UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule
13a-16 or 15d-16 of
the Securities Exchange Act of 1934
September, 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shall be deemed a part of such registration statement from the date on which this report is filed, to the extent not superseded by documents or reports subsequently filed or furnished by Micromem Technologies Inc. under the Securities Act of 1933 or the Securities Exchange Act of 1934.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.
September 30, 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 |
Exhibit 99.1
Condensed Interim Consolidated Financial Statements of
MICROMEM TECHNOLOGIES INC.
For the Three and Nine Months Ended July 31, 2013 and 2012
(Unaudited expressed in U.S.dollars)
MICROMEM TECHNOLOGIES INC. |
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
TABLE OF CONTENTS |
Section | Page | ||
A) | Condensed Interim Consolidated Financial Statements (unaudited) | 3-6 | |
B) | Footnotes: | ||
1. | Reporting Entity and Nature of Business | 7 | |
2. | Going Concern | 8 | |
3. | Basis of Presentation | 9 | |
4. | Summary of Significant Accounting Policies | 10 | |
5. | New Standards and Interpretations Issued but not yet Adopted | 10 | |
6. | Promissory Note Receivable | 11 | |
7. | Deferred Development Costs | 12 | |
8. | Intangible Assets and Patents | 12 | |
9. | Share Capital, Stock Options and Loss per Share | 13-14 | |
10. | Private Placements, Derivative Warrant Liability and Common Share Purchase Warrants | 15-16 | |
11. | Bridge Loans | 16-17 | |
12. | Contributed Surplus | 18 | |
13. | Income Taxes | 19 | |
14. | Expenses | 20 | |
15. | Management Compensation and Related Party Transactions | 21 | |
16. | Commitments | 22 | |
17. | Contingencies | 22 | |
18. | Financial Risk Management | 23-25 | |
19. | Segmented Information | 25 | |
20. | Subsequent Events | 25-26 |
2
MICROMEM TECHNOLOGIES INC. |
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION |
(Unaudited, expressed in United States dollars) |
|
July 31, | October 31, | ||||
|
2013 | 2012 | ||||
|
(audited) | |||||
Assets |
||||||
Current assets: |
||||||
Cash |
$ | 84,817 | $ | 245,029 | ||
Deposits and other receivables |
162,184 | 46,062 | ||||
Promissory note receivable (Note 6) |
- | - | ||||
|
247,001 | 291,091 | ||||
|
||||||
Property and equipment, net |
11,438 | 5,787 | ||||
Deferred development costs (Note 7) |
994,270 | 718,163 | ||||
Intangible assets, net (Note 8) |
101,599 | 116,113 | ||||
Patents, net (Note 8) |
144,448 | 49,124 | ||||
|
$ | 1,498,756 | $ | 1,180,278 | ||
|
||||||
Liabilities and Shareholders' Equity (Deficiency) |
||||||
Current liabilities: |
||||||
Bridge loans (Note 11) |
$ | 290,014 | $ | 442,934 | ||
Accounts payable and accrued liabilities |
487,027 | 579,830 | ||||
Derivative warrant liability (Note 10) |
488,551 | 1,061,544 | ||||
|
$ | 1,265,592 | $ | 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: |
||||||
151,150,225 common shares (2012: 136,430,555) |
$ | 56,611,848 | $ | 54,728,239 | ||
Equity component of bridge loans (Note 11) |
1,557 | 1,557 | ||||
Contributed surplus (Note 12) |
27,014,965 | 26,634,177 | ||||
Deficit |
(83,395,206 | ) | (82,268,003 | ) | ||
|
233,164 | (904,030 | ) | |||
|
||||||
|
$ | 1,498,756 | $ | 1,180,278 |
"Joseph Fuda"
(Signed)
Joseph Fuda, Director
"David Sharpless"
(Signed)
David Sharpless, Director
See accompanying notes.
3
MICROMEM TECHNOLOGIES INC. |
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS |
(Unaudited, expressed in United States dollars) |
For the three and nine months ended July 31, 2013 and 2012 |
|
Three Months Ended July 31 | Nine Months Ended July 31 | ||||||||||
|
2013 | 2012 | 2013 | 2012 | ||||||||
|
||||||||||||
Costs and expenses (income): |
||||||||||||
Administration (Note 14) |
$ | 73,699 | $ | 181,497 | $ | 297,164 | $ | 399,970 | ||||
Professional, other fees and salaries (Note 14) |
333,430 | 352,894 | 1,056,532 | 1,065,743 | ||||||||
Stock based compensation (Note 9) |
- | - | 168,386 | 430,856 | ||||||||
Research and development |
19,406 | 724 | 122,738 | 12,201 | ||||||||
Travel and entertainment |
49,397 | 39,954 | 138,881 | 107,671 | ||||||||
Amortization of property and equipment |
1,132 | 1,103 | 3,205 | 3,309 | ||||||||
Amortization of intangible assets and patents (Note 8) |
4,838 | 4,838 | 14,514 | 14,514 | ||||||||
Foreign exchange |
3,235 | 1,805 | 3,653 | (2,970 | ) | |||||||
Loss from operations |
485,137 | 582,815 | 1,805,073 | 2,031,294 | ||||||||
|
||||||||||||
Other expenses |
||||||||||||
(Gain) loss on revaluation of embedded derivatives |
- | - | (40,750 | ) | - | |||||||
(Gain) loss on revaluations of derivative warrants liability |
(224,106 | ) | (75,736 | ) | (1,070,202 | ) | 1,349,945 | |||||
|
||||||||||||
Net loss before income taxes |
(261,031 | ) | (507,079 | ) | (694,121 | ) | (3,381,239 | ) | ||||
|
||||||||||||
Income taxes (Note 13) |
- | - | - | - | ||||||||
|
||||||||||||
Net loss and comprehensive loss |
$ | (261,031 | ) | $ | (507,079 | ) | $ | (694,121 | ) | $ | (3,381,239 | ) |
|
||||||||||||
Loss per share - basic and diluted |
- | - | - | $ | (0.03 | ) | ||||||
|
||||||||||||
Weighted average number of shares |
149,217,974 | 125,684,658 | 144,440,667 | 120,988,786 |
See accompanying notes.
