10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 1, 2005

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	(I.R.S. Employer
Incorporation or Organization)	Identification No.)
1250 Northpoint Parkway, West Palm Beach, Florida	33407
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s Telephone Number, Including Area Code (561) 478-8770

Former Name, Former Address and Former Fiscal Year,

if Changed Since Last Report

          Indicate by check þ whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes þ No o

          Indicate by check þ whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

          Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No o

On October 28, 2005, 31,218,851 shares of the Registrant’s Common Stock and 841,051 exchangeable shares of HEARx Canada, Inc. were outstanding.

INDEX

			Page
PART I.		FINANCIAL INFORMATION
	Item 1.	Financial Statements:
		Consolidated Balance Sheets
		October 1, 2005 and December 25, 2004	3
		Consolidated Statements of Operations
		Nine months ended October 1, 2005 and September 25, 2004	4
		Consolidated Statements of Operations
		Three months ended October 1, 2005 and September 25, 2004	5
		Consolidated Statements of Cash Flows
		Nine months ended October 1, 2005 and September 25, 2004	6
		Notes to Consolidated Financial Statements	8
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
	Item 4.	Controls and Procedures	24
PART II.		OTHER INFORMATION
	Item 6.	Exhibits	25
		Signatures	26

2

Part I — Financial Information

Item 1. Financial Statements

HearUSA, Inc.
Consolidated Balance Sheets

	October 1,			December 25,
	2005			2004
	(unaudited)			(audited)
ASSETS
Current assets
Cash and cash equivalents	$	3,152,769		$	2,615,379
Restricted cash and investment securities		431,000			435,000
Accounts and notes receivable, less allowance for doubtful accounts of $381,528 and $373,583		6,620,397			5,876,699
Inventories		904,785			801,234
Prepaid expenses and other		1,409,031			557,435
Current assets held for sale (Note 2)		—			77,458
Total current assets		12,517,982			10,363,205
Property and equipment, net		3,312,972			3,346,788
Goodwill (Note 3)		36,282,984			33,210,380
Intangible assets, net		11,492,728			11,094,169
Deposits and other		617,389			551,148
Long-term assets held for sale (Note 2)		—			736,125
	$	64,224,055		$	59,301,815
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	7,546,049		$	6,644,600
Accrued expenses		2,129,025			2,303,601
Accrued salaries and other compensation		2,189,945			1,982,559
Current maturities of long-term debt		4,664,454			4,152,908
Dividends payable		34,561			177,996
Current maturities of subordinated notes		1,760,000			—
Current maturities of convertible subordinated notes		1,875,000			—
Total current liabilities		20,199,034			15,261,664
Long-term debt		16,335,592			17,296,125
Subordinated notes, net of debt discount of $1,662,799 (Note 7)		2,077,201			—
Warrant liability (Note 7)		1,794,702			—
Convertible subordinated notes, net of debt discount of $3,919,759 and $5,443,879 (Note 5)		1,705,241			2,056,121
Total long-term debt, subordinated notes, warrant liability and convertible subordinated notes		21,912,736			19,352,246
Commitments and contingencies		—			—
Mandatorily redeemable convertible preferred stock (Series E) (Note 6)		—			4,709,921
Stockholders’ equity
Preferred stock (Aggregate liquidation preference $2,330,000; $1 par, 7,500,000 shares authorized)
Series H Junior Participating (none outstanding)		—			—
Series J (233 shares outstanding)		233			233
Total preferred stock		233			233
Common stock: $.10 par; 75,000,000 shares authorized 31,742,510 and 30,060,690 shares issued		3,174,251			3,006,069
Stock subscription		(412,500	)		(412,500	)
Additional paid-in capital		121,908,793			120,197,937
Accumulated deficit		(102,344,377	)		(101,968,452	)
Accumulated other comprehensive income		2,271,026			1,639,838
Treasury stock, at cost: 523,662 and 523,662 common shares		(2,485,141	)		(2,485,141	)
Total stockholders’ equity		22,112,285			19,977,984
	$	64,224,055		$	59,301,815

See accompanying notes to the consolidated financial statements

3

HearUSA, Inc.
Consolidated Statements of Operations
Nine Months Ended October 1, 2005 and September 25, 2004

	October 1,			September 25,
	2005			2004
	(unaudited)			(unaudited)
Net revenues
Hearing aids and other products	$	53,706,549		$	46,617,220
Services		3,995,852			4,157,405
Total net revenues		57,702,401			50,774,625
Operating costs and expenses
Hearing aids and other products		15,692,130			12,835,926
Services		1,342,226			1,305,112
Total cost of products sold and services		17,034,356			14,141,038
Clinic operating expenses		26,929,214			26,005,198
General and administrative expenses		8,848,091			7,534,233
Depreciation and amortization		1,446,203			1,578,190
Total operating costs and expenses		54,257,864			49,258,659
Income from operations		3,444,537			1,515,966
Non-operating income (expense):
Gain from insurance proceeds		430,122			—
Interest income		52,180			11,045
Interest expense (including approximately $1,759,000 and $1,595,000 of non-cash debt discount amortization) (Notes 5 and 7)		(3,595,147	)		(3,467,304	)
Income (loss) from continuing operations		331,692			(1,940,293	)
Discontinued operations (Note 2):
Gain on disposition of assets		365,158			—
Loss from discontinued operations		(406,662	)		(326,169	)
Net loss from discontinued operations		(41,504	)		(326,169	)
Net income (loss)		290,188			(2,266,462	)
Dividends on preferred stock (Note 6)		(666,113	)		(530,828	)
Net loss applicable to common stockholders	$	(375,925	)	$	(2,797,290	)
Net loss from continuing operations, including dividends on preferred stock, per common share — basic and diluted	$	(0.01	)	$	(0.08	)
Net loss applicable to common stockholders per common share — basic and diluted	$	(0.01	)	$	(0.09	)
Weighted average number of shares of common stock outstanding — basic and diluted		31,452,690			30,425,804

See accompanying notes to the consolidated financial statements

4

HearUSA, Inc.
Consolidated Statements of Operations
Three Months Ended October 1, 2005 and September 25, 2004

	October 1,			September 25,
	2005			2004
	(unaudited)			(unaudited)
Net revenues
Hearing aids and other products	$	18,362,752		$	15,911,778
Services		1,252,803			1,623,617
Total net revenues		19,615,555			17,535,395
Operating costs and expenses
Hearing aids and other products		5,624,739			4,345,713
Services		507,152			420,804
Total cost of products sold and services		6,131,891			4,766,517
Clinic operating expenses		8,868,510			8,460,660
General and administrative expenses		2,882,357			2,585,408
Depreciation and amortization		471,116			504,396
Total operating costs and expenses		18,353,874			16,316,981
Income from operations		1,261,681			1,218,414
Non-operating income (expense):
Gain from insurance proceeds		300,527			—
Interest income		22,582			3,601
Interest expense (including approximately $663,000 and $532,000 of non-cash debt discount amortization) (Notes 5 and 7)		(1,234,171	)		(1,138,273	)
Income from continuing operations		350,619			83,742
Discontinued operations (Note 2):
Net loss from discontinued operations		(140,155	)		(139,824	)
Net income (loss)		210,464			(56,082	)
Dividends on preferred stock (Note 6)		(299,035	)		(177,331	)
Net loss applicable to common stockholders	$	(88,571	)	$	(233,413	)
Net income (loss) from continuing operations, including dividends on preferred stock, per common share — basic	$	0.00		$	(0.00	)
Net income (loss) from continuing operations, including dividends on preferred stock, per common share — diluted	$	0.00		$	(0.00	)
Net loss applicable to common stockholders per common share — basic	$	(0.00	)	$	(0.01	)
Net loss applicable to common stockholders per common share — diluted	$	(0.00	)	$	(0.01	)
Weighted average number of shares of common stock outstanding — basic		32,033,447			30,429,902
Weighted average number of shares of common stock outstanding — diluted		39,155,406			30,429,902

See accompanying notes to the consolidated financial statements

5

HearUSA, Inc.
Consolidated Statements of Cash Flows
Nine Months Ended October 1, 2005 and September 25, 2004

	October 1,			September 25,
	2005			2004
	(unaudited)			(unaudited)
Cash flows from operating activities
Net income (loss)	$	290,188		$	(2,266,462	)
Adjustments to reconcile net (loss) gain to net cash (used in) provided by operating activities:
Depreciation and amortization		1,446,203			1,578,190
Provision for doubtful accounts		266,554			313,443
Loss from discontinued operations		41,504			326,169
Debt discount amortization		1,758,771			1,595,300
Principal payments on long-term debt made through preferred pricing reductions		(2,192,336	)		(2,190,603	)
Interest on Siemens Tranche D		632,533			480,215
Other		(30,551	)		26,631
(Increase) decrease in:
Accounts and notes receivable (net of business acquisitions)		(904,202	)		(1,202,220	)
Inventories (net of business acquisitions)		(186,834	)		54,144
Prepaid expenses and other (net of business acquisitions)		(490,066	)		760,468
Increase (decrease) in:
Accounts payable and accrued expenses (net of business acquisitions)		574,679			(146,816	)
Accrued salaries and other compensation (net of business acquisitions)		196,070			248,304
Net cash provided by (used) in continuing operations		1,402,513			(423,237	)
Net cash used in discontinued operations		(301,244	)		(149,758	)
Net cash provided by (used in) operating activities		1,101,269			(572,995	)
Cash flows from investing activities
Purchase of property and equipment-continuing operations		(781,117	)		(308,935	)
Purchase of property and equipment- discontinued operations		(13,332	)		(26,521	)
Proceeds from sales of discontinued operations		1,101,385			102,539
Business acquisitions		(1,282,303	)		—
Net cash used in investing activities		(975,367	)		(232,917	)
Cash flows from financing activities
Net proceeds from issuance of subordinated and convertible subordinated notes		5,170,000			500,000
Principal payments on long-term debt		(1,072,857	)		(2,894,616	)
Proceeds from the exercise of warrants		1,725,000			—
Cost of exchange and redemption of capital stock		(4,928,041	)		(102,382	)
Proceeds from exercise of employee stock options		68,004			4,189
Dividends on preferred stock		(591,428	)		(923,196	)
Net cash provided by (used in) financing activities		370,678			(3,416,005	)
Effects of exchange rate changes on cash		40,810			5,283
Net increase (decrease) in cash and cash equivalents		537,390			(4,216,634	)
Cash and cash equivalents at beginning of period		2,615,379			6,714,881
Cash and cash equivalents at end of period	$	3,152,769		$	2,498,247

See accompanying notes to consolidated financial statements

6

HearUSA, Inc.
Consolidated Statements of Cash Flows
Nine Months Ended October 1, 2005 and September 25, 2004

	October 1,		September 25,
	2005		2004
	(unaudited)		(unaudited)
Supplemental disclosure of cash flows information:
Cash paid for interest	$	1,022,993	$	934,777
Supplemental schedule of non-cash investing and financing activities:
Principal payments on long-term debt through preferred pricing reductions	$	2,192,336	$	2,190,603
Purchase of equipment with volume discount credit	$	—	$	158,800
Capital lease of property and equipment	$	41,501	$	—

See accompanying notes to consolidated financial statements

7

HearUSA, Inc
Notes to Consolidated Financial Statements

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the nine month period ended October 1, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. For further information, refer to the audited consolidated financial statements and footnotes thereto included in the Company’s report on Form 8-K filed on October 26, 2005.

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

The Company

HearUSA, Inc. (“HearUSA” or the “Company”), a Delaware corporation, was organized for the purpose of creating a nationwide chain of clinics to serve the needs of the hearing impaired. As of October 1, 2005, the Company has a network of 138 company-owned hearing care clinics in 8 states and the Province of Ontario, Canada. The Company also sponsors a network of approximately 1,400 credentialed audiology providers that participate in selected hearing benefit programs contracted by the Company with employer groups, health insurers and benefit sponsors in 49 states. The clinics and the network providers provide audiological products and services for the hearing impaired.

Basis of consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned and majority controlled subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.

Fiscal year

The Company’s fiscal year ends on the last Saturday in December and customarily consists of four 13-week quarters for a total of 52 weeks. Every sixth year includes 53 weeks. The current year includes 53 weeks with the additional week included in the first quarter of 2005. The next year with 53 weeks will be 2011.

Net income (loss) applicable to common stockholders per common share

Net income(loss) from continuing operations, including dividends on preferred stock, and net income (loss) applicable to common stockholders per common share is calculated in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 128 “Earnings Per Share” which requires companies to present basic and diluted earnings per share. Net income (loss) from continuing operations, including dividends on preferred stock, and net income (loss) applicable to common stockholders per common share — basic are based on the weighted average number of common shares outstanding during the period. Net income (loss) from continuing operations, including dividends on preferred stock, and net income applicable to common stockholders per common share — diluted is based on the weighted average number of common shares and dilutive potential common shares outstanding during the period.

Due to the Company’s net loss from continuing operations, including dividends on preferred stock, applicable to common stockholders in the first nine months of 2005 and 2004, the common stock equivalents for convertible subordinated notes, mandatorily redeemable convertible preferred stock, convertible preferred stock, outstanding options and warrants of 9,635,337 in 2005 and 9,505,864 in 2004 were excluded from the computations of net loss from continuing operations, including dividends on preferred stock, and net loss applicable to common stockholders per common share — diluted for these periods because they were anti-dilutive.

8

HearUSA, Inc
Notes to Consolidated Financial Statements

 Due to the Company’s net loss from continuing operations, including dividends on preferred stock, applicable to common stockholders in the third quarter of 2004 the common stock equivalents for convertible preferred subordinated notes, mandatorily redeemable convertible preferred stock, convertible preferred stock, outstanding options and warrants of 6,400,864 in 2005 and 10,008,826 in 2004, were excluded from the computation of net loss from continuing operations, including dividends on preferred stock, and net loss applicable to common stockholders per common share — diluted for these periods because they were anti-dilutive.

For purposes of computing net income(loss) from continuing operations, including dividends on preferred stock and net loss, applicable to common stockholders per common share — basic and diluted, for the nine and three months ended October 1, 2005 and September 25, 2004, the weighted average number of shares of common stock outstanding includes the effect of the 815,041 and 913,419, respectively, exchangeable shares of HEARx Canada, Inc., as if they were outstanding common stock of the Company.

Comprehensive income

Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. The Company’s other comprehensive income represents foreign currency translation adjustments.

The components of comprehensive income (loss) are as follows:

	Nine Months Ended					Three Months Ended
	October 1,		September 25,			October 1,		September 25,
	2005		2004			2005		2004
Net income (loss) for the period	$	290,188	$	(2,266,462	)	$	210,464	$	(56,082	)
Other comprehensive income:
Foreign currency translation adjustments		631,188		183,709			724,825		486,339
Comprehensive income (loss) for the period	$	921,376	$	(2,082,753	)	$	935,289	$	430,257

Stock-based compensation

The Company has granted stock options to employees and directors under stock option plans. The Company accounts for those plans using the intrinsic value method under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”. No stock-based employee compensation cost has been reflected in net income (loss), as all options granted under those plans had an exercise price greater than or equal to the market value of the underlying common stock on the date of the grant.

9

HearUSA, Inc
Notes to Consolidated Financial Statements

The following table illustrates the effect on net loss and loss per share if the Company had applied the fair value recognition provisions of SFAS 123 “Accounting for Stock-Based Compensation” to stock-based employee compensation (see Note 8 — Recent Accounting Pronouncement):

	Nine Months Ended						Three Months Ended
	October 1,			September 25,			October 1,			September 25,
	2005			2004			2005			2004
Net loss applicable to common stockholders as reported	$	(375,925	)	$	(2,797,290	)	$	(88,571	)	$	(233,413	)
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of tax effects		(1,137,000	)		(536,000	)		(390,000	)		(350,000	)
Pro forma, net loss	$	(1,512,925	)	$	(3,333,290	)	$	(478,571	)	$	(583,413	)
Net income (loss) per share
Basic—as reported	$	(0.01	)	$	(0.09	)	$	(0.00	)	$	(0.01	)
Basic—pro forma	$	(0.05	)	$	(0.11	)	$	(0.01	)	$	(0.02	)
Diluted—as reported	$	(0.01	)	$	(0.09	)	$	(0.00	)	$	(0.01	)
Diluted—pro forma	$	(0.05	)	$	(0.11	)	$	(0.01	)	$	(0.02	)

For purposes of the above disclosure, the determination of the fair value of stock options granted in 2005 and 2004 was based on the following: (i) a risk free interest rate of 4.04% and 3.46%, respectively; (ii) expected option lives ranging from 5 to 10 years; (iii) expected volatility in the market price of the Company’s common stock of 95% and 97%, respectively; and (iv) no dividends on the underlying common stock.

