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Zedi Inc.

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS


March 31, 2011

Zedi Inc.
Contents for the unaudited condensed consolidated interim financial statements

Condensed consolidated interim statement of financial position Condensed consolidated interim statement of profit and comprehensive income Condensed consolidated interim statement of changes in equity Condensed consolidated interim statement of cash flows Notes to the condensed consolidated interim statement of cash flows Notes to the condensed consolidated interim financial statements

3 4 5 6 7 8-59

Zedi Inc.
Condensed consolidated interim statement of financial position at March 31, 2011 (unaudited)
Notes
March 31, 2011 CAD'000 December 31, 2010 CAD'000 January 1, 2010 CAD'000

ASSETS Current assets Cash and cash equivalents Trade and other receivables Inventories Non-current assets Property, plant and equipment Investment in associate Intangible assets Goodwill Deferred tax asset 34,462 844 25,474 8,144 47,548 7,684 1,162 15,315 22,203 1,184 30,364 9,642 14,514 6,208 30,908 4,478 1,089 7,515 17,357 469 20,249 1,245 11,308 7,696 31,313 1,976 8,040 19,047 2,250

11 10

6 9 8 7

TOTAL ASSETS

82,010

61,272

51,562

LIABILITIES AND EQUITY Current liabilities Bank line of credit Trade and other payables Provisions Taxation Deferred revenue Current portion of term loan payable Non-current liabilities Non-current debt Provisions Deferred lease incentive Deferred tax liability Equity Issued capital Equity-settled employee benefits reserve # Accumulated currency translation adjustment Accumulated deficit 20,801 1,450 7,659 1,254 452 8,339 1,647 12,761 5,311 622 2,891 3,937 48,448 52,550 6,398 (447) (10,053) 12,496 6,678 889 11 4,918 1,305 586 719 47,471 52,504 6,248 (11,281) 7,778 3,040 227 4,511 1,062 1,062 42,722 51,218 6,297 (14,793)

18 15 16 17 18

18 16 26

12 13 14

TOTAL LIABILITIES AND EQUITY


# Previously reported as "Contributed surplus"

82,010

61,272

51,562

Zedi Inc.
Condensed consolidated interim statement of profit and comprehensive income for the quarter ended March 31, 2011 (unaudited)

Notes CONTINUING OPERATIONS Revenue Cost of sales Gross profit Share of profit from associate 9

3 months ended March 31, 2011 CAD'000

3 months ended March 31, 2010 CAD'000

21,906 12,139 9,767 273 10,040 671 3,582 1,662 988 1,101 116 19 20 1,919 691 1,228

14,720 7,582 7,138 7,138 671 1,831 1,457 1,150 663 53 1,313 421 892

Warehousing and distribution expenses Administration expenses Customer acquisition and service expenses Product development expenses Other operating expenses Finance costs Profit from operating activities prior to taxation Taxation PROFIT FOR THE PERIOD Other comprehensive income items (net of tax): Exchange differences on translating foreign operations TOTAL COMPREHENSIVE INCOME FOR THE PERIOD

(447) 781

892

Profit per share from continuing operations Basic (dollars) Diluted (dollars)

22 22

0.01 0.01

0.01 0.01

Zedi Inc.
Condensed consolidated interim statement of changes in equity for the quarter ended March 31, 2011 (unaudited)
Equitysettled employee benefits Accumureserve# lated deficit CAD'000 CAD'000

Share capital CAD'000

Cumulative currency translation adjustment CAD'000

Total CAD'000

Balance at January 1, 2010 (per Canadian GAAP, refer note 14) IFRS translation adjustments (refer note 14) Balance at January 1, 2010 (note 14) Profit and total comprehensive income for the period Issue of ordinary shares under employee share option plan Recognition of share-based payments Balance at March 31, 2010 Profit and total comprehensive income for the period Issue of ordinary shares under employee share option plan Recognition of share-based payments Balance at December 31, 2010

51,218 -

6,133 164

(13,245) (1,548)

44,106 (1,384)

51,218

6,297

(14,793)

42,722

892

892

6 51,224 -

(6) 163 6,454 -

(13,901) 2,620

163 43,777 2,620 566 508

1,280

(714) 508

52,504

6,248

(11,281)

47,471

Total comprehensive income for the period Issue of ordinary shares under employee share option plan Recognition of share-based payments Balance at March 31, 2011
# Previously reported as "Contributed surplus"

46 52,550

(14) 164 6,398

1,228 (10,053)

(447) (447)

781 32 164 48,448

Zedi Inc.
Condensed consolidated interim statement of cash flows for the quarter ended March 31, 2011 (unaudited)

Notes CASH FLOW FROM OPERATING ACTIVITIES Cash generated from operations before working capital changes Changes in working capital Finance costs paid Income tax paid Net cash generated from operating activities CASH FLOW FROM INVESTING ACTIVITIES Purchase of property, plant and equipment Purchase of intangible assets Addition to internally-generated intangible assets Proceeds on disposal of property, plant and equipment and intangible assets Acquisition of Southern Flow, net of cash acquired Net cash generated used in investing activities CASH FLOW FROM FINANCING ACTIVITIES Proceeds from share issues under employee share option plan Borrowing on line of credit Proceeds on long term debt Net cash generated from financing activities Foreign exchange gain (loss) on cash held in other currency Net (decrease) increase in cash for the period Cash and cash equivalents at beginning of the period Cash and cash equivalents at end of the period

3 months ended March 31, 2011 CAD'000

3 months ended March 31, 2010 CAD'000

A B

3,322 (1,717) (80) (11) 1,514

2,257 3,849 (16) 6,089

(2,228) (10) (597) 329 (16,242) (18,748)

(92) (10) (374) (475)

32 1,450 6,958 8,440 (4) (8,798) 9,642 844

5,614 1,245 6,859

Zedi Inc.
Notes to the condensed consolidated interim statement of cash flows for the quarter ended March 31, 2011 (unaudited)
3 months ended March 31, 2011 3 months ended March 31, 2010

CAD'000

CAD'000

A. Cash generated from operations before working capital changes Profit from operating activities prior to taxation Adjustments for: Depreciation of property, plant and equipment Amortization of intangible assets Income from associate recognized in period Return on capital from associate in period Share based compensation Finance costs Net loss on disposal of property, plant and equipment and intangible assets

1,919 479 617 (273) 200 164 116 99 3,322

1,313 259 468 164 53 2,257

B.

Changes in working capital Decrease in inventory Increase in trade and other receivables Less amount related to accrued lease incentive (Decrease) increase in trade and other payables Increase in deferred revenue Increase in provisions

243 (7,802) 2,246 (225) 3,421 401 (1,717)

916 (1,741) 1,799 2,838 37 3,849

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)
1. GENERAL INFORMATION Zedi Inc. (the "company") is a publicly owned corporation incorporated in Canada and listed on the TSX Venture Exchange under the trading symbol "ZED". The address of its registered office and principal place of business is 902 11th Avenue S.W., Calgary, AB T2R0E7. The company and its subsidiaries (the "group") deliver end-to-end solutions for production operations management, primarily to the energy industry. 2. SIGNIFICANT ACCOUNTING POLICIES 2.1 Statement of compliance The condensed consolidated interim financial statements (financial statements) have been prepared in accordance with International Financial Reporting Standards ('IFRS') and the previous period statements have been restated accordingly. As required by IFRS, an opening consolidated statement of financial position at January 1, 2010 has also been presented. A reconciliation with closing equity as previously reported under Canadian GAAP at December 31, 2009 and the opening financial position at January 1, 2010 has been provided in note 14. This is the first presentation of the consolidated financial statements per IFRS, accordingly, as per the election of IAS 34 paragraph 7, a complete set of consolidated financial statements has been presented for this interim period. To improve the understanding of this first IFRS interim report, where note disclosure on balances and transactions are combined, e.g. reconciliation of intangible assets, a rolling nine month ended analysis has been included to reconcile the movements in quarter one of this and the previous year, to the balances of those accounts at each reporting date. 2.2 Basis of preparation The consolidated interim financial statements have been prepared on the historical cost basis except for the revaluation of certain financial instruments. Historical cost is generally based on the fair value of the consideration given in exchange for assets. 2.3 Basis of consolidation The consolidated interim financial statements incorporate the interim financial statements of the company and entities (including special purpose entities) controlled by the company (its subsidiaries). Control is achieved where the company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The results of subsidiaries acquired or disposed of during the period are included in the condensed consolidated interim statement of profit and comprehensive income from the effective date of acquisition and up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the interim financial statements of subsidiaries to bring their accounting policies in line with those used by other members of the group. All intra-group transactions, balances, income and expenses are eliminated in full on consolidation. Non-controlling interests in subsidiaries are identified separately from the groups equity therein. As all subsidiaries are 100% owned and controlled, there are no noncontrolling interests.

