1 Condensed Interim Consolidated Financial Statements Three months ended July 31, 2012 (Unaudited) th Avenue S.W. Calgary, AB T2P 3A8 Tel:
2 NOTICE TO READER These condensed interim consolidated statements have been prepared by management of the Company. Management have compiled with unaudited interim consolidated balance sheet of New West Energy Services Inc. as at July 31, 2012, April 30, 2012 and July 31, 2011, the unaudited interim consolidated statements of income and comprehensive income, changes in equity and cash flows for the three months ended July 31, 2012 and July 31, The Company s independent auditors have not audited, reviewed or otherwise attempted to verify the accuracy or completeness of these condensed interim consolidated financial statements. Readers are cautioned that these statements may not be appropriate for their intended purposes.
3 Condensed Interim Consolidated Statements of Financial Position July 31, 2012 April 30, 2012 (unaudited) (audited) Current ASSETS Cash and cash equivalents $ 4,487,259 $ 4,525,125 Accounts receivable, work in process and prepaids 3,223,092 3,044,600 Inventory 132, ,068 Current assets from discontinued operations (Note 5) 6,625 87,148 7,849,044 7,788,941 Investments (Note 9) 12,081 12,081 Property and equipment (Note 6) 2,270,380 1,677,453 Intangible assets (Note 7) 95,162 98,452 $ 10,226,667 $ 9,576,927 Current LIABILITIES Accounts payable and accrued liabilities $ 1,097,333 $ 1,007,422 Current portion of long-term debt (Note 8) 489, ,450 Current liabilities of discontinued operations (Note 5) 24,509 33,351 1,611,609 1,409,223 Long-term debt (Note 8) 708, ,820 SHAREHOLDERS EQUITY 2,320,171 1,792,043 Share capital (Note 4) 32,294,710 32,294,710 Contributed surplus 1,898,694 1,870,409 Deficit (26,286,908) (26,380,235) 7,906,496 7,784,884 $ 10,226,667 $ 9,576,927 Approved on behalf of the Board: "William A. Rand" William A. Rand, Director "Gerry Kerkhoff" Gerry Kerkhoff, Director
4 Condensed Interim Consolidated Statements Of Operations and Comprehensive Income For The Three Months Ended July 31, 2012 and 2011 (unaudited) Revenue Environmental, vacuum and other $ 3,202,633 $ 3,126,427 Direct Costs Environmental, vacuum and other 2,187,692 2,183,828 Gross Margin 1,014, ,599 Operating Expenses General and administrative expenses 782, ,267 Share based payments 28, ,618 Interest and bank charges 16,543 9,438 Amortization 75,847 48, , ,163 Net Income from continuing operations 112, ,436 Other: (Loss) earnings after tax from discontinued operations (Note 5) (18,891) 96,781 Net Income and Comprehensive Income For the period $ 93,327 $ 211,217 Income per share, basic (Note 8 (e)) $ $ Continuing operations Discontinuing operations Income per share, diluted (Note 8 (e)) $ $ Continuing operations Discontinuing operations Weighted average number of shares Basic (Note 4 (e)) 91,780,431 91,780,431 Weighted average number of shares Diluted (Note 4 (e)) 91,780,431 91,780,431
5 New West Energy Services Inc. Condensed Interim Consolidated Statement of Changes in Equity For the period ended July 31, 2012 and 2011 (unaudited) Retained Capital Stock Contributed Earnings Total Number of shares Amount Surplus (Deficit) Equity and warrants Balance, May 1, ,920,431 $ 32,294,710 $ 1,625,669 $ (30,649,315) $ 3,271,064 Share based payments 110, ,618 Net income for the period 211, ,217 Balance, July 31, ,920,431 32,294,710 1,736,287 (30,438,098) 3,592,899 Share based payments 110, ,618 Net income for the period 595, ,986 Balance, October 31, ,920,431 32,294,710 1,846,905 (29,842,112) 4,299,503 Share based payments 8,143 8,143 Net Income for the period 3,486,140 3,486,140 Balance, January 31, ,920,431 32,294,710 1,855,048 (26,355,972) 7,793,786 Share based payments 15,361 15,361 Net Income for the period (24,263) (24,263) Balance, April 30, ,920,431 $ 32,294,710 $ 1,870,409 $ (26,380,235) $ 7,784,884 Share based payments 28,285 28,285 Net Income for the period 93,327 93,327 Balance, July 31, ,920,431 $ 32,294,710 $ 1,898,694 $ (26,286,908) $ 7,906,496
