EDMONTON, Dec. 29 /CNW/ -- Seair Inc. ("Seair" or the "Company")(SDS:TSX Venture Exchange) today released its audited financial statements for the year ending August 31, 2009. Full financial statements are available at www.sedar.com.
Seair's audited consolidated financial performance is summarized as follows:
12 Months Ending
Aug. 31/09 Aug. 31/08 Change
Revenue $ 3,750,756 $ 4,436,144 -15%
Gross profit 1,820,511 2,980,265 -39%
Net income/(loss) (4,513,068) (3,369,892)
Basic income/(loss) per share (0.16) (0.12)
As in prior years, Seair's financial performance is dominated by performance of its portable wastewater treatment business. However, in late calendar year 2009 Seair reported the initial sale of multiple groundwater treatment units to an oil sands company. This marks the completion of commercialization of a new line of business for Seair and, as a result, the relative dominance of the portable wastewater treatment business is expected to decrease as the aforementioned groundwater treatment solutions are deployed.
Revenue for the year ending August 31, 2009 was $3,750,756, or 15% lower than in fiscal 2008. Rental revenue from Seair's fleet of portable wastewater treatment provided approximately 79% of total annual revenue. The 15% revenue decrease was a direct result of decreased activity with the portable wastewater treatment fleet. The dramatic economic downturn that started in fall 2008 continued into 2009 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 Seair's portable wastewater treatment units. Winter months (fiscal second quarter) are typically the busiest period for Seair's fleet but depressed oilfield activity resulted in very low deployment rates in the second quarter and continued through the remainder of the fiscal year. Recovery of the portable wastewater treatment rental revenue stream will depend upon the overall recovery of the western Canadian oil and gas sector.
In general there has been a tightening of on-site wastewater treatment regulations and increasing harmonization of enforcement between government departments. Seair's advanced treatment systems are readily capable of meeting stricter discharge standards so the recent regulatory developments are viewed as positive. However, there is an interim educational and adaptive transition in the industry during which customers will better understand the emerging rules and the consequences of non-compliance. Seair is working with customers to clarify what the new requirements are and how Seair is positioned to ensure ongoing compliance. Seair's Alberta Municipal Affairs variance, which allows Septic to use its portable wastewater treatment systems throughout Alberta, was renewed in November 2009.
Seair's fleet size is currently approximately 100 units and there are no plans in place for expansion. Traditionally the revenue model has been limited to a rental model in the western Canadian market. However, selling portable wastewater treatment plants for use outside of western Canada is complimentary to Seair'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. This sale contributed approximately 7% of fiscal 2009 revenue.
In fiscal 2009 Seair began research and development work on treatment of groundwater at surface mining operations such as the oil sands. Field testing took place in late fiscal 2009 and early fiscal 2010. Commercialization was achieved by November 2009 when the first customer installed a number of units on a long-term rental basis. This customer has now purchased an additional six units and will be operating through the winter to assess the cold weather suitability. Should the units prove to be successful through the winter, there is potential for deployment of many more units to meet the initial customer's overall requirement. Moreover, with the solution now commercialized Seair will be marketing to other surface mining operations with similar needs.
Complete turnkey municipal water and waste treatment uses essentially the same technologies and processes as Septic's portable units, although on a much larger scale. In addition, Seair's products can be used at various stages of existing conventional municipal wastewater treatment to increase the effectiveness of the overall process. Research and development studies are underway to prove the effectiveness and economic viability of Seair's various means to augment conventional municipal systems. However, penetrating the municipal treatment market, either with full Seair systems or selectively enhancing existing conventional treatment plants, will require additional third party verification of the sustained effectiveness and unique capabilities of Seair's solutions and, ultimately, initial reference sites with operating Seair solutions. To that end, construction has begun on a turn-key, end-to-end Seair wastewater treatment plant at the Village at Wolf Creek. As of August 31, 2009 Seair has completed and progress billed approximately 40% of this $1.1 million project, with the remainder to be completed in fiscal 2010 for spring commissioning.
