Xebec Adsorption Inc.
Consolidated Financial Statements
December 31, 2019 and 2018
(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, 2019 and 2018
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, 2019 and 2018, 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.
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 14, 2020
1 CPA auditor, CA public accountancy permit no A125741
Xebec Adsorption Inc.
Consolidated Statements of Financial Position
As at December 31, 2019 and 2018
(expressed in Canadian dollars)
Assets
Current assets
Cash
Restricted Cash (Note 5)
Trade and other receivables (Note 6)
Inventories (Note 7)
Investment tax credits receivable
Prepaid expenses
Total current assets
Non-current assets
Property, plant and equipment (Note 8)
Intangible assets (Note 9)
Goodwill (Note 5)
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade, other payables and accrued liabilities (Note 10)
Contract liabilities (Note 11)
Current portion of long-term debt (Note 14a)
Current portion of government royalty program obligation (Note 14b)
Current portion of provisions (Note 15)
Current portion of obligation arising from shares issued by a subsidiary (Note 16)
Income taxes payable (Note 25)
Total current liabilities
Non-current liabilities
Long-term debt (Note 14a)
Government royalty program obligation (Note 14b)
Obligation arising from shares issued by a subsidiary (Note 16)
Deferred rent
Provisions (Note 15)
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Equity
Share capital (Note 17)
Contributed surplus
Equity component of convertible debentures
Accumulated other comprehensive loss
Deficit
Total equity
Total liabilities and equity
December 31,
2019
$
December 31,
2018
$
22,358,457
324,700
24,121,723
6,244,400
15,943
663,377
2,382,146
1,540,000
6,865,331
3,339,542
15,943
260,743
53,728,600
14,403,705
3,026,779
2,710,304
5,052,922
10,790,005
281,818
405,477
-
687,295
64,518,605
15,091,000
12,532,960
2,383,261
962,560
124,880
46,207
373,000
369,923
2,682,924
4,370,643
1,777,915
100,515
15,275
198,300
-
16,792,791
9,145,572
4,288,564
341,191
3,807,476
-
127,980
203,237
1,902,647
436,258
3,971,053
133,531
40,324
81,989
8,768,448
6,565,802
25,561,239
15,711,374
63,484,034
4,569,636
-
(1,247,330)
(27,848,974)
26,508,168
3,691,192
189,645
(1,140,342)
(29,869,037)
38,957,366
(620,374)
64,518,605
15,091,000
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, 2019 and 2018
(expressed in Canadian dollars)
Revenue (Note 19)
Cost of goods sold
Gross margin
Research and development expenses (Note 21)
Selling and administrative expenses
Foreign exchange (gain) loss
Loss (gain) on conversion of shares issued by a
subsidiary (Note 16)
Operating income (loss)
Other charge (income)
Finance income
Finance expenses (Note 22)
Income (loss) before income taxes
Income taxes (Note 25)
Net income (loss) for the year
Net income (loss) per share
Basic net income (loss) per share (Note 17)
Diluted net income (loss) per share (Note 17)
2019
$
2018
$
49,317,880
20,208,496
33,829,894
14,520,154
15,487,986
5,688,342
71,503
11,297,432
383,693
92,069
7,215,500
(152,482)
(256,516)
116,090
11,496,112
7,271,177
3,991,874
(1,582,835)
(32,246)
1,647,141
(1,611)
1,323,162
1,614,895
1,321,551
2,376,979
(2,904,386)
356,916
-
2,020,063
(2,904,386)
0.03
0.03
(0.07)
(0.07)
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, 2019 and 2018
(expressed in Canadian dollars)
Net income (loss) for the year
Other comprehensive loss
Cumulative translation adjustment
Comprehensive income (loss) for the year
2019
$
2018
$
2,020,063
(2,904,386)
(106,988)
(90,887)
1,913,075
(2,995,273)
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, 2019 and 2018
(expressed in Canadian dollars)
Number
Common
shares
Warrants and
Compensation
Shares
Share
capital
– Common
shares
Contributed
surplus
Accumulated
other
comprehensive
income (loss)
Deficit
Equity
Component of
convertible
debentures
Amount
Total
42,504,367
-
42,504,367
-
-
-
4,766,665
307,272
-
9,439,966
-
-
-
-
-
-
-
-
-
-
-
5,286,381
$
19,703,836
-
$
3,339,740
-
$
(1,049,455)
$
$
$
(26,675,800)
291,389
(4,390,290)
-
(288,851)
-
(288,851)
19,703,836
3,339,740
(1,049,455)
(26,964,651)
291,389
-
-
-
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)
-
-
-
-
-
-
-
-
-
-
-
-
-
(101,744)
-
-
-
-
(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)
57,018,270
5,286,381
26,508,168
3,691,192
(1,140,342)
(29,869,037)
189,645
-
-
-
3,014,075
2,219,898
-
19,232,600
-
-
-
-
-
-
-
-
-
-
2,199,918
466,404
-
31,304,052
-
-
-
-
(166,631)
407,846
-
-
9,582,996
-
647,172
2,893,835
(2,893,835)
3,005,492
(9,943)
-
(106,988)
(106,988)
-
-
-
-
-
-
2,020,063
-
2,020,063
-
-
-
-
-
-
84,378,678
11,975,544
63,484,034
4,569,636
(1,247,330)
(27,848,974)
-
-
-
(189,645)
-
-
-
-
-
-
(620,374)
2,020,063
(106,988)
1,913,075
2,010,273
299,773
407,846
31,304,052
647,172
2,995,549
38,957,366
Balance – January 1, 2018
Adjustment from the adoption of IFRS 15
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 expense (Note 18)
Share issued from public offering
Warrants and compensation shares issued from
public offering (Note 17)
Balance – December 31, 2018
Balance – January 1, 2019
Net income (loss) for the year
Other comprehensive loss
Comprehensive income (loss) for the year
Share issued from conversion of debentures
Share issued from the exercise of options
Stock-based compensation expense (Note 18)
Share issued from public offering
Warrants and compensation shares issued from
public offering (Note 17)
Warrants and compensation shares exercised from
public offering (Note 17)
Balance – December 31, 2019
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, 2019 and 2018
(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 8)
Amortization of intangible assets (Note 9)
Reversal of inventory write-down (Note 7)
Accretion of convertible debentures (Note 14a)
Accretion finance expenses and gain on revaluation of
government royalty program obligation (Note 14b)
Accretion CAI earn-out (Note 14a)
Accretion of the obligation arising from shares issued by a
subsidiary (Note 16)
Exchange gain/loss on the obligation arising from shares
issued by a subsidiary
Stock-based compensation expense (Note 18)
Deferred rent
Accretion of obligation under a working capital line
Future income taxes
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 9)
Business acquisitions, net of cash acquired (Note 5)
Financing activities
Increase (decrease) of credit facility (Note 12)
Obligation arising from preferred shares issued by a subsidiary
(Note 16)
Proceeds from issuance of share capital (Notes 18 and 25)
Long-term debt
Repayment of long-term debt (Note 14a)
Repayment of government royalty program obligation (Note 14b)
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
2019
$
2018
$
2,020,063
(2,904,386)
572,223
1,265,173
(76,256)
154,209
24,298
59,128
78,689
139,079
(144,442)
220,763
27,401
-
267,639
339,249
(256,516)
407,846
-
34,863
(14,517)
4,458,153
116,090
352,897
716
-
-
(1,773,994)
(9,917,254)
(1,184,241)
(5,459,101)
(2,958,185)
(304,649)
(2,675,333)
-
(7,593,887)
(10,573,869)
(146,953)
(139,290)
13,634
-
(272,609)
-
(1,437,912)
-
35,246,546
-
(338,804)
(95,000)
34,812,742
(198,300)
6,037,887
1,899,578
(22,236)
(82,000)
6,197,017
18,779,772
2,966,223
3,922,146
1,341,121
(18,761)
(385,198)
22,683,157
3,922,146
1,107,005
739,811
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, 2019 and 2018
(expressed in Canadian dollars)
1 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 upgrading
systems 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 and generation 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.xebecinc.com.