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)
2. SIGNIFICANT ACCOUNTING POLICIES (continued) 2.3 Basis of consolidation (continued) When the group loses or transfers control of a subsidiary, the profit or loss on transfer / disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. Amounts previously recognized in other comprehensive income in relation to the subsidiary are accounted for (i.e. reclassified to profit or loss or transferred directly to retained earnings) in the same manner as would be required if the relevant assets or liabilities were disposed of. The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IAS 39 Financial Instruments: Recognition and Measurement or, when applicable, the cost on initial recognition of an investment in an associate or jointly controlled entity. 2.4 Investment in associates An associate is an entity over which the group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. The results and assets and liabilities of associates are incorporated in these consolidated interim financial statements using the equity method of accounting, except when the investment is classified as held for sale, in which case it is accounted for in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Under the equity method, investments in associates are carried in the consolidated interim statement of financial position at cost as adjusted for post-acquisition changes in the groups share of the net assets of the associate, less any impairment in the value of individual investments. Losses of an associate in excess of the groups interest in that associate (which includes any long-term interests that, in substance, form part of the groups net investment in the associate) are recognized only to the extent that the group has incurred legal or constructive obligations or made payments on behalf of the associate. Any excess of the cost of acquisition over the groups share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associate recognized at the date of acquisition is recognized as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of that investment. Any excess of the groups share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognized immediately in profit or loss. When a group entity transacts with an associate of the group, profits and losses are eliminated to the extent of the groups interest in the relevant associate.

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)
2. SIGNIFICANT ACCOUNTING POLICIES (continued) 2.5 Goodwill Goodwill arising in a business combination is recognized as an asset at the date that control is acquired (the acquisition date). Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirers previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the groups interest in the fair value of the acquirees identifiable net assets exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirers previously held equity interest in the acquiree (if any), the excess is recognized immediately in profit or loss as a bargain purchase gain. Goodwill is not amortized but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is allocated to each of the groups cashgenerating units expected to benefit from the synergies of the combination. Cashgenerating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognized for goodwill is not reversed in a subsequent period. On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. 2.6 Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances. 2.6.1 Sale of goods Revenue from the sale of goods is recognized when all the following conditions are satisfied: the group has transferred to the buyer the significant risks and rewards of ownership of the goods; the group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; the amount of revenue can be measured reliably; it is probable that the economic benefits associated with the transaction will flow to the group; and the costs incurred or to be incurred in respect of the transaction can be measured reliably.

10

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)
2. SIGNIFICANT ACCOUNTING POLICIES (continued) 2.6 Revenue recognition (continued) 2.6.2 Rendering of services Revenue from field services, chart reading, and monthly network service fees are recognized in the period in which the services are provided. Fees for network and software services billed in advance are recorded as deferred revenue until such time as the corresponding services are performed. 2.6.3 Income from associate Income from an associate entity is recognized on an accrual basis in accordance with the substance of the relevant agreement (provided that it is probable that the economic benefits will flow to the group and the amount of revenue can be measured reliably). Revenue arrangements that are based on production, sales and other measures are recognized by reference to the underlying arrangement. 2.6.4 Interest revenue Interest revenue is recognized when it is probable that the economic benefits will flow to the group and the amount of revenue can be measured reliably. Interest revenue is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that assets net carrying amount on initial recognition. 2.7 Leases Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. 2.7.1 The group as lessor The group is not a lessor in any material finance lease arrangements.

11

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)
2. SIGNIFICANT ACCOUNTING POLICIES (continued) 2.7 Leases (continued) 2.7.2 The group as lessee The group is not a lessee in any material finance lease arrangements. Operating lease payments are recognized as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. In the event that lease incentives are received to enter into operating leases, such incentives are recognized as a liability. The aggregate benefit of incentives is recognized as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. 2.8 Foreign currencies The individual results of each group entity are reported in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the condensed consolidated interim financial statements, the results and financial position of each group entity are expressed in Canadian Dollars (CAD), which is the functional currency of the holding company Zedi Inc. and the presentation currency for the condensed consolidated interim financial statements. Where originating amounts are referenced in United States dollars the prefix 'USD' is used. In recording the transactions of the individual entities, transactions in currencies other than the entitys functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined and are not retranslated at the end of the reporting period. Exchange differences are recognized in profit or loss in the period in which they arise except for exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur (therefore forming part of the net investment in the foreign operation), which are recognized initially in other comprehensive income and reclassified from equity to profit or loss on disposal or partial disposal of the net investment.

12

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)
2. SIGNIFICANT ACCOUNTING POLICIES (continued) 2.8 Foreign currencies (continued)

For the purpose of presenting consolidated interim financial statements, the assets and liabilities of the groups foreign operations are expressed in CAD using exchange rates prevailing at the end of the reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognized in other comprehensive income and accumulated in equity. On the disposal of a foreign operation, all of the accumulated exchange differences in respect of that operation attributable to the group are reclassified to profit or loss. Any exchange differences that have previously been attributed to non-controlling interests are derecognized, but they are not reclassified to profit or loss. Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the same rate used to translate other assets and liabilities of that foreign operation. 2.9 Share based payments Equity-settled share-based payments to employees and non-employee directors are measured at the fair value of the equity instruments at the grant date. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a graded basis, with each tranche expensed on a straightline basis over the vesting period attributed to that tranche, based on the groups estimate of equity instruments that will eventually vest. At the end of each reporting period, the group revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognized in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the equity-settled employee benefits reserve. There have been no equity-settled share-based payment transactions with parties other than employees and non-employee directors. There have been no cash-settled share-based payments.

13

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)
2. SIGNIFICANT ACCOUNTING POLICIES (continued) 2.10 Taxation 2.10.1 Current tax The tax currently payable is based on taxable profit for the period. Taxable profit differs from profit as reported in the consolidated interim statement of comprehensive income because of items of income or expense that are taxable or deductible in other periods and items that are never taxable or deductible. The groups liability for current tax is calculated using tax rates that have been substantively enacted by the end of the reporting period. 2.10.2 Deferred tax Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the consolidated interim financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Such deferred tax assets and liabilities are not recognized if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates, except where the group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been substantively enacted by the end of the reporting period. This measurement reflects the tax consequences that would follow from the manner in which the group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

14

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)
2. SIGNIFICANT ACCOUNTING POLICIES (continued) 2.10 Taxation (continued) 2.10.2 Deferred tax (continued) Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the group intends to settle its current tax assets and liabilities on a net basis. 2.10.3 Current and deferred tax for the period Current and deferred taxes are recognized as an expense or income in profit or loss, except when they relate to items that are recognized outside profit or loss (whether in other comprehensive income or directly in equity), in which case the tax is also recognized outside profit or loss, or where they arise from the initial accounting for a business combination, in which case, the tax effect is included in the accounting for the business combination. 2.11 Property, plant and equipment Property, plant and equipment held for production, supply or administrative purposes, or for purposes not yet determined, are carried at cost less accumulated depreciation and accumulated impairment losses. Cost includes any directly attributable costs required to bring the asset to the location and condition necessary for it to be capable of operating in the manner as intended by management. Depreciation commences when the assets are ready for their intended use. Depreciation is recognized so as to write off the cost of assets (other than freehold land and properties under construction) less their residual values over their useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each financial year, with the effect of any changes in estimate being accounted for on a prospective basis. The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.

15

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)
2. SIGNIFICANT ACCOUNTING POLICIES (continued) 2.12 Intangible assets 2.12.1 Intangible assets acquired separately Intangible assets acquired separately are carried at cost less accumulated amortization and accumulated impairment losses. Amortization is recognized on a straight-line basis over the estimated useful lives. The estimated useful life and amortization method are reviewed at the end of each financial year, with the effect of any changes in estimate being accounted for on a prospective basis. 2.12.2 Internally-generated intangible assets Expenditures on research activities are recognized as an expense in the period in which they are incurred. An internally-generated intangible asset arising from development (or from the development phase of an internal project) is recognized if, and only if, all of the following have been demonstrated: the technical feasibility of completing the intangible asset so that it will be available for use or sale; the intention to complete the intangible asset and use or sell it; the ability to use or sell the intangible asset; how the intangible asset will generate probable future economic benefits; the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and the ability to measure reliably the expenditure attributable to the intangible asset during its development. Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated amortization and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.

16

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)
2. SIGNIFICANT ACCOUNTING POLICIES (continued) 2.12 Intangible assets (continued) 2.12.3 Intangible assets acquired in a business combination Intangible assets acquired in a business combination and recognized separately from goodwill are initially recognized at their fair value at the acquisition date (which is regarded as their cost). Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortization and accumulated impairment losses, on the same basis as intangible assets that are acquired separately. 2.13 Impairment of tangible and intangible assets excluding goodwill At the end of each reporting period, the group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cashgenerating units for which a reasonable and consistent allocation basis can be identified. Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior periods. A reversal of an impairment loss is recognized immediately in profit or loss.

