EX-99.1 2 exhibit99-1.htm EXHIBIT 99.1 Micromem Technologies Inc. Exhibit99.1 - Filed by newsfilecorp.com

Condensed Consolidated Financial Statements of

MICROMEM TECHNOLOGIES INC.

For the three and nine months ended July 31, 2014 and 2013

(Expressed in United States Dollars)

MICROMEM TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

TABLE OF CONTENTS


1. Reporting Entity and Nature of Business
   
2. Going Concern
   
3. Basis of Presentation
   
4. Continuity of Significant Accounting Policies and Reporting Procedures
   
5. Property and Equipment
   
6. Deferred Development Costs
   
7. Intangible Assets and Patents
   
8. Shareholders’ Equity , Stock Options, Bridge Loan and Loss per Share
   
9. Income Taxes
   
10. Expenses
   
11. Management Compensation and Related Party Transactions
   
12. Commitments and Contingencies
   
13. Segmented Information
   
14. Subsequent Events

2

MICROMEM TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Expressed in United States dollars)

    July 31,     October 31,  
    2014     2013  
Assets            
Current assets:            
       Cash and short term investments $  576,668   $  821,283  
       Deposits and other receivables (Note 11)   546,413     234,741  
    1,123,081     1,056,024  
             
Property and equipment, net (Note 5)   23,319     13,998  
Deferred development costs (Note 6)   2,559,973     928,077  
Intangible assets, net (Note 7)   82,247     96,761  
Patents, net (Note 7)   189,940     71,595  
  $  3,978,560   $  2,166,455  
             
Liabilities and Shareholders' Equity            
Current liabilities:            
       Bridge loans (Note 8) $  -   $  290,014  
       Accounts payable and accrued liabilities   860,614     340,122  
  $  860,614   $  630,136  
Shareholders' Equity            
          Share capital: (Note 8) 
               Authorized:
                      2,000,000 special preference shares, redeemable, voting
                      Unlimited common shares without par value
                      Issued and outstanding: 
                      177,011,044 common shares (2013: 158,491,425) (Note 8) 		$  62,877,591   $  57,757,170  
       Contributed surplus (Note 8)   32,528,882     32,822,327  
       Deficit   (92,288,527 )   (89,043,178 )
    3,117,946     1,536,319  
             
  $  3,978,560   $  2,166,455  

"Joseph Fuda" (Signed)
Joseph Fuda, Director
 
"David Sharpless" (Signed)
David Sharpless, Director

See accompanying notes.

3

MICROMEM TECHNOLOGIES INC.
CONDENSED STATEMENTS OF CONSOLIDATED LOSS AND COMPREHENSIVE LOSS
(Expressed in United States dollars)

For the three and nine months ended July 31, 2014 and 2013

    Three Months Ended July 31     Nine Months Ended July 31  
    2014     2013     2014     2013  
                         
 Revenues $  125,000     -   $  125,000     -  
                         
 Costs and expenses (income):                        
 Administration $  68,884   $  73,699   $  251,351   $  297,164  
 Professional, other fees and salaries (Note 10)   728,112     333,430     1,459,782     1,056,532  
 Stock - based compensation   -     -     379,253     168,386  
 Development costs (Note 10)   795,242     19,406     807,990     122,738  
 Travel related costs   121,945     49,397     273,517     138,881  
 Amortization of property and equipment   1,869     1,132     5,521     3,205  
 Amortization of intangible assets and patents   -     4,838     -     14,514  
 Foreign exchange loss   11,359     3,235     24,303     3,653  
                         
    1,727,411     485,137     3,201,717     1,805,073  
                         
 Loss from operations   (1,602,411 )   (485,137 )   (3,076,717 )   (1,805,073 )
                         
 Other Expenses                        
 (Gain) loss on revaluation of embedded derivatives   -     -     -     (40,750 )
 (Gain) loss on revaluations of derivative warrants liability (Note 8)   -     (224,106 )   -     (1,070,202 )
                         
Net loss before income taxes   (1,602,411 )   (261,031 )   (3,076,717 )   (694,121 )
                         
 Income taxes (Note 9)   -     -     -     -  
                         
 Net loss and comprehensive loss $  (1,602,411 ) $  (261,031 ) $  (3,076,717 ) $  (694,121 )
                         
                         
Loss per share - basic and diluted $  (0.01 ) $  (0.00 ) $  (0.02 ) $  (0.00 )
                         
Weighted average number of shares   174,799,523     149,217,974     168,351,746     144,440,667  

See accompanying notes.

