Zentek Ltd 6-K, filed Feb 13, 2024
Zentek Ltd. (ZTEKF)
About this 6-K
Zentek Ltd filed this 6-K on February 13, 2024.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
OF THE SECURITIES EXCHANGE ACT OF 1934
For the month of February 2024
Commission File Number: 001-41310
ZENTEK LTD.
(Registrant)
24 Corporate Court
Guelph, Ontario N1G 5G5 Canada
(Address of Principal Executive Offices)
Indicate by check mark whether the Registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F ☐ Form 40-F ☒
Indicate by check mark if the Registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐
Indicate by check mark if the Registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐
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.
| ZENTEK LTD. | ||
| (Registrant) | ||
| Date: February 12, 2024 | By | /s/ Wendy Ford |
| Wendy Ford | ||
| Chief Financial Officer | ||
EXHIBIT INDEX
ZENTEK LTD.
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended December 31, 2023 and 2022
(Unaudited)
(Expressed in Canadian Dollars)
| ZENTEK LTD. |
1
ZENTEK LTD.
UNAUDITED CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
| (Stated in Canadian Dollars) | As at December 31, 2023 $ |
As at March 31, 2023 $ |
||||
| ASSETS | ||||||
| Current assets | ||||||
| Cash and cash equivalents [note 12] | 5,346,373 | 10,357,317 | ||||
| Accounts and other receivables - net [note 3] | 434,896 | 569,008 | ||||
| Loan receivable [note 4] | 537,953 | 2,983,642 | ||||
| Inventories [note 5] | 2,847,061 | 2,849,073 | ||||
| Prepaids and deposits [note 5] | 487,301 | 1,193,969 | ||||
| Total current assets | 9,653,584 | 17,953,009 | ||||
| Non-current assets | ||||||
| Property and equipment - net [note 6] | 7,935,229 | 8,335,867 | ||||
| Exploration and evaluation assets [note 7] | 7,238,571 | 7,000,000 | ||||
| Total non-current assets | 15,173,800 | 15,335,867 | ||||
| Total assets | 24,827,384 | 33,288,876 | ||||
| LIABILITIES | ||||||
| Current liabilities | ||||||
| Accounts payable and accrued liabilities [note 8] | 1,078,609 | 1,292,474 | ||||
| Current portion of lease liability [note 9] | 145,157 | 129,264 | ||||
| Current portion of long-term debt [note 10] | 371,610 | 998,080 | ||||
| Total current liabilities | 1,595,376 | 2,419,818 | ||||
| Non-current liabilities | ||||||
| Lease liability [note 9] | 373,518 | 484,856 | ||||
| Long-term debt [note 10] | 386,117 | - | ||||
| Total non-current liabilities | 759,635 | 484,856 | ||||
| Total liabilities | 2,355,011 | 2,904,674 | ||||
| SHAREHOLDERS' EQUITY | ||||||
| Share capital [note 11(a)] | 86,168,445 | 85,754,399 | ||||
| Share-based payment reserve [note 11(c)] | 10,243,087 | 10,355,611 | ||||
| Shares to be issued [note 7(a)] | 472,500 | 472,500 | ||||
| Deficit | (74,411,659 | ) | (66,198,308 | ) | ||
| Total shareholders' equity | 22,472,373 | 30,384,202 | ||||
| Total shareholders' equity and liabilities | 24,827,384 | 33,288,876 |
Nature of Business and Going Concern [note 1]
Commitments and Contingencies [note 14]
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements
These consolidated financial statements were authorised for issue by the Board of Directors on February 9, 2024.
Approved on behalf of the Board of Directors:
| "Eric Wallman" |
, Director |
| "Ilse Treurnicht" | , Director |
2
ZENTEK LTD.
UNAUDITED CONDENSED INTERIM CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
| Three | Three | Nine | Nine | |||||||||
| Months | Months | Months | Months | |||||||||
| Ended | Ended | Ended | Ended | |||||||||
| December 31, | December 31, | December 31, | December 31, | |||||||||
| (Stated in Canadian Dollars) | 2023 $ |
2022 $ |
2023 $ |
2022 $ |
||||||||
| REVENUE | ||||||||||||
| Sales | 12,418 | 15,200 | 24,059 | 48,305 | ||||||||
| Other income | - | - | - | 15,000 | ||||||||
| 12,418 | 15,200 | 24,059 | 63,305 | |||||||||
| EXPENSES | ||||||||||||
| Amortisation [note 6] | 162,053 | 140,736 | 453,112 | 412,442 | ||||||||
| Bad debts | - | 7,370 | - | 134,482 | ||||||||
| Consulting fees | 113,665 | 185,869 | 430,513 | 911,817 | ||||||||
| Directors fees [note 13] | 43,750 | 37,500 | 110,000 | 103,125 | ||||||||
| Insurance | 100,947 | 98,785 | 296,472 | 258,826 | ||||||||
| Investor relations and promotion | 61,045 | 44,078 | 148,838 | 234,756 | ||||||||
| Listing and filing fees | 38,621 | - | 156,961 | 147,198 | ||||||||
| Office expenses | 37,497 | 35,260 | 109,238 | 123,071 | ||||||||
| Professional fees | 404,803 | 450,049 | 1,176,361 | 1,345,515 | ||||||||
| Rent | 70,900 | 150,580 | 286,735 | 225,770 | ||||||||
| Research and development | 409,977 | 304,681 | 1,408,018 | 1,189,794 | ||||||||
| Salaries and benefits [note 13] | 985,336 | 834,894 | 3,005,277 | 2,587,494 | ||||||||
| Share-based compensation [notes 11(c) and 13] | 388,892 | 702,173 | 1,565,476 | 2,983,882 | ||||||||
| Supplies and materials | 62,514 | 268,179 | 200,196 | 827,101 | ||||||||
| Travel | 34,414 | 45,590 | 102,825 | 156,493 | ||||||||
| Other expenses [note 17] | 62,283 | 91,799 | 427,093 | 332,958 | ||||||||
| 2,976,697 | 3,397,543 | 9,877,115 | 11,974,724 | |||||||||
| Loss before the undernoted | (2,964,279 | ) | (3,382,343 | ) | (9,853,056 | ) | (11,911,419 | ) | ||||
| Interest income | 96,793 | 150,120 | 345,808 | 306,072 | ||||||||
| Interest expense | (26,937 | ) | (27,237 | ) | (80,695 | ) | (98,370 | ) | ||||
| Loss on disposal of equipment | - | - | (149,342 | ) | - | |||||||
| Other income | 9,579 | - | 47,937 | - | ||||||||
| Income tax credit recoverable | 99,784 | - | 99,784 | - | ||||||||
| Government grants [note 16] | 100,000 | 20,558 | 343,213 | 20,558 | ||||||||
| Total other income | 279,219 | 143,441 | 606,705 | 228,260 | ||||||||
| Net loss and comprehensive loss for the period | (2,685,060 | ) | (3,238,902 | ) | (9,246,351 | ) | (11,683,159 | ) | ||||
| Basic and diluted net loss per share [note 15] | (0.03 | ) | (0.03 | ) | (0.09 | ) | (0.12 | ) |
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements
3
ZENTEK LTD.
UNAUDITED CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| (Stated in Canadian Dollars) | Number of Shares |
Share Capital $ |
Warrants $ |
Share-Based Payment Reserve $ |
Shares to be Issued $ |
Deficit $ |
Total Shareholders' Equity $ |
||||||||||||||
| Balance as at March 31, 2022 | 99,248,058 | 85,494,266 | - | 7,761,541 | 472,500 | (52,179,246 | ) | 41,549,061 | |||||||||||||
| Stock options exercised [note 11(a)] | 285,924 | 260,133 | - | (214,133 | ) | - | - | 46,000 | |||||||||||||
| Stock options expired [note 11(c)] | - | - | - | (161,804 | ) | - | 161,804 | - | |||||||||||||
| Recognition of share-based compensation [note 11(c)] | - | - | - | 2,962,882 | - | - | 2,962,882 | ||||||||||||||
| Net loss and comprehensive loss for the period | - | - | - | - | - | (11,683,159 | ) | (11,683,159 | ) | ||||||||||||
| Balance as at December 31, 2022 | 99,533,982 | 85,754,399 | - | 10,348,486 | 472,500 | (63,700,601 | ) | 32,874,784 | |||||||||||||
| Balance as at March 31, 2023 | 99,533,982 | 85,754,399 | - | 10,355,611 | 472,500 | (66,198,308 | ) | 30,384,202 | |||||||||||||
| Stock options exercised [note 11(a)] | 1,527,696 | 758,000 | - | (645,000 | ) | - | - | 113,000 | |||||||||||||
| Stock options expired [note 11(c)] | - | - | - | (1,033,000 | ) | - | 1,033,000 | - | |||||||||||||
| Shares purchased for cancellation [note 11(a)] | (205,100 | ) | (346,353 | ) | - | - | - | - | (346,353 | ) | |||||||||||
| Shares issued | 2,999 | 2,399 | - | - | - | - | 2,399 | ||||||||||||||
| Recognition of share-based compensation [note 11(c)] | - | - | - | 1,565,476 | - | - | 1,565,476 | ||||||||||||||
| Net loss and comprehensive loss for the period | - | - | - | - | - | (9,246,351 | ) | (9,246,351 | ) | ||||||||||||
| Balance as at December 31, 2023 | 100,859,577 | 86,168,445 | - | 10,243,087 | 472,500 | (74,411,659 | ) | 22,472,373 |
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements
4
ZENTEK LTD.
UNAUDITED CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
| Nine Months Ended December 31, 2023 |
Nine Months Ended December 31, 2022 |
|||||
| (Stated in Canadian Dollars) | $ | $ | ||||
| OPERATING ACTIVITIES | ||||||
| Loss for the period | (9,246,351 | ) | (11,683,159 | ) | ||
| Items not affecting cash | ||||||
| Amortisation [note 6] | 453,112 | 412,442 | ||||
| Loan receivable accrued interest | (20,342 | ) | - | |||
| Loss on disposal of equipment | 149,342 | - | ||||
| Share-based compensation [note 11(c)] | 1,565,476 | 2,962,882 | ||||
| Net change in non-cash working capital balances [note 12] | 736,590 | (1,680,607 | ) | |||
| Cash flows used in operating activities | (6,362,173 | ) | (9,988,442 | ) | ||
| INVESTING ACTIVITIES | ||||||
| Loan receivable advanced | (33,969 | ) | (25,000 | ) | ||
| Loan receivable repayment | 2,500,000 | - | ||||
| Mineral exploration and evaluation expenditures capitalised | (238,571 | ) | - | |||
| Purchase of property and equipment [notes 6 and 12] | (307,080 | ) | (1,992,704 | ) | ||
| Cash flows from (used in) investing activities | 1,920,380 | (2,017,704 | ) | |||
| FINANCING ACTIVITIES | ||||||
| Payments on lease liability [note 9] | (95,445 | ) | (109,061 | ) | ||
| Payments on long-term debt [note 10] | (240,353 | ) | (708,767 | ) | ||
| Proceeds from stock options exercised [note 11(a)] | 113,000 | 46,000 | ||||
| Shares purchased for cancellation [note 11(a)] | (346,353 | ) | - | |||
| Cash flows used in financing activities | (569,151 | ) | (771,828 | ) | ||
| Change in cash and cash equivalents during the period | (5,010,944 | ) | (12,777,974 | ) | ||
| Cash and cash equivalents, beginning of period | 10,357,317 | 26,675,000 | ||||
| Cash and cash equivalents, end of period | 5,346,373 | 13,897,026 | ||||
| Supplementary disclosures - see note 12 |
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements
5
ZENTEK LTD.
NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Stated in Canadian Dollars)
AS AT DECEMBER 31, 2023 AND FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2023 AND 2022
1. NATURE OF BUSINESS AND GOING CONCERN
Zentek Ltd. (the "Company") was incorporated on July 29, 2008 under the laws of the province of Ontario, Canada. The principal business of the Company is to develop opportunities in the graphene and related nano-materials industry based on its intellectual property, patents and Albany graphite. The address of the Company's executive office is 24 Corporate Court, Guelph, Ontario, N1G 5G5, Canada.
On June 12, 2023, the Company incorporated a wholly-owned subsidiary named Triera Biosciences Ltd. that owns the exclusive, global licensing rights for all aptamer-based technology from the collaboration with McMaster University. The Company and McMaster University entered into a standard license agreement dated June 11, 2021 pursuant to which McMaster agreed to license certain intellectual property. All rights and obligations under this licensing agreement were assigned to this subsidiary subsequent to incorporation.
The Company is an emerging high-tech nano-graphite and graphene materials company based in Thunder Bay, Ontario, Canada. The current focus is to bring to market innovative products including surgical masks and HVAC filters with the Company's ZenGUARDTM coating, Rapid Detection Point of Care diagnostics tests and continue to develop potential pharmaceutical products based on its patent-pending graphene-based compound.
These unaudited condensed interim consolidated financial statements of the Company for the three and nine months ended December 31, 2023 were approved and authorised for issue by the Board of Directors on February 9, 2024.
The technology industry presents a high degree of risk and there can be no assurance that the Company's research and development will result in profitable operations. The Company's ability to meet its obligations arising from normal business operations, continue its research and development, and generate future profits is dependent upon its ability to obtain necessary financing. While the Company has been successful at raising funds in the past, there can be no assurance that it will be able to do so in the future.
As at December 31, 2023, the Company had not yet achieved profitable operations and had an accumulated deficit of $74,411,659 and expects to incur further losses in the development of its business. These events or conditions indicate that a material uncertainty exists that cast substantial doubt on the Company's ability to continue as a going concern. The ability to continue as a going concern is dependent on obtaining continued financial support, obtaining financing, or generating profitable operations in the future. Management is committed to raising additional capital to meet its obligations; however, additional debt and/or equity financing is subject to the global financial markets and economic conditions.
These unaudited condensed interim consolidated financial statements do not reflect the adjustments to the carrying value of assets and liabilities, the reported revenues and expenses, and the statement of financial position classifications that would be necessary if the going concern assumption was not appropriate. Any adjustments necessary to the consolidated financial statements if the Company ceases to be a going concern could be material.
6
ZENTEK LTD.
NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Stated in Canadian Dollars)
AS AT DECEMBER 31, 2023 AND FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2023 AND 2022
2. BASIS OF PRESENTATION
These unaudited condensed interim consolidated financial statements have been prepared in accordance with International Accounting Standard 34 - Interim Financial Reporting ("IAS 34") as issued by the International Accounting Standards Board ("IASB") and have been condensed with certain disclosures from the Company's audited consolidated financial statements for the year ended March 31, 2023 (the "Annual Financial Statements") omitted. Accordingly, these unaudited condensed interim consolidated financial statements should be read in conjunction with the Annual Financial Statements.
a) Changes in accounting policies
The accounting policies applied in the preparation of these unaudited condensed interim consolidated financial statements are consistent with those applied and disclosed in the Company's audited consolidated financial statements for the year ended March 31, 2023.
b) Future changes in accounting standards
Certain new accounting standards and interpretations have been published that are not mandatory for the current period and have not been early adopted. Management is still evaluating and does not expect any such pronouncements to have a material impact on the Company's consolidated financial statements upon adoption.
c) Significant judgments
In preparing the Company's unaudited condensed interim consolidated financial statements for the three and nine months ended December 31, 2023, the Company applied the critical judgments and estimates disclosed in Note 3 of its audited consolidated financial statements for the year ended March 31, 2023.
3. ACCOUNTS AND OTHER RECEIVABLES
| December 31, 2023 $ |
March 31, 2023 $ |
|||||
| Trade receivables | 48,403 | 106,458 | ||||
| Government grants receivable | 40,000 | 151,440 | ||||
| HST recoverable | 175,247 | 172,496 | ||||
| Accrued interest receivable on guaranteed investment certificates | 64,210 | 238,614 | ||||
| Ontario income tax credit recoverable | 107,036 | - | ||||
| Less: valuation allowance on trade receivables | - | (100,000 | ) | |||
| Total accounts and other receivables | 434,896 | 569,008 |
7
ZENTEK LTD.
NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Stated in Canadian Dollars)
AS AT DECEMBER 31, 2023 AND FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2023 AND 2022
4. LOAN RECEIVABLE
In March 2022, a loan was advanced to a third party, who is an insignificant shareholder of the Company and not an insider nor an employee of the Company, earning 6% interest per annum, calculated and payable monthly. The loan was originally secured by mortgages against two properties held by the borrower. The original maturity date was July 1, 2022 and an amended and restated promissory note was completed in 2023 with a revised maturity date of September 29, 2023. As a result of the sale of one property held as security in June 2023, a partial payment of $2,500,000 was applied against the loan receivable. The security against this property was released accordingly. Subsequent to September 30, 2023, an amended and restated promissory note for the remaining balance was completed with a new maturity date of March 29, 2024. The Company performed an analysis of collectivity and based on the collateral against the loan, determined that no provision was required. A continuity of the loan principal and interest balances is presented below:
| December 31, 2023 $ |
March 31, 2023 $ |
|||||
| Loan balance, beginning of period | 2,983,642 | 2,950,000 | ||||
| Loans advanced | 33,969 | 33,642 | ||||
| Principal payments received | (2,500,000 | ) | - | |||
| Interest earned | 65,342 | 180,000 | ||||
| Interest payments received | (45,000 | ) | (180,000 | ) | ||
| Loan balance, end of period | 537,953 | 2,983,642 |
5. INVENTORIES
| December 31, | March 31, | |||||
| 2023 | 2023 | |||||
| $ | $ | |||||
| Raw materials | 2,518,267 | 2,418,530 | ||||
| Finished goods | 328,794 | 430,543 | ||||
| Total inventories | 2,847,061 | 2,849,073 |
The cost of inventories recognized as an expense and included in supplies and materials amounted to $25,653 (March 31, 2023: $50,067).
Included in prepaids and deposits are $nil (March 31, 2023: $114,725) of prepayments made for inventory to be delivered subsequent to period end. A continuity of prepaid inventory is presented below:
| December 31, | March 31, | |||||
| 2023 | 2023 | |||||
| $ | $ | |||||
| Prepaid inventory, beginning of period | 114,725 | 855,415 | ||||
| Prepayments made during the period | - | - | ||||
| Inventory received | (114,725 | ) | (740,690 | ) | ||
| Prepaid inventory, end of period | - | 114,725 |
8
ZENTEK LTD.
NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Stated in Canadian Dollars)
AS AT DECEMBER 31, 2023 AND FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2023 AND 2022
6. PROPERTY AND EQUIPMENT
The following is a reconciliation of changes in the balances of property and equipment for the nine-month period ended December 31, 2023.
| Property and Equipment |
Right-of-use Assets |
Total | |||||||
| Property and equipment as at March 31, 2023 | 7,720,661 | 615,206 | 8,335,867 | ||||||
| Less: amortisation | (332,653 | ) | (120,459 | ) | (453,112 | ) | |||
| Less: disposals | (149,342 | ) | - | (149,342 | ) | ||||
| Plus: purchases | 201,816 | - | 201,816 | ||||||
| Property and equipment as at December 31, 2023 | 7,440,482 | 494,747 | 7,935,229 |
The following is a reconciliation of changes in the balances of property and equipment for the year ended March 31, 2023.
| Property and Equipment | Right-of-use Assets |
Total | |||||||
| Property and equipment as at March 31, 2022 | 5,732,373 | 293,048 | 6,025,421 | ||||||
| Less: amortisation | (380,286 | ) | (159,407 | ) | (539,693 | ) | |||
| Less: disposals | (9,624 | ) | - | (9,624 | ) | ||||
| Plus: purchases | 2,378,198 | 481,565 | 2,859,763 | ||||||
| Property and equipment as at March 31, 2023 | 7,720,661 | 615,206 | 8,335,867 |
The Company's property and equipment includes an asset under construction in the amount of $52,709 (March 31, 2023: $1,946,048) related to costs incurred for a production line at the silver-graphene oxide pilot plant. No amortisation has been recorded on this asset as it is not yet available for use.
