Coretec Inc.
TSX : CYY

Coretec Inc.

October 31, 2006 18:21 ET

Coretec Inc. Announces Third Quarter Earnings Per Share of $0.02 vs. a Loss of $0.08 in the Third Quarter of 2005

Fourth consecutive quarterly profit Net Income of $0.4 million as compared to a loss of $1.3 million in prior year period Year over year, quarterly revenue increase of 7% to $21.3 million

TORONTO, ONTARIO--(CCNMatthews - Oct. 31, 2006) - Coretec Inc. (TSX:CYY) today reported its financial results for the third quarter of 2006. Sales in the 2006 third quarter were $21.3 million representing a 7% increase over third quarter 2005 sales of $19.9 million.

For the three-month period ending September 30, 2006, Coretec reported net income of $0.4 million or $0.02 per share versus a net loss of $1.3 million or ($0.08) per share for the same period in 2005. The profit in the third quarter of 2006 represents the fourth consecutive quarterly profit the Company has achieved. Over the past four quarters the Company recorded total sales of $89.4 million and net income of $1.7 million or $0.09 per share.

For the year-to-date period, the Company reported net income of $1.5 million or $0.08 per share on sales of $67.8 million compared to a net loss of $3.4 million or ($0.20) per share on sales of $59.0 million in the 2005 year-to-date period. Gross profit as a percentage of sales increased to 24% in the third quarter of 2006, versus 20% in the prior year period. Earnings before interest, taxes, depreciation and amortization (EBITDA) in the third quarter of 2006 was $1.8 million, compared to EBITDA of $0.3 million in the third quarter of 2005. On a year-to-date basis EBITDA was $5.8 million versus $1.5 million for the first nine months of 2005. During the third quarter of 2006 the Company expended $2.4 million on capital additions, including $0.4 million on capital equipment and $2.0 million on the property and building associated with its Denver operations. Total capital expenditures for 2006 year-to-date were $4.3 million.

"Over the past 12 months we have been able to achieve consistent profitability despite a number of challenges that are common to the industry as well as unique to PCB companies based outside the US. The PCB industry is experiencing meaningful inflation in operating costs, namely utilities and raw materials, i.e. metals and resins. However, the inflationary pressures in our industry are being felt worldwide which is forcing and enabling PCB companies en masse to pass through to end users their increased costs. Additionally, the strength of the Canadian dollar versus the US dollar over the past year has affected the financial performance of Canadian PCB manufacturers, such as Coretec, who rely heavily on export sales to the US. Approximately 80% of our revenues are denominated in US dollars which have weakened against the Canadian dollar. Offsetting this drag on our bottom line is the fact that the majority of our raw materials and supplies as well as maintenance contracts are purchased in US dollars. From a balance sheet perspective we are also partially hedged by virtue of having US indebtedness and by the fact that the majority of our capital equipment is procured outside of Canada. Furthermore, our US based operations offer a further hedge against exchange rate variation. The fact that the Canadian dollar has stabilized somewhat versus the US dollar over the past six months has helped us plan our business more effectively and achieve more consistent financial performance", said Paul Langston, President.

Mr. Langston continued, "we have experienced increased bookings activity across all segments of our business since late Q3. If this trend is maintained we expect to generate sequential gains in our revenues in Q4 versus Q3. Of particular note is renewed strength in our offshore brokering business as compared to particularly weak conditions in Q3."

"Our balance sheet continues to strengthen as a result of our positive cash flow as does the Company's liquidity position. As of September 30, 2006 our working capital was $9.6 million as compared to $8.7 million at the end of 2005", said Mr. Langston.

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 - unaudited)

September 30, December 31,
2006 2005
$ $
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ASSETS
Current
Cash and cash equivalents 359 1,728
Restricted short term deposit - 1,057
Accounts receivable 14,575 14,471
Inventories 4,994 4,312
Income taxes recoverable 55 182
Prepaid expenses 1,077 1,341
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Total current assets 21,060 23,091

Mortgage receivable 1,050 1,050
Property, plant and equipment, net 25,954 25,478
Other assets 357 633
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48,421 50,252
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness 40 2,599
Accounts payable and accrued liabilities 9,785 10,257
Current portion of long-term debt 1,677 1,554
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Total current liabilities 11,502 14,410

