Pason Systems Inc. reports second quarter earnings



    Stock Exchange: TSX
    Symbol: PSI

    CALGARY, Aug. 6 /CNW/ - Pason Systems Inc. ("Pason" or "the Company")
today announced its results for the six-month period ended June 30, 2008.


    
    Performance Data

    -------------------------------------------------------------------------
                       Three Months Ended June 30,  Six Months Ended June 30,
                            2008     2007  Change      2008     2007  Change
    -------------------------------------------------------------------------
    (000s, except per share
     data) (unaudited)         ($)      ($)    (%)        ($)      ($)    (%)

    Revenue                54,180   44,597     21    127,433  114,917     11
    EBITDA(1)              23,496   20,298     16     66,839   61,029     10
      As a % of revenue      43.4     45.5     (5)      52.5     53.1     (1)
      Per share - basic      0.29     0.26     12       0.83     0.77      8
      Per share - diluted    0.28     0.25     12       0.82     0.76      8
    Cash flow from
     operations(1)         20,867   18,574     12     55,774   48,703     15
      Per share - basic      0.26     0.23     13       0.69     0.62     11
      Per share - diluted    0.25     0.23      9       0.68     0.61     11
    Earnings                6,459    5,376     20     27,325   23,900     14
      Per share - basic      0.08     0.07     14       0.34     0.30     13
      Per share - diluted    0.08     0.07     14       0.33     0.30     10
    Capital expenditures   14,056   21,520    (35)    26,660   41,693    (36)
    Working capital       121,851   56,875    114    121,851   56,875    114
    Total assets          346,963  271,658     28    346,963  271,658     28
    Shareholders' equity  312,037  248,439     26    312,037  248,439     26
    Common shares
     outstanding (No.)
      Basic                81,597   79,523      3     81,016   79,151      2
      Diluted              82,967   81,196      2     81,859   80,227      2
    Shares outstanding
     end of period         81,937   79,758      3     81,937   79,758      3
    -------------------------------------------------------------------------
    (1) EBITDA is defined as earnings before interest expense, income taxes,
        stock-based compensation expense and depreciation and amortization
        expense. Cash flow from operations is defined as earnings adjusted
        for depreciation and amortization expense, stock-based compensation
        expense and future income taxes. These definitions are not recognized
        measures under Canadian generally accepted accounting principles, and
        accordingly, may not be comparable to measures used by other
        companies.
    


