Audiotech Healthcare Corp. has provided record revenues and earnings for the year ended Sept. 30, 2011. Total revenues for the year ended Sept. 30, 2011, were $5,421,848, an increase of 6.3 per cent over the $5,100,082, reported during the prior fiscal year. Net income for fiscal 2011 totalled a record $493,531 or 3.7 cents per share, an increase of 39.4 per cent over fiscal 2010. Pretax net income for the year ended Sept. 30, 2011, was $654,060 compared with $352,723 during fiscal 2010, an increase of 85 per cent.

Total revenues for the fourth quarter ended Sept. 30, 2011, were $1,385,166, an increase of 5.1 per cent over the sales posted during the same period a year earlier. Revenues from the Canadian operations posted an increase of 4.4 per cent, rising from $933,238 during the fourth quarter of fiscal 2010 to $973,979 in the current quarter. Sales from the U.S. clinics during the fourth quarter were $411,187, an increase of 6.9 per cent over the same quarter in the prior fiscal year. For the fiscal year, revenue growth in the Canadian and U.S. operations were 8.1 per cent and 1.9 per cent, respectively.

             STATEMENT OF INCOME 
            Years ended Sept. 30

                           2011         2010

Canadian revenues    $3,931,694   $3,637,031
U.S. revenues         1,490,154    1,463,051
Total revenues       $5,421,848   $5,100,082
Operating cash flow     598,098      489,575
Net earnings            493,531      354,075
EPS -- basic              0.037        0.027
EPS -- fully diluted      0.036        0.026

Gross margins of 71.6 per cent during the fourth quarter, and 70.1 per cent for fiscal 2011, were slightly higher than the long-term historical average due to a favourable product mix. This compares with 69.7 per cent in fiscal 2010 and the long-term (five-year) average of 68.9 per cent. Management expects gross margins to range from roughly 68 per cent to 71 per cent during fiscal 2012.

Direct clinic costs, which include selling and advertising costs, rent and clinic overheads, clinic labour costs, and amortization of audiology equipment, increased by 1.6 per cent during the fourth quarter of fiscal 2011 as compared with the same quarter a year ago. Selling expenses decreased by 7.9 per cent as the company benefited from slightly higher marketing expenditures during the third quarter that continued to provide sales activity in the fourth quarter. Salaries and benefits increased 1.5 per cent while rent and clinic overheads increased by a modest 2.0 per cent. Amortization increased significantly by 23.2 per cent as a result of the reclassification of assets related to the sale/leaseback transaction as discussed below which led to an increase in amortization on the building. Direct clinic costs as a percentage of sales were 48.6 per cent versus 50.2 per cent in the same quarter a year earlier. For fiscal 2011, direct clinic costs declined by 1.4 per cent on an overall basis. Selling expenses declined 13.4 per cent on a year-over-year basis while all other categories changed by less than 1 per cent. For fiscal 2011, direct clinic costs as a percentage of sales were 48.3 per cent versus 52.0 per cent in fiscal 2010.

General and administrative expenses totalled $99,610 for the quarter, well below the historical average due to a $28,801 foreign exchange gain recorded during the quarter. For the year ended Sept. 30, 2011, general and administrative costs decreased 3.1 per cent as compared with the prior year. As a percentage of sales, general and administrative costs were 9.7 per cent as compared with 10.7 per cent a year earlier. Increases in general expenses and head office salaries were offset by decreases in all major expense categories including professional fees, interest costs and foreign exchange.

Operating income before other items and income taxes totalled $219,159 for the quarter, an increase of 55.6 per cent over the fourth quarter of fiscal 2010. For the fiscal year ended Sept. 30, 2011, operating income before other items and income taxes was $657,270, up 84.9 per cent from the $355,483 reported during fiscal 2010.

In late June, 2011, the company's U.S. operating subsidiary entered into a sales/leaseback transaction whereby it sold its land and building in Idaho Falls for gross proceeds of $435,000 (U.S.). The subsidiary has entered into a long-term agreement to lease the building from the purchaser and will continue its operations in the location. The proceeds from the sale were used to repay the outstanding balance remaining on the original building loan of $230,533 (U.S.). The company recorded a pretax gain on the sale of the building in the amount of $52,257 (Canadian) during the third quarter. During the third quarter of fiscal 2010, this new lease was recorded as an operating lease. During the year-end audit, it was determined that the lease should be recorded as a capital lease. Accordingly, the pretax gain on the sale of the building recorded during the third quarter was reversed in the fourth quarter and the land and building were recapitalized and a capital lease obligation was recorded under long-term debt.

