NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
December 31, 2013 and 2012
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1.
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Nature of operations and going concern
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Intercept Energy Services Inc. (“Intercept Energy” or the “Company” or the “Corporation”) is an oil and gas service company whose primary business is providing an innovative and proprietary technology that heats water used in the fracturing process by exploration and production companies operating in Canada and the United States. These services are designed to enhance safety, increase efficiency and results in lower costs. The address of the Company’s registered office is 600-666 Burrard Street, Vancouver BC V6C 3P6.
These consolidated financial statements have been prepared on the assumption that the Company will continue as a going concern, meaning it will continue in operation for the foreseeable future and will be able to realize assets and discharge liabilities in the ordinary course of operations. These financial statements do not give effect to any adjustments which would be necessary should the Company be unable to continue as a going concern and thus be required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts different from those reflected in these financial statements.
The Company has a working capital deficiency of $3,182,848 at December 31, 2013, is out of covenant with its finance lease obligations, incurred a net loss for the year ended December 31, 2013 of $3,033,981 and as of that date has a deficit of $18,398,509. These conditions cast significant and substantial doubt on the Company’s going concern assumption. The Company’s continuation as a “going concern” is dependent upon its ability to achieve profitable operations, upon the continued financial support of its shareholders and upon its ability to obtain additional financing or equity. While the Company has been successful in securing financings in the past, there is no assurance that it will be able to do so in the future. Accordingly, these financial statements do not give effect to adjustments, if any, that would be necessary should the Company be unable to continue as a going concern. Such adjustments could be material.
The consolidated financial statements were authorized for issue on May 14, 2014 by the Board of Directors of the Company.
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2.
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Significant accounting policies
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Statement of compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board.
The consolidated financial statements have been prepared on a historical cost basis, except for financial instruments classified at fair value through profit and loss, which are stated at their fair value. In addition, these consolidated financial statements have been prepared using the accrual basis of accounting except for cash flow information.
These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Company obtains control, and continue to be consolidated until the date that such control ceases. The parent controls a subsidiary if it is exposed or has rights, to variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary.
The consolidated financial statements include, on a consolidated basis, the assets, liabilities, revenues and expenses of the Company, and its wholly-owned subsidiary, 1503826 Alberta Ltd., from the date of acquisition on March 20, 2012 (note 4).
All inter-company balances and transactions, including unrealized income and expenses arising from inter-company transactions, are eliminated on consolidation.
Significant accounting judgments, estimates and assumptions
The preparation of the Company’s consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Estimates and assumptions are continuously evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. However, actual outcomes can differ from these estimates.
The areas which require management to make significant judgments, estimates and assumptions in determining carrying values include:
Intercept Energy Services Inc. (formerly known as Global Green Matrix)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
December 31, 2013 and 2012
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2.
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Significant accounting policies (cont’d)
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Judgments
Going concern
As disclosed in Note 1, these financial statements have been prepared in accordance with IFRS on a going concern basis, which assumes the realization of assets and discharge of liabilities in the normal course of business within the foreseeable future. Management uses judgment to assess the Company’s ability to continue as a going concern and the existence of conditions that cast doubt upon the going concern assumption.
It is management’s assessment that the going concern assumption is appropriate based on the following events discussed in (Note 25):
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On April 29, 2014 the Company entered into a loan agreement with an arm’s length third party lender. Pursuant to the loan agreement, the lender has agreed to make revolving credit loans to the Company in the principal amount of up to $1,000,000, of which $608,000 had been advanced as at December 31, 2013 and is included in loans and borrowings, and $328,500 was advanced subsequent to the year end. The amount of the loan is unsecured and bears interest at the rate of 12% per annum. The term of the agreement is for two years and provides that at any time after July 29, 2014, the lender is entitled to demand repayment of the whole or any portion of the outstanding amount of the loan. The proceeds from the loan will be used to retire accounts payable. In consideration for the lender agreeing to provide the loan, the Company has issued 900,000 common shares at a deemed price of $0.05 per share, subject to final approval of the TSX Venture Exchange. The Bonus Shares will be subject to a hold period that expires on August 30, 2014.
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On February 28, 2014, the Company entered into a lease arrangement to lease a truck and heating unit for 50% of the operating income of the unit. The term of the arrangement is indefinite. The entity which owns this truck is controlled by a person who was appointed Director of the Company subsequent to the year end.
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Collectability of Accounts Receivable
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In considering the collectability of accounts receivable, taken into account is the legal obligation for payment by the customer, as well as the financial capacity of the customer to fund its obligation to the Corporation.
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Leases
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Management uses judgment in determining whether a lease is a finance lease arrangement that transfers substantially all the risks and rewards of ownership
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Contingencies
Management uses judgment to assess the existence of contingencies. By their nature, contingencies will only be resolved when one or more future events occur or fail to occur. Management also uses judgment to assess the likelihood of the occurrence of one or more future events.
Estimates
Equipment
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The cost less the residual value of each item of equipment is depreciated over its useful economic life. Depreciation is charged over the estimated life of the individual asset. Depreciation commences when assets are available for use. The assets’ useful lives and methods of depreciation are reviewed and adjusted if appropriate at each fiscal year end.
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Significant judgment is involved in the determination of useful life and residual values for the computation of depreciation and no assurance can be given that the actual useful lives or residual values will not differ significantly from current assumptions.
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Impairment
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Intangible assets and equipment are tested for impairment if there is an indication of impairment. The carrying value of equipment and intangible assets is reviewed each reporting period to determine whether there is any indication of impairment. If the carrying amount of an asset exceeds its recoverable amount, the asset is impaired and an impairment loss is recognized in profit or loss. The assessment of fair values less costs of disposal or value in use, including those of the cash-generating units for purposes of testing intangible assets require the use of estimates and assumptions for recoverable production, long-term commodity prices, discount rates, future capital requirements and operating performance. Changes in any of the assumptions or estimates used in determining the fair value of the assets could impact the impairment analysis.
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Intercept Energy Services Inc. (formerly known as Global Green Matrix)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
December 31, 2013 and 2012
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2.
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Significant accounting policies (cont’d)
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Calculation of Share-based Compensation
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The amount expensed for share-based compensation is based on the application of the Black-Scholes Option Pricing Model, which is highly dependent on the expected volatility of the Company’s share price and the expected life of the options. The Company used an expected volatility rate for its shares based on historical stock trading data adjusted for future expectations; actual volatility may be significantly different. While the estimate of share-based compensation can have a material impact on the operating results reported by the Company, it is a non-cash charge and as such has no impact on the Company’s cash position or future cash flows.
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Royalty obligation
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The Company has a royalty obligation liability. To estimate the fair value of the obligation, the Company makes estimates of future cash flows and discounts those cash flows at an estimated prevailing market rate of interest for a similar instrument. Management updates the estimated future cash flows by estimating future operating hours, revenues, future equipment purchases and other items required under the royalty agreement at each reporting date to assess whether the value of obligation should be adjusted. The effects of any change in the obligation are recognized in profit or loss in the current period.
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Convertible debentures
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The determination of the fair value of the liability component of the convertible debentures requires management to make estimates regarding the interest rate that the Company would have obtained for a similar secured loan without a conversion feature. Management takes into consideration the valuation of both components, historical data regarding issuances of warrants and the proceeds received upon issuance of the convertible debentures to determine the inputs used in the valuation models and the resulting fair value for each instrument.
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Derivative liability
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The Company has a derivative liability embedded in its convertible debenture. To estimate the fair value of the derivative liability, the Company makes estimates of future cash flows and discounts those cash flows at an estimated discount rate. Management updates the estimated future cash flows by estimating future operating hours, revenues, operating costs, future equipment purchases and other items required under the royalty agreement at each reporting date to assess whether the value of derivative liability should be adjusted. The effects of any change in the obligation are recognized in profit or loss in the current period.
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SIGNIFICANT ACCOUNTING POLICIES
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Foreign currency translation
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The Company’s reporting currency and the functional currency is the Canadian dollar. The functional currency determinations were conducted by considering the primary economic environment that the entities operate in.
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Transactions in foreign currencies are translated at the exchange rate in effect at the date of the transaction. Foreign currency denominated monetary assets and liabilities are translated to their Canadian dollar equivalents using foreign exchange rates prevailing at the financial position reporting date. Exchange gains or losses arising on foreign currency translation are reflected in profit or loss for the period.
