Xebec Adsorption Inc.
Consolidated Financial Statements
December 31, 2012 and 2011
(expressed in Canadian dollars)
April 1, 2013
Independent Auditor’s Report
To the Shareholders of
Xebec Adsorption Inc.
We have audited the accompanying consolidated financial statements of Xebec Adsorption Inc. and its
subsidiaries, which comprise the consolidated statements of financial position as at December 31, 2012
and 2011 and the consolidated statements of earnings (loss), comprehensive income (loss), changes in
equity (deficiency) and cash flows for the years then ended, and the related notes, which comprise a
summary of significant accounting policies and other explanatory information.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with International Financial Reporting Standards, and for such internal control
as management determines is necessary to enable the preparation of consolidated financial statements
that are free from material misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those
standards require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the consolidated financial statements. The procedures selected depend on the auditor’s judgment,
including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order
to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements.
PricewaterhouseCoopers LLP/s.r.l./s.e.n.c.r.l.
1250 René-Lévesque Boulevard West, Suite 2800, Montréal, Quebec, Canada H3B 2G4
T: +1 514 205 5000, F: +1 514 876 1502
“PwC” refers to PricewaterhouseCoopers LLP/s.r.l./s.e.n.c.r.l., an Ontario limited liability partnership.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a
basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of Xebec Adsorption Inc. and its subsidiaries as at December 31, 2012 and 2011 and their financial
performance and their cash flows for the years then ended in accordance with International Financial
Reporting Standards.
1 CPA auditor, CA, public accountancy permit No. A111799
(2)
Xebec Adsorption Inc.
Consolidated Statements of Financial Position
(expressed in Canadian dollars)
Assets
Current assets
Cash
Trade and other receivables (note 7)
Inventories (note 8)
Short-term portion of balance of sale (note 15b))
Investment tax credits receivable
Other current assets
Total current assets
Non-current assets
Balance of sale (note 15b))
Property, plant and equipment (note 9)
Intangible assets (note 10)
Goodwill (note 10)
Total non-current assets
Total assets
Liabilities
Current liabilities
Bank loan (note 11)
Trade payables (note 12)
Accrued liabilities
Deferred revenues (note 13)
Current portion of long-term debt and obligation (note 15a))
Current portion of government royalty program obligation (note 15c))
Provisions (note 14)
Total current liabilities
Non-current liabilities
Loan from a related party (note 25)
Long-term debt and obligation (note 15a))
Government royalty program obligation (note 15c))
Government assistance
Deferred rent
Provisions (note 14)
Total non-current liabilities
Total liabilities
Equity (Deficiency)
Share capital (note 16)
Contributed surplus
Accumulated other comprehensive loss
Deficit
Non-controlling interest (note 5)
Total equity
Total liabilities and equity
As at
December 31,
2012
$
As at
December 31,
2011
$
1,344,114
3,936,746
1,662,494
200,000
75,000
425,102
7,643,456
600,000
369,976
978,258
142,616
2,090,850
9,734,306
166,952
3,799,491
1,144,539
1,067,987
76,474
365,959
161,692
6,783,094
-
117,649
714,853
22,083
32,980
326,308
1,213,873
7,996,967
19,732,623
2,316,580
(48,870)
(20,528,866)
1,471,467
265,872
1,737,339
9,734,306
389,090
2,444,842
1,365,260
-
75,000
329,292
4,603,484
800,000
548,671
3,988,317
342,616
5,679,604
10,283,088
500,000
4,547,515
1,195,825
2,506,474
141,786
195,949
390,549
9,478,098
23,562
236,729
752,972
27,083
6,596
65,169
1,112,111
10,590,209
19,802,272
2,168,550
(71,521)
(22,211,793)
(312,492)
5,371
(307,121)
10,283,088
The accompanying notes are an integral part of these consolidated financial statements.
Approved by the Board of Directors
___________________________________ Director
(signed) Kurt Sorchak
(signed) John Shakeshaft
___________________________________ Director
Xebec Adsorption Inc.
Consolidated Statements of Earnings (Loss)
For the years ended December 31, 2012 and 2011
(expressed in Canadian dollars)
Revenue
Cost of goods sold
Gross margin
Research and development expenses (note 19)
Selling and administrative expenses
Foreign exchange loss (gain)
Gain on disposition of assets (note 6)
Loss on loan to a joint venture (note 5)
Operating income (loss)
Finance income
Finance expense (note 20)
Finance costs – net
2012
$
2011
$
15,179,121
14,203,463
12,032,774
3,146,347
142,585
6,501,102
47,834
(6,445,769)
-
9,999,460
4,204,003
550,345
6,846,178
(107,050)
(2,275,092)
138,105
245,752
5,152,486
2,900,595
(47,561)
1,009,303
961,742
(948,483)
(9,410)
517,877
508,467
Net income (loss) for the year
1,938,853
(1,456,950)
Earnings (loss) attributable to:
Shareholders of the Company
Non-controlling interest
Earnings (loss) per share
Basic (note 16)
Diluted (note 16)
1,682,927
255,926
1,938,853
0.04
0.04
(1,447,123)
(9,827)
(1,456,950)
(0.04)
(0.04)
The accompanying notes are an integral part of these consolidated financial statements.
Xebec Adsorption Inc.
Consolidated Statements of Comprehensive Income (Loss)
For the years ended December 31, 2012 and 2011
(expressed in Canadian dollars)
Net income (loss) for the year
Other comprehensive income (loss)
Cumulative translation adjustment
2012
$
2011
$
1,938,853
(1,456,950)
27,226
(162,784)
Comprehensive income (loss) for the year
1,966,079
(1,619,734)
Attributable to:
Shareholders of the Company
Non-controlling interest (note 5)
1,705,578
260,501
1,966,079
(1,591,266)
(28,468)
(1,619,734)
The accompanying notes are an integral part of these consolidated financial statements.
Xebec Adsorption Inc.
Consolidated Statements of Changes in Equity (Deficiency)
For the years ended December 31, 2012 and 2011
(expressed in Canadian dollars)
Number
Common
shares
Warrants
Share capital
– Common
shares and
warrants
$
Contributed
surplus
$
Accumulated
other
comprehensive
income (loss)
$
Equity
attributable
to the
Company
$
Non-
controlling
interest
$
Deficit
$
Amount
Total
$
Balance – January 1, 2011
39,363,867
15,456,424
19,964,218
1,841,741
72,622
(20,764,670)
1,113,911
-
1,113,911
Net loss for the year
Other comprehensive loss
Comprehensive loss for the year
Expired warrants (note 16)
Share-based compensation
Non-controlling interest at business acquisition
-
-
-
-
-
-
-
-
-
(4,798,288)
-
-
-
-
-
(161,946)
-
-
-
-
-
(144,143)
(1,447,123)
-
(1,447,123)
(144,143)
(9,827)
(18,641)
(1,456,950)
(162,784)
-
161,946
164,863
-
(144,143)
-
-
-
(1,447,123)
-
-
-
(1,591,266)
-
164,863
-
(28,468)
-
-
33,839
(1,619,734)
-
164,863
33,839
Balance – December 31, 2011
39,363,867
10,658,136
19,802,272
2,168,550
(71,521)
(22,211,793)
(312,492)
5,371
(307,121)
Balance – January 1, 2012
39,363,867
10,658,136
19,802,272
2,168,550
(71,521)
(22,211,793)
(312,492)
5,371
(307,121)
Net income (loss) for the year
Other comprehensive loss
Comprehensive loss for the year
Expired warrants (note 16)
Share-based compensation
-
-
-
-
-
-
-
-
(566,250)
-
-
-
-
(69,649)
-
-
-
-
69,649
78,381
-
22,651
22,651
-
-
1,682,927
-
1,682,927
-
-
1,682,927
22,651
1,705,578
-
78,381
255,926
4,575
260,501
-
-
1,938,853
27,226
1,966,079
-
78,381
Balance – December 31, 2012
39,363,867
10,091,886
19,732,623
2,316,580
(48,870)
(20,528,866)
1,471,467
265,872
1,737,339
Accumulated other comprehensive income relates solely to cumulative translation adjustments.
The accompanying notes are an integral part of the consolidated financial statements.
Xebec Adsorption Inc.
