Xebec Adsorption Inc.
Consolidated Financial Statements
December 31, 2018 and 2017
(expressed in Canadian dollars)
Independent Auditor's Report
To the Shareholders of
Xebec Adsorption Inc.
Opinion
We have audited the consolidated financial statements of Xebec Adsorption Inc. (hereafter "the Company"),
which comprise the consolidated statements of financial position as at December 31, 2018 and 2017
and the consolidated statements of income (loss), the consolidated statements of comprehensive loss,
the consolidated statements of changes in equity and the consolidated statements of cash flows for the
years then ended, and notes to the consolidated financial statements including a summary of significant
accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 2018 and 2017, and its financial
performance and its cash flows for the years then ended in accordance with International Financial
Reporting Standards (IFRS).
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our
responsibilities under those standards are further described in the "Auditor’s responsibilities for the
audit of the consolidated financial statements" section of our report. We are independent of the
Company in accordance with the ethical requirements that are relevant to our audit of the consolidated
financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance
with these requirements. We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Material uncertainty related to going concern
We draw attention to Note 1 to the consolidated financial statements, which indicates the existence of
a uncertainty that may cast doubt about the the Company’s ability to continue as a going concern.
Our opinion is not modified in respect of this matter.
Information other than the consolidated financial statements and the auditor’s report thereon
Management is responsible for the other information. The other information comprises the
information, other than the consolidated financial statements and our auditor’s report thereon, included
in the Management’s Discussion and Analysis.
Our opinion on the consolidated financial statements does not cover the other information and we do
not express any form of assurance conclusion thereon. In connection with our audit of the
consolidated financial statements, our responsibility is to read the other information identified above
and, in doing so, consider whether the other information is materially inconsistent with the
consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be
materially misstated.
Raymond Chabot Grant Thornton LLP Suite 2000 National Bank Tower 600 De La Gauchetière Street West Montréal, Quebec H3B 4L8 T 514-878-2691 Member of Grant Thornton International Ltd rcgt.com We obtained the Management’s Discussion and Analysis prior to the date of this auditor’s report. If,
based on the work we have performed on this other information, we conclude that there is a material
misstatement of this other information, we are required to report that fact in this auditor’s report. We
have nothing to report in this regard.
Responsibilities of management and those charged with governance for the consolidated
financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with International Financial Reporting Standards (IFRS), 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.
In preparing the consolidated financial statements, management is responsible for assessing the
Company's ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless management either intends to
liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting
process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial
statements as a whole are free from material misstatement, whether due to fraud or error, and to
issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with Canadian generally accepted
auditing standards will always detect a material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of these
consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:
─ Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks,
and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than for one
resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control;
─ Obtain an understanding of internal control relevant to the audit 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 Company’s internal control;
─ Evaluate the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by management;
─ Conclude on the appropriateness of management’s use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a material uncertainty exists
related to events or conditions that may cast significant doubt on the Company's ability to
continue as a going concern. If we conclude that a material uncertainty exists, we are required
to draw attention in our auditor’s report to the related disclosures in the consolidated financial
statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are
based on the audit evidence obtained up to the date of our auditor’s report. However, future
events or conditions may cause the Company to cease to continue as a going concern;
─ Evaluate the overall presentation, structure and content of the consolidated financial
statements, including the disclosures, and whether the consolidated financial statements
represent the underlying transactions and events in a manner that achieves fair presentation;
─ Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the group to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and performance of the group
audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant deficiencies in
internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and
other matters that may reasonably be thought to bear on our on our independence, and where
applicable, related safeguards.
The engagement partner on the audit resulting in this independent auditor's report is Louis Roy.
Montreal
April 16, 2019
1 CPA auditor, CA public accountancy permit no A125741
Xebec Adsorption Inc.
Consolidated Statements of Financial Position
As at December 31, 2018 and 2017
(expressed in Canadian dollars)
Assets
Current assets
Cash
Restricted Cash (Note 29)
Trade and other receivables (Note 5)
Inventories (Note 6)
Investment tax credits receivable
Other current assets
Total current assets
Non-current assets
Property, plant and equipment (Note 7)
Intangible assets (Note 8)
Total non-current assets
Total assets
Liabilities
Current liabilities
Credit facility (Note 10)
Trade, other payables and accrued liabilities (Note 11)
Contract liabilities (Note 12)
Current portion of long-term debt (Note 13a)
Current portion of government royalty program obligation (Note 13b)
Current portion of provisions (Note 14)
Current portion of obligation arising from shares issued by a subsidiary (Note 15)
Total current liabilities
Non-current liabilities
Long-term debt (Note 13a)
Government royalty program obligation (Note 13b)
Obligation arising from shares issued by a subsidiary (Note 15)
Deferred rent
Provisions (Note 14)
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Equity
Share capital (Note 16)
Contributed surplus
Equity component of convertible debentures
Accumulated other comprehensive loss
Deficit
Total equity
Total liabilities and equity
December 31,
2018
$
December 31,
2017
$
2,382,146
1,540,000
6,865,331
3,339,542
15,943
260,743
1,341,121
-
4,133,259
1,963,392
15,943
260,157
14,403,705
7,713,872
281,818
405,477
687,295
208,632
418,363
626,995
15,091,000
8,340,867
-
2,682,924
4,370,643
1,777,915
100,515
15,275
198,300
1,437,912
3,585,755
720,996
22,236
86,826
16,689
-
9,145,572
5,870,414
1,902,647
436,258
3,971,053
133,531
40,324
81,989
2,223,478
504,546
3,912,314
132,815
5,601
81,989
6,565,802
6,860,743
15,711,374
12,731,157
26,508,168
3,691,192
189,645
(1,140,342)
(29,869,037)
19,703,836
3,339,740
291,389
(1,049,455)
(26,675,800)
(620,374)
(4,390,290)
15,091,000
8,340,867
The accompanying notes are an integral part of these consolidated financial statements
Approved by the Board of Directors
__________________________________ Director
(signed) Kurt Sorschak
(signed) Guy Saint-Jacques
___________________________________ Director
Xebec Adsorption Inc.
Consolidated Statements of Income (loss)
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
Revenue (Note 27)
Cost of goods sold
Gross margin
Research and development expenses (Note 19)
Selling and administrative expenses
Foreign exchange (gain) loss
Loss (gain) on insurance claim
Loss (gain) on conversion of shares issued by a
subsidiary (Note 15)
Operating income (loss)
Other charge (income)
Finance income
Finance expenses (Note 20)
Income (loss) before income taxes
Income taxes (Note 22)
Net income (loss) for the year
Net income (loss) per share
Basic and diluted net income (loss) per share (Note 16)
2018
$
2017
$
20,208,496
14,745,931
14,520,154
8,977,709
5,688,342
5,768,222
92,069
7,215,500
(152,482)
-
(31,114)
5,217,075
131,149
(132,366)
116,090
(2,358)
7,271,177
5,182,386
(1,582,835)
585,836
(1,611)
1,323,162
(122,068)
611,152
1,321,551
489,084
(2,904,386)
96,752
-
-
(2,904,386)
96,752
(0.07)
0.002
The accompanying notes are an integral part of these consolidated financial statements.
Xebec Adsorption Inc.
Consolidated Statements of Comprehensive Loss
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
Net income (loss) for the year
Other comprehensive loss
Cumulative translation adjustment
Comprehensive loss for the year
2018
$
2017
$
(2,904,386)
96,752
(90,887)
(109,239)
(2,995,273)
(12,487)
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, 2018 and 2017
(expressed in Canadian dollars)
Number
Common
shares
Warrants
Share capital
– Common
shares
$
Contributed
surplus
$
Accumulated
other
comprehensive
income (loss)
$
Deficit
$
Equity
Component of
convertible
debentures
$
Amount
Total
$
Balance – January 1, 2017
39,363,867
Net income for the year
Other comprehensive loss
Comprehensive loss for the year
Stock-based compensation expense (Note 17)
Issuance of convertible debentures (net of deferred
tax liability of $ 81,989 (Note 22)
Share issued from the exercise of options
Conversion of convertible debentures
Balance – December 31, 2017
Balance – January 1, 2018
Adjustment from the adoption of IFRS 15 (Note 3)
Balance – January 1, 2018 Adjusted
Net loss for the year
Other comprehensive loss
Comprehensive loss for the year
Share issued from conversion of debentures
Share issued from the exercise of options
Stock-based compensation (Note 17)
Share issued from public offering
Warrants issued from public offering
Balance –December 31, 2018
-
-
-
-
-
1,140,500
2,000,000
42,504,367
42,504,367
-
42,504,367
-
-
-
4,766,665
307,272
-
9,439,966
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
5,286,381
19,318,856
2,996,621
(940,216)
(26,772,552)
150,304
(5,246,987)
-
-
-
-
-
88,535
296,445
-
-
-
-
96,752
(109,239)
(109,239)
-
96,752
372,603
-
(29,484)
-
-
-
-
-
-
-
-
-
-
-
-
-
186,177
-
(45,092)
96,752
(109,239)
(12,487)
372,603
186,177
59,051
251,353
19,703,836
3,339,740
(1,049,455)
(26,675,800)
291,389
(4,390,290)
19,703,836
-
19,703,836
3,339,740
(1,049,455)
(26,675,800)
-
3,339,740
-
(1,049,455)
(288,851)
(26,964,651)
-
-
-
765,000
79,271
-
5,984,687
(24,626)
-
-
-
-
(26,071)
352,897
-
24,626
-
(90,887)
(90,887)
(2,904,386)
-
(2,904,386)
-
-
-
-
-
-
-
-
-
-
291,389
-
291,389
-
-
-
(101,744)
-
-
-
-
(4,390,290)
(288,851)
(4,679,141)
(2,904,386)
(90,887)
(2,995,273)
663,256
53,200
352,897
5,984,687
-
57,018,270
5,286,381
26,508,168
3,691,192
(1,140,342)
(29,869,037)
189,645
(620,374)
Accumulated other comprehensive income (loss) relates solely to cumulative translation adjustments.
The accompanying notes are an integral part of these consolidated financial statements.
