entrec corporation interim consolidated financial statements (unaudited) march 31, 2017 · 2017. 5....

ENTREC CORPORATION

Interim Consolidated Financial Statements

(unaudited)

March 31, 2017

REVIEW OF INTERIM FINANCIAL STATEMENTS

Under National Instrument 51-102, Part 4, subsection 4.3(3)(a), if an auditor has not performed a review of

the interim consolidated financial statements, the statements must be accompanied by a notice indicating

that the financial statements have not been reviewed by an auditor.

The accompanying unaudited interim consolidated financial statements of the Company have been prepared

by ENTREC Corporation management.

The Company’s independent auditor has not performed a review of the accompanying unaudited interim

consolidated financial statements in accordance with the standards established by CPA Canada for a review

of interim financial statements by an entity’s auditor.

ENTREC Corporation Interim Consolidated Statements of Financial Position (unaudited)

3

(see accompanying notes)

As at

(thousands of Canadian dollars)

March 31

2017

$

December 31

2016

$

ASSETS

Current assets

Cash 501 45

Trade and other receivables 28,594 24,863

Income taxes receivable 963 728

Inventory 2,044 2,100

Prepaid expenses and deposits 1,634 2,305

33,736 30,041

Non-current assets

Long-term deposits and other assets 99 77

Property, plant and equipment 203,921 211,063

Intangible assets 1,282 1,483

Total assets 239,038 242,664

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities

Trade and other payables 11,250 10,290

Current portion of deferred leasehold inducements 609 609

Current portion of long-term debt (note 5) 133 131

Current portion of obligations under finance lease (note 6) 1,063 1,356

Current portion of convertible debentures (note 7) 3,500 3,500

16,555 15,886

Non-current liabilities

Deferred leasehold inducements 9,023 9,175

Long-term debt (note 5) 128,802 129,304

Obligations under finance lease (note 6) 377 459

Convertible debentures (note 7) 15,250 14,928

Deferred income taxes 13,187 13,809

Total liabilities 183,194 183,561

Shareholders’ equity

Share capital (note 8) 132,974 132,944

Contributed surplus 10,043 9,891

Convertible debentures – equity (note 7) 1,028 1,028

Deficit (89,803) (86,399)

Accumulated other comprehensive income 1,602 1,639

Total shareholders’ equity 55,844 59,103

Total liabilities and shareholders’ equity 239,038 242,664

ENTREC Corporation Interim Consolidated Statements of Loss (unaudited)

4


Three months ended (thousands of Canadian dollars, except per share amounts)

March 31 2017

$

March 31 2016

$

Revenue 37,298 30,613

Direct costs 31,739 25,331

Gross profit 5,559 5,282

Operating expenses

General and administrative expenses 3,278 4,511

Depreciation of property, plant and equipment 5,510 6,383

Amortization of intangible assets 201 306

Share-based compensation 182 48

(Gain) loss on disposal of property, plant and equipment (550) 953

8,621 12,201

Loss before finance items and income taxes (3,062) (6,919)

Finance items (note 11)

Finance costs 2,057 2,177

Foreign exchange gain on long-term debt (note 5) (856) (2,632)

1,201 (455)

Loss before income taxes (4,263) (6,464)

Income taxes

Current (235) (243)

Deferred (624) (1,407)

(859) (1,650)

Net loss (3,404) (4,814)

Loss per share – basic (note 10) (0.03) (0.04)

Loss per share – diluted (note 10) (0.03) (0.04)

ENTREC Corporation Interim Consolidated Statements of Comprehensive Loss

(unaudited)

5


Three months ended (thousands of Canadian dollars)

March 31 2017

$

March 31 2016

$

Net loss (3,404) (4,814)

Other comprehensive loss

Exchange differences on translation of foreign operations (37) (264)

Other comprehensive loss for the period (37) (264)

Total comprehensive loss for the period (3,441) (5,078)

ENTREC Corporation Interim Consolidated Statements of Shareholders’ Equity (unaudited)