17

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)
2. SIGNIFICANT ACCOUNTING POLICIES (continued) 2.14 Inventories Inventories are stated at the lower of cost and net realizable value. Costs, including an appropriate portion of fixed and variable overhead expenses, are assigned to inventories by the method most appropriate to the particular class of inventory, with the majority being valued on a first-in-first-out basis. Net realizable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale. 2.15 Provisions Provisions are recognized when the group has a present obligation (legal or constructive) as a result of a past event, it is probable that the group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the financial period, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. 2.15.1 Restructurings A restructuring provision is recognized when the group has developed a detailed formal plan for the restructuring and has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement the plan or announcing its main features to those affected by it. No restructurings are planned at the end of the reporting period. 2.15.2 Vacation entitlement Provisions for the expected cost of vacation time accrued to employees are recognized as vacation time is earned, based on vacation entitlements under local legislations and group policies. 2.15.3 Warranties Provisions for the expected cost of warranty obligations under local sale of goods legislation are recognized at the date of sale of the relevant products, at management's best estimate of the expenditure required to settle the groups obligation. 2.15.4 Contingent liabilities acquired in a business combination Contingent liabilities acquired in a business combination are initially measured at fair value at the date of acquisition. No new contingent liabilities were acquired as a result of business combinations during the current or prior period.

18

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)
2. SIGNIFICANT ACCOUNTING POLICIES (continued) 2.16 Financial assets All financial assets are recognized and derecognized on trade date where the purchase or sale of a financial asset is under a contract whose terms require delivery of the financial asset within the timeframe established by the market concerned, and are initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value. Financial assets are classified into the following specified categories: financial assets at fair value through profit or loss ('FVTPL'), held-to-maturity investments, available-for-sale ('AFS') financial assets and loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. Disclosure of the accounting policy is limited to categories relevant to the group. 2.16.1 Effective interest method This is a method of calculating the amortized cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all transactions costs, premiums or discounts that form an integral part of the effective interest rate) through the expected life of the debt instrument, or where appropriate a shorter period, to the net carrying amount on initial recognition. 2.16.2 Loans and receivables Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amortized cost using the effective interest method, less any impairment. Interest income is recognized by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. 2.16.3 Impairment of financial assets Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows have been adversely affected.

19

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)
2. SIGNIFICANT ACCOUNTING POLICIES (continued) 2.16 Financial assets (continued) 2.16.3 Impairment of financial assets (continued) Objective evidence of impairment could include events such as significant financial difficulty, bankruptcy, financial re-organisation, and/or default or delinquency in interest or principal repayments of the counterparty. For financial assets carried at amortized cost, the amount of the impairment loss recognized is the difference between the assets carrying amount and the present value of estimated future cash flows, discounted at the financial assets original effective interest rate. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss. With the exception of AFS equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized. 2.16.4 Derecognition of financial assets The group derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the group recognizes its retained interest in the asset and an associated liability for amounts it may have to pay. If the group retains substantially all the risks and rewards of ownership of a transferred financial asset, the group continues to recognize the financial asset and also recognizes a collateralized borrowing for the proceeds received. 2.17 Financial liabilities and equity instruments issued by the group 2.17.1 Classification as debt or equity Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement. 2.17.2 Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the group are recognized at the proceeds received, net of direct issue costs.

20

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)
2. SIGNIFICANT ACCOUNTING POLICIES (continued) 2.17 Financial liabilities and equity instruments issued by the group (continued) 2.17.3 Financial guarantee contract liabilities Financial guarantee contract liabilities are initially measured at their fair values and, if not designated as at FVTPL, are subsequently measured at the higher of: the amount of the obligation under the contract, as determined in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets; and the amount initially recognized less, where appropriate, cumulative amortization 2.17.4 Financial liabilities Financial liabilities are classified as either financial liabilities at FVTPL or other financial liabilities. Disclosure of the accounting policy is limited to 'other financial liabilities' as no financial liabilities are classified at FVTPL. 2.17.5 Other financial liabilities Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortized cost using the effective interest method, with interest expense recognized on an effective yield basis. 2.17.6 Derecognition of financial liabilities The group derecognizes financial liabilities when, and only when, the groups obligations are discharged, cancelled or they expire. 3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY In the application of the groups accounting policies, which are described in note 2, management is required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

21

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)
3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (continued) 3.1 Judgements made by management 3.1.1 Asset lives and residual values Property, plant and equipment are depreciated over the useful life taking into account residual values, where appropriate. The actual lives of the assets and residual values are assessed annually taking into account factors such as technological innovation, product life cycles and maintenance programmes. Residual value assessments consider issues such as market conditions, the remaining life of the asset and projected disposal values. 3.1.2 Impairment of assets Ongoing assessments are made regarding any potential impairment of assets, using assumptions made in terms of the models allowed under IFRS. 3.1.3 Recoverability of trade receivables In assessing the amounts recoverable from trade receivables, assumptions are made based on past default experience and review of specific account balances. 3.1.4 Recoverable value of inventory The recoverable value of inventory takes into account current market conditions and the amounts expected to be realized from the sale of inventory, less estimated costs to sell. 3.1.5 Impairment of goodwill Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires management to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. 3.1.6 Conversion of deferred revenue In assessing the amount of deferred revenue that will ultimately be earned, assumptions are made based on past contract cancellation experience and assessment of market conditions as they affect customer operations. 3.2 Key sources of estimation uncertainty There are no other key assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period that management have assessed as having a significant risk of causing material adjustment to the carrying amounts of the assets and liabilities within the next twelve months.

22

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)
4. ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING At the transition date to IFRS, the group adopted all of the new and revised Standards and Interpretations issued by the International Accounting Standards Board (the IASB) and the International Financial Reporting Interpretations Committee (the IFRIC) of the IASB that are relevant to its operations and effective for annual reporting periods beginning on or before January 1, 2010. To comply with IFRS 1, the group has applied the same accounting policies in the opening IFRS consolidated statement of financial position as that applied throughout all periods presented in these financial statements, except as specified in paragraphs 13-19 and Appendices B-E of that Standard as discussed in note 14. 4.1 Standards and Interpretations in issue not yet adopted IFRS 9 Financial Instruments: Classification and measurement (effective for annual periods beginning on or after January 1, 2013): Management is in the process of evaluating the impact that the adoption of this standard will have on the financial statements of the group in the future periods.

23

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)
5. OPERATING SEGMENTS AND GEOGRAPHICAL DISCLOSURE Information reported to the groups chief operating decision-maker for purposes of resource allocation and assessment of segment performance is focused on two service lines productions operations management and field operations management. The focus of these segments are as follows: The productions operations management segment delivers systems and services that help oil and gas producers to efficiently manage people, assets and information using hardware, web-based applications and professional services. On their own or in combination, these products are the basis for Zedi's end-toend solutions that address all aspects of production operations. The field operations management segment provides third party well operations management to over 400 wells in north-east British Columbia and north-west Alberta, with the primary services including contract well operations, inspection and supervision. The acquisition of Southern Flow in January 2011 provided a significant geographic presence in the United States (all other international revenues, with products or services provided from Canada, are reported as part of Canadian operations). While Southern Flow provides services that would involve both reporting segments, its profit, assets and liabilities are not segmented by service line at this time. The accounting policies of the reportable segments are the same as the groups accounting policies described in note 2.

Canadian Operations Production Field United States operations operations Operations managemanageElimina(not ment ment tions segmented) CAD'000 CAD'000 CAD'000 CAD'000

Consolidated CAD'000

March 31, 2011 Revenue External revenue Inter-segment revenue Total revenue Profit from operating activities Taxation Profit for the period Other information Depreciation and amortization Staff costs (including directors' emoluments) Segment assets Segment liabilities March 31, 2010 Revenue External revenue Inter-segment revenue Total revenue Profit from operating activities Taxation Profit for the year Other information Depreciation and amortization Staff costs (including directors' emoluments) December 31, 2010 Segment assets Segment liabilities 2010 (opening financial position) Segment assets Segment liabilities

9,630 3 9,633 925 508 416 809 5,245 68,596 26,673

6,665 6,665 381 117 264 54 553 9,087 2,419

(3) (3) -

5,611 5,611 613 66 547 237 2,190 4,327 4,469

21,906 21,906 1,919 691 1,228 1,101 7,988 82,010 33,562

10,432 2 10,434 1,217 388 829 649 5,117

4,288 4,288 97 33 64 14 343

(2) (2)

14,720 14,720 1,313 421 892 663 5,460

56,465 12,368

4,807 1,433

61,272 13,801

45,229 7,827

6,333 1,013

51,562 8,840

24

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)
6. PROPERTY, PLANT AND EQUIPMENT March 31, 2011 Balances at March 31, 2011 and December 31, 2010 respectively Owned Buildings Land Automobiles Computer hardware Computer software Office furniture and fixtures Equipment Leasehold improvements Total 765 92 535 4,752 2,509 1,996 3,058 3,836 17,543 199 3,698 2,311 1,233 1,945 384 9,859 91 675 92 336 1,054 198 763 1,114 3,452 7,684 748 428 3,840 2,454 1,062 1,719 2,102 12,457 142 3,177 2,251 885 1,192 218 7,980 11 737 287 663 202 177 527 1,884 4,478
Accumulated depreciation 2011 CAD'000

December 31, 2010


Accumulated depreciation 2010 CAD'000

Cost 2011 CAD'000

Net book value 2011 CAD'000

Cost 2010 CAD'000

Net book value 2010 CAD'000

25

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)

6.

