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Micromem Technologies Inc. |
Unaudited Condensed Interim Consolidated Financial Statements |
For the three and nine months ended July 31, 2021 and 2020 |
(Expressed in United States Dollars) |
Micromem Technologies Inc.
Unaudited Condensed Interim Consolidated Financial Statements
For the three and nine months ended July 31, 2021 and 2020
(Expressed in United States Dollars)
Micromem Technologies Inc.
Unaudited Condensed Interim Consolidated Financial Statements
Notice of no auditor review of the condensed interim consolidated financial statements
Under National Instrument 51-102, Part 4, subsection 4.3(3)(a), if an auditor has not performed a review of the condensed interim consolidated financial statements, they must be accompanied by a notice indicating that the condensed interim consolidated financial statements have not been reviewed by an auditor.
The accompanying unaudited condensed interim consolidated financial statements of Micromem Technologies Inc. (the "Company") have been prepared by and are the responsibility of the Company's management and approved by the Board of Directors.
The Company's independent auditor has not performed a review of these condensed interim consolidated financial statements in accordance with the standards established by the Chartered Professional Accountants of Canada, for a review of condensed interim consolidated financial statements by an entity's auditor.
September 21, 2021
Micromem Technologies Inc.
Unaudited Condensed Interim Consolidated Statements of Financial Position
As at July 31, 2021 and October 31, 2020
(Expressed in United States dollars)
Notes | As at July 31, 2021 | As at October 31, 2020 | |||||
Assets | |||||||
Current | |||||||
Cash | 18 | $ | 146,325 | $ | 191,479 | ||
Prepaid expenses and other receivables | 40,043 | 25,421 | |||||
Total current assets | 186,368 | 216,900 | |||||
Property and equipment | 5 | 31,283 | 49,249 | ||||
Patents | 6 | 5,877 | 11,877 | ||||
Total assets | $ | 223,528 | $ | 278,026 | |||
Liabilities | |||||||
Current | |||||||
Trade payables and other liabilities | 18(c) | $ | 345,055 | $ | 767,949 | ||
Current lease liability | 7 | 32,525 | 36,442 | ||||
Convertible debentures | 9,18 | 3,273,278 | 3,081,518 | ||||
Derivative liabilities | 9,18 | 1,412,105 | 533,562 | ||||
Total current liabilities | 5,062,963 | 4,419,471 | |||||
Long-term lease liability | 7 | - | 15,628 | ||||
Long-term loan | 8 | 47,889 | 30,269 | ||||
Total liabilities | 5,110,852 | 4,465,368 | |||||
Shareholders' Deficiency | ` | ||||||
Share capital | 10 | 86,735,307 | 85,463,642 | ||||
Contributed surplus | 28,111,113 | 27,810,586 | |||||
Equity component of convertible debentures | 9 | 23,952 | 23,952 | ||||
Accumulated deficit | (119,757,696 | ) | (117,485,522 | ) | |||
Total shareholders' deficiency | (4,887,324 | ) | (4,187,342 | ) | |||
Total liabilities and shareholders' deficiency | $ | 223,528 | $ | 278,026 | |||
Going concern | 2 | ||||||
Contingencies | 17 | ||||||
Subsequent events | 21 |
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.
Approved on behalf of the Board of Directors:
"Joseph Fuda" |
| "Alex Dey" |
Director |
| Director |
Micromem Technologies Inc.
Unaudited Condensed Interim Consolidated Statements of Operations and Comprehensive Loss
For the three and nine months ended July 31, 2021 and 2020
(Expressed in United States dollars)
Three months ended July 31, | Nine months ended July 31, | |||||||||||||
Notes | 2021 | 2020 | 2021 | 2020 | ||||||||||
Operating expenses | ||||||||||||||
General and administrative | 14(a) | $ | 31,506 | $ | 25,536 | $ | 97,307 | $ | 81,220 | |||||
Professional, other fees and salaries | 14(b) | 124,118 | 70,677 | 313,178 | 363,220 | |||||||||
Recovery on settlement of AP balances | - | - | (255,767 | ) | - | |||||||||
Recovery on settlement of AP balances - MAST | (167,215 | ) | - | (167,215 | ) | - | ||||||||
Stock-based compensation | 11 | - | - | 297,726 | - | |||||||||
Travel and entertainment | 4,220 | 1,522 | 10,224 | 20,612 | ||||||||||
Amortization of property and equipment | 5 | 6,755 | 6,933 | 20,551 | 20,797 | |||||||||
Write-down of capital assets | 5 | 132 | - | 606 | - | |||||||||
Amortization of patents | 6 | 2,000 | 2,000 | 6,000 | 6,123 | |||||||||
Foreign exchange loss (gain) | 18(a) | 1,399 | 107,052 | (8,208 | ) | (32,074 | ) | |||||||
Total operating expenses | 2,915 | 213,720 | 314,402 | 459,898 | ||||||||||
Other expenses | ||||||||||||||
Accretion expense | 9 | 124,432 | 278,770 | 691,087 | 754,333 | |||||||||
Interest expense on convertible debt | 9 | 113,763 | 113,886 | 378,603 | 347,685 | |||||||||
Other financing costs | 7, 9 | 49,435 | 7,814 | 101,571 | 42,379 | |||||||||
(Gain) loss on revaluation of derivative liabilities | 9 | (2,350,755 | ) | (412,921 | ) | 757,362 | (695,346 | ) | ||||||
(Gain) loss on conversion of convertible debentures | 9 | (41,603 | ) | 33,138 | (13,319 | ) | 96,411 | |||||||
(Gain) loss on extinguishment of convertible debentures | 9 | (888 | ) | 567 | 42,468 | (116,108 | ) | |||||||
Total other expenses | (2,105,616 | ) | 21,254 | 1,957,772 | 429,354 | |||||||||
Net income (loss) before income tax provision | 2,102,701 | (234,974 | ) | (2,272,174 | ) | (889,252 | ) | |||||||
Income tax provision | 13 | - | - | - | - | |||||||||
Net income (loss) and comprehensive income (loss) | $ | 2,102,701 | $ | (234,974 | ) | $ | (2,272,174 | ) | $ | (889,252 | ) | |||
Weighted average number of outstanding shares, basic and diluted | 12 | 426,218,016 | 382,143,781 | 419,686,109 | 370,780,636 | |||||||||
Basic and diluted income (loss) per share | 12 | $ | - | $ | - | $ | (0.01 | ) | $ | - |
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.
Micromem Technologies Inc.
