ZENTEK LTD.
(FORMERLY ZEN GRAPHENE SOLUTIONS LTD.)
CONDENSED INTERIM FINANCIAL STATEMENTS
For the nine months ended December 31, 2021 and 2020
(Unaudited)
(Expressed in Canadian Dollars)
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 condensed interim financial statements, the statements must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor. The Company's independent auditor has not performed a review of these financial statements in accordance with standards established by the Chartered Professional Accountants of Canada for a review of financial statements by an entity's auditor.
Francis Dube | Brian Bosse |
Executive Chairman | Chief Financial Officer |
ZENTEK LTD.
(FORMERLY ZEN GRAPHENE SOLUTIONS LTD.)
1
ZENTEK LTD.
(FORMERLY ZEN GRAPHENE SOLUTIONS LTD.)
CONDENSED INTERIM UNAUDITED STATEMENTS OF FINANCIAL POSITION
(Stated in Canadian Dollars) | December 31, 2021 $ | March 31, 2021 $ | April 1, 2020 $ | ||||||
ASSETS | (Restated) (Note 2) | (Restated) (Note 2) | |||||||
Current assets | |||||||||
Cash and cash equivalents [note 9] | 3,076,238 | 3,091,549 | 805,947 | ||||||
Amounts and other receivables | 943,138 | 119,349 | 77,537 | ||||||
Inventories [note 3] | 271,040 | - | - | ||||||
Prepaids and deposits | 863,558 | 174,480 | 190,588 | ||||||
Total current assets | 5,153,974 | 3,385,378 | 1,074,072 | ||||||
Non-current assets | |||||||||
Property and equipment [note 4] | 2,304,446 | 705,221 | 99,515 | ||||||
Total non-current assets | 2,304,446 | 705,221 | 99,515 | ||||||
Total assets | 7,458,420 | 4,090,599 | 1,173,587 | ||||||
LIABILITIES | |||||||||
Current liabilities | |||||||||
Accounts payable and accrued liabilities [note 6] | 958,559 | 373,103 | 415,896 | ||||||
Current portion of lease liability [note 8] | 142,189 | 122,452 | - | ||||||
Unit subscriber deposits | - | 2,008,728 | - | ||||||
Deferred premium on flow-through shares | - | 1,884 | 111,679 | ||||||
Total current liabilities | 1,100,748 | 2,506,167 | 527,575 | ||||||
Non-current liabilities | |||||||||
Lease liability [note 8] | 172,812 | 281,873 | - | ||||||
Total non-current liabilities | 172,812 | 281,873 | - | ||||||
Total liabilities | 1,273,560 | 2,788,040 | 527,575 | ||||||
SHAREHOLDERS' EQUITY | |||||||||
Share capital [note 7(a)] | 53,956,670 | 43,801,952 | 40,211,736 | ||||||
Warrants [note 7(b)] | - | 407,264 | 331,415 | ||||||
Share-based payment reserve [note 7(c)] | 5,487,590 | 3,270,399 | 1,599,609 | ||||||
Shares to be issued | - | 472,500 | 472,500 | ||||||
Deficit | (53,259,400 | ) | (46,649,556 | ) | (41,969,248 | ) | |||
Total shareholders' equity | 6,184,860 | 1,302,559 | 646,012 | ||||||
Total shareholders' equity and liabilities | 7,458,420 | 4,090,599 | 1,173,587 | ||||||
Commitments and Contingencies [note 13] | |||||||||
Subsequent Events [note 16] |
See accompanying notes to the condensed interim unaudited financial statements
These financial statements were authorized for issue by the Board of Directors on February 24, 2022.
Approved on behalf of the Board of Directors:
"Eric Wallman" | , Director |
"Brian Bosse" | , Director |
2
ZENTEK LTD.
(FORMERLY ZEN GRAPHENE SOLUTIONS LTD.)
CONDENSED INTERIM UNAUDITED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
(Stated in Canadian Dollars) | Three Months Ended December 31, 2021 $ | Three Months Ended December 31, 2020 $ | Nine Months Ended December 31, 2021 $ | Nine Months Ended December 31, 2020 $ | ||||||||
(Restated) (Note 2) | (Restated) (Note 2) | |||||||||||
REVENUE | 555,097 | - | 705,242 | - | ||||||||
EXPENSES | ||||||||||||
Amortization [note 4] | 120,995 | 14,216 | 271,859 | 29,976 | ||||||||
Consulting fees | 144,572 | 102,500 | 657,661 | 290,252 | ||||||||
Exploration and evaluation expenses | - | 467,104 | 436,916 | 775,985 | ||||||||
General and administrative [notes 10 and 15] | 622,037 | 233,291 | 1,732,449 | 613,682 | ||||||||
Investor relations and promotion | 43,790 | 38,535 | 129,568 | 61,852 | ||||||||
Professional fees | 366,153 | 320,218 | 1,081,191 | 462,023 | ||||||||
Research and development | 162,337 | - | 1,002,444 | - | ||||||||
Stock-based compensation [notes 7(c) and 10] | 985,264 | 1,139,919 | 2,407,089 | 1,312,209 | ||||||||
Supplies and materials | 238,854 | 133,655 | 420,207 | 167,195 | ||||||||
2,684,002 | 2,449,438 | 8,139,384 | 3,713,174 | |||||||||
Loss before the undernoted | (2,128,905 | ) | (2,449,438 | ) | (7,434,142 | ) | (3,713,174 | ) | ||||
Interest and other income | 2,261 | 1,756 | 15,557 | 4,750 | ||||||||
Premium on flow-through shares | - | 49,931 | 1,884 | 96,684 | ||||||||
Government grants | 211,465 | 122,549 | 329,728 | 303,620 | ||||||||
Total other income | 213,726 | 174,236 | 347,169 | 405,054 | ||||||||
Net loss for the period, being total comprehensive loss for the period | (1,915,179 | ) | (2,275,202 | ) | (7,086,973 | ) | (3,308,120 | ) | ||||
Basic and diluted net loss per share [note 14] | 0.02 | 0.03 | 0.08 | 0.04 |
See accompanying notes to the condensed interim unaudited financial statements
3
ZENTEK LTD.
(FORMERLY ZEN GRAPHENE SOLUTIONS LTD.)
CONDENSED INTERIM UNAUDITED STATEMENTS OF CASH FLOWS
Nine Months Ended December 31, 2021 | Nine Months Ended December 31, 2020 | |||||
(Stated in Canadian Dollars) | $ | $ | ||||
(Restated) (Note 2) | ||||||
OPERATING ACTIVITIES | ||||||
Loss for the period | (7,086,973 | ) | (3,308,120 | ) | ||
Items not affecting cash | ||||||
Amortization [note 4] | 271,859 | 29,976 | ||||
Premium on flow-through shares | (1,884 | ) | (96,684 | ) | ||
Non-cash exploration and evaluation expenses | 47,869 | 130,198 | ||||
Stock-based compensation [note 7(c)] | 2,407,089 | 1,312,209 | ||||
(4,362,040 | ) | (1,932,421 | ) | |||
Net change in non-cash working capital balances [note 9] | (1,144,041 | ) | 131,886 | |||
Cash flows from operating activities | (5,506,081 | ) | (1,800,535 | ) | ||
INVESTING ACTIVITIES | ||||||
Purchase of property and equipment | (1,871,084 | ) | (100,329 | ) | ||
Cash flows from investing activities | (1,871,084 | ) | (100,329 | ) | ||
FINANCING ACTIVITIES | ||||||
Units issued [note 7(a)] | 4,337,998 | 2,050,000 | ||||
Unit issue costs [note 7(a)] | (63,364 | ) | (37,661 | ) | ||
Unit subscriber deposits | (2,008,728 | ) | - | |||
Proceeds from stock options exercised [note 7(a)] | 323,267 | 359,666 | ||||
Proceeds from warrants exercised [note 7(a)] | 4,866,415 | 896,291 | ||||
Payments on lease liability | (93,734 | ) | (32,100 | ) | ||
Cash flows from financing activities | 7,361,854 | 3,236,196 | ||||
Change in cash during the period | (15,311 | ) | 1,335,332 | |||
Cash, beginning of period | 3,091,549 | 805,947 | ||||
Cash, end of period | 3,076,238 | 2,141,279 | ||||
Supplementary disclosures - see note 9 |
See accompanying notes to the condensed interim unaudited financial statements
4
ZENTEK LTD.
(FORMERLY ZEN GRAPHENE SOLUTIONS LTD.)
