Micromem Technologies Inc 6-K, filed Jan 31, 2024
Micromem Technologies Inc (MMTIF)
About this 6-K
Micromem Technologies Inc filed this 6-K on January 31, 2024.
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
January 2024
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shall be deemed a part of such registration statement from the date on which this report is filed, to the extent not superseded by documents or reports subsequently filed or furnished by Micromem Technologies Inc. under the Securities Act of 1933 or the Securities Exchange Act of 1934.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.
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MICROMEM TECHNOLOGIES INC. |
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By: /s/ Joseph Fuda |
| Date: January 30, 2024 | Name: Joseph Fuda |
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Title: Chief Executive Officer |
Exhibit Index
Micromem Technologies Inc.
Consolidated Financial Statements
For the years ended October 31, 2023, 2022 and 2021
(Expressed in United States Dollars)
Micromem Technologies Inc.
Consolidated Financial Statements
For the years ended October 31, 2023, 2022 and 2021
(Expressed in United States Dollars)
Contents
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| 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, 2023 and 2022, 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, 2023, 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, 2023 and 2022, 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, 2023, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board ("IFRS").
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 net losses and comprehensive losses, negative cash flows from operations and working capital deficiencies that raise 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 | |
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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 judgement 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 judgements 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, 2023, 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 analysis of the financial instruments, including the assessment of the accounting for the financial instruments 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.
- 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.
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1 Adelaide Street East, Suite 1900, Toronto, Ontario, M5C 2V9 1.877.251.2922 T: 416.596.1711 F: 416.596.7894 MNP.ca |
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- 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.
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| Toronto, Canada | Chartered Professional Accountants |
| January 30, 2024 | Licensed Public Accountants |
| We have served as the Company's auditor since 2017 | |
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1 Adelaide Street East, Suite 1900, Toronto, Ontario, M5C 2V9 1.877.251.2922 T: 416.596.1711 F: 416.596.7894 MNP.ca |
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Micromem Technologies Inc.
Consolidated Statements of Financial Position
As at October 31, 2023 and October 31, 2022
(Expressed in United States dollars)
| Notes | As at October 31, 2023 |
As at October 31, 2022 |
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| Assets | ||||||||
| Current | ||||||||
| Cash | 20 | $ | 31,584 | $ | 33,227 | |||
| Prepaid expenses and other receivables | 19 (b), (d) | 103,999 | 18,200 | |||||
| Total current assets | 135,583 | 51,427 | ||||||
| Property and equipment | 6 | 32,767 | 48,092 | |||||
| Total assets | $ | 168,350 | $ | 99,519 | ||||
| Liabilities | ||||||||
| Current | ||||||||
| Trade payables and other liabilities | 18(b), 20(d) | $ | 209,285 | $ | 287,575 | |||
| Deposit liability | 19 (d) | 63,000 | - | |||||
| Current lease liability | 8 | 17,036 | 15,366 | |||||
| Debenture payable | 10 | 37,509 | 38,001 | |||||
| Convertible debentures | 11,20 | 3,548,059 | 3,792,064 | |||||
| Derivative liabilities | 11,20 | 1,079,393 | 641,299 | |||||
| Total current liabilities | 4,954,282 | 4,774,305 | ||||||
| Non-current lease liability | 8 | 12,018 | 29,418 | |||||
| Long-term loan | 9 | 43,254 | 43,796 | |||||
| Total liabilities | 5,009,554 | 4,847,519 | ||||||
| Shareholders' Deficiency | ||||||||
| Share capital | 12 | 90,471,712 | 87,784,725 | |||||
| Contributed surplus | 24,868,843 | 27,459,730 | ||||||
| Equity component of convertible debentures | 11 | 3,220,473 | 793,140 | |||||
| Accumulated deficit | (123,402,232 | ) | (120,785,595 | ) | ||||
| Total shareholders' deficiency | (4,841,204 | ) | (4,748,000 | ) | ||||
| Total liabilities and shareholders' deficiency | $ | 168,350 | $ | 99,519 | ||||
| Going concern | 2 | |||||||
| Commitments and Contingencies | 19 | |||||||
| Subsequent events | 22 |
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, 2023, 2022, and 2021
(Expressed in United States dollars)
| Years ended October 31, | ||||||||||||
| Notes | 2023 | 2022 | 2021 | |||||||||
| Operating expenses | ||||||||||||
| General and administrative | 16(a) | $ | 148,616 | $ | 185,366 | $ | 155,504 | |||||
| Professional, other fees and salaries | 16(b) | 610,052 | 647,710 | 424,485 | ||||||||
| Statute barred payables | 18(b) | - | - | (422,982 | ) | |||||||
| Stock-based compensation | 13 | 217,965 | 41,484 | 360,044 | ||||||||
| Travel and entertainment | 63,360 | 59,504 | 24,903 | |||||||||
| Depreciation of property and equipment | 6 | 16,492 | 25,878 | 28,033 | ||||||||
| Amortization of patents | 7 | - | 3,877 | 8,000 | ||||||||
| Foreign exchange (gain) loss | (62,613 | ) | (176,477 | ) | 222,553 | |||||||
| Total operating expenses | 993,872 | 787,342 | 800,540 | |||||||||
| Other expenses (income) | ||||||||||||
| Accretion expense | 11 | 279,834 | 1,179,603 | 1,169,921 | ||||||||
| Interest expense on convertible debt | 11 | 540,929 | 469,425 | 495,809 | ||||||||
| Other finance expenses | 11 | 86,352 | 13,233 | 84,478 | ||||||||
| Gain on revaluation of derivative liabilities | 11 | (658,503 | ) | (409,607 | ) | (2,547,192 | ) | |||||
| Loss (gain) on conversion of convertible debentures | 11 | 21,120 | 94,326 | (9,506 | ) | |||||||
| Loss (gain) on repayment of convertible debentures | 11 | 27,243 | (47,877 | ) | - | |||||||
| Loss on extinguishment of convertible debentures | 11 | 1,400,823 | 200,650 | 1,018,928 | ||||||||
| Total other expenses | 1,697,798 | 1,499,753 | 212,438 | |||||||||
| Loss before income tax provision | (2,691,670 | ) | (2,287,095 | ) | (1,012,978 | ) | ||||||
| Income tax provision | 15 | - | - | - | ||||||||
| Net loss and comprehensive loss | $ | (2,691,670 | ) | $ | (2,287,095 | ) | $ | (1,012,978 | ) | |||
| Weighted average number of outstanding shares, basic and diluted | 14 | 490,310,376 | 451,177,796 | 422,613,046 | ||||||||
| Loss per share, basic and diluted | 14 | $ | (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, 2023, 2022, and 2021
(Expressed in United States dollars)
| Notes | Number of shares |
Share capital | Contributed surplus |
Equity component of convertible debentures |
Accumulated deficit |
Total | |||||||||||||||
| Balance at November 1, 2020 | 402,552,453 | $ | 85,463,642 | $ | 27,810,586 | $ | 23,952 | $ | (117,485,522 | ) | $ | (4,187,342 | ) | ||||||||
| Private placements of shares for cash | 12 | 17,573,429 | 840,564 | - | - | - | 840,564 | ||||||||||||||
| Convertible debentures converted into common shares | 11 | 15,611,852 | 511,630 | - | - | - | 511,630 | ||||||||||||||
| Expiry of convertible debenture conversion option | 11 | - | - | 26,752 | (26,752 | ) | - | - | |||||||||||||
| Renewal of convertible debentures | 11 | - | - | - | 16,804 | - | 16,804 | ||||||||||||||
| Stock-based compensation | 12 | - | - | 360,044 | - | - | 360,044 | ||||||||||||||
| Net loss and comprehensive loss | - | - | - | - | (1,012,978 | ) | (1,012,978 | ) | |||||||||||||
| Balance at October 31, 2021 | 435,737,734 | $ | 86,815,836 | $ | 28,197,382 | $ | 14,004 | $ | (118,498,500 | ) | $ | (3,471,278 | ) | ||||||||
| Private placements of shares for cash | 12 | 5,012,450 | 207,588 | - | - | - | 207,588 | ||||||||||||||
| Share issuance costs | 12 | - | (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 | 12 | 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 | 13 | - | - | 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 | 12 | 9,864,500 | 535,525 | - | - | - | 535,525 | ||||||||||||||
| Share issuance costs | 12 | - | (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 | 13 | 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 | 13 | - | - | 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 | ) |
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, 2023, 2022, and 2021
(Expressed in United States dollars)
| Years ended October 31, | ||||||||||||
| Notes | 2023 | 2022 | 2021 | |||||||||
| Operating activities | ||||||||||||
| Net loss | $ | (2,691,670 | ) | $ | (2,287,095 | ) | $ | (1,012,978 | ) | |||
| Items not affecting cash: | ||||||||||||
| Statute barred payables | - | - | (422,982 | ) | ||||||||
| Depreciation of property and equipment | 6 | 16,492 | 25,878 | 28,033 | ||||||||
| Amortization of patents | 7 | - | 3,877 | 8,000 | ||||||||
| Accretion expense | 11,17 | 279,834 | 1,179,603 | 1,169,921 | ||||||||
| Accrued interest on convertible debentures | 17 | 471,596 | 368,280 | 605,507 | ||||||||
| Stock-based compensation | 13 | 217,965 | 41,484 | 360,044 | ||||||||