6 Condensed Interim Consolidated Statements of Cash Flows For The Three Months Ended July 31, 2012 and 2011 (unaudited) Cash provided by (used in) Operating Activities Net income from continuing operations $ 112,218 $ 114,436 Add (deduct): Items not involving cash: Share based payments 28, ,618 Amortization 75,847 48, , ,894 Changes in working capital: Increase in accounts receivable, work in process and prepaids (178,493) (46,526) Increase in accounts payable and accrued liabilities 89,911 41,180 Discontinued operations 52, ,531 Cash flows from Financing Activities 180, ,079 Cash flows from financing activities of discontinued operations - - Proceeds from long-term debt 619,395 - Repayment on long-term debt (172,336) (55,906) Proceeds from issuance of shares - - Cash flows from Investing Activities 447,059 (55,906) Cash flows from investing activities of discontinued operations - - Purchase of property and equipment (665,483) (4,659) Purchase of intangibles - - Proceeds from sale of property and equipment - 8,818 (665,483) 4,159 Net change in cash and cash equivalents (37,866) 462,332 Cash and cash equivalents, beginning of period 4,525, ,999 Cash and cash equivalents, end of period $ 4,487,259 $ 594,331 Cash and cash equivalents is comprised as follows: Cash continuing operations $ 1,187,259 $ 594,331 Cash related to discontinued operations Note Short term deposits 3,300,000 - $ 4,487,259 $ 594,331 Supplemental Cash Flow Information Interest paid $ 16,543 $ 9,438 Interest accrued - - Taxes paid - -
7 1. NATURE OF OPERATIONS New West Energy Services Inc. (the Company ) provides oilfield services to oil and gas exploration and production companies in Canada. The Company s head office, records and registered office are located at # th Avenue S.W., Calgary, Alberta. These condensed consolidated interim financial statements were approved and authorized for issuance by the Board of Directors on September 27, The Company has only one wholly owned operating subsidiary, BearStone Environmental Solutions Inc. ( BearStone ). BearStone provides environmental services and operates a fleet of specialized vacuum and water trucks to the upstream oil and gas industry throughout western Canada. The Company also has one non-active subsidiary, New West Drilling Fluids ( NWDF ). On January 25, 2012 the Company sold the operating assets of NWDF for gross proceeds of $3,300,000 and is now disclosed as discontinued operations. 2. BASIS OF PRESENTATION (a) Statement of compliance The preparation of these condensed consolidated interim financial statements of the Company for the period ending July 31, 2012, have been prepared in accordance with International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board ( IASB ). These condensed consolidated interim financial statements are in accordance with IAS 34 and should be read in conjunction with the Company s April 30, 2012 annual financial statements and the explanation of how the transition to IFRS has affected the reported financial position, financial performance and cash flows of the Company. Certain information and disclosure normally included in annual financial statements prepared in accordance with IFRS has been omitted or condensed. (b) Basis of presentation These condensed interim consolidated financial statements have been prepared on the historical cost basis, except for certain financial instruments which are measured at their estimated fair value. The condensed interim consolidated financial statements have been prepared using accounting policies issued by the International Accounting Standards Board ( IASB ) that are effective April 30, (c) Consolidation These condensed interim consolidated financial statements include the accounts of the Company and its three wholly owned subsidiaries, NWDF, BearStone and Ark Chemicals Inc. ( Ark ). NWDF and Ark are inactive corporations. NWDF is inactive and recorded as discontinued operations due to the sale of assets. All intercompany transactions and balances have been eliminated. (d) Functional and presentation currency These condensed interim consolidated financial statements are presented in Canadian dollars, which is functional currency of the Company and each of its subsidiaries. (e) Use of Estimates and judgements The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that effect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the year in which the estimates are revised and in any future years affected. Significant areas where estimation uncertainty and critical judgements are applied include valuation of financial instruments, valuation of property, plant and equipment, impairment losses, amortization and measurement of share based payments.
