ANNUAL INFORMATION FORM – XEBEC ADSORPTION INC. – For ...

Development (for Québec Regions) under the Business and Regional Growth Program
(CED-Business) for the hiring of a market development specialist and the implementation of
Xebec’s marketing strategy in China, Russia, Indonesia, Malaysia, and Australia.
Further details on the terms of these funding awards are presented in the Management
Discussion and Analysis for the year ended December 31, 2010 which is incorporated in this AIF
by reference and which is available on SEDAR at www.sedar.com.
5. RISK FACTORS
Xebec’s ability to generate revenue and profit from its operations is subject to a number of
risks and uncertainties. The risks and uncertainties described below are not the only ones Xebec
faces. Additional risks and uncertainties, including those that Xebec is not aware of now, or that
management may believe are currently not material, may also adversely affect the ability to maintain
a viable business. The risk factors presented below are divided into categories of risks impacting
Xebec’s internal and external environment.
Risk factors related to Xebec’s business
Xebec has a limited operating history and it may be difficult to assess its business and future
prospects.
Xebec’s historical operating data may be of limited value in evaluating Xebec’s future
prospects in light of the Arrangement. Xebec, as a privately-held issuer, commenced operations
in June 2007 following the management buy-out of the assets and business of Xebec Inc., and
since that time, Xebec has been engaged in the development, manufacture, and supply of
compressed air and gas products. For the year ended December 31, 2010, Xebec’s revenues
totaled approximately $13.5 million. For the year ended December 31, 2009, Xebec's revenues
totaled approximately $18.7 million.
Going concern
These consolidated financial statements have been prepared on the basis of accounting
principles applicable to a going concern, which assume realization of assets and discharge of
liabilities in the normal course of business for the foreseeable future. The Company has incurred
an operating loss of $13, 592,711 for the year ended December 31, 2010 and has a deficit of
$19,500,084 as at December 31, 2010. The current financial position indicates that there is
substantial doubt about the Company’s ability to continue as a going concern.
The Company’s ability to continue as a going concern is primarily dependent on its
ability to generate sufficient future cash flows to fund its operations and to settle its obligations
on a timely basis. On November 2, 2010, management concluded a share offering which
provided the Company with gross proceeds of $3,796,754. On March 17, 2011, the Company
signed a license and engineering service agreement amounting to USD$3,250,000 including an
upfront payment of USD$1,750,000. In addition, the Company undertook various initiatives,
such as announcing temporary layoffs, and adopting a restructuring plan to manage its operations
and liquidity risks in light of prevailing economic conditions. There is no assurance that such
efforts will be successful.
- 28 -