Unaudited Condensed Interim Consolidated Statements of Changes in Equity
For the nine months ended July 31, 2021 and 2020
(Expressed in United States dollars)
Notes | Number of shares | Share capital | Contributed surplus | Equity component of convertible debentures | Accumulated deficit | Total | |||||||||||||
Balance at November 1, 2020 | 402,552,453 | $ | 85,463,642 | $ | 27,810,586 | $ | 23,952 | $ | (117,485,522 | ) | $ | (4,187,342 | ) | ||||||
Private placements of shares for cash | 10 | 15,850,374 | 777,242 | - | - | - | 777,242 | ||||||||||||
Convertible debentures converted into common shares | 9 | 11,433,108 | 494,423 | - | - | - | 494,423 | ||||||||||||
Expiry of convertible debenture conversion option | 9 | - | - | 2,801 | (2,801 | ) | - | - | |||||||||||
Renewal of convertible debentures | 9, 15 | - | - | - | 2,801 | - | 2,801 | ||||||||||||
Issuance of stock options | 11 | - | - | 297,726 | - | - | 297,726 | ||||||||||||
Net loss | - | - | - | - | (2,272,174 | ) | (2,272,174 | ) | |||||||||||
Balance at July 31, 2021 | 429,835,935 | $ | 86,735,307 | $ | 28,111,113 | $ | 23,952 | $ | (119,757,696 | ) | $ | (4,887,324 | ) | ||||||
Balance at November 1, 2019 | 346,952,721 | $ | 84,153,696 | $ | 27,757,639 | $ | 50,147 | $ | (116,240,129 | ) | $ | (4,278,647 | ) | ||||||
Private placements of shares for cash | 10 | 9,643,397 | 389,814 | - | - | - | 389,814 | ||||||||||||
Subscriptions for private placement | 10 | - | 15,557 | - | - | - | 15,557 | ||||||||||||
Convertible debentures converted into common shares | 9 | 35,463,811 | 749,384 | - | - | - | 749,384 | ||||||||||||
Expiry of convertible debenture conversion option | 9 | - | - | 50,147 | (50,147 | ) | - | - | |||||||||||
Renewal of convertible debentures | 9 | - | - | - | 23,952 | - | 23,952 | ||||||||||||
Shares issued on settlement of accounts payable | 365,094 | 14,551 | - | - | - | 14,551 | |||||||||||||
Net loss | - | - | - | - | (889,252 | ) | (889,252 | ) | |||||||||||
Balance at July 31, 2020 | 392,425,023 | $ | 85,323,002 | $ | 27,807,786 | $ | 23,952 | $ | (117,129,381 | ) | $ | (3,974,641 | ) |
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.
Micromem Technologies Inc. |
Unaudited Condensed Interim Consolidated Statements of Cash Flows |
For the three and nine months ended July 31, 2021 and 2020 |
(Expressed in United States dollars) |
Three months ended July 31, | Nine months ended July 31, | |||||||||||||
Notes | 2021 | 2020 | 2021 | 2020 | ||||||||||
Operating activities | ||||||||||||||
Net loss | $ | 2,102,701 | $ | (234,974 | ) | $ | (2,272,174 | ) | $ | (889,252 | ) | |||
Items not affecting cash: | ||||||||||||||
Amortization of property and equipment | 5 | 6,755 | 6,933 | 20,551 | 20,797 | |||||||||
Write-down of capital assets | 5 | 132 | - | 606 | - | |||||||||
Amortization of patents | 6 | 2,000 | 2,000 | 6,000 | 6,123 | |||||||||
Accretion expense | 9, 15 | 124,432 | 278,770 | 691,087 | 754,333 | |||||||||
Accrued interest on convertible debentures | 9, 15 | 91,020 | 98,579 | 303,657 | 208,246 | |||||||||
Shares issued on settlement of accounts payable | - | - | - | 14,551 | ||||||||||
Stock-based compensation | 11 | - | - | 297,726 | - | |||||||||
(Gain) loss on conversion of convertible debentures | 9 | (41,603 | ) | 33,138 | (13,319 | ) | 96,411 | |||||||
(Gain) loss on revaluation of derivative liabilities | 9, 15 | (2,350,755 | ) | (412,921 | ) | 757,362 | (695,346 | ) | ||||||
(Gain) loss on extinguishment of convertible debentures | 9, 15 | (888 | ) | 567 | 42,468 | (116,108 | ) | |||||||
Foreign exchange loss (gain) | 18 | 1,399 | 126,315 | (2,476 | ) | (31,750 | ) | |||||||
(64,807 | ) | (101,593 | ) | (168,512 | ) | (631,995 | ) | |||||||
Net changes in non-cash working capital: | ||||||||||||||
Decrease (increase) in prepaid expenses and other receivables | (10,742 | ) | 11,282 | (14,622 | ) | (1,249 | ) | |||||||
Decrease in trade payables and other liabilities | (135,215 | ) | 38,168 | (422,894 | ) | (72,273 | ) | |||||||
Cash flows used in operating activities | (210,764 | ) | (52,143 | ) | (606,028 | ) | (705,517 | ) | ||||||
Investing activity | ||||||||||||||
Purchase of property and equipment | 5 | - | - | (3,191 | ) | - | ||||||||
Cash flows used in investing activity | - | - | (3,191 | ) | - | |||||||||
Financing activities | ||||||||||||||
Repayment of lease liability | 7 | 8,271 | - | 27,332 | (11,423 | ) | ||||||||
Proceeds from long-term loan | 8 | (127 | ) | 1,178 | 17,620 | 29,632 | ||||||||
Private placements of shares for cash | 10 | 245,386 | - | 777,242 | 389,814 | |||||||||
Subscription for private placement | - | 15,557 | - | 15,557 | ||||||||||
Proceeds from issuance of convertible debentures | 15 | 83,000 | - | 407,000 | 430,177 | |||||||||
Repayments of convertible debentures | 9, 15 | (158,033 | ) | 22,201 | (665,129 | ) | (171,922 | ) | ||||||
Cash flows provided by financing activities | 178,497 | 38,936 | 564,065 | 681,835 | ||||||||||
Net change in cash | (32,267 | ) | (13,207 | ) | (45,154 | ) | (23,682 | ) | ||||||
Cash - beginning of period | 178,592 | 35,581 | 191,479 | 46,056 | ||||||||||
Cash - end of period | $ | 146,325 | $ | 22,374 | $ | 146,325 | $ | 22,374 | ||||||
Supplemental cash flow information | ||||||||||||||
Interest paid (classified in operating activities) | 9 | $ | 22,743 | $ | 15,307 | $ | 74,946 | $ | 139,439 | |||||
Carrying amount of convertible debentures converted into common shares | 9 | $ | 82,912 | $ | 252,060 | $ | 494,423 | $ | 652,973 |
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.