The Company's right-of-use asset includes its manufacturing facility located in Guelph, Ontario. It is the Company's policy to amortise the right-of-use asset using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term.
7. EXPLORATION AND EVALUATION PROPERTY
The 100%-owned Albany Graphite Deposit (the "Albany Property") is located in Northern Ontario, Canada. During the year ended March 31, 2013, the Company reached an agreement with the optionor pursuant to the following terms and conditions:
a) The Company will issue to the optionor a total of 1,250,000 common shares. Total shares remaining to be issued are 750,000 common shares valued at $472,500 based on their fair market value on the date of the agreement;
b) The Company granted the optionor a net smelter return royalty of 0.75% on the 4F claim block, of which 0.5% can be purchased at any time for $500,000; and
c) The agreement provides a clawback right that allows the optionor to reduce the Company's interest in the other claims to 30% subsequent to the exercise of the second option by giving notice within 30 days that the optionor intends to commence sole funding up to completion of a feasibility study within 48 months and within 30 days deliver a payment of $27,500,000.
9
ZENTEK LTD.
NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Stated in Canadian Dollars)
AS AT DECEMBER 31, 2023 AND FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2023 AND 2022
7. EXPLORATION AND EVALUATION PROPERTY (continued)
Albany Property
| $ | |||
| Balance at March 31, 2022 | 7,000,000 | ||
| Expenditures | - | ||
| Impairment | - | ||
| Balance at December 31, 2022 | 7,000,000 | ||
| Balance at March 31, 2023 | 7,000,000 | ||
| Expenditures | 238,571 | ||
| Impairment | - | ||
| Balance at December 31, 2023 | 7,238,571 |
On September 30, 2021, as a result of the Company's change in business from a mining issuer to an industrial, technology, life sciences issuer, the Company conducted an impairment test and determined the recoverable amount of the exploration and evaluation property to be $7,000,000. Accordingly, the Company recognised an impairment charge on the exploration and evaluation property to reduce the carrying value to $7,000,000.
In February 2023, a new subsidiary corporation, Albany Graphite Corp. ("Albany"), was incorporated for the purpose of holding the Albany Property. On February 13, 2023, a non-binding letter of intent was signed pursuant to which the Company and Albany agreed to negotiate a transaction involving the transfer of the Albany Property. On May 23, 2023, pursuant to the terms of the property purchase agreement dated April 24, 2023, the Company transferred to Albany the ownership of the Albany Project. As consideration for the transfer of the Albany Property, the Company received 59,999,900 common shares of Albany.
On November 21, 2023, the Company announced that due to the deterioration of the public market for battery metals and graphite, management of the Company determined to await improved market conditions before proceeding with the Albany financing and Albany's listing on a recognized Canadian stock exchange. Any and all funds that were received from prospective investors that were held in trust pending closing of the Albany financing were returned to such prospective investors. This, however, does not mean that management will be abandoning the mineral claims and continues to work towards developing the claims into an active mine including discussions with the First Nation reserve and other private equity groups in raising sufficient capital to move the project forward.
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
| December 31, 2023 $ |
March 31, 2023 $ |
|||||
| Trade payables | 636,462 | 911,477 | ||||
| Accrued liabilities | 442,147 | 380,997 | ||||
| Total accounts payable and accrued liabilities | 1,078,609 | 1,292,474 |
10
ZENTEK LTD.
NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Stated in Canadian Dollars)
AS AT DECEMBER 31, 2023 AND FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2023 AND 2022
9. LEASE LIABILITY
During the year ended March 31, 2021, the Company entered into a lease agreement for its manufacturing facility. The initial term of the lease is for three years commencing on February 1, 2021 and terminating on January 31, 2024, subject to a right of extension as described herein. The initial term of the lease is paid in monthly instalments of $16,050 plus HST for the base rent. Pursuant to the terms of the lease, at the end of the initial term the Company has the right to extend the lease for a further three-year period to be paid in monthly instalments of $17,120 plus HST. In July 2023, the Company acted upon the renewal option for an additional 36 months, extending the lease from terminating on January 31, 2024 to January 31, 2027. As a result, the right-of-use asset and lease liability values were adjusted to reflect the impacts of the extension.
The lease liability relates to the above noted agreement. The lease liability as at December 31, 2023 and March 31, 2023 is as follows:
| December 31, 2023 $ |
March 31, 2023 $ |
|||||
| Lease liability | 518,675 | 614,120 | ||||
| Less: current portion | (145,157 | ) | (129,264 | ) | ||
| Long-term portion | 373,518 | 484,856 |
Interest expense recognised on the lease liability for the three and nine month periods ended December 31, 2023 was $17,476 and $49,005 respectively (2022: $9,896 and $35,389).
10. LONG-TERM DEBT
Pursuant to an asset purchase agreement dated February 10, 2022, the Company acquired the land, building and chattels at 24 Corporate Court in Guelph, Ontario for cash consideration of $351,000 and assumed a mortgage of $1,949,000. The mortgage was assumed in a vendor-take-back agreement with the seller of the property who is an insignificant shareholder and not an insider of the Company. There are no financial covenants associated with this agreement. On April 1, 2023, the repayment terms were renegotiated to extend the amortisation period by an additional 12 months to March 1, 2025 and reduce the monthly installment from $85,504 to $43,764, including interest at 5% per annum. On October 1, 2023, the repayment terms were amended with payments moving to interest only for the next six months ending March 1, 2024. As a result, the loan repayment was further extended by four months with a new maturity date of October 1, 2025. The Company does not consider this extension to be a substantial modification to the vendor-take-back agreement.
| December 31, | March 31, | |||||
| 2023 | 2023 | |||||
| $ | $ | |||||
| First mortgage payable in monthly installments of $43,764 including interest at 5% per annum, due October 1, 2025, with land and building, having a net book value of $1,921,175 (March 31, 2023: $2,012,414), pledged as collateral. |
757,727 | 998,080 | ||||
| Less current portion | (371,610 | ) | (998,080 | ) | ||
| Total long-term debt | 386,117 | - |
11
ZENTEK LTD.
NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Stated in Canadian Dollars)
AS AT DECEMBER 31, 2023 AND FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2023 AND 2022
11. SHARE CAPITAL
(a) Share Capital
The Company is authorised to issue an unlimited number of common shares, with no par value.
During the nine months ended December 31, 2023, the Company issued 1,527,696 common shares in connection with the exercise of 2,000,000 options (2022: 285,924 common shares on exercise of 348,333 options). The carrying value of the options, being $645,000 (2022: $119,016), was removed from share-based payment reserve and added to share capital. Of the 2,000,000 (2022: 348,333) options exercised, 1,900,000 (2022: 233,333) were exercised using a "cashless" exercise method whereby 472,304 (2022: 62,409) fewer shares were issued than exercised as compensation for the $958,000 (2022: $153,666) that would have otherwise been received by the Company upon exercise.
During the nine months ended December 31, 2023, the Company also purchased, and subsequently cancelled, 205,100 (2022: nil) of its own common shares at a cost of $346,353 (2022: nil).
(b) Share Purchase Warrants
The Company had no share purchase warrants outstanding as of December 31, 2023 and March 31, 2023.
(c) Stock Options and Share-Based Payment Reserve
During the nine months ended December 31, 2023, the Company issued 1,250,000 stock options to a number of employees and directors at exercise prices ranging from $1.75 to $2.24. The grant date fair value of these stock options was $1,545,175. The vesting period for the stock options issued was as follows: 416,667 at the date of issuance; 350,000 after 6 months from the date of issuance; 416,667 after 12 months from the date of issuance; and 66,667 after 24 months from the date of issuance.
In addition, during the nine months ended December 31, 2023, the Company's subsidiary, Triera Biosciences Ltd. ("Triera"), issued 175,000 stock options to a number of directors and officers at an exercise price of $5.00. The grant date fair value of these stock options was determined to be trivial and no stock-based compensation has been recorded in relation to these options. The vesting period for the stock options issued was as follows: 58,333 at the date of issuance; 58,333 after 6 months from the date of issuance; and 58,333 after 12 months from the date of issuance. In February 2024, the Company repriced the Triera stock options, reducing the exercise price from $5.00 per share to $1.00 per share. All other terms and conditions of these options remained unchanged.
During the nine months ended December 31, 2022, the Company issued 600,000 stock options to a number of consultants, employees and directors at exercise prices ranging from $1.93 to $2.59. The grant date fair value of these stock options was $913,000. The vesting period for the stock options issued was as follows: 200,000 at the date of issuance; 83,333 after 6 months from the date of issuance; 200,000 after 12 months from the date of issuance; and 116,667 after 24 months from the date of issuance.
The grant date fair value of the stock options was calculated using the Black-Scholes option pricing model. A summary of the inputs used to value the options issued during the nine months ended December 31 is presented below:
| Triera | The Company | |||||||||||
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2023 | Dec 31, 2022 | |||||||||
| Expected dividend yield | 0% | N/A | 0% | 0% | ||||||||
| Expected volatility | 98% to 120% | N/A | 70% to 90% | 88% to 95% | ||||||||
| Expected forfeiture rate | 0% | N/A | 5% | |||||||||
| Risk-free interest rate | 3.90% | N/A | 3.6% to 4.5% | 2.5% to 3.9% | ||||||||
| Expected life | 3 to 5 years | N/A | 3 to 5 years | 3 to 5 years | ||||||||
The Company's computation of expected volatility for the nine months ended December 31, 2023 and 2022 is based on the Company's market close price over a prior period equal to the expected life of the options.
12
ZENTEK LTD.
NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Stated in Canadian Dollars)
AS AT DECEMBER 31, 2023 AND FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2023 AND 2022
11. SHARE CAPITAL
(c) Stock Options and Share-Based Payment Reserve (continued)
The Company applies the fair value method of accounting for share-based payment awards to directors, officers, employees and non-employees. Accordingly, the following amounts have been recognised as compensation expense and under capital stock as share-based payment reserve:
| Three months | Three months | Nine months | Nine months | |||||||||
| Ended | Ended | Ended | Ended | |||||||||
| December 31, | December 31, | December 31, | December 31, | |||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||
| $ | $ | $ | $ | |||||||||
| Share-based compensation expense | 388,892 | 702,173 | 1,565,476 | 2,983,882 |
Stock option and share-based payment activity for the periods ended December 31, 2023 and March 31, 2023 are summarised as follows:
| Nine months ended | Year ended | |||||||||||
| December 31, 2023 | March 31, 2023 | |||||||||||
| Weighted | Weighted | |||||||||||
| average | average | |||||||||||
| Number | exercise price | Number | exercise price | |||||||||
| $ | $ | |||||||||||
| Balance, beginning of period | 8,673,334 | 2.03 | 8,692,334 | 2.01 | ||||||||
| Granted | 1,425,000 | 2.39 | 600,000 | 2.36 | ||||||||
| Exercised | (2,000,000 | ) | 0.54 | (348,333 | ) | 0.58 | ||||||
| Expired | (700,000 | ) | 2.55 | (270,667 | ) | 3.87 | ||||||
| Balance, end of period | 7,398,334 | 2.45 | 8,673,334 | 2.03 | ||||||||
At December 31, 2023, outstanding options to acquire common shares of the Company were as follows:
| Options Outstanding | Options Exercisable | ||||||||||||||
| Weighted | Weighted | Weighted | |||||||||||||
| Number | Average | Average | Number | Average | |||||||||||
| Outstanding | Remaining | Exercise | Outstanding | Exercise | |||||||||||
| Range of exercise Prices | as at Dec 31, | Contractual | Price | as at Dec 31, | Price | ||||||||||
| CAD$ | 2023 | Life (years) | CAD$ | 2023 | CAD$ | ||||||||||
| $0.40 - $1.00 | 2,333,334 | 1.04 | $ | 0.48 | 2,333,334 | $ | 0.48 | ||||||||
| $1.01 - $4.00 | 3,075,000 | 2.76 | $ | 2.62 | 2,341,667 | $ | 2.81 | ||||||||
| $4.01 - $5.67 | 1,990,000 | 2.42 | $ | 4.52 | 1,816,666 | $ | 4.49 | ||||||||
| Totals | 7,398,334 | 2.13 | $ | 2.45 | 6,491,667 | $ | 2.44 | ||||||||
13
ZENTEK LTD.
NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Stated in Canadian Dollars)
AS AT DECEMBER 31, 2023 AND FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2023 AND 2022
12. SUPPLEMENTAL DISCLOSURES ON STATEMENTS OF CASH FLOWS
Changes in non-cash working capital balances consist of:
| December 31, | December 31, | |||||
| 2023 | 2022 | |||||
| $ | $ | |||||
| Accounts and other receivables | 134,112 | 323,449 | ||||
| Inventories | 2,012 | (2,178,993 | ) | |||
| Prepaids and deposits | 706,668 | 18,598 | ||||
| Accounts payable and accrued liabilities | (106,202 | ) | 156,339 | |||
| Total change in non-cash working capital balances | 736,590 | (1,680,607 | ) | |||
| Supplementary disclosures: | ||||||
| Change in accounts payable relating to property and equipment | $ | 105,264 | $ | 314,844 | ||
| Cash and cash equivalents are comprised of: | December 31, | March 31, | ||||
| 2023 | 2023 | |||||
| $ | $ | |||||
| Cash in bank | 346,373 | 157,317 | ||||
| Cashable guaranteed investment certificate, variable rate, maturing April 2024 | 5,000,000 | 10,000,000 | ||||
| Cashable guaranteed investment certificate, variable rate, redeemed December 2023 | - | 200,000 | ||||
| Total cash and cash equivalents | 5,346,373 | 10,357,317 |
The guaranteed investment certificate of $200,000 was held as collateral by the Company's primary financial institution against corporate credit cards and was no longer required and therefore was redeemed on December 22, 2023.
During the nine months ended December 31, 2023, 1,900,000 (2022: 233,333) stock options were exercised using a "cashless" exercise method whereby 472,304 (2022: 62,409) fewer shares were issued than options exercised as compensation for the $958,000 (2022: $153,666) in cash that would have otherwise been received by the Company upon exercise.
14
ZENTEK LTD.
NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Stated in Canadian Dollars)
AS AT DECEMBER 31, 2023 AND FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2023 AND 2022
13. RELATED PARTY TRANSACTIONS
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company directly or indirectly, including any directors (executive and non-executive) of the Company.
The Company defines key management personnel as its key executive management and Board of Directors. In addition to their salaries, the Company provides a benefit plan and other allowances to its key management personnel. Key management personnel are also granted stock options at the discretion of the Board of Directors.
The remuneration of key management personnel during the three and nine months ended December 31, 2023 and 2022 were as follows:
| Three months | Three months | Nine months | Nine months | |||||||||
| Ended | Ended | Ended | Ended | |||||||||
| December 31, | December 31, | December 31, | December 31, | |||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||
| $ | $ | $ | $ | |||||||||
| Directors fees | 43,750 | 37,500 | 110,000 | 103,125 | ||||||||
| Salaries and benefits | 396,250 | 276,250 | 948,750 | 798,750 | ||||||||
| Share-based compensation | 257,819 | 304,817 | 1,103,143 | 1,570,996 | ||||||||
| Total remuneration of key management personnel | 697,819 | 618,567 | 2,161,893 | 2,472,871 |
14. COMMITMENTS AND CONTINGENCIES
a) Environmental Contingencies
The Company's activities are subject to various laws and regulations governing the protection of the environment. These laws and regulations are continually changing and generally becoming more restrictive. The Company believes its operations are materially in compliance with all applicable laws and regulations.
b) Research Agreements
The Company has entered various agreements with arms' length parties pertaining to ongoing science efforts in pursuit of research and/or development and intellectual property with the objective of profitably bringing products to market. Many of the counterparties to these agreements are Canadian universities and affiliated individuals. These agreements can be generalized as having 'no fault' termination clauses regarding ongoing commitments and future liability when the Company determines that the pursuit becomes ineffective or unlikely to result in a profitable or commercially-viable product.
Under certain of these technology license agreements with Canadian universities, the Company has an obligation to pay royalties on revenues from any subject technologies. No such revenues have been earned to date.
c) Contingent liabilities
In September 2018, the Company received a statement of claim from a former employee. The Company is in the process of defending the claim, but views the claim as unmeritorious. On March 24, 2020, the Company commenced an action claim against the former employee for relief relating to contracts and transactions between that employee and the Company, seeking to set aside those agreements and, where applicable, seeking disgorgement of unspecified amounts relating to benefits obtained under those agreements. Although there can be no assurance that any particular claim will be resolved in the Company's favour, management does not believe that the outcome of any claim or potential claims of which it is currently aware will have a material adverse effect on the Company.
15
ZENTEK LTD.
NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Stated in Canadian Dollars)
AS AT DECEMBER 31, 2023 AND FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2023 AND 2022
15. NET LOSS PER SHARE
Basic net loss per share figures are calculated using the weighted average number of common shares outstanding. The weighted average number of common shares issued and outstanding for the three and nine months ended December 31, 2023 is 100,893,619 and 100,393,740 respectively (2022: 99,404,284 and 89,863,546). Diluted net loss per share figures are calculated after taking into account all warrants and stock options granted. For the three and nine months ended December 31, 2023 and December 31, 2022, all stock options and warrants were excluded from the diluted per share amounts as their effect is anti-dilutive in loss periods.
16. GOVERNMENT GRANTS
The Company has entered into agreements with various government agencies under which the Company is entitled to receive assistance and cost recoveries for specific research and development activities. The Company was successful in securing funding with the National Research Council for the Industrial Research Assistance Program for an HVAC project which included funding to offset both labour and third-party testing costs. The Company has also secured funding for ZENArmor Pigment Synthesis, Substrate Preparation and Coating from Public Works and Government Services Canada. Lastly, the Company has secured funding from DAIR Green Fund for passive icephobic coating testing.
Government grants received or receivable during the three and nine months ended December 31, 2023 and 2022 were as
| Three months Ended December 31, 2023 |
Three months Ended December 31, 2022 |
Nine months Ended December 31, 2023 |
Nine months Ended December 31, 2022 |
|||||||||
| $ | $ | $ | $ | |||||||||
| National Research Council | 40,000 | - | 86,322 | - | ||||||||
| Public Works and Government Services Canada | 60,000 | - | 199,391 | - | ||||||||
| DAIR Green Fund | - | - | 57,500 | - | ||||||||
| Innovation, Science and Economic Development Canada | - | 20,558 | - | 20,558 | ||||||||
| Total government grants received | 100,000 | 20,558 | 343,213 | 20,558 |
16
ZENTEK LTD.
NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Stated in Canadian Dollars)
AS AT DECEMBER 31, 2023 AND FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2023 AND 2022
17. OTHER EXPENSES
| Three months | Three months | Nine months | Nine months | |||||||||
| Ended | Ended | Ended | Ended | |||||||||
| December 31, | December 31, | December 31, | December 31, | |||||||||
| 2023 $ |
2022 $ |
2023 $ |
2022 $ |
|||||||||
| Automotive | 5,322 | 8,946 | 17,225 | 23,971 | ||||||||
| Bank fees | 952 | 953 | 2,975 | 2,784 | ||||||||
| Dues and subscriptions | 11,188 | 3,578 | 31,151 | 51,071 | ||||||||
| Freight and delivery | 6,409 | 8,181 | 171,917 | 47,448 | ||||||||
| Meals and entertainment | 14,434 | 11,983 | 43,847 | 42,087 | ||||||||
| Other expenses | 1,951 | 12,689 | 36,385 | 46,649 | ||||||||
| Property taxes | 7,821 | - | 23,572 | 23,630 | ||||||||
| Repairs and maintenance | 1,784 | 24,657 | 71,842 | 58,367 | ||||||||
| Telephone | 5,336 | 6,755 | 16,739 | 14,010 | ||||||||
| Utilities | 7,086 | 14,057 | 11,440 | 22,941 | ||||||||
| Total other expenses | 62,283 | 91,799 | 427,093 | 332,958 |
Management's Discussion and Analysis
For the three and nine-month periods ended
December 31, 2023
Dated: February 12, 2024
(Expressed in Canadian Dollars)
Introduction
This Management Discussion and Analysis ("MD&A") is dated February 12, 2024, and is in respect of the three and nine-month periods ended December 31, 2023. The following discussion of the financial condition and results of operations of Zentek Ltd. (the "Company") constitutes management's review of the factors that affected the Company's financial and operating performance for the three and nine-month periods ended December 31, 2023.
