Coretec Inc.
TSX : CYY

Coretec Inc.

March 07, 2008 17:11 ET

Coretec Announces Fourth Quarter 2007 & Full Year Results

TORONTO, ONTARIO--(Marketwire - March 7, 2008) - Coretec Inc. (TSX:CYY) today reported its financial results for the fourth quarter and the year ended December 31, 2007.

Coretec reported revenues of $18.9 million in the quarter ended December 31, 2007, an 18.5% decrease over the prior year period revenue of $23.2 million and a decrease of 13.7% from the third quarter of 2007 where revenues were $21.9 million. Due to soft demand conditions in the quarter the Company took the unusual action of shuttering its Toronto and Denver operations for 7-10 days at the end of December. This effectively reduced the number of weeks of operation during the quarter from 13 to 12. Gross profit in the quarter was 16.1% of sales compared to 22.7% in the prior year period and 18.0% in the third quarter of 2007. Net loss for the quarter was $1.4 million or $0.07 per share compared to a net profit of $0.6 million or $0.03 per share for the same period in 2006 and sequentially, a decrease of $0.8 million from a net loss of $0.6 million or $0.03 per share in the third quarter of 2007. Included in the fourth quarter net loss were severance costs associated with staff reductions of $0.3 million, $0.2 million associated with the write down of certain fixed assets held in storage that were no longer deemed to be of value, $0.1 million related to deferred financing costs and deposits, and $0.1 million associated with a tax recovery provision that was reversed at the end of the year. Earnings before interest, taxes, depreciation and amortization (EBITDA) were $0.2 million, a $1.7 million decrease from the same period in 2006 and sequentially a decrease of $0.6 million from the third quarter of 2007.

For the twelve-month period ended December 31, 2007, the Company reported sales from continuing operations of $85.4 million, a 7.2% decrease from sales of $92.0 million in 2006. Gross profit decreased $5.9 million to $15.8 million or 18.5% of sales compared to $21.7 million or 23.6% of sales in 2006. Net loss for the year was $3.2 million or $0.17 per share compared to a net profit of $2.1 million or $0.11 per share in 2006.

"We are obviously disappointed with our results in 2007 and especially the second half of the year. The US dollar/Canadian dollar exchange rate has had a major impact on our revenues corporate-wide. More importantly the effect on our gross margins at our Toronto operations has been particularly meaningful during the year. Although a significant portion of our raw materials are purchased in US dollars the associated hedge represents only 20-25% of the selling dollar of any given product. Hence in Toronto a significant percentage of our selling price for US dollar denominated sales are unhedged. Comparatively, our US operations experienced record sales levels in 2007 in US dollar terms led by our Cleveland site which realized revenue growth of approximately 20%. However, our combined US site revenue performance was muted significantly once translated into Canadian dollars under consolidation. Case in point, our Denver sales declined in Canadian dollar terms under consolidation despite experiencing year-on-year growth in US dollars. On a quarterly basis our US sites saw bookings activity slow in the fourth quarter which affected all financial metrics.

Also affecting our consolidated revenues was a decline in our offshore brokerage sales in 2007 versus 2006. This was primarily a result of the loss of a large program from a major customer. Offshore sales are also predominantly US dollar denominated.

Operationally in 2007, our Toronto operations experienced several challenges including a volatile mix of product technologies that impacted yields and the degree of process outsourcing as well as disruptions associated with process relocations from our Lawrence and Ellesmere locations to our Sheppard facility. Both our US sites experienced significantly improved operating metrics over the course of the year and are now positioned to take on additional business. Additionally we have experienced meaningful disruption due to supplier non-performance issues associated with several major equipment implementations at our Sheppard location. These are now resolved for the most part but consumed significant resources during the second half of 2007 and negatively affected our facility consolidation schedule by as much as six months", said Paul Langston, President and CEO.

