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SEAIR REPORTS THIRD QUARTER RESULTS AND PROVIDES BUSINESS UPDATE
Edmonton, Alberta, July 29, 2009. Seair Inc. (SDS:TSX Venture Exchange) today released its unaudited financial statements for the quarter ending May 31, 2009.
Operating revenue for the quarter ending May 31, 2009 was $951,831, or 26% higher than the corresponding quarter in fiscal 2008 and 34% lower than the second quarter of fiscal 2009. Rental revenue from Septic’s fleet of portable wastewater treatment provided approximately 74% of total revenue. The revenue increase was a result of the sale of a Seair portable wastewater treatment plant in the quarter.
Septic has traditionally been limited to a rental model in the western Canadian market. Although the Septic treatment plants are fully automated there is still an essential service element, including frequent testing of output to ensure ongoing compliance with discharge standards. Optimizing the service zone is a function of fleet size, geographic proximity and the frequency of required visits. To date operating the rental fleet outside of western Canada has not been practical. Accordingly, selling portable wastewater treatment plants for use outside of western Canada is complimentary to Septic’s rental revenue model and, to that end, a decision was made to respond to requests for outright purchase. The first such third party sale closed in April 2009 with the treatment plant being sold to a customer in the United States.
Fleet rental revenue declined by approximately 9% on a year-over-year basis. The dramatic economic downturn that started in fall 2008 continued into 2009 and led to the deferral and/or reduction in oilfield activity. Reduced activity led to fewer active camps which, in turn, reduced the overall market size in the quarter for Septic’s portable wastewater treatment units. Sequentially the third quarter revenue was $492,803, or 34%, lower than the prior quarter. The Company’s second quarter is traditionally the peak for Septic’s portable wastewater treatment business and this revenue drop-off in the third quarter is normal. Spring break-up and the related road bans disrupt oil and gas drilling which in turn reduces demand for on-site wastewater treatment.
Gross profit for the quarter ending May 31, 2009 was $698,062 (73% of revenue) compared to $678,750 (87% of revenue) in the quarter ending May 31, 2008 and $953,053 for the quarter ending February 28, 2009 (66% of revenue). The most recent quarter includes gross profit on the sale of a portable wastewater treatment plant to a customer in the United States. The gross profit percentage on this sale was lower than gross margin rates on the rental business which resulted in the year-over-year decline in the overall gross margin percentage. Sequential gross margin percentage increased from 66% to 73% even after factoring in the impact of the unit sale. This is because Septic reduced its direct labour headcount in the third quarter in response to low activity levels.
No amortization of the portable wastewater treatment units is included in direct costs (it is included in amortization expense).
In general, operating expenses have decreased on a year-over-year basis as a result of across the board cost reductions. Total operating expenses decreased by $176,855 to $1,265,559 from the third quarter in fiscal 2008 to the same quarter in fiscal 2009 (decrease of 7%). The largest contributors to this decrease were:
| Salaries and benefits decrease | $ 195,034 |
| Professional fees decrease | 73,781 |
| Repairs and maintenance decrease | 42,697 |
| Contract services decrease | 37,971 |
| Travel and tradeshow decrease | 24,702 |
| Shop supplies decrease | 20,868 |
| Amortization increase | (211,762) |
| Sub-total | 183,291 |
| Other net increases | (6,436) |
| Total year-over-year decrease | $ 176,855 |
Salaries and wages decreased compared to the prior year and the prior quarter as a result of headcount reductions. The Company reduced the number of head office and field personnel in response to the general economic downturn. Seasonal staff were let go earlier than has typically been the case as a result of the significant portion of the Septic fleet remaining idle during the winter and spring months. In most cases seasonal layoffs do not result in severance obligations but to the extent permanent personnel headcount was reduced the severance costs are included in the third quarter salary and wages amount.
Professional fees, contract services and travel and tradeshow costs are down as a result of scaling back and termination of projects that are do not have strong prospects for near-term revenues. In particular, mothballing the ballast water treatment project significantly reduced costs.
Repairs and maintenance and shop supplies were down as a result of reduced procedures required on wastewater treatment plants that were not deployed during the winter months.
Amortization expense increased as a result of the fleet size increase compared to fiscal 2008.
