An estimated 30 million individuals, or about 20% of the adult population in North America, are living with some level of hearing impairment. Approximately 85% of Audiotech's clients are over the age of 50. According to a recent study, the number of North Americans aged 65 or older is expected to more than double by the year 2025. As the baby boomer generation ages, the proportion of the North American population of retirement age will increase dramatically.

There is strong evidence to suggest that retiring baby boomers will seek and demand a better quality of life. Medical science is also making it possible for them to live longer than any other generation before them. Audiotech is optimistic that baby boomers, in their attempt to improve the quality of the retirement years, will embrace new hearing aid technologies. The generation-long practice of listening to extremely loud music may also have a considerable impact on the demand for hearing care services as such sound levels are typically well in excess of the noise levels generated by industrial applications that have long been blamed for hearing loss.

It is estimated that as many as 14,000 clinics compete for a share of the US$2 billion annual hearing healthcare market. A vast majority of hearing care providers only operate one or two clinics. As has been witnessed in many other medical services industries such as pharmacy, optical, medical imaging, and traditional family practice clinics, the hearing care industry in North America is undergoing consolidation. Tremendous opportunities exist for qualified operators, like Audiotech, to consolidate the industry through a well-defined strategic acquisition program. With each successive acquisition, the company is able to boost its buying power with major suppliers to leverage further bulk purchase discounts. Additional economies of scale in finance and administrative functions are also created, thereby enhancing overall profitability. The added buying power and economies of scale can be leveraged to increase the overall profitability of each of the company's clinics.

A significant proportion of hearing clinics are operated by sole practitioners who are close to retirement age. According to The Hearing Review, an industry trade journal, approximately 27% of hearing instrument specialists are at least 61 years of age. As these individuals begin to retire over the next 5 years, it is believed that the number of practices that will become available for sale will increase significantly. An industry trend towards greater professional accreditation and the need to adopt new technologies will also make it more compelling for older practitioners to elect to retire early rather than undertake additional training.

Over the next several years, management intends to conduct an aggressive acquisition program to build Audiotech's existing clinic network. The program will initially be focused on markets in Western Canada and the Northwestern U.S. This geographic focus will allow the company to concentrate on markets that have been less actively consolidated by competitors while also ensuring that management can keep in close intimate contact with each operation. All potential acquisitions are carefully screened by management to ensure the economic viability of the operations, and that significant economies of scale will be generated through its centralized management and operating systems to enhance their overall profitability.

Management will also consider the start-up of new fully-staffed clinics or satellite clinics in key geographic markets lacking suitable acquisition candidates when economically feasible. Satellite clinics can be very effective in that they more effectively utilize current audiology staff and create additional regional economies of scale. As was experienced with our Salmon Arm clinic, satellite clinics can be transformed into full fledged free-standing clinics once a loyal customer/patient base has been established. The recent opening of satellite clinics in Canmore, Alberta, Blackfoot, Idaho, and Revelstoke, B.C., are examples of how satellite start-ups can complement our consolidation strategy.

HearingDepot.com, which launched in 2002, will eventually cater to both the Business-to-Business and Business-to-Consumer markets within the hearing care industry. In essence, the primary goal of HearingDepot.com is to convert the considerable existing traffic generated by HearingCenterOnline.com and other partnered web sites into meaningful new revenue streams. Management is securing distribution agreements with several hearing care product manufacturers, pursuant to which HearingDepot.com will become, a quality, profitable on-line supplier of their respective product lines. In addition to providing a venue for the direct sale of assistive products to hearing impaired consumers, the site will ultimately serve as an efficient on-line supply system for Audiotech's clinic netwrok and small independent clinics seeking increased efficiencies and economies of scale.