Reclassifications

Certain amounts in the 2004 consolidated financial statements have been reclassified in order to conform to the 2005 presentation.

2. Discontinued operations

In June 2005, the Company sold the assets of a group of hearing care clinics in Minnesota, Washington and Wisconsin, including goodwill, customer lists and selected assets with a net book value of approximately $739,000, for approximately $1.1 million in cash, resulting in a gain on disposition of assets of approximately $365,000.

The assets sold and related operating results have been presented as discontinued operations and the consolidated financial statements have been reclassified to segregate the assets and operating results for all periods presented in accordance with SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets,” including $147, 000 of property and equipment, $442,000 of goodwill and $150,000 of net intangibles as of December 25, 2004. The assets and operating expenses of these hearing care clinics sold has been reported in the clinic segment. Net revenues of the discontinued operations for the nine months ended October 1, 2005 and September 25, 2004 were approximately $1.9 million and $2.7 million, respectively. Pre-tax net losses of the discontinued operations were approximately $41,500 million and $326,000, respectively.

10

HearUSA, Inc
Notes to Consolidated Financial Statements

	Nine Months Ended						Three Months Ended
	October 1,			September 25,			October 1,			September 25,
	2005			2004			2005			2004
Net loss from discontinued operations applicable to common stockholders—basic	$	(0.00	)	$	(0.01	)	$	(0.00	)	$	(0.01	)
Net loss from discontinued operations applicable to common stockholders—diluted	$	(0.00	)	$	(0.01	)	$	(0.00	)	$	(0.01	)

3. Business Acquisitions

In the second and third quarters of 2005, in three separate transactions, the Company acquired the assets of four hearing care clinics in Michigan, New Jersey and New York having a fair value of approximately $382,000. Consideration paid was cash of $900,000 and notes payable in the amount of $750,000. The acquisitions resulted in additions to goodwill of approximately $1.3 million. The notes bear interest at 5 percent and are payable in quarterly installments of $37,500 plus accrued interest, through September 2009.

In May 2005, the Company also acquired the assets of a hearing care network in Florida, including network contracts with fair values of approximately $410,000. Consideration paid was cash of $350,000 and a three-year convertible note payable in the amount of $1,400,000, resulting in goodwill of approximately $1,340,000. The note bears interest at 7 percent and is payable in 36 monthly installments of $38,889 plus interest, beginning on June 1, 2005. After September 30, 2005 the payee has the right to convert all or any portion of the unpaid principal, and accrued interest, on the note into the number of shares of the Company’s common stock as determined by dividing such sum of unpaid principal and accrued interest to be converted by $1.74 (the market price of the Company’s common stock on the date of the acquisition).

4. Stockholders’ Equity

Common stock

During the nine months ended October 1, 2005, 265,000 employee stock options were issued at an exercise price of $1.79, 1,500,000 warrants were exercised at an exercise price of $1.15 and employee stock options for 130,000 shares of common stock were exercised at exercise prices ranging from $0.35 to $0.81.

5. Convertible Subordinated Notes

In December 2003, the Company completed a private placement of $7.5 million five-year convertible subordinated notes with warrants to purchase 2,642,750 shares of the Company’s common stock. The notes could not be converted and warrants to purchase 2,142,750 shares could not be exercised for a two-year period. The remaining warrants to purchase 500,000 shares were exercisable after May 31, 2005 at $1.75 per share. Beginning December 2005 the notes may be converted at $1.75 per share and the lender warrants may be exercised for up to 2,142,750 shares at $1.75 per share. The quoted closing market price of the Company’s common stock on the commitment date was $2.37 per share. The notes bear interest at 11 percent annually for the first two years and then at 8 percent through the remainder of their term. The Company recorded a debt discount of approximately $7,488,000 consisting of intrinsic value of the beneficial conversion of approximately $4,519,000 and the portion of the proceeds allocated to the warrants issued to the lenders of approximately $2,969,000, using a Black-Scholes option pricing model, based on the relative fair values of the lender warrants and the notes. The debt discount is being amortized as interest expense over the five-year term of the note using the effective interest method.

11

HearUSA, Inc
Notes to Consolidated Financial Statements

In addition to the 2,642,750 lender warrants issued to the investors in the $7.5 million financing, the Company also issued 117,143 common stock purchase warrants with the same terms as the lender warrants and paid cash of approximately $206,000 to third parties as finder fees and financing costs. These warrants were valued at approximately $220,000 using a Black-Scholes option pricing model. The total of such costs of approximately $426,000 is being amortized as interest expense using the effective interest method over the five year term of the notes.

For the first two years of the term beginning on March 25, 2004, the Company will make quarterly payments of interest only. Beginning March 25, 2006, the Company will make twelve equal quarterly payments of principal plus interest. Payments of principal and interest may be made, at the Company’s option, in cash or with the Company’s common stock. If payments are made using the Company’s common stock, the shares to be issued would be computed at 90% of the average closing price for the 20 day trading period immediately preceding the payment date. Approximate annual aggregate amount of maturities of such notes maturing in future years is $2,500,000 in each of 2006, 2007 and 2008.

During the first nine months of 2005 and 2004, approximately $2,225,000 and $2,170,000, respectively, of prepaid financing fees and debt discount was amortized as interest expense, including a non-cash portion of approximately $1,624,000 and $1,595,000, respectively. The future non-cash debt discount and prepaid finder fees to be amortized as interest expense over the next five years are approximately $528,000 for the remainder of 2005, $1,763,000 in 2006, $1,145,000 in 2007 and $434,000 in 2008. In the event the investors convert or exercise the debt or warrants, the Company will be required to accelerate the debt discount to the period in which the exercise or conversion occurs.

6. Mandatorily Redeemable Convertible Preferred Stock

On August 27, 2003, the Company exchanged all 4,563 outstanding shares of its 1998 Convertible Preferred Stock for 4,563 shares of E Series Convertible Preferred Stock (“E Series Convertible Preferred Stock”). If the E Series Convertible Preferred Stock had not converted or redeemed by December 18, 2006 it would have had to be redeemed by the Company on December 18, 2006 for a price equal to 108% of its stated value plus accrued and unpaid premiums. The E Series Convertible Preferred Stock was presented as Mandatorily Redeemable Convertible Preferred Stock, a category between liabilities and equity in the accompanying consolidated balance sheet. The Company had the right to redeem the newly designated preferred stock at its stated value plus accrued but unpaid premiums for sixteen months and thereafter until the redemption date at 108% of its stated value plus accrued but unpaid premiums.

As part of the transaction, the Company agreed that accrued but unpaid premiums on the 1998 Convertible Preferred Stock and the 10% premium on the E Series Convertible Preferred Stock would be paid in cash each month beginning in November 2003 and continuing until December 2006. The holders agreed that they would not convert the newly designated preferred stock into the Company’s common stock prior to November 1, 2005, except in the event of a default in payment of premiums or unless on or after December 10, 2004 the price of the common stock reached a trading price at or above $3.00 per share and the holders sell at or above $3.00 per share. In the event of default in payment of premiums, the holder could sell any shares of the E Series Convertible Preferred Stock or convert such shares under the same terms described below for the period after November 1, 2005. If converted during the period from December 10, 2004 until November 1, 2005 based on the trading price reaching $3.00 per share, the holders could convert only a number of shares of the newly designated preferred stock that would yield upon conversion no more than 744,911 shares of HearUSA common stock. Subsequent to November 1, 2005, upon conversion of the E Series Convertible Preferred, holders would have been entitled to receive a number of shares of common stock determined by dividing the sum of the stated value of the E Series Convertible Preferred ($1,000 per share) so converted plus any unpaid premium, by a conversion price equal to the lesser of the average closing bid prices for the common stock five of twenty days prior to conversion, and $18.00 (the fixed conversion price). The premium payable upon conversion is equal to 10% of the stated value of the Series E Convertible Preferred from the date of issuance until the conversion date. If the closing price of the Company’s common stock on the date prior to any conversion date is less than $10.00, the Company at its option may redeem the E Series Convertible Preferred at a price equal to 108% of its stated value plus any accrued and unpaid premium, in lieu of converting such E Series Convertible Preferred to common stock.

12

HearUSA, Inc
Notes to Consolidated Financial Statements

In September 2005 the Company used the proceeds from an August 2005 private placement (see Note 7 — Subordinated Notes and Warrant Liability) to redeem all of the Company’s outstanding mandatorily redeemable convertible preferred stock for approximately $4.9 million, which included approximately $125,000 of accrued and unpaid premium.

7. Subordinated Notes and Warrant Liability

On August 22, 2005, the Company completed a private placement of $5.5 million three-year subordinated notes (“Subordinated Notes”) with warrants (“Note Warrants”) to purchase 1,499,960 shares of the Company’s common stock expiring on November 22, 2008. If they are paid in full on or before December 31, 2005 the investors will forfeit 25% of the 1,499,960 Note Warrants. The warrants to purchase 1,124,970 shares (75 percent) are exercisable subsequent to August 22, 2005 at $2.00 per share and the remaining warrants to purchase 374,990 shares (25 percent), if not forfeited, are exercisable after January 1, 2006 at $2.00 per share. The quoted closing market price of the Company’s common stock on the commitment date was $1.63 per share. The notes bear interest at 7 percent annually. Proceeds from this financing were used to redeem all of the Company’s 1998-E Series Convertible Preferred Stock (see Note 6 — Mandatorily Redeemable Convertible Preferred Stock). The Company has agreed to register the common shares underlying the warrant shares and to maintain such registration so that the warrant holders may sell their shares if the warrants are exercised. The liability created by the Company’s agreement to register and keep the underlying shares registered has been recorded as a warrant liability of approximately $1.7 million based on the fair value of the warrants, using a Black-Scholes option pricing model. Any gains or losses resulting from the changes in fair value from period to period will be included in income. As the holders exercise their warrants the liability will be reclassified to additional paid in capital.

The Company recorded a debt discount of approximately $1.7 million based on the portion of the proceeds allocated to the fair value of the Note Warrants. The debt discount is being amortized as interest expense over the three-year term of the notes using the effective interest method.

In addition to the warrants issued to the purchasers of the Subordinated Notes, the Company also issued 55,000 common stock purchase warrants with the same terms as the lender warrants and paid cash of approximately $330,000 to third parties as finder fees and financing costs. These warrants were valued at approximately $66,000 using a Black-Scholes option pricing model. The total of such costs of approximately $396,000 is being amortized as interest expense using the effective interest method over the three year term of the notes.

On the date of issuance of the Subordinated Notes the Company prepaid interest for the first four months of the note. Beginning December 22, 2005, the Company will make twelve quarterly payments of principal corresponding to 8 percent of the original principal amount plus interest and a premium of 2 percent of the principal payment made. Approximate annual aggregate amount of maturities of such notes maturing in future years is $1,760,000 in 2006, $1,760,000 in 2007 and $1,540,000 in 2008.

During the first nine months of 2005 approximately $186,000 of prepaid financing fees and debt discount was amortized as interest expense, including a non-cash portion of approximately $135,000. The future non-cash debt discount and prepaid finder fees to be amortized as interest expense over the next three years are approximately $292,000 for the remainder of 2005, $932,000 in 2006, $546,000 in 2007 and $109,000 in 2008. In the event the Company retires the Subordinated Notes, the Company will be required to accelerate the debt discount to the period in which the payoff occurs.

13

HearUSA, Inc
Notes to Consolidated Financial Statements

8. Segments

The Company operates in three business segments, which include the operation and management of clinics, the establishment, maintenance and support of an affiliated network and the operation of an e-commerce business. The Company’s business units are located in the United States and Canada.

	Clinics		E-commerce			Network		Corporate			Total
Hearing aids and other products revenues
9 months ended 10/1/05	$	53,642,000	$	65,000			—		—		$	53,707,000
9 months ended 9/25/04		46,571,000		46,000			—		—			46,617,000
Service revenues
9 months ended 10/1/05		2,864,000		—			1,132,000		—			3,996,000
9 months ended 9/25/04		3,374,000		—			783,000		—			4,157,000
Income (loss) from operations
9 months ended 10/1/05		11,883,000		(51,000	)		613,000		(9,000,000	)		3,445,000
9 months ended 9/25/04		8,961,000		(12,000	)		312,000		(7,745,000	)		1,516,000
9 months ended 10/1/05
Depreciation and amortization		1,290,000		—			4,000		152,000			1,446,000
Total assets		49,932,000		—			1,273,000		13,019,000			64,224,000
Capital expenditures		659,000		—			—		135,000			794,000
9 months ended 9/25/04
Depreciation and amortization		1,363,000		—			4,000		211,000			1,578,000
Total assets		47,324,000		—			1,481,000		11,444,000			60,249,000
Capital expenditures		307,000		—			2,000		26,000			335,000

In 2005 and 2004, 95.5% and 94.5%, respectively, of hearing aids and other products revenues consisted of hearing aid revenues and 4.5% and 5.5%, respectively, were other products revenues. In 2005 and 2004, 52.5% and 50.4%, respectively, of services revenues consisted of hearing aid repairs and 47.5% and 49.6%, respectively, consisted of testing and other income.

Income (loss) from operations at the segment level is computed before general administrative expense ($8,848,000 in 2005 and $7,534,000 in 2004) and corporate depreciation and amortization expense ($152,000 in 2005 and $211,000 in 2004), the sum of which is included in the column “Corporate” as loss from operations ($9,000,000 in 2005 and $7,745,000 in 2004).

14

HearUSA, Inc

Notes to Consolidated Financial Statements

Information concerning geographic areas as of and for the nine months ended October 1, 2005 and September 25, 2004 are as follows:

	As of October 1, 2005				As of September 25, 2004
	United States		Canada		United States		Canada
	2005		2005		2004		2004
Hearing aid and other product revenues	$	47,835,000	$	5,872,000	$	41,908,000	$	4,709,000
Service revenues		3,693,000		303,000		3,931,000		226,000
Long-lived assets		41,406,000		10,300,000		39,179,000		9,432,000
Total assets		51,371,000		12,853,000		49,034,000		11,215,000

Net revenues by geographic area are allocated based on the location of the subsidiary operations.

9. Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board issued SFAS No. 123R (revised 2004), “Share-Based Payment”. The Statement requires companies to expense the estimated fair value of stock options and similar equity instruments issued to employees. Currently, companies are required to calculate the estimated fair value of these share-based payments and can elect to either include the estimated cost in earnings or disclose the pro-forma effect in the footnotes to their financial statements. We have chosen to disclose the pro-forma effect. The fair value concepts were not changed significantly in SFAS 123(R); however, in adopting this Standard, companies must choose among alternative valuation models and amortization assumptions. The valuation model and amortization assumption we have used (a Black Scholes model) continue to be available and we elected to use this model for the future. On April 14, 2005 the U. S. Securities and Exchange Commission (the “SEC”) announced a deferral of the effective date of SFAS 123(R) for calendar year companies until the beginning of 2006. Based on the outstanding number of employees stock options and excluding the impact of any future grants, at October 1, 2005, the total stock based compensation expense determined under the fair value method that would be reflected in the financial statements is approximately $875,000 in 2006 and $425,000 in 2007 (see Note 1 — Description of the Company and Summary of Significant Accounting Policies — Stock-Based Compensation).

10. Liquidity

The working capital deficit increased $2.8 million to $7.7 million as of October 1, 2005 from $4.9 million as of December 25, 2004. The working capital deficit of $7.7 million includes approximately $2.5 million representing the current portion of the long-term debt to Siemens for Tranches A, B and C, which may be repaid through preferred pricing reductions and approximately $1.9 million of current portion of convertible subordinated notes that can be repaid with common stock, at the option of the Company. Cash and cash equivalents as of October 1, 2005 was approximately $3.2 million.

