HearUSA Inc.


Schedule II  Valuation and Qualifying
Accounts


|                  |                                 |            |   |           |  |            |   |            |     |  |   |          |      |  |   |         | 
|----------------- | ------------------------------- | ---------- | - | --------- |  | ---------- | - | ---------- | --- |  | - | -------- | ---- |  | - | ------- | 
|                  |                                 | Balance at |   |           |  |            |   | Balance at
|                  |                                 | Beginning  |   |           |  |            |   | End Of    
|                  |                                 | Of Period  |   | Additions |  | Deductions |   | Period    
|                 
|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 | 
|                 
|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 | 
|                 
|December 28, 2002 |                                 |            |   |           |  |            |   |            |     |  |   |          |      |  |   |        
|                  | Allowance for doubtful accounts |            | $ | 185,814   |  |            | $ | 796,523    |     |  | $ | (404,014 | )(1) |  | $ | 578,323 | 
|                  | Allowance for sales returns     |            | $ | 500,780   |  |            | $ | 309,519    | (2) |  | $ | (20,760  | )    |  | $ | 789,539 | 
|                 



|    |                                                           
|--- | ----------------------------------------------------------
|(1) | Uncollectible accounts written off, net of recoveries.    
|   
|(2) | Includes allowance for sales returns of Helix of $151,775.

56



---



##### 





|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure





|         |                                  
|-------- | ---------------------------------
|Item 9A. | Disclosure Control and Procedures







|         |                  
|-------- | -----------------
|Item 9B. | Other Information



57



---



##### 



PART III




|         |                                 
|-------- | --------------------------------
|Item 10. | Directors and Executive Officers







|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation





|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters





Equity Compensation Plan Information


|                             |  |                      |           |                      |  |                       |      |  |  |  |         |    
|---------------------------- |  | -------------------- | --------- | -------------------- |  | --------------------- | ---- |  |  |  | ------- | ---
|                            
|                             |  | Number of securities
|                             |  | remaining available 
|                             |  | Number of Securities |           |                      |  | for future issuance  
|                             |  | to be issued upon    |           | Weighted-average     |  | under equity         
|                             |  | exercise of          |           | exercise price of    |  | compensation plans   
|                             |  | outstanding options, |           | outstanding options, |  | (excluding securities
|                             |  | warrants and rights  |           | warrants and rights  |  | reflected in column  
|Plan Category                |  | (a)                  |           | (b)                  |  | (a))                 
|                            
|Equity compensation plans    |  |                      |           |                      |  |                       |      |  |  |  |         |    
|approved by security holders |  |                      | 5,148,875 |                      |  | $                     | 1.56 |  |  |  | 810,856 | (1)
|                            
|                            
|Equity compensation plans    |  |                      |           |                      |  |                       |      |  |  |  |         |    
|not approved by security     |  |                      |           |                      |  |                       |      |  |  |  |         |    
|holders                      |  |                      | 376,700   | (2)                  |  | $                     | 3.04 |  |  |  |        |    
|                            
|                            
|Total equity compensation    |  |                      |           |                      |  |                       |      |  |  |  |         |    
|plans approved and not       |  |                      |           |                      |  |                       |      |  |  |  |         |    
|approved by security holders |  |                      | 5,525,575 |                      |  | $                     | 1.66 |  |  |  | 810,856 | (1)
|                            



| |     |                                                                                                                                                                                                                                                                                                                                       | 
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| | (1) | The plans authorize an annual increase in authorized shares
    equal to 10% of the number of shares authorized as of the prior
    year.                                                                                                                                                                                             | 
|
| | (2) | Consists of non-qualified options granted outside the
    Companys 1987 Stock Option Plan and 1995 Flexible Stock
    Plan in 1993, 1995, 1996, 1999, 2001 and 2003 and non-employee
    director options granted under the Non-Employee Director Plan
    (see Note 10B) and outside of the Non Employee Director
    Plan in 2003. | 