PROPERTY, PLANT AND EQUIPMENT (continued) Movement in property, plant and equipment Net book value at January 1, 2010 Additions Disposals Depreciation Net book value at March 31, 2010 Net book value at April 1, 2010* Additions Disposals Depreciation Net book value at December 31, 2010 Net book value at January 1, 2011 Additions Additions through business acquisitions Effect of change in foreign currency rate Disposals Depreciation Net book value at March 31, 2011
Buildings CAD'000 Land CAD'000 Automobiles CAD'000 Computer hardware CAD'000 Computer software CAD'000 Office furniture and fixtures CAD'000 Equipment CAD'000 Leasehold improvements CAD'000 Total CAD'000

308 (2) 306 306 438 (6) 737 737 262 (7) (300) (17) 675

92 92

130 39 (11) 158 158 183 (54) 287 287 4 77 (2) (30) 336

690 19 (117) 593 593 457 (387) 663 663 188 367 (10) (153) 1,054

268 29 (69) 228 228 177 (203) 202 202 55 (59) 198

230 5 (24) 211 211 36 (70) 177 177 474 182 (5) (16) (49) 763

165 (23) 142 142 517 (132) 527 527 17 693 (19) (105) 1,114

185 (13) 171 171 1,752 (39) 1,884 1,884 1,519 135 (4) (16) (66) 3,452

1,976 92 (259) 1,809 1,809 3,560 (891) 4,478 4,478 2,257 1,808 (46) (333) (479) 7,684

26

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)
6. PROPERTY, PLANT AND EQUIPMENT (continued) Years Expected useful life Buildings Automobiles Computer hardware Computer software Office furniture and fixtures Equipment Leasehold improvements 10-20 4-5 3-5 2-3 5-7 4-7 5-10 years years years years years years years

7. GOODWILL
Mar 31, 2011 CAD'000 Dec 31, 2010 CAD'000 Jan 01, 2010 CAD'000

Cost

22,203 22,203

17,357 17,357

19,047 19,047

CAD'000

Movement in goodwill Net book value at January 1, 2010 and March 31, 2010 Net book value at April 1, 2010 Impairment losses recognized in the period Derecognized on transfer of PetroNet software to associate (refer note 9) Net book value at December 31, 2010 Net book value at January 1, 2011 Impairment losses recognized in the period Recognized on acquisition of a subsidiary Foreign exchange difference in the period for balances translated in foreign susidiary Net book value at March 31, 2011 19,047 19,047 (1,690) 17,357 17,357 4,979 (133) 22,203

27

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)
8. INTANGIBLE ASSETS
Mar 31, 2011 CAD'000 Dec 31, 2010 CAD'000 Jan 01, 2010 CAD'000

Cost Accumulated amortization

29,281 13,965 15,315

17,283 9,769 7,514


Internally generated CAD'000

15,985 7,945 8,040

Acquired CAD'000

Total CAD'000

Movement in intangible assets Net book value at January 1, 2010 Acquired Disposed Amortization Net book value at March 31, 2010 Net book value at April 1, 2010 Acquired Disposed Amortization Net book value at December 31, 2010 Net book value at January 1, 2011 Additions Additions through business combinations Effect of change in foreign currency rate Disposals Depreciation Net book value at March 31, 2011 3,926 10 (236) 3,700 3,700 38 (620) 3,118 3,118 10 8,125 (218) (95) (319) 10,621 4,114 374 (232) 4,256 4,256 1,026 (87) (799) 4,396 4,396 597 (298) 4,695 8,040 384 (468) 7,956 7,956 1,064 (87) (1,419) 7,514 7,514 607 8,125 (218) (95) (617) 15,315

28

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)
9. INVESTMENT IN ASSOCIATE
Principle business activity Place of incorporation and operation

Name of associate

Proportion of ownership interest and voting power held


Mar 31, 2011 Dec 31, 2010 Jan 01, 2010

PetroNet Systems LP

Production operations management

Canada

50%

50%

100% (consolidated)

Summary of investment in PetroNet Systems LP:


August 1, 2010

Value of business unit transferred to PetroNet - Goodwill - Unamortized intangible assets Less cash received Initial value of investment in associate
3 months ended Mar 31, 2011 CAD'000

1,690 87 (1,000) 777


9 months ended Dec 31, 2010 CAD'000 3 months ended Mar 31, 2010 CAD'000

Opening value of investment in associate Initial investment, as detailed above Deferred tax asset recognized on transfer Equity in earnings for period Cash advance from the partnership Investment in associate - end of period

1,089 273 (200) 1,162

777 55 457 (200) 1,089

29

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)
9. INVESTMENT IN ASSOCIATE (continued)

3 months ended Mar 31, 2011 CAD'000

9 months ended Dec 31, 2010 CAD'000

3 months ended Mar 31, 2010 CAD'000

Total revenue of associate

683

1,143

Group's share of profit of associate (equal to 40% of reported revenue of associate)

273

457

On August 1, 2010, the group contributed $1,777 of non-monetary assets to PetroNet Systems LP ('PetroNet') in exchange for CAD 1,000 in cash and a 50% interest in this newly created limited partnership. No gain or loss was recognized on this transaction. The group's share of earnings from PetroNet is based solely on revenues and as such, the other partner, who is not related to Zedi, bears the risk of any losses that may be incurred by the partnership. The group views its interest in this associate as part of its operations.

30

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)
10. INVENTORIES
Mar 31, 2011 CAD'000 Dec 31, 2010 CAD'000 Jan 01, 2010 CAD'000

Raw materials Work in progress Finished goods

2,574 825 4,745 8,144

2,729 422 3,057 6,208

2,430 137 5,129 7,696

The cost of inventories recognized as an expense during the period in respect of continuing operations was CAD 3,691 (2010: CAD 7,813).

11. TRADE AND OTHER RECEIVABLES


Mar 31, 2011 CAD'000 Dec 31, 2010 CAD'000 Jan 01, 2010 CAD'000

Trade receivables Lease incentive receivable Prepaid expenses and deposits Gross trade and other receivables Allowance for doubtful receivables Trade and other receivables 11.1

23,060 2,246 662 25,968 (494) 25,474

14,527 476 15,003 (489) 14,514

11,836 299 12,135 (827) 11,308

Trade receivables Trade receivables disclosed above are classified as loans and receivables and are therefore measured at amortized cost. The average credit period provided on sales of goods is 30 days. No interest is charged on trade receivables for the first 30 days from the date of the invoice. Thereafter, interest is charged at 18% per annum on the outstanding balance. The group has recognized an allowance for doubtful receivables of CAD 494 against all receivables based on a detailed account by account assessment, considering prior credit history, and knowledge of debtor insolvency or other credit risk. The receivables that were assessed as uncollectible were considered impaired.

31

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)
11. TRADE AND OTHER RECEIVABLES (continued) 11.1 Trade receivables (continued) Before accepting any new customer, the group evaluates external credit ratings to assess the potential customers credit quality and defines credit limits by customer. 11.1.1 Aging of past due but not impaired Trade receivables disclosed above include amounts (see below for aged analysis) that are past due at the end of the reporting period but against which the group has not recognized an allowance for doubtful receivables because there has not been a significant change in credit quality and the amounts are still considered recoverable. The group does not hold any collateral or other credit enhancements over these balances nor does it have a legal right of offset against any amounts owed by the group to the counterparty.
Mar 31, 2011 CAD'000 Dec 31, 2010 CAD'000

Current to 60 days Beyond 60 days Total

17,248 7,565 24,813

10,006 4,032 14,038

The definition of items that are past due is determined by reference to terms agreed with individual customers. None of the amounts outstanding have been challenged by the respective customer(s) and the group continues to conduct business with them on an ongoing basis. Accordingly, management has no reason to believe that this balance is not fully collectable in the future. The groups policy requires customers to pay in accordance with agreed payment terms. Depending on the customer segment, our settlement terms are generally 30 days from date of invoice.

32

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)
11. TRADE AND OTHER RECEIVABLES (continued) 11.1 Trade receivables (continued) 11.1.2 Movement in the allowance for doubtful debts
3 months ended Mar 2011 CAD'000 9 months ended Dec 2010 CAD'000 3 months ended Mar 2010 CAD'000

At beginning of the period Impairment losses recognized on receivables Amounts written off during the period as uncollectible Amounts recovered during the period At end of the period

489 5 494

827 284 (622) 489

827 827

In determining the recoverability of a trade receivable, the group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the end of the reporting period. The concentration of credit risk is limited due to the customer base being large and unrelated.

33

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)
12. ISSUED CAPITAL 12.1 Authorized and issued share capital The company is authorized to issue an unlimited number of common voting shares without nominal or par value. The following is a summary of the companys issued and outstanding common shares.

Number of shares

Share capital CAD'000

Balance at January 1, 2010 Issued under restricted share unit plan for employees Balance at March 31, 2010 Issued under employee share option plan Issued under restricted share unit plan for nonemployee directors Issued under restricted share unit plan for employees Balance at December 31, 2010 Issued under employee share option plan Issued under restricted share unit plan for employees Balance at March 31, 2011 All issued shares are fully paid.

