Micromem Technologies Inc 6-K, filed Sep 27, 2022
Micromem Technologies Inc (MMTIF)
About this 6-K
Micromem Technologies Inc filed this 6-K on September 27, 2022.
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
September 2022
Commission File Number 0-26005
MICROMEM TECHNOLOGIES INC.
121 Richmond Street West, Suite 304, 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shall be deemed a part of such registration statement from the date on which this report is filed, to the extent not superseded by documents or reports subsequently filed or furnished by Micromem Technologies Inc. under the Securities Act of 1933 or the Securities Exchange Act of 1934.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: September 27, 2022 | Name: Joseph Fuda |
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Title: Chief Executive Officer |
Exhibit Index
Micromem Technologies Inc.
Unaudited Condensed Interim Consolidated Financial Statements
For the three and nine months ended July 31, 2022 and 2021
(Expressed in United States Dollars) (Unaudited)
Micromem Technologies Inc.
Unaudited Condensed Interim Consolidated Financial Statements
For the three and nine months ended July 31, 2022 and 2021
(Expressed in United States Dollars) (Unaudited)
Contents
Micromem Technologies Inc.
Unaudited Condensed Interim Consolidated Financial Statements
Notice of no auditor review of the condensed interim consolidated financial statements
Under National Instrument 51-102, Part 4, subsection 4.3(3)(a), if an auditor has not performed a review of the condensed interim consolidated financial statements, they must be accompanied by a notice indicating that the condensed interim consolidated financial statements have not been reviewed by an auditor.
The accompanying unaudited condensed interim consolidated financial statements of Micromem Technologies Inc. (the "Company") have been prepared by and are the responsibility of the Company's management and approved by the Board of Directors.
The Company's independent auditor has not performed a review of these condensed interim consolidated financial statements in accordance with the standards established by the Chartered Professional Accountants of Canada, for a review of condensed interim consolidated financial statements by an entity's auditor.
September 27, 2022
1
Micromem Technologies Inc.
Unaudited Condensed Interim Consolidated Statements of Financial Position
As at July 31, 2022 and October 31, 2021
(Expressed in United States dollars) (Unaudited)
| As at | As at | |||||||
| Notes | July 31, 2022 | October 31, 2021 | ||||||
| Assets | ||||||||
| Current | ||||||||
| Cash | 18 | $ | 68,535 | $ | 171,397 | |||
| Prepaid expenses and other receivables | 24,524 | 24,007 | ||||||
| Total current assets | 93,059 | 195,404 | ||||||
| Property and equipment | 5 | 4,445 | 26,012 | |||||
| Patents | 6 | - | 3,877 | |||||
| Total assets | $ | 97,504 | $ | 225,293 | ||||
| Liabilities | ||||||||
| Current | ||||||||
| Trade payables and other liabilities | 16(b), 18(c) | $ | 359,379 | $ | 384,057 | |||
| Current lease liability | 7 | - | 24,788 | |||||
| Convertible debentures | 9,18 | 3,528,052 | 2,452,402 | |||||
| Derivative liabilities | 9,18 | 1,627,235 | 787,081 | |||||
| Total current liabilities | 5,514,666 | 3,648,328 | ||||||
| Long-term loan | 8 | 46,361 | 48,243 | |||||
| Total liabilities | 5,561,027 | 3,696,571 | ||||||
| Shareholders' Deficiency | ` | |||||||
| Share capital | 10 | 87,517,773 | 86,815,836 | |||||
| Contributed surplus | 28,209,377 | 28,197,382 | ||||||
| Equity component of convertible debentures | 9 | 14,004 | 14,004 | |||||
| Accumulated deficit | (121,204,677 | ) | (118,498,500 | ) | ||||
| Total shareholders' deficiency | (5,463,523 | ) | (3,471,278 | ) | ||||
| Total liabilities and shareholders' deficiency | $ | 97,504 | $ | 225,293 | ||||
| Going concern | 2 | |||||||
| Contingencies | 17 | |||||||
| Subsequent events | 21 |
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.
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Approved on behalf of the Board of Directors: |
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"Joseph Fuda" |
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"Alex Dey" |
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Director |
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Director |
2
Micromem Technologies Inc.
Unaudited Condensed Interim Consolidated Statements of Operations and Comprehensive Income (Loss)
For the three and nine months ended July 31, 2022 and 2021
(Expressed in United States dollars) (Unaudited)
| Three months ended July 31, | Nine months ended July 31, | |||||||||||||
| Notes | 2022 | 2021 | 2022 | 2021 | ||||||||||
| Operating expenses | ||||||||||||||
| General and administrative | 14(a) | $ | 44,816 | $ | 31,506 | $ | 156,946 | $ | 97,307 | |||||
| Professional, other fees and salaries | 14(b) | 178,173 | 124,118 | 503,988 | 313,178 | |||||||||
| Recovery on settlement of AP balances | 16(b) | - | - | - | (255,767 | ) | ||||||||
| Recovery on settlement of AP balances - MAST | - | (167,215 | ) | - | (167,215 | ) | ||||||||
| Stock-based compensation | 11 | - | - | 952 | 297,726 | |||||||||
| Travel and entertainment | 21,788 | 4,220 | 37,040 | 10,224 | ||||||||||
| Amortization of property and equipment | 5 | 7,185 | 6,755 | 21,557 | 20,551 | |||||||||
| Write-down of capital assets | - | 132 | - | 606 | ||||||||||
| Amortization of patents | 6 | - | 2,000 | 3,877 | 6,000 | |||||||||
| Foreign exchange (gain) loss | 18(a) | 125,218 | 1,399 | 160,342 | (8,208 | ) | ||||||||
| Total operating expenses | 377,180 | 2,915 | 884,702 | 314,402 | ||||||||||
| Other expenses | ||||||||||||||
| Accretion expense | 9 | 422,219 | 124,432 | 1,677,162 | 691,087 | |||||||||
| Interest expense on convertible debt | 9 | 124,270 | 113,763 | 350,366 | 378,603 | |||||||||
| Other finance expenses | 7, 9 | 2,812 | 49,435 | 9,844 | 101,571 | |||||||||
| Loss (gain) on revaluation of derivative liabilities | 9 | 791,725 | (2,350,755 | ) | (297,743 | ) | 757,362 | |||||||
| Loss (gain) on conversion of convertible debentures | 9 | (266,391 | ) | (41,603 | ) | 67,505 | (13,319 | ) | ||||||
| Loss (gain) on extinguishment of convertible debentures | 9 | (30,642 | ) | (888 | ) | 14,341 | 42,468 | |||||||
| Total other expenses | 1,043,993 | (2,105,616 | ) | 1,821,475 | 1,957,772 | |||||||||
| Income (loss) before income tax provision | (1,421,173 | ) | 2,102,701 | (2,706,177 | ) | (2,272,174 | ) | |||||||
| Income tax provision | 13 | - | - | - | - | |||||||||
| Net income (loss) and comprehensive income (loss) | $ | (1,421,173 | ) | $ | 2,102,701 | $ | (2,706,177 | ) | $ | (2,272,174 | ) | |||
| Weighted average number of outstanding shares, basic and diluted | 12 | |||||||||||||
| Basic | 453,496,922 | 426,218,016 | 447,023,410 | 419,686,109 | ||||||||||
| Diluted | 453,496,922 | 426,218,016 | 447,023,410 | 419,686,109 | ||||||||||
| Income (loss) per share | 12 | |||||||||||||
| Basic | $ | - | $ | - | $ | (0.01 | ) | $ | (0.01 | ) | ||||
| Diluted | $ | - | $ | - | $ | (0.01 | ) | $ | (0.01 | ) | ||||
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.
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Micromem Technologies Inc.