CONDENSED INTERIM UNAUDITED STATEMENTS OF CHANGES IN EQUITY
Number of | Share Capital | Warrants | Share-Based Payment Reserve | Share to be Issued | Deficit | Total Equity | |||||||||||||||
(Stated in Canadian Dollars) | Shares | $ | $ | $ | $ | $ | $ | ||||||||||||||
(Note 2) | |||||||||||||||||||||
Balance as at March 31, 2020 | 80,405,791 | 40,211,736 | 331,415 | 1,599,609 | 472,500 | (41,969,248 | ) | 646,012 | |||||||||||||
Issuance of units [note 7(a)] | 3,416,666 | 1,779,015 | 270,985 | - | - | - | 2,050,000 | ||||||||||||||
Unit issue costs | - | (37,661 | ) | - | - | - | - | (37,661 | ) | ||||||||||||
Issuance of shares for debt [note 7(a)] | 115,711 | 45,200 | - | - | - | - | 45,200 | ||||||||||||||
Stock options exercised [note 7(a)] | 633,333 | 594,333 | - | (234,667 | ) | - | - | 359,666 | |||||||||||||
Warrants exercised [note 7(a)] | 1,465,596 | 1,075,469 | (179,178 | ) | - | - | - | 896,291 | |||||||||||||
Recognition of stock-based compensation [note 7(c)] | - | - | - | 1,442,407 | - | - | 1,442,407 | ||||||||||||||
Stock options expired [note 7(c)] | - | - | - | (283,000 | ) | - | 283,000 | - | |||||||||||||
Net loss and comprehensive loss for the period [note 2] | - | - | - | - | - | (3,308,120 | ) | (3,308,120 | ) | ||||||||||||
Balance as at December 31, 2020 | 86,037,097 | 43,668,092 | 423,222 | 2,524,349 | 472,500 | (44,994,368 | ) | 2,093,795 | |||||||||||||
Balance as at March 31, 2021 | 86,199,849 | 43,801,952 | 407,264 | 3,270,399 | 472,500 | (46,649,556 | ) | 1,302,559 | |||||||||||||
Issuance of units [note 7(a)] | 1,735,199 | 3,589,111 | 748,887 | - | - | - | 4,337,998 | ||||||||||||||
Unit issue costs [note 7(a)] | 15,592 | (44,850 | ) | (18,514 | ) | - | - | - | (63,364 | ) | |||||||||||
Issuance of shares for debt [note 7(a)] | 19,157 | 50,000 | - | - | - | - | 50,000 | ||||||||||||||
Stock options exercised [note 7(a)] | 493,333 | 561,034 | - | (237,767 | ) | - | - | 323,267 | |||||||||||||
Warrants exercised [note 7(a)] | 4,256,064 | 5,999,423 | (1,133,008 | ) | - | - | - | 4,866,415 | |||||||||||||
Recognition of stock-based compensation [note 7(c)] | - | - | - | 2,454,958 | - | - | 2,454,958 | ||||||||||||||
Share purchase warrants expired [note 7(b)] | - | - | (4,629 | ) | - | - | 4,629 | - | |||||||||||||
Reversal of shares to be issued | - | - | - | - | (472,500 | ) | 472,500 | - | |||||||||||||
Net loss and comprehensive loss for the period | - | - | - | - | - | (7,086,973 | ) | (7,086,973 | ) | ||||||||||||
Balance as at December 31, 2021 | 92,719,194 | 53,956,670 | - | 5,487,590 | - | (53,259,400 | ) | 6,184,860 |
See accompanying notes to the condensed interim unaudited financial statements
5 |
ZENTEK LTD. (FORMERLY ZEN GRAPHENE SOLUTIONS LTD.) NOTES TO THE CONDENSED INTERIM UNAUDITED FINANCIAL STATEMENTS |
(Stated in Canadian Dollars) |
1. NATURE OF BUSINESS
Effective October 27, 2021, ZEN Graphene Solutions Ltd. obtained TSX Venture Exchange approval to change its name to Zentek Ltd. (the "Company"). The Company was incorporated on July 29, 2008 under the laws of the province of Ontario, Canada. The principal business of the Company is to develop opportunities in the graphene and related nano-materials industry based on its intellectual property, patents and unique Albany graphite. The address of the Company's executive office is 210 - 1205 Amber Drive, Thunder Bay, Ontario, P7B 6M4, Canada.
The Company is an emerging high-tech nano-graphite and graphene materials company based in Thunder Bay, Ontario, Canada. The current focus is to bring to market innovative products including surgical masks and HVAC filters with the Company's ZENGuard coating, Rapid Detection Point of Care diagnostics tests and continue to develop potential pharmaceutical products based on its patent-pending graphene-based compound.
There has been a global outbreak of COVID-19 (coronavirus), which has had a significant impact on businesses through the restrictions put in place by the Canadian, provincial and municipal governments regarding travel, business operations and isolation/quarantine orders. At this time, it is unknown the extent of the impact the COVID-19 outbreak may have on the Company as this will depend on future developments that are highly uncertain and that cannot be predicted with confidence. These uncertainties arise from the inability to predict the ultimate geographic spread of the disease, and the duration of the outbreak, including the duration of travel restrictions, business closures or disruptions, and quarantine/isolation measures that are currently, or may be put, in place by Canada and other countries to fight the virus.
6 |
ZENTEK LTD. (FORMERLY ZEN GRAPHENE SOLUTIONS LTD.) NOTES TO THE CONDENSED INTERIM UNAUDITED FINANCIAL STATEMENTS |
(Stated in Canadian Dollars) |
2. SIGNIFICANT ACCOUNTING POLICIES
These condensed interim financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") applicable to the preparation of interim financial statements, including International Accounting Standard ("IAS") 34 - Interim Financial Reporting. The accounting policies followed in these condensed interim financial statements were applied on a consistent basis as those applied in the Company's audited annual financial statements for the year ended March 31, 2021, except as noted below.
The condensed interim financial statements do not contain all disclosures required under IFRS and should be read in conjunction with the Company's audited annual financial statements and the notes thereto for the year ended March 31, 2021.
The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities and disclosures of contingent assets and contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates. Significant accounts that require estimates as the basis for determining the stated amounts include exploration and evaluation assets, share-based payments, allocation of financing proceeds and income taxes. Differences may be material.
During the nine month period ended December 31, 2021, the Company began generating operating revenue and carrying inventory. As such, the Company adopted the following significant accounting policies.
Revenue Recognition
Revenue is recognized only when it is probable that the economic benefit associated with the transaction will flow to the Company. However, when an uncertainty arises about the collectability of an amount already included in revenue, the uncollectable amount, or the amount in respect of which recovery has ceased to be probable, it is recognized as an expense, rather than as an adjustment of the amount of revenue originally recognized. The Company's main source of revenue consists of supplying anti-microbial coating to the customer. Each revenue transaction consists of two main components: 1) a fixed price upon the customer's ordering of the product; and 2) a variable price upon the customer's sale of the product to third parties. Revenue is recognized once the product is delivered to the customer, the amount to be received can be reasonably estimated and collection is reasonably assured.
Inventories
Inventories are comprised of raw materials. Inventories are recorded at the lower of cost and net realizable value. Cost is determined on a standard cost basis, and includes the purchase price and other costs, such as import duties, taxes and transportation costs. Inventory cost is determined on a first-in, first-out basis and any trade discounts and rebates are deducted from the purchase price. Raw material costs include the purchase cost of the materials and freight-in.
7 |
ZENTEK LTD. (FORMERLY ZEN GRAPHENE SOLUTIONS LTD.) NOTES TO THE CONDENSED INTERIM UNAUDITED FINANCIAL STATEMENTS |
(Stated in Canadian Dollars) |
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
New Accounting Standards and Interpretations not yet Adopted
Certain pronouncements were issued by the IASB or the International Financial Reporting Interpretations Committee ("IFRIC") that are mandatory for accounting periods beginning on or after April 1, 2022 or later periods. Many are not applicable or do not have a significant impact to the Company and have been excluded. The following have not yet been adopted and are being evaluated to determine their impact on the Company.
IAS 1 - Presentation of Financial Statements ("IAS 1") was amended in January 2020 to provide a more general approach to the classification of liabilities under IAS 1 based on the contractual arrangements in place at the reporting date. The amendments clarify that the classification of liabilities as current or noncurrent is based solely on a company's right to defer settlement at the reporting date. The right needs to be unconditional and must have substance. The amendments also clarify that the transfer of a company's own equity instruments is regarded as settlement of a liability, unless it results from the exercise of a conversion option meeting the definition of an equity instrument. The amendments are effective for annual periods beginning on January 1, 2023.
IAS 37 - Provisions, Contingent Liabilities, and Contingent Assets ("IAS 37") was amended. The amendments clarify that when assessing if a contract is onerous, the cost of fulfilling the contract includes all costs that relate directly to the contract - i.e. a full-cost approach. Such costs include both the incremental costs of the contract (i.e. costs a company would avoid if it did not have the contract) and an allocation of other direct costs incurred on activities required to fulfill the contract - e.g. contract management and supervision, or depreciation of equipment used in fulfilling the contract. The amendments are effective for annual periods beginning on January 1, 2022.
IAS 16 - Property, Plant and Equipment ("IAS 16") was amended. The amendments introduce new guidance, such that the proceeds from selling items before the related property, plant and equipment is available for its intended use can no longer be deducted from the cost. Instead, such proceeds are to be recognized in profit or loss, together with the costs of producing those items. The amendments are effective for annual periods beginning on January 1, 2022.