94,772,021 8,025 94,780,046 996,198 60,000 698,227 96,534,471 36,513 8,318 96,579,302

51,218 6 51,224 814 36 430 52,504 41 5 52,550

34

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)
13. EQUITY-SETTLED EMPLOYEE BENEFITS RESERVE #
3 months ended 9 months ended Mar 2011 Dec 2010 CAD'000 CAD'000 3 months ended Mar 2010 CAD'000

Balance at beginning of the period Stock option expense Fair value of options exercised Fair value of restricted share units settled Restricted share unit plan expense Value of restricted share units released

6,248 111 (14) 52 6,398

6,454 310 (250) (465) 199 6,248

6,297 92 (6) 71 6,454

14. FIRST TIME ADOPTION OF IFRS (IFRS 1) The policies set out in the summary of significant accounting policies section have been applied in preparing the unaudited condensed consolidated interim financial statements for the three month period ended March 31, 2011, the comparative information for the three month period ended March 31, 2010, the preparation of an opening IFRS consolidated balance sheet at January 1, 2010 (Transition Date) and the preparation of a condensed consolidated financial statements as at and for the year ended December 31, 2010. In preparing these unaudited condensed consolidated financial statements, the company applied the following optional exemptions and mandatory exceptions from full retrospective application of IFRS: - the group elected not to apply IFRS 3 Business Combinations retrospectively to business combinations that occurred before the Transition Date. - however, the IASB has determined that contingent consideration outstanding as of the transition date must be recognized as a provision (see note 14.1.3). - application of IFRS for the 2010 comparative periods resulted in restatement of the accounting for the Skyways acquisition that occurred in August of 2010 to comply with IFRS 3 Business Combinations by expensing transaction costs that had been capitalized under the original treatment (see note 14.1.4). - application of IFRS for the 2010 comparative periods resulted in reclassification of transaction expenses incurred in the fourth quarter of 2010 related to the Southern Flow acquisition, which had been capitalized as a prepaid expense as the acquisition had not closed prior to December 31, 2010. Under IFRS these costs were expensed in the period incurred (see note 14.1.4). - the group elected not to apply IFRS 2 Share Based Payments to equity instruments that had vested, and liabilities from share-based payment transactions that were settled, prior to the transition date

# Previously reported as "Contributed surplus"

35

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)

14. FIRST TIME ADOPTION OF IFRS (IFRS 1) 14.1 IFRS reconciliation of accumulated deficit
Accumulated deficit CAD'000 Total comprehensive income CAD'000

Balance at January 1, 2010 as previously reported per Canadian GAAP Transition restatement of stock option expense (refer note 14.1.1) Transition restatement of depreciation of property plant and equipment (refer note 14.1.2) Recognition of contingent consideration provision upon transition (refer note 14.1.3) Deferred income tax effect of above transition adjustments Balance at January 1, 2010 restated per IFRS

(13,245)

(164) (436) (1,062) 114 (14,793)

Balance at December 31, 2010 as previously reported per Canadian GAAP Transition restatement of stock option expense (refer note 14.1.1) Transition restatement of depreciation of property plant and equipment (refer note 14.1.2) Recognition of contingent consideration provision upon transition (refer note 14.1.3) Deferred income tax effect of above transition adjustments Change in treatment of acquisition expenses (refer note 14.1.4) Deferred income tax effect of change in treatment of acquisition expenses Balance at December 31, 2010 restated per IFRS

(9,570)

3,675

51 (620) (1,208) 160 (123) 29 (11,281)

215 (183) (146) 46 (123) 29 3,512

36

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)
14. ACCUMULATED DEFICIT (continued) 14.1 IFRS reconciliation (continued) 14.1.1 Restatement of stock based compensation expense Prior to adopting IFRS, the group utilized a zero forfeiture rate within the BlackScholes valuation calculation for stock options and amortized the resulting stock option expense evenly over the entire vesting term of each grant. Upon adoption of IFRS 2 Share Based Payments, the group estimated its actual forfeiture rate based on recent experience and determined that a 5% forfeiture rate was appropriate. In addition, the group adopted a graded vesting approach to amortization, so that each individual tranche of options within a grant is amortized over its specific vesting period. The net impact of incorporation of the forfeiture rate to account for future employee departures and expiry of unexercised options was a slight decrease in total calculated expense associated with each individual grant of stock based compensation. However, this revised total expense for any given grant of stock options was then amortized more quickly given the graded amortization pattern. Other than the lower total amount to be amortized, there was no impact on the pattern of amortization associated with restricted share units as they do not have a graded vesting period. All outstanding stock compensation grants that were not fully amortized as of the transition date were revalued under the new IFRS 2 policy with the net impact being an increase in accumulated expense of CAD 164 at that date, driven by the accelerated expensing as described above. Beyond the initial impact of CAD164, the expected impact on future periods is not expected to be significant as older grants with lower associated amortization are typically offset by newer grants with higher initial amortization. 14.1.2 Restatement of depreciation of property, plant and equipment Prior to adopting IFRS, the group utilized declining balance amortization methods for a number of categories of property, plant and equipment, namely computer hardware, computer software, office equipment and tools. Upon adoption of IAS 16 Property Plant and Equipment, the group selected the straight line method of amortization after determining that this method best reflected the pattern of benefits realized from the underlying assets. There were no significant changes to estimated useful lives or salvage values associated with the underlying assets. The net impact of the change in amortization method as an increase in accumulated amortization as of the transition date of CAD 436. Beyond the initial impact of CAD 436, the expected impact on future periods is not expected to be significant as carryforward amortization impacts associated with pre-transition date assets are offset by amortization of post-transition date asset acquisitions.

37

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)
14. ACCUMULATED DEFICIT (continued) 14.1 IFRS reconciliation (continued) 14.1.3 Recognition of contingent consideration provision upon transition Prior to adopting IFRS, the group did not recognize contingent consideration in the form of earnouts on business acquisitions until the amounts payable under the respective earnout formulae were confirmed by actual results. Under IFRS 1 the group elected not to retrospectively restate the accounting for any business acquisitions completed prior to the transition date, however, the IASB has determined that contingent consideration outstanding as of the transition date must be recognized as a provision. As of the transition date contingent consideration was still due to the vendors of J&J Oilfield Services Ltd. which was acquired by the group in January 2008. Management determined that the full remaining amount of unpaid earnout CAD 1,300 is expected to be paid and that the fair value on a discounted basis as of January 1, 2010 was CAD 1,062. This was recognized as a provision as of that date and then the provision was subsequently adjusted to fair value at each period end throughout 2010. The net change in fair value between January 1 and March 31 of 2011 was CAD 37 and for fiscal 2010 it was CAD 146. There is no deferred taxation impact associated with recognition of this provision. Beyond the initial impact specified above, the expected impact on future periods is not expected to be significant and will primarily represent interest as the present value of the provision converges with the ultimate expected payout as above. 14.1.4 Change in treatment of acquisition expenses Prior to adopting IFRS, the group capitalized transaction costs associated with business acquisitions as part of the purchase price allocation. Upon adoption of IAS 3 Business Combinations, these costs must be expensed in the period incurred. This affects initial accounting for both Skyways and Southern Flow (see note 21). The initial accounting for Skyways involved capitalization of CAD 55 of transaction costs which were allocated to property, plant and equipment in the purchase price allocation. Under IFRS, the 2010 presentation has been changed to reflect these costs as expense in the period. Also in 2010, CAD $68 of transaction costs related to Southern Flow were initially capitalized as prepaid, as the acquisition had not closed as of December 31, 2010. Under IFRS, this amount was expensed in the fourth quarter of 2010. The impact of these two adjustments to the nine months ended December 31, 2010 was a CAD 123 increase in administrative expenses. The deferred tax impact of the two adjustments above was a reduction in taxation expense for 2010 of CAD 29. Beyond the initial impact specified above, the expected impact on future periods is not expected to be significant.

