Audiotech Healthcare Corp. has released financial results for another solidly profitable quarter.

Total revenues for the second quarter ended March 31, 2011, were $1,287,989, an increase of 4.8 per cent over the sales posted during the same period a year earlier despite the negative impact of exchange rates on the results reported by the company's United States operations. Revenues from the Canadian operations posted an increase of 11.4 per cent, rising from $839,663 during the second quarter of fiscal 2010 to $935,547 in the current quarter. Sales from the U.S. clinics during the second quarter were $352,442, a decrease of 9.4 per cent over the same quarter in the prior fiscal year, due primarily to an unfavourable shift in exchange rates. The average exchange rate during the second quarter of fiscal 2011 was only $1 (U.S.) equals 98.6 cents compared with $1 (U.S.) equals $1.041 during the comparable quarter last year. Total revenues for the six months ended March 31, 2011, were $2,600,740, an increase of 6.4 per cent over the $2,445,030 reported during the first six months of the prior fiscal year.

            STATEMENT OF INCOME -- QUARTERLY DATA (UNAUDITED)

                 Three months ended March 31,   Six months ended March 31,
                           2011         2010            2011         2010

Canadian revenues     $ 935,547  $   839,663    $  1,932,749  $ 1,735,747
U.S. revenues           352,442      389,021         667,991      709,283
Total revenues       $1,287,989  $ 1,228,684       2,600,740  $ 2,445,030
Operating cash flow     131,991       86,927         266,544      141,714
Net earnings            134,317       52,717         238,402       73,997
EPS -- basic             0.0102       0.0040          0.0180       0.0056
EPS -- fully diluted     0.0098       0.0036          0.0175       0.0051

Trailing 12-month performance measures (April 1, 2010, to March 31, 2011):


Revenues:  $5,255,792

Operating cash flow:  $614,405

Pretax net earnings:  $554,003

Net earnings:  $518,480

Basic earnings per share:  3.92 cents

Gross margins of 70.2 per cent during the second quarter continued to slightly exceed the long-term historical average. This compares with 69.7 per cent in fiscal 2010 and the long-term (five-year) average of 68.6 per cent. Gross margins continue to meet expectations. 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 4.3 per cent during the second quarter of fiscal 2011 as compared with the same quarter a year ago. Reductions were achieved in all expense categories. Significant reductions in selling expenses 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 continue to decrease, declining from 57.1 per cent in the second quarter of fiscal 2009 to 53.2 per cent during the second quarter of fiscal 2010 to only 48.5 per cent during the current quarter. The same pattern is evident in the operating results for the first six months of fiscal 2011, with direct clinic costs declining by 5.4 per cent.

General and administrative expenses totalled $143,412 for the quarter, an increase of 9.4 per cent from the $131,086 reported during the second quarter of fiscal 2010, but down slightly from the $147,081 reported during the same period in fiscal 2009. The increase on a year-over-year basis was primarily due to an increase in professional fees related to preparing to meet new disclosure requirements required by the conversion to international financial reporting standards. G&A costs as a percentage of sales were 11.1 per cent during the quarter.

Pretax net income was $135,267 for the second quarter, an increase of 156.6 per cent on a year-over-year basis. This is consistent with the pretax earnings in the previous three quarters. Pretax net income for the six months ended March 31, 2011, was $275,277 compared with $73,997 during the first two quarters of fiscal 2010, an increase of 272.0 per cent.

During the first quarter of fiscal 2011, the company's remaining tax loss carryforwards were utilized and applied against taxable income. The company's net income significantly exceeded the tax loss carryforwards available. Accordingly, a provision for current income taxes of $35,925 was recorded during the first quarter. As a result of the company's continued strong profitability and on the advice of its external auditors, during the second quarter, the company recognized a $33,888 future tax asset related to timing differences originating from goodwill and fixed asset amortization rates for accounting and tax purposes. The recognition of this future tax asset was applied against a provision for current income taxes during the second quarter of $34,838, resulting in a net income tax provision of $950.

The company is pleased to report net earnings of $134,317 or 1.02 cents per share for the second quarter of fiscal 2011. This compares with earnings of $52,717 during the corresponding quarter in fiscal 2010. Net income for the first two quarters of fiscal 2011 totalled $238,402 or 1.80 cents per share, an increase of 222.2 per cent over the comparative period in fiscal 2010.

Operating cash flow for the quarter remained strong at $131,991, bringing the total operating cash flow for the six-month period ended March 31, 2011, to $266,544. The represents an increase of 88.1 per cent compared with the first two quarters of fiscal 2010.

As a result of a $11,599 cumulative translation adjustment resulting from the depreciation of the U.S. dollar during the quarter, comprehensive income for the period was $122,718 compared with $39,895 in the second quarter of fiscal 2010, when a currency translation adjustment of $12,822 was recorded. For the six-month period ended March 31, 2011, comprehensive income was $212,309 compared with $54,264 during the same period a year ago.

Details of all expenses can be found in the unaudited financial statements for the six-month period ended March 31, 2011.

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