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 and authorized for issue by the Board of
Directors of the Company on April 14, 2020.
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, 2019
IFRS 16, Leases
On January 1st, 2019 the Company adopted IFRS 16 Leases (“IFRS 16”), which replaces IAS 17, which
specifies how the Company recognizes, measures, presents and discloses 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 new standard has been applied using the modified retrospective approach, with the cumulative
effect of adopting IFRS 16 being recognised in equity as an adjustment to the opening balance of deficit
for the current period. Prior periods have not been restated.
On adoption of IFRS 16, the Company recognised the lease liabilities for leases that had previously
been classified as "operating leases" in accordance with the principles of IAS 17 Leases. These
(1)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(expressed in Canadian dollars)
obligations have been measured at the present value of the remaining lease payments, discounted using
the Company's incremental borrowing rate as at January 1st, 2019. The weighted average incremental
borrowing rate applied to lease liabilities as at January 1st, 2019 was 11 %. The related right-of-use
assets were measured in the amount of the lease liabilities as at January 1st, 2019 adjusted for the amount
of deferred rent recognized as at December 31st, 2018.
The impacts of this standard on the consolidated financial statements are as follow:
• As of January 1st, 2019, new right-of-use assets have been recognized for an amount of $2,139,974.
Total assets amount will increase affecting ratios such as asset turnover.
• As of January 1st, 2019, new liabilities such as lease liabilities have been recognized for an amount
of $2,278,065. Total liabilities amount will increase affecting its financial leverage.
• Depreciation expense on the right-of-use assets and interest expense on the lease liabilities 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. EBITDA is a non-IFRS financial measure.
For contracts in place at the date of initial application, the Company has elected to apply the definition
of a lease from IAS 17 and IFRIC 4 and has not applied IFRS 16 to arrangements that were previously
not identified as leases under IAS 17 and IFRIC 4.
The Company has elected to use the exemptions proposed by the standard on lease contracts 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 relied on its assessment of whether leases are onerous applying IAS 37 immediately
before the date of initial application as an alternative to performing an impairment review. Right-of-
use-assets at the date of initial application have been adjusted by the amount of any provision for
onerous leases recognised in the statement of financial position immediately before the date of initial
application.
The Company has excluded initial direct costs from the measurement of the right-of-use asset at the
date of initial application.
The Company has used hindsight to determine the lease term of a lease with renewal options.
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;
•
• has the ability to use its power to affect its returns.
is exposed, or has rights, to variable returns from its involvement with the investee; and
(2)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(expressed in Canadian dollars)
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 Holding USA Inc., Xebec Adsorption Europe SRL and Compressed
Air International which are wholly owned. Compressed Air International was acquired January 1st, 2019.
Xebec Holding USA Inc. has two subsidiaries, Xebec Adsorption USA Inc. and CDA Systems LLC.,
which are wholly owned. CDA Systems LLC was acquired December 10th, 2019 (Note 5). 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 16). 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.
Business acquisitions
The Company applies the acquisition method in accounting for business acquisitions. The consideration
transferred by the Company to obtain control of a subsidiary is calculated as the sum of the acquisition-
date fair values of assets transferred, liabilities incurred and the equity interest issued by the Company,
which includes the fair value of any asset or liability arising from a contingent consideration
arrangement. Acquisition costs are expensed as incurred.
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
(3)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(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:
Right-of-use-assets
Machinery and equipment
Office furniture and equipment
Computers
Moulds
Vehicles
Leasehold improvement
Lease term
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,
engineering standardisation costs when the criteria mentioned in the research and development expenses
accounting policy are met. From business acquisitions intangible assets consists of backlog, customer
base and a non-competition agreement. 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.
(4)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(expressed in Canadian dollars)
Development costs are amortized over a period of five years. Engineering standardisation costs and
software are amortized over a period of 3 years. Customer relationships are amortized over a period of
ten years.
Impairment of non-financial assets
Cash-generating units to which goodwill has been allocated (determined by the Company’s
management as equivalent to its operating segments) are tested for impairment at least annually. All
other individual assets or cash-generating units are tested for impairment whenever events or changes
in circumstances indicate that the carrying amount may not be recoverable. 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.
Impairment losses for cash-generating units reduce first the carrying amount of any goodwill allocated
to that cash-generating unit. Any remaining impairment loss is charged pro rata to the other assets in the
cash-generating unit.
The Company evaluates impairment losses for potential reversals when events or circumstances warrant
such consideration with the exception of goodwill.
Goodwill
Goodwill represents the future economic benefits arising from business acquisitions that are not
individually identified and separately recognised. Goodwill is carried at cost less accumulated
impairment losses.
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.
(5)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(expressed in Canadian dollars)
Financial Instruments
The Company’s financial assets and liabilities are accounted for as follows:
Cash
Restricted 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
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
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 periods presented, the Company does not have any financial assets categorized as FVTPL or
FVOCI.
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’s financial assets include cash, restricted cash, trade receivables, other current assets and
other receivables. The other receivables include some assets that are not considered as a financial asset
(6)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(expressed in Canadian dollars)
and are therefore not subject to IFRS 9 such as taxes, suppliers non-refundable deposits and excess
suppliers billing.
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. This financial
instrument has not deteriorated significantly in credit quality since initial recognition or has low credit
risk. The Company considers that there are no expected credit losses.
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 in the first category while ‘lifetime expected credit
losses’ are recognized in 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 trade, other payables and accrued liabilities, long-term debt,
government royalty program obligation and obligation arising from shares issued by a subsidiary.
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 or 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.
(7)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(expressed in Canadian dollars)
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 17).
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
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.
(8)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(expressed in Canadian dollars)
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:
1) Systems (Cleantech)) - 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.
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
specifically.
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.
(9)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(expressed in Canadian dollars)
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.
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
Policy applicable as of January 1st, 2019:
The Company recognised a right-of-use asset and a lease liability with respect to a lease on the date the
underlying asset is available for use by the Company (hereafter, the ‘commencement date’). Right-of-
use assets are initially measured at cost, including the amount of the initial measurement of the lease
liability, adjusted for leases payments on or above the commencement date, plus initial direct costs
incurred and estimate of all of the costs for dismantling and removing the underlying asset, less any
lease incentives received, including deferred rent. The right-of-use asset is subsequently measured at
cost less accumulated depreciation and accumulated impairment losses. The depreciation is recognised
in a manner consistent with existing standards for property, plant and equipment over the lease term
adjusted for lease payments on or above the commencement date, plus an estimate or all the costs for
dismantling and removing the underlying asset.
Lease liabilities are initially measured at the present value of the lease payments that are not paid at
January 1st, 2019 over the lease payments to be made over the lease term. The lease payments are
(10)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(expressed in Canadian dollars)
discounted using the Company’s incremental borrowing rate. The lease liability is subsequently
measured by increasing the carrying amount to reflect interest on the lease liability and reducing the
carrying amount to reflect the lease payments made.
The interest expense relating to lease liabilities is recognised in profit or loss using the effective interest
method.
New right-of-use assets and lease liabilities are non-cash transactions and thus excluded from the
consolidated statement of cash flows.
Policy applicable before January 1st, 2019:
Leases in which a significant portion of the risks and rewards of ownership were retained by the lessor
were classified as operating leases. Payments made under operating leases (net of any incentives
received from the lessor) were charged to the consolidated statement of income (loss) on a straight-line
basis over the lease term.
