Micromem Technologies Inc 6-K, filed Feb 26, 2025
Micromem Technologies Inc (MMTIF)
About this 6-K
Micromem Technologies Inc filed this 6-K on February 26, 2025.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
February 2025
Commission File Number 0-26005
MICROMEM TECHNOLOGIES INC.
121 Richmond Street West, Suite 602, Toronto, ON M5H 2K1
[Indicate by checkmark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.]
Form 20-F [X] Form 40-F [ ]
[Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.]
Yes [ ] No [X]
[If "Yes" is marked, indicate below the file number assigned to the registrant in connection with rule 12g3-2(b): N/A
This report on Form 6-K is hereby incorporated by reference in the registration statement on Form F-3 (Registration No. 333-134309) of Micromem Technologies Inc. and in the prospectus contained therein, and this report on Form 6-K shall be deemed a part of such registration statement from the date on which this report is filed, to the extent not superseded by documents or reports subsequently filed or furnished by Micromem Technologies Inc. under the Securities Act of 1933 or the Securities Exchange Act of 1934.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
MICROMEM TECHNOLOGIES INC. |
|
|
|
By: /s/ Joseph Fuda |
| Date: February 25, 2025 | Name: Joseph Fuda |
|
|
Title: Chief Executive Officer |
Exhibit Index
Micromem Technologies Inc.
Consolidated Financial Statements
For the years ended October 31, 2024, 2023 and 2022
(Expressed in United States Dollars)
Micromem Technologies Inc.
Consolidated Financial Statements
For the years ended October 31, 2024, 2023 and 2022
(Expressed in United States Dollars)
Contents
| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |  |
To the Board of Directors and Shareholders of Micromem Technologies Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial position of Micromem Technologies Inc. (the "Company") as of October 31, 2024 and 2023, and the related consolidated statements of operations and comprehensive loss, changes in shareholders' deficiency, and cash flows for each of the years in the three-year period ended October 31, 2024, and the related notes (collectively referred to as the "consolidated financial statements").
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of October 31, 2024 and 2023, and the results of its consolidated operations and its consolidated cash flows for each of the years in the three-year period ended October 31, 2024, in conformity with IFRS® Accounting Standards as issued by the International Accounting Standards Board.
Material Uncertainty Related to Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses and comprehensive losses, negative cash flows from operations and has a net working capital deficiency which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. This matter is also described in the "Critical Audit Matters" section of our report.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
| MNP LLP | |
| 1 Adelaide Street East, Suite 1900, Toronto ON, M5C 2V9 | 1.877.251.2922 T: 416.596.1711 F: 416.596.7894 |
Going Concern
Critical Audit Matter Description
As described in Note 2, the Company's operations are mainly funded with debt financing, which is dependent upon many external factors and may be difficult to raise when required. The Company may not have sufficient cash to fund its operations, and therefore, will require additional funding, which if not raised, may result in the delay, postponement or curtailment of some or all of its activities. Management has prepared future cash flow forecasts, which involves judgment and estimation of key variables, such as planned capital expenditures, revenue, production volumes and market conditions. Future economic conditions and effects of key events subsequent to the year end, such as debt financing, also impacted management's judgments and estimates. We identified the Company's ability to continue as a going concern as a critical audit matter because auditing the Company's going concern assessment is complex and involves a high degree of auditor judgment to assess the reasonableness of the cash flow forecasts, planned refinancing actions and other assumptions used in the Company's going concern analysis. This matter is also described in the "Material Uncertainty Related to Going Concern" section of our report.
Audit Response
We responded to this matter by performing procedures over management's assessment of the Company's ability to continue as a going concern. Our audit work in relation to this included, but was not restricted to, the following:
• We evaluated the cash flow forecasts prepared by management and evaluated the integrity and arithmetical accuracy of the model.
• We evaluated the key assumptions used in the model to estimate future cash flows for a reasonable period of time, of at least 12 months from the date of the Statement of Financial Position, by comparing assumptions used by management against historical performance, budgets, economic and industry indicators and publicly available information.
• We evaluated the key assumptions pertaining to estimated cash flows from operating activities and expected cash flows from financing activities, comparing these to available market data, underlying agreements, private placement raises and subsequent events thereafter.
• We assessed the adequacy of the going concern disclosures included in Note 2 of the consolidated financial statements and consider these to appropriately reflect the assessments that management has performed.
Valuation of Financial Instruments
Critical Audit Matter Description
As described in Note 11 to the consolidated financial statements, for the year ended October 31, 2024, the Company has various convertible debentures some of which result in the recognition of derivative liabilities or equity components. Management measured the fair value of the embedded derivative liability and the fair value of host loans using valuation techniques that require management to make several assumptions related to the inputs into those models. Auditing management's fair value calculations was challenging due to the complexity of accounting for the instruments, the related valuation models and the inputs into those models, which are highly sensitive to changes, such as volatility, risk free rates, variable conversion price and discount rate.
Audit Response
We responded to this matter by performing procedures over valuation of debt instruments. Our audit work in relation to this included, but was not restricted to:
• We obtained and reviewed management's calculations related to the financial instruments, including the assessment of the conversion features and the valuation methodology.
• We obtained signed copies of all agreements, including renewals, conversions and any new issuances and confirmed the balances and terms for a sample of the financial instruments.
• We obtained support for cash receipts related to a sample of newly issued financial instruments and cash disbursements related to a sample of repayments, and, for a sample of conversions, obtained support such as conversion notices and share issuances as confirmed with the transfer agent.
|
1 Adelaide Street East, Suite 1900, Toronto, Ontario, M5C 2V9 1.877.251.2922 T: 416.596.1711 F: 416.596.7894 MNP.ca |
|
• We involved internal professionals with specialized skills and knowledge to assist in developing an independent implied interest rate range for a similar liability without a convertible feature and to assess the prepayment option embedded in the loans.
• We tested the mathematical accuracy of the valuation model and agreed certain inputs including volatility, risk free rates, variable conversion rates and discount rate to underlying source information.
Chartered Professional Accountants
Licensed Public Accountants
February 25, 2025
Toronto, Canada
We have served as the Company's auditor since 2017
|
1 Adelaide Street East, Suite 1900, Toronto, Ontario, M5C 2V9 1.877.251.2922 T: 416.596.1711 F: 416.596.7894 MNP.ca |
 |
| Micromem Technologies Inc. |
| Consolidated Statements of Financial Position |
| As at October 31, 2024 and October 31, 2023 |
| (Expressed in United States dollars) |
| As at | As at | |||||||
| Notes | October 31, 2024 | October 31, 2023 | ||||||
| Assets | ||||||||
| Current | ||||||||
| Cash | 23 | $ | 125,705 | $ | 31,584 | |||
| Prepaid expenses and other receivables | 21 (d) | 141,736 | 103,999 | |||||
| Total current assets | 267,441 | 135,583 | ||||||
| Property and equipment | 7 | 15,272 | 32,767 | |||||
| Total assets | $ | 282,713 | $ | 168,350 | ||||
| Liabilities | ||||||||
| Current | ||||||||
| Trade payables and other liabilities | 20(b), 23(d) | $ | 336,575 | $ | 209,285 | |||
| Deposit liability | 21(d) | 63,000 | 63,000 | |||||
| Current lease liability | 10 | 11,980 | 17,036 | |||||
| Debenture payable | 8 | 37,389 | 37,509 | |||||
| Convertible debentures | 11,23 | 3,853,273 | 3,548,059 | |||||
| Derivative liabilities | 11,23 | 1,570,675 | 1,079,393 | |||||
| Warrant liabilities | 12 | 1,087,997 | - | |||||
| Total current liabilities | 6,960,889 | 4,954,282 | ||||||
| Non-current lease liability | 10 | - | 12,018 | |||||
| Long-term loan | 9 | 44,806 | 43,254 | |||||
| Total liabilities | 7,005,695 | 5,009,554 | ||||||
| Shareholders' Deficiency | ||||||||
| Share capital | 13 | 91,678,279 | 90,471,712 | |||||
| Contributed surplus | 27,288,183 | 24,868,843 | ||||||
| Equity component of convertible debentures | 11 | 696,671 | 3,220,473 | |||||
| Accumulated deficit | (126,386,115 | ) | (123,402,232 | ) | ||||
| Total shareholders' deficiency | (6,722,982 | ) | (4,841,204 | ) | ||||
| Total liabilities and shareholders' deficiency | $ | 282,713 | $ | 168,350 | ||||
| Going concern | 2 | |||||||
| Commitments and Contingencies | 21 | |||||||
| Subsequent events | 24 |
The accompanying notes are an integral part of these consolidated financial statements.
| Approved on behalf of the Board of Directors: | ||
| "Joseph Fuda" | "Alex Dey" | |
| Director | Director |
| Micromem Technologies Inc. |
| Consolidated Statements of Operations and Comprehensive Loss |
| For the years ended October 31, 2024, 2023, and 2022 |
| (Expressed in United States dollars) |
| Years ended October 31, | |||||||||||
| Notes | 2024 | 2023 | 2022 | ||||||||
| Operating expenses | |||||||||||
| General and administrative | 16(a) | 146,636 | 148,616 | 185,366 | |||||||
| Professional, other fees and salaries | 16(b) | 391,406 | 610,052 | 647,710 | |||||||
| Stock-based compensation | 15 | 6,517 | 217,965 | 41,484 | |||||||
| Travel and entertainment | 37,631 | 63,360 | 59,504 | ||||||||
| Depreciation of property and equipment | 7 | 16,492 | 16,492 | 25,878 | |||||||
| Amortization of patents | - | - | 3,877 | ||||||||
| Foreign exchange (gain) | (21,404 | ) | (62,613 | ) | (176,477 | ) | |||||
| Total operating expenses | 577,278 | 993,872 | 787,342 | ||||||||
| Other expenses (income) | |||||||||||
| Accretion expense | 11 | 272,501 | 279,834 | 1,179,603 | |||||||
| Interest expense | 9,11 | 604,664 | 540,929 | 469,425 | |||||||
| Other finance expenses | 8,10,13 | 24,227 | 86,352 | 13,233 | |||||||
| Loss on revaluation of warrant liabilities | 12 | 826,393 | - | - | |||||||
| Loss on debt settlement | 13 | 118,784 | - | - | |||||||
| Loss (gain) on revaluation of derivative liabilities | 11 | 78,915 | (658,503 | ) | (409,607 | ) | |||||
| Loss on conversion of convertible debentures | 11 | 45,535 | 21,120 | 94,326 | |||||||
| Loss (gain) on repayment of convertible debentures | 11 | 62,253 | 27,243 | (47,877 | ) | ||||||
| Loss on extinguishment of convertible debentures | 11 | 452,248 | 1,400,823 | 200,650 | |||||||
| Total other expenses | 2,485,520 | 1,697,798 | 1,499,753 | ||||||||
| Loss before income tax provision | (3,062,798 | ) | (2,691,670 | ) | (2,287,095 | ) | |||||
| Income tax provision | 19 | - | - | - | |||||||
| Net loss and comprehensive loss | $ | (3,062,798 | ) | $ | (2,691,670 | ) | $ | (2,287,095 | ) | ||
| Weighted average number of outstanding shares, basic and diluted | 17 | 529,474,454 | 490,310,376 | 451,177,796 | |||||||
| Loss per share, basic and diluted | 17 | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.01 | ) | |
The accompanying notes are an integral part of these consolidated financial statements.
| Micromem Technologies Inc. |
| Consolidated Statements of Changes in Shareholders' Deficiency |
| For the years ended October 31, 2024, 2023, and 2022 |
| (Expressed in United States dollars) |
| Equity component | |||||||||||||||||||
| Number of | Share | Contributed | of convertible | Accumulated | |||||||||||||||
| Notes | shares | capital | surplus | debentures | deficit | Total | |||||||||||||
| Balance at November 1, 2021 | 435,737,734 | $ | 86,815,836 | $ | 28,197,382 | $ | 14,004 | $ | (118,498,500 | ) | $ | (3,471,278 | ) | ||||||
| Private placements of shares for cash | 13 | 5,012,450 | 207,588 | - | - | - | 207,588 | ||||||||||||
| Share issuance costs | 13 | - | (25,591 | ) | - | - | - | (25,591 | ) | ||||||||||
| Convertible debentures converted into common shares | 11 | 26,443,820 | 764,432 | - | - | - | 764,432 | ||||||||||||
| Shares issued on settlement of accounts payable | 13 | 413,674 | 22,460 | - | - | - | 22,460 | ||||||||||||
| Expiry of convertible debenture conversion option | 11 | - | - | 1,258,388 | (1,258,388 | ) | - | - | |||||||||||
| Renewal of convertible debentures | 11 | - | - | (2,037,524 | ) | 2,037,524 | - | - | |||||||||||
| Stock-based compensation | 15 | - | - | 41,484 | - | - | 41,484 | ||||||||||||
| Net loss and comprehensive loss | - | - | - | - | (2,287,095 | ) | (2,287,095 | ) | |||||||||||
| Balance at October 31, 2022 | 467,607,678 | $ | 87,784,725 | $ | 27,459,730 | $ | 793,140 | $ | (120,785,595 | ) | $ | (4,748,000 | ) | ||||||
| Private placements of shares for cash | 13 | 9,864,500 | 535,525 | - | - | - | 535,525 | ||||||||||||
| Share issuance costs | 13 | - | (25,586 | ) | - | - | - | (25,586 | ) | ||||||||||
| Convertible debentures converted into common shares | 11 | 30,346,660 | 1,742,226 | - | (85,804 | ) | - | 1,656,422 | |||||||||||
| Exercise of stock options | 15 | 2,550,000 | 434,822 | (220,682 | ) | - | - | 214,140 | |||||||||||
| Expiry of stock options | - | - | (75,033 | ) | - | 75,033 | - | ||||||||||||
| Expiry of convertible debenture conversion option | 11 | - | - | 793,139 | (793,139 | ) | - | - | |||||||||||
| Renewal of convertible debentures | 11 | - | - | (3,306,276 | ) | 3,306,276 | - | - | |||||||||||
| Stock-based compensation | 15 | - | - | 217,965 | - | - | 217,965 | ||||||||||||
| Net loss and comprehensive loss | - | - | - | - | (2,691,670 | ) | (2,691,670 | ) | |||||||||||
| Balance at October 31, 2023 | 510,368,838 | $ | 90,471,712 | $ | 24,868,843 | $ | 3,220,473 | $ | (123,402,232 | ) | $ | (4,841,204 | ) | ||||||
| Private placements of shares for cash | 13 | 24,478,227 | 439,155 | - | - | 439,155 | |||||||||||||
| Cash share issuance costs | 13 | - | (24,520 | ) | - | - | - | (24,520 | ) | ||||||||||
| Broker warrants issued | 14 | - | (3,909 | ) | 3,909 | - | - | - | |||||||||||
| Shares issued on settlement of accounts payable | 13 | 1,333,333 | 79,167 | - | - | - | 79,167 | ||||||||||||
| Convertible debentures converted into common shares | 11,18 | 36,805,300 | 716,674 | - | (35,973 | ) | - | 680,701 | |||||||||||
| Expiry of stock options | - | - | (78,915 | ) | - | 78,915 | - | ||||||||||||
| Expiry of convertible debenture conversion option | 11 | - | - | 3,220,473 | (3,220,473 | ) | - | - | |||||||||||
| Renewal of convertible debentures | 11 | - | - | (732,644 | ) | 732,644 | - | - | |||||||||||
| Stock-based compensation | 15 | - | - | 6,517 | - | - | 6,517 | ||||||||||||
| Net loss and comprehensive loss | - | - | - | - | (3,062,798 | ) | (3,062,798 | ) | |||||||||||
| Balance at October 31, 2024 | 572,985,698 | $ | 91,678,279 | $ | 27,288,183 | $ | 696,671 | $ | (126,386,115 | ) | $ | (6,722,982 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
| Micromem Technologies Inc. |
| Consolidated Statements of Cash Flows |
| For the years ended October 31, 2024, 2023, and 2022 |
| (Expressed in United States dollars) |
| Years ended October 31, | |||||||||||
| Notes | 2024 | 2023 | 2022 | ||||||||
| Operating activities | |||||||||||
| Net loss | $ | (3,062,798 | ) | $ | (2,691,670 | ) | $ | (2,287,095 | ) | ||
| Items not affecting cash: | |||||||||||
| Depreciation of property and equipment | 7 | 16,492 | 16,492 | 25,878 | |||||||
| Amortization of patents | - | - | 3,877 | ||||||||
| Accretion expense | 11 | 272,501 | 279,834 | 1,179,603 | |||||||
| Accrued interest | 9,11 | 531,797 | 471,596 | 368,280 | |||||||
| Stock-based compensation | 15 | 6,517 | 217,965 | 41,484 | |||||||
| Loss on revaluation of warrant liabilities | 12 | 826,393 | - | - | |||||||
| Loss on debt settlement | 13 | 118,784 | - | - | |||||||
| Loss on conversion of convertible debentures | 11,18 | 45,535 | 21,120 | 94,326 | |||||||
| Loss (gain) on repayment of convertible debentures | 11,18 | 62,253 | 27,243 | (47,877 | ) | ||||||
| Loss (gain) on revaluation of derivative liabilities | 11,18 | 78,915 | (658,503 | ) | (409,607 | ) | |||||
| Loss on extinguishment of convertible debentures | 11,18 | 388,985 | 1,400,823 | 200,650 | |||||||
| Foreign exchange (gain) loss | (30,539 | ) | (67,031 | ) | (136,336 | ) | |||||
| (745,165 | ) | (982,131 | ) | (966,817 | ) | ||||||
| Net changes in non-cash working capital: | |||||||||||
| Prepaid expenses and other receivables | (37,737 | ) | (85,799 | ) | 5,807 | ||||||
| Deposit liability | - | 63,000 | - | ||||||||
| Trade payables and other liabilities | 156,978 | (78,290 | ) | (36,021 | ) | ||||||
| Cash flows used in operating activities | (625,924 | ) | (1,083,220 | ) | (997,031 | ) | |||||
| Investing activity | |||||||||||
| Purchase of property and equipment | 7 | - | (2,044 | ) | - | ||||||
| Cash flows used in investing activity | - | (2,044 | ) | - | |||||||
| Financing activities | |||||||||||
| Principal payments on lease liability | 10 | (17,381 | ) | (15,609 | ) | (25,317 | ) | ||||
| Proceeds from private placements of shares and warrants | 13 | 631,456 | 535,525 | 207,588 | |||||||
| Share issuance costs | 13 | (24,520 | ) | (25,586 | ) | (25,591 | ) | ||||
| Proceeds from the exercise of options | 15 | - | 214,140 | - | |||||||
| Proceeds from issuance of convertible debentures | 11,18 | 417,950 | 645,151 | 765,671 | |||||||
| Repayments of convertible debentures | 11,18 | (287,460 | ) | (270,000 | ) | (63,490 | ) | ||||
| Cash flows provided by financing activities | 720,045 | 1,083,621 | 858,861 | ||||||||
| Net change in cash | 94,121 | (1,643 | ) | (138,170 | ) | ||||||
| Cash - beginning of period | 31,584 | 33,227 | 171,397 | ||||||||
| Cash - end of period | $ | 125,705 | $ | 31,584 | $ | 33,227 | |||||
| Supplemental cash flow information | |||||||||||
| Interest paid on convertible-debt (classified in operating activities) | 11 | $ | 72,867 | $ | 64,679 | $ | 88,465 | ||||
| Interest converted on convertible-debt (classified in operating activities) | 11 | $ | 52,772 | $ | 238,859 | $ | 12,680 | ||||
| Repayment penalties paid on convertible-debt (classified in operating activites) | 11 | $ | 63,263 | $ | - | $ | - | ||||
| Interest paid on non-convertible debt (classified in operating activities) | 8 | $ | 9,081 | $ | 9,170 | $ | 9,604 | ||||
| Interest on lease liability (classified in operating activities) | 10 | $ | 1,820 | $ | 3,323 | $ | 3,629 | ||||
| Cash share issuance costs (classified in operating activities) | 13 | $ | 13,326 | $ | - | $ | - | ||||
| Carrying amount of convertible debentures converted into common shares | 18 | $ | 716,674 | $ | 1,742,226 | $ | 764,432 | ||||
| Shares issued on settlement of accounts payable | 13 | $ | 29,687 | $ | - | $ | 22,460 | ||||
| ROU asset and lease liability recognized | 10 | $ | - | $ | - | $ | 48,408 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| Micromem Technologies Inc. Notes to Consolidated Financial Statements For the years ended October 31, 2024, 2023, and 2022 (Expressed in United States dollars, unless otherwise noted) |
1. Reporting entity and nature of business
Micromem Technologies Inc. ("Micromem" or the "Company") is incorporated under the laws of the Province of Ontario, Canada. Micromem is a publicly traded company with its head office located at 121 Richmond Street West, Suite 602, Toronto, Ontario, Canada. The Company's common shares are currently listed on the Canadian Securities Exchange under the trading symbol "MRM" and on the Over the Counter Venture Market under the trading symbol "MMTIF".
