Management's Discussion and Analysis ("MD&A")
The following discussion and analysis of Cymat Technologies Ltd. ["Cymat" or the "Company"] financial condition and results of operations should be read in conjunction with the audited comparative consolidated financial statements of the Company for the year ended April 30, 2021, and the associated notes to the consolidated financial statements.
The Company prepares its consolidated financial statements in accordance with International Financial Reporting Standards ("IFRS") as set out in the Handbook of The Chartered Professional Accountants of Canada ("CPA Handbook"). All financial information contained in this MD&A and in the audited consolidated financial statements has been prepared in accordance with IFRS.
This MD&A is dated August 25, 2021 and all amounts herein are denominated in Canadian dollars, unless otherwise stated. This MD&A reflects the accounts of Cymat and its wholly-owned subsidiary, ALU-MMC Hungary, Zrt.
The information below contains certain forward-looking statements that reflect the current view of Cymat with respect to future events and financial performance. Wherever used, the words "may", "will", "anticipate", "intend", "expect", "plan", "believe", and similar expressions identify forward-looking statements. Any such forward-looking statements are subject to risks and uncertainties, and the Company's actual results of operations could differ materially from historical results or current expectations. The Company will review the forward-looking information in the preparation of the MD&A on a quarterly basis and, where appropriate, provide updated forward-looking statements based on the most current view of Cymat.
1. Company Overview and Business of Company
Cymat was incorporated on June 13, 2006 under the Business Corporations Act (Ontario) and is the successor to Duntroon Energy (formerly Cymat Corp.) which was incorporated on June 30, 1998 under the Business Corporations Act (Ontario).
Cymat develops innovative materials for industry. The Company has worldwide rights, through patents and licenses, to produce Stabilized Aluminum Foam ("SAF"). This ultra-light metallic foam is produced using a proprietary, versatile process in which gas is bubbled into molten-alloyed aluminum containing a dispersion of fine ceramic particles to create foam that is then cast into either flat panels or near-net shapes. The result is a material, which is recyclable, with a wide array of features including very low density, mechanical energy absorption, thermal and acoustic insulation, time and temperature insensitivity and has a relatively low cost of production. The technology is focused on producing products for 4 major markets: automotive, architecture, defense and general industrial markets seeking energy management sytems.
Cymat markets architectural material under the trademark, "Alusion™" and energy management products under the "SmartMetal™" trademark.
2. Summary of Market and Industry Environment
The COVID-19 pandemic continues to be highly disruptive to the global economy and has the potential to negatively impact all of the markets for Cymat's SAF. In addition to the effects of the pandemic on this discussion of the market and industry environment, its impact is also reflected in the below discussions of results of operations (Sections 3 and 6), the use of estimates and judgements (Section 9), risks and uncertainties (Section 12) and the discussion of the Company's outlook (Section 15).
The market for architectural and construction materials is characterized by a highly competitive environment with numerous solutions competing for high profile projects. COVID-19 as well as escalating international trade tensions, such as those between the United States and China, has created an environment of global trade uncertainty. Such volatility can have unfavourable effects upon the timing and budgets for large architectural projects. While Cymat's architectural line of products is not among the lowest cost cladding options, its light weight can lead to significant construction savings as it may require less robust, hence less expensive, hanging systems. The Far East continues to demonstrate a robust demand for Cymat's architectural line of products and Europe remains a key market for AlusionTM . Additionally, a number of high-profile orders are expected for the United States in the current fiscal year.
Lightweight, high-energy absorption materials such as SmartMetal™ are elements being used by military and police forces and OEM manufacturers to counter asymmetrical threats such as Improvised Explosive Devices ("IEDs"). SmartMetal™ energy absorption capabilities, its high strength to weight ratio and its ability to maintain its physical properties over time and over a wide temperature range, make it an attractive solution for blast mitigation applications. Test results have confirmed that the use of SmartMetal™, in conjunction with other materials, offers a lower weight solution that significantly reduces mortality and serious injury for the vehicle occupants. While threats from these types of attacks continue, the sales cycle associated with these types of customers is a lengthy one. Often the process that commences with vehicle system design, progresses through system validation and testing, the competitive bidding and contract awarding process and finally arrives at budget allocation and purchase approval can span several years. A recent trend in the US military to postpone the adoption of next generation vehicles in favour of retrofitting new vehicles, may enhance SmartMetalTM 's appeal as SmartMetalTM systems can be added onto existing vehicles without the need to significantly modify existing vehicle structures.COVID-19 relief efforts have placed significant pressure on government budgets; accordingly military and police budgets may be challenged. On the other hand, government adoption of infrastructure stimulus to combat the economic effects of COVID-19 may have potential to positively impact large defense equipment orders.
Vehicle electrification continues to represent a major disruption to the automotive industry. Most major automotive OEM's have publically announced bold initiatives to convert vehicle powertrains from internal combustion engines to electric power, and a significant number of electric vehicle start-ups have been recently created. In order to maximize electric vehicle range, light-weighting is a key element in the successful execution of green vehicle design. OEM's have become increasingly receptive to the exploration of the use of new materials - such as SAF - in the achievement of light-weighting objectives. As a result of this environment, Cymat's management believes that the business development ecosystem for its SmartMetalTM material is especially favourable for the pursuit of automotive contracts.
Additionally, crash performance standards for automotives continue to be strengthened. In order to meet these toughened safety standards, automotive OEM's continue to seek out innovative energy absorption design solutions. Cymat has partnered with Tesseract Structural Innovations Inc. ("Tesseract"), an engineering firm that has patented, tested and proven crash mitigation systems that employ SmartMetalTM 's energy absorption profile to full advantage.
3. Operating Highlights and Year in Review
For the first time in the Company's history, Cymat achieved a positive annual income from operations. The $62,000 income from operations was the result of a record level of AlusionTM sales and also benefited from the receipt of various forms of government assistance.
Sales of AlusionTM for fiscal 2021 were approximately $4.0 million compared to AlusionTM sales of $1.6 million for fiscal 2020. A rebound in sales impacted by the COVID-19 pandemic, and the strength of the architectural sales pipeline were the primary drivers behind the increased AlusionTM revenue.
Blast Mitigation and Energy Absorption
SmartMetal™ sales for fiscal 2021 were approximately $169,000 compared to sales of $94,000 for fiscal 2020. