Coretec Inc.

Coretec Inc.

March 10, 2005 19:42 ET

Coretec Announces Fourth Quarter 2004 and Full Year Results


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: CORETEC INC.

TSX SYMBOL: CYY

MARCH 10, 2005 - 19:42 ET

Coretec Announces Fourth Quarter 2004 and Full Year
Results

TORONTO, ONTARIO--(CCNMatthews - March 10, 2005) -



Revenue for 2004 up 25% over prior year
EBITDA for 2004 up over 150% from prior year
Fourth quarter year-over-year revenue growth of 19%


Coretec Inc. (TSX:CYY) today reported its financial results for the
fourth quarter and the year ended December 31, 2004.

For continuing operations, in the quarter ended December 31, 2004,
Coretec reported revenues of $20.8 million, a 19% increase over the
prior year period although a decrease of 4% from the third quarter of
2004. Gross profit declined to 22.3% of sales compared to 25.4% in the
prior year period and 24.9% percent in the third quarter of 2004. Net
loss for the quarter was $0.6 million or $0.03 per share compared to a
net loss of $0.2 million or $0.01 per share for the same period in 2003
and sequentially, a decrease of $1.1 million from net income of $0.6
million or $0.03 per share in the third quarter of 2004. In the fourth
quarter the Company restructured both its operations and sales
management teams including the replacement of its COO and senior sales
executives. As a result the Company recorded a charge of $0.9 million or
$0.05 per share related to the associated severance costs. The Company
also recorded a loss of $0.2 million on the disposal of surplus
equipment.

Earnings before interest, taxes, depreciation and amortization (EBITDA)
before restructuring and asset disposal charges was $2.1 million, a $0.5
million increase from the same period in 2003 although, sequentially a
decrease $0.4 million from the third quarter of 2004. Free cash flow
(defined as net income plus depreciation and amortization less capital
expenditures) before restructuring and asset disposal charges was $1.1
million in the fourth quarter of 2004 compared to $1.3 million in the
prior year period and, sequentially, free cash flow of $1.7 million
generated in the third quarter of 2004. The fourth quarter of 2004
includes the recovery of income taxes of $0.6 million of which $0.3
million related to research and development investment tax credits,
resulting in a reduction in cost of sales for the period.

For continuing operations for the twelve-month period ended December 31,
2004, the Company reported sales of $81.9 million, a 25% increase over
sales of $65.7 million in 2003. Gross profit increased $5.4 million to
$21.5 million or 26.3% of sales compared to $15.8 million or 24.0% of
sales in 2003. Net income for the year was $1.6 million or $0.09 per
share compared to a net loss of $4.3 million or $0.23 per share in 2003.
EBITDA for 2004, prior to restructuring and asset disposal charges was
$9.9 million or 12% of sales compared to $3.9 million or 6% of sales in
2003. Free cash flow for 2004, prior to restructuring and asset disposal
charges, was $6.9 million compared to negative free cash flow of $0.6
million in 2003.

In the third quarter of 2004, the Company discontinued the operation of
its UK facility, placing it into administration and, subsequently, into
liquidation. In the fourth quarter of 2004, the Company booked a
recovery of $1.7 million or $0.09 per share related to the proceeds due
to the company as a result of the liquidation. At year end, a balance of
$1.5 million was outstanding on this recovery and is expected to be
received in full before the end of the second quarter of 2005. The loss
from discontinued operations for 2004 was $3.4 million or $0.18 per
share compared to a loss of $0.9 million or $0.05 per share in 2003.

"We are pleased that we were able to achieve, for the second consecutive
year, significant year-over-year sales growth in 2004 despite the
negative impact on revenues from the appreciation of the Canadian Dollar
versus the U.S. Dollar. Approximately two thirds of our consolidated
revenues are US dollar denominated. This past year was also challenging
from a market conditions perspective, yet we were able to gain market
share. The first half of the year was characterized by strong bookings
and shipments across the entire industry. In comparison, the second half
of the year and especially the fourth quarter deteriorated measurably as
indicated by the IPC Book-to-Bill ratio which has been above parity for
rigid PCBs only once in the past 6 months. As a result, the industry has
experienced a general softening of prices. More disturbing, we have seen
aggressive pricing tactics in the prototype and quick turn services
arena", said Paul Langston, Coretec's President and Chief Executive
Officer.

Mr. Langston continued, "Industry analysts are currently projecting weak
revenue growth in the North American PCB industry for 2005. Recent
facility closure announcements including Viasystems and Photocircuits
point to the fragile nature of the sector. As such we continue to be
mindful of cost controls and our working capital position."

"In November 2004 we announced that we had received an unsolicited offer
to purchase our Lawrence facility and associated land. The original
offer has expired due to issues associated with the adjacent properties,
which were also subject to the same purchase offer. We are currently
negotiating revised terms and conditions of sale with the potential
purchaser. If a transaction is consummated it will likely occur sometime
in the second quarter of this year. The potential sale of this site will
not only reduce our operating costs but will also free up cash to
facilitate the consolidation of our Toronto operations at our 100,000
sq.ft., 9 acre Sheppard site, which has been de-listed for sale.
Furthermore with respect to our real estate holdings, we are exercising
an option to purchase our Denver building and adjacent vacant land. This
will produce savings with respect to rent costs at the facility," said
Mr. Langston.

