Xebec Adsorption Inc.
Consolidated Financial Statements
December 31, 2014 and 2013
(expressed in Canadian dollars)
April 29, 2015
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, 2014
and 2013 and the consolidated statements of earnings, comprehensive income, changes in equity 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, www.pwc.com/ca
“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, 2014 and 2013 and its financial
performance and its cash flows for the years then ended in accordance with International Financial
Reporting Standards.
1 CPA auditor, CA, public accountancy permit No. A111799
Xebec Adsorption Inc.
Consolidated Statements of Financial Position
As at December 31, 2014 and 2013
(expressed in Canadian dollars)
Assets
Current assets
Cash
Restricted cash (note 6)
Trade and other receivables (note 7)
Inventories (note 8)
Current portion of balance of sale (note 15(b))
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 and other payables (note 12)
Accrued liabilities
Deferred revenue (note 13)
Current portion of long-term debt (note 15a))
Current portion of government royalty program obligation (notes 15c) and 30)
Current portion of provisions (note 14)
Total current liabilities
Non-current liabilities
Long-term debt (note 15a))
Government royalty program obligation (note 15c) and 30)
Government assistance
Deferred rent
Provisions (note 14)
Total non-current liabilities
Total liabilities
Equity
Equity attributable to shareholders of the Company
Share capital (note 16)
Contributed surplus
Accumulated other comprehensive loss
Deficit
Non-controlling interest
Total equity
Total liabilities and equity
2014
$
2013
$
1,008,421
221,930
2,681,311
1,669,350
-
50,000
396,241
6,027,253
-
347,845
919,297
142,616
1,409,758
7,437,011
136,437
3,491,897
723,890
815,010
50,475
762,825
236,365
6,216,899
-
-
12,083
85,748
192,990
290,821
6,507,720
2,835,051
2,915,700
1,539,180
300,000
137,760
559,001
8,286,692
200,000
310,576
809,513
142,616
1,462,705
9,749,397
370,000
3,429,420
805,563
1,342,794
67,176
259,636
489,742
6,764,331
50,476
586,825
17,083
59,364
312,330
1,026,078
7,790,409
19,732,623
2,460,146
(606,685)
(20,914,588)
671,496
257,795
929,291
7,437,011
19,732,623
2,388,063
(313,486)
(20,131,974)
1,675,226
283,762
1,958,988
9,749,397
The accompanying notes are an integral part of these consolidated financial statements.
Approved by the Board of Directors
___________________________________ Director
(signed) Kurt Sorschak
(signed) William Beckett
___________________________________ Director
Xebec Adsorption Inc.
Consolidated Statements of Earnings (Loss)
For the years ended December 31, 2014 and 2013
(expressed in Canadian dollars)
Revenue
Cost of goods sold
Gross margin
Research and development expenses (note 19)
Selling and administrative expenses
Foreign exchange gain
Gain on disposal of assets (note 5)
Operating income (loss)
Finance income
Finance expenses (note 20)
Finance costs – net
Net earnings (loss) for the year
Earnings (loss) attributable to:
Shareholders of the Company
Non-controlling interest
Earnings (loss) per share
Basic (note 16)
Diluted (note 16)
2014
$
2013
$
14,368,409
11,311,443
9,490,081
4,878,328
224,541
5,549,345
(216,804)
-
5,557,082
(678,754)
(23,562)
163,985
140,423
(819,177)
(782,614)
(36,563)
(819,177)
(0.02)
(0.02)
9,686,336
1,625,107
17,403
5,869,232
(295,102)
(4,497,610)
1,093,923
531,184
(70,944)
197,109
126,165
405,019
396,892
8,127
405,019
0.01
0.01
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, 2014 and 2013
(expressed in Canadian dollars)
Net earnings (loss) for the year
Other comprehensive income (loss)
Cumulative translation adjustment
2014
$
(819,177)
2013
$
405,019
(282,603)
(254,853)
Comprehensive income (loss) for the year
(1,101,780)
150,166
Attributable to:
Shareholders of the Company
Non-controlling interest
(1,075,813)
(25,967)
(1,101,780)
132,276
17,890
150,166
The accompanying notes are an integral part of these consolidated financial statements.
Xebec Adsorption Inc.
Consolidated Statements of Changes in Equity
For the years ended December 31, 2014 and 2013
(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
shareholders
of the
Company
$
Non-
controlling
interest
$
Deficit
$
Amount
Total
$
Balance – January 1, 2013
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
Net earnings for the year
Other comprehensive income (loss)
Comprehensive income (loss) for the year
Stock-based compensation expense (note 17)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
71,483
-
(264,616)
(264,616)
-
396,892
-
396,892
-
396,892
(264,616)
8,127
9,763
405,019
(254,853)
132,276
71,483
17,890
-
150,166
71,483
Balance – December 31, 2013
39,363,867
10,091,886
19,732,623
2,388,063
(313,486)
(20,131,974)
1,675,226
283,762
1,958,988
Balance – January 1, 2014
39,363,867
10,091,886
19,732,623
2,388,063
(313,486)
(20,131,974)
1,675,226
238,762
1,958,988
Net loss for the year
Other comprehensive income (loss)
Comprehensive loss for the year
Stock-based compensation expense (note 17)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
72,083
-
(293,199)
(782,614)
-
(782,614)
(293,199)
(36,563)
10,596
(819,177)
(282,603)
(293,199)
-
(782,614)
-
(1,075,813)
72,083
(25,967)
-
(1,101,780)
72,083
Balance – December 31, 2014
39,363,867
10,091,886
19,732,623
2,460,146
(606,685)
(20,914,588)
671,496
257,795
929,291
Accumulated other comprehensive income (loss) 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, 2014 and 2013
(expressed in Canadian dollars)
Cash flows from
Operating activities
Net earnings (loss) for the year
Items not affecting cash
Amortization of property, plant and equipment
Amortization of intangible assets
Impairment of inventories
Gain on disposal of assets (note 5)
Gain on debt forgiveness
Government assistance
Accretion and revaluation of government royalty program obligation
Stock-based compensation expense
Deferred rent
Change in non-cash working capital balances related to operations (note 23)
Investing activities
Increase in restricted cash
Acquisition of property, plant and equipment
Acquisition of intangible assets
Proceeds from disposal of assets (note 5)
Balance of sale
Financing activities
Increase in restricted cash
Increase (decrease) of bank loan
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
2014
$
2013
$
(819,177)
96,231
199,295
-
-
(187,481)
(5,000)
34,364
72,083
26,384
(583,301)
(377,668)
(960,969)
(69,206)
(129,413)
(308,767)
-
500,000
(7,386)
(145,386)
(233,563)
(67,177)
(118,000)
(564,126)
(294,149)
(1,826,630)
2,835,051
1,008,421
405,019
93,438
169,268
475,013
(4,497,610)
(117,619)
(5,000)
65,649
71,483
26,384
(3,313,975)
470,408
(2,843,567)
-
(31,314)
-
4,502,578
300,000
4,771,264
-
203,048
(76,471)
(300,000)
(173,423)
(263,337)
1,490,937
1,344,114
2,835,051
129,620
103,069
The accompanying notes are an integral part of the consolidated financial statements.