Leases where the Company had substantially all the risks and rewards of ownership were classified as
finance leases. Finance leases were 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 was allocated between the liability and finance charges. The interest element of the
finance cost was 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 were 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,
(11)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(expressed in Canadian dollars)
2019 and 2018, development expenses related to development costs for a new line of products and
engineering standardisation costs were deferred and accounted for an identified intangible asset.
Income taxes
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
(12)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(expressed in Canadian dollars)
income (loss) related to the subsidiary is reallocated between controlling and non-controlling
interests.
Transactions and balances:
Foreign currency transactions are translated into the functional currency using the exchange rates
prevailing at the dates of the transactions. Generally, foreign exchange gains and losses resulting
from the settlement of foreign currency transactions and from the translation at year-end exchange
rates of monetary assets and liabilities denominated in currencies other than an operation’s
functional currency are recognized in the consolidated statement of income (loss).
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
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.
(13)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(expressed in Canadian dollars)
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
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.
v. Acquisition valuation method
The Company uses valuation techniques when determining the fair value of certain assets and
liabilities acquired in a business combination. In particular, the fair value of the intangible
assets, goodwill and contingent consideration is dependent on the outcome of many variables
including the acquirees’ future profitability.
vi. Leases
Recognizing leases requires judgment and use of estimates and assumptions. Judgement is used
to determine whether there is reasonable certainty that a lease extension or cancellation option
will be exercised. Furthermore, management estimates are used to determine the lease terms
and the appropriate interest rate to establish the lease liability.
vii. Impairment of non-financial assets and goodwill
In assessing impairment, management estimates the recoverable amounts of each asset or cash-
generating unit based on expected future cash flows and uses an interest rate to discount them.
Estimation uncertainty relates to assumptions about future operating results and the
determination of a suitable discount rate.
(14)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(expressed in Canadian dollars)
5 Business combinations
a) Compressed Air International Inc.
On January 1st, 2019, the Company acquired all 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 (see Note 14a). The contingent consideration will be payable only
if the annual EBITDA for a period of three years exceed a target level agreed by both parties.
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 fair value of the trade and other receivables acquired as part of the business acquisition amounted
to $743,798 with a gross contractual amount of $743,798. As at the acquisition date, the Company’s
best estimate of the contractual cash flows not expected to be collected amounted to $NIL.
Goodwill is related to growth expectations, expected future profitability, the substantial skill and
expertise of CAI’s force workforce and expected cost synergies. Goodwill is not expected to be
deductible for tax purposes.
Acquisition-related costs amounting to $93,500 ($39,143 in 2018 and $54,357 in 2019) are not included
as part of consideration transferred and have been recognised as an expense in the consolidated statement
of profit or loss, as part of selling and administrative expenses.
(15)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(expressed in Canadian dollars)
The details of the final business combination are as follows:
Fair value of consideration transferred
Amount settled in cash
Fair value of contingent consideration
Total
Recognized amounts of identifiable net assets
Inventories
Trade and other receivables
Prepaid expenses
Cash and cash equivalents
Total current assets
Property, plant and equipment
Total non-current assets
Trade, other payables and accrued liabilities
Total current liabilities
Long-term debt
Deferred tax liability
Total non-current liabilities
Identifiable net assets
Intangible assets and goodwill on acquisition
Customer relationships
Goodwill on acquisition
Total Intangible assets and Goodwill on acquisition
Consideration transferred settled in cash
Cash and cash equivalents acquired
Net cash outflows on acquisition
$
1,540,000
537,520
2,077,520
443,452
743,798
52,292
76,648
1,316,190
19,562
19,562
(677,629)
(677,629)
(5,203)
(217,754)
(222,957)
435,166
821,713
820,641
1,642,354
1,540,000
(76,648)
1,463,352
CAI generated revenues of $5,456,901 and a profit of $399,905 for the year ended December 31, 2019.
b) CDA Systems LLC
On December 10th, 2019, Xebec Holding USA Inc, a wholly owned subsidiary of the Company,
acquired all outstanding shares of CDA Systems LLC. (CDA) for a preliminary purchase price of
$6,782,433 ($5,123,070 USD). The purchase agreement includes an additional consideration payable
by future EBITDA and other financial targets to be achieved over the next two years, the faire value of
the contingent consideration will be calculated when the purchase price allocation has been completed.
The Company does not have access to all information be to able to complete the price allocation. A
balance of $324,700 ($250,000 USD) from the preliminary purchase price could be payable depending
on the achievement of a target working capital (see Note 14a). The purchase price is partially allocated
to goodwill.
(16)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(expressed in Canadian dollars)
CDA Systems is a leading distributor and service provider of Oil-Free Air Compressors, Air Dryers,
and Filtration Systems in California’s San Francisco Bay Area. CDA designs, sells, rents, and maintains
Clean Dry Air systems and, with decades of industry experience under their belt, have supported major
manufacturers with numerous equipment installations. These have included value engineered solutions
supporting compression, dehydration, CNG, and other specialty gases, with a goal of achieving energy
cost savings and utility rebates.
CDA’s principals will remain with CDA after the acquisition to optimize CDA’s integration in Xebec’s
industrial compressed air treatment business.
The fair value of the trade and other receivables acquired as part of the business acquisition amounted
to $2,279,263 with a gross contractual amount of $2,279,263. As at the acquisition date, the Company’s
best estimate of the contractual cash flow not expected to be collected amounted to $NIL.
Goodwill is not expected to be deductible for tax purposes.
Acquisition-related costs amounting to $275,584 are not included as part of consideration transferred
and have been recognised as an expense in the consolidated statement of profit or loss, as part of selling
and administrative expenses.
The purchase price allocation will be completed within 12 months of the acquisition date. The
preliminary details of the business combination are as follows:
(17)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(expressed in Canadian dollars)
Fair value of consideration transferred
Amount settled in cash
Restricted cash
Total
Recognized amounts of identifiable net assets
Trade and other receivables
Inventories
Cash and cash equivalents
Prepaid expenses
Total current assets
Property, plant and equipment
Intangible assets
Total non-current assets
Trade, other payables and accrued liabilities
Current portion of long-term debt
Contract liabilities
Income taxes payable
Total current liabilities
Long-term debt
Total non-current liabilities
Identifiable net assets
Goodwill on acquisition
Consideration transferred settled in cash
Cash and cash equivalents acquired
Net cash outflows on acquisition
$
6,451,458
330,975
6,782,433
2,279,263
348,237
320,923
75,761
3,024,184
778,637
81,941
860,578
(943,038)
(125,994)
(67,965)
(34,963)
(1,171,960)
(244,442)
(244,442)
2,468,360
4,314,073
6,451,458
(320,923)
6,130,535
CDA generated revenues of $288,800 and a profit of $64,089 for the period from December 10 to
December 31, 2019.
If CDA had been acquired on January 1st, 2019, revenue of the Company for 2019 would have been
$55,994,713 and the income before taxes for the year would have increased to $2,362,738.
The goodwill has experienced a negative variance due to exchange rate fluctuations of $81,792.
The restricted cash has experienced a negative variance due to exchange rate fluctuations of $6,275.
(18)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(expressed in Canadian dollars)
6 Trade and other receivables
Trade receivables
Contract assets (Note 11)
Other receivables
Supplier deposits
Less: Allowance for expected credit loss
Trade and other receivables - net
2019
$
13,274,136
6,788,722
1,802,482
2,790,454
(534,071)
24,121,723
2018
$
4,282,399
1,917,919
667,380
429,307
(431,674)
6,865,331
Trade and other receivables are pledged as security for credit facilities (see Notes 12 and 13)
Note 29 includes disclosures relating to the credit risk exposure and analysis relating to the allowance
for expected credit losses.
