CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended June 30, 2023 and 2022
(Unaudited)
(Expressed in Canadian Dollars)
ZENTEK LTD.
JUNE 30, 2023 AND 2022 | PAGE |
Unaudited Condensed Interim Consolidated Statements of Financial Position | 1 |
Unaudited Condensed Interim Consolidated Statements of Loss and Comprehensive Loss | 2 |
Unaudited Condensed Interim Consolidated Statements of Changes in Equity | 3 |
Unaudited Condensed Interim Consolidated Statements of Cash Flows | 4 |
Notes to the Unaudited Condensed Interim Consolidated Financial Statements | 5-15 |
1 | |
ZENTEK LTD. UNAUDITED CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION |
As at June 30, 2023 |
As at March 31, 2023 | |||||
(Stated in Canadian Dollars) | $ | $ | ||||
ASSETS | ||||||
Current assets | ||||||
Cash and cash equivalents [note 12] | 10,726,070 | 10,357,317 | ||||
Accounts and other receivables - net [note 3] | 295,050 | 569,008 | ||||
Loan receivable [note 4] | 533,474 | 2,983,642 | ||||
Inventories [note 5] | 2,990,273 | 2,849,073 | ||||
Prepaids and deposits [note 5] | 883,575 | 1,193,969 | ||||
Total current assets | 15,428,442 | 17,953,009 | ||||
Non-current assets | ||||||
Property and equipment - net [note 6] | 8,308,513 | 8,335,867 | ||||
Exploration and evaluation assets [note 7] | 7,134,933 | 7,000,000 | ||||
Total non-current assets | 15,443,446 | 15,335,867 | ||||
Total assets | 30,871,888 | 33,288,876 | ||||
LIABILITIES | ||||||
Current liabilities | ||||||
Accounts payable and accrued liabilities [note 8] | 1,286,677 | 1,292,474 | ||||
Current portion of lease liability [note 9] | 129,863 | 129,264 | ||||
Current portion of long-term debt [note 10] | 492,762 | 998,080 | ||||
Total current liabilities | 1,909,302 | 2,419,818 | ||||
Non-current liabilities | ||||||
Lease liability [note 9] | 448,994 | 484,856 | ||||
Long-term debt [note 10] | 385,884 | - | ||||
Total non-current liabilities | 834,878 | 484,856 | ||||
Total liabilities | 2,744,180 | 2,904,674 | ||||
SHAREHOLDERS' EQUITY | ||||||
Share capital [note 11(a)] | 85,890,798 | 85,754,399 | ||||
Share-based payment reserve [note 11(c)] | 11,118,758 | 10,355,611 | ||||
Shares to be issued [note 7(a)] | 472,500 | 472,500 | ||||
Deficit | (69,354,348 | ) | (66,198,308 | ) | ||
Total shareholders' equity | 28,127,708 | 30,384,202 | ||||
Total shareholders' equity and liabilities | 30,871,888 | 33,288,876 | ||||
Nature of Business and Going Concern [note 1] | ||||||
Commitments and Contingencies [note 14] | ||||||
Subsequent Events [note 18] |
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements
These consolidated financial statements were authorised for issue by the Board of Directors on August 11, 2023.
Approved on behalf of the Board of Directors:
"Eric Wallman" | , Director |
"Ilse Treurnicht" | , Director |
2 | |
ZENTEK LTD. UNAUDITED CONDENSED INTERIM CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS |
(Stated in Canadian Dollars) | 2023 | 2022 | ||||
FOR THE THREE MONTHS ENDED JUNE 30 | $ | $ | ||||
REVENUE | ||||||
Sales | - | 33,105 | ||||
Other income | - | 15,000 | ||||
- | 48,105 | |||||
EXPENSES | ||||||
Amortisation [note 6] | 139,815 | 155,700 | ||||
Consulting fees | 79,438 | 579,481 | ||||
Directors fees [note 13] | 30,000 | - | ||||
Insurance | 97,056 | 87,684 | ||||
Investor relations and promotion | 11,213 | 40,425 | ||||
Listing and filing fees | 93,465 | 136,271 | ||||
Office expenses | 33,041 | 40,563 | ||||
Professional fees | 408,725 | 489,235 | ||||
Rent | 123,617 | 31,630 | ||||
Research and development | 433,677 | 674,107 | ||||
Salaries and benefits [note 13] | 914,518 | 844,114 | ||||
Share-based compensation [notes 11(c) and 13] | 809,147 | 1,276,127 | ||||
Supplies and materials | (5,046 | ) | 532,769 | |||
Travel | 23,072 | 53,866 | ||||
Other expenses [note 17] | 181,635 | 159,411 | ||||
3,373,373 | 5,101,383 | |||||
Loss before the undernoted | (3,373,373 | ) | (5,053,278 | ) | ||
Interest income | 143,402 | 58,074 | ||||
Interest expense | (24,744 | ) | (38,998 | ) | ||
Other income (expense) | 9,853 | - | ||||
Government grants [note 16] | 88,822 | - | ||||
Total other items | 217,333 | 19,076 | ||||
Net and comprehensive loss for the period | (3,156,040 | ) | (5,034,202 | ) | ||
Basic and diluted net loss per share [note 15] | (0.03 | ) | (0.05 | ) |
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements
3 | |
ZENTEK LTD. UNAUDITED CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY |
(Stated in Canadian Dollars) | Number of Shares |
Share Capital $ |
Warrants $ |
Share-Based Payment Reserve $ |
Share to be Issued $ |
Deficit $ |
Total Equity $ | ||||||||||||||
Balance as at March 31, 2022 | 99,248,058 | 85,494,266 | - | 7,761,541 | 472,500 | (52,179,246 | ) | 41,549,061 | |||||||||||||
Stock options exercised [note 11(a)] | 115,000 | 68,850 | - | (22,850 | ) | - | - | 46,000 | |||||||||||||
Recognition of share-based compensation [note 11(c)] | - | - | - | 1,276,127 | - | - | 1,276,127 | ||||||||||||||
Net loss and comprehensive loss for the period | - | - | - | - | - | (5,034,202 | ) | (5,034,202 | ) | ||||||||||||
Balance as at June 30, 2022 | 99,363,058 | 85,563,116 | - | 9,014,818 | 472,500 | (57,213,448 | ) | 37,836,986 | |||||||||||||
Balance as at March 31, 2023 | 99,533,982 | 85,754,399 | - | 10,355,611 | 472,500 | (66,198,308 | ) | 30,384,202 | |||||||||||||
Stock options exercised [note 11(a)] | 50,000 | 134,000 | - | (46,000 | ) | - | - | 88,000 | |||||||||||||
Shares issued | 2,999 | 2,399 | - | - | - | - | 2,399 | ||||||||||||||
Recognition of share-based compensation [note 11(c)] | - | - | - | 809,147 | - | - | 809,147 | ||||||||||||||
Net loss and comprehensive loss for the period | - | - | - | - | - | (3,156,040 | ) | (3,156,040 | ) | ||||||||||||
Balance as at June 30, 2023 | 99,586,981 | 85,890,798 | - | 11,118,758 | 472,500 | (69,354,348 | ) | 28,127,708 |
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements
4 | |
ZENTEK LTD. UNAUDITED CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS |
Three Months Ended June 30, 2023 |
Three Months Ended June 30, 2022 | |||||
(Stated in Canadian Dollars) | $ | $ | ||||
OPERATING ACTIVITIES | ||||||
Loss for the period | (3,156,040 | ) | (5,034,202 | ) | ||
Items not affecting cash | ||||||
Amortisation [note 6] | 139,815 | 155,700 | ||||
Interest expense | 24,744 | - | ||||
Loan receivable accrued interest | (20,383 | ) | - | |||
Share-based compensation [note 11(c)] | 809,147 | 1,276,127 | ||||
Net change in non-cash working capital balances [note 12] | 502,183 | 604,318 | ||||
Cash flows used in operating activities | (1,700,534 | ) | (2,998,057 | ) | ||
INVESTING ACTIVITIES | ||||||
Loan receivable advanced | (29,449 | ) | - | |||
Loan receivable repayment | 2,500,000 | - | ||||
Mineral exploration and evaluation expenditures | (134,933 | ) | - | |||
Purchase of property and equipment [notes 6 and 12] | (174,890 | ) | (867,703 | ) | ||
Cash flows used in investing activities | 2,160,728 | (867,703 | ) | |||
FINANCING ACTIVITIES | ||||||
Payments on lease liability [note 9] | (48,150 | ) | (34,514 | ) | ||
Payments on long-term debt [note 10] | (131,291 | ) | (233,348 | ) | ||
Proceeds from stock options exercised [note 11(a)] | 88,000 | 46,000 | ||||