    PRESIDENT'S MESSAGE

    Operations Review

    Pason recorded improved results in the second quarter compared with the
previous year. Revenue increased 21% to $54.2 million, cash flow was up 12% to
$20.9 million and net earnings improved 20% to $6.5 million when compared with
the second quarter of the prior year. Activity in the quarter was as expected
with the U.S. market building on its busy first quarter and the Canadian
market up from 2007 but still too anemic for us to turn a profit. This quarter
was impacted by a number of factors that tended to net out the results. Our
United States business unit continued to grow strongly but it's year over year
results are still being negatively impacted when converted to Canadian dollars
due to the decline in the U.S. dollar value from a year ago. As we did last
quarter we will continue to show financial metric changes below for our U.S.
operations in Canadian dollars and also in U.S. dollars (bracketed). Results
for the quarter were also aided by a $1.0 million dollar pre tax gain on the
disposal of our investment in a private company. We continue to believe this
company has a good future, as is evidenced by our gain on disposition, but the
strategic need for Pason's involvement has lessened in recent years. Our R&D
expenses were up $2.8 million year to date over 2007. This reflects the
substantial investment we are making in R&D by adding technical resources from
an outsource firm to complement our own internal resources. As always in
business, we must expend money first, but we believe we will eventually earn a
return on this increased R&D spend with products that are easier to support
and maintain and newer products that get to market faster.
    In this quarter we have also made some reclassifications in
administration expenses and now show a line item in our earnings statement and
segmented information note called "Corporate services". These are general
management costs in operations, finance, procurement and quality assurance
that are incurred to support each of our business units. In past periods these
costs were included in Canadian segment results which tended to understate
true results from that business unit. With the decline in Canadian activity
this understatement has become material and therefore the new classification
provides a much more informative comparison of Canadian segment results when
compared to the United States unit or the International unit. On the earnings
statement there is also now an expense caption called "Local Administration"
which as it states is the administrative cost that clearly pertains to the
activity of the individual business units.
    In the United States the active land rig count continues to climb and at
quarter end was up about 150 rigs from the beginning of the year to end the
quarter at about 1,830 rigs. This increase is also the approximate number of
rigs that Pason has added that include at least our electronic drilling
recorder. As a result the percentage of rigs with some Pason product has now
risen to 58% versus 56% at the end of the first quarter and 53% at the
beginning of the year. This increasing penetration and an 8% rise in second
quarter industry drilling days contributed to a 21% improvement in revenue
(31% in U.S. dollars) for our U.S. business unit. Segment profit was a record
$16.8 million, up 20% (31%) from 2007. Our revenue per industry day was $220
($218) compared to $194 ($176) last year. We now have over 150 field
technicians and are encouraged that despite a rapid hiring rate we are
beginning to see improved leverage on these men as both their rigs and revenue
per man metrics are increasing. This would indicate that the addition of the
regional rental manager management level added two years ago is beginning to
make a positive impact.
    Canadian segment results remained relatively unchanged with a loss of
$3.7 million compared to a loss of $3.5 million last year. Industry activity
did improve by 18% but that was on the very low base of last year and still
represented only about 170 rigs or about 20% of the rig fleet. At this
activity level and with almost all of our costs fixed rather than variable, we
clearly have too much overhead to make a profit in Canadian second quarters.
Our revenue per Industry day was $800 compared to $786 last year. Despite the
limited activity in the second quarter we had a combined gain of $0.7 million
in revenue from two of our newer products, electronic service recorders and
H2S/LEL gas alarm systems.
    Our International partners continued to add to our International business
unit with revenue up 44% to $2.3 million and segment profit rising a similar
45% to $1.3 million. Most of our returns continue to come from our South
American partner. We are currently helping him establish a corporate office
and management team to more effectively manage his multiple country
operations. Progress in the Middle East has been disappointing primarily due
to our inability to sell the rental instrumentation solution model to that
market. During the quarter we began serious investigations into the Russian
market. Previously we had thought that western drilling contractors might
provide us an entry into the Russian market as was the case for our entry into
Mexico. However, it is now clear that Russian contractors deploying
refurbished rigs or new builds, primarily from China, will have to be our
eventual customers and the advantages of our equipment will take longer to
demonstrate to them and their customers, the Russian oil and gas companies. In
the third quarter we hope to enter the market as an extension of a product
line of a Canadian service company currently operating in Russia. While this
will not immediately promote our identity within Russia it will provide us a
serious opportunity to assess what level of impact our equipment can make in
the Russian market.

    Outlook

    Although at the time of writing this letter oil has backed off some $20
from its recent record prices, the still high commodity prices for oil and
natural gas, coupled with unconventional resource plays such as Horn River,
Montney and The Bakken, are bringing the Canadian market out of its drilling
slump. The Canadian active rig count has more than doubled from the weak
second quarter and we are looking forward to very robust activity for the
balance of the year.
    Our cash balances have increased significantly because of a slow down in
our Canadian capital expenditure requirements but with a return of activity in
Canada, and what appears to be escalating growth rates in the United States,
again driven by unconventional gas plays such as Haynesville shale, we would
expect to be reinvesting more of that cash by year end.