8 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Inventory Inventory is valued at the lower of cost, determined on a first-in, first-out basis, and net realizable value. Inventory is comprised of supplies. (b) Property and equipment Property and equipment are recorded at cost less accumulated amortization and accumulated impairment losses. Costs include expenditures that are directly attributable to the acquisition of the asset. Property and equipment is amortized over the estimated useful life of the assets using the straight-line method over 2 10 years at the following annual rates Field Equipment and office equipment 20% Leasehold improvements 20% The trucks and trailers are recorded at cost and are amortized over the estimated useful life on a straightline basis, less the 10% salvage value. Trucks 12.5% Trailers 12.5% Amortization methods, useful lives and residual values are reviewed at each financial period and adjusted prospectively if appropriate. (c) Identifiable intangible asset The Company s intangible assets include computer software. Intangible assets are initially recorded at cost and are amortized using straight-line method over their estimated useful lives: Computer software 20% annual rate Amortization methods, useful lives and residual values are reviewed at each financial period and adjusted prospectively if appropriate. (d) Revenue Recognition BearStone s oilfield services generates revenue from providing testing, treatment and disposal of drilling waste and revenue from supplying services of vacuum and water trucks. Revenues are recognized on a monthly basis either through provision of invoice to the customer for work completed during the month or recognized utilizing a month end accrual of work in process. NWDF is an oilfield services business that generated revenues from the sale of chemical products and from field engineering services. Revenues resulting from short term contracts for product are recognized as the product is delivered and used by the client in the field. The revenues for long-term contracts were recognized at predetermined milestones throughout the contract for products used. (e) Cash and cash equivalents Cash and cash equivalents are highly liquid investments, such as term deposits with major financial institutions, having a term to maturity of three months or less at acquisition, that are readily convertible to specified amounts of cash. (f) Earnings per Share Basic earnings per share are computed by dividing net earnings by the weighted average shares outstanding during the reported period. Diluted earnings per share is calculated based on the treasurystock method, which assumes that any proceeds obtained on the exercise of options would be used to purchase common shares at the average market price during the reporting period. The weighted average number of shares outstanding is then adjusted by the net change.
9 (g) Impairment At each reporting date the carrying amounts of the Company s long-lived non-financial assets are reviewed to determine whether there is any indication that those assets are impaired. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment, if any. The recoverable amount is the higher of fair value less costs to sell and value in use, which is the present value of future cash flows expected to be derived from the asset. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount and the impairment loss is recognized in the profit or loss for the period. For the purpose of impairment testing, items are allocated to cash-generating units to which the activity relates. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognized immediately in profit or loss. (h) Share based payments The fair value of stock options granted is measured using the Black Scholes model at the time of grant and the expense is recognized over the tranche s vesting period. Measurement inputs include share price on measurement date, exercise price of the option, expected volatility, actual and expected life of the options, expected dividends based on the dividend yield at the date of grant, anticipated forfeiture rate, and the risk-free interest rate. The Company estimates volatility based on historical trading history excluding specific time frames in which volatility was affected by specific transactions that are not considered to be indicative of the Company s normal share price volatility. The expected life of the options is based on historical experience and general option holder behaviour. Management also makes an estimate of the number of options that will forfeit and the rate is adjusted to reflect the number of options that actually vest. (i) Measurement uncertainty The amounts recorded for share based payments are based on estimates. The Black-Scholes model is used to prepare these estimates. It is based on assumptions for expected volatility and risk-free interest rates. By their nature, these estimates are subject to measurement uncertainty and the effect on the financial statements of changes in such estimates in future periods could be significant. These estimates are reviewed periodically, and, as adjustments become necessary, they are reported in earnings in the period in which they become known. (j) Provisions Provisions are recognized in other liabilities when the Company has a present legal or constructive obligation as a result of past events, it is more likely than not an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated. Provisions are measured at management s best estimate of the expenditure required to settle the obligation at the end of the operating period and are discounted to present value as applicable. The Company reviews onerous contracts and, where applicable, records provisions for such contacts. (k) Financial instruments The Company classifies its financial assets in the following categories: fair value through profit and loss held for trading category, available for sale, loans and receivables and other. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of assets at recognition. The Company has made the following classification:
10 Cash and cash equivalents are classified as Held for trading. They are measured at fair value as determined by active market prices and the gains or losses resulting from the re-measurement at the end of each period are recognized in net income. Investments are classified as Available for sale. They are measured at fair value as determined by active market prices and the gains or losses resulting from the re-measurement at the end of each period are recognized in other comprehensive income. Transaction costs are capitalized upon initial recognition. If a decline in fair value is deemed to be other than temporary, the unrealized loss is recognized in net income. Investments in equity instruments that do not have an active quoted market price are measured at cost. Accounts receivable are classified as Loans and receivables. They are recorded at cost, which upon their initial measurement is equal to their fair value. Subsequent measurements are recorded at amortized cost using the effective interest method. Should the Company determine that the collectability of accounts receivable is doubtful, a corresponding allowance is made to reduce the carrying value accordingly. Loans payable and accounts payable and accrued liabilities are classified as Other. They are initially measured at their fair value. Subsequent measurements are recorded at amortized cost using the effective interest method. The fair values of these financial instruments approximate their carrying values, unless otherwise noted. The Company assesses at each reporting date whether a financial asset is impaired. If there is objective evidence that an impairment loss on assets carried at amortized cost has been incurred, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows discounted at the financial asset s original effective interest rate. The carrying amount of the asset is then reduced by the amount of the impairment. The amount of the loss is recognized in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed to the extent that the carrying value of the asset does not exceed what the amortized cost would have been had the impairment not been recognized. Any subsequent reversal of an impairment loss is recognized in profit or loss. In relation to accounts receivable, a provision for impairment is made and an impairment loss is recognized in profit or loss when there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor) that the Company will not be able to collect all of the amounts due under the original terms of the invoice. The carrying amount of the receivable is reduced through use of an allowance account. Impaired debts are written off against the allowance account when they are assessed as uncollectable. If an available-for-sale asset is impaired, an amount comprising the difference between its cost and its current fail value, less any impairment loss previously recognized in profit or loss, is transferred from accumulated other comprehensive income (loss) to profit or loss. Reversals in respect of equity instruments classified as available-for-sale are not recognized in profit or loss. (l) Income Taxes Deferred tax is recorded using the liability method, providing for temporary differences, between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Temporary differences are not provided for relating to goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting or taxable loss, not differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using the tax rates enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. With the sale of the operating assets of one of the subsidiaries and the likelihood of future profits, the Company will recalculate and record any consequent adjustments or additions at year end.
11 (m) Future Accounting policies not yet adopted - In November 2009, the IASB published IFRS 9, Financial Instruments, which covers the classification and measurement of financial assets as part of its project to replace IAS 39, Financial Instruments: Recognition and Measurement. In October 2010, the requirements for classifying and measuring financial liabilities were added to IFRS 9. Under this guidance, entities have the option to recognize financial liabilities at fair value through earnings. If this option is elected, entities would be required to reverse the portion of the fair value change due to own credit risk out of earnings and recognize the change in other comprehensive income. - IFRS 9 is effective for the Company on April 1, Early adoption is permitted and the standard is required to be applied retrospectively. This is not expected to be a significant impact on the Company upon implementation of the issued standard. - IFRS 10, Consolidated Financial Statements replaces IAS27: Consolidated and Separate Financial Statements and establishes principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. This new standard is effective January 1, 2013 with earlier application permitted. - IFRS 11, Joint Arrangements applies to accounting for interests in joint arrangements where there is joint control. This new standard is effective January 31, 2013 with earlier application permitted. This is not expected to have a significant impact on the Company upon implementation of the issued standard. - IFRS 12, Disclosure of Involvement with Other Entities includes disclosure requirement about subsidiaries, joint ventures and associates, as well as unconsolidated structured entities and replaces existing disclosure requirements. This new standard is effective January 31, 2013 with earlier application permitted. The Company has not yet assessed the impact of the standard but it is not expected to have a significant impact. - IFRS 13, Fair Value Measurement requires entities to provide a single framework for measuring fair value while requiring enhanced disclosure when fair value is applied. This new standard is effective January 1, 2013 with earlier application permitted. The Company has not yet assessed the impact of the standard. - IAS 1, Presentation of Financial Statements requires companies to group items presented within Other Comprehensive Income based on whether they may be subsequently reclassified to profit or loss. This amendment to IAS 1 is effective for annual periods beginning on or after July 1, 2012 with full retrospective application. - IAS 27, Separate Financial Statements has been amended to conform to the changes made in IFRS 10 but retains the current guidance for separate financial statements. - IAS 28, Investments in Associates and Joint Ventures. As a consequence of the issue of IFRS 10, IFRS 11 and IFRS 12, IAS 28 has been amended and will further provide the accounting guidance for investments in associates and will set out requirements for the application of the equity method when accounting for investments in associates and joint ventures. The changes in IAS 28 are effective January 1, 2013 with earlier application permitted. The Company has not yet assessed the impact of the changes in the standard. 4. SHARE CAPITAL (a) Authorized (i) Preferred shares, (non issued) unlimited number, issuable in series (ii) Common shares, unlimited number without nominal or par value.