This discussion should be read in conjunction with the Company's condensed interim consolidated financial statements and corresponding notes to the consolidated financial statements for the nine-month period ended December 31, 2023, the most recently completed fiscal period, and MD&A and audited consolidated annual financial statements for the year ended March 31, 2023. The Company's condensed interim consolidated financial statements have been prepared in accordance with International Accounting Standard 34 - Interim Financial Reporting ("IAS 34") as issued by the International Accounting Standards Board ("IASB") and have been condensed with certain disclosures from the Company's audited consolidated financial statements for the year ended March 31, 2023 (the "Annual Financial Statements") omitted. Unless otherwise stated, all amounts discussed herein are denominated in Canadian dollars which is the Company's functional and reporting currency.
Additional information relating to the Company can be found under the Company's profile on SEDAR at www.sedar.com.
Forward-Looking Statements
This MD&A and the documents incorporated into this MD&A contain "forward-looking statements" and "forward-looking information" within the meaning of applicable securities laws (forward-looking information and forward-looking statements being collectively hereinafter referred to as "forward-looking statements"). Such forward-looking statements are based on expectations, estimates and projections as at the date of this MD&A or the dates of the documents incorporated herein, as applicable. Any statements that involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often but not always using phrases such as "expects" or "does not expect", "is expected", "anticipates" or "does not anticipate", "plans", "budget", "scheduled", "forecasts", "estimates", "believes" or "intends", or variations of such words and phrases, or stating that certain actions, events or results "may" or "could", "would", "should", "might" or "will" be taken, occur or be achieved) are not statements of historical fact and may be forward-looking statements and are intended to identify forward-looking statements. These forward-looking statements include, but are not limited to, statements and information concerning: the intentions, plans and future actions of the Company; statements relating to the business and future activities of the Company after the date of this MD&A; market position, ability to compete and future financial or operating performance of the Company after the date of this MD&A; statements based on the audited and unaudited financial statements of the Company; anticipated developments in operations; the timing and amount of funding required to execute the Company's development and business plans; intellectual property expenditures; capital and exploration and development expenditures; the effect on the Company of any changes to existing legislation or policy; government regulation of patent law or mining operations; the length of time required to obtain permits, certifications and approvals; markets for the Company's graphene related products and the ability to supply those markets; the success of exploration, development and mining activities; the geology of mineral properties; environmental risks; the availability of labour; demand and market outlook for precious metals and the prices thereof; progress in development of mineral properties; estimated budgets; currency fluctuations; requirements for additional capital; government regulation; limitations on insurance coverage; the timing and possible outcome of litigation in future periods; the timing and possible outcome of regulatory and permitting matters; goals; strategies; future growth; planned business activities and planned future acquisitions; the adequacy of financial resources; and other events or conditions that may occur in the future.
Forward-looking statements are based on the beliefs of the Company's management, as well as on assumptions, which such management believes to be reasonable based on information currently available at the time such statements were made. However, by their nature, forward-looking statements are based on assumptions and involve known and unknown risks, uncertainties, and other factors that may cause the actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. Forward-looking statements are subject to a variety of risks, uncertainties, and other factors that could cause actual events or results to differ from those expressed or implied by the forward-looking statements, including, without limitation, those risks outlined under the heading Risk and Uncertainties in this MD&A.
The list of risk factors set out in this MD&A is not exhaustive of the factors that may affect any forward-looking statements of the Company. Forward-looking statements are statements about the future and are inherently uncertain. Actual results could differ materially from those projected in the forward-looking statements as a result of the matters set out or incorporated by reference in this MD&A generally and certain economic and business factors, some of which may be beyond the control of the Company, including, among other things, potential direct or indirect operational impacts resulting from infectious diseases or pandemics, such as the COVID-19 outbreak, and from international or domestic conflicts or political crises, and other factors not currently viewed as material that could cause actual results to differ materially from those described in the forward-looking statements. In addition, recent unprecedented events in the world economy and global financial and credit markets as a consequence of the COVID-19 outbreak and the above-noted conflicts have resulted in high market and commodity volatility and a contraction in debt and equity markets, which could have a particularly significant, detrimental, and unpredictable effect on forward-looking statements. The Company does not intend and does not assume any obligation, to update any forward-looking statements, other than as required by applicable law. For all of these reasons, the Company's securityholders should not place undue reliance on forward-looking statements.
Company Overview and Discussion of Operations
The Company was incorporated in Ontario, Canada as 1774119 Ontario Limited on July 29, 2008. Pursuant to Articles of Amendment dated November 24, 2009, the Company changed its name to "Zenyatta Ventures Ltd." On January 1, 2019, the Company filed Articles of Amendment changing its name from "Zenyatta Ventures Ltd." to "ZEN Graphene Solutions Ltd." On October 27, 2021 (effective October 28, 2021), the Company filed Articles of Amendment changing its name from "ZEN Graphene Solutions Ltd." to "Zentek Ltd." The common shares of the Company trade on the TSX Venture Exchange ("TSXV") under the symbol "ZEN" and in the United States on the Nasdaq Capital Market ("NASDAQ") under the symbol "ZTEK".
The Company commenced operations as a junior mineral exploration company focused primarily on mineral deposits in Northern Ontario, Canada. The Company was actively engaged in exploring mining projects and held an interest in exploration licenses on properties located north of Lake Superior and west of James Bay in Northern Ontario, Canada in the "Arc of Fire" area. The properties, located north of Lake Superior and southwest of James Bay in northeastern Ontario, Canada, were unpatented, non-contiguous, and consisted of nine claim blocks, including 234 claims comprised of 3,549 claim units over a total of 56,784 ha.
Within such claim blocks, the Company continued to hold a 100% undivided interest in Claim Block 4F, comprised of 521 mining claims (461 single-cell claims and 60 boundary-cell claims), which hosts an igneous-hosted, fluid-derived graphite deposit (the "Albany Graphite Project"). The Company did extensive work to determine potential uses for the graphite materials to be extracted from the Albany Graphite Project, including engaging in testing the properties of the graphite material and studies on graphene materials.
In May 2018, the Company began to focus resources on the research and development of graphene and related applications, which was supported by shareholders of the Company who voted in favour of a new Board of Directors with an interdisciplinary team to augment key management personnel with expertise in business, science, marketing, and government relations.
In February of 2020, the Company opened a research facility in Guelph, Ontario, to support its university and industrial partners' ongoing research and to scale-up production of graphene products. Subsequently, the COVID-19 pandemic halted research at the Company's collaborators' laboratories. The Company pivoted to focus its resources to develop graphene-based solutions for the fight against COVID-19.
On September 22, 2020, the Company announced, based on the results from a report to the Company dated September 18, 2020, from the ImPaKT Centre at the University of Western Ontario entitled "Zen Graphene - Lab Test Report No. Z03-092020", the development and successful testing of a now patented GO/silver compound that showed to be 99% effective against COVID-19 virus a minimum of 35 days after application of the coating to N95 mask material. On December 22, 2020, the Company announced the successful testing at the Department of Microbiology at Mount Sinai Hospital/University Health Network of the GO/silver compound that showed to be 99.9% effective against both gram-positive and gram-negative aerobic bacteria as well as against fungus/yeast, based on a report to the Company dated December 18, 2020, entitled "Evaluation of Graphene Oxide with Silver Cations (GO-Ag+) as an Antibacterial Agent against Respiratory Pathogens", which stated that if the compound could be shown to be safe and effective, it could provide a breakthrough alternative therapy for the practices of family medicine, Otolaryngology, Ophthalmology and intensive care units.
The Company filed two provisional patent applications relating to its antimicrobial coating, and on April 13, 2021, announced the brand name ZenGUARD ("ZenGUARD™") for such coating. On September 27, 2022, the Company announced that its patent application directed to the ZenGUARD™ technology for use on personal protective equipment ("PPE") and heating, ventilation, and air conditioning ("HVAC") had been allowed including all 54 claims made in the application, and on December 6, 2022, the patent was granted with a term until September 20, 2041.
Pursuant to a License Agreement dated September 22, 2020, between the Company and the University of Guelph, the Company holds the exclusive global rights to intellectual property regarding an electrochemical exfoliation ("ECE") process to produce graphene oxide ("GO").
On October 18, 2021, the TSXV changed the Company's classification from a "mining issuer" to an "industrial, technology, or life sciences issuer", which was approved by the shareholders of the Company on September 27, 2021, in accordance with the rules and policies of the TSXV.
On November 29, 2021, the Company announced that it had been issued a Medical Device Establishment License ("MDEL") from Health Canada (license number 18823) for the manufacture and distribution of any Class I medical devices, including any such devices with or without the ZenGUARD™ coating.
The Company is now an intellectual property development and commercialization company focused primarily on commercializing ZenGUARD™, as well as on the development of certain aptamer technologies and other nanomaterials-based technologies.
On May 23, 2023, the Company completed the transfer of the ownership of the Albany Graphite Project to a wholly owned subsidiary of the Company, Albany Graphite Corp. ("AGC") pursuant to a property purchase agreement dated April 24, 2023, as described in more detail under the heading "Albany Graphite Project" below. The Company does not require materials extracted from the Albany Graphite Project for its current business plans, although such materials could hold significant value to the Company in the future.
On June 12, 2023, the Company incorporated a wholly-owned subsidiary named Triera Biosciences Ltd. that owns the exclusive, global licensing rights for all aptamer-based technology from the collaboration with McMaster University. The Company and McMaster University entered into a standard license agreement dated June 11, 2021 pursuant to which McMaster agreed to license certain intellectual property. All rights and obligations under this licensing agreement were assigned to this subsidiary subsequent to incorporation.
Current Business
ZenGUARD™ Antimicrobial Compound
During the reporting period, the Company continued to advance toward commercial production of its ZenGUARD™ antimicrobial coating at industrial scale for application to non-woven, spunbond polypropylene material to be used in surgical mask manufacturing and potentially on other materials and products including HVAC filters. Based on reports from GAP EnviroMicrobial Services Ltd. ("GAP Labs") dated May 3, 2021, the addition of ZenGUARD™ coating to surgical masks has been shown to increase the bacterial and viral filtration efficiency of masks and acts as an antimicrobial agent, providing increased protection when compared to similar uncoated masks.
On November 29, 2021, the Company announced that it had been issued a MDEL from Health Canada for the manufacture and distribution of any Class I medical devices, allowing the Company to work with any manufacturers and distributors inside and outside of Canada to bring ZenGUARD™ surgical masks and, potentially, other PPE to the Canadian market. The MDEL also allows the Company to produce and sell its own Class I medical device PPE products.
On April 12, 2022, the Company announced that it entered into a Reciprocal Supply Agreement dated March 31, 2022, with EkoMed Global Inc. ("EkoMed"), a globally integrated manufacturer and distributor of PPE, pursuant to which (i) the Company will sell quantities of ZenGUARD™ coating to EkoMed for use initially on EkoMed's surgical masks, and potentially other PPE in the future, including N95 and KN95 type masks; and (ii) the Company will purchase surgical masks manufactured by EkoMed, to be treated with ZenGUARD™ coating and resold by the Company. As of the date hereof, the Company has provided ZenGUARD™ coated material to EkoMed for the manufacture of approximately 2,200,000 masks and all masks have been made and are available for sale.
On May 13, 2022, the Company announced that Mark's Work Warehouse ("Mark's") had placed an initial sales order for ZenGUARD™-coated masks to be sold at select stores across Canada, and online. During August 2023, Mark's submitted an additional sales order for ZenGUARD™-coated masks. In October 2023, the Company informed Mark's that it will no longer be accepting orders through the required customer portal as the cost to maintain the portal has exceeded purchases made by Mark's since inception.
On September 7, 2022, the Company announced that it had entered into a Manufacturing and Supply Agreement with Viva Healthcare Packaging (Canada) Ltd. ("VMedCare") to manufacture and sell surgical masks enhanced with ZenGUARD™ antimicrobial coating, pursuant to which the Company would provide ZenGUARD™-coated spunbond material to VMedCare, which will be responsible for manufacturing and packaging ZenGUARD™ branded surgical masks. As at the date hereof, the Company has provided ZenGUARD™-coated material to VMedCare for the manufacture of approximately 6,000,000 masks. Approximately 500,000 masks were manufactured in September 2023 and at December 31, 2023, approximately 395,000 masks are in storage at VMedCare.
On January 19, 2023, the Company announced that it had signed a Distribution Agreement with Southmedic Inc. ("Southmedic") for the distribution of the Company's patented ZenGUARD™ surgical masks. Pursuant to the agreement, the parties agreed that Southmedic will be the distributor of ZenGUARD™-enhanced surgical masks to Canadian hospitals, general practitioners, private surgery, long-term care and nursing home markets.
On March 22, 2023, the Company announced that further testing had been completed by SGS Standard Technical Services Co. to determine the extent of the antimicrobial properties and the time required to achieve deactivation of bacteria and virus on ZenGUARD™-coated mask material. Testing showed that ZenGUARD™-coated mask fabric demonstrated over 99.99% antibacterial effectiveness after 1 hour. In the study, 260,000 Escherichia coli (E. coli) Colony Forming Units ("CFU") were reduced to under 100 CFU, while untreated control mask samples saw 120,000 E. coli CFU grow to 2.5 million CFU in 1 hour and 1.1 billion in 8 hours. Additionally, the ZenGUARD™-coated mask fabric demonstrated 86.7% antiviral effectiveness after 1 hour against H1N1 and 99.7% after 8 hours.
On March 30, 2023, the Company announced that it had signed an agreement with Arka BRENStech Pvt Ltd ("BRENStech"), a company incorporated under the laws of the Republic of India (India), pursuant to which BRENStech will act as a local partner to the Company as it seeks to develop business opportunities in India. BRENStech's primary focus will be to establish sales and distribution opportunities for the Company's masks and HVAC filters and potentially other products as they become available. The Company also expects that BRENStech will connect the Company with university research facilities, assist with the navigation of applicable regulatory regimes, and source potential manufacturing partners for the Company's business opportunities in India and globally.
On August 24, 2023, the Company announced that it had signed a supply agreement with Henry Schein, Inc., for a three-year term in respect to the distribution of ZenGUARD™-coated masks to dental practices in Canada and, subject to regulatory approval, potentially in the United States. In September 2023, Henry Schein placed their first order of masks.
As at December 31, 2023, the Company had an inventory of approximately 3.4 million masks and had provided ZenGUARD™-coated material to VMedCare for the manufacture of approximately an additional 5.5 million masks.
The Company continues to market its ZenGUARD™ product to be applied to various materials, and has targeted manufacturers, including PPE manufacturers and HVAC filter material companies.
Construction of ZenGUARD™ Industrial Scale Production and Coating Facility
The Company has installed industrial-scale production equipment to produce the ZenGUARD™ coating formulation at its York Rd., Guelph, Ontario location, as such location is permitted for industrial use. The Company has also purchased coating equipment so the process of applying the ZenGUARD™ coating formulation to spunbond polypropylene for use in surgical masks, HVAC filter materials, other PPE equipment, and potentially other uses, can be completed by the Company on-site. The Company spent cumulatively approximately $2.8M on this objective with no further additional expenditures required.
All required parts for the coating line have arrived and installation is now complete. The effective construction completion date for the coating line was November 30, 2022. Following completion of installation, a period of training and certification began. The coating line was expected to be commercially operational in fiscal Q1 2023; however, further delays in procurement of machine guarding that were not originally anticipated delayed the completion. The coating line became commercially operational in August 2023. The Company has spent approximately $2.0M as of December 31, 2023, related to the coating line with no further additional expenditures required.
On May 18, 2023, the Company announced that it had been granted the ISO 13485:2016 Quality Management System certification standard by the British Standards Institution. The Company also received Medical Device Single Audit Program ("MDSAP") certificate No. 777967. The ISO and MDSAP are for our Quality Management System and do not include our production facility.
Proposed Construction of Graphene Oxide Production Facility
In addition to the construction of the ZenGUARD™ industrial scale production and coating equipment, as discussed above, the Company intends to construct a plant to produce GO. The Company believes that the ability to produce GO itself, which is the precursor for the ZenGUARD™ compound, rather than relying on third-party suppliers of GO, will be economically favourable to the Company over the long term, as well as reducing supply and shipping risk. The Company believes that there are three primary reasons it would benefit from an ability to produce GO internally: (i) it should eliminate or significantly reduce supply chain risk; and (ii) GO is not a homogeneous substance and by producing its own GO the Company could ensure product consistency.
In connection with the Company's proposed production of GO, the Company has conducted research and development to produce high-quality, few-layer GO via an ECE process designed to be scalable, low-cost, low-energy, and environmentally friendly. In collaboration with Prof. Aicheng Chen at the University of Guelph, the prototype ECE process was designed, developed, and optimized. A Patent Cooperation Treaty ("PCT") patent has been filed by Guelph University for the processes to produce expanded graphite and electrochemically exfoliated GO, the exclusive global rights to which has been licensed by the Company pursuant to a License Agreement dated September 22, 2020.
The Company engaged Bantrel Co. to begin engineering work on the proposed GO production plant in January 2021. Potential sites have been investigated. A site has not yet been selected and the permitting process has not yet begun. As of December 31, 2023, the Company has spent $35,000 in preliminary investigations relating to this project and expects that approximately $7,500,000 will be required to complete construction of a GO production facility.
The Company estimates that fifteen to eighteen months will be required to complete the construction of a GO production plant from the time of commencement, which is a management estimate based on the expectation of securing an agreement for the purchase of technology from an existing GO producer.
Risks include, but are not limited to, the inability to reach an acceptable agreement for the purchase of such technology, the inability to adapt existing technology to Canadian regulatory requirements, scaling-up from known existing production capacities could become a requirement, and delays as a result of ongoing material and equipment supply shortages.
Business in Development
ZenGUARD™ and Other Research and Development
The Company continues to seek the most effective, cost-efficient, and scalable process to produce high-quality GO. The production of GO requires a consistent source (or precursor) material for conversion to graphene, which is then applied to various products for enhancement. The Company believes that it has a potential competitive advantage with its interest in AGC and the large and high-quality supply of source material from the Albany Graphite Project, if and when the Company determines it is cost effective to use such material.
Advanced testing on potential new processes for commercial GO production is underway. The Company also continues to work with universities on different processes that could potentially lead to a more efficient and/or lower-cost process for GO production.
The following table sets out some of the specific research and development projects that the Company is undertaking:
| Initiative | R&D Timing and Stage(1) |
Major Components to be Funded |
Research Site | Estimated Cost as at December 24, 2021(2) |
Update for the period from January 1, 2022, to December 31, 2023 |
| ZenGUARD™- Coated Masks | Advanced stage of development (currently in the market). | Coating of ZenGUARD™ antimicrobial compound on PPE masks (polypropylene fabric) for reduced microbial transmission through aerosols. Continued work of optimizing material and characterization of compound. | Internal | Continued research and development at an estimated cost of $200,000. | Approximately $166,000 has been spent as at December 31, 2023. |
| Initiative | R&D Timing and Stage(1) |
Major Components to be Funded |
Research Site | Estimated Cost as at December 24, 2021(2) |
Update for the period from January 1, 2022, to December 31, 2023 |
| ZenGUARD™- Coated Gloves | Intermediate stage of development. | Coating of ZenGUARD™ antimicrobial compound on PPE gloves (Latex, nitrile, etc.) for reduced microbial transmission through touch to develop antimicrobial gloves. | Internal | Continued research and development at an estimated cost of $150,000. | Approximately $Nil has been spent as at December 31, 2023. This research project is currently designated as a lower priority project by the Company, and it does not intend to spend significant funds on this project in the near future. |
| ZenGUARD™ HVAC | Advanced stage of development. | Coating of ZenGUARD™ antimicrobial compound on HVAC filter systems in buildings, transportation, etc., for deactivation of aerosolized viral particles in enclosed spaces to develop pathogen de-activating HVAC filters. | Internal | Continued research and development at an estimated cost of $200,000. | Approximately $372,000 has been spent as at December 31, 2023. |
| Aptamer-based rapid test | Intermediate stage of development. | Validation of efficacy of disease detection platform for a broad range of aptamer-based disease detection. |
McMaster University | Continued research and development at an estimated cost of $2,500,000. | Approximately $2,247,600 has been spent as at December 31, 2023. |
| GO based fuel additive | Early stage of development. | Development of graphene-based additives to liquid fuels for improved performance metrics, including burn time, burn temperature, droplet size and fuel economy to create a high-efficiency fuel additive. | UBC Okanagan | Continued research and development at an estimated cost of $325,000. | Approximately $98,900 has been spent as at December 31, 2023. |
| Initiative | R&D Timing and Stage(1) |
Major Components to be Funded |
Research Site | Estimated Cost as at December 24, 2021(2) |
Update for the period from January 1, 2022, to December 31, 2023 |
| Quantum Dots | Early stage of development. | Development of GO additive nanoscale crystals. | UBC Okanagan | Continued research and development at an estimated cost of $20,000. | Approximately $5,100 has been spent as at December 31, 2023. This research project is currently designated as a lower priority project by the Company, and it does not intend to spend significant funds on this project in the near future. |
| 3D Printing/Shielding | Early stage of development. | Adding GO and nanomaterials into polymers to improve conductivity and to develop complex shapes for E&M shielding for space and other applications to develop conductive 3D printable filaments. | UBC Okanagan | Continued research and development at an estimated cost of $60,000. | Approximately $65,600 has been spent as at December 31, 2023. |
| Icephobic Coatings | Intermediate stage of development. | GO and/or polymer composite icephobic coating for application in the wind turbine and drone industries to develop icephobic coating for prop-blades, and wind turbine blades. | Internally and externally | Continued research and development at an estimated cost of $150,000. | Approximately $12,400 has been spent as at December 31, 2023. |
| Therapeutic Research Development | Early stage of development. | In vivo and in vitro testing of the ZenGUARD™ compound to develop a novel microbial compound for dermatological conditions. | Undetermined | Continued research and development at an estimated cost of $300,000. | Approximately $93,500 has been spent as at December 31, 2023. |
| Anode and Battery Technologies | Early stage of development. | Development of graphene-enhanced anode material. Mitacs Accelerate project develops new materials for all aspects of an automotive battery including anode, cathode, separator, electrolyte. |
University of Waterloo | N/A | Approximately $38,700 has been spent as at December 31, 2023. |
| Initiative | R&D Timing and Stage(1) |
Major Components to be Funded |
Research Site | Estimated Cost as at December 24, 2021(2) |
Update for the period from January 1, 2022, to December 31, 2023 |
| Fire Retardant Intumescent Coatings | Early stage of development. | Additives for an intumescent coating to improve the performance of regular formulations. | Internally and externally | N/A | Approximately $71,200 has been spent as at December 31, 2023. |
| Corrosion Protection | Intermediate stage of development | Nano pigment additives to improve the corrosion protection and mechanical performance of organic coatings. | Internally and externally | N/A | Approximately $91,200 has been spent as at December 31, 2023. |
Notes:
(1) Timing is based on management's reasonable business judgement and subject to certain assumptions and risk factors that may or may not be foreseeable to the Company. See "Forward-Looking Statements" and "Risk Factors". Management currently believes that products that are in the advanced stage of development are no more than one year from being marketable, intermediate stage of development are approximately 1-2 years from being marketable, and products that are in the early stage of development are approximately 3-5 years from being marketable.
(2) Estimated cost as at December 24, 2021, the date of the short form prospectus filed by the Company.
Intellectual Property ("IP") Protection Activities
The Company's intellectual property protection activities during the three and nine-month period ended December 31, 2023, are summarized below:
On April 5, 2023, the Company filed patent applications for ZenGUARD™ in 47 countries including the United States, Europe, and India.
Aptamer-Based Technology
Pursuant to a license agreement dated June 11, 2021, as amended June 23, 2023, McMaster University has granted to the Company, for a twenty-year term, a worldwide exclusive royalty-bearing license to use and practice all aptamer and DNAzyme uses, including, but not limited to, diagnostics, therapeutics, and as neutralization agents, including, but not limited to SARS-CoV-2. On October 5, 2023, the Company announced the launch of a wholly owned subsidiary that owns the exclusive, global licensing rights for all aptamer-based technology from the collaboration with McMaster University. The technology was developed by a team of researchers under the guidance of Drs. Yingfu Li, John Brennan and Leyla Soleymani, who have expertise in biosensing technologies and applications as point of care diagnostics. This patent-pending technology was validated with clinical samples from patients recruited under the supervision of two clinicians, Drs. Deborah Yamamura and Bruno Salena, who also work at McMaster University. The project was funded by the Canadian Institutes of Health Research. This technology has shown to be accurate (similar to current PCR tests), is saliva-based, affordable and scalable, and provides results in under 10 minutes. A license fee of $100,000, comprised of $50,000 cash and $50,000 in common shares of the Company (19,157 common shares at $2.61 per share) was paid to McMaster University as consideration. Although this technology was initially being developed specifically for COVID-19, this technology platform is designed to be able to detect other diseases by changing the aptamer to match new diseases.
On May 19, 2022, the Company announced that McMaster received two Natural Sciences and Engineering Research Council ("NSERC") grants related to the aptamer-based rapid detection technology; the Alliance Missions Grant in the amount of $1,000,000, and an Idea to Innovation (I2I) Grant in the amount of $350,000, of which the Company will make a $140,000 contribution. The Company intends to continue working with Dr. Yingfu Li and the research team at McMaster through in-kind contributions, using these grants towards commercializing the rapid diagnostic platform. The grants will be used to advance commercialization efforts by improving the performance of aptamers, optimizing chip synthesis, and initiating tests for additional pathogens that can be incorporated into its pathogen detection platform. The Company currently expects the cost to reach commercialization to be approximately $2,500,000, which includes enhancements and further development of the technology. StarFish Product Engineering Inc. is to conduct product strategy alignment, usability analysis, device and architecture development, proof of concept and prototyping, and program development.
On June 1, 2022, the Company announced that it had retained Halteres Associates ("Halteres"), a consultancy focused on global health, diagnostics, and point-of-care testing, to assist with the commercialization of the aptamer-based rapid detection technology. Market research from the Halteres group will be used to identify the most commercially important pathogens for detection, which will guide the aptamer development program. Halteres evaluated several commercialization opportunities for the aptamer technology, including human diagnostics, agriculture, wastewater, veterinary, and other potential uses in healthcare and the Company is continuing to review those opportunities.
To bring the product to market, the Company will be required to obtain authorization from Health Canada under an interim order, or to obtain a Class IV Medical Device Active License ("MDAL"). The process for obtaining an MDAL involves completing certain testing requirements and demonstrating that the product is (i) safe, (ii) effective, and (iii) fit for purpose. Assuming that process is completed, the Company would then start preparing a product technical file, and then seek to complete a Health Canada Class IV application.
On July 20, 2023, the Company announced that the aptamer technology platform was successfully tested as a potential prophylactic or therapeutic for SARS-CoV-2 in pre-clinical animal models. In repeat trials, the aptamers developed by Dr. Yingfu Li demonstrated similar efficacy against SARS-CoV-2 when benchmarked against a commercial monoclonal antibody. The Company further announced the amendment of its license agreement with McMaster University dated June 11, 2021, to broaden the scope of the worldwide exclusive license to apply to all aptamer and DNAzyme uses, including, but not limited to, diagnostics, therapeutics, and as neutralization agents, and not limited to SARS-CoV-2.
On July 27, 2023, the Company announced a new aptamer technology platform with McMaster University that significantly increases the binding affinity of aptamers. The increased binding affinity enhances the limits of detection for aptamer-based diagnostics and could lead to the successful adaptation of these same aptamers for new therapeutic and prophylactic treatments. Provisional patent applications were filed with the United States Patent and Trademark Office which have since resulted in the filing of two international patent applications filed with the World Intellectual Property Office as of September 30, 2023.
On October 10, 2023, the Company announced further pre-clinical testing results of the aptamer-based platform technology by the Dr. Matthew Miller Lab. Further preclinical testing was completed supporting the aptamer as a lead therapeutic target. An in vivo preclinical longevity of protection study was conducted to assess the safety and efficacy of the aptamer-based treatment over a period of 24 hours and demonstrated that the aptamer provided 24 hours of neutralizing protection against SARS-CoV-2. A subsequent study was conducted to determine the minimal effective dose of the aptamer required to protect against a lethal challenge of SARS-CoV-2.
On November 15, 2023, the Company announced the development of a significant upgrade to its aptamer platform improving the binding affinity of the universal COVID-19 aptamer from 300 to over 500 times, compared to the base aptamer. The improved platform also solved key challenges for manufacturing and these High-Binding Affinity ("HBA") aptamers are now produced with approximately a 95% yield. The Company estimates that an additional $1,000,000 will be required to complete the pre-clinical program for the SARS-CoV-2 therapeutic and enter clinical trials.
On November 29, 2023, the Company announced the successful testing of its COVID-19 HBA aptamer against the Omicron XBB 1.5 variant (Omicron) by the Miller Lab at McMaster University in the latest pre-clinical study. The performance of the COVID-19 HBA aptamer was comparable to the performance of monoclonal antibody, according to the Miller Lab, as it provided clinical protection against infection with the Omicron XBB 1.5 variant. The Company will now begin to explore partnership opportunities in the pharmaceutical space as its aptamer platform may offer a fast, economical, and novel approach to the development of new therapeutics for clinically relevant biological markers.
On December 13, 2023, the Company announced the launch of Triera Biosciences Ltd. ("Triera") as a wholly owned subsidiary for its aptamer platform technology. Triera now owns the exclusive, global licensing rights for all aptamer-based technologies from the collaboration with McMaster University.
On January 30, 2024, the Company announced the positive therapeutic results achieved by Triera Biosciences for C19HBA aptamer as a potential therapeutic. In the most recent trial completed in January 2024 by the Miller lab at McMaster University, C19HBA was tested for its therapeutic potential. The treatment that featured C19HBA demonstrated improved therapeutic benefit over no treatment of the LMA therapeutic. The full results of this preclinical investigation are pending publication in a peer reviewed journal.
Diesel Fuel Additive
The Company is working to develop a stable graphene-based diesel fuel additive to improve combustion, increase burn rate, reduce greenhouse gas emissions and to improve fuel economy of diesel fuels. Initial testing has shown an increase in the performance of diesel fuel. The Company is working to improve on these early results through optimization work. The Company has filed a provisional patent application for its graphene-based fuel additive technology.
Primarily overseen by Dr. van der Kuur, the Company’s Chief Science Officer, the Company is developing a process to functionalize GO to produce a stable dispersion in diesel fuel. The fuel additive was tested by Conestoga College in a Gunt 159 single-cylinder test engine, which yielded an improvement in fuel economy of over 10% under certain rpm.
The Company continues to work with Dr. Sina Kheirkah at the University of British Columbia-Okanagan Campus ("UBCO") to test GO-doped fuel as part of an NSERC alliance project for $110,500 cash contribution and a total budget of $311,500 over two years to continue doped fuel research. The project will focus on measuring the combustion of doped fuel in both droplet and spray combustion. The Company has spent approximately $98,900 on this research and development project.
The Company intends to continue spray combustion testing at UBCO to optimize the concentration of the additive and to assess the performance of the burn rate, fuel economy and emission of doped Jet-A and diesel fuels.
Icephobic Coating
The Company is also working to develop a new, patent-pending, carbon-based, nanotechnology-enhanced coating designed to prevent or reduce ice accretion for aviation (including drone) and wind energy applications.
Dr. van der Kuur, the Company's Chief Scientific Officer, is the primary overseer of the project, which has involved the use of dispersion technology to homogeneously mix graphene-based materials in an elastomer. The Company has filed an international (PCT) patent application patent on the technology. The Company has also conducted testing at the National Research Council of Canada's ("NRC") Altitude Icing Wind Tunnel in Ottawa and prepared graphene-enhanced elastomer material and coated coupons for testing.
The Company disclosed on February 28, 2022, that the icephobic coatings were undergoing full flight trials on a specially equipped research aircraft under real-world ice-forming weather conditions. On March 14, 2022, the Company announced the results of three rounds of testing of its icephobic coating, including laboratory tests, real-world flights and applications related to drone operations in adverse weather. In real-world testing, the Company reported that video footage of its icephobic coating on test pieces attached to a research aircraft undergoing flight trials targeting adverse weather environments has shown positive results and demonstrated that, under significant icing conditions, the coatings provide an effective de-icing and anti-icing solution. Drone testing showed that propellers coated with the icephobic material can maintain higher thrust, when compared to a non-coated propeller, due to the shedding of ice that forms on the blades that would otherwise degrade the drone's ability to maintain stable flight. Accelerated ageing testing has been completed by exposing samples coated with icephobic elastomer to UV weathering for 1,000 hours, which approximates two years' worth of sun damage in typical Canadian weather. These samples were then tested in an icing wind tunnel under dynamic conditions and demonstrated significant retention of their icephobicity.
On August 2, 2022, the Company filed a full patent application with the Patent Cooperation Treaty, the international patent office, for Nanomaterial-Enhanced Elastomer for Passive Ice Accretion Prevention. The Company disclosed this on September 19, 2022. The patent application is published, and the Company now has the opportunity to take this patent application into countries of interest.
On September 19, 2022, the Company announced the successful completion of sand erosion testing at the NRC and rain erosion testing at the Anti-icing Materials International Laboratory in Quebec which demonstrated the icephobic material's durability in adverse conditions for both wind turbine and drone industries.
On May 4, 2023, the Company announced successful drone testing, where thrust was maintained under calibrated icing conditions of freezing drizzle and freezing rain in an outdoor, real-world environment. The drone with the Company's icephobic coating applied to the propeller blades hovered under the outdoor icing rig and, on all tests conducted, maintained flight until the end of the battery life of the drone. The same drone with uncoated propeller blades rapidly lost the ability to maintain flight. These tests are expected to satisfy the Transport Canada requirement for anti-icing equipment. The current regulations for civilian drone operations in Canada as per Transport Canada regulations state that no pilot shall operate a remotely piloted aircraft system when icing conditions are observed, are reported to exist or are likely to be encountered along the route of flight unless the aircraft is equipped with de-icing or anti-icing equipment and equipment designed to detect icing.
The Company is currently consulting with Transport Canada to propose the Company's passive ice accretion technology as a potential means of compliance to satisfy the requirements as well as working to find a collaborator that could provide equipment designed to detect icing.
On May 30, 2023, the Company announced a collaboration with Pattern Energy Group LP to optimize, test and validate the Company's icephobic coating for the wind turbine industry. The partnership is being supported financially by both the Natural Sciences and Engineering Research Council of Canada and PRIMA Quebec - Advanced Materials Moving Forward.
The Company continues to consider and seek partners to commercialize this technology, including drone companies and companies specializing in elastomer production. Because the NRC has been testing a variety of coatings, the Company has been able to participate in the NRC testing process thus far at no cost to the Company. However, the Company anticipates additional testing and development to cost approximately $150,000.
Fire-Retardant Additive
The Company announced on March 28, 2022, that it had filed a provisional patent with the United States Patent and Trademark Office for an innovative Graphene Oxide-Metal-Organic Framework ("GO-MOF") compound for use in fire retardant products. The provisional patent application has since been filed as an international (PCT) patent application with the World Intellectual Property Office on March 27, 2023. Management of the Company considers the manufacturing of the GO-MOF compound as relatively easily scalable and efficient, due to the patent-pending facile synthesis process. The Company believes the fire-retardant GO-MOF additive could potentially be placed in a variety of coating products, such as latex, epoxies or included in polymers. When integrated into a polymer, it could potentially create a fire-resistant plastic that could be used in electric vehicles, providing a fire-resistant non-metal casing for the batteries. Management currently expects that GO-MOF production could be achieved on the existing ZenGUARD™ industrial scale production facility with minimal additional capital expense.
Dr. van der Kuur, the Company's Chief Scientific Officer, is the primary overseer of the project. The Company has spent approximately $71,200 on this research and development project, and intends to conduct further testing, which it currently estimates will cost approximately $65,000. In the quarter ended September 30, 2023, optimizations to the formulations were performed at the Company's lab prior to a testing program with a commercial partner. Testing and optimization work remains ongoing as of December 31, 2023.
Battery Technology
The Company has been collaborating with Dr. Michael Pope at the University of Waterloo since 2017, developing battery technology to improve anode performance. One highly studied area for lithium-ion battery development is to improve the anode material. Currently, electric vehicle anodes are composed of graphite, which has a limited theoretical specific capacity of ~372 mAhg-1. Silicon has attracted significant attention as a replacement material, mainly due to its high specific capacity of 4,200 mAhg-1, but also due to its low working potential, low price and availability. However, silicon has an enormous volumetric fluctuation (greater than 300% in all dimensions) when charging and discharging. This feature is the root cause behind the issues of poor cycle lifetime, irreversible capacity loss, and destruction and reformation of the solid electrolyte interface.
Using silicon in the anode material, Dr. Pope has attempted to address these issues and has created a patent-pending graphene-wrapped silicon anode material. On February 18, 2022, the Company announced the filing of a provisional patent with the United States Patent and Trademark Office relating to a graphene-wrapped silicon anode material. Since April, Dr. Pope's team has optimized the anode material, which now has a specific capacity of over 1,000 mAh/g and retains over 80% of its capacity over 320 charge-discharge cycles. The specific capacity of this material is a significant improvement over common graphite anodes; however, the cycle life still requires improvement compared to typical electric vehicle batteries, which lose about 4% capacity over 1,000 charge-discharge cycles. The Company intends to continue to work with Dr. Pope's team to develop this technology with the goal of improving performance to meet industry requirements. The Company filed a patent application under the Patent Cooperation Treaty on May 17, 2022.
On October 28, 2022, the Company announced the commencement of a four-year, $1.6M research project in collaboration with Professors Mohini Sain and Ning Yan from the University of Toronto and Ford Powertrain Engineering Research and Development Centre. Funding for the project includes $1.2M from the Mitacs Accelerate program. The project seeks to assess novel concepts for the purpose of inventing multifunctional materials to be used in automotive battery components including anode, cathode, electrolyte, and separator. The Company will be working in tandem with University of Toronto researchers providing and testing advanced graphene materials including the Company's patent-pending anode material developed by Dr. Michael Pope. There are no material updates as at December 31, 2023, on our work with the University of Toronto.
Corrosion Protection
On February 8, 2023, the Company announced the development of ZenARMOR™, a novel corrosion protection technology based on functionalized GO, for potential use in naval and marine infrastructure, bridges, buildings, pipelines, and other industries. ZenARMOR™ could be produced in the ZenGUARD™ facility. Third-party testing on ZenARMOR™ yielded excellent corrosion resistance with no blisters or other signs of corrosion after 1,500 hours of ASTM B-117 Salt Spray Test with ZenARMOR™, and ZenARMOR™ qualified for the Innovative Solutions Canada ("ISC") Testing Stream - Military Call for Prototypes. The Company has filed an International (PCT) Patent Application on this corrosion protection technology, as well as a trademark for ZenARMOR™.
