Tero Oilfield Services Ltd.
Condensed Financial Statements
September 30, 2014 and 2013

Tero Oilfield Services Ltd.
Condensed Balance Sheets
		September		June 30,
		30, 2014		2014
		(Unaudited)
ASSETS
CURRENT ASSETS:
Cash	$	34,858	$	21,208
Accounts receivable, net		312,283		202,359
Other current assets		19,493		20,376
Total current assets		366,634		243,943
Property and equipment, net		396,302		427,712
TOTAL ASSETS	$	762,936	$	671,655
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued liabilities		94,267	$	71,174
Current maturities of long-term debt		87,846		91,925
Due to shareholders		45,387		47,494
Total current liabilities		227,500		210,593
Notes payable, less current maturities		274,220		286,952
Asset retirement obligations		259,132		271,164
TOTAL LIABILITIES		760,852		768,709
SHAREHOLDERS’ EQUITY (DEFICIT)		2,084		(97,054	)
TOTAL LIABILITIES AND SHAREHOLDER’S EQUITY (DEFICIT)	$	762,936	$	920,447

The accompanying notes are an integral part of these condensed financial statements.

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Tero Oilfield Services Ltd.
Condensed Statements of Income and Shareholders’ Equity (Deficit)
		For the Three Months Ended
		September 30,
		2014			2013
REVENUE	$	406,358		$	293,069
COST OF GOODS SOLD		163,460			207,235
Gross profit		242,898			85,834
OPERATING EXPENSES:
Selling and marketing		2,063			2,102
Depreciation		21,751			24,215
General and administrative		106,599			112,751
TOTAL OPERATING EXPENSES		130,413			139,068
Operating income (loss)		112,485			(53,234	)
OTHER INCOME (EXPENSES):
Interest expense, net		(5,639	)		(2,396	)
TOTAL OTHER EXPENSES		(5,639	)		(2,396	)
Earnings (loss) before income taxes		106,846			(55,630	)
Provision for income taxes		10,000			--
NET INCOME (LOSS)		96,846			(55,630	)
Other Comprehensive Income:
Cumulative translation adjustment		2,292			(205	)
COMPREHENSIVE INCOME (LOSS)	$	99,138		$	(55,835	)
SHAREHOLDERS’ EQUITY (DEFICIT):
Shareholders’ equity (deficit) – Beginning of period	$	(97,054	)	$	13,716
Net income (loss)		96,846			(55,630	)
Cumulative Translation Adjustment		2,292			(205	)
Shareholders’ equity (deficit) – End of period	$	2,084		$	(42,119	)

The accompanying notes are an integral part of these condensed financial statements.

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Tero Oilfield Services Ltd.
Condensed Statements of Cash Flows

		For the Three Months Ended
		September 30,
		2014			2013
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	96,846		$	(55,630	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		21,751			24,215
Changes in operating assets and liabilities:
Short-term investments		--			(1,870	)
Accounts receivable		(109,923	)		(103,246	)
Other current assets		883			2,651
Accounts payable and accrued liabilities		23,093			43,254
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITES		32,650			(90,626	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment		(8,920	)		(3,475	)
NET CASH USED IN INVESTING ACTIVITIES		(8,920	)		(3,475	)
CASH FLOWS FROM FINANCING ACTIVITIES
Debt retired		--			(3,706	)
NET CASH USED IN FINANCING ACTIVITIES		--			(3,706	)
Effects of currency translation on cash and cash equivalents		(10,080	)		4,165
NET INCREASE (DECREASE) IN CASH		13,650			(93,642	)
CASH AT BEGINNING OF PERIOD		21,208			56,138
CASH (BANK OVERDRAFT) AT END OF PERIOD	$	34,858		$	(37,504	)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the periods for:
Interest	$	--		$	--
Income taxes	$	--		$	--
NON-CASH INVESTING AND FINANCING
ACTIVITIES:	$	--		$	--

The accompanying notes are an integral part of these condensed financial statements.