Micromem Technologies Inc. Notes to Unaudited Condensed Interim Consolidated Financial Statements For the three and nine months ended July 31, 2021 and 2020 (Expressed in United States dollars, unless otherwise noted) |
1. Reporting entity and nature of business
Micromem Technologies Inc. ("Micromem" or the "Company") is incorporated under the laws of the Province of Ontario, Canada. Micromem is a publicly traded company with its head office located at 121 Richmond Street West, Suite 304, Toronto, Ontario, Canada. The Company's common shares are currently listed on the Canadian Securities Exchange under the trading symbol "MRM" and on the Over the Counter Venture Market under the trading symbol "MMTIF".
The Company develops, based upon proprietary technology, customized sensor applications for companies (referred to as "Development Partners") operating internationally in various industry segments. The Company has not generated commercial revenues through July 31, 2021 and is devoting substantially all its efforts to securing commercial revenue opportunities.
2. Going concern
These unaudited condensed interim consolidated financial statements have been prepared with the assumption that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future.
There are material uncertainties related to conditions and events that cast significant doubt about the Company's ability to continue as a going concern and ultimately on the appropriateness of the use of the accounting principles applicable to a going concern. During the nine months ended July 31, 2021, the Company reported a net loss and comprehensive loss of $2,272,174 (2020 - $889,252) and negative cash flow from operations of $606,028 (2020 - $705,517). The Company's working capital deficiency as at July 31, 2021 was $4,876,595 (October 31, 2020 - $4,202,571).
The Company's success depends on the profitable commercialization of its proprietary technology applications. There is no assurance that the Company will be successful in the profitable commercialization of its technology. Based upon its current operating and financial plans, management of the Company believes that it will have sufficient access to financial resources to fund the Company's planned operations through fiscal 2021; however, the ability of the Company to continue as a going concern is dependent upon its ability to secure additional financing and/or to profitably commercialize its technology. These unaudited condensed interim consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the possible inability of the Company to continue as a going concern.
The COVID-19 pandemic creates additional risk for the Company if there is a prolonged industry slowdown in those sectors where the Company currently operates including the oil and gas sectors in particular. To date, the impact of the pandemic has resulted in the layoff of Company staff as of March 27, 2020. The Company has encountered significant delays in the commercial plans for its technology with its primary customers. It secured a government backed loan of $60,000 CDN ($47,889 USD) (October 31, 2020 - $40,000 CDN, $30,269 USD) which matures in December 2025 (Note 8) and received government wage subsidies of $140,292 CDN ($112,143 USD) (2020 - $nil) (Note 14(b)(i)). The Company has also received rent subsidies of $36,073 CDN ($28,773 USD) (2020 - $nil).
If the going concern assumption was not appropriate for these unaudited condensed interim consolidated financial statements then adjustments would be necessary to the carrying value of assets and liabilities, the reported expenses and the statement of financial position classifications used; in such cases, these adjustments would be material.
3. Basis of presentation
These unaudited condensed interim consolidated financial statements for the three and nine months ended July 31, 2021 and 2020 have been prepared in accordance with International Accounting Standard ("IAS") 34 Interim Financial Reporting. The accounting policies and methods of computation adopted in the preparation of the unaudited condensed interim consolidated financial statements are consistent with those followed in the preparation of the Company's audited annual consolidated financial statements for the year ended October 31, 2020. The Company has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.
These unaudited condensed interim consolidated financial statements were authorized for issuance and release by the Company's Board of Directors on September 21, 2021.
3. Basis of presentation (continued)
(a) Basis of consolidation
These unaudited condensed interim consolidated financial statements include the accounts of Micromem Technologies Inc. and its subsidiaries. All intercompany transactions and balances have been eliminated upon consolidation. The Company applies the acquisition method to account for business combinations. Acquisition-related costs are expensed as incurred.
The Company's wholly-owned subsidiaries include:
| (i) | Micromem Applied Sensors Technology Inc. ("MAST") which was incorporated in November 2007 and is domiciled in Delaware, United States. MAST has previously had the primary responsibility for the exploitation of the Company's technologies in conjunction with various strategic partners and customers; MAST has been inactive since October 31, 2018. | ||||
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| (ii) | 7070179 Canada Inc. which was 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) | Inactive subsidiaries | Domiciled in | |||
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| Memtech International Inc. | Bahamas | |||
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| Memtech International (USA) Inc., Pageant Technologies (USA) Inc. | United States | |||
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| Pageant Technologies Inc., Micromem Holdings (Barbados) Inc. | Barbados |
(b) Basis of measurement
These unaudited condensed interim consolidated financial statements have been prepared on the historical cost basis, except for financial instruments designated at fair value through profit and loss which are measured at their fair value.
(c) Functional and presentation currency
These unaudited condensed interim consolidated financial statements are presented in United States dollars ("USD"), which is the functional currency of the Company and all of its subsidiaries.
(d) Use of estimates and judgments
The preparation of these unaudited condensed interim consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the unaudited condensed interim consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. These estimates are reviewed periodically and adjustments are made as appropriate in the reporting period they become known. Items for which actual results may differ materially from these estimates are described as below;
| (i) | Fair value of options and conversion features |
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| The Company makes estimates and utilizes assumptions in determining the fair value for stock options and derivative liabilities based on the application of the Black-Scholes option pricing model or the binomial option pricing model, depending on the circumstances. These pricing models require management to make various assumptions and estimates that are susceptible to uncertainty, including the volatility of the share price, expected dividend yield, expected term, expected risk-free interest rate, and exercise price in the binomial option pricing model. |
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| (ii) | Useful lives and recoverability of long-lived assets |
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| Long-lived assets consist of property and equipment and patents. Amortization is dependent upon estimates of useful lives and impairment is dependent upon estimates of recoverable amounts. These are determined through the exercise of judgment and are dependent upon estimates that take into account factors such as economic and market conditions, frequency of use, anticipated changes in laws, and technological improvements. |
3. Basis of presentation (continued)
(d) Use of estimates and judgments (continued)
| (iii) | Income taxes |
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| Income taxes and tax exposures recognized in the unaudited condensed interim consolidated financial statements reflect management's best estimate of the outcome based on facts known at the reporting date. When the Company anticipates a future income tax payment based on its estimates, it recognizes a liability. The difference between the expected amount and the final tax outcome has an impact on current and deferred taxes when the Company becomes aware of this difference. |
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| When the Company incurs losses for income tax purposes, it assesses the probability of taxable income being available in the future, based on budgeted forecasts. These forecasts are adjusted for certain non-taxable income and expenses and specific rules on the use of unused credits and tax losses. When the forecasts indicate that sufficient future taxable income will be available to deduct the temporary differences, a deferred tax asset is recognized for all deductible temporary differences. |
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| (iv) | Going concern assumption |
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| The Company applies judgment in assessing whether material uncertainties exist that would cause doubt as to the whether the Company could continue as a going concern. |
4. New and revised standards and interpretations issued but not yet effective
There were no pronouncements issued by the IASB or by IFRIC, of which we are aware that are mandatory for accounting commencing on or after November 1, 2020 which would have a significant impact on the Company.
