Diversification Helps HSE Maintain 81% of Revenue in Challenging First Quarter 2009 Business Environment



    CALGARY, May 12 /CNW/ - HSE Integrated Ltd. ("HSE", "Our", "We", or the
"Company") today announced its financial results for the first quarter of the
2009 fiscal year ended March 31, 2009.
    Total revenue for the quarter declined 18.7% to $22.4 million from $27.6
million for the same period in the 2008 fiscal year. This had a very negative
impact on operating margin which declined 60.3% to $2.0 million (8.9% of
revenue) from $5.0 million (18.2% of revenue) in the prior year. Sales,
general and administrative expenses ("SG&A") declined 7.4% to $2.2 million
from $2.4 million. HSE reports a loss for the quarter of $1.8 million (a loss
of $0.05 per share) compared to $0.0 in the first quarter of 2008 ($0.00 per
share). EBITDA declined EBITDA declined from $2.6 million in Q1 2008 to ($0.2)
million in Q1 2009.
    All of the revenue decline took place in the Oilfield portion of the
Company's activities, the segment of the business related to health and safety
services for conventional oil and gas exploration, drilling, completion and
workover activities. Because of the collapse in crude oil and natural gas
prices and the global credit crisis that took place in the latter half of
2008, HSE's client E&P companies drastically reduced capital and operating
expenditures in the first quarter. Therefore, Oilfield revenues declined 35.7%
to $10.3 million in Q1 2009 from $16.0 million in the prior year.
    Industrial health and safety revenues, however, increased on a
year-over-year basis by 4.6% to $12.1 million from $11.6 million last year. In
the past four years HSE has aggressively expanded revenues beyond conventional
oil and gas to include oilsands, refining, petrochemicals, manufacturing,
utilities, mining, offshore oil and gas, power generation and food and
beverage. While none of these sectors are immune to the economic downturn, the
Company's industrial and geographic diversification has created a situation
where growth in stronger markets exceeded the decline in those negatively
impacted by the recession.
    The Company's balance sheet remained strong. At March 31, 2009, working
capital was $19.5 million compared to $20.5 million at December 31, 2008 and
$19.9 million at March 31, 2008. Long term bank debt remained unchanged from
year end at $10.8 million and there was no draw on the operating line of
credit. HSE had $1.1 million in cash on hand at March 31, 2009 compared to a
draw on the operating facility of $4.1 million on March 31 of the prior year.
    In response to the downturn in revenues and the economy, by mid-January
HSE began a significant cost-reduction initiative to bring fixed and variable
costs in line with reduced business levels. This included layoffs, job
reclassifications, temporary pay cuts, unpaid leave, and a reduction of all
non-essential expenses such as advertising, travel, and in-person staff
meetings. On May 1, 2009, a significant change in the field technician pay
structure was implemented for western Canada. Going forward, it is expected
that the cumulative impact of these initiatives will significantly reduce the
total revenue level at which HSE can generate a positive cashflow in the
current economic environment. During the period HSE incurred $282,000 in
one-time severance costs.
    For the first quarter the results of HSE's new U.S. operation, Boots &
Coots HSE Services LLC ("BCHSE"), were included in the consolidated financial
results. BCHSE did not generate a positive cashflow in the first quarter.
However, the customer response is encouraging and the long-term outlook for
BCHSE remains positive. BCHSE is participating in the same corporate
cost-reduction initiatives as the Company has initiated in Canada.
    David Yager, Chairman and CEO, offered the following comments for HSE's
first quarter 2009 financial results:
    "In an extremely difficult business environment, HSE is doing what it
must to manage costs in a period of very low demand for Oilfield health and
safety services. We entered the year with the belief that the winter drilling
season would at least to some degree track historic levels. However, by
mid-January it became apparent that client capital spending reductions would
be greater than anticipated, and therefore we began an aggressive cost cutting
program. HSE believes that the severe downturn in conventional oil and gas
exploration, drilling, completion and workover services is temporary. HSE is
committed to this sector and its clients, and therefore has taken the
necessary steps to be an important player in this industry when demand for its
services recovers.
    Demand for Industrial health and safety services is mixed. Some sectors
such as mining, steel and auto manufacturing are struggling resulting in
reduced business for HSE. Others such as oilsands, east coast offshore and
nuclear power remain stable and are growing. Assisted by new clients and new
markets, growth in selective Industrial health and safety exceeded declines in
others, resulting in a year-over-year growth in revenue. Some client plant
repair and maintenance activities that require health and safety services have
been postponed as operators conserve cash. Whether or not HSE can increase
total Industrial revenues for the fifth straight year is unknown at this time,
but the Company does have growth opportunities in the current business
environment.
    The significant EBITDA and earnings decline is attributable to the higher
margin Oilfield revenue decline and one-time charges incurred during the
quarter.
    Going forward, HSE is becoming cautiously optimistic that the worst is
over in terms of clients cutting capital and operational spending. Oil prices
have increased significantly from late 2008 and have stabilized above $50 a
barrel. The introduction of oil and gas activity stimulus programs in Alberta
and reduced drilling and service costs have increased the number of prospects
that are economically viable at current commodity prices. Some capital
projects, particularly in Atlantic Canada and the oilsands, are proceeding.
New clients are being developed regularly because the total need for quality
industrial health and safety services and expertise in all markets is
substantially greater than HSE's current market penetration.
    The contribution by our staff has been extraordinary. The largest element
of our cost cuts has been in all components of labor. Management and the Board
of Directors recognize the company-wide sacrifice our team is making to get
through this difficult period, and remains committed to ensuring that HSE
emerges from the downturn as a challenging, exciting and rewarding career
opportunity".
    For further information and analysis please see the attached Management
Discussion and Analysis and Financial Statements.

    CONFERENCE CALL

    HSE will be hosting a conference to discuss their results at 11 AM
(Eastern Daylight Time), 9 AM (Mountain Daylight Time) on Wednesday May 13,
2009.

    Dial-In Number: 1-800-814-4862 or 1-416-644-3433

    Conference Replay until June 13, 2009: 1-416-640-1917 or 1-877-289-8525
(Passcode: 21305784 followed by the pound sign)

    Webcast:
    http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2664640

    ANNUAL GENERAL MEETING

    HSE's Annual General Meeting of Shareholders will be held in the Cardium
Room at the Petroleum Club in Calgary, 319- 5th Ave. S.W., at 3 PM on Friday
May 15, 2009.
    HSE is an integrated, national supplier of industrial Health, Safety and
Environmental services. From its head office in Calgary, Alberta, it serves
its clients from field service locations in Alberta, British Columbia,
Saskatchewan, Ontario, Nova Scotia, New Brunswick, Newfoundland-Labrador and
Michigan. HSE also operates in Midland, Texas, through a jointly owned company
called Boots & Coots HSE Services LLC. HSE trades on the TSX under the symbol
"HSL".

    Forward Looking Statements

    This news release contains forward-looking information and statements
(collectively "forward-looking statements") within the meaning of applicable
securities laws concerning, among other things, the Company's prospects,
expected revenues, expenses, profits, financial position, strategic direction,
and growth initiatives, all of which are subject to risks, uncertainties and
assumptions. These forward-looking statements are identified by their use of
terms and phrases such as expect, anticipate, estimate, believe, may, will,
would, could, might, intend, plan, continue, ongoing, project, objective and
other similar terms and phrases. These forward-looking statements are based on
certain assumptions and analyses made by the Company based on its experience
and assessment of current conditions, known trends, expected future
developments and other factors it believes are appropriate under the
circumstances. Such forward-looking statements are subject to inherent risks
and uncertainties. There is significant risk that the forward-looking
statements will not prove to be accurate. Readers are cautioned not to place
undue reliance on forward-looking statements as a number of factors could
cause actual future results and events to differ materially from that
expressed in the forward-looking statements. Accordingly this news release is
subject to the disclaimer and qualified by the assumptions and risk factors
referred to in the Management Discussion and Analysis in the 2009 first
quarter report, in the 2008 annual report, and in other filings with
securities commissions in Canada as reported in the Company's profile at
www.sedar.com. Any forward-looking statements in this news release speak only
as of the date of this news release. Except as required by law, the Company
disclaims any intention to update or revise any forward-looking statements to
reflect new events or circumstances.

    Non GAAP Measures

    This report makes reference to EBITDA, a measure that is not recognized
under generally accepted accounting principles (GAAP). Management believes
that, in addition to net earnings, EBITDA is a useful supplementary measure.
EBITDA provides investors with an indication of earnings before provisions for
interest, taxes, amortization, gains or losses on the disposal of property and
equipment, foreign exchange gains or losses, and the non-cash effect of
stock-based compensation expense. Investors should be cautioned that EBITDA
should not be construed as an alternative to net earnings determined by GAAP
as an indication of the Company's performance. This method of calculating
EBITDA may differ from that of other companies and accordingly may not be
comparable to measures used by other companies.


    
    HSE Integrated Ltd.
    Management Discussion and Analysis ("MD&A")
    For the three month periods ended March 31, 2009 and 2008
    

    The following management discussion and analysis is dated May 12, 2009,
and is a review of the financial results of HSE Integrated Ltd. ("HSE", "We",
"Our", or the "Company") for the three month periods ended March 31, 2009 and
2008. This MD&A should be read in conjunction with HSE's other documents filed
on SEDAR at www.sedar.com. Unless otherwise disclosed, the financial
information presented in this discussion has been prepared in accordance with
Canadian generally accepted accounting principles ("GAAP") and takes into
consideration information available to management up to May 12, 2009. Unless
otherwise stated, dollar figures presented are expressed in thousands of
Canadian dollars and per-share figures in dollars per weighted-average common
share. The following MD&A contains forward-looking information and statements.
We refer you to the end of the MD&A for the disclaimer on forward looking
statements.