4
MICROMEM TECHNOLOGIES INC. |
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS |
(Unaudited, expressed in United States dollars) |
For the three and Nine months ended July 31, 2013 and 2012 |
|
Three Months Ended July 31 | Nine Months Ended July 31 | ||||||||||
|
2013 | 2012 | 2013 | 2012 | ||||||||
|
||||||||||||
Cash flows from operating activities: |
||||||||||||
Net loss |
$ | (261,031 | ) | $ | (507,079 | ) | $ | (694,121 | ) $ | (3,381,239 | ) | |
Adjustments to reconcile loss for the period to net cash used in operating activities: |
||||||||||||
Amortization of patents and intangible assets |
4,838 | 4,838 | 14,514 | 14,514 | ||||||||
Amortization of property and equipment |
1,132 | 1,103 | 3,205 | 3,309 | ||||||||
Accretion expense |
- | 687 | 19,381 | 3,177 | ||||||||
Stock based compensation |
- | - | 168,386 | 430,856 | ||||||||
(Decrease) Increase in deposits and other receivables |
(35,234 | ) | (22,222 | ) | (116,122 | ) | (89,680 | ) | ||||
Decrease in accounts payable and accrued liabilities |
66,402 | (131,698 | ) | (92,840 | ) | (544,891 | ) | |||||
Gain (loss) on revaluation of derivative warrant liability |
(224,106 | ) | (75,736 | ) | (1,070,202 | ) | 1,349,945 | |||||
(Gain) loss on revaluation of embedded derivatives |
- | - | (40,750 | ) | - | |||||||
Net cash used in operating activities |
(447,999 | ) | (730,107 | ) | (1,808,549 | ) | (2,214,009 | ) | ||||
|
||||||||||||
Cash flows from investing activities: |
||||||||||||
Purchase of property and equipment |
1,678 | - | (8,817 | ) | - | |||||||
Patents |
(85,205 | ) | 18,004 | (112,936 | ) | 18,004 | ||||||
Deferred development costs |
(57,235 | ) | (36,365 | ) | (258,495 | ) | 81,554 | |||||
Net cash used in investing activities |
(140,762 | ) | (18,361 | ) | (380,248 | ) | 99,558 | |||||
|
||||||||||||
Cash flows from financing activities: |
||||||||||||
Issue of common shares |
453,046 | 828,762 | 2,139,971 | 1,674,049 | ||||||||
Subscription received |
- | - | 20,167 | - | ||||||||
Bridge loans advances |
17,071 | - | 61,606 | 634,366 | ||||||||
Bridge loan repayments |
(17,071 | ) | (93,001 | ) | (193,159 | ) | (222,545 | ) | ||||
Net cash provided by financing activities |
453,046 | 735,761 | 2,028,585 | 2,085,870 | ||||||||
|
||||||||||||
Increase (decrease) in cash |
(135,715 | ) | (12,707 | ) | (160,212 | ) | (28,581 | ) | ||||
|
||||||||||||
Cash, beginning of period |
220,532 | 28,188 | 245,029 | 44,062 | ||||||||
|
||||||||||||
Cash, end of period |
$ | 84,817 | $ | 15,481 | $ | 84,817 | 15,481 | |||||
|
||||||||||||
Supplemental cash flow information: |
||||||||||||
Interest paid (Classified in operating activities) |
17,071 | 17,071 | 66,422 | 46,008 | ||||||||
Income taxes paid |
- | - |
See accompanying notes.
5
MICROMEM TECHNOLOGIES INC. |
Condensed Interim Consolidated Statements of Changes in Shareholders' Equity |
(Unaudited, expressed in United States dollars) |
|
Number of | Share capital | Contributed | Equity component | Deficit | Total | ||||||||||||
|
Shares | surplus | 0f Bridge loan | |||||||||||||||
|
(Note 9 | ) | (Note 12 | ) | ||||||||||||||
Balance as at November 01, 2011 |
116,149,718 | $ | 51,774,555 | $ | 25,986,276 | $ | - | $ | (79,170,059 | ) | $ | (1,409,228 | ) | |||||
|
||||||||||||||||||
Private placement of units for cash |
6,344,899 | 1,040,899 | - | - | - | 1,040,899 | ||||||||||||
Financing costs |
- | (16,457 | ) | - | - | (16,457 | ) | |||||||||||
Stock based compensation |
- | - | 430,856 | - | - | 430,856 | ||||||||||||
Warrants issued on private placements |
- | (356,364 | ) | 66,997 | - | - | (289,367 | ) | ||||||||||
Warrants extended |
- | - | 358,983 | - | (1,322,879 | ) | (963,896 | ) | ||||||||||
Warrants exercised |
12,075,858 | 1,499,713 | - | - | - | 1,499,713 | ||||||||||||
Fair value of warrants exercised |
- | 558,993 | (208,935 | ) | - | - | 350,058 | |||||||||||
Equity portion of bridge loan |
- | - | - | 1,557 | - | 1,557 | ||||||||||||
Shares issued on conversion of bridge loan |
1,860,080 | 226,900 | - | - | - | 226,900 | ||||||||||||
Net loss and comprehensive loss |
- | - | - | - | (1,775,065 | ) | (1,775,065 | ) | ||||||||||
Balance at October 31, 2012 |
136,430,555 | 54,728,239 | 26,634,177 | 1,557 | (82,268,003 | ) | (904,030 | ) | ||||||||||
|
||||||||||||||||||
Balance at November 01, 2012 |
136,430,555 | 54,728,239 | 26,634,177 | 1,557 | (82,268,003 | ) | (904,030 | ) | ||||||||||
|
- | |||||||||||||||||
Private placement of units for cash |
9,452,424 | 1,505,686 | - | - | - | 1,505,686 | ||||||||||||
Financing costs |
- | (35,482 | ) | - | - | - | (35,482 | ) | ||||||||||
Stock based compensation |
- | - | 168,386 | - | - | 168,386 | ||||||||||||
Warrants issued on private placement |
- | (464,855 | ) | 153,081 | - | - | (311,774 | ) | ||||||||||
Warrants extended |
- | - | 106,996 | - | (433,082 | ) | (326,086 | ) | ||||||||||
Warrants exercised |
5,267,246 | 689,934 | - | - | - | 689,934 | ||||||||||||
Fair value of warrants exercised |
- | 188,326 | (47,675 | ) | - | - | 140,651 | |||||||||||
Net loss and comprehensive loss |
- | - | - | - | (694,121 | ) | (694,121 | ) | ||||||||||
Balance at July 31, 2013 |
151,150,225 | $ | 56,611,848 | $ | 27,014,965 | $ | 1,557 | $ | (83,395,206 | ) | $ | 233,164 |
6
MICROMEM TECHNOLOGIES INC. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
For the three and nine months ended July 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 July 31, 2013 and is devoting substantially all of its efforts to the development of its technologies. | |
These unaudited interim 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 unaudited interim condensed consolidated financial statements were authorized for issuance and release by the Companys Board of Directors on September 27, 2013.
7
MICROMEM TECHNOLOGIES INC. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
For the three and nine months ended July 31, 2013 and 2012 |
2. |
GOING CONCERN |
These unaudited interim 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 uncertainties that cast doubt about the Companys ability to continue as a going concern for a reasonable period of time in future. During the nine months ending July 31, 2013, the Company reported a net loss and comprehensive loss of $694,121 (2012: $3,381,239) a working capital deficiency (current assets less current liabilities excluding derivative warrant liability) of $530,040 (2012: $731,673) and negative cash flow from operations of $1,808,549 (2012: $2,214,009). | |
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. | |
If the going concern assumption were not appropriate for these unaudited interim condensed consolidated financial statements, then adjustments would be necessary to the carrying value of assets and liabilities, the reported expenses and the classifications used for the statement of financial position. In this case, such adjustments could be material. |
8
MICROMEM TECHNOLOGIES INC. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
For the three and nine months ended July 31, 2013 and 2012 |
3. |
BASIS OF PRESENTATION |
a) |
Statement of compliance: | |
These unaudited interim condensed consolidated interim financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting. | ||
b) |
Basis of measurement: | |
These unaudited interim 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 unaudited interim 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 unaudited interim 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. Refer to the audited consolidated financial statements for the year ended October 31, 2012 for estimates and judgments which remain unchanged as at July 31, 2013. |
9
MICROMEM TECHNOLOGIES INC. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
For the three and nine months ended July 31, 2013 and 2012 |
4. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
These unaudited interim 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 which are impacted that are applicable to the Company include: |
(a) |
IFRS 9 financial assets | |
(b) |
IFRS 10 condensed financial statements | |
(c) |
IFRS 11 joint arrangements | |
(d) |
IFRS 12 disclosure of interests in other entities | |
(e) |
IFRS 13 fair value measurement |
IFRS 9 proposed amendments are effective for annual reporting periods commencing on January 1, 2015; the proposed amendments for IFRS 10-13 are effective for annual reporting periods commencing on January 1, 2013.