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Intangible assets are recorded at cost. Intangible assets assessed by the Company with finite useful lives are amortized on a systematic basis over their useful lives. The amortization period and amortization method for an intangible asset with a finite useful life reflects the pattern in which the assets’ future economic benefits are expected to be consumed. Where the pattern cannot be reliably determined, the straight-line method is used. The amortization period and method is reviewed at least at each financial year end.
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Equipment
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Equipment is carried at cost, less accumulated depreciation and accumulated impairment losses.
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The cost of an item consists of the purchase price, any costs directly attributable to bringing the asset to the location and condition necessary for its intended use and an initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.
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Depreciation is provided at rates calculated to write off the cost of equipment, less the estimated residual value over the useful life, using the straight line method over seven years for rental equipment and five years for vehicles. These useful life estimates were revised in the third quarter of 2013 prospectively from previously using the declining balance method at various rates ranging from 20% - 30% per annum This change in estimate decreased depreciation expense by approximately $49,000 in 2013.
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Intercept Energy Services Inc. (formerly known as Global Green Matrix)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
December 31, 2013 and 2012
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2.
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Significant accounting policies (cont’d)
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An item is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on disposal of the asset, determined as the difference between the net disposal proceeds and the carrying amount of the asset, is recognized in profit or loss in the consolidated statements of comprehensive loss.
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Where an item of equipment comprises major components with different useful lives, the components are accounted for as separate items of equipment. Expenditures incurred to replace a component of an item of equipment that is accounted for separately, including major inspection and overhaul expenditures are capitalized.
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At the end of each reporting period the carrying amounts of the Company’s non-financial assets are reviewed to determine whether there is any indication that those assets are impaired. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment, if any. The recoverable amount is the higher of fair value less costs of disposal and value in use. Fair value is determined as the amount that would be obtained from the sale of the asset in an arm’s length transaction between knowledgeable and willing parties. In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount and the impairment loss is recognized in profit or loss. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash generating unit to which the asset belongs.
Where an impairment subsequently reverses, the carrying amount of the asset (or cash generating unit) is increased to the revised estimate and its recoverable amount, but to an amount that does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash generating unit) in prior years. A reversal of an impairment loss is recognized immediately in profit or loss.
Assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment.
Provisions
Provisions are recognized when the Company has a present obligation (legal or constructive) that has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation. Provisions for environmental restoration, legal claims, onerous leases and other onerous commitments are recognized at the best estimate of the expenditure required to settle the Company's liability.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money if material and the risk specific to the obligation. The increase in the provision due to passage of time is recognized as a finance cost.
Business combinations
Business combinations are accounted for by applying the acquisition method, whereby assets obtained, liabilities incurred or assumed, and equity instruments issued by the Company in exchange for control of the acquired business are measured at fair value at the date of acquisition. The acquired business’ identifiable assets, liabilities and contingent liabilities that meet the recognition under IFRS 3,
Business Combinations
are recognized at their fair values at the acquisition date, except for non-current assets which are classified as held-for-sale in accordance with IFRS 5
, Non-Current Assets Held for Sale and Discontinued Operations
, and are recognized and measured at fair value, less costs to sell.
To the extent the fair value of consideration paid exceeds the fair value of the net identifiable tangible and intangible assets, goodwill is recognized. To the extent the fair value of consideration paid is less than the fair value of net identifiable tangible and intangible assets, the difference is recognized in profit or loss immediately.
Acquisition costs associated with a business combination are expensed in the period incurred.
When purchase consideration that is contingent on a future event is granted in an acquisition the initial cost of the acquisition includes an estimate of the fair value of the amounts to be paid in the future. Subsequent changes to the fair value of contingent consideration are recorded in the statement of net loss.
Intercept Energy Services Inc. (formerly known as Global Green Matrix)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
December 31, 2013 and 2012
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2.
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Significant accounting policies (cont’d)
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Leases
Leases entered into by the Company in which substantially all of the benefits and risks of ownership are transferred to the Company are recorded as finance leases. Upon initial recognition, the lease asset and obligation is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. The discount rate used in calculating the present value of the minimum lease payments is the interest rate implicit in the lease, if this is practicable to determine. If not, the incremental borrowing rate is used. Subsequent to initial recognition, the assets are depreciated over the shorter of the lease term and their useful lives, unless it is reasonably certain that the Company will obtain ownership by the end of the lease terms. Any initial direct costs of the lessee are added to the amount recognized as an asset. All other leases are classified as operating leases and leasing costs are on a straight line basis over the term of the lease. Lease inducements received by the Company are deferred and depreciated on a straight-line basis over the term of the lease as a reduction in rental expense.
Share capital
The Company’s common shares and share warrants are classified as equity instruments.
Incremental costs directly attributable to the issue of new shares or options are charged directly to share capital.
Share-based compensation
The Company issues equity settled share based awards to eligible executive officers and directors, employees and consultants under a share option plan. The fair value of options granted is recognized as a share-based compensation expense with a corresponding increase in contributed surplus. An individual is classified as an employee when the individual is an employee for legal or tax purposes (direct employee) or provides services similar to those performed by a direct employee. Consideration paid on the exercise of stock options is credited to share capital and the fair value of the options is reclassified from contributed surplus to share capital. The fair value is measured at grant date and each tranche is recognized over the period during which the options vest. The fair value of the options granted is measured using the Black-Scholes option pricing model taking into account the terms and conditions upon which the options were granted. At each financial position reporting date, the amount recognized as an expense is adjusted to reflect the number of stock options that are expected to vest.
Where equity instruments are granted to employees, they are recorded at the fair value of the equity instrument granted at the grant date. The grant date fair value is recognized in the statement of profit or loss over the vesting period, described as the period during which all the vesting conditions are to be satisfied.
Where equity instruments are granted to non-employees, they are recorded at the fair value of the goods or services received in the profit or loss, unless they are related to the issuance of shares. Amounts related to the issuance of shares are recorded as a reduction of share capital.
When the value of goods or services received in exchange for the share-based payment cannot be reliably estimated, the fair value is measured by use of a valuation model. The expected life used in the model is adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations.
Convertible debentures
The Company’s convertible debentures are segregated into their debt and equity elements at the date of issue, based on the residual value method whereby the fair value of the debt component is measured first with the residual value being allocated to the conversion feature. The debt element of the instrument is classified as a liability, and recorded at the present value of the Company’s obligation to make future interest payments in cash, and settle the redemption value of the instrument in cash or in a variable number of shares. The carrying value of the debt element is accreted to the original face value of the instrument, over its deemed life, using the effective interest method. The convertible debentures are subsequently recorded at amortized cost at each reporting date, using the effective interest method. The royalty obligation associated with the debentures is carried at fair value with adjustments to the value being recorded through the profit and loss statement on balance sheet dates.
Financial instruments
a) Financial assets
All financial assets are initially recorded at fair value and designated upon inception into one of the following four categories: fair value through profit or loss (“FVTPL”), loans and receivables, held-to-maturity investments, available-for-sale.
Intercept Energy Services Inc. (formerly known as Global Green Matrix)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
December 31, 2013 and 2012
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2.
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Significant accounting policies (cont’d)
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Financial assets classified as FVTPL are measured at fair value with unrealized gains and losses recognized through profit and loss.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortized cost. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets. The Company’s cash, trade and other receivables and loans receivable are classified as loans and receivables.
Held-to-maturity investments are non-derivative financial assets that have fixed maturities and fixed or determinable payments, and it is the Company’s intention to hold these investments to maturity. They are subsequently measured at amortized cost. Held-to-maturity investments are included in non-current assets, except for those which are expected to mature within 12 months after the end of the reporting period. The Company does not hold any held to maturity investments.
Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale or are not suitable to be classified as financial assets at fair value through profit or loss, loans and receivables or held-to-maturity investments and are subsequently measured at fair value. These are included in current assets. Unrealized gains and losses are recognized in other comprehensive income, except for impairment losses and foreign exchange gains and losses. The Company does not hold any available-for-sale financial assets.
