Exhibit 99.1
Interim Consolidated Financial Statements of
MICROMEM TECHNOLOGIES INC.
For the Three and Six Month Periods ended April 30, 2010 and 2009
(Unaudited – See Notice to Reader)
MICROMEM TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)
NOTICE of No Auditor Review of Interim Financial Statements
Under National Instrument 51-102, Part 4, subsection 4.3(3) (a), if an auditor has not performed a review of the interim financial statements; they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor.
The accompanying unaudited interim consolidated financial statements of Micromem Technologies Inc. for the period ended April 30, 2010 have been prepared by management and approved by the Audit Committee and Board of Directors of the Corporation.
The Corporation’s independent auditors have not performed a review of these consolidated financial statements in accordance with the standards established by the Canadian Institute of Chartered Accountants for a review of interim financial statements by an entity’s auditors.
Dated: June 18, 2010
1
MICROMEM TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(Expressed in United States dollars)
As at | April 30, 2010 | October 31, 2009 | April 30, 2009 | ||||||
(unaudited) | (audited) | (unaudited) | |||||||
Assets | |||||||||
Current assets: | |||||||||
Cash and cash equivalents (Note 20) | $ | 37,260 | $ | 106,110 | $ | 91,813 | |||
Deposits and other receivables | 102,357 | 83,486 | 169,879 | ||||||
Promissory note receivable (Note 7) | 200,000 | 200,000 | 200,000 | ||||||
339,617 | 389,596 | 461,692 | |||||||
Property and equipment, net (Note 8) | 20,981 | 24,422 | 29,359 | ||||||
Deferred development costs (Note 9) | 2,496,421 | 2,000,611 | - | ||||||
Patents, net (Note 10) | 203,181 | 147,850 | - | ||||||
$ | 3,060,200 | $ | 2,562,479 | $ | 491,051 | ||||
Liabilities and Shareholders' Equity (Deficiency) | |||||||||
Current liabilities: | |||||||||
Bridge loan (Note 11) | 223,881 | - | - | ||||||
Accounts payable and accrued liabilities | 1,034,673 | 1,039,640 | 600,242 | ||||||
1,258,554 | 1,039,640 | 600,242 | |||||||
Shareholders' Equity (Deficiency): | |||||||||
Share capital: (Note 11) | |||||||||
Authorized: | |||||||||
2,000,000 special preference shares, redeemable, voting | |||||||||
Unlimited common shares without par value | |||||||||
Issued and outstanding: | |||||||||
91,877,178 common shares ( 2009:86,864,399) | 49,395,035 | 48,494,180 | 46,025,174 | ||||||
Equity component of bridge loan (Note 11) | 23,644 | - | - | ||||||
Contributed surplus (Note 12) | 24,433,378 | 24,145,911 | 23,529,027 | ||||||
Deficit accumulated during the development stage | (72,050,411 | ) | (71,117,252 | ) | (69,663,392 | ) | |||
1,801,646 | 1,522,839 | (109,191 | ) | ||||||
$ | 3,060,200 | $ | 2,562,479 | $ | 491,051 | ||||
Going Concern (Note 2) | |||||||||
Related Party Transactions (Note 14) | |||||||||
Commitments (Note 15) | |||||||||
Contingencies (Note 16) | |||||||||
Subsequent Events (Note 20) |
"Joseph Fuda" (Signed) |
Joseph Fuda, Director |
"David Sharpless" (Signed) |
David Sharpless, Director |
See accompanying notes.
2
MICROMEM TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(Expressed in United States dollars)
For the period ended April 30, 2010 (with comparative data)
Period from | |||||||||||||||
September 3, 1997 | |||||||||||||||
April 30, 2010 | April 30, 2010 | April 30, 2009 | April 30, 2009 | to April 30, 2010 | |||||||||||
(3 mos | ) | (6 mos | ) | (3 mos | ) | (6 mos | ) | ||||||||
Costs and expenses (income): | |||||||||||||||
Administration | 41,487 | 120,142 | 306,262 | 586,336 | $ | 4,623,333 | |||||||||
Professional, other fees, and salaries (Note 14) | 423,573 | 705,297 | 661,471 | 1,382,179 | 45,672,556 | ||||||||||
Research and development (Note 9) | - | - | 265,280 | 828,889 | 8,885,520 | ||||||||||
Travel and entertainment | 51,008 | 90,292 | 53,512 | 77,167 | 2,286,478 | ||||||||||
Amortization of property and equipment (Note 8) | 2,174 | 4,291 | 2,193 | 4,313 | 365,534 | ||||||||||
Foreign exchange loss (gain) | 13,527 | 23,245 | (14,732 | ) | (15,632 | ) | 126,892 | ||||||||
Write-down of royalty rights | - | - | - | 10,000,000 | |||||||||||
Write-down of patents and trademarks | - | - | - | 299,820 | |||||||||||
Other expenses | - | - | - | 433,121 | |||||||||||
Loss before under noted | 531,769 | 943,267 | 1,273,986 | 2,863,252 | 72,693,254 | ||||||||||
Interest and other income | $ | (5,009 | ) | (10,108 | ) | (536 | ) | (6,173 | ) | (662,520 | ) | ||||
Loss before income taxes | (526,760 | ) | (933,159 | ) | (1,273,450 | ) | (2,857,079 | ) | (72,030,734 | ) | |||||
Income taxes (Note 13) | - | - | - | 19,677 | |||||||||||
Net loss for the period | (526,760 | ) | (933,159 | ) | (1,273,450 | ) | (2,857,079 | ) | (72,050,411 | ) | |||||
Deficit accumulated during the development stage, beginning of period | (71,523,651 | ) | (71,117,252 | ) | (68,389,942 | ) | (66,806,313 | ) | - | ||||||
Deficit accumulated during the development stage, end of period | ($72,050,411 | ) | ($72,050,411 | ) | ($69,663,392 | ) | ($69,663,392 | ) | $ | (72,050,411 | ) | ||||
Loss per share - basic and diluted | (0.01 | ) | (0.01 | ) | (0.02 | ) | (0.03 | ) | (1.28 | ) | |||||
Weighted average number of shares | 89,916,604 | 89,916,604 | 82,506,004 | 82,506,004 | 56,132,446 |
See accompanying notes.