4

MICROMEM TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in United States dollars)

For the three and nine months ended July 31, 2014 and 2013

    Three Months Ended July 31     Nine Months Ended July 31  
    2014     2013     2014     2013  
                         
Cash flows from operating activities:                        
     Net loss $  (1,602,411 ) $  (261,031 ) $  (3,076,717 ) $  (694,121 )
     Adjustments to reconcile loss for the period to net cash used in operating activities:                
           Amortization of patents and intangible assets   -     4,838     -     14,514  
           Amortization of property and equipment   1,869     1,132     5,521     3,205  
           Accretion expense   -     -     -     19,381  
           Stock based compensation   -     -     379,253     168,386  
           Increase (Decrease) in deposits and other receivables   (191,975 )   (35,234 )   (311,672 )   (116,122 )
           (Decrease) Increase in accounts payable and accrued liabilities   597,386     66,402     566,533     (92,840 )
           (Gain) loss on revaluation of derivative warrant liability   -     (224,106 )   -     (1,070,202 )
           (Gain) loss on revaluation of embedded derivatives   -     -     -     (40,750 )
                         
Net cash used in operating activities   (1,195,131 )   (447,999 )   (2,437,082 )   (1,808,549 )
                         
Cash flows from investing activities:                        
     Purchase of property and equipment   (962 )   1,678     (16,508 )   (8,817 )
     Patents   (21,101 )   (85,205 )   (148,206 )   (112,936 )
     Deferred development costs   (529,481 )   (57,235 )   (1,631,896 )   (258,495 )
                         
Net cash used in investing activities   (551,544 )   (140,762 )   (1,796,610 )   (380,248 )
                         
Cash flows from financing activities:                        
     Issue of common shares   1,090,889     453,046     3,976,991     2,160,138  
     Subscription received   -     -     -     -  
     Bridge loans advances   -     17,071     29,157     61,606  
     Bridge loan repayments   -     (17,071 )   (17,071 )   (193,159 )
Net cash provided by financing activities   1,090,889     453,046     3,989,077     2,028,585  
                         
Increase (decrease) in cash   (655,786 )   (135,715 )   (244,615 )   (160,212 )
                         
Cash, beginning of period   1,232,454     220,532     821,283     245,029  
                         
Cash, end of period $  576,668   $  84,817   $  576,668   $  84,817  
                         
Supplemental cash flow information:                        
     Interest paid (classified in operating activities)   -     17,071     28,640     66,422  

See accompanying notes.

5

MICROMEM TECHNOLOGIES INC.
Condensed Consolidated Statements of Changes in Shareholders' Equity
(Expressed in United States dollars)

    Number of     Share capital       Contributed     Equity     Deficit     Total  
    shares           surplus     component              
                      0f Bridge loan              
                                     
Balance as at November 1, 2012   136,430,555   $  54,728,239   $  26,634,177   $  1,557    $  (82,268,003  ) $ (904,030 )
                                     
Private placement of units for cash   16,106,957     2,910,532     -     -     -     2,910,532  
Financing costs         (35,482 )                     (35,482 )
Stock based compensation   -     -     368,790     -     -     368,790  
Warrants issued on private placements   -     (863,863 )   377,234     -     -     (486,629 )
Warrants extended   -     -     264,938     -     (841,247 )   (576,309 )
Warrants exercised   5,953,913     822,391                       822,391  
Fair value of warrants exercised   -     193,796     (47,675 )   -     -     146,121  
Warrants modified               5,224,863                 5,224,863  
Net loss and comprehensive loss   -     -     -     -     (5,933,928 )   (5,933,928 )
Balance at October 31, 2013   158,491,425     57,755,613     32,822,327     1,557     (89,043,178 )   1,536,319  
                                     
