SEAIR Reports 39% revenue increase for fiscal 2008
Edmonton, Alberta, December 23, 2008, CNW. Seair Inc. (SDS:TSX Venture Exchange) today released its audited financial statements for the year ending August 31, 2008.
Revenue for the year ending August 31, 2008 was $4,436,144, or 39% higher than in fiscal 2007. Rental revenue from Septic's fleet of portable wastewater treatment provided approximately 83% of total annual revenue. The 39% revenue increase was a direct result of the expanded fleet size. In fact, the fleet has been expanded by about 50% compared to the prior year, but the revenue generation potential was mitigated by reduced day rates. On average, fiscal 2008 day rates were approximately 25% lower than those realized in fiscal 2007. Fourth quarter revenue of $797,426 was 634% higher than the corresponding quarter in fiscal 2007.
Gross profit for the year ending August 31, 2008 was $2,980,265 (67% of revenue) compared to $2,658,549 (80% of revenue) in the year ending August 31, 2007. This $321,716 increase in gross profit (12% higher than fiscal 2007) is
considerably smaller than the 33% revenue increase. The decline in gross margin percentage was a direct result of reduced day rates in fiscal 2008. As previously noted, day rates were down approximately 25% on a year-over-year
basis. The larger fleet required additional resources and expenditures to deploy, set-up, maintain and operate the portable wastewater treatment units and revenues, due to the decreased day rates, did not keep pace. A key area of
emphasis for fiscal 2009 is to restore day rates to prior levels.
No amortization of the portable wastewater treatment units is included in direct costs (it is included in amortization expense).
Total operating expenses increased by $2,563,584 to $6,277,213 from fiscal 2007 to fiscal 2008. The largest contributors to this increase were:
| Interest on convertible debenture | $ 567,373 |
| Salaries and wages | 497,812 |
| Amortization | 427,889 |
| Research and development | 289,390 |
| Stock-based compensation | 251,259 |
| Accretion of debenture issue costs | 160,999 |
| _________________________ | _________________________ |
| Sub-total | 2,194,722 |
| Other | 368,862 |
| _________________________ | _________________________ |
| Total year-over-year increase | $2,563,584 |
Non-cash items (amortization, stock-based compensation and accretion of debenture issue costs) make up $840,147, or approximately 1/3, of the year-over-year increase.
Salaries and wages increased compared to the prior year primarily as a result of personnel additions. A research and development department was established in fiscal 2008 in order to advance Seair diffusion applications
outside of portable wastewater treatment. In addition, the administrative and finance department was expanded to meet the expanding scope and complexity of Seair's business. Lastly, throughout fiscal 2008 the Alberta labour market was highly competitive and salary adjustments were required to retain personnel.
Seair's full-time equivalent headcount increased from 14.3 in fiscal 2007 to 19.3 in fiscal 2008. These personnel additions accounted for most of the $497,812 increase in salaries and wages. Average wage increases for fiscal 2008 were approximately 9%.
Stock-based compensation was recorded in both fiscal 2008 and 2007 in conjunction with incentive options granted. The amount of this non-cash expense is calculated using the Black-Scholes option pricing model at the date of each option grant. High stock price volatility assumptions serve to dramatically increase the amount of expense calculated using the Black-Scholes model. The volatility amount is determined strictly based upon Seair's past stock prices and, accordingly, no latitude exists to normalize volatility for forward looking expectations. The options granted on January 23, 2008,
exercisable at $2.90 per share, resulted in stock-based compensation expense of $1,296,000, or $2.40 per option. The key to this calculation was the stock price volatility assumption of 113%. No adjustment to this expense is permitted, even though Seair's stock price at August 31, 2008 was well below the option exercise price.
Convertible debenture interest expense and the accretion of debenture issue costs are a result of the June 2007 financing. Interest is paid at 8% per annum with quarterly payments. During the year 1,151 debenture, with a face value of $1,151,000, were converted into 418,964 common shares ($2.75 per share). These conversions serve to reduce the ongoing interest expense.
In fiscal 2008 Seair modified the amortization assumption for Septic's portable wastewater treatment units. These assets are now amortized on a straight-line basis over 10 years whereas previously they were amortized on a
diminishing balance basis at rates of between 4% and 8%. The 10 year straight-line basis for amortization has increased amortization expense for fiscal 2008. Amortization expense also increased as a result of the fleet size increase.
Research and development activities include projects within the municipal wastewater treatment industry, testing of high concentration diffused ozone treatments on various oil and gas sector water situations (e.g., produced water and frac water) as well as the development and testing of a series of prototypes for treatment of ballast water on ocean going vessels. The ballast initiative led to successful testing of a 1/3 commercial scale treatment unit. However, in light of prevailing economic conditions this project has now been suspended. Research and development work continues on municipal wastewater treatment and oilfield water treatment applications.
Fiscal 2008 professional fees include approximately $100,000 in connection with third parties engaged to in the ballast water treatment initiative. This project has been indefinitely suspended.
Seair recorded a $200,000 write down to the realizable value of certain assets that were acquired as part of the 2006 business acquisition that led to the formation of Septic. A buyer will be sought for the assets subject to the write down but, because the assets are no longer integral to Septic's business the carrying value has been reduced to nil,
Although most revenue is earned in Canadian dollars, a significant portion of equipment purchases sourced from third parties is denominated in U.S. dollars. Seair does not presently hedge its foreign currency positions, receivables or obligations but is reviewing this strategy as the scope of business increases outside of Canada.
Net loss for the year ending August 31, 2008 was $3,369,892.
Working capital at August 31, 2008 was $678,366, down from $7,090,428 at August 31, 2007 and $1,617,024 at May 31, 2008. The decrease in working capital is a result of using the funds raised in June 2007 to increase the portable wastewater treatment unit fleet size. Capital expenditures, which are almost entirely fleet expansion, aggregate to over $8 million for fiscal 2007 and 2008. Seair does not expect to undertake any further significant fleet expansion except for the new high capacity PWW125 units. These units will only be manufactured when there is a customer committed to their rental deployment and/or purchase.
The complete financial statements are available at www.sedar.com.
About Seair Inc.
Seair is a leading developer of patent-protected diffusion and sterilization technologies, which allow for the efficient diffusion of gases into liquids, thereby facilitating numerous applications in a wide variety of industries, including wastewater treatment, pulp and paper production, 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 supersaturated solution. The major difference between Seair's and others' 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.
This news release contains certain forward-looking statements that reflect the current views and/or expectations of Seair Inc. with respect to its performance, business or future events, and in particular with respect to the anticipated creation of Seair Marine Inc. and the probably market for ballast water treatment units. Such statements are subject to a number of risks, uncertainties and assumptions, including but not limited to the ability of the parties to negotiate and enter into a mutually agreeable definitive agreement or agreements, the ability of Seair Inc. and Seair Marine Inc., if incorporated, to receive required governmental and regulatory approvals for the proposed transactions and the wastewater treatment units, and changes in national and international governmental policies relating to the installation of ballast water treatment units. Actual results and events may vary.
Parties interested in obtaining further information or receiving news releases and corporate documents from Seair may email such requests 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
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