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2014 and 2013
(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 and 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 natural gas 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 TSX Venture (TSXV) Exchange under the symbol XBC-V. The address of its registered office is
730 Industriel Boulevard, Blainville, Quebec, Canada.
b) Liquidity risk
The Company has realized an operating loss of $678,754, had cash outflows from operating activities
of $960,969 for the year ended December 31, 2014 and finished the year with cash amounting to
$1,008,421, working capital deficit of $189,646 and had access to credit facilities totalling $500,000 of
which no amount has been used (see note 11). During the year, 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.
The Company has prepared a budget for 2015 for which management believes the assumptions are
reasonable. Achieving budgeted results is dependent on improving the volume of revenues in Canada,
United States and China, 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, 2015.
The Company is thus faced with uncertainties that may have an impact on future operating results and
liquidity. These uncertainties include 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 including accessing liquidities
from China if events or conditions develop that are not consistent with management’s expectations,
key budget assumptions for 2015 and planned courses of action. Therefore, the Company may require
additional external funding, and there is no assurance that it would be successful. 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, 2014 and 2013
(expressed in Canadian dollars)
2 Basis of preparation
The Company prepares its consolidated financial statements in accordance with generally accepted
accounting principles in Canada (“GAAP”) as set out in the Chartered Professional Accountants of Canada
(“CPA Canada”) Handbook – Accounting which incorporates International Financial Reporting Standards
(IFRS) as issued by the International Accounting Standards Board (IASB).
These consolidated financial statements were approved for issue by the Board of Directors of the Company
on April 29, 2015.
These consolidated 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 comprise Xebec Adsorption (Shanghai) Co. Ltd., Xebec Adsorption
USA Inc. (Houston) which are 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 (loss) 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, 2014 and 2013
(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 earnings (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
3 to 10 years
2 to 5 years
3 years
5 years
5 years
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 (loss).
(3)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2014 and 2013
(expressed in Canadian dollars)
Identifiable intangible assets
The Company’s intangible assets consist of customer relations and software. It also comprises capitalized
development cost when the criteria mentioned in the research and development expenses accounting policy
are met. These assets are capitalized and amortized on a straight-line basis in the consolidated statement of
earnings (loss) over the period of their expected useful lives.
Customer relations are amortized over six years. Development cost related to a new line or segment are
amortized over a period of five 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
depreciated or 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. Trade payables 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, 2014 and 2013
(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, associated gas 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
Bank loan
Trade and other payables
Accrued liabilities
Long-term debt
Government royalty program obligation
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, 2014 and 2013
(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 re-measured using the original discount rate
when the future projections initially used to measure the obligations are revised. Resulting changes in the
carrying amount of these obligations are recognized in the consolidated statement of earnings (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, 2014 and 2013
(expressed in Canadian dollars)
Revenue recognition
The Company earns revenues mainly from the sale of natural gas dryers, air 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 year in which the loss becomes evident and reasonably estimable.
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 earnings (loss) on a straight-line basis over the lease
term.
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.
(7)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2014 and 2013
(expressed in Canadian dollars)
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 earnings (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, share capital 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. During the year ended December 31, 2014,
development expenses have been deferred and accounted for as identified intangible asset.
Income taxes
Income tax comprises current and deferred tax. Income tax is recognized in the consolidated statement of
earnings (loss) (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.
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.
(8)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2014 and 2013
(expressed in Canadian dollars)
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 is calculated by dividing net earnings for the year attributable to equity owners of
the Company by the weighted average number of common shares outstanding during the year.
Diluted earnings per share 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 entity consolidated 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 (loss) 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 (loss) 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 (loss) related
to the subsidiary is reallocated between controlling and non-controlling interests.
(9)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2014 and 2013
(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 earnings (loss).
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.
New accounting standards and amendments
The following standards and amendments have been adopted by the Company for the first time for the
financial year beginning on January 1, 2014.
Amendment to International Accounting Standard (IAS) 32, Financial Instruments: Presentation, on
offsetting financial assets and financial liabilities. This amendment clarifies that the right of set-off must not
be contingent on a future event. It must also be legally enforceable for all counterparties in the normal
course of business, as well as in the event of default, insolvency or bankruptcy. The amendment also
considers settlement mechanisms. The amendment did not have a significant effect on the Company’s
separate financial statements.
Amendment to IFRS 2, Share-based Payment, to clarify the definition of vesting conditions applicable to
share-based payment transactions with a grant date on or after July 1, 2014. The Corporation determined
that the adoption of the amended standard had no impact on its consolidated financial statements.
Accounting standards issued but not yet applied that have relevance to the Company
The following standards and amendments have been published and their adoption is mandatory for future
accounting periods.
