IESCF Intercept Energy Services Inc (CE)

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

 

Not required.

ITEM 2. OFFER STATISTICS AND EXPECTED TIME TABLE

 

Not applicable.

ITEM 3. KEY INFORMATION

 

A. Selected Financial Data

 

The selected financial data presented below is derived from our financial statements for the fiscal years ended December 31, 2012, 2011and 2010 which were prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and examined by our independent auditors. The information set forth below should be read in conjunction with our audited annual financial statements and related notes thereto included in this annual report, and with the information appearing under the heading “Item 5 – Operating and Financial Review and Prospects”. All amounts are shown in Canadian dollars, unless otherwise specified.

			Years Ended December 31
			2013			2012				2011				2010
Total Revenues			2,103,514			$	518,733			$	-			$	-
Total Expenses			5,016,212			$	1,718,507			$	541,446			$	422,240
Other Items			12,680			$	528,267			$	11,409			$	200,104
Net Income (Loss) available to Common Shareholders			3,046,661			$	(1,728,041	)		$	(552,855	)		$	(622,344	)
Net Income (Loss) per share			3,033,981			$	(0.03	)		$	(0.02	)		$	(0.05	)
Diluted Net Income (Loss) per share			(.03)			$	(0.03	)		$	(0.02	)		$	(0.05	)
Dividends Declared per share			-				-			$	-			$	-
Total Assets			5,513,440			$	3,240,866			$	1,118,873			$	35,861
Total Liabilities			(7,077,106)			$	(1,383,556	)		$	(286,997	)		$	(313,447	)
Net Assets			1,563,666			$	1,857,310			$	831,876			$	(277,586	)
Additional Paid in Capital			5,646,571			$	4,146,934			$	4,075,087			$	4,075,087
Accumulated Comprehensive Income			-			$	53,195			$	53,195			$	53,195
Common Shares Capital			1,117,213			$	10,659,919			$	7,501,691			$	6,325,974
Shares To Be Issued			-			$	10,000			$	486,600			$	-
Accumulated Deficit			1,838,509			$	(13,012,738	)		$	(11,284,697	)		$	(10,731,842	)
Total Shareholders Equity (Deficit)			1,634,725			$	1,857,310			$	831,876			$	(277,586	)
Common Shares outstanding (1)			109,289,874				80,966,462				45,382,697				21,243,055
Weighted Average – Diluted Shares			92,417,996				68,038,758				23,574,760				13,058,736
Share Purchase Warrants (2)			44,048,683				40,388,663				15,398,333				15,398,333

 

1)	109,2897,874 at April 30, 2014
2)	44,048,683 at April 30, 2014

 

 

 

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The selected financial data presented below is derived from our financial statements for the fiscal years ended December 31, 2009 and 2008 which were prepared in accordance with U.S. GAAP and examined by our independent auditors.  This information is not comparable to the selected financial data presented above for years 2013, 2012, 2011 and 2010 which is derived from our financial statements for those fiscal years prepared in accordance with IFRS. All amounts are shown in Canadian dollars, unless otherwise specified.

 

		Years Ended December 31
			2009				2008
Total Revenues		$	-			$	-
Total Operating Expenses		$	930,892			$	2,171,689
Income tax expense (recovery)		$	-			$	-
Net Income (Loss) available to Common Shareholders		$	(930,892	)		$	(2,171,689	)
Net Income (Loss) per share		$	(0.17	)		$	(0.51	)
Diluted Net Income (Loss) per share		$	(0.17	)		$	(0.51	)
Dividends Declared per share		$	-			$	-
Total Assets		$	28,602			$	173,822
Total Liabilities		$	607,744			$	196,557
Net Assets		$	(579,142	)		$	(22,735	)
Additional Paid in Capital		$	3,621,500			$	3,424,280
Accumulated Comprehensive Income		$	53,195			$	53,195
Common Shares Capital		$	5,855,661			$	5,678,396
Shares To Be Issued		$	-			$	-
Accumulated Deficit		$	(10,109,498	)		$	(9,178,606	)
Total Shareholders Equity (Deficit)		$	(579,142	)		$	(22,735	)
Common Shares outstanding			5,844,722				5,107,329
Weighted Average – Diluted Shares			5,607,680				4,232,869
Share Purchase Warrants			1,566,829				2,121,837

 

EXCHANGE RATES

The following tables set out exchange rates between the Canadian dollar and the U.S. dollar for the periods indicated. These rates are provided solely for your convenience and are not necessarily the exchange rates that we used in this annual report or will use in the preparation of periodic reports or any other information to be provided to you. The exchange rates were obtained from the US Federal Reserve System website www.federalreserve.gov and are the noon buying rates in New York for cable transfers payable in Canadian dollars.

As of May 3, 2014, the rate for the conversion of Canadian dollars to U.S. dollars was C$1.0077 to U.S. $1.00.

The following tables set forth the rates of exchange in Canadian dollars per U.S. $1.00:

Previous Six Months		Dec/13				Apr/13				Mar/13				Feb/13				Jan/13				Dec/12
High Rate			1.0697				1.0270				1.0314				1.0286				1.0078				0.9958
Low Rate			1.0237				1.0107				1.0155				0.9959				0.9839				0.9841

 

Years Ended December 31		2013				2012				2011				2010				2009
Average rate during the period			1.0439				0.9858				0.9858				1.0353				1.1373

 

B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

 

Not applicable.

 

 

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D. Risk Factors

The following is a brief discussion of those distinctive or special characteristics of the Company's operations and industry which may have a material impact on the Company's business development, or constitute risk factors in respect of the Company's financial performance.

We lack an extensive operating history on which to base an evaluation of our performance.

Our business performance is difficult to evaluate because we have a limited operating history with our current range of operations. Our distributor/dealer license agreement with Inergy Plus Technologies Inc. was signed in December 2011, as was our distribution agreement with I-DES Inc. Our acquisition of Intercept Rentals was completed in March, 2012. In considering whether to invest in our common stock, you should consider that we starting earning revenues in 2012 and there is only limited historical financial and operating information available on which to base your evaluation of our expected performance.

Liquidity risk.

We have losses which may continue into the future. We have a history of operating losses since inception totaling $13,012,738 to December 31, 2012. There can be no assurances we will be profitable in the future. There is no assurance that the Company will be able to raise sufficient cash to meet its requirements.

We have been dependent on sales of our equity securities and on debt financing to meet our cash requirements. While we will require additional funding, we may not be able to obtain financing on favorable terms and a decline in the price of our common stock could affect our ability raise an adequate level of working capital.

There are a large number of shares underlying our warrants that may be available for future sale and the sale of these shares may depress the market price of our common stock.

As of April 30, 2014, we had 109,289,734  shares of common stock issued and outstanding, and share purchase warrants convertible into a further 44,038,663 shares of common stock. The future sale of shares that may be issued on the exercise of our stock purchase warrants could impact negatively on the market price of our common stock.

Future issuances of shares may adversely impact the value of our stock.

We may attempt to raise additional capital through the sale of common stock or convertible debt. Future issuances of common stock or convertible debt may dilute or potentially dilute your position in us.

We are authorized to issue unlimited preferred shares which, if issued, may reduce the price of our common shares.

Although no preferred shares are currently issued and outstanding, our directors are authorized by our Articles of Incorporation, as amended, to issue unlimited preferred shares in series without the consent of our shareholders. Our preferred shares, if and when issued, may rank senior to common shares with respect to payment of dividends and amounts received by shareholders upon liquidation, dissolution or winding up. The issuance of preferred shares in series and the preferences given the preferred shares must be made by a Resolution of Directors, but do not need the approval of our shareholders. The existence of rights, which are senior to common shares, may reduce the price of our common shares.

Because our common shares are a penny stock, trading in the common shares involves increased risks concerning price fluctuation, additional disclosure requirements and a lack of a liquid market.

Our shares will be "penny stocks" as that term is generally defined in the Securities Exchange Act of 1934 to mean equity securities with a price of less than $5.00.  Our shares thus will be subject to rules that impose sales practice and disclosure requirements on broker-dealers who engage in certain transactions involving a penny stock.

Under the penny stock regulations, a broker-dealer selling a penny stock to anyone other than an established customer or accredited investor must make a special suitability determination regarding the purchaser and must receive the purchaser's written consent to the transaction prior to the sale, unless the broker-dealer is otherwise exempt.  

 

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Because of these regulations, broker-dealers may encounter difficulties in their attempt to sell shares of our common stock, which may affect the ability of selling shareholders or other holders to sell their shares in the secondary market and have the effect of reducing the level of trading activity in the secondary market.  These additional sales practice and disclosure requirements could impede the sale of our securities.  This lower trading volume can cause price fluctuations.  In addition, the liquidity for our securities will be decreased, with a corresponding decrease in the price of our securities.  Accordingly, our shareholders will, in all likelihood, find it difficult more to sell their securities.

ITEM 4. INFORMATION ON THE COMPANY

 

A. History and Development of the Company

Intercept Energy Services Inc. (formerly Global Green Matrix Corp.) was incorporated under the Alberta Business Corporations Act on October 25, 1995. Incorporated as Poly Pacific International Inc. it traded as a Tier 1 Company on the TSX-Venture exchange. Poly Pacific was also listed in the USA on the Nasdaq as an over the counter Bulletin Board Company (OTCBB) under the symbol PYLPF, and listed on December 30, 2005.

Since the inception, the Company, through a wholly owned subsidiary, Poly-Pacific Technology Ltd (“PPT”) was a manufacture of plastic blast media using recycled waste and scrap plastics. PPT manufactured the blast media which was designed and used for the rapid removal of paints and coatings from sensitive surfaces such as airplanes, automobiles, compositions and electronic equipment. Plastic blast media was a proven environmentally friendly alternative to harsh chemical stripping agents and other hard abrasive materials. In  November of 2007, due to continuing losses as a result of decreasing market share and lack of demand for plastic media, the Company announced the closure of PPT and its operations in Ontario, California.

At the same time the Company had another active subsidiary, Everwood Agricultural Products International Inc. (Everwood”), which recycled the spent plastic and waste  plastic containers into plastic lumber for the agricultural industry. In December, 2006, as a result of continued losses and Everwood’s inability to obtain an adequate supply of raw materials to make posts and attain cost-efficient production, the Company decided to permanently cease its operations in St. Thomas, Ontario to focus its efforts upon a nylon reclamation project located in Kingston, Ontario, Canada. Based on a feasibility study completed in July 2008, that reclamation project was determined to be uneconomical and was not pursued.

In November, 2008, the Company signed a License Agreement with Energy Quest Inc. Under the terms of that agreement, the Company had the exclusive rights to commercialize and/or manufacture, market and distribute Energy Quest’s Gasification Technologies in the People’s Republic in Chana. The Company determined, however, that it was not in its best interests to pursue that business.

Management continued to investigate and search for opportunities in the industrial business sector and on February 25, 2010, changed its name to Global Green Matrix Corp. It also consolidated its shares on the basis of one new post consolidation share for every fifteen pre consolidation common shares. In --- the Company did a small private placement of $300,000 and focused its efforts on pursuing a unique and proprietary technology called the “ReCyclone Power Master”. It entered into an agreement with Inergy Plus Technologies Ltd. for license for the exclusive rights to market its technology for Canada. The Power Master was designed to process municipal solid waste and create a Refuse Derived fuel, thereby allowing cities to reduce their waste to landfills by as much as 90%.

Management continued to investigate and search for opportunities in the industrial business sector and on February 25, 2010, changed its name to Global Green Matrix Corp. It also consolidated its shares on the basis of one new post consolidation share for every fifteen pre consolidation common shares. In 2011 the Company did a small private placement of $300,000 and focused its efforts on pursuing a unique and proprietary technology called the “ReCyclone Power Master”. It entered into an agreement with Inergy Plus Technologies Ltd. for license for the exclusive rights to market its technology for Canada. The Power Master was designed to process municipal solid waste and create a Refuse Derived fuel, thereby allowing cities to reduce their waste to landfills by as much as 90%.

 

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Listing Information

 

Intercept Energy Services Inc. is an oil and gas service company whose primary business is providing an innovative and proprietary technology that heats water used in the fracturing process by oil and gas companies operating in Canada and the United States. It was first listed in Canada and trades as a Tier 1 company on the TSX Canadian Venture Exchange (TSX-V:IES), which is its primary exchange. The Company also trades on the Over The Counter Bulletin Board (OTCBB: IESCF).

 

The address of our principal executive offices is 600-666 Burrard Street Vancouver BC.   The name and address of our registered agent in Canada is:  Davis LLP, Livingston Place, 1000-250 2nd St. SW, Calgary, Alberta, T2P 0C1. The company’s administrative office is located at 943 Canso Drive, Gabriola, British Columbia, Canada V0R 1X2  250-247-8689.

B. Business Overview

 

Intercept Rentals

On March 20, 2012, the Company completed a share purchase agreement to acquire all of the issued and outstanding shares of 1503826 Alberta Ltd., carrying on business as “Intercept Rentals”, from arm’s length third parties, subject to TSX Venture Exchange final approval, now received. Under IAS, the deemed purchase price of $1,620,000 (per agreement - $1,440,000) was satisfied by the issuance of 12 million common shares of the Company at a deemed price of $0.12 per share. As required by the purchase agreement, the common shares were held in escrow pursuant to the terms of a voluntary share escrow agreement and released, as to 1/3 of such amount, on the 4, 8 and 12 month anniversaries of the closing date. In addition, the Company has granted to the former shareholders of Intercept Rentals, or their nominee, a 10 per cent royalty on the gross revenues from the operation of the frac water heating technology for a period of 10 years, at which time it expires.

 

Intercept Rentals provides equipment to support the oil industry with products that focus on efficiency as well as safety for the workers. The latest addition to Intercept is a Frac Water Heating System which is safe to operate, safe to the well site infrastructure, and safe to the environment.  The units not only burn the fuel cleanly and completely but deliver almost all of the heat to the water being heated, which we believe makes the system the safest and most environmentally friendly heating unit available.  For our customers this means increased work efficiency, decreased service costs and a healthier environment.

Intercept Rental’s new heating technology called “BIG HEAT”, is a patent pending propane powered Frac Water Heating System that provides a safer, and more efficient heating method than the traditional methods used today by the oil & gas companies and their fracking operations.

The technology minimizes the possibility of on-site injuries or accidents that have occurred with the traditional methods of heating water. All BIG HEAT units have numerous safety shutoffs and little to no radiant heat emanating from the burner that is located in an encased chamber.

The Company believes that to participate in the growing $750 Billion dollar oil and gas services industry, its proprietary Frac Water Heating System along with the company’s business plan to deploy additional BIG HEAT units throughout Canada & USA is the fastest route to generating new income and growth, and adding value to the company.

Intercept’s “Power Tongs” have an open mouth design capable of clamping pipes from 1-11/16” to 3-1/2” (outside diameters), and can join pipes of different diameters.  The Power Tongs are hauled in 16’ enclosed trailers, which house either a diesel powered air-over hydraulic power pack or a diesel-powered electric-over hydraulic power pack. Each unit has over 100’ of hydraulic hose.

Intercept currently has six Thru-Tubing Power Tong Units:

·	2 Diesel Powered, Air over Hydraulic Driven
·	2 Diesel Powered, Electric over Hydraulic Driven

·	2 Diesel over Hydraulic Driven

Power Tongs are designed to, among other things:

§	Increase work efficiency
§	Decrease service costs (eliminating potential Fishing)

§	Reduce lost man-hours due to injury
§	Comply with all OHS rules and regulations

On January 6, 2014 the Company completed a vertical short-form amalgamation pursuant to the Business Corporations Act (Alberta) with its wholly owned operating subsidiary 1503826 Alberta Ltd. operating as Intercept Rentals. The assets, obligations and liabilities of Intercept Rentals were assumed by Intercept Energy Services Inc. No securities of the Company were issued in connection with the amalgamation and the share capital remains unchanged. The amalgamation was undertaken in order to simplify the corporate structure of the Company and to reduce administrative costs. The amalgamation is not viewed to have any significant effect on the operating business of the Company.

 

 

 

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C. Organizational Structure

The Company’s only active subsidiary is 1503826 Alberta Ltd., carrying on business as “Intercept Rentals”, of which the Company owns 100%. That company, incorporated in the province of Alberta, Canada, was acquired in March, 2012.

 

D. Property, Plants and Equipment

 

The Companies equipment includes what was including in the acquisition of 1503826 Alberta Ltd carrying on business as “ Intercept Rentals. The equipment is described as follows:

·

7 Little Jerk Mini Power Tong Units

·

2008 Chevy Silverado

The Company also acquired and owns a total of 4 frac water heating units, one a trailer mounted unit acquired in February 2013, and 3 truck mounted units. An additional truck was purchased in 2013 but the Company did not take delivery until February 2014.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion and analysis should be read in conjunction with our audited financial statements for the year ended December 31, 2013 and notes thereto which are included herein. Our financial results are now being reported in accordance with International Financial Reporting Standards (“IFRS”). As a result, accounting policies, presentation, financial statement captions and terminology used in this discussion and analysis may differ from those used in previous financial reporting.

Management is responsible for the preparation and integrity of the financial statements, including the maintenance of appropriate information systems, procedures and internal controls and to ensure that information used internally or disclosed externally, including the financial statements and management discussion and analysis (“MD&A”), is complete and reliable.  The Company’s board of directors follows recommended corporate governance guidelines for public companies to ensure transparency and accountability to shareholders.  The board’s audit committee meets with management on a quarterly basis to review the financial statements including the MD&A and to discuss other financial, operating and internal control matters.

 

The Company’s acquisition of Intercept Rentals and its licensed technology for heating water used be oil and gas companies in hydraulic fracturing in the main focus of the Company going forward. The technology used in our trailer – mounted water heating unit and our 4 truck units is very efficient ad has a significantly lower operating cost than our competitors currently in the market.

