UNITED STATES
SECURITIES AND
EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
March, 2015
Commission File Number 0-26005
MICROMEM TECHNOLOGIES INC.
121 Richmond Street West, Suite 304, Toronto, ON M5H 2K1
[Indicate by checkmark whether the registrant files or will
file annual reports under cover Form 20-F or Form 40-F.]
Form 20-F [X]
Form 40-F [ ]
[Indicate by check mark whether
the registrant by furnishing the information contained in this Form is also
thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b)
under the Securities Exchange Act of 1934.]
Yes [ ]
No [X]
[If "Yes"
is marked, indicate below the file number assigned to the registrant in
connection with rule 12g3-2(b): N/A
This report on Form 6-K is hereby incorporated by reference
in the registration statement on Form F-3 (Registration No. 333-134309) of
Micromem Technologies Inc. and in the prospectus contained therein, and this
report on Form 6-K shall be deemed a part of such registration statement from
the date on which this report is filed, to the extent not superseded by
documents or reports subsequently filed or furnished by Micromem Technologies
Inc. under the Securities Act of 1933 or the Securities Exchange Act of 1934.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
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|
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MICROMEM TECHNOLOGIES INC. |
|
|
|
By:
/s/ Joseph Fuda |
Date: March 2, 2015 |
Name: Joseph Fuda |
|
Title: Chief Executive Officer |
Exhibit Index
Exhibit 99.1
Consolidated Financial Statements of
MICROMEM TECHNOLOGIES INC.
For the years ended October 31, 2014 and 2013
(Expressed in United States Dollars)
|
Collins Barrow Toronto LLP
|
|
Collins Barrow Place
|
|
11 King Street West
|
|
Suite 700, PO Box 27
|
|
Toronto, Ontario
|
|
M5H 4C7 Canada
|
|
|
|
T. 416.480.0160
|
|
F. 416.480.2646
|
|
|
|
www.collinsbarrow.com
|
INDEPENDENT AUDITORS REPORT OF REGISTERED PUBLIC ACCOUNTING
FIRM
To the Shareholders of Micromem Technologies Inc.:
We have audited the accompanying consolidated financial
statements of Micromem Technologies Inc. and its subsidiaries, which comprise
the consolidated statements of financial position as at October 31, 2014 and
October 31, 2013 and the consolidated statements of loss and comprehensive loss,
changes in shareholders equity and cash flows for the years ended October 31,
2014, October 31, 2013 and October 31, 2012 and notes comprising a summary of
significant accounting policies and other explanatory information.
Managements Responsibility for the Consolidated Financial
Statements
Management is responsible for the preparation and fair
presentation of these consolidated financial statements in accordance with
International Financial Reporting Standards as issued by the International
Accounting Standards Board, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or
error.
Auditors Responsibility
Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We conducted our audits
in accordance with Canadian generally accepted auditing standards and the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we comply with ethical requirements and plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit
evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditors judgment, including
the assessment of the risks of material misstatement of the consolidated
financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entitys
preparation and fair presentation of the consolidated financial statements in
order to design audit procedures that are appropriate in the circumstances. An
audit also includes evaluating the appropriateness of accounting policies used
and the reasonableness of accounting estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our
audits is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present
fairly, in all material respects, the consolidated financial position of
Micromem Technologies Inc. and its subsidiaries as at October 31, 2014 and
October 31, 2013, and its consolidated financial performance and its
consolidated cash flows for the years ended October 31, 2014, October 31, 2013
and October 31, 2012 in accordance with International Financial Reporting
Standards as issued by the International Accounting Standards Board.
Emphasis of Matter
Without qualifying our opinion, we draw attention to Note 2 in
the consolidated financial statements which describes the material uncertainties
that cast significant doubt about Micromem Technologies Inc.s ability to
continue as a going concern.
This office is
independently owned and operated by Collins Barrow Toronto LLP
The Collins Barrow trademarks are used
under License. |
|
Other Matter
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the Companys
internal control over financial reporting as of October 31, 2014, based on the
criteria established in Internal Control Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and
our report dated February 27, 2015 expressed an unmodified (unqualified) opinion
on the effectiveness of the Companys internal control over financial reporting.
Chartered Professional Accountants
Licensed Public
Accountants
Toronto, Canada
February 27, 2015
|
Collins
Barrow Toronto LLP |
|
Collins
Barrow Place |
|
11 King
Street West |
|
Suite 700, PO
Box 27 |
|
Toronto,
Ontario |
|
M5H 4C7
Canada |
|
|
|
T.
416.480.0160 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM |
F.
416.480.2646 |
|
|
To the Shareholders of Micromem Technologies Inc.:
|
www.collinsbarrow.com |
We have audited the internal control over financial reporting
of Micromem Technologies Inc. and subsidiaries (the "Company") as of October 31,
2014, based on criteria established in the Internal ControlIntegrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company's management is responsible for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting,
included under the heading Disclosure Controls/Internal Controls under the
title Compliance Related Reporting Matters in the accompanying Managements
Discussion and Analysis. Our responsibility is to express an opinion on the
Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in
all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audit also included performing
such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with International Financial Reporting Standards as
issued by the International Accounting Standards Board. A company's internal
control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with International
Financial Reporting Standards as issued by the International Accounting
Standards Board, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of the effectiveness of the internal control over financial
reporting to future periods are subject to the risk that the controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of October 31,
2014, based on criteria established in the Internal Control Integrated
Framework (2013) issued by Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
We have also audited, in accordance with Canadian generally
accepted auditing standards and the standards of the Public Company Accounting
Oversight Board (United States), the consolidated statements of financial
position of the Company as at October 31, 2014 and 2013 and the consolidated
statements of loss and comprehensive loss, changes in shareholders equity and
cash flows for the years ended October 31, 2014, October 31, 2013 and October
31, 2012, and notes comprising a summary of significant accounting policies and
other explanatory information and our report dated February 27, 2015 expressed
an unqualified audit opinion on those consolidated financial statements.
Chartered Professional Accountants
Licensed Public
Accountants
Toronto, Canada
February 27, 2015
This office is
independently owned and operated by Collins Barrow Toronto LLP
The Collins Barrow trademarks are used
under License. |
|
MICROMEM TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
1. |
Reporting Entity and Nature of Business |
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2. |
Going Concern |
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3. |
Basis of Presentation |
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4. |
Summary of Significant Accounting Policies |
|
|
|
|
5. |
New Standards and Interpretations Issued but not yet
Adopted |
|
|
|
|
6. |
Fair Value Disclosures |
|
|
|
|
7. |
Capital Risk Management |
|
|
|
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8. |
Deposits and Other Receivables |
|
|
|
|
9. |
Property and Equipment |
|
|
|
|
10. |
Deferred Development Costs |
|
|
|
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11. |
Intangible Assets and Patents |
|
|
|
|
12. |
Share Capital, Stock Options and Loss per Share |
|
|
|
|
13. |
Private Placements, Derivative Warrant Liability and
Common Share Purchase Warrants |
|
|
|
|
14. |
Bridge Loans |
|
|
|
|
15. |
Contributed Surplus |
|
|
|
|
16. |
Income Taxes |
|
|
|
|
17. |
Expenses |
|
|
|
|
18. |
Management Compensation and Related Party
Transactions |
|
|
|
|
19. |
Commitments |
|
|
|
|
20. |
Contingencies |
|
|
|
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21. |
Financial Risk Management |
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|
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22. |
Segmented Information |
|
|
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23. |
Subsequent Events |
1
MICROMEM TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS
OF FINANCIAL POSITION
(Expressed in United States dollars)
|
|
October 31, |
|
|
October 31, |
|
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
Cash |
$ |
935,987
|
|
$ |
821,283
|
|
Deposits and other receivables (Note 8)
|
|
872,766 |
|
|
234,741 |
|
|
|
1,808,753 |
|
|
1,056,024 |
|
|
|
|
|
|
|
|
Property and equipment, net (Note 9) |
|
21,483 |
|
|
13,998 |
|
Deferred development costs (Note 10) |
|
3,525,456 |
|
|
928,077 |
|
Intangible assets, net (Note 11) |
|
77,409 |
|
|
96,761 |
|
Patents, net (Note 11) |
|
203,504 |
|
|
71,595 |
|
|
$ |
5,636,605 |
|
$ |
2,166,455 |
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity
(Deficiency) |
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
Bridge loans (Note 14)
|
$ |
- |
|
$ |
290,014
|
|
Accounts payable and accrued
liabilities |
|
773,832 |
|
|
340,122 |
|
|
$ |
773,832 |
|
$ |
630,136 |
|
Shareholders' Equity (Deficiency) |
|
|
|
|
|
|
Share capital: (Note
12) |
|
|
|
|
|
|
Authorized:
2,000,000
special preference shares, redeemable,
voting Unlimited
common shares without par
value Issued
and
outstanding: 188,436,724
common shares (2013: 158,491,425) (Note 12) |
$ |
70,802,776 |
|
$ |
57,755,613 |
|
Equity component of
bridge loans (Note 14) |
|
- |
|
|
1,557 |
|
Contributed surplus (Note 15) |
|
27,436,678 |
|
|
32,822,327 |
|
Deficit |
|
(93,376,681 |
) |
|
(89,043,178 |
) |
|
|
4,862,773 |
|
|
1,536,319 |
|
|
|
|
|
|
|
|
|
$ |
5,636,605 |
|
$ |
2,166,455 |
|
Going Concern (Note 2)
Management Compensation and Related
Party Transactions (Note 18)
Commitments (Note 19)
Contingencies (Note
20)
Subsequent Events (Note 23)
"Joseph Fuda"
(Signed) |
|
Joseph Fuda, Director |
|
|
|
"David Sharpless"
(Signed) |
|
David Sharpless, Director |
|
See accompanying notes.
2
MICROMEM TECHNOLOGIES INC.
STATEMENTS OF
CONSOLIDATED LOSS AND COMPREHENSIVE LOSS
(Expressed in United States
dollars)
For the years ended October 31,
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses : |
|
|
|
|
|
|
|
|
|
Administration (Note 17) |
$ |
325,453 |
|
$ |
378,497 |
|
$ |
694,617 |
|
Professional, other fees and
salaries (Note 17) |
|
2,360,867 |
|
|
1,572,515 |
|
|
1,507,891 |
|
Stock based compensation (Note 12) |
|
379,253 |
|
|
368,790 |
|
|
430,856 |
|
Research and development (Note
17) |
|
703,671 |
|
|
160,920 |
|
|
229,840 |
|
Forgiveness of debt |
|
- |
|
|
- |
|
|
(42,004 |
) |
Travel and entertainment |
|
329,779 |
|
|
210,852 |
|
|
150,924 |
|
Amortization of property and equipment (Note
9) |
|
7,357
|
|
|
4,989
|
|
|
4,414 |
|
Amortization of intangible
assets (Note 11) |
|
- |
|
|
19,352 |
|
|
19,352 |
|
Foreign exchange loss |
|
58,491 |
|
|
12,261 |
|
|
7,537 |
|
Recovery of promissory note
receivable (Note 8) |
|
- |
|
|
- |
|
|
(30,000 |
) |
Loss from operations |
|
4,164,871 |
|
|
2,728,176 |
|
|
2,973,427 |
|
|
|
|
|
|
|
|
|
|
|
Other Expenses |
|
|
|
|
|
|
|
|
|
Gain on revaluation of embedded
derivatives (Note 14) |
|
- |
|
|
(40,750 |
) |
|
(176,899 |
) |
Warrants issued on debt settlement (Note 14) |
|
- |
|
|
- |
|
|
306,061 |
|
Loss (gain) on revaluation of
derivative warrants liability (Note 13) |
|
- |
|
|
3,246,502 |
|
|
(1,327,524 |
) |
|
|
|
|
|
|
|
|
|
|
Net loss before income taxes |
|
(4,164,871 |
) |
|
(5,933,928 |
) |
|
(1,775,065 |
) |
|
|
|
|
|
|
|
|
|
|
Income taxes (Note 16) |
|
- |
|
|
- |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
Net loss and comprehensive
loss |
$ |
(4,164,871 |
) |
$ |
(5,933,928 |
) |
$ |
(1,775,065 |
) |
|
|
|
|
|
|
|
|
- |
|
Loss per share - basic and diluted (Note
12) |
$ |
(0.02 |
) |
$ |
(0.04 |
) |
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares (Note 12)
|
|
171,534,969 |
|
|
146,814,466 |
|
|
123,375,510 |
|
See accompanying notes.
3
MICROMEM TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF
CASH FLOWS
(Expressed in United States dollars)
For the years ended October 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
Cash flows from
operating activities: |
|
|
|
|
|
|
|
|
|
Net loss |
$ |
(4,164,871 |
) |
$ |
(5,933,928 |
) |
$ |
(1,775,065 |
)
|
Adjustments to
reconcile loss for the period to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets |
|
- |
|
|
19,352 |
|
|
19,352 |
|
Amortization of property and equipment |
|
7,357 |
|
|
4,989 |
|
|
4,414 |
|
Research and development |
|
676,790 |
|
|
52,461 |
|
|
206,780 |
|
Accretion expense |
|
- |
|
|
19,381 |
|
|
187,671 |
|
Stock based compensation |
|
379,253 |
|
|
368,790 |
|
|
430,856 |
|
Forgiveness of debt |
|
- |
|
|
- |
|
|
(42,004 |
) |
(Increase) in deposits and other receivables |
|
(235,757 |
) |
|
(188,679 |
) |
|
(13,728 |
)
|
Increase (decrease) in accounts payable and
accrued liabilities |
|
454,149 |
|
|
(63,433 |
)
|
|
(393,896 |
) |
Loss (gain) on revaluation of derivative warrant liability
|
|
- |
|
|
3,246,502 |
|
|
(1,327,524 |
)
|
(Gain) on revaluation of embedded derivatives
|
|
- |
|
|
(40,750 |
)
|
|
(176,899 |
) |
Warrants issued on settlement of debt |
|
- |
|
|
- |
|
|
306,061 |
|
Net cash used in
operating activities |
|
(2,883,079 |
) |
|
(2,515,315 |
) |
|
(2,573,982 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows from
investing activities: |
|
|
|
|
|
|
|
|
|
Purchase of
property and equipment |
|
(14,842 |
) |
|
(13,200 |
) |
|
- |
|
Patents |
|
(176,381 |
)
|
|
(44,825 |
)
|
|
(26,650 |
) |
Deferred
development costs |
|
(3,872,635 |
) |
|
(655,093 |
) |
|
(263,133 |
)
|
Recovery of deferred development costs |
|
662,290 |
|
|
233,290 |
|
|
- |
|
Net cash used in investing
activities |
|
(3,401,568 |
) |
|
(479,828 |
) |
|
(289,783 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities: |
|
|
|
|
|
|
|
|
|
Issue of common shares |
|
6,801,619 |
|
|
3,697,441 |
|
|
2,524,155 |
|
Bridge
loans advances |
|
- |
|
|
- |
|
|
714,359 |
|
Bridge loan repayments |
|
- |
|
|
(126,044 |
)
|
|
(173,782 |
) |
Advances to
related parties |
|
(480,304 |
) |
|
- |
|
|
- |
|
Repayments from related parties |
|
78,036 |
|
|
- |
|
|
- |
|
Net cash provided by financing
activities |
|
6,399,351 |
|
|
3,571,397 |
|
|
3,064,732 |
|
|
|
|
|
|
|
|
|
|
|
Increase in cash |
|
114,704 |
|
|
576,254 |
|
|
200,967 |
|
|
|
|
|
|
|
|
|
|
|
Cash, beginning of year |
|
821,283 |
|
|
245,029 |
|
|
44,062 |
|
|
|
|
|
|
|
|
|
|
|
Cash, end of year |
$ |
935,987 |
|
$ |
821,283 |
|
$ |
245,029 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
|
Interest paid (classified in operating activities) |
|
17,071 |
|
|
83,493 |
|
|
75,142 |
|
Income taxes paid
|
|
- |
|
|
- |
|
|
- |
|
See accompanying notes.
4
MICROMEM TECHNOLOGIES
INC.
Consolidated Statements of
Changes in Shareholders'
Equity
(Expressed in United
States dollars)
|
|
Number of |
|
|
Share capital |
|
|
Contributed surplus |
|
|
Equity component |
|
|
Deficit |
|
|
Total |
|
|
|
Shares |
|
|
|
|
|
|
|
|
0f Bridge loan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private placement of units for cash (Note 13) |
|
16,106,957 |
|
|
2,910,532 |
|
|
- |
|
|
- |
|
|
- |
|
|
2,910,532 |
|
Financing costs |
|
- |
|
|
(35,482 |
) |
|
- |
|
|
- |
|
|
- |
|
|
(35,482 |
) |
Stock based compensation (Note 12) |
|
- |
|
|
- |
|
|
368,790 |
|
|
- |
|
|
- |
|
|
368,790 |
|
Warrants issued on private placements (Note
13) |
|
- |
|
|
(863,863 |
) |
|
377,234 |
|
|
- |
|
|
- |
|
|
(486,629 |
) |
Warrants extended (note 13) |
|
- |
|
|
- |
|
|
264,938 |
|
|
- |
|
|
(841,247 |
) |
|
(576,309 |
) |
Warrants exercised (Note 13) |
|
5,953,913 |
|
|
822,391 |
|
|
- |
|
|
- |
|
|
- |
|
|
822,391 |
|
Fair value of warrants exercised |
|
- |
|
|
193,796 |
|
|
(47,675 |
) |
|
- |
|
|
- |
|
|
146,121 |
|
Warrants modified (Note 13) |
|
- |
|
|
- |
|
|
5,224,863 |
|
|
- |
|
|
- |
|
|
5,224,863 |
|
Net loss and comprehensive loss |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
(5,933,928 |
) |
|
(5,933,928 |
) |
Balance at October 31, 2013 |
|
158,491,425 |
|
$ |
57,755,613 |
|
$ |
32,822,327 |
|
$ |
1,557 |
|
$ |
(89,043,178 |
) |
$ |
1,536,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation (Note 12) |
|
- |
|
|
- |
|
|
379,253 |
|
|
- |
|
|
- |
|
|
379,253 |
|
Warrants extended (note 13) |
|
- |
|
|
- |
|
|
168,632 |
|
|
- |
|
|
(168,632 |
) |
|
- |
|
Warrants exercised (Note 13) |
|
27,410,717 |
|
|
6,801,619 |
|
|
- |
|
|
- |
|
|
- |
|
|
6,801,619 |
|
Fair value of warrants exercised |
|
- |
|
|
6,078,497 |
|
|
(6,078,497 |
) |
|
- |
|
|
- |
|
|
- |
|
Bridge loan converted (Note 14) |
|
2,517,501 |
|
|
302,100 |
|
|
1,557 |
|
|
(1,557 |
) |
|
- |
|
|
302,100 |
|
Warrants issued on conversion of bridge loan (Note 14) |
|
- |
|
|
(143,406 |
) |
|
143,406 |
|
|
- |
|
|
- |
|
|
- |
|
Shares issued on settlement of accounts
payable |
|
17,081 |
|
|
8,353 |
|
|
- |
|
|
- |
|
|
- |
|
|
8,353 |
|
Net loss and comprehensive loss |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
(4,164,871 |
) |
|
(4,164,871 |
) |
Balance at October 31, 2014 |
|
188,436,724 |
|
$ |
70,802,776 |
|
$ |
27,436,678 |
|
|
- |
|
$ |
(93,376,681 |
) |
$ |
4,862,773 |
|
See accompanying notes.
5
MICROMEM TECHNOLOGIES INC. |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Expressed in United States dollars)
|
|
For the years ended October 31, 2014, 2013 and 2012 |
|
1. |
REPORTING ENTITY AND NATURE OF BUSINESS |
|
|
|
|
Micromem Technologies Inc. (Micromem or the Company)
is incorporated under the laws of the Province of Ontario, Canada. The
principal business address of the Company is 121 Richmond Street West,
Suite 304, Toronto, Ontario, Canada. |
|
|
|
|
The Company develops, based upon proprietary technology,
customized magnetic sensor applications for companies (referred to as
development partners) operating internationally in various industry
segments. The Company has not generated commercial revenues through
October 31, 2014 and is devoting substantially all its efforts to securing
commercial revenue opportunities. |
|
|
|
|
These 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 exploitation of the Companys
technologies in conjunction with various strategic partners and
customers. |
|
|
|
|
(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 consolidated financial statements
were authorized for issuance and release by the Companys Board of Directors on
February 27, 2015.
6
MICROMEM TECHNOLOGIES INC. |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Expressed in United States dollars)
|
|
For the years ended October 31, 2014, 2013 and 2012 |
|
2. |
GOING CONCERN |
|
|
|
These consolidated financial statements have been
prepared on the going concern basis in accordance with International
Financial Reporting Standards (IFRS), which presumes that the Company
will be able to realize its assets and discharge its liabilities in the
normal course of business for the foreseeable future. |
|
|
|
There are material uncertainties related to conditions
and events that cast significant doubt about the Companys ability to
continue as a going concern for a reasonable period of time in future.