On October 4, 2023, the Company announced that it had prepared and shipped the first corrosion paint samples to the NRC for the first round of testing as part of the ISC - Testing Stream - Military Call for Proposals. NRC's Aerospace Research Centre's Aerospace Manufacturing Technologies Centre will be testing the Company's nano pigment in military-grade chromate-free paints for evaluation in its first of three rounds of testing.
Other Use-Cases for ZenGUARD™
HVAC Filtration
ZenGUARD™ is the Company's patented anti-microbial coating technology platform. The Company intends to continue exploring other applications and uses for its ZenGUARD™ compound, including, but not limited to, use in HVAC filters. On September 30, 2020, the Company first announced testing on ZenGUARD™ use for HVAC systems. On January 13, 2021, the Company announced that testing by a major Canadian certification company had confirmed that there was very little effect on air flow and pressure drop with a ZenGUARD™ treated filter compared to an untreated filter. The Company spent approximately $60,000 on testing, including preliminary testing of ZenGUARD™-coated HVAC filter media for pressure drop, and increased challenge bacterial filtration efficiency on uncoated and coated MERV 8 and MERV 13 HVAC filters, overseen primarily by James Jordan, P.Eng., who has since retired from the Company and Dr. van der Kuur, the Company's Chief Scientific Officer.
Further to the press release dated November 30, 2021, the Company announced that it has been awarded a research and development test contract through the ISC Testing Stream Call for Proposals to test ZenGUARD™-coated HVAC filters with interest from three different units within the NRC. The goal of the testing, conducted by CremCo Laboratories with assistance from the Aerospace Research Centre, a department of the NRC was to demonstrate: (i) a net reduction in the airborne viral and bacterial load with ZenGUARD™ coating applied to standard filters; (ii) no modifications required to existing HVAC systems to achieve (i) above; (iii) no reduction in air flow rates, which means air exchange rates in the space will be unchanged; and (iv) no reduction in the air quality as the ZenGUARD™ coating was tested to ensure it does not contribute particles into the air stream.
Phase 1 testing commenced in December 2021 after an extensive design process, calibration, and assessment of the testing rig, and involved the test rig being installed inside an aerobiology chamber to push air through HVAC filter material with test organisms to study how these live airborne organisms were reduced by the ZenGUARD™ coating. Testing used multiple samples with repeated tests so that each filter's performance could be compared. It was determined that all Phase 1 targets were met including sufficient reduction in live airborne test organisms, no significant shedding of the ZenGUARD™ coating, and air flow rates that were not impacted by the coating. On April 11, 2022, the Company announced that, after successful completion of Phase 1 testing, it will proceed to Phase 2 testing.
On December 15, 2022, the Company announced the successful completion of Phase 2 HVAC filter testing and that the preliminary report from Phase 2 testing had been received. The final report was received in January 2023, and announced on February 6, 2023. The report notes a significant reduction in live airborne test organisms with ZenGUARD™ coating applied to standard HVAC filters without modification to existing HVAC systems, with no reduction in air flow rates or increasing energy use.
The testing demonstrated a reduction in live airborne bacteriophage surrogate contamination within a modular classroom environment, simulating a real-world environment. The testing was performed at the NRC's purpose-built bioaerosol testing facility, designed, and built specifically for testing wet aerosolized droplets, which is the primary mechanism for the spread of disease in an indoor setting.
The Company has also consulted and tested with LMS Technologies ("LMS"), a United States-based air media and filter testing company providing testing services and product certification for filter manufacturers. LMS' independent testing of ZenGUARD™ coated MERV 8 filters demonstrated a significant increase in both bacterial and viral filtration efficiency in line with or better than the results from the NRC. The Company currently intends to continue to work to optimize configurations of HVAC filter materials coated with ZenGUARD™ technology at LMS to optimize its product and complete all testing and documentation required for regulatory submissions in Canada and the United States. The Company has engaged Intertek Group plc to conduct a review of regulatory requirements in other geographies of interest.
On September 6, 2023, the Company announced the results of a study comparing the viral filtration efficiency ("VFE") of ZenGUARD™-enhanced MERV 9 filters with an uncoated MERV 9 filter. The testing was performed by LMS, which specializes in the testing and certification of filter manufacturers across the world, referring to the new American Society of Heating, Refrigerating and Air-Conditioning Engineers ("ASHRAE") standards for aerosolized particles and determining the impact of dust loading on VFE and particle filtration efficiency ("PFE") as per ASHRAE 52.2 testing standards. Key findings of the study included: (i) the VFE of ZenGUARD™-enhanced filters started with a significant advantage over equivalent non-coated filters, from 23.7% to 37.7%, a 59% enhancement or a 14% net gain overall, and, the VFE performance consistently increased faster for the ZenGUARD™-enhanced filters compared to the uncoated filters (at six months equivalent dust loading, the VFE of the ZenGUARD™-enhanced filter was 85.6% compared to 55.2% for the uncoated filter, a 28.4% net gain); (ii) the pressure drop remained consistent between ZenGUARD™-enhanced and uncoated filters as dust loading increased, indicating that ZenGUARD™ does not adversely affect airflow or energy efficiency of the HVAC system; and (iii) ZenGUARD™-enhanced filters operated similarly to regular MERV 9 filters when tested for PFE, effectively removing particles across all size ranges.
On September 11, 2023, the Company announced the results of a study conducted by ParticleOne Inc., an RWDI Ventures company. The study evaluated the performance of ZenGUARD™-enhanced filter technology in comparison to a standard MERV 9 filter. The study was conducted to assess the effectiveness of filters in removing infectious particles from the air and to determine the potential return on investment ("ROI") of enhanced viral filtration from using ZenGUARD™ technology. The ParticleOne model ROI analysis indicated that the ZenGUARD™- enhanced MERV 9 filter resulted in a substantial reduction in annual absenteeism costs ($15,016.95) compared to a regular MERV 9 filter in an office space of 10,000 square feet with 75 occupants.
On December 8, 2023, the Company announced a distribution agreement with 1Click Heating and Cooling Inc. ("1Click"), a private HVAC company focused on the heat pump market, for ZenGUARD™ MERV 9 filters in various sizes and is expected to include other ZenGUARD™-enhanced MERV-rated filters in the future. This agreement will see 1Click utilize ZenGUARD™ filters for its regular customer service maintenance programs, along with making ZenGUARD™ filters available to customers from inventory held in various provinces. The Company's agreement with 1Click has an initial term of 2 years from the date of approval from the Pesticide Management Regulatory Agency and may be extended by mutual agreement of the parties.
The Company has spent approximately $372,000 on this project during the period January 1, 2022, to December 31, 2023.
Therapeutic and Pharmaceutical Applications
The Company was exploring the potential to use the ZenGUARD™ compound in therapeutic or pharmaceutical applications. In testing by Dr. Tony Mazzulli from Mount Sinai Hospital in Toronto, the active ingredient in ZenGUARD™ showed low minimum inhibitory concentrations against several bacteria. On February 4, 2021, and March 2, 2021, the Company announced results of the Phase 2 cytotoxicity testing by Nucro Technics testing laboratory and included cytotoxicity testing that noted no adverse effects after seven days of repeated dosing. MRSA-related skin infection testing was performed on animals with inconclusive results. Cytotoxicity studies with Nucro-Technics and positive anecdotal results of various human skin infections including acne, warts and toenail fungal infections showed no adverse effects recorded during these anecdotal trials. These human anecdotal cases form part of the Company's patent application filed on December 21, 2021, under the Patent Cooperation Treaty entitled "Graphene-Silver Nanocomposites and Uses for Same as a Broad-Spectrum Antimicrobial" which was published on June 23, 2022.
The Company has spent approximately $93,500 on this project during the period January 1, 2022, to December 31, 2023, and will no longer be pursing this research.
Other
The Company is also working with a number of research institutions developing processes to synthesize graphene, GO and graphene quantum dots, along with other possible applications for graphene-based materials. Potential markets for graphene-based materials include composites (e.g., concrete, rubber, plastic polymers, and ceramics), sensors, water purification and filtration, coatings and solid-state lubricants, silicon-graphene and graphene aerogel anode material for next-generation batteries along with aerospace applications.
The Company has other research projects commenced or contemplated including applications in aluminum alloys, corrosion protection, battery technology, conductive polymers, and others. The Company will report on these if and when it is appropriate to do so.
Albany Graphite Project
The Company owns 100% of the issued and outstanding shares of AGC which owns the Albany Graphite Project in Northern Ontario, Canada. The unusual nature of the formation of graphite in the Albany Graphite Project and its potential chemical and economic significance motivated additional exploration drilling from 2012 to 2014. The current claims require a total of $195,600 worth of assessment work per year to keep them in good standing and the Company has a total credit of approximately $7.1M in available exploration reserves. On October 18, 2021, the TSXV changed the Company's classification from a "mining issuer" to an "industrial, technology, or life sciences issuer." The change of classification was approved by the shareholders of the Company on September 27, 2021, in accordance with the rules and policies of the TSXV.
On February 16, 2023, the Company and 1329307 BC Ltd. announced a non-binding letter of intent dated February 13, 2023, pursuant to which the parties agreed to negotiate a transaction involving the transfer of the Albany Graphite Project in Northern Ontario to an entity to be listed on a recognized Canadian stock exchange. AGC was incorporated for this purpose as a wholly owned subsidiary of the Company on February 23, 2023.
During the three-month period ended December 31, 2023, approximately $42,000 (2022 - $Nil) and approximately $238,000 during the nine-month period ended December 31, 2023 (2022 - $Nil) was spent by AGC on the Albany Graphite Project including professional fees on updating the NI 43-101 report and geologist wages. These costs have been capitalized in accordance with the Company's accounting policy on Exploration and Evaluation Assets.
On May 19, 2023, the Company transferred to AGC the ownership of the Albany Graphite Project, including the mining claims and all related chattel, drill core, and applicable contracts, in consideration for the issuance by AGC to the Company of 59,999,900 common shares of AGC. Completion of the property transfer was subject to standard closing conditions such as receipt of all required regulatory and third-party approvals (including the approval of the TSXV). The Company announced the appointments of Greg Fenton as Chair of the board of AGC, Brian Bosse as Chief Executive Officer of AGC, and Peter Wood as Vice-President, Development of AGC.
On April 24, 2023, the Company announced a non-brokered private placement financing, through the issuance of subscription receipts of AGC at a price of $1.00 per subscription receipt (the "AGC Financing"). Each subscription receipt automatically converts into one common share in the capital of AGC and one-half of one common share purchase warrant upon the satisfaction or waiver of all conditions precedent to a transaction that would result in a listing on a recognized Canadian stock exchange. Funds raised pursuant to the AGC Financing shall be held in escrow pending satisfaction of the release conditions, at which time such funds would be released to AGC, which intends to use the net proceeds of the financing to (i) continue the engagement with the Constance Lake First Nation ("CLFN"); (ii) continue environmental baseline and other studies in preparation for project analysis; and (iii) complete an updated technical report in respect of the Albany Graphite Project.
On July 26, 2023, the Company published an updated mineral resource estimate for the Albany Graphite Project, prepared by SLR Consulting (Canada) Ltd. ("SLR"). The updated mineral resource estimate is set out in the report entitled "Technical Report on the Albany Graphite Project, Ontario, Canada - Report for NI 43-101" dated July 31, 2023 (effective date of April 30, 2023), prepared by SLR, and filed on SEDAR+ on September 1, 2023.
On November 21, 2023, the Company announced that due to the deterioration of the public market for battery metals and graphite, management of the Company and AGC determined to await improved market conditions before proceeding with the AGC Financing and AGC's listing on a recognized Canadian stock exchange. Any and all funds that were received from prospective investors and were held in trust pending closing of the AGC Financing were returned to such prospective investors. This, however, does not mean that management will be abandoning the mineral claims and continues to work towards developing the claims into an active mine including discussions with the First Nation reserve and other private equity groups in raising sufficient capital to move the project forward.
Furthermore, the Company announced that Brian Bosse ceased to act as Chief Executive Officer of AGC and Greg Fenton was appointed as the interim Chief Executive Officer in his stead.
Business Objectives and Milestones
As at December 31, 2023, the Company had working capital of $8,058,208 (2023-$15,533,191) defined as current assets less current liabilities.
On January 4, 2022, the Company completed a bought-deal prospectus offering raising gross proceeds of $23,005,060 and a concurrent non-brokered private placement raising additional gross proceeds of $10,009,022, for total gross proceeds of $33,014,082. The Company disclosed in its final prospectus dated December 23, 2021 (the "Prospectus") that it expected the net proceeds of the financing to be (excluding any exercise of the overallotment option) $28,813,158 after deducting the payment of the commission to the underwriters.
The following table sets out the uses that the Company planned for such proceeds over the twenty-four-month period following the financing, as disclosed in the Prospectus, and an update on the actual expenditures using such funds:
| Use of Available Funds | Expected Amount as at date of Prospectus ($) |
Approximate Actual Amount spent as at December 31, 2023 ($) |
||||
| General and administrative costs | 4,000,000 | 10,004,000 | ||||
| Acquisition of GO supply(1) | 1,300,000 | 2,117,000 | ||||
| Construction of ZenGUARD™ production facility(2) | 1,500,000 | 2,791,000 | ||||
| Purchase of coating equipment(2) | 1,900,000 | 2,000,000 | ||||
| Construction of GO production plant(3) | 7,500,000 | Nil | ||||
| Potential strategic acquisition | 1,500,000 | Nil | ||||
| Development of rapid detection technology(4) | 2,500,000 | 2,248,000 | ||||
| Building inventory of rapid detection tests | 3,000,000 | Nil | ||||
| Research and development(5) | 2,000,000 | 3,242,000 | ||||
| Purchase of research and development facility(5) | 2,000,000 | 2,065,000 | ||||
| Estimated offering costs | 300,000 | 292,000 | ||||
| Unallocated funds added to working capital | 1,313,158 | 4,054,158 | ||||
| Total | 28,813,158 | 28,813,158 |
Notes:
(1) See "Current Business - ZenGUARD™ Anti-Microbial Compound".
(2) See "Current Business - Construction of ZenGUARD™ Industrial Scale Production and Coating Facility".
(3) See "Current Business - Proposed Construction of Graphene Oxide Production Facility".
(4) See "Business in Development - Aptamer-Based Rapid Detection Technology".
(5) See "Current Business - ZenGUARD™ Research and Development".
From January 4, 2022, to December 31, 2023, the Company spent approximately $24,758,990 of the $28,813,158 that was expected to be available. General and administrative costs have been proportionally higher in the approximately twenty-one months since the Prospectus, as the Company hired additional staff including regulatory staff, marketing staff and additional management personnel. Recent general and administrative costs include certain non-recurring expenses such as costs related to the Trebor receivership, costs relating to obtaining a Nasdaq listing and severance payments. The Company expended more than expected for the acquisition of GO, as its supplier experienced delays as a result of global shipping issues, and the Company decided to mitigate the supply chain risk and ordered more than originally planned of GO. Under the purchase terms of physical receipt and quality control, the Company recognizes inventory for the GO acquisition when inventory is shipped, and title passes and/or when credit has been pulled from the Company's prepaid account.
Overall Performance
During the nine-month period ended December 31, 2023, the Company was mainly involved in scaling the production process of the ZenGUARD™ antimicrobial coating formulation along with completing the engineering work for the industrial production facility. The Company also continued its graphene R&D activities which led to two Patent Cooperation Treaty patent filings and one licensed-in provisional patent application during this year. Overall, during the nine-month period ended December 31, 2023, the Company had cash expenditures of approximately $5,011,000 consisting mainly of mortgage payments, research and development costs, professional and consulting fees and general operating expenses.
Results of Operations
Net loss
The Company recorded a net loss of $2,685,060 with basic and diluted net loss per share of $0.03 for the three-month period ended December 31, 2023 (2022 - loss of $3,238,902 and $0.03). The loss for the nine-month period ended December 31, 2023, was $9,246,351 with basic and diluted loss per share of $0.09 (2022 - loss of $11,683,159 and $0.12).
Revenue
Revenue generated from operations for the three-month period ended December 31, 2023, was $12,418 (2022 - $15,200). Revenue recognized in the three-month period ended December 31, 2023, was for the sale of ZenGUARD™ coated masks. Revenue generated from operations for the nine-month period ended December 31, 2023, was $24,059 (2022 - $63,305). Revenue recognized in the nine-month period ended December 31, 2023, and 2022, was for the sale of ZenGUARD™ coated masks.
Expenses
Amortization expense was $162,053 for the three-month period ended December 31, 2023 (2022 - $140,736) and $453,112 for the nine-month period ended December 31, 2023 (2022 - $412,442). Amortization is taken on the capitalized cost of the Company's building, computers, equipment, leasehold improvements, and right-of-use assets.
Bad debts expense was $Nil for the three-month period ended December 31, 2023 (2022 - $7,370) and $Nil for the nine-month period ended December 31, 2023 (2022 - $134,482). In September and December 2022, the collectability of trade receivables was questionable, and an allowance was provided for.
Consulting fees were $113,665 for the three-month period ended December 31, 2023 (2022 - $185,869) and $430,513 for the nine-month period ended December 31, 2023 (2022 - $911,817). The most significant component of the consulting costs incurred was for consultants working on regulatory and government matters.
Directors' fees expense was $43,750 for the three-month period ended December 31, 2023 (2022 - $37,500) and $110,000 for the nine-month period ended December 31, 2023 (2022 - $103,125). This expense relates to compensation paid to the Company's independent Directors.
Insurance expense was $100,947 for the three-month period ended December 31, 2023 (2022 - $98,785) and $296,472 for the nine-month period ended December 31, 2023 (2022 - $258,826). These expenses relate to the costs required to adequately insure the Company's assets, operations and Directors and Officers. Insurance expense increased in September 2022 as enhanced policies were taken for additional coverages including enhanced Director and officers' coverage and product liability policies.
Investor relations and promotion expenses were $61,045 for the three-month period ended December 31, 2023 (2022 - $44,078) and $148,838 for the nine-month period ended December 31, 2023 (2022 - $234,756). These expenses consist primarily of the costs of consultants, marketing trips and other costs such as attending industry conferences. Additional costs were incurred in the first half of fiscal 2023 with the Company now being listed on the Nasdaq.
Listing and filing fees were $38,621 for the three-month period ended December 31, 2023 (2022 - $Nil) and $156,961 for the nine-month period ended December 31, 2023 (2022 - $147,198). These expenses consist primarily of the costs of maintaining registered status on various stock listing exchanges.
Office expenses were $37,497 for the three-month period ended December 31, 2023 (2022 - $35,260) and $109,238 for the nine-month period ended December 31, 2023 (2022 - $123,071). Expenses have levelled off as the hiring of new staff has declined during fiscal 2023.
Professional fees were $404,803 for the three-month period ended December 31, 2023 (2022 - $450,049) and $1,176,361 for the nine-month period ended December 31, 2023 (2022 - $1,345,515). These fees consist primarily of the amounts charged for services provided by the Company's lawyers, auditors, and accountants.
Rent expense was $70,900 for the three-month period ended December 31, 2023 (2022 - $150,580) and $286,735 for the nine-month period ended December 31, 2023 (2022 - $225,770). Additional storage was required in October 2022 to store the newly acquired GO shipments and manufactured masks at an additional quarterly cost of approximately $80,000. During May 2023, the GO storage was consolidated and moved to a more economical storage facility resulting in savings of approximately $40,000 per quarter.
Research and development expenses were $409,977 for the three-month period ended December 31, 2023 (2022 - $304,681) and $1,408,018 for the nine-month period ended December 31, 2023 (2022 - $1,189,794). These expenses mainly related to continued research and development activities regarding graphene use and development. Additional costs were incurred year-to-date on testing for the PMRA submission for ZenGUARD™-coated HVAC filter media and work towards the FDA submission for ZenGUARD™-coated masks.