The financial information in this report is not necessarily indicative of our future operating results or financial condition.

A. Operating Results

Year Ended December 31, 2013 Compared to Year Ended December 31, 2012

This review of the results of operations should be read in conjunction with the consolidated financial statements for the year ended December 31, 2013:

 

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	Years Ended December 31
		2013				2012
Total Revenues		$	2,103,514			$	518,733
Total Expenses		$				$	1,718,507
Other Items		$				$	528,267
Net Income (Loss) available to Common Shareholders		$	(2,962,921)			$	(1,728,041	)
Net Income (Loss) per share		$				$	(0.03	)
Diluted Net Income (Loss) per share		$	(0.03)			$	(0.03	)
Dividends Declared per share		$	-			$	-
Total Assets		$	5,513,440			$	3,240,866
Total Liabilities		$	7,077,106			$	(1,383,556	)
Net Assets		$				$	1,857,310
Additional Paid in Capital		$				$	4,146,934
Accumulated Comprehensive Income		$				$	53,195
Common Shares Capital		$				$	10,659,919
Shares To Be Issued		$				$	10,000
Accumulated Deficit		$				$	(13,012,738	)
Total Shareholders Equity (Deficit)		$				$	1,857,310
Common Shares outstanding (1)			109,289,739				80,966,462
Weighted Average – Diluted Shares							68,038,758
Share Purchase Warrants (2)							40,388,663

 

Summary of Unaudited Quarterly Results

The following table presents the unaudited selected financial data for each of the last eight quarters ended December 31, 2013 before effect to the 2012 year end restatements (please refer to Note 23 of the consolidated financial statements):

 

($)		Dec 31, 2013				Sep 30, 2013				June 30, 2013				Mar 31, 2013				Dec 31, 2012				Sep 30, 2012				June 30, 2012				Mar 31, 2012
Total assets			5,513,440				4,447,211				3,753,307				3,935,200				3,240,866				3,505,868				3,875,234				3,977,081
Net working capital			(3,810,854	)			(459,914	)			(946,619	)			(856,013	)			(913,811	)			(773,786	)			(472,742	)			678,721
Revenue			696,421				341,232				128,597				937,264				344,082				31,363				24,718				118,570
Net loss			(1,403,539	)			(659,484	)			(783,342	)			(116,556	)			(653,068	)			(469,049	)			(381,317	)			(224,607	)
Basic and diluted loss per share			(0.01	)			(0.01	)			(0.01	)			(0.00	)			(0.01	)			(0.01	)			(0.01	)		nil

 

The variation between the quarters is due to changes that reflect the change in corporate and business development activities during those quarters. In addition, the variation in loss over the fiscal quarters is also attributable to write-down of licenses and acquisition of and Intercept Rentals.

 

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B. Liquidity and Capital Resources

As at December 31, 2013, the Company had a cash balance of $8,845 (December 31, 2012 - $40,887) to settle current liabilities of $ 3,810,854 (December 31, 2012 - $1,084,438).

 

·

On April 29, 2014, the Company entered into a loan agreement with an arm’s length third party lender.  Pursuant to the loan agreement, the lender has agreed to make revolving credit loans to the Company in the principal amount of up to $1,000,000, of which $686,500 had already been advanced to Intercept. The amount of the loan is unsecured and bears interest at the rate of 12% per annum. The term of the agreement is for two years and provides that at any time after July 29, 2014, the lender is entitled to demand repayment of the outstanding amount of the loan. The proceeds from the loan will be used to retire accounts payable. In consideration for the lender agreeing to provide the loan, the Company has issued 900,000 common shares at a deemed price of $0.05 per share, subject to final approval of the TSX Venture Exchange. The Bonus Shares will be subject to a hold period that expires on August 30, 2014.

·

On February 28, 2014 Company entered into a lease arrangement to lease a truck and heating unit for 50% of the operating income of the unit.

In June 2013 the Company arranged a $2.0 million equipment lease credit facility with an interest rate of approximately 5%, and in 2013 drew $1,969,503 on the facility in finance leases.

 

The Company believes that the remaining balance of cash will not be sufficient to meet its current working capital requirements over the fiscal year and any shortfall that may occur will need to be funded through the issuance of common shares and loans from related parties.

The Company expects that any property and equipment expenditures incurred, based on future needs, will be funded from working capital and/or from operating or capital leases.

C. Research and Development, Patents and Licenses

1)

On December 10, 2011, the Company signed a definitive Distribution/Dealer License Agreement with Inergy Plus Technologies Inc. (“Inergy Plus”). The agreement provides the Company with the exclusive right to utilize Inergy Plus’ technologies for Canada including the right to license, sell, operate and provide warranty services. The primary technology is called the ReCyclone Advanced Gyroscopic Mill, also called the “PowerMaster.” The license to the Company includes all current and future applications for the Power Master as registered with the United States Patent and Trademark office and all present and future intellectual property rights related to Inergy’s technologies during the 10 year term of the agreement. At December 31, 2012 the Company did not expect to derive any further economic benefit from the Power Master license and decided to write off the net book value of $101,555 to nil.   In 2013 the Company entered into an agreement with Inergy Plus to end and transfer its exclusive license agreement. The Company then transferred the exclusive license to 0 Waste 2 Energy Canada Ltd. (“0 Waste”) and 0 Waste agreed to pay the Company the sum of $150,000 payable in instalments on the sale of the first three units of the PowerMaster in the licensed area. The $150,000 represents contingent consideration and the Company cannot reasonably determine when or if the sale of the three units will occur. The contingent consideration has not been recognized.

 

2)

On December 23, 2011, the Company signed a Distribution Agreement with I-Des Inc. and DryVac Services Canada Inc. (“I-Des and DryVac”). The Distribution Agreement gives the Company the exclusive right to exploit the technologies developed and owned by I-Des and DryVac for a period of 2 years for all of Canada, in return for a onetime payment in the amount of $250,000. The Distribution Agreement allows for renewal of the term for an additional two (2) years provided that 60 days notice is given by the Company and that it is not in default with any terms of the agreement, one of which states that the Company will sell a minimum of four (4) DryVac units per year.

 

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On January 23, 2012, the Company signed an amendment to the Distribution Agreement to obtain additional rights to sell DryVac units in the State of Utah, USA. In consideration of the additional territory, the Company paid an additional distributor fee to I-Des and DryVac in the amount of US$150,000.   As the timing of the expected economic benefits of the licenses could not be reasonably determined, the licenses were amortized on a straight line basis determined by their terms.   As at December 31, 2012, the Company evaluated the business relationship with I-Des and DryVac and due to the lack of sale potential for these technologies in Canada, the Company decided to write off the net book of these licences of $392,253 to $nil.

 

3)

On March 20, 2012, the Company acquired all of the issued and outstanding shares of 1503826 Alberta Ltd. carrying on the business as “Intercept Rentals” from arm’s length third parities pursuant to a share purchase agreement. The purchase price included a technology asset valued at $2,714,886 related to “BIG HEAT” technology.  As at December 31, 2012 the Company tested the carrying value of the technology asset and as the carrying value of this technology asset was higher than the recoverable value, the Company decided to write off the carrying value of $2,714,886 to $nil.

D. Trend Information

2013 was a successful year for Intercept as it was able to secure over $3.8 million of new funding and invested in approximately $3.4 million in new equipment.

 

In the fourth quarter of fiscal 2013 the Company had 4 units in operation and as a result, revenue for the fourth quarter was higher at $0.7 million compared to $0.3 million for the same quarter in fiscal 2012; an increase of 133 percent. Revenue for the year was $2.1 million compared to $0.5 million for the previous year, an increase of 320 percent.

 

Net loss before other items for the current year was $2.9 million compared to $4.8 million for the previous year.  Current year net loss before other items included $1.1 million of royalty expenses compared to only $0.01 million for the same year last year.

 

E. Off-balance Sheet Arrangements

There are no off-balance sheet arrangements.

F. Tabular Disclosure of Contractual Obligations

Not applicable.

Critical Accounting Policies and Estimates

Basis of preparation and accounting policies

Our company has prepared its financial statements included with this report in accordance with IFRS as issued by the International Accounting Standards Board (“IASB”). IFRS represents standards and interpretations approved by the IASB and are comprised of IFRS, International Accounting Standards (“IAS’s”), and interpretations issued by the IFRS Interpretations Committee (“IFRIC’s”) and the former Standing Interpretations Committee (“SIC’s”). Our company adopted IFRS in accordance with IFRS 1 – First-time Adoption of International Financial Reporting Standards (“IFRS 1”) with a transition date of January 1, 2010. Our financial statements were previously prepared in accordance with U.S. GAAP.

The financial statements have been prepared in accordance with IFRS standards and interpretations effective as of December 31, 2013. Note 2 to the consolidated financial statements for the year ended December 31, 2013 provides details of significant accounting policies.

Critical Accounting Estimates

The preparation of the Company’s financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Estimates and assumptions are continuously evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. However, actual outcomes can differ from these estimates.

 

 

 

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Areas requiring a significant degree of estimation and judgment relate to amortization of licenses, depreciation of property, plant and equipment, fair value measurements for financial instruments and share-based payments and other equity-based payments, and the recoverability and measurement of deferred tax assets and liabilities.  Actual results may differ from those estimates and judgments.

Future Accounting Changes

Certain pronouncements were issued by the International Accounting Standards Board (“IASB”) or the International Financial Reporting Interpretations Committee (“IFRIC”) that are mandatory for accounting periods after December 31, 2012. The Company does not expect the below standards to have a material impact on the financial statements, although additional disclosures may be required.

   

The following new Standards were issued by the IASB, and are effective for annual periods beginning on or after January 1, 2013, with the exception of IFRS 9 which is effective January 1, 2015. Early application is permitted if all five Standards are adopted at the same time.

i)	Consolidated Financial Statements

IFRS 10 Consolidated Financial Statements (“IFRS 10”) will replace IAS 27 Consolidated and Separate Financial Statements, and SIC 12 Consolidation – Special Purpose Entities. The portion of IAS 27 that deals with separate financial statements will remain. IFRS 10 changes the definition of control, such that the same consolidation criteria will apply to all entities. The revised definition focuses on the need to have both “power” and “variable returns” for control to be present. Power is the current ability to direct the activities that significantly influence returns. Variable returns can be positive, negative or both. IFRS 10 requires continuous assessment of control of an investee based on changes in facts and circumstances.

ii)	Joint Arrangements

IFRS 11 Joint Arrangements (“IFRS 11”) will replace IAS 31 Interests in Joint Ventures, and SIC 13 Jointly Controlled Entities – Non-monetary Contributions by Venturers. IFRS 11 defines a joint arrangement as an arrangement where two or more parties contractually agree to share control. Joint control exists only when the decisions about activities that significantly affect the returns of an arrangement require the unanimous consent of the parties sharing control. The focus is not on the legal structure of joint arrangements, but rather on how the rights and obligations are shared by the parties to the joint arrangement. IFRS 11 eliminates the existing policy choice of proportionate consolidation for jointly controlled entities and now requires equity method accounting. In addition, the Standard categorizes joint arrangements as either joint operations or joint ventures.

iii)	Disclosure of Interests in Other Entities

IFRS 12 Disclosure of Interests in Other Entities (“IFRS 12”) will replace the disclosure requirements currently found in IAS 28 Investment in Associates, and is the new Standard for disclosure requirements for all forms of interests in other entities, including subsidiaries, joint arrangements, associates and unconsolidated structured entities, including information about the significant judgments and assumptions that it has made in determining whether it has control, joint control or significant influence in another entity. IFRS 12 sets out the required disclosures for entities reporting under IFRS 10 and IFRS 11.

iv)	Separate Financial Statements

The new IAS 27 Separate Financial Statements (“IAS 27”) has been updated to require an entity presenting separate financial statements to account for those investments at cost or in accordance with IFRS 9 Financial Instruments. The new IAS 27 excludes the guidance on the preparation and presentation of consolidated financial statements for a group of entities under the control of a parent, which is within the scope of the current IAS 27 Consolidated and Separate Financial Statements, and is replaced by IFRS 10.

v)	Investments in Associates and Joint Ventures

The new IAS 28 Investments in Associates and Joint Ventures (“IAS 28”) has been updated and it is to be applied by all entities that are investors with joint control of, or significant influence over, an investee. The scope of the current IAS 28 Investments in Associates does not include joint ventures.

 

 

 

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vi)	IFRS 13 Fair Value Measurement (“IFRS 13”)

 

IFRS is issued by the IASB in May 2011, and is effective for annual periods beginning on or after January 1, 2013. Early application is permitted. IFRS 13 was issued to remedy the inconsistencies in the requirements for measuring fair value and for disclosing information about fair value measurement in various current IFRSs. IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, i.e. an exit price.

vii)	IFRS 9 Financial Instruments (“IFRS 9”)

In November 2009, the IASB published IFRS 9, which covers the classification and measurement of financial assets as part of its project to replace IAS 39, “Financial Instruments: Recognition and Measurement”. In October 2010, the requirements for classifying and measuring financial liabilities were added to IFRS 9. Under this guidance, entities have the option to recognize financial liabilities at fair value through earnings. If this option is elected, entitles would be required to reverse the portion of the fair value change due to own credit risk out of earnings and recognize the change in other comprehensive income.

 

 

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES  

 

A. Directors and Senior Management

 

Randy Hayward, B. Comm, LLB. – President, Chief Executive Officer, and Director

 

Randy Hayward maintained a successful law practice in Edmonton, Alberta for 20 years. During the latter phase of his law practice, he founded and managed Canadian Dispute Resolution (Alberta) Ltd and marketed the service of mediation to the legal community and the insurance industry. Mr. Hayward also earned his Diploma in Counseling at P.D. Seminars from the Haven Institute on Gabriola Island, B.C. After relocating to the west coast from Edmonton, he has worked with numerous private and public companies for 15 years, being responsible for fund raising, strategic planning and business development in various positions. Mr. Hayward has been a consultant to a number of successful public companies trading on the TSX Venture Exchange, raising investment capital and working in corporate communications, business development and investor relations. Mr. Hayward has been President of the Company since August, 2006.

Richard Oravec, Director

 

Mr. Richard Oravec, a resident of New York, holds an MBA from Fordham University and a BA from Boston University. Mr. Oravec is a seasoned financial engineer of emerging technology companies, having successfully structured corporate finance syndications and private placements in small and medium sized public and private companies. Through his diverse network in the public and private sectors, Mr. Oravec brings to the Company his experience and resources in the raising of capital, creating investment structures, strategic planning, marketing and development, and developing strategic business alliances for accelerated growth.

John Anderson, Director

Mr. Anderson holds a B.A. from the University of Western Ontario and is the co-founder of Aquastone Capital Advisors Limited Partnership, a USA based gold investment fund. Mr. Anderson is an Entrepreneur with over fifteen years of business experience in the capital markets. His primary areas of expertise are business financing, business development, merger and acquisition. He has extensive experience in working in Asia, Europe and Canada. Mr. Anderson's extensive background and experiences give him a unique platform from which to make business decisions and create opportunities.

Herbert Rainford-Towning, Director

Mr. Towning has been on the Company’s advisory Committee since February 2012. Mr. Towning is university educated at Nottingham University and a postgraduate of the London School of Economics. He joined CT Bowring & Co in 1956 and worked with various Banking Houses in London, leaving the UK in 1974 to commence an international banking career in Europe, the United States, Bahamas and the Arabian Gulf with the International Investment Corporation Bahrain until 1994.

In the last few years, Mr. Towning has become involved in environmental issues particularly waste management and recycling. He founded OWaste2Energy Company Ltd. in the UK with a waste to energy technology in Wales. This system is now operational in Mexico through his Mexican Company OWaste Mexico de CV which has joint ventures with certain Municipalities in Mexico.

Mr. Towning’s extensive background and experience provides him a unique ability to make business decisions and create opportunities.

 

 

 

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Marvin Jones, Director

 

Mr. Jones is an established oil & gas executive with over 50 years of industry experience, notably 30 years of management in the drilling contracting industry.

Mr. Jones has been a successful consultant to the oil & gas industry since 2002, having worked on major national and international projects with companies such as Griffiths Energy Ltd. Kodiak Energy Inc., Thomson Industries, Challenger Drilling, and Trinidad Drilling Ltd.

Through 1997 to 2002; Mr. Jones served on the board of Trinidad Drilling Ltd. and acted as the President for three years.  From 2005 to 2008 he also served as a Director of Kodiak Energy Inc.

Bill Cromb, Chief Financial Officer

Mr. Cromb is an experienced financial executive with well over 30 years of varied finance experience. He is a Chartered Accountant with a background including reporting, financings, treasury, risk management, mergers and acquisitions and other finance and administrative functions. He has served at Provident Energy Trust, Beau Canada Exploration, North West Upgrading, Canterra Energy as well as other organizations. Mr Cromb has extensive cross border experience in acquisitions, dispositions, financings and operations that the Company feels will enhance and help grow its current business model.

B. Executive Compensation

 

The following table sets out the compensation provided to our directors and senior management for performance of their duties during the fiscal year ended December 31, 2012:

Summary Compensation Table

Name and Principal Position	Period Ended December 31		Salary (C$)				Bonus (C$)				Stock Awards (C$)				Option Awards (C$)				Non-Equity Incentive Plan Compensation (C$)				All Other Compensation (C$)				Total (C$)
Randy Hayward, Director and Chief Executive Officer	2013			168,000				-				-				-				-				-				168,000

 

Our company does not have any pension or retirement plans, nor does our company compensate its directors and officers by way of any material bonus or profit sharing plans.

