Xebec Adsorption Inc.
Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Expressed in thousands of Canadian dollars)
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
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, 2021 and 2020, and the consolidated statements of
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 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, 2021
and 2020, 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.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most
significance in our audit of the consolidated financial statements of the current period.
2
These matters were addressed in the context of our audit of the consolidated
financial statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
Percentage of completion of contracts in progress at year-end
As described in note 1 to the consolidated financial statements, 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). We identified the determination of the percentage of
completion of contracts in progress at year-end as a key audit matter.
Why the matter was determined to be key audit matter
The determination of the percentage of completion was significant to our audit
because management’s assessment of the percentage of completion requires
significant judgements (see note 1), including milestones marked, actual work
performed and estimated costs to complete. These significant judgements can have
a material impact on the amounts of revenue and profit recognized.
How the matter was addressed in the audit
Our audit procedures related to management's estimate of percentage of completion
of contracts at year-end included, among others:
–
We reviewed, on a sample basis, contractual arrangements, including pricing
and billing terms, contract changes, and terms and conditions;
–
We confirmed, on a sample basis, contracts terms directly with customers;
–
We tested, on a sample basis, costs incurred to date;
–
We compared, on a sample basis, the estimates of costs to complete made in
the prior period to actual contract costs incurred in the current period to assess
management’s ability to estimate the costs to complete a contract;
–
We tested, on a sample basis, future costs to complete the contracts to purchase
orders and quotes obtained by management;
–
We tested, on a sample basis, anticipated losses on contracts recorded in the
current period; and
–
We conducted inquiries with management and project managers to gain an
understanding of the status of contract activities.
Valuation of assets acquired and liabilities assumed in business combinations
As described in note 1 to the consolidated financial statements, the Company applies
the acquisition method in accounting for business combinations. The Company
completed the final purchase price allocation for the business combinations
3
described in note 2 to the consolidated financial statements. Under the acquisition
method of accounting, management determines the fair value of assets acquired and
liabilities assumed (with certain exceptions). We identified the valuation of assets
acquired and liabilities assumed in business combinations as a key audit matter.
Why the matter was determined to be key audit matter
The valuation of assets acquired and liabilities assumed in business combinations
was significant to our audit because it involves significant judgement from
management and a high degree of subjectivity and effort, including the need to
involve fair value specialists. In particular, the fair value of the intangible assets and
contingent consideration is dependent on the outcome of many variables, including
the acquirees’ future cash flows and profitability.
How the matter was addressed in the audit
Our audit procedures related to the valuation of assets acquired and liabilities
assumed included, among others:
–
We reviewed the share purchase agreements;
–
With the assistance of our valuation specialists, we evaluated the
reasonableness of management’s projections of future cash flows by comparing
the projections to historical results;
–
With the assistance of our valuation specialists, we evaluated the
reasonableness of the valuation methodologies and discount rates by:
o
Testing information used to determine the discount rates;
o
Performing sensitivity analysis by developing a range of independent
estimates for the discount rates and comparing those to the discount rates
applied by management.
–
With the assistance of our valuation specialists, we evaluated the
reasonableness of attrition rates of customer relationships; and
–
We tested the fair values of the other assets and liabilities included upon the
acquisition which were not subject to cash flow projection valuation methods.
Annual test for impairment
As described in Note 1 to the consolidated financial statements, the Company is
required to annually test for impairment cash-generating units (CGU) to which
goodwill has been allocated. We identified the Company's annual test for impairment
as a key audit matter.
Why the matter was determined to be key audit matter
This annual impairment test was significant to our audit because the amount of
goodwill of $163,464,000 as at December 31, 2021 is material to the consolidated
financial statements. In addition, management’s determination of recoverable
4
amounts of CGUs involves significant judgement from management and a high
degree of subjectivity and efforts, including the need to involve fair value specialists.
How the matter was addressed in the audit
Our audit procedures related to the Company’s evaluation of the recoverable amount
included, among others:
–
With the assistance of our valuation specialists, we evaluated the
reasonableness of the methodologies to calculate the recoverable amount. We
also evaluated the reasonableness of the significant assumptions used by the
Company, in particular those relating to growth rates, profit margins and discount
rates, which are key to the outcome of the impairment test. We did this by
developing independent discount rates and assumptions, and performing
sensitivity analysis;
–
We assessed the adequacy of the Company’s disclosures about those
assumptions to which the outcome of the impairment test is most sensitive, that
is, those that have the most significant effect on the determination of the
recoverable amount.
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 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 and will 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.
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.
5
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 judgement 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
6
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 independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine
those matters that were of most significance in the audit of the consolidated financial
statements of the current period and are therefore the key audit matters. We describe
these matters in our auditor's report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine
that a matter should not be communicated in our report because the adverse
consequences of doing so would reasonably be expected to outweigh the public
interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is
Louis Roy.
1
Montreal
March 16, 2022
1 CPA auditor, CA public accountancy permit no. A125741
Xebec Adsorption Inc.
Consolidated Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
The accompanying notes are an integral part of these consolidated financial statements
Consolidated Statements of Loss
2021
$
2020
$
Revenue from contracts
122,914
56,520
Government grants
2,987
-
Revenue (Note 3)
125,901
56,520
Cost of goods sold
96,397
56,254
Gross margin
29,504
266
Research and development expenses
1,584
1,223
Selling and administrative expenses
51,813
21,568
Share of after-tax profit of equity accounted investees
(703)
213
Other (gains) and losses (Note 4)
(8,794)
6,480
43,900
29,484
Operating loss
(14,396)
(29,218)
Other charges (income)
Net Finance expenses (Note 5)
6,484
2,749
Loss before income taxes
(20,880)
(31,967)
Income taxes (Note 6)
2,570
(9)
Net loss for the year
(23,450)
(31,958)
Net loss per share
Basic and diluted (Note 7)
(0.15)
(0.33)
Xebec Adsorption Inc.
Consolidated Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
Consolidated Statements of Comprehensive Loss
2021
$
2020
$
Net loss for the year
(23,450)
(31,958)
Other comprehensive loss
Items that will be reclassified subsequently to profit or loss
Cumulative translation adjustment
(14,921)
333
Comprehensive loss for the year
(38,371)
(31,625)
The accompanying notes are an integral part of these consolidated financial statements
Xebec Adsorption Inc.
Consolidated Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
Consolidated Statements of Financial Position
December 31,
2021
$
December 31,
2020
$
Assets
(restated - note 2)
Current assets
Cash
39,905
160,938
Restricted cash (Note 2)
11,214
7,642
Trade and other receivables (Note 8)
61,570
35,123
Inventories (Note 9)
52,693
20,865
Investment tax credits receivable
-
16
Finance leases receivable (Note 10)
410
129
Prepaid expenses
1,446
1,131
Total current assets
167,238
225,844
Non-current assets
Finance leases receivable (Note 10)
9,053
3,016
Investment in associates and joint ventures (Note 26)
21,663
116
Deferred financing costs
3,616
985
Property, plant and equipment (Note 11)
42,687
36,973
Intangible assets (Note 12)
88,820
67,602
Goodwill (Note 13)
163,464
117,842
Other non-current assets
46
53
Total non-current assets
329,349
226,587
Total assets
496,587
452,431
Liabilities
Current liabilities
Credit facility (Note 14)
5,000
975
Trade, other payables and accrued liabilities (Note 15)
33,359
27,905
Contract liabilities (Note 16)
29,730
7,689
Current portion of long-term debt (Note 17)
13,735
14,052
Current portion of government royalty program obligation (Note 17)
207
185
Current portion of provisions (Note 18)
1,780
1,541
Current portion of obligation arising from shares issued by a subsidiary
-
2,972
Income taxes payable
1,325
109
Total current liabilities
85,136
55,428
Non-current liabilities
Long-term debt (Note 17)
69,356
42,774
Government royalty program obligation (Note 17)
-
183
Provisions (Note 18)
3,049
348
Deferred tax liabilities (Note 6)
24,236
16,410
Total non-current liabilities
96,641
59,715
Total liabilities
181,777
115,143
Equity
Share capital (Note 7)
398,566
389,864
Contributed surplus
15,337
8,145
Accumulated other comprehensive loss
(15,835)
(914)
Deficit
(83,258)
(59,807)
Total equity
314,810
337,288
Total liabilities and equity
496,587
452,431
The accompanying notes are an integral part of these consolidated financial statements
Approved by the Board of Directors
__________________________________ Director
___________________________________ Director
(signed) William Beckett
(signed) Peter Bowie
Xebec Adsorption Inc.
