Enterprise Group Inc T.E

RE: First Canadian Capital!!

[don118]

Q1/13 RESULTS IN LINE WITH EXPECTATIONS ~ POISED FOR GROWTH

Rating: BUY 12-Month Target: $1.30

ENTERPRISE GROUP INC. (E-TSX, $0.70)

O

ld 12-Month Target: $1.20

ENTERPRISE GROUP, INC.

(Currency is C$ unless noted otherwise) Closing Price June 11, 2013
12 Month Target Price
Dividend (annual)

TSX : E

MORNINGNOTE June 11, 2013

EVENT: Enterprise Group Inc. announced its Q1/13 results before the markets opened on May 9, 2013 which were in line with our expectations; there were no consensus estimates. This report provides an update on the quarterly results.

Dividend Yield
Potential Total Return
52 Week Range
Average Daily Volume (100-Day)
MARKET INFO
Market Cap (millions)
Enterprise Value (millions)
Shares O/S (000's)
Fully Diluted (000's)
FYE: DEC 31
Revenue (millions)
Revenue Growth (%)
EBITDA (millions)
EBITDA Margin (%)
Fully Diluted EPS
Cash (millions)
Total Debt (millions)
VALUATION 2012 2013E
EV / EBITDA 9.2x 5.4x
P/E (tax adjusted basis) 16.1x 8.6x Website: www.enterprisegrp.ca
DISCLOSURE:
(Please refer to the applicable disclosures that are listed on the back page) Source: Thomson One, M Partners

COMPANY DESCRIPTION

Enterprise Group Inc. (E-TSX) is a diversified construction, utilities and oilfield services company with 3 operational business segments: TC Backhoe & Directional Drilling, Artic Therm and E One Limited. Enterprise Group operates in western Canada with most of their revenue derived from the Province of Alberta. Enterprise Group is also a consolidator of similar businesses in western Canada which adds a growth by acquisition aspect to its organic growth strategy.

$0.700 $1.30 $0.00 ? 0.0%

85.7% $0.13 - $0.74 391,287

In Q1/13, Enterprise Group reported fully diluted EPS of $0.05; we were expecting EPS of $0.05. With 2 analysts (includes M Partners) currently providing research coverage on Enterprise Group, there was no consensus estimate.

Quarter-end Q1/13 (in C$ millions, except EPS) in Q1/12 Last Year	Actual as reported by M Partners Enterprise Estimates
Revenue Gross Profit Gross Profit Margin EBITDA EBITDA Margin EBIT Net Income EPS - fully diluted, adjusted Source: M Partners, Bloomberg $ 3.63 $ 1.23 33.8% $ 0.53 14.5% $ 0.22 $ 0.17 $ 0.00 $ 8.90 $ 5.20 58.4% $ 3.90 43.8% $ 3.35 $ 3.17 $ 0.05 $ 8.92 $ 4.78 53.6% $ 3.88 43.5% $ 3.36 $ 3.15 $ 0.05

2012 2013E

$59.2

$66.5 70,065 84,535 2014E

$42.8 43.2% $17.5 40.8% $0.11 $10.0 $9.5 2014E 3.8x

6.7x ? 5, 6

$18.5 $29.9 3.5% 61.7% $4.4 $12.4 23.5% 41.3% $0.04 $0.12 $1.2 $6.8 $13.2 $14.0

Revenue of $8.90 million reported in Q1/13 was in line with our estimate of $8.92 million as all business segments performed as expected. Revenue was driven by the addition of Artic Therm and the full deployment of the additional 30 heating units that were acquired during Q4/12, revenue from new contracts & territories at TC Backhoe and a ramp up of the E One business.

• ? Enterprise Group reported Gross Profit of $5.20 million versus our estimate of $4.78 million; the Gross Profit Margin of 58.4% was higher than our 53.6% estimate and significantly higher versus Q1/12, reflecting a shift in revenue mix, the addition of Artic Therm and the exiting of certain low margin businesses.

• ? EBITDA reached $3.90 million, in line with our $3.88 million estimate. Margins were in line with expectations as Enterprise Group reported EBITDA margin of 43.8% vs. our estimate of 43.5%.

• ? EBIT reached $3.35 million vs. our estimate of $3.36 million, driven by the expected year-over-year growth in revenue.

  DURING Q1/13

  On February 12, 2013, Enterprise Group closed on a non-brokered private placement of 4,200,000 units of Enterprise Group at a price of $0.25 per unit for aggregate gross proceeds of $1,050,000. Each unit is comprised of one common share in the capital of Enterprise Group and one common share purchase warrant. Each whole warrant entitles the holder to acquire one common share at an exercise price of $0.35 for a period of six months from the closing of the offering, subject to accelerated expiry in certain circumstances.