Xebec Adsorption Inc.
Consolidated Statements of Cash Flows
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
Cash flows from
Operating activities
Net income (loss) for the year
Items not affecting cash
Depreciation of property, plant and equipment (Note 7)
Amortization of intangible assets (Note 8)
Reversal of inventory write-down
Government grant
Accretion finance expenses and gain on revaluation of
government royalty program obligation (Note 13b)
Accretion of the obligation arising from shares issued by a
subsidiary (Note 15)
Exchange gain/loss on the obligation arising from shares
issued by a subsidiary
Accretion of convertible debentures (Note 13a)
Stock-based compensation expense (Note 17)
Reversal of trade payables
Reversal of allowance for doubtful accounts (Note 18)
Deferred rent
Change in non-cash working capital balances related to operations
(Note 23)
Investing activities
Acquisition of property, plant and equipment
Acquisition of intangible assets
Receipt of R&D tax credit (Note 8)
Financing activities
Increase (decrease) of bank loan
Increase (decrease) of credit facility (Note 10)
Obligation arising from preferred shares issued by a subsidiary
Proceeds from debenture units
Increase from obligation under a capital lease
Debenture issue costs
Proceeds from issuance of share capital (Notes 16 et 17)
Long-term debt
Repayment of long-term debt
Repayment of government royalty program obligation (Note 13b)
Net increase in cash and cash equivalent during the year
Cash – Beginning of the year
Effect of exchange rate changes on cash
Cash and cash restricted – End of the year
Additional information
Interest paid
2018
$
2017
$
(2,904,386)
96,752
78,689
139,079
(144,442)
-
87,584
80,325
(189,065)
(2,083)
27,401
(91,168)
339,249
332,537
116,090
220,763
352,897
-
-
716
(1,773,994)
(2,358)
86,549
372,603
(697,659)
(315,145)
(5,701)
(244,471)
(1,184,241)
(1,610,526)
(2,958,185)
(1,854,997)
(146,953)
(139,290)
13,634
(272,609)
-
(1,437,912)
(198,300)
-
-
-
6,037,887
1,899,578
(22,236)
(82,000)
6,197,017
(26,110)
(308,702)
-
(334,812)
(755,000)
1,437,912
-
2,024,149
11,327
(129,390)
59,051
-
(24,303)
(75,000)
2,548,746
2,966,223
358,937
1,341,121
1,088,592
(385,198)
(106,408)
3,922,146
1,341,121
739,811
378,098
The accompanying notes are an integral part of these consolidated financial statements.
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(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. The Company’s web
site address is www.xebec.com.
b) Going concern
The consolidated financial statements have been prepared on the basis of the going concern
assumption, meaning that the Company will be able to realize its assets and discharge its liabilities
in the normal course of operations. The Company has realized, an operating loss of $1,582,835 in
2018 (an operating income of $585,836 in 2017), had cash outflows from operations of $2,958,185
for the year ended December 31, 2018 ($1,854,997 in 2017), finished the year with cash amounting
to $2,382,146 ($1,341,121 in 2017) and a working capital of $5,258,133 ($1,843,458 in 2017). The
company has access to credit facilities totalling $2,000,000 of which $ NIL has been used ($ NIL
in 2017) (see Note 9). 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 2019 for which management believes the assumptions are reasonable.
Achieving budgeted results is dependent on improving the volume of revenues, delivering on sales
and contract schedules, meeting expected overall operating margin levels and controlling general
and administrative costs.
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. 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 2019 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
(1)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
the carrying values of assets and liabilities that could be needed should the Company have
insufficient liquidity. Such adjustments could be material.
2 Basis of compliance and basis of preparation
These consolidated financial statements, have been prepared in accordance with International Financial
Reporting Standards (“IFSR”)
These consolidated financial statements were approved for issue by the Board of Directors of the
Company on April 16, 2019
The consolidated financial statements have been prepared on the historical cost convention, except for
where IFRS requires recognition at fair value.
These consolidated financial statements are based on the accounting policies as described below.
These policies have been consistently applied to all the periods, unless otherwise stated.
3 Significant accounting policies
New standards adopted as at January 1st, 2018
Financial Instruments
On January 1st, 2018, the Company adopted IFRS 9 Financial Instruments (“IFRS 9”), which replaces
IAS 39 Financial Instruments: Recognition and Measurement (“IAS 39’). The Company elected to use
the exemption to not restate comparative information for prior periods. IFRS 9 provides a revised model
for classification and measurement of financial assets, including a new expected credit loss (“ECL”)
impairment model. The revised model for classifying financial assets results in classification according
to their contractual approach to hedge accounting. IFRS 9 also largely retains the existing requirements
in IAS 39 for the classification of financial liabilities.
As a result of the adoption of IRFS9, the Company has changed its accounting policy with respect to
financial instruments. Under IFRS9, the Company’s financial assets are accounted for as follows when
compares to the Company’s previous policy in accordance with IAS39:
Financial Assets
Cash
Trade and other receivables
Bank loan
Trade, other payables and accrued liabilities
Long-term debt
Government royalty program obligation
Obligation arising from shares issued by a subsidiary
IAS 39
Loans and receivables
Loans and receivables
Other financial liabilities
Other financial liabilities
Other financial liabilities
Other financial liabilities
Other financial liabilities
IFRS 9
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
The changes in accounting policy did not result in a change in carrying value for any financial
instruments on transition date. Upon initial date of application of IFRS 9, there was no impact to the
Company’s consolidated financial statements as of the date of initial application.
(2)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
Revenue Recognition
On January 1st, 2018, the Company adopted IFRS 15 Revenues from Contracts with Customers (“IFRS
15”), which replaces IAS 11 Construction Contracts, and IAS 18, Revenue and related interpretations.
The Company elected to use the modified retrospective method of adoption and not to restate the
comparative information for prior periods. As a result, the cumulative effect of initially applying IFRS
15 was recognized as an adjustment to the opening balance of the deficit at January 1, 2018. The impact
in the deficit for this adjustment is an increase in deficit of $288,851. Comparative information has not
been restated and continues to be reported under IAS 11 and IAS 18. The Company also elected to
reflect the aggregate effect of all contract modifications occurring before January 1, 2018 when:
identifying the satisfied and unsatisfied performance obligations in a contract, determining the
transaction price, and allocating the transaction price to the satisfied and unsatisfied performance
obligations.
The adoption of IFRS 15 has mainly affected the following areas:
- Revenues from multiple services, which must be accounted for separately.
- Percentage of completion and revenues from long-term production-type contracts.
Revenue recognition for obligations in China, previously accounted for using the percentage-of-
completion method no longer meet the requirements for revenue recognition over time. Revenue for
these contracts are recognized upon completion.
There is no material impact of this standard in the North-American and European divisions.
While these changes impact the timing of revenue and margin recognition, and result in a reduction of
equity at transition, there is no change to cash flows nor change in profitability over the life of the
contracts.
The impacts on the consolidated financial statements, are as follows:
(3)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
Consolidated Statement of Financial Position
Assets
Current assets
Cash
Restricted cash (Note 29)
Trade and other receivables (Note 5)
Inventories (Note 6)
Investment tax credits receivable
Other current assets
Total current assets
Non-current assets
Property, plant and equipment (Note 7)
Intangible assets (Note 8)
Total non-current assets
Total assets
Liabilities
2018
Amounts without
adoption of
IFRS 15
IFRS 15
adjustments
$
$
2,382,146
-
6,598,739
781,372
15,943
260,743
-
-
266,592
2,558,170
-
-
As reported
$
2,382,146
1,540,000
6,865,331
3,339,542
15,943
260,743
14,403,705
11,578,943
2,824,762
281,818
405,477
687,295
281,818
405,477
687,295
-
-
-
15,091,000
12,266,238
2,824,762
Current liabilities
Credit facility (Note 10)
Trade, other payables and accrued liabilities (Note 11)
Contract liabilities (Note 12)
Current portion of long-term debt (Note 13a)
Current portion of government royalty program obligation (Note 13b)
Current portion of provisions (Note 14)
Current portion of obligation arising from shares issued by a subsidiary (Note 15)
-
2,682,924
4,370,643
1,777,915
100,515
15,275
198,300
-
2,682,924
(1,037,048)
1,777,915
100,515
15,275
198,300
-
-
5,407,691
-
-
-
-
Total current liabilities
9,145,572
3,737,881
5,407,691
Non-current liabilities
Long-term debt (Note 13a)
Government royalty program obligation (Note 13b)
Obligation arising from shares issued by a subsidiary (Note 15)
Deferred rent
Provisions (Note 14)
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Equity
Share capital (Note 16)
Contributed surplus
Equity component of convertible debentures
Accumulated other comprehensive loss
Deficit
Total equity
Total liabilities and equity
1,902,647
436,258
3,971,053
133,531
40,324
81,989
1,902,647
436,258
3,971,053
133,531
40,324
81,989
6,565,802
6,565,802
-
-
-
-
-
-
-
15,711,374
10,303,683
5,407,691
26,508,168
3,691,192
189,645
(1,140,342)
(29,869,037)
26,508,168
3,691,192
189,645
(1,140,342)
(27,286,108)
-
-
-
-
(2,582,929)
(620,374)
1,962,555
(2,582,929)
15,091,000
12,266,238
2,824,762
(4)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
Consolidated Statement of Income (Loss)
Revenue
Cost of goods sold
Gross margin
Research and development expenses (Note 19)
Selling and administrative expenses
Foreign exchange loss (gain)
Loss (gain) on conversion of shares issued by a subsidiary (Note 15)
Operating Income (loss)
Other charge (income)
As reported
$
2018
Amounts
without
adoption of
IFRS 15
adjustments
IFRS 15
$
$
20,208,496
14,520,154
25,652,986 (5,444,490)
17,670,566 (3,150,412)
5,688,342
7,982,420 (2,294,078)
92,069
7,215,500
(152,482)
92,069 -
7,215,500 -
(152,482) -
116,090
116,090 -
7,271,177
7,271,177 -
(1,582,835)
711,243 (2,294,078)
1,321,551
1,321,551 -
Net income (loss) for the year
(2,904,386)
(610,308) (2,294,078)
(5)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
Consolidated Comprehensive Income
As reported
$
Amounts
without
adoption of
IFRS 15
$
IFRS 15
adjustment
$
Net income (loss) for the year
(2,904,386)
(610,308)
(2,294,078)
Other comprehensive loss
Cumulative translation adjustment
(90,887)
(90,887)
-
Comprehensive loss for the year
(2,995,273)
(701,195)
(2,294,078)
(6)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
Consolidated Statements of Cash Flows
Cash flows from
Operating activities
Net income (loss) for the year
Items not affecting cash
Depreciation of property, plant and equipment (Note 7)
Amortization of intangible assets (Note 8)
Reversal of inventory write-down
Government grant
Accretion finance expenses and gain on revaluation of
government royalty program obligation (Note 13b)
Accretion of the obligation arising from shares issued by a
subsidiary (Note 15)
Exchange gain/loss on the obligation arising from shares
issued by a subsidiary
Accretion of convertible debentures (Note 13a)