Change in Accounting Policy and Restatement
During the nine month period ended December 31, 2021, the Company changed its accounting policy of capitalizing exploration and evaluation expenditures. The Company believes that expensing such costs as incurred provides more reliable and relevant financial information. Cost of exploration properties, including the cost of acquiring prospective properties and mineral rights, and exploration and evaluation costs are expensed until it has been established that a mineral property is commercially viable. Previously, the Company capitalized these amounts. The financial statements for the three and nine month periods ended December 31, 2020 and as at March 31, 2021 and April 1, 2020 have been restated to reflect adjustments made as a result of this change in accounting policy.
The following is a reconciliation of the Company's financial statements as at April 1, 2020 and March 31, 2021 and for the three and nine month periods ended December 31, 2020.
8 |
ZENTEK LTD. (FORMERLY ZEN GRAPHENE SOLUTIONS LTD.) NOTES TO THE CONDENSED INTERIM UNAUDITED FINANCIAL STATEMENTS |
(Stated in Canadian Dollars) |
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Change in Accounting Policy (continued)
Statement of Financial Position
April 1, 2020 as previously reported $ | Adjustment $ | April 1, 2020 as restated $ | |||||||
ASSETS | |||||||||
Current assets | |||||||||
Cash | 805,947 | - | 805,947 | ||||||
Amounts and other receivables | 77,537 | - | 77,537 | ||||||
Prepaids and deposits | 190,588 | - | 190,588 | ||||||
Total current assets | 1,074,072 | - | 1,074,072 | ||||||
Non-current assets | |||||||||
Property and equipment | 99,515 | - | 99,515 | ||||||
Exploration and evaluation assets | 25,065,071 | (25,065,071 | ) | - | |||||
Total non-current assets | 25,164,586 | (25,065,071 | ) | 99,515 | |||||
Total assets | 26,238,658 | (25,065,071 | ) | 1,173,587 | |||||
LIABILITIES | |||||||||
Current liabilities | |||||||||
Accounts payable and accrued liabilities | 415,896 | - | 415,896 | ||||||
Deferred premium on flow-through shares | 111,679 | - | 111,679 | ||||||
Total liabilities | 527,575 | - | 527,575 | ||||||
SHAREHOLDERS' EQUITY | |||||||||
Share capital | 40,211,736 | - | 40,211,736 | ||||||
Warrants | 331,415 | - | 331,415 | ||||||
Share-based payment reserve | 1,599,609 | - | 1,599,609 | ||||||
Shares to be issued | 472,500 | - | 472,500 | ||||||
Deficit | (16,904,177 | ) | (25,065,071 | ) | (41,969,248 | ) | |||
Total shareholders' equity | 25,711,083 | (25,065,071 | ) | 646,012 | |||||
Total shareholders' equity and liabilities | 26,238,658 | (25,065,071 | ) | 1,173,587 |
9 |
ZENTEK LTD. (FORMERLY ZEN GRAPHENE SOLUTIONS LTD.) NOTES TO THE CONDENSED INTERIM UNAUDITED FINANCIAL STATEMENTS |
(Stated in Canadian Dollars) |
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Change in Accounting Policy (continued)
Statement of Financial Position
March 31, 2021 as previously reported $ | Adjustment $ | March 31, 2021 as restated $ | |||||||
ASSETS | |||||||||
Current assets | |||||||||
Cash | 3,091,549 | - | 3,091,549 | ||||||
Amounts and other receivables | 119,349 | - | 119,349 | ||||||
Prepaids and deposits | 174,480 | - | 174,480 | ||||||
Total current assets | 3,385,378 | - | 3,385,378 | ||||||
Non-current assets | |||||||||
Property and equipment | 705,221 | - | 705,221 | ||||||
Exploration and evaluation assets | 26,159,729 | (26,159,729 | ) | - | |||||
Total non-current assets | 26,864,950 | (26,159,729 | ) | 705,221 | |||||
Total assets | 30,250,328 | (26,159,729 | ) | 4,090,599 | |||||
LIABILITIES | |||||||||
Current liabilities | |||||||||
Accounts payable and accrued liabilities | 373,103 | - | 373,103 | ||||||
Current portion of lease liability | 122,452 | - | 122,452 | ||||||
Unit subscriber deposits | 2,008,728 | - | 2,008,728 | ||||||
Deferred premium on flow-through shares | 1,884 | - | 1,884 | ||||||
Total current liabilities | 2,506,167 | - | 2,506,167 | ||||||
Non-current liabilities | |||||||||
Lease liability | 281,873 | - | 281,873 | ||||||
Total non-current liabilities | 281,873 | - | 281,873 | ||||||
Total liabilities | 2,788,040 | - | 2,788,040 | ||||||
SHAREHOLDERS' EQUITY | |||||||||
Share capital | 43,801,952 | - | 43,801,952 | ||||||
Warrants | 407,264 | - | 407,264 | ||||||
Share-based payment reserve | 3,270,399 | - | 3,270,399 | ||||||
Shares to be issued | 472,500 | - | 472,500 | ||||||
Deficit | (20,489,827 | ) | (26,159,729 | ) | (46,649,556 | ) | |||
Total shareholders' equity | 27,462,288 | (26,159,729 | ) | 1,302,559 | |||||
Total shareholders' equity and liabilities | 30,250,328 | (26,159,729 | ) | 4,090,599 |
10 |
ZENTEK LTD. (FORMERLY ZEN GRAPHENE SOLUTIONS LTD.) NOTES TO THE CONDENSED INTERIM UNAUDITED FINANCIAL STATEMENTS |
(Stated in Canadian Dollars) |
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Change in Accounting Policy (continued)
Statement of Loss and Comprehensive Loss
Three months ended December 31, 2020 as previously reported | Adjustment | Three months ended December 31, 2020 as restated | |||||||
$ | $ | $ | |||||||
EXPENSES | |||||||||
Amortization | 14,216 | - | 14,216 | ||||||
Consulting fees | 102,500 | - | 102,500 | ||||||
Exploration and evaluation expenses | - | 467,104 | 467,104 | ||||||
General and administrative | 233,291 | - | 233,291 | ||||||
Investor relations and promotion | 38,535 | - | 38,535 | ||||||
Professional fees | 320,218 | - | 320,218 | ||||||
Stock-based compensation | 1,139,919 | - | 1,139,919 | ||||||
Supplies and materials | 133,655 | - | 133,655 | ||||||
1,982,334 | 467,104 | 2,449,438 | |||||||
Loss before the undernoted | 1,982,334 | 467,104 | 2,449,438 | ||||||
Interest and other income | 1,756 | - | 1,756 | ||||||
Premium on flow-through shares | 49,931 | - | 49,931 | ||||||
Government grants | 82,220 | 40,329 | 122,549 | ||||||
Total other income | 133,907 | 40,329 | 174,236 | ||||||
Net loss for the period, being total comprehensive loss for the period | (1,848,427 | ) | (426,775 | ) | (2,275,202 | ) | |||
Basic and diluted net loss per share | 0.02 | 0.03 |
11 |
ZENTEK LTD. (FORMERLY ZEN GRAPHENE SOLUTIONS LTD.) NOTES TO THE CONDENSED INTERIM UNAUDITED FINANCIAL STATEMENTS |
(Stated in Canadian Dollars) |
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Change in Accounting Policy (continued)
Statement of Loss and Comprehensive Loss
Nine months ended December 31, 2020 as previously reported $ | Adjustment $ | Nine months ended December 31, 2020 as restated $ | |||||||
EXPENSES | |||||||||
Amortization | 29,976 | - | 29,976 | ||||||
Consulting fees | 290,252 | - | 290,252 | ||||||
Exploration and evaluation expenses | - | 775,985 | 775,985 | ||||||
General and administrative | 613,682 | - | 613,682 | ||||||
Investor relations and promotion | 61,852 | - | 61,852 | ||||||
Professional fees | 462,023 | - | 462,023 | ||||||
Stock-based compensation | 1,312,209 | - | 1,312,209 | ||||||
Supplies and materials | 167,195 | - | 167,195 | ||||||
2,937,189 | 775,985 | 3,713,174 | |||||||
Loss before the undernoted | 2,937,189 | 775,985 | 3,713,174 | ||||||
Interest and other income | 4,750 | - | 4,750 | ||||||
Premium on flow-through shares | 96,684 | - | 96,684 | ||||||
Government grants | 196,172 | 107,448 | 303,620 | ||||||
Total other income | 297,606 | 107,448 | 405,054 | ||||||
Net loss for the period, being total comprehensive loss for the period | (2,639,583 | ) | (668,537 | ) | (3,308,120 | ) | |||