The Company follows the policies of the TSX Venture Exchange, under which it is authorized to grant options to executive officers and directors, employees and consultants enabling them to acquire up to 10% of the issued and outstanding common shares of the Company.  The exercise price of each option equals the market price of the Company’s common shares as calculated on the date of grant.  The options can be granted for a maximum term of 5 years.  The vesting period for all options is at the discretion of the board of directors.

 

As of December 31, 2013 there were 9,275,000 stock options outstanding.

 

For the year ended December 31, 2013

 

1.

On January 7, 2013, the Company granted 2,600,000 stock options at a price of $0.10 per common share to directors, officers and consultants of the Company. The option grant will vested immediately, exercisable until January 7, 2017.

2.

On March 5, 2013, the Company granted 200,000 options at a price of 0.10 per share to a consultant of the Company. The option grant will vest quarterly over 12 months, exercisable until March 5, 2017.

3.

On May 1, 2013 the Company granted 4,400,000 options at a price of 0.10 per share to Directors, officers and consultants of the Company. The option grant vested immediately on date of grant, exercisable until May 1, 2017.

 

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4.

On May 1, 2013, the Company granted 2,275,000 options at a price of 0.10 per share to consultants of the Company. The option grant will vest quarterly over 12 months, exercisable until May 1, 2017.

5.

On May 1, 2013, the Company granted 1,200,000 options at a price of 0.10 per share to a consultant of the Company. The option grant will vest quarterly over 24 months, exercisable until May 1, 2017.

6.

On July 1, 2013 the Company granted 400,000 options at a price of $0.10 per share to consultants of the Company which vested immediately on the date of grant, exercisable until July 1, 2018.

7.

On September 13, 2013 300,000 options were exercised at an exercise price of $0.10 of those issued May 1, 2013.

8.

On September 23, 2013 the Company canceled 2,000,000 million options granted to a consultant at an exercise price of $0.10. The options were part of the grant made on May 1, 2013 to consultants of the Company.

For the year ended December 31, 2012

 

On December 5, 2012, the Company granted 500,000 stock options at a price of $0.15 per common share to an employee of the Company, exercisable until December 5, 2017.

 

The total share-based expense recognized during the year ended December 31, 2013, under the fair value method was $747,338 (2012 - $3,726). The unamortized balance was $180,756 (2012 - $nil).

 

C. Board Practices

 

National Policy 58-201 Corporate Governance Guidelines (the “ National Policy ”) recommends that boards of directors of reporting issuers be composed of a majority of independent directors.  The Board of Directors is currently comprised of six (6) directors, each of whom is proposed for election at the annual general meeting.  Pursuant to the Terms of Reference, the Board is responsible for assessing director independence.  The Board of Directors has assessed the independence of each director in accordance with National Instrument 58-101 – Disclosure of Corporate Governance Practices and MI 52-110.  Following this assessment, the Board concluded that four of the  directors, being Messrs. Oravec, Anderson, Rainford-Towning, and Jones are independent.  Mr. Hayward is not considered independent by virtue of his executive positions with the Corporation.

The Corporation and the Board of Directors recognize the significant commitment involved in being a member of the Board of Directors.  The Board of Directors generally meets as the need arises.  The frequency and length of meetings and the nature of agenda items depend upon the circumstances. When held, meetings are generally lengthy, detailed and well attended, and are conducted in an atmosphere that encourages participation and independence.  In order to promote candid discussion among the independent directors, the independent directors determine at every board meeting whether an in-camera session is required, from which the non-independent directors, and any management invitees in attendance are excused.

In accordance with the Articles of the Company the number of directors shall be such number not less than one as the Company by ordinary resolution may from time to time determine and each director shall hold office until the next annual general meeting following his or her election or until his or her successor is elected. The Company has six directors.

 

The officers of the Company are elected by the Board of Directors as soon as possible following each annual general meeting and shall hold office for such period and on such terms as the board may determine. Executive officers are appointed by and serve at the discretion of the Board of Directors. Mr. Hayward was appointed President of the Corporation on November 4, 2006.

 

The members of the Company’s Audit Committee are appointed by the Board of Directors as soon as possible following each annual general meeting. The current audit committee members are Richard Oravec (independent), John Anderson and Marvin Jones (independent). The members of the Company’s Compensation Committee are appointed by the Board of Directors as soon as possible following each annual general meeting. The current compensation committee members are Richard Oravec, John Anderson (independent) and Marvin Jones (independent).

 

The Company has no arrangements in place for provision of benefits to its directors, or upon their termination, other than management fees to Mr. Hayward as shown in the schedule above. We did not pay any other compensation to executive officers or directors during the last completed financial year. Costs for the use of home offices by officers and consultants were reimbursed in the year ended December 31, 2013. Directors were also reimbursed for reasonable expenses.

 

 

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D. Employees

 

At December 31, 2012, our subsidiary   Intercept Rentals had 10 employees.

E. Share Ownership

The authorized capital of the Company consists of an unlimited number of common shares without nominal or par value and an unlimited number of preferred shares.

Common Shares, Warrants and Options:

At December 31, 2013, there were 109,289,734 shares outstanding. As at December 31, 2012, the number of issued common shares was 80,966,462, compared to 45,382,697as at December 31, 2011.  No preferred shares have been issued.

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

 

A. Major Shareholders

As of December 31, 2013, no shareholder is known by us to be a beneficial owner of more than five (5%) of our issued and outstanding Common Shares.

Voting rights of major shareholders are no different than the voting rights of other shareholders

To the best of our knowledge, the Company is not owned or controlled, either directly or indirectly, by another corporation, government, or any other natural or legal persons. There are no arrangements, known to the Company, the operation of which may, at a subsequent date, result in a change of control of the Company.  

B. Related Party Transactions

 

Key management personnel compensation

		Years ended
		December 31, 2013				December 31, 2012
Short-term employee benefits - management		$	192,000			$	120,000
Office rent			3,800				3,800
		$	195,800			$	123,800

The amounts charged to the Company for the services provided have been determined by negotiation among the parties and, in certain cases, are covered by signed agreements.

 

 

 

 

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Related party balances

The following amounts due to related party are included in trade and other payables:

		December 31, 2013				December 31, 2012
Officer of the Company		$	27,198			$	1,044

 

These amounts are unsecured, non-interest bearing and have no fixed terms of repayment.

C. Interests of Experts and Counsel

 

Not applicable.

ITEM 8. FINANCIAL INFORMATION

 

A. Consolidated Statements and Other Financial Information

 

See Item 18. Financial Statements, which includes our audited financial statements and notes.

Legal Proceedings

 

Our management is not aware of any legal or arbitration proceedings, including those related to bankruptcy, receivership or similar proceedings and those involving any third party, which may have, or have had in the recent past, significant effects on the Company’s financial position or profitability. This includes governmental proceedings pending or known to be contemplated.

Dividend Policy

The Company has neither declared nor paid any dividends to date on its outstanding shares. The Company intends to retain any future earnings to finance the development of its properties, and accordingly, does not anticipate paying any dividends in the foreseeable future.

B. Significant Changes

 

We are not aware of any significant changes since the date of our annual financial statements included in this document that are not otherwise disclosed in this report.

 

ITEM 9. THE OFFER AND LISTING

 

A. 4. Price History

The principal trading market for the Company's Common Shares is the TSX Venture Exchange (TSX-V) under the symbol "IES". The following tables set forth, for the periods indicated, the high and low sales prices per share of the Company's Common Shares on the TSX-V in Canadian dollars. Historical share prices have been adjusted to reflect the 15:1 rollback which was effective February 25, 2010.

Year Ended	High	Low
31-Dec-08	$2.10	$0.15
31-Dec-09	$0.90	$0.15
31-Dec-10	$0.30	$0.06
31-Dec-11	$0.19	$0.02
31-Dec-12	$0.04	$0.04
31-Dec-13	$0.12	$0.04

 

 

 

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Quarter Ended	High	Low
31-Mar-11	$0.10	$0.06
30-Jun-11	$0.085	$0.06
30-Sep-11	$0.065	$0.03
31-Dec-11	$0.19	$0.02
31-Mar-12	$0.13	$0.13
30-Jun-12	$0.10	$0.10
30-Sep-12	$0.05	$0.05
31-Dec-12	$0.04	$0.04
31-Mar-13	$0.09	$0.04
30-Jun-13	$0.12	$0.07
30-Sep-13	$0.12	$0.08
31-Dec-13	$0.11	$0.06

Month Ended	High	Low
31-Dec-12	$0.04	$0.04
31-Jan-13	$0.05	$0.05
28-Feb-13	$0.08	$0.08
31-Mar-13	$0.07	$0.07
30-Apr-13	$0.10	$0.09
31-May-13	$0.10	$0.07
31-June -13	$0.10	$0.07
30-July – 13	$0.10	$0.08
31-Aug-13	$0.10	$0.09
30-Sept -13	$0.12	$0.09
31-Oct -13	$0.11	$0.09
30-Nov -13	$0.10	$0.08
31-Dec-13	$0.09	$0.06

B. Plan of Distribution

Not Applicable.

C. Markets

Not Applicable.

D. Selling Shareholders

Not Applicable.

E. Dilution

Not Applicable.

F. Expenses of the Issue

Not Applicable.

 

 

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ITEM 10. ADDITIONAL INFORMATION

 

A. Share Capital

 

Not Required.

B. Memorandum and Articles of Association

 

The Articles of Incorporation of the Company was included as Exhibit 1.1 to the Company's Report on Form 20-F, filed with the Securities and Exchange Commission on March 2, 2005. The Articles of Association were approved by shareholders on October 25, 1995.  Amendments were registered on April 23, 1999 and on June 12, 2003.

 

The Company is incorporated pursuant to the Companies Act, Chapter 21, Revised Statutes of Alberta 2000 (Companies Act), which provides for the powers, rights and responsibilities of all corporations registered within the jurisdiction of the Province of Alberta.

 

The primary requirements and provisions of the Company’s articles of association are included in the Companies Act and apply to the Company, subject only to changes that have been made through Directors’ Resolutions that have been filed as certificates and amendment and registration of restated articles, as included in Exhibit 1.0.  Pursuant to the Companies Act, (a) a director may not vote on a proposal, arrangement or contract in which the director has a material interest; (b) the directors may not, in the absence of an independent quorum, vote compensation to themselves or any members of their body; (c) the directors may only exercise borrowing powers, or vary those powers, through the approval of a majority of their number attendant at a duly convoked meeting of directors, with the vote results being recorded in the minutes of the meeting; (d) there is no age limit requirement in respect of retirement or non-retirement of directors; and (e) ownership of shares is not required for director’s qualification.

 

Any change in the rights of holders of the stock, however proposed, must be approved by at least a two-thirds majority vote of the common shareholders.  Pursuant to the Companies Act and the regulations of the Alberta Securities Commission, the vote may be conducted through a formal polling of shareholders, or it may be taken at a duly convoked general or special meeting of shareholders.   The law requires that at least one general meeting of shareholders must be convoked each year.  The notice for a general or extraordinary meeting must be promulgated at least 45 days in advance of the meeting date through delivery to all shareholders of record as at a date, prior to the date of issuance of the notice, which must be published with the notice.

 

C. Material Contracts

We have not entered into any material contracts outside the ordinary course of business during the two years immediately preceding the publication of this report. See Item 4.B. Business Overview, for a summary of agreements entered into in connection with our three business components: PowerMaster; DryVac; and Intercept Rentals .

D. Exchange Controls

 

There are no government laws, decrees or regulations in Canada which restrict the export or import of capital or which affect the remittance of dividends, interest or other payments to non-resident holders of our common shares. Any remittances of dividends to United States residents and to other non-residents are, however, subject to withholding tax. See “Taxation” below.

There are no limitations imposed by the laws of Canada, the laws of Alberta or by the charter or other governing documents of the Company on the right of a non-resident to hold or vote common shares of the Company, other than as provided in the Investment Canada Act (the “Investment Act”) and the potential requirement for a Competition Act Review.

The following summarizes the principal features of the Investment Act and the Competition Act Review for a non-resident who proposes to acquire common shares. This summary is of a general nature only and is not intended to be, nor is it, a substitute for independent advice from an investor’s own advisor. This summary does not anticipate statutory or regulatory amendments.

The Canadian Investment Act

The Canadian Investment Act generally prohibits implementation of a reviewable investment by an individual, government or agency thereof, corporation, partnership, trust or joint venture that is not a “Canadian” as defined in the Investment Act (a “non-Canadian”), unless, after review, the minister responsible for the Investment Act (the “Minister”) is satisfied that the investment is likely to be of a net benefit to Canada. Under the Investment Act, a United States citizen qualifies as a “World Trade Organization Investor.” Subject to the restrictions noted below, an investment in a Canadian business by a World Trade Organization Investor would be reviewable under the Investment Act only if it is an investment to acquire control of such Canadian business and the value of the assets of the Canadian business as shown on its financial statements is not less than a specified amount, which for 1999 was $184 million. An investment in the shares of a Canadian business by a non-Canadian other than a “World Trade Organization Investor” when the Company is not controlled by a World Trade Organization Investor, would be reviewable under the Investment Act if it is an investment to acquire control of the Canadian business and the value of the assets of the Canadian business as shown on its financial statements is $5 million or more, or if an order for review is made by the federal cabinet on the grounds that the investment relates to Canada’s cultural heritage or national identity.

 

 

 

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The acquisition by a World Trade Organization Investor of control of a Canadian business in any of the following sectors is also subject to review if the value of the assets of the Canadian business exceeds $5 million (as shown on its financial statements): uranium, financial services (except insurance), transportation services and cultural businesses, which include broadcast media (publication, distribution or sale of books, magazines, periodicals, newspapers, music, film and video products and the exhibition of film and video products), television and radio services. As the Company’s business does not fall under any of the aforementioned categories, the acquisition of control of the Company, in excess of the $5 million threshold, by a World Trade Organization Investor would not be subject to such review.

   

A non-Canadian would acquire control of the Company for purposes of the Investment Act if the non-Canadian acquired a majority of the common shares.

The acquisition of less than a majority but one-third or more of the common shares would be presumed to be an acquisition of control of the Company unless it could be established that, on acquisition, the Company was not controlled in fact by the acquirer through the ownership of common shares. Notwithstanding the review provisions, any transaction involving the acquisition of control of a Canadian business or the establishment of a new business in Canada by a non-Canadian is a notifiable transaction and must be reported to Industry Canada by the non-Canadian making the investment either before or within thirty days after the investment.

Certain transactions relating to common shares are exempt from the Investment Act, including:

	·	an acquisition of common shares by a person in the ordinary course of that person’s business as a trader or dealer in securities;
	·	an acquisition of control of the Company in connection with the realization of security granted for a loan or other financial assistance and not for a purpose related to the provisions of the Investment Act; and

·

an acquisition of control of the Company by reason of an amalgamation, merger, consolidation or corporate reorganization, following which the ultimate direct or indirect control in fact of the Company, through the ownership of common shares, remained unchanged.

Canadian Competition Act Review

Investments giving rise to the acquisition or establishment, directly or indirectly, by one or more persons of control over, or a significant interest in the whole or part of a business of a competitor, supplier, customer or other person are subject to substantive review by Canada’s Competition Law Authority, the Director of Investigation and Research (the “Director”). If or when the Director concludes that a merger, whether by purchase or lease of shares or assets, by amalgamation or by combination, or otherwise, prevents or lessens, or is likely to prevent or lessen competition substantially, he may apply as may be necessary to eliminate the substantial lessening or prevention of competition. Such substantive merger review power applies to all mergers, whether or not they meet limits for pre-notification under the Competition Act.

In addition to substantive merger review, the Competition Act provides for a pre-notification regime respecting mergers of a certain size. The regime applies in respect of share acquisitions, asset acquisitions, amalgamations and combinations. For ease of reference, this filing refers specifically to share acquisition, although the pre-notification regime applies, with the appropriate modification, to other types of acquisition of control as well.

In order for a share acquisition transaction to be pre-notifiable, the parties to the transaction (being the person or persons who proposed to acquire shares, and the corporation the shares of which are to be acquired), together with their affiliates (being all firms with a 50% or more voting shares linkage up and down the chain) must have:

	(i)	aggregate gross assets in Canada that exceed $400,000,000 in value, as shown on their audited financial statements for the most recently completed fiscal year (which must be within the last fifteen (15) months); or
	(ii)	aggregate gross revenue from sales in, from or into Canada that exceed $400,000,000 for the most recently completed fiscal year shown on the said financial statements; and
	(iii)	the party being acquired or corporations controlled by that party must have gross assets in Canada, or gross revenues from sales in or from Canada, exceeding $35,000,000 as shown on the said financial statements. Acquisition of shares carrying up to 20% of the votes of a publicly-traded corporation, or 35% of the votes in a private corporation, will not be subject to pre-notification, regardless of the above thresholds. However, exceeding the 20% or the 35% threshold, and again exceeding the 50% threshold, gives rise to an obligation of notification if the size threshold is met.

 

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If a transaction is pre-notifiable, a filing must be made with the Director containing the prescribed information with respect to the parties, and a waiting period (either seven or twenty-one days, depending on whether a long or short form filing is chosen) must expire prior to closing.

As an alternative to pre-notification, the Director may grant an Advance Ruling Certificate, which exempts the transaction from pre-notification. Advance Ruling Certificates are granted where the Director concludes, based on the information provided to him, that he would not have sufficient grounds on which to apply to the Competition Tribunal to challenge the Merger.

 

E. Taxation

This summary is of a general nature only and is not intended to be, and should not be interpreted as, legal or tax advice to any prospective purchaser or holder of the Company’s shares and no representation with respect to the Canadian federal income tax consequences to any such prospective purchaser is made. Accordingly, prospective purchasers of the Company’s shares should consult with their own tax advisors with respect to their individual circumstances.

