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1 O U R V I S I O N I S C L E A R A N N U A L R E P O R T

2 CONTENTS 1 Corporate Profile 2 At-a-Glance 4 Our Business 6 President s Message 12 Management s Discussion and Analysis 17 Management s Statement of Responsibility & Auditors Report 18 Consolidated Financial Statements 21 Notes to Consolidated Financial Statements 32 Corporate Information ANNUAL GENERAL MEETING The Annual General Meeting of Shareholders will take place in the Eau Claire Room of the Westin Hotel, Calgary, Alberta, on Thursday, April 26, 2001 at 2:30 p.m.

3 O U R D I R E C T I O N I S UP CORPORATE PROFILE Headquartered in Calgary, Alberta, Badger Daylighting Inc., has operations across Canada and the United States. Badger Daylighting Inc. services the petroleum and utilities industries through its two main business components: Badger Daylighting and Delta Pipeline Limited. Badger Daylighting is a service business centered on Hydrovac systems, which are designed to minimize the difficulties associated with exposing underground pipelines, utilities, and other buried infrastructure. Through our network of Operating Partners and corporate trucks, Badger Daylighting fulfills customer needs for non-destructive excavation of underground structures. Delta Pipeline Limited provides two-inch to sixteen-inch pipeline construction services for the petroleum industry in the Western Canadian Sedimentary Basin Annual Report > 3

4 BADGER D A Y L I G H T I N G I N C. A T - A - G L A N C E > 2000 MILESTONES Fiscal 2000 revenues increased by 31 percent from Revenues from Daylighting operations, which contributed to most of the increase, rose from $25.0 million in 1999 to $38.8 million in Daylighting services continued to expand into the United States. Revenues increased to $13.7 million in 2000 from $5.6 million in Margins increased to 27 percent in 2000 compared to 18 percent in Subsequent to year-end, the Company completed three debt financings which provided proceeds of $12.5 million. Created a clear vision. Personnel restructured to allow for the implementation and execution of 2001 strategic plan. Returned to profitability. Delta Pipeline Limited implemented a stronger bid process and better cost control, resulting in a return to positive EBITDA margins. Vision Business Business Model Environment Badger Daylighting Gross Revenues ($ millions) EBITDA ($ millions) To be the North American Leader in satisfying customer needs for nondestructive excavation of underground infrastructure Vertically integrated service company Network of Operating Partners who provide local marketing and operate the units Badger provides trucks, administrative and marketing support A rapidly developing market with large potential in oil, gas and utilities Attractive for safety, environmental, and cost considerations Supplement franchise truck owners with corporate division trucks in the United States (Earnings before interest, taxes depreciation, and amortization) Delta Pipeline Limited Gross Revenues ($ millions) EBITDA ($ millions) To be the Customer Service Leader in the Western Canadian pipeline and facilities construction industry Installing 2-inch to 16-inch gathering and sales pipelines Construction and maintenance of metering and gathering facilities Construction and maintenance of process plants Managing plant turnarounds Large potential for work in Western Canada Record commodity prices High demand for Canadian gas Increased drilling activity 3.4 (2.2)

5 > FINANCIAL RESULTS ($ thousands, except per share information) Year-ended Nov Revenue 77,110 58,778 75,873 26,067 Net income (loss) 1,405 (11,666) 7,174 2,155 Earnings (loss) per share basic 0.07 (0.62) fully diluted 0.07 (0.62) Cash flow from operations 7,298 4,799 15,788 5,104 Long-term debt 15,021 21,383 13,993 12,907 Shareholders equity 41,664 40,618 42,253 25,541 Badger Daylighting Delta Pipeline Limited Industry Core Key 2001 Segments Competencies Success Factors Goals Petroleum Utilities Fibre Optics Telecom Construction Daylighting expertise Technology/truck development Distribution/market development through Operating Partners and corporate trucks Fleet management Obtain and retain clients Ability to service large national clients Increasing revenue per truck Network of Operating Partners provides global but local presence Competitiveness of unit regarding cost, quality and features, which creates a barrier to entry Cost containment of Badger while growing Cost of capital Increase truck fleet by up to 35 new units while sustaining high utilization Increase earnings per share Introduce the next generation Badger truck to the United States market Strengthen the Operating Partner organization Strengthen and increase the independence of our United States operation Ensure processes are in place to allow continuous improvement of our core competencies Execute business plan, which will allow increased access to capital for future growth First to market Oil and gas Industry knowledge and expertise Effective and efficient bid process Flexible in deploying resources Cost control Appropriate fleet plus effective fleet management Obtain and retain customers Provide best service Be flexible in project scope, size, geography and terrain Experienced, flexible, motivated and available people Appropriate and wellmaintained fleet Strengthen relationships with main clients while obtaining more year-round work Further develop Facilities division, which will strengthen our client relationships and provide more work during slow periods Improve mix of equipment for more efficient use of capital Further improve bid and job cost systems Enhance safety program to make it a competitive advantage Meet budget expectations by executing our 2001 business plan

6 OUR BUSINESS HYDROVAC APPLICATIONS TECHNOLOGY Self-Contained Unit Pressurized Water Powerful Vacuum Line Exposing/Daylighting Pole Holes/Piling Holes Slot Trenching BADGER DAYLIGHTING Badger Daylighting is North America s largest provider of non-destructive excavating services. Badger traditionally works for contractors and facility owners in the utility and petroleum industries. Our key technology is the Badger Hydrovac, which is used primarily for safe digging in congested grounds and in challenging conditions. Each selfcontained Badger Hydrovac consists of three components: water storage, a pressurization unit, and a powerful vacuum and storage unit. A two-man crew operates the equipment. Clean water from the Hydrovac is pressurized and delivered through a handheld wand to liquefy the soil cover. The resulting slurry, composed of water and earth, is simultaneously removed by a powerful vacuum system through a debris hose and into the storage tank. This process allows buried underground facilities to be safely exposed without damage. Hydrovac excavation is a safe alternative to machine or hand digging around all types of buried facilities including fibre optic, natural gas, oil, electric, water, sewer, and all types of communications cables. Badger Hydrovacs safely expose these facilities to daylight, thus the term "daylighting". The key benefits of Badger's Hydrovac service are increased public safety, reduced facility damage, increased productivity, and reduced cost of line repair and ground restoration. Badger manufactures its own Hydrovacs in Red Deer, Alberta. The units are used in several industries for multiple applications, all of which can be performed remotely (up to 450 feet away from the unit) and through any depth of frozen ground using an on-board water heater. As at November 30, 2000, Badger operated 136 Hydrovac units across Canada and the United States. THE BUSINESS MODEL Badger Daylighting is a vertically integrated service company. Our business model involves two distinct parties: the Operating Partners (franchisees in the United States and agents in Canada), and ourselves (Badger Corporate). The two parties work together to provide Hydrovac service to end-user customers. In this partnership, Badger provides the expertise, the trucks, and North American marketing and administration support. The Operating Partners deliver the service by operating the equipment and developing their local markets. All work invoices are billed through Badger and then shared with the Operating Partners based upon a revenue percentage formula. 4 < Badger Daylighting Inc.

