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gemini corporation 2010 AnnuAl RepoRt
DeSign BUiLD maintain
Experienced
Capability
Corporate Profile
gemini corporation is a professional services firm that designs, builds, and maintains energy and industrial
facilities. We have built a reputation for delivering innovative, cost-effective solutions to complex projects.
With a steadfast commitment to understanding our clients’ businesses and by providing superior client service,
Gemini holds itself accountable for the delivery of multi-discipline engineered and field solutions to energy
and industrial clients.
Founded in 1982, Gemini provides services on either a standalone basis or by combining engineering and field
services capabilities to increase project efficiency and provide a single point of accountability. Our principal
target markets are conventional and unconventional oil and gas, in-situ heavy oil, and heavy industrial facilities.
Professional services are delivered through two business segments focussed on project solutions that are
both technically innovative and financially sound. The Field Solutions segment provides flexible, cost-efficient
fabrication, field construction, and facility maintenance services. The Engineered Solutions segment specializes
in providing clients customized, cost-effective design, engineering, procurement, and construction
management services from concept through to completion.
Table of Contents Gemini trades on the TSX Venture
1 Consolidated Financial Highlights
Exchange under the symbol GKX
2 2010 plans, Results and 2011 Goals
4 Message to Shareholders
7 Vision and Values
8 overview of Markets
12 Corporate Stewardship
16 Management’s Discussion and Analysis
26 Management’s Responsibility for
Financial Information
27 Independent Auditors’ Report
28 Consolidated Financial Statements
31 notes to the Consolidated
Financial Statements
44 Board of Directors
45 Corporate Information
desiGn-build-maintain experienced Capability
Consolidated Financial Highlights
1
gemini corporation
REVENUE GROSS PROFIT CAPITAL ASSETS SHAREHOLDERS’ EQUITY
($ millions) ($ millions) ($ millions) ($ millions)
$85.5
$16.2
$78.2 $15.9 $7.8
$74.9 $15.2
$72.9 $14.8 $14.7
$14.1
2010 AnnuAl RepoRt
$13.6 $13.8
$67.3
$6.2 $12.6 $12.9
$5.5
$5.2
$4.6
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
2010 2009 2008 2007 2006
Revenue $ 72,882,000 $ 74,908,000 $ 78,230,000 $ 67,340,000 $ 85,455,000
Gross profit 13,833,000 14,811,000 14,119,000 13,629,000 15,862,000
net earnings (loss) (666,000) (127,000) 2,992,000 (264,000) 1,156,000
Basic earnings per share (0.019) (0.004) 0.084 (0.010) 0.031
Working capital 8,908,000 11,793,000 12,403,000 7,839,000 8,145,000
Capital assets 4,588,000 5,164,000 5,485,000 7,787,000 6,201,000
long-term liabilities 256,000 3,406,000 3,277,000 4,280,000 3,242,000
Shareholders equity 14,671,000 15,162,000 16,180,000 12,900,000 12,649,000
Common shares outstanding 35,000,274 34,967,000 34,655,000 34,564,000 34,534,000
experienced Capability desiGn-build-maintain
2010 Plans, Results and 2011 Goals
2 2010 Plans 2010 Results
n Continue to assess and hire key n Hired key management and technical staff to augment the organization’s
management and technical personnel capabilities.
gemini corporation
to support our growth as the n Formed a solid team of professionals through an initiative to enhance
markets recover. the Corporation’s project controls competency.
n Supplemented Gemini’s discipline engineering capacity.
n Assembled a strong regulatory team to meet increasing client demands
and opportunities.
n Continue to assess the market and secure n Delivered four significant combined service projects, including an oil sands
integrated solutions projects that utilize SAGD pilot plant, which led to a second pilot plant from the same client for 2011.
2010 AnnuAl RepoRt
Gemini’s full complement of capabilities.
n Implement the revised, focussed n Redesigned our website, adding significant new content.
marketing plan to communicate our new n Developed and published Design-Build-Maintain information brochures
strategy and increase brand recognition for key target markets.
and awareness of our service offerings.
n Raised Gemini’s profile through attendance and participation in major industry
events and trade shows.
n Continue to enhance our heavy oil team n pursued and secured several combined service projects, raising Gemini’s
and market our integrated project services profile within the heavy oil industry.
to the heavy oil market.
n Monitor the development of renewable n Continued to support various projects as they advanced through to anticipated
energy opportunities and pursue projects commencement in 2011.
that have secured financing.
n Implement a client relationship management n Implemented the client relationship management (CRM) module within the
system to engage, coordinate, and Corporation’s eRp system, significantly improving recordkeeping and enhancing
measure our business development efforts our ability to monitor and manage relationships.
throughout the three business units.
n Deploy business development resources n Adjusted the business development plan and structure to emphasize both
to execute the new marketing plan that standalone service delivery and the provision of combined services, where
emphasizes project solutions within appropriate. Client feedback has been positive to this repositioning as
specified target markets with a view to evidenced by the number of integrated projects executed in 2010.
expanding services across western Canada.
n emphasize securing project opportunities n Directed business development efforts toward maintaining existing client
in our target markets in western Canada relationships and building new ones to strengthen the awareness of
and assess the viability of regional office Gemini’s capabilities in its target markets.
expansion. n Gained a clearer understanding of the regional dynamics for the oil and
gas industry across western Canada.
n established an office in north-eastern British Columbia to support client
requirements in this region.
n Refine the engineering services delivery n Reshaped the structure and built processes and procedures to strengthen
model to provide cost effective engineering discipline engineering and improve project delivery.
support across all business units. n Developed workflows for delivering engineering support across all
business units.
n Strengthen our project management and n Implemented a disciplined, gated, decision-making approach supported
control processes by enhancing current by an integrated project controls architecture to help mitigate risk.
estimating, scheduling and reporting n Adopted new estimating and project control tools and processes.
practices: and by implementing a gated
decision-making approach within all
business units.
desiGn-build-maintain experienced Capability
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2011 Goals 3
People
gemini corporation
n Focus organizational development efforts upon the alignment of personnel to the
Gemini values
n Support our people in their professional development
n Strengthen Gemini teams with the implementation of processes and systems that foster
collaboration among business units
Business Development
n Further focus marketing initiatives on three target markets – Conventional/unconventional
2010 AnnuAl RepoRt
oil and Gas, In-Situ Heavy oil, and Heavy Industrial
n Improve and strengthen client relationships by deploying an account management or
program management approach, as applicable
n Augment Gemini’s capabilities in north-eastern British Columbia by adding field engineering
support and field services
Business Model
n enhance our Design-Build-Maintain business model by improving the delivery of combined
services, highlighting differentiators and project efficiencies, and improving internal/external
awareness
n Continue to strengthen Gemini’s discipline engineering capability and its integration across
all three business units
n leverage our Maintenance service capacity to strengthen existing client relationships and
capture new clients with the full breadth of Gemini services
Processes and Systems
n leverage our investment in project management and control systems to improve profitability
n Manage business risks with the use of the gated approval process that spans the complete
life cycle of a project
experienced Capability desiGn-build-maintain
Message to Shareholders
4
The extraordinary efforts and hard work of the Gemini team in 2010
have positioned Gemini for growth as the market for our professional
gemini corporation
services recovers. Success will come from harnessing the skill,
knowledge, and strengths of our people.
2010 AnnuAl RepoRt
as 2010 began, considerable uncertainty persisted about the of oil sands and heavy oil projects. Conversely, two years of
global economic recovery. It appears these uncertainties were extremely weak natural gas prices have curtailed significant
in many cases unfounded. leading indicators, including rising activity in this market, except for liquids-rich natural gas
oil prices, a resumption in oil sands development, a strong opportunities that still have positive economics.
rally in oil permits, and increased drilling rig counts in western
Gemini’s year was challenging from both growth and
Canada, are fuelling optimism of stronger demand for our
profitability perspectives. our performance was encouraging for
services. We started to see increased demand for engineering
most of the year; however, in the last quarter, demand for our
services late in 2010; however, it will likely take several months
services softened as many client projects experienced delays,
before field services will see demand growth.
resulting in a disappointing end to the year. Many clients are
the markets we serve have weathered the storm that continuing to indicate that a surge in activity is expected in 2011,
began in late 2008 and have changed in many ways including and demand is expected to gain momentum as the year
becoming more global. Buoyant crude oil prices are attracting unfolds, resulting in a growing backlog of work.
significant capital to support long-term sustainable development
DeSign BUiLD maintain
desiGn-build-maintain experienced Capability
Harnessing energy
5
our 2010 strategic plan was characterized by our internal
theme “one Brand, one Company, one Culture”. there were a
gemini corporation
number of changes to our structure and business development
model as we transitioned to be more focused on the client
relationship and raise Gemini’s profile. this strategy,
necessitates a significant investment to strengthen our
engineering core competencies, project management, project
controls, reporting, and systems. As clients better understand
the breadth of the Corporation’s service capability, these efforts
2010 AnnuAl RepoRt
are yielding a growing backlog of project work, especially for
engineered Solutions.
our internal strategic plan implementation theme for 2011 is
“Harnessing the energy of our people as one company”.
desiGn-build-maintain
our capability to deliver facility services under a design, Significant resources were dedicated to developing effective
build, maintain model, which increases capital efficiency and workflows for delivering engineering support across all
provides a single point of accountability, is a key differentiator business units. these streamlined processes and systems
for Gemini. this approach provides cost and schedule create a seamless project interface as the work flows from
efficiencies by deploying Gemini’s engineering, fabrication, front end engineering design to detailed design, fabrication,
construction, and maintenance capabilities on a combined construction, and operations maintenance.
service basis as an integrated project management team.
the formation of our Integrated Solutions business
to enhance our capability to deliver more complex unit is a strategic change to our service delivery model.
projects, we have realigned our engineering resources to We have already secured four significant projects that utilize
strengthen our capacity and improve project delivery. this combined service model, including two oil sands SAGD
pilot plants, which has increased our profile in the heavy oil
OUT MO industry. these project wins help to validate our view that
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clients are looking for innovative ways to execute projects.
the maintenance business unit implemented a
introducing our ‘Gem bug’. number of initiatives to improve performance and strengthen
our ability to deliver larger sustaining projects and
Our Gem Bug is another way of connecting
maintenance services in a wider geographic area. the
with you and keeping you up to date on business unit delivered a number of sustaining projects
across Alberta and was successful in securing a long-term
news at Gemini. When you see this symbol
maintenance contract with a major oil sands producer in
in our documents, you can go to our northern Alberta. Gemini will continue to pursue these types
website to learn more. of opportunities across western Canada.
experienced Capability desiGn-build-maintain
Message to Shareholders
experienced Capability acknowledgements
6
Gemini has implemented a disciplined, gated, decision- In closing, we are grateful to our employees for working
making approach supported by a comprehensive project as one team to manage our clients’ projects efficiently, and we
gemini corporation
controls architecture to help mitigate risk. Clients are continuing are excited about the continuation of our leadership solutions
to gravitate to service providers capable of delivering new program. our people are skilled, knowledgeable, and
and innovative solutions to support their businesses. they are experienced in delivering safe and quality services. Safety
seeking high quality professional expertise and greater cost and quality form the foundation of our services and Gemini’s
certainty on projects to ensure value is achieved. Gemini is “think twice – safety focussed, quality delivered” program
responding to these demands by continuing to aggressively demonstrates our commitment to these values regardless
recruit qualified professionals to augment its talented staff of market conditions.