Consolidated Statements of Cash Flows
For the years ended December 31, 2012 and 2011
(expressed in Canadian dollars)
Cash flows from
Operating activities
Net income (loss) for the year
Items not affecting cash
Amortization of property, plant and equipment
Amortization of intangible assets
Loss (gain) on disposal of property, plant and equipment
Gain on disposition of assets (note 6)
Gain on debt forgiveness
Government assistance
Unrealized foreign exchange loss on loan to a joint venture and restricted cash
Loss on loan to a joint venture
Accretion and revaluation of government royalty program obligation
Stock-based compensation expense
Deferred rent
Changes in non-cash working capital components relating to operations
Trade and other receivables
Inventories
Investment tax credits receivable
Other current assets
Trade payables
Accrued liabilities
Deferred revenues
Income taxes recoverable
Other operating liabilities
Investing activities
Acquisition of property, plant and equipment
Acquisition of intangible assets
Net proceeds from disposal of property, plant and equipment
Proceeds from disposal of assets (note 6)
Cash acquired on acquisition of a business
Decrease in restricted cash
Financing activities
Repayment of bank loan
Increase in long-term debt
Repayment of loan from a shareholder of joint venture
Repayment of long-term debt
Repayment of government royalty program obligation
Effect of exchange rate changes on cash
Increase (decrease) in cash during the year
Cash – Beginning of year
Cash – End of year
Additional information
Interest paid
2012
$
2011
$
1,938,853
(1,456,950)
142,652
325,619
,192
(6,445,961)
(134,980)
(5,000)
-
-
921,891
78,381
26,384
(3,151,969)
(1,491,904)
(297,234)
-
(95,810)
(613,044)
(51,286)
(1,289,008)
-
32,282
(3,806,004)
(6,957,973)
(133,105)
(84,972)
19,000
9,414,519
-
-
9,215,442
(333,048)
9,807
(24,123)
(194,199)
(790,000)
(1,331,563)
29,118
955,024
389,090
1,344,114
385,073
512,597
(2,275,092)
-
(101,701)
(5,000)
(1,603)
138,105
257,382
164,863
-
(2,382,326)
374,323
1,457,662
28,489
(226,618)
(1,137,581)
(269,126)
(144,852)
(8,286)
(885,566)
(811,555)
(3,193,881)
(2,191)
(16,972)
2,468,981
-
47,066
576,092
3,072,976
-
9,568
23,562
(1,742,329)
-
(1,709,199)
(43,079)
(1,873,183)
2,262,273
389,090
89,011
260,108
The accompanying notes are an integral part of the consolidated financial statements.
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
(expressed in Canadian dollars)
1 Nature of business and liquidity risk
a) Nature of business
Xebec Adsorption Inc. (“Xebec” or the “Company”) is a global provider which specializes in the
design and manufacture of cost-effective, environmentally responsible, purification, separation,
dehydration, and filtration equipment for gases and compressed air. Xebec’s main product lines are:
Biogas Plants for the purification of biogas from agricultural digesters, landfill sites and waste water
treatment plants, Natural Gas Dryers for NGV refuelling stations, Associated Gas Purification Systems
which enable diesel displacement on drilling sites, and Hydrogen Purification Systems for fuel cell and
industrial applications. The Company is incorporated and domiciled in Canada and is listed on the
Toronto Stock Exchange under the symbol XBC. The address of its registered office is 730 Industriel
Boulevard, Blainville, Quebec, Canada.
b) Liquidity risk
The Company has realized an operating profit of $2,900,595, had cash outflows from operations of
$6,957,973 for the year ended December 31, 2012 and finished the year with cash amounting to
$1,344,114, working capital of $860,362 and had access to credit facilities totalling $1,500,000 of
which only $166,952 has been used. The Company is currently in breach of its TPC agreement but
obtained a four month extension (note 29b)). During the fourth quarter of 2012, management
undertook various initiatives and developed a plan to manage its operating and liquidity risks in light
of prevailing economic conditions. Management is also currently seeking alternative financings for its
operations such as asset-based lending facilities. The Company has prepared a budget for 2013 for
which management believes the assumptions are reasonable. Achieving budgeted results is dependent
on improving the volume of revenues, delivering on sales and contracts schedules, meeting expected
overall operating margin levels and controlling general and administrative costs. Management expects
to meet its budget and to have enough liquidity to fund operations to at least beyond December 31,
2013.
The Company is thus faced with uncertainties that may have an impact on future operating results and
liquidity. These uncertainties include reduced spending in biogas projects reflecting the weakness of
the market, fluctuations in foreign currency rates and achieving the Company’s business plan goals as
mentioned in the previous paragraph, which includes the development of a new business segment.
While management believes it has developed planned courses of action to mitigate operating and
liquidity risks, there is no assurance that management will be able to achieve its business plan and
maintain the necessary liquidity level if events or conditions develop that are not consistent with
management’s expectations, key budget assumptions for 2013 and planned courses of action.
Therefore, the Company may require additional external funding and there is no assurance that it
would be successful. It is possible that future changes in capital markets conditions could result in such
funding not being available when required or at acceptable costs. The Company is unable to predict the
possible effects, if any, of such uncertainties and the potential adjustments to the carrying values of
assets and liabilities that could be needed should the Company have insufficient liquidity. Such
adjustments could be material.
(1)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
(expressed in Canadian dollars)
2 Basis of preparation
The Company prepares its financial statements in accordance with generally accepted accounting principles
in Canada (“GAAP”) as set out in the Handbook of the Canadian Institute of Chartered Accountants - Part I
(“CICA Handbook”) which incorporates International Financial Reporting Standards (“IFRS”) as issued by
the International Accounting Standards Board (“IASB”).
These financial statements were approved for issue by the Board of Directors of the Company on April 1st,
2013.
These financial statements are based on the accounting policies as described below. These policies have
been consistently applied to all the periods presented, unless otherwise stated.
3
Significant accounting policies
Basis of measurement
These consolidated financial statements have been prepared under the historical cost convention, except for
the revaluation of certain financial assets and financial liabilities to fair value.
Basis of consolidation
These consolidated financial statements include the accounts of the Company and its subsidiaries.
Subsidiaries are entities controlled by the Company. Control exists when Xebec is able to govern the
financial and operating activities of those entities to generate returns for the Company. Intercompany
transactions, balances and unrealized gains and losses on transactions between different entities within the
Company are eliminated. Subsidiaries include Xebec Adsorption (Shanghai) Co. Ltd., which is wholly
owned, and Xebec Adsorption South East Asia PTE. Ltd., which is 56.49% owned. Subsidiaries are fully
consolidated from the date on which control is obtained by the Company and are deconsolidated from the
date that control ceases.
Non-controlling interest represents equity interest in a subsidiary owned by an outside party. The share of
net assets of subsidiaries attributable to non-controlling interest is presented as a component of equity. Its
share of net earnings and comprehensive income is recognized directly in equity. Changes in the
Company’s ownership interest in a subsidiary that do not result in a loss of control are accounted for as
equity transactions.
Trade receivables
Trade receivables are amounts due from customers for merchandise sold or services performed in the
ordinary course of business. If collection is expected in one year or less (or in the normal operating cycle of
the business if longer), they are classified as current assets. If not, they are presented as non-current assets.
Trade receivables are recognized initially at fair value and subsequently measured at amortized cost using
the effective interest method, less provision for impairment.
(2)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
(expressed in Canadian dollars)
Inventories
Inventories are stated at the lower of cost and net realizable value for raw materials, work in progress and
finished goods. Costs of raw materials are determined on an average cost basis. Work in progress and
finished goods include materials, direct labour and production overhead (based on normal operating
capacity). Net realizable value is the estimated selling price less applicable selling expenses. Inventories are
recorded net of any obsolescence provision.
A new assessment is made in each subsequent year when inventories are adjusted to net realizable value.
When the circumstances that previously caused inventories to be written down below cost no longer exist or
when there is clear evidence of an increase in net realizable value because of changed economic
circumstances, the amount of the writedown is reversed (i.e., the reversal is limited to the amount of the
original writedown) so that the new carrying amount is the lower of cost and the revised net realizable
value.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment
losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. Subsequent
costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only
when it is probable that future economic benefits associated with the item will flow to the Company and the
cost can be measured reliably. The carrying amount of a replaced asset is derecognized when replaced.
Repairs and maintenance costs are charged to the consolidated statement of loss during the year in which
they are incurred.
The major categories of property, plant and equipment are depreciated on a straight-line basis as follows:
Machinery and equipment
Office furniture and equipment
Computers
Moulds
Vehicles
Leasehold improvements
3 to 10 years
5 years
3 years
5 years
5 years
Lesser of economic life
and lease term
The Company allocates the amount initially recognized in respect of an item of property, plant and
equipment to its significant components and depreciates each such component separately. Residual values,
method of depreciation and useful lives of the assets are reviewed annually and adjusted if appropriate.
Gains and losses on disposals of property, plant and equipment are determined by comparing the proceeds
with the carrying amount of the asset and are included as part of other gains and losses in the consolidated
statement of earnings.
(3)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
(expressed in Canadian dollars)
Identifiable intangible assets
The Company’s intangible assets include patents, customer relations, software and engineering drawings.
These assets are capitalized and amortized on a straight-line basis in the consolidated statement of loss over
the period of their expected useful lives.
Patent costs are amortized over fifteen years. Customer relations are amortized over six years. Engineering
drawings, consisting of engineering costs incurred to develop product plans, and software are amortized
over a period of three years.
Impairment of non-financial assets
Property, plant and equipment and intangible assets are tested for impairment whenever events or changes
in circumstances indicate that their carrying amounts may not be recoverable. Long-lived assets that are not
amortized are subject to an annual impairment test. For the purpose of measuring recoverable amounts,
assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-
generating units or CGUs). The recoverable amount is the higher of an asset’s fair value less costs to sell
and its value in use (being the present value of the expected future cash flows of the relevant asset or CGU).