The Company develops, based upon proprietary technology, customized sensor applications for companies (referred to as "Development Partners") operating internationally in various industry segments. The Company has not generated commercial revenues through October 31, 2024 and is devoting substantially all its efforts to securing commercial revenue opportunities.
2. Going concern
These consolidated financial statements have been prepared with the assumption that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future.
There are material uncertainties related to conditions and events that cast substantial doubt about the Company's ability to continue as a going concern and ultimately on the appropriateness of the use of the accounting principles applicable to a going concern. During the year ended October 31, 2024, the Company reported a net loss and comprehensive loss of $3,062,798 (2023 - $2,691,670, 2022 - $2,287,095) and negative cash flow from operations of $625,924 (2023 - $1,083,220, 2022 - $997,031). The Company's working capital deficiency as at October 31, 2024 was $6,693,448 (October 31, 2023 – $4,818,699).
The Company's success depends on the profitable commercialization of its proprietary sensor technology. Based upon its current operating and financial plans, management of the Company believes that it will have sufficient access to financial resources to fund the Company's planned operations through fiscal 2025; however, the ability of the Company to continue as a going concern is dependent upon its ability to secure additional financing and/or to profitably commercialize its technology. There is no assurance that the Company will be successful in the profitable commercialization of its technology, or will be able to secure the necessary additional financing. These consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the possible inability of the Company to continue as a going concern. If the going concern assumption was not appropriate for these consolidated financial statements then adjustments could be necessary to the carrying value of assets and liabilities, the reported expenses and the statement of financial position classifications used; in such cases, these adjustments could be material.
3. Basis of presentation
These consolidated financial statements have been prepared in accordance with IFRS® Accounting Standards as issued by the International Accounting Standards Board ("IFRS") and interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC"). The Company has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.
These consolidated financial statements were authorized for issuance and release by the Company's Board of Directors on February 25, 2025.
(a) Basis of consolidation
These consolidated financial statements include the accounts of Micromem Technologies Inc. and its subsidiaries. All intercompany transactions and balances have been eliminated upon consolidation.
The Company's wholly-owned subsidiaries include:
| (i) | Inactive subsidiaries | Domiciled in | |
| Micromem Applied Sensors Technology Inc. ("MAST") | United States | ||
| 707019 Canada Inc. | Canada | ||
| Memtech International Inc. | Bahamas | ||
| Memtech International (USA) Inc., Pageant Technologies (USA) Inc. | United States | ||
| Pageant Technologies Inc., Micromem Holdings (Barbados) Inc. | Barbados |
| Micromem Technologies Inc. Notes to Consolidated Financial Statements For the years ended October 31, 2024, 2023, and 2022 (Expressed in United States dollars, unless otherwise noted) |
3. Basis of presentation (continued)
(b) Basis of measurement
These consolidated financial statements have been prepared on the historical cost basis, except for financial instruments designated at fair value through profit and loss which are measured at their fair value.
(c) Functional and presentation currency
These consolidated financial statements are presented in United States dollars ("USD"), which is the functional currency of the Company and all of its subsidiaries.
(d) Use of estimates and judgments
The preparation of these consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. These estimates are reviewed periodically and adjustments are made as appropriate in the reporting period they become known. Items for which actual results may differ materially from these estimates are described in the following section.
(i) Fair value of options, warrants and conversion features
The Company makes estimates and utilizes assumptions in determining the fair value for stock options, warrants, and conversion features based on the application of option pricing valuation models, as detailed in Note 11, depending on the circumstances. These pricing models require management to make various assumptions and estimates that are susceptible to uncertainty, including the volatility of the share price, expected dividend yield, expected term, risk-free interest rate, and exercise price.
(ii) Useful lives and recoverability of long-lived assets
Long-lived assets consist of property and equipment and patents. Depreciation and amortization is dependent upon estimates of useful lives and impairment is dependent upon estimates of recoverable amounts. These are determined through the exercise of judgment and are dependent upon estimates that take into account factors such as economic and market conditions, frequency of use, anticipated changes in laws, and technological improvements.
(iii) Income taxes
Income taxes and tax exposures recognized in the consolidated financial statements reflect management's best estimate of the outcome based on facts known at the reporting date. When the Company anticipates a future income tax payment based on its estimates, it recognizes a liability. The difference between the expected amount and the final tax outcome has an impact on current and deferred taxes when the Company becomes aware of this difference.
When the Company incurs losses for income tax purposes, it assesses the probability of taxable income being available in the future, based on cash flow forecasts. These forecasts are adjusted for certain non-taxable income and expenses and specific rules on the use of unused credits and tax losses. When the forecasts indicate that sufficient future taxable income will be available to deduct the temporary differences, a deferred tax asset is recognized for all deductible temporary differences.
(iv) Going concern assumption
The Company applies judgment in assessing whether material uncertainties exist that would cause doubt as to the whether the Company could continue as a going concern.
| Micromem Technologies Inc. Notes to Consolidated Financial Statements For the years ended October 31, 2024, 2023, and 2022 (Expressed in United States dollars, unless otherwise noted) |
4. Summary of material accounting policies
The material accounting policies applied to the preparation of these consolidated financial statements are set out below:
(a) Foreign currency translation
These consolidated financial statements are presented in USD, which is the functional currency of the Company and all of its subsidiaries. At each reporting date, foreign currency denominated monetary assets and liabilities are translated at year-end exchange rates. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Income, expenses, and cash flows, are translated into USD using average exchange rates for the year. Exchange differences arising from operating transactions are recorded in operating profit or loss for the period; exchange differences related to financing transactions are recognized in finance income or directly in equity.
(b) Financial instruments
All financial instruments are initially recorded at fair value at the time they are entered into. The Company aggregates its financial instruments in accordance with IFRS 9, Financial Instruments , into classes based on their nature and characteristics. Management determines the classification when the instruments are initially recognized, which is normally the date of the transaction. The Company's accounting policy for each class of financial instruments is as follows:
(i) Amortized cost
This category includes financial assets that are held within a business model with the objective to hold the financial assets in order to collect contractual cash flows that meet the solely principal and interest ("SPPI") criterion, and financial liabilities which are not required, and for which the Company has not elected to subsequently record at fair value through profit or loss.
Financial instruments in this category are initially recognized at fair value plus directly attributable transaction costs. Subsequently, these instruments are measured at amortized cost using the effective interest method. The effective interest method is a method of calculating the amortized cost of a financial instrument and of allocating interest over the relevant period. The effective interest rate is the rate that discounts estimated future cash receipts through the expected life of the financial instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition. Financial assets are adjusted for any expected credit losses ("ECLs").
Financial assets in this category include cash and other receivables. Financial liabilities in this category include trade payables and other liabilities, debenture payable, convertible debentures and long-term loan.
(ii) Fair value through profit or loss ("FVTPL")
This category includes derivative instruments and debt instruments whose cash flow characteristics fail the SPPI criterion or are not held within a business model whose objective is either to collect contractual cash flows, or to both collect contractual cash flows and sell. These financial instruments are initially recognized at fair value; all transaction costs are recognized immediately in profit or loss. Subsequently, these instruments are recognized at fair value at each reporting date. Any changes in fair value, and gains or losses upon disposition of the financial instruments are recognized in profit or loss. Financial liabilities in this category include the derivative liabilities and warrant liabilities.
(iii) Fair value through other comprehensive income ("FVOCI")
This category only includes equity instruments, which the Company intends to hold for the foreseeable future and which the Company has irrevocably elected to so classify upon initial recognition or transition. Equity instruments in this category are subsequently measured at fair value with changes recognized in other comprehensive income, with no recycling of gains or losses to profit or loss upon derecognition. Dividend income is recognized in earnings. Equity instruments at FVOCI are not subject to an impairment assessment under IFRS 9. The Company has no financial assets in this category.
(c) Convertible debentures and derivative liabilities
The Company issues convertible debentures used as bridge loans, which can be converted into common shares at the option of the holder, into a fixed number of shares for a fixed amount of consideration, or into a fixed number of shares for a variable amount of consideration, or into a variable number of shares.
| Micromem Technologies Inc. Notes to Consolidated Financial Statements For the years ended October 31, 2024, 2023, and 2022 (Expressed in United States dollars, unless otherwise noted) |
4. Summary of material accounting policies (continued)
(c) Convertible debentures and derivative liabilities (continued)
(i) Initial recognition
For convertible debentures which provide conversion into a fixed number of shares, the liability component is recognized initially at the fair value of a similar, nonconvertible liability. The equity component is recognized as the difference between the fair value of the instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts.
For convertible debentures which provide conversion into a variable number of shares or into a fixed number of shares for a variable amount of consideration, the conversion option is accounted for as an embedded derivative, which is separated from the host contract. Upon initial recognition, the derivative liability is valued at fair value using an option pricing model, as detailed in Note 11. The carrying amount of the convertible debenture is recognized as the difference between the fair value of the instrument as a whole and the fair value of the derivative liability. Any directly attributable transaction costs are allocated to the derivative liability and host contract in proportion to their initial carrying amounts.
(ii) Modifications and extinguishments
To the extent there are changes to the terms of outstanding convertible debentures, these changes may be recorded as a modification or an extinguishment. A substantial change in the terms of an existing financial liability is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. The terms are substantially different if the discounted present value of the cash flows at the original effective interest rate under the new terms is at least 10% different from the discounted present value of the remaining cash flows of the original financial liability. For a modification that does not result in derecognition, a gain or loss will be recognised in profit or loss for the difference between the original contractual cash flows and the modified cash flows discounted at the original effective interest rate. For a modification that results in derecognition, a gain or loss will be recognised in profit or loss for the difference between the carrying amount of the financial liability extinguished and the fair value of the modified financial liability.
(d) Fair value
Fair value is 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.
Fair value measurement for financial instruments are categorized into levels within a fair value hierarchy based on the nature of the valuation inputs (Levels 1, 2 or 3). The three levels are defined based on the observability of significant inputs to the measurement, as follows:
Level 1 - valuation based on quoted prices (unadjusted) in active markets for identical assets and liabilities. There are no assets or liabilities in this category in these consolidated financial statements.
Level 2 - valuation techniques based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. In these consolidated financial statements, derivative liabilities and warrant liabilities are included in this category.
Level 3 - valuation techniques using the inputs for the asset or liability that are not based on observable market data. There are no assets or liabilities in this category in these consolidated financial statements.
When one is available, the Company measures the fair value of an instrument using the quoted price in an active market for that instrument.
A market is regarded as "active" if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. If there is no quoted price in an active market, then the Company uses valuation techniques that maximize the use of relevant observable inputs and minimize the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction.
The derivative liabilities and warrany liabilities are measured at fair value on a recurring basis and categorized as level 2 in the fair value hierachy. The fair value of the derivative liabilities and warrant liabilities at October 31, 2024 are $1,570,675 and $1,087,997 (2023 - $1,079,393 and $nil). See note 11 (c) and note 12.
The Company's policy for determining when transfers between levels of fair value hierarchy occur is based on the date of the event or changes in circumstances that caused the transfer. During the years ended October 31, 2024 and 2023, there were no transfers between levels.
| Micromem Technologies Inc. Notes to Consolidated Financial Statements For the years ended October 31, 2024, 2023, and 2022 (Expressed in United States dollars, unless otherwise noted) |
4. Summary of material accounting policies (continued)
(e) Property and equipment
Property and equipment are recorded at cost and are depreciated over their estimated useful lives at the following annual rates and methods:
| Method | Rate | ||
| Computers | Declining balance | 30% | |
| Right-of-use asset | Straight-line | lesser of useful life and lease term | |
(f) Impairment of long-lived assets
The Company follows the guidelines prescribed in IAS 36, Impairment of Assets with respect to the measurement for impairment of assets. The carrying amounts of property and equipment and patents are reviewed for impairment when events or changes in circumstances indicate that the carrying amounts may not be recoverable. When the carrying amount exceeds the estimated recoverable amount, the assets are written down to their recoverable amount. The recoverable amount of long-lived assets is the greater of fair value less costs to sell and value in use. Impairment losses are recognized in the consolidated statements of operations and comprehensive loss.
(g) Development costs
Research costs are expensed in the period incurred. Development costs are expensed as incurred unless they meet the criteria for capitalization. Expenditures during the development phase are capitalized if the Company can demonstrate each of the following criteria: (i) the technical feasibility of completing the asset so that it will be available for use or sale, (ii) its intention to complete the asset and use or sell it, (iii) its ability to use or sell the asset, (iv) how the asset will generate probable future economic benefits, (v) the availability of adequate technical, financial and other resources to complete the development and to use or sell the asset, and (vi) its ability to measure reliably the expenditure attributable to the asset during its development; otherwise, these costs are expensed as incurred. Costs to be recovered from development partners are recorded to development costs receivable. Payments received from development partners on projects are recorded to income as a recovery of costs incurred and reduce the outstanding receivable. There were no development costs incurred or recovery of such costs in 2024, 2023, or 2022.
(h) Patents
Patents are recorded at cost and are amortized on a straight line basis over their estimated useful lives of 5 years.