2010 AnnuAl RepoRt
and by further refining its control processes to ensure project
In addition, we thank our clients for entrusting Gemini
delivery meets clients’ expectations.
with their projects in a difficult economy. We are confident
the growth in the development of the oil sands, the our business model is well suited to engage the full depth
Saskatchewan Bakken and lower Shaunavon oil regions, of our services to meet our clients’ needs in changing
as well as Alberta´s Cardium and British Columbia´s Montney market conditions.
resource plays are all of high interest, and we are positioning
Gemini has demonstrated resilience over the past few
Gemini to deliver services in these regions. In 2010, we
years, and we are emerging from the economic turmoil in a
established an office in Dawson Creek, British Columbia
competitive position.
as a first step in this process.
the western Canadian oil and gas industry’s shift toward on behalf of the Board of Directors,
oil is improving market conditions for service providers. our
expansion efforts to strengthen the Corporation’s presence
in western Canada are generating positive growth momentum,
which is helping to strengthen relationships and diversify our doug lautermilch
client base. We are anticipating that the natural gas industry President and Chief Executive Officer
will remain sluggish, however, producers are shifting capital March 24, 2011
expenditures in the gas industry to exploitation of rich gas plays.
our plans for 2011 do not assume there will be clear
sailing ahead. the challenges experienced through 2010, and
especially those of the fourth quarter, underscore the need to
position Gemini around our core competencies and concentrate
our business development focus on the markets that will
prosper as the economy strengthens.
desiGn-build-maintain experienced Capability
7
Vision
gemini corporation
Gemini achieves profitable growth by
supporting the development of our people’s
knowledge, skill, talent, and enthusiasm to
provide the highest quality solutions that
enhance our client’s businesses.
2010 AnnuAl RepoRt
Values
PeoPle Safety Quality RelationShiPS CoMMunity
We are proud of our We have an We take pride in We cherish our client We respect the
people’s knowledge, unwavering commitment our ability to meet the relationships and the communities in which
skill, talent and to our industry leading quality expectations loyalty that comes with we operate and, together
enthusiasm for working safety program and the of our clients. having strengthened with our employees,
effectively as a team. security it provides. their business results. actively participate
to make a difference.
experienced Capability desiGn-build-maintain
Overview of Markets
8
gemini corporation
2010 AnnuAl RepoRt
Gemini has been harnessing the energy of its staff and clients for nearly 30 years. We’ve built
a reputation for collaborating with our clients to solve complex project problems and for a
steadfast commitment to safety, quality, and the delivery of cost-effective solutions. We take
pride in our strong technical capabilities and proven track record. Our projects range from
complete solutions for greenfield facilities to re-vamps, de-bottlenecks, overhauls, and
upgrades of existing facilities.
desiGn-build-maintain experienced Capability
Overview of Markets
Our strategy is to combine our engineering expertise Conventional and unconventional Oil and Gas
9
with our field service capabilities of construction, fabrication Conventional and unconventional oil and gas has been
and maintenance to create a desiGn-build-maintain the dominant market for Gemini’s services since the company
gemini corporation
solution focussed upon increasing efficiency and accountability, was founded in 1982. Although cyclical in nature, this market
which is most important to us and the success of our clients. will remain an essential part of our service focus for decades
these services can also be delivered on a standalone basis to come. We continuously monitor market conditions and
to meet specific client requirements for project execution. In economic trends to refine our approach and expertise.
addition, our regulatory and environmental team is capable of Currently, the demand for engineering services in this market
providing support over the full lifecycle of projects to ensure is increasing as new technologies and methodologies to extract
approvals are secured and managed effectively. resources drive production growth. the increased engineering
2010 AnnuAl RepoRt
Gemini’s markets are well defined and we have both the work should translate into greater field service opportunities as
core competencies and the flexibility to meet the varied needs 2011 unfolds.
of our clients. our reputation as a premier provider of services We continue to concentrate our efforts on securing
will continue to be the foundation for future success. With project opportunities across western Canada. As demand for
experience in all phases of project development to achieve oil increases and natural gas prices strengthen through the
client expectations, we focus on delivering value within three reduction of excess production, we expect an increase in
primary target markets: activity levels. Resource plays in both British Columbia and
Saskatchewan are having a very positive impact on market
n Conventional and conditions for oil and gas service providers in those regions.
Unconventional Oil and Gas Gemini has established an office in north-eastern British
Columbia to service the requirements of clients in the area.
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In addition, we are continuing to explore opportunities to
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expand into Saskatchewan in the near future.
n Heavy Industrial Facilities
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Overview of Markets
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10
We have extensive experience
with the types of facilities and recovery
gemini corporation
methods deployed throughout the
western Canada sedimentary basin.
2010 AnnuAl RepoRt
our expertise in oil and gas is broad and includes plant By combining our engineering and field expertise,
optimization, conventional oil batteries, well tie-ins, gathering we can deliver innovative solutions – from study and
systems, gas processing facilities, gas compression, oilfield design through to construction and maintenance.
waste facilities, fluid injection programs, Co2 injection for
enhanced oil recovery, and other engineered solutions related
to technology enhancements. We have extensive experience in-situ Heavy Oil
with the types of facilities and recovery methods deployed the Canadian Association of petroleum producers
throughout the western Canada sedimentary basin. our (CApp) continues to forecast significant growth in Canadian
continuing emphasis on Gemini’s brand and capability crude oil production over the next 15 years, driven largely by oil
awareness is broadening the spectrum of clients and projects sands development. their view is that “a stabilizing investment
in these markets. We are differentiating Gemini from competitors climate, more robust commodity prices, and market demand
by combining our engineering expertise with our field installation for Canadian crude have provided the foundation for several
capabilities to deliver more schedule-efficient and cost-effective projects to return to active development”. In 2010, the economic
solutions – from study and design through to construction climate recovered sufficiently for a number of companies to
and maintenance. begin actively developing phases of their projects previously
placed on hold. the heavy oil industry, with respect to oil sands
development, remains an important component of Alberta’s
current and future economy. oil sands development is expected
to span decades with total investment potentially reaching
hundreds of billions of dollars.
our ongoing plan is to continue to develop and establish
a solid foundation of expertise in the heavy oil marketplace. We
are building on our recent successes to date by leveraging our
reputation and brand awareness to achieve recognition as a
capable provider of engineered and field solutions to in-situ
heavy oil clients. As heavy oil projects come back online, the
practice of integrating engineering, fabrication, and construction
expertise during the detailed design stage is becoming a
desiGn-build-maintain experienced Capability
Overview of Markets
11
gemini corporation
2010 AnnuAl RepoRt
preferred approach to reduce the risks of construction cost to midstream and downstream oil and gas facilities (including
escalation. Gemini is uniquely positioned with the capability refineries), fertilizer manufacturing, metals production, and
and experience to deliver these services on a combined basis. chemical manufacturing. Infrastructure development in this area
is ongoing and expected to remain very active for decades.
our profile within the heavy oil sector is continuing
Gemini is expanding its presence beyond this region by
to strengthen through the completion of certain front end
deploying additional resources to focus on the proliferation of
engineering design (FeeD) and environmental studies for
SAGD and conventional and unconventional oil and gas facilities
SAGD pilot projects. Many of these projects are multi-phased
across the western provinces.
developments that are projected to continue for years and
thus have the potential to provide a stable revenue stream. our presence in north-eastern British Columbia is a
first step toward geographic expansion that will take a few
Heavy industrial Facilities years to complete. With our experience and service history,
Gemini is focussed on expanding the presence of its we feel confident that this approach will yield a high growth
Maintenance Solutions business unit across western Canada. sustainable opportunity. Certain existing clients have expressed
We have a solid reputation for our ability to efficiently complete encouragement for our presence in additional regions and
routine maintenance as well as plant turnaround and shutdown we are targeting new incremental business to make the
work at industrial facilities in the Fort Saskatchewan region. moves viable.
this area, known as Alberta’s Industrial Heartland, is home
experienced Capability desiGn-build-maintain
Corporate Stewardship
12
gemini corporation
2010 AnnuAl RepoRt
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The Gemini Values form the foundation of our reputation and all that sets our organization
apart from our competition. Adherence to these beliefs ensures we maintain the highest
level of service to our clients, preserve the confidence and trust of all with whom we
interact, and afford our people a high level of job satisfaction.
desiGn-build-maintain experienced Capability
Corporate Stewardship
13
Gemini Values
PeOPle: We are proud of our people’s knowledge, skill, QualitY: We take pride in our ability to meet the quality
gemini corporation
talent and enthusiasm for working effectively as a team. expectations of our clients.
saFetY: We have an unwavering commitment to our COmmunitY: We respect the communities in which
industry leading safety program and the security it provides. we operate and, together with our employees, actively
participate to make a difference.
RelatiOnsHiPs: We cherish our client relationships
and the loyalty that comes with having improved their
business results.
2010 AnnuAl RepoRt
think twice Program our goal of no lost-time workplace injuries is at the
Safety and quality are a key focus of project execution forefront of our operations, and in 2010 we successfully
and are essential for long-term success. our “think twice” achieved this target. our ongoing commitment to maintain a
program stresses Gemini’s commitment to safety and quality strong safety culture, and awareness that safety is the number
excellence. our goal is to achieve and maintain a zero incident one priority, is creating a safer workplace. We are very proud
rating for both safety and quality. to have received several Workers’ Compensation Board awards
for our safety performance in western Canada.
Health, safety, security, and environment
We recognize that long-term success is directly related
We have an unwavering commitment to our industry-
to having an uncompromising attitude toward health, safety,
leading safety program and the security it provides. We believe
security, and the environment. to this end, we will continue
in safeguarding our employees and the communities where
to provide a safe environment for every worker within our
we live and work. our policies, procedures, and programs are
organization and attain world class safety management and
designed to secure the health and safety of our employees
performance. In addition, we will strive to formulate project
and minimize harm to the environment.
designs and processes that will achieve environmental balance
in a cost-effective manner.
Our Principles:
n We believe that all incidents are preventable, and our
goal is to be a leader in our industry.
n We are committed to supporting our employees with
programs that will ensure their safety and minimize
harm to the environment.
n the well-being of our people begins with our employees
and this safety culture is embedded throughout our
entire organization.
n our success is measured
by how well we manage
our employees’ health,
safety, security, and the
environment.
experienced Capability desiGn-build-maintain
Corporate Stewardship
Quality assurance Human Resources
14
We take pride in our ability to meet the quality We are proud of our people’s knowledge, skill, talent and
expectations of our clients. We care about our clients and enthusiasm for working effectively as a team. the foundation
gemini corporation
are committed to satisfying their needs by being responsive of our organization is our talented people and our ability to
and providing the highest quality solutions that support their attract and retain them. our corporate culture encourages
businesses. We provide quality professional services that satisfy career growth, community involvement, and a caring attitude
client requirements and comply with applicable codes, acts, toward all personnel. our management approach encourages
and regulations. creativity and accountability while promoting an open,
supportive work environment.
Our Principles:
We believe in providing training in both technical and
2010 AnnuAl RepoRt
n We believe in delivering “on time, every time” without
interpersonal skills to help our personnel grow, develop, and
compromising quality.
succeed, and we encourage our people to enhance their
n We will examine quality performance throughout our capabilities to achieve personal and business goals. We create
organization regularly in order to improve and effectively opportunities that allow them to perform to the full extent of their
address the evolving needs of our clients. abilities and assist in cultivating networks and high-quality
n We are committed to setting new service standards relationships.
by actively listening and responding to our clients. Gemini’s knowledge centre is aimed at capturing our
n We are committed to strict adherence to our quality people’s knowledge, skills, and technical capabilities to improve
management system, and all employees recognize their future project performance. this process of sharing our expert
responsibility to utilize the continuous improvement knowledge across the organization will further differentiate
process in every aspect of our client-focused solutions. Gemini as we capitalize on our expertise to gain new project
awards by offering integrated solutions.