7
Inventories
Raw materials
Work in progress
Inventories
2019
$
4,499,161
1,745,239
6,244,400
2018
$
2,298,807
1,040,735
3,339,542
Cost of goods sold includes cost of inventories amounting to $18,626,719 in 2019 ($7,209,080 in 2018).
During the current year, a reversal of a previous inventory write-down amounting to $76,256 ($144,442
in 2018) was recognized in inventory as the Company deems these parts recoverable for future orders.
Inventories are pledged as security for credit facilities (see Notes 12 and 13).
(19)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(expressed in Canadian dollars)
8 Property, plant and equipment
Right-
of-use-
assets
Machinery
and
Equipment
$
-
-
-
-
-
2,245,806
370,437
-
11,327
(30,052)
2,597,518
-
-
-
-
-
426,593
3,777
-
(153)
430,217
580,131
7,708
-
8,422
596,261
108,611
29,143
-
-
(13,273)
720,742
427,874
38,974
-
4,160
471,008
45,792
-
-
(8,878)
507,922
$
152,902
-
-
3,003
155,905
12,828
10,432
-
-
(5,647)
173,518
137,673
9,065
-
2,871
149,609
10,817
-
-
(5,496)
154,930
Cost
Balance at December 31, 2017
Additions
Disposals
Effect of movements in exchange rates
Balance at December 31, 2018
Additions
Additions through business acquisition
Disposals
IFRS 16 reclass
Effect of movements in exchange rates
Balance at December 31, 2019
Accumulated depreciation
Balance at December 31, 2017
Depreciation
Depreciation of assets disposed
Effect of movements in exchange rates
Balance at December 31, 2018
Depreciation
Depreciation IFRS 16 reclass
Depreciation of assets disposed
Effect of movements in exchange rates
Balance at December 31, 2019
Carrying Amount
At December 31, 2018
At December 31, 2019
Office
furniture and
equipment
Computers
$
Moulds
$
Vehicles
$
Leasehold
Improvement
$
Total
$
285,123
118,795
(58,195)
4,530
350,253
30,977
13,683
(5,249)
(11,327)
(6,869)
371,468
265,184
14,927
(58,195)
4,002
225,918
49,405
(3,777)
(5,249)
(5,567)
260,730
166,474
-
-
2,837
169,311
12,564
279,897
-
-
(11,618)
450,154
145,267
13,386
-
2,837
161,490
15,827
-
-
(6,214)
171,103
35,984
-
-
-
35,984
-
93,160
-
-
(1,766)
-
20,450
-
-
20,450
150,996
1,447
-
-
(28)
1,220,614
146,953
(58,195)
18,792
1,328,164
2,561,782
798,199
(5,249)
-
(69,253)
127,378
172,865
4,613,643
35,984
-
-
-
35,984
7,756
-
-
(148)
43,592
-
2,337
-
-
2,337
16,033
-
-
-
1,011,982
78,689
(58,195)
13,870
1,046,346
572,223
-
(5,249)
(26,456)
18,370
1,586,864
-
2,167,301
125,253
212,820
6,296
18,588
124,335
7,821
-
18,113
281,818
110,738
279,051
83,786
154,495
3,026,779
Depreciation of $572,223 (2018 – $78,689) is included in the consolidated statement of income (loss) for the
year ended December 31, 2019: $281,102 (2018 – $55,161) in cost of goods sold; and $291,121 (2018 –
$23,528) in selling and administrative expenses.
Property, plant and equipment are pledged as security for credit facilities (see Notes 12 and 13)
(20)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(expressed in Canadian dollars)
9
Intangible assets
Other
Internally
generated
Software
Customer
Relationships
Development
costs
Engineering
standardisation
Total
intangible
assets
$
337,395
-
-
5,039
342,434
52,177
65,025
-
(12,044)
447,592
318,546
15,313
4,502
338,361
3,832
(10,566)
331,627
4,073
115,965
$
$
$
301,059
-
-
-
301,059
-
-
-
-
301,059
208,163
60,212
-
268,375
32,684
-
301,059
306,618
139,290
(13,634)
-
432,274
2,623,156
-
-
(9,155)
3,046,275
-
63,554
-
63,554
1,173,691
(1,961)
1,235,284
945,072
139,290
(13,634)
5,039
1,075,767
2,675,333
903,654
-
(21,520)
4,633,234
526,709
139,079
4,502
670,290
1,265,173
(12,533)
1,922,930
-
-
-
-
-
-
838,629
-
(321)
838,308
-
-
-
-
54,966
(6)
54,960
-
783,348
32,684
-
368,720
1,810,991
405,477
2,710,304
Cost
Balance at December 31, 2017
Additions
Receipt of R&D tax credit
Effect of movements in exchange rates
Balance at December 31, 2018
Additions
Additions through business acquisitions
Disposals
Effect of movements in exchange rates
Balance at December 31, 2019
Accumulated amortization
Balance at December 31, 2017
Amortization for the year
Effect of movements in exchange rates
Balance at December 31, 2018
Amortization for the year
Effect of movements in exchange rates
Balance at December 31, 2019
Carrying amount
At December 31, 2018
At December 31, 2019
Amortization of $1,265,173 (2018 – $139,079) is included in the consolidated statement of income
(loss) for the year ended December 31, 2019: $1,175,562 (2018 – $72,609) in cost of goods sold; and
$89,611 (2018 – $66,470) in selling and administrative expenses.
10 Trade, other payables and accrued liabilities
Trade payables
Accrued liabilities
Payables to related parties
Other payables
Other payables and accrued liabilities
2019
$
9,254,405
3,060,902
2,731
214,922
12,532,960
2018
$
1,726,384
868,297
-
88,243
2,682,924
(21)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(expressed in Canadian dollars)
11 Contract balances
Contract assets
Cost incurred and recorded margins
Less: advances and progress billing
2019
$
28,167,087
(21,378,365)
6,788,722
2018
$
8,416,984
(6,499,065)
1,917,919
Contract assets are included in trade and other receivables in the consolidated statements of financial
position (Note 6).
Contract liabilities
Advances and progress billings
Less: cost incurred and recorded margin
12 Credit Facility
2019
$
5,684,496
(3,301,235)
2,383,261
2018
$
8,613,690
(4,243,047)
4,370,643
On December 12, 2016, the Company contracted a loan facility with Export Development Canada
(“EDC”) for an amount of $2,000,000. This amount was 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 loan facility 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,
2019
$
-
-
-
-
2018
$
1,437,912
-
(1,437,912)
-
(22)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(expressed in Canadian dollars)
13 Bank loan
The Company has access to credit facilities in the amount of $2,500,000 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. The Company also has access to credit facilities through Compressed Air
International with Toronto Dominion Bank (TD) in the amount of $150,000 and bear interest at the TD
prime rate plus 3.50% per annum. No credit facilities were used as at December 31, 2019 (2018 – $
NIL).
The credit facilities are secured by a first ranking hypothec of $3,000,000 on all movable property of
the Company.
As of December 31, 2019, 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, 2019, three guarantee
facilities are used for a total of $6,647,417 ($1,784,216 at December 31, 2018).
During the year ended December 31, 2019 all ratios and conditions have been respected by the
Company.
14 Long-term debt and government royalty program obligation
a) Long-term debt
i. Unsecured Convertible debentures
ii. Obligation under a working capital line, bearing an interest rate
of 11% per annum, maturing in July 2021 1
iii. Lease liabilities
iv. Contingent consideration CAI (Note 5)
v. Balance from business acquisition payable (Note 5)
vi. 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.
