##### 



United States
 SECURITIES AND EXCHANGE
    COMMISSION
 Washington, D.C.
    20549
 Form 10-K
 ANNUAL REPORT
    PURSUANT TO SECTIONS 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 1934For the fiscal year ended
    December 30, 2006oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For 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 registeredCommon Stock, par value
    $0.10 per share

American Stock Exchange   Securities registered pursuant to Section 12(g) of the
    Act:
 None
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
  Large
    accelerated filer o
    Accelerated
    filer o
    Non-accelerated
    filer þ  Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE




---



##### 



EXPLANATORY
    NOTE
  Form 10-K
        Form 10-K
    Form 10-K Form 10-Q
   1




---



##### 



PART I
  Item 1.
    Business          Products
    day-to-day
    Acquisition
    Program
   2




---



##### 



Managed Care,
    Institutional Contracts and Benefit Providers
      90-day
    Sales
    Development
   3




---



##### 



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 conducts direct mailings and offers free seminars in its
    markets on hearing aids 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 calls from consumers and
    outbound telemarketing. During 2006, the Company implemented a
    predictive dialer system in order to improve the call center
    productivity and increase the number of qualified appointments
    in its centers.  Facilities and
    Services
      
    Comprehensive hearing testing using standardized practice
    guidelines
    Interactive hearing aid selection and fitting processes
    Aural rehabilitation and follow up care
    Standardized reporting and physician communications      Revenues
   4




---



##### 



Segments
  e-commerce
  Centers
        Network
      E-commerce
  e-commerce
  Distinguishing
    Features
   5




---



##### 



Joint Commission on
    Accreditation of Healthcare Organizations
  re-accredited
  Center Management
    System, Medical Reporting and HearUSA Data Link
  point-of-sale
      Competition
       6




---



##### 



and/or
    Reliance on
    Manufacturers
      Regulation
  Federal
  30-day
   7




---



##### 



8




---



##### 



State
        speech-language speech-language speech-language
      Canada
   9




---



##### 



Product and
    Professional Liability
    Seasonality
    Employees
    Where to Find
    More Information
  www.hearusa.com Form 10-K, Form 10-Q Form 8-K
  Item 1A.  Risk
    Factors
  This Annual Report on
    Form 10-K,
    including the management discussion and analysis set out below,
    contains or incorporates 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 Exchange of
    1934. 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 as well as the risk
    factors set forth below. The statements are not guarantees of
    future performance and involve certain risks, uncertainties and
    assumptions that are difficult to predict. The risks and
    uncertainties described below are not the only ones facing us.
    Additional risks and uncertainties that we are unaware of may
    become important factors that affect us. If any of the following
 10




---



##### 



risks occur, our business, financial condition and results of
    operations could be materially and adversely affected.
  HearUSA has a
    history of operating losses and may never be
    profitable.
    
    Timing of product sales;
    Level of consumer demand for our products;
    Timing and success of new centers and acquired centers;
    Timing and amounts of payments by health insurance and managed
    care organizations.    We may not
    effectively compete in the hearing care industry.
  and/or
  We are
    dependent on manufacturers who may not perform.
    We may not be
    able to access funds under our credit facility with Siemens if
    we cannot maintain compliance with the restrictive covenants
    contained therein and in our supply agreement with
    Siemens.
   11




---



##### 



We rely on
    qualified audiologists, without whom our business may be
    adversely affected.
    We may not be
    able to maintain existing agreements or enter into new
    agreements with health insurance and managed care organizations,
    which may result in reduced revenues.
    We depend on
    our joint venture for our California operations and may not be
    able to attract sufficient patients to our California centers
    without it.
    We rely on the
    efforts and success of managed care companies that may not be
    achieved or sustained.
    We may not be
    able to maintain JCAHO accreditation, and our revenues may
    suffer.
   12




---



##### 



We are exposed
    to potential product and professional liability that could
    adversely affect us if a successful claim is made in excess of
    insurance policy limits.
    Risks Relating to
    HearUSA Common Stock
  The price of
    our common stock is volatile and could decline.
    
    the amount of our cash resources and ability to obtain
    additional funding;
    economic conditions in markets we are targeting;
    fluctuations in operating results;
    changes in government regulation of the healthcare industry;
    failure to meet estimates or expectations of the market; and
    rate of acceptance of hearing aid products in the geographic
    markets we are targeting.    HearUSA might
    fail to maintain a listing for its common stock on the American
    Stock Exchange, making it more difficult for stockholders to
    dispose of or to obtain accurate quotations as to the value of
    their HearUSA stock.
    
    the company fails to maintain stockholders equity of at
    least $2,000,000 if the company has sustained losses from
    continuing operations or net losses in two of its three most
    recent fiscal years;
    the company fails to maintain stockholders equity of
    $4,000,000 if the company has sustained losses from continuing
    operations or net losses in three of its four most recent fiscal
    years; or
    the company has sustained losses from continuing operations or
    net losses in its five most recent fiscal years.  over-the-counter
 13




---



##### 



If penny
    stock regulations apply to HearUSA common stock, you may
    not be able to sell or dispose of your shares.
  over-the-counter
  Conversion of
    outstanding HearUSA convertible instruments and exercise of
    outstanding HearUSA options and warrants could cause substantial
    dilution.
    
    $6.25 million in convertible subordinated notes,
    convertible into 3,571,429 shares of common stock, assuming
    any interest is paid in cash;
    Convertible note with Siemens, convertible into
    6,450,084 shares of common stock;
    Warrants to purchase 5,114,853 shares of common
    stock and
    Options to purchase 5,423,423 shares of common stock.    Future sales
    of shares may depress the price of HearUSA common
    stock.
    Because of the
    HearUSA rights agreement and the related rights plan for the
    exchangeable shares, a third party may be discouraged from
    making a takeover offer which could be beneficial to HearUSA and
    its stockholders.
   14




---



##### 



Because
    HearUSA stockholders do not receive dividends, stockholders must
    rely on stock appreciation for any return on their investment in
    HearUSA.
    Other Risks
    Relating to the Business of HearUSA
  We may not be
    able to obtain additional capital on reasonable terms, or at
    all, to fund our operations.
    Future
    acquisitions or investments could negatively affect our
    operations and financial results or dilute the ownership
    percentage of our stockholders.
      
    issue additional stock that would further dilute our current
    stockholders percentage ownership;
    incur debt;
    assume unknown or contingent liabilities; or
    experience negative effects on reported operating results from
    acquisition-related charges and amortization of acquired
    technology, goodwill and other intangibles.    
    potential loss of key employees of acquired organizations;
    problems integrating the acquired business, including its
    information systems and personnel;
    unanticipated costs that may harm operating results;
    diversion of managements attention from business
    concerns; and
    adverse effects on existing business relationships with
    customers.    Increased
    exposure to currency fluctuations could have adverse effects on
    our reported earnings.
   15




---



##### 



Item 1B.
    Unresolved Staff
    Comments    Item 2.
    Properties  e-commerce
  Item 3.
    Legal
    Proceedings    Item 4.
    Submission of
    Matters to a Vote of Security Holders    EXECUTIVE
    OFFICERS OF THE COMPANY
  5-year 3-year
  First ServedName and
    Position

Age


as Executive
    OfficerPaul A. Brown, M.D.


68



1986Chairman of the BoardStephen J. Hansbrough


60



1993President/Chief Executive OfficerDirectorGino Chouinard


38



2002Executive Vice PresidentChief Financial OfficerKenneth Schofield


42



2004Chief Operating Officer      16




---



##### 



start-up
     17




---



##### 



PART II
  Item 5.
    Market for
    Registrants Common Equity and Related Stockholder
    Matters  one-for-one
  Common
    StockFiscal
    Quarter

High


Low2006First

$
1.56


$
1.22Second

$
1.49


$
1.19Third

$
1.80


$
1.25Fourth

$
2.04


$
1.312005First

$
2.09


$
1.49Second

$
2.00


$
1.45Third

$
1.79


$
1.50Fourth

$
1.76


$
1.13     Dividend
    Policy
   18




---



##### 



Item 6.
    Selected
    Financial Data    CONSOLIDATED
    STATEMENT OF OPERATIONS DATA:
  Year
    EndedDecember 30


December 31


December 25


December 27


December 282006


2005


2004


2003


2002As
    restated


As
    restated


As
    restated


As
    restatedNet revenues

$
88,786,193


$
76,672,003


$
68,749,542


$
67,080,108


$
55,038,793Total operating costs and expenses


84,977,470



72,957,087



66,411,162



64,812,179



59,350,819Income (loss) from operations (1
    and 2)


3,808,723



3,714,916



2,338,380



2,267,929



(4,312,026
)Non-operating income:Gain from insurance settlement(3)


202,936



430,122











Interest income


151,867



53,921



17,543



20,836



114,152Interest expense(4)


(5,963,471
)


(4,640,558
)


(4,563,729
)


(2,828,327
)


(1,722,990
)Loss from continuing operations
    before income tax expense, minority interest, equity loss in
    affiliated company and loss from discontinued operations


(1,799,945
)


(441,599
)


(2,207,806
)


(539,562
)


(5,920,864
)Income tax expense


(741,785
)


(1,759,148
)


(690,396
)


(390,000
)


(195,000
)Minority interest


(632,606
)














Equity in loss of affiliated company


















(630,801
)Net loss from continuing operations


(3,174,336
)


(2,200,747
)


(2,898,202
)


(929,562
)


(6,746,665
)Loss from discontinued operations






(63,553
)


(550,696
)


(569,827
)


(328,804
)Net loss before dividends on
    preferred stock


(3,174,336
)


(2,264,300
)


(3,448,898
)


(1,499,389
)


(7,075,469
)Dividends on preferred stock


(137,858
)


(700,675
)


(708,159
)


(626,956
)


(696,541
)Net loss applicable to common
    stockholders

$
(3,312,194
)

$
(2,964,975
)

$
(4,157,057
)

$
(2,126,345
)

$
(7,772,010
)Loss per common shareBasic and diluted, loss from
    continuing operations, including dividends on preferred stock