6

(thousands of Canadian

dollars) Share capital

$

Contributed

surplus

$

Convertible

debentures -

equity

$

Deficit

$

Accumulated

other

comprehensive

income

$

Total

$

Balance, Dec. 31, 2015 132,275 9,589 - (62,511) 1,753 81,106

Net loss - - - (4,814) - (4,814)

Other comprehensive

income - - - - (264) (264)

Total comprehensive

loss (4,814) (264) (5,078)

Share-based

compensation - 48 - - - 48

Shares issued

pursuant to

restricted shares 42 (42) - - - -

Balance, Mar. 31, 2016 132,317 9,595 - (67,325) 1,489 76,076

Balance, Dec. 31, 2016 132,944 9,891 1,028 (86,399) 1,639 59,103

Net loss - - - (3,404) - (3,404)

Other comprehensive

loss - - - - (37) (37)

Total comprehensive

loss - - - (3,404) (37) (3,441)

Share-based

compensation - 182 - - - 182

Shares issued

pursuant to

restricted shares 30 (30) - - - -

Balance, Mar. 31, 2017 132,974 10,043 1,028 (89,803) 1,602 55,844


ENTREC Corporation Interim Consolidated Statements of Cash Flows (unaudited)

7

Supplemental cash flow information (note 12)


Three months ended (thousands of Canadian dollars)

March 31 2017

$

March 31 2016

$ Operating activities Net loss (3,404) (4,814) Items not affecting cash:

Depreciation of property, plant and equipment 5,510 6,383 Amortization of intangible assets 201 306 Share-based compensation 182 48 (Gain) loss on disposal of property, plant and equipment (550) 953 Amortization of deferred leasehold inducements (152) (152) Amortization of deferred financing costs 410 512 Foreign exchange gain on long-term debt (856) (2,632) Deferred income taxes (624) (1,407)

717 (803) Net change in non-cash operating working capital (note 12) (2,317) 1,409 Cash (used in) provided by operating activities (1,600) 606 Investing activities

Purchase of property, plant and equipment (852) (167) Purchase of intangible assets - (2) Proceeds on disposal of property, plant and equipment 3,033 3,883 Change in long-term deposits and other assets (22) (11)

Cash provided by investing activities

2,159 3,703

Financing activities

Proceeds from issuance of long-term debt 2,567 6,338 Repayment of long-term debt (2,298) (9,512) Repayment of obligations under finance lease (372) (1,147)

Cash used in financing activities

(103) (4,321)

Net change in cash 456 (12) Cash, beginning of period 45 148 Cash, end of period 501 136

ENTREC Corporation Notes to the Interim Consolidated Financial Statements Three Months Ended March 31, 2017

(thousands of Canadian dollars, except numbers of shares and per share amounts)

(unaudited)

8

1. Nature of operations

ENTREC Corporation (“ENTREC” or the “Company”) is a heavy haul transportation and crane solutions

provider to the oil and natural gas, construction, petrochemical, mining and power generation industries. The

common shares of ENTREC trade on the Toronto Stock Exchange (the “Exchange”) under the trading symbol

“ENT”. The Company’s head office is located in Acheson, Alberta. The Company’s registered office is located

at 1400, 350 – 7th Avenue SW, Calgary, Alberta T2P 3N9.

ENTREC’s operations follow a slightly seasonal pattern, with revenue traditionally being lower in the three

months ending June 30 and the three months ending December 31 than in the other quarters of the year. Due to

this seasonality, the revenue and net loss reported for the three months ended March 31, 2017 may not reflect

that of revenue and net loss on an annual basis.

The Company’s unaudited consolidated interim financial statements for the three months ended March 31, 2017

were authorized for issuance in accordance with a resolution of the Board of Directors on May 10, 2017.

2. Basis of presentation

The unaudited interim consolidated financial statements for the three months ended March 31, 2017 were

prepared in accordance with International Accounting Standard (IAS) 34 – Interim Financial Reporting. The

unaudited interim consolidated financial statements do not include all the information and disclosures required

in the annual financial statements, and should be read in conjunction with the Company’s audited annual

consolidated financial statements for the year ended December 31, 2016.

The accounting policies adopted in the preparation of the Company’s unaudited interim consolidated financial

statements are consistent with those followed in the preparation of the Company’s audited annual consolidated

financial statements for the year ended December 31, 2016, subject to the accounting changes noted in note 4.