Although there can be no assurance that the Company can maintain compliance with Siemens loan covenants, that net revenue levels will remain at or higher than current levels or that unexpected cash needs will not arise for which cash and cash equivalents and cash flow from operating activities will be sufficient, the Company believes that current cash, cash equivalents and cash flow from operating activities, at current net revenue levels, will be sufficient to support the Company’s operational needs through the remainder of the year. For the next three months, the Company expects approximately the same level of cash flow from operating activities as achieved in the first three quarters of 2005. In the event of a shortfall in cash, the Company might consider short-term debt, or additional equity or debt offerings. There can be no assurance however, that such financing will be available to the Company on favorable terms or at all. The Company is also continuing its aggressive cost controls and sales and gross margin improvements.

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Forward Looking Statements

This form 10-Q and in particular, this Management’s 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. 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. 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. 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 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

GENERAL

During the third quarter of 2005, the Company continued to improve its profitability through increased revenues and cost controls. The Company’s strategic acquisition program initiated in the second quarter of 2005 resulted in acquisitions during the second and third quarters of 2005 (see Note 3 — Business Acquisitions) in order to increase its market share and take advantage of economies of scale. Future strategic acquisitions are expected to be made using the cash on hand at the end of the quarter, the Siemens acquisition line of credit, issuance of common stock and promissory notes to the sellers.

The Company expects to continue improving the year-over-year profitability. We plan to reduce losses for the remainder of the year through increases in net revenues from additional or enhanced managed care contracts, improvement in employee performance and strategic acquisitions in selected markets. In addition, we intend to keep costs under control as revenues grow. Profitability could, however, be affected for a short term period in the event the holders of the $7.5 convertible subordinated notes convert their notes and/or exercise their warrants and/or the holders of the $5.5 million subordinated notes exercise their warrants, or the Company repays the notes before their term. In such cases, the remaining discount would be expensed resulting in an increase in the interest expense. A significant change in the value of the warrant liability could also affect profitability in the quarter the change occurs.

In October 2005, certain clinics located in Florida sustained minor damages and were out of power due to Hurricane Wilma. As a result, these clinics were closed for a period of 3 to 12 days. As of issuing this report, all the clinics were operational. Although the impact of these closings has not been established as of yet, the Company does not expect it to significantly effect the overall performance of its operations. The Company intends to file a claim for business interruption with its insurance company. There is no assurance that the Company will recover on such claim.

RESULTS OF OPERATIONS

For the three months ended October 1, 2005 compared to the three months ended and September 25, 2004

Total net revenues in the third quarter of 2005 increased approximately $2.1 million, or 11.9%, compared to the third quarter of 2004. This increase is primarily attributable to an increase in hearing aids revenues resulting from an increase in average selling price of 14.4% in the third quarter of 2005 compared to 2004. Such increases occurred as patients selected a higher percentage of more advanced technology hearing aids with higher sales prices. This increase was somewhat offset by a reduction in other products revenues and services due to lower revenues from the Department of Veteran Affairs. Approximately $172,000 of the overall increase in total net revenues relates to a favorable change in the average Canadian exchange rate from 2004 to 2005. During the fourth quarter of 2005, the Company expects to continue its total net revenue improvement over the preceding year, principally as a result of increases in average selling price due to more advanced technology hearing aids being sold, and increases in the number of hearing aids sold, mainly attributable to acquisitions made in the second and third quarters of 2005.

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Total cost of products sold and services in the third quarter of 2005 increased approximately $1.4 million, or 28.6%, compared to the third quarter of 2004. This increase is primarily attributable to the increase in hearing aids revenues and in the cost of hearing aids due to increased sales of more advanced technology hearing aids. Included in the cost of hearing aids and other products sold are Siemens preferred pricing reductions of approximately $816,000 in the third quarter of 2005 and $901,000 for the third quarter 2004. Such pricing reductions from Siemens are accounted for as reductions of cost of hearing aids and other products sold for financial reporting purposes and applied, pursuant to the Siemens credit agreement, to reduce the principal ($730,000 in 2005 and $730,000 in 2004) and interest payments ($86,000 in 2005 and $172,000 in 2004) due on Tranches A, B and C of the Siemens loan. Cost of services remained flat from 2004 to 2005. The total cost of products sold and services as a percent of total net revenues was, 31.3% and 27.2% for the third quarter of 2005 and 2004, respectively. This increase in cost as a percentage of total net revenues is mostly due to the increase in sales of more advanced technology hearing aids, which bear a higher cost as a percent of sales, and special promotional pricing on the introduction of a new Siemens’ product. Also, 2004 benefited from higher revenues from the Department of Veteran Affairs which has no cost of products. The Company expects its total cost of products sold and services as a percent of total net revenues, to improve in the fourth quarter of 2005 as compared to the third quarter of 2005, resulting from the end of the promotional pricing on the new Siemens’ product. However, a portion of the Siemens pricing reduction will be eliminated at the end of June 2006 (approximately $575,000 of principal per quarter) and the remaining portion at the end of June 2007 ($155,000 of principal per quarter) according to the credit facility agreement with Siemens. The Company has identified different opportunities in order to offset the loss of the rebates, but no decisions have been made or negotiations have been finalized.

Clinic operating expenses increased approximately $408,000, or 4.8%, in the third quarter of 2005 compared to the third quarter of 2004. The increase is mainly attributable to an increase of approximately $317,000 in clinic wages as a result of normal merit increases, additional new employees at the clinic level and increases in incentive compensation in relation to higher hearing aids revenues. It is expected that clinic operating expenses in the fourth quarter of 2005 will increase due to expenses associated with the business acquisitions made in the second and third quarters of 2005 as well as any operating expenses of any future business acquisitions. These increases are expected to be proportional to the corresponding increases in revenues.

General and administrative expenses in the third quarter of 2005 increased approximately $297,000, or 11.5%, compared to the third quarter of 2004. The increase is primarily attributable to an increase in wages and fringe benefits of approximately $181,000 principally due to normal annual increases and the creation of a new sales training department in January of 2005, coupled with an increase in professional fees due to additional consulting fees for Sarbanes-Oxley compliance (Section 404) and other projects in 2005 compared to 2004. The Company expects general and administrative expenses to remain consistent with the third quarter for the remainder of the year.

Depreciation and amortization expense decreased approximately $33,000, or 6.5%, in 2005. This decrease is due to certain property and equipment being fully depreciated. The Company expects these expenses to remain comparable for the remainder of the year.

The gain on insurance proceeds of approximately $301,000 in the third quarter of 2005 is attributable to insurance proceeds resulting from 2004 hurricane damage and business interruption claims sustained in Florida hearing care clinics. This gain resulted from the final payment on the 2004 claims. Gain of future claims will be recorded when payments, if any, are received.

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Interest expense in the third quarter of 2005 increased approximately $96,000, or 8.4%, compared to the third quarter of 2004. The non-cash charge of $663,000 included in the interest expense is $528,000 of amortization of the debt discount related to $7.5 million convertible subordinate debt (see Note 5 — Convertible Subordinated Notes) and $135,000 in amortization of the debt discount related to $5.5 million subordinated note (see Note 7 — Subordinated Notes and Warrant Liability). This non-cash charge does not have an impact on the liquidity and working capital of the Company. The Company expects interest expense in the next three months to increase. This increase would reflect interest on the $5.5 million subordinated notes for a full quarter as compared to 40 days in the third quarter of 2005 and any interest expense on new promissory notes that might be issued for business acquisitions. These increases will however be partially offset by reduction of interest expense due to lower interest on lower balances for other debts.

Dividends on preferred stock increased approximately $122,000 in the third quarter of 2005 as compared to the third quarter of 2004 due to the premium on the mandatorily redeemable convertible preferred stock resulting from redeeming such preferred stock before expiration of its term. Due to the retirement of the preferred stock, the dividend expense from these preferred shares will be eliminated in the fourth quarter of 2005 and in future quarters. Thereafter the dividend expense will be approximately $35,000 per quarter, until the remainder of the preferred stock (Series J) is repaid.

In the third quarter of 2005, the Company incurred a net loss applicable to common stockholders of approximately $89,000, compared to $233,000 in the same period of 2004. This improvement is mainly due to the increase in net revenues and gains on insurance proceeds. However, these events were partially offset by a reduction in gross margin (due to the increase in the percent of cost of products sold and services) and increases in clinic operating and general and administrative expenses. The net loss applicable to common stockholders for the third quarters of 2005 and 2004 includes a non-cash interest expense of approximately $663,000 and $532,000, respectively, representing the amortization of the debt discount related to the $7.5 million convertible subordinated notes and the $5.5 million subordinated notes.

For the nine months ended October 1, 2005 compared to the nine months ended September 25, 2004

Total net revenues in the first nine months of 2005 increased approximately $6.9 million, or 13.6%, compared to the first nine months of 2004. This increase is primarily attributable to an increase in hearing aids revenues mainly due to an increase in the average selling price of 15.4% in the first nine months of 2005 compared to 2004, as patients selected a higher percentage of more advanced technology hearing aids, and from the additional week in the first quarter of 2005, offset by a reduction in other products revenues and services due to lower revenues from the contract with the Department of Veteran Affairs. Approximately $482,000 of the overall increase in net revenues relates to a favorable change in the average Canadian exchange rate from 2004 to 2005.

Total cost of products sold in the first nine months of 2005 increased approximately $2.9 million, or 20.5%, compared to the first nine months of 2004. This increase is primarily attributable to the increase in hearing aids revenues and in the cost of hearing aids due to increased sales of more advanced technology hearing aids. Included in the cost of products sold are Siemens preferred pricing reductions of approximately $2,514,000 in the first nine months of 2005 and $2,759,000 for the first nine months of 2004. Such pricing reductions from Siemens are accounted for as reductions of cost of hearing aids and other products sold for financial reporting purposes and applied, pursuant to the Siemens credit agreement, against the principal ($2,192,000 in 2005 and $2,190,000 in 2004) and interest payments ($322,000 and $569,000) due on Tranches A, B and C of the Siemens loan. Cost of services remained stable and in correlation with services revenues. The total cost of products sold and services as a percent of total net revenues was 29.5% and 27.9% for the first nine months of 2005 and the first nine months of 2004, respectively. This increase in cost as a percent of total net revenues is due to increase in sales of more advanced technology hearing aids, which bear a higher cost as a percent of sales, and special promotional pricing on the introduction of a new Siemens’ product. Also, 2004 benefited from higher revenues from the Department of Veteran Affairs which bear no cost of products.

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Clinic operating expenses increased approximately $924,000, or 3.6%, in the first nine months of 2005 compared to the first nine months of 2004. This increase is mainly attributable to the additional week in the 2005 period, increased wages due to new employees from acquisitions, normal merit increases and an increase in incentive compensation related to the increase in net revenues. These increases were offset in part by reductions due to the reclassification of the salaries of certain employees from clinic operating expenses to general and administrative expenses as a result of changes in responsibilities and changes in certain employees’ compensation programs from fixed salary to base salary plus commission.

General and administrative expenses in the first nine months of 2005 increased approximately $1.3 million, or 17.4%, compared to the first nine months of 2004. $211,000 of this increase is due to the additional week in the first quarter of 2005. The remaining increase is primarily attributable to an increase in wages and fringe benefits of approximately $486,000 mainly due to normal annual increases and the transfer of certain employees from clinic operating expenses to general and administrative expenses as a result of changes in responsibilities and the creation of a new sales training department in January 2005, coupled with an increase in professional fees due to additional consulting fees for Sarbanes-Oxley compliance (Section 404) and other projects in 2005 compared to 2004.

Depreciation and amortization expense decreased approximately $132,000 or 8.4% in 2005. This decrease is due to certain property and equipment being fully depreciated.

The gain on insurance proceeds of approximately $430,000 in the third quarter of 2005 is attributable to insurance proceeds resulting from 2004 hurricane damage and business interruption claims sustained in Florida hearing care clinics. This gain resulted from the final payment on the 2004 claims.

Interest expense in the first nine months of 2005 increased approximately $128,000, or 3.6%, compared to the first nine months of 2004. The non-cash charge of $1,759,000 included in the interest expense is $1,623,000 in amortization of the debt discount related to $7.5 million convertible subordinate debt (see Note 5 — Convertible Subordinated Notes) and $135,000 in amortization of the debt discount related to $5.5 million subordinate debt (see Note 7 — Subordinated Notes and Warranty Liability). This non-cash charge does not have an impact on the liquidity and working capital of the Company.

Dividends on preferred stock increased approximately $135,000 due to the premium on the mandatorily redeemable convertible preferred stock that resulted from redeeming such preferred stock before the expiration of its term.

The Company has net loss carryfowards of approximately $76 million for U.S. Federal tax purposes and approximately $3.3 million of operating loss carryforwards in Canada. The Company does not expect to pay income tax in the near future.

In the first nine months of 2005, the Company incurred a net loss applicable to common stockholders of approximately $376,000, compared to a net loss of approximately $2.8 million in the same period in 2004. This improvement is attributable to an increase in net revenues, impacted by the additional week in the 2005 period and gains on disposal of assets and insurance proceeds. However, these events were generally offset by increases in clinic operating expenses and general and administrative expenses also partially the result of the additional week in the reporting period. The net loss applicable to common stockholders for the first nine months of 2005 and 2004 includes non-cash interest expense of approximately $1,759,000 and $1,595,000, respectively, representing the amortization of the debt discount related to the $7.5 million convertible subordinated notes and the $5.5 million subordinated notes.

During the first nine months of 2005, HEARx West generated net income of approximately $1,809,000. The HEARx West deficit decreased from approximately $3,206,000 at the end of 2004 to approximately $1,397,000 at October 1, 2005. In accordance with the joint venture agreement with the Permanente Federation, the Company included in its statement of operations 100% of the losses incurred by the venture since its inception and will receive 100% of the net income of the venture until the members’ deficit is eliminated. At such time as the members’ deficit is eliminated and if the venture continues to be profitable, the Company will begin recording a minority interest, corresponding to 50% of the venture’s net income as an expense in the Company’s consolidated statement of operations and as a liability on the consolidated balance sheets. The deficit is expected to be eliminated during the second quarter of 2006.

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LIQUIDITY AND CAPITAL RESOURCES

On December 7, 2001, the Company obtained a secured credit facility from Siemens comprised of (a) a $10,875,000 secured five-year term loan credit facility (the Tranche A Loan); (b) a $25,000,000 secured five-year revolving loan credit facility (the Tranche B Loan); (c) a $3,000,000 secured five-year term loan facility (the Tranche C Loan); (d) a $13,000,000 five-year secured term loan credit facility (the Tranche D Loan). On March 14, 2003, the Company obtained an additional $3,500,000 secured five-year term loan from Siemens bearing interest at a rate of 10% annually (the Tranche E Loan). The Tranche E loan was obtained pursuant to an amendment to the Company’s credit agreement with Siemens and is otherwise subject to the terms and conditions of the credit agreement and related security agreement. At October 1, 2005, $1,874,985, $45,067, $1,050,000, $14,045,187 and $1,730,726, representing principal on the Tranche A, Tranche B, Tranche C, Tranche D, and Tranche E Loans, respectively, were outstanding. As of July 2, 2005, approximately $24.9 million is available to the Company for acquisitions under Tranche B of the credit facility.

The Tranche A, B and C Loans are payable quarterly over five years with the outstanding principal and interest at 10%, due and payable on the final maturity date. Principal and interest, at the prime rate (as defined) plus 1%, on the Tranche D Loan is payable on the final maturity date. The Company is required to make monthly payments of interest only on the Tranche E Loan in the first year. In years two through five, the Company must make monthly principal and interest payments. 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 hearing aids requirements from Siemens. During the first nine months of 2005 and 2004, approximately $2,514,000 and $2,759,000 of earned preferred pricing reductions were recorded as a reduction of cost hearing aids and other products sold. In the first nine months of 2005 and 2004, $322,000 and $569,000 of interest payable, and $2,192,000 and $2,190,000 of principal, respectively, has been paid through such preferred pricing reductions. 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, the Company must make a payment equal to 20% of Excess Cash Flow (as defined in the credit agreement) for such fiscal year end. The total payment of approximately $178,000 was made in the second quarter of 2005 based on 2004 Excess Cash Flow.

