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
March, 2013
Commission File Number 0-26005
MICROMEM TECHNOLOGIES INC.
121 Richmond Street West, Suite 304, Toronto, ON M5H 2K1
[Indicate by checkmark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.]
Form 20-F [X] Form 40-F [ ]
[Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.]
Yes [ ] No [X]
[If "Yes" is marked, indicate below the file number assigned to the registrant in connection with
rule 12g3-2(b): N/A
This report on Form 6-K is hereby incorporated by reference in the registration statement on Form F-3 (Registration No. 333-134309) of Micromem Technologies Inc. and in the prospectus contained therein, and this report on Form 6-K shall be deemed a part of such registration statement from the date on which this report is filed, to the extent not superseded by documents or reports subsequently filed or furnished by Micromem Technologies Inc. under the Securities Act of 1933 or the Securities Exchange Act of 1934.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
March 28, 2013 | By | /s/ Joseph Fuda |
Name: Joseph Fuda | ||
Title: Chief Executive Officer |
Exhibit Index | |
Exhibit Number | Exhibit Description |
99.1 | Interim Financial Statements |
99.2 | Interim Management Discussion and Analysis |
99.3 | CEO Certification of Interim Filings |
99.4 | CFO Certification of Interim Filings |
99.5 | Press Release: Interim Filings |
Exhibit 99.1
Condensed Interim Consolidated Financial Statements of
MICROMEM TECHNOLOGIES INC.
For the Three Months Ended January 31, 2013 and 2012
(Unaudited expressed in U.S.dollars)
MICROMEM TECHNOLOGIES INC. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
TABLE OF CONTENTS |
1. |
Reporting Entity and Nature of Business |
2. |
Going Concern |
3. |
Basis of Presentation |
4. |
Summary of Significant Accounting Policies |
5. |
New Standards and Interpretations Issued but not yet Adopted |
6. |
Promissory Note Receivable |
7. |
Deferred Development Costs |
8. |
Intangible Assets and Patents |
9. |
Share Capital, Stock Options and Loss per Share |
10. |
Private Placements, Derivative Warrant Liability and Common Share Purchase Warrants |
11. |
Bridge Loans |
12. |
Contributed Surplus |
13. |
Income Taxes |
14. |
Expenses |
15. |
Management Compensation and Related Party Transactions |
16. |
Commitments |
17. |
Contingencies |
18. |
Financial Risk Management |
19. |
Segmented Information |
20. |
Subsequent Events |
2
MICROMEM TECHNOLOGIES INC. |
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION |
(Unaudited expressed in United States dollars) |
|
January 31, | October 31, | ||||
|
2013 | 2012 | ||||
Assets |
||||||
Current assets: |
||||||
Cash |
$ | 242,404 | $ | 245,029 | ||
Deposits and other receivables |
131,279 | 46,062 | ||||
Promissory note receivable (Note 6) |
- | - | ||||
|
373,683 | 291,091 | ||||
|
||||||
Property and equipment, net |
5,014 | 5,787 | ||||
Deferred development costs (Note 7) |
878,908 | 718,163 | ||||
Intangible assets, net (Note 8) |
111,275 | 116,113 | ||||
Patents, net (Note 8) |
50,041 | 49,124 | ||||
|
$ | 1,418,921 | $ | 1,180,278 | ||
|
||||||
Liabilities and Shareholders' Equity (Deficiency) |
||||||
Current liabilities: |
||||||
Bridge loans (Note 11) |
$ | 464,295 | $ | 442,934 | ||
Accounts payable and accrued liabilities |
592,615 | 579,830 | ||||
Derivative warrant liability (Note 10) |
981,794 | 1,061,544 | ||||
|
$ | 2,038,704 | $ | 2,084,308 | ||
Shareholders' Equity (Deficiency) |
||||||
Share capital: (Note 9) |
||||||
Authorized: |
||||||
2,000,000 special preference shares, redeemable, voting |
||||||
Unlimited common shares without par value |
||||||
Issued and outstanding: |
||||||
141,791,584 common shares (2012: 136,430,555) |
$ | 55,478,543 | $ | 54,728,239 | ||
Subscription received |
20,167 | - | ||||
Equity component of bridge loans |
1,557 | 1,557 | ||||
Contributed surplus (Note 12) |
26,851,352 | 26,634,177 | ||||
Accumulated other comprehensive income (loss) |
- | - | ||||
Deficit |
(82,971,402 | ) | (82,268,003 | ) | ||
|
(619,783 | ) | (904,030 | ) | ||
|
||||||
|
$ | 1,418,921 | $ | 1,180,278 |
"Joseph Fuda"
(Signed)
Joseph Fuda, Director
"David Sharpless"
(Signed)
David Sharpless, Director
See accompanying notes.
3
MICROMEM TECHNOLOGIES INC. |
CONDENSED INTERIM STATEMENTS OF CONSOLIDATED LOSS AND COMPREHENSIVE LOSS |
(Unaudited expressed in United States dollars) |
For the three months ended January 31, 2013 and 2012 |
|
2013 | 2012 | ||||
|
||||||
Costs and expenses (income): |
||||||
Administration |
$ | 119,899 | $ | 90,362 | ||
Professional, other fees and salaries (Note 14) |
329,021 | 324,609 | ||||
Stock based compensation (Note 9) |
168,386 | - | ||||
Research and development |
69,404 | 386 | ||||
Travel and entertainment |
37,373 | 25,211 | ||||
Amortization of property and equipment |
773 | 1,103 | ||||
Amortization of intangible assets and patents (Note 8) |
4,838 | 4,838 | ||||
Foreign exchange |
(1,130 | ) | (10,106 | ) | ||
Loss from operations |
728,564 | 436,403 | ||||
|
||||||
Other Expenses |
||||||
(Gain) loss on revaluation of embedded derivatives |
515 | - | ||||
(Gain) loss on revaluations of derivative warrants liability (Note 10) |
(313,001 | ) | (412,076 | ) | ||
|
||||||
|
||||||
Net loss and comprehensive loss |
$ | (416,078 | ) | $ | (24,327 | ) |
|
||||||
Deficit, beginning of period |
(82,268,003 | ) | (79,409,976 | ) | ||
|
||||||
Deficit, end of period |
$ | (82,971,402 | ) | $ | (79,471,503 | ) |
|
||||||
Loss per share - basic and diluted |
$ | (0.00 | ) | $ | (0.00 | ) |
|
||||||
Weighted average number of shares |
139,140,110 | 117,393,573 |
See accompanying notes.
4
MICROMEM TECHNOLOGIES INC. |
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS |
(Unaudited expressed in United States dollars) |
For the three months ended January 31, 2013 and 2012 |
|
2013 | 2012 | ||||
|
||||||
Cash flows from operating activities: |
||||||
Net loss |
$ | (416,078 | ) | $ | (24,327 | ) |
Adjustments to reconcile loss for the period to net cash used in operating activities: |
||||||
Amortization of patents and intangible assets |
4,838 | 4,838 | ||||
Amortization of property and equipment |
773 | 1,103 | ||||
Accretion expense |
13,074 | 680 | ||||
Stock based compensation |
168,386 | - | ||||
(Decrease) Increase in deposits and other receivables |
(85,217 | ) | (35,082 | ) | ||
Decrease in accounts payable and accrued liabilities |
12,784 | 48,835 | ||||
Gain (loss) on revaluation of derivative warrant liability |
(313,001 | ) | (412,076 | ) | ||
(Gain) loss on revaluation of embedded derivatives |
515 | - | ||||
Net cash used in operating activities |
(613,926 | ) | (416,029 | ) | ||
|
||||||
Cash flows from investing activities: |
||||||
Patents |
(5,241 | ) | - | |||
Deferred development costs |
(156,421 | ) | (101,518 | ) | ||
Net cash used in investing activities |
(161,662 | ) | (101,518 | ) | ||
|
||||||
Cash flows from financing activities: |
||||||
Issue of common shares |
745,023 | 214,478 | ||||
Subscription received |
20,167 | - | ||||
Bridge loans advances |
24,844 | 395,004 | ||||
Bridge loan repayments |
(17,071 | ) | (112,473 | ) | ||
Net cash provided by financing activities |
772,963 | 497,009 | ||||
|
||||||
Increase (decrease) in cash |
(2,625 | ) | (20,538 | ) | ||
|
||||||
Cash, beginning of period |
245,029 | 44,062 | ||||
|
||||||
Cash, end of period |
$ | 242,404 | $ | 23,524 |
See accompanying notes.
5
MICROMEM TECHNOLOGIES INC. |
Consolidated Statements of Changes in Shareholders' Equity |
(Expressed in United States dollars) |
Number of Shares | Share capital | Subscription received | Contributed surplus | Equity | Deficit | Total | |||||||||||||||
|
(Note 14) | (Note 17) | (Note 16) | ||||||||||||||||||
Balance as at November 01, 2011 (Note 6) |
116,149,718 | $ | 51,777,822 | $ | - | $ | 25,984,368 | $ | - | $ | (79,169,566 | ) | $ | (1,407,376 | ) | ||||||
|
|||||||||||||||||||||
Private placement of units for cash |
2,005,022 | 214,478 | - | - | - | 214,478 | |||||||||||||||
Subscription received |
- | - | - | ||||||||||||||||||
Warrants issued on private placements |
- | (71,042 | ) | 71,042 | - | - | - | ||||||||||||||
Warrants extended |
- | - | - | - | - | - | |||||||||||||||
Warrants exercised |
37,200 | (37,200 | ) | - | |||||||||||||||||
Reclassed for warrants exercised |
- | ||||||||||||||||||||
Subscription received |
- | - | - | - | - | - | |||||||||||||||
Fair value of warrants exercised |
- | (942 | ) | (67,466 | ) | - | - | (68,408 | ) | ||||||||||||
Equity portion of bridge loan |
- | - | 558 | 1,537 | - | 2,095 | |||||||||||||||
Net loss and comprehensive loss |
(24,327 | ) | (24,327 | ) | |||||||||||||||||
Balance at January 31, 2012 (Note 6) |
118,154,740 | 51,920,316 | - | 26,025,702 | 1,537 | (79,231,093 | ) | (1,283,538 | ) | ||||||||||||
|
|||||||||||||||||||||
Balance at November 01, 2012 (Note 6) |
136,430,555 | 54,728,239 | 26,634,177 | 1,557 | (82,268,003 | ) | (904,030 | ) | |||||||||||||
|
- | ||||||||||||||||||||
Private placement of units for cash |
1,967,117 | 316,373 | 316,373 | ||||||||||||||||||
Subscription received |
- | - | 20,167 | - | - | - | 20,167 | ||||||||||||||
Stock based compensation |
- | - | 168,386 | - | - | 168,386 | |||||||||||||||
Warrants issued on private placement |
- | (110,221 | ) | - | - | - | (110,221 | ) | |||||||||||||
Warrants extended |
- | - | 92,953 | - | (287,321 | ) | (194,368 | ) | |||||||||||||
Warrants exercised |
3,393,912 | 428,650 | - | - | 428,650 | ||||||||||||||||
Fair value of warrants exercised |
- | 115,502 | (44,164 | ) | - | - | 71,338 | ||||||||||||||
Net loss and comprehensive loss |
- | - | - | - | (416,078 | ) | (416,078 | ) | |||||||||||||
Balance at January 31, 2013 |
141,791,584 | $ | 55,478,543 | $ | 20,167 | $ | 26,851,352 | $ | 1,557 | $ | (82,971,402 | ) | $ | (619,783 | ) |
6
MICROMEM TECHNOLOGIES INC. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
For the three months ended January 31, 2013 and 2012 |
1. |
REPORTING ENTITY AND NATURE OF BUSINESS |
Micromem Technologies Inc. (Micromem or the Company) is a corporation incorporated under the laws of the Province of Ontario, Canada. The principal business address of the Company is 121 Richmond Street West, Suite 304, Toronto, Ontario, Canada. | |
The Company currently operates as a developer of magnetic sensor technology and applications of this technology. The Company has not generated revenue through January 31, 2013 and is devoting substantially all of its efforts to the development of its technologies. | |
These condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries: |
(i) |
Micromem Applied Sensors Technology, Inc. (MAST) incorporated in November 2007 and domiciled in Delaware, United States. MAST has the primary responsibility for the further development of the Companys technologies in conjunction with various strategic development partners. | |
(ii) |
7070179 Canada Inc., incorporated in October 2008 under the Canada Business Corporations Act in Ontario, Canada. The Company has assigned to this entity its rights, title and interests in certain patents which it previously held, directly in exchange for common shares of this entity. | |
(iii) |
Memtech International Inc., Bahamas; Memtech International (USA) Inc., Delaware, United States; Pageant Technologies (USA) Inc., United States; Pageant Technologies Inc., Barbados; and Micromem Holdings (Barbados) Inc., Barbados. All of these entities are inactive. |
These condensed consolidated financial statements were authorized for issuance and release by the Companys Board of Directors on March 29, 2013.