The preparation of these unaudited interim consolidated financial statements requires management to make

judgments, estimates, and assumptions that affect the application of accounting policies and the reported

amounts of assets, liabilities, revenues, and expenses. Actual results may differ from these estimates. The

significant judgments made by management in applying the Company’s accounting policies and the key sources

of estimation uncertainty were consistent with those that applied to the Company’s December 31, 2016, audited

annual consolidated financial statements.

These unaudited interim consolidated financial statements are presented in Canadian dollars, the Company’s

functional currency. The unaudited interim consolidated financial statements were prepared on a historical cost

basis, except for share-based payment arrangements and embedded derivatives that are measured at fair value.

Financial figures throughout the text and in tables are rounded to the nearest thousand ($000), except where

otherwise indicated.

3. Basis of consolidation

The unaudited interim consolidated financial statements include the accounts of ENTREC and its subsidiaries as

at March 31, 2017 and for the period then ended. Subsidiaries are fully consolidated from their effective date of

acquisition, being the date on which the Company obtains control, and continue to be consolidated until the date

that such control ceases. Unrealized exchange gains and losses on foreign subsidiaries are recognized in

accumulated other comprehensive income and subsequently recognized in net income in the event of disposal.

The subsidiaries’ statements of financial position were prepared as at March 31, 2017, using consistent

accounting policies. All inter-company balances were eliminated in full.



(unaudited)

9

4. Accounting changes

Future accounting changes

IFRS 9 – Financial Instruments

In July 2014, the International Accounting Standards Board (IASB) issued IFRS 9 Financial Instruments to

replace IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 provides a revised model for the

recognition and measurement of financial assets, financial liabilities, and some contracts to buy or sell non-

financial items. In addition, IFRS 9 includes a single expected-loss impairment model and a reformed approach

to hedge accounting. This standard is effective January 1, 2018, on a retrospective basis subject to certain

exceptions. ENTREC is evaluating the potential effect that the adoption of IFRS 9 could have on its

consolidated financial position or results of operations.

IFRS 15 – Revenue from Contracts with Customers

The IASB and the Financial Accounting Standards Board (FASB) have issued a joint revenue recognition

standard, IFRS 15 – Revenue from Contracts with Customers, effective for annual periods beginning January 1,

2018. ENTREC is evaluating the potential effect that the adoption of IFRS 15 could have on its consolidated

financial position or results of operations.

IFRS 16 – Leases

In January 2016 the IASB issued a new standard on leases, IFRS 16 – Leases. IFRS 16 will require lessees to

recognize assets and liabilities for most leases under a single accounting model for which all leases will be

accounted for, with certain exemptions. For lessors, IFRS 16 is expected to have little change from existing

accounting standards (IAS 17 – Leases). IFRS 16 will be effective for annual periods beginning on or after

January 1, 2019. Early application is permitted, provided the new revenue standard, IFRS 15 has been applied,

or is applied at the same date as IFRS 16. ENTREC is evaluating the potential effect that the adoption of IFRS

16 could have on its consolidated financial position or results of operations.

5. Long-term debt

The Company has a $240,000 senior secured asset-based credit facility (the “ABL Facility”) with a syndicate of

lenders led by Wells Fargo Capital Finance Corporation Canada. The ABL Facility is used to fund ENTREC’s

capital expenditures, business acquisitions, and for general corporate purposes.

The ABL Facility requires payments of interest only until its maturity in March 2019. Amounts borrowed under

the facility bear interest, at ENTREC’s option, at bank prime, bankers’ acceptance or LIBOR rates, plus a credit

spread based on a sliding scale, determined by the Company’s excess borrowing capacity. The Company may

prepay all or any of the ABL Facility at any time. The ABL Facility contains an uncommitted accordion feature

to increase the facility by $75,000 to $315,000.

In addition, the Company has a $5,000 operating facility (“Operating Facility”) with Canadian Western Bank to

finance ENTREC’s day-to-day operations. The Operating Facility requires payments of interest only until its

maturity in March 2019. Amounts borrowed under the Operating Facility bear interest at the bank’s prime

lending rate plus 75 basis points.