    
    Selected Financial Information

    -------------------------------------------------------------------------
                               Quarter ended   Quarter ended  Year-over-year
                              March 31, 2009  March 31, 2008        % change
    -------------------------------------------------------------------------
    Revenue                          $22,401         $27,569          -18.7%
    Operating and materials           20,410          22,552           -9.5%
    Operating margin                   1,991           5,017          -60.3%
    Operating margin %                  8.9%           18.2%
    Selling, general
     & administrative                 2,207           2,384            -7.4%
    Net loss                         (1,806)            (11)      -16,318.2%
    - per share basic                 (0.05)           (0.0)      -16,314.8%
    - per share diluted               (0.05)           (0.0)      -16,314.8%
    EBITDA (1)                         (216)          2,633          -108.2%
    EBITDA %                          (1.0%)            9.6%
    Total assets                     64,554          77,237           -16.4%
    Total long-term liabilities     $17,506         $21,670           -19.2%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See Non-GAAP Measures for (1)
    

    Financial Review

    Overview

    HSE operates in a single industry segment, industrial health and safety.
The Company provides a package of integrated asset, worker and community
safety protection services including: on-site safety supervision; gas
detection; fixed and mobile air quality monitoring; breathing equipment
rentals and services; fixed and mobile firefighting and fire protection
services and equipment; worker shower (decontamination) services; on-site
medical services; worker safety training; industrial hygiene services; and
safety management and consulting services.
    Total revenue for the quarter decreased 18.7% from $27,569 in 2008 to
$22,401 in 2009. Operating margin of $1,991 was 8.9% of revenues, down from
$5,017 or 18.2% in 2008. SG&A decreased to $2,207 from $2,384 in the prior
year, but as a percentage of revenue SG&A increased from 8.6% of revenue in
fiscal 2008 to 9.8% in 2009. HSE reported a loss of $1,806 or ($0.05) per
share compared to a loss of $11 or ($0.0) per share in the prior year. HSE
generated EBITDA of $(216) or (1.0%) of revenue in 2009, down 108.2% from
$2,633 or 9.6% of revenue in 2008.

    Revenue

    The Company currently provides services to customers in two main business
areas: Oilfield health and safety ("Oilfield") and Industrial health and
safety services ("Industrial"). Oilfield services are provided to customers
who operate within the conventional upstream, or "wellhead", sector of the oil
and gas industry. This includes oil and gas well exploration, drilling,
completion and workover operations. Industrial services are provided to
customers operating in a wide variety of other industries, including:
non-conventional upstream oil development and production (including oilsands
extraction); oil and gas processing and refining; petrochemicals; pulp and
paper; utilities; power generation; and diverse manufacturing industries. It
also includes worker safety training and safety management and consulting
services. The Company tracks billings to customers by defined revenue
grouping, but uses a common pool of equipment and manpower resources to
provide these services. Management services are provided from a common
personnel pool.

    
    The revenue for these revenue groups is shown below:

    -------------------------------------------------------------------------
                             Quarter   Quarter      Year   Quarter      Year
                               ended     ended      over     ended      over
                            March 31, March 31,   year %  March 31,   year %
                                2009      2008    change      2007    change
    -------------------------------------------------------------------------
    Oilfield                 $10,260   $15,961   (35.7)%   $19,799   (19.4)%
    Industrial                12,141    11,608      4.6%     8,149     42.4%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total Revenue            $22,401   $27,569   (18.7)%   $27,948    (1.4)%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    As a % of Revenue:
    Oilfield                   45.8%     57.9%               70.8%
    Industrial                 54.2%     42.1%               29.2%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total Revenue             100.0%    100.0%              100.0%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Oilfield
    --------
    

    Oilfield revenues in the year decreased by 35.7% in 2009 compared to
2008. The year-over-year decline is due to lower overall activity levels in
Western Canada in the first quarter of 2009 in the conventional upstream, or
"wellhead", sector of the oil and gas industry: oil and natural gas well
drilling, completion and workover (repair and maintenance) operations in the
Western Canadian Sedimentary Basin. Compared to the same period in the prior
year, this significant revenue decrease was caused by several negative
external events including lower oil prices, lower natural gas prices, reduced
access to debt and equity capital by Company clients, and the introduction of
increased Crown royalties in Alberta, a major market for HSE.
    Services provided in the Oilfield sector are primarily oriented towards
supporting the development of natural gas with a higher level of health and
safety protection required for the development of sour gas - reserves of
natural gas containing hydrogen sulphide - and crude oil containing sour gas.
Some oil reservoirs tend to go "sour" over time due to the injection of water
for secondary recovery, thus increasing the requirement for safety services.
The primary driver of revenue fluctuations in comparative reporting periods
relates to a major decline in all forms of conventional oilfield activity in
the markets served including drilling, new well completions, and well workover
activities.
    The overall depressed economic environment for the conventional oil and
gas industry has also put pressure on the prices HSE can charge its clients
for services provided. To compensate for vastly reduced commodity prices,
clients are seeking pricing relief for the input services including health and
safety. Therefore, HSE has been forced to adjust its pricing downward in order
to maintain clients and market share. In response, HSE has undertaken a series
of internal cost reduction measures to maintain an acceptable operating
margin. These initiatives will be discussed in detail under the discussion of
Operating Materials Expense and Selling General and Administrative Expense
below.
    In the first quarter of 2009, the Company's venture with Boots & Coots
International Well Control, Inc. - Boots & Coots HSE Services LLC ("BCHSE") -
generated its first ongoing revenues as the equipment and service offering was
expanded with the arrival of breathing air trailers and trailer-mounted
decontamination units in addition to the combination fire/shower units that
arrived in West Texas and Oklahoma in the fourth quarter of 2008. Service
locations were opened in Odessa, Texas and Oklahoma City. While total revenue
generated was modest, the Company is pleased with customer acceptance of the
equipment, service and branding in light of the significant oilfield activity
downturn that U.S. markets are also experiencing.

    
    Industrial
    ----------
    

    The Industrial health and safety services component of the Company's
total revenue continued to grow in the first quarter of 2009, however at a
much slower rate than in the past because of the negative effects of the
global recession and sharp reductions in commodity prices into virtually every
market and industry in which HSE operates.
    Industrial revenue increased $533 (4.6%) to $12,141 from $11,608 in the
same period in the prior year. Industrial health and safety services comprised
54.2% of total revenues, up from 42.1% in 2008. This is the first time that
Industrial revenues have exceeded Oilfield revenues in the first quarter of
the year. Without a significant recovery in Oilfield activity, Industrial
revenues will continue to be greater than Oilfield revenues.
    The year-over-year Industrial health and safety revenues generated varied
widely depending upon the service location. Central and southern Alberta
experienced minor declines, while revenue from oilsands operations in
Northeast Alberta increased slightly.
    Revenues in Ontario from locations in Sudbury, Sarnia, Windsor and
Hamilton were down about one-third, but revenue from Atlantic Canada rose by
73% compared to the same period in 2008.
    For the period ended March 31, 2009, the Company had one customer
representing more than 10% of revenue (2008 - none).  The Company had sales of
approximately $2.3 million to the customer during the quarter.

    Operating and Materials Expense and Operating Margin

    Operating and materials expense consists of costs directly attributable
to the delivery of health and safety services to customers. These include:
wages and benefits for field employees and contractors; equipment rentals and
leases; field service center property costs; transportation; fuel;
consumables; equipment repairs and maintenance; and field office
administration including field sales.
    Operating and materials expense for the quarter ended March 31, 2009
totaled $20,410 or 91.1% of revenue as compared to $22,552 or 81.8% of revenue
in 2008. Operating margin for the year declined from $5,017 (18.2% of revenue)
in the first quarter of 2008 to $1,991 (8.9% of revenue) in 2009.
    The decrease in operating margins is due to a number of factors. The
Company's fixed field service location operating costs were spread over a
significantly lower revenue base. Based on the strong performance of the
Company in the fourth quarter of 2008, HSE also entered the year overstaffed
relative to client demand which began to decline sharply early in the new
year. As well, BCHSE was still in the startup stage with expenses in advance
of revenue.
    However, by mid-January it became clear that the economic downturn in all
industries and markets was going to be far more severe than management
anticipated. Therefore, at the end of January a series of cost reduction
measures were implemented, the full impact of which will not be in place until
May of 2009. These include layoffs of approximately 10% of full-time staff,
salary reductions for all non-field employees in Western Canada of 5%, salary
reductions from 10% to 20% for management and executives, a company-wide
hiring freeze without executive approval, and a series of operating costs
reductions involving travel, advertising and entertainment expenses. These
cost reductions also applied to operations in the United States. During the
period, the Company incurred severance costs of $282 associated with the
foregoing. The last element of the operating cost reduction is a switch of
field service personnel from a monthly base salary and daily job bonus to an
hourly pay basis. This will directly link field service personnel expense to
revenue for the first time. Management anticipates that, based on its
historical revenue mix, these cost reductions, once fully realized, should
reduce the average monthly revenue required to achieve break even EBITDA to
approximately $6.0 to $6.5 million per month.
    Included in operating expenses is an addition to the provision for
doubtful accounts of $95 to reflect increased collection risks as a result of
the deterioration in the general business environment. The allowance for
doubtful accounts receivable was $1,490 (6% of trade accounts receivable) at
the end of the quarter.