Consolidated Statements of Changes in Equity
(expressed in Canadian dollars)
Number
Amount
Common
shares
Warrants and
Compensation Shares
Share capital
– Common
shares
Contributed
surplus
Accumulated
other
comprehensive
income (loss)
Deficit
Total
$
$
$
$
$
Balance – December 31, 2019
84,378,678
11,975,544
63,484
4,570
(1,247)
(27,849)
38,958
Net loss for the year
-
-
-
-
-
(31,958)
(31,958)
Other comprehensive loss
-
-
-
-
333
-
333
Comprehensive loss for the year
-
-
-
-
333
(31,958)
(31,625)
Issuance of warrants from new financing (Note 7)
-
3,000,000
-
2,953
-
-
2,953
Shares issued from the exercise of options (Note 7)
1,903,333
-
682
(319)
-
-
363
Shares issued and to be issued from public offering (Note 7)
43,676,724
-
221,245
-
-
-
221,245
Shares issued following business acquisition (Note 2)
10,014,364
-
83,384
-
-
-
83,384
Warrants and compensation shares issued from public offering
(Note 7)
-
826,965
(631)
631
-
-
-
Warrants and compensation shares exercised from public
offering (Note 7)
12,369,887
(12,369,887)
21,700
(742)
-
-
20,958
Warrants from public offering – Cancelled
-
(14,355)
-
-
-
-
-
Share-based compensation expense (Note 19)
-
-
-
1,052
-
-
1,052
Balance – December 31, 2020
152,342,986
3,418,267
389,864
8,145
(914)
(59,807)
337,288
Net loss for the year
-
-
-
-
-
(23,450)
(23,450)
Other comprehensive loss
-
-
-
-
(14,921)
-
(14,921)
Comprehensive loss for the year
-
-
-
-
(14,921)
(23,450)
(38,371)
Issuance of warrants from financing (Note 7)
-
4,500,000
-
6,986
-
-
6,986
Shares issued from the exercise of options (Note 7)
102,831
-
244
(196)
-
-
48
Shares issued from arising from the prior departure of employees
(note 4)
735,294
-
2,000
-
-
-
2,000
Warrants and compensation shares exercised (Note 7)
418,267
(418,267)
2,001
(586)
-
-
1,415
Shares issued following business acquisition (Note 2)
1,118,556
-
4,457
-
-
-
4,457
Share-based compensation expense (Note 7)
-
-
-
988
-
-
988
Balance – December 31, 2021
154,717,934
7,500,000
398,566
15,337
(15,835)
(83,258)
314,810
Accumulated other comprehensive 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, 2021 and 2020
(expressed in Canadian dollars)
2021
$
2020
$
Cash flows from
Operating activities
Net loss for the year
(23,450)
(31,958)
Items not affecting cash
Depreciation and amortization (Note 11 and 12)
12,166
3,785
Inventory write-down
(19)
111
Accretion finance expenses and gain on revaluation of government royalty
program obligation (Note 17)
14
20
Accretion of earn-out (Note 17)
1,081
38
Accretion of the obligation arising from shares issued by a subsidiary
120
306
Exchange gain/loss on the obligation arising from shares issued by a subsidiary
(45)
217
Share-based compensation expense (Note 19)
988
1,052
Share of after-tax profit of equity accounted investees
(703)
213
Gain on deconsolidation of a subsidiary
(2,154)
-
Remeasurement of investment
(18,968)
-
Future income taxes
1,634
(430)
Other operating activities
103
503
Change in non-cash working capital balances related to operations (Note 20)
(27,468)
(619)
(56,701)
(26,762)
Investing activities
Business acquisitions, net of cash acquired (Note 2)
(71,483)
(70,827)
Acquisition of property, plant and equipment
(9,581)
(492)
Acquisition of intangible assets
(1,947)
(775)
Transfer to restricted cash
(3,804)
(7,537)
Other investing activities
(348)
(116)
(87,163)
(79,747)
Financing activities
Increase of credit facility (Note 14)
4,986
974
Accretion of debt liabilities (Note 17)
-
308
Payment of debt liabilities (Note 17)
(14,855)
(997)
Proceeds from issuance of share capital (Notes 7)
3,463
242,566
EDC repayment (Note 17)
-
(6,340)
EDC loan Holding USA (Note 17)
18,971
4,604
FTQ Investment, net of financing costs (Note 17)
9,862
4,918
CEBA loan (Note 17)
67
-
Government assistance (Note 17)
-
519
Repayment of government royalty program obligation (Note 17)
(175)
(118)
Repayment of the obligation arising from shares issued by a subsidiary
-
(1,731)
22,319
244,703
Net (decrease) increase in cash during the year
(121,545)
138,194
Cash – Beginning of the year
160,938
22,358
Effect of exchange rate changes on cash
512
386
Cash– End of the year
39,905
160,938
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, 2021 and 2020
(expressed in Canadian dollars)
(2)
These consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRS”) and were approved and authorized for issue by the Board of Directors of the Company on
March 16, 2022.
1
Nature of business and summary of significant accounting policies
Xebec Adsorption Inc. (“Xebec” or the “Company”) is a global provider of clean energy solutions and specialized
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, on-site oxygen and nitrogen generators for industrial, energy and healthcare applications
and provide services for the compressed air and gas businesses. The Company is incorporated and domiciled in
Canada and is listed on the TSX Exchange under the symbol XBC since January 7, 2021. It was previously 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 continued spread of COVID-19 around the globe and the responses of governmental authorities and corporate
entities, including through mandated or voluntary shutdowns, have and may continue to lead to a general slow-
down in the economy and to disruptions to our workforce and facilities, our customers, our sales and operations
and our supply chain.
The full extent and impact of the COVID-19 pandemic is unknown and at this stage the future is very difficult to
project.
The Company’s bad debt expense may increase, revenues and cash resources may be negatively affected, and the
Company may need to assist potential customers with obtaining financing or government incentives to help them
fund their purchases of our products. Any temporary suspension of production in Xebec facilities, or those of any
of its suppliers, partners or customers, as a direct result of COVID-19 may have a material adverse effect on the
Company.
Basis of compliance and basis of preparation
The consolidated financial statements have been prepared on the historical cost convention, except 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 periods, unless otherwise stated.
Certain figures of the consolidated statements have been reclassified to comply with the basis of presentation
adopted in the current year (Note 2).
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(3)
Segment reporting
The Company operates three business segments:
•
Systems (Cleantech) – Includes 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 and 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;
•
Support (Industrial Products and Services) – foundational recurring revenue model; and
•
Corporate and other – Includes corporate functions.
Infrastructure is no longer reported due to its activities being rolled into a non-controlling joint venture. The
reporting structure reflects the way the Company is managed and how it classifies its operations for planning and
measuring performance.
For management purposes, the Company uses the same measurement policies as those outlined in its financial
statements.
In addition, corporate assets are used by each segment and are therefore not attributable to any segment
specifically.
Basis of consolidation
These consolidated financial statements include the accounts of the Company and its subsidiaries. Subsidiaries
are entities controlled by the Company. Control is achieved when the Company:
•
Has power over the investee;
•
Is exposed, or has rights, to variable returns from its involvement with the investee; and
•
Has the ability to use its power to affect its returns.
The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are
changes to one or more of the three elements of control listed above.
When the Company has less than a majority of the voting rights of an investee, it has power over the investee
when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee
unilaterally. The Company considers all relevant facts and circumstances in assessing whether or not the
Company's voting rights in an investee are sufficient to give it power, including:
•
The size of the Company's holding of voting rights relative to the size and dispersion of holdings of the
other vote holders;
•
Potential voting rights held by the Company, other vote holders or other parties;
•
Rights arising from other contractual arrangements; and
•
Any additional facts and circumstances that indicate that the Company has, or does not have, the current
ability to direct the relevant activities at the time that decisions need to be made, including voting patterns
at previous shareholders' meetings.
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(4)
Subsidiaries are fully consolidated from the date on which control is obtained by the Company and are
deconsolidated from the date that control ceases. All intercompany accounts and transactions have been
eliminated.
Changes in the Company's ownership interests in subsidiaries 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.
Investments in associated and joint ventures
Investments in associated and joint ventures are accounted for using the equity method (Note 26).
Under the equity method of accounting, interests in joint ventures are initially recognized at cost and adjusted
thereafter to recognize the Company’s share of the profits or losses and movements in other comprehensive
income (OCI) of the investee.
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
value 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, sub-assembly parts, work-
in-progress and finished goods. Costs of raw materials are determined on an average cost basis or by using the
first-in first-out method. Work in progress, sub-assembly parts and finished goods include materials, direct labour
and production overhead. Net realizable value is the estimated selling price for inventories less all estimated costs
of completion and costs 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 and 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 is stated at cost less accumulated depreciation and accumulated impairment losses.
Cost includes expenditures that are directly attributable to the acquisition or the manufacturing of the asset
including borrowing costs capitalized. Manufacturing price is comprised of the cost of raw materials and
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(5)
consumables, plus expenditures directly attributable to an asset’s manufacturing and installation, including labour
costs. Subsequent costs, such as replacement of parts or major inspections, 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
Lease term
Machinery and production equipment
3 to 30 years
Office furniture and equipment
2 to 10 years
Leased equipment
15 years
Leasehold improvement
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.
Assets under construction are related to expenditures for production equipment and lease equipment in the course
of construction. Depending on the complexity of the asset, the time required to complete the construction ranges
between 12 and 32 months.
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, engineering standardisation
costs, customer relationships, trademarks and expenditures on design and production of new or substantially
improved products and processes when the criteria mentioned in the research and development expenses
accounting policy are met. From business acquisitions, intangible assets consist of trade names and customer
relationships. 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.
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(6)
The Company’s Research & Development concentrates on the development of gas generator to improve and
develop designs and processes. The time required for a developed process and/or design to be completed and
available for its intended use ranges between 24 and 36 months.
Development costs are amortized over a period of five years. Engineering standardisation costs and software are
amortized over a period of three to five years. Customer relationships, technology and trade names are amortized
over a period of eight to twenty years.
Impairment of non-financial assets
Cash-generating units (“CGUs”) to which goodwill has been allocated 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 (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 CGUs reduce the carrying amount of any goodwill allocated to that CGU. Any remaining
impairment loss is charged pro rata to the other assets in the CGU.
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 and 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
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(7)
material replacement costs and the associated labour costs are considered. Revisions are made when actual
experience differs materially from historical experience.
Financial Instruments
The Company’s financial assets and liabilities are accounted for at amortized cost.
•
Cash;
•
Restricted cash;
•
Trade and other receivables;
•
Finance leases receivables;
•
Credit facility;
•
Trade, other payables and accrued liabilities;
•
Long-term debt; and
•
Government royalty program obligation.
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); and
•
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 impairments of trade receivables which are presented within
selling and administrative expenses.
Financial assets are measured at amortized cost if the assets 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.
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(8)
After initial recognition, they are measured at amortized cost using the effective interest method. Discounting is
omitted where the effect of discounting is immaterial.
The Company considers a broader range of information when assessing credit risk and measuring expected credit
losses, including past events, current conditions, and reasonable and supportable forecasts that affect the expected
collectability of the future cash flows on the instrument. If the 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 for the first category while “lifetime expected credit losses” are
recognized for the second category.
Measurement of the expected credit losses is determined by a probability-weighted estimate of credit losses over
the expected life of the financial instrument.
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 fair 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 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 expense.
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(9)
Share Capital
Share capital represents the amount received from 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 the exercise of convertible debentures, the share capital account also
includes the equity component of such 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 shares when the warrants are issued is allocated
to the warrants.
Basic and Diluted Net 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 7).
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 for options and similar instruments is
computed assuming that if all dilutive securities had been exercised at the later of the beginning of the year and
the date of issuance, the proceeds would be used to purchase common shares 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 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 contract assets. Cash received in advance of revenues being recognized on contracts is recorded
as contract liabilities.
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(10)
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.
Revenues are 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.
Gas generators and installation revenue comprises the sale of assets which are manufactured based on customer
specific needs and requirements. The Company considers these contracts as one performance obligation. The
Company manufactures an asset which would have no alternative use in its completed state and the Company is
entitled to receive consideration during the manufacturing period. Consideration received is not refundable to
customers to the extent that costs have been incurred during the manufacturing process. The Company recognises
revenue over the time of the manufacturing process. Revenue is measured using the input method whereby
revenue is recognised based on the pro rata cost incurred in relation to the total estimated cost to manufacture.
The manufacturing process for an asset is estimated to be less than 12 months based on experience. The Company
therefore applies the practical expedient in IFRS 15.63 whereby an entity does not adjust the consideration to be
received for the effects of a significant financing component.