At each reporting date, the Company assesses whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or group of financial assets is deemed to be impaired, if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset and that event has an impact on the estimated future cash flows of the financial asset or the group of financial assets.
b) Financial liabilities
All financial liabilities are initially recorded at fair value and designated upon inception as FVTPL or other financial liabilities.
Financial liabilities classified as other financial liabilities are initially recognized at fair value less directly attributable transaction costs. After initial recognition, other financial liabilities are subsequently measured at amortized cost using the effective interest rate method. The effective interest rate method is a method of calculating the amortized cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period. The Company’s trade and other payables, loans and notes payable and convertible debentures are classified as other financial liabilities.
Financial liabilities classified as FVTPL include financial liabilities held for trading and financial liabilities designated upon initial recognition as FVTPL. Derivatives, including separated embedded derivatives are also classified as held for trading and recognized at fair value with changes in fair value recognized in earnings unless they are designated as effective hedging instruments. Fair value changes on financial liabilities classified as FVTPL are recognized in profit and loss. The Company’s royalty obligation and derivative liability have been classified as FVTPL.
Revenue recognition
The Company is an oil and gas service company whose primary business is providing an innovative and proprietary technology that heats water used in the fracturing process by exploration and production companies operating in Canada and the United States. These services are designed to enhance safety, increase efficiency and results in lower costs. Revenue is earned from the rental of equipment and related technology. Revenue is earned as the equipment and technology are used by the Company's customers. Revenue is measured at the fair value of the consideration received or receivable, excluding sales taxes or duty, and billed following the month in which it is earned.
Loss per share
The Company presents basic loss per share for its common shares, calculated by dividing the loss attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the year. Diluted loss per share reflects the potential dilution that could occur if the Company’s convertible securities and convertible debentures were converted to common shares. Diluted loss per share is calculated by adjusting the profit or loss attributable to common shareholders and the weighted average number of common shares outstanding for the effect of all dilutive potential common shares. When the Company is in a net loss position the conversion of convertible debentures is considered to be anti-dilutive.
Intercept Energy Services Inc. (formerly known as Global Green Matrix)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
December 31, 2013 and 2012
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2.
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Significant accounting policies (cont’d)
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Comprehensive income (loss)
Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss) and represents the change in shareholders’ equity which results from transactions and events from sources other than the Company’s shareholders. For the years presented, comprehensive loss was the same as net loss.
Income taxes
Income tax expense comprises current and deferred tax. Income tax is recognized in profit or loss except to the extent that it relates to items recognized directly in equity, in which case the tax expense is also recognized directly in equity.
Current tax is the expected tax payable or receivable on the local taxable income or loss for the year, using local tax rates enacted or substantively enacted at the reporting date, and includes any adjustments to tax payable or receivable in respect of previous years.
Deferred income taxes are recorded using the liability method whereby deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax is not recognized for temporary differences which arise on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting, nor taxable profit or loss.
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
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3.
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New standards, amendments and interpretations
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The following new Standards were issued by the IASB, and are effective for annual periods beginning on or after January 1, 2013. The Company retrospectively adopted these standards effective January 1, 2013 with no significant impact to its consolidated financial statements.
New standards adopted
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i)
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Consolidated Financial Statements
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IFRS 10 Consolidated Financial Statements (“IFRS 10”) replaces IAS 27 Consolidated and Separate Financial Statements, and SIC 12 Consolidation – Special Purpose Entities. The portion of IAS 27 that deals with separate financial statements will remain. IFRS 10 changes the definition of control, such that the same consolidation criteria will apply to all entities. The revised definition focuses on the need to have both “power” and “variable returns” for control to be present. Power is the current ability to direct the activities that significantly influence returns. Variable returns can be positive, negative or both. IFRS 10 requires continuous assessment of control of an investee based on changes in facts and circumstances.
IFRS 11 Joint Arrangements (“IFRS 11”) will replace IAS 31 Interests in Joint Ventures, and SIC 13 Jointly Controlled Entities – Non-monetary Contributions by Venturers. IFRS 11 defines a joint arrangement as an arrangement where two or more parties contractually agree to share control. Joint control exists only when the decisions about activities that significantly affect the returns of an arrangement require the unanimous consent of the parties sharing control. The focus is not on the legal structure of joint arrangements, but rather on how the rights and obligations are shared by the parties to the joint arrangement. IFRS 11 eliminates the existing policy choice of proportionate consolidation for jointly controlled entities and now requires equity method accounting. In addition, the Standard categorizes joint arrangements as either joint operations or joint ventures.
Intercept Energy Services Inc. (formerly known as Global Green Matrix)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
December 31, 2013 and 2012
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New standards, amendments and interpretations (cont’d)
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iii)
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Disclosure of Interests in Other Entities
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IFRS 12 Disclosure of Interests in Other Entities (“IFRS 12”) will replace the disclosure requirements currently found in IAS 28 Investment in Associates, and is the new Standard for disclosure requirements for all forms of interests in other entities, including subsidiaries, joint arrangements, associates and unconsolidated structured entities, including information about the significant judgments and assumptions that it has made in determining whether it has control, joint control or significant influence in another entity. IFRS 12 sets out the required disclosures for entities reporting under IFRS 10 and IFRS 11.
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iv)
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Separate Financial Statements
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The new IAS 27 Separate Financial Statements (“IAS 27”) has been updated to require an entity presenting separate financial statements to account for those investments at cost or in accordance with IFRS 9 Financial Instruments. The new IAS 27 excludes the guidance on the preparation and presentation of consolidated financial statements for a group of entities under the control of a parent, which is within the scope of the current IAS 27 Consolidated and Separate Financial Statements, and is replaced by IFRS 10.
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v)
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Investments in Associates and Joint Ventures
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The new IAS 28 Investments in Associates and Joint Ventures (“IAS 28”) has been updated and it is to be applied by all entities that are investors with joint control of, or significant influence over, an investee. The scope of the current IAS 28 Investments in Associates does not include joint ventures.
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vi)
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IFRS 13 Fair Value Measurement (“IFRS 13”)
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IFRS 13 was issued by the IASB in May 2011, and is effective for annual periods beginning on or after January 1, 2013.. IFRS 13 was issued to remedy the inconsistencies in the requirements for measuring fair value and for disclosing information about fair value measurement in various current IFRSs. IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, i.e. an exit price.
New standard not yet adopted
The Company has reviewed new and revised accounting pronouncements that have been issued but are not yet effective
As of January 1, 2014, the Company will be required to adopt amendments to IAS 36,
"Impairment of Assets"
. The amendments reduce the circumstances in which the recoverable amount of CGUs is required to be disclosed and clarifies the disclosures required when an impairment loss has been recognized or reversed in the period.
As of January 1, 2014, the Company will be required to adopt IFRS Interpretations Committee ("IFRIC") 21 "Levies". IFRIC 21 clarifies that an entity recognizes a liability for a levy when the activity that triggers payment, as identified in the relevant legislation, occurs.
IFRS 9 will replace the guidance of IAS 39, "Financial Instruments : Recognition and Measurement.", This standard estimates the existing IAS 39 categories of held to maturity, available-for-sale and loans receivable. Financial assets will be classified into one of two categories: amortized cost or fair value. The extent of the impact of the adoption of IFRS 9 has not yet been determined.
The Company is currently evaluating the impact of adoption of these amendments and interpretations and the effect on Company's financial statements has not yet been determined.
Intercept Energy Services Inc. (formerly known as Global Green Matrix)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
December 31, 2013 and 2012
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4.
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Acquisition of Intercept Rentals
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On March 20, 2012, the Company acquired all of the issued and outstanding shares of 1503826 Alberta Ltd., carrying on business as "Intercept Rentals", from arm's length third parties pursuant to a share purchase agreement. Intercept Rentals provides equipment to support the oil industry with products that focus on efficiency as well as safety for the workers and a healthier environment.
The purchase was satisfied by the issuance of 12 million common shares of the Company. As the fair value of the shares was $0.08015 (determined by level 3 input) the value of the purchase was recorded as $961,843. As required by the purchase agreement, the Company’s common shares were held in escrow pursuant to the terms of a voluntary share escrow agreement and were released, as to 1/3 of such amount, on the 4, 8 and 12 month anniversaries of the closing date. Additional consideration included a 10 % royalty on the gross revenues from the operation of the frac water heating technology for a period of 10 years, granted to the former shareholders of Intercept Rentals or its nominees. This royalty obligation represents a contingent liability and was measured at fair value.