The Company is currently assessing the impact of these proposed amendments.
10
MICROMEM TECHNOLOGIES INC. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
For the three and nine months ended July 31, 2013 and 2012 |
6. |
PROMISSORY NOTE RECEIVABLE |
In April 2009, the Company advanced $200,000 to a private company incorporated in New Jersey that was, at that time, 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 July 31, 2013 is $116,479 which is fully reserved.
11
MICROMEM TECHNOLOGIES INC. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
For the three and nine months ended July 31, 2013 and 2012 |
7. |
DEFERRED DEVELOPMENT COSTS |
The breakdown of development costs that have been capitalized is as follows (Note 20): |
At November 1, 2011 | $ | 646,606 | ||
Additions | 71,557 | |||
Year ended October 31, 2012 | $ | 718,163 | ||
At November 1, 2012 | $ | 718,163 | ||
Additions | 276,107 | |||
Nine months ended July 31 2013 | $ | 994,270 |
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. There were no additions to intangible assets during the period ending July 31, 2013 (2012-nil). | |
The Company reported additions of $112,936 to patents during the period ended July 31, 2013 (2012-$nil). |
12
MICROMEM TECHNOLOGIES INC. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
For the three and nine months ended July 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) | 9,452,424 | 1,505,686 | |||||
Warrants exercised | 5,267,246 | 689,935 | |||||
Warrants issued on private placements (Note 15) | - | (464,855 | ) | ||||
Fair value of warrants exercised | - | 188,326 | |||||
Financing costs | (35,483 | ) | |||||
Balance at July 31, 2013 | 151,150,225 | $ | 56,611,848 |
13
MICROMEM TECHNOLOGIES INC. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
For the three and nine months ended July 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 July 31, 2013 and changes during the periods is as follows: |
Options | Weighted average | ||||||
(000 | ) | exercise price | |||||
Outstanding, November 01 | 11,175 | 0.47 | |||||
Granted | 2,000 | 0.35 | |||||
Expired | (540 | ) | (0.44 | ) | |||
Forfeited | (2,720 | ) | (1.20 | ) | |||
Outstanding, October 31, | 9,915 | 0.24 | |||||
Granted | 1,090 | 0.30 | |||||
Expired | (610 | ) | 0.40 | ||||
Outstanding, July 31, 2013 | 10,395 | 0.24 |
During the nine month ended July 30, 2013 the Company issued a total of 1,090,000 (2012 2,000,000) stock options to officers, directors and employees. The Company has the following stock options outstanding at July 31, 2013 (Note 20):
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 nine months ended July 31, 2013 the Company recorded a total expense of $168,386 (2012: $430,856) with respect to the issuance of these options, calculated in accordance with the Black Scholes option-pricing model.
14
MICROMEM TECHNOLOGIES INC. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
For the three and nine months ended July 31, 2013 and 2012 |
10. |
PRIVATE PLACEMENTS, DERIVATIVE WARRANT LIABILITY AND COMMON SHARE PURCHASE WARRANTS |
a) |
Private Placements | |
In the nine months ended July 31, 2013 the Company reported total private placement financings pursuant to prospectus and registration exemptions set forth in applicable securities law as below: |
Nine months ending | |||||||
July 31,2013 | July 31,2012 | ||||||
Common shares issued | 9,452,424 | 11,794,992 | |||||
Warrants issued | 9,452,424 | 11,794,992 | |||||
Proceeds realized | $ | 1,505,686 | $ | 1,690,506 |
In the nine months ended July 31, 2013 the Company realized proceeds of $689,934 from the exercise of 5,267,246 common share purchase warrants. (2012 - $1,499,713 proceeds from exercise of 12,075,858 common share purchase warrants). | ||
| ||
b) |
Derivative Warrant Liability | |
| ||
The following summarizes the change in the balance reported as derivative warrant liability for the nine months ended July 31, 2013: |
July 31, | October 31, | ||||||
2013 | 2012 | ||||||
Balance, beginning of period | $ | 1,061,544 | $ | 1,178,691 | |||
Fair value assigned in warrants in units issuances | 311,774 | 289,367 | |||||
Fair value assigned in warrants extended | 326,086 | 963,896 | |||||
Fair value assigned to warrants issued on settlements of debt | - | 306,061 | |||||
Fair value transferred to share capital for warrants exercised | (140,651 | ) | (348,948 | ) | |||
(Gain) loss on revaluation of warrants | (1,070,202 | ) | (1,327,523 | ) | |||
$ | 488,551 | $ | 1,061,544 |
15
MICROMEM TECHNOLOGIES INC. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
For the three and nine months ended July 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 (Note 20): |
Weighted | ||||||||||
average | Proceeds | |||||||||
Warrants | exercise 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 | (5,267,246 | ) | (0.13 | ) | 689,934 | |||||
Expired | (85,000 | ) | (0.15 | ) | - | |||||
Granted | 9,452,424 | 0.21 | - | |||||||
Balance at July 31, 2013 | 23,793,146 | $ | 0.27 | - |
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. |
16
MICROMEM TECHNOLOGIES INC. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
For the three and nine months ended July 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. This bridge loan was repaid during the quarter ending April 30, 2013. |
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 at October 31, 2012 | 290,014 | 152,920 | 442,934 |
The outstanding bridge loans at July 31, 2013 are summarized as follows:
Loan | Total | ||||||
Principal | 284,514 | 284,514 | |||||
Interest Accrued | 113,615 | 113,615 | |||||
Interest Paid | (108,115 | ) | (108,115 | ) | |||
Accretion Expense | 1,557 | 1,557 | |||||
Equity Portion of Bridge Loan - Conversion Feature | (1,557 | ) | (1,557 | ) | |||
Carrying value at July 31, 2013 | 290,014 | 290,014 |
17
MICROMEM TECHNOLOGIES INC. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
For the three and nine months ended July 31, 2013 and 2012 |
12. |
CONTRIBUTED SURPLUS |
Balance outstanding at November 1, 2011 | 25,986,276 | |||
Stock based compensation expense relating to stock options issued Note 9) | 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 9) | 168,386 | |||
Common share purchase warrants | ||||
(a) Issued | 153,081 | |||
(b) Extended | 103,485 | |||
Fair value of warrants exercised | (44,164 | ) | ||
Balance at July 31, 2013 | 27,014,965 |
18
MICROMEM TECHNOLOGIES INC. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
For the three and nine months ended July 31, 2013 and 2012 |
13. |
INCOME TAXES |
(a) |
As of October 31, 2012 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. These 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.
19
MICROMEM TECHNOLOGIES INC. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
For the three and nine months ended July 31, 2013 and 2012 |
14. |
EXPENSES |
Administration | |
The components of year to date general and administration expense is as follows ($000): |
2013 | 2012 | ||||||
General and administrative/other | 48 | 35 | |||||
Rent and occupancy cost | 67 | 108 | |||||
Interest expense | 62 | 106 | |||||
Accretion expense | 19 | - | |||||
Office insurance | 46 | 65 | |||||
Telephone | 14 | 17 | |||||
Investor relations, listing and filling fees | 41 | 69 | |||||
297 | 400 |
Professional, other fees and salaries
The components of year to date professional, other fees and salaries expense is as follows ($000):
2013 | 2012 | ||||||
Professional fees | 180 | 159 | |||||
Consulting fees | 628 | 608 | |||||
Salaries and benefits | 249 | 300 | |||||
1,057 | 1,067 |
20
MICROMEM TECHNOLOGIES INC. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
For the three and nine months ended July 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 nine months ending July 31 2013 the Chairman was awarded a total of 75,000 options at a strike price of $0.30 per share (2012: 110,000 options at a strike price of $0.35 per share). | ||
The total compensation paid to the Chairman during the period ended July 31 is summarized as follows: |
Stock Based | |||||||
Compensation | |||||||
Cash Compensation | Expense | ||||||
$ | $ | ||||||
2013 | 110,611 | 11,586 | |||||
2012 | 111,660 | 23,694 |
(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 period ended July 31, 2013 is as follows: |
Stock Based | |||||||
Compensation | |||||||
Cash Compensation | Expense | ||||||
$ | $ | ||||||
2013 | 408,370 | 23,172 | |||||
2012 | 434,078 | 159,396 |
21
MICROMEM TECHNOLOGIES INC. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
For the three and nine months ended July 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 $3,800 CDN. Lease commitments for these premises are as follows ($US): |
Less than 1 year | $ | 44,000 | ||
2-5 years | 136,000 | |||
More than 5 years | - | |||
$ | 180,000 |
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. |
22
MICROMEM TECHNOLOGIES INC. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
For the three and nine months ended July 31, 2013 and 2012 |
18. |
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) liquidity risk and credit 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. |
(a) |
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 | $ | 56,229 | $ | 9,458 | |||
Deposits and other receivables | 166,596 | 122,367 | |||||
Accounts payable and accrued liabilities | 219,785 | (409,936 | ) | ||||
Bridge loan | - | (257,960 | ) |
23
MICROMEM TECHNOLOGIES INC. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
For the three and nine months ended July 31, 2013 and 2012 |
18. |
FINANCIAL RISK MANAGEMENT (Contd) |
(b) |
Market Risk: (Contd) |
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. | ||
ii. |
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. |
(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 July 31, 2013. |
24
MICROMEM TECHNOLOGIES INC. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
For the three and nine months ended July 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 July 31, 2013, the Company reports a working capital deficiency of $530,040 (measured as current assets less current liabilities excluding the derivative warrant liability) and has certain financial commitments (Notes 15 and 16), 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 subsequent events: |
a) |
It issued 1,792,935 common shares via unit private placements and received proceeds of $289,869 CDN (approximately $280,000 US). Each unit consisted of one common share at a price of $0.16 per share and one common share purchase warrant at a price of $0.21 per warrant. The common share purchase warrants issued expire in 12 months from the date of issuance. | |
b) |
The Company reported on August 12th that it received a $4 million contract from a US based oil company to develop a proof of concept prototype. The contract specifies multiple phases and development milestones over the next 8-12 months. Subsequently the Company reported that the full value of the contract, with successful completion of all milestones, could approximate $25 million. |
25
MICROMEM TECHNOLOGIES INC. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
For the three and nine months ended July 31, 2013 and 2012 |
20. |
SUBSEQUENT EVENTS (Contd) |
c) |
The Company announced on August 19th on the progress of a potential licensing agreement with a US based automotive company. The Company has completed a proof of concept prototype and is now pursuing discussions with industrial manufacturing companies for potential large scale production quantities. | |
d) |
The Company extended the expiry date for a period of 12 months with respect to a total of 728,572 common share purchase warrants originally issued in 2012 and repriced these warrants from the original price of $0.17 per warrant to $0.21 per warrant. | |
e) |
The Company issued a total of 780,000 common stock options to officers, directors and employees. The stock options have a 5 year term through August 2018 at a strike price of $0.27 CDN per share. |
**************************************
26
MICROMEM TECHNOLOGIES INC. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE THREE MONTHS ENDED JULY 31, 2013 |
PREPARED AS OF SEPTEMBER 27, 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 July 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.
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, potential future events or performance 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. 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, 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. 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 risk factors.
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.
The Company does not undertake to update any forward-looking statements that are incorporated by reference herein, except in accordance with applicable securities law.
************************************************
1
MICROMEM TECHNOLOGIES INC. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE THREE MONTHS ENDED JULY 31, 2013 |
PREPARED AS OF SEPTEMBER 27, 2013 |
(Unless other indicated dollar amounts reported are stated in U.S. dollars) |
TABLE OF CONTENTS:
1. | Background | |
2. | Recap of quarter ending July 31, 2013 | |
3. | Results of Operations and Financial Positions (Alternative Presentation) | |
4. | Going Concern | |
5. | Select Financial Information and Disclosures | |
a. | Financial Position at July 31, 2013 | |
b. | Discussion of Operating Results | |
c. | Unaudited Quarterly Financial Information - Summary | |
6. | Liquidity and Capital Resources | |
7. | Risks and Uncertainties Overview | |
8. | Critical Accounting Policies | |
9. | Financial Instruments | |
10. | Commitments and Contingencies | |
11. | Disclosure Controls/Internal Controls | |
12. | Off Balance Sheet Arrangements | |
13. | Transactions with Related Parties | |
14. | Share Capital | |
15. | Management and Board of Directors | |
16. | Subsequent Events |
Refer also to attached Tables 1-4 as supplementary information.
.
*************************
2
MICROMEM TECHNOLOGIES INC. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE THREE MONTHS ENDED JULY 31, 2013 |
PREPARED AS OF SEPTEMBER 27, 2013 |
1. BACKGROUND
Micromem Technologies Inc. (Micromem or the Company) is a company that has developed customized applications and solutions for large international corporations based on its proprietary magnetic sensor technology. It continues to pursue commercial sales and licensing opportunities with these entities, primarily through its wholly-owned subsidiary, Micromem Applied Sensor Technologies Inc. (MAST).
The Company began operations in 1999. In 2008-09 it decided to deemphasize and no longer pursue the memory technology that it has been developing over the previous decade. At that time, it began to actively pursue development projects utilizing its sensor based technologies. Initially, it developed, at its own expense, different proof of concepts for products that it identified as having market potential, including a magnetic gold sensor, an oil condition sensor and an oil and gas exploration platform. Provisional patents were filed based on these initiatives.
It began to pursue potential revenue generating opportunities in 2010 when a marketing research company contacted the Company on behalf of their client, a world leader in oil production and exploration. In 2011 we developed an ongoing dialogue with Nine Sigma who has since provided Micromem with access to many Fortune 1000 Companies who were seeking technology solutions where our sensor applications appeared compatible.
Our sensor platform solutions address three primary areas of creating value for our clients:
Using a MEMS and/or Nano scale pallet, we are able to combine disparate sensor modalities into a common, integrated solution that brings the exact tools into play in solving the target issue. Competitive solutions tend to force fit less than optimum sensor combinations in an effort to sell standard offerings.
Although our solutions are custom designed for each client, our processes leading to the solution are automated and the end result is a cost effective solution with a high return on investment for our clients.
Our Open innovation approach to solving client problems allows us to bring together already proven sensor technologies in different market spaces allowing us to apply them in new applications in new markets. This significantly reduces the time to revenue generation by both MAST and our client and it reduces the risk of project failure.
MAST has identified and is now working with a number of large corporations in the automotive, oil and gas and industrial manufacturing sectors who have been funding specific development projects that the Company is completing. We expect to leverage our proprietary technologies and the expertise that we have developed over the past 5 years to generate commercial revenues and licensing agreements with our customers in key market segments and, additionally, to pursue a direct sales strategy in other segments using established distributors.
3
To finance its initiatives, the Company has successfully raised approximately $19 million of financing since 2008, primarily through private placements.
Micromem is up to date and fully compliant with all of its regulatory requirements. It is now evaluating the opportunity to upgrade its listing applications in either or both of its Canadian and its U.S. reporting jurisdictions and has held preliminary meetings in this regard with the regulators.
2. RECAP OF QUARTER ENDING JULY 31, 2013.
The Companys primary accomplishments in the quarter ending July 31, 2013 include:
a. |
GSI Westwind: The product is a sensor application to monitor for consistent performance and rotations in very high speed motors. Our first production articles have been tested and approved by our client. Limited field tests in a live environment are planned during the balance of 2013. We are confident that these trials will be successful and we expect larger commercial scale orders to follow thereafter. | |
b. |
We continue to work with the international energy company that we originally announced in 2011. The beta version of the measuring technology that we have developed has been shipped to and accepted by our client. Our plan is to now complete field trials and begin deployment of the product onto field well sites. We are confident that these trials will be successful and we anticipate potentially large commercial orders to follow thereafter. | |
c. |
We have completed the development of our prototype oil pan sensor. The prototype has been rigorously tested and has now been accepted by our automotive company client. We are beginning negotiations with a Tier 1 manufacturer to cost out a commercial version of the prototype. We anticipate that once these negotiations are completed substantial production orders will follow and that the Company will earn significant per unit royalties over a minimum of the next five years. | |
d. |
We executed (subsequent to July 31st ) a development contract with an international energy company whereby we would incorporate fluorescent nanoparticles as the agents in our proprietary magnetic tracer device. This application is for diagnostic use and monitoring in that companys oil fields. The contract is staged over a period of 12-14 months, based on achieving successive milestones. The total billings stipulated in the contract are approximately $25 million. | |
We are also currently evaluating technology applications for gas fracking and for measuring the safety and integrity of gas pipelines and infrastructure with this company. |
4
The market analysis that the Company has completed for these initial vertical market applications is that, collectively, once these units are in commercial production, the Companys revenue opportunities could be in the hundreds of millions of dollars.
e. |
Beyond these initial opportunities, our proposal pipeline is robust and continues to grow. We have outstanding proposals in other industry verticals including electrical transmission lines, medical diagnostics and food processing. We recently initiated discussions with and are proposing a technology solution for a large utility in the business of power generation/transformers. | |
f. |
During the quarter ended July 31, 2013 we raised an additional $450,000 of financing through private placements; the year to date financing raised as of July 31, 2013 is approximately $2.2 million. The Company estimates that if the currently outstanding common share purchase warrants and common stock options were fully subscribed, it would realize up to an additional $9 million of financing. |
3. RESULTS OF OPERATIONS AND FINANCIAL POSITION (ALTERNATIVE PRESENTATION)
Presented below is certain highlighted financial information from the financial statements including net loss adjusted for non cash expenses reported in the statement of operations, working capital adjusted for the non cash derivative warrant liability reported in the statement of financial position and an analysis of the post 2007 deficit as reported in the financial statements with a comparison to the amount of financing raised during that timeframe.
This information as presented should not be construed as a substitute for the financial statements which are presented in accordance with IFRS.
1.Adjusted net loss | ||||||||||||
Three months ended | Nine months ended | |||||||||||
July 31 | July 31 | |||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||
Net loss as reported | (261,031 | ) | (507,079 | ) | (694,121 | ) | (3,381,239 | ) | ||||
Adjusted for: | ||||||||||||
(gain)/ loss on revaluations | (224,106 | ) | (75,736 | ) | (1,110,952 | ) | 1,349,945 | |||||
Foreign exchange | 3,235 | 1,805 | 3,653 | (2,970 | ) | |||||||
Amortization | 5,970 | 5,941 | 17,719 | 17,823 | ||||||||
Accretion expense | - | 687 | 19,381 | 3,177 | ||||||||
Stock based compensation | - | - | 168,386 | 430,856 | ||||||||
Adjusted net loss | (475,932 | ) | (574,382 | ) | (1,595,934 | ) | (1,582,408 | ) |
Adjusted net loss: Under IFRS, the outstanding Canadian denominated warrants are reported as a derivative warrant liability in the statement of financial position. At the end of each reporting period this liability is revalued based on an application of the Black Scholes pricing model. This quarter end revaluation gives rise to a revaluation gain or loss which is reported in the statement of operations. In this presentation, these revaluations are eliminated. Additionally, the cost related to the issuance of stock options (during each quarter where stock options have been awarded) is calculated in accordance with the Black Scholes option pricing model and this is not a cash cost of compensation expense. Finally, in this presentation, other non cash expenses reported in the statement of operations are eliminated. The adjusted net loss as reported presents the net cash loss on operations in the period reported. This illustrates that the net cash loss per month at the current level of operating activity has averaged approximately $180,000 per month over the past two fiscal years, or an actual average cash utilized of approximately $2 million per annum.
5
2.Adjusted working capital | ||||||||||||
July 31 | April 30 | January 31 | October 31 | |||||||||
2013 | 2013 | 2013 | 2012 | |||||||||
Cash | 84,817 | 220,532 | 242,404 | 245,029 | ||||||||
Deposits and other receivables | 162,184 | 126,950 | 131,279 | 46,062 | ||||||||
247,001 | 347,482 | 373,683 | 291,091 | |||||||||
Bridge loans | 285,000 | 285,000 | 410,000 | 410,000 | ||||||||
Adjusted accounts payable and accruals | 357,027 | 290,625 | 462,615 | 399,830 | ||||||||
642,027 | 575,625 | 872,615 | 809,830 | |||||||||
Adjusted working capital | (395,026 | ) | (228,143 | ) | (498,932 | ) | (518,739 | ) | ||||
Working capital as reported in financial statements | (1,018,591 | ) | (977,307 | ) | (1,665,021 | ) | (1,793,217 | ) |
Adjusted working capital: has been calculated by eliminating the derivative warrant liability on outstanding Canadian denominated warrants as reported at the end of each reporting period; these are not liabilities that require repayment in cash. These outstanding warrants will either be exercised or not prior to their expiration date. In Table 4 to this MD&A it is illustrated that if the total number of warrants outstanding at July 31, 2013 are in fact exercised, the Company would issue an additional 23,793,146 common shares and realize proceeds of approximately $6.5 million.
In this presentation, the outstanding bridge loans are reported at the cash cost of redeeming these loans; the embedded derivative calculation and the accrued accretion expense both of which are non cash entries, have been eliminated.