During the year ended October 31, 2014, the Company reported a net loss
and comprehensive loss of $4,164,871 (2013 - $5,933,928; 2012 -
$1,775,065) and negative cash flow from operations of $2,883,079
(2013-$2,515,315; 2012 $2,573,982). The Companys working capital position
as at October 31, 2014 is $1,034,921 (2013 $425,888). |
|
|
|
The Companys success depends on the profitable
commercialization of its proprietary magnetic sensor technology. There is
no assurance that the Company will be successful in the profitable
commercialization of its technology. Based upon its current operating and
financial plans, management of the Company believes that it will have
sufficient access to financial resources to fund the Companys planned
operations through fiscal 2015; however, the ability of the Company to
continue as a going concern is dependent upon its ability to secure
additional financing and/or profitably commercialize its technology. The
financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets
or the amounts and classifications of liabilities that may result from the
possible inability of the Company to continue as a going
concern. |
|
|
|
If the going concern assumption 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 cases, these
adjustments could be material. |
7
MICROMEM TECHNOLOGIES INC. |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Expressed in United States dollars)
|
|
For the years ended October 31, 2014, 2013 and 2012 |
|
3. |
BASIS OF PRESENTATION |
|
|
|
|
|
a) |
Statement of compliance: |
|
|
|
|
|
|
These consolidated financial statements have been
prepared in accordance with IFRS and its interpretations adopted by
International Accounting Standards Board (IASB). |
|
|
|
|
|
b) |
Basis of measurement: |
|
|
|
|
|
|
The 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 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 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. |
|
|
|
|
|
|
Information about assumptions and estimation
uncertainties that have a significant risk of resulting in a material
adjustment are as follows: |
|
|
|
|
|
|
i) |
The Company makes estimates and utilizes assumptions in
determining the fair value for stock based compensation expense, warrants,
the (gain) loss on the revaluation of the derivative warrant liability,
the (gain) loss on the revaluation of the embedded derivatives relating to
bridge loans and the bifurcation of convertible
debt. |
8
MICROMEM TECHNOLOGIES INC. |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Expressed in United States dollars)
|
|
For the years ended October 31, 2014, 2013 and 2012 |
|
3. |
BASIS OF PRESENTATION
(Contd) |
|
d) |
Use of estimates and judgments: (Contd) |
|
|
|
|
|
|
ii) |
The Company makes estimates related to the recovery of
deferred development costs based on the expectation and assumption of
realizing revenues from future commercial agreements that it anticipates
will develop with the companies for whom these projects have been
undertaken. Changes in these expectations and assumptions could result in
a change in the recoverable amount calculated. |
|
|
|
|
|
|
iii) |
The Company applies judgement when establishing whether
the capitalization criteria under IAS 38, Intangible Assets, for
internally developed intangible assets. |
|
|
|
|
|
|
iv) |
The Company makes estimates related to the useful lives
of property and equipment, patents and intangible assets and the related
amortization. The Company also periodically assesses the recoverability of
long-lived assets. The recoverability analysis requires the Company to
make assumptions about future operations. Changes to one or more
assumptions would result in a change in the recoverable amount calculated
and/or amortization expensed. |
|
|
|
|
|
|
v) |
Deferred income tax assets are recognized for all
deductible temporary differences, carry-forward of unused tax assets and
unused tax losses, to the extent that it is probable that future taxable
profit will be available against which the deductible temporary
differences and carry-forward of unused tax assets and unused tax losses
can be utilized. At October 31, 2014, the Company has assessed that it is
not probable that sufficient taxable profit will be available to use
deferred income tax assets based on operating losses in prior years,
therefore, there are no balances carried in the consolidated statements of
financial position for such assets. |
|
|
|
|
|
|
vi) |
The Company applies judgment in assessing whether
material uncertainties exist that would cause doubt as to the whether the
Company could continue as a going concern. |
|
|
|
|
|
|
vii) |
The Company applies judgment in assessing the functional
currency of each entity consolidated in these financial
statements. |
9
MICROMEM TECHNOLOGIES INC. |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Expressed in United States dollars)
|
|
For the years ended October 31, 2014, 2013 and 2012 |
|
4. |
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES |
|
|
|
|
a) |
Basis of consolidation: |
|
|
|
|
|
Subsidiaries are legal entities controlled by the
Company. Control exists when the Company is exposed, or has rights to
variable returns from an investee and has the ability to affect those
returns through its power over the investee. The financial statements of
the subsidiaries are included in the consolidated financial statements
from the date that control commences until the date control
ceases. |
|
|
|
|
|
These consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All
inter-company transactions and balances have been eliminated. The
accounting policies have been consistently applied by the Companys
subsidiaries. |
|
|
|
|
b) |
Foreign currency translation: |
|
|
|
|
|
IFRS requires that the functional currency of each entity
in the consolidated entity be determined separately in accordance with
specific indicators and should be measured using the currency of the
primary economic environment in which the entity operates (the functional
currency). As a result of an assessment of the primary indicators,
management assessed the functional currency of the Company and its
subsidiaries to be U.S. dollar (USD). The consolidated financial
statements of the Company are prepared and presented using the
USD. |
|
|
|
|
|
Foreign currency transactions denominated in other than
U.S. dollars are translated into the functional currency on the following
basis: |
|
i) |
Monetary assets and liabilities are translated at the
rates of exchange prevailing at the statement of financial position
date. |
|
|
|
|
ii) |
Non-monetary assets and liabilities that are measured at
historical cost are translated using the exchange rate at the date of the
transaction. |
|
|
|
|
iii) |
Income and expenses for each income statement line item
presented are translated at average exchange rates during the quarter in
which they are recognized. |
Exchange differences resulting from
the settlement of foreign currency transactions are recognized directly in the
consolidated statement of loss and comprehensive loss in the period in which
incurred.
10
MICROMEM TECHNOLOGIES INC. |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Expressed in United States dollars)
|
|
For the years ended October 31, 2014, 2013 and 2012 |
|
4. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Contd) |
|
|
|
|
c) |
Financial Instruments: Recognition, Measurement,
Disclosure and Presentation: |
|
|
|
|
|
The Company initially recognizes loans and receivables
and deposits on the date that they are originated. All other financial
assets including assets designated at fair value through profit or loss
(FVTPL) are recognized initially on the trade date at which the Company
becomes a party to the contractual provisions of the instrument. |
|
|
|
|
|
The Company derecognizes a financial asset when the
contractual rights to the cash flows from the asset expire. |
|
|
|
|
|
Financial assets and liabilities are offset and the net
amount presented in the statement of financial position only when the
Company has the legal right to offset the amounts and intends either to
settle on a net basis or to realize the asset and settle the liability
simultaneously. |
|
|
|
|
|
The Companys financial assets consist of cash and
deposits and other receivables and the Companys financial liabilities
consist of accounts payable and accrued liabilities, bridge loans,
derivative warrant liability and embedded derivatives in bridge
loans. |
|
|
|
|
|
All financial assets and financial liabilities, including
derivatives, are initially measured in the statement of financial position
at fair value, except for loans and receivables, investments held-to
maturity and other financial liabilities, which are measured at amortized
cost. Measurement in subsequent periods depends on whether the financial
instrument had been classified as FVTPL, available-for-sale,
held-to-maturity, loans and receivables, or other liabilities. |
|
|
|
|
|
FVTPL financial assets are measured at fair value and all
gains and losses are included in the statement of loss and comprehensive
loss in the period in which they arise. Available- for-sale financial
assets are measured at fair value with revaluation gains and losses
included in other comprehensive income until the assets are removed from
the statement of financial position. |
11
MICROMEM TECHNOLOGIES INC. |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Expressed in United States dollars)
|
|
For the years ended October 31, 2014, 2013 and 2012 |
|
4. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Contd) |
|
|
|
|
c) |
Financial Instruments: Recognition, Measurement,
Disclosure and Presentation: (Contd) |
|
|
|
|
|
The Company classifies cash as FVTPL. Deposits and other
receivables are classified as loans and receivables, and are initially
measured at fair value and subsequently at amortized cost using the
effective interest rate method. Accounts payable and accrued liabilities
and bridge loans are classified as other liabilities, and initially
measured at fair value and subsequently at amortized cost using the
effective interest rate method. The derivative warrant liability and
embedded derivatives in bridge loans are classified at FVTPL and are
measured at fair value with unrealized gains or losses reported in the
consolidated statement of loss and comprehensive loss. |
|
|
|
|
d) |
Compound Financial Instruments |
|
|
|
|
|
Compound financial instruments issued by the Company
comprise convertible notes that can be converted to share capital at the
option of the holder and the number of shares to be issued does not vary
with changes in their fair value. |
|
|
|
|
|
The liability component of a compound financial
instrument is recognized initially at the fair value of a similar
liability that does not have an equity conversion option. |
|
|
|
|
|
The equity component, if the conversion feature of the
convertible note is in US dollars, is recognized initially as the
difference between the fair value of the compound financial instrument as
a whole and the fair value of the liability component. Any directly
attributable transaction costs are allocated to the liability and equity
components in proportion to their initial carrying amounts. |
|
|
|
|
|
Subsequent to initial recognition, the liability
component of a compound financial instrument is measured at amortized cost
using the effective interest rate method. The equity component of a
compound financial instrument is not remeasured subsequent to initial
recognition. |
|
|
|
|
|
Interest, dividends, losses and gains relating to the
financial liability are recognized in profit or loss except for borrowing
costs on qualifying assets which are added to asset cost. Distributions to
the equity holders are recognized in equity, net of any tax
effect. |
12
MICROMEM TECHNOLOGIES INC. |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Expressed in United States dollars)
|
|
For the years ended October 31, 2014, 2013 and 2012 |
|
4. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Contd) |
|
|
|
|
e) |
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 common shares 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. |
|
|
|
|
f) |
Derivative Liability |
|
|
|
|
|
The Companys derivative financial instruments consist of
derivative liabilities in relation to its share purchase
warrants. |
13
MICROMEM TECHNOLOGIES INC. |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Expressed in United States dollars)
|
|
For the years ended October 31, 2014, 2013 and 2012 |
|
4. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Contd) |
|
f) |
Derivative Liability (Contd) |
|
|
|
|
|
|
i) |
Derivative Warrant Liability: |
|
|
|
|
|
|
|
The Company has issued share purchase warrants in
conjunction with private placements for the purchase of common shares of
the Company. Until October 2013 (Note 13(b)), 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 (CDN
warrants) to share capital. |
|
|
|
|
|
|
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: |
|
(ii.1) |
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.2) |
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.
|
14
MICROMEM TECHNOLOGIES INC. |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Expressed in United States dollars)
|
|
For the years ended October 31, 2014, 2013 and 2012 |
|
4. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Contd) |
|
f) |
Derivative Liability (Contd) |
|
ii) |
Conversion Feature of Bridge Loans
(Contd) |
|
(ii.3) |
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.
|
|
g) |
Loan Impairment: |
|
|
|
|
|
Impaired loans are accounted for at their face amount net
of the allowance for loan impairment. When a loan is deemed to be
impaired, its carrying amount is reduced to its estimated realizable
amount which is measured by discounting the expected future cash flows at
the effective interest rate inherent in the loan. The amount initially
recognized as an impairment loan, together with any subsequent change, is
charged to the allowance as an adjustment. A write-off of the loan will
occur when the loan is believed to have no reasonable expectation of
collectability. |
|
|
|
|
h) |
Intangible Assets |
|
|
|
|
|
Costs for the general development of the Companys sensor
technology are expensed unless they meet the criteria for deferral.
Expenditures are capitalized if the Company can demonstrate each of the
following criteria: (i) the technical feasibility of completing the
intangible asset so that it will be available for use or sale, (ii) its
intention to complete the intangible asset and use or sell it, (iii) its
ability to use or sell the intangible asset, (iv) how the intangible asset
will generate probable future economic benefits, (v) the availability of
adequate technical, financial and other resources to complete the
development and to use or sell the intangible asset, and (vi) its ability
to measure reliably the expenditure attributable to the intangible asset
during its development; otherwise, they are expensed as incurred.
Commencing in 2011, the Company determined that these costs met the
criteria and, accordingly, these costs have been capitalized and are
tested in each reporting period for impairment. Amortization is provided
on a 7 year straight-line basis. Commencing in 2014 amortization expense
of intangible assets is capitalized as deferred development costs as these
charges are directly related to development. |
15
MICROMEM TECHNOLOGIES INC. |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Expressed in United States dollars)
|
|
For the years ended October 31, 2014, 2013 and 2012 |
|
4. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Contd) |
|
|
|
|
i) |
Property and Equipment: |
|
|
|
|
|
Property and equipment are recorded at cost and are
amortized over their estimated useful lives at the following annual rates
and methods: |
Computers |
30% declining balance basis
|
Office equipment |
30% declining balance basis
|
|
j) |
Impairment of Long-lived Assets: |
|
|
|
|
|
Long-lived assets consist of property and equipment,
patents, intangible assets, and deferred development costs. |
|
|
|
|
|
The carrying amounts of property and equipment, patents,
intangible assets and deferred development costs, are reviewed for
impairment when events or changes in circumstances indicate that the
carrying amounts may not be recoverable When the carrying amount exceeds
the estimated recoverable amount, the assets are written down to their
recoverable amount. |
|
|
|
|
|
The recoverable amount of long-lived assets is the
greater of fair value less costs of disposal and value in use. In
assessing value in use, estimated future cash flows are discounted to
their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to
the asset. Impairment losses are recognized in the consolidated statements
of loss and comprehensive loss. |
|
|
|
|
|
An assessment is made at each reporting date as to
whether there is any indication that previously recognized impairment
losses may no longer exist or may have decreased. If such indication
exists, the recoverable amount is estimated. A previously recognized
impairment loss is reversed only if there has been a change in the
estimates used to determine the assets recoverable amount since the last
impairment loss was recognized. If that is the case, the carrying amount
of the asset is increased to its recoverable amount. That increased amount
cannot exceed the carrying amount that would have been determined, net of
amortization, had no impairment loss been recognized for the asset in
prior years. Such reversal is recognized in the consolidated statements of
loss and comprehensive loss. Following the recognition or reversal of an
impairment loss, the amortization charge applicable to the asset is
adjusted prospectively in order to systematically allocate the revised
carrying amount, net of any residual value, over the estimated useful
life. |
|
|
|
|
|
Gains or losses on the disposal of property and
equipment, patents and intangible assets represent the difference between
the net proceeds and the carrying value at the date of
sale. |
16
MICROMEM TECHNOLOGIES INC. |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Expressed in United States dollars)
|
|
For the years ended October 31, 2014, 2013 and 2012 |
|
4. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Contd) |
|
|
|
|
k) |
Research and Development Costs: |
|
|
|
|
|
Research costs are expensed in the period incurred.
Development costs are expensed as incurred unless they meet the criteria
for deferral. Expenditures during the development phase are capitalized if
the Company can demonstrate each of the following criteria: (i) the
technical feasibility of completing the asset so that it will be available
for use or sale, (ii) its intention to complete the asset and use or sell
it, (iii) its ability to use or sell the asset, (iv) how the asset will
generate probable future economic benefits, (v) the availability of
adequate technical, financial and other resources to complete the
development and to use or sell the asset, and (vi) its ability to measure
reliably the expenditure attributable to the asset during its development;
otherwise, these costs are expensed as incurred. Commencing in 2009, the
Company determined that its continuing activities related to the
application of its sensor technology to projects met the deferral criteria
and, accordingly, these costs have been capitalized and are tested in each
reporting period for recoverability. Development costs will be amortized
on an appropriate basis at the time each of the developed assets is
available for use. |
|
|
|
|
|
Payments received from development partners on projects
are recorded to deferred development costs as a recovery of cost
incurred. |
|
|
|
|
l) |
Patents: |
|
|
|
|
|
Patents are recorded at cost and are amortized on a
straight line basis over their estimated useful lives of 5 years. Patents
are recorded net of accumulated amortization with amortization expense
capitalized as deferred development costs since the patents are directly
related to development. |
|
|
|
|
m) |
Unit Private Placements: |
|
|
|
|
|
The Company uses the relative fair value approach in
accounting for the value assigned to the common shares and the common
share purchase warrants which it had made available in the unit private
placement financings that it secured, calculated in accordance with the
Black Scholes option-pricing model. |
17
MICROMEM TECHNOLOGIES INC. |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Expressed in United States dollars)
|
|
For the years ended October 31, 2014, 2013 and 2012 |
|
4. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Contd) |
|
|
|
|
n) |
Stock based Compensation and Other Stock based
Payments: |
|
|
|
|
|
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. Where share based payments are issued to
non-employees, they are recorded at the fair value of the goods or
services received in the statement of loss and comprehensive loss. If the
fair value is not readily determinable the amount is based on the fair
value of the equity instrument granted. Stock based compensation is
charged to operations over the vesting period and the offset is credited
to contributed 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 of 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. |
|
|
|
|
o) |
Income Taxes: |
|
|
|
|
|
Income tax expense comprises current and deferred tax.
Current tax and deferred tax are recognized in profit or loss except to
the extent that it relates to a business combination, or items recognized
directly in equity or in other comprehensive income. |
|
|
|
|
|
Current tax is the expected tax payable or receivable on
the taxable income or loss for the year, using tax rates enacted or
substantively enacted at the reporting date and any adjustment to tax
payable in respect of previous years. |
18
MICROMEM TECHNOLOGIES INC. |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Expressed in United States dollars)
|
|
For the years ended October 31, 2014, 2013 and 2012 |
|
4. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Contd) |
|
o) |
Income Taxes: (Contd) |
|
|
|
|
|
Deferred tax is recognized in respect of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation purposes.
Deferred tax is not recognized for the following temporary differences:
the initial recognition of assets or liabilities in a transaction that is
not a business combination and that affects neither accounting nor taxable
income or loss and differences relating to investments in subsidiaries and
jointly controlled entities to the extent that it is probable that they
will not reverse in the foreseeable future. In addition, deferred tax is
not recognized for taxable temporary differences arising on the initial
recognition of goodwill. |
|
|
|
|
|
Deferred tax is measured at the tax rates that are
expected to be applied to temporary differences when they reverse, based
on the rates that have been enacted or substantively enacted by the
reporting date. |
|
|
|
|
|
Deferred tax assets and liabilities are offset if there
is a legally enforceable right to offset current tax liabilities and
assets and they relate to income taxes levied by the same tax authority on
the same taxable entity, or on different tax entities, but they intend to
settle current tax liabilities and assets on a net basis or their tax
assets and liabilities will be realized simultaneously. |
|
|
|
|
|
A deferred tax asset is recognized for unused tax losses,
tax credits and deductible temporary differences, to the extent that it is
probable that future taxable profits will be available against which they
can be utilized. Deferred tax assets are reviewed at each reporting date
and are reduced to the extent that it is no longer probable that the
related tax benefit will be realized. |
|
p) |
Earnings or Loss Per Share: |
|
|
|
|
|
Basic earnings (loss) per share is computed by dividing
net earnings (loss) by the weighted average number of common shares
outstanding for the period. Diluted earnings (loss) per share is computed
by adjusting the weighted average number of number of common shares
outstanding for the effects of all dilutive potential common shares, which
are comprised of outstanding warrants, conversion options and vested stock
options. Diluted earnings (loss) per common share assumes that any
proceeds received for in-the-money warrants and options would be used to
buy common shares at the average market price for the
period. |
19
MICROMEM TECHNOLOGIES INC. |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Expressed in United States dollars)
|
|
For the years ended October 31, 2014, 2013 and 2012 |
|
4. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Contd) |
|
q) |
Changes in Accounting Standards: |
|
|
|
|
|
On November 1, 2013, the Company adopted the following
new standards, amendments to standards and interpretations which are
effective for periods beginning on or after January 1,
2013: |
|
|
IFRS 10 Consolidated Financial
Statements |
|
|
IFRS 11 Joint Arrangements
|
|
|
IFRS 12 Disclosures of
Interests in Other Entities |
|
|
IFRS 13 Fair Value Measurement
|
|
|
IAS 27 Separate financial
statements |
|
|
IAS 28 Investment in Associates
and Joint Ventures |
The adoption of these accounting
standards had no impact on the consolidated financial statements previously
filed by the Company. As a result no reconciliations are provided for the
adoption of these new standards.
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 the IFRS
Interpretations Committee that are mandatory for future accounting
periods. The standards impacted that are applicable to the Company are as
follows: |
|
|
|
|
a) |
IFRS 2 Share-based Payments, the amendments to
IFRS 2, issued in December 2013 clarifies the definition of vesting
conditions, and separately defines a performance condition and a
service condition. A performance condition requires the counterparty to
complete a specified period of service and to meet a specified performance
target during the service period. A service condition solely requires the
counterparty to complete a specified period of service. The amendments are
effective for share-based payment transactions for which the grant date is
on or after July 1, 2014. |
20
MICROMEM TECHNOLOGIES INC. |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Expressed in United States dollars)
|
|
For the years ended October 31, 2014, 2013 and 2012 |
|
5. |
NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET
ADOPTED (Contd) |
|
|
|
|
b) |
IFRS 15 Revenue from Contracts with Customers,
which will replace IAS 11 Construction Contracts, IAS 18
Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15
Agreements for the Construction of Real Estate, IFRIC 18
Transfer of Assets from Customers, and SIC 31 Revenue Barter
Transactions Involving Advertising Services. The new standard will be
mandatorily effective for fiscal years beginning on or after January 1,
2017, and interim periods within that year. Earlier application is
permitted. |
|
|
|
|
|
The core principle of the new standard is for companies
to recognize revenue to depict the transfer of goods or services to
customers in amounts that reflect the consideration to which the company
expects to be entitled in exchange for those goods or services. The new
standard will also result in enhanced disclosures about revenue, provide
guidance for transactions that were not previously addressed
comprehensively and improve guidance for multiple deliverable
arrangements. The Corporation is assessing the new standard to determine
its impact of the Corporations financial statements. |
|
|
|
|
c) |
IAS 32 Financial instruments presentation (IAS 32)
was amended to clarify the criteria that should be considered in
determining whether an entity has a legally enforceable right of set off
in respect of its financial instruments. Amendments to IAS 32 are
applicable to annual periods beginning on or after January 1, 2014 with
retrospective application required. |
|
|
|
|
d) |
IFRS 9 Financial Instruments, was issued in November
2009 and contained requirements for financial assets. This standard
addresses classification and measurement of financial assets and replaces
the multiple category and measurement models in IAS 39, Financial
Instruments Recognition and Measurement, for debt instruments with a new
mixed measurement model having only two
categories: |
|
|
Amortized cost and |
|
|
Fair value through profit and
loss |
IFRS 9 also replaces the models for
measuring equity instruments, and such instruments are either recognized at fair
value through earnings or at fair value through other comprehensive income.
Where such equity instruments are measured at fair value through other
comprehensive income, dividends, to the extent not clearly representing a return
of investment, are recognized in earnings; however, other gains and losses
(including impairments) associated with such instruments remain in accumulated
other comprehensive income indefinitely.
21
MICROMEM TECHNOLOGIES INC. |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Expressed in United States dollars)
|
|
For the years ended October 31, 2014, 2013 and 2012 |
|
5. |
NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET
ADOPTED (Contd) |
|
|
|
|
d) |
(Contd) |
|
|
|
|
|
Requirements for financial liabilities were added in
October 2010 and largely carried forward existing requirements in IAS 39,
Financial Instruments Recognition and Measurement, except that fair
value changes due to credit risk for liabilities designated at fair value
through profit or loss would generally be recorded in other comprehensive
income. |
|
|
|
|
|
The effective date of IFRS 9 is for annual periods
beginning on or after January 1, 2018. |
The Company is currently assessing the
impact of the above standards.
6. |
FAIR VALUE DISCLOSURES |
|
|
|
The following summarizes the methods and assumptions used
in estimating the fair value of the Company's financial instruments where
measurement is required. The fair value of financial instruments
consisting of cash, deposits and other receivables, promissory note
receivable, accounts payable and accrued liabilities and bridge loans
approximate their carrying amounts due to the relatively short period to
maturity. Fair value amounts represent point-in-time estimates and may not
reflect fair value in the future. The measurements are subjective in
nature, involve uncertainties and are a matter of significant judgment.