An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its
recoverable amount.
The Company evaluates impairment losses, other than goodwill impairment, for potential reversals when
events or circumstances warrant such consideration.
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Company’s share of
the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill is tested annually
for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are
not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating
to the entity sold.
Goodwill is allocated to CGUs for the purpose of impairment testing. The allocation is made to those CGUs
that are expected to benefit from the business combination in which the goodwill arose, identified according
to operating segment.
Trade payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of
business from suppliers. Accounts payable are classified as current liabilities if payment is due within one
year or less. If not, they are presented as non-current liabilities. Trade payables are recognized initially at
fair value and subsequently measured at amortized cost using the effective interest method.
(4)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
(expressed in Canadian dollars)
Provisions
Provisions for restructuring costs, warranties and legal claims, where applicable, are recognized in accrued
liabilities when the Company has a present legal or constructive obligation as a result of past events, it is
more likely than not that an outflow of resources will be required to settle the obligation, and the amount
can be reliably estimated. Provisions are measured at management’s best estimate of the expenditure
required to settle the obligation at the end of the reporting year, and are discounted to present value where
the effect
is material. The Company performs evaluations to identify onerous contracts and, where
applicable, records provisions for such contracts.
During the normal course of its operations, the Company assumes certain maintenance and repair costs
under warranties offered on natural gas equipment, biogas and hydrogen purification equipment. The
warranties cover a period ranging from 12 to 18 months. A liability for the expected cost of the warranty-
related claims is established when the product is delivered and completed. In estimating the warranty
liability, historical material replacement costs and the associated labour costs are considered. Revisions are
made when actual experience differs materially from historical experience.
Financial instruments
Financial assets and financial
liabilities are recognized when the Company becomes a party to the
contractual provisions of the instrument. Financial assets are derecognized when the rights to receive cash
flows from the assets have expired or have been transferred and the Company has transferred substantially
all risks and rewards of ownership.
At initial recognition, the Company classifies its financial instruments in the following categories depending
on the purpose for which the instruments were acquired:
Cash
Trade and other receivables
Loan to a joint venture
Bank loan
Trade payables and accrued liabilities
Long-term debt
Government royalty program obligation
Subordinated loan
Loans and receivables
Loans and receivables
Loans and receivables
Other financial liabilities
Other financial liabilities
Other financial liabilities
Other financial liabilities
Other financial liabilities
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not
quoted in an active market. Loans and receivables are initially recognized at the amount expected to be
received, less, when material, a discount to reduce the loans and receivables to fair value. Subsequently,
loans and receivables are measured at amortized cost using the effective interest method less a provision for
impairment.
Other financial liabilities are initially measured at fair value and subsequently at amortized cost using the
effective interest method. Financial liabilities are classified as current liabilities if payment is due within
12 months. Otherwise, they are presented as non-current liabilities.
(5)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
(expressed in Canadian dollars)
The Company classifies embedded derivative financial instruments as fair value through profit or loss, and
values them at fair value at the end of each year, with changes recorded in other income. The Company
does not designate these derivative financial instruments as hedges.
Impairment of financial assets
At each reporting date, the Company assesses whether there is objective evidence that a financial asset is
impaired. If such evidence exists, the Company recognizes an impairment loss.
The loss on financial assets carried at amortized cost is the difference between the amortized cost of the
loan or receivable and the present value of the estimated future cash flows, discounted using the
instrument’s original effective interest rate. The carrying amount of the asset is reduced by this amount
either directly or indirectly through the use of an allowance account.
Impairment losses on financial assets carried at amortized cost are reversed in subsequent years if the
amount of the loss decreases and the decrease can be related objectively to an event occurring after the
impairment was recognized. Impairment losses on available-for-sale equity instruments are not reversed.
Government royalty program obligations
The Company receives from time to time, from different government agencies, funding designed to promote
economic growth, create jobs and wealth, and support sustainable development. In some of these
arrangements, the Company has a contractual obligation to repay the contributions to the government
agency, with repayments determined as a percentage of specified revenues over a contractually defined
royalty year. Such arrangements are recognized as government royalty program obligations at initial
recognition when the contribution is received. These obligations are estimated based on future projections,
discounted using a rate that reflects the liability-specific risks. Over time, interest expense is recognized as a
result of accretion of the long-term obligations, while royalty payments are recorded against the obligations.
Subsequently, the government royalty program obligations are remeasured when the future projections
initially used to measure the obligations are revised using the original discount rate. Resulting changes in
the carrying amount of these obligations are recognized in the consolidated statement of loss as Finance
expense.
Share capital
Common shares are classified as equity. Incremental costs directly attributable to the issuance of shares are
recognized as a deduction from share capital.
(6)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
(expressed in Canadian dollars)
Revenue recognition
The Company earns revenues mainly from the sale of natural gas dryers and hydrogen purification solutions
(“commercial equipment”). The Company recognizes revenue on commercial equipment sales when it is
probable that the economic benefits will flow to the Company and delivery has occurred, the sales price is
fixed or determinable, and collectibility is reasonably assured. These criteria are generally met at the time
the product is shipped and delivered to the customer and, depending on the delivery conditions, title and
risk have passed to the customer and acceptance of the product has been obtained. Provisions are
established for estimated product returns and warranty costs at the time revenue is recognized. Cash
received in advance of all of these revenue recognition criteria being met is recorded as deferred revenue.
Revenues from long-term production-type contracts such as biogas purification equipment and engineering
service contracts are determined under the percentage-of-completion method whereby revenues are
recognized based on the costs incurred to date in relation to the total expected costs of a contract (costs
being composed mainly of materials and labour). Costs and estimated profit on contracts in progress in
excess of amounts billed are reflected as work in progress. Cash received in advance of revenues being
recognized on contracts is recorded as deferred revenue.
The Company monitors its contracts with customers on a regular basis to determine if a loss is likely to
occur. If a loss is anticipated on a contract, the entire estimated loss is recorded as a cost of goods sold in
the period in which the loss becomes evident and reasonably estimable.
Revenues from licensing arrangements are recognized when it is probable that the economic benefits will
flow to the Company and that the sales price is fixed or determinable, and collectibility is reasonably
assured. These criteria are generally met at the time the contract is signed and title and risk have passed to
the customer.
Revenue is measured based on the price specified in the sales contract, net of discounts and estimated
returns at the time of sale. Historical experience is used to estimate and provide for discounts and returns.
Government assistance
Non-refundable grants relating to property, plant and equipment are accounted for as deferred government
assistance and amortized on the same basis as the related assets.
Research and experimental development tax credits are recognized using the cost reduction method when
there is reasonable assurance of their recovery. Investment tax credits are subject to the customary
approvals by the pertinent tax authorities. Adjustments, if required, are reflected in the year when such
assessments are received.
Leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are
classified as operating leases. Payments made under operating leases (net of any incentives received from
the lessor) are charged to the consolidated statement of loss on a straight-line basis over the lease term.
(7)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
(expressed in Canadian dollars)
Leases where the Company has substantially all the risks and rewards of ownership are classified as finance
leases. Finance leases are capitalized at the lease’s commencement at the lower of the fair value of the
leased property and the present value of the minimum lease payments.
Each lease payment is allocated between the liability and finance charges. The interest element of the
finance cost is charged to the consolidated statement of loss over the lease year so as to produce a constant
yearly rate of interest on the remaining balance of the liability for each year. Assets acquired under finance
leases are depreciated over the shorter of the useful life of the asset and the lease term.
Stock-based compensation plans
The Company accounts for stock options using the fair value method. Each tranche in an award is
considered a separate award with its own vesting year and grant date fair value. Fair value of each tranche is
measured at the date of grant using the Black-Scholes option pricing model. The Black-Scholes model was
developed to estimate the fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, this model usually requires the input of assumptions, including expected stock
price volatility. For options granted to directors, officers and employees of the Company, compensation
expense is recognized over the tranche’s vesting period by increasing contributed surplus based on the
number of awards expected to vest. The number of awards expected to vest is reviewed at least annually.
For options granted to non-employees, the transaction is measured with reference to the fair value of the
goods or services when received. Related expense is recognized over the period during which the goods or
services from the non-employees are received. A corresponding increase is recorded in contributed surplus
when stock options are expensed. When stock options are exercised, capital stock is credited by the sum of
the consideration paid and the related amount previously recorded in contributed surplus.
Research and development expenses
Research expenses are charged to expenses as incurred. Development expenses are charged to expenses as
incurred unless they meet criteria for deferral and amortization. To date, no development expenses have
been deferred.
Income taxes
Income tax comprises current and deferred tax. Income tax is recognized in the consolidated statement of
earnings (loss) except to the extent that it relates to items recognized directly in other comprehensive
income or equity, in which case the income tax is also recognized directly as such.
Current income tax is the expected tax payable on the taxable income for the year, using tax rates enacted or
substantively enacted at the end of the reporting year, and any adjustment to tax payable in respect of
previous years.