Unaudited Condensed Interim Consolidated Statements of Changes in Equity
For the three and nine months ended July 31, 2022 and 2021
(Expressed in United States dollars) (Unaudited)
| Equity | |||||||||||||||||||
| component of | |||||||||||||||||||
| Number of | Contributed | convertible | Accumulated | ||||||||||||||||
| Notes | shares | Share capital | surplus | debentures | deficit | Total | |||||||||||||
| Balance at November 1, 2021 | 435,737,734 | $ | 86,815,836 | $ | 28,197,382 | $ | 14,004 | $ | (118,498,500 | ) | $ | (3,471,278 | ) | ||||||
| Private placements of shares for cash | 10 | 4,513,674 | 195,225 | - | - | - | 195,225 | ||||||||||||
| Convertible debentures converted into common shares | 9 | 18,834,053 | 506,712 | - | - | - | 506,712 | ||||||||||||
| Expiry of convertible debenture conversion option | 9 | - | - | 11,043 | (11,043 | ) | - | - | |||||||||||
| Renewal of convertible debentures | 9 | - | - | - | 11,043 | - | 11,043 | ||||||||||||
| Issuance of stock options | 11 | - | - | 952 | - | - | 952 | ||||||||||||
| Net loss | - | - | - | - | (2,706,177 | ) | (2,706,177 | ) | |||||||||||
| Balance at July 31, 2022 | 459,085,461 | $ | 87,517,773 | $ | 28,209,377 | $ | 14,004 | $ | (121,204,677 | ) | $ | (5,463,523 | ) | ||||||
| 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 | 10 | 15,850,374 | 777,242 | - | - | - | 777,242 | ||||||||||||
| Convertible debentures converted into common shares | 9 | 11,433,108 | 494,423 | - | - | - | 494,423 | ||||||||||||
| Expiry of convertible debenture conversion option | 9 | - | - | 2,801 | (2,801 | ) | - | - | |||||||||||
| Renewal of convertible debentures | 9 | - | - | - | 2,801 | - | 2,801 | ||||||||||||
| Issuance of stock options | 11 | - | - | 297,726 | - | - | 297,726 | ||||||||||||
| Net loss | - | - | - | - | (2,272,174 | ) | (2,272,174 | ) | |||||||||||
| Balance at July 31, 2021 | 429,835,935 | $ | 86,735,307 | $ | 28,111,113 | $ | 23,952 | $ | (119,757,696 | ) | $ | (4,887,324 | ) |
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.
4
Micromem Technologies Inc.
Unaudited Condensed Interim Consolidated Statements of Cash Flows
For the nine months ended July 31, 2022 and 2021
(Expressed in United States dollars) (Unaudited)
| Nine months ended July 31, | |||||||
| Notes | 2022 | 2021 | |||||
| Operating activities | |||||||
| Net loss | (2,706,177 | ) | $ | (2,272,174 | ) | ||
| Items not affecting cash: | |||||||
| Amortization of property and equipment | 5 | 21,557 | 20,551 | ||||
| Write-down of capital assets | - | 606 | |||||
| Amortization of patents | 6 | 3,877 | 6,000 | ||||
| Accretion expense | 9,15 | 1,677,162 | 691,087 | ||||
| Accrued interest on convertible debentures | 15 | 265,004 | 303,657 | ||||
| Stock-based compensation | 11 | 952 | 297,726 | ||||
| Loss on conversion of convertible debentures | 9 | 67,505 | (13,319 | ) | |||
| Loss (gain) on revaluation of derivative liabilities | 9,15 | (297,743 | ) | 757,362 | |||
| Loss (gain) on extinguishment of convertible debentures | 9,15 | 14,341 | 42,468 | ||||
| Foreign exchange loss (gain) | 18 | 183,808 | (2,476 | ) | |||
| (769,714 | ) | (168,512 | ) | ||||
| Net changes in non-cash working capital: | |||||||
| Decrease in prepaid expenses and other receivables | (517 | ) | (14,622 | ) | |||
| Decrease in trade payables and other liabilities | (24,678 | ) | (422,894 | ) | |||
| Cash flows used in operating activities | (794,909 | ) | (606,028 | ) | |||
| Investing activity | |||||||
| Purchase of property and equipment | 5 | - | (3,191 | ) | |||
| Cash flows used in investing activity | - | (3,191 | ) | ||||
| Financing activities | |||||||
| Repayment of lease liability | 7 | (24,788 | ) | 27,332 | |||
| Proceeds from long-term loan | - | 17,620 | |||||
| Private placements of shares for cash | 10 | 195,225 | 777,242 | ||||
| Proceeds from issuance of convertible debentures | 15 | 572,600 | 407,000 | ||||
| Repayments of convertible debentures | 15 | (50,990 | ) | (665,129 | ) | ||
| Cash flows provided by financing activities | 692,047 | 564,065 | |||||
| Net change in cash | (102,862 | ) | (45,154 | ) | |||
| Cash - beginning of period | 171,397 | 191,479 | |||||
| Cash - end of period | 68,535 | $ | 146,325 | ||||
| Supplemental cash flow information | |||||||
| Interest paid (classified in operating activities) | 9 | 75,802 | $ | 74,946 | |||
| Interest converted (classified in operating activities) | 9,560 | $ | - | ||||
| Carrying amount of convertible debentures converted into common shares | 15 | 506,712 | $ | 494,423 | |||
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.
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Micromem Technologies Inc. Notes to Unaudited Condensed Interim Consolidated Financial Statements |
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 304, 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 July 31, 2022 and is devoting substantially all its efforts to securing commercial revenue opportunities.
2. Going concern
These unaudited condensed interim 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 significant 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 nine months ended July 31, 2022, the Company reported a net loss and comprehensive loss of $2,706,177 (2021 - $2,272,174) and negative cash flow from operations of $872,179 (2021 - $606,028). The Company's working capital deficiency as at July 31, 2022 was $5,421,607 (October 31, 2021 - $3,452,924).
The Company's 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 2023; 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. These unaudited condensed interim 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.
The COVID-19 pandemic creates additional risk for the Company if there is a prolonged industry slowdown in those sectors where the Company currently operates including the oil and gas sectors in particular. The Company has encountered delays in the commercial plans for its technology with its primary target customers. It secured a government backed loan of $60,000 CDN ($46,361 USD) as at July 31, 2022 (October 31, 2021 - $60,000 CDN, $48,243 USD) which matures in December 2025 (Note 8). During the nine months ended July 31, 2022, the Company received government wage subsidies of $nil CDN ($nil USD) (July 31, 2021 - $140,292 CDN, $112,143 USD) (Note 14(b)(i))and rent subsidies of $nil CDN ($nil USD) (July 31, 2021 - $36,073 CDN, $28,773 USD).
If the going concern assumption was not appropriate for these unaudited condensed interim consolidated financial statements then adjustments would 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 would be material.
3. Basis of presentation
These unaudited condensed interim consolidated financial statements for the three and nine months ended July 31, 2022 and 2021 have been prepared in accordance with International Accounting Standard ("IAS") 34 Interim Financial Reporting. The accounting policies and methods of computation adopted in the preparation of the unaudited condensed interim consolidated financial statements are consistent with those followed in the preparation of the Company's audited annual consolidated financial statements for the year ended October 31, 2021. The Company has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.
These unaudited condensed interim consolidated financial statements were authorized for issuance and release by the Company's Board of Directors on September 27, 2022.
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Micromem Technologies Inc. Notes to Unaudited Condensed Interim Consolidated Financial Statements |
3. Basis of presentation (continued)
(a) Basis of consolidation
These unaudited condensed interim 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 applies the acquisition method to account for business combinations. Acquisition-related costs are expensed as incurred.
The Company's wholly-owned subsidiaries include:
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(i) |
Inactive subsidiaries |
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Domiciled in |
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Micromem Applied Sensors Technology Inc. |
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United States |
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707019 Canada Inc. |
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Canada |
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Memtech International Inc. |
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Bahamas |
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Memtech International (USA) Inc., Pageant Technologies (USA) Inc. |
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United States |
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Pageant Technologies Inc., Micromem Holdings (Barbados) Inc. |
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Barbados |
(b) Basis of measurement
These unaudited condensed interim 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 unaudited condensed interim 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 unaudited condensed interim 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 unaudited condensed interim 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 as below;
(i) Fair value of options and conversion features
The Company makes estimates and utilizes assumptions in determining the fair value for stock options and derivative liabilities 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, expected 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. 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.
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Micromem Technologies Inc. Notes to Unaudited Condensed Interim Consolidated Financial Statements |
3. Basis of presentation (continued)
(d) Use of estimates and judgments (continued)
(iii) Income taxes
Income taxes and tax exposures recognized in the unaudited condensed interim 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 budgeted 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.
4. New and revised standards and interpretations issued but not yet effective
Certain pronouncements were issued by the IASB or the IFRIC that are mandatory for accounting periods commencing on or after January 1, 2022. These pronouncements are not applicable or do not have a significant impact to the Company and have been excluded.