38

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)
14.2 RECONCILIATION OF OPENING FINANCIAL POSITION UNDER IFRS
As reported under Canadian GAAP at December 31, 2009 CAD'000 As reported under Canadian GAAP at December 31, 2010 CAD'000

see note

IFRS transition adjustments CAD'000

Opening IFRS financial position at January 1, 2010 CAD'000

As reported under Canadian GAAP at March 31, 2010 CAD'000

IFRS transition adjustments CAD'000

IFRS financial position at March 31, 2010 CAD'000

IFRS transition adjustments CAD'000

IFRS financial position at december 31, 2010 CAD'000

ASSETS Current assets Cash and cash equivalents Trade and other receivables Inventories Non-current assets Property, plant and equipment Investment in associate Intangible assets Goodwill Deferred tax Asset TOTAL ASSETS EQUITY AND LIABILITIES Current liabilities Trade and other payables and provisions 14.1.3 Deferred revenue Non-current liabilities Deferred lease incentive Equity Issued capital Equity-settled employee benefits reserve Accumulated deficit TOTAL EQUITY AND LIABILITIES

20,249 1,245 11,308 7,696 31,635 14.1.2 2,412 8,040 19,047 2,136 51,884

(322) (436) 114 (322)

20,249 1,245 11,308 7,696 31,313 1,976 8,040 19,047 2,250 51,562

26,688 6,859 13,049 6,780 31,040 2,327 7,956 19,047 1,710 57,728

(337) (456) 119 (337)

26,688 6,859 13,049 6,780 30,703 1,871 7,956 19,047 1,829 57,391

30,432 9,642 14,582 6,208 32,016 5,153 1,089 7,515 17,979 280 62,448

(68) (68) (1,108) (675) (622) 189 (1,176)

30,364 9,642 14,514 6,208 30,908 4,478 1,089 7,515 17,357 469 61,272

14.1.3 14.1

7,778 3,267 4,511 44,106 51,218

1,062 1,062 (1,384) 164 (1,548)

8,840 4,329 4,511 42,722 51,218 6,297 (14,793)

12,517 5,168 7,349 45,211 51,224 6,321 (12,334)

1,099 1,099 (1,436) 135 (1,571)

13,616 6,267 7,349 43,775 51,224 6,456 (13,905)

12,496 7,578 4,918 719 719 49,233 52,504 6,299 (9,570)

586 586 (1,762) (51) (1,711)

13,082 8,164 4,918 719 719 47,471 52,504 6,248 (11,281)

14.1.1 14.1

6,133 (13,245)

51,884

(322)

51,562

57,728

(337)

57,391

62,448

(1,176)

61,272

39

Zedi Inc.
Notes to the condensed consolidated interim financial statements
14.2 RECONCILIATION OF PROFIT AND COMPREHENSIVE INCOME

see note

As reported under Canadian GAAP for the 3 months ended March 31, 2010 CAD'000

IFRS transition adjustments CAD'000

IFRS profit and comprehensive income for the three months ended March 31, 2010 CAD'000

As reported under Canadian GAAP for the year ended December 31, 2010 CAD'000

IFRS transition adjustments CAD'000

IFRS profit and comprehensive income for the year ended December 31, 2010 CAD'000

Revenue Cost of sales Gross profit Other operating income, from associate

14,720 7,582 7,138 7,138

14,720 7,582 7,138 -

57,751 28,536 29,215 457 29,672

57,751 28,536 29,215 457 29,672

7,138

Warehousing and distribution expenses Administration expenses Customer acquisition and service expenses Product development expenses Other operating expenses Other gains and losses Finance costs 14.1.3 14.1.2 14.1.1 and 14.1.4

671 1,861 1,457 1,150 644 16 5,799

(30) 19 37 26 (26) (5)

671 1,831 1,457 1,150 663 53 5,825 1,313 421

2,443 8,857 5,457 4,435 3,040 10 24,242 5,430 1,755

(92) 184 146 238 (238) (75)

2,443 8,765 5,457 4,435 3,224 156 24,480 5,192 1,680

Profit before taxation Taxation TOTAL PROFIT AND COMPREHENSIVE INCOME FOR THE PERIOD Profit per share (dollars CAD) 14.1

1,339 426

913 0.01

(21)

892 0.01

3,675 0.04

(163)

3,512 0.04

40

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)
15. TRADE AND OTHER PAYABLES
Mar 31, 2011 CAD'000 Dec 31, 2010 CAD'000 Jan 01, 2010 CAD'000

Trade payables Accrued liabilities

4,836 2,823 7,659

2,413 4,265 6,678

1,463 1,577 3,040

The average credit period on purchases of certain goods from Canada is one month. The group has financial risk management policies in place to ensure that all payables are paid within the preagreed credit terms.

16. PROVISIONS
Mar 31, 2011 CAD'000 Dec 31, 2010 CAD'000 Jan 01, 2010 CAD'000

Contingent consideration provision Warranty provision Vacation provision

1,244 56 576

1,208 61 206

1,062 47 180

1,876 Current Non-current 1,254 622 1,876


Contingent consideration CAD'000

1,475 889 586 1,475

1,289 227 1,062 1,289

Warranty CAD'000

Vacation CAD'000

Movement in provisions Balance at December 31, 2010 Additional provision recognized Reduction from payments / sacrifice Reduction from remeasurement / settlement without cost Provision recognized on acquisition of company Balance at March 31, 2011 1,208 36 1,244 61 14 (19) 56 206 192 (129) 307 576

41

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)

17. DEFERRED REVENUE


Mar 31, 2011 CAD'000 Dec 31, 2010 CAD'000 Jan 01, 2010 CAD'000

Arising from contract services billed in advance of delivery, with terms of 12 months or less

8,339 8,339

4,918 4,918

4,511 4,511

18. BORROWINGS
Mar 31, 2011 CAD'000 Dec 31, 2010 CAD'000 Jan 01, 2010 CAD'000

Secured at amortized cost Bank overdraft (i) Bank loans (ii)

1,450 6,958 8,408 -

Current Non-current

3,097 5,311 8,408

18.1

Summary of borrowing arrangements (i) Bank line of credit denominated in Canadian dollars at effective interest rate of Royal Bank Prime + 1.15% secured by trade receivables and inventory. (ii) Variable rate term loan, issued January 13, 2011 with repayment to occur over a three year period of blended monthly payments beginning July 1, 2011. Interest is payable at Royal Bank Prime + 1.65% per annum, which based on March 31, 2011 rates leads to an effective interest rate of 5.44% per annum after consideraton of all facility fees. As at March 31 2011, CAD 7,000 had been advanced under this loan facility, with the facility capped at CAD 9,000 so that additional draws of up to CAD 2,000 can be made prior to July 1, 2011. The loan is secured by a general security agreement.

42

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)
19. PROFIT FROM OPERATING ACTIVITIES Profit from operating activities is arrived at after taking into account: 19.1 Other operating income, from associate Equity in earnings of associate, PetroNet Systems LP 19.2 Expenses Expenses associated with purchasing, receiving, warehousing, shipping of products (but excluding assembly and related costs which are applied to products in finished goods inventory) and information technology Warehousing and distribution Expenses associated with corporate management, finance, legal, human resources, quality assurance, office facilities, corporate development and investor relations Stock based compensation Administration Expenses associated with marketing, sales, customer service, support center and training Customer acquisition and service Costs associated with research, design, prototypes, testing, commercialization and ongoing technical support to customers Less qualifying amounts capitalized to internally generated intangible assets Product development Depreciation of property, plant and equipment Amortization of intangibles Losses (gains) on foreign exchange Losses (gains) on disposal of property, plant and equipment and intangibles Other operating expenses Interest on term loan Interest on bank advances and other finance charges Finance costs 273 3 months ended March 31, 2011 CAD'000 3 months ended March 31, 2010 CAD'000

671 671

671 671

3,419 164 3,582

1,667 164 1,831

1,662 1,662

1,457 1,457

1,585 (597) 988 479 617 (94) 99 1,101 70 46 116

1,524 (374) 1,150 259 468 (63) 663 53 53

43

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)
20. TAXATION 20.1 Taxation recognized in income
3 months ended March 31, 2011 CAD'000 3 months ended March 31, 2010 CAD'000

Current taxation - Current period - Adjustments in the current period in relation to current tax of prior periods Deferred taxation relating to the origination and reversal of temporary differences Taxation recognized in income 20.2 Reconciliation of taxation expense to accounting profit Profit before taxation Statutory tax rate applicable during period Taxation at statutory rate Effect of expense not deductible in determining taxable income Effect of different tax rates of subsidiaries operating in other jurisdictions

739 (48) 691

421 421

1,919 26.5% 509

1,313 28.0% 368

117 65 691

53 421

Adjustments recognized in the current period in relation to the current tax of prior periods Taxation recognized in income

691

421

44

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)
21 BUSINESS COMBINATIONS

The group completed a number of acquisitions in 2010 and the first quarter of 2011. The acquisition of two subsidiaries, Southern Flow Companies Inc. and Skyways Technical Services Ltd., is described below, while the acquisition of a partnership interest in PetroNet Systems LP is described in note 9. Southern Flow Companies Inc. (Southern Flow): In January 2011, the group executed an agreement to acquire all the issued and outstanding shares of Southern Flow effective January 1, 2011. The acquisition price of CAD 16,492 (USD 16,515) was paid in entirely in cash upon closing. There was no contingent consideration. Southern Flow was a wholly owned subsidiary of a public company providing production optimization services to the oil and gas industry through 12 locations in the southern United States.

The initial accounting for the acquisition of Southern Flow has only been provisionally determined at the end of the reporting period. For tax purposes, the tax values of Southern Flow's assets will remain based on pre-acquisition values of the assets. At the date of finalization of these consolidated financial statements, the necessary market valuations and other calculations had not been finalized and they have therefore only been provisionally determined based on management's best estimate. Goodwill arose in the acquisition of Southern Flow because the consideration paid for the combination effectively included amounts in relation to the benefit of revenue growth, expected synergies, future market development and the assembled workforce of Southern Flow. These benefits are not recognized separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets. None of the goodwill arising on acquisition is expected to be deductible for tax purposes. Acquisition-related costs amounting to CAD 112 have been excluded from the consideration transferred and have been recognised as an expense in the current year, within the other expenses' line item in the consolidated statement of comprehensive income. Skyways Technical Services Ltd. (Skyways):

In August 2010, the group executed an agreement to acquire all the issued and outstanding shares of Skyways effective as of August 1, 2010. The purchase price of CAD 1,883 was comprised of an upfront cash payment of CAD 483 and earn out payments to a maximum of CAD 1,400, based on certain earnings targets being met. Skyways was a private corporation providing field operations and management services to the oil and gas industry in north-east British Columbia. The remaining consideration, to a maximum of CAD 1,400 will be paid out only upon the achievement of certain earnings and growth targets over the three year period following the acquisition date and will be accounted for as employee compensation expense in the period earned. Acquisition-related costs amounting to CAD 55 were included in the consideration transferred under the initial recording of this acquisition in 2010, but under IFRS have been reclassified to expense in the period of acquisition and are included in administration expenses in the consolidated statement of comprehensive income.