Stock-based compensation expense (Note 17)
Reversal of trade payables
Reversal of allowance for doubtful accounts (Note 18)
Deferred rent
As reported
$
2018
Amounts
without
adoption of
IFRS 15
$
IFRS 15
adjustment
$
(2,904,386)
(610,308)
(2,294,078)
78,689
139,079
(144,442)
-
27,401
339,249
116,090
220,763
352,897
-
-
716
(1,773,944)
78,689
139,079
(144,442)
-
27,401
339,249
116,090
220,763
352,897
-
-
716
520,134
-
-
-
-
-
-
-
-
-
-
-
-
(2,294,078)
Change in non-cash working capital balances related to operations
(Note 23)
(1,184,241)
(3,478,319)
(2,294,078)
Investing activities
Acquisition of property, plant and equipment
Acquisition of intangible assets
Receipt of R&D tax credit
Financing activities
Increase (decrease) of bank loan
Increase (decrease) of credit facility (Note 10)
Obligation arising from preferred shares issued by a subsidiary
Proceeds from debenture units
Increase from obligation under a capital lease
Debenture issue costs
Proceeds from issuance of share capital (Notes 16 et 17)
Long-term debt
Repayment of long-term debt
Repayment of government royalty program obligation (Note 13b)
Net increase in cash and cash equivalent during the year
Cash – Beginning of the year
Effect of exchange rate changes on cash
Cash and cash restricted – End of the year
(2,958,185)
(2,958,185)
(146,953)
(139,290)
13,634
(272,609)
-
(1,437,912)
(198,300)
-
-
-
6,037,887
1,899,578
(22,236)
(82,000)
6,197,017
2,966,223
1,341,121
(385,198)
3,922,146
(146,953)
(139,290)
13,634
(272,609)
-
(1,437,912)
(198,300)
-
-
-
6,037,887
1,899,578
(22,236)
(82,000)
6,197,017
2,850,133
1,341,121
(269,108)
3,922,146
(7)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
Basis of consolidation
These consolidated financial statements include the accounts of the Company and its subsidiaries.
Subsidiaries are entities controlled by the Company. Control is achieved when the Company:
•
•
•
has power over the investee;
is exposed, or has rights, to variable returns from its involvement with the investee; and
has the ability to use its power to affect its returns.
The Company reassesses whether or not it controls an investee if facts and circumstances indicate that
there are changes to one or more of the three elements of control listed above.
When the Company has less than a majority of the voting rights of an investee, it has power over the
investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities
of the investee unilaterally. The Company considers all relevant facts and circumstances in assessing
whether or not the Company's voting rights in an investee are sufficient to give it power, including:
•
•
•
•
the size of the Company's holding of voting rights relative to the size and dispersion of holdings
of the other vote holders;
potential voting rights held by the Company, other vote holders or other parties;
rights arising from other contractual arrangements; and
any additional facts and circumstances that indicate that the Company has, or does not have, the
current ability to direct the relevant activities at the time that decisions need to be made, including
voting patterns at previous shareholders' meetings.
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., which is 70% owned, Xebec Adsorption USA Inc. (Houston) and Xebec Adsorption Europe SRL
which are wholly 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. The Company has the
obligation to repurchase the Minority Shareholders' interest owned in Xebec Adsorption (Shanghai) Co.
Ltd. under certain circumstances (see Note 15). Therefore, the accounts of Xebec Adsorption (Shanghai)
Co. Ltd. are consolidated at 100% and the Minority Shareholders' interest is presented as a financial
liability in these consolidated financial statements.
Changes in the Company's ownership interests in subsidiary that do not result in the Company losing
control over the subsidiaries are accounted for as equity transactions or liability transactions depending
on the conditions that these changes occurred. The carrying amounts of the Company's interests are
adjusted to reflect the changes in their relative interests in the subsidiaries.
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. Net realizable value is the
(8)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
estimated selling price for inventories less all estimated costs of completion and cost necessary to make
the sale. 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 write-down is reversed (i.e. the reversal is limited to the amount of the
original write-down) 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 income (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 improvement
3 to 10 years
2 to 5 years
3 years
5 years
5 years
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 income (loss).
Identifiable intangible assets
The Company’s intangible assets consist of software, capitalized development costs of a new line and
engineering standardisation costs 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 income (loss) over the period of their expected useful lives.
Development costs are amortized over a period of five years. Engineering standardisation costs and
software are amortized over a period of 3 years.
(9)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
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 for potential reversals when events or circumstances warrant
such consideration.
Provisions
Provisions for 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
Except for those trade receivables that do not contain a significant financing component and are
measured at the transaction price in accordance with IFRS 15, all financial assets are initially measured
at fair value adjusted for transaction costs where applicable.
Financial assets, other than those designated and effective as hedging instruments, are classified into the
following categories:
- Amortized cost
- Fair value through profit or loss (FVTPL)
- Fair value through other comprehensive income (FVOCI)
In the years presented, the Company does not have any financial assets categorized as FVTPL or
FVOCI.
(10)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
The classification is determined by both, the Company’s business model for managing the financial
assets and the contractual cash flow characteristics of the financial asset.
All income and expenses relating to financial assets that are recognized in income or loss are presented
within finance expenses or finance income, except for impairment of trade receivables which is
presented within selling and administrative expenses.
Financial assets are measured at amortized cost if the asset meet the following conditions and are not
designated as FVTPL:
- They are held within a business model whose objective is to hold the financial assets and collect its
contractual cash flows
- The contractual terms of the financial assets give rise to cash flows that are solely payments of
principal and interest on the principal amount outstanding.
After initial recognition, they are measured at amortized costs using the effective interest method.
Discounting is omitted where the effect of discounting is immaterial. The Company cash, restricted
cash, trade and other receivables fall into this category of financial instruments.
The adoption of IFRS 9 had little impact on the Company’s accounting for impairment losses for
financial assets by replacing IAS 39’s incurred loss approach with a forward-looking expected credit
loss (ECL) approach. Following the adoption of IFRS 9, the recognition of credit losses is no longer
dependent on the identification of an event generator of credit losses by the Company.
The Company considers a broader range of information when assessing credit risk and measuring
expected credit losses, including past events, current conditions, reasonable and supportable forecasts
that affect the expected collectability of the future cash flows on the instrument.
In applying this forward-looking approach, a distinction is made between:
•
•
financial instruments that have not deteriorated significantly in credit quality since initial
recognition or that have low credit risk (“Stage 1”) and
financial instruments that have deteriorated significantly in credit quality since initial recognition
and whose credit risk in not low (“Stage 2”).
“Stage 3” would cover financial assets that have objective evidence of impairment at the reporting date.
“12-month expected credit losses” are recognized for the first category while ‘lifetime expected credit
losses’ are recognized for the second category.
Measurement of the expected credit losses is determined by a probability-weighted estimate of credit
losses over the expected life of the financial instrument.
The Company’s financial liabilities include bank loans, trade, other payables and accrued liabilities,
long-term debt, government royalty program obligation and obligation arising from shares issued by a
subsidiary.
(11)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
Financial liabilities are initially measured at fair value and where applicable, adjusted for transaction
costs unless the Company designated a financial liability at fair-value through profit of loss.
Subsequently, financial liabilities are measured at amortized cost using the effective interest method.
All interest-related charges and, if applicable, changes in an instrument’s faire value that are reported in
income or loss are included within finance expense or finance income.
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 income (loss) as finance income or finance expenses.
Share Capital
Share capital represents the amount received on the issue of shares, less issuance costs, net of any
underlying income tax benefit from these issuance costs. If shares are issued when options and warrants
are exercised, the share capital account also comprises the compensation costs previously recorded as
contributed surplus. If shares are issued within the conversion option on convertible debentures exercise,
the share capital account also comprise the equity component of convertible debentures
Proceeds from unit placements are allocated between shares and warrants according to the residual value
method, where the difference between the fair value and issue price of the share when the warrants are
issued is allocated to the warrants.
Basic and Diluted Income (Loss) per Share
Basic income (loss) per share is calculated by dividing net income (loss) for the year attributable to
equity owners of the Company by the weighted average number of common shares outstanding during
the year (Note 16).
Diluted income (loss) 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 and
similar instruments is computed 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.
Revenues from Contracts with Customers
(12)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
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. 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.
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 contract liabilities.
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 contract liabilities.
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.
Revenues for contracts in China are recognized upon completion and the Company can determine that
control has been transferred to the customer in accordance with the agreed-upon specifications in the
contract.
Revenues from services are recorded when services have been rendered. For contract services that last
over a year, revenue is recognized over the duration of the contract.
Segment reporting
The Company operates three business segments (the fourth, Oil and Gas, is been phased out):
1) Systems (Technology and Equipment) - Provide Renewable Natural Gas, Hydrogen and
Renewable Hydrogen for a variety of applications, from fuel cells to fossil fuel replacement
applications for low carbon transportation fuels.
2) Infrastructure (Renewable Gas Generation) – Project development of renewable natural gas
production facilities, in the build, own and operate (BOO) model that will generate low-carbon
renewable transport fuels and carbon credits.