The methods and assumptions used to develop fair value measurements, for
those financial instruments where fair value is recognized in the
statement of financial position, have been prioritized into three levels
of the fair value hierarchy as follows: |
|
|
|
Level 1: Values based on unadjusted quoted prices in
active markets that are accessible at the measurement date for identical
assets or liabilities. |
|
|
|
Level 2: Values based on quoted prices in markets that
are not active or model inputs that are observable either directly or
indirectly for substantially the full term of the asset or
liability. |
|
|
|
Level 3: Values based on prices or valuation techniques
that require inputs that are both unobservable and significant to the
overall fair value measurement. |
|
|
|
The Company's financial instruments measured at fair
value on the statement of financial position date consist of cash,
derivative warrant liability and the conversion feature on bridge loans.
Cash is measured at Level 1 of the fair value hierarchy. Derivative
warrant liability and the conversion feature on bridge loans are measured
at Level 2 of the fair value hierarchy. |
22
MICROMEM TECHNOLOGIES INC. |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Expressed in United States dollars)
|
|
For the years ended October 31, 2014, 2013 and 2012 |
|
7. |
CAPITAL RISK MANAGEMENT |
|
|
|
The Companys objective when managing capital is to
maintain its ability to continue as a going concern in order to provide
returns for shareholders and benefits for other stakeholders. The Company
includes equity, comprised of issued share capital, equity component of
bridge loans, contributed surplus and deficit, in the definition of
capital. The Companys primary objective with respect to its capital
management is to ensure that it has sufficient cash resources to further
develop and market its technologies and to maintain its ongoing
operations. To secure the additional capital necessary to pursue these
plans, the Company may attempt to raise additional funds through the
issuance of equity and warrants or by securing strategic partners. The
Company is not subject to externally imposed capital requirements and
there has been no change with respect to the overall capital risk
management strategy during the year ended October 31, 2014. |
|
|
8. |
DEPOSITS AND OTHER RECEIVABLES |
|
|
|
The balance reported as Deposits and Other Receivables
consists of: |
|
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
Amounts receivable (a) |
|
450,000 |
|
|
187,290 |
|
|
|
Advances to Officers, Directors and Employees
(b) |
|
386,031 |
|
|
- |
|
|
|
Prepaid Insurance and other
|
|
36,735 |
|
|
47,451 |
|
|
|
Promissory note receivable (c) |
|
- |
|
|
- |
|
|
|
|
|
872,766 |
|
|
234,741 |
|
|
|
(a) |
Amounts receivable relate to milestones met at October
31, 2014 per development contracts. These amounts are recorded as
recoveries of deferred development costs. |
|
|
|
|
|
(b) |
At October 31, 2014 Advances to Officers, Directors and
Employees consisted of: |
|
|
|
|
|
|
(i) |
Advances to the Chairman of $38,084 and to a senior
employee of $80,916. These advances were repaid subsequent to October 31,
2014 (Note 23). |
|
|
|
|
|
|
(ii) |
An advance to the Controller of
$22,957. |
The advances in (i) and (ii) above are
non interest bearing, unsecured and due on demand.
23
MICROMEM TECHNOLOGIES INC. |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Expressed in United States dollars)
|
|
For the years ended October 31, 2014, 2013 and 2012 |
|
8. |
DEPOSITS AND OTHER RECEIVABLES
(Contd) |
|
(b) |
At October 31, 2014 Advances to Officers, Directors and
Employees consisted of: (Contd) |
|
(iii) |
An advance of $244,074 to the President of MAST (Refer to
Note 18 for the terms of this advance and to Note 23 for settlement).
|
|
(c) |
In April 2009, the Company advanced $200,000 to a private
company incorporated in New Jersey, which, at that time, was also 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: |
|
i) |
Maturity date of September 30, 2010. |
|
|
|
|
ii) |
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%. |
|
|
|
|
iii) |
Secured by a first priority security interest over all of
the assets of the private company. |
In 2012 the Company received payments
totaling $30,000 against the amounts previously reserved.
At October 31, 2014 the gross balance
outstanding was $145,815 including outstanding principal plus accrued interest
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.
|
|
|
Gross |
|
|
Net |
|
|
|
Balance outstanding at
November 01, 2011 |
|
111,553 |
|
|
- |
|
|
|
Interest accrued |
|
20,300 |
|
|
20,300 |
|
|
|
Reserved |
|
- |
|
|
(20,300 |
) |
|
|
Repayment |
|
(30,000 |
) |
|
- |
|
|
|
Balance outstanding at
October 31, 2012 |
|
101,853 |
|
|
- |
|
|
|
Interest accrued |
|
20,105 |
|
|
20,105 |
|
|
|
Reserved |
|
- |
|
|
(20,105 |
) |
|
|
Repayment |
|
- |
|
|
- |
|
|
|
Balance outstanding at
October 31, 2013 |
|
121,958 |
|
|
- |
|
|
|
Interest accrued |
|
23,857 |
|
|
23,857 |
|
|
|
Reserved |
|
- |
|
|
(23,857 |
) |
|
|
Repayment |
|
- |
|
|
- |
|
|
|
Balance outstanding at October 31, 2014 |
|
145,815 |
|
|
- |
|
|
24
MICROMEM TECHNOLOGIES INC. |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Expressed in United States dollars)
|
|
For the years ended October 31, 2014, 2013 and 2012 |
|
9. |
PROPERTY AND EQUIPMENT |
|
|
|
Computers |
|
|
Furniture and |
|
|
Total |
|
|
|
|
|
|
|
Equipment |
|
|
|
|
|
Cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At November 1, 2011
|
$ |
40,734 |
|
$ |
25,989 |
|
$ |
66,723 |
|
|
Additions |
|
- |
|
|
- |
|
|
- |
|
|
Year ended October 31, 2012 |
$ |
40,734 |
|
$ |
25,989 |
|
$ |
66,723 |
|
|
|
|
|
|
|
|
|
|
|
|
|
At November 1, 2012 |
$ |
40,734 |
|
|
25,989 |
|
$ |
66,723 |
|
|
Additions |
|
14,839 |
|
|
- |
|
$ |
14,839 |
|
|
Disposals |
|
(6,360 |
) |
|
- |
|
$ |
(6,360 |
) |
|
Year ended October 31, 2013 |
$ |
49,213 |
|
$ |
25,989 |
|
$ |
75,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
At November 1, 2013 |
$ |
49,213 |
|
|
25,989 |
|
$ |
75,202 |
|
|
Additions |
|
16,508 |
|
|
- |
|
$ |
16,508 |
|
|
Disposals |
|
(13,436 |
) |
|
- |
|
$ |
(13,436 |
) |
|
Year ended October 31, 2014 |
$ |
52,285 |
|
$ |
25,989 |
|
$ |
78,274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
amortization |
|
Computers |
|
|
Furniture and |
|
|
Total |
|
|
|
|
|
|
|
Equipment |
|
|
|
|
|
At November 1, 2011
|
$ |
30,533 |
|
$ |
25,989 |
|
$ |
56,522 |
|
|
Amortization for the year |
|
4,414 |
|
|
- |
|
|
4,414 |
|
|
Year ended October 31, 2012 |
$ |
34,947 |
|
$ |
25,989 |
|
$ |
60,936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
At November 1, 2011
|
$ |
34,947 |
|
|
25,989 |
|
$ |
60,936 |
|
|
Amortization for the year |
|
4,989 |
|
|
- |
|
|
4,989 |
|
|
Adjustment for disposals |
|
(4,721 |
) |
|
- |
|
|
(4,721 |
) |
|
Year ended October 31, 2013 |
$ |
35,215 |
|
$ |
25,989 |
|
$ |
61,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
At November 1, 2013
|
$ |
35,215 |
|
|
25,989 |
|
$ |
61,204 |
|
|
Amortization for the year |
|
7,357 |
|
|
- |
|
|
7,357 |
|
|
Adjustment for disposals |
|
(11,770 |
) |
|
- |
|
|
(11,770 |
) |
|
Year ended October 31, 2014 |
$ |
30,802 |
|
$ |
25,989 |
|
$ |
56,791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value at November
1, 2012 |
$ |
5,787 |
|
|
- |
|
$ |
5,787 |
|
|
Net book value at October
31, 2013 |
$ |
13,998 |
|
|
- |
|
$ |
13,998 |
|
|
Net book value at October 31, 2014 |
$ |
21,483 |
|
|
- |
|
$ |
21,483 |
|
25
MICROMEM TECHNOLOGIES INC. |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Expressed in United States dollars)
|
|
For the years ended October 31, 2014, 2013 and 2012 |
|
10. |
DEFERRED DEVELOPMENT COSTS |
|
|
|
The breakdown of development costs that have been
capitalized is as follows: |
|
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
Opening balance |
$ |
928,077 |
|
$ |
718,163 |
|
|
|
Additional project costs incurred |
|
3,936,459 |
|
|
677,445 |
|
|
|
Recovery of deferred development costs |
|
(662,290 |
) |
|
(233,290 |
) |
|
|
Writedown of project costs |
|
(676,790 |
) |
|
(234,241 |
)
|
|
|
Closing balance |
$ |
3,525,456 |
|
$ |
928,077 |
|
|
|
Additions to deferred development costs includes patent
amortization of $44,472 (2013 - $22,354; 2012 - $15,204), and also
includes intangible asset amortization of $19,352 (2013 and 2012 -
$nil). |
|
|
|
To date, the Company has recovered from its development
partners a portion of the costs it has incurred as deferred development
costs coincident with meeting milestones as stipulated in development
contracts. |
|
|
|
In 2014, the Company provided a reserve against
cumulative development costs incurred on one development project in that
it completed the staged development phases for that contract and there was
no formal commitment as of October 31, 2014 from the development partner
to move forward with this project. In total, the Company recovered
$300,000 from the development partner on this project, $125,000 of which
was received in 2014; the net writedown in 2014 was $645,528 on this
project, to reduce the carrying value to a nominal amount. |
|
|
|
In 2013, the Company provided a reserve against deferred
development costs previously incurred with respect to three development
projects, reducing the carrying value in each case to a nominal amount. In
each case, the Company had decided not to pursue these development
projects. |
|
|
11. |
INTANGIBLE ASSETS AND PATENTS |
|
|
|
Intangible assets comprise the costs which the Company
has capitalized relating to the technical expertise and know-how that the
Company has developed with respect to the commercialization efforts
relating to its sensor technology. In 2011, the Company determined that it
had sufficiently advanced its expertise and product knowledge relating to
the general commercialization efforts for its sensor technology in
multiple industry vertical applications. |
26
MICROMEM TECHNOLOGIES INC. |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Expressed in United States dollars)
|
|
For the years ended October 31, 2014, 2013 and 2012 |
|
11. |
INTANGIBLE ASSETS AND PATENTS (Contd) |
|
|
|
It anticipates that it will realize commercial economic
benefits from the exploitation of these intangible assets in the
future. |
Intangible Assets
Cost
|
At November 01, 2011 |
$ |
135,465
|
|
|
|
Additions |
|
- |
|
|
|
Year ended October 31, 2012 |
$ |
135,465 |
|
|
|
|
|
|
|
|
|
At November 01, 2012 |
$ |
135,465
|
|
|
|
Additions |
|
- |
|
|
|
Year ended October 31, 2013 |
$ |
135,465 |
|
|
|
|
|
|
|
|
|
At November 01, 2013 |
$ |
135,465
|
|
|
|
Additions |
|
- |
|
|
|
Year ended October 31, 2014 |
$ |
135,465 |
|
|
|
|
|
|
|
|
|
Accumulated amortization |
|
|
|
|
|
|
|
|
|
|
|
At November 01, 2011 |
$ |
- |
|
|
|
Amortization for
the year |
|
19,352 |
|
|
|
Year ended October 31, 2012 |
$ |
19,352 |
|
|
|
|
|
|
|
|
|
At November 01, 2012 |
$ |
19,352 |
|
|
|
Amortization for
the year |
|
19,352 |
|
|
|
Year ended October 31, 2013 |
$ |
38,704 |
|
|
|
|
|
|
|
|
|
At November 01, 2013 |
$ |
38,704 |
|
|
|
Amortization for
the year |
|
19,352 |
|
|
|
Year ended October 31, 2014 |
$ |
58,056 |
|
|
|
|
|
|
|
|
|
Net book value at October 31, 2012
|
$ |
116,113 |
|
|
|
Net book value at October 31, 2013 |
$ |
96,761 |
|
|
|
Net book value at October 31, 2014
|
$ |
77,409 |
|
|
27
MICROMEM TECHNOLOGIES INC. |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Expressed in United States dollars)
|
|
For the years ended October 31, 2014, 2013 and 2012 |
|
11. |
INTANGIBLE ASSETS AND PATENTS (contd) |
|
|
|
Amortization of intangible assets for the year ended
October 31, 2014 was capitalized to deferred development
costs. |
Patents
Cost
|
At November 1, 2011 |
$ |
62,697 |
|
|
|
Additions |
|
26,650 |
|
|
|
Year ended October 31, 2012 |
$ |
89,347 |
|
|
|
|
|
|
|
|
|
At November 1, 2012 |
$ |
89,347 |
|
|
|
Additions |
|
44,825 |
|
|
|
Year ended October 31, 2014 |
$ |
134,172 |
|
|
|
|
|
|
|
|
|
At November 1, 2013 |
$ |
134,172
|
|
|
|
Additions |
|
176,381 |
|
|
|
Year ended October 31, 2014 |
$ |
310,553 |
|
|
|
|
|
|
|
|
|
Amortization |
|
|
|
|
|
|
|
|
|
|
|
At November 1, 2011 |
$ |
25,019 |
|
|
|
Amortization for
the year |
|
15,204 |
|
|
|
Year ended October 31, 2012 |
$ |
40,223 |
|
|
|
|
|
|
|
|
|
At November 1, 2012 |
$ |
40,223 |
|
|
|
Amortization for
the year |
|
22,354 |
|
|
|
Year ended October 31, 2013 |
$ |
62,577 |
|
|
|
|
|
|
|
|
|
At November 1, 2013 |
$ |
62,577 |
|
|
|
Amortization for
the year |
|
44,472 |
|
|
|
Year ended October 31, 2014 |
$ |
107,049 |
|
|
|
|
|
|
|
|
|
Net book value at October 31, 2012
|
$ |
49,124 |
|
|
|
Net book value at October 31, 2013 |
$ |
71,595 |
|
|
|
Net book value at October 31, 2014
|
$ |
203,504 |
|
|
Amortization of patents was capitalized
to deferred development costs for the above years.
28
MICROMEM TECHNOLOGIES INC. |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Expressed in United States dollars)
|
|
For the years ended October 31, 2014, 2013 and 2012 |
|
12. |
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 November 1,
2012 |
|
136,430,555 |
|
$ |
54,728,239 |
|
|
|
|
|
|
|
|
|
|
Private placement of units
for cash (Note 13) |
|
16,106,957 |
|
|
2,910,531 |
|
|
Warrants exercised (Note 13) |
|
5,953,913 |
|
|
822,392 |
|
|
Warrants issued on private
placements (Note 13) |
|
- |
|
|
(863,863 |
) |
|
Fair value of warrants exercised |
|
- |
|
|
193,796 |
|
|
Financing costs |
|
- |
|
|
(35,482 |
) |
|
Balance at October 31, 2013 |
|
158,491,425 |
|
$ |
57,755,613 |
|
|
|
|
|
|
|
|
|
|
Warrants exercised (Note 13) |
|
27,410,717 |
|
|
6,801,619 |
|
|
Fair value of warrants
exercised |
|
- |
|
|
6,078,497 |
|
|
Shares issued on conversion of bridge loans
(Note 14) |
|
2,517,501 |
|
|
302,100 |
|
|
Warrants issued on conversion
of bridge loan (Note 14) |
|
- |
|
|
(143,406 |
) |
|
Shares issued on settlement of accounts payable |
|
17,081 |
|
|
8,353 |
|
|
|
|
|
|
|
|
|
|
Balance at October 31, 2014 |
|
188,436,724 |
|
$ |
70,802,776 |
|
29
MICROMEM TECHNOLOGIES INC. |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Expressed in United States dollars)
|
|
For the years ended October 31, 2014, 2013 and 2012 |
|
12. |
SHARE CAPITAL, STOCK OPTIONS AND LOSS PER SHARE
(Contd) |
|
|
|
|
b) |
Stock Options |
|
|
|
|
|
Stock option plan: |
|
|
|
|
|
The Company has a fixed stock option plan. Under the
Companys stock option plan (the Plan), the Company may grant options
for up to 15,600,000 shares of common stock to directors, officers,
employees or consultants of the Company and its subsidiaries. The exercise
price of each option is equal to or greater than the market price of the
Companys shares on the date of grant unless otherwise permitted by
applicable securities regulations. An options maximum term under the Plan
is 10 years. Stock options are fully vested upon issuance by the Company
unless the Board of Directors stipulates otherwise by Directors
resolution. |
|
|
|
|
|
A summary of the status of the Companys fixed stock
option plan through October 31, 2014 and changes during the periods is as
follows: |
|
|
|
Options |
|
|
Weighted |
|
|
|
|
|
(000 |
) |
|
average |
|
|
|
|
|
|
|
|
exercise |
|
|
|
|
|
|
|
|
price |
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, November 01,
2012 |
|
9,915 |
|
|
0.24 |
|
|
|
Granted |
|
2,170 |
|
|
0.30 |
|
|
|
Expired |
|
(315 |
) |
|
(0.55 |
) |
|
|
Forfeited |
|
(295 |
) |
|
(0.23 |
)
|
|
|
Outstanding, November 01,
2013 |
|
11,475 |
|
|
0.24 |
|
|
|
Granted |
|
630
|
|
|
0.76
|
|
|
|
Outstanding, October 31, 2014 |
|
12,105 |
|
|
0.27 |
|
|
30
MICROMEM TECHNOLOGIES INC. |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Expressed in United States dollars)
|
|
For the years ended October 31, 2014, 2013 and 2012 |
|
12. |
SHARE CAPITAL, STOCK OPTIONS AND LOSS PER SHARE
(Contd) |
|
|
|
|
b) |
Stock Options (Contd) |
|
|
|
|
|
During the year ended October 31, 2014 the Company issued
a total of 630,000 stock options (2013 2,170,000). All options vest
immediately upon issuance. This total consisted of 520,000 stock options
issued to directors and officers (2013 1,120,000), 110,000 stock options
issued to employees (2013 750,000) and no stock options to outside
consultants (2013 300,000). The Company has the following stock options
outstanding at October 31, 2014: |
|
|
|
Weighted |
|
|
|
|
average |
|
|
|
|
remaining |
|
|
|
|
life |
|
Date of
issue |
#
Issued |
Strike Price |
(in years) |
Expiry Date |
|
|
|
|
|
April 5, 2011 |
125,000 |
0.35 |
1.4 |
April 5, 2016 |
October 31, 2011 |
7,275,000 |
0.20 |
2.0 |
October 31, 2016 |
April 10, 2012 |
1,905,000 |
0.35 |
2.4 |
April 10, 2017 |
January 22, 2013 |
1,090,000 |
0.30 CDN |
3.2 |
January 22, 2018 |
September 16, 2013 |
780,000 |
0.27 CDN |
3.9 |
September 16, 2018 |
October 17, 2013 |
300,000 |
0.35 |
4.0 |
October 17, 2018 |
February 10, 2014 |
350,000 |
0.85 |
4.3 |
February 10, 2019 |
April 25, 2014 |
280,000 |
0.64
|
4.5
|
April
25, 2019 |
|
12,105,000 |
|
|
|
All outstanding options at October 31,
2014 are exercisable. In 2014, the Company recorded a total expense of $379,253
(2013 - $368,790; 2012 - $430,856) with respect to the issuance of options
issued during the year, calculated in accordance with the Black Scholes
option-pricing model.
In the absence of a reliable
measurement of the services received from a consultant, the services have been
measured at the fair value of the options granted.
