Coretec Inc.
TSX : CYY

Coretec Inc.

November 02, 2005 20:08 ET

Coretec Announces Third Quarter 2005 Results

TORONTO, ONTARIO--(CCNMatthews - Nov. 2, 2005) - Coretec Inc. (TSX:CYY) today reported its financial results for the third quarter ended September 30, 2005. The Company recorded sales from continuing operations of $19.9 million in the quarter, an 8% decrease versus sales of $21.7 million in the third quarter of 2004, although a 1% increase sequentially from the second quarter of 2005. Gross profit for the quarter was $4.0 million or 20% of sales compared to $5.4 million or 25% of sales in the third quarter of 2004. Sequentially, gross profit decreased $0.3 million from gross profit of $4.3 million or 22% of sales in the second quarter of 2005. The Company recorded a loss per share in the quarter of $0.08 compared to earnings per share of $0.03 in the third quarter of 2004 and sequentially, compared to a loss of $0.07 per share in the second quarter of 2005. In the third quarter of 2005 the Company recorded a charge of $0.5 million or $0.02 per share representing the costs associated with staff reductions. Included in the Q3 2005 loss was a gain from discontinued operations of $0.16 million or $0.01 per share.

Earnings before interest, taxes, depreciation and amortization ("EBITDA") was $0.3 million in the quarter, a decrease of $2.2 million compared to EBITDA of $2.5 million in the third quarter of 2004 and sequentially, a decrease of $0.6 million compared to EBITDA of $0.9 million in the second quarter of 2005. Free cash flow, defined as earnings (loss) plus depreciation and amortization less capital expenditures, was approximately negative $0.4 million in the quarter, compared to positive free cash flow of $1.7 million in the third quarter of 2004 and free cash flow of $0.0 million in the second quarter of 2005.

"Market conditions at the beginning of Q3 2005 were very challenging, affecting all of our plants. We reacted to the market softness by reducing staff in Toronto, instituting a shortened work week at our Denver site and by implementing a 10 day plant shutdown at our Cleveland plant. As well, we are pleased to report that activity levels have increased since mid August and have continued to be strong, particularly at our Toronto site," said Paul Langston. Coretec's President and Chief Executive Officer.

"Price compression in the quarter was a factor in the results at both our Toronto and Denver plants, particularly in the Defense and Aerospace end markets. Additionally, the weak US Dollar vis-a-vis the Canadian Dollar has negatively impacted our Toronto shipments whereas the US Dollar - British Pound exchange rate has hurt our Denver operation. Offsetting this was a meaningful improvement in both operational and financial metrics at our Cleveland facility, which achieved positive cash flow during the quarter," continued Mr. Langston.

Coretec is one of the leading designers and fabricators of Restriction of Hazardous Substances (RoHS) compliant 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.





CONSOLIDATED BALANCE SHEETS
(in thousands - unaudited)

September 30, December 31,
2005 2004
$ $
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ASSETS
Current
Cash 314 354
Accounts receivable 12,819 13,903
Inventories 4,513 5,002
Income taxes recoverable - 631
Prepaid expenses 1,611 1,752
Note receivable from discontinued
operations - 1,524
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Total current assets 19,257 23,166
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Long-lived assets held for sale 2,129 -
Property, plant and equipment, net 26,005 30,193
Other assets 769 386
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48,160 53,745
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness 1,986 1,608
Accounts payable and accrued liabilities 8,329 9,969
Current portion of long-term debt 4,233 5,044
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Total current liabilities 14,548 16,621
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Long-term debt 2,981 3,406
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Total liabilities 17,529 20,027
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Shareholders' equity
Share capital 61,029 60,992
Contributed surplus 655 340
Deficit (31,053) (27,614)
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Total shareholders' equity 30,631 33,718
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48,160 53,745
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CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands - unaudited)

Three months ended Nine months ended
September 30, September 30,
2005 2004 2005 2004
$ $ $ $
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Sales 19,926 21,693 58,993 61,095
Cost of sales 15,902 16,300 46,599 44,186
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Gross profit 4,024 5,393 12,394 16,909
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Expenses
Selling, general and
administrative 3,705 3,123 10,173 9,305
Depreciation and amortization 1,419 1,624 4,444 4,958
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5,124 4,747 14,617 14,263
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Income (loss) from continuing
operations (1,100) 646 (2,223) 2,646
Terminated merger costs 42 - 576 -
Interest and other expenses 255 261 762 639
Foreign exchange loss (gain) 17 (210) 159 (228)
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Income (loss) before income taxes (1,414) 595 (3,720) 2,235
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Provision for income taxes - 13 - 33
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Income (loss) from continuing
operations (1,414) 582 (3,720) 2,202
Income (loss) from discontinued
operations 160 (4,710) 281 (5,127)
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Net loss for the year (1,254) (4,128) (3,439) (2,925)
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Earnings (loss) per share:
From continuing operations,
basic and diluted $(0.08) $0.03 $(0.20) $0.12
Net loss per share, basic and
diluted $(0.07) $(0.22) $(0.18) $(0.16)
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CONSOLIDATED STATEMENTS OF DEFICIT
(in thousands - unaudited)

