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Transcript of Zedi Inc._2
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Zedi Inc.CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
March 31, 2011
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Condensed consolidated interim statement of financial position 3
Condensed consolidated interim statement of profit and comprehensive income 4
Condensed consolidated interim statement of changes in equity 5
Condensed consolidated interim statement of cash flows 6
Notes to the condensed consolidated interim statement of cash flows 7
Notes to the condensed consolidated interim financial statements 8-59
Zedi Inc.Contents for the unaudited condensed consolidated interim financial statements
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NotesMarch 31,
2011
December
31, 2010
January
1, 2010
CAD'000 CAD'000 CAD'000
ASSETS
Current assets 34,462 30,364 20,249
Cash and cash equivalents 844 9,642 1,245
Trade and other receivables 11 25,474 14,514 11,308
Inventories 10 8,144 6,208 7,696
Non-current assets 47,548 30,908 31,313
Property, plant and equipment 6 7,684 4,478 1,976
Investment in associate 9 1,162 1,089 -
Intangible assets 8 15,315 7,515 8,040
Goodwill 7 22,203 17,357 19,047Deferred tax asset 1,184 469 2,250
TOTAL ASSETS 82,010 61,272 51,562
LIABILITIES AND EQUITY
Current liabilities 20,801 12,496 7,778
Bank line of credit 18 1,450 - -
Trade and other payables 15 7,659 6,678 3,040
Provisions 16 1,254 889 227
Taxation 452 11 -
Deferred revenue 17 8,339 4,918 4,511
Current portion of term loan payable 18 1,647 - -
Non-current liabilities 12,761 1,305 1,062
Non-current debt 18 5,311 - -
Provisions 16 622 586 1,062
Deferred lease incentive 26 2,891 719 -
Deferred tax liability 3,937 - -
Equity 48,448 47,471 42,722
Issued capital 12 52,550 52,504 51,218
Equity-settled employee benefits reserve#
13 6,398 6,248 6,297
Accumulated currency translation adjustment (447) - -
Accumulated deficit 14 (10,053) (11,281) (14,793)
TOTAL LIABILITIES AND EQUITY 82,010 61,272 51,562
# Previously reported as "Contributed surplus"
Zedi Inc.Condensed consolidated interim statement of financial position
at March 31, 2011 (unaudited)
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Notes
3 monthsended March
31, 2011
3 monthsended March
31, 2010
CAD'000 CAD'000
CONTINUING OPERATIONS
Revenue 21,906 14,720
Cost of sales 12,139 7,582
Gross profit 9,767 7,138
Share of profit from associate 9 273 -
10,040 7,138
Warehousing and distribution expenses 671 671Administration expenses 3,582 1,831
Customer acquisition and service expenses 1,662 1,457
Product development expenses 988 1,150
Other operating expenses 1,101 663
Finance costs 116 53
Profit from operating activities prior to taxation 19 1,919 1,313
Taxation 20 691 421
PROFIT FOR THE PERIOD 1,228 892
Other comprehensive income items (net of tax):
Exchange differences on translating foreign operations (447) -
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 781 892
Profit per share from continuing operations
Basic (dollars) 22 0.01 0.01
Diluted (dollars) 22 0.01 0.01
Zedi Inc.Condensed consolidated interim statement of profit and comprehensive
income for the quarter ended March 31, 2011 (unaudited)
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Sharecapital
Equity-
settled
employee
benefitsreserve#
Accumu-lated deficit
Cumulative
currency
translationadjustment Total
CAD'000 CAD'000 CAD'000 CAD'000 CAD'000
Balance at January 1, 2010 51,218 6,133 (13,245) - 44,106
(per Canadian GAAP, refer note 14)
IFRS translation adjustments - 164 (1,548) - (1,384)
(refer note 14)
Balance at January 1, 2010 (note 14) 51,218 6,297 (14,793) - 42,722
Profit and total comprehensive income for the
period - - 892 - 892
Issue of ordinary shares under employee
share option plan 6 (6) - - -
Recognition of share-based payments - 163 - - 163
Balance at March 31, 2010 51,224 6,454 (13,901) - 43,777
Profit and total comprehensive income for the
period - - 2,620 - 2,620-
Issue of ordinary shares under employee
share option plan 1,280 (714) - - 566
Recognition of share-based payments 508 508
Balance at December 31, 2010 52,504 6,248 (11,281) - 47,471
Total comprehensive income for the period - - 1,228 (447) 781
Issue of ordinary shares under employee
share option plan 46 (14) - - 32
Recognition of share-based payments - 164 - - 164
Balance at March 31, 2011 52,550 6,398 (10,053) (447) 48,448
# Previously reported as "Contributed surplus"
Zedi Inc.Condensed consolidated interim statement of changes in equity
for the quarter ended March 31, 2011 (unaudited)
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Notes
3 months
ended March
31, 2011
3 months
ended March
31, 2010
CAD'000 CAD'000
CASH FLOW FROM OPERATING ACTIVITIESCash generated from operations before working capital
changes A 3,322 2,257Changes in working capital B (1,717) 3,849
Finance costs paid (80) (16)
Income tax paid (11) -
Net cash generated from operating activities 1,514 6,089
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (2,228) (92)Purchase of intangible assets (10) (10)Addition to internally-generated intangible assets (597) (374)
Proceeds on disposal of property, plant and equipment
and intangible assets 329 -
Acquisition of Southern Flow, net of cash acquired (16,242) -
Net cash generated used in investing activities (18,748) (475)
CASH FLOW FROM FINANCING ACTIVITIESProceeds from share issues under employee share option
plan 32 -
Borrowing on line of credit 1,450 -Proceeds on long term debt 6,958 -
Net cash generated from financing activities 8,440 -
Foreign exchange gain (loss) on cash held in other currency (4) -
Net (decrease) increase in cash for the period (8,798) 5,614
Cash and cash equivalents at beginning of the period 9,642 1,245
Cash and cash equivalents at end of the period 844 6,859
Zedi Inc.Condensed consolidated interim statement of cash flows
for the quarter ended March 31, 2011 (unaudited)
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3 months
ended March
31, 2011
3 months
ended March
31, 2010CAD'000 CAD'000
A. Cash generated from operations before working
capital changes
Profit from operating activities prior to taxation 1,919 1,313
Adjustments for:
Depreciation of property, plant and equipment 479 259
Amortization of intangible assets 617 468
Income from associate recognized in period (273) -
Return on capital from associate in period 200 -
Share based compensation 164 164
Finance costs 116 53
Net loss on disposal of property, plant and equipment
and intangible assets 99 -
3,322 2,257
B. Changes in working capital
Decrease in inventory 243 916
Increase in trade and other receivables (7,802) (1,741)
Less amount related to accrued lease incentive 2,246 -
(Decrease) increase in trade and other payables (225) 1,799
Increase in deferred revenue 3,421 2,838Increase in provisions 401 37
(1,717) 3,849
Zedi Inc.Notes to the condensed consolidated interim statement of cash flows for
the quarter ended March 31, 2011 (unaudited)
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1. GENERAL INFORMATION
2. SIGNIFICANT ACCOUNTING POLICIES
2.1 Statement of complianceThe condensed consolidated interim financial statements (financial statements)
have been prepared in accordance with International Financial Reporting Standards
('IFRS') and the previous period statements have been restated accordingly. As
required by IFRS, an opening consolidated statement of financial position at
January 1, 2010 has also been presented. A reconciliation with closing equity as
previously reported under Canadian GAAP at December 31, 2009 and the opening
financial position at January 1, 2010 has been provided in note 14.
This is the first presentation of the consolidated financial statements per IFRS,accordingly, as per the election of IAS 34 paragraph 7, a complete set of
consolidated financial statements has been presented for this interim period. To
improve the understanding of this first IFRS interim report, where note disclosure
on balances and transactions are combined, e.g. reconciliation of intangible assets,
a rolling nine month ended analysis has been included to reconcile the movements
in quarter one of this and the previous year, to the balances of those accounts at
each reporting date.
2.2 Basis of preparation
The consolidated interim financial statements have been prepared on the historical
cost basis except for the revaluation of certain financial instruments. Historical cost
is generally based on the fair value of the consideration given in exchange for
assets.
2.3 Basis of consolidation
The consolidated interim financial statements incorporate the interim financial
statements of the company and entities (including special purpose entities)
controlled by the company (its subsidiaries). Control is achieved where the
company has the power to govern the financial and operating policies of an entity
so as to obtain benefits from its activities.
