TORONTO, ONTARIO -- (Marketwire) -- 08/07/08 -- Coretec Inc. (TSX: CYY) today reported its financial results for the second quarter ended June 30, 2008. Sales in the 2008 second quarter were $19.4 million, an increase of $0.9 million sequentially or 5% as compared to sales of $18.5 million in Q1 2008, and down $2.4 million or 11% from sales of $21.8 million in the same period of the prior year.
In the 2008 second quarter, the Company recorded gross profit of $3.7 million or 18.9% of sales, an increase of $0.9 million sequentially or 32% as compared to gross profit of $2.8 million in Q1 2008, and down $0.5 million or 12% from gross profit of $4.2 in the comparable period in 2007.
A loss of $0.2 million or $0.01 per share was recorded in the 2008 second quarter, an improvement of $0.8 million sequentially as compared to a loss of $1.0 million or $0.06 per share in Q1 2008, and an improvement of $0.4 million as compared to the prior year quarter which had a net loss of $0.6 million or $0.03 per share. The 2008 second quarter included $0.1 million of foreign exchange losses and costs associated with terminations and severances of $0.1 million. This compares with a loss on foreign exchange of $0.4 million in Q2 2007 offset by a gain of $0.1 million on sale of fixed assets. In Q1 2008 the Company had costs associated with terminations and severances of $0.2 million and minimal gains or losses vis-a-vis the sale of fixed assets or related to foreign exchange.
Earnings before interest, taxes, depreciation and amortization ("EBITDA") in the second quarter of 2008 was $1.0 million, as compared to EBITDA of $0.3 million in Q1 2008 and $0.9 million in the second quarter of 2007.
"Greater than 80% of our sales are denominated in US dollars. In Q2 2008 the US dollar exchange rate relative to the Canadian dollar was predominantly at or below parity whereas in Q2 2007 it was as high as 1.16. This relative decline in value of the US dollar has unfortunately had a meaningfully negative impact on our year over year revenues as expressed in Canadian dollars. Additionally, greater than 70% of corporate sales are generated in our Toronto operations, where the majority of costs are Canadian dollar denominated. The combination of the foreign exchange issue and input inflation (copper, gold, silver, specialty chemicals, etc.) has put our product margins under significant pressure. We are therefore pleased with our growth in revenues sequentially as well as our ability to control costs in a challenging foreign exchange and inflationary environment," said Paul Langston, President and CEO of Coretec Inc.
"The transfer of processes from the Company's leased premises (Ellesmere facility) to its owned plant (Sheppard site) intensified in the second quarter. Effective July, all plating processes were consolidated at the Sheppard plant and by the end of Q4, approximately half of the floor space at the Company's Ellesmere facility will be decommissioned. As the consolidation continues we look forward to realizing meaningful overhead savings and productivity gains", continued Mr. Langston.
Mr. Langston said, "Both of our US plants experienced improvements in demand and financial performance in the second quarter versus earlier in the year. Our offshore business also gained momentum towards the end of Q2 with respect to business activity levels. We expect that demand for the services that the Denver and Cleveland plants offer as well as our offshore brokerage business will remain healthy as a result of several new customer approvals and program wins".
Mr. Langston continued, "We are also pleased to announce the implementation of additional financing facilities with the Business Development Bank of Canada. A CAD$3 million expanded mortgage facility has been finalized as relates to our Sheppard site and a USD$3 million capital equipment line has been instituted to facilitate new technology investments".
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 18, 2008 which can be obtained at www.sedar.com.
Coretec Inc.