5. Property and equipment
| As at | As at | |||||||||||
| November 1, | Adjustments/ | July 31, | ||||||||||
| 2021 | Additions | Disposals | 2022 | |||||||||
| Cost | ||||||||||||
| Computers | $ | 18,570 | $ | - | $ | (10 | ) | $ | 18,560 | |||
| Right-of-use assets | 74,307 | - | - | 74,307 | ||||||||
| 92,877 | - | (10 | ) | 92,867 | ||||||||
| Accumulated amortization | ||||||||||||
| Computers | 12,824 | 1,291 | - | 14,115 | ||||||||
| Right-of-use assets | 54,041 | 20,266 | - | 74,307 | ||||||||
| 66,865 | 21,557 | - | 88,422 | |||||||||
| Net book value | $ | 26,012 | $ | (21,557 | ) | $ | (10 | ) | $ | 4,445 | ||
| As at | As at | |||||||||||
| November 1, | Adjustments/ | July 31, | ||||||||||
| 2020 | Additions | Disposals | 2021 | |||||||||
| Cost | ||||||||||||
| Computers | $ | 32,040 | $ | 3,191 | $ | (18,741 | ) | $ | 16,490 | |||
| Right-of-use assets | 74,307 | - | - | 74,307 | ||||||||
| 106,347 | 3,191 | (18,741 | ) | 90,797 | ||||||||
| Accumulated amortization | ||||||||||||
| Computers | 30,077 | 286 | (18,135 | ) | 12,228 | |||||||
| Right-of-use assets | 27,021 | 20,265 | - | 47,286 | ||||||||
| 57,098 | 20,551 | (18,135 | ) | 59,514 | ||||||||
| Net book value | $ | 49,249 | $ | (17,360 | ) | $ | (606 | ) | $ | 31,283 |
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Micromem Technologies Inc. Notes to Unaudited Condensed Interim Consolidated Financial Statements |
6. Patents
| As at | As at | |||||||||||
| November 1, | Adjustments/ | July 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 | ) | $ | - | - | ||||
| As at | As at | |||||||||||
| November 1, | Adjustments/ | July 31, | ||||||||||
| 2020 | Additions | Disposals | 2021 | |||||||||
| Cost | $ | 681,288 | $ | - | $ | - | $ | 681,288 | ||||
| Accumulated amortization | 669,411 | 6,000 | - | 675,411 | ||||||||
| Net book value | $ | 11,877 | $ | (6,000 | ) | $ | - | $ | 5,877 |
7. Leases
(a) Maturity analysis of lease obligations
The Company's lease obligations matured on July 1, 2022 (Note 21).
(b) Supplemental disclosure
For the three and nine months ended July 31, 2022, the Company recognized $391 and $2,583 (July 31, 2021, $2,205 and $7,787) respectively of interest expense on lease obligations in the unaudited condensed interim consolidated statements of operations and comprehensive loss. The Company further recognized total cash outflow of $27,371 relating to leases in the nine months ended July 31, 2022 (2021 - $19,061).
8. Long-term loan
As at July 31, 2022 the Company has obtained a $60,000 CDN ($46,361 USD) (October 31, 2021 - $60,000 CDN, $48,243 USD) interest-free loan from the Government of Canada under the Canada Emergency Business Account ("CEBA") program to cover its operating costs. The term loan matures on December 31, 2025. Repaying the balance of the loan on or before December 31, 2023 will result in a loan forgiveness of $20,000 CDN ($15,454 USD). Effective January 1, 2024, any outstanding balance on the term loan shall bear interest at a rate of 5% per annum. As the Company does not yet know whether they will be able to meet the terms of forgiveness, no amount has been recognized to income.
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Micromem Technologies Inc. Notes to Unaudited Condensed Interim Consolidated Financial Statements |
9. Convertible debentures
The Company issues three types of convertible debentures: USD denominated convertible debentures with an equity component, Canadian dollar ("CDN") 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 three and nine months ended July 31, 2022, the Company incurred $nil financing costs. During the three and nine months ended July 31, 2021, the Company incurred $42,896 and $84,478 of financing costs which primarily consisted of early repayment and administrative fees, all of which were settled in cash. All loan principal amounts and conversion prices are expressed in original currency and all remaining dollar amounts are expressed in USD.
(a) Current period information presented in the unaudited condensed interim consolidated financial statements
Convertible debentures outstanding as at July 31, 2022:
| USD | ||||||||||||
| (equity | CDN (embedded | USD (embedded | ||||||||||
| component) | derivative) | derivative) | Total | |||||||||
| Loan principal outstanding | $ | 1,177,158 | $ | 2,207,405 | $ | 408,600 | ||||||
| Terms of loan | ||||||||||||
| Annual stated interest rate | 12% - 24% | 12% - 24% | 2% - 4% | |||||||||
| Effective annual interest rate | 24% | 48% - 1875001% | 24% - 6408% | |||||||||
| 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 | |||||||||
| Unaudited condensed interim consolidated statement of financial position | ||||||||||||
| Carrying value of loan principal | $ | 1,168,800 | $ | 1,331,457 | $ | 127,831 | $ | 2,628,088 | ||||
| Interest payable | 495,988 | 379,436 | 24,540 | 899,964 | ||||||||
| Convertible debentures | $ | 1,664,788 | $ | 1,710,893 | $ | 152,371 | $ | 3,528,052 | ||||
| Derivative liabilities | $ | - | $ | 989,448 | $ | 637,787 | $ | 1,627,235 | ||||
| Equity component of convertible debentures | $ | 14,004 | $ | - | $ | - | $ | 14,004 | ||||
For the nine months ended July 31, 2022:
| USD | ||||||||||||
| (equity | CDN (embedded | USD (embedded | ||||||||||
| component) | derivative) | derivative) | Total | |||||||||
| Unaudited condensed interim consolidated statement of operations and comprehensive loss | ||||||||||||
| Accretion expense | $ | 20,866 | 1,648,980 | 7,316 | 1,677,162 | |||||||
| Interest expense | $ | 175,308 | 171,425 | 3,633 | 350,366 | |||||||
| (Gain) loss on revaluation of derivative liabilities | $ | - | (752,970 | ) | 455,227 | (297,743 | ) | |||||
| (Gain) loss on conversion of convertible debentures | $ | - | - | 67,505 | 67,505 | |||||||
| (Gain) loss on extinguishment of convertible debentures | $ | - | $ | 53,483 | $ | (39,142 | ) | $ | 14,341 | |||
| Unaudited condensed interim consolidated statement of changes in equity | ||||||||||||
| Amount of principal converted to common shares | $ | - | $ | - | $ | 524,600 | ||||||
| Amount of interest converted to common shares | $ | - | $ | - | $ | 9,560 | ||||||
| Number of common shares issued on conversion of | ||||||||||||
| convertible debentures | - | - | 18,834,053 | 18,834,053 | ||||||||
| Unaudited condensed interim consolidated statement of cash flows | ||||||||||||
| Amount of principal repaid in cash | $ | - | $ | 7,490 | $ | 43,500 | $ | 50,990 | ||||
| Amount of interest repaid in cash | $ | 11,925 | $ | 62,377 | $ | 1,500 | $ | 75,802 | ||||
10
|
Micromem Technologies Inc. Notes to Unaudited Condensed Interim Consolidated Financial Statements |
9. Convertible debentures (continued)
For the three months ended July 31, 2022:
| USD | ||||||||||||
| (equity | CDN (embedded | USD (embedded | ||||||||||
| component) | derivative) | derivative) | Total | |||||||||
| Unaudited condensed interim consolidated statement of operations and comprehensive loss | ||||||||||||
| Accretion expense | $ | 6,913 | $ | 412,964 | $ | 2,342 | $ | 422,219 | ||||
| Interest expense (prepayment) | $ | 60,451 | $ | 59,574 | $ | 4,245 | $ | 124,270 | ||||
| (Gain) loss on revaluation of derivative liabilities | $ | - | $ | 339,989 | $ | 451,736 | $ | 791,725 | ||||
| (Gain) loss on conversion of convertible debentures | $ | - | $ | - | $ | (266,391 | ) | $ | (266,391 | ) | ||
| (Gain) loss on extinguishment of convertible debentures | $ | - | $ | - | $ | (30,642 | ) | $ | (30,642 | ) | ||
(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 unaudited condensed interim consolidated financial statements
Convertible debentures outstanding as at October 31, 2021:
| USD | ||||||||||||
| (equity | CDN (embedded | USD (embedded | ||||||||||
| component) | derivative) | derivative) | Total | |||||||||
| Loan principal outstanding | $ | 1,037,782 | $ | 1,989,187 | $ | 468,600 | ||||||
| Terms of loan | ||||||||||||
| Annual stated interest rate | 12% - 24% | 12% - 24% | 2% - 10% | |||||||||
| Effective annual interest rate | 24.00% | 13% - 28735624% | 0% - 5525% | |||||||||
| Conversion price to common shares | 0.03 - $0.07 | 0.05 - $0.08 | (i) - (ii) | |||||||||
| Remaining life (in months) | 0 - 6 | 0 - 6 | 0 - 10 | |||||||||
| Unaudited condensed interim consolidated statement of financial position | ||||||||||||
| Carrying value of loan principal | $ | 1,036,124 | $ | 609,924 | $ | 172,166 | $ | 1,818,214 | ||||
| Interest payable | 332,605 | 269,455 | 32,128 | 634,188 | ||||||||
| Convertible debentures | $ | 1,368,729 | $ | 879,379 | $ | 204,294 | $ | 2,452,402 | ||||
| Derivative liabilities | $ | - | $ | 557,322 | $ | 229,759 | $ | 787,081 | ||||
| Equity component of convertible debentures | $ | 14,004 | $ | - | $ | - | $ | 14,004 | ||||
(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.