Balance as at October 31, 2013   158,491,425     57,755,613     32,822,327     1,557     (89,043,178 )   1,536,319  
                                     
Stock based compensation   -           379,253     -     -     379,253  
Warrants extended   -           168,632     -     (168,632 )   -  
Warrants exercised   16,002,118     3,976,991     -     -     -     3,976,991  
Fair value of warrants exercised   -     3,527,357     (3,527,357 )   -     -     -  
Bridge loan converted   2,517,501     302,100     1,557     (1,557 )   -     302,100  
Warrants issued on conversion of bridge loan   -     (2,684,470 )   2,684,470     -     -     -  
Net loss and comprehensive loss   -     -     -     -     (3,076,717 )   (3,076,717 )
Balance at July 31, 2014   177,011,044     62,877,591     32,528,882     -     (92,288,527 )   3,117,946  

6

MICROMEM TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)

For the three and nine months ended July 31, 2014 and 2013
 

1.

REPORTING ENTITY AND NATURE OF BUSINESS

Micromem Technologies Inc. (“Micromem” or the “Company”) is incorporated under the laws of the Province of Ontario, Canada. The principal business address of the Company is 121 Richmond Street West, Suite 304, Toronto, Ontario, Canada.

The Company develops, based upon proprietary technology, customized sensor applications for companies operating internationally in a variety of industries.

These condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries:

  (i)

Micromem Applied Sensors Technology, Inc. (“MAST”) incorporated in November 2007 and domiciled in Delaware, United States. MAST has the primary responsibility for the exploitation of the Company’s technologies in conjunction with various strategic partners and customers.

     
  (ii)

7070179 Canada Inc., incorporated in October 2008 under the Canada Business Corporations Act in Ontario, Canada. The Company has assigned to this entity its rights, title and interests in certain patents which it previously held, directly in exchange for common shares of this entity.

     
  (iii)

Memtech International Inc., Bahamas; Memtech International (USA) Inc., Delaware, United States; Pageant Technologies (USA) Inc., United States; Pageant Technologies Inc., Barbados; and Micromem Holdings (Barbados) Inc., Barbados. All of these entities are inactive.

These consolidated financial statements were authorized for issuance and release by the Company’s Board of Directors on September 29, 2014.

7

MICROMEM TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)

For the three and nine months ended July 31, 2014 and 2013
 

2.

GOING CONCERN

These consolidated financial statements have been prepared on the “going concern” basis in accordance with International Financial Reporting Standards (“IFRS”), which presumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future.

There are uncertainties related to conditions and events that cast doubt about the Company’s ability to continue as a going concern for a reasonable period of time in future. During the nine months ended July 31, 2014, the Company reported a loss from operations of $3,076,717 (2013: $1,805,073) The Company’s working capital position at July 31, 2014 is $262,467 (October 31, 2013: $425,888 ).

The Company’s future success depends on the profitable commercialization of its proprietary sensor technology. Based upon its current operating and financial plans, management of the Company believes that it will have sufficient access to financial resources to fund the Company’s planned operations through to October 31, 2015; however, if the Company is not able to complete its financial plans and/or is not able to profitably commercialize its technology, then there is doubt the Company can continue as a going concern.

If the “going concern” assumption were not appropriate for these consolidated financial statements then adjustments would be necessary to the carrying value of assets and liabilities, the reported expenses and the balance sheet classifications used; in such cases, these adjustments could be material.

8

MICROMEM TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)

For the three and nine months ended July 31, 2014 and 2013
 

3.

BASIS OF PRESENTATION


  a)

Statement of compliance:

These condensed interim quarterly consolidated financial statements have been prepared in accordance with IFRS and its interpretations adopted by International Accounting Standards Board (“IASB”) and comply with the requirements of IAS standard 34, Interim Financial Reporting.

  b)

Basis of measurement:

The consolidated financial statements have been prepared on the historical cost basis, except for financial instruments designated at fair value through profit and loss, which are stated at their fair value.

  c)

Functional and presentation currency:

These consolidated financial statements are presented in United States dollars (“U.S. dollars”), which is also the Company’s functional currency.

  d)

Use of estimates and judgments:

The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

Information about assumptions and estimation uncertainties that have a risk of resulting in a material adjustment are as follows:

  i)

The Company makes estimates and utilizes assumptions in determining the fair value for stock based compensation expense, warrants and unit private placements.