7
MICROMEM TECHNOLOGIES INC. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
For the three months ended January 31, 2013 and 2012 |
2. |
GOING CONCERN |
These condensed consolidated financial statements have been prepared on the going concern basis in accordance with International Financial Reporting Standards (IFRS), which presumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. | |
There are material uncertainties related to adverse conditions and events that cast significant doubt about the Companys ability to continue as a going concern for a reasonable period of time in future. During the three months ending January 31, 2013, the Company reported a net loss and comprehensive loss of $416,078 (2012: $24,327) a working capital deficiency (current assets less current liabilities excluding derivative warrant liability) of $683,227 and negative cash flow from operations of $613,926 (2012: 416,029). | |
The Company continues to focus its development efforts on existing projects in order to develop commercial applications for these projects. It will be necessary for the Company to raise additional funds for the continued development, testing and commercial exploitation of its technologies. To date, the Company has raised financing through successive unit private placements, through the exercise of common share stock options and through the exercise of common share purchase warrants. It has also secured periodic bridge loans. | |
The condensed consolidated financial statements do not include any adjustments to the amounts and classifications of the assets and liabilities that might be necessary should the Company be unable to continue in business. If the going concern assumption were not appropriate for these condensed consolidated financial statements then adjustments would be necessary to the carrying value of assets and liabilities, the reported expenses and the balance sheet classifications used. Such adjustments may be material. |
8
MICROMEM TECHNOLOGIES INC. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
For the three months ended January 31, 2013 and 2012 |
3. |
BASIS OF PRESENTATION |
a) |
Statement of compliance: | |
These condensed consolidated interim financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting. | ||
b) |
Basis of measurement: | |
The condensed consolidated financial statements have been prepared on the historical cost basis, except for financial instruments designated at fair value through profit and loss, which are stated at their fair value. | ||
c) |
Functional and presentation currency: | |
These condensed consolidated financial statements are presented in United States dollars (U.S. dollars), which is also the Companys functional currency. | ||
d) |
Use of estimates and judgments: | |
The preparation of the condensed consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. | ||
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. |
9
MICROMEM TECHNOLOGIES INC. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
For the three months ended January 31, 2013 and 2012 |
4. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
These condensed consolidated financial statements follow the same accounting policies and methods of application as set out in the audited consolidated financial statements for the year ended October 31, 2012. These statements should be read in conjunction with the audited consolidated financial statements for the year ended October 31, 2012. | |
5. |
NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET ADOPTED |
Certain new standards, interpretations, amendments and improvements to existing standards were issued by the IASB or International Financial Reporting Interpretations Committee (IFRIC) that are mandatory for future accounting periods. The standards impacted that are applicable to the Company are as follows: |
a) |
IFRS 9 Financial Instruments, was issued in November 2009 and contained requirements for financial assets. This standard addresses classification and measurement of financial assets and replaces the multiple category and measurement models in IAS 39, Financial Instruments Recognition and Measurement, for debt instruments with a new mixed measurement model having only two categories: |
Amortized cost and
Fair value through profit and loss
IFRS 9 also replaces the models for measuring equity instruments, and such instruments are either recognized at fair value through earnings or at fair value through other comprehensive income. Where such equity instruments are measured at fair value through other comprehensive income, dividends, to the extent not clearly representing a return of investment, are recognized in earnings; however, other gains and losses (including impairments) associated with such instruments remain in accumulated other comprehensive income indefinitely.
Requirements for financial liabilities were added in October 2010 and largely carried forward existing requirements in IAS 39, Financial Instruments Recognition and Measurement, except that fair value changes due to credit risk for liabilities designated at fair value through profit or loss would generally be recorded in other comprehensive income.
10
MICROMEM TECHNOLOGIES INC. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
For the three months ended January 31, 2013 and 2012 |
5. |
NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET ADOPTED (Contd) |
This standard is required to be applied for accounting periods beginning on or after January 1, 2015, with earlier adoption permitted. | ||
b) |
IFRS 10 Condensed consolidated financial Statements, requires an entity to consolidate an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Under existing IFRS, consolidation is required when an entity has the power to govern the financial and operating policies of an entity so as to obtain live entertainment from its activities. IFRS 10 replaces SIC-12, Consolidation Special Purpose Entities and parts of IAS 27, Consolidated and Separate Financial Statements. | |
This standard is required to be applied for accounting periods beginning on or after January 1, 2013, with earlier adoption permitted. | ||
c) |
IFRS 11 Joint Arrangements, requires a venture to classify its interest in a joint arrangement as a joint venture or joint operation. Joint ventures will be accounted for using the equity method of accounting whereas for a joint operation the venturer will recognize its share of the assets, liabilities, revenue and expenses of the joint operation. Under existing IFRS, entities have the choice to proportionately consolidate or equity account for interests in joint ventures. IFRS 11 supersedes IAS 31, Interests in Joint Ventures and SIC- 13, Jointly Controlled EntitiesNonmonetary Contributions by Venturers. | |
This standard is effective for annual periods beginning on or after January 1, 2013 with early adoption permitted. | ||
d) |
IFRS 12 Disclosure of Interests in Other Entities, such as joint arrangements, associates, special purpose vehicles and off balance sheet vehicles. The standard carries forward existing disclosures and also introduces significant additional disclosure requirements that address the nature of, and risks associated with, an entitys interests in other entities. | |
This standard is required to be applied for accounting periods beginning on or after January 1, 2013, with early adoption permitted. | ||
e) |
IFRS 13 Fair Value Measurement, is a comprehensive standard for fair value measurement and disclosure requirements for use across all IFRS standards. The new standard clarifies that fair value is the price that would be received to sell an asset, or paid to transfer a liability in an orderly transaction between market participants, at the measurement date. It also establishes disclosures about fair value measurement. Under existing IFRS, guidance on measuring and disclosing fair value is dispersed among the specific standards requiring fair value measurements and in many cases does not reflect a clear measurement basis or consistent disclosures. |
11
MICROMEM TECHNOLOGIES INC. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
For the three months ended January 31, 2013 and 2012 |
5. |
NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET ADOPTED (Contd) |
This standard is required to be applied for accounting periods beginning on or after January 1, 2013, with earlier adoption permitted. | ||
f) |
In addition, there have been amendments to existing standards including IAS 27, Separate Financial Statements, and IAS 28, Investments in Associates and Joint Ventures. IAS 27 addresses accounting for subsidiaries, jointly controlled entities and associates in non - condensed consolidated financial statements. IAS 28 has been amended to include joint ventures in its scope and to address the changes in IFRS 10 to IFRS 12. | |
This standard is required to be applied for accounting periods beginning on or after January 1, 2013, with earlier adoption permitted provided that IFRS 10, IFRS 11 and IFRS 12 are adopted at the same time. |
The Company is currently assessing the impact of the above standards.
12
MICROMEM TECHNOLOGIES INC. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
For the three months ended January 31, 2013 and 2012 |
6. |
PROMISSORY NOTE RECEIVABLE |
In April 2009, the Company advanced $200,000 to a private company incorporated in New Jersey and a strategic development partner of the Company. The Company and the private Company executed a promissory note with respect to the $200,000 advance stipulating the following terms and conditions: |
a) |
Maturity date of September 30, 2010. | |
b) |
Interest payable on a quarterly basis in arrears calculated from August 1, 2009 at a rate of 10%. In July 2011, the interest rate on the promissory note increased to 18%. | |
c) |
Secured by a first priority security interest over all of the assets of the private company. |
At October 31, 2012 the balance outstanding was $101,853 and this amount has been fully reserved. The Company served notice to the private company that it was demanding payments under the terms of the promissory note and the security agreement and has received judgment in its favor during the year ended October 31, 2012. The Company continues to pursue collection of this fully reserved note. The outstanding balance of principal and interest at January 31, 2013 is $106,512 which is fully reserved.