  On February 28, 2013, Enterprise Group announced it had signed of a Letter of Intent (LOI) to purchase a private specialized underground infrastructure construction company with operations based in Alberta. For the year ended 2012, the private company generated $14.9 million of revenue, $5.8 million of EBITDA and an estimated $0.04 to $0.05 of fully diluted EPS (EPS is an M Partners estimate). The purchase price of the transaction is $12 million which will be funded by cash, debt financing and $1 million in vender take-back financing to be paid over two years. Enterprise Group had expected to close on the transaction on or about May 1, 2013 however this has been pushed back due to various audits the acquired company needed to complete prior to

Member of the Investment Industry Regulatory Organization of Canada (IIROC) Participating Organization – Toronto Stock Exchange and TSX Venture Exchange Member – Canadian Investor Protection Fund (CIPF)

Tom O. Varesh, MBA 416.603.7381 ext. 258 [e-mail]

MORNINGNOTE June 11, 2013

closing the deal. Enterprise has extended the closing date to June 14, 2013 however the effective date of the transaction will be May 1, 2013.

We believe this acquisition is transformative for Enterprise Group as it has the potential to increase its revenue and EBITDA by about 50% based on our 2013 estimates for Enterprise Group, pre- this acquisition. Furthermore, management has indicated to us that with investments it expects to make in the acquired company and with the relationships Enterprise Group has with its clients, management believes the acquired company can generate $22 million to $25 million of revenue in a year’s time; that equates to $8.6 million to $9.7 million of EBTIDA by applying the same EBITDA margin the acquired company generated in the 12-months prior to the acquisition.

We believe this acquisition reinforces our thesis that Enterprise Group will continue with its transformation as it grows through acquisitions that complement its core competencies while expanding the services offered to a larger base of customers and leveraging the synergies available through Enterprise's existing operations.

On March 19, 2013, Enterprise Group announced the appointment of Doug Bachman to the position of Chief Operating Officer. Mr. Bachman has more than 25 years experience of Corporate Finance and Management at a major financial institution, with extensive knowledge in corporate credit, strategic planning, investment strategies, human resource management, team building and leadership. We believe this appointment along with the appointment of Warren Cabral as CFO a few months ago, rounds out a strong and experienced management team that we expect will grow the Enterprise Group business.

On March 25, 2013, Enterprise Group announced that it had entered into a financing arrangement to raise gross proceeds of approximately $6,000,000 with funding partner Difference Capital Funding Inc. (TSXV | DCF : Not Rated). The financing closed on May 22, 2013 and proceeds of this financing will be used to complete strategic acquisitions including the previously announced $12.0 million acquisition of a private specialized underground infrastructure construction company. The financing consisted of $6,000,000 of unsecured convertible debentures with an annual coupon of 6.00% per annum. The debentures have a two-year term and will be convertible into common shares at a price of $0.50 per common share.

AFTER THE QUARTER

On April 25, 2013, Enterprise Group announced that it had entered into an agreement with a syndicate of agents for a best efforts private placement offering for its common shares. Each common share was issued at a price of $0.48 and is subject to a four month plus one day hold period from the Closing Date. The offering closed on Tuesday, May 28, 2013 and raised gross proceeds of $4.12 million; 8,587,586 common shares and 515,255 common share purchase warrants were issued upon closing.

On May 2, 2013, Enterprise Group announced that PNC Bank Canada (PNC) agreed to increase Enterprise Group’s current senior secured finance facility from $12.5 million to $20.0 million at the existing interest rate of prime plus 2%.

This increase coupled with the $10.12 million debenture and common share financings (in aggregate) will facilitate the closing of the acquisition of the specialized underground infrastructure company announced on February 28, 2013. Further to the existing terms, PNC also agreed to increase Enterprise Group's 2013 capital expenditure program from $3.0 million to $11.0 million. This capital expenditure increase will be used to aggressively grow Enterprise Group’s businesses to meet end user demand. We highlighted above that management plans to grow the business it is acquiring such that it increases the annual revenue of that business to $22 to $25 million, up from $14.9 million. In addition, management has indicated that it plans to acquire six additional 1.5 million to 3.0 million BTU heater trucks for its Artic Therm business in 2013.

When we initiated research coverage on Enterprise Group on February 28, 2013, the stock was trading at $0.35. With yesterday’s closing price of $0.56 per share, we are now assuming all of the in-the-money warrants will be converted into shares by the end of July 2013. These warrants include: 1) 6,084,997 warrants with a $0.20 exercise price (expires June 2013) and 2) 4,200,000 warrants with a $0.35 exercise price (expires July 2013). The warrants associated with the financing that closed on May 28, 2013 are also in the money and are factored into our fully diluted share count. Our EPS estimates account for the expected 40% higher fully diluted share count in 2013 versus the 2012 weighted average fully diluted shares outstanding and a further 7% increase in 2014 (versus our 2013 weighted average fully diluted shares outstanding estimate).