5. Property and equipment
As at November 1, | Adjustment/ | As at July 31, | ||||||||||
2020 | Additions | Disposals | 2021 | |||||||||
Cost | ||||||||||||
Computers | $ | 32,040 | $ | 3,191 | $ | (18,741 | ) | $ | 16,490 | |||
Right-of-use assets | 74,307 | - | - | 74,307 | ||||||||
106,347 | 90,797 | |||||||||||
Accumulated amortization | ||||||||||||
Computers | 30,077 | 286 | (18,135 | ) | 12,228 | |||||||
Right-of-use assets | 27,021 | 20,265 | - | 47,286 | ||||||||
57,098 | 59,514 | |||||||||||
Net book value | $ | 49,249 | $ | 31,283 |
5. Property and equipment (continued)
As at November 1, | Adjustment/ | As at July 31, | ||||||||||
2019 | Additions | Disposals | 2020 | |||||||||
Cost | ||||||||||||
Computers | $ | 32,040 | $ | - | $ | - | $ | 32,040 | ||||
Right-of-use assets | 74,307 | - | - | 74,307 | ||||||||
106,347 | 106,347 | |||||||||||
Accumulated amortization | ||||||||||||
Computers | 29,363 | 532 | - | 29,895 | ||||||||
Right-of-use assets | - | 20,266 | - | 20,266 | ||||||||
29,363 | 50,160 | |||||||||||
Net book value | $ | 76,984 | $ | 56,187 |
6. Patents
As at November 1, | Adjustment/ | As at July 31, | ||||||||||
2020 | Additions | Disposals | 2021 | |||||||||
Cost | $ | 681,288 | $ | - | $ | - | $ | 681,288 | ||||
Accumulated amortization | 669,411 | 6,000 | - | 675,411 | ||||||||
Net book value | $ | 11,877 | $ | 5,877 |
As at November 1, | Adjustment/ | As at July 31, | ||||||||||
2019 | Additions | Disposals | 2020 | |||||||||
Cost | $ | 681,288 | $ | - | $ | - | $ | 681,288 | ||||
Accumulated amortization | 661,288 | 6,123 | - | 667,411 | ||||||||
Net book value | $ | 20,000 | $ | 13,877 |
7. Leases
(a) Maturity analysis of lease obligations
The following represents a maturity analysis of the Company's undiscounted contractual lease obligations as at July 31, 2021.
| CDN |
Less than one year | $ 44,055 |
| $ 44,055 |
(b) Supplemental disclosure
For the three and nine months ended July 31, 2021, the Company recognized $2,205 and $7,787 respectively of interest expense on lease obligations in the unaudited condensed interim consolidated statements of operations and comprehensive loss. The Company further recognized total cash outflow of $27,332 relating to leases in the nine months ended July 31, 2021.
8. Long-term loan
As at July 31, 2021, the Company has obtained a $60,000 CDN ($47,889 USD) (October 31, 2020 - $40,000 CDN, $30,269 USD) interest-free loan from the Government of Canada under the Canada Emergency Business Account ("CEBA") program to cover its operating costs. The term loan matures on December 31, 2025. Repaying the balance of the loan on or before December 31, 2022 will result in a loan forgiveness of $20,000 CDN ($15,963 USD). Effective January 1, 2023, any outstanding balance on the term loan shall bear interest at a rate of 5% per annum. As the Company does not yet know whether they will be able to meet the terms of forgiveness, no amount has been recognized to income.
9. Convertible debentures
The Company issues three types of convertible debentures: USD denominated convertible debentures with an equity component, Canadian dollar ("CDN") denominated convertible debentures with an embedded derivative due to variable consideration payable upon conversion caused by foreign exchange, and USD denominated convertible debentures with an embedded derivative caused by variable conversion prices.
During the three and nine months ended July 31, 2021, the Company incurred $42,896 and $84,478 (2020 - $2,000 and $29,500 respectively) of financing costs which consist primarily of early repayment premiums and administrative fees, all of which were settled in cash. All loan principal amounts and conversion prices are expressed in original currency and all remaining dollar amounts are expressed in USD.