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Tero Oilfield Services Ltd.
Notes to Condensed Financial Statements
September 30, 2014 and 2013

NOTE 1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Tero Oilfield Services Ltd, Inc. (“the Company”, “Tero”) was incorporated in the State of Alberta on January 31, 1997.

Tero Oilfield Services Ltd., an energy services company, provides specialized services to upstream oil and natural gas companies operating in the Western Canadian Sedimentary Basin. Through the exploration and production of oil and gas a significant regular stream of waste is generated by the oil and gas producers. The oil and gas producers are required to dispose of this waste in an environmentally approved manner as stipulated by Alberta Energy, Alberta’s energy regulator.

The Company assists upstream oil and natural gas companies with the disposal fluids and solids and/or treatment of by-products. To dispose of liquid wastes, oil and gas producers are required to inject them into approved permitted injection wells. An injection well disposes of the waste fluids deep into the ground into porous rock formations outside of known oil and gas production zones and well as underground aquifers. The company owns and operates a full Class 1B liquid and sold oilfield waste handling facility in Wardlow, Alberta, Canada. This class of well is approved for the disposal of produced water, specific common oilfield waste streams and waste streams meeting specific criteria.

On August 20, 2012, the Company entered into a letter of intent with Lithium Exploration Group, Inc. (Lithium) pursuant to which Tero agreed to sell to 75% of its issued and outstanding common shares of Lithium in exchange for an aggregate of $1,500,000 Canadian.

On March 1, 2014, Alta Disposal Ltd. (Alta), a wholly-owned subsidiary of Lithium, completed a share purchase agreement with Tero and Garry Hofmann, the sole shareholder of Tero. Pursuant to the agreement, Mr. Hofmann agreed to sell and Lithium agreed to purchase 50% of the issued and outstanding common shares of Tero in exchange for an aggregate of $1,000,000 Canadian.

Lithium has been granted an option to acquire an additional 25% of the shares in Tero for $500,000 Canadian by February 28, 2015.

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Tero Oilfield Services Ltd.
Notes to Condensed Financial Statements
September 30, 2014 and 2013

Basis of Presentation

The accompanying condensed financial statements are unaudited. The unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.

These interim financial statements as of and for the three months ended September 30, 2014 and 2013 are unaudited; however, in the opinion of management, such statements include all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position, results of operations and cash flows of the Company for the periods presented. The results for the three months ended September 30, 2014 are not necessarily indicative of the results to be expected for the year ending December 31, 2014 or for any future period. All references to September 30, 2014 and 2013 in these footnotes are unaudited.

The condensed balance sheet as of June 30, 2014 has been derived from the audited financial statements at that date but do not include all disclosures required by the accounting principles generally accepted in the United States of America.

Use of Estimates

In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash

For the purpose of the statement of cash flows, the Company considers all highly liquid investments purchased with a maturity of three months or less at date of acquisition to be cash equivalents.

Short-Term Investments

The Company invests excess cash in GST accounts with maturities typically at one year.

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Tero Oilfield Services Ltd.
Notes to Condensed Financial Statements
September 30, 2014 and 2013

Accounts Receivable

Accounts receivable arise in the normal course of business and are reported net of an allowance for doubtful accounts. The allowance is based on management’s estimate of the uncollectible trade accounts receivable based on historical collection experience and management’s evaluation of the collectability of outstanding accounts receivable. Contractual terms and payment history determine when receivables are delinquent. The Company evaluated its accounts receivable at September 30, 2014 and did not record an allowance for doubtful accounts because of the assurance of collectability of those receivables. The Company’s allowance for doubtful accounts at September 30, 2013 was $1,601.

Impairment of Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. If the sum of the expected future undiscounted cash flow is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and carrying value of the asset. There were no impairment losses taken for the three months ended September 30, 2014 and 2013.

Revenue Recognition

It is the Company’s policy that revenue from product sales or services will be recognized in accordance with ASC 605“Revenue Recognition”. Four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company will defer any revenue for which the product was not delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required.

The Company generates revenue by handling waste generated by oil and gas producers in the area. Specifically, the waste streams handled by the Company can be classified into the following categories:

• Fluids Disposal -Fluid disposal consists of the disposal of rig tank and workover water, produced water and frac water.
• Solids Disposal-Solid waste is produced in drilling, production, well servicing, and vessel cleaning. It is generally brought to waste disposal facilities mixed with liquids is then separated, tested, dewatered, then sent to a landfill for disposal.
• Oil Skimming-Through a process of heating and the use of various chemicals, the Company processes oilfield waste to separate to solids, water and oil. The oil is stored on site temporarily until sufficient volumes are accumulated to be shipped through pipeline.

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Tero Oilfield Services Ltd.
Notes to Condensed Financial Statements
September 30, 2014 and 2013

Asset Retirement Obligation

The liability for the fair value of environmental and site restoration obligations are recorded when the obligations are incurred and the fair value can be reasonably estimated. The obligations are normally incurred at the time the related assets are brought into production. The fair value of the obligation is based on the estimated cash flows required to settle the obligations discounted using an estimate of the Company's financing rate. The fair value of the obligations is recorded as a liability with the same amount recorded as an increase in capitalized costs. The amounts included in capitalized costs are amortized using an amortization rate of 10%. The liability is adjusted for accretion expense representing the increase in the fair value of the obligations due to the passage of time.

Cost of Goods Sold

Cost of goods sold for the quarters ended September 30, 2014 and 2013 consisted of the following:

		2014		2013
Fuel & oil disposal	$	22,399	$	11,507
Insurance		10,697		10,042
Repairs and maintenance		32,236		91,520
Skim oil processing fees		12,929		8,040
Solids processing		55,984		30,680
Subcontract trucking		9,063		10,112
Utilities		6,533		9,059
Other		13,619		36,275
TOTAL COST OF GOODS SOLD	$	163,460	$	207,235

Advertising

The Company expenses the costs associated with advertising when incurred. Advertising expense totaled $2,063 and $2,102 for the quarters ended September 30, 2014 and 2013, respectively.

Foreign currency translation

The Company’s reporting is the US Dollar and the functional currency is Canadian Dollars. The accounts of the Company are maintained using the local currency (Canadian Dollar) as the functional currency. All assets and liabilities are translated into U.S. Dollars at balance sheet date, shareholders’ equity is translated at historical rates and revenue and expense accounts are translated at the average exchange rate for the year or the reporting period. The translation adjustments are deferred as a separate component of stockholders’ equity, captioned as accumulated other comprehensive (loss) gain. Transaction gains and losses arising from exchange rate fluctuation on transactions denominated in a currency other than the functional currency are included in the consolidated statements of operations.

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Tero Oilfield Services Ltd.
Notes to Condensed Financial Statements
September 30, 2014 and 2013

Comprehensive Income (Loss)

FASC Topic No. 220, “Comprehensive Income,” establishes standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. From inception to September 30, 2014, the Company had no material items of other comprehensive income except for the foreign currency translation adjustment.

NOTE 2 – CONCENTRATIONS OF CREDIT RISK

The Company maintains cash balances in bank deposit accounts which, at times, may exceed Canadian federally insured limits. The Company has not experienced any losses in such accounts and management believes it is not exposed to any significant credit risks associated with these accounts. There was no excess of the deposit liabilities over the amounts covered by federal insurance at September 30, 2014 and 2013.

The Company grants credit to its customers throughout Canada and generally do not require collateral. Consequently, the company’s ability to collect the amounts due from customers is affected by economic fluctuations in the oil and gas industry.