Cash flows (used in) from financing activities | (91,441 | ) | (221,862 | ) | ||
Change in cash and cash equivalents during the period | 368,753 | (4,087,622 | ) | |||
Cash and cash equivalents, beginning of period | 10,357,317 | 26,675,000 | ||||
Cash and cash equivalents, end of period | 10,726,070 | 22,587,378 |
Supplementary disclosures - see note 12
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements
5 | |
ZENTEK LTD. NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS | |
(Stated in Canadian Dollars) | |
AS AT JUNE 30, 2023 AND FOR THE THREE MONTHS ENDED JUNE 30, 2023 AND 2022 |
1.NATURE OF BUSINESS AND GOING CONCERN
Zentek Ltd. (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 ZenGUARDTM coating, Rapid Detection Point of Care diagnostics tests and continue to develop potential pharmaceutical products based on its patent-pending graphene-based compound.
These unaudited condensed interim consolidated financial statements of the Company for the three months ended June 30, 2023 were approved and authorised for issue by the Board of Directors on August 11, 2023.
The technology industry presents a high degree of risk and there can be no assurance that the Company's research and development will result in profitable operations. The Company's ability to meet its obligations arising from normal business operations, continue its research and development, and generate future profits is dependent upon its ability to obtain necessary financing. While the Company has been successful at raising funds in the past, there can be no assurance that it will be able to do so in the future.
As at June 30, 2023, the Company had not yet achieved profitable operations and had an accumulated deficit of $69,354,348 and expects to incur further losses in the development of its business. These events or conditions indicate that a material uncertainty exists that cast substantial doubt on the Company's ability to continue as a going concern. The ability to continue as a going concern is dependent on obtaining continued financial support, obtaining financing, or generating profitable operations in the future. Management is committed to raising additional capital to meet its obligations; however, additional debt and/or equity financing is subject to the global financial markets and economic conditions.
These unaudited condensed interim consolidated financial statements do not reflect the adjustments to the carrying value of assets and liabilities, the reported revenues and expenses, and the statement of financial position classifications that would be necessary if the going concern assumption was not appropriate. Any adjustments necessary to the consolidated financial statements if the Company ceases to be a going concern could be material.
6 | |
ZENTEK LTD. NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS | |
(Stated in Canadian Dollars) | |
AS AT JUNE 30, 2023 AND FOR THE THREE MONTHS ENDED JUNE 30, 2023 AND 2022 |
2.BASIS OF PRESENTATION
These unaudited condensed interim consolidated financial statements have been prepared in accordance with International Accounting Standard 34 - Interim Financial Reporting ("IAS 34") as issued by the International Accounting Standards Board ("IASB") and have been condensed with certain disclosures from the Company's audited consolidated financial statements for the year ended March 31, 2023 (the "Annual Financial Statements") omitted. Accordingly, these unaudited condensed interim consolidated financial statements should be read in conjunction with the Annual Financial Statements.
a)Changes in accounting policies
The accounting policies applied in the preparation of these unaudited condensed interim consolidated financial statements are consistent with those applied and disclosed in the Company's audited consolidated financial statements for the year ended March 31, 2023.
b)Future changes in accounting standards
Certain new accounting standards and interpretations have been published that are not mandatory for the current period and have not been early adopted. Management is still evaluating and does not expect any such pronouncements to have a material impact on the Company's consolidated financial statements upon adoption.
c)Significant judgments
In preparing the Company's unaudited condensed interim consolidated financial statements for the three months ended June 30, 2023, the Company applied the critical judgments and estimates disclosed in Note 3 of its audited consolidated financial statements for the year ended March 31, 2023.