$
(0.10
)

$
(0.09
)

$
(0.12
)

$
(0.05
)

$
(0.33
)Basic and diluted, net loss
    applicable to common stockholders

$
(0.10
)

$
(0.09
)

$
(0.14
)

$
(0.07
)

$
(0.34
)Basic and diluted, weighted average
    number of common shares outstanding


32,224,554



31,610,793



30,426,829



30,424,262



22,534,393Cash dividends per common share


None



None



None



None



None     (1)
    
    Total operating costs and expenses in 2006 include approximately
    $976,000 of non-cash employee stock-based compensation, which
    did not exist in prior years.(2)
    
    Total operating costs and expenses include approximately
    $815,000, $618,000, $478,000, $457,000 and $240,000, in 2006,
    2005, 2004, 2003 and 2002, respectively, of intangible asset
    amortization. 19




---



##### 



(3)
    
    The gain from insurance settlement is from insurance proceeds
    and final payments resulting from 2005 and 2004 hurricane
    damages and business interruption claims sustained in Florida
    hearing care centers.(4)
    
    Interest expense includes approximately $2,694,000, $2,540,000,
    $2,127,000 and $517,000 in 2006, 2005, 2004 and 2003,
    respectively, of non-cash debt discount amortization and
    approximately $319,000 and $513,000 in 2006 and 2005,
    respectively, of non-cash decreases in interest expense related
    to a decrease in the fair market value of the warrant liability.  BALANCE SHEET
    DATA:
  As ofDecember 30


December 31


December 25


December 27


December 282006


2005


2004


2003


2002(1)As
    restated


As
    restated


As
    restated


As
    restatedTotal assets

$
83,276,444


$
71,044,499


$
61,773,981


$
68,883,350


$
67,696,870Working capital deficit


(14,896,439
)(3)


(3,549,353
)


(4,898,459
)


(2,330,035
)


(10,231,372
)Long-term debt:Long-term debt, net of current
    maturities


28,598,869



19,970,099



17,296,125



20,579,977



22,082,389
(2)Convertible subordinated notes and
    subordinated notes, net of debt discount of $278,046 $2,077,537,
    $5,443,879 and $7,423,596 in 2006, 2005, 2004 and 2003,
    respectively


3,761,954



6,222,463



2,056,121



76,404



Mandatorily redeemable convertible
    preferred stock










4,709,921



4,600,107



     (1)
    
    The Company completed its business combination with Helix
    effective June 30, 2002.(2)
    
    Includes $110,890 of long-term debt of discontinued operations.(3)
    
    Includes approximately $3.5 million representing the
    current maturities of the long-term debt to Siemens which may be
    repaid through preferred pricing reductions and approximately
    $2.5 million ($3.8 million in current maturities, net
    of $1.3 million) of debt discount related to the
    $7.5 million convertible subordinated notes that can be
    repaid by either cash or stock, at the option of the Company.
    The Company also drew down $5 million from its Siemens Tranche D
    Facility early in January 2007 for working capital purposes and
    repayment of certain debts.  Item 7.
    Managements
    Discussion and Analysis of Results of
    Operationsand Financial Condition  GENERAL
     20




---



##### 



RESULTS OF
    OPERATIONS
  2006 compared
    to 2005 (in thousands of dollars)
  Revenues
  Revenues

2006


2005


Change


%
    ChangeHearing aids and other products

$
82,820


$
71,445


$
11,375



15.9
%Services


5,966



5,227



739



14.1
%Total net revenues

$
88,786


$
76,672


$
12,114



15.8
%   21




---



##### 



2006


2005


Change


%
    Change(3)Revenues from centers acquired in
    2005(1)

$
1,341


$



$
1,341



1.7
%Revenues from centers acquired in
    2006


5,331







5,331



7.0
%Total Revenues from acquired
    centers


6,672







6,672



8.7
%Revenues due to an additional
    week in 2005






1,400



(1,400
)


(1.8
)%Revenues from comparable
    centers(2)


82,114



75,272



6,842



8.9
%Total net revenues

$
88,786


$
76,672


$
12,114



15.8
%     (1)
    
    Represents that portion of revenue from the 2005 acquired
    centers recognized for those acquisitions that had less than one
    full year of revenues recorded in 2005 due to the timing of
    their acquisition.(2)
    
    Includes revenues from the network business segment as well as
    the impact of fluctuation of the Canadian exchange rate.(3)
    
    The revenues from acquired centers percentage changes are
    calculated by dividing them by the total 2005 net revenues.      Cost of Products
    Sold and Services
  Cost of Products
    Sold and Services

2006


2005


Change


%Hearing aids and other products

$
24,942


$
20,973


$
3,969



18.9
%Services


1,761



1,794



(33
)


(1.8
)%Total cost of products sold and
    services

$
26,703


$
22,767


$
3,936



17.3
%Percent of total net
    revenues


30.1
%


29.7
%


0.4
%


1.3
%    22




---



##### 



Preferred Pricing
    Reductions Included Above

2006


2005


Change


%Base required payments on Tranches
    A and C forgiven

$
2,922


$
2,923


$
(1
)


0.0
%Required payments of $65 per
    Siemens unit from acquired centers on Tranche B forgiven


190







190



n/aInterest expense on Tranches A, B
    and C forgiven


626



389



237



60.9
%Total preferred pricing
    reduction

$
3,738


$
3,312


$
426



12.9
%Percent of total net
    revenues


4.2
%


4.3
%


(0.1
%)


(2.3
)%       Expenses
  Operating
    expenses

2006


2005


Change


%Center operating
    expenses

$
42,281


$
36,472


$
5,809



15.9
%Percent of total net revenues


47.6
%


47.6
%






0.0
%General and administrative
    expenses

$
14,005
(1)

$
11,745


$
2,260



19.2
%Percent of total net revenues


15.8
%(1)


15.3
%


0.5
%


3.3
%Depreciation and
    amortization

$
1,988


$
1,974


$
14



0.7
%Percent of total net revenues


2.2
%


2.6
%


(0.4
)%


(15.4
)%     (1)
    
    Includes approximately $976,000 or 1.1% of total net revenues of
    non-cash stock-based compensation that did not exist in 2005.   23




---



##### 



Interest
    Expense

2006


2005


Change


%Notes payable from business
    acquisitions and others

$
264


$
68


$
196



288.2
%Siemens
    Tranche C2  Interest paid with monthly
    payments(1)


345



190



155



81.6
%Siemens Tranches C1,C2 and
    C3  accrued interest added to loan balance(1)


1,130



964



166



17.2
%Siemens Tranches A, B and
    C  interest forgiven


626



389



237



60.9
%2003 Convertible Subordinated
    Notes(2)


2,556



2,948



(392
)


(13.3
)%2005 Subordinated Notes(3)


1,361



595



766



128.7
%Warrant liability change in
    value(4)


(319
)


(513
)


194



37.8
%Total interest
    expense

$
5,963


$
4,641


$
1,322



28.5
%     (1)
    
    The loan balances related to these interest expenses have been
    transferred to the new self-liquidating loan with Siemens under
    the new December 30, 2006 agreement and will now be
    forgiven going forward so long as a minimum purchase requirement
    is met (see Note 7  Long-term Debt, Notes to
    Consolidated Financial Statements included herein and Liquidity
    and Capital Resources, below).(2)
    
    Includes $1.8 million in 2006 and $2.2 million in 2005
    of non-cash debt discount amortization (see
    Note 8  Convertible Subordinated Notes, Notes to
    Consolidated Financial Statements included herein).(3)
    
    Includes $850,000 in 2006 and $389,000 in 2005 of non-cash debt
    discount amortization (see Note 9  Subordinated
    Notes and Warranty Liability, Notes to Consolidated Financial
    Statements included herein). 24




---



##### 



(4)
    
    Relates to the change in value of the warrants related to the
    2005 Subordinated Notes and is a non-cash item (see
    Note 9  Subordinated Notes and Warranty
    Liability, Notes to Consolidated Financial Statements included
    herein).    Dividends
    Income Taxes (as
    restated)
          25




---



##### 



Minority
    Interest
    2005 compared
    to 2004 (in thousands of dollars)
  Revenues
  Revenues

2005


2004


Change


%
    ChangeHearing aids and other products

$
71,445


$
63,228


$
8,217



13.0
%Services


5,227



5,522



(295
)


(5.3
)%Total net revenues

$
76,672


$
68,750


$
7,922



11.5
%   2005


2004


Change


%
    Change(3)Total Revenues from centers
    acquired in 2005(1)

$
1,217


$



$
1,217



1.8
%Revenues due to an additional
    week in 2005


1,400







1,400



2.0
%Revenues from comparable
    centers(2)


74,055



68,750



5,305



7.7
%Total net revenues

$
76,672


$
68,750


$
7,922



11.5
%     (1)
    
    Acquisition program began in mid-2005.(2)
    
    Includes revenues from the network business segment as well as
    the impact of fluctuation of the Canadian exchange rate.(3)
    
    The revenues from acquired centers percentage change is
    calculated by dividing them by the total 2004 net revenues.   26




---



##### 



Cost of Products
    Sold and Services
  Cost of Products
    Sold and Services

2005


2004


Change


%Hearing aids and other products

$
20,973


$
17,512


$
3,461



19.8
%Services


1,794



1,718



76



4.4
%Total cost of products sold and
    services

$
22,767


$
19,230


$
3,537



18.4
%Percent of total net
    revenues


29.7
%


28.0
%


1.7
%


6.1
%     Preferred Pricing
    Reductions Included Above

2005


2004


Change


%Base required payments on Tranches
    A and C forgiven

$
2,923


$
2,921


$
2



0.0
%Interest expense on Tranches A, B
    and C forgiven


389



720



(331
)


(46.0
)%Total preferred pricing
    reduction

$
3,312


$
3,641


$
(329
)


