Xebec Adsorption Inc.
TSX : XBC

Xebec Adsorption Inc.

August 12, 2009 17:01 ET

Xebec Announces 2009 Second Quarter Financial Results

BLAINVILLE, QUEBEC--(Marketwire - Aug. 12, 2009) - Xebec Adsorption Inc. (TSX:XBC)

- Transaction Completed with QuestAir Technologies Inc.

- Shanghai Manufacturing Plant Fully Operational

- Improved Cash Position of $5.1 million

Xebec Adsorption Inc. (TSX:XBC) ("Xebec"), the company formed by the merger of QuestAir Technologies Inc. ("QuestAir") and Xebec Adsorption Inc. ("Xebec Adsorption"), today reported its financial results for the three and six-month periods ended June 30, 2009. Unless otherwise stated, all figures in this release are in Canadian dollars.

Highlights

- Transaction with QuestAir completed on June 12, 2009, with net assets acquired of $13.1 million including $5.1 million of additional cash

- For the six-month period ended June 30, 2009, revenue was $9.0 million compared to $6.7 million in the corresponding period of 2008

- Gross margins in the second quarter of 2009 increased to $1.7 million or 39% compared to $1.5 million or 33% in the same period of 2008

- For the three-month period ended June 30, 2009, revenue of $4.3 million compared to $4.7 million in the second quarter of 2008

- Net loss of $677,237 or $0.06 per share compared to net income of $200,724 or $0.02 per share in the second quarter of 2008

"Xebec has successfully completed several milestones," said Kurt Sorschak, President and CEO of Xebec. "Firstly, with the startup of our state-of-the-art manufacturing facilities in Shanghai in the last quarter of 2008, we are already beginning to see significant improvements with respect to efficiencies and gross margins. Secondly, with the closing of the transaction with QuestAir, we have combined our businesses to create a global leader in the renewable energy sector. Finally, with almost $5 million in cash, Xebec is financially positioned to execute its long-term strategic plan."

Financial Results

For the second quarter ended June 30, 2009, total revenues were $4.3 million, which were slightly lower than $4.7 million in the second quarter of 2008. Revenue for the six months ended June 30th was $9.0 million in 2009 compared to $6.7 million in 2008, driven primarily by the Company's sales efforts gaining traction in the world markets.

The total sales order backlog as of June 30, 2009 was approximately $10.6 million.

Net loss was $677,237 or $0.06 per share for the quarter, compared to net income of $200,724 or $0.02 per share in the same period of 2008. Net loss for the half year was $482,559 or $0.05 per share, compared to a net loss of $308,414 or $0.04 per share in the same period of 2008. The net loss for the quarter and the six-month period ended June 30, 2009 includes an amount of $229,579 for non-cash compensation expense related to the performance-based share awards issued with the transaction.

Gross margins increased significantly in the second quarter to $1.7 million or 39%, compared to $1.5 million or 33% in the same period of 2008. The significant improvement in gross margins is a result of synergies realized by manufacturing high quality products at a low cost in China. Gross margins for the six-month period ended June 30, 2009 were $3.5 million or 39%, compared to $2.0 million or 30% in the same period in fiscal 2008.

Selling and administrative expenses were $2.1 million for the second quarter of 2009, compared to $1.1 million for the same period in 2008. Selling and administrative expenses were $3.5 million for the half year ended June 30, 2009, compared to $2.0 million for the same period in 2008. Expenses from our operations in Shanghai, in Burnaby (BC) from June 12 to June 30, 2009 and our share in the joint venture in Singapore also contributed to the increase relative to the corresponding periods of the previous year.

Cash and cash equivalents totalled $4.9 million on June 30, 2009, reflecting the $5.1 million received as part of the transaction completed with QuestAir.

Outlook

Despite the strong financial performance through the first half of fiscal 2009, the Company continues to face challenging conditions in its target product markets as a result of the global economic condition. With the recent commencement of operations in China, the Company is realizing significant cost savings with its state-of-the-art manufacturing facility and increased sales from the Asian region. While interest in the biogas upgrading market remains high, the pace of project development in the biogas market remains slow due to depressed natural gas prices and challenging conditions in the debt market for financing renewable energy projects.