Service and maintenance revenue comprises the after-sale maintenance; and servicing of the asset which was
transferred to the customer on an annual subscription contract. The service and maintenance revenue is a distinct
performance obligation to provide an undefined quantity of services over the duration of the contract period. A
portion of the transaction price is therefore allocated to service and maintenance based on the stand-alone selling
price of those services. Discounts are not considered as they are only given in rare circumstances and are never
material. Revenue is recognised over the duration of the contract.
Revenues from Gas-as-a-Service (GaaS) are addressed in lease section.
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 costs 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
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(11)
contracts. Contract liabilities include advances and progress billings in excess of long-term contract costs incurred
and recorded margins.
A net position of contract asset or contract liability is determined for each contract. The cash flows in respect of
advances and progress billings are classified as cash flows from operating activities.
Costs to obtain or fulfill a contract
The Company recognizes as an asset the incremental costs of obtaining a contract with a customer when those
costs are expected to be recovered.
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 12 months following a 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 at 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.
Government grants are recognised where there is reasonable assurance that the grants will be received and all
attached conditions will be met. The Company’s grants are related to an expense item and recognised as income
on a systematic basis over the period the related costs, for which it is intended to be compensated. Government
grants are deducted from the respective expense lines unless they relate to R&D projects, in which case they are
presented as governments grants under total income.
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(12)
Leases
The Company as a lessee:
The Company recognises 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 lease
payments on or after the commencement date, plus initial direct costs incurred and an 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.
Lease liabilities are initially measured at the present value of the lease payments over the lease term. The lease
payments are 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.
The Company as a lessor:
As part of its normal business activity, the Company enters into lease contracts whereby gas generation
technologies are manufactured and placed at customer premises in order for the customer to have on-demand gas
supply (Gas-as-a-Service). Depending on the lease contracts, the Company either classifies the leases as operating
or finance leases.
To classify each lease, the Company makes an overall assessment of whether the lease transfers to the lessee
substantially all of the risks and rewards of ownership incidental to ownership of the underlying asset. If this is
the case, the lease is classified as finance lease, if not, the lease is classified as an operating lease. As part of this
assessment, the Company considers certain indicators such as whether the lease term is for the majority of the
economic life of the assets.
If an arrangement contains lease and non-lease components, the Company applies IFRS 15 to allocate the
consideration in the lease arrangement.
Income from operating lease contracts is recognised on a straight-line basis over the term of the lease and is
presented in the consolidated statement of profit or loss under revenue.
Amounts due from lessees under finance leases are recognised at the amount of the Company’s net investment in
the leases (finance leases receivables). Finance lease income, presented within finance income, is allocated to
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(13)
accounting periods to reflect a constant periodic rate of return on the Company’s net investment outstanding in
respect of the leases.
Subsequent to initial recognition, the Company reviews the estimated unguaranteed residual value and applies the
expected credit loss model to recognise a provision on its finance lease receivables.
Long-term incentive plan
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.
The cost of the restricted share units (RSUs) is measured at the fair value of the common shares of the Company
at the grant date and the number of RSUs expected to vest. The cost is recognized as compensation expense in
the statement of income (loss) from the date of grant on a straight-line basis over the 36-month vesting period
with a corresponding increase in equity. The Company revises the estimate of the number of RSUs expected to
vest, if subsequent information indicates that the number of RSUs expected to vest differs from previous
estimates.
The cost of deferred share units (DSUs) is measured at the fair value of the common shares of the Company at
the grant date and the number of DSUs expected to vest. The cost is gradually recognized as compensation
expense in the statement of income (loss) from the date of grant over a progressive vesting period based on the
remaining vesting period with a corresponding increase in equity. The Company revises the estimate of the
number of DSUs expected to vest when necessary, if subsequent information indicates that the number of DSUs
expected to vest differs from previous estimates.
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(14)
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. There were no development expenses capitalised
during the year ended December 31, 2021 and 2020.
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. 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
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(15)
interest in a foreign operation which remains a subsidiary, a proportionate amount of foreign currency gains or
losses accumulated in other comprehensive income (loss) related to the subsidiary is reallocated between
controlling and non-controlling interests.
Transactions and balances:
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).
Recently issued accounting standards
Standards, amendments and interpretations to existing standards that are not yet effective and have not been
adopted early by the Company
At the date of authorisation of these consolidated financial statements, several new, but not yet effective, standards
and amendments to existing standards, and interpretations have been published by the IASB. None of these
standards or amendments to existing standards have been adopted early by the Company. Management anticipates
that all relevant pronouncements will be adopted for the first period beginning on or after the effective date of the
pronouncement. New standards, amendments and interpretations not adopted in the current year have not been
disclosed as they are not expected to have a material impact on the Company’s consolidated financial statements.
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.
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(16)
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 the degree of variability in cash flows as well as other factors are considered when
making assumptions with regard to future cash flows and the appropriate discount rate. A change in any
of the significant assumptions or estimates used to evaluate internally generated intangible assets could
result in a material change to the results of operations.
iii. Percentage of completion and revenues from long-term production-type contracts
Revenues recognized on long-term production-type contracts reflect management’s best assessment by
taking into consideration all information available at the reporting date and the result on each ongoing
contract and its estimated costs. 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 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 values of the intangible assets, goodwill and
contingent consideration are 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.
Classification of finance and operating leases requires management to make assumptions related to the
economic life and the fair value of the leased asset. In addition, at the commencement date of finance
leases, the measurement of selling profit requires assumptions such as the determination of the
unguaranteed residual value, the fair value of the leased asset and the rate implicit in the lease. Those
assumptions are based on management’s best estimate by considering all information available at the
reporting date, including profit margins by reference to transactions involving assets of a similar nature,
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(17)
market funding rates, the economic life of assets of a similar nature and the expected value of the asset at
the end of the lease.
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.
2
Business combinations
Acquisitions of 2021
Inmatec
On February 22, 2021, the Company acquired 100% of Inmatec Gase Technologie GmbH & Co. KG, Inmatec
GmbH and Inmatec Gas Technology FZC RAK (collectively “Inmatec”) in the United Arab Emirates for an
aggregate cash consideration of $36,704.
Founded in 1993, Inmatec is an international market leader in the production of nitrogen and oxygen generators.
Designed, developed and produced in Germany, over 8,000 Inmatec systems have been deployed and sold around
the world. Its German manufacturing and engineering capabilities have resulted in a reputation for high quality
and extremely reliable products. Inmatec’s products and manufacturing are among the best-in-class and this
acquisition gives Xebec an accelerated entry into offering these products in North America.
Goodwill is not expected to be deductible for tax purposes and is included in the Systems segment.
Nortec
On April 30, 2021, the Company acquired all of the outstanding shares of Tennessee based Nortekbelair
Corporation (“Nortec”) for a purchase price of $8,794 through a combination of cash on hand, of which $4,461
was paid in cash on closing, and 735,838 common shares of Xebec issued to the seller at a fair value of $4.33 per
share, the closing price of Xebec’s shares on April 30, 2021. The purchase agreement includes an additional
contingent consideration of $1,147 payable based on achievement of sales targets over the next three years.
Nortec was founded in 2008 based on three key pillars of performance: quality, perfection and innovation.
Although the company was founded in 2008, Nortec’s origins in the compressed air industry go back several
decades. Nortec specializes in compressed air drying and industrial systems, and the company’s systems are used
in a broad spectrum of applications, ranging from small shops to major manufacturing plants. Nortec’s principal
has remained with the Company after the acquisition and continues his focus on R&D and product development
within the Company.
Goodwill is expected to be deductible for tax purposes and is included in the Support segment.
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(18)
Tiger
On June 11, 2021, the Company acquired all of the outstanding shares of United Kingdom based Tiger Filtration
Limited (“Tiger”) for a total consideration of $20,070 subject to certain holdbacks and adjustments. The purchase
agreement includes an additional contingent consideration of $2,112 payable based on achievement of sales
targets over the next two years.
Established in 2004, Tiger Filtration was an independently owned British based company specialising in the
manufacture of high-quality alternative in-line filter elements, vacuum pump separators, compressor air & oil
separators, high-pressure stainless-steel filter housings and bespoke filtration solutions. Tiger’s products are
supplied from a 14,000 sq. ft. facility in Sunderland, UK and sold globally to customers ranging from small
businesses to international organisations who expect quality products and an exceptional level of service. Two of
its principals retired and one remains with Tiger as Managing Director and continue his leadership in sales and
business development. This acquisition will provide the Company with a profitable and recurring aftermarket
manufacturing business for elements and filters. Goodwill is not expected to be deductible for tax purposes and
is included in the Support segment.
California Compression, LLC
On August 26, 2021, the Company acquired the securities of California Compression, LLC for a total
consideration of $9,220 of which $7,539 was paid in cash on closing, and 382,718 common shares of Xebec
issued to the seller at a fair value of $3.32 per share, the closing price of Xebec’s shares on that day.
Founded in 1975, California Compression, LLC is one of the largest compressed air distributors in Northern
California. California Compression, LLC gives Xebec distribution facilities for customers located in the Northern
California of the United States.
Goodwill is expected to be deductible for tax purposes and is included in the Support segment.
Wisconsin Compressed Air
On September 1, 2021, the Company acquired the assets of Wisconsin Compressed Air for an aggregate cash
consideration of $2,303 including a balance of acquisition payable of $448.
Founded in 1976, Wisconsin Compressed Air has been supplying customers with high-quality compressed air
products from the industry’s top manufacturers. Wisconsin Compressed Air services gives Xebec maintenance
services capacities to customers located in the North Central region of the United States.
Goodwill is expected to be deductible for tax purposes and is included in the Support segment.
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(19)
UEC, LLC
On November 3, 2021, the Company acquired Colorado-based UECompression (“UEC”) for a total consideration
of $10,321 subject to certain holdbacks and adjustments.
Founded in 1983, UEC is a premier designer and builder of custom air and gas compressor solutions for power
generation, industrial and energy applications. The acquisition of UEC provides the Company with a cost-
effective and timely pathway towards expanding production capacity for standardized renewable gas systems.
Goodwill is expected to be deductible for tax purposes and is included in the Support segment.
The determination of the fair value of the assets acquired and liabilities assumed arising from the acquisitions are
as follows:
The fair value of trade and other receivables acquired as part of the business acquisitions amounted to $17,016
with the same gross contractual amount. As at the acquisition dates, the Company’s best estimate of the
contractual cash flows not expected to be collected amounted to $263.
The earnout payments relate to contractual acquisition price adjustments base on determined specific factors for
previous years acquisitions.
Total acquisition costs incurred during fiscal 2021 and 2020 relating to these acquisitions are included in other
gains and losses in the consolidated statement of loss (Note 4).