(9.0
)%Percent of total net
    revenues


4.3
%


5.3
%


(1.0
)%


(18.9
)%     Expenses
  Operating
    Expenses

2005


2004


Change


%Center operating
    expenses

$
36,472


$
34,891


$
1,581



4.5
%Percent of total net revenues


47.6
%


50.8
%


(3.2
)%


(6.3
)%General and administrative
    expenses

$
11,745


$
10,218


$
1,527



14.9
%Percent of total net revenues


15.3
%


14.9
%


0.4
%


2.7
%Depreciation and
    amortization

$
1,974


$
2,072


$
(98
)


(4.7
)%Percent of total net revenues


2.6
%


3.0
%


(0.4
)%


(13.3
)%    27




---



##### 



Interest
    Expense

2005


2004


Change


%Notes payable from business
    acquisitions and others

$
68


$
79


$
(11
)


(13.9
)%Siemens Tranche E 
    Interest paid with monthly payments


190



245



(55
)


(22.4
)%Siemens Tranches C1, C2 and
    C3  accrued interest added to loan balance


964



656



308



47.0
%Siemens Tranches A, B and
    C  interest forgiven


389



720



(331
)


(46.0
)%2003 Convertible Subordinated
    Notes(1)


2,948



2,864



84



2.9
%2005 Subordinated Notes(2)


595







595



n/aWarrant liability change in
    value(3)


(513
)






(513
)


n/aTotal interest
    expense

$
4,641


$
4,564


$
77



1.7
%     (1)
    
    Includes $2.2 million in 2005 and $2.1 million in 2004
    of non-cash debt discount amortization (see
    Note 8  Convertible Subordinated Notes, Notes to
    Consolidated Financial Statements included herein).(2)
    
    Includes $389,000 in 2005, none in 2004, of non-cash debt
    discount amortization (see Note 9  Subordinated
    Notes and Warrant Liability, Notes to Consolidated Financial
    Statement included herein).(3)
    
    Relates to the change on value of the warrants related to the
    2005 Subordinated Notes and is a non-cash item (see
    Note 9  Subordinated Notes and Warrant
    Liability, Notes to Consolidated Financial Statement included
    herein).    Dividends
    Income Taxes (as
    restated)
   28




---



##### 



LIQUIDITY AND
    CAPITAL RESOURCES
  Siemens
    Transaction
               29




---



##### 



Working
    Capital
      Cash
    Flows
     30




---



##### 



Contractual
    Obligations
    Payments Due by
    Period (in thousands of dollars)
  Less








MoreContractual




than 1


3 - 1


4 - 5


than 5Obligations

Total


Year


Years


Years


YearsLong-term debt(1)

$
36,990


$
8,391


$
10,800


$
7,703


$
10,096Convertible subordinated notes(3)


6,250



3,750



2,500







Subordinated notes


3,300



1,760



1,540







Subtotal of obligations recorded
    on balance sheet


46,540



13,901



14,840



7,703



10,096Interest to be paid on long-term
    debt(2)


1,723



640



600



312



171Interest to be paid on convertible
    subordinated notes(3)


432



325



107







Interest to be paid on
    subordinated notes


219



175



44







Operating leases


18,867



5,387



8,172



3,704



1,604Employment agreements


4,789



1,989



2,440



360



Purchase obligations


729



700



29







Total contractual cash obligations

$
73,299


$
23,117


$
26,232


$
12,079


$
11,871     (1)
    
    Approximately $27.5 million can be repaid through increased
    preferred pricing reductions from Siemens, including
    $4.8 million in less than 1 year and $9.5 in years
    1-3, $9.5 in years 4-5 and $3.7 in more than 5 years.(2)
    
    Interest on long-term debt excludes the interest on the new
    Tranches A, B and C that can be repaid through preferred pricing
    reductions from Siemens pursuant to the December 30, 2006
    second amended and restated credit agreement with them. Interest
    repaid through preferred pricing reductions 31




---



##### 



was $626,000 in 2006 (see Note 7  Long-Term
    Debt, Notes to Consolidated Financial Statements included
    herein).  (3)
    
    When due these notes and corresponding interest can be repaid at
    the option of the Company in common stock.  OUTLOOK
      CRITICAL
    ACCOUNTING POLICIES
    Goodwill
  e-commerce.
  Revenue
    recognition
     32




---



##### 



Allowance for
    doubtful accounts
      Sales
    returns
    Impairment of
    Long-Lived Assets
    Stock-based
    compensation
  Share-Based
    Payment
    Income
    taxes
   33




---



##### 



RECENT ACCOUNTING
    PRONOUNCEMENTS
        00-19-2, 00-19-2), 00-19-2, 00-19-2,
 34




---



##### 



00-19-2
    Item 7A.
    Quantitative
    and Qualitative Disclosure About Market Risk    Fixed
    Rate9.5%



5% note


8%


7%Due February



Due February


Due November


Due August2013



2013


2008


2008


Other



Total(000s)



(000s)


(000s)


(000s)


(000s)



(000s)2007


$
(3,496
)


$
(2,200
)

$
(3,750
)

$
(1,760
)

$
(2,695
)


$
(13,901
)2008



(3,487
)







(2,500
)


(1,540
)


(2,213
)



(9,740
)2009



(3,487
)















(1,613
)



(5,100
)2010



(3,487
)















(679
)



(4,166
)2011



(3,487
)















(50
)



(3,537
)2012



(3,487
)




















(3,487
)2013



(6,609
)




















(6,609
)Total


$
(27,540
)


$
(2,200
)

$
(6,250
)

$
(3,300
)

$
(7,250
)


$
(46,540
)Estimated fair value


$
(27,540
)


$
(2,200
)

$
(6,208
)

$
(3,290
)

$
(6,669
)


$
(45,907
)  35




---



##### 



Item 8.
    Financial
    Statements and Supplementary Data  PageIndex to Financial StatementsFinancial Statements:Report of Independent Registered
    Public Accounting Firm


37Consolidated Balance Sheets at
    December 30, 2006 and December 31, 2005


38Consolidated Statements of
    Operations for the years ended December 30 2006,
    December 31, 2005, and December 25, 2004


39Consolidated Statements of Changes
    in Stockholders Equity for the years ended
    December 30, 2006, December 31, 2005 and
    December 27, 2004


40Consolidated Statements of Cash
    Flows for the years ended December 30, 2006,
    December 31, 2005, and December 25, 2004


42Notes to Consolidated Financial
    Statements


44Financial Statement
    Schedule:II Valuation and Qualifying
    Accounts  For the years ended December 30,
    2006 December 31, 2005 and December 25, 2004


77  36




---



##### 



Report of
    Independent Registered Public Accounting Firm              Share-Based Payment.
        37




---



##### 



HearUSA,
    Inc.
 Consolidated
    Balance Sheets
  December 30,


December 31,2006


2005As
    restatedASSETSCurrent assetsCash and cash equivalents

$
2,325,545


$
6,706,944Accounts and notes receivable, less
    allowance for doubtful accounts of $434,098 and $413,386


7,591,417



6,715,933Inventories


2,371,322



1,604,943Prepaid expenses and other


1,399,517



1,627,407Deferred tax asset (Note 15)


67,000



Total current assets


13,754,801



16,655,227Property and equipment, net
    (Notes 4 and 6)


3,878,563



3,437,436Goodwill (Notes 5 and
    6)


50,970,557



38,457,913Intangible assets, net
    (Notes 5 and 6)


13,591,703



11,477,290Deposits and other


876,206



585,633Restricted cash and cash
    equivalents (Note 3)


204,614



431,000$
83,276,444


$
71,044,499LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable

$
10,463,604


$
8,499,812Accrued expenses


2,508,834



2,344,419Accrued salaries and other
    compensation


2,825,877



2,589,877Current maturities of long-term
    debt (Note 7)


8,390,988



5,192,108Current maturities of convertible
    subordinated notes, net of debt discount of $1,263,003 and
    $1,847,853 (Note 8)


2,486,997



652,147Current maturities of subordinated
    notes, net of debt discount of $452,228 and $868,345
    (Note 9)


1,307,772



891,655Dividends payable (Notes 10
    and 11C)


34,562



34,562Minority Interest in net income of
    consolidated Joint Venture currently payable


632,606



Total current liabilities


28,651,240



20,204,580Long-term debt
    (Note 7)


28,598,869



19,970,099Deferred income tax liability
    (Note 15)


5,234,486



5,068,003Convertible subordinated notes,
    net of debt discount of $217,923 and $1,565,187
    (Note 8)


2,282,077



3,434,813Subordinated notes, net of debt
    discount of $60,123 and $512,350 (Note 9)


1,479,877



2,787,650Warrant liability
    (Note 9)


110,043



1,347,217Total long-term liabilities


37,705,352



32,607,782Commitments and contingencies
    (Notes 4,7,8,9,10,12 and 16)






Stockholders
    equityPreferred stock (aggregate
    liquidation preference $2,330,000 and $2,330,000, $1 par,
    7,500,000 shares authorized) (Note 11)Series H Junior Participating
    (none outstanding)






Series J (233 shares
    outstanding) (Note 11C)


233



233Total preferred stock


233



233Common stock: $0.10 par;
    75,000,000 shares authorized: 32,029,750 and
    31,893,200 shares issued (Notes,8,10,11 and 12)


3,202,975



3,189,320Stock subscription (Note 11B)


(412,500
)


(412,500
)Additional paid-in capital


123,972,403



121,934,658Accumulated deficit


(109,521,017
)


(106,208,823
)Accumulated other comprehensive
    income


2,162,899



2,214,390Treasury stock, at cost: 523,662
    common shares


(2,485,141
)


(2,485,141
)Total stockholders equity


16,919,852



18,232,137$
83,276,444


$
71,044,499   See accompanying notes to consolidated financial
    statements
 38




---



##### 



HearUSA,
    Inc.
 Consolidated
    Statements of Operations
  Year
    EndedDecember 30,


December 31,


December 25,2006


2005


2004As
    restated


As
    restatedNet
    revenuesHearing aids and other products

$
82,819,659


$
71,445,381


$
63,227,775Services


5,966,534



5,226,622



5,521,767Total net revenues


88,786,193



76,672,003



68,749,542Operating costs and
    expensesHearing aids and other products


24,942,164



20,972,635



17,511,405Services


1,761,405



1,793,944



1,718,287Total cost of products sold and
    services


26,703,569



22,766,579



19,229,692Center operating expenses


42,281,308



36,471,767



34,890,950General and administrative expenses
    (including approximately $976,000 non-cash employee stock-based
    compensation expense in
    2006  Notes 1 and 12)