58



---



##### 



















|         |                                               
|-------- | ----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions





|         |                                        
|-------- | ---------------------------------------
|Item 14. | Principal Accountants Fees and Services



PART IV




|         |                                                                    
|-------- | -------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules, and Report on
    Form 8-K



|         |                                                                         
|-------- | ------------------------------------------------------------------------
|(a)  (1) | The following financial statements are filed as part of this
    report:



| |     |                                                                               
| | --- | ------------------------------------------------------------------------------
| | (i) | Consolidated Balance Sheets as of December 25, 2004 and
    December 27, 2003.



| |      |                                                                                                                              
| | ---- | -----------------------------------------------------------------------------------------------------------------------------
| | (ii) | Consolidated Statements of Operations for the years ended
    December 25, 2004, December 27, 2003 and
    December 28, 2002.



| |       |                                                                                                                                                   
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------
| | (iii) | Consolidated Statements of Changes in Stockholders Equity
    for the years ended December 25, 2004, December 27,
    2003 and December 28, 2002.



| |      |                                                                                                                              
| | ---- | -----------------------------------------------------------------------------------------------------------------------------
| | (iv) | Consolidated Statements of Cash Flows for the years ended
    December 25, 2004, December 27, 2003 and
    December 28, 2002.



| |     |                                           
| | --- | ------------------------------------------
| | (v) | Notes to Consolidated Financial Statements



|    |                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------
|(2) | The following financial statement schedule is filed as part of
    this report and contained on page 64.

|            |  |                                  
|----------- |  | ---------------------------------
|Schedule II |  | Valuation and Qualifying Accounts
|            |  |                                  

59



---



##### 





| |              
| | -------------
| | (3) Exhibits:

| |      |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ---- |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2.1  |  |  | Plan of Arrangement, including exchangeable share provisions
    (incorporated herein by reference to Exhibit 2.3 to the
    Companys 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 Companys Current Report
    on Form 8-K, filed May 17, 1996 (File
    No. 001-11655)).                                                                                 
| | 3.2  |  |  | Amendment to the Restated Certificate of Incorporation
    (incorporated herein by reference to Exhibit 3.1A to the
    Companys Quarterly Report on Form 10-Q for the period
    ended June 28, 1996 (File No. 001-11655)).                                                                                                                                                                                   
| | 3.3  |  |  | Amendment to Restated Certificate of Incorporation including one
    for ten reverse stock split and reduction of authorized shares
    (incorporated herein to Exhibit 3.5 to the Companys
    Quarterly Report on Form 10-Q for the period ending
    July 2, 1999 (File No. 001-11655)).                                                                                                                    
| | 3.4  |  |  | Amendment to Restated Certificate of Incorporation including an
    increase in authorized shares and change of name (incorporated
    herein by reference to Exhibit 3.1 to the Companys Current
    Report on Form 8-K, filed July 17, 2002 (File No.
    001-11655)).                                                                                                                                       
| | 3.5  |  |  | Certificate of Designations, Preferences and Rights of the
    Companys 1999 Series H Junior Participating Preferred
    Stock (incorporated herein by reference to Exhibit 4 to the
    Companys Current Report on Form 8-K, filed
    December 17, 1999 (File No. 001-11655)).                                                                                                                              
| | 3.6  |  |  | Certificate of Designations, Preferences and Rights of the
    Companys Special Voting Preferred Stock (incorporated
    herein by reference to Exhibit 3.2 to the Companys
    Current Report on Form 8-K, filed July 19, 2002 (File
    No. 001-11655)).                                                                                                                                                    
| | 3.7  |  |  | Amendment to Certificate of Designations, Preferences and Rights
    of the Companys 1999 Series H Junior Participating
    Preferred Stock (incorporated herein by reference to
    Exhibit 4 to the Companys Current Report on
    Form 8-K, filed July 17, 2002 (File
    No. 001-11655)).                                                                                                                 
| | 3.8  |  |  | Certificate of Designations, Preferences and Rights of the
    Companys 1998-E Convertible Preferred Stock (incorporated
    herein by reference to Exhibit 4.1 to the Companys
    Current Report on Form 8-K, filed August 28, 2003
    (File No. 001-11655)).                                                                                                                                              
| | 3.9  |  |  | Amendment of Restated Certificate of Incorporation (increasing
    authorized capital) (incorporated herein by reference to
    Exhibit 3.9 to the Companys Quarterly Report on
    Form 10-Q, filed August 8, 2004).                                                                                                                                                                                          
| | 3.10 |  |  | Amended and Restated By-Laws of HearUSA, Inc. (incorporated
    herein by reference to Exhibit 3.9 to the Companys
    Annual Report on Form 10-K for the year ended
    December 28, 2002).                                                                                                                                                                                                                   
| | 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 Companys 1999 Series H Junior Participating
    Preferred Stock (incorporated herein by reference as
    Exhibit 4.9.1 to the Companys 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 as
    Exhibit 99.3 to the Companys 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 as Exhibit 4.1 to
    the Companys 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 as
    Exhibit 9.1 to the Companys Joint Proxy Statement/
    Prospectus on Form S-4 (Reg. No. 333-73022)).                                                                                                   
| | 10.1 |  |  | HEARx Ltd. 1987 Stock Option Plan (incorporated herein by
    reference as Exhibit 10.11to the Companys 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 as
    Exhibits 10.35 and 10.48 to Post-Effective Amendment No. 1
    to the Companys Registration Statement of Form S-18
    (Reg. No. 33-17041-NY))#                                                                                                                              