The results of subsidiaries acquired or disposed of during the period are included in
the condensed consolidated interim statement of profit and comprehensive income
from the effective date of acquisition and up to the effective date of disposal, as
appropriate. Where necessary, adjustments are made to the interim financialstatements of subsidiaries to bring their accounting policies in line with those used
by other members of the group.
All intra-group transactions, balances, income and expenses are eliminated in full
on consolidation.
Non-controlling interests in subsidiaries are identified separately from the groups
equity therein. As all subsidiaries are 100% owned and controlled, there are no non-
controlling interests.
Zedi Inc.Notes to the condensed consolidated interim financial statements
for the quarter ended March 31, 2011 (unaudited)
Zedi Inc. (the "company") is a publicly owned corporation incorporated in Canada and
listed on the TSX Venture Exchange under the trading symbol "ZED". The address of its
registered office and principal place of business is 902 11th
Avenue S.W., Calgary, AB T2R-
0E7. The company and its subsidiaries (the "group") deliver end-to-end solutions forproduction operations management, primarily to the energy industry.
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2. SIGNIFICANT ACCOUNTING POLICIES (continued)
2.3 Basis of consolidation (continued)
When the group loses or transfers control of a subsidiary, the profit or loss on
transfer / disposal is calculated as the difference between (i) the aggregate of the
fair value of the consideration received and the fair value of any retained interest
and (ii) the previous carrying amount of the assets (including goodwill), and
liabilities of the subsidiary and any non-controlling interests.
Amounts previously recognized in other comprehensive income in relation to the
subsidiary are accounted for (i.e. reclassified to profit or loss or transferred directly
to retained earnings) in the same manner as would be required if the relevant
assets or liabilities were disposed of. The fair value of any investment retained in
the former subsidiary at the date when control is lost is regarded as the fair value
on initial recognition for subsequent accounting under IAS 39 Financial Instruments:
Recognition and Measurement or, when applicable, the cost on initial recognition of
an investment in an associate or jointly controlled entity.
2.4 Investment in associates
An associate is an entity over which the group has significant influence and that is
neither a subsidiary nor an interest in a joint venture. Significant influence is the
power to participate in the financial and operating policy decisions of the investee
but is not control or joint control over those policies.
The results and assets and liabilities of associates are incorporated in these
consolidated interim financial statements using the equity method of accounting,
except when the investment is classified as held for sale, in which case it is
accounted for in accordance with IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations. Under the equity method, investments in associates are
carried in the consolidated interim statement of financial position at cost as adjusted
for post-acquisition changes in the groups share of the net assets of the associate,
less any impairment in the value of individual investments. Losses of an associate in
excess of the groups interest in that associate (which includes any long-term
interests that, in substance, form part of the groups net investment in the
associate) are recognized only to the extent that the group has incurred legal or
constructive obligations or made payments on behalf of the associate.
Any excess of the cost of acquisition over the groups share of the net fair value of
the identifiable assets, liabilities and contingent liabilities of the associaterecognized at the date of acquisition is recognized as goodwill. The goodwill is
included within the carrying amount of the investment and is assessed for
impairment as part of that investment. Any excess of the groups share of the net
fair value of the identifiable assets, liabilities and contingent liabilities over the cost
of acquisition, after reassessment, is recognized immediately in profit or loss.
When a group entity transacts with an associate of the group, profits and losses are
eliminated to the extent of the groups interest in the relevant associate.
Zedi Inc.Notes to the condensed consolidated interim financial statements
for the quarter ended March 31, 2011 (unaudited)
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2. SIGNIFICANT ACCOUNTING POLICIES (continued)
2.5 Goodwill
Goodwill arising in a business combination is recognized as an asset at the date that
control is acquired (the acquisition date). Goodwill is measured as the excess of thesum of the consideration transferred, the amount of any non-controlling interests in
the acquiree, and the fair value of the acquirers previously held equity interest in
the acquiree (if any) over the net of the acquisition-date amounts of the identifiable
assets acquired and the liabilities assumed.
If, after reassessment, the groups interest in the fair value of the acquirees
identifiable net assets exceeds the sum of the consideration transferred, the amount
of any non-controlling interests in the acquiree and the fair value of the acquirers
previously held equity interest in the acquiree (if any), the excess is recognized
immediately in profit or loss as a bargain purchase gain.
Goodwill is not amortized but is reviewed for impairment at least annually. For the
purpose of impairment testing, goodwill is allocated to each of the groups cash-
generating units expected to benefit from the synergies of the combination. Cash-
generating units to which goodwill has been allocated are tested for impairment
annually, or more frequently when there is an indication that the unit may be
impaired. If the recoverable amount of the cash-generating unit is less than its
carrying amount, the impairment loss is allocated first to reduce the carrying
amount of any goodwill allocated to the unit and then to the other assets of the unit
pro-rata on the basis of the carrying amount of each asset in the unit. An
impairment loss recognized for goodwill is not reversed in a subsequent period.
On disposal of a subsidiary, the attributable amount of goodwill is included in thedetermination of the profit or loss on disposal.
2.6 Revenue recognitionRevenue is measured at the fair value of the consideration received or receivable.
Revenue is reduced for estimated customer returns, rebates and other similar
allowances.
2.6.1 Sale of goods
Revenue from the sale of goods is recognized when all the following conditions are
satisfied:
the group has transferred to the buyer the significant risks and rewards of
ownership of the goods;
the group retains neither continuing managerial involvement to the degree usually
associated with ownership nor effective control over the goods sold;
the amount of revenue can be measured reliably;
it is probable that the economic benefits associated with the transaction will flow
to the group; and
the costs incurred or to be incurred in respect of the transaction can be measured
reliably.
Zedi Inc.Notes to the condensed consolidated interim financial statements
for the quarter ended March 31, 2011 (unaudited)
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2. SIGNIFICANT ACCOUNTING POLICIES (continued)
2.6 Revenue recognition (continued)2.6.2 Ren ering o services
Revenue from field services, chart reading, and monthly network service fees arerecognized in the period in which the services are provided. Fees for network and
software services billed in advance are recorded as deferred revenue until such time
as the corresponding services are performed.
2.6.3 Income from associate
Income from an associate entity is recognized on an accrual basis in accordance
with the substance of the relevant agreement (provided that it is probable that the
economic benefits will flow to the group and the amount of revenue can be
measured reliably). Revenue arrangements that are based on production, sales and
other measures are recognized by reference to the underlying arrangement.
2.6.4 Interest revenue
Interest revenue is recognized when it is probable that the economic benefits will
flow to the group and the amount of revenue can be measured reliably. Interest
revenue is accrued on a time basis, by reference to the principal outstanding and at
the effective interest rate applicable, which is the rate that exactly discounts
estimated future cash receipts through the expected life of the financial asset to that
assets net carrying amount on initial recognition.
2.7 Leases
Leases are classified as finance leases whenever the terms of the lease transfer
substantially all the risks and rewards of ownership to the lessee. All other leases
are classified as operating leases.
2.7.1 The group as lessor
The group is not a lessor in any material finance lease arrangements.
Zedi Inc.Notes to the condensed consolidated interim financial statements
for the quarter ended March 31, 2011 (unaudited)
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2. SIGNIFICANT ACCOUNTING POLICIES (continued)
2.7 Leases (continued)
2.7.2 The group as lessee
The group is not a lessee in any material finance lease arrangements.
Operating lease payments are recognized as an expense on a straight-line basis
over the lease term, except where another systematic basis is more representative
of the time pattern in which economic benefits from the leased asset are consumed.
In the event that lease incentives are received to enter into operating leases, such
incentives are recognized as a liability. The aggregate benefit of incentives is
recognized as a reduction of rental expense on a straight-line basis, except where
another systematic basis is more representative of the time pattern in which
economic benefits from the leased asset are consumed.
2.8 Foreign currencies
The individual results of each group entity are reported in the currency of the
primary economic environment in which the entity operates (its functional
currency). For the purpose of the condensed consolidated interim financial
statements, the results and financial position of each group entity are expressed in
Canadian Dollars (CAD), which is the functional currency of the holding company
Zedi Inc. and the presentation currency for the condensed consolidated interim
financial statements. Where originating amounts are referenced in United States
dollars the prefix 'USD' is used.
In recording the transactions of the individual entities, transactions in currenciesother than the entitys functional currency (foreign currencies) are recognized at the
rates of exchange prevailing at the dates of the transactions. At the end of each
reporting period, monetary items denominated in foreign currencies are retranslated
at the rates prevailing at that date. Non-monetary items carried at fair value that
are denominated in foreign currencies are translated at the rates prevailing at the
date when the fair value was determined and are not retranslated at the end of the
reporting period.
Exchange differences are recognized in profit or loss in the period in which they
arise except for exchange differences on monetary items receivable from or payable
to a foreign operation for which settlement is neither planned nor likely to occur
(therefore forming part of the net investment in the foreign operation), which arerecognized initially in other comprehensive income and reclassified from equity to
profit or loss on disposal or partial disposal of the net investment.
Zedi Inc.Notes to the condensed consolidated interim financial statements
for the quarter ended March 31, 2011 (unaudited)
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2. SIGNIFICANT ACCOUNTING POLICIES (continued)
2.8 Foreign currencies (continued)
For the purpose of presenting consolidated interim financial statements, the assets
and liabilities of the groups foreign operations are expressed in CAD using exchange
rates prevailing at the end of the reporting period. Income and expense items are
translated at the average exchange rates for the period, unless exchange rates
fluctuated significantly during that period, in which case the exchange rates at the
dates of the transactions are used. Exchange differences arising, if any, are
recognized in other comprehensive income and accumulated in equity.
On the disposal of a foreign operation, all of the accumulated exchange differences
in respect of that operation attributable to the group are reclassified to profit or loss.
Any exchange differences that have previously been attributed to non-controllinginterests are derecognized, but they are not reclassified to profit or loss.
Goodwill and fair value adjustments arising on the acquisition of a foreign operation
are treated as assets and liabilities of the foreign operation and translated at the
same rate used to translate other assets and liabilities of that foreign operation.
2.9 Share based payments
Equity-settled share-based payments to employees and non-employee directors are
measured at the fair value of the equity instruments at the grant date.
The fair value determined at the grant date of the equity-settled share-based
payments is expensed on a graded basis, with each tranche expensed on a straight-
line basis over the vesting period attributed to that tranche, based on the groups
estimate of equity instruments that will eventually vest. At the end of each reporting
period, the group revises its estimate of the number of equity instruments expected
to vest. The impact of the revision of the original estimates, if any, is recognized in
profit or loss such that the cumulative expense reflects the revised estimate, with a
corresponding adjustment to the equity-settled employee benefits reserve.
There have been no equity-settled share-based payment transactions with parties
other than employees and non-employee directors.
There have been no cash-settled share-based payments.
Zedi Inc.Notes to the condensed consolidated interim financial statements
for the quarter ended March 31, 2011 (unaudited)
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2. SIGNIFICANT ACCOUNTING POLICIES (continued)
2.10 Taxation2.10.1 Current tax
The tax currently payable is based on taxable profit for the period. Taxable profitdiffers from profit as reported in the consolidated interim statement of
comprehensive income because of items of income or expense that are taxable or
deductible in other periods and items that are never taxable or deductible. The
groups liability for current tax is calculated using tax rates that have been
substantively enacted by the end of the reporting period.
2.10.2 Deferred tax
Deferred tax is recognized on temporary differences between the carrying amounts
of assets and liabilities in the consolidated interim financial statements and the
corresponding tax bases used in the computation of taxable profit. Deferred tax
liabilities are generally recognized for all taxable temporary differences. Deferred
tax assets are generally recognized for all deductible temporary differences to theextent that it is probable that taxable profits will be available against which those
deductible temporary differences can be utilized. Such deferred tax assets and
liabilities are not recognized if the temporary difference arises from goodwill or from
the initial recognition (other than in a business combination) of other assets and
liabilities in a transaction that affects neither the taxable profit nor the accounting
profit.
Deferred tax liabilities are recognized for taxable temporary differences associated
with investments in subsidiaries and associates, except where the group is able to
control the reversal of the temporary difference and it is probable that the
temporary difference will not reverse in the foreseeable future. Deferred tax assets
arising from deductible temporary differences associated with such investments areonly recognized to the extent that it is probable that there will be sufficient taxable
profits against which to utilise the benefits of the temporary differences and they
are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at the end of each reporting
period and reduced to the extent that it is no longer probable that sufficient taxable
profits will be available to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to
apply in the period in which the liability is settled or the asset realized, based on tax
rates (and tax laws) that have been substantively enacted by the end of thereporting period. This measurement reflects the tax consequences that would follow
from the manner in which the group expects, at the end of the reporting period, to
recover or settle the carrying amount of its assets and liabilities.
Zedi Inc.Notes to the condensed consolidated interim financial statements
for the quarter ended March 31, 2011 (unaudited)
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2. SIGNIFICANT ACCOUNTING POLICIES (continued)
2.10 Taxation (continued)
2.10.2 Deferred tax (continued)
Deferred tax assets and liabilities are offset when there is a legally enforceable right
to offset current tax assets against current tax liabilities and when they relate to
income taxes levied by the same taxation authority and the group intends to settle
its current tax assets and liabilities on a net basis.
2.10.3 Current and deferred tax for the period
Current and deferred taxes are recognized as an expense or income in profit or loss,
except when they relate to items that are recognized outside profit or loss (whether
in other comprehensive income or directly in equity), in which case the tax is also
recognized outside profit or loss, or where they arise from the initial accounting for
a business combination, in which case, the tax effect is included in the accounting
for the business combination.
2.11 Property, plant and equipment
Property, plant and equipment held for production, supply or administrative
purposes, or for purposes not yet determined, are carried at cost less accumulated
depreciation and accumulated impairment losses. Cost includes any directly
attributable costs required to bring the asset to the location and condition necessary
for it to be capable of operating in the manner as intended by management.
Depreciation commences when the assets are ready for their intended use.
Depreciation is recognized so as to write off the cost of assets (other than freehold
land and properties under construction) less their residual values over their usefullives, using the straight-line method. The estimated useful lives, residual values and
depreciation method are reviewed at the end of each financial year, with the effect
of any changes in estimate being accounted for on a prospective basis.
The gain or loss arising on the disposal or retirement of an item of property, plant
and equipment is determined as the difference between the sales proceeds and the
carrying amount of the asset and is recognized in profit or loss.
Zedi Inc.Notes to the condensed consolidated interim financial statements
for the quarter ended March 31, 2011 (unaudited)
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2. SIGNIFICANT ACCOUNTING POLICIES (continued)
2.12 Intangible assets2.12.1 Intangible assets acquired separately
Intangible assets acquired separately are carried at cost less accumulated
amortization and accumulated impairment losses. Amortization is recognized on a
straight-line basis over the estimated useful lives. The estimated useful life and
amortization method are reviewed at the end of each financial year, with the effect
of any changes in estimate being accounted for on a prospective basis.
2.12.2 Internally-generated intangible assets
Expenditures on research activities are recognized as an expense in the period in
which they are incurred. An internally-generated intangible asset arising from
development (or from the development phase of an internal project) is recognized
if, and only if, all of the following have been demonstrated:
the technical feasibility of completing the intangible asset so that it will be
available for use or sale;
the intention to complete the intangible asset and use or sell it;
the ability to use or sell the intangible asset;
how the intangible asset will generate probable future economic benefits;
the availability of adequate technical, financial and other resources to complete
the development and to use or sell the intangible asset; and
the ability to measure reliably the expenditure attributable to the intangible asset
during its development.
Subsequent to initial recognition, internally-generated intangible assets are reported
at cost less accumulated amortization and accumulated impairment losses, on the
same basis as intangible assets that are acquired separately.
Zedi Inc.Notes to the condensed consolidated interim financial statements
for the quarter ended March 31, 2011 (unaudited)
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2. SIGNIFICANT ACCOUNTING POLICIES (continued)
2.12 Intangible assets (continued)2.12.3 Intangible assets acquired in a business combination
Intangible assets acquired in a business combination and recognized separately
from goodwill are initially recognized at their fair value at the acquisition date
(which is regarded as their cost). Subsequent to initial recognition, intangible assets
acquired in a business combination are reported at cost less accumulated
amortization and accumulated impairment losses, on the same basis as intangible
assets that are acquired separately.