The Siemens’ credit facility imposes certain financial and other covenants on the Company, which are customary for loans of this size and nature, including restrictions on the conduct of the Company’s business, the incurrence of indebtedness, merger or sale of assets, the modification of material agreements, changes in capital structure, making certain payments and paying dividends. 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. Also, the Company’s supply agreement with Siemens requires full payment for hearing aids purchased from Siemens within 60 days from statement date. As of October 1, 2005, the Company was in compliance with those payment provisions. Upon noncompliance, Siemens may declare the Company to be in default of the supply agreement by written notification, which, if not cured within 60 days of the date of written notification, would be an event of default under the Company’s credit facility with Siemens and Siemens would have the right to declare all amounts outstanding under the credit facility immediately due and payable. Any non-compliance with the supply agreement could have a material adverse effect on the Company’s financial condition and continued operations.

The working capital deficit increased $2.8 million to $7.7 million as of October 1, 2005 from $4.9 million as of December 25, 2004. The working capital deficit of $7.7 million includes approximately $2.5 million representing the current portion of the long-term debt to Siemens for Tranches A, B and C, which may be repaid through preferred pricing reductions and approximately $1.9 million of current portion of convertible subordinated notes that can be repaid with common stock, at the option of the Company. Cash and cash equivalents as of October 1, 2005 was approximately $3.2 million.

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Although there can be no assurance that the Company can maintain compliance with Siemens loan covenants, that net revenue levels will remain at or higher than current levels or that unexpected cash needs will not arise for which cash and cash equivalents and cash flow from operating activities will be sufficient, the Company believes that current cash, cash equivalents and cash flow from operating activities, at current net revenue levels, will be sufficient to support the Company’s operational needs through the remainder of the year. Future strategic acquisitions are expected to be made using the cash on hand at September 30, 2005, the Siemens acquisition line of credit, issuance of common stock and promissory notes to the sellers. For the next three months, the Company expects approximately the same level of cash flow from operating activities as achieved in the first three quarters of 2005. In the event of a shortfall in cash, the Company might consider short-term debt, or additional equity or debt offerings. There can be no assurance however, that such financing will be available to the Company on favorable terms or at all. The Company is also continuing its aggressive cost controls and sales and gross margin improvements.

Below is a chart setting forth the Company’s contractual cash payment obligations which have been aggregated to facilitate a basic understanding of the Company’s liquidity as of October 1, 2005:

	Payments due by period
			Less						More
			than 1		1 — 3		4 — 5		than 5
	Total		year		years		years		years
Contractual obligations
Long-term debt (1)	$	21,061,000	$	3,669,000	$	16,764,000	$	628,000	$	—
Interest to be paid on long-term debt (2)		657,000		160,000		479,000		18,000		—
Operating leases		16,897,000		5,039,000		9,147,000		1,909,000		802,000
Convertible subordinated notes (3)		7,500,000		1,875,000		5,000,000		625,000		—
Subordinated notes		5,500,000		1,760,000		3,740,000		—		—
Interest to be paid on convertible subordinated notes		1,124,000		599,000		517,000		8,000		—
Interest to be paid on subordinated notes		613,000		331,000		282,000		—
Employment agreements		4,186,000		1,135,000		2,016,000		1,035,000		—
Purchase obligations		1,270,000		595,000		675,000		—		—
Total contractual cash obligations	$	58,808,000	$	15,163,000	$	38,620,000	$	4,223,000	$	802,000

(1)	Approximately $3.0 million (Tranches A, B and C) can be repaid through preferred pricing reductions from Siemens, including $2.5 million in less than 1 year and, $500,000 in years 1-3.
(2)	Interest on long-term debt excludes $1,045,000 of accrued but unpaid interest on Tranche D presented with long-term debt in (1) above. In addition, approximately $211,000 of interest on Tranches A, B, and C can be repaid through preferred pricing reductions.
(3)	When due these notes and corresponding interest can be repaid at the option of the Company in common stock.

Net cash from operating activities improved from $573,000 used in the first nine months of 2004 to approximately $1.1 million provided in the first nine months of 2005. The improvement was primarily the result of an improvement in profitability going from a net loss of $2.3 million to a net income of $290,000.

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The first nine months of 2005 net increase of $1.6 million in accounts receivable, inventories and prepaid expenses is mainly attributable to an increase of accounts receivable of approximately $904,000 due to the increase in net revenues and the timing on receiving a capitation monthly payment on our contract with Kaiser Permanente of approximately $580,000, and an increase in prepaid expenses of approximately $490,000 due to the timing of our accounting period end and the payment of our rents which occurred before the end of the quarter for the following month as opposed to after year end in 2004. The net increase in accounts payable, accrued expenses and accrued compensation in the first nine months of 2005 is also due to an increase in expenses as a result of an increase in revenues and the timing of our accounting period end.

Net cash used in investing activities increased from approximately $233,000 in the first nine months of 2004 to approximately $975,000 in the first nine months of 2005. This increase is mainly due to an increase in cash used in the purchase of equipment of $459,000 resulting from clinic relocations, new clinic openings and equipment upgrades and cash used for business acquisitions of $1.3 million in the first nine months of 2005. These uses of cash were offset by approximately $1.1 million received from the disposition of assets of hearing clinics located in the states of Minnesota, Washington and Wisconsin (see Note 2 — Discontinued Operations).

Net cash from financing activities increased from approximately $3.4 million used in the first nine months of 2004 to approximately $371,000 provided in the first nine months of 2005. This increase is mainly related to the payment of $1.8 million made to Siemens in January of 2004 on Tranches D and E following the $7.5 million convertible subordinated notes financing (see Note 5 — Convertible Subordinated Notes) and the proceeds of $1.7 million received in March 2005 for the exercise of warrants issued in the March 29, 2002 private placement (see Note 4 — Stockholder’s Equity).

CRITICAL ACCOUNTING POLICIES

Management believes the following critical accounting policies affect the significant judgments and estimates used in the preparation of the financial statements:

Goodwill

Annually, the Company is required to assess whether its goodwill is impaired. The Company elected to perform this analysis on the first day of its fourth quarter of each year. In order to do this, management applied judgment in determining its “reporting units”, which represent distinct parts of the Company’s business. The reporting units determined by management are the clinics, the network and e-commerce. The definition of the reporting units affects the Company’s goodwill impairment assessments. The annual goodwill impairment assessment involves estimating the fair value of a reporting unit and comparing it with its carrying amount. If the carrying value of the reporting unit exceeds its fair value, additional steps are required to calculate a potential impairment charge. Calculating the fair value of the reporting units requires significant estimates and long-term assumptions. Each year the Company utilized an independent appraisal firm to test goodwill for impairment as of the first day of the Company’s fourth quarter. In 2003 and 2004 these tests indicated no impairment. The Company estimates the fair value of its reporting units by applying a weighted average of three methods: quoted market price, external transactions, and discounted cash flow. Significant changes in key assumptions about the business and its prospects, or changes in market conditions, stock price, interest rates or other externalities, could result in an impairment charge.

Revenue recognition

Revenues from the sale of hearing aids and other products are recognized at the time of delivery to the patient. Revenues from hearing care services, such as testing and repairs at the clinic level administration and other fees under the affiliated network agreements are recognized at the time those services are performed.

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The Company has capitation contracts with certain health care organizations under which the Company is paid an amount for each enrollee of the health maintenance organization to provide to the enrollee a discount on certain hearing products and services. The amount paid to the Company by the healthcare organization is calculated on a per-capita basis and is referred to as capitation revenue. Capitation revenue is earned as a result of agreeing to provide services to members without regard to the actual amount of service provided. Revenue is recorded in the period that the Company has agreed to provide health care services to enrollees.

Allowance for doubtful accounts

Certain of the accounts receivable of the Company are from health insurance and managed care organizations and government agencies. These organizations could take up to nine months before paying a claim made by the Company and also impose a limit on the time the claim can be billed. The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. That estimate is based on historical collection experience, current economic and market conditions, and a review of the current status of each organization’s trade accounts receivable.

In order to calculate that allowance, the Company first identifies any known uncollectible amounts in its accounts receivable listing and charges them against the existing allowance for doubtful accounts. Then a specific percent per plan and per aging categories is applied against the remaining receivables to estimate the new allowance. Any changes in the percent assumptions per plan and aging categories could result in a change in the allowance for doubtful accounts. For example, an increase of 10% in the percent used would increase the allowance for doubtful accounts by approximately $6,000.

Sales returns

The Company provides to all patients purchasing hearing aids a specific return period of at least 30 days if the patient is dissatisfied with the product. The Company provides an allowance in accrued expenses for returns. The return period can be extended to 60 days if the patient attends the Company’s H.E.L.P. program. The Company calculates its allowance for returns using estimates based upon actual historical returns. The cost of the hearing aid is reimbursed to the Company by the manufacturer.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial Accounting Standards Board issued SFAS No. 123R (revised 2004), “Share-Based Payment”. The Statement requires companies to expense the estimated fair value of stock options and similar equity instruments issued to employees. Currently, companies are required to calculate the estimated fair value of these share-based payments and can elect to either include the estimated cost in earnings or disclose the pro forma effect in the footnotes to their financial statements. We have chosen to disclose the pro-forma effect. The fair value concepts were not changed significantly in SFAS 123(R); however, in adopting this Standard, companies must choose among alternative valuation models and amortization assumptions. The valuation model and amortization assumption we have used (a Black Scholes model) continue to be available and we elected to use this model for the future. On April 14, 2005 the U. S. Securities and Exchange Commission (the “SEC”) announced a deferral of the effective date of SFAS 123(R) for calendar year companies until the beginning of 2006. Based on the outstanding number of employees stock options and excluding the impact of any future grants, at October 1, 2005, the total stock based compensation expense determined under the fair value method that would be reflected in the financial statements is approximately $875,000 in 2006 and $425,000 in 2007 (see Note 1 — Description of the Company and Summary of Significant Accounting Policies — Stock-Based Compensation).

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company does not engage in derivative transactions. The Company is exposed to Canadian currency exchange rates and the Company is not hedging that exposure. Differences in the fair value of investment securities are not material; therefore the related market risk is not significant. The Company’s exposure to market risk for changes in interest rates relates primarily to the Company’s long-term debt. The following table presents the Company’s financial instruments for which fair value is subject to changing market interest rates:

	Long-term, Convertible Subordinated Notes and Subordinated Notes (in thousands)
	Variable
	Rate			Fixed Rate
							Yr 1 — 2
							11%
							Yr 3 — 5
	Prime Rate			7%			8%
As of	+ 1% note			due			due									10 % note
October	due April			August			November			10 % notes			10 % notes			due Dec 1,
1, 2005:	2007			2008			2008			due 2008			due 2007			2006			Other notes			Total
Estimated cash inflow (outflow) by fiscal year of principal maturity	$			$			$			$			$			$			$			$
2005		(536	)		(440	)		—			(155	)		(154	)		(575	)		(339	)		(2,199	)
2006		—			(1,760	)		(2,500	)		(657	)		(621	)		(1,300	)		(834	)		(7,672	)
2007		(13,509	)		(1,760	)		(2,500	)		(726	)		(320	)		—			(687	)		(19,502	)
2008		—			(1,540	)		(2,500	)		(193	)		—			—			(306	)		(4,539	)
2009		—			—			—			—			—			—			(84	)		(84	)
Total		(14,045	)		(5,500	)		(7,500	)		(1,731	)		(1,095	)		(1,875	)		(2,250	)		(33,996	)
Estimated fair value		(14,045	)		(5,500	)		(7,500	)		(1,731	)		(1,095	)		(1,875	)		(2,250	)		(33,996	)
Carrying Value		(14,045	)		(5,500	)		(7,500	)		(1,731	)		(1,095	)		(1,875	)		(2,250	)		(33,996	)

Item 4. Controls and Procedures

The Company’s management, with the participation of the Company’s chief executive officer and chief financial officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act) as of October 1, 2005. Based on this evaluation, the Company’s chief executive officer and chief financial officer concluded that, as of October 1, 2005, the Company’s disclosure controls and procedures were (1) designed to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to the Company’s chief executive officer and chief financial officer by others within those entities, particularly during the period in which this report was being prepared and (2) effective, in that they provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

No change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended October 1, 2005 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Part II Other Information

Item 6. 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 fiscal year ended December 27, 2003 (File No. 001-11655)).
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 Computer Share 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*		Employment Agreement between Dr. Paul A. Brown and HearUSA, Inc., dated August 31, 2005
10.2*		Employment Agreement between Stephen J. Hansbrough and HearUSA, Inc., dated August 31, 2005
10.3*		Employment Agreement between Gino Chouinard and HearUSA, Inc., dated August 31, 2005
10.4*		Employment Agreement between Ken Schofield and HearUSA, Inc., dated August 31, 2005
10.5*		Form of Change in Control Agreement
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
*	Signifies management compensatory plan, contract or arrangement.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	HearUSA Inc.
	(Registrant)
November 9, 2005
	/s/ Stephen J. Hansbrough
	Stephen J. Hansbrough
	Chief Executive Officer
	HearUSA, Inc.
	/s/ Gino Chouinard
	Gino Chouinard
	Chief Financial Officer
	HearUSA, Inc.

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EX-10.1

Exhibit 10.1

EMPLOYMENT AGREEMENT

          THIS EMPLOYMENT AGREEMENT (“Agreement”) is made and entered into as of the 31st day of August, 2005, by and between HearUSA, Inc., a Delaware corporation (the “Company”), and Paul A. Brown, M.D. (“Employee”).

Background:

     (a) Employee has been serving as the Chairman of the Board of Directors of the Company prior to the date hereof pursuant to the terms of a five-year Employment Agreement dated effective May 12, 2003.

     (b) The Company and Employee wish to continue their relationship, but pursuant to the terms and conditions provided herein.

Agreement

     In consideration of the mutual promises hereinafter set forth, it is hereby agreed as follows:

     1. Employment. Employee shall continue to be employed by the Company, with such continued employment to be under the terms and conditions set forth herein, and Employee hereby accepts such continued employment upon the terms and conditions set forth herein. The Employment Agreement between the parties dated effective May 12, 2003, is hereby superseded in its entirety by this Agreement.

     2. Term of Employment. The term of this Agreement shall commence on the date first set forth above and shall end on the fifth anniversary of such date (the “Initial Employment Period”), and shall continue in effect for successive periods of five years thereafter unless either the Company or Employee gives written notice of non-renewal prior to the end of the then current term of this Agreement, or unless sooner terminated as provided in Section 6 or Section 7 hereof. The Initial Employment Period and any renewal terms of this Agreement are referred to herein as the “Term of Employment.”

     3. Location of Employment. Employee will continue to be located at the Company’s corporate offices in West Palm, Florida.

     4. Duties.

          (a) Employee shall serve in a full-time capacity with the title of Chairman of the Board, reporting to the Board of Directors of the Company, and the Employee shall have the authority, duties, responsibilities and status (including office, title and reporting requirement) associated with the office of Chairman of the Board (including those contemplated by the Company’s bylaws).

          (b) Employee shall be authorized by the Board of Directors to employ reasonable discretion in performing Employee’s responsibilities.

          (c) Employee shall have such further duties and responsibilities, not inconsistent with such position, as shall be assigned to the Employee by the Board of Directors of the Company.

          (d) Employee shall devote his full business time and attention and such skill, energy and best efforts as may be necessary for the faithful performance of duties assigned to Employee.

     5. Compensation.

          (a) During the Term of Employment, the Company shall pay Employee, as compensation for his services during the Employment Period, a base salary (the “Base Salary”) at a rate of Two Hundred Forty Thousand Dollars ($240,000.00) per year, such Base Salary to be payable in accordance with the Company’s usual payment practices and to be subject to adjustment from time to time as may be agreed between the Employee and the Company. Employee shall be entitled to participate in the Company’s current employee benefit plans, and will in the future be entitled to participate in any new employee benefit plans that are put in place for the Company executive officers, provided that any such plans shall be subject to the approval of the Board of Directors. Additionally, Employee shall be entitled to such prerogatives of office as are the Company’s current practice, subject to the right of the Company to revise such practices.