13
MICROMEM TECHNOLOGIES INC. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
For the three months ended January 31, 2013 and 2012 |
7. |
DEFERRED DEVELOPMENT COSTS |
The breakdown of development costs that have been capitalized is as follows: |
Cost | ||||
At November 1, 2011 | $ | 646,606 | ||
Net additions | 71,557 | |||
Year ended October 31, 2012 | $ | 718,163 | ||
At November 1, 2012 | $ | 718,163 | ||
Net additions | 160,745 | |||
Three months ended January 31, 2013 | $ | 878,908 |
8. |
INTANGIBLE ASSETS AND PATENTS |
Intangible assets comprise the costs which the Company has capitalized relating to the technical expertise and know-how that the Company has developed with respect to the commercialization efforts relating to its sensor technology. In 2011, the Company determined that it had sufficiently advanced its expertise and product knowledge relating to the general commercialization efforts for its sensor technology in multiple industry vertical applications. It anticipates that it will realize commercial economic benefits from the exploitation of these intangible assets in future. | |
There were no additions to intangible assets during the period ending January 31, 2013 (2012- nil). | |
The Company reported additions of $5,241 to patents during the quarter ended January 31, 2013 (2012-$26,650). |
14
MICROMEM TECHNOLOGIES INC. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
For the three months ended January 31, 2013 and 2012 |
9. |
SHARE CAPITAL, STOCK OPTIONS AND LOSS PER SHARE |
a) |
Share Capital | |
Authorized and outstanding: | ||
The Company has two classes of shares as follows: |
i) |
Special redeemable voting preference shares, 2,000,000 authorized, none are issued and outstanding. | |
ii) |
Common shares without par value an unlimited number authorized. |
Number of | Amount | ||||||
Shares | $ | ||||||
Balance at October 31, 2011 | 116,149,718 | $ | 51,774,555 | ||||
Private placement of units for cash (Note 15) | 6,344,899 | 1,040,899 | |||||
Warrants exercised | 12,075,858 | 1,499,713 | |||||
Warrants issued on private placements (Note 15) | - | (356,364 | ) | ||||
Fair value of warrants exercised | - | 558,993 | |||||
Share issued on conversion of bridge loans (Note 16) | 1,860,080 | 226,900 | |||||
Financing costs | - | (16,457 | ) | ||||
Balance at October 31, 2012 | 136,430,555 | $ | 54,728,239 | ||||
Private placement of units for cash (Note 15) | 1,967,117 | 316,373 | |||||
Warrants exercised | 3,393,912 | 428,650 | |||||
Warrants issued on private placements (Note 15) | - | (110,221 | ) | ||||
Fair value of warrants exercised | - | 115,502 | |||||
Balance at January 31, 2013 | 141,791,584 | $ | 55,478,543 |
15
MICROMEM TECHNOLOGIES INC. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
For the three months ended January 31, 2013 and 2012 |
9. |
SHARE CAPITAL, STOCK OPTIONS AND LOSS PER SHARE (Cont) |
b) |
Stock Options | |
A summary of the status of the Companys fixed stock option plan through January 31, 2013 and changes during the periods is as follows: |
Options | Weighted average | ||||||
(000 | ) | exercise price | |||||
Outstanding, November 01, 2011 | 11,175 | 0.47 | |||||
Granted | 2,000 | 0.35 | |||||
Expired | (540 | ) | (44 | ) | |||
Forfeited | (2,720 | ) | (1.20 | ) | |||
Outstanding, October 31, 2012 | 9,915 | 0.24 | |||||
Granted | 1,090 | 0.30 | |||||
Expired | (610 | ) | (0.40 | ) | |||
Outstanding, January 31, 2013 | 10,395 | 0.24 |
During the period ended January 31, 2013 the Company issued a total of 1,090,000 (2012 nil) stock options to officers, directors and employees. The Company has the following stock options outstanding at January 31, 2013:
Date of issue | # Issued | Strike Price | Expiry Date | |||||||
April 5, 2011 | 125,000 | 0.35 | April 5, 2016 | |||||||
October 31, 2011 | 7,275,000 | 0.20 | October 31, 2016 | |||||||
April 10, 2012 | 1,905,000 | 0.35 | April 10, 2017 | |||||||
January 22, 2013 | 1,090,000 | 0.30 | January 22, 2018 | |||||||
10,395,000 |
For the three months ended January 31, 2013 the Company recorded a total expense of $168,386 (2012: $-nil) with respect to the issuance of these options, calculated in accordance with the Black Scholes option-pricing model.
16
MICROMEM TECHNOLOGIES INC. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
For the three months ended January 31, 2013 and 2012 |
10. |
PRIVATE PLACEMENTS, DERIVATIVE WARRANT LIABILITY AND COMMON SHARE PURCHASE WARRANTS |
a) |
Private Placements | |
In the quarter ended January 31, 2013 the Company completed private placement financings pursuant to prospectus and registration exemptions set forth in applicable securities law: |
Three Months | |||||||
January 31,2013 | January 31,2012 | ||||||
Common shares issued | 1,967,117 | 2,005,022 | |||||
Warrants issued | 1,967,117 | 2,005,022 | |||||
Proceeds realized | $ | 317,198 | $ | 214,478 |
In the quarter ended January 31, 2013 the Company realized proceeds of $428,650 from the exercise of 3,393,912 common share purchase warrants. (2012 - $Nil proceeds realized). | ||
| ||
b) |
Derivative Warrant Liability | |
| ||
The following summarizes the change in derivative warrant liability: |
January 31, | October 31, | ||||||
2013 | 2012 | ||||||
Balance, beginning of period | $ | 1,061,544 | $ | 1,178,691 | |||
Fair value assigned in warrants in units issuances | 110,221 | 289,367 | |||||
Fair value assigned in warrants extended | 194,368 | 963,896 | |||||
Fair value assigned to warrants issued on settlements of debt | - | 306,061 | |||||
Fair value transferred to share capital for warrants exercised | (71,338 | ) | (348,948 | ) | |||
(Gain) loss on revaluation of warrants | (313,001 | ) | (1,327,523 | ) | |||
$ | 981,794 | $ | 1,061,544 |
17
MICROMEM TECHNOLOGIES INC. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
For the three months ended January 31, 2013 and 2012 |
10. |
PRIVATE PLACEMENTS, DERIVATIVE WARRANT LIABILITY AND COMMON SHARE PURCHASE WARRANTS (Contd) |
c) | Share Purchase Warrants | |
A summary of the outstanding common share purchase warrants and the changes during the period is as follows: |
Weighted | ||||||||||
average exercise | Proceeds | |||||||||
Warrants | price | Realized | ||||||||
Balance outstanding at October 31,2011 | 26,672,637 | $ | 0.23 | |||||||
Exercised | (12,075,858 | ) | $ | (0.12 | ) | 1,499,713 | ||||
Expired | (3,108,792 | ) | $ | (0.15 | ) | |||||
Granted | 8,204,981 | $ | 0.19 | |||||||
Balance outstanding at October 31, 2012 | 19,692,968 | $ | 0.23 | - | ||||||
Exercised | (3,393,912 | ) | $ | 0.13 | 428,650 | |||||
Expired | - | - | - | |||||||
Granted | 1,967,117 | $ | 0.16 | - | ||||||
Balance at January 31, 2013 | 18,266,173 | $ | 0.29 |
The weighted average share price on the date of exercise was $0.13 (2012 - $0.12) .
11. |
BRIDGE LOANS |
(a) |
On December 2, 2011, the Company secured $285,000 CDN of bridge loans from a group of arms length investors with maturities of six months. The loans are unsecured, bear interest at a rate of 2% per month (effective interest rate 26%) and are convertible at the holders option at $0.12 USD per unit. Each unit upon conversion includes one common share and one common share purchase warrant with a one year expiry and an exercise price of $0.12 USD. The term of the loan was extended on a month to month basis in July 2012. |
18
MICROMEM TECHNOLOGIES INC. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
For the three months ended January 31, 2013 and 2012 |
11. |
BRIDGE LOANS (Contd) |
(b) |
On September 4, 2012, the Company secured $125,000 CDN of bridge loans from a group of arms length investors with maturities of six months. The loans are unsecured, bear interest at a rate of 2% per month (effective interest rate 26%) and are convertible at the holders option at $0.18 CDN per share. Each unit, upon conversion, includes one common share and one common share purchase warrant with a one year expiry and an exercise price of $0.22 CDN. |
The outstanding bridge loans at October 31, 2012 are summarized as follows:
Loan | Loan | Total | ||||||||
Principal | 284,514 | 81,194 | 365,708 | |||||||
Embedded derivative | - | 44,850 | 44,850 | |||||||
Interest Accrued | 62,403 | 4,816 | 67,219 | |||||||
Interest Paid | (56,903 | ) | - | (56,903 | ) | |||||
Accretion Expense | 1,557 | 26,161 | 27,718 | |||||||
Gain on revaluation of embedded derivative | - | (4,101 | ) | (4,101 | ) | |||||
Equity Portion of Bridge Loan - Conversion Feature | (1,557 | ) | - | (1,557 | ) | |||||
Carrying value @ October 31, 2012 | 290,014 | 152,920 | 442,934 |
The outstanding bridge loans at January 31, 2013 are summarized as follows:
Loan | Loan | Total | ||||||||
Principal | 284,514 | 81,194 | 365,708 | |||||||
Embedded derivative | - | 44,850 | 44,850 | |||||||
Interest Accrued | 79,474 | 12,589 | 92,063 | |||||||
Interest Paid | (73,974 | ) | - | (73,974 | ) | |||||
Accretion Expense | 1,557 | 39,234 | 40,791 | |||||||
Gain on revaluation of embedded derivative | - | (3,586 | ) | (3,586 | ) | |||||
Equity Portion of Bridge Loan - Conversion Feature | (1,557 | ) | - | (1,557 | ) | |||||
Carrying value @ January 31, 2013 | 290,014 | 174,281 | 464,295 |
19
MICROMEM TECHNOLOGIES INC. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
For the three months ended January 31, 2013 and 2012 |
12. |
CONTRIBUTED SURPLUS |
Balance outstanding at November 01, 2012 | 25,986,276 | |||
Stock based compensation expense relating to stock options issued Note 14) | 430,856 | |||
Common share purchase warrants | ||||
(a) Issued | 66,997 | |||
(b) Extended | 358,983 | |||
Fair value of warrants exercised | (208,935 | ) | ||
Balance at October 31, 2012 | 26,634,177 | |||
Stock based compensation expense relating to stock options issued (Note 14) | 168,386 | |||
Common share purchase warrants | ||||
(a) Issued | - | |||
(b) Extended | 92,953 | |||
Fair value of warrants exercised | (44,164 | ) | ||
Balance at January 31, 2013 | 26,851,352 |
20
MICROMEM TECHNOLOGIES INC. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
For the three months ended January 31, 2013 and 2012 |
13. |
INCOME TAXES |
(a) |
The Company has non-capital losses of approximately $20.0 million available to reduce future taxable income, the benefit of which has not been recognized in these consolidated financial statements. As of October 31, 2012 the tax losses expire as follows: |
Other | ||||||||||
Canada | foreign | Total | ||||||||
2014 | $ | 978,133 | $ | - | $ | 978,133 | ||||
2015 | 3,212,751 | - | 3,212,751 | |||||||
2022 | - | 7,301 | 7,301 | |||||||
2023 | - | 9,667 | 9,667 | |||||||
2025 | - | 14,471 | 14,471 | |||||||
2026 | 2,403,497 | 5,254 | 2,408,751 | |||||||
2027 | 2,021,152 | 3,459 | 2,024,611 | |||||||
2028 | 10,483 | 55,519 | 66,002 | |||||||
2029 | 2,067,331 | 463,610 | 2,530,941 | |||||||
2030 | 2,794,877 | 1,471,700 | 4,266,577 | |||||||
2031 | 1,683,826 | 421,724 | 2,105,550 | |||||||
2032 | 1,991,469 | 382,177 | 2,373,646 | |||||||
$ | 17,163,519 | $ | 2,834,882 | $ | 19,998,401 |
In addition the Company has available capital loss carry forwards of approximately $1.7 million to reduce future taxable capital gains, the benefit of which has not been recognized in these consolidated financial statements. These losses carry forward indefinitely.