(i) Leases
As a lessee
At the inception of a contract, the Company assesses whether a contract is, or contains a lease. A contract is, or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Company recognizes a right-of-use asset and a lease liability at the commencement date of the lease.
The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset, less any lease incentives received. The rightof-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. In addition, the right-of-use assets are adjusted for impairment losses, if any. The estimated useful lives and recoverable amounts of right-of-use assets are determined on the same basis as those of property and equipment.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company's incremental borrowing rate currently set at 9%. The lease liability is subsequently measured at amortized cost using the effective interest method.
The Company has elected not to recognize right-of-use assets and lease liabilities for short-term leases (lease term of 12 months or less) and leases for which the underlying asset is of low value as there are none. The Company recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term.
As a lessor
As a lessor, the Company classifies its leases as either a finance lease or an operating lease. To classify each lease, the Company makes an overall assessment of whether the lease transfers substantially all of the risks and rewards incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not, then it is an operating lease.
Rental income arising from operating leases is accounted on a straight-line basis over the lease term.
| Micromem Technologies Inc. Notes to Consolidated Financial Statements For the years ended October 31, 2024, 2023, and 2022 (Expressed in United States dollars, unless otherwise noted) |
4. Summary of material accounting policies (continued)
(j) Stock-based compensation and other stock-based payments
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 net income over the vesting period. Where equity instruments are granted to non-employees, they are recorded at the fair value of the goods or services received. When the value of goods or services received in exchange for the stock-based payment cannot be reliably estimated, the fair value is measured by use of a valuation model. The cost recognized for all equity-settled stock-based payments is reflected in contributed surplus, until the instruments are exercised. Upon exercise, shares are issued from treasury and the amount previously reflected in contributed surplus along with any proceeds paid upon exercise, are credited to share capital.
(k) Government grants
The Company recognises government grants when there is reasonable assurance of compliance with grant conditions and that the grants will be received. Government grants are recognised in profit or loss on a systematic basis over the periods when the related expenses are incurred and are presented in the consolidated financial statements as a reduction of these expenses. A government grant that becomes receivable as compensation for expenses already incurred is recognised in profit or loss of the period in which it becomes receivable.
(l) Provisions
Provision for risks and expenses are recognized for probable outflows of resources that can be estimated and that result from present obligations resulting from past events. In the case where a potential obligation resulting from past events exists, but where occurrence of the outflow of resources is not probable or the estimate is not reliable, these contingencies are disclosed. Provisions, if any, are measured based on management's best estimates of outcomes on the basis of facts known at the reporting date.
(m) Income taxes
The Company accounts for its income taxes using the deferred tax assets and liabilities method. Deferred income tax assets and liabilities are determined based on the difference between the carrying amount and the tax basis of the assets and liabilities. Any change in the net amount of deferred income tax assets and liabilities is included in profit or loss or equity. Deferred income tax assets and liabilities are determined based on enacted or substantively enacted tax rates and laws which are expected to apply to taxable profit for the years in which the assets and liabilities will be recovered or settled. Deferred income tax assets are recognized when it is probable they will be realized. Deferred tax assets and liabilities are not discounted.
(n) Share capital
Share capital is presented at the fair value of the shares issued or the cash amount received. Costs related to the issuance of shares are reported in equity, net of tax, as a deduction from the issuance proceeds.
(o) Earnings or loss per share
The Company presents basic and diluted earnings per share data for its common shares. Basic earnings per share is calculated by dividing the profit or loss attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the period. Diluted earnings per share is determined by adjusting the profit or loss attributable to common shareholders and the weighted average number of common shares outstanding, for the effects of all potentially dilutive common shares, which comprise stock options and convertible debentures.
| Micromem Technologies Inc. Notes to Consolidated Financial Statements For the years ended October 31, 2024, 2023, and 2022 (Expressed in United States dollars, unless otherwise noted) |
5. New accounting standards and pronouncements
(a) Amendment to IAS 1, Presentation of Financial Statements, Issued but not yet effective
IAS 1 was amended in January 2020 to address inconsistences with how entities apply the standard over classification of current and non-current liabilities. The amendment serves to address whether, in the statement of financial position, debt and other liabilities with an uncertain settlement should be classified as current or non-current. The amendment is effective for annual reporting periods beginning on or after January 1, 2024. Earlier adoption is permitted. The Company will adopt this amendment as of the effective date, and does not anticipate any material impacts on adoption.
(b) Amendment to IFRS 9, Financial Instruments and IFRS 7,Financial Instruments - Disclosures, Issued but not yet effective
In May 2024, the IASB issued amendments to IFRS 9 Financial Instruments and IFRS 7 Financial Instruments – Disclosures. The amendments clarify the derecognition of financial liabilities and introduces an accounting policy option to derecognize financial liabilities that are settled through an electronic payment system. The amendments also clarify how to asses the contractual cash flow characteristics of financial assets that include environmental, social and governance (ESG)-linked features and other similar contingent features and the treatment of non-recourse assets and contractually linked instruments (CLIs). Further, the amendments mandate additional disclosures in IFRS 7 for financial instruments with contingent features and equity instruments classified at FVOCI. The amendments are effective for annual periods starting on or after January 1, 2026. Retrospective application is required and early adoption is permitted.
(c) IFRS 18 Presentation and Disclosure in Financial Statements, Issued but not yet effective
In April 2024, the IASB issued IFRS 18 Presentation and Disclosure in Financial Statements to improve reporting of financial performance. The new standards replaces IAS 1 Presentation of Financial Statements. IFRS 18 introduces new categories and required subtotals in the statement of profit and loss and also requires disclosure of management-defined performance measures. It also includes new requirements for the location, aggregation and disaggregation of financial information. The standard is effective for annual reporting periods beginning on or after January 1, 2027, including interim financial statements. Retrospective application is required and early adoption is permitted.
(d) Amendment to IFRS 10, Consolidated Financial Statements and IAS 28, Investments in Associates and Joint Ventures, Issued but not yet effective
The amendment addresses a conflict between the requirements of IAS 28 and IFRS 10 and clarifies that in a transaction involving an associate or joint venture, the extent of gain or loss recognition depends on whether the assets sold or contributed constitute a business. The effective date of these amendments is yet to be determined, however early adoption is permitted. The Company will adopt the amendment as of the effective date, and does not anticipate any material impacts on adoption.
6. Patents
| As at | As at | |||||||||||
| November 1, | October 31, | |||||||||||
| 2023 | Additions | Disposals | 2024 | |||||||||
| Cost | $ | 681,288 | $ | - | $ | - | $ | 681,288 | ||||
| Accumulated amortization | 681,288 | - | - | 681,288 | ||||||||
| Net book value | $ | - | $ | - | $ | - | $ | - | ||||
| As at | As at | |||||||||||
| November 1, | October 31, | |||||||||||
| 2022 | Additions | Disposals | 2023 | |||||||||
| Cost | $ | 681,288 | $ | - | $ | - | $ | 681,288 | ||||
| Accumulated amortization | 681,288 | - | - | 681,288 | ||||||||
| Net book value | $ | - | $ | - | $ | - | $ | - |
The Company holds several patents in the United States for its Multimodal Fluid Condition Sensor Platform. The patents are fully amortized as at October 31, 2024 and 2023.
| Micromem Technologies Inc. Notes to Consolidated Financial Statements For the years ended October 31, 2024, 2023, and 2022 (Expressed in United States dollars, unless otherwise noted) |
7. Property and equipment
| As at | As at | |||||||||||
| November 1, | October 31, | |||||||||||
| 2023 | Additions | Foreign exchange | 2024 | |||||||||
| Cost | ||||||||||||
| Computers | $ | 9,510 | $ | - | $ | - | $ | 9,510 | ||||
| Right-of-use assets | 48,408 | - | - | 48,408 | ||||||||
| 57,918 | - | - | 57,918 | |||||||||
| Accumulated depreciation | ||||||||||||
| Computers | 4,981 | 1,289 | $ | 70 | $ | 6,340 | ||||||
| Right-of-use assets | 20,170 | 15,203 | 933 | 36,306 | ||||||||
| 25,151 | 16,492 | 1,003 | 42,646 | |||||||||
| Net book value | $ | 32,767 | $ | 15,272 | ||||||||
| As at | As at | |||||||||||
| November 1, | October 31, | |||||||||||
| 2022 | Additions | Foreign exchange | 2023 | |||||||||
| Cost | ||||||||||||
| Computers | $ | 7,466 | $ | 2,044 | $ | - | $ | 9,510 | ||||
| Right-of-use assets | 48,408 | - | - | 48,408 | ||||||||
| 55,874 | 2,044 | - | 57,918 | |||||||||
| Accumulated depreciation | ||||||||||||
| Computers | 3,748 | 1,148 | 85 | 4,981 | ||||||||
| Right-of-use assets | 4,034 | 15,344 | 792 | 20,170 | ||||||||
| 7,782 | 16,492 | 877 | 25,151 | |||||||||
| Net book value | $ | 48,092 | $ | 32,767 |
8. Debenture payable
The Company issued a debenture on March 17, 2020, with a principal amount of $51,500 CAD ($37,126 USD) and an original maturity date of June 17, 2020. The debenture's maturity date was extended by six month intervals on June 17, 2020, December 17, 2020, June 17, 2021, December 17, 2021, June 17, 2022, December 17, 2022, June 17, 2023, December 17, 2023 and June 17, 2024. The most recent extension on June 17, 2024 extended the debenture to December 17, 2024. The extension of the debenture's maturity date resulted in a substantial modification of the existing terms of the debenture and accordingly was accounted for as an extinguishment. The debenture bears interest at a rate of 24% and is unsecured. At October 31, 2024, the debenture had an outstanding balance of $37,389 ($52,031 CAD) (October 31, 2023 - $37,509 ($52,031 CAD)). During the year ended October 31, 2024, total interest expense of $9,081 (2023 - $9,170, 2022 - $9,604) was recognized in the consolidated statement of operations and comprehensive loss. As at the date of these consolidated financial statements were approved for issuance, the loan was not repaid.
| Micromem Technologies Inc. Notes to Consolidated Financial Statements For the years ended October 31, 2024, 2023, and 2022 (Expressed in United States dollars, unless otherwise noted) |
9. Long-term loan
The Company was granted a $60,000 CAD ($44,806 USD) unsecured, interest-free loan from the Government of Canada under the Canada Emergency Business Account ("CEBA") program to cover its operating costs (the "CEBA Loan"). If the Company were to have repaid $40,000 CAD ($29,871 USD) of the aggregate amount advanced on or before January 18, 2024, the repayment of the remaining $20,000 CAD would have been forgiven. The balance was not paid by January 18, 2024, and as a result, on January 19, 2024 the CEBA loan was converted to a 3-year term loan, bearing interest at 5% per annum, paid monthly. The total principal balance plus any accrued and unpaid interest is payable in full on December 31, 2026. The amount of interest expense incurred during the year ended October 31, 2024 is $1,764 (2023 - $nil).
The continuity of the long-term loan is summarized as follows:
| Balance, October 31, 2022 | $ | 43,796 | |
| Foreign exchange | (542 | ) | |
| Balance, October 31, 2023 | $ | 43,254 | |
| Accrued interest | 1,764 | ||
| Foreign exchange | (212 | ) | |
| Balance, October 31, 2024 | $ | 44,806 |
The following represents a maturity analysis of the Company's undiscounted contractual loan obligations as at October 31, 2024:
| USD | |||
| Less than one year | $ | 2,156 | |
| Between one and five years | $ | 45,632 |
10. Leases
(a) As a lessee
The lease obligation relates to the use of office space in Toronto, Ontario. The lease agreement has a term of August 1, 2022 to July 31, 2025. The present value of the lease obligation was calculated using a discount rate of 9%.
The lease liability is summarized as follows:
| Balance, October 31, 2021 | $ | 24,788 | |
| New lease agreement | 48,408 | ||
| Interest expense | 3,629 | ||
| Lease payments | (28,946 | ) | |
| Foreign exchange | (3,095 | ) | |
| Balance, October 31, 2022 | 44,784 | ||
| Interest expense | 3,323 | ||
| Lease payments | (18,932 | ) | |
| Foreign exchange | (121 | ) | |
| Balance, October 31, 2023 | 29,054 | ||
| Interest expense | 1,820 | ||
| Lease payments | (19,201 | ) | |
| Foreign exchange | 307 | ||
| Balance, October 31, 2024 | $ | 11,980 |
The following represents a maturity analysis of the Company's undiscounted contractual lease obligations as at October 31, 2024:
| USD | |||
| Less than one year | $ | 12,873 |
(b) As a lessor
The Company sub-leases a portion of its office space under a lease agreement for a term of three years, expiring July 31, 2025. The sub-lease is classified as an operating lease because it does not transfer substantially all of the risks and rewards incidental to ownership of the asset.
For the year ended October 31, 2024, the Company recognized a total of $17,205 (2023 - $17,682, 2022 - $19,076) as rental income which has been recorded as a reduction to general and administrative expenses on the consolidated statement of operations and comprehensive loss.
The following represents a maturity analysis of the Company's lease payments to be received after October 31, 2024:
| USD | |||
| Less than one year | $ | 12,780 |
| Micromem Technologies Inc. Notes to Consolidated Financial Statements For the years ended October 31, 2024, 2023, and 2022 (Expressed in United States dollars, unless otherwise noted) |
11. Convertible debentures
The Company issues three types of convertible debentures: USD denominated convertible debentures with an equity component, Canadian dollar ("CAD") denominated convertible debentures with an embedded derivative due to variable consideration payable upon conversion caused by foreign exchange, and USD denominated convertible debentures with an embedded derivative caused by variable conversion prices.
During the year ended October 31, 2024, the Company incurred $63,263 of financing costs (2023 - $86,352, 2022 - $21,000) which primarily consisted of early repayment and administrative fees, which are classified in loss of extinguishment of convertible debentures, of which $nil (2023 - $nil, 2022 - $nil) was converted into common shares.
(a) Current period information presented in the consolidated financial statements
Convertible debentures outstanding as at October 31, 2024:
| *Denominated in CAD | USD | |||||||||||
| (equity | CAD (embedded | USD (embedded | ||||||||||
| component) | derivative) | derivative) | Total | |||||||||
| Loan principal outstanding | $ | 1,413,245 | $ | 1,523,657 | * | $ | 231,250 | |||||
| Terms of loan | ||||||||||||
| Annual stated interest rate | 12-24% | 12% - 24% | 2% - 4% | |||||||||
| Effective annual interest rate | 24% | 14 - 270% | 24% - 176% | |||||||||
| Conversion price to common shares | $0.03 - $0.04 | $0.05 - $0.10 | * | (i) - (ii) | ||||||||
| Remaining life (in months) | 0 - 4 | 0 - 6 | 0 - 12 | |||||||||
| Consolidated Statement of Financial Position | ||||||||||||
| Carrying value of loan principal | $ | 1,413,245 | $ | 1,461,356 | $ | 106,347 | $ | 2,980,948 | ||||
| Interest payable | 333,000 | 506,685 | 32,640 | $ | 872,325 | |||||||
| Convertible debentures | $ | 1,746,245 | $ | 1,968,041 | $ | 138,987 | $ | 3,853,273 | ||||
| Derivative liabilities | $ | - | $ | 1,444,932 | $ | 125,743 | $ | 1,570,675 | ||||
| Equity component of convertible debentures | $ | 696,671 | $ | - | $ | - | $ | 696,671 | ||||
| For the year ended October 31, 2024: | ||||||||||||
| USD (equity | CAD (embedded | USD (embedded | ||||||||||
| component) | derivative) | derivative) | Total | |||||||||
| Consolidated Statement of Operations and Comprehensive Loss | ||||||||||||
| Accretion expense | $ | 5,636 | $ | 174,437 | $ | 92,428 | $ | 272,501 | ||||
| Interest expense | $ | 329,432 | $ | 262,743 | $ | 10,725 | $ | 602,900 | ||||
| Loss (gain) on revaluation of derivative liabilities | $ | - | $ | 179,315 | $ | (100,400 | ) | $ | 78,915 | |||
| Loss on conversion of convertible debentures | $ | - | $ | - | $ | 45,535 | $ | 45,535 | ||||
| Loss (gain) on repayment of convertible debentures | $ | - | $ | (8,269 | ) | $ | 70,522 | $ | 62,253 | |||
| Loss on extinguishment of convertible debentures | $ | (5,636 | ) | $ | 376,297 | $ | 81,587 | $ | 452,248 | |||
| Consolidated Statement of Changes in Equity | ||||||||||||
| Amount of principal converted to common shares | $ | 159,106 | $ | 60,197 | * | $ | 431,907 | |||||
| Amount of interest converted to common shares | $ | 44,106 | $ | 197 | * | $ | 8,469 | |||||
| Number of common shares issued on conversion of convertible debentures | 5,566,285 | 1,203,945 | 30,035,070 | 36,805,300 |
| Micromem Technologies Inc. Notes to Consolidated Financial Statements For the years ended October 31, 2024, 2023, and 2022 (Expressed in United States dollars, unless otherwise noted) |
11. Convertible debentures (continued)
(a) Current period information presented in the consolidated financial statements
| USD (equity | CAD (embedded | USD (embedded | |||||||||
| component) | derivative) | derivative) | Total | ||||||||
| Consolidated Statement of Cash Flows | |||||||||||
| Amount of principal repaid in cash | $ | 16,000 | $ | 88,326 | $ | 183,134 | $ | 287,460 | |||
| Amount of interest repaid in cash | $ | 14,339 | $ | 58,528 | $ | - | $ | 72,867 |
(i) Conversion price defined as 75% multiplied by the average of the lowest 3 closing stock prices for the 10 trading days prior to conversion date.