The acquisition of Intercept Rentals was considered strategically important as the Company intended to expand into the oil and gas industry specifically focusing on the expanding fracking operations. Intercept Rentals new heating technology called "BIG HEAT", is a patent pending propane powered Frac Water Heating System that provides a safer and more efficient heating methods used today by the oil & gas companies and their fracking operations. This acquisition will allow the Company to participate in the growing fracking industry and also leverage the patent pending technology.
Due to lack of IFRS specific data prior to the acquisition of Intercept Rental, pro-forma profit or loss of the combined entity for any periods prior to acquisition cannot be determined reliably.
Net identifiable assets acquired and liabilities assumed (restated note 23)
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Trade and other receivables
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance lease obligations
|
|
|
|
|
Deferred gain on sale leaseback
|
|
|
|
|
Total net identifiable assets
|
|
|
|
|
|
|
|
|
|
|
Royalty liability granted (note 11)
|
|
|
|
|
Total consideration transferred
|
|
|
|
|
Less: value of identifiable assets
|
|
|
|
|
|
|
|
|
|
|
5. Trade and other receivables and loans receivable
|
|
|
December 31, 2013
|
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company had an unsecured loan receivable of $15,000 that bore interest of 6% annually. The loan is was repayable, principal and interest, in full, ten days after the Company provides the borrower with a written notice of demand. At December 31, 2013 the loan receivable in the amount of $19,380 was determined to be uncollectible and was written off.
In addition $133,963 relating to non-current portion of loans receivable at December 31, 2013 was also written off as it was determined to be uncollectable.
Intercept Energy Services Inc. (formerly known as Global Green Matrix)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
December 31, 2013 and 2012
|
6.
|
Equipment (Restated (Note 23))
|
|
|
|
Computer
|
|
|
Rental Equipment
|
|
|
Vehicles
|
|
|
Leasehold
Improvements
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2011
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
On acquisition of Intercept Rentals
|
|
|
592
|
|
|
|
489,616
|
|
|
|
31,633
|
|
|
|
-
|
|
|
|
521,841
|
|
|
|
|
|
1,796
|
|
|
|
1,158,992
|
|
|
|
146,424
|
|
|
|
1,488
|
|
|
|
1,308,700
|
|
Balance, December 31, 2012
|
|
$
|
2,388
|
|
|
$
|
1,648,608
|
|
|
$
|
178,057
|
|
|
$
|
1,488
|
|
|
$
|
1,830,541
|
|
|
|
|
|
4,197
|
|
|
|
2,394,651
|
|
|
|
628,093
|
|
|
|
-
|
|
|
|
3,026,941
|
|
Balance December 31, 2013
|
|
$
|
6,585
|
|
|
$
|
4,043,259
|
|
|
$
|
806,150
|
|
|
$
|
1,488
|
|
|
$
|
4,857,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2011
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
-
|
|
|
|
309,174
|
|
|
|
-
|
|
|
|
-
|
|
|
|
309,174
|
|
|
|
|
|
349
|
|
|
|
142,816
|
|
|
|
24,560
|
|
|
|
232
|
|
|
|
167,957
|
|
Balance, December 31, 2012
|
|
|
349
|
|
|
|
451,990
|
|
|
|
24,560
|
|
|
|
232
|
|
|
|
477,131
|
|
|
|
|
|
1,130
|
|
|
|
294,625
|
|
|
|
70,230
|
|
|
|
298
|
|
|
|
366,283
|
|
Balance December 31, 2013
|
|
$
|
1,479
|
|
|
$
|
746,615
|
|
|
$
|
94,790
|
|
|
$
|
530
|
|
|
$
|
843,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2012
|
|
$
|
2,039
|
|
|
$
|
1,196,618
|
|
|
$
|
153,497
|
|
|
$
|
1,256
|
|
|
$
|
1,353,410
|
|
Balance December 31, 2013
|
|
$
|
5,106
|
|
|
$
|
3,296,644
|
|
|
$
|
711,360
|
|
|
$
|
958
|
|
|
$
|
4,014,068
|
|
In fiscal 2010, the Company entered into three sales leaseback arrangements. The lease amounts exceeded the original cost of the items by $20,872. This gain was deferred and is recognized into income over the terms of the related leases. For the year ended December 31, 2013, $1,070 (2012 - $5,352) was recognized in income.
As at December 31, 2013, net book value of rental equipment under finance lease obligations is $3,040,445 (2012 - $nil).
|
7.
|
Licenses and technology asset (Restated (Note 23))
|
Licenses
|
|
|
Powermaster
|
|
|
DryVac
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2012 before undernoted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2012 before undernoted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercept Energy Services Inc. (formerly known as Global Green Matrix)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
December 31, 2013 and 2012
|
7.
|
Licenses and technology asset (Restated (Note 23)) (cont’d)
|
|
|
1)
|
On December 10, 2011, the Company signed a definitive Distribution/Dealer License Agreement with Inergy Plus Technologies Inc. (“Inergy Plus”). The agreement provides the Company with the exclusive right to utilize Inergy Plus’ technologies for Canada including the right to license, sell, operate and provide warranty services. The primary technology is called the ReCyclone Advanced Gyroscopic Mill, also called the “PowerMaster.” The license to the Company includes all current and future applications for the Power Master as registered with the United States Patent and Trademark office and all present and future intellectual property rights related to Inergy’s technologies during the 10 year term of the agreement. At December 31, 2012 the Company did not expect to derive any further economic benefit from the Power Master license and decided to write off the net book value of $101,555 to nil.
|
In 2013 the Company entered into an agreement with Inergy Plus to end and transfer its exclusive license agreement. The Company then transferred the exclusive license to 0 Waste 2 Energy Canada Ltd. (“0 Waste”) and 0 Waste agreed to pay the Company the sum of $150,000 payable in instalments on the sale of the first three units of the PowerMaster in the licensed area. The $150,000 represents contingent consideration and the Company cannot reasonably determine when or if the sale of the three units will occur. The contingent consideration has not been recognized.
|
|
2)
|
On December 23, 2011, the Company signed a Distribution Agreement with I-Des Inc. and DryVac Services Canada Inc. (“I-Des and DryVac”). The Distribution Agreement gives the Company the exclusive right to exploit the technologies developed and owned by I-Des and DryVac for a period of 2 years for all of Canada, in return for a onetime payment in the amount of $250,000. The Distribution Agreement allows for renewal of the term for an additional two (2) years provided that 60 days notice is given by the Company and that it is not in default with any terms of the agreement, one of which states that the Company will sell a minimum of four (4) DryVac units per year.
|
On January 23, 2012, the Company signed an amendment to the Distribution Agreement to obtain additional rights to sell DryVac units in the State of Utah, USA. In consideration of the additional territory, the Company paid an additional distributor fee to I-Des and DryVac in the amount of US$150,000.
As the timing of the expected economic benefits of the licenses could not be reasonably determined, the licenses were amortized on a straight line basis determined by their terms.
As at December 31, 2012, the Company evaluated the business relationship with I-Des and DryVac and due to the lack of sale potential for these technologies in Canada, the Company decided to write off the net book of these licences of $392,253 to $nil.
Technology asset
|
|
|
Big Heat
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2012 before undernoted
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2012 before undernoted
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3)
|
On March 20, 2012, the Company acquired all of the issued and outstanding shares of 1503826 Alberta Ltd. carrying on the business as “Intercept Rentals” from arm’s length third parities pursuant to a share purchase agreement. The purchase price included a technology asset valued at $2,056,729 related to “BIG HEAT” technology. As at December 31, 2012 the Company tested the carrying value of the technology asset and recorded a full impairment of this asset.
|
Intercept Energy Services Inc. (formerly known as Global Green Matrix)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
December 31, 2013 and 2012
|
8.
|
Trade and other payables
|
|
|
|
December 31, 2013
|
|
|
December 31, 2012
|
|
|
|
|
|
|
|
Restated (Note 23)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
December 31, 2012
|
|
|
|
|
|
|
|
Restated (Note 23)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible debentures payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The automotive loan payable is repayable in monthly instalments of $857, non-interest bearing, maturing September 10, 2014, secured by the related automotive equipment having a net book value of $15,250 (2012-$24,223).