3) Support (Industrial Air and Gas Products, Parts, Service and Operational Support) –
foundational recurring revenue model.
4) Oil and Gas - Commercialization of innovative membrane technology.
(13)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
For management purposes, the Company uses the same measurement policies as those in its financial
statements.
In addition, corporate assets are used by each segment and are therefore not attributable to any segment
in particular.
Contract balances
Contract assets are recognized when goods or services are transferred to customers before consideration
is received or before the Company has an unconditional right to payment for performance completed to
date. Contract assets are subsequently transferred to receivables when the right of payment becomes
unconditional. Contract assets include cost incurred and recorded margins in excess of advances and
progress billings on long-term contracts.
Contract liabilities are recognized when amounts are received from customers in advance of transfer of
goods or services. Contract liabilities are subsequently recognized in revenue as or when the Company
performs under contracts. Contract liabilities include advances and progress billing in excess on long-
term contracts cost incurred and recorded margins.
A net position of contract asset or contract liability is determined for each contract. The cash flows in
respect of advances and progress billings, are classified as cash flows from operating activities.
Costs to obtain or fulfill a contract
The Company can recognize as an asset the incremental costs of obtaining a contract with a customer
when those costs are expected to be recovered, costs that the Company would not have incurred if the
contract had not been obtained.
Costs that would have been incurred regardless of whether the contract was obtained are recognized as
an expense when incurred, unless those costs are explicitly chargeable to the customer regardless of
whether the contract is obtained.
The Company recognizes the incremental costs of obtaining contracts as an expense when incurred
because those costs are not expected to be recovered and are not charged to the customer.
Remaining performance obligations
The Company’s contracts are for delivery of goods within the next following 12 months of contract’s
signature; therefore, the Company uses the practical expedient allowed in Paragraph 121(a) of IFRS 15.
Following Paragraph 121(a), the Company does not disclose the aggregate amount of the transaction
price allocated to the performance obligations that are unsatisfied as of the end of the reporting period.
Government grants
Non-refundable grants relating to property, plant and equipment are accounted for as deferred
government grants and amortized on the same basis as the related assets.
(14)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
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 income (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.
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, 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,
2018 and 2017, development expenses related to development costs of a new line and engineering
standardisation costs were deferred and accounted for an identified intangible asset.
Income taxes
(15)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
Income tax comprises current and deferred tax. Income tax is recognized in the consolidated statement
of income (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.
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.
Foreign currency translation
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.
Transactions and balances:
(16)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
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 (loss).
Accounting standards issued but not yet applied that have relevance to the Company
In January 2016, IASB issued IFRS 16, “Leases”, which specifies how an IFRS reporter will recognize,
measure, present and disclose leases. The standard provides a single lessee accounting model, requiring
lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the
underlying asset has a low value. Lessors continue to classify leases as operating or finance, with IFRS
16’s approach to lessor accounting substantially unchanged from its predecessor, IAS 17. The standard
will be mandatory for annual periods beginning on or after January 1, 2019.
Some of the impacts of this standard on the consolidated financial statements are as follow:
• New assets such as Buildings will be recognized. Total assets amount will increase affecting
ratios such as asset turnover.
• New liabilities such as Building liabilities will be recognized. Total liabilities amount will
increase affecting its financial leverage.
• Depreciation expense on the right to use asset and interest expense on the lease liability will
replace the operating lease expense.
• The depreciation expense is included in operating costs and interest expenses are included in
financing costs, instead of being included as operating expenses in the period incurred.
Operating profit will increase as well as EBITDA amount, EBITDA is a non-IFRS financial
measure.
The Company will elect to use the exemptions proposed by the standard on lease contract for which the
lease terms end within 12 months as of the date of initial application, and lease contracts for which the
underlying asset is of low value.
The Company has yet to assess the impact of this new standard on its consolidated financial statements.
4 Significant accounting judgments and estimation uncertainties
Critical accounting estimates and judgements
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 affect
the Company’s consolidated financial statements.
i.
Inventories must be valued at the lower of cost and net realizable value.
A write-down 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
(17)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
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 internally generated intangible assets
The Company performs a test for internally generated intangible assets impairment when there
is any indication that internally generated intangible assets 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 internally generated
intangible assets 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, 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 internally generated intangible assets 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.
iv. Allowance for expected credit loss
Since January 1, 2018 the Company is following IFRS 9. The Company recognizes the
impairment of financial assets in the amount of expected credit losses by means of the simplified
approach, measuring impairment losses as lifetime expected credit losses the trade receivables
have been assessed on a collective basis as they possess shared credit risk characteristics and
have been grouped based on the days past due.
Prior periods have not been restated, under IAS 39, amounts were periodically reviewed for
indications of impairment and the amount impaired had been provided for as allowance for
doubtful accounts.
v. Liquidity risk
The assessment of the Company’s ability to continue as a going concern and to raise sufficient
funds to pay for its ongoing operations expenditures, meets its liabilities for the ensuing year,
involve significant judgment based on historical experience and other factors including
expectation of future events that are believed to be reasonable under the circumstances.
(18)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
(19)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
5 Trade and other receivables
Trade receivables
Contract assets
Other receivables
Less: Allowance for expected credit loss
(for doubtful accounts in 2017)
Trade and other receivables - net
2018
$
4,282,399
1,917,919
1,096,687
2017
$
2,760,659
-
1,462,159
(431,674)
6,865,331
(89,559)
4,133,259
Trade and other receivables are pledged as security for the credit facilities (see Notes 9 and 10)
Other receivables include $ 17,869 owed by an officer.
Note 28 includes disclosures relating to the credit risk exposure and analysis relating to the allowance
for expected credit losses. Comparative refers to the IAS 39 measurement basis when applied an
incurred loss model, whereas the current year applies IFRS 9 which uses an expected loss model.
6
Inventories
Raw materials
Work in progress
Inventories
2018
$
2,298,807
1,040,735
3,339,542
2017
$
1,381,780
581,612
1,963,392
Cost of goods sold includes cost of inventories amounting to $7,209,080 in 2018 ($5,153,437 in 2017).
During the current year, a reversal of a previous inventory write-down amounting to $144,442 ($189,065
in 2017) was recognized in inventory as the Company deems these parts recoverable for future orders.
Inventories are pledged as security for the credit facilities (see Notes 9 and 10).
(20)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
7 Property, plant and equipment
Machinery
and
Equipment 1
$
Office
furniture and
equipment
Computers 1
$
Moulds
$
Vehicles
$
Leasehold
Improvement
$
Cost
Balance at December 31, 2016
Additions
Effect of movements in exchange rates
Balance at December 31, 2017
Additions
Disposals
Effect of movements in exchange rates
Balance at December 31, 2018
Accumulated depreciation
Balance at December 31, 2016
Depreciation
Effect of movements in exchange rates
Balance at December 31, 2017
Depreciation
Accumulated depreciation of assets
disposed
$
147,712
6,951
(1,761)
152,902
-
-
3,003
155,905
128,906
9,154
(387)
137,673
9,065
270,845
13,728
550
285,123
118,795
(58,195)
4,530
350,253
249,450
15,224
510
265,184
14,927
166,577
-
(103)
166,474
-
-
2,837
169,311
128,394
16,998
(125)
145,267
13,386
577,892
5,431
(3,192)
580,131
7,708
-
8,422
596,261
381,738
46,208
(72)
427,874
38,974
-
-
(58,195)
-
Total
$
1,199,010
26,110
(4,506)
1,220,614
146,953
(58,195)
18,792
1,328,164
924,472
87,584
(74)
1,011,982
78,689
-
-
-
-
20,450
-
-
20,450
-
-
-
-
2,337
-
(58,195)
-
2,337
13,870
1,046,346
35,984
-
-
35,984
-
-
-
35,984
35,984
-
-
35,984
-
-
-
35,984
Effect of movements in exchange rates
Balance at December 31, 2018
4,160
471,008
2,871
149,609
4,002
225,918
2,837
161,490
Carrying Amount
At December 31, 2017
At December 31, 2018
152,257
125,253
15,229
6,296
19,939
21,207
124,335
7,821
-
-
-
18,113
208,632
281,818
Depreciation of $78,689 (2017 – $87,584) is included in the consolidated statement of income (loss) for the
year ended December 31, 2018: $55,161 (2017 – $67,966) in cost of goods sold; and $23,528 (2017 –
$19,618) in selling and administrative expenses.
Property, plant and equipment are pledged as security for the credit facilities (see Notes 9 and 10)
1 including equipment under finance lease. The cost of equipment under finance lease amount to $58,051 ($54,294 in 2017) and the accumulated depreciation amount to $14,454
($4,883 in 2017).
(21)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
8
Intangible assets
Other
Internally
generated
Software
$
Development
costs
$
Engineering
standardisation
$
327,192
-
10,203
337,395
-
-
5,039
342,434
286,990
20,629
10,927
318,546
15,313
4,502
338,361
18,849
4,073
298,975
2,084
-
301,059
-
-
-
301,059
148,434
59,696
33
208,163
60,212
-
268,375
92,896
32,684
-
306,618
-
306,618
139,290
(13,634)
-
432,274
-
-
-
-
63,554
-
63,554
306,618
368,720
Total
intangible
assets
$
626,167
308,702
10,203
945,072
139,290
(13,634)
5,039
1,075,767
435,424
80,325
10,960
526,709
139,079
4,502
670,290
418,363
405,477
Cost
Balance at December 31, 2016
Additions
Effect of movements in exchange rates
Balance at December 31, 2017
Additions
Receipt of R&D tax credit
Effect of movements in exchange rates
Balance at December 31, 2018
Accumulated amortization
Balance at December 31, 2016
Amortization for the year
Effect of movements in exchange rates
Balance at December 31, 2017
Amortization for the year
Effect of movements in exchange rates
Balance at December 31, 2018
Carrying amount
At December 31, 2017
At December 31, 2018
Amortization of $139,079 (2017 – $80,325) is included in the consolidated statement of income (loss)
for the year ended December 31, 2018: $72,609 (2017 – $20,213) in cost of goods sold; and $66,470
(2017 – $60,112) in selling and administrative expenses.