(a) Current period information presented in the unaudited condensed interim consolidated financial statements
Convertible debentures outstanding as at July 31, 2021:
USD (equity component) | CDN (embedded derivative) | USD (embedded derivative) | Total | |||||||||
Loan principal outstanding | $ | 938,139 | $ | 1,989,188 | $ | 518,600 | ||||||
Terms of loan | ||||||||||||
Annual stated interest rate | 12% - 24% | 12% - 24% | 2% - 10% | |||||||||
Effective annual interest rate | 24% | 16% - 803% | 24% - 5364% | |||||||||
Conversion price to common shares | $0.03 - $0.07 | $0.05 - $0.08 | (i) - (ii) | |||||||||
Remaining life (in months) | 0 - 6 | 0 - 6 | 0 - 10 | |||||||||
Unaudited condensed interim consolidated statement of financial position | ||||||||||||
Carrying value of loan principal | $ | 999,117 | $ | 1,569,563 | $ | 171,169 | $ | 2,739,849 | ||||
Interest payable | 281,401 | 222,095 | 29,933 | 533,429 | ||||||||
Convertible debentures | $ | 1,280,518 | $ | 1,791,658 | $ | 201,102 | $ | 3,273,278 | ||||
Derivative liabilities | $ | - | $ | 1,160,174 | $ | 251,931 | $ | 1,412,105 | ||||
Equity component of convertible debentures | $ | 23,952 | $ | - | $ | - | $ | 23,952 |
9. Convertible debentures (continued)
(a) Current period information presented in the unaudited condensed interim consolidated financial statements (continued)
For the nine months ended July 31, 2021: | ||||||||||||
USD (equity component) | CDN (embedded derivative) | USD (embedded derivative) | Total | |||||||||
Unaudited condensed interim consolidated statement of operations and comprehensive loss | ||||||||||||
Accretion expense | $ | 21,534 | $ | 535,655 | $ | 133,898 | $ | 691,087 | ||||
Interest expense | $ | 180,986 | $ | 171,162 | $ | 26,455 | $ | 378,603 | ||||
Loss on revaluation of derivative liabilities | $ | - | $ | 606,482 | $ | 150,880 | $ | 757,362 | ||||
(Gain) loss on conversion of convertible debentures | $ | - | $ | (47,356 | ) | $ | 34,037 | $ | (13,319 | ) | ||
Loss (gain) on extinguishment of convertible debentures | $ | 55,100 | $ | (12,632 | ) | $ | - | $ | 42,468 | |||
Unaudited condensed interim consolidated statement of changes in equity | ||||||||||||
Amount of principal converted to common shares | $ | - | $ | 100,000 | $ | 110,000 | ||||||
Amount of interest converted to common shares | $ | 30,200 | $ | 160,055 | $ | 2,580 | ||||||
Number of common shares issued on conversion of convertible debentures | 1,118,519 | 7,744,774 | 2,569,815 | 11,433,108 | ||||||||
Unaudited condensed interim consolidated statement of cash flows | ||||||||||||
Amount of principal repaid in cash | $ | 205,100 | $ | 31,492 | $ | 364,370 | $ | 600,962 | ||||
Amount of interest repaid in cash | $ | 20,772 | $ | 28,061 | $ | 26,113 | $ | 74,946 |
For the three months ended July 31, 2021: | ||||||||||||
USD (equity component) | CDN (embedded derivative) | USD (embedded derivative) | Total | |||||||||
Unaudited condensed interim consolidated statement of operations and comprehensive loss | ||||||||||||
Accretion expense | $ | 7,587 | $ | 116,520 | $ | 325 | $ | 124,432 | ||||
Interest expense | $ | 48,789 | $ | 56,827 | $ | 8,147 | $ | 113,763 | ||||
Loss on revaluation of derivative liabilities | $ | - | $ | (2,255,601 | ) | $ | (95,154 | ) | $ | (2,350,755 | ) | |
(Gain) loss on conversion of convertible debentures | $ | - | $ | (41,603 | ) | $ | - | $ | (41,603 | ) | ||
Loss (gain) on extinguishment of convertible debentures | $ | - | $ | (888 | ) | $ | - | $ | (888 | ) | ||
Unaudited condensed interim consolidated statement of changes in equity | ||||||||||||
Amount of principal converted to common shares | $ | - | $ | 50,000 | $ | - | ||||||
Amount of interest converted to common shares | $ | - | $ | 113 | $ | - | ||||||
Number of common shares issued on conversion of convertible debentures | $ | - | $ | 625,000 | $ | - | 625,000 | |||||
Unaudited condensed interim consolidated statement of cash flows | ||||||||||||
Amount of principal repaid in cash | $ | - | $ | 403 | $ | 145,600 | $ | 146,003 | ||||
Amount of interest repaid in cash | $ | 4,329 | $ | 8,471 | $ | 9,943 | $ | 22,743 |
(i) | Conversion price defined as 75% multiplied by the average of the lowest 3 closing stock prices for the 10 trading days prior to conversion date. | |
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(ii) | Conversion price defined as 75% multiplied by the lowest stock price for the 20 trading days prior to conversion date. |
(b) Comparative information presented in the unaudited condensed interim consolidated financial statements
9. Convertible debentures (continued)
(a) Current period information presented in the unaudited condensed interim consolidated financial statements (continued)
Convertible debentures outstanding as at October 31, 2020: | ||||||||||||
USD (equity component) | CDN (embedded derivative) | USD (embedded derivative) | Total | |||||||||
Loan principal outstanding | $ | 1,096,200 | $ | 2,129,705 | $ | 514,770 | ||||||
Terms of loan | ||||||||||||
Annual stated interest rate | 12% - 24% | 12% - 24% | 2% - 10% | |||||||||
Effective annual interest rate | 24.00% | 12% - 1270% | 2573% - 20559% | |||||||||
Conversion price to common shares | $ | 0.03 - $0.07 | $ | 0.05 - $0.14 | (i) - (ii) | |||||||
Remaining life (in months) | 1 - 9 | 0 - 6 | 0 - 12 | |||||||||
Unaudited condensed interim consolidated statement of financial position | ||||||||||||
Carrying value of loan principal | $ | 1,083,375 | $ | 1,403,787 | $ | 165,620 | $ | 2,652,782 | ||||
Interest payable | 151,387 | 243,170 | 34,179 | 428,736 | ||||||||
Convertible debentures | $ | 1,234,762 | $ | 1,646,957 | $ | 199,799 | $ | 3,081,518 | ||||
Derivative liabilities | $ | - | $ | 197,270 | $ | 336,293 | $ | 533,563 | ||||
Equity component of convertible debentures | $ | 23,952 | $ | - | $ | - | $ | 23,952 |
(i) | Conversion price defined as 75% multiplied by the average of the lowest 3 closing stock prices for the 10 trading days prior to conversion date. | |
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(ii) | Conversion price defined as 75% multiplied by the lowest stock price for the 20 trading days prior to conversion date. | |
For the nine months ended July 31, 2020: | ||||||||||||
USD (equity component) | CDN (embedded derivative) | USD (embedded derivative) | Total | |||||||||
Unaudited condensed interim consolidated statement of operations and comprehensive loss | ||||||||||||
Accretion expense | $ | 30,230 | $ | 415,864 | $ | 308,239 | $ | 754,333 | ||||
Interest expense | $ | 145,527 | $ | 163,446 | $ | 38,712 | $ | 347,685 | ||||
Gain on revaluation of derivative liabilities | $ | - | $ | (526,028 | ) | $ | (169,318 | ) | $ | (695,346 | ) | |
Loss on conversion of convertible debentures | $ | - | $ | - | $ | 96,411 | $ | 96,411 | ||||
Gain on extinguishment of convertible debentures | $ | - | $ | 382 | $ | (116,490 | ) | $ | (116,108 | ) | ||