Community Commitment
We respect the communities in which we operate
and, together with our employees, actively participate to
make a difference.
Giving back to the community is an important part
of Gemini’s business. our goal is to help build stronger
communities where we live, work, and do business. Where
possible, we support local businesses, contractors, and
suppliers to provide direct benefits to these regions.
We proudly support local charities in the regions in
which we operate. our support also extends to education,
with bursaries and awards provided to various post-secondary
institutions and high schools for technical and apprenticeship
training. We believe education is an investment in our future
and a vital link to our industry.
desiGn-build-maintain experienced Capability
Corporate Stewardship
Corporate Governance Governance Committee
15
the members of the Governance Committee are
Composition of the board
Carl Smith (Chair), Jim Crittall and Ron Dooley. the role of the
Gemini’s board of directors consists of seven members,
gemini corporation
Governance Committee is to monitor and report to the Board
five of whom are independent. Duly constituted meetings of
on evolving corporate governance practices and regulations.
the Board were held seven times during 2010.
the Governance Committee is also responsible for evaluating,
to assist in the fulfillment of its mandate to provide according to established criteria, candidates proposed for
oversight and stewardship to the Corporation, the Board has nomination to the Board. Duly constituted meetings of the
established three committees. each committee is normally Governance Committee were held three times in 2010.
composed entirely of independent directors and operates
2010 AnnuAl RepoRt
according to a written mandate approved by the Board. ethical business Conduct
A governance manual is maintained by the Corporation to the Corporation has code of conduct guidelines for all
formalize the governance program for directors and officers. directors, officers, and employees. these guidelines, coupled
with the Gemini Values, provide guidance on the philosophy
audit Committee and expectations of all personnel with respect to business
the members of the Audit Committee are Ron Dooley ethics. In addition, a confidential complaints policy is publicly
(Chair), Carl Smith and nolan Blades. the Audit Committee posted on the Corporation’s website and monitored by the
has a specific mandate to monitor the audit functions of the Audit Committee Chair.
Corporation, both internal and external, and report to the Board
on the status of these activities. Duly constituted meetings of
the Audit Committee were held five times during 2010.
Compensation Committee
the members of the Compensation Committee are
nolan Blades (Chair), Jim Crittall and Carl Johnson. the
Compensation Committee reviews the compensation
arrangements of independent directors and corporate
executives annually. the process employed generally takes
into consideration the size and complexity of the Corporation
and the compensation arrangements of its competitors.
Duly constituted meetings of the Compensation Committee
were held three times in 2010.
experienced Capability desiGn-build-maintain
Management’s Discussion and Analysis
16
The following discussion of Gemini Corporation’s financial and operating results is based upon information available to
March 24, 2011 and should be read in conjunction with the Corporation’s audited consolidated financial statements and related
gemini corporation
notes. These discussions include various forward-looking statements and information regarding the markets in which the
Corporation operates, demand for the Corporation’s products and services and the Corporation’s projected results. All statements
other than statements of historical fact may be forward-looking statements. In some cases, forward-looking statements can be
identified by terminology such as “may”, “will”, “should”, “expects”, “projects”, “plans”, “anticipates”, and similar expressions. The
projections, estimates, and beliefs contained in such forward-looking statements are based on management’s assumptions relating
2010 AnnuAl RepoRt
to Gemini’s performance, competition within the sectors in which it competes, the continuation of the current regulatory and tax
regimes in the jurisdictions in which Gemini operates, and necessarily involve known and unknown risks and uncertainties, including
risks and assumptions relating to client service demand, field service costs, labour rates, and other factors that may cause actual
performance and financial results in future periods to differ materially from any projections of future performance or results
expressed or implied by such forward-looking statements. Consequently, all of the forward-looking statements made in this report
are qualified by these cautionary statements. Should one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary from those expected. These forward-looking statements have been made as
of the date of this MD&A, and the Corporation assumes no obligation to update or revise them except as required by applicable
securities laws.
the financial statements of the Corporation have been prepared by management in accordance with Canadian generally
accepted accounting principles (GAAp), and all dollar amounts have been reported in Canadian dollars. Financial statements that
are prepared to conform to GAAp require management to make estimates and assumptions that affect the amounts reported in
the financial statements and the accompanying notes, with actual results potentially differing from those estimates. the financial
statements have, in management’s opinion, been properly prepared using careful judgment with reasonable limits of materiality
and within the framework of the significant accounting policies summarized in the notes to the consolidated financial statements.
desiGn-build-maintain experienced Capability
Management’s Discussion and Analysis
17
OVeRVieW
Gemini Corporation is a professional services firm that designs, builds and maintains energy and industrial facilities.
Founded in 1982, Gemini provides services on either a standalone basis or by combining engineering and field services
gemini corporation
capabilities to increase project efficiency and provide a single point of accountability. the Corporation’s principal target markets
are conventional and unconventional oil and gas, in-situ heavy oil, and heavy industrial facilities. Its services and products are
delivered through two business segments focused on delivering project solutions that are both technically innovative and financially
sound. the Field Solutions segment provides flexible, cost-efficient fabrication, field construction, and facility maintenance services.
the engineered Solutions segment specializes in providing clients customized, cost-effective design, engineering, procurement,
and construction management services from concept through to completion.
2010 AnnuAl RepoRt
Shares of Gemini trade on the tSX Venture exchange under the symbol “GKX”.
COmPaRisOn OF YeaRs ended deCembeR 31, 2010 and 2009
Consolidated Financial Highlights
3 months ended 12 months ended
December 31, December 31, December 31, December 31,
($000s except per share data) 2010 2009 2010 2009
Revenue $ 15,684 $ 20,895 $ 72,882 $ 74,908
Gross profit 1,477 3,026 13,833 14,811
net earnings (loss) (1,545) (499) (666) (127)
per share – basic (0.044) (0.014) (0.019) (0.004)
– diluted (0.044) (0.014) (0.019) (0.004)
total assets 22,943 32,873
total long-term liabilities 256 3,406
summaRY OF QuaRteRlY COnsOlidated Results
2010 2009
($000s except per share data) Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
Revenue $ 15,684 $ 20,967 $ 18,187 $ 18,044 $ 20,895 $ 23,991 $ 15,226 $ 14,795
Gross profit 1,477 4,095 4,167 4,093 3,026 3,833 4,351 3,601
net earnings (loss) (1,545) 375 186 318 (499) (45) 320 97
per share – basic (0.044) 0.011 0.005 0.009 (0.014) (0.001) 0.010 0.002
per share – diluted (0.044) 0.011 0.005 0.009 (0.014) (0.001) 0.010 0.002
A great deal of uncertainty persisted in many sectors of the economy throughout 2010, and the anticipated gradual increase
in activity within the Corporation’s target markets did not materialize. Increased drilling rig counts in the oil and gas sector driven
by higher commodity prices were expected to translate into additional facility work for Gemini. In addition, approvals for SAGD
heavy oil developments appeared to be progressing well, such that an increase in field work was anticipated to commence in 2010.
unfortunately, these expectations were not realized and in fact demand for the Corporation’s services softened in the fourth quarter
as many projects experienced delays. the delays were generally a function of slower than expected client planning activities and
ongoing capital spending caution under the current market conditions.
experienced Capability desiGn-build-maintain
Management’s Discussion and Analysis
18
Many clients are continuing to indicate that a surge in activity is expected in 2011, but the ultimate timing of the increase is
unclear. Revenue to the end of the third quarter improved by 6%, but the fourth quarter decline in service demand resulted in a
gemini corporation
25% revenue reduction for that quarter, leaving year end revenue 3% below the 2009 total. this sluggish demand is expected to
extend into the first quarter of 2011, and then the growing backlog of work should strengthen revenue as the year unfolds.
Gross profit for 2010 declined to 19% of revenue from 20% in 2009 due to the extremely poor operating performance realized
in the fourth quarter. Steps were taken throughout 2010 to balance staffing and operating costs with the level of activity, and up to
the end of the third quarter these improvements were beginning to have the desired effect on margins. operating units had been
reorganized to improve efficiencies and reduce indirect project costs. utilization rates were stable and poised to strengthen with
a number of projects anticipated to be awarded in the fourth quarter.
2010 AnnuAl RepoRt
the fourth quarter decline in revenue, as a result of various project delays, left resources on standby thus decreasing
utilization rates and materially reducing gross profit. For example, a significant engineering project that was expected to
commence in the fourth quarter was delayed into the first quarter of 2011 with a reduced scope of work. In addition, the quarter
was negatively impacted by a lump sum Field Solutions project that commenced in December and encountered serious cost
overruns in early 2011. Accounting standards require recognition of the entire anticipated loss on this type of contract as soon
as the loss becomes evident, which resulted in $0.4 million in extra costs being recorded in the fourth quarter. the cost overruns
were caused by inaccurate estimation of complex client specifications and certain production inefficiencies experienced near the
completion of the project.
General and administrative expenses for both 2010 and 2009 remained just over 18% of revenue. the composition of these
expenses changed between the years as back office cost savings implemented in 2010 were offset by new training and business
development initiatives, as well as the carrying cost of surplus office space. the majority of the 2010 cost savings were achieved
through staff reductions, reduced professional fees, and recruitment cost containment. offsetting these savings were new training
programs, additional resources dedicated to business development, increased brand awareness spending, and travel costs
associated with the expansion of the Corporation’s presence in British Columbia and Saskatchewan. the incremental cost of
carrying surplus office space was a fourth quarter issue driven by the fact that certain sublet arrangements terminated prior to
the expiry of the related leases at year end.