21
MICROMEM TECHNOLOGIES INC. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
For the three months ended January 31, 2013 and 2012 |
14. |
EXPENSES Administration |
The components of general and administration expenses are as follows ($000): |
2013 | 2012 | ||||||
General and administrative | 23 | 12 | |||||
Rent and occupancy cost | 23 | 34 | |||||
Interest income | (5 | ) | (5 | ) | |||
Interest expense | 25 | 15 | |||||
Accretion expense | 13 | 1 | |||||
Office insurance | 16 | 18 | |||||
Telephone | 5 | 4 | |||||
Investor relations, listing and filling fees | 20 | 11 | |||||
120 | 90 |
Professional, other fees and salaries
The components of professional, other fees and salaries expenses are as follows ($000):
2013 | 2012 | ||||||
Professional fees | 38 | 51 | |||||
Consulting fees | 203 | 176 | |||||
Salaries and benefits | 88 | 98 | |||||
329 | 325 |
22
MICROMEM TECHNOLOGIES INC. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
For the three months ended January 31, 2013 and 2012 |
15. |
MANAGEMENT COMPENSATION AND RELATED PARTY TRANSACTIONS |
(a) |
Chairman: | |
In January 2011, the Board of Directors extended the Chairmans contract on a month to month basis reflecting annual compensation amount of $150,000 CDN. | ||
In the quarter ending January 31, 2013 the Chairman was awarded a total of 75,000 options at a strike price of $.30 per share (2012: Nil). | ||
The total compensation paid to the Chairman during the quarter ended January 31 is summarized as follows: |
Stock Based | |||||||
Compensation | |||||||
Cash Compensation | Expense | ||||||
$ | $ | ||||||
2013 | 37,678 | 11,586 | |||||
2012 | 37,218 | - |
(b) |
Management and consulting fees: | |
Included in professional fees as reported are management and consulting fees paid or payable to individuals (or companies controlled by such individuals) who served as officers and directors of the Company. The total compensation paid to such parties during the quarter ended January 31, as follows. |
Stock Based | |||||||
Compensation | |||||||
Cash Compensation | Expense | ||||||
$ | $ | ||||||
2013 | 142,387 | 23,172 | |||||
2012 | 158,483 | - |
23
MICROMEM TECHNOLOGIES INC. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
For the three months ended January 31, 2013 and 2012 |
16. |
COMMITMENTS |
(a) |
License Agreement: |
Reference should be made to the License Agreement disclosures in the audited consolidated financial statements as of October 31, 2012. The license was executed in 2005 between the Company and the University of Toronto and the Ontario Centres of Excellence. The Company is committed to royalties of up to $1 million based on future revenues that it may receive relating to certain technology that was developed by the Company in conjunction with the University of Toronto. To date, the Company reports nil revenues and no liability under the license agreement.
(b) | Operating Leases: | |
The Company secured new leased premises in June 2012. The lease term is for 5 years and stipulates base monthly rental expenses of $3,800 CDN. Lease commitments for this premise are as follows: |
Less than 1 year | $ | 47,000 | ||
2-5 years | 164,600 | |||
More than 5 years | - | |||
$ | 211,600 |
17. |
CONTINGENCIES |
The Company has agreed to indemnify its directors and officers and certain of its employees in accordance with the Companys by-laws. The Company maintains insurance policies that may provide coverage against certain claims. |
24
MICROMEM TECHNOLOGIES INC. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
For the three months ended January 31, 2013 and 2012 |
18. |
FINANCIAL RISK MANAGEMENT |
(a) |
Financial Risk Management | |
The Company is exposed to a variety of financial risks by virtue of its activities: market risk (including foreign exchange risk and interest rate risk) and liquidity risk. The overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on financial performance. Risk management is carried out under policies approved by the Board of Directors. Management is charged with the responsibility of establishing controls and procedures to ensure that financial risks are mitigated in accordance with the approved policies. | ||
(b) |
Market Risk: |
i. |
Foreign Exchange Risk: | |
The Company currently incurs expenses in Canadian dollars. The total monetary financial instruments are in a net liabilities position. Management monitors the Canadian net liability position on a periodic basis throughout the course of the year and adjusts the total net monetary liability balance accordingly. | ||
The condensed consolidated financial statements include balances that are denominated in Canadian dollars as follows: |
2013 | 2012 | ||||||
Cash and cash equivalents | $ | 212,373 | $ | 10,643 | |||
Deposits and other receivables | 130,925 | 67,605 | |||||
Accounts payable and accrued liabilities | 178,969 | 632,135 | |||||
Bridge loan | 202,771 | 100,783 |
25
MICROMEM TECHNOLOGIES INC. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
For the three months ended January 31, 2013 and 2012 |
18. |
FINANCIAL RISK MANAGEMENT (Contd) |
(b) |
Market Risk: (Contd) |
ii. |
Foreign Exchange Risk: | |
A 10% strengthening of the US dollar against the Canadian dollar would have increased the net equity by approximately $3,000 (2012 approximately $71,000) due to a reduction in the value of net liability balance. A 10% weakening of the US dollar against the Canadian dollar would have had the equal but opposite effect. | ||
iii. |
Interest Rate Risk: | |
Cash flow interest rate risk is the risk that the future cash flow of a financial instrument will fluctuate because of changes in market interest rates. | ||
Financial assets and financial liabilities with variable interest rates expose the Company to cash flow interest rate risk. The Companys cash and promissory note receivable earn interest at market rates. The Company manages its interest rate risk by maximizing the interest income earned on excess funds while maintaining the liquidity necessary to conduct operations on a day-to-day basis. Fluctuations in market rates of interest may have an impact on the Companys results of operations. | ||
The Company is exposed to interest price risk on its interest bearing bridge loans as the interest rate is fixed. |
(c) |
Liquidity Risk: | |
Liquidity risk is the risk that the Company will not be able to meet its obligations as they fall due. | ||
The Company manages its liquidity risk by forecasting cash flows from operations and anticipated investing and financing activities. Senior management is actively involved in the review and approval of planned expenditures. | ||
All financial liabilities are due within 1 year from the balance sheet at January 31, 2013. |
26
MICROMEM TECHNOLOGIES INC. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
For the three months ended January 31, 2013 and 2012 |
18. |
FINANCIAL RISK MANAGEMENT (Contd) |
(d) |
Credit Risk: | |
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Companys cash and cash equivalents, deposit and other receivables. The carrying amount of financial assets represents maximum credit exposure. | ||
As at January 31, 2013, the Company reports a working capital deficiency of $683,227 (measured as current assets less current liabilities excluding the derivative warrant liability) and has certain financial commitments (Notes 16 and 17), the majority of which are due within one year. It must continue to raise financing in order to meet its current obligations. |
19. |
SEGMENTED INFORMATION |
There is one operating segment of the business being the development and commercialization efforts with respect to the Company's proprietary memory and sensor applications. Currently, the predominant market segment that the Company is pursuing is the North American market for such technology. | |
20. |
SUBSEQUENT EVENTS |
The Company reports the following as subsequent events: |
i) |
The Company issued 3,803,654 common shares via unit private placements and received proceeds of $609,585. Each unit consisted of one common share at an average price of $0.16 per share and one common share purchase warrant at an average strike price of $0.22 per warrant. The common share purchase warrants issued expire in 12 months from the date of issuance. | |
ii) |
The Company received proceeds of $115,000 from the exercise of 743,334 common share purchase warrants. |
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27
MICROMEM TECHNOLOGIES INC. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE THREE MONTHS ENDED JANUARY 31, 2013 |
PREPARED AS OF MARCH 29, 2013 |
INTRODUCTION
The following sets out the Management's Discussion and Analysis ("MD&A") of the financial position and result of operations for the three months ended January 31, 2013 of Micromem Technologies Inc. (the "Company", "Micromem" or "we"). The MD&A should be read in conjunction with the Company's audited consolidated financial statements and accompanying notes for the fiscal years ending October 31, 2012 which are prepared in accordance with International Financial Reporting Standards (IFRS). All financial analysis, data and information set out in this MD&A are unaudited. Additional information regarding the Company is available on the SEDAR website at www.sedar.com.
Certain information provided by the Company in this MD&A and in other documents publicly filed throughout the year that are not recitation of historical facts may constitute forward-looking statements. The words "may", "would", "could", "will", "likely", "estimate", "believe", "expect", "forecast" and similar expressions are intended to identify forward-looking statements.
Readers are cautioned that such statements are only predictions and the actual events or results may differ materially. In evaluating such forward-looking statements, readers should specifically consider the various factors that could cause actual events or results to differ materially from those indicated by such forward-looking statements.
FORWARD LOOKING STATEMENTS
This MD&A contains forward-looking statements and forward looking information within the meaning of applicable Canadian securities legislation (forward looking statements). Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions, potentials, future events or performance (often, but not always, using words or phrases such as believes, expects or does not expect, is expected, anticipates or does not anticipate, or intends or stating that certain actions, events or results may, could, would, might or will be taken or achieved) are not statements of historical fact, but are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company, or developments in the Companys business or in its industry, to differ materially from the anticipated results, performance, achievements or developments expressed or implied by such forward-looking statements. Forward-looking statements include disclosure regarding possible events, conditions or results of operations that are based on assumptions about future conditions, courses of action and consequences. Forward-looking statements may also include, without limitation, any statement relating to future events, conditions or circumstances. The Company cautions you not to place undue reliance upon any such forward-looking statements, which speak only as of the date they are made. Forward-looking statements relate to, among other things, the successful commercialization of our technology, comments about potential future revenues, joint development agreements and expectations of signed contracts with customers, etc. A variety of inherent risks, uncertainties and factors, many of which are beyond the Companys control, affect the operations, performance and results of the Company and its business, and could cause actual results to differ materially from current expectations of estimated or anticipated events or results. Some of these risks and uncertainties include the risk of not securing required capital in future, the risks of not successfully concluding agreements with potential partners on a timely basis, the risks associated with commercializing and bringing to market our technology. These risks are affected by numerous factors beyond the Company's control: the existence of present and possible future government regulation, the significant and increasing competition that exists in the Company's business sector, uncertainty of revenues, markets and profitability, as well as those other factors discussed in this MD&A report. This list is not exhaustive of the factors that may affect any of the Companys forward-looking statements and reference should also be made to the Companys Annual Information Form (prepared and filed in the form of a Form 20-F Annual Report pursuant to The Securities Exchange Act of 1934) for a description of additional risk factors.
1
Although the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forwardlooking statements. The Company does not undertake to update any forward-looking statements that are incorporated by reference herein, except in accordance with applicable securities law.