Unaudited condensed interim consolidated statement of changes in equity | ||||||||||||
Amount of principal converted to common shares | $ | 20,000 | $ | 35,000 | $ | 454,563 | ||||||
Amount of interest converted to common shares | $ | 447 | $ | 1,161 | $ | 14,196 | ||||||
Number of common shares issued on conversion of convertible debentures | 511,175 | 731,440 | 34,221,196 | 35,463,811 | ||||||||
Unaudited condensed interim consolidated statement of cash flows | ||||||||||||
Amount of principal repaid in cash | $ | - | $ | 89,922 | $ | 80,000 | $ | 169,922 | ||||
Amount of interest repaid in cash | $ | 53,889 | $ | 83,783 | $ | 1,767 | $ | 139,439 |
9. Convertible debentures (continued)
(b) Comparative information presented in the unaudited condensed interim consolidated financial statements (continued)
For the three months ended July 31, 2020: | ||||||||||||
USD (equity component) | CDN (embedded derivative) | USD (embedded derivative) | Total | |||||||||
Unaudited condensed interim consolidated statement of operations and comprehensive loss | ||||||||||||
Accretion expense | $ | 6,223 | $ | 121,279 | $ | 151,268 | $ | 278,770 | ||||
Interest expense | $ | 48,360 | $ | 45,777 | $ | 14,685 | $ | 108,822 | ||||
Gain on revaluation of derivative liabilities | $ | - | $ | (358,725 | ) | $ | (54,196 | ) | $ | (412,921 | ) | |
Loss on conversion of convertible debentures | $ | - | $ | - | $ | 33,138 | $ | 33,138 | ||||
Loss (gain) on extinguishment of convertible debentures | $ | - | $ | 567 | $ | - | $ | 567 |
Unaudited condensed interim consolidated statement of changes in equity | ||||||||||||
Amount of principal converted to common shares | $ | - | $ | - | $ | 215,500 | ||||||
Amount of interest converted to common shares | $ | - | $ | (6 | ) | $ | 2,682 | |||||
Number of common shares issued on conversion of convertible debentures | - | - | 15,390,358 | 15,390,358 | ||||||||
Unaudited condensed interim consolidated statement of cash flows | ||||||||||||
Amount of principal repaid in cash | $ | - | $ | 3,799 | $ | - | $ | 3,799 | ||||
Amount of interest repaid in cash | $ | 7,029 | $ | 8,278 | $ | - | $ | 15,307 |
(c) Fair value of derivative liabilities outstanding
The fair value of the derivative liabilities is determined in accordance with the Black-Scholes or binomial option-pricing models, depending on the circumstances. The underlying assumptions are as follows:
| As at | As at |
| 2021 | 2020 |
Share price | $0.07 | $0.02 |
Exercise price | $0.03 - $0.07 | $0.01 - $0.11 |
Volatility factor (based on historical volatility) | 87% - 201% | 100% - 187% |
Risk free interest rate | 0.17% - 0.22% | 0.10% - 0.19% |
Expected life of conversion features (in months) | 0 - 10 | 0 - 12 |
Expected dividend yield | 0% | 0% |
CDN to USD exchange rate (as applicable) | 0.7981 | 0.7567 |
Call value | $0.01 - $0.04 | $0.00 - $0.02 |
Volatility was estimated using the historical volatility of the Company's stock prices for common shares.
10. Share capital
(a) Authorized and outstanding shares
The Company has two classes of shares as follows:
| (i) | Special redeemable voting preference shares - 2,000,000 authorized, nil issued and outstanding. |
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| (ii) | Common shares without par value - an unlimited number authorized. The holders of the common shares are entitled to receive dividends which may be declared from time to time, and are entitled to one vote per share at shareholder meetings of the Company. All common shares are ranked equally with regards to the Company's residual assets. |
(b) Private placements
During the three months ended July 31, 2021, the Company completed 8 private placements (2020 - no private placements), pursuant to prospectus and registration exemptions set forth in applicable securities law. The Company received net proceeds of $245,386 (2020 - $nil) and issued a total of 3,847,942 (2020 - nil) common shares.
During the nine months ended July 31, 2021, the Company completed 32 private placements (2020 - two private placements), pursuant to prospectus and registration exemptions set forth in applicable securities law. The Company received net proceeds of $777,242 (2020 - $389,814) and issued a total of 15,850,374 (2020 - 9,643,397) common shares.
11. Stock options
(a) Stock option plan
Until September 8, 2020, under the Company's fixed stock option plan (the "Plan"), the Company could grant up to 18,840,000 shares of common stock to directors, officers, employees or consultants of the Company and its subsidiaries. The Company held its Annual General Meeting of Shareholders on September 8, 2020. The authorized limit for stock options in the Company's plan was increased from 18.84 million options to 27.5 million options at the meeting. The exercise price of each option is equal to or greater than the market price of the Company's shares on the date of grant unless otherwise permitted by applicable securities regulations. An option's maximum term under the Plan is 10 years. Stock options are fully vested upon issuance by the Company unless the Board of Directors stipulates otherwise by Directors' resolution.
On November 13, 2020, the Company granted a total of 6,500,000 stock options to directors, officers, employees and one external consultant. The options are exerciseable at $0.05 per share and have fully vested upon issuance. The options expire on November 13, 2025, if unexercised.
(b) Summary of changes
Number of options | Weighted average exercise price | ||
Outstanding at November 1, 2020 | 2,200,000 | $0.10 | |
Granted | 6,500,000 | 0.05 | |
Outstanding at July 31, 2021 | 8,700,000 | $0.06 | |
Outstanding at November 1, 2019 | 5,730,000 | $0.25 | |
Granted | - | - | |
Outstanding at July 31, 2020 | 5,730,000 | $0.25 |
11. Stock options (continued)
(c) Stock options outstanding at July 31, 2021
Weighted average | ||||||||||||
Date of issue | Expiry date | Number of options | Exercise price | Remaining contractual life (years) | ||||||||
June 29, 2018 | June 29, 2023 | 2,200,000 | 0.10 | 1.9 | ||||||||
November 13, 2020 | November 13, 2025 | 6,500,000 | 0.05 | 4.3 | ||||||||
Outstanding and exercisable at July 31, 2021 | 8,700,000 | $ | 0.06 | 3.7 |
(d) Fair value of options issued
The fair value of the stock options issued has been determined in accordance with the Black Scholes option-pricing model. The underlying assumptions are as follows:
Share price at grant date | $0.05 | |
Exercise price | $0.05 | |
Volatility factor | 154% | |
Risk free interest rate | 0.40% | |
Expected life of options in years | 5 | |
Expected divided yield | 0% | |
Forfeiture rate | 0% | |
Weighted average Black Scholes value at grant date | 0.0458 |
Volatility was estimated using the historical volatility of the Company's stock prices for its common shares.
The Company recorded an expense of $297,726 with respect to the issuance of these stock options in the nine months ended July 31, 2021.