We are introducing our new 2013 and 2014 estimates to reflect the various financings, the fully diluted share count and the expected addition of six 1.5 million to 3.0 million BTU heater trucks for Artic Therm. In 2014, we are now expecting $42.8 million of revenue (previously $32.3 million), $17.5 million (previously $13.3 million) of EBITDA (40.8% margin), and fully diluted EPS of $0.11 (previously $0.10). Changes to our 2013 estimates were not material.

Enterprise Group will have used up all of its tax loss carry forwards towards the middle of the Q4/13; thus in 2014, Enterprise Group will be fully taxable for the entire year. As a result, despite estimating higher revenue and EBITDA in 2014 versus our 2013 estimates, our net income and fully diluted EPS estimates are lower (versus 2013) reflecting the taxes Enterprise Group will pay in 2014.

RECOMMENDATION

We are maintaining our BUY recommendation and increasing our 12-month target price on Enterprise Group to $1.30 (previously $1.20). Our estimates do not include any amounts for the announced acquisition that is expected to close by June 14, 2013. Our valuation is based on a 12.0x P/E multiple applied to our newly introduced 2014 EPS of $0.11 which translates into a 7.0x EV/2014 EBITDA multiple (previously 8.0x). With Enterprise Group trading at 6.7x on a 2014 P/E basis and 3.8x on a EV/2014 EBITDA basis, we continue to believe that Enterprise Group is trading at a deep valuation discount compared to its peers as the current valuation does not, in our opinion, accurately reflect the organic growth expected in 2013, the Artic Therm acquisition and the investment made (and being made) in this business, and the expected lift to its financials from the recently announced acquisition which we believe will be immediately accretive.

Member of the Investment Industry Regulatory Organization of Canada (IIROC) Participating Organization – Toronto Stock Exchange and TSX Venture Exchange Member – Canadian Investor Protection Fund (CIPF)

Tom O. Varesh, MBA 416.603.7381 ext. 258 [e-mail]

APPENDIX A – INCOME STATEMENT

MORNINGNOTE June 11, 2013

For the Fiscal Period Ending December 31 Revenues

Revenues

Expenses

Direct Expenses (Cost of Sales)
General and Administrative
Depreciation of Property, Plant and Equipment Amortization of Intangible Assets
Impairment Losses of Property, Plant and Equipment GoodwillWrite-down
Finance Expenses / Interest
Fair Value Adjustments
Interest and Other Income / (Loss)
Gain/loss on Sales of Property, Plant and Equipment Loss on Sales of Property, Plant, and Equipment Acquisition Costs

Earnings before Taxes

Taxes and Other Expenses

Income Tax

Provision for Income Tax (deferred)

Net Income (Loss)

Unrealized loss on marketable securities

Net Income and Comprehensive Income (Loss)

Basic EPS - Continuing Operations Diluted EPS - Continuing Operations

Basic Weighted Shares Outstanding Diluted Weighted Shares Outstanding

Gross Profit / Loss Gross Profit Margin

EBITDA EBITDA Margin

EBIT
EBIT Margin

2008

39,761,680

(29,691,300) (5,304,425) 0 (2,571,697) 0 (15,107,933) (395,669) 0 30,741 (308,873) 0 0 (13,587,476)

141,991 1,176,245 (12,269,240)

(0.30) 0.00

41,637,250 41,637,250

10,070,380 25.3%

4,765,955 12.0%

2,194,258 5.5%

2009 2010

27,699,442 15,623,490

(25,564,226) (13,833,130) (3,782,484) (3,315,375) 0 (1,424,839) (1,845,809) (145,500) 0 0 0 0 (528,576) (202,564) 0 0 (43,492) 21,945 (1,748,153) (188,444) 0 0 0 0 (5,813,298) (3,464,418)

806,168 (2,099,700)

479,300 0

(4,527,830) (5,564,118)

(0.06) (0.11) 0.00 (0.11)

42,192,600 48,681,700 42,192,600 48,681,700

2,135,216 1,790,360 7.7% 11.5%

(1,647,268) (1,525,016) -5.9% -9.8%

(3,493,077) (3,095,355) -12.6% -19.8%

2011

17,883,710

(13,173,450) (3,148,533) (1,113,752)

(145,500) (73,038) 0 (808,065) 121,221 590,879 (54,598) 0 0 78,874

(1,216,000) 1,216,000 78,874

0.00 0.00

51,515,810 51,515,810

4,710,260 26.3%

1,561,727 8.7%

302,475 1.7%

Q1/12

3,631,355

(2,405,223) (697,771) (267,884)