2.13 Impairment of tangible and intangible assets excluding goodwill
At the end of each reporting period, the group reviews the carrying amounts of its
tangible and intangible assets to determine whether there is any indication that
those assets have suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated in order to determine the extent of the
impairment loss (if any). Where it is not possible to estimate the recoverable
amount of an individual asset, the group estimates the recoverable amount of the
cash-generating unit to which the asset belongs. Where a reasonable and consistent
basis of allocation can be identified, corporate assets are also allocated to individual
cash-generating units, or otherwise they are allocated to the smallest group of cash-
generating units for which a reasonable and consistent allocation basis can be
identified.
Intangible assets with indefinite useful lives and intangible assets not yet available
for use are tested for impairment at least annually, and whenever there is an
indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in use. Inassessing value in use, the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset for which the
estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be
less than its carrying amount, the carrying amount of the asset (or cash-generating
unit) is reduced to its recoverable amount. An impairment loss is recognized
immediately in profit or loss.
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 periods. A reversal of an impairment
loss is recognized immediately in profit or loss.
Zedi Inc.Notes to the condensed consolidated interim financial statements
for the quarter ended March 31, 2011 (unaudited)
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2. SIGNIFICANT ACCOUNTING POLICIES (continued)
2.14 InventoriesInventories are state at t e ower o cost an net rea iza e va ue. Costs, inc u ing
an appropriate portion of fixed and variable overhead expenses, are assigned toinventories by the method most appropriate to the particular class of inventory, with
the majority being valued on a first-in-first-out basis. Net realizable value
represents the estimated selling price for inventories less all estimated costs of
completion and costs necessary to make the sale.
2.15 Provisions
Provisions are recognized when the group has a present obligation (legal or
constructive) as a result of a past event, it is probable that the group will be
required to settle the obligation, and a reliable estimate can be made of the amount
of the obligation.
The amount recognized as a provision is the best estimate of the consideration
required to settle the present obligation at the end of the financial period, taking
into account the risks and uncertainties surrounding the obligation. Where a
provision is measured using the cash flows estimated to settle the present
obligation, its carrying amount is the present value of those cash flows.
When some or all of the economic benefits required to settle a provision are
expected to be recovered from a third party, a receivable is recognized as an asset if
it is virtually certain that reimbursement will be received and the amount of the
receivable can be measured reliably.
2.15.1 RestructuringsA restructuring provision is recognized when the group has developed a detailed
formal plan for the restructuring and has raised a valid expectation in those affected
that it will carry out the restructuring by starting to implement the plan or
announcing its main features to those affected by it. No restructurings are planned
at the end of the reporting period.
2.15.2 Vacation entitlement
Provisions for the expected cost of vacation time accrued to employees are
recognized as vacation time is earned, based on vacation entitlements under local
legislations and group policies.
2.15.3 Warranties
Provisions for the expected cost of warranty obligations under local sale of goods
legislation are recognized at the date of sale of the relevant products, at
management's best estimate of the expenditure required to settle the groups
obligation.
2.15.4 Contingent liabilities acquired in a business combination
Contingent liabilities acquired in a business combination are initially measured at
fair value at the date of acquisition. No new contingent liabilities were acquired as a
result of business combinations during the current or prior period.
Zedi Inc.Notes to the condensed consolidated interim financial statements
for the quarter ended March 31, 2011 (unaudited)
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2. SIGNIFICANT ACCOUNTING POLICIES (continued)
2.16 Financial assets
All financial assets are recognized and derecognized on trade date where the
purchase or sale of a financial asset is under a contract whose terms require
delivery of the financial asset within the timeframe established by the market
concerned, and are initially measured at fair value, plus transaction costs, except for
those financial assets classified as at fair value through profit or loss, which are
initially measured at fair value.
Financial assets are classified into the following specified categories: financial assets
at fair value through profit or loss ('FVTPL'), held-to-maturity investments,
available-for-sale ('AFS') financial assets and loans and receivables. The
classification depends on the nature and purpose of the financial assets and is
determined at the time of initial recognition. Disclosure of the accounting policy is
limited to categories relevant to the group.
2.16.1 Effective interest method
This is a method of calculating the amortized cost of a debt instrument and of
allocating interest income over the relevant period. The effective interest rate is the
rate that exactly discounts estimated future cash receipts (including all transactions
costs, premiums or discounts that form an integral part of the effective interest
rate) through the expected life of the debt instrument, or where appropriate a
shorter period, to the net carrying amount on initial recognition.
2.16.2 Loans and receivables
Trade receivables, loans, and other receivables that have fixed or determinable
payments that are not quoted in an active market are classified as loans and
receivables. Loans and receivables are measured at amortized cost using the
effective interest method, less any impairment. Interest income is recognized by
applying the effective interest rate, except for short-term receivables when the
recognition of interest would be immaterial.
2.16.3 Impairment of financial assets
Financial assets, other than those at FVTPL, are assessed for indicators of
impairment at the end of each reporting period. Financial assets are considered to
be impaired when there is objective evidence that, as a result of one or more events
that occurred after the initial recognition of the financial asset, the estimated future
cash flows have been adversely affected.
Zedi Inc.Notes to the condensed consolidated interim financial statements
for the quarter ended March 31, 2011 (unaudited)
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2. SIGNIFICANT ACCOUNTING POLICIES (continued)
2.16 Financial assets (continued)
2.16.3 Impairment of financial assets (continued)
Objective evidence of impairment could include events such as significant financial
difficulty, bankruptcy, financial re-organisation, and/or default or delinquency in
interest or principal repayments of the counterparty.
For financial assets carried at amortized cost, the amount of the impairment loss
recognized is the difference between the assets carrying amount and the present
value of estimated future cash flows, discounted at the financial assets original
effective interest rate.
The carrying amount of the financial asset is reduced by the impairment loss directly
for all financial assets with the exception of trade receivables, where the carrying
amount is reduced through the use of an allowance account. When a trade
receivable is considered uncollectible, it is written off against the allowance account.
Subsequent recoveries of amounts previously written off are credited against the
allowance account. Changes in the carrying amount of the allowance account are
recognized in profit or loss.
With the exception of AFS equity instruments, 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 through profit or loss to the
extent that the carrying amount of the investment at the date the impairment is
reversed does not exceed what the amortized cost would have been had the
impairment not been recognized.
2.16.4 Derecognition of financial assets
The group derecognizes a financial asset only when the contractual rights to the
cash flows from the asset expire, or when it transfers the financial asset and
substantially all the risks and rewards of ownership of the asset to another entity. If
the group neither transfers nor retains substantially all the risks and rewards of
ownership and continues to control the transferred asset, the group recognizes its
retained interest in the asset and an associated liability for amounts it may have to
pay. If the group retains substantially all the risks and rewards of ownership of a
transferred financial asset, the group continues to recognize the financial asset and
also recognizes a collateralized borrowing for the proceeds received.
2.17 Financial liabilities and equity instruments issued by the group2.17.1 Classification as debt or equity
Debt and equity instruments are classified as either financial liabilities or as equity
in accordance with the substance of the contractual arrangement.
2.17.2 Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets
of an entity after deducting all of its liabilities. Equity instruments issued by the
group are recognized at the proceeds received, net of direct issue costs.
Zedi Inc.Notes to the condensed consolidated interim financial statements
for the quarter ended March 31, 2011 (unaudited)
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2. SIGNIFICANT ACCOUNTING POLICIES (continued)
2.17 Financial liabilities and equity instruments issued by the group (continued)
2.17.3 Financial guarantee contract liabilities
Financial guarantee contract liabilities are initially measured at their fair values and,
if not designated as at FVTPL, are subsequently measured at the higher of:
the amount of the obligation under the contract, as determined in accordance with
IAS 37 Provisions, Contingent Liabilities and Contingent Assets; and
the amount initially recognized less, where appropriate, cumulative amortization
2.17.4 Financial liabilities
Financial liabilities are classified as either financial liabilities at FVTPL or other
financial liabilities. Disclosure of the accounting policy is limited to 'other financial
liabilities' as no financial liabilities are classified at FVTPL.
2.17.5 Other financial liabilities
Other financial liabilities, including borrowings, are initially measured at fair value,
net of transaction costs.
Other financial liabilities are subsequently measured at amortized cost using the
effective interest method, with interest expense recognized on an effective yield
basis.
2.17.6 Derecognition of financial liabilities
The group derecognizes financial liabilities when, and only when, the groups
obligations are discharged, cancelled or they expire.
3.