Basic and diluted net loss per share | 0.03 | 0.04 |
12 |
ZENTEK LTD. (FORMERLY ZEN GRAPHENE SOLUTIONS LTD.) NOTES TO THE CONDENSED INTERIM UNAUDITED FINANCIAL STATEMENTS |
(Stated in Canadian Dollars) |
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Change in Accounting Policy (continued)
Statement of Cash Flows
Nine months ended December 31, 2020 as previously reported | Adjustment | Nine months ended December 31, 2020 as restated | |||||||
$ | $ | $ | |||||||
OPERATING ACTIVITIES | |||||||||
Loss for the period | (2,639,583 | ) | (668,537 | ) | (3,308,120 | ) | |||
Items not affecting cash | |||||||||
Amortization | 29,976 | - | 29,976 | ||||||
Premium on flow-through shares | (96,684 | ) | - | (96,684 | ) | ||||
Non-cash exploration and evaluation expenses | - | 130,198 | 130,198 | ||||||
Stock-based compensation | 1,312,209 | - | 1,312,209 | ||||||
(1,394,082 | ) | (538,339 | ) | (1,932,421 | ) | ||||
Net change in non-cash working capital balances | 87,791 | 44,095 | 131,886 | ||||||
Cash flows from operating activities | (1,306,291 | ) | (494,244 | ) | (1,800,535 | ) | |||
INVESTING ACTIVITIES | |||||||||
Mineral exploration and evaluation expenditures | (601,692 | ) | 601,692 | - | |||||
Government assistance received | 107,448 | (107,448 | ) | - | |||||
Purchase of equipment | (100,329 | ) | - | (100,329 | ) | ||||
Cash flows from investing activities | (594,573 | ) | 494,244 | (100,329 | ) | ||||
FINANCING ACTIVITIES | |||||||||
Units issued | 2,050,000 | - | 2,050,000 | ||||||
Unit issue costs | (37,661 | ) | - | (37,661 | ) | ||||
Proceeds from stock options exercised | 359,666 | - | 359,666 | ||||||
Proceeds from warrants exercised | 896,291 | - | 896,291 | ||||||
Payments on lease liability | (32,100 | ) | (32,100 | ) | |||||
Cash flows from financing activities | 3,236,196 | - | 3,236,196 | ||||||
Change in cash during the period | 1,335,332 | - | 1,335,332 | ||||||
Cash, beginning of period | 805,947 | - | 805,947 | ||||||
Cash, end of period | 2,141,279 | - | 2,141,279 |
3. INVENTORIES
December 31, 2021 | March 31, 2021 | |||||
$ | $ | |||||
Raw materials | 271,040 | - |
13 |
ZENTEK LTD. (FORMERLY ZEN GRAPHENE SOLUTIONS LTD.) NOTES TO THE CONDENSED INTERIM UNAUDITED FINANCIAL STATEMENTS |
(Stated in Canadian Dollars) |
4. PROPERTY AND EQUIPMENT
For the nine months ended December 31, 2021
Cost | Balance at March 31 2021 $ | Additions $ | Disposals $ | Balance at December 31 2021 $ | ||||||||||
Equipment - Automotive | 1,439 | - | - | 1,439 | ||||||||||
Equipment - Office | 15,799 | 10,610 | - | 26,409 | ||||||||||
Equipment - Lab and Field | 251,699 | 315,001 | - | 566,700 | ||||||||||
Computers | 51,151 | 45,625 | - | 96,776 | ||||||||||
Computer software | 19,846 | 18,544 | - | 38,390 | ||||||||||
Signage | 4,917 | - | - | 4,917 | ||||||||||
Leasehold improvements | 111,190 | 110,286 | - | 221,476 | ||||||||||
Asset under construction (i) | - | 1,371,018 | - | 1,371,018 | ||||||||||
Right-of-Use Asset - building (ii) | 478,223 | - | - | 478,223 | ||||||||||
Total | 934,264 | 1,871,084 | - | 2,805,348 |
Accumulated amortization | Balance at | Amortization | Balance at | |||||||||
March 31 | for the | December 31 | ||||||||||
2021 | period | Disposals | 2021 | |||||||||
$ | $ | $ | $ | |||||||||
Equipment - Automotive | 1,325 | 17 | - | 1,342 | ||||||||
Equipment - Office | 14,501 | 1,786 | - | 16,287 | ||||||||
Equipment - Lab and Field | 89,881 | 71,522 | - | 161,403 | ||||||||
Computers | 38,890 | 8,683 | - | 47,573 | ||||||||
Computer software | 19,846 | 13,908 | - | 33,754 | ||||||||
Signage | 1,770 | 472 | - | 2,242 | ||||||||
Leasehold improvements | 37,063 | 55,369 | - | 92,432 | ||||||||
Right-of-Use Asset - building (ii) | 25,767 | 120,102 | - | 145,869 | ||||||||
Total | 229,043 | 271,859 | - | 500,902 |
Carrying amounts | At | At | |||
March 31, | December 31, | ||||
2021 | 2021 | ||||
$ | $ | ||||
Equipment - Automotive | 114 | 97 | |||
Equipment - Office | 1,298 | 10,122 | |||
Equipment - Lab and Field | 161,818 | 405,297 | |||
Computers | 12,261 | 49,203 | |||
Computer software | - | 4,636 | |||
Signage | 3,147 | 2,675 | |||
Leasehold improvements | 74,127 | 129,044 | |||
Asset under construction (i) | - | 1,371,018 | |||
Right-of-Use Asset - building (ii) | 452,456 | 332,354 | |||
Total | 705,221 | 2,304,446 |
14 |
ZENTEK LTD. (FORMERLY ZEN GRAPHENE SOLUTIONS LTD.) NOTES TO THE CONDENSED INTERIM UNAUDITED FINANCIAL STATEMENTS |
(Stated in Canadian Dollars) |
4. PROPERTY AND EQUIPMENT (continued)
For the year ended March 31, 2021
Cost | Balance at March 31 2020 $ | Additions $ | Disposals $ | Balance at March 31 2021 $ | |||||||||||
Equipment - Automotive | 1,439 | - | - | 1,439 | |||||||||||
Equipment - Office | 15,799 | - | - | 15,799 | |||||||||||
Equipment - Lab and Field | 129,939 | 121,760 | - | 251,699 | |||||||||||
Computers | 49,127 | 2,024 | - | 51,151 | |||||||||||
Computer software | 538 | 19,308 | - | 19,846 | |||||||||||
Signage | 4,917 | - | - | 4,917 | |||||||||||
Leasehold improvements | - | 111,190 | - | 111,190 | |||||||||||
Right-of-Use Asset - building (ii) | - | 478,223 | - | 478,223 | |||||||||||
Total | 201,759 | 732,505 | - | 934,264 |
Accumulated amortization | Balance at | Amortization | Balance at | |||||||||
March 31 | for the | March 31 | ||||||||||
2020 | year | Disposals | 2021 | |||||||||
$ | $ | $ | $ | |||||||||
Equipment - Automotive | 1,296 | 29 | - | 1,325 | ||||||||
Equipment - Office | 14,177 | 324 | - | 14,501 | ||||||||
Equipment - Lab and Field | 49,426 | 40,455 | - | 89,881 | ||||||||
Computers | 35,824 | 3,066 | - | 38,890 | ||||||||
Computer software | 538 | 19,308 | - | 19,846 | ||||||||
Signage | 983 | 787 | - | 1,770 | ||||||||
Leasehold improvements | - | 37,063 | - | 37,063 | ||||||||
Right-of-Use Asset - building (ii) | - | 25,767 | - | 25,767 | ||||||||
Total | 102,244 | 126,799 | - | 229,043 |
Carrying amounts | At March 31, | At March 31, | ||||
2020 | 2021 | |||||
$ | $ | |||||
Equipment - Automotive | 143 | 114 | ||||
Equipment - Office | 1,622 | 1,298 | ||||
Equipment - Lab and Field | 80,513 | 161,818 | ||||
Computers | 13,303 | 12,261 | ||||
Computer software | - | - | ||||
Signage | 3,934 | 3,147 | ||||
Leasehold improvements | - | 74,127 | ||||
Right-of-Use Asset - building (ii) | - | 452,456 | ||||
Total | 99,515 | 705,221 |
15 |
ZENTEK LTD. (FORMERLY ZEN GRAPHENE SOLUTIONS LTD.) NOTES TO THE CONDENSED INTERIM UNAUDITED FINANCIAL STATEMENTS |
(Stated in Canadian Dollars) |
4. PROPERTY AND EQUIPMENT (continued)
(i) The Company's asset under construction relates to costs incurred for the design and development of a silver-graphene oxide pilot plant. No amortization has been recorded on this asset as it is not yet available for use.
(ii) The Company's right-of-use leased asset includes its manufacturing facility located in Guelph, Ontario. It is the Company's policy to amortize the right-of-use asset using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. Amortization expense on this leased asset for the nine months ended December 31, 2021 was $120,102 (2020: $nil).
5. EXPLORATION AND EVALUATION PROPERTY
The 100%-owned Albany Graphite Deposit (the "Albany Property") is located in Northern Ontario, Canada. An NI 43-101 Technical Report on the Preliminary Economic Assessment of the Albany Project was completed in July 2015.