Mr. Langston added, "In 2008 we are undertaking a series of initiatives that we believe will allow us to reduce costs and be more efficient in Toronto as well as drive further gains in our US sites. These include:

- implementing integrated process management at our Sheppard facility to drive greater process control, productivity and capability of our equipment platforms, especially new implementations;

- preparing our Sheppard site to receive new equipment in the first half of 2008 to facilitate further consolidation of processes at the site, improve technology capability as well as reduce our reliance upon subcontractors;

- consolidating additional processes from our Ellesmere facility into our Sheppard facility throughout the year. We anticipate evacuating greater than 50% of the Ellesmere premises, or roughly 30,000 sq.ft., by the end of the year. This will reduce our base facility costs by greater than $300,000 per annum;

- a reduction of direct and indirect labour costs in our Toronto operations by more than $3 million. This reduction commenced in November 2007 and was completed in February 2008;

- an optimization of administrative overheads and public company costs (ie. Board size; elimination of conference calls; a reduction in director fees; reduced AGM expenditures; etc.);

- installing new equipment at our Denver operation to enable yield improvement on higher technology products as well as reduce the need to outsource certain processes;

- installing new equipment at our Cleveland operation that will provide redundancy at critical processes and enable greater throughput;

- expanding our sales organization to drive greater customer diversity particularly in our US operations."

Please note that a conference call will not be held to discuss these financial results. Any questions or comments should be directed to Andre Kern, CFO, at the coordinates listed below.

Coretec will release its Q1 2008 results after the close of trading on May 6, 2008. The Company's Annual General Meeting will 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 an extensive suite of printed circuit board services including field applications engineering support and education; technology roadmap consulting, CAD layout; rapid response manufacturing for prototypes; quick turn production for small-to-middle volume quantity requirements; and facilitation of higher volume requirements via partnerships in lower cost jurisdictions. The Company is also differentiated by its broad range of PCB technologies.

This news release contains "forward-looking statements" within the meaning of the United States Securities Litigation Reform Act of 1995, and applicable Canadian Securities Legislation. Forward-looking statements include, but are not limited to, statements with respect to financial performance, opportunities, new market for growth and financial position. Generally these forward-looking statements can be identified by the use of forward-looking terminology such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecast", "intends", "anticipates", or "does not anticipate", or "believes" or variations of such words and phrases, or state that certain actions, events or results "may", "could", "would", "might", or "will be taken", "occur", or "be achieved". 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 discussed in the section entitled "Risk Factors" in Coretec's Annual Information Form dated March 8, 2007 which can be obtained at www.sedar.com.



CONSOLIDATED BALANCE SHEETS
(in thousands - unaudited)

As at December 31 2007 2006
----------------------------------------------------------------------------

ASSETS
Current
Cash 1,829 1,721
Mortgage receivable 1,050 -
Accounts receivable 12,389 14,536
Inventories 4,009 4,795
Income taxes recoverable - 118
Prepaid expenses 688 509
----------------------------------------------------------------------------
Total current assets 19,965 21,679
----------------------------------------------------------------------------
Mortgage receivable - 1,050
Property, plant and equipment, net 30,250 26,262
Other assets 756 1,040
----------------------------------------------------------------------------
TOTAL ASSETS 50,971 50,031
----------------------------------------------------------------------------
----------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness 4,021 -
Accounts payable and accrued liabilities 7,886 11,085
Current portion of long-term debt 1,887 1,699
----------------------------------------------------------------------------
Total current liabilities 13,794 12,784
----------------------------------------------------------------------------
Long-term debt 7,479 4,447
----------------------------------------------------------------------------
Total liabilities 21,273 17,231
----------------------------------------------------------------------------

Shareholders' equity
Share capital 61,066 61,064
Share capital held by long-term incentive plan (100) (118)
Contributed surplus 750 661
Deficit (32,018) (28,807)
----------------------------------------------------------------------------
Total shareholders' equity 29,698 32,800
----------------------------------------------------------------------------
LIABILITIES & SHAREHOLDERS EQUITY 50,971 50,031
----------------------------------------------------------------------------
----------------------------------------------------------------------------