The following summary describes the principal Canadian federal income tax considerations generally applicable to a holder of the Company’s shares who, for purposes of the Income Tax Act (Canada) (the “Canadian Tax Act”) and the Canada-United States Income Tax Convention, 1980 (the “Convention”) and at all relevant times is resident in the United States and not resident in Canada, deals at arm’s length with the Company, holds the Company’s shares as capital property, and does not use or hold and is not deemed to use or hold the Company’s shares in or in the course of carrying on business in Canada (a “United States Holder”).

This following summary is based upon the current provisions of the Canadian Income Tax Act, the regulations thereunder, all specific proposals to amend the Canadian Tax Act and the regulations announced by the Minister of Finance (Canada) prior to the date hereof and the Company’s understanding of the published administrative practices of the Canada Customs and Revenue Agency (formerly Revenue Canada, Customs, Excise and Taxation). This summary does not take into account or anticipate any other changes in the governing law, whether by judicial, governmental or legislative decision or action, nor does it take into account the tax legislation or considerations of any province, territory or non-Canadian jurisdiction (including the United States), which legislation or considerations may differ significantly from those described herein.

Disposition of the Company’s Shares

In general, a United States shareholder will not be subject to Canadian income tax on capital gains arising on the disposition of the Company’s shares, unless such shares are “taxable Canadian property” within the meaning of the Canadian Income Tax Act and no relief is afforded under any applicable tax treaty. The shares of the Company would be taxable Canadian property of a non-resident if at any time during the five-year period immediately preceding a disposition by the non-resident of such shares, not less than 25% of the issued shares of any class or series of all classes of shares of the Company belonged to the non-resident, to persons with whom the non-resident did not deal at arm’s length, or to the non-resident and persons with whom the non-resident did not deal at arm’s length for purposes of the Canadian Income Tax Act. For this purpose, issued shares include options to acquire such shares (including conversion rights) held by such persons. Under the Convention, a capital gain realized by a resident of the United States will not be subject to Canadian tax unless the value of the shares of the Company is derived principally from real estate (as defined in the Convention) situated in Canada.

 

F. Dividend and Paying Agents

 

Not Required.

 

G. Statement by Experts

 

See Exhibit 15.1.

 

H. Documents on Display

The Company’s publicly filed documents are available on SEDAR at www.sedar.com and on the U.S. Securities and Exchange Commission (SEC)’s website on www.sec.gov.

 

It is also possible to read and copy documents referred to in this annual report on Form 20-F that have been filed with the SEC at the SEC's public reference room located at 450 Fifth Street, NW, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms and their copy charges.

 

Other documents concerning the Company, which are referred to in this report, or which are otherwise deemed to be public information, may be inspected during normal business hours at the administrative office of the Company located at 943 Canso Drive, Gabriola, British Columbia, Canada V0R 1X2. Requests for documents from the Company may be made at 250-247-8689 or by e-mail to  info@globalgreenmatrix.com .

 

 

23

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I. Subsidiary Information

The Company’s only active subsidiary is 1503826 Alberta Ltd., carrying on business as “Intercept Rentals”, of which the Company owns 100%. That company, incorporated in the province of Alberta, Canada, was acquired in March, 2012.

 

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

 

Not applicable.

PART II

 

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

 

Not applicable.

 

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

 

Not applicable.

 

ITEM 15. CONTROL AND PROCEDURES

 

Disclosure Controls and Procedures

 

Under the supervision and with the participation of management, including our Chief Executive Officer and the Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (DC&P), as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of December 31, 2013.  Under SEC rules DC&P are defined as controls and other procedures that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within required time periods. Based on our evaluation, we concluded as of December 31, 2013 that our DC&P were not effective in their ability to ensure the timely disclosure of material information as required under securities regulation.

 

We continue to work towards the implementation of improved DC&P to ensure that material information is disclosed accurately and within required timelines.

 

Internal Control over Financial Reporting

 

Management is responsible for establishing and maintaining adequate internal control over financial reporting (ICFR) to provide reasonable assurance regarding the reliability of financial reporting.

 

ICFR is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. ICFR also can be circumvented by collusion or improper management override. Because of such limitations, ICFR cannot provide absolute assurance of achieving financial reporting objectives. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

 

Management has used the Internal Control-Integrated Framework published by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission - 1992 to evaluate the effectiveness of the Company’s internal control over financial reporting. The Public Company Accounting Oversight Board has defined a material weakness as a “deficiency, or combination of deficiencies, in ICFR, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis”.

 

Based on this assessment, management has concluded that various material weaknesses existed within the financial close and reporting process, and within the overall control environment of the Company as at December 31, 2013.

 

 

24

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Financial Close and Reporting

 

Due to limited staff resources it is difficult to ensure the effectiveness of control processes through proper segregation of duties. As a result the Company must place greater reliance on review processes conducted by management to identify material misstatement. Review processes in place throughout the year were not adequately designed to identify misstatements within material accounting transactions and related financial statement accounts.

 

Control Environment

 

One key aspect of a strong control environment is an ongoing commitment by management to ensure that staff resources have the requisite skill sets and capacity to complete their assigned duties in an effective and timely manner. Such competencies support the effective design of controls within the overall internal control framework. The overall design of ICFR was impacted as a result of a lack of financial reporting skill sets deployed by the Company. As a result the strength of process level internal controls in place during the year may not have been adequate to identify material misstatements.

 

 

ITEM 16. RESERVED

 

ITEM 16A. Audit Committee Financial Expert

 

Our board of directors has determined that two of the three members comprising the Audit Committee, Messrs. Pendura and Oravec, qualify as audit committee financial experts, based on the criteria provided in the instructions for Item 16 A of Form 20-F.

ITEM 16B. Code of Ethics

 

Not required.

ITEM 16C. Principal Accountant Fees and Services

 

The aggregate fees billed by the Corporation’s external auditors in each of the last two fiscal years for audit and other fees are as follows:

Financial Year Ending	Audit Fees	Audit Related Fees	Tax Fees	All Other Fees
2013	120,000		5,500
2012	$25,000	Nil	$2,500	Nil

 

ITEM 16D. Exemption from the Listing Standards for Audit Committees

 

Not applicable.

 

ITEM 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Not applicable.

ITEM 16F. Change in Registrant's Certifying Accountant

Not applicable.

ITEM 16G. Corporate Governance

Not Applicable.

 

 

25

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PART III

ITEM 17. FINANCIAL STATEMENTS

 

Not applicable. See Item 18.

 

ITEM 18. FINANCIAL STATEMENTS

We are furnishing the following financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”), together with the independent auditor’s report on those statements:

	Page
Independent Auditors’ Report	29
Independent Auditors' Report	31
Consolidated Statements of Financial Position at December 31, 2012 and 2011	33
Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2012 and 2011	34
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2012 and 2011	35
Consolidated Statements of Cash Flows for the Years Ended December 31, 2012 and 2011	36
Notes to Consolidated Financial Statements, December 31, 2012 and 2011	37

 

 

 

26

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Consolidated Financial Statements

Formerly known as Global Green Matrix Corp.

For the years ended December 31, 2013 and 2012

 

 

(Expressed in Canadian dollars)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

27

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Statement of Management’s Responsibility

To the Shareholders of Intercept Energy Services Inc. (the “Company”):

Management is responsible for the preparation and presentation of the accompanying consolidated financial statements, including responsibility for significant accounting judgments and estimates in accordance with International Financial Reporting Standards (“IFRS”). This responsibility includes selecting appropriate accounting policies and methods, and making decisions affecting the measurement of transactions in which objective judgment is required.

In discharging its responsibilities for the integrity and fairness of the financial statements, management designs and maintains the necessary accounting systems and related internal controls to provide reasonable assurance that transactions are authorized, assets are safeguarded and financial records are properly maintained to provide reliable information for the preparation of financial statements.

The Board of Directors, through its Audit Committee, is responsible for ensuring that management fulfills its responsibilities for financial reporting and internal control systems. The Audit Committee is composed of independent directors who are not employees of the Company. The Audit Committee is responsible for reviewing the financial statements and recommending them to the Board of Directors for approval. To discharge its duties the Audit Committee meets regularly with management and the external auditor to discuss internal controls, accounting and financial reporting processes, audit plans and financial matters. The Audit Committee reports its findings to the Board of Directors for its consideration in approving the financial statements for issuance to the shareholders. The Audit Committee also considers the independence of the external auditors and reviews their fees.

Grant Thornton LLP, an independent firm of Chartered Accountants, is appointed by the shareholders to audit the financial statements and report directly to them; their report follows. The external auditors have full and free access to, and meet periodically and separately with, both the Audit Committee and management to discuss their audit findings.

May 14, 2014

“Randy Hayward”                                                                                              “William T.  Cromb”                                                                 

President and Chief Executive Officer                                                                                      Chief Financial Officer

 

28

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Report of independent registered

public accounting firm

 

 

Grant Thornton LLP Suite 1600, Grant Thornton Place 333 Seymour Street Vancouver, BC V6B 0A4 T +1 604 687 2711 F +1 604 685 6569 www.GrantThornton.ca

 

 

To the shareholders of Intercept Energy Services Inc. (formerly Global Green Matrix Corp.):

 

We have audited the accompanying consolidated financial statements of Intercept Energy Services Inc. (formerly Global Green Matrix Corp.), which comprise the consolidated statement of financial position as at December 31, 2013 and the consolidated statement of net loss and comprehensive loss, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information .

 

Management’s responsibility for the financial statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditor’s responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We were not engaged to perform an audit of the Company’s

 

internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

Audit • Tax • Advisory

Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd

 

 

 

29

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Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Intercept Energy Services Inc. (formerly Global Green Matrix Corp.) as at December 31, 2013 and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

 

Emphasis of Matter

Without modifying our opinion, we draw attention to Note 1 in the consolidated financial statements which indicates that the Company has a working capital deficiency of $3,182,848, incurred a net loss for the year ended December 31, 2013 of $3,033,981 and as at that date has a deficit of $18,398,509. These conditions, along with other matters as set forth in Note 1, indicate the existence of a material uncertainty that cast substantial doubt about the Company's ability to continue as a going concern.

 

 

 

Vancouver, Canada		/s/  Grant Thornton LLP
May 14, 2012		Chartered accountants

 

Audit • Tax • Advisory

Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd

 

30

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Report of Independent Registered Public Accounting Firm

 

K. R. MARGETSON LTD . 210, 905 West Pender Street Vancouver BC V6C 1L6 Tel:  604.641.4450 Fax: 1.855-603-3228

Chartered Accountants

 

Report of Independent Registered Public Accounting Firm

To the Shareholders of

Intercept Energy Services Inc. (formerly Global Green Matrix Corp.):

 

We have audited the consolidated statement of financial position of Intercept Energy Services Inc. (formerly Global Green Matrix Corp.) as at December 31, 2012 and the related consolidated statements of comprehensive loss, changes in equity and cash flows for the year then ended and a summary of significant accounting policies and other explanatory information.

 

Management’s Responsibility for the Financial Statements

 

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

 

Our responsibility is to express an opinion on these consolidated financial statements based on our audit.  We conducted our audit in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.  An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.  We were not engaged to perform an audit of the Company’s internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.

 

We believe that the audit evidence we have obtained in our audit is sufficient and appropriate to provide a basis for our audit opinion.

 

Opinion

 

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Intercept Energy Services Inc. (formerly Global Green Matrix Corp.)as at December 31, 2012 and the results of its operations, changes in shareholders’ equity and cash flows and for the year then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

 

Emphasis of Matter

 

Without qualifying our opinion, we draw attention to Note 1 of these consolidated financial statements, which states that the Company incurred a significant loss from operation, negative cash flows from operating activities and has an accumulated deficit.  This, along with other matters as described in Note 1, indicated the existence of a material uncertainty which cast substantial doubt about the ability of Intercept Energy Services Inc. (formerly Global Green Matrix Corp.) to continue as a going concern.

 

31

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Other Matter

 

As discussed in Note 23, the Company has corrected errors in its consolidated financial statements for the year ended December 31, 2012 in relation to the recording of the acquisition of Intercept Rentals, the accounting for the acquisition of certain property and equipment and the accounting for accumulated other comprehensive income.

 

---

Chartered Accountants

Vancouver, Canada

April 30, 2013, except for Note 23

which is May 14, 2014

 

 

 

32

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INTERCEPT ENERGY SERVICES INC. (formerly Global Green Matrix Corp.)

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(Expressed in Canadian dollars)

						December 31,				December 31,
		Notes				2013				2012
ASSETS										Restated (Note 23)
Current assets
Cash						$	8,845			$	40,887
Trade and other receivables			5				734,272				250,229
Prepaids and deposits							22,292				20,020
Income taxes recoverable							-				1,292
Total current assets							765,409				312,428
Non-current assets
Loans receivable			5				-				95,963
Equipment			6				4,014,068				1,353,410
Total non-current assets							4,014,068				1,449,373
TOTAL ASSETS						$	4,779,477			$	1,761,801
LIABILITIES
Current liabilities
Trade and other payables			8			$	969,223			$	714,648
Loans and borrowings			9				651,666				517,546
Finance lease obligations			10				1,833,960				12,690
Current portion of royalty obligations			11				453,245				150,912
Current portion of derivative liability			12				40,163				-
Deferred gain on sale leaseback			6				-				1,070
Total current liabilities							3,948,257				1,396,866
Non-current liabilities
Royalty obligations			11				2,064,601				1,563,050
Derivative liability			12				88,305				-
Loans and borrowings			9				313,039				7,717
Long term liabilities							2,465,945				1,570,767
TOTAL LIABILIITES							6,414,202				2,967,633
SHAREHOLDERS' DEFICIENCY
Share capital			13				11,117,213				9,293,446
Contributed surplus			15				5,646,571				4,855,250
Subscription advances							-				10,000
Deficit							(18,398,509	)			(15,364,528	)
TOTAL DEFICIENCY							(1,634,725	)			(1,205,832	)
TOTAL LIABILITIES AND DEFICIENCY						$	4,779,477			$	1,761,801

 

On behalf of the Board:
“Randy Hayward”		Director			"Richard Oravec"			Director

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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INTERCEPT ENERGY SERVICES INC. (formerly Global Green Matrix Corp.)

CONSOLIDATED STATEMENTS OF NET LOSS AND COMPREHENSIVE LOSS

(Expressed in Canadian dollars)

 

						Year ended				Year ended
						December 31,				December 31,
		Notes				2013				2012
										(restated note 23)
REVENUE
Distribution fees						$	-			$	100,000
Rental income							2,103,514				418,733
							2,103,514				518,733
EXPENSES
Consulting fees							312,659				148,668
Depreciation			6				366,283				167,957
Equipment maintenance and rental							129,642				48,821
Fuel and sundry direct operating costs							508,157				78,077
Management fees							167,000				120,000
Occupancy costs							26,857				28,939
Office and sundry							354,617				102,388
Professional fees							115,192				183,753
Royalties			11				1,109,285				89,375
Salaries and wages							822,671				463,618
Share based compensation							747,338				3,726
Transfer agent and filing fees							55,720				49,043
Travel, marketing and conferences							434,754				273,224
Write off of loan receivable			5				133,963				-
							5,150,175				1,757,589
Loss before other items							(3,046,661	)			(1,238,856	)
OTHER ITEMS
Interest income							1,125				1,206
Amortization of deferred gain on sale leaseback							1,070				5,352
Impairment of technology asset			7				-				(2,056,729	)
Impairment of licenses			7				-				(493,808	)
Impairment of equipment			6				-				(309,174	)
Gain on extinguishment of debt			9				161,500				-
Loss on derivative liability			12				(14,997	)			-
Finance expense							(136,018	)			(41,017	)
							12,680				(2,894,170	)
Net loss and comprehensive loss for the year						$	(3,033,981	)		$	(4,133,026	)
Basic and diluted loss per common share							(0.03	)			(0.06	)
Weighted average number of common  shares outstanding							92,417,996				68,038,758

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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INTERCEPT ENERGY SERVICES INC. (formerly Global Green Matrix Corp.)

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S DEFICIENCY

(Expressed in Canadian dollars)

 

		Share Capital
		Number of				Amount				Contributed				Subscription				Deficit				Total
		shares								surplus				advances
Balance at December 31, 2011 (restated note 23)			45,382,697			$	7,501,691			$	4,075,087			$	486,600			$	(11,231,502	)		$	831,876
Private placements			23,583,765				1,704,939				-				(486,600	)			-				1,218,339
Warrants			-				(708,316	)			708,316				-				-				-
Share issue costs			-				(166,711	)			68,121				-				-				(98,590	)
Issuance for acquisition of Intercept Rentals (note 4)			12,000,000				961,843				-				-				-				961,843
Subscription advances			-				-				-				10,000				-				10,000
Share based compensation			-				-				3,726				-				-				3,726
Net loss and comprehensive loss for the year			-				-				-				-				(4,133,026	)			(4,133,026	)
Balance at December 31, 2012 (restated note 23)			80,966,462				9,293,446				4,855,250				10,000				(15,364,528	)			(1,205,832	)
Private placements			22,523,332				1,604,250				-				(10,000	)			-				1,594,250
Warrants			-				(57,200	)			57,200				-				-				-
Share issue costs			-				(189,783	)			10,783				-				-				(179,000	)
Options exercised			300,000				54,000				(24,000	)			-				-				30,000
Issued for purchase of equipment			5,500,000				412,500				-				-				-				412,500
Share based compensation			-				-				747,338				-				-				747,338
Net loss and comprehensive loss for the year			-				-				-				-				(3,033,981	)			(3,033,981	)
Balance at December 31, 2013			109,289,794			$	11,117,213			$	5,646,571			$	-			$	(18,398,509	)		$	(1,634,725	)

The accompanying notes are an integral part of these consolidated financial statements.