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
December 31, 2021 $ | March 31, 2021 $ | |||||
Trade payables | 933,559 | 348,103 | ||||
Accrued liabilities | 25,000 | 25,000 | ||||
958,559 | 373,103 |
16 |
ZENTEK LTD. (FORMERLY ZEN GRAPHENE SOLUTIONS LTD.) NOTES TO THE CONDENSED INTERIM UNAUDITED FINANCIAL STATEMENTS |
(Stated in Canadian Dollars) |
7. SHARE CAPITAL
(a) Share Capital
The Company is authorized to issue an unlimited number of common shares, with no par value.
During the nine month period ended December 31, 2021, the Company completed the following share capital transactions:
On April 8, 2021, the Company completed a private placement in which a total of 1,735,199 units were issued at $2.50 per unit for gross proceeds of $4,337,998. Each unit consisted of one common share and one-half of one common share purchase warrant with each whole warrant exercisable at $3.00 for a period of two years. Unit issue costs associated with this private placement totaled $102,343 of which $38,979 was settled through the issuance of 15,592 shares.
A total of 493,333 common shares were issued upon exercise of 493,333 stock options at exercise prices ranging from $0.40 to $0.72 per option for total proceeds of $323,267. The carrying value of the options, being $237,767, was removed from Share-based payment reserve and added to share capital.
A total of 4,256,064 common shares were issued upon exercise of 4,256,064 warrants at exercise prices ranging from $0.50 to $3.00 per warrant for total proceeds of $4,865,994. The carrying value of the warrants, being $1,133,429, was removed from warrants and added to share capital.
On December 9, 2021, pursuant to a licensing agreement, the Company issued 19,157 common shares to a trade creditor at an agreed upon price of $2.61 per common share in settlement of amounts owing.
During the nine month period ended December 31, 2020, the Company completed the following share capital transactions:
On June 26, 2020 and July 6, 2020, in a private placement, a total of 3,416,666 units were issued at $0.60 per unit for gross proceeds of $2,050,000. Each unit consisted of one common share and one-half of one common share purchase warrant with each whole warrant exercisable at $0.80 for a period of two years. Share issue costs associated with this private placement totaled $37,661.
On August 19, 2020, pursuant to a shares for debt agreement, the Company issued 115,711 common shares to a trade creditor at a variable agreed upon price of between $0.34 and $0.59 per common share in settlement of various amounts owing. There was no gain or loss as a result of this debt settlement.
A total of 633,333 common shares were issued upon exercise of 633,333 stock options at exercise prices ranging from $0.53 to $0.72 per option for total proceeds of $359,666. The carrying value of the options, being $234,667, was removed from Share-based payment reserve and added to share capital.
A total of 1,465,596 common shares were issued upon exercise of 1,465,596 warrants at exercise prices ranging from $0.50 to $0.80 per warrant for total proceeds of $896,291. The carrying value of the warrants, being $179,178, was removed from warrants and added to share capital.
17 |
ZENTEK LTD. (FORMERLY ZEN GRAPHENE SOLUTIONS LTD.) NOTES TO THE CONDENSED INTERIM UNAUDITED FINANCIAL STATEMENTS |
(Stated in Canadian Dollars) |
7. SHARE CAPITAL (continued)
(b) Share Purchase Warrants
The Company had no share purchase warrants outstanding as of December 31, 2021.
The following is a summary of warrants activity for the periods ended December 31, 2021 and March 31, 2021:
Nine months ended December 31, 2021 | Year ended March 31, 2021 | |||||||||||
Weighted | Weighted | |||||||||||
average | average | |||||||||||
Number | exercise price | Number | exercise price | |||||||||
$ | $ | |||||||||||
Balance, beginning of period | 3,393,965 | 0.67 | 3,293,976 | 0.58 | ||||||||
Granted | 867,598 | 3.00 | 1,708,337 | 0.80 | ||||||||
Exercised | (4,256,064 | ) | 1.14 | (1,608,348 | ) | 0.62 | ||||||
Expired | (5,499 | ) | 3.00 | - | - | |||||||
Balance, end of period | - | - | 3,393,965 | 0.67 |
On April 8, 2021, the Company issued 867,598 share purchase warrants as part of a private placement financing with an exercise price of $3.00 and an expiry date of April 8, 2023. The expiry date was accelerated to November 3, 2021. The grant date fair value of these warrants was $0.84. The fair value of these warrants was estimated on the grant date using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 97%; risk-free interest rate of 0.31%; and expected life of 2 years.
On June 26, 2020 and July 6, 2020, the Company issued 1,708,337 share purchase warrants as part of a private placement financing with an exercise price of $0.80 and an expiry date of June 26, 2022. The expiry date was accelerated to November 3, 2021. The grant date fair value of these warrants was $0.16. The fair value of these warrants was estimated on the grant date using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 79%; risk-free interest rate of 0.30%; and expected life of 2 years.
On December 19, 2019, the Company issued 137,100 share purchase warrants as part of the share issue costs related to a private placement financing with an exercise price of $0.50 and an expiry date of December 19, 2021. The grant date fair value of these warrants was $0.10. The fair value of these warrants was estimated on the grant date using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 73%; risk-free interest rate of 1.67%; and expected life of 2 years.
18 |
ZENTEK LTD. (FORMERLY ZEN GRAPHENE SOLUTIONS LTD.) NOTES TO THE CONDENSED INTERIM UNAUDITED FINANCIAL STATEMENTS |
(Stated in Canadian Dollars) |
7. SHARE CAPITAL (continued)
(c) Stock Options and Share-Based Payment Reserve
The Company has a stock option plan (the "Plan") for directors, officers, employees and consultants. The Plan authorizes the granting of options to purchase up to a maximum of 10% of the issued and outstanding common shares at the time of grant, of which 7,498,334 options are outstanding as at December 31, 2021.
The Plan provides that:
a) any options granted pursuant to the Plan shall expire no later than ten years after the date of grant;
b) any options granted pursuant to the Plan shall be non-assignable and non-transferable;
c) the number of common shares issuable pursuant to the Plan to any one person in any 12-month period shall not exceed 5% of the outstanding common shares;
d) the number of common shares issuable pursuant to the Plan to any one consultant in any 12-month period may not exceed 2% of the outstanding common shares;
e) the number of common shares issuable pursuant to the Plan to persons employed in investor relation activities may not exceed 2% of the outstanding common shares in any 12-month period.
f) the Plan provides that options shall expire and terminate 90 days following the date the optionee ceases to be an employee, director or officer of, or consultant to, the Company, provided that if such termination is as a result of death of the optionee, the optionee's personal representative shall have one year to exercise such options.
g) the number of common shares: (1) reserved for issuance to insiders of the Company may not exceed 10% of the issued and outstanding common shares; and (2) which may be issued to insiders within a one-year period may not exceed 10% of the issued and outstanding common shares.
h) the Plan provides that options granted under the Plan shall vest in the optionee, and may be exercisable by the optionee under certain vesting terms.
During the nine month period ended December 31, 2021, the Company issued the following stock options:
On April 13, 2021, the Company issued 50,000 stock options to a consultant with an exercise price of $1.76 per share and an expiry date of April 13, 2023. The grant date fair value of these stock options was $0.92. The fair value of these options was estimated on the grant date using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 100%; expected forfeiture rate of 0%; risk-free interest rate of 0.31%; and expected life of 2 years. The vesting period of the options granted to the consultant is as follows: 100% at August 13, 2021.
On April 13, 2021, the Company issued 50,000 stock options to an employee with an exercise price of $1.76 per share and an expiry date of April 13, 2026. The grant date fair value of these stock options was $1.16. The fair value of these options was estimated on the grant date using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 85%; expected forfeiture rate of 0%; risk-free interest rate of 0.31%; and expected life of 5 years. The vesting period of the options granted to the employee is as follows: 1/3 at April 13, 2021; 1/3 at April 13, 2022; 1/3 at April 13, 2023.
On June 30, 2021, the Company issued 150,000 stock options to a consultant with an exercise price of $3.50 per share and an expiry date of June 30, 2024. The grant date fair value of these stock options was $2.01. The fair value of these options was estimated on the grant date using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 93%; expected forfeiture rate of 0%; risk-free interest rate of 0.45%; and expected life of 3 years. The vesting period of the options granted to the consultant is as follows: 1/3 at June 30, 2021; 1/3 at June 30, 2022; 1/3 at June 30, 2023.
19 |
ZENTEK LTD. (FORMERLY ZEN GRAPHENE SOLUTIONS LTD.) NOTES TO THE CONDENSED INTERIM UNAUDITED FINANCIAL STATEMENTS |
(Stated in Canadian Dollars) |
7. SHARE CAPITAL (continued)
(c) Stock Options and Share-Based Payment Reserve (continued)
On July 23, 2021, the Company issued 25,000 stock options to an employee with an exercise price of $3.10 per share and an expiry date of July 23, 2024. The grant date fair value of these stock options was $1.75. The fair value of these options was estimated on the grant date using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 91%; expected forfeiture rate of 0%; risk-free interest rate of 0.45%; and expected life of 3 years. The vesting period of the options granted to the employee is as follows: 1/3 at July 23, 2021; 1/3 at July 23, 2022; 1/3 at July 23, 2023.