(unaudited)

10

5. Long-term debt (continued)

The ABL Facility and Operating Facility are collateralized by substantially all of ENTREC’s assets, including

ENTREC’s accounts receivable and property, plant and equipment. At March 31, 2017, the carrying amount of

ENTREC’s assets was $239,038. The effective interest rate on the ABL Facility at March 31, 2017 was 3.23%.

During the three months ended March 31, 2017, the Company converted its USD denominated long-term debt

into Canadian dollars.

Minimum principal repayments required over the next five years as at March 31, 2017 were as follows:

Subsequent to March 31, 2017, the Company drew $2,000 and repaid $1,500 on its ABL Facility.

6. Obligations under finance lease

During the three months ended March 31, 2017, the Company acquired automotive equipment through finance

lease of $nil (three months ended March 31, 2016 – $305). The Company’s obligations under finance lease bear

interest at annual rates ranging from 4.3% to 5.2% per annum and are repayable in current monthly blended

principal and interest payments of $91, maturing at dates ranging from April 2017 to January 2019. All of

ENTREC’s obligations under finance lease are collateralized by automotive equipment with a net book value of

$733 at March 31, 2017 (December 31, 2016 – $1,897).

As at March 31

2017

$

December 31

2016

$

Long-term debt – ABL Facility carried in CAD 126,643 23,154

Long-term debt – ABL Facility carried in USD - 103,038

Long-term debt – Operating Facility 2,801 3,808

Long-term debt – finance contracts 167 199

Less: unamortized transaction costs (676) (764)

128,935 129,435

Less: current portion (133) (131)

128,802 129,304

As at March 31, 2017 Amount

$

Within one year 133

After one year but less than five years 129,478

129,611



(unaudited)

11

6. Obligations under finance lease (continued)

Future minimum lease payments required over the next five years for obligations under finance lease were as

follows:

7. Convertible debentures

The Company has outstanding $25,300 principal of convertible unsecured subordinated debentures (the

“Debentures”). The Debentures have an annual coupon rate of 8.50%, payable semi-annually, mature on June

30, 2021 and are convertible, at the holder’s option, into common shares of ENTREC at a conversion price of

$1.00 per share.

The Company may redeem the Debentures, in whole or in part, at any time up to June 30, 2021, at a price equal

to the principal amount thereof plus accrued and unpaid interest to, but excluding the date of redemption. In

addition, the Company is committed to redeem on a pro rata basis $3,500 of the principal amount of the

amended Debentures outstanding as at the close of business on October 31, 2017. The partial redemption will

be for a cash payment equal to the principal amount thereof plus accrued and unpaid interest to, but excluding

the date of redemption.

Since the Debentures contain a conversion feature available to the debenture-holder to convert Debenture

principal into common shares of the Company, the Debenture obligation is classified partly as debt and partly as

shareholders’ equity. Finance-related expenses associated with the Debentures consisted of:

The Debentures trade on the Exchange under the symbol “ENT.DB”. At March 31, 2017, the market value of

the Debentures, as traded on the Exchange, was $20,493.

As at March 31

2017

$

December 31

2016

$

Within one year 1,091 1,395

After one year but less than five years 383 470

Total minimum lease payments 1,474 1,865

Less: amounts representing a weighted average

imputed interest rate of 4.6% (December 31, 2016 – 4.7%) (34) (50)

Balance of obligations under finance lease 1,440 1,815

Less: current portion (1,063) (1,356)

377 459

Three Months Ended March 31

2017

$

March 31

2016

$

Interest expense on principal value 530 441

Notional interest representing accretion expense 322 426

Less: gain on change in fair value of embedded derivative - -

852 867



(unaudited)

12

8. Share capital

Share purchase warrants

Pursuant to the completion of a business acquisition in 2012, the Company granted to the vendors 15,150,000

share purchase warrants, each entitling the holder to acquire one common share of ENTREC at an exercise price

of $1.50 per common. During the year ended December 31, 2014, 366,797 common shares were issued

pursuant to the exercise of a portion of these share purchase warrants. The remaining 14,783,203 share purchase

warrants will expire on May 31, 2017.