          (b) The Employee will be eligible to participate in the Company’s stock plan and bonus plan, subject to the discretion of the Board of Directors of the Company.

          (c) All compensation shall be subject to customary withholding taxes and other employment taxes as required with respect thereto.

     6. Termination of Employment by the Company. This Agreement and Employee’s employment may be terminated by the Company as follows:

          (a) At the election of the Company, upon thirty days’ prior written notice to Employee in the event Employee becomes disabled and such disability continues for a period exceeding three (3) consecutive months. In the event of a disagreement concerning the existence of any such disability, the matter shall be resolved by a disinterested licensed physician chosen by the Company.

          (b) At the election of the Company, for “Cause” immediately upon notice by the Company to the Employee. “Cause” shall mean:

            (i) willful or prolonged absence from work by the Employee (other than by reason of disability) or failure, neglect or refusal by the Employee to perform his duties and responsibilities hereunder;

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            (ii) material breach by the Employee of any of the covenants contained in this Agreement;

            (iii) the Employee’s commission of fraud or dishonesty against the Company, its subsidiaries, parent, affiliates or their respective officers, directors, stockholders or employees; conduct intended to injure or having the effect of injuring the reputation, business or business relationships of the Company, its subsidiaries, parent or affiliates or their respective officers, directors or employees;

            (iv) upon a charge by a governmental entity against the Employee of any crime involving moral turpitude or which could reflect unfavorably upon the Company or upon the filing of any civil action involving the Employee and a charge of embezzlement, theft, fraud or other similar act; or

            (v) failure or refusal of Executive to materially comply with the policies, standards and regulations of the Company as from time to time may be made known to Executive.

          (c) At the election of the Company, at any time, without Cause immediately upon notice by the Company to Employee.

          (d) Upon termination of this Agreement by the Company, all rights and obligations of the parties hereunder shall cease, except: (i) if this Agreement is terminated without Cause by the Company prior to the end of the Term of this Agreement; or (ii) if the Company gives written notice of non-renewal of this Agreement pursuant to Section 2 above; or (iii) if there is a Change in Control of the Company (as defined below) and this Agreement is terminated without Cause by the Company, then (x) Employee shall receive a lump sum equal to his Base Salary times three plus any bonus or other long term incentive compensation to which the Employee would have been entitled absent the termination, (y) Employee’s health and life insurance benefits shall continue for a period of 36 months after such termination, and (z) all of Employee’s unvested options shall immediately vest and may be exercised by Employee for such post-termination period as is prescribed by such option agreements and related stock plan(s). Termination of employment pursuant to this Section 6 or otherwise shall not terminate or otherwise affect the rights and obligations of the parties pursuant to Sections 9 through 12 and Section 15 hereof.

          (e) Nothing contained herein will be construed to prevent Employee from seeking or obtaining other employment in the event the employment of Employee is terminated by the Company without Cause.

     7. Termination of Employment by Employee. Employee may terminate his employment with the Company at any time and for any reason, such termination to be effective immediately upon notice by Employee to the Company. Upon such termination by Employee, all rights and obligations of the parties hereunder shall cease, except: if Employee terminates his employment under this Agreement for Good Reason (as defined below) within one year of a Change in Control (as defined below), (i) Employee shall receive a lump sum equal to his Base Salary times three plus any bonus or other long term incentive compensation to which the Employee would have

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been entitled absent the termination, (ii) Employee’s health and life insurance benefits shall continue for a period of 36 months after such termination, and (iii) all of Employee’s unvested options shall immediately vest and may be exercised by Employee for such post-termination period as is prescribed by such option agreements and related stock plan(s). Termination of employment pursuant to this Section 7 or otherwise shall not terminate or otherwise affect the rights and obligations of the parties pursuant to Sections 9 through 12 and Section 15 hereof.

     8. Change in Control. For the purposes of this Agreement,

          (a) “Change in Control” shall mean the effective date of any of the following events occurring during the term of Employee’s employment: (a) consummation of any consolidation, merger, statutory share exchange or other business combination as a result of which persons who were stockholders of the Company immediately prior to the effective date thereof beneficially own less than 50% of the combined voting power in the election of directors of the surviving or resulting entity following the effective date; (b) individuals who, as of the date hereof, constitute the Board of Directors of the Company cease for any reason to constitute at least a majority of the Board of Directors of the Company, provided that any person who is elected as a director subsequent to the date hereof by a vote of, or upon the recommendation of, at least a majority of the directors comprising the current Board (other than an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Company) shall be considered a member of the current Board for these purposes; (c) consummation of any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company; (d) shareholder approval of any plan or proposal for the liquidation or dissolution of the Company; or (e) acquisition of beneficial ownership by any “person” or “group” (as such term is used Sections 13(d) and 14(d)(2) of the Exchange Act) of securities representing twenty percent (20%) or more of the combined voting power in the election of the Company’s directors, provided such acquisition has not been approved by at least a majority of the members of the Board of Directors in office immediately prior to the acquisition.

          (b) “Good Reason” shall mean, without Employee’s consent, (1) the scope of Employee’s responsibilities and/or discretion is/are materially diminished; or (2) the Company requires Employee to relocate to a location greater than 100 miles from the Company’s current corporate headquarters in West Palm Beach, Florida; or (3) Employee’s Base Salary is reduced by an amount greater than twenty-five percent (25%) and such reduction is not pursuant to a Company-wide employee salary reduction plan or program.

     9. Third-Party Confidentiality. Employee acknowledges that the Company has disclosed that the Company is now, and may be in the future, subject to duties to third parties to maintain information in confidence and secrecy. By executing this Agreement, Employee consents to be bound by any such duty owed by the Company to any third party.

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     10. Confidentiality; Return of Property.

          (a) Employee acknowledges that Employee’s work for the Company is expected to bring him into close contact with various confidential business data of the Company, its contracting parties, affiliates and customers not readily available to the public. Accordingly, Employee:

            (i) covenants and agrees that (A) during the Term of Employment, except pursuant to appropriate safeguards on confidentiality and only in connection with the business of the Company and (B) after the Term of Employment, on any basis for any reason, Employee shall not use or disclose to anyone except authorized personnel of the Company or the Company’s Affiliates (as defined below), whether or not for his benefit or otherwise, any confidential matters (collectively, “Confidential Matters”) concerning the Company or its suppliers, consultants, agents, other contracting parties or customers, whether such customers are deemed former, current or potential customers (collectively, the “Clients”), including without limitation all confidential technical information of the Company, secrets, trade secrets, proprietary software, copyrights, Client lists, lists of employees, confidential evaluations, mailing lists, details of consultant contracts, pricing policies, sales data and reports, margins, operational methods and processes, plans, financial information and other confidential business affairs, learned by Employee concerning the Company, its Clients or a third party, including without limitation any subsidiaries, partners, affiliates, shareholders, employees, lenders, suppliers, consultants, agents or joint venture partners of the Company (collectively, “Affiliates”); and

            (ii) covenants and agrees that (A) all confidential memoranda, notes, lists (including, without limitation, mailing and Client lists), records and other confidential documents, whether in written, electronic or other form (and all copies thereof) made or compiled by Employee or made available to him concerning the Company, its Clients and any Affiliates are the sole property of the Company, and (B) if such documents are in the possession or control of the Employee, the Employee shall deliver them, without retaining any copies thereof, to the Company promptly at the time of the Employee’s termination of employment or at any other time upon request by the Company.

          (b) Section 10 shall not apply to any information that: (i) is publicly available or becomes publicly available through no act or fault of Employee; (ii) is made known to Employee by a third party who did not obtain it directly or indirectly from the Company; (iii) is independently developed by Employee without use of the Company’s information as evidenced by credible written records of Employee; or (iv) is information required to be disclosed by operation of law, governmental regulation or court order provided that, if Employee determines that such disclosure might be required, Employee will promptly notify the Company and provide the Company, to the extent practicable, an opportunity to seek a protective order or other appropriate remedy to prevent such disclosure.

          (c) Upon the termination of the Employee’s employment hereunder for any reason, the Employee shall promptly return to the Company any property owned by the Company or furnished to the Employee by the Company for use in connection with Employee’s services hereunder.

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     11. Noncompetition/Conflicts of Interest.

          (a) The Employee covenants and agrees that the Employee shall not, directly or indirectly, as a principal, employee, partner, consultant, agent or otherwise, compete or assist in a Competitive Activity anywhere in the United States during the Term of Employment and for a period of two years after the termination of this Agreement (except termination without Cause by the Company or at the end of a term hereof) (the “Restricted Period”) without the express prior written consent of the Company; provided, however, that the running of the Restricted Period shall be tolled during any period of time in which Employee violates the provisions of this Section. “Competitive Activity” means the promotion, marketing or sale of hearing care products and services.

          (b) During the Restricted Period, Employee shall not, directly or indirectly, alone or in concert with others, solicit or encourage any employee of the Company, or an employee of any person or entity with which the Company has an agreement through which the Company and the person or entity are to act in concert with respect to the business of the Company, to leave their respective employment or hire any employee of the Company.

     12. Acknowledgment Regarding Restrictions. Employee recognizes and agrees that the restraints contained in Section 11 are reasonable in view of the Company’s legitimate interests in protecting its business. Employee further acknowledges that the limitations contained in Section 11 are reasonable as to the duration in time, as to geographic scope and as to the nature of the activities restricted. However, in the event an appropriate court determines that the provisions of Section 11 are excessively broad as to duration, geographic scope, prohibited activities or otherwise, the parties agree that Section 11 may be reduced or curtailed to the extent necessary to render it enforceable.

     13. Vacation and Holidays. The Employee shall be entitled to vacation allowance and holidays in accordance with the policies of the Company as in effect from time to time for its employees.

     14. Non-Waiver of Rights. The Company’s failure to enforce at any time any of the provisions of this Agreement or to require at any time performance by the Employee of any of the provisions hereof shall in no way be construed to be a waiver of such provisions or to affect either the validity of this Agreement, or any part of it, or the right of the Company thereafter to enforce each and every provision in accordance with the terms of this Agreement.

     15. The Company’s Right to Injunctive Relief. In the event of a breach or threatened breach of any of Employee’s duties and obligations under the terms and provisions of Section 10 or Section 11, Employee agrees that the Company shall be entitled to a temporary restraining order and a preliminary and permanent injunction to prevent such breach or threatened breach because the harm which might result to the Company’s business as a result of any noncompliance by Employee with any of the provisions of Section 10 or Section 11 may be irreparable. Employee acknowledges that the Company’s entitlement to injunctive relief shall be in addition to the Company’s entitlement to damages.

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     16. Assignments. This Agreement shall be freely assignable by the Company and shall inure to the benefit of, and be binding upon, the Company, its successors and assigns and/or any other corporate entity which shall succeed to the business being operated by the Company, but, being a contract for personal services, neither this Agreement nor any rights hereunder are assignable by the Employee.

     17. Governing Law. This Agreement shall be interpreted in accordance with and governed by the laws of the State of Delaware without regard to its conflict of law rules.

     18. Amendments. No modification, amendment or waiver of any of the provisions of this Agreement shall be effective unless in writing and signed by the parties hereto.

     19. Notices. Any notices to be given by either party hereunder shall be in writing and shall be deemed to have been duly given if delivered or mailed, certified or registered mail, postage prepaid, as follows: to the Company at 1250 Northpoint Parkway, West Palm Beach, Florida 33407, Attention: Board of Directors; and to Employee at the address set forth beneath his signature below; or to such other address as may have been furnished to the other party in writing.

     20. Entire Agreement. This Agreement is the entire agreement between the parties and supersedes any previous oral or written agreement or understanding between the Company and the Employee with respect to the subject matter hereof. There are no representations, warranties, promises or undertakings between the parties relating to the subject matter of this Agreement other than those set forth herein.

     21. Severability. If any provision of this Agreement shall be determined to be illegal or unenforceable, the remaining provisions of this Agreement shall remain in full force and effect, and this Agreement shall be construed as if the illegal or unenforceable provision were not a part hereof, so long as the remaining provisions of this Agreement shall be sufficient to carry out the overall intent of the parties as expressed herein.

     22. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

     23. Headings. The headings in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Employment agreement.

          IN WITNESS WHEREOF, the parties have executed this Employment agreement as of the date first above written.

HearUSA, Inc.
By:	/s/ Stephen J. Hansbrough
	Title:	President and CEO
EMPLOYEE
/s/ Paul A. Brown, M.D.
Paul A. Brown, M.D.

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EX-10.2

Exhibit 10.2

EMPLOYMENT AGREEMENT

          THIS EMPLOYMENT AGREEMENT (“Agreement”) is made and entered into as of the 31^st day of August, 2005, by and between HearUSA, Inc., a Delaware corporation (the “Company”), and Stephen J. Hansbrough (“Employee”).

Background:

     (a) Employee has been serving as the President and Chief Executive Officer of the Company prior to the date hereof pursuant to the terms of a five-year Employment Agreement dated effective May 12, 2003.

     (b) The Company and Employee wish to continue their relationship, but pursuant to the terms and conditions provided herein.

Agreement

     In consideration of the mutual promises hereinafter set forth, it is hereby agreed as follows:

     1. Employment. Employee shall continue to be employed by the Company, with such continued employment to be under the terms and conditions set forth herein, and Employee hereby accepts such continued employment upon the terms and conditions set forth herein. The Employment Agreement between the parties dated effective May 12, 2003, is hereby superseded in its entirety by this Agreement.

     2. Term of Employment. The term of this Agreement shall commence on the date first set forth above and shall end on the fifth anniversary of such date (the “Initial Employment Period”), and shall continue in effect for successive periods of five years thereafter unless either the Company or Employee gives written notice of non-renewal prior to the end of the then current term of this Agreement, or unless sooner terminated as provided in Section 6 or Section 7 hereof. The Initial Employment Period and any renewal terms of this Agreement are referred to herein as the “Term of Employment.”

     3. Location of Employment. Employee will continue to be located at the Company’s corporate offices in West Palm, Florida.

     4. Duties.

          (a) Employee shall serve in a full-time capacity with the title of President and Chief Executive Officer, reporting to the Board of Directors of the Company, and the Employee shall have the authority, duties, responsibilities and status (including office, title and reporting requirement) associated with the office of President and Chief Executive Officer (including those contemplated by the Company’s bylaws).

          (b) Employee shall be authorized by the Board of Directors to employ reasonable discretion in performing Employee’s responsibilities.

          (c) Employee shall have such further duties and responsibilities, not inconsistent with such position, as shall be assigned to the Employee by the Board of Directors of the Company.

          (d) Employee shall devote his full business time and attention and such skill, energy and best efforts as may be necessary for the faithful performance of duties assigned to Employee.

     5. Compensation.

          (a) During the Term of Employment, the Company shall pay Employee, as compensation for his services during the Employment Period, a base salary (the “Base Salary”) at a rate of Three Hundred Thousand Dollars ($300,000.00) per year, such Base Salary to be payable in accordance with the Company’s usual payment practices and to be subject to adjustment from time to time as may be agreed between the Employee and the Company. Employee shall be entitled to participate in the Company’s current employee benefit plans, and will in the future be entitled to participate in any new employee benefit plans that are put in place for the Company executive officers, provided that any such plans shall be subject to the approval of the Board of Directors. Additionally, Employee shall be entitled to such prerogatives of office as are the Company’s current practice, subject to the right of the Company to revise such practices.

          (b) The Employee will be eligible to participate in the Company’s stock plan and bonus plan, subject to the discretion of the Board of Directors of the Company.

          (c) All compensation shall be subject to customary withholding taxes and other employment taxes as required with respect thereto.

     6. Termination of Employment by the Company. This Agreement and Employee’s employment may be terminated by the Company as follows:

          (a) At the election of the Company, upon thirty days’ prior written notice to Employee in the event Employee becomes disabled and such disability continues for a period exceeding three (3) consecutive months. In the event of a disagreement concerning the existence of any such disability, the matter shall be resolved by a disinterested licensed physician chosen by the Company.