Finally, in this presentation, certain accruals of approximately $130,000 relating to expenses which the Company has provided for but does not expect that these will create any current liability at each quarter end have been eliminated in this presentation. These would more likely be longer term liabilities.
The adjusted net working capital positions as presented illustrates that the Company's net working capital deficiency has been reduced over time as the Company has successfully raised additional cash and it has paid down its outstanding obligations. The conventional working capital calculations drawn from the financial statements as presented include a significant amount of non cash liabilities (the derivative warrant liabilities) which do not require cash repayment.
6
3.Comparison of deficit reported and financing raised | ||||||
July 31,2013 | October 31,2012 | |||||
Deficit as reported | (83,395,206 | ) | (82,268,003 | ) | ||
Deficit as reported at October 31, 2007 | (61,389,588 | ) | (61,384,588 | ) | ||
Deficit reported since November, 1 2007 | (22,005,618 | ) | (20,878,415 | ) | ||
Adjust for post 2007 cumulative non cash charges: | ||||||
Stock compensation expense | 4,615,760 | 4,447,374 | ||||
Derivative warrant liability at end of reporting period | 488,551 | 1,061,544 | ||||
Accretion expense | 219,549 | 200,168 | ||||
Cash deficit since October 31, 2007 | (16,681,758 | ) | (15,169,329 | ) | ||
Deferred development costs at period end | (994,270 | ) | (718,163 | ) | ||
Working capital & other | (1,323,210 | ) | (1,083,161 | ) | ||
(18,999,238 | ) | (16,970,653 | ) | |||
Financing raised since October 31, 2007 | 18,992,238 | 16,970,653 |
Commentary:
This schedule illustrates that since November 1, 2008 (when the Company shifted its focus to the development of its sensor technology and away from the continued development of its memory technology, which it had pursued since 1998) the Company has incurred approximately $19 million of cash costs in developing the sensor technology, maintaining the public company in good standing and supporting working capital requirements. This figure reconciles to the deficit as reported in the Companys periodic financial statements as filed adjusting for cumulative non-cash charges reported in its financial statements. These non-cash charges include the cost of stock compensation measured in accordance with the Black Scholes option pricing model, accretion expense relating to the convertible portion of the bridge loan facilities arranged by the Company and the net period end balance of the derivative warrant liability relating to Canadian denominated common share purchase warrants outstanding and calculated in accordance with IFRS.
This schedule also illustrates that the Company has, since November 1, 2008, raised approximately $19 million of financing, principally through private placements. This financing has allowed the Company to meet its financial obligations over the past 6 years while pursuing its development initiatives. Since 2008, the Company has incurred total net expenditures for research and product development of approximately $5.2 million of which $994,270 is reported as deferred development costs on the balance sheet as of July 31, 2013; the balance of these expenditures are included in the cash deficit balance of ($16,681,758) as report in this schedule.
7
4. 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 uncertainties related to events that cast doubt about the Companys ability to continue as a going concern for a reasonable period of time in future. During the quarter ended July 31, 2013, the Company reported a loss from operations of $485,137 (2012- loss from operations of $582,815). As of that date, the Company has an accumulated deficit of $83,395,206 (2012: $83,045,675), a working capital deficiency (for this purpose defined as current assets less current liabilities excluding the reported derivative warrant liability) of $530,040 (2012: $853,019).
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.
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. In such a case, the adjustments could be material.
5. SELECT FINANCIAL INFORMATION AND DISCLOSURES
(a) Financial Position as at July 31, 2013:
The following table sets out select unaudited financial information as at July 31, 2013 and 2012 prepared under IFRS reporting standards.
Quarter ended July 31, 2013 (unaudited) |
Quarter ended July 31, 2012 (unaudited) | |
Interest and other income | - | - |
Total expenses | 485,137 | 582,815 |
Stock compensation expense | - | - |
Loss from operations | 485,137 | 582,815 |
(Gain) loss on revaluation of embedded derivatives | - | - |
(Gain) loss on revaluation of derivative warrant liability | (224,106) | (75,736) |
Income taxes | - | - |
Net comprehensive loss | 261,031 | 507,079 |
Loss per share and diluted loss per share | - | - |
Weighted average number of shares outstanding | 149,217,974 | 125,684,658 |
Total assets | 1,498,756 | 850,064 |
8
At July 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) |
23,793,146 common share purchase warrants which expire between 2013 -2014 if unexercised. The average exercise price of these warrants is $0.27. |
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 July 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 July 31, 2013.
(b) Discussion of Operating Results:
The following table summarizes the Companys operating results for the three months ended July 31, 2013 and 2012:
Quarter ended July 31, | ||
2013 ($000) |
2012 ($000) | |
Administration | 74 | 181 |
Professional fees and salaries | 334 | 353 |
Stock-based compensation | - | - |
Research and development | 19 | 1 |
Travel and entertainment | 49 | 40 |
Foreign exchange loss (gain) | 3 | 2 |
Amortization of property and equipment | 1 | 1 |
Amortization of intangible assets and patents | 5 | 5 |
Total expenses | 485 | 583 |
(Gain) loss on revaluation of embedded derivatives | ||
(Gain) loss on revaluation of derivative warrant liability | (224) | (76) |
Income taxes | - | - |
Net comprehensive loss | 261 | 507 |
Loss per share | - | - |
Administration expenses: Comparative quarterly expense has declined by $107,000 in 2013. The Company reported $45,000 less interest expense on bridge loans outstanding at July 31, 2013 of $290,014 versus loans outstanding at July 31, 2012 of $518,563. Additionally, rental expense for office premises declined from $108,000 in 2012 to $67,000 in 2013 as a result of the move to less expensive premises in mid 2012. Finally, the Company reported listing fees of approximately $37,000 in 2012 with respect to costs incurred relating to upgrading its exchange listings; these costs were not incurred in 2013.
9
Promissory note: The promissory note from Unotron has been fully reserved. In the nine month ended July 31, 2013, the Company booked and reserved $14,626 of interest charged on the outstanding balance due. At July 31, 2013, the outstanding balance which is fully reserved and which remains due from Unotron is $116,479.
Warrant liability: The Company, under IFRS, has calculated and reports a warrant liability gain of $224,106 relating to the revaluation of the common share purchase warrants issued in Canadian dollars outstanding at quarter-end, (2012: $75.736) . This is further discussed in Section 7 below.
Deferred development costs: The Company capitalized $57,235 of net deferred development costs in the quarter ended July 31, 2013 relating to various different projects (2012-$36,365).
Patents: The Company capitalized $85,205 of net costs associated with patents in the quarter ended July 31, 2013 (2012 $18,004).
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 nine months ended July 31, 2012 and 2013 are as presented below.