Long-term debt
Current portion
2019
$
2018
$
-
1,774,076
1,934,440
1,899,578
2,395,336
596,648
324,700
-
-
-
-
6,908
5,251,124
3,680,562
(962,560)
4,288,564
(1,777,915)
1,902,647
1 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.
(23)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(expressed in Canadian dollars)
i. Unsecured convertible debentures
On November 16, 2017, the Company has completed an Unsecured Convertible Debentures
(“Debentures”) financing for aggregate gross proceeds of $2,024,149. The Debentures reached
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.
During the year, 3,014,075 common shares were issued as a result of the exercise of the conversion
option by all debenture holders. The common shares issued included the carrying value of the
liability component and the deferred tax liability to the date of conversion for an amount of $81,989.
The conversion is a non-cash transaction and thus is excluded from the consolidated statement of
cash flows.
ii. Obligation under a working capital line
The Company has a $2 million, three-year term, working capital line bearing interest at the rate of
11% per annum, payable every month.
iii.
Lease liabilities
On January 1st, 2019 new lease liabilities have been recognized. The Company leases office space,
some office equipment and vehicles. The Company measured the lease liabilities at the present
value of the lease payments that are not paid at that date. The present value recognized for the lease
liabilities was $2,278,065. The present value is increased to reflect the interest on the lease
liabilities and reduced to reflect the lease payments made.
Present value at first application
Additions
Accretion interest
Lease payments
Effect of exchange rate change on obligation
Balance – End of year
Current Portion
2019
$
2,278,065
483,820
225,060
(563,864)
(27,745)
2,395,336
(459,410)
1,935,926
2018
$
-
-
-
-
-
-
-
-
(24)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(expressed in Canadian dollars)
• Following is a summary of the Company’s obligations regarding lease payments:
As at December 31, 2019
Lease payments
Payment Due by Period
Beyond 5
1 year
$
2 - 5 years
$
688,627
1,860,264
years
$
591,507
Total
$
3,140,398
Some leases require repayment of a portion of the lessor’s payments for property taxes, these
amounts vary based on the use and wear and tear of the office space. Variable payments for
property taxes for 2019 were $190,693.
iv.
Contingent consideration CAI
CAI’s Contingent consideration was measured at the present value of future principal payment
discounted at a rate of 11%, for a carrying amount of $537,520 The earn-out is subsequently
adjusted to reflect the change in fair value. The face value of the obligation is $660,000. The
$537,520 contingent consideration liability, initially recognized, represents the present value of the
Company’s probability weighted estimate of the cash outflow. It reflects management’s estimate
of a 100% probability that the targets will be achieved.
v.
Balance of business acquisition payable
Payable depending on the achievement of a target working capital.
vi. Obligation under a capital lease
The obligation under a capital lease in accordance to IFRS 16, has been reclassed as of January 1st,
2019 to be presented within lease liabilities.
vii. Additional financial support
The Company has an unused $23 million additional financial support obtained on July 23, 2018
from Export Development Canada (EDC), Canada’s export credit agency. The financial support
consists of a $12 million bonding facility, which will be used to support the issuance of multiple
bank guarantees. The bonding 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 bonding facility shall be payable monthly.
The Company has an unused $9 million PO facility that have been granted on July 23, 2018 in
order to assist in financing working capital needs directly associated with specific export contracts.
It is available in multiple advances in Canadian dollars up to 70% of the supported export contract,
excluding all applicable taxes, minus all customer advanced payments. The Company will repay
to EDC the outstanding advances in principal bi-monthly in an amount equivalent to cash receipt
from Customers for the supported export contracts. Interest are calculated and payable in arrears
at a rate of 11% per annum the 18th day of every month.
(25)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(expressed in Canadian dollars)
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.
The following table summarizes the activity related to the government royalty program obligation
during the period ended:
Balance – Beginning of year,
Accretion finance expenses
Repayment
Balance – End of year,
Current portion
2019
$
536,773
24,298
(95,000)
466,071
(124,880)
341,191
2018
$
591,372
27,401
(82,000)
536,773
(100,515)
436,258
(26)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(expressed in Canadian dollars)
The carrying amount of the government royalty program obligation has been calculated by
discounting the future cash flows at a 5% interest rate.
15 Warranty provisions
Balance – Beginning of the year
Provision for the year
Balance – End of year,
Current portion of provision
Non- Current provision
2019
$
55,599
118,588
174,187
(46,207)
127,980
2018
$
22,290
33,309
55,599
(15,275)
40,324
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.
16 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).
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 $186,500 (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. In 2019 no payment
of the annual fee was processed given the fact that the obligation is under a renegotiation process
between Xebec and the Minority Shareholders
(27)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(expressed in Canadian dollars)
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
2019
$
4,169,353
267,639
(256,516)
-
4,180,476
(373,000)
3,807,476
2018
$
3,912,314
339,249
116,090
(198,300)
4,169,353
(198,300)
3,971,053
17 Share Capital
a) The Company is incorporated under the Canada Business Corporations Act, and its authorized
share capital consists of an unlimited number of common shares, without par value.
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
(28)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(expressed in Canadian dollars)
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 for a total of 9,439,966 shares and 4,719,983 warrants. The issuance
costs, excluding the non-transferable options to the agents were $1,112,971. 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.
Warrants activity for the year ended December 31, is presented below:
Investor warrants – Beginning of year
Issued
Exercised
Balance – End of year
2019
4,719,983
-
(2,176,052)
2,543,931
2018
-
4,719,983
-
4,719,983
During the year, 2,176,052 common shares were issued as a result of the exercise of these warrants
for gross proceeds of $2,284,855. An extra amount of $11,353 was included in share capital
following the issuance of these common shares.
Compensation Options activity for the year ended December 31, is presented below:
Compensation Options – Beginning of
year
Issued
Exercised
Balance – End of year
2019
566,398
-
(561,598)
4,800
2018
-
566,398
-
566,398
During the year, 561,598 common shares were issued as a result of the exercise of Compensation
Options by the Agents for gross proceeds of $421,199.
c) On July 4, 2019, Xebec Adsorption Inc. closed a bought deal public offering of units and listing
warrants conducted by a syndicate of underwriters led by Desjardins Capital Markets and
including Beacon Securities Ltd., Paradigm Capital Inc., Canaccord Genuity Corp. and M
Partners Inc. In connection with the closing of the Offering, the Company issued a total of
8,280,000 Units, at a price of $1.40 per Unit, for aggregate gross proceeds of $11,592,000. Each
Unit is composed of one common share of the Company and one common share purchase warrant
(a "Warrant"). Each Warrant will entitle the holder thereof to acquire one additional Common
Share for a period of 12 months from the closing date of the offering at an exercise price of $1.85
per Warrant Share.
In connection with the Offering, the Company paid to the underwriters a cash commission equal
to 6% of the gross proceeds of the Offering and Compensation Options equal to 6% of the units
issued pursuant to the offering. Each Compensation Option will entitle the underwriters to
(29)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(expressed in Canadian dollars)
purchase a unit at a price of $1.40 for a period of 12 months from the closing date of the offering.
For each Compensation Option exercised the underwrites are entitled to one warrant, each warrant
is exercisable to acquire one additional Common Share for a period of 12 months from the closing
date of the offering at an exercise price of $1.85 per Warrant Share.
The Company intends to use the net proceeds of the Offering to develop and invest in new
Renewable Natural Gas projects, to expand the Company’s monitoring and service capabilities
through selective acquisitions and for general corporate purposes.
A total of 8,280,000 units were issued under the offering at a price of $1.40 per unit for aggregate
gross proceeds of $11,592,000 for a total of 8,280,000 shares, 496,800 compensation options and
8,280,000 warrants. The issuance costs, excluding the non-transferable options to the agents were
$1,091,105. No value was attributed to the warrants because the share price was higher than $1.40.