The underlying assumptions in the
Black Scholes option-pricing model were as follows:
|
|
2014
|
2013
|
2012
|
|
Share price |
$ 0.63 - 0.85 |
$ 0.20 - 0.36 |
$ 0.30 |
|
Volatility factor (based on historical volality) |
112% - 113% |
105% - 110% |
99% |
|
Risk free interest rate |
1.60% |
1.37% - 1.84% |
1.31% |
|
Expected life |
5 years |
5 years |
5 years |
|
Dividend yield |
0% |
0% |
0% |
|
Forfeiture rate
|
0%
|
0%
|
0%
|
31
MICROMEM TECHNOLOGIES INC. |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Expressed in United States dollars)
|
|
For the years ended October 31, 2014, 2013 and 2012 |
|
12. |
SHARE CAPITAL, STOCK OPTIONS AND LOSS PER SHARE
(Contd) |
|
|
|
|
c) |
Loss Per Share |
|
|
|
|
|
The calculation of basic and diluted loss per share for
the year ended October 31, 2014 was based on the loss attributable to
common shareholders of $4,164,871 (2013 - $5,933,928; 2012 - $1,775,065)
divided by the weighted average number of common shares outstanding of
171,534,969 (2013 146,814,466; 2012 - 123,375,510). |
|
|
|
|
|
Diluted loss per share did not include the effect of
12,105,000 stock options and 4,485,463 warrants outstanding (Note 13(c))
as they are anti-dilutive. |
13. |
PRIVATE PLACEMENTS, DERIVATIVE WARRANT LIABILITY AND
COMMON SHARE PURCHASE WARRANTS |
|
i) |
In 2013 the Company completed a series of private
placement financings with investors pursuant to prospectus and
registration exemptions set forth in applicable securities law. The
Company received gross proceeds $2,910,532 and issued a total of
16,106,957 (10,200,743 CDN; 5,906,214 US) common shares. 16,106,957 common
share purchase warrants with an average strike price of $0.22 CDN; $0.27
USD were attached to the private placement completed during 2013. All
warrants issued in 2013 have a 12 month term from issue date. |
|
|
|
|
ii) |
In 2013 the Company extended the expiry dates on a total
of 11,829,029 (7,315,808 CDN; 4,513,221 US) common share purchase warrants
which would have otherwise expired in 2013. These warrants were extended
for a period of 12 months in each case. The Company changed the strike
price of 3,673,032 CDN of these warrants from $0.205 CDN to $0.215 CDN and
the strike price remained unchanged for the balance of these warrants. The
strike price remained unchanged for all other warrants ranging from $0.20
CDN to $0.80 CDN, $0.24 USD to $0.80 USD per warrant. |
|
|
|
|
iii) |
In 2013 the Company calculated the relative fair value of
the share purchase warrants issued in connection with private placements
in accordance with the Black Scholes option-pricing model. The Company
reported a total charge to share capital of $863,863 and an offsetting
charge to contributed surplus of $377,234 for US dollar share purchase
warrants issued and $486,629 to derivative warrants liability for CDN
share purchase warrants issued. |
32
MICROMEM TECHNOLOGIES INC. |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Expressed in United States dollars)
|
|
For the years ended October 31, 2014, 2013 and 2012 |
|
13. |
PRIVATE PLACEMENTS, DERIVATIVE WARRANT LIABILITY AND
COMMON SHARE PURCHASE WARRANTS (Contd) |
|
a) |
Private Placements (Contd) |
|
|
|
|
|
|
|
The relative fair value of these share purchase warrants
was estimated using the Black Scholes option-pricing model with the
following assumptions: |
|
|
2013 |
|
|
Share price |
$0.17 - $0.58
|
|
|
Volatility factor (based on historical
volality) |
75 - 136% |
|
|
Risk free interest rate |
0.97 - 1.09% |
|
|
Dividend yield |
0% |
|
|
Expected life |
1 year |
|
|
iv) |
The Company did not complete any private placements in
2014. |
|
|
|
|
v) |
In 2014 the Company extended the expiry date on a total
of 1,405,026 common share purchase warrants which would have otherwise
expired in the period. These warrants were extended for a period of three
to six months in each case. The strike price of 1,105,026 of these
warrants was changed from $0.41 and $0.45 per warrant to $0.50 per
warrant. The strike price remained unchanged for the balance of the
warrants at $0.55 per warrant. |
|
|
|
|
|
The Company calculated the charge associated with the
extension of warrants in accordance with the Black Scholes option-pricing
model. The Company reported a total charge to deficit of $168,632 (2013 -
$841,247; 2012 - $1,322,879) and an offsetting charge to contributed
surplus of $168,632 (2013 - $264,938; 2012 - $358,983) for US dollar
warrants extended and $nil (2013 - $576,309; 2012 $963,896) to
derivative warrant liability for Canadian warrants extended. |
|
|
|
|
|
The incremental fair value of these warrants extended was
estimated using the Black Scholes option-pricing model with the following
assumptions: |
|
|
2014 |
2013 |
2012 |
|
Share price |
$0.50 |
$0.19 - $0.53
|
$0.12 - $0.30
|
|
Volatility factor (based on historical
volality) |
124 - 157% |
75 - 161% |
109 - 144% |
|
Risk free interest rate |
1.01 - 1.02% |
1.00 - 1.11% |
0.91 - 1.14% |
|
Dividend yield |
0% |
0% |
0% |
|
Expected life |
0.25 - 0.53 year |
1 year |
0.33-1.0 year |
33
MICROMEM TECHNOLOGIES INC. |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Expressed in United States dollars)
|
|
For the years ended October 31, 2014, 2013 and 2012 |
|
13. |
PRIVATE PLACEMENTS, DERIVATIVE WARRANT LIABILITY AND
COMMON SHARE PURCHASE WARRANTS (Contd) |
|
b) |
Derivative Warrant Liability |
|
|
|
|
|
The following summarizes the change in derivative warrant
liability: |
|
|
|
October 31, |
|
|
October 31, |
|
|
October 31, |
|
|
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
$ |
- |
|
$ |
1,061,544
|
|
$ |
1,178,691
|
|
|
Fair value assigned in warrants in units
issuances |
|
- |
|
|
486,629 |
|
|
289,367 |
|
|
Fair value assigned in
warrants extended |
|
- |
|
|
576,309 |
|
|
963,896 |
|
|
Fair value assigned to warrants issued on
settlements of debt (Note 14) |
|
- |
|
|
- |
|
|
306,061 |
|
|
Fair value transferred to
share capital for warrants exercised |
|
- |
|
|
(146,121 |
)
|
|
(348,947 |
)
|
|
CDN warrants converted to USD |
|
- |
|
|
(5,224,863 |
) |
|
- |
|
|
Loss (Gain) on revaluation of warrants |
|
- |
|
|
3,246,502 |
|
|
(1,327,524 |
) |
|
|
$ |
- |
|
$ |
- |
|
$ |
1,061,544 |
|
On October 28, 2013 the exercise price
of all outstanding Canadian denominated warrants was converted from CDN to USD.
As a result, these warrants are no longer considered a derivative warrants
liability. These warrants were revalued on October 28, 2013 in the amount of
$5,224,863 and this value was removed from derivative warrant liability and
recorded to contributed surplus. Until October 28, 2013, the difference between
the carrying amount of these CDN warrants and the revalued amount was recorded
as loss on revaluation of derivative warrants liability in the amount of
$3,246,502.
The derivative warrant liability was
revalued at October 28, 2013 (2012 October 31) using the Black Scholes
option-pricing model with the following assumptions:
|
|
2013
|
2012
|
|
Share price |
$0.46 |
$0.21 |
|
Volatility factor (based on historical
volality) |
106 - 255% |
81 - 153% |
|
Risk free interest rate |
1.03 - 1.09% |
1.01 - 1.03% |
|
Dividend yield |
0% |
0% |
|
Expected life |
0.14 - 1.13 year |
0.25 - 1 year |
34
MICROMEM TECHNOLOGIES INC. |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Expressed in United States dollars)
|
|
For the years ended October 31, 2014, 2013 and 2012 |
|
13. |
PRIVATE PLACEMENTS, DERIVATIVE WARRANT LIABILITY AND
COMMON SHARE PURCHASE WARRANTS (Contd) |
|
c) |
Share Purchase
Warrants |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
average exercise |
|
|
Proceeds |
|
|
|
|
Warrants |
|
|
price |
|
|
Realized |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance outstanding at October 31,2012 |
|
19,692,968 |
|
$ |
0.27 |
|
|
|
|
|
Exercised |
|
(5,953,913 |
) |
|
($0.14 |
) |
|
822,391 |
|
|
Expired |
|
(85,000 |
) |
|
($0.15 |
) |
|
|
|
|
Granted |
|
16,106,957 |
|
$ |
0.24
|
|
|
|
|
|
Balance outstanding at October 31, 2013 |
|
29,761,012 |
|
$ |
0.27 |
|
|
- |
|
|
Exercised |
|
(27,410,717 |
) |
|
(0.25 |
) |
|
6,801,619 |
|
|
Expired |
|
(382,333 |
) |
|
(0.48 |
) |
|
- |
|
|
Granted |
|
2,517,501 |
|
|
0.12
|
|
|
- |
|
|
Balance at October 31, 2014 |
|
4,485,463 |
|
|
0.37 |
|
|
|
|
The weighted average share price on
the date of exercise was $0.71 (2013 - $0.22) .
|
a) |
On December 2, 2011, the Company secured $285,000 CDN of
bridge (Loan 1) from a group of arms length investors with maturities
of six months. The loans were unsecured, bearing interest at a rate of 2%
per month (effective interest rate 26%) and convertible at the holders
option at $0.12 USD per unit. Each unit upon conversion included 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 loans were extended on
a month to month basis in July 2012. In January 2014 these loans was
converted to equity by the issuance of 2,517,501 common shares and
2,517,501 common share purchase warrants. The common share purchase
warrants have a one year term and an exercise price of $0.12 USD per
warrant (Note 23). |
|
|
|
|
b) |
On September 4, 2012, the Company secured $125,000 CDN of
bridge loans (Loan 2) from a group of arms length investors with
maturities of six months. The loans were unsecured, bearing interest at a
rate of 2% per month (effective interest rate 32%) and convertible at
the holders option at $0.18 CDN per unit. Each unit, upon conversion,
included one common share and one common share purchase warrant with a one
year expiry and an exercise price of $0.22 CDN. This loan was repaid in
the quarter ended April 30, 2013. |
35
MICROMEM TECHNOLOGIES INC. |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Expressed in United States dollars)
|
|
For the years ended October 31, 2014, 2013 and 2012 |
|
|
b. |
(Contd) |
|
|
|
|
|
A breakdown of the outstanding bridge loans at October
31, 2013 is summarized as follows: |
|
|
|
Loan 1 |
|
|
Loan 2 |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan (initial value) |
|
284,514 |
|
|
81,194 |
|
|
365,708 |
|
|
Embedded derivative |
|
- |
|
|
44,850 |
|
|
44,850 |
|
|
Interest Accrued |
|
130,686 |
|
|
15,209 |
|
|
145,895 |
|
|
Interest Paid |
|
(125,186 |
) |
|
(15,209 |
) |
|
(140,395 |
) |
|
Accretion Expense |
|
1,557 |
|
|
44,850 |
|
|
46,407 |
|
|
Gain on revaluation of embedded derivative
|
|
- |
|
|
(44,850 |
) |
|
(44,850 |
) |
|
Equity Portion of Bridge Loan
- Conversion Feature |
|
(1,557 |
)
|
|
- |
|
|
(1,557 |
)
|
|
Repayments |
|
- |
|
|
(126,044 |
) |
|
(126,044 |
) |
|
Carrying value at October 31,
2013 |
|
290,014 |
|
|
- |
|
|
290,014 |
|
In fiscal 2013 and 2014, no bridge
loans were issued.
As Loan 2 was repaid during 2013 the
embedded derivative recognized in fiscal 2012 of $44,850 was revalued to be $nil
at the time of repayment and a gain on revaluation of $40,750 (2012 $176,899)
was recognized in the statements of consolidated loss and comprehensive loss in
2013.
A breakdown of the outstanding bridge
loan at October 31, 2014 is summarized as follows:
|
|
|
Loan 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal |
|
284,514 |
|
|
|
Interest Accrued |
|
160,358 |
|
|
|
Interest Paid |
|
(142,772 |
) |
|
|
Accretion Expense |
|
1,557 |
|
|
|
Equity Portion of Bridge Loan - Conversion
Feature |
|
(1,557 |
) |
|
|
Conversion to equity in 2014 |
|
(302,100 |
) |
|
|
Carrying value at October 31, 2014 |
|
- |
|
|
36
MICROMEM TECHNOLOGIES INC. |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Expressed in United States dollars)
|
|
For the years ended October 31, 2014, 2013 and 2012 |
|
14. |
BRIDGE LOANS (Contd) |
|
b. |
(Contd) |
|
|
|
|
|
During 2014, Loan 1 was settled by the holder who
converted the outstanding balance due; the Company issued 2,517,501 common
shares with an assigned value of $302,100. As a result of the conversion,
the holder received 2,517,501 common shares purchase warrants exercisable
at $0.12 per warrant for a period of 12 months after the conversion date
(January 23, 2015). The relative fair value of the common share purchase
warrants of $143,406 was calculated using the Black Scholes option pricing
model with the following assumptions: |
|
|
|
2014 |
|
|
|
Share price |
$ |
1.18 |
|
|
|
Volatility factor (based on historical volality) |
|
120% |
|
|
|
Risk free interest rate |
|
1.04% |
|
|
|
Dividend yield |
|
0% |
|
|
|
Expected life |
|
1 Year |
|
|
In the 2012 fiscal year, bridge loans were settled by the
holder converting their amount outstanding with the company issuing 1,860,080
common shares with an assigned value of $226,900. As a result of the conversion
the holder received 1,860,080 common share purchase warrants exercisable at a
price of $0.12 - $0.20 CDN for a period of 1 year. These common share purchase
warrants were valued at $306,061 using the Black Scholes option-pricing model
with the following assumptions:
|
|
|
2012 |
|
|
|
Share price |
$ |
0.23 - $0.25 |
|
|
|
Volatility factor (based on historical
volality) |
|
154 - 156% |
|
|
|
Risk free interest rate |
|
1.03 - 1.24% |
|
|
|
Dividend yield |
|
0% |
|
|
|
Expected life |
|
1 year |
|
|
37
MICROMEM TECHNOLOGIES INC. |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Expressed in United States dollars)
|
|
For the years ended October 31, 2014, 2013 and 2012 |
|
|
Balance outstanding at November 01, 2012 |
$ |
26,634,177 |
|
|
|
|
|
|
|
Stock based compensation expense relating
to stock options issued (Note 12) |
|
368,790 |
|
|
Common share purchase warrants |
|
|
|
|
(a) Issued (Note
13) |
|
377,234 |
|
|
(b) Extended (Note 13) |
|
264,938 |
|
|
Warrants modified (Note 13) |
|
5,224,863 |
|
|
Fair value of
warrants exercised |
|
(47,675 |
) |
|
Balance at October 31, 2013 |
$ |
32,822,327 |
|
|
|
|
|
|
|
Stock based compensation expense relating
to stock options issued (Note 12) |
|
379,253 |
|
|
Common share purchase warrants |
|
|
|
|
(a) Issued (Note
13) |
|
- |
|
|
(b) Extended (Note 13) |
|
168,632 |
|
|
Transferred from equity component of bridge
loan due to conversion |
|
1,557 |
|
|
Warrants issued on conversion of bridge loan (Note 14) |
|
143,406 |
|
|
Fair value of warrants exercised |
|
(6,078,497 |
) |
|
Balance at
October 31, 2014 |
$ |
27,436,678 |
|
38
MICROMEM TECHNOLOGIES INC. |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Expressed in United States dollars)
|
|
For the years ended October 31, 2014, 2013 and 2012 |
|
|
(a) |
The Company has non-capital losses of approximately $25.6
million available to reduce future taxable income, the benefit of which
has not been recognized in these consolidated financial statements. As of
October 31, 2014 the tax losses expire as follows: |
|
|
|
Canada |
|
|
Other foreign |
|
|
Total |
|
|
|
2015 |
$ |
2,849,213
|
|
$ |
- |
|
$ |
2,849,213
|
|
|
|
2022 |
|
|
|
|
7,301 |
|
$ |
7,301 |
|
|
|
2023 |
|
|
|
|
9,667 |
|
$ |
9,667 |
|
|
|
2025 |
|
|
|
|
14,471 |
|
$ |
14,471 |
|
|
|
2026 |
|
2,131,530 |
|
|
5,254 |
|
$ |
2,136,784 |
|
|
|
2027 |
|
1,792,449 |
|
|
3,459 |
|
$ |
1,795,908 |
|
|
|
2028 |
|
9,294 |
|
|
55,519 |
|
$ |
64,813 |
|
|
|
2029 |
|
1,837,023 |
|
|
463,610 |
|
$ |
2,300,633 |
|
|
|
2030 |
|
2,478,623 |
|
|
1,886,778 |
|
$ |
4,365,401 |
|
|
|
2031 |
|
1,493,293 |
|
|
48,808 |
|
$ |
1,542,101 |
|
|
|
2032 |
|
1,654,957 |
|
|
333,962 |
|
$ |
1,988,919 |
|
|
|
2033 |
|
2,005,971 |
|
|
160,550 |
|
$ |
2,166,521 |
|
|
|
2034 |
|
3,148,002 |
|
|
3,206,207 |
|
$ |
6,354,209 |
|
|
|
|
$ |
19,400,355 |
|
$ |
6,195,586 |
|
$ |
25,595,941 |
|
|
|
|
In addition the Company has available capital loss carry
forwards of approximately $1.5 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. |
|
|
|
|
(b) |
Deferred income taxes reflect the net tax effect of
temporary differences between carrying amount of assets and liabilities
for financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Companys deferred tax assets and
liabilities are as follows. |
|
|
|
October 31, 2014 |
|
|
October 31, 2013 |
|
|
October 31, 2012 |
|
|
Non-capital losses |
$ |
7,792,685
|
|
$ |
6,334,982
|
|
$ |
5,877,761
|
|
|
Capital losses |
|
196,505 |
|
|
212,386 |
|
|
221,578 |
|
|
Property, equipment,
intangibles, patents and deferred costs |
|
661,960 |
|
|
1,926,689 |
|
|
1,988,956 |
|
|
Share issue costs |
|
9,095 |
|
|
15,641 |
|
|
21,497 |
|
|
|
|
8,660,245 |
|
|
8,489,698 |
|
|
8,109,792 |
|
|
Deferred tax assets not recognized |
|
(8,660,245 |
) |
|
(8,489,698 |
) |
|
(8,109,792 |
) |
|
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
39
MICROMEM TECHNOLOGIES INC. |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Expressed in United States dollars)
|
|
For the years ended October 31, 2014, 2013 and 2012 |
|
16. |
INCOME TAXES (Contd) |
|
(c) |
The reconciliation of income tax attributed to continuing
operation computed at the statutory tax rates to income tax expense is as
follows: |
|
|
|
October 31, 2014 |
|
|
October 31, 2013 |
|
|
October 31, 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
$ |
(4,164,871 |
)
|
$ |
(5,933,928 |
)
|
$ |
(1,775,065 |
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory rate |
|
26.50% |
|
|
26.50% |
|
|
26.50% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected income tax recovery
|
|
(1,103,691 |
)
|
|
(1,572,491 |
)
|
|
(470,392 |
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect on income taxes of
unrecognized future income |
|
|
|
|
|
|
|
|
|
|
Tax assets relating to deductible temporary
differences on: |
|
|
|
|
|
|
|
|
|
|
Non deductible expenses and
other items |
|
112,727 |
|
|
888,557 |
|
|
(149,207 |
)
|
|
Share issue costs and other |
|
- |
|
|
(4,361 |
) |
|
(4,361 |
) |
|
Effect of exchange rate on
future tax assets carried forward from previous years |
|
572,542 |
|
|
324,880 |
|
|
3,071 |
|
|
Expiry of non-capital losses |
|
259,122 |
|
|
|
|
|
|
|
|
Effect of higher tax rates in
foreign jurisdiction |
|
(11,247 |
)
|
|
|
|
|
|
|
|
Change in deferred income tax rates and other
|
|
- |
|
|
(16,491 |
) |
|
(393,446 |
) |
|
Change in deferred tax rates
not recognized |
|
170,547 |
|
|
379,906 |
|
|
1,013,335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
17. |
EXPENSES Administration |
|
|
|
The components of general and administration expenses are
as follows: |
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
$ |
69,122 |
|
$ |
53,494 |
|
$ |
66,651 |
|
|
Rent and occupancy cost |
|
84,816 |
|
|
84,179 |
|
|
108,193 |
|
|
Bad debt expense |
|
24,009 |
|
|
19,954 |
|
|
21,586 |
|
|
Interest income |
|
(30,129 |
) |
|
(19,954 |
) |
|
(20,300 |
) |
|
Interest expense |
|
28,640 |
|
|
78,677 |
|
|
106,442 |
|
|
Accretion expense |
|
- |
|
|
19,381 |
|
|
187,671 |
|
|
Office insurance |
|
61,578 |
|
|
61,211 |
|
|
65,394 |
|
|
Telephone |
|
22,537 |
|
|
17,272 |
|
|
17,380 |
|
|
Investor relations, listing and filling fees |
|
64,880 |
|
|
64,283 |
|
|
141,600 |
|
|
|
$ |
325,453 |
|
$ |
378,497 |
|
$ |
694,617 |
|
40
MICROMEM TECHNOLOGIES INC. |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Expressed in United States dollars)
|
|
For the years ended October 31, 2014, 2013 and 2012 |
|
17. |
EXPENSES (Contd) |
|
|
|
Professional, Other Fees and Salaries |
|
|
|
The components of professional, other fees and salaries
expenses are as follows: |
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional fees |
$ |
420,902 |
|
$ |
311,330 |
|
$ |
183,021 |
|
|
Consulting fees |
|
1,535,520 |
|
|
818,106 |
|
|
917,420 |
|
|
Salaries and benefits |
|
404,445 |
|
|
443,078 |
|
|
407,450 |
|
|
|
$ |
2,360,867 |
|
$ |
1,572,515 |
|
$ |
1,507,891 |
|
Research and Development
The components of research and
development expenses are as follows:
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
Project expenses incurred (recovered) |
|
26,882 |
|
|
(73,321 |
) |
|
229,840 |
|
|
Write-down of deferred development costs on specific projects |
|
676,789 |
|
|
234,241 |
|
|
- |
|
|
|
|
703,671 |
|
|
160,920 |
|
|
229,840 |
|
18. |
MANAGEMENT COMPENSATION AND RELATED PARTY
TRANSACTIONS |
|
|
|
The Company reports the following related party
transactions: |
|
(a) |
Chairman: The Chairman receives cash compensation on a
month to month basis calculated at an annual rate of $150,000
CDN. |
|
|
|
|
|
The Chairman was not granted any stock options in 2014.
In 2013 the Chairman was awarded a total of 140,000 stock options at an
average price of $0.29 CDN per share (2012 - 100,000 stock options at an
average price of $0.35 per share). |
|
|
|
|
|
The total compensation paid to the Chairman during the
year ended October 31, 2014 was $137,172 of cash compensation and $nil of
stock based compensation (2013 - $146,599 of cash compensation and $
21,163 of stock based compensation; 2012 - $149,565 of cash compensation
and $23,697 of stock based compensation). |
|
|
|
|
|
The Company provided a short term non-interest bearing
advance of $38,084 to the Chairman in 2014. This advance was repaid
subsequent to October 31, 2014. |
41
MICROMEM TECHNOLOGIES INC. |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Expressed in United States dollars)
|
|
For the years ended October 31, 2014, 2013 and 2012 |
|
18. |
MANAGEMENT COMPENSATION AND RELATED PARTY TRANSACTIONS
(Contd) |
|
(b) |
Management and consulting fees: |
|
|
|
|
|
Included in professional fees, other fees and salaries as
reported are management fees and consulting fees paid or payable to
individuals (or companies controlled by such individuals) who served as
officers, directors and employees of the Company. The total compensation
paid to such parties is summarized as: |
|
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
|
Cash compensation |
$ |
1,482,153
|
|
$ |
805,574
|
|
$ |
709,075
|
|
|
Less portion capitalized to deferred
development costs |
|
(169,664 |
) |
|
(202,820 |
) |
|
- |
|
|
|
|
1,312,489 |
|
|
602,754 |
|
|
709,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation |
|
325,074 |
|
|
195,720 |
|
|
401,773 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,637,563 |
|
$ |
798,474 |
|
$ |
1,110,848 |
|
|
|
In 2014 these parties were awarded a total of 540,000
options at an average price of $0.76 CDN per share (2013 1,292,500
options at an average price of $0.29 per share; 2012 1,755,000 options
at an average price of $0.35 per share) |
|
|
|
|
(c) |
Related party deferred development cost: |
|
|
|
|
|
In 2014 the Company was invoiced $1,843,643 by a company
whose major shareholder is a director of the Company and who also serves
as its chief technology officer. This individual was elected as a director
on February 19, 2014 and these related party transactions disclosed are
transactions incurred from this date forward. These charges have been
capitalized as deferred development costs. As at October 31, 2014,
included in accounts payable and accrued liabilities is $208,425 owing to
this company. |
42
MICROMEM TECHNOLOGIES INC. |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Expressed in United States dollars)
|
|
For the years ended October 31, 2014, 2013 and 2012 |
|
18. |
MANAGEMENT COMPENSATION AND RELATED PARTY TRANSACTIONS
(Contd) |
|
(d) |
Advances: |
|
|
|
|
|
|
In 2014 the following advances were provided to officers,
directors and employees of the Company. |
|
|
|
|
|
|
(1) |
The CFO was advanced $119,757 during February and March
2014. The advance was settled through repayments of $78,036 and a
performance bonus awarded at October 31, 2014. The advance was unsecured,
due on demand with interest charged at a rate of 1% per month on the
opening monthly balance outstanding. |
|
|
|
|
|
|
(2) |
The President of MAST Inc was advanced $244,074 on May
30, 2014. The advance was evidenced by a promissory note which included
the following terms: |
|
a. |
Non-interest bearing for the first twelve months and,
thereafter, interest to be charged at a rate of 1% per month on the
opening monthly balance. |
|
|
|
|
b. |
Unsecured for the first 12 months and, thereafter, an
assignment of a security interest to the full amount of the outstanding
balance in favor of the Company. |
|
|
|
|
c. |
Open to full repayment at any time. |
|
|
|
|
d. |
Eligible for up to full offset against certain
performance based incentive compensation within the first twelve months
(note 23). |
|
(3) |
A senior employee was advanced $80,916 during the year.