9

MICROMEM TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)

For the three and nine months ended July 31, 2014 and 2013
 

3.

BASIS OF PRESENTATION (Cont’d)


  d)

Use of estimates and judgments: (Cont’d)


  ii)

The Company makes estimates related to the recovery of deferred development costs based on the expectation and assumption of realizing revenues from commercial agreements with the companies for whom these projects have been undertaken. Changes in these expectations and assumptions could result in a change in the recoverable amount calculated.

     
  iii)

The Company makes estimates related to the useful lives of property and equipment, patents and intangible assets and the related amortization. The Company also periodically assesses the recoverability of long-lived assets. The recoverability analysis requires the Company to make assumptions about future operations. Changes to one or more assumptions would result in a change in the recoverable amount calculated and/or amortization expensed.

     
  iv)

Deferred income tax assets are recognized for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences and carry-forward of unused tax assets and unused tax losses can be utilized. At July 31, 2014, the Company has assessed that it may not be probable that sufficient taxable profit will be available to use deferred income tax assets based on operating losses in prior years, therefore, there are no balances carried in the consolidated statements of financial position for such assets.

     
  v)

The Company applies judgment in assessing the functional currency of each entity consolidated in these financial statements.

10

MICROMEM TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)

For the three and nine months ended July 31, 2014 and 2013
 

4.

CONTINUITY OF SIGNIFICANT ACCOUNTING POLICIES AND REPORTING PROCEDURES

     

e)

Accounting Policies:

These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended October 31, 2013.There have been no changes in accounting policies or methods of application of accounting policies in the period ending July 31, 2014.

  f)

New Standards:

The Company is currently evaluating the impact of IFRS 15- a revised draft standard relating to revenue from contracts with customers.

  g)

Fair Values:

There were no changes in the methods and assumptions used in estimating the fair value of the Company’s financial instruments and no changes to the classification of financial instruments in terms of the levels of financial hierarchy during the nine months ending July 31, 2014 from that which was reported at October 31, 2013.

  h)

Capital Management:

There have been no changes to the objectives, policies and procedures that the Company has adopted and implemented with respect to capital management during the period ending July 31, 2014 from those disclosed at October 31, 2013.

  i)

Financial Risks:

The Company is exposed to and evaluates a variety of financial risks relative to its activities: market risk (including foreign exchange risk and interest rate risk), liquidity risk and credit risk. The overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on financial performance. Risk management is carried out under policies approved by the Board of Directors. Management is charged with the responsibility of establishing controls and procedures to ensure that financial risks are mitigated in accordance with the approved policies.

11

MICROMEM TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)

For the three and nine months ended July 31, 2014 and 2013

5.

PROPERTY AND EQUIPMENT


      Computers     Furniture and     Total  
            Equipment        
  Cost                  
                     
  At November 1, 2012 $  40,734   $  25,989   $  66,723  
  Additions   14,839     -   $  14,839  
  Disposals   (6,360 )       $  (6,360 )
  Year ended October 31, 2013 $  49,213   $  25,989   $  75,202  
                     
  At November 1, 2013 $  49,213     25,989   $  75,202  
  Additions   16,508     -   $  16,508  
  Disposals   (13,434 )   -   $  (13,434 )
  Balance at July 31,2014 $  52,287   $  25,989   $  78,276  

  Accumulated amortization   Computers     Furniture and     Total  
            Equipment        
                     
                     
  At November 1, 2012 $  34,947   $  25,989   $  60,936  
  Amortization for the year   4,989     -     4,989  
  Adjustment for disposals/write off   (4,721 )         (4,721 )
  Year ended October 31, 2013 $  35,215   $  25,989   $  61,204  
                     
  At November 1, 2013 $  35,215     25,989   $  61,204  
  Amortization for the period   5,522     -     5,522  
  Adjustment for disposals/write off   (11,769 )   -     (11,769 )
  Balance at July 31,2014 $  28,968   $  25,989   $  54,957  
                     
  Net book value at October 31, 2013 $  13,998     -   $  13,998  
  Net book value at July 31, 2014 $  23,319     -   $  23,319  

12

MICROMEM TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)

For the three and nine months ended July 31, 2014 and 2013
 

6.