| Loss (gain) on conversion of convertible debentures | 11,17 | 21,120 | 94,326 | (9,506 | ) | |||||||
| Loss (gain) on repayment of convertible debentures | 11,17 | 27,243 | (47,877 | ) | - | |||||||
| Gain on revaluation of derivative liabilities | 11,17 | (658,503 | ) | (409,607 | ) | (2,547,192 | ) | |||||
| Loss on extinguishment of convertible debentures | 11,17 | 1,400,823 | 200,650 | 1,018,928 | ||||||||
| Foreign exchange (gain) loss | (67,031 | ) | (136,336 | ) | 421,937 | |||||||
| (982,131 | ) | (966,817 | ) | (380,288 | ) | |||||||
| Net changes in non-cash working capital: | ||||||||||||
| (Increase) decrease in prepaid expenses and other receivables | (85,799 | ) | 5,807 | 1,414 | ||||||||
| Increase in deposit liability | 63,000 | - | - | |||||||||
| Decrease in trade payables and other liabilities | (78,290 | ) | (36,021 | ) | (383,892 | ) | ||||||
| Cash flows used in operating activities | (1,083,220 | ) | (997,031 | ) | (762,766 | ) | ||||||
| Investing activity | ||||||||||||
| Purchase of property and equipment | 6 | (2,044 | ) | - | (5,271 | ) | ||||||
| Cash flows used in investing activity | (2,044 | ) | - | (5,271 | ) | |||||||
| Financing activities | ||||||||||||
| Principal payments on lease liability | 8 | (15,609 | ) | (25,317 | ) | (27,282 | ) | |||||
| Proceeds from long-term loan | - | - | 17,974 | |||||||||
| Proceeds from private placements of shares | 12 | 535,525 | 207,588 | 840,564 | ||||||||
| Share issuance costs | (25,586 | ) | (25,591 | ) | - | |||||||
| Proceeds from the exercise of options | 13 | 214,140 | - | - | ||||||||
| Proceeds from issuance of convertible debentures | 17 | 645,151 | 765,671 | 510,000 | ||||||||
| Repayments of convertible debentures | 17 | (270,000 | ) | (63,490 | ) | (593,301 | ) | |||||
| Cash flows provided by financing activities | 1,083,621 | 858,861 | 747,955 | |||||||||
| Net change in cash | (1,643 | ) | (138,170 | ) | (20,082 | ) | ||||||
| Cash - beginning of period | 33,227 | 171,397 | 191,479 | |||||||||
| Cash - end of period | $ | 31,584 | $ | 33,227 | $ | 171,397 | ||||||
| Supplemental cash flow information | ||||||||||||
| Interest paid (classified in operating activities) | 11 | $ | 64,679 | $ | 88,465 | $ | 87,266 | |||||
| Interest converted (classified in operating activities) | 11 | $ | 238,859 | $ | 12,680 | $ | 196,964 | |||||
| Interest paid on non-convertible debt (classified in operating activities) | $ | 9,170 | $ | 9,604 | $ | 11,785 | ||||||
| Interest paid on lease liability (classified in operating activities) | 8 | $ | 3,323 | $ | 3,629 | $ | 9,160 | |||||
| Carrying amount of convertible debentures converted into common shares | 17 | $ | 1,742,226 | $ | 764,432 | $ | 521,136 | |||||
| Shares issued on settlement of accounts payable | 12 | $ | - | $ | 22,460 | $ | - | |||||
| ROU asset and lease liability recognized | 8 | $ | - | $ | 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, 2023, 2022, and 2021 (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, 2023 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, 2023, the Company reported a net loss and comprehensive loss of $2,691,670 (2022 - $2,287,095, 2021 - $1,012,978) and negative cash flow from operations of $1,083,220 (2022 - $997,031, 2021 - $762,766). The Company's working capital deficiency as at October 31, 2023 was $4,818,699 (October 31, 2022 - $4,722,878).
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 2024; 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 International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") 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 January 30, 2024.
(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, 2023, 2022, and 2021 (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 and conversion features
The Company makes estimates and utilizes assumptions in determining the fair value for stock options and conversion features based on the application of the Black-Scholes option pricing model or the binomial option pricing model, 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 in the binomial option pricing model.
(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, 2023, 2022, and 2021 (Expressed in United States dollars, unless otherwise noted) |
4. Summary of significant accounting policies
The principal 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.
(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, 2023, 2022, and 2021 (Expressed in United States dollars, unless otherwise noted) |
4. Summary of significant 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, non-convertible 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 a Black Scholes or a binomial pricing model. 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 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 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 at October 31, 2023 is $1,079,393 (2022 - $641,299). See Note 11 (c).
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, 2023 and 2022, there were no transfers between levels.
| Micromem Technologies Inc. Notes to Consolidated Financial Statements For the years ended October 31, 2023, 2022, and 2021 (Expressed in United States dollars, unless otherwise noted) |
4. Summary of significant 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 (three years) | ||||||||||
(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 2023, 2022, or 2021.
(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 right-of-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, 2023, 2022, and 2021 (Expressed in United States dollars, unless otherwise noted) |
4. Summary of significant 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.
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.
| Micromem Technologies Inc. Notes to Consolidated Financial Statements For the years ended October 31, 2023, 2022, and 2021 (Expressed in United States dollars, unless otherwise noted) |
5. New accounting standards and pronouncements (continued)
(b) Amendment to IAS 1, Presentation of Financial Statements, Issued but not yet effective
In February 2021, the IASB issued ‘Disclosure of Accounting Policies’ with amendments that are intended to help preparers in deciding which accounting policies to disclose in their financial statements. The amendments are effective for year ends beginning on or after January 1, 2023. Earlier adoption is permitted. The Company will adopt this amendment as of the effective date, and does not anticipate any material impacts on adoption.
(c) Amendment to IAS 12 Deferred Tax related to Assets and Liabilities arising from a Single Transaction, Issued but not yet effective
The amendment narrowed the scope of certain recognition exemptions so that it no longer applies to transactions that, on initial recognition, give rise to equal taxable and deductible temporary differences. An entity applies the amendments to transactions that occur on or after the beginning of the earliest comparative period presented. It also, at the beginning of the earliest comparative period presented, recognizes deferred tax for all temporary differences related to leases and decommissioning obligations and recognizes the cumulative effect of initially applying the amendments as an adjustment to the opening balance of retained earnings (or other component of equity, as appropriate) at that date. The amendment is effective for annual periods beginning on or after January 1, 2023. Earlier adoption is permitted. The Company will adopt the amendment as of the effective date, and does not anticipate any material impacts on adoption.
(d) Amendment to IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, Issued but not yet effective
In February 2021, the IASB issued ‘Definition of Accounting Estimates’ to help entities distinguish between accounting policies and accounting estimates. The amendment is effective for annual reporting periods beginning on or after January 1, 2023. Earlier adoption is permitted. The Company will adopt the amendment as of the effective date, and is currently assessing the impacts of adoption.
(e) 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. Property and equipment
| As at November 1, 2022 |
Additions | Disposals | Foreign exchange |
As at October 31, 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 |
| Micromem Technologies Inc. Notes to Consolidated Financial Statements For the years ended October 31, 2023, 2022, and 2021 (Expressed in United States dollars, unless otherwise noted) |
6. Property and equipment (continued)
| As at November 1, 2021 |
Additions | Disposals | Foreign exchange |
As at October 31, 2022 |
|||||||||||
| Cost | |||||||||||||||
| Computers | $ | 18,570 | $ | - | $ | (11,104 | ) | $ | - | $ | 7,466 | ||||
| Right-of-use assets | 74,307 | 48,408 | (74,307 | ) | - | 48,408 | |||||||||
| 92,877 | 48,408 | (85,411 | ) | - | 55,874 | ||||||||||
| Accumulated depreciation | |||||||||||||||
| Computers | 12,824 | 1,723 | (10,799 | ) | - | 3,748 | |||||||||
| Right-of-use assets | 54,041 | 24,155 | (74,162 | ) | - | 4,034 | |||||||||
| 66,865 | 25,878 | (84,961 | ) | - | 7,782 | ||||||||||
| Net book value | $ | 26,012 | $ | 48,092 |
During the year ended October 31, 2022, the Company's lease agreement pertaining to the right-of-use asset as at October 31, 2021 expired and the asset was fully depreciated and derecognized. A new lease agreement was entered into and is therefore recorded as an addition during the year ended October 31, 2022. Refer to Note 8.