This advance was non- interest bearing, unsecured, and due on demand. This
advance was repaid subsequent to October 31,
2014. |
19. |
COMMITMENTS |
|
|
|
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 are as follows commitments less than one
year of $44,000 CDN; commitments in years 2-3 total $77,000 CDN. |
|
|
|
The Company has certain outstanding commitments to
3rd party subcontractors with respect to deferred development
costs. These commitments are as follows commitments less than one year
of $1,799,000; commitments between years 2-5 total
$934,000. |
43
MICROMEM TECHNOLOGIES INC. |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Expressed in United States dollars)
|
|
For the years ended October 31, 2014, 2013 and 2012 |
|
|
(a) |
Legal matters: |
|
|
|
|
|
Subsequent to October 31, 2014, the Company commenced a
legal action against a former 3rd party consulting firm who
previously provided services to the Company (note 23). |
|
|
|
|
|
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. |
|
|
|
|
(b) |
Disputes with vendors: |
|
|
|
|
|
The Company has disputed amounts charged by certain third
party vendors during previous fiscal years, one of which is the firm noted
in (a) above, against which the Company has taken action (Note 23). The
amount charged by the vendors exceeds the amount recorded as a provision
by $181,780. No claims have been made by the vendors to date related to
the disputed amounts. |
21. |
FINANCIAL RISK
MANAGEMENT |
|
(a) |
Financial Risk Management |
|
|
|
|
|
The Company is exposed to a variety of financial risks by
virtue of its activities: market risk (including foreign exchange risk and
interest rate risk) and liquidity risk. The overall risk management
program focuses on the unpredictability of financial markets and seeks to
minimize potential adverse effects on financial performance. Risk
management is carried out under policies approved by the Board of
Directors. Management is charged with the responsibility of establishing
controls and procedures to ensure that financial risks are mitigated in
accordance with the approved policies. |
|
|
|
|
(b) |
Market Risk: |
|
i. |
Foreign Exchange Risk: |
|
|
|
|
|
The Company currently incurs expenses in Canadian
dollars. Management monitors the Canadian position of these monetary
financial instruments on a periodic basis throughout the course of the
year. |
44
MICROMEM TECHNOLOGIES INC. |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Expressed in United States dollars)
|
|
For the years ended October 31, 2014, 2013 and 2012 |
|
21. |
FINANCIAL RISK MANAGEMENT
(Contd) |
|
(b) |
Market Risk: (Contd) |
|
i. |
Foreign Exchange Risk: |
|
|
|
|
|
The consolidated financial statements include balances
that are denominated in Canadian dollars as
follows: |
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
328,797 |
|
$ |
461,727 |
|
Deposits and other receivables |
|
201,403 |
|
|
49,477 |
|
Accounts payable and accrued liabilities |
|
211,091 |
|
|
210,827 |
|
|
|
A 10% strengthening of the US dollar against the Canadian
dollar would serve to decrease the loss by $31,910 at October 31, 2014
(2013 decrease the loss by $30,037). A 10% weakening of the US dollar
against the Canadian dollar at October 31, 2014 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. |
|
|
|
|
|
The Company is not exposed to interest price risk on its
interest bearing bridge loans and related party advances as the interest
rate is fixed. |
45
MICROMEM TECHNOLOGIES INC. |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Expressed in United States dollars)
|
|
For the years ended October 31, 2014, 2013 and 2012 |
|
21. |
FINANCIAL RISK MANAGEMENT
(Contd) |
|
(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 October 31, 2014. |
|
|
|
|
|
As at October 31, 2014, the Company reports working
capital of $1,034,921 and has certain financial commitments (Note 19), the
majority of which are due within one year. It must continue to raise
financing in order to meet its current obligations. |
|
|
|
|
(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 deposits and other receivables. The carrying amount of financial
assets represents maximum credit exposure. The Company reduces its credit
risk by maintaining its primary bank accounts at large financial
institutions and assesses the credit quality of counterparties, taking
into account their financial position, past experience and other
factors. |
22. |
SEGMENTED INFORMATION |
|
|
|
There is one operating segment of the business being the
development and commercialization efforts with respect to the Company's
proprietary sensor applications. Currently, the predominant market segment
that the Company is pursuing is the North American market for such
technology. |
|
|
|
Geographic information Non-current
assets |
|
|
|
October 31, |
|
|
October 31, |
|
|
|
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
$ |
632,516 |
|
$ |
415,533 |
|
|
|
United States |
|
3,195,336 |
|
|
694,898 |
|
|
|
|
$ |
3,827,852 |
|
$ |
1,110,431 |
|
|
46
MICROMEM TECHNOLOGIES INC. |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Expressed in United States dollars)
|
|
For the years ended October 31, 2014, 2013 and 2012 |
|
23. |
SUBSEQUENT EVENTS |
|
|
|
The Company reports the following as subsequent
events: |
|
(a) |
As of February 25, 2015 the Company has raised an
additional $565,714 of financing through the exercise of a total of
2,988,876 common share purchase warrants. |
|
|
|
|
(b) |
The Company collected a total of $1,392,978 from
development partners with respect to its ongoing joint product development
projects. Included in the amounts is the $450,000 recorded as amounts
receivable as described in Note 8 (a). |
|
|
|
|
(c) |
The Company settled in full the $244,074 advance from the
President of MAST as described in (Note 18 (d) (2)) through the award of
additional performance based compensation to that officer in February
2015. |
|
|
|
|
(d) |
The advances to the Chairman and a senior employee
described in Note 8(b) (i) and (ii) were repaid to the Company in December
2014. |
|
|
|
|
(e) |
On November 17, 2014, Micromem and MAST (Plaintiffs)
commenced a lawsuit in the United States District Court for the Southern
District of New York against Dreifus Associates Limited and Henry Dreifus
(Defendants). Plaintiffs original complaint contained five causes of
action by which they sought money damages, declaratory relief and specific
performance relating to certain contracts. On February 24, 2015,
Plaintiffs filed an amended complaint to add a claim for declaratory
relief relating to a patent held by Plaintiffs. It is anticipated that
Defendants will deny the substantive allegations in the amended complaint
and/or seek to have the action transferred to Florida, where Defendants
reside and/or maintain an office. |
|
|
|
|
(f) |
At the Annual General and Special Meeting of shareholders
held on January 30, 2015, the Companys stock option plan was revised to
increase the maximum number of options in the plan reserved for issuance
from 15.6 million to 18.84 million options. |
**************************************
47
Exhibit 99.2
MICROMEM TECHNOLOGIES INC. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE FISCAL YEAR ENDED OCTOBER 31, 2014
|
PREPARED AS OF FEBRUARY 27, 2015 |
|
|
INTRODUCTION
The following sets out the Management's Discussion and Analysis
("MD&A") of the financial position and result of operations for the fiscal
year ending October 31, 2014 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, 2014 and 2013 which are prepared in
accordance with International Financial Reporting Standards (IFRS) as issued by
the International Accounting Standards Board. Additional information regarding
the Company is available on the SEDAR website at www.sedar.com.
The Companys shares are traded on the OTCQX under the symbol
MMTIF and on the Canadian National Stock Exchange (CNSX) under the symbol MRM.
In November 2007, the Company incorporated Micromem Applied Sensor Technologies
Inc. (MAST) for the purpose of moving forward with the planned
commercialization of its technology.
Certain information provided by the Company in this MD&A
and in other documents publicly filed throughout the year that are not
recitation of historical facts may constitute forward-looking statements. The
words "may", "would", "could", "will", "likely", "estimate", "believe",
"expect", "forecast" and similar expressions are intended to identify
forward-looking statements.
Readers are cautioned that such statements are only predictions
and the actual events or results may differ materially. In evaluating such
forward-looking statements, readers should specifically consider the various
factors that could cause actual events or results to differ materially from
those indicated by such forward-looking statements.
FORWARD LOOKING STATEMENTS
This MD&A contains forward-looking statements and forward
looking information within the meaning of applicable Canadian securities
legislation (forward looking statements). Any statements that express or
involve discussions with respect to predictions, expectations, beliefs, plans,
projections, objectives, assumptions, potentials, future events or performance
(often, but not always, using words or phrases such as believes, expects or
does not expect, is expected, anticipates or does not anticipate, or
intends or stating that certain actions, events or results may, could,
would, might or will be taken or achieved) are not statements of
historical fact, but are forward-looking statements. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause the actual results, performance or achievements of the Company, or developments in
the Companys business or in its industry, to differ materially from the
anticipated results, performance, achievements or developments expressed or
implied by such forward-looking statements. Forward-looking statements include
disclosure regarding possible events, conditions or results of operations that
are based on assumptions about future conditions, courses of action and
consequences. Forward-looking statements may also include, without limitation,
any statement relating to future events, conditions or circumstances. The
Company cautions you not to place undue reliance upon any such forward-looking
statements, which speak only as of the date they are made. Forward-looking
statements relate to, among other things, the successful commercialization of
our technology, comments about potential future revenues, joint development
agreements and expectations of signed contracts with customers, etc. A number of
inherent risks, uncertainties and factors affect the operations, performance and
results of the Company and its business, and could cause actual results to
differ materially from current expectations of estimated or anticipated events
or results. Some of these risks and uncertainties include the risk of not
securing required capital in future, the risks of not successfully concluding
agreements with potential partners on a timely basis, the risks associated with
commercializing and bringing to market our technology. These risks are affected
by certain factors that are beyond the Company's control: the existence of
present and possible future government regulation, competition that exists in
the Company's business, uncertainty of revenues, markets and profitability, as
well as those other factors discussed in this MD&A report. This list is not
exhaustive of the factors that may affect any of the Companys forward-looking
statements and reference should also be made to the Companys Annual Information
Form (prepared and filed in the form of a Form 20-F Annual Report pursuant to
The Securities Exchange Act of 1934) for a description of risk factors.
1
Although the Company has attempted to identify important
factors that could cause actual results to differ materially from those
contained in forward-looking statements, there may be other factors that cause
results not to be as anticipated, estimated or intended. There can be no
assurance that such statements will prove to be accurate, as actual results and
future events could differ materially from those anticipated in such statements.
Accordingly, readers should not place undue reliance on forwardlooking
statements. The Company does not undertake to update any forward-looking
statements that are incorporated by reference herein, except in accordance with
applicable securities law.
****************************
2
MICROMEM TECHNOLOGIES INC. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE FISCAL YEAR ENDED OCTOBER 31, 2014 |
PREPARED AS OF FEBRUARY 27, 2015 |
(Unless other indicated dollar amounts reported are
stated in U.S. dollars) |
|
TABLE OF CONTENTS:
1. |
OVERVIEW AND BACKGROUND |
5 |
|
|
|
|
2. |
COMPANY PROFILE AT OCTOBER 31, 2014 |
6 |
|
|
Product Portfolio |
8 |
|
|
Intellectual
Property |
11 |
|
|
Financing |
11 |
|
|
Development
Costs |
11 |
|
|
Share Capital |
11 |
|
|
Management
and Board of Directors |
12 |
|
|
Related Party Transactions
|
12 |
|
|
|
|
3. |
DISCUSSION OF
OPERATING RESULTS FISCAL YEAR ENDED OCTOBER 31, 2014 |
15 |
|
|
|
|
4. |
RISKS AND
UNCERTAINTIES |
23 |
|
|
|
|
5. |
CRITICAL
ACCOUNTING POLICIES |
24 |
|
|
|
|
6. |
COMPLIANCE
RELATED REPORTING MATTERS |
24 |
|
|
Financial
Instruments |
24 |
|
|
Commitments and Contingencies
|
25 |
|
|
Disclosure
controls/Internal controls |
26 |
|
|
Off Balance Sheet
Arrangements |
26 |
|
|
Going Concern
|
27 |
|
|
Liquidity and Capital
Resources |
27 |
|
|
|
|
7. |
SUBSEQUENT
EVENTS |
28 |
|
|
|
|
TABLES |
|
|
|
|
|
|
1. |
Annual and
Quarterly Financial Information |
29 |
2. |
Selected Balance Sheet Information |
30 |
3. |
Financing Raised
|
31 |
4. |
Outstanding Options and Warrants |
32 |
3
APPENDICES
1. |
Company History |
33 |
2. |
Conversion to IFRS reporting |
36 |
3. |
Critical Accounting Policies |
38 |
*************************
4
MICROMEM TECHNOLOGIES INC. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE FISCAL YEAR ENDING OCTOBER 31, 2014 |
PREPARED AS
OF FEBRUARY 27, 2015 |
1. OVERVIEW AND BACKGROUND
Micromem is a company that develops customized, proprietary
sensor-based solutions for large multinational corporations. Over the past three
years it has presented its technology platform to numerous companies who are
seeking solutions to various and complex challenges in the measurement of
operating performance and real time diagnostics in their operating systems and
assets. At October 31, 2014 the Company has secured contracts to produce
sensor-based technology solutions for a number of these customers. These
contractual arrangements are discussed further in the body of this document.
In essence, Micromem has typically initially developed proposed
technology solutions at its own cost and where a company agrees to move forward
with Micromem to develop a commercial application, Micromem will negotiate a
cost sharing arrangement with that company where the company will absorb the
continued development costs associated with the project. Development milestones
are established with the company and Micromem will invoice against these
milestones in accordance with the contracted terms. Micromems recurring revenue
stream is anticipated to be derived from product royalties, product licensing
agreements and outright product sales.
While the applications for Micromems technology solutions are
industry agnostic and cross virtually every industry vertical, the Company has
identified the following industry verticals as significant immediate term
opportunities to pursue the oil and gas sector, the automotive sector, the
power generation and utilities sector and other specific industrial
applications. These key market segments are discussed further in Section 2
Company Profile at October 31, 2014.
The Companys current business activities began in 2008.
Appendix 1 illustrates the Companys development between 2008-2012 during
which period it raised approximately $ 16 million in financing to support its
continued development.
Additional background information of the Company is available
on its website, Micromem.com and on the website of its subsidiary, MAST
INC.com
*************************
5
MICROMEM TECHNOLOGIES INC. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE FISCAL YEAR ENDING OCTOBER 31, 2014 |
PREPARED AS
OF FEBRUARY 27, 2015 |
2. COMPANY PROFILE AT OCTOBER 31, 2014
In 2014, the Company successfully converted the eight targeted
client driven product developments, described at our 2013 Annual General
Meeting, into more formalized and ongoing working arrangements with our clients.
Profile
at
October
31,
2014
The Company conceives of, designs and engineers, creates,
develops and delivers extremely unique sensor solutions to our clients. These
sensor solutions are very small, typically employing MEMS or NEMS feature size
technology. These sensor solutions are precisely driven by client requirements,
typically addressing a difficult business and/or process problem. The solution
typically involves integrating multiple different sensor modalities, seen in
disparate market segments, different from the target client use that addresses
the clients needs. Due to the extremely small size, the final form factor
allows our solutions to be deployed throughout the application space, in
heretofore inaccessible ruggedized environments. The Companys approach is to
take advantage of the revenue opportunity associated with the projected
trillion-sensor market.
Product Development Process
In 2014, the Company substantially advanced our client driven
product development activity, taking advantage of our knowledge from previous
years and leveraging the rapidly changing advances in the MEMS/NEMS technology
landscape.
|
1. |
Securing potential clients: |
|
|
|
|
|
|
The Company pursues potential clients with the goal of
entering into Joint Product Development Agreements and realizing long term
annuity-like revenue streams from royalty and licensing agreements
relating to its technology applications and intellectual
property. |
|
|
|
|
|
|
The process that the Company will typically follow in
securing client opportunities includes: |
|
|
|
|
|
|
a. |
Initial discussions with prospective clients to identify
their operating challenges and to assess the potential for a technology
solution building on the Companys proprietary sensor
technology. |
|
|
|
|
|
|
b. |
The Company will then reach out to its global network of
leading experts in the various technology domains. Through this resource
network, we are able to bring the worlds best domain experts to
the client. This reduces the clients perceived risk of moving
forward with new product development and related capital expenditures. |
6
|
c. |
The Company performs a patent analysis and freedom to
commercially operate analysis in the problem space. |
|
|
|
|
d. |
The Company will solicit third party validation of our
proposed solution to assess the potential market and revenue opportunity
for the Company. |
|
|
|
|
e. |
If this analysis indicates good fundamentals, the Company
proceeds with presenting the proposed product development solution to the
client. |
|
|
|
|
f. |
The Company will fund the initial costs of facilitating a
Proof of Concept demonstration given that, upon successfully meeting that
goal, the client participates in the follow-on development costs. The
Companys product development proposal to the client indicates the
specific funding responsibility the client has in testing the product in
the targeted environment, and in deriving revenue to the client through
deployment of the solution into their
business. |
|
2. |
Product development process: |
|
|
|
|
|
|
Once the Company has engaged a client where it will
pursue a development project with that client, the typical phases of the
product development process include: |
|
|
|
|
|
|
a. |
Proof of concept demonstration: designed to demonstrate
to the client that the proposed technology will perform as
anticipated. |
|
|
|
|
|
|
b. |
Engineering prototype and extended testing: Product
development is refined, engineered and made more robust. The client then
places the product into the field for an extended evaluation. |
|
|
|
|
|
|
c. |
Pre-Manufacturing Prototype: Based on the clients
initial field test evaluation, changes, if any, are made to the product
and it is prepared for manufacturing. |
|
|
|
|
|
|
d. |
Manufacturing: The client provides a formal purchase
order for initial manufactured product to be deployed in their business
and/or process. To date, no products have reached the manufacturing
stage. |
|
|
|
|
|
|
e. |
Commercialization: Establishment of manufacturing
partners, licensing and/or sale of the product to others well suited to
take advantage of the global market opportunity. |
The Companys expertise is in rapidly completing the Proof of
Concept demonstration. What used to take several months or initially several
years can now be completed in a much shorter timeframe given the experience that
the Company has developed over the past five years.
7
The joint development process is built upon protecting our
intellectual property. Our clients will participate in the patenting process and
the resultant patent is collaborative and protects both the Companys
intellectual property rights in the product and our clients interest to use the
product within their business space.
To date the Company has advanced its current client development
projects to stages 2(a) 2(c) as above. It has not yet successfully
commercialized products to the stage where it will realize its goal of securing
long term annuity-like revenue streams from royalty and licensing agreements.
Product Portfolio
The following is a summary of the products for which the
Company has been engaged and which are in the various stages of the product
development process described above:
|
1. |
Nanoparticle Detector Platform: Joint
product development was initially contracted by Saudi Aramco and the proof
of concept has been approved by the client. The detector platform is
capable of detecting magnetic nanoparticles in a flowing oil stream at
concentrations as low as 100 parts per trillion. The next steps will be to
deliver manufactured versions to oil company laboratories. |
|
|
|
|
|
In a parallel product development, MAST has begun work on
ruggedizing the nanoparticle detector platform so that it can be installed
and operated directly on an oil well. |
|
|
|
|
|
The Company anticipates up to $2 million in client
funding in fiscal year 2015 associated with field ruggedization, although
there can be no guarantees that it will generate such funding. |
|
|
|
|
|
The Company has filed provisional patents with the United
States Patent and Trademark office (USPTO) for this product. |
|
|
|
|
2. |
Magnetic Nanoparticle Interwell Tracers: In
2013 the Company began to work with Chevron Energy Company to develop and
test fluorescent magnetic nanoparticles capable of behaving in a
conservative manner in the application of interwell tracers. This proof of
concept and the prototype engineering phases were successfully completed.
The Company suggested a parallel product development program aimed at
detecting existing interwell tracer chemicals in the field with on well
real time detection platform technology. |
|
|
|
|
|
The Company has filed provisional patents with the USPTO
for this product. |
|
|
|
|
3. |
In Line Real Time Interwell Tracer Detection
Platform: In 2014 the Company executed a Joint Product Development
Agreement with Chevron Energy Company to develop a well head real time
detection platform for the detection of existing interwell tracer
chemicals to measurement levels of 300 parts per trillion. The Company has
obtained an exclusive license of the base line cavity ring down technology
from Entanglement Technologies Inc., for use in interwell tracer detection
applications. This work will progress with a laboratory demonstration of
the Companys ability to differentiate between 8-9
interwell tracers simultaneously. This will be followed by an in-field
demonstration and ultimately, if successful, possible deployment of the platform
throughout the client organization. |
8
The Company has filed provisional
patents with the USPTO for this product.
The Company has received $704,478 of
funding from the client to date and anticipates up to an additional $2.3 million
in client funding in 2015 associated with field-testing, followed by up to $23
million in deployment revenue thereafter, although there can be no guarantees
that the Company will receive such additional funding/revenue.
|
4. |
IntelliboltTM
Automotive Oil Pan Plug Sensor Suite: In 2014,
the Company negotiated an exclusive agreement with Flextronics to
commercialize, test, manufacture and market the Companys patented oil pan
plug sensor suite to automotive OEMS. The initial licensing agreement
calls for the Company to receive an estimated $18 million in revenues if
and when the initial deployment occurs after 2015, although there can be
no guarantees that the product will be deployed or that the Company will
receive such revenues. |
|
|
|
|
|
In 2014, one of the Companys six provisional patents
related to this product was issued by the USPTO. |
|
|
|
|
5. |
Real Time Detection of Wear Elements in Lubricating
Fluids: In 2014 the Company executed a Joint Product Development
Agreement with Castrol Innoventures to develop a MEMS solution for field
deployment in ocean going vessels, wind turbine gearboxes, heavy duty
trucks and automobiles. The goal of product development is a 50 cc form
factor utilizing laser induced breakdown spectroscopy that will take in
line real time oil samples and analytically determine, to precise levels
of detection, the various wear elements in the lubricating fluid. In 2014,
the Company successfully demonstrated the bench top Proof of Concept
demonstration, ie. the initial stage in the product development process.
