ZENON Reports 2005 First Quarter Financial Results

ZENON, innovator of membrane-based water filtration technologies, continues to grow its revenues, posting an increase over the same period last year.
First quarter revenues are typically the lowest in the annual sales cycle, and revenue for the 2005 quarter is in line with historical growth rates, notwithstanding the exceptionally strong performance during the first quarter of 2004. Comparison of first quarter revenue in 2005 with that of 2003 ($36,147) yields a 20% average annual growth over the two-year period. Timing of orders, largely driven by municipal projects with longer timelines, impacted ZENON's revenue recognition for the quarter, but it is expected that revenue growth for the full year 2005 will reflect historical growth rates. "We are confident that year-end revenues will increase to meet our expectations," said Andrew Benedek, Chairman and CEO of ZENON.
We continue to prepare for the increasing demand for our products by strongly investing in the growth of ZENON," Benedek said. "Our strategy remains a combination of organic growth and targeted technology acquisitions such as Alpha Plan and Saxonia Biotec."
The company's backlog continues to strengthen, growing to $315 million, as compared to $301 million at the end of 2004. On a year-over-year basis, ZENON's backlog has increased 30% from $243 million in the first quarter of 2004. New bookings in the first quarter were $54.7 million.
Early in the first quarter, ZENON spearheaded a drive to provide clean, safe drinking water to victims of the tsunami disaster in Asia. Through a combined initiative with Eureka Forbes and World Vision, ZENON initially donated 54 of its Homespring(TM) water filtration units to Sri Lanka and India. The units are being installed in relief camps, schools and other community locations. In addition to these units, some of ZENON's larger water purification systems, which the Canadian Army have trusted for years, were deployed by Canada's Disaster Assistance Relief Team (DART) in Sri Lanka. (ZENON's residential point-of-entry water filtration system is distributed under the Maytag brand name in Canada and the United States.)
ZENON continued its leadership in providing drinking water treatment to North American municipalities during the quarter. On February 18, the River Street Water Treatment Plant in the City of Kamloops was officially opened. The plant has a capacity of up to 160 million litres per day (42 million gal. per day) and was the largest plant of its kind at the time of commissioning. The capacity of Lakeview Water Treatment Plant in Mississauga (Peel Region), Ontario was also recently revised to 363 million litres per day (96 million gallons per day). This plant will be the largest immersed membrane water treatment plant in the world.
Global interest in the use of membranes for seawater desalination also continues to grow, and ZENON booked two such projects during the first quarter of 2005. The first will supply the Yuhuan Power Plant, located in Zhejiang Province, China, with immersed ZeeWeed ultrafiltration membranes as pretreatment to reverse osmosis for seawater desalination. The ultrafiltration system will produce 76,800 cu. metres (approximately 20 million gal.) per day of high quality feedwater and will be one of the largest membrane pretreatment systems for reverse osmosis desalination in the world. Construction is scheduled for completion in 2007. ZENON's Marine and Defense Division also received an $8 million order from the Canadian Armed Forces for its Shipboard Reverse Osmosis Desalination (SROD) systems in the quarter.
Sales of industrial and municipal wastewater treatment systems (which include membrane bioreactor systems) were strong, with eight such systems booked in the quarter. In addition, ZENON was recently selected by King County in the State of Washington to supply the world's largest membrane bioreactor. Total value of the order is $30 million, and includes the Brightwater Wastewater Treatment Plant, which will treat an average day flow of approximately 144,000 cu. metres or 38 million gal. per day (MGD), and a second smaller plant, the Carnation Wastewater Treatment Plant. "The Brightwater Wastewater Treatment Plant represents a new benchmark in the industry," said Mr. Benedek. "We are very pleased that municipalities continue to trust ZENON for providing wastewater treatment solutions for plants of all sizes."
ZENON continues to pursue growth opportunities through targeted acquisitions as well as organic growth. The company is currently in the process of expanding its manufacturing facilities in Oakville and Hungary, including the production of its most recent product, the ZeeWeed 1000 v3, at its Oakville facility. In addition, ZENON also recently negotiated to acquire all shares of Dresden-based Alpha Plan GmbH and Saxonia BioTec GmbH through its wholly-owned German subsidiary. This acquisition will allow ZENON to further enhance its manufacturing processes.
Alpha Plan is considered a leader in the field of membrane-processing equipment production and Saxonia BioTec is specialized in the production and system assembly of hollow fibre membrane cartridge products for filtration and bioprocessing.
ZENON also continues to be internationally recognized for its outstanding global performance, recently winning the 2005 International Stevie(TM) Award for Best Overall Company. ZENON was chosen from over 600 nominations by judges around the world during two months of preliminary judging, and will receive the award on May 19 in New York City.
As part of its recent brand-building initiatives, ZENON launched its new web site reflecting its focus on membrane technology. It is anticipated that the site will become one of the membrane industry's most comprehensive web sites, featuring greatly expanded information covering the company's products and services for systems ranging from small pre-engineered systems to the world's largest custom engineered membrane plants.
In a recent hearing on ZENON's patent infringement lawsuit against U.S. Filter, the United States District Court for the Southern District of California ruled that ZENON's United States Patent No. 6,620,319 (the '319 patent) continues to be presumed valid. U.S. Filter, among other things, alleged the invalidity of the '319 patent as well as other patents in the same patent family. A ruling from the Court was delivered on May 5, 2005 in which the Court ruled in favor of Zenon, strongly refuting all of U.S. Filter's contentions. ZENON is gratified and vindicated by the decision and continues to be confident that issues of infringement will ultimately be resolved in its favour.

ZENON Environmental Inc.

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