In November 2009, the IASB issued IFRS 9 - Financial Instruments. It addresses classification and
measurement of financial assets and replaces the multiple category and measurement models in IAS 39 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 with fair
value measurement adjustments for such instruments recognized either through profit or loss or through
other comprehensive income. Where such equity instruments are measured at fair value through other
comprehensive income, dividends, to the extent that they do not clearly represent a return of investment, are
recognized in profit or loss; however, other gains and losses (including impairments) associated with such
instruments remain in accumulated comprehensive income indefinitely. In addition, the standard includes
guidance on financial liabilities and derecognition of financial instruments.
(10)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2014 and 2013
(expressed in Canadian dollars)
In July 2014, the IASB issued the final version of IFRS 9 - Financial Instruments. The new standard will
replace IAS 39 - Financial Instruments: Recognition and Measurement. The final amendments made in the
new version include guidance for the classification and measurement of financial assets and a third
measurement category for financial assets, fair value through other comprehensive income. The standard
also contains a new expected loss impairment model for debt instruments measured at amortized cost or fair
value through other comprehensive income, lease receivables, contract assets and certain written loan
commitments and financial guarantee contracts. The standard is effective for annual periods beginning on or
after January 1, 2018 and must be applied retrospectively with some exception. Early application is
permitted. Restatement of prior periods in relation to the classification and measurement, including
impairment, is not required. At this time, the Corporation is still evaluating the impact of these changes but
does not anticipate that they will have a significant impact, if any, on its consolidated financial statements.
In November 2013, the IASB issued an amendment to clarify the application of IAS 19- Employee Benefits
to plans that require employees or third parties to contribute towards the cost of benefits. The amendment
allows contributions that are linked to service, and do not vary with the length of employee service, to be
deducted from the cost of benefits earned in the period that the service is provided. The amendment is
effective for years beginning on or after July 1, 2014 with early adoption permitted. At this time, the
Corporation does not anticipate that this amendment will have an impact on its consolidated financial
statements.
In December 2013, the IASB issued Annual Improvements to IFRSs 2010-2012 Cycle and Annual
Improvements to IFRSs 2011-2013 Cycle which include the following amendments which are effective for
years beginning on or after July 1, 2014:
IFRS 8- Operating Segments: Amended to require disclosure of judgments made by management in
aggregating segments and the reconciliation of segment assets to the entity’s assets if reported.
IAS 24- Related Party Disclosures: Amended to revise the definition of related party and clarify certain
disclosures.
IFRS 3- Business Combinations: Amended to clarify the scope exemption for joint arrangements. At
this time, the Corporation does not anticipate that these changes will have a significant impact, if any,
on its consolidated financial statements.
In May 2014, the IASB issued IFRS 15 - Revenue from Contracts with Customers. IFRS 15 replaces all
previous revenue recognition standards, including IAS 18 - Revenue, and related interpretations such as
IFRIC 13 - Customer Loyalty Programmes. The standard sets out the requirements for recognizing revenue.
Specifically, the new standard introduces a comprehensive framework with the general principle being that
an entity recognizes revenue to depict the transfer of promised goods and services in an amount that reflects
the consideration to which the entity expects to be entitled in exchange for those goods or services. The
standard introduces more prescriptive guidance than was included in previous standards and may result in
changes in classification and disclosure in addition to changes in the timing of recognition for certain types
of revenues. The new standard is effective for annual periods beginning on or after January 1, 2017 with
early adoption permitted. At this time, management is reviewing the impact that this standard will have on
its consolidated financial statements.
(11)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2014 and 2013
(expressed in Canadian dollars)
In September 2014, the IASB issued Annual Improvements to IFRSs 2012-2014 Cycle. The following is a
summary of the relevant and key clarifications and amendments:
IFRS 5 - Non-Current Assets Held for Sale and Discontinued Operations was amended to clarify that a
change in disposal method should not be considered to be a new plan of disposal but a continuation of
the original plan. There is therefore no interruption of the application of the requirements in this
standard. The amendment also clarifies that changing the disposal method does not change the date of
classification.
IAS 19 - Employee Benefits was amended to clarify that market depth of high quality corporate bonds
is assessed based on the currency in which the obligation is denominated rather than where the
obligation is located. When there is no deep market for high quality corporate bonds in that currency,
government bond rates must be used. These amendments must be applied in annual periods beginning
on or after January 1, 2016, with earlier application permitted. This publication also includes the
following amendments which are to be applied retrospectively for annual periods beginning on or after
January 1, 2016 with early application permitted:
IFRS 7 - Financial Instrument: Disclosures was amended to clarify that offsetting disclosures are not
required in the condensed interim financial statements.
IAS 34 - Interim Financial Reporting was amended to clarify the meaning of 'elsewhere in the interim
financial report' and states that the required interim disclosures must be either in the interim financial
statements or incorporated by cross-reference between the interim financial statements and wherever
they are included within the greater interim financial report. At this time, the Corporation does not
anticipate that these changes will have a significant impact, if any, on its consolidated financial
statements.
In September 2014, the IASB issued amendments to IFRS 10 - Consolidated Financial Statements and IAS
28 - Investments in Associates and Joint Ventures to address inconsistencies between the standards.
Specifically, the amendment clarifies that a full gain or loss is recognized when the transaction involves a
business combination and a partial gain is recognized when the transaction involves assets that do not
constitute a business. The amendment is effective for annual periods beginning on or after January 1, 2016
with early adoption permitted.
In December 2014, the IASB issued amendments to clarify IAS 1- Presentation of Financial Statements and
guidance on materiality and aggregation, the presentation of subtotals, the structure of financial statements
and the disclosure of accounting policies. The amendment is effective for annual periods beginning on or
after January 1, 2016. At this time, the Corporation does not anticipate that these changes will have a
significant impact on its consolidated financial statements.
(12)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2014 and 2013
(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 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 that
customer relations have suffered any impairment in accordance with the accounting policy stated in the
summary of significant accounting policies of these consolidated 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 and 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.