7 Non-destructive Eliminates Risk All-weather capacity Remote Excavating Debris Removal Sinking Shoring In addition to our United States network model, Badger has recently initiated Corporate Operations. In certain locations, Badger will operate trucks and provide the service directly to the customer. This approach will enhance our service, facilitate growth into new areas, allow testing of new product introductions, and further develop our business knowledge. DELTA PIPELINE LIMITED Delta Pipeline Limited is a pipeline and facilities construction company. Delta is based in Sylvan Lake, Alberta and operates up to 12 pipeline spreads with a peak of 600 workers and managers employed during the year. Delta specializes in smalldiameter installations primarily for gathering and sales pipelines ranging from 2 inches to 16 inches in diameter and running up to 150 miles in length. Delta's area of operations extends throughout central and northern Alberta and into northeastern British Columbia. To reduce the seasonality of its business, Delta added a separate Facilities division in This division actively pursues the construction and maintenance of oil and natural gas facilities. Oil and natural gas field activity is currently at a cyclical high. Forecasts call for drilling and completion of up to 19,400 wells in This suggests that activity levels for small-diameter field pipeline construction companies will remain strong. THE BUSINESS MODEL Pipeline Installation Delta provides oilfield services through two groups: the Pipeline division, and the Facilities division. Delta's primary business is the Pipeline division, which constructs and installs 2-inch to 16-inch gathering and sales pipelines. The recently created Facilities division constructs and services metering facilities, gathering facilities and processing plants and completes plant turnarounds Annual Report > 5

8 P R E S I D E N T S MESSAGE In 2000, Badger Daylighting Inc. implemented a number of key initiatives to restructure the Company, making it operationally stronger and more profitable. We are pleased with the progress we have made this year, which has already begun to have a positive impact on our financial results. The theme of this year s annual report, Our Vision is Clear, reflects the Company s new momentum and business plan, which I will outline for shareholders in this report. As the Company s new President, I am convinced there is an excellent market opportunity for Badger based on strong acceptance for our service throughout North America and the large, mostly untapped market in the United States. The Badger Hydrovac solution has proven to be an ideal answer to exposing any underground infrastructure where safety and cost are of concern. Frequently, the downtime associated with damaged communications networks and gas lines from conventional digging methods are far more critical than the actual line damage. Our technology and operational expertise continue to lead the industry and have enabled us to grow. Our focus in 2000 was to restructure the operation, build the foundation to support a strong growing business, and return to profitability after a difficult Efforts in 2000 to restructure our Balance Sheet were successful. The closing of the major financial transactions which allowed the restructuring did not occur until after year-end. With high oil and gas commodity prices and a strong demand for Canadian gas, the future for Delta, our pipeline construction company, looks very promising. Management has implemented new strategic plans for Badger and Delta. These plans are being acted on with emphasis towards developing and building on our core competencies necessary to sustain a competitive advantage. This plan has been communicated to all employees and provides a clear vision for the future. Our employees are committed to our vision and will be key in meeting our objectives. BADGER DAYLIGHTING 2000 RESULTS As a result of a strong focus on asset utilization, the Company continued strong revenue growth with a year-over-year increase of 55 percent. The best measurement of our utilization of assets is revenue per truck per month. By the end of 2000 this figure was up by 28 percent compared to As part of restructuring, staff levels were trimmed and skills were added that are more closely aligned with our growth requirements. Tor Wilson, President and CEO, joined Badger in June Mr. Wilson adds a unique blend of sales, product management, operational expertise, financial experience and management capabilities gained from his prior position as Senior Vice President and COO of Timberjack Inc. Timberjack is an international equipment manufacturer and distributor operating primarily in the forestry industry. Mr. Wilson has a B.Sc.F. and an MBA. He is an action-oriented leader with a proven success record. 8 < Badger Daylighting Inc.

9 We identified the United States as a market with great growth potential. To facilitate this expansion, stronger leadership in the United States was required. This was accomplished with the addition of a Manager of Corporate Operations and a Manager of Finance and Administration. Both individuals have the extensive experience required for Badger to grow. Technical expertise of our manufacturing operations was greatly enhanced with the addition of three engineers. This technical capacity was required to meet our stated objective of continuously improving our daylighting technology. THE MARKET The Company is divided into three operating regions: Canadian West, Canadian East and United States. Each region is a distinct market in a different phase of development. Badger began operations in the Canadian West market, which has grown into a well established and efficient division. Our primary market is the oil and gas industry. Due to a strong demand for natural gas we expect our units to be fully utilized during This region is expected to grow a minimum of 10 percent annually for the next several years. By integrating our Shoring division, which provides systems to secure walls of excavated trenches and job sites, into the Canadian West Daylighting operations, we will realize cost savings in The Canadian East region s revenue grew by 62 percent in 2000 over The market we enjoy in Eastern Canada is diversified into many different industry segments and applications. Excellent progress was made in developing new customers in fiscal Revenue growth in 2001 is forecast to be more than 40 percent. Our newest market, the United States, offers the greatest potential for growth. It is largely undeveloped for our type of service. Focus during 2000 was to improve utilization of the assets placed in the United States in 1999 and to develop an organization that could move Badger forward. Both of these objectives were substantially achieved. We also decided to augment our franchise system in the United States with a corporate-run operation. This was done to help support the growth of our business in new or potentially large business areas. For the past year the companies installing fibre optic cables have utilized our fleet extensively. This will continue in We will also begin to diversify into the United States oil and gas market in which we have a great deal of expertise from our Canadian operations. Revenue growth in the United States is forecast at over 40 percent compared to Greg Kelly, CA, Vice President Finance, CFO, has been with Badger since September Mr. Kelly has a B. Comm. and over 13 years of public practice with the accounting firm of Ernst & Young LLP. Mr. Kelly has made great strides in improving the financial processes at Badger Annual Report > 9