(ii) Conversion price defined as 75% multiplied by the lowest stock price for the 20 trading days prior to conversion date.
(b) Comparative information presented in the consolidated financial statements
| Convertible debentures outstanding as at October 31, 2023: | |||||||||||||
| *Denominated in CAD | USD (equity | CAD (embedded | USD (embedded | ||||||||||
| component) | derivative) | derivative) | Total | ||||||||||
| Loan principal outstanding | $ | 1,261,265 | $ | 2,146,715 | * | $ | 405,001 | ||||||
| Terms of loan | |||||||||||||
| Annual stated interest rate | 24.00% | 12% - 24% | 2% - 4% | ||||||||||
| Effective annual interest rate | 24% | 22 - 131% | 24% - 5158% | ||||||||||
| Conversion price to common shares | $ | 0.03 - $0.04 | $ | 0.05 - $0.10 | * | (i) - (ii) | |||||||
| Remaining life (in months) | 0 - 4 | 0 - 11 | 0 - 11 | ||||||||||
| Consolidated Statement of Financial Position | |||||||||||||
| Carrying value of loan principal | $ | 1,261,265 | $ | 1,499,667 | $ | 77,238 | $ | 2,838,170 | |||||
| Interest payable | 344,993 | 334,511 | 30,385 | 709,889 | |||||||||
| Convertible debentures | $ | 1,606,258 | $ | 1,834,178 | $ | 107,623 | $ | 3,548,059 | |||||
| Derivative liabilities | $ | - | $ | 783,650 | $ | 295,743 | $ | 1,079,393 | |||||
| Equity component of convertible debentures | $ | 3,220,473 | $ | - | $ | - | $ | 3,220,473 | |||||
(i) Conversion price defined as 75% multiplied by the average of the lowest 3 closing stock prices for the 10 trading days prior to conversion date.
(ii) Conversion price defined as 75% multiplied by the lowest stock price for the 20 trading days prior to conversion date.
For the year ended October 31, 2023:
| USD (equity | CAD (embedded | USD (embedded | ||||||||||||
| component) | derivative) | derivative) | Total | |||||||||||
| Consolidated Statement of Operations and Comprehensive Loss | ||||||||||||||
| Accretion expense | $ | 18,258 | $ | 243,162 | $ | 18,414 | $ | 279,834 | ||||||
| Interest expense | $ | 273,458 | $ | 254,523 | $ | 12,948 | $ | 540,929 | ||||||
| Gain on revaluation of derivative liabilities | $ | - | $ | (507,186 | ) | $ | (151,317 | ) | $ | (658,503 | ) | |||
| Loss on conversion of convertible debentures | $ | - | $ | - | $ | 21,120 | $ | 21,120 | ||||||
| Loss on repayment of convertible debentures | $ | - | $ | - | $ | 27,243 | $ | 27,243 | ||||||
| Loss on extinguishment of convertible debentures | $ | 33,488 | $ | 1,169,800 | $ | 197,535 | $ | 1,400,823 | ||||||
| Micromem Technologies Inc. Notes to Consolidated Financial Statements For the years ended October 31, 2024, 2023, and 2022 (Expressed in United States dollars, unless otherwise noted) |
11. Convertible debentures (continued)
(b) Comparative information presented in the consolidated financial statements
| USD (equity | CAD (embedded | USD (embedded | ||||||||||||
| component) | derivative) | derivative) | Total | |||||||||||
| Consolidated Statement of Changes in Equity | ||||||||||||||
| Amount of principal converted to common shares | $ | 250,000 | $ | 455,000 | * | $ | 232,700 | |||||||
| Amount of interest converted to common shares | $ | 30,016 | $ | 204,189 | * | $ | 4,654 | |||||||
| Number of common shares issued on conversion of convertible debentures | 6,406,250 | 14,391,709 | 9,548,701 | 30,346,660 | ||||||||||
| Consolidated Statement of Cash Flows | ||||||||||||||
| Amount of principal repaid in cash | $ | - | $ | - | $ | 270,000 | $ | 270,000 | ||||||
| Amount of interest repaid in cash | $ | 12,973 | $ | 47,353 | $ | 4,353 | $ | 64,679 | ||||||
| For the year ended October 31, 2022: | ||||||||||||||
| *Denominated in CAD | USD (equity | CAD (embedded | USD (embedded | |||||||||||
| component) | derivative) | derivative) | Total | |||||||||||
| Consolidated Statement of Operations and Comprehensive Loss | ||||||||||||||
| Accretion expense | $ | 28,000 | $ | 1,086,385 | $ | 65,218 | $ | 1,179,603 | ||||||
| Interest expense | $ | 230,058 | $ | 232,211 | $ | 7,156 | $ | 469,425 | ||||||
| Gain on revaluation of derivative liabilities | $ | - | $ | (379,736 | ) | $ | (29,871 | ) | $ | (409,607 | ) | |||
| Loss on conversion of convertible debentures | $ | - | $ | - | $ | 94,326 | $ | 94,326 | ||||||
| Gain on repayment of convertible debentures | $ | - | $ | (661 | ) | $ | (47,216 | ) | $ | (47,877 | ) | |||
| Loss (gain) on extinguishment of convertible debentures | $ | (28,007 | ) | $ | 99,078 | $ | 129,579 | $ | 200,650 | |||||
| Consolidated Statement of Changes in Equity | ||||||||||||||
| Amount of principal converted to common shares | $ | - | $ | - | * | $ | 712,100 | |||||||
| Amount of interest converted to common shares | $ | - | $ | - | * | $ | 12,680 | |||||||
| Number of common shares issued on conversion of convertible debentures | - | - | 26,443,820 | 26,443,820 | ||||||||||
| Consolidated Statement of Cash Flows | ||||||||||||||
| Amount of principal repaid in cash | $ | - | $ | 7,490 | $ | 56,000 | $ | 63,490 | ||||||
| Amount of interest repaid in cash | $ | 14,941 | $ | 73,524 | $ | - | $ | 88,465 | ||||||
(c) Fair value of derivative liabilities outstanding
The fair value of the derivative liabilities is determined with option pricing models. The underlying assumptions are as follows:
| As at | As at | ||||
| October 31, | October 31, | ||||
| 2024 | 2023 | ||||
| Volatility factor (based on historical volatility) | 140% | - 203% | 114% | - 189% | |
| Risk free interest rate | 3.18% | - 3.50% | 5.11% | - 5.48% | |
| Expected life of conversion features (in months) | 0 - 12 | 0 - 11 | |||
| Expected dividend yield | 0% | 0% | |||
| CDN to USD exchange rate (as applicable) | 0.7186 | 0.7209 | |||
| Call value | $0.02 | - $0.04 | $0.01 | - $0.08 | |
The key unobservable input in these models relates to volatility. Volatility was estimated using the historical volatility of the Company's stock prices for common shares. Changes in these assumptions may affect the fair value estimates of the derivative liabilities.
| Micromem Technologies Inc. Notes to Consolidated Financial Statements For the years ended October 31, 2024, 2023, and 2022 (Expressed in United States dollars, unless otherwise noted) |
12. Warrant liability
During the year ended October 31, 2024, the Company issued warrants as specified in note 13. These warrants were issued in connection with private placements and in debt settlement arrangements. The details of the warrants issued, including the exercise price and expiry date, are disclosed in note 13.
The Company determined that these warrants were exchangeable into a variable number of shares, and as such, the warrants were classified as financial liabilities measured at fair value through profit or loss ("FVTPL"). The Company uses the Black-Scholes pricing model to estimate fair value. Expected volatility has been based on an evaluation of the historical volatility of the Company's share price. The risk-free interest rate for the life of the warrants was based on the yield available on government benchmark bonds with a term approximating the remaining term of the warrants. The life of the warrant is based on the contractual term. The values as at the grant date are as follows:
| At Grant Date | July 18, 2024 | July 24, 2024 | September 24, 2024 | September 26, 2024 |
| Share price | $0.01 | $0.01 | $0.01 | $0.06 |
| ($0.02 CAD) | ($0.02 CAD) | ($0.02 CAD) | ($0.08 CAD) | |
| Exercise price | $0.04 | $0.04 | $0.04 | $0.04 |
| ($0.05 CAD) | ($0.05 CAD) | ($0.05 CAD) | ($0.05 CAD) | |
| Volatility factor (based on historical volatility) | 153% | 155% | 160% | 160% |
| Risk free interest rate | 3.83% | 3.77% | 2.95% | 3.01% |
| Expected life (in years) of warrant | 3 | 3 | 3 | 3 |
| Expected dividend yield | 0% | 0% | 0% | 0% |
As at October 31, 2024, the Company re-valued the warrant liability with the following inputs, assumptions and results, respectively:
| At October 31, 2024 | July 18, 2024 | July 24, 2024 | September 24, 2024 | September 26, 2024 |
| Share price | $0.06 | $0.06 | $0.06 | $0.06 |
| ($0.08 CAD) | ($0.08 CAD) | ($0.08 CAD) | ($0.08 CAD) | |
| Exercise price | $0.04 | $0.04 | $0.04 | $0.04 |
| ($0.05 CAD) | ($0.05 CAD) | ($0.05 CAD) | ($0.05 CAD) | |
| Volatility factor (based on historical volatility) | 156% | 156% | 154% | 155% |
| Risk free interest rate | 3.09% | 3.09% | 3.09% | 3.09% |
| Expected life (in years) of warrant | 3 | 3 | 3 | 3 |
| Expected dividend yield | 0% | 0% | 0% | 0% |
The following summarizes the warrants and broker warrants activity for the year ended October 31, 2024:
| Number of | Grant date Fair | Fair value as at | Weighted average | |||||||||
| warrants | value | year end | exercise price | |||||||||
| Outstanding at October 31, 2022 and 2023 | - | $ | - | $ | - | $ | - | |||||
| Issued in a private placement (note 13 (b) (iv - vii)) | 20,762,220 | 192,300 | 1,021,991 | 0.04 | ||||||||
| Issued for debt settlement (note 13 (b) (vii)) | 1,333,333 | 69,304 | 66,006 | 0.04 | ||||||||
| Outstanding at October 31, 2024 | 22,095,553 | $ | 261,604 | $ | 1,087,997 | $ | 0.04 |
During the year ended October 31, 2024, the Company allocated cash share issuance costs totalling $13,326 to the warrants issued, which were included in other finance expenses in the statement of operations and comprehensive loss. See note 13.
| Micromem Technologies Inc. Notes to Consolidated Financial Statements For the years ended October 31, 2024, 2023, and 2022 (Expressed in United States dollars, unless otherwise noted) |
13. Share capital
(a) Authorized
The Company has two classes of shares as follows:
(i) Special redeemable voting preference shares - 2,000,000 authorized, nil issued and outstanding.
(ii) Common shares without par value - an unlimited number authorized. The holders of the common shares are entitled to receive dividends which may be declared from time to time, and are entitled to one vote per share at shareholder meetings of the Company. All common shares are ranked equally with regards to the Company's residual assets.
(b) Outstanding
| Number | Amount | |||||
| Outstanding at October 31, 2021 | 435,737,734 | $ | 86,815,836 | |||
| Issuance of common shares and units for cash (ix) | 5,012,450 | 207,588 | ||||
| Cash share issuance costs | - | (25,591 | ) | |||
| Shares issued on settlement of accounts payable (vii) | 413,674 | 22,460 | ||||
| Convertible debentures converted into common shares (note 11) | 26,443,820 | 764,432 | ||||
| Outstanding at October 31, 2022 | 467,607,678 | $ | 87,784,725 | |||
| Issuance of common shares and units for cash (viii) | 9,864,500 | 535,525 | ||||
| Cash share issuance costs | - | (25,586 | ) | |||
| Exercise of stock options (note 13 (b)) | 2,550,000 | 434,822 | ||||
| Convertible debentures converted into common shares (note 11) | 30,346,660 | 1,742,226 | ||||
| Outstanding at October 31, 2023 | 510,368,838 | $ | 90,471,712 | |||
| Issuance of common shares and units for cash (i-vi) | 24,478,227 | 439,155 | ||||
| Cash share issuance costs (i, v, vi) | - | (24,520 | ) | |||
| Broker warrants issued (i, iv) | - | (3,909 | ) | |||
| Shares issued on settlement of accounts payable (vii) | 1,333,333 | 79,167 | ||||
| Convertible debentures converted into common shares (note 11) | 36,805,300 | 716,674 | ||||
| Outstanding at October 31, 2024 | 572,985,698 | $ | 91,678,279 |
(i) On December 22, 2023, the Company completed a brokered private placement and issued 1,900,000 common shares at price of $0.045 per share for gross proceeds of $84,937. The Company incurred share issuance costs totaling $3,544 and finder's fees of $2,796 paid in cash and issued 63,000 broker warrants in connection with its private placement, with a fair value of $3,208. See note 14. The broker warrants can be exercised at any time, on a one for one basis, at a price of $0.07 ($0.095 CAD) per share, until December 22, 2025.
(ii) On January 24, 2024, the Company completed a non-brokered private placement and issued 500,000 common shares at price of $0.055 per share for gross proceeds of $27,735. There were no finder's fees or other share issuance costs paid in connection with the financing.
(iii) On March 18, 2024, the Company completed a non-brokered private placement and issued 1,316,007 common shares at price of $0.0481 per share for gross proceeds of $63,185. There were no finder's fees or other share issuance costs paid in connection with the financing.
(iv) On July 18, 2024, the Company closed a brokered private placement of 3,979,800 units at $0.02 per unit for gross proceeds of $87,181. Each unit consists of one common share of the Company and one common share purchase warrant. Each warrant entitles the holder to purchase one common share of the Company at a price of $0.04 (CAD $0.05) for a period of 3 years following the issue date of the units. The Company has estimated the fair value of these warrants at $36,345 using the Black-Scholes option pricing model. See note 12. All securities issued are subject to a 4 month hold period expiring November 19, 2024. The Company issued 184,000 broker warrants in connection with its private placement with a fair value of $1,680. The Company allocated $979 to the common shares and $701 to the warrants issued. See note 14.
(v) On July 24, 2024, the Company closed a non-brokered private placement of 4,950,000 units at $0.02 (CAD $0.03) per unit for gross proceeds of $108,435. Each unit consists of one common share of the Company and one common share purchase warrant. Each warrant entitles the holder to purchase one common share of the Company at a price of $0.04 (CAD $0.05) for a period of 3 years following the issue date of the units. The Company has estimated the fair value of these warrants at $45,521 using the Black-Scholes option pricing model. See note 12. All securities issued are subject to a 4 month hold period expiring November 25, 2024. There were no finder's fee paid in connection with the financing.
On July 24, 2024 (together with the private placement on July 18, 2024), the Company incurred cash share issuance costs totaling $9,157. The Company allocated $5,325 to the common shares and $3,833 to the warrants issued.
| Micromem Technologies Inc. Notes to Consolidated Financial Statements For the years ended October 31, 2024, 2023, and 2022 (Expressed in United States dollars, unless otherwise noted) |
13. Share capital (continued)
(vi) On September 24, 2024, the Company closed a non-brokered private placement of 11,832,420 units at $0.02 (CAD $0.03) per unit for gross proceeds of $259,982. Each unit consists of one common share of the Company and one common share purchase warrant. Each warrant entitles the holder to purchase one common share of the Company at a price of $0.04 (CAD $0.05) for a period of 3 years following the issue date of the units. The Company has estimated the fair value of these warrants at $110,434 using the Black-Scholes option pricing model. See note 12. All securities issued are subject to a 4 month hold period expiring January 25, 2025. There were no finder's fee paid in connection with the financing. The Company incurred cash share issuance costs totaling $22,348 and allocated $12,855 to the common shares and $9,493 to the warrants issued.
(vii) During the year ended October 31, 2024, $29,687 (2023 - $nil) of accounts payable was settled in exchange for the issuance of 1,333,333 (2023 - nil) units. Each unit consists of one common share of the Company and one common share purchase warrant. Each warrant entitles the holder to purchase one common share of the Company at a price of $0.04 (CAD $0.05) for a period of 3 years following the issue date of the units. The Company has estimated the fair value of the common shares at $79,167 and the fair value of the warrants at $69,304 using the Black-Scholes option pricing model. See note 12. A loss on debt settlement in the amount of $118,784 was recognized in the statement of operations and comprehensive loss.
During the year ended October 31, 2022, $22,460 of accounts payable was settled in exchange for 413,674 common shares. There was no gain or loss recognized upon settlement.
(viii) In 2023, the Company completed 26 private placements with investors consisting of common shares with no warrants, pursuant to prospectus and registration exemptions set forth in applicable securities law. The Company received net proceeds of $509,939 and issued a total of 9,864,500 common shares.