(13)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2014 and 2013
(expressed in Canadian dollars)
5 Gain on disposal of assets
In 2012, the Company sold to Air Products and Chemicals Inc. (Air Products) its intellectual property
portfolio, including the patents and patent applications relating to its gas separation technology. In that
transaction, the Company had also transferred ownership of its research and development facilities in
Burnaby and Surrey, as well as other equipment located in British Columbia. The Company had received
aggregate gross proceeds of $9,600,000 and net proceeds of approximately $9,415,000. The agreement also
foresaw future proceeds related to the achievement of certain conditions to be met by Xebec within the next
few months. With the net proceeds received, the Company reimbursed its bank loan of $500,000 and its
subordinated loan of $83,700.
In 2013, the Company received additional gross proceeds of $6,237,000 and net proceeds of approximately
$4,500,000 in relation to the achievement of certain conditions. As at December 21, 2013, the transaction
was completed, and no additional proceeds can be generated.
The Company has also entered into a perpetual licence 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 disposal of assets:
Additional proceeds
Transaction fees
Net proceeds
Gain on disposal of assets
2014
$
-
-
-
-
2013
$
6,236,437
(1,738,827)
4,497,610
4,497,610
(14)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2014 and 2013
(expressed in Canadian dollars)
6 Restricted cash
Restricted cash consist in a guarantee investment certificate equivalent to $152,827 and pledge against a
loan to the China subsidiary and cash equivalent to $69,103 retained by the liquidator of the South East
Asia subsidiary.
7 Trade and other receivables
Trade receivables
Other receivables
Less: Allowance for doubtful accounts
Trade and other receivables – net
2014
$
2,438,197
460,135
(217,021)
2,681,311
2013
$
2,576,933
772,187
(433,420)
2,915,700
Trade and other receivables are pledged as security for the credit facilities (see note 11, Bank loan).
8
Inventories
Raw materials
Work in progress
Finished goods
Inventories
2014
$
1,045,569
623,781
-
1,669,350
2013
$
851,722
570,495
116,963
1,539,180
Cost of goods sold includes cost of inventories amounting to $6,240,259 in 2014 (2013 - $5,274,607)
including amounts of nil (2013 – $492,726) 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, 2014 and 2013
(expressed in Canadian dollars)
9 Property, plant and equipment
Machinery
and equipment
$
Office
furniture and
equipment
$
Computers
$
Moulds
$
Vehicles
$
Leasehold
improvement
$
Cost
Balance at December 31, 2012
Additions
Disposal
Effect of movements in exchange rates
Balance at December 31, 2013
Additions
Effect of movements in exchange rates
Balance at December 31, 2014
Accumulated depreciation
Balance at December 31, 2012
Depreciation
Disposal
Effect of movements in exchange rates
Balance at December 31, 2013
Depreciation
Effect of movements in exchange rates
Balance at December 31, 2014
Carrying Amount
At December 31, 2013
At December 31, 2014
446,738
25,323
(4,273)
9,983
477,771
-
6,983
484,754
186,049
43,612
(3,193)
6,272
232,740
44,805
4,972
282,517
245,031
202,237
98,960
-
(14,679)
6,871
91,152
47,398
5,122
143,672
79,436
11,748
(11,743)
6,227
85,668
11,534
4,680
101,882
226,716
5,991
(32,497)
10,218
210,428
14,979
7,235
232,642
185,335
16,485
(31,545)
9,150
179,425
20,230
6,475
206,130
82,367
-
-
8,251
90,618
67,036
5,777
163,431
51,977
14,397
-
5,981
72,355
12,466
4,903
89,724
35,984
-
-
-
35,984
-
-
35,984
17,992
7,197
-
-
25,189
7,196
-
32,385
9,542
-
(9,458)
(84)
-
-
-
-
9,542
-
(9,458)
(84)
-
-
-
-
Total
$
900,307
31,314
(60,907)
35,239
905,953
129,413
25,117
1,060,483
530,331
93,439
(55,939)
27,546
595,377
96,231
21,030
712,638
5,484
41,790
31,003
26,512
18,263
73,707
10,795
3,599
-
-
310,576
347,845
(16)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2014 and 2013
(expressed in Canadian dollars)
10 Intangible assets and goodwill
Other
Internally
generated
Customer
relations
$
Software
$
Development
costs
$
Total
intangible
assets
$
Goodwill
$
Cost
Balance at December 31, 2012
Additions
Effect of movements in exchange rates
Balance at December 31, 2013
Additions
Effect of movements in exchange rates
Balance at December 31, 2014
Accumulated amortization
Balance at December 31, 2012
Amortization for the year
Effect of movements in exchange rates
Balance at December 31, 2013
Amortization for the year
Effect of movements in exchange rates
Balance at December 31, 2014
Carrying amount
At December 31, 2013
At December 31, 2014
1,900,000
-
-
1,900,000
-
-
1,900,000
950,000
158,333
-
1,108,333
158,333
-
1,266,666
245,573
-
8,746
254,319
10,281
6,294
270,894
217,315
10,934
8,224
236,473
11,922
5,981
254,376
-
-
-
-
298,485
-
298,485
-
-
-
-
29,040
-
29,040
2,145,573
-
8,746
2,154,319
308,766
6,294
2,469,379
1,167,315
169,267
8,224
1,344,806
199,295
5,981
1,550,082
142,616
-
-
142,616
-
-
142,616
-
-
-
-
-
-
-
791,667
633,334
17,846
16,518
-
269,445
809,513
919,297
142,616
142,616
Amortization of $199,295 (2013 – $169,267) is included in the consolidated statement of earnings (loss):
$3,458 (2013 – $4,241) in cost of goods sold; and $195,827 (2013 – $165,026) in selling and
administrative expenses.
As at December 31, 2013, 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.
For the realization of its impairment test on goodwill, the Company allocates its entire goodwill to one
CGU, the Company as a whole, because it is the lowest level at which the goodwill is monitored for
internal purposes.
(17)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2014 and 2013
(expressed in Canadian dollars)
To perform the test, the management has used the approach of fair value less costs to sell. The fair value is
derived from the market capitalization of the Company for the year ended December 31, 2014.
Management determined that the fair value less costs to sell was higher than the carrying value of the
CGU. As a result of this analysis, management determined that no impairment charge was required.