 

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INTERCEPT ENERGY SERVICES INC. (formerly Global Green Matrix Corp.)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Expressed in Canadian dollars)

 

		Year ended				Year ended
		31-Dec-13				31-Dec-12
						Restated (Note 23)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss and comprehensive loss		$	(3,033,981	)		$	(4,133,026	)
Items not affecting cash:
Amortization of deferred gain on sale leaseback			(1,070	)			(5,352	)
Depreciation			366,283				167,957
Impairment of technology asset			-				2,056,729
Impairment of licenses			-				493,808
Impairment of equipment			-				309,174
Write off of loans receivable			133,963
Interest expense			-				7,600
Accretion			8,215				-
Gain on extinguishment of debt			(161,500	)			-
Non cash portion of royalty expense			803,884				39,082
Non cash portion of (gain)/loss on financial instrument			14,997				-
Share-based payments			747,338				3,726
Changes in non-cash working capital items:
Trade and other receivables			(484,043	)			(90,009	)
Prepaids and deposits			(2,272	)			125,888
Income taxes recoverable			1,292				-
Trade and other payables			254,575				163,804
			(1,352,319	)			(860,619	)
CASH FLOWS FROM INVESTING ACTIVITIES
Cash received on acquisition of Intercept Rentals			-				21,734
Loans receivable			(38,000	)			23,412
Acquisition of licenses			-				(152,670	)
Acquisition of Equipment			(247,242	)			(999,526	)
			(285,242	)			(1,107,050	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of shares			1,624,250				1,218,339
Share issue costs			(179,000	)			(98,590	)
Subscription advances received			-				10,000
Loans and borrowings			592,727				359,087
Derivative liability			113,471				-
Cash received on lease financing of equipment			988,134				-
Finance leases - paid			(1,534,063	)			(161,252	)
			1,605,519				1,327,584
Change in cash for the year			(32,042	)			(640,085	)
Cash, beginning of year			40,887				680,972
Cash, end of year		$	8,845			$	40,887
Supplemental disclosure with respect to cash flows (Note 22)

 

The accompanying notes are an integral part of these consolidated financial statements

 

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Intercept Energy Services Inc. (formerly known as Global Green Matrix)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in Canadian dollars)

December 31, 2013 and 2012

 

1.	Nature of operations and going concern

Intercept Energy Services Inc. (“Intercept Energy” or the “Company” or the “Corporation”) is an oil and gas service company whose primary business is providing an innovative and proprietary technology that heats water used in the fracturing process by exploration and production companies operating in Canada and the United States.  These services are designed to enhance safety, increase efficiency and results in lower costs.  The address of the Company’s registered office is 600-666 Burrard Street, Vancouver BC V6C 3P6.

These consolidated financial statements have been prepared on the assumption that the Company will continue as a going concern, meaning it will continue in operation for the foreseeable future and will be able to realize assets and discharge liabilities in the ordinary course of operations.  These financial statements do not give effect to any adjustments which would be necessary should the Company be unable to continue as a going concern and thus be required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts different from those reflected in these financial statements.

  The Company has a working capital deficiency of $3,182,848 at December 31, 2013, is out of covenant with its finance lease obligations, incurred a net loss for the year ended December 31, 2013 of $3,033,981 and as of that date has a deficit of $18,398,509.  These conditions cast significant and substantial doubt on the Company’s going concern assumption.  The Company’s continuation as a “going concern” is dependent upon its ability to achieve profitable operations, upon the continued financial support of its shareholders and upon its ability to obtain additional financing or equity.  While the Company has been successful in securing financings in the past, there is no assurance that it will be able to do so in the future.  Accordingly, these financial statements do not give effect to adjustments, if any, that would be necessary should the Company be unable to continue as a going concern. Such adjustments could be material.

The consolidated financial statements were authorized for issue on May 14, 2014 by the Board of Directors of the Company.

2.	Significant accounting policies

Statement of compliance

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board.

The consolidated financial statements have been prepared on a historical cost basis, except for financial instruments classified at fair value through profit and loss, which are stated at their fair value. In addition, these consolidated financial statements have been prepared using the accrual basis of accounting except for cash flow information.

Basis of presentation

These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary.  Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Company obtains control, and continue to be consolidated until the date that such control ceases.   The parent controls a subsidiary if it is exposed or has rights, to variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary.

The consolidated financial statements include, on a consolidated basis, the assets, liabilities, revenues and expenses of the Company, and its wholly-owned subsidiary, 1503826 Alberta Ltd., from the date of acquisition on March 20, 2012 (note 4).

All inter-company balances and transactions, including unrealized income and expenses arising from inter-company transactions, are eliminated on consolidation.

 

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Intercept Energy Services Inc. (formerly known as Global Green Matrix)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in Canadian dollars)

December 31, 2013 and 2012

 

 

2.	Significant accounting policies (cont’d)

Significant accounting judgments, estimates and assumptions

The preparation of the Company’s consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Estimates and assumptions are continuously evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. However, actual outcomes can differ from these estimates.

The areas which require management to make significant judgments, estimates and assumptions in determining carrying values include:

Judgments

Going concern

As disclosed in Note 1, these financial statements have been prepared in accordance with IFRS on a going concern basis, which assumes the realization of assets and discharge of liabilities in the normal course of business within the foreseeable future. Management uses judgment to assess the Company’s ability to continue as a going concern and the existence of conditions that cast doubt upon the going concern assumption.

It is management’s assessment that the going concern assumption is appropriate based on the following events discussed in (Note 25):

·

On April 29, 2014 the Company entered into a loan agreement with an arm’s length third party lender. Pursuant to the loan agreement, the lender has agreed to make revolving credit loans to the Company in the principal amount of up to $1,000,000, of which $608,000 had been advanced as at December 31, 2013 and is included in loans and borrowings, and $328,500 was advanced subsequent to the year end.  The amount of the loan is unsecured and bears interest at the rate of 12% per annum. The term of the agreement is for two years and provides that at any time after July 29, 2014, the lender is entitled to demand repayment of the whole or any portion of the outstanding amount of the loan. The proceeds from the loan will be used to retire accounts payable. In consideration for the lender agreeing to provide the loan, the Company has issued 900,000 common shares  at a deemed price of $0.05 per share, subject to final approval of the TSX Venture Exchange. The Bonus Shares will be subject to a hold period that expires on August 30, 2014.

·

On February 28, 2014, the Company entered into a lease arrangement to lease a truck and heating unit for 50% of the operating income of the unit. The term of the arrangement is indefinite.  The entity which owns this truck is controlled by a person who was appointed Director of the Company subsequent to the year end.

Collectability of Accounts Receivable

In considering the collectability of accounts receivable, taken into account is the legal obligation for payment by the customer, as well as the financial capacity of the customer to fund its obligation to the Corporation.

Leases

Management uses judgment in determining whether a lease is a finance lease arrangement that transfers substantially all the risks and rewards of ownership

Contingencies

Management uses judgment to assess the existence of contingencies. By their nature, contingencies will only be resolved when one or more future events occur or fail to occur. Management also uses judgment to assess the likelihood of the occurrence of one or more future events.

 

38

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Intercept Energy Services Inc. (formerly known as Global Green Matrix)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in Canadian dollars)

December 31, 2013 and 2012

 

2.	Significant accounting policies (cont’d)

Estimates

Equipment

The cost less the residual value of each item of equipment is depreciated over its useful economic life. Depreciation is charged over the estimated life of the individual asset. Depreciation commences when assets are available for use. The assets’ useful lives and methods of depreciation are reviewed and adjusted if appropriate at each fiscal year end.

Significant judgment is involved in the determination of useful life and residual values for the computation of depreciation and no assurance can be given that the actual useful lives or residual values will not differ significantly from current assumptions.

Impairment

Intangible assets and equipment are tested for impairment if there is an indication of impairment. The carrying value of equipment and intangible assets is reviewed each reporting period to determine whether there is any indication of impairment. If the carrying amount of an asset exceeds its recoverable amount, the asset is impaired and an impairment loss is recognized in profit or loss. The assessment of fair values less costs of disposal or value in use, including those of the cash-generating units for purposes of testing intangible assets require the use of estimates and assumptions for recoverable production, long-term commodity prices, discount rates, future capital requirements and operating performance. Changes in any of the assumptions or estimates used in determining the fair value of the assets could impact the impairment analysis.

Calculation of Share-based Compensation

The amount expensed for share-based compensation is based on the application of the Black-Scholes Option Pricing Model, which is highly dependent on the expected volatility of the Company’s share price   and the expected life of the options. The Company used an expected volatility rate for its shares based on historical stock trading data adjusted for future expectations; actual volatility may be significantly different. While the estimate of share-based compensation can have a material impact on the operating results reported by the Company, it is a non-cash charge and as such has no impact on the Company’s cash position or future cash flows.

Royalty obligation

The Company has a royalty obligation liability. To estimate the fair value of the obligation, the Company makes estimates of future cash flows and discounts those cash flows at an estimated prevailing market rate of interest for a similar instrument. Management updates the estimated future cash flows by estimating future operating hours, revenues, future equipment purchases and other items required under the royalty agreement at each reporting date to assess whether the value of obligation should be adjusted. The effects of any change in the obligation are recognized in profit or loss in the current period.

Convertible debentures

The determination of the fair value of the liability component of the convertible debentures requires management to make estimates regarding the interest rate that the Company would have obtained for a similar secured loan without a conversion feature. Management takes into consideration the valuation of both components, historical data regarding issuances of warrants and the proceeds received upon issuance of the convertible debentures to determine the inputs used in the valuation models and the resulting fair value for each instrument.

Derivative liability

The Company has a derivative liability embedded in its convertible debenture. To estimate the fair value of the derivative liability, the Company makes estimates of future cash flows and discounts those cash flows at an estimated discount rate. Management updates the estimated future cash flows by estimating future operating hours, revenues, operating costs, future equipment purchases and other items required under the royalty agreement at each reporting date to assess whether the value of derivative liability should be adjusted. The effects of any change in the obligation are recognized in profit or loss in the current period.

 

39

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Intercept Energy Services Inc. (formerly known as Global Green Matrix)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in Canadian dollars)

December 31, 2013 and 2012

 

2.	Significant accounting policies (cont’d)

SIGNIFICANT ACCOUNTING POLICIES

Foreign currency translation

The Company’s reporting currency and the functional currency is the Canadian dollar. The functional currency determinations were conducted by considering the primary economic environment that the entities operate in.

Transactions in foreign currencies are translated at the exchange rate in effect at the date of the transaction. Foreign currency denominated monetary assets and liabilities are translated to their Canadian dollar equivalents using foreign exchange rates prevailing at the financial position reporting date. Exchange gains or losses arising on foreign currency translation are reflected in profit or loss for the period.

Intangible assets

Intangible assets are recorded at cost.  Intangible assets assessed by the Company with finite useful lives are amortized on a systematic basis over their useful lives.  The amortization period and amortization method for an intangible asset with a finite useful life reflects the pattern in which the assets’ future economic benefits are expected to be consumed.  Where the pattern cannot be reliably determined, the straight-line method is used.  The amortization period and method is reviewed at least at each financial year end.

Equipment

Equipment is carried at cost, less accumulated depreciation and accumulated impairment losses.

The cost of an item consists of the purchase price, any costs directly attributable to bringing the asset to the location and condition necessary for its intended use and an initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.

Depreciation is provided at rates calculated to write off the cost of equipment, less the estimated residual value over the useful life, using the straight line method over seven years for rental equipment and five years for vehicles.  These useful life estimates were revised in the third quarter of 2013 prospectively from previously using the declining balance method at various rates ranging from 20% - 30% per annum  This change in estimate decreased depreciation expense by approximately $49,000 in 2013.

An item is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset.  Any gain or loss arising on disposal of the asset, determined as the difference between the net disposal proceeds and the carrying amount of the asset, is recognized in profit or loss in the consolidated statements of comprehensive loss.

 

Where an item of equipment comprises major components with different useful lives, the components are accounted for as separate items of equipment.  Expenditures incurred to replace a component of an item of equipment that is accounted for separately, including major inspection and overhaul expenditures are capitalized.

 

40

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Intercept Energy Services Inc. (formerly known as Global Green Matrix)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in Canadian dollars)

December 31, 2013 and 2012

 

 

2.	Significant accounting policies (cont’d)

Impairment of assets

  At the end of each reporting period the carrying amounts of the Company’s non-financial assets are reviewed to determine whether there is any indication that those assets are impaired.  If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment, if any.  The recoverable amount is the higher of fair value less costs of disposal and value in use.  Fair value is determined as the amount that would be obtained from the sale of the asset in an arm’s length transaction between knowledgeable and willing parties.  In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.  If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount and the impairment loss is recognized in profit or loss.  For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash generating unit to which the asset belongs.

  Where an impairment subsequently reverses, the carrying amount of the asset (or cash generating unit) is increased to the revised estimate and its recoverable amount, but to an amount that does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash generating unit) in prior years.  A reversal of an impairment loss is recognized immediately in profit or loss.

  Assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment.

Provisions

  Provisions are recognized when the Company has a present obligation (legal or constructive) that has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation. Provisions for environmental restoration, legal claims, onerous leases and other onerous commitments are recognized at the best estimate of the expenditure required to settle the Company's liability.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money if material and the risk specific to the obligation. The increase in the provision due to passage of time is recognized as a finance cost.

Business combinations

Business combinations are accounted for by applying the acquisition method, whereby assets obtained, liabilities incurred or assumed, and equity instruments issued by the Company in exchange for control of the acquired business are measured at fair value at the date of acquisition. The acquired business’ identifiable assets, liabilities and contingent liabilities that meet the recognition under IFRS 3, Business Combinations are recognized at their fair values at the acquisition date, except for non-current assets which are classified as held-for-sale in accordance with IFRS 5 , Non-Current Assets Held for Sale and Discontinued Operations , and are recognized and measured at fair value, less costs to sell.

To the extent the fair value of consideration paid exceeds the fair value of the net identifiable tangible and intangible assets, goodwill is recognized. To the extent the fair value of consideration paid is less than the fair value of net identifiable tangible and intangible assets, the difference is recognized in profit or loss immediately.

Acquisition costs associated with a business combination are expensed in the period incurred.

When purchase consideration that is contingent on a future event is granted in an acquisition the initial cost of the acquisition includes an estimate of the fair value of the amounts to be paid in the future. Subsequent changes to the fair value  of contingent consideration are recorded in the statement of net loss.

 

41

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Intercept Energy Services Inc. (formerly known as Global Green Matrix)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in Canadian dollars)

December 31, 2013 and 2012

 

2.	Significant accounting policies (cont’d)

Leases

Leases entered into by the Company in which substantially all of the benefits and risks of ownership are transferred to the Company are recorded as finance leases.  Upon initial recognition, the lease asset and obligation is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. The discount rate used in calculating the present value of the minimum lease payments is the interest rate implicit in the lease, if this is practicable to determine. If not, the incremental borrowing rate is used. Subsequent to initial recognition, the assets are depreciated over the shorter of the lease term and their useful lives, unless it is reasonably certain that the Company will obtain ownership by the end of the lease terms. Any initial direct costs of the lessee are added to the amount recognized as an asset. All other leases are classified as operating leases and leasing costs are on a straight line basis over the term of the lease.  Lease inducements received by the Company are deferred and depreciated on a straight-line basis over the term of the lease as a reduction in rental expense.

 

Share capital

The Company’s common shares and share warrants are classified as equity instruments.

Incremental costs directly attributable to the issue of new shares or options are charged directly to share capital.

Share-based compensation

The Company issues equity settled share based awards to eligible executive officers and directors, employees and consultants under a share option plan. The fair value of options granted is recognized as a share-based compensation expense with a corresponding increase in contributed surplus. An individual is classified as an employee when the individual is an employee for legal or tax purposes (direct employee) or provides services similar to those performed by a direct employee. Consideration paid on the exercise of stock options is credited to share capital and the fair value of the options is reclassified from contributed surplus to share capital. The fair value is measured at grant date and each tranche is recognized over the period during which the options vest. The fair value of the options granted is measured using the Black-Scholes option pricing model taking into account the terms and conditions upon which the options were granted. At each financial position reporting date, the amount recognized as an expense is adjusted to reflect the number of stock options that are expected to vest.

Where equity instruments are granted to employees, they are recorded at the fair value of the equity instrument granted at the grant date. The grant date fair value is recognized in the statement of profit or loss over the vesting period, described as the period during which all the vesting conditions are to be satisfied.

Where equity instruments are granted to non-employees, they are recorded at the fair value of the goods or services received in the profit or loss, unless they are related to the issuance of shares. Amounts related to the issuance of shares are recorded as a reduction of share capital.

When the value of goods or services received in exchange for the share-based payment cannot be reliably estimated, the fair value is measured by use of a valuation model. The expected life used in the model is adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations.

 

42

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Intercept Energy Services Inc. (formerly known as Global Green Matrix)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in Canadian dollars)

December 31, 2013 and 2012

 

2.	Significant accounting policies (cont’d)

Convertible debentures

The Company’s convertible debentures are segregated into their debt and equity elements at the date of issue, based on the residual value method whereby the fair value of the debt component is measured first with the residual value being allocated to the conversion feature. The debt element of the instrument is classified as a liability, and recorded at the present value of the Company’s obligation to make future interest payments in cash, and settle the redemption value of the instrument in cash or in a variable number of shares. The carrying value of the debt element is accreted to the original face value of the instrument, over its deemed life, using the effective interest method. The convertible debentures are subsequently recorded at amortized cost at each reporting date, using the effective interest method. The royalty obligation associated with the debentures is carried at fair value with adjustments to the value being recorded through the profit and loss statement on balance sheet dates.

Financial instruments

a)      Financial assets

All financial assets are initially recorded at fair value and designated upon inception into one of the following four categories: fair value through profit or loss (“FVTPL”), loans and receivables, held-to-maturity investments, available-for-sale.