3
MICROMEM TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in United States dollars)
For the period ended April 30, 2010 (with comparative data)
Period from | |||||||||||||||
September 03, 1997 | |||||||||||||||
April 30, 2010 | April 30, 2010 | April 30, 2009 | April 30, 2009 | to April 30, 2010 | |||||||||||
(3 mos | ) | (6 mos | ) | (3 mos | ) | (6 mos | ) | ||||||||
Cash flows from operating activities: | |||||||||||||||
Net loss for the period | $ | (526,760 | ) | $ | (933,159 | ) | $ | (1,273,450 | ) | $ | (2,857,079 | ) | $ | (72,050,411 | ) |
Adjustments to reconcile loss for | |||||||||||||||
the period to net cash used in operating activities: | |||||||||||||||
Amortization of patents and trademarks | - | - | 67,596 | ||||||||||||
Amortization of property and equipment | 2,174 | 4,291 | 2,193 | 4,313 | 550,754 | ||||||||||
Accretion expense | 1,414 | 1,414 | - | - | 1,414 | ||||||||||
Stock option expense | 31,874 | 31,874 | 342,000 | 697,117 | 24,913,854 | ||||||||||
Write-down of royalty rights | - | - | - | - | 10,000,000 | ||||||||||
Write-down of patents and trademarks | - | - | - | - | 299,820 | ||||||||||
Share compensation expense | - | - | - | - | 7,285,696 | ||||||||||
Other adjustments | - | - | - | - | 388,211 | ||||||||||
Increase in deposits and other receivables | 43,275 | (18,871 | ) | (245,147 | ) | (240,968 | ) | (293,760 | ) | ||||||
Increase (decrease) in accounts payable and accrued liabilities | 166,439 | (5,731 | ) | (511,975 | ) | (222,231 | ) | 1,168,124 | |||||||
Net cash used in operating activities | (281,584 | ) | (920,182 | ) | (1,686,379 | ) | (2,618,848 | ) | (27,668,702 | ) | |||||
Cash flows from investing activities: | |||||||||||||||
Purchase of property and equipment | - | (851 | ) | (2,625 | ) | (7,351 | ) | (771,654 | ) | ||||||
Patents and trademarks | (26,073 | ) | (64,529 | ) | - | - | (579,795 | ) | |||||||
Deferred development costs | (211,275 | ) | (485,847 | ) | - | - | (2,486,458 | ) | |||||||
Proceeds on disposal of property and equipment | - | - | - | 134,458 | |||||||||||
Sale of available-for-sale Investment | - | - | - | 260,641 | |||||||||||
Royalty rights | - | - | - | (2,000,000 | ) | ||||||||||
Net cash used in investing activities | (237,348 | ) | (551,227 | ) | (2,625 | ) | (7,351 | ) | (5,442,808 | ) | |||||
Cash flows from financing activities: | |||||||||||||||
Issue of common shares | 130,000 | 1,156,448 | 1,425,209 | 2,242,777 | 31,723,248 | ||||||||||
Bridge loan | 246,111 | 246,111 | - | - | 246,111 | ||||||||||
Other | - | - | - | - | 1,179,411 | ||||||||||
Net cash provided by financing activities | 376,111 | 1,402,559 | 1,425,209 | 2,242,777 | 33,148,770 | ||||||||||
Increase (decrease) in cash and cash equivalents | (142,821 | ) | (68,850 | ) | (263,795 | ) | (383,422 | ) | 37,260 | ||||||
Cash and cash equivalents, beginning of period | 180,081 | 106,110 | 355,608 | 475,235 | - | ||||||||||
- | |||||||||||||||
Cash and cash equivalents, end of period | $ | 37,260 | $ | 37,260 | $ | 91,813 | $ | 91,813 | $ | 37,260 | |||||
Supplemental cash flow information: | |||||||||||||||
Interest paid | - | - | - | - | 76,987 | ||||||||||
Income taxes paid | - | - | - | - | 66,722 |
See accompanying notes.
4
MICROMEM TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIENCY) |
(Expressed in United States dollars) |
For the period ended April 30, 2010 (with comparative data) |
Number of | Share Capital | Contributed | Deferred | Equity | Deficit | |||||||||||||
Shares | Surplus | Share | component | Accumulated | ||||||||||||||
Compensation | of Bridge | During | ||||||||||||||||
loan | Development | |||||||||||||||||
stage | ||||||||||||||||||
Micromem share capital, October 31, 1998 | 3,490,643 | $ | - | $ | - | $ | - | $ | $ | - | ||||||||
Exercise of director’s stock options | 490,000 | - | - | - | - | - | ||||||||||||
Pageant share capital, October 31, 1998 | - | 1 | - | - | - | - | ||||||||||||
Net loss for the year | - | - | - | - | - | (500,992 | ) | |||||||||||
Common shares of Pageant, December 4, 1998 | - | 4,999 | - | - | - | - | ||||||||||||
Assigned fair value of net assets | 32,000,000 | 549,140 | - | - | - | - | ||||||||||||
Micromem share capital, September 11, 1999 | 35,980,643 | 554,140 | - | - | - | (500,992 | ) | |||||||||||
Exercise of common share purchase warrants for cash | 120,676 | 164,053 | - | - | - | - | ||||||||||||
Private placement of common shares for cash, May 17, 1999 | 350,000 | 1,050,000 | - | - | - | - | ||||||||||||
Shareholder loan forgiven | - | - | 544,891 | - | - | - | ||||||||||||
Exercise of stock options for cash | 100,000 | 300,000 | - | - | - | - | ||||||||||||
Net loss for the year | - | - | - | - | - | (5,207,787 | ) | |||||||||||
Balance, October 31, 1999 | 36,551,319 | 2,068,193 | 544,891 | - | - | (5,708,779 | ) | |||||||||||
Exercise of common share purchase warrants for cash | 182,087 | 274,717 | - | - | - | - | ||||||||||||
Exercise of stock options for cash | 100,000 | 300,000 | - | - | - | - | ||||||||||||
Deferred share compensation | - | - | 2,711,881 | (453,219 | ) | - | - | |||||||||||
Private placement of common shares for cash, February 10, 2000 | 2,000,000 | 5,000,000 | - | - | - | - | ||||||||||||
Common shares issued pursuant to compensation agreements, March 15, 2000 | 901,110 | 4,206,447 | - | - | - | - | ||||||||||||
Stock options issued to directors/consultants | - | - | 9,681,257 | - | - | - | ||||||||||||
Net loss for the year | - | - | - | - | - | (16,940,613 | ) | |||||||||||
Balance, October 31, 2000 | 39,734,516 | 11,849,357 | 12,938,029 | (453,219 | ) | - | (22,649,392 | ) | ||||||||||
Exercise of common share purchase warrants for cash | 362,450 | 554,655 | - | - | - | - | ||||||||||||
Common shares issued under rights offering November 20, 2000 | 304,674 | 1,119,058 | - | - | - | - | ||||||||||||
Exercise of stock options for cash | 800,000 | 2,400,000 | - | - | - | - | ||||||||||||
Deferred share compensation | - | - | (453,219 | ) | 453,219 | - | - | |||||||||||
Stock-based compensation | - | - | 34,000 | - | - | - | ||||||||||||
Exercise of director’s stock options for cash, January 17, 2001 | 714,686 | 71,469 | - | - | - | - | ||||||||||||
Common shares issued pursuant to compensatory stock options, at | - | 1,581,242 | (1,581,242 | ) | - | - | - | |||||||||||
Adjustment-share compensation expenses | - | - | (677,420 | ) | - | - | - | |||||||||||
Common shares issued pursuant to compensation agreement, January 23, 2001 | 11,192 | 66,461 | - | - | - | - | ||||||||||||
Private placement of common shares for cash, March 21, 2001 | 2,000,000 | 4,000,000 | - | - | - | - | ||||||||||||
Common shares issued under asset purchase agreement to Estancia | 2,007,831 | 8,000,000 | - | - | - | - | ||||||||||||
Limited, March 14, 2001 | ||||||||||||||||||
Compensation shares due but not issued | - | - | 1,431,545 | - | - | - | ||||||||||||
Stock options issued to directors/consultants | - | - | 4,627,752 | - | - | - | ||||||||||||
Net loss for the year | - | - | - | - | - | (9,187,377 | ) | |||||||||||
Balance, October 31, 2001 | 45,935,349 | 29,642,242 | 16,319,445 | - | - | (31,836,769 | ) | |||||||||||