          (b) At the election of the Company, for “Cause” immediately upon notice by the Company to the Employee. “Cause” shall mean:

            (i) willful or prolonged absence from work by the Employee (other than by reason of disability) or failure, neglect or refusal by the Employee to perform his duties and responsibilities hereunder;

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            (ii) material breach by the Employee of any of the covenants contained in this Agreement;

            (iii) the Employee’s commission of fraud or dishonesty against the Company, its subsidiaries, parent, affiliates or their respective officers, directors, stockholders or employees; conduct intended to injure or having the effect of injuring the reputation, business or business relationships of the Company, its subsidiaries, parent or affiliates or their respective officers, directors or employees;

            (iv) upon a charge by a governmental entity against the Employee of any crime involving moral turpitude or which could reflect unfavorably upon the Company or upon the filing of any civil action involving the Employee and a charge of embezzlement, theft, fraud or other similar act; or

            (v) failure or refusal of Executive to materially comply with the policies, standards and regulations of the Company as from time to time may be made known to Executive.

          (c) At the election of the Company, at any time, without Cause immediately upon notice by the Company to Employee.

          (d) Upon termination of this Agreement by the Company, all rights and obligations of the parties hereunder shall cease, except: (i) if this Agreement is terminated without Cause by the Company prior to the end of the Term of this Agreement; or (ii) if the Company gives written notice of non-renewal of this Agreement pursuant to Section 2 above; or (iii) if there is a Change in Control of the Company (as defined below) and this Agreement is terminated without Cause by the Company, then (x) Employee shall receive a lump sum equal to his Base Salary times three plus any bonus or other long term incentive compensation to which the Employee would have been entitled absent the termination, (y) Employee’s health and life insurance benefits shall continue for a period of 36 months after such termination, and (z) all of Employee’s unvested options shall immediately vest and may be exercised by Employee for such post-termination period as is prescribed by such option agreements and related stock plan(s). Termination of employment pursuant to this Section 6 or otherwise shall not terminate or otherwise affect the rights and obligations of the parties pursuant to Sections 9 through 12 and Section 15 hereof.

          (e) Nothing contained herein will be construed to prevent Employee from seeking or obtaining other employment in the event the employment of Employee is terminated by the Company without Cause.

     7. Termination of Employment by Employee. Employee may terminate his employment with the Company at any time and for any reason, such termination to be effective immediately upon notice by Employee to the Company. Upon such termination by Employee, all rights and obligations of the parties hereunder shall cease, except: if Employee terminates his employment under this Agreement for Good Reason (as defined below) within one year of a Change in Control (as defined below), (i) Employee shall receive a lump sum equal to his Base Salary times three plus any bonus or other long term incentive compensation to which the Employee would have

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been entitled absent the termination, (ii) Employee’s health and life insurance benefits shall continue for a period of 36 months after such termination, and (iii) all of Employee’s unvested options shall immediately vest and may be exercised by Employee for such post-termination period as is prescribed by such option agreements and related stock plan(s). Termination of employment pursuant to this Section 7 or otherwise shall not terminate or otherwise affect the rights and obligations of the parties pursuant to Sections 9 through 12 and Section 15 hereof.

     8. Change in Control. For the purposes of this Agreement,

          (a) “Change in Control” shall mean the effective date of any of the following events occurring during the term of Employee’s employment: (a) consummation of any consolidation, merger, statutory share exchange or other business combination as a result of which persons who were stockholders of the Company immediately prior to the effective date thereof beneficially own less than 50% of the combined voting power in the election of directors of the surviving or resulting entity following the effective date; (b) individuals who, as of the date hereof, constitute the Board of Directors of the Company cease for any reason to constitute at least a majority of the Board of Directors of the Company, provided that any person who is elected as a director subsequent to the date hereof by a vote of, or upon the recommendation of, at least a majority of the directors comprising the current Board (other than an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Company) shall be considered a member of the current Board for these purposes; (c) consummation of any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company; (d) shareholder approval of any plan or proposal for the liquidation or dissolution of the Company; or (e) acquisition of beneficial ownership by any “person” or “group” (as such term is used Sections 13(d) and 14(d)(2) of the Exchange Act) of securities representing twenty percent (20%) or more of the combined voting power in the election of the Company’s directors, provided such acquisition has not been approved by at least a majority of the members of the Board of Directors in office immediately prior to the acquisition.

          (b) “Good Reason” shall mean, without Employee’s consent, (1) the scope of Employee’s responsibilities and/or discretion is/are materially diminished; or (2) the Company requires Employee to relocate to a location greater than 100 miles from the Company’s current corporate headquarters in West Palm Beach, Florida; or (3) Employee’s Base Salary is reduced by an amount greater than twenty-five percent (25%) and such reduction is not pursuant to a Company-wide employee salary reduction plan or program.

     9. Third-Party Confidentiality. Employee acknowledges that the Company has disclosed that the Company is now, and may be in the future, subject to duties to third parties to maintain information in confidence and secrecy. By executing this Agreement, Employee consents to be bound by any such duty owed by the Company to any third party.

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     10. Confidentiality; Return of Property.

          (a) Employee acknowledges that Employee’s work for the Company is expected to bring him into close contact with various confidential business data of the Company, its contracting parties, affiliates and customers not readily available to the public. Accordingly, Employee:

            (i) covenants and agrees that (A) during the Term of Employment, except pursuant to appropriate safeguards on confidentiality and only in connection with the business of the Company and (B) after the Term of Employment, on any basis for any reason, Employee shall not use or disclose to anyone except authorized personnel of the Company or the Company’s Affiliates (as defined below), whether or not for his benefit or otherwise, any confidential matters (collectively, “Confidential Matters”) concerning the Company or its suppliers, consultants, agents, other contracting parties or customers, whether such customers are deemed former, current or potential customers (collectively, the “Clients”), including without limitation all confidential technical information of the Company, secrets, trade secrets, proprietary software, copyrights, Client lists, lists of employees, confidential evaluations, mailing lists, details of consultant contracts, pricing policies, sales data and reports, margins, operational methods and processes, plans, financial information and other confidential business affairs, learned by Employee concerning the Company, its Clients or a third party, including without limitation any subsidiaries, partners, affiliates, shareholders, employees, lenders, suppliers, consultants, agents or joint venture partners of the Company (collectively, “Affiliates”); and

            (ii) covenants and agrees that (A) all confidential memoranda, notes, lists (including, without limitation, mailing and Client lists), records and other confidential documents, whether in written, electronic or other form (and all copies thereof) made or compiled by Employee or made available to him concerning the Company, its Clients and any Affiliates are the sole property of the Company, and (B) if such documents are in the possession or control of the Employee, the Employee shall deliver them, without retaining any copies thereof, to the Company promptly at the time of the Employee’s termination of employment or at any other time upon request by the Company.

          (b) Section 10 shall not apply to any information that: (i) is publicly available or becomes publicly available through no act or fault of Employee; (ii) is made known to Employee by a third party who did not obtain it directly or indirectly from the Company; (iii) is independently developed by Employee without use of the Company’s information as evidenced by credible written records of Employee; or (iv) is information required to be disclosed by operation of law, governmental regulation or court order provided that, if Employee determines that such disclosure might be required, Employee will promptly notify the Company and provide the Company, to the extent practicable, an opportunity to seek a protective order or other appropriate remedy to prevent such disclosure.

          (c) Upon the termination of the Employee’s employment hereunder for any reason, the Employee shall promptly return to the Company any property owned by the Company or furnished to the Employee by the Company for use in connection with Employee’s services hereunder.

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     11. Noncompetition/Conflicts of Interest.

          (a) The Employee covenants and agrees that the Employee shall not, directly or indirectly, as a principal, employee, partner, consultant, agent or otherwise, compete or assist in a Competitive Activity anywhere in the United States during the Term of Employment and for a period of two years after the termination of this Agreement (except termination without Cause by the Company or at the end of a term hereof) (the “Restricted Period”) without the express prior written consent of the Company; provided, however, that the running of the Restricted Period shall be tolled during any period of time in which Employee violates the provisions of this Section. “Competitive Activity” means the promotion, marketing or sale of hearing care products and services.

          (b) During the Restricted Period, Employee shall not, directly or indirectly, alone or in concert with others, solicit or encourage any employee of the Company, or an employee of any person or entity with which the Company has an agreement through which the Company and the person or entity are to act in concert with respect to the business of the Company, to leave their respective employment or hire any employee of the Company.

     12. Acknowledgment Regarding Restrictions. Employee recognizes and agrees that the restraints contained in Section 11 are reasonable in view of the Company’s legitimate interests in protecting its business. Employee further acknowledges that the limitations contained in Section 11 are reasonable as to the duration in time, as to geographic scope and as to the nature of the activities restricted. However, in the event an appropriate court determines that the provisions of Section 11 are excessively broad as to duration, geographic scope, prohibited activities or otherwise, the parties agree that Section 11 may be reduced or curtailed to the extent necessary to render it enforceable.

     13. Vacation and Holidays. The Employee shall be entitled to vacation allowance and holidays in accordance with the policies of the Company as in effect from time to time for its employees.

     14. Non-Waiver of Rights. The Company’s failure to enforce at any time any of the provisions of this Agreement or to require at any time performance by the Employee of any of the provisions hereof shall in no way be construed to be a waiver of such provisions or to affect either the validity of this Agreement, or any part of it, or the right of the Company thereafter to enforce each and every provision in accordance with the terms of this Agreement.

     15. The Company’s Right to Injunctive Relief. In the event of a breach or threatened breach of any of Employee’s duties and obligations under the terms and provisions of Section 10 or Section 11, Employee agrees that the Company shall be entitled to a temporary restraining order and a preliminary and permanent injunction to prevent such breach or threatened breach because the harm which might result to the Company’s business as a result of any noncompliance by Employee with any of the provisions of Section 10 or Section 11 may be irreparable. Employee acknowledges that the Company’s entitlement to injunctive relief shall be in addition to the Company’s entitlement to damages.

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     16. Assignments. This Agreement shall be freely assignable by the Company and shall inure to the benefit of, and be binding upon, the Company, its successors and assigns and/or any other corporate entity which shall succeed to the business being operated by the Company, but, being a contract for personal services, neither this Agreement nor any rights hereunder are assignable by the Employee.

     17. Governing Law. This Agreement shall be interpreted in accordance with and governed by the laws of the State of Delaware without regard to its conflict of law rules.

     18. Amendments. No modification, amendment or waiver of any of the provisions of this Agreement shall be effective unless in writing and signed by the parties hereto.

     19. Notices. Any notices to be given by either party hereunder shall be in writing and shall be deemed to have been duly given if delivered or mailed, certified or registered mail, postage prepaid, as follows: to the Company at 1250 Northpoint Parkway, West Palm Beach, Florida 33407, Attention: Board of Directors; and to Employee at the address set forth beneath his signature below; or to such other address as may have been furnished to the other party in writing.

     20. Entire Agreement. This Agreement is the entire agreement between the parties and supersedes any previous oral or written agreement or understanding between the Company and the Employee with respect to the subject matter hereof. There are no representations, warranties, promises or undertakings between the parties relating to the subject matter of this Agreement other than those set forth herein.

     21. Severability. If any provision of this Agreement shall be determined to be illegal or unenforceable, the remaining provisions of this Agreement shall remain in full force and effect, and this Agreement shall be construed as if the illegal or unenforceable provision were not a part hereof, so long as the remaining provisions of this Agreement shall be sufficient to carry out the overall intent of the parties as expressed herein.

     22. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

     23. Headings. The headings in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Employment agreement.

          IN WITNESS WHEREOF, the parties have executed this Employment agreement as of the date first above written.

HearUSA, Inc.
By:	/s/ Paul A. Brown, M.D.
	Title:	Chairman
EMPLOYEE
/s/ Stephen J. Hansbrough
Stephen J. Hansbrough

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EX-10.3

Exhibit 10.3

EMPLOYMENT AGREEMENT

          THIS EMPLOYMENT AGREEMENT (“Agreement”) is made and entered into as of the 31st day of August, 2005, by and between HearUSA, Inc., a Delaware corporation (the “Company”), and Gino Chouinard (“Employee”).

Background:

     (a) Employee has been serving as the Executive Vice President and Chief Financial Officer of the Company in a managerial capacity prior to the date hereof.

     (b) The Company wishes for the Employee to continue as an employee of the Company on the terms provided herein.

     (c) The Employee wishes to continue as an employee of the Company and is willing to render services to the Company on the terms and conditions hereinafter set forth;

Agreement

     In consideration of the mutual promises hereinafter set forth, it is hereby agreed as follows:

     1. Employment. Employee shall continue to be employed by the Company, with such continued employment to be under the terms and conditions set forth herein, and Employee hereby accepts such continued employment upon the terms and conditions set forth herein.

     2. Term of Employment. The term of this Agreement shall commence on the date first set forth above and shall end on the third anniversary of such date (the “Initial Employment Period”), and shall continue in effect for successive periods of three years thereafter unless either the Company or Employee gives written notice of non-renewal prior to the end of the then current term of this Agreement, or unless sooner terminated as provided in Section 6 or Section 7 hereof. The Initial Employment Period and any renewal terms of this Agreement are referred to herein as the “Term of Employment.”

     3. Location of Employment. Employee will continue to be located at the Company’s corporate offices in West Palm, Florida.

     4. Duties.

          (a) Employee shall serve in a full-time capacity with the title of Executive Vice President and Chief Financial Officer, reporting to the Chief Executive Officer of the Company, and the and the Employee shall have the authority, duties, responsibilities and status (including office, title and reporting requirement) associated with the office of Executive Vice President and Chief Financial Officer (including those contemplated by the Company’s bylaws).

          (b) Employee shall be authorized by the Chief Executive Officer to employ reasonable discretion in performing Employee’s responsibilities.

          (c) Employee shall have such further duties and responsibilities, not inconsistent with such position, as shall be assigned to the Employee by the Chief Executive Officer or the Board of Directors of the Company.

          (d) Employee shall devote his full business time and attention and such skill, energy and best efforts as may be necessary for the faithful performance of duties assigned to Employee.

     5. Compensation.

          (a) During the Term of Employment, the Company shall pay Employee, as compensation for his services during the Employment Period, a base salary (the “Base Salary”) at a rate of Two Hundred Ten Thousand Dollars ($210,000.00) per year, such Base Salary to be payable in accordance with the Company’s usual payment practices and to be subject to adjustment from time to time as may be agreed between the Employee and the Company. Employee shall be entitled to participate in the Company’s current employee benefit plans, and will in the future be entitled to participate in any new employee benefit plans that are put in place for the Company executive officers, provided that any such plans shall be subject to the approval of the Board of Directors. Additionally, Employee shall be entitled to such prerogatives of office as are the Company’s current practice, subject to the right of the Company to revise such practices.

          (b) The Employee will be eligible to participate in the Company’s stock plan and bonus plan, subject to the discretion of the Board of Directors of the Company.

          (c) All compensation shall be subject to customary withholding taxes and other employment taxes as required with respect thereto.

     6. Termination of Employment by the Company. This Agreement and Employee’s employment may be terminated by the Company as follows:

          (a) At the election of the Company, upon thirty days’ prior written notice to Employee in the event Employee becomes disabled and such disability continues for a period exceeding three (3) consecutive months. In the event of a disagreement concerning the existence of any such disability, the matter shall be resolved by a disinterested licensed physician chosen by the Company.

          (b) At the election of the Company, for “Cause” immediately upon notice by the Company to the Employee. “Cause” shall mean:

            (i) willful or prolonged absence from work by the Employee (other than by reason of disability) or failure, neglect or refusal by the Employee to perform his duties and responsibilities hereunder;

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            (ii) material breach by the Employee of any of the covenants contained in this Agreement;

            (iii) the Employee’s commission of fraud or dishonesty against the Company, its subsidiaries, parent, affiliates or their respective officers, directors, stockholders or employees; conduct intended to injure or having the effect of injuring the reputation, business or business relationships of the Company, its subsidiaries, parent or affiliates or their respective officers, directors or employees;

            (iv) upon a charge by a governmental entity against the Employee of any crime involving moral turpitude or which could reflect unfavorably upon the Company or upon the filing of any civil action involving the Employee and a charge of embezzlement, theft, fraud or other similar act; or

            (v) failure or refusal of Executive to materially comply with the policies, standards and regulations of the Company as from time to time may be made known to Executive.

          (c) At the election of the Company, at any time, without Cause immediately upon notice by the Company to Employee.