(ix) In 2022, the Company completed 9 private placements with investors consisting of common shares with no warrants, pursuant to prospectus
and registration exemptions set forth in applicable securities law. The Company received net proceeds of $181,997 and issued a total of 5,012,450 common shares.
14. Warrants
The following summarizes the broker warrants acitivty for the year ended October 31, 2024:
| Number of | Grant date Fair | Weighted average | |||||||
| warrants | value | exercise price | |||||||
| Outstanding at October 31, 2022 and 2023 | - | $ | - | $ | - | ||||
| Broker warrants issued (note 13 (b), (i, iv)) | 247,000 | 3,909 | 0.04 | ||||||
| Outstanding at October 31, 2024 | 247,000 | $ | 3,909 | $ | 0.04 |
The Company uses the Black-Scholes pricing model to estimate fair value. Expected volatility has been based on an evaluation of the historical volatility of the Company's share price. The risk-free interest rate for the life of the warrants was based on the yield available on government benchmark bonds with an approximate equivalent remaining term at the time of issue. The life of the warrant is based on the contractual term.
| At Grant Date | July 18, 2024 | December 22, 2023 |
| Share price | $0.01 | $0.07 |
| ($0.02 CAD) | ($0.095 CAD) | |
| Exercise price | $0.04 | $0.07 |
| ($0.05 CAD) | ($0.095 CAD) | |
| Volatility factor (based on historical volatility) | 153% | 146% |
| Risk free interest rate | 3.83% | 4.02% |
| Expected life (in years) of warrant | 3 | 2 |
| Expected dividend yield | 0% | 0% |
The following table summarizes the warrants outstanding and exercisable as at October 31, 2024:
| Expiry date | Number if warrants | Exercise price | Remaining contractual life |
| December 22,2025 | 63,000 | $0.07 ($0.095 CAD) | 1.14 |
| July 18, 2027 | 184,000 | $0.04 ($0.05 CAD) | 2.71 |
| 247,000 |
| Micromem Technologies Inc. Notes to Consolidated Financial Statements For the years ended October 31, 2024, 2023, and 2022 (Expressed in United States dollars, unless otherwise noted) |
15. Stock options
(a) Stock option plan
Under the Company's fixed stock option plan (the "Plan"), the Company could grant up to 27,500,000 shares of common stock to directors, officers, employees or consultants of the Company and its subsidiaries. The exercise price of each option is equal to or greater than the market price of the Company's shares on the date of grant unless otherwise permitted by applicable securities regulations. An option's maximum term under the Plan is 10 years. Stock options are fully vested upon issuance by the Company unless the Board of Directors stipulates otherwise by Directors' resolution.
(b) Summary of changes
| Weighted average | ||||||
| Number of options | exercise price | |||||
| Outstanding at October 31, 2022 | 11,725,000 | $ | 0.06 | |||
| Granted | 3,000,000 | 0.09 | ||||
| Expired | (2,400,000 | ) | 0.08 | |||
| Exercised (i) | (2,550,000 | ) | 0.09 | |||
| Outstanding at October 31, 2023 | 9,775,000 | $ | 0.06 | |||
| Expired | (1,025,000 | ) | 0.12 | |||
| Outstanding at October 31, 2024 | 8,750,000 | $ | 0.06 |
(i) During the year ended October 31, 2023, the Company issued a total of 2,550,000 common shares related to the exercise of stock options for gross proceeds of $214,140.
(c) Stock options outstanding at October 31, 2024
There were nil options issued to directors, officers, employees and consultants during the year ended October 31, 2024 (2023 - 3,000,000, 2022 - nil options issued).
| Weighted average | |||||||||
| Remaining | |||||||||
| Date of issue | Expiry date | Number of options | Exercise price | contractual life | |||||
| November 13, 2020 | November 13, 2025 | 5,750,000 | $ | 0.05 | 1.0 | ||||
| October 8, 2021 | October 8, 2026 | 1,000,000 | 0.07 | 1.9 | |||||
| March 20, 2023 | March 20, 2028 | 2,000,000 | 0.07 | 3.4 | |||||
| Outstanding at October 31, 2024 | 8,750,000 | $ | 0.06 | 1.7 | |||||
Of the total options outstanding, 8,750,000 are exercisable as at October 31, 2024 (2023 - 9,525,000).
(d) Fair value of options issued during the year
The fair value of the stock options issued has been determined in accordance with the Black Scholes option-pricing model. Volatility was estimated using the historical volatility of the Company's stock prices for its common shares. The underlying assumptions are as follows:
| 2024 | 2023 | 2022 | ||||
| Share price at grant date | - | $0.07 - $0.12 | $0.03 - $0.05 | |||
| Exercise price | - | $0.07 - $0.12 | $0.07 | |||
| Volatility factor | - | 175% - 184% | 212% - 272% | |||
| Risk free interest rate | - | 2.79% - 3.58% | 0.97% - 4.33% | |||
| Expected life of options in years | - | 1 - 5 | 1 - 2 | |||
| Expected divided yield | - | 0% | 0% | |||
| Forfeiture rate | - | 0% | 0% | |||
| Weighted average Black Scholes value at grant date | - | $0.06 - $0.08 | $0.02 - $0.03 | |||
During the year ended October 31, 2024, the Company recorded an expense of $6,517 related to the vesting of stock options (2023 - $217,965, 2022 - $41,484).
| Micromem Technologies Inc. Notes to Consolidated Financial Statements For the years ended October 31, 2024, 2023, and 2022 (Expressed in United States dollars, unless otherwise noted) |
16. Operating expenses
(a) General and administration
The components of general and administration expenses are as follows:
| Notes | 2024 | 2023 | 2022 | ||||||||
| General and administration | $ | 42,113 | $ | 70,584 | $ | 59,938 | |||||
| Rent and occupancy | 10 (b) | 18,514 | 17,663 | 50,907 | |||||||
| Office insurance | 1,986 | 1,930 | 1,696 | ||||||||
| Investor relations, listing and filing fees | 77,535 | 52,756 | 64,769 | ||||||||
| Telephone | 6,488 | 5,683 | 8,056 | ||||||||
| $ | 146,636 | $ | 148,616 | $ | 185,366 | ||||||
(b) Professional, other fees and salaries
The components of professional, other fees and salaries expenses are as follows:
| 2024 | 2023 | 2022 | |||||||
| Professional fees | $ | 98,412 | $ | 144,244 | $ | 110,933 | |||
| Consulting fees | 40,977 | 67,664 | 69,563 | ||||||
| Salaries and benefits | 252,017 | 398,144 | 467,214 | ||||||
| $ | 391,406 | $ | 610,052 | $ | 647,710 |
17. Loss per share
Basic and diluted loss per share are calculated using the following numerators and denominators:
| 2024 | 2023 | 2022 | |||||||
| Numerator | |||||||||
| Net loss attributable to common shareholders and used in computation of basic and diluted loss per share | $ | (3,062,798 | ) | $ | (2,691,670 | ) | $ | (2,287,095 | ) |
| Denominator | |||||||||
| Weighted average number of common shares for computation of basic and diluted loss per share | 529,474,454 | 490,310,376 | 451,177,796 |
For the years ended October 31, 2024, 2023 and 2022, all stock options, warrants and conversion features were anti-dilutive and, therefore, are excluded from the calculation of diluted loss per share.
18. Supplemental cash flow information
The following provides a reconciliation of the cash flows from convertible debentures and derivative liabilities :
| Years ended October 31, | |||||||||
| 2024 | 2023 | 2022 | |||||||
| Balance - beginning of year | $ | 4,627,452 | $ | 4,433,363 | $ | 3,239,483 | |||
| Cash flows from financing activities: | |||||||||
| Proceeds from issuance of convertible debentures | 417,950 | 645,151 | 765,671 | ||||||
| Repayments of convertible debentures | (287,460 | ) | (270,000 | ) | (63,490 | ) | |||
| Non-cash changes: | |||||||||
| Accretion expense | 272,501 | 279,834 | 1,179,603 | ||||||
| Accrued interest on convertible debentures | 530,033 | 471,596 | 368,280 | ||||||
| Loss (gain) on repayment of convertible debentures | 62,253 | 27,243 | (47,877 | ) | |||||
| Loss on conversion of convertible debentures | 45,535 | 21,120 | 94,326 | ||||||
| Loss (gain) on revaluation of derivative liabilities | 78,915 | (658,503) | (409,607 | ) | |||||
| Loss on extinguishment of debt | 388,985 | 1,400,823 | 200,650 | ||||||
| Convertible debentures converted into common shares | (680,701 | ) | (1,656,422 | ) | (764,432 | ) | |||
| Foreign exchange (gain) loss | (31,515 | ) | (66,753 | ) | (129,244 | ) | |||
| Balance - end of year | $ | 5,423,948 | $ | 4,627,452 | $ | 4,433,363 | |||
| Micromem Technologies Inc. Notes to Consolidated Financial Statements For the years ended October 31, 2024, 2023, and 2022 (Expressed in United States dollars, unless otherwise noted) |
19. Income taxes
(a) The reconciliation of income tax attributed to continuing operations computed at the statutory tax rates to income tax expense is as follows:
| 2024 | 2023 | 2022 | |||||||
| Loss before income taxes | $ | (3,062,798 | ) | $ | (2,691,670 | ) | $ | (2,287,095 | ) |
| Statutory tax rate | 26.5% | 26.5% | 26.5% | ||||||
| Expected income tax recovery | $ | (811,641 | ) | $ | (713,293 | ) | $ | (606,080 | ) |
| Accretion expense and loss (gain) on convertible debentures and derivative liabilities | 224,771 | 283,688 | 269,531 | ||||||
| Stock-based compensation | 1,727 | 57,761 | 10,992 | ||||||
| Non-deductible (non-taxable) expenses and financing costs | 239,387 | (13,660) | (3,780 | ) | |||||
| Effect of changes in exchange rates | 30,403 | 74,714 | 940,577 | ||||||
| Change in deferred tax assets not recognized | 315,353 | 310,790 | (611,240 | ) | |||||
| $ | - | $ | - | $ | - |
(b) Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows:
| 2024 | 2023 | 2022 | |||||||
| Non-capital losses | $ | 9,163,035 | $ | 8,833,940 | $ | 8,485,255 | |||
| Capital losses | 159,162 | 159,671 | 162,275 | ||||||
| Property, equipment, patents and deferred costs | 1,591,255 | 1,605,743 | 1,639,306 | ||||||
| $ | 10,913,452 | $ | 10,599,354 | $ | 10,286,836 | ||||
| Deferred tax asset not recognized | (10,913,452 | ) | (10,599,354 | ) | (10,286,836 | ) | |||
| $ | - | $ | - | $ | - |
As at October 31, 2024 and 2023, the Company assessed that it is not probable that sufficient taxable profit will be available to use deferred income tax assets based on operating losses in prior years; therefore, there are no balances carried in the consolidated statements of financial position for such assets.
(c) The Company has non-capital losses of approximately $34 million available to reduce future taxable income, the benefit of which has not been recognized in these consolidated financial statements. As at October 31, 2024, the tax losses expire as follows:
| Canada | United States | Total | |||||||
| 2026 | $ | 1,726,462 | $ | - | $ | 1,726,462 | |||
| 2027 | 1,451,819 | - | 1,451,819 | ||||||
| 2028 | - | - | - | ||||||
| 2029 | 1,487,922 | 143,721 | 1,631,643 | ||||||
| 2030 | 2,007,595 | 1,880,897 | 3,888,492 | ||||||
| 2031 | 1,209,514 | 18,526 | 1,228,040 | ||||||
| 2032 | 1,340,456 | 325,793 | 1,666,249 | ||||||
| 2033 | 1,624,764 | 157,463 | 1,782,227 | ||||||
| 2034 | 2,350,482 | 679,089 | 3,029,571 | ||||||
| 2035 | 2,656,250 | 570,901 | 3,227,151 | ||||||
| 2036 | 3,117,259 | 441,019 | 3,558,278 | ||||||
| 2037 | 2,495,456 | 232,714 | 2,728,170 | ||||||
| 2038 | 1,687,021 | 317 | 1,687,338 | ||||||
| 2039 | 1,509,112 | - | 1,509,112 | ||||||
| 2040 | 508,349 | - | 508,349 | ||||||
| 2041 | 880,801 | - | 880,801 | ||||||
| 2042 | 1,250,158 | - | 1,250,158 | ||||||
| 2043 | 1,484,853 | - | 1,484,853 | ||||||
| 2044 | 1,338,776 | - | 1,338,776 | ||||||
| $ | 30,127,050 | $ | 4,450,440 | $ | 34,577,490 |
(d) In addition, the Company has available capital loss carryforwards of approximately $1.2 million to reduce future taxable capital gains, the benefit of which has not been recognized in these consolidated financial statements. Capital losses carry forward indefinitely.
| Micromem Technologies Inc. Notes to Consolidated Financial Statements For the years ended October 31, 2024, 2023, and 2022 (Expressed in United States dollars, unless otherwise noted) |
20. Key management compensation and related party transactions
The Company reports the following related party transactions:
(a) Key management compensation
Key management personnel are persons responsible for planning, directing and controlling activities of the Company, including officers and directors. Compensation paid or payable to these individuals (or companies controlled by such individuals) is summarized as follows:
| 2024 | 2023 | 2022 | |||||||
| Professional, other fees, and salaries | $ | 77,823 | $ | 214,914 | $ | 133,517 | |||
| Stock-based compensation | - | 82,946 | - | ||||||
| $ | 77,823 | $ | 297,860 | $ | 133,517 |
During the year ended October 31, 2024, there were no options awared to key management. During the year ended October 31, 2023, key management were awarded 1,340,000 options as part of the total 3,000,000 issued. See note 15.
(b) Trade payables and other liabilities
Included in accounts payable at October 31, 2024 is $28,161 payable to a corporation controlled by an officer of the Company (2023 - $nil). In addition, at October 31, 2024, accounts payable includes $2,436 payable to a director (2023 - $2,173).
21. Commitments and Contingencies
(a) The Company has agreed to indemnify its directors and officers and certain of its employees in accordance with the Company's by-laws. The Company maintains insurance policies that may provide coverage against certain claims.
(b) The Company has previously reported on the lawsuit filed by Mr. Steven Van Fleet against Micromem, the Company's response to the lawsuit and its counterclaims against Mr. Van Fleet.
On April 29, 2021 the matter was resolved in Micromem's favor when the Court dismissed Mr. Van Fleet's claims and ruled that he was liable to the Company and to
MAST on their counterclaims. On June 16, 2021, the Court ruled that Micromem and MAST had established damages totaling $765,579 representing the full amount that had been requested; furthermore, the Court awarded costs and statutory prejudgment interest from May 9, 2017. On June 29, 2021 the Court entered a judgement in favor of Micromem and MAST for a total amount of $1,051,739.
With respect to the Company's efforts to collect on that Judgement, a settlement ("Settlement") was reached during October 2021. Pursuant to the Settlement, the Company received an initial one-time payment and is entitled to additional monthly payments over a period of up to six years. The Company will record those payments as and when they are received. The total amount to be received by the Company if Mr. Van Fleet makes all the required payments under the terms of the Settlement will be less than the amount of the Judgement obtained by the Company, but if Mr. Van Fleet does not comply with the terms of the Settlement, it also provides the Company a means of enforcing a larger judgement against Mr. Van Fleet that is substantially in line with the Judgement. Mr. Van Fleet has made the prescribed monthly payments each month since October 2021.
The Company reports the recovery of this contingent asset as funds are received. In the year ended October 31, 2024 the Company has recorded a recovery of $26,648 as a reduction of legal expenses (2023 - $23,555, 2022 - $9,040). At October 31, 2024 $nil of the recovery is recorded as other receivable on the consolidated statement of financial position (2023 - $11,705).
(c) On November 1, 2023, a former employee filed a statement of claim against the Company relating to employment termination without reasonable notice. The Company filed a statement of defence and counterclaim on November 29, 2023 denying all liability to the former employee. In August 2024, management attended legal discoveries and presented the Company's position. The matter proceeded to non-binding arbitration in October 2024 which ended without reaching to an agreement. The Company considers the claim of the former employee to be largely and likely without merit and therefore, no provision has been recorded in these consolidated financial statements.
(d) On March 23, 2023, the Company signed a letter of intent (the "LOI") with companies incorporated in Romania (the "Parties") whereby the Parties intend to collaborate for the development of certain hardware equipment (the "Project"). Under the LOI, the Parties will provide full payment for the hardware equipments and the Company will provide all engineering support and expertise as required. At October 31, 2024 a formal agreement relating to the Project has not been executed.