Zedi Inc.Notes to the condensed consolidated interim financial statements
for the quarter ended March 31, 2011 (unaudited)
CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION
UNCERTAINTY
In the application of the groups accounting policies, which are described in note 2,
management is required to make judgements, estimates and assumptions about the
carrying amounts of assets and liabilities that are not readily apparent from other sources.
The estimates and associated assumptions are based on historical experience and other
factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognized in the period in which the estimate is revised if the
revision affects only that period, or in the period of the revision and future periods if the
revision affects both current and future periods.
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3.
3.1 Judgements made by management
3.1.1 Asset ives an resi ua va uesProperty, plant and equipment are depreciated over the useful life taking into
account residual values, where appropriate. The actual lives of the assets and
residual values are assessed annually taking into account factors such as
technological innovation, product life cycles and maintenance programmes. Residual
value assessments consider issues such as market conditions, the remaining life of
the asset and projected disposal values.
3.1.2 Impairment of assets
Ongoing assessments are made regarding any potential impairment of assets, using
assumptions made in terms of the models allowed under IFRS.
3.1.3 Recoverability of trade receivables
In assessing the amounts recoverable from trade receivables, assumptions are
made based on past default experience and review of specific account balances.
3.1.4 Recoverable value of inventory
The recoverable value of inventory takes into account current market conditions and
the amounts expected to be realized from the sale of inventory, less estimated costs
to sell.3.1.5 Impairment of goodwill
Determining whether goodwill is impaired requires an estimation of the value in use
of the cash-generating units to which goodwill has been allocated. The value in use
calculation requires management to estimate the future cash flows expected to arise
from the cash-generating unit and a suitable discount rate in order to calculate
present value.
3.1.6 Conversion of deferred revenue
In assessing the amount of deferred revenue that will ultimately be earned,
assumptions are made based on past contract cancellation experience and
assessment of market conditions as they affect customer operations.
3.2 Key sources of estimation uncertaintyThere are no other key assumptions concerning the future and other key sources of
estimation uncertainty at the end of the reporting period that management have
assessed as having a significant risk of causing material adjustment to the carrying
amounts of the assets and liabilities within the next twelve months.
Zedi Inc.Notes to the condensed consolidated interim financial statements
for the quarter ended March 31, 2011 (unaudited)
CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION
UNCERTAINTY (continued)
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4.
At the transition date to IFRS, the group adopted all of the new and revised
Standards and Interpretations issued by the International Accounting Standards
Board (the IASB) and the International Financial Reporting Interpretations
Committee (the IFRIC) of the IASB that are relevant to its operations and effective
for annual reporting periods beginning on or before January 1, 2010.
To comply with IFRS 1, the group has applied the same accounting policies in the
opening IFRS consolidated statement of financial position as that applied throughout
all periods presented in these financial statements, except as specified in
paragraphs 13-19 and Appendices B-E of that Standard as discussed in note 14.
4.1 Standards and Interpretations in issue not yet adopted
IFRS 9 Financial Instruments: Classification and measurement (effective for annualperiods beginning on or after January 1, 2013):
Management is in the process of evaluating the impact that the adoption of this
standard will have on the financial statements of the group in the future periods.
Zedi Inc.Notes to the condensed consolidated interim financial statements
for the quarter ended March 31, 2011 (unaudited)
ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING
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5.
Pro uction
operations
manage-
ment
Fie
operations
manage-
ment
Elimina-
tions
Consoli-
dated
CAD'000 CAD'000 CAD'000 CAD'000 CAD'000
March 31, 2011
Revenue
External revenue 9,630 6,665 - 5,611 21,906
Inter-segment revenue 3 - (3) - -Total revenue 9,633 6,665 (3) 5,611 21,906
Profit from operating activities 925 381 - 613 1,919
Taxation 508 117 - 66 691
Profit for the period 416 264 - 547 1,228
Other information
Depreciation and amortization 809 54 - 237 1,101Staff costs (including directors'
emoluments) 5,245 553 - 2,190 7,988
Segment assets 68,596 9,087 - 4,327 82,010
Segment liabilities 26,673 2,419 - 4,469 33,562
March 31, 2010
Revenue
External revenue 10,432 4,288 - - 14,720
Inter-segment revenue 2 - (2) - -Total revenue 10,434 4,288 (2) - 14,720
Profit from operating activities 1,217 97 1,313
Taxation 388 33 - - 421
Profit for the year 829 64 - - 892
Other information
Depreciation and amortization 649 14 - - 663Staff costs (including directors'
emoluments) 5,117 343 - - 5,460
December 31, 2010
Segment assets 56,465 4,807 - - 61,272Segment liabilities 12,368 1,433 - - 13,801
2010 (opening financial position)
Segment assets 45,229 6,333 - - 51,562Segment liabilities 7,827 1,013 - - 8,840
Zedi Inc.Notes to the condensed consolidated interim financial statements
for the quarter ended March 31, 2011 (unaudited)
OPERATING SEGMENTS AND GEOGRAPHICAL DISCLOSURE
The acquisition of Southern Flow in January 2011 provided a significant geographic presence in the United
States (all other international revenues, with products or services provided from Canada, are reported as
part of Canadian operations). While Southern Flow provides services that would involve both reporting
segments, its profit, assets and liabilities are not segmented by service line at this time.
The accounting policies of the reportable segments are the same as the groups accounting policies
described in note 2.
Canadian Operations
United States
Operations
(not
segmented)
Information reported to the groups chief operating decision-maker for purposes of resource allocation and
assessment of segment performance is focused on two service lines productions operations
management and field operations management. The focus of these segments are as follows:
The productions operations management segment delivers systems and services that help oil and gasproducers to efficiently manage people, assets and information using hardware, web-based applications
and professional services. On their own or in combination, these products are the basis for Zedi's end-to-
end solutions that address all aspects of production operations.
The field operations management segment provides third party well operations management to over
400 wells in north-east British Columbia and north-west Alberta, with the primary services including
contract well operations, inspection and supervision.
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6.
Balances at March
31, 2011 and
December 31,
2010 respectivelyCost
2011
Accu-mulated
depre-
ciation
2011
Net book
value
2011
Cost
2010
Accu-mulated
depre-
ciation
2010
Net book
value
2010
CAD'000 CAD'000 CAD'000 CAD'000 CAD'000 CAD'000
Owned
Buildings 765 91 675 748 11 737
Land 92 - 92 - - -
Automobiles 535 199 336 428 142 287
Computer hardware 4,752 3,698 1,054 3,840 3,177 663
Computer software 2,509 2,311 198 2,454 2,251 202Office furniture and
fixtures 1,996 1,233 763 1,062 885 177
Equipment 3,058 1,945 1,114 1,719 1,192 527
Leasehold
improvements 3,836 384 3,452 2,102 218 1,884Total 17,543 9,859 7,684 12,457 7,980 4,478
Zedi Inc.Notes to the condensed consolidated interim financial statements
for the quarter ended March 31, 2011 (unaudited)
PROPERTY, PLANT AND EQUIPMENT
March 31, 2011 December 31, 2010
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6.Years
Expected useful life
Buildings 10-20 years
Automobiles 4-5 years
Computer hardware 3-5 years
Computer software 2-3 yearsOffice furniture and fixtures 5-7 yearsEquipment 4-7 yearsLeasehold improvements 5-10 years
7.Mar 31, 2011 Dec 31, 2010 Jan 01, 2010
CAD'000 CAD'000 CAD'000Cost 22,203 17,357 19,047
22,203 17,357 19,047
CAD'000
Movement in goodwill
Net book value at January 1, 2010 and March 31, 2010 19,047
Net book value at April 1, 2010 19,047
Impairment losses recognized in the period -Derecognized on transfer of PetroNet software to associate (refer note 9) (1,690)
Net book value at December 31, 2010 17,357
Net book value at January 1, 2011 17,357
Impairment losses recognized in the period -
Recognized on acquisition of a subsidiary 4,979
Foreign exchange difference in the period
for balances translated in foreign susidiary (133)
Net book value at March 31, 2011 22,203
Zedi Inc.