12. Loss per share
Basic and diluted loss per share are calculated using the following numerators and denominators:
Three months ended July 31, | Nine months ended July 31, | |||||||||||
Numerator | 2021 | 2020 | 2021 | 2020 | ||||||||
Net (loss) income attributable to common shareholders | $ | 2,102,701 | $ | (234,974 | ) | $ | (2,272,174 | ) | $ | (889,252 | ) | |
Net (loss) income used in computation of basic and diluted (loss) income per share | $ | 2,102,701 | $ | (234,974 | ) | $ | (2,272,174 | ) | $ | (889,252 | ) | |
Denominator | ||||||||||||
Weighted average number of common shares for computation of basic and diluted (loss) income per share | 426,218,016 | 382,143,781 | 419,686,109 | 370,780,636 |
For the three and nine months ended July 31, 2021 and 2020, all stock options and conversion features were anti-dilutive and, therefore, are excluded from the calculation of diluted (loss) income per share.
13. Income taxes
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for income tax purposes.
As at October 31, 2020, the Company has non-capital losses of approximately $31.1 million, $26.3 million in Canada and $4.8 million in other foreign jurisdictions, available to reduce future taxable income. Non-capital losses expire commencing in 2026. In addition, the Company has available capital loss carry forwards of approximately $1.3 million to reduce future taxable capital gains. Capital losses carry forward indefinitely.
As at July 31, 2021 and October 31, 2020, the Company assessed that it is not probable that sufficient taxable income will be available to use deferred income tax assets based on operating losses in prior years; therefore, there are no balances recognized in the unaudited condensed interim consolidated statements of financial position for such assets.
14. Operating expenses
(a) General and administration
The components of general and administration expenses are as follows:
Three months ended July 31, | Nine months ended July 31, | |||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||
General and administration | $ | 5,696 | $ | (895 | ) | $ | 39,719 | $ | 4,965 | |||
Rent and occupancy | 10,123 | 14,117 | 12,636 | 31,462 | ||||||||
Office insurance | 380 | 472 | 380 | 2,024 | ||||||||
Investor relations, listing and filing fees | 14,265 | 10,805 | 41,016 | 39,649 | ||||||||
Telephone | 1,042 | 1,037 | 3,556 | 3,120 | ||||||||
$ | 31,506 | $ | 25,536 | $ | 97,307 | $ | 81,220 |
(b) Professional, other fees and salaries
The components of professional, other fees and salaries expenses are as follows:
Three months ended July 31, | Nine months ended July 31, | |||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||
Professional fees | $ | 53,079 | $ | 38,927 | $ | 127,584 | $ | 98,160 | ||||
Consulting fees | 38,446 | 9,217 | 87,346 | 147,017 | ||||||||
Salaries and benefits | 32,593 | 22,533 | 98,248 | 118,043 | ||||||||
$ | 124,118 | $ | 70,677 | $ | 313,178 | $ | 363,220 |
| (i) | Wage subsidy | |
The Canada Emergency Wage Subsidy (CEWS) was announced by the Government of Canada on March 27, 2020. For the three and nine months ended July 31, 2021, the Company recognized $66,315 CDN ($53,955 USD) and $140,292 CDN ($112,143 USD) respectively of wage subsidy under this program, which has been recorded as a reduction of salaries expenses in the unaudited condensed interim consolidated statements of operations and comprehensive loss. There was no wage subsidy recognized in the three and nine months ended July 31, 2020. This program has been extended until October 2021. |
15. Supplemental cash flow information
The following provides a reconciliation of the cash flows from convertible debentures and derivative liabilities :
Three months ended July 31, | Nine months ended July 31, | |||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||
Balance - beginning of period | $ | 7,004,547 | $ | 3,224,903 | $ | 3,806,840 | $ | 3,364,499 | ||||
Cash flows from financing activities: | ||||||||||||
Proceeds from issuance of convertible debentures | 83,000 | - | 407,000 | 430,177 | ||||||||
Repayments of convertible debentures | (158,033 | ) | 22,201 | (665,129 | ) | (171,922 | ) | |||||
Non-cash changes: | ||||||||||||
Accretion expense | 124,432 | 278,770 | 691,087 | 754,333 | ||||||||
Accrued interest on convertible debentures | 91,020 | 98,580 | 303,657 | 208,246 | ||||||||
Loss on revaluation of derivative liabilities | (2,350,755 | ) | (412,921 | ) | 757,362 | (695,346 | ) | |||||
Loss (gain) on extinguishment of debt | (888 | ) | 567 | 42,468 | (116,108 | ) | ||||||
Convertible debentures converted into common shares | (124,515 | ) | (252,060 | ) | (507,742 | ) | (652,973 | ) | ||||
Renewal of convertible debentures | - | (39,816 | ) | (2,801 | ) | (50,147 | ) | |||||
Foreign exchange loss (gain) | 16,575 | 150,424 | (147,359 | ) | (110 | ) | ||||||
Balance - end of period | $ | 4,685,383 | $ | 3,070,649 | $ | 4,685,383 | $ | 3,070,649 |
16. Key management compensation and related party transactions
The Company reports the following related party transactions:
(a) Key management compensation
Key management personnel are persons responsible for planning, directing and controlling activities of the Company, including officers and directors. Compensation paid or payable to these individuals (or companies controlled by such individuals) are summarized as follows:
Three months ended July 31, | Nine months ended July 31, | |||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||
Professional, other fees, and salaries | $ | 33,565 | $ | - | $ | 50,799 | $ | - | ||||
Stock-based compensation | - | - | 137,400 | - | ||||||||
$ | 33,565 | $ | - | $ | 188,199 | $ | - |
During the nine months ended July 31, 2021, the Company awarded 3 million stock options to key management as part of the total 6.5 million stock options issued. During the nine months ended July 31, 2020, these parties were not awarded any options.
(b) Trade payables and other liabilities
As at October 31, 2020, the Company reported $167,215 in trade payables and other liabilities owing to a company whose major shareholder was a former director of the Company and who has also previously served as its Chief Technology Officer. This individual was elected as a director on February 19, 2014 through September 8, 2020. The balance reported relates to alleged services provided in 2015; there have been no invoices submitted by this related party after October 31, 2015. The Company has eliminated and reversed this trade payable amount at July 31, 2021.
16. Key management compensation and related party transactions (continued)
(c) Convertible debentures
In May 2019, the CEO of the Company provided for a short-term loan of $15,000 CDN ($11,450 USD). At October 31, 2019, $10,000 CDN ($7,582 USD) in loan principal was outstanding. In 2020, the remaining amount of loan principal was extinguished by participation of the CEO in the private placement which the Company completed at the time (Note 10(b)). The extinguishment of the debt for the shares received in the private placement resulted in an a loss on conversion of $14,000 CDN ($10,600 USD).