(8)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
(expressed in Canadian dollars)
In general, deferred income tax is recognized in respect of temporary differences arising between the tax
bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred
income tax is determined on a non-discounted basis using tax rates and laws that have been enacted or
substantively enacted at the statement of financial position date and are expected to apply when the deferred
tax asset or liability is settled. Deferred income tax assets are recognized to the extent that it is probable that
the assets can be recovered.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries and
associates, except where the timing of the reversal of the temporary difference is controlled by the
Company and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred income tax assets and liabilities are presented as non-current.
Earnings per share
Basic earnings per share (“EPS”) is calculated by dividing the net income for the year attributable to equity
owners of the Company by the weighted average number of common shares outstanding during the year.
Diluted EPS is calculated by adjusting the weighted average number of common shares outstanding for
dilutive instruments. The number of shares included with respect
to options, warrants and similar
instruments is computed using the treasury stock method, which assumes that if all dilutive securities had
been exercised at the later of the beginning of the year and the date of issuance, as the case may be, the
proceeds would be used to purchase common shares of the Company at the average market value during the
year.
Foreign currency translation
a)
Functional and presentation currency
Items included in the financial statements of each consolidated entity in the Company group are
measured using the currency of the primary economic environment in which the entity operates (the
“functional currency”). The consolidated financial statements are presented in Canadian dollars, which
is the Company’s functional currency.
The financial statements of entities that have a functional currency different from that of the Company
(“foreign operations”) are translated into Canadian dollars as follows: assets and liabilities – at the
closing rate at the date of the statement of financial position, and income and expenses – at the average
rate of the year (to the extent this is considered a reasonable approximation to actual rates). All
resulting changes are recognized in other comprehensive income as cumulative translation adjustment.
When an entity disposes of its entire interest in a foreign operation, or loses control, joint control or
significant influence over a foreign operation, the foreign currency gains or losses accumulated in other
comprehensive income related to the foreign operation are recognized in profit or loss. If an entity
disposes of part of an interest in a foreign operation which remains a subsidiary, a proportionate
amount of foreign currency gains or losses accumulated in other comprehensive income related to the
subsidiary is reallocated between controlling and non-controlling interests.
(9)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
(expressed in Canadian dollars)
b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates
prevailing at the dates of the transactions. Generally, foreign exchange gains and losses resulting from
the settlement of foreign currency transactions and from the translation at year-end exchange rates of
monetary assets and liabilities denominated in currencies other than an operation’s functional currency
are recognized in the consolidated statement of income.
Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief
operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources
and assessing performance of the operating segments, has been identified as the management committee.
Accounting standards issued but not yet applied that have relevance to the Company
Unless otherwise noted, the following revised standards and amendments are effective for the Company for
annual periods beginning on or after January 1, 2013 with earlier application permitted. The Company does
not expect to adopt any of these standards before their effective date. Except as otherwise indicated, based
upon current facts and circumstances, the Company does not expect a material impact on its consolidated
statement of earnings (loss) and financial position upon the adoption of those standards which are effective
on January 1, 2013. The Company continues to evaluate the impact of these standards on its consolidated
financial statements.
(i) IFRS 9, Financial Instruments, issued in November 2009, is mandatory for accounting periods beginning
after January 1, 2015 and addresses classification and measurement of financial assets. It replaces the
multiple category and measurement models in IAS 39, Financial Instruments: Recognition and
Measurement, for debt instruments with a new mixed measurement model having only two categories:
amortized cost and fair value through profit or loss. IFRS 9 also replaces the models for measuring
equity instruments. Such instruments are either recognized at fair value through profit or loss or at fair
value through other comprehensive income. Where equity instruments are measured at fair value through
other comprehensive income, dividends are recognized in profit or loss to the extent that they do not
clearly represent a return of investment; however, other gains and losses (including impairments)
associated with such instruments remain in accumulated comprehensive income indefinitely.
Requirements for financial liabilities were added to IFRS 9 in October 2010 and they largely carried
forward existing requirements in IAS 39, Financial Instruments: Recognition and Measurement, except
that fair value changes due to credit risk for liabilities designated at fair value through profit or loss are
generally recorded in other comprehensive income. IFRS 9 is applicable to the Company for the year
beginning on January 1, 2015, with earlier application permitted.
(10)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
(expressed in Canadian dollars)
(ii) IFRS 10, Consolidated Financial Statements, requires an entity to consolidate an investee when it has
power over the investee, is exposed, or has rights, to variable returns from its involvement with the
investee and has the ability to affect those returns through its power over the investee. Under existing
IFRS, consolidation is required when an entity has the power to govern the financial and operating
policies of an entity so as to obtain benefits from its activities. IFRS 10 replaces SIC 12,
Consolidation—Special Purpose Entities, and parts of IAS 27, Consolidated and Separate Financial
Statements.
(iii) IFRS 11, Joint Arrangements, requires a venturer to classify its interest in a joint arrangement as a joint
venture or joint operation. Joint ventures will be accounted for using the equity method of accounting
whereas for a joint operation, the venturer will recognize its share of the assets, liabilities, revenue and
expenses of the joint operation. Under existing IFRS, entities have the choice to proportionately
consolidate or equity account for interests in joint ventures. IFRS 11 supersedes IAS 31, Interests in
Joint Ventures, and SIC 13, Jointly Controlled Entities—Non-monetary Contributions by Venturers.
(iv) IFRS 12, Disclosure of Interests in Other Entities, establishes disclosure requirements for interests in
other entities such as subsidiaries, joint arrangements, associates and unconsolidated structured entities.
The standard carries forward existing disclosures and also introduces significant additional disclosures
that address the nature of, and risks associated with, an entity’s interests in other entities.
(v) IFRS 13, Fair Value Measurement, is a comprehensive standard for fair value measurement and
disclosure for use across all IFRS standards. The new standard clarifies that fair value is the price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants, at the measurement date. Under existing IFRS, guidance on measuring and disclosing fair
value is dispersed among the specific standards requiring fair value measurements and does not always
reflect a clear measurement basis or consistent disclosures.
(vi) IAS 1, Presentation of Financial Statements, has been amended to require entities to separate items
presented in other comprehensive income into two groups, based on whether or not items may be
recycled in the future. Entities that choose to present other comprehensive income items before tax will
be required to show the amount of tax related to the two groups separately.
(11)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
(expressed in Canadian dollars)
4. Significant accounting judgments and estimation uncertainties
Critical accounting estimates and judgments
The Company makes estimates and assumptions concerning the future that will, by definition, seldom equal
actual results. The following are the estimates and judgments applied by management
that most
significantly affect the Company’s consolidated financial statements. These estimates and judgments have a
significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the
next financial year.
i.
Inventories must be valued at the lower of cost and net realizable value.
A writedown of the inventory will occur when its estimated market value less applicable variable selling
expenses is below its carrying amount. Materials and other supplies held for use in the production of
inventories are not written down below cost if the finished products in which they will be incorporated
are expected to be sold at or above cost. This estimation process involves significant management
judgment and is based on the Company’s assessment of market conditions for its products determined by
historical usage, estimated future demand and, in some cases, the specific risk of loss on specifically
identified inventory. Any change in the assumptions used in assessing this valuation will impact the
carrying amount of the inventory and have a corresponding impact on cost of goods sold.
ii.
Impairment of customer relations
The Company performs a test for customer relations impairment when there is any indication whether
customer relations has suffered any impairment in accordance with the accounting policy stated in the
summary of significant accounting policies of these financial statements. The recoverable amounts of
customer relations have been determined based on value-in-use calculations. The value in use calculation
is based on a discounted cash flow model. These calculations require the use of estimates and forecasts
of future cash flows. Qualitative factors, including strength of customer relationships, degree of
variability in cash flows as well as other factors are considered when making assumptions with regard to
future cash flows and the appropriate discount rate. A change in any of the significant assumptions or
estimates used to evaluate customer relations could result in a material change to the results of
operations.
iii.
Percentage of completion and revenues from long-term production-type contracts
Revenues recognized on long-term production-type contracts reflect management’s best assessment, by
taking into consideration all information available at the reporting date, of the result on each ongoing
contract and its estimated costs. The management assesses the profitability of the contract by applying
important judgments regarding milestones marked, actual work performed and estimated costs to
complete. Actual results could differ because of these unforeseen changes in the ongoing contracts’
models.
(12)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
(expressed in Canadian dollars)
5. Business acquisition
a) Transaction for the year ended December 31, 2011
On July 1, 2011, the Company acquired an additional 16.49% of the outstanding shares of Xebec
Adsorption South East Asia PTE. Ltd. Accordingly, the Company now owns 56.49% of the outstanding
shares and acquired control of the joint venture. The acquisition was settled by the conversion of its loan
that it had previously made to the joint venture. The acquisition was accounted for under the purchase
method, and the full operating results of the subsidiary are included in the consolidated financial
statements from the acquisition date.