As at October 31, 2024, the Company received total advances of $63,000 from the Parties and has paid $126,000 to a third party for the construction of the hardware equipment. The Company has recorded the total advances as a deposit liability and the third party payments as a prepaid expense on the consolidated statement of financial position.
| Micromem Technologies Inc. Notes to Consolidated Financial Statements For the years ended October 31, 2024, 2023, and 2022 (Expressed in United States dollars, unless otherwise noted) |
22. Capital risk management
The Company's objectives when managing capital are to (i) maintain its ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders, (ii) ensure it has sufficient cash resources to further develop and market its technologies and (iii) maintain its ongoing operations. The Company defines its capital as its net assets, i.e. total assets less total liabilities. In order to secure the additional capital necessary to pursue these objectives, the Company may attempt to raise additional funds through the issuance of equity or convertible debentures or by securing strategic partners. The Company is not subject to externally imposed capital requirements and there has been no change with respect to the overall capital risk management strategy during the year ended October 31, 2024.
23. Financial risk management
(a) Currency risk
Currency risk is the risk that the fair value of, or future cash flows from, the Company's financial instruments will significantly fluctuate due to changes in foreign exchange rates. The Company is exposed to currency risk to the extent that it incurs expenses and issues convertible debentures denominated in Canadian dollars (CAD). The Company manages currency risk by monitoring the Canadian dollar position of these monetary financial instruments on a periodic basis throughout the course of the reporting period.
As at October 31, 2024, and October 31, 2023, balances that are denominated in CAD are as follows:
| As at | As at | |||||
| October 31, | October 31, | |||||
| 2024 | 2023 | |||||
| CAD | CAD | |||||
| Cash | $ | 34,362 | $ | 38,444 | ||
| Other receivables | $ | 10,182 | $ | 29,080 | ||
| Trade payables and other liabilities | $ | 439,667 | $ | 290,311 | ||
| Convertible debentures | $ | 2,738,716 | $ | 2,544,289 | ||
| Debenture payable | $ | 52,031 | $ | 52,031 | ||
| Derivative liabilities | $ | 2,010,760 | $ | 1,087,044 | ||
| Warrant liabilities | $ | 1,514,051 | $ | - | ||
| Long-term loan | $ | 62,351 | $ | 60,000 |
A 10% strengthening of the US dollar against the CAD dollar would decrease net loss and comprehensive loss by $487,000 as at October 31, 2024 (October 31, 2023 - decrease net loss and comprehensive loss by $260,000). A 10% weakening of the USD against the CAD would have the opposite effect of the same magnitude.
(b) Interest rate risk
Interest rate risk is the risk that the fair value of, or future cash flows from, the Company's financial instruments will significantly fluctuate due to changes in market interest rates. The Company is exposed to interest rate risk on its interest-bearing convertible debentures, long-term loan and debenture payable. The exposure to interest rates on convertible debentures and the debenture payable is limited due to the short-term nature of these instruments. The Company's long-term loan is at a fixed interest rate. The exposure to interest rates for the Company is considered minimal.
(c) Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Company has exposure to credit risk from its cash and receivables. The maximum exposure to credit risk is the carrying value of these financial assets, which amounted to $125,705 as at October 31, 2024 (October 31, 2023 - $43,289).
The risk for cash is mitigated by holding these balances with with central banks and financial institution counterparties that are highly rated. The Company therefore does not expect any credit losses on its cash.
The risk of credit loss on receivable is substantially mitigated by assessing the credit quality of counterparties, taking into account their financial position, past experience and other factors. Management actively monitors the Company's exposure to credit risk under its financial instruments, including with respect to other receivables.
| Micromem Technologies Inc. Notes to Consolidated Financial Statements For the years ended October 31, 2024, 2023, and 2022 (Expressed in United States dollars, unless otherwise noted) |
23. Financial risk management (continued)
(d) Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company's policy is to review liquidity resources and ensure that sufficient funds are available to meet financial obligations as they become due. Further, the Company's management is responsible for ensuring funds exist and are readily accessible to support business opportunities as they arise. With the exception of the long-term loan, all financial liabilities are due within 1 year as at October 31, 2024.
(i) Trade payables
The following represents an analysis of the maturity of trade payables:
| As at | As at | |||||
| October 31, | October 31, | |||||
| 2024 | 2023 | |||||
| Over 30 days past billing date | $ | 336,575 | $ | 209,285 | ||
| $ | 336,575 | $ | 209,285 |
(ii) Convertible debentures and derivative liabilities
The following represents an analysis of the maturity of the convertible debentures and derivative liabilities:
| As at October 31, | As at October 31, | |||||||||||
| 2024 | 2023 | |||||||||||
| Convertible debentures |
Debenture payable | Convertible debentures |
Debenture payable | |||||||||
| Less than three months | $ | 2,492,556 | $ | 37,389 | $ | 2,451,614 | $ | 37,509 | ||||
| Three to six months | 1,376,673 | 1,038,355 | - | |||||||||
| Six to twelve months | 171,250 | 433,815 | - | |||||||||
| $ | 4,040,479 | $ | 37,389 | $ | 3,923,784 | $ | 37,509 | |||||
(iii) Warrant liabilities
The following represents an analysis of the maturity of warrant liabilities:
| As at | As at | |||||
| October 31, | October 31, | |||||
| 2024 | 2023 | |||||
| Less than one year | $ | - | $ | - | ||
| Between one to five years | 1,087,997 | - | ||||
| Greater than five years | - | - | ||||
| $ | 1,087,997 | $ | - |
(iv) Long-term debt
The following represents an analysis of the maturity of warrant liabilities:
| As at | As at | |||||
| October 31, | October 31, | |||||
| 2024 | 2023 | |||||
| Less than one year | $ | - | $ | - | ||
| Between one to five years | 49,477 | 43,254 | ||||
| Greater than five years | - | - | ||||
| $ | 49,477 | $ | 43,254 |
24. Subsequent events
Subsequent to October 31, 2024:
(a) The Company secured six (6) private placements with investors consisting of common shares and warrants pursuant to prospectus and registrations set forth in applicable securities law. It realized net proceeds of $405,000 CDN ($285,125 USD) and issued a total of 8,100,000 common shares.
(b) The Company secured $57,500 USD in convertible debentures with a 12 month term and conversion features which become effective six months after initiation date.
(c) The Company converted $44,106 USD of convertible debentures and accrued interest through the issuance of 1,600,588 common shares.
(d) The Company issued 1,679,800 common shares upon an exercise of warrants realizing net proceeds of $83,990 CDN ($58,344 USD).
(e) The Company made partial payments of $16,000 USD and of $5,000 USD towards convertible debentures.
(f) The Company extended convertible debentures that were within 3 months of maturity date from October 31, 2024 for an additional three (3) to six (6) months.
| MICROMEM TECHNOLOGIES INC. |
| MANAGEMENT'S DISCUSSION AND ANALYSIS |
| FOR THE FISCAL YEAR ENDED OCTOBER 31, 2024 PREPARED AS OF FEBRUARY 25, 2025. |
NOTICE TO READER
The Management's Discussion and Analysis ("MD&A") report for Micromem Technologies Inc. for the fiscal year October 31, 2024, as attached, is dated as of February 25, 2025, consistent with the date of the Independent Registered Public Accounting Firm report and with the original 52-109 CEO and CFO certification filings related thereto.
| /s/ Dan Amadori | /s/ Joseph Fuda |
| Dan Amadori, CFO | Joseph Fuda, CEO |
| February 25, 2025 | February 25, 2025 |
| MICROMEM TECHNOLOGIES INC. |
| MANAGEMENT'S DISCUSSION AND ANALYSIS |
| FOR THE FISCAL YEAR ENDED OCTOBER 31, 2024 PREPARED AS OF FEBRUARY 25, 2025. |
INTRODUCTION
The following sets out the Management's Discussion and Analysis ("MD&A") of the financial position and result of operations for the fiscal year ending October 31, 2024, of Micromem Technologies Inc. (the "Company", "Micromem" or "we"). The MD&A should be read in conjunction with the Company's audited consolidated financial statements and accompanying notes for the fiscal years ending October 31, 2024, and 2023 which are prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. Additional information regarding the Company is available on the SEDAR website at www.sedar.com.
The Company's shares are traded on the OTCQB under the symbol MMTIF and on the Canadian Securities Exchange ("CSE") under the symbol MRM. In November 2007, the Company incorporated Micromem Applied Sensor Technologies Inc. ("MAST") for the purpose of moving forward with the planned commercialization of its technology.
Certain information provided by the Company in this MD&A and in other documents publicly filed throughout the year that are not recitation of historical facts may constitute forward-looking statements. The words "may", "would", "could", "will", "likely", "estimate", "believe", "expect", "forecast" and similar expressions are intended to identify forward-looking statements.
Readers are cautioned that such statements are only predictions, and the actual events or results may differ materially. In evaluating such forward-looking statements, readers should specifically consider the various factors that could cause actual events or results to differ materially from those indicated by such forward-looking statements.
FORWARD LOOKING STATEMENTS
This MD&A contains forward-looking statements and forward-looking information within the meaning of applicable Canadian securities legislation ("forward looking statements"). Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions, potentials, future events or performance (often, but not always, using words or phrases such as "believes", "expects" or "does not expect", "is expected", "anticipates" or "does not anticipate", or "intends" or stating that certain actions, events or results "may", "could", "would", "might" or "will" be taken or achieved) are not statements of historical fact, but are "forward-looking statements". Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company, or developments in the Company's business or in its industry, to differ materially from the anticipated results, performance, achievements, or developments expressed or implied by such forward-looking statements. Forward-looking statements include disclosure regarding possible events, conditions or results of operations that are based on assumptions about future conditions, courses of action and consequences. Forward-looking statements may also include, without limitation, any statement relating to future events, conditions, or circumstances. The Company cautions you not to place undue reliance upon any such forward-looking statements, which speak only as of the date they are made. Forward-looking statements relate to, among other things, the successful commercialization of our technology, comments about potential future revenues, joint development agreements and expectations of signed contracts with customers, etc. A number of inherent risks, uncertainties and factors affect the operations, performance and results of the Company and its business, and could cause actual results to differ materially from current expectations of estimated or anticipated events or results. Some of these risks and uncertainties include the risk of not securing required capital in future, the risks of not successfully concluding agreements with potential partners on a timely basis and the risks associated with commercializing and bringing to market our technology. These risks are affected by certain factors that are beyond the Company's control: the existence of present and possible future government regulation, competition that exists in the Company's business, uncertainty of revenues, markets and profitability, as well as those other factors discussed in this MD&A report. This list is not exhaustive of the factors that may affect any of the Company's forward-looking statements and reference should also be made to the Company's Annual Information Form (prepared and filed in the form of a Form 20-F Annual Report pursuant to The Securities Exchange Act of 1934) for a description of risk factors.
Although the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. The Company does not undertake to update any forward-looking statements that are incorporated by reference herein, except in accordance with applicable securities law.
**********
| MICROMEM TECHNOLOGIES INC. |
| MANAGEMENT'S DISCUSSION AND ANALYSIS |
| FOR THE FISCAL YEAR ENDED OCTOBER 31, 2024 PREPARED AS OF FEBRUARY 25, 2025. |
TABLE OF CONTENTS:
| MICROMEM TECHNOLOGIES INC. |
| MANAGEMENT'S DISCUSSION AND ANALYSIS |
| FOR THE FISCAL YEAR ENDED OCTOBER 31, 2024 PREPARED AS OF FEBRUARY 25, 2025. |
1. OVERVIEW
Micromem is actively pursuing business opportunities in Romania. It has been engaged in discussions with Romgaz, the state-controlled gas company in Romania for the past 21 months. Under the Romgaz umbrella, the Company has also been pursuing discussions to complete multiple projects with Petrom, the state-controlled oil company and with Transelectrica, the major public utility and interconnection company in Romania.
Our ongoing discussions are with the University of Ploiesti who conducts all of the research and development efforts for oil and gas technology applications on behalf of the national energy companies in Romania.
The Company has previously completed a successful interwell tracer program with Chevron, utilizing a technology application for interwell tracing in operating oil wells. The technology was developed in conjunction with a Silicon Valley-based design and engineering group who developed the technology which is, hereinafter, referred to as ARTRA. The testing of a prototype analyzer was completed in Lost Hills, California with Chevron in 2019-2020. The Company and Chevron committed approximately $5 million to this initiative. We met most recently with Chevron personnel in September 2024 in their Houston offices. We are maintaining an active dialogue with Chevron with respect to future business opportunities. who has requested a "white paper" report on tracer technologies.
Micromem engaged the research team at the University of Toronto ( or "U of T") in December 2024 to prepare this white paper report. The U of T has since submitted their report to Micromem in January 2025; in turn, Micromem has submitted this report to Chevron.
Additionally, on February 10, 2025 Micromem announced a new collaboration with the University of Toronto Defense Research and Development Canada ("DRDC") and the Natural Sciences and Engineering Research Council of Canada ("NSERC"). The primary objectives and goals of this collaboration ("the Project") are to develop cutting-edge technology for military and industrial applications, specifically in the field of state-of-the-art biochemical sensors ("the Technology"). This program was initiated in 2023 at the University of Toronto and has, to date, made significant strides in advancing the Technology. NSERC is providing a portion of the funding for the Project.
Micromem will have an exclusive worldwide license to the intellectual property and any patents created through the Project, which is expected to have application for both military and commercial use. Notable progress to date includes the development of artificial intelligence and machine learning capabilities.
The Company continues to raise capital for its ongoing operations; working capital continues to be constrained. The Company's financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS"). Under IFRS we report our complex financial instruments (convertible debentures) with quarterly remeasurement of the debentures and the related derivative liabilities. The result in such quarterly remeasurements is that the Company reports significant non-cash expenses in each quarter which have a material impact on our financial statement presentation. This matter is more fully addressed in the body and in Appendix 1 of this MD&A report.
Our litigation with Steve Van Fleet, a former officer of the Company, was resolved in our favour in 2021. The Company has been receiving monthly payments from Mr. Van Fleet as part of the settlement agreement that was struck; these monthly payments are scheduled to continue through September, 2027.
The Company has now returned to more normalized operations in the post COVID-19 era. We relocated our offices to smaller, less expensive premises in 2022. We have four personnel who manage the Company's operations including Joseph Fuda, our President & CEO and Dan Amadori, our Chief Financial Officer, both of whom are our named executives.
The Company held its Annual General Meeting of Shareholders on Monday, April 22, 2024 for the fiscal years through October 31, 2023. At the meeting, the incumbent of directors - Joseph Fuda, Alex Dey and Oliver Nepomuceno were reelected to our Board of Directors.
2. BUSINESS DEVELOPMENTS IN 2024:
Romgaz: The Company notes the following developments in 2024:
As previously reported a senior team of technical advisors has been enlisted by Romgaz to assist in the execution of our go forward workplan. This development team includes representation from the University of Oil and Gas of Ploiesti in Romania ("the University"). This team will be directed by Professor Dan Ioan Gheorghui, PhD. who serves as the President of the Romanian chapter of the World Energy Council. The team also includes Professor Alin Dinita, PhD. who serves as the Head of Development Strategies and the Faculty of Mechanical and Electrical Engineering at the University of Ploiesti and Professor Alin Dinita, PhD. who serves as Pro-Dean of the Faculty of Electrical Engineering.
During 2024, Micromem maintained a dialogue with these technical advisors enlisted by Romgaz in anticipation of moving forward with our go forward work plan.
The work plan developed more slowly than originally anticipated during 2024.We did receive a purchase order for the first two of the ARTRA units. The first of these units has been built by our engineering subcontractor, Entanglement Technologies and delivered to Toronto after October 31st where it is currently held for shipment to Romania in early 2025. Micromem has received an initial payment of 50% of the total purchase price from Romgaz for the first unit and expects the balance of payment before March 31st, 2025.
Micromem is now evaluating hardware enhancements for the initial unit received so as to make this unit fully functional for oil and gas well in field measurements. The Company continues to pursue the automated sampler system application with Chevron and with other industry participants including the lead engineer involved in the original sampler design and patent application. The automated sampler will be integrated with the ARTRA unit for field installation on a natural gas well, advancing the development of the second configuration of the Unit as a well-mounted and fully automated unit, tailored specifically for gas wells.
Once the initial unit is sent to the University, it will be assessed and tested and we expect it to then be certified. Pending such certification, Micromem anticipates that it will receive additional orders for up to 20 more units for infield testing by Romgaz.
Micromem's goal is to complete this phase of development and product sales to Romgaz in the 2025 fiscal year. If we are successful in doing so, we would thereafter partner with Romgaz in the full commercial rollout of this technology on a broader scale in Romania where the national energy companies operate an estimated 3,800 gas wells and 1,200 oil wells.
We have previously referenced the opportunities to work with the national energy companies in Romania to:
i. develop enhanced software analytics for gas and oil well operators, and,
ii. develop powerline monitoring solutions for the transmission and interconnection hardware in use in Romania's electrical grid.
These initiatives were not advanced during 2024 while the initial ARTRA program was underway. These opportunities remain available; it is expected that we will develop initial plans for such undertakings during 2025.
Our relationship with the Toronto based engineering/product development group, as previously announced, remains intact and positive. We have held several technical meetings with this group in 2024; this group has taken delivery in Toronto of the first ARTRA unit that has been built by our engineering subcontractor, Entanglement Technologies.
Chevron:
We met most recently with Chevron in their Houston offices in September 2024. Chevron continues to support our initiatives as we advance our project development efforts.