(22)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
9 Bank loan
The Company has access to credit facilities in the amount of $2,000,000 with National Bank of Canada
which are guaranteed by Export Development Canada at 75%, and bear interest at the Canadian Prime
Rate plus 2.75%, per annum and are limited by certain margin requirements concerning trade and other
receivables and inventories. No credit facilities were used as at December 31, 2018 (2017 – $ NIL).
The credit facilities are secured by a first ranking hypothec of $2,100,000 on all movable property of
the Company.
As of December 31, 2018, the company has a guarantee facility of $12,000,000 with National Bank of
Canada sponsored at 100% by Export Development Canada. Stand by fees at an annual rate of 0.75% is
calculated on the unused portion of this operating credit. As at December 31, 2018, three guarantee
facilities are used for a total of $ 1,784,216 one of which is an ongoing facility of $ 337,994 with
Toronto-Dominion Bank of Canada.
10 Credit Facility
On December 12, 2016, the Company contracted a facility loan with Export Development Canada
(“EDC”) for an amount of $2,000,000. This amount is available in four advances. The facility bears an
interest of prime rate plus 6.3% (9.75%) (9.5% in 2017). This interest is payable every month. This
amount shall be repaid based on the completion of certain project milestones.
The facility loan is secured by a second ranking hypothec in all present and future movable property of
the Company.
The following table summarizes the activity related to the facility with EDC during the period ended:
Balance – Beginning of year,
Addition
Repayment
Balance – End of year,
11 Trade, other payables and accrued liabilities
Trade payables
Accrued liabilities
Payables to related parties (Note 25)
Other payables
Trade, other payables and accrued liabilities
2018
$
1,437,912
-
(1,437,912)
-
2017
$
-
2,000,000
(562,088)
1,437,912
2018
$
1,726,384
868,297
-
88,243
2,682,924
2017
$
2,741,565
723,441
29,310
91,439
3,585,755
(23)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
12 Contract balances
Contract assets
Cost incurred and recorded margins
Less: advances and progress billing
2018
$
8,416,984
(6,499,065)
1,917,919
2017
$
-
-
-
Contract assets are included in trade and other receivables in the financial statements and Note 5
(information not available for 2017)
Contract liabilities
Advances and progress billings
Less: cost incurred and recorded margin
2018
$
8,613,690
(4,243,047)
4,370,643
2017
$
4,440,708
(3,719,712)
720,996
13 Long-term debt and government royalty program obligation
a) Long-term debt
Obligation under a capital lease, repayable in monthly instalments of $1,607
including interest calculated at 13% maturing in October 2018, secured by
equipment under finance lease.
Obligation under a capital lease, repayable in monthly instalments of $352
including interest calculated at 12% maturing in September 2020, secured
by equipment under finance lease.
Unsecured Convertible debentures
Obligation under a working capital line, bearing an interest rate of 11% per
annum, maturing in July 2021 2
Long-term debt
Current portion
2018
$
2017
$
-
18,669
6,908
10,475
1,774,076
2,216,570
1,899,578
-
3,680,562
2,245,714
(1,777,915)
1,902,647
(22,236)
2,223,478
2 The Obligation under a working capital line, has been recorded at its fair value less transactions costs directly attributable to its
acquisition. Transaction costs are being amortized over the duration of the obligation with a face value of $2,000,000 at maturity.
(24)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
On November 16, 2017, the Company has completed an Unsecured Convertible Debentures
(“Debentures”) financing for aggregate gross proceeds of $2,024,149. The Debentures will reach
maturity on November 15, 2019 and bearing an annual interest rate of 8%, convertible into common
shares of the Company at a price of $0.65 per share. The unpaid interests are convertible at the
highest price of $0.65 per common share or the fair value of the common share at the request of
the debenture holder.
The Company used the residual value method to allocate the principal amount of the Debenture
between the liability and the equity component. Under this method, the value of the equity
component of $186,177 (net of deferred tax liability of $81,989) was determined by deducting the
fair value of the liability component from the principal amount of the financing. The fair value of
the liability component was $1,626,594 computes as the present value of future principal and
interest payments discounted at a rate of 17.50%. The effective interest method is used to measure
the Debenture after the initial recognition.
On November 30, 2016, the Company has completed an Unsecured Convertible Debentures
(“Debentures”) financing for aggregate gross proceeds of $1,000,000. The Debentures will reach
maturity on November 30, 2019 and bearing an annual interest rate of 9%, convertible into common
shares of the Company at a price of $0.15 per share. The unpaid interests are convertible at the
highest price of $0.15 per common share or the fair value of the common share at the request of
the debenture holder.
The Company used the residual value method to allocate the principal amount of the Debenture
between the liability and the equity component. Under this method, the value of the equity
component of $150,304 (net of deferred tax liability of $59,316) was determined by deducting the
fair value of the liability component from the principal amount of the financing. The fair value of
the liability component was $790,380 computes as the present value of future principal and interest
payments discounted at a rate of 19.50%. The effective interest method is used to measure the
Debenture after the initial recognition.
During the year, 4,766,665 common shares were issued as a result of the exercise of the conversion
option by some of the debenture holders. From this amount, 4,666,665 common shares belong to
the Debentures completed on November 30, 2016 and at December 31, 2018 all its conversion
options have been exercised. The balance of 100,000 common shares comes from the Debentures
completed on November 16, 2017. The common shares issued included the carrying value of the
liability component to the date of conversion. The conversion is a non-cash transaction and thus is
excluded from the consolidated statement of cash flows.
On July 23, 2018, the Company obtained $23 million of additional financial support from Export
Development Canada (EDC), Canada’s export credit agency. The financial support consists of a
$12 million letter of guarantee facility with EDC, which will be used to support the issuance of
multiple bank guarantees. The letter of guarantee facility bears an interest at the rate of at the
Canadian Prime Rate of the Bank plus 2.50% per annum, payable every month. Stand-by fees at
an annual rate of 0.75% calculated on the unused portion of the letter of guarantee facility shall be
payable monthly. Two credit facilities of $11 million, with a three-year term, consisting of a $2
(25)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
million working capital line and a $9 million Purchase Order (PO) facility. The credit facilities
and the three-year term bear an interest at the rate of 11% per annum, payable every month.
The financial support is secured by a first ranking hypothec in all present and after acquired
inventory and accounts receivables related to contracts.
b) Government royalty program obligation
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, 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, 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.
In February 2017, a new amendment to this agreement was reached changing the preceding
payments terms from monthly payments of $24,500 to monthly payments of:
• $29,505 upon execution including interest
• $5,000 starting from March 1, 2017 to January 1, 2018
• $7,000 starting from February 1, 2018 to January 1, 2019
• $8,000 starting from February 1, 2019 to January 1, 2020
• $10,000 starting from February 1, 2020 to January 1, 2021
• $15,000 starting from February 1, 2021 to October 1, 2022
• $20,000 on November 1, 2022 and December 1, 2022
• And the balance of $22,540 on January 1, 2023.
(26)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
The following table summarizes the activity related to the government royalty program obligation
during the period ended:
Balance – Beginning of year,
Gain on revaluation of government royalty
program
Accretion finance expenses
Repayment
Balance – End of year,
Current portion
2018
$
591,372
-
27,401
(82,000)
536,773
(100,515)
436,258
2017
$
757,540
(117,095)
25,927
(75,000)
591,372
(86,826)
504,546
The carrying amount of the government royalty program obligation has been calculated by
discounting the future cash flows at a 5% interest rate.
14 Provisions
Balance – Beginning of the year
Provision for the year
Used during the year
Balance – End of year,
Current portion of provision
Non- Current provision
2018
$
22,290
33,309
-
55,599
15,275
40,324
2017
$
218,059
-
(195,769)
22,290
16,689
5,601
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.
15 Obligation arising from shares issued by subsidiary
In September 2015, as a result of a Sino-foreign equity joint venture agreement, Xebec Adsorption
(Shanghai) Co. Ltd., a subsidiary of Xebec Adsorption Inc. (“Xebec”), issued 1,714,285 common
shares, representing a 30% participation, to Shanghai Chengyi New Energy Venture Capital Co. Ltd.
(28.26%), an investment subsidiary of Shanghai based Shenergy Group, Shanghai Zhiyi Enterprise
Management Consulting Co. Ltd. (0.1%) and Shanghai Liuhuan Investment Co. Ltd. (1.64%), a
company held by a group of employees of Xebec Adsorption (Shanghai) Co. Ltd., (collectively the
“Minority Shareholders”) for a net cash consideration of $3,423,075 (RMB 16,370,515).
(27)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
Pursuant to this agreement, Xebec has the obligation to repurchase the Minority Shareholders’ interest
in Xebec Adsorption (Shanghai) Co. Ltd., for a consideration of no less than the initial investment and
annualized return of 10% if a) the achievement of specific financial targets were not achieved in any
given year prior to December 31, 2020, or b) should the Minority Shareholders not divest by December
31, 2020 and should the Minority Shareholders exercise their put option with respect to a) or b) as
mentioned above.
On July 24, 2018, the Minority Shareholders of Xebec Adsorption (Shanghai) Co. Ltd. and Xebec
Adsorption Inc. agreed that Xebec Adsorption Inc. will pay the Minority Shareholders $198,300 (RMB
1 million) per year including 2018 until the EDC loan expiry or latest up to December 31, 2020
(whichever is earlier). Xebec Adsorption Inc. will also fulfill its repurchase obligation according to the
original agreement, by paying the full repurchase price in one lump sum either at EDC loan expiry or
latest by December 31, 2020. The 2018 annual fee was paid in the fourth quarter of 2018. The annual
fees will be considered a deduction to the repurchase price at the time of repurchase.
On July 25, 2018, the Minority Shareholders of Xebec Adsorption (Shanghai) Co. Ltd, agreed that, for
a period beginning on the date hereof up to the date that Export Development Canada has been repaid
in full (including capital, interests and fees) under the EDC Financing Arrangement, it shall not exercise
any of its divestment, refund, compensation and other equity repurchase rights.