11 Bank loan
As at December 31, 2014, the Company has 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 bear interest at the Royal
Bank’s prime rate plus 2.5% per annum and which are limited by certain margin requirements concerning
trade and other receivables. As at December 31, 2014, an amount of $174,015 (2013 – $85,000) was
drawn on this credit facility.
In addition, the Company has access to credit facilities in the amount of $500,000 with Royal Bank of
Canada which are guaranteed by Export Development Canada, and bear interest at the Royal Bank’s
prime rate plus 2.5% per annum and are limited by certain requirements concerning pre-shipment costs.
These credit facilities were not used as at December 31, 2014 (2013 – $370,000).
The credit facilities are secured by a first ranking hypothec of $4,000,000 on all movable property of the
Company and are renewable annually.
12 Trade and other payables
Trade payables
Payables to related parties (note 26)
Other payables
Trade and other payables
13 Deferred revenue
Deferred revenue from long-term contracts
Deferred revenue other contracts
Deferred revenue
2014
$
3,421,700
7,885
62,312
3,491,897
2014
$
46,358
768,652
815,010
2013
$
3,040,365
38,265
350,790
3,429,420
2013
$
676,320
666,474
1,342,794
(18)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2014 and 2013
(expressed in Canadian dollars)
Revenue recognized for long-term contracts amounted to $1,945,581 for the year ended December 31, 2014
(2013 – $3,316,058). Costs incurred for long-term contracts in progress as at December 31, 2014 amounted to
$205,874, for a profit of $141,293 (2013 – costs of $504,314, for a loss of $456,897).
14 Provisions
Provision for
contingencies
(a)
$
Anticipated
loss on long-
term contract
(b)
$
Warranty
costs
(c)
$
-
-
-
-
-
207,691
-
-
207,691
207,691
-
-
297,269
-
-
297,269
-
(297,269)
-
-
-
-
488,000
199,288
(51,926)
(130,559)
504,803
139,493
(386,890)
(35,742)
221,664
28,674
192,990
Total
provision
$
488,000
496,557
(51,926)
(130,559)
802,072
347,184
(684,159)
(35,742)
429,355
236,365
192,990
At December 31, 2012
Additional provisions
Unused amount reversed
Used during year
At December 31, 2013
Additional provisions
Unused amount reversed
Used during the year
At December 31, 2014
Current portion of provisions
Non-current provisions
(a)
Provision for contingencies
The Company has estimated potential loss and consequently, recognized the expected expense.
(b) Anticipated loss on long term contract
The Company entered in an amended agreement for the biogas contract project for which a
provision was created last year. As a result of the amended agreement, the provision was no
more required and has been reversed.
(c) Warranty cost
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, 2014 and 2013
(expressed in Canadian dollars)
15 Long-term debt
a) Loans
Loan from Canada Economic Development for a maximum of
$33,346 (2013 – $66,670), matures December 2015, bears no
interest and is repayable in monthly instalments of $2,777
Loan from Canada Economic Development for a maximum of
$12,500 (2013 – $37,500), matures January 2015 and bears no
interest
Term finance contract, matures June 2015, bears annual interest
of 5.99%is secured by a lien on a vehicle (net book value of
$3,599)and is repayable in monthly instalments of $785 including
capital and interest
Less: Current portion
b) Disposal of building and land
2014
$
2013
$
33,346
66,670
12,500
37,500
4,629
50,475
50,475
13,482
117,652
67,176
-
50,476
On September 30, 2011, the Company sold and leased back its building. The balance of sale of
$500,000 has been paid to the Company in 2014.
(20)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2014 and 2013
(expressed in Canadian dollars)
c) Government royalty program obligations
In 2012, the Company signed a settlement agreement with Technology Partnership Canada (TPC)
with regard to the Company’s 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. Furthermore, the Company was 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 5), 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 5), leaving a
potential maximum amount to be paid of $60,000 as at December 31, 2012.
In 2013, the Company realized the last milestone pursuant to the transaction and paid the remaining
$60,000. The Company renegotiated its payments terms with TPC, changing from an annual payment
of $250,000 to monthly payments of $24,500 but adding an extra year to term.
The following table summarizes the activity related to the government royalty program obligation
during the year:
Balance – Beginning of year
Accretion interest
Additional contingent debt
Loss (gain) on debt settlement
Repayment
Balance – End of year
Current portion
2014
$
846,461
34,364
-
-
(118,000)
762,825
762,825
-
2013
$
1,080,812
34,041
60,000
(28,392)
(300,000)
846,461
259,636
586,825
In 2013, the amendment to the settlement agreement with TPC 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 gain on debt settlement
of $28,392 in the consolidated statement of earnings (loss) (see note 20).
The carrying amount of the government royalty program obligation has been calculated by
discounting the future cash flows at a 5% interest rate.
(21)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2014 and 2013
(expressed in Canadian dollars)
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, 2014:
Number of
warrants
2014
Weighted
average
exercise
price
$
Number of
warrants
Balance – Beginning of year
Granted
Exercised
Expired
10,091,886
-
-
-
0.45
-
-
-
10,091,886
-
-
-
2013
Weighted
average
exercise
price
$
0.45
-
-
-
Balance – End of year
10,091,886
0.45
10,091,886
0.45
The following table summarizes the share purchase warrants outstanding as at December 31, 2014,
all of which are exercisable:
Exercise
price
$
0.45
Warrants outstanding
Number of
warrants
outstanding
Weighted
average
remaining
contractual
life (years)
10,091,886
10,091,886
0.84
0.84
Weighted
average
exercise
price
$
0.45
0.45
(22)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2014 and 2013
(expressed in Canadian dollars)
c) Earnings (loss) per share
i. Basic
Basic earnings (loss) per share is calculated by dividing net earnings (loss)attributable to
shareholders of the Company by the weighted average number of common shares in issue during
the year.
Net earnings (loss) attributable to shareholders of
the Company
Weighted average number of common shares
in issue
2014
$
2013
$
(782,614)
396,892
39,363,867
39,363,867
Basic earnings (loss) per share
($0.02)
$0.01
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. All such
instruments were antidilutive for the year ended December 31, 2014.
(23)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2014 and 2013
(expressed in Canadian dollars)
Net earnings (loss) attributable to the shareholders of
the Company
Weighted average number of common shares in issue
Dilutive effect of stock options
Diluted weighted average number of shares
2014
$
2013
$
(782,614)
396,892
39,363,867
-
39,363,867
39,363,867
2,400,000
41,763,867
Diluted earnings (loss) per share
($0.02)
$0.01
Items excluded from the calculation of diluted net
earnings (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)
4,438,401
10,091,886
1,916,804
10,091,886
17 Stock options
The stock option plan (the 2010 Plan) allowed for the issuance of stock options, stock appreciation rights,
restricted stock, restricted stock units, performance awards and other stock-based awards. Under the
2010 Plan, common shares approved for issuance under all stock-based compensation arrangements were
limited to the greater of 591,560 or 10% of the common shares issued and outstanding.
The Compensation Committee recommended to the directors, who approved, on May 9, 2013, that the
2010 Plan be renewed and that it be amended and restated in order to (i) change the name of the plan to
Xebec Adsorption 2013 Amended and Restated Omnibus Plan (the 2013 Plan) and (ii change the relevant
provisions therein so that the aggregate number of common shares which could be granted pursuant to the
2013 Plan not exceed 15% of all issued and outstanding common shares of the Company from time to
time (versus 10% in the 2010 Plan). The 2013 Plan was approved by the shareholders on June 13, 2013.
On December 23, 2013, the Board of Directors approved amendments to the 2013 Plan that were required
to comply with TSXV requirements. In accordance with the provisions of the 2013 Plan, the amendments
did not require shareholder approval but required approval by the TSXV. The amendments include
renaming the 2013 Plan the Xebec Adsorption Stock Option Plan and moving from a rolling 15% of stock
options available for issuance to a fixed number of 5,904,580 common shares available for grant. As at
December 31, 2014, the maximum number of common shares available for issuance under all stock-based
compensation arrangements is 5,904,580.
Under the terms of the Xebec Adsorption Stock Option 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 either gradual and equal over four years or at the grant date
(24)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2014 and 2013
(expressed in Canadian dollars)
and are exercisable for three to 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.
Stock option activity for the years ended December 31 is presented below:
2014
Weighted
average
exercise
price
$
0.18
0.12
0.17
. -
0.16
0.16
Number
of options
3,430,457
1,032,260
(145,913)
-
4,316,804
4,316,804
Number
of options
4,316,804
2,500,000
(978,402)
-
5,838,402
4,438,401
Outstanding – Beginning
of year
Granted
Cancelled
Expired
Outstanding – End of year
Exercisable – End of year
As at December 31, 2014, options outstanding and exercisable are as follows:
2013
Weighted
average
exercise
price
$
0.19
0.16
0.31
. -
0.18
0.18
2014
Exercise
price
range
$
0.10 – 0.20
0.22 – 0.27
12.00 – 12.25
Number
of options
5,296,130
527,272
15,000
5,838,402
Options outstanding
Options exercisable
Weighted
average
remaining
contractual
life (years)
Weighted
average
exercise
price
$
Number
of options
5.27
3.57
1.71
5.11
0.12
0.24
12.00
3,896,129
527,272
15,000
0.16
4,438,401
Weighted
average
exercise
price
$
0.12
0.24
12.00
0.17
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:
(25)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2014 and 2013
(expressed in Canadian dollars)
Non-employees
Employees
Non-employees
Employees
2014
2013
Dividend yield
Exercise price
Risk-free interest rate
Estimated life
Expected volatility
Stock price
0%
$0.14
1.06%
2 years
81%
$0.12
0%
$0.12
1.15%
2 years
81%
$0.14
0%
$0.16
1.15%
2 years
81%
$0.16
-
-
-
-
-
-
The weighted average fair value of the options granted to employees in 2014 was $0.05 and there were no
options granted to employees in 2013.
The weighted average fair value of the options granted to non-employees during the year is $0.06 per
common share (2013- $0.07).
Compensation expense with respect to these options amounted to $47,488 for employees and $24,595 for
non-employees for the year ended December 31, 2014 (2013 – $6,757 and $64,726).
18 Expenses by nature
Material
Employee salaries and benefits
Travel expenses
Professional fees
Rent and repairs and maintenance
Office expense
Depreciation and amortization
Subcontracting costs
Stock-based compensation
Commission
Other
2014
$
6,240,259
5,792,079
870,152
654,405
607,827
458,431
295,526
277,434
72,083
47,052
(275,822)
2013
$
5,274,607
5,963,254
704,712
684,092
682,858
399,973
262,705
841,075
71,483
36,032
634,777
15,039,426
15,555,568
(26)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2014 and 2013
(expressed in Canadian dollars)
19 Research and development expenses
Material
Professional fees
Employee salaries and benefits
Travel expenses
Rent and repairs and maintenance
Government grants
Research and development tax credits
20 Finance expenses
Interest and bank charges
Interest on bank loan
Interest on long-term debt
Interest charges
Accretion and revaluation of government royalty program
obligation (see note 15 (c))
21 Compensation of key management
Compensation awarded to key management included:
Salaries and short-term employee benefits
Stock-based compensation
Termination benefits
2014
$
154,313
24,390
23,095
406
-
(5,000)
27,337
224,541
2014
$
39,910
-
569
89,142
34,364
2013
$
19,259
65,803
207,035
1,966
1,975
(5,000)
(273,635)
17,403
2013
$
31,023
23,316
1,081
47,648
94,041
163,985
197,109
2014
$
980,551
72,083
93,727
1,146,361
2013
$
690,389
64,919
-
755,308
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, 2014 and 2013
(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
2014
$
-
-
-
2013
$
-
-
-
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 earnings
(loss)
Non-deductible items
Non-taxable portion of tax credits
Net change in unrecognized deferred income tax assets
Impact of expiration of non-capital losses available to
carryforward
Impact of changes in income tax rates on
deferred income taxes
Other
Non-taxable portion of gain on disposal of assets
Effective income tax rate
2014
%
26.90
(0.85)
(6.77)
37.55
(91.42)
41.73
(7.14)
-
-
2013
%
26.89
1.14
-
12.88
-
(10.94)
0.35
(30.32)
-
The applicable statutory tax rate is 26.9% in 2014 and 26.89% in 2013. The Company’s applicable
tax rate is the Canadian federal and provincial combined rate applicable in the jurisdictions in which
the Company operates.