NOTE 3 – ACCOUNTS RECEIVABLE

Accounts receivable at September 30, 2014 and June 30, 2014 consisted of the following:

		September		June 30,
		30, 2014		2014
Accounts receivable	$	312,283	$	202,359
Less allowance for doubtful accounts		--		-
	$	312,283	$	202,359

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Tero Oilfield Services Ltd.
Notes to Condensed Financial Statements
September 30, 2014 and 2013

NOTE 4 – PROPERTY AND EQUIPMENT

Property and equipment at September 30, 2014 and June 30, 2014 consisted of the following:

		September			June 30, 2014
		30, 2014
Vehicles	$	365,277		$	382,238
Disposal wells		497,053			520,131
Machinery and equipment		957,800			992,992
		1,820,130			1,895,361
Less accumulated depreciation		(1,423,828	)		(1,467,649	)
Net book value	$	396,302		$	427,712

Depreciation expense for property and equipment was $21,751 and $24,215 for the quarters ended September 30, 2014 and 2013.

NOTE 5 – INCOME TAXES

The Company is treated as a Canadian controlled private corporation for federal and provincial taxes. Earnings (losses) before income taxes were $106,846 and $(55,630) for the quarters ending September 30, 2014 and 2013.

Tax Rate Reconciliation	2014		2013
Federal statutory rate	38.0 %		38.0 %
Statutory deductions	(23.9	)	38.0
Provincial statutory rate, net of federal tax benefit	.5		--
Effective tax rate	14.6 %		-- %

Provision for Income Taxes		2014		2013
Federal	$	9,425	$	--
Provincial		575		--
Total	$	10,000	$	--

NOTE 5 – SHAREHOLDER ADVANCES

Shareholder advances consisted of $45,387 and $47,494 at September 30, 2014 and June 30, 2014, respectively. The advances do not bear interest, have a specified due date or require collateral.

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Tero Oilfield Services Ltd.
Notes to Condensed Financial Statements
September 30, 2014 and 2013

NOTE 6 – LONG-TERM DEBT

Long-Term Debt at September 30, 2014 and June 30, 2014 consisted of the following:

		September			June 30,
		30, 2014			2014
Note for share redemption payable in annual installments of $95,087 with the first installment due on March 1, 2014 including accrued interest at 2%.	$	362,066		$	378,877
Less current maturities		(87,846	)		(91,925	)
	$	274,220		$	286,952

Future principal payments on the note payable are scheduled as follows:

Year Ending September 30,

		2014
2015	$	87,846
2016		89,588
2017		91,394
2018		93,238
2019		--
	$	362,066

NOTE 7 – ASSET RETIREMENT OBLIGATION

The Company owns and operates a full Class 1B liquid and solid oilfield waste handling facility in Wardlow, Alberta, Canada. Annual inspections are performed by the Waste Management and Liability Management Departments of the Alberta Energy Regulator (AER). AER requires the Company to secure Letters of Credit or make deposits equal to the estimated costs of well and surface facility abandonment and reclamation.

		September			June 30,
		30, 2014			2014
Asset retirement obligation at beginning of year	$	287,260		$	259,667
Accretion expense		--			-
Change due to foreign currency translation		(28,128	)		11,497
Asset retirement obligation	$	259,132		$	271,164

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Tero Oilfield Services Ltd.
Notes to Condensed Financial Statements
September 30, 2014 and 2013

NOTE 8 – COMMITMENTS AND CONTINGENCIES

Litigation

The Company is not involved in any litigation and Management is not aware of any outstanding contingencies.

Leases and Obligations

The Company entered into a surface easement lease for road usage through an agreement dated September 27, 1997 and amended on April 28, 2005 which permits use of 5.432 acres for $2,420 per year. The lease is renewed annually.

The Company has obtained Letters of Credit from its bank to satisfy its legal obligations to remediate well and surface abandonment as explained in Note 7. The outstanding balances of the Letters of Credit were $259,132 and $271,164 at September 30, 2014 and June 30, 2014, respectively.

NOTE 9 – MAJOR CUSTOMERS AND VENDORS

The Company has four customers that represent approximately 65% of its revenue for the quarters ended September 30, 2014. The Company has six customers that represent approximately 80% of its accounts receivable at September 30, 2014. The Company is not reliant on any specific vendor for its equipment purchases and can establish additional relationships with minimal disruption.

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