Inmatec
Nortec
Tiger
California
Compression
Wisconsin
Compressed
Air
UEC
Prior Year
earnout
payments
Total
Recognized amounts of identifiable net assets
Trade and other receivables
3,108
1,428
821
2,143
421
8,832
-
16,753
Inventories
4,454
610
307
859
565
1,711
-
8,506
Other current assets
64
-
-
35
6
174
-
279
Total current assets
7,626
2,038
1,128
3,037
992
10,717
-
25,538
Property, plant and equipment
1,415
29
285
1,379
566
5,540
-
9,214
Intangibles
30,354
1,966
-
-
-
65
-
32,385
Total non-current assets
31,769
1,995
285
1,379
566
5,605
-
41,599
Trade, other payables and accrued liabilities
(3,342)
(228)
(1,096)
(2,403)
(126)
(7,801)
-
(14,996)
Contract liabilities
(1,242)
-
-
(215)
(42)
(3,716)
-
(5,215)
Warranty provision
(1,426)
-
-
-
-
(1,305)
(2,731)
Total current liabilities
(6,010)
(228)
(1,096)
(2,618)
(168)
(12,822)
-
(22,942)
Future income taxes
(7,303)
(7,303)
Long-term debt
(3,443)
-
(284)
(963)
(669)
(3,565)
-
(8,924)
Total non-current liabilities
(10,746)
-
(284)
(963)
(669)
(3,565)
-
(16,227)
Identifiable net assets
22,639
3,805
33
835
721
(65)
-
27,968
Goodwill on acquisition
11,356
4,862
19,516
7,130
1,582
9,691
-
54,137
Total assets acquired
33,995
8,667
19,549
7,965
2,303
9,626
-
82,105
Cash and Cash equivalent at acquisition
2,709
127
521
1,255
-
695
5,307
Total purchase consideration
36,704
8,794
20,070
9,220
2,303
10,321
-
87,412
Fair value of shares issued
-
3,186
-
1,271
-
-
-
4,457
Fair value of contingent consideration
-
1,147
2,112
-
-
-
-
3,259
Restricted cash and balance of acquisition payable
-
-
-
410
448
6,169
-
7,027
Earnout payments to prior year acquisitions
-
-
-
-
-
-
(4,121)
(4,121)
Total cash consideration paid at aquisition date
36,704
4,461
17,958
7,539
1,855
4,152
4,121
76,790
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(20)
As at December 31, 2021, the purchase price allocation of Nortec is final and those of Inmatec, Tiger, California
Compression, XBC Flow Services and UEC are preliminary.
Acquisitions of 2020
HyGear Technology and Services B.V.
On December 31, 2020, the Company acquired 100% of Green Vision Holding B.V., the parent company of
HyGear Technology and Services B.V. (“HyGear”) for aggregate consideration of $156,520, consisting of a cash
payment of $66,391 and 10,014,364 shares issued at a fair value of $9.00 per share, the closing price of Xebec’s
shares on December 31, 2020. HyGear is an emerging developer, manufacturer, and supplier of technology and
products for the production, recovery, purification, and mixing of industrial gases, such as hydrogen and nitrogen.
HyGear’s technological backbone consists of a number of active patents issued both in EU countries and the
United States.
The cash consideration for the acquisition was financed using the proceeds from the Corporation’s bought deal
public offering of subscription receipts completed through a syndicate of underwriters, and from a concurrent
private placement of subscription receipts, through which combined gross proceeds of $143,752 were raised. Both
the bought deal public offering and the private placement closed on December 30, 2020.
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(21)
The financial position as at December 31, 2020 as been restated according to the final purchase price allocation
at the acquisition date and is as follows:
As
disclosed
in
FY2020
Adjustment
Restated
presentation
Recognized amounts of
identifiable net assets
Trade and other receivables
5,905
-
5,905
Inventories
2,059
(280)
1,779
Other current assets
129
-
129
Total current assets
8,093
(280)
7,813
Property, plant and equipment
27,884
(215)
27,669
Right of use assets
3,104
610
3,714
Intangibles
4,252
52,599
56,851
Other non-current assets
3,016
-
3,016
Total non-current assets
38,256
52,994
91,250
Trade, other payables and
accrued liabilities
(4,353)
(334)
(4,687)
Contract liabilities
(2,941)
-
(2,941)
Current portion of long-term debt
(4,281)
(148)
(4,429)
Total current liabilities
(11,575)
(482)
(12,057)
Deferred income tax liability
(350)
(13,834)
(14,184)
Long-term debt
(31,801)
(182)
(31,983)
Total non-current liabilities
(32,151)
(14,016)
(46,167)
Identifiable net assets
2,623
38,216
40,839
Goodwill on acquisition
151,759
(44,961)
106,798
Total assets acquired
154,382
(6,745)
147,637
Cash and cash equivalents
acquired
2,138
-
2,138
Total purchase consideration
156,520
(6,745)
149,775
Fair value of shares issued
90,129
(6,745)
83,384
Restricted cash and balance of
acquisition payable
6,555
-
6,555
Total cash consideration paid at
acquisition date
59,836
-
59,836
Enerphase Industrial Solutions Inc. (Air Flow)
On July 31, 2020, the Company acquired all of the outstanding securities of Enerphase Industrial Solutions Inc.
(doing business as “Air Flow”) for a purchase price of $5,781. The purchase agreement includes an additional
contingent consideration over the three years following acquisition.
Air Flow is a leading distributor and service provider of compressed air equipment in North Carolina. Incorporated
in 1981, the company brings decades of industry experience, has built longstanding relationships with major
manufacturers, and has developed a significant service footprint through numerous equipment installations. Air
Flow’s focus is on preventative maintenance solutions, air energy system audits and analysis, timely machine
rentals, and parts and service.
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(22)
Applied Compression Systems Ltd.
On August 31, 2020, the Company acquired all outstanding shares of Applied Compression Systems Ltd. (“ACS”)
for a purchase price of $4,828 which includes an amount of $778 that was paid on January 19, 2021. Deferred
compensation will be payable for a period of three years as agreed by both parties following acquisition.
Applied Compression Systems Ltd., located in British Colombia, offers a single source solution for air & gas
compression requirements. The company has a strong focus on custom designed and fabricated compressor
packages for specialized applications in the oil, gas, petrochemical, alternative fuel, waste-to-energy, research,
power generation, mining and manufacturing industries. ACS can supply either standard units or design and
fabricate equipment that is custom-built to specific requirements from concept to completion.
The Titus Company
On October 30, 2020, the Company acquired all the outstanding shares of “The Titus Company” (“Titus”) for a
purchase price of $8,236. The purchase agreement includes an amount of $840,000 USD (par value $1,000,000
USD) which will be payable over a three years period following acquisition.
Founded in 1986 in Pennsylvania, Titus has been in partnership with large and small companies throughout the
Eastern Pennsylvania, Delaware and New Jersey regions and provides superior expertise and the capability to
serve a wide range of needs. The Titus Company is also the largest supplier of air dryers to the United States
Navy. With this acquisition, Xebec’s Cleantech Service Network (CSN) coverage expanded to include Eastern
Pennsylvania, Delaware and New Jersey.
Goodwill is not expected to be deductible for tax purposes and is included in the Systems segment.
3
Segmented information
The Company operates three business segments and specializes in Systems (Cleantech), Support (Industrial Air
and Gas Products, Parts, Service and Operational Support) and Corporate.
The profitability measure employed by the Company for making decision about allocating resources to segments
and assessing segment performance is adjusted segment income. Adjusted segment income is a non IFRS measure
calculated by taking operating income and excluding depreciation, amortization, integration and acquisition costs
and other gains and losses arising from significant transactions or material events, which gives an indication of
the profitability of each segment excluding the impact of items not specifically related to the segment’s ongoing
performance.
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(23)
Income (loss) summarized by business segments are as follows:
Systems
Support
Corporate
Total
2021
$
2020
$
2021
$
2020
$
2021
$
2020
$
2021
$
2020
$
Revenues
67,827
28,100
58,074
28,420
-
-
125,901
56,520
Gross Margin
9,262
(7,347)
20,242
7,613
-
-
29,504
266
Gross Margin %
14%
(26%)
35%
27%
-
-
23%
0.5%
Depreciation and
amortization
9,852
2,595
2,314
1,190
-
-
12,166
3,785
Segment income
(2,878)
(10,367)
8,238
2,399
(28,810)
(23,999)
(23,450)
(31,967)
Adjusted Segment income
6,950
(7,661)
10,551
3,627
(26,319)
(17,962)
(8,818)
(21,996)
Reconciliation of adjusted segment income is as follows:
Systems
Support
Corporate
Total
2021
$
2020
$
2021
$
2020
$
2021
$
2020
$
2021
$
2020
$
Segment income
(2,878)
(10,367)
8,238
2,399
(28,810)
(23,999)
(23,450)
(31,967)
Depreciation and
amortization
9,852
2,595
2,314
1,190
-
-
12,166
3,785
Net finance expense
-
-
-
-
6,484
2,749
6,484
2,749
Income taxes
-
-
-
-
2,570
(9)
2,570
(9)
Other (gains) and losses
(24)
111
(1)
38
(6,563)
3,297
(6,588)
3,446
Adjusted Segment income
6,950
(7,661)
10,551
3,627
(26,319)
(17,962)
(8,818)
(21,996)
For the year ended December 31, revenue summarized by country, as determined by location of the customers, is
as follows:
2021
$
2020
$
United States
59,056
26,647
Germany
25,395
-
Canada
21,251
14,572
China
4,668
13,510
Other
15,531
1,791
Total Revenues
125,901
56,520
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(24)
No single customer contributed more than 10% to the Company’s revenue in 2021 (none in 2020).
The location of the Company’s non-current assets by geographic region are as follows:
2021
$
2020
$
Canada
178,333
174,329
Europe
120,357
34,202
United States
30,659
17,827
Asia
-
229
Total Non-Current assets
329,349
226,587
4
Other (gains) and losses
2021
$
2020
$
Foreign exchange loss (gain)
(296)
103
Loss (gain) on disposal of assets
6
-
Loss (gain) on conversion of shares issued by a subsidiary
(45)
217
Remeasurement of investment (note 25)
(21,122)
-
Integration and acquisition costs
5,206
6,160
Impairment charge of intangible assets
8
-
One-time payment arising from the prior departure of employees
6,058
-
Miscellaneous other (gains) and losses
1,391
-
Other (gains) and losses
(8,794)
6,480
For the year ended December 31, 2021, costs related to acquisitions amounted to $3,159 (2020 – $5,728).