To date, the Company has received $488,485 of funding from the client for
this project. It anticipates that it will receive additional client
funding in 2015 of up to $1.2 million although there can be no guarantee
that it will receive such additional funding. |
|
|
|
|
|
The Company has filed provisional patents associated with
this product with the USPTO. |
|
|
|
|
6. |
Transformer Partial Detection Platform: In
2014 the Company successfully demonstrated with Northeast Utilities the
ability to detect partial discharges inside a transformer using very small
sensors. Northeast Utilities accepted the proof of concept and made a
progress payment of $200,000. Product development is proceeding into the
next phase associated with extended engineering prototype
evaluation. |
|
|
|
|
|
The Company has filed provisional patents associated with
this product with the USPTO. |
9
|
7. |
Power Line Condition Monitoring: In 2014
the Company began development with Northeast Utilities on a low cost power
line condition-monitoring device that is to be designed for pervasive
deployment on distribution and transmission catenaries. The Company has
filed provisional patents associated with this product with the
USPTO. |
|
|
|
|
8. |
Gas Pipeline Corrosion Detection using Autonomous
Robotics: In 2014 the Company began early development with
Northeast Utilities on a very small robotic platform integrated with a
full suite of the Companys sensors and designed to be deployed
autonomously inside distribution gas pipelines. The sensor platform is
designed to establish a corrosion profile, along with an electronic
mapping and database of 100% of the pipe. The Company has filed
provisional patents associated with this product with the USPTO. |
|
|
|
|
9. |
Cement Integrity Sensor: In 2014 the
Company began a joint development project with the Chevron Energy Company
to develop a sensor platform that can be pumped into oil wells with
cement. Once in place, these sensors will scavenge the necessary power
from the environment and communicate to the surface valuable information
about the ongoing quality of the cement. The Company has filed provisional
patents associated with this product with the
USPTO. |
*************************
10
INTELLECTUAL PROPERTY:
The Company has been active in building its intellectual
property portfolio during 2014 as it has furthered the above-noted development
projects. We have engaged a Washington, DC based law firm to assist us in these
efforts. The Company incurred $176,381 of patent related costs in 2014.
FINANCING:
During 2014 the Company successfully raised a total of
approximately $6.8 million of additional financing from the exercise by warrant
holders of common share purchase warrants issued in earlier private placement
financings that the Company has arranged.
DEVELOPMENT COSTS:
The Company reports $3,525,456 (2013 - $928,077) as deferred
development costs in its consolidated balance sheet as of October 31, 2014.
These are costs that it has incurred with respect to these development projects
and contracts that it continues to pursue in the immediate term and for which it
expects to generate future revenue streams. These costs relate primarily to the
active projects described above. The movement in deferred development costs is
summarized as below:
|
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
|
|
Opening balance |
$ |
928,077
|
|
$ |
718,163
|
|
|
Additional project costs incurred |
|
3,936,459 |
|
|
677,445 |
|
|
Recovery of deferred
development costs |
|
(662,290 |
)
|
|
(233,290 |
)
|
|
Writedown of project costs |
|
(676,790 |
) |
|
(234,241 |
) |
|
Closing balance |
$ |
3,525,456 |
|
$ |
928,077 |
|
SHARE CAPITAL:
At October 31, 2014 the Company reports 188,436,724 common
shares outstanding (2013: 158,491,425). Additionally, the Company has 12,105,000
stock options outstanding with a weighted average exercise price of $0.27 per
share (2013: 11,475,000 options outstanding with a weighted average exercise
price of $0.24 per share) and a total of 4,485,463 outstanding warrants to
acquire common shares with a weighted average exercise price of $0.37 per share
(2013: 29,761,012 outstanding warrants with a weighted average exercise price of
$0.27 per share).
11
MANAGEMENT AND BOARD OF DIRECTORS:
At our Annual Meeting of Shareholders held on Friday, January
30, 2015, Salvatore Fuda, Joseph Fuda, David Sharpless, Steven Van Fleet, Oliver
Nepomuceno, Larry Blue Alex Dey , Craig Carison and Brian Von Herzen were
re-elected 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. Andrew Brandt did not stand for reelection.
Our management team and directors, along with their 2014
remuneration is presented as below:
Individual |
Position |
2014
remuneration |
Cash |
Options |
Total |
|
|
|
Salvatore Fuda |
Chairman, Director
|
137,172 |
- |
137,172 |
Joseph Fuda |
President, Director |
768,505 |
- |
768,505 |
Steven Van Fleet |
President, MAST Inc.,
Director |
231,280 |
17,529 |
248,809 |
David Sharpless |
Director |
- |
12,521 |
12,521 |
Andrew Brandt |
Director |
- |
5,008 |
5,008 |
Oliver Nepomuceno |
Director |
- |
12,521 |
12,521 |
Larry Blue |
Director |
23,877 |
12,521 |
36,398 |
Alex Dey |
Director |
- |
15,025 |
15,025 |
Craig Carlson |
Director |
14,866 |
12,521 |
27,387 |
Brian Von Herzen (1) |
Director |
- |
217,394 |
217,394 |
Dan Amadori |
CFO |
205,047 |
10,017 |
215,064
|
(1) Refer to additional comments below.
TRANSACTIONS WITH RELATED PARTIES:
The Company reports the following
related party transactions:
|
(a) |
Chairman: The Chairman receives cash compensation on a
month to month basis calculated at an annual rate of $150,000
CDN. |
|
|
|
|
|
The Chairman was not granted any stock options in 2014.
In 2013 the Chairman was awarded a total of 140,000 stock options at an
average price of $0.29 CDN per share (2012 - 100,000 stock options at an
average price of $0.35 per share). |
12
|
|
The total compensation paid to the Chairman during the
year ended October 31, 2014 was $137,172 of cash compensation and $nil of
stock based compensation (2013 - $146,599 of cash compensation and $
21,163 of stock based compensation; 2012 - $149,565 of cash compensation
and $23,697 of stock based compensation). |
|
|
|
|
|
In 2014 the Company provided a short term non-interest
bearing advance of $38,084 against monthly compensation due to the
Chairman. This advance was repaid subsequent to October 31,
2014. |
|
|
|
|
(b) |
Management and consulting fees and advances: |
|
|
|
|
|
Included in professional fees, other fees and salaries as
reported are management fees and consulting fees paid on payable to
individuals (or Companies controlled by such individuals) who served as
officers, directors and employees of the Company. The total compensation
paid to such parties is summarized as: |
|
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
|
Cash compensation |
$ |
1,482,153
|
|
$ |
805,574
|
|
$ |
709,075
|
|
|
Less portion capitalized to deferred
development costs |
|
(169,664 |
) |
|
(202,820 |
) |
|
- |
|
|
|
|
1,312,489 |
|
|
602,754 |
|
|
709,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation |
|
325,074 |
|
|
195,720 |
|
|
401,773 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,637,563 |
|
$ |
798,474 |
|
$ |
1,110,848 |
|
In 2014 these parties were awarded a
total of 540,000 options at an average price of $0.76 CDN per share (2013
1,292,500 options at an average price of $0.29 per share; 2012 1,755,000
options at an average price of $0.35 per share)
In 2014 the Company was invoiced
$1,874,993 by a Company whose major shareholder, Brian Von Herzen, is a director
of the Company and who also serves as its chief technology officer. This
individual was appointed as a director on February 19, 2014 and these related
party transactions are disclosed as invoiced amount from this date forward.
These charges have been capitalized as deferred development costs. Included in
accounts payable at October 31, 2014 is $208,425 owing to RPI.
In February to March 2014, the CFO was
provided with an advance of $119,757 against monthly compensation due to him.
Interest on the advance was charged at a rate of 1% per month on the opening
monthly balance outstanding. He repaid $78,036 through October 31,
2014 and was awarded a performance based bonus at October 31, 2014 which was
applied to the repayment of the remaining balance of the advance.
13
In May 2014, the President of MAST was
provided with an advance of $244,074 against monthly compensation due to him. No
interest was charged on the advance and this balance remained outstanding at
October 31, 2014. In February 2015, he was awarded a performance based bonus
which was applied to and eliminated the total amount of the outstanding advance.
In 2014, a senior employee was
provided with an advance of $80,916 against monthly compensation due to the
employee. This advance was non-interest bearing. The advance was repaid
subsequent to October 31, 2014.
*************************
14
MICROMEM TECHNOLOGIES INC. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE FISCAL YEAR ENDING OCTOBER 31, 2014 |
PREPARED AS
OF FEBRUARY 27, 2015 |
3. DISCUSSION OF OPERATING RESULTS FISCAL YEAR ENDING
OCTOBER 31, 2014
(a) |
Financial Position as at October 31,
2014: |
|
|
|
Year
ended |
|
|
|
|
October 31, 2014
|
|
|
October 31, 2013
|
|
|
|
|
('$000 |
) |
|
('$000 |
) |
|
|
|
|
|
|
|
|
|
Cash |
|
936 |
|
|
821 |
|
|
Deposits and other receivables |
|
873 |
|
|
235 |
|
|
|
|
1,809 |
|
|
1,056 |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
21 |
|
|
14 |
|
|
Deferred development costs |
|
3,525 |
|
|
928 |
|
|
Intangible assets, net |
|
77 |
|
|
97 |
|
|
Patents, net |
|
204 |
|
|
72 |
|
|
|
|
5,637 |
|
|
2,167 |
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued
liabilities |
|
774 |
|
|
340 |
|
|
Bridge loans |
|
- |
|
|
290 |
|
|
|
|
774 |
|
|
630 |
|
|
Shareholders' Equity |
|
|
|
|
|
|
|
Share capital: |
|
70,803 |
|
|
57,758 |
|
|
Contributed
surplus |
|
27,437 |
|
|
32,822 |
|
|
Deficit |
|
(93,377 |
) |
|
(89,043 |
) |
|
|
|
4,863 |
|
|
1,537 |
|
|
|
|
|
|
|
|
|
|
|
|
5,637 |
|
|
2,167 |
|
15
Refer also to Table 1 which provides a summary of the quarterly
statements of financial position for the fiscal years ending October 31, 2012
2014.
Commentary:
|
1. |
The Companys working capital position improved to
$1,034,921 at October 31, 2014 from $425,808 at October 31, 2013. During
2014 the remaining bridge loan of $290,014 outstanding at October 31, 2013
was converted by the lender into equity. |
|
|
|
|
2. |
At October 31, 2014 the Company reports outstanding
advances to officers and employees in the amount of $386,031 (2013 nil).
As of February 25, 2015, this amount has been recovered by the Company
through repayment by the officers and employees in cash and through the
award of performance based compensation. |
|
|
|
|
3. |
The Company reports amounts receivables of $450,000 (2013
nil) due from two of its current clients; these funds were collected
subsequent to October 31, 2014. |
|
|
|
|
4. |
The Company reported $16,508 of capital asset additions
in 2014 (2013 - $14,839). These expenditures relate to the purchase of
additional IT equipment in each year. |
|
|
|
|
5. |
At October 31, 2013, the Company reported deferred
development costs associated primarily with two ongoing client projects.
During 2014 it incurred $3,936,459 of additional costs with respect to the
existing and to additional client projects which it undertook. It
recovered $662,290 of such costs from its clients and wrote down $676,790
of costs relating primarily to one client project where it had closed out
the initial project phases for which it was contracted. |
|
|
|
|
|
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 to recover the carrying value
reported. |
|
|
|
|
6. |
The Company capitalized $176,381 of costs associated with
patents in 2014 (2013 - $44,825). It significantly expanded its filings in
2014 with multiple provisional and patent pending applications and filings
in North American and international jurisdictions. These applications and
filings relate to the ongoing product development work that the Company
has undertaken. A number of these filings are now under review with the
USPTO and subsequent o October 31, 2014 the Company was granted its first
sensor based patent for its proprietary oil pan
plug. |
16
|
7. |
In 2011 the Company capitalized $135,465 of costs
incurred with respect to its initial development activity in sensor based
platforms. This asset relates to the initial technical know-how and
expertise that the Company developed in this area. It is amortizing these
costs to operations over seven years on a straight line basis through
2017. |
|
|
|
|
8. |
In 2014 the Company realized $6,801,619 from the exercise
by shareholders of 27,410,651 common share purchase warrants. It also
issued 2,517,501 units as settlement of the bridge loan which was
outstanding at October 31, 2013 and was converted to equity in 2014. It
issued 17,081 common shares as settlement of a third party supplier
invoice in the amount of $8,353 as requested by that supplier. |
|
|
|
|
|
In 2013 the Company issued 16,106,957 units to investors
consisting of one common share and one common share purchase warrant per
unit. It realized total proceeds of $2,910,532 from these financings.
Additionally it realized proceeds of $822,391 from the exercise by
shareholders of 5,953,913 warrants. |
|
|
|
|
|
This information is highlighted in Table
3. |
17
The following table summarizes the Companys operating results
for the years ended October 31, 2014 and 2013:
|
Years ended
October 31, |
|
2014 ($000) |
2013 ($000) |
Revenue |
- |
- |
Administration |
325 |
378 |
Professional fees and
salaries |
2,361 |
1,573 |
Stock-based compensation |
379 |
369 |
Research and development |
704 |
161 |
Travel and entertainment |
330 |
211 |
Foreign exchange loss (gain)
|
59 |
12 |
Amortization of property and equipment |
7 |
5 |
Amortization of intangible
assets and patents |
- |
19 |
Total expenses |
4,165 |
2,728 |
(Gain) loss on revaluation of
embedded derivatives |
- |
(41) |
(Gain) loss on revaluation of derivative
warrant liability |
- |
3,247 |
Net comprehensive loss |
4,165 |
5,934 |
Loss per share |
(0.02) |
(0.04)
|
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 loss and comprehensive loss for the fiscal years ending October
31, 2012-2014 and for the related quarterly information through October 31,
2014. Table 2 sets forth selected information from the consolidated statements
of financial position for the fiscal years ending October 31, 2012-2014 and the
related quarterly information through October 31, 2014.
18
COMMENTARY
1) |
Administrative related expenses compare as follows:
($000) |
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
General and administrative
|
|
67 |
|
|
54 |
|
Rent and occupancy cost |
|
85 |
|
|
84 |
|
Bad debt expenses |
|
24 |
|
|
20 |
|
Interest income |
|
(30 |
) |
|
(20 |
) |
Interest expense |
|
29 |
|
|
79 |
|
Accretion expense |
|
- |
|
|
19 |
|
Office insurance |
|
62 |
|
|
61 |
|
Telephone |
|
23 |
|
|
17 |
|
Investor relations, listing and filling fees |
|
65 |
|
|
64 |
|
|
|
325 |
|
|
378 |
|
(a) |
The Company relocated its offices in June 2012 to lower
cost premises. Current monthly rental costs approximate $7,000 per
month. |
|
|
(b) |
Bad debt expense in each of 2014 and 2013 relate to
interest income booked on the Unotron promissory note receivable. This
relates to a project that the Company undertook in 2009-2010. The Company
has a judgment in its the favor and continues to pursue collection of the
outstanding principal and interest totaling $145,815. This balance is
fully reserved. |
|
|
(c) |
Interest expense relates to the interest paid on
convertible bridge loans. In 2013 we carried two bridge loans; in 2014 the
remaining bridge loan was converted to equity. |
|
|
(d) |
Accretion expense relates to the convertible bridge
loans, all but one of which were repaid or converted by October 31, 2013.
Accretion expense is a non-cash item. |
19
2) |
Professional, other fees and salaries
($000) |
The components of this expense category include:
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
Audit related fees |
|
119 |
|
|
147 |
|
Legal fees |
|
287 |
|
|
154 |
|
Other fees |
|
428 |
|
|
191 |
|
CEO |
|
769 |
|
|
314 |
|
CFO |
|
205 |
|
|
180 |
|
Chairman |
|
137 |
|
|
144 |
|
OTCQX related fees |
|
12 |
|
|
- |
|
|
|
1,957 |
|
|
1,130 |
|
Salaries & benefits |
|
404 |
|
|
443 |
|
|
|
2,361 |
|
|
1,573 |
|
Commentary:
1) |
Audit fees were higher in 2013 as a result of additional
work required relating to various IFRS reporting related
matters. |
|
|
2) |
Legal fees increased in 2014 due to additional contract
related work with various clients. We incurred approximately $16,000 in
additional fees with respect to one legal matter resolved in the Companys
favor in 2014. We also spent approximately $4,000 perfecting a judgment
against a company to whom the Company advances funds as a promissory note
in 2010. |
|
|
3) |
Other fees include the portion of the fees paid to the
President of MAST which were not capitalized as deferred development costs
of $45000 (2013 = $90000) financing related fees of $226000 (2013 = nil),
part time accounting services of $30000 (2013 = $22000), other fees paid
to 3rd party consultants of $89000 (2013 = $79000) and fees paid to other
directors of $38000 (2013 = nil). |
|
|
4) |
The CEOs annual base compensation has remained unchanged
since 2008. In 2014, performance based compensation was also awarded to
the CEO. |
|
|
5) |
The CFOs base compensation remained unchanged in 2014 at
$150,000CDN. His performance bonus in 2014 was $55,000 (2013:
$30,000). |
|
|
6) |
The Company upgraded its listing status to OTCQX in 2014
and incurred $12,000 of related costs. |
20
3) |
Travel related expenses compare as follows
($000) |
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
Airfare |
|
109 |
|
|
69 |
|
Hotel |
|
82 |
|
|
40 |
|
Meals |
|
91 |
|
|
68 |
|
Entertainment |
|
1 |
|
|
3 |
|
Transportation |
|
47 |
|
|
31 |
|
|
|
330 |
|
|
211 |
|
Travel and entertainment costs increased to $329,779 in 2014
from $210,852 in 2013. The Company incurred higher costs associated with its
dealings with an increasing number of shareholders in 2014. MAST incurred higher
travel costs in 2014 with respect to its dealings with potential and existing
clients.
4) |
Research and development
($000) |
The components of research and development expenses are as
follows:
|
|
2014 |
|
|
2013 |
|
Project expenses incurred
(recovered) |
|
27 |
|
|
(73 |
) |
Write-down of deferred development costs on
|
|
|
|
|
|
|
specific projects |
|
677 |
|
|
234 |
|
|
|
704 |
|
|
161 |
|
In October 2013 the Company wrote down its remaining investment
in GSI Westwind when that project was terminated.
In 2014 the Company wrote down its remaining investment in an
oil company client project when it closed out the current phases of the
development work that it had undertaken commencing in 2010. The Company
recovered $300,000 of funding provided by the client through to the completion
of these initial phases. While it expects that the next phases of development
will commence in 2015, it decided to write down its remaining investment in the
related deferred development costs on this project as of July 31, 2014.
C) |
Unaudited Quarterly Financial Information
Summary |
Three months ended
(unaudited) |
Revenues $ |
Expenses $ |
Loss in period $
|
Loss per share $
|
Adjusted
loss(1) $ |
January 31,
2013 |
- |
728,564 |
(416,078) |
- |
(557,000) |
April 30, 2013 |
- |
591,372 |
(17,012) |
- |
(583,000) |
July 31, 2013
|
- |
485,137 |
(261,031) |
- |
(477,000) |
October 31, 2013 |
- |
923,103 |
(5,239,307) |
(0.03) |
(709,000) |
January 31,
2014 |
- |
552,123 |
(552,123) |
- |
(534,000) |
April 30, 2014 |
- |
922,183 |
(922,183) |
(0.01) |
(544,660) |
July 31, 2014
|
125,000 |
1,727,411 |
(1,602,411) |
(0.01) |
1,589,183
|
October 31, 2014 |
(125,000) |
963,154 |
(1,088,154) |
(0.01) |
(1,052,130)
|
21
The quarterly expenses for the three months ended October 31,
2013 were higher than the expenses reported in Q1, Q2 and Q3 in that the Company
recorded certain fourth quarter write downs to deferred development costs and
paid $120,000 in salary adjustments to office staff that have been subject to a
salary freeze for the past three years. The loss reported in Q4 2013 also
includes a $4.2 million non-cash expense relating to the elimination of the
derivative warrant liability previously reported once the Company converted all
outstanding Canadian denominated common share purchase warrants to $US.
Refer also to Tables 1 and 2 for summarized quarterly
information.
*************************
22
MICROMEM TECHNOLOGIES INC. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE FISCAL YEAR ENDING OCTOBER 31, 2014 |
PREPARED AS
OF FEBRUARY 27, 2015 |
4. RISKS AND UNCERTAINTIES
OVERVIEW
There are a number of risks which may individually or in the
aggregate affect the long-term commercial success of the Company, both known and
unknown. An investment in the Company should be considered speculative due to
the nature of the Companys activities and its current stage of development:
Stage of Development of Technology:
The Company has made considerable strides in advancing its
technology and in developing a product portfolio as outlined in Section 2 of
this MD&A report. Our various products are in different phases of
development and there remains the risk that the Company must successfully
complete development work on these products to have available commercially
viable products which can be licensed or sold.
Customers Willingness to Purchase:
We have entered into multiple joint development agreements
whereby our prototype products are being subjected to rigorous testing by our
partners. We expect to be successful in completing remaining development work on
our product portfolio. If we are successful in doing so, our partners will then
have to decide the extent to which they will adopt our technology for future use
for their applications. The future revenue streams for the Company are dependent
upon the rate of adoption by our customers and their willingness to do so.
Patent Portfolio:
The Company has 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 and that our patent pending files may not ultimately
be granted full patent status. While we continue to make specific efforts to
broaden our IP claims, this is an ongoing process and requires continued effort
and vigilance. The Company does not have extensive in-house resources so as to
manage its IP portfolio in this environment and has traditionally relied heavily
on its patent attorneys for these services.
Financing:
The Company has successfully raised funding over the past
several years to continue to support its development initiatives and fund the
Companys corporate structure and overheads. The financing environment for early
stage technology companies remains challenging and there cannot be certainty
that the Company will be able to continue to raise financing as it has in the
past to continue to support its business initiatives.
23
To put this risk into proper perspective, however, the Company
notes that it has raised an additional $6.8 million in 2014 (Table 3) It is
essential to also note that the development projects that the Company is now
pursuing are based on having its customers pay for development work tied to
performance milestones as the Company incurs these costs.
Competitors:
The Company is subject to competition from other entities that
may have greater financial resources and more in-house technical expertise.
Management Structure:
The Company is highly dependent on the services of a small
number of senior management team members. If one of these individuals were
unavailable, the Company could encounter a difficult transition process.