10 VISION STATEMENT Badger s vision is to be the North American leader in providing non-destructive excavation services with professional, high quality, safe and innovative solutions to accessing underground infrastructure. CORE COMPETENCIES We view our core competencies as crucial in sustaining and enhancing our competitive advantage. Daylighting Expertise (safety, applications, operation). Badger has been the leading innovator in the daylighting business with safe, cost-effective procedures. We will continue to expand our knowledge and distribute it to our Operating Partners and customers. Technology and Truck Development. Badger units today are the most productive and efficient Hydrovacs in the business. We have strengthened the design capabilities in our organization to ensure continuous improvement of our units. A new truck design will be introduced in Distribution and Market Development. The controlled development of the North American market and service channels is important to achieving sustained growth. Our organization is established in a way that ensures the local characteristics of the markets are taken into consideration. Fleet Management. Badger s fleet grew to 136 trucks in To maintain the operational effectiveness and durability of these assets, a Fleet Management Program was formulated and put into use. KEY SUCCESS FACTORS Our success depends on doing the following well: Obtain and retain clients. Our business is built by satisfying customers. Once we obtain a customer, we develop a relationship that allows us to grow with that customer. Service large jobs or projects. Badger s fleet size offers a competitive advantage. We can mobilize more units than our competitors and can complete the project more quickly and efficiently. Our size allows us to develop new technology to remain the most cost-effective in our business. Anurag Pandey, Plant Manager, joined Badger in July Mr. Pandey has an M.Sc. in Industrial Systems Engineering and contributes a wealth of engineering, planning and operational experience gained from various positions held at Foremost Industries Inc. Jim Coughlan, U.S. Manager, Franchise Operations, has an expanded role with Badger. Mr. Coughlan joined Badger in March 1999 following several years of sales and marketing experience, primarily with Husky Oil Ltd. Mr. Coughlan has been instrumental in the success of the U.S. franchise operations. 10 < Badger Daylighting Inc.

11 Revenue per truck. The utilization of our assets is critical to our success. We closely monitor revenue per truck and continually strive to improve our efficiency. An organization which is global in North America but is also local. Badger has successfully adapted its business model to the requirements of local customers throughout North America. Our Operating Partners are key to succeeding in a variety of locales and operating situations. Competitiveness of unit. We will continuously make improvements to our Hydrovac unit to maintain a competitive edge. Our trucks are the best in the business today. Cost containment while growing the business. Value must be obtained if cost is added. Cost of capital. To grow our business, capital is required to fund more units. If the cost of capital is over a certain level then growth is restricted. Market penetration. Badger has successfully established interest in the Hydrovac business. Badger must grow at a rate to take advantage of this interest or our competitors will fill the gap. BADGER 2001 GOALS Our primary objective in 2001 is to continue controlled growth and build a business that is sustainable over the long term. Our 2001 goals include: Increasing the truck fleet by up to 35 new units while sustaining high utilization. Increasing earnings per share. Introducing the next generation Badger truck to the United States market. Strengthening the Operating Partner organization. Strengthening and increasing the independence of our United States operation. Ensuring processes are in place to allow continuous improvement of our core competencies. Executing our plan, which will allow increased access to capital for future growth. Brent Northcott, Fleet Manager, joined Badger in June 1997 when the Company acquired a hydraulic business in which Mr. Northcott held an ownership position. His years of service experience make Mr. Northcott a natural fit in Badger s operations. Ron Gyori, Western Canadian Manager, Daylighting Operations, joined Badger in September After 10 years of running his own Hydrovac business, Mr. Gyori is well versed in all aspects of Hydrovac operations Annual Report > 11

12 DELTA 2000 RESULTS Delta s financial performance improved during With flat revenues, EBITDA was $3.4 million - a dramatic turnaround from the negative $2.2 million reported in Revenue growth was constrained in the summer and fall due to unseasonably wet weather. The fundamentals of the oil and gas industry improved greatly during the year creating strong activity in the sector. Delta was able to obtain several good projects that will be completed in the first half of Delta s organization was strengthened with the addition of a new Controller in 2000 and a new General Manager in early An important initiative to expand Delta s capability in 2000 for year-round work was the addition of a Facilities division. The facilities business will provide more service to existing clients. CORE COMPETENCIES AND KEY SUCCESS FACTORS These are the areas where Delta will continue to do well and expand. Industry knowledge and expertise. Delta is well known for its ability to take on the toughest projects and succeed. This ability and knowledge of the business will allow Delta to make appropriate bid decisions and operate cost-effective jobs. Obtain and retain clients. Delta has a solid customer base to date. It will be important in the future to expand these relationships to obtain more year-round work to increase utilization of assets. Effective and efficient bid process. Most jobs begin with a bid. To be successful, a good understanding of the business and the project is required. Flexible in deploying resources according to project scope, geography and terrain. The nature of this business dictates that the Company is constantly aware of jobs in progress and potential bids to ensure resources are fully utilized. Strong cost control on all projects. Once the bid has been won, the job must be executed as efficiently as possible in order for Delta to be successful. This is an area for enhancement in Appropriate fleet, plus fleet management. The mix of equipment must evolve to meet the changing requirements of the client base. Our goal is to own the specialized, heavily utilized equipment and to rent the more common, less-frequently utilized equipment. Bob Patton, U.S. Manager, Corporate Operations, joined Badger in December Mr. Patton brings extensive experience as a construction superintendent and Hydrovac operations manager to our United States organization. Dan Hutchison, U.S. Manager, Finance and Administration, joined Badger in January Mr. Hutchison s track record of building profitable businesses will help Badger develop the strong financial and administrative support required to grow our business in the United States. 12 < Badger Daylighting Inc.

13 2001 OUTLOOK With record commodity prices, record well-drilling activity and a huge demand for Canadian gas, there is a large potential volume of work for Delta over the foreseeable future. The addition of our Facilities division is expected to strengthen revenues. Delta s largest market area is in Western Canada, especially northern Alberta and northeast British Columbia, both areas with high levels of natural gas exploration. DELTA 2001 GOALS The main goal for 2001 is to improve the execution of our business with the following as critical items: Strengthen relationships with main clients and obtain more year-round work. Further develop Facilities division which will strengthen our client relationships and provide more work during slow periods. Improve mix of equipment for more efficient use of capital. Further improve bid and job cost systems. Enhance safety program and make it a competitive advantage. Meet budget expectations by executing our 2001 plan. CLOSING REMARKS The year 2000 was an important year for Badger. We conducted a challenging restructuring and returned the Company to profitability. Our new management team is in place and is committed to a vision of growth and quality of service. Our continued expansion into the United States is the most exciting opportunity in the Company s history. I would like to take this opportunity to thank our Board of Directors for their invaluable guidance and our employees who are the cornerstone of our success. To our shareholders, we look forward to growing your company in On behalf of the management and directors, Signed Tor Wilson President & CEO March 1, 2001 Mark Lyle, Eastern Canadian Manager, Daylighting Operations, has been with Badger since February Mr. Lyle has a B. Comm. and is adept at sales and marketing. Together with our eastern Operating Partners, he has built a strong customer base to facilitate future expansion. Dale Kotnyek, General Manager, Delta Pipeline Limited, joined Delta in January Mr. Kotnyek brings substantial knowledge and experience from his position as a senior manager at a major pipeline construction company in Western Canada. He previously owned and operated his own oilfield construction company Annual Report > 13