Salaries and benefits expense was $985,336 for the three-month period ended December 31, 2023 (2022 - $834,894) and $3,005,277 for the nine-month period ended December 31, 2023 (2022 - $2,587,494). These expenses relate to staffing costs required to operate the business. Currently, there are 25 employees on payroll versus 30 during the same period of the prior year. Existing staff, not including key-management personnel, were given cost of living increases in August 2023 of approximately 3%. In November 2023 the Company dismissed 6 employees as part of the restructuring of the Quality and Regulatory and Sales teams. This resulted in severance payments of approximately $159,000 with an annual savings of approximately $644,000.
Share-based compensation costs were $388,892 for the three-month period ended December 31, 2023 (2022 - $702,173) and $1,565,476 for the nine-month period ended December 31, 2023 (2022 - $2,983,882). Share-based compensation was based on the fair value of the options described in Note 11(c) of the audited consolidated financial statements as calculated using the Black-Scholes option pricing model. Share-based compensation is recognized over the vesting period of the underlying options. In November 2023, 400,000 options were issued to a Director and an Officer resulting in additional share-based compensation expense in Q3 2024. 1,100,000 options were issued to Directors and Officers in Q4 2022 which resulted in additional share-based compensation expense in Q1 and Q2 2023. These options were fully vested by March 31, 2023, and therefore, no related expense in fiscal 2024.
Supplies and materials expense was $62,514 for the three-month period ended December 31, 2023 (2022 - $268,179) and $200,196 for the nine-month period ended December 31, 2023 (2022 - $827,101). These expenses mainly related to supplies and materials purchased to continue graphene development. Operations were ramping up and various supplies were being acquired to assist with the R&D activities and operations in fiscal 2023, incurring more costs.
Travel expense was $34,414 for the three-month period ended December 31, 2023 (2022 - $45,590) and $102,825 for the nine-month period ended December 31, 2023 (2022 - $156,493). This decrease reflects less travel by staff compared to the same period a year prior.
Loss on disposal of equipment for the three-month and nine-month periods ended December 31, 2023 (2022 - $Nil) was $Nil. During September 2023 a piece of lab equipment was deemed obsolete, and a provision was recorded to write the asset down to its recoverable value of $10,000. Subsequently the equipment was sold in October 2023 for $10,000.
Other expenses excluding office and travel expenses were $62,283 for the three-month period ended December 31, 2023 (2022 - $91,799) and $427,093 for the nine-month period ended December 31, 2023 (2022 - $332,958). The following table details the material components of the Company's other expenses for the three-month periods ended December 31, 2023, and 2022.
| Three Months Ended December 31, 2023 |
Three Months Ended December 31, 2022 |
|||||
| Automotive | 5,322 | 8,946 | ||||
| Bank fees | 952 | 953 | ||||
| Dues and subscriptions | 11,188 | 3,578 | ||||
| Freight and delivery | 6,409 | 8,181 | ||||
| Meals and entertainment | 14,434 | 11,983 | ||||
| Other expenses | 1,951 | 12,689 | ||||
| Property taxes | 7,821 | Nil | ||||
| Repairs and maintenance | 1,784 | 24,657 | ||||
| Telephone | 5,336 | 6,755 | ||||
| Utilities | 7,086 | 14,057 | ||||
| Total | 62,283 | 91,799 |
The increase in repairs and maintenance is consistent with the acquisition in March 2022 of the Corporate Crt. Location and the completion of the York Rd. manufacturing facility in June 2022.
Interest income for the three-month period ended December 31, 2023, was $96,793 (2022 - $150,120). Interest for the nine-month period ended December 31, 2023, was $345,808 (2022 - $306,072).
The Company continues to earn interest on cashable guaranteed investment certificates. Interest rates have increased since fiscal 2023; however, $5,000,000 was held in cashable guaranteed investment certificates at December 31, 2023 compared to $10,000,000 held at December 31, 2022 resulting in less interest income during the quarter ended.
The Company completed a Scientific and Research Development ("SRED") audit with the Canada Revenue Agency for their fiscal 2021 claim and was reassessed an Ontario Income Tax credit recoverable of $107,036 including interest of $7,252, which was paid out in January 2024.
The Company recognized $100,000 in government grants for the three-month period ended December 31, 2023 (2022-$20,558). Government grants for the nine-month period ended December 31,2023 was $343,213 (2022-$20,558). The Company was successful in securing funding in the three-month period ended December 31, 2023, of $40,000 (2022 - $Nil) with the National Research council for the Industrial Research Assistance Program for an HVAC project which included funding to offset both labour and third-party testing costs; $86,322 for the nine-month period ended December 31, 2023 (2022 - $Nil). The Company has also secured funding for ZENArmor Pigment Synthesis, Substrate Preparation and Coating from Public Works and Government Services Canada in the three-month period ended December 31, 2023, of $60,000 (2022 - $Nil) and $199,391 for the nine-month period ended December 31, 2023 (2022 - $Nil). Lastly the Company secured funding from DAIR Green Fund for passive icephobic coating testing in the three-month and nine-month periods ended December 31, 2022 (2023 - $Nil).
Cash Flows
During the nine-month period ended December 31, 2023, cash decreased overall by $5,010,944 (2022 - decrease of $12,777,974). Operating activities resulted in a decrease in cash of $6,362,173 (2022 - decrease of $9,988,442) due to continued spending on consulting and professional fees, research and development, salaries and benefits and other expenses. Investing activities resulted in an increase in cash of $1,920,380 (2022 - decrease of $2,017,704 with the partial repayment of $2.5M received against the loan receivable in March 2024. Prior period saw a use of cash of approximately $2.0M mainly for property and equipment purchases. Financing activities resulted in a decrease in cash of $569,151 (2022 - decrease of $771,828) due to repayments of long-term debt, the lease liability and shares repurchased for cancellation, partially offset by proceeds received from the exercise of stock options.
On October 1, 2023, the long-term debit, as disclosed in Note 10 to the Company's condensed interim consolidated financial statements for the nine-month period ended December 31, 2023, was amended with payments moving to interest only for the next six months ending March 1, 2024. As a result, the loan repayment was extended by four months with a new maturity date of October 1, 2025.
Mineral Exploration and Development
Albany Graphite Project
The claims comprising the Albany Graphite Project are presently held in good standing by AGC and there are sufficient assessment credits available to keep all the 4F claims in good standing for approximately 30 years. There are no environmental liability issues related to any previous exploration work on the claims. Neither the Company nor AGC have received from any government authority any communication or notice concerning any actual or alleged breach of any environmental laws, regulations, policies or permits. The claims are located in the traditional territory of the CLFN. In July 2011, the Company and CLFN signed an exploration agreement (assigned to AGC as part of the property transfer of the Albany Graphite Project) for a mutually beneficial and co-operative relationship regarding exploration and pre-feasibility activities on the Albany Graphite Project. Under this agreement, the Company committed to establishing a joint implementation committee and conveying preferential opportunities for employment and contracting as well as contributing to a social fund for the benefit of CLFN children, youth and elders. In 2018, the parties signed a new Memorandum of Understanding under which a project partnership structure will be created in support of the development of the Albany Graphite Project. Subsequent to 2015, most of the Albany Graphite Project work has been focused on metallurgical process development, environmental baseline studies, market studies, and research and development to determine the most attractive market opportunities for the Albany Graphite Project.
As a result of the Company's change in business to an intellectual property development and commercialization company, the Company conducted an impairment test and determined the recoverable amount of the exploration and evaluation property to be $7,000,000. Accordingly, the Company recognized an impairment charge on the exploration and evaluation property of $19,671,935 during the three-month period ended September 30, 2021.
As described above under "Company Overview and Discussion of Operations - Albany Graphite Project", the Company transferred the Albany Graphite Project to AGC with the purpose of moving the Albany Graphite Project forward with a separate corporate entity and management team dedicated exclusively to its development. The Company is not dependent on materials extracted from the Albany Graphite Project for its current business plans.
Administration and Capitalization
On April 13, 2023, a total of 50,000 stock options were exercised at $1.76 per option resulting in proceeds of $88,000 to the Company.
On April 14, 2023, the Company announced the grant to directors, officers, and employees of the Company of stock options exercisable for an aggregate of 600,000 common shares of the Company. The options are exercisable at a price of $2.12 per common share for periods of three to five years and subject to certain vesting criteria.
On May 24, 2023, the Company announced that, subject to regulatory approval, it will conduct a normal course issuer bid for up to 4,979,349 common shares over a period of one year, being approximately 5% of the Company's issued and outstanding common shares, with up to 1,991,739 common shares of the Company being purchasable over any 30-day period, being 2% of the Company's issued and outstanding common shares. Subsequently the Company has repurchased 245,100 as of the date of this report.
On June 1, 2023, the Company announced the appointment of Ms. Lisa Sim to the Board. 250,000 stock options were issued to Ms. Sim. The stock options have an exercise price of $2.24 per common share. The options granted to Ms. Sim expire on June 1, 2028, and have a vesting period as follows: 1/3 at June 1, 2023; 1/3 at December 1, 2023; 1/3 at June 1, 2024.
On July 2, 2023, 1,250,000 stock options were exercised. Of these options, 1,200,000 were exercised using a "cashless" exercise method whereby 289,854 fewer shares were issued than options exercised as compensation for the $600,000 in cash that traditionally would have been received by the Company upon exercise. The remaining 50,000 options were exercised at $0.50 per option resulting in cash proceeds of $25,000 to the Company.
On August 12, 2023, 600,000 stock options were exercised using a "cashless" exercise method whereby 158,209 fewer shares were issued than options exercised as compensation for the $318,000 in cash that traditionally would have been received by the Company upon exercise.
On November 13, 2023, 100,000 stock options were exercised using a "cashless" exercise method whereby 24,242 fewer shares were issued than options exercised as compensation for the $40,000 in cash that traditionally would have been received by the Company upon exercise.
On November 15, 2023, the Company announced the appointment of Mr. John Snisarenko to the Board
On November 30, 2023, the Company announced the grant of 400,000 stock options to a director and an officer of the Company exercisable at a price of $1.75 per common share for a period of three years for the officer and five years for the director. The options have a vesting period as follows: 1/3 on the date of grant; 1/3 six months after the date of grant; and 1/3 12 months after the date of grant.
On December 14, 2023, the Company issued 175,000 stock options to directors and officers in its newly created Triera Biosciences Ltd. subsidiary exercisable at a price of $5.00 per common share for a period of three years for the officers and five years for the directors. The options have a vesting period as follows: 1/3 on the date of grant; 1/3 six months after the date of grant; and 1/3 12 months after the date of grant.
Subsequent Event
Effective January 12, 2024, Dr. Francis Dube resigned as Chairman of the Board of the Company in order to appoint an independent director, Mr. Eric Wallman as the Chairman of the Board as per best practices in governance. Dr. Dube will continue to serve the Company as a director, and as the Chief Operating Officer of the Company.
Summary of Quarterly Results
The following table sets out selected quarterly information for the eight most recently completed quarters, for which consolidated financial statements are prepared.
| Dec. 31, 2023 ($) |
Sep. 30, 2023 ($) |
Jun. 30, 2023 ($) |
Mar. 31, 2023 ($) |
Dec. 31, 2022 restated ($) |
Sep. 30, 2022 restated ($) |
Jun. 30, 2022 restated ($) |
Mar. 31, 2022 restated ($) |
|
| Revenue | 12,418 | 11,641 | - | nil | 15,200 | nil | 33,105 | 161,618 |
| Other income | 306,156 | 288,509 | 242,077 | 351,486 | 170,678 | 97,878 | 58,074 | - |
| Loss from discontinued operations | - | - | - | - | - | - | - | - |
| Net Loss | 2,685,060 | 3,405,251 | 3,156,040 | 2,731,107 | 3,238,902 | 3,410,055 | 5,034,202 | 4,964,841 |
| Net Loss per Share (basic and diluted) |
0.03 | 0.03 | 0.03 | 0.02 | 0.03 | 0.04 | 0.05 | 0.05 |
Discussion of Interim Period Results
The Company began generating limited revenue during the quarter ended September 30, 2021, as a result of its License and Supply Agreement dated September 24, 2021, with Trebor. From September 30, 2020, to March 31, 2022, the quarterly net loss figure had been trending higher, due to the following factors:
1. Increased salaries and benefits costs due to hiring of additional staff to further develop intellectual property and ramp up production.
2. Increased spending on research and development activities to further develop intellectual property.
3. Increased professional fees incurred as a result of increase in legal expenditures.
4. Increased stock-based compensation expense due to granting of options to several directors, officers, employees and consultants.
The quarterly net loss figures have been trending lower since the quarter ended March 31, 2022, mainly as a result of reduced share-based compensation expense. However, the quarter ended September 30, 2023, included some one time costs as additional freight was incurred to reposition and consolidate inventory of GO in storage to a more economical leased facility (costing approximately $100,000) and a decision to not move forward with some research and development programs, resulting in payments to consultants of approximately $300,000.
Liquidity and Capital Resources
As at December 31, 2023, the Company had working capital of $8,058,208 (March 31, 2023 - $15,533,191) and cash and cash equivalents of $5,346,373 (March 31, 2023 - $10,357,317). As at December 31, 2023, the Company had not yet achieved profitable operations and had an accumulated deficit of $74,411,659 and expects to incur further losses in the development of its business. These events or conditions indicate that a material uncertainty exists that casts substantial doubt on the Company's ability to continue as a going concern. The ability to continue as a going concern is dependent on obtaining continued financial support, obtaining financing, or generating profitable operations in the future. Management is committed to raising additional capital to meet its obligations; however, additional debt and/or equity financing is subject to the global financial markets and economic conditions. Additional financing may not be available on terms favourable to the Company or at all. If the Company does not receive future financing, it may not be possible for the Company to advance its business plans.
On January 4, 2022, the Company completed a financing for aggregate gross proceeds of $33,014,082 but may require additional financing in the future. The availability of equity capital, and the price at which additional equity could be issued, is dependent upon the success of the Company's activities, and upon the state of the capital markets generally.
Transactions with Related Parties
The remuneration of key management personnel during the nine-month periods ended December 31, 2023, and 2022 were as follows:
a) Salaries and benefits - $948,750* (2022 - $798,750)
b) Share-based compensation - $1,103,143 (2022 - $1,570,996)
* Includes one-time severance payment of $120,000.
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company directly or indirectly, including any directors (executive and non-executive) of the Company.
Current and Future Changes in Accounting Policy
Statement of Compliance
The unaudited condensed interim consolidated financial statements, including comparatives for the three-month and nine-month periods ended December 31, 2023, have been prepared in accordance with International Accounting Standard 34 - Interim Financial Reporting ("IAS 34") as issued by the International Accounting Standards Board ("IASB") and have been condensed with certain disclosures from the Company's audited consolidated financial statements for the year ended March 31, 2023 (the "Annual Financial Statements") omitted. Accordingly, the unaudited condensed interim consolidated financial statements should be read in conjunction with the Annual Financial Statements.
Future Accounting Changes
Certain IFRS pronouncements were issued that were mandatory for accounting periods beginning on or after April 1, 2023, or later periods. Many have been excluded as management does not expect them to have a material effect, however, management is still in the process of evaluating any potential impacts. The following have not yet been adopted and are being evaluated to determine their impact on the Company.
IAS 1 - Presentation of Financial Statements ("IAS 1") and IFRS Practice Statement 2. In February 2021, the IASB issued amendments to IAS 1 and IFRS Practice Statement 2 Making Materiality Judgements, providing guidance to help entities meet the accounting policy disclosure requirements. The amendments aim to make accounting policy disclosures more informative by replacing the requirement to disclose 'significant accounting policies' with 'material accounting policy information'. The amendments also provide guidance under what circumstance, the accounting policy information is likely to be considered material and therefore requiring disclosure. The Company is assessing the impact of the amendment and does not expect it to have a significant effect on the Company's consolidated financial statements.
IAS 37 - Provisions, Contingent Liabilities, and Contingent Assets ("IAS 37") was amended. The amendments clarify that when assessing if a contract is onerous, the cost of fulfilling the contract includes all costs that relate directly to the contract - i.e., a full-cost approach. Such costs include both the incremental costs of the contract (i.e., costs a company would avoid if it did not have the contract) and an allocation of other direct costs incurred on activities required to fulfill the contract - e.g., contract management and supervision, or depreciation of equipment used in fulfilling the contract. The Company has adopted this new standard and has determined there was no significant impact on the consolidated financial statements.
IAS 16 - Property, Plant and Equipment ("IAS 16") was amended. The amendments introduce new guidance, such that the proceeds from selling items before the related property, plant and equipment is available for its intended use can no longer be deducted from the cost. Instead, such proceeds are to be recognised in profit or loss, together with the costs of producing those items. The Company has adopted this new standard and has determined there was no significant impact on the consolidated financial statements.
IAS 12 - Income Taxes ("IAS 12"). In May 2021, the IASB issued amendments to IAS 12, which clarify whether the initial recognition exemption applies to certain transactions that result in both an asset and a liability being recognised simultaneously (e.g., a lease in the scope of IFRS 16). The amendments introduce an additional criterion for the initial recognition exemption, whereby the exemption does not apply to the initial recognition of an asset or liability which at the time of the transaction, gives rise to equal taxable and deductible temporary differences. The Company is assessing the impact of the amendment and does not expect it to have a significant effect on the Company's consolidated financial statements.
IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors (IAS 8). The amendment to IAS 8, which added the definition of accounting estimates, clarifies that the effects of a change in an input or measurement technique are changes in accounting estimates, unless resulting from the correction of prior period errors. These amendments clarify how entities make the distinction between changes in accounting estimate, changes in accounting policy and prior period errors. The Company is assessing the impact of the amendment and does not expect it to have a significant effect on the Company's consolidated financial statements.
Critical Judgments and estimation uncertainties
The areas which require management to make significant judgments, estimates and assumptions in determining carrying values include, but are not limited to:
Inventory
Judgement is required in determining whether net realizable value should be evaluated on a product-by-product basis or if products cannot be evaluated separately from other products in inventory and should be grouped with similar products.
Accounts receivable and loan receivable carrying values and impairment charges
In the determination of carrying values and impairment charges, management looks at the higher of recoverable amount or fair value less costs to sell in the case of assets and at objective evidence, significant or prolonged decline of fair value on financial assets indicating impairment. These determinations and their individual assumptions require that management make a decision based on the best available information at each reporting period.
Expected credit loss allowance and provision
The Company determines an expected credit loss allowance for trade receivables based on the estimated expected lifetime credit loss, considering the actual credit loss in prior years and forward-looking estimates of expected collections. This estimate varies depending on the nature of the trade receivables, the majority of which are associated with the health sciences business; however, also includes receivables from government agencies. The loss allowance is reviewed on a quarterly basis and any change in estimate is accounted for prospectively. The Company also assesses the expected credit loss of non-trade financial assets to determine if an allowance is required. The Company assessed the non-payment of the loan receivable and performed an analysis of collectivity based on the collateral against the loan and determined that no provision was required. Collectivity of customer balances classified as trade receivables may vary from the Company's estimation.
Impairment (impairment reversal) of exploration and evaluation assets
While assessing whether any indications of impairment or impairment reversal exist for exploration and evaluation assets, consideration is given to both external and internal sources of information. Information the Company considers includes changes in the market, economic and legal environment in which the Company operates that are not within its control that could affect the recoverable amount of exploration and evaluation assets. Internal sources of information include the manner in which exploration and evaluation assets are being used or are expected to be used and indications of expected economic performance of the assets. Estimates include but are not limited to estimates of the discounted future pre-tax cash flows expected to be derived from the Company's mineral exploration properties, costs to sell the properties and the appropriate discount rate. Reductions in metal price forecasts, increases in estimated future costs of production, increases in estimated future capital costs, reductions in the amount of recoverable mineral reserves and mineral resources and/or adverse current economics can result in a write-down of the carrying amounts of the Company's exploration and evaluation assets.