14,004,579



11,744,548



10,218,283Depreciation and amortization


1,988,014



1,974,193



2,072,237Total operating costs and expenses


84,977,470



72,957,087



66,411,162Income from operations


3,808,723



3,714,916



2,338,380Non-operating income
    (expense):Gain from insurance settlement


202,936



430,122



Interest income


151,867



53,921



17,543Interest expense (including
    approximately $2,694,000, $2,540,000 and $2,127,000, in 2006,
    2005 and 2004, of non-cash debt discount amortization and a
    non-cash reduction of approximately $319,000 and $513,000 for
    the decrease in the fair value of the warrant
    liability  Notes 8 and 9)


(5,963,471
)


(4,640,558
)


(4,563,729
)Loss from continuing operations
    before income tax expense and minority interest in income of
    consolidated Joint Venture


(1,799,945
)


(441,599
)


(2,207,806
)Income tax expense 
    (Note 15)


(741,785
)


(1,759,148
)


(690,396
)Minority interest in income of
    consolidated Joint Venture


(632,606
)






Net loss from continuing
    operations


(3,174,336
)


(2,200,747
)


(2,898,202
)Gain on disposition of assets from
    discontinued operations (Note 20)






332,470



Loss from discontinued operations






(396,023
)


(550,696
)Net loss from discontinued
    operations






(63,553
)


(550,696
)Net loss


(3,174,336
)


(2,264,300
)


(3,448,898
)Dividends on preferred stock
    (Notes 10 and 11C)


(137,858
)


(700,675
)


(708,159
)Net loss applicable to common
    stockholders

$
(3,312,194
)

$
(2,964,975
)

$
(4,157,057
)Net loss from continuing
    operations, including dividends on preferred stock, applicable
    to common stockholders-basic and diluted

$
(0.10
)

$
(0.09
)

$
(0.12
)Net loss applicable to common
    stockholders per common share  basic and diluted
    (Note 1)

$
(0.10
)

$
(0.09
)

$
(0.14
)Weighted average number of
    shares of common stock outstanding- (Notes 1, 11 and
    12)


32,224,554



31,610,793



30,426,829   See accompanying notes to consolidated financial
    statements
 39




---



##### 



HearUSA,
    Inc.
 Consolidated
    Statements of Changes in Stockholders Equity
  Year Ended


Year Ended


Year EndedDecember 30,
    2006


December 31,
    2005


December 25,
    2004Shares


Amount


Shares


Amount


Shares


AmountAs
    restated


As
    restatedPreferred stockBalance beginning and end of year


233


$
233



233


$
233



233


$
233Common stockBalance, beginning of year


31,893,200


$
3,189,320



30,060,676


$
3,006,068



29,528,450


$
2,952,845Exercise of employee stock options


6,650



665



130,000



13,000



6,250



625Issuance of common stock for
    exchangeable shares


29,900



2,990



102,524



10,252



525,976



52,598Issuance of restricted stock for
    consulting


100,000



10,000















Warrant exercise










1,600,000



160,000Balance, end of year


32,029,750


$
3,202,975



31,893,200


$
3,189,320



30,060,676


$
3,006,068Treasury stockBalance beginning and end of year


523,662


$
(2,485,141
)


523,662


$
(2,485,141
)


523,662


$
(2,485,141
)Stock subscriptionBalance beginning and end of year





$
(412,500
)





$
(412,500
)





$
(412,500
)Additional paid-in
    capital:Balance, beginning of year





$
121,934,658






$
120,197,937






$
120,226,050Employee stock-based compensation
    expense (Note 12A)






976,290















Reclassification of value of
    warrants from liability to equity (Note 9)






917,863















Exercise of employee stock options






3,833







55,000







3,563Issuance of common stock for
    exchangeable shares






(2,990
)






(10,252
)






(52,598
)Exercise of warrants














1,665,000







Consulting expense






142,749







26,973







12,672Compensation expense






















8,250Balance, end of year





$
123,972,403






$
121,934,658






$
120,197,937   See accompanying notes to consolidated financial
    statements
 40




---



##### 



HearUSA,
    Inc.
 Consolidated Statements of
    Changes in Stockholders Equity
  Year
    EndedDecember 30,
    2006


December 31,
    2005


December 25,
    2004Amount


Amount


AmountAs
    restated


As
    restatedAccumulated deficit:Balance, beginning of year (as
    restated)

$
(106,208,823
)

$
(103,243,848
)

$
(99,086,791
)Net loss


(3,174,336
)


(2,264,300
)


(3,448,898
)Dividends on preferred stock


(137,858
)


(700,675
)


(708,159
)Balance, end of year

$
(109,521,017
)

$
(106,208,823
)

$
(103,243,848
)Accumulated other comprehensive
    income:Balance, beginning of year (as
    restated)

$
2,214,390


$
1,557,873


$
1,011,944Foreign currency translation
    adjustment


(51,491
)


656,517



545,929Balance, end of year

$
2,162,899


$
2,214,390


$
1,557,873Comprehensive income
    (loss):Net loss

$
(3,174,336
)

$
(2,264,300
)

$
(3,448,898
)Foreign currency translation
    adjustment


(51,491
)


634,845



545,929Comprehensive loss

$
(3,225,827
)

$
(1,629,455
)

$
(2,902,969
)   See accompanying notes to consolidated finanical
    statements
 41




---



##### 



HearUSA,
    Inc.
 Consolidated
    Statements of Cash Flows
  Year
    EndedDecember 30,


December 31,


December 25,2006


2005


2004As
    restated


As
    restatedCash flows from operating
    activitiesNet loss

$
(3,174,336
)

$
(2,264,300
)

$
(3,448,898
)Adjustments to reconcile net loss
    to net cash provided by (used in) operating activities:Debt discount amortization


2,693,727



2,540,120



2,127,054Depreciation and amortization


1,988,015



1,974,193



2,072,237Interest on Siemens Tranche C
    and Tranche D


1,130,112



964,361



655,568Employee stock-based compensation


976,290







Minority interest in income of
    consolidated subsidiary


632,606







Provision for doubtful accounts


379,527



354,107



430,454Loss from discontinued operations






63,553



550,696Consulting expense


27,749



26,969



12,672Principal payments on long-term
    debt made through preferred pricing reductions


(3,112,140
)


(2,922,537
)


(2,920,804
)Deferred tax expense


871,386



1,681,148



690,396Decrease in fair value of warrant
    liability


(319,310
)


(513,293
)


(Gain) loss on disposition of
    equipment


7,425



(50,650
)


53,836Executive compensation expense










8,250(Increase) decrease in:Accounts and notes receivable


(1,233,097
)


(982,851
)


(467,068
)Inventories


(767,070
)


(862,815
)


99,475Prepaid expenses and other


218,361



(606,766
)


636,835Increase (decrease) in:Accounts payable and accrued
    expenses


4,346,894



1,632,714



(361,241
)Accrued salaries and other
    compensation


233,254



595,860



261,810Net cash provided by continuing
    activities


4,899,393



1,629,813



401,272Net cash used in discontinued
    operations






(113,457
)


(356,598
)Net cash provided by operating
    activities


4,899,393



1,516,356



44,674Cash flows from investing
    activitiesPurchase of property and equipment


(1,199,820
)


(1,184,400
)


(342,767
)Capital expenditures from
    discontinued operations






(13,332
)


(39,906
)Proceeds from sale of discontinued
    operations






1,101,385



104,628Proceeds from redemption of
    certificates of deposit


226,386







Business acquisitions


(9,601,164
)


(1,589,411
)


Net cash used in investing
    activities


(10,574,598
)


(1,685,758
)


(278,045
)Cash flows from financing
    activitiesProceeds from issuance of long-term
    debt, net of financing cost of $252,000


7,539,428



5,000,000



Proceeds from subordinated notes,
    net of issuing cost of $330,000






5,170,000



Proceeds from convertible notes,
    net of issuing costs of $266,000










500,000Payments on long-term debt


(3,039,074
)


(1,708,256
)


(3,310,477
)Payments on subordinated notes


(1,760,000
)


(440,000
)


Payments on convertible
    subordinated notes


(1,250,000
)






Exchange and redemption of capital
    stock






(4,928,041
)


Proceeds from exercise of employee
    stock options


4,496



68,000



4,189Proceeds from the exercise of
    warrants






1,825,000



Dividends on preferred stock


(137,858
)


(770,196
)


(1,149,048
)Net cash provided by (used in)
    financing activities


1,356,992



4,216,507



(3,955,336
)   See accompanying notes to consolidated financial
    statements
 42




---



##### 



HearUSA,
    Inc.
 Consolidated Statements of Cash
    Flows
  Year
    EndedDecember 30,


December 31,


December 25,2006


2005


2004As
    restated


As
    restatedEffects of exchange rate changes
    on cash


(63,186
)


44,460



89,205Net increase (decrease) in cash
    and cash equivalents


(4,381,399
)


4,091,565



(4,099,502
)Cash and cash equivalents at
    beginning of year


6,706,944



2,615,379



6,714,881Cash and cash equivalents at end
    of year

$
2,325,545


$
6,706,944


$
2,615,379Supplemental disclosure of cash
    flow information:Cash paid for interest

$
1,200,346


$
1,244,049


$
1,263,473Supplemental schedule of
    non-cash investing and financing activities:Principal payments on long-term
    debt through preferred pricing reductions

$
(3,112,140
)

$
(2,922,537
)

$
(2,920,804
)Issuance of notes payable in
    exchange for business acquisitions

$
6,710,614


$
2,250,000


$
Issuance of capital lease in
    exchange for property and equipment

$
172,206


$
141,913


$
Purchase of equipment with volume
    discount credit

$



$



$
(158,800
)Conversion of accounts payable to
    notes payable

$
2,200,000


$



$
   See accompanying notes to consolidated financial
    statements
 43




---



##### 



HearUSA,
    Inc.