          (d) Upon termination of this Agreement by the Company, all rights and obligations of the parties hereunder shall cease, except: (i) if this Agreement is terminated without Cause by the Company prior to the end of the Term of this Agreement; or (ii) if the Company gives written notice of non-renewal of this Agreement pursuant to Section 2 above; or (iii) if there is a Change in Control of the Company (as defined below) and this Agreement is terminated without Cause by the Company, then (x) Employee shall receive a lump sum equal to his Base Salary times two plus any bonus or other long term incentive compensation to which the Employee would have been entitled absent the termination, (y) Employee’s health and life insurance benefits shall continue for a period of 24 months after such termination, and (z) all of Employee’s unvested options shall immediately vest and may be exercised by Employee for such post-termination period as is prescribed by such option agreements and related stock plan(s). Termination of employment pursuant to this Section 6 or otherwise shall not terminate or otherwise affect the rights and obligations of the parties pursuant to Sections 9 through 12 and Section 15 hereof.

          (e) Nothing contained herein will be construed to prevent Employee from seeking or obtaining other employment in the event the employment of Employee is terminated by the Company without Cause.

     7. Termination of Employment by Employee. Employee may terminate his employment with the Company at any time and for any reason, such termination to be effective immediately upon notice by Employee to the Company. Upon such termination by Employee, all rights and obligations of the parties hereunder shall cease, except: if Employee terminates his employment under this Agreement for Good Reason (as defined below) within one year of a Change in Control (as defined below), (i) Employee shall receive a lump sum equal to his Base Salary times two plus any bonus or other long term incentive compensation to which the Employee would have been

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entitled absent the termination, (ii) Employee’s health and life insurance benefits shall continue for a period of 24 months after such termination, and (iii) all of Employee’s unvested options shall immediately vest and may be exercised by Employee for such post-termination period as is prescribed by such option agreements and related stock plan(s). Termination of employment pursuant to this Section 7 or otherwise shall not terminate or otherwise affect the rights and obligations of the parties pursuant to Sections 9 through 12 and Section 15 hereof.

     8. Change in Control. For the purposes of this Agreement,

          (a) “Change in Control” shall mean the effective date of any of the following events occurring during the term of Employee’s employment: (a) consummation of any consolidation, merger, statutory share exchange or other business combination as a result of which persons who were stockholders of the Company immediately prior to the effective date thereof beneficially own less than 50% of the combined voting power in the election of directors of the surviving or resulting entity following the effective date; (b) individuals who, as of the date hereof, constitute the Board of Directors of the Company cease for any reason to constitute at least a majority of the Board of Directors of the Company, provided that any person who is elected as a director subsequent to the date hereof by a vote of, or upon the recommendation of, at least a majority of the directors comprising the current Board (other than an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Company) shall be considered a member of the current Board for these purposes; (c) consummation of any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company; (d) shareholder approval of any plan or proposal for the liquidation or dissolution of the Company; or (e) acquisition of beneficial ownership by any “person” or “group” (as such term is used Sections 13(d) and 14(d)(2) of the Exchange Act) of securities representing twenty percent (20%) or more of the combined voting power in the election of the Company’s directors, provided such acquisition has not been approved by at least a majority of the members of the Board of Directors in office immediately prior to the acquisition.

          (b) “Good Reason” shall mean, without Employee’s consent, (1) the scope of Employee’s responsibilities and/or discretion is/are materially diminished; or (2) the Company requires Employee to relocate to a location greater than 100 miles from the Company’s current corporate headquarters in West Palm Beach, Florida; or (3) Employee’s Base Salary is reduced by an amount greater than twenty-five percent (25%) and such reduction is not pursuant to a Company-wide employee salary reduction plan or program.

     9. Third-Party Confidentiality. Employee acknowledges that the Company has disclosed that the Company is now, and may be in the future, subject to duties to third parties to maintain information in confidence and secrecy. By executing this Agreement, Employee consents to be bound by any such duty owed by the Company to any third party.

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     10. Confidentiality; Return of Property.

          (a) Employee acknowledges that Employee’s work for the Company is expected to bring him into close contact with various confidential business data of the Company, its contracting parties, affiliates and customers not readily available to the public. Accordingly, Employee:

            (i) covenants and agrees that (A) during the Term of Employment, except pursuant to appropriate safeguards on confidentiality and only in connection with the business of the Company and (B) after the Term of Employment, on any basis for any reason, Employee shall not use or disclose to anyone except authorized personnel of the Company or the Company’s Affiliates (as defined below), whether or not for his benefit or otherwise, any confidential matters (collectively, “Confidential Matters”) concerning the Company or its suppliers, consultants, agents, other contracting parties or customers, whether such customers are deemed former, current or potential customers (collectively, the “Clients”), including without limitation all confidential technical information of the Company, secrets, trade secrets, proprietary software, copyrights, Client lists, lists of employees, confidential evaluations, mailing lists, details of consultant contracts, pricing policies, sales data and reports, margins, operational methods and processes, plans, financial information and other confidential business affairs, learned by Employee concerning the Company, its Clients or a third party, including without limitation any subsidiaries, partners, affiliates, shareholders, employees, lenders, suppliers, consultants, agents or joint venture partners of the Company (collectively, “Affiliates”); and

            (ii) covenants and agrees that (A) all confidential memoranda, notes, lists (including, without limitation, mailing and Client lists), records and other confidential documents, whether in written, electronic or other form (and all copies thereof) made or compiled by Employee or made available to him concerning the Company, its Clients and any Affiliates are the sole property of the Company, and (B) if such documents are in the possession or control of the Employee, the Employee shall deliver them, without retaining any copies thereof, to the Company promptly at the time of the Employee’s termination of employment or at any other time upon request by the Company.

          (b) Section 10 shall not apply to any information that: (i) is publicly available or becomes publicly available through no act or fault of Employee; (ii) is made known to Employee by a third party who did not obtain it directly or indirectly from the Company; (iii) is independently developed by Employee without use of the Company’s information as evidenced by credible written records of Employee; or (iv) is information required to be disclosed by operation of law, governmental regulation or court order provided that, if Employee determines that such disclosure might be required, Employee will promptly notify the Company and provide the Company, to the extent practicable, an opportunity to seek a protective order or other appropriate remedy to prevent such disclosure.

          (c) Upon the termination of the Employee’s employment hereunder for any reason, the Employee shall promptly return to the Company any property owned by the Company or furnished to the Employee by the Company for use in connection with Employee’s services hereunder.

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     11. Noncompetition/Conflicts of Interest.

          (a) The Employee covenants and agrees that the Employee shall not, directly or indirectly, as a principal, employee, partner, consultant, agent or otherwise, compete or assist in a Competitive Activity anywhere in the United States during the Term of Employment and for a period of one year after the termination of this Agreement (except termination without Cause by the Company or at the end of a term hereof) (the “Restricted Period”) without the express prior written consent of the Company; provided, however, that the running of the Restricted Period shall be tolled during any period of time in which Employee violates the provisions of this Section. “Competitive Activity” means the promotion, marketing or sale of hearing care products and services.

          (b) During the Restricted Period, Employee shall not, directly or indirectly, alone or in concert with others, solicit or encourage any employee of the Company, or an employee of any person or entity with which the Company has an agreement through which the Company and the person or entity are to act in concert with respect to the business of the Company, to leave their respective employment or hire any employee of the Company.

     12. Acknowledgment Regarding Restrictions. Employee recognizes and agrees that the restraints contained in Section 11 are reasonable in view of the Company’s legitimate interests in protecting its business. Employee further acknowledges that the limitations contained in Section 11 are reasonable as to the duration in time, as to geographic scope and as to the nature of the activities restricted. However, in the event an appropriate court determines that the provisions of Section 11 are excessively broad as to duration, geographic scope, prohibited activities or otherwise, the parties agree that Section 11 may be reduced or curtailed to the extent necessary to render it enforceable.

     13. Vacation and Holidays. The Employee shall be entitled to vacation allowance and holidays in accordance with the policies of the Company as in effect from time to time for its employees.

     14. Non-Waiver of Rights. The Company’s failure to enforce at any time any of the provisions of this Agreement or to require at any time performance by the Employee of any of the provisions hereof shall in no way be construed to be a waiver of such provisions or to affect either the validity of this Agreement, or any part of it, or the right of the Company thereafter to enforce each and every provision in accordance with the terms of this Agreement.

     15. The Company’s Right to Injunctive Relief. In the event of a breach or threatened breach of any of Employee’s duties and obligations under the terms and provisions of Section 10 or Section 11, Employee agrees that the Company shall be entitled to a temporary restraining order and a preliminary and permanent injunction to prevent such breach or threatened breach because the harm which might result to the Company’s business as a result of any noncompliance by Employee with any of the provisions of Section 10 or Section 11 may be irreparable. Employee acknowledges that the Company’s entitlement to injunctive relief shall be in addition to the Company’s entitlement to damages.

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     16. Assignments. This Agreement shall be freely assignable by the Company and shall inure to the benefit of, and be binding upon, the Company, its successors and assigns and/or any other corporate entity which shall succeed to the business being operated by the Company, but, being a contract for personal services, neither this Agreement nor any rights hereunder are assignable by the Employee.

     17. Governing Law. This Agreement shall be interpreted in accordance with and governed by the laws of the State of Delaware without regard to its conflict of law rules.

     18. Amendments. No modification, amendment or waiver of any of the provisions of this Agreement shall be effective unless in writing and signed by the parties hereto.

     19. Notices. Any notices to be given by either party hereunder shall be in writing and shall be deemed to have been duly given if delivered or mailed, certified or registered mail, postage prepaid, as follows: to the Company at 1250 Northpoint Parkway, West Palm Beach, Florida 33407, Attention: Chief Executive Officer; and to Employee at the address set forth beside his name below; or to such other address as may have been furnished to the other party in writing.

     20. Entire Agreement. This Agreement is the entire agreement between the parties and supersedes any previous oral or written agreement or understanding between the Company and the Employee with respect to the subject matter hereof. There are no representations, warranties, promises or undertakings between the parties relating to the subject matter of this Agreement other than those set forth herein.

     21. Severability. If any provision of this Agreement shall be determined to be illegal or unenforceable, the remaining provisions of this Agreement shall remain in full force and effect, and this Agreement shall be construed as if the illegal or unenforceable provision were not a part hereof, so long as the remaining provisions of this Agreement shall be sufficient to carry out the overall intent of the parties as expressed herein.

     22. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

     23. Headings. The headings in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Employment agreement.

          IN WITNESS WHEREOF, the parties have executed this Employment agreement as of the date first above written.

HearUSA, Inc.
By:	/s/ Stephen J. Hansbrough
	Title:	President and CEO
EMPLOYEE
/s/ Gino Chouinard
Gino Chouinard

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EX-10.4

Exhibit 10.4

EMPLOYMENT AGREEMENT

          THIS EMPLOYMENT AGREEMENT (“Agreement”) is made and entered into as of the 31st day of August, 2005, by and between HearUSA, Inc., a Delaware corporation (the “Company”), and Kenneth Schofield (“Employee”).

Background:

     (a) Employee has been serving as the Chief Operating Officer of the Company in a managerial capacity prior to the date hereof.

     (b) The Company wishes for the Employee to continue as an employee of the Company on the terms provided herein.

     (c) The Employee wishes to continue as an employee of the Company and is willing to render services to the Company on the terms and conditions hereinafter set forth;

Agreement

     In consideration of the mutual promises hereinafter set forth, it is hereby agreed as follows:

     1. Employment. Employee shall continue to be employed by the Company, with such continued employment to be under the terms and conditions set forth herein, and Employee hereby accepts such continued employment upon the terms and conditions set forth herein.

     2. Term of Employment. The term of this Agreement shall commence on the date first set forth above and shall end on the third anniversary of such date (the “Initial Employment Period”), and shall continue in effect for successive periods of three years thereafter unless either the Company or Employee gives written notice of non-renewal prior to the end of the then current term of this Agreement, or unless sooner terminated as provided in Section 6 or Section 7 hereof. For clarity, either Employee or the Company may terminate the Term of Employment, including during the Initial Employment Period, by providing written notice at any time and for any reason, with no liability to the other party other than pursuant to Section 6 or Section 7 hereof. The Initial Employment Period and any renewal terms of this Agreement are referred to herein as the “Term of Employment.”

     3. Location of Employment. Employee will continue to be located at the Company’s corporate offices in West Palm, Florida.

     4. Duties.

          (a) Employee shall serve in a full-time capacity with the title of Chief Operating Officer, reporting to the Chief Executive Officer of the Company, and the Employee shall have the authority, duties, responsibilities and status (including office, title and reporting requirement) associated with the office of Chief Operating Officer (including those contemplated by the Company’s bylaws).

          (b) Employee shall be authorized by the Chief Executive Officer to employ reasonable discretion in performing Employee’s responsibilities.

          (c) Employee shall have such further duties and responsibilities, not inconsistent with such position, as shall be assigned to the Employee by the Chief Executive Officer or the Board of Directors of the Company.

          (d) Employee shall devote his full business time and attention and such skill, energy and best efforts as may be necessary for the faithful performance of duties assigned to Employee.

     5. Compensation.

          (a) During the Term of Employment, the Company shall pay Employee, as compensation for his services during the Employment Period, a base salary (the “Base Salary”) at a rate of Two Hundred Ten Thousand Dollars ($210,000.00) per year, such Base Salary to be payable in accordance with the Company’s usual payment practices and to be subject to adjustment from time to time as may be agreed between the Employee and the Company. Employee shall be entitled to participate in the Company’s current employee benefit plans, and will in the future be entitled to participate in any new employee benefit plans that are put in place for the Company executive officers, provided that any such plans shall be subject to the approval of the Board of Directors. Additionally, Employee shall be entitled to such prerogatives of office as are the Company’s current practice, subject to the right of the Company to revise such practices.

          (b) The Employee will be eligible to participate in the Company’s stock plan and bonus plan, subject to the discretion of the Board of Directors of the Company.

          (c) All compensation shall be subject to customary withholding taxes and other employment taxes as required with respect thereto.

     6. Termination of Employment by the Company. This Agreement and Employee’s employment may be terminated by the Company as follows:

          (a) At the election of the Company, upon thirty days’ prior written notice to Employee in the event Employee becomes disabled and such disability continues for a period exceeding three (3) consecutive months. In the event of a disagreement concerning the existence of any such disability, the matter shall be resolved by a disinterested licensed physician chosen by the Company.

          (b) At the election of the Company, for “Cause” immediately upon notice by the Company to the Employee. “Cause” shall mean:

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            (i) willful or prolonged absence from work by the Employee (other than by reason of disability) or failure, neglect or refusal by the Employee to perform his duties and responsibilities hereunder;

            (ii) material breach by the Employee of any of the covenants contained in this Agreement;

            (iii) the Employee’s commission of fraud or dishonesty against the Company, its subsidiaries, parent, affiliates or their respective officers, directors, stockholders or employees; conduct intended to injure or having the effect of injuring the reputation, business or business relationships of the Company, its subsidiaries, parent or affiliates or their respective officers, directors or employees;

            (iv) upon a charge by a governmental entity against the Employee of any crime involving moral turpitude or which could reflect unfavorably upon the Company or upon the filing of any civil action involving the Employee and a charge of embezzlement, theft, fraud or other similar act; or

            (v) failure or refusal of Executive to materially comply with the policies, standards and regulations of the Company as from time to time may be made known to Executive.

          (c) At the election of the Company, at any time, without Cause immediately upon notice by the Company to Employee.

          (d) Upon termination of this Agreement by the Company, all rights and obligations of the parties hereunder shall cease, except: (i) if this Agreement is terminated without Cause by the Company prior to the end of the Term of this Agreement; or (ii) if the Company gives written notice of non-renewal of this Agreement pursuant to Section 2 above; or (iii) if there is a Change in Control of the Company (as defined below) and this Agreement is terminated without Cause by the Company, then (x) Employee shall receive a lump sum equal to his Base Salary times two plus any bonus or other long term incentive compensation to which the Employee would have been entitled absent the termination, (y) Employee’s health and life insurance benefits shall continue for a period of 24 months after such termination, and (z) all of Employee’s unvested options shall immediately vest and may be exercised by Employee for such post-termination period as is prescribed by such option agreements and related stock plan(s). Termination of employment pursuant to this Section 6 or otherwise shall not terminate or otherwise affect the rights and obligations of the parties pursuant to Sections 9 through 12 and Section 15 hereof.