45

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)
Southern Flow
CAD'000 Production Optimization

21

BUSINESS COMBINATIONS (continued)

Skyways
CAD'000

Principal activity Date of acquisition and beginning of inclusion of results of acquired business within group financial results Purchase consideration Cash paid on closing

Field Services

January 1, 2011

August 1, 2010

16,492 16,492

483 483

Current assets Cash and & cash equivalents Trade and other receivables Inventories Non-current assets Property, plant and equipment Intangibles Goodwill Current liabilities Trade and other payables Non-current liabilities Deferred tax liabilities Net Assets Acquired and Recognized at Date of Acquisition Goodwill arising on acquisition: Consideration transferred, as above Less: fair value of identifiable net assets acquired: Working Capital Plant and equipment Intangibles Deferred tax liabilities Goodwill arising on acquisition Net cash outflow on acquisition of subsidiaries Consideration paid in cash Less: cash and cash equivalent balances acquired

250 3,591 2,179 6,020 1,808 8,125 4,979 14,912 1,336

56 70 126 461 461 43

3,104

61

16,492

483

16,492

483

4,684 1,808 8,125 (3,104) 11,513 4,979

83 461 (61) 483 -

16,492 (250) 16,242

483 (56) 427

46

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)
21 BUSINESS COMBINATIONS (continued)

Impact of acquisitions on the results of the Group

3 months ended March 31, 2011 CAD'000

3 months ended March 31, 2010 CAD'000

Southern Flow Revenue Profit before tax and amortization expenses Profit before tax Acquisition costs expensed in period Skyways Revenue Profit before tax and amortization expenses Profit before tax Acquisition costs expensed in period

5,611 860 624 44

1,225 245 213 -

47

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)
22. PROFIT PER SHARE
3 months ended March 31, 2011 CAD 3 months ended March 31, 2010 CAD

Basic profit per share

0.01

0.01

Diluted profit per share 22.1 Basic profit per share The profit and weighted average number of ordinary shares used in the calculation of basic earnings per share are as follows:

0.01

0.01

Profit for the period used to calculate total basic earnings per share (CAD '000)

1,228

892

Weighted average number of ordinary shares for the purposes of basic earnings per share 22.2

96,565,406

96,126,046

Diluted profit per share The profit and weighted average number of ordinary shares used in the calculation of diluted earnings per share are as follows:
3 months ended March 31, 2011 CAD'000 3 months ended March 31, 2010* CAD'000

Profit used in the calculation of total basic earnings per share Dilutive earnings adjustments Profit used in the calculation of total diluted earnings per share

1,228 1,228

892 892

Weighted average number of ordinary shares for the purposes of basic earnings per share (all measures) Net shares assumed issued

96,565,406 2,332,262

96,126,046 1,347,231

Weighted average number of ordinary shares used in the calculation of diluted earnings per share

98,897,668

97,473,277

48

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)
23. FINANCIAL INSTRUMENTS 23.1 Capital risk management The group's objectives in managing capital are to safeguard its ability to operate as a going concern while pursuing opportunities for growth through acquisition of complementary businesses. The capital structure of the group consists of net debt (borrowings as detailed in note 18 offset by cash and bank balances) plus equity of the group (comprising issued capital and accumulated deficit but excluding reserves). The group sets the amount of capital in proportion to risk and corporate growth objectives. The group manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the group may purchase shares for cancellation pursuant to normal course issuer bids or issue new shares. The Board of Directors does not establish quantitative return on capital criteria for management, but rather promotes year over year sustainable profitable growth. The group does not have a policy of paying regular dividends to shareholders. This policy will be reviewed from time to time by the Board of Directors in the context of operational results, objectives for corporate growth, financial condition and other relevant factors. The group is meeting its objective of managing capital through its detailed review and performance of due diligence on all potential acquisitions, preparing short-term and long-term cash flow analysis to ensure an adequate amount of liquidity and monthly review of financial results. The objectives, policies and processes described above remain consistent with the prior year, and as was the case per Canadian GAAP. 23.2 Significant accounting policies Details of the significant accounting policies and methods adopted (including the criteria for recognition, the basis of measurement, and the basis for recognition of income and expenses), for each class of financial asset, financial liability and equity instrument are disclosed in note 2 to the consolidated interim financial statements.

49

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)
23. FINANCIAL INSTRUMENTS 23.3 Categories of financial assets and financial liabilities The following table summarizes information relating to the group's financial instruments as at March 31, 2011 and December 31, 2010.

Classification of financial instruments Location on consolidated statement of Class of financial financial instruments position

Accounting designation

Related income or expense account on statement of comprehensive income

As at March 31, 2011 Carrying value Fair value


CAD'000 CAD'000

As at December 31, 2010 Carrying value Fair value


CAD'000 CAD'000

Cash Receivables Payables Term loan payable Bank line of credit

Cash and equivalents Trade and other receivables Trade and other payables Term loan payable Bank line of credit

HFT-A LAR OTH OTH OTH

Gains and losses on foreign exchange are included in other operating expenses Gains and losses on foreign exchange are included in other operating expenses Gains and losses on foreign exchange are included in other operating expenses Finance costs Finance costs

844 25,474 8,099 5,311 1,450

844 25,474 8,099 5,311 1,450

9,642 14,582 7,309 -

9,642 14,582 7,309 -

HFT-A - Classified as "Held for trading" in accordance with IAS 39 Financial Instruments: Recognition and Measurement. These financial assets and liabilities are carried at fair value on the consolidated statements of financial position with associated gains and losses reflected in net and comprehensive income. LAR - "Loans and receivables" are initially recognized at fair value and subsequently are measured at amortized cost. Impairments and foreign exchange gains and losses are recognized in net and comprehensive income. OTH - "Other financial liabilities" are initially recognized at fair value and subsequently are measured at amortized cost. Interest is recognized in net and comprehensive income using the effective interest method. Foreign exchange gains and losses are recognized in net earnings.

50

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)
23. FINANCIAL INSTRUMENTS (continued) 23.4 Financial risk management objectives The group is exposed to a number of risks in the normal course of business that have the potential to affect its performance. The group seeks to avoid unnecessary risk and initiates policies and processes to limit any significant risk as much as practical. The main risks the groups financial instruments are exposed to are foreign exchange risk, credit risk, liquidity risk and interest rate risk. 23.5 Foreign exchange risk The group earns revenue and records accounts receivable in foreign currency and translates these amounts to Canadian dollars at the time of these transactions. The group does not use derivative instruments to mitigate the effects of foreign exchange changes between the recording date of the accounts receivable and the receipt of cash. The accounts receivable are short-term in nature and the effect of the foreign exchange changes have not been significant and foreign exchange gains and losses are included in income as they occur. The total foreign exchange gain during the period was CAD 94 (2009 - CAD 63). 23.6 Credit risk Credit risk arises from the potential that a counter party will fail to perform its obligations. Financial instruments that potentially subject the group to concentrations of credit risk consist of cash and cash equivalents and accounts receivable. The group maintains cash and cash equivalents at a Canadian Schedule I bank with a nominal amount being covered by the Canada Deposit Insurance Corporation. The group's accounts receivable are primarily from customers operating in the oil and natural gas industry in North America and are subject to the credit and political risks that would be considered normal in this industry and these jurisdictions. Credit risk concentration with respect to trade receivables is limited by following a program of credit evaluation and by limiting the amount of customer credit where deemed necessary. The group does not obtain collateral or other security to support accounts receivable. The maximum credit risk to which the group is exposed is the carrying value of cash and equivalents and accounts receivable at the balance sheet date. At March 31, 2011 no customer represented a significant percentage of total accounts receivable. At March 31, 2011, the group does not consider any of its financial assets to be impaired with the potential exception of CAD 494 of trade receivables, which has been fully provided for within the allowance for doubtful receivables. Refer note 11 for disclosure of aging of trade receivables past due but not impaired.