************************************************
2
MICROMEM TECHNOLOGIES INC. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE THREE MONTHS ENDED JANUARY 31, 2013 |
PREPARED AS OF MARCH 29, 2013 |
(Unless other indicated dollar amounts reported are stated in U.S. dollars) |
TABLE OF CONTENTS: | ||
1. | Corporate History | |
2. | Overview of quarter ending January 31, 2013 | |
3. | Going Concern | |
4. | Select Financial Information and Disclosures | |
a. | Financial Position at January 31, 2013 | |
b. | Discussion of Operating Results | |
c. | Unaudited Quarterly Financial Information | |
5. | Liquidity and Capital Resources | |
6. | Risks and Uncertainties Overview | |
7. | Critical Accounting Policies | |
8. | Financial Instruments | |
9. | Commitments and Contingencies | |
10. | Disclosure Controls/Internal Controls | |
11. | Off Balance Sheet Arrangements | |
12. | Transactions with Related Parties | |
13. | Share Capital | |
14. | Management and Board of Directors | |
15. | Subsequent Events |
Refer also to attached Tables 1-4 as supplementary information.
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3
MICROMEM TECHNOLOGIES INC. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE THREE MONTHS ENDED JANUARY 31, 2013 |
PREPARED AS OF MARCH 29, 2013 |
1. CORPORATE HISTORY
Micromem Technologies Inc. (Micromem or the Company) is a development stage Company that has developed proprietary MRAM technology for both memory and sensor applications. The Companys shares are traded on the NASDAQ over the counter Bulletin Board (OTCBB) under the symbol MMTIF and on the CNSX under the symbol MRM. In 2008, the Company incorporated Micromem Applied Sensor Technologies Inc. (MAST) for the purpose of moving forward with the planned commercialization of its technology.
MAST was formed in response to a contract with BAE System in Nashua New Hampshire. BAE System's interest was in the potential to utilize Micromems MRAM in a radiation-hardened environment for military applications, where the initial contract with BAE Systems was to use the patented Micromem MRAM to design and manufacture a memory cell from a GaAs foundry. During this work it was determined that the Hall sensor, which was integral to the MRAM design, had several performance characteristics that by itself, as a product, would potentially create value for MAST.
A decision was taken to internally develop, at our own cost, proof of concepts for products that we had identified through our marketing to have potential market value. These included a magnetic gold sensor for drilling plug analysis, an oil condition sensor for automotive use and an oil/gas aerial exploration platform. Provisional patents were created on this work.
A potential revenue-generating opportunity emerged in August 2010 when Lux Research contacted us on behalf of their client, a world leader in oil production. They were looking for companies that could create extremely small foot print magnetic sensor solutions for down hole use in production oil fields. MAST was subsequently engaged by this client to develop and deliver a sensor platform for detecting 4 nanometer magnetic particles in a flowing oil stream at a concentration less than 1 ppb. Subsequent press releases on this contract created positive interest in MAST and another second potential revenue generating opportunity came in 2011 from GSI Westwind, a supplier for high speed air bearing motors. MAST replaced the incumbent Hall sensor supplier and delivered a unique circuit board form factor that incorporated the smallest Hall sensor in the world.
In 2011 MAST became aware of the Ninesigma Open Innovation model. Ninesigma's core services connect innovation-seeking companies to the best solutions, capabilities and partners around the world. MAST's relationship with Ninesigma has provided us common ground access to the Global Fortune 1000 companies and has resulted in a robust sales proposal pipeline and the first time in the Company's history an ability to forecast revenue.
4
To date Micromem has funded all research and development. It is expected that future development will be client funded. At MAST, our main priority is to provide customers with unparalleled sensor based platform solutions that address their difficult business problems. A recent study by NineSigma states that less than 3% of the Fortune 1000 global companies admit that they have sufficient in house talent and knowledge to be able to take advantage of technologies that can help them improve their business. Our sensor platform solutions address three primary areas of creating value for our clients:
MAST intends to purse specific, definable, market segments with a multi-tiered, multi-channel approach. We expect to leverage our technologies with a licensing agreement in certain key areas and a direct sales and distribution strategy in other areas using established distributors. Our sales and revenue plan includes looking to foreign markets through established distributors or strategic partners.
To finance its initiatives, the Company has relied on private placement financings, the exercise of stock options, common share purchase warrants and bridge loans. In total, the Company secured approximately $11.5 million of financing for its operations between 2009 2012.
5
2. OVERVIEW OF QUARTER ENDING JANUARY 2013.
(a) |
The Company raised total financing of $765,170, through a number of Unit private placement financings, from the exercise of common share warrants and from the issuance of bridge loans. | |
(b) |
The Company issued technical updates/releases on the status of its various projects that are under development and on certain product prototype testing that was completed successfully. | |
(c) |
The Company continues to develop and build a substantial pipeline of development opportunities that it anticipates will translate into additional development contracts in future licensing and sales opportunities. | |
(d) |
The Company continues the process of securing the sponsorship of an investment banking firm to apply for listing on the TSX Venture Exchange. | |
(e) |
The Companys significant current project initiatives include the following: |
GSI Westwind: Commercial production is expected to begin in 2013. First articles of production have been tested and approved by our client. We are shipping in the first quarter of 2013 the first tranche of volume production. We also plan to aggressively market our speed control circuit board design to other high precision motor suppliers.
Oil Sensor: Client testing of our proof of concept at their facility has been completed. A multi-year exclusive product delivery proposal has been submitted for client approval.
International Energy Company: The Company has worked with this customer since 2011 and has developed sophisticated sensor measuring technology for use in oil and gas wells. The beta version of this product is ready for shipping to the clients facility. The delay in this milestone event has been the lack of availability of suitable nanoparticles for full system testing of our device. The plan is to complete the field trials at the clients facilities in the first half of 2013 and then begin deployment of our product onto field well sites.
Offshore Exploration/Gas and Oil Well Monitoring: The Company has engaged 2 large international energy companies in 2012 in discussions and negotiations for use of its sensor technology for diagnostic/control and monitoring systems prototype units. The Company expects to advance these discussions towards development prototypes in 2013 with the expectation of commercial revenues in 2014.
Early Breast Cancer Detection: The Company successfully demonstrated our product line in Europe in 2012 and is currently negotiating the franchising model for deployment of a business model, which we anticipate will bring cost effective services to women of all ages for early indication of breast cancer. We anticipate commercial revenues to be realized in 2013.
6
Medical Nano-Weighing Application: The Company is currently negotiating with a medical production facility to design and build a weighing platform capable of measuring less than 500 nanograms of product within 1 second. This is adjunct technology that the Company developed on our oil sensor platform project. We anticipate commercial revenues in 2013.
Early Detection of Incipient Failure in High Voltage Transmission Lines: The Company has developed a low cost platform that can be pervasively deployed over a companys high voltage transmission network and will utilize cutting edge technology to alert potential failure of sagging voltage lines before the failure occurs. The Company expects revenue from this opportunity in 2013.
Robust Business Development Proposal Pipeline: The Company currently has an active business development proposal backlog of $71M USD. Many of the proposals have made the clients short list and one on one discussion under Non-Disclosure Agreements are underway.
3. GOING CONCERN
The consolidated financial statements have been prepared on the going concern basis, which presumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future.
There are material uncertainties related to adverse conditions and events that cast significant doubt about the Companys ability to continue as a going concern for a reasonable period of time in future. During the quarter ended January 31, 2013, the Company reported a loss from operations of $728,564 (2012- loss from operations of $436,403). As of that date, the Company has an accumulated deficit of $82,971,402 (2012: $79,471,503), a working capital deficiency (for this purpose defined as current assets less current liabilities excluding the reported derivative warrant liability) of $683,227 (2012: $1,362,635).
The Company will focus its development effort on existing projects in order to develop commercial applications for these projects and will continue to raise financing for operations as outlined in the notes to the consolidated financial statements as at January 31, 2013.
It will be necessary for the Company to raise additional funds for the continued development, testing and commercial exploitation of its technologies. To date, the Company has raised financing through successive unit private placements, through the exercise of common share stock options and through the exercise of common share purchase warrants. It has also secured periodic bridge loans.
In the ensuing calendar year, the Company anticipates that (i) it will realize initial revenues from commercialization efforts with current strategic development partners, (ii) it will monitor the timing of incurring additional expenses in keeping with its ongoing working capital position, and (iii) it will continue to secure financing in the same manner in which it has raised financing to date.
7
The consolidated financial statements have been prepared on a going concern basis and do not include any adjustments to the amounts and classifications of the assets and liabilities that might be necessary should the Company be unable to continue in business. If the going concern assumption were not appropriate for these consolidated financial statements then adjustments would be necessary to the carrying value of assets and liabilities, the reported expenses and the balance sheet classifications used. Such adjustments may be material.
4. SELECT FINANCIAL INFORMATION AND DISCLOSURES
(a) Financial Position as at January 31, 2013:
The following table sets out select unaudited financial information as at January 31, 2013 and 2012 prepared under IFRS reporting standards.
Quarter ended | Quarter ended | |||||
January 31, | January 31, | |||||
2013 | 2012 | |||||
(unaudited) | (unaudited) | |||||
Interest and other income | - | - | ||||
Total expenses | 560,178 | 436,403 | ||||
Stock compensation expense | 168,386 | - | ||||
Loss from operations | 728,564 | 436,403 | ||||
Adjustment for modification of conversion feature of bridge loans | - | - | ||||
(Gain) loss on revaluation of embedded derivatives | 515 | - | ||||
Warrants issued on debt settlement | - | - | ||||
(Gain) loss on revaluation of derivative warrant liability | (313,001 | ) | (412,076 | ) | ||
Income taxes | - | - | ||||
Net comprehensive loss | 416,078 | 24,327 | ||||
Loss per share and diluted loss per share | - | - | ||||
Weighted average number of shares outstanding | 139,140,110 | 117,393,573 | ||||
Total assets | 1,418,921 | 1,016,467 | ||||
Cash | 242,404 | 23,524 | ||||
Working capital (excludes derivative warrant liability) | 683,227 | 1,362,635 | ||||
Shareholders equity (deficiency) | (619,783 | ) | (1,362,635 | ) |
At January 31, 2013 the Company has:
a) |
10,395,000 stock options outstanding which expire, if unexercised, between 2012- 2018. The average exercise price of these options is $0.24 per option. |
b) |
18,266,173 common share purchase warrants which expire between 2013 -2014 if unexercised. The average exercise price of these warrants is $0.29. |
Refer also to Tables 1 and 2 which are appended to this MD&A. Table 1 sets forth selected information from the consolidated statements of operations and deficit for the fiscal years ending October 31, 2010-2012 and for the related quarterly information through January 31, 2013. Table 2 sets forth selected information from the consolidated balance sheets for the fiscal years ending October 31, 2010-2012 and the related quarterly information through January 31, 2013.