Corporate Developments

On June 12, 2009, Xebec completed the transaction with the shareholders of Vancouver-based QuestAir whereby the parties agreed to combine their businesses to create a global leader in the renewable natural gas and gas purification sectors. Xebec, the merged company, immediately began leveraging the available synergies in gas purification, global distribution and manufacturing to expand its market share in clean energies, such as natural gas dehydration, biogas upgrading and hydrogen purification. Xebec will give special attention to its biogas upgrading capabilities for renewable natural gas, the only carbon neutral fuel for transportation available today. Xebec is also implementing a new information system to increase efficiencies and improve controls across its worldwide operations.

Since June 12, Xebec has been listed on the Toronto Stock Exchange under the symbol "XBC".

2009 Second Quarter Results Available

The complete financial statements, notes to financial statements, and management's discussion and analysis for the three and six-month periods ended June 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 Notice

Xebec will host a conference call to discuss its 2009 second quarter and six-month financial results on Thursday, August 13, 2009 at 11:00 a.m. EST. The dial-in number for the conference call is 1-800-940-2599 (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 #21433099, until August 20, 2009 at midnight.

About Xebec Adsorption Inc.

Xebec specializes in the design and manufacture of cost-effective, environmentally responsible purification, separation, dehydration, and filtration equipment for gases and compressed air. The solutions we provide include natural gas and biogas purification, natural gas dehydration, hydrogen purification for fuel cell and industrial applications, and specialized solutions for other gases. Xebec also offers compressed air treatment solutions. To date, Xebec has supplied more than 8,000 adsorption systems to more than 1,300 customers worldwide. Xebec is headquartered in Blainville, Quebec, Canada and its shares trade on the TSX under the symbol "XBC". More information can be found at www.xebecinc.com.

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 the completion of the transaction, the synergies that can be achieved by the combination of Xebec and QuestAir, and 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 press release. 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
June 30, December 31,
2009 2008
$ $

Assets

Current assets
Cash 4,927,017 550,377
Accounts receivable 4,053,717 4,538,842
Inventories 5,513,669 2,579,877
Prepaid expenses 470,693 221,143
Investment tax credits 131,277 258,785
Derivative financial assets 91,714 229,906
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15,188,087 8,378,930

Property, plant and equipment 2,776,811 1,822,209
Intangible assets 123,343 148,319
Restricted cash 302,537 324,577
Goodwill 5,850,851 -
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24,241,629 10,674,035
-----------------------------------------------------------------------
-----------------------------------------------------------------------

Liabilities

Current liabilities
Bank loan 655,368 1,760,931
Accounts payable and accrued liabilities 5,790,938 4,320,860
Deferred revenues 2,490,278 679,938
Income taxes payable 17,679 268,194
Current portion of obligations under capital
leases 6,627 12,986
Current portion of long-term debt 93,000 217,200
Current portion of subordinated loan 67,704 -
Future income taxes 35,700 99,070
-----------------------------------------------------------------------

9,157,294 7,359,179

Long-term debt 1,899,094 1,874,087
Government assistance 40,833 42,083
Subordinated loan 182,296 250,000
Future income taxes 76,500 23,545
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11,356,017 9,548,894
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Shareholders' Equity

Share capital 12,300,100 300,100

Contributed surplus 243,030 -

Retained earnings 342,482 825,041
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12,885,612 1,125,141
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24,241,629 10,674,035
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CONSOLIDATED STATEMENTS OF INCOME (LOSS)
AND COMPREHENSIVE INCOME (LOSS)
(unaudited)

For the three-month For the six-month
period ended June 30, period ended June 30,
-------------------------------------------------------------------------
2009 2008 2009 2008
$ $ $ $