Long-term debt 4,636 5,214
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Total liabilities 16,138 19,624
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Shareholders' equity
Share capital 61,059 61,036
Contributed surplus 588 459
Deficit (29,364) (30,867)
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Total shareholders' equity 32,283 30,628
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48,421 50,252
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Coretec Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts - unaudited)

Three months ended Nine months ended
September 30, September 30,
2006 2005 2006 2005
$ $ $ $
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Sales 21,257 19,926 67,775 58,993
Cost of sales 16,222 15,902 51,319 46,599
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Gross profit 5,035 4,024 16,456 12,394
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Expenses
Selling, general and
administrative 3,265 3,705 10,328 10,173
Depreciation and
amortization 1,229 1,419 3,789 4,444
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4,494 5,124 14,117 14,617
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Income (loss) from
operations 541 (1,100) 2,339 (2,223)

Terminated merger costs - 42 - 576
Interest and other expenses 179 255 539 762
Foreign exchange loss 2 17 82 159
Write-down of fixed assets - - 215 -
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Income (loss) from continuing
operations 360 (1,414) 1,503 (3,720)
Income from discontinued
operations - 160 - 281
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Net income (loss) for the
period 360 (1,254) 1,503 (3,439)
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Earnings (loss) per share
From continuing operations
basic and diluted $0.02 $(0.08) $0.08 $(0.20)
Net earnings (loss) per
share basic and diluted $0.02 $(0.07) $0.08 $(0.18)
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Coretec Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands - unaudited)

Three months ended Nine months ended
September 30, September 30,
2006 2005 2006 2005
$ $ $ $
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OPERATING ACTIVITIES
Income (loss) for the period
from continuing operations 360 (1,414) 1,503 (3,720)
Non-cash items
Depreciation & amortization 1,229 1,419 3,789 4,444
Stock-based compensation 57 106 129 315
Write-down of fixed assets - - 215 -
Unrealized foreign exchange
loss (gain) (111) 108 314 635
Amortization of deferred
finance charges 34 54 56 161
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1,569 273 6,006 1,835
Net change in non-cash working
capital balances related to
operations 1,000 211 (1,254) 123
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Cash provided by operating
activities 2,569 484 4,752 1,958
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FINANCING ACTIVITIES
Repayment of long-term debt (377) (632) (1,829) (1,301)
Increase (decrease) in bank
indebtedness (1,718) 1,177 (2,559) 378
Repayment of shareholder loan 8 22 23 37
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Cash (used in) provided by
financing activities (2,087) 567 (4,365) (886)
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INVESTING ACTIVITIES
Purchase of capital assets (763) (524) (2,594) (2,385)
Decrease in short-term deposit - - 1,057 -
Increase in other assets (188) (606) (188) (544)
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Cash used in investing activities (952) (1,130) (1,726) (2,929)
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Effect of exchange rate changes
on cash 5 5 (31) 12
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Net decrease in cash during the
period (464) (74) (1,369) (1,845)
Change in cash from discontinued
operations - 306 - 1,805
Cash, beginning of period 823 82 1,728 354
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Cash, end of period 359 314 359 314
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Supplemental cash flow
information
Interest paid 120 183 461 659
Income taxes paid - - - 63
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Coretec Inc.
Selected financial Information (000's)
%
% Change
Q3/06 Q3/05 Change Q2/06 Q3/Q2
---------------- -------
Continuing operations:

Revenue 21,257 19,926 7% 22,402 -5%

Gross Profit 5,035 4,024 25% 5,191 -3%

Income (loss) 360 (1,254) N/A 383 -6%

%
% Change
Q3/06 Q2/05 Change Q2/06 Q3/Q2
---------------- -------
Reconcilliation of EBITDA(i)
from continuing operations:

Income (loss) for the period 360 (1,414) 383
from continuing operations
Add/(Deduct):

Interest 179 255 179

Depreciation and Amortization 1,229 1,419 1,257

Provision for income tax - - -
---------------- -------
EBITDA from continuing
operations 1,768 260 320% 1,819 -3%



(i) EBITDA is not a measure recognized under Canadian generally accepted accounting principles ("GAAP"). EBITDA is calculated as earnings before interest and certain other expenses, provision for income taxes, and depreciation and amortization. Management believes that many of the Company's shareholders, creditors, other stakeholders and analysts prefer to assess the Company's performance using EBITDA in addition to the GAAP measures. The Company's method of calculating EBITDA may differ from other companies and accordingly may not be comparable to measures used by other companies.

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