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(25)
5
Net finance expenses
2021
$
2020
$
Accretion of the obligation arising from shares issued by a subsidiary
120
306
Financing fees
746
492
Interest and bank charges
914
460
Guarantee letter fees
82
243
Interest on debt
4,971
1,570
Accretion and revaluation of government royalty program obligation (Note 17)
14
20
Penalties
676
-
Finance income
(1,039)
(343)
6,484
2,749
6
Income taxes
The reconciliation of income taxes, computed at the Canadian statutory rates to income tax recovery is as follows:
2021
$
2020
$
Loss before income taxes
(20,880)
(31,967)
Canadian statutory tax rate
26.5%
26.5%
Expected income tax recovery
(5,533)
(8,471)
Increase (decrease) in income taxes resulting from:
Temporary difference unrecognized (recognized)
9,649
6,962
Difference in foreign tax rate
179
184
Stock base compensation
792
279
Deconsolidation of corporation in China
(5,027)
-
Foreign exchange on consolidation
-
-
Non-deductible acquisition costs
(889)
985
Tax assets recognized
-
-
True up and other
3,399
52
2,570
(9)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(26)
Composition of current income taxes in the income statement is as follows:
2021
$
2020
$
Inception and reversal of temporary differences
936
421
936
421
Composition of deferred income taxes in the Consolidated Statement of Loss is as follows:
2021
$
2020
$
Inception and reversal of temporary differences
(8,090)
(7,392)
Temporary difference not recorded
9,649
6,962
Change in deferred tax rate
-
-
1,559
(430)
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(27)
Movement of deferred income tax in 2021 is as follows:
Property,
plant and
equipment
$
Intangible
assets
$
Debentures
$
Government
royalty
program
$
Non-
capital
losses
$
Others
$
Deferred
tax
liability
$
Balance as at December 31, 2019
-
(203)
-
(10)
44
(34)
(203)
P&L
52
164
-
(9)
-
223
430
Business acquisition
(39)
(16,041)
-
-
-
(629)
(16,709)
Equity Component
-
60
-
-
-
12
72
Balance as at December 31, 2020
13
(16,020)
-
(19)
44
(428)
(16,410)
P&L
264
(1,174)
-
14
1,670
(2,331)
(1,557)
Business acquisition
-
(6,268)
-
-
-
-
(6,268)
Capital
-
-
-
-
-
-
-
Equity Component
-
-
-
-
-
-
-
Balance as at December 31, 2021
277
(23,462)
-
(5)
1,714
(2,759)
(24,235)
As at December 31, 2021, deductible timing differences for which the company has not recognized deferred tax
assets are as follows:
Federal
$
Provincial
$
China
$
USA
$
Italy
$
Netherlands
$
Property and equipment
1,890
1,878
-
-
-
-
Scientific research and development
expenses
25,433
25,480
-
-
-
-
Capital losses carried forward
219
219
-
-
-
-
Operating losses carried forward
107,348
109,209
4,467
-
5,179
5,880
Other
15,083
15,083
1,221
-
-
-
149,973
151,869
5,688
-
5,179
5,880
As at December 31, 2020, deductible timing differences for which the company has not recognized deferred tax
assets are as follows:
Federal
$
Provincial
$
China
$
USA
$
Italy
$
Netherlands
$
Property and equipment
1,453
1,440
-
-
-
-
Scientific research and development
expenses
25,433
25,480
-
-
-
-
Capital losses carried forward
219
219
-
-
-
-
Operating losses carried forward
80,591
82,485
260
1,675
4,109
5,880
Other
13,777
13,777
1,221
-
-
-
121,473
123,401
1,481
1,675
4,109
5,880
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(28)
The ability to realize 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. Deferred tax assets not recognized equal an amount of $43,525 (2020 – $35,587).
As at December 31, 2021, the Company has non-capital tax losses, which are available to reduce income taxes in
future years and expire as follows:
Federal
$
Provincial
$
China
$
USA
$
Italy
$
Netherlands
$
2022-2026
14,128
13,438
4,467
-
-
-
2027-2041
93,230
95,781
-
96
-
-
Indefinite
-
-
-
4,247
5,179
-
107,3581
109,219
260
4,343
4,109
-
The Company has scientific research and experimental development expenses of $25,433 (2020 - $28,433) which
are available to be carried forward indefinitely and deducted against future tax income otherwise calculated. The
potential benefit has not been recorded in the financial statements.
7
Share Capital
Authorized and issued shares
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.
Issuance of common shares
On June 26, 2020, the Company closed a bought deal public offering from which a total of 7,986,750 common
shares of Xebec were sold at a price of $3.60 per common share for aggregate gross proceeds of $28,752.
On December 30, 2020, the Company closed an upsized bought deal public offering of 24,784,800 subscription
receipts at a price of $5.80 per Subscription Receipt for gross proceeds of $143,752. Following the acquisition of
HyGear, the subscription receipts were converted into common shares on December 31, 2020 and issued on
January 4, 2021.
On December 30, 2020, the Company closed an upsized concurrent private placement of 10,905,174 subscription
receipts for gross proceeds of $63,250. Following the acquisition of HyGear, the subscription receipts were
converted into common shares on December 31, 2020 and issued on January 4, 2021. The total issuance costs
amounted to $12,194.
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(29)
On December 31, 2020, the Company issued 10,014,364 common shares at fair value of $9.00 per share, the
closing price of Xebec’s shares on December 31, 2020, to acquire 100% of Green Vision Holding B.V., the parent
company of HyGear Technology and Services B.V. for aggregate consideration of $90,129.
On April 30, 2021, the Company issued 735,838 common shares at a fair value of $4.33 per share, the closing
price of Xebec’s shares on April 30, 2021, for aggregate gross consideration of $3,186 to acquire all of the
outstanding shares of Tennessee based Nortekbelair Corporation.
On August 26, 2021, the Company issued 382,718 common shares at a fair value of $3.32 per share for aggregate
consideration of $1,271 to acquire the securities of California Compression, LLC.
On October 5, 2021, the Company issued 735,294 common shares at a fair value of $2.72 per share for aggregate
consideration of $2,000 for payment arising from the prior departure of employees.
Warrants and compensation shares
On June 26, 2020, the Company closed a bought deal public offering from which a total of 479,205 compensation
options (more fully described below) were issued. The issuance costs, excluding the non-transferable options to
the agents, were $2,315. The fair value of the 479,205 compensation options was $631, which was estimated
using the Black Scholes Option Pricing Model with the following assumptions:
Risk-free interest rate
0.28%
Annualized volatility 1
74.88%
Share price
$3.60
Expected life of compensation options
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 entitled the Underwriters to purchase a common share at an exercise
price of $3.60 for a period of 12 months from the closing date of the Offering.
1 The expected volatility used was based in the historic volatility of the Company’s share price
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(30)
On May 5, 2020, the Company entered into a loan agreement for an unsecured loan facility of $10 million and
providing 3,000,000 warrants at an exercise price of $4.58 for a two-year term. The fair value of the warrants was
$2,954, which was estimated using the Black Scholes Option Pricing Model with the following assumptions:
Risk-free interest rate
1.11%
Annualized volatility 1
70.33%
Share price
$3.35
Expected life of compensation options
2 years
On November 9, 2021, the Company entered into an amended and restated Loan Agreement, increasing the credit
facility provided by $15.0 million and providing for the issuance of 4,500,000 warrants at an exercise price of
$4.44 per warrant for a three-year term. The fair value of the warrants was $6,986, which was estimated using the
Black Scholes Option Pricing Model with the following assumptions:
Risk-free interest rate
0.89%
Annualized volatility 1
70.1%
Share price
$3.73
Expected life of compensation options
3 years
As at December 31, 2021, compensation options, compensation warrants and warrants are as follows:
Description
Expiry
date
Exercise
Price
Beginning
balance
Issued
Cancelled
Exercised
Balance
end of
year
Compensation
Options
June-21
$3.60
418,267
-
-
(418,267)
-
Warrants
May-22
$4.58
3,000,000
-
-
-
3,000,000
Warrants
Nov-24
$4.44
-
4,500,000
-
-
4,500,000
$4.50
3,418,267
4,500,000
-
(418,267)
7,500,000
The average share price for the exercised options was $5.05.
1 The expected volatility used was based in the historic volatility of the Company’s share price
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(31)
As at December 31, 2020, compensation options, compensation warrants and warrants are as follows:
Description
Expiry
date
Exercise
Price
Beginning
balance
Issued
Cancelled
Exercised
Balance
end of
year
Warrants
May-20
$1.05
2,543,931
-
-
(2,543,931)
-
Compensation
Options
May-20
$0.75
4,800
-
-
(4,800)
-
Warrants
Jul-20
$1.85
8,272,857
-
(14,356)
(8,258,501)
-
Compensation
Options
Jul-20
$1.40
347,760
-
-
(347,760)
-
Compensation
warrants
Jul-20
$1.85
149,040
347,760
-
(496,800)
-
Compensation
Options
Dec-20
$2.10
657,156
-
-
(657,156)
-
Compensation
Options
June-21
$3.60
-
479,207
-
(60,940)
418,267
Warrants
May-22
$4.58
-
3,000,000
-
-
3,000,000
$4.46
11,975,544
3,826,965
(14,356)
(12,369,888)
3,418,267
Income (loss) per share
The denominators for the basic and diluted earnings per share computation are as follows:
2021
2020
Weighted average number of common shares outstanding
153,471,109
96,492,683
Dilutive effect on number of shares
-
-
Weighted average number of common shares outstanding for diluted earning per share calculation
153,471,109
96,492,683
For the year ended December 31, 2021, warrants, compensation options, compensation warrants, outstanding
stock options and outstanding DSUs and RSUs to acquire 8,788,115 shares (2020 – 4,507,349) have been
excluded from the above calculation since their inclusion would have had an anti-dilutive effect.
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(32)
8
Trade and other receivables
2021
$
2020
$
Current trade receivables
21,153
5,702
Past due trade receivables
1-30 days
6,921
2,932
31-60 days
2,145
3,242
61-90 days
2,987
2,675
Greater than 90 days
5,271
4,004
Total trade receivables
38,477
18,555
Contract assets (Note 16)
10,623
7,767
Related party receivables (Note 27)
1,141
-
Other receivables
656
724
Taxes receivable
5,105
2,696
Supplier deposits
7,104
6,792
Less: Allowance for expected credit loss
(1,536)
(1,411)
Trade and other receivables - net
61,570
35,123
Changes in allowance for expected credit loss are as follows:
2021
$
2020
$
Allowance for expected credit loss, beginning of year
(1,411)
(534)
Additions
Additions – Business acquisition UEC
(372)
(263)
(877)
Unused amounts reversed
369
-
Foreign currency exchange differences
141
-
Allowance for expected credit loss, end of year
(1,536)
(1,411)
9
Inventories
2021
$
2020
$
Raw materials
41,123
11,955
Work in progress
10,500
8,229
Sub-assembly parts
1,070
961
Inventories
52,693
21,145
Cost of goods sold includes inventories of $64,570 in 2021 ($35,334 in 2020).