(36,375) 0 0 (67,733) 7,128 210 5,000 0 0 168,707

(44,700) 44,700 168,707 0 168,707

0.00 0.00

54,766,700 54,985,600

1,226,132 33.8%

528,361 14.5%

224,102 6.2%

Q2/12

3,891,514

(2,422,958) (796,378) (269,555)

(36,375) 0 0 20,247 29,953 328 0 0 0 416,776

(110,400) 110,400 416,776 0 416,776

0.01 0.01

54,766,700 55,430,380

1,468,556 37.7%

672,178 17.3%

366,248 9.4%

Q3/12

4,333,529

(2,761,877) (711,348) (329,674)

(36,375) 0 0 (135,426) (29,716) (3,434) 0 (55,931) (199,397) 70,351

(18,700) 18,700 70,351 0 70,351

0.00 0.00

55,114,520 58,465,950

1,571,652 36.3%

860,304 19.9%

494,255 11.4%

Q4/12

6,647,631

(3,251,773) (890,823) (432,286)

(55,887) 0 0 (228,378) (115,846) 11,155 (5,000) (135,918) (59,786) 1,483,089

523,466 (173,800) 1,832,755 (12,000) 1,820,755

0.03 0.03

57,163,495 55,862,818

3,395,858 51.1%

2,295,701 34.5%

2,016,862 30.3%

2012

18,504,028

(10,841,831) (3,096,320) (1,299,399)

(165,012) 0 0 (411,290) (108,481) 8,259 0 (191,849) (259,183) 2,138,922

349,666 0 2,488,588 (12,000) 2,476,588

0.04 0.04

55,452,854 56,186,187

7,662,197 41.4%

4,356,543 23.5%

3,101,466 16.8%

Q1/13

8,904,381

(3,702,411) (1,303,760) (476,262) (61,490) 0 0 (183,568) 0 2,279 0 (12,287) 0 3,166,882

0

0

3,166,882

0.05 0.05

59,538,178 61,874,616

5,201,970 58.4%

3,898,210 43.8%

3,360,458 37.7%

Q2/13 E

5,649,129

(3,517,295) (855,488) (447,620)

(61,490) 0 0 (149,959) (16,500) 13,773 0 0 0 614,548

(172,074) 172,074 614,548

0.01 0.01

69,550,030 84,535,027

2,131,834 37.7%

1,276,346 22.6%

767,235 13.6%

Q3/13 E

6,655,092

(3,817,325) (830,248) (432,361)

(61,490) 0 0 (149,959) (16,500) 13,949 0 0 0 1,361,156

(381,124) 381,124 1,361,156

0.02 0.02

69,550,030 84,535,027

2,837,766 42.6%

2,007,518 30.2%

1,513,667 22.7%

Q4/13 E 2013 E

8,710,719 29,919,320

(2,556,575) (13,593,607) (980,523) (3,970,019) (443,400) (1,799,643)

(61,490) (245,960) 0 0 0 0 (149,959) (633,446) (16,500) (49,500) 27,867 57,867 0 0 0 (12,287) 0 0 4,530,138 9,672,724

(1,268,439) (1,821,636) 951,329 1,504,526 4,213,028 9,355,615

0.06 0.14 0.05 0.12

69,550,030 67,047,067 84,535,027 78,869,924

6,154,144 16,325,713 70.7% 54.6%

5,173,621 12,355,694 59.4% 41.3%

4,668,731 10,310,091 53.6% 34.5%

2014 E

42,834,827

(19,656,282) (5,683,789) (3,092,059)

(245,960) 0 0 (473,350) (66,000) 76,402 0 0 0 13,693,788

(4,382,012) 0 9,311,776

0.13 0.11

69,550,030 84,535,027

23,178,545 54.1%

17,494,756 40.8%

14,156,737 33.0%

Source: Company Reports and M Partners Estimates

Member of the Investment Industry Regulatory Organization of Canada (IIROC) Participating Organization – Toronto Stock Exchange and TSX Venture Exchange Member – Canadian Investor Protection Fund (CIPF)

Tom O. Varesh, MBA 416.603.7381 ext. 258 [e-mail]

For the Fiscal Period Ended December 31 Current Assets

Cash and Cash Equivalents Deposit & Prepaid Expenses AccountsReceivables
Trade and Other Receivables Unbilled Revenues Income'taxesRefundable Inventories PrepaidExpenses

Total Current Assets

Non Current Assets

Property, Plant and Equipment Marketable Securities
Portfolio Investment
Deferred Tax Assets

Goodwill

Intangible Assets

Total Assets

Current Liabilities

Trade and Other Payables
Bank Indebtedness
Other Loans Payable
Bank Loan Facility
Current Portion of Long-term Loans and Borrowings Current Portion of Mortgage Facilities

Current Portion of Finance Lease Liabilities IncomeTaxesPayable
Current Portion of Vendor Take-back Loan Current Portion of Other & Term Loan Facility

