REVENUE GROWTH OF 371% HIGHLIGHTS SEAIR'S ANNUAL RESULTS
Edmonton, Alberta, December 28, 2007. SEAIR Inc . (SDS:TSX Venture Exchange) announces the release of its audited annual financial statements for the year ending August 31, 2007.
Seair's consolidated sales and financial performance is summarized as follows:
Revenue, year ending August 31, 2007 $ 3,405,251 (371% growth)
Gross profit, year ending August 31, 2007 $ 2,720,021 (342% growth)
Net loss, year ending August 31, 2007 $ 988,763 ($0.04 per share)
Harold Kinasewich, Seair President and CEO, notes "We are very pleased with the results from our first full year in the remote waste treatment business and are equally encouraged by the opportunities emerging for other applications of Seair's patented technologies. We now have the business foundation and financial resources to aggressively expand our remote waste treatment business and attack other potentially lucrative applications."
Revenue for the year ending August 31, 2007 was $3,405,251, or 371% higher than in fiscal 2006. This increase is directly attributable to waste water treatment growth originating with Seair's acquisition of Septic and subsequent fleet growth. Revenue is derived primarily from rentals of portable water treatment systems that utilize Seair's patented diffusion technology and ozone-based treatment process. Rental revenue from Septic provided over 90% of total revenue for the year ending August 31, 2007.
Presently, all of Septic's customers come from the western Canadian oil and gas industry. More particularly, Septic's revenue generally comes from units deployed at remote oil and gas drilling sites. Drilling activity in western Canada is concentrated during the winter months and effectively ceases during spring break-up when drilling equipment is prohibited from using roads while the roads dry up from the spring thaw. Spring break-up arrived unusually early in 2007. In addition, oil patch uncertainty and wet ground conditions throughout the summer limited the resumption of activity after spring break-up. Western Canadian drilling activity during summer 2007 was below 40%, which is the lowest it has been since 1999.
Seair had 63 portable waste treatment units at August 31, 2007. In July 2007 an expansion program was commenced with an objective of achieving a total fleet size of over 100 units for the winter 2008 season. All units will be based on Seair's patented diffusion technologies and ozone-based treatment process.
Seair continues to conduct business development activities in a variety of end-use applications other than portable waste water treatment. Priority markets include municipal water and waste treatment, golf course soil and water treatment, food processing and aeration pond treatment at pulp and paper mills and similar manufacturing facilities. The municipal treatment and aeration pond applications are being handled directly by Seair whereas the golf course and food processing initiatives are generally being addressed through third party distributors.
Municipal water and waste treatment uses essentially the same technologies and processes as used in Septic's portable units. However, penetrating the municipal treatment market will require additional third party verification of the sustained effectiveness and unique capabilities of Seair's solutions.
Aeration pond applications involve larger-scale Seair diffusion towers to increase the dissolved oxygen level in large industrial-use ponds. The objective is to displace large inefficient blowers with Seair units that achieve superior end results with reduced operating costs, including energy consumption and maintenance. The large Seair diffusion towers are currently being field tested at a commercial pulp and paper mill in British Columbia.
Seair's golf course solutions have been successfully implemented at a number of courses throughout western Canada. The next stage of growth in this segment is to target the larger year-round U.S. markets, particularly in areas where chronic water shortages dictate that effluent be the primary source of irrigation water. A distributor network is being established in these target markets.
Gross profit for the year ending August 31, 2007 was $2,720,021 (80% of revenue) compared to $615,252 (85% of revenue) in the year ending August 31, 2006. This $2,104,769 increase in gross profit was directly attributable to the overall increase in business and revenue. The portable waste water treatment rental model provides Seair with strong margin percentages, although amortization of the rental units is not included in cost of sales (it is included in amortization expense).
Total operating expenses increased by $2,976,884 to $3,713,629 from fiscal 2006 to fiscal 2007. The largest contributor to this increase was $1,044,741 of stock-based compensation expense in connection with incentive stock options granted during the year (compared to $35,418 in fiscal 2006). Excluding this non-cash calculated expense item, operating expenses increased by 262% compared to the 371% increase in revenue and 342% increase in gross margin.
