Company: MMTIF
Filing Date: 2025-02-28
Form Type: 20-F
Source: 0001062993-25-003888
Chunk: 73

Company: MICROMEM TECHNOLOGIES INC
Filing Date: 2025-02-28
Form: 20-F
Item: Item 18
Chunk 73
---
 management against historical performance, budgets, economic and industry indicators and publicly available information.

• We evaluated the key assumptions pertaining to estimated cash flows from operating activities and expected cash flows from financing activities, comparing these to available market data, underlying agreements, private placement raises and subsequent events thereafter.

• We assessed the adequacy of the going concern disclosures included in Note 2 of the consolidated financial statements and consider these to appropriately reflect the assessments that management has performed.

Valuation of Financial Instruments

Critical Audit Matter Description

As described in Note 11 to the consolidated financial statements, for the year ended October 31, 2024, the Company has various convertible debentures some of which result in the recognition of derivative liabilities or equity components. Management measured the fair value of the embedded derivative liability and the fair value of host loans using valuation techniques that require management to make several assumptions related to the inputs into those models. Auditing management's fair value calculations was challenging due to the complexity of accounting for the instruments, the related valuation models and the inputs into those models, which are highly sensitive to changes, such as volatility, risk free rates, variable conversion price and discount rate.

Audit Response

We responded to this matter by performing procedures over valuation of debt instruments. Our audit work in relation to this included, but was not restricted to:

• We obtained and reviewed management's calculations related to the financial instruments, including the assessment of the conversion features and the valuation methodology.

• We obtained signed copies of all agreements, including renewals, conversions and any new issuances and confirmed the balances and terms for a sample of the financial instruments.

• We obtained support for cash receipts related to a sample of newly issued financial instruments and cash disbursements related to a sample of repayments, and, for a sample of conversions, obtained support such as conversion notices and share issuances as confirmed with the transfer agent.

  1 Adelaide Street East, Suite 1900, Toronto, Ontario, M5C 2V9  

• We involved internal professionals with specialized skills and knowledge to assist in developing an independent implied interest rate range for a similar liability without a convertible feature and to assess the prepayment option embedded in the loans.

• We tested the mathematical accuracy of the valuation model and agreed certain inputs including volatility, risk free rates, variable conversion rates and discount rate to underlying source information.

Chartered Professional Accountants

Licensed Public Accountants

February 25, 2025

Toronto, Canada

We have served as the Company's auditor since 2017