    On behalf of the Board of Directors,

    (Signed)
    Jim Hill
    President & Chief Executive Officer
    August 6, 2008

    Second Quarter Conference Call

    Pason will be conducting a conference call for interested analysts,
brokers, investors and media representatives to review its second quarter
results at 9:00 a.m. (Calgary time) on Thursday, August 7, 2008. The
conference call dial-in number is 1-800-733-7571. Seven-day replay:
1-877-289-8525 and enter 21273335, followed by the number sign.
    Pason Systems Inc. is the world's largest provider of rental oilfield
instrumentation systems that are designed and manufactured for use on
land-based drilling and service rigs. Pason offers a tightly integrated
package of complex services, including data acquisition, wellsite reporting
software, remote communications and Internet information management tools.
    Pason's common shares trade on the Toronto Stock Exchange under the
symbol PSI. Additional information on Pason, including the Interim Report to
Shareholders which includes the Management Discussion and Analysis for the
period ended June 30, 2008 is available on the website at www.pason.com.

    Certain information regarding the Company contained herein may constitute
forward-looking statements under applicable securities laws. Such statements
are subject to known or unknown risks and uncertainties that may cause actual
results to differ materially from those anticipated or implied in the
forward-looking statements.


    
    CONSOLIDATED BALANCE SHEETS

    -------------------------------------------------------------------------
    As at                                June 30,  December 31,      June 30,
                                            2008          2007          2007
    -------------------------------------------------------------------------
    (000s) (unaudited)                        ($)           ($)           ($)

    Assets
    Current
      Cash, net of bank indebtedness      80,689        23,159        24,646
      Accounts receivable                 63,757        73,454        48,573
      Prepaid expenses                     2,547         1,987         2,184
      Income taxes receivable              3,069         2,652         2,504
    -------------------------------------------------------------------------
                                         150,062       101,252        77,907
    Investment (Note 5)                        -         3,000         3,000
    Capital assets                       191,207       192,620       187,610
    Deferred development costs             5,694         4,698         3,141
    -------------------------------------------------------------------------
                                         346,963       301,570       271,658
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Liabilities
    Current
      Accounts payable and accrued
       liabilities                        20,024        17,647        21,032
      Dividend payable (Note 6)            8,187         6,822             -
    -------------------------------------------------------------------------
                                          28,211        24,469        21,032
    Future income taxes                    6,715         6,384         2,187
    -------------------------------------------------------------------------
                                          34,926        30,853        23,219
    -------------------------------------------------------------------------
    Shareholders' Equity
    Share capital                         68,538        51,505        46,574
    Contributed surplus                   10,313        10,323         8,735
    Accumulated other comprehensive loss (24,551)      (29,710)      (21,139)
    Retained earnings                    257,737       238,599       214,269
    -------------------------------------------------------------------------
                                         312,037       270,717       248,439
    -------------------------------------------------------------------------
                                         346,963       301,570       271,658
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to the consolidated financial statements.



    CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS

    -------------------------------------------------------------------------
                                      Three Months Ended    Six Months Ended
                                                 June 30,            June 30,
                                          2008      2007      2008      2007
    -------------------------------------------------------------------------
    (000s, except per share data)
     (unaudited)                            ($)       ($)       ($)       ($)

    Revenue
      Rental revenue                    50,555    41,111   120,595   107,625
      Geological services                3,363     3,204     6,283     6,744
      Interest                             262       282       555       548
    -------------------------------------------------------------------------
                                        54,180    44,597   127,433   114,917
    -------------------------------------------------------------------------
    Expenses
      Rental services                   21,631    17,395    42,099    37,965
      Geological services                2,279     2,082     4,449     4,502
      Manufacturing and distribution     1,341       438     2,117     1,659
      Research and development           3,459     1,872     6,952     4,147
      Corporate services                 1,298     1,074     2,547     2,469
      Local administration               1,675     1,438     3,429     3,146
      Stock-based compensation           1,336     1,655     2,672     2,805
      Interest                              61        26       240        63
      Depreciation and amortization     12,789    11,858    25,673    23,702
    -------------------------------------------------------------------------
                                        45,869    37,838    90,178    80,458
    -------------------------------------------------------------------------
    Gain on sale of investment (Note 5)    999         -       999         -
    -------------------------------------------------------------------------
    Earnings before income taxes         9,310     6,759    38,254    34,459
    -------------------------------------------------------------------------
    Income taxes
      Current                            2,568     1,698    10,825    12,263
      Future                               283      (315)      104    (1,704)
    -------------------------------------------------------------------------
                                         2,851     1,383    10,929    10,559
    -------------------------------------------------------------------------
    Earnings                             6,459     5,376    27,325    23,900
    Retained earnings, beginning
     of period                         259,465   214,871   238,599   196,347
    Dividends (Note 6)                  (8,187)   (5,978)   (8,187)   (5,978)
    -------------------------------------------------------------------------
    Retained earnings, end of period   257,737   214,269   257,737   214,269
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Earnings per share (Note 2)
      Basic                               0.08      0.07      0.34      0.30
      Diluted                             0.08      0.07      0.33      0.30
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to the consolidated financial statements.