Foreign Currency Exposure:
The Company expects to sell its products and license
technologies in the United States, in Canada and abroad. 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.
5. CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are set forth in Note 4 to
our consolidated financial statements. Refer to Appendix 1 of this MD&A
document for Managements discussion of Critical Accounting Policies and
Estimates.
6. COMPLIANCE RELATED REPORTING
MATTERS
(a) |
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
consisting of deposits and other receivables, accounts payable and accrued
liabilities and bridge loans approximate their carrying values due to their
short-term maturity. The Companys financial instruments measured at fair value
on the statement of financial position date consist of cash, derivative warrant
liability and the conversion feature of bridge loans.
Credit risk: Financial instruments, which subject the
Company to potential credit risk, consist of deposits and other receivables. The
Company does not always require collateral or other security for deposits and
other receivables. The Company estimates its provision for uncollectible amounts
based on an analysis of the specific amount and the debtor's payment history and
prospects.
24
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.
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.
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 October 31, 2014.
(b) |
Commitments and
Contingencies: |
Commitments:
The Company secured new leased premises in June 2012. The lease
term is for 5 years and stipulates base monthly rental expenses of $3800 CDN.
Lease commitments are as follows commitments less than one year of $44,000
CDN; commitments in years 2 and 3 total $77,000CDN.
The Company has certain outstanding commitments to third party
subcontractors with respect to deferred development costs. These commitments are
as follows commitments less than one year of $1,799,000; commitments between
years 2-5 total $934,000.
Legal Matters:
As of October 31, 2014 there were 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.
On November 17, 2014, the Company and MAST, as plaintiffs,
commenced a lawsuit in the United States District Court for the Southern
District of New York against Dreifus Associates Limited and Henry Dreifus, as
defendants. The plaintiffs original complaint contained five causes of action
by which they sought money damages, declaratory relief and specific performance
relating to certain contracts. On February 24, 2015 the plaintiffs filed an
amended complaint to add a claim for declaratory relief relating to a patent
held by the plaintiffs it is anticipated that defendants will deny
the substantive allegations in the amended complaint and/or seek to have the
action transferred to Florida, where defendants reside and/or maintain an
office.
25
Contingencies:
In 2013 the Company recovered $181,180 of accounts payable
balances recorded in previous years and relating to third party vendors whose
accounts the Company has disputed. The Company has concluded that these amounts
are not payable. If these amounts were successfully contested by these vendors,
the Company could have an obligation for such costs.
The Company has disputed amounts charged by certain third party
vendors during previous fiscal years, one of which is the firm noted above,
against which the Company has taken action (Note 23). The amount charged by the
vendors exceeds the amount recorded as a provision by $181,780. No claims have
been made by the vendors to date related to the disputed amounts.
(c) |
Disclosure Controls/Internal
Controls: |
The Company was classified as an accelerated filer in 2014 and,
accordingly, is required to complete an external audit on its internal controls.
It filed its last audit report on internal controls in 2010.
The audit report issued by the external auditors on the
internal control over financial reporting dated February 27, 2015 concluded that
the Company has maintained, in all material respects, effective internal control
over financial reporting as of October 31, 2014 based on the criteria
established by the regulatory authorities.
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. Committee charters have been developed and has been ratified by our
Board of Directors. We engage legal counsel, as required, to provide guidance
and commentary on our press releases.
Management has concluded that our disclosure controls and
procedures meet required standards. These disclosure controls and procedures are
designed to provide reasonable assurance that information required to be
disclosed in its various reports is 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.
a. |
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.
26
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 conditions and events that
cast doubt about the Companys ability to continue as a going concern for a
reasonable period of time in future. During the year ended October 31, 2014, the
Company reported a net loss and comprehensive loss of $4,164,871 (2013 -
$5,933,928; 2012- 1,775,065) and negative cash flow from operations of
$2,883,079 (2013-$2,515,315; 2012-$2,573,982). The Companys working capital
position as at October 31, 2014 is $1,034,921 (2013 $425,888).
The Companys future success depends on the profitable
commercialization of its proprietary magnetic sensor technology. There is no
assurance that the Company will be successful in the profitable
commercialization of its technology. Based upon its current operating and
financial plans, management of the Company believes that it will have sufficient
access to financial resources to fund the Companys planned operations through
fiscal 2015; however, the ability of the Company to continue as a going concern
is dependent on its ability to secure additional financing and/or to profitably
commercialize its technology. The financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classifications of liabilities that
may result from the possible inability of the Company to continue as a going
concern.
If the going concern assumption 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 cases, these adjustments could be
material.
c. |
Liquidity and Capital
Resources: |
Liquidity:
Table 3 provides a summary of the financing that was
raised during the 2012-2014 fiscal years.
We currently report negative cash flow from operations. This
result will only change once we are generating sufficient revenue from either
license fees, royalties or the sale of products utilizing our technology. In
2014 and subsequent to the end of the fiscal year, the Company raised
significant funding from the exercise of warrants by warrant holders.
We currently have no lines of credit in place. We must obtain
financing from investors or from clients in support of our development projects.
We have granted to our directors, officers and employees
options to purchase shares at prices that are at or above market price on the
date of grant. As presented in Table 4, there are 12.105 million options
outstanding at an average exercise price of $0.27 per share.
27
Capital Resources:
We have no commitments for capital expenditures as of October
31, 2014.
7. |
SUBSEQUENT EVENTS |
|
|
|
|
The Company reports the following as subsequent
events: |
|
|
|
|
(a) |
As of February 27, 2015 it has raised an additional
$565,714 of financing through the exercise of a total of 2,988,876 common
share purchase warrants. |
|
|
|
|
(b) |
It collected a total of $1,392,978 from development
partners with respect to its ongoing joint product development projects
with its current customers. Included in the amounts collected is $450,000
recorded as amounts receivable at October 31, 2014. |
|
|
|
|
(c) |
The Company settled in full the $244,074 advance to the
President of MAST (as described above in Section 2- Related Party
Transactions) through the award of additional performance based
compensation to that officer in February 2015. |
|
|
|
|
(d) |
The advances to the Chairman and the senior employee
(described above Section 2- Related Party Transactions) were repaid to the
Company in December 2014. |
|
|
|
|
(e) |
On November 17, 2014, Micromem and MAST (Plaintiffs)
commenced a lawsuit in the United States District Court for the Southern
District of New York against Dreifus Associates Limited and Henry Dreifus,
(Defendants). The Plaintiffs original complaint contained five causes
of action by which they sought money damages, declaratory relief and
specific performance relating to certain contracts. On February 24, 2015
the Plaintiffs filed an amended complaint to add a claim for declaratory
relief relating to a patent held by the Plaintiffs. It is anticipated that
Defendants will deny the substantive allegations in the amended complaint
and/or seek to have the action transferred to Florida, where Defendants
reside and/or maintain an office. |
|
|
|
|
(f) |
At the Annual General and Special Meeting of shareholders
held on January 30, 2015, the Companys stock option plan was revised to
increase the maximum number of options in the plan from 15.6 million to
18.84 million options. |
*************************
28
Table 1
Micromem Technologies Inc Management
Discussion and Analysis Annual and Quarterly financial information
October 31, 2014 ($US) |
|
Fiscal year |
|
|
|
|
|
|
|
|
Loss per share |
|
ending October |
|
|
Interest and |
|
|
|
|
|
(basic and fully |
|
31 |
|
|
other income |
|
|
Net Loss |
|
|
diluted) |
|
2014 |
|
|
- |
|
|
(4,164,871 |
) |
|
(0.02 |
) |
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
- |
|
|
(5,933,928 |
) |
|
(0.04 |
) |
|
|
|
|
|
|
|
|
|
|
|
Quarter ending |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2014 |
|
|
- |
|
|
(1,088,154 |
) |
|
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
July 31, 2014 |
|
|
- |
|
|
(1,602,411 |
) |
|
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
April 30, 2014 |
|
|
- |
|
|
(922,183 |
) |
|
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
January 31, 2014 |
|
|
- |
|
|
(552,123 |
) |
|
(0.00 |
) |
|
|
|
|
|
|
|
|
|
|
|
October 31, 2013 |
|
|
- |
|
|
(5,239,807 |
) |
|
(0.03 |
) |
|
|
|
|
|
|
|
|
|
|
|
July 31, 2013 |
|
|
- |
|
|
(261,031 |
) |
|
(0.00 |
) |
|
|
|
|
|
|
|
|
|
|
|
April 30, 2013 |
|
|
- |
|
|
(17,012 |
) |
|
(0.00 |
) |
|
|
|
|
|
|
|
|
|
|
|
January 31, 2013 |
|
|
- |
|
|
(416,078 |
) |
|
(0.00 |
) |
29
Table 2
Micromem Technologies Inc Management
Discussion and Analysis Selected Balance Sheet Information October
31,2014 ($US) |
|
Fiscal year |
|
|
Working |
|
|
Capital |
|
|
|
|
|
|
|
|
|
|
ending October |
|
|
capital |
|
|
asssets at |
|
|
Other |
|
|
Total |
|
|
Shareholders |
|
31 |
|
|
(deficiency) |
|
|
NBV |
|
|
Assets |
|
|
Assets |
|
|
equity (deficit) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2014 |
|
|
1,034,921 |
|
|
21,483 |
|
|
3,806,369 |
|
|
5,636,605 |
|
|
4,862,773 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2013 |
|
|
425,888 |
|
|
13,998 |
|
|
1,096,433 |
|
|
2,166,455 |
|
|
1,536,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ending |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2014 |
|
|
1,034,921 |
|
|
21,483 |
|
|
3,806,369 |
|
|
5,636,605 |
|
|
4,862,773 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2014 |
|
|
262,467 |
|
|
23,319 |
|
|
2,832,160 |
|
|
3,978,560 |
|
|
3,117,946 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2014 |
|
|
1,305,366 |
|
|
25,892 |
|
|
2,298,210 |
|
|
3,910,994 |
|
|
3,629,468 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2014 |
|
|
1,397,049 |
|
|
21,771 |
|
|
1,353,498 |
|
|
3,091,426 |
|
|
2,772,316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2013 |
|
|
425,888 |
|
|
13,998 |
|
|
1,096,433 |
|
|
2,166,455 |
|
|
1,536,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2013 |
|
|
(1,018,591 |
) |
|
11,438 |
|
|
1,240,317 |
|
|
1,498,756 |
|
|
233,164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2013 |
|
|
(977,307 |
) |
|
14,248 |
|
|
1,102,715 |
|
|
1,464,445 |
|
|
139,656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2013 |
|
|
(1,665,021 |
) |
|
5,014 |
|
|
1,040,224 |
|
|
1,418,921 |
|
|
(619,783 |
)
|
30
Table 3
Micromem Technologies Inc Management Discussion
and Analysis Summary of financing raised by Company October
31,2014 |
|
Summary of financing raised by Company
|
|
2012 |
|
|
2013 |
|
|
|
Shares |
|
|
Price / share |
|
|
$ |
|
|
Shares |
|
|
Price / share |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private placements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q1 |
|
2,005,022 |
|
|
0.107 |
|
|
214,478 |
|
|
1,967,117 |
|
|
0.161 |
|
|
316,373 |
|
Q2 |
|
2,178,592 |
|
|
0.213 |
|
|
464,495 |
|
|
5,358,704 |
|
|
0.159 |
|
|
852,809 |
|
Q3 |
|
708,333 |
|
|
0.210 |
|
|
148,510 |
|
|
2,126,603 |
|
|
0.158 |
|
|
336,504 |
|
Q4 |
|
1,452,952 |
|
|
0.147 |
|
|
213,416 |
|
|
6,654,533 |
|
|
0.211 |
|
|
1,404,846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q1 |
|
- |
|
|
|
|
|
- |
|
|
3,393,912 |
|
|
0.126 |
|
|
428,650 |
|
Q2 |
|
1,270,000 |
|
|
0.141 |
|
|
179,270 |
|
|
753,334 |
|
|
0.176 |
|
|
132,220 |
|
Q3 |
|
4,513,045 |
|
|
0.127 |
|
|
573,927 |
|
|
1,120,000 |
|
|
0.115 |
|
|
129,064 |
|
Q4 |
|
6,292,813 |
|
|
0.119 |
|
|
746,516 |
|
|
686,667 |
|
|
0.193 |
|
|
132,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of bridge
loan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2012 |
|
1,120,000 |
|
|
0.098 |
|
|
109,825 |
|
|
|
|
|
|
|
|
|
|
October 31, 2012 |
|
740,080 |
|
|
0.158 |
|
|
117,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,280,837 |
|
|
|
|
|
2,767,512 |
|
|
22,060,870 |
|
|
|
|
|
3,732,923 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
Price / share |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q1 |
|
6,325,224 |
|
|
0.235 |
|
|
1,486,022 |
|
|
|
|
|
|
|
|
|
|
Q2 |
|
6,023,399 |
|
|
0.232 |
|
|
1,400,080 |
|
|
|
|
|
|
|
|
|
|
Q3 |
|
3,653,495 |
|
|
0.299 |
|
|
1,090,889 |
|
|
|
|
|
|
|
|
|
|
Q4 |
|
11,408,599 |
|
|
0.248 |
|
|
2,824,628 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of bridge loan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q1 |
|
2,517,501 |
|
|
0.120 |
|
|
302,100 |
|
|
|
|
|
|
|
|
|
|
Q2 |
|
- |
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Q3 |
|
- |
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Q4 |
|
- |
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued against A |
|
17,081 |
|
|
0.489 |
|
|
8,353 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,945,299 |
|
|
|
|
|
7,112,072 |
|
|
|
|
|
|
|
|
|
|
31
Table 4
Micromem Technologies Inc Management
Discussion and Analysis October 31, 2014 |
|
Outstanding options |
|
|
|
|
|
|
at 10/31/2014 |
|
Strike price |
|
|
Expiry date |
|
|
|
|
|
|
|
|
125,000 |
|
0.35 |
|
|
April 5,
2016 |
|
7,275,000 |
|
0.20 |
|
|
October 31, 2016 |
|
1,905,000 |
|
0.35 |
|
|
April 10,
2017 |
|
1,090,000 |
|
0.30 |
|
|
January 22, 2018 |
|
780,000 |
|
0.27 |
|
|
September
16, 2018 |
|
300,000 |
|
0.35 |
|
|
October 17, 2018 |
|
350,000 |
|
0.85 |
|
|
February
10, 2019 |
|
280,000 |
|
0.64 |
|
|
April 25, 2019 |
|
12,105,000 |
|
0.27 |
|
|
|
|
|
|
|
|
|
|
|
Total
proceeds if all options exercised: |
|
$ |
3,284,800 |
|
|
|
|
|
|
|
|
Outstanding Warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
123,276 |
|
0.75 |
|
|
November
11, 2014 |
|
429,686 |
|
0.80 |
|
|
November 14, 2014 |
|
600,000 |
|
0.77 |
|
|
December
14, 2014 |
|
815,000 |
|
0.56 |
|
|
December 16, 2014 |
|
2,252,501 |
|
0.12 |
|
|
January
23, 2015 |
|
265,000 |
|
0.11 |
|
|
January 23, 2015 |
|
4,485,463 |
|
0.37 |
|
|
|
|
|
|
|
|
|
|
|
Total
proceeds if all warrants exercised: |
|
$ |
1,655,574 |
|
32
Appendix 1
MICROMEM TECHNOLOGIES INC. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
AT OCTOBER 31, 2014 |
RECENT HISTORY: 2008-2012 |
|
1) Corporate Development:
The Companys current profile began to develop with
incorporation of Micromem Applied Sensor Technologies Inc. in 2008. The
historical development is highlighted below;
2008: The Companys current profile began to develop
with the incorporation of MAST. MAST contracted to work with BAE Systems in
Nashua New Hampshire to use Micromems patented MRAM design and develop a memory
cell for a gallium arsenside foundry in a radiation hardened environment for
military applications. In the course of that work, we determined that the Hall
sensor had performance characteristics that could, on its own, be of value to
the Company.
2009: We contracted with Frost and Sullivan to assess
current market opportunities in the Hall sensor market. Their report suggested
current market potential of approximately $2 billion.We began to market the
Companys sensor capabilities, initially through traditional public relations
firms. Ultimately, the Company assumed full responsibility for promoting its
technology through its own market research and solicitation, by participating in
technical conferences and by developing its website content. We decided to
develop, at our own cost, proof of concepts for products that we identified as
having significant potential market value. We collaborated with companies in
development efforts for a magnetic gold sensor, an oil condition sensor, an oil
and gas aerial exploration platform, sensors designed for computer hardware
systems, medical detection sensors and acoustic sensor applications. These were
time consuming, difficult and expensive undertakings. Certain provisional
patents were created on this work.
2010: In 2010 we were contacted by Lux Research, an
independent research and advisory firm that operates internationally, and
provides strategic advice and intelligence on emerging technologies. Lux was
seeking a company to create small magnetic sensors for their client in down hole
use in producing oil fields. MAST was engaged by Luxs client (a major
international oil company) to develop and deliver a sensor platform for
detecting nanometer sized magnetic particles in a flowing oil stream at
concentrations of less than one part per billion.
A second development project was secured with UK based GSI
Westwind, a leading designer/manufacturer of air bearing spindles for customers
who produce high speed air bearing motors.
33
2011: Through its continued development efforts, MAST
had concluded that a significant market opportunity existed for it to leverage
MEMS/nanofabrication methodologies and create unique combinations of sensors to
provide solutions for complex unmet technology needs. MAST began its interaction
with NineSigma Inc. at that time.
NineSigma is a Cleveland-based international company that has
pioneered, over the past decade, an Open Innovation model, connecting innovation
seeking companies to the best solutions, capabilities and partners around the
world. MASTs relationship with NineSigma has developed significantly since 2011
and has provided us with enhanced access to global Fortune 1000 companies.
Through NineSigma, MAST has responded to multiple RFPs and has built up a robust
sales proposal pipeline.
Micromem decided to suspend all further research and
development efforts in the (MRAM) memory space, which it had begun to
deemphasize commencing in 2008. This market was crowded with large competitors
who had significantly greater resources to deploy. The memory market is mature
and is very costly to pursue. Micromem's patents in this area were developed
between 2000 and 2006 and have not been advanced since then.
2012: MAST pursued a number of projects that it had
initially developed in 2010 11. The prototype milestones established in the
GSI Westwind project were met and the Company submitted initial billings to
recover a portion of the costs it had incurred. Testing began on pilot
production samples.
MAST continued to advance the development work for the
international energy company that it began in 2010 through the Lux Research
introduction. A beta version of the product was developed for client testing.
The Company submitted an initial billing to recover a portion of the costs
incurred to date on this project.
MAST was successful in initiating new projects in 2012. It
began development work on an oil pan plug sensor in conjunction with a major
international automotive company and advanced this project to testing in the
customers test facilities. Additionally, MAST demonstrated its breast cancer
detection prototype technology in Europe for a group that was developing a
franchised business model for such testing. Finally, MAST entered into
negotiations with several international energy companies for use of its sensor
technology for diagnostic control and monitoring systems.
2) Financing:
Between 2008-2012, the Company raised $16.968 million from
private placements, from the exercise of warrants and through bridge loans.
3) Financial reporting:
The Company converted to IFRS reporting in 2011. Between
2011-2013 it raised a portion of its financing from Canadian denominated
warrants which, under IFRS, was reported as a derivative warrant liability. In
October, 2013 all warrants were converted to US dollars, being the Companys
functional currency and the derivative warrant liability was eliminated in the
financial statements.
4) Project development cycle:
34
The Company has developed a standardized approach to dealing
with client projects. It will engage a client by proposing a sensor based
platform solution to a significant operating challenge or problem for which the
client it seeking a solution. Its proposal to the client is a multi phased work
schedule characterized as follow:
Phase 1: Initial assessment completion of initial
project plan, cost and volume estimates, product specifications and tolerances,
establishing working principles.
Phase 2: Preliminary design work, specification of
manufacturing processes, evaluation of manufacturing options.
Phase 3: Sensor electronics manufacturing test methods,
completion of initial prototypes for beta testing by client.
Phase 4: Pilot production stage where product is
certified, test protocols are established and quality processes are optimized.
Phase 5: Commercial production.
The Company will typically assume the costs associated with
Phase 1 and Phase 2 of the development process. Thereafter, it looks to engage
the client in a Joint Product Development Agreement where the ongoing costs of
the phased activity are underwritten by the client.
The ultimate objective in this process is to secure long term
annuity-like revenue streams from licensing and royalty agreements.
*************************
35
Appendix 2
MICROMEM TECHNOLOGIES INC. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
AT OCTOBER 31, 2014 |
CONVERSION TO IFRS REPORTING |
|
The Company was required to convert to International Financial
Reporting Standards (IFRS) commencing with its fiscal year ending October 31,
2012 and retroactive to October 31, 2011. This conversion to IFRS reporting was
completed at that time and the Company continues to report both on a quarterly
basis (unaudited) and for its annual audited financial statements as at October
31, 2014. Our auditors have provided unqualified opinions on the yearend
financial statements in 2013 and 2014.
IFRS reporting has principally impacted our financial reporting
in several areas as described below:
|
a. |
The concept of functional and reporting currencies was
introduced. In the Companys case, both its functional and its reporting
currency are the US dollar. |
|
|
|
|
b. |
We are required to measure certain of our assets and
liabilities at fair value these are described as financial instruments
designated at fair value through profit & loss (FVTPL). These
financial instruments are recorded at fair value and this fair value must
be updated at each quarter end. |
|
|
|
|
c. |
Because we have raised financing through unit private
placements (consisting of a common share and a common share purchase
warrant), in Canadian funds, we have the underlying warrant exercisable in
Canadian funds. Under IFRS reporting, the value of the warrant is reported
under FVTPL as a derivative warrant liability (US denominated private
placements are not afforded this treatment; in this latter case the entire
private placement is recorded within the Shareholders Equity section of
the statement of financial position). This means that for Canadian
denominated warrants, we record the value of the warrants as a liability
in our consolidated balance sheet. Additionally, we are required to
revalue these outstanding warrants liability at each quarter
end. |
|
|
|
|
d. |
In the past we have on occasion raised financing through
the issuance of convertible debt. Between 2010 and 2012 we secured nine
different convertible bridge loans. We did not secure any further such
loans in 2013 and at October 31, 2013 there remained outstanding one
bridge loan in the amount of $290,014 which amount was converted to equity
in 2014. |
|
|
|
|
|
The conversion feature on the bridge loan is measured as
an embedded derivative under IFRS reporting where the conversion price is
in $CDN. This has required us to calculate and report the bridge loan in
several components the value of the debt component and the value of the
embedded derivative (ie, the intrinsic value of the conversion feature
itself). While these components are reported in
our financial statements at October 31, 2013, the practice of
raising financing through convertible bridge loans has been discontinued
and this will no longer be a reporting matter to contend with in
future. |
36
|
e. |
Under IFRS, as under Canadian GAAP, reporting we continue
to measure certain financing transactions using the Black Scholes option
pricing model which is the established norm for all reporting issuers. The
Black Scholes model is an arithmetic algorithm which is based on a number
of inputs, certain of which are judgemental. In any event, we apply the
Black Scholes model to value both Canadian and US denominated warrants,
embedded derivatives and the intrinsic value of stock options which are
granted from time to time. |
In the Companys view it is essential to recognize the
following realities with respect to our financial reporting under IFRS and in
utilizing the Black Scholes model for measurement purposes: the stock
compensation cost associated with the periodic grant of stock options is a
non-cash expense; the periodic quarterly revaluation of the derivative warrant
liability which yields a gain or a loss at each quarter end in a non-cash item.