After the adjustment for the reversal of the gain on the sale of the building during the fourth quarter, pretax net income was $164,387 for the fourth quarter, an increase of 19.0 per cent on a year-over-year basis. Pretax net income for the year ended Sept. 30, 2011, was $654,060 compared with $352,723 during fiscal 2010, an increase of 85.4 per cent.

During the first quarter of fiscal 2011, the company's remaining tax loss carryforwards were utilized and applied against taxable income. A provision for current income taxes of $69,973 was recorded during the fourth quarter of fiscal 2011, bringing the total provision for the year to $195,270. As a result of the company's continued strong profitability, 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. A future income tax recovery of $853 was recorded during the fourth quarter bringing the total to $34,741 for fiscal 2011.

The company is pleased to report net income of $95,267 or 0.7 cent per share for the fourth quarter of fiscal 2011. This compares with earnings of $139,445 during the corresponding quarter in fiscal 2010. The reduction in net income is due to the reversal of the gain on disposal of capital assets as noted above and the net provision for income taxes of $69,120 (as compared with a net recovery of taxes of $1,352 a year earlier).

Net income for fiscal 2011 totalled a record $493,531 or 3.7 cents per share, an increase of 39.4 per cent over fiscal 2010 despite the substantial increase in income taxes due to the exhaustion of all remaining tax loss carryforwards in the first quarter.

Operating cash flow for the quarter remained strong at $193,577, bringing the total operating cash flow for fiscal 2011 to $598,098. The represents an increase of 22.2 per cent compared with fiscal 2010.

As a result of a $10,867 cumulative translation adjustment, comprehensive income for fiscal 2011 was $482,664 compared with $338,483 in fiscal 2010.

Details of all expenses can be found in the audited financial statements for the year ended Sept. 30, 2011.

Liquidity

As at Sept. 30, 2011, Audiotech had a cash balance of $1,113,735, an increase of $535,751 since the beginning of the fiscal year. Working capital increased to $1,005,750. Management is confident that the company has sufficient working capital to meet its short- and long-term needs, growth requirements, and accelerated debt repayment plans for the foreseeable future.

During fiscal 2012, the company undertook several initiatives aimed at accelerating the repayment of its long-term debt.

In late June, the company's United States operating subsidiary entered into a sales/leaseback transaction whereby it sold its land and building in Idaho Falls for gross proceeds of $435,000 (U.S.) ($422,211 (Canadian)). The subsidiary has entered into a long-term agreement to lease the building from the purchaser and will continue its operations in the location. The proceeds from the sale were used to repay the outstanding balance remaining on the original building loan of $230,533 (U.S.). During the fourth quarter, it was determined that the new lease is a capital lease. Accordingly, the building was recapitalized and a capital lease obligation was recorded in the amount of $463,455.

Including the repayment of the building loan noted above, a total of $511,350 in long-term debt and $18,185 in capital lease obligations was repaid in fiscal 2011. Long-term debt, other than capital lease obligations, was reduced from $1,378,515 to $857,413. All of the debt repayment initiatives have been undertaken without compromising working capital available for day-to-day operations and growth initiatives. It should be noted that none of the corporation's debt carries early payment penalties. Management believes that the accelerated debt repayment will not only reduce interest costs, thereby enhancing profitability, but that the resulting enhancement to key financial ratios will be appealing to potential investors and large consolidators in the industry which may wish to acquire the company to expand their market share. Depending on the company's working capital needs to finance further growth initiatives, management intends to use a significant proportion of cash flow from operations to reduce debt in fiscal 2012. Management and the board of directors have established a goal of eliminating long-term debt within the next two to three years.

Recent developments

On Nov. 1, 2011, the company's Canadian operating subsidiary entered into a six-month sublease to rent its unoccupied former southwest Calgary clinic space to a third party for $2,700 per month. The tenant has a six-month renewal option and also has an option to purchase the space from a company controlled by a director of Audiotech.

In accordance with the company's aggressive debt reduction program, the company repaid a total of $100,000 in promissory notes during the first quarter of fiscal 2012. The notes were scheduled to mature in April, 2013.