The loans payable are unsecured, non-interest bearing and have no fixed terms of repayment.
The following table summarises the accounting for Convertible Debentures:
|
|
|
Debenture
|
|
Balance, December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
Extinguishment of debenture
|
|
|
|
|
Issuance of Debenture, March 22, 2013
|
|
|
|
|
Derivative liability component
|
|
|
|
|
Issuance of Debenture, April 15, 2013
|
|
|
|
|
Derivative liability component
|
|
|
|
|
Unamortized portion of cost of issuance
|
|
|
|
|
Accretion of liability component
|
|
|
|
|
Balance, December 31, 2013
|
|
|
|
|
Intercept Energy Services Inc. (formerly known as Global Green Matrix)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
December 31, 2013 and 2012
|
9.
|
Loans and borrowings (cont’d)
|
The Company had unconverted convertible debentures of $85,000 bearing interest at 10% per annum and were due on December 15, 2004. The debentures were convertible at the option of the debenture holder into fully paid, non-assessable common shares without par value in the capital of the Company at a conversion price in the range of $2.25 to $3.00 per common share. This amount is not expected to be repaid or converted to equity and currently the Company has the intention and the legal ability to extinguish this liability. As such, the Company recognized a gain of $161,500 in the profit and loss for the current year.
During the year ended December 31, 2013, the Company completed first and second tranche of a private placement for the sale of convertible debentures for gross proceeds of $445,000. The proceeds were used to pay for half of a heating unit. The debenture bears interest at a rate of 12 % per annum, payable semi-annually from the closing date and also contains an override royalty of 2 % per annum on the gross profits earned by up to 5 Big Heat units, payable semi-annually from the closing date. The debentures are convertible into common shares of the Company at a price of $0.50 for the first twelve months; $1.00 for the second twelve months; and $1.50 after the first twenty-four months commencing on the closing dates of two separate closing dates being March 22, 2013 for $245,000 and April 15, 2013 for $200,000. These debentures are secured by equipment with a net book value of $445,000 and are subordinated to the finance leases (Note 10).
The debentures are convertible into common shares of the Company at a price of $0.50 for the first twelve months; $1.00 for the second twelve months; and $1.50 after the first twenty-four months commencing on the closing dates of two separate closing dates being March 22, 2013 for $245,000 and April 15, 2013 for $200,000.
The debentures have been classified as debt, net of unamortized issue costs and net of the value of the derivative liability (see Note 12). The value of the conversion feature after allocation of the derivative liability amount was not material and hence equity component of the convertible debenture has not been set up. The balance liability portion net of derivative liability is measured at amortized cost and will accrete up to the principal balance at maturity using the effective interest rate method. The accretion and the interest paid are expensed as finance expense in the statement of net loss and comprehensive loss. The value of the conversion feature was determined at the time of issue as the difference between the principle value of the debentures and the discounted cash flows assuming a rate of 20%.
Issue costs are amortized into income over the life of the debentures using the effective interest rate method.
For the year ended December 31, 2013 $47,967 (2012 - $nil) in interest expense related to these debentures has been recognized under finance expense in the statement of net loss and comprehensive loss.
As at December 31, 2013 there is $18,187 in accrued interest payable related to the above debentures (2012 - $nil).
|
10.
|
Finance lease obligations
|
Finance lease obligations relate to rental equipment used in the Company’s rental operations. Collateral consists of the related equipment and a general security agreement covering all present and after acquired equipment including intangibles, and the proceeds of sale on the secured equipment.
During the year the Company entered into finance leases with a major Canadian bank in order to fund purchases of rental equipment including vehicles to move heating units to client sites. These leases bear interest at rates varying from 5.08% to 5.57%, and are secured by the fact that the bank retains title to the assets until the leases are paid over three years at which time title passes to the Company for one dollar per unit. As part of this arrangement the Company committed to a credit facility of $2 million under which the finance leases were drawn. Under this facility the Company was required to maintain a debt service coverage ratio of 1.25 to 1. The Company has not maintained the ratio and the bank has the right under the agreement to demand immediate payment under the leases. The leases are therefore classified as current liabilities. The bank has not demanded payment and there is no correspondence between the Company and the Bank regarding this default.
Intercept Energy Services Inc. (formerly known as Global Green Matrix)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
December 31, 2013 and 2012
|
10.
|
Finance lease obligations (cont’d)
|
The principal value of the finance lease obligations have been classified as current on the statement of financial position but if the leases were not demanded then, expected repayments are as follows:
|
December 31, 2013
|
|
Future minimum lease payments 2013
|
|
|
Interest 2013
|
|
|
Principal value of minimum lease payments 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Between one and five years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
Future minimum lease payments 2012
|
|
|
Interest 2012
|
|
|
Principal value of minimum lease payments 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Between one and five years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.
|
Royalty obligation (Restated (Note 23))
|
On March 20, 2012 the Company entered into a royalty agreement on acquisition of Intercept Rentals (Note 4). As per this agreement 10% royalty on the gross revenues from the operation of the frac water heating technology is payable for period of ten years, at which time it expires. The royalty obligation is measured in the statement of financial position at the fair value of the expenditure expected to be required to settle the financial liability using a post-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The change in fair value arising from a reassessment of the estimated liability is recognized in the statement of net loss and comprehensive loss as royalty expense.
|
Royalty obligation and expense
|
|
Royalty obligation balance
|
|
|
Royalty expense
|
|
Balance, December 31, 2011
|
|
|
|
|
|
|
|
|
On acquisition of Intercept Rentals (Note 4)
|
|
|
|
|
|
|
|
|
Royalty expense (Note 21 (b))
|
|
|
|
|
|
|
|
|
Royalty obligation expense
|
|
|
|
|
|
|
|
|
Fair value adjustment of liability
|
|
|
|
|
|
|
|
|
Balance, December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty expense (Note 21 (b))
|
|
|
|
|
|
|
|
|
Royalty obligation expense
|
|
|
|
|
|
|
|
|
Fair value adjustment of liability
|
|
|
|
|
|
|
|
|
Balance, December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
If the discount rate used in calculating the fair value of royalty obligations change by 1% the royalty obligation liability at year end will change by $81,235.
Intercept Energy Services Inc. (formerly known as Global Green Matrix)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
December 31, 2013 and 2012
The Company issued convertible debentures in 2013 for total proceeds of $445,000 in two tranches; March 22, 2013 - $225,000 and April 15, 2013 - $200,000 (Note 9). As part of this convertible debenture issue the Company agreed to pay an override royalty of 2 % per annum on the gross profits earned by up to 5 Big Heat units, payable semi-annually from the closing date. This liability is treated as a derivative liability on the statement of financial position. The derivate liability is measured in the statement of financial position at the fair value of the expenditure expected to be required to settle the financial liability using a post-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The change in fair value arising from a reassessment of the estimated liability is recognized in the statement of net loss and comprehensive loss as gain (loss) on derivative liability. The following table summarizes the derivative liability recognized in the net loss and comprehensive loss and in the statement of financial position:
|
Derivative liability and gain (loss) on derivative liability
|
|
Derivative liability balance
|
|
|
Gain (loss) on derivative liability
|
|
Balance, December 31, 2012
|
|
|
|
|
|
|
|
|
On issue of $245,00 convertible debenture (Note 9)
|
|
|
|
|
|
|
|
|
On issue of $200,000 convertible debenture (Note 9)
|
|
|
|
|
|
|
|
|
Fair value adjustment of liability
|
|
|
|
|
|
|
|
|
Balance, December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
If the discount rate used in calculating the fair value of the derivative liability change by 1% the derivative liability at the year- end will change by $2,475.
|
13.
|
Share capital (Restated (Note 23))
|
Authorized share capital
Unlimited number of common voting shares and unlimited number of preferred non-voting shares with no par value.
Issued share capital
At December 31, 2013, there were 109,289,795 (December 31, 2012 - 80,966,462) issued and fully paid common shares.
Please refer to the Consolidated Statements of Changes in Equity for a summary of changes in share capital and contributed surplus for the years ended December 31, 2013 and 2012.