Mr. Langston continued, "Despite the meager growth projections for 2005
we feel Coretec can continue to grow its market share through market
differentiation, be it speed, technology or value added services. In
particular, in 2005 we will continue to execute on a series of strategic
maneuvers that will further distinguish us from our competitors:

- we will continue to invest in and restructure our sales and marketing
organization in order to drive time-premium associated revenues, as well
as further penetrate key end markets and geographic regions, most
notably the southwest US;

- we will further develop our off-shore program management strategy;

- we will continue to procure advanced equipment as well as install that
which is held in storage in order to improve capacity, capability,
efficiencies and cycle time;

- we will continue to refine the product mix at our Ohio facility
towards rigid flex PCBs in an effort to improve its financial and
operational metrics."

Coretec is one of the leading designers and fabricators of printed
circuit boards for the prototype and quick turnaround production
segments of the North American and European markets. Coretec
distinguishes itself from its competitors by providing complete printed
circuit board solutions, including design, advanced prototyping and
quick turnaround production across an outstanding range of product
technologies.

This news release may include statements about future expectations,
plans and prospects that may constitute forward-looking statements.
Please be cautioned that any such forward-looking statements are not
guarantees of future performance and involve significant risks and
uncertainties. Actual results or developments may vary materially from
those projected or implied in the forward-looking statements as a result
of any number of factors, including currency exchange rate fluctuations;
variability of operating results; dependence on certain industries;
management of growth and expansion; integration of operations; ability
to attract and retain key personnel; nature of sales; product complexity
and product defects; international operations; material cost
fluctuations and limited availability of raw materials; potential loss
of customers; competition; industry contraction and slow economic
growth; technological change and process development; environmental
liability; need for additional financing; product liability; pricing
pressure; ability to reduce costs; and other risks listed in Coretec's
public disclosure documents and other filings with securities regulatory
authorities found at www.sedar.com.



Coretec Inc.


CONSOLIDATED BALANCE SHEETS
(in thousands)





December 31, December 31,
2004 2003
$ $
---------------------------------------------------------------------

ASSETS
Current
Cash 354 910
Accounts receivable 13,903 10,394
Inventories 5,002 3,329
Income taxes recoverable 631 451
Prepaid expenses 1,752 782
Note receivable from discontinued operations 1,524 -
Current assets of discontinued operations - 3,170
---------------------------------------------------------------------
Total current assets 23,166 19,036
---------------------------------------------------------------------
Long-lived assets held for sale - 5,146
Capital assets, net 30,193 25,296
Other assets 386 194
Non-current assets of discontinued operations - 1,935
---------------------------------------------------------------------
53,745 51,607
---------------------------------------------------------------------
---------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness 1,608 863
Accounts payable and accrued liabilities 9,969 7,782
Current portion of long-term debt 5,044 1,155
Current liabilities of discontinued operations - 1,255
---------------------------------------------------------------------
Total current liabilities 16,621 11,055
---------------------------------------------------------------------
Long-term debt 3,406 5,349
---------------------------------------------------------------------
Total liabilities 20,027 16,404
---------------------------------------------------------------------

Shareholders' equity
Share capital 60,992 60,979
Contributed surplus 340 56
Deficit (27,614) (25,832)
---------------------------------------------------------------------
Total shareholders' equity 33,718 35,203
---------------------------------------------------------------------
53,745 51,607
---------------------------------------------------------------------
---------------------------------------------------------------------



Coretec Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)



Three months ended Year ended
December 31 December 31
------------------ ------------
2004 2003 2004 2003
$ $ $ $
---------------------------------------------------------------------

Sales 20,755 17,415 81,850 65,723
Cost of sales 16,118 13,000 60,304 49,953
---------------------------------------------------------------------
---------------------------------------------------------------------
Gross profit 4,637 4,415 21,546 15,770
---------------------------------------------------------------------

Expenses
Selling, general and
administrative 2,811 2,703 12,116 11,276
Depreciation and amortization 1,634 1,706 6,592 6,914
Restructuring charges 913 - 913 531
---------------------------------------------------------------------
5,358 4,409 19,621 18,721
---------------------------------------------------------------------
Income (loss) from operations (721) 6 1,925 (2,951)
Interest and other expenses 252 169 891 747
Foreign exchange (gain) loss (267) 70 (495) 583
Loss on disposal of capital assets 150 - 150 -
---------------------------------------------------------------------
Income (loss) before income taxes (856) (233) 1,379 (4,281)
Recovery of income taxes (294) (26) (261) (26)
---------------------------------------------------------------------
Net income (loss) from continuing
operations (562) (207) 1,640 (4,255)
Net income (loss) from discontinued
operations 1,705 17 (3,422) (855)
---------------------------------------------------------------------
Net income (loss) for the period 1,143 (190) (1,782) (5,110)
---------------------------------------------------------------------
---------------------------------------------------------------------

Earnings (loss) per share:
From continuing operations
basic and diluted $ (0.03) $ (0.01) $ 0.09 $ (0.23)
Earnings (loss) per share
basic and diluted $ 0.06 $ (0.01) $ (0.10) $ (0.27)
---------------------------------------------------------------------
---------------------------------------------------------------------



Coretec Inc.