GOODWILL
PROPERTY, PLANT AND EQUIPMENT (continued)
Notes to the condensed consolidated interim financial statements
for the quarter ended March 31, 2011 (unaudited)
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8.Mar 31, 2011 Dec 31, 2010 Jan 01, 2010
CAD'000 CAD'000 CAD'000
Cost 29,281 17,283 15,985
Accumulated amortization 13,965 9,769 7,945
15,315 7,514 8,040
Acquired
Internally
generated Total
CAD'000 CAD'000 CAD'000
Movement in intangible assets
Net book value at January 1, 2010 3,926 4,114 8,040Acquired 10 374 384
Disposed - - -
Amortization (236) (232) (468)
Net book value at March 31, 2010 3,700 4,256 7,956
Net book value at April 1, 2010 3,700 4,256 7,956
Acquired 38 1,026 1,064
Disposed - (87) (87)
Amortization (620) (799) (1,419)
Net book value at December 31, 2010 3,118 4,396 7,514
Net book value at January 1, 2011 3,118 4,396 7,514
Additions 10 597 607Additions through business combinations 8,125 - 8,125Effect of change in foreign currency rate (218) - (218)
Disposals (95) - (95)
Depreciation (319) (298) (617)
Net book value at March 31, 2011 10,621 4,695 15,315
Zedi Inc.
INTANGIBLE ASSETS
Notes to the condensed consolidated interim financial statements
for the quarter ended March 31, 2011 (unaudited)
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Zedi Inc.
9.
Name of associate
Principlebusiness
activity
Place of
incorpo-ration and
operation
Mar 31, 2011 Dec 31, 2010 Jan 01, 2010
PetroNet Systems LP
Production
operations
management Canada 50% 50%
100%
(consoli-
dated)
Summary of investment in PetroNet Systems LP:August 1,
2010
- Goodwill 1,690- Unamortized intangible assets 87
Less cash received (1,000)
Initial value of investment in associate 777
3 months
ended
Mar 31, 2011
9 months
ended
Dec 31, 2010
3 months
ended
Mar 31, 2010
CAD'000 CAD'000 CAD'000
Opening value of investment in associate 1,089 - -
Initial investment, as detailed above 777
Deferred tax asset recognized on transfer - 55
Equity in earnings for period 273 457
Cash advance from the partnership (200) (200) -
1,162 1,089 -Investment in associate - end of period
INVESTMENT IN ASSOCIATE
Notes to the condensed consolidated interim financial statements
for the quarter ended March 31, 2011 (unaudited)
Proportion of ownership interest and
voting power held
Value of business unit transferred to PetroNet
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Zedi Inc.
9.
3 months
ended
Mar 31, 2011
9 months
ended
Dec 31, 2010
3 months
ended
Mar 31, 2010
CAD'000 CAD'000 CAD'000
Total revenue of associate 683 1,143 -
273 457 -
INVESTMENT IN ASSOCIATE (continued)
On August 1, 2010, the group contributed $1,777 of non-monetary assets to PetroNet
Systems LP ('PetroNet') in exchange for CAD 1,000 in cash and a 50% interest in this
newly created limited partnership. No gain or loss was recognized on this transaction.
The group's share of earnings from PetroNet is based solely on revenues and as such, the
other partner, who is not related to Zedi, bears the risk of any losses that may be incurred
by the partnership. The group views its interest in this associate as part of its operations.
Notes to the condensed consolidated interim financial statements
for the quarter ended March 31, 2011 (unaudited)
Group's share of profit of associate (equal to
40% of reported revenue of associate)
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10.Mar 31, 2011 Dec 31, 2010 Jan 01, 2010
CAD'000 CAD'000 CAD'000
Raw materials 2,574 2,729 2,430
Work in progress 825 422 137
Finished goods 4,745 3,057 5,129
8,144 6,208 7,696
11.Mar 31, 2011 Dec 31, 2010 Jan 01, 2010
CAD'000 CAD'000 CAD'000
Trade receivables 23,060 14,527 11,836
Lease incentive receivable 2,246 - -
Prepaid expenses and deposits 662 476 299
Gross trade and other receivables 25,968 15,003 12,135
Allowance for doubtful receivables (494) (489) (827)
Trade and other receivables 25,474 14,514 11,308
11.1 Trade receivables
TRADE AND OTHER RECEIVABLES
Trade receivables disclosed above are classified as loans and receivables and aretherefore measured at amortized cost.
The average credit period provided on sales of goods is 30 days. No interest is charged
on trade receivables for the first 30 days from the date of the invoice. Thereafter,
interest is charged at 18% per annum on the outstanding balance. The group has
recognized an allowance for doubtful receivables of CAD 494 against all receivables
based on a detailed account by account assessment, considering prior credit history,
and knowledge of debtor insolvency or other credit risk. The receivables that were
assessed as uncollectible were considered impaired.
Zedi Inc.
INVENTORIES
The cost of inventories recognized as an expense during the period in respect of continuing
operations was CAD 3,691 (2010: CAD 7,813).
Notes to the condensed consolidated interim financial statements
for the quarter ended March 31, 2011 (unaudited)
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11.11.1 Trade receivables (continued)
Mar 31, 2011 Dec 31, 2010
CAD'000 CAD'000
Current to 60 days 17,248 10,006
Beyond 60 days 7,565 4,032
Total 24,813 14,038
The groups policy requires customers to pay in accordance with agreed payment
terms. Depending on the customer segment, our settlement terms are generally 30
days from date of invoice.
The definition of items that are past due is determined by reference to terms agreed
with individual customers. None of the amounts outstanding have been challengedby the respective customer(s) and the group continues to conduct business with
them on an ongoing basis. Accordingly, management has no reason to believe that
this balance is not fully collectable in the future.
Zedi Inc.
TRADE AND OTHER RECEIVABLES (continued)
Before accepting any new customer, the group evaluates external credit ratings to
assess the potential customers credit quality and defines credit limits by customer.
11.1.1 Aging of past due but not impaired
Trade receivables disclosed above include amounts (see below for aged analysis)
that are past due at the end of the reporting period but against which the group has
not recognized an allowance for doubtful receivables because there has not been a
significant change in credit quality and the amounts are still considered recoverable.
The group does not hold any collateral or other credit enhancements over these
balances nor does it have a legal right of offset against any amounts owed by the
group to the counterparty.
Notes to the condensed consolidated interim financial statements
for the quarter ended March 31, 2011 (unaudited)
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11.11.1 Trade receivables (continued)
11.1.2 Movement in the allowance for doubtful debts
3 months
ended
Mar 2011
9 months
ended
Dec 2010
3 months
ended
Mar 2010
CAD'000 CAD'000 CAD'000
At beginning of the period 489 827 827Impairment losses recognized on
receivables - 284 -Amounts written off during the period as
uncollectible - (622) -
Amounts recovered during the period 5 - -
At end of the period 494 489 827
Zedi Inc.
TRADE AND OTHER RECEIVABLES (continued)
In determining the recoverability of a trade receivable, the group considers any
change in the credit quality of the trade receivable from the date credit was initially
granted up to the end of the reporting period. The concentration of credit risk is
limited due to the customer base being large and unrelated.
Notes to the condensed consolidated interim financial statements
for the quarter ended March 31, 2011 (unaudited)
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12. ISSUED CAPITAL
12.1 Authorized and issued share capital
Number of shares Share capital
CAD'000
Balance at January 1, 2010 94,772,021 51,218
Issued under restricted share unit plan for
employees 8,025 6
Balance at March 31, 2010 94,780,046 51,224
Issued under employee share option plan 996,198 814
Issued under restricted share unit plan for non-
employee directors 60,000 36
Issued under restricted share unit plan for
employees 698,227 430
Balance at December 31, 2010 96,534,471 52,504
Issued under employee share option plan 36,513 41
Issued under restricted share unit plan for
employees 8,318 5
Balance at March 31, 2011 96,579,302 52,550
Zedi Inc.
The company is authorized to issue an unlimited number of common voting shares
without nominal or par value. The following is a summary of the companys issued
and outstanding common shares.
All issued shares are fully paid.
Notes to the condensed consolidated interim financial statements
for the quarter ended March 31, 2011 (unaudited)
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13. EQUITY-SETTLED EMPLOYEE BENEFITS RESERVE#
3 months ended
Mar 2011
9 months ended
Dec 2010
3 months ended
Mar 2010
CAD'000 CAD'000 CAD'000
Balance at beginning of the period 6,248 6,454 6,297
Stock option expense 111 310 92
Fair value of options exercised (14) (250) -
Fair value of restricted share units settled - (465) (6)
Restricted share unit plan expense 52 199 71
Value of restricted share units released - - -
6,398 6,248 6,454
14. FIRST TIME ADOPTION OF IFRS (IFRS 1)
# Previously reported as "Contributed surplus"
Zedi Inc.Notes to the condensed consolidated interim financial statements
for the quarter ended March 31, 2011 (unaudited)
The policies set out in the summary of significant accounting policies section have been applied
in preparing the unaudited condensed consolidated interim financial statements for the threemonth period ended March 31, 2011, the comparative information for the three month period
ended March 31, 2010, the preparation of an opening IFRS consolidated balance sheet at
January 1, 2010 (Transition Date) and the preparation of a condensed consolidated financial
statements as at and for the year ended December 31, 2010.