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(33)
10 Finance lease receivables
The Company has entered into finance leases on Gas-as-a-Service (GaaS) contracts through its subsidiary Green
Vision B.V. consisting of gas generating systems. The lease terms are 15 years, which represents substantially all
of the economic life of the systems.
Future minimum rentals receivable under those non-cancellable finance leases, including the undiscounted lease
payments to be received, are as follows:
2021
$
2020
$
Less than one year
725
271
Between 1-2 years
725
271
Between 2-3 years
725
271
Between 3-4 years
725
271
Between 4-5 years
725
271
More than five years
6,318
2,403
9,943
3,758
Unguaranteed residual value (discounted)
2,037
731
Unearned finance income
(2,441)
(1,303)
Allowance for expected credit losses of finance lease receivables
(76)
(41)
Total finance lease receivables
9,463
3,145
Current portion of finance lease receivables
410
129
Non-current portion of finance lease receivables
9,053
3,016
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(34)
11 Property, plant and equipment
Right-of-use-
assets
Machinery and
Production
Equipment
Office furniture
and Equipment
Leasehold
Improvement
Assets under
construction
Leased
Equipment
Total
$
$
$
$
$
$
$
Net book value
As at December 31, 2019
2,168
491
214
154
-
-
3,027
Additions
628
234
212
54
-
-
1,128
Additions through
business acquisition
5,255
7,025
1,970
98
10,849
8,429
33,626
Disposals
-
(6)
(3)
-
-
-
(9)
Depreciation
(762)
(170)
(168)
(33)
-
-
(1,133)
Effect of movements in
exchange rates
(51)
2
(9)
(3)
-
-
(61)
As at December 31, 2020
7,238
7,576
2,216
270
10,849
8,429
36,578
Additions
4,146
2,515
1,224
550
4,781
212
13,428
Additions through
business acquisition
5,705
1,998
1,100
411
-
-
9,214
Disposals
(961)
(46)
(27)
(4)
(7,360)
86
(8,312)
Depreciation
(2,966)
(1,039)
(747)
(144)
-
(920)
(5,819)
Transfers and others
128
(5,486)
(40)
-
3,872
2,655
1,129
Effect of movements in
exchange rates
(405)
(480)
(134)
(8)
(1,836)
(668)
(3,531)
As at December 31, 2021
12,885
5,039
3,591
1,074
10,305
9,793
42,687
Right-of-use-
assets
Machinery and
Production
Equipment
Office furniture
and Equipment
Leasehold
Improvement
Assets under
construction
Leased
Equipment
Total
$
$
$
$
$
$
$
Cost
8,426
8,429
2,847
321
10,849
8,429
39,301
Accumulated depreciation
(1,188)
(853)
(631)
(51)
-
-
(2,723)
Net book value as at
December 31, 2020
7,238
7,576
2,216
270
10,849
8,429
36,578
Cost
17,040
6,931
4,969
1,269
10,305
10,713
51,227
Accumulated depreciation
(4,155)
(1,892)
(1,378)
(195)
-
(920)
(8,540)
Net book value as at
December 31, 2021
12,885
5,039
3,591
1,074
10,305
9,793
42,687
Lease equipment
The Company has entered into operating leases on GaaS contracts through its subsidiary Green Vision B.V.
consisting of gas generating systems. These leases have terms of between five and ten years.
Future minimum rentals receivable under non-cancellable operating leases are as follows:
2021
$
2020
$
Within one year
332
415
Between 1-2 years
332
346
Between 2-3 years
232
187
Between 3-4 years
27
187
Between 4-5 years
-
187
More than five years
-
-
Total undiscounted lease payments receivable
923
1,322
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(35)
Depreciation of $5,819 (2020 – $1,133) is included in the consolidated statement of loss for the year ended
December 31, 2021: $2,240 (2020 – $344) in cost of goods sold; $3,579 (2020 – $789) in selling and
administrative expenses; and $NIL (2020 – $834) in R&D expenses.
The amount of borrowing costs capitalized as at December 31, 2021 was $446 (2020 – $468).
12 Intangible assets
Software
Customer
Relationships
Development
costs
Engineering
standardisation
Technology
Trademarks
Total
intangible
assets
$
$
$
$
$
$
$
Net book value
As at December 31, 2019
116
3,563
-
1,811
-
199
5,689
Additions
690
-
-
362
-
-
1,052
Additions through business acquisitions
72
29,311
44
-
25,535
9,175
64,137
Reclassification
-
(16)
-
(277)
-
-
(293)
Amortization
(74)
(605)
-
(1,922)
-
(51)
(2,652)
Effect of movements in exchange rates
1
(327)
-
26
-
(31)
(331)
Balance at December 31, 2020
805
31,926
44
-
25,535
9,292
67,602
Additions
1,214
-
-
-
-
1,214
Additions through business acquisitions
5
17,571
-
-
5,931
8,878
32,385
Reclassification
-
-
-
-
-
-
Amortization
(648)
(3,376)
(44)
-
(1,465)
(815)
(6,348)
Effect of movements in exchange rates
393
(2,970)
-
-
(1,184)
(2,272)
(6,033)
Balance at December 31, 2021
1,769
43,151
-
-
28,817
15,083
88,820
Software
Customer
Relationships
Development
costs
Engineering
standardisation
Technology
Trademarks
Total
intangible
assets
$
$
$
$
$
$
$
Cost
1,216
32,576
345
3,245
25,535
9,341
72,258
Accumulated depreciation
(411)
(650)
(301)
(3,245)
-
(49)
(4,656)
Balance at December 31, 2020
805
31,926
44
-
25,535
9,292
67,602
Cost
2,435
48,859
-
-
29,105
17,561
97,960
Accumulated depreciation
(666)
(5,708)
-
-
(288)
(2,478)
(9,140)
Balance at December 31, 2021
1,769
43,151
-
-
28,817
15,083
88,820
The amount of borrowing costs capitalized as at December 31, 2021 was $471 (2020 – $491).
Amortization of $6,348 (2020 – $2,652) is included in the consolidated statement of loss for the year ended
December 31, 2021: $44 (2019 – $1,088) in cost of goods sold; and $6,304 (2020 – $730) in selling and
administrative expenses and $Nil (2020 – $834) in R&D expenses.
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(36)
13 Goodwill
The movements in the net carrying amount of goodwill are as follows:
2021
$
2020
$
Carrying amount – Beginning of year
117,842
3,504
Acquired through business combinations
54,136
114,611
Net exchange difference
(8,514)
(273)
Carrying amount – End of the year
163,464
117,842
During the fourth quarter of 2021, the Company performed a test of impairment of its goodwill. For the purpose
of annual impairment testing, goodwill is allocated to the following CGUs:
2021
$
2020
$
Systems
121,554
109,184
Support
41,910
8,658
Total goodwill
163,464
117,842
As at December 31, 2020, the impairment testing was performed at the subsidiary level. Following the current
year acquisitions, the Company reorganized it’s reporting structure. This reorganization did not change the
CGU’s, but did change the level at which the Company monitors goodwill. Goodwill is now monitored at the
operating segment level, with each operating segment representing a group of CGUs. Corporate assets of the
Company have been allocated to a CGU group on a reasonable and consistent basis for purposes of impairment
testing.
From the 2020 presentation, HyGear and ACS are now presented in Systems. CAI, CDA, Air Flow and Titus are
presented in Support.
From the 2021 acquisitions, Inmatec and UEC are now presented in Systems. Nortec, Tiger, California
Compression and Wisconsin Compressed Air are presented in Support.
The recoverable amount, which is the greater of its fair value less costs to sell (“FVLCTS”) or value in use
(“VIU”), was compared to the carrying amount of the CGU to determine whether or not an impairment loss should
be recorded against the goodwill.
FVLCTS was determined using the prior transaction method (market approach). VIU was determined using the
discounted future cash flow method (income approach), covering a detailed five-year forecast, using a discount
rate from 10.5% to 12.9% (2020 – 15.7% to 24%) and a growth rate of 4% (2020 – 3%). The growth rate reflects
the minimum long-term growth rate for the acquisitions. The discount rate reflects appropriate adjustments
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(37)
relating to market risk and specific risk factors for the subsidiaries. Management’s key assumptions include stable
gross profit margins over the forecast period based on past experience.
The recoverable amounts were estimated to be higher than the carrying amounts and no impairments were
required.
14 Credit facility
In February 2021, the Company secured credit facilities with National Bank of Canada’s Technology and
Innovation Banking Group for a total value of up to $59,250 bearing interest of CDOR plus applicable margin.
The credit facilities are secured by a first ranking hypothec of $75,000 on all movable property of the Company.
In addition, a financial account was put in place by National Bank of Canada as a first ranking hypothec for Debt-
related Guarantees. As at December 31, 2021 the Company had $11,400 in this account.
In March 2021, the Company renewed its Account Performance Security Guarantee (“Account PSG”) Facility
with EDC for an amount not to exceed $10,000. The validity period of this facility is from January 1, 2021 to
December 31, 2021.
As at December 31, 2021, an amount of $5,000 was outstanding under the Operating and Acquisition Credit
Facility (NIL as at December 31, 2020) and an amount of $6,876 was outstanding under the Letters of Guarantee
Credit Facility ($3,953 as at December 31, 2020), of this amount, $5,763 is under the Account PSG facility. In
addition, only the Credit Card Facility was used at the end of the year.
As at December 31, 2021 Standby Fees of 0.60% are applicable on the unused portion of the Operating and
Acquisition Credit Facility and the Pre-Shipment Credit Facility.
The Xebec Adsorption Shanghai Co. bank loan is not consolidated in 2021 due to change in ownership (note 25)
($975 as at December 31, 2020).
During the year ended December 31, 2021, all applicable financial covenants and conditions were respected by
the Company.
15 Trade, other payables and accrued liabilities
2021
$
2020
$
Trade payables
24,016
20,060
Accrued liabilities
8,349
7,034
Taxes payable
818
197
Payables to related parties (Note 26)
65
3
Other payables
111
277
Other payables and accrued liabilities
33,359
27,571
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(38)
16 Contract balances
Contract assets:
2021
$
2020
$
Cost incurred and recorded margins
57,407
32,576
Addition through business acquisition
-
2,238
Less: advances and progress billing
(46,784)
(27,047)
10,623
7,767
Contract assets are included in trade and other receivables in the consolidated statements of financial position
(Note 8).
Contract liabilities:
2021
$
2020
$
Advances and progress billings
67,023
14,144
Addition through business acquisition
-
2,940
Less: cost incurred and recorded margin
(37,293)
(9,577)
29,730
7,507
Commercial and R&D contracts include government grants of $1,952 (2020 – $1,915).