The following summarizes the outstanding and exercisable share purchase warrants as at March 31, 2017:

Note: (1) The holder of the share purchase warrants exercisable at $1.50 per warrant shall not, at any time, be entitled to exercise any

portion of the share purchase warrants that would result in the holder owing 20% or more of ENTREC’s issued and outstanding

common shares.

Authorized - Unlimited number of voting common shares without nominal

or par value

Authorized – Unlimited number of preferred shares

Number of

shares

Amount

$

Issued - common shares

As at December 31, 2016 109,477,678 132,944

Activity during the three months ended March 31, 2017:

Shares issued – exercise of restricted shares 24,700 30

Issued and outstanding at March 31, 2017 109,502,378 132,974

Outstanding Exercisable(1)

Weighted average

exercise price ($)

Number of share

purchase

warrants

Weighted average

life remaining

(years)

Weighted

average exercise

price ($)

Number of share

purchase

warrants

1.50 14,783,203 0.17 - -



(unaudited)

13

9. Share Option Plan and restricted share plan

Share Option Plan

The Company has adopted an incentive share option plan in accordance with the policies of the Exchange (the

“Share Option Plan”) for the benefit of its directors, officers, employees and other key personnel. The Share

Option Plan provides that the option terms and price shall be fixed by the directors subject to the price

restrictions and other requirements of the Exchange. ENTREC recorded the following activity in the number of

share options issued under the Share Option Plan:

The following weighted average assumptions were used to calculate the estimated fair value of share options

granted during the three months ended March 31, 2017:

On January 1, 2017, the Company granted 3,200,000 share options to employees and directors, including

1,325,000 to officers and 700,000 to directors of the Company. The share options granted to employees and

officers are exercisable at $0.26 per common share, vest at 25% per year over four years commencing January

1, 2018 and expire on January 1, 2022. The share options granted to non-management directors are exercisable

at $0.26 per common share, will vest immediately prior to the Company’s 2017 annual general meeting of

shareholders and expire on January 1, 2022.

On February 6, 2017, the Company granted 100,000 share option to an employee. The options are exercisable at

$0.26 per common share, vest at 25% per year over four years commencing February 6, 2017 and expire on

February 6, 2022.

Number of

share options

Weighted

average

exercise price

($)

Share options outstanding as at December 31, 2016 3,568,750 0.68


Share options forfeited (18,750) 0.39

Share options issued 3,300,000 0.26

Share options outstanding as at March 31, 2017 6,850,000 0.48

Share options outstanding as at March 31, 2016 5,262,500 0.83

Share options exercisable as at March 31, 2017 1,506,250 1.06

Share options exercisable as at March 31, 2016 2,293,750 1.26

Share

options

Risk-free interest rate 1.0%

Expected life 4.5 years

Volatility 72.0%

Distribution yield nil %

Weighted average grant date fair value 0.15



(unaudited)

14

9. Share Option Plan and restricted share plan (continued)

The following summarizes the outstanding and exercisable share options as at March 31, 2017:

During the three months ended March 31, 2017, share-based compensation expense of $89 (three months ended

March 31, 2016 – $80) was recognized pursuant to ENTREC’s Share Option Plan with an offsetting credit to

contributed surplus.

Restricted share plan

The Company has established an employee share ownership plan, known as the restricted share plan, under

which key employees and directors are granted the right to receive an allotted number of common shares from

treasury at a deemed value equal to the observable market price of ENTREC’s common shares at the grant date.

ENTREC recorded the following activity in the number of restricted shares:

During the three months ended March 31, 2017, share-based compensation expense of $93 (three months

ended March 31, 2016 – recovery of $128) was recognized pursuant to ENTREC’s restricted share plan with

an offsetting credit to contributed surplus. Of the restricted shares outstanding at March 31, 2017 – 1,390,001

(March 31, 2016 – 984,436) were exercisable.

