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ZCL Composites Report Third Fiscal Quarter Increases

18 February 2005

ZCL Composites Inc. have issued a report showing revenue increases for the third quarter.

Revenues increased by 3.1% to a record $11.1 million from $10.7 million for the quarter last year, with net income for the quarter was $1.0 million as compared to $1.1 million last year. Basic earnings per share were $0.06 and diluted earnings per share were $0.05, as compared to basic and diluted earnings per share of $0.06 for the quarter last year.

For the nine-month period, revenue increased by 9.0% to $28.4 million from $26.0 million last year. Net income for the nine months increased to $2.3 million from $1.5 million in 2003. Basic earnings per share increased to $0.13 and diluted earnings per share to $0.12, from basic and diluted earnings per share of $0.08 for the period last year.

The slight decrease in net income in the third quarter was due to reduced manufacturing margins, mainly as a result of increased raw material costs, as compared to last year. While overall margins have decreased in the quarter, ongoing margins are expected to be maintained through selling price increases and production improvements. The increase in net income in the nine-month period as compared to last year was due to the higher revenue. Last year, the $880,000 provision for impairment of the agreement receivable from ZCL Enviro Systems, Inc. decreased net income for the nine-month period by $580,000 or $0.03 per share.

The Company continues to focus on the development and marketing of the tank lining technologies, as well as other new products. ZCL claim that tank lining is a large and lucrative international market - the potential annual market in North America is estimated to be in excess of $300 million. In conjunction with customers and suppliers, the Company has developed and is testing new lining materials and processes in order to deliver a superior performing product with inherently safe installation techniques. Field trials of this product commenced during the quarter. Preliminary results of this first trial are very encouraging, and further tests will continue to evaluate performance and installation under various site and weather conditions. Product development costs of $210,000 (2003 – nil) in the third quarter and $442,000 (2003 – nil) for the nine-month period were deferred.

“We are poised to take advantage of the tremendous tank lining marketplace with the anticipated introduction of our Prezerver+Plus+TM lining system early in the next fiscal year,” said Ven Côté, President and CEO. “We will cautiously enter the marketplace and carefully ramp up the program as we gain field experience and train qualified applicators in all aspects of this new system.”

Mr. Côté added, “Notwithstanding the slow start in the first quarter, we achieved record revenue in the second and third quarters. With our current backlog and the robust level of activity in the upstream sector, we look forward to a strong fourth quarter and are in sight of our annual 15% to 20% growth objective.”