CONSOLIDATED STATEMENTS OF DEFICITS
(in thousands)


Year ended
December 31
--------------------
2004 2003
$ $
---------------------------------------------------------------------

Deficit, beginning of period (25,832) (20,722)
Loss for the period (1,782) (5,110)
---------------------------------------------------------------------
Deficit, end of period (27,614) (25,832)
---------------------------------------------------------------------
---------------------------------------------------------------------


Coretec Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

Three months ended Year ended
December 31 December 31
------------------ ------------
2004 2003 2004 2003
$ $ $ $
---------------------------------------------------------------------

OPERATING ACTIVITIES

Net income (loss) for the period (562) (207) 1,640 (4,255)
Non-cash items
Depreciation and amortization 1,634 1,706 6,592 6,914
Stock-based compensation 74 39 284 56
Unrealized foreign exchange
(gain) loss (270) 67 (131) 741
Amortization of deferred
finance charge 51 21 146 88
Future income taxes - - - (86)
Loss on disposal of capital
assets 150 - 150 -
---------------------------------------------------------------------
1,077 1,626 8,681 3,458
Net change in non-cash working
capital balances related to
operations (1,062) 246 (4,263) 367
---------------------------------------------------------------------
Cash provided by operating
activities 15 1,872 4,418 3,825
---------------------------------------------------------------------

FINANCING ACTIVITIES
Increase of long-term debt - - 4,454 -
Repayments of long-term debt (219) (289) (2,466) (1,125)
Repayment of notes payable - (1,900) - (1,900)
Increase in bank indebtedness 673 390 745 863
Proceeds of shares issued, net
of share issue costs - - 13 -
---------------------------------------------------------------------
Cash provided by (used in)
financing activities 454 (1,799) 2,746 (2,162)
---------------------------------------------------------------------

INVESTING ACTIVITIES
Purchase of capital assets (1,063) (213) (2,521) (3,837)
Proceeds on disposal of capital
asset 258 - 258 -
Increase in other assets (14) 143 (338) (1)
Advance to Proto Circuit - - (3,798) -
Acquisition of Proto Circuit - - (236) -
---------------------------------------------------------------------
Cash used in investing activities (819) (70) (6,635) (3,838)
---------------------------------------------------------------------
Effect of exchange rate changes
on cash 24 (141) 11 (186)

---------------------------------------------------------------------
Net increase (decrease)
in cash during the period (326) (138) 540 (2,361)
Change in cash from discontinued
operations 169 26 (1,096) (925)
Cash, beginning of period 511 1,022 910 4,196
---------------------------------------------------------------------
Cash, end of period 354 910 354 910
---------------------------------------------------------------------
---------------------------------------------------------------------


Coretec Inc.
Selected financial Information (000's)
CHG
Q4/04 Q4/03 CHG Q3/04 Q3/Q2 2004 2003 CHG
-------------- ------ ------------
Continuing
operations:
Revenue 20,755 17,415 19% 21,693 -4% 81,850 65,723 25%

Gross Profit 4,637 4,415 5% 5,393 -14% 21,546 15,770 37%

Income (loss) (562) (207) -171% 582 -197% 1,640 (4,255) 139%


Reconciliation of EBITDA from continuing operations

CHG
Q4/04 Q4/03 CHG Q3/04 Q3/Q2 2004 2003 CHG
-------------- ------ ------------

Income (loss)
for the
period from
continuing
operations (562) (207) 582 1,640 (4,255)
Add/(Deduct):
Interest 252 169 261 891 747
Depreciation
and
amortization 1,634 1,706 1,624 6,592 6,914
Loss on
disposal of
capital
assets 150 - - 150 -
Income taxes
expense (294) (26) 13 (261) (26)
Restructuring
costs 913 - - 913 531
-------------------------------------------------------
EBITDA from
continuing
operations 2,093 1,642 27% 2,480 -16% 9,925 3,911 154%


Reconciliation of Free Cash Flow from continuing operations

CHG
Q4/04 Q4/03 CHG Q3/04 Q3/Q2 2004 2003 CHG
-------------- ------ ------------

Income (loss)
for the
period from
continuing
operations (562) (207) 582 1,640 (4,255)
Add:
Depreciation
and
amortization 1,634 1,706 1,624 6,592 6,914
Amortization
of deferred
finance
charges 51 21 38 146 88
Loss on
disposal of
capital
assets 150 - - 150 -
Restructuring
costs 913 - - 913 531
-------------------------------------------------------
2,186 1,520 2,244 9,441 3,278

Deduct:
Capital
expenditures(1,063) (213) (508) (2,521)(3,837)
-------------------------------------------------------
Free Cash
Flow from
continuing
operations 1,123 1,307 -14% 1,736 -35% 6,920 (559)1338%



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