EFTA01158268.pdf

ProSep Inc. Unaudited Consolidated Interim Financial Statements For the three and nine-month periods ended September 30, 2010 EFTA01158268 ProSep Inc. Consolidated statements of loss and comprehensive loss (unaudited) Three months ended Nine months ended September 30, September 30, 2010 2009 2010 2009 Revenue 8,140,093 9,186,352 26,200,779 31,689,103 Cost of goods sold 6,174,221 6.523,948 19,085,282 22,093,579 Gross margin 1,965,872 2.662.404 7.115,497 9.595.524 Expenses Sales and marketing 519,057 539,185 1,528,725 1,644,836 Research and development 35,392 95,140 187,311 395,773 General and administrative 2,252,802 2.660.772 7,165,430 7.861.851 2,807,251 3,295,097 8,881,466 9,902,460 Loss before the following Items: (841,379) (632.693) (1,765,969) (306.936) Impairment of goodwill - • 6.500,000 Increase in fair value of long-term Investments (Note 7) - (400,000) (375,000) (400.000) Net financial charges (Note 3) 528,360 2,742,592 1,695,188 4,773,825 Amortization 361,961 410,637 1,106,661 1,180,816 (Gain) Loss on sale of assets (800) • 25.468 • Loss before income taxes (1,730,900) (3,385.922) (4,218,286) (12,361.577) Current tax provision (recovery) 15,486 (74,047) (351,756) 111,038 Future tax provision (recovery) (201,396) 128.383 (712,156) 100,011 Income taxes (recovery) (185,910) 54.336 (1,063,912) 211.049 Net loss (1,544,990) (3,440.258) (3,154,374) (12.572.626) Weighted average number of shares (basic and diluted) 191,767,990 130.840.835 177,227,930 86.819.126 Basic and diluted loss per share (Note 5) -0.01 .0.03 (0.02) (0.14) Statement of Comprehensive Loss 2010 2009 2010 2009 Net loss (1,544,990) (3,440,258) (3,154,374) (12,572,626) Foreign currency translation adjustment (Note 14) (875,206) 422,105 Comprehensive loss (2.420.196) (3.440.258) 2 732 269 12.572.626 The accompanying notes are an integral part of these consolidated financial statements Page 2 EFTA01158269 ProSep Inc. Consolidated balance sheets Unaudited Audited September 30, December 31. 2010 2009 $ $ Assets Current assets Cash 2,522,446 7,689,695 Restricted cash (Note 6) 2,022,940 Receivables 14,087,022 12,807,205 Inventories 318,418 392,709 Prepaid expenses 707,225 665,162 Income tax recoverable 897,707 544,177 Future income tax assets 258,724 207,698 18,791,542 24,329,586 Long-term investment (Note 7) 3,729,775 3,425,000 Property and equipment 1,214,122 1,526,561 Goodwill 15,133,317 15,195,645 Intangible assets 8.373,991 8,918.517 47.242,747 53,395,309 Liabilities Current liabilities Bank credit facilities (Note 8) 5,006,206 Accounts payable and accrued liabilities 11,921,011 12,836,057 Deferred revenue 224,717 71,796 Current portion of long term debt 1,679,001 1,672,602 13,824,729 19,586,661 Long-term debt (Note 9) 10,680,456 11,689,450 Future income tax liabilities 1,000,616 1,661,127 Pension obligation 661,214 495,440 26,167,015 33,432,678 Shareholders' equity Share capital (Note 10) 75,725,324 72,010,934 Contributed surplus 11,767,651 11,499,512 Accumulated other comprehensive income 2,322,616 1,900,511 Deficit (68,739,859) (65,448,326) 21,075,732 19,962,631 47,242,747 53,395,309 Approved by the Board "Jacques L. Drouin" Jacques L. Drouin, Director "David H. Laidley" David H. Laidley, Director The accompanying notes are an integral part of these consolidated financial statements Page 3 EFTA01158270 ProSep Inc. Consolidated statements of contributed surplus (unaudited) Nine-month period ended September 30, 2010 Total Stock-based Conversion contributed compensation Warrants feature of loans Other surplus $ $ $ $ $ Contributed surplus. beginning of period 2,909.496 660,828 171,560 7.757.628 11,499.512 Stock-based compensation and restricted share units (Note 4) 350.698 350,698 Vested restricted share units settled in cash (68,670) (68.670) Vested restricted share units (13.889) - - (13.889) Contributed surplus. end of period 3.177.635 660.828 171.560 7.757.628 11.767.651 Nine-month period ended September 30. 2009 Total Stock-based Conversion contributed compensation Warrants feature of loans Other surplus $ $ $ $ $ Contributed surplus. beginning of period 2.548/74 8.000.821 1.977.544 12.527.139 Stock-based compensation and restricted share units 262.877 262.877 Induced conversion and settlement of convertible debentures (1.977.544) 417.635 (1359.909) Issuance of new convertible debentures 171.560 171.560 Contributed surplus. end of period 2.811.651 8.000.821 171360 417.635 11,401.667 The accompanying notes are an integral part of these consolidated financial statements Page 4 EFTA01158271 ProSep Inc. Consolidated statements of deficit and accumulated other comprehensive income (unaudited) Deficit Nine months ended September 30, 2010 2009 Deficit, beginning of period (65,448,326) (48.485.076) Share issue costs (Note 10) (137,159) (886.470) Inducement for debt conversion (2.198.397) Net loss (3,154,374) (12.572.626) Deficit, end of period (68,739,859) (64,142,569) Accumulated other comprehensive Income 2010 2009 $ $ Balance. beginning of period 1,900.511 Foreign currency translation adjustment 422,105 Balance, end of period 2,322,616 At September 30. 