Xebec Adsorption Inc.
TSX : XBC

Xebec Adsorption Inc.

November 12, 2009 19:15 ET

Xebec Announces 2009 Third Quarter Financial Results

MONTREAL, QUEBEC--(Marketwire - Nov. 12, 2009) - Xebec Adsorption Inc. (TSX:XBC)

- Significant commercial contracts achieved in China

- Integration of QuestAir Technologies on track for year-end

- Vice President of Sales and Marketing announced

- Proposed private placement announced

Xebec Adsorption Inc. (TSX:XBC) ("Xebec"), a provider of biogas upgrading as well as natural gas and hydrogen purification solutions, today reported its financial results for the three and nine-month periods ended September 30, 2009. Unless otherwise stated, all figures in this release are in Canadian dollars.

Highlights

- For the three-month period ended September 30, 2009, revenue of $5.9 million compared to $2.7 million in the third quarter of 2008

- For the nine-month period ended September 30, 2009, revenue was $14.9 million compared to $9.4 million in the corresponding period of 2008

- Net loss of $1.2 million or $0.06 per share compared to net income of $50,096 or $0.01 per share in the third quarter of 2008

- Commercial contracts achieved with the signing of significant contracts with industry leaders in China

- Mr. John Fyfe appointed as Vice President, Sales and Marketing, subsequent to quarter end

- Proposed private placement announced subsequent to quarter end

Kurt Sorschak, President and CEO of Xebec said, "Xebec continues to execute its strategy to become a leading provider of gas purification and upgrading technologies for the renewable energy sector". "We strengthened our global sales network with the hiring of John Fyfe as Vice President of Sales and Marketing; we were awarded significant contracts during the third quarter by industry leaders in China, allowing us to increase sales in that growing market; and we strengthened our operations in Shanghai with the appointment of Andrew Hall, Vice President, to lead the development of our business in Asia/Pacific. These achievements position Xebec for long-term growth in 2010 and beyond as renewable energy becomes a strategic priority for municipal and federal governments alike."

Financial Results

For the third quarter ended September 30, 2009, total revenues increased from $2.7 million in 2008 to $5.9 million in 2009, attributable primarily to the full-quarter contribution from QuestAir that merged with Xebec on June 12, 2009. Revenue for the nine-month period increased from $9.4 million in 2008 to $14.9 million in 2009, reflecting the additional sales from our Shanghai facility that commenced operations in the last quarter of 2008, as well as the contribution from QuestAir.

The total sales order backlog as of September 30, 2009 was approximately $5.3 million.

Net loss was $1.2 million or $0.06 per share for the quarter, compared to net income of $50,096 or $0.01 per share in the same period of 2008. Net loss for the nine months was $1.7 million or $0.13 per share, compared to a net loss of $258,318 or $0.03 per share in the same period of 2008. The net loss for the quarter and the nine months ended September 30, 2009 includes amounts of $123,025 and $352,602, respectively, for share award expense related to the performance-based share awards issued with the QuestAir transaction that was concluded on June 12, 2009.

Gross margin was 34% in the third quarter of 2009, and 38% for the year to date. The decrease in the third quarter reflects a slightly lower contribution from our low-cost facility in Shanghai, as well as the additional expenses related to moving some manufacturing from Burnaby (BC) to Blainville (QC) following the merger with QuestAir. In 2008, gross margin was 36% in the third quarter and 32% for the nine-month period.

Selling and administrative expenses were $3.0 million for the third quarter of 2009, compared to $840,563 for the same period in 2008. For the nine-month period, selling and administrative expenses were $6.6 million in 2009, compared to $2.9 million in 2008. The year-over-year increase is attributable to the full-quarter impact of QuestAir; the additional expense of the Shanghai facility that commenced operations in the fourth quarter of 2008; the addition of the Singapore sales office in the first quarter of 2009; generally higher levels of business development activity to support planned growth; and the additional costs associated with being a public company.

Cash and cash equivalents totalled $1.8 million on September 30, 2009.

Proposed Private Placement

Subsequent to quarter end, Xebec announced on November 4, 2009 that it had engaged Canaccord Adams to proceed with a private placement to raise approximately $5,000,000 through the issuance of units at a price of $0.75 per unit. Xebec has granted Canaccord an over-allotment option to sell up to an additional number of units equal to the lesser of the over- allocation position and 15% of the size of the units offering, at the same offering price, exercisable at any time, in whole or in part, up to 30 days from the closing of the offering.

The offering shall close on or before November 24, 2009. The proceeds will be used for working capital and general corporate purposes.

Product Developments

Xebec achieved significant business development opportunities in China by becoming a certified vendor of natural gas dehydration equipment to Sinopec (NYSE: SNP; LSE: SNP) and CNPC - both leading Chinese energy companies and developers of compressed natural gas (CNG) fueling stations in China. Xebec has received orders for a total of four natural gas dryers from these companies for CNG stations to be constructed in late 2009. Additionally, Xebec also sold its first hydrogen purifier (H-3200) to Shanghai Huaxi Chemical Industry Science & Technology Co., Ltd., a leading manufacturer of hydrogen generation plants in China. Xebec's H-3200 will be installed at an on-site hydrogen plant being constructed by Shanghai Huaxi at a chemical plant located in Chengdu, Sichuan Province. Revenues from these sales, which total approximately $475,000, will be recognized in 2010.

Corporate Developments

Subsequent to the third quarter, Xebec announced the appointment of Mr. John Fyfe as Vice President, Sales and Marketing effective January 4, 2010. Mr. Fyfe will be responsible for building and executing a global sales strategy to support Xebec's growth objectives in 2010 and beyond.

The Company announced the resignation of Mr. Michael Rosenberg from his position as a non-executive director of the company for personal reasons as of November 9, 2009. We want to thank Mr. Rosenberg for his past four years of service with QuestAir and the subsequent integration with Xebec.

Outlook

The market conditions in the last half of 2009 remain generally challenging. Financing for renewable energy projects continues to be constrained and the overall pace of new orders for products, particularly those with long lead times, is slower than anticipated.

Despite the generally soft conditions in our target markets, we are pleased to report that North American sales of our natural gas dehydration equipment continue to be strong. As well our Shanghai facility continues to generate steady growth in sales since commencing operations in the last quarter of 2008. Our Shanghai facility offers the advantage of manufacturing high-quality products at a low cost, which should contribute to a sustained improvement in gross margins in the future.

With our order backlog currently at $5.3 million, our immediate efforts are focused on the acceleration of new business development, as well as the alignment of our cost structure with our current level of sales. By the end of the fourth quarter, we expect to complete the realization of all potential synergies with QuestAir, which should have a positive impact on our results going forward. These cost savings, together with the proceeds of our announced private placement, will help us to execute our global sales strategy in 2010 and beyond.

In the short to medium term, we remain convinced that the future for renewable energy is positive. Increasingly, green energy initiatives are moving up the agendas of municipal and federal governments worldwide, as well as corporations looking to reduce their carbon footprint. We are confident that Xebec, with its complementary product lines, strong customer relationships, global footprint and low-cost manufacturing and supply chain, is well positioned to respond to this growing demand.

2009 Third Quarter Results Available

The complete financial statements, notes to financial statements, and management's discussion and analysis for the three and nine-month periods ended September 30, 2009 are available on Xebec's website at www.xebecinc.com. These documents are also accessible on the SEDAR website at www.sedar.com.

Conference Call and Webcast Notice

Xebec will host a conference call and webcast to discuss its 2009 third quarter and nine-month financial results on Friday, November 13, 2009 at 11:00 a.m. EST. The dial-in number for the conference call is 1-800-763-5615 (Canada and United States) or 416-981-9000 (International). If you are unable to participate in the conference call, a replay will be available starting that same day at 1:00 p.m. EST by dialing 1-800-558-5253 (Canada and United States) or 416-626-4100 (International) and entering passcode # 21441551, until November 20, 2009 at midnight. The webcast will be available on Xebec's website for 90 days.

About Xebec Adsorption Inc.

