Audiotech Healthcare Corp. has released its financial results for the first quarter of fiscal 2011.

Revenues from the Canadian operations for the first quarter of fiscal 2011 totalled $997,202, an increase of 11.3 per cent over the corresponding quarter in fiscal 2010. Sales from the U.S. clinics declined by 1.5 per cent, from $320,262 during the first three months of fiscal 2010 to $315,549, due in large part to the unfavourable change in U.S. dollar exchange rates. Total revenues for the first quarter ended Dec. 31, 2010, were $1,312,751, an increase of 7.9 per cent over the same quarter a year earlier.

             FINANCIAL HIGHLIGHTS
 
                           Three months ended
                                     Dec. 31,
                             2010        2009

Canadian revenues      $  997,202  $  896,084
U.S. revenues             315,549     320,262
Total revenues          1,312,751   1,216,346
Operating cash flow       134,553      54,787
Pretax net earnings       140,010      21,280
Net earnings           $  104,085  $   21,280
EPS -- basic                0.008       0.002
EPS -- diluted              0.008       0.002

Gross margins remained strong at 70.9 per cent, versus 69.7 per cent during the first quarter of fiscal 2010 and 69.3 per cent in fiscal 2009. Gross margins were on par with internal projections. The change in gross margins experienced during the quarter was within the expected range that would be anticipated with typical day-to-day minor variations in the mix of product sold. The change in gross margins was also due to the maturing of some of the clinics opened during the past couple of years. Such day-to-day variations can occur as a result of special promotions of higher-margin or lower-margin products and because of a variation in the ratio of private hearing aid sales versus those subsidized by various health care programs. Additionally, newer clinic operations often exhibit lower gross margins than well-established clinics due to their lower product volumes, as well as incentive programs and sales discounts offered to establish a position in a new marketplace. Over the past five years, the company has generally achieved steadily increasing gross margins as a result of the negotiation of bulk purchasing agreements with major hearing aid manufacturers. The greater number of new clinics operating during fiscal 2008 contributed to the temporary decline in margins in fiscal 2008. Management expects gross margins to range from roughly 69 per cent to 71 per cent during the remainder of fiscal 2011.

Direct clinic costs, which include selling and advertising costs, rent and clinic overheads, clinic labour costs, and amortization of audiology equipment, declined by 6.4 per cent during the first quarter of fiscal 2011 as compared with the same quarter a year ago. Significant reductions in both selling expenses and amortization costs were realized. Selling costs declined by 28.1 per cent due to the reduced need for advertising as certain newer clinics have matured and as a result of the receipt of co-op marketing contributions from hearing aid manufacturers. Direct clinic costs as a percentage of sales declined significantly from 56.7 per cent in the first quarter of fiscal 2010 to only 49.2 per cent during the current quarter.

General and administrative expenses totalled $144,587 for the quarter, a decline of 3 per cent from the $149,042 reported during the same period last year. All costs were on budget with management's expectations and the average level of expenses from fiscal 2010.

Pretax net income was $140,010 for the first quarter, an increase of over 500 per cent on a year-over-year basis. This is on par with the pretax earnings in the previous two quarters.

During the first quarter of fiscal 2011, the company's remaining tax-loss carry forwards were used and applied against taxable income. The company's net income significantly exceeded the tax-loss carry forwards available. Accordingly, a provision for current income taxes of $35,925 was recorded during the quarter, compared with nil during the same quarter last year. As a result of the company's continued strong profitability, management expects to recognize a future tax asset related to timing differences originating from goodwill and fixed-asset amortization rates for accounting and tax purposes sometime in fiscal 2011. Management has received an opinion on the recognition of the future tax asset from its external auditors, based on which it is currently anticipated that a roughly $34,000 future income tax recovery will be recorded in the second quarter if the company's profitability continues as expected.

After income taxes, net earnings for the quarter totalled $104,085, or 0.8 cent per share, up from $21,280, or 0.2 cent per share, for the first quarter of fiscal 2010. Operating cash flow for the quarter rose 146 per cent to $134,533 despite the significant current tax provision during the quarter.

Details of all expenses can be found in the unaudited financial statements for the three-month period ended Dec. 31, 2010, and management's discussion and analysis thereof.