    Selling, General and Administrative Expense

    Selling, general and administrative ("SG&A") expense consists of costs
not directly attributable to the delivery of services to customers. These
include costs generally associated with the following: corporate head-office
functions and services; administrative personnel; corporate sales and
marketing costs; liability insurance; professional fees; and investor
relations expenses.
    SG&A for the quarter totaled $2,207 (9.8% of revenue), down from $2,384
(8.6% of revenue) in the prior year. Personnel costs declined as staff numbers
declined year-over-year and the impact of salary reductions on March 1, 2009
came into effect. Temporary staff hired in 2008 as part of various accounting
system conversions were no longer needed in 2009. Travel and advertising costs
declined as part of a company-wide initiative to reduce all costs in response
to reduced operating levels. Offsetting the SG&A cost reductions achieved by
the foregoing was the inclusion of expenses related to BCHSE for the first
time in 2009.

    EBITDA and Net Loss

    EBITDA (see "Non-GAAP Measures") in the quarter decreased from $2,633 in
the first quarter of 2008 to ($216) in the current quarter. The EBITDA
decrease was primarily because of significant revenue declines in the Oilfield
business area. However, operating expenses and SG&A, which include a
significant fixed cost component, did not decline in proportion. As well,
severance costs from staff reductions in the first quarter of 2009 further
reduced EBITDA.
    Total amortization for the quarter was $1,739, down from $2,125 in 2008.
Property and equipment amortization declined compared to the prior year at
$1,611 (down from $1,868) as the Company controlled the pace of capital
additions during 2008 and the first quarter of 2009. Intangible assets
amortization declined to $128 from $257 in 2008 as certain amortization
periods expired during 2008, particularly for non-competition provisions.
    Stock-based compensation for the quarter was $50 (2008 - $135). The
decrease is primarily due to a reduction in the number of outstanding unvested
options.
    Interest on long term debt and other interest and bank charges decreased
from $297 in 2008 to $149 in 2009. Interest on the Company's variable rate
bank debt decreased as interest rates dropped. On average, the Company's
average borrowing rate was approximately 3.7% lower in the first quarter of
2009 than in the equivalent quarter in 2008. This saved the company
approximately $100 in interest charges. As well, the Company had significantly
lower levels of overall debt throughout the current quarter than it had in the
first quarter of 2008. Capital lease obligations at March 31, 2009 were $1,514
lower than at March 31, 2008. Long-term debt was reduced by $3,459 compared to
March 31, 2008. As well, the Company had a net cash position in 2009 versus an
operating line draw totaling $4,149 at the end of the first quarter of 2008.
    For the first quarter of 2009, the loss on disposal of property and
equipment was $93 with proceeds on sale of $209. Partially offsetting the loss
is the amortization of a deferred gain on sale / leaseback of assets as
discussed in the 2008 annual MD&A. The remainder of asset divestitures
consisted of retirement of vehicles replaced through the Company's fleet
management program.
    HSE had a $440 income tax recovery for the quarter versus an income tax
expense of $89 for 2008. The change can be attributed primarily to a decrease
in taxable income in the year.
    Net loss for the quarter was $1,806 or $(0.05) per share versus a loss of
$11 or ($0.0) per share in 2008. The year-over-year decline was primarily due
to the decrease in EBITDA as described above.

    Liquidity and Capital Resources

    The Company's principal sources of capital are cash flows from
operations, borrowings under an established credit facility with its senior
lender and equity financing.
    The Company, through the conduct of its operations, has undertaken
certain contractual obligations as noted in the following table:

    
    -------------------------------------------------------------------------
    Years ended December 31,    2009    2010    2011    2012    2013   Total
    -------------------------------------------------------------------------
    Capital lease
     obligations             $   633     265     111       5       - $ 1,014
    Vehicle operating leases   1,824   2,349   1,621     433       6   6,233
    Property & other leases    2,203   2,339   1,483   1,011     695   7,731
    Long-term debt                55  10,854     818       -       -  11,727
    -------------------------------------------------------------------------
    Total contractual
     obligations             $ 4,715  15,807   4,033   1,449     701 $26,705
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Liquidity

    In the quarter ended June 30, 2007, HSE entered into an agreement with
its current lender (a Canadian Chartered Bank) for credit facilities that
provide the Company with increased financial flexibility to pursue strategic
opportunities as they arise. The credit facilities include a $25 million
three-year interest-only revolving facility and a $7.5 million operating
facility. The revolving facility may be drawn upon by way of Canadian dollar
prime based loans, US dollar base rate based loans, bankers' acceptances,
LIBOR loans or letters of credit.
    Depending upon the ratio of HSE's consolidated senior debt to 12-month
trailing EBITDA (as defined in the agreement), the facilities bear interest at
the bank's prime rate (or U.S. base rate) plus a margin varying between 0.25%
and 1.50%, or at bankers' acceptance rates with a stamping fee of 1.75% to
3.00%. An additional standby fee ranging from 0.35% to 0.65% per annum is also
required on any unused portion of the credit facilities. Based on the results
to March 31, 2009, the margin on the Company's bankers' acceptance based debt
for the second quarter of 2009 is 2.50%.
    The revolving facility matures on June 25, 2010, with an ability to
extend the term at the lender's option. The operating facility is renewable
annually and is margined to accounts receivable. The credit facilities are
collateralized under a general security agreement. They are also subject to a
senior debt to EBITDA ratio covenant, a current ratio covenant, an interest
coverage covenant, and various positive and negative covenants that are
typical for this type of facility. At March 31, 2009, the Company was in
compliance with all of these covenants. However, there is a risk that,
depending on levels of activity, the Company may fail to comply with its debt
covenants within the next twelve month period. Anticipating a continuation of
the challenging business environment for Oilfield health and safety services
for the remainder of 2009 and possibly 2010, the Company approached its
secured lender in the first quarter to discuss modifying its bank credit
facility. Based on the Company's substanial current and fixed assets relative
to total debt the lender has proposed amending the facility. Discussions are
underway and expected to be completed prior to June 30, 2009.
    At the end of the first quarter, the draw against the revolving facility
was $10,829, and there was no draw against the operating facility. At March 31
the Company had cash on hand of $1,061.

    Cash Provided by (Used in) Operations

    Cash provided by operations in the quarter was $581 in 2009 compared to
($2,623) for 2008. Reduced revenue levels in the quarter resulted in negative
EBITDA and break-even operating cash flow excluding changes in working
capital. However, collections of accounts receivable improved significantly
when compared to 2008 as transition issues with the implementation of a new
billing system effective January 1, 2008 delayed cash collections during the
first quarter of 2008.

    Cash Provided by (Used in) Financing and Investing

    During the quarter, the Company had no need to draw on its operating
line. The Company also made scheduled debt reductions of $388 towards capital
lease and other long term debt obligations.
    Purchases of property and equipment for the year amounted to $464, the
majority of which was revenue generating health safety services rental
equipment. Proceeds from disposal of property and equipment were $209.

    Working Capital

    At March 31, 2009, the Company had working capital (not including current
portion of long-term debt obligations) of $19,519. This compares to $20,514 on
December 31, 2008 and $19,902 at March 31, 2008. The change from December 31,
2008 relates to changes in non-cash working capital as collections of
receivables during the quarter were partially offset by reductions in payables
and accruals. The change from the balance at the end of the first quarter of
2008 related to improved cash position offset by reductions in non-cash
working capital, particularly accounts receivable. The Company's cash position
improved from a draw of $4,149 at the end of the first quarter 2008 to cash on
hand of $1,061 in 2009.

    Outlook

    In the last half of the 2008 fiscal year, the world economy entered a
period of unprecedented financial turmoil resulting in recessionary business
conditions in most markets in which the Company operates. In addition,
commodity prices that determine the financial health of many of HSE's main
clients (petroleum, natural gas, minerals, wood products, pulp and paper)
declined sharply.
    Although these negative economic changes took place in 2008, the full
impact did not become material to HSE until the first quarter of 2009. Early
in January it became apparent that the recession in 2009 was going to be
deeper than management and many experts and analysts had predicted. The result
was the abrupt shutdown of major capital projects and industrial facilities
ranging from partially constructed oilsands plants to nickel mines to steel
mills to automobile assembly plants. For the oilfield service sector in
western Canada, the active drilling rig count peaked in the third week of
January then began to decline steadily resulting in the lowest drilling rig
utilization and number of wells drilled in this century.