In January 2018, the CEO of the Company provided for a convertible debenture of $150,000 CDN ($114,086 USD). As at July 31, 2021, $9,483 CDN ($7,610 USD)(October 31, 2020 - $10,001 CDN, $7,509 USD) in loan principal remains outstanding.
17. Contingencies
(a) The Company has agreed to indemnify its directors and officers and certain of its employees in accordance with the Company's by-laws. The Company maintains insurance policies that may provide coverage against certain claims.
(b) The Company has previously reported on the lawsuit filed by Mr. Steven Van Fleet against Micromem, the Company's response to the lawsuit and its counterclaims against Mr. Van Fleet.
On April 29, 2021 the matter was resolved in Micromem's favor when the Court dismissed Mr. Van Fleet's claims and ruled that he was liable to the Company and to MAST on their counterclaims. An inquest hearing to determine damages was held in June 2021.
On June 16th, the Court ruled that Micromem and MAST had established damages totaling $765,579 representing the full amount that had been requested; furthermore, the Court awarded costs and statutory prejudgment interest from May 9, 2017. On June 29, 2021 the Court entered a judgement in favor of Micromem and MAST for a total amount of $1,051,739.
The Company is now pursuing collection of the judgement award. Due to uncertainty of collection, the Company has not recorded any recovery of funds at July 31, 2021. It will report the recovery of this contingent asset as funds are received.
18. Financial risk management
(a) Currency risk
Currency risk is the risk that the fair value of, or future cash flows from, the Company's financial instruments will significantly fluctuate due to changes in foreign exchange rates. The Company is exposed to currency risk to the extent that it incurs expenses and issues convertible debentures denominated in Canadian dollars (CDN). The Company manages currency risk by monitoring the Canadian position of these monetary financial instruments on a periodic basis throughout the course of the reporting period.
As at July 31, 2021, balances that are denominated in CDN are as follows:
CDN | |||
Cash | $ | 140,217 | |
Prepaid expenses and other receivables | $ | 50,170 | |
Trade payables and other liabilities | $ | 341,672 | |
Convertible debentures | $ | 2,238,856 | |
Derivative liabilities | $ | 1,449,753 |
18. Financial risk management
(a) Currency risk (continued)
A 10% strengthening of the US dollar against the CDN would decrease accumulated deficit by $279,354 as at July 31, 2021 (October 31, 2020 - decrease accumulated deficit by $169,114). A 10% weakening of the USD against the CDN would have the opposite effect of the same magnitude.
(b) Interest rate risk
Interest rate risk is the risk that the fair value of, or future cash flows from, the Company's financial instruments will significantly fluctuate due to changes in market interest rates. The Company is exposed to interest rate risk on its interest-bearing convertible debentures. This exposure is limited due to the short-term nature of the convertible debentures.
(c) Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company's policy is to review liquidity resources and ensure that sufficient funds are available to meet financial obligations as they become due. Further, the Company's management is responsible for ensuring funds exist and are readily accessible to support business opportunities as they arise. With the exception of the long-term loan, all financial liabilities are due within 1 year as at July 31, 2021.
| (i) | Trade payables and other liabilities |
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| The following represents an analysis of the maturity of trade payables and other liabilities: |
As at July 31, | As at October 31, | |||||
2021 | 2020 | |||||
Less than 30 days past billing date | $ | 259,132 | $ | 252,413 | ||
31 to 90 days past billing date | - | 25,683 | ||||
Over 90 days past billing date | 85,923 | 489,853 | ||||
$ | 345,055 | $ | 767,949 |
| (ii) | Convertible debentures and derivative liabilities |
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| The following represents an analysis of the maturity of the convertible debentures and derivative liabilities: |
As at July 31, | As at October 31, | |||||||||||
2021 | 2020 | |||||||||||
Convertible debentures | Derivative liabilities | Convertible debentures | Derivative liabilities | |||||||||
Less than three months | $ | 1,931,863 | $ | 747,926 | $ | 1,335,853 | $ | 149,827 | ||||
Three to six months | 1,341,245 | 469,569 | 806,477 | 190,055 | ||||||||
Six to twelve months | 170 | 194,610 | 939,188 | 193,680 | ||||||||
$ | 3,273,278 | $ | 1,412,105 | $ | 3,081,518 | $ | 533,562 |
18. Financial risk management (continued)
(d) Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company's cash, development costs receivable, and other receivables. The maximum exposure to credit risk is the carrying value of these financial assets, which amounted to $180,988 as at July 31, 2021 (October 31, 2020 - $213,695). The Company reduces its credit risk by assessing the credit quality of counterparties, taking into account their financial position, past experience and other factors.
| (i) | Cash |
The Company held cash of $146,325 at July 31, 2021 (October 31, 2020 - $191,479). The cash is held with central banks and financial institution counterparties that are highly rated. The Company has assessed no significant change in credit risk, which was not recognized in these unaudited condensed interim consolidated financial statements.
19. Fair value hierarchy
Assets and liabilities recorded at fair value in the unaudited condensed interim consolidated statements of financial position are classified using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:
Level 1 - valuation based on quoted prices (unadjusted) in active markets for identical assets and liabilities. There are no assets or liabilities in this category in these unaudited condensed interim consolidated financial statements.
Level 2 - valuation techniques based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. In these unaudited condensed interim consolidated financial statements, derivative liabilities are included in this category.
Level 3 - valuation techniques using the inputs for the asset or liability that are not based on observable market data. There are no assets or liabilities in this category in these unaudited condensed interim consolidated financial statements.
The Company's policy for determining when transfers between levels of fair value hierarchy occur is based on the date of the event or changes in circumstances that caused the transfer. During the three and nine months ended July 31, 2021 and 2020, there were no transfers between levels.
20. Capital risk management
The Company's objectives when managing capital are to (i) maintain its ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders, (ii) ensure it has sufficient cash resources to further develop and market its technologies and (iii) maintain its ongoing operations. The Company defines its capital as its net assets, i.e. total assets less total liabilities. In order to secure the additional capital necessary to pursue these objectives, the Company may attempt to raise additional funds through the issuance of equity or convertible debentures or by securing strategic partners. The Company is not subject to externally imposed capital requirements and there has been no change with respect to the overall capital risk management strategy during the nine months ended July 31, 2021.
21. Subsequent events
Subsequent to July 31, 2021:
(a) The Company converted $35,000 USD of convertible debentures through the issuance of 721,649 common shares.
(b) The Company repaid $5,000 USD of a short term loan.
(c) The Company extended convertible debentures for six (6) months, that were within 3 months of maturity date at July 31, 2021.
(d) The Company secured $124,000 USD in convertible debentures with a 12 month term and conversion features which become effective six months after initiation date.