Management Discussion for the quarter ended 31 December 2001

Transcription

1 #209, Avenue Edmonton, Alberta T5S 1K2 Ph: (780) Fax: (780) Management Discussion for the quarter ended 31 December 2001 During the last quarter we finally delivered the Top Drive to Nabors Drilling. This results in year to date sales being close to the total sales for all of last year. Profit for the first half of the year is up over last year even though we wrote off all of our Top Drive development costs ($294,000 of development costs). Nabors is installing the Top Drive into a new rig, which we expect to go into the field during February. We currently have several clients moving forward on additional purchases, although no purchase orders have been received as of this date. In addition we have a large number of drilling companies world wide who have asked for performance reports as soon as they are available from the initial operation of the Top Drive. While we have not done any promotion of the Top Drive outside of Western Canada, we have had inquiries from 7 countries. While our engineering services have remained steady through the end of December we are expecting the economic slowdown to have a negative impact on sales during the next quarter, partially offsetting the increased sales due to the Top Drive. During the quarter our engineers have been kept busy with Canadian work, and have also worked on projects in the US and Mexico Head Office #209, Avenue Edmonton, AB T5S 1K2 Telephone (780) investor@estec.com url: Shares Listed Canadian Venture Exchange (CDNX) Trading Symbol: ESE Registered Office s and Officers c/o Anfield Sujir Kennedy & *Anthony B. Nelson, Durno President, 1600 Stock Exchange Tower *H. Margaret Nelson, 609 Granville Street C.F.O., Vancouver, B.C. Allan R. Nelson, P.Eng., V7Y 1C3 Willie Mounzer, Transfer Agent Computershare Investor *David P. Downey, Services Inc. 510 Burrard Street Irma M. Pearson, Vancouver, BC Corp. Secretary V6C 3B9 *(Audit Committee Members)

2 Our software group is starting to get some interest again as that segment of the economy starts to recover from the economic slowdown. Software sales and consulting services were initially hit by the leading edge of the economic slowdown last spring. During the last quarter we continued to try to set up broker meetings to increase the awareness of the stock. In the post September 11 market this has been very difficult, and has been ineffective in attracting new interest to the stock. We have investor show bookings in January and February. We are hoping to set up broker meetings to coincide with these shows. Head Office #209, Avenue Edmonton, AB T5S 1K2 Telephone (780) url: Shares Listed Canadian Venture Exchange (CDNX) Trading Symbol: ESE Registered Office c/o Anfield Sujir Kennedy & Durno 1600 Stock Exchange Tower 609 Granville Street Vancouver, B.C. V7Y 1C3 Transfer Agent Computershare Investor Services Inc. 510 Burrard Street Vancouver, BC V6C 3B9 s and Officers *Anthony B. Nelson, President, *H. Margaret Nelson, C.F.O., Allan R. Nelson, P.Eng., Willie Mounzer, *David P. Downey, Irma M. Pearson, Corp. Secretary *(Audit Committee Members)

3 Interim Consolidated Balance Sheet 31 December June 2001 ASSETS, Current Term Deposit 3,142 3,142 Accounts receivable 877, ,369 Loans receivable 42,000 51,450 Unbilled revenue 308, ,776 Inventory 292, ,041 Prepaid expenses 13,535 31,623 1,537,202 1,026,401 Capital assets (net of accumulated depreciation of $54,626 [June $131,224]) 93, ,086 Oil and Gas Leases 15,000 15,000 Deferred Development Costs 349, ,929 Goodwill, (net of accumulated amortization of $50,754 [June $44,154]) 88,996 82,396 2,077,946 1,618,412 LIABILITIES Current Bank indebtedness 398, ,198 Accounts payable and accrued liabilities 422, ,677 Income taxes payable 99,766 16,215 Due to Related Parties 308, ,053 1,228,839 1,013,143 SHAREHOLDERS EQUITY Share capital 1,246,553 1,057,053 Deficit (397,446) (451,784) 849, ,269 2,077,946 1,618,412 Anthony B. Nelson (signed) director H. Margaret Nelson (signed) director

4 Interim Consolidated Statement of Earnings and Deficit Three Months ended Three Months ended 31 December December 2000 Revenue 1,161, ,274 Direct Expenses Cost of product sold 425,090 0 Other direct expenses 29,695 62, ,785 62, , ,408 Selling, general and administrative expenses 579, ,361 Amortization 15,067 7,195 Loss on disposal of capital assets 23,968 0 Earnings before income taxes 88,110 46,852 Current Income Taxes 52,797 0 Earnings for the period 35,313 46,852