Although 2010 financial results deteriorated significantly in the fourth quarter, there were positive changes implemented
throughout the year to reposition the organization. these efforts did not come without certain costs and challenges, but they
have enhanced Gemini’s capacity to grow revenue and profitability in the projected economic turnaround over the next few years.
the emphasis will be upon delivering integrated solutions whereby service capabilities will be combined, whenever possible,
to secure larger proportions of any given project in an effort to expedite client completion schedules.
the business development team has adopted a more focussed approach to maintaining existing client relationships and
nurturing new ones. this effort is building a growing backlog of project work, especially for engineered Solutions, and is creating a
more sustainable revenue stream as clients better understand the breath of the Corporation’s service capability. Gemini’s personnel
have the knowledge, experience, and desire to service the Corporation’s chosen target markets in unique and specific ways,
which are expected to drive revenue increases for all business units in 2011. In addition, geographic expansion research
efforts have yielded a much greater understanding of potential opportunities to be generated by establishing offices in specific
western Canadian locations. For example, an office was set up in Dawson Creek, British Columbia early in 2010 to respond to
certain client requirements. Additional operational support opportunities are being developed with new clients in the north east
British Columbia region.
desiGn-build-maintain experienced Capability
Management’s Discussion and Analysis
19
seGmented Results
Field solutions
gemini corporation
3 months ended 12 months ended
December 31, December 31, December 31, December 31,
($000s) 2010 2009 2010 2009
total revenue $ 12,380 $ 15,439 $ 55,162 $ 52,317
Gross profit 623 804 7,256 6,069
earnings (loss) before interest and taxes (1,066) (912) 199 (1,348)
2010 AnnuAl RepoRt
Revenue for Gemini’s Field Solutions segment declined 20% in the fourth quarter of 2010 compared to the same period in
2009. this reduction further eroded the gains in revenue achieved in the first half of the year and brought total revenue for 2010 to
5% above that achieved last year. the softness in construction and fabrication demand experienced over the last six months of
2010 is expected to continue into the second quarter of 2011. Client capital spending plans for 2011 suggest that activity levels for
these services will strengthen as the year progresses. emerging issues that the Corporation is monitoring carefully are the gradual
escalation of material and labour costs along with lengthening delivery times for certain project components. these factors have a
significant bearing on client planning and decision making, which can translate into variable revenue performance for the Corporation.
the maintenance and sustaining project portion of the Field Solutions segment remained fairly consistent and active
throughout 2010. the economic turmoil over the past few years has had a limited effect on clients’ operating expenditures for
maintenance services as compared to the constraints placed on their capital spending. the Corporation’s business development
team is focusing on securing longer-term agreements with both existing and new clients for maintenance services. Increasingly,
clients are seeking engineering support to augment maintenance and sustaining project service delivery, and this fits squarely into
the Corporation’s strategy for delivery of combined services. the growing base of industrial infrastructure across western Canada
is generating more medium to long-term opportunities for this business unit.
the reduction in fourth quarter revenue resulted in an underutilization of fixed infrastructure that, coupled with the recognition
of cost overruns incurred in early 2011 as previously described, caused gross profit to decline to 5% of revenue for the quarter.
overall for 2010, gross profit improved to 13% compared to 12% in 2009. Steps were taken throughout the year to reduce staff
and other discretionary costs, where possible, and improve project planning and control practices. these efforts translated into
an earnings improvement for this segment of more than $1.5 million year over year. Although there is additional work ahead to
increase gross profit, the underlying process and controls architecture has been significantly enhanced. As project activity begins
to strengthen, this structure will positively impact each project and is expected to further improve operating results. It is also
anticipated that client demand for robust project control practices will grow and the Corporation’s newly established team focussing
on these initiatives will become a competitive advantage in the marketplace.
experienced Capability desiGn-build-maintain
Management’s Discussion and Analysis
20
engineered solutions
3 months ended 12 months ended
gemini corporation
December 31, December 31, December 31, December 31,
($000s) 2010 2009 2010 2009
total revenue $ 3,305 $ 5,456 $ 17,721 $ 22,591
Gross profit 856 2,222 6,569 8,742
(loss) earnings before interest and taxes (934) 846 (510) 1,892
engineering revenue was below plan and the prior year results throughout 2010. It was unusually difficult to predict activity
levels and plan resource requirements as clients continued to wrestle with planning delays and capital constraints. the fourth
2010 AnnuAl RepoRt
quarter revenue decline of 39% compared to the same period last year was the most alarming for 2010 and left year end revenue
22% below the 2009 total. Improvements in crude oil prices began to bring more stability into the oil and gas sector as the year
progressed, but the project opportunities Gemini was pursuing experienced delays that pushed many projects, expected to
commence in the fourth quarter, into 2011. In addition, the extreme weakness in natural gas prices resulted in limited project
opportunities for this market.
Business development initiatives designed to address the anticipated revenue shortfalls began to be implemented early in
2010. these efforts focussed upon relationship building coupled with pursuing individual project opportunities, where applicable.
the fundamental emphasis was on client and market awareness of Gemini and its service capabilities. Real benefits from these
activities began to materialize during the fourth quarter as the market strengthened and clients, both existing and new, began
sharing details of their future capital spending requirements. the backlog of work for engineered Solutions steadily increased
through that quarter with most of the work scheduled to start in the first half of 2011. Revenue is expected to climb through the
first quarter and then remain relatively consistent for the balance of the year, with total revenue for 2011 targeted well in excess
of that achieved in 2010.
Gross profit for engineered Solutions was seriously impacted by the reduction in 2010 revenue. Although the percent of
revenue remained relatively consistent, the drop in revenue accounted for $1.8 million of the $2.4 million decline in earnings from
2009. the remaining $0.6 million reduction was primarily attributable to lower utilization rates in the fourth quarter as personnel were
retained in anticipation of clients requesting the commencement of projects in the very near term. this decision was not taken lightly
because the financial implications were very real. the resurgence in activity in the first quarter of 2011 has validated the decision
as appropriate for it is becoming increasingly difficult to find and secure qualified resources. Based upon the current backlog and
forecasted demand for engineering services, this segment is expected to return to reasonable profitability in 2011.
desiGn-build-maintain experienced Capability
Management’s Discussion and Analysis
21
liQuiditY and CaPital ResOuRCes
Financial Condition Highlights
gemini corporation
December 31, December 31,
($000s) 2010 2009
Working capital $ 8,908 $ 11,793
total assets 22,943 32,866
Shareholders’ equity 14,671 15,162
Working capital ratio 2.1:1 1.8:1
total liabilities to equity ratio 0.6:1 1.2:1
2010 AnnuAl RepoRt
the Corporation was in compliance with its bank covenants and financial ratio obligations at year end with the exception
of its total Funded Debt to eBItDA ratio. the covenant called for a ratio of 2.5 times to be maintained at year end and the actual
ratio was 4.7 times. Subsequent to year end, the Corporation obtained a waiver of this deficiency from the lender and will be
working with the lender to align this covenant with its forecasted financial performance through 2011. As this breach has not been
fully resolved for the next twelve month period, the Corporation has reclassified its $2 million term debt to current pending resolution
of this matter later in 2011.
the Corporation had $0.6 million drawn on its revolving, demand credit facility at December 31, 2010. the Corporation has
agreed to have this facility capped at $4 million to bring it in line with 2011 projections. this level of working capital financing is
expected to be adequate to support operating requirements. In addition, the Corporation’s term debt was paid down to $2 million
prior to December 31, 2010 in recognition of a reduced need for term financing and this facility has subsequently been capped
at $2 million. this facility is renewable annually to provide financing for capital assets and has been extended to August 1, 2012.
Should the lender choose not to extend the facility at maturity, it is designed to immediately convert into a term loan with repayment
required over a 24-month period. In addition, a surety bond facility is in place providing coverage for specific projects based upon
each project’s unique requirements.
the reclassification of the term debt coupled with the poor operating performance for 2010 resulted in the Corporation’s
working capital position declining to $8.9 million for 2010 compared with $11.8 million at the end of 2009. this level of working
capital remains adequate to support the business for the foreseeable future.
through 2010, capital assets in the amount of just under $0.4 million were purchased, split roughly equally between
Field Solutions operating assets and general computer software and hardware.
At December 31, 2010, the Corporation had future operating lease commitments totalling $15 million in relation to premises,
vehicles, and office equipment extending out to 2019. these commitments are in the normal course of business and are not
expected to create any financial constraints for future operations.
At December 31, 2010 and at the date of this report, the Corporation’s outstanding capital consisted of 35,000,274
common shares.
experienced Capability desiGn-build-maintain
Management’s Discussion and Analysis
22
FinanCial instRuments
the Corporation’s financial instruments are comprised of accounts and income tax receivable, work in progress, prepaids,
gemini corporation
accounts and other payables, bank indebtedness and long term debt. the Corporation’s operations expose it to interest rate risk
and industry credit risks. the Corporation manages these risks by operating in a manner that minimizes its exposures to the extent
practical, as follows:
Fair values
the fair values of the Corporation’s current financial instruments do not differ significantly from their carrying values due to
their short-term maturities. the fair value of the Corporation’s banking facilities approximate their carrying value because they bear
2010 AnnuAl RepoRt
interest at rates that vary with the bank prime rate.
Credit risk
A significant portion of the Corporation’s trade accounts receivable are from the energy resource industry and as such, the
Corporation is exposed to all the risks associated with that industry. However, the majority of these receivables are from established
clients with excellent credit-worthiness, thereby reducing the credit risk substantially.
interest rate risk
the Corporation’s short and long term borrowings are subject to floating interest rates. the floating rate debt is subject
to interest rate cash flow risk as the required cash flows to service the debt will fluctuate with changes in market rates.
business RisKs and CRitiCal suCCess FaCtORs
Cyclical market
As a significant portion of Gemini’s business is in the energy resource industry, the cyclical nature of this industry becomes
an inherent risk for the Corporation. Fluctuating prices of oil, natural gas, and electricity affect the cash flows of clients, which in turn,
affect their service providers. the Corporation’s revenue and operating results may be subject to material fluctuations on a quarterly
or annual basis as a result of these factors.
diversification into Other industries
In an effort to mitigate the cyclical risk of the energy resource industry, the Corporation has been diversifying into other
industries requiring services in keeping with the Corporation’s core competencies. the principal areas of diversification are within
the industrial, power, and renewable energy sectors. these sectors all have specialized areas requiring engineering, construction,
fabrication, and maintenance capabilities similar to the services offered to existing clients.
Human Resources
Gemini’s ability to attract and retain qualified personnel is a risk and an area of uncertainty because it is not possible to be
assured of the continued availability of these individuals. every effort is taken to mitigate this risk by retaining staff in anticipation
of clients’ demands, offering a number of incentives including competitive compensation and benefits, training, and share
ownership, fostering a positive corporate culture.
safety and Quality Control
the safety of personnel and the quality of work performed by the Corporation are success factors that form the foundation of
the Corporation’s reputation. As a service provider, a strong reputation is essential to preserve existing relationships and develop
new business.
desiGn-build-maintain experienced Capability
Management’s Discussion and Analysis
23
internal Control and management Practices
the development of internal control procedures, timely management practices, and robust project control methodologies
gemini corporation
are crucial to ensure corporate performance and financial reporting integrity. Management continues to take steps to ensure
that growth is managed successfully through the addition of skilled personnel and financial resources and the implementation
of enhanced internal controls and project controls.
Client mergers and acquisitions
the risk and uncertainty from mergers among energy and industrial companies, whether large or small, is ever present.
In order to minimize this risk, the Corporation continues to take steps to add new clients and thereby broaden its client base.
2010 AnnuAl RepoRt
Financial Resources and ability to Raise Capital
the Corporation’s working capital position remains solid and present financing arrangements are sufficient to meet the
needs of the organization. Due to the cyclical nature of the business, however, having sufficient financial resources to sustain
the organization and its growth presents an element of risk. the Corporation has a strong relationship with its primary lender
and actively manages this relationship to preserve access to financing, when required. Due to the present market capitalization
of the Corporation, public markets are not currently viewed as a viable alternative for raising capital.