    Oilfield

    Drilling, completion and workover activity in Canada declined sharply in
the fourth quarter of 2008 and the first quarter of 2009. The current outlook
for new wells drilled in Canada in 2009 by the Canadian Association of Oilwell
Drilling Contractors ("CAODC") released on February 20, 2009 forecasts a total
of only 11,176 wells being drilled this year. This is half the levels of
drilling activity experienced in 2006 and the lowest level of wells drilling
since 1993. Since this forecast was released in February, the price of oil has
held relatively stable but the price of natural gas has continued to decline.
HSE will approach the remainder of 2009 with extreme caution and the view that
the February CAODC forecast may be optimistic.
    A similar, though not as dramatic, downturn has taken place in the United
States. While this doesn't directly affect the activities of BCHSE because
capacity is so limited relative to total market opportunity, the focus on cost
cutting does make the introduction of new services like worker and asset
protection more difficult. Client recognition of the Boots & Coots brand as a
credible supplier of safety services is positive. However, the timing of
introducing a new service that increases costs in any way is challenging.
    In response to the foregoing, HSE has undertaken every meaningful cost
reduction strategy it can while still maintaining the core technical staff and
delivery capability required to remain in the business and service clients
when activity improves.
    Effective April 1, 2009, the government of Alberta introduced drilling
activity royalty credits and a one-year reduced royalty period that expires
March 31, 2010. The purpose was to spur drilling activity and employment. The
two elements of the program significantly improve the economics of
conventional oil and gas exploration and development drilling. Reduced
drilling and service costs have also improved investment economics. However,
because of continued tight equity and debt markets, the only companies that
can take full advantage of the stimulus are companies with strong balance
sheets and/or discretionary internal cashflow. Because of depressed share
prices, an attractive way to replace reserves for E&P companies is through
acquisition, not drilling. This redirection of capital to acquisitions from
drilling and production will further impair the Company's opportunities to
provide health and safety services.
    Saskatchewan and British Columbia have not been spared the effects of the
downturn. The price of oil was down to $US 33 a barrel in early December. This
resulted in an activity downturn in the first quarter in the Bakken light oil
play in southeast Saskatchewan. With oil seemingly stable in the $US 50 a
barrel range in the past month, plus the Canadian dollar declining to the US$
0.80 range, the economics of continued development of this play have improved.
This appears promising for HSE's Weyburn location. Activity in British
Columbia is heavily weighted towards natural gas. While the Montney and Horn
River shale gas plays continue to look geologically promising, it is unlikely
that activity in northeast B.C. will be robust until gas prices improve.
    While some HSE clients have indicated their intention to take advantage
of the improved economics and start drilling when weather permits in late May
or June, the outlook for the second and third quarters of the current fiscal
year for Oilfield health and safety services is not encouraging. The Company
will focus on maximizing opportunities with active customers and on cost
control measures until business improves.

    Industrial

    The outlook for the Company's Industrial health and safety services
varies significantly because of the variety of markets and industries in which
HSE operates.
    Oilsands remains promising for several reasons. While the cancellation or
postponement of major capital projects - some partly constructed - for
oilsands extraction and heavy oil upgrading is well known, there are positive
developments. Overall synthetic heavy oil producing is rising because two
major projects that have been under construction for four years - CNRL Horizon
and OPTI-Nexen Long Lake - have come on stream. The Company continues to
market aggressively to major producers. As a result, HSE believes it can
continue to expand its presence and revenues from the oilsands regions of
northeast Alberta on the production side, regardless of the sharp reduction in
capital projects. Lower oil prices have focused oilsands developers on costs.
Outsourcing all or more of essential health and safety services can yield
cost-savings without compromising worker or asset protection.
    Other Industrial safety work in western Canada - primarily plant shutdown
and turnaround services - has declined in 2009 as facility operators conserve
cash and push these necessary maintenance and repair expenditures into the
future. While regulators will permit some delays, much of this work can only
be pushed out one year. In the past two years, HSE has established itself as a
major player in this market. However, HSE received notification that some of
the work that was scheduled for the second quarter of 2009 has been postponed.
Further, very competitive pricing has emerged resulting in HSE losing some
work to competitors that it had previously secured. The Company's view is that
the competition's prices were so low in some cases that losing the work will
not damage HSE's short-term financial performance. Failure to perform by
competitors could also ensure HSE secures this work in the future.
    HSE's Ontario client base is diverse and is affected by the recession in
different ways. The shutdown of mines and steel plants because of low mineral
and product prices will have a negative impact on the Company, but the energy
processing plants such as refineries and petrochemical plants will continue to
operate and will require ongoing health and safety services. HSE's total
market presence in Ontario relative to the opportunity remains quite small.
While 2009 will be a challenging year, the future for this market remains
promising.
    The Atlantic region of Canada remains a bright spot for HSE in 2009. The
Company's new service location in St. John's, Newfoundland-Labrador ("NL")
will serve the offshore oil and gas industry and act as a regional base for
large industrial projects in industries like hydro-electric construction
projects, mining and mineral processing. To this end HSE has delivered medical
equipment and services to a mining project, and has secured a new client for
offshore drilling. Atlantic offshore projects are proceeding and HSE believes
it has the opportunity to participate in these projects.
    While HSE did increase total Industrial health and safety revenues in the
first quarter of 2009, the postponement or loss of plant shutdown and
turnaround contracts in western Canada in the second quarter will negatively
impact total revenues for the year. Whether or not HSE will enjoy Industrial
services revenue growth in 2009 after five consecutive years of expansion is
unknown at this time.

    Cost Control and Short-Term Outlook

    As a result of the precipitous decline in activity and revenues in most
markets in which HSE operates, early in the quarter the Company undertook a
major review of fixed and variable operating costs and implemented a series of
initiatives described above under Operating Expenses and SG&A. The Company is
confident that once these expense and operating costs reductions are fully
implemented, they will permit HSE to generate a positive cashflow at lower
revenue levels than prior years.
    Management believes it has taken all the prudent steps necessary to bring
operating expenses in line with revenue for the remainder of 2009 while still
maintaining the technical capability essential for quality service and
sufficient capacity to be able to fill the known order book and client demand.
However, should there be a sharp increase in client demand in the short term,
HSE will not have enough service personnel to respond quickly. Management
regards this as an appropriate trade-off for the current business environment.
    In the first quarter of 2009, HSE's diversified business model allowed
the Company to maintain 81.3% of revenues from the same period in 2008.
Considering the overall state of the economy, management regards this as
reasonably successful, a testament to the high value clients place on HSE's
services, and the determination of management and sales personnel to
continually reach into new markets and industries. At the present time and for
the business outlook as it appears today, management believes it has taken the
appropriate cost reduction initiatives to put expenses in line with revenue.
    That said, it would appear that the downward path of the economy has
stabilized in the sense that most major financial and commodity markets have
reached or approached some sort of bottom. Combined with the opportunities for
growth described above that HSE has in several markets, the Company is
cautiously optimistic that it is stable in the current business environment,
has the financial strength to maintain its operations until business improves,
and has not impaired its ability to benefit from a recovery by cutting staff
too far or divesting major divisions or assets to stay in business.

    
    Quarterly Results
      -----------------------------------------------------------------------
                                    2009                 2008
      -----------------------------------------------------------------------
                                      Q1       Q4       Q3       Q2       Q1
      -----------------------------------------------------------------------
      Revenue                    $22,401  $29,905  $28,202  $28,087  $27,569
      Net earnings (loss)         (1,806)     431      396     (568)     (11)
      EBITDA (1)                    (216)   2,713    2,858    2,187    2,633
      -----------------------------------------------------------------------
      Income (loss) per share -
       basic and diluted           (0.05)   $0.01    $0.01   $(0.02)   $0.00
      -----------------------------------------------------------------------
      -----------------------------------------------------------------------

      -----------------------------------------------------
                                            2007
      -----------------------------------------------------
                                      Q4       Q3       Q2
      -----------------------------------------------------
      Revenue                    $26,464  $23,578  $19,352
      Net earnings (loss)         (9,173) (15,920)  (3,113)
      EBITDA (1)                   2,601    1,376   (1,790)
      -----------------------------------------------------
      Income (loss) per share -
       basic and diluted          $(0.25)  $(0.42)  $(0.08)
      -----------------------------------------------------
      -----------------------------------------------------
    See Non-GAAP Measures for (1)
    

    HSE's business has two offsetting seasonal components. Revenue for
Oilfield health and safety services is historically highest in first and
fourth quarters and lowest in the second quarter because this sector uses
equipment that can only access well locations during certain times of the year
and because of the effects of weather on field activity. Industrial revenue
includes a mix of year-round contracts and "turnarounds" - scheduled major
maintenance projects and repair activities on client facilities. These
turnarounds tend to be scheduled during the second and third quarters to avoid
the possibility of adverse effects from freezing weather. As a result,
Industrial revenue tends to be highest in the second and third quarters.


    
    Revenue by quarter for the last eight quarters is as follows
    -------------------------------------------------------------------------
                                    2009                 2008
    -------------------------------------------------------------------------
                                      Q1       Q4       Q3       Q2       Q1
    -------------------------------------------------------------------------
      Oilfield                   $10,260  $14,597  $12,039   $8,667  $15,961
      Industrial                  12,141   15,308   16,163   19,420   11,608
    -------------------------------------------------------------------------
      Total revenue              $22,401  $29,905  $28,202  $28,087  $27,569
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------
                                            2007
    -------------------------------------------------------
                                      Q4       Q3       Q2
    -------------------------------------------------------
      Oilfield                   $15,879  $11,722   $6,486
      Industrial                  10,585   11,856   12,866
    -------------------------------------------------------
      Total revenue              $26,464  $23,578  $19,352
    -------------------------------------------------------
    -------------------------------------------------------


    Related Party Transactions

    During the quarter, the Company had the following transactions with
related parties all of which are measured at exchange amounts, which
approximate an arm's-length equivalent at fair market value:

    -  During the first quarter of 2009, the Company paid rent for a regional
       office to a corporation related to a Director of the Company in the
       amount of $57 (2008 - $57)
    -  During the first quarter of 2009, the Company also paid rent of $74
       (2008 - $74) for a regional office to a corporation controlled by a
       Senior Manager of the Company.
    

    Critical Accounting Policies and Estimates

    HSE prepares its consolidated financial statements in accordance with
Canadian generally accepted accounting principles. In doing so, management is
required to make various estimates and judgments in determining the reported
amounts of assets, liabilities, revenues and expenses, as well as the
disclosure of commitments and contingencies. Management bases its estimates
and judgments on historical experience and on various other assumptions that
are believed to be reasonable under the circumstances. Estimates and
assumptions are reviewed periodically, and actual results may differ from
those estimates under different assumptions or conditions. Management must use
its judgment related to uncertainties in order to make these estimates and
assumptions.
    The accounting policies and estimates believed to require the most
difficult, subjective or complex judgments and which are material to the
Company's financial reporting results include: allowance for doubtful
accounts, impairment of long-lived assets, amortization of property and
equipment, and future income tax liabilities. A full description of the
methods for determining these accounting policies and estimates, as well as
the risks related to the possible effects of changes in these policies and
estimates, can be found in HSE's 2008 Annual Report.