Private placements and other share issuance
For the year ended December 31, 2013
|
|
1)
|
On December 3, 2013 the Company completed the second tranche of the non-brokered placement for shares offered at $0.075 per share. A total of 773,333 shares were issued representing gross proceeds of $58,000.
|
|
|
2)
|
On October 8, 2013, the Company completed a non-brokered private placement for a total of 7,983,333 Shares. The offering consisted of common shares in the Company offered at a price of $0.075 per share. The Company received gross proceeds of $598,750. The Company further paid $58,750 for Finders fees.
|
|
|
3)
|
On November 11, 2013 the Company entered into an agreement with Energy Manufacturing LLC whereby they were issued 5,500,000 common shares of IES for a deemed value of $412,500 which was the trading price and as agreed with the seller towards the purchase price of an additional Water Heating Unit.
|
|
|
4)
|
On September 13, 2013 the Company issued 300,000 common shares on exercise of options by an insider for $0.10 per share for gross proceeds of $30,000. The fair value transferred from contributed surplus to share capital was $24,000.
|
|
|
5)
|
On May 31, 2013 the Company completed the first tranche of a non-brokered private placement for shares offered at a price of $0.075 per share. A total of 8,000,000 shares were issued representing gross proceeds of $600,000.
|
On June 28, 2013 the Company completed the second tranche of the non-brokered private placement for shares offered at a price of $0.075 per share. A total of 2,366,667 shares representing gross proceeds of $177,500 were issued. Gross proceeds for both tranches was $777,500.
The Company paid finder’s fees of $77,750 cash in relation to the $777,500 raised for the placement.
Intercept Energy Services Inc. (formerly known as Global Green Matrix)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
December 31, 2013 and 2012
|
13.
|
Share capital (Restated (Note 23))
|
|
|
6)
|
On February 15, 2013, the Company completed a non-brokered private placement for a total of 3,400,000 units representing gross proceeds of $170,000. Each unit consists of one share and one share purchase warrant. Each warrant entitled the holder to purchase one additional common share for a period of 2 years from the closing date at an exercise price of $0.15 per share.
|
The Company also paid a finder’s fee of $12,500 cash and issued 250,000 finder’s warrants. Each finder's warrant is exercisable at $0.15 into one common share of the Company for 2 years from the issuance date.
The fair value of the finders’ warrants, being $10,783 was determined using the Black-Scholes option pricing model weighted average assumptions with a volatility of 141%, average risk free interest rate of 1.13%, expected life of 2 years and a dividend rate of 0%.
Based on the relative fair value of each of the components, the sale of these units during the year has resulted in $57,200 of the net proceeds being allocated to contributed surplus in respect to the warrants.
For the year ended December 31, 2012 (Restated (Note 23))
|
|
1)
|
On February 8, 2012, the Company completed private placement financing of 13,143,765 units for gross proceeds of $1,182,939. Each unit consists of one common share of the Company and one common share purchase warrant. Each warrant entitled the holder to purchase one additional common share for a period of 30 months from the closing date at an exercise price of $0.18 per share.
|
|
|
The Company paid finder's fees and commissions totalling $63,590 cash and 706,564 finder's warrants. Each finder's warrant is exercisable at $0.18 into one common share of the Company for 30 months from the issuance date.
|
|
|
The fair value of the finders’ warrants, being $51,257 was determined using the Black-Scholes option pricing model weighted average assumptions with a volatility of 159%, average risk free interest rate of 1.09%, expected life of 1.5 years and a dividend rate of 0%.
|
|
|
2)
|
As described in Note 4, the Company acquired Intercept Rentals for a purchase price of $961,843, which was satisfied by the issuance of 12 million common shares of the Company with a fair value of $0.08015 per share (determined by level 3 input). As required by the purchase agreement, the Company’s common shares will be held in escrow pursuant to the terms of a voluntary share escrow agreement and released, as to 1/3 of such amount, on the 4, 8 and 12 month anniversaries of the closing date.
|
|
|
3)
|
On November 6, 2012, the Company completed a private placement financing of 5,440,000 units at a price of $0.05 per unit for gross proceeds of $272,000. Each unit consists of one share and one share purchase warrant, with each warrant exercisable to acquire an additional share for a period of 2 years from the closing date at a price of $0.15.
|
|
|
The Company paid finder's fees and commissions totaling $12,500 cash and 250,000 finder's warrants. Each finder's warrant is exercisable at $0.15 into one common share of the Company for 2 years from the issuance date.
|
|
|
The fair value of the finders’ warrants, being $8,219 was determined using the Black-Scholes option pricing model weighted average assumptions with a volatility of 145%, average risk free interest rate of 1.07%, expected life of 2 years and a dividend rate of 0%.
|
|
|
4)
|
On December 27, 2012, the Company completed a private placement financing of 5,000,000 units at a price of $0.05 per unit for gross proceeds of $250,000. Each unit consists of one share and one share purchase warrant, with each warrant exercisable to acquire an additional share for a period of 2 years from the closing date at a price of $0.15.
|
|
|
The Company paid finder's fees and commissions totaling $22,500 cash and 450,000 finder's warrants. Each finder's warrant is exercisable at $0.15 into one common share of the Company for 2 years from the issuance date.
|
|
|
The fair value of the finders’ warrants, being $8,645 was determined using the Black-Scholes option pricing model weighted average assumptions with a volatility of 120%, average risk free interest rate of 1.12%, expected life of 2 years and a dividend rate of 0%.
|
Based on the relative fair value of each of the components, the sale of these units during the year has resulted in $708,316 of the net proceeds being allocated to contributed surplus in respect to the warrants.
Intercept Energy Services Inc. (formerly known as Global Green Matrix)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
December 31, 2013 and 2012
|
13.
|
Share capital (Restated (Note 23)) (cont’d)
|
For the year ended December 31, 2011
On December 5, 2011, the Company completed a non-brokered private placement consisting of 20,000,000 common shares at a price of $0.05 per share for gross proceeds of $1,000,000. All securities issued in connection with the private placement are subject to a four-month hold period. Finders received aggregate fees in the amount of $57,138.
On December 12, 2011, the Company settled outstanding indebtedness of $232,855 through the issuance of common shares at deemed prices of $0.05625 per common share. The outstanding debt is comprised of management fees and consulting fees. A total of 4,139,644 common shares were issued pursuant to the debt settlement.
Warrants
As at December 31, 2013 and December 31, 2012, the following share purchase warrants were outstanding (and include the finders warrants in note 14):
|
Expiry Date
|
|
Exercise Price
|
|
|
December 31, 2013
|
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
(1)
During the year ended December 31, 2013, the Company announced that 15,398,333 common share purchase warrants, exercisable at $0.20 per share, and having an expiry date of July 13, 2013, have been extended and will expire on July 13, 2015. During the year ended December 31, 2012, the Company announced that 15,398,333 common share purchase warrants, exercisable at $0.20 per share, and having an expiry date of July 13, 2012, were extended and would have expired on July 13, 2013.
The Company has issued warrants as compensation for arranging financing
|
|
|
Number of warrants
|
|
|
Weighted average price when granted
|
|
|
Weighted average exercise price
|
|
Balance outstanding, December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance outstanding, December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance outstanding, December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance exercisable, December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance exercisable, December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercept Energy Services Inc. (formerly known as Global Green Matrix)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
December 31, 2013 and 2012
|
15.
|
Share-based compensation
|
Contributed surplus
Contributed surplus relates to stock options, finders warrants and share purchase warrants that have been issued by the Company.
Stock options
The Company follows the policies of the TSX Venture Exchange, under which it is authorized to grant options to executive officers and directors, employees and consultants enabling them to acquire up to 10% of the issued and outstanding common shares of the Company. The exercise price of each option equals the market price of the Company’s common shares as calculated on the date of grant. The options can be granted for a maximum term of 5 years. The vesting period for all options is at the discretion of the board of directors.