CRitiCal aCCOuntinG estimates
the Corporation’s significant accounting policies are described in note 2 to the consolidated financial statements. the
preparation of these statements requires the use of estimates and judgments that affect the reported revenue, expenses, assets,
liabilities, and shareholders’ equity. Accounts receivable is an area of particular attention, where all accounts are individually
evaluated for collectability and an allowance for doubtful accounts is established, where necessary. long-lived assets, comprised
of buildings and land, are evaluated for impairment when events and circumstances indicate that the asset’s carrying value may
not be recoverable. When such a determination is made, recoverability is measured by a comparison of the carrying amount of the
asset to the estimated undiscounted future cash flows expected to be generated by the asset. Goodwill and those intangible assets
with an indeterminate life are tested for impairment on an annual basis, or more frequently if events or circumstances indicate the
asset might be impaired. Finally, stock-based compensation is determined utilizing the Black-Scholes model for valuation, which
entails the application of certain factors and estimates in arriving at the fair-value of any stock options granted. these estimates
and judgments are based on historical experience and various assumptions, which management believes to be reasonable in the
circumstances. Future events cannot be anticipated with certainty and, as such, these estimates and assumptions may change
as additional evidence is gathered, new circumstances arise, or the Corporation’s operating environment changes.
the Field Solutions segment applies the percentage-of-completion method of revenue recognition to determine periodic
revenue allocations for certain projects in progress at the end of each month. this methodology requires the use of estimates based
on the historical knowledge and experience of management, the specific circumstances of the project, and the anticipation of future
events in order to determine factors such as the stage of project completion, future costs to be incurred to complete the project,
and an estimate of the final gross margin to be earned. these estimates are continually evaluated and could change based upon
significant or unanticipated changes in future events; the cost and availability of labour; the cost, availability, and timing of delivery
of materials or components; or unexpected difficulties in the completion of a project. At the end of each month, management
reviews each of the projects in progress and evaluates the reasonableness of each estimate. A contribution margin analysis is
prepared to ensure that appropriate revenue and costs are being recorded over the course of each project. Any loss on lump
sum projects are recognized as soon as the loss becomes evident.
experienced Capability desiGn-build-maintain
Management’s Discussion and Analysis
24
aCCOuntinG POliCY CHanGes
there are no accounting policy changes to comment on other than the transition to International Financial Reporting
gemini corporation
Standards, described below.
inteRnatiOnal FinanCial RePORtinG standaRds (“iFRs”)
the Canadian Accounting Standards Board has established January 1, 2011 as the date IFRS will replace the current
Canadian GAAp for publicly accountable enterprises. Gemini’s first reporting period under IFRS will be the interim financial
statements for the period ended March 31, 2011, and first IFRS annual financial statements will be for the year ended
December 31, 2011.
2010 AnnuAl RepoRt
the Corporation has completed its IFRS conversion plan and selected the appropriate accounting policies under IFRS and
IFRS 1 exemptions. Assessment of differences between the current Canadian GAAp requirements and IFRS, along with the initial
preferred accounting policies under IFRS, have been documented and reviewed by the Corporation’s external auditors. the
transition to IFRS has not resulted in a significant change to business activities, accounting policies, information systems or internal
control over financial reporting. Some areas require certain adjustments in recordkeeping related to capital asset componentization
and the identification of cash generating units. IFRS requires more detailed analysis for the purposes of asset impairment testing
that will also result in minor changes to these existing accounting practices.
Adjustments in financial statement presentation will be required in relation to the classification of certain leases as capital
versus operating and the reclassification of software to intangible assets from capital assets. Approximately $0.4 million in vehicles
will be reflected as capital leases and nearly $1.0 million of software costs will be reflected as intangible assets on the opening IFRS
balance sheet for January 1, 2010. In addition, the Corporation’s term debt was presented as long-term at December 31, 2009,
but under IFRS, it will have to be reclassified as current debt on the balance sheet because the agreement to correct the lending
covenant breach was completed after the year end.
Gemini intends to implement the selected accounting policies for the opening balance sheet on January 1, 2010, which
will be used for comparative purposes. the Corporation has identified key internal personnel with expertise to manage its
transition to IFRS.
desiGn-build-maintain experienced Capability
Management’s Discussion and Analysis
25
OutlOOK
the challenges experienced through 2010, and especially those of the fourth quarter, further emphasize the need to
gemini corporation
reposition Gemini around its core competencies and concentrate its business development focus on markets that will prosper
as the economy strengthens. Clients are continuing to gravitate to service providers capable of delivering new and innovative
solutions to support their businesses. they are seeking high quality professional expertise and greater cost certainty on projects
to ensure value is achieved. Gemini is responding to these demands by continuing to aggressively recruit qualified professionals
to augment its talented staff and by further refining its control processes to ensure project delivery meets clients’ expectations.
Capital and operational spending in the Corporation’s primary target markets of conventional and unconventional oil and
gas, in-situ heavy oil, and heavy industrial facilities are predicted to increase in 2011. the potential for both organic and geographic
2010 AnnuAl RepoRt
growth in these markets is excellent and management intends to continue pursuing both avenues. the only questionable area within
these markets is the spending related to natural gas development, which will be monitored carefully and any suitable opportunities
will be vigorously pursued. Greater emphasis upon client relationship management by the entire organization, as well as ongoing
marketing of combined services, should raise Gemini’s profile in its target markets. Streamlined business development processes
are revealing more opportunities with a broader array of clients. these efforts are expected to diversify the client base and regain
the revenue levels required to restore profitability.
the first quarter of 2011 is expected to remain weak as a certain portion of the backlog is scheduled to commence in the
second and third quarters. Revenue and earnings are forecasted to grow as the year unfolds, resulting in modest profitability by
the end of 2011. opportunities to reduce fixed infrastructure costs will remain a high priority, and close scrutiny of all discretionary
spending will continue in an effort to hasten the return to profitability.
throughout the coming year, the emphasis will be on further streamlining operations and continuing to develop the “one
Company” culture now beginning to take shape. Maintaining Gemini’s unwavering commitment to safety and quality through the
“think twice” program will provide the foundation necessary for the Corporation to be acknowledged in an increasingly competitive
marketplace. Gemini’s Design-Build-Maintain model will continue to be the differentiator being exploited to drive future success.
experienced Capability desiGn-build-maintain
Management’s Responsibility for Financial Information
26
to the shareholders of Gemini Corporation:
the accompanying consolidated financial statements and all information in this annual report have been prepared by
gemini corporation
management. the consolidated financial statements have been prepared in accordance with generally accepted accounting
principles in Canada and, where appropriate, reflect management’s best estimates and judgments. Management is responsible
for the accuracy, integrity, and objectivity of the consolidated financial statements within reasonable limits of materiality. to assist
management in the discharge of these responsibilities, the Corporation maintains a system of internal controls designed to provide
reasonable assurance that accounting records are reliable and assets are safeguarded.
the accompanying consolidated financial statements and Management’s Discussion and Analysis have been reviewed by
2010 AnnuAl RepoRt
the Audit Committee and approved by the Board of Directors of the Corporation. the Audit Committee, consisting of independent
directors, meets with management, as well as with the external auditors, to be satisfied that management is properly discharging its
financial reporting responsibilities and to review the consolidated financial statements and the auditors’ report. the Audit Committee
reports its findings to the Board of Directors for consideration in approving the consolidated annual financial statements for
presentation to the shareholders. the external auditors have direct access to the Audit Committee.
the consolidated financial statements have been audited independently by KpMG llp on behalf of the shareholders, in
accordance with generally accepted auditing standards. their report outlines the nature of their audit and expresses their opinion
on the consolidated financial statements of the Corporation.
Doug lautermilch Robert Brookwell
President and Chief Executive Officer Executive Vice President and Chief Financial Officer
March 24, 2011
desiGn-build-maintain experienced Capability
Independent Auditors’ Report
27
to the shareholders of Gemini Corporation
We have audited the accompanying consolidated financial statements of Gemini Corporation, which comprise the
gemini corporation
consolidated balance sheets as at December 31, 2010 and 2009, the consolidated statements of loss, comprehensive income
and retained earnings and cash flows for the years then ended, and notes, comprising a summary of significant accounting policies
and other explanatory information.
Management’s Responsibility for the Consolidate Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance
with Canadian generally accepted accounting principles, and for such internal control as management determines is necessary to
2010 AnnuAl RepoRt
enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted
our audits in accordance with Canadian generally accepted auditing standards. those standards require that we comply with
ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated
financial statements. the procedures selected depend on our judgment, including the assessment of the risks of material
misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we
consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order
to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used
and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our
audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position
of Gemini Corporation as at December 31, 2010 and 2009, and its consolidated results of operations and its consolidated cash
flows for the years then ended in accordance with Canadian generally accepted accounting principles.
March 24, 2011
Calgary, Alberta
experienced Capability desiGn-build-maintain
Consolidated Balance Sheets
28 as at December 31, As at December 31,
(Canadian Dollars) Notes 2010 2009
ASSETS
gemini corporation
Current
Accounts receivable 4 $ 13,798,087 $ 21,724,038
Work in progress 1,794,051 2,869,311
Income taxes receivable 174,762 241,739
Inventory 595,265 587,373
prepaid expenses 562,362 668,205
16,924,527 26,090,666
2010 AnnuAl RepoRt
Capital assets 5 4,587,891 5,163,979
Deposits 105,918 231,405
Intangible assets 6 154,086 209,096
Goodwill 6 1,170,808 1,170,808
$ 22,943,230 $ 32,865,954
LIABILITIES
Current
Bank indebtedness 7 $519,792 $6,123,556
Accounts payable 8 5,333,107 7,886,003
unearned revenue 57,043 134,508
Future income taxes 13 9,877 (6,572)
Current portion of long term liability 9 96,832 96,832
Current portion of pension plan liability 10 – 63,491
Current portion of long term debt 11 2,000,000 –
8,016,651 14,297,818
long term liability 9 – 96,832
Future income taxes 13 255,688 309,187
long term debt 11 – 3,000,000
8,272,339 17,703,837
SHAREHOLDERS’ EQUITY
Share capital 12 5,230,345 5,221,458
Contributed surplus 12 2,128,551 1,962,618
Retained earnings 7,311,995 7,978,041
14,670,891 15,162,117
$ 22,943,230 $ 32,865,954
Commitments 19
See accompanying notes to the consolidated financial statements
on behalf of the Board of Directors
Doug lautermilch Carl Johnson
Director Director
desiGn-build-maintain experienced Capability
Consolidated Statements of Loss,
Comprehensive Income and Retained Earnings
For the years ended December 31, As at December 31, 29
(Canadian Dollars) Notes 2010 2009
Revenue $ 72,882,005 $ 74,908,268
gemini corporation
project costs 59,048,601 60,097,126
Gross profit 13,833,404 14,811,142
expenses
General and administration 13,466,409 13,528,541
Depreciation and amortization 980,263 1,102,703
Current interest expense 111,682 93,785
long-term interest expense 159,055 130,041
2010 AnnuAl RepoRt
14,717,409 14,855,070
loss before income taxes (884,005) (43,928)
Income taxes
Current (180,909) 34,277
Future (37,050) 48,507
13 (217,959) 82,784
net loss and other comprehensive income $ (666,046) $ (126,712)
earnings per share
Basic 14 $ (0.019) $ (0.004)
Diluted 14 $ (0.019) $ (0.004)
Retained earnings, beginning of the year $ 7,978,041 $ 8,134,781
net loss (666,046) (126,712)
Dividends paid – (30,028)
Retained earnings, end of the year $ 7,311,995 $ 7,978,041
See accompanying notes to the consolidated financial statements
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Consolidated Statements of Cash Flows
30 For the years ended December 31, As at December 31,
(Canadian Dollars) Notes 2010 2009
OPERATING ACTIVITIES
gemini corporation
net loss $ (666,046) $ (126,712)
Add back non-cash items
Depreciation and amortization 980,263 1,102,703
Stock-based compensation 169,153 316,230
Gain on sale of capital assets (14,819) (8,297)
loss on investment – –
Future income tax (benefit) expense (37,050) 48,507
2010 AnnuAl RepoRt
431,501 1,332,431
Changes in working capital balances 17 6,566,190 (2,983,198)
Cash (used in) provided by operations 6,997,691 (1,650,767)
FINANCING ACTIVITIES
Increase (decrease) in bank indebtedness (5,603,764) 4,791,387
Decrease in long term debt (1,000,000) (1,000,000)
Repayment of capital lease obligations – (71,914)
Increase in pension plan liability (63,491) 45,404
proceeds on issue of common shares 5,667 –
Redemption of preferred shares – (1,177,440)
Dividends paid – (185,450)
Cash (used in) provided by financing activities (6,661,588) 2,401,987
INVESTING ACTIVITIES
Acquisition of capital assets (378,172) (754,388)
Disposition of capital assets 43,826 11,000
other (1,757) (7,832)
Cash used in investing activities (336,103) (751,220)
Change in cash – –
Cash, beginning of the year – –
Cash, end of the year $ – $ –
See accompanying notes to the consolidated financial statements
desiGn-build-maintain experienced Capability
Notes to the Consolidated Financial Statements
31
1. Nature of Operations
these consolidated financial statements include the accounts of the Corporation and those of its wholly-owned subsidiaries
gemini corporation
presented in Canadian dollars. Gemini Corporation conducts business through two limited partnerships, namely Gemini Field
Solutions lp and Gemini engineered Solutions lp.