    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

    -------------------------------------------------------------------------
                                      Three Months Ended    Six Months Ended
                                                 June 30,            June 30,
                                          2008      2007      2008      2007
    -------------------------------------------------------------------------
    (000s) (unaudited)                      ($)       ($)       ($)       ($)

    Earnings                             6,459     5,376    27,325    23,900
    Other comprehensive income (loss),
     net of tax
      Reclassification of gain on
       available-for-sale investment
       to earnings                        (850)        -         -         -
      Foreign currency translation
       adjustment                       (1,989)   (9,554)    5,159   (10,786)
    -------------------------------------------------------------------------
    Total comprehensive income (loss)    3,620    (4,178)   32,484    13,114
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to the consolidated financial statements.



    CONSOLIDATED STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE LOSS

    -------------------------------------------------------------------------
                                      Three Months Ended    Six Months Ended
                                                 June 30,            June 30,
                                          2008      2007      2008      2007
    -------------------------------------------------------------------------
    (000s) (unaudited)                      ($)       ($)       ($)       ($)

    Accumulated other comprehensive
     loss, beginning of period         (21,712)  (11,585)  (29,710)  (10,353)
    Other comprehensive income (loss),
     net of tax
      Reclassification of gain on
       available-for-sale investment
        to earnings                       (850)        -         -         -
      Foreign currency translation
       adjustment                       (1,989)   (9,554)    5,159   (10,786)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Accumulated other comprehensive
     loss, end of period               (24,551)  (21,139)  (24,551)  (21,139)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to the consolidated financial statements.



    CONSOLIDATED STATEMENTS OF CASH FLOWS

    -------------------------------------------------------------------------
                                      Three Months Ended    Six Months Ended
                                                 June 30,            June 30,
                                          2008      2007      2008      2007
    -------------------------------------------------------------------------
    (000s) (unaudited)                      ($)       ($)       ($)       ($)

    Cash flows related to
    the following activities:
    Operating
      Earnings                           6,459     5,376    27,325    23,900
      Adjustments for non-cash items:
        Depreciation and amortization   12,789    11,858    25,673    23,702
        Stock-based compensation         1,336     1,655     2,672     2,805
        Future income taxes                283      (315)      104    (1,704)
    -------------------------------------------------------------------------
                                        20,867    18,574    55,774    48,703
      Changes in non-cash working
       capital                          20,521     9,291    19,726     4,464
    -------------------------------------------------------------------------
                                        41,388    27,865    75,500    53,167
    -------------------------------------------------------------------------
    Financing
      Issue of common shares under
       the stock option plan             8,677     4,745    14,351     7,289
      Payment of dividends                   -    (5,978)   (6,822)  (11,881)
    -------------------------------------------------------------------------
                                         8,677    (1,233)    7,529    (4,592)
    -------------------------------------------------------------------------
    Investing
      Additions to capital assets      (13,443)  (20,905)  (25,566)  (40,814)
      Deferred development costs,
       net of investment tax credits
       received                           (613)     (615)   (1,094)     (879)
      Proceeds on disposal of capital
       assets                               61         4       182        47
      Proceeds on sale of investment     4,003         -     4,003         -
      Changes in non-cash working
       capital                          (2,039)    1,037    (4,073)   (2,921)
    -------------------------------------------------------------------------
                                       (12,031)  (20,479)  (26,548)  (44,567)
    -------------------------------------------------------------------------
    Effect of exchange rate changes
     on cash                              (323)   (1,078)    1,049    (1,219)
    -------------------------------------------------------------------------
    Net increase in cash and
     cash equivalents                   37,711     5,075    57,530     2,789
    Cash and cash equivalents,
     beginning of period                42,978    19,571    23,159    21,857
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period                      80,689    24,646    80,689    24,646
    -------------------------------------------------------------------------
    Represented by:
      Cash                              72,502    24,646    72,502    24,646
      Cash held in trust (Note 6)        8,187         -     8,187         -
    -------------------------------------------------------------------------
      Cash and cash equivalents         80,689    24,646    80,689    24,646
    -------------------------------------------------------------------------