Research and development work continues on municipal wastewater treatment and oilfield water treatment applications. Seair has applied for and been granted federal government funding for specific research and development initiatives. This funding will
serve to reduce the net R&D cost to Seair for future periods while allowing the Company to continue a very active project agenda.
Although most revenue is earned in Canadian dollars, a significant portion of equipment purchases sourced from third parties is denominated in U.S. dollars. The sale of the portable wastewater treatment plant in April 2009 was 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 quarter ending May 31, 2009 was $567,087 compared to a loss of $759,434 in the quarter ending May 31, 2008 and $222,059 for the quarter ending February 28, 2009.
The complete financial statements are available at www.sedar.com.
Business Update
Seair continues to build upon the resources, knowledge and cash flows associated with the portable wastewater treatment business in order to build a presence in other markets where the Company’s patented diffusion technology has strong potential.
Aeration pond applications involve larger-scale Seair diffusion towers to better and more efficiently manage 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 in place and continue to be monitored for efficiency and power cost reduction at commercial pulp and paper mills in British Columbia and Alberta and a wastewater treatment facility in Mexico. Initial results from Canfor’s pulp mill in Taylor, British Columbia suggest energy savings of over 80% can be realized using Seair’s equipment while achieving superior dissolved oxygen levels. Seair is also testing industrial scale aeration equipment in a dewatering situation at a large surface mining operation.
Although considerable success has been shown over a two year period at the Canfor mill in Taylor, the pulp and paper industry has, in general, been in very poor shape and little or no funding has been available for capital expenditures. In June 2009 the federal government announced plans to provide up to $1 billion of funding to Canadian pulp and paper producers in order to facilitate the purchase of equipment that reduces energy consumption and improves environmental impact. Seair’s microbubble diffusion systems excel at both of these objectives and therefore the Company believes strong potential now exists in the pulp and paper industry when the legislation covering the government funding is enacted. Seair is currently discussing system deployment with a considerable number of pulp mills as a result of this announcement.
Water accessibility and overall water cost is an increasingly important factor in oil and gas operations. Wells require frequent hydraulic fracturing treatment to optimize
production and the fracturing process requires considerable amounts of water. Moreover, water recovered from fracturing treatment cannot be surface discharged and must be disposed of by other means (e.g., disposal wells). Seair’s research and development team have successfully tested a wide range of oil field waters (hydraulic fracturing return water, produced water, etc.), thereby demonstrating an ability to recycle such treated water for reuse in fracturing procedures. A pilot or commercial scale deployment of the proprietary Seair treatment process is the next step in this initiative.
The most recent addition to the Septic family of portable wastewater treatment units is the PWW125, which was introduced in December 2008 as a result of industry trends toward larger, more centralized camps. The PWW125 system has the same 40 foot sea container footprint as Septic’s standard PWW40, but has over triple the processing capacity. In addition, the PWW125 is specifically designed to treat high concentration sewage that results from the implementation of water conservation measures such as low flush toilets. Seair has also completed the design of a modular mobile camp with each module capable of handling all wastewater from approximately 500 camp residents. These higher capacity solutions are also being marketed to other industries, such as mining, with remote wastewater treatment requirements.
About Seair
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.
Seair Inc. is proud to have been selected as one of the “2008 TSX Venture 50”, a ranking of the top 10 public venture capital companies in 5 industry sectors listed on the TSX Venture Exchange.
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
This news release contains forward-looking statements relating to the future operations of the Seair Inc. and other statements that are not historical facts. Forward-looking statements are often identified by terms such as “may”, “should”, “anticipate”, “expects” and similar expressions. Any statements that are contained in this news release that are not statements of historical fact may be deemed to be forward-looking statements. Such forward-looking statements are subject to important risks, uncertainties and assumptions. The reader is cautioned that assumptions used in the preparation of any forward-looking information may prove to be incorrect. Events or circumstances may cause actual results to differ materially from those predicted, as a result of numerous known and unknown risks, uncertainties, and other factors, many of which are beyond the control of Seair Inc. As a result, we cannot guarantee that any forward-looking statement will materialize and the reader is cautioned not to place undue reliance on any forward-looking information. Such information, although considered reasonable by management at the time of preparation, may prove to be incorrect and actual results may differ materially from those anticipated. Forward-looking statements contained in this news release are expressly qualified by this cautionary statement.
The forward-looking statements contained in this news release are made as of the date of this news release, and Seair Inc. does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as expressly required by Canadian securities law.
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