Xebec recorded the proceeds from this transaction, as a financial liability in these consolidated financial
statements. The obligation to repurchase and the related annualized return is presented under
“Obligation arising from shares issued by a subsidiary”. The conversion of the financial liability
denominated in the functional currency of our subsidiary Xebec Adsorption (Shanghai) Co. Ltd. (RMB)
will be converted at the exchange rate at the end of each reporting period with gain and losses presented
in the statement of income (loss) under “Gain/Loss on conversion of shares issued by a subsidiary”.
Balance – Beginning of year
Accretion interest
Effect of exchange rate change on obligation
Annual reimbursement
Balance – End of year
Current Portion
16 Share Capital
2018
$
3,912,314
339,249
116,090
(198,300)
4,169,353
(198,300)
3,971,053
2017
$
3,582,135
332,537
(2,358)
-
3,912,314
-
3,912,314
a) The Company is incorporated under the Canada Business Corporations Act, and its authorized
share capital consists of an unlimited number of common shares, without par value.
(28)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
b) On November 7, 2018 the Company closed a short form prospectus offering through a syndicate
of agents. In connection with the closing of the Offering, the Company issued a total of 8,208,666
Units, at a price of $0.75 per Unit, for aggregate gross proceeds of $6,156,500.
On November 30, 2018 the Company closed the Over-Allotment of an additional 1,231,300 units
for additional gross proceeds of $923,475.
Each Unit is comprised of one common share of the Company and one half of one common share
purchase warrant. Each Warrant entitles the holder thereof to purchase one Common Share, at a
price of $1.05 per Common Share, for a period of 18 months from the closing date of the Offering.
In connection with the Offering, the Company paid to the Agents a cash commission equal to 6%
of the gross proceeds of the Offering, including the proceeds raised pursuant to the exercise of
the Over-Allotment Option. The Company also granted the Agents non-transferable options
entitling the Agents to purchase 566,398 Common Shares. (Equal to 6% of the aggregate number
of Units issued by the Company under the Offering). Each such Compensation Option entitling
the holder thereof to acquire one Common Share at an exercise price of $0.75 for a period of 18
months from the closing date of the Offering. The fair value of the 566,398 warrants was
$166,472.
A total of 9,439,966 units were issued under the offering at a price of $0.75 per unit for aggregate
gross proceeds of $7,079,975. The issuance costs, excluding the non transferable options to the
agents were $1,095,287. For a total of 9,439,966 shares and 4,719,983 warrants. The amount
attributed to the warrants was $24,626. For 4,104,333 warrants, no value was attributed because
the share price was higher than $0.75. For 615,650 warrants, an amount of $0.02 per share was
allocated to warrants.
c)
Income (loss) per share
i) Basic
Basic income (loss) per share is calculated using net income (loss) as the numerator and the
weighted average number of shares as denominator. No adjustments to net income were
necessary in 2018 and 2017.
Net income (loss) attributable to
shareholders of the Company
Weighted average number of shares used
in basic income per share
2018
$
2017
$
(2,904,386)
96,752
42,737,000
40,562,060
Basic income (loss) per share
(0.07)
0.002
ii) Diluted
For the year ended December 31, 2018, convertible debentures and outstanding stocks options
would have been anti-dilutive.
(29)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
For the year ended December 31, 2017, convertible debentures and outstanding stock options
with an average exercise price of over $0.40 would have been anti-dilutive.
The reconciliation of the weighted average number of shares for the purpose of diluted income
per share to the weighted average number of shares used in the calculation of basic income
per share is as follows:
Weighted average number of shares used
in basic income per share
Shares deemed to be issued for no
consideration in respect of share-based
payments
Weighted average number of shares used
in diluted income per share
2017
40,562,060
4,674,896
45,236,956
(30)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
17 Stock options
The stock option 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 Plan, a fixed
number of 8,500,873 common shares are available for grant. As at December 31, 2018, the maximum
number of common shares available for issuance under all stock-based compensation arrangements is
2,199,115
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.
Stock option activity for the year ended December 31, is presented below:
Number
of options
2018
2017
Weighted
average
exercise
price
$
Number
of options
Weighted
average
exercise
price
$
Outstanding – Beginning of
year,
Granted
Exercised
Cancelled
Expired
7,829,030
835,000
(307,272)
(2,020,000)
(35,000)
0.19
0.69
0.17
0.12
0.22
5,855,337
3,119,193
(1,140,500)
(5,000)
-
Outstanding – End of year,
6,301,758
0.27
7,829,030
Exercisable – End of year,
4,511,231
0.16
5,804,837
The average share price for the exercised options was $0.17 ($0.05 in 2017)
0.11
0.20
0.05
0.22
-
0.19
0.13
(31)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
As at December 31, 2018, options outstanding and exercisable are as follows:
Expiry date
December 22, 2018 3
June 12, 2020
April 25, 2021
May 29, 2021
December 19, 2022
January 7, 2023
March 5, 2024
August 29, 2024
December 19, 2024
May 14, 2025
November 19, 2025
Weighted-
Average
Exercise Price
Number of
Options
Outstanding
Weighted-
Average
Remaining life
Number of Options
exercisable
$0.10
$0.16
$0.15
$0.14
$0.55
$0.05
$0.18
$0.49
$0.55
$0.60
$0.70
$0.27
1,399,500
258,065
100,000
200,000
400,000
400,000
2,098,193
500,000
111,000
100,000
735,000
6,301,758
0.00
1.45
2.32
2.41
3.97
4.02
5.18
5.66
5.96
6,37
6.89
3.86
1,399,500
258,065
100,000
200,000
133,332
400,000
1,883,332
100,000
37,002
-
-
4,511,231
As at December 31, 2017 options outstanding and exercisable are as follows:
Expiry date
August 11, 2018
December 22, 2018
June 12, 2020
April 25, 2021
May 29, 2021
September 22, 2021
December 19, 2022
January 8, 2023
March 5, 2024
August 29, 2024
December 19, 2024
44
Weighted-
Average
Exercise Price
Number of
Options
Outstanding
Weighted-
Average
Remaining life
Number of Options
exercisable
$0.22
$0.10
$0.16
$0.15
$0.14
$0.12
$0.55
$0.05
$0.18
$0.49
$0.55
$0.19
232,272
1,519,500
258,065
100,000
200,000
2,000,000
400,000
400,000
2,108,193
500,000
111,000
7,829,030
0.6
1.0
2.4
3.3
3.4
3.7
5.0
5.0
6.2
6.7
7.0
4.1
232,272
1,519,500
258,065
100,000
200,000
2,000,000
-
400,000
1,095,000
-
-
5,804,837
3 Expiry date of the options fell in a black out period. Options will be available for exercise once blackout period has been lifted.
(32)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
On May 14, 2018, the Company granted 100,000 stock options to an employee. The options are
exercisable at $0.60 per share and expire on May 14, 2025. The options are subject to vesting criteria
such that 33% shall vest on the first anniversary date and 33% shall vest every twelve months
thereafter. The corresponding stock-based compensation amounted to $55,701, which was estimated
using the Black-Scholes Option Pricing Model with the following assumptions:
Risk-free interest rate
Annualized volatility 4
Share price
Dividend rate
Expected life of options
2.30%
133%
$0.60
0.00%
7 years
On November 19, 2018, the Company granted 735,000 stock options to an officer. The options are
exercisable at $0.70 per share and expire on November 19, 2025. The options are subject to vesting
criteria such that 33% shall vest on the first anniversary date and 33% shall vest every twelve months
thereafter. The corresponding stock-based compensation amounted to $480,521, which was
estimated using the Black-Scholes Option Pricing Model with the following assumptions:
Risk-free interest rate
Annualized volatility 4
Share price
Dividend rate
Expected life of options
2.47%
129%
$0.70
0.00%
7 years
During the year, the Company expensed $352,897 (2017 - $372,603) which totally relates to stock
options granted in 2017 and 2018.
On March 5, 2017, the Company granted 2,108,193 stock options to directors, officers and
employees. The options are exercisable at $0.18 per share and expire on March 5, 2024. The options
are subject to vesting criteria such that 1,095,000 shall vest on the grant date, 795,000 shall vest on
March 5, 2018 and 218,193 shall vest on March 5, 2019. The grant of these stock options was
conditional to the approval of the increase of the pool of the stock options of the Company by the
shareholders at the Annual General Meeting and the TSX Venture Exchange. These approvals were
obtained respectively on June 15, 2017 and August 9, 2017. The corresponding stock-based
compensation amounted to $354,118, which was estimated using the Black-Scholes Option Pricing
Model with the following assumptions:
4 The expected volatility used was based on the historic volatility of the Company share price.
(33)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
Risk-free interest rate
Annualized volatility 4
Share price
Dividend rate
Expected life of options
1.55%
137%
$0.18
0.00%
7 years
On August 29, 2017, the Company granted 500,000 stock options to an employee. The options are
exercisable at $0.49 per share and expire on August 29, 2024. The options are subject to vesting
criteria such that 20% shall vest on the first anniversary date and 20% shall vest every twelve months
thereafter. The corresponding stock-based compensation amounted to $227,026, which was
estimated using the Black-Scholes Option Pricing Model with the following assumptions:
Risk-free interest rate
Annualized volatility 4
Share price
Dividend rate
Expected life of options
1.80%
138%
$0.49
0.00%
7 years
On December 19, 2017, the Company granted 511,000 stock options to directors. The options are
exercisable at $0.55 per share. 400,000 expire on December 19, 2022 and 111,000 expire on
December 19, 2024. The options are subject to vesting criteria such that 33% shall vest on the first
anniversary date and 33% shall vest every twelve months thereafter. The corresponding stock-based
compensation amounted to $252,250, which was estimated using the Black-Scholes Option Pricing
Model with the following assumptions:
Risk-free interest rate
Annualized volatility 4
Share price
Dividend rate
Expected life of options
and,
Risk-free interest rate
Annualized volatility 4
Share price
Dividend rate
Expected life of options
1.57%
140%
$0.55
0.00%
5 years
1.77%
138%
$0.55
0.00%
7 years
In 2017, 2,808,193 options were granted to employees at weighted average fair value of $0.26 and
311,000 options were granted to non-employees at a weighted average fair value of $0.55
(34)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
18 Expenses by nature
Material
Employee salaries and benefits
Subcontract cost
Professional fees
Travel expenses
Rent and repairs and maintenance
Office expense
Stock-based compensation
Bad Debt
Amortization and depreciation
Advertising
Other
Reversal of trade payables
Reversal of allowance for doubtful accounts
19 Research and development expenses
Employee salaries and benefits
Professional fees
Subcontract cost
Travel expenses
Material
Government grants
Research and development tax credits
Reversal of trade payables
2018
$
7,213,460
7,023,186
2,930,882
1,390,407
759,616
692,548
481,062
352,897
347,591
217,768
217,259
108,978
-
-
2017
$
5,457,118
5,521,600
867,993
818,272
658,667
700,393
239,660
372,603
(8,873)
167,908
114,144
(96,193)
(303,363)
(315,145)
21,735,654
14,194,784
2018
$
65,157
14,230
12,500
182
-
-
-
-
2017
$
25,212
10,848
11,844
502
23,884
(2,083)
(29,663)
(71,658)
92,069
(31,114)
(35)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
20 Finance expenses
Accretion of the obligation arising from shares
issued by a subsidiary (Note 15)
Interest on convertible debentures
Interest and bank charges
Interest on short term debt
Accretion and revaluation of government royalty
program obligation (Note 13b)
Interest on long term debt
Reversal of trade payables
21 Compensation of key management
Compensation awarded to key management included:
Salaries and short-term employee benefits
Stock-based compensation
Consulting
2018
$
339,249
415,590
312,495
116,770
2017
$
332,537
197,228
191,093
186,802
27,401
25,927
111,657
-
203
(322,638)
1,323,162
611,152
2018
$
2017
$
1,351,103
235,374
112,675
1,256,164
318,922
-
1,699,152
1,575,086
Key management included the Company’s senior management and members of the Board of Directors.
(36)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
22 Income taxes
Effective tax rate
The income tax expense attributable to earnings differs from the amounts computed by applying the
combined federal and provincial tax rate of 26.7% (26.8% on December 31, 2017) to earning before
income taxes as a result of the following:
Income (loss) before income taxes
Expected income tax (recovery)
Tax expense at combines statutory rate
Increase (decrease) in income taxes resulting from:
Temporary difference unrecognized (recognized)
Difference in foreign tax rate
Stock base compensation
Change of deferred tax rates
Foreign exchange on consolidation
Expired losses
Other
2018
$
(2,904,386)
(775,471)
-
-
733,356
(787)
94,223
(170,871)
18,779
141,334
(40,563)
2017
$
96,752
25,930
-
-
(412,952)
(19,557)
99,858
108,285
854
67,007
130,575
-
-
Composition of deferred income taxes in the Consolidated Statement of Income (Loss)
Inception and reversal of temporary differences
Temporary difference not recorded
Change in deferred tax rate
2018
$
(562,485)
733,356
(170,871)
2017
$
304,667
(412,952)
108,285
-
-
(37)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
Movement of deferred income tax in 2018
Contingency reserve
Intangible assets
Debentures
Government royalty program
Non-capital losses
January 1,
2018
$
(81,989)
(49,974)
(98,821)
(24,160)
172,955
P&L
$
-
(509)
76,343
7,262
(83,096)
Equity
Component
$
-
-
-
-
-
December
31, 2018
$
(81,989)
(50,483)
(22,478)
(16,898)
89,859
(81,989)
-
-
(81,989)
Movement of deferred income tax in 2017
Contingency reserve
Intangible assets
Debentures
Government royalty program
Non-capital losses
January 1,
2017
$
-
-
(53,975)
-
53,975
P&L
$
(81,989)
(49,974)
37,143
(24,160)
118,980
Equity
Component
$
-
-
(81,989)
-
-
December
31, 2017
$
(81,989)
(49,974)
(98,821)
(24,160)
172,955
-
-
(81,989)
(81,989)
As at December 31, 2018, deductible timing differences for which the company has not recognized
deferred tax asset are as follows:
Federal
Quebec
$
$
China
$
USA
$
Italy
$
Property and equipment
Scientific research and
development expenses
Operating losses carried
forward
Other
1,050,119
1,050,119
-
-
-
24,706,785
56,508,935
24,711,456
58,360,534
-
1,630,298
1,313,097
83,578,936
1,313,097
85,435,206
-
1,630,298
-
274,812
-
274,812
-
540,767
-
540,767
The ability to realize the tax benefits is dependent upon a number of factors, including the future
profitability of operations. Deferred tax assets are recognized only to the extent that it is probable
that sufficient taxable profits will be available to allow the asset to be recovered. Accordingly,
some deferred tax assets have not been recognized, these deferred tax assets not recognized equal
an amount of $ 22,975,885 ($22,191,258 in 2017).
(38)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
As at December 31, 2017, deductible timing differences for which the company has not recognized
deferred tax asset are as follows:
Federal
$
Quebec
$
China
$
USA
$
Italy
$
Property and equipment
Scientific research and
development expenses
Capital losses carried forward
Operating losses carried
forward
Other
995,217
995,217
-
-
-
24,583,744
219,247
54,175,945
24,587,643
219,247
56,733,006
-
-
1,434,206
688,795
80,662,948
688,795
83,223,908
-
1,434,206
-
-
708,665
-
708,665
-
-
49,800
-
49.800
As at December 31, 2018, the Company has non-capital tax losses, which are available to reduce
taxes in futures years and expired as follows:
2038
2037
2036
2035
2034
2033
2032
2031
2030
2029
2028
2027
2026
2025
2024
2022
2021
Unlimited
Federal
$
Quebec
$
China
$
1,317,958
-
1,486,941
1,328,532
-
326,251
546,237
443,287
12,361,610
7,283,831
10,824,277
6,794,635
7,229,354
6,566,022
-
-
-
-
1,296,110
-
1,480,325
1,328,532
2,635,090
326,251
494,621
433,086
12,361,610
7,295,856
10,824,277
6,794,635
7,229,354
5,860,787
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
720,513
909,785
-
USA
$
-
269,292
-
5,520
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Italy
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
540,767
56,508,935
58,360,534
1,630,298
274,812
540,767
The Company has scientific research and experimental development expenses of $24,706,785
(2017 – $24,583,744) 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.
(39)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
As at December 31, 2018, the Company also has investment tax credits of $5,591,036 (2017 –
$5,678,183) available to offset future Canadian federal income taxes payable. The potential benefit
of the investment tax credits has not been recognized in the accounts.
23 Supplemental Cash flow information
For the year ended December 31, 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 payables, other payables
and accrued liabilities
Contract liabilities
Provisions
2018
$
2017
$
(2,732,073)
(1,231,708)
-
(587)
(1,368,673)
(444,811)
32,010
(71,861)
(902,831)
3,649,648
660,157
(221,579)
33,310
(195,769)
(1,184,241)
(1,610,526)
(40)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
24 Commitments
• Research Agreement with McGill University
In August 2018, Xebec Adsorption Inc. (“Xebec”), has signed a Research Agreement to co-
develop a prototype reactor to produce Renewable Natural Gas (RNG) using a Power-to-
Gas (P2G) process with McGill University. This process combines electricity generated
from renewable sources with carbon dioxide (CO2) generated from waste. The project is
being funded by Xebec as the Industrial sponsor and by the Natural Sciences and
Engineering Research Council of Canada (NSERC) through a Collaborative Research and
Development grant of $360,000 over a period of three years.
In consideration of McGill carrying out the Project, Xebec is committed to fund the Project
with $90,000 over the period of three years. The funds will be paid in accordance with the
following schedule:
i.
ii.
iii.
$30,000 upon signing
$30,000 upon the first anniversary of the Effective Date
$30,000 upon receiving the final report.
• Following is a summary of Xebec’s contractual obligations and commitments regarding
operating leases:
As at December 31, 2018
Operating leases
Payment Due by Period
Beyond 5
years
2 - 5 years
Total
$
1,565,606
$
1,080,139
$
3,200,726
1 year
$
554,981
Operating leases include one building in Blainville, Quebec, one building in Shanghai, China,
and various equipment leases. The operating leases expenses for the year ended December 31,
2018 amounted to $442,784 ($440,519 in 2017)
25 Related party transactions
The following table presents a summary of the related party transactions during the period:
Marketing and professional services
expenses paid to companies
controlled by members of the
immediate family of an officer
2018
$
2017
$
183,432
158,900
These transactions are measured at the exchange amount, which is the amount of consideration
established and agreed to by the related parties.
(41)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(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:
2018
$
2017
$
Cash
Restricted cash
Bank loan
Credit facility
Long-term debt
Government royalty program obligation (Note 13 b)
Obligation arising from shares issued by a subsidiary (Note 15)
(2,382,146)
(1,540,000)
-
-
3,680,562
536,773
4,169,353
(1,341,121)
-
1,437,912
2,245,714
591,372
3,912,314
Equity
4,464,542
(620,374)
6,846,191
(4,390,290)
3,844,168
2,455,901
The Company is not subject to any capital requirements imposed by regulators.
27 Segmented information
The Company has four business segments and specializes in the Industrial Air and Gas Products, the
Clean Technology, the Renewable Gas Generation and the Oil and Gas.
For the year ended December 31, revenue summarized by country, as determined by location of the
customers, is as follows:
Revenue
United States
Canada
France
Italy
China
Other
2018
$
2017
$
6,816,590
4,800,012
2,655,914
2,469,183
1,889,742
1,577,055
20,208,496
3,174,092
4,028,670
4,022,726
-
2,405,773
1,114,670
14,745,931
Sales of $6,740,569 ($ 2,417,498 in 2017) arose from the two (one in 2017) Company’s largest
customers. No other single customer contributed more than 10 % to the company’s revenue for both
2018 and 2017.