8
(b) Discussion of Operating Results:
The following table summarizes the Companys operating results for the three months ended January 31, 2013 and 2012:
Quarter ended January 31, | ||||||
2013 | 2012 | |||||
($000) | ($000) | |||||
Administration | 120 | 90 | ||||
Professional fees and salaries | 329 | 325 | ||||
Stock-based compensation | 168 | - | ||||
Research and development | 69 | - | ||||
Travel and entertainment | 37 | 25 | ||||
Foreign exchange loss (gain) | (1 | ) | (10 | ) | ||
Amortization of property and equipment | 1 | 1 | ||||
Amortization of intangible assets and patents | 5 | 5 | ||||
Total expenses | 729 | 436 | ||||
Adjustment for modification of conversion feature of bridge loans | - | - | ||||
(Gain) loss on revaluation of embedded derivatives | 1 | - | ||||
Warrants issued on debt settlement | - | |||||
(Gain) loss on revaluation of derivative warrant liability | (313 | ) | (412 | ) | ||
Income taxes | - | - | ||||
Net comprehensive loss | 416 | 24 | ||||
Loss per share | - | - |
Promissory note: The promissory note from Unotron has been fully reserved. In the quarter ended January 31, 2013, the Company booked and reserved $4,659 of interest charged on the outstanding balance due. At January 31, 2013, the outstanding balance which is fully reserved and which remains due from Unotron is $106,512.
Warrant liability: The Company, under IFRS, has calculated and reports a warrant liability gain of $313,001 relating to the revaluation of the common share purchase warrants issued in Canadian dollars outstanding at quarter-end, (2012: $412,076) . This is further discussed in Section 7 below.
Deferred development costs: The Company capitalized $156,421 of deferred development costs in the quarter ended January 31, 2013 relating to various different projects (2012-$101,518).
9
Patents: The Company capitalized $5,241 of costs associated with patents in the quarter ended January 31, 2013 (2012 - nil).
Management has satisfied itself that the projects to which deferred development costs are reported meet the criteria for deferral and management expects that it will realize future revenues against each of these projects sufficient to recover the carrying values reported.
A summary of the continuity of the projects under development and the costs incurred by project for the quarters ended January 31, 2012 and 2013 are as presented below.
Net Additions/ | |||||||||
Projects | 10/31/2011 | Recoveries | 1/31/2012 | ||||||
Project A | $ | 1 | - | $ | 1 | ||||
Project B | 1 | - | 1 | ||||||
Project C | 15,001 | - | 15,001 | ||||||
Project D | 1 | - | 1 | ||||||
Project E | 473,239 | - | 473,239 | ||||||
Project F | 1 | - | 1 | ||||||
Project G | 141,201 | - | 141,201 | ||||||
Project H | 1 | - | 1 | ||||||
Project I | - | - | - | ||||||
Project J | 1 | - | 1 | ||||||
Project K | 17,160 | 104,653 | 121,813 | ||||||
$ | 646,607 | $ | 104,653 | $ | 751,260 |
Net Additions/ | |||||||||
Projects | 10/31/2012 | Recoveries | 1/31/2013 | ||||||
Project A | $ | 1 | $ | - | $ | 1 | |||
Project B | 1 | - | 1 | ||||||
Project C | 69,903 | (53,134 | ) | 16,769 | |||||
Project D | 1 | 1 | |||||||
Project E | 546,692 | 11,750 | 558,442 | ||||||
Project F | 1 | 1 | |||||||
Project G | 1 | 1 | |||||||
Project H | 1 | 1 | |||||||
Project I | - | - | |||||||
Project J | 1 | 1 | |||||||
Project K | 55,215 | 20,203 | 75,418 | ||||||
Project L | 23,410 | 147,364 | 170,774 | ||||||
Project M | 22,930 | 34,568 | 57,498 | ||||||
$ | 718,157 | $ | 160,751 | $ | 878,908 |
10
General and administrative expense compare as:
2013 | 2012 | |||||
General and administrative | 23 | 12 | ||||
Rent and occupancy cost | 23 | 34 | ||||
Interest income | (5 | ) | (5 | ) | ||
Interest expense | 25 | 15 | ||||
Accretion expense | 13 | 1 | ||||
Office insurance | 16 | 18 | ||||
Telephone | 5 | 4 | ||||
Investor relations, listing and filling fees | 20 | 11 | ||||
120 | 90 |
Professional, other fees and salaries related expenses compare as
2013 | 2012 | |||||
Professional fees | 38 | 51 | ||||
Consulting fees | 203 | 176 | ||||
Salaries and benefits | 88 | 98 | ||||
329 | 325 |
Professional and other fees and salaries totaled $329, 021 in 2013 (2012: $324,609). The Company reports the following costs in this cost category: audit related fees of $30,143 (2012: $29,604), legal expenses of $8,087 (2012: $21,293), management fees of $122,245 paid to the Chairman, the CEO and the CFO (2012: $113,483), staff salaries and benefits of $88,147 (2012: $97,994), other expenses of $1,787 (2012: $8,354) and consulting fees of $78,612 (2012: $53,881). The increase in consulting fees has several components: the Company paid fees of $67,560 to 3rd party advisors who assisted the Company in investor relations in 2013 (2012: 8,881); it paid the President of MAST a total of $57,820 in 2013 (in 2012, $45,000); assistance in conversion to IFRS reporting of $11,052 in 2013 (nil in 2012); and other of $1,787 (2012: $8,354).
Travel related expenses compare as follows ($000)
2013 | 2012 | |||||
Travel: | ||||||
Airfare | 14 | 15 | ||||
Hotel | 7 | 3 | ||||
Meals | 9 | 4 | ||||
Transportation | 8 | 3 | ||||
37 | 25 |
Travel and entertainment costs increased to $37,373 in 2013 from $25,211 in 2012. The Company incurred higher travel related costs associated with increased activity in its various projects.
11
C) Unaudited Quarterly Financial Information - Summary
Three months ended (unaudited) |
Interest and other income $ |
Expenses $ |
Loss in period $ |
Loss per share $ |
April 30, 2011 | 39 | 499,497 | (507,225) | (0.01) |
July 31, 2011 | 585 | 241,554 | (237,795) | - |
October 31, 2011 | - | 1,274,785 | (1,854,751) | (0.02) |
January 31, 2012 | - | 436,403 | (24,327) | - |
April 30, 2012 | - | 1,014,520 | (2,849,835) | (0.02) |
July 31, 2012 | - | 586,312 | (507,079) | - |
October 31, 2012 | - | 928,292 | 1,606,176 | 0.01 |
January 31, 2013 | - | 728,564 | (416,078) | (0.00) |
Refer also to Tables 1 and 2 for summarized quarterly information.
5. LIQUIDITY AND CAPITAL RESOURCES
Liquidity:
Table 3 provides a summary of the financing that was raised during the 2012 fiscal year and for the current year to date through January 31, 2013.
We currently have no cash flow from operations and will have none until we are in a position to either license or directly produce and sell products utilizing our technologies. As at January 31, 2013, our working capital deficiency (excluding derivative warrant liability) was $683,227 (2012: $1,362,635).
We currently have no lines of credit in place. We must obtain financing from new investors or from investors who currently hold outstanding options and warrants in order to meet our cash flow needs until we generate revenues.
We have granted to our directors, officers and other employees options to purchase shares at prices that are at or above market price on the date of grant. A summary of the outstanding options and warrants is provided in Table 4.
Capital Resources:
We have no commitments for capital expenditures as of January 31, 2013.
6. RISKS AND UNCERTAINTIES OVERVIEW
There are a number of material risks which may individually or in the aggregate effect the long-term commercial success of the Company, both known and unknown. An investment in the Company should be considered highly speculative due to the nature of the Companys activities and its current stage of development:
12
Stage of Development of Technology:
The Company has made significant strides in developing its prototype products over the past several years in its attempt to commercialize its products with its various strategic development partners. Nonetheless, the Company at this stage has not completed such efforts to the point that it has product available for sale and their remains uncertainties as to the Companys ultimate ability to complete the development of a product that is saleable.
Customers Willingness to Purchase:
We have entered into multiple joint development agreements whereby our prototype products are being subjected to rigorous testing by our partners. We have not as yet received unequivocal and firm purchase orders for our product. Some of the joint development partners that we are dealing with are private companies and there is a potential risk of those companies having to secure all of their requisite financing to support their orders and their working capital requirement.
Patent Portfolio:
The Company has spent a considerable amount of time, effort and incurred significant costs with respect to the maintenance and development of our intellectual property portfolio. However, given the nature of IP development, the Company is subject to continuing risks that our patents could be successfully challenged, that our patent pending files may not ultimately be granted full patent status. While we continue to make specific efforts to broaden our IP claims, this is an ongoing process and requires continued effort and vigilance. The Company does not have extensive in-house resources so as to manage its IP portfolio in this environment and has traditionally relied heavily on its patent attorneys for these services.
Financing:
The Company has successfully raised funding over the past several years to continue to support its development initiatives and fund the Companys corporate structure and overheads. The financing environment for early stage technology companies remains challenging and there is no certainty that the Company will be able to continue to raise financing as it has in the past to continue to support its business initiatives.
Competitors:
The Company is subject to competition from other larger entities who have greater financial resources and more in-house technical expertise.
Management Structure:
The Company is highly dependent on the services of a small number of senior management team members. If one of these individuals were unavailable, the Company could encounter difficult transition processes.
13
Foreign Currency Exposure:
The Company expects to sell its products and license technologies in the United States, in Canada and abroad. The Company has not hedged its foreign currency exposure, which has not been significant to date. In future, foreign currency fluctuations could present a risk to the business.
7. CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are set forth in Note 4 to our consolidated financial statements as of October 31, 2012 and should be read in conjunction with managements discussion of the Companys critical accounting policies and estimates as set forth below.
IFRS:
IFRS reporting has been adopted effective November 1, 2010.
The accounting policies have been applied in preparing the consolidated financial statements for the quarter ended January 31, 2013 and the comparative information presented as at and for the quarter ended January 31, 2012.
Compound Financial Instruments:
Compound financial instruments issued by the Company comprise convertible notes that can be converted to share capital at the option of the holder and the number of shares to be issued does not vary with changes in their fair value.
The liability component of a compound financial instrument is recognized initially at the fair value of a similar liability that does not have an equity conversion option.
The equity component, if the conversion feature of the convertible note is in US dollars, is recognized initially as the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts.
Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortized cost using the effective interest rate method. The equity component of a compound financial instrument is not premeasured subsequent to initial recognition.
Interest, dividends, losses and gains relating to the financial liability are recognized in profit or loss except for borrowing costs on qualifying assets which are added to asset cost. Distributions to the equity holders are recognized in equity, net of any tax effect.
Hybrid Financial Instruments:
Financial instruments with embedded derivative liabilities are accounted for as hybrid financial instruments. The Company has hybrid financial instruments when the embedded derivative conversion option right of the convertible notes gives the right to the holder to convert into a common share in Canadian dollars (CDN).
14
An embedded derivative is a feature within a contract, such that the cash flows associated with that feature behave in a similar fashion to a stand-alone derivative. An embedded derivative is separated from its host contract and accounted for as a derivative only when three criteria are satisfied:
When the economic risks and characteristics of the embedded derivatives are not closely related to those of the host contract;
A separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and
The entire instrument is not measured at fair value with changes in fair value recognized in the income statement.