In preparing these unaudited condensed consolidated financial statements, the company applied
the following optional exemptions and mandatory exceptions from full retrospective application
of IFRS:
- the group elected not to apply IFRS 3 Business Combinations retrospectively to business
combinations that occurred before the Transition Date.
- the group elected not to apply IFRS 2 Share Based Payments to equity instruments that had
vested, and liabilities from share-based payment transactions that were settled, prior to the
transition date
- application of IFRS for the 2010 comparative periods resulted in restatement of the accounting
for the Skyways acquisition that occurred in August of 2010 to comply with IFRS 3 Business
Combinations by expensing transaction costs that had been capitalized under the original
treatment (see note 14.1.4).
- application of IFRS for the 2010 comparative periods resulted in reclassification of transaction
expenses incurred in the fourth quarter of 2010 related to the Southern Flow acquisition, which
had been capitalized as a prepaid expense as the acquisition had not closed prior to December
31, 2010. Under IFRS these costs were expensed in the period incurred (see note 14.1.4).
- however, the IASB has determined that contingent consideration outstanding as of the
transition date must be recognized as a provision (see note 14.1.3).
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14. FIRST TIME ADOPTION OF IFRS (IFRS 1)14.1 IFRS reconciliation of accumulated deficit
Accumulateddeficit
Total
comprehensiveincome
CAD'000 CAD'000
(13,245) -
(164) -
(436) -
(1,062)
114 -
Balance at January 1, 2010 restated per IFRS (14,793) -
(9,570) 3,675
51 215
(620) (183)
(1,208) (146)
160 46
(123) (123)Deferred income tax effect of change in
treatment of acquisition expenses 29 29
Balance at December 31, 2010 restated per IFRS (11,281) 3,512
Recognition of contingent consideration provision upon
transition (refer note 14.1.3)
Zedi Inc.Notes to the condensed consolidated interim financial statements
for the quarter ended March 31, 2011 (unaudited)
Balance at January 1, 2010 as previously reported per
Canadian GAAP
Transition restatement of stock option expense (refer
note 14.1.1)
Transition restatement of depreciation of property plant
and equipment (refer note 14.1.2)
Change in treatment of acquisition expenses (refer note
14.1.4)
Deferred income tax effect of above transition
adjustments
Balance at December 31, 2010 as previously reported per
Canadian GAAP
Transition restatement of stock option expense (refer
note 14.1.1)Transition restatement of depreciation of property plant
and equipment (refer note 14.1.2)Recognition of contingent consideration provision upon
transition (refer note 14.1.3)
Deferred income tax effect of above transitionadjustments
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Zedi Inc.
14. ACCUMULATED DEFICIT (continued)
14.1IFRS reconciliation (continued)14.1.1 Restatement of stock based compensation expense
Prior to adopting IFRS, the group utilized a zero forfeiture rate within the Black-
Scholes valuation calculation for stock options and amortized the resulting stock
option expense evenly over the entire vesting term of each grant.
Upon adoption of IFRS 2 Share Based Payments, the group estimated its actual
forfeiture rate based on recent experience and determined that a 5% forfeiture
rate was appropriate. In addition, the group adopted a graded vesting approach
to amortization, so that each individual tranche of options within a grant is
amortized over its specific vesting period.
The net impact of incorporation of the forfeiture rate to account for futureemployee departures and expiry of unexercised options was a slight decrease in
total calculated expense associated with each individual grant of stock based
compensation. However, this revised total expense for any given grant of stock
options was then amortized more quickly given the graded amortization pattern.
Other than the lower total amount to be amortized, there was no impact on the
pattern of amortization associated with restricted share units as they do not
have a graded vesting period. All outstanding stock compensation grants that
were not fully amortized as of the transition date were revalued under the new
IFRS 2 policy with the net impact being an increase in accumulated expense of
CAD 164 at that date, driven by the accelerated expensing as described above.
Beyond the initial impact of CAD164, the expected impact on future periods isnot expected to be significant as older grants with lower associated amortization
are typically offset by newer grants with higher initial amortization.
14.1.2 Restatement of depreciation of property, plant and equipment
Prior to adopting IFRS, the group utilized declining balance amortization
methods for a number of categories of property, plant and equipment, namely
computer hardware, computer software, office equipment and tools.
Upon adoption of IAS 16 Property Plant and Equipment, the group selected the
straight line method of amortization after determining that this method best
reflected the pattern of benefits realized from the underlying assets. There
were no significant changes to estimated useful lives or salvage values
associated with the underlying assets.
The net impact of the change in amortization method as an increase in
accumulated amortization as of the transition date of CAD 436.
Beyond the initial impact of CAD 436, the expected impact on future periods is
not expected to be significant as carryforward amortization impacts associated
with pre-transition date assets are offset by amortization of post-transition date
asset acquisitions.
Notes to the condensed consolidated interim financial statements
for the quarter ended March 31, 2011 (unaudited)
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Zedi Inc.
14. ACCUMULATED DEFICIT (continued)
14.1IFRS reconciliation (continued)14.1.3 Recognition of contingent consideration provision upon transition
Prior to adopting IFRS, the group did not recognize contingent consideration in the
form of earnouts on business acquisitions until the amounts payable under the
respective earnout formulae were confirmed by actual results.
Under IFRS 1 the group elected not to retrospectively restate the accounting for any
business acquisitions completed prior to the transition date, however, the IASB has
determined that contingent consideration outstanding as of the transition date must
be recognized as a provision.
As of the transition date contingent consideration was still due to the vendors of J&J
Oilfield Services Ltd. which was acquired by the group in January 2008. Management
determined that the full remaining amount of unpaid earnout CAD 1,300 is expectedto be paid and that the fair value on a discounted basis as of January 1, 2010 was
CAD 1,062. This was recognized as a provision as of that date and then the provision
was subsequently adjusted to fair value at each period end throughout 2010. The net
change in fair value between January 1 and March 31 of 2011 was CAD 37 and for
fiscal 2010 it was CAD 146. There is no deferred taxation impact associated with
recognition of this provision.
Beyond the initial impact specified above, the expected impact on future periods is
not expected to be significant and will primarily represent interest as the present
value of the provision converges with the ultimate expected payout as above.
14.1.4 Change in treatment of acquisition expenses
Prior to adopting IFRS, the group capitalized transaction costs associated with
business acquisitions as part of the purchase price allocation.
Upon adoption of IAS 3 Business Combinations, these costs must be expensed in the
period incurred. This affects initial accounting for both Skyways and Southern Flow
(see note 21). The initial accounting for Skyways involved capitalization of CAD 55 of
transaction costs which were allocated to property, plant and equipment in the
purchase price allocation. Under IFRS, the 2010 presentation has been changed to
reflect these costs as expense in the period. Also in 2010, CAD $68 of transaction
costs related to Southern Flow were initially capitalized as prepaid, as the acquisition
had not closed as of December 31, 2010. Under IFRS, this amount was expensed in
the fourth quarter of 2010. The impact of these two adjustments to the nine monthsended December 31, 2010 was a CAD 123 increase in administrative expenses.
The deferred tax impact of the two adjustments above was a reduction in taxation
expense for 2010 of CAD 29.
Beyond the initial impact specified above, the expected impact on future periods is
not expected to be significant.
Notes to the condensed consolidated interim financial statements
for the quarter ended March 31, 2011 (unaudited)
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15.
Mar 31, 2011 Dec 31, 2010 Jan 01, 2010
CAD'000 CAD'000 CAD'000
Trade payables 4,836 2,413 1,463
Accrued liabilities 2,823 4,265 1,577
7,659 6,678 3,040
16.Mar 31, 2011 Dec 31, 2010 Jan 01, 2010
CAD'000 CAD'000 CAD'000
Contingent consideration provision 1,244 1,208 1,062
Warranty provision 56 61 47
Vacation provision 576 206 180
1,876 1,475 1,289
Current 1,254 889 227
Non-current 622 586 1,062
1,876 1,475 1,289
Contingent
consideration Warranty Vacation
CAD'000 CAD'000 CAD'000
1,208 61 206
Additional provision recognized 36 14 192
Reduction from payments / sacrifice - - (129)
- (19) -
- - 307
1,244 56 576
Balance at December 31, 2010
Reduction from remeasurement / settlement
without cost
Provision recognized on acquisition of company
Balance at March 31, 2011
Zedi Inc.