The stock-based compensation of $1,044,471 for the year ending August 31, 2007 stemmed from 1,254,600 incentive stock options granted during the period. Until the convertible debenture financing of June 20, 2007, Seair relied upon proceeds from the exercise of options as a major source of working capital and funding for capital asset growth. A total of 730,000 stock options were exercised in fiscal 2007 for proceeds of $356,450.
The stock-based compensation expense amount was calculated using the Black-Scholes model, which requires management to make assumptions regarding variables in the calculation. Because Seair's stock price has increased significantly since August 31, 2006, management has used a volatility assumption of 117% for stock options granted in the latter part of fiscal 2007. Use of a lower volatility assumption would dramatically reduce the amount of stock-based compensation expense recorded.
Salaries and benefits of $1,156,032 in the year were $892,051 higher than in fiscal 2006. The acquisition of Septic and subsequent expansion of the portable waste treatment business has increased Seair's labour requirements. Septic provides service work on its waste treatment units with most of the costs of service personnel concentrated in the winter months when Septic's activity levels peak. In addition, the Alberta labour market is very tight and compensation rates for most positions have had to increase in order to retain qualified personnel.
Professional fees have increased on a year-over-year basis as a result of costs associated with the Septic acquisition and the convertible debenture financing in June 2007.
Interest and bank charges have increased as a result of the interest obligation on the convertible debentures. The debentures bear interest at 8% per annum, paid quarterly.
Overall, although costs have increased as Seair has expanded its scope of business, those cost increases, other than stock-based compensation, have been smaller than the resulting revenue gains. Net loss for the year ending August 31, 2007 was $988,763. Excluding stock-based compensation, the loss becomes income of $55,978.
Working capital at August 31, 2007 was $7,090,428, up from $389,262 at May 31, 2007 and up from $263,158 at August 31, 2006. On June 20, 2007 Seair closed a $10 million convertible debenture financing. The resulting strengthened working capital will enable Seair to systematically build market position in selected industries, optimize margins and terms of business and aggressively pursue new opportunities when warranted.
Total capital expenditures for the year ending August 31, 2007 were $3,117,526 (compared to $96,893 for the year ending August 31, 2006). The substantial increase in capital expenditures is a result of the expansion of Septic's rental fleet of portable waste water treatment units. Additional capital expenditures are anticipated as fleet expansion continues.
Further details with respect to SEAIR's annual results, including the complete financial statements, will be available at www.sedar.com.
About Seair
Seair is a leading developer of patent protected diffusion and sterilization technologies which allow for the efficient diffusion of gases into a liquid, thereby facilitating numerous applications in a wide variety of industries including wastewater treatment, pulp and paper, food processing, aquaculture, agriculture/horticulture, sterilization, golf course irrigation and pond treatment, animal enhancement and oil and gas. Seair's primary focus is developing and selling equipment that diffuses gases, such as oxygen, ozone or carbon dioxide, into a liquid, resulting in a supersaturate solution. The major difference between Seair and other diffusion technologies is Seair's ability to achieve extremely small bubble size, which in turn allows for the mass transfer of gas to fluid. The result is a stable condition where gases remain in solution for extended periods of time, leading to increased productivity and lower operating costs. Seair provides diffusion-enhanced portable wastewater treatment plants through its subsidiary, Seair Septic.
Parties interested in obtaining further information or receiving news releases and corporate documents from Seair may email such request to seair@telus.net or visit the Seair website at www.seair.ca.
FOR FURTHER INFORMATION PLEASE CONTACT:
Harold Kinasewich
Seair Inc.
T: 780 477 7188
F: 780 477 6622
E: seair@telus.net
This news release may contain certain forward-looking statements that reflect the current views and/or expectations of Seair Inc. with respect to its performance, business or future events. Such statements are subject to a number of risks, uncertainties and assumptions. Actual results and events may vary.
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