    Accounting Pronouncements

    On January 1, 2009 the Company adopted the revised Canadian accounting
standards regarding Goodwill and Intangible Assets. These standards provide
guidance with respect to the recognition, measurement and disclosure of
goodwill and intangible assets. The provisions of the new standards relating
to the definition of intangible assets and their initial recognition have been
changed to coincide with those in the equivalent International Financial
Reporting Standard. This change had no effect on the Company's reported
results.

    International Financial Reporting Standards

    The CICA's Accounting Standards Board has confirmed that IFRS will be
adopted as Canadian GAAP for publicly accountable entities in Canada for
interim and annual financial statements relating to fiscal years beginning on
or after January 1, 2011. Therefore, the Company must be in a position to
report its results, including its comparative results for the 2010 fiscal
year, in accordance with IFRS beginning January 1, 2011.
    With the assistance of external consultants, the Company has started an
IFRS conversion project and is currently in the process of evaluating the
impact of the change to IFRS on the results of our operations, financial
position and disclosures. The Company expects to complete its assessment of
the major differences between existing Canadian GAAP and IFRS as they apply to
our particular circumstances, and to establish a project plan for the
conversion by the end of the second quarter of 2009.

    Financial and Other Instruments

    The Company's financial instruments include cash and cash equivalents,
accounts receivable, bank indebtedness, accounts payable and accrued
liabilities, income taxes payable, obligations under capital leases and
long-term debt. The carrying value of these instruments approximates their
fair value either because of their short maturities or because the interest
rates to which they are subject approximate market rates.

    The Company is exposed to the following risks as a result of its use of
financial instruments:
    
    -  credit risk
    -  liquidity risk
    -  market risk
    

    These risks, and the Company's method of mitigating the risks, are
described in the Management Discussion and Analysis included in the Company's
2008 Annual Report.

    Business Risks

    The activities the Company undertakes involve a number of risks and
uncertainties, some of which are: economic and market events including
disruptions in international credit markets and reductions in macroeconomic
activity; business cyclicality within the industries in which HSE's customers
operate; availability of qualified staff; competitive conditions including
pricing pressures; risks of customer credit default; deterioration in the
financial condition of financial institutions and insurance companies that HSE
deals with; availability of financing at competitive rates; changes in foreign
exchange rates and interest rates and litigation and contingencies. Additional
risks and uncertainties that the Company may be unaware of, or that were
determined to be immaterial may also become important factors that affect the
Company. A discussion of the business risks faced by the Company are included
in the Management Discussion and Analysis included in the Company's 2008
Annual Report.

    Internal Control Over Financial Reporting

    There have been no changes in the Company's internal control over
financial reporting during the quarter ended March 31, 2009 that have
materially affected, or are reasonably likely to materially affect, its
internal control over financial reporting.

    Common Shares Outstanding

    At May 12, 2009 and December 31, 2008 there were 37,575,675 common shares
of HSE outstanding. At March 31, 2009, the Company had options outstanding to
issue 2,447,831 shares at a weighted average exercise price of $1.88 per
share. Of these options, 1,452,145 were exercisable. At May 12, 2009, there
were 2,993,832 options outstanding at a weighted average exercise price of
$1.56 per share. Of these options, 1,529,816 were exercisable.

    Non-GAAP Measures

    This report makes reference to EBITDA, a measure that is not recognized
under generally accepted accounting principles. Management believes that, in
addition to net earnings, EBITDA is a useful supplementary measure. EBITDA
provides investors with an indication of earnings before provisions for
interest and bank charges, taxes, amortization, foreign exchange gains or
losses, gains or losses on the disposal of property and equipment and the
non-cash effect of stock-based compensation expense. Investors should be
cautioned that EBITDA should not be construed as an alternative to net
earnings determined by GAAP as an indication of the Company's performance.
HSE's method of calculating EBITDA may differ from that of other companies
and, accordingly, may not be comparable to measures used by other companies.

    EBITDA Calculation

    
    -------------------------------------------------------------------------
    For the quarters ended March 31                          2009       2008
    -------------------------------------------------------------------------
    Net loss                                              $(1,806)   $   (11)
    Add (deduct):
      Amortization                                          1,739      2,125
      Stock-based compensation                                 50        135
      Interest and bank charges                               149        297
      Foreign exchange gain                                    (1)        (2)
      Loss on disposal of property and equipment               93          -
      Income tax                                             (440)        89
    -------------------------------------------------------------------------
    EBITDA                                                $  (216)   $ 2,633
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Quarterly EBITDA Calculation

                                2009                      2008
    -------------------------------------------------------------------------
                                  Q1        Q4        Q3        Q2        Q1
    -------------------------------------------------------------------------
    Net earnings (loss)     $ (1,806) $    431  $    396  $   (568) $    (11)
    Add (deduct):
      Amortization             1,739     1,399     1,821     1,920     2,125
      Impairment of goodwill
       and intangible assets       -         -         -       100         -
      Stock-based
       compensation               50        95        23       155       135
      Interest and
       bank charges              149       200       288       331       297
      Foreign exchange
       loss (gain)                (1)      (35)        4         2        (2)
      Loss on disposal
       of property
       and equipment              93       193       129       326         -
      Income taxes              (440)      430       197       (79)       89
    -------------------------------------------------------------------------
    EBITDA                  $   (216) $  2,713  $  2,858  $  2,187  $  2,633
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                      2007
    -----------------------------------------------------
                                  Q4        Q3        Q2
    -----------------------------------------------------
    Net earnings (loss)     $ (9,173) $(15,920) $ (3,113)
    Add (deduct):
      Amortization             2,243     2,004     1,955
      Impairment of goodwill
       and intangible assets  10,505    15,000         -
      Stock-based
       compensation              255       186       333
      Interest and
       bank charges              311       309       302
      Foreign exchange
       loss (gain)                12        22         3
      Loss on disposal
       of property
       and equipment             103        99        30
      Income taxes            (1,655)     (324)   (1,300)
    -----------------------------------------------------
    EBITDA                  $  2,601  $  1,376  $ (1,790)
    -----------------------------------------------------
    -----------------------------------------------------
    


    Forward-Looking Statements

    Certain statements in this MD&A constitute forward-looking information
and statements (collectively "forward-looking statements") within the meaning
of applicable securities laws. These forward-looking statements concern, among
other things, the Company's prospects, expected revenues, expenses, profits,
financial position, strategic direction and growth initiatives, all of which
involve known and unknown risks, uncertainties and other factors which may
cause actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. When used in this
MD&A, such forward-looking statements use such words as expect, anticipate,
estimate, believe, may, will, would, could, might, intend, plan, continue,
ongoing, project, objective, should and other similar terms and phrases. This
forward-looking information reflects the Company's current expectations
regarding future events and operating performance based on assumptions and
analyses made by the Company based on its experience and an assessment of
current conditions, known trends, expected future developments and other
factors which management believe to be appropriate under the circumstances.
    The forward-looking statements contained in this MD&A reflect several
material factors, expectations and assumptions including, without limitation:
economic conditions within Canada and the United States, both in general and
within specific industries; demand for the Company's services by customers in
various industries and geographic locations; pricing levels for the Company's
services; commodity prices; foreign currency exchange rates; interest rates;
access to financing; the Company's future operating results and financial
condition; and competition within particular markets or for particular
services.
    Forward-looking statements involve significant risks and uncertainties
and should not be read as a guarantee of future performance or results, and
will not necessarily be an accurate indication of whether or not such results
will be achieved. A number of factors could cause actual results to differ
materially from the results discussed in the forward-looking statements
including, but not limited to, the factors discussed above and other risk
factors discussed herein and listed from time to time in the Company's reports
and public disclosure documents including its annual report, annual
information form and other filings with securities commissions in Canada as
reported under the Company's profile at www.sedar.com.
    The Company cautions that the foregoing list of assumptions, risks and
uncertainties is not exhaustive.  The forward-looking statements contained in
this MD&A speak only as of the date of this MD&A, and the Company assumes no
obligation to publicly update or revise them to reflect new events or
circumstances, except as may be required pursuant to applicable laws.

    Additional Information

    Additional information relating to HSE is available under our profile on
the SEDAR website at www.sedar.com and at www.hseintegrated.com.


    -------------------------------------------------------------------------
    HSE Integrated Ltd.
    Consolidated Balance Sheets

    March 31  December 31
    (Stated in thousands), (unaudited)                     2009         2008
    -------------------------------------------------------------------------
    ASSETS
    Current
    Cash and cash equivalents                     $     1,061  $     1,114
    Accounts receivable (note 4)                       23,452       25,740
    Inventory                                             233          222
    Prepaid expenses and other assets                   1,488        1,897
    -------------------------
    26,234       28,973

    Property and equipment                               34,660       36,173
    Intangible assets                                     3,660        3,788
    -------------------------

    $    64,554  $    68,934
    -------------------------
    -------------------------

    LIABILITIES
    Current
    Accounts payable and accrued liabilities      $     6,111  $     8,096
    Income taxes payable                                  604          363
    Current portion of obligations
    under capital lease (note 7)                         663          922
    Current portion of long-term debt (note 6)     `       63           98
    Current portion of deferred gain (note 12)            137          137
    -------------------------
    7,578        9,616

    Deferred gain (note 12)                                 421          455
    Obligations under capital lease (note 7)                277          370
    Long-term debt (note 6)                              11,626       11,628
    Future income taxes                                   4,865        5,278
    -------------------------
    24,767       27,347
    -------------------------

    SHAREHOLDERS' EQUITY
    Share capital (note 8)                             60,040       60,040
    Contributed surplus (note 9)                        4,607        4,559
    Deficit                                           (24,942)     (23,136)
    Accumulated other comprehensive income                 82          124
    -------------------------
    39,787       41,587
    -------------------------

    $    64,554  $    68,934
    -------------------------
    -------------------------

    Commitments and contingencies (notes 12 and 15)

    See accompanying notes to the consolidated financial statements.