Stock options issued to directors/consultants | - | - | 1,832,500 | - | - | - | ||||||||||||
Shares issued pursuant to compensatory agreement, March 26, 2002 | 765,588 | 1,431,545 | (1,431,545 | ) | - | - | - | |||||||||||
Net loss for the year | - | - | - | - | (14,565,515 | ) | ||||||||||||
Balance, October 31, 2002 | 46,700,937 | 31,073,787 | 16,720,400 | - | - | (46,402,284 | ) | |||||||||||
Private placement of common shares for cash, August 13, 2003 | 2,031,250 | 162,500 | - | - | - | - | ||||||||||||
Net loss for the year | - | - | - | - | - | (1,767,965 | ) | |||||||||||
Stock options issued to directors/consultants | 318,000 | - | ||||||||||||||||
Balance, October 31, 2003 | 48,732,187 | 31,236,287 | 17,038,400 | - | - | (48,170,249 | ) | |||||||||||
Private placement | 800,000 | 73,000 | - | - | - | - | ||||||||||||
Exercise of common share warrants | 3,231,250 | 264,500 | - | - | - | - | ||||||||||||
Exercise of options for cash | 5,300,000 | 530,000 | - | - | - | - | ||||||||||||
Stock options issued to consultant | - | - | 1,379,970 | - | - | - | ||||||||||||
Net loss for the year | - | - | - | - | - | (2,314,298 | ) | |||||||||||
Balance at October 31, 2004 | 58,063,437 | $ | 32,103,787 | $ | 18,418,370 | $ | - | $ | - | $ | (50,484,547 | ) |
5
MICROMEM TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIENCY) |
(Expressed in United States dollars) |
For the period ended April 30, 2010 (with comparative data) |
Number of | Share Capital | Contributed | Deferred | Equity | Deficit | |||||||||||||
Shares | Surplus | Share | component | Accumulated | ||||||||||||||
Compensation | of Bridge | During | ||||||||||||||||
loan | Development | |||||||||||||||||
Balance at October 31, 2004 | 58,063,437 | 32,103,787 | 18,418,370 | - | - | (50,484,547 | ) | |||||||||||
Exercise of common share purchase warrants for cash | 2,431,250 | 206,500 | - | - | - | - | ||||||||||||
Private placement of common shares for cash | 2,342,334 | 1,472,500 | - | - | - | - | ||||||||||||
Exercise of stock options | 1,820,000 | 553,600 | - | - | - | - | ||||||||||||
Settlement of accounts payable for common shares | 62,428 | 43,700 | - | - | - | - | ||||||||||||
Stock options issued to consultants/employees | - | - | 1,721,742 | - | - | - | ||||||||||||
Legal expenses relating to private placements | - | (75,000 | ) | - | - | - | - | |||||||||||
Net loss | - | - | - | - | - | (4,035,483 | ) | |||||||||||
Transfer to contributed surplus (restatement) | - | (264,000 | ) | 264,000 | - | - | - | |||||||||||
Balance at October 31, 2005 | 64,719,449 | 34,041,087 | 20,404,112 | - | - | (54,520,030 | ) | |||||||||||
Exercise of stock options | 3,550,000 | 1,064,980 | - | - | - | - | ||||||||||||
Stock options issued to consultants/employees | - | - | 2,058,560 | - | - | - | ||||||||||||
Private placement of common shares for cash | 150,000 | 75,000 | - | - | - | - | ||||||||||||
Exercise of common share purchase warrants for cash | 771,850 | 485,548 | - | - | - | - | ||||||||||||
Net loss | - | - | - | - | - | (4,058,180 | ) | |||||||||||
Transfer to contributed surplus (restatement) | - | 1,026,738 | (1,026,738 | ) | - | - | - | |||||||||||
Balance at October 31, 2006 | 69,191,299 | 36,693,353 | 21,435,934 | - | - | (58,578,210 | ) | |||||||||||
Exercise of stock options | 1,700,000 | 552,000 | - | - | - | - | ||||||||||||
Transfer from contributed surplus | - | 340,122 | (340,122 | ) | - | - | - | |||||||||||
Price adjustment on outstanding warrants | - | (1,326,308 | ) | 1,326,308 | - | - | - | |||||||||||
Stock options issued to consultants/employees | - | - | 86,787 | - | - | - | ||||||||||||
Stock options issued to Directors | - | - | 96,945 | - | - | - | ||||||||||||
Warrants issued to consultants | - | - | 85,484 | - | - | - | ||||||||||||
Exercise of common share purchase warrants for cash | 477,500 | 191,000 | - | - | - | - | ||||||||||||
Private placement of common shares for cash | 1,577,368 | 716,230 | - | - | - | - | ||||||||||||
Net loss | - | - | - | - | - | (2,811,378 | ) | |||||||||||
Balance at October 31, 2007 | 72,946,167 | 37,166,397 | 22,691,336 | - | - | (61,389,588 | ) | |||||||||||
Warrants issued to consultants | - | - | 23,814 | - | - | - | ||||||||||||
Private placement of common shares for cash | 4,152,296 | 2,980,031 | - | - | - | - | ||||||||||||
Exercise of stock options | 1,440,000 | 1,010,500 | - | - | - | - | ||||||||||||
Exercise of common share purchase warrants for cash | 3,671,318 | 1,493,527 | - | - | - | - | ||||||||||||
Transfer from contributed surplus for stock options exercised | - | 537,494 | (537,494 | ) | - | - | - | |||||||||||
Transfer from contributed surplus for warrants exercised | - | 1,411,792 | (1,411,792 | ) | - | - | - | |||||||||||
Stock options issued to directors/consultants | - | - | 1,017,600 | - | - | - | ||||||||||||
Settlement of accounts payable for common shares. | 30,000 | 59,100 | - | - | - | - | ||||||||||||
Cashless exercise of warrants for common shares (Note 12(g)(ii)) | 646,886 | - | - | - | - | - | ||||||||||||
Warrants issued for private placement | - | (330,957 | ) | 330,957 | - | - | - | |||||||||||
Common shares for services | 50,000 | 52,250 | - | - | - | - | ||||||||||||
Net loss | - | - | - | - | - | (5,416,725 | ) | |||||||||||
Balance at October 31, 2008 | 82,936,667 | 44,380,134 | 22,114,421 | - | - | (66,806,313 | ) | |||||||||||
Private placement of units for cash | 4,393,535 | 2,305,215 | 653,627 | - | - | - | ||||||||||||
Exercise of stock options | 1,652,801 | 992,417 | - | - | - | - | ||||||||||||
Transfer from contributed surplus for stock options exercised | - | 573,706 | (573,706 | ) | - | - | - | |||||||||||
Common shares for services | 200,000 | 173,125 | - | - | - | - | ||||||||||||
Financing cost paid | - | (164,417 | ) | - | - | - | - | |||||||||||
Stock options issued to directors/consultants | - | - | 1,951,569 | - | - | - | ||||||||||||
Exercise of common share purchase warrants for cash | 200,000 | 234,000 | - | - | - | - | ||||||||||||
Net loss | - | - | - | - | - | (4,310,939 | ) | |||||||||||
Balance at October 31, 2009 | 89,383,003 | 48,494,180 | 24,145,911 | - | - | (71,117,252 | ) | |||||||||||
Private placement of units for cash | 2,204,276 | 1,049,063 | - | - | - | - | ||||||||||||
Warrants issued for private placement | - | (218,750 | ) | 218,750 | - | - | - | |||||||||||
Financing cost paid | - | (22,615 | ) | - | - | - | - | |||||||||||
Net loss | - | (406,399 | ) | |||||||||||||||
Balance at January 31, 2010 | 91,587,279 | 49,301,878 | 24,364,661 | - | - | (71,523,651 | ) | |||||||||||
Private placement of units for cash | 289,899 | 130,000 | - | - | - | - | ||||||||||||
Warrants issued for private placement | - | (36,843 | ) | 36,843 | - | - | - | |||||||||||
Stock options extended to directors/consultants | - | - | 30,385 | - | - | - | ||||||||||||
Warrants issued to loan holder | - | - | 1,489 | - | - | - | ||||||||||||
Equity portion of bridge loan | - | - | - | 23,644 | - | |||||||||||||
Net loss | - | - | - | - | - | (526,760 | ) | |||||||||||
Balance at April 30, 2010 | 91,877,178 | $ | 49,395,035 | $ | 24,433,378 | $ | - | $ | 23,644 | $ | (72,050,411 | ) |
See accompanying notes.