12 (b) Issued Common Three months ended July 31, 2012 Number of common shares Amount For the year ended April 30, 2012 Number of common shares Amount Balance at beginning of period 91,780,431 $30,703,911 91,780,431 $ 30,703,911 Transactions for the period Balance at end of period 91,780,431 $30,703,911 91,780,431 $ 30,703,911 Warrants (convertible to common on a 1 for 1 basis) Three months ended July 31, 2012 Number of share warrants Amount For the year ended April 30, 2012 Number of share warrants Amount Balance, beginning of period 34,140,000 $ 1,590,799 34,140,000 $ 1,590,799 Transactions for the period Balance at end of period 34,140,000 $ 1,590,799 34,140,000 $ 1,590,799 Total equity instruments 125,920,431 $32,294, ,920,431 $ 32,294,710 (c) Stock options The Company has an Incentive Stock Option Plan that has been approved by the shareholders and that allows the Company s Board of Directors to grant up to 10% of the Company s outstanding shares to its officers, directors, key employees and consultants. Stock options can be granted with an exercise price equal to the prevailing market price on the date of the grant less a discount in accordance with the policies of the TSX Venture Exchange. Stock options granted generally have varying terms of up to five years and vest at the discretion of the directors. Currently the Company will not issue any options at less than $0.10. As at July 31, 2012 and April 30, 2012, the Company had the following stock options on common shares outstanding: Number options July 31, 2012 April 30, 2012 Weighted average exercise price Number options Weighted average exercise price Balance, beginning of period 5,470,000 $ ,200,000 $ 0.10 Transaction for the period Cancelled - - (2,730,000) 0.10 Balance, end of period 5,470,000 $ ,470,000 $ 0.10 Exercisable 2,735,000 $ ,735,000 $ 0.10 The following table gives summary information on outstanding options as of July 31, 2012: Options Outstanding Options Exercisable Weighted Average Weighted Average Weighted Average Exercise Price Number of Years to Maturity Exercise Price Number Exercise Price $ Shares (years) $ Exercisable $ ,470, ,470,
13 In February 2011, a total of 8,200,000 options were granted with an estimated fair value of $107,011 (at April 30, 2011) as at price of $0.10 per share with one-half vesting in February 2012 and one-half vesting in February During the year ended April 30, 2012 a total of 2,730,000 options were cancelled leaving a total of 5,470,000 options. The total estimate of fair value for the vested shares as at April 30, 2012 was $244,740 and as per the three months ended July 31, 2012 value was $28,285. These amounts were determined using the Black-Scholes option-pricing model used the following assumptions: Tranche 1 had Dividend yield (NIL), expected volatility ( %), risk free interest (1.71%) and weighted average life of 2 years. Tranche 2 had Dividend yield (NIL), expected volatility ( %), risk free interest (1.88%) and weighted average life of 3 years. The expected volatility is based on the Company s historical prices. The risk free rate of return is the yield on a zero-coupon Canadian Treasury Bill of a term consistent with the assumed option life. The weighted average life is the average expected period to exercise, based on the historical activity patterns for each individually vesting tranche. Subsequent to the period ended July 31, 2012, the Company has issued 850,000 options at $0.10 per common share of which 50% vest immediately and the remaining 50% vest on February 1, These options will expire on February 1, (d) Warrants As at July 31, 2012 and April 30, 2012 the Company had the following warrants convertible to common shares outstanding: July 31, 2012 April 30, 2012 Number of warrants Weighted average exercise price Number of warrants Weighted average exercise price Balance, beginning of period 34,140,000 $ ,140,000 $ 0.10 Warrants issued Warrants expired Balance, end of period 34,140,000 $ ,140,000 $ 0.10 These warrants were issued in June Each warrant consists of the right to purchase