The fair value of the net assets acquired is attributed as follows:
Assets acquired:
Cash
Accounts receivable
Inventories
Prepaid expenses
Property, plant and equipment
Liabilities assumed:
Accounts payable and accrued liabilities
Deferred revenues
Provision
Net assets acquired at fair value
Net assets attributable to non-controlling interest
Net assets attributable to initial investment held before acquisition
Consideration paid in form of conversion of loan
Total consideration deemed paid
$
78,443
320,174
26,971
3,046
15,411
444,045
178,179
229,086
1,925
409,190
34,855
15,166
13,942
5,747
34,855
(13)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
(expressed in Canadian dollars)
6. Gain on disposition of assets
On March 22, 2012, the Company sold to Air Products and Chemicals Inc. (“Air Products”) its intellectual
property (“IP”) portfolio, including the patents and patent applications relating to its gas separation
technology. In this transaction, the Company has also transferred ownership of its research and development
facilities in Burnaby and Surrey, as well as other equipment located in British Columbia.
Pursuant to this transaction, the Company has received aggregate gross proceeds of $8,600,000 and net
proceeds of approximately $8,415,000. This agreement also foresees future proceeds related to the
achievement of certain conditions to be met by Xebec within the next 24 months. With the net proceeds
received, the Company reimbursed its bank loan of $500,000 and its subordinated loan of $83,700.
On October 23, 2012, the Company received additional gross proceeds of $1,000,000 in relation to the
achievement of certain conditions.
The Company has also entered into a perpetual license agreement with Air Products with no additional costs
allowing it to continue using the gas separation technology to sell its systems, predominantly in the biogas,
natural gas and associated gas purification markets.
The Company has utilized its non-capital losses carried forward to offset the taxable gain resulting from this
sale (see note 22).
The following table summarizes the gain on disposition of assets:
Gross proceeds
Additional proceeds
Transaction fees
Net proceeds
Goodwill allocated to the disposition
Carrying value of assets
Others
Gain on disposition of assets
March 22,
2012
$
8,600,000
1,000,000
(185,481)
9,414,519
(200,000)
(2,918,037)
149,479
6,445,961
(14)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
(expressed in Canadian dollars)
7 Trade and other receivables
Trade receivables
Unbilled receivable
Other receivables
Less: Allowance for doubtful accounts
Trade receivables - net
December 31,
2012
$
December 31,
2011
$
3,154,623
209,012
805,327
(232,216)
3,936,746
2,009,939
162,697
466,479
(194,273)
2,444,842
Trades receivables include holdbacks amounting to $183,887 for the year ended December 31, 2012
(2011 -$202,995).
Trade receivables are pledged as security for the credit facilities (see note 11, Bank loan).
8
Inventories
Raw materials
Work in progress
Finished goods
Inventories
December 31,
2012
$
December 31,
2011
$
1,188,653
361,898
111,943
1,662,494
1,006,247
330,355
28,658
1,365,260
Cost of goods sold includes cost of inventories amounting to $7,019,549 in 2012 (2011 - $5,289,956). Cost
of goods sold includes an amount of nil (2011 – $11,698) and $103,987 in selling and administrative
expenses (2011 – $366,314) for the writedown of inventories to the lower of cost and net realizable value.
Work-in-progress inventories are pledged as security for the credit facilities (see note 11, Bank loan).
(15)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
(expressed in Canadian dollars)
9
Property, plant and equipment
Machinery
and
equipment
$
Office
furniture and
equipment
$
Computers
$
Moulds
$
Vehicles
$
Leasehold
improvements
$
Cost
Balance at December 31, 2011
Additions
Disposals
Effect of movements in exchange rates
Balance at December 31, 2012
Accumulated amortization
Balance at December 31, 2011
Amortization
Disposal
Effect of movements in exchange rates
Balance at December 31, 2012
Carrying Amount
At December 31, 2011
At December 31, 2012
742,821
68,738
(363,788)
(1,033)
446,738
445,861
53,578
(312,993)
(,397)
186,049
296,960
260,689
107,230
3,878
(11,911)
(,237)
98,960
71,076
19,050
(10,641)
(,49)
79,436
36,154
19,524
338,157
45,004
(155,863)
(,582)
226,716
324,639
16,912
(155,863)
(,353)
185,335
67,648
15,485
-
(,766)
82,367
38,897
13,426
-
(,346)
51,977
71,968
-
(35,984)
-
35,984
21,590
13,194
(16,792)
-
17,992
13,518
41,381
28,751
30,390
50,378
17,992
663,023
-
(646,301)
(7,180)
9,542
540,113
26,492
(549,881)
(7,182)
9,542
122,910
-
Total
$
1,990,847
133,105
(1,213,847)
(9,798)
900,307
1,442,176
142,652
(1,046,170)
(8,327)
530,331
548,671
369,976
(16)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
(expressed in Canadian dollars)
10 Intangible assets and goodwill
Other
Internally
generated
Patents
$
Customer
relations
$
Software
$
Engineering
drawings
$
Total
intangible
assets
$
Goodwill
$
Cost
Balance at December 31, 2011
Disposals
Additions
Effect of movements in exchange rates
Balance at December 31, 2012
Accumulated amortization
3,315,985
(3,368,662)
52,677
-
-
1,900,000
-
-
-
1,900,000
Balance at December 31, 2011
Amortization of the year
Accumulated depreciation of assets disposed
Effect of movements in exchange rates
Balance at December 31, 2012
549,835
49,275
(599,110)
-
-
678,572
271,428
-
-
950,000
214,074
-
32,294
(,795)
245,573
213,335
4,916
-
(,936)
217,315
4,700
-
-
-
4,700
4,700
-
-
-
4,700
5,434,759
(3,368,662)
84,971
(,795)
2,150,273
342,616
(200,000)
-
-
142,616
1,446,442
325,619
(599,110)
(,936)
1,172,015
-
-
-
-
-
Carrying Amount
At December 31, 2011
At December 31, 2012
2,766,150
-
1,221,428
950,000
739
28,258
-
-
3,988,317
978,258
342,616
142,616
Amortization of $325,619 (2011 - $512,597) is included in the consolidated statement of loss: $50,357
(2011 - $231,334) in “cost of goods sold” and $275,262 (2011 - $281,263) in “selling and administrative
expenses”.
As at December 31, 2012, management determined that an indicator of impairment existed for the customer
relations while comparing its financial forecasts to prior period forecasts and considering other market
factors and indicators. The recoverable amount of the customer relations has been determined based on a
value-in-use calculation using cash flow projections from financial budgets approved by senior management
covering a six-year period. The pre-tax discount rate applied to cash flow projections is 15%. As a result of
this analysis, management determined that no impairment charge was required.
(17)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
(expressed in Canadian dollars)
11 Bank loan
As at December 31, 2012, the Company had a revolving demand facility by way of letters of credit and
letters of guarantee amounting to $1,000,000 with Royal Bank of Canada which bore interest at the Royal
Bank’s prime rate plus 2.50% per annum and which were limited by certain margin requirements
concerning accounts receivable.
In addition, the Company had access to credit facilities in the amount of $500,000 with Royal Bank of
Canada which were guaranteed by Export Development of Canada and bore interest at the Royal Bank’s
prime rate plus 2.5% per annum and were limited by certain requirements concerning pre-shipment costs.
These credit facilities were used up to $166,952 as at December 31, 2012.
The bank loan is secured by a first ranking hypothec of $4,000,000 on all movable property of the
Company and is renewable annually.
12 Trade and other payables
Trade payables
Payables to related parties (note 25)
Other payable
Trade and other payables
13 Deferred revenues
Deferred revenue from long-term contracts
Deferred revenue other contracts
Deferred revenue
December 31,
2012
$
December 31,
2011
$
3,472,289
8,574
318,628
3,799,491
4,516,080
31,435
-
4,547,515
December 31,
2012
$
December 31,
2011
$
684,344
383,643
1,067,987
1,816,275
690,199
2,506,474
Revenue recognized for long-term contracts amounted to $7,791,344 for the year ended December 31, 2012
(2011 - $4,369,730). Costs incurred for long-term contracts in progress as at December 31, 2012 amounted to
$2,833,296 for a profit of $767,335 (2011 – costs of $1,667,986 and $226,516 respectively).
(18)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
(expressed in Canadian dollars)
14 Provisions
Restructuring
costs
$
Anticipated
loss on long-
term
contract
$
Warranty
costs
$
Total
provision
$
At December 31, 2011
61,000
95,000
299,718
455,718
Additional provisions
Unused amount reversed
Used during year
At December 31, 2012
(a) Restructuring costs
-
-
(61,000)
-
-
(18,813)
(76,187)
258,054
(11,292)
(58,480)
258,054
(30,105)
(195,667)
-
488,000
488,000
A provision of $61,000 related to the termination benefits of one employee has been paid during 2012.
(b) Warranty costs
The Company offers warranties 18 months after shipping or 12 months after start-up to the purchasers
of its gas purification and natural gas dryers.