(28)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2014 and 2013
(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
Scientific research and development expenses
Investment tax credits
Other
Deferred income tax liabilities
Intangible assets
Property, plant and equipment
2014
$
2013
$
213,891
14,710,183
-
6,479,129
3,922,377
122,150
-
15,777,888
38,712
6,517,195
3,975,586
171,905
25,447,730
26,481,286
(244,798)
-
(216,514)
(5,376)
25,202,932
26,259,396
Unrecognized deferred income tax assets
(25,202,932)
(26,259,396)
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, 2014 and 2013
(expressed in Canadian dollars)
d) Other
The Company has non-capital losses carried forward in Canada of approximately $54,800,000 (2013
–$55,060,000) 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:
2025
2026
2027
2028
2029
2030
2031
2032
2033
$
6,900,000
7,200,000
6,800,000
10,800,000
7,200,000
12,400,000
500,000
500,000
2,500,000
54,800,000
The Company has scientific research and experimental development expenses of approximately
$24,110,000 (2013 – $24,300,000) which are available to be carried forward indefinitely and
deducted against future taxable income otherwise calculated. The potential benefit has not been
recorded in the accounts.
As at December 31, 2014, the Company also has investment tax credits of approximately $5,366,000
(2013 – $5,407,000) 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
2031
2032
2033
$
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
97,000
37,000
5,366,000
(30)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2014 and 2013
(expressed in Canadian dollars)
23 Supplemental Cash flow information
Net change in non-cash working capital balances related to operations consists of the following:
Decrease (increase) in assets:
Trade and other receivables
Inventories
Investment tax credits receivable
Other current assets
Increase (decrease) in liabilities:
Trade and other payables
Accrued liabilities
Deferred revenues
Other operating liabilities
2014
$
234,389
(130,361)
87,760
162,760
249,958
(81,673)
(527,784)
(372,717)
(377,668)
2013
$
1,021,046
(351,430)
(62,760)
(133,899)
(252,452)
(338,976)
274,807
314,072
470,408
24 Commitments
Following is a summary of Xebec’s contractual obligations and commitments:
As at December 31, 2014
Operating leases
As at December 31, 2013
Operating leases
Payment Due by Period
Beyond
5 years
2 - 5 years
1 year
$
462,796
$
$
1,269,464 2,236,672
Payment Due by Period
Beyond
5 years
2 - 5 years
$
1,319,923
$
2,543,033
1 year
$
732,077
Total
$
3,968,931
Total
$
4,595,033
Operating leases include one building in Blainville, Quebec, and various equipment leases.
25 Contingent liabilities
The Company is party to various ongoing and pending litigation along with other contingencies arising out
of the 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.
(31)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2014 and 2013
(expressed in Canadian dollars)
26 Related party transactions
The following table presents a summary of the related party transactions during the year:
2014
$
2013
$
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 subsidiary manager
Management fees paid to an entity controlled by a subsidiary manager
Cash advances to an entity controlled by a subsidiary manager
108,165
3,260,776
-
-
132,077
484,077
33,869
207,076
These transactions are measured at the exchange amount, which is the amount of consideration established
and agreed to by the related parties.
27 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 15 (c))
Equity
2014
$
2013
$
(1,008,421)
136,437
50,475
762,825
(2,835,051)
370,000
117,652
846,461
(58,684)
929,291
(1,500,938)
1,958,988
870,607
458,050
The Company is not subject to any capital requirements imposed by regulators.
28 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.
(32)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2014 and 2013
(expressed in Canadian dollars)
Revenue summarized by country, as determined by location of the customers, is as follows:
Revenue
United States
Singapore
Republic of China
Canada
Other
Revenue summarized by product line is as follows:
Product line
Natural gas dryers
Compressed gas filtration
Biogas purification
Associated gas
Engineering services
Air dryers
2014
$
4,509,675
3,260,776
2,809,819
2,137,609
1,650,530
2013
$
3,131,562
473,486
1,060,381
2,139,234
4,506,780
14,368,409
11,311,443
2014
$
6,652,931
3,853,568
2,494,462
974,367
264,223
128,858
2013
$
4,458,228
3,954,704
2,670,663
227,848
-
-
14,368,409
11,311,443
(33)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2014 and 2013
(expressed in Canadian dollars)
Major customer representing 10% or more of total sales is:
2014
$
2013
$
Customer A
3,256,051
455,120
The location of the Company’s non-current assets by geographic region is as follows:
Non-current assets
Canada
Asia
United States
29 Financial instruments
2014
$
1,337,833
66,826
5,099
2013
$
1,389,781
72,924
-
1,409,758
1,462,705
(a) Measurement categories and fair values, including valuation methods and assumptions
The following tables show the carrying values and fair values of assets and liabilities by category as
at December 31:
December 31, 2014
Loans and receivables
Other
financial liabilities
Cash
Trade and other receivables
Bank loan
Trade and other payables
Accrued liabilities
Long-term debt
Government royalty program
obligation
Carrying
amount
$
1,008,421
2,681,311
-
-
-
-
Fair
value
$
Carrying
amount
$
Fair
value
$
1,008,421
2,681,311
-
-
-
-
-
-
136,437
-
-
136,437
3,491,897 3,491,897
723,890
49,581
723,890
50,475
-
-
762,825
762,825
(34)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2014 and 2013
(expressed in Canadian dollars)
December 31, 2013
Loans and receivables
Other
financial liabilities
Cash
Trade and other receivables
Bank loan
Trade and other payables
Accrued liabilities
Long-term debt
Government royalty program
obligation
Carrying
amount
$
2,835,051
2,915,700
-
-
-
-
Fair
value
$
Carrying
amount
$
Fair
value
$
2,835,051
2,915,700
-
-
-
-
-
-
370,000
-
-
370,000
3,429,420 3,429,420
805,563
112,018
805,563
117,652
-
-
846,461
846,461
The carrying values of cash, trade and other receivables, trade and other payables, 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:
• Long-term debt: The Company’s long-term debt carries fixed interest rates. The fair value of the
Company’s debt obligations has been calculated by discounting the future cash flows of the long-
term debt 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.