    -------------------------------------------------------------------------
    HSE Integrated Ltd.
    Consolidated Statements of Loss

    Three month periods ended
    (Stated in thousands, except                       March 31     March 31
    per share amounts),(unaudited)                        2009         2008
    -------------------------------------------------------------------------
    REVENUE                                         $    22,401  $    27,569

    COSTS
    Operating and materials                            20,410       22,552
    Selling, general and administrative                 2,207        2,384
    Amortization of property and equipment              1,611        1,868
    Amortization of intangible assets                     128          257
    Stock-based compensation (notes 9 and 10)              50          135
    Interest on long-term debt                            131          267
    Other interest and bank charges                        18           30
    Foreign exchange loss (gain)                           (1)          (2)
    Loss on disposal of property and equipment             93            -
    -------------------------
    24,647       27,491
    -------------------------

    EARNINGS (LOSS) BEFORE INCOME TAX                    (2,246)          78
    -------------------------

    Income taxes
    Current provision                                       -          236
    Future reduction                                     (440)        (147)
    -------------------------
    (440)          89
    -------------------------

    NET LOSS                                        $    (1,806) $       (11)
    -------------------------
    -------------------------

    Loss per share
    Basic and diluted                             $     (0.05) $     (0.00)
    -------------------------
    -------------------------

    Weighted average shares outstanding
    Basic                                              37,576       37,568
    Diluted                                            37,576       37,568
    -------------------------
    -------------------------

    See accompanying notes to the consolidated financial statements.


    -------------------------------------------------------------------------
    HSE Integrated Ltd.
    Consolidated Statements of Other Comprehensive Loss

    Three month periods ended                          March 31     March 31
    (Stated in thousands),(unaudited)                     2009         2008
    -------------------------------------------------------------------------

    Net Loss                                        $    (1,806) $       (11)

    Other comprehensive loss
    Foreign currency loss on translating
    financial statements of self-sustaining
    foreign operations                                   (42)           -
    -------------------------

    Other comprehensive loss                        $    (1,848) $       (11)
    -------------------------
    -------------------------


    Consolidated Statements of Deficit and Accumulated Other
    Comprehensive Income

    Three month periods ended                          March 31     March 31
    (Stated in thousands),(unaudited)                     2009         2008
    -------------------------------------------------------------------------
    Deficit, beginning of period                    $   (23,136) $   (23,384)

    Net Loss                                             (1,806)         (11)

    -------------------------
    Deficit, end of period                          $   (24,942) $   (23,395)
    -------------------------
    -------------------------

    Accumulated other comprehensive income,
    beginning of period                            $       124  $         -
    Foreign currency loss on translating financial
    statements of self-sustaining operations               (42)           -
    -------------------------
    Accumulated other comprehensive income,
    end of period                                  $        82  $         -
    -------------------------
    -------------------------

    See accompanying notes to the consolidated financial statements.


    -------------------------------------------------------------------------
    HSE Integrated Ltd.
    Consolidated Statements of Cash Flows

    Three month periods ended                          March 31     March 31
    (Stated in thousands),(unaudited)                     2009         2008
    -------------------------------------------------------------------------
    Cash provided by (used in)

    Operations
    Net loss                                      $    (1,806) $       (11)
    Charges to income not involving cash:
    Amortization                                    1,739        2,125
    Stock-based compensation (notes 9 and 10)          50          135
    Future income tax reduction                      (440)        (147)
    Loss on disposal of property and equipment         93            -
    Change in non-cash working capital (note 13)          945       (4,725)
    -------------------------

    Cash provided by (used in) operations                   581       (2,623)
    -------------------------

    Financing
    Advances of operating line of credit                    -        3,711
    Repayment of bank indebtedness                          -         (178)
    Repayment of obligations under capital leases        (351)        (327)
    Repayment of long-term debt                           (37)         (63)
    -------------------------

    Cash provided by (used in) financing activities        (388)       3,143
    -------------------------

    Investing
    Purchase of property and equipment                   (464)        (520)
    Proceeds from disposal of property and
    equipment                                            209            -
    -------------------------

    Cash used in investing activities                      (255)        (520)
    -------------------------

    Cash flow from operating,
    financing and investing activities                     (62)           -
    Effect of exchange rate on cash and cash
    equivalents                                              9            -
    -------------------------

    Net decrease in cash and cash equivalents               (53)           -

    Cash and cash equivalents, beginning of period        1,114            -
    -------------------------

    Cash and cash equivalents, end of period        $     1,061  $         -
    -------------------------
    -------------------------

    See accompanying notes to the consolidated financial statements.


    -------------------------------------------------------------------------
    HSE Integrated Ltd.
    Notes to the consolidated financial statements

    (Unaudited)
    For the three month periods ended March 31, 2009 and 2008
    (Stated in thousands of dollars)
    -------------------------------------------------------------------------

    NOTE 1 - BASIS OF PRESENTATION

    These unaudited interim consolidated financial statements of HSE
    Integrated Ltd. ("HSE" or "the Company") have been prepared following the
    same accounting policies and methods of computation as the audited annual
    consolidated financial statements of the Company for the year ended
    December 31, 2008, except as outlined in note 2. The disclosures provided
    below are incremental to those included with the audited annual
    consolidated financial statements and certain disclosures which are
    normally required to be included in the notes to the annual consolidated
    financial statements have been condensed or omitted. These unaudited
    interim consolidated financial statements should be read in conjunction
    with the audited consolidated financial statements and notes for the
    Company for the year ended December 31, 2008.

    These unaudited interim consolidated financial statements include the
    accounts of the Company and its subsidiaries which, with the exception of
    Boots & Coots HSE Services LLC (see note 3), are wholly owned. Unless
    otherwise specified all amounts are stated in thousands of Canadian
    dollars except for per-share amounts, which are stated in dollars per
    weighted-average share.

    These consolidated financial statements have been prepared in accordance
    with Canadian generally accepted accounting principles ("GAAP"). In
    preparing these consolidated financial statements, management is required
    to make estimates and assumptions that affect reported amounts of assets
    and liabilities and disclosure of contingent assets and liabilities as at
    the date of the financial statements and the reported amounts of revenue
    and expenses during the reported period. Actual results could differ from
    these estimates.

    HSE's business has two offsetting seasonal components. Revenue for
    Oilfield health and safety services is historically highest in the first
    and fourth quarters and lowest in the second quarter because this sector
    uses equipment that can only access well locations during certain times
    of the year and because of the effects of weather on field activity.
    Industrial revenue includes a mix of year-round contracts and
    "turnarounds" - scheduled major maintenance projects and repair
    activities on client facilities. These turnarounds tend to be scheduled
    during the second and third quarters to avoid the possibility of adverse
    effects from freezing weather. As a result, Industrial revenue tends to
    be highest in the second and third quarters.

    -------------------------------------------------------------------------

    NOTE 2 - CHANGE IN ACCOUNTING POLICIES

    On January 1, 2009 the Company adopted the revised Canadian accounting
    standards regarding Goodwill and Intangible Assets. These standards
    provide guidance with respect to the recognition, measurement and
    disclosure of goodwill and intangible assets. The provisions of the new
    standards relating to the definition of intangible assets and their
    initial recognition have been changed to coincide with those in the
    equivalent International Financial Reporting Standard. This change had no
    effect on the Company's reported results.

    Accounting Standards pending adoption

    In February 2008, the Accounting Standards Board ("AcSB") confirmed the
    changeover to International Financial Reporting Standards (IFRS) from
    Canadian GAAP will be required for publicly accountable enterprises
    effective for interim and annual financial statements relating to fiscal
    years beginning on or after January 1, 2011. The AcSB issued an
    "omnibus" exposure draft of IFRS with comments due by July 31, 2008,
    wherein early adoption by Canadian entities is also permitted. The
    Canadian Securities Administrators ("CSA") has also issued Concept Paper
    52-402, which requested feedback on the early adoption of IFRS as well as
    the continued use of US GAAP by domestic issuers. In March 2009, the AcSB
    issued a second exposure draft regarding the adoption of IFRS. This
    exposure draft clarified the definition of publicly accountable
    enterprises, proposed to provide additional introductory material for the
    CICA Handbook as part of the adoption of IFRS, and updated the IFRS
    standards to be included in the CICA Handbook to include those standards
    which had changed since the initial omnibus exposure draft was issued.

    The eventual changeover to IFRS represents changes due to new accounting
    standards. The transition from current Canadian GAAP to IFRS is a
    significant undertaking that may materially affect the Company's reported
    financial position and results of operations.

    -------------------------------------------------------------------------

    NOTE 3 - UNITED STATES OPERATIONS

    On May 7, 2008 the Company incorporated new US-based subsidiaries to
    pursue the expansion of Oilfield safety services in the continental
    United States.  The Company owns 100% of the shares of HSE Integrated
    Inc. ("INC") a Delaware corporation which in turn owns a 90% interest in
    Boots & Coots HSE Services LLC ("BCHSE"), a Delaware Limited Liability
    Company. Boots & Coots International Well Control Inc. owns the
    remaining 10% of BCHSE. A non-controlling interest has not been recorded
    as BCHSE has accumulated losses.