(19)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
(expressed in Canadian dollars)
15 Long-term debt
a) Loans
Loan from Canada Economic Development for a maximum of
$99,994 (2011 - $133,318), matures December 2015, bears no
interest and is repayable in monthly instalments of $2,777
Loan from Canada Economic Development for a maximum of
$62,500 (2011 - $87,500), matures January 2015, bears no
instalments of
interest and is repayable in eight semi-annual
$12,500
Term finance contract, matures June 2015, bears annual interest
of 5.99% and is secured by a lien on a vehicle (net book value of
$17,992). Repayable in monthly instalments of $785 including
capital and interest
Loan from Investissement Québec, bears annual interest at the
lender’s floating rate plus 2%, paid during the year
Term finance contracts, mature December 2013, and are secured
by a lien on equipment (net book value of $9,807). It is repayable
in monthly instalments of $831 including capital and interest
Less: Current portion
b) Disposition of building and land:
2012
$
2011
$
99,994
133,318
62,500
87,500
21,822
-
9,807
194,123
76,474
117,649
58,729
98,968
-
378,515
141,786
236,729
On September 30, 2011, the Company sold and leased back its building. With the proceeds, the
Company repaid its mortgages and used the remainder to fund its working capital. There is also a
balance of sale of $800,000 that will become available to the Company consisting of an amount of
$200,000 on the second anniversary date of the sale and $600,000 on the fourth anniversary date of
the sale. The balance of sale bears interest at four percent and the interest is receivable on each
anniversary date of the sale. The balance of sale has since been renegotiated (note 29a)).
(20)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
(expressed in Canadian dollars)
c) Government royalty program obligations:
The Company signed a settlement agreement with Technology Partnership Canada (“TPC”) with
regard to its Fast Cycle Pressure Swing Adsorption and Gas Management systems and Pulsar
Pressure Swing Adsorption project. The Company had to pay $250,000 at the execution of the
agreement and $1,000,000 spread over four equal annual non-interest bearing payments, starting on
January 31, 2013 (note 29b)). Furthermore, the Company is liable to pay up to $750,000 in contingent
payments based on proceeds from the sale by the Company of its intellectual property. Upon closing
of the transaction (see note 6), the Company paid $540,000 out of the $750,000 total contingent-
based payments. On October 23, 2012, the Company accrued another $150,000 out of the $750,000
total contingent based payments, following additional proceeds received (see note 6), leaving a
potential maximum amount to be paid of $60,000 as at December 31, 2012.
The following table summarizes the activity related to the government royalty program obligation
during the period:
Balance - Beginning of year
Accretion interests
Additional contingent debt
Loss on debt settlement
Repayment
Balance - End of year
Current portion
2012
$
948,921
89,611
150,000
682,280
(790,000)
1,080,812
(365,959)
714,853
2011
$
691,539
257,382
-
-
-
948,921
(195,949)
752,972
The settlement agreement was accounted for as an extinguishment of the original financial liability
and the recognition of a new financial liability as the terms and conditions are substantially different.
The Company recorded a loss on debt settlement of $682,280 in the consolidated statement of
earnings (see note 20).
The carrying amount of the government royalty program obligation has been calculated by
discounting the future cash flows at the interest rate of five percent.
Prior to this settlement agreement, the Company had an agreement with Industry Canada under the
TPC Program to receive financial contributions regarding the development and commercial
exploitation of its Fast Cycle Pressure Swing Adsorption (“FCPSA”), Gas Management Systems
(“GMS”) and Pulsar Pressure Swing Adsorption project (“PSA”).
Pursuant to the FCPSA and GMS agreement, total project costs for the period from October 1, 2002
to September 30, 2008 were to be shared, subject to certain contribution limits, such that the
Ministry’s contribution would not exceed the lesser of 30% of eligible project costs and $8,139,937.
The agreement further provided that the contributions were repayable on a royalty of 0.471% of
gross business revenues during the royalty period.
(21)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
(expressed in Canadian dollars)
Pursuant to the PSA agreement, total project costs for the period from October 1, 1998 to March 31,
2002 were to be shared, subject to annual contribution limits, such that the Ministry’s contribution
would not exceed the lesser of 35% of eligible project costs and $4,947,330. The Company had
received contributions aggregating $4,762,503. The agreement
the
contributions were repayable based on a royalty of 1.8% of gross project revenues and revenues from
fuel-cell related products during the royalty period to a maximum cumulative repayment of
$8,750,000.
further provided that
16 Share capital
a) The Company is incorporated under the Canada Business Corporations Act and its authorized share
capital consists of an unlimited number of common and preferred shares, without par value.
b)
Share purchase warrants
Information that summarizes the activity related to the Company’s share purchase warrants for the
year ended December 31, 2012:
Number of
warrants
Balance – Beginning of year
Granted
Exercised
Expired
10,658,136
-
-
(566,250)
Balance – End of year
10,091,886
2012
Weighted
average
exercise
price
$
0.45
. -
. -
0.40
0.45
Number of
warrants
15,456,424
-
-
(4,798,288)
10,658,136
2011
Weighted
average
exercise
price
$
0.64
. -
. -
1.07
0.45
The following table summarizes the share purchase warrants outstanding as at December 31, 2012,
all of which are exercisable:
Warrants outstanding
Exercise
price
$
0.45
Number of
warrants
outstanding
10,091,886
10,091,886
Weighted
average
remaining
contractual
life (years)
2.84
2.84
Weighted
average
exercise
price
$
0.45
0.45
(22)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
(expressed in Canadian dollars)
c) Earnings (loss) per share
i.
Basic
Basic loss per share is calculated by dividing the net income attributable to owners of the parent
by the weighted average number of common shares in issue during the year.
For the
year ended
December 31,
2012
$
For the
year ended
December 31,
2011
$
Net income (loss) attributable to owners of the parent
Weighted average number of common shares in issue
1,682,927
39,363,867
(1,447,123)
39,363,867
$0.04
($0.04)
ii. Diluted
Diluted earnings per share is calculated by adjusting the weighted average number of common
shares outstanding to assume conversion of all dilutive potential common shares. The Company
has two categories of dilutive potential common shares: warrants and stock options. For both, a
calculation is performed to determine the number of shares that could have been acquired at fair
value (determined as the average market share price of the Company’s outstanding shares for the
period), based on the monetary value of the subscription rights attached to the warrants and
stock options. The number of shares calculated below is compared with the number of shares
that would have been issued assuming exercise of the warrants and stock options. For the year
ended December 31, 2011, the diluted net loss per share was the same as the basic net loss per
share, since the effect of assumed exercise of share options and warrants to purchase common
shares was anti-dilutive.
(23)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
(expressed in Canadian dollars)
For the
year ended
December 31,
2012
$
For the
year ended
December 31,
2011
$
Net income (loss) attributable to owners of the parent
1,682,927
(1,447,123)
Weighted average number of common shares in issue
Dilutive effect of stock options
Diluted weighted average number of shares
39,363,867
3,169,961
42,533,828
39,363,867
-
39,363,867
$0.04
($0.04)
Items excluded from the calculation of diluted net
income (loss) per share because the exercise price was
greater than the average market price of the common
shares or due to their anti-dilutive effect
Stock options
Warrants (number of equivalent shares)
21,538
4,541,349
2,454,789
4,767,849
17 Stock options
The stock option plan (the “Plan”) allows for the issuance of stock options, stock appreciation rights,
restricted stock, restricted stock units, performance awards and other stock-based awards. Under the Plan,
common shares approved for issuance under all stock-based compensation arrangements are limited to the
greater of 591,560 and 10% of the common shares issued and outstanding. As at December 31, 2012, the
maximum number of common shares available for issuance under all stock-based compensation
arrangements is 3,936,387.
Under the terms of the Plan, stock options are granted with an exercise price not less than the volume-
weighted average trading price of the common shares for the five trading days prior to the date of grant.
The terms and conditions for acquiring and exercising options are set by the Board of Directors. Stock
options for employees vest no less than at grant date and no more than quarterly. The vesting right
acquisitions are gradual and equal over two years for the 2012 grants except for 460,000 stock options
which vested at the grant date (2011 - 2,215,544) and over four years for previous grants and are
exercisable for seven years from the date of grant. Stock options for directors vest at the grant date and are
exercisable for seven years from the grant date.