7. Patents
| As at November 1, |
As at October 31, |
|||||||||||
| 2022 | Additions | Disposals | 2023 | |||||||||
| Cost | $ | 681,288 | $ | - | $ | - | $ | 681,288 | ||||
| Accumulated amortization | 681,288 | - | - | 681,288 | ||||||||
| Net book value | $ | - | $ | - | $ | - | $ | - | ||||
| As at November 1, |
As at October 31, |
|||||||||||
| 2021 | Additions | Disposals | 2022 | |||||||||
| Cost | $ | 681,288 | $ | - | $ | - | $ | 681,288 | ||||
| Accumulated amortization | 677,411 | 3,877 | - | 681,288 | ||||||||
| Net book value | $ | 3,877 | $ | (3,877 | ) | $ | - | $ | - |
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, 2023 and 2022.
8. Leases
(a) As a lessee
The lease obligation relates to the use of office space in Toronto, Ontario. The lease agreement in effect for the year ended October 31, 2021 was set to expire on July 31, 2022. On May 26, 2022, a new lease agreement was entered into for a term from August 1, 2022 to July 31, 2025 for office space in another location in Toronto, Ontario. The present value of the lease obligation was calculated using a discount rate of 9%.
| Micromem Technologies Inc. Notes to Consolidated Financial Statements For the years ended October 31, 2023, 2022, and 2021 (Expressed in United States dollars, unless otherwise noted) |
8. Leases (continued)
(a) As a lessee
The lease liability is summarized as follows:
| Balance, October 31, 2020 | $ | 52,070 | |
| Interest expense | 9,160 | ||
| Lease payments | (36,442 | ) | |
| 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 |
The following represents a maturity analysis of the Company's undiscounted contractual lease obligations as at October 31, 2023:
| USD | |||
| Less than one year | $ | 18,822 | |
| Between one and five years | $ | 12,756 |
(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, 2023, the Company recognized a total of $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, 2023:
| USD | |||
| Less than one year | $ | 17,626 | |
| Between one and five years | $ | 14,593 |
9. Long-term loan
The Company was granted a $60,000 CAD ($43,254 USD) 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 repays $40,000 CAD ($28,836 USD) of the aggregate amount advanced on or before January 18, 2024, the repayment of the remaining $20,000 CAD will be forgiven. The balance was not paid by January 18, 2024, and as a result, the total principal amount was subsequently converted to a 3-year term loan at 5% annual interest paid monthly, commencing January 19, 2024. The total amount owing on the CEBA loan as at October 31, 2023 is $43,254 ($60,000 CAD) (October 31, 2022 - $43,796 ($60,000 CAD)).
10. 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 and June 17, 2023. The most recent extension on June 17, 2023 extended the debenture to December 17, 2023. 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, 2023, the debenture had an outstanding balance of $37,509 ($52,031 CAD) (October 31, 2022 - $38,001 ($52,062 CAD)). During the year ended October 31, 2023, total interest expense of $9,170 (2022 - $9,604, 2021 - $7,261) was recognized in the consolidated statement of operations and comprehensive loss.
| Micromem Technologies Inc. Notes to Consolidated Financial Statements For the years ended October 31, 2023, 2022, and 2021 (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, 2023, the Company incurred $86,352 of financing costs (2022 - $21,000, 2021 - $84,478) which primarily consisted of early repayment and administrative fees, of which $nil (2022 - $nil, 2021 - $nil) was converted into common shares.
(a) Current period information presented in the consolidated financial statements
Convertible debentures outstanding as at October 31, 2023:
| USD (equity component) |
CAD (embedded derivative) |
USD (embedded derivative) |
Total | |||||||||
| Loan principal outstanding | $ | 1,261,265 | $ | 2,146,715 | $ | 405,001 | ||||||
| Terms of loan | ||||||||||||
| Annual stated interest rate | 24% | 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 | ||||
| For the year ended October 31, 2023: | ||||||||||||
| USD (equity component) |
CAD (embedded derivative) |
USD (embedded 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 | ||||
| (Gain) loss on extinguishment of convertible debentures | $ | 33,488 | $ | 1,169,800 | $ | 197,535 | $ | 1,400,823 | ||||
| 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 | ||||||||
| Micromem Technologies Inc. Notes to Consolidated Financial Statements For the years ended October 31, 2023, 2022, and 2021 (Expressed in United States dollars, unless otherwise noted) |
11. Convertible debentures (continued)
(a) Current period information presented in the consolidated financial statements
| USD (equity component) |
CAD (embedded derivative) |
USD (embedded derivative) |
Total | ||||||||||||
| 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 | |||||||
(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, 2022:
| USD (equity component) |
CAD (embedded derivative) |
USD (embedded derivative) |
Total | |||||||||
| Loan principal outstanding | $ | 1,205,144 | $ | 2,321,755 | $ | 347,700 | ||||||
| Terms of loan | ||||||||||||
| Annual stated interest rate | 12% - 24% | 12% - 24% | 2% - 4% | |||||||||
| Effective annual interest rate | 24% | 22 - 131% | 24% - 5803% | |||||||||
| Conversion price to common shares | $0.03 - $0.07 | $0.05 - $0.08 | (i) - (ii) | |||||||||
| Remaining life (in months) | 0 - 6 | 0 - 10 | 0 - 11 | |||||||||
| Consolidated Statement of Financial Position | ||||||||||||
| Carrying value of loan principal | $ | 1,203,478 | $ | 1,661,742 | $ | 130,424 | $ | 2,995,644 | ||||
| Interest payable | 380,360 | 389,617 | 26,443 | 796,420 | ||||||||
| Convertible debentures | $ | 1,583,838 | $ | 2,051,359 | $ | 156,867 | $ | 3,792,064 | ||||
| Derivative liabilities | $ | - | $ | 439,194 | $ | 202,105 | $ | 641,299 | ||||
| Equity component of convertible debentures | $ | 793,140 | $ | - | $ | - | $ | 793,140 | ||||
(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, 2022:
| USD (equity component) |
CAD (embedded derivative) |
USD (embedded 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 | ) | |
| (Gain) loss on extinguishment of convertible debentures | $ | (28,007 | ) | $ | 99,078 | $ | 129,579 | $ | 200,650 | |||
| Micromem Technologies Inc. Notes to Consolidated Financial Statements For the years ended October 31, 2023, 2022, and 2021 (Expressed in United States dollars, unless otherwise noted) |
11. Convertible debentures (continued)
(b) Comparative information presented in the consolidated financial statements
| USD (equity component) |
CAD (embedded derivative) |
USD (embedded derivative) |
Total | |||||||||
| 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 | ||||
| For the year ended October 31, 2021: | ||||||||||||
| USD (equity component) |
CAD (embedded derivative) |
USD (embedded derivative) |
Total | |||||||||
| Consolidated Statement of Operations and Comprehensive Loss | ||||||||||||
| Accretion expense | $ | 28,001 | $ | 1,003,613 | $ | 138,307 | $ | 1,169,921 | ||||
| Interest expense | $ | 236,519 | $ | 226,520 | $ | 32,770 | $ | 495,809 | ||||
| (Gain) loss on revaluation of derivative liabilities | $ | - | $ | (2,718,409 | ) | $ | 171,217 | $ | (2,547,192 | ) | ||
| (Gain) loss on conversion of convertible debentures | $ | - | $ | (47,356 | ) | $ | 37,850 | $ | (9,506 | ) | ||
| (Gain) loss on extinguishment of convertible debentures | $ | - | $ | 1,360,536 | $ | (341,608 | ) | $ | 1,018,928 | |||
| Consolidated Statement of Changes in Equity | ||||||||||||
| Amount of principal converted to common shares | $ | - | $ | 100,000 | $ | 284,000 | ||||||
| Amount of interest converted to common shares | $ | 30,200 | $ | 160,064 | $ | 6,700 | ||||||
| Number of common shares issued on conversion of convertible debentures | 1,118,519 | 7,744,774 | 6,748,559 | 15,611,852 | ||||||||
| Consolidated Statement of Cash Flows | ||||||||||||
| Amount of principal repaid in cash | $ | 205,100 | $ | 31,492 | $ | 364,370 | $ | 600,962 | ||||
| Amount of interest repaid in cash | $ | 25,101 | $ | 36,052 | $ | 26,113 | $ | 87,266 | ||||
(c) Fair value of derivative liabilities outstanding
The fair value of the derivative liabilities is determined in accordance with the Black-Scholes or binomial option-pricing models, depending on the circumstances. The underlying assumptions are as follows:
| As at October 31, |
As at October 31, |
||
| 2023 | 2022 | ||
| Share price | $0.05 | $0.03 | |
| Exercise price | $0.03 - $0.07 | $0.02 - $0.07 | |
| Volatility factor (based on historical volatility) | 114% - 189% | 140% - 232% | |
| Risk free interest rate | 5.11% - 5.48% | 3.09% - 4.28% | |
| Expected life of conversion features (in months) | 0 - 11 | 0 - 11 | |
| Expected dividend yield | 0% | 0% | |
| CDN to USD exchange rate (as applicable) | 0.7209 | 0.7299 | |
| Call value | $0.01 - $0.08 | $0.00 - $0.02 |
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, 2023, 2022, and 2021 (Expressed in United States dollars, unless otherwise noted) |
12. Share capital
(a) Authorized and outstanding shares
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) Private placements
(i) 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.