Subsequent to initial recognition, the embedded derivative component is re-measured each reporting period using the Black Scholes option-pricing model with the change in fair value recognized in statement of loss and comprehensive loss.
Derivative Liability:
The Companys derivative financial instruments consist of derivative liabilities in relation to its share purchase warrants and the conversion feature on its bridge loans.
i) |
Derivative Warrant Liability: | |
The Company issues share purchase warrants in conjunction with private placements for the purchase of common shares of the Company. A number of these share purchase warrants were issued with an exercise price in CDN, rather than USD (the reporting and functional currency of the Company). Such share purchase warrants are considered to be derivative instruments and the Company is required to re-measure the fair value of these at each reporting date. The fair value of these CDN share purchase warrants are re-measured at each financial position date using the Black Scholes option-pricing model using the exchange rates at the financial position date and measured over their remaining life. Adjustments to the fair value of the derivative warrant liability as at the financial position date are recorded in the statement of loss and comprehensive loss as (gain) loss on revaluation of derivative warrant liability. Share purchase warrants that have expired or have been forfeited are adjusted to the statement of loss and comprehensive loss as (gain) loss on revaluation of derivative warrant liability. | ||
Consideration received upon the exercise of warrants is credited to share capital and the related amount is transferred from contributed surplus (USD warrants) or derivative warrant liability to share capital (CDN warrants). | ||
ii) |
Conversion Feature of Bridge Loans | |
The conversion feature on the bridge loans allows the holder of the option to convert the outstanding principal and interest from time to time to common equity. The Company, using the Black Scholes option-pricing model, accounts for bridge loans as follows: |
15
(i) |
At date of origination the bifurcation of the total balance of the loan as debt and equity is calculated. If the conversion feature of the bridge loan is in CDN there is no equity component, resulting in an embedded derivative. Accretion expense is recorded over the term of the loan. | |
| ||
(ii) |
The total loan proceeds are allocated between the bridge loans and the related embedded derivative based on their relative fair value. The embedded derivative conversion feature is included under the bridge loans in the statement of financial position. | |
| ||
(iii) |
The conversion feature is revalued at the end of the reporting period and any adjustment is reflected in the statement of loss and comprehensive loss if the conversion feature is in CDN. |
Foreign Currency Translation:
IFRS requires that the functional currency of each entity in the consolidated entity be determined separately in accordance with specific indicators and should be measured using the currency of the primary economic environment in which the entity operates (the functional currency). As a result of an assessment of the primary indicators, management assessed the functional currency of the Company and its subsidiaries to be U.S. dollar (USD). The consolidated financial statements of the Company are prepared and presented using the USD.
Foreign currency transactions denominated in other than U.S. dollars are translated into the functional currency on the following basis:
i) Monetary assets and liabilities are translated at the rates of exchange prevailing at the statement of financial position date.
ii) Non-monetary assets and liabilities that are measured at historical cost are translated using the exchange rate at the date of the transaction.
iii) Income and expenses for each income statement line item presented are translated at average exchange rates during the quarter in which they are recognized.
Exchange differences resulting from the settlement of foreign currency transactions are recognized directly in the consolidated statement of loss and comprehensive loss in the period in which incurred.
Stock-Based Compensation:
The Company applies the fair value based method of accounting for all stock based payments to employees and non-employees and all direct awards of stock. For non-employees, stock based payments are measured at the fair value of the services received or the fair value of the equity instruments issued or liabilities incurred, whichever is more reliably measurable. Stock based compensation is charged to operations over the vesting period and the offset is credited to contribute surplus.
16
Consideration received upon the exercise of stock options is credited to share capital and the related amount is transferred from contributed surplus.
The fair value of stock options and warrants is determined by the Black Scholes option-pricing model with assumptions for risk free interest rates, dividend yields, volatility factors of the expected market price of the Companys common shares and an expected life of the option or warrant issued. A forfeiture rate is estimated on the grant date and is adjusted to reflect the actual number as options that vest. In the event that vested stock options expire, previously recognized stock based compensation is not reversed. In the event that stock options are forfeited, previously recognized stock based compensation associated with the unvested portion of the stock options forfeited is reversed. The fair value of direct awards of stock is determined by the quoted market price of the Companys stock.
8. FINANCIAL INSTRUMENTS
It is management's opinion that the Company is not exposed to significant interest rate and credit risks arising from financial instruments and that the fair value of financial instruments approximates the carrying value.
Fair values: The Company's financial instruments include: cash and cash equivalents, other receivables and accounts payable and accrued liabilities, the fair values of which approximate their carrying values due to their short-term maturity.
Credit risk: Financial instruments, which subject the Company to potential credit risk, consist of other receivables. The Company does not require collateral or other security for accounts receivable. The Company estimates its provision for uncollectible amounts based on an analysis of the specific amount and the debtor's payment history and prospects.
Foreign exchange: The Company completes transactions denominated in Canadian and in United States dollars and, as such, is exposed to fluctuations in foreign exchange rates. The Company does not use derivative instruments to reduce its exposure to foreign currency risk.
9. COMMITMENTS AND CONTINGENCIES
Operating Leases:
The Company entered into a new five year lease in June, 2012 at a base monthly cost of approximately $3,800.
Legal Matters:
There are currently no outstanding legal matters to which the Company is a party. We have agreed to indemnify our directors and officers and certain of our employees in accordance with our by-laws. We maintain insurance policies that may provide coverage against certain claims.
17
Royalties:
The Company has obligations under the terms of the License Agreement signed with University of Toronto in June 2005. The total obligation could be $1 million tied to future product revenues.
Contingencies:
The Company has agreed to indemnify its directors and officers and certain of its employees in accordance with the Companys by-laws. The Company maintains insurance policies that may provide coverage against certain claims.
10. DISCLOSURE CONTROLS / INTERNAL CONTROLS
The Company was not classified as accelerated filer in 2011 or in 2012 and did not complete an external audit on its internal controls in those years. It filed its last audit report on internal controls in 2010.
Management and the Board of Directors, primarily through the Audit Committee, have instituted review procedures on all of our periodic filings. We have established a disclosure committee consisting of independent directors. A charter for the disclosure committee and a policy has been developed and has been ratified by our Board of Directors. We engage legal counsel, as required, to provide guidance and commentary on our press releases.
Management has concluded that our disclosure controls and procedures meet required standards. These disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in its various reports are recorded, processed, summarized and reported accurately. In spite of its evaluation, management does recognize that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance and not absolute assurance of achieving the desired control objectives.
11. OFF-BALANCE SHEET ARRANGEMENTS
The Company has no off-balance sheet financial commitments and does not anticipate entering into any contracts of such nature other than the addition of new operating leases for equipment and premises as may be required in the normal course of business.
18
12. TRANSACTIONS WITH RELATED PARTIES
The Company reports the following related party transactions:
(a) Chairman:
The total compensation paid to the Chairman during the quarter ended January 31 is summarized as follows:
Stock Based | ||||||
Compensation | ||||||
Cash Compensation | Expense | |||||
$ | $ | |||||
2013 | 37,678 | 11,586 | ||||
2012 | 37,218 | - |
(b) Management and consulting fees:
Included in professional fees as reported are management and consulting fees paid or payable to individuals (or companies controlled by such individuals) who served as officers and directors of the Company. The total compensation paid to such parties during the quarter ending January 31, 2013 and 2012 is as follows.
Stock Based | ||||||
Compensation | ||||||
Cash Compensation | Expense | |||||
$ | $ | |||||
2013 | 142,387 | 23,172 | ||||
2012 | 158,483 | - |
13. SHARE CAPITAL
At January 31, 2013 the Company reports 141,791,584 common shares outstanding (2012: 118,154,740). Additionally, the Company has 10,395,000 stock options outstanding with a weighted average exercise price of $.24 per share (2012: 11,175,000 options outstanding with a weighted average exercise price of $0.47 per share) and a total of 18,266,173 outstanding warrants to acquire common shares with a weighted average exercise price of $.29 per share (2012: 28,677,659 outstanding warrants with a weighted average exercise price of $.28 per share).
14. MANAGEMENT AND BOARD OF DIRECTORS
At our Annual Meeting of Shareholders held on Friday, November 16th, 2012, Salvatore Fuda, Andrew Brandt, Joseph Fuda, David Sharpless, Steven Van Fleet, Oliver Nepomuceno, Larry Blue and Alex Dey were reelected to serve on our Board of Directors. Messrs. Salvatore Fuda, Joseph Fuda, Dan Amadori and Steven Van Fleet continue to serve as officers of the Company.