2010. the sum of deficit and Accumulated other comprehensive income is $66,417.243. The accompanying notes are an integral part of these consolidated financial statements Page 5 EFTA01158272 ProSep Inc. Consolidated statements of cash flows (unaudited) Three months ended Nine months ended September 30, September 30, 2010 2009 2010 2009 Operating activities Net loss (1,544,990) (3,440,258) (3,154.374) (12,572,626) Interest received on long-term investment 11,239 387,576 Items not affecting cash Stock-based compensation 131,246 100,163 350,698 262,877 Amortization of property and equipment 179,350 241,101 564,795 671,928 Amortization of intangible assets 182.611 169,679 541,866 509,031 (Gain) Loss on sale of asset (800) 25,468 Accretion on long-term debt 15,585 47,883 43,451 421,785 Impairment of goodwill • • 6,500,000 Increase in fair value of long-term investment (400,000) (375,000) (400,000) Periodic pension cost in excess of contribution 99,528 35,255 165,773 125,879 Future income taxes (recovery) (201,396) 250,010 (712,156) 221,638 Unrealized exchange loss (pain) 91,636 (598.793) 574,971 (711.896) (1,047,230) (1,512,178) (1,974,508) (2,512,265) Changes in operating working capital items (303.470) (4,736,145) (2,869,916) (7,696,420) (1,350,700) (6,248,323) (4,844,424) (10,208,685) Investing activities Restricted cash 5,065,479 2,022,940 Disposal of tangible assets 801 1,355 Subsidies on intangible assets (222) 44,696 Acquisition of property and equipment (48,516) (138,760) (293,328) (480.788) 5,017,542 (138,760) 1,775,663 (480,788) Financing activities Restricted cash released • 4,196,832 Bank credit facilities (5,981,866) (236,356) (4,686,052) (1,835,292) Increase in long term debt 67,906 Shares issued (net of expenses) 4,113,530 3,563,344 4,113,530 Repayment of long-term debt (12,112) (207,547) (802,004) (1,059,386) (5.993,978) 3,669,627 (1,924,712) 5,483,590 Decrease in cash (2,327.136) (2,717,456) (4,993,473) (5,205,883) Effect of exchange rate on cash (20.666) (37,596) (173,782) 271,426 Cash, beginning of period 4.870,248 5.435.714 7,689,701 7.615,119 Cash, end of period 2.522.446 2,680,662 2,522,446 2,680,662 The accompanying notes are an integral part of these consolidated financial statements Page 6 EFTA01158273 ProSep Inc. Notes to the consolidated financial statements (Unaudited) For the three-month and nine-month periods ended September 30, 2010 and 2009 1. Financial Statement Presentation and Going Concern The unaudited interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP") applicable to interim financial statements, following the same accounting policies as those outlined in Note 2 to the consolidated financial statements for the year ended December 31, 2009. The interim financial statements should be read in conjunction with the most recent annual consolidated financial statements. The accompanying financial statements of ProSep Inc. (the "Company) have been prepared using Canadian generally accepted accounting principles applicable to a going concern, which assumes the Company will be able to realize the carrying value of its assets and discharge its liabilities in the normal course of operations. The Company has incurred a loss of $3,154,374 for the nine-month period ended September 30, 2010, has an accumulated deficit of $68,739,859 and has not so far generated positive cash flows from operations. In addition, the Company is subject to certain restrictive covenants. Accordingly, there exists significant doubt that the Company would be able to continue as a going concern at September 30, 2010. These conditions require that the Company continues to seek external sources of financing in order to continue its operations and to achieve profitability in the future. At September 30, 2010, the Company had a cash balance of $2,522,446. Taking into consideration the senior overdraft facility (see Note 8), the Company believes that it has sufficient liquidity to meet its obligations for the next twelve months. While management believes the use of going concern assumptions is appropriate, the financial statements do not include any adjustments or disclosures that may be necessary should the Company not be able to continue as a going concern. If this were the case, these adjustments could be material. 