Outstanding Exercisable

Weighted average

exercise price ($)

Number of share

options

Weighted average

life remaining

(years)

Weighted

average exercise

price ($)

Number of share

options

0.26 3,300,000 4.75 - -

0.30 150,000 4.08 - -

0.33 1,237,500 3.42 0.33 309,375

0.45 1,237,500 3.17 0.45 309,375

1.45 150,000 1.63 1.45 112,500

1.53 675,000 0.75 1.53 675,000

1.63 100,000 0.42 1.63 100,000

0.48 6,850,000 3.68 1.06 1,506,250

Number of

restricted shares

Restricted shares outstanding as at December 31, 2016 2,901,601


Restricted shares granted 984,000

Restricted shares exercised (24,700)

Restricted shares forfeited (135,100)

Restricted shares outstanding as at March 31, 2017 3,725,801



(unaudited)

15

9. Share Option Plan and restricted share plan (continued)

On January 1, 2017, the Company granted 984,000 restricted shares to employees, including 48,000 to officers

of the Company. The restricted shares granted to employees and officers vest at 20% per year over five years

commencing January 1, 2018 and expire on January 1, 2027.

Common shares reserved for issuance pursuant to restricted share awards granted, together with any common

shares reserved for issuance pursuant to options to purchase common shares under the Share Option Plan, shall

not exceed 10% of the Company’s issued and outstanding common shares, from time to time.

10. Loss per share

For the three months ended March 31, 2017 and 2016, all of the Company’s outstanding share options,

restricted shares and share purchase warrants were anti-dilutive and, therefore, were not considered in

computing diluted loss per share. For the three months ended March 31, 2017 and 2016, the outstanding

Debentures were also anti-dilutive and not considered in computing diluted loss per share.

11. Finance costs

Three months ended

($ and number of shares in 000’s) March 31

2017

March 31

2016

Net loss (3,404) (4,814)

Basic weighted average number of shares 109,491 107,746

Dilutive effect of outstanding share options, restricted shares

and warrants - -

Diluted weighted average number of shares 109,491 107,746

Loss per share – basic (0.03) (0.04)

Loss per share – diluted (0.03) (0.04)

Three months ended March 31

2017

$

March 31

2016

$

Interest – long-term debt 1,191 1,212

Interest – notes payable - 41

Interest – convertible debentures 852 867

Interest – obligations under finance lease 12 54

Interest – bank indebtedness and other short-term obligations 2 3

Finance costs 2,057 2,177

Foreign exchange gain on long-term debt (856) (2,632)

Net finance costs 1,201 (455)



(unaudited)

16

12. Supplemental cash flow information

a) Changes in non-cash operating working capital:

b) Non-cash investing and financing activities:

During the comparative three months ended March 31, 2016, ENTREC acquired $305 of automotive

equipment through obligations under finance lease (note 6).

c) Income taxes received and interest paid:

13. Segmented reporting

The Company operates in one operating segment. Management assesses performance and makes resource

decisions based on the results of its consolidated operations. ENTREC’s operations are conducted in the

following geographic locations:

Revenues are allocated to the geographic region which completed the services.


2017

$

March 31

2016

$

Trade and other receivables (3,770) 2,548

Inventory 56 49

Prepaid expenses and deposits 672 933

Income taxes receivable (235) (242)

Trade and other payables 960 (1,879)

(2,317) 1,409


2017

$

March 31

2016

$

Interest paid 1,114 1,259


2017

$

March 31

2016

$

Revenue

Canada 27,609 28,044

United States 9,689 2,569

37,298 30,613



(unaudited)

17

13. Segmented reporting (continued)

14. Related-party transactions

Subsidiaries

As at March 31, 2017, the Company owned 100% of the following material subsidiaries, which were

consolidated in the Company’s consolidated financial statements:

Transactions with related parties

During the three months ended March 31, 2017, the Company generated revenue of $806 (three months ended

March 31, 2016 – $4,613) and incurred administrative expenses of $45 (three months ended March 31, 2016 –

$113) with the JV Driver Group of Companies, a group of companies under common control that hold in excess

of 10% of the issued and outstanding common shares of ENTREC and of which an ENTREC director is an

officer and director.


March 31, 2016 – $4) and incurred direct costs of $77 (three months ended March 31, 2016 – $86) related to

transportation services with the Manitoulin Group of Companies, a group of companies under common control

that hold in excess of 10% of the issued and outstanding common shares of ENTREC and of which an

ENTREC director is an officer.