DEFERRED DEVELOPMENT COSTS

The breakdown of development costs that have been capitalized is as follows:

  Cost      
         
  At November 1, 2012 $  718,163  
  Additions   677,445  
  Recovery of deferred development costs   (233,290 )
  Writedown of projects costs   (234,241 )
  Year ended October 31, 2013 $  928,077  
         
  At November 1, 2013 $  928,077  
  Additions   1,719,186  
  Recovery of deferred development costs   (87,290 )
  Writedown of projects costs   -  
  Balance at July 31,2014 $  2,559,973  

Additions to deferred development costs includes amortization of $44,375 (2013 - $17,612) relating to patents and intangible assets.

.

13

MICROMEM TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)

For the three and nine months ended July 31, 2014 and 2013
 

7.

INTANGIBLE ASSETS AND PATENTS


  Intangible Assets:      
  At November 1, 2012 $  135,465  
  Additions   -  
  Year ended October 31, 2013 $  135,465  
  At November 1, 2013 $  135,465  
  Additions   -  
  Balance at July 31,2014 $  135,465  
  Accumulated amortization      
  At November 1, 2012 $  19,352  
  Amortization for the year   19,352  
  Year ended October 31, 2013 $  38,704  
  At November 1, 2013 $  38,704  
  Amortization for the period   14,514  
  Balance at July 31,2014 $  53,218  
  Net book value at October 31, 2013 $  96,761  
  Net book value at July 31, 2014 $  82,247  

14

MICROMEM TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)

For the three and nine months ended July 31, 2014 and 2013
 

7.

INTANGIBLE ASSETS AND PATENTS (Cont’d)


  Patents:      
  At November 1, 2012 $  89,347  
  Additions   44,825  
  Year ended October 31, 2013 $  134,172  
  At November 1, 2013 $  134,172  
  Additions   148,206  
  Balance at July 31,2014 $  282,378  
  Amortization      
  At November 1, 2012 $  40,223  
  Amortization for the year   22,354  
  Year ended October 31, 2013 $  62,577  
  At November 1, 2013 $  62,577  
  Amortization for the period $  29,861  
  Balance at July 31,2014 $  92,438  
  Net book value at October 31, 2013 $  71,595  
  Net book value at July 31, 2014 $  189,940  

15

MICROMEM TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)

For the three and nine months ended July 31, 2014 and 2013
 

8.

SHAREHOLDERS’ EQUITY, STOCK OPTIONS, BRIDGE LOANS AND LOSS PER SHARE

     
  a)

 Share Capital:


      Number of     Amount  
      Shares   $   
               
  Balance at November 1, 2012   136,430,555   $  54,728,239  
               
  Private placement of units for cash (Note 15)   16,106,957     2,910,531  
  Warrants exercised   5,953,913     822,392  
  Warrants issued on private placements (Note 15)   -     (863,863 )
  Fair value of warrants exercised   -     193,796  
  Financing costs   -     (35,482 )
  Balance at October 31, 2013   158,491,425   $  57,755,613  
               
  Private placement of units for cash (Note 8)   -     -  
  Warrants exercised   16,002,118     3,976,991  
  Fair value of warrants exercised   -     3,527,357  
  Bridge loan converted   2,517,501     302,100  
  Warrants issued on conversion of bridge loans (Note 8)   -     (2,684,470 )
  Financing costs   -     -  
               
  Balance at July 31, 2014   177,011,044   $  62,877,591  

16

MICROMEM TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)

For the three and nine months ended July 31, 2014 and 2013
 

8.

SHAREHOLDERS’ EQUITY, STOCK OPTIONS, BRIDGE LOANS AND LOSS PER SHARE (Cont’d)
     
  b)

Stock Options:

In April 2014, the Company issued 630,000 stock options to certain officers, directors and employees and recorded stock compensation expense relating to these options grants of $379,253. During the nine months ended July 31, 2013 the Company issued 1,090,000 stock options and recorded stock compensation expense of $168,386.