14 MANAGEMENT S DISCUSSION AND ANALYSIS CONDITION AND RESULTS OF OPERATIONS The management s discussion and analysis focuses on key statistics from the consolidated financial statements and pertains to known risks and uncertainties relating to utility and oilfield service industries. This management s discussion and analysis should not be considered all inclusive, as it excludes changes that may occur in general economic, political and environmental conditions. This management s discussion and analysis of the financial condition and results of operations for the year-ended November 30, 2000 should be read in conjunction with the consolidated financial statements and related notes and material contained in other parts of this annual report. OVERVIEW Fiscal 2000 was a year of restructuring the organization and refocusing the Company. The highlights are as follows: Fiscal 2000 revenues increased by 31 percent compared to The main contributor was our Daylighting operation, which saw revenues increase from $25.0 million in 1999 to $38.8 million in Daylighting services continued to expand into the United States. Revenues increased to $13.7 million in 2000 from $5.6 million in Margins increased to 27 percent in 2000 from 18 percent in Pipeline construction EBITDA rose from a negative $2.2 million in 1999 to a positive $3.4 million in The Company sold a 43 percent interest in Baseline Technologies Inc. for cash proceeds of $1.3 million and the return of 640,000 of Company common shares valued at $486,000. Selling, general and administrative expenses include approximately $1.0 million of personnel restructuring costs. Additional costs of $600,000, associated with restructuring the United States operations, have been netted against United States revenues due to the nature of the transactions. Net income per share for 2000 was $0.07 per share versus a $0.30 per share loss before the write-off of software technology in fiscal Subsequent to year-end, the Company completed three debt financings which provided proceeds of $12.5 million. RESULTS OF OPERATIONS Revenues Revenues were $77.1 million in 2000 compared to $58.8 million in This increase of 31 percent was largely due to: Daylighting revenues increased from $25.0 million in 1999 to $38.8 million in The majority of the increase was from the United States Daylighting operations where revenues increased from $5.6 million in 1999 to $13.7 million in 2000 an increase of 144 percent. The increase in United States revenues was the result of focusing our attention on increasing the revenue per truck, adding new units to the fleet and redeploying units from unsuccessful Operating Partners. Canadian Daylighting operations contributed an additional $5.7 million of revenue in 2000 compared to 1999 due to the increase in oil and gas activities in Western Canada and continued growth in our Eastern Canadian Daylighting operation. The manufacturing segment revenues increased from $2.5 million in 1999 to $5.0 million in 2000, reflecting the increase in oil and gas activities in Western Canada. 14 < Badger Daylighting Inc.

15 Direct Costs Direct costs were $56.7 million in 2000 as compared to $48.0 million in This is an increase of 18 percent. The increase in direct costs was not in proportion to the 31 percent increase in revenues as the pipeline segment EBITDA margins increased substantially in 2000 over the margins attained in The Company pipeline operations EBITDA went from a negative $2.2 million in 1999 to a positive $3.4 million in 2000 as the result of improving the bid process and maintaining better control over the projects. Amortization of Capital Assets and Goodwill Amortization of capital assets and goodwill was $6.5 million in 2000 as compared to $10.1 million in 1999, a decrease of 36 percent. During the 1999 fiscal year, the estimated life of a Badger unit and certain pipeline construction equipment was re-evaluated resulting in an increased period for amortization. This change resulted in a reduction in amortization of capital assets for fiscal 2000 of $3.4 million. Interest Expense Interest expense was $2.9 million in 2000 as compared to $2.1 million in This is an increase of 38 percent. The increase is the result of carrying increased debt levels during Selling, General and Administrative Selling, general and administrative expenses were $10.7 million in 2000 as compared to $8.4 million in This increase of 27 percent is the result of incurring approximately $1.0 million of personnel restructuring costs during fiscal Selling, general and administrative expenses include salaries and benefits for office and sales staff, rent, utilities, and communications in the Company s segments and corporate head office. Selling, general and administrative expenses also include costs to maintain the Company s public listing and professional fees. Badger Daylighting had 96 employees at November 30, Delta also had 96 employees, but the number could increase to as many as 600 depending on seasonal demand. Badger Daylighting Gross Revenues ($ millions) 38.8 Delta Pipeline Limited Gross Revenues ($ millions) Annual Report > 15

16 Write-off of Software Technology/Gain on Sale of Investment On November 30, 1999 the Company assessed the carrying value of its investment in Baseline Technologies Inc. and determined a write-off of the remaining balance of $5.9 million was required. During fiscal 2000, the Company was able to realize a return on a portion of its investment in Baseline Technologies Inc. This was accomplished through two separate transactions in which the Company sold 43 percent of the outstanding voting common shares of Baseline Technologies Inc., for cash proceeds of $1.3 million and the return of 640,000 of Company shares valued at $486,000. The 640,000 common shares were subsequently cancelled. Income Taxes Income taxes went from a recovery of $4.2 million in 1999 to an expense of $0.5 million in 2000 due to income before taxes being $1.9 million in 2000 compared to the $15.9 million loss incurred in fiscal The tax rate of 27 percent is less than the anticipated rate of 43 percent as the gain on the sale of the Baseline Technologies Inc. shares was mainly tax free. FINANCIAL CONDITION AND LIQUIDITY Cash Flow from Operations Cash flow from operations was $7.3 million in 2000 as compared to $4.8 million in This is an increase of 52 percent. Increased activity levels in the Daylighting operations and increased EBITDA margins in the pipeline segment were the main reasons for the increase. Financing Net cash flow added from financing activities was $19.4 million in 1999 as compared to the $6.7 million net reduction in The main reasons for the difference are as follows: Investing During fiscal 1999, the Company closed an equity offering resulting in net proceeds of $9.4 million. During fiscal 1999, the Company also closed four debt financings which resulted in net proceeds of $12.6 million. During fiscal 2000, the Company repaid $6.8 million of term debt pursuant to regularly scheduled repayments. The one new debt facility entered into during fiscal 2000 resulted in the Company receiving proceeds of $7.9 million. These proceeds were used to pay off an existing term debt balance of the same amount, therefore no additional working capital was provided by this financial transaction. Net cash used in investing activities was $4.2 million in 2000 as compared to $18.3 million in The main reason for the decrease was the reduction in the number of Hydrovac units manufactured in fiscal 2000 compared to The Company added 16 new Badgers to the fleet in 2000 compared to 43 in Liquidity The Company s working capital position was a negative $1.4 million at November 30, 2000, as compared to a positive working capital position of $0.9 million at November 30, < Badger Daylighting Inc.