6
MICROMEM TECHNOLOGIES INC. |
(A DEVELOPMENT STAGE COMPANY) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
April 30, 2010 and 2009 |
1. | NATURE OF BUSINESS |
Micromem Technologies Inc. (“Micromem” or the “Company”) is a corporation incorporated under the laws of the Province of Ontario, Canada. By Articles of Amendment dated January 14, 1999, the Company changed its name from Avanticorp International Inc. to Micromem Technologies Inc. On January 11, 1999, the Company acquired all of the outstanding shares of Pageant Technologies Inc. (“Pageant”), a company subsisting under the laws of Barbados. This acquisition was recorded as a reverse takeover under Canadian generally accepted accounting principles (“Canadian GAAP”) which, except as outlined in Note 18, conforms with United States generally accepted accounting principles (“U.S. GAAP”). | |
The Company currently operates as a developer of non-volatile magnetic memory technology and has developed magnetic sensor technology applications. The Company has not generated revenue through April 30, 2010 and is devoting substantially all of its efforts to the development of its technologies. Accordingly, for financial reporting purposes, the Company is a development stage enterprise. | |
2. | GOING CONCERN |
These 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. | |
Certain principal conditions and events are prevalent which indicate that there is doubt about the Company’s ability to continue as a going concern for a reasonable period of time in future. The Company has incurred substantial recurring losses to date; it reports a working capital deficiency at April 30, 2010. | |
The Company continues to pursue its development initiatives in order to develop its technologies for commercial applications and continues to raise financing for operations as outlined in Note 11. | |
It will be necessary for the Company to raise additional funds for the continued development, testing and commercial exploitation of its technologies. To date the Company has raised financing through successive unit private placements, through the exercise of common share stock options and through the exercise of common share purchase warrants. It has also secured periodic term loans. |
7
MICROMEM TECHNOLOGIES INC. |
(A DEVELOPMENT STAGE COMPANY) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
April 30, 2010 and 2009 |
2. | GOING CONCERN (cont’d) |
The consolidated financial statements have been prepared on a going concern basis and do not include any adjustments to the amounts and classifications of the assets and liabilities that might be necessary should the Company be unable to continue in business. If the “going concern” assumption were not appropriate for these consolidated financial statements then adjustments would be necessary to the carrying value of assets and liabilities, the reported expenses and the balance sheet classifications used. | |
3. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
These consolidated financial statements have been prepared in accordance with Canadian GAAP and are stated in United States dollars. These principles are also in conformity in all material respects with U.S. GAAP (except as disclosed in Note 18). |
Interim Reporting
The disclosures contained in these unaudited interim consolidated financial statements do not include all requirements of Canadian generally accepted accounting principles for the presentation of annual financial statements. Notwithstanding, the unaudited interim financial statements follow the same accounting policies and methods of application as the audited financial statements of the Company for the year ended October 31, 2009. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements of Micromem for the years ended October 31, 2009 and 2008. Accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. In the opinion of management, the accompanying unaudited interim consolidated financial statements include all adjustments of a normal recurring nature to present fairly the position of the Company as at April 30, 2010 and reflect the results of operation for the three and six month periods then ended.
8
MICROMEM TECHNOLOGIES INC. |
(A DEVELOPMENT STAGE COMPANY) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
April 30, 2010 and 2009 |
4. | CHANGE IN ACCOUNTING POLICY | |
Goodwill and Intangible Assets: | ||
Effective November 1, 2008, the Company adopted the recommendation of the CICA Handbook Section 3064 released in February 2008, “Goodwill and Intangible Assets”, in replacement of Section 3062, “Goodwill and Other Intangible Assets” and Section 3450, “Research and Development Costs”. | ||
Section 3064 establishes the standards for recognizing, measuring, presenting and disclosing information applicable to goodwill after its initial recognition and to the intangible assets of profit-oriented enterprises. With respect to goodwill, Section 3064 contains the same requirements as former Section 3062. | ||
Adoption of this standard had no significant impact on Company’s financial statements. | ||
5. | RECENT CANADIAN ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED | |
a. | Business Combinations: | |
In January 2009, the CICA issued Section 1582, Business Combinations, which replaces former guidance on business combinations. Section 1582 establishes principles and requirements of the acquisition method for business combinations and related disclosures. In addition, the CICA issued Sections 1601, Consolidated Financial Statements, and 1602, Non-Controlling Interests, which replaces the existing guidance. Section 1601 establishes standards for the preparation of consolidated financial statements, while section 1602 provides guidance on accounting for a non-controlling interest in a subsidiary in consolidated financial statements subsequent to business combination. | ||
These standards apply prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2011 with earlier application permitted. The Company is currently evaluating the new section to determine the potential impact on its consolidated financial statements. |
9
MICROMEM TECHNOLOGIES INC. |
(A DEVELOPMENT STAGE COMPANY) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
April 30, 2010 and 2009 |
5. | RECENT CANADIAN ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED (Cont’d) | |
b. | International Financial Reporting Standards (IFRS): | |
In February 2008, the Accounting Standards Board ("AcSB") confirmed that the use of IFRS will be required in 2011 for publicly accountable enterprises in Canada. In April, 2008, the AcSB issued an IFRS Omnibus Exposure Draft proposing that publicly accountable enterprises be required to apply IFRS, in full and without modification, on January 1, 2011. The adoption date of January 1, 2011 will require the restatement, for comparative purposes, of amounts reported by the Company for its year ended October 31, 2011, and of the opening balance sheet as at November 1, 2010. The AcSB proposes that CICA Handbook Section,Accounting Changes, paragraph 1506.30, which would require an entity to disclose information relating to a new primary source of GAAP that has been issued but is not yet effective and that the entity has not applied, not be applied with respect to the IFRS Omnibus Exposure Draft. The Company is continuing to assess the financial reporting impacts of the adoption of IFRS and, at this time, the impact on future financial position and results of operations is not reasonably determinable or estimable. The Company does anticipate a significant increase in disclosure resulting from the adoption of IFRS and is continuing to assess the level of disclosure required, as well as system changes that may be necessary to gather an process the required information. |
6. | CAPITAL RISK MANAGEMENT |
The Company’s 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 capital stock, contributed surplus and deficit, in the definition of capital. The Company’s 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 three months ended April 30, 2010. |
10
MICROMEM TECHNOLOGIES INC. |
(A DEVELOPMENT STAGE COMPANY) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
April 30, 2010 and 2009 |
7. | PROMISSORY NOTE RECEIVABLE | |
In April 2009, the Company advanced $200,000 out of a maximum facility of $500,000 to a private company incorporated in New Jersey and a strategic development partner of the Company. On August 1, 2009, the Company and the private company executed a promissory note with respect to the $200,000 advance stipulating the following terms and conditions: | ||
a. | Maturity date of September 30, 2010. | |
b. | Interest payable on a quarterly basis in arrears calculated from August 1, 2009 at a rate of 10%. | |
c. | Secured by a first priority security interest over all of the assets of the private company. |
8. | PROPERTY AND EQUIPMENT |
April 30, 2010 | |||||||||
Accumulated | Net Book | ||||||||
Cost | Amortization | Value | |||||||
Computer | $ | 40,734 | $ | 19,752 | $ | 20,982 | |||
Equipment | 25,989 | 25,989 | - | ||||||
Total | $ | 66,723 | $ | 45,741 | $ | 20,982 |
April 30, 2009 | |||||||||
Accumulated | Net Book | ||||||||
Cost | Amortization | Value | |||||||
Computer | $ | 85,788 | $ | 56,429 | $ | 29,359 | |||
Equipment | 22,831 | 22,831 | - | ||||||
Total | $ | 108,619 | $ | 79,260 | $ | 29,359 |
In 2009, the Company removed from its accounts a total of $50,616 of fully amortized assets which had been reflected in its accounts since 2004. These assets have been disposed of at nil value.