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

Three months Ended Year ended
December 31 December 31
2007 2006 2007 2006

Sales 18,887 23,171 85,417 92,047
Cost of sales 15,849 17,904 69,595 70,326
----------------------------------------------------------------------------
Gross profit 3,038 5,267 15,822 21,721
----------------------------------------------------------------------------

Expenses
Selling, general and administrative 2,697 3,392 12,516 13,720
Depreciation and amortization 1,224 1,211 4,928 5,000
----------------------------------------------------------------------------
3,921 4,603 17,444 18,720
----------------------------------------------------------------------------
Income (loss) from operations (883) 664 (1,622) 3,001
Interest and other expenses 305 158 993 696
Foreign exchange (gain) loss (63) (120) 519 (39)
Loss (gain) on disposal of equipment 160 69 4 284
----------------------------------------------------------------------------
Income (loss) before income taxes (1,285) 557 (3,138) 2,060
Recovery of income taxes 88 - 73 -
----------------------------------------------------------------------------
Net income (loss) from operations (1,373) 557 (3,211) 2,060
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Earnings (loss) per share:
From operations basic and diluted ($0.07) $0.03 ($0.17) $0.11
----------------------------------------------------------------------------
----------------------------------------------------------------------------



CONSOLIDATED STATEMENTS OF DEFICIT
(in thousands - unaudited)

Years ended December 31

2007 2006
$ $
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Deficit, beginning of year (28,807) (30,867)
Net income (loss) for the year (3,211) 2,060
----------------------------------------------------------------------------
Deficit, end of year (32,018) (28,807)
----------------------------------------------------------------------------
----------------------------------------------------------------------------



CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands - unaudited)

Three months ended Year ended
December 31 December 31
2007 2006 2007 2006
$ $ $ $
----------------------------------------------------------------------------

OPERATING ACTIVITIES
----------------------------------------------------------------------------

Net income (loss) for the period (1,373) 557 (3,211) 2,060
Non-cash items
Depreciation and amortization 1,224 1,211 4,928 5,000
Stock-based compensation 6 73 89 202
Long-term incentive plan compensation (12) 12 18 12
Unrealized foreign exchange
(gain) loss 68 (429) 1,417 (115)
Amortization of deferred finance
charge 23 19 112 75
Purchase of common shares held
in trust by long-term incentive
plan - (130) - (130)
(Gain) loss on disposal of
capital assets 160 69 4 284
----------------------------------------------------------------------------
96 1,382 3,357 7,388

Net change in non-cash working
capital balances related to operations 700 2,302 (1,258) 1,048
----------------------------------------------------------------------------
Cash provided by operating
activities 796 3,684 2,099 8,436
----------------------------------------------------------------------------

FINANCING ACTIVITIES
Repayments of long-term debt (641) (317) (3,136) (2,147)
Increase in Long term debt 1,586 - 6,578 -
Increase (decrease) in bank
indebtedness 1,458 (40) 4,021 (2,599)
Issuance of share capital - - 2 -
Repayment of shareholder loan - 5 - 28
----------------------------------------------------------------------------
Cash provided by (used in) financing
activities 2403 (352) 7,465 (4,718)
----------------------------------------------------------------------------

INVESTING ACTIVITIES
Purchase of capital assets (2,270) (1,306) (9,661) (3,900)
Proceeds on disposal of capital asset 259 - 259 -
Decrease (increase) in restricted
short-term deposit - - - 1,057
Decrease (increase) in other assets (374) (703) 172 (891)
----------------------------------------------------------------------------
Cash used in investing activities (2,385) (2,009) (9,230) (3,734)
Effect of exchange rate changes
on cash (100) 39 (226) 9
----------------------------------------------------------------------------
Net increase (decrease)
in cash during the period 714 1,362 108 (7)
----------------------------------------------------------------------------
Cash, beginning of period 1,115 359 1,721 1,728
----------------------------------------------------------------------------
Cash, end of period 1,829 1,721 1,829 1,721
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Contact Information