Option transactions and the number of options outstanding are summarized as follows:
|
|
|
Number of options
|
|
|
Weighted average market price when granted
|
|
|
Weighted average exercise price
|
|
|
Weighted average share price at date of exercise
|
|
Balance outstanding, December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance outstanding, December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance outstanding, December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance exercisable, December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance exercisable, December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average contractual life, December 31, 2013
|
3.28 years
|
|
Weighted average contractual life, December 31, 2012
|
4.93 years
|
|
Weighted average fair value of options issued, December 31, 2013
|
$0.0691
|
|
Weighted average fair value of options issued, December 31, 2012
|
$0.0669
|
For the year ended December 31, 2013
i) On January 7, 2013, the Company granted 2,600,000 stock options at an exercise price of $0.10 per common share to directors, officers and consultants of the Company. The option grant vested immediately, exercisable until January 7, 2017.
ii) On March 5, 2013, the Company granted 200,000 options at an exercise price of $0.10 per share to a consultant of the Company. The option grant will vest quarterly over 12 months, exercisable until March 5, 2017.
iii) On May 1, 2013 the Company granted 4,400,000 options at an exercise price of $0.10 per share to Directors, officers and consultants of the Company. The option grant vested immediately on date of grant, exercisable until May 1, 2017.
iv) On May 1, 2013, the Company granted 2,275,000 options at an exercise price of $0.10 per share to consultants of the Company. The option grant will vest quarterly over 12 months, exercisable until May 1, 2017.
v) On May 1, 2013, the Company granted 1,200,000 options at an exercise price of $0.10 per share to a consultant of the Company. The option grant will vest quarterly over 24 months, exercisable until May 1, 2017.
vi) On July 1, 2013 the Company granted 400,000 options at an exercise price of $0.10 per share to consultants of the Company which vested immediately on the date of grant, exercisable until July 1, 2018.
vii) On September 13, 2013 300,000 options were exercised at an exercise price of $0.10 of those issued May 1, 2013.
Intercept Energy Services Inc. (formerly known as Global Green Matrix)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
December 31, 2013 and 2012
|
15.
|
Share-based compensation (cont’d)
|
viii) On September 23, 2013 the Company canceled 2,000,000 options granted to a consultant at an exercise price of $0.10 per share. The options were part of the grant made on May 1, 2013 to consultants of the Company.
For the year ended December 31, 2012
On December 5, 2012, the Company granted 500,000 stock options at an exercise price of $0.15 per common share to an employee of the Company, exercisable until December 5, 2017. The options vest annually over 3 years.
The total share-based expense recognized during the year ended December 31, 2013, under the fair value method was $747,338 (2012 - $3,726).
The following weighted average assumptions were used for the Black-Scholes valuation of stock options granted during the year ended December 31, 2013 and 2012:
|
|
|
Year Ended 2013
|
|
|
Year Ended 2012
|
|
|
Year ended 2011
|
|
|
|
|
|
|
|
Restated (Note 23))
|
|
|
|
|
|
|
|
$
|
(3,033,981
|
)
|
|
$
|
(4,133,026
|
)
|
|
$
|
(552,855
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
|
%
|
|
|
25
|
%
|
|
|
26.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax recovery at statutory rates
|
|
$
|
(758,495
|
)
|
|
$
|
(1,033,257
|
)
|
|
$
|
(146,507
|
)
|
|
|
|
|
223,884
|
|
|
|
116,523
|
|
|
|
-
|
|
Impact of deferred income tax rates applied versus current statutory rate
|
|
|
-
|
|
|
|
119,067
|
|
|
|
143,786
|
|
Change in unrecognized assets
|
|
|
534,611
|
|
|
|
797,667
|
|
|
|
2,721
|
|
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
b) The components of the Company's deferred income tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
|
2012
|
|
|
|
|
|
Finance lease obligations
|
|
$
|
227,265
|
|
|
$
|
-
|
|
|
|
-
|
|
Non-capital loss carry forwards
|
|
|
577,261
|
|
|
|
45,172
|
|
|
|
1,877,767
|
|
|
|
|
|
(800,950
|
)
|
|
|
(45,172
|
)
|
|
|
25,833
|
|
|
|
|
|
(3,576
|
)
|
|
|
-
|
|
|
|
(1,913,650
|
)
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
c) Unrecognized deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets have not been recognized in respect to the following items:
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
|
2012
|
|
|
|
2011
|
|
Deductible temporary differences
|
|
$
|
424,570
|
|
|
$
|
24,644
|
|
|
$
|
-
|
|
|
|
|
|
2,419,085
|
|
|
|
2,237,985
|
|
|
|
1,887,754
|
|
|
|
|
$
|
2,843,655
|
|
|
$
|
2,262,629
|
|
|
$
|
1,887,754
|
|
Deferred tax assets have not been recognized in respect of these items because it is not probable that future taxable profit will be available against which the Company can utilize the benefits.
The Company has non-capital losses of approximately $11,500,000 which may be carried forward and applied against taxable income in future years. These losses, if unutilized, will expire through to 2033. The Company has taxable capital losses of approximately $1,060,000 which may be applied in future years against taxable capital gains. The ability to apply these losses has no expiration date.
Intercept Energy Services Inc. (formerly known as Global Green Matrix)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
December 31, 2013 and 2012
|
17.
|
Basic and diluted loss per share (Restated (Note 23))
|
The calculation of basic and diluted loss per share for the year ended December 31, 2013 was based on the loss attributable to common shareholders of $3,033,981 (2012 - $4,133,026) and the weighted average number of common shares outstanding of 92,417,996 (2012 - 68,038,758).
Diluted loss per share did not include the effect of 44,038,663 share purchase warrants and finders warrants, 9,275,000 stock options, and conversion of convertible debentures to 890,000 shares as they were anti-dilutive.
|
18.
|
Related party transactions
|
Key management personnel compensation
|
|
|
Years ended
|
|
|
|
|
December 31,
2013
|
|
|
December 31,
2012
|
|
|
December 31,
2011
|
|
Short-term employee benefits - management
|
|
$
|
192,000
|
|
|
$
|
120,000
|
|
|
$
|
150,000
|
|
Stock based compensation - management
|
|
|
20,717
|
|
|
|
-
|
|
|
|
-
|
|
Stock based compensation - directors
|
|
|
406,217
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
3,800
|
|
|
|
3,800
|
|
|
|
-
|
|
|
|
|
$
|
622,734
|
|
|
$
|
123,800
|
|
|
$
|
150,000
|
|
These transactions are in the normal course of operations and are measured at the amount of consideration established and agreed to by the related parties.
Related party balances
The following amounts due to related party are included in trade and other payables:
|
|
|
December 31,
2013
|
|
|
December 31,
2012
|
|
Due to an officer of the Company
|
|
|
|
|
|
|
|
|
Due to a director of the Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
These amounts are unsecured, non-interest bearing and have no fixed terms of repayment.
|
19.
|
Management of capital
|
The Company manages its capital structure and makes adjustments to it, based on the funds available to the Company, in order to continue the business of the Company. The Board of Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company’s management to sustain future development of the business.
The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern and to maintain a flexible capital structure which optimizes the costs of capital at an acceptable risk. In the management of capital, the Company includes its components of equity. The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Company may attempt to issue new shares or issue debt.
At this stage of the Company’s development, in order to maximize ongoing development efforts, the Company does not pay out dividends. Management reviews its capital management approach on an on-going basis and believes that this approach, given the relative size of the Company, is reasonable.
There were no changes in the Company’s approach to capital management during the year ended December 31, 2013. The Company is not subject to externally imposed capital requirements.
Intercept Energy Services Inc. (formerly known as Global Green Matrix)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
December 31, 2013 and 2012
|
20.
|
Financial risk management
|
IFRS 13,
Fair Value Measurement
, establishes a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:
Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 - inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3 - inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The carrying values of cash, trade and other receivables, loans receivable, trade and other payables, and loans and notes payable approximate their fair values due to their short terms to maturity.
The fair value of finance lease obligations are estimated to approximate their carrying values because the interest rates do not significantly differ from market interest rates (level 2).
The royalty obligation and the derivative liability are carried at fair value (level 3).
The fair value of the convertible debentures are estimated to approximate the current value.