Financial assets classified as FVTPL are measured at fair value with unrealized gains and losses recognized through profit and loss.

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortized cost. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets.  The Company’s cash, trade and other receivables and loans receivable are classified as loans and receivables.

Held-to-maturity investments are non-derivative financial assets that have fixed maturities and fixed or determinable payments, and it is the Company’s intention to hold these investments to maturity. They are subsequently measured at amortized cost.  Held-to-maturity investments are included in non-current assets, except for those which are expected to mature within 12 months after the end of the reporting period.  The Company does not hold any held to maturity investments.

Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale or are not suitable to be classified as financial assets at fair value through profit or loss, loans and receivables or held-to-maturity investments and are subsequently measured at fair value.  These are included in current assets. Unrealized gains and losses are recognized in other comprehensive income, except for impairment losses and foreign exchange gains and losses. The Company does not hold any available-for-sale financial assets.

At each reporting date, the Company assesses whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or group of financial assets is deemed to be impaired, if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset and that event has an impact on the estimated future cash flows of the financial asset or the group of financial assets.

 

43

---

 

Intercept Energy Services Inc. (formerly known as Global Green Matrix)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in Canadian dollars)

December 31, 2013 and 2012

 

2.	Significant accounting policies (cont’d)

b)      Financial liabilities

All financial liabilities are initially recorded at fair value and designated upon inception as FVTPL or other financial liabilities.

Financial liabilities classified as other financial liabilities are initially recognized at fair value less directly attributable transaction costs. After initial recognition, other financial liabilities are subsequently measured at amortized cost using the effective interest rate method. The effective interest rate method is a method of calculating the amortized cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period. The Company’s trade and other payables, loans and notes payable and convertible debentures are classified as other financial liabilities.

Financial liabilities classified as FVTPL include financial liabilities held for trading and financial liabilities designated upon initial recognition as FVTPL. Derivatives, including separated embedded derivatives are also classified as held for trading and recognized at fair value with changes in fair value recognized in earnings unless they are designated as effective hedging instruments. Fair value changes on financial liabilities classified as FVTPL are recognized in profit and loss. The Company’s royalty obligation and derivative liability have been classified as FVTPL.

Revenue recognition

The Company is an oil and gas service company whose primary business is providing an innovative and proprietary technology that heats water used in the fracturing process by exploration and production companies operating in Canada and the United States.  These services are designed to enhance safety, increase efficiency and results in lower costs.  Revenue is earned from the rental of equipment and related technology.  Revenue is earned as the equipment and technology are used by the Company's customers. Revenue is measured at the fair value of the consideration received or receivable, excluding sales taxes or duty, and billed following the month in which it is earned.

Loss per share

The Company presents basic loss per share for its common shares, calculated by dividing the loss attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the year. Diluted loss per share reflects the potential dilution that could occur if the Company’s convertible securities and convertible debentures were converted to common shares. Diluted loss per share is calculated by adjusting the profit or loss attributable to common shareholders and the weighted average number of common shares outstanding for the effect of all dilutive potential common shares. When the Company is in a net loss position the conversion of convertible debentures is considered to be anti-dilutive.

Comprehensive income (loss)

Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss) and represents the change in shareholders’ equity which results from transactions and events from sources other than the Company’s shareholders. For the years presented, comprehensive loss was the same as net loss.

 

44

---

 

Intercept Energy Services Inc. (formerly known as Global Green Matrix)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in Canadian dollars)

December 31, 2013 and 2012

 

2.	Significant accounting policies (cont’d)

Income taxes

Income tax expense comprises current and deferred tax. Income tax is recognized in profit or loss except to the extent that it relates to items recognized directly in equity, in which case the tax expense is also recognized directly in equity.

Current tax is the expected tax payable or receivable on the local taxable income or loss for the year, using local tax rates enacted or substantively enacted at the reporting date, and includes any adjustments to tax payable or receivable in respect of previous years.

Deferred income taxes are recorded using the liability method whereby deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax is not recognized for temporary differences which arise on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting, nor taxable profit or loss.

A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized.  Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

3.	New standards, amendments and interpretations

The following new Standards were issued by the IASB, and are effective for annual periods beginning on or after January 1, 2013. The Company retrospectively adopted these standards effective January 1, 2013 with no significant impact to its consolidated financial statements.

New standards adopted

i)

Consolidated Financial Statements

IFRS 10 Consolidated Financial Statements (“IFRS 10”) replaces IAS 27 Consolidated and Separate Financial Statements, and SIC 12 Consolidation – Special Purpose Entities. The portion of IAS 27 that deals with separate financial statements will remain. IFRS 10 changes the definition of control, such that the same consolidation criteria will apply to all entities. The revised definition focuses on the need to have both “power” and “variable returns” for control to be present. Power is the current ability to direct the activities that significantly influence returns. Variable returns can be positive, negative or both. IFRS 10 requires continuous assessment of control of an investee based on changes in facts and circumstances.

ii)

Joint Arrangements

IFRS 11 Joint Arrangements (“IFRS 11”) will replace IAS 31 Interests in Joint Ventures, and SIC 13 Jointly Controlled Entities – Non-monetary Contributions by Venturers. IFRS 11 defines a joint arrangement as an arrangement where two or more parties contractually agree to share control. Joint control exists only when the decisions about activities that significantly affect the returns of an arrangement require the unanimous consent of the parties sharing control. The focus is not on the legal structure of joint arrangements, but rather on how the rights and obligations are shared by the parties to the joint arrangement. IFRS 11 eliminates the existing policy choice of proportionate consolidation for jointly controlled entities and now requires equity method accounting. In addition, the Standard categorizes joint arrangements as either joint operations or joint ventures.

 

45

---

 

Intercept Energy Services Inc. (formerly known as Global Green Matrix)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in Canadian dollars)

December 31, 2013 and 2012

 

3.	New standards, amendments and interpretations (cont’d)

iii)

Disclosure of Interests in Other Entities

IFRS 12 Disclosure of Interests in Other Entities (“IFRS 12”) will replace the disclosure requirements currently found in IAS 28 Investment in Associates, and is the new Standard for disclosure requirements for all forms of interests in other entities, including subsidiaries, joint arrangements, associates and unconsolidated structured entities, including information about the significant judgments and assumptions that it has made in determining whether it has control, joint control or significant influence in another entity. IFRS 12 sets out the required disclosures for entities reporting under IFRS 10 and IFRS 11.

iv)

Separate Financial Statements

The new IAS 27 Separate Financial Statements (“IAS 27”) has been updated to require an entity presenting separate financial statements to account for those investments at cost or in accordance with IFRS 9 Financial Instruments. The new IAS 27 excludes the guidance on the preparation and presentation of consolidated financial statements for a group of entities under the control of a parent, which is within the scope of the current IAS 27 Consolidated and Separate Financial Statements, and is replaced by IFRS 10.

v)

Investments in Associates and Joint Ventures

The new IAS 28 Investments in Associates and Joint Ventures (“IAS 28”) has been updated and it is to be applied by all entities that are investors with joint control of, or significant influence over, an investee. The scope of the current IAS 28 Investments in Associates does not include joint ventures.

vi)

IFRS 13 Fair Value Measurement (“IFRS 13”)

IFRS 13 was issued by the IASB in May 2011, and is effective for annual periods beginning on or after January 1, 2013.. IFRS 13 was issued to remedy the inconsistencies in the requirements for measuring fair value and for disclosing information about fair value measurement in various current IFRSs. IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, i.e. an exit price.

New standard not yet adopted

The Company has reviewed new and revised accounting pronouncements that have been issued but are not yet effective

As of January 1, 2014, the Company will be required to adopt amendments to IAS 36, "Impairment of Assets" .  The amendments reduce the circumstances in which the recoverable amount of CGUs is required to be disclosed and clarifies the disclosures required when an impairment loss has been recognized or reversed in the period.

As of January 1, 2014, the Company will be required to adopt IFRS Interpretations Committee ("IFRIC") 21 "Levies". IFRIC 21 clarifies that an entity recognizes a liability for a levy when the activity that triggers payment, as identified in the relevant legislation, occurs.

IFRS 9 will replace the guidance of IAS 39, "Financial Instruments : Recognition and Measurement.", This standard estimates the existing IAS 39 categories of held to maturity, available-for-sale and loans receivable.  Financial assets will be classified into one of two categories: amortized cost or fair value.  The extent of the impact of the adoption of IFRS 9 has not yet been determined.

The Company is currently evaluating the impact of adoption of these amendments and interpretations and the effect on Company's financial statements has not yet been determined.

 

46

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Intercept Energy Services Inc. (formerly known as Global Green Matrix)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in Canadian dollars)

December 31, 2013 and 2012

 

4.	Acquisition of Intercept Rentals

On March 20, 2012, the Company acquired all of the issued and outstanding shares of 1503826 Alberta Ltd., carrying on business as "Intercept Rentals", from arm's length third parties pursuant to a share purchase agreement.    Intercept Rentals provides equipment to support the oil industry with products that focus on efficiency as well as safety for the workers and a healthier environment.

The purchase was satisfied by the issuance of 12 million common shares of the Company.  As the fair value of the shares was $0.08015 (determined by level 3 input) the value of the purchase was recorded as $961,843. As required by the purchase agreement, the Company’s common shares were held in escrow pursuant to the terms of a voluntary share escrow agreement and were released, as to 1/3 of such amount, on the 4, 8 and 12 month anniversaries of the closing date. Additional consideration included a 10 % royalty on the gross revenues from the operation of the frac water heating technology for a period of 10 years, granted to the former shareholders of Intercept Rentals or its nominees. This royalty obligation represents a contingent liability and was measured at fair value.

The acquisition of Intercept Rentals was considered strategically important as the Company intended to expand into the oil and gas industry specifically focusing on the expanding fracking operations.  Intercept Rentals new heating technology called "BIG HEAT", is a patent pending propane powered Frack Water Heating System that provides a safer and more efficient heating methods used today by the oil & gas companies and their fracking operations.  This acquisition will allow the Company to participate in the growing fracking industry and also leverage the patent pending technology.

Due to lack of IFRS specific data prior to the acquisition of Intercept Rental, pro-forma profit or loss of the combined entity for any periods prior to acquisition cannot be determined reliably.

4.	Acquisition of Intercept Rentals (cont’d)

Net identifiable assets acquired and liabilities assumed (restated note 23)

Cash		$	21,734
Trade and other receivables			62,557
Prepaids and deposits			145,908
Technology asset			2,056,729
Income taxes recoverable			1,291
Loans receivable			119,375
Equipment			521,841
Trade and other payables			(112,347	)
Finance lease obligations			(173,942	)
Deferred gain on sale leaseback			(6,422	)
Total net identifiable assets		$	2,636,724

Shares issued			961,843
Royalty liability granted (note 11)			1,674,881
Total consideration transferred			2,636,724
Less: value of identifiable assets			(2,636,724	)
Difference		$	-

 

47

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Intercept Energy Services Inc. (formerly known as Global Green Matrix)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in Canadian dollars)

December 31, 2013 and 2012

 

5.	Trade and other receivables and loans receivable

 

		December 31, 2013				December 31, 2012
Trade receivables		$	635,808			$	215,244
Sales tax receivable			98,464				16,730
Loan receivable			-				18,255
Total		$	734,272			$	250,229

 

The Company had an unsecured loan receivable of $15,000 that bore interest of 6% annually.  The loan is was repayable, principal and interest, in full, ten days after the Company provides the borrower with a written notice of demand.  At December 31, 2013 the loan receivable in the amount of $19,380 was determined to be uncollectible and was written off.

In addition $133,963 relating to non-current portion of loans receivable at December 31, 2013 was also written off as it was determined to be uncollectable.

6.	Equipment (Restated (Note 23))

		Computer				Rental Equipment				Vehicles				Leasehold Improvements
																		Total
Cost
Balance, December 31, 2011		$	-			$	-			$	-			$	-			$	-
On acquisition of Intercept Rentals			592				489,616				31,633				-				521,841
Additions			1,796				1,158,992				146,424				1,488				1,308,700
Balance, December 31, 2012		$	2,388			$	1,648,608			$	178,057			$	1,488			$	1,830,541
Additions			4,197				2,394,651				628,093				-				3,026,941
Balance December 31, 2013		$	6,585			$	4,043,259			$	806,150			$	1,488			$	4,857,482
Depreciation
Balance, December 31, 2011		$	-			$	-			$	-			$	-			$	-
Impairment			-				309,174				-				-				309,174
Additions			349				142,816				24,560				232				167,957
Balance, December 31, 2012			349				451,990				24,560				232				477,131
Additions			1,130				294,625				70,230				298				366,283
Balance December 31, 2013		$	1,479			$	746,615			$	94,790			$	530			$	843,414
Net book value
Balance December 31, 2012		$	2,039			$	1,196,618			$	153,497			$	1,256			$	1,353,410
Balance December 31, 2013		$	5,106			$	3,296,644			$	711,360			$	958			$	4,014,068

 

In fiscal 2010, the Company entered into three sales leaseback arrangements.  The lease amounts exceeded the original cost of the items by $20,872.  This gain was deferred and is recognized into income over the terms of the related leases.  For the year ended December 31, 2013, $1,070 (2012 - $5,352) was recognized in income.

 

As at December 31, 2013, net book value of rental equipment under finance lease obligations is $3,040,445 (2012 - $nil).

 

48

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Intercept Energy Services Inc. (formerly known as Global Green Matrix)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in Canadian dollars)

December 31, 2013 and 2012

 

7.	Licenses and technology asset (Restated (Note 23))

Licenses

		Powermaster				DryVac				Total
Cost
Balance, December 31, 2011		$	102,408			$	250,000			$	352,408
Additions			-				152,670				152,670
Balance, December 31, 2012 before undernoted		$	102,408			$	402,670			$	505,078
Impairment			(102,408	)			(402,670	)			(505,078	)
Balance December 31, 2012		$	-				-				-
Depreciation
Balance, December 31, 2011		$	853			$	10,417			$	11,270
Additions			-				-				-
Balance, December 31, 2012 before undernoted			853				10,417				11,270
Impairment			(853	)			(10,417	)			(11,270	)
Balance December 31, 2012		$	-			$	-			$	-
Carrying amounts
At December 31, 2012		$	-			$	-			$	-

1)

On December 10, 2011, the Company signed a definitive Distribution/Dealer License Agreement with Inergy Plus Technologies Inc. (“Inergy Plus”). The agreement provides the Company with the exclusive right to utilize Inergy Plus’ technologies for Canada including the right to license, sell, operate and provide warranty services. The primary technology is called the ReCyclone Advanced Gyroscopic Mill, also called the “PowerMaster.” The license to the Company includes all current and future applications for the Power Master as registered with the United States Patent and Trademark office and all present and future intellectual property rights related to Inergy’s technologies during the 10 year term of the agreement. At December 31, 2012 the Company did not expect to derive any further economic benefit from the Power Master license and decided to write off the net book value of $101,555 to nil.

In 2013 the Company entered into an agreement with Inergy Plus to end and transfer its exclusive license agreement.  The Company then transferred the exclusive license to 0 Waste 2 Energy Canada Ltd. (“0 Waste”) and 0 Waste agreed to pay the Company the sum of $150,000 payable in instalments on the sale of the first three units of the PowerMaster in the licensed area.  The $150,000 represents contingent consideration and the Company cannot reasonably determine when or if the sale of the three units will occur. The contingent consideration has not been recognized.

 

49

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Intercept Energy Services Inc. (formerly known as Global Green Matrix)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in Canadian dollars)

December 31, 2013 and 2012

 

 

7.	Licenses and technology asset (Restated (Note 23)) (cont’d)

2)

On December 23, 2011, the Company signed a Distribution Agreement with I-Des Inc. and DryVac Services Canada Inc. (“I-Des and DryVac”). The Distribution Agreement gives the Company the exclusive right to exploit the technologies developed and owned by I-Des and DryVac for a period of 2 years for all of Canada, in return for a onetime payment in the amount of $250,000. The Distribution Agreement allows for renewal of the term for an additional two (2) years provided that 60 days notice is given by the Company and that it is not in default with any terms of the agreement, one of which states that the Company will sell a minimum of four (4) DryVac units per year.

On January 23, 2012, the Company signed an amendment to the Distribution Agreement to obtain additional rights to sell DryVac units in the State of Utah, USA.  In consideration of the additional territory, the Company paid an additional distributor fee to I-Des and DryVac in the amount of US$150,000.

As the timing of the expected economic benefits of the licenses could not be reasonably determined, the licenses were amortized on a straight line basis determined by their terms.

As at December 31, 2012, the Company evaluated the business relationship with I-Des and DryVac and due to the lack of sale potential for these technologies in Canada, the Company decided to write off the net book of these licences of $392,253 to $nil.

Technology asset

 

		Big Heat
Cost
Balance, December 31, 2011		$	-
Additions			2,056,729
Balance, December 31, 2012 before undernoted		$	2,056,729
Impairment			(2,056,729	)
Balance December 31, 2012		$	-
Amortization
Balance, December 31, 2011		$	-
Additions			-
Balance, December 31, 2012 before undernoted			-
Impairment			-
Balance December 31, 2012		$	-
Carrying amounts
At December 31, 2012		$	-

 

3)

On March 20, 2012, the Company acquired all of the issued and outstanding shares of 1503826 Alberta Ltd. carrying on the business as “Intercept Rentals” from arm’s length third parities pursuant to a share purchase agreement. The purchase price included a technology asset valued at $2,056,729 related to “BIG HEAT” technology.  As at December 31, 2012 the Company tested the carrying value of the technology asset and recorded a full impairment of this asset.