2. Accounting Standards Pending Adoption
the Canadian Accounting Standards Board has established January 1, 2011 as the date the International Financial Reporting
Standards (“IFRS”) will replace the current Canadian Generally Accepted Accounting principles (“GAAp”) for publicly accountable
2010 AnnuAl RepoRt
enterprises. Gemini’s first reporting period under IFRS will be the interim financial statements for the period ended March 31, 2011
and first IFRS annual financial statements will be for the year ended December 31, 2011. Gemini has selected accounting policies for
the opening balance sheet on January 1, 2010, which will be used for comparative purposes once the IFRS conversion takes effect
on January 1, 2011.
3. Significant Accounting Policies
a) basis of presentation
the consolidated financial statements of the Corporation have been prepared by management in accordance with
Canadian GAAp. the preparation of consolidated financial statements in conformity with GAAp requires management to make
estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.
Actual results could differ from those estimates. the consolidated financial statements have, in Management’s opinion, been
properly prepared using careful judgement within reasonable limits of materiality and within the framework of the significant
accounting policies summarized below. Intercompany transactions and balances have been eliminated in these consolidated
financial statements. All amounts are presented in Canadian dollars. Certain comparative figures have been reclassified to
conform to the current year’s presentation.
b) Work in progress
Work in progress is carried at estimated billing value. Depending upon the terms of the contract, billing value has been
calculated based on management’s estimate of the percentage of completion or direct hours worked along with estimated
contribution margin expected on each project.
c) inventory
Inventory consists of raw materials and is stated at the lower of cost, as determined on a first-in first-out basis, and
net realizable value.
experienced Capability desiGn-build-maintain
Notes to the Consolidated Financial Statements
32
d) Capital assets
Capital assets are recorded at cost less accumulated depreciation. Depreciation is recorded using the declining balance
gemini corporation
method over the assets’ estimated useful lives, with the following annual depreciation rates:
Computer software 25%
Computer hardware 30%
Vehicles and trailers 30%
Field equipment 20%
office and shop equipment 20%
portable buildings 10%
2010 AnnuAl RepoRt
land improvements 10%
Building 4%
leasehold improvements are amortized straight-line over the life of each lease. Costs associated with the acquisition
of assets are included in the capital cost of the related asset.
e) impairment of long-lived assets
long-lived assets, comprised of buildings and land, are evaluated for impairment when events and circumstances indicate
that the asset’s carrying value may not be recoverable. When such a determination is made, recoverability is measured by a
comparison of the carrying amount of the asset to the estimated undiscounted future cash flows expected to be generated by
the asset. If the carrying amount of the asset exceeds its estimated future cash flows, an impairment charge is recognized in the
amount by which the carrying amount of the asset exceeds the fair value of the asset. the Corporation estimates fair value based
upon current prices for similar assets.
f) Goodwill and intangible assets
Goodwill represents the excess of the purchase price over the fair value of net assets acquired and is not subject to
amortization. Intangible assets are valued at the time of acquisition or the time of internal development and are amortized on a
straight-line basis over their useful life. Any intangibles that are deemed to have an indefinite life are carried at cost until further
information is available to determine the appropriate amortization period. Goodwill and those intangible assets with an indefinite life
are tested for impairment on an annual basis, or more frequently if events or circumstances indicate the asset might be impaired.
An initial assessment is made by comparing the fair value of the operations, which includes goodwill, to the book value of each
reporting unit. If the fair value is less than book value, impairment is indicated and a second test is performed to measure the
amount of the impairment. In the second test, the implied fair value of the goodwill is calculated by deducting the fair value of all
tangible and intangible net assets of the reporting unit from the fair value determined in the initial assessment. If the carrying value
of the goodwill exceeds the calculated implied fair value of the goodwill, an impairment charge is recorded.
g) Revenue recognition
the Corporation uses the percentage-of-completion method to account for revenue earned on lump sum or fixed price
projects and revenue is recognized at the time the services are provided on all other projects. the percentage-of-completion
methodology requires the use of estimates based on the historical knowledge and experience of management, the specific
circumstances of the project, and the anticipation of future events in order to determine factors such as the stage of project
completion, future costs to be incurred to complete the project, and an estimate of the final gross margin to be earned. these
estimates are continually evaluated and could change based upon significant or unanticipated changes in future events; the
cost and availability of labour; the cost, availability, and timing of delivery of materials or components; or unexpected difficulties
in the completion of a project. Any loss on lump sum or fixed price projects are recognized as soon as the loss becomes evident.
desiGn-build-maintain experienced Capability
Notes to the Consolidated Financial Statements
33
h) income taxes
the Corporation follows the asset and liability method to account for income taxes. the asset and liability method requires
gemini corporation
that income taxes reflect the future tax consequences of temporary differences between the carrying amounts of assets or liabilities
and their tax basis. Future income tax assets and liabilities are determined for each temporary difference based on the tax rates that
are expected to be in effect when the asset is realized or the liability settled. the effect of a change in substantively enacted tax
rates on future tax assets and liabilities is recognized in net earnings in the period in which the change occurs.
i) earnings per share
Basic earnings per share are computed by dividing net earnings available to common shareholders by the weighted average
number of common shares outstanding for the year. Diluted earnings per share amounts reflect the potential dilution that could
2010 AnnuAl RepoRt
occur if securities or other contracts to issue common shares were exercised. the treasury stock method is used to determine
the dilutive effect of stock options.
j) stock-based compensation
the Corporation accounts for stock-based compensation using the fair-value method of valuing any stock options granted,
and as such recognize an expense over the vesting period of the options. the Corporation records compensation expense and
contributed surplus based on the grant date fair values over the vesting period. upon exercise of the options, any consideration
paid plus the attributed contributed surplus is credited to share capital. Forfeitures are accounted for as they occur.
k) Financial instruments
the Corporation initially records all financial instruments in the consolidated balance sheet at their fair value. Subsequent
measurement of the financial instruments is based on their classification. Financial assets are classified into the following categories:
held-for-trading, available-for-sale, held-to-maturity investments and loans and receivables. Financial liabilities are classified as either
held-for-trading or other financial liabilities. Financial assets and financial liabilities classified as held-for-trading are measured at fair
value with changes recognized in net earnings (loss). Held-to-maturity financial assets, loans and receivables, and other financial
liabilities are measured at amortized cost using the effective interest method. Investments classified as available-for-sale are
measured at fair value with changes in fair value included within comprehensive income (loss) until the investment is disposed of,
at which time the change in fair value is included in the net earnings (loss). If the fair value of an available-for-sale financial instrument
is not available the investment is measured at cost.
pursuant to these standards, the Corporation classifies accounts receivable, work in progress, and deposits as loans and
receivables, which are accounted for at amortized cost using the effective interest method. All financial liabilities are classified as
other liabilities and are accounted for at amortized cost using the effective interest method. the Corporation does not have any
financial instruments classified as held-for-trading, held-to-maturity or available-for-sale at December 31, 2010.
the Corporation did not have any derivatives at December 31, 2010.
the Corporation is required to identify and measure embedded derivatives that require separation from the related host
contract and measure those embedded derivatives at fair value. Subsequent changes in fair value of embedded derivatives are
recognized in the statement of earnings in the period the change occurs. the Corporation has no contracts that include embedded
derivatives requiring separate accounting treatment.
experienced Capability desiGn-build-maintain
Notes to the Consolidated Financial Statements
34
4. Accounts Receivable
the aging of trade accounts receivable were:
gemini corporation
December 31, 2010 December 31, 2009
Receivables Receivables
Current $ 5,828,809 $ 9,115,636
31 – 60 days 5,924,881 10,148,585
61 – 90 days 1,281,408 1,593,580
91 – 120 days 279,452 420,121
2010 AnnuAl RepoRt
Greater than 120 days 282,967 274,297
total trade accounts receivable 13,597,517 21,552,219
other 200,570 171,819
total $ 13,798,087 $ 21,724,038
the Corporation assesses each account on an individual basis to determine whether any allowance is required. All accounts
have been assessed as collectible and therefore no allowances have been recognized. Since December 31, 2010, approximately
$251,000 of the amounts older than 90 days have been collected.
5. Capital Assets
December 31, 2010 December 31, 2009
Depreciation Depreciation
& net Book & net Book
Cost amortization Value Cost Amortization Value
land and improvements $ 357,509 $ 7,688 $ 349,821 $ 357,509 $ 6,616 $ 350,893
Buildings and portable buildings 2,472,709 972,097 1,500,612 2,472,709 868,619 1,604,090
Vehicles and trailers 310,055 191,536 118,519 403,075 207,564 195,511
Computer hardware and software 4,175,676 3,064,126 1,111,550 4,007,813 2,690,776 1,317,037
office equipment 1,104,432 727,041 377,391 1,050,566 633,769 416,797
Shop equipment 1,351,862 752,423 599,439 1,274,201 606,183 668,018
Field equipment 1,205,114 754,825 450,289 1,135,850 651,850 484,000
leasehold improvements 566,315 486,045 80,270 561,915 434,282 127,633
$ 11,543,672 $ 6,955,781 $ 4,587,891 $ 11,263,638 $ 6,099,659 $ 5,163,979
desiGn-build-maintain experienced Capability
Notes to the Consolidated Financial Statements
35
6. Intangible Assets and Goodwill
gemini corporation
a) intangible assets
December 31, 2010 December 31, 2009
intangibles technology total Intangibles technology total
Subject to Development intangible Subject to Development Intangible
amortization Costs assets Amortization Costs Assets
Cost $ 304,885 $ 53,402 $ 358,287 $ 179,030 $ 179,257 $ 358,287
Accumulated amortization (204,201) – (204,201) (149,191) – (149,191)
$ 100,684 $ 53,402 $ 154,086 $ 29,839 $ 179,257 $ 209,096
2010 AnnuAl RepoRt
technology development costs have been capitalized and are not subject to amortization pending commercialization
of the technology. Amortization of these costs begins when commercial production utilizing this technology commences.
b) Goodwill
Goodwill in the amount of $1,170,808 was acquired in 2005 through two business acquisitions. no impairment of goodwill
was determined to exist at December 31, 2010.
