Coretec Inc.
TSX : CYY

Coretec Inc.

March 28, 2006 19:47 ET

Coretec Announces Fourth Quarter 2005 and Full Year Results

TORONTO, ONTARIO--(CCNMatthews - March 28, 2006) - Coretec Inc. (TSX:CYY) :

Fourth quarter revenues up 9% sequentially versus third quarter

Fourth quarter year-over-year revenues up 4%

Fourth quarter EBITDA of $1.7 million

Fourth quarter eps of $0.01

Coretec Inc. (TSX:CYY) today reported its financial results for the fourth quarter and the year ended December 31, 2005.

Coretec reported revenues from continuing operations of $21.6 million in the quarter ended December 31, 2005, a 4% increase over the prior year period and an increase of 8% from the third quarter of 2005. Gross profit in the quarter was 21.4% of sales compared to 22.3% in the prior year period and 20.0% in the third quarter of 2005. Net income from continuing operations for the quarter was $0.2 million or $0.01 per share compared to a net loss of $0.6 million or $0.03 per share for the same period in 2004 and sequentially, an increase of $1.6 million from a net loss of $1.4 million or $0.08 per share in the third quarter of 2005. Earnings before interest, taxes, depreciation and amortization (EBITDA) before foreign exchange gains/losses was $1.7 million, a $1.0 million increase from the same period in 2004 and sequentially an increase of $1.4 million from the third quarter of 2005.

"We are pleased with the sequential revenue growth that we experienced in the quarter and the fact that we are tracking ahead of the industry growth rate. Industry shipments, according to IPC, showed year over year growth for the first time in 2005 during the months of November (2.2%) and December (9.5%). We were able to achieve market share gains despite a strengthening Canadian dollar relative to the US dollar and other major currencies. Approximately 70% of our sales are denominated in currencies other than the Canadian dollar which suggests that our market share gains have been significantly higher on a year over year basis. This is a testament to our brand and suggests that we are realizing the benefits of some of the key investments in sales and engineering personnel that we have made over the past 12 months. Additionally we believe our scale, broad product portfolio, higher technology capability and outstanding environmental governance model are contributing to share gains versus our competitors. In regards to the latter, we are particularly bullish about 2006 because we are one of only a handful of PCB manufacturers in North America that are positioned to meet the environmental (RoHS) compliance needs of the marketplace", said Paul Langston, President and CEO.

For the twelve-month period ended December 31, 2005, the Company reported sales from continuing operations of $80.6 million, a 2% decrease from sales of $81.9 million in 2004. Gross profit decreased $4.5 million to $17.0 million or 21.1% of sales compared to $21.5 million or 26.3% of sales in 2004. The net loss from continuing operations for the year was $3.6 million or $0.19 per share compared to net income of $1.6 million or $0.09 per share in 2004. Net loss for the year was $3.3 million or $0.17 per share compared to a net loss of $1.8 million or $0.10 per share in the prior year. In 2005 the net loss included a $0.3 million gain from our discontinued operations in the UK compared to a $3.4 million loss from the UK discontinued operations in 2004. EBITDA for 2005, prior to foreign exchange gains/losses was $3.4 million or 4% of sales compared to $8.4 million or 10% of sales in 2004.

"2005 began with considerable market weakness that persisted into Q3. In fact industry shipments for the first six months versus the same period in 2004 were off 6.4% and bookings compressed by 3.8% according to IPC. The second half of the year however provided meaningful demand growth resulting in cumulative bookings for 2005 up 3.9%. These strong market dynamics have continued into Q1 2006 creating opportunities for price premiums on expedited delivery services. Although the improved industry conditions are being welcomed by all PCB manufacturers it is also bringing with it price increases at the raw material and supplies level. The inflation trend is however a global phenomenon which is enabling the PCB industry in general to pass price increases on to the end user," continued Mr. Langston.

Mr. Langston added, "we believe that we can continue to grow our market share through further differentiating ourselves, be it through speed, technology or value added services. In particular, in 2006 we will be continuing to execute on a series of strategic maneuvres that will further distinguish us from our competitors. We will:

- continue to focus our marketing efforts and manufacturing capacity on time-premium work;

- increase the capacity of our value added programs, namely design and field engineering, in order to assist customers with their RoHS compliance and new product introduction efforts;

- intensify our off-shore PCB outsourcing program, where Coretec acts as a project manager for specific clients on medium-to-high volume requirements;

- aggressively pursue cycle time improvements at all sites through selected capacity increases, outsourcing where appropriate and the implementation of advanced manufacturing methodologies.

- invest approximately $3 million in 2006 at our existing sites on advanced fabrication equipment and systems;

- continue to refine the product mix at our Denver and Cleveland facilities with the objectives of increased yields, greater productivity and improved average selling price per panel."

In other developments, the Company has approved, in principle, the consolidation of its Toronto manufacturing operations into its Sheppard facility. The planning and costing of this key initiative will be complete in Q2 2006. The project will be undertaken in four phases over the next three years. Phase 1 will include the relocation of all processes now installed at the Company's Lawrence facility. Phase 2 will involve the relocation of all innerlayer and multilayer processes from the Company's Ellesmere site. Phase 3 will be a 35,000 sq ft addition to the 93,000 sq ft Sheppard building and phase 4 will complete the relocation of the remaining Ellesmere processes to Sheppard.

Coretec will release its Q1 2006 results after the close of trading on May 17, 2006. The Company's Annual General Meeting will also be held the same day.