Notes to Consolidated Financial
    Statements  1.
    Description of
    the Company and Summary of Significant Accounting
    Policies  The
    Company
    Basis of
    Consolidation
      Revenue
    Recognition
      Foreign Currency
    Translation
   44




---



##### 



HearUSA,
    Inc.
 Notes to Consolidated Financial
    Statements  (Continued)
   Comprehensive
    Income (Loss)
    Fiscal
    year
  13-week
  Concentration of
    credit risk
    Allowance for
    doubtful accounts
    Inventories
  (first-in,
  Property and
    equipment
    Goodwill and
    other intangible assets
    Pre-opening
    costs
   45




---



##### 



HearUSA,
    Inc.
 Notes to Consolidated Financial
    Statements  (Continued)
   Long-lived
    assets  impairments and disposals
    Convertible
    Instruments, Warrants, Amortization of Debt Discount and Fair
    Value Determination
  No. 98-5 00-27 No. 98-5
  Subordinated
    Notes, Warrants, Amortization of Debt Discount and Fair Value
    Determination
  00-19,
  Convertible
    Instruments and Amortization of Debt Discount
  No. 98-5 00-27 No. 98-5
  Advertising
    Costs
   46




---



##### 



HearUSA,
    Inc.
 Notes to Consolidated Financial
    Statements  (Continued)
   Sales return
    policy
    Warranties
    Income
    taxes
    Net loss per
    common share
      Stock-based
    compensation
   47




---



##### 



HearUSA,
    Inc.
 Notes to Consolidated Financial
    Statements  (Continued)
        December 31,


December 25,2005


2004As
    restated


As
    restatedNet loss applicable to common
    stockholders as reported

$
(2,964,975
)

$
(4,157,057
)Deduct: Total stock-based employee
    compensation expense determined under fair value based method
    for all awards, net of tax effects


(1,529,000
)


(887,000
)Pro forma, net loss

$
(4,493,975
)

$
(5,044,057
)Loss per share-basicBasic and diluted-as reported

$
(0.09
)

$
(0.14
)Basic and diluted-pro forma

$
(0.14
)

$
(0.17
)       Year
    EndedDecember 30,


December 31,


December 25,2006


2005


2004Risk free interest rate


4.69
%


4.39
%


4.16
%Expected terms in years


10



5 - 10



5 - 10Expected volatility


86
%


96
%


92
%Weighted Average volatility


87
%


89
%


89
%    48




---



##### 



HearUSA,
    Inc.
 Notes to Consolidated Financial
    Statements  (Continued)
      Cash and Cash
    Equivalents
    Estimates
    Reclassifications
    2.
    Restatement of
    Consolidated Financial Statements         49




---



##### 



HearUSA,
    Inc.
 Notes to Consolidated Financial
    Statements  (Continued)
        As PreviouslyReported


Adjustments


As
    RestatedYear ended December 31,
    2005Income tax expense

$
(78,000
)


(1,681,148
)

$
(1,759,148
)Net loss from continuing operations


(519,599
)


(1,681,148
)


(2,200,747
)Net loss


(583,152
)


(1,681,148
)


(2,264,300
)Net loss applicable to common
    stockholders


(1,283,827
)


(1,681,148
)


(2,964,975
)Net loss from continuing
    operations, including dividends on preferred stock, applicable
    to common stockholders  basic and diluted

$
(0.04
)


(0.05
)

$
(0.09
)Net loss applicable to common
    stockholders per common share  basic and diluted

$
(0.04
)


(0.05
)

$
(0.09
)Year ended December 25,
    2004Income tax expense

$




(690,396
)

$
(690,396
)Net loss from continuing operations


(2,207,806
)


(690,396
)


(2,898,202
)Net loss


(2,758,502
)


(690,396
)


(3,448,898
)Net loss applicable to common
    stockholders


(3,466,661
)


(690,396
)


(4,157,057
)Net loss from continuing
    operations, including dividends on preferred stock, applicable
    to common stockholders  basic and diluted

$
(0.10
)


(0.02
)

$
(0.12
)Net loss applicable to common
    stockholders per common share  basic and diluted

$
(0.11
)


(0.03
)

$
(0.14
)Year ended December 27,
    2003Income tax expense

$




(390,000
)

$
(390,000
)Net loss from continuing operations


(539,562
)


(390,000
)


(929,562
)Net loss


(1,109,389
)


(390,000
)


(1,499,389
)Net loss applicable to common
    stockholders


(1,736,345
)


(390,000
)


(2,126,345
)Net loss from continuing
    operations, including dividends on preferred stock, applicable
    to common stockholders  basic and diluted

$
(0.04
)


(0.01
)

$
(0.05
)Net loss applicable to common
    stockholders per common share  basic and diluted

$
(0.06
)


(0.01
)

$
(0.07
) 50




---



##### 



HearUSA,
    Inc.
 Notes to Consolidated Financial
    Statements  (Continued)
  As PreviouslyReported


Adjustments


As
    RestatedYear ended December 28,
    2002Income tax expense

$




(195,000
)

$
(195,000
)Net loss from continuing operations


(6,551,665
)


(195,000
)


(6,746,665
)Net loss


(6,880,469
)


(195,000
)


(7,075,469
)Net loss applicable to common
    stockholders


(7,577,010
)


(195,000
)


(7,772,010
)Net loss from continuing
    operations, including dividends on preferred stock, applicable
    to common stockholders  basic and diluted

$
(0.32
)


(0.01
)

$
(0.33
)Net loss applicable to common
    stockholders per common share  basic and diluted

$
(0.34
)





$
(0.34
)Consolidated Balance Sheets:As of December 31,
    2005Goodwill

$
36,394,959



2,062,954


$
38,457,913Total assets

$
68,981,545



2,062,954


$
71,044,499Deferred income tax liability

$




5,068,003


$
5,068,003Total long-term liabilities

$
27,539,779



5,068,003


$
32,607,782Accumulated deficit

$
(103,252,279
)


(2,956,544
)

$
(106,208,823
)Accumulated other comprehensive
    income

$
2,262,895



(48,505
)

$
2,214,390Total stockholders equity

$
21,237,186



(3,005,049
)

$
18,232,137As of December 25,
    2004Goodwill

$
33,210,380



2,351,620


$
35,562,000Total assets

$
59,422,361



2,351,620


$
61,773,981Deferred income tax liability

$




3,708,984


$
3,708,984Total long-term liabilities

$
19,352,246



3,708,984


$
23,061,230Accumulated deficit

$
(101,968,452
)


(1,275,396
)

$
(103,243,848
)Accumulated other comprehensive
    income

$
1,639,838



(81,965
)

$
1,557,873Total stockholders equity

$
19,977,984



(1,357,364
)

$
18,620,620As of December 27,
    2003Goodwill

$
33,222,779



2,700,000


$
35,922,779Total assets

$
66,183,350



2,700,000


$
68,883,350Deferred income tax liability

$




3,285,000


$
3,285,000Total long-term liabilities

$
20,579,977



3,285,000


$
23,864,977Accumulated deficit

$
(98,501,791
)


(585,000
)

$
(99,086,791
)Total stockholders equity

$
22,813,312



(585,000
)

$
22,228,312As of December 28,
    2002Goodwill

$
32,613,726



2,700,000


$
35,313,726Total assets

$
64,996,870



2,700,000


$
67,696,870Deferred income tax liability

$




2,895,000


$
2,895,000 51




---



##### 



HearUSA,
    Inc.
 Notes to Consolidated Financial
    Statements  (Continued)
  As PreviouslyReported


Adjustments


As
    RestatedTotal long-term liabilities

$
22,082,389



2,895,000


$
24,977,389Accumulated deficit

$
(96,765,446
)


(195,000
)

$
(96,960,446
)Total stockholders equity

$
20,566,620



(195,000
)

$
20,371,620Consolidated Statements of Cash
    Flows:Year ended December 31,
    2005Cash flow from operating
    activities:Net loss

$
(583,152
)


(1,681,148
)

$
(2,264,300
)Deferred income tax

$




(1,681,148
)

$
(1,681,148
)Year ended December 25,
    2004Cash flow from operating
    activities:Net loss

$
(2,758,502
)


(690,396
)

$
(3,448,898
)Deferred income taxes

$




(690,396
)

$
(690,396
)Year ended December 27,
    2003Cash flow from operating
    activities:Net loss

$
(1,109,389
)


(390,000
)

$
(1,499,389
)Deferred income taxes

$




(390,000
)

$
(390,000
)Year ended December 28,
    2002Cash flow from operating
    activities:Net loss

$
(6,880,469
)


(195,000
)

$
(7,075,469
)Deferred income taxes

$




(195,000
)

$
(195,000
)   3.
    Restricted Cash
    and Cash Equivalents    4.
    Property and
    Equipment and Leases    Range of


December 30,


December 31,Useful
    Lives


2006


2005Equipment, furniture and fixtures


5-10 years


$
11,384,633


$
10,868,588Leasehold Improvements


5-10 years



7,928,330



7,665,710Computer systems


3 years



3,501,164



3,302,750Construction in progress


N/A



398,672



34,58323,212,799



21,871,631Less accumulated depreciation and
    amortization






19,334,236



18,434,195$
3,878,563


$
3,437,436  52




---



##### 



HearUSA,
    Inc.
 Notes to Consolidated Financial
    Statements  (Continued)
    Amount2007

$
1,119,0002008


1,027,0002009


692,0002010


512,0002011


330,000Thereafter


190,000       Amount2007

$
5,387,0002008


4,667,0002009


3,505,0002010


2,657,0002011


1,047,000Thereafter


1,603,000   5.
    Goodwill and
    Intangible Assets    December 31,





Deferred Tax


Currency


December 302005


Additions


Adjustments


Translation


2006As
    restatedCenters

$
37,578,000


$
13,310,000


$
(723,000
)

$
(74,000
)

$
50,091,000Network


880,000















880,000$
38,458,000


$
13,310,000


$
(723,000
)

$
(74,000
)

