Advitech Reports its Second Quarter Results and Highlights

QUEBEC CITY, QUEBEC--(CCNMatthews - Aug. 26, 2004) - Advitech Inc. (TSX-V: AVI) announced today its financial results for the second quarter ended June 30, 2004.

In the second quarter of 2004 revenues totalled $627,738 compared to $449,879 for the same period last year, an increase of 39.5%. Revenues were derived principally from the resale of certain products under exclusive distribution agreements. Operating expenses totalled $808,819 compared to $740,587 for the same period last year. The net loss amounted to $188,976 or $0.01 per share compared to a net loss of $386,034 or $0.01 per share for the second quarter of 2003.

For the six month period ended June 30, 2004, revenues amounted to $1,034,127 compared to $707,239 for the same period in 2003, an increase of 46.2%. The net loss reached $456,354 or $0.01 per share compared to $636,782 or $0.02 per share for the same period last year.

Highights for the Period

- Final results of the open clinical study on XP-828L, an oral
treatment for psorasis.

- Publication of interim results on XP-828L at the 10th
International Symposium on Psoriasis held in Toronto last June.

- Qualifying transaction with Dupont Capital Inc., a capital pool
company listed on the TSX Venture exchange.

On July 13, 2004, the Company announced the closing of a public offering of 12,646,560 units at a price of $0.22 per unit, for gross proceeds of $2,782,243. This amount includes $282,243 in gross proceeds from the exercise of the over-allotment option by the agent Desjardins Securities Inc. Combining this amount and financial resources from Dupont Capital, the Company will have access to $3.6 million to execute its business plan in the coming months.

"Although our R&D investments rose last year, we were able to reduce our net financial needs through cost control and contributions from our current commercial activities," indicated Mr. Michel Lamontagne, Vice-president and Chief Financial Officer. "We are also very proud to have completed our recent financing operation considering the cool investment climate public biotech companies are currently facing. The funding we have received and our new status as a public company provide us greater flexibility for the financing of our development programs and our future growth. We now have the financial resources to proceed with our clinical development program."

Management Discussion and Analysis

The following management discussion and analysis of results of operations and financial condition should be read in conjunction with the information from the financial statements and related notes thereto.

Overview

The Company is specialized in the development of bioactive ingredients derived from milk proteins. The Company's core expertise lies in its ability to isolate, concentrate and purify proteins, bioactive peptides, growth factors and other biological components from bovine milk and whey. Bioactive components resulting from these patented processes are then used to formulate treatments for specific health conditions. Its technologies are focused in the area of immunology and inflammatory processes.

Results of Operations

The operating loss amounted to $181,081 for the second quarter ended June 30, 2004, compared to $290,708 for the second quarter ended June 30, 2003, a reduction of $109,727 or 37.7%. The reduction in operating losses for the second quarter of 2004 can be explained mainly by an increase in Lactium sales, a reduction in sales, marketing and administratives expenses and a reduction in amortization expenses for intangible assets and deferred costs. However, the Company believes its operating losses should increase in the coming months reflecting its investment in the clinical development of XP-828L.

For the 6-month period ended June, 30 2004, the operating loss amounted to $475,013, compared to a loss of $414,340 for the same period last year. This reduction of $60,673 or 14.6% can be explained by an increase in research and development expenses for the clinical development program of XP-828L.

Total revenues were $627,738 for the second quarter ended June 30, 2004 compared to $449,879 for the same period in 2003. Revenues derived from product sales increased by $208,271, or 59.2%, due mainly to an increase in sales of Lactium ingredients. Revenues derived from research contracts and payments from strategic partners declined from $98,234 to $33,900. This decrease of 65.5% reflects the emphasis of the Company on internal R&D projects instead of third-party research contracts. During the second quarter of 2004, revenues derived from royalties amounted to $33,922 due to new royalty programs on discontinued products now manufactured and sold by third-parties and for which the Company is entitled to receive royalties on sales of these products.

For the 6-month period ended June 30, 2004, total revenues were $1,034,127 compared to $707,239 for the same period in 2003, an increase of $326,888 or 46.2%. This increase in sales is mainly due to an increase in sales of Lactium ingredients.

For the second quarter ended June 30, 2004, the cost of products sold was $366,757, representing a gross margin of 34.5% compared to $253,732 and a gross margin of 27.8% for the second quarter ended June 30, 2003. This increase in gross margin is mainly due to more favorable raw material costs. Also, exchange rates had a positive impact on sales and gross margin.

Sales and administrative expenses were $250,916 for the second quarter ended June 30, 2004, compared to $322,049 for the second quarter ended June 30, 2003, a reduction of $71,133 or 22.1%. During the second quarter of 2003, the Company had increased its sales and marketing expenses to promote its products. In 2004, the Company is relying more on its distributors for promotional expenses. Sales and marketing expenses should increase in the coming months due to the hiring of marketing personnel and due also to support for communication program for XP-828L. No significant changes have been recorded for administrative expenses.

Research and development gross expenses were $205,431 for the second quarter ended June 30, 2004, compared to $175,978 for the same period in 2003, an increase of $29,453 or 16.7%. Research and development tax credits and grants amounted to $109,971 or 53.5% of gross expenses for the same period compared to $120,408
and 68.4% of gross expenses for the second quarter ended June 30, 2003. The increase in gross expenses is due to specific expenses incurred for the clinical development program of the XP-828L ingredient, the Company's leading technology.

Financial expenses were $37,364 for the second quarter ended June 30, 2004, compared to $42,637 for the second quarter ended June 30, 2003, a decrease of $5,273 or 12.4%. The higher expenses in 2003 were due to significant exchange losses recorded during the second quarter of 2003.

Amortization of fixed assets amounted to $12,338 for the second
quarter ended June 30, 2004, compared to $12,690 for the second quarter ended June 30, 2003, a decrease of $352. No significant change has been recorded in the value of the fixed assets during this period.

Amortization of intangible assets and deferred costs amounted to $6,208 for the second quarter ended June 30, 2004, compared to $53,909 for the second quarter ended June 30, 2003, a decrease of $47,701. This important reduction is explained by certain financing costs previously deferred that were expensed during the second quarter of 2003 when it was determined that the financing could not be completed. The higher amortization costs in 2003 are also due to the amortization of certain development and trademarks costs in 2003. Those costs were fully amortized at the end of 2003, and no additional amortization costs are recorded for these items in 2004.

Discontinued operations generated net losses of $7,895 for the second quarter ended June 30, 2004, compared to a loss of $95,326 for the second quarter ended June 30, 2003. While manufacturing activities were terminated in December 2003, this loss is explained by certain expenses associated with contractual commitments for a lease ended on June 30, 2004. Revenues recorded from the sale of raw materials for discontinued operations have reduced the losses. Discontinued operations should not generate significant losses for the rest of 2004.

About Advitech Inc.

Advitech is involved in the development of bioactive components derived from milk proteins. Its key focus areas are in the fields of immunology and inflammatory processes. Its main application, XP-828L, is an oral treatment for psoriasis and other immune system disorders. Psoriasis affects between 2-3% of the global population and more than 6 million adults in North America alone. Advitech has 15 employees, with more than half of them engaged in research and development activities at its facility at Universite Laval in the city of Quebec.

Advitech's common shares are listed on the TSX Venture exchange under the symbol AVI. The number of common shares outstanding is 54,723,627.

This press release contains forward-looking statements which reflect the Company's current expectations regarding future events. The forward-looking statements involve risks and uncertainties. Actual results could differ materially from those projected herein. The reader is cautioned not to rely on these forward-looking statements. The Company disclaims any obligation to update these forward- looking statements.

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