11
MICROMEM TECHNOLOGIES INC. |
(A DEVELOPMENT STAGE COMPANY) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
April 30, 2010 and 2009 |
9. | DEFERRED DEVELOPMENT COSTS |
In the quarter ended April 30, 2010, the Company capitalized costs in the amount of $216,556 (2009 – nil) reporting a total of $2,496,421 relating to the development of its memory and sensor technology for future commercialization. Development costs include directly related consulting fees, materials and third party costs. No amortization has been taken to date. | |
The breakdown of development costs that have been capitalized as follows: |
Projects | Amount | ||
Project A | $ | 522,791 | |
Project B | 101,169 | ||
Project C | 661,521 | ||
Project D | 818,840 | ||
Project E | 145,672 | ||
Project F | 156,030 | ||
Project G | 15,086 | ||
Project H | 75,312 | ||
$ | 2,496,421 |
12
MICROMEM TECHNOLOGIES INC. |
(A DEVELOPMENT STAGE COMPANY) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
April 30, 2010 and 2009 |
10. | PATENTS |
The Company continues to actively pursue, protect and expand its patents registered in Canada, the United States and in foreign jurisdiction. Amortization recorded is included in deferred development costs reported. |
April 30, 2010 | ||||||||||
Accumulated | Net Book | |||||||||
Cost | Amortization | Value | ||||||||
Patents | $ | 215,932 | $ | 12,751 | $ | 203,181 |
11. | SHARE CAPITAL | ||
a. | 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. At April 30, 2010 the Company reports 91,877,178 outstanding common shares. |
13
MICROMEM TECHNOLOGIES INC. |
(A DEVELOPMENT STAGE COMPANY) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
April 30, 2010 and 2009 |
11. | SHARE CAPITAL (Cont’d) | |
b. | Stock option plan: | |
The Company has a fixed stock option plan. Under the Company’s 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 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. | ||
A summary of the status of the Company’s fixed stock option plan as at April 30, 2010 and changes during the periods ended on those dates is as follows: |
Options | Weighted Average | |||||
(000 | ) | exercise price | ||||
Outstanding, October 31, 2007 | 10,325 | .55 | ||||
Granted | 2,145 | 1.39 | ||||
Expired | (100 | ) | .72 | |||
Exercised | (1,440 | ) | .70 | |||
Outstanding, October 31, 2008 | 10,930 | .85 | ||||
Granted | 1,345 | 1.00 | ||||
Expired | (600 | ) | 1.14 | |||
Exercised | (1,653 | ) | .60 | |||
Outstanding, October 31, 2009 | 10,022 | .89 | ||||
Granted | - | - | ||||
Expired | - | - | ||||
Exercised | - | - | ||||
Outstanding, April 30, 2010 | 10,022 | .89 |
Cash proceeds realized during the year ended October 31, 2009 by the Company upon the exercise of a total of 1,652,801 options by officers and directors and staff totaled $992,417 (2008: 1,440,000 options exercised for proceeds of $1,010,500).
In November 2009, the Company extended, by 12 months, the term of 100,000 options awarded to a director in November 2005. These options would have otherwise expired in November 2009. The options price approximated the market price at the date of extension. The Company reports a charge of $30,385 with respect to this extension, calculated in accordance with the Black Scholes option pricing model.
14
MICROMEM TECHNOLOGIES INC. |
(A DEVELOPMENT STAGE COMPANY) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
April 30, 2010 and 2009 |
11. | SHARE CAPITAL (Cont’d) |
Subsequent to April 30, 2010, the Company extended certain outstanding stock options which would have otherwise expired in May 2010 (Note 20).
The following options have been granted in the 2008 and 2009 fiscal years:
Strike price | ||||||||||||
Date | Number | per share | Term | Recipient(s) | ||||||||
March 2008 | 325,000 | 1.01 | 5 years | Directors | ||||||||
March 2008 | 20,000 | 1.12 | 5 years | Consultants | ||||||||
March 2008 | 350,000 | (1) | 1.20 | 5 years | New Director | |||||||
August 2008 | 1,400,000 | (2) | 1.50 | 5 years | Director, officers, employees | |||||||
April 2008 | 50,000 | 2.31 | 1 year | Consultants | ||||||||
Total | 2,145,000 | |||||||||||
August 2009 | 1,345,000 | 1.00 | 5 years | Directors, officers, employees | ||||||||
Total | 1,345,000 |
(1) | A total of 100,000 of the 350,000 stock options which were issued in March 2008 at a strike price of $1.20 per share included vesting provisions on a quarterly basis commencing in March 2008. The remaining 250,000 options were fully vested as of the issue date. These stock options were issued to a then director of the Company. In 2009, that director stepped down as a director and these stock options expired unexercised in August 2009. | |
(2) | A total of 200,000 of these options included vesting provisions only when certain performance milestones were achieved by the Company. These milestones were not achieved as of October 31, 2009 and no vesting of these 200,000 occurred to that date. The remaining 1.2 million options included vesting provisions on a quarterly basis commencing in August 2008. |
The fair value of all options granted was estimated as of the date of grant using the Black Scholes option-pricing model with the following assumptions:
2009 | 2008 | 2007 | ||
Expected dividends | - | - | - | |
Volatility factor | 85% | 86%-106% | 51% - 97% | |
Risk free interest rate | 2.54% | 2%-5% | 4.5% – 4.75% | |
Weighted average expected life | 5 years | 5 years | 1 to 1.5 years |
15
MICROMEM TECHNOLOGIES INC. |
(A DEVELOPMENT STAGE COMPANY) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
April 30, 2010 and 2009 |
11. | SHARE CAPITAL (Cont’d) |
The current stock compensation expense as reflected in the financial statements is summarized as: |
Quarter Ending | Expense | ||
January 31, 2007 | 1,914,774 | ||
April 30, 2007 | 96,945 | ||
July 31, 2007 | 33,914 | ||
October 31, 2007 | 52,873 | ||
January 31, 2008 | - | ||
April 30, 2008 | 637,254 | ||
July 31 2008 | 25,229 | ||
October 31, 2008 | 355,117 | ||
January 31, 2009 | 355,117 | ||
April 30, 2009 | 342,000 | ||
July 31 2009 | 342,000 | ||
October 31, 2009 | 912,452 | ||
January 31, 2010 | - | ||
April 30, 2010 | 30,385 |
The following table summarizes information about stock options outstanding as at April 30, 2010:
Options Outstanding | Options exercisable | ||||
Weighted average | Weighted | ||||
remaining | Average | Weighted | |||
Actual exercise | Number | contractual life (in | exercise | Number | Average |
price | outstanding | years) | price | Exercisable | exercise price |
0.72 | 1,927,199 | 0.1 years | 0.72 | 1,927,199 | 0.72 |
0.60 | 315,000 | 2.4years | 0.60 | 315,000 | 0.60 |
0.80 | 4,290,000 | 1.1 years | 0.80 | 4,290,000 | 0.80 |
1.01 | 325,000 | 2.7 years | 1.01 | 325,000 | 1.01 |
1.12 | 20,000 | 2.8 years | 1.12 | 20,000 | 1.12 |
1.50 | 1,400,000 | 3.2 years | 1.50 | 1,200,000 | 1.50 |
0.63 | 50,000 | 0.5 years | 0.63 | 50,000 | 0.63 |
0.36 | 350,000 | 1.9 years | 0.36 | 350,000 | 0.36 |
1.00 | 1,345,000 | 4.2 years | 1.00 | 1,345,000 | 1.00 |
TOTAL | 10,022,199 | 0.89 | 9,822,199 | 0.88 |
16
MICROMEM TECHNOLOGIES INC. |
(A DEVELOPMENT STAGE COMPANY) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
April 30, 2010 and 2009 |
11. | SHARE CAPITAL (Cont’d) | |||
c. | Loss per share | |||
The inclusion of the Company’s stock options and share purchase warrants in the computation of diluted loss per share would have an anti-dilutive effect on loss per share and they are therefore excluded from the computation. Consequently, there is no difference between basic loss per share and diluted loss per share. | ||||
d. | Private Placements | |||
i. | In 2009 the Company completed a series of private placement financings with arms’ length investors pursuant to prospectus and registration exemptions set forth in applicable securities laws. The Company received $2,958,842 of proceeds from the issuance of 4,393,535 common shares. | |||
ii. | Common share purchase warrants were attached to several of the private placements completed during 2009 as follows: | |||
a) | 1,153,846 warrants at a price of $0.70 per warrant issued on February 11, 2009. | |||
b) | 1,333,333 warrants at a price of $0.75 per warrant issued on April 6, 2009. | |||
c) | 390,624 warrants issued at a price of $1.20 per warrant on May 14, 2009. | |||
d) | 39,062 warrants issued at a price of $1.20 per warrant on May 14, 2009. | |||
e) | 388,980 warrants issued at a price of $1.24 per warrant on May 19, 2009. | |||
f) | 500,000 warrants issued at a price of $0.95 per warrant on August 25, 2009. |
The warrants issued on May 19, 2009 had a term of four months and expired unexercised. All other warrants issued in 2009 have a 12 month term from issue date. The 39,062 warrants issued on May 14th are broker warrants issued to the advisor who secured financing for the Company. A charge to share capital in the amount of $14,297 has been recorded in the accounts in accordance with the Black Scholes option-pricing model with respect to these broker warrants.
