Audiotech Healthcare Corp. is releasing its year-end financial results for fiscal year ended Sept. 30, 2006.

Total revenues for the fourth quarter of fiscal 2006 were $811,789, compared with $913,300 during the same quarter a year earlier. Management attributes a portion of this decrease in fourth quarter revenue to an unusual distribution of production staff vacation days (about 10 per cent of the quarter) and considers it to be an anomaly. Revenues from the company's Canadian operations totalled $595,246, while the U.S. operations contributed revenues of $216,543. The reported revenues from Audiotech's U.S. operations continued to be negatively impacted by the strength of the Canadian dollar. As noted above, the U.S. dollar is now appreciating versus the Canadian dollar so reported revenues from the company's U.S. operations in fiscal 2007 are expected to strengthen. Total sales for the fiscal year ended Sept. 30, 2006, were $3,552,008.

As has been the case for the past year, Audiotech continued to post very strong gross profit margins during the fourth quarter. Gross margins for the fourth quarter and for the entire fiscal year were 68.9 per cent of sales. This compares with 65.4 per cent in fiscal 2005. Management remains confident that the factors that have contributed to the strong gross margins reported by the company over the past five quarters will continue into the foreseeable future.

Once again, other direct clinic costs (direct costs excluding materials and freight) during the quarter remained below the levels reported for the corresponding period last year. Direct clinic costs of $430,573 during the quarter compare with $498,675 during the quarter ended Sept. 30, 2005, a reduction of 13.7 per cent. Similarly, for the fiscal year, other direct clinic costs declined by 9.1 per cent to $1,736,943. Cost reductions for the fiscal year were experienced in several areas including clinic overheads, salaries and selling expenses, following the trend set in earlier quarters.

Over all, for fiscal 2006, G&A expenses rose 3.6 per cent due to a small increase in general expenses, professional fees, and administrative salaries and benefits. These increases were partially offset by a decline in interest costs. Management expects that general and administrative costs will decline as a percentage of sales in fiscal 2007.

Fourth quarter operating cash flow and earnings were below expectations largely due to a bigger-than-expected corporate income tax liability for the company's B.C. operating subsidiary, and a modest softening of revenues from both the Canadian and U.S. clinics during the quarter as noted above. Audiotech recorded a loss after taxes and amortization of the debenture discount of $106,496 or 0.8 cent per share for the quarter. Of this, $65,345 pertains to corporate income taxes that relate to the entire fiscal year, not just the fourth quarter reporting period.

Effective Oct. 1, 2006, Audiotech's two principal Canadian operating subsidiaries were amalgamated. The amalgamation will afford the consolidated company greater tax planning opportunities and the ability to better use loss carryforwards in fiscal 2007 and beyond to reduce the consolidated corporate income tax liability. Accordingly, Audiotech expects a more favourable tax position in fiscal 2007.

Despite the unexpectedly high tax burden in fiscal 2006 and softer-than-anticipated fourth quarter revenues, the company reported net earnings of $101,804 or 0.8 cent per share for the year ended Sept. 30, 2006, an increase of 29.6 per cent over fiscal 2005. Net income before the amortization of the debenture discount totalled $127,304, and operating cash flow reached $230,908.

Both the Canadian and U.S. operations were profitable during fiscal 2006.

During the quarter, a total of $6,375 in amortization related to the debenture discount was recorded on the statement of income, thereby reducing net earnings by the same amount ($6,375 for the same quarter in fiscal 2005). For the year ended Sept. 30, 2006, a total of $25,500 in amortization of the debenture discount has been recorded versus $46,025 during the fiscal 2005.

Details of all expenses can be found in the unaudited interim consolidated financial statements for the year ended Sept. 30, 2006.

As at Sept. 30, 2006, Audiotech had a cash balance of $393,756. Working capital was negative $84,531 as a result of the reclassification of certain long-term liabilities as short-term (current liabilities) as the repayment of these liabilities is now scheduled within the next 12 months. This includes convertible debentures totalling $250,370 which bear interest of 10 per cent per year and mature in April, 2007, as well as the 10 per cent promissory notes which mature in June, 2007. Management has been in discussions with its financial partners and fully expects that these instruments will be refinanced under long-term arrangements at more favourable interest rates when they come due. Accordingly, management is very confident that the company's working capital position is sufficient to meet its needs. Investments have and will continue to be made in new and additional equipment as new clinics are opened or upgraded. Such expenditures will be financed from existing working capital, capital leases, or through funding arrangements with key hearing aid suppliers as appropriate under the circumstances. The company may undertake an equity financing in the near future to accelerate the company's debt retirement goals and to reduce future interest costs.

Details of all long-term debt and capital lease obligations as well as debt repayments and other financial commitments due during the next five years are disclosed in the notes to the consolidated financial statements for the period (see Note 3, 4 and 10). A total of $20,568 in long-term debt obligations were repaid during the quarter ended Sept. 30, 2006, bringing the total repaid to date in fiscal 2006 to $166,282. A total of $65,000 in new debt was secured during the year. Total long-term debt as at Sept. 30, 2006, was $1,196,801, a reduction of 7.2 per cent from the long-term debt outstanding a year earlier. The current portion of long-term debt due within the next 12 months was $467,033. This amount includes expiring debentures and promissory notes as discussed above that are expected to be refinanced upon maturity on terms more favourable to the company.

Outlook