one common share at $0.10 per share expiring June 8, 2013 (e) Earnings per share The weighted average number of shares outstanding as at July 31, 2012 and April 30, 2012 was 91,780,431. The weighted average number of shares outstanding diluted as at July 31, 2012 and April 30, 2012 was 91,780, DISCONTINUED OPERATIONS During the fiscal year ended April 30, 2012, the Company sold all of the operating assets of New West Drilling Fluids Inc., a wholly-owned subsidiary, in an arms-length transaction. For the three months ended July 31, 2012 and July 31, 2011, the results of operations of New West Drillings Fluids Inc. have been segregated and presented separately as discontinued operations in these financial statements and comprised as follows: Revenue $ 10,504 $ 1,483,305 Expenses (29,395) (1,386,524) (Loss) income of discontinued operations (18,891) 96,781
14 The carrying values of the net assets related to the New West Drilling Fluids Inc. operations as at July 31, 2012 and April 30, 2012: July 31, 2012 April 30, 2012 Cash $ - $ - Accounts receivable and prepaids 6,625 87,148 Inventory - - 6,625 87,148 Property and equipment - - Accounts payable (24,509) (33,351) Net assets $ (17,884) $ 53, PROPERTY AND EQUIPMENT TRUCKS AND TRAILERS FIELD EQUIPMENT AND OFFICE EQUIPMENT COMPUTERS AND OFFICE FURNITURE LABORATORY AND TESTING EQUIPMENT LEASEHOLD IMPROVEMENTS TOTAL Cost at April 30, 2011 $ 1,340,493 $ 80,145 $ 191,083 $ 117,695 $ 5,229 $ 1,734,645 Current year additions $ 538,790 $ 72,235 $ - $ 7,581 $ 16,899 $ 635,505 Current year disposals $ (27,500) $ (1,946) $ (191,083) $ (125,276) $ (5,229) $ (351,034) Cost at April 30, 2012 $ 1,851,783 $ 150,434 $ - $ - $ 16,899 $ 2,019,116 Current period additions $ 661,947 $ 3,536 $ - $ - $ - $ 665,483 Current period disposals $ - $ - $ - $ - $ - $ - Cost at July 31, 2012 $ 2,513,730 $ 153,970 $ - $ - $ 16,899 $ 2,684,599 Accumulated amortization at April 30, 2011 $ 132,632 $ 11,625 $ 177,708 $ 88,402 $ 5,229 $ 415,596 Current year retirements $ (3,643) $ - $ (180,390) $ (92,780) $ (5,229) $ (282,042) Current year amortization $ 178,123 $ 21,678 $ 2,682 $ 4,378 $ 1,248 $ 208,109 Accumulated amortization at April 30, 2012 $ 307,112 $ 33,303 $ - $ - $ 1,248 $ 341,663 Current period retirements $ - $ - $ - $ - $ - $ - Current period amortization $ 63,950 $ 7,761 $ - $ - $ 845 $ 72,556 Accumulated amortization at July 31, 2012 $ 371,062 $ 41,064 $ - $ - $ 2,093 $ 414,219 Net book value at July 31, 2012 $ 2,142,668 $ 112,906 $ - $ - $ 14,806 $ 2,270,380
15 7. INTANGIBLE ASSETS Total Cost at April 30, 2011 $ 133,635 Current year additions $ - Current year disposals $ (2,000) Cost at April 30, 2012 $ 131,635 Current period additions $ - Current period disposals $ - Cost at July 31, 2012 $ 131,635 Accumulated amortization at April 30, 2011 $ 14,943 Current year retirements $ (2,000) Current year amortization $ 20,240 Accumulated amortization at April 30, 2012 $ 33,183 Current period retirements $ - Current period amortization $ 3,290 Accumulated amortization at July 31, 2012 $ 36,473 Net book value at July 31, 2012 $ 95, DEBT a) Bank indebtedness BearStone has an overdraft lending agreement with the Canadian Western Bank secured by accounts receivable for $1,750,000 at a daily balance rate of 1.50% per annum above prime lending rate currently at 3.0% per annum. At the period ended July 31, 2012 BearStone had drawn on the line of credit in the amount of $Nil. b) Long-Term Debt July 31, 2012 April 30, 2012 Total amount $ 1,198,329 $ 751,270 Less current portion 489, ,450 Total long-term $ 708,562 $ 382,820 The Long-term Debt consists of: - An original amount of $400,000 from Canadian Western Bank ( CWB ) and the current balance at July 31, 2012 is $130,572. This is for 36 months at 6.5% maturing in June 2013, due on demand. The combined monthly principal and interest payment is $12, An original amount of $301,000 from GE Capital and the current balance at July 31, 2012 is $108,876. This is for 36 months at 8.323% maturing July The combined principal and interest payment is $9, Honda Financial Services - an original vehicle amount of $73,020 and the current balance at July 31, 2012 is $60,109. This is a 60 months vehicle loan maturing in Aug 2016 with combined principal and interest payment of $1, Canadian Western Bank ( CWB ) there are six vehicle and equipment loans in the amount of $1,051,868 and the current balance at July 31, 2012 is $898,771. These loans range from 35 to 60 months with interest rates that range from 5.10% to 5.45%. The combined principal and interest payments are $22,160.