    See accompanying notes to the consolidated financial statements.



    NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

    Six Months Ended June 30, 2008 and 2007
    (000s, except per share data) (unaudited)

    1.  Significant Accounting Policies

        These interim consolidated financial statements have been prepared in
        accordance with the same accounting policies and methods of
        computation as those outlined in the annual audited financial
        statements. These interim consolidated financial statements do not
        include all disclosures normally provided in annual financial
        statements and should be read in conjunction with the Company's
        audited annual financial statements for the year ended December 31,
        2007.

        Significant Accounting Changes

        (a) Beginning in the first quarter of 2008, the Company adopted the
            new Section 1535 "Capital Disclosures" standard issued by the
            Canadian Institute of Chartered Accountants (CICA). This section
            establishes standards for disclosing information about the
            Company's capital and how it is managed. The impact of this
            change is described in Note 3 to the Consolidated Financial
            Statements as of June 30, 2008.

        (b) In 2008 the Company also adopted the new Section 3862 "Financial
            Instruments - Disclosures" and Section 3863 "Financial
            Instruments - Presentation" which replaced Section 3861,
            "Financial Instruments - Disclosure and Presentation." Section
            3862 outlines the disclosure requirements for financial
            instruments and non-financial derivatives. This guidance
            prescribes an increased importance on risk disclosures associated
            with recognized and unrecognized financial instruments and how
            such risks are managed. The presentation requirements under
            section 3863 are relatively unchanged from section 3861.

    Future Changes in Accounting Policies

        (c) The CICA issued Section 3064 "Goodwill and Intangible Assets"
            replacing Section 3450, "Research and Development Costs". The new
            standard, which the Company will adopt on January 1, 2009,
            establishes guidelines for the recognition, measurement,
            presentation and disclosure of research and development costs.
            Management is in the process of assessing the impact of this new
            standard and believes it will not have a material impact on the
            Company's consolidated financial statements.

        (d) Canada's Accounting Standards Board ratified a plan that will
            result in Canadian generally accepted accounting principles
            (GAAP) being converged with International Financial Reporting
            Standards (IFRS) by 2011. The impact on the Company's
            consolidated financial statements has not yet been determined.

            Certain comparative figures have been reclassified to conform to
            the current year's presentation.

    2.  Share Capital

        Authorized
          Unlimited number of common shares
          Unlimited number of preferred shares, issuable in series

        Issued
          Common shares
        ---------------------------------------------------------------------
                                                        Shares        Amount
        ---------------------------------------------------------------------
                                                          (No.)           ($)

        Balance, December 31, 2007                      80,346        51,505
          Exercise of stock options                      1,591        14,351
          Contributed surplus adjustment on exercise
           of stock options                                  -         2,682
        ---------------------------------------------------------------------
        Balance, June 30, 2008                          81,937        68,538
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Stock Option Plan

        At June 30, 2008, 5,083 stock options were outstanding for common
        shares at exercise prices ranging from $3.75 to $17.75 per share,
        expiring between 2008 and 2011 as follows:

        ---------------------------------------------------------------------
                                       2008                    2007
        ---------------------------------------------------------------------
                                            Weighted                Weighted
                                             Average                 Average
                                   Share    Exercise       Share    Exercise
                                 Options       Price     Options       Price
        ---------------------------------------------------------------------
                                    (No.)         ($)       (No.)         ($)

        Outstanding, beginning
         of period                 6,908       11.91       6,889       10.84
          Granted                      6       16.39         122       14.91
          Exercised               (1,591)       9.02      (1,020)       7.15
          Forfeited                 (240)      13.97        (336)      13.86
        ---------------------------------------------------------------------
        Outstanding, end of
         period                    5,083       12.73       5,655       11.41
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Exercisable, end of
         period                    1,794       11.76       2,541        8.39
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Available for grant,
         end of period             3,111                   2,321
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        All options are issued at market price and vest over three years.
        Options issued prior to November 2004 expire five years after the
        date of issuance. Effective November 2004 through October 2006,
        options granted expire three years and 60 days after issuance.
        Effective November 2006, options granted expire three years and six
        months after issuance.

        The following table summarizes information about stock options
        outstanding at June 30, 2008:

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

                              Options Outstanding       Options Exercisable
        ---------------------------------------------------------------------
                                    Weighted
                                     Average  Weighted              Weighted
        Range of                   Remaining   Average               Average
        Exercise        Options  Contractual  Exercise Exercisable  Exercise
        Prices      Outstanding         Life     Price     (Vested)    Price
        ---------------------------------------------------------------------
        ($)               (No.)       (Years)       ($)       (No.)       ($)

        3.75 - 12.17       841          0.50      7.45         751      6.91
        12.18 - 14.00    2,313          2.66     12.39         135     13.78
        14.01 - 17.75    1,929          1.36     15.43         908     15.48
        ---------------------------------------------------------------------
                         5,083          1.81     12.73       1,794     11.76
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The maximum allowable number of shares that can be issued from the
        exercise of stock options is 30,000. As of June 30, 2008,
        28,600 options have been granted; 5,083 options are outstanding;
        5,322 options have been cancelled; and 6,722 options are available to
        be granted. The total number of options outstanding must not exceed
        10% of the total common shares outstanding.

        Stock options issued to employees and directors have been accounted
        for using the fair value method and recorded as stock-based
        compensation expense of $2,672 (2007 - $2,805) in the consolidated
        statement of earnings, using the following weighted average
        assumptions:

        ---------------------------------------------------------------------
                                                                        2008
        ---------------------------------------------------------------------

        Fair value of stock options ($)                                 3.03
        Forfeiture rate (%)                                             16.0
        Risk-free interest rate (%)                                     3.88
        Expected option life (years)                                    3.13
        Expected volatility (%)                                         32.0
        Annual dividends per share (%)                                   1.0
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Amounts recorded to contributed surplus relating to the fair value of
        stock options expensed and subsequent reduction for options exercised
        are as follows:

        ---------------------------------------------------------------------
                                                                      Amount
        ---------------------------------------------------------------------
                                                                          ($)
        Contributed Surplus
        Balance, December 31, 2007                                    10,323
          Stock-based compensation expense for the period              2,672
          Stock options exercised                                     (2,682)
        ---------------------------------------------------------------------
        Balance, June 30, 2008                                        10,313
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    3.  Capital Disclosures

        The Company's strategy is to carry a flexible capital base to
        maintain investor, market and creditor confidence and to sustain
        future business development opportunities. The Company manages its
        capital structure based on ongoing changes in economic conditions and
        related risk characteristics of its underlying assets.

        The Company considers its capital structure to include shareholders'
        equity, long-term debt and working capital. To maintain or adjust the
        capital structure, the Company may from time to time, issue or re-
        purchase shares, adjust its dividend rate, raise debt and/or adjust
        its capital spending to manage its current and projected debt levels.