60



---



##### 



| |       |  |  |                                                                                                                                                                                                                                                                                                         
| | ----- |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10.3  |  |  | 1995 Flexible Employee Stock Plan (incorporated herein by
    reference as Exhibit 4 to the Companys 1995 Proxy
    Statement)#                                                                                                                                                                        
| | 10.4  |  |  | Executive Employment Agreement, dated December 14, 2003
    with Dr. Paul A. Brown (incorporated herein by reference to
    Exhibit 10.1 to the Companys Quarterly Report on
    Form 10-Q, filed May 10, 2004.)#                                                                                      
| | 10.5  |  |  | Executive Employment Agreement, dated December 14, 2003
    with Stephen J. Hansbrough (incorporated herein by reference to
    Exhibit 10.2 to the Companys Quarterly Report on
    Form 10-Q, filed May 10, 2004.)#                                                                                  
| | 10.6  |  |  | Credit Agreement, dated December 7, 2001 between HEARx Ltd
    and Siemens Hearing Instruments, Inc (incorporated herein by
    reference as Exhibit 10.1 to the Companys Current
    Report on Form 8-K, filed December 26, 2001)                                                                     
| | 10.7  |  |  | Security Agreement, dated December 7, 2001 between HEARx
    Ltd and Siemens Hearing Instruments, Inc (incorporated herein by
    reference as Exhibit 10.2 to the Companys Current
    Report on Form 8-K, December 26, 2001)                                                                         
| | 10.8  |  |  | Supply Agreement, dated December 7, 2001 between HEARx Ltd
    and Siemens Hearing Instruments, Inc (incorporated herein by
    reference as Exhibit 10.3 to the Companys Current
    Report on Form 8-K, December 26, 2001)                                                                           
| | 10.9  |  |  | Form of HearUSA 2002 Flexible Stock Plan (incorporated herein by
    reference as Exhibit 10.9 to the Companys Joint Proxy
    Statement/ Prospectus on Form S-4 (Reg. No. 333-73022)#                                                                                                                 
| | 10.10 |  |  | Amendment to Security Agreement, dated March 12, 2003
    between HearUSA, Inc. and Siemens Hearing Instruments, Inc.
    (incorporated herein by reference as Exhibit 10.2 to the
    Companys Form 10Q for the period ended March 29,
    2003).                                                     
| | 10.11 |  |  | Amendment to Credit Agreement, dated March 12, 2003 between
    HearUSA, Inc. and Siemens Hearing Instruments, Inc.
    (incorporated herein by reference as Exhibit 10.1 to the
    Companys Form 10-Q for the period ended
    March 29, 2003).                                                      
| | 10.12 |  |  | Asset Purchase and Sale Agreement dated July 15, 2003
    between Helix Hearing Care of America Corp., Forget & Sauve,
    Audioprothesistes, S.E.N.C. and 6068065 Canada Inc.
    (incorporated by reference as Exhibit 10.1 to the
    Companys Current Report on Form 8-K, filed
    July 24, 2003).
| | 10.13 |  |  | Exchange Agreement by and between HearUSA, Inc., Zanett
    Lombardier Master Fund, LLC and The San Miguel Trust dated as of
    August 26, 2003 (incorporated herein by reference as
    Exhibit 4.1 to the Companys Current Report on
    Form 8-K, filed August 28, 2003 (File
    No. 001-11655)). 
| | 10.14 |  |  | Form of securities purchase letter agreement dated
    October 1, 2003, between HearUSA, Inc. and each of the
    subscriber signatories thereto(incorporated by reference to
    Exhibit 10.19 to the Companys Current Report on
    Form 10-K, filed March 26, 2004).                                
| | 10.15 |  |  | Purchase Agreement dated December 12, 2003 and
    December 18, 2003 by and among HearUSA, Inc. and the
    purchasers named therein (incorporated by reference to
    Exhibit 10.1 to the Companys Current Report on
    Form 8-K, filed December 31, 2003).                                          
| | 10.16 |  |  | Form of Registration Rights Agreement by and among HearUSA, Inc.
    and the purchasers named in the Purchase Agreement dated
    December 12, 2003 and December 18, 2003 (incorporated
    by reference to Exhibit 10.2 to the Companys Current
    Report on Form 8-K, filed December 31, 2003).     
| | 10.17 |  |  | Form of option grant agreement under 2002 Flexible Stock Plan
    (incorporated herein by reference to Exhibit 10.1 to the
    Companys Quarterly Report on Form 10-Q, filed
    November 9, 2004)#                                                                                                    
| | 21    |  |  | List of Subsidiaries                                                                                                                                                                                                                                                                                    
| | 23    |  |  | Consent of the Registered Independent Public Accounting Firm                                                                                                                                                                                                                                            
| | 31.1  |  |  | CEO Certification, pursuant to Section 302of 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.





