16.Financial Instruments

 

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, restricted cash, deposits, accounts payable and accrued liabilities and notes payable. The Company is exposed to risks related to changes in interest rates and management of cash and cash equivalents and short-term investments.

 

Credit risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents and restricted cash. These assets include Canadian dollar and U.S. dollar denominated certificates of deposits, money market accounts and demand deposits. These instruments are maintained at financial institutions in Canada and the United States. Of the amount held on deposit, approximately $0.6 million is covered by the Canada Deposit Insurance Corporation, the Securities Investor Protection Corporation or the United States Federal Deposit Insurance Corporation, leaving approximately $9.9 million at risk at September 30, 2016 should the financial institutions with which these amounts are invested be rendered insolvent. The Company does not consider any of its financial assets to be impaired as of September 30, 2016.

 

All of the Company’s customers have Moody’s Baa or greater ratings and purchase from the Company under contracts for set prices and payment terms.

 

Liquidity risk

 

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due.

 

As at September 30, 2016, the Company’s financial liabilities consisted of trade accounts payable and accrued trade and payroll liabilities of $2.4 million which are due within normal trade terms of generally 30 to 60 days, notes payable which will be payable over periods of 0 to 5.0 years, and asset retirement obligations with estimated completion dates until 2033.

 

In February 2016, the Company raised $5.7 million (net of costs of $766 thousand) from the issuance of 12.9 million shares priced at $0.50 per share pursuant to a bought-deal financing.  The rationale for raising funds was due to a change in the timing of contracted deliveries and payment commitments in 2016.  The Company has relied primarily on cash flow from operations since deliveries from production commenced on a regular basis in 2014.

 

On May 27, 2016, we entered into an At Market Issuance Sales Agreement with MLV & Co. LLC and FBR Capital Markets & Co. under which we may, from time to time, issue and sell common shares at market prices on the NYSE MKT or other U.S. market through the distribution agents for aggregate sales proceeds of up to $10,000,000. Since its inception, we have sold 164,979 common shares under the sales agreement at an average price of $0.65 per share for gross proceeds of $108 thousand. After deducting transaction fees and commissions we received net proceeds of $105 thousand. After deducting all other costs associated with the completion of the agreement and filing the related prospectus supplement, we received $13 thousand.

 

We do not anticipate the need for additional funding in 2016 unless it is advantageous to do so.  The Company may continue to consider additional financing opportunities until it builds sufficient cash reserves to cover the variability of cash receipts that result from a limited number of large sales annually which is typical in this industry.  Although the Company has been successful in raising debt and equity financing in the past there is no assurance that such financing will be available at all or on terms acceptable to us.

 

Sensitivity analysis

 

The Company has completed a sensitivity analysis to estimate the impact that a change in interest rates would have on the net loss of the Company. This sensitivity analysis shows that a change of +/- 100 basis points in interest rate would have a nominal effect on either the three and nine months ended September 30, 2016 or the comparable three and nine months in 2015. The financial position of the Company may vary at the time that a change in interest rates occurs causing the impact on the Company’s results to differ from that shown above.