Stock compensation expense is a non cash charge calculated in accordance with the Black Scholes option pricing model. In determining the stock compensation expense as reported, the Company used the following assumptions:

      2014     2013  
  Share price $ 0.63-0.85   $ 0.30  
  Volatility factor (based on historical volality)   112%-113%     108%  
  Risk free interest rate   1.60%     1.37%  
  Dividend yield   0%     0%  
  Expected life   5 years     5 years  

The Company reports the following stock options outstanding at July 31, 2014, all of which are exercisable:

17

MICROMEM TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)

For the three and nine months ended July 31, 2014 and 2013
 

                        Weighted        
                        average        
                        remaining        
                        life        
  Date of issue   # Issued     Strike Price           (in years)     Expiry Date  
                                 
  April 5, 2011   125,000     0.35           1.7     April 5, 2016  
  October 31, 2011   7,275,000     0.20           2.3     October 31, 2016  
  April 10, 2012   1,905,000     0.35           2.7     April 10, 2017  
  January 22, 2013   1,090,000     0.30     CDN     3.5     January 22, 2018  
  September 16, 2013   780,000     0.27     CDN     4.1     September 16, 2018  
  October 17, 2013   300,000     0.35           4.2     October 17, 2018  
  February 10, 2014   350,000     0.85           4.5     February 10, 2019  
  April 25, 2014   280,000     0.64           4.7     April 25, 2019  
      12,105,000                          

8.

SHAREHOLDERS’ EQUITY, STOCK OPTIONS, BRIDGE LOANS AND LOSS PER SHARE (Cont’d)

     
  c)

Loss Per Share:

The calculation of basic and diluted loss per share for the period ended July 31, 2014 was based on the loss attributable to common shareholders of $3,076,717 (2013 - $694,121) divided by the weighted average number of common shares outstanding of 168,351,746 (2013 – 144,440,667). Diluted loss per share did not include the effect of outstanding stock options and warrants outstanding as they are anti-dilutive.

  d)

Private Placements:

The Company did not complete any private placements with investors during the nine month period ending July 31, 2014. During the nine month period ended July 31, 2013 the Company completed private placements with investors pursuant to prospectus and registration exemptions set forth in applicable securities law. It issued a total of 9,452,424 units, each unit consisting of a common share and a common share purchase warrant and realized proceeds of $1,505,686.

18

MICROMEM TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)

For the three and nine months ended July 31, 2014 and 2013
 

8.

SHAREHOLDERS’ EQUITY, STOCK OPTIONS, BRIDGE LOANS AND LOSS PER SHARE (Cont’d)

     
  e)

Share Purchase Warrants:


  (i)

During the three and nine month periods ending January 31, April 30, and July 31, the Company realized proceeds from the exercise of common share purchase warrants as follows.


      2013     2014  
  Warrants exercised, quarter ending January 31,   3,393,912     6,325,224  
  Proceeds realized $  428,650   $  1,486,022  
               
  Warrants exercised, quarter ending April 30,   753,334     6,023,999  
  Proceeds realized $  132,220   $  1,400,080  
  Warrants exercised, quarter ending July 31,   1,120,000     3,653,495  
  Proceeds realized $  129,064   $  1,090,889  

  (ii)

In the three months ended January 31, 2014 the Company extended the expiry date on a total of 1,405,026 common share purchases warrants which would have otherwise expired in the period. These warrants were extended for a period of six months in each case. The strike price of these warrants was changed from $0.50 per warrant $0.55 per warrant. The Company recorded a charge to the Deficit as reported of $1,594 with an offsetting charge to contributed surplus to reflect this extension, calculated in accordance with the Black Scholes option pricing model.

In the three months ended January 31, 2013 the Company extended the expiry date on a total of 3,871,369 common share purchase warrants denominated in $ Canadian and $ US. These warrants were extended for a period of 12 months in each case. The strike price of these warrants remained the same. The Company recorded a charge to Deficit of $287,321 with an offsetting charge to contributed surplus and the derivative warrant liability to reflect these extensions, calculated in accordance with the Black Scholes option pricing model.