Total Current Liabilities

Non Current Liabilities

Long-term Loans and Borrowings Future Income Taxes

Shareholders' Equity

Common Stock - Par Value
Additional Paid in Capital
Retained Earnings (Deficit)
Accumulated Other Comprehensive Income (Loss) Warrants

Total Shareholders Equity
Total Liabilities & Shareholders Equity

2008

607,297 0 10,916,390 0 0 140,535 737,596 393,675 12,795,493

14,805,290 0 28,000 932,600 0 1,200,375 29,761,758

1,909,814 6,526,900 0 0 3,249,975 0 0

0

0

11,686,689

2,206,621 0

2009

1,667,558 357,442 0 4,011,810 0 0 706,155 0 6,742,965

11,121,510 32,000 0 2,099,700 0 1,054,875 21,051,050

0

0

7,847,213

116,440 0

2010

392,043 216,030 0 2,729,006 196,320 0 714,846 0 4,248,245

9,531,420 40,000 0 0 0 909,375 14,729,040

0

0

6,142,256

828,655 0

2011

357,214 304,860 0 4,817,204 938,234 0 1,035,451 0 7,452,963

8,429,189 28,000 0 0 0 763,875 16,674,027

2,575,341 962,200 405,009

1,611,295 301,458 384,525 275,111

0

0

6,514,939

1,254,221 0

Q1/12

755,833 237,464 0 3,800,280 448,150 0 635,042 0 5,876,769

8,797,008 64,000 0 0 0 727,500 15,465,277

1,375,059 894,883 381,689

1,525,663 303,184 390,000 253,090

0

0

5,123,568

1,179,484 0

Q2/12

541,749 228,370 0 3,153,190 626,721 0 512,601 0 5,062,631

9,415,366 24,000 0 0 0 691,125 15,193,122

881,542 614,671 331,467

1,440,000 306,195 390,000 215,905

0 88,705 4,268,485

1,346,807 0

Q3/12

1,888,094 195,784 0 3,932,278 1,076,090 0 744,395 0 7,836,641

14,840,430 28,000 0 0 0 1,794,889 24,499,960

500,000 87,365 2,684,172

11,663,600 0

Q4/12

1,151,616 659,417 0 6,076,583 414,498 0 591,206 0 8,893,320

15,899,329 16,000 0 869,468 1,558,530 1,213,785 28,450,432

502,918

297,241

2,453,620

12,371,887 1,599,212

2012

1,151,616 659,417 0 6,076,583 414,498 0 591,206 0 8,893,320

15,899,329 16,000 0 869,468 1,558,530 1,213,785 28,450,432

502,918

297,241

2,453,620

12,371,887 1,599,212

25,921,249 2,106,922 (16,297,255) (16,000) 310,797 15,868,448 13,087,397 7,758,129 8,904,867 9,162,225 9,577,830 10,152,188 12,025,713 12,025,713 29,761,758 21,051,050 14,729,040 16,674,027 15,465,277 15,193,122 24,499,960 28,450,432 28,450,432

Q1/13

1,178,991 627,227 0 6,365,564 1,928,228 0 520,649 0 10,620,659

16,968,796 16,000 0 869,468 1,558,530 1,152,294 31,185,747

509,231

218,470

3,492,135

9,727,071 1,599,212

26,658,236 2,096,422 (13,130,373) (16,000) 759,044

Q2/13 E

1,049,021 331,514 0 4,577,339 909,782 0 744,119 0 7,611,774

29,021,176 16,000 0 869,468 1,558,530 1,090,804 40,167,752

0 218,470 1,693,132

13,727,071 1,599,212

Q3/13 E

1,283,360 300,670 0 6,038,882 1,652,574 0 1,143,183 0 10,418,669

29,088,815 16,000 0 869,468 1,558,530 1,029,314 42,980,795

500,000

218,470

3,478,560

13,227,071 1,599,212

Q4/13 E

4,096,875 864,067 0 7,962,446 543,137 0 774,686 0 14,241,212

29,145,415 16,000 0 869,468 1,558,530 967,824 46,798,449

500,000

218,470

2,916,726

13,227,071 1,599,212

2013 E

4,096,875 864,067 0 7,962,446 543,137 0 774,686 0 14,241,212

29,145,415 16,000 0 869,468 1,558,530 967,824 46,798,449

500,000

218,470

2,916,726

13,227,071 1,599,212

2014 E

7,271,710 1,237,065 0 11,399,658 777,597 0 1,109,101 0 21,795,132

28,053,356 16,000 0 869,468 1,558,530 721,864 53,014,350

MORNINGNOTE June 11, 2013

APPENDIX B – BALANCE SHEET

2,868,061 0 0 0 0 21,466 173,503 000000000000000

24,032,800 1,085,717 (9,243,865) (54,000) 47,796

24,945,960 1,364,017 (13,300,600) 11 78,009

24,945,960 1,621,078 (18,864,720) 8,015 47,796

25,577,890 1,803,096 (18,785,840) (3,989) 313,710

25,577,890 1,855,747 (18,617,140) 32,018 313,710

25,577,890 1,894,576 (18,200,360) (7,986) 313,710

26,077,890 1,894,576 (18,130,000) (3,988) 313,710

25,921,249 2,106,922 (16,297,255) (16,000) 310,797

32,658,236 2,096,422 (12,349,365) (16,000) 759,044 16,367,329 23,148,337 31,185,747 40,167,752