Income taxes and recoverability of potential deferred tax assets
In assessing the probability of realizing income tax assets recognized, management makes estimates related to expectations of future taxable income, applicable tax planning opportunities, expected timing of reversals of existing temporary differences and the likelihood that tax positions taken will be sustained upon examination by applicable tax authorities. In making its assessments, management gives additional weight to positive and negative evidence that can be objectively verified. Estimates of future taxable income are based on forecasted cash flows from operations and the application of existing tax laws in each jurisdiction.
The Company considers whether relevant tax planning opportunities are within the Company's control, are feasible, and are within management's ability to implement. Examination by applicable tax authorities is supported based on individual facts and circumstances of the relevant tax position examined in light of all available evidence. Where applicable tax laws and regulations are either unclear or subject to ongoing varying interpretations, it is reasonably possible that changes in these estimates can occur that materially affect the amounts of income tax assets recognized. Also, future changes in tax laws could limit the Company from realizing the tax benefits from the deferred tax assets. The Company reassesses unrecognized income tax assets at each reporting period.
Impairment (impairment reversal) of property and equipment
Judgements are required to assess when internal or external indicators of impairment or impairment reversal exist, and impairment testing is required. Management considers internal and external sources of information including forecasted sales, cashflows and expected production volumes. Judgement is required to assess these internal and external factors when determining if the carrying amount of an asset is impaired, or in the case of a previously impaired asset, whether the carrying amount of the asset has been restored.
Share-based payments
Management determines costs for share-based payments using market-based valuation techniques. The fair value of the market-based and performance-based share awards are determined at the date of grant using generally accepted valuation techniques. Assumptions are made and judgment used in applying valuation techniques. These assumptions and judgments include estimating the future volatility of the stock price, expected dividend yield, future employee turnover rates and future employee stock option exercise behaviours and corporate performance. Such judgments and assumptions are inherently uncertain. Changes in these assumptions affect the fair value estimates.
Contingencies
By their nature, contingencies will only be resolved when one or more future events transpire. The assessment of contingencies inherently involves estimating the outcomes of future events. The Company has disclosed its disputes and was required to exercise judgement in assessing the recorded amounts.
Financial Instruments and Other Instruments
The Company's financial instruments consist of cash and cash equivalents, accounts and other receivables, loan receivable, accounts payable and accrued liabilities, lease liability and long-term debt. Unless otherwise noted, the Company does not expect to be exposed to significant interest, currency or credit risks arising from these financial instruments. The Company estimates that the fair value of these financial instruments approximates carrying values.
As at December 31, 2023, the Company does not have any financial instruments recorded at fair value and that require classification within the fair value hierarchy.
Fair value estimates are made at the balance sheet date based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties in significant matters of judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect these estimates.
Disclosure of Outstanding Share Data
The Company is authorized to issue an unlimited number of shares, of which 100,859,577 (March 31, 2023 - 99,533,982) shares were issued and outstanding as fully paid and non-assessable as at December 31, 2023.
Refer to Note 11(c) of the condensed interim consolidated financial statements for details regarding stock options issued and exercisable as at December 31, 2023.
As at the date hereof, the Company had 100,819,577 common shares issued and outstanding as fully paid and non-assessable, and stock options exercisable for an aggregate of 7,223,334 common shares outstanding.
Risks and Uncertainties
The operations of the Company are speculative due to the high-risk nature of its business, which includes the development of certain intellectual property and the manufacturing of graphene related products, and which may include the future acquisition, financing, and development of the Albany Graphite Project. These risk factors could materially affect the Company's future operating results and could cause actual events to differ materially from those described in forward-looking information relating to the Company. Accordingly, any investment in securities of the Company is speculative and investors should not invest in securities of the Company unless they can afford to lose their entire investment.
The Company assesses and attempts to minimize the effects of these risks through careful management and planning of its operations and hiring qualified personnel but is subject to a number of limitations in managing risk resulting from its early stage of development. Below is a non-exhaustive summary of the principal risks and related uncertainties that may impact the Company. Such risk factors, as well as additional risks and uncertainties set out elsewhere in the Company's publicly filed documents, and additional risks and uncertainties not presently known to Company or that the Company currently deems immaterial, could have a material adverse effect on the Company's business, financial condition and results of operations or the trading price of the common shares.
During June 2023, there was a decrease in credit risk as a result of the partial payment of $2.5M received in respect of the loan receivable.
Negative Operating Cash Flow
During the nine-month period ended December 31, 2023, the Company had negative operating cash flow because its revenues did not exceed its operating expenses. In addition, as a result of the Company's business plans for the development of its products, the Company expects cash flow from operations to be negative until revenues improve to offset its operating expenditures. The Company's cash flow from operations may be affected in the future by expenditures incurred by the Company to continue to develop its products. To the extent the Company has negative cash flow in any future period, the Company may be required to allocate funds to fund such negative cash flow from operating activities. In order to stay in business, in the absence of cash flow from operations, the Company will have to raise funding through financing activities. However, there is no certainty the Company will be able to raise funds at all or on terms acceptable to the Company in the event it needs to do so. Furthermore, additional funds raised by the Company through the issuance of equity or convertible debt securities would cause the Company's current shareholders to experience dilution. Such securities also may grant rights, preferences or privileges senior to those of the Company's shareholders. The Company does not have any contractual restrictions on its ability to incur debt and, accordingly, the Company could incur significant amounts of indebtedness to finance its operations. Any such indebtedness could contain restrictive covenants, which likely would restrict the Company's operations.
Uncertainties Relating to the Company's Business Plans
There is no assurance that broad successful commercial applications may be feasible for the Company. The Company is continuing to explore, develop, and test its current products and new products, and there can be no assurance that new uses of existing products or new products will be fully developed for commercial application, that test results will be successful, if completed at all, that any necessary permits or approvals required in order to market such products will be obtained by the Company, or that existing technology or products will become profitable. Furthermore, there is no assurance that the Company will complete any acquisitions or acquire any know-how or trade secrets to carry out certain of its future objectives. Should the Company fail to achieve any of the foregoing, this could have a material adverse impact on the business and planned business of the Company.
The Company's business is in part dependent on patents, trade secret and other intellectual property laws of Canada, and potentially foreign jurisdictions. The Company may be unable to prevent third parties from using its intellectual property without its authorization. Some of the Company's current or future technologies and trade secrets may not be covered by any patent or patent application, and the Company's issued and pending patents may not provide the Company with any competitive advantage and could be challenged by third parties. The Company's inability to secure issuance of pending patent applications may limit its ability to protect the intellectual property rights these pending patent applications were intended to cover. The Company's competitors may attempt to design around its patents to avoid liability for infringement and, if successful, could adversely affect the Company's market share. Furthermore, the expiration of the Company's patents may lead to increased competition.
Additionally, the Company plans to construct facilities for some of its operations and business activities. There can be no assurance that locations will be secured on terms favourable to the Company or at all, that engineering plans will be completed or will be satisfactory for the intended business activities of the Company, that any required permitting will be obtained, that construction of such facilities will be completed, or that such facilities will ever become operational. If such facilities are not constructed, or do not become operational, or do not operate at the capacity required or anticipated, there could be a material adverse effect of the Company's planned business and operations.
Economic and Political Conditions
Worldwide financial and economic cycles or conditions are uncertain, and recovery from a business downturn or recession could be very slow and have a significant impact on the Company's business. The Company's business is sensitive to changes in economic and political conditions, including interest rates, currency issues, energy prices, trade issues, international or domestic conflicts or political crises, and epidemics or pandemics, such as the strain of COVID-19.
The credit and financial markets have experienced extreme volatility and disruptions due to the current conflict between Ukraine and Russia. The conflict is expected to have further global economic consequences, including but not limited to the possibility of severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in inflation rates and uncertainty about economic and political stability. In addition, the United States and other countries have imposed sanctions on Russia which increases the risk that Russia, as a retaliatory action, may launch cyberattacks against the United States, its government, infrastructure and businesses. Any of the foregoing consequences, including those we cannot yet predict, may cause our business, financial condition, results of operations and the price of our ordinary shares to be adversely affected.
Revenue from Graphene-related Products Sales; Long and Complex Sales Cycle
To date, the Company has recorded minimal revenue from its graphene enhanced products sales. There can be no assurance that significant losses will not occur in the near future or that the Company will be profitable in the future. The Company's operating expenses, and capital expenditures may increase in subsequent years. The Company expects to continue to incur losses unless and until such time as it enters into long-term and large-volume supply agreements and generates sufficient revenues to fund its continuing operations.
Intellectual Property
The Company relies on the patent, trade secret and other intellectual property laws of Canada, and foreign jurisdictions. The Company may be unable to prevent third parties from using its intellectual property without its authorization. The unauthorized use of the Company's intellectual property could reduce any competitive advantage that it has developed, reduce its market share or otherwise harm its business. In the event of unauthorized use of the Company's intellectual property, litigation to protect and enforce the Company's rights could be costly, and the Company may not prevail.
Some of the Company's current or future technologies and trade secrets may not be covered by any patent or patent application, and the Company's issued and pending patents may not provide the Company with any competitive advantage and could be challenged by third parties. The Company's inability to secure issuance of pending patent applications may limit its ability to protect the intellectual property rights these pending patent applications were intended to cover.
The Company's competitors may attempt to design around its patents to avoid liability for infringement and, if successful, could adversely affect the Company's market share. Furthermore, the expiration of the Company's patents may lead to increased competition.
In addition, effective patent, trade secret and other intellectual property protection may be unavailable or limited in some foreign countries. In some countries, the Company may not apply for patent or other intellectual property protection. The Company also relies on unpatented technological innovation and other trade secrets to develop and maintain its competitive position. Although the Company generally enters into confidentiality agreements with its employees and third parties to protect its intellectual property, these confidentiality agreements are limited in duration, could be breached and may not provide meaningful protection of its trade secrets. Adequate remedies may not be available if there is an unauthorized use or disclosure of the Company's trade secrets and manufacturing expertise. In addition, others may obtain knowledge about the Company's trade secrets through independent development or by legal means. The failure to protect the Company's processes, technology, trade secrets and proprietary manufacturing expertise, methods and compounds could have a material adverse effect on its business by jeopardizing critical intellectual property.
Where a product formulation or process is kept as a trade secret, third parties may independently develop or invent and patent products or processes identical to such trade secret products or processes. This could have a material adverse effect on the Company's ability to make and sell products or use such processes and could potentially result in costly litigation in which the Company might not prevail. The Company could face intellectual property infringement claims that could result in significant legal costs and damages and impede its ability to produce key products, which could have a material adverse effect on its business, financial condition, and results of operations.
Product Development and Technological Change
There is no assurance that broad successful commercial applications for the Company's products may be feasible. Most, if not all, of the scientific and engineering data related to the Company's products has been generated by the Company's own laboratories or laboratory environments of the Company's partners, such as universities. There can be no assurance that laboratory data translates to or is representative in commercial applications.
Additionally, the industries in which the Company seeks to operate are characterized by rapid technological change and frequent new product introductions. Part of the Company's business strategy is to monitor such changes and take steps to remain technologically current, but there is no assurance that such a strategy will be successful. If the Company is not able to adapt to new advances in materials sciences, or if unforeseen technologies or materials emerge that are not compatible with the Company's or that could replace its products, the Company's revenues and business would likely be adversely affected.
Market Development and Growth
Failure to further develop the Company's key markets and existing geographic markets or to successfully expand its business in the future into new markets could have an adverse impact on sales growth and operating results. The Company's ability to further penetrate its key markets and the existing geographic markets in which it competes and/or aims to compete, and to successfully expand its business into other countries, is subject to numerous factors, many of which are beyond its control. There can be no assurance that efforts to increase market penetration in the Company's key markets and existing geographic markets will be successful. Failure to achieve these goals may have a material adverse effect on the Company's operating results.
Unpredictable Sales Cycles
The sales cycle for graphene products may range considerably from one to multiple years from the time a customer begins testing the Company's product until the time that they could be used in a commercial product. Timing of product introduction could vary significantly based on the target market.
Additionally, any demand for the Company's products based in whole or in part on the coronavirus (COVID-19) pandemic could materially change in the event the pandemic ends or decreases in severity. The Company has demonstrated little track record of success in completing customer development projects, which makes it difficult to evaluate the likelihood of future success. The sales and development cycles for the Company's products are subject to customer budgetary constraints, internal acceptance procedures, competitive product assessments, scientific and development resource allocations, and other factors beyond the Company's control. If the Company is not able to successfully accommodate these factors to achieve commercial success, the Company may be unable to achieve sufficient sales to reach profitability.
Government Regulation and Import/Export Controls
The Company's future operations, including development, and commencement and continuation of commercial production, require licenses, permits or other approvals from various federal, provincial, local and potentially foreign governmental authorities, and such operations are or will be governed by laws and regulations relating to production, exports, taxes, labor standards, occupational health and safety, waste disposal, toxic substances, prospecting, development, mining, land use, water use, environmental protection, land claims of indigenous people and other matters. Furthermore, in certain foreign jurisdictions, these regulatory requirements may be more stringent than those in Canada. Certain export control laws or economic sanctions laws may include restrictions or prohibitions on the sale or supply of certain products and services to embargoed or sanctioned countries, governments, persons and entities. In addition, various countries regulate the import of certain technology, including import and export permitting and licensing requirements, and have enacted or could enact laws that could limit the Company's ability to distribute its products. Changes in the Company's products, or future changes in export and import regulations may prevent any potential international customers from utilizing the Company's products globally or, in some cases, prevent the export or import of the Company's products to certain countries, governments, or persons altogether.
Any change in export or import regulations, economic sanctions, or related legislation, or change in the countries, governments, persons, or technologies targeted by such regulations, could result in decreased use of the Company's products in the future by, or in the Company's decreased ability to export or sell its products to, potential international customers. Any limitation on the Company's ability to export or sell its products would likely adversely affect the Company's future business, results of operations, and financial results.
Large volume production of graphene requires permits and approvals from various government authorities, and is subject to extensive federal, provincial, state, and local laws and regulations governing development, production, exports, taxes, labour standards, occupational health and safety, environment, and other matters. As graphene is a new chemical substance, production and sale of graphene may be subject to specific occupational health and safety and environment regulatory approvals in different jurisdictions including, without limitations, under the Canadian Environmental Protection Act (Canada), the Food and Drug Act (Canada), the Toxic Substances Control Act (USA), the Food Drug and Cosmetic Act (USA) and the Registration, Evaluation, Authorization and Restriction of Chemicals (Europe).
Health Canada also regulates certain markets into which the Company intends to supply products or license its intellectual property. There is no assurance that Health Canada or any other body will grant license for sales into markets it regulates. Each foreign jurisdiction for the Company's products is regulated and no assurance exists that sales of graphene-related products will be permitted. Any inability by the Company to obtain approval from Health Canada and/or international bodies could have a material adverse impact of the business of the Company.
The Company is also subject to consumer protection laws that may impact its sales and marketing efforts. These laws, as well as any changes in these laws, could make it more difficult for the Company to sell and market its products. These laws and regulations are subject to change over time and thus the Company must continue to monitor and dedicate resources to ensure continued compliance. Non-compliance with applicable regulations or requirements could subject the Company to investigations, sanctions, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties, or injunctions. If any governmental sanctions are imposed, or if the Company does not prevail in any possible civil or criminal litigation, its business, operating results, and financial condition could be materially adversely affected.
Additionally, in order for the Company to carry out its activities, any required licenses and permits must be obtained and kept current. There can be no assurance, however, that the Company will obtain on reasonable terms or at all the permits and approvals, and the renewals thereof, which it may require for the conduct of its future operations or that compliance with applicable laws, regulations, permits and approvals will not have an adverse effect on the Company's business plans. Possible future environmental and mineral tax legislation, regulations and actions could cause additional expense, capital expenditures, restrictions and delay on the Company's planned exploration and operations, the extent of which cannot be predicted.
Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions. Parties engaged in mining operations may be required to compensate those suffering loss or damage by reason of the mining activities and may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations.
Industry Competition
The Company seeks to compete with other graphene and manufacturing companies, in highly competitive markets. Some of the Company's competitors have substantially greater financial, marketing and other resources and higher market share than the Company has in certain products or geographic areas. As the markets for the Company's products expand, additional competition may emerge, and competitors may commit more resources to products which directly compete with the Company's products. There can be no assurance that the Company will be able to compete successfully with existing competitors or be able to develop any market for its products, or that its business will not be adversely affected by increased competition or by new competitors.
There is no assurance that the Company will continue to be able to compete successfully with its competitors in acquiring such properties or prospects and any such inability could have a material adverse effect on the Company's business and financial condition.
Lack of Trading Market for Graphene
Unlike commodity minerals such as copper, gold or silver, industrial minerals such as graphene precursor graphene materials and graphite do not have a metals exchange or an open market upon which to trade and therefore prices are not set in an open market or publicly traded market, and there can be no assurance that certain items can be sold or purchased at any time. As prices are set with private suppliers and private customers, it is difficult to predict what market prices may be at the time of any transaction. There can be no guarantees that the Company will be able to sell its graphene products in a profitable manner, or at all.
Shortages
The Company will be dependent on various supplies, equipment, parts and labour, and the services of contractors to carry out its business objectives. The availability and cost of such supplies, equipment, parts or labour or the services of contractors could have a material adverse effect on the Company's ability to successfully carry out its exploration and development activities.
Liquidity Concerns and Future Financing
The Company's approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due. As of December 31, 2023, the Company had a cash balance of $5,346,373 (March 31, 2023 - $10,357,317) to settle current liabilities of $1,595,376 (March 31, 2023 - $2,419,818). The Company is ultimately dependent on the commercial sales of its products. Any delay in the sales of such products could require additional financing. There can be no assurance that the Company will be successful in obtaining the required financing as and when needed. Volatile markets may make it difficult or impossible for the Company to obtain debt financing or equity financing on favourable terms, if at all. Failure to obtain additional financing on a timely basis may cause the Company to postpone or slow down its development plans or reduce or terminate some or all of its activities.
Reliance on Key Personnel
The Company's development to date has depended, and in the future, will depend largely on the efforts of key management and other key personnel. Loss of any of these people, particularly to competitors, could have a material adverse effect on the Company's business. Further, with respect to the future development of the Company's projects, it may become necessary to attract both international and local personnel for such development. The marketplace for key skilled personnel is becoming more competitive, which means the cost of hiring, training, and retaining such personnel may increase. Factors outside the Company's control, including competition for human capital and the high-level of technical expertise and experience required to execute this development will affect the Company's ability to employ the specific personnel required. The failure to retain or attract a sufficient number of key skilled personnel could have a material adverse effect on the Company's business, results of operations, and financial condition. The Company has not taken out and does not intend to take out "key man insurance" in respect of any directors, officer, or other employees.
Qualified Employees
Recruiting and retaining qualified personnel is critical to the Company's success. Especially if it relates to its graphene operations, finding skilled scientists and a sales team familiar with the subject matter is difficult. As the Company grows further, the need for skilled labour will increase. The number of persons skilled in the high-tech manufacturing business is limited and competition for this workforce is intense. This may adversely affect the business of the Company if it is unable to recruit and retain qualified personnel as and when required.