17
MICROMEM TECHNOLOGIES INC. |
(A DEVELOPMENT STAGE COMPANY) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
April 30, 2010 and 2009 |
11. | SHARE CAPITAL (Cont’d) |
iii. | At January 31, 2010, the Company has secured additional financing of $1,049,446 through the issuance of 2,204,276 common shares pursuant to prospectus and registration exemptions set forth in applicable securities laws. Of this $161,040 was obtained from related parties, the remaining $888,406 was secured through private placement financings with arms’ length investors. | |
iv. | Common share purchase warrants were attached to several of the private placements completed during the first quarter of 2010 as follows: |
a) | 123,276 warrants issued at a price of $.75 per warrant on November 11, 2009. | |
b) | 600,000 warrants issued at a price of $.76 per warrant on December 14, 2009. | |
c) | 772,000 warrants issued at a price of $.56 per warrant on December 16, 2009. | |
d) | 43,000 warrants issued at a price of $.56 per warrant on December 16, 2009. | |
e) | 341,000 warrants issued at a price of $.55 per warrant on January 15, 2010. | |
f) | 25,000 warrants issued at a price of $.55 per warrant on January 15, 2010. | |
g) | 300,000 warrants issued at a price of $.55 per warrant on January 26, 2010. |
All warrants issued during the first quarter have a 12 month term from issue date. | ||
v. | At April 30, 2010 the Company has secured additional financing of $130,000 through the issuance of 289,899 common shares pursuant to prospectus and registration exemptions set forth in applicable securities laws. | |
vi. | Common share purchase warrants were attached to the private placements completed during the second quarter of 2010 as follows: |
a) | 111,111 warrants at a price of $.56 per warrant on February 1, 2010. | |
b) | 111,111 warrants at a price of $.56 per warrant on February 8, 2010. | |
c) | 22,222 warrants at a price of $.56 per warrant on February 12, 2010. | |
d) | 45,455 warrants at a price of $.54 per warrant on March 5, 2010. |
All warrants issued during the second quarter have a 12 month term from issue date.
18
MICROMEM TECHNOLOGIES INC. |
(A DEVELOPMENT STAGE COMPANY) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
April 30, 2010 and 2009 |
11. | SHARE CAPITAL (Cont’d) | |
e. | Bridge Loans: | |
In April 2010 the Company secured a total of $250,000 Canadian funds ($246,111 USD) of bridge loans from an arm’s length investor for a period of six months, maturing in October 2010. Interest on this unsecured note is compounding at 4% per month, with principal and interest due at maturity. | ||
The holder and the Company have the option to convert up to the entire amount owing at any time at a price of $.55 per share. The Company reports the equity component of the bridge loan in shareholders’ equity, calculated in accordance with the Black Scholes option pricing model. | ||
The Company has recorded accretion expense of $1,414 on the bridge loan at April 30, 2010. | ||
As additional consideration the Company issued warrants to the lender which entitles the lender to acquire 12,500 common shares at an exercise price of $.50 per share. The warrants have a 12 month term through April 2011. |
19
MICROMEM TECHNOLOGIES INC. |
(A DEVELOPMENT STAGE COMPANY) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
April 30, 2010 and 2009 |
11. | SHARE CAPITAL (Cont’d) | |
f. | Warrants: | |
A summary of the outstanding common share purchase warrants as of the Company’s fiscal year-ends and the changes during the periods are as follows: |
Weighted | ||||||||||
average | Proceeds | |||||||||
Warrants | exercise price | Realized | ||||||||
Balance outstanding at October 31, 2008 | 637,128 | $ | 1.04 | |||||||
Exercised | (200,000 | ) | $ | 1.17 | $ | 234,000 | ||||
Expired | (826,108 | ) | $ | 1.10 | ||||||
Granted | 3,805,845 | $ | 0.86 | |||||||
Balance outstanding at October 31, 2009 | 3,416,865 | $ | 0.82 | |||||||
Exercised | - | - | ||||||||
Expired | - | - | ||||||||
Granted(Note 11 (d)(ii)) | 2,204,276 | $ | 0.62 | |||||||
Balance outstanding at January 31, 2010 | 5,621,141 | $ | 0.74 | |||||||
Exercised | - | - | ||||||||
Expired | (2,487,179 | ) | $ | 0.73 | ||||||
Granted | 302,399 | $ | 0.56 | |||||||
Balance outstanding at April 30, 2010 | 3,436,361 | $ | 0.73 |
g. | Settlement of Accounts Payable: | |
In June 2008 the Company settled certain accounts payable outstanding with an arm’s length research contractor. It provided cash consideration of $125,000 and 30,000 common shares valued at $59,100 to fully settle the balance due to the contractor. |
20
MICROMEM TECHNOLOGIES INC. |
(A DEVELOPMENT STAGE COMPANY) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
April 30, 2010 and 2009 |
11. | SHARE CAPITAL (Cont’d) | |
h. | Shares Issued Under Service Contract | |
In September 2008 the Company entered into a 12 month contract with an arm’s length contractor. Under the terms of the contract the Company committed to a monthly cash payment of $13,500. As additional consideration the Company agreed to issue 25,000 common shares per month for a total of 300,000 common shares over the term of the contract. The Company renegotiated the contract effective in May 2009 thereby reducing the required monthly cash payment to $7,500 and the monthly common share issuance to 12,500 shares. In total, the Company issued 250,000 common shares under the terms of the contract and recorded a non-cash expense of $225,375 reflecting the respective market price of the shares at the issue dates. The contract was not renewed in September 2009. | ||
12. | CONTRIBUTED SURPLUS |
Balance at October 31, 2008 | $ | 22,114,421 | ||
Stock compensation expense relating to stock options issued | 1,951,569 | |||
Stock options exercised | (573,706 | ) | ||
Common share purchase warrants issued | 653,627 | |||
Balance at October 31, 2009 | $ | 24,145,911 | ||
Stock compensation expense relating to stock options issued | - | |||
Stock options exercised | - | |||
Common share purchase warrants issued | 218,750 | |||
Balance at January 31, 2010 | $ | 24,364,661 | ||
Stock compensation expense relating to stock options issued | 30,385 | |||
Stock options exercised | - | |||
Common share purchase warrants issued | 38,332 | |||
Balance at April 30, 2010 | $ | 24,433,378 |
The Company has calculated the charges to contributed surplus as presented above using the Black Scholes option pricing model.
21
MICROMEM TECHNOLOGIES INC. |
(A DEVELOPMENT STAGE COMPANY) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
April 30, 2010 and 2009 |
13. | INCOME TAXES |
The Company has non-capital losses of approximately $13.5 million available to reduce future taxable income, the benefit of which has not been recognized in these consolidated financial statements. As of October 31, 2009 the tax losses expire as follows: |
Canada | Other Foreign | Total | |||||||
2010 | 1,178,000 | - | 1,178000 | ||||||
2014 | 943,000 | - | 943,000 | ||||||
2015 | 2,968,000 | - | 2,968,000 | ||||||
2026 | 2,221,000 | - | 2,221,000 | ||||||
2027 | 1,867,000 | - | 1,867,000 | ||||||
2028 | - | 48,000 | 48,000 | ||||||
2029 | 2,569,000 | 1,740,000 | 4,309,000 | ||||||
$ | 11,746,000 | $ | 1,788,000 | $ | 13,534,000 |
In addition the Company has available capital loss carry forwards of approximately $1.6 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.
