Bri Chem : Q1 2024 Financial Statement

Interim Condensed Consolidated

Financial Statements (Unaudited)

Q1 2024	March 31, 2024
(Expressed in Canadian Dollars)

Q1 2024

Interim Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income (Canadian dollars)

(unaudited)

			March 31		March 31
for the three months ended	Note		2024		2023
Sales		$	21,370,872	$	27,201,074
Cost of sales			17,545,428		22,660,474
Gross margin			3,825,444		4,540,600
Expenses			1,867,458
Salaries and benefits				1,682,088
Selling, general and administration			1,770,270		1,245,720
Depreciation on property and equipment			332,095		316,617
			3,969,823		3,244,425
Operating earnings			(144,379)		1,296,175
Financing costs			984,860		921,925
Foreign exchange loss			631,037		(2,671)
			1,615,897		919,254
Net (loss) earnings before income taxes			(1,760,276)		376,921
Income tax expense (recovery)			6,768
Current				(13,736)
Deferred			(260,867)		125,414
			(254,099)		111,678
Net (loss) earnings		$	(1,506,177)		265,243
Other comprehensive income (loss)			772,148
Foreign currency translation adjustment				(61,488)
Total comprehensive (loss) income		$	(734,029)	$	203,755
Net (loss) earnings per share	7	$	(0.06)
Basic	$	0.01
Diluted	7	$	(0.06)	$	0.01

The accompanying notes are an integral part to these interim condensed consolidated financial statements

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Q1 2024

Interim Condensed Consolidated Statements of Financial Position
(Canadian dollars)
(unaudited)
	Note		March 31		December 31
			2024		2023
Assets
Current assets			28,982,345
Inventories				28,849,552
Accounts receivable	4	$	21,985,930	$	24,943,378
Prepaid expenses and deposits			778,632		438,764
Non-current assets			51,746,907		54,231,694
		8,935,036
Property and equipment				8,881,526
Deferred tax assets			4,269,137		3,912,145
Right-of-use assets			1,245,955		1,320,491
Other long-term assets			26,606		25,962
		$	66,223,641	$	68,371,818
Liabilities
Current liabilities	5	$	22,663,269
Bank indebtedness	$	23,266,351
Accounts payable and accrued liabilities			13,450,734		14,148,322
Current portion of lease liabilites			694,742		640,179
Current portion of long-term debt	6		221,391		206,819
Income tax payable			51,235		42,778
Non-current liabilities			37,081,371		38,304,449
6		6,667,634
Long-term debt			6,730,847
Lease liabilities			665,910		794,056
			44,414,915		45,829,352
Equity			33,939,875
Share capital				33,939,875
Contributed surplus			4,045,464		4,045,175
Deficit			(14,092,918)		(12,586,741)
Accumulated other comprehensive loss			(2,083,695)		(2,855,843)
			21,808,726		22,542,466
		$	66,223,641	$	68,371,818

The accompanying notes are an integral part to these interim condensed consolidated financial statements

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Q1 2024

Interim Condensed Consolidated Statements of Changes in Equity (Canadian dollars)

(unaudited)

								Accumulated
				Contributed				other
		Share capital			Deficit	comprehensive		Total equity
			surplus			(loss) / income
Balance at January 1, 2023	$	33,939,875	$	4,043,442	$	(13,496,152)	$	(2,081,146)	$	22,406,019
Employee share-based payment options		-		1,733		-		-	$	1,733
Total comprehensive income		-		-		909,411		(774,697)	$	134,714
Balance at December 31, 2023	$	33,939,875	$	4,045,175	$	(12,586,741)	$	(2,855,843)	$	22,542,466
Employee share-based payment options		-				-		-		289
		289
Total comprehensive income (loss)		-		-		(1,506,177)		772,148		(734,029)
Balance at March 31, 2024	$	33,939,875	$	4,045,464	$	(14,092,918)	$	(2,083,695)	$	21,808,726

The accompanying notes are an integral part to these interim condensed consolidated financial statements

