Coretec Inc.
TSX : CYY

Coretec Inc.

August 02, 2006 19:32 ET

Coretec Inc. Records Second Quarter Revenues of $22.4 Million

Q2 2006 earnings per share of $0.02 Year over year, quarterly revenue increase of 14% Net Income of $0.4 million compared to a loss of $1.4 million in prior year period

TORONTO, ONTARIO--(CCNMatthews - Aug. 2, 2006) - Coretec Inc. (TSX:CYY) today reported its financial results for the second quarter of 2006. Sales in the 2006 second quarter were $22.4 million representing a 14% increase over second quarter 2005 sales of $19.7 million.

For the three-month period ending June 30, 2006, Coretec reported net income of $0.4 million or $0.02 per share versus a net loss of $1.4 million or ($0.07) per share for the same period in 2005. In the 2005 second quarter the Company expensed costs of $0.5 million associated with a terminated merger. Gross profit as a percentage of sales increased to 23% in Q2 2006, versus 22% in the prior year period. Earnings before interest, taxes, depreciation and amortization (EBITDA) in the second quarter of 2006 was $1.8 million, compared to EBITDA of 0.4 million in the second quarter of 2005.

For the 2006 year-to-date period, the Company reported net income of $1.1 million or $0.06 per share on sales of $46.5 million compared to a net loss of $2.2 million or ($0.12) per share on sales of $39.1 million in the 2005 period.

"Over the past 12 months we have been able to achieve improvements in all of our financial metrics against a backdrop of volatile market conditions and currency fluctuations. The strength of the Canadian dollar versus the US dollar continues to be a challenge. This is unique to Canadian manufacturing companies, particularly those with significant sales denominated in currencies other than the Canadian dollar.

Approximately 69% of our revenues originate outside of Canada and roughly 62% of our revenues are US dollar denominated, and 7% in British pounds", said Paul Langston, President.

Mr. Langston continued, "the PCB industry experienced very strong demand dynamics in Q1 2006 followed by a meaningful seasonal decline in Q2. The demand softness has continued into Q3 but we are anticipating bookings momentum to increase as we move deeper into the quarter. We remain optimistic for the balance of 2006 with respect to both our particular end markets and the demand for prototype and quick turn services."

"Our balance sheet continues to strengthen as a result of our positive cash flow as does the Company's liquidity position. As of June 30, 2006 our working capital was $9.7 million as compared to $8.7 million at the end of fiscal 2005," said Mr. Langston.

Capital additions during the second quarter of 2006 were $0.6 million and $1.8 million for the year to date period.

The number of shares outstanding at June 30, 2006 is 18.6 million.

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.



Coretec Inc.

CONSOLIDATED BALANCE SHEETS
(in thousands - unaudited)

June 30, December 31,
2006 2005
$ $
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ASSETS
Current
Cash and cash equivalents 823 1,728
Restricted short term deposit - 1,057
Accounts receivable 14,619 14,471
Inventories 4,789 4,312
Income taxes recoverable 55 182
Prepaid expenses 1,041 1,341
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Total current assets 21,327 23,091

Mortgage receivable 1,050 1,050
Property, plant and equipment, net 24,942 25,478
Other assets 203 633
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47,522 50,252
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness 1,758 2,599
Accounts payable and accrued liabilities 8,672 10,257
Current portion of long-term debt 1,195 1,554
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Total current liabilities 11,625 14,410

Long-term debt 4,039 5,214
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Total liabilities 15,664 19,624

Commitments

Shareholders' equity
Share capital 61,051 61,036
Contributed surplus 531 459
Deficit (29,724) (30,867)
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Total shareholders' equity 31,858 30,628

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47,522 50,252
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Coretec Inc.

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

Three months ended Six months ended
June 30, June 30,
2006 2005 2006 2005
$ $ $ $
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Sales 22,402 19,718 46,518 39,067
Cost of sales 17,211 15,443 35,097 30,698
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Gross profit 5,191 4,275 11,421 8,369
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Expenses
Selling, general and administrative 3,484 3,126 7,063 6,468
Depreciation and amortization 1,257 1,498 2,560 3,025
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4,741 4,624 9,623 9,493
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Income (loss) from operations 450 (349) 1,798 (1,124)

Terminated merger costs - 534 - 534
Interest and other expenses
179 259 360 507
Foreign exchange (gain) loss (112) 223 80 143
Write-down of fixed assets - - 215 -
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Income (loss) from continuing operations 383 (1,365) 1,143 (2,308)

Income gain (loss) from
Discontinued operations - (5) - (121)
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Net income (loss) for the
period 383 (1,370) 1,143 (2,187)
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Earnings (loss) per share
From continuing operations basic and
diluted $0.02 $(0.07) $0.06 $(0.12)
Net loss per share basic and
diluted $0.02 $(0.07) $0.06 $(0.12)
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Coretec Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands - unaudited)


Three months ended Six months ended
June 30, June 30,
2006 2005 2006 2005
$ $ $ $
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OPERATING ACTIVITIES
Income (loss) for the period
From continuing operations 383 (1,365) 1,143 (2,308)
Non-cash items
Depreciation 1,257 1,498 2,560 3,025
Stock-based compensation (7) 103 72 209
Write-down of fixed assets - - 215 -
Unrealized foreign exchange loss 369 242 425 527
Amortization of deferred
finance charges 8 54 22 107
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2,010 532 4,437 1,560
Net change in non-cash working
capital balances related to
operations 69 1,507 (2,254) (86)
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Cash provided by operating
activities 2,079 2,039 2,183 1,474
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FINANCING ACTIVITIES
Repayment of long-term debt (998) (353) (1,452) (669)
Decrease in bank indebtedness (1,266) (2,106) (841) (800)
Repayment of shareholder loan 7 15 15 15
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Cash used in financing
activities (2,257) (2,444) (2,278) (1,453)
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INVESTING ACTIVITIES
Purchase of capital assets (614) (703) (1,831) (1,861)
Decrease in short-term deposit 1,064 - 1,057 -
(Increase) decrease in other
assets - (8) - 62
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Cash provided by (used in)
investing activities 450 (711) (774) (1,799)
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Effect of exchange rate changes
on cash (38) 21 (36) 7
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Net increase (decrease) in cash
during the period 234 (1,095) (905) (1,771)
Change in cash from discontinued
operations - (5) - 1,499
Cash, beginning of period 589 1,182 1,728 354
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Cash, end of period 823 82 823 82
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Supplemental cash flow
information
Interest paid 171 159 341 354
Income taxes paid - 63 - 63
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Coretec Inc.
Selected financial Information
(000's)
%
% Change
Q2/06 Q2/05 Change Q1/06 Q2/Q1
-------------- ------
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Continuing operations:
Revenue 22,402 19,718 14% 24,116 -7%
Gross Profit 5,191 4,275 21% 6,230 -17%
Income (loss) 383 (1,365) N/A 760 -50%

%
% Change
Q2/06 Q2/05 Change Q1/06 Q2/Q1
-------------- ------
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Reconciliation of EBITDA(1) from
continuing operations:
Income (loss) for the period 383 (1,365) 760
from continuing operations
Add/(Deduct):
Interest 179 259 181
Depreciation and
Amortization 1,257 1,498 1,303
Provision for income tax - - -
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EBITDA from continuing
operations 1,819 392 364% 2,244 -19%


(1) 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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