(24)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
(expressed in Canadian dollars)
Stock option activity for the years ended December 31 is presented below:
2012
Weighted
average
exercise
price
$
0.26
0.15
0.67
. -
0.19
0.19
Number
of options
107,361
3,465,544
(146,782)
-
3,426,123
2,454,789
Number
of options
3,426,123
460,000
(455,666)
-
3,430,457
3,191,499
Outstanding – Beginning
of year
Granted
Forfeited
Expired
Outstanding – End of year
Exercisable – End of year
As at December 31, 2012, options outstanding in the Plan and options exercisable are as follows:
2011
Weighted
average
exercise
price
$
5.99
0.15
1.78
. -
0.26
0.27
2012
Exercise
price
range
$
0.10 - 0.20
0.22 - 0.27
0.44 - 1.50
9.00 - 13.90
16.20 - 17.50
Options outstanding
Options exercisable
Weighted
average
remaining
contractual
life (years)
6.00
5.57
1.36
3.70
2.00
2.06
Number
of options
2,620,000
788,919
6,100
15,263
175
3,430,457
Weighted
average
exercise
price
$
0.11
0.24
1.09
11.95
17.00
0.19
Number
of options
2,620,000
549,961
6,100
15,263
175
3,191,499
Weighted
average
exercise
price
$
0.11
0.24
1.09
11.95
17.00
0.19
(25)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
(expressed in Canadian dollars)
The fair value of the options granted has been estimated according to the Black-Scholes option pricing
model and based on the weighted average of the following assumptions for options granted during the
year:
Non-employees
Employees
Non-employees
Employees
2012
2011
Dividend yield
Exercise price
Risk-free interest rate
Estimated life
Expected volatility
Stock price
0%
$ 0.10
0.90%
2.00
81%
$ 0.09
0%
$ 0.20
1.20%
2.00
81%
$ 0.22
0%
$ 0.14
0.91%
2.00
81%
$ 0.13
0%
$ 0.15
0.98%
2.00
81%
$ 0.14
The weighted average fair value of the options granted to employees during the year is $0.10 (2011 $0.14)
and $0.04 (2011 $0.13) for the options granted to non-employees.
Compensation expenses with respect to these options amounted to $70,264 for employees and $8,117 for
non-employees for the year ended December 31, 2012 (2011 – $127,741 and $37,122).
18 Expenses by nature
Material
Employee salaries and benefits
Rent and repairs and maintenance
Professional fees
Subcontracting costs
Travel expenses
Office expense
Amortization
Other
Commission
Stock-based compensation
2012
$
7,020,136
6,558,487
907,813
779,412
751,748
744,817
671,950
468,272
463,358
89,502
78,381
2011
$
5,350,771
6,631,496
811,444
1,096,386
479,178
537,744
549,180
897,671
326,905
-
164,863
18,533,876
16,845,638
(26)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
(expressed in Canadian dollars)
19 Research and development expenses
Research and development expenses
Government grants
Research and development tax credits
20 Finance expenses
Interest and bank charges
Interest on bank loan
Interest on long-term debt and subordinated loan
Interest charges
Accretion and revaluation of government royalty program
obligation (see note 15c))
21 Compensation of key management
Compensation awarded to key management included:
Salaries and short-term employee benefits
Stock-based compensation
2012
$
147,585
(5,000)
-
2011
$
627,672
(5,000)
(72,327)
142,585
550,345
2012
$
56,176
,025
4,308
26,903
921,891
1,009,303
2011
$
64,651
34,744
109,789
51,311
257,382
517,877
2012
$
676,301
54,230
2011
$
1,005,980
96,721
730,531
1,102,701
Key management included the Company’s senior management and members of the Board of Directors.
(27)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
(expressed in Canadian dollars)
22 Income taxes
a)
Income tax expense
Income taxes included in the consolidated statements of earnings (loss) are as follows:
Current
Deferred
b) Effective tax rate
2012
$
-
-
-
2011
$
-
-
-
The Company’s effective income tax rate differs from the statutory federal and provincial income tax
rate in Canada. This difference arises from the following:
Combined statutory rate applied to pre-tax loss
Non-deductible items
Non-taxable portion of gain on disposal of assets
Net change in unrecognized deferred income tax assets
Impact of changes in income tax rates on
deferred income taxes
Other
Effective income tax rate
2012
%
26.59
2.90
(51.63)
14.92
8.02
(0.80)
. -
2011
%
27.90
(14.73)
42.29
(38.71)
(18.56)
(1.81)
. -
The applicable statutory tax rates are 26.59% in 2012 and 27.90% in 2011. The Company’s
applicable tax rate is the Canadian combined rates applicable in the jurisdictions in which the
Company operates. The decrease is mainly due to the reduction of the federal income tax rate in 2012
from 16.5% to 15%.
(28)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
(expressed in Canadian dollars)
c) Deferred income tax assets and liabilities
Deferred income tax assets
Property, plant and equipment
Net operating losses carried forward
Financing costs
Intangible assets
Scientific research and development expenses
Investment tax credits
Other
Deferred income tax liabilities
Intangible assets
2012
$
2011
$
176,874
14,850,513
92,860
-
6,264,483
3,847,117
104,433
452,785
15,173,061
146,356
147,595
6,329,223
5,917,676
111,206
25,336,280
28,277,902
(258,440)
-
25,077,840
28,277,902
Unrecognized deferred income tax assets
(25,077,840)
(28,277,902)
Net deferred income tax assets (liabilities)
-
-
In assessing the realizability of deferred income tax assets, management considers whether it is
probable that some portion or all of the deferred income tax assets will be realized. The ultimate
realization of deferred income tax assets is dependent on the generation of future taxable income
during the periods in which those temporary differences become deductible. As management believes
there is sufficient uncertainty regarding the realization of deferred income tax assets, these deferred
income tax assets have not been recognized.
Most of these unrecognized deferred income tax assets relate to QuestAir’s deferred income tax asset
balance at the acquisition date. When a deferred income tax asset acquired in a business combination
is not recognized at the date of acquisition, any subsequent recognition of the tax benefit will reduce
income tax expense, resulting in an increase in net earnings.
(29)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
(expressed in Canadian dollars)
d) Other
The Company has non-capital losses carried forward in Canada of approximately $55,800,000
(2011 - 57,400,000) which are available to reduce taxable income in future years, the benefit of
which has not been recorded in the accounts, and which expire as follows:
2014
2025
2026
2027
2028
2029
2030
2031
2032
$
2,800,000
6,900,000
7,200,000
6,800,000
10,800,000
7,200,000
12,400,000
700,000
1,000,000
55,800,000
The Company has scientific research and experimental development expenses of approximately
$23,500,000 which are available to be carried forward indefinitely and deducted against future
taxable income otherwise calculated.
As at December 31, 2012, the Company also has investment tax credits of approximately $5,244,000
available to offset future Canadian federal income taxes payable. The potential benefit of the
investment tax credits has not been recognized in the accounts and expires as follows:
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2029
2032
$
10,000
30,000
100,000
470,000
910,000
240,000
920,000
480,000
740,000
650,000
410,000
240,000
32,000
12,000
5,244,000
(30)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
(expressed in Canadian dollars)
23 Commitments
Following is a summary of Xebec’s contractual obligations and commitments:
As at December 31, 2012
Operating leases(1)
As at December 31, 2011
Operating leases(1)
Payment Due by Period
Beyond 5
years
2 - 5 years
Total
$
1,445,887
$
2,853,225
$
4,968,756
1 year
$
669,644
Payment Due by Period
Beyond 5
years
2 - 5 years
$
1,855,211
$
3,163,416
1 year
$
826,736
Total
$
5,845,363
(1) Operating leases include one building in Blainville (2011 – two buildings in Vancouver and one in
Blainville) and various equipment leases.
24 Contingent liabilities
The Company is party to various ongoing and pending litigation along with other contingencies arising out
of normal course of business. Management believes that these claims, when resolved, will not have any
material adverse effect on the consolidated financial position or results of operations of the Company.
25 Related party transactions
The following table presents a summary of the related party transactions during the year:
Marketing and professional service expenses paid to companies
controlled by members of the immediate family of an officer
Sales to an entity controlled by a Company director
Loan from a Company director
Repayment of loan from a Company director
Accrued interest on a loan from a Company director
2012
$
73,408
24,324
-
24,123
1,841
2011
$
46,355
74,372
23,562
-
315
These transactions are measured at the exchange amount, which is the amount of consideration established
and agreed to by the related parties.
(31)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
(expressed in Canadian dollars)
26 Capital management
The Company’s objective when managing capital is to use short-term funding sources to manage its
working capital requirements and fund capital expenditures required to execute its operating and strategic
plans.
The Company’s capital structure is composed of the following:
Cash
Bank loan
Long-term debt
Government royalty program obligation (note 15c))
Equity (Deficiency)
2012
$
1,344,114
(166,952)
(194,123)
(1,080,812)
(97,773)
1,737,339
2011
$
389,090
(500,000)
(378,515)
-
(489,425)
(307,121)
1,639,566
(796,546)
The Company is not subject to any capital requirements imposed by regulators.
27 Segmented information
The Company has only one segment and specializes in the design and manufacture of filtration,
purification, separation and dehydration equipment for gases and compressed air. The Company has five
product lines and provides related engineering services.