16 The loans are guaranteed by BearStone. Principal repayments over the next five years are anticipated to be as follows: July 31, 2013 $ 489,767 July 31, ,889 July 31, ,166 July 31, ,056 July 31, ,451 $ 1,198, INVESTMENT July 31, 2012 April 30, ,500 Preferred Shares of GenWay Biotech Inc., at impaired cost $ 1 $ 1 111,907 Common Shares of GenWay Biotech Inc., at cost 12,080 12,080 $ 12,081 $ 12, SEGMENTED INFORMATION The Company operates in three segments that are Corporate, Environmental and Vacuum Services as the operating assets of the Drilling segment were disposed of (see Note 5). The Drilling segment s operations, including it s revenue and expenses have been disclosed as discontinued operations. Management defines these segments based on the type of revenue earned. All of the Company s revenue is earned in Canada and all of its assets are located in Canada. Segmented information for the three months ended July 31, 2012 and July 31, 2011 are as follows: For the three months ended July 31, 2012 Corporate $ Environmental Services $ Vacuum Services $ Revenues - 2,352, ,970 3,202,633 Gross margin - 812, ,486 1,014,941 Interest expense 18 1,779 14,746 16,543 Amortization ,847 75,847 Earnings before income tax (29,994) 134,704 7, ,218 (Loss) income from discontinued operations (18,891) Assets from discontinued operations - 6,625 Assets from continuing operations 3,745,965 2,249,319 4,224,758 10,220,042 Total assets ,226,667 Note the above figures are prior to any inter-company management fees. For the three months ended July 31, 2011 Corporate $ Environmental Services $ Vacuum Services $ Revenues - 2,497, ,142 3,126,427 Gross margin - 762, , ,599 Interest expense ,347 9,439 Amortization ,840 48,840 Earnings before income tax (131,508) 258,220 (12,276) 114,436 Income from discontinued operations ,781 Assets from discontinued operations - - 1,318,468 Assets from continued operations 354,352 2,037,622 2,641,700 5,033,674 Total assets ,352,142 Note the above figures are prior to any inter-company management fees. Total $ Total $
17 11. RELATED PARTY TRANSACTIONS The Company has engaged the services of Black Dot Consulting Ltd. commencing July 2010 to provide marketing and consulting services at $4,000 per month, increased to $5,000 per month in February A total of $15,000 is included in consulting fees expense for the three months ended July 31, 2012 ( $12,000). The firm is related to an officer and director of BearStone. The agreement can be terminated at the end of any calendar month. In addition, the Company has also engaged Rand Edgar Investment Corp. ( REIC ), a company owned by one of the directors of the Company. REIC is paid or accrued $6,000 per month for providing administrative and accounting services to the Company. This fee commenced in June 2007 and a total of $18,000 ( $18,000) is recorded in professional fees for the three months ended July 31, This agreement may be terminated at the end of any calendar month. The past President and past COO respectively of New West Drilling Fluids Inc. ( NWDF ) had provided the Company with technical direction, advisory services relating to general corporate development, financial matters, raising additional capital, strategic planning and other matters relating to the financial affairs of the Company. For the three months ended July 31, 2012, management fees in the amount of $Nil ( $81,000) have been paid or accrued. 