 

50

---

 

Intercept Energy Services Inc. (formerly known as Global Green Matrix)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in Canadian dollars)

December 31, 2013 and 2012

 

8.	Trade and other payables

 

		December 31, 2013				December 31, 2012
						Restated (Note 23)
Trade payables		$	473,500			$	603,958
Accrued liabilities			222,870				66,529
Royalties payable			235,532				-
Other payables			34,273				43,116
Due to related party			3,048				1,044
Total		$	969,223			$	714,647

 

9.	Loans and borrowings

		December 31, 2013				December 31, 2012
						Restated (Note 23)
Automotive loan payable		$	7,715			$	18,003
Loans payable			-				754
Notes payable			643,951				353,506
Convertible debentures payable			313,039				153,000
			964,705				525,263
Less: current portion			(651,666	)			(517,546	)
		$	313,039			$	7,717

 

The automotive loan payable is repayable in monthly instalments of $857, non-interest bearing, maturing September 10, 2014, secured by the related automotive equipment having a net book value of  $15,250 (2012-$24,223).

The loans payable are unsecured, non-interest bearing and have no fixed terms of repayment.

The following table summarises the accounting for Convertible Debentures:

 

		Debenture
Balance, December 31, 2011		$	144,500
Accrued interest expense			8,500
Balance, December 31, 2012			153,000
Accrued interest expense			8,500
Extinguishment of debenture			(161,500	)
Issuance of Debenture, March 22, 2013			245,000
Derivative liability component			(62,473	)
Issuance of Debenture, April 15, 2013			200,000
Derivative liability component			(50,998	)
Unamortized portion of cost of issuance			(26,706	)
Accretion of liability component			8,216
Balance, December 31, 2013		$	313,039

 

51

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Intercept Energy Services Inc. (formerly known as Global Green Matrix)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in Canadian dollars)

December 31, 2013 and 2012

 

 

9.	Loans and borrowings (cont’d)

The Company had unconverted convertible debentures of $85,000 bearing interest at 10% per annum and were due on December 15, 2004.  The debentures were convertible at the option of the debenture holder into fully paid, non-assessable common shares without par value in the capital of the Company at a conversion price in the range of $2.25 to $3.00 per common share. This amount is not expected to be repaid or converted to equity and currently the Company has the intention and the legal ability to extinguish this liability. As such, the Company recognized a gain of $161,500 in the profit and loss for the current year.

During the year ended December 31, 2013, the Company completed first and second tranche of a private placement for the sale of convertible debentures for gross proceeds of $445,000. The proceeds were used to pay for half of a heating unit. The debenture bears interest at a rate of 12 % per annum, payable semi-annually from the closing date and also contains an override royalty of 2 % per annum on the gross profits earned by up to 5 Big Heat units, payable semi-annually from the closing date. The debentures are convertible into common shares of the Company at a price of $0.50 for the first twelve months; $1.00 for the second twelve months; and $1.50 after the first twenty-four months commencing on the closing dates of two separate closing dates being March 22, 2013 for $245,000 and April 15, 2013 for $200,000. These debentures are secured by equipment with a net book value of $445,000 and are subordinated to the finance leases (Note 10).

The debentures are convertible into common shares of the Company at a price of $0.50 for the first twelve months; $1.00 for the second twelve months; and $1.50 after the first twenty-four months commencing on the closing dates of two separate closing dates being March 22, 2013 for $245,000 and April 15, 2013 for $200,000.

The debentures have been classified as debt, net of unamortized issue costs and net of the value of the derivative liability (see Note 12). The value of the conversion feature after allocation of the derivative liability amount was not material and hence equity component of the convertible debenture has not been set up.  The balance liability portion net of derivative liability is measured at amortized cost and will accrete up to the principal balance at maturity using the effective interest rate method.  The accretion and the interest paid are expensed as finance expense in the statement of net loss and comprehensive loss.  The value of the conversion feature was determined at the time of issue as the difference between the principle value of the debentures and the discounted cash flows assuming a rate of 20%.

Issue costs are amortized into income over the life of the debentures using the effective interest rate method.

For the year ended December 31, 2013 $47,967 (2012 - $nil) in interest expense related to these debentures has been recognized under finance expense in the statement of net loss and comprehensive loss.

As at December 31, 2013 there is $18,187 in accrued interest payable related to the above debentures (2012 - $nil).

10.	Finance lease obligations

Finance lease obligations relate to rental equipment used in the Company’s rental operations.  Collateral consists of the related equipment and a general security agreement covering all present and after acquired equipment including intangibles, and the proceeds of sale on the secured equipment.

During the year the Company entered into finance leases with a major Canadian bank in order to fund purchases of rental equipment including vehicles to move heating units to client sites. These leases bear interest at rates varying from 5.08% to 5.57%, and are secured by the fact that the bank retains title to the assets until the leases are paid over three years at which time title passes to the Company for one dollar per unit. As part of this arrangement the Company committed to a credit facility of $2 million under which the finance leases were drawn. Under this facility the Company was required to maintain a debt service coverage ratio of 1.25 to 1. The Company has not maintained the ratio and the bank has the right under the agreement to demand immediate payment under the leases. The leases are therefore classified as current liabilities. The bank has not demanded payment and there is no correspondence between the Company and the Bank regarding this default.

 

52

---

 

Intercept Energy Services Inc. (formerly known as Global Green Matrix)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in Canadian dollars)

December 31, 2013 and 2012

 

10.	Finance lease obligations (cont’d)

 

The principal value of the finance lease obligations have been classified as current on the statement of financial position but if the leases were not demanded then, expected repayments are as follows:

December 31, 2013		Future minimum lease payments 2013				Interest 2013				Principal value of minimum lease payments 2013
Less than one year		$	787,297			$	83,791			$	703,506
Between one and five years			1,180,946				50,492				1,130,454
More than five years			-				-				-
Total		$	1,968,243			$	134,283			$	1,833,960

December 31, 2012		Future minimum lease payments 2012				Interest 2012				Principal value of minimum lease payments 2012
Less than one year		$	13,005			$	315			$	12,690
Between one and five years			-				-				-
More than five years			-				-				-
Total		$	13,005			$	315			$	12,690

11.	Royalty obligation (Restated (Note 23))

On March 20, 2012 the Company entered into a royalty agreement on acquisition of Intercept Rentals (Note 4).  As per this agreement 10% royalty on the gross revenues from the operation of the frac water heating technology is payable for period of ten years, at which time it expires. The royalty obligation is measured in the statement of financial position at the fair value of the expenditure expected to be required to settle the financial liability using a post-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation.  The change in fair value arising from a reassessment of the estimated liability is recognized in the statement of net loss and comprehensive loss as royalty expense.

Royalty obligation and expense		Royalty obligation balance				Royalty expense
Balance, December 31, 2011		$	-			$	-
On acquisition of Intercept Rentals (Note 4)			1,674,881				-
Royalty expense (Note 21 (b))			-				16,765
Royalty obligation expense			-				33,529
Fair value adjustment of liability			39,081				39,081
Balance, December 31, 2012		$	1,713,962			$	89,375
- Current portion			150,912
- Long term portion			1,563,050
		$	1,713,962
Royalty expense (Note 21 (b))			-				103,400
Royalty obligation expense			-				202,001
Fair value adjustment of liability			803,884				803,884
Balance, December 31, 2013		$	2,517,846			$	1,109,285
- Current portion			453,245
- Long term portion			2,064,601
		$	2,517,846

If the discount rate used in calculating the fair value of royalty obligations change by 1% the royalty obligation liability at year end will change by $81,235.

 

53

---

 

Intercept Energy Services Inc. (formerly known as Global Green Matrix)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in Canadian dollars)

December 31, 2013 and 2012

 

 

12.	Derivative liability

The Company issued convertible debentures in 2013 for total proceeds of $445,000 in two tranches; March 22, 2013 - $225,000 and April 15, 2013 - $200,000 (Note 9).  As part of this convertible debenture issue the Company agreed to pay an override royalty of 2 % per annum on the gross profits earned by up to 5 Big Heat units, payable semi-annually from the closing date. This liability is treated as a derivative liability on the statement of financial position.  The derivate liability is measured in the statement of financial position at the fair value of the expenditure expected to be required to settle the financial liability using a post-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation.  The change in fair value arising from a reassessment of the estimated liability is recognized in the statement of net loss and comprehensive loss as gain (loss) on derivative liability.  The following table summarizes the derivative liability recognized in the net loss and comprehensive loss and in the statement of financial position:

Derivative liability and gain (loss) on derivative liability		Derivative liability balance				Gain (loss) on derivative liability
Balance, December 31, 2012		$	-			$	-
On issue of $245,00 convertible debenture (Note 9)			62,473				-
On issue of $200,000 convertible debenture (Note 9)			50,998				-
Fair value adjustment of liability			14,997				14,997
Balance, December 31, 2013		$	128,468			$	14,997
- Current portion			40,163
- Long term portion			88,305
		$	128,468

 

If the discount rate used in calculating the fair value of the derivative liability change by 1% the derivative liability at the year end will change by $2,475.

13.	Share capital (Restated (Note 23))

Authorized share capital

Unlimited number of common voting shares and unlimited number of preferred non-voting shares with no par value.

Issued share capital

At December 31, 2013, there were 109,289,795 (December 31, 2012 - 80,966,462) issued and fully paid common shares.

Please refer to the Consolidated Statements of Changes in Equity for a summary of changes in share capital and contributed surplus for the years ended December 31, 2013 and 2012.

Private placements and other share issuance

For the year ended December 31, 2013

1)

On December 3, 2013 the Company completed the second tranche of the non-brokered placement for shares offered at $0.075 per share. A total of 773,333 shares were issued representing gross proceeds of $58,000.

2)

On October 8, 2013, the Company completed a non-brokered private placement for a total of 7,983,333 Shares. The offering consisted of common shares in the Company offered at a price of $0.075 per share. The Company received gross proceeds of $598,750. The Company further paid $58,750 for Finders fees.

3)

On November 11, 2013 the Company entered into an agreement with Energy Manufacturing LLC whereby they were issued 5,500,000 common shares of IES for a deemed value of $412,500 which was the trading price and as agreed with the seller towards the purchase price of an additional Water Heating Unit.

 

54

---

 

Intercept Energy Services Inc. (formerly known as Global Green Matrix)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in Canadian dollars)

December 31, 2013 and 2012

 

13.	Share capital (Restated (Note 23)) (cont’d)

4)

On September 13, 2013 the Company issued 300,000 common shares on exercise of options by an insider for $0.10 per share for gross proceeds of $30,000. The fair value transferred from contributed surplus to share capital was $24,000.

5)

On May 31, 2013 the Company completed the first tranche of a non-brokered private placement for shares offered at a price of $0.075 per share. A total of 8,000,000 shares were issued representing gross proceeds of $600,000.

On June 28, 2013 the Company completed the second tranche of the non-brokered private placement for shares offered at a price of $0.075 per share. A total of 2,366,667 shares representing gross proceeds of $177,500 were issued. Gross proceeds for both tranches was $777,500.

The Company paid finder’s fees of $77,750 cash in relation to the $777,500 raised for the placement.

6)

On February 15, 2013, the Company completed a non-brokered private placement for a total of 3,400,000 units representing gross proceeds of $170,000. Each unit consists of one share and one share purchase warrant. Each warrant entitled the holder to purchase one additional common share for a period of 2 years from the closing date at an exercise price of $0.15 per share.

The Company also paid a finder’s fee of $12,500 cash and issued 250,000 finder’s warrants. Each finder's warrant is exercisable at $0.15 into one common share of the Company for 2 years from the issuance date.

The fair value of the finders’ warrants, being $10,783 was determined using the Black-Scholes option pricing model weighted average assumptions with a volatility of 141%, average risk free interest rate of 1.13%, expected life of 2 years and a dividend rate of 0%.

Based on the relative fair value of each of the components, the sale of these units during the year has resulted in $57,200 of the net proceeds being allocated to contributed surplus in respect to the warrants.

 

For the year ended December 31, 2012 (Restated (Note 23))

1)

On February 8, 2012, the Company completed private placement financing of 13,143,765 units for gross proceeds of $1,182,939. Each unit consists of one common share of the Company and one common share purchase warrant.  Each warrant entitled the holder to purchase one additional common share for a period of 30 months from the closing date at an exercise price of $0.18 per share.

The Company paid finder's fees and commissions totalling $63,590 cash and 706,564 finder's warrants. Each finder's warrant is exercisable at $0.18 into one common share of the Company for 30 months from the issuance date.

The fair value of the finders’ warrants, being $51,257  was determined using the Black-Scholes option pricing model weighted average assumptions with a volatility of 159%, average risk free interest rate of 1.09%, expected life of 1.5 years and a dividend rate of 0%.

2)

As described in Note 4, the Company acquired Intercept Rentals for a purchase price of $961,843, which was satisfied by the issuance of 12 million common shares of the Company with a fair value of $0.08015 per share (determined by level 3 input). As required by the purchase agreement, the Company’s common shares will be held in escrow pursuant to the terms of a voluntary share escrow agreement and released, as to 1/3 of such amount, on the 4, 8 and 12 month anniversaries of the closing date.

3)

On November 6, 2012, the Company completed a private placement financing of 5,440,000 units at a price of $0.05 per unit for gross proceeds of $272,000. Each unit consists of one share and one share purchase warrant, with each warrant exercisable to acquire an additional share for a period of 2 years from the closing date at a price of $0.15.

 

55

---

 

Intercept Energy Services Inc. (formerly known as Global Green Matrix)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in Canadian dollars)

December 31, 2013 and 2012

 

13.	Share capital (Restated (Note 23)) (cont’d)

The Company paid finder's fees and commissions totaling $12,500 cash and 250,000 finder's warrants. Each finder's warrant is exercisable at $0.15 into one common share of the Company for 2 years from the issuance date.

The fair value of the finders’ warrants, being $8,219 was determined using the Black-Scholes option pricing model weighted average assumptions with a volatility of 145%, average risk free interest rate of 1.07%, expected life of 2 years and a dividend rate of 0%.

4)

On December 27, 2012, the Company completed a private placement financing of 5,000,000 units at a price of $0.05 per unit for gross proceeds of $250,000. Each unit consists of one share and one share purchase warrant, with each warrant exercisable to acquire an additional share for a period of 2 years from the closing date at a price of $0.15.

The Company paid finder's fees and commissions totaling $22,500 cash and 450,000 finder's warrants. Each finder's warrant is exercisable at $0.15 into one common share of the Company for 2 years from the issuance date.

The fair value of the finders’ warrants, being $8,645 was determined using the Black-Scholes option pricing model weighted average assumptions with a volatility of 120%, average risk free interest rate of 1.12%, expected life of 2 years and a dividend rate of 0%.

Based on the relative fair value of each of the components, the sale of these units during the year has resulted in $708,316 of the net proceeds being allocated to contributed surplus in respect to the warrants.

Warrants

As at December 31, 2013 and December 31, 2012, the following share purchase warrants were outstanding (and include the finders warrants in note 14):

 

Expiry Date		Exercise Price				December 31, 2013				December 31, 2012
July 13, 2015 (1)		$	0.20				15,398,333				15,398,333
July 24, 2014		$	0.18				7,831,569				7,831,569
August 8, 2014		$	0.18				6,018,761				6,018,761
September 20, 2014		$	0.15				1,480,000				1,480,000
November 6, 2014		$	0.15				4,210,000				4,210,000
December 14, 2014		$	0.15				3,250,000				3,250,000
December 27, 2014		$	0.15				2,200,000				2,200,000
January 25, 2015		$	0.15				2,000,000				--
February 20, 2015		$	0.15				1,650,000				--
							44,038,663				40,388,663

 

(1)

During the year ended December 31, 2013, the Company announced that 15,398,333 common share purchase warrants, exercisable at $0.20 per share, and having an expiry date of July 13, 2013, have been extended and will expire on July 13, 2015. During the year ended December 31, 2012, the Company announced that 15,398,333 common share purchase warrants, exercisable at $0.20 per share, and having an expiry date of July 13, 2012, were extended and would have expired on July 13, 2013.

 

56

---

 

Intercept Energy Services Inc. (formerly known as Global Green Matrix)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in Canadian dollars)

December 31, 2013 and 2012

 

14.	Finder’s warrants

 

The Company has issued warrants as compensation for arranging financing

 

		Number of warrants				Weighted average price when granted				Weighted average exercise price
Balance outstanding, December 31, 2011			-
Issued			1,406,565			$	0.09			$	0.16
Balance outstanding, December 31, 2012			1,406,565			$	0.09			$	0.16
Issued			250,000			$	0.08			$	0.15
Balance outstanding, December 31, 2013			1,656,565			$	0.09			$	0.16
Balance exercisable, December 31, 2013			1,656,565			$	0.09			$	0.16
Balance exercisable, December 31, 2012			1,406,565			$	0.09			$	0.16

15.	Share-based compensation

Contributed surplus

Contributed surplus relates to stock options, finders warrants and share purchase warrants that have been issued by the Company.

Stock options

The Company follows the policies of the TSX Venture Exchange, under which it is authorized to grant options to executive officers and directors, employees and consultants enabling them to acquire up to 10% of the issued and outstanding common shares of the Company.  The exercise price of each option equals the market price of the Company’s common shares as calculated on the date of grant.  The options can be granted for a maximum term of 5 years.  The vesting period for all options is at the discretion of the board of directors.