Revenue summarized by country, as determined by location of the customers, is as follows:
Revenue
Canada
India
South Korea
United States
Republic of China
Other
2012
$
3,524,821
2,513,898
2,256,855
2,207,137
2,160,933
2,515,477
2011
$
1,819,934
21,062
251,742
8,355,044
1,246,519
2,509,162
15,179,121
14,203,463
(32)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
(expressed in Canadian dollars)
Revenue summarized by product line is as follows:
Product line
Gas purification
Natural gas dryers
Compressed gas filtration
Engineering services
Air dryers
Associated gas
Licensing
Major customers representing 10% or more of total sales include:
Customer A
Customer B
2012
$
8,169,548
4,338,956
2,092,661
427,192
121,474
29,290
-
2011
$
4,876,066
4,459,762
1,558,387
1,665,589
178,772
-
1,464,887
15,179,121
14,203,463
2012
$
2,256,275
1,555,342
3,811,617
2011
$
21,062
352,146
373,208
The location of the Company’s non-current assets by geographic region is as follows:
Non-current assets
Canada
Asia
2012
$
2011
$
1,982,855
107,995
5,563,424
116,180
2,090,850
5,679,604
(33)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
(expressed in Canadian dollars)
28 Financial instruments
(a) Measurement categories and fair values, including valuation methods and assumptions
The following table shows the carrying values and the fair values of assets and liabilities for each of
these categories as at December 31, 2012 and 2011:
December 31, 2012
Cash
Trade and other receivables
Bank loan
Trade payables
Accrued liabilities
Long-term debt
Government royalty program
obligation
December 31, 2011
Cash
Trade and other receivables
Bank loan
Trade payables
Accrued liabilities
Long-term debt
Government royalty program
obligation
Subordinated loan
Loan from a related party
Loans and receivables
Carrying
amount $
1,344,114
3,936,746
-
-
-
-
Fair
value $
1,344,114
3,936,746
-
-
-
-
Other financial
liabilities
Carrying
amount $
-
-
166,952
3,799,491
1,144,539
194,123
Fair
value $
-
-
166,952
3,799,491
1,144,539
183,979
-
-
1,080,812
1,036,488
Loans and receivables
Carrying
amount $
389,090
2,444,842
-
-
-
-
Fair
value $
389,090
2,444,842
-
-
-
-
Other financial
liabilities
Carrying
amount $
-
-
500,000
4,547,515
1,195,825
279,547
Fair
value $
-
-
500,000
4,547,515
1,195,825
279,547
-
-
-
-
-
-
948,921
98,968
23,562
948,921
98,968
23,562
The carrying values of cash, trade and other receivables, trade payables and accrued liabilities and
bank loan approximate their fair value due to their short-term maturities. The methods and
assumptions used in estimating the fair values of other financial assets and financial liabilities are as
follows:
Loan to a joint venture: Fair value of the loan has been calculated by discounting the loan on a one-
year period to the interest rate of a similar investment.
(34)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
(expressed in Canadian dollars)
Long-term debt and subordinated loan: The Company’s long-term debt and subordinated loan carry
fixed interest rates. The fair value of the Company’s debt obligations and subordinated loan has been
calculated by discounting the future cash flows of the respective long-term debt and subordinated loan
at the interest rate of similar debt instruments.
Government royalty program obligation: Fair value of the government royalty program obligation has
been calculated by discounting the future cash flows at the interest rate for a similar loan in the market.
(b) Credit risk
Credit risk is the risk of an unexpected loss if a customer or third party fails to meet its contractual
obligations. The Company’s primary credit risk is its cash and outstanding trade accounts receivable. The
carrying amount of its outstanding trade accounts receivable represents the Company’s estimate of its
maximum credit exposure. The Company regularly monitors its credit risk exposure and takes steps such
as employing credit approval procedures, establishing credit
limits, using credit assessments and
monitoring practices to mitigate the likelihood of these exposures from resulting in an actual loss. An
allowance for doubtful accounts amounting to $232,216 (2011 – $194,273) was established based on prior
experience and an assessment of current financial conditions of customers as well as the general economic
environment. In the case where an allowance for doubtful accounts provision is recorded and a receivable
balance is considered uncollectible, it is written off against the allowances for doubtful accounts. Bad debt
expense amounted to $50,375 in 2012 (2011 – $138,348). As at December 31, 2012, the Company’s three
largest trade debtors accounted for 36% (16%, 13% and 7%) of the total accounts receivable balance
(2011 – 28% (11%, 9% and 8%)).
Details of accounts receivable were as follows:
Current trade receivables
Trade receivables past due by:
1–30 days
31–60 days
61–90 days
Over 90 days
Total trade receivables
Allowances for doubtful accounts
Other receivables
December 31,
2012
$
December 31,
2011
$
669,381
247,964
361,223
376,467
561,400
1,186,152
3,154,623
(232,216)
1,014,339
304,949
111,037
122,177
1,223,812
2,009,939
(194,273)
629,176
Total accounts receivable
3,936,746
2,444,842
(35)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
(expressed in Canadian dollars)
The following table summarizes the changes in the allowance for doubtful accounts for trade receivables:
At December 31, 2011
Provision for impairment
Receivables written off during the year as uncollectible
Unused amounts reversed
At December 31, 2012
(194,273)
(50,375)
12,432
-
(232,216)
The Company’s cash is maintained at financial institutions with high credit ratings; therefore, the
Company considers the risk of non-performance on these instruments to be remote. To date, the Company
has not incurred any losses related to these instruments.
(c) Market risk
(i) Currency risk
Certain financial assets and financial liabilities are exposed to foreign exchange fluctuations. Taking into
account the amounts denominated in the currencies indicated below and assuming that all of the other
variables remain unchanged, a fluctuation in exchanges rates would have an impact on the Company’s net
loss. Management believes that a 10% change in exchange rates would be reasonably possible and that the
impact on the net loss of such a change would be approximately $(46,846) for 2012 ( 2011 $(9,160)). As
at December 31, 2012, the following amounts are shown in their original currencies but converted into
Canadian dollars. The Company does not use financial instruments to reduce this risk.
Thai baht
US
dollar
Euro
Cash
Accounts receivable
Accounts payable and accrued liabilities
-
15,661,786
-
165,154
1,078,533
(268,949)
4,291
60,990
(164,810)
15,661,786
974,738
(99,529)
Equivalent in Canadian dollars
509,321
969,767
(130,563)
2012
British
pound
sterling
-
-
-
-
-
(36)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
(expressed in Canadian dollars)
US
dollar
50,828
1,734,397
(961,399)
Euro
1,630
2,991
(66,486)
2011
British
pound
sterling
-
-
(6,142)
823,826
(61,865)
(6,142)
837,831
(81,617)
(9,704)
Thai baht
-
-
-
-
-
Cash
Accounts receivable
Accounts payable and accrued liabilities
Equivalent in Canadian dollars
(ii) Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of financial instruments will fluctuate as
market interest rates change.
The Company is exposed to interest rate risk on its bank loan and long-term debt, for which the interest
rates charged fluctuate based on the bank prime rate. As at December 31, 2012, the short-term bank loan
amounted to $166,952 (2011 – $598,968). If the interest rate on the bank debt had been 50 basis points
higher (lower), related to the bank loan as at December 31, 2012, net loss would have been $417 (2011 –
$2,995) higher (lower).
(d) Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come
due.
The following are the contractual maturities of financial liabilities as at December 31:
Carrying
amount
$
Contractual
cash flow
$
0 to 12
months
$
13 to 24
months
$
Thereafter
$
2012
166,952
3,799,491
1,144,539
166,952
3,799,491
1,144,539
166,952
3,799,491
1,144,539
-
-
-
-
-
-
Financial liabilities
Bank loan
Accounts payable
Accrued liabilities
Government royalty
program obligation
Long-term debt
1,080,812
194,123
1,150,000
196,012
400,000
77,711
250,000
67,745
500,000
50,556
6,385,917
6,456,994
5,588,693
317,745
550,556
(37)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
(expressed in Canadian dollars)
Carrying
amount
$
Contractual
cash flow
$
0 to 12
months
$
13 to 24
months
$
Thereafter
$
2011
500,000
4,547,515
1,195,825
500,000
4,547,515
1,195,825
500,000
4,547,515
1,195,825
23,562
23,562
23,562
-
-
-
-
-
-
-
-
Financial liabilities
Bank loan
Accounts payable
Accrued liabilities
Loan from a related
party
Government royalty
program obligation
948,921
11,376,701
313,852
134,331
10,928,518
Long-term debt and
subordinated loan
378,515
379,721
139,667
108,419
131,635
7,594,338
18,023,324
6,720,421
242,750
11,060,153
Contractual interest amounts that are on floating interest rates are established based on the spot rates as at
the respective balance sheet dates.
The Company’s development is financed through a combination of borrowing under the existing credit
facilities, the issuance of debt and the issuance of equity (note 1).
29 Subsequent events
a) On January 30, 2013, the Company renegotiated the balance of sale of $800,000 receivable pursuant
to the sale and lease back of its building. It is now consisting of an amount of $300,000 paid on
March 1, 2013, and $300,000 to be paid on March 1, 2014 and $200,000 to be paid on March 1,
2015. The balance of sale bears interest at four percent and the interest is receivable on each
anniversary date of the sale.
b) On February 1, 2013, the Company became in default with regard to its TPC agreement. The
Company negotiated and obtained a four-month extension to repay its annual payment (note 15c)).
(38)