17 The Company s long-term debt was $21.0 million at November 30, 2000, compared to $27.8 million at November 30, The decrease is the result of repaying $6.8 million pursuant to regularly scheduled repayments. Subsequent to year-end the Company completed four financial transactions as follows: 1. Obtained debt financing in the amount of $1.5 million. The loan is repayable in monthly principal and interest payments of $33,196 until November 2005, bearing interest at percent and collateralized by chattel mortgages on certain capital assets. 2. Obtained debt financing in the amount of $8.0 million. The loan is repayable in monthly principal and interest payments of $164,943 until February 2006, bearing interest at the one month bankers acceptance rate plus 3.15 percent and collateralized by chattel mortgages on certain capital assets. Of this amount, $2,350,005 was used to repay current term debt facilities with the balance going towards working capital. 3. Obtained a commercial mortgage on land and buildings in the amount of $3.0 million. The loan is repayable in monthly principal and interest payments of $28,670 until February 2016, bearing interest at the bank prime plus 0.75 percent. Of this amount, $1,808,663 was used to repay an existing mortgage facility with the balance directed to working capital. 4. Obtained a $20 million operating line facility which replaced the existing $10 million operating line facility. BUSINESS RISKS AND MANAGEMENT The oil and gas sector accounts for the majority of the Company s revenues. The petroleum service industry relies heavily on the levels of capital expenditures made by the oil and gas explorers and producers. These spending decisions are based on several factors including, but not limited to, hydrocarbon prices, production levels of current reserves and access to capital all of which can vary greatly. To minimize the impact of the oil and gas industry cycles, it is the Company s intention to focus on and develop its utilities customer base, particularly in Eastern Canada and the United States. In addition, the Company has found there are risks associated with doing business in foreign countries. With the current and continued expansion into the United States, the Company is exposed to movements in exchange rates. At present this exposure is not significant. Badger Daylighting Units by Region Badger Daylighting Revenue per Truck/Month ($) 23,300 19,000 24, Eastern Canada United States Western Canada Annual Report > 17

18 Safety is also one of the Company s concerns. The Company has programs in place to ensure it meets or exceeds current safety standards. It also employs a general manager of safety who is responsible for maintaining and developing the Company s safety policies. In addition, the general manager monitors the Company s operations to ensure they are operating in compliance with such policies. OUTLOOK Fiscal 2000 was a year of restructuring to build a foundation that will support continued expansion and effective execution of the strategic plans for each of Badger Daylighting and Delta Pipeline Limited. The Company is able to implement the following initiatives in 2001 as the result of building this foundation: Focus on strong utilization of our capital assets, specifically increasing revenue per Hydrovac truck per month and generating increased revenue in our pipeline construction operation by further developing our Facilities division. Continue expanding in the United States market by providing our Hydrovac services through corporate-run operations and marketing to the oil and gas sector. Maintain the initiative to develop the next generation of Badger for the United States market to ensure the Company continues to have the best Hydrovac unit in the marketplace. Continually improve the Delta bid process and cost controls to ensure the appropriate volume of work is being undertaken at profitable margins. In addition to the above, management will continue to pursue other opportunities in line with its core business of daylighting to increase the profitability of the Company. This will ultimately translate into enhanced shareholder value. 18 < Badger Daylighting Inc.

19 MANAGEMENT S STATEMENT OF RESPONSIBILITY The accompanying consolidated financial statements of Badger Daylighting Inc. have been prepared by management in accordance with generally accepted accounting principles. The financial information contained elsewhere in this report has been reviewed to ensure consistency with the financial statements. Management maintains systems of internal control designed to provide reasonable assurance that the assets are safeguarded. All transactions are authorized and duly recorded, and financial records are properly maintained to facilitate financial statements in a timely manner. The Board of Directors is responsible for ensuring that management fulfills its responsibilities for financial reporting and is ultimately responsible for reviewing and approving the financial statements. The Board carries out this responsibility principally through its Audit Committee. The Audit Committee of the Board of Directors has reviewed the financial statements with management and the external auditors. Ernst & Young LLP, an independent firm of chartered accountants, appointed as external auditors by the shareholders, have audited the financial statements and their report is included herein. Signed Greg Kelly, CA Vice President Finance, CFO March 1, 2001 AUDITORS REPORT To the Shareholders of Badger Daylighting Inc. We have audited the consolidated balance sheets of Badger Daylighting Inc. as at November 30, 2000 and 1999 and the consolidated statements of income (loss) and retained earnings (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in Canada. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these financial statements present fairly, in all material respects, the financial position of the Company as at November 30, 2000 and 1999 and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in Canada. Calgary, Canada January 19, 2001 (except for note 15 which is as of February 9, 2001) Signed: Ernst & Young LLP Chartered Accountants 2000 Annual Report > 19

20 CONSOLIDATED BALANCE SHEETS As at November $ $ Assets (notes 7 and 8) Current Cash 1,295,944 - Accounts receivable 16,524,698 10,612,164 Inventories (note 4) 2,428,200 2,062,084 Income taxes recoverable 913,565 4,605,629 Prepaid expenses 720, ,059 21,883,115 17,874,936 Capital assets (note 5) 54,599,325 56,115,457 Goodwill (note 6) 7,256,869 7,697,987 83,739,309 81,688,380 Liabilities and Shareholders Equity Current Bank indebtedness (note 7) 8,006,918 3,848,757 Accounts payable and accrued liabilities 9,446,929 6,840,883 Current portion of long term debt (note 8) 5,844,506 6,283,543 23,298,353 16,973,183 Long term debt (note 8) 15,020,797 21,382,601 Deferred income taxes 3,756,299 2,714,299 Shareholders equity Share capital (note 9) 41,201,083 42,386,948 Contributed surplus (note 10) 826,000 - Deficit (363,223) (1,768,651) 41,663,860 40,618,297 83,739,309 81,688,380 See accompanying notes On behalf of the Board: Signed: Martin Margolis Director Signed: Ken Mullen Director 20 < Badger Daylighting Inc.

21 CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND RETAINED EARNINGS (DEFICIT) For the years ended November $ $ Revenues 77,110,017 58,778,070 Direct costs 56,658,661 47,972,388 Gross margin 20,451,356 10,805,682 Expenses (income) Amortization of capital assets (note 3) 6,101,438 9,686,751 Amortization of goodwill 441, ,135 Loss on sale of capital assets 93,622 60,698 Interest Long term 1,970,711 1,488,412 Current 983, ,907 Selling, general and administrative 10,709,061 8,391,264 Write-off of software technology (note 10) - 5,933,042 Gain on sale of investment (note 10) (1,786,000) - 18,513,294 26,660,209 Income (loss) before income taxes 1,938,062 (15,854,527) Income taxes (recovery) (note 11) Deferred 1,042, ,231 Current (509,366) (4,531,963) 532,634 (4,188,732) Net income (loss) for the year 1,405,428 (11,665,795) Retained earnings (deficit), beginning of year (1,768,651) 9,897,144 Deficit, end of year (363,223) (1,768,651) Net income (loss) per share (note 12) Basic 0.07 (0.62) Fully diluted 0.07 (0.62) See accompanying notes 2000 Annual Report > 21