19

MICROMEM TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)

For the three and nine months ended July 31, 2014 and 2013

8.

SHAREHOLDERS’ EQUITY, STOCK OPTIONS, BRIDGE LOANS AND LOSS PER SHARE (Cont’d)

The assumptions used in applying the Black Scholes model were as follows

      2014     2013  
  Share price $ 0.55   $ 020 - $0.55  
  Volatility factor (based on historical volality)   127%     41-142%  
  Risk free interest rate   1.02%     1.02 - 1.04%  
  Dividend yield   0%     0%  
  Expected life   6 months     12 months  

The continuity of outstanding share purchase warrants is as below:

            Weighted        
            average     Proceeds  
      Warrants     exercise price     Realized  
                     
  Balance outstanding at October 31,2012   19,692,968   $ 0.27        
  Exercised   (5,953,913 )   ($0.14 )   822,391  
  Expired   (85,000 )   ($0.15 )      
  Granted   16,106,957   $ 0.24        
  Balance outstanding at October 31, 2013   29,761,012   $ 0.28     -  
  Exercised   (16,002,118 )   (0.25 )   3,976,991  
  Expired   (382,333 )   (0.49 )      
  Granted on conversion of bridge loan   2,517,501   $  0.12        
  Balance at July 31, 2014   15,894,062   $ 0.28        

  f)

Derivative Warrant Liability:

On October 28, 2013 the exercise price of all outstanding Canadian denominated warrants was converted from $CDN to $US. As a result, these warrants were no longer considered nor reported as a derivative warrant liability. These warrants were revalued at October 28, 2013 and this value was removed from derivative warrant liability and recorded to contributed surplus.

20

MICROMEM TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)

For the three and nine months ended July 31, 2014 and 2013
 

8.

SHAREHOLDERS’ EQUITY, STOCK OPTIONS, BRIDGE LOANS AND LOSS PER SHARE (Cont’d)

In the nine month period ended July 31, 2013 the Company reported a non-cash gain on the revaluation of the derivative warrant liability of $1,070,202. This gain was calculated in accordance with the Black Scholes option pricing model using assumptions which have been previously disclosed.

  g)

Bridge Loans:

On December 2, 2011, the Company secured $285,000 CDN of bridge loans from a group of arm’s length investors with maturities of six months. The loans were unsecured, with an interest rate of 2% per month (effective interest rate – 26%) and were convertible at the holder’s option at $0.12 USD per unit. Each unit upon conversion included one common share and one common share purchase warrant with a one year expiry and an exercise price of $0.12 USD. The term of the loans was extended on a month to month basis in July 2012.

These bridge loans were converted to 2,517,501 units in January 2014 (note 8(e)). Each unit consisted of one common share and one common share purchase warrant. The warrants have a strike price of $0.12 per common share and expire on January 27, 2015 in not exercised by that date.

21

MICROMEM TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)

For the three and nine months ended July 31, 2014 and 2013
 

  h)

Contributed Surplus:


  Balance outstanding at November 1, 2012 $  26,634,177  
         
  Stock based compensation expense relating to stock options issued   368,790  
  Common share purchase warrants      
         (a) Issued   377,234  
         (b) Extended   264,938  
  CDN warrants converted to USD   5,224,863  
  Fair value of warrants exercised   (47,675 )
  Balance at October 31, 2013 $  32,822,327  
         
  Stock based compensation expense relating to stock options issued   379,253  
  Common share purchase warrants      
         (a) Issued   2,684,470  
         (b) Extended   168,632  
  Bridge loan converted   1,557  
  Fair value of warrants exercised   (3,527,357 )
  Balance at July 31, 2014 $  32,528,882  

22

MICROMEM TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)

For the three and nine months ended July 31, 2014 and 2013
 

9.