2. Segmented Information Operating Segments The Company designs, develops and manufactures process solutions to treat produced water, oil and gas for the upstream oil and gas industry. Segments are based on geographic locations except for Corporate Office that was separated based on its distinct operations. US, European & Middle East and Asia Pacific operations relate to manufacturing and commercialization of process solutions. The former Product Development segment has been integrated into European & Middle East Operations to represent the unit's operational functionality. Comparable information has been reclassified accordingly. The accounting policies that apply to the reportable segments are the same as those used to prepare the consolidated financial statements. Page 7 EFTA01158274 ProSep Inc. Notes to the consolidated financial statements (Unaudited) For the three-month and nine-month periods ended September 30, 2010 and 2009 2. Segmented Information (continued) Revenue and Expenses by Segment For the three-month period ended September 30, 2010 European & Middle. Asia Pacific Consolidation & Consolidated US operations Corporate Office Inter segment East operations operations operations eliminations $ $ $ $ $ $ Revenue 5,437,821 750,922 1,951,350 8,140,093 Revenue inter-segment 52,991 (52,991) Total revenue 5,490,812 750,922 1,951,350 (52,991) 8,140,093 Cost of goods sold 4,065,748 344,183 1,817,281 (52,991) 6,174,221 Gross margin 1,425,064 406,739 134,069 1,965,872 Operating expenses 1,221,612 655,799 188,799 741,041 2,807,251 EBITDA' 203,452 (249,060) (54,730) (741,041) (841,379) Three clients of the US operations represented respectively 20.3%. 13.4% and 9% of the Company's revenue and one client of the Asia Pacific operations represented 9.4% of the Company's revenue for the three-month period ended September 30, 2010. For the three-month period ended September 30, 2009 European & Middle- Asia Pacific Consolidation & Consolidated US operations Corporate Office Inter segment East operations operations operations eliminations $ $ $ $ $ Revenue 5.827.616 1,154.924 2.203.812 9.186.352 Revenue inter-segment Total revenue 5.827.616 1,154.924 2,203.812 9.186.352 Cost of goods sold 4,307.571 470.624 1,745.753 6.523.948 Gross margin 1,520.045 684.300 458.059 2.662.404 Operating expenses 1,366,859 901.262 327.287 699.689 3.295.097 EBITDA* 153.186 (216.962) 130.772 (699.689) (632.693) One client from the Asia Pacific operations represented 14.5% of the Company's revenue and two clients of the US operations represented 15% and 13.5% of the Company's revenue for the three-month period ended September 30, 2009. For the nine-month period ended September 30, 2010 European & Middle- Asia Pacific Consolidation & Consolidated US operations Corporate Office Inter segment East operations operations operations eliminations S $ $ $ $ S Revenue 16,421,372 4,969,021 4,810,386 26,200,779 Revenue inter-segment 94,556 9,750 (104,306) Total revenue 16,515,928 4,978,771 4,810,366 (104,306) 26,200,779 Cost of goods sold 12,536,009 2,209,674 4,443,905 (104,306) 19,085,282 Gross margin 3,979,919 2,769,097 366,481 7,115,497 Operating expenses 3,863,793 2,080,783 540,831 2,396,059 8,881,466 EBITDA' 116,126 688,314 (174,350) (2,396,059) (1,765,969) Page 8 EFTA01158275 ProSep Inc. Notes to the consolidated financial statements (Unaudited) For the three-month and nine-month periods ended September 30, 2010 and 2009 2. Segmented Information (continued) Two clients of the US operations represented 33.2% and 12.4% of the Company's revenue and one client of the European & Middle East operations represented 11.6% of the Company's revenue for the nine-month period ended September 30. 2010. For the nine-month period ended September 30. 