0 218,470 3,281,500

9,227,071 1,599,212

32,658,236 2,096,422 3,408,864

(16,000) 759,044 24,675,952 29,055,440 29,055,440 38,906,566 42,980,795 46,798,449 46,798,449 53,014,350

2,277,882 3,363,530 0 1,518,647 0 412,304 274,850

1,265,155 0 1,048,482 0 3,599,023 0 229,596

1,670,304 0 335,088 0 0 27,333 64,082

1,528,819 0 0 0 0 27,465 97,177

1,528,819 0 0 0 0 27,465 97,177

2,569,465 0 0 0 0 21,466 173,503

1,279,693 0 0 0 0 21,466 173,503

2,565,121 0 0 0 0 21,466 173,503

2,003,287 0 0 0 0 21,466 173,503

2,003,287 0 0 0 0 21,466 173,503

32,658,236 2,096,422 (10,821,750) (16,000) 759,044

32,658,236 2,096,422 (6,442,262) (16,000) 759,044

32,658,236 2,096,422 (6,442,262) (16,000) 759,044

Source: Company Reports and M Partners Estimates

Member of the Investment Industry Regulatory Organization of Canada (IIROC) Participating Organization – Toronto Stock Exchange and TSX Venture Exchange Member – Canadian Investor Protection Fund (CIPF)

Tom O. Varesh, MBA 416.603.7381 ext. 258 [e-mail]

Cash Flow from Operating Activities

Investing Activities

Purchase of Property Plant, and Equipment
Proceeds on Sale of Property, Plant and Equipment
Proceeds on Dispositions of Property, Plant and Equipment Acquisition of Business
Insurance Proceeds Relating to Property, Plant and Equipment

Cash Flow from Investing Activities

Financing Activities

Proceeds from Long-term Debts
Repayment of Long-term Debt
Proceeds from Term Loan Facility
Repayments of Term Loan Facility
Proceeds from Finance Lease Liabilities
Repayment of Finance Lease Liabilities
Proceeds of Mortgage Facility
Repayment of Mortgage Facility
Repayments of Other Loans Payable
Changes in Bank Indebtedness
Proceeds from Bank Loan Facility
Repayment of Bank Loan Facility
Proceeds from Issue of Common Shares, Net of Share Issue Costs Share Repurchase

Share Issue Cost
Interest Paid on Loans and Borrowings
Proceeds of Other Terms Loan Facility & Vendor Take Back Financing Repayment of Other Term Loan Facility & Vendor Take Back Financing

Cash Flow from Financing Activities

Cash Flow Net Changes in Cash Previous Cash Balance
Ending Cash Balance

Source: Company Reports and M Partners Estimates

1,852,786 5,539,986

(584,444) (1,032,874) 0 0 540,332 1,896,286 0 0 0 0 (44,112) 863,412

0 1,177,139 (3,379,187) (4,311,494) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1,575,912 (3,163,370) 0 0 0 0 160,500 0 (68,516) (18,912) 0 973,500 0 0 0 0 0 0 (1,711,291) (5,343,137)

97,383 1,060,261 509,914 607,297 607,297 1,667,558

(1,069,745)

(882,821) 859,630 0 0 0 (23,191)

0

0 3,599,023 0 719,997 (584,074) 531,038 (412,304) 1,048,482 (3,363,530) 0 (1,518,647) 0 0 0 (202,564) 0 0 (182,579)

(1,275,515) 1,667,558 392,043

405,269

(638,117) 498,960 0 0 0 (139,157)

0

0 1,500,000 (3,738,500) 211,050 (262,766) 0 (169,000) (643,472) 962,200 1,800,000 (180,000) 912,749 0 (14,903) (678,299) 0 0 (300,941)

(34,829) 392,043 357,214

921,812

(201,762) 5,000 0 0 0 (196,762)

0 0 0

(75,657) 62,321 (67,052) 0 0 (23,320) (67,317) 0 (90,000) 0 0 0 (65,406) 0 0 (326,431)

398,619 357,214 755,833

905,521

(887,914) 0 0 0 0 (887,914)