3.ACCOUNTS AND OTHER RECEIVABLES
June 30, 2023 |
March 31, 2023 | |||||
$ | $ | |||||
Trade receivables | - | 106,458 | ||||
Government grants receivable | 46,322 | 151,440 | ||||
HST recoverable | 168,051 | 172,496 | ||||
Accrued interest receivable on guaranteed investment certificates | 80,677 | 238,614 | ||||
Less: valuation allowance on trade receivables | - | (100,000 | ) | |||
Total accounts and other receivables | 295,050 | 569,008 |
7 | |
ZENTEK LTD. NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS | |
(Stated in Canadian Dollars) | |
AS AT JUNE 30, 2023 AND FOR THE THREE MONTHS ENDED JUNE 30, 2023 AND 2022 |
4.LOAN RECEIVABLE
In March 2022, a loan was advanced to a third party, who is an insignificant shareholder of the Company and not an insider nor an employee of the Company, earning 6% interest per annum, calculated and payable monthly. The loan is secured by mortgages against properties held by the borrower. The original maturity date was July 1, 2022 and an amended and restated promissory note was completed in 2023 with a revised maturity date of September 29, 2023 and changes to the security held as collateral. The Company performed an analysis of collectivity and based on the collateral against the loan, determined that no provision was required. A continuity of the loan principal and interest balances is presented below:
June 30, 2023 |
March 31, 2023 | |||||
$ | $ | |||||
Loan balance, beginning of period | 2,983,642 | 2,950,000 | ||||
Loans advanced | 29,449 | 33,642 | ||||
Principal payments received | (2,500,000 | ) | - | |||
Interest earned | 50,383 | 180,000 | ||||
Interest payments received | (30,000 | ) | (180,000 | ) | ||
Loan balance, end of period | 533,474 | 2,983,642 |
5.INVENTORIES
June 30, 2023 |
March 31, 2023 | |||||
$ | $ | |||||
Raw materials | 2,559,754 | 2,418,530 | ||||
Finished goods | 430,519 | 430,543 | ||||
Total inventories | 2,990,273 | 2,849,073 |
The cost of inventories recognized as an expense and included in supplies and materials amounted to $52,600 (March 31, 2023: $50,067)
Included in prepaids and deposits are $1,616 (March 31, 2023: $114,725) of prepayments made for inventory to be delivered subsequent to period end. A continuity of prepaid inventory is presented below:
June 30, 2023 |
March 31, 2023 | |||||
$ | $ | |||||
Prepaid inventory, beginning of period | 114,725 | 855,415 | ||||
Prepayments made during the period | - | - | ||||
Inventory received | (113,109 | ) | (740,690 | ) | ||
Prepaid inventory, end of period | 1,616 | 114,725 |
8 | |
ZENTEK LTD. NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS | |
(Stated in Canadian Dollars) | |
AS AT JUNE 30, 2023 AND FOR THE THREE MONTHS ENDED JUNE 30, 2023 AND 2022 |
6.PROPERTY AND EQUIPMENT
The following is a reconciliation of changes in the balances of property and equipment for the three month period ended June 30, 2023.
Property and Equipment |
Right-of-use Assets | Total | |||||||
Property and equipment as at March 31, 2023 | 7,720,661 | 615,206 | 8,335,867 | ||||||
Less: amortisation | (99,516 | ) | (40,299 | ) | (139,815 | ) | |||
Plus: purchases | 112,461 | - | 112,461 | ||||||
Property and equipment as at June 30, 2023 | 7,733,606 | 574,907 | 8,308,513 |
The following is a reconciliation of changes in the balances of property and equipment for the three month period ended June 30, 2022.