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Q1 2024

	Interim Condensed Consolidated Statements of Cash Flows
	(Canadian dollars)
	(unaudited)
				March 31		March 31
	For the three months ended	Note		2024		2023
	Operating activities		$	(1,506,177)
	Net earnings		$	265,243
	Adjustments for:			332,095
	Depreciation on property and equipment				316,617
	Amortization of debt related transaction costs			17,196		12,852
	Foreign exchange loss (gain) on debt			401,379		(14,988)
	Unrealized foreign exchange loss (gain)			24,929		(1,591)
	Interest on debt and finance leases	10		967,664		693,722
	Gain on disposal of equipment			-		(11,815)
	Stock-based compensation			289		722
	Tax expense (recovery)			(348,535)		124,050
	Change in non-cash working capital	10		1,786,552		1,320,471
	Total cash provided by operating activities			1,675,392		2,705,283
	Financing activities			(770,314)
	Repayment on bank indebtedness				(1,896,101)
	Interest paid on debt and finance leases			(678,824)		(491,612)
	Repayment of obligations under finance lease			(70,525)		(142,255)
	Repayment of long-term debt			(53,669)		(51,826)
	Total cash (used in) financing activities			(1,573,332)		(2,581,794)
	Investing activities			-
	Proceeds on sale of property and equipment				11,815
	Purchases of property and equipment			(102,060)		(135,304)
	Total cash (used in) investing activities			(102,060)		(123,489)
	Net change in cash and cash equivalents			-		-
	Cash and cash equivalents, beginning of the period			-		-
	Cash and cash equivalents, end of the period		$	-	$	-

The accompanying notes are an integral part to these interim condensed consolidated financial statements

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Q1 2024

1. DESCRIPTION OF BUSINESS

Bri-Chem Corp. ("the Company" or "Bri-Chem") is an independent wholesale supplier of drilling fluids and chemicals for the oil and gas industry operating from owned or leased warehouses located throughout Canada and the United States. Bri-Chem Corp. was incorporated under the laws of the Province of Alberta, Canada and its head office is in Acheson, Alberta, Canada. Its registered and primary place of business is 27075 Acheson Road, Acheson, Alberta T7X 6B1.

Weather conditions can materially impact the sale of the Company's products and services, particularly in its Canadian divisions during spring break-up. Additionally, many exploration and production areas in the northern Western Canadian Sedimentary Basin are accessible only in winter months when the ground is frozen hard enough to support the weight of heavy equipment. The timing of freeze-up and spring break-up affects the ability to move equipment in and out of these areas. As a result, late March through May is traditionally the Company's slowest period.

2. BASIS OF PRESENTATION

1. Statement of Compliance

These unaudited interim condensed consolidated financial statements have been prepared using accounting policies consistent with International Financial Reporting Standards ("IFRS") and in accordance with International Accounting Standard ("IAS") 34, "Interim Financial Reporting" as issued by the International Accounting Standards Board. The unaudited interim condensed consolidated financial statements do not include all the information required for full annual financial statements and should be read in conjunction with the audited annual consolidated financial statements of the Company for the year ended December 31, 2023 and notes thereto as filed on SEDAR at www.sedar.com. However, selected notes are included that are significant to understanding the Company's financial position and performance since the last annual consolidated financial statements.

These unaudited interim condensed financial statements were approved for issuance by Bri-Chem's Board of Directors on May 9, 2024, and are presented in Canadian dollars, which is Bri-Chem's functional currency.

1. Principles of Consolidation

The financial statements of the Company consolidate the accounts of Bri-Chem and its subsidiaries which are entities over which the Company has control. Control exists when the Company has the power, directly or indirectly, to direct the relevant activities of an entity to obtain benefit from its activities. Inter-company transactions, balances and unrealized gains and losses from inter-company transactions are eliminated on consolidation.

1. Going Concern

These interim condensed consolidated financial statements were prepared on a going concern basis which contemplates the realization of assets and satisfaction of liabilities in the normal course of business for the foreseeable future. For the 3 months ended March 31, 2024, the Company realized a net loss of $1,506,177 (March 31, 2023 - net earnings of $265,243) and accumulated deficit and other comprehensive loss of $16,176,613 (March 31, 2023 - $15,373,548).

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Q1 2024

2. BASIS OF PRESENTATION (CONT'D)

1. Going Concern (Cont'd)

In preparing the financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the company, or cease operations, or has no realistic alternative but to do so.