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 includes forward-looking statements related to Coretec's future growth, industry trends, performance and financial and operational results. Such forward-looking statements are based on assumptions and expectations and involve significant risks and uncertainties which would cause actual results to vary materially from those contained in the forward-looking statements. Such risks and uncertainties include, but are not limited to, potential changes in the economy and the electronics and printed circuit board industries, customer order levels, product mix and inventory build-up; lower than expected or delayed sales; currency fluctuations; pricing and other competitive pressures in the electronics and printed circuit board industries; Coretec's ability to reduce costs; Coretec's ability to integrate past and any future acquisitions; and other risks and uncertainties listed in Coretec's various public filings at www.sedar.com including Coretec's most recent AIF and MD&A. These and other factors should be considered carefully and undue reliance should not be placed on Coretec's forward-looking statements. Coretec does not undertake to update any forward-looking statement that is contained in this press release or other communications.

Additional information about Coretec Inc. is available at www.coretec-inc.com.

Additional industry information is available at the IPC website: www.ipc.org.



Coretec Inc.

CONSOLIDATED BALANCE SHEETS
(in thousands - unaudited)

December 31, December 31,
2005 2004
$ $
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ASSETS
Current
Cash 1,728 354
Restricted short-term deposit 1,057 -
Accounts receivable 14,471 13,903
Inventories 4,312 5,002
Income taxes recoverable 182 631
Prepaid expenses 1,341 1,752
Note receivable from
discontinued operations - 1,524
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Total current assets 23,091 23,166
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Mortgage receivable 1,050 -
Capital assets, net 25,478 30,193
Other assets 633 386
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50,252 53,745
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness 2,599 1,608
Accounts payable and accrued liabilities 10,257 9,969
Current portion of long-term debt 1,554 5,044
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Total current liabilities 14,410 16,621
Long-term debt 5,214 3,406
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Total liabilities 19,624 20,027
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Shareholders' equity
Share capital 61,036 60,992
Contributed surplus 459 340
Deficit (30,867) (27,614)
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Total shareholders' equity 30,628 33,718
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50,252 53,745
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Coretec Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for share data - unaudited)

Three months ended Year ended
December 31 December 31
---------------------- ------------------
2005 2004 2005 2004
$ $ $ $
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Sales 21,610 20,755 80,603 81,850
Cost of sales 16,975 16,118 63,574 60,304
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Gross profit 4,635 4,637 17,029 21,546
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Expenses
Selling, general
and administrative 2,946 2,811 13,119 12,116
Depreciation and
amortization 1,378 1,634 5,822 6,592
Restructuring charges - 913 - 913
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4,324 5,358 18,941 19,621
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Income (loss) from operations 311 (721) (1,912) 1,925
Terminated merger costs - - 576 -
Interest and other expenses 195 252 957 891
Foreign exchange (gain) loss 49 (267) 208 (495)
(Gain) loss on disposal of
capital assets (31) 150 (31) 150
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Income (loss) before
income taxes 98 (856) (3,622) 1,379
Recovery of income taxes (69) (294) (69) (261)
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Net income (loss) from
continuing operations 167 (562) (3,553) 1,640
Net income (loss) from
discontinued operations 19 1,705 300 (3,422)
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Net income (loss) for
the period 186 1,143 (3,253) (1,782)
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Earnings (loss) per share:
From continuing operations
basic and diluted $0.01 $(0.03) $(0.19) $0.09
Earnings (loss) per share
basic and diluted $0.01 $0.06 $(0.17) $(0.10)
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Coretec Inc.

CONSOLIDATED STATEMENTS OF DEFICITS
(in thousands - unaudited)

Year ended
December 31
----------------------
2005 2004
$ $
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Deficit, beginning of period (27,614) (25,832)
Loss for the period (3,253) (1,782)
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Deficit, end of period (30,867) (27,614)
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Coretec Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands - unaudited)

Three months ended Year ended
December 31 December 31
--------------------------------------------
2005 2004 2005 2004
$ $ $ $
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OPERATING ACTIVITIES

Net income (loss) for
the period 167 (562) (3,553) 1,640
Non-cash items
Depreciation and
amortization 1,378 1,634 5,822 6,592
Stock-based compensation (196) 74 119 284
Unrealized foreign
exchange (gain) loss (160) (270) 475 (131)
Amortization of deferred
finance charge 24 51 185 146
(Gain) loss on disposal
of capital assets (31) 150 (31) 150
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1,182 1,077 3,017 8,681

Net change in non-cash
working capital balances
related to operations 529 (1,062) 653 (4,263)
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Cash provided by operating
activities 1,711 15 3,670 4,418
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FINANCING ACTIVITIES
Increase (decrease) of
long-term debt 172 - (95) 4,454
Repayments of long-term debt (449) (219) (1,483) (2,466)
Increase in bank indebtedness 613 673 991 745
Repayment of shareholder loan 7 - 44 -
Proceeds of shares issued,
net of share issue costs - - - 13
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Cash provided by (used in)
financing activities 343 454 (543) 2,746
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INVESTING ACTIVITIES
Purchase of capital assets (791) (1,063) (3,176) (2,521)
Proceeds on disposal of
capital asset 1,050 258 1,050 258
Increase in short-term
deposit (1,057) - (1,057) -
Decrease (increase) in
other assets 112 (14) (432) (338)
Advance to Proto Circuit - - - (3,798)
Acquisition of Proto Circuit - - - (236)
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Cash used in investing
activities (686) (819) (3,615) (6,635)
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Effect of exchange rate
changes on cash 26 24 38 11
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Net increase (decrease)
in cash during the period 1,394 (326) (450) 540
Change in cash from
discontinued operations 19 169 1,824 (1,096)
Cash, beginning of period 315 511 354 910
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Cash, end of period 1,728 354 1,728 354
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