On September 3, 2021, the Company issued 100,000 stock options to numerous employees with an exercise price of $3.69 per share and an expiry date of September 3, 2024. The grant date fair value of these stock options was $2.12. The fair value of these options was estimated on the grant date using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 91%; expected forfeiture rate of 0%; risk-free interest rate of 0.53%; and expected life of 3 years. The vesting period of the options granted to the employees is as follows: 1/3 at September 3, 2021; 1/3 at March 3, 2022; 1/3 at September 3, 2022.
On September 21, 2021, the Company issued 120,000 stock options to a consultant with an exercise price of $4.08 per share and an expiry date of September 21, 2024. The grant date fair value of these stock options was $2.31. The fair value of these options was estimated on the grant date using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 91%; expected forfeiture rate of 0%; risk-free interest rate of 0.53%; and expected life of 3 years. The vesting period of the options granted to the consultant is as follows: 1/3 at September 21, 2021; 1/3 at September 21, 2022; 1/3 at September 21, 2023.
On October 13, 2021, the Company issued 100,000 stock options to numerous employees with an exercise price of $4.92 per share and an expiry date of October 13, 2024. The grant date fair value of these stock options was $2.84. The fair value of these options was estimated on the grant date using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 91%; expected forfeiture rate of 0%; risk-free interest rate of 1.07%; and expected life of 3 years. The vesting period of the options granted to the employees is as follows: 1/3 at October 13, 2021; 1/3 at October 13, 2022; 1/3 at October 13, 2023.
On October 26, 2021, the Company issued 50,000 stock options to an employee with an exercise price of $4.77 per share and an expiry date of October 26, 2024. The grant date fair value of these stock options was $2.75. The fair value of these options was estimated on the grant date using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 91%; expected forfeiture rate of 0%; risk-free interest rate of 1.07%; and expected life of 3 years. The vesting period of the options granted to the employee is as follows: 1/3 at October 26, 2021; 1/3 at October 26, 2022; 1/3 at October 26, 2023.
On November 1, 2021, the Company issued 100,000 stock options to numerous consultants with an exercise price of $5.67 per share and an expiry date of November 1, 2024. The grant date fair value of these stock options was $3.21. The fair value of these options was estimated on the grant date using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 89%; expected forfeiture rate of 0%; risk-free interest rate of 1.05%; and expected life of 3 years. The vesting period of the options granted to the consultants is as follows: 1/3 at November 1, 2021; 1/3 at November 1, 2022; 1/3 at November 1, 2023.
20 |
ZENTEK LTD. (FORMERLY ZEN GRAPHENE SOLUTIONS LTD.) NOTES TO THE CONDENSED INTERIM UNAUDITED FINANCIAL STATEMENTS |
(Stated in Canadian Dollars) |
7. SHARE CAPITAL (continued)
(c) Stock Options and Share-Based Payment Reserve (continued)
On December 15, 2021, the Company issued 25,000 stock options to an employee with an exercise price of $5.20 per share and an expiry date of December 15, 2026. The grant date fair value of these stock options was $3.39. The fair value of these options was estimated on the grant date using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 82%; expected forfeiture rate of 0%; risk-free interest rate of 0.99%; and expected life of 5 years. The vesting period of the options granted to the employee is as follows: 1/3 at December 15, 2021; 1/3 at December 15, 2022; 1/3 at December 15, 2023.
On December 29, 2021, the Company issued 200,000 stock options to an employee and a consultant with an exercise price of $5.22 per share and an expiry date of December 29, 2024. The grant date fair value of these stock options was $2.96. The fair value of these options was estimated on the grant date using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 89%; expected forfeiture rate of 0%; risk-free interest rate of 0.99%; and expected life of 3 years. The vesting period of the options granted to the employee is as follows: 1/3 at December 29, 2021; 1/3 at June 29, 2022; 1/3 at December 29, 2022. The vesting period of the options granted to the consultant is as follows: 1/3 at December 29, 2021; 1/3 at December 29, 2022; 1/3 at December 29, 2023.
During the nine month period ended December 31, 2020, the Company issued the following stock options:
On May 8, 2020, the Company issued 600,000 stock options to a number of directors, officers, employees and consultants with an exercise price of $0.40 per share and an expiry date of May 8, 2025. The grant date fair value of these stock options was $0.22. The fair value of these options was estimated on the grant date using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 75%; expected forfeiture rate of 0%; risk-free interest rate of 0.30%; and expected life of 5 years. The vesting period of the options granted to directors is as follows: 1/3 at May 8, 2020; 1/3 at November 8, 2020; 1/3 at May 8, 2021. The vesting period of the options granted to the officers, employees and consultants is as follows: 1/3 at May 8, 2020; 1/3 at May 8, 2021; 1/3 at May 8, 2022.
On May 16, 2020, the Company issued 100,000 stock options to a consultant with an exercise price of $0.40 per share and an expiry date of May 16, 2025. The grant date fair value of these stock options was $0.24. The fair value of these options was estimated on the grant date using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 75%; expected forfeiture rate of 0%; risk-free interest rate of 0.30%; and expected life of 5 years. The vesting period of the options granted to the consultant is as follows: 1/3 at May 16, 2020; 1/3 at November 16, 2020; 1/3 at May 16, 2021.
On July 6, 2020, the Company issued 100,000 stock options to a consultant with an exercise price of $0.68 per share and an expiry date of July 6, 2025. The grant date fair value of these stock options was $0.41. The fair value of these options was estimated on the grant date using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 75%; expected forfeiture rate of 0%; risk-free interest rate of 0.26%; and expected life of 5 years. The vesting period of the options granted to the consultant is as follows: 1/3 at July 6, 2020; 1/3 at July 6, 2021; 1/3 at July 6, 2022.
21 |
ZENTEK LTD. (FORMERLY ZEN GRAPHENE SOLUTIONS LTD.) NOTES TO THE CONDENSED INTERIM UNAUDITED FINANCIAL STATEMENTS |
(Stated in Canadian Dollars) |
7. SHARE CAPITAL (continued)
(c) Stock Options and Share-Based Payment Reserve (continued)
On July 24, 2020, the Company issued 150,000 stock options to a consultant with an exercise price of $0.63 per share and an expiry date of July 24, 2025. The grant date fair value of these stock options was $0.38. The fair value of these options was estimated on the grant date using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 75%; expected forfeiture rate of 0%; risk-free interest rate of 0.26%; and expected life of 5 years. The vesting period of the options granted to the consultant is as follows: 1/3 at July 24, 2020; 1/3 at July 24, 2021; 1/3 at July 24, 2022.
On October 6, 2020, the Company issued 400,000 stock options to a number of directors with an exercise price of $0.75 per share and an expiry date of October 6, 2025. The grant date fair value of these stock options was $0.45. The fair value of these options was estimated on the grant date using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 79%; expected forfeiture rate of 0%; risk-free interest rate of 0.24%; and expected life of 5 years. The vesting period of the options granted to the directors is as follows: 1/3 at October 6, 2020; 1/3 at April 6, 2021; 1/3 at October 6, 2021.
On November 24, 2020, the Company issued 75,000 stock options to a consultant with an exercise price of $1.77 per share and an expiry date of November 24, 2025. The grant date fair value of these stock options was $1.14. The fair value of these options was estimated on the grant date using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 82%; expected forfeiture rate of 0%; risk-free interest rate of 0.27%; and expected life of 5 years. The vesting period of the options granted to the consultant is as follows: 1/2 at November 24, 2020; 1/2 at May 24, 2021.
On December 9, 2020, the Company issued 250,000 stock options to a number of consultants with an exercise price of $1.64 per share and an expiry date of December 9, 2023. The grant date fair value of these stock options was $0.91. The fair value of these options was estimated on the grant date using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 88%; expected forfeiture rate of 0%; risk-free interest rate of 0.20%; and expected life of 3 years. The vesting period of the options granted to the consultant is as follows: 1/3 at December 9, 2020; 1/3 at December 9, 2021; 1/3 at December 9, 2022.
On December 30, 2020, the Company issued 1,000,000 stock options to a number of directors with an exercise price of $3.32 per share and an expiry date of December 30, 2025. The grant date fair value of these stock options was $2.15. The fair value of these options was estimated on the grant date using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 83%; expected forfeiture rate of 0%; risk-free interest rate of 0.20%; and expected life of 5 years. The vesting period of the options granted to the directors is as follows: 1/3 at December 30, 2020; 1/3 at June 30, 2021; 1/3 at December 30, 2021.