March 31, 2016 – $17) related to sub-lease and repairs and maintenance services and purchased property, plant

and equipment of $100 from a company of which four ENTREC officers own a combined 58% of the

outstanding common shares.

During the three months ended March 31, 2017, the Company incurred direct costs of $105 (three months ended

March 31, 2016 – $105) related to the lease of premises from a company of which an ENTREC officer owns

25% of the outstanding common shares.

As at March 31

2017

$

December 31

2016

$

Property, plant and equipment and intangible assets

Canada 176,004 180,407

United States 29,199 32,139

205,203 212,546

Name Jurisdiction of Incorporation

ENTREC Engineering Ltd. Alberta, Canada

ENTREC Cranes & Heavy Haul (Western) Ltd. British Columbia, Canada

British Columbia, Canada

ENTREC Cranes & Heavy Haul Inc. Arizona, United States



(unaudited)

18

14. Related-party transactions (continued)

During the three months ended March 31, 2017 the Company incurred direct costs of $55 (three months ended

March 31, 2016 – $45) related to the lease of premises from a company of which two ENTREC officers own a

combined 28% of the outstanding common shares.

These transactions were conducted in the normal course of operations and were measured at their fair values,

which were established and agreed to as consideration by the related parties. At March 31, 2017, amounts

owing from these related parties and included in trade and other receivables was $770 (December 31, 2016 –

$767). At March 31, 2017, amounts owing to these related parties and included in trade and other payables was

$134 (December 31, 2016 – $194). Included in prepaid expenses and deposits at March 31, 2017 was $29

(December 31, 2015 – $34) pursuant to related-party transactions.

Key management personnel compensation

The Company’s key management personnel comprise its directors and officers. Aggregate compensation during

the periods presented was as follows:

The amounts disclosed in the table are the amounts recognized as an expense related to key management

personnel and directors during the respective reporting periods.

15. Capital management

ENTREC’s overall capital management objectives are: (i) to finance its operations and growth-oriented

activities; and (ii) to limit risk to an acceptable level in order to maximize shareholder value. To accomplish

these objectives, ENTREC uses a combination of debt and equity. The mix is reviewed and adjusted

appropriately along with changes in economic conditions. The capital mix is also regularly monitored to ensure

all externally imposed capital requirements on ENTREC’s debt, such as certain financial covenants, are

fulfilled.

Capital is defined by ENTREC to include all funded debt (convertible debentures, long-term debt, obligations

under finance lease, and the current portions thereof) and shareholders’ equity.


2017

$

March 31

2016

$

Salaries and other short-term employee benefits 407 380

Termination benefits - 187

Directors’ fees 32 44

Share-based compensation expense 76 74

Total compensation to key manager personnel 515 685



(unaudited)

19

15. Capital management (continued)

The calculations of funded debt and total capital are as follows:

Debt management

The ABL Facility and Operating Facility are subject to compliance with springing financial covenants.

ENTREC is subject to a springing senior debt to Bank EBITDA ratio covenant of 4.5 times and a springing

capital expenditure covenant, which limits ENTREC’s annual capital expenditures to 120% of the Company’s

annual plan, should excess borrowing capacity decline to an amount below the lesser of: (i) 12.5% of the total

available borrowing capacity, or (ii) 12.5% of the total ABL Facility of $240,000. ENTREC is also subject to a

springing capital expenditure covenant and is restricted from paying dividends or repurchasing its common

shares should the senior debt to Bank EBITDA ratio increase above 4.25 times.

The definition of Bank EBITDA is in accordance with the lending agreement and is calculated based on the

lender’s interpretation, which may not be equal to individual financial statement figures. Bank EBITDA is

calculated on a trailing 12-month basis and is defined in the lending agreement to be net income (loss) before

extraordinary gains and losses, interest income and expense, gains and losses on disposals of property, plant and

equipment and other long lived assets, income taxes, depreciation and amortization, non-cash share-based

compensation, unrealized risk management or foreign exchange losses, losses on the revaluation of embedded

derivatives, and impairments of property, plant and equipment, intangible assets and goodwill. At March 31,

2017, the senior debt to Bank EBITDA ratio was 23.7.