11
|
Micromem Technologies Inc. Notes to Unaudited Condensed Interim Consolidated Financial Statements |
(b) Comparative information presented in the unaudited condensed interim consolidated financial statements (continued)
9. Convertible debentures (continued)
For the nine months ended July 31, 2021:
| USD | ||||||||||||
| (equity | CDN (embedded | USD (embedded | ||||||||||
| component) | derivative) | derivative) | Total | |||||||||
| Unaudited condensed interim consolidated statement of operations and comprehensive loss | ||||||||||||
| Accretion expense | $ | 21,534 | $ | 535,655 | $ | 133,898 | $ | 691,087 | ||||
| Interest expense | $ | 180,986 | $ | 171,162 | $ | 26,455 | $ | 378,603 | ||||
| (Gain) loss on revaluation of derivative liabilities | $ | - | $ | 606,482 | $ | 150,880 | $ | 757,362 | ||||
| (Gain) loss on conversion of convertible debentures | $ | - | $ | (47,356 | ) | $ | 34,037 | $ | (13,319 | ) | ||
| (Gain) loss on extinguishment of convertible debentures | $ | 55,100 | $ | (12,632 | ) | $ | - | $ | 42,468 | |||
| Unaudited condensed interim consolidated statement of changes in equity | ||||||||||||
| Amount of principal converted to common shares | $ | - | $ | 100,000 | $ | 110,000 | ||||||
| Amount of interest converted to common shares | $ | 30,200 | $ | 160,055 | $ | 2,580 | ||||||
| Number of common shares issued on conversion of | ||||||||||||
| convertible debentures | 1,118,519 | 7,744,774 | 2,569,815 | 11,433,108 | ||||||||
| Unaudited condensed interim 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 | $ | 20,772 | $ | 28,061 | $ | 26,113 | $ | 74,946 | ||||
For the three months ended July 31, 2021:
| USD | ||||||||||||
| (equity | CDN (embedded | USD (embedded | ||||||||||
| component) | derivative) | derivative) | Total | |||||||||
| Unaudited condensed interim consolidated statement of operations and comprehensive loss | ||||||||||||
| Accretion expense | $ | 7,587 | $ | 116,520 | $ | 325 | $ | 124,432 | ||||
| Interest expense | $ | 48,789 | $ | 56,827 | $ | 8,147 | $ | 113,763 | ||||
| (Gain) loss on revaluation of derivative liabilities | $ | - | $ | (2,255,601 | ) | $ | (95,154 | ) | $ | (2,350,755 | ) | |
| (Gain) loss on conversion of convertible debentures | $ | - | $ | (41,603 | ) | $ | - | $ | (41,603 | ) | ||
| (Gain) loss on extinguishment of convertible debentures | $ | - | $ | (888 | ) | $ | - | $ | (888 | ) | ||
(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 | As at | ||
| July 31, | October 31, | ||
| 2022 | 2021 | ||
| Share price | $0.05 | $0.05 | |
| Exercise price | $0.02 - $0.06 | $0.03 - $0.07 | |
| Volatility factor (based on historical volatility) | 154% - 223% | 32% - 133% | |
| Risk free interest rate | 2.68% - 3.23% | 0.17% - 0.55% | |
| Expected life of conversion features (in months) | 0 - 11 | 0 - 10 | |
| Expected dividend yield | 0% | 0% | |
| CDN to USD exchange rate (as applicable) | 0.7727 | 0.8041 | |
| Call value | $0.00 - $0.03 | $0.01 - $0.04 |
Volatility was estimated using the historical volatility of the Company's stock prices for common shares.
12
|
Micromem Technologies Inc. Notes to Unaudited Condensed Interim Consolidated Financial Statements |
10. 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
During the nine months ended July 31, 2022, the Company completed 8 private placements (2021 - 32 private placements), pursuant to prospectus and registration exemptions set forth in applicable securities law. The Company received net proceeds of $195,225 (2021 - $777,242) and issued a total of 4,513,674 (2021 - 15,850,374) common shares.
11. Stock options
(a) Stock option plan
Until September 8, 2020, under the Company's fixed stock option plan (the "Plan"), the Company could grant up to 18,840,000 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.
The Company held its most recent Annual General Meeting of Shareholders on September 8, 2020. The authorized limit for stock options in the Company's plan was increased from 18.84 million options to 27.5 million options at the meeting.
(b) Summary of changes
| Weighted average | ||||||
| Number of options | exercise price | |||||
| Outstanding at November 1, 2021 | 11,700,000 | $ | 0.06 | |||
| Granted | 25,000 | 0.09 | ||||
| Expired | (1,000,000 | ) | 0.07 | |||
| Outstanding at July 31, 2022 | 10,725,000 | $ | 0.06 | |||
| Outstanding at November 1, 2020 | 2,200,000 | $ | 0.10 | |||
| Granted | 6,500,000 | 0.05 | ||||
| Outstanding at July 31, 2021 | 8,700,000 | $ | 0.06 |
(c) Stock options outstanding at July 31, 2022
| Weighted average | |||||||||||
| Remaining | |||||||||||
| Number of | contractual life | ||||||||||
| Date of issue | Expiry date | options | Exercise price | (years) | |||||||
| June 29, 2018 | June 29, 2023 | 2,200,000 | 0.10 | 0.9 | |||||||
| November 13, 2020 | November 13, 2025 | 6,500,000 | 0.05 | 3.3 | |||||||
| October 8, 2021 | October 8, 2026 | 1,000,000 | 0.07 | 4.2 | |||||||
| October 8, 2021 | October 8, 2022 | 1,000,000 | 0.07 | 0.2 | |||||||
| December 15, 2021 | December 15, 2023 | 25,000 | 0.09 | 1.4 | |||||||
| Outstanding and exercisable at July 31, 2022 | 10,725,000 | $ | 0.06 | 2.6 | |||||||
(d) Fair value of options issued during the period
The fair value of the stock options issued has been determined in accordance with the Black Scholes option-pricing model. The underlying assumptions are as follows:
| Share price at grant date | $0.05 |
| Exercise price | $0.05 |
| Volatility factor | 173% |
| Risk free interest rate | 0.09% - 1.12 |
| Expected life of options in years | 2 |
| Expected divided yield | 0% |
| Forfeiture rate | 0% |
| Weighted average Black Scholes value at grant date | $0.04 |
Volatility was estimated using the historical volatility of the Company's stock prices for its common shares.
During the three and nine months ended July 31, 2022, the Company recorded an expense of $nil and $952 respectively to the issuance of these stock options (2021 - $nil and $297,726)
13
|
Micromem Technologies Inc. Notes to Unaudited Condensed Interim Consolidated Financial Statements |
12. Income (loss) per share
Basic and diluted income (loss) per share are calculated using the following numerators and denominators:
| Three months ended July 31, | Nine months ended July 31, | |||||||||||
| Numerator | 2022 | 2021 | 2022 | 2021 | ||||||||
| Net income (loss) attributable to common shareholders and used in computation of basic income (loss) per share | $ | (1,421,173 | ) | $ | 2,102,701 | $ | (2,706,177 | ) | $ | (2,272,174 | ) | |
| Add: adjustments for dilutive effects | - | - | - | - | ||||||||
| Net income (loss) attributable to common shareholders and used in computation of diluted income (loss) per share | $ | (1,421,173 | ) | $ | 2,102,701 | $ | (2,706,177 | ) | $ | (2,272,174 | ) | |
| Denominator | ||||||||||||
| Weighted average number of common shares for computation of basic income (loss) per share | 453,496,922 | 426,218,016 | 447,023,410 | 419,686,109 | ||||||||
| Weighted average number of common shares for computation of diluted income (loss) per share | 453,496,922 | 426,218,016 | 447,023,410 | 419,686,109 | ||||||||
Basic income (loss) per share amounts are calculated by dividing the net income (loss) attributable to common shareholders for the periods by the weighted average number of common shares outstanding during the periods.
13. Income taxes
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.
As at October 31, 2021, the Company has non-capital losses of approximately $33.6 million, $29.2 million in Canada and $4.4 million in other foreign jurisdictions, available to reduce future taxable income. Non-capital losses expire commencing in 2026. In addition, the Company has available capital loss carry forwards of approximately $1.3 million to reduce future taxable capital gains. Capital losses carry forward indefinitely.
As at July 31, 2022 and October 31, 2021, the Company assessed that it is not probable that sufficient taxable income will be available to use deferred income tax assets based on operating losses in prior years; therefore, there are no balances recognized in the unaudited condensed interim consolidated statements of financial position for such assets.