          (e) Nothing contained herein will be construed to prevent Employee from seeking or obtaining other employment in the event the employment of Employee is terminated by the Company without Cause.

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     7. Termination of Employment by Employee. Employee may terminate his employment with the Company at any time and for any reason, such termination to be effective immediately upon notice by Employee to the Company. Upon such termination by Employee, all rights and obligations of the parties hereunder shall cease, except: if Employee terminates his employment under this Agreement for Good Reason (as defined below) within one year of a Change in Control (as defined below), (i) Employee shall receive a lump sum equal to his Base Salary times two plus any bonus or other long term incentive compensation to which the Employee would have been entitled absent the termination, (ii) Employee’s health and life insurance benefits shall continue for a period of 24 months after such termination, and (iii) all of Employee’s unvested options shall immediately vest and may be exercised by Employee for such post-termination period as is prescribed by such option agreements and related stock plan(s). Termination of employment pursuant to this Section 7 or otherwise shall not terminate or otherwise affect the rights and obligations of the parties pursuant to Sections 9 through 12 and Section 15 hereof.

     8. Change in Control. For the purposes of this Agreement,

          (a) “Change in Control” shall mean the effective date of any of the following events occurring during the term of Employee’s employment: (a) consummation of any consolidation, merger, statutory share exchange or other business combination as a result of which persons who were stockholders of the Company immediately prior to the effective date thereof beneficially own less than 50% of the combined voting power in the election of directors of the surviving or resulting entity following the effective date; (b) individuals who, as of the date hereof, constitute the Board of Directors of the Company cease for any reason to constitute at least a majority of the Board of Directors of the Company, provided that any person who is elected as a director subsequent to the date hereof by a vote of, or upon the recommendation of, at least a majority of the directors comprising the current Board (other than an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Company) shall be considered a member of the current Board for these purposes; (c) consummation of any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company; (d) shareholder approval of any plan or proposal for the liquidation or dissolution of the Company; or (e) acquisition of beneficial ownership by any “person” or “group” (as such term is used Sections 13(d) and 14(d)(2) of the Exchange Act) of securities representing twenty percent (20%) or more of the combined voting power in the election of the Company’s directors, provided such acquisition has not been approved by at least a majority of the members of the Board of Directors in office immediately prior to the acquisition.

          (b) “Good Reason” shall mean, without Employee’s consent, (1) the scope of Employee’s responsibilities and/or discretion is/are materially diminished; or (2) the Company requires Employee to relocate to a location greater than 100 miles from the Company’s current corporate headquarters in West Palm Beach, Florida; or (3) Employee’s Base Salary is reduced by an amount greater than twenty-five percent (25%) and such reduction is not pursuant to a Company-wide employee salary reduction plan or program.

     9. Third-Party Confidentiality. Employee acknowledges that the Company has disclosed that the Company is now, and may be in the future, subject to duties to third parties to maintain information in confidence and secrecy. By executing this Agreement, Employee consents to be bound by any such duty owed by the Company to any third party.

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     10. Confidentiality; Return of Property.

          (a) Employee acknowledges that Employee’s work for the Company is expected to bring him into close contact with various confidential business data of the Company, its contracting parties, affiliates and customers not readily available to the public. Accordingly, Employee:

            (i) covenants and agrees that (A) during the Term of Employment, except pursuant to appropriate safeguards on confidentiality and only in connection with the business of the Company and (B) after the Term of Employment, on any basis for any reason, Employee shall not use or disclose to anyone except authorized personnel of the Company or the Company’s Affiliates (as defined below), whether or not for his benefit or otherwise, any confidential matters (collectively, “Confidential Matters”) concerning the Company or its suppliers, consultants, agents, other contracting parties or customers, whether such customers are deemed former, current or potential customers (collectively, the “Clients”), including without limitation all confidential technical information of the Company, secrets, trade secrets, proprietary software, copyrights, Client lists, lists of employees, confidential evaluations, mailing lists, details of consultant contracts, pricing policies, sales data and reports, margins, operational methods and processes, plans, financial information and other confidential business affairs, learned by Employee concerning the Company, its Clients or a third party, including without limitation any subsidiaries, partners, affiliates, shareholders, employees, lenders, suppliers, consultants, agents or joint venture partners of the Company (collectively, “Affiliates”); and

            (ii) covenants and agrees that (A) all confidential memoranda, notes, lists (including, without limitation, mailing and Client lists), records and other confidential documents, whether in written, electronic or other form (and all copies thereof) made or compiled by Employee or made available to him concerning the Company, its Clients and any Affiliates are the sole property of the Company, and (B) if such documents are in the possession or control of the Employee, the Employee shall deliver them, without retaining any copies thereof, to the Company promptly at the time of the Employee’s termination of employment or at any other time upon request by the Company.

          (b) Section 10 shall not apply to any information that: (i) is publicly available or becomes publicly available through no act or fault of Employee; (ii) is made known to Employee by a third party who did not obtain it directly or indirectly from the Company; (iii) is independently developed by Employee without use of the Company’s information as evidenced by credible written records of Employee; or (iv) is information required to be disclosed by operation of law, governmental regulation or court order provided that, if Employee determines that such disclosure might be required, Employee will promptly notify the Company and provide the Company, to the extent practicable, an opportunity to seek a protective order or other appropriate remedy to prevent such disclosure.

          (c) Upon the termination of the Employee’s employment hereunder for any reason, the Employee shall promptly return to the Company any property owned by the Company or furnished to the Employee by the Company for use in connection with Employee’s services hereunder.

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     11. Noncompetition/Conflicts of Interest.

          (a) The Employee covenants and agrees that the Employee shall not, directly or indirectly, as a principal, employee, partner, consultant, agent or otherwise, compete or assist in a Competitive Activity anywhere in the United States during the Term of Employment and for a period of one year after the termination of this Agreement (except termination without Cause by the Company or at the end of a term hereof) (the “Restricted Period”) without the express prior written consent of the Company; provided, however, that the running of the Restricted Period shall be tolled during any period of time in which Employee violates the provisions of this Section. “Competitive Activity” means the promotion, marketing or sale of hearing care products and services.

          (b) During the Restricted Period, Employee shall not, directly or indirectly, alone or in concert with others, solicit or encourage any employee of the Company, or an employee of any person or entity with which the Company has an agreement through which the Company and the person or entity are to act in concert with respect to the business of the Company, to leave their respective employment or hire any employee of the Company.

     12. Acknowledgment Regarding Restrictions. Employee recognizes and agrees that the restraints contained in Section 11 are reasonable in view of the Company’s legitimate interests in protecting its business. Employee further acknowledges that the limitations contained in Section 11 are reasonable as to the duration in time, as to geographic scope and as to the nature of the activities restricted. However, in the event an appropriate court determines that the provisions of Section 11 are excessively broad as to duration, geographic scope, prohibited activities or otherwise, the parties agree that Section 11 may be reduced or curtailed to the extent necessary to render it enforceable.

     13. Vacation and Holidays. The Employee shall be entitled to vacation allowance and holidays in accordance with the policies of the Company as in effect from time to time for its employees.

     14. Non-Waiver of Rights. The Company’s failure to enforce at any time any of the provisions of this Agreement or to require at any time performance by the Employee of any of the provisions hereof shall in no way be construed to be a waiver of such provisions or to affect either the validity of this Agreement, or any part of it, or the right of the Company thereafter to enforce each and every provision in accordance with the terms of this Agreement.

     15. The Company’s Right to Injunctive Relief. In the event of a breach or threatened breach of any of Employee’s duties and obligations under the terms and provisions of Section 10 or Section 11, Employee agrees that the Company shall be entitled to a temporary restraining order and a preliminary and permanent injunction to prevent such breach or threatened breach because the harm which might result to the Company’s business as a result of any noncompliance by Employee with any of the provisions of Section 10 or Section 11 may be irreparable. Employee acknowledges that the Company’s entitlement to injunctive relief shall be in addition to the Company’s entitlement to damages.

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     16. Assignments. This Agreement shall be freely assignable by the Company and shall inure to the benefit of, and be binding upon, the Company, its successors and assigns and/or any other corporate entity which shall succeed to the business being operated by the Company, but, being a contract for personal services, neither this Agreement nor any rights hereunder are assignable by the Employee.

     17. Governing Law. This Agreement shall be interpreted in accordance with and governed by the laws of the State of Delaware without regard to its conflict of law rules.

     18. Amendments. No modification, amendment or waiver of any of the provisions of this Agreement shall be effective unless in writing and signed by the parties hereto.

     19. Notices. Any notices to be given by either party hereunder shall be in writing and shall be deemed to have been duly given if delivered or mailed, certified or registered mail, postage prepaid, as follows: to the Company at 1250 Northpoint Parkway, West Palm Beach, Florida 33407, Attention: Chief Executive Officer; and to Employee at the address set forth beside his name below; or to such other address as may have been furnished to the other party in writing.

     20. Entire Agreement. This Agreement is the entire agreement between the parties and supersedes any previous oral or written agreement or understanding between the Company and the Employee with respect to the subject matter hereof. There are no representations, warranties, promises or undertakings between the parties relating to the subject matter of this Agreement other than those set forth herein.

     21. Severability. If any provision of this Agreement shall be determined to be illegal or unenforceable, the remaining provisions of this Agreement shall remain in full force and effect, and this Agreement shall be construed as if the illegal or unenforceable provision were not a part hereof, so long as the remaining provisions of this Agreement shall be sufficient to carry out the overall intent of the parties as expressed herein.

     22. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

     23. Headings. The headings in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Employment agreement.

          IN WITNESS WHEREOF, the parties have executed this Employment Agreement as of the date first above written.

HearUSA, Inc.
By:	/s/ Stephen J. Hansbrough
	Title:	President and CEO
EMPLOYEE
/s/ Kenneth Schofield
Kenneth Schofield

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EX-10.5

Exhibit 10.5

CHANGE IN CONTROL AGREEMENT

     This Change in Control Agreement (this “Agreement”) is made and entered into as of                     , 2005 by and between HearUSA, Inc., a Delaware corporation (the “Company”) and                     , a resident of the state of                      (the “Executive”).

RECITALS

     A. The Company believes that it is in the best interests of the Company and its shareholders to foster the continuous employment of its key executives.

     B. The Company has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of the Executive to his assigned duties without distraction arising from the possibility of a change in control.

     C. The Executive wants to provide dedicated services to the Company on the condition that he receive adequate assurance of appropriate compensation in the event of a change in control.

AGREEMENT

     NOW THEREFORE, in consideration of the premises and mutual covenants contained herein, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows:

     1. Payment Upon Termination. In the event, within eighteen (18) months following a Change in Control, Executive’s employment is terminated other than for Cause or if Executive terminates employment for Good Reason, Executive shall be entitled to the following:

          (i) severance compensation equal to one and one-half (1.5) times the Executive’s annual base compensation immediately prior to the Change in Control;

          (ii) an amount equal to the bonus or other long-term incentive compensation to which the Executive would have been entitled absent the termination;

          (iii) continuation of Executive’s health and life insurance as provided immediately prior to the Change in Control for a period of one year; and

          (iv) accelerated vesting of all of Executive’s unvested options so that all of Executive’s options vest upon such termination and may be exercised by Executive for such post-termination period as is prescribed by such option agreement(s) and related stock plan(s).

     2. Definitions. For purposes of this Agreement,

          “Cause” means: (a) willful or prolonged absence from work by the Executive (other than by reason of disability) or failure, neglect or refusal by the Executive to perform his duties and responsibilities hereunder; (b) the Executive’s commission of fraud or dishonesty against the Company, its subsidiaries, parent, affiliates or their respective officers, directors, stockholders or employees; (c) conduct intended to injure or having the effect of injuring the reputation, business or business relationships of the Company, its subsidiaries, parent or affiliates or their respective officers, directors or employees; or (d) upon a charge by a governmental entity against the Executive of any crime involving moral turpitude or which could reflect unfavorably upon the Company or upon the filing of any civil action involving the Executive and a charge of embezzlement, theft, fraud or other similar act; or (e) failure or refusal of Executive to materially comply with the policies, standards and regulations of the Company as from time to time may be made known to Executive.

          “Change in Control” means the effective date of any of the following events occurring during Executive’s employment: (a) consummation of any consolidation, merger, statutory share exchange or other business combination as a result of which persons who were stockholders of the Company immediately prior to the effective date thereof beneficially own less than 50% of the combined voting power in the election of directors of the surviving or resulting entity following the effective date; (b) individuals who, as of the date hereof, constitute the Board of Directors of the Company cease for any reason to constitute at least a majority of the Board of Directors of the Company, provided that any person who is elected as a director subsequent to the date hereof by a vote of at least a majority of the directors comprising the current Board (other than an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Company) shall be considered a member of the current Board for these purposes; (c) consummation of any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company; (d) shareholder approval of any plan or proposal for the liquidation or dissolution of the Company; or (e) acquisition of beneficial ownership by any “person” or “group” (as such term is used Sections 13(d) and 14(d)(2) of the Exchange Act) of securities representing twenty percent (20%) or more of the combined voting power in the election of the Company’s directors, provided such acquisition has not been approved by at least a majority of the members of the Board of Directors in office immediately prior to the acquisition.

          “Good Reason” means, without Executive’s consent: (a) a reduction of more than twenty-five percent (25%) in the Executive’s base compensation, or any reduction in the aggregate value of the Executive’s benefits, which reduction is not pursuant to a general change in compensation or benefits applicable to all similarly situated Company executives; (b) a significant reduction or modification in Executive’s duties, responsibilities or authority from that immediately prior to a Change in Control (excluding reassignment to a position or projects of similar stature); or (c) transfer of Executive’s principal place of employment to a location more than one hundred (100) miles from his principal place of employment immediately prior to a Change in Control.

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     3. Successors; Binding Agreement. This Agreement shall be binding upon and shall inure to the benefit of the Company and its successors and assigns. The Company shall require any successors and assigns to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place. Neither this Agreement nor any right or interest hereunder shall be assignable or transferable by the Executive, his beneficiaries or legal representatives.

     4. Reformation/Severability. If any provision of this Agreement is declared invalid by any tribunal, then such provision shall be deemed automatically adjusted to the minimum extent necessary to conform to the requirements for validity as declared at such time and, as so adjusted, shall be deemed a provision of this Agreement as though originally included herein. In the event that the provision invalidated is of such a nature that it cannot be so adjusted, the provision shall be deemed deleted from this Agreement as though such provision had never been included herein. In either case, the remaining provisions of this Agreement shall remain in effect.

     5. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to its conflicts of law principles.

     6. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.

     IN WITNESS WHEREOF, the parties hereto have agreed to the terms contained in, and have duly executed, this Change in Control Agreement as of the date first written above.

Executive:	HearUSA, Inc.
	By:
	Title:

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EX-31.1

Exhibit 31.1

Sarbanes-Oxley Section 302 Certification

I, Stephen J. Hansbrough, certify that:

1. I have reviewed this quarterly report on Form 10-Q of HearUSA, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this l report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluations; and
c)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 9, 2005

/s/ Stephen J. Hansbrough

Stephen J. Hansbrough

Chief Executive Officer

EX-31.2

Exhibit 31.2

Sarbanes-Oxley Section 302 Certification

I, Gino Chouinard, certify that:

1. I have reviewed this quarterly report on Form 10-Q of HearUSA, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this l report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluations; and
c)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 9, 2005

/s/ Gino Chouinard

Gino Chouinard

Chief Financial Officer

EX-32

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report on Form 10-Q of HearUSA, Inc. (the “Company”) for the period ending October 1, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Stephen J. Hansbrough, Chief Executive Officer and Gino Chouinard, Chief Financial Officer of the Company, certify, to the best of our knowledge, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Stephen J. Hansbrough

Stephen J. Hansbrough

Chief Executive Officer

HearUSA, Inc.

November 9, 2005

/s/ Gino Chouinard

Gino Chouinard

Chief Financial Officer

HearUSA, Inc.

November 9, 2005