(42)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
Incomes (losses) summarized by business segments are as follows:
For the year ended December 31, 2018
Systems
Support Infrastructure 5
Revenues
COGS
Gross margin
Gross Margin %
Research and
Development expenses
Selling and administrative
expenses
Foreign exchange loss
Loss on conversion of
shares issued by a
subsidiary
Financial income
Financial expense
Total expenses
Segment income (loss)
$
14,022,914
10,462,581
3,560,333
25%
$
6,085,430
4,057,573
2,027,857
33%
-
92,069
-
1,397,270
-
944,663
-
-
-
-
1,489,339
2,070,994
-
-
-
944,663
1,083,194
$
-
-
-
-
-
-
-
-
-
-
-
Oil and
Gas 6
$
100,152
-
100,152
100%
-
-
-
Corporate
Total
$
-
-
-
-
-
$
20,208,496
14,520,154
5,688,342
28%
92,069
4,873,567
(152,482)
7,215,500
(152,482)
-
-
-
-
100,152
116,090
(1,611)
1,323,162
6,158,726
(6,158,726)
116,090
(1,611)
1,323,162
8,592,728
(2,904,386)
5 Infrastructure segment is a project in development that will start in 2019. No costs have been associated to the segment as of
December 31st, 2018.
6 The Oil and Gas segment is been phased out to allow the Company to develop new Infrastructure segment.
(43)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
For the year ended December 31, 2017
Systems
Support Infrastructure
$
$
$
Revenues
COGS
Gross margin
Gross Margin %
Research and Development
expenses
Selling and administrative
expenses
Insurance compensation for
damage to inventories
Foreign exchange loss
Gain on conversion of shares
issued by a subsidiary
Financial income
Financial expense
8,902,695 4,457,380
6,180,724 2,794,488
2,721,971 1,662,892
31%
(31,114)
37%
-
-
933,784 805,745
-
-
-
-
-
-
-
-
Total expenses
902,670 805,745
-
-
-
-
-
-
-
-
-
-
Oil and
Gas
$
1,385,856
2,497
1,383,359
100%
Corporate
Total
$
-
-
-
0%
$
14,745,931
8,977,709
5,768,222
39%
-
-
(31,114)
285,775 3,191,771
5,217,075
(132,366)
(132,366)
131,149 131,149
(2,358)
(122,068)
611,152
(2,358)
(122,068)
611,152
-
-
-
-
285,775
3,677,280
5,671,470
Segment income (loss)
1,819,301
857,147
1,097,584
(3,677,280)
96,752
The location of the Company’s non-current assets by geographic region as of December 31st is as follows:
Non-current assets
Canada
Asia
United States
Italy
2018
$
595,284
44,918
37,343
9,750
687,295
2017
$
520,491
66,570
39,934
-
626,995
(44)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
28 Financial instruments
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 of:
December 31, 2018
Amortized Cost
Amortized Cost
Cash
Restricted cash
Trade and other receivables
Other current assets
Trade, other payables and
accrued liabilities
Long-term debt
Government royalty program
obligation
Obligation arising from shares
issued by a subsidiary
Carrying
amount
$
Fair
value
$
Carrying
amount
$
Fair
value
$
2,382,146
1,540,000
4,532,122
13,500
2,382,146
1,540,000
4,532,122
13,500
2,054,443 2,054,443
3,673,654 3,673,654
536,773
536,773
4,169,353 4,169,353
(45)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
December 31, 2017
Loans and receivables
Other
financial liabilities
Carrying
amount
$
1,341,121
3,094,761
13,500
-
-
-
-
-
Fair
value
$
Carrying
amount
$
Fair
value
$
1,341,121
3,094,761
13,500
-
-
-
-
1,437,912 1,437,912
-
-
-
-
-
-
-
3,032,213 3,032,213
2,216,570 2,216,570
591,372
591,372
3,912,314 3,912,314
Cash
Trade and other receivables
Other current assets
Credit facility
Trade, other payables and
accrued liabilities
Long-term debt
Government royalty program
obligation
Obligation arising from shares
issued by a subsidiary
The carrying values of cash, restricted cash, trade and other receivables, trade and other payables,
accrued liabilities, bank loan and credit facility 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 (classified in level 2 of the fair value hierarchy): The Company’s long-term debt
carry 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 (classified in level 2 of the fair value hierarchy): 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.
• Obligation arising from shares issued by a subsidiary (classified in level 2 of the fair value
hierarchy): Fair value of the obligation arising from shares issued by a subsidiary has been
calculated by computing an annualized return of 10% on the initial consideration
• The Company’s financial instruments that are measured subsequent to initial recognition at fair
value and financial instruments measured at amortized cost for which the fair value is disclosed
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).
(46)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
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).
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, restricted 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.
As of January 1, 2018, the Company determines whether the credit risk of a financial asset has
increased significantly since initial recognition considering reasonable and supportable
information that is relevant and available without undue cost or effort, this includes both
quantitative and qualitative information and analysis, based on the Company’s historical
experience and informed credit assessment and including forward-looking information.
The Company assumes that the credit risk on a financial asset has increased significantly if it is
more than 30 days past due. (120 days past due for the Chinese subsidiary)
The Company considers a financial asset to be in default when the customer is unlikely to pay its
credit obligations to the Company in full, without recourse by the Company to actions such as
realising security (if any is held) or the financial asset is more that 120 days past due.
Previously, the Company regularly monitored its credit risk exposure and took 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.
Bad debt expense amounted to $347,591 in 2018 (recovery in 2017 – $324,018). As at December
31, 2018, the Company’s three largest trade debtors accounted for 28% (10%, 9% and 9%) of the
total trade receivables balance (2017 – 29% (13%, 9% and 7%)).
Details of trade and other receivables were as follows:
(47)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
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 expected credit loss (for doubtful
accounts in 2017)
Contract Assets
Other receivables
2018
$
2017
$
1,622,324
838,415
1,010,599
428,050
175,950
1,045,476 7
470,099
277,461
327,850
846,834
4,282,399
2,760,659
(431,674)
1,917,919
1,096,687
(89,559)
-
1,462,159
Total trade and other receivable
6,865,331
4,133,259
The following table summarizes the changes in the allowance for doubtful accounts for trade and
other receivables:
Balance - Beginning of year
Change in the allowance for expected credit loss (for
doubtful accounts in 2017) (provision for
impairment)
Unused amounts reserved
Balance – end of year
2018
$
2017
$
(89,559)
(448,291)
(342,115)
-
324,018
34,714
(431,674)
(89,559)
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 income (loss). Management believes that a 10% change in exchange rates would be
reasonably possible and that the impact on net income (loss) of such a change would be
approximately $238,723 for 2018 (2017 – $129,964). As at December 31, 2018, the following
7 Most of the trade receivables over 90 days belong to the Chinese subsidiary, where it is part of the normal business process to have
accounts over 90 days.
(48)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
accounts are shown in their original currencies and converted into Canadian dollars. The Company
does not use financial instruments to reduce this risk.
Cash
Trade and other receivables
Trade and other payables
Equivalent in Canadian dollars
2018
Euro
341
66,970
18,931
US
dollar
685,763
488,211
477,234
1,651,207
86,242
2,252,577
134,649
(49)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
Cash
Trade and other receivables
Trade and other payables
Equivalent in Canadian dollars
ii.
Interest rate risk
2017
Euro
US
dollar
169,728
612,994
345,659
10,216
-
(130,472)
1,128,381
(120,256)
1,415,554
(181,010)
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 credit facility, for which the interest rates charged
fluctuate based on the bank’s prime rate. As at December 31, 2018, credit facility amounted to $
NIL (2017 – $1,437,912). If the interest rate on the credit facility had been 50 basis points higher
(lower), related to the credit facility as at December 31, 2018, net income would have been $10,070
(2017 – $11,218) 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 and other liabilities as at
December 31:
(50)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
Carrying
amount
$
Contractual
cash flow
$
0 to 12
months
$
13 to 24
months
$
Thereafter
$
2018
Financial liabilities
Trade and other payables
and accrued liabilities
Government royalty
program obligation
Obligation under capital
lease
Obligation under a
working capital line
Convertible debentures
Obligation arising from
shares issued by a
subsidiary
2,054,443
2,054,443
2,054,443
-
-
536,773
600,540
95,000
118,000
387,540
6,908
7,859
4,600
3,259
-
1,899,578
1,774,076
2,564,164
2,109,440
219,397
2,109,440
220,000
-
2,124,767
-
4,169,353
4,169,353
198,300 3,971,053
-
10,441,131
11,505,799
4,681,180 4,312,312
2,512,307
Carrying
amount
$
Contractual
cash flow
$
0 to 12
months
$
13 to 24
months
$
Thereafter
$
2017
Financial liabilities
Credit facility
Trade and other payables
and accrued liabilities
Government royalty
program obligation
Obligation under capital
lease
Convertible debentures
Obligation arising from
shares issued by a
subsidiary
1,437,912
1,535,939
1,535,939
3,032,213
3,032,213
3,032,213
-
-
-
-
591,372
682,540
82,000
95,000
505,540
29,144
31,261
23,878
4,219
3,164
2,216,570
3,173,569
231,143 2,942,426
3,912,314
11,219,525
3,912,314
12,367,836
-
4,905,173
3,912,314
3,041,645 4,421,018
-
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).
(51)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(expressed in Canadian dollars)
29 Subsequent event
As of January 1st, 2019, Xebec Adsorption Inc has acquired all the outstanding shares of
Compressed Air International Inc. (CAI) for a purchase price of $2,200,000. $1,540,000 has been
paid in cash while $660,000 will be earned out over the next three years.
CAI is a distributor and full-service supplier of industrial compressed air and gas products with
locations in Woodbridge and Guelph, Ontario. In business for 20 years, CAI offers an extensive
range of compressors, genuine and OEM-equivalent compressor parts, compressed adsorption and
refrigerant air dryers, filtration products, emergency and preventative maintenance service as well
as complete installation and service packages.
CAI’s principals will remain with CAI after the acquisition to optimize CAI’s integration in Xebec’s
industrial compressed air treatment business.
The purchase price allocation is not completed.
(52)