The Company's ability to continue as a going concern is dependent on its ability to access it's lending facilities, generate future net profit, and realize cash from operating activities. As of March 31, 2024, the Company was not in compliance with the monthly fixed charge coverage ratio under the ABL facility described in Note 5. This has triggered an increase in the availability block from $2.0m to $2.5.m and gives the lender the option to demand repayment. The ABL facility is due for renewal on October 31, 2024. The Company's ability to continue as a going concern could be impacted if the Company is unable to secure a renewal or obtain a similar facility from another lender. Management is currently in discussions with the lender to obtain a waiver for March 31, 2024 and potential amendments to future covenants, as well as to renew the facilities in advance of expiry. These financial statements do not reflect the adjustments and classifications to assets, liabilities, revenues, and expenses that would be necessary if the Company were unable to continue as a going concern. Such adjustments could be material.

3. SUMMARY OF MATERIAL ACCOUNTING POLICIES

The accounting policies followed by the Company are set out in Note 2 to the audited financial statements for the fiscal year ended December 31, 2023, have been consistently followed in preparation of these interim condensed consolidated financial statements.

RECENT PRONOUNCEMENTS NOT YET EFFECTIVE AND THAT HAVE NOT BEEN ADOPTED EARLY

Certain new standards, interpretations, amendments, and improvements to existing standards were issued by the IASB or IFRS Interpretations Committee ("IFRIC") that are not yet effective. The standards and amendments issued that are applicable to the Company are as follows:

Amendments to IAS 21 - Lack of Exchangeability

The amendments to IAS 21 provide additional guidance on when a currency is exchangeable and on how to determine the exchange rate when it is not. The amendments also require the disclosure of additional information when a currency is not considered exchangeable. The amendments are applied prospectively for annual periods beginning on or after 1 January 2025, with early application permitted. No significant impact to the Company's financial statements is expected.

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Q1 2024

3. SUMMARY OF MATERIAL ACCOUNTING POLICIES (CONT'D)

Implementation of IFRS 18 - Presentation and Disclosure of Financial Statements

The introduction of IFRS 18 will provide all entities applying IFRS with more guidance on the presentation and disclosure of information in general purpose financial statements. The new standard will clarify guidance on how to present and disclose information that faithfully represents an entity's assets, liabilities, equity, revenue and expenses. The new standards are applied retrospectively for annual periods beginning on or after 1 January 2027, with early adoption permitted provided that this fact is disclosed. The Corporation is currently assessing the expected impact of this standard.

Implementation of IFRS S1 - General Requirements for Disclosure of Sustainability-related Financial Information - and IFRS S2 - Climate-related Disclosures

The adoption of IFRS S1 and S2 will introduce new requirements surrounding sustainability and climate- related disclosures for annual reporting purposes. The Canadian Sustainability Standards Board proposed Canadian-specific modifications to the standards issued by the International Sustainability Standards Board in June 2023. The Canadian specific versions of IFRS S1 and S2 are expected to be available for voluntary adoption starting January 1, 2025. The Canadian Securities Administrators have not yet confirmed whether the new standards will be mandatory for Canadian reporting issuers. The Corporation is currently assessing the expected impact of adopting these standards.

4. ACCOUNTS RECEIVABLE

Accounts receivable recognized in the interim condensed consolidated statements of financial position are as follows:

		March 31		December 31
		2024		2023
Trade accounts receivable	$	22,846,793	$	25,348,774
Allowance for doubtful accounts		(1,306,463)		(696,637)
Trade accounts receivable, net		21,540,330		24,652,137
Other receivables		445,600		291,241
Accounts receivable	$	21,985,930	$	24,943,378
The change in the allowance for doubtful accounts is as follows:
		March 31		December 31
		2024		2023
Balance, beginning of year	$	696,637	$	1,031,090
Bad debts		754,471		244,981
Receivables written off		(144,645)		(249,545)
Recovery of bad debts		-		(329,889)
Balance, end of quarter	$	1,306,463	$	696,637

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Q1 2024

4. ACCOUNTS RECEIVABLE (CONT'D)

The Company pledged its accounts receivables with a carrying amount of $15,873,905 (December 31, 2023 - $17,872,824) as collateral for the ABL Facility described in Note 5.