At March 31, 2017, the total amount available under the ABL Facility was $167,542. The total amount

available under the ABL Facility is calculated from the value of accounts receivable and property, plant and

equipment. Based on borrowings and letters of credit utilized at March 31, 2017, the Company had excess

borrowing capacity of $41,009. As the excess borrowing capacity exceeded $20,943 or 12.5% of the total

borrowing capacity, ENTREC was not subject to the senior debt to Bank EBITDA ratio financial covenant at

March 31, 2016.

As the senior debt to Bank EBITDA ratio exceeded 4.25 times at March 31, 2017, ENTREC was restricted from

paying dividends or repurchasing its common shares. In addition, ENTREC’s capital expenditures for the year

ending December 31, 2017 will be limited to 120% of the annual capital expenditure plan. For the year ending

December 31, 2017, 120% of the Company’s annual capital expenditure plan, for the purposes of the capital

expenditure covenant, is $12,000.

As at March 31 December 31

2017

$

2016

$

Current portion of long-term debt 133 131

Current portion of obligations under finance lease 1,063 1,356

Current portion of convertible debentures 3,500 3,500

Long-term debt 128,802 129,304

Convertible debentures 15,250 14,928

Obligations under finance lease 377 459

Funded debt 149,125 149,678

Shareholders’ equity 55,844 59,103

Total capital 204,969 208,781



(unaudited)

20

15. Capital management (continued)

Under the terms of the ABL Facility, ENTREC is also restricted from voluntarily prepaying subordinated debt

obligations exceeding $1,000, paying dividends or repurchasing its common shares, and completing business

acquisitions exceeding $10,000 in any calendar year should its excess borrowing capacity not exceed the levels

of $62,500, $56,250, and $43,750, respectively. With an excess borrowing base capacity of $41,009, ENTREC

was restricted from these activities at March 31, 2017.

16. Commitments, contingencies and guarantees

ENTREC has entered into operating leases for office and shop premises, and equipment that provide for

minimum annual lease payments as follows:

During the three months ended March 31, 2017, $2,903 was recognized as an expense in respect of operating

leases (three months ended March 31, 2016 – $3,315). Sublease rental income for the three months ended

March 31, 2017 was $497 (three months ended March 31, 2016 – $313).

Contingencies

From time to time ENTREC is subject to claims and lawsuits arising in the ordinary course of operations. The

Company carries liability insurance, subject to certain deductible and policy limits, against certain of these

claims. As at March 31, 2017 the Company was not involved in any legal disputes that would be expected to

have a material impact on its financial results.

Guarantees

a) ENTREC had an outstanding letter of credit at March 31, 2017 with a maximum limit of $40 for the benefit

of the Minister of Transportation of the Province of British Columbia, drawn under its ABL Facility,

relating to transportation permitting requirements in B.C.

b) ENTREC had an outstanding letter of credit at March 31, 2017 with a maximum limit of $127 for the

benefit of Parkland County – Planning and Development, drawn under its ABL Facility, relating to certain

leasehold improvements.

As at March 31 December 31

2017

$

2016

$

Within one year 10,839 10,745

After one year but less than five years 28,037 27,713

After five years 62,581 63,918

Total minimum lease payments 101,457 102,376

Total minimum sublease payments expected to be received 1,601 1,899



(unaudited)

21

16. Commitments, contingencies and guarantees (continued)

c) In the normal course of business, ENTREC enters into agreements that include indemnities in favour of

third parties such as engagement letters with advisors and consultants, and service agreements. ENTREC

has also agreed to indemnify its directors, officers, and employees in accordance with ENTREC’s

constating documents and bylaws. Certain agreements do not limit ENTREC’s liability and, therefore, it is

not possible to estimate ENTREC’s potential liability under these indemnities. In certain cases, ENTREC

has recourse against third parties with respect to these indemnities. In addition, ENTREC maintains

insurance that may provide coverage against certain claims under these indemnities.

ENTREC believes it would be able to satisfy all of the obligations above without disrupting normal business

operations.

entrec corporation interim consolidated financial statements (unaudited) march 31, 2017 · 2017. 5....

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