Property and Equipment |
Right-of-use Assets | Total | |||||||
Property and equipment as at March 31, 2022 | 5,732,373 | 293,048 | 6,025,421 | ||||||
Less: amortisation | (115,957 | ) | (39,743 | ) | (155,700 | ) | |||
Plus: purchases | 867,703 | - | 867,703 | ||||||
Property and equipment as at June 30, 2022 | 6,484,119 | 253,305 | 6,737,424 |
The Company's property and equipment includes assets under construction in the amount of $2,013,151 (March 31, 2023: $1,946,048) related to costs incurred for a production line at the silver-graphene oxide pilot plant and $43,329 for lab equipment. No amortisation has been recorded on these assets as they are not yet available for use.
The Company's right-of-use asset includes its manufacturing facility located in Guelph, Ontario. It is the Company's policy to amortise 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.
7.EXPLORATION AND EVALUATION PROPERTY
The 100%-owned Albany Graphite Deposit (the "Albany Property") is located in Northern Ontario, Canada. During the year ended March 31, 2013, the Company reached an agreement with the optionor pursuant to the following terms and conditions:
a)The Company will issue to the optionor a total of 1,250,000 common shares. Total shares remaining to be issued are 750,000 common shares valued at $472,500 based on their fair market value on the date of the agreement;
b)The Company granted the optionor a net smelter return royalty of 0.75% on the 4F claim block, of which 0.5% can be purchased at any time for $500,000; and
c)The agreement provides a clawback right that allows the optionor to reduce the Company's interest in the other claims to 30% subsequent to the exercise of the second option by giving notice within 30 days that the optionor intends to commence sole funding up to completion of a feasibility study within 48 months and within 30 days deliver a payment of $27,500,000.
9 | |
ZENTEK LTD. NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS | |
(Stated in Canadian Dollars) | |
AS AT JUNE 30, 2023 AND FOR THE THREE MONTHS ENDED JUNE 30, 2023 AND 2022 |
7.EXPLORATION AND EVALUATION PROPERTY (continued)
Albany Property
$ | |||
Balance at March 31, 2022 | 7,000,000 | ||
Expenditures | - | ||
Impairment | - | ||
Balance at June 30, 2022 | 7,000,000 | ||
Balance at March 31, 2023 | 7,000,000 | ||
Expenditures | 134,933 | ||
Impairment | - | ||
Balance at June 30, 2023 | 7,134,933 |
On September 30, 2021, as a result of the Company's change in business from a mining issuer to an industrial, technology, life sciences issuer, the Company conducted an impairment test and determined the recoverable amount of the exploration and evaluation property to be $7,000,000. Accordingly, the Company recognised an impairment charge on the exploration and evaluation property to reduce the carrying value to $7,000,000. The exploration and evaluation expenditures incurred up to the date of impairment were capitalized. After the date of impairment, exploration and evaluation expenditures continue to be capitalized in accordance with the Company's accounting policy.
In February 2023, a new subsidiary corporation, Albany Graphite Corp. ("Albany"), was incorporated for the purpose of transferring the Albany Property. On February 13, 2023, a non-binding letter of intent was signed pursuant to which the Company and Albany agreed to negotiate a transaction involving the transfer of the Albany Property. On May 23, 2023, pursuant to the terms of the property purchase agreement dated April 24, 2023, the Company transferred to Albany the ownership of the Albany Graphite Project. As consideration for the transfer of the Albany Property, the Company received 59,999,900 common shares of Albany.