INCOME TAXES

The Company has non-capital losses of approximately $21.6 million available to reduce future taxable income, the benefit of which has not been recognized in these consolidated financial statements. As of July 31, 2014 the tax losses expire as follows:

             Other           
      Canada     foreign     Total  
  2014 $  977,818     -   $  977,818  
  2015   3,079,475     -     3,079,475  
  2022   -     7,301     7,301  
  2023   -     9,667     9,667  
  2025   -     14,471     14,471  
  2026   2,303,792     5,254     2,309,046  
  2027   1,937,308     3,459     1,940,767  
  2028   10,045     55,519     65,564  
  2029   1,985,484     463,610     2,449,094  
  2030   2,678,936     1,886,778     4,565,714  
  2031   1,613,975     48,808     1,662,783  
  2032   1,788,704     333,962     2,122,666  
  2033   2,197,482     235,583     2,433,065  
    $  18,573,019   $  3,064,412   $  21,637,431  

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.

23

MICROMEM TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)

For the three and nine months ended July 31, 2014 and 2013
 

10.

EXPENSES

Administration
The components of general and administration expenses are as follows:

      2014     2013  
               
  General and administrative $  47,409   $  48,259  
  Rent and occupancy cost   64,448     67,364  
  Bad debt expense   17,549     -  
  Interest income   (17,549 )   -  
  Interest expense   28,640     61,606  
  Accretion expense   -     19,381  
  Insurance   46,374     46,230  
  Telephone   17,940     14,010  
  Investor relations, listing and filling fees   46,540     41,314  
    $  251,351   $  297,164  

Professional, other fees and salaries
The components of professional, other fees and salaries expenses are as follows:

      2014     2013  
               
  Professional fees $  218,372   $  179,594  
  Consulting fees   934,997     628,423  
  Salaries and benefits   306,413     248,515  
    $  1,459,782   $  1,056,532  

Development Costs
The components of development costs are as follows:

      2014     2013  
  Net project expenses incurred $  807,990   $  122,738  

24

MICROMEM TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)

For the three and nine months ended July 31, 2014 and 2013
 

11.

MANAGEMENT COMPENSATION AND RELATED PARTY TRANSACTIONS

The Company reports the following related party transactions:

  (a)

Chairman: The Chairman receives cash compensation on a month to month basis calculated at an annual rate of $150,000 CDN. The total compensation paid to the Chairman during the period ended July 31 was $103,433 of cash compensation and $nil of stock based compensation (2013 - $110,611 of cash compensation and $ 11,586 of stock based compensation).


  (b)

Management and consulting fees:

Included in professional fees, other fees and salaries as reported are management and consulting fees paid or payable to individuals (or companies controlled by such individuals) who served as officers and directors of the Company. The total compensation paid to such parties during the period ended July 31, 2014 was $714,322 of cash compensation and $315,057 of stock based compensation (2013 - $408,370 of cash compensation and $92,688 of stock based compensation).

  (c)

Advances:

In 2014 the Company has advanced $385,514 to certain officers and employees. These funds are recoverable against future compensation due to the officers and employees and are fully open to repayment at any time by these individuals.

25

MICROMEM TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)

For the three and nine months ended July 31, 2014 and 2013
 

12.

COMMITMENTS AND CONTINGENCIES

     
a)

The Company secured new leased premises in June 2012. The lease term is for 5 years and stipulates base monthly rental expenses of $3,800 CDN. Lease commitments are as follows – commitments less than one year of $44,000; commitment between years 2-5 of $87,000.

     
b)

Legal matters:

     

There are currently no legal matters outstanding to which the Company is a party. The Company maintains insurance policies that provide coverage against certain claims.


13.

SEGMENTED INFORMATION

There is one operating segment of the business being the development and commercialization efforts with respect to the Company's proprietary sensor applications. Currently, the predominant market segment that the Company is pursuing is the North American market for such technology.

Geographic information – Non-current assets:

      July 31,     October 31,  
      2014     2013  
               
  Canada   645,240     415,533  
  United States   2,210,239     694,898  
      2,855,479     1,110,431  

26

MICROMEM TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)

For the three and nine months ended July 31, 2014 and 2013
 

14.

SUBSEQUENT EVENTS

Between August 1, 2014 and September 26, 2014 the Company realized proceeds of $630,365 from the exercise of 3,149,911 common share purchase warrants.

**************************************

27