0 0 0

(76,693) 0 (68,840) 0 0 (50,222) (280,212) 0 (90,000) 0 0 0 (68,800) 410,000 (6,924) (231,691)

(214,084) 755,833 541,749

338,571

(1,283,535) 147,411 0 351,307 0 (784,817)

0 0 0

(1,299,994) 122,808 (261,103) 390,000 (394,996) 3,621 (614,671) 5,706,019 (1,440,000) 0 0 0 (397,463) 0 (21,630) 1,792,591

1,346,345 541,749 1,888,094

(247,896)

(852,350) 105,429 0 (4,949,898) 0 (5,696,819)

0

0 1,501,100 0 (185,129) (21,295) 0 (6,952) (335,088) 0 4,951,410 0 28,333 0 0 (292,210) (410,000) (21,920) 5,208,249

(736,466) 1,888,082 1,151,616

1,918,008

(3,225,561) 257,840 0 (4,598,591) 0 (7,566,312)

0

0 1,501,100 (1,452,344) 0 (418,290) 390,000 (401,948) (405,009) (962,200) 10,657,429 (1,620,000) 28,333 0 0 (823,879) 0 (50,474) 6,442,718

794,414

357,202 1,151,616

3,258,571 2,879,261

(1,558,016) (500,000) 0 0 0 0 0 (12,000,000) 0 0 (1,558,016) (12,500,000)

0 0 0 0 0 0

(59,529) 0 0 0 (23,798) 0 0 0 (7,054) 0 0 0 0 0 0 4,000,000 (2,558,876) 0 1,157,334 6,000,000 0 0 0 0 (181,257) 0 0 0 0 (509,231) (1,673,180) 9,490,769

27,375 (129,970) 1,151,616 1,178,991 1,178,991 1,049,021

734,339 3,313,516

(500,000) (500,000) 0 0 0 0 0 0 0 0 (500,000) (500,000)

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

(500,000) 0 0 0 0 0 0 0 0 0 500,000 0 0 0 0 0

234,339 2,813,516 1,049,021 1,283,360 1,283,360 4,096,875

10,185,686 9,674,835

(3,058,016) (2,000,000) 0 0 0 0 (12,000,000) 0 0 0 (15,058,016) (2,000,000)

0 0 0 0 0 0

(59,529) 0 0 0 (23,798) 0 0 0 (7,054) 0 0 0 0 0 4,000,000 0 (3,058,876) (4,000,000) 7,157,334 0 0 0 0 0 (181,257) 0 500,000 0 (509,231) (500,000) 7,817,589 (4,500,000)

2008 2009

2010 2011

Q1/12 Q2/12

Q3/12 Q4/12 2012

Q1/13 Q2/13 E

Q3/13 E

Q4/13 E

2013 E

2014 E

(12,269,240) (4,527,830) 0 0 2,241,754 1,700,308 329,943 145,500 0 0 308,873 1,748,154 0 50,000 0 0 15,107,940 0 96,175 229,090 0 0 0 0 (1,176,245) (1,286,100) 0 0 0 0 0 0 (2,786,414) 7,480,864 0 0

(5,564,118) 78,874 1,424,839 1,113,752 0 0 145,500 145,500 188,444 54,598 0 0 0 0 0 73,038 0 0 0 0 226,848 182,018 2,099,700 0 0 0 202,564 808,065 0 (121,215) 0 (100,000) 206,478 (1,829,361) 0 0

168,707 416,776 267,884 269,556 0 0 36,375 36,375 0 0 0 0 0 0 0 0 0 0 0 0 52,651 38,829 0 0 0 0 67,733 67,401 (7,128) (29,953) 0 0 340,590 106,537 (5,000) 0

70,351 1,483,089 2,138,922 329,673 432,286 1,299,399 0 0 0 36,375 55,887 165,012 0 0 0 50,931 140,918 191,849 0 0 0 0 0 0 0 0 0 0 0 0 0 53,856 145,336 0 0 0 0 0 0 171,417 104,739 411,291 29,716 115,846 108,481 0 0 0 (354,892) (2,634,517) (2,542,282) 5,000 0 0

3,166,882 614,548 476,262 447,620 0 0 61,490 61,490 0 0 12,287 0 0 0 0 0 0 0 0 0 17,400 0 0 0 0 0 183,568 149,959 0 16,500 0 0 (659,318) 1,589,143 0 0

1,361,156 432,361 0 61,490 0 0 0 0 0 0 0 0 0 149,959 16,500 0 (1,287,128) 0

4,213,028 443,400 0 61,490 0 0 0 0 0 0 0 0 0 149,959 16,500 0 (1,570,862) 0

9,355,615 1,799,643 0 245,960 0 12,287 0 0 0 0 17,400 0 0 633,446 49,500 0 (1,928,165) 0