Revenue 4,303,256 4,699,156 9,010,635 6,720,462

Cost of goods sold 2,629,139 3,150,141 5,523,625 4,704,293
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Gross margin 1,674,117 1,549,015 3,487,010 2,016,169
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Operating
expenses
Selling and
administrative 2,089,720 1,054,500 3,461,567 2,026,595
Financial 46,908 95,536 116,388 182,200
Foreign exchange
loss 213,256 39,953 202,158 37,729
Amortization 105,085 33,053 187,469 61,235
-------------------------------------------------------------------------

2,454,969 1,223,042 3,967,582 2,307,759
-------------------------------------------------------------------------

Income (loss)
before income
taxes (780,852) 325,973 (480,572) (291,590)
-------------------------------------------------------------------------

Provision for
(recovery of)
income taxes
Current (32,598) 92,342 12,402 12,404
Future (71,017) 32,907 (10,415) 4,420
-------------------------------------------------------------------------

(103,615) 125,249 1,987 16,824
-------------------------------------------------------------------------

Net income (loss)
and comprehensive
income (loss)
for the period (677,237) 200,724 (482,559) (308,414)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Income (loss) per
share
Basic and diluted (0.06) 0.02 (0.05) (0.04)

INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)

For the three-month For the six-month
period ended June 30, period ended June 30,
-------------------------------------------------------------------------
2009 2008 2009 2008
$ $ $ $

Cash flows from

Operating
activities
Net income (loss)
for the period (677,237) 200,724 (482,559) (308,414)
Items not affecting
cash
Amortization of
property, plant
and equipment 89,743 21,413 157,895 39,096
Amortization of
intangible assets 15,342 11,640 29,574 22,139
Unrealized foreign
exchange loss on
derivative
financial assets 157,770 - 138,192 -
Stock-based
compensation
expense 243,030 - 243,030 -
Future income
taxes (71,017) 32,907 (10,415) 4,420
-------------------------------------------------------------------------

(242,369) 266,684 75,717 (242,759)
-------------------------------------------------------------------------

Changes in non-cash
working capital
components relating
to operations
Accounts
receivable 521,848 (1,477,697) 1,940,426 (1,732,223)
Inventories (911,948) 104,235 (495,026) (309,940)
Prepaid expenses (158,850) 24,442 (76,196) (42,759)
Investment tax
credits 192,204 - 127,508 -
Accounts payable
and accrued
liabilities 1,596,196 1,457,205 (48,954) 1,650,847
Deferred revenues (9,154) (203,256) 355,325 (112,681)
Income taxes
payable (288,388) 92,342 (250,515) (31,582)
-------------------------------------------------------------------------

941,908 (2,729) 1,552,568 (578,338)
-------------------------------------------------------------------------

699,539 263,955 1,628,285 (821,097)
-------------------------------------------------------------------------

Investing
activities
Acquisition of
property, plant
and equipment (10,277) (6,931) (173,274) (31,392)
Acquisition of
intangible assets - (53,690) (4,598) (53,690)
Transaction costs
paid on
acquisition of
a business (863,888) - (1,068,076) -
Cash acquired on
acquisition of
a business 5,122,028 - 5,122,028 -
Government
assistance - (1,250) (1,250) (2,500)
-------------------------------------------------------------------------

4,247,863 (61,871) 3,874,830 (87,582)
-------------------------------------------------------------------------

Financing
activities
Increase (decrease)
of bank loan (245,533) (96,809) (1,105,563) 467,729
Long-term debt - 150,000 25,007 228,000
Repayment of
long-term debt (54,300) (11,600) (124,200) -
Payment of
obligations under
capital leases (3,211) - (6,359) -
Decrease in
restricted cash 80,316 155,000 84,640 155,000
-------------------------------------------------------------------------

(222,728) 196,591 (1,126,475) 850,729
-------------------------------------------------------------------------

Increase (decrease)
in cash during
the period 4,724,674 398,675 4,376,640 (57,950)

Cash - Beginning
of period 202,343 (77,832) 550,377 378,793
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Cash - End of
period 4,927,017 320,843 4,927,017 320,843
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