In our September 2024 meeting, Chevron requested that Micromem prepare a "white paper" report on the current state of tracer technology for measurement of multiple attributes in operating oil and gas wells. To that end, Micromem engaged in discussions with a Houston-based oil recovery company and with the research team at the University of Toronto.
The Company submitted the white paper report to Chevron titled "Sensors for Water Contamination Monitoring in Oil Wells and Flood Zones". The report was authored by Professor Harry E. Ruda of the University of Toronto, a distinguished academic in nanotechnology and materials science. The White Paper provides an overview of the existing technologies for measuring contamination in water and the surrounding atmosphere, particularly in flood zones. It explores solutions to address wastewater contamination, ultimately aiming to promote environmental remediation as well as discussing a range of sensor technologies that enable real-time monitoring of pollutants in both water and air, highlighting their potential value for commercial and municipal water management.
3. FINANCING
In 2024 the Company received gross proceeds of $439,155 from private placements and issued 24,478,227 common shares (2023: $535,525 and issued 9,864,500 common shares).
The Company issued 36,805,300 common shares relating to the conversion by debenture holders of their debentures totaling $716,674 during the year (2023: issued 30,346,660 common shares relating to conversion of debentures totaling $1,742,226). The Company issued 1,333,333 common shares with respect to the settlement of accounts payable of $79,167 in 2024 (2023: nil).
The Company's convertible debt structure is complex with 3 broad categories of such debt: (i) $CDN denominated debt with fixed conversion prices; (ii) $US denominated debt with fixed conversion prices, and (iii) $US denominated debt with variable conversion prices. The term of the debt in each instance is typically between 4 months and 12 months. In 2024 the Company repaid $287,460 of convertible loans at maturity when due as requested by the debenture holders (2023: $270,000) or converted the debenture into common shares at the request of the debenture holders or extended the term of the debenture through negotiations with the debenture holders - in this latter case, certain terms of the loan - interest rate and/or conversion price - have, in some instances, been adjusted as part of the extension.
Under IFRS reporting, such loans require quarterly remeasurements. The application of the remeasurement methodology is very specific. This is more fully discussed in Section 4; in summary, there are several non-cash related income and expense charges that arise from such remeasurements. We recorded the following non-cash charges in the fiscal years ending October 31, 2024 and 2023 none of which impact the Company's cash flows:
| 2024 | 2023 | Change | |||||||
| Accretion expense | $ | 272,501 | $ | 279,834 | $ | (7,333 | ) | ||
| Loss on revaluation of warrant liabilities | 826,393 | - | 826,393 | ||||||
| Loss on debt settlement | 118,784 | - | 118,784 | ||||||
| Loss on conversion of convertible debentures | 45,535 | 21,120 | 24,415 | ||||||
| Loss (gain) on revaluation of derivative liabilities | 78,915 | (658,503 | ) | 737,418 | |||||
| Loss (gain) on extinguishment/repayment of convertible debentures | 514,501 | 1,428,066 | (913,565 | ) | |||||
| Net expense | $ | 1,856,629 | $ | 1,070,517 | $ | 786,112 |
******************
| MICROMEM TECHNOLOGIES INC. |
| MANAGEMENT'S DISCUSSION AND ANALYSIS |
| FOR THE FISCAL YEAR ENDED OCTOBER 31, 2024 PREPARED AS OF FEBRUARY 25, 2025. |
4. DISCUSSION OF OPERATING RESULTS:
(a) Financial Position as at October 31, 2024:
| October 31, 2024 | October 31, 2023 | |||||
| (US $000) | (US $000) | |||||
| Assets: | ||||||
| Cash | 126 | 31 | ||||
| Prepaid expenses and other receivables | 142 | 104 | ||||
| 268 | 135 | |||||
| Property and equipment | 15 | 33 | ||||
| Total Assets | 283 | 168 | ||||
| Liabilities: | ||||||
| Accounts payable and other liabilities | 437 | 310 | ||||
| Current lease liability | 12 | 17 | ||||
| Convertible debentures | 3,853 | 3,548 | ||||
| Warrant liability | 1,088 | |||||
| Derivative liability | 1,571 | 1,079 | ||||
| 6,961 | 4,954 | |||||
| Long-term lease liability | - | 12 | ||||
| Long-term loan | 45 | 43 | ||||
| Total Liabilities | 7,006 | 5,009 | ||||
| Shareholders' Deficit: | ||||||
| Share capital | 91,678 | 90,472 | ||||
| Contributed surplus | 27,288 | 24,869 | ||||
| Equity component of convertible debentures | 697 | 3,220 | ||||
| Accumulated deficit | (126,386 | ) | (123,402 | ) | ||
| (6,723 | ) | (4,841 | ) | |||
| Total Shareholders' Deficit | 283 | 168 |
Commentary:
1. The Company's working capital deficiency is $6,693,448 on October 31, 2024 (2023: deficiency of $4,818,699).
2 In 2019 the Company evaluated its patent portfolio and its go forward strategy for its intellectual property portfolio. It decided that it would suspend its provisional patent filings in jurisdictions outside the United States where it has been issued several patents.
For financial reporting purposes the Company recorded an impairment reserve of $223,143 in 2019 and it reflects an amortized value of $nil as its patent assets at October 31, 2024 (2023: $nil). The Company believes that its patents remain as an asset to be exploited in future through the pursuit of licensing agreements with potential strategic partners.
3. The Company continued to secure additional financing in 2024 through convertible debentures. Given the terms of the convertible debentures, the Company has measured, as appropriate, the prescribed accounting treatment for these convertible debentures and the related derivatives. These loans were typically of a short-term nature and, in many cases, renewed on multiple occasions; the related financial reporting has become progressively more complex. Refer to Section 4 of this report for additional commentary.
The balance reported as convertible debentures at October 31, 2024, is $3,853,273 (2023: $3,548,059) and the related derivative liability balance is $1,570,675 (2023: $1,079,393). The Company reports accretion expense on these debentures of $272,501 (2023: $279,834), a loss on the conversion of convertible debentures to share capital of $45,535 (2023: $21,120), a gain on the revaluation of the underlying derivative liabilities of $78,915 (2023: ($658,503)) and a loss on extinguishment/repayment of convertible debentures of $514,501 (2023: loss of $1,428,066). Management generally employs a Black Scholes valuation model although, for certain of the loan transactions contracted for, it uses a binomial or a Monte Carlo measurement model.
Management acknowledges that the cost of financing to the Company is significant; interest on the convertible debentures is substantial. In 2024 we reported $604,664 of interest expense on convertible debt obligations (2023: $540,929).
During the 2024 and 2023 fiscal years, the Company secured funding from various sources, the significant components include:
| 2024 | 2023 | |||||
| Private placements of shares for cash consideration | $ | 439,155 | $ | 535,525 | ||
| Bridge loan financing | $ | 417,950 | $ | 645,151 | ||
| Settlements for share consideration | $ | 716,674 | $ | 1,742,226 | ||
| $ | 1,573,779 | $ | 2,922,902 |
Operating Results:
The following table summarizes the Company's operating results for the years ended October 31, 2024, and 2023:
| Year Ended October 31 | ||||||
| 2024 | 2023 | |||||
| ($000) | ($000) | |||||
| Administration | 147 | 149 | ||||
| Professional fees and salaries | 391 | 610 | ||||
| Stock-based compensation | 7 | 218 | ||||
| Travel and entertainment | 38 | 63 | ||||
| Depreciation of property and equipment | 16 | 16 | ||||
| Amortization of patents | - | - | ||||
| Foreign exchange gain | (21 | ) | (63 | ) | ||
| Accretion expense | 273 | 280 | ||||
| Interest expense convertible debt | 604 | 541 | ||||
| Other financing costs | 24 | 86 | ||||
| Loss on revaluation of warrant liabilities | 826 | - | ||||
| Loss on debt settlement | 119 | - | ||||
| Loss (Gain) on revaluation of derivatives liabilities | 79 | (658 | ) | |||
| Loss on conversion of convertible debentures | 46 | 21 | ||||
| Loss on extinguishment/repayment of convertible debentures | 514 | 1,429 | ||||
| Net expenses | 3,063 | 2,692 | ||||
| Net comprehensive loss | 3,063 | 2,692 | ||||
| Loss per share | 0.01 | - | ||||
Fiscal 2024 Compared to Fiscal 2023
a) Administration costs were $146,636 in 2024 versus $148,616 in 2023. These costs include rent and occupancy costs of $18,514 (2023: $17,663), the Company reported sublet income for a portion of its office space in 2024; office insurance costs of $1,986 (2023: $1,930; the Company did not renew its D&O insurance coverage after 2020), investor relations, listings and filing fees of $77,535 (2023: $52,756), other general and administrative expenses of $48,601 (2023: $70,584).
b) Professional and other fees and salaries costs were $391,406 in 2024 versus $610,052 in 2023. The components of these total costs include legal and audit related expenses of $98,412 in 2024 (2023: $144,244), 3rd party consulting fees were $40,977 in 2024 (2023: $67,664), staff salaries and benefits were $252,017 in 2024 (2023: $398,144).
The CFO received $40,904 of management fees in 2024 (2023: $86,520). The CEO of the Company received $36,919 of compensation in 2024 (2023: $190,317).
c) Travel and entertainment expenses were $37,631 in 2024 (2023: $63,360).
d) In 2024, the Company did not award additional stock options to directors, officers, and consultants. (2023: 3,000,000 stock options issued to directors, officers, and consultants); the related expense in 2024 was $6,517 (2023: $217,965), calculated using the Black Scholes option-pricing model.
e) Interest expense was $604,664 in 2024 versus $540,929 in 2023. This represents the actual interest expense obligations incurred by the Company based on the stated interest rates on the convertible debenture notes.
f) Depreciation expense was $16,492 in 2024 relating to Capital Assets (2023: $16,492).
g) Financing costs were $24,227 in 2024 versus $86,352 in 2023. These expenses relate to costs associated with the convertible debenture financings which the Company completed in 2024 and 2023.
h) The gain on foreign exchange reported in 2024 was $21,404 versus $62,613 in 2023. This includes the exchange relating to the translation of $CDN denominated transactions during the year and to Canadian denominated assets and liabilities at fiscal quarter and year ends. It also includes the foreign exchange relating to the initiation, renewal, conversion, and repayment of convertible debentures transactions during the fiscal years. The Canadian dollar, relative to the US dollar was $0.7327 at October 31, 2022, $0.7209 at October 31, 2023 and $0.7186 at October 31, 2024.
i) The other expenses reported relate to the convertible debentures. These expenses are all non-cash expenses and compare as follows:
| 2024 | 2023 | Change | |||||||
| Accretion expense | $ | 272,501 | $ | 279,834 | $ | (7,333 | ) | ||
| Loss on revaluation of warrant liabilities | 826,393 | - | 826,393 | ||||||
| Loss on debt settlement | 118,784 | - | 118,784 | ||||||
| Loss on conversion of convertible debentures | 45,535 | 21,120 | 24,415 | ||||||
| Loss (gain) on revaluation of derivative liabilities | 78,915 | (658,503 | ) | 737,418 | |||||
| Loss (gain) on extinguishment/repayment of convertible debentures | 514,501 | 1,428,066 | (913,565 | ) | |||||
| Net expense | $ | 1,856,629 | $ | 1,070,517 | $ | 786,112 |
C. Unaudited Quarterly Financial Information - Summary
| Three months ended | Revenues | Expenses | Income | Loss | ||||||||
| (unaudited) | (loss) in | per | ||||||||||
| $ | $ | $ | $ | |||||||||
| October 31, 2024 | - | 2,517,964 | (2,517,964 | ) | - | |||||||
| July 31, 2024 | - | 570,496 | (570,496 | ) | - | |||||||
| April 30, 2024 | - | (1,446,174 | ) | 1,446,174 | 0.01 | |||||||
| January 31, 2024 | - | 1,420,512 | (1,420,512 | ) | - | |||||||
| October 31, 2023 | - | (1,271,082 | ) | 1,271,082 | - | |||||||
| July 31, 2023 | - | (149,612 | ) | 149,612 | - | |||||||
| April 30, 2023 | - | 3,896,034 | (3,896,034 | ) | 0.01 | |||||||
| January 31, 2023 | - | 216,330 | (216,330 | ) | - |
| Working | Capital | Shareholders' | ||||||||||||||
| Three months ended | capital | assets at | Other | equity | ||||||||||||
| (unaudited) | (deficiency) | NBV | Assets | Total Assets | (deficit) | |||||||||||
| October 31, 2024 | (6,693,448 | ) | 15,272 | - | 282,713 | (6,722,982 | ) | |||||||||
| July 31, 2024 | (4,532,200 | ) | 19,720 | - | 186,845 | (4,540,961 | ) | |||||||||
| April 30, 2024 | (4,426,287 | ) | 24,359 | - | 133,392 | (4,432,080 | ) | |||||||||
| January 31, 2024 | (6,100,773 | ) | 28,393 | - | 144,827 | (6,001,984 | ) | |||||||||
| October 31, 2023 | (4,818,699 | ) | 32,767 | - | 168,350 | (4,841,204 | ) | |||||||||
| July 31, 2023 | (6,148,332 | ) | 36,331 | - | 240,608 | (6,174,904 | ) | |||||||||
| April 30, 2023 | (6,847,503 | ) | 39,466 | - | 309,695 | (6,873,535 | ) | |||||||||
| January 31, 2023 | (4,786,678 | ) | 43,779 | - | 105,556 | (4,813,784 | ) | |||||||||
**********
| MICROMEM TECHNOLOGIES INC. |
| MANAGEMENT'S DISCUSSION AND ANALYSIS |
| FOR THE FISCAL YEAR ENDED OCTOBER 31, 2024 PREPARED AS OF FEBRUARY 25, 2025. |
5. RISKS AND UNCERTANTIES
There are a number of risks which may individually or in aggregate affect the long-term commercial success of the Company, both known and unknown. An investment in the Company should be considered speculative due to the nature of the Company's activities and its current stage of development.
Stage of Development of Technology:
The Company has made strides in advancing its technology and in developing a product portfolio and in engaging customers in joint development projects. There remains the risk that the Company must successfully complete development work on these products to have available commercially viable products which can be licensed or sold.
Customers' Willingness to Purchase:
We have previously entered into joint development agreements whereby our prototype products are being subjected to rigorous testing by our partners. We expect to be successful in commercializing our product portfolio. If we are successful in doing so, our partners will then have to decide the extent to which they will adopt our technology for future use for their applications. The future revenue streams for the Company are dependent upon the rate of adoption by our customers and their willingness to do so.
Patent Portfolio:
The Company has previously committed time and effort and incurred significant costs with respect to the maintenance and development of our intellectual property portfolio. In 2019 it decided to abandon certain provisional patent filings in international jurisdictions which it believes does not impact on the core patent technology that the Company maintains. Given the nature of IP development, the Company is subject to continuing risks that our patents could be successfully challenged and that our patent pending files may not ultimately be granted full patent status. The Company does not have extensive in-house resources so as to manage its IP portfolio in this environment and has traditionally relied heavily on its patent attorneys for these services.
Financing:
The Company has successfully raised funding each year over to continue to support its development initiatives and fund the Company's corporate structure and overheads. The Company must continue to source financing in order to continue to support its business initiatives.
Competitors:
The Company is subject to competition from other entities that may have greater financial resources and more in-house technical expertise.
Management Structure:
The Company is highly dependent on the services of a small number of senior management team members. If one of these individuals were unavailable, the Company could encounter a difficult transition process.
Foreign Currency Exposure:
The Company expects to sell its products and license technologies in the United States, in Canada and abroad. It has raised financing in both $CDN and $USD. The Company has not hedged its foreign currency exposure. Foreign currency fluctuations present an ongoing risk to the business.
***************************
|
MICROMEM TECHNOLOGIES INC. |
|
MANAGEMENT'S DISCUSSION AND ANALYSIS |
|
FOR THE FISCAL YEAR ENDED OCTOBER 31, 2024 PREPARED AS OF FEBRUARY 25, 2025. |
6. GOING CONCERN
The consolidated financial statements have been prepared on the "going concern" basis, which presumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future.
There are material uncertainties related to conditions and events that cast significant doubt about the Company's ability to continue as a going concern for a reasonable period of time in future. During the year ended October 31, 2024, the Company reported a net loss and comprehensive loss of $3,062,798 (2023 - 2,691,670; 2022 2,287,095 and negative cash flow from operations of $625,924 (2023 - 1,083,220; 2022 $997,031). The Company's working capital deficiency as at October 31, 2024, is $6,693,448 (2023 - $4,818,699).
The Company's future success depends on the profitable commercialization of its proprietary sensor technology. There is no assurance that the Company will be successful in the profitable commercialization of its technology. Based upon its current operating and financial plans, management of the Company believes that it will have sufficient access to financial resources to fund the Company's planned operations through fiscal 2024 and beyond; however, the ability of the Company to continue as a going concern is dependent on its ability to secure additional financing and/or to profitably commercialize its technology. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the possible inability of the Company to continue as a going concern.