7. Bank Credit Facilities
At December 31, 2010 the Corporation had a revolving, demand credit facility for up to a maximum of $10,000,000, bearing
interest at bank prime plus 2.5% per annum. the Corporation also had a committed, revolving and extendible credit facility of
$3,000,000 bearing interest at bank prime plus 2.5% per annum (refer to note 11). All credit facilities are subject to certain financial
covenants and are secured by a general security agreement over all present and future acquired assets, a general assignment
of accounts receivable and book debts, cross guarantees between the Corporation and each of its subsidiaries and a collateral
mortgage on the ponoka property in the amount of $3,000,000. At December 31, 2010 an amount of $13,000,000 under these
facilities was available, of which $2,519,792 was drawn (December 31, 2009 – $13,000,000 available and $9,123,556 drawn).
the Corporation was in compliance with its bank covenants and financial ratio obligations at year end with the exception of its
total Funded Debt to eBItDA ratio. this covenant called for a ratio of 2.5 times to be maintained at year end and the actual ratio was
4.7 times. Subsequent to year end, the Corporation obtained a waiver of this deficiency from the lender and agreed to capping the
demand credit facility at $4,000,000 and the committed credit facility at $2,000,000 to reflect the Corporation’s lower anticipated
borrowing requirements for 2011.
experienced Capability desiGn-build-maintain
Notes to the Consolidated Financial Statements
36
8. Accounts Payable
December 31, December 31,
gemini corporation
2010 2009
trade accounts payable $ 3,668,619 $ 5,519,327
Accrued project costs 438,056 807,868
Accrued personnel costs 626,097 644,217
GSt and pSt payable 39,633 354,240
other accrued expenses 560,702 560,351
$ 5,333,107 $ 7,886,003
2010 AnnuAl RepoRt
9. Long Term Liability
the Corporation entered into a financing arrangement on June 28, 2009 for software licence renewals spanning a period of
three years, which requires a final instalment of $96,832 in July 2011.
10. Pension Plan
the Corporation contributed to an individual defined benefit pension plan on the basis of the percent of final pay on behalf of
the Corporation’s Chairman. Amounts noted below are based on an actuarial valuation completed by the Corporation’s actuarial
consultants as at the plan termination date of August 31, 2010.
December 31, December 31,
2010 2009
Change in accrued benefit obligation
Accrued benefit obligation – beginning of the year $ 659,999 $ 510,419
Actuarial adjustment (54,956) 111,454
employer current service costs 38,126 38,126
Interest cost on accrued benefit obligation – –
plan termination August 31, 2010 (643,169) –
Accrued benefit obligation $ – $ 659,999
Change in plan assets
Fair value of plan assets – beginning of the year $ 617,939 $ 496,869
employer contributions – 54,224
Actual return on plan assets 25,230 66,846
plan termination August 31, 2010 (643,169) –
Fair value of plan assets $ – $ 617,939
desiGn-build-maintain experienced Capability
Notes to the Consolidated Financial Statements
37
11. Long Term Debt
December 31, December 31,
gemini corporation
2010 2009
Committed, revolving and extendible term loan maturing on August 1, 2012,
requiring interest payments only, payable at bank prime plus 2.5%, and secured
by a general security agreement and collateral mortgage on the ponoka property. $ 2,000,000 $ 3,000,000
less: current portion (2,000,000) –
$ – $ 3,000,000
2010 AnnuAl RepoRt
the Corporation is entitled to request an extension of this facility for an additional one year period prior to the end of the first
year of its two-year term. In the event the extension is not granted, the facility automatically converts to a two-year non-revolving
reducing term loan at the end of its current term, repayable in 24 equal monthly instalments plus interest. Due to the covenant
breach presented in note 7, the entire amount of the term facility has been reclassified to current pending resolution of the total
Funded Debt to eBItDA covenant later in 2011.
12. Share Capital
a) authorized:
unlimited number of voting common shares.
unlimited number of non-voting preferred shares, issuable in one or more series.
the Board of Directors is authorized to fix the number of shares in each series and to determine the designation, rights,
privileges and conditions attached to the shares.
b) issued and outstanding:
December 31, 2010 December 31, 2009
Quantity amount Quantity Amount
Common Shares
Balance, beginning of the year 34,966,941 $ 5,221,458 34,655,037 $ 5,116,458
Stock options exercised 33,333 8,887 – –
Common shares issued – – 311,904 105,000
Balance, end of the year 35,000,274 5,230,345 34,966,941 5,221,458
Preferred Shares
Balance, beginning of the year – – 1,177,440 1,177,440
preferred Shares redeemed (1,177,440) (1,177,440)
Balance, end of the year – – – –
total share capital 35,000,274 $ 5,230,345 34,966,941 $ 5,221,458
experienced Capability desiGn-build-maintain
Notes to the Consolidated Financial Statements
38
c) stock option plan
the Corporation has a rolling stock option plan for the benefit of employees, officers and directors to encourage them to
gemini corporation
acquire common shares of the Corporation, thereby aligning their interests with the shareholders. the option plan permits the
granting of options to purchase up to a maximum of 10% of the issued and outstanding common shares of the Corporation.
the exercise price of each stock option is equal to the last closing market price of the Corporation’s common shares on the
day immediately prior to the date of grant, and the maximum period during which an option may be exercised is five years.
the options vest one-third immediately and the remainder at one-third on each of the next two anniversaries of the grant date.
December 31, 2010 December 31, 2009
Weighted Weighted
2010 AnnuAl RepoRt
average Average
number exercise number exercise
of options Price of options price
opening balance 2,931,333 $ 0.51 2,353,000 $ 0.57
Granted 950,000 $ 0.25 1,010,000 $ 0.33
exercised (33,333) $ 0.17 – –
Forfeited (264,000) $ 0.67 (331,667) $ 0.34
expired (432,000) $ 0.75 (100,000) $ 0.61
Closing balance 3,152,000 $ 0.39 2,931,333 $ 0.51
At December 31, 2010 the Corporation had unexercised options as follows:
Average Average
Contractual Weighted Contractual Weighted
total life Average total life Average
outstanding Remaining exercise exercisable Remaining exercise
exercise price options (Years) price options (Years) price
$0.23 to $0.30 1,135,000 3.30 $ 0.26 461,667 3.18 $ 0.26
$0.31 to $0.40 855,000 2.22 $ 0.36 616,667 2.12 $ 0.36
$0.41 to $0.60 1,097,000 0.89 $ 0.49 1,097,000 0.89 $ 0.49
$0.61 to $0.90 25,000 0.79 $ 0.90 25,000 0.79 $ 0.90
$1.31 to $1.90 40,000 0.27 $ 1.90 40,000 0.27 $ 1.90
3,152,000 2.11 $ 0.39 2,240,334 1.69 $ 0.43
desiGn-build-maintain experienced Capability
Notes to the Consolidated Financial Statements
39
the fair value of the options granted was determined using the Black-Scholes option pricing model with the following
weighted average assumptions:
gemini corporation
December 31, December 31,
2010 2009
Risk-free interest rate 2.00% 1.43%
expected term 3 4
expected volatility 106% 109%
expected dividend yield nil nil
Grant date fair value $ 0.17 $ 0.24
2010 AnnuAl RepoRt
d) Contributed surplus
2010 2009
Balance, beginning of the year $ 1,962,618 $ 1,751,389
expensed fair value of stock options granted 169,153 211,229
Fair value of stock options exercised and transferred to share capital (3,220) –
Balance, end of the year $ 2,128,551 $ 1,962,618
13. Income Taxes
the actual income tax provision differs from the expected amount calculated by applying the Canadian combined federal
and provincial corporate income tax rates to earnings before income taxes. the major components of these differences are
explained as follows:
December 31, December 31,
2010 2009
loss before income tax $ (884,005) $ (43,928)
Corporate income tax rate 28.00% 29.00%
expected income tax benefit (247,520) (12,738)
Increase (decrease) in income taxes resulting from:
non-deductible expenses 23,647 26,412
Stock-based compensation 47,363 91,707
tax rate changes (33,629) (27,527)
other (7,820) 4,930
Income tax expense $ (217,959) $ 82,784
the net future income tax liabilities are as follows:
tax basis deficiency on depreciable assets $ (249,536) $ (279,801)
tax basis deficiency on goodwill and intangible assets (15,470) (9,598)
other (559) (13,216)
(265,565) (302,615)
Current portion of future income tax liabilities (9,877) 6,572
long term portion of future income tax liabilities $ (255,688) $ (309,187)
experienced Capability desiGn-build-maintain
Notes to the Consolidated Financial Statements
40
14. Earnings Per Common Share
gemini corporation
twelve months ended
December 31, 2010 December 31, 2009
average Average
net Shares Per net Shares per
earnings outstanding Share earnings outstanding Share
Basic $ (666,046) 34,996,611 $ (0.019) $ (126,712) 34,771,860 $ (0.004)
effect of stock options – –
Diluted $ (666,046) 34,996,611 $ (0.019) $ (126,712) 34,771,860 $ (0.004)
2010 AnnuAl RepoRt
Diluted earnings per share for the year ended December 31, 2010 have not been calculated as inclusion of the potential
common shares that could be issued on exercise of stock options would be anti-dilutive.
15. Risk Management and Financial Instruments
the carrying values for bank indebtedness and term debt are equal to their fair values since interest is charged on a floating rate
basis. the carrying values of all other financial instruments approximate their fair value due to the relatively short period to maturity of
the instruments.
the Corporation’s exposure to risk is presented below, along with the Corporation’s objectives, policies and processes for
measuring and managing risk. Further quantitative disclosures are included throughout these consolidated financial statements.
the Board of Directors has overall responsibility for the establishment and oversight of the Corporation’s risk management
framework. the Audit Committee reviews with management the business risks and the processes employed to manage and
mitigate these risks. the Corporation’s risk management policies are established to identify and analyze material risks, to set
appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are
reviewed regularly to reflect changes in market conditions and the Corporation’s activities.
a) Credit risk
Credit risk is the risk of financial loss to the Corporation if a client fails to meet its contractual obligations, and arises primarily
from the Corporation’s trade accounts receivable and work in progress. A significant portion of the Corporation’s trade accounts
receivable are from the energy industry and as such, the Corporation is exposed to all the risks associated with that industry.
However, the majority of these receivables are from well-established clients, whose credit-worthiness has been evaluated as
acceptable, thereby reducing the risk of material payment default.
the Corporation has an established credit policy under which each new client is analyzed individually for credit-worthiness. the
Corporation’s review includes external ratings where available, credit reference checks and, in some cases, bank references. Credit-
worthiness of existing clients is monitored on an ongoing basis, along with monitoring the amount and age of balances outstanding.
desiGn-build-maintain experienced Capability
Notes to the Consolidated Financial Statements
41
b) liquidity risk
liquidity risk is the risk that the Corporation will not be able to meet its financial obligations as they come due. the
gemini corporation
Corporation manages liquidity risk by maintaining banking facilities to meet ongoing working capital requirements, and by
continuously monitoring forecasted and actual cash flows.
the Corporation currently has the following credit facilities available:
• A $4 million revolving, demand credit facility to meet short-term financing requirements.
• A $2 million committed, revolving and extendible term facility, maturing August 1, 2012.
Refer to notes 6 and 10 for additional information.
2010 AnnuAl RepoRt
the following are the contractual maturities of financial liabilities, including interest and principal cash flows where applicable:
Contractual
Carrying Cash
Amount Flows 1 Year 1 – 2 Years 2 – 5 Years
Bank indebtedness $ 519,792 $ (519,792) $ (519,792) $ – $ –
trade and other payables 5,333,107 (5,333,107) (5,333,107) – –
long term liability 96,832 (96,832) (96,832) – –
Secured term debt 2,000,000 (2,110,000) (2,110,000) – –
$ 7,949,731 $ (8,059,731) $ (8,059,731) $ – $ –
c) interest rate risk
the Corporation’s short and long term borrowings are subject to floating interest rates, which expose the Corporation
to interest rate risk. If interest rates had been 1% higher or lower and all other variables were held constant, the Corporation’s
interest rate expense would have varied approximately $50,000 for the one year period (2009 – $54,000), which does not
significantly impact net earnings. As borrowings subject to floating interest rates increase, the Corporation’s sensitivity to
interest rates increases.
