Audiotech Healthcare Corp. has released its financial results for the three-month period ended Dec. 31, 2006.

Total revenues for the first quarter ended Dec. 31, 2006, were $937,915, an increase of 17.1 per cent over the same quarter a year ago, and up from the $811,789 in sales reported during the previous quarter. Revenue growth was achieved in both the Canadian and U.S. clinic operations. Revenues from the company's Canadian operations totalled $645,406, while the U.S. operations contributed revenues of $292,509, representing growth of 13.7 per cent and 25.5 per cent respectively. During November, 2006, the company opened a new clinic in Victoria, B.C. The current reporting period reflects the initial start-up contribution of this facility, however, it was not until February, 2007, that this clinic started to contribute meaningful revenues. U.S. revenue growth was aided by the reversal of a long-term trend that saw the U.S. dollar depreciate substantially over the past several years.

          FINANCIAL RESULTS
     Three months ended Dec. 31

                          2006      2005

Canadian revenues     $645,406  $567,878
U.S. revenues          292,509   233,152
                      --------  --------
Total revenues         937,815   801,030
                      --------  --------
Operating cash flow     49,905    34,436
Net earnings            17,000     4,147
Earnings per share
(basic)                 0.0013    0.0003

Gross margins slightly exceeded expectations, rising from 68.9 per cent of sales during the fourth quarter of fiscal 2006 to 70.2 per cent for the three-month period ended Dec. 31, 2006. Gross margins were 68.3 per cent during the comparative quarter a year earlier. Management remains confident that the factors that have contributed to the strong gross margins reported by the company over the past six quarters will continue into the foreseeable future.

As a result of the opening of the Victoria clinic and the relocation of the northwest Calgary clinic during the quarter, most direct clinic expense categories saw modest increases during the quarter compared with previous reporting periods. Included in these expenses are certain on-time costs associated with these initiatives. As the Victoria clinic begins to contribute more meaningful revenues during the second and third quarters of fiscal 2007, it is expected that direct costs as a percentage of sales should begin to decline. Direct clinic operating costs for the quarter were $508,093 compared with $425,335 during the first quarter of fiscal 2006. This represents an increase of 19.5 per cent. The most notable increase in direct clinic expenses was in the category of selling expenses which included initial start-up marketing for the new facility in Victoria, and marketing directed at ensuring client retention after the clinic relocation in Calgary.

General and administrative expenses totalled $126,537 during the quarter which compares favourably with the average quarterly G&A expense for fiscal 2005 which was just over $133,000. As expected, general and administrative costs declined as a percentage of sales from 14.5 per cent during fiscal 2006 to 13.5 per cent during the first quarter of fiscal 2007.

First quarter earnings were $17,000 or 0.13 cent per share, up from $4,147 or 0.03 cent a year earlier. It should be noted that the first quarter is typically the company's weakest from an earnings perspective due to a typical slowdown in patient visits during the Christmas holiday season. Before the deduction of the debenture discount, earnings were $23,375 or 0.17 cent per share. Net operating cash flow was $49,905, an increase of 44.9 per cent over the cash flow reported for the same quarter in fiscal 2006.

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 than was experienced in fiscal 2006, and no provision for income taxes has been applied during the first quarter.

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 2006).

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

As at Dec. 31, 2006, Audiotech had a cash balance of $391,837. Working capital was negative $88,968 as a result of the reclassification of certain long-term liabilities during the latter half of fiscal 2006 as short-term (current liabilities) as repayment of these liabilities is now scheduled within the next 12 months. These liabilities include convertible debentures totalling $243,995 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 financing 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.

A total of $37,718 in long-term debt obligations (including capital leases) was repaid during the quarter ended Dec. 31, 2006. A total of $50,000 in new debt financing was secured during the period, primarily to finance the opening of the Victoria operation and relocation of the northwest Calgary clinic.

Total long-term debt as at Dec. 31, 2006, was $1,264,191 including obligations under capital leases. The current portion of long-term debt due within the next 12 months was $489,467. 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.

A total of $66,306 in capital purchases, primarily related to the opening of the Victoria clinic and upgrades to the relocated NW Calgary clinic, was made during the first quarter of fiscal 2007. These purchased were financed from working capital and $50,000 in new long-term debt financing.

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