    Activity in the first quarter focused on sales and marketing of BCHSE's
    suite of services to potential customers in Oklahoma and Texas. BCHSE
    generated minimal amounts of revenue in the quarter and incurred an
    operating loss of approximately $465.

    -------------------------------------------------------------------------

    NOTE 4 - FINANCIAL RISK MANAGEMENT

    Overview

    The Company is exposed to the following risks from its use of financial
    instruments:

    -  credit risk
    -  liquidity risk
    -  market risk

    The Board of Directors has overall responsibility for the establishment
    and oversight of the Company's risk management framework. The Company's
    Audit Committee oversees how management monitors compliance with the
    Company's risk management practices and reviews the adequacy of the risk
    management framework in relation to the risks faced by the Company. The
    Company's risk management practices are established to identify and
    analyze the risks faced by the Company, to set appropriate risk limits
    and controls, and to monitor risks and adherence to limits.

    Credit risk

    Credit risk is the risk of financial loss to the Company if a customer or
    counterparty to a financial instrument fails to meet its contractual
    obligations, and arises principally from the Company's receivables from
    customers.

    The Company's accounts receivable are due from customers in a variety of
    industries including a significant proportion with customers operating in
    the energy and manufacturing industries. The ability of customers within
    the energy industry to pay us is partially affected by fluctuations in
    the price they receive for various hydrocarbon products. Customers in
    both these industries may also face particular challenges in their
    ability to secure debt and equity financing. The maximum credit exposure
    associated with trade accounts receivable is the carrying value.

    The Company follows a credit policy under which the Company reviews each
    new customer individually for credit worthiness before the Company's
    standard payment and delivery terms and conditions are offered. The
    Company's review includes external ratings, where available, and trade
    references. Customers that fail to meet the Company's credit worthiness
    criteria may transact with the Company only on a prepayment basis. On an
    on going basis, the Company also reviews the payment patterns of its
    existing customers and the customers' continued credit worthiness.

    Trade accounts receivable are recorded at the invoiced amount and do not
    bear interest. The allowance for doubtful accounts is the Company's best
    estimate of the amount of probable credit losses in the Company's
    existing accounts receivable. The Company determines the allowance by
    reviewing individual accounts past due for collectability, historical
    write-off experience, and overall account aging. The Company reviews its
    allowance for doubtful accounts on a continuous basis as new information
    becomes available and reviews past due amounts at least monthly.


    March 31,              December 31,
    2009                      2008
    -------------------------------------
    Trade accounts receivable         $     24,942                    27,145
    Allowance for doubtful accounts         (1,490)                   (1,405)
    -------------------------------------
    Total trade accounts receivable   $     23,452                    25,740
    -------------------------------------
    -------------------------------------


    The aging of trade receivables is as follows:

    March 31, 2009          December 31, 2008
    --------------------------------------------------
    Gross    Allowance        Gross    Allowance
    Current (0 - 30 days
    from invoice date)  $     10,199            -       13,465            -
    Past due 1-30 days          7,705            -        6,633            -
    Past due 31-90 days         4,259          477        5,949          481
    More than 90 days           2,779        1,013        1,098          924
    --------------------------------------------------
    Total                $     24,942        1,490       27,145        1,405
    --------------------------------------------------
    --------------------------------------------------

    The movement in the allowance for doubtful accounts receivables in
    respect of trade receivables during the quarter is as follows:

    2009                      2008
    -------------------------------------
    Balance, January 1                $      1,405                     1,155
    Bad debt provision                          95                       (21)
    Write-offs net of recoveries               (10)                       19
    -------------------------------------
    Balance, March 31                 $      1,490                     1,153
    -------------------------------------
    -------------------------------------

    -------------------------------------------------------------------------

    Liquidity risk

    Liquidity risk is the risk that the Company will not be able to meet its
    financial obligations as they fall due. The Company requires liquidity
    to meet financial obligations as they come due and to fund our investing
    activities.

    The Company's contractual financial liabilities include interest
    payments, trade and other payables, bank indebtedness, secured
    equipment loans, an operating line of credit margined by accounts
    receivable, a revolving credit facility and capital leases for equipment
    (notes 6 and 7).

    The Company's approach to managing liquidity is to ensure, as far as
    possible, that it will always have sufficient liquidity to meet its
    liabilities when due, under both normal and distressed conditions,
    without unacceptable losses or risking damage to the Company's
    reputation. The Company generally relies on operating cash flow to
    provide liquidity to meet its financial obligations. As well, the
    Company has access to operating lines of credit and a revolving credit
    facility (see note 6). At March 31, 2009 the Company had cash on hand of
    $1,061 and undrawn operating lines of credit totalling $7,500. In
    addition, the Company has access to $14,171 of the unused revolving
    credit facility with its current lender available to fund capital
    expenditures and acquisitions. The operating facility is renewable
    annually, while the revolving facility matures on June 25, 2010.

    -------------------------------------------------------------------------

    Market risk

    Market risk is the risk that changes in market prices, such as foreign
    exchange rates, interest rates and equity prices will affect the
    Company's income.

    HSE is exposed to currency risk on US dollar denominated financial assets
    and liabilities. The Company adjusts the reported amounts of foreign
    currency denominated financial assets and liabilities to their Canadian
    dollar equivalent at each balance sheet date. For amounts held directly
    by the Company, any related foreign exchange gains and/or losses are
    recognized in the consolidated statement of earnings. For amounts held by
    the Company's self-sustaining foreign operations, the amount is included
    in other comprehensive income. At March 31, 2009 the extent of this
    exposure was not material.

    HSE is exposed to interest rate risk on its prime based operating
    facility and bankers' acceptance based revolving credit facility. No
    prime-based amounts are outstanding at March 31, 2009. Based on amounts
    outstanding at March 31, 2009, a 1% increase in the average of bankers'
    acceptance rates for a year would cost the Company $108 in additional
    interest expense.

    -------------------------------------------------------------------------

    NOTE 5 - CAPITAL MANAGEMENT

    Management's policy is to maintain an appropriate capital base that
    allows the Company to maintain investor, creditor and market confidence
    and to sustain future development of the business. The Company seeks to
    manage its capital structure to ensure that we have the financial
    capacity and liquidity to fund our operating and investment activities.
    The Company generally relies on operating cash flows to fund capital
    expenditures, but may occasionally need to use external sources to
    facilitate acquisition or expansionary activities.

    To ensure that the Company maintains an appropriate balance between
    long-term debt and shareholders' equity, we monitor the ratio of
    long-term debt to total capital. As at March 31, 2009 and December 31,
    2008, these ratios were:

    March 31, 2009   December 31, 2008
    ------------------------------------

    Long-term debt                 $           11,689              11,726
    Shareholders' equity                       39,787              41,587
    ------------------------------------
    Total capitalization           $           51,476              53,313
    ------------------------------------
    ------------------------------------
    Long-term debt to
    total capitalization                        0.23                0.22

    -------------------------------------------------------------------------

    NOTE 6 - OPERATING FACILITIES and LONG-TERM DEBT

    The Company's credit facilities include a $25 million three-year
    interest-only revolving facility and a $7.5 million operating facility.

    The credit facilities bear interest at the bank's prime rate (or U.S.
    base rate) plus a margin varying between 0.25 percent and 1.50 percent,
    or at bankers' acceptance rates with a variable stamping fee of 1.75 to
    3.00 percent. An additional standby fee ranging from 0.35 to 0.65 percent
    per annum is also required on any unused portion of the credit
    facilities. The applicable margin is dependent on the Company's
    consolidated debt to trailing 12 month cash flows ratio (as defined in
    the agreement). For each quarter, interest is paid based on the ratio at
    the immediately preceding quarter end. At March 31, 2009 the applicable
    margin for interest to be paid during the second quarter of 2009 is a
    stamping fee of 2.5 per cent on banker's acceptances issued on behalf of
    the Company.

    Deferred financing costs associated with the financing facilities have
    been shown as a reduction in the carrying value of long term debt and are
    being expensed over the term of the debt using the effective interest
    rate method.

    The revolving facility matures on June 25, 2010, with an ability to
    extend the term at the lender's option. The operating facility is
    renewable annually and is margined to accounts receivable. Both the
    operating facility and the revolving facility are subject to certain
    covenants including a covenant regarding the ratio of senior debt to cash
    flows (as defined in the agreement), a current ratio covenant, an
    interest coverage covenant and certain other positive and negative
    covenants that are typical for these types of facilities. The credit
    facilities are collateralized under a general security agreement.

    The Company complied with all externally imposed debt covenants at
    March 31, 2009. However, management has identified a risk that, depending
    on levels of activity between March 31 and the end of 2009, the Company
    may fail to comply with its debt covenants within the next twelve month
    period. The Company is currently negotiating with its lender to vary the
    terms of its credit agreement in a manner that would modify the covenant
    requirements or replace them with others that are acceptable to the
    lender.


    March 31  December 31
    2009         2008
    ------------------------
    Equipment financing contracts bearing interest
    at rates averaging 3.15% (2008 - 2.93%),
    payable in blended monthly payments of $11
    (2008 - $12) secured by specific equipment.     $       88   $      131

    Three year interest only
    revolving credit facility                           10,829       10,829
    ------------------------
    10,917       10,960
    Accrued consideration on
    share purchase acquisition                             810          810
    ------------------------
    11,727       11,770
    Less current portion                                    (63)         (98)
    ------------------------
    11,664       11,672
    Less unamortized debt issue costs                       (38)         (44)
    ------------------------
    $   11,626   $   11,628
    ------------------------
    ------------------------

    Outstanding principal repayments are due as follows:

    Years ending March 31:

    2010                         $       63
    2011                             11,658
    2012                                  6
    ---------
    11,727
    Less: current portion               (63)
    ---------
    $   11,664
    ---------
    ---------

    -------------------------------------------------------------------------

    NOTE 7 - OBLIGATIONS UNDER CAPITAL LEASE

    Amounts due under capital lease arrangements are repayable in blended
    monthly payments of $102 (2008 - $105) and bear interest at rates
    averaging 5.51% (2008 - 5.45%) per annum. On certain leases, the Company
    has options to acquire the leased assets at various times through 2012.