8.ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
June 30, 2023 |
March 31, 2023 | |||||
$ | $ | |||||
Trade payables | 959,683 | 911,477 | ||||
Accrued liabilities | 326,994 | 380,997 | ||||
Total accounts payable and accrued liabilities | 1,286,677 | 1,292,474 |
10 | |
ZENTEK LTD. NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS | |
(Stated in Canadian Dollars) | |
AS AT JUNE 30, 2023 AND FOR THE THREE MONTHS ENDED JUNE 30, 2023 AND 2022 |
9.LEASE LIABILITY
During the year ended March 31, 2021, the Company entered into a lease agreement for its 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. During the year ended March 31, 2023, the Company determined that it was likely the lease term would be extended to January 31, 2027. As a result, the right-of-use asset and lease liability values were adjusted to reflect the impacts of the extension.
The lease liability relates to the above noted agreement. The lease liability for the three months ended June 30, 2023 and the year ended March 31, 2023 is as follows:
Three Months Ended June 30, 2023 $ |
Year Ended March 31, 2023 $ | |||||
Lease liability | 578,857 | 614,120 | ||||
Less: current portion | (129,863 | ) | (129,264 | ) | ||
Long-term portion | 448,994 | 484,856 |
Interest expense recognised on the lease liability for the three month period ended June 30, 2023 was $12,887 (2022: $13,636).
10.LONG-TERM DEBT
Pursuant to an asset purchase agreement dated February 10, 2022, the Company acquired the land, building and chattels at 24 Corporate Court in Guelph, Ontario for cash consideration of $351,000 and assumed a mortgage of $1,949,000. The mortgage was assumed in a vendor-take-back agreement with the seller of the property who is an insignificant shareholder and not an insider of the Company. There are no financial covenants associated with this agreement. On April 1, 2023, the repayment terms were renegotiated to extend the amortization period by an additional 12 months to March 1, 2025 and reduce the monthly installment from $85,504 to $43,764, including interest at 5% per annum.
Three Months Ended June 30, 2023 $ |
Year Ended March 31, 2023 $ | |||||
First mortgage payable in monthly installments of $43,764 including interest at 5% per annum, due March 1, 2025, with land and building, having a net book value of $1,943,453 (March 31, 2023: $2,012,414), pledged as collateral. | 878,646 | 998,080 | ||||
Less current portion | (492,762 | ) | (998,080 | ) | ||
Total long-term debt | 385,884 | - |
11 | |
ZENTEK LTD. NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS | |
(Stated in Canadian Dollars) | |
AS AT JUNE 30, 2023 AND FOR THE THREE MONTHS ENDED JUNE 30, 2023 AND 2022 |
11.SHARE CAPITAL
(a)Share Capital
The Company is authorised to issue an unlimited number of common shares, with no par value.
During the three months ended June 30, 2023, the Company issued 50,000 common shares in connection with the exercise of 50,000 options (2022: 115,000 common shares on exercise of 115,000 options). The carrying value of the options, being $46,000 (2022: $22,850), was removed from share-based payment reserve and added to share capital.
(b)Share Purchase Warrants
The Company had no share purchase warrants outstanding as of June 30, 2023 and March 31, 2023.
(c)Stock Options and Share-Based Payment Reserve
During the three months ended June 30, 2023, the Company issued 850,000 stock options to a number of consultants, employees and directors at exercise prices ranging from $2.12 to $2.24. The grant date fair value of these stock options was $1,154,250. The vesting period for the stock options issued was as follows: 283,333 at the date of issuance; 216,667 after 6 months from the date of issuance; 283,333 after 12 months from the date of issuance; and 66,667 after 24 months from the date of issuance.
During the three months ended June 30, 2022, the Company issued 200,000 stock options to an employee at an exercise price of $2.59. The grant date fair value of these stock options was $314,000. The vesting period for the stock options issued was as follows: 66,667 at the date of issuance; 66,667 after 12 months from the date of issuance; and 66,666 after 24 months from the date of issuance.
The grant date fair value of the stock options was calculated using the Black-Scholes option pricing model. A summary of the inputs used to value the options issued during the three months ended June 30 is presented below:
June 30, 2023 | June 30, 2022 | ||
Expected dividend yield | 0% | 0% | |
Expected volatility | 83% to 90% | 95% | |
Expected forfeiture rate | 5% | 0% | |
Risk-free interest rate | 3.6% to 4.5% | 2.5% | |
Expected life | 3 to 5 years | 3 years |
The Company's computation of expected volatility for the three months ended June 30, 2023 and 2022 is based on the Company's market close price over a prior period equal to the expected life of the options.