• The Company’s financial instruments that are measured subsequent to initial recognition at fair
value are grouped into Levels 1 to 3 based on the degree to which the fair value is observable:
Level 1 — Fair value measurements are those derived from quoted prices (unadjusted) in
active markets for identical assets or liabilities.
Level 2 — Fair value measurements are those derived from inputs other than quoted prices
included within Level 1 that are observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices).
Level 3 — Fair value measurements are those derived from valuation techniques that include
inputs for the asset or liability that are not based on observable market data (unobservable
inputs).
The long-term debt and government royalty program obligation are considered Level 2, and there is no
Level 1 or 3.
(35)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2014 and 2013
(expressed in Canadian dollars)
(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 and other receivables.
The carrying amount of its outstanding trade and other receivables 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 $217,021 (2013 – $433,420) was established based on prior
experience and an assessment of current financial conditions of customers as well as the general economic
environment. In cases where an allowance for doubtful accounts provision is recorded and a receivable
balance is considered uncollectible, it is written off against the allowance for doubtful accounts. Bad debt
reversal amounted to $228,139 in 2014 (2013 – expense amounted to $266,236). As at December 31,
2014, the Company’s three largest trade debtors accounted for 24% (12%, 6% and 6%) of the total trade
and other receivables balance (2013 – 26% (15%, 6% and 5%)).
Details of trade and other receivables 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
Allowance for doubtful accounts
Unbilled and other receivables
2014
$
2013
$
741,720
619,120
416,515
326,061
179,215
774,686
2,438,197
(217,021)
460,135
823,032
246,388
174,244
714,148
2,576,932
(433,420)
772,188
Total trade and other receivable
2,681,311
2,915,700
(36)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2014 and 2013
(expressed in Canadian dollars)
The following table summarizes the changes in the allowance for doubtful accounts for trade and other
receivables:
At December 31, 2013
Provision for impairment
Impaired receivables written off during the year as uncollectible – current year
Impaired receivables written off during the year as uncollectible – last year
Receivable collected previously written off
Unused amounts reversed
At December 31, 2014
$
(433,420)
(217,021)
-
6,151
427,269
(217,021)
The Company’s cash is maintained at financial institutions with high credit ratings; therefore, the
Company considers the risk of non-performance on this instrument to be remote. To date, the Company
has not incurred any losses related to its cash.
(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 earnings (loss). Management believes that a 10% change in exchange rates would be
reasonably possible and that the impact on net earnings (loss) of such a change would be
approximately $24,671 for 2014 (2013 – $139,771). As at December 31, 2014, the following accounts
are shown in their original currencies and converted into Canadian dollars. The Company does not use
financial instruments to reduce this risk.
Cash
Restricted cash
Trade and other receivables
Trade and other payables
Renminbi
US
dollar
-
817,695
-
-
93,554
-
410,875
(329,919)
2014
Euro
9,458
-
-
(86,592)
817,695
174,510
(77,134)
Equivalent in Canadian dollars
152,827
202,449
(108,562)
(37)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2014 and 2013
(expressed in Canadian dollars)
Cash
Trade and other receivables
Trade and other payables and accrued
liabilities
Thai
baht
US
dollar
-
772,327
635,197
1,297,933
2013
Euro
3,439
-
-
(476,092)
(124,290)
772,327
1,457,038
(120,851)
Equivalent in Canadian dollars
25,108
1,549,705
(177,107)
(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’s prime rate. As at December 31, 2014, the short-
term bank loan amounted to $136,437 (2013 – $370,000). If the interest rate on the bank debt had
been 50 basis points higher (lower), related to the bank loan as at December 31, 2014, net earnings
(loss) would have been $1,103 (2013 – $2,076) lower (higher).
(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:
(38)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2014 and 2013
(expressed in Canadian dollars)
Carrying
amount
$
Contractual
cash flow
$
0 to 12
months
$
136,437
136,437
136,437
3,491,897
723,890
50,475
3,491,897
723,890
49,581
3,491,897
723,890
49,581
2014
Thereafter
$
-
-
-
-
13 to 24
months
$
-
-
-
-
Financial liabilities
Bank loan
Trade and other
payables
Accrued liabilities
Long-term debt
Government royalty
program obligation
762,825
815,000
60,000
250,500
504,500
5,165,524
5,216,805
4,461,805
250,500
504,500
Financial liabilities
Bank loan
Trade and other
payables
Accrued liabilities
Long-term debt
Government royalty
program
obligation
Carrying
amount
$
Contractual
cash flow
$
0 to 12
months
$
370,000
370,000
370,000
13 to 24
months
$
-
3,429,420
805,563
117,652
3,429,420
805,563
118,301
3,429,420
805,563
67,745
-
-
50,556
2013
Thereafter
$
-
-
-
-
846,461
910,000
294,000
294,000
322,000
5,569,096
5,633,284
4,966,728
344,556
322,000
Contractual interest amounts on floating interest rates are established based on the spot rates as at the
statement of financial position dates.
The Company’s development is financed through a combination of borrowing under the existing credit
facilities and the issuance of debt and equity (note 1).
(39)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
December 31, 2014 and 2013
(expressed in Canadian dollars)
30 Subsequent events
In 2015, the Company renegotiated its payments terms with TPC moving from a monthly payment of
$24,500 to a monthly payment of:
• $5,000 starting from April 30, 2015 to September 30, 2015
• $10,000 starting from October 31, 2015 to March 31, 2016
• $24,500 starting from April 30, 2016 to December 31, 2016
• And the balance of $504,500 on January 31, 2017.
(40)