Net Additions/ | |||||||||
Projects | 10/31/2011 | (reductions) | 7/31/2012 | ||||||
1 | $ | 15,001 | 867 | $ | 15,868 | ||||
2 | 473,238 | 31,258 | 504,496 | ||||||
3 | 17,160 | 23,882 | 41,042 | ||||||
4 | - | 13,044 | 13,044 | ||||||
Other projects | 141,207 | (141,200 | ) | 7 | |||||
$ | 646,606 | $ | (72,149 | ) | $ | 574,457 |
Net Additions/ | |||||||||
Projects | 10/31/2012 | (reductions) | 7/31/2013 | ||||||
1 | $ | 69,903 | (69,902 | ) | $ | 1 | |||
2 | 546,697 | 87,812 | 634,509 | ||||||
3 | 55,215 | 21,994 | 77,209 | ||||||
4 | 23,410 | 154,792 | 178,202 | ||||||
5 | 22,930 | 56,624 | 79,554 | ||||||
6 | - | 24,788 | 24,788 | ||||||
Other projects | 7 | - | 7 | ||||||
$ | 718,162 | $ | 276,108 | $ | 994,270 |
10
General and administrative expense compare as:
2013 | 2012 | |||||
General and administrative/other | 9 | 26 | ||||
Rent and occupancy cost | 22 | 16 | ||||
Interest expense | 18 | 34 | ||||
Accretion expense | - | 1 | ||||
Office insurance | 15 | 16 | ||||
Telephone | 3 | 4 | ||||
Investor relations, listing and filling fees | 7 | 84 | ||||
74 | 181 |
Professional, other fees and salaries related expenses compare as:
2013 | 2012 | |||||
Professional fees | 57 | 49 | ||||
Consulting fees | 196 | 196 | ||||
Salaries and benefits | 81 | 108 | ||||
334 | 353 |
Professional and other fees and salaries totaled $333,430 in 2013 (2012: $352,894). The Company reports the following costs in this cost category: audit related fees of $28,885 (2012: $41,750), legal expenses of $28,063 (2012: $7,585), management fees of $110,726 paid to the Chairman, the CEO and the CFO (2012: $112,970), staff salaries and benefits of $81,360 (2012: $107,731), and consulting fees of $84,395 (2012: $81,888). The increase in consulting fees has several components: the Company paid fees of $21,182 to 3rd party advisors who assisted the Company in investor relations in 2013 (2012: 24,068); it paid the President of MAST a total of $57,436 in 2013 (in 2012, $57,820); assistance in conversion to IFRS reporting of $3,369 in 2013 (2012: 9,824);
Travel related expenses compare as follows ($000)
2013 | 2012 | |||||
Travel: | ||||||
Airfare | 14 | 19 | ||||
Hotel | 9 | 7 | ||||
Meals | 16 | 9 | ||||
Transportation | 8 | 5 | ||||
Entertainment | 2 | - | ||||
49 | 40 |
Travel and entertainment costs increased to $49,397 in 2013 from $39,954 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 $ |
October 31, 2011 | - | 1,274,785 | (1,854,751) | (0.02) |
January 31, 2012 | - | 436,403 | (24,327) | - |
April 30, 2012 | - | 1,012,078 | (2,849,835) | (0.02) |
July 31, 2012 | - | 582,815 | (507,079) | - |
October 31, 2012 | - | 928,292 | 1,606,176 | 0.01 |
January 31, 2013 | 728,564 | (416,078) | - | |
April 30, 2013 | 591,372 | (17,012) | - | |
July 31, 2013 | - | 485,137 | (261,031) | - |
Refer also to Tables 1 and 2 for summarized quarterly information.
6. LIQUIDITY AND CAPITAL RESOURCES
Liquidity:
Table 3 provides a summary of the financing that was raised during the 2010, 2011 and 2012 fiscal years and for the current year through July 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 July 31, 2013, our working capital deficiency (excluding derivative warrant liability) was $530,040 (2012: $853,019).
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 July 31, 2013.
12
7. RISKS AND UNCERTAINTIES OVERVIEW
We have reported on risks and uncertainties in our annual filings and in our periodic quarterly MD&A documentation. An update on managements assessment of risks and uncertainties as of July 31, 2013 is presented as below:
Stage of Development of Technology:
Our sensor platform is operational and all functional parameters are clearly defined and understood. We have leveraged this knowledge and expertise in our dealings with our current customers in 3 of 4 cases we have delivered prototypes that our customers have approved; in the 4th case, the prototype is currently being evaluated.
The technology risk that continues is that, as we pursue our commercialization efforts with existing and prospective customers, we may encounter technology challenges which are not readily solved and which could delay our product development initiatives.
Customers Willingness to Purchase:
In our current projects, our customers are funding the ongoing development expenditures. We are negotiating opportunities with them to finalize long term purchase or licensing agreements.
The Companys ongoing risk in this area is that a customer may ultimately decide that it does not want to pursue a full scale product launch/introduction based on our technology platform.
Patent Portfolio:
The Company has spent a considerable amount of time and 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 or that our patent pending applications 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.
Financing:
The Company has raised approximately $19 million of financing between November 2008 - July 2013 in a very difficult financing environment, particularly for early stage technology companies. On a year to date basis, in the 2013 fiscal year, it has raised in excess of $2 million, principally through successive private placements. In addition, the Company reports outstanding common share purchase warrants and stock options, which if fully exercised, would result in up to an additional $9 million of financing proceeds. The Companys main development initiatives are now being funded by the related customer in each case. Currently the burn rate is approximately $2 million per year, an amount which should drop in future as development activity is funded by its customers.
Against this profile, the ongoing risk to the Company is that it must continue secure financing in order to support its various marketing, intellectual property, salaries and other public company related overheads.
13
Competitors:
The Company may be subject to competition from other larger entities who have greater financial resources and more in-house technical expertise. Nonetheless, the Company has demonstrated that it can secure customer projects in a competitive RFP process.
Management Structure:
The Company is 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. As the Company expands its project initiatives with existing and new customers, it will need to recruit additional technical and support staff.
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.
8. 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 July 31, 2013 and the comparative information presented as at and for the quarter ended July 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.
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.
14
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).
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 Liabilities:
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). |
15
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: |
(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. |
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.
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.
16
9. 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.
10. 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 and Contingencies:
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.
Royalties:
The Company has obligations under the terms of the License Agreement signed with University of Toronto in June 2005. To date the Company reports nil revenues and no liability under the license agreement.
11. 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.
17
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.
12. 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.
13. 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 July 31 is as follows:
Stock Based | ||||||
Compensation | ||||||
Cash Compensation | Expense | |||||
$ | $ | |||||
2013 | 36,106 | - | ||||
2012 | 36,838 | - |
(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 July 31 is as follows:
Stock Based | ||||||
Compensation | ||||||
Cash Compensation | Expense | |||||
$ | $ | |||||
2013 | 132,056 | - | ||||
2012 | 133,964 | - |
18
14. SHARE CAPITAL
At July 31, 2013 the Company reports 151,150,225 common shares outstanding (2012: 127,944,710). Additionally, the Company has 10,395,000 stock options outstanding with a weighted average exercise price of $.24 per share (2012: 10,105,000 options outstanding with a weighted average exercise price of $0.25 per share) and a total of 23,793,146 outstanding warrants to acquire common shares with a weighted average exercise price of $.27 per share (2012: 26,589,041 outstanding warrants with a weighted average exercise price of $.23 per share).
15. 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.