The fair value of the 496,800 Compensation Options was $225,418which was estimated using the
Black-Scholes Option Pricing Model with the following assumptions:
Risk-free interest rate
Annualized volatility 2
Share price
Expected life of compensation options
1.57%
60,35%
$1.40
1 year
The fair value of the compensation warrants was $143,422 which was estimated using the Black
Sholes Option Pricing Model with the following assumptions:
Risk-free interest rate
Annualized volatility 2
Share price
Expected life of compensation warrants
1.57%
60,35%
$1.85
1 year
Warrants activity for the year ended December 31, is presented below:
Investor warrants – Beginning of year
Issued
Exercised
Balance – End of year
2019
-
8,280,000
(7,143)
8,272,857
2018
-
-
-
-
During the year, 7,143 common shares were issued as a result of the exercise of these warrants
for gross proceeds of $13,215.
Compensation Options activity for the year ended December 31, is presented below:
2 The expected volatility used was based on the historic volatility of the Company share price.
(30)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(expressed in Canadian dollars)
Compensation Options – Beginning of
year
Issued
Exercised
Balance – End of year
2019
2018
-
496,800
(149,040)
347,760
-
-
-
-
During the year, 149,040 common shares were issued as a result of the exercise of Compensation
Options by the Agents for gross proceeds of $208,656. An extra amount of $66,214 was included
in share capital following the issuance of these common shares.
Compensation warrants activity for the year ended December 31, is presented below:
Compensation warrants – Beginning of
year
Issued
Exercised
Balance – End of year
2019
-
149,040
-
149,040
2018
-
-
-
-
During the year, no common shares were issued as a result of the exercise of Compensation
warrants by the Agents.
d) On December 27, 2019, Xebec Adsorption Inc. closed a bought deal public offering conducted
by a syndicate of underwriters led by Desjardins Capital Markets and including Beacon Securities
Ltd., Canaccord Genuity Corp., TD Securities Inc., Paradigm Capital Inc. and Raymond James
Ltd.
A total of 10,952,600 common shares of Xebec were sold at a price of $2.10 per Common Share
for aggregate gross proceeds of $23,000,460 for a total of 10,952,600 shares and 657,156
compensation options. The issuance costs, excluding the non-transferable options to the agents
were $1,482,506. The fair value of the 657,156 Compensation Options was $345,957 which was
estimated using the Black Sholes Option Pricing Model with the following assumptions:
Risk-free interest rate
Annualized volatility 2
Share price
Expected life of compensation options
1.62%
57,44%
$2.10
1 year
In connection with the Offering, the Corporation paid the Underwriters a cash commission equal
to 6% of the gross proceeds of the Offering, and compensation options equal to 6% of the
Common Shares issued pursuant to the Offering. Each Compensation Option will entitle the
Underwriters to purchase a Common Share at an exercise price of $2.10 for a period of 12 months
from the closing date of the Offering.
(31)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(expressed in Canadian dollars)
The net proceeds of the Offering will be used to, among other things and as more fully described
in the short form prospectus relating to the Offering, develop and invest in new renewable gas
projects, to pursue strategic growth initiatives and for general corporate purposes.
Compensation Options activity for the year ended December 31, is presented below:
Compensation Options – Beginning of
year
Issued
Exercised
Balance – End of year
2019
-
657,156
-
657,156
2018
-
-
-
-
No compensation options have been exercised during the year.
As at December 31, 2019, compensation options, compensation warrants and warrants are as follows:
Description
Expiry
date
Exercise
Price
Beginning
balance
Issued
Exercised
Balance
end of year
Warrants
Compensation
Options
Warrants
Compensation
Options
Compensation
warrants
Compensation
Options
May-20
May-20
Jul-20
Jul-20
$1.05
$0.75
$1.85
$1.40
Jul-20
$1.85
Dec-20
$2.10
$1.68
4,719,983
566,398
(2,176,052)
2,543,931
(561,598)
4,800
8,280,000
(7,143)
8,272,857
496,800
(149,040)
347,760
149,040
657,156
149,040
657,156
5,286,381
9,582,996
(2,893,833)
11,975,544
(32)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(expressed in Canadian dollars)
e)
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 2019 and 2018.
Net income (loss) attributable to
shareholders of the Company
Weighted average number of shares
used in basic income per share
2019
$
2018
$
2,020,063
(2,904,386)
64,319,442
42,737,000
Basic income (loss) per share
0.03
(0.07)
ii) Diluted
Net income (loss) attributable to
shareholders of the Company
Increase (decrease) of net income
attributable to shareholders of the
Company assuming dilution
Net income (loss) attributable to
shareholder of the Company after
diluted effect
Weighted average number of shares
used in basic income per share
Increase of number weighted average
number of shares assuming dilution
Weighted average number of shares
after diluted effect
2019
$
2018
$
2,020,063
(2,904,386)
-
-
2,020,063
(2,904,386)
64,319,442
42,737,000
4,280,929
-
68,600,371
42,737,000
Diluted income (loss) per share
0.03
(0.07)
For the year ended December 31, 2019, convertible debentures and exercised warrants with an
exercise price over the average market price would have been anti-dilutive.
For the year ended December 31, 2018, convertible debentures and outstanding stocks options
would have been anti-dilutive.
(33)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(expressed in Canadian dollars)
18 Stock options
The stock option plan allowed for the issuance of stock options. Under the Plan, a fixed number of
11,505,347 common shares are available for grant. As at December 31, 2019, the maximum number of
common shares available for issuance under all stock-based compensation arrangements is 7,423,487.
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
2019
2018
Weighted
average
exercise
price
$
Number
of options
Weighted
average
exercise
price
$
Outstanding – Beginning of
year,
Granted
Exercised
Cancelled
Expired
6,301,758
-
(2,219,898)
-
-
Outstanding – End of year,
4,081,860
Exercisable – End of year,
3,054,859
0.27
-
0.14
-
-
0.35
0.26
7,829,030
835,000
(307,272)
(2,020,000)
(35,000)
6,301,758
4,511,231
The average share price for the exercised options was $0.14 ($0.17 in 2018)
0.19
0.69
0.17
0.12
0.22
0.27
0.16
(34)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(expressed in Canadian dollars)
As at December 31, 2019, options outstanding and exercisable are as follows:
Expiry date
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
$0.15
$0.14
$0.55
$0.05
$0.18
$0.49
$0.55
$0.60
$0.70
$0.35
100,000
200,000
400,000
200,000
1,873,193
375,000
98,667
100,000
735,000
4,081,860
1.32
1.41
2.97
3.02
4.18
4.66
4.96
5.37
5.89
4.20
100,000
200,000
266,666
200,000
1,873,193
75,000
61,667
33,333
245,000
3,054,859
As at December 31, 2018 options outstanding and exercisable are as follows:
Weighted-
Average
Exercise Price
Number of
Options
Outstanding
Weighted-
Average
Remaining life
Number of Options
exercisable
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
$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
3 Expiry date of the options fell in a black out period. Options were exercised once blackout period was lifted.
1,399,500
258,065
100,000
200,000
133,332
400,000
1,883,332
100,000
37,002
-
-
4,511,231
(35)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(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 $407,846 (2018 - $352,897) which relates to stock options
granted in 2017 and 2018.
In 2018, 100,000 options were granted to employees at weighted average fair value of $0.26 and
735,000 options were granted to officers at a weighted average fair value of $0.55.
No options have been granted during the year ended December 31, 2019.
