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Zenon orders bolt forward as earnings hit wall

"Our third quarter financial results are very disappointing," stated Andrew Benedek, ZENON Chairman and CEO. "We have had a significant setback in converting the manufacturing line for our ZeeWeed(R) 1000 membrane product, but we are continuing to make progress each day on resolving these issues. We are now delivering good quality product to our customers and hope to achieve our targeted capacity by year end."

Revenue for the quarter fell 2% from a year ago to $57.6 million, resulting in a net loss of $4.7 million or $0.14 per share. On a year-to-date basis, the company reported a net loss of $2.1 million or $0.06 per share.

According to Mr. Benedek, although the majority of the production problems have been resolved and the ramp-up is mostly complete, the company continued to incur production delays subsequent to the end of the third quarter and these are expected to affect ZENON's fourth quarter results.

"The financial shortfall of the third quarter has not impacted ZENON's ability to win orders," said Mr. Benedek. "In fact I'm happy to report that our bookings in the quarter were $81 million, which is a 47% growth over the same period last year."

In the last two quarters alone, the company has booked new orders worth $200 million, bringing the year-to-date total to $255 million or a 22% increase over the first three quarters of 2005. ZENON's backlog also continues to grow, reaching $386 million at the end of the third quarter.

The need for consistently reliable water quality is growing worldwide in all market sectors. Municipalities as well as industries are under increasing pressure from water quality regulators to remove dissolved metals like selenium, arsenic, mercury, along with nitrates and other inorganic contaminants from the water stream. For example, according to the US Environmental Protection Agency, prolonged exposure to elevated levels of selenium can potentially harm kidney and liver tissue, in addition to the potentially negative health effects it can have on the nervous and circulatory systems.

Existing methods of metal removal entail physical and/or chemical processes, which involve higher chemical costs and generate a significant amount of sludge that requires proper disposal. In addition to the higher costs, these methods are also ineffective at achieving the consistently lower levels being enforced by regulators today. In the search for a better and more cost effective solution to this problem, ZENON invested in Applied Biosciences, an advanced biological wastewater treatment company that specializes in metal removal processes. In the quarter, ZENON acquired Applied Biosciences for total consideration of $2.5 million.

"We see a growing need for this technology in both the municipal and industrial market sectors," commented Mr. Benedek. "We believe this partnership will further expand ZENON's market sectors with applications in treating ground water contaminated with metals to drinking water aquifers with high levels of nitrate and perchlorate, to utilities facing issues related to the treatment of Flue Gas Desulfirization."

Since the acquisition, ZENON has already received two orders involving metal removal for a total value of approximately $8 million. Subsequent to the quarter end, ZENON announced that the company was selected to supply its membrane system to the world's largest drinking water plant to be built in Twin Oaks Valley, CA. Treating up to 100 million gallons of water per day (378,500 cubic metres per day), the new plant will be engineered with ZENON's new ZeeWeed(R) 1000 version 3 membranes. Work on the new plant is already underway due to the urgent need for clean water in the area and is expected to be completed by the beginning of 2008.