        The Company's share capital is not subject to external restrictions;
        however the Company's committed revolving credit facility includes a
        debt to earnings before interest, income tax, depreciation and
        amortization expense covenant. The Company was fully compliant with
        this covenant at June 30, 2008.

        There were no changes in the Company's approach to capital management
        during the quarter.

    4.  Financial Instruments and Risk Management

        Industry and Seasonality Risk

        The major area of uncertainty for the Company is that the demand for
        its services is directly related to the strength of its customers'
        capital expenditure programs. The level of capital programs is
        strongly affected by the level and stability of commodity prices,
        which can be extremely difficult to predict and beyond the control of
        the Company and its customers. During periods of uncertainty, oil and
        gas companies tend to bias their capital decisions on conservative
        outlooks for commodity prices.

        In addition to the cyclical nature of its business, the Company is
        also subject to risks and uncertainties associated with weather and
        seasonality. The Company continues to react to unfavourable weather
        conditions and spring breakup, which limit well access in Canada,
        through diversification into geographic regions such as the United
        States and internationally where these factors are less likely to
        influence activity.

        Credit Risk

        Credit risk refers to the possibility that a customer will fail to
        meet its contractual obligations. Credit risk arises from the
        Company's accounts receivable balances which are predominantly with
        customers who explore for and develop oil and natural gas reserves in
        Canada and the United States. The Company has a process in place
        which assesses the credit worthiness of its customers as well as
        monitoring the age and balances outstanding on an ongoing basis. In
        addition the Company's services are a minor component when looking at
        the overall cost of drilling a well reducing credit risk accordingly.

        Payment terms with customers are 30 days from invoice date however
        industry practice can extend these terms. As at June 30, 2008 the
        Company had $4.1 million in accounts receivable balances greater than
        90 days past due and had recorded an allowance for doubtful accounts
        of $1.8 million. There was no change in the Company's allowance for
        doubtful accounts for the first six months of 2008.

        Foreign Exchange Risk

        The Company operates internationally and is primarily exposed to
        exchange risk relative to the U.S. dollar.

        The Canadian operations are exposed to currency risk on U.S
        denominated financial assets and liabilities with fluctuations in the
        rate recognized as foreign exchange gains or losses in the
        consolidated statements of earnings.

        The Company's self-sustaining U.S. subsidiary exposes the Company to
        exchange rate risk on the translation of its financial assets and
        liabilities to Canadian dollars for consolidation purposes.
        Adjustments arising when translating the U.S. subsidiary into
        Canadian dollars are reflected in the consolidated statements of
        comprehensive income as unrealized foreign currency translation
        adjustments.

        The Company has not hedged either one of these risks.

        For the six months ended June 30, 2008, had the Canadian dollar
        weakened or strengthened by 1% against the U.S. dollar, with all
        other variables held constant, earnings and other comprehensive
        income would have been impacted as follows:

        ---------------------------------------------------------------------
                                                      6 months ended June 30
        ---------------------------------------------------------------------
                                                                   Impact to
                                                                       Other
                                                   Impact to   Comprehensive
                                                    Earnings          Income
        ---------------------------------------------------------------------
                                                          ($)             ($)
        1% decrease in value of Canadian dollar          300           1,600
        1% increase in value of Canadian dollar         (300)         (1,600)


        Interest Rate Risk

        The Company is exposed to changes in interest rates with respect to
        its credit facility. Management believes this risk to be minor given
        the small amounts drawn on the facility.

    5.  Sale of Investment

        During the second quarter of 2008, the Company sold its investment in
        a privately held company and realized a gain of $1.0 million.

    6.  Common Share Dividend

        During the second quarter of 2008, the Company declared a dividend of
        $8,187 (2007 - $5,978) or $0.10 per common share (2007 - $0.075). The
        Company has transferred these funds to the transfer agent to be held
        in trust until the dividend payment is made on July 2, 2008.