5. BANK INDEBTEDNESS

		March 31		December 31
		2024		2023
ABL Facility	$	18,896,019	$	22,157,164
BCAP Loan		4,398,148		4,571,759
Cash and cash equivalents		(630,898)		(3,462,572)
	$	22,663,269	$	23,266,351

Bank indebtedness relates to borrowings on the Company's BCAP Loan and ABL Facility with Canadian Imperial Bank of Commerce ("CIBC") as well as cash and cash equivalents held with an affiliate bank, CIBC Bank USA.

The BCAP Loan is backed by the Canadian Government with 80% of the principal having been guaranteed by The Business Development Bank of Canada. The BCAP Loan bears interest at a rate of 2.25% above CIBC's prime lending rate. The term of the BCAP Loan is amortized over 10 years from the agreement date of July 16, 2020, with interest only payable for the first 12 months.

The Company amended its ABL Facility agreement on December 16, 2022, increasing the borrowing availability from $25,000,000 to $37,500,000. The borrowing base block of $3,000,000 was removed from the agreement. The agreement includes a fixed charge coverage ratio covenant of no less than 1.0 to be tested monthly on a 12 month rolling basis. The agreement matures on October 31, 2024. In addition, the interest rate will be determined on a tiered system based on the ratio of the average consecutive five day total excess availability to the average daily borrowing base, as outlined in the table below:

	Ratio of the Average Daily Total	BA Borrowing or	Canadian Prime Rate Loan or
Tier	Excess Availability to the Average	SOFR Loan	Base Rate Loan Applicable
Daily Borrowing Base (shown as a	Applicable
	Margin
	percentage)	Margin
Tier 1	> 20%	2.00%	0.50%
Tier 2	< 20%	2.25%	0.75%

Transaction costs of $20,000 were incurred as part of this amendment and are being amortized over the term of the agreement.

On December 20, 2023, the Company amended it's ABL Facility agreement to implement a $2.0M availability block on the borrowing base. A new trigger clause has been included in the amendment whereby if the fixed charge covenant ratio is ever less than 0.9 as determined on the basis of the certificates delivered by the Company, the greater of $2.0M and 10% of the current borrowing base will apply as the availability block.

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Q1 2024

5. BANK INDEBTEDNESS (CONT'D)

As of March 31, 2024, the Company was not in compliance with its fixed charge coverage ratio covenant, tested monthly through the ABL facility. Management is presently in negotiations with the lender to adjust the covenant structure of the loan facility.

6.	LONG-TERM DEBT
			March 31		December 31
			2024		2023
Canadian Western Bank Facility 20 year, $6M term loan, bearing an interest rate
of 5.61% per annum on a five year term, repayable monthly payments of $41,634.
Loan matures May 1, 2042. Canadian Western Bank 20 year $1.319M term loan,
bearing a fixed interest rate of 6.62% on a two year term. Loan matures Oct 1,	$	6,948,328	$	7,001,997
2042
		59,303
Less: transaction costs			64,331
			6,889,025		6,937,666
Less: current portion		221,391		206,819
		$	6,667,634	$	6,730,847
Changes in financing activities
			March 31		December 31
			2024		2023
Long-term debt balance January 1	$	6,937,666	$	7,123,674
Cash movements
	Debt repayments		(53,669)		(206,116)
	Debt advances		-		-
	Loss on Extinguished Debt		-		-
Non-cash movements
	Amortization of non-cash interest		5,028		20,108
		$	6,889,025	$	6,937,666

Canadian Western Bank

On May 9, 2022, the Company signed an agreement with Canadian Western Bank ("CWB") to refinance its subordinated debt. The financing consists of a $6 million, 20 year fixed term loan and bears a current 5 year fixed interest rate of 5.61% per annum. On October 24, 2022 a second tranche of financing was signed with CWB for the purchase of a warehouse facility, located in Midland Texas, in the amount of $1,319,000. The second tranche financing consists of a 20 year term loan and bears a current 2 year fixed interest rate of 6.62% per annum. This loan is secured by a first demand collateral mortgage over all owned lands and premises; assigned by the Company to CWB of all risk insurance in the amounts and from an insurer acceptable to CWB, on all Company real property, without limitation lands, buildings, fixtures and equipment owned by the Company, showing CWB as first loss payee. The CWB Term Loan includes a tangible net worth covenant of $9,295,000 and a fixed charge coverage ratio covenant of no less than 1.10, both tested annually. Transaction costs of $91,794 were incurred as part of the refinancing, and are being amortized over the term of the agreement.

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