On December 30, 2020, the Company issued 425,000 stock options to a number of employees and consultants with an exercise price of $3.32 per share and an expiry date of December 30, 2023. The grant date fair value of these stock options was $1.92. The fair value of these options was estimated on the grant date using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 92%; expected forfeiture rate of 0%; risk-free interest rate of 0.20%; and expected life of 3 years. The vesting period of the options granted to the employees and consultants is as follows: 1/3 at December 30, 2020; 1/3 at December 30, 2021; 1/3 at December 30, 2022.
22 |
ZENTEK LTD. (FORMERLY ZEN GRAPHENE SOLUTIONS LTD.) NOTES TO THE CONDENSED INTERIM UNAUDITED FINANCIAL STATEMENTS |
(Stated in Canadian Dollars) |
7. SHARE CAPITAL (continued)
(c) Stock Options and Share-Based Payment Reserve (continued)
The Company's computation of expected volatility for the nine months ended December 31, 2021 and 2020 is based on the Company's market close price over a prior period equal to the expected life of the options.
The Company applies the fair value method of accounting for share-based payment awards to directors, officers, employees and non-employees. Accordingly, the following amounts have been recognized as compensation expense, exploration and evaluation expense and under capital stock as share-based payment reserve:
Nine months Ended December 31, 2021 | Nine months Ended December 31, 2020 | |||||
$ | $ | |||||
Stock-based compensation expense | 2,407,089 | 1,312,209 | ||||
Exploration and evaluation expense | 47,869 | 130,198 | ||||
2,454,958 | 1,442,407 |
Stock option and share-based payment activity for the periods ended December 31, 2021 and March 31, 2021 are summarized as follows:
Nine months ended | Year ended | |||||||||||
December 31, 2021 | March 31, 2021 | |||||||||||
Weighted | Weighted | |||||||||||
average | average | |||||||||||
Number | exercise price | Number | exercise price | |||||||||
$ | $ | |||||||||||
Balance, beginning of period | 7,021,667 | 1.13 | 4,775,000 | 0.55 | ||||||||
Granted | 970,000 | 4.24 | 3,100,000 | 1.94 | ||||||||
Exercised | (493,333 | ) | 0.64 | (653,333 | ) | 0.57 | ||||||
Expired | - | - | (200,000 | ) | 1.67 | |||||||
Balance, end of period | 7,498,334 | 1.56 | 7,021,667 | 1.13 |
23 |
ZENTEK LTD. (FORMERLY ZEN GRAPHENE SOLUTIONS LTD.) NOTES TO THE CONDENSED INTERIM UNAUDITED FINANCIAL STATEMENTS |
(Stated in Canadian Dollars) |
7. SHARE CAPITAL (continued)
(c) Stock Options and Share-Based Payment Reserve (continued)
At December 31, 2021, outstanding options to acquire common shares of the Company were as follows:
Expiry Date | Exercise Price $ | Number of Options Issued # | Number of Options Exercisable # | Grant date fair value $ | Weighted average remaining contractual life (years) | ||||||||
April 13, 2023 | 1.76 | 50,000 | 50,000 | 46,000 | 1.28 | ||||||||
July 3, 2023 | 0.50 | 1,350,000 | 1,350,000 | 405,000 | 1.50 | ||||||||
August 13, 2023 | 0.53 | 740,000 | 740,000 | 244,200 | 1.62 | ||||||||
November 14, 2023 | 0.40 | 100,000 | 100,000 | 26,000 | 1.87 | ||||||||
December 9, 2023 | 1.64 | 250,000 | 166,667 | 227,500 | 1.94 | ||||||||
December 30, 2023 | 3.32 | 425,000 | 283,333 | 816,000 | 2.00 | ||||||||
June 30, 2024 | 3.50 | 150,000 | 50,000 | 301,500 | 2.50 | ||||||||
July 17, 2024 | 0.40 | 1,225,000 | 1,225,000 | 208,250 | 2.55 | ||||||||
July 23, 2024 | 3.10 | 25,000 | 8,333 | 43,750 | 2.56 | ||||||||
September 3, 2024 | 3.69 | 100,000 | 33,333 | 212,000 | 2.68 | ||||||||
September 21, 2024 | 4.08 | 120,000 | 40,000 | 277,200 | 2.73 | ||||||||
October 13, 2024 | 4.92 | 100,000 | 33,333 | 189,333 | 2.79 | ||||||||
October 26, 2024 | 4.77 | 50,000 | 16,667 | 137,500 | 2.82 | ||||||||
November 1, 2024 | 5.67 | 100,000 | 33,333 | 321,000 | 2.84 | ||||||||
December 10, 2024 | 0.40 | 80,000 | 80,000 | 15,200 | 2.95 | ||||||||
December 29, 2024 | 5.22 | 200,000 | 66,667 | 592,000 | 3.00 | ||||||||
May 8, 2025 | 0.40 | 600,000 | 483,333 | 132,000 | 3.35 | ||||||||
May 16, 2025 | 0.40 | 100,000 | 66,667 | 24,000 | 3.38 | ||||||||
July 6, 2025 | 0.68 | 33,334 | - | 13,667 | 3.52 | ||||||||
July 24, 2025 | 0.63 | 150,000 | 100,000 | 57,000 | 3.56 | ||||||||
October 6, 2025 | 0.75 | 400,000 | 400,000 | 180,000 | 3.77 | ||||||||
November 24, 2025 | 1.77 | 75,000 | 75,000 | 85,500 | 3.90 | ||||||||
December 30, 2025 | 3.32 | 1,000,000 | 1,000,000 | 2,150,000 | 4.00 | ||||||||
April 13, 2026 | 1.76 | 50,000 | 16,667 | 58,000 | 4.28 | ||||||||
December 15, 2026 | 5.20 | 25,000 | 8,333 | 84,750 | 4.96 | ||||||||
7,498,334 | 6,426,666 | 6,847,350 | 2.62 |
24 |
ZENTEK LTD. (FORMERLY ZEN GRAPHENE SOLUTIONS LTD.) NOTES TO THE CONDENSED INTERIM UNAUDITED FINANCIAL STATEMENTS |
(Stated in Canadian Dollars) |
8. LEASE LIABILITY
During the year ended March 31, 2021, the Company entered into an agreement for its future corporate headquarters and current manufacturing facility. The initial term of the lease is for three years commencing on February 1, 2021 and terminating on January 31, 2024, subject to a right of extension as described herein. The initial term of the lease is paid in monthly instalments of $16,050 plus HST for the base rent. Pursuant to the terms of the lease, at the end of the initial term the Company has the right to extend the lease for a further three year period to be paid in monthly instalments of $17,120 plus HST.
The lease liability relates to the above noted agreement which expires on January 31, 2024. The lease liability for the periods ended December 31, 2021 and March 31, 2021 is as follows:
Nine months | Year | |||||
Ended | Ended | |||||
December 31, | March 31, | |||||
2021 | 2021 | |||||
$ | $ | |||||
Lease liability | 315,001 | 404,325 | ||||
Less: current portion | (142,189 | ) | (122,452 | ) | ||
Long-term portion | 172,812 | 281,873 |
Interest expense recognized on the lease liability for the nine months ended December 31, 2021 was $55,126 (2020: $nil) which is included under general and administrative expenses on the statement of loss and comprehensive loss.
9. SUPPLEMENTAL DISCLOSURES ON STATEMENTS OF CASH FLOWS
Changes in non-cash working capital balances consist of:
December 31, 2021 $ | December 31, 2020 $ | |||||
Amounts and other receivables | (823,789 | ) | (55,520 | ) | ||
Inventories | (271,040 | ) | - | |||
Prepaids and deposits | (689,078 | ) | (9,071 | ) | ||
Accounts payable and accrued liabilities | 639,866 | 196,477 | ||||
(1,144,041 | ) | 131,886 | ||||
Supplementary disclosures: | ||||||
Shares issued to settle debt | $ | 50,000 | $ | 45,200 |
Cash and cash equivalents are comprised of: | December 31, | March 31, | ||||
2021 | 2021 | |||||
$ | $ | |||||
Cash in bank | 2,876,238 | 3,091,549 | ||||
Cashable guaranteed investment certificate, 0.5%, maturing December 2022 | 200,000 | - | ||||
3,076,238 | 3,091,549 |
25 |
ZENTEK LTD. (FORMERLY ZEN GRAPHENE SOLUTIONS LTD.) NOTES TO THE CONDENSED INTERIM UNAUDITED FINANCIAL STATEMENTS |
(Stated in Canadian Dollars) |
10. RELATED PARTY TRANSACTIONS
The remuneration of directors and other members of key management personnel during the nine month periods ended December 31, 2021 and 2020 were as follows:
2021 | 2020 | |||||
$ | $ | |||||
Short-term benefits | 577,500 | 482,167 | ||||
Stock-based compensation | 1,067,814 | 1,073,699 | ||||
1,645,314 | 1,555,866 |
As part of the private placement issued during the nine months ended December 31, 2021 as disclosed in note 7(a), officers and directors of the Company purchased 36,000 units for gross proceeds of $90,000.
In accordance with IAS 24, key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company directly or indirectly, including any directors (executive and non-executive) of the Company.