4 The expected volatility used was based on the historic volatility of the Company share price.
(36)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(expressed in Canadian dollars)
19 Segmented information
The Company operates three business segments and specializes in the Support (Industrial Air and Gas
Products, Parts, Service and Operational Support), the Systems (Cleantech), the Infrastructure
(Renewable Gas Generation). During 2018, the Company operated four business segments, the Oil and
Gas segment has been phased out to allow the Company to develop new Infrastructure segment.
For the year ended December 31, revenue summarized by country, as determined by location of the
customers, is as follows:
Revenue
Canada
China
United States
Italy
France
Other
2019
$
2018
$
12,864,288
9,517,759
8,367,207
7,512,614
4,375,266
6,680,746
49,317,880
4,800,012
1,889,742
6,816,590
2,469,183
2,655,914
1,577,055
20,208,496
Sales of $5,461,652 ($6,740,569 in 2018) arose from one of the Company’s largest customers (two in
2018). No other single customer contributed more than 10 % to the Company’s revenue for both 2019
and 2018.
Incomes (losses) summarized by business segments are as follows:
For the year ended December 31, 2019
Revenues
COGS
Gross margin
Gross Margin %
Research and
Development expenses
Selling and administrative
expenses
Foreign exchange loss
Gain on conversion of
shares issued by a
subsidiary
Financial income
Financial expense
Total expenses
Segment income (loss)
Systems
$
37,813,902
25,790,549
12,023,353
32%
Support Infrastructure 5
$
-
-
-
-
$
11,503,978
8,039,345
3,464,633
30%
Corporate
$
-
-
-
-
Total
$
49,317,880
33,829,894
15,487,986
31%
71,503
-
1,546,827
-
2,207,099
-
-
-
-
1,618,330
10,405,023
-
-
-
2,207,099
1,257,534
-
-
-
-
-
-
-
-
-
71,503
7,543,506
383,693
11,297,432
383,693
(256,516)
(32,246)
1,647,141
9,285,578
(9,285,578)
(256,516)
(32,246)
1,647,141
13,111,007
2,376,979
(37)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(expressed in Canadian dollars)
For the year ended December 31, 2018
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)
Systems
$
14,022,914
10,462,581
3,560,333
25%
Support Infrastructure 5
$
-
-
-
-
$
6,185,582
4,057,573
2,128,009
34%
-
Corporate
$
-
-
-
-
Total
$
20,208,496
14,520,154
5,688,342
28%
92,069
-
1,397,270
-
944,663
-
-
-
-
1,489,339
2,070,994
-
-
-
944,663
1,183,346
-
-
-
-
-
-
-
-
92,069
4,873,567
(152,482)
7,215,500
(152,482)
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)
The location of the Company’s non-current assets by geographic region as of December 31st is as follows:
Non-current assets
United States
Canada
Italy
Asia
2019
$
5,077,673
4,509,680
919,309
283,343
10,790,005
2018
$
37,343
595,284
9,750
44,918
687,295
5 Infrastructure segment is a project in development. No costs have been associated to the segment as of December 31st, 2019 and
2018.
(38)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(expressed in Canadian dollars)
20 Expenses by nature
Material
Employee salaries and benefits
Subcontract cost
Professional fees
Amortization and depreciation
Travel expenses
Rent and repairs and maintenance
Office expense
Stock-based compensation
Warranty
Other
Advertising
Bad Debt
21 Research and development expenses
Employee salaries and benefits
Professional fees
Subcontract cost
Travel expenses
22 Finance expenses
Accretion of the obligation arising from shares
issued by a subsidiary (Note 16)
Interest on convertible debentures
Interest and bank charges
Guarantee letters fees
Interest on short term debt
Accretion and revaluation of government royalty
program obligation (Note 14b)
Interest on long term debt
2019
$
18,839,298
10,656,733
7,818,321
1,951,452
1,837,396
1,227,923
747,777
709,951
407,846
280,298
240,912
223,755
185,664
2018
$
7,213,460
7,023,186
2,930,882
1,390,407
217,768
759,616
692,548
481,062
352,897
54,825
54,153
217,259
347,591
45,127,326
21,735,654
2019
$
34,408
6,000
30,000
1,095
71,503
2018
$
65,157
14,230
12,500
182
92,069
2019
$
267,639
261,252
185,627
351,667
17,936
2018
$
339,249
415,590
126,813
185,682
116,770
24,298
27,401
538,722
111,657
1,647,141
1,323,162
(39)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(expressed in Canadian dollars)
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
Other current assets
Income taxes recoverable
Increase (decrease) in liabilities:
Trade payables, other payables
and accrued liabilities
Contract liabilities
Provisions
24 Compensation of key management
Compensation awarded to key management included:
Salaries and short-term employee benefits
Stock-based compensation
Consulting
2019
$
2018
$
(14,233,331)
(2,036,914)
(274,579)
334,960
(2,732,073)
(1,231,708)
(587)
-
8,229,371
(2,055,348)
(902,831)
3,649,648
118,587
33,310
(9,917,254)
(1,184,241)
2019
$
2018
$
1,858,647
336,409
52,354
1,351,103
235,374
112,675
2,247,410
1,699,152
Key management includes the Company’s senior management and members of the Board of Directors.
25 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 26.6% (26.7% on December 31, 2018) to earnings before
income taxes as a result of the following:
(40)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(expressed in Canadian dollars)
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
Tax assets recognized
Expired losses
True up and other
Composition of current income taxes in the income statement
Inception and reversal of temporary differences
2019
$
2,376,979
631,877
-
(305,467)
(49,259)
108,487
(88,126)
(4,785)
(110,132)
-
174,321
356,916
2019
$
371,433
371,433
2018
$
(2,904,386)
(775,471)
-
733,356
(787)
94,223
(170,871)
18,779
-
141,334
(40,563)
-
2018
$
-
-
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
Movement of deferred income tax in 2019
2019
$
379,076
(305,467)
(88,126)
(14,517)
2018
$
(562,485)
733,356
(170,871)
-
Contingency reserve
Intangible assets
Debentures
Government royalty program
Non-capital losses
January
1, 2019
$
(81,989)
(50,483)
(22,478)
(16,898)
89,859
P&L
$
(34,162)
65,000
22,478
6,439
(45,238)
Business
acquisition
$
-
(217,754)
-
-
-
Capital
$
81,989
-
-
-
-
Equity
Component
$
-
-
-
-
-
December
31, 2019
$
(34,162)
(203,237)
-
(10,459)
44,621
(81,989)
14,517
(217,754)
81,989
-
(203,237)
(41)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(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)
As at December 31, 2019, 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
444,827
444,827
24,786,377
219,247
24,761,247
219,247
-
-
-
-
-
-
57,444,239
3,320,697
86,215,387
59,380,392
3,320,697
88,126,410
77,276
1,220,844
1,298,120
282,985
-
282,985
-
-
-
-
-
-
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 $ 23,463,763 ($22,975,885 in 2018).
As at December 31, 2018, deductible timing differences for which the company has not recognized
deferred tax asset are as follows:
(42)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(expressed in Canadian dollars)
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
As at December 31, 2019, the Company has non-capital tax losses, which are available to reduce
taxes in futures years and expired as follows:
2039
2038
2037
2036
2035
2034
2033
2032
2031
2030
2029
2028
2027
2026
2025
2024
2023
Federal
$
Quebec
$
China
$
1,041,367
1,047,960
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
6,729,957
-
1,008,868
1,127,553
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
6,040,334
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
77,276
USA
$
253,083
-
29,902
-
-
-
-
-
-
-
-
-
-
-
-
-
-
57,444,239
59,380,392
77,276
282,985
Italy
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
The Company has scientific research and experimental development expenses of $24,786,377
(2018 – $24,706,785) which are available to be carried forward indefinitely and deducted against
future taxable income otherwise calculated. The potential benefit has not been recorded in the
accounts.