Financial risks
The Company has exposure to the following risks from its use of financial instruments:
Credit risk
The Company's credit risk is primarily attributable to cash, trade and other receivables and loans receivable. The Company has no significant concentration of credit risk arising from operations. Cash consists of chequing account at reputable financial institution, from which management believes the risk of loss to be remote. Federal deposit insurance covers balances up to $100,000 in Canada. Trade and other receivables mainly consist of trade receivables, and amounts due from government agencies. The Company limits its exposure to credit loss for cash by placing its cash with high quality financial institution and for trade and other receivables by standard credit checks. At December 31, 2013, the Company’s exposure to credit risk is minimal. There are no past due or impaired accounts receivable. At December 31, 2013, 94% (2012 - 80%) of the Company's trade accounts receivable was due from 4 (2012 - 2) customers.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company has a planning and budgeting process in place to help determine the funds required to support the Company’s normal operating requirements on an ongoing basis. The Company ensures that there are sufficient funds to meet its short-term business requirements, taking into account its anticipated cash flows from operations and its holdings of cash.
As at December 31, 2013, the Company had a cash balance of $8,845 (December 31, 2012 - $40,887) to settle current liabilities of $ 3,948,257 (December 31, 2012 - $1,396,866).
Historically, the Company's main source of funding has been the issuance of equity securities for cash, primarily through private placements and loans from related and other parties. The Company’s access to financing is always uncertain. There can be no assurance of continued access to significant equity funding.
Current liabilities are payable on demand, convertible debentures have a five year term and finance leases each have a three year term.
Intercept Energy Services Inc. (formerly known as Global Green Matrix)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
December 31, 2013 and 2012
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20.
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Financial risk management (cont'd)
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Market risk
Market risk is the risk of loss that may arise from changes in market factors such as interest rates and foreign exchange rates.
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The Company has cash balances and interest-bearing loans payable. The Company’s loans and notes payable, convertible debentures and finance leases bear interest at fixed interest rates, and as such, the Company is not exposed to interest rate risk on its loans payable.
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The Company does not have any balances denominated in a foreign currency and believes it has no significant foreign currency risk.
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a) The Company has entered into an operating lease commitment exclusive of occupancy costs for premises as follows:
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b)
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During the year ended December 31, 2012, the Company became party to an agreement pay a royalty of 5% of gross sales realized utilizing the technology of the royalty holder, payable monthly. The agreement remains in force while the technology is being used.
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The agreement is an executory contract and therefore all royalty payments under the contract are recognized as they become due.
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22.
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Supplemental disclosure with respect to cash flows
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Year ended
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December 31,
2013
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December 31,
2012
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Cash received for income taxes
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During the year ended December 31, 2013 5,500,000 common shares were issued at $0.075 per share for $412,500 in total as consideration for the purchase of rental equipment. This transaction was excluded from the statement of cash flows.
During 2013, the Company acquired equipment of $2,367,199 through the assumption of finance leases.
Significant non-cash financing and investing transactions during the year ended December 31, 2012 were as follows:
The Company acquired all of the issued and outstanding shares of 1503826 Alberta Ltd., carrying on business as "Intercept Rentals", for a purchase price of $1,620,000, which was satisfied by the issuance of 12 million common shares of the Company with a fair value of $0.08015 per share (Note 4).
Intercept Energy Services Inc. (formerly known as Global Green Matrix)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
December 31, 2013 and 2012
The Company has restated the 2012 financial statements as follows:
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·
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Goodwill
: Goodwill on the acquisition of Intercept Rentals has been restated to $Nil from $1,329,465. Intercept Rentals new heating technology called "BIG HEAT", is a patent pending propane powered Frac Water Heating System that provides a safer and more efficient heating method than the methods used today by the oil & gas companies and their fracking operations. An assessment was made and any excess consideration over the net identifiable assets was concluded to be be the value of the "BIG HEAT" technology and therefore goodwill was restated to $Nil.
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·
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Technology asset
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impairment of technology asset and royalty liability
: Also as a result of this assessment a technology asset of $2,056,729 was recorded along with a royalty liability of $1,674,881 relating to the 10% contingent royalty payable to the former Intercept Rentals shareholders. This contingent consideration was not previously reported (Note 4). Technology asset was fully impaired at December 31, 2012. As at December 31, 2012 the royalty liability was recalculated at $1,713,962 an increase of $39,081(Note 11) that has been included in the consolidated statement of net loss and comprehensive loss for 2012.
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·
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Liability on acquisition of Intercept Rentals
: A liability of $289,400 erroneously recorded in the acquiree’s books as part of the Intercept Rentals acquisition has been reversed effective March 20, 2012.
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Prepaids and deposits, trade and other liabilities and impairment of equipment
: An amount of $149,600 previously reported as prepaid deposit was capitalized to equipment. Also related to this equipment, trade and other payables were increased by $159,574 to correct for previously unrecorded obligations created on the acquisition of this equipment. These two adjustments resulted in increase in equipment by $309,174. At December 31, 2012 this equipment of $309,174 was impaired.
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·
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Share capital and contributed surplus
: Throughout 2012 the Company completed private placement financings of 23,583,765 units for gross proceeds of $1,704,939. Each unit consisted of one share and one share purchase warrant, with each warrant exercisable to acquire an additional share for a period of 18 to 24 months from the closing date at a price from $0.15 to $0.18. Based on the relative fair value of each of the components, the sales of these units during the year has resulted in $708,316 of the net proceeds being allocated to contributed surplus in respect to the warrants. As a result of this share capital has been reduced and contributed surplus has been increased by $708,316 to reflect the warrant portion of the value of these units that was not previously recorded (Note 13).
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·
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Accumulated other comprehensive income ("AOCI")
: Accumulated other comprehensive income (AOCI) of $53,195 has been reclassified to contributed surplus in the opening 2012 balances. This amount was erroneously classified as AOCI when the Company exited the United States and the translation adjustment giving rise to the AOCI was realized.
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The effect of the restatements on the consolidated statements of financial position as at December 31, 2012 is as follows:
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As previously reported
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Adjustments
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As restated
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$
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December 31
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December 31
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2012
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2012
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Loans and borrowings (current portion)
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Accumulated other comprehensive income
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Intercept Energy Services Inc. (formerly known as Global Green Matrix)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
December 31, 2013 and 2012
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23.
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Restatements (cont’d)
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The effect of the restatement on the consolidated statements of net loss and comprehensive loss for the year ended December 31, 2012 is as follows:
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As previously reported
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Adjustments
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As restated
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$
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December 31,
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December 31,
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2012
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2012
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Impairment of technology asset
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Net loss and comprehensive loss for the year
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Basic and diluted loss per common share
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The effect of the restatement on the consolidated statements of cash flows for the year ended December 31, 2012 is as follows:
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As previously reported
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Adjustments
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As restated
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$
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December 31,
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December 31,
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2012
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2012
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Cash flows from operating activities
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Net loss and comprehensive loss for the year
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Impairment of technology asset
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Cash flows from financing activities
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Loans and borrowings (current portion)
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The Company has one operating segment-oilfield services and at December 31, 2013 all of the Company’s activities and assets were in Canada. During the year ended December 31, 2013 92% (2012 - 74%) ) of sales were to 5 (2012 - 3) customers.
On April 29, 2014 the Company entered into a loan agreement with an arm’s length third party lender. Pursuant to the loan agreement, the lender has agreed to make revolving credit loans to the Company in the principal amount of up to $1,000,000, of which $608,000 had been advanced as at December 31, 2013 and is included in loans and borrowings, and $328,500 was advanced subsequent to the year end. The amount of the loan is unsecured and bears interest at the rate of 12% per annum. The term of the agreement is for two years and provides that at any time after July 29, 2014, the lender is entitled to demand repayment of the whole or any portion of the outstanding amount of the loan. The proceeds from the loan will be used to retire accounts payable. In consideration for the lender agreeing to provide the loan, the Company has issued 900,000 common shares at a deemed price of $0.05 per share, subject to final approval of the TSX Venture Exchange. The Bonus Shares will be subject to a hold period that expires on August 30, 2014.
On February 28, 2014, the Company entered into a lease arrangement to lease a truck and heating unit for 50% of the operating income of the unit. The term of the arrangement is indefinite. The entity which owns this truck is controlled by a person who was appointed Director of the Company subsequent to the year end.
On January 1, 2014 the company completed a vertical short-form amalgamation pursuant to the Business Corporations Act (Alberta) with its wholly owned operating subsidiary 1503826 Alberta Ltd. operating as Intercept Rentals