(ii) 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.
(iii) In 2021, the Company completed 37 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 $840,564 and issued a total of 17,573,429 common shares.
(c) Accounts payable settled in common shares
During the year ended October 31, 2023, $nil (2022 - $22,460, 2021 - $nil) of accounts payable was settled in exchange for nil (2022 - 413,674, 2021 - nil) common shares. There was no gain or loss recognized upon settlement.
13. 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
| Number of options |
Weighted average exercise price |
||||||
| Outstanding at October 31, 2020 | 2,200,000 | $ | 0.10 | ||||
| Granted | 9,500,000 | 0.06 | |||||
| Outstanding at October 31, 2021 | 11,700,000 | $ | 0.06 | ||||
| Granted | 2,025,000 | 0.07 | |||||
| Expired | (2,000,000 | ) | 0.07 | ||||
| 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 | ||||
(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.
| Micromem Technologies Inc. Notes to Consolidated Financial Statements For the years ended October 31, 2023, 2022, and 2021 (Expressed in United States dollars, unless otherwise noted) |
13. Stock options (continued)
(c) Stock options outstanding at October 31, 2023
There were 3,000,000 options issued to directors, officers, employees and consultants during the year ended October 31, 2023 (2022 - nil, 2021 - 9,500,000 options issued). Of the 3,000,000 options granted, 2,750,000 options have vested, the remaining 250,000 options vested on January 6, 2024.
| Weighted average | ||||||||||||
| Date of issue | Expiry date | Number of options |
Exercise price | Remaining contractual life |
||||||||
| November 13, 2020 | November 13, 2025 | 5,750,000 | $ | 0.05 | 2.0 | |||||||
| October 8, 2021 | October 8, 2026 | 1,000,000 | 0.07 | 2.9 | ||||||||
| December 15, 2021 | December 15, 2023 | 25,000 | 0.07 | 0.1 | ||||||||
| March 20, 2023 | March 20, 2028 | 2,000,000 | 0.07 | 4.4 | ||||||||
| April 6, 2023 | April 6, 2024 | 1,000,000 | 0.12 | 0.4 | ||||||||
| Outstanding at October 31, 2023 | 9,775,000 | $ | 0.06 | 2.4 | ||||||||
Of the total options outstanding, 9,525,000 are exercisable as at October 31, 2023 (2022 - 10,225,000).
(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:
| 2023 | 2022 | 2021 | |||
| Share price at grant date | $0.07 - $0.12 | $0.03 - $0.05 | $0.05 | ||
| Exercise price | $0.07 - $0.12 | $0.07 | $0.05 - 0.07 | ||
| Volatility factor | 175% - 184% | 212% - 272% | 148% - 180% | ||
| Risk free interest rate | 2.79% - 3.58% | 0.97% - 4.33% | 0.75% | ||
| Expected life of options in years | 1 - 5 | 1 - 2 | 5 | ||
| Expected divided yield | 0% | 0% | 0% | ||
| Forfeiture rate | 0% | 0% | 0% | ||
| Weighted average Black Scholes value at grant date | $0.06 - $0.08 | $0.02 - $0.03 | $0.05 - $0.06 |
During the year ended October 31, 2023, the Company recorded an expense of $217,965 related to the vesting of stock options (2022 - $41,484, 2021 - $360,044).
14. Loss per share
Basic and diluted loss per share are calculated using the following numerators and denominators:
| 2023 | 2022 | 2021 | |||||||
| Numerator | |||||||||
| Net loss attributable to common shareholders and used in computation of basic and diluted loss per share | $ | (2,691,670 | ) | $ | (2,287,095 | ) | $ | (1,012,978 | ) |
| Denominator | |||||||||
| Weighted average number of common shares for computation of basic and diluted loss per share | 490,310,376 | 451,177,796 | 422,613,046 |
For the years ended October 31, 2023, 2022 and 2021, all stock options and conversion features were anti-dilutive and, therefore, are excluded from the calculation of diluted loss per share.
| Micromem Technologies Inc. Notes to Consolidated Financial Statements For the years ended October 31, 2023, 2022, and 2021 (Expressed in United States dollars, unless otherwise noted) |
15. 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:
| 2023 | 2022 | 2021 | |||||||
| Loss before income taxes | $ | (2,691,670 | ) | $ | (2,287,095 | ) | $ | (1,012,978 | ) |
| 26.5% | 26.5% | 26.5% | |||||||
| Expected income tax recovery | $ | (713,293 | ) | $ | (606,080 | ) | $ | (268,439 | ) |
| Accretion expense and loss (gain) on convertible debentures and derivative liabilities | 283,688 | 269,531 | (97,480 | ) | |||||
| Stock-based compensation | 57,761 | 10,992 | 95,412 | ||||||
| Non-deductible (non-taxable) expenses and other items | (13,660 | ) | (3,780 | ) | 82,530 | ||||
| Effect of changes in exchange rates | 74,714 | 940,577 | (644,649 | ) | |||||
| Change in deferred tax assets not recognized | 310,790 | (611,240 | ) | 832,626 | |||||
| $ | - | $ | - | $ | - |
(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:
| 2023 | 2022 | 2021 | |||||||
| Non-capital losses | $ | 8,833,940 | $ | 8,485,255 | $ | 8,924,982 | |||
| 159,671 | 162,275 | 178,808 | |||||||
| Property, equipment, patents and deferred costs | 1,605,743 | 1,639,306 | 1,794,285 | ||||||
| $ | 10,599,354 | $ | 10,286,836 | $ | 10,898,075 | ||||
| Deferred tax asset not recognized | (10,599,354 | ) | (10,286,836 | ) | (10,898,075 | ) | |||
| $ | - | $ | - | $ | - |
As at October 31, 2023 and 2022, 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 $33 million available to reduce future taxable income, the benefit of which has not been recognized in these consolidated financial statements. As at October 31, 2023, the tax losses expire as follows:
| Canada | United States | Total | |||||||
| 2026 | $ | 1,731,988 | $ | - | $ | 1,731,988 | |||
| 2027 | 1,456,466 | - | 1,456,466 | ||||||
| 2028 | - | - | - | ||||||
| 2029 | 1,492,685 | 143,721 | 1,636,406 | ||||||
| 2030 | 2,014,021 | 1,880,897 | 3,894,918 | ||||||
| 2031 | 1,213,385 | 18,526 | 1,231,911 | ||||||
| 2032 | 1,344,746 | 325,793 | 1,670,539 | ||||||
| 2033 | 1,629,964 | 157,463 | 1,787,427 | ||||||
| 2034 | 2,358,006 | 679,089 | 3,037,095 | ||||||
| 2035 | 2,664,751 | 570,901 | 3,235,652 | ||||||
| 2036 | 3,127,236 | 441,019 | 3,568,255 | ||||||
| 2037 | 2,503,443 | 232,714 | 2,736,157 | ||||||
| 2038 | 1,692,420 | 317 | 1,692,737 | ||||||
| 2039 | 1,513,943 | - | 1,513,943 | ||||||
| 2040 | 509,976 | - | 509,976 | ||||||
| 2041 | 883,620 | - | 883,620 | ||||||
| 2042 | 1,254,159 | - | 1,254,159 | ||||||
| 2043 | 1,494,374 | - | 1,494,374 | ||||||
| $ | 28,885,183 | $ | 4,450,440 | $ | 33,335,623 |
(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, 2023, 2022, and 2021 (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 | 2023 | 2022 | 2021 | ||||||||
| General and administration | $ | 70,584 | $ | 59,938 | $ | 86,186 | |||||
| Rent and occupancy | 8 (b) | 17,663 | 50,907 | 15,536 | |||||||
| Office insurance | 1,930 | 1,696 | 753 | ||||||||
| Investor relations, listing and filing fees | 52,756 | 64,769 | 53,029 | ||||||||
| Telephone | 5,683 | 8,056 | - | ||||||||
| $ | 148,616 | $ | 185,366 | $ | 155,504 |
(i) Rent subsidy
The Government of Canada announced the Canada Emergency Rent Subsidy (CERS) to support eligible businesses by covering part of their commercial rent or property expenses. For the year ended October 31, 2023, the Company recognized $nil (2022 - $nil, 2021 - $38,440 CDN ($30,613 USD)) of rent subsidy under this program, which has been recorded as a reduction of rent and occupancy expenses in the consolidated statements of operations and comprehensive loss. This program ran from September 27, 2020 to October 23, 2021.