22
MICROMEM TECHNOLOGIES INC. |
(A DEVELOPMENT STAGE COMPANY) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
April 30, 2010 and 2009 |
14. | MANAGEMENT COMPENSATION AND RELATED PARTY TRANSACTIONS | |
a. | Chairman: | |
On May 29, 2005, the Company entered into a new employment agreement with the Chairman for a period from January 1, 2005 through September 30, 2009. During the year, the Company extended the agreement to December 31, 2010. Under the terms of the agreement, the Chairman has been retained to provide certain management services to the Company. The Company has agreed to provide compensation based on a percentage of the increase of the market capitalization on a year-over year basis commencing as of December 31, 2005 subject to a minimum annual compensation amount of $150,000 Canadian funds ($145,914 U.S. funds at quarter-end exchange rate). At the Company’s option it can pay cash or issue common shares as compensation providing that the cumulative maximum number of shares that it can issue under the agreement is two million common shares. The Company determined that the compensation expense in fiscal 2009 was $150,000 Canadian funds ($129,149 U.S. funds at average exchange rates) under this agreement (2008: $501,278 Canadian funds or $416,171 U.S. funds). | ||
In 2009 the Chairman was awarded a total of 150,000 common stock options at a strike price of $1.00 per common share (2008 and 2007: no options were awarded). | ||
The total compensation paid to the Chairman during the period is summarized as follows: |
Cash Compensation | Stock Option Expense | |
2010 (6 mos) | $ 71,900 | - |
2009 | $ 129,149 | $ 101,760 |
2008 | $ 416,171 | - |
23
MICROMEM TECHNOLOGIES INC. |
(A DEVELOPMENT STAGE COMPANY) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
April 30, 2010 and 2009 |
14. | MANAGEMENT COMPENSATION AND RELATED PARTY TRANSACTIONS (Cont’d) |
b. | Management and consulting fees: | |
Included in professional fees as reported are management and consulting fees paid or payable to individuals (or companies controlled by such individuals) who served as officers and directors of the Company. The total compensation paid to such parties during the fiscal years ending October 31, 2008 - 2009 and for the 6 months ended April 30, 2010 is as follows: |
Cash Compensation | Stock Option Expense | |
2010 (6 mos) | $ 310,494 | - |
2009 | $ 625,576 | $ 407,040 |
2008 | $ 825,748 | $ 637,835 |
The above-noted compensation has been included in the Consolidated Statement of Operations, and Deficit under the caption Professional, Other fees and Salaries, which total amount reported includes:
2010 | 2009 | 2008 | ||||||||
(6 mos | ) | (6 mos | ) | (12 mos | ) | |||||
Professional and other fees | $ | 424,933 | $ | 510,925 | $ | 2,021,786 | ||||
Salaries and wages | 249,979 | 174,137 | 241,571 | |||||||
Stock compensation expense | 30,385 | 697,117 | 1,041,414 | |||||||
$ | 705,297 | $ | 1,382,179 | $ | 3,304,771 |
24
MICROMEM TECHNOLOGIES INC. |
(A DEVELOPMENT STAGE COMPANY) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
April 30, 2010 and 2009 |
14. | MANAGEMENT COMPENSATION AND RELATED PARTY TRANSACTIONS (Cont’d) | |
c. | Cost sharing agreements: | |
The Company has entered into cost sharing arrangements with companies where certain senior officers and directors exercise significant influence. These transactions, which were measured at the exchange amount on the date of the transaction, relate to salaries, rent and other expenses. | ||
The net expenses reported by the Company in these expense categories are summarized as follows: |
Rent | Salaries | Other | Total | ||||||||||
2010 (6 mos) | $ | 13,940 | $ | 249,979 | $ | 5,775 | $ | 269,694 | |||||
2009 | 17,177 | 289,897 | 11,541 | 318,615 | |||||||||
2008 | 30,000 | 242,000 | 1,000 | 273,000 |
15. | COMMITMENTS | |
a. | Operating Leases: | |
The Company has operating lease commitments which expire in 2010 in respect of its head office. The future minimum annual lease payments in 2010 are approximately $76,000. | ||
b. | Employment and Consulting Contracts: | |
The Company has entered into an employment agreement with the Chairman through December 31, 2010 as outlined in Note 14 (a) which stipulates an annual minimum obligation of $150,000 Canadian funds ($145,914 U.S. at current exchange rates). The Company has accrued $36,477 of cash compensation with respect to this employment agreement in the second quarter of 2010. |
25
MICROMEM TECHNOLOGIES INC. |
(A DEVELOPMENT STAGE COMPANY) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
April 30, 2010 and 2009 |
15. | COMMITMENTS (Cont’d) |
In May 2008, the Company entered into agreements with the President, the Chief Financial Officer and the President of the Company’s subsidiary, MAST. These agreements stipulated cash compensation obligations as below:
Remaining | ||
Individual | Term | Remaining Obligation |
President | 1 month | $13,333 Canadian Funds |
Chief Financial Officer | 1 month | $12,500 Canadian Funds |
President – MAST | 13 months | $221,000 |
In May 2010, the contracts with the President and CFO expired (Note 20). | |
16. | CONTINGENCIES |
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. |
26
MICROMEM TECHNOLOGIES INC. |
(A DEVELOPMENT STAGE COMPANY) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
April 30, 2010 and 2009 |
17. | FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT | |
a. | Fair values | |
The fair values for all financial assets and financial liabilities approximate their carrying values due to their short-term nature. | ||
b. | Foreign currency balances | |
At April 30th, the consolidated financial statements include balances that are denominated in Canadian dollars as follows: |
4/30/2010 | 10/31/2009 | 10/31/2008 | ||||||||
Cash and cash equivalents | $ | 7,386 | $ | 90,307 | $ | 22,066 | ||||
Deposits and other receivables | 97,606 | 83,486 | 122,447 | |||||||
Accounts payable and accrued liabilities | 668,632 | 450,342 | 923,367 |
27
MICROMEM TECHNOLOGIES INC. |
(A DEVELOPMENT STAGE COMPANY) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
April 30, 2010 and 2009 |
17. | FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (Cont’d) | ||
c. | 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. | |||
Market Risk: | |||
i. | Foreign Exchange Risk: | ||
The Company currently incurs expenses in Canadian dollars. The total monetary financial instruments are in net liabilities position. The management monitors the Canadian net liability position on a periodic basis throughout the course of the year and adjusts the total net monetary liability balance accordingly. | |||
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 Company’s cash and cash equivalents, 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 Company’s results of operations.
28
MICROMEM TECHNOLOGIES INC. |
(A DEVELOPMENT STAGE COMPANY) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
April 30, 2010 and 2009 |
17. | FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (Cont’d) |
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.
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 and cash equivalents, deposit and other receivables. The carrying amount of financial assets represents maximum credit exposure.
As at April 30, 2010, the Company reports a working capital deficiency of $918,937 and has certain financial commitments (Note 15), the majority of which are due within one year. It must continue to raise financing in order to meet its current obligations.