    7.  Segmented Information

        The Company operates in three geographic segments within one industry
        segment. Rental services are provided in Canada, the United States
        and internationally (South America, Mexico and Australia). The
        amounts related to each segment are as follows:

        ---------------------------------------------------------------------
                                              United
                                  Canada      States   International   Total
        ---------------------------------------------------------------------
                                      ($)         ($)         ($)         ($)

        Three Months Ended
         June 30, 2008
        Revenue                   12,936      38,992       2,252      54,180
        Operating costs           10,174      16,396         356      26,926
        Depreciation and
         amortization              6,432       5,777         580      12,789
        ---------------------------------------------------------------------
        Segment operating (loss)
         profit                   (3,670)     16,819       1,316      14,465
        ---------------------------------------------------------
        ---------------------------------------------------------
        Research and development                                       3,459
        Stock-based compensation                                       1,336
        Corporate services                                             1,298
        Interest                                                          61
        Gain on sale of investment                                      (999)
        Income taxes                                                   2,851
                                                                     --------
        Earnings                                                       6,459
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Capital expenditures      (1,348)     13,825       1,579      14,056
        ---------------------------------------------------------------------

        ---------------------------------------------------------------------
        Three Months Ended
         June 30, 2007
        Revenue                   10,818      32,217       1,562      44,597
        Operating costs            8,406      12,586         361      21,353
        Depreciation and
         amortization              5,922       5,641         295      11,858
        ---------------------------------------------------------------------
        Segment operating (loss)
         profit                   (3,510)     13,990         906      11,386
        ---------------------------------------------------------
        ---------------------------------------------------------
        Research and development                                       1,872
        Stock-based compensation                                       1,655
        Corporate services                                             1,074
        Interest                                                          26
        Income taxes                                                   1,383
                                                                     --------
        Earnings                                                       5,376
        ---------------------------------------------------------------------
        Capital expenditures       7,443      11,648       2,429      21,520
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        ---------------------------------------------------------------------
                                              United
                                  Canada      States   International   Total
        ---------------------------------------------------------------------
                                      ($)         ($)         ($)         ($)
        Six Months Ended
         June 30, 2008
        Revenue                   49,386      73,869       4,178     127,433
        Operating costs           19,964      31,534         596      52,094
        Depreciation and
         amortization             12,917      11,624       1,132      25,673
        ---------------------------------------------------------------------
        Segment operating profit  16,505      30,711       2,450      49,666
        ---------------------------------------------------------
        ---------------------------------------------------------
        Research and development                                       6,952
        Stock-based compensation                                       2,672
        Corporate services                                             2,547
        Interest                                                         240
        Gain on sale of investment                                      (999)
        Income taxes                                                  10,929
        	                                                           --------
        Earnings                                                      27,325
        ---------------------------------------------------------------------
        Total assets             151,906     180,308      14,749     346,963
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Capital expenditures       1,315      23,087       2,258      26,660
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Six Months Ended
         June 30, 2007
        Revenue                   46,288      65,261       3,368     114,917
        Operating costs           18,773      27,614         885      47,272
        Depreciation and
         amortization             12,405      10,712         585      23,702
        ---------------------------------------------------------------------
        Segment operating profit  15,110      26,935       1,898      43,943
        ---------------------------------------------------------
        ---------------------------------------------------------
        Research and development                                       4,147
        Stock-based compensation                                       2,805
        Corporate services                                             2,469
        Interest                                                          63
        Income taxes                                                  10,559
                                                                     --------
        Earnings                                                      23,900
        ---------------------------------------------------------------------
        Total assets             142,900     116,714      12,044     271,658
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Capital expenditures      17,745      19,929       4,019      41,693
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
    





For further information:

For further information: Pason Systems Inc., Jim Hill, President and
CEO, Phone: (403) 301-3401, Fax: (403) 301-3499, E-mail: jim.hill@pason.com;
Jim Glasspoole, Chief Financial Officer, Phone: (403) 692-3840, Fax: (403)
301-3411, E-Mail: jim.glasspoole@pason.com


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