12 | |
ZENTEK LTD. NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS | |
(Stated in Canadian Dollars) | |
AS AT JUNE 30, 2023 AND FOR THE THREE MONTHS ENDED JUNE 30, 2023 AND 2022 |
11.SHARE CAPITAL
(c)Stock Options and Share-Based Payment Reserve (continued)
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 recognised as compensation expense and under capital stock as share-based payment reserve:
Three months Ended June 30, 2023 |
Three months Ended June 30, 2022 | |||||
$ | $ | |||||
Share-based compensation expense | 809,147 | 1,276,127 |
Stock option and share-based payment activity for the periods ended June 30, 2023 and March 31, 2023 are summarised as follows:
Three months ended June 30, 2023 |
Year ended March 31, 2023 | |||||||||||
Number |
Weighted average exercise price | Number |
Weighted average exercise price | |||||||||
$ | $ | |||||||||||
Balance, beginning of period | 8,673,334 | 2.03 | 8,692,334 | 2.01 | ||||||||
Granted | 850,000 | 2.16 | 600,000 | 2.36 | ||||||||
Exercised | (50,000 | ) | 1.76 | (348,333 | ) | 0.58 | ||||||
Expired | - | - | (270,667 | ) | 3.87 | |||||||
Balance, end of period | 9,473,334 | 2.04 | 8,673,334 | 2.03 |
At June 30, 2023, outstanding options to acquire common shares of the Company were as follows:
Options Outstanding | Options Exercisable | ||||||||||||||
Range of exercise Prices CAD$ |
Number Outstanding as at June 30, 22023 |
Weighted Average Remaining Contractual Life (years) |
Weighted Average Exercise Price CAD$ |
Number Outstanding as at June 30, 2023 |
Weighted Average Exercise Price CAD$ | ||||||||||
$0.40 - $1.00 | 4,283,334 | 0.87 | $ | 0.49 | 4,283,334 | $ | 0.49 | ||||||||
$1.01 - $4.00 | 3,375,000 | 2.56 | $ | 2.71 | 2,550,000 | $ | 2.87 | ||||||||
$4.01 - $5.67 | 1,815,000 | 2.73 | $ | 4.47 | 1,610,000 | $ | 4.44 | ||||||||
Totals | 9,473,334 | 1.83 | $ | 2.04 | 8,443,334 | $ | 1.96 |
13 | |
ZENTEK LTD. NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS | |
(Stated in Canadian Dollars) | |
AS AT JUNE 30, 2023 AND FOR THE THREE MONTHS ENDED JUNE 30, 2023 AND 2022 |
12.SUPPLEMENTAL DISCLOSURES ON STATEMENTS OF CASH FLOWS
Changes in non-cash working capital balances consist of:
June 30, 2023 $ |
June 30, 2022 $ | |||||
Accounts and other receivables | 273,958 | 143,092 | ||||
Inventories | (141,200 | ) | (510,891 | ) | ||
Prepaids and deposits | 310,394 | (321,422 | ) | |||
Accounts payable and accrued liabilities | 59,031 | 1,293,539 | ||||
Total change in non-cash working capital balances | 502,183 | 604,318 | ||||
Supplementary disclosures: | ||||||
Change in accounts payable relating to property and equipment | $ | (62,429 | ) | $ | - |
Cash and cash equivalents are comprised of:
June 30, 2023 |
March 31, 2023 | |||||
$ | $ | |||||
Cash in bank | 3,526,070 | 157,317 | ||||
Cashable guaranteed investment certificate, variable rate, maturing September 2023 | 7,000,000 | 10,000,000 | ||||
Cashable guaranteed investment certificate, 2.75%, maturing December 2023 | 200,000 | 200,000 | ||||
Total cash and cash equivalents | 10,726,070 | 10,357,317 |
The guaranteed investment certificate of $200,000 is held as collateral by the Company's primary financial institution against corporate credit cards.
