1

     
 
   
N E W S R E L E A S E
  TeraForce Reports
Fourth Quarter and Full Year 2004 Results
     
Contact:
  Patty Dickerson, Investor Relations — 469-330-4969
pdickerson@teraforce-tech.com
 
   

RICHARDSON, TEXAS (March 30, 2005)

– TeraForce Technology Corporation (OTCBB: TERA) today announced financial results for the fourth quarter and fiscal year ended December 31, 2004.

Financial Results
Net revenue for the fourth quarter of 2004 was $971,000, compared to $2,170,000 in the same quarter last. For the full year of 2004, net revenue was $9,385,000 compared to $6,207,000 in 2003.

Gross profit for the fourth quarter of 2004 was $350,000. This compares to gross profit for the fourth quarter last year of $937,000. The operating loss for the fourth quarter of 2004 amounted to $1,369,000 versus $759,000 in the fourth quarter of 2003. For the full year of 2004 the operating loss was $1,239,000 as compared to $5,771,000 in 2003. Net revenue and operating loss for the year ended December 31, 2004 include the effect of $3,400,000 in license fees received pursuant to the Company’s technology licensing agreement with VISTA Controls.

The net loss for the fourth quarter of 2004 was $1,801,000 ($0.01 per share) as compared to $1,822,000 ($0.01 per share) in the fourth quarter of 2003. For the year ended December 31, 2004, the net loss was $2,880,000 ($0.02 per share) versus a loss of $8,559,000 ($0.07 per share) in the previous year.

Net income for 2004 includes non-cash charges totaling approximately $1,026,000 related to the amortization of warrant and other costs arising from financing transactions.

Management Comment
Herman M. Frietsch, Chairman and CEO of TeraForce commented, “Despite an overall year to year improvement in operating results, our progress during the second half of 2004 and the first quarter of 2005 has been disappointing, primarily due to an unexpected shortfall in revenue attributable to delays in orders from certain key programs. These delays were not related to our products and are not unusual in the early stages of new production programs.

“From a current perspective, we continue to see strong growth prospects in our primary markets and have recently seen a decided up-tick in order flow. In addition, we are encouraged by early market response to our new Nexus product that was launched at the annual Bus and Board industry show in late January of this year. We are optimistic that the resumed order flow, as well as the impact of Nexus, will contribute to a much-improved second quarter of 2005 and beyond.

“We are working directly with VISTA Controls to resolve the delays in availability of the ruggedized VQG4. Though we had expected this new product to be available in 2004, we continue to see opportunities for this product.

“Our recent financing transactions announced two weeks ago help meet working capital needs created by the shortfall in our operating results. We are continuing to work with our other debt holders in order to address debt maturities scheduled for later in 2005. While these arrangements have not been concluded, we have made considerable progress.”

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Conference Call Scheduled
The Company will also host a management conference call Wednesday, March 30, 2005 at
2:30 p.m. Central Standard Time, to review the matters discussed in this release. Stockholders and investors interested in attending the conference call should dial 800-374-1498 ten minutes prior to the call, reservation code 5050183. A live webcast of the conference call will also be available on the TeraForce website http://www.teraforcetechnology.com/.

A replay of the conference call will be available later that day from 5:00 p.m. Central Standard Time through 5:00 p.m. Central Daylight Time on April 30, 2005. To access the playback, please call
800-642-1687. The reservation code for the replay is 5050183. A replay will be available online through the TeraForce website http://www.teraforcetechnology.com/.

About TeraForce Technology Corporation
Based in Richardson, Texas, TeraForce Technology Corporation (OTCBB: TERA) designs, develops, produces and sells high-density embedded computing platforms and digital signal processing products, primarily for applications in the defense electronics industry. TeraForce’s primary operating unit is DNA Computing Solutions, Inc., www.dnacomputingsolutions.com.

Except for the historical information contained herein, the statements in this announcement are forward looking statements which involve risks and uncertainties that could cause actual results to differ materially from those expressed in, or implied by, the forward looking statements. Factors that might cause such a difference include, but are not limited to, those relating to: general economic conditions; success in the development and market acceptance of new and existing products; dependence on suppliers, third party manufacturers and channels of distribution; contingent liabilities; customer and product concentration; fluctuations in customer demand; maintaining access to external sources of capital; ability to attract and retain key management and technical personnel; issues regarding intellectual property rights; overall management of the Company’s expansion; and other risk factors detailed from time to time in the Company’s filings with the Securities and Exchange Commission.