(b) Professional, other fees and salaries
The components of professional, other fees and salaries expenses are as follows:
| 2023 | 2022 | 2021 | |||||||
| Professional fees | $ | 144,244 | $ | 110,933 | $ | 107,554 | |||
| Consulting fees | 67,664 | 69,563 | 132,793 | ||||||
| Salaries and benefits | 398,144 | 467,214 | 184,138 | ||||||
| $ | 610,052 | $ | 647,710 | $ | 424,485 |
(i) Wage subsidy
The Canada Emergency Wage Subsidy (CEWS) was announced by the Government of Canada on March 27, 2020 to enable companies negatively impacted by COVID-19 to re-hire workers. Under this program, qualifying business can receive a subsidy for a portion of their employees' wages. For the year ended October 31, 2023, the Company recognized $nil (2022 - $nil, 2021 - $167,388 CDN ($133,699 USD)) of wage subsidy under this program, which has been recorded as a reduction of salaries expenses in the consolidated statements of operations and comprehensive loss. This program concluded on October 23, 2021.
17. Supplemental cash flow information
The following provides a reconciliation of the cash flows from convertible debentures and derivative liabilities :
| Years ended October 31, | |||||||||
| 2023 | 2022 | 2021 | |||||||
| Balance - beginning of year | $ | 4,433,363 | $ | 3,239,483 | $ | 3,615,080 | |||
| Cash flows from financing activities: | |||||||||
| Proceeds from issuance of convertible debentures | 645,151 | 765,671 | 510,000 | ||||||
| Repayments of convertible debentures | (270,000 | ) | (63,490 | ) | (593,301 | ) | |||
| Non-cash changes: | |||||||||
| Accretion expense | 279,834 | 1,179,603 | 1,169,921 | ||||||
| Accrued interest on convertible debentures | 471,596 | 368,280 | 408,543 | ||||||
| Loss (gain) on repayment of convertible debentures | 27,243 | (47,877 | ) | - | |||||
| Loss on conversion of convertible debentures | 21,120 | 94,326 | - | ||||||
| Gain on revaluation of derivative liabilities | (658,503 | ) | (409,607 | ) | (2,547,192 | ) | |||
| Loss on extinguishment of debt | 1,400,823 | 200,650 | 1,018,928 | ||||||
| Convertible debentures converted into common shares | (1,656,422 | ) | (764,432 | ) | (521,136 | ) | |||
| Renewal of convertible debentures | - | - | (16,804 | ) | |||||
| Foreign exchange (gain) loss | (66,753 | ) | (129,244 | ) | 195,444 | ||||
| Balance - end of year | $ | 4,627,452 | $ | 4,433,363 | $ | 3,239,483 | |||
| Micromem Technologies Inc. Notes to Consolidated Financial Statements For the years ended October 31, 2023, 2022, and 2021 (Expressed in United States dollars, unless otherwise noted) |
18. 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:
| 2023 | 2022 | 2021 | |||||||
| Professional, other fees, and salaries | $ | 214,914 | $ | 133,517 | $ | 107,201 | |||
| Stock-based compensation | 82,946 | - | 227,500 | ||||||
| $ | 297,860 | $ | 133,517 | $ | 334,701 |
During the year ended October 31, 2023, key management were awarded 1,340,000 options as part of the total 3,000,000 issued (October 31, 2022 - nil). During the year ended October 31, 2021, the Company awarded 5,000,000 stock options to key management as part of the total 9,500,000 stock options issued.
(b) Trade payables and other liabilities
In 2021, the Company reversed certain amounts totalling $422,982 due to the payables being statute barred. These balances carried forward from prior years and the Company derecognized these balances during the year ended October 31, 2021.
Included in accounts payable at October 31, 2023 is $nil payable to a corporation controlled by an officer of the Company (2022 - $5,650 CAD (USD - $4,139)). In addition, at October 31, 2023, accounts payable includes $2,173 payable to a director (2022 - $nil).
19. 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, 2023 the Company has recorded a recovery of $23,555 as a reduction of legal expenses (October 31, 2022 - $9,040, October 31, 2021 - $40,000). At October 31, 2023, $11,705 of the recovery is recorded as other receivable on the consolidated statement of financial position (2022 - $nil).
(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. 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.
| Micromem Technologies Inc. Notes to Consolidated Financial Statements For the years ended October 31, 2023, 2022, and 2021 (Expressed in United States dollars, unless otherwise noted) |
19. Commitments and Contingencies (continued)
(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, 2023 a formal agreement relating to the Project has not been executed.
During the year ended October 31, 2023, the Company received total advances of $63,000 from the Parties and has paid $63,000 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.
At October 31, 2023 the Company is committed to a further $63,000 payment related to the construction of the hardware equipment.
20. 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, 2023, and October 31, 2022, balances that are denominated in CAD are as follows:
| As at October 31, |
As at October 31, |
|||||
| 2023 | 2022 | |||||
| CAD | CAD | |||||
| Cash | $ | 38,444 | $ | 15,715 | ||
| Other receivables | $ | 29,080 | $ | 13,832 | ||
| Trade payables and other liabilities | $ | 290,311 | $ | 393,978 | ||
| Convertible debentures | $ | 2,544,289 | $ | 2,810,362 | ||
| Debenture payable | $ | 52,031 | $ | 51,500 | ||
| Derivative liabilities | $ | 1,087,044 | $ | 601,696 | ||
| Long-term loan | $ | 60,000 | $ | 60,000 |
A 10% strengthening of the US dollar against the CDN dollar would decrease net loss and comprehensive loss by $260,000 as at October 31, 2023 (October 31, 2022 - decrease net loss and comprehensive loss by $257,995). A 10% weakening of the USD against the CDN 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. This exposure is limited due to the short-term nature of the convertible debentures.
(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 $43,289 as at October 31, 2023 (October 31, 2022 - $33,227).
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, 2023, 2022, and 2021 (Expressed in United States dollars, unless otherwise noted) |
20. 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, 2023.
(i) Trade payables
The following represents an analysis of the maturity of trade payables:
| As at October 31, |
As at October 31, |
|||||
| 2023 | 2022 | |||||
| Less than 30 days past billing date | $ | 209,285 | $ | 287,575 | ||
| $ | 209,285 | $ | 287,575 |
(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, | ||||||||||||||
| 2023 | 2022 | ||||||||||||||
| Convertible debentures |
Debenture payable |
Convertible debentures |
Debenture payable |
||||||||||||
| Less than three months | $ | 2,451,614 | $ | 37,509 | $ | 2,445,107 | $ | - | |||||||
| Three to six months | $ | 1,038,355 | $ | - | 1,235,836 | - | |||||||||
| Six to twelve months | $ | 433,815 | $ | - | 446,635 | 38,001 | |||||||||
| $ | 3,923,784 | $ | 37,509 | $ | 4,127,578 | $ | 38,001 | ||||||||
21. 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, 2023.
| Micromem Technologies Inc. Notes to Consolidated Financial Statements For the years ended October 31, 2023, 2022, and 2021 (Expressed in United States dollars, unless otherwise noted) |
22. Subsequent events
Subsequent to October 31, 2023:
(a) The Company secured four private placements with investors for net proceeds of $113,260 and issued a total of 2,400,000 common shares with no warrants, pursuant to prospectus and registrations set forth in applicable securities law.
(b) The Company secured $137,188 in convertible debentures with issuance dates between November 22, 2023 and January 12, 2024. The convertible debentures have a 12 month term, interest rate of 4% per annum and expiring dates ranging from November 22, 2024 to January 12, 2025. The conversion features become effective six months after initiation date.
(c) On January 1, 2024, the Company secured $79,227 ($109,900 CAD) in a convertible debenture with a 12 month term, interest rate of 12% per annum and expiring on January 11, 2025.
(d) The Company converted $127,704 of convertible debentures and accrued interest through the issuance of 3,780,426 common shares.
(e) The Company repaid $154,391 on two of its convertible debentures, as well as a partial payment of $5,000 on another convertible debenture.
(f) A total of 25,000 stock options expired unexercised on December 15, 2023
(g) The Company extended its convertible debentures, with an original maturity date ranging between November 2, 2023 to January 27, 2024, for an additional 6 months, expiring between May 2, 2024 and July 27, 2024. There were no significant changes to the terms of the convertible debentures as a result of the extension.
|
MICROMEM TECHNOLOGIES INC. |
|
MANAGEMENT'S DISCUSSION AND ANALYSIS |
|
FOR THE FISCAL YEAR ENDED OCTOBER 31, 2023 PREPARED AS OF JANUARY 30th, 2024 |
|
|
NOTICE TO READER
The Management's Discussion and Analysis ("MD&A") report for Micromem Technologies Inc. for the fiscal year October 31, 2023, as attached, is dated as of January 30th, 2024, 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 |
| January 30th, 2024 | January 30th, 2024 |
| MICROMEM TECHNOLOGIES INC. |
| MANAGEMENT'S DISCUSSION AND ANALYSIS |
| FOR THE FISCAL YEAR ENDED OCTOBER 31, 2023 PREPARED AS OF JANUARY 30th, 2024 |
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, 2023, 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, 2023, and 2022 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.