The remuneration of directors and key executives is determined by the board of directors having regard to the performance of individuals and market trends.
See also note 13(b).
26 |
ZENTEK LTD. (FORMERLY ZEN GRAPHENE SOLUTIONS LTD.) NOTES TO THE CONDENSED INTERIM UNAUDITED FINANCIAL STATEMENTS |
(Stated in Canadian Dollars) |
11. FINANCIAL INSTRUMENTS AND RELATED RISKS
The Company's operations include the acquisition and exploration of mineral properties in Canada, as well as intellectual property in Canada and foreign jurisdictions. The Company examines the various financial risks to which it is exposed and assesses the impact and likelihood of occurrence. These risks may include credit risk, liquidity risk, currency risk, interest rate risk and other risks. Where material, these risks are reviewed and monitored by the Board of Directors. There have been no significant changes in the risks, objectives, policies and procedures for managing risks during the nine month period ended December 31, 2021.
a) Credit Risk
Counterparty credit risk is the risk that the financial benefits of contracts with a specific counterparty will be lost if a counterparty defaults on its obligations under the contract. This includes any cash amounts owed to the Company by those counterparties, less any amounts owed to the counterparty by the Company where a legal right of set-off exists and also includes the fair values of contracts with individual counterparties which are recorded in the financial statements.
i) Trade Credit Risk
As the Company has commenced production and sales, it is exposed to trade credit risk with respect to its amounts receivable. The Company manages its credit risk by reviewing and assessing credit exposure prior to facilities being committed to customers. Overall the Company's credit risk has increased from the prior period as a result of trade receivables now being generated through sales.
ii) Cash and Cash Equivalents
In order to manage credit and liquidity risk, the Company's cash is held through a large Canadian Financial Institution and the Company invests only in highly rated investment grade instruments that have maturities of one year or less.
b) Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages liquidity risk through the management of its capital structure. Accounts payable and accrued liabilities are due within the current operating period.
c) Interest Rate Risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The risk that the Company will realize a significant loss as a result of a decline in the fair market value of investments or items held within cash and cash equivalents is limited given that the majority have a relatively short maturity. The Company manages its interest rate risk with investments by investing the majority of funds in short-term investments and therefore is not exposed to significant fluctuations in interest rates. The Company believes that its interest rate risk is minimal.
d) Currency Risk
The Company is exposed to the financial risk related to the fluctuation of foreign exchange rates. The functional and reporting currency of the Company is the Canadian dollar. The Company is involved with a small number of foreign vendors in the United States of America. Changes in the currency exchange rates between the Canadian dollar relative to the U.S. dollar could have an effect on the Company's results of operations, financial position or cash flows. The Company has not hedged its exposure to currency fluctuations as the exposure has been deemed to be minimal.
27 |
ZENTEK LTD. (FORMERLY ZEN GRAPHENE SOLUTIONS LTD.) NOTES TO THE CONDENSED INTERIM UNAUDITED FINANCIAL STATEMENTS |
(Stated in Canadian Dollars) |
11. FINANCIAL INSTRUMENTS AND RELATED RISKS (continued)
e) Fair Value of Financial Instruments
IFRS 7 establishes a fair value hierarchy that prioritizes the input to valuation techniques used to measure fair value as
follows:
Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 - inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and
Level 3 - inputs for the asset or liability that are not based on observable market data (unobservable inputs).
As at December 31, 2021, the Company's only financial instruments recorded at fair value are cash equivalents and these are classified as Level 2 within the fair value hierarchy.
The fair values of all of the Company's financial instruments approximate their carrying values, given their short-term nature.
12. MANAGEMENT OF CAPITAL
The Company's objective when managing capital is to safeguard the entity's ability to continue as a going concern. In the management of capital, the Company monitors its adjusted capital which comprises all components of shareholders' equity. The Board of Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company's management to sustain future development of the business. The Company's capital management objectives, policies and processes have remained unchanged during the nine months ended December 31, 2021 and the year ended March 31, 2021.
The Company sets the amount of capital in proportion to risk. The Company manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may issue common shares through private placements.
The Company is not subject to any capital requirements imposed by a lending institution or regulatory body, other than Policy 2.5 of the TSX Venture Exchange which requires adequate working capital or financial resources of the greater of (i) $50,000 and (ii) an amount required in order to maintain operations and cover general and administrative expenses for a period of 6 months.
28 |
ZENTEK LTD. (FORMERLY ZEN GRAPHENE SOLUTIONS LTD.) NOTES TO THE CONDENSED INTERIM UNAUDITED FINANCIAL STATEMENTS |
(Stated in Canadian Dollars) |
13. COMMITMENTS AND CONTINGENCIES
a) Environmental Contingencies
The Company's activities are subject to various laws and regulations governing the protection of the environment. These laws and regulations are continually changing and generally becoming more restrictive. The Company believes its operations are materially in compliance with all applicable laws and regulations. The Company has made, and expects to make in the future, expenditures to comply with such laws and regulations.
b) Employment Agreements
The Company has an employment agreement with its President. The current salary level for the individual pursuant to the
employment agreement is $120,000 annually.
The Company has an employment agreement with its Chief Executive Officer. The current salary level for the individual pursuant to the employment agreement is $200,000 annually.
The Company has an employment agreement with its Chief Financial Officer. The current salary level for the individual pursuant to the employment agreement is $120,000 annually.
The Company has an employment agreement with its Executive Chairman. The current salary level for the individual pursuant to the employment agreement is $200,000 annually.
c) Contingent liabilities
In September 2018, the Company received a statement of claim from a former employee. The Company is in the process of defending the claim, but views the claim as unmeritorious. On March 24, 2020, the Company commenced an action claim against the former employee for relief relating to contracts and transactions between that employee and the Company, seeking to set aside those agreements and, where applicable, seeking disgorgement of unspecified amounts relating to benefits obtained under those agreements.
14. LOSS PER SHARE
Basic loss per share figures are calculated using the weighted average number of common shares outstanding. The weighted average number of common shares issued and outstanding for the three months ended December 31, 2021 is 92,134,469 (2020: 85,334,895). The weighted average number of common shares issued and outstanding for the nine months ended December 31, 2021 is 89,863,546 (2020: 83,338,066). Diluted loss per share figures are calculated after taking into account all warrants and stock options granted. Exercise of the outstanding warrants and stock options would be anti-dilutive with respect to loss per share calculations, and therefore diluted loss per share is equal to basic loss per share. The number of potentially dilutive common shares resulting from the exercise of outstanding warrants and stock options that were not included in the calculation of diluted loss per share was 7,498,334 (December 31, 2020: 10,578,384).
29 |
ZENTEK LTD. (FORMERLY ZEN GRAPHENE SOLUTIONS LTD.) NOTES TO THE CONDENSED INTERIM UNAUDITED FINANCIAL STATEMENTS |
(Stated in Canadian Dollars) |
15. GENERAL AND ADMINISTRATIVE EXPENSES
Three months Ended December 31, 2021 $ | Three months Ended December 31, 2020 $ | Nine months Ended December 31, 2021 $ | Nine months Ended December 31, 2020 $ | |||||||||
Insurance | 48,297 | 8,776 | 100,957 | 18,026 | ||||||||
Investor communications | 41,810 | 40,657 | 98,788 | 77,016 | ||||||||
Meals and entertainment | 17,430 | 3,367 | 46,045 | 12,348 | ||||||||
Occupancy and office expenses | 114,835 | 26,898 | 465,120 | 122,815 | ||||||||
Salaries and benefits | 345,906 | 130,244 | 914,800 | 336,655 | ||||||||
Travel | 53,759 | 23,349 | 106,739 | 46,822 | ||||||||
622,037 | 233,291 | 1,732,449 | 613,682 |
16. SUBSEQUENT EVENTS
On January 4, 2022, the Company closed its bought-deal prospectus offering for gross proceeds of $23,005,060 and its concurrent non-brokered private placement for gross proceeds of $10,009,022. Pursuant to these offerings, the Company issued a total of 6,348,892 common shares at a price of $5.20 per common share. Cash commissions and issuance costs associated with the offerings totaled $1,618,313.
On January 14, 2022, 1,300,000 stock options were issued to a number of directors, officers and employees under the stock option plan described in Note 7(c). The stock options have an exercise price of $4.25 per share. The options granted to the employees expire on January 14, 2025 and have a vesting period as follows: 1/3 at January 14, 2022; 1/3 at January 14, 2023; 1/3 at January 14, 2024. The options granted to the directors and officers expire on January 14, 2027 and have a vesting period as follows: 1/3 at January 14, 2022; 1/3 at July 14, 2022; 1/3 at January 14, 2023.
On January 17, 2022, 20,000 stock options were issued to an employee under the stock option plan described in Note 7(c). The stock options have an exercise price of $4.25 per share. The options granted to the employee expire on January 17, 2025 and have a vesting period as follows: 1/3 at January 17, 2022; 1/3 at January 17, 2023; 1/3 at January 17, 2024.