    Outstanding repayment terms are as follows:

    Years ended March 31

    2010                                $      715
    2011                                       226
    2012                                        71
    2013                                         1
    -----------------------------------------------
    1,013
    Less: interest                             (73)
    -----------------------------------------------
    940
    Less: current portion                     (663)
    -----------------------------------------------
    $      277
    -----------------------------------------------
    -----------------------------------------------

    -------------------------------------------------------------------------

    NOTE 8 - SHARE CAPITAL

    a)  Authorized:
    Unlimited number of common shares without par value.
    Unlimited number of preferred shares, issuable in series.

    b)  Issued and outstanding:

    March 31, 2009          December 31, 2008
    -----------------------------------------------------
    Shares           $         Shares          $
    Common shares       (in thousands)      Amount (in thousands)     Amount
    -----------------------------------------------------
    Balance,
    beginning of period       37,576   $   60,040       37,568   $   60,036
    Changes (net of
    share issue costs):
    Issued on exercise
    of options                   -            -            8            4
    -----------------------------------------------------
    Balance,
    end of period             37,576   $   60,040       37,576   $   60,040
    -----------------------------------------------------
    -----------------------------------------------------

    c)  Per share amounts:

    Basic per common share amounts are computed by dividing earnings by the
    weighted average number of common shares outstanding during the period.
    Diluted per common share amounts are computed by dividing earnings by the
    diluted weighted average number of common shares outstanding during the
    period.

    -------------------------------------------------------------------------

    NOTE 9 - CONTRIBUTED SURPLUS

    March 31  December 31
    2009         2008
    ------------------------
    Balance, beginning of period        $    4,559   $    4,144
    Stock compensation expense                  48          415
    ------------------------
    Balance, end of period              $    4,607   $    4,559
    ------------------------
    ------------------------

    -------------------------------------------------------------------------

    NOTE 10 - STOCK-BASED COMPENSATION PLANS

    Incentive stock option plan

    The weighted average fair value of options granted for the quarter ended
    March 31, 2009 was $Nil (2008 - $1.88).  The fair value of each option
    granted was estimated on the date of grant using the Modified Black-
    Scholes option-pricing model with the following assumptions:

    March 31  December 31
    2009         2008
    ------------------------
    Vesting period (years)                   -            3
    Risk-free interest rate                  -         2.11%
    Expected life (years)                    -            5
    Price volatility                         -        89.70%
    ------------------------
    ------------------------

    Pursuant to the stock option plan, a maximum of 10% of the issued and
    outstanding common shares of the Company are reserved from time to time,
    for issuance to eligible participants. Option prices and vesting terms
    are determined by the directors at the time of granting at an exercise
    price no less than market on the grant date. The term of options granted
    does not exceed five years.

    Information about outstanding stock options is as follows:

    Quarter ended March 31,   Year ended December 31,
    2009                      2008
    ------------------------  ------------------------
    Weighted                  Weighted
    Average                   Average
    Exercise                  Exercise
    Options        Price      Options        Price
    --------------------------------------------------
    Outstanding,
    beginning of period    2,533,499   $     1.88    2,379,998   $     2.15
    Granted                         -            -      735,000         0.99
    Exercised                       -            -       (8,000)        0.50
    Forfeited                 (85,668)        1.83     (573,499)        1.86
    --------------------------------------------------

    Outstanding,
    end of period          2,447,831   $     1.89    2,533,499   $     1.88
    --------------------------------------------------
    --------------------------------------------------

    Exercisable at
    end of period          1,452,145   $     2.16    1,335,810   $     2.16
    --------------------------------------------------
    --------------------------------------------------

    The following table summarizes information about stock options
    outstanding at March 31, 2009:

    Weighted
    Exercise      average
    Options      prices     remaining     Number
    outstanding         $          life    exercisable
    --------------------------------------------------
    605,000    0.50-1.05         4.01       20,000
    677,499    1.06-1.69         1.42      542,497
    716,999    1.70-2.50         2.35      554,651
    448,333    2.51-3.50         2.01      334,997
    --------------------------------------------------
    2,447,831      1.89            2.45    1,452,145
    --------------------------------------------------
    --------------------------------------------------

    Deferred share unit plan

    On January 16, 2007, 15,000 deferred share units ("DSUs") were granted to
    non-executive directors. An additional 15,000 DSUs were granted on May
    15, 2008. On December 15, 2008 3,000 of the DSUs were settled for $1.

    The units are revalued quarterly and any change in value is included as
    an increase or decrease in stock based compensation expense and accrued
    liabilities. The expense recognized for the quarter ended March 31, 2009
    was $3 (March 31, 2008 - $1).

    -------------------------------------------------------------------------

    NOTE 11 - RELATED PARTY TRANSACTIONS

    During the quarter, the Company had the following transactions with
    related parties, all of which are measured at exchange amounts, which
    approximate an arm's length equivalent at fair market value:

    -  During the first quarter of 2009, the Company paid rent for a
    regional office to a corporation related to a Director of the
    Company in the amount of $57 (2008 - $57)
    -  During the first quarter of 2009, the Company also paid rent of $74
    (2008 - $74) for a regional office to a corporation controlled by a
    Senior Manager of the Company.

    -------------------------------------------------------------------------

    NOTE 12 - COMMITMENTS

    The Company leases certain shop and office space and vehicles and
    equipment under operating leases for periods ending between 2009 and
    2013. Future minimum lease payments under these leases in each of the
    next five years are as follows:

    Rental    Operating
    Years ending March 31  facilities       leases        Total
    ------------------------------------
    2010                   $    2,823        2,423        5,246
    2011                        2,188        2,220        4,408
    2012                        1,265        1,296        2,561
    2013                          986          292        1,278
    2014                          574            1          575

    In May 2008, the Company sold three of its buildings as part of a
    sale/lease back arrangement. The net proceeds on the sale were
    $1.7 million, resulting in gains on sale of $0.7 million. The resulting
    gains have been deferred and are being amortized over the 60 month lives
    of the leases.

    -------------------------------------------------------------------------

    NOTE 13 - SUPPLEMENTARY CASH FLOW INFORMATION

    Three Months ended
    Increase (decrease) in non-cash                            March 31
    working capital from operations                       2009         2008
    ------------------------
    Accounts receivable                            $      2,289       (5,849)
    Inventory                                               (11)          (3)
    Prepaid expenses and other assets                       409          153
    Income tax recoverable/payable                          241          229
    Accounts payable and accrued liabilities             (1,983)         745
    ------------------------
    Net change in non-cash working capital         $        945       (4,725)
    ------------------------
    ------------------------

    -------------------------------------------------------------------------

    NOTE 14 - SEGMENT INFORMATION

    Management has determined that the Company operates in a single industry
    segment, which involves the provision of industrial health, safety and
    environmental monitoring services. Substantially all of the Company's
    operations, assets, revenues, and employees are in Canada. For the
    quarter ended March 31, 2009, the Company had one customer representing
    more than 10% of revenue (March 31, 2008 - none). The Company had sales
    of approximately $2.3 million to the customer during the quarter.

    At March 31, 2009 US operations comprised less than 1% of revenues and
    assets of the Company.

    The Company provides services to two main groups of customer industries.
    "Oilfield" services are provided to customers in the conventional
    upstream, or "wellhead", sector of the oil and gas industry.
    "Industrial" services are provided to customers in a variety of other
    industries including: non-conventional upstream oil development and
    production (including oil sands extraction); oil and gas processing;
    petrochemicals; pulp and paper; utilities; power generation; and
    manufacturing. It also includes worker safety training and safety
    management and consulting services. The Company tracks revenues provided
    to each customer group as a method to predict future operating activity.
    Revenue by customer group is as follows:

    Three Months ended
    March 31
    2009         2008
    ------------------------
    Oilfield                      $     10,260   $   15,961
    Industrial                          12,141       11,608
    ------------------------
    Total Revenue                 $     22,401       27,569
    ------------------------
    ------------------------

    As a % of Revenue:
    Oilfield                             45.8%        57.9%
    Industrial                           54.2%        42.1%
    ------------------------
    Total Revenue                       100.0%       100.0%
    ------------------------
    ------------------------
    -------------------------------------------------------------------------

    NOTE 15 - CONTINGENCIES

    In the ordinary course of business activities, the Company may be
    contingently liable for litigation and claims with customers, suppliers,
    former employees, and third parties. Management believes that adequate
    provisions have been recorded in the accounts where applicable. Although
    it may not be possible to estimate accurately the extent of potential
    costs and losses, if any, management believes that the ultimate
    resolution of such contingencies would not have a material effect on the
    financial position of the Company.

    -------------------------------------------------------------------------
    %SEDAR: 00011733E




For further information:

For further information: Please contact: HSE Integrated Ltd., David
Yager, Chairman & CEO, Telephone: (403) 266-1833, E-Mail:
dyager@hseintegrated.com; Lori McLeod-Hill, CFO, Telephone: (403) 266-1833,
E-Mail: lmcleod-hill@hseintegrated.com

Organization Profile

HSE Integrated Ltd.

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