Quarters ended September 30

2005 2004
$ $
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Deficit, beginning of year (27,614) (25,832)
Net loss, further period (3,439) (2,925)
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Deficit, end of period (31,053) (28,757)
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands - unaudited)


Three Months Nine Months
Ended Ended
September 30, September 30,
2005 2004 2005 2004
$ $ $ $
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OPERATING ACTIVITIES
Income (loss) for
the year from
continuing operations (1,414) 582 (3,720) 2,202
Non-cash items
Depreciation 1,419 1,624 4,444 4,958
Stock-based compensation 106 86 315 208
Unrealized foreign
exchange loss 108 11 635 139
Amortization of deferred
finance charges 54 38 161 95
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273 2,341 1,835 7,602
Net change in non-cash
working capital balances
related to operations 211 (1,550) 123 (4,464)
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Cash provided by
operating activities 484 791 1,958 3,138
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FINANCING ACTIVITIES
Increase of long-term debt - - - 4,454
Repayment of long-term debt (632) (718) (1,301) (2,248)
Increase
in bank indebtedness 1,177 546 378 72
Increase in share capital 21 - 37 14
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Cash (used in) provided
by financing activities 567 (172) (886) 2,292
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INVESTING ACTIVITIES
Purchase of capital assets (524) (508) (2,385) (1,458)
Increase
in other assets (606) (40) (544) (324)
Advance to Proto Circuit - - - (3,798)
Acquisition of Proto Circuit - - - (236)
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Cash used in investing
activities (1,130) (548) (2,929) (5,816)
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Effect of exchange rate
changes on cash 5 5 12 (13)
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Net increase (decrease)
in cash during the period (74) 76 (1,845) (399)
Change in cash from
discontinued operations 306 (477) 1,805 (432)
Cash, beginning of period 82 912 354 1,342
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Cash, end of period 314 511 314 511
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Supplemental cash
flow information
Interest paid 183 140 659 476
Income taxes paid - - 63 144
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Coretec Inc.
Selected Financial Information (000's)

%
% Change YTD YTD %
Q3/05 Q3/04 Change Q2/05 Q2/Q1 05 04 Change
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Continuing
operations:
Revenue 19,926 21,693 -8% 19,718 1% 58,993 61,095 -3%

Gross
Profit 4,024 5,393 -25% 4,275 -6% 12,394 16,909 -27%

Income
(loss) -1,414 582 -343% -1,365 4% -3,720 2,235 -266%


Reconciliation of EBITDA from continuing operations

%
% Change YTD YTD %
Q3/05 Q3/04 Change Q2/05 Q2/Q1 05 04 Change
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Income
(loss) for
the period
from
continu-
ing
opera-
tions (1,414) 582 (1,365) -3,720 2,235
Add/
(Deduct):
Interest 255 261 259 762 639
Deprecia-
tion and
amortiza-
tion 1,419 1,624 1,498 4,444 4,958
Provision
for
income tax - 13 - - 33

Abandoned
merger
costs 42 - 534 576 -
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EBITDA from
continuing
operations 302 2,480 -88% 926 -67% 2,062 7,865 -74%



Reconciliation of Free Cash Flow from continuing operations

%
% Change YTD YTD %
Q3/05 Q3/04 Change Q2/05 Q2/Q1 05 04 Change
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Income
(loss) for
the period
from
continu-
ing
opera-
tions (1,414) 582 (1,365) -3,720 2,235
Add:
Depreci-
ation and
amorti-
zation 1,419 1,624 1,498 4,444 4,958
Amorti-
zation of
deferred
finance
charges 54 38 54 161 95

Abandoned
merger
costs 42 - 534 576 -
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101 2,244 721 1,461 7,288

Deduct:
Capital
expendi-
tures (524) (508) (703) -2,385 -1,458
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Free Cash
Flow from
continuing
operations -423 1,736 -124% 18 2450% -924 5,830 -116%


-EBITDA and free cash flow are not measures recognized under Canadian generally accepted accounting principles ("GAAP"). EBITDA is calculated as earnings before interest and certain other expenses, provision for income taxes, depreciation and amortization and impairment of capital assets. Free cash flow is calculated as net income plus depreciation and amortization and impairment of capital assets less capital expenditures. Management believe that many of the Company's shareholders, creditors, other stakeholders and analysts prefer to assess the Company's performance using EBITDA and free cash flow in addition to the GAAP measures. The Company's method of calculating EBITDA and free cash flow may differ from other companies and accordingly may not be comparable to measures used by other companies.

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