16. Capital Management
the Board’s policy is to maintain a strong capital base in order to preserve investor, creditor and market confidence and
to sustain future development of the business. the Board monitors investor activity by noting significant market transactions and
ongoing trading activity. As a growth company, the Board’s strategy is to reinvest all earnings into the development of the business.
the Corporation monitors externally imposed capital requirements as established pursuant to its credit facility agreement.
the requirements include the ratio of current assets to current liabilities not to be less than 1.25 to 1.00 (tested quarterly); total
Funded Debt to eBItDA ratio not to exceed 2.5 (tested on a four-quarter rolling average); minimum consolidated tangible net
worth of $9,000,000 to be maintained at all times. total Funded Debt is calculated as all interest bearing debt, including cheques
outstanding. eBItDA is defined as the four preceding quarters’ consolidated earnings before interest, taxes and extraordinary items
plus depreciation, amortization and non-cash charges as determined by Canadian GAAp. tangible net worth is comprised of total
assets, excluding all intangible assets, less total liabilities.
there were no changes in the Corporation’s approach to capital management during the period.
experienced Capability desiGn-build-maintain
Notes to the Consolidated Financial Statements
42
17. Supplementary Cash Flow Information
December 31, December 31,
gemini corporation
2010 2009
Changes in non-cash working capital:
Accounts receivable $ 7,925,951 $ (4,872,704)
Work in progress 1,075,260 942,794
Income taxes receivable 66,977 (241,739)
Inventory (7,892) (38,302)
prepaids 136,255 (263,623)
2010 AnnuAl RepoRt
Accounts payable (2,552,896) 1,995,924
unearned revenue (77,465) (216,175)
Income taxes payable – (289,373)
$ 6,566,190 $ (2,983,198)
Interest paid $ 270,737 $ 223,826
Income taxes paid $ 35 $ 728,973
18. Related Party Transactions
the related party transactions during the year pertained to fees of $38,766 paid to Mr. Carl Johnson, Gemini’s Chairman,
through a holding company controlled by him, RCl Holdings ltd. these fees were for consulting services that were contracted
after his retirement as a Gemini employee on August 31, 2010.
19. Commitments
the Corporation is committed to the following minimum lease payments related to operating leases for premises, vehicles
and office equipment:
2011 $ 2,255,994
2012 1,748,023
2013 1,618,117
2014 1,488,498
2015 1,582,433
thereafter 6,406,004
$ 15,099,069
desiGn-build-maintain experienced Capability
Notes to the Consolidated Financial Statements
43
20. Segmented Information
the Corporation has two reportable segments based upon the markets they supply: Field Solutions and engineered
gemini corporation
Solutions. Field Solutions services a variety of clients in various industry sectors through the delivery of construction, fabrication
and maintenance services. engineered Solutions provides engineering, procurement and construction management services
to a similar client base.
engineered Solutions Field Solutions Corporate Consolidated
($000s of dollars) 2010 2009 2010 2009 2010 2009 2010 2009
Gross Revenues $ 17,783 $ 22,595 $ 55,091 $ 52,319 $ 8 $ – $ 72,882 $ 74,914
2010 AnnuAl RepoRt
Inter-segment revenues (62) (4) 71 (2) (9) – – (6)
net Revenues 17,721 22,591 55,162 52,317 (1) – 72,882 74,908
Gross profit 6,569 8,742 7,256 6,069 8 – 13,833 14,811
General and administration 7,079 6,851 7,057 7,417 (670) (739) 13,466 13,528
Depreciation and amortization – – – – 980 1,103 980 1,103
Interest 60 123 140 215 71 (114) 271 224
earnings (loss) before income taxes (570) 1,769 59 (1,563) (373) (250) (884) (44)
Income taxes (recovery) (155) 528 159 (448) (4) 3 0 83
net earnings (loss) $ (415) $ 1,241 $ (100) $ (1,115) $ (369) $ (253) $ (884) $ (127)
Segment assets excluding goodwill $ 3,644 $ 5,101 $ 12,513 $ 20,173 $ 5,470 $ 6,428 $ 21,627 $ 31,702
Goodwill $ 320 $ 320 $ 851 $ 851 $ – $ – $ 1,171 $ 1,171
Capital expenditures $ – $ – $ – $ – $ 378 $ 754 $ 378 $ 754
Approximately 81% of the Corporation’s revenues were earned through services provided to eight clients (December 31, 2009 –
72% from eight clients). there were two clients each accounting for more than 10% of revenues and comprising 54% of the 2010
revenues overall.
21. Comparative Information
Certain comparative figures have been reclassified to conform to the current year’s presentation.
experienced Capability desiGn-build-maintain
Board of Directors
44
nolan blades 1, 2 Carl Johnson 2
President, Sunny Gables Holdings Ltd. Chairman
Calgary, Alberta Gemini Corporation
gemini corporation
Calgary, Alberta
nolan Blades is the president of Sunny Gables Holdings ltd., a private
investment company. Mr. Blades was president, Ceo and a Director Carl Johnson founded Gemini engineering ltd., a predecessor
of pursuit Resources limited from 1993 to 2000, prior to which he company to Gemini Corporation, in 1982 and retired in 2010.
held senior executive positions with Chauvco Resources limited and He has over 35 years experience in engineering, design, and
oakwood petroleum limited. He is currently a director of Freehold project management services for various types of production
Royalties ltd. Mr. Blades holds a Bachelor of Science degree facilities. Mr. Johnson holds a Bachelor of Science degree in
in Mechanical engineering. He was appointed as a director of Chemical engineering from the university of Calgary and is
Gemini Corporation in 2001. a professional engineer. He was appointed as a director of
2010 AnnuAl RepoRt
Gemini Corporation in 1999.
Jim Crittall 2, 3
Retired Oil Services Executive doug lautermilch
Calgary, Alberta President, CEO and Director
Gemini Corporation
Jim Crittall is a retired oil and gas industry executive and was
Calgary, Alberta
president of natco Canada ltd., a manufacturer of oil and gas
Doug lautermilch brings to Gemini over thirty years experience in
production and process equipment, from 1996 to 2005. over
both engineering and Field Services businesses. this experience
his 35 year career with natco, he held various senior management
over the last ten years was as a member of the executive
positions, gaining valuable experience and insight into manufacturing
management teams, as president and Ceo and a director of private
and engineering for oil and gas applications. Mr. Crittall holds an
and public companies. Mr. lautermilch holds a Bachelor of Science
engineering technology Diploma from the Saskatchewan Institute
degree in engineering from the university of Calgary and an MBA
of technology. He was appointed as a director of Gemini Corporation
from Queen’s university. He was appointed president and Chief
in 2008.
executive officer and a Director of Gemini Corporation in 2009.
Ronald dooley 1, 3
Director and Principal, H&E Projects Ltd. Carl smith 1, 3
Calgary, Alberta Financial Consultant
Calgary, Alberta
Ron Dooley is a retired executive with over 30 years of experience
Carl Smith has had a distinguished career spanning 38 years with
in senior management roles in the Canadian oil and gas industry
a major Canadian chartered bank. At the time of his retirement in
and with a Canadian chartered bank. He is currently a director of a
1988, Mr. Smith was Senior Vice-president of the Calgary Corporate
number of private corporations associated with the energy industry.
Banking Division. As an Honorary Chartered Accountant, he has
Mr. Dooley holds a Bachelor of Science degree in engineering
held appointments by the province of Alberta as a public Member,
from the university of Alberta and an MBA from the university
both on Council and the Discipline and Appeals tribunal for the
of Western ontario. He was appointed as a director of Gemini
Institute of Chartered Accountants of Alberta. During the past
Corporation in 2005.
20 years, Mr. Smith has also been a Director of a number of
terry Gomke public and private companies. He was appointed as a director
Director, Maxfield Inc. of Gemini Corporation in 2001.
Calgary, Alberta
terry Gomke is a retired oil and gas industry executive with more
1
than 38 years of experience. He has held increasingly senior positions Member of the Audit Committee
2
over the course of his career, primarily in the service sector, with Member of the Compensation Committee
the past 14 years spent as president and Ceo of Gibson energy ltd. 3
Member of the Governance Committee
Mr. Gomke’s background and experience benefits the Corporation
with respect to its growth strategy and the initiatives underway to
further penetrate the energy sector. He was appointed as a director
of Gemini Corporation in 2010.
desiGn-build-maintain experienced Capability
Corporate Information
45
board of directors executive Officers locations
nolan Blades Doug lautermilch head office
gemini corporation
President President and CEO 400, 839 – 5 Avenue SW
Sunny Gables Holdings Ltd. Calgary, Alberta t2p 3C8
Calgary, Alberta
Robert Brookwell
Executive Vice President and CFO phone: 403-255-2916
Jim Crittall Fax: 403-640-0401
Michael ostapiw
Retired Oil Services Executive www.geminicorp.ca
Vice President, Field Solutions
Calgary, Alberta
Paul Blaha Dawson Creek office
Ron Dooley
Director and Principal
Vice President, Engineered Solutions 825 – 103 Avenue
H&E Projects Ltd. Rod facey Dawson Creek, British Columbia V1G 2G2
2010 AnnuAl RepoRt
Calgary, Alberta Vice President, Technology Solutions phone: 250-782-7114
terry Gomke Glen Roberts Sherwood Park office
Director Vice President, Corporate Development
#101, 117 pembina Road
Maxfield Inc.
Calgary, Alberta Sherwood park, Alberta t8H 0J4
auditors
phone: 780-416-1112
Carl Johnson KpMG llp
Chairman 2700, 205 – 5 Avenue SW Ponoka facility
Gemini Corporation
Calgary, Alberta t2p 4B9 ponoka Industrial park
Calgary, Alberta
4100 – 67 Street
Doug lautermilch bankers
ponoka, Alberta t4J 1J8
President and CEO Bank of Montreal phone: 403-783-3365
Gemini Corporation
950, 350 – 7 Avenue SW
Calgary, Alberta fort Saskatchewan facility
Calgary, Alberta t2p 3n9
Carl Smith 11232 – 87 Avenue
Financial Consultant legal Counsel Fort Saskatchewan, Alberta t8l 2S4
Calgary, Alberta Gowling lafleur Henderson llp phone: 780-998-5460
1400, 700 – 2 Street SW
Calgary, Alberta t2p 4V5 annual meeting
Registrar and transfer agent the Annual and Special Meeting of the
Shareholders of Gemini Corporation will be
Computershare trust Company of Canada
held at the Metropolitan Conference Centre,
710, 530 – 8 Avenue SW
333 – 4 Avenue SW, Calgary, Alberta, on
Calgary, Alberta t2p 3S8
May 26, 2011 at 10:30 a.m. (Calgary time).
stock exchange listing Shareholders are encouraged to attend.
tSX Venture exchange: GKX those unable to attend are requested to
complete and submit the proxy Form to the
Corporation’s registrar and transfer Agent,
Computershare trust Company of Canada.
experienced Capability desiGn-build-maintain
Gemini Corporation
400, 839 – 5 Avenue SW
Calgary, Alberta t2p 3C8
phone: 403-255-2916
Fax: 403-640-0401
www.geminicorp.ca