2009 European & Middle- Asia Pacific Consolidation & Consolidated US operations Corporate Office Inter segment East operations operations operations eliminations $ $ $ $ $ $ Revenue 20.983.458 3.648.768 7,056.877 31.689.103 Revenue inter-segment 74.683 166.223 174.010 (414.916) Total revenue 21.058.141 3.814.991 7,230.887 (414,916) 31,689,103 Cost of goods sold 15.092.697 1,845.262 5,570,535 (414,916) 22,093,578 Gross margin 5.965.444 1,969.729 1,660.352 - 9.595.525 Operating expenses 4.055.447 2.724.114 772.976 2.349.923 9.902.460 EBITDA* 1.909.997 (754.386) 887.376 (2.349.923) (306.936) Three clients of the US operations represented 14%, 11% and 10.5% of the Company's revenue and one client from the Asia Pacific operations represented 13.5% of the Company's revenue for the nine-month period ended September 30, 2009. EBITDA is a non-GAAP measure and the Company defines it as earnings or loss from operations excluding depreciation and amortization. financial charges and income taxes. Geographic Information Three months ended Nine months ended September 30, September 30, 2010 2009 2010 2009 $ $ $ $ Sales to customers situated in: United States 1,799,468 3.253.729 4,770,049 12,050.804 Columbia 2,477,829 1.412.681 9,522,966 1,501.321 Kuwait 231,955 933.461 437,532 4,710.302 Malaysia 1,599,866 1.377.244 3,269,720 4,464.802 Venezuela 10,669 1.509 10,669 2,049.482 Norway 721,533 511.131 4,078,853 1,477.168 UK 66.667 395,208 266.667 Singapore 167,148 784.017 1,261,722 1,854.586 Other countries 1,131,625 845.913 2,454,060 3,313,971 8,140,093 9,186,352 26,200,779 31,689,103 Page 9 EFTA01158276 ProSep Inc. Notes to the consolidated financial statements (Unaudited) For the three-month and nine-month periods ended September 30, 2010 and 2009 3. Financial Charges Three months ended Nine months ended September 30, September 30, 2010 2009 2010 2009 $ $ $ $ Financial charges Other financial liabilities Interest on long-term debt 191,648 150,101 626,124 999.469 Accretion on long-term debt 15,585 47,883 43,451 421.785 Interest charges 182,312 64.526 375,408 365.345 Sub-total 389,545 262,510 1,044,983 1,786.599 Held for trading Interest revenue on held for trading financial assets (7,271) (32) (25,823) (65,776) Sub-total (7,271) (32) (25,823) (65,776) Loss on foreign exchange 146,086 403,150 676,028 976.038 Loss on induced conversion and settlement of debts 2.071,543 2,071.543 Other 5,421 5.421 528,360 2.742,592 1,695,188 4,773.825 4. Restricted Share Units For the three-month period ended September 30, 2010, no restricted share units were granted. During the nine-month period ended September 30, 2010, the Company granted respectively 3,650,000 restricted share units at a weighted average value of $0.17 per share for a total of $620,500, and 100,000 restricted share units at a weighted average value of $0.125 per share for a total of $12,500 (No amount was granted during the three-month period ended September 30, 2009 and 2,215,000 were granted during the nine-month period ended September 30, 2009 at a weighted average value of $0.21 per share for a total value of $462,150). The expenses recorded in the consolidated statements of loss and credited to contributed surplus for the three and nine-month periods ended September 30, 2010 were respectively $131,246 and $350,698 ($100,163 and $262,877 for the three and nine-month periods ended September 30, 2009). Nine-month period ended September 30, 2010 Number of restricted share units Balance, beginning of period 4,161,778 Granted 3,750,000 Forfeited (373,565) Vested (458,213) Balance, end of period 7,080,000 5. Basic and Diluted Loss Per Share Basic and diluted loss per share has been calculated using the weighted-average number of common shares outstanding during the period: 191,767,990 shares for the three-month period ended September 30, 2010 and 177,227,930 shares for the nine-month period ended September 30, 2010 (respectively 130,840,835 shares and 86,819,126 shares for the three-month and nine-month periods ended September 30, 2009). As a result of the loss for the three-month and the nine-month periods ended September 30, 2010, 4,460,242 potentially dilutive warrants, 420,000 potentially dilutive options and 7,080,000 potentially dilutive restricted share units as well as the convertible feature of the loan have not been included in the calculation of diluted loss per share because the effect would have been anti-dilutive (27,635,027 warrants, 420,000 options and 4,186,778 restricted share units as well as the convertible features of the debenture and secured loans during the period ending September 30, 2009). Page 10 EFTA01158277 ProSep Inc. Notes to the consolidated financial statements (Unaudited) For the three-month and nine-month periods ended September 30, 2010 and 2009 6. Restricted Cash At September 30, 2010, restricted cash related to letters of credit was fully released. 