If the "going concern" assumption was not appropriate for these consolidated financial statements, then adjustments would be necessary to the carrying value of assets and liabilities, the reported expenses and the balance sheet classifications used; in such cases, these adjustments would be material.
**********
|
MICROMEM TECHNOLOGIES INC. |
|
MANAGEMENT'S DISCUSSION AND ANALYSIS |
|
OR THE FISCAL YEAR ENDED OCTOBER 31, 2024 PREPARED AS OF FEBRUARY 25, 2025. |
|
|
7. OTHER MATTERS
(a) Critical Accounting Policies
The accounting policies the Company believes are critical to the financial reporting process include foreign currency translation, financial instruments, convertible debentures and derivative liabilities, convertible debentures, fair value, property and equipment, impairment of long-lived assets, patents, deferred development costs, lease, stock-based compensation, and income taxes. These critical accounting policies are set forth in Note 4 to our consolidated financial statements as of October 31, 2024.
(b) Legal matters: lawsuit vs Steven Van Fleet
We have previously reported on the litigation matter relating to Mr Van Fleet, the former President of MAST , which commenced in 2018.
In 2021, the court ultimately dismissed all of Mr. Van Fleet's claims, found that he was liable to Micromem and MAST on their counterclaims and ordered an inquest to determine damages. The inquest was held between June 3 - 7, 2021.
On June 16th, 2021, the court ordered that Micromem and MAST had established damages of $765,580, the full amount that had been requested. Additionally, the court awarded costs and statutory prejudgement interest from May 9, 2017. On June 29th, 2021, the court entered a judgement ("Judgement") in favor of Micromem and MAST and against Mr Van Fleet in the amount of $1,051,740.
With respect to the Company's efforts to collect on that Judgement, a settlement ("Settlement") was reached during October 2021. Pursuant to the Settlement, the Company received an initial one-time payment and is entitled to additional monthly payments over a period of up to six years. The Company will record those payments as and when they are received. The total amount to be received by the Company if Mr. Van Fleet makes all the required payments under the terms of the Settlement will be less than the amount of the Judgement obtained by the Company, but if Mr. Van Fleet does not comply with the terms of the Settlement, it also provides the Company a means of enforcing a larger judgement against Mr. Van Fleet that is substantially in line with the Judgement.
(c) Legal Matter
On November 1, 2023, a former employee filed a statement of claim against the Company relating to employment termination without reasonable notice. The Company filed a statement of defence and counterclaim on November 29, 2023, denying all liability to the former employee.
Discoveries with legal counsel were completed in August 2024. Arbitration proceedings were completed in October 2024. The arbitration process did not result in a resolution of this matter. We anticipate that a resolution of this matter may develop in 2025; otherwise, the matter may proceed to a trial hearing at some point in future.
No provision has been recorded in these consolidated financial statements as the Company continues to consider the claims of the former employee to be without merit.
(d) Contingencies and Commitments
The Company may be subject to litigation, claims and governmental and regulatory proceedings arising in the ordinary course of business. In such cases, the Company accrues a loss contingency for these matters when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. There are no such accruals reflected in the Company's accounts at October 31, 2024.
The Company's lease that was extended in February 2017 for five years through July 2022 expired. In August 2022 the Company moved to a smaller unit in the same commercial building pursuant to a lease from August 1, 2022, to July 31, 2025. The lease stipulates base monthly and additional rental expense of $3,943 CDN. Lease commitments are as follows - commitments less than one year of $12,873 USD.
(e) Off-Balance Sheet Arrangements
At October 31, 2024, the Company has no off-balance sheet financial commitments and does not anticipate entering into any contracts of such nature other than the addition of new operating leases for equipment and premises as may be required in the normal course of business.
(f) Share Capital
At October 31, 2024, the Company reports 572,985,698 common shares outstanding (2023: 510,368,838). Additionally, the Company has 8,750,000 stock options outstanding with a weighted average exercise price of $0.06 per share (2023: 9,775,000 options outstanding with a weighted average exercise price of $0.06 per share).
(g) Management and Board of Directors
At our most recent Annual Meeting of Shareholders held on April 22, 2024, Joseph Fuda, Oliver Nepomuceno, and Alex Dey were re-elected to serve on our Board of Directors. Joseph Fuda and Dan Amadori continue to serve as officers of the Company.
Our management team and directors, along with their 2024 remuneration, is presented as below:
| 2024 remuneration | ||||
| Individual | Position | Cash | Options | Total |
| Joseph Fuda | President, Director | 36,919 | - | 36,919 |
| Oliver Nepomuceno | Director | - | - | - |
| Alex Dey | Director | - | - | - |
| Dan Amadori | CFO | 40,904 | - | 40,904 |
| Total | 77,823 | - | 77,823 | |
(h) Transactions with Related Parties
The Company reports the following related party transactions:
Key management compensation:
Key management personnel are persons responsible for planning, directing and controlling activities of the Company, including officers and directors. Compensation paid or payable to these individuals (or companies controlled by such individuals) is summarized as:
| 2024 | 2023 | 2022 | |||||||
| Salaries | $ | 77,823 | $ | 214,914 | $ | 133,517 | |||
| Stock based compensation | - | 82,946 | - | ||||||
| $ | 77,823 | $ | 297,860 | $ | 133,517 |
No stock options were awarded in 2024 (2023 1,340,000 options granted at an exercise price of $0.07; 2022 Nil options were awarded.
At October 31, 2024 , a total of $2,436 is outstanding as an amount owing to a director .
Trade payables and other liabilities:
$28,161 is reported in trade payables and other liabilities at October 31, 2024 to a corporation controlled by an officer of the Company (2023: nil). In addition, at October 31, 2024, $2,436 is payable to a director (2023 - $2,173).
(i) Liquidity and Capital Resources
Liquidity:
We currently report negative cash flow from operations. This result will only change once we are generating sufficient revenue from either license fees, royalties or the sale of products utilizing our technology. In 2024 and subsequent to the end of the fiscal year, the Company continued to raise additional financing.
We currently have no lines of credit in place. We must continue to obtain financing from investors or from clients in support of our development projects.
We have granted to our directors, officers, and employee's options to purchase shares at prices that are at or above market price on the date of grant. At October 31, 2024 there are 8,750,000 options outstanding at a weighted average exercise price of $0.06 per share.
Capital Resources: We have no commitments for capital expenditures as of October 31, 2024.
**********
| MICROMEM TECHNOLOGIES INC. |
| MANAGEMENT'S DISCUSSION AND ANALYSIS |
| FOR THE FISCAL YEAR ENDED OCTOBER 31, 2024 PREPARED AS OF FEBRUARY 25, 2025. |
9. SUBSEQUENT EVENTS
Micromem reports that it has secured additional financing since October 31, 2024 as below:
(a) The Company secured six (6) private placements with investors consisting of common shares and warrants pursuant to prospectus and registrations set forth in applicable securities law. It realized net proceeds of $405,000 CDN ($285,125 USD) and issued a total of 8,100,000 common shares.
(b) The Company secured $57,500 USD in convertible debentures with a 12 month term and conversion features which become effective six months after initiation date.
(c) The Company converted $44,106 USD of convertible debentures and accrued interest through the issuance of 1,600,588 common shares.
(d) The Company issued 1,679,800 common shares upon an exercise of warrants realizing net proceeds of $83,990 CDN ($58,344 USD).
(e) The Company made partial payments of $16,000 USD and of $5,000 USD towards convertible debentures.
(f) The Company extended convertible debentures that were within 3 months of maturity date October 31, 2024 for an additional three (3) to six (6) months.
**********************************
| MICROMEM TECHNOLOGIES INC. |
| MANAGEMENT'S DISCUSSION AND ANALYSIS |
| FOR THE FISCAL YEAR ENDED OCTOBER 31, 2024 PREPARED AS OF FEBRUARY 25, 2025. |
APPENDIX 1
COMMENTARY ON CONVERTIBLE DEBENTURES:
This section of the report is intended to provide readers with additional information as to the nature of the reporting requirements, procedures, and impact of the convertible debt financings that the Company has completed. The objective is to facilitate the reader's understanding of this complex aspect of the Company's financial statements.
(1) Overview: convertible debenture reporting
(a) We are required under IFRS reporting standards to measure the components of our convertible debt including the debt, the derivative liability, and the equity component of the face value of the debt, as appropriate, upon execution of the loan agreement with the lender.
(b) The measurement methodology that we employ is in accordance with prescribed guidelines under IFRS and International Accounting Guidelines. This methodology is either a Black Scholes pricing model or a binomial distribution measurement model, depending on which model is more suitable in each case. That determination is based on a subjective assessment by the Company.
(c) When we secure a convertible debenture from an investor, the terms which are finalized through negotiation with the investor will vary on a case-by-case basis in terms of the following aspects:
(i) Term (typically 2 months to 12 months).
(ii) Interest rate (typically 1 to 2% per month but, in some cases, between 5% - 10% per annum).
(iii) Conversion price (which may be fixed at initiation date or fixed at conversion date based on a formulaic calculation, denominated in Canadian dollars or U.S. Dollars, the latter being the functional currency of the Company and its subsidiaries).
(iv) The option for the Company to prepay the loan during the entire term of the loan or within an initial period of the term of the loan (typically up to 6 months).
(d) At maturity date of the debenture, the debenture holder may agree to extend the term of the loan for an additional period of time, either on the same basic terms as already exist or on renegotiated terms.
(2) Accounting measurements and periodic reporting of convertible debentures:
(a) To the extent that there is a derivative liability that arises in the initial measurement (1(a) above), we are required to revalue the derivative liability at each quarter end using prescribed Black Scholes or binomial methodology. Then, at each reporting period , we are required to report this gain or loss on the revaluation in our consolidated statements of income.
(b) To the extent that the face value of the loan - which is due at the maturity date - is greater than the amount that is assigned to the loan component of the total amount at inception of the loan (1(a) above), then this difference must be accreted over the term of the loan. Typically, the loan term is from 2 months to 12 months. Thus, over the term of the loan, we are required to report this accretion amount as an expense in our quarterly consolidated statements of income.
(c) To the extent that a loan is converted into common shares by the debenture holder, we will close out the loan at that point, record remaining accretion expense up to the date of conversion, remeasure the derivative liability and calculate a net gain or loss on conversion of the loan. The net gain or loss is reported in our consolidated statements of income.
(3) Impact on financial reporting:
The realities and complexities of this prescribed accounting treatment gives rise to complicated disclosures in our financial statements and footnotes:
(a) We report substantial accretion expense in our audited financial statements.
(b) Over time, barring significant volatility in the share price, we generally report a gain on the settlement of the derivative liabilities. However, the quarterly revaluations of the derivative liabilities result in significant interim fluctuations.
(c) The calculated effective interest rate on debt can be substantial. To illustrate,(for example) if the reported fair value of the debt is a small fraction of the face value at inception and it must be accreted to face value over the term (for example 2 months), then the effective rate of interest can be very high in these reported financials, as representing the rate that would be required to step up the reported value to the face value in the short period of the term of the loan.
It is essential, when reviewing our audited consolidated statements, to bear in mind the following:
a) Accretion expense is a non-cash item.
b) Gain or loss on revaluation of derivatives in a non-cash item.
c) Gain or loss on extinguishment of debentures is a non-cash item.
d) Gain or loss on conversion of debentures to common shares is a non-cash item.
e) Loss on revaluation of warrant liabilities is a non-cash item.
f) Loss on debt settlement is a non-cash item.
The net non-cash expense (income) relating to items (a) - (f) above reported in the fiscal year ended October 31, 2024, was $1,731,113 (2023: $1,043,274).
(4) Additional Comments:
The Company notes the following:
a) We have had to rely on convertible debenture financings as a primary means of securing financing over the past several years in order to continue our operations.
b) The actual interest expense on our convertible debentures which is interest paid to the debenture holders, is at a coupon rate typically ranging between 1% and 2% per month. The effective rate referenced above is an accounting measurement metric, not a payable obligation.
c) The use of convertible debentures has served to increase our outstanding number of shares over the past few years.
In 2024 the Company issued 36,805,300 common shares in settlement of $716,674 of debentures which were converted to common shares by the debenture holders (2023: 30,346,660 common shares in settlement of 1,742,226 of converted debentures; 2022: 26,443,820 common shares in settlement of $764,432 of converted debentures).
The Company plans to deemphasize or eliminate this complex and expensive source of financing in future as it develops and grows its business and is better able to secure more conventional, lower cost financing.
**********
FORM 52-109F1
CERTIFICATION OF ANNUAL FILINGS
FULL CERTIFICATE
I, Joseph Fuda, Chief Executive Officer of Micromem Technologies Inc., certify the following:
1. Review: I have reviewed the AIF, if any, annual financial statements and annual MD&A, including, for greater certainty, all documents and information that are incorporated by reference in the AIF (together, the "annual filings") of Micromem Technologies Inc. (the "issuer") for the financial year ended October 31, 2024.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the annual filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, for the period covered by the annual filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the annual financial statements together with the other financial information included in the annual filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the annual filings.
4. Responsibility: The issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings, for the issuer.
5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer's other certifying officer(s) and I have, as at the financial year end
(a) designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that
(i) material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and
(ii) information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
(b) designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer's GAAP.
5.1 Control framework: The control framework the issuer's other certifying officer(s) and I used to design the issuer's ICFR is Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").
5.2 ICFR - material weakness relating to design: N/A
5.3 Limitation on scope of design: N/A
6. Evaluation: The issuer's other certifying officer(s) and I have
(a) evaluated, or caused to be evaluated under our supervision, the effectiveness of the issuer's DC&P at the financial year end and the issuer has disclosed in its annual MD&A our conclusions about the effectiveness of DC&P at the financial year end based on that evaluation; and
(b) evaluated, or caused to be evaluated under our supervision, the effectiveness of the issuer's ICFR at the financial year end and the issuer has disclosed in its annual MD&A.
(i) our conclusions about the effectiveness of ICFR at the financial year end based on that evaluation; and
(ii) for each material weakness relating to operation existing at the financial year end
(A) a description of the material weakness;
(B) the impact of the material weakness on the issuer's financial reporting and its ICFR; and
(C) the issuer's current plans, if any, or any actions already undertaken, for remediating the material weakness.
7. Reporting changes in ICFR: The issuer has disclosed in its annual MD&A any change in the issuer's ICFR that occurred during the period beginning on November 1, 2023 and ended on October 31, 2024 that has materially affected, or is reasonably likely to materially affect, the issuer's ICFR.
8. Reporting to the issuer's auditors and board of directors or audit committee: The issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of ICFR, to the issuer's auditors, and the board of directors or the audit committee of the board of directors any fraud that involves management or other employees who have a significant role in the issuer's ICFR.
Date: February 25, 2025
/s/ Joseph Fuda
Joseph Fuda
Chief Executive Officer
FORM 52-109F1
CERTIFICATION OF ANNUAL FILINGS
FULL CERTIFICATE
I, Dan Amadori, Chief Financial Officer of Micromem Technologies Inc., certify the following:
1. Review: I have reviewed the AIF, if any, annual financial statements and annual MD&A, including, for greater certainty, all documents and information that are incorporated by reference in the AIF (together, the "annual filings") of Micromem Technologies Inc. (the "issuer") for the financial year ended October 31, 2024.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the annual filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, for the period covered by the annual filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the annual financial statements together with the other financial information included in the annual filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the annual filings.
4. Responsibility: The issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings, for the issuer.
5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer's other certifying officer(s) and I have, as at the financial year end
(a) designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that
(i) material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and
(ii) information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
(b) designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer's GAAP.
5.1 Control framework: The control framework the issuer's other certifying officer(s) and I used to design the issuer's ICFR is Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").
5.2 ICFR - material weakness relating to design: N/A
5.3 Limitation on scope of design: N/A
6. Evaluation: The issuer's other certifying officer(s) and I have
(a) evaluated, or caused to be evaluated under our supervision, the effectiveness of the issuer's DC&P at the financial year end and the issuer has disclosed in its annual MD&A our conclusions about the effectiveness of DC&P at the financial year end based on that evaluation; and
(b) evaluated, or caused to be evaluated under our supervision, the effectiveness of the issuer's ICFR at the financial year end and the issuer has disclosed in its annual MD&A.
(i) our conclusions about the effectiveness of ICFR at the financial year end based on that evaluation; and
(ii) for each material weakness relating to operation existing at the financial year end
(A) a description of the material weakness;
(B) the impact of the material weakness on the issuer's financial reporting and its ICFR; and
(C) the issuer's current plans, if any, or any actions already undertaken, for remediating the material weakness.
7. Reporting changes in ICFR: The issuer has disclosed in its annual MD&A any change in the issuer's ICFR that occurred during the period beginning on November 1, 2023 and ended on October 31, 2024 that has materially affected, or is reasonably likely to materially affect, the issuer's ICFR.
8. Reporting to the issuer's auditors and board of directors or audit committee: The issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of ICFR, to the issuer's auditors, and the board of directors or the audit committee of the board of directors any fraud that involves management or other employees who have a significant role in the issuer's ICFR.
Date: February 25, 2025.
/s/ Dan Amadori
Dan Amadori
Chief Financial Officer