$
50,971,000   December 25,





Deferred Tax


Currency


December 25,2004


Additions


Adjustments


Translation


2005As
    restated





As
    restated


As
    restated


As
    restatedCenters

$
34,682,000


$
2,806,000


$
(346,000
)

$
436,000


$
37,578,000Network


880,000















880,000$
35,562,000


$
2,806,000


$
(346,000
)

$
436,000


$
38,458,000  53




---



##### 



HearUSA,
    Inc.
 Notes to Consolidated Financial
    Statements  (Continued)
    December 30,


December 31,2006


2005Amortizable intangible assets:Customer lists

$
8,946,000


$
6,360,000Non-Compete agreements


354,000



36,000Computer software


1,542,000



1,504,000Accumulated
    amortization  customer list


(3,154,000
)


(2,384,000
)Accumulated
    amortization  non-compete


(46,000
)


(5,000
)Accumulated
    amortization  computer software


(1,483,000
)


(1,467,000
)Amortizable intangible assets, net


6,159,000



4,044,000Trademark and trade names


7,411,000



7,411,000Intellectual property


22,000



22,000$
13,592,000


$
11,477,000       Amount2007

$
777,0002008


746,0002009


688,0002010


590,0002011


367,000Thereafter


2,991,000   6.
    Business
    Acquisitions       54




---



##### 



HearUSA,
    Inc.
 Notes to Consolidated Financial
    Statements  (Continued)
          December 30,


December 31,2006


2005(Unaudited)


(Unaudited)Total revenue

$
98,000,000


$
91,000,000Net loss applicable to common
    stockholders

$
(1,947,000
)

$
(1,957,000
)Net loss applicable to common
    stockholders per share  basic and diluted

$
(0.06
)

$
(0.06
)   7.
    Long-term Debt
    (also see Notes 6, 8 and 9)    December 30,


December 31,2006


2005Notes payable to a SiemensTranche A

$



$
2,239,851Tranche B


3,543,250



Tranche C


23,996,964



20,875,256Tranche D


2,200,000



Total notes payable to Siemens


29,740,214



23,115,107Notes payable from business
    acquisitions and others


7,249,643



2,047,10036,989,857



25,162,207Less current maturities


8,390,988



5,192,108$
28,598,869


$
19,970,099  55




---



##### 



HearUSA,
    Inc.
 Notes to Consolidated Financial
    Statements  (Continued)
    Amount2007

$
8,391,0002008


5,700,0002009


5,100,0002010


4,166,0002011


3,537,000Thereafter


10,096,000   Notes payable to Siemens
           56




---



##### 



HearUSA,
    Inc.
 Notes to Consolidated Financial
    Statements  (Continued)
    2006


2005


2004Portion applied against quarterly
    principal payments

$
3,112,000


$
2,923,000


$
2,921,000Portion applied against quarterly
    interest payments


626,000



389,000



720,000Preferred pricing reductions
    recorded as a reduction of cost of products sold

$
3,738,000


$
3,312,000


$
3,641,000            57




---



##### 



HearUSA,
    Inc.
 Notes to Consolidated Financial
    Statements  (Continued)
   EITF 94-18, Line-of-Credit Revolving-Debt EITF 94-18,
  No. 98-5 00-27 No. 98-5
  Notes payable from business acquisitions and other
    8.
    Convertible
    Subordinated Notes       58




---



##### 



HearUSA,
    Inc.
 Notes to Consolidated Financial
    Statements  (Continued)
       9.
    Subordinated
    Notes and Warrant Liability         59




---



##### 



HearUSA,
    Inc.
 Notes to Consolidated Financial
    Statements  (Continued)
       10.
    Mandatorily
    Redeemable Convertible Preferred Stock        11.
    Stockholders
    Equity  A.
    Private
    Placement    B.
    Stock
    Subscription   60




---



##### 



HearUSA,
    Inc.
 Notes to Consolidated Financial
    Statements  (Continued)
    C.
    Series J
    Preferred Stock          D.
    Shareholder
    Rights Plan       61




---



##### 



HearUSA,
    Inc.
 Notes to Consolidated Financial
    Statements  (Continued)
    E.
    Series H
    Junior Participating Preferred Stock    F. Exchangeable
    Rights Plan
    G. Warrants
        Outstanding

Expiration

ExerciseWarrants

Date

Price2,759,893


2008


1.75240,000


2010


1.25560,000


2010


1.311,554,960


2010


2.005,114,853   H.
    Aggregate and Per
    Share Cumulative Preferred Dividends   62




---



##### 



HearUSA,
    Inc.
 Notes to Consolidated Financial
    Statements  (Continued)
  I.
    Exchangeable
    Shares  winding-up
  12.
    Stock-based
    Benefit Plans  A.
    Stock Options and
    Awards        Impact of the Adoption of SFAS 123(R)
   63




---



##### 



HearUSA,
    Inc.
 Notes to Consolidated Financial
    Statements  (Continued)
   Stock-based Payment Award Activity
    WeightedAverageWeighted


RemainingAverage


Contractual
    Term


AggregateShares


Exercise


(in
    years)


Intrinsic
    ValueOutstanding at December 31,
    2005


5,406,270


$
1.38Granted


325,000


$
1.46Exercised


(6,650
)

$
0.68Forfeited/expired/cancelled


(406,197
)

$
2.52Outstanding at December 30,
    2006


5,318,423


$
1.30



6.86


$
1,481,000Exercisable at December 30,
    2006


3,107,173


$
1.33



6.19


$
1,124,000   in-the-money
    Options
    Outstanding


Options
    ExercisableWeightedAverage


Average





Weighted
    AverageNumber


Remaining


Exercise





ExerciseRange of Exercise
    Price


Outstanding


Contractual
    Life


Price


Number
    Exercisable


Price$0.35 - $  .77



1,567,810



5.87


$
0.44



1,191,560


$
0.44$ .78 - $ 2.00



3,370,400



7.69


$
1.37



1,572,900


$
1.33$2.01 - $ 5.40



300,721



4.24


$
3.18



263,221


$
3.30$5.41 - $ 8.75



68,632



1.25


$
6.94



68,632


$
6.94$8.76 - $18.75



10,860



.71


$
16.64



10,860


$
16.645,318,423











3,107,173   B.
    Non-Employee
    Director Non-Plan Grant    13.
    Major Customers
    and Suppliers     64




---



##### 



HearUSA,
    Inc.
 Notes to Consolidated Financial
    Statements  (Continued)
    14.
    Related Party
    Transactions    15.
    Income
    Taxes    2006


2005


2004Current:Federal

$



$



$
State


(129,000
)

$
78,000



Foreign










Current income tax provision
    (benefit)

$
(129,000
)

$
78,000


$
Deferred:Federal deferred

$
438,000


$
1,335,000


$
390,000State deferredForeign deferred


415,000



327,000



300,000Deferred income tax provision

$
853,000


$
1,662,000


$
690,000Benefit applied to reduce
    goodwill  foreign


18,000



19,000



Total income tax provision

$
742,000


$
1,759,000


$
690,000     2006


2005


2004As restated


As restatedDomestic

$
(2,962,000
)

$
(1,340,000
)

$
(3,142,000
)Foreign


1,162,000



898,000



934,000Total loss from continuing
    operations

$
(1,800,000
)

$
(442,000
)

$
(2,208,000
)    65




---



##### 



HearUSA,
    Inc.
 Notes to Consolidated Financial
    Statements  (Continued)
     2006


2005Deferred income tax assets:Fixed assets depreciation

$
1,241,000


$
1,289,000Employee stock-based compensation


352,000



Inventory costs


199,000



193,000Joint venture


251,000



593,000Accruals not currently deductible


347,000



312,000Allowance for doubtful accounts


144,000



142,000Contributions carryforward


34,000



32,000Section 1231 loss carryforward


73,000



Net operating loss carryforwards


28,341,000



27,316,000Total deferred tax assets


30,982,000



29,877,000Less valuation allowance


(29,639,000
)


(27,764,000
)Net deferred tax assets

$
1,343,000


$
2,113,000Deferred income tax liabilities:Amortization of definite lived
    intangibles

$
(656,000
)

$
(829,000
)Amortization of indefinite lived
    intangibles


(2,200,000
)


(2,200,000
)Amortization of goodwill for tax
    purposes


(2,748,000
)


(2,310,000
)Beneficial conversion feature


(687,000
)


(1,284,000
)Total deferred tax liabilities


(6,291,000
)


(6,623,000
)Net deferred income tax liability

$
(4,948,000
)

$
(4,510,000
)     2006


2005Deferred income tax assets:Fixed assets depreciation

$
583,000


$
617,000Net loss carryforwards


67,000



384,000Other


30,000



32,000Capital loss carryforwards


4,901,000



4,928,000Total deferred tax assets


5,581,000



5,961,000Less: valuation allowance


(4,901,000
)


(5,648,000
)Net deferred tax assets

$
680,000


$
313,000Deferred income tax liabilities:Amortizable intangible assets

$
(267,000
)

$
(313,000
)Amortizable indefinite lived
    intangibles and goodwill


(632,000
)


(558,000
)Total deferred income tax liability


(899,000
)


(871,000
)Net deferred income tax liability

$
(219,000
)

$
(558,000
)  66




---



##### 



HearUSA,
    Inc.
 Notes to Consolidated Financial
    Statements  (Continued)
    Current deferred tax
    assets  Canada

$
67,000


$
Long term deferred tax
    liabilities  United States


(4,948,000
)


(4,510,000
)Long term deferred tax
    liabilities  Canada


(286,000
)


(558,000
)$
(5,167,000
)

$
(5,068,000
)            67




---



##### 



HearUSA,
    Inc.
 Notes to Consolidated Financial
    Statements  (Continued)
     2006


2005


2004As
    restated


As
    restatedBenefit at Federal statutory rate

$
(612,000
)

$
(151,000
)

$
(751,000
)State income taxes, net of Federal
    income tax effect


(116,000
)


(64,000
)


(111,000
)Nondeductible expenses (nontaxable
    income)


(82,000
)


(148,000
)