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(39)
17 Long-term debt and government royalty program obligation
Long-term debt
Notional
Repayment
2021
2020
Amount
Period
Current
Non-Current
Current
Non-Current
NAPEX Bonds
Euro, fixed rate – 7.0% to 8.0%
12,497
2025
-
17,636
-
18,889
EDC Loan
U.S. dollar, 7.5%
14,833
2022-2028
2,728
16,141
-
-
Subordinated loans
Euro, fixed rate – 7% to 8.0%
683
2023-2024
-
983
234
8,937
Unsecured loan facility1
Canadian dollar, fixed rate –8.5%
and 9.0%
15,000
2025
-
10,119
-
3,589
Lease liabilities
Euro, variable rate
1,150
2,682
721
2,871
U.S. dollar, variable rate
1,581
4,652
345
1,458
Canadian dollar, variable rate
848
2,900
388
2,017
Other, variable rate
94
219
138
-
Innovation loan HYREC
Euro, fixed rate – 7.0%
-
-
3,005
-
Bank loans
Euro, fixed rate – 2.4% to 4.65%
1,644
2022-2024
1,063
1,355
341
634
Contingent consideration
Canadian dollar
215
-
-
-
U.S. dollar
-
2,734
201
2,133
GBP
630
1,633
-
-
Business acquisition balance payable
Euro
4,265
-
6,556
-
U.S. dollar
794
7,662
756
1,083
Canadian dollar
180
-
778
-
Government assistance (Covid-19)
U.S. dollar
-
-
579
422
Other loans
Canadian dollar
12
2
-
-
U.S. dollar
88
83
-
-
Euro
87
555
-
728
13,735
69,356
14,052
42,774
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(40)
1On November 9, 2021, the Company and FSTQ entered into an amended and restated Loan Agreement,
increasing the credit facility provided by FSTQ by $15.0 million to a total of $25.0 million and providing for the
issuance of 4,500,000 warrants to FSTQ at an exercise price of $4.44 per warrant for a three-year term.
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 at the execution of the agreement and $1,000 spread over four equal annual non-
interest-bearing payments, starting on January 31, 2013. Furthermore, the Company was liable to pay up to $750
in contingent payments based on proceeds from the sale by the Company of its intellectual property. In February
2017, a new amendment to this agreement was reached extending the payment terms to January 1, 2023.
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(41)
Reconciliation of liabilities arising from financing activities
Long-term
debt
Government
royalty
obligation
program
Obligation
arising from
non-
controlling
interest
participation
in a
subsidiary
Leases
liabilities
Total
Balance as at December 31, 2019
3,727
466
4,180
2,396
10,769
Cash flows:
Financing fees
(20)
-
-
-
(20)
Balance of acquisition paid
(102)
-
-
-
(102)
Payments
(6,604)
(118)
(1,731)
(954)
(9,407)
Proceeds
10,061
-
-
-
10,061
Non-cash:
Accretion
263
20
306
308
897
Sale price adjustment
(221)
-
-
-
(221)
Equity component
(2,954)
-
-
628
(2,326)
Additions through business combination
43,749
-
-
5,612
49,361
Deferred financing fees
1,477
-
-
-
1,477
Net exchange variation
(488)
-
217
(52)
(323)
Balance as at December 31, 2020
48,888
368
2,972
7,938
60,166
Cash flows:
Balance of acquisition paid
(3,526)
-
-
-
(3,526)
New financing
28,834
-
-
-
28,834
Payments
(12,434)
(175)
-
(1,927)
(14,536)
Non-cash:
Accretion
1,074
14
120
537
1,745
Addition
67
-
-
3,531
3,598
Debt forgiveness
(1,000)
-
-
-
(1,000)
Additions through business combination
13,506
-
-
5,705
19,211
Disposal
-
-
-
(70)
(70)
Effect of deconsolidation
-
-
(3,047)
-
(3,047)
Deferred financing fees
(3,616)
-
-
-
(3,616)
Adjustment
(195)
-
-
(961)
(1,156)
Net exchange variation
(2,634)
-
(45)
(626)
(3,305)
Balance as at December 31, 2021
68,964
207
-
14,127
83,298
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(42)
18 Provisions
Warranty provisions
2021
$
2020
$
Balance – Beginning of year
1,889
174
Additions through business combination
2,731
Provision for the year
209
1,715
Balance – End of year,
4,829
1,889
Current portion of provision
(1,780)
(1,541)
Non-current provision
3,049
348
The Company offers warranties for 18 months after shipping or 12 months after start-up to the purchasers of its
gas purification and natural gas dryers.
As at December 31, 2021, the provisions include an amount of $1,550 (2020 – $1,297) for anticipated losses on
long-term production type contracts.
19 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., 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 (RMB 16,371).
Pursuant to this agreement, the Company had 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 the Company agreed
that the Company would pay the Minority Shareholders $187 (RMB 1,000) per year including 2018 until the EDC
loan expiry or latest up to December 31, 2020 (whichever is earlier). The annual fees was to be considered a
deduction to the repurchase price at the time of repurchase. As the negotiations was ongoing with the Minority
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(43)
Shareholders, the Company did not fulfill its repurchase obligation according to the original agreement by paying
the full repurchase price in one lump sum.
In 2019 and 2020 no payments of the annual fee were processed. A conditional amount of $1,731 was paid in
December 2020 based of the achievement of some performance targets as agreed by both parties.
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.
The Company 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) was to 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”.
2021
$
2020
$
Balance – Beginning of year
2,972
4,180
Accretion interest
120
306
Conditional reimbursement
-
(1,731)
Effect of deconsolidation
(3,047)
-
Net exchange variation
(45)
217
Balance – End of Year
-
2,972
Current portion
-
2,792
20 Long term incentive plan
The Company has a long-term incentive plan (LTIP) that permits the granting of options (“LTIP Options”),
Restricted Stock Units (“RSUs”) and Deferred Share Units (“DSUs”), (collectively the “Awards”) to eligible
participants of the Company and is administered with the oversight of the Human Resources Committee.
The total number of common shares reserved and available for grant and issuance pursuant to Awards (including
the common shares issuable upon exercise of the outstanding options previously granted under the Legacy Stock
Option Plan) shall not exceed a number of common shares equal to 17,791,757.
The aggregate number of common shares issuable to all participants retained, within any one-year period, under
the LTIP, or when combined with all of the Corporation’s other security-based compensation arrangements, shall
not exceed 2% of the Corporation’s total issued and outstanding securities, calculated on the date the Award is
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(44)
granted to the participant, and options granted to such participants must vest in stages over a period of not less
than one year with no more than ¼ of the options vesting in any three month period.
The exercise price under an option is determined by the Human Resources Committee and shall not be less than
100% of the fair market value of a common share on the date of grant of such option. The term of each option
shall be fixed by the Committee at the date of grant but shall not be longer than 10 years from the date of grant.
Share-based payments expense capitalized in contributed surplus are as follows:
2021
$
2020
$
LTIP options
(52)
180
DSU
294
203
RSU
746
669
Total share-based payments expense capitalized in contributed surplus
988
1,052
Legacy Stock Options Plan
Changes in legacy stock options are as follows:
2021
2020
Number
of options
Weighted
average
exercise
price
$
Number
of options
Weighted
average
exercise
price
$
Outstanding – Beginning of year
2,178,528
0.48
4,081,860
0.35
Exercised
(83,334)
0.57
(1,903,332)
0.19
Forfeited
(1,308,194)
0.53
-
-
Expired
-
-
-
-
Outstanding – End of year
787,000
0.40
2,178,528
0.48
Exercisable – End of year
687,000
0.38
1,700,194
0.45
The average share price for the exercised options was $3.70 (2020 – $4.27).
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(45)
As at December 31, 2021, options outstanding and exercisable are as follows:
Expiry date
Weighted-
Average
Exercise
Price
$
Number of
Options
Outstanding
Weighted-
Average
Remaining
life
Number of
Options
exercisable
December 19, 2022
0.55
200,000
0.97
200,000
January 7, 2023
0.05
200,000
1.02
200,000
August 29, 2024
0.49
350,000
2.66
250,000
December 19, 2024
0.55
37,000
2.96
37,000
0.40
787,000
1.83
687,000
Stock options (LTIP options)
Changes in LTIP options are as follows:
2021
2020
Number
of options
Weighted
average
exercise
price
$
Number
of options
Weighted
average
exercise
price
$
Outstanding – Beginning of year
-
-
-
-
Granted
50,000
5.01
-
-
Outstanding – End of year
50,000
5.01
-
-
Exercisable – End of year
-
-
-
-
The fair value of the options was $166, which was estimated using the Black Scholes Option Pricing Model with
the following assumptions:
Risk-free interest rate
1.42%
Annualized volatility 1
70.10%
Share price
$5.01
Expected life of compensation options
7 years
1 The expected volatility used was based in the historic volatility of the Company’s share price
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(46)
As at December 31, 2021, options outstanding and exercisable are as follows:
Expiry date
Weighted-
Average
Exercise
Price
Number of
Options
Outstanding
Weighted-
Average
Remaining
life
Number of
Options
exercisable
May 21, 2028
$5.01
50,000
6.4
-
$5.01
50,000
6.4
-
DSU
Changes in DSU are as follows:
2021
2020
Number
of DSU
Number
of DSU
Outstanding – Beginning of year
66,231
-
Granted
70,266
66,231
Exercised
(8,883)
-
Outstanding – End of year
127,614
66,231
In the year ended December 31, 2021, DSUs were granted under the Corporation’s Stock Incentive Compensation
Plan to directors of the board and a consultant of the Company for a fair value of $236 (2020 – $261). The DSU
granted in 2021 vested on grant date. The DSU granted in 2020 vest in stages until June 2021.
RSU
Changes in RSU are as follows:
2021
2020
Number
of RSU
Number
of RSU
Outstanding – Beginning of year
265,300
-
Granted
180,501
265,300
Cancelled
(52,858)
-
Exercised
(19,442)
-
Outstanding – End of year
373,501
265,300
In the year ended December 31, 2021, RSUs granted under the Corporation’s Stock Incentive Compensation Plan
to employees of the Company had a fair value of $934 (2020 – $2,103). The RSU will vest in stages until May
2024 (2020 – November 2023).
