NOTES  TO CONSOLIDATED FINANCIAL STATEMENTS 21. FINANCIAL INSTRUMENTS (CONTINUED) A) CREDIT RISK ACCOUNTS RECEIVABLE CASH AND CASH EQUIVALENTS B) LIQUIDITY RISK The fair value of the CAAP loan and the repayable research funding are not materially different from their carrying amounts as funding received has been discounted using an estimate of a market rate of interest and is being accreted back to its nominal amount. The royalty financial liability was estimated using a discount rate that results from the estimated future repayment of that obligation. As there has been no significant change in estimated future repayments, and as the estimated discount rate also approximates the Company’s estimated cost of capital for similar borrowing arrangements, management believes the carrying amount of this obligation does not differ significantly from its fair value. The Company has exposure to credit, liquidity, and market risk as follows: The Company makes sales to customers that are well-established and well-financed within their respective industries. Based on previous experience the counterparties had zero default rates and management views this risk as minimal. Approximately 97% of accounts receivable are due from four customers at December 31, 2012 and all accounts receivable are current. These main customers present good credit quality and historically have a high quality credit rating. The Company has cash and cash equivalents in the amount of $273,106 at December 31, 2012 and mitigates its exposure to credit risk on its cash balances by maintaining its bank accounts with Canadian Chartered Banks and investing in low risk, high liquidity investments. The Company received $750,000 under a capital expenditure grant agreement and has presented this amount as deferred revenue and considers it restricted cash as it can be spent only for qualified expenditures. During the year ended December 31, 2012, the Company has expended $41,223 of this grant. The balance of this grant being $708,777 is presented as deferred revenue and restricted cash and cash equivalents on the balance sheet. There are no past due or impaired financial assets. The maximum exposure to credit risk is the carrying amount of the Company’s accounts receivable, cash and cash equivalents and restricted cash and cash equivalents. The Company does not hold any collateral as security. Liquidity risk relates to the risk that the Company will encounter difficulty in meeting its financial obligations. Under the renewed agreement, the long-term debt matures in January 2018. The Company may be exposed to liquidity risks if it is unable to collect its trade accounts receivable balances in a timely manner, which could in turn impact the Company’s long-term ability to meet commitments under its current facilities. In order to manage this liquidity risk, the Company regularly reviews its aged accounts receivable listing to ensure prompt collections. The Company regularly reviews its cash availability and whenever conditions permit, the excess cash is deposited in short-term interest bearing instruments to generate revenue while maintaining liquidity. There is no assurance that the Company will obtain sufficient funding to execute its strategic business plan. 52 CEAPRO Annual Report 2012