taken from filing dated May 27/99
sedar.com
May 28, 1999
To Our Shareholders
This past year was pivotal in the evolution of your company as it emerged from its product and
market development phases. Successful introduction of Unitec's SCADA technology in the
energy and utility sectors combined with continued growth in the water markets maintained a
growing order backlog.
Project financing from conventional sources was not available for many of our large international
contracts, while declining stock prices made equity financing prohibitive. Consequently, your
Board and Management determined that a slowing of growth and focus on generating profitable
operations was an appropriate strategy while sources of reasonable financing were being pursued.
That strategy proved successful, as your Company
achieved modest profits for the year through the
judicious containment of expenses and focusing on
improving its operating margins on existing projects.
In November, Management's efforts to locate
reasonable financing culminated with an agreement
between Unitec and the Saskatchewan Opportunities
Corporation (SOCO) to provide $2 million in a
combination of loan and debenture financing. As part
of this agreement, Unitec agreed to establish
engineering and manufacturing operations in the
Province of Saskatchewan.
Unitec Energy Systems Inc. formally launched its
operations this month in Regina. Its initial staff
includes 16 engineers, programmers, technologists
and related personnel is expected to double by year
end. Unitec Energy will assume responsibility for all
oil & gas and electricity projects world wide, while
the Burnaby facilities will focus on the water and environmental sectors. Hardware manufacturing
will also be transferred to the Regina plant where manufacturing costs are significantly lower.
Management's focus for 1999 will be to bring the Regina operations on line as quickly and
smoothly as possible with minimum disruption to revenue growth during the training period for its
new staff. Several strategic alliance initiatives were commenced over the past several months.
Management intends to formalize these in long term relationships to leverage its technology
leadership with the financial and market strengths of prospective alliance partners.
Research and development efforts over the past 24 months are nearing completion and a new
hardware platform will soon be launched which will provide magnitudes of greater processing
power (at lower cost), to maintain your Company's technology leadership. New software development is planned to dramatically enhance the system capability and cost effectiveness of the
integration process.
Last years downturn in the Asian market appears
to have bottomed out as demonstrated by new
contract awards in Indonesia and Malaysia.
Brazil's currency problems have affected two
projects underway in that country, however,
recent discussions with our customer and agent
holds promise of a near term resolution.
Saudi Arabia has emerged as a new market this
year. After two years of hard work by our local
agent, Al Harbi Trading and Contracting, Unitec
has won a major water SCADA system for
Qurayat. This system will communicate over
180km of buried telephone cable. The first
shipment is anticipated for early July.
In summation, your Company has weathered the
difficult road of developing and introducing a
new technology to a vast market, successfully
competing against major competitors domestically and internationally. With improved financial
resources, I am confident of our capabilities and more optimistic of our future potential.
“John B. Smyth”
John B. Smyth
President & CEO
Financial Report
Revenues for the year were $2,474,029 marginally higher than last year, reflecting management's
containment of growth and focus on profitability. Fifty seven percent (57%) of the revenues
were generated from international sales, coming from Asia, Latin America and the Caribbean.
Cost of sales were reduced from the 84% level in 1997 to 57% reflecting the maturity of the
product development as reduced engineering efforts were required to customize the products for
new applications. Gross margin for the year was $1,066,433 (43%) as compared to $389,604
(16%) in the prior year. International projects provided a 49% margin while domestic sales
contributed a 36% margin.
A significant reduction of $422,836 was achieved in reduced Marketing Expenses from 1997
levels of $648,361 to $225,525. Reduced wages, lower professional fees and other expenses
contributed to a $97,788 reduction in General and Administrative Expenses. The net income
before Amortization was $163,099 as compared to a $1,034,354 loss in the prior year.
After Amortization and Other
Items, the Company realized a
$16,645 profit for the year as
opposed to a $1,222,664 loss
for 1997.
Recent financing arrangements
will improve the Company's
working capital position by
$2,000,000 allowing it to
accelerate work on its large
order backlog.
The establishment of new
operations in Regina will assist
in the long term growth of the
Company, but will incur significant startup costs in the 1999 fiscal year.
The ability for the Company to generate continued profits for 1999 will be dependent upon its
ability to bring the Regina facility on line quickly.
“William Leung”
William Leung
Controller |