9,311,776 3,092,059 0 245,960 0 0 0 0 0 0 0 0 0 473,350 66,000 0 (3,514,310) 0

MORNINGNOTE June 11, 2013

APPENDIX C – CASH FLOW STATEMENT

For the Fiscal Period Ending December 31 Operating Activities

Net Income
Depreciation of Property, Plant and Equipment
Amortization of Property, Plant, and Equipment
Amortization of Intangible Assets
Loss on Sale of Property, Plant and Equipment
Gain/loss on Sale of Property, Plant and Equipment
Unrealized Loss on Available for Sale Portfolio Investment, Net of Future Income Tax
Impairment Losses of Property, Plant and Equipment
GoodwillWrite-down
Stock based Compensation
Share Based Payments
DeferredTaxExpense
Future Income Tax Expense (Recovery)
Finance Expense
Fair Value Adjustments
Insurance Proceeds from Loss of Inventories
Change in Non-cash Working Capital Related to Operating Activities
Gains on Sale of Property, Plant and Equipment
DeferredIncomeTaxRecovery 000000000000000

2,945,259 1,151,616 4,096,875

3,174,835 4,096,875 7,271,710

Member of the Investment Industry Regulatory Organization of Canada (IIROC) Participating Organization – Toronto Stock Exchange and TSX Venture Exchange Member – Canadian Investor Protection Fund (CIPF)

Tom O. Varesh, MBA 416.603.7381 ext. 258 [e-mail]

M|PARTNERS

100 Wellington Street West Suite 2201 Toronto, Ontario
M5K 1K2
Canada 416-603-4343

As a full-service investment bank, M Partners’ first priority lies in the financial satisfaction of its clients. In keeping with the firm’s self-imposed high standards, M Partners’ approach to investment is anything but standardized. Aiming to create new opportunities and ideas for clients rather than steering them towards typical investment outlets, M Partners has adopted a keen strategy of focused and relevant research. Such knowledge-driven efforts, coupled with the ample skills of the firm’s management, produces successful services ranging from account management to advisory engagements.

M Partners received Investment Industry Regulatory Organization of Canada (IIROC) approval on April 14th 2005 and trades under broker number 97. The team currently has 30 members of varying degrees of financial experience, including principals Thomas Kofman and Steve Isenberg, who have a combined 45 years of financial experience and are well known in the field. This backbone of strong leadership will help chart the firm’s course into the future. M Partners will be focuses on a number of verticals, including mining, oil and gas, information technology, real estate, financial services, industrials, infrastructure, merchandising and consumer products, and other special situations.

M Partners has strong financial backers who have extensive capital markets experience. The firm is a member of IIROC, a participating member of the Toronto Stock Exchange, The TSX Venture Stock Exchange, PURE, CHI-X, OMEGA, TMX and the Canadian Investor Protection Fund (CIPF).

M Partners does not make a market for an equity or equity related security of the subject issuer.

Disclosure

The particulars contained herein were obtained from sources which we believe to be reliable but are not guaranteed by us and may be incomplete. The opinions expressed are based upon our analysis and interpretation of these particulars and are not to be construed as a solicitation or offer to buy or sell the securities mentioned herein.
Disclosure codes are used in accordance with Policy 3400 of IIROC.

Description of Possible Disclosure Codes

1. M Partners or its affiliates collectively beneficially own 1% or more of any class of equity securities of the company which is the subject of the

   research report.

2. The analyst or any associate of the analyst responsible for the report or public comment hold shares in the company.

3. M Partners or a director or officer of M Partners or any analyst provided services to the company for remuneration other than normal investment

   advisory or trade execution services within the preceding 12 months, (may seek compensation for investment banking services from the company

   herein within the next 3 months).

4. The director, officer, employee or research analyst is an officer, director or employee of the company, or serves in an advisory capacity to the

   company.

5. The analyst has viewed the material operations of the company. We define material operations as an issuer's corporate head office and its main

   production facility or a satellite facility that is representative of the company's operations.

6. M Partners provided investment banking services for the company during the 12 months preceding the publication of the research report

7. The analyst preparing the report received compensation based upon M Partners investment banking revenues for this issuer

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Research Analysts

The Research Analyst(s) who prepare this report certify that their respective report accurately reflects his/her personal opinion and that no part of his/her compensation was, is, or will be directly or indirectly related to the specific recommendations or views as to the securities or companies. M Partners compensates its research analysts from a variety of sources and research analysts may or may not receive compensation based upon M Partners investment banking revenue.

Rating System

Buy:
Hold:
Sell:
Under Review:

Price expected to rise
Properly priced
Price is inflated and expected to decrease Not currently rated

Summary of Recommendations (as of March 31, 2013)

Buy Hold Sell

55 93% 3 5% 1 2%

Total 58 100%

M|PARTNERS Research • Trading • Advisory