19
Our management team and directors, along with their 2013 remuneration in the quarter is presented as below:
Individual | Position | 2013 remuneration | ||
Cash | Options | Total | ||
Salvatore Fuda (1) | Chairman, Director | 37,678 | 11,586 | 49,263 |
Joseph Fuda (2) | President, Director | 46,889 | 46,889 | |
Steven Van Fleet (3) | President, MAST Inc., Director | 57,820 | 11,586 | 69,406 |
David Sharpless | Director | - | 11,586 | 11,586 |
Andrew Brandt | Director | - | 11,586 | 11,586 |
Oliver Nepomuceno | Director | - | 11,586 | 11,586 |
Larry Blue | Director | - | 11,586 | 11,586 |
Alex dey | Director | - | 11,586 | 11,586 |
Dan Amadori (2) | CFO | 37,678 | 11,586 | 49,264 |
(1) |
Contract was extended after December, 2010 on a month to month basis. |
(2) |
Contract was extended on a month to month basis in May 2010. |
(3) |
Contract was extended on a month-to-month basis in May 2011. |
15. SUBSEQUENT EVENTS
The Company reports the following as subsequent events:
(a) |
The Company issued 3,803,654 common shares via unit private placements and received proceeds of $609,585. Each unit consisted of one common share at an average price of $0.16 per share and one common share purchase warrant at an average strike price of $0.21 per warrant. The common share purchase warrants issued expire in 12 months from the date of issuance. |
(b) |
The Company received proceeds of $115,000 from the exercise of 743,334 common share purchase warrants. |
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Table 1
Micromem Technologies Inc Management Discussion and Analysis January 31, 2013 |
Loss per share | |||||||||
Fiscal year ending | Interest and | (basic and fully | |||||||
October 31 | other income | Net Loss | diluted) | ||||||
2012 | - | (1,775,065 | ) | - 0.01 | |||||
2011 | 963 | (3,182,387 | ) | (0.03 | ) | ||||
2010 | 22,886 | (4,577,400 | ) | (0.05 | ) |
Quarter ending | |||||||||
January 31, 2013 | - | (416,078 | ) | - | |||||
October 31, 2012 | - | 1,606,176 | 0.01 | ||||||
July 31, 2012 | - | (507,079 | ) | - | |||||
April 30, 2012 | - | (2,849,835 | ) | (0.02 | ) | ||||
January 31, 2012 | - | (24,327 | ) | - | |||||
October 31, 2011 | - | (1,854,751 | ) | (0.02 | ) | ||||
July 31, 2011 | 585 | (237,795 | ) | - | |||||
April 30, 2011 | 39 | (507,225 | ) | (0.01 | ) |
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Table 2
Micromem Technologies Inc Management Discussion and Analysis January 31, 2013 Selected Balance Sheet Information (all amounts in United States dollars) |
Working | Capital | ||||||||||||||
Fiscal year ending | capital | asssets at | Other | Shareholders | |||||||||||
October 31 | (deficiency) | NBV | Assets | Total Assets | equity (deficit) | ||||||||||
October 31, 2012 | (731,673 | ) | 5,787 | 883,400 | 1,180,278 | (904,030 | ) | ||||||||
2011 | (1,060,487 | ) | 10,201 | 819,749 | 906,346 | (1,409,228 | ) | ||||||||
2010 | (1,459,460 | ) | 16,686 | 423,548 | 568,336 | (1,087,433 | ) |
Quarter ending | |||||||||||||||
January 31, 2013 | (683,227 | ) | 5,014 | 1,040,224 | 1,418,921 | (619,783 | ) | ||||||||
October 31, 2012 | (731,673 | ) | 5,787 | 883,400 | 1,180,278 | (904,030 | ) | ||||||||
July 31, 2012 | (853,019 | ) | 6,892 | 705,677 | 850,064 | (2,283,253 | ) | ||||||||
April 30, 2012 | (1,086,547 | ) | 7,995 | 692,155 | 828,130 | (3,126,710 | ) | ||||||||
January 31, 2012 | (1,362,635 | ) | 9,098 | 916,429 | 1,016,467 | (1,345,129 | ) | ||||||||
October 31, 2011 | (1,060,487 | ) | 10,201 | 819,749 | 906,346 | (1,409,228 | ) | ||||||||
July 31, 2011 | (1,465,803 | ) | 11,800 | 622,640 | 717,188 | (831,363 | ) | ||||||||
April 30, 2011 | (1,986,534 | ) | 13,451 | 584,470 | 723,762 | (1,388,613 | ) |
22
Table 3
Micromem Technologies Inc Management Discussion and Analysis January 31, 2013 |
Summary of financing raised by Company
2012 | 2013 | |||||||||||||||||
Shares | Price / share | $ | Shares | Price / share | $ | |||||||||||||
Private placements | ||||||||||||||||||
January 31, 2012 | 2,005,022 | 0.107 | 214,478 | |||||||||||||||
April 30, 2012 | 2,178,592 | 0.213 | 464,495 | |||||||||||||||
July 31, 2012 | 708,333 | 0.210 | 148,510 | |||||||||||||||
October 31, 2012 | 1,452,952 | 0.147 | 213,416 | |||||||||||||||
Exercise of warrants | ||||||||||||||||||
January 31, 2012 | - | - | ||||||||||||||||
April 30, 2012 | 1,270,000 | 0.141 | 179,270 | |||||||||||||||
July 31, 2012 | 4,513,045 | 0.127 | 573,927 | |||||||||||||||
October 31, 2012 | 6,292,813 | 0.119 | 746,516 | |||||||||||||||
Conversion of bridge loan | ||||||||||||||||||
July 31, 2012 | 1,120,000 | 0.098 | 109,825 | |||||||||||||||
October 31, 2012 | 740,080 | 0.158 | 117,075 | |||||||||||||||
Private placements | ||||||||||||||||||
January 31, 2013 | 1,967,117 | 0.161 | 316,373 | |||||||||||||||
Exercise of warrants | ||||||||||||||||||
January 31, 2013 | 3,393,912 | 0.126 | 428,650 | |||||||||||||||
20,280,837 | 2,767,512 | 5,361,029 | 745,023 |
23
Table 4
Micromem Technologies Inc Management Discussion and Analysis January 31, 2013 |
options | Strike price | Expiry date | ||||
1,090,000 | 0.30 | January 22, 2018 | ||||
125,000 | 0.35 | April 5, 2016 | ||||
7,275,000 | 0.20 | October 31, 2016 | ||||
1,905,000 | 0.35 | April 10, 2017 | ||||
10,395,000 | 0.24 | |||||
Total proceeds if all options exercised: | $ | 2,492,500 |
Warrants | ||||||
76,667 | 0.1500 | February 3, 2013 | ||||
666,667 | 0.1800 | February 15, 2013 | ||||
83,333 | 0.3000 | April 18, 2013 | ||||
95,000 | 0.1500 | April 27, 2013 | ||||
208,333 | 0.3000 | May 11, 2013 | ||||
1,120,000 | 0.1200 | July 12, 2013 | ||||
500,000 | 0.2500 | July 13, 2013 | ||||
186,667 | 0.1500 | August 6, 2013 | ||||
553,413 | 0.2000 | August 9, 2013 | ||||
200,000 | 0.2800 | August 30, 2013 | ||||
728,572 | 0.1700 | September 12, 2013 | ||||
1,666,667 | 0.1528 | September 16, 2013 | ||||
1,325,000 | 0.2400 | October 15, 2013 | ||||
724,380 | 0.1800 | October 29, 2013 | ||||
500,000 | 0.2000 | November 5, 2013 | ||||
123,276 | 0.7500 | November 11, 2013 | ||||
429,686 | 0.8000 | November 14, 2013 | ||||
765,188 | 0.4100 | November 25, 2013 | ||||
400,000 | 0.1900 | November 30, 2013 | ||||
600,000 | 0.7600 | December 14, 2013 | ||||
339,838 | 0.4500 | December 15, 2013 | ||||
815,000 | 0.5600 | December 16, 2013 | ||||
20,000 | 0.2000 | December 17, 2013 | ||||
300,000 | 0.2000 | December 20, 2013 | ||||
250,000 | 0.2000 | January 4, 2014 | ||||
750,000 | 0.2000 | January 11, 2014 | ||||
312,500 | 0.3900 | January 12, 2014 | ||||
25,000 | 0.5500 | January 15, 2014 | ||||
300,000 | 0.5500 | January 16, 2014 | ||||
312,500 | 0.4000 | January 22, 2014 | ||||
1,967,117 | 0.2150 | January 24, 2014 | ||||
325,000 | 0.2000 | January 31, 2014 | ||||
111,111 | 0.5600 | February 1, 2014 | ||||
88,236 | 0.2000 | February 8, 2014 | ||||
142,858 | 0.4400 | February 10, 2014 | ||||
133,333 | 0.5600 | February 12, 2014 | ||||
770,832 | 0.3000 | February 27, 2014 | ||||
291,666 | 0.3000 | March 13, 2014 | ||||
58,333 | 0.3000 | March 23, 2014 | ||||
18,266,173 | 0.29 | |||||
Total proceeds if all w arrants exercised: | $ | 5,236,703 |
24
Exhibit 99.3
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Joseph Fuda, President and Chief Executive Officer of Micromem Technologies Inc., certify the following:
1. |
Review: I have reviewed the interim financial report and interim MD&A (together the interim filings) of Micromem Technologies Inc., (the issuer) for the interim period ended January 31, 2013. |
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 issuers 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 issuers 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 issuers GAAP. |
5.1 |
Control of framework: The control framework the issuers other certifying officer(s) and I used to design the issuers ICFR is the Committee of Sponsoring Organizations of the Treadway Commission or COSO. The Company is utilizing the guidance for smaller public companies published by COSO. |
5.2 |
not applicable |
5.3 |
not applicable |
6. |
Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuers ICFR that occurred during the period beginning on November 1, 2012 and ended on January 31, 2013 that has materially affected, or is reasonably likely to materially affect, the issuers ICFR. |
Date: March 29, 2013
/s/ Joseph
Fuda
Joseph Fuda President and Chief Executive Officer
Exhibit 99.4
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Dan Amadori, Chief Financial Officer of Micromem Technologies Inc., certify the following:
1. |
Review: I have reviewed the interim financial report and interim MD&A (together the interim filings) of Micromem Technologies Inc., (the issuer) for the interim period ended January 31, 2013. |
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 issuers 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 issuers 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 issuers GAAP. |
5.1 |
Control of framework: The control framework the issuers other certifying officer(s) and I used to design the issuers ICFR is the Committee of Sponsoring Organizations of the Treadway Commission or COSO. The Company is utilizing the guidance for smaller public companies published by COSO. |
5.2 |
not applicable |
5.3 |
not applicable |
6. |
Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuers ICFR that occurred during the period beginning on November 1, 2012 and ended on January 31, 2013 that has materially affected, or is reasonably likely to materially affect, the issuers ICFR. |
Date: March 29, 2013
/s/ Dan
Amadori
Dan Amadori
Chief Financial Officer
Exhibit 99.5
FOR IMMEDIATE RELEASE | March 28, 2013 |
Micromem Technologies Inc. Interim Filings
Toronto, New York, March 28, 2013: Micromem Technologies Inc. (the Company) (CNSX: MRM, OTCBB: MMTIF) announces it has filed its interim financial statements for the period ended January 31, 2013, together with the Managements Discussion & Analysis on SEDAR and EDGAR today. These documents may be viewed at www.sedar.com and by searching EDGAR at http://www.sec.gov/.
About Micromem and MASTInc
MASTInc is a wholly owned U.S.-based subsidiary of Micromem Technologies Inc., a publicly traded (OTC BB: MMTIF, CNSX: MRM) company. MASTInc responsibly analyzes the specific industry sectors to create intelligent game-changing applications that address unmet market needs. By leveraging its expertise and experience with sophisticated magnetic sensor applications, MASTInc successfully powers the development and implementation of innovative solutions for healthcare/biomedical, natural resource exploration, government, information technology, manufacturing, and other industries. Visit www.micromeminc.com www.mastinc.com.
Safe Harbor Statement
This press release contains forward-looking statements. Such forward-looking statements are subject to a number of risks, assumptions and uncertainties that could cause the Companys actual results to differ materially from those projected in such forward-looking statements. In particular, factors that could cause actual results to differ materially from those in forward looking statements include: our inability to obtain additional financing on acceptable terms; risk that our products and services will not gain widespread market acceptance; continued consumer adoption of digital technology; inability to compete with others who provide comparable products; the failure of our technology; the infringement of our technology with proprietary rights of third parties; inability to respond to consumer and technological demands; inability to replace significant customers; seasonal nature of our business; and other risks detailed in our filings with the Securities and Exchange Commission. Forward-looking statements speak only as of the date made and are not guarantees of future performance. We undertake no obligation to publicly update or revise any forward-looking statements. When used in this document, the words believe, expect, anticipate, estimate, project, plan, should, intend, may, will, would, potential, and similar expressions may be used to identify forward-looking statements.
The CNSX or any other securities regulatory authority has not reviewed and does not accept responsibility for the adequacy or accuracy of this press release that has been prepared by management.
###
Listing: NASD OTC-Bulletin Board - Symbol: MMTIF
CNSX - Symbol: MRM
Shares issued: 146,338,572
SEC File No:
0-26005
Investor Contact: info@micromeminc.com; Tel. 416-364-2023
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