61



---



##### 



SIGNATURES






| |              
| | -------------
| | HearUSA, Inc.
| | (Registrant) 

|                        |  |     |  |                                                                                  
|----------------------- |  | --- |  | ---------------------------------------------------------------------------------
|Date: February 28, 2005 |  | By: |  | /s/ Paul A. Brown, M.D.     Paul
    A. Brown, M.D.     Chairman of the
    Board



|                                                           |  |                                      |  |                  
|---------------------------------------------------------- |  | ------------------------------------ |  | -----------------
|Signature                                                  |  | Title                                |  | Date             
|                                                           |  |                                      |  |                  
|/s/ Paul A. BrownPaul
    A. Brown, M.D.                   |  | Chairman of the Board and Director   |  | February 28, 2005
|                                                          
|/s/ Stephen J.
    HansbroughStephen
    J. Hansbrough     |  | Chief Executive Officer and Director |  | February 28, 2005
|                                                          
|/s/ Gino ChouinardGino
    Chouinard                       |  | Chief Financial Officer              |  | February 28, 2005
|                                                          
|/s/ David J. McLachlanDavid
    J. McLachlan               |  | Director                             |  | February 28, 2005
|                                                          
|/s/ Thomas W. ArchibaldThomas
    W. Archibald             |  | Director                             |  | February 28, 2005
|                                                          
|/s/ Joseph L. Gitterman
    IIIJoseph
    L. Gitterman III |  | Director                             |  | February 28, 2005
|                                                          
|/s/ Michel LabadieMichel
    Labadie                       |  | Director                             |  | February 28, 2005

62