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.
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 currently has aeration units on trial at a number of pulp mills in Alberta and British Columbia.
Gross profit for the year ending August 31, 2009 was $1,820,511 (49% of revenue) compared to $2,980,265 (68% of revenue) in the year ending August 31, 2008. This $1,159,754 decrease in gross profit (39% higher than fiscal 2008) is considerably larger than the 15% revenue decrease. The decline in gross margin percentage stemmed from two major factors. In summer 2009 (4th quarter of fiscal 2009) Seair implemented a new financial reporting and inventory management system. Inventory was comprehensively reconciled and assessed as part of the implementation process and all surplus items, as well as items falling below a threshold value, were expensed directly to cost of sales. A total one-time adjustment of approximately $640,000 served to increase cost of sales. The impact of this adjustment is particularly evident in the final quarter results.
In addition, the recorded gross profit on the Wolf Creek percentage completion progress billings was approximately 28%. Much of the work completed as at August 31, 2009 was relatively low margin infrastructure preparation as well as up-front engineering that does not generate substantial margins for Seair. Gross profit percentage will increase on the remainder of the Wolf Creek project but will still fall below Seair's historical percentages. The Wolf Creek installation is the first of its kind and will serve as the reference site for similar projects in the future. Reduced overall margins were required as an inducement to win this initial project.
No amortization of the portable wastewater treatment units is included in direct costs (it is included in amortization expense).
Total operating expenses decreased by $1,195,201 to $5,082,012 (19% decrease) from fiscal 2008 to fiscal 2009. The largest net contributors to this decrease were:
Stock-based compensation $ 971,504 75% decrease
Amortization (415,553) 78% increase
Professional fees 191,898 40% decrease
Salaries and benefits 153,813 9% decrease
Rent (87,567) 153% increase
Repairs and maintenance 66,556 30% decrease
Compliance and investor relations 57,983 48% decrease
Interest on convertible debenture 56,177 7% decrease
Contract services 42,840 100% decrease
Other smaller items (aggregate) 157,550
Total year-over-year decrease $ 1,195,201
Stock-based compensation expense, which is a calculated non-cash item derived from the Black-Scholes model, declined because the calculated expense per option decreased significantly in conjunction with the decrease in Seair Inc.'s stock price. Options granted in fiscal 2008 resulted in expense of $2.40 per option whereas in fiscal 2009 the amount was $0.477 per option.
Amortization expense increased as a result of the fleet size increase compared to fiscal 2008.
Professional fees and contract services are down as a result of scaling back and termination of projects that do not have strong prospects for near-term revenues. In particular, mothballing the ballast water treatment project in December 2008 significantly reduced costs.
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 salary and wages amount.
An equipment yard and accommodations are being rented in order to better serve the north east British Columbia portable wastewater treatment market. This accounted for approximately 30% of the $87,567 in rent expense. Rate increases for existing facilities, particularly the Septic yard in Spruce Grove, Alberta, accounted for another 15% of the rent increase (the Spruce Grove lease had come to an end and was renewed at the higher rate). The remaining difference in rent is primarily due to rent being partially included in telephone and utilities in fiscal 2008 whereas in 2009 it is all recorded as rent expense.
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.
Compliance and investor relations costs decreased due to reduced stock promotion activities in the wake of the overall stock market collapse in fall 2008.
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 98 debentures, with a face value of $98,000, were converted into 35,672 common shares ($2.75 per share). These conversions serve to reduce the ongoing interest expense.
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.
Goodwill arose from the 2006 acquisition of Seair Septic. The decline in oil and gas sector activity levels, and the associated decrease in Septic's fleet activity, led to the conclusion that Septic goodwill was impaired and should be written-off. An adjustment of $1,256,176 was recorded in the final quarter of fiscal 2009.
The complete Seair audited financial statements and associated Management Discussion and Analysis can be viewed at www.sedar.com.
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 email@example.com or visit the Seair website at www.seair.ca.
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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