18. | RECONCILIATION BETWEEN CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (“CANADIAN GAAP”) AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (“U.S. GAAP”) |
The Company’s consolidated financial statements have been prepared in accordance with Canadian GAAP which, in the case of the Company, conforms in all material respects with U.S. GAAP except for the accounting for development costs and prior valuations of Unit private placements. These are discussed below:
a. | Development costs: | |
Under U.S. GAAP, all development costs are expensed as incurred. Under Canadian GAAP, development costs that meet criteria for deferral are capitalized. |
29
MICROMEM TECHNOLOGIES INC. |
(A DEVELOPMENT STAGE COMPANY) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
April 30, 2010 and 2009 |
18. | RECONCILIATION BETWEEN CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (“CANADIAN GAAP”) AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (“U.S. GAAP”) (Cont’d) |
b. | Valuation of Unit private placements: | |
During the year ended October 31, 2009, the Company, for Canadian GAAP purposes, started estimating the value of common shares and the warrants included in the Unit private placement financings using relative fair value method. It assigned a value to the warrants which formed part of these Unit private placements calculated in accordance with the Black Scholes option pricing model. | ||
Under U.S. GAAP, the valuation of the shares and warrants have always been determined using the relative fair value approach. The above difference has no effect on aggregate shareholders’ equity. | ||
c. | Subsequent events | |
The Company has evaluated subsequent events from the end of the most recent fiscal year through June 18, 2010, the date the consolidated financial statements were issued. | ||
d. | Convertible Debenture | |
Under Canadian GAAP, the conversion option embedded in the convertible debenture was presented separately as a component of Shareholders’ equity. Under U.S. GAAP, the embedded conversion option is not subject to bifurcation since, as a conventional convertible debt, the holder of the debentures may have only realized the value of the conversion option by exercising the option and receiving the entire proceeds in a fixed number of shares. |
30
MICROMEM TECHNOLOGIES INC. |
(A DEVELOPMENT STAGE COMPANY) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
April 30, 2010 and 2009 |
e. | A reconciliation between Canadian and U.S. GAAP in these financial statements at April 30 is as follows: |
April 30, 2010 | April 30, 2009 | ||||||||||||||||||
Balance | Balance | ||||||||||||||||||
Canadian | Balance US | Canadian | Balance US | ||||||||||||||||
Balance sheet | GAAP | Adjustment | GAAP | GAAP | Adjustment | GAAP | |||||||||||||
Current assets | $ | 339,617 | $ | 339,617 | $ | 461,692 | $ | 461,692 | |||||||||||
Property and equipment | 20,981 | 20,981 | 29,359 | 29,359 | |||||||||||||||
Deferred development costs | 2,496,421 | (2,496,421 | ) | - | - | - | |||||||||||||
Patents | 203,181 | 203,181 | - | - | |||||||||||||||
$ | 3,060,200 | $ | (2,496,421 | ) | $ | 563,779 | $ | 491,051 | $ | - | $ | 491,051 | |||||||
Accounts payable and accrued liabilities | $ | 1,034,673 | $ | 1,034,673 | $ | 600,242 | $ | 600,242 | |||||||||||
Bridge loan | 223,881 | 23,644 | 247,525 | - | - | ||||||||||||||
1,258,554 | 23,644 | 1,282,198 | 600,242 | - | 600,242 | ||||||||||||||
Share capital | 49,395,035 | (287,467 | ) | 49,107,568 | 46,025,174 | (561,283 | ) | 45,463,891 | |||||||||||
Contributed surplus | 24,433,378 | 287,467 | 24,720,845 | 23,529,027 | 561,283 | 24,090,310 | |||||||||||||
Equity component of bridge loan | 23,644 | (23,644 | ) | - | - | - | |||||||||||||
Deficit | (72,050,411 | ) | (2,496,421 | ) | (74,546,832 | ) | (69,663,392 | ) | (69,663,392 | ) | |||||||||
$ | 3,060,200 | $ | (2,496,421 | ) | $ | 563,779 | $ | 491,051 | $ | - | $ | 491,051 |
Loss for the period | April 30, 2010 | April 30, 2009 | |||||
Net loss for the period - Canadian GAAP | $ | 526,760 | $ | (1,273,450 | ) | ||
Development costs expensed per US GAAP | (216,556 | ) | - | ||||
Net loss for the period - US GAAP | $ | 310,204 | $ | (1,273,450 | ) | ||
Loss per share - basic and diluted under US GAAP | 0.00 | (0.02 | ) |
Cash flows | April 30, 2010 | April 30, 2009 | |||||
Cash flow from operating activities per US GAAP | $ | (281,584 | ) | $ | (1,686,379 | ) | |
Expenditure of development costs per US GAAP | (216,556 | ) | - | ||||
Cash flows from operating activities per US GAAP | $ | (498,140 | ) | $ | (1,686,379 | ) | |
Cash flow from investing activities per Canadian GAAP | $ | (237,348 | ) | $ | (2,625 | ) | |
Expenditure of development costs per US GAAP | 216,556 | - | |||||
Cash flows from investing activites per US GAAP | $ | (20,792 | ) | $ | (2,625 | ) |
31
MICROMEM TECHNOLOGIES INC. |
(A DEVELOPMENT STAGE COMPANY) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
April 30, 2010 and 2009 |
18. | RECONCILIATION BETWEEN CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (“CANADIAN GAAP”) AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (“U.S. GAAP”) (Cont’d) | |
f. | Adoption of new accounting polices | |
In May 2009 the Financial Accounting Standard Board (“FASB”) issued an accounting pronouncement establishing general standards of accounting for and disclosure of subsequent events, which are events occurring after the balance sheet date the financial statements are issued or available to be issued. In particular, the pronouncement requires entities to recognize in the financial statements the effect of all subsequent events that provide additional evidence of conditions that existed at the balance sheet date, including the estimates inherent in the financial preparations process. Entities may not recognize the impact of subsequent events that provide evidence about conditions that did not exist at the balance sheet date but arose after that date. The pronouncement also requires entities to disclose the date through which subsequent events have been evaluated. The pronouncement was effective for interim and annual reporting periods ending after June 15, 2009. The Company adopted the provisions of the pronouncement, as required, and adoptions did not have a material effect on the Company’s consolidated financial statements taken as a whole. | ||
In June 2009 the FASB issued an accounting pronouncement that will be the single source of authoritative non-governmental U.S. GAAP. Rules and interpretative releases of the SEC under authority on federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. This pronouncement is effective for interim and annual periods ending after September 2009. All existing accounting standards are superseded as described in this pronouncement. All other accounting literature not included in this codification is non- authoritative. The adoption of this pronouncement has not had a material impact on the preparation of the Company’s consolidated financial statements. |
32
MICROMEM TECHNOLOGIES INC. |
(A DEVELOPMENT STAGE COMPANY) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
April 30, 2010 and 2009 |
18. | RECONCILIATION BETWEEN CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (“CANADIAN GAAP”) AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (“U.S. GAAP”) (Cont’d) |
g. | Accounting for uncertainty in income taxes | |
FIN 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”), clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes” (“SFAS 109”). The interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides accounting guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The evaluation of tax positions under FIN 48 is a two-step process, whereby (1) the Company determines whether it is more likely than not that the tax positions will be sustained based on the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company would recognize the largest amount of tax benefit that is greater than fifty percent likely of being realized upon ultimate settlement with the related tax authority. The Company has not adopted FIN 48 for Canadian GAAP purposes. Based on the Company’s assessment, the adoption of FIN 48 would not have a significant impact on the Company’s financial statements for purposes of reconciling Canadian GAAP to U.S. GAAP. |
19. | SEGMENTED INFORMATION |
There is one operating segment of the business being the development and commercialization efforts with respect to the Company's proprietary memory and sensor application. There is one predominant market segment being the North American market for such technology. |
33
MICROMEM TECHNOLOGIES INC. |
(A DEVELOPMENT STAGE COMPANY) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in United States dollars) |
April 30, 2010 and 2009 |
20. | SUBSEQUENT EVENTS | |
The following subsequent events are noted as of June 18, 2010: | ||
a) | The Company raised an additional $250,982 through Unit private placements and issued 765,188 Units. | |
b) | The Company extended a total of 1,927,199 stock options for a period of 12 months through May 2011 at the same exercise price of $.72. These options were initially issued to certain senior officers and directors. The Black Scholes cost of extending the options has been calculated at $58,708. | |
c) | The warrants as described in Note 11(d)(ii)(c,d,e) expired unexercised. | |
d) | The management contracts for the President and CFO as outlined in Note 15(c) were extended for a 6 month period through December 31, 2010. |
21. | COMPARATIVE FIGURES |
Certain comparative figures have been reclassified to conform with the current year's financial statement presentation. |
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