CONSOLIDATED BALANCE SHEETS
(in thousands - unaudited)
June 30, December 31,
2008 2007
$ $
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ASSETS
Current
Cash 529 1,829
Accounts receivable 12,865 12,389
Mortgage receivable - 1,050
Inventories 4,737 4,009
Prepaid expenses 457 688
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Total current assets 18,588 19,965
Property, plant and equipment, net 31,961 30,250
Other assets 341 756
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50,890 50,971
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness 3,963 4,021
Accounts payable and accrued liabilities 8,879 7,886
Current portion of long-term debt 1,965 1,887
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Total current liabilities 14,807 13,794
Long-term debt 6,928 7,479
Other long-term liabilities 674 -
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Total liabilities 22,409 21,273
Shareholders' equity
Share capital 61,066 61,066
Share capital held by long term incentive plan (46) (100)
Contributed surplus 765 750
Deficit (33,304) (32,018)
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Total shareholders' equity 28,481 29,698
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50,890 50,971
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Coretec Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS
(in thousands except per share amounts - unaudited)
Three months ended Six months ended
June 30 June 30
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2008 2007 2008 2007
$ $ $ $
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Sales 19,415 21,816 37,901 44,634
Cost of sales 15,740 17,600 31,388 35,794
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Gross profit 3,675 4,216 6,513 8,840
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Expenses
Selling, general and administrative 2,515 3,049 5,094 6,808
Depreciation and amortization 1,092 1,296 2,235 2,512
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3,607 4,345 7,329 9,320
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Gain (loss) from operations 68 (129) (816) (480)
Interest and other expenses 167 237 366 431
Foreign exchange loss 111 377 109 451
Loss (gain) on disposal of
equipment, net 22 (98) (10) (154)
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Loss before income taxes (232) (645) (1,281) (1,208)
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Provisions for (recovery of)
income taxes 5 - 5 (15)
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Loss for the periods (237) (645) (1,286) (1,193)
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Loss per share
Loss per share, basic and diluted ($0.01) ($0.03) ($0.07) ($0.06)
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Coretec Inc.
CONSOLIDATED STATEMENTS OF DEFICIT
(in thousands - unaudited)
Three months ended Six months ended
June 30 June 30
2008 2007 2008 2007
$ $ $ $
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Deficit, beginning of period (33,067) (29,355) (32,018) (28,807)
Net income (loss) for the period (237) (645) (1,286) (1,193)
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Deficit, end of period (33,304) (30,000) (33,304) (30,000)
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Coretec Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands - unaudited)
Three months ended Six months ended
June 30 June 30
2008 2007 2008 2007
$ $ $ $
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OPERATING ACTIVITIES
Loss for the period (237) (645) (1,286) (1,193)
Non-cash items
Depreciation 1,092 1,296 2,235 2,512
Stock-based compensation (8) 54 15 29
Loss (gain) on disposal of equipment 22 (98) (10) (154)
Unrealized foreign exchange gain (loss) (70) 540 306 605
Long-term incentive plan compensation 36 10 54 20
Amortization of deferred finance charges 36 23 40 47
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871 1,180 1,354 1,866
Net change in non-cash working capital
balances related to operations (596) (981) (291) (2,743)
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Cash (used) provided in operating
activities 275 199 1,063 (877)
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FINANCING ACTIVITIES
Increase in long-term debt - 1,726 - 3,500
Repayment of long-term debt (195) (248) (506) (547)
Increase (decrease) in bank indebtedness 1,003 564 (57) 2,144
Increase in other liabilities 674 - 674 -
Issuance of share capital - - - -
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Cash (used) provided in
financing activities 1,482 2,042 111 5,100
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INVESTING ACTIVITIES
Purchase of capital assets (3,254) (2,606) (3,935) (5,580)
Decrease in short term deposit 1,050 - 1,050 -
Decrease (increase) in other assets 398 480 374 562
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Cash used in investing activities (1,806) (2,126) (2,511) (5,018)
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Effect of exchange rate changes on cash (7) (17) 37 (24)
Net increase (decrease) in cash
during the period (56) 98 (1,300) (819)
Cash, beginning of period 585 804 1,829 1,721
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Cash, end of period 529 902 529 902
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Supplemental cash flow information
Interest paid 166 193 364 343
Income taxes paid 5 - 5 -
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Contacts:
Coretec Inc.
Andre Kern
Chief Financial Officer
(416) 208-2165
Email: akern@coretec-inc.com
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