Xebec Adsorption Inc. is a global provider of clean energy solutions to corporations and governments looking to reduce their carbon footprints. With more than 1300 customers worldwide, Xebec designs, engineers and manufactures innovative products that transform raw gases into marketable sources of clean energy. Xebec's strategy is focused on establishing leadership positions in markets where demand for biogas upgrading, natural gas dehydration and hydrogen purification is growing. Headquartered in Montreal (QC), Xebec is a global company with two state-of-the-art manufacturing facilities in Montreal and Shanghai, a R&D facility in Vancouver (BC) as well as a sales and distribution network in North America, Asia and Europe. Xebec (www.xebecinc.com) trades on the TSX under the symbol XBC.

Caution Concerning Forward-Looking Statements

Certain statements in this press release may constitute "forward-looking" statements within the meaning of applicable securities laws. This forward looking information includes, but is not limited to, the expectations and/or claims of management of Xebec with respect to information regarding the business, operations and financial condition of Xebec. Forward-looking information contained in this press release involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Xebec or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. This list is not exhaustive of the factors that may affect forward-looking information contained in this press release. When used in this press release, such statements use such words as "anticipate", "believe", "plan", "estimate", "expect", "intend", "may", "will" and other similar terminology. These statements reflect current expectations regarding future events and operating performance and speak only as of the date of this presentation. Forward-looking statements involve significant risks and uncertainties, should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such results will be achieved. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements.



Interim Consolidated Balance Sheet(Unaudited)

As at As at
September 30, December 31,
2009 2008
$ $
(restated -
note 3)

Assets

Current assets
Cash 1,817,612 550,377
Accounts receivable 4,783,465 4,538,842
Inventories (note 6) 4,094,121 2,579,877
Prepaid expenses 596,204 221,143
Investment tax credits 171,277 258,785
Derivative financial assets (note 7) - 229,906
-------------------------------------------------------------------------

11,462,679 8,378,930

Loan to a joint venture, bearing interest at
7.93%, repayable by minimum annual
installments of $79,940 plus accrued and unpaid
interest, maturing on July 1, 2012 136,980 -
Property, plant and equipment (note 8) 2,576,969 1,822,209
Intangible assets (note 9) 111,327 148,319
Restricted cash 238,595 324,577
Goodwill (note 5) 5,898,025 -
-------------------------------------------------------------------------

20,424,575 10,674,035
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Liabilities

Current liabilities
Bank loan (note 10) 629,254 1,760,931
Accounts payable and accrued liabilities 4,319,751 4,320,860
Deferred revenues 1,339,507 679,938
Derivative financial liabilities (note 7) 26,798 -
Income taxes payable 7,131 268,194
Current portion of obligations under capital
leases 3,352 12,986
Current portion of long-term debt 217,200 217,200
Current portion of subordinated loan 52,080 -
Future income taxes - 99,070
-------------------------------------------------------------------------

6,595,073 7,359,179

Loan from a shareholder of the joint venture,
bearing interest at 7.00%, repayable by minimum
annual installments of $24,400 plus accrued and
unpaid interest, maturing on July 1, 2012 21,308 -
Long-term debt 1,776,083 1,874,087
Government assistance 40,833 42,083
Subordinated loan 182,296 250,000
Future income taxes - 23,545
-------------------------------------------------------------------------

8,615,593 9,548,894
-------------------------------------------------------------------------

Shareholders' Equity

Share capital (note 11) 12,300,100 300,100

Contributed surplus 379,095 -

Retained earnings (deficit) (870,213) 825,041
-------------------------------------------------------------------------

11,808,982 1,125,141
-------------------------------------------------------------------------

20,424,575 10,674,035
-------------------------------------------------------------------------
-------------------------------------------------------------------------



Interim Consolidated Statement of Income (Loss) and Comprehensive Income
(Loss)
(Unaudited)

For the three-month For the nine-month
period ended September 30, period ended September 30,
-------------------------------------------------------------------------
2009 2008 2009 2008
$ $ $ $
(restated - (restated -
note 3) note 3)

Revenue 5,924,603 2,685,507 14,935,238 9,405,969

Cost of goods sold 3,935,499 1,713,135 9,330,117 6,417,428
-------------------------------------------------------------------------

Gross margin 1,989,104 972,372 5,605,121 2,988,541
-------------------------------------------------------------------------