22 CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended November $ $ Operating Activities Net income (loss) for the year 1,405,428 (11,665,795) Add items not affecting cash: Amortization 6,542,556 10,127,886 Deferred income taxes 1,042, ,231 Loss on sale of capital assets 93,622 60,698 Write-off of software technology - 5,933,042 Gain on sale of investment (1,786,000) - Cash flow from operations 7,297,606 4,799,062 Net change in non-cash working capital 697,887 (6,777,718) 7,995,493 (1,978,656) Financing Activities Shares issued, net of share issue costs 126,135 9,756,303 Repayment of long term debt (14,734,178) (2,921,567) Proceeds from long term debt 7,933,337 12,559,900 (6,674,706) 19,394,636 Investing Activities Purchase of capital assets (6,891,580) (18,759,214) Proceeds on disposal of capital assets 1,408, ,170 Proceeds from gain on sale of investment 1,300,000 - (4,183,004) (18,337,044) Decrease in cash and cash equivalents during the year (2,862,217) (921,064) Cash and cash equivalents, beginning of year (3,848,757) (2,927,693) Cash and cash equivalents, end of year (6,710,974) (3,848,757) Cash and cash equivalents is comprised of Cash 1,295,944 - Bank indebtedness (8,006,918) (3,848,757) (6,710,974) (3,848,757) Interest paid 2,954,055 2,147,319 Income taxes paid (recovered) (4,201,430) 5,034,632 Cash flow from operations per share (note 12) Basic Fully diluted See accompanying notes 22 < Badger Daylighting Inc.

23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS November 30, 2000 and Nature of Business The Company is a vertically integrated public company incorporated under the laws of the Province of Alberta, which operates as a service company in the petroleum and utility industries. 2. Summary of Significant Accounting Policies These consolidated financial statements are stated in Canadian dollars and have been prepared in accordance with accounting principles generally accepted in Canada ( Canadian GAAP ). Because a precise determination of many assets and liabilities is dependent upon future events, the preparation of financial statements necessarily involves the use of estimates and approximations which have been made using careful judgment. The consolidated financial statements have, in management s opinion, been properly prepared within reasonable limits of materiality and within the framework of the accounting policies summarized below. Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries. Inventories Materials are valued at the lower of cost and net realizable value. Work-in-progress is valued at the lower of cost, determined on a unit cost basis, and net realizable value. Capital Assets Capital assets are recorded at cost. Amortization is provided on a straight line basis to recognize the cost less estimated salvage value of the capital assets over the estimated useful lives as follows: Land improvements 10% Buildings 5% Shoring equipment 5% Small tools 10% Shop and office equipment 10% Trucks and trailers 7% - 10% Leasehold improvements 20% Computers 25% Amortization of equipment under construction is not recorded until such time as the construction is completed and the assets have been put to use Annual Report > 23

24 Goodwill Goodwill arising from business acquisitions is being amortized on a straight line basis over twenty years commencing at the time of the acquisition. The evaluation for impairment of goodwill is based on a comparison of the carrying values of goodwill and associated operating assets to the estimated future net undiscounted cash flows. No writedown was required at November 30, 2000 and Daylighting Revenue Recognition The Company recognizes revenue from daylighting services when the service is complete. Construction Revenue Recognition Profits from construction contracts are recognized using the percentage of completion method. The percentage of completion is determined by relating the actual cost of work performed to date to the current estimated total cost of respective contracts. When the current estimated costs to complete indicate a loss, such a loss is recognized immediately. Revisions in costs and earnings or loss estimates during the course of the work are reflected during the accounting period in which the facts which cause the revision become known. The profits recorded for construction contracts in progress are based on estimates. By their nature, these estimates are subject to measurement uncertainty and the effect on the financial statements of changes in such estimates in future years could be significant. Manufacturing Revenue Recognition The Company recognizes revenue from manufacturing using the completed contract method, whereby income is recognized when the contracts are completed or virtually completed. Options The Company has one Stock Option Plan available to officers, directors and employees with grants under the Plan approved from time to time by the Board of Directors. Under the Plan, the exercise price of each option equals the market price of the Company s stock in accordance with Toronto Stock Exchange Guidelines, provides for vesting at the discretion of the Board and expiration of the options is five years from the date of grant. No compensation expense is recognized for grants under this Plan when stock or stock options are issued. Any consideration received by the Company on exercise of stock options is credited to share capital. Income Taxes The Company follows the deferral method of tax allocation accounting under which the income tax provision is based on income reported in the accounts. Under this method, the Company makes full provision for income taxes deferred primarily as a result of claiming capital cost allowances in excess of amortization. 24 < Badger Daylighting Inc.

25 Financial Instruments Financial instruments of the Company consist mainly of cash, accounts receivable, income taxes recoverable, bank indebtedness, accounts payable and accrued liabilities and long term debt. Except where disclosed otherwise, as at November 30, 2000 and 1999, there are no significant differences between the carrying values of these amounts and their estimated market values. The Company is exposed to foreign currency fluctuations in relation to its U.S. operations; however, management believes this exposure is not material to its overall operations. Foreign Currency Translation The subsidiary in the U.S. has been accounted for as an integrated foreign operation and has been translated using the temporal method. Monetary assets and liabilities of the Company are translated into Canadian dollars at rates of exchange in effect at the balance sheet date. Non-monetary items of integrated foreign operations are translated at historical exchange rates, unless such items are carried at market, in which case they are translated at the rate of exchange in effect at the balance sheet date. Revenues and expenses are translated at the average exchange rates for the fiscal period. Exchange gains or losses arising on translation are included in the consolidated statements of income (loss). 3. CHANGE IN ESTIMATE During 2000, the estimated life of certain trucks and trailers was changed from six to seven years to ten to fifteen years and the estimated life of shoring equipment was changed from ten years to twenty years. The change in estimate resulted in a reduction of amortization of capital assets for 2000 of $3,380,000 and an increase in net income after income taxes of $2,028,000 ($0.10 per share) from what otherwise would have been reported had the change not been made. The change has been applied prospectively. 4. INVENTORIES $ $ Materials 2,194,259 1,443,753 Work-in-progress 233, ,331 2,428,200 2,062, Annual Report > 25

26 5. CAPITAL ASSETS 2000 Accumulated Cost $ Amortization $ Net Book Value $ Land 1,283,953-1,283,953 Land improvements 430, , ,840 Buildings 5,822, ,753 4,919,736 Equipment under construction 863, ,629 Shoring equipment 2,170, ,379 1,781,196 Small tools 491, , ,899 Shop and office equipment 1,895, ,459 1,280,867 Trucks and trailers 62,107,684 18,599,235 43,508,449 Leasehold improvements 120,020 79,975 40,045 Computers 583, , ,711 75,769,384 21,170,059 54,599, Accumulated Cost $ Amortization $ Net Book Value $ Land 1,283,953-1,283,953 Land improvements 430,690 80, ,906 Buildings 5,822, ,608 5,210,881 Equipment under construction 1,667,705-1,667,705 Shoring equipment 2,043, ,236 1,681,983 Small tools 482, , ,408 Shop and office equipment 2,258, ,278 1,668,980 Trucks and trailers 57,313,885 13,902,183 43,411,702 Leasehold improvements 124,307 39,967 84,340 Computers 657, , ,599 72,083,993 15,968,536 56,115, GOODWILL $ $ Cost 8,822,757 8,822,757 Accumulated amortization (1,565,888) (1,124,770) 7,256,869 7,697, < Badger Daylighting Inc.