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TERAFORCE TECHNOLOGY CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
December 31, 2004 and 2003
(Thousands of dollars, except share data)

                 
    2004   2003
Assets
               
 
               
Current assets:
               
Cash and cash equivalents
  $ 3     $ 165  
Accounts receivable, net of allowance of $30 in 2003
    150       1,935  
Inventories
    854       1,595  
Prepaid expenses and other current assets
    516       537  
 
               
Total current assets
    1,523       4,232  
Property and equipment, net
    335       378  
Investment in affiliate
    100       250  
Other assets
    1,086       488  
 
               
 
  $ 3,044     $ 5,348  
 
               
Liabilities and Stockholders’ Deficit
               
 
               
Current liabilities:
               
Current portion of notes payable
  $ 6,634     $ 700  
Accrued liabilities
    2,670       1,686  
Accounts payable
    584       1,495  
Deferred revenue
    100       1,550  
Total current liabilities
    9,988       5,431  
Long-term notes payable
    1,364       5,909  
Other long-term liabilities
    -       795  
Commitments and contingencies
               
Stockholders’ deficit:
               
Common Stock, $.01 par value. Authorized 250,000,000 shares, 133,561,425 and 130,837,186 shares issued in 2004 and 2003, respectively
    1,336       1,308  
Additional paid-in capital
    190,525       189,194  
Accumulated deficit
    (198,582 )     (195,702 )
 
               
 
    (6,721 )     (5,200 )
Less 400,474 shares of common stock in treasury -at cost
    (1,587 )     (1,587 )
 
               
Total stockholders’ deficit
    (8,308 )     (6,787 )
 
               
 
  $ 3,044     $ 5,348  
 
               

4

TERAFORCE TECHNOLOGY CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(Thousands of dollars, except per share data)

                                 
    Three Months Ended   Twelve Months Ended
    December 31,   December 31,
    2004   2003   2004   2003
            (unaudited)        
Net revenue
  $ 971     $ 2,170     $ 9,385     $ 6,207  
Cost of revenue
    621       1,233       3,634       3,998  
 
                               
Gross profit
    350       937       5,751       2,209  
 
                               
Expenses:
                               
Engineering and development
    478       511       2,009       2,574  
Selling and administrative
    1,241       1,185       4,981       4,707  
Write-off of receivable from unconsolidated affiliate
                      699  
 
                               
 
    1,719       1,696       6,990       7,980  
 
                               
Operating loss
    (1,369 )     (759 )     (1,239 )     (5,771 )
 
                               
Other income (expense):
                               
Litigation costs, net of insurance reimbursement
          (25 )     (50 )     (442 )
Share of loss and adjustment to carrying value of unconsolidated affiliate
                (50 )     (452 )
Interest expense
    (461 )     (1,072 )     (1,560 )     (1,847 )
Interest income and other
    29       34       19       (47 )
 
                               
 
    (432 )     (1,063 )     (1,641 )     (2,788 )
 
                               
Net loss
  $ (1,801 )   $ (1,822 )   $ (2,880 )   $ (8,559 )
 
                               
Basic and diluted loss per share:
                               
Net loss per share
  $ (0.01 )   $ (.01 )   $ (.02 )   $ (0.07 )
 
                               
Weighted average number of common shares outstanding (thousands) basic and diluted
    133,161       125,073       132,430       119,111  
 
                               

5

TERAFORCE TECHNOLOGY CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(Thousands of dollars)

                 
    Years ended December 31,
    2004   2003
Cash flows from operating activities:
               
Net loss $
    (2,880 )   $ (8,559 )
Adjustments to reconcile net loss to net cash used in operating activities:
               
Utilization of prepaid services
    -       193  
Depreciation and amortization
    221       247  
Amortization of deferred financing costs
    1,026       1,448  
Amounts related to unconsolidated affiliate
    50       1,151  
Other
    (19 )     369  
Change in operating assets and liabilities:
               
Accounts receivable
    1,786       (1,362 )
Inventories
    741       758  
Deferred revenue
    (1,550 )     1,550  
Accounts payable and accrued liabilities
    (411 )     (571 )
Net cash used in operating activities
    (1,036 )     (4,776 )
 
               
Cash flows from investing activities:
               
Capital expenditures
    (156 )     (32 )
Investment in temporary cash investments
    -       457  
Investment in affiliate
    100       -  
Software development costs
    (9 )     (137 )
Net cash provided by investing activities
    (65 )     288  
 
               
Cash flows from financing activities:
               
Proceeds from issuance of notes payable
    1,175       4,046  
Proceeds from issuance of common stock
    -       1,494  
Principal payments on notes payable
    (300 )     (1,000 )
Proceeds from exercise of common stock warrants
    57       36  
Proceeds from exercise of employee stock options
    7       22  
Net cash provided by financing activities
    939       4,598  
 
               
Net increase (decrease) in cash and cash equivalents
    (162 )     110  
Cash and cash equivalents, beginning of year
    165       55  
Cash and cash equivalents, end of year
  $ 3     $ 165  
 
               

6


The following information was filed by Teraforce Technology Corp (TERA) on Wednesday, March 30, 2005 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-K Annual Report statement of earnings and operation as management may choose to highlight particular information in the press release.

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