14. Operating expenses
(a) General and administration
The components of general and administration expenses are as follows:
| Three months ended July 31, | Nine months ended July 31, | |||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||
| General and administration | $ | 19,849 | $ | 5,696 | $ | 48,142 | $ | 39,719 | ||||
| Rent and occupancy | 10,704 | 10,123 | 41,997 | 12,636 | ||||||||
| Office insurance | 438 | 380 | 1,165 | 380 | ||||||||
| Investor relations, listing and filing fees | 11,888 | 14,265 | 60,061 | 41,016 | ||||||||
| Telephone | 1,937 | 1,042 | 5,581 | 3,556 | ||||||||
| $ | 44,816 | $ | 31,506 | $ | 156,946 | $ | 97,307 | |||||
(b) Professional, other fees and salaries
The components of professional, other fees and salaries expenses are as follows:
| Three months ended July 31, | Nine months ended July 31, | |||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||
| Professional fees | $ | 27,975 | $ | 53,079 | $ | 85,696 | $ | 127,584 | ||||
| Consulting fees | 58,036 | 38,446 | 156,039 | 87,346 | ||||||||
| Salaries and benefits | 92,162 | 32,593 | 262,253 | 98,248 | ||||||||
| $ | 178,173 | $ | 124,118 | $ | 503,988 | $ | 313,178 | |||||
(i) Wage subsidy
The Canada Emergency Wage Subsidy (CEWS) was announced by the Government of Canada on March 27, 2020. For the three and nine months ended July 31, 2022, the Company recognized $nil CDN ($nil USD) and $nil CDN ($nil USD). The subsidies received have been recorded as a reduction of salaries expenses in the unaudited condensed interim consolidated statements of operations and comprehensive income (loss) (2021 - $66,315 CDN ($53,955 USD) and $140,292 CDN ($112,143 USD)).
14
|
Micromem Technologies Inc. Notes to Unaudited Condensed Interim Consolidated Financial Statements |
15. Supplemental cash flow information
The following provides a reconciliation of the cash flows from convertible debentures and derivative liabilities :
| Nine months ended July 31, | ||||||
| 2022 | 2021 | |||||
| Balance - beginning of period | $ | 3,239,483 | $ | 3,806,840 | ||
| Cash flows from financing activities: | ||||||
| Proceeds from issuance of convertible debentures | 572,600 | 407,000 | ||||
| Repayments of convertible debentures | (50,990 | ) | (665,129 | ) | ||
| Non-cash changes: | ||||||
| Accretion expense | 1,677,162 | 691,087 | ||||
| Accrued interest on convertible debentures | 265,004 | 303,657 | ||||
| Loss (gain) on revaluation of derivative liabilities | (297,743 | ) | 757,362 | |||
| Loss (gain) on extinguishment of debt | 14,341 | 42,468 | ||||
| Convertible debentures converted into common shares | (439,207 | ) | (507,742 | ) | ||
| Renewal of convertible debentures | (11,043 | ) | (2,801 | ) | ||
| Foreign exchange loss | 185,680 | (147,359 | ) | |||
| Balance - end of period | $ | 5,155,287 | $ | 4,685,383 | ||
16. 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) are summarized as follows:
|
|
|
Three months ended July 31, |
|
|
Nine months ended July 31, |
||||||
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Professional, other fees, and salaries |
$ |
41,317 |
$ |
33,565 |
$ |
105,307 |
$ |
50,799 |
|||
|
Stock-based compensation |
|
- |
|
|
- |
|
|
- |
|
|
137,400 |
|
|
$ |
41,317 |
|
$ |
33,565 |
|
$ |
105,307 |
|
$ |
188,199 |
During the three and nine months ended July 31, 2022, key management were not awarded any options. During the three and nine months ended July 31, 2021, the Company awarded 3 million stock options to key management as part of the total 6.5 million 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 eliminated these balances during the year ended October 31, 2021.
(c) Convertible debentures
In January 2018, the CEO of the Company subscribed for a convertible debenture of $150,000 CDN ($114,086 USD). As at July 31, 2022, $nil CDN ($nil USD)(October 31, 2021 - $9,483 CDN, $7,657 USD) in loan principal remains outstanding.
15
|
Micromem Technologies Inc. Notes to Unaudited Condensed Interim Consolidated Financial Statements |
17. 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.
As at October 31, 2021, the Company has recorded recovery of $40,000 received in the period as a reduction of legal expenses. In the nine month period ended July 31, 2022 the Company has recorded a recovery of $4,800 received in the period as a reduction of legal expenses (nine months ended July 31, 2021 - $nil).
16
|
Micromem Technologies Inc. Notes to Unaudited Condensed Interim Consolidated Financial Statements |
18. 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 (CDN). The Company manages currency risk by monitoring the Canadian position of these monetary financial instruments on a periodic basis throughout the course of the reporting period.
As at July 31, 2022, and October 31, 2021, balances that are denominated in CDN are as follows:
| As at | As at | |||||
| July 31, | December 31, | |||||
| 2022 | 2021 | |||||
| CDN | CDN | |||||
| Cash | $ | 34,334 | $ | 55,950 | ||
| Prepaid expenses and other receivables | $ | 30,947 | $ | 29,857 | ||
| Trade payables and other liabilities | $ | 365,108 | $ | 17,366 | ||
| Convertible debentures | $ | 2,214,238 | $ | 1,093,684 | ||
| Derivative liabilities | $ | 1,280,544 | $ | 693,143 | ||
| Long-term loan | $ | 60,000 | $ | 60,000 |
A 10% strengthening of the US dollar against the CDN would decrease accumulated deficit by $272,148 as at July 31, 2022 (October 31, 2021 - decrease accumulated deficit by $129,992). 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) 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 July 31, 2022.
(i) Trade payables
The following represents an analysis of the maturity of trade payables:
| As at | As at | |||||
| July 31, | October 31, | |||||
| 2022 | 2021 | |||||
| Less than 30 days past billing date | $ | 359,379 | $ | 384,057 | ||
| 31 to 90 days past billing date | - | - | ||||
| Over 90 days past billing date | - | - | ||||
| $ | 359,379 | $ | 384,057 |
(ii) Convertible debentures and derivative liabilities
The following represents an analysis of the maturity of the convertible debentures and derivative liabilities:
| As at July 31, | As at October 31, | |||||||||||
| 2022 | 2021 | |||||||||||
| Convertible | Derivative | Convertible | Derivative | |||||||||
| debentures | liabilities | debentures | liabilities | |||||||||
| Less than three months | $ | 2,197,580 | $ | 646,423 | $ | 1,609,762 | $ | 238,802 | ||||
| Three to six months | 1,240,898 | 433,623 | 842,451 | 414,602 | ||||||||
| Six to twelve months | 89,574 | 547,189 | 189 | 133,677 | ||||||||
| $ | 3,528,052 | $ | 1,627,235 | $ | 2,452,402 | $ | 787,081 | |||||
17
|
Micromem Technologies Inc. Notes to Unaudited Condensed Interim Consolidated Financial Statements |
18. Financial risk management (continued)
(d) 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, and arises principally from the Company's cash, development costs receivable, and other receivables. The maximum exposure to credit risk is the carrying value of these financial assets, which amounted to $85,864 as at July 31, 2022 (October 31, 2021 - $189,407). The Company reduces its credit risk by assessing the credit quality of counterparties, taking into account their financial position, past experience and other factors.
(i) Cash
The Company held cash of $68,535 at July 31, 2022 (October 31, 2021 - $171,397). The cash is held with central banks and financial institution counterparties that are highly rated. The Company has assessed no significant change in credit risk and an insignificant loss allowance.
19. Fair value hierarchy
Assets and liabilities recorded at fair value in the unaudited condensed interim consolidated statements of financial position are classified using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:
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 unaudited condensed interim 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 unaudited condensed interim 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 unaudited condensed interim consolidated financial statements.
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 three and nine months ended July 31, 2022 and 2021, there were no transfers between levels.
20. 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 three and nine months ended July 31, 2022.
21. Subsequent events
Subsequent to July 31, 2022:
(a) The Company extended convertible debentures that were within 3 months of maturity date from July 31, 2022 for an additional six (6) months.
(b) The Company secured $239,100 USD in convertible debentures with a 12 month term and conversion features which become effective six months after initiation date.
(c) The Company converted $84,000 USD of convertible debentures through the issuance of 1,852,757 common shares.
(d) The Company signed a new three year lease on May 26, 2022 for its Toronto office, effective August 1, 2022. The monthly rent under the new lease will be $4,455 CDN ($3,475 USD).
18
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MICROMEM TECHNOLOGIES INC. |
|
MANAGEMENT'S DISCUSSION AND ANALYSIS |
|
FOR THE THREE MONTHS ENDED JULY 31, 2022 PREPARED AS OF SEPTEMBER 27, 2022 |
|
|
NOTICE TO READER
The Management's Discussion and Analysis ("MD&A") report for Micromem Technologies Inc. for the three months ending July 31, 2022, as attached, is dated as of September 27, 2022, 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 |
| September 27, 2022 | September 27, 2022 |
| MICROMEM TECHNOLOGIES INC. |
| MANAGEMENT'S DISCUSSION AND ANALYSIS |
| FOR THE THREE MONTHS ENDED JULY 31, 2022 PREPARED AS OF SEPTEMBER 27, 2022 |
INTRODUCTION
The following sets out the Management's Discussion and Analysis ("MD&A") of the financial position and result of operations for the three months ending July 31, 2022, 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, 2021, and 2020 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. Micromem has several wholly-owned subsidiaries including Micromem Applied Sensor Technologies Inc ("MAST"). MAST was active until August 2018 and has been inactive since then. All of the Company's other subsidiaries have been inactive since inception.
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 |
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FOR THE THREE MONTHS ENDED JULY 31, 2022 PREPARED AS OF SEPTEMBER 27, 2022 |
TABLE OF CONTENTS:
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MICROMEM TECHNOLOGIES INC. |
|
MANAGEMENT'S DISCUSSION AND ANALYSIS |
|
FOR THE THREE MONTHS ENDED JULY 31, 2022 PREPARED AS OF SEPTEMBER 27, 2022 |
1. OVERVIEW
Micromem is a company that develops customized, proprietary sensor-based solutions for large multinational corporations. Until August 2018, MAST was traditionally responsible for the development of market opportunities, maintaining customer relationships and the project management of the independent engineering subcontractors that it engaged once a client project was initiated.
In 2021 and in the nine months ended July 31, 2022, the Company has had positive new developments in its business initiatives. It has also experienced client driven delays due to the Covid-19 pandemic in terms of its commercialization strategies for the technology applications that it has been pursuing. It continued to deal with very tight working capital constraints and has been successful in raising additional capital through to the date of this report.
Our litigation with Steve Van Fleet, who resigned as an officer and director of the Company on August 17, 2018 was resolved in our favor in 2021 ; claims against the Company were dismissed and the Company was awarded damages of $1.058 million in the settlement of this litigation. Since October 2021, we have been receiving monthly payments from Mr. Van Fleet as part of the settlement agreement that we executed with him.
2. FINANCING
In Q3 2022 the Company secured $51,473 of financing from private placements (Q3 2021: $245,386) and received proceeds of $227,600 (Q3 2021: $83,000) from the issuance of convertible debentures (referred to interchangeably as "debentures" or "convertible loans" or "loans" throughout this document). The Company issued 10,594,028 common shares relating to the conversion by debenture holders of their debentures during Q3 2022 (Q3 2021: issued 625,000 common shares relating to conversion of debentures).
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. To date , 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 2; 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 period ending July 31, 2022 and 2021 none of which impact the Company's cash flows:
| For the 9 months ended July 31 | 2022 | 2021 | Change | ||||||
| Accretion expense | $ | 1,677,162 | $ | 691,087 | $ | 986,075 | |||
| Loss (gain) on conversion of convertible debentures | 67,505 | (13,319 | ) | 80,824 | |||||
| Loss (gain) on revaluation of derivative liabilities | (297,743 | ) | 757,362 | (1,055,105 | ) | ||||
| Loss (gain) on extinguishment of convertible debentures | 14,341 | 42,468 | (28,127 | ) | |||||
| Net expense | $ | 1,461,265 | $ | 1,477,598 | $ | (16,333 | ) |
3. BUSINESS DEVELOPMENTS IN 2022:
(a) Chevron:
As previously reported, successful field testing of the interwall tracer device was conducted on-site at a California-based Chevron well site in 2019. Sample testing was conducted for a 12-month period thereafter through March 2020.
We attended the Houston- based OTC oil and gas conferences in August 2021 and in May 2022 and have maintained a current dialogue with Chevron and with other industry participants since then.
Chevron curtailed further development activity on this project after the onset of the COVID-19 pandemic. The Company awaits Chevron's commercialization plans for this technology.
(b) Romgaz:
The COVID-19 pandemic has to date resulted in delays in the execution of our commercial activity with Romgaz.
We have previously referenced in our periodic MD&A commentaries that we were awaiting initial purchase orders for the interwell tracer technology application. These discussions have been very active during the quarter ended July 31, 2022 and through to the date of this report. The key go-forward points in these discussions, at the current date, are as follows:
(i) We are anticipating an initial purchase order for interwell tracer devices, similar to the technology that Chevron deployed in the California field trials referenced above.
(ii) Micromem will be commissioned to conduct/lead a development program to enhance and expand the analytics capabilities of the existing technology with the end goal of delivering a comprehensive analytics solution to Romgaz for its specific performance requirements in its gas and oil wells.
(iii) Micromem and Romgaz are pursuing discussions whereby the technology application developed in (ii) above will be manufactured on a commercial scale in Romania. It is expected that the technology that will be manufactured in Romania will be suitable for both oil and gas well applications.
(iv) A joint venture agreement between Micromem and Romgaz is contemplated. The working relationship between Micromem and Romgaz is expected to expand to include the development of other technology applications where Micromem has been active over the past decade. We expect to finalize these working arrangements and move forward with these initiatives in 2022. It is expected that Romgaz will provide the initial capital to launch this expanded working relationship.
To this end, Micromem has now completed a comprehensive business strategy and go forward plan which it has shared with Romgaz for implementation in 2022.
In anticipation of these developments with Romgaz in 2022, Micromem has planned for its business activity to include the following components:
(i) Continuance of its working relationship with the developer of the ARTRA 171 technology which Chevron has successfully tested in onsite testing of operating oil wells and for which we anticipate Romgaz purchase orders in 2022.
(ii) We expect to continue our dialogue with Chevron and may pursue certain licensing opportunities relating to their proprietary technology in our continued work with Romgaz.
(iii) In mid-2021, we established a Toronto - based engineering/product development team in cooperation with an established manufacturing and engineering group whom we expect to have a significant role in future as a strategic partner to Micromem.
(iv) In June 2021, Micromem hired two engineering staff persons through the University of Toronto coop program, each for a 16 month term. The engineering staff are responsible for supporting all of Micromem's current initiatives with Chevron, Romgaz and other potential customers. That program extended until August 31, 2022.
(v) 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.
( c ) Repsol S.A. ("Repsol"):
With our additional engineering staff resources in Toronto, we have begun to reconfigure the RT Lube Analyzer technology in which Repsol has previously expressed interest and for which we negotiated a letter of intent with Repsol in 2019. While we have not had any interaction with Repsol since the onset of the Covid-19 pandemic, we expect to resume discussions with Repsol in the future.
(d) Covid 19 update:
The impact on the Company's internal operations of the COVID-19 pandemic through to the date of this report is discussed below; we believe have taken the appropriate steps to maintain our business and to protect our staff to ensure their well-being:
(i) We utilized the Canada Employment Wage Subsidy program from the Canadian Federal Government to support our payroll obligations from April 2020 through October 2021 and received total subsidies of CDN $167,388 ($133,699 USD) under this program. This program has since been cancelled by the Federal Government .
(ii) We utilized the Canadian Federal Government Small Business loan program and secured term loans totaling CDN $60,000 ($48,243 USD) which is as described in our consolidated financial statements. These term loans are interest free until December 31, 2023 and mature on December 31, 2025. Repaying the balance of the loan on or before December 31, 2023 will result in a forgiveness of $20,000 CDN ($15,838 USD).
(iii) We utilized the Canadian Emergency Bank Account Loan program to support our office rental expense obligations between June 2020 and September 2021 and received total subsidies of CDN $38,440 ($30,703 USD) under this program. This program has since been cancelled by the Federal Government.
(iv) Business related travel was significantly reduced after March 2020; it has resumed in the second and third quarters in fiscal 2022.
(v) Micromem's senior management team have, since 2019 and through to the date of this report, continued at reduced remuneration levels.
There remains uncertainty as to the duration of the pandemic. If the pandemic continues for an extended period of time in 2022 and beyond, there will be additional repercussions to the Company's ongoing business which could be significant.
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MICROMEM TECHNOLOGIES INC. |
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MANAGEMENT'S DISCUSSION AND ANALYSIS |
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FOR THE THREE MONTHS ENDED JULY 31, 2022 PREPARED AS OF SEPTEMBER 27, 2022 |
4. 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 with respect to 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; in yet one other case, the interest rate is 2% per annum).
(iii) Conversion price which may be fixed at initiation date or fixed after six months based on a formulaic calculation, denominated in either 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 the 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(b) above), we are required to revalue the derivative liability at each quarter end using prescribed Black Scholes or binomial methodology. Then, on a quarterly basis, we are required to report this gain or loss on the revaluation in our quarterly 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 to nil 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 these prescribed accounting treatments give rise to complicated disclosures in our financial statements and footnotes:
(a) We report substantial accretion expense in our periodic 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 can result in significant quarterly 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, 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 periodic consolidated financial 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 total non-cash expense (income) relating to items (a) - (d) above reported in the quarter ended July 31, 2022 was $916,911; quarter ended July 31, 2021: ($2,268,814).
(4) Additional Comments:
The Company notes the following:
a) We have had to resort to convertible debentures financing 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 ranging between 1% and 2% per month (in one case at a rate of 2% per annum). 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 the quarter ended July 31, 2022, the Company issued 10,594,028 common shares in settlement of debentures which were converted to common shares by the debenture holders (year ended October 31, 2021; 15,611,852 shares issued; quarter ended July 31, 2021: 1,289,506 shares issued).
d) The total actual amount that the Company reports as outstanding for debentures at July 31, 2022 is $3,793,163 consisting of $2,311,829 of principal and $899,964 of accrued interest.
e) At July 31, 2022 we report a total of 459,085,461 common shares outstanding (October 31, 2021: 435,737,734 common shares; July 31, 2021: 429,835,935 common shares).
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.
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MICROMEM TECHNOLOGIES INC. |
|
MANAGEMENT'S DISCUSSION AND ANALYSIS |
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FOR THE FISCAL THREE MONTHS ENDED JULY 31, 2022 PREPARED AS OF SEPTEMBER 27, 2022 |
5. DISCUSSION OF OPERATING RESULTS:
(a) Financial Position as at July 31, 2022:
| July 31, 2022 | October 31, 2021 | |||||
| (US $000) | (US $000) | |||||
| Assets: | ||||||
| Cash | 69 | 171 | ||||
| Prepaid expenses and other receivables | 24 | 24 | ||||
| 93 | 195 | |||||
| Property and equipment, net | 5 | 26 | ||||
| Patents, net | - | 4 | ||||
| 98 | 225 | |||||
| Liabilities: | ||||||
| Accounts payable and accrued liabilities | 359 | 384 | ||||
| Current lease liability | - | 25 | ||||
| Convertible debentures | 3,528 | 2,452 | ||||
| Derivative liability | 1,628 | 787 | ||||
| 5,515 | 3,648 | |||||
| Long-term lease liability | 46 | - | ||||
| Long-term lease loan | - | 49 | ||||
| 5,561 | 3,697 | |||||
| Shareholders' Equity: | ||||||
| Share capital | 87,518 | 86,816 | ||||
| Contributed surplus | 28,209 | 28,197 | ||||
| Equity component of bridge loans | 14 | 14 | ||||
| Deficit | (121,204 | ) | (118,499 | ) | ||
| (5,463 | ) | (3,472 | ) | |||
| 98 | 225 |
Commentary:
|
|
1. |
The Company's working capital deficiency is $5,421,607 on July 31, 2022 (at October 31, 2021: deficiency of $3,452,924). |
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2
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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 reflects an amortized value of $nil as its patent assets at July 31, 2022. 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. |
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3. |
The Company continued to secure additional financing in 2022 through convertible bridge loans. Given the terms of the debentures, the Company has measured, as appropriate, the prescribed accounting treatment for these loans 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. |
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The balance reported as convertible loans at July 31, 2022, is $3,528,052 (at October 31, 2021: $2,452,402) and the related derivative liability balance is $1,627,235 (at October 31,2021: $787,081). The Company reports the following charges to the consolidated statements of income: a) accretion expense on these debentures of $422,219 for the quarter ended July 31, 2022 (quarter ended July 31, 2021: $124,432). b) a gain on the conversion of bridge loans to share capital of $266,391 for the quarter ended July 31, 2022 (for the quarter ended July 31, 2021: gain of $41,603). c) a loss on the revaluation of the derivative liabilities of $791,725 for the quarter ended July 31, 2022 (a gain on revaluation of $2,350,755 for the quarter ended July 31, 2021). d) a gain on extinguishment of convertible debentures of $30,642 for the quarter ended July 31, 2022 (a gain of $888 for the quarter ended July 31, 2021). 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. We reported interest expense of $124,270 for the quarter ended July 31, 2022; interest expense of $113,763 for the quarter ended July 31, 2021. |
| 4. | The Company secured funding from various sources, the significant components include: |
| 3 months ended | 12 months ended | 3 months ended | |||||||
| July 31, 2022 | October 31, 2021 | July 31, 2021 | |||||||
| Private placements | $ | 51,473 | $ | 840,567 | $ | 245,386 | |||
| Bridge loan financing | 227,600 | 510,000 | 83,000 | ||||||
| $ | 279,073 | $ | 1,350,567 | $ | 328,386 |
5. Operating Results:
The following table summarizes the Company's operating results for the three months ended July 31, 2022, and 2021:
Discussion of operating Results|
Quarter ended July 31, |
|
|
|
|
2022 |
2021 |
|
Administration |
45 |
31 |
|
Professional fees and salaries |
178 |
124 |
|
Stock-based compensation |
- |
- |
|
Travel and entertainment |
22 |
4 |
|
Recovery on settlement of AP balances |
- |
(167) |
|
Amortization of property and equipment |
7 |
7 |
|
Amortization of patents |
- |
2 |
|
Foreign exchange (gain) loss |
125 |
2 |
|
Accretion expense |
422 |
124 |
|
Interest expense convertible debt |
124 |
114 |
|
Other financing costs |
3 |
49 |
|
Loss (gain) on revaluation of derivatives liabilities |
792 |
(2,350) |
|
Loss (gain) on conversion of convertible debentures |
(266) |
(42) |
|
Loss (gain) on extinguishment of convertible debentures |
(31) |
(1) |
|
Net expenses (income) |
1,421 |
2,130 |
|
Net comprehensive (income) loss |
1,421 |
2,130 |
|
Income (loss per share) |
- |
(0.01) |
Quarter ended July 31, 2022 compared to Quarter ended July 31, 2021
a) Administration costs were $44,816 versus $31,506 in 2021. These costs include rent and occupancy cost, investor relations, listings and filing fees and other general and administrative expenses.
b) Professional and other fees and salaries costs were $178,173 in 2022 versus $124,118 in 2021. The components of these total costs include legal and audit related expenses of $27,975 (2021: $38,461), consulting fees of $58,037 (2021: $30,380), staff salaries and benefits of $92,161 (2021: $50,822; in 2021 the Company received wage subsidies from the Federal Government which were eliminated in 2022; additionally, the Company hired 2 engineering coop students commencing in June , 2021).
The CFO has received $12,432 of management fees in 2022 (2021: $7,149). The CEO of the Company has received $28,894 of cash compensation in 2022 (2021: $26,590). These charges are included in the consulting fees reported above.
c) Travel and entertainment expenses were $21,788 in 2022 (2021: $4,220). We reduced travel expenses in 2021 as part of a broader effort to reduce the Company's operating expenses and due to Covid-related travel restrictions imposed since March 2020. We have resumed business related travel in 2022.
d) Interest expense was $124,270 in 2022 versus $113,763 in 2021. This represents the actual interest expense obligations incurred by the Company based on the stated interest rates on the convertible debenture notes.
e) Amortization expense was $7,185 in 2022 relating to Capital Assets versus $8,911 in 2021 (consisting of $2,000 relating to patents and $6,911 relating to Capital Assets).
f) The loss on foreign exchange reported in 2022 was $125,218 versus a loss of $1,399 in 2021. 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 $0.7726 at July 31, 2022, $0.7956 at October 31,2021, $0.7981 at July 31, 2021.
g) The other expenses reported relate to the convertible debentures. These expenses are all non-cash expenses and compare as follows:
| For the 9 months ended July 31 | 2022 | 2021 | Change | ||||||
| Accretion expense | $ | 1,677,162 | $ | 691,087 | $ | 986,075 | |||
| Loss (gain) on conversion of convertible debentures | 67,505 | (13,319 | ) | 80,824 | |||||
| Loss (gain) on revaluation of derivative liabilities | (297,743 | ) | 757,362 | (1,055,105 | ) | ||||
| Loss (gain) on extinguishment of convertible debentures | 14,341 | 42,468 | (28,127 | ) | |||||
| Net expense | $ | 1,461,265 | $ | 1,477,598 | $ | (16,333 | ) |
C. Unaudited Quarterly Financial Information - Summary
|
Three months ended |
Revenues |
Expenses |
Income |
Loss |
|
October 31, 2020 |
- |
356,170 |
(356,170) |
|
|
January 31,2021 |
- |
1,220,301 |
(1,220,301) |
- |
|
April 30,2021 |
- |
3,154,574 |
(3,154,574) |
- |
|
July 31,2021 |
- |
(2,102,701) |
2,102,701 |
|
|
October 31,2021 |
- |
(1,259,196) |
1,259,196 |
- |
|
January 31,2022 |
- |
1,392,843 |
(1,392,843) |
- |
|
April 30, 2022 |
- |
(107,839) |
107,839 |
- |
|
July 31, 2022 |
- |
(1,421,173) |
(1,421,173) |
- |
|
Three months ended |
Working |
Capital |
Other Assets |
Total Assets |
Shareholders' |
|
October 31, 2020 |
(4,202,571) |
49,249 |
11,877 |
278,026 |
(4,187,342) |
|
January 31, 2021 |
(4,694,513) |
42,364 |
9,877 |
124,318 |
(4,698,923) |
|
April 30, 2021 |
(7,214,669) |
38,170 |
7,877 |
253,940 |
(7,318,323) |
|
July 31, 2021 |
(4,876,595) |
31,283 |
5,877 |
223,528 |
(4,887,324) |
|
October 31, 2021 |
(3,452,924) |
26,012 |
3,877 |
225,293 |
(3,471,278) |
|
January 31, 2022 |
(4,341,708) |
18,816 |
1,877 |
148,789 |
(4,368,574) |
|
April 30, 2022 |
(3,939,361) |
11,630 |
- |
93,372 |
(3,790,399) |
|
July 31, 2022 |
(5,421,607) |
4,445 |
- |
97,504 |
(5,463,523) |
**********
|
MICROMEM TECHNOLOGIES INC. |
|
MANAGEMENT'S DISCUSSION AND ANALYSIS |
|
FOR THE THREE MONTHS ENDED JULY 31, 2022 PREPARED AS OF SEPTEMBER 27, 2022 |
6. RISKS AND UNCERTAINTIES
There are a number of risks which may individually or in the 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. Commencing 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 on a quarterly basis 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 would 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.
COVID-19 Pandemic:
The impact on the Company of the COVID-19 pandemic, during the 2021 and 2022 fiscal years has been outlined earlier in this report, including the steps that management has taken in an attempt to maintain our operations. There remains uncertainty as to the duration of the pandemic. If the pandemic continues for an extended period of time in 2022 and beyond, there will be repercussions to the Company's ongoing business which could be significant.
***************************
|
MICROMEM TECHNOLOGIES INC. |
|
MANAGEMENT'S DISCUSSION AND ANALYSIS |
|
FOR THE THREE MONTHS ENDED JULY 31, 2022 PREPARED AS OF SEPTEMBER 27, 2022 |
7. 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 three months ended July 31, 2022, the Company reported a net loss and comprehensive loss of $1,421,173 (2021: income of $2,102,701) and negative cash flow from operations of $872,179 (2021: $606,028). The Company's working capital deficiency as at July 31, 2022 is $5,421,607 (October 31,2021: $3,452,924).
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 2022 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.
The COVID 19 pandemic has had a significant impact of the Company's operations since March, 2020 as discussed in the body of this MD&A document. There remains uncertainty at this date as to the duration of the pandemic. If the pandemic continues for an extended period of time in 2022 and beyond, there will be additional repercussions to the Company's ongoing business which could be significant.
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 |
|
FOR THE THREE MONTHS ENDED JULY 31, 2022 PREPARED AS OF SEPTEMBER 27, 2022 |
|
|
8. 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, compound and hybrid financial instruments, derivative liabilities, conversion features of bridge loans, patents, impairment of long-lived assets, patents, deferred development costs, revenue recognition, stock-based compensation, and income taxes. These critical accounting policies are set forth in Note 4 to our audited consolidated financial statements as of October 31, 2021; there have been no changes to our critical accounting policies on a year to date basis through July 31, 2022.
(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. Ultimately, after all legal and court proceedings, on June 16th, 2021 the court ordered that Micromem and MAST had established damages of $765,579.35, the full amount that had been requested . Additionally , the court awarded costs and statutory prejudgement interest from May 9, 2017. On June 29th, the court entered a judgement ("Judgement") in favor of Micromem and MAST and against Mr Van Fleet in the amount of $1,051,739.83.
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.
(c) 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 July 31, 2022.
The Company's lease for its office premises expired on July 31, 2022. (See section 9 - Subsequent Events).
(d) Off-Balance Sheet Arrangements
At July 31, 2022, 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.
(e) Share Capital
At July 31, 2022, the Company reports 459,085,461 common shares outstanding (October 31, 2021: 435,737,734; July 31, 2021: 429,835,935). Additionally, the Company has 10,725,000 stock options outstanding with a weighted average exercise price of $0.06 per share (October 31, 2021: 11,700,000 options outstanding with a weighted average exercise price of $0.06 per share; July 31, 2021: 8,700,000 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. Joseph Fuda and Dan Amadori continue to serve as officers of the Company.
Our management team and directors, along with their Q3 quarterly remuneration, is presented as below:
|
|
2022 remuneration |
|
||
|
Individual |
Position |
Cash |
Options |
Total |
|
Joseph Fuda |
President, Director |
28,884 |
- |
28,884 |
|
Oliver Nepomuceno |
Director |
- |
- |
- |
|
Alex Dey |
Director |
- |
- |
- |
|
Dan Amadori |
CFO |
12,432 |
- |
12,432 |
|
Total |
|
41,316 |
- |
41,316 |
|
|
2021 remuneration |
|
||
|
Individual |
Position |
Cash |
Options |
Total |
|
Joseph Fuda |
President, Director |
11,292 |
51,332 |
62,624 |
|
Oliver Nepomuceno |
Director |
- |
17,110 |
17,110 |
|
Alex Dey |
Director |
- |
17,110 |
17,110 |
|
Dan Amadori |
CFO |
4,006 |
51,332 |
55,338 |
|
Total |
|
15,298 |
136,884 |
152,182 |
(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. Quarterly compensation paid or payable to these individuals is summarized as above.
Trade payables and other liabilities:
As at July 31, 2022, there were no balances reported as trade payables and other liabilities due to related parties. As at July 31, 2021, the Company reversed $167,215 in statue-barred trade payables owing to a company whose major shareholder was a director of the Company from February 2014 through September 2020 and who has also previously served as its Chief Technology Officer.
(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 2021 and through to the date of this report, the Company has 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 July 31, 2022, there are 10,725,000 stock options outstanding at an average exercise price of $0.06 per share.
Capital Resources: We have no commitments for capital expenditures as of July 31, 2022.
************************
|
MICROMEM TECHNOLOGIES INC. |
|
MANAGEMENT'S DISCUSSION AND ANALYSIS |
|
FOR THE THREE MONTHS ENDED JULY 31, 2022 PREPARED AS OF SEPTEMBER 27, 2022 |
9. SUBSEQUENT EVENTS
`
Subsequent to July 31, 2022:
a) The Company extended convertible debentures that were within 3 months of maturity date from July 31, 2022 for an additional six (6) months.
b) The Company secured $239,100 USD in convertible debentures with a 12 month term and conversion features which become effective six months after initiation date.
c) The Company converted $84,000 USD of convertible debentures through the issuance of 1,852,757 common shares.
d) The Company signed a new three year lease on May 26, 2022 for its Toronto office, effective August 1st, 2022. The monthly rent under the new lease will be $4,455 CDN ($3,475 USD).
***********************
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Joseph Fuda, President and Chief Executive Officer of Micromem Technologies Inc., certify the following:
1. Review: I have reviewed the interim financial report and interim MD&A (together the "interim filings") of Micromem Technologies Inc., (the Issuer) for the interim period ended July 31, 2022.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim 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, with respect to the period covered by the interim filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim 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 interim 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 end of the period covered by the interim filings
(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 of framework: The control framework the issuer's other certifying officer(s) and I used to design the issuer's ICFR is the Committee of Sponsoring Organizations of the Treadway Commission or "COSO". The Company is utilizing the guidance for smaller public companies published by COSO.
5.2 not applicable
5.3 not applicable
6. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer's ICFR that occurred during the period beginning on November 1, 2021 to July 31, 2022 that has materially affected, or is reasonably likely to materially affect, the issuer's ICFR.
Date: September 27, 2022
/s/ Joseph Fuda
___________________________________________
Joseph Fuda
President and Chief Executive Officer
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Dan Amadori, Chief Financial Officer of Micromem Technologies Inc., certify the following:
1. Review: I have reviewed the interim financial report and interim MD&A (together the "interim filings") of Micromem Technologies Inc., (the issuer) for the interim period ended July 31, 2022.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim 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, with respect to the period covered by the interim filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim 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 interim 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 end of the period covered by the interim filings
(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 of framework: The control framework the issuer's other certifying officer(s) and I used to design the issuer's ICFR is the Committee of Sponsoring Organizations of the Treadway Commission or "COSO". The Company is utilizing the guidance for smaller public companies published by COSO.
5.2 not applicable
5.3 not applicable
6. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer's ICFR that occurred during the period beginning on November 1, 2021 to July 31, 2022 that has materially affected, or is reasonably likely to materially affect, the issuer's ICFR.
Date: September 27, 2022
/s/ Dan Amadori
___________________________________________
Dan Amadori
Chief Financial Officer