Our management team and directors, along with their 2013 remuneration in the nine months ended is presented as below (Note 16(e)):
Individual |
Position |
2013 remuneration | ||
Cash | Options | Total | ||
Salvatore Fuda | Chairman, Director | 110,610 | 11,586 | 122,195 |
Joseph Fuda | President, Director | 124,683 | 124,683 | |
Steven Van Fleet | President, MAST Inc., Director | 173,076 | 11,586 | 184,662 |
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 | CFO | 110,611 | 11,586 | 122,196 |
16. SUBSEQUENT EVENTS
The Company reports the following subsequent events
a) |
It issued 1,792,935 common shares via unit private placements and received proceeds of $289,869 CDN (approximately $280,000 US). Each unit consisted of one common share at a price of $0.16 per share and one common share purchase warrant at a price of $0.21 per warrant. The common share purchase warrants issued expire in 12 months from the date of issuance. |
19
b) |
The Company reported on August 12th that it received a $4 million contract from a US based oil company to develop a proof of concept prototype. The contract specifies multiple phases and development milestones over the next 8- 12 months. Subsequently the Company reported that the full value of the contract, with successful completion of all milestones, could approximate $25 million. |
c) |
The Company announced on August 19th on the progress of a potential licensing agreement with a US based automotive company. The Company has completed a proof of concept prototype and is now pursuing discussions with industrial manufacturing companies for potential large scale production quantities. |
d) |
The Company extended the expiry date for a period of 12 months with respect to a total of 728572 common share purchase warrants originally issued in 2012 and repriced these warrants from the original price of $0.17 per warrant to $0.21 per warrant. |
e) |
The Company issued a total of 780,000 common stock options to officers, directors and employees. The stock options have a 5 year term through August 2018 at a strike price of $0.27 CDN per share. |
************************************************
20
Table 1
Micromem Technologies Inc Management Discussion and Analysis Annual and Quarterly financial information July 31, 2013 ($US) |
Fiscal year ending | Interest and | Loss per share (basic | |||||||
October 31 | other income | Net Loss | and fully diluted) | ||||||
2012 | - | (1,775,065 | ) | (0.01 | ) | ||||
2011 | 963 | (2,092,546 | ) | (0.02 | ) | ||||
2010 | 22,886 | (4,577,400 | ) | (0.05 | ) |
Quarter ending | |||||||||
July 31, 2013 | - | (261,031 | ) | (0.00 | ) | ||||
April 30, 2013 | - | (17,012 | ) | (0.00 | ) | ||||
January 31, 2013 | - | (416,078 | ) | (0.00 | ) | ||||
October 31, 2012 | 1,606,176 | 0.01 | |||||||
July 31, 2012 | (507,079 | ) | (0.00 | ) | |||||
April 30, 2012 | - | (2,849,835 | ) | (0.02 | ) | ||||
January 31, 2012 | - | (24,327 | ) | (0.00 | ) | ||||
October 31, 2011 | - | (1,854,751 | ) | (0.02 | ) |
21
Table 2
Micromem Technologies Inc Management Discussion and Analysis Selected Balance Sheet Information July 31,2013 ($US) |
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 | |||||||||||||||
July 31, 2013 | (530,040 | ) | 11,438 | 1,240,317 | 1,498,756 | 233,164 | |||||||||
April 30, 2013 | (363,157 | ) | 14,248 | 1,102,715 | 1,464,445 | 139,656 | |||||||||
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 | ) |
22
Table 3
Micromem Technologies Inc Management Discussion and Analysis Summary of financing raised by Company July 31,2013 |
Date of financing | 2010 | 2011 | ||||||||||||||||
Shares | Price / share | $ | Shares | Price / share | $ | |||||||||||||
Private placements | ||||||||||||||||||
January 2010 | 2,204,276 | 0.476 | 1,049,062 | |||||||||||||||
April 2010 | 289,899 | 0.448 | 130,000 | |||||||||||||||
July 2010 | 1,730,026 | 0.321 | 556,078 | |||||||||||||||
October 2010 | 1,717,307 | 0.196 | 335,910 | |||||||||||||||
January 31, 2011 | 2,525,000 | 0.199 | 503,140 | |||||||||||||||
April 30, 2011 | 250,000 | 0.120 | 30,000 | |||||||||||||||
July 31, 2011 | 8,355,045 | 0.112 | 932,554 | |||||||||||||||
October 31, 2011 | 9,695,162 | 0.104 | 1,012,987 | |||||||||||||||
5,941,508 | 2,071,050 | 20,825,207 | 2,478,681 |
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 | |||||||||||||||
April 30, 2013 | 5,358,704 | 0.159 | 852,809 | |||||||||||||||
July 31, 2013 | 2,126,603 | 0.158 | 336,504 | |||||||||||||||
Exercise of warrants | ||||||||||||||||||
January 31, 2013 | 3,393,912 | 0.126 | 428,650 | |||||||||||||||
April 30, 2013 | 753,334 | 0.176 | 132,220 | |||||||||||||||
July 31, 2013 | 1,120,000 | 0.115 | 129,064 | |||||||||||||||
20,280,837 | 2,767,512 | 14,719,670 | 2,195,620 |
23
Table 4
Micromem Technologies Inc Management Discussion and Analysis July 31, 2013 |
Outstanding | Strike | 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 |
Outstanding | ||||||
83,333 | 0.3000 | April 18, 2014 | ||||
208,333 | 0.3000 | May 11, 2014 | ||||
500,000 | 0.2500 | July 13, 2014 | ||||
186,667 | 0.1500 | August 6, 2013 | ||||
553,413 | 0.2000 | August 8, 2014 | ||||
200,000 | 0.3000 | August 30, 2014 | ||||
728,572 | 0.1700 | September 12, 2013 | ||||
1,666,667 | 0.2050 | September 16, 2014 | ||||
1,325,000 | 0.2400 | October 15, 2013 | ||||
724,380 | 0.1800 | October 29, 2013 | ||||
500,000 | 0.2200 | 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 | 0.2200 | November 30, 2013 | ||||
600,000 | 0.7600 | December 14, 2013 | ||||
339,838 | 0.4500 | December 15, 2013 | ||||
815,000 | 0.5900 | December 16, 2013 | ||||
20,000 | 0.2000 | December 17, 2013 | ||||
300,000 | 0.2200 | December 20, 2013 | ||||
250,000 | 0.2000 | January 4, 2014 | ||||
750,000 | 0.2200 | January 11, 2014 | ||||
312,500 | 0.4000 | 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 | 0.2200 | 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 | ||||
799,904 | 0.2150 | February 1, 2014 | ||||
312,500 | 0.2000 | February 15, 2014 | ||||
722,500 | 0.2100 | March 19, 2014 | ||||
1,968,750 | 0.2000 | March 19, 2014 | ||||
617,550 | 0.2100 | April 10, 2014 | ||||
750,000 | 0.2100 | April 30, 2014 | ||||
187,500 | 0.2000 | April 30, 2014 | ||||
303,346 | 0.2150 | June 3, 2014 | ||||
250,000 | 0.2150 | June 6, 2014 | ||||
156,250 | 0.2000 | June 6, 2014 | ||||
498,257 | 0.2150 | June 20, 2014 | ||||
918,750 | 0.2000 | June 20, 2014 | ||||
23,793,146 | 10.28 | |||||
Total proceeds if all warrants exercised: | $ | 6,670,362 |
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 July 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 July 31, 2013 that has materially affected, or is reasonably likely to materially affect, the issuers ICFR. |
Date: September 27, 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 July 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 July 31, 2013 that has materially affected, or is reasonably likely to materially affect, the issuers ICFR. |
Date: September 27, 2013
/s/ Dan
Amadori
Dan
Amadori
Chief Financial Officer