SEPROTECH ANNOUNCES SECOND QUARTER FISCAL 2011 RESULTS

OTTAWA, May 17 /CNW/ - Seprotech Systems Incorporated (TSX-V: SET; "Seprotech" or the "Company") announces the following unaudited results for the second quarter of fiscal 2011 with comparative unaudited results for the second quarter of fiscal 2010; and unaudited results for the six months ended February 28, 2011, with comparative unaudited results for the six months ended February 28, 2010.

  Three Months Ended
February 28
  Six Months Ended
February 28
  2011 2010   2011 2010
  $000 $000   $000 $000
Revenue 495 1,439   1,519 2,686
Gross Margin 181 548   424 1,126
Net Loss (361) (58)   (598) (94)
Loss per share (0.01) (0.00)   (0.01) (0.00)

During the quarter ended February 28, 2011 the Company was in process of dealing with the customer over-billing problem previously disclosed, and discussed below. Most of the work required to correct the above problem was undertaken during the quarter ended February 28, 2011, including previously announced board and management changes. The resolution of these problems, which were a considerable distraction to management, and a concern of the Company's suppliers and customers, had a negative impact on Q2 2011 financial results.

Revenues for the interim period ended February 28, 2011 were $495 compared with $1,439, a decline of $943 or 66%. Sales of military, automotive and industrial installations declined, from $516 in Q2 2010 to $270 (48%) in Q2 2011, and sales of RBC units decreased from $432 in the second quarter 2010 to $166 (62%) in Q2 2011. Parts and Service revenues decreased from $491 in Q2 2010 to $59 in Q2 2011 (88%). The decline in military business was largely a timing issue with respect to completion of contract activities. RBC sales dropped off with the 2009 recession and although a recovery is anticipated, it was not apparent in the quarter. RBC sales are also subject to seasonality, with the quarter ended February 28 typically being a slow period.

Gross margins for the interim period ended February 28 2011 were $181 or 36% compared with $548 or 38% during the same period in 2009, a 2% deterioration, which reflected the relative reduction in RBC and parts and service revenues as a percentage of the overall revenue mix.

Staffing levels had been maintained in anticipation of additional contracts, and in expectation of the over-billing problem being resolved more quickly than was the case, so operating expenses remained at relatively high levels, resulting in a net loss for the quarter of $361 compared with a net loss of $58 for the same period in 2010. Comparative 2009 data has been changed to reflect discontinued operations in 2009.

As more fully described, in the Company's press release dated May 10, 2011 the delay in completing the unaudited quarterly financial statements resulted from management's detection during the quarter of an overstatement of revenue by a material amount with respect to its financial statements for the quarters ended November 30, 2009, February 28, 2010 and May 31, 2010. The overstatement resulted from over-billing a customer over a period of approximately 12 months from July 2009.

The delay in completing the fiscal 2010 audit and consequent delay in completing both its annual and first and second quarters' 2011 required regulatory filings has led to the imposition on the Company of cease trade orders from the Ontario, British Columbia and Manitoba securities commissions (respectively, the "OSC", the "BCSC" and the "MSC"). On May 10, 2011 the Company completed its required annual regulatory filings (audited financial statements for fiscal year ended August 31, 2011, related MD&A and officer certifications) and on May 13, 2011 the Company filed its first quarter 2011 unaudited financial statements and related filings. The Company is in the process of applying to the OSC for a full revocation of the cease trade order.

Seprotech is a provider of pre-engineered water and wastewater treatment solutions to the municipal/land development, resource sector and military market place, including Reverse Osmosis water purification systems, ROTORDISK® biological sewage treatment package plants and CrystalBlue™ membrane-based water recycling systems.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release. The TSX Venture Exchange has neither approved nor disapproved of the information contained herein. Some of the statements in this press release, including those relating to the Company's strategies and other statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as "expects", "anticipates", "intends", "plans", "believes", "estimates" or similar expressions, are forward-looking statements within the meaning of securities laws. Forward-looking statements include, without limitation, the information concerning possible or assumed future results of operations of the Company. These statements are not historical facts but instead represent only the Company's expectations, estimates and projections regarding future events. The Company does not undertake any obligation to update or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this presentation or to reflect the occurrence of unanticipated events, except as required by law.

 

SOURCE Seprotech Systems Incorporated

For further information:

Mr. Matthew Anderson, Investor Relations
Tel: (613) 523-1641
Fax: (613) 731-0851

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Seprotech Systems Incorporated

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