TRADE AND OTHER PAYABLES
The average credit period on purchases of certain goods from Canada is one month. The group
has financial risk management policies in place to ensure that all payables are paid within the pre-
agreed credit terms.
PROVISIONS
Movement in provisions
Notes to the condensed consolidated interim financial statements
for the quarter ended March 31, 2011 (unaudited)
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17.
Mar 31, 2011 Dec 31, 2010 Jan 01, 2010
CAD'000 CAD'000 CAD'000
8,339 4,918 4,511
8,339 4,918 4,511
18. Mar 31, 2011 Dec 31, 2010 Jan 01, 2010
CAD'000 CAD'000 CAD'000
Secured at amortized cost
Bank overdraft (i) 1,450 - -Bank loans (ii) 6,958 - -
8,408 - -
Current 3,097 - -Non-current 5,311 - -
8,408 - -
18.1 Summar of borrowin arran ements
(i) Bank line of credit denominated in Canadian dollars at effective interest rate of
Royal Bank Prime + 1.15% secured by trade receivables and inventory.
(ii) Variable rate term loan, issued January 13, 2011 with repayment to occur over a
three year period of blended monthly payments beginning July 1, 2011. Interest is
payable at Royal Bank Prime + 1.65% per annum, which based on March 31, 2011
rates leads to an effective interest rate of 5.44% per annum after consideraton of
all facility fees. As at March 31 2011, CAD 7,000 had been advanced under this
loan facility, with the facility capped at CAD 9,000 so that additional draws of up toCAD 2,000 can be made prior to July 1, 2011. The loan is secured by a general
security agreement.
Zedi Inc.
DEFERRED REVENUE
Arising from contract services billed in advance
of delivery, with terms of 12 months or less
Notes to the condensed consolidated interim financial statements
for the quarter ended March 31, 2011 (unaudited)
BORROWINGS
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19. PROFIT FROM OPERATING ACTIVITIES3 months
ended March31, 2011
3 months
ended March31, 2010
CAD'000 CAD'000
19.1 Other operating income, from associate
Equity in earnings of associate, PetroNet Systems LP 273 -
19.2 ExpensesExpenses associate wit purc asing, receiving,
warehousing, shipping of products (but excluding
assembly and related costs which are applied to
products in finished goods inventory) and information
technology 671 671
Warehousing and distribution 671 671
Expenses associated with corporate management,
finance, legal, human resources, quality assurance,
office facilities, corporate development and investor
relations 3,419 1,667Stock based compensation 164 164
Administration 3,582 1,831
Expenses associated with marketing, sales, customer
service, support center and training 1,662 1,457Customer acquisition and service 1,662 1,457
Costs associated with research, design, prototypes,
testing, commercialization and ongoing technical
support to customers 1,585 1,524Less qualifying amounts capitalized to internally
generated intangible assets (597) (374)Product development 988 1,150
Depreciation of property, plant and equipment 479 259Amortization of intangibles 617 468
Losses (gains) on foreign exchange (94) (63)
Losses (gains) on disposal of property, plant andequipment and intangibles 99 -
Other operating expenses 1,101 663
Interest on term loan 70 -
Interest on bank advances and other finance charges 46 53
Finance costs 116 53
Zedi Inc.
Profit from operating activities is arrived at after taking intoaccount:
Notes to the condensed consolidated interim financial statements
for the quarter ended March 31, 2011 (unaudited)
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20. TAXATION
20.1 Taxation recognized in income3 months
ended March31, 2011
3 months
ended March31, 2010
CAD'000 CAD'000
Current taxation
- Current period 739 -
- Adjustments in the current period in
relation to current tax of prior periods - -
Deferred taxation relating to the origination
and reversal of temporary differences (48) 421
Taxation recognized in income 691 421
20.2Reconc at on o taxat on expense to
accounting profit
Profit before taxation 1,919 1,313
Statutory tax rate applicable during period 26.5% 28.0%
Taxation at statutory rate 509 368
Effect of expense not deductible in
determining taxable income 117 53
Effect of different tax rates of subsidiaries
operating in other jurisdictions 65 -
691 421
Adjustments recognized in the current period
in relation to the current tax of prior periods - -
Taxation recognized in income 691 421
Zedi Inc.Notes to the condensed consolidated interim financial statements
for the quarter ended March 31, 2011 (unaudited)
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21 BUSINESS COMBINATIONS
The group completed a number of acquisitions in 2010 and the first quarter of 2011. The acquisitionof two subsidiaries, Southern Flow Companies Inc. and Skyways Technical Services Ltd., is described
below, while the acquisition of a partnership interest in PetroNet Systems LP is described in note 9.
Southern Flow Companies Inc. (Southern Flow):
In January 2011, the group executed an agreement to acquire all the issued and outstanding shares
of Southern Flow effective January 1, 2011. The acquisition price of CAD 16,492 (USD 16,515) was
paid in entirely in cash upon closing. There was no contingent consideration. Southern Flow was a
wholly owned subsidiary of a public company providing production optimization services to the oil and
gas industry through 12 locations in the southern United States.
The initial accounting for the acquisition of Southern Flow has only been provisionally determined at
the end of the reporting period. For tax purposes, the tax values of Southern Flow's assets will remain
based on pre-acquisition values of the assets. At the date of finalization of these consolidated
financial statements, the necessary market valuations and other calculations had not been finalized
and they have therefore only been provisionally determined based on management's best estimate.
Goodwill arose in the acquisition of Southern Flow because the consideration paid for the combination
effectively included amounts in relation to the benefit of revenue growth, expected synergies, future
market development and the assembled workforce of Southern Flow. These benefits are not
recognized separately from goodwill because they do not meet the recognition criteria for identifiable
intangible assets.
None of the goodwill arising on acquisition is expected to be deductible for tax purposes.
Acquisition-related costs amounting to CAD 112 have been excluded from the considerationtransferred and have been recognised as an expense in the current year, within the other expenses'
line item in the consolidated statement of comprehensive income.
Skyways Technical Services Ltd. (Skyways):
In August 2010, the group executed an agreement to acquire all the issued and outstanding shares of
Skyways effective as of August 1, 2010. The purchase price of CAD 1,883 was comprised of an
upfront cash payment of CAD 483 and earn out payments to a maximum of CAD 1,400, based on
certain earnings targets being met. Skyways was a private corporation providing field operations and
management services to the oil and gas industry in north-east British Columbia.
The remaining consideration, to a maximum of CAD 1,400 will be paid out only upon the achievement
of certain earnings and growth targets over the three year period following the acquisition date and
will be accounted for as employee compensation expense in the period earned.
Acquisition-related costs amounting to CAD 55 were included in the consideration transferred under
the initial recording of this acquisition in 2010, but under IFRS have been reclassified to expense in
the period of acquisition and are included in administration expenses in the consolidated statement of
comprehensive income.
edi Inc.otes to the condensed consolidated interim financial statements
or the quarter ended March 31, 2011 (unaudited)
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Zedi Inc.
21 BUSINESS COMBINATIONS (continued)
Southern
Flow Skyways
CAD'000 CAD'000
Principal activityProduction
Optimization Field Services
Date o acqu s t on an eg nn ng o
inclusion of results of acquired business
within group financial results January 1, 2011 August 1, 2010
Purchase consideration
Cash paid on closing 16,492 48316,492 483
Current assets
Cash and & cash equivalents 250 56
Trade and other receivables 3,591 70Inventories 2,179 -
6,020 126
Non-current assets
Property, plant and equipment 1,808 461
Intangibles 8,125 -
Goodwill 4,979 -
14,912 461
Current liabilities
Trade and other payables 1,336 43
Non-current liabilities
Deferred tax liabilities 3,104 61
Net Assets Acqu re an Recogn ze at
Date of Acquisition 16,492 483
Goodwill arising on acquisition:
Consideration transferred, as above 16,492 483
Less: fair value of identifiable net assets
acquired:
Working Capital 4,684 83