The Company believes that in reviewing its financial statements, the reader must
be cognizant of these items because they are significant and material non cash
dollar amounts.
After October 31, 2013 the Company no longer reports a
derivative warrant liability on its balance sheet and will not, accordingly,
have any related gain (loss) on revaluation reported in its statement of income.
************************
37
Appendix 3
MICROMEM TECHNOLOGIES INC. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
AS AT OCTOBER 31, 2014 |
CRITICAL ACCOUNTING POLICIES |
|
At October 31, 2014 the critical accounting policies utilized
by the Company are summarized as below:
|
a) |
Basis of consolidation:
|
|
|
|
|
|
|
Subsidiaries are legal entities controlled by the
Company. Control exists when the Company has the power, directly or
indirectly to govern the financial and operating policies of an entity so
as to obtain benefits from its activities. The financial statements of the
subsidiaries are included in the consolidated financial statements from
the date that control commences until the date control ceases. |
|
|
|
|
|
|
These consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All
inter-company transactions and balances have been eliminated. The
accounting policies have been consistently applied by the Companys
subsidiaries. |
|
|
|
|
|
b) |
Foreign currency
translation: |
|
|
|
|
|
|
IFRS requires that the functional currency of each entity
in the consolidated entity be determined separately in accordance with
specific indicators and should be measured using the currency of the
primary economic environment in which the entity operates (the functional
currency). As a result of an assessment of the primary indicators,
management assessed the functional currency of the Company and its
subsidiaries to be U.S. dollar (USD). The consolidated financial
statements of the Company are prepared and presented using the USD.
|
|
|
|
|
|
|
Foreign currency
transactions denominated in other than U.S. dollars are translated into
the functional currency on the following basis: |
|
|
|
|
|
|
i) |
Monetary assets and liabilities are
translated at the rates of exchange prevailing at the statement of
financial position date. |
|
|
|
|
|
|
ii) |
Non-monetary assets and liabilities
that are measured at historical cost are translated using the exchange
rate at the date of the transaction. |
|
|
|
|
|
|
iii) |
Income and expenses for each income
statement line item presented are translated at average exchange rates
during the quarter in which they are recognized. |
38
Exchange differences resulting from the settlement of foreign
currency transactions are recognized directly in the consolidated statement of
loss and comprehensive loss in the period in which incurred.
|
c) |
Financial Instruments: Recognition, Measurement,
Disclosure and Presentation: |
|
|
|
|
|
The Company initially recognizes loans and receivables
and deposits on the date that they are originated. All other financial
assets including assets designated at fair value through profit or loss
(FVTPL) are recognized initially on the trade date at which the Company
becomes a party to the contractual provisions of the instrument. |
|
|
|
|
|
The Company derecognizes a financial asset when the
contractual rights to the cash flows from the asset expire. |
|
|
|
|
|
Financial assets and liabilities are offset and the net
amount presented in the statement of financial position only when the
Company has the legal right to offset the amounts and intends either to
settle on a net basis or to realize the asset and settle the liability
simultaneously. |
|
|
|
|
|
The Company has the following financial assets: cash,
deposits and other receivables and promissory note receivable. |
|
|
|
|
|
All financial assets and financial liabilities, including
derivatives, are initially measured in the statement of financial position
at fair value, except for loans and receivables, investments held-to
maturity and other financial liabilities, which are measured at amortized
cost. Measurement in subsequent periods depends on whether the financial
instrument had been classified as FVTPL, available-for- sale,
held-to-maturity, loans and receivables, or other liabilities. |
|
|
|
|
|
FVTPL financial assets are measured at fair value and all
gains and losses are included in the statement of loss and comprehensive
loss in the period in which they arise. Available-for-sale financial
assets are measured at fair value with revaluation gains and losses
included in other comprehensive income until the assets are removed from
the statement of financial position. |
|
|
|
|
|
The Company classifies cash as FVTPL. Deposits and other
receivables and promissory note receivable are classified as loans and
receivables, and are initially measured at fair value and subsequently at
amortized cost using the effective interest rate method. Accounts payable
and accrued liabilities and bridge loans are classified as other
liabilities, and initially measured at fair value and subsequently at
amortized cost using the effective interest rate method. The derivative
warrant liability and embedded derivatives in bridge loans are classified
at FVTPL and are measured at fair value with unrealized gains or losses
reported in the consolidated statement of loss and comprehensive
loss. |
39
|
d) |
Compound Financial Instruments |
|
|
|
|
|
Compound financial instruments issued by the Company
comprise convertible notes that can be converted to share capital at the
option of the holder and the number of shares to be issued does not vary
with changes in their fair value. |
|
|
|
|
|
The liability component of a compound financial
instrument is recognized initially at the fair value of a similar
liability that does not have an equity conversion option. |
|
|
|
|
|
The equity component, if the conversion feature of the
convertible note is in US dollars, is recognized initially as the
difference between the fair value of the compound financial instrument as
a whole and the fair value of the liability component. Any directly
attributable transaction costs are allocated to the liability and equity
components in proportion to their initial carrying amounts. |
|
|
|
|
|
Subsequent to initial recognition, the liability
component of a compound financial instrument is measured at amortized cost
using the effective interest rate method. The equity component of a
compound financial instrument is not remeasured subsequent to initial
recognition. |
|
|
|
|
|
Interest, dividends, losses and gains relating to the
financial liability are recognized in profit or loss except for borrowing
costs on qualifying assets which are added to asset cost. Distributions to
the equity holders are recognized in equity, net of any
tax. |
40
|
e) |
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 common shares 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. |
|
|
|
|
|
f) |
Derivative Liability |
|
|
|
|
|
|
The Companys derivative financial instruments consist of
derivative liabilities in relation to its share purchase
warrants. |
|
|
|
|
|
|
i) |
Derivative Warrant Liability: |
|
|
|
|
|
|
|
The Company has issued share purchase warrants in
conjunction with private placements for the purchase of common shares of
the Company. Until October 2013 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. |
41
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 (CDN warrants) to share capital.
|
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: |
|
|
|
|
|
|
(ii.1) |
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.2) |
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. |
|
|
|
|
|
|
(ii.3) |
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. |
|
g) |
Loan Impairment: |
|
|
|
|
|
Impaired loans are accounted for at their face amount net
of the allowance for loan impairment. When a loan is deemed to be
impaired, its carrying amount is reduced to its estimated realizable
amount which is measured by discounting the expected future cash flows at
the effective interest rate inherent in the loan. The amount initially
recognized as an impairment loan, together with any subsequent change, is
charged to the allowance as an adjustment. A write-off of the loan will
occur when the loan is believed to have no reasonable expectation of
collectability. |
|
|
|
|
h) |
Intangible Assets |
|
|
|
|
|
Costs for the general development of the Companys sensor
technology are expensed unless they meet the criteria for deferral.
Expenditures are capitalized if the Company can demonstrate each of the
following criteria: (i) the technical feasibility of completing the
intangible asset so that it will be available for use or sale, (ii) its
intention to complete the intangible asset and use or sell it, (iii) its
ability to use or sell the intangible asset, (iv) how the intangible asset
will generate probable future economic benefits, (v) the availability of
adequate technical, financial and other resources to complete the
development and to use or sell the intangible asset, and (vi) its ability
to measure reliably the expenditure attributable to the intangible asset during its development;
otherwise, they are expensed as incurred. Commencing in 2011, the Company
determined that these costs met the criteria and, accordingly, these costs have
been capitalized and are tested in each reporting period for impairment.
Amortization is provided on a 7 year straight-line basis. Commencing in 2014
amortization expense is capitalized as deferred development costs as these
charges are directly related to development. |
42
|
i) |
Property and Equipment: |
|
|
|
|
|
Property and equipment are recorded at cost and are
amortized over their estimated useful lives at the following annual rates
and methods: |
|
Computers |
30% declining balance |
|
Office equipment |
30% declining balance |
|
j) |
Impairment of Long-lived Assets: |
|
|
|
|
|
Long-lived assets consist of property and equipment,
patents, intangible assets, and deferred development costs. |
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The carrying amounts of property and equipment, patents,
intangible assets and deferred development costs, are reviewed for
impairment when events or changes in circumstances indicate that the
carrying amounts may not be recoverable When the carrying amount exceeds
the estimated recoverable amount, the assets are written down to their
recoverable amount. |
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The recoverable amount of long-lived assets is the
greater of fair value less costs of disposal. In assessing value in use,
estimated future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset. Impairment losses are
recognized in the consolidated statements of loss and comprehensive
loss. |
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An assessment is made at each reporting date as to
whether there is any indication that previously recognized impairment
losses may no longer exist or may have decreased. If such indication
exists, the recoverable amount is estimated. A previously recognized
impairment loss is reversed only if there has been a change in the
estimates used to determine the assets recoverable amount since the last
impairment loss was recognized. If that is the case, the carrying amount
of the asset is increased to its recoverable amount. That increased amount
cannot exceed the carrying amount that would have been determined, net of
amortization, had no impairment loss been recognized for the asset in
prior years. Such reversal is recognized in the consolidated statements of
loss and comprehensive loss. Following the recognition or reversal of an
impairment loss, the amortization charge applicable to the asset is
adjusted prospectively in order to systematically allocate the revised
carrying amount, net of any residual value, over the estimated useful
life. |
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Gains or losses on the disposal of property and
equipment, patents and intangible assets represent the difference between
the net proceeds and the carrying value at the date of sale. |
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The Company uses the relative fair value approach in
accounting for the value assigned to the common shares and the common
share purchase warrants which it had made available in the unit private
placement financings that it secured, calculated in accordance with the
Black Scholes option-pricing model. |
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k) |
Research and Development Costs: |
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Research costs are expensed in the period incurred.
Development costs are expensed as incurred unless they meet the criteria
for deferral. Expenditures during the development phase are capitalized if
the Company can demonstrate each of the following criteria: (i) the
technical feasibility of completing the asset so that it will be available
for use or sale, (ii) its intention to complete the asset and use or sell
it, (iii) its ability to use or sell the asset, (iv) how the asset will
generate probable future economic benefits, (v) the availability of
adequate technical, financial and other resources to complete the
development and to use or sell the asset, and (vi) its ability to measure
reliably the expenditure attributable to the asset during its development;
otherwise, these costs are expensed as incurred. Commencing in 2009, the
Company determined that its continuing activities related to the
application of its sensor technology to projects met the deferral criteria
and, accordingly, these costs have been capitalized and are tested in each
reporting period for recoverability. Development costs will be amortized
on an appropriate basis at the time each of the developed assets is
available for use. |
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Payments received from development partners on projects
are recorded to deferred development costs as a recovery of cost
incurred. |
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l) |
Patents: |
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Patents are recorded at cost and are amortized on a
straight line basis over their estimated useful lives of 5 years. Patents
are recorded net of accumulated amortization with amortization expense
capitalized as deferred development costs since the patents are directly
related to development. |
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m) |
Unit Private Placements: |
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The Company uses the relative fair value approach in
accounting for the value assigned to the common shares and the common
share purchase warrants which it had made available in the unit private
placement financings that it secured, calculated in accordance with the
Black Scholes option-pricing model. |
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basis over their estimated useful lives of 5 years.
Patents are recorded net of accumulated amortization with amortization
expense capitalized as deferred development costs since the patents are
directly related to development. |
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n) |
Stock based Compensation and Other Stock based
Payments: |
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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 contributed
surplus. |
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Consideration received upon the exercise of stock options
is credited to share capital and the related amount is transferred from
contributed surplus. |
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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 of 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. |
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o) |
Income Taxes: |
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Income tax expense comprises current and deferred tax.
Current tax and deferred tax are recognized in profit or loss except to
the extent that it relates to a business combination, or items recognized
directly in equity or in other comprehensive income. |
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Current tax is the expected tax payable or receivable on
the taxable income or loss for the year, using tax rates enacted or
substantively enacted at the reporting date and any adjustment to tax
payable in respect of previous years. |
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Deferred tax is recognized in respect of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation purposes.
Deferred tax is not recognized for the following temporary differences:
the initial recognition of assets or liabilities in a transaction that is
not a business combination and that affects neither accounting nor taxable
income or loss and differences relating to investments in subsidiaries and
jointly controlled entities to the extent that it is probable that they
will not reverse in the foreseeable future. In addition, deferred tax is
not recognized for taxable temporary differences arising on the initial
recognition of goodwill. |
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Deferred tax is measured at the tax rates that are
expected to be applied to temporary differences when they reverse, based
on the rates that have been enacted or substantively enacted by the
reporting date. |
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Deferred tax assets and liabilities are offset if there
is a legally enforceable right to offset current tax liabilities and
assets and they relate to income taxes levied by the same tax authority on
the same taxable entity, or on different tax entities, but they intend to
settle current tax liabilities and assets on a net basis or their tax
assets and liabilities will be realized simultaneously. |
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A deferred tax asset is recognized for unused tax losses,
tax credits and deductible temporary differences, to the extent that it is
probable that future taxable profits will be available against which they
can be utilized. Deferred tax assets are reviewed at each reporting date
and are reduced to the extent that it is no longer probable that the
related tax benefit will be realized. |
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p) |
Earnings or Loss per Share: |
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Basic earnings (loss) per share are computed by dividing
net earnings (loss) by the weighted average number of common shares
outstanding for the period. Diluted earnings (loss) per share is computed
by adjusting the weighted average number of number of common shares
outstanding for the effects of all dilutive potential common shares, which
are comprised of outstanding warrants, conversion options and vested stock
options. Diluted earnings (loss) per common share assume that any proceeds
received for in-the-money warrants and options would be used to buy common
shares at the average market price for the period. |
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q) |
Changes in Accounting Standards: |
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As of November 01, 2013 the Company adopted the following
new standards, amendments to standards and interpretations which are
effective for periods beginning on or after January 1,
2013: |
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IFRS 10 Consolidated Financial Statements
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IFRS 11 Joint Arrangements
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IFRS 12 Disclosures of Interests in Other Entities
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IFRS 13 Fair Value Measurement
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IAS 27 Separate financial statements
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IAS 28 Investment in Associates and Joint Ventures
The adoption of these accounting standards had no impact on the
consolidated financial statements previously filed by the Company. As a result
no reconciliations are provided for the adoption of these new standards.
46
FORM 52-109F1
CERTIFICATION OF ANNUAL FILINGS
FULL CERTIFICATE
I, Joseph Fuda, Chief Executive Officer of Micromem
Technologies Inc., certify the following:
1. Review: I have reviewed the AIF, if any,
annual financial statements and annual MD&A, including, for greater
certainty, all documents and information that are incorporated by reference in
the AIF (together, the "annual filings") of Micromem Technologies Inc. (the
"issuer") for the financial year ended October 31, 2014.
2. No misrepresentations: Based on my knowledge,
having exercised reasonable diligence, the annual filings do not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated or that is necessary to make a statement not misleading in light of
the circumstances under which it was made, for the period covered by the annual
filings.
3. Fair presentation: Based on my knowledge,
having exercised reasonable diligence, the annual financial statements together
with the other financial information included in the annual filings fairly
present in all material respects the financial condition, financial performance
and cash flows of the issuer, as of the date of and for the periods presented in
the annual filings.
4. Responsibility: The issuer's other certifying
officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (DC&P) and internal control over financial reporting
(ICFR), as those terms are defined in National Instrument 52-109
Certification of Disclosure in Issuers' Annual and Interim Filings, for
the issuer.
5. Design: Subject to the limitations, if any,
described in paragraphs 5.2 and 5.3, the issuer's other certifying officer(s)
and I have, as at the financial year end
|
(a) |
designed DC&P, or caused it to be designed under our
supervision, to provide reasonable assurance
that |
|
(i) |
material information relating to the issuer is made known
to us by others, particularly during the period in which the interim
filings are being prepared; and |
|
(ii) |
information required to be disclosed by the issuer in its
annual filings, interim filings or other reports filed or submitted by it
under securities legislation is recorded, processed, summarized and
reported within the time periods specified in securities legislation;
and |
|
(b) |
designed ICFR, or caused it to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with the issuer's
GAAP. |
5.1 Control framework: The control framework the
issuer's other certifying officer(s) and I used to design the issuer's ICFR is
Internal Control Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
5.2 ICFR material weakness relating to design:
N/A
5.3 Limitation on scope of design: N/A
6. Evaluation: The issuer's other certifying
officer(s) and I have
|
(a) |
evaluated, or caused to be evaluated under our
supervision, the effectiveness of the issuer's DC&P at the financial
year end and the issuer has disclosed in its annual MD&A our
conclusions about the effectiveness of DC&P at the financial year end
based on that evaluation; and |
|
(b) |
evaluated, or caused to be evaluated under our
supervision, the effectiveness of the issuer's ICFR at the financial year
end and the issuer has disclosed in its annual
MD&A. |
|
(i) |
our conclusions about the effectiveness of ICFR at the
financial year end based on that evaluation; and |
|
(ii) |
for each material weakness relating to operation existing
at the financial year end |
|
(A) |
a description of the material weakness; |
|
(B) |
the impact of the material weakness on the issuer's
financial reporting and its ICFR; and |
|
(C) |
the issuer's current plans, if any, or any actions
already undertaken, for remediating the material
weakness. |
7. Reporting changes in ICFR: The issuer has
disclosed in its annual MD&A any change in the issuer's ICFR that occurred
during the period beginning on August 1, 2014 and ended on October 31, 2014 that
has materially affected, or is reasonably likely to materially affect, the
issuer's ICFR.
8. Reporting to the issuer's auditors and board of
directors or audit committee: The issuer's other certifying officer(s)
and I have disclosed, based on our most recent evaluation of ICFR, to the
issuer's auditors, and the board of directors or the audit committee of the
board of directors any fraud that involves management or other employees who
have a significant role in the issuer's ICFR.
Date: February 27, 2015
/s/ Joseph Fuda
Joseph Fuda
Chief Executive
Officer
FORM 52-109F1
CERTIFICATION OF ANNUAL FILINGS
FULL CERTIFICATE
I, Dan Amadori, Chief Financial Officer of Micromem
Technologies Inc., certify the following:
1. Review: I have reviewed the AIF, if any,
annual financial statements and annual MD&A, including, for greater
certainty, all documents and information that are incorporated by reference in
the AIF (together, the "annual filings") of Micromem Technologies Inc. (the
"issuer") for the financial year ended October 31, 2014.
2. No misrepresentations: Based on my knowledge,
having exercised reasonable diligence, the annual filings do not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated or that is necessary to make a statement not misleading in light of
the circumstances under which it was made, for the period covered by the annual
filings.
3. Fair presentation: Based on my knowledge,
having exercised reasonable diligence, the annual financial statements together
with the other financial information included in the annual filings fairly
present in all material respects the financial condition, financial performance
and cash flows of the issuer, as of the date of and for the periods presented in
the annual filings.
4. Responsibility: The issuer's other certifying
officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (DC&P) and internal control over financial reporting
(ICFR), as those terms are defined in National Instrument 52-109
Certification of Disclosure in Issuers' Annual and Interim Filings, for
the issuer.
5. Design: Subject to the limitations, if any,
described in paragraphs 5.2 and 5.3, the issuer's other certifying officer(s)
and I have, as at the financial year end
|
(a) |
designed DC&P, or caused it to be designed under our
supervision, to provide reasonable assurance
that |
|
(i) |
material information relating to the issuer is made known
to us by others, particularly during the period in which the interim
filings are being prepared; and |
|
(ii) |
information required to be disclosed by the issuer in its
annual filings, interim filings or other reports filed or submitted by it
under securities legislation is recorded, processed, summarized and
reported within the time periods specified in securities legislation;
and |
|
(b) |
designed ICFR, or caused it to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with the issuer's
GAAP. |
5.1 Control framework: The control framework the
issuer's other certifying officer(s) and I used to design the issuer's ICFR is
Internal Control Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
5.2 ICFR material weakness relating to design:
N/A
5.3 Limitation on scope of design: N/A
6. Evaluation: The issuer's other certifying
officer(s) and I have
|
(a) |
evaluated, or caused to be evaluated under our
supervision, the effectiveness of the issuer's DC&P at the financial
year end and the issuer has disclosed in its annual MD&A our
conclusions about the effectiveness of DC&P at the financial year end
based on that evaluation; and |
|
(b) |
evaluated, or caused to be evaluated under our
supervision, the effectiveness of the issuer's ICFR at the financial year
end and the issuer has disclosed in its annual
MD&A. |
|
(i) |
our conclusions about the effectiveness of ICFR at the
financial year end based on that evaluation; and |
|
(ii) |
for each material weakness relating to operation existing
at the financial year end |
|
(A) |
a description of the material weakness; |
|
(B) |
the impact of the material weakness on the issuer's
financial reporting and its ICFR; and |
|
(C) |
the issuer's current plans, if any, or any actions
already undertaken, for remediating the material
weakness. |
7. Reporting changes in ICFR: The issuer has
disclosed in its annual MD&A any change in the issuer's ICFR that occurred
during the period beginning on August 1, 2014 and ended on October 31, 2014 that
has materially affected, or is reasonably likely to materially affect, the
issuer's ICFR.
8. Reporting to the issuer's auditors and board of
directors or audit committee: The issuer's other certifying officer(s)
and I have disclosed, based on our most recent evaluation of ICFR, to the
issuer's auditors, and the board of directors or the audit committee of the
board of directors any fraud that involves management or other employees who
have a significant role in the issuer's ICFR.
Date: February 27, 2015
/s/ Dan Amadori
Dan Amadori
Chief Financial
Officer
CS Diagnostics (PK) (USOTC:FZRO)
過去 株価チャート
から 8 2024 まで 9 2024
CS Diagnostics (PK) (USOTC:FZRO)
過去 株価チャート
から 9 2023 まで 9 2024