13.RELATED PARTY TRANSACTIONS
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 Company defines key management personnel as its key executive management and Board of Directors. In addition to their salaries, the Company provides a benefit plan and other allowances to its key management personnel. Key management personnel are also granted stock options at the discretion of the Board of Directors.
The remuneration of key management personnel during the the months ended June 30, 2023 and 2022 were as follows:
2023 | 2022 | |||||
$ | $ | |||||
Directors fees | 30,000 | - | ||||
Salaries and benefits | 276,250 | 246,250 | ||||
Share-based compensation | 599,525 | 757,049 | ||||
Total remuneration of key management personnel | 905,775 | 1,003,299 |
14 | |
ZENTEK LTD. NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS | |
(Stated in Canadian Dollars) | |
AS AT JUNE 30, 2023 AND FOR THE THREE MONTHS ENDED JUNE 30, 2023 AND 2022 |
14.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.
b)Research Agreements
The Company has entered various agreements with arms' length parties pertaining to ongoing science efforts in pursuit of research and/or development and intellectual property with the objective of profitably bringing products to market. Many of the counterparties to these agreements are Canadian universities and affiliated individuals. These agreements can be generalized as having 'no fault' termination clauses regarding ongoing commitments and future liability when the Company determines that the pursuit becomes ineffective or unlikely to result in a profitable or commercially-viable product.
Under certain of these technology license agreements with Canadian universities, the Company has an obligation to pay royalties on revenues from any subject technologies. No such revenues have been earned to date.
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. Although there can be no assurance that any particular claim will be resolved in the Company's favour, management does not believe that the outcome of any claim or potential claims of which it is currently aware will have a material adverse effect on the Company.
15.NET LOSS PER SHARE
Basic net 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 June 30, 2023 is 99,579,168 (2022: 99,298,388). Diluted net loss per share figures are calculated after taking into account all warrants and stock options granted. For the three months ended June 30, 2023 and June 30, 2022, all stock options and warrants were excluded from the diluted per share amounts as their effect is anti-dilutive in loss periods.
16.GOVERNMENT GRANTS
The Company has entered into agreements with various government agencies under which the Company is entitled to receive assistance and cost recoveries for specific research and development activities. During the year ended March 31, 2023, the Company was successful in securing funding with the National Research Council for the Industrial Research Assistance Program for an HVAC project which included funding to offset both labour and third-party testing costs. At period end, a receivable of $46,322 was recorded.
15 | |
ZENTEK LTD. NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS | |
(Stated in Canadian Dollars) | |
AS AT JUNE 30, 2023 AND FOR THE THREE MONTHS ENDED JUNE 30, 2023 AND 2022 |
17.OTHER EXPENSES
Three months Ended June 30, 2023 |
Three months Ended June 30, 2022 | |||||
$ | $ | |||||
Automotive | 6,170 | 6,991 | ||||
Bank fees | 1,317 | 651 | ||||
Dues and subscriptions | 11,254 | 53,504 | ||||
Freight and delivery | 88,760 | 27,623 | ||||
Meals and entertainment | 14,159 | 22,555 | ||||
Other expenses | 20,320 | 12,891 | ||||
Property taxes | 7,955 | 7,908 | ||||
Repairs and maintenance | 25,209 | 19,480 | ||||
Telephone | 6,010 | 3,430 | ||||
Utilities | 481 | 4,378 | ||||
Total other expenses | 181,635 | 159,411 |
18.SUBSEQUENT EVENTS
On July 2, 2023, 1,250,000 stock options were exercised. Of these options, 1,200,000 were exercised using a "cashless" exercise method whereby 289,854 fewer shares were issued than options exercised as compensation for the $600,000 in cash that traditionally would have been received by the Company upon exercise.
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Zentek Ltd. published this content on 11 August 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 11 August 2023 21:35:51 UTC.