27 7. BANK INDEBTEDNESS A general assignment of all assets is pledged as collateral for the operating demand bank loan which is available up to $10,000,000 (see note 15) and bears interest at bank prime plus 0.5% (November 30, %; November 30, %) per annum. 8. LONG TERM DEBT Loan payable, repayable in monthly principal and interest payments of $108,063 until November, 2004, bearing interest at 8.59% and collateralized by chattel mortgages on certain capital assets. Loan payable, repayable in monthly principal and interest payments of $101,573 until July, 2004 bearing interest at 8.08% and collateralized by chattel mortgages on certain capital assets. Loan payable, repayable in monthly principal and interest payments of $163,150 until November, 2005 bearing interest at the one month bankers acceptance rate plus 2.80% and collateralized by chattel mortgages on certain capital assets. Loan payable, repayable in monthly principal and interest payments of $906 until February 10, 2001, bearing interest at 3.9% and collateralized by a truck. Commercial mortgage on land and building, repayable in monthly principal payments of $8,738 plus interest until May 1, 2003, bearing interest at bank prime plus 1% (November 30, %; November 30, %). Non-revolving demand loan, repayable in monthly principal payments of $108,333 until June 30, 2003, bearing interest at bank prime plus 0.75% (November 30, %; November 30, %) $ $ 4,376,648 5,256,000 3,856,859 4,725,617 7,827,045-3,609 13,251 1,826,138 1,930,988 1,575,004 4,558,337 Revolving demand loan, repayable in monthly principal payments of $100,000, bearing interest at bank prime plus 1% (November 30, %;. November 30, %). 1,400,000 2,600,000 Non-revolving term loan, repayable in monthly principal payments of $150,000 until December 15, 2002, bearing interest at bank prime plus 0.63% (November 30, %;November 30, %). Loan payable, repayable in monthly principal and interest payments of $14,189 until October 9, 2004, bearing interest at 8.4%. Current portion - 7,900, ,951 20,865,303 27,666,144 5,844,506 6,283,543 15,020,797 21,382, Annual Report > 27

28 Principal repayments on the above loans in each of the next five years is as follows: $ ,844, ,100, ,796, ,847, ,974,387 Remainder 1,301,887 20,865,303 The mortgage and loans payable are collateralized by a general security interest over the Company s assets, property and undertaking, present and future, which includes a fixed and floating charge debenture on all assets and undertakings of the Company and its subsidiaries in the amount of $40,000,000. The loan agreements also contain certain restrictive covenants with respect to the maintenance of certain financial ratios. As at November 30, 2000, the Company was not in compliance with respect to certain of these covenants. Subsequent to year-end, the Company obtained a new operating line facility of $20,000,000 and additional financing of $12,511,134 with different lenders (note 15). The proceeds will be used to replace the existing lender and as a result the Company will be in compliance with its debt covenants. 9. SHARE CAPITAL Authorized Unlimited number of common shares, no par value Unlimited number of preferred shares, no par value Number of Amount Common shares issued: Shares $ Balance November 30, ,488,329 32,355,645 Exercise of options 105, ,514 Public offering 1,950,000 10,042,500 Share issue costs (net of deferred income taxes of $275,000) - (340,711) Balance November 30, ,544,112 42,386,948 Exercise of options 160, ,135 Redemption and cancellation (note 10) (640,000) (1,312,000) Balance November 30, ,064,612 41,201, < Badger Daylighting Inc.

29 Options The Company has issued stock options to acquire common shares through its Stock Option Plan of which the following are outstanding at November 30, 2000: Weighted Average Exercise Price Shares $ Outstanding at beginning of the year 1,683, Granted during year 433, Exercised during year (160,500) 0.79 Forfeited during year (574,267) 5.46 Outstanding at year-end 1,382, Options exercisable at end of year 692, The following table summarizes information about the stock options outstanding at November 30, 2000: Weighted Average Number Remaining Number Outstanding Contractual Exercisable November 30, Life November 30, 2000 (years) 2000 Range of exercise prices $ , ,333 $ , $ , ,000 $ , ,000 $ , $3.25 2, ,000 $ , $ , ,798 $ , ,000 $ , ,000 $ , ,002 1,382, ,133 The Company had reserved a total of 2,048,902 shares for issuance under the stock option plan Annual Report > 29

30 10. BASELINE TECHNOLOGIES INC. Effective May 1, 1998, the Company acquired 51% of the outstanding voting common shares of Baseline Technologies Inc. ( Baseline ). Baseline s principal business activity is the development of subsurface software technology. Effective June 14, 1999 the Company acquired an additional 9% of the outstanding voting common shares. As a result of an evaluation of the Company s investment in Baseline s software technology at November 30, 1999, the Company determined the fair value to be nominal and wrote off the unamortized balance of $5,933,042. Effective May 5, 2000, the Company sold a 10.01% investment in Baseline for $800,000 cash, reducing its investment to 49.99%. Effective November 9, 2000, the Company sold a 33.05% investment in Baseline for total consideration of $986,000 consisting of cash proceeds of $500,000 and 640,000 of the Company s common shares valued at approximately $0.76 per share. The difference of $826,000 between the stated value of the common shares received and the value attributed to them as consideration was recorded as contributed surplus. The 640,000 common shares were subsequently cancelled. 11. INCOME TAXES The provision for income taxes recorded on the consolidated financial statements differs from the amount which would be obtained by applying the statutory income tax rate to income (loss) before income taxes as follows: $ $ Income (loss) before income taxes 1,938,062 (15,854,527) Statutory Canadian corporate tax rate 42.94% 44.62% Calculated expected income tax expense (recovery) 832,204 (7,074,290) Manufacturing processing deduction and non-deductible expenses (299,570) 2,885, ,634 (4,188,732) 12. NET INCOME (LOSS) AND CASH FLOW FROM OPERATIONS PER SHARE Basic net income (loss) and cash flow from operations per share were calculated on the basis of the weighted average number of shares outstanding for the year of 20,568,880 ( ,816,820). Fully diluted cash flow from operations per share reflect the dilutive effect of the exercise of the stock options outstanding as at November 30, Any potential exercise of these stock options would be anti-dilutive in The number of shares for the fully diluted calculation for 1999 was 19,796, < Badger Daylighting Inc.