5 Interim Consolidated Statement of Earnings and Deficit Six Months ended Six Months ended 31 December December 2000 Revenue 1,631, ,723 Direct Expenses Cost of product sold 425,090 0 Other direct expenses 89,325 98, ,415 98,145 1,117, ,578 Selling, general and administrative expenses 894, ,158 Amortization 44,409 14,000 Loss on disposal of capital assets 22,465 0 Earnings before income taxes 156, ,420 Current Income Taxes 102,266 0 Earnings for the period 54, ,420 Deficit - beginning of year (451,785) (494,132) Deficit end of period (397,446) (249,292) Basic earnings per share Diluted earnings per share

6 Interim Consolidated Statement of Cash Flows Cash provided by (used in) Three Months ended Three Months ended 31 December December 2000 Operating activities Net earnings for the period 35,313 46,852 Items not affecting cash Amortization 15,067 7,195 Loss on disposal of assets 23, ,348 54,047 Net change in non-cash working capital items (426,461) (83,312) Income tax payable 50,297 0 (301,816) (29,265) Financing activities Advances from (to) related parties Issuance of Capital Stock Increase in loans receivable (84) 0 0 (9,850) , Investing activities Purchase of capital assets (8,161) (10,343) Proceeds on sale of capital assets 0 0 Write-off of capital assets 19,044 0 Deferred development costs (17,452) (6,771) (6,569) (17,114) (Increase) decrease in bank indebtedness (277,235) (45,563) (Bank indebtedness) beginning of period (118,285) (145,906) Bank indebtedness - end of period (395,520) (191,469)

7 Interim Consolidated Statement of Cash Flows Cash provided by (used in) Six Months ended Six Months ended 31 December December 2000 Operating activities Net earnings for the period 54, ,420 Items not affecting cash Amortization 44,409 14,000 Loss on disposal of capital assets 22, , ,420 Net change in non-cash working capital items (510,270) (172,343) Income tax payable 83, ,506 35,923 Financing activities Advances from (to) related parties Issuance of Capital Stock Increase in loans receivable 41,000 16, ,500 0 (9,450) ,050 17,256 Investing activities Purchase of capital assets (9,702) (27,452) Proceeds on sale of capital assets 3,669 0 Write-off of capital assets 19,044 0 Deferred development costs (29,029) (28,008) (16,018) (55,460) (Increase) decrease in bank indebtedness (100,474) (74,127) (Bank indebtedness) beginning of period (295,046) (117,342) Bank indebtedness - end of period (395,520) (191,469) Notes to the Financial Statements 1. Basis of presentation These consolidated financial statements are expressed in Canadian dollars and include the accounts of the company and its wholly owned subsidiaries, Allan R. Nelson Engineering (1997) Inc. and ESTec Oilfield Inc. The accounts of ESTec Oilfield Inc. are included in operations from the effective date of January 1, Significant accounting policies The accompanying unaudited financial statements have been prepared in accordance with Canadian generally accepted accounting principles for interim financial information. In the opinion of management all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. These unaudited interim financial statements should be read in conjunction with the audited financial statements of ESTec Systems Corp. for the year ended June 30, 2001.

8 3. Segmented Information The company operates in three business segments: engineering services, computer consulting and oilfield manufacturing. The accounts of ESTec Oilfield Inc., engaged in oilfield manufacturing, are included in operations from the effective date of January 01, Information regarding the company s operations and assets by segment is as follows: ESTec Systems Corp. Segmented Information For the six months ended December 31, 2001 (with comparative figures for the six months ended December 31, 2000) 2001 Engineering Computer Consuling Manufacturing Corporate Consolidated Total Sales 909,963 9, ,468 75,000 1,706,986 Inter-Segment Sales (17,222) 28,580 (11,358) (75,000) (75,000) 892,741 38, , ,631,986 Net earnings (loss) 153,399 (53,740) (38,722) (6,600) 54,337 Amortization (3,232) 41, ,600 44,409 Identifiable assets 876, , ,184 82,396 2,077,946 Capital expenditures 7, , , Engineering Computer Consuling Manufacturing Corporate Consolidated Total Sales 749,803 52, ,370 Inter-Segment Sales 0 (14,647) 0 0 (14,647) 749,803 37, ,723 Net earnings (loss) 185,528 (56,508) 0 (6,600) 122,420 Amortization 7, ,600 14,000 Identifiable assets 1,081, , ,596 1,534,615 Capital expenditures 27, , Share Capital On July 27, 2001, 1,050,000 common shares were issued by private placement for cash proceeds of $189,000. On August 13, 2001, 2,174 common shares were issued by the exercise of 2,174 stock options at a price of $0.23 per share, for cash proceeds of $500. During the period, 166,500 stock options with an exercise price of $0.21 per share, and 30,000 stock options with an exercise price of $0.23 per share were cancelled. During the period 1,050,000 warrants with an exercise price of $0.30 per share were issued. No new stock options were issued during the period. 5. Sale of Top Drive During the quarter we had the delivery of our first Top Drive. This accounted for the much higher sales in Estec Oilfield Inc. The reason there is still a loss in Estec Oilfield is because we wrote off the development costs for the prototype.