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MICROMEM TECHNOLOGIES INC. |
|
MANAGEMENT'S DISCUSSION AND ANALYSIS |
|
FOR THE FISCAL YEAR ENDED OCTOBER 31, 2023 PREPARED AS OF JANUARY 30th, 2024 |
TABLE OF CONTENTS:
|
MICROMEM TECHNOLOGIES INC. |
|
MANAGEMENT'S DISCUSSION AND ANALYSIS |
|
FOR THE FISCAL YEAR ENDED OCTOBER 31, 2023 PREPARED AS OF JANUARY 30th, 2024 |
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.
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 August 2023 and again in December 2023. We are maintaining an active dialogue with Chevron relating to our current undertakings in Romania and with respect to future business opportunities with Chevron.
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 is scheduling the next Annual General Meeting of Shareholders for March-April 2024.
2. BUSINESS DEVELOPMENTS IN 2023:
Romgaz: As the date of this report, the Company has had positive developments with respect to its working arrangements with Romgaz. These developments include:
a) 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.
b) Micromem anticipates that it will finalize agreements with respect to three phases of go forward activity with Romgaz shortly. The 3 phases, as have been previously reported include:
i. An initial purchase order for between 2-5 ARTRA units. The University will evaluate these initial units and develop all required specifications for a well-mounted device that incorporates all required analytics software. Upon completion, Micromem anticipates a second purchase order for up to 20 of these upgraded units for infield testing by Romgaz. If these units perform successfully, an order for up to 3,800 units for gas wells and 1,200 units for oil wells will be forthcoming. These commercial units will be fabricated in Romania.
ii. The concurrent development of analytics software for the ARTRA units and for broader applications. The software is to be customized for use by Romgaz and Petrom in their respective gas and oil well operations. Micromem will maintain a 50% interest in the jointly developed analytics software which is intended to provide comprehensive real time data and analysis for operating wells. Micromem will realize recurring revenues as this software is utilized.
iii. The concurrent development of powerline monitoring solutions for the transmission and interconnection hardware currently in place in Romania's electric grid system. Micromem will work with its Romanian partners to develop both the powerline monitoring devices and the analytics software for the grid system. It is anticipated that this initiative will be launched in the 2024 fiscal year.
(c) Micromem has now received the initial draft of the two-unit purchase order from Romgaz and the initial draft of the proposed joint venture agreement between Micromem and Romgaz who is purposed to develop the analytics software applications, the powerline monitoring technology applications and other initiatives going forward.
In anticipation of these developments in 2024, Micromem has planned for its business activity to include the following components:
(i) Continuance of its working relationship with the developer of the ARTRA technology which Chevron has successfully tested in onsite testing of operating oil wells.
(ii) Continuance of our working dialogue with Chevron.
(iii) We have previously established a Toronto-based engineering/product development team in cooperation with an established manufacturing and engineering group whom we expect to have a role in future as a strategic partner to Micromem.
(iv) We will plan to add additional senior management to the Micromem team in the project management, engineering, and financial reporting areas of discipline. We will also look to recruit additional corporate directors to our Board.
(b) Chevron:
We met with Chevron in their Houston offices in May 2023, in August 2023 and, most recently, in December 2023 to advise them of our current progress in our dealings with Romgaz. Chevron continues to support these initiatives as we advance our development efforts. We are maintaining an active dialogue with Chevron regarding our current undertakings in Romania and with respect to future business opportunities with Chevron.
In May 2023 we met with the developer of the original technology that Chevron deployed in the testing which they completed in Lost Hills California in 2019-2020. That developer will continue to work with Micromem in our current dealings with Romgaz. Our discussions with the developer are ongoing on a regular basis.
(c) Covid 19 update:
The impact on the Company's operations of the COVID-19 pandemic has been discussed in previous reports. The pandemic has previously resulted in delays in rolling out our Romgaz program. We returned to normalized operations in 2023.
3. FINANCING
In 2023 the Company received gross proceeds of $535,525 from private placements and issued 9,864,500 common shares (2022: $207,588 and issued 5,012,450 common shares).
The Company issued 30,346,660 common shares relating to the conversion by debenture holders of their debentures totaling $1,742,226 during the year (2022: issued 26,443,820 common shares relating to conversion of debentures totaling $764,432). The Company did not issue common shares with respect to the settlement of accounts payable in 2023, however, in 2022, it issued 413,674 common shares with respect to the settlement of $22,460 of accounts payable.
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 2023 the Company has repaid certain convertible loans at maturity when due as requested by the debenture holder or converted the debenture into common shares at the request of the debenture holder or extended the term of the debenture through negotiations with the debenture holder - 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, 2023 and 2022 none of which impact the Company's cash flows:
| 2023 | 2022 | Change | |||||||
| Accretion expense | $ | 279,834 | $ | 1,179,603 | $ | (899,769 | ) | ||
| Loss on conversion of convertible debentures | 21,120 | 94,326 | (73,206 | ) | |||||
| Gain on revaluation of derivative liabilities | (658,503 | ) | (409,607 | ) | (248,896 | ) | |||
| Loss on extinguishment/repayment of convertible debentures | 1,428,066 | 152,773 | 1,275,293 | ||||||
| Net expense | $ | 1,070,517 | $ | 1,017,095 | $ | 53,422 |
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MICROMEM TECHNOLOGIES INC. |
|
MANAGEMENT'S DISCUSSION AND ANALYSIS |
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FOR THE FISCAL YEAR ENDED OCTOBER 31, 2023 PREPARED AS OF JANUARY 30th, 2024 |
4. DISCUSSION OF OPERATING RESULTS:
(a) Financial Position as at October 31, 2023:
| October 31, 2023 | October 31, 2022 | |||||
| (US $000) | (US $000) | |||||
| Assets | ||||||
| Cash | $ | 31 | $ | 33 | ||
| Prepaid expenses and other receivables | 104 | 18 | ||||
| 135 | 51 | |||||
| Property and equipment | 33 | 48 | ||||
| Total assets | $ | 168 | $ | 99 | ||
| Liabilities | ||||||
| Accounts payables and other liabilities | $ | 310 | $ | 326 | ||
| Current lease liability | 17 | 15 | ||||
| Convertible debentures | 3,548 | 3,792 | ||||
| Derivative liabilities | 1,079 | 641 | ||||
| 4,954 | 4,774 | |||||
| Non-current lease liability | 12 | 29 | ||||
| Long-term loan | 43 | 44 | ||||
| Total liabilities | 5,009 | 4,847 | ||||
| Shareholders' Deficit | ||||||
| Share capital | 90,472 | 87,785 | ||||
| Contributed surplus | 24,869 | 27,460 | ||||
| Equity component of convertible debentures | 3,220 | 793 | ||||
| Accumulated deficit | (123,402 | ) | (120,786 | ) | ||
| (4,841 | ) | (4,748 | ) | |||
| Total liabilities and shareholders' deficit | $ | 168 | $ | 99 |
Commentary:
| 1. | The Company's working capital deficiency is $4,818,699 on October 31, 2023 (2022: deficiency of $4,722,878). |
| 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, 2023 (2022: $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 2023 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, 2023, is $3,548,059 (2022: $3,792,064) and the related derivative liability balance is $1,079,393 (2022: $641,299). The Company reports accretion expense on these debentures of $279,834 (2022: $1,179,603), a loss on the conversion of convertible debentures to share capital of $21,120 (2022: $94,326), a gain on the revaluation of the underlying derivative liabilities of $658,503 (2022: $409,607) and a loss on extinguishment/repayment of convertible debentures of $1,428,066 (2022: loss of $200,650). Management generally employs a Black Scholes valuation model although, for certain of the loan transactions contracted for, it uses a binomial measurement model. Management acknowledges that the cost of financing to the Company is significant; interest on the convertible debentures is substantial. In 2023 we reported $540,929 of interest expense on convertible debt obligations (2022: $469,425). |
During the 2023 and 2022 fiscal years, the Company secured funding from various sources, the significant components include:
| 2023 | 2022 | |||||
| Private placements of shares for cash consideration | $ | 535,525 | $ | 207,588 | ||
| Bridge loan financing | $ | 645,151 | $ | 765,671 | ||
| Settlements for share consideration | $ | 1,742,226 | $ | 764,432 | ||
| $ | 2,922,902 | $ | 1,737,691 |
Operating Results:
The following table summarizes the Company's operating results for the years ended October 31, 2023, and 2022:
Discussion of operating Results
| Year Ended October 31 | ||||||
| 2023 | 2022 | |||||
| ($000) | ($000) | |||||
| Administration | 149 | 185 | ||||
| Professional fees and salaries | 610 | 648 | ||||
| Stock-based compensation | 218 | 41 | ||||
| Travel and entertainment | 63 | 60 | ||||
| Depreciation of property and equipment | 16 | 26 | ||||
| Amortization of patents | - | 4 | ||||
| Foreign exchange gain | (63 | ) | (176 | ) | ||
| Accretion expense | 280 | 1,180 | ||||
| Interest expense convertible debt | 541 | 469 | ||||
| Other financing costs | 86 | 13 | ||||
| Gain on revaluation of derivatives liabilities | (658 | ) | (410 | ) | ||
| Loss on conversion of convertible debentures | 21 | 94 | ||||
| Loss on extinguishment/repayment of convertible debentures | 1,429 | 153 | ||||
| Net expenses | 2,692 | 2,287 | ||||
| Net comprehensive loss | 2,692 | (2,287 | ) | |||
| Loss per share | - | - | ||||
Fiscal 2023 Compared to Fiscal 2022
a) Administration costs were $148,616 in 2023 versus $185,366 in 2022. These costs include rent and occupancy costs of $17,663 (2022: $50,907), the Company reported sublet income for a portion of its office space in 2023 and 2022; in 2022 the Company also received Federal Government Covid 19 related rent subsidies); office insurance costs of $1,930 (2022: $1,696; the Company did not renew its D&O insurance coverage after 2020), investor relations, listings and filing fees of $52,756 (2022: $64,769), other general and administrative expenses of $70,584 (2022: $59,938).
b) Professional and other fees and salaries costs were $610,052 in 2023 versus $647,710 in 2022. The components of these total costs include legal and audit related expenses of $144,244 in 2023 (2022: $110,933), 3rd party consulting fees were $67,664 in 2023 (2022: $69,563), staff salaries and benefits were $398,144 in 2023 (2022: $467,214).