Option transactions and the number of options outstanding are summarized as follows:
 

		Number of options				Weighted average market price when granted				Weighted average exercise price				Weighted average share price at date of exercise
Balance outstanding, December 31, 2011			-							$	-			$	-
Issued			500,000				.07				0.15				-
Balance outstanding, December 31, 2012			500,000				.07			$	0.15			$	-
Issued			11,075,000				.07				0.10				-
Exercised			(300,000	)			.07				0.10				0.10
Cancelled			(2,000,000	)			.07				0.10				-
Balance outstanding, December 31, 2013			9,275,000				.07			$	0.11			$	0.10
Balance exercisable, December 31, 2013			7,937,500				.07			$	0.10
Balance exercisable, December 31, 2012			83,334				.07			$	0.15

Weighted average contractual  life, December 31, 2013	3.28 years
Weighted average contractual  life, December 31, 2012	4.93 years

Weighted average fair value of options issued, December 31, 2013	$0.0691
Weighted average fair value of options issued, December 31, 2012	$0.0669

 

57

---

 

Intercept Energy Services Inc. (formerly known as Global Green Matrix)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in Canadian dollars)

December 31, 2013 and 2012

 

 

15.	Share-based compensation (cont’d)

For the year ended December 31, 2013

i)

On January 7, 2013, the Company granted 2,600,000 stock options at an exercise price of $0.10 per common share to directors, officers and consultants of the Company. The option grant vested immediately, exercisable until January 7, 2017.

ii)

On March 5, 2013, the Company granted 200,000 options at an exercise price of $0.10 per share to a consultant of the Company. The option grant will vest quarterly over 12 months, exercisable until March 5, 2017.

iii)

On May 1, 2013 the Company granted 4,400,000 options at an exercise price of $0.10 per share to Directors, officers and consultants of the Company. The option grant vested immediately on date of grant, exercisable until May 1, 2017.

iv)

On May 1, 2013, the Company granted 2,275,000 options at an exercise price of $0.10 per share to consultants of the Company. The option grant will vest quarterly over 12 months, exercisable until May 1, 2017.

v)

On May 1, 2013, the Company granted 1,200,000 options at an exercise price of $0.10 per share to a consultant of the Company. The option grant will vest quarterly over 24 months, exercisable until May 1, 2017.

vi)

On July 1, 2013 the Company granted 400,000 options at an exercise price of $0.10 per share to consultants of the Company which vested immediately on the date of grant, exercisable until July 1, 2018.

vii)

On September 13, 2013 300,000 options were exercised at an exercise price of $0.10 of those issued May 1, 2013.

viii)

On September 23, 2013 the Company canceled 2,000,000 options granted to a consultant at an exercise price of $0.10 per share. The options were part of the grant made on May 1, 2013 to consultants of the Company.

For the year ended December 31, 2012

On December 5, 2012, the Company granted 500,000 stock options at an exercise price of $0.15 per common share to an employee of the Company, exercisable until December 5, 2017. The options vest annually over 3 years.

The total share-based expense recognized during the year ended December 31, 2013, under the fair value method was $747,338 (2012 - $3,726). 

The following weighted average assumptions were used for the Black-Scholes valuation of stock options granted during the year ended December 31, 2013 and 2012:

		2013				2012
Risk-free interest rate			1.25	%			1.04	%
Expected life of options		4 years				5 years
Annualized volatility			162	%			165	%
Average trading price		$	0.07			$	0.10
Forfeiture rate		nil				nil
Dividend rate		nil				nil

 

 

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Intercept Energy Services Inc. (formerly known as Global Green Matrix)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in Canadian dollars)

December 31, 2013 and 2012

 

 

16.	Income taxes

 

						Restated (Note 23))
Loss before income taxes		$	(3,033,981	)		$	(4,133,026	)
Effective tax rate			25	%			25	%
Income tax recovery at statutory rates		$	(758,495	)		$	(1,033,257	)
Non taxable items			223,884				116,523
Impact of deferred income tax rates applied versus current statutory rate			-				119,067
Change in unrecognized assets			534,611				797,667
Total income taxes		$	-			$	-
b) The components of the Company's deferred income tax assets and liabilities are as follows:
			2013				2012
Finance lease obligations		$	227,265			$	-
Non-capital loss carryforwards			577,261				45,172
Equipment			(800,950	)			(45,172	)
Other			(3,576	)			-
		$	-			$	-
c) Unrecognized deferred tax assets
Deferred tax assets have not been recognized in respect to the following items:
			2013				2012
Deductable temporary differences		$	424,570			$	24,644
Tax losses			2,419,085				2,237,985
		$	2,843,655			$	2,262,629

 

Deferred tax assets have not been recognized in respect of these items because it is not probable that future taxable profit will be available against which the Company can utilize the benefits.

The Company has non-capital losses of approximately $11,500,000 which may be carried forward and applied against taxable income in future years.  These losses, if unutilized, will expire through to 2033.  The Company has taxable capital losses of approximately $1,060,000 which may be applied in future years against taxable capital gains. The ability to apply these losses has no expiration date.

17.	Basic and diluted loss per share (Restated (Note 23))

The calculation of basic and diluted loss per share for the year ended December 31, 2013 was based on the loss attributable to common shareholders of $3,033,981 (2012 - $4,133,026) and the weighted average number of common shares outstanding of 92,417,996 (2012 - 68,038,758).

Diluted loss per share did not include the effect of 44,038,663 share purchase warrants and finders warrants, 9,275,000 stock options, and   conversion of convertible debentures to 890,000 shares as they were anti-dilutive.

 

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Intercept Energy Services Inc. (formerly known as Global Green Matrix)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in Canadian dollars)

December 31, 2013 and 2012

 

 

18.	Related party transactions

Key management personnel compensation

		Years ended
		December 31, 2013				December 31,  2012
Short-term employee benefits - management		$	192,000			$	120,000
Stock based compensation - management			20,717				-
Stock based compensation - directors			406,217				-
Office rent			3,800				3,800
		$	622,734			$	123,800

 

These transactions are in the normal course of operations and are measured at the amount of consideration established and agreed to by the related parties.

Related party balances

 

The following amounts due to related party are included in trade and other payables:

		December 31, 2013				December 31, 2012
Due to an officer of the Company		$	3,048			$	1,044
Due to a director of the Company			24,150				-
		$	27,198			$	1,044

      These amounts are unsecured, non-interest bearing and have no fixed terms of repayment.

19.	Management of capital

The Company manages its capital structure and makes adjustments to it, based on the funds available to the Company, in order to continue the business of the Company. The Board of Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company’s management to sustain future development of the business.

The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern and to maintain a flexible capital structure which optimizes the costs of capital at an acceptable risk. In the management of capital, the Company includes its components of equity. The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Company may attempt to issue new shares or issue debt.

At this stage of the Company’s development, in order to maximize ongoing development efforts, the Company does not pay out dividends.  Management reviews its capital management approach on an on-going basis and believes that this approach, given the relative size of the Company, is reasonable.

There were no changes in the Company’s approach to capital management during the year ended December 31, 2013.  The Company is not subject to externally imposed capital requirements.

 

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Intercept Energy Services Inc. (formerly known as Global Green Matrix)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in Canadian dollars)

December 31, 2013 and 2012

 

 

20.	Financial risk management

IFRS 13, Fair Value Measurement , establishes a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:

Level1

-   quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2

-   inputs other than quoted prices included in Level 1 that are observable for the asset or liability, eitherdirectly (i.e. as prices) or indirectly (i.e. derived from prices); and

Level 3

-   inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The carrying values of cash, trade and other receivables, loans receivable, trade and other payables, and loans and notes payable approximate their fair values due to their short terms to maturity.

The fair value of finance lease obligations are estimated to approximate their carrying values because the interest rates do not significantly differ from market interest rates (level 2).

The royalty obligation and the derivative liability are carried at fair value (level 3).

The fair value of the convertible debentures are estimated to approximate the current value.

Financial risks

The Company has exposure to the following risks from its use of financial instruments:

·

Credit risk

·

Liquidity risk

·

Market risk

Credit risk

The Company's credit risk is primarily attributable to cash, trade and other receivables and loans receivable. The Company has no significant concentration of credit risk arising from operations. Cash consists of chequing account at reputable financial institution, from which management believes the risk of loss to be remote. Federal deposit insurance covers balances up to $100,000 in Canada. Trade and other receivables mainly consist of trade receivables, and amounts due from government agencies. The Company limits its exposure to credit loss for cash by placing its cash with high quality financial institution and for trade and other receivables by standard credit checks.  At December 31, 2013, the Company’s exposure to credit risk is minimal. There are no past due or impaired accounts receivable.  At December 31, 2013, 94% (2012 - 80%) of the Company's trade accounts receivable was due from 4 (2012 - 2) customers.

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company has a planning and budgeting process in place to help determine the funds required to support the Company’s normal operating requirements on an ongoing basis. The Company ensures that there are sufficient funds to meet its short-term business requirements, taking into account its anticipated cash flows from operations and its holdings of cash.

As at December 31, 2013, the Company had a cash balance of $8,845 (December 31, 2012 - $40,887) to settle current liabilities of $ 3,948,257 (December 31, 2012 - $1,396,866).

Historically, the Company's main source of funding has been the issuance of equity securities for cash, primarily through private placements and loans from related and other parties. The Company’s access to financing is always uncertain. There can be no assurance of continued access to significant equity funding.

Current liabilities are payable on demand, convertible debentures have a five year term and finance leases each have a three year term.

 

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Intercept Energy Services Inc. (formerly known as Global Green Matrix)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in Canadian dollars)

December 31, 2013 and 2012

 

20.	Financial risk management (cont’d)

Market risk

Market risk is the risk of loss that may arise from changes in market factors such as interest rates and  foreign exchange rates.

a)

Interest   risk

The Company has cash balances and interest-bearing loans payable.  The Company’s loans and notes payable, convertible debentures and finance leases bear interest at fixed interest rates, and as such, the Company is not exposed to interest rate risk on its loans payable.

b)

Foreign currency risk

The Company does not have any balances denominated in a foreign currency and believes it has no significant foreign currency risk.

21.	Commitments

a)      The Company has entered into an operating lease commitment exclusive of occupancy costs for premises as follows:

 

2014			$	96,772
2015-2017				282,252
Total			$	379,024

 

b)

During the year ended December 31, 2012, the Company became party to an agreement pay a royalty of 5% of gross sales realized utilizing the technology of the royalty holder, payable monthly. The agreement remains in force while the technology is being used.

The agreement is an executory contract and therefore all royalty payments under the contract are recognized as they become due.

22.	Supplemental disclosure with respect to cash flows

		Year ended
		December 31, 2013				December 31, 2012
Cash received for income taxes		$	(1,292	)		$	-
Cash paid for interest			127,803				22,607
		$	126,511			$	22,607

During the year ended December 31, 2013 5,500,000 common shares were issued at $0.075 per share for $412,500 in total as consideration for the purchase of rental equipment. This transaction was excluded from the statement of cash flows.

During 2013, the Company acquired equipment of $2,367,199 through the assumption of finance leases.

Significant non-cash financing and investing transactions during the year ended December 31, 2012 were as follows:

The Company acquired all of the issued and outstanding shares of 1503826 Alberta Ltd., carrying on business as "Intercept Rentals", for a purchase price of $1,620,000, which was satisfied by the issuance of 12 million common shares of the Company with a fair value of $0.08015 per share (Note 4).

 

 

 

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Intercept Energy Services Inc. (formerly known as Global Green Matrix)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in Canadian dollars)

December 31, 2013 and 2012

 

 

23.	Restatements

The Company has restated the 2012 financial statements as follows:

·

Goodwill : Goodwill on the acquisition of Intercept Rentals has been restated to $Nil from $1,329,465.  Intercept Rentals new heating technology called "BIG HEAT", is a patent pending propane powered Frack Water Heating System that provides a safer and more efficient heating method than the methods used today by the oil & gas companies and their fracking operations. An assessment was made and any excess consideration over the net identifiable assets was concluded to be be the value of the "BIG HEAT" technology and therefore goodwill was restated to $Nil.

·

Technology asset , impairment of technology asset and royalty liability : Also as a result of this assessment a technology asset of $2,056,729 was recorded along with a royalty liability of $1,674,881 relating to the 10% contingent royalty payable to the former Intercept Rentals shareholders. This contingent consideration was not previously reported (Note 4).  Technology asset was fully impaired at December 31, 2012. As at December 31, 2012 the royalty liability was recalculated at $1,713,962 an increase of $39,081(Note 11) that has been included in the consolidated statement of net loss and comprehensive loss for 2012.

·

Liability on acquisition of Intercept Rentals : A liability of $289,400 erroneously recorded in the acquiree’s books as part of the Intercept Rentals acquisition has been reversed effective March 20, 2012.

·

Prepaids and deposits, trade and other liabilities and impairment of equipment : An amount of $149,600 previously reported as prepaid deposit was capitalized to equipment.  Also related to this equipment, trade and other payables were increased by $159,574 to correct for previously unrecorded obligations created on the acquisition of this equipment.  These two adjustments resulted in increase in equipment by $309,174.  At December 31, 2012 this equipment of $309,174 was impaired.

·

Share capital and contributed surplus : Throughout 2012 the Company completed  private placement financings of 23,583,765 units for gross proceeds of $1,704,939. Each unit consisted of one share and one share purchase warrant, with each warrant exercisable to acquire an additional share for a period of 18 to 24 months from the closing date at a price from $0.15 to $0.18.  Based on the relative fair value of each of the components, the sales of these units during the year has resulted in $708,316 of the net proceeds being allocated to contributed surplus in respect to the warrants.  As a result of this share capital has been reduced and contributed surplus has been increased by $708,316 to reflect the warrant portion of the value of these units that was not previously recorded (Note 13).

·

Accumulated other comprehensive income ("AOCI") : Accumulated other comprehensive income (AOCI) of $53,195 has been reclassified to contributed surplus in the opening 2012 balances. This amount was erroneously classified as AOCI when the Company exited the United States and the translation adjustment giving rise to the AOCI was realized.

 

The effect of the restatements on the consolidated statements of financial position as at December 31, 2012 is as follows:

			As previously reported			Adjustments			As restated
$			December 31						December 31
			2012						2012
Prepaids and deposits			169,620				(149,600	)	20,020
Goodwill			1,329,465				(1,329,465	)	-
Trade and other payables			555,074				159,574		714,648
Loans and borrowings (current portion)			807,006				(289,460	)	517,546
Royalty obligation			-				1,713,962		1,713,962
Share capital			10,659,919				(708,316	)	9,951,603
Contributed surplus			4,146,934				708,316		4,855,250
Deficit			(13,012,738	)			(3,009,947	)	(16,022,685	)
Accumulated other comprehensive income			53,195				(53,195	)	-

 

 

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Intercept Energy Services Inc. (formerly known as Global Green Matrix)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in Canadian dollars)

December 31, 2013 and 2012

 

23.	Restatements (cont’d)

The effect of the restatement on the consolidated statements of net loss and comprehensive loss for the year ended December 31, 2012 is as follows:

 

				As previously reported				Adjustments				As restated
$				December 31,								December 31,
					2012								2012
Impairment of technology asset					-				2,056,729				2,056,729
Impairment of equipment					-				309,174				309,174
Royalties					50,293				39,082				89,375
Net loss and comprehensive loss for the year					(1,728,041	)			(2,404,985	)			(4,133,026	)
Basic and diluted loss per common share					(0.03	)			(0.03	)			(0.06	)

 

The effect of the restatement on the consolidated statements of cash flows for the year ended December 31, 2012 is as follows:

 

		As previously reported				Adjustments				As restated
$		December 31,								December 31,
			2012								2012
Cash flows from operating activities
Net loss and comprehensive loss for the year			(1,728,041	)			(2,404,985	)			(4,133,026	)
Prepaids and deposits			(23,712	)			149,600				125,888
Trade and other payables			23,944				139,860				163,804
Impairment of technology asset			-				2,056,729				2,056,729
Impairment of equipment			-				309,174				309,174
Royalty liability			-				39,082				39,082
Cash flows from financing activities
Loans and borrowings (current portion)			648,547				(289,460	)			359,087

24.	Segmented disclosure

The Company has one operating segment-oilfield services and at December 31, 2013 all of the Company’s activities and assets were in Canada. During the year ended December 31, 2013 92% (2012 - 74%) ) of sales were to 5 (2012 - 3) customers.

25.	Subsequent events

On April 29, 2014 the Company entered into a loan agreement with an arm’s length third party lender. Pursuant to the loan agreement, the lender has agreed to make revolving credit loans to the Company in the principal amount of up to $1,000,000, of which $608,000 had been advanced as at December 31, 2013 and is included in loans and borrowings, and $328,500 was advanced subsequent to the year end.  The amount of the loan is unsecured and bears interest at the rate of 12% per annum. The term of the agreement is for two years and provides that at any time after July 29, 2014, the lender is entitled to demand repayment of the whole or any portion of the outstanding amount of the loan. The proceeds from the loan will be used to retire accounts payable. In consideration for the lender agreeing to provide the loan, the Company has issued 900,000 common shares  at a deemed price of $0.05 per share, subject to final approval of the TSX Venture Exchange. The Bonus Shares will be subject to a hold period that expires on August 30, 2014.

On February 28, 2014, the Company entered into a lease arrangement to lease a truck and heating unit for 50% of the operating income of the unit. The term of the arrangement is indefinite.  The entity which owns this truck is controlled by a person who was appointed Director of the Company subsequent to the year end.

On January 1, 2014 the company completed a vertical short-form amalgamation pursuant to the Business Corporations Act (Alberta) with its wholly owned operating subsidiary 1503826 Alberta Ltd. operating as Intercept Rentals.

 

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ITEM 19. EXHIBITS

Number
12.1	Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
12.2	Certification of Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
13.1	Certification of Chief Executive Officer pursuant to 18 U.S.C section 1350
13.2	Certification of Chief Financial Officer pursuant to 18 U.S.C section 1350

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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SIGNATURE

 

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

 

Intercept Energy Services Inc. (formerly Global Green Matrix Corp.)
	By:
Date		Name and Signature		Title
May 15, 2014		/s/Randy Hayward
		Randy Hayward		President

 

 

 

 

 

 

 

 

 

 

 

 

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