12. CAPITAL MANAGEMENT The Company manages its capital structure in order to ensure sufficient resources are available to meet operational requirements, to allow it to enhance existing product offerings as well as develop new ones and to maintain the Company s ability to operate. There are no externally imposed capital requirements. The Company seeks to manage capital to provide adequate funding for its operations while limiting dilution for its existing shareholders. Management considers its cash and cash equivalents, loans from shareholders, long-term debt and shareholder s equity as capital, which consists of the following: July 31, 2012 April 30, 2012 July 31, 2011 Cash and cash equivalents $ 4,487,259 $ 4,525,125 $ 594,331 Bank indebtedness Loans payable Long-term debt 1,198, , ,273 Shareholder equity (deficiency) 7,906,496 7,784,884 3,592,899 Total Capitalization $ 13,592,084 $ 13,061,279 $ 4,660, FINANCIAL INSTRUMENTS AND RISK (a) Credit Risk Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations. The Company s cash is held through large Canadian financial institutions which are guaranteed. At July 31, 2012 the Company held two GIC s with terms of 1.42% and 1.20% maturing on August 2, 2012 and January 31, Substantially all of the Company s accounts receivable are due from customers in the oil and natural gas industry and are subject to normal industry credit risks. The Company subsidiary has a balanced flow of customers. The carrying amount of cash and accounts receivable represents the maximum credit exposure. (b) Liquidity Risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages liquidity risk through the management of its capital structure and financial leverage as outlined in Note 12 Capital Management.
18 (c) Market Risk Market risk is the risk that fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, currency risk and other price risk. It is management s opinion that the Company is not exposed to significant interest rate risk, currency risk or other price risk because the Company does not transact business in other currencies and the long term debt has fixed interest rate charge. The bank overdraft facility was not used in the current quarter but any interest charge varies with the market prime rate fluctuation. (d) Sensitivity analysis The Company has designated its cash and cash equivalents as held-for-trading which is measured at fair value. As of July 31, 2012 the carrying and fair value amounts of the Company s financial instruments are approximately equivalent. Receivables are classified for accounting purposes as loans and receivables, which are measured at amortized cost which equals fair market value. Accounts payable and accrued liabilities are classified for accounting purposes as other financial liabilities, which are measured at amortized cost which also equals fair market value. Based on management s knowledge and experience of the financial markets, the Company believes that movements in interest rates that are reasonably possible over the next twelve months will not have a significant impact on the Company. 14. COMMITMENTS The Company has commitments under operating leases for office space, vehicles, and employee bonuses. The amount to be paid during the next five years is estimated at: 2013 $ 486, , , , ,950 $ 1,279, SUBSEQUENT EVENTS In August of 2012, the Company purchased trucks, equipment and other assets for $1,400,000 from a oilfield services company based in Slave Lake, Alberta, in order to start up a new wholly owned subsidiary company, Porterco Oilfield Services In. This acquisition complements services already supplied by the Company. The Company has further agreed to issue to the principal of the vendor a private placement of 2,000,000 common shares of the corporation at a price of $0.06 per common share for gross proceeds of $120,000. The Company also issued a total of 850,000 options to a director of the Company and an employee of the Company s subsidiary at $0.10 per common share of which 50% vest immediately and the remaining 50% vest on February 1, These options will expire on February 1, Additional information relating to the Company is available on SEDAR at