The CFO has received $86,520 of management fees in 2023 (2022: $40,615). The CEO of the Company has received $190,317 of compensation in 2023 (2022: $92,902).
c) Travel and entertainment expenses were $63,360 in 2023 (2022: $59,504).
d) In 2023, the Company awarded 3,000,000 stock options to directors, officers and consultants. (2022: 2,025,000 stock options issued to directors, officers and consultants); the related expense of $217,965 was calculated using the Black Scholes option-pricing model (2022: $41,484).
e) Interest expense was $540,929 in 2023 versus $469,425 in 2022. 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 2023 relating to Capital Assets (2022: $29,755 consisting of $3,877 relating to patents and $ 25,878 relating to Capital Assets).
g) Financing costs were $86,352 in 2023 versus $13,233 in 2022. These expenses relate to costs associated with the convertible debenture financings which the Company completed in 2023 and 2022.
h) The gain on foreign exchange reported in 2023 was $62,613 versus $176,477 in 2022. This included 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 included 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 $0.7956 at October 31, 2021, $0.7327 at October 31, 2022 and $0.7209 at October 31, 2023.
i) The other expenses reported relate to the convertible debentures. These expenses are all non-cash expenses and compare as follows:
| 2023 | 2022 | Change | |||||||
| Accretion expense | $ | 279,834 | $ | 1,179,603 | $ | (899,769 | ) | ||
| Loss on conversion of convertible debentures | 21,120 | 94,326 | (73,206 | ) | |||||
| Gain on revaluation of derivative liabilities | (658,503 | ) | (409,607 | ) | (248,896 | ) | |||
| Loss on extinguishment/repayment of convertible debentures | 1,428,066 | 152,773 | 1,275,293 | ||||||
| Net expense | $ | 1,070,517 | $ | 1,017,095 | $ | 53,422 |
C. Unaudited Quarterly Financial Information - Summary
| Three months ended (unaudited) |
Revenues | Expenses |
Income (loss) in period |
Loss per share |
||||||||
| $ | $ | $ | $ | |||||||||
| 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 | ) | - | |||||||
| October 31, 2022 | - | (419,082 | ) | 419,082 | - | |||||||
| July 31, 2022 | - | 1,421,173 | (1,421,173 | ) | - | |||||||
| April 30, 2022 | - | (107,839 | ) | 107,839 | - | |||||||
| January 31, 2022 | - | 1,392,843 | (1,392,843 | ) | - |
| Three months ended (unaudited) |
Working capital (deficiency) |
Capital assets at NBV |
Other Assets |
Total Assets | Shareholders ' equity (deficit) |
||||||||||
| 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 | ) | ||||||||
| October 31, 2022 | (4,722,878 | ) | 48,092 | - | 99,519 | (4,748,000 | ) | ||||||||
| July 31, 2022 | (5,421,607 | ) | 4,445 | - | 97,504 | (5,463,523 | ) | ||||||||
| April 30, 2022 | (3,939,361 | ) | 11,630 | - | 93,372 | (3,790,399 | ) | ||||||||
| January 31, 2022 | (4,341,708 | ) | 18,816 | 1,877 | 148,789 | (4,368,574 | ) |
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MICROMEM TECHNOLOGIES INC. |
|
MANAGEMENT'S DISCUSSION AND ANALYSIS |
|
FOR THE FISCAL YEAR ENDED OCTOBER 31, 2023 PREPARED AS OF JANUARY 30th, 2024 |
5. RISKS AND UNCERTAINTIES
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, 2023 PREPARED AS OF JANUARY 30th, 2024 |
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, 2023, the Company reported a net loss and comprehensive loss of $2,691,670 (2022 - (2,287,095); 2021 $1,012,978) and negative cash flow from operations of $1,083,220 (2022 - 997,031; 2021 $762,766). The Company's working capital deficiency as at October 31, 2023, is $4,818,699 (2022 - $4,722,878).
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, 2023 PREPARED AS OF JANUARY 30th, 2024 |
|
|
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, 2023.
(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. The Company considers the claims of the former employee to be without merit. At October 31, 2023, the timing and outcome of the claim is uncertain and accordingly, no provision has been recorded in these consolidated financial statements.
(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, 2023.
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 $26,109 CDN; 1 years to 5 years: $17,695.
(e) Off-Balance Sheet Arrangements
At October 31, 2023, 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, 2023, the Company reports 510,368,838 common shares outstanding (2022: 467,607,678). Additionally, the Company has 9,775,000 stock options outstanding with a weighted average exercise price of $0.06 per share (2022: 11,725,000 options outstanding with a weighted average exercise price of $0.06 per share).
(f) Management and Board of Directors
At our most recent Annual Meeting of Shareholders held on September 8, 2020, Joseph Fuda, Oliver Nepomuceno, and Alex Dey were re-elected to serve on our Board of Directors. Brian Von Herzen was not put forward for reelection to the Board at the Annual Meeting. Joseph Fuda and Dan Amadori continue to serve as officers of the Company.
Our management team and directors, along with their 2023 remuneration, is presented as below:
| 2023 remuneration | ||||||||||
| Individual | Position | Cash | Options | Total | ||||||
| Joseph Fuda | President, Director | 141,198 | 21,046 | 162,244 | ||||||
| Oliver Nepomuceno | Director | - | 20,427 | 20,427 | ||||||
| Alex Dey | Director | 9,904 | 20,427 | 30,331 | ||||||
| Dan Amadori | CFO | 63,812 | 21,046 | 84,858 | ||||||
| Total | 214,914 | 82,946 | 297,860 | |||||||
(g) 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:
| 2023 | 2022 | 2021 | |||||||
| Professional, other fees and salaries | $ | 214,914 | $ | 133,517 | $ | 107,202 | |||
| Stock based compensation | 82,946 | - | 227,500 | ||||||
| $ | 297,860 | $ | 133,517 | $ | 334,702 |
In 2023 1,340,000 options were awarded at an exercise price of $0.07 (2022 - nil options granted; 2021 - 5,000,000 options at an exercise price of $0.05 per share).
Trade payables and other liabilities:
Included in trade payables and other liabilities at October 31, 2023 is $nil payable to a corporation controlled by an officer of the Company (2022 - $5,650 CDN (USD - $4,139)). In addition, at October 31, 2023, accounts payable includes $2,173 payable to a director (2022 - $nil).
(h) 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 2023 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, 2023 there are 9,775,000 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, 2023.
**********
|
MICROMEM TECHNOLOGIES INC. |
|
MANAGEMENT'S DISCUSSION AND ANALYSIS |
|
FOR THE FISCAL YEAR ENDED OCTOBER 31, 2023 PREPARED AS OF JANUARY 30th, 2024
|
9. SUBSEQUENT EVENTS
Subsequent to October 31, 2023:
(a) The Company secured four private placements with investors for net proceeds of $113,260 and issued a total of 2,400,000 common shares with no warrants, pursuant to prospectus and registrations set forth in applicable securities law.
(b) The Company secured $137,188 USD in convertible debentures with issuance dates between November 22, 2023, and January 12, 2024. The convertible debentures have a 12 month term, interest rate of 4% per annum and expiring dates ranging from November 22, 2024, to January 12, 2025. The conversion features become effective six months after initiation date.
(c) The Company secured $79,227 ($109,900 CDN) in a convertible debenture with a 12 month term, with an interest rate of 12% per annum and expiring on January 11, 2025.
(d) The Company converted $127,704 USD of convertible debentures and accrued interest through the issuance of 3,780,426 common shares.
(e) The Company repaid $154,391 USD on two of its convertible debenture, as well as a partial payment of $5,000 USD on another convertible debenture.
(f) A total of 25,000 options expired on December 15, 2023.