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(47)
21 Supplemental Cash flow information
Changes in non-cash working capital balances are as follows:
2021
$
2020
$
Cash (used in) provided by non-cash working capital:
Trade and other receivables
(16,430)
3,233
Inventories
(25,630)
(9,302)
Other current assets
(100)
(333)
Other non-current assets
23
(53)
Trade payables accrued liabilities
(4,641)
4,368
Contract liabilities
19,289
252
Income tax payable
(263)
(500)
Provisions
284
1,716
(27,468)
(619)
Income tax paid
1,695
2,031
Interest paid
6,491
3,233
22 Employee compensation
2021
$
2020
$
Salaries and short-term employee benefits
38,314
19,036
Share-based compensation
988
1,052
39,302
20,088
Total compensation for key management, which includes the Company’s senior management, for the year ended
December 31, 2021 was $1,452 (2020 – $1,617); Salaries were $1,214 (2020 – $1,464) and share-based
compensation were $238 (2020 – $153).
23 Contingencies and commitments
Contingencies
In the normal course of operations, the Company is party to a number of lawsuits, claims and contingencies.
Although it is possible that liabilities may be incurred in instances for which no accruals have been made, the
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(48)
Company does not believe that the ultimate outcome of these matters will have a material impact on its
consolidated position.
Commitments
Contractual obligations and commitments that are not recognized as liabilities are as follows:
2021
$
2020
$
Less than 1 year
3,678
391
Between 1 and 5 years
794
228
Total commitments
4,472
619
Leases include various equipment leases. Lease expense for year ended December 31, 2021 amounted to $3,377
(2020 – $295).
24 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.
Management monitors the solvency ratios at the end of the year as some debts include a solvency ratios.
The Company’s capital structure is composed of the following:
2021
$
2020
$
Cash
(39,905)
(160,938)
Restricted cash
(11,214)
(7,642)
Long-term debt (Note 17)
83,091
56,826
Government royalty program obligation (Note 17)
207
368
Obligation arising from shares issued by a subsidiary
-
2,972
Net debt
32,179
(108,414)
Equity
314,810
344,033
346,989
235,619
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(49)
The Company is not subject to any capital requirements imposed by regulators.
25 Financial instruments
Measurement categories and fair values, including valuation methods and assumptions
The carrying values of cash, restricted cash, trade and other receivables, trade and other payables, accrued
liabilities and credit facility approximate their fair value due to their short-term maturities. The methods and
assumptions used in estimating the fair values of other financial assets and financial liabilities are as follows:
•
Long-term debt (classified in level 2 of the fair value hierarchy): The Company’s long-term debt carry
fixed interest rates. The fair value of the Company’s debt obligations has been calculated by discounting
the future cash flows of the long-term debt at the interest rate of similar debt instruments.
•
Government royalty program obligation (classified in level 2 of the fair value hierarchy): Fair value of
the government royalty program obligation has been calculated by discounting the future cash flows at
the interest rate for a similar loan in the market.
•
Obligation arising from shares issued by a subsidiary (classified in level 2 of the fair value hierarchy):
Fair value of the obligation arising from shares issued by a subsidiary has been calculated by computing
an annualized return of 10% on the initial consideration
•
The Company’s financial instruments that are measured subsequent to initial recognition at fair value and
financial instruments measured at amortized cost for which the fair value is disclosed are grouped into
Levels 1 to 3 based on the degree to which the fair value is observable:
Level 1 — Fair value measurements are those derived from quoted prices (unadjusted) in active markets
for identical assets or liabilities.
Level 2 — Fair value measurements are those derived from inputs other than quoted prices included
within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e.
derived from prices).
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).
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(50)
The following table shows the carrying values and fair values of assets and liabilities by category as of:
2021
2020
Carrying
amount
$
Fair
Value
$
Carrying
amount
$
Fair
Value
$
Cash
39,905
39,905
160,938
160,938
Restricted cash
12,940
12,940
7,642
7,642
Trade and other receivables
40,274
40,274
17,868
17,868
Other current assets
-
-
16
16
Finance lease receivables
9,463
9,463
3,145
3,145
Credit facility
(5,000)
(5,000)
(975)
(975)
Trade, other payables and accrued liabilities
(28,404)
(28,404)
(24,576)
(24,576)
Long-term debt
(68,964)
(74,749)
(48,888)
(48,329)
Government royalty program obligation
(207)
(207)
(368)
(368)
Obligation arising from shares issued by a subsidiary
-
-
(2,972)
(2,972)
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, finance leases receivables 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.
In addition, the Company is exposed to credit risk in relation to finance lease receivables and applies the simplified
approach in IFRS 9 to measure the loss allowance at lifetime expected credit losses.
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).
For trade receivables, contract assets and finance leases receivables, Green Vision Holding B.V. applies the
simplified approach in IFRS 9 to measure the loss allowance at lifetime expected credit losses. Green Vision
Holding B.V. determines the expected credit losses on trade receivables and contract assets by using a provision
matrix, estimated based on historical credit loss experience and the profile of payments within the trade
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(51)
receivables (based on the invoice date), adjusted as appropriate to reflect current conditions and estimates of
future economic conditions.
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 resulting in an actual loss.
Trade and other receivables are reviewed on a weekly basis. All potential risks are provisioned and the amount
on the consolidated financial statements reflects this analysis.
As at December 31, 2021, the Company’s three largest trade debtors accounted for 16% (10%, 3% and 3%) of
the total trade receivables balance (2020 – 32% (17%, 9% and 6%)).
Details of trade and other receivables were as follows:
2021
$
2020
$
Total trade receivables
38,477
18,555
Related party receivables (Note 27)
1,141
-
Other receivables
656
724
Less: Allowance for expected credit loss
(1,536)
(1,411)
Total trade and other receivables
38,738
17,868
The Company’s cash and restricted cash are 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.
Market risk
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 $3,764 for 2021 (2020
– $749). As at December 31, 2021, 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.
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(52)
2021
2020
US
dollar
Euro
British
Pound
US
dollar
Euro
British
Pound
Cash
7,453
2,247
-
711
12
-
Trade and other receivables
22,921
6,426
371
4,685
40
-
Trade and other payables
(7,493)
(2,923)
(163)
(203)
(26)
(1)
22,881
5,750
208
5,193
26
(1)
Equivalent in Canadian dollars
31,909
9,103
391
6,612
41
(2)
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows from 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. If the interest rate on the credit facility had been 50 basis points higher (lower),
related to the credit facility as at December 31, 2021, the impact on the net income and equity would have been
negligible.
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:
2021
Carrying
amount
$
Contractual
cash flow
$
0 to 12
months
$
13 to 24
months
$
Thereafter
$
Credit facility
5,000
5,000
5,000
-
-
Trade and other payables and accrued liabilities
28,404
28,404
28,404
-
-
Government royalty program obligation
207
207
207
-
-
Loan Fonds solidarité FTQ
10,119
15,000
-
-
15,000
Contingent liability
5,212
5,564
1,701
2,058
1,805
Other long-term debts
40,732
41,029
4,914
3,813
32,302
Business price balance acquisition payable
12,901
13,156
5,334
5,257
2,565
102,575
108,360
45,560
11,128
51,672
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(53)
2020
Carrying
amount
$
Contractual
cash flow
$
0 to 12
months
$
13 to 24
months
$
Thereafter
$
Credit facility
975
975
975
-
-
Trade and other payables and accrued liabilities
24,576
24,576
24,576
Government royalty program obligation
368
388
175
190
23
Loan Fonds Solidarité FTQ
3,589
6,987
450
450
6,087
Government assistance
1,001
1,001
1,001
-
-
Contingent liability
2,333
2,359
581
999
779
Other long-term debts
32,792
33,605
3,537
528
29,540
Business price balance acquisition payable
9,173
9,376
8,230
573
573
Obligation arising from shares issued by a subsidiary
2,972
2,972
2,972
-
-
77,779
82,239
42,497
2,740
37,002
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.
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(54)
26 Related party relationship
Investment in subsidiaries consolidated in the Company’s financial statements:
Country of
incorporation
% equity
interest
2021
% equity
interest
2020
Applied Compression Systems LTD
Canada
100
100
California Compression, LLC
USA
100
-
CDA Systems, LLC
USA
100
100
Compressed Air International Inc.
Canada
100
100
Enerphase Industrial Solutions Inc. (Air Flow)
USA
100
100
GNR Québec Capital Management Inc
Canada
100
100
Green Vision Holding B.V.
Netherlands
100
100
HyGear B.V.
Netherlands
100
100
HyGear Fuel Cell B.V.
Netherlands
100
100
HyGear Hydrogen Plant B.V.
Netherlands
100
100
HyGear Operations B.V.
Netherlands
100
100
HyGear Technology and Services B.V.
Netherlands
100
100
Inmatec Gas Technology FZ-LLC
UAE
100
-
Inmatec Gase Technologie GmbH & Co.KG
Germany
100
-
Nortekbelair Corporation
USA
100
-
The Titus Company
USA
100
100
Tiger Filtration Limited
UK
100
-
UEC, LLC
USA
100
-
XBC Flow Services - Wisconsin Inc
USA
100
-
Xebec Adsoprtion USA Inc.
USA
100
100
Xebec Adsorption Asia PTE LTD
Singapore
100
100
Xebec Adsorption Europe SRL
Italy
100
100
Xebec Complimentar GmbH
Germany
100
-
Xebec Deutchland GMBH
Germany
100
-
Xebec Europe B.V.
Netherlands
100
100
Xebec Holding UK Limited
UK
100
-
Xebec Holding USA Inc.
USA
100
100
Xebec RNG Holdings Inc
Canada
100
100
Xebec Adsorption Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(expressed in Canadian dollars)
(55)
Investment in associates and joint ventures accounted for under the equity method:
Country of
incorporation
% equity
interest
2021
% equity
interest
2020
Buse - HyGear LTD
UK
50
50
GNR Québec Capital S.E.C.
Canada
50
50
Xebec Adsorption (Shanghai) Co. LTD 1
China
60
70
1 On June 25, 2021, a new partnership with Shanghai based Shenergy Group Company Limited was approved by
the Chinese authority. Xebec Shanghai received a direct equity investment of $3,400K in exchange for the debt
and interest owed by Xebec for its share buyback obligation. Xebec Adsorption Inc. participation reduced from
70% to 60%, along with changes to the shareholder agreement, which resulted in a change of control thus Xebec
Shanghai have been deconsolidated from the date that control ceases. Following this transaction, the investment
in the new partnership is recognised and presented as an equity investment.
27 Related party transactions
The following table presents a summary of the related party transactions during the period:
2021
$
2020
$
Marketing and professional services expenses paid to companies controlled by members of the
immediate family of an officer
84
80
Rent paid to companies controlled by members of the immediate family of an officer
240
24
Salaries and short-term benefits paid to members of immediate family of an officer
186
165
Material purchased to companies controlled by members of the immediate family of an officer
55
34
Total related party transactions
565
303
The Company’s transactions and outstanding balances with equity accounted investees are as follows:
2021
$
2020
$
Revenue
700
-
Accounts receivables
1,141
-