29,000Effect of foreign earnings


(12,000
)


(9,000
)


(9,000
)Change in valuation allowance


1,128,000



678,000



1,321,000Recording deferred tax liability
    on goodwill


438,000



1,335,000



390,000Other


(2,000
)


118,000



(179,000
)Income tax expense

$
742,000


$
1,759,000


$
690,000       2006


2005


2004As
    restated


As
    restatedBalance at beginning of the year

$
33,412,000


$
32,734,000


$
31,413,000Additions to valuation allowance


1,128,000



678,000



1,321,000Balance at end of year

$
34,540,000


$
33,412,000


$
32,734,000   16.
    Commitments and
    Contingencies       68




---



##### 



HearUSA,
    Inc.
 Notes to Consolidated Financial
    Statements  (Continued)
  17.
    Quarterly
    Financial Data (Restated) (Unaudited) (See Note 2)  Year Ended

First


Second


Third


FourthDecember 30,
    2006

Quarter


Quarter


Quarter


QuarterRestated


Restated


RestatedNet revenues

$
21,657,314


$
22,257,012


$
22,041,520


$
22,830,347Operating costs and expenses


19,984,020



20,627,658



21,637,060



22,728,732Income from operations


1,673,294



1,629,354



404,460



101,615Net income (loss) applicable to
    common stockholders :Original

$
270,029


$
185,858


$
(1,509,843
)

$
(1,571,473
)Effect of adjustment for changes
    in income taxes


(229,060
)


(285,671
)


(172,034
)


Restated

$
40,969


$
(99,813
)

$
(1,681,877
)

$
(1,571,473
)Net income (loss) from continuing
    operations, including dividends on preferred stock, applicable
    to common stockholders- basic:Original

$
0.01


$
0.01


$
(0.05
)

$
(0.05
)Restated

$
0.00


$
0.00


$
(0.05
)

$
(0.05
)Net income (loss) from continuing
    operations, including dividends on preferred stock, applicable
    to common stockholders- diluted:Original

$
0.01


$
0.00


$
(0.05
)

$
(0.05
)Restated

$
0.00


$
0.00


$
(0.05
)

$
(0.05
)Net income (loss) applicable to
    common stockholders per common share  basic:Original

$
0.01


$
0.01


$
(0.05
)

$
(0.05
)Restated

$
0.00


$
0.00


$
(0.05
)

$
(0.05
)Net income (loss) applicable to
    common stockholders per common share   diluted:Original

$
0.01


$
0.00


$
(0.05
)

$
(0.05
)Restated

$
0.00


$
0.00


$
(0.05
)

$
(0.05
)   69




---



##### 



HearUSA,
    Inc.
 Notes to Consolidated Financial
    Statements  (Continued)
  Year Ended

First


Second


Third


FourthDecember 31,
    2005

Quarter


Quarter


Quarter


QuarterRestated


Restated


Restated


RestatedNet revenues

$
19,030,585


$
19,058,460


$
19,615,555


$
18,967,403Operating costs and expenses


18,015,611



17,863,348



18,353,874



18,724,254Income from operations


1,014,974



1,195,112



1,261,681



243,149Net income (loss) applicable to
    common stockholders:Original

$
(445,068
)

$
154,076


$
(164,453
)

$
(828,382
)Effect of adjustment for changes
    in income taxes


(199,441
)


(1,160,615
)


(142,786
)


(178,306
)Restated

$
(644,509
)

$
(1,006,539
)

$
(307,239
)

$
(1,006,688
)Net income (loss) from continuing
    operations, including dividends on preferred stock, applicable
    to common stockholders-basic and diluted:Original

$
(0.01
)

$
0.00


$
(0.00
)

$
(0.03
)Restated

$
(0.02
)

$
(0.04
)

$
(0.00
)

$
(0.03
)Net income (loss) applicable to
    common stockholders per common share-basic and diluted:Original

$
(0.01
)

$
0.00


$
(0.00
)

$
(0.03
)Restated

$
(0.02
)

$
(0.03
)

$
(0.01
)

$
(0.03
)   70




---



##### 



HearUSA,
    Inc.
 Notes to Consolidated Financial
    Statements  (Continued)
  Year Ended

First


Second


Third


FourthDecember 25,
    2004

Quarter


Quarter


Quarter


QuarterRestated


Restated


Restated


RestatedNet revenues

$
16,048,307


$
17,190,923


$
17,535,395


$
17,974,917Operating costs and expenses


16,228,093



16,713,585



16,316,981



17,152,503Income from operations


(179,786
)


477,338



1,218,414



822,414Net loss applicable to common
    stockholdersOriginal

$
(1,615,869
)

$
(948,008
)

$
(233,413
)

$
(669,371
)Effect of adjustment for changes
    in income taxes


(161,983
)


(163,818
)


(186,140
)


(178,455
)Restated

$
(1,777,852
)

$
(1,111,826
)

$
(419,553
)

$
(847,826
)Net loss from continuing
    operations, including dividends on preferred stock, applicable
    to common stockholders- basic and diluted:Original

$
(0.05
)

$
(0.03
)

$
(0.01
)

$
(0.02
)Restated

$
(0.06
)

$
(0.04
)

$
(0.01
)

$
(0.01
)Net loss applicable to common
    stockholders per common share - basic and diluted:Original

$
(0.05
)

$
(0.03
)

$
(0.01
)

$
(0.02
)Restated

$
(0.06
)

$
(0.04
)

$
(0.01
)

$
(0.03
)   18.
    Fair Value of
    Financial Instruments  and/or
   71




---



##### 



HearUSA,
    Inc.
 Notes to Consolidated Financial
    Statements  (Continued)
     December 30,
    2006


December 31,
    2005Book
    Value


Fair
    Value


Book
    Value


Fair
    ValueLong-term debt


36,990,000



36,409,000



25,162,000


$
24,974,000Convertible subordinated notes


4,769,000



6,208,000



4,087,000


$
7,273,000Subordinated notes


2,788,000



3,290,000



3,679,000


$
4,943,000   19.
    Recent Accounting
    Pronouncements        00-19-2, 00-19-2), 00-19-2,
 72




---



##### 



HearUSA,
    Inc.
 Notes to Consolidated Financial
    Statements  (Continued)
  00-19-2,
    20.
    Discontinued
    Operations        2005


2004Net revenues of discontinued
    operations

$
1,825,000


$
3,551,000Pre-tax net losses of discontinued
    operations

$
396,000


$
551,000Net loss from discontinued
    operations applicable to common stockholders-basis and diluted

$
(0.00
)

$
(0.02
)  73




---



##### 



HearUSA,
    Inc.
 Notes to Consolidated Financial
    Statements  (Continued)
  21.
    Segments  e-commerce E-commerce
  Centers


E-commerce


Network


Corporate


TotalHearing aids and other products
    revenues2006

$
82,769,000


$
51,000










$
82,820,0002005

$
71,365,000


$
80,000










$
71,445,0002004

$
63,149,000


$
79,000










$
63,228,000Service revenues2006

$
4,371,000






$
1,596,000






$
5,967,0002005

$
3,805,000






$
1,422,000






$
5,227,0002004

$
4,413,000






$
1,109,000






$
5,522,000Income (loss) from
    operations2006

$
17,233,000


$
(188,000
)

$
966,000


$
(14,202,000
)

$
3,809,0002005

$
15,221,000


$
(105,000
)

$
549,000


$
(11,950,000
)

$
3,715,0002004

$
12,310,000


$
(27,000
)

$
447,000


$
(10,392,000
)

$
2,338,0002006Depreciation and amortization


1,788,000







3,000



197,000



1,988,000Total assets


66,362,000







971,000



15,943,000



83,276,000Capital expenditures


667,000











533,000



1,200,0002005 (As restated)Depreciation and amortization


1,764,000







5,000



205,000



1,974,000Total assets


52,181,000







1,131,000



17,732,000



71,044,000Capital expenditures


970,000











228,000



1,198,0002004 (As restated)Depreciation and amortization


1,893,000







5,000



174,000



2,072,000Total assets


49,593,000







1,722,000



10,459,000



61,774,000Capital expenditures


318,000







3,000



62,000



383,000  74




---



##### 



HearUSA,
    Inc.
 Notes to Consolidated Financial
    Statements  (Continued)
    2006


2005


2004Hearing aid revenues


95.9
%


95.5
%


94.6
%Other products revenues


4.1
%


4.5
%


5.4
%     2006


2005


2004Hearing aid repairs


51.7
%


53.4
%


50.1
%Testing and other income


48.3
%


46.6
%


49.9
%     2006


2005


2004General and administrative expense

$
14,005,000


$
11,745,000


$
10,218,000Depreciation and amortization


197,000



205,000



174,000Corporate loss from
    operations

$
14,202,000


$
11,950,000


$
10,392,000     As of and for the
    Years Ended December 30, 2006 and December 31, 2005
  United States


Canada


United States


Canada2006


2006


2005


2005$


$


$


$As
    restated


As
    restatedHearing aid and other product
    revenues


73,542,000



9,278,000



63,500,000



7,945,000Service revenues


5,539,000



428,000



4,835,000



392,000Long-lived assets


58,071,000



11,451,000



44,218,000



10,171,000Total assets


69,995,000



13,281,000



58,412,000



12,632,000     22.
    Liquidity     75




---



##### 



HearUSA,
    Inc.
 Notes to Consolidated Financial
    Statements  (Continued)
     76




---



##### 



HearUSA
    Inc.
 Schedule II 
    Valuation and Qualifying Accounts  Restated
  Balance at








Balance atBeginning








Endof
    Period


Additions


Deductions


of
    PeriodDecember 30, 2006Allowance for doubtful accounts

$
413,386


$
379,527


$
(358,815
)

$
434,098Allowance for sales returns(1)

$
440,585


$
96,945


$
(94,165
)

$
443,365Valuation allowance  US

$
27,764,000


$
1,875,000


$



$
29,639,000Valuation allowance 
    foreign

$
5,648,000


$



$
(747,000
)

$
4,901,000December 31, 2005Allowance for doubtful accounts

$
373,583


$
354,107


$
(314,304
)