31 13. SEGMENTED INFORMATION The Company s reportable operating segments are distinct business units that offer different products and services within the petroleum and utility industries. The Company has five reportable operating segments: corporate, daylighting services, pipeline construction, manufacturing and other. The corporate segment provides management and administration services to all of the operating segments. The daylighting services segment designs and manages hydro-vacuum trucks which reduce the inherent dangers and difficulties involved with exposing underground pipelines and utilities. The pipeline construction segment installs and constructs small-inch oil and gas pipelines plus facilities. The manufacturing segment produces and markets a wide variety of light and heavy industrial equipment for the oil and gas, utilities and construction industries. Included in the Company s other reportable segment are activities related to shoring, supplying parts and repair and maintenance services to the oil and gas industry. The accounting policies of the segments are the same as those described in the summary of significant accounting policies (Note 2). Geographically, the Company operates in Canada and the United States (US). The following is selected information for the years ended November 30, 2000 and 1999 based on these geographic segments Canada US Total Canada US Total $ $ $ $ $ $ Revenue 63,437,411 13,672,606 77,110,017 53,155,471 5,622,599 58,778,070 Direct costs 46,976,595 9,682,066 56,658,661 45,701,026 2,271,362 47,972,388 EBITDA (*) 10,130,413 1,304,260 11,434, ,430 1,467,290 2,353,720 Amortization of capital assets 4,793,930 1,307,508 6,101,438 8,668,091 1,018,660 9,686,751 Amortization of goodwill 441, , , ,135 Income (loss) before income taxes 1,953,192 (15,130) 1,938,062 (16,341,953) 487,426 (15,854,527) Capital assets 40,304,006 14,295,319 54,599,325 42,808,303 13,307,154 56,115,457 Goodwill 7,256,869-7,256,869 7,697,987-7,697,987 Total assets 62,470,482 21,268,827 83,739,309 69,010,662 12,677,718 81,688,380 Capital expenditures 3,731,584 2,355,920 6,087,504 8,313,561 11,111,685 19,425, Annual Report > 31

32 The following is selected segmented information for the years ended November 30, 2000 and 1999: Daylighting Pipeline 2000 Corporate Services Construction Manufacturing Other Total $ $ $ $ $ $ Revenue 10,448 38,759,193 29,985,764 5,021,853 3,332,759 77,110,017 Direct costs - 26,049,293 24,219,520 4,563,498 1,826,350 56,658,661 EBITDA (*) (1,669,989) 9,042,159 3,382, , ,067 11,434,673 Amortization of capital assets 141,350 3,234,770 2,246, , ,023 6,101,438 Amortization of goodwill - 19, , , ,118 Income (loss) before income taxes (3,534,302) 5,773,540 (252,530) (43,690) (4,956) 1,938,062 Total assets 2,728,152 40,769,796 25,427,300 11,978,441 2,835,620 83,739,309 Capital expenditures 86,941 5,904, ,993 16, ,596 6,891,580 Daylighting Pipeline 1999 Corporate Services Construction Manufacturing Other Total $ $ $ $ $ $ Revenue 24,732 24,960,603 28,265,735 2,496,742 3,030,258 58,778,070 Direct costs - 15,315,372 27,678,820 1,444,681 3,533,515 47,972,388 EBITDA (*) (3,537,841) 7,688,809 (2,183,171) 892,191 (506,268) 2,353,720 Amortization of capital assets 336,476 4,413,436 2,801, ,569 1,735,364 9,686,751 Amortization of goodwill - 19, , , ,135 Income (loss) before income taxes (5,392,178) 3,252,061 (5,779,742) 243,219 (8,177,887) (15,854,527) Total assets 5,189,442 34,266,941 25,561,964 12,545,649 4,124,384 81,688,380 Capital expenditures 172,809 14,546,949 3,904,120 18, ,869 19,425,246 * EBITDA represents earnings before interest, taxes, write off of software technology, depreciation and amortization. 32 < Badger Daylighting Inc.

33 14. COMPARATIVE FIGURES Certain comparative figures have been reclassified to conform with the current year s financial statement presentation. In 1999, the Statement of Cash Flows, prescribed by the Canadian Institute of Chartered Accountants was adopted on a retroactive basis in place of the Statement of Changes in Financial Position. 15. SUBSEQUENT EVENTS Subsequent to year-end the Company completed the following transactions: (a) Obtained debt financing in the amount of $1,511,134. The loan is repayable in monthly principal and interest payments of $33,196 until November 2005, bearing interest at 11.45% and collateralized by chattel mortgages on certain capital assets. (b) Obtained debt financing in the amount of $8,000,000. The loan is repayable in monthly principal and interest payments of $164,943 until February 2006, bearing interest at the one month bankers acceptance rate plus 3.15% and collateralized by chattel mortgages on certain capital assets. Of this amount, $2,350,005 was used to repay current term debt facilities with the balance going towards working capital. (c) Obtained a commercial mortgage on land and buildings in the amount of $3,000,000. The loan is repayable in monthly principal and interest payments of $28,670 until February 2016, bearing interest at bank prime plus 0.75%. Of this amount, $1,808,663 was used to repay a current mortgage facility with the balance going towards working capital. (d) Obtained a $20,000,000 operating line facility which replaced the existing $10,000,000 operating line facility Annual Report > 33

34 C O R P O R A T E INFORMATION Directors David Calnan, LL.B Partner Shea Nerland Calnan Martin Margolis, CA Chartered Accountant Ken Mullen President Melamaken Adventures Inc. George Watson Principal Northridge Canada Inc. Tor Wilson President & CEO Officers and Management Tor Wilson President & CEO Greg Kelly, CA Vice President Finance, CFO David Calnan, LL.B Corporate Secretary Head Office Badger Daylighting Inc. 815, 715-5th Avenue S.W. Calgary, Alberta T2P 2X6 Tel: (403) Fax: (403) Auditors Ernst & Young LLP Chartered Accountants Calgary, AB Bankers Toronto Dominion Bank Calgary, AB Registrar and Transfer Agent Computershare Investor Services Calgary, AB Solicitors Shea Nerland Calnan Calgary, AB Henderson Daily Indianapolis, IN Stock Exchange Listing Toronto Stock Exchange Trading Symbol BAD Designed and produced by Merlin Creative Group, Inc. Printed in Canada.

35 B O A R D O F DIRECTORS (Left to right) Martin Margolis, Chartered Accountant Tor Wilson, President & CEO David Calnan, LL.B, Partner, Shea Nerland Calnan Ken Mullen, President, Melamaken Adventures Inc. George Watson, Principal, Northridge Canada Inc.