51

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)
23. FINANCIAL INSTRUMENTS (continued) 23.6 Credit risk (continued) The group reviews financial assets past due on an ongoing basis with the objective of identifying potential matters which could delay the collection of funds at an early stage. Once items are identified as being past due, contact is made with the respective company to determine the reason for the delay in payment and to establish an agreement to rectify the breach of contractual terms. All credit and recovery risk associated with trade receivables has been provided for in the statement of financial position. 23.7 Liquidity risk Liquidity risk is the risk that the group will not be able to meet its financial obligations as they become due. The group continuously monitors forecast and actual cash flows and actively maintains credit facilities to ensure it has sufficient available funds to meet current and foreseeable financial requirements when due, at a reasonable cost. Accounts payable and accrued liabilities are subject to industry standard terms. Management believes that future cash flows from operations and availability under existing banking arrangements will be adequate to support these financial liabilities. The existing banking arrangements include an operating line of credit and a term loan. The operating line of credit is in the form of a revolving credit facility, with a total authorized amount of CAD 3,000. The long term loan is a three year bank loan with a maximum advance of CAD 9,000, of which CAD 7,000 was drawn at March 31, 2011. 23.8 Interest rate risk The group is exposed to interest rate risk with regard to the cash and cash equivalents and the credit facilities when utilized. The group's current policy is to invest available cash in excess of balances required to conduct day to day operations in short term investment certificates / money market funds. The investments earn interest at market rates. Fluctuations in market rates do not have a significant impact on the group's results of operations due to the short term to maturity of the investments held.

52

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)
23.9 Sensitivity analyses The group conducts business in currencies other than Candian dollars and accordingly is subject to currency risk associated with changes in foreign exchange rates in relation to cash, accounts receivable, accounts payable, and earnings of a foreign subsidiary. The working capital impact is somewhat mitigated as a result of offsetting effects of foreign exchange fluctuations on assets and liabilities. The group monitors its exposure to currency risk and plans its business activities accordingly. The sensitivity analysis below summarizes the effect of foreign exchange fluctuation on working capital balances. Description of change in risk variable

Risk

Before tax effect on comprehensive income increase (decrease)


3 months ended March 31, 2011 3 months ended March 31, 2010

CAD'000 Increase in strength of Currency risk - USD to the CAD against the USD CAD on domestically held by 5% over the relevant financial assets and closing rates on March 31, liabilities 2011 Decrease in strength of the CAD against the USD by 5% over the relevant closing rates on March 31, 2011 Increase in strength of the CAD against the USD Currency risk - USD to by 5% over the relevant CAD on foreign closing rates on March 31, subsidiary. 2011 Decrease in strength of the CAD against the USD by 5% over the relevant closing rates on March 31, 2011

CAD'000

(62)

(6)

17

11

(764)

802

53

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)
24. SHARE-BASED PAYMENTS 24.1 Share-based payment plans 24.1.1 Employee share option plan On May 30, 2000, the group established a stock option plan for directors, officers, employees and consultants, which permits the granting of options to purchase up to a maximum of 10% of the groups issued and outstanding common shares. The number of options and exercise price thereof is set by the Board of Directors at the time of grant provided that such exercise price shall not be less than that from time to time permitted under the rules of any stock exchange or exchanges on which the group's shares may be listed. The maximum number of options that may be granted to any one individual shall not exceed 5% of the groups issued and outstanding common shares. The options granted under the plan may be exercisable for a period not exceeding five years and may vest at such times, as the Board of Directors may determine at the time of grant. Generally, stock options vest over a three year period. 24.1.2 Restricted Share Unit ('RSU') plan On August 3, 2007 the group adopted an employee RSU plan. The restricted share plan provides that RSUs may be granted to employees, officers, directors and consultants of the group. An RSU is exercisable into one ordinary share entitling the holder to acquire the ordinary share for no additional consideration. RSUs vest over a period of up to three years.

54

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)
24. SHARE-BASED PAYMENTS 24.1 Share-based payment plans (continued) The following option arrangements were in existence during the current and prior periods:
Options outstanding Options exercisable

Option series Exercise Price

Number outstanding

Weighted average remaining contractual life Years

Weighted average exercise price CAD

Number exercisable

Weighted average exercise price CAD

CAD Mar 31, 2011 0.40-0.49 0.50-1.00

2,316,666 3,465,203 5,781,869

1.60 1.87 1.76

0.40 0.69 0.57

745,327 1,025,624 1,770,951

0.40 0.58 0.51

Dec 31, 2010 0.40-0.49 0.50-1.00

2,386,000 3,625,949 6,011,949

1.90 2.10 2.00

0.40 0.69 0.57

745,327 1,042,916 1,788,243

0.40 0.58 0.51

The following RSU arrangements were in existence during the current and prior periods:
Mar 31, 2011 Weighted average fair value on grant date
CAD

Dec 31, 2010 Weighted average fair value on grant date


CAD

RSU's Outstanding, beginning of period Granted Released Forfeited 805,230 120,000 (6,630) (36,800)

RSU's 1,187,041 451,400 (766,252) (66,959)

0.57 0.82 0.58 0.55

0.56 0.71 0.62 0.61

Outstanding, end of period

881,800

0.66

805,230

0.57

55

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)
24. SHARE-BASED PAYMENTS (continued) 24.2 Fair value of share options granted during the period As there were no options granted in the period, the weighted average fair value of the share options granted is CAD 0 (2010: CAD 0). Options are priced using a Black-Scholes option pricing model. Where relevant, the expected life used in the model is adjusted based on managements best estimate for the effects of non-transferability, exercise restrictions (including the probability of meeting market conditions attached to the option), and behavioural considerations. Expected volatility is based on the historical share price volatility over the past 5 years. There is an assumption used in the model that no dividends are paid on common shares. None as no new options were granted during the period 24.3 Movements in share options during the period The following reconciles the share options outstanding at the beginning and end of the period:
Balance at beginning

Granted

Forfeited

Exercised

Expired

Balance at end

3 months ended Mar 31, 2011 Weighted average exercise price (CAD) Number of options

0.57 6,011,949

0.60 (177,033)

0.60 (53,047)

0.57 5,781,869

9 months ended Dec 31, 2010 Weighted average exercise price (CAD) Number of options

0.57 6,260,136

0.75 2,037,000

0.66 (254,368)

0.58 (981,352)

0.86 (1,049,467)

0.57 6,011,949

3 months ended Mar 31, 2010 Weighted average exercise price (CAD) Number of options

0.57 6,346,053

0.66 (85,917)

0.57 6,260,136

56

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)
24. SHARE-BASED PAYMENTS (continued) 24.4 Share options exercised during the period The following share options were exercised during the period:

Option series / exercise price

Weighted average share Number price at exercised exercise date

CAD 3 months ended Mar 31, 2011 0.21-0.49 0.50-1.00 53,047 0.82

53,047 9 months ended Dec 31, 2010 0.21-0.49 0.50-1.00

0.82

981,352

0.74

981,352 3 months ended Mar 31, 2010 0.21-0.49 0.50-1.00

0.74

57

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (unaudited)
25. RELATED PARTIES Balances and transactions between the company and its subsidiaries, which are related parties of the company, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the group and other related parties are disclosed below. 25.1 Trading transactions and balances During the period, group entities entered into the following trading transactions with related parties that are not members of the group:
Sales of services 3 months ended March 31, 2011 CAD'000 3 months ended March 31, 2010 CAD'000

PetroNet Systems LP The following balances were outstanding at the end of the period:

25

Amounts owed by related parties Mar 2011 CAD'000 Dec 2010 CAD'000 Jan 2010 CAD'000

PetroNet Systems LP

409

311

Provision of services to related parties were made at prices equivalent to the fair market value.

The amounts outstanding are unsecured and will be settled in cash. No guarantees have been given or received. No expense has been recognized in the current or prior periods for bad or doubtful debts in respect of the amounts owed by related parties.

58

Zedi Inc.
Notes to the condensed consolidated interim financial statements for the quarter ended March 31, 2011 (continued)
26 OPERATING LEASE ARRANGEMENTS 26.1 The group as lessee 26.1.1 Leasing arrangements Operating leases relate to leases of office space and automotive equipment with lease terms of between two and ten years. The group has the option to purchase the leased office space for its Calgary headquarters at the expiry of the ten year lease period. 26.1.2 Payments recognized as expense
3 months ended March 31, 2011 CAD'000 3 months ended March 31, 2010 CAD'000

Minimum lease payments Contingent rentals Sub-lease payments received Amortization of deferred lease incentives

616 (74) 542

286 286

26.1.3 Non-cancellable operating lease commitments Not later than 1 year Later than 1 year and not later than 5 years Later than 5 years 2,181 4,781 3,442 10,403 26.1.4 Liabilities recognized in respect of non-cancellable operating leases
Mar 31, 2011 CAD'000 Dec 31, 2010 CAD'000 Jan 01, 2010 CAD'000

1,135 1,238 2,372

Lease incentives -current -non-current

2,891 2,891

719 719

27 EVENTS AFTER REPORTING PERIOD As of June 1, 2011 Zedi acquired certain assets comprising the SilverJack TM business unit from TCB Welding and Construction Ltd., including ongoing business operations, intellectual property and inventory. The purchase price was CAD 1,763 paid in cash at closing with an earnout based on revenue performance over a three year period. The purchase price was funded by a new draw of CAD 1,750 on the term debt facility arranged with Zedis primary banker in January, 2011. 28 APPROVAL OF THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS The condensed consolidated interim financial statements were approved by the board of directors and authorized for issue on June 2, 2011.

59