As at December 31, 2019, the Company also has investment tax credits of $5,603,387 (2018 –
$5,591,036) available to offset future Canadian federal income taxes payable. The potential benefit
of the investment tax credits has not been recognized in the accounts.
(43)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(expressed in Canadian dollars)
26 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.
• Leases
Following is a summary of Xebec’s contractual obligations and commitments regarding leases
for which the underlying asset is of low value:
As at December 31, 2019
Payment Due by Period
Beyond 5
years
2 - 5 years
$
135,315
$
-
1 year
$
186,609
Total
$
321,924
Leases include various equipment leases. The leases expenses for year ended December 31,
2019 amounted to $282,646 ($442,784 in 2018).
(44)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(expressed in Canadian dollars)
27 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
Salaries and short-term benefits paid to
members of immediate family of an
officer
Material purchased to companies
controlled by members of the
immediate family of an officer
2019
$
2018
$
118,769
183,432
140,570
43,042
-
-
302,381
183,432
These transactions are measured at the exchange amount, which is the amount of consideration
established and agreed to by the related parties.
28 Capital management
The Company’s objective when managing capital is to use short-term funding sources to manage its
working capital requirements and fund capital expenditures required to execute its operating and
strategic plans.
The Company’s capital structure is composed of the following:
Cash
Restricted cash
Long-term debt (Note 14a)
Government royalty program obligation (Note 14b)
Obligation arising from shares issued by a subsidiary (Note 16)
Equity
2019
$
22,358,457
324,700
5,251,124
466,071
4,180,476
32,580,828
38,957,366
2018
$
(2,382,146)
(1,540,000)
3,680,562
536,773
4,169,353
4,464,542
(620,374)
71,538,194
3,844,168
The Company is not subject to any capital requirements imposed by regulators.
(45)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(expressed in Canadian dollars)
29 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, 2019
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
$
22,358,457
324,700
12,976,897
7,300
22,358,457
324,700
12,976,897
7,300
11,401,489
2,855,788
11,401,489
2,855,788
466,071
466,071
4,180,476
4,180,476
December 31, 2018
Loans and receivables
Other
financial liabilities
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
$
2,382,146
1,540,000
4,532,122
13,500
Fair
value
$
Carrying
amount
$
Fair
value
$
2,382,146
1,540,000
4,532,122
13,500
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,054,443
3,673,654
2,054,443
3,673,654
536,773
536,773
4,169,353
4,169,353
(46)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(expressed in Canadian dollars)
The carrying values of cash, restricted cash, trade and other receivables, trade and other payables,
accrued liabilities, 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).
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.
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). Certain customers
have specific agreements that go over 120 days.
(47)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(expressed in Canadian dollars)
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.
The Company regularly monitors its credit risk exposure and takes steps such as employing credit-
approval procedures, establishing credit limits, using credit assessments and monitoring practices
to mitigate the likelihood of these exposures from resulting in an actual loss.
Bad debt expense amounted to $185,664 in 2019 ($347,591 in 2018). As at December 31, 2019,
the Company’s three largest trade debtors accounted for 32% (20%, 8% and 4%) of the total trade
receivables balance (2018 – 28% (10%, 9% and 9%)).
Details of trade and other receivables were as follows:
Current trade receivables
Trade receivables past due by:
1–30 days
31–60 days
61–90 days
Over 90 days 6
Total trade receivables
Allowance for expected credit loss
Other receivables
2019
$
5,724,899
1,181,293
1,124,112
933,623
4,310,209
13,274,136
(534,071)
236,832
2018
$
1,622,324
1,010,599
428,050
175,950
1,045,476
4,282,399
(431,674)
681,397
Total trade and other receivables
12,976,897
4,532,122
The following table summarizes the changes in the allowance for trade and other receivables:
Balance - Beginning of year
Change in the allowance for expected credit loss
Balance – end of year
2019
$
2018
$
(431,674)
(102,397)
(89,559)
(342,115)
(534,071)
(431,674)
Trade and other receivables are reviewed on a weekly basis. All potential risks are provisioned and
the amount on the consolidated financial statements reflect the analysis.
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.
6 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. Certain customers have specific agreements that go over 120 days.
(48)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(expressed in Canadian dollars)
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 of all
currencies indicated would be reasonably possible and that the impact on net income (loss) of such
a change would be approximately $371,970 for 2019 (2018 – $238,723). As at December 31, 2019,
the following accounts are shown in their original currencies and converted into Canadian dollars.
The Company does not use financial instruments to reduce this risk.
Cash
Trade and other receivables
Trade and other payables
US
dollar
537,212
1,716,275
177,611
Euro
65,588
185,852
55,625
2019
British
Pound
-
-
7,491
2,431,098
307,065
7,491
Equivalent in Canadian dollars
3,157,511
447,792
12,866
Cash
Trade and other receivables
Trade and other payables
Equivalent in Canadian dollars
ii.
Interest rate risk
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
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, 2019, credit facility amounted to $
NIL (2018 – $NIL). If the interest rate on the credit facility had been 50 basis points higher (lower),
(49)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(expressed in Canadian dollars)
related to the credit facility as at December 31, 2019, net income would have been $NIL (2018 –
$10,070) 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:
Carrying
amount
$
Contractual
cash flow
$
0 to 12
months
$
13 to 24
months
$
Thereafter
$
2019
Financial liabilities
Trade and other payables
and accrued liabilities
Government royalty
program obligation
Obligation under a
working capital line
Contingent liability -
CAI
Balance from business
acquisition payable
Obligation arising from
shares issued by a
subsidiary
11,401,489
11,401,489
11,401,489
-
-
466,071
505,540
118,000
175,000
212,540
1,934,440
2,348,333
220,000
2,128,333
596,648
660,000
220,000
440,000
324,700
324,700
324,700
-
4,180,476
4,180,476
373,000
3,807,476
-
-
-
-
18,903,824
19,420,539
12,657,189
6,550,809
212,540
(50)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(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
2,564,164
219,397
220,000
2,124,767
1,774,076
2,109,440
2,109,440
-
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
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.
30 Subsequent events
On February 14, 2019 the Company has signed an agreement to develop an integrated facility to process
various organic wastes for the production of renewable natural gas (RNG) and biofertilizer.
Located in Québec, Canada, this facility will process over 45,000 metric tons of organic waste per year
through an anaerobic digestion process. This process will produce biogas that is upgraded into renewable
natural gas (RNG) by a turnkey biogas upgrading equipment package supplied by Xebec. The facility
will contribute to the circular economy in Québec, producing over 150,000 GJ of RNG and 7,500 metric
tons of biofertilizer annually. The plant is expected to be commissioned in early 2021.
The project will sell its RNG under a 20-year off-take agreement at a fixed rate per gigajoule (GJ), and
the biofertilizer produced will be sold and distributed to farmers through a major bio-solid management
partner.
The project’s capital expenditures of approximately $28.0 million will be financed through a
combination of equity from its development partners, non-recourse debt and a potential grant from
(Programme de Traitement des Matières Organiques par
Québec’s PTMOBC program
Biométhanisation et Compostage), for which an application has been filed with the Québec Government.
(51)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(expressed in Canadian dollars)
The Company signed a loan agreement with Export Development Canada for USD $3,300,000 to
support the acquisition of CDA Systems LLC. Principal repayments in 84 monthly installments
commencing on the 18th day of the month of May 2020. Interest is calculated and payable in arrears at
US Prime Rate plus 4.50% per annum on the 18th day of every calendar month starting May 2020. The
agreement is secured by a second rank conventional hypothec over all of the Company’s present and
future movable property.
(52)