7. Long term Investment and Related Credit facility Estimate of Fair Value At September 30, 2010, the Company held the same Class A-1, A-2, B and C Notes issued by Master Asset Vehicle II ("MAV 2') at December 31, 2009. Although there is evidence that some isolated transactions have occurred on some of these Notes since December 31, 2009, such transactions are not representative of an active market and accordingly quotations from an active market were not available at September 30, 2010. In fact, the Notes held by the Company have not traded in an active market since the restructuring of January 2009. On September 21, 2010, DBRS upgraded the rating of the Class A-1 Notes to A (high) (sf) from "A" (sf) and has removed the ratings from Under Review with Positive Implications, where they were placed on June 22, 2010. At the same time, DBRS has confirmed the BBB (low) (st) rating of the MAVII Class A-2 Notes. Furthermore, Blackrock, the administrator of MAV 2, indicated that the ineligible Asset Tracking Notes Class 1 have also been reduced to zero following credit events in the underlying transactions. Nevertheless, the Ineligible Asset Tracking Notes Class 1 and 2 remain eligible under the put option arrangement with the National Bank of Canada. The fair value of the Notes at September 30, 2010 was determined using a methodology consistent with the one used at December 31, 2009 which is based on management's judgment using available information and assumptions market participants would use in pricing such Notes at the balance sheet date. The Company took into account information provided by DBRS and BlackRock including current and anticipated credit ratings, composition and valuation estimates of the underlying assets, the estimate of the extent of leverage in the transactions underlying the MAV 2 Notes, general economic conditions and the price levels of the aforementioned irregular transactions in considering the fair value of the investment. The Company estimated the fair value of the Notes using the discounted cash flow evaluation technique based on observable market assumptions to the extent possible. The main assumptions are comprised of the anticipated interest coupons, anticipated maturity of the Notes and an appropriate discount rate considering the underlying risks. The estimated discount rate was determined based on observable market assumptions for similar securities. The Company used the following discount factors to evaluate the Notes: September 30, 2010 December 31, 2009 Market related Discount Market related Discount Replacement Notes Expected Yield factors (Canada Bond Expected Yield factors (Canada Bond rate plus) rate plus) Class A-1 157 basis points* 265 basis points 283 basis points" 590 basis points Class A-2 157 basis points* 605 basis points 283 basis points" 705 basis points Class B 0 basis points' 840 basis points 283 basis points" 850 basis points Class C 0 basis points 3,040 basis points 0 basis points 2,350 basis points Ineligible 0 basis points 158 basis points 0 basis points 203 basis points • September 30, 2010 bankers' acceptance swap rate of 2.07% minus 50 basis points " December 31, 2009 bankers' acceptance swap rate of 3.33% minus 50 basis points The risk premiums added to the basic bankers' acceptance rates reflect liquidity, credit and other risks. The fair value of the put options embedded in the credit facility with the National Bank of Canada at September 30, 2010 was estimated using a valuation technique that incorporates a probability-weighted approach, applied to discounted future cash flows of the underlying IA and Eligible Notes while considering: (i) the fair value of such Notes, (ii) the maximum amount that can be drawn under the respective credit facilities, (iii) the recourse features of such drawings, and (iv) the discount rate relating to National Bank. At September 30 2010, management concluded that the fair value of the Notes and the embedded put options remained unchanged from the June 30, 2010 value. Page I EFTA01158278 ProSep Inc. Notes to the consolidated financial statements (Unaudited) For the three-month and nine-month periods ended September 30, 2010 and 2009 The estimated fair values may not be indicative of the ultimate net realizable value or the future fair value, because of the uncertainty in the market. While management believes that its valuation technique is appropriate under the circumstances, changes in significant assumptions, especially those relating to the probability of the scenarios, returns, credit risk and liquidity risk could significantly affect the value ascribed to the replacement notes in the future. Following the analysis, the Company identified that the discount rate related to Classes A-1 and A-2 of MAV 2, and the embedded put option on the IA Notes generate the vast majority of the volatility in the valuation model of the Notes and embedded put options fair value. For example, a 50 basis point increase or decrease in the discount rate for A-1 and A-2 Notes and the IA Notes put option would result in a $98,822 change in the aggregate fair value of the Notes. 