(g) The Company extended convertible debentures with an original maturity date ranging between November 2, 2023, to January 27, 2024, for an additional 6 months, expiring between May 2, 2024 and July 27, 2024. There were no significant changes to the terms of the convertible debentures as a result of the extension.
|
MICROMEM TECHNOLOGIES INC. |
|
MANAGEMENT'S DISCUSSION AND ANALYSIS |
|
FOR THE FISCAL YEAR ENDED OCTOBER 31, 2023 PREPARED AS OF JANUARY 30th, 2024 |
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.
The net non-cash expense (income) relating to items (a) - (d) above reported in the fiscal year ended October 31, 2023, was ($1,070,517) (2022: $1,017,095).
(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 2023 the Company issued 30,346,660 common shares in settlement of $1,742,226 of debentures which were converted to common shares by the debenture holders (2022: 26,443,820 common shares in settlement of $764,432 of converted debentures; 2021: 15,611,852 common shares in settlement of $511,630 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, 2023.
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 August 1, 2023 and ended on October 31, 2023 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: January 30, 2024
/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, 2023.
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 August 1, 2023 and ended on October 31, 2023 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: January 30, 2024.
/s/ Dan Amadori
Dan Amadori
Chief Financial Officer
FORM 13-502F1
CLASS 1 AND CLASS 3B REPORTING ISSUERS - PARTICIPATION FEE
|
MANAGEMENT CERTIFICATION I, Dan Amadori , an officer of the reporting issuer noted below have examined this Form 13-502F1 (the Form) being submitted hereunder to the Ontario Securities Commission and certify that to my knowledge, having exercised reasonable diligence, the information provided in the Form is complete and accurate. |
|||
| (s) Dan Amadori, CFO | January 30, 2024 | ||
| Name: | Date: | ||
| Title: | |||
| Reporting Issuer Name: | Micromem Technologies Inc. | |
| End date of previous financial year: | October 31, 2023 | |
| Type of Reporting Issuer: | ☑ Class 1 reporting issuer | ☐ Class 3B reporting issuer |
| Highest Trading Marketplace: | CSE | |
| (refer to the definition of "highest trading marketplace" under OSC Rule 13-502 Fees) | ||
Market value of listed or quoted equity securities:
(in Canadian Dollars - refer to section 7.1 of OSC Rule 13-502 Fees)
|
Equity Symbol |
MRM |
|
| 1st Specified Trading Period (dd/mm/yy) | |||
| (refer to the definition of "specified trading period" under OSC Rule 13-502 Fees) | November 1, 2022 | to | January 31, 2023 |
| Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace | $ | 0.04 | (i) | |
| Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period | 472,395,855 | (ii) | ||
| Market value of class or series | (i) x (ii) | $ | 18,895,834 | (A) |
| 2nd Specified Trading Period (dd/mm/yy) | |||
| (refer to the definition of "specified trading period" under OSC Rule 13-502 Fees) | February 1, 2023 | to | April 30, 2023 |
| Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace | $ | 0.15 | (iii) | |
| Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period | 498,209,037 | (iv) | ||
| Market value of class or series | (iii) x (iv) | $ | 74,731,356 | (B) |
| 3rd Specified Trading Period (dd/mm/yy) | |||
| (refer to the definition of "specified trading period" under OSC Rule 13-502 Fees) | May 1, 2023 | to | July 31, 2023 |
| Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace | $ | 0.13 | (v) | |
| Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period | 506,686,137 | (vi) | ||
| Market value of class or series | (v) x (vi) | $ | 65,869,198 | (C) |
|
4th Specified Trading Period (dd/mm/yy) |
|||
| (refer to the definition of "specified trading period" under OSC Rule 13-502 Fees) | August 1, 2023 | to | October 31, 2023 |
| Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace | 0.08 | (vii) | ||
| Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period | 510,368,838 | (viii) | ||
| Market value of class or series | (vii) x (viii) | $ | 40,829,507 | (D) |
|
5th Specified Trading Period (dd/mm/yy) |
|||
| (if applicable - refer to the definition of "specified trading period" under OSC Rule 13-502 Fees) | to |
| Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace | $ | (ix) | ||
| Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period | (x) |
| Market value of class or series | (ix) x (x) | $ | (E) | |
| Average Market Value of Class or Series (Calculate the simple average of the market value of the class or series of security for each applicable specified trading period (i.e. A through E above)) |
$ | 50,081,474 | (1) | |
| (Repeat the above calculation for each other class or series of equity securities of the reporting issuer (and a subsidiary pursuant to paragraph 2.8(1)(c) of OSC Rule 13-502 Fees, if applicable) that was listed or quoted on a marketplace at the end of the previous financial year) | ||||
| Fair value of outstanding debt securities: | ||||
|
(See paragraph 2.8(1)(b), and if applicable, paragraph 2.8(1)(c) of OSC Rule 13-502 Fees) |
$ | (2) | ||
|
(Provide details of how value was determined) |
||||
| Capitalization for the previous financial year | (1) + (2) | $ | $50,081,474 | |
|
Participation Fee |
$ | 6,100 | ||
|
(For Class 1 reporting issuers, from Appendix A of OSC Rule 13-502 Fees, select the participation fee) |
||||
| (For Class 3B reporting issuers, from Appendix A.1 of OSC Rule 13-502 Fees, select the participation fee) | ||||
|
Late Fee, if applicable |
$ | |||
| Total Fee Payable (Participation Fee plus Late Fee) |
$ | 6,100 | ||
Note: [01 Mar 2017] — The following is a consolidation of 13-501F1. It incorporates amendments to this document that came into effect on March 1, 2017. This consolidation is provided for your convenience and should not be relied on as authoritative.
FORM 13-501F1
CLASS 1 REPORTING ISSUERS AND CLASS 3B REPORTING ISSUERS —
PARTICIPATION FEE
MANAGEMENT CERTIFICATION
|
I, Dan Amadori , an officer of the reporting issuer noted below have examined this Form 13-501F1 (the Form) being submitted hereunder to the Alberta Securities Commission and certify that to my knowledge, having exercised reasonable diligence, the information provided in the Form is complete and accurate. |
|||
| /s/Dan Amadori, CFO | January 30, 2024 | ||
| Name: Dan Amadori | Date: | ||
| Title: CFO | |||
| Reporting Issuer Name: | Micromem Technologies Inc. |
| End date of previous financial year: | October 31, 2023 |
|
Type of Reporting Issuer: |
[X] Class 1 reporting issuer |
[ ] Class 3B reporting issuer |
|
|
Highest Trading Marketplace: |
CSE |
Market value of listed or quoted equity securities:
| Equity Symbol | MRM |
|
1st Specified Trading Period (dd/mm/yy) |
November 1, 2022 |
to |
January 31, 2023 |
| Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace | $ | 0.04 | ||
| (i) |
| Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period | 472,395,855 | |||
| (ii) | ||||
| (i) x (ii) | $ | 18,895,834 | ||
| Market value of class or series | (A) |
|
2nd Specified Trading Period (dd/mm/yy) |
February 1, 2023 |
to |
April 30, 2023 |
||||
| Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace | $ | 0.15 | ||
| (iii) | ||||
| Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period | 498,209,307 | |||
| (iv) | ||||
| (iii) x (iv) | $ | 74,731,356 | ||
| Market value of class or series | (B) |
|
3rd Specified Trading Period (dd/mm/yy) |
May 1, 2023 |
to |
July 31, 2023 | |
| Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace | $ | 0.13 | ||
| (v) | ||||
| Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period | 506,686,137 | |||
| (vi) | ||||
| (v) x (vi) | $ | 65,869,198 | ||
| Market value of class or series | (C) |
| 4th Specified Trading Period (dd/mm/yy) | August 1, 2023 | to | October 31, 2023 |
|
Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace |
|
$ | 0.08 | |
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(vii) | |||
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Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period |
|
510,368,838 |
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|
(viii) |
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|
|
|
|
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(vii) x (viii) | $ | 40,829,507 | |
| Market value of class or series | (D) |
|
5th Specified Trading Period (dd/mm/yy) |
|
to |
|
| Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace | $ | |||
| (ix) | ||||
| Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period | ||||
| (x) | ||||
| (ix) x (x) | $ | |||
| Market value of class or series | (E) | |||
| Average Market Value of Class or Series (Calculate the simple average of the market value of the class or series of security for each applicable specified trading period (i.e. A through E above)) | $ | 50,081,474 | ||
| (1) |
(Repeat the above calculation for each other class or series of equity securities of the reporting issuer (and a subsidiary, if applicable) that was listed or quoted on a marketplace at the end of the previous financial year)
Fair value of outstanding debt securities:
| (Provide details of how value was determined) | $ | |||
| (2) | ||||
| Capitalization for the previous financial year | (1) + (2) | $ | 50,081,474 | |
| Participation Fee | $ | 3,000 | ||
| Late Fee, if applicable | $ | |||
| Total Fee Payable | $ | 3,000 | ||
| (Participation Fee plus Late Fee) |