Operating expenses
Selling and
administrative 3,005,251 840,563 6,595,782 2,867,158
Financial 46,769 72,239 163,200 254,439
Foreign exchange
gain (loss) 25,217 (41,466) 227,375 (3,737)
Amortization 240,816 37,280 428,285 98,515
-------------------------------------------------------------------------

3,318,053 908,616 7,414,642 3,216,375
-------------------------------------------------------------------------

Income (loss)
before income
taxes (1,328,949) 63,756 (1,809,521) (227,834)
-------------------------------------------------------------------------

Provision for
(recovery of)
income taxes
Current (4,054) 9,430 8,348 21,834
Future (112,200) 4,230 (122,615) 8,650
-------------------------------------------------------------------------

(116,254) 13,660 (114,267) 30,484
-------------------------------------------------------------------------

Net income (loss)
and comprehensive
income (loss) for
the period (1,212,695) 50,096 (1,695,254) (258,318)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Income (loss)
per share
Basic and diluted (0.06) 0.01 (0.13) (0.03)



Interim Consolidated Statement of Cash Flows
(Unaudited)

For the three-month For the nine-month
period ended September 30, period ended September 30,
-------------------------------------------------------------------------
2009 2008 2009 2008
$ $ $ $
(restated - (restated -
note 3) note 3)

Cash flows from

Operating activities
Net income (loss)
for the year (1,212,695) 50,096 (1,695,254) (258,318)
Items not
affecting cash
Amortization of
property, plant
and equipment 224,487 25,828 382,382 64,923
Amortization of
intangible assets 16,329 11,452 45,903 33,592
Unrealized foreign
exchange loss on
derivative
financial assets 118,512 - 256,704 -
Stock-based
compensation
expense 13,040 - 26,493 -
Share award
expense (note 12) 123,025 - 352,602 -
Future income
taxes (112,200) 4,230 (122,615) 8,650
-------------------------------------------------------------------------

(829,502) 91,606 (753,785) (151,153)
-------------------------------------------------------------------------

Changes in non-cash
working capital
components relating
to operations
Accounts
Receivable (729,748) (1,980,986) 1,210,678 (3,715,708)
Inventories 1,419,548 (742,294) 924,522 (1,052,234)
Prepaid expenses (125,511) (19,757) (201,707) (62,516)
Investment tax
credits (40,000) - 87,508 -
Accounts payable
and accrued
liabilities (1,471,187) (599,769) (1,520,141) 853,869
Deferred
revenues (1,150,771) 1,826,137 (795,446) 1,956,280
Income taxes
payable (10,548) (51,989) (261,063) (39,586)
-------------------------------------------------------------------------

(2,108,217) (1,568,658) (555,649) (2,059,895)
-------------------------------------------------------------------------

(2,937,719) (1,477,052) (1,309,434) (2,211,048)
-------------------------------------------------------------------------

Investing activities
Acquisition of
property, plant
and equipment (24,645) (196,063) (197,919) (227,455)
Acquisition of
intangible assets (4,313) (100,149) (8,911) (153,839)
Transaction costs
paid on acquisition
of a business (47,174) - (1,115,250) -
Cash acquired on
acquisition of
a business - - 5,122,028 -
Loan to a joint
venture (136,980) - (136,980) -
Government
assistance - - (1,250) -
-------------------------------------------------------------------------

(213,112) (296,212) 3,661,718 (381,294)
-------------------------------------------------------------------------

Financing activities
Increase (decrease)
in bank loan (26,114) 1,345,000 (1,131,677) 1,812,728
Increase in long-
term liabilities 76,797 - 101,804 150,000
Repayment of long-
term liabilities (73,199) (51,800) (203,758) (63,400)
Increase in
restricted cash 63,942 - 148,582 155,000
-------------------------------------------------------------------------

41,426 1,293,200 (1,085,049) 2,054,328
-------------------------------------------------------------------------

Increase (decrease)
in cash during
the period (3,109,405) (480,064) 1,267,235 (538,014)

Cash - Beginning
of period 4,927,017 320,843 550,377 378,793
-------------------------------------------------------------------------

Cash - End of
period 1,817,612 (159,221) 1,817,612 (159,221)
-------------------------------------------------------------------------
-------------------------------------------------------------------------


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