8. Bank Credit Facilities The Company has a bank credit facility with DnB NOR consisting of a senior overdraft facility of 30,000,000 NOK ($5,250,079 at September 30, 2010) and a guarantee facility of 15,000,000 NOK ($2,625,039 at September 30, 2010) to be used to provide customer guarantees against advances received under sales contracts. The senior overdraft facility outstanding, secured by the assets of the Company, is nil at September 30, 2010 as one of the two annual clean downs was in progress (27,719,866 NOK ($5,006,206) at December 31, 2009). The interest rate of 4.41% (3.96% in 2009) is the one month Norwegian Interbank Offered Rate (NIBOR) of 2.41% at September 30, 2010 (1.96% at December 31, 2009), plus 2% per annum. The letters of guarantee outstanding amount to $1,547,975 at September 30, 2010 ($2,083,112 at December 31, 2009). 9. Long-term Debt September 30, December 31, 2010 2009 $ $ Convertible unsecured subordinated debenture in the nominal amount of $3,953,500, bearing interest of 13.25% payable semi-annually and 3,643,976 3,600,526 maturing on July 16, 2014. Revolving credit facilities with National Bank of Canada bearing interest at prime rate (3% at September 30, 2010) minus 1% payable monthly (Note 7). IA Notes facility, maturing in March 2011 2,523,797 2,523,797 - Less embedded put option (2,470,000) (2,400,000) - Eligible Notes facility, first tranche, maturing in March 2012 2,524,528 2,524,753 Eligible Notes facility, second tranche, maturing in March 2012 2,132,014 2,132,014 Obligations under capital leases 67,583 104,764 Credit facility with DnB NOR: The interest rate of 5.29% (5.11% in 2009) is the three month Norwegian Interbank Offered Rate (NIBOR) +3.00% and the principal amount is payable in 10 equal installments of 4,500,000 NOK 3,937,559 4,876,198 ($787,512 as of September 30, 2010) every 6 months. Expiration date is October 25, 2012. 12,359,457 13,262,052 Current portion of long term debt (1,679,001) (1,672,602) Long-term debt 10,680,456 11,689,450 Page 12 EFTA01158279 ProSep Inc. Notes to the consolidated financial statements (Unaudited) For the three-month and nine-month periods ended September 30, 2010 and 2009 10. Share Capital Number of shares Amount $ Balance. December 31, 2009 163,255.910 72,010,934 Issued pursuant to the private placement (a) 28,465.385 3,700,501 Issued shares (b) 76.713 13,889 Balance. September 30. 2010 191,798.008 75,725,324 (a) Pursuant to a private placement closed on May 18, 2010, the Company issued a total of 28,465,385 common shares at a price of $0.13 per common share for gross proceeds of $3,700,501. The transaction costs of $137,159 have been accounted for as an increase in the deficit (share issue expenses). (b) Pursuant to vested restricted share units that were exercised, the Company issued a total of 76,713 common shares 11. Defined Benefit Pension For the three-month period ended September 30, 2010, a net amount of $99,528 has been recorded in the statement of loss to account for the increase in the pension obligation (net amount for $35,255 for the three months ended September 30, 2009). For the nine-month period ended September 30, 2010, a net amount of $165,773 has been recorded in the statement of loss to account for the increase in the pension obligation (net amount of $125,879 for the nine-month period ended September 30. 2009). Three months ended Nine months ended September 30, September 30, 2010 2009 2010 2009 $ $ $ $ Net periodic benefit cost 99,528 35,255 165,773 125,879 12. Contingencies In addition to the letters of guarantee disclosed in Note 8. the Company has an amount of $335,826 ($3,643,958 at December 31, 2009) of letters of guarantee outstanding with Export Development Canada. 13. Comparative figures Certain comparative figures have been reclassified to conform to the presentation adopted for the current period. 14. Self-sustaining Foreign Operations Effective October 1, 2009, as all foreign subsidiaries were self-sustaining, the Company translates its foreign operations using the current rate method. As a result, the Company's non-monetary assets, liabilities and Shareholders' Equity decreased by $875,206 for the three-month period ended September 30, 2010 and increased by $422,105 for the nine-month period ended September 30, 2010. Page 13 EFTA01158280