Audiotech Healthcare Corp. has achieved the highest first quarter revenues in its history, posting revenues of $1,013,716 for the three months ended Dec. 31, 2004, slightly higher than originally estimated. This represents an increase of 30.5 per cent over the revenues achieved during the first quarter of the previous fiscal year. It also marks the second highest quarterly revenue total in the company's history, second only to the fourth quarter of fiscal 2004. It should be noted that the first quarter of each fiscal year is typically the corporation's weakest from a revenue perspective due to the significant interruption that the holiday season has on the hearing aid sales and fitting cycle.

Revenues in Canada surged 47.2 per cent to $651,653 for the three months ended Dec. 31, 2004. This growth is attributed to the recent hiring of additional audiologists, the opening of the Vernon, B.C., clinic in fiscal 2004, and the continued success of the company's new marketing programs.

Revenues at the company's U.S. clinics also increased, rising 8.3 per cent to $362,063 compared with the same quarter in fiscal 2004, despite further weakness in the U.S. dollar. As measured in U.S. dollar terms, the U.S. clinic operations continued to post significant organic growth, however, after conversion to Canadian dollars for consolidated financial reporting, revenue growth was dampened by the significant year-over-year change in the exchange rate. The recent expansion of audiology services offered by the U.S. clinics contributed to this growth. The upcoming opening of the new hearing and balance centre in Idaho Falls, Idaho, this spring is expected to contribute significant additional growth. The construction of this state-of-the-art facility remains ahead of schedule and on budget.

Revenues for the last five fiscal quarters were as follows.

Quarter ended Dec. 31, 2003: $777,069

Quarter ended March 30, 2004: $793,892

Quarter ended June 30, 2004: $965,954

Quarter ended Sept. 30, 2004: $1,092,000

Quarter ended Dec. 31, 2004: $1,013,716

Gross margins during the first quarter of fiscal 2005 were 59.7 per cent, as compared with 54.8 per cent during the same quarter a year earlier. Margins were on the higher end of the long-term average.

Despite the opening of additional clinics, a major increase in advertising expenditures, and the hiring of additional staff, direct clinic costs including clinic staff wages only increased modestly from $241,262 to $279,119 during the first quarter of fiscal 2005 compared with the same period a year earlier. Included in these expenses were additional non-recurring recruiting, training and travel costs associated with the hiring of a new audiologist for the Prince George, B.C., clinic. Direct clinic costs declined significantly as a percentage of sales from 31.0 per cent of sales to 27.5 per cent of sales.

Administrative costs for the quarter were $113,601 compared with $94,541 during the same quarter a year earlier. Management expects that interest costs associated with long-term debt will decrease as a result of further debt reductions expected in fiscal 2005.

Audiotech is pleased to report a profit of $17,796 or 0.1 cent per share before the amortization of the debenture discount, and $3,712 after the deduction of the debenture discount. Both the Canadian and U.S. operations produced positive operating cash flow during the quarter (earnings before amortization). Operating cash flow reached $37,804 compared with $23,251 during the same quarter in fiscal 2004.

During fiscal 2004, Audiotech adopted new accounting policies with respect to the valuation of stock-based compensation for all stock-based payments to non-employees as well as direct employee awards of stock. The valuation of this compensation is recorded using the fair value method. In accordance with this method, the convertible debentures issued in April, 2004, were assigned both an equity and debt component. The equity component of the convertible debentures was estimated using the Black-Scholes model for convertible securities/options valuation and is based on the average volatility of Audiotech's stock price, the average exercise price of the debenture conversion over their life, and a risk-free interest rate of 2.46 per cent. The equity component, which amounted to $176,000, was recorded as other paid in capital on the balance sheet and amortized over the three-year term of the debentures. During the first quarter fiscal 2005, a total of $14,084 in amortization related to the debenture discount was recorded on the statement of income, thereby reducing net earnings by the same amount.

Liquidity and financial resources

As at Dec. 31, 2004, Audiotech had a cash balance of $527,825, including term deposits in the amount of $15,962.

During the quarter, Audiotech made principal payments on its long-term debt and lease obligations totalling $57,213 and received $132,295 in new long-term debt financing related to the construction of the new hearing and balance centre in Idaho Falls. This new debt includes both capital leases of equipment and advances on the construction loan, with $145,598 in capital purchases of equipment and construction costs being financed from this new debt and from existing working capital set aside for expansion initiatives.

As previously mentioned, a key management objective for fiscal 2005 is to continue to reduce debt service costs through the repayment of higher interest debt and potentially the conversion of some or all of the outstanding convertible debentures. It is important to note that the conversion of the existing debentures into common shares is anti-dilutive in that the increase in earnings resulting from the reduction of interest costs more than compensates for the additional shares that would be issued upon conversion.

Management is confident that the company's working capital position is sufficient to meet its growth objectives. Investments have and will continue to be made in new and additional equipment and the building for the new hearing and balance centre in Idaho Falls, and will be financed from existing working capital and loan facilities that have previously been reserved or negotiated for the expansion of U.S. operations. It is anticipated that equity financing will be undertaken in fiscal 2005 to accelerate the company's debt retirement goals to reduce future interest costs.

Future outlook

Over all, management is pleased with the continued progress toward Audiotech's long-term goals during the fourth quarter. Given that the first quarter is typically the company's slowest, management is optimistic that it will again report record earnings in fiscal 2005.

  CONSOLIDATED STATEMENT OF OPERATIONS
               AND DEFICIT
       Three months ended Dec. 31

                   2004         2003

Sales           $1,013,716     $777,069

Direct clinic 
costs

Materials and 
freight            408,515      351,217

Selling 
expenses            97,525       17,334

Rent, utilities 
and clinic 
overheads           64,430       79,489

Amortization        19,263       17,432

Salaries and 
benefits           294,587      211,642
                ----------   ----------
                   884,320      677,114
                ----------   ----------
                   129,397       99,955
Expenses

General and 
admin               22,323       12,516

Amortization           744          405

Professional 
fees                 6,210        6,297

Foreign 
exchange             3,632        3,259

Interest on 
long-term debt      25,636       20,858

Salaries and 
benefits            53,056       51,206
                ----------   ----------
                   113,601       94,541
                ----------   ----------
Income (loss) 
before other 
expenses            17,796        5,414

Other expenses

Loss on 
disposal of 
equipment                -            -

Amortization of 
debenture 
discount            14,084            -
                ----------   ----------
                    14,084            -
                ----------   ----------
Net earnings 
(loss) for the 
period              $3,712       $5,414
                ==========   ==========
(Deficit), 
beginning of 
period           $(958,067) $(1,111,714)

Prior period 
adjustment -- 
stock options      (34,000)           -
                ----------   ----------
(Deficit), end 
of period        $(988,355) $(1,103,041)
                ==========   ==========
Earnings (loss) 
per share 
(basic and 
diluted)           $0.0003      $0.0004

The company's shares are listed and posted for trading on Tier 1 of the TSX Venture exchange under the symbol "AUD." For more information on the company, contact Osvaldo (Ozzie) Iadarola, President & CEO, at (250) 372-5847, or Doren Quniton of QIS Capital, investor relations, at (250) 376-8989, or visit the company's website at www.audiotech.org.

AUDIOTECH HEALTHCARE CORPORATION
First Bank Building
760-175 Second Avenue
Kamloops, B.C. V2C 5W1
Phone: (250) 372-5847
Fax: (250) 372-3859
Email: info@audiotech.org

Except for historical information contained herein this document contains forward-looking statements. These statements contain known and unknown risks and uncertainties that may cause the company's actual results or outcomes to be materially different from those anticipated and discussed herein.