$
413,386Allowance for sales returns(1)

$
425,116


$
17,287


$
(1,818
)

$
440,585Valuation allowance

$
27,098,000


$
666,000


$



$
27,764,000Valuation allowance 
    foreign

$
5,636,000


$
12,000


$



$
5,648,000December 25, 2004Allowance for doubtful accounts

$
490,881


$
430,454


$
(547,752
)

$
373,583Allowance for sales returns

$
445,147


$
71,061


$
(91,092
)

$
425,116Valuation allowance

$
25,909,000


$
1,189,000


$



$
27,098,000Valuation allowance 
    foreign

$
5,502,000


$
132,000


$



$
5,636,000   (1)
    
    Allowance for sales returns is included in accounts payable on
    the Consolidated Balance Sheets.  Item 9.
    Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure    Item 9A.
    Controls and
    Procedures  Form 10-K, Rules 13a-15(e) 15d-15(e) Form 10-K,
  Item 9B.
    Other
    Information   77




---



##### 



PART III
  Item 10.
    Directors and
    Executive Officers of the Registrant      Item 11.
    Executive
    Compensation    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters      Equity
    Compensation Plan Information
  Number of
    SecuritiesRemaining
    AvailableNumber of
    Securities





for Future
    Issuanceto be Issued Upon


Weighted-Average


Under EquityExercise of


Exercise Price of


Compensation
    PlansOutstanding
    Options,


Outstanding
    Options,


(Excluding
    SecuritiesWarrants and
    Rights


Warrants and
    Rights


Reflected in
    ColumnPlan
    Category


(a)


(b)


(a))Equity compensation plansapproved by security holders



5,198,423



$
1.32




132,500(1
)Equity compensation plans notapproved by security holders



225,000



$
0.87




Total equity compensationplans approved and not approvedby security holders



5,423,423



$
131




132,500(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 1996, 1999, 2001 and 2003 and non-employee director
    options granted under the Non-Employee Director Plan (see
    Note 12B) and outside of the Non- Employee Director Plan in
    2003. 78




---



##### 



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      (i)
    Consolidated Balance Sheets as of December 30, 2006 and
    December 31, 2005. Consolidated Statements of Operations
    for the years ended December 30, 2006, December 31,
    2005 and December 25, 2004.  (ii)
    Consolidated Statements of Changes in Stockholders Equity
    for the years ended December 30, 2006, December 31,
    2005 and December 25, 2004.  (iii)
    Consolidated Statements of Cash Flows for the years ended
    December 30, 2006, December 31, 2005 and
    December 25, 2004.  (iv)
    Notes to Consolidated Financial Statements 79




---



##### 



Schedule II Valuation
    and Qualifying Accounts
    2
.1

Plan of Arrangement, including
    exchangeable share provisions (incorporated herein by reference
    to Exhibit 2.3 to the 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
    for the quarter ended June 26, 2004).3
.10

Amended and Restated By-Laws of
    HearUSA, Inc. (effective May 9, 2005) (incorporated herein
    by reference to Exhibit 3.1 to the Companys Current
    Report on
    Form 8-K,
    filed May 13, 2005).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 to 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 to Exhibit 99.3 to the
    Companys Joint Proxy Statement/Prospectus on
    Form S-4
    (Reg
    No. 333-73022)). 80




---



##### 



4
.3

Form of 2003 Convertible
    Subordinated Note due November 30, 2008 (incorporated
    herein by reference to 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 to 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 to 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 to 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))#10
.3

1995 Flexible Employee Stock Plan
    (incorporated herein by reference to Exhibit 4 to the
    Companys 1995 Proxy Statement)#10
.4

Employment Agreement, dated
    August 31, 2005 with Dr. Paul A. Brown (incorporated
    herein by reference to Exhibit 10.1 to the Companys
    Quarterly Report on
    Form 10-Q,
    for the quarter ended October 1, 2005.)#10
.5

Employment Agreement, dated
    August 31, 2005 with Stephen J. Hansbrough (incorporated
    herein by reference to Exhibit 10.2 to the Companys
    Quarterly Report on
    Form 10-Q,
    for the quarter ended October 1, 2005.)#10
.6

Employment Agreement, dated
    August 31, 2005 with Gino Chouinard (incorporated herein by
    reference to Exhibit 10.3 to the Companys Quarterly
    Report on
    Form 10-Q,
    for the quarter ended October 1, 2005.)#10
.7

Employment Agreement, dated
    August 31, 2005 with Ken Schofield (incorporated herein by
    reference to Exhibit 10.4 to the Companys Quarterly
    Report on
    Form 10-Q,
    for the quarter ended October 1, 2005.)#10
.8

Form of Change in Control
    Agreement (incorporated herein by reference to Exhibit 10.5
    to the Companys Quarterly Report on
    Form 10-Q
    for the quarter ended October 1, 2005.)#10
.9

Credit Agreement, dated
    December 7, 2001 between HEARx Ltd and Siemens Hearing
    Instruments, Inc (incorporated herein by reference to
    Exhibit 10.1 to the Companys Current Report on
    Form 8-K,
    filed December 26, 2001)10
.10

Security Agreement, dated
    December 7, 2001 between HEARx Ltd and Siemens Hearing
    Instruments, Inc (incorporated herein by reference to
    Exhibit 10.2 to the Companys Current Report on
    Form 8-K,
    December 26, 2001)10
.11

Supply Agreement, dated
    December 7, 2001 between HEARx Ltd and Siemens Hearing
    Instruments, Inc (incorporated herein by reference to
    Exhibit 10.3 to the Companys Current Report on
    Form 8-K,
    December 26, 2001)10
.12

HearUSA 2002 Flexible Stock Plan
    (incorporated herein by reference to Exhibit 10.9 to the
    Companys Joint Proxy Statement/Prospectus on
    Form S-4
    (Reg.
    No. 333-73022)#10
.13

Amendment to Security Agreement,
    dated March 12, 2003 between HearUSA, Inc. and Siemens
    Hearing Instruments, Inc. (incorporated herein by reference to
    Exhibit 10.2 to the Companys Form 10Q for the
    period ended March 29, 2003).10
.14

Amendment to Credit Agreement,
    dated March 12, 2003 between HearUSA, Inc. and Siemens
    Hearing Instruments, Inc. (incorporated herein by reference to
    Exhibit 10.1 to the Companys
    Form 10-Q
    for the period ended March 29, 2003).10
.15

Purchase Agreement dated
    August 19, 2005 by and among HearUSA, Inc. and the
    purchasers named therein (incorporated by reference to
    Exhibit 10.1 to the Companys Registration Statement
    on
    Form S-3/A
    filed October 7, 2005). 81




---



##### 



10
.16

Form of Registration Rights
    Agreement by and among HearUSA, Inc. and the purchasers named in
    the Purchase Agreement dated August 19, 2005 (incorporated
    by reference to Exhibit 10.2 to the Companys
    Registration Statement on
    Form S-3/A
    filed October 7, 2005).10
.17

Asset Purchase Agreement dated
    June 15, 2005, between HearUSA, Inc. and Sonus-USA, Inc.
    (incorporated herein by reference to Exhibit 10.5 to the
    Companys Quarterly Report on
    Form 10-Q
    for the quarter ended July 2, 2005).10
.18

Amended and Restated Security
    Agreement, dated February 10, 2006 between HearUSA, Inc.
    and Siemens Hearing Instruments, Inc. (incorporated herein by
    reference to Exhibit 10.2 to the Companys
    Form 10Q for the period ended April 1, 2006).10
.19

Amended and Restated Credit
    Agreement, dated February 10, 2006 between HearUSA, Inc.
    and Siemens Hearing Instruments, Inc. (incorporated herein by
    reference to Exhibit 10.1 to the Companys
    Form 10-Q
    for the period ended April 1, 2006 ).10
.20

Amended and Restated Supply
    Agreement, dated February 10, 2006 between HearUSA, Inc.
    and Siemens Hearing Instruments, Inc. (incorporated herein by
    reference to Exhibit 10.3 to the Companys
    Form 10Q for the period ended April 1, 2006).*10
.21

Amendment No. 1 to Amended
    and Restated Security Agreement, dated December 30, 2006
    between HearUSA, Inc. and Siemens Hearing Instruments, Inc.10
.22

Second Amended and Restated Credit
    Agreement, dated December 30, 2006 between HearUSA, Inc.
    and Siemens Hearing Instruments, Inc.10
.23

Amended and Restated Supply
    Agreement, dated December 30, 2006 between HearUSA, Inc.
    and Siemens Hearing Instruments, Inc.*10
.24

Investor Rights Agreement by and
    among HearUSA, Inc. and Siemens Hearing Instruments, Inc. dated
    December 30, 200621


List of Subsidiaries23


Consent of the Independent Public
    Accountants31
.1

CEO Certification, pursuant to
    Section 30 2of the Sarbanes-Oxley Act of 200231
.2

CFO Certification, pursuant to
    Section 302 of the Sarbanes-Oxley Act of 200232


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.*
    
    Confidential treatment has been requested for portions of this
    agreement 82




---



##### 



SIGNATURES
    
   By:
    /s/  Stephen
    J. Hansbrough       Signature

Title

Date/s/  Paul
    A. BrownPaul
    A. Brown, M.D.

Chairman of the
    Board and Director

April 6, 2007/s/  Stephen
    J.
    HansbroughStephen
    J. Hansbrough

Chief Executive 
    Officer and Director

April 6, 2007/s/  Gino
    ChouinardGino
    Chouinard

Chief Financial Officer

April 6, 2007/s/  David
    J.
    McLachlanDavid
    J. McLachlan

Director

April 6, 2007/s/  Thomas
    W.
    ArchibaldThomas
    W. Archibald

Director

April 6, 2007/s/  Joseph
    L. Gitterman
    IIIIJoseph
    L. Gitterman III

Director

April 6, 2007/s/  Michel
    LabadieMichel
    Labadie

Director

April 6, 2007/s/  Bruce
    BagniBruce
    Bagni

Director

April 6, 2007  83