Cybersecurity Threats
The reliability and security of the Company's information technology ("IT") systems are important to the Company's business and operations. Although the Company has established and continues to enhance security controls intended to protect the Company's IT systems and infrastructure, there is no guarantee that such security measures will be effective in preventing unauthorized physical access or cyberattacks. A significant breach of the Company's IT systems could, among other things, cause disruptions in the Company's manufacturing operations (such as operational delays from production downtime, inability to manage the supply chain or produce products for customers, disruptions in inventory management), lead to the loss, destruction, corruption or inappropriate use of sensitive data, including employee information or intellectual property, result in lost revenues due to theft of funds or due to a disruption of activities, including remediation costs, or from litigation, fines and liability or higher insurance premiums, the costs of maintaining security and effective IT systems, which could negatively affect results of operations and the potential adverse impact of changing laws and regulations related to cybersecurity or result in theft of the Company's, its customers' or suppliers' intellectual property or confidential information. If any of the foregoing events (or other events related to cybersecurity) occurs, the Company may be subject to a number of consequences, including reputational damage, a diminished competitive advantage and negative impacts on future opportunities which could have a material adverse effect on the Company.
Share Price Fluctuations
The market price of securities of many companies, particularly development stage companies, experience wide fluctuations in price that are not necessarily related to the operating performance, underlying asset values or prospects of such companies. There can be no assurance that fluctuations in the Company's share price will not occur. In particular, the fluctuations may be exaggerated if the trading volume of the Company's common shares is low.
Cost Absorption and Purchase Orders
Especially as it relates to its activities in the transportation industry, and given the current trends in that industry, the Company is under continuing pressure to absorb costs related to product design and development, engineering, program management, prototypes and validation. In particular, OEMs are requesting that suppliers pay for the above costs and recover these costs through the piece price of the applicable component. Contract volumes for customer programs not yet in production are based on the Company's customers' estimates of their own future production levels. However, actual production volumes may vary significantly from these estimates due to a reduction in consumer demand or new product launch delays, often without any compensation to the supplier by its OEM customer. Typical purchase orders issued by customers do not require that they purchase a minimum number of the Company's products. For programs currently under production, the Company is generally unable to request price changes when volumes differ significantly from production estimates used during the quotation stage. If estimated production volumes are not achieved, the product development, design, engineering, prototype and validation costs incurred by the Company may not be fully recovered. Similarly, future pricing pressure or volume reductions by the Company's customers may also reduce the amount of amortized costs otherwise recoverable in the piece price of the Company's products. Either of these factors could have an adverse effect on the Company's profitability. While it is generally the case that once the Company receives a purchase order for products of a particular vehicle program it would continue to supply those products until the end of such program, customers could cease to source their production requirements from the Company for a variety of reasons, including the Company's refusal to accept demands for price reductions or other concessions.
Acquisitions
The Company could seek to acquire complementary businesses, assets, technologies, services or products, at competitive prices. The Company could pursue acquisitions in those product areas which were identified as key to the Company's long-term business strategy. However, as a result of intense competition in these strategic areas, the Company may not be able to acquire the targets needed to achieve its strategic objectives. The completion of such transactions poses additional risks to the Company's business.
Acquisitions are subject to a range of inherent risks, including the assumption of incremental regulatory/compliance, pricing, supply chain, commodities, labor relations, litigation, environmental, pensions, warranty, recall, IT, tax or other risks. Although the Company seeks to conduct appropriate levels of due diligence on acquisition targets, these efforts may not always prove to be sufficient in identifying all risks and liabilities related to the acquisition, including as a result of limited access to information; time constraints for conducting due diligence; inability to access target company facilities and/or personnel; or other limitations in the due diligence process. Additionally, the Company may identify risks and liabilities that cannot be sufficiently mitigated through appropriate contractual or other protections. The realization of any such risks could have a material adverse effect on the Company's operations or profitability. The benefit to the Company of previous and future acquisitions is highly dependent on the Company's ability to integrate the acquired businesses and their technologies, employees and products into the Company, and the Company may incur costs associated with integrating and rationalizing the facilities (some of which may need to be closed in the future).
The Company cannot be certain that it will successfully integrate acquired businesses or that acquisitions will ultimately benefit the Company. Any failure to successfully integrate businesses or failure of the businesses to benefit the Company could have a material adverse effect on its business and results of operations. Such transactions may also result in additional dilution to the Company's shareholders or increased debt. Such transactions may involve partners, and the formula for determining contractual sale provisions may be subject to a variety of factors that may not be easily quantified or estimated until the time of sale (such as market conditions and determining fair market value).
Launch and Operational Costs
The launch of new business, in an existing or new facility, is a complex process, the success of which depends on a wide range of factors, including the production readiness of the Company and its suppliers, as well as factors related to tooling, equipment, employees, initial product quality and other factors. A failure to successfully launch material new or takeover business could have an adverse effect on profitability. The Company's manufacturing processes are vulnerable to operational problems that can impair its ability to manufacture its products in a timely manner, or which may not be performing at expected levels of profitability. The Company's facilities and proposed facilities contain complex and sophisticated equipment that is used in its manufacturing processes. The Company could experience equipment failure in the future due to wear and tear, design error or operator error, among other things, which could have an adverse effect on profitability. From time to time, the Company may have some operating divisions which are not performing at expected levels of profitability. Significant underperformance of one or more operating divisions could have a material adverse effect on the Company's profitability and operations.
Material and Commodity Prices
Prices for key raw materials and commodities used in the production of graphene-based products, as well as energy prices, have proven to be volatile at certain times. To the extent that the Company is unable to fully mitigate its exposure to price change of key raw materials and commodities, particularly through engineering products with reduced content, by passing price increases to customers, or otherwise, such additional costs could have a material adverse effect on profitability. Increased energy prices could also have an impact on production or transportation costs which in turn could affect competitiveness.
Uninsured Risks
The Company maintains insurance to cover normal business risks. In the course of its manufacturing businesses, certain risks and, in particular, unexpected or unusual catastrophic events including explosions and fire may occur. It is not always possible to fully insure against such risks as a result of high premiums or other reasons. Should such liabilities arise, they could reduce or eliminate any future profitability and result in increasing costs and a decline in the value of the common shares of the Company.
Litigation
The Company has entered into legally binding agreements with various third parties, including supply, license, distribution, non-disclosure, consulting and partnership agreements. The interpretation of the rights and obligations that arise from such agreements is open to interpretation and the Company may disagree with the position taken by the various other parties resulting in a dispute that could potentially initiate litigation and cause the Company to incur legal costs in the future. Given the speculative and unpredictable nature of litigation, the outcome of any such disputes could have a material adverse effect on the Company's business.
Credit Risk
As at December 31, 2023, the Company's credit risk was primarily attributable to cash, accounts and other receivables and loan receivable. The Company issued a loan receivable during the year ended March 31, 2022, further increasing its exposure to credit risk. In June 2023, a partial payment of $2.5M was received against the loan receivable, decreasing credit risk. The remaining $0.5M was due September 29, 2023, but has been subsequently extended to March 29, 2024. The Company performed an analysis of collectivity and based on the collateral against the loan, determined that no provision was required. Financial instruments included in accounts and other receivables consisted of trade receivables generated through sales as well as recoverable Harmonized Sale Tax. The Company's cash is held with reputable financial institutions. Management believes that the credit risk with respect to financial instruments included in accounts and other receivables is remote.
Interest Rate Risk
The Company has cash and cash equivalent balances at federally regulated Canadian banks. The Company periodically monitors the investments it makes, the security of such investments and is satisfied with the credit ratings of its banks. The Company closely monitors interest rates to determine the appropriate course of action to be taken by the Company.
Price Risk
The Company is exposed to price risk with respect to commodity prices. The Company closely monitors commodity prices to determine the appropriate course of action to be taken by the Company.
Financial Capability and Additional Financing
The Company has limited financial resources and there is no assurance that sufficient additional funding will be available to enable it to fulfill its business objectives or obligations, on acceptable terms or at all. Unanticipated expenses and other developments could cause existing funds to be depleted sooner than expected. In the event that its existing cash resources are inadequate to fund operational expenses, and in order to fund the planned business objectives of the Company, the Company will be required to raise additional financing from external sources, such as debt financing, equity financing or joint ventures. The Company's ability to raise additional equity financing may be affected by numerous factors beyond the Company's control, including, but not limited to, adverse market conditions, commodity price changes and an economic downturn. Failure to obtain additional funding on a timely basis could result in delay or indefinite postponement of the development of the Company's business and could cause the Company to reduce or terminate its operations. Additional funds raised by the Company from treasury share issuances may result in significant dilution to existing shareholders, a depressive effect on the price of the common shares and/or a change of control.
Permits and Government Regulation
Although the Company believes it has all of the necessary permits to carry out the proposed business programs, the operations of the Company may require licenses and permits from time to time from various governmental authorities to carry out exploration and development at its projects or locations. Obtaining permits can be a complex, time-consuming process. There can be no assurance that the Company will be able to obtain the necessary licenses and permits on acceptable terms, in a timely manner or at all. The costs and delays associated with obtaining permits and complying with these permits and applicable laws and regulations could stop or materially delay or restrict the Company from continuing or proceeding with existing or future operations or projects. Any failure to comply with permits and applicable laws and regulations, even if inadvertent, could result in the interruption or closure of operations or material fines, penalties or other liabilities. In addition, the requirements applicable to sustain existing permits and licenses may change or become more stringent over time and there is no assurance that the Company will have the resources or expertise to meet its obligations under such licenses and permits.
Fluctuating Prices
The profitability of the Company's operations will be dependent upon the market price of the ZenGUARD™ masks and other products, their global acceptance and demand along with their regulatory approvals in other jurisdictions. The level of interest rates, rate of inflation, production costs, healthcare and consumer demand, and stability of exchange rates can all cause significant fluctuations in revenue. Such external economic factors are in turn influenced by changes in international purchasing patterns, COVID-19 pandemic situation, monetary systems and political developments.
Environmental Regulation
AGC's Albany Graphite Project is subject to environmental laws and regulations which may materially and adversely affect its future operations. These laws and regulations control the exploration and development of the Albany Graphite Project and their effects on the environment, including air and water quality, waste handling and disposal, the protection of different species of plant and animal life, and the preservation of lands. These laws and regulations will require AGC to acquire permits and other authorizations for certain activities. There can be no assurance that AGC will be able to acquire such necessary permits or authorizations on a timely basis, if at all.
Further, environmental legislation is evolving in a manner which will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. There is no assurance that future changes in environmental regulation, if any, will not adversely affect AGC's operations.
AGC is not currently insured against most environmental risks. Without such insurance, and if AGC becomes subject to environmental liabilities, the payment of such liabilities would reduce or eliminate its available funds or could exceed the funds AGC has to pay such liabilities and result in bankruptcy.
Economic Dependence on Supply Agreements
Currently, the Company has entered into a limited number of supply or sales agreements for the sale of its products. Until additional supply agreements are executed by the Company, the Company's revenues will be completely dependent on such agreements. If such agreements are terminated, or if less of the Company's product than anticipated is purchased pursuant to such agreements, this could have a material adverse impact on the Company's business, operations and results.
Legal proceedings and regulatory actions
Other than as set out below, the Company was not subject to any material legal proceedings during its most recently completed financial year, nor is the Company or any of its properties a party to or the subject of any such proceedings, and no such proceedings are known to be contemplated. The Company may be involved in routine, non-material litigation arising in the ordinary course of business, from time to time.
There were no penalties or sanctions imposed against the Company by a court relating to provincial and territorial securities legislation or by a securities regulatory authority during its most recently completed financial year, nor have there been any other penalties or sanctions imposed by a court or regulatory body against the Company, and the Company has not entered into any settlement agreements before a court relating to provincial and territorial securities legislation or with a securities regulatory authority.
The Company is involved in legal proceedings relating to claims involving a former director and officer of the Company. The claim was commenced in the Ontario Superior Court of Justice on September 26, 2018, by Aubrey Eveleigh and Eveleigh Geological Consulting. Mr. Eveleigh seeks damages in excess of $5,000,000 in connection with an employment dispute. The Company is defending the claim and the proceedings remain ongoing, though the Company believes that the risk of significant loss in respect of the litigation is remote.
The Company subsequently commenced a claim against Mr. Eveleigh and Eveleigh Geological Consulting on March 24, 2020, in the Ontario Superior Court of Justice (Commercial List), in connection with past breaches of Mr. Eveleigh's fiduciary duties. Mr. Eveleigh has defended the claim and the Company submits that it continues to defend the action and maintains that the allegations as set out in the claim are frivolous and without merit.
On November 28, 2022, following the discovery process, the Company amongst other things, amended its claim to: (i) seek an order that Mr. Eveleigh disgorge any benefits obtained as a result of his misconduct; (ii) seek an order cancelling certain common shares of the Company held by Mr. Eveleigh; (iii) seek an order declaring that Mr. Eveleigh has no entitlement to any royalty payments or success fees in connection with the Albany Graphite Project; and (iv) seek an order that declares a constructive trust in favour of the Company over any and all monies received, directly or indirectly. The next step is to proceed to trial.
On January 29, 2021, the Company was served with a statement claim issued by Graphene Composites Ltd. and is in the process of defending the action, which it considers frivolous and without merit.
The Company has considered the allegations as set out in the claim and, in light of the facts, the lack of clarity in the claim, and, based on discussions with the Company's litigation counsel, the assessment of the merits of the claim and the defenses available to the Company, and the Company's conclusion is that the risk of the Company suffering loss in respect of the claim is remote, and therefore the Company determined the claim not to be material or constituting "significant litigation" pursuant to the policies of the TSXV. The Company continues to view this claim as frivolous and will continue to vigorously defend itself against these allegations.
Proposed Transactions
As is typical of rapidly growing companies, the Company is continually reviewing partnerships, potential merger, acquisition, investment and joint venture transactions and opportunities, which includes opportunities with respect to the Albany Graphite Project.
As described under "Albany Graphite Project", the Company transferred to AGC the ownership of the Albany Graphite Project on May 23, 2023. The Company and AGC determined to await improved market conditions before proceeding with the AGC Financing and AGC's listing on a recognized Canadian stock exchange.
Employment Agreements
The Company has an employment agreement with its Chief Executive Officer. During the period ended December 31, 2023, the salary level for the individual pursuant to the employment agreement is $325,000 annually.
The Company has an employment agreement with its Executive Chairman. During the period ended December 31, 2023, the salary level for the individual pursuant to the employment agreement is $300,000 annually.
The Company has an employment agreement with its Chief Financial Officer. During the period ended December 31, 2023, the salary level for the individual pursuant to the employment agreement is $240,000 annually.
Contingent Liabilities
In September 2018, the Company received a statement of claim from a former employee, Aubrey Eveleigh and Eveleigh Geological Consulting. The Company is in the process of defending the claim but views the claim as unmeritorious. On March 24, 2020, the Company commenced an action claim against the former employee for relief relating to contracts and transactions between that employee and the Company, seeking to set aside those agreements and, where applicable, seeking disgorgement of unspecified amounts relating to benefits obtained under those agreements. Although there can be no assurance that any particular claim will be resolved in the Company's favour, management does not believe that the outcome of any claim or potential claims of which it is currently aware will have a material adverse effect on the Company.
Significant Accounting Policies
A detailed summary of all of the Company's significant accounting policies is included in Note 2 to the March 31, 2023, audited annual consolidated financial statements.
Internal Controls over Financial Reporting
Management is responsible for the design of internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements in accordance with IFRS. Based on regular reviews of its internal control procedures an evaluation of the effectiveness of the Company's internal control over financial reporting was conducted as of March 31, 2023, based on the criteria described in "Internal Control - Integrated Framework (2013)" issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has determined that its internal controls and procedures are not effective in providing reasonable assurance that financial information is recorded, processed, summarized and reported in a timely manner due to the identification of material weaknesses in internal control.
Material Weaknesses
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual financial statements will not be prevented or detected on a timely basis. The material weaknesses that we identified in our internal controls over financial reporting as of the year ended March 31, 2023, are still present at December 31, 2023, and are as follows:
Absence of effective activity-level controls over the purchase, ownership, shipment and recording of inventory.
Successful remediation will require the implementation of controls over the movement of purchased, held and sold inventory and the acquisition and adoption of an appropriate inventory software solution including training of production and accounting staff.
Lack of controls over the accurate recording of period revenue in accordance with International Financial Reporting Standards based on the underlying shipment terms and/or recognition criteria inherent in the contractual arrangements.
We have developed and commenced implementation of a remediation plan to address this weakness by strengthening our revenue recognition and financial reporting controls by adding new and additional resources with adequate technical knowledge and training.
Specific remediation plans and actions that the Company implemented during the year included the following:
• Modification of the Company's plant associate's job description to include procurement (fiscal Q2 2023). This was completed in fiscal Q3 2023
• Plant associate began tracking all inventory including monthly reconciliation (fiscal Q2 2023). This process commenced in fiscal Q3 2023;
• Controller (new hire engaged in fiscal Q3 2023) to assist both operations and finance teams in tracking inventory. New role created and controller commenced during fiscal Q3 2023;
• Training of operations and finance departments on Fishbowl inventory management software (fiscal Q3 & Q4 2023). A formal implementation team was formed made up of operations and finance personnel who meet weekly on training and the implementation of the inventory management software. This training is ongoing and fully implementation is not yet completed; and
• Implementation of formal Purchase Order processes (fiscal Q3 2023). Implemented and part of training of implementation team.
Lack of controls over the accurate valuation and presentation of the exploration and evaluation asset ("E&E asset") performed at September 30, 2021, did not properly consider that the asset could have value even if there were no immediate plans to continue with the Albany Project.
Changes to Internal Control over Financial Reporting
There have been no changes to the Company's internal controls over financial reporting that occurred during the three-month period ended December 31, 2023, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
Disclosure Controls
Management is also responsible for the design and effectiveness of disclosure controls and procedures to provide reasonable assurance that material information related to the Company is made known to the Company's certifying officers. The Company's Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures were ineffective as a result of the material weaknesses in internal control over financial reporting described above.
Form 52-109F2
Certification of Interim Filings
Full Certificate
I, Greg Fenton, Chief Executive Officer of Zentek Ltd., certify the following:
1. Review: I have reviewed the interim financial report and interim MD&A (together, the "interim filings") of Zentek Ltd. (the "issuer") for the interim period ended December 31, 2023.
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 framework: The control framework the issuer's other certifying officer(s) and I used to design the issuer's ICFR is Internal Control - Integrated Framework (COSO Framework).
5.2 ICFR - material weakness relating to design: The issuer has disclosed in its interim MD&A for each material weakness relating to design existing at the end of the interim period
(a) a description of the material weakness;
(b) the impact of the material weakness on the issuer's financial reporting and its ICFR; and
(c) the issuer's current plans, if any, or any actions already undertaken, for remediating the material weakness.
5.3 Limitation on scope of design: N/A.
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 October 1, 2023 and ended on December 31, 2023 that has materially affected, or is reasonably likely to materially affect, the issuer's ICFR.
Date: February 12, 2024
| /s/ Greg Fenton |
| Greg Fenton |
| Chief Executive Officer |
Form 52-109F2
Certification of Interim Filings
Full Certificate
I, Wendy Ford, Chief Financial Officer of Zentek Ltd., certify the following:
1. Review: I have reviewed the interim financial report and interim MD&A (together, the "interim filings") of Zentek Ltd. (the "issuer") for the interim period ended December 31, 2023.
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 framework: The control framework the issuer's other certifying officer(s) and I used to design the issuer's ICFR is Internal Control - Integrated Framework (COSO Framework).
5.2 ICFR - material weakness relating to design: The issuer has disclosed in its interim MD&A for each material weakness relating to design existing at the end of the interim period
(a) a description of the material weakness;
(b) the impact of the material weakness on the issuer's financial reporting and its ICFR; and
(c) the issuer's current plans, if any, or any actions already undertaken, for remediating the material weakness.
5.3 Limitation on scope of design: N/A.
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 October 1, 2023 and ended on December 31, 2023 that has materially affected, or is reasonably likely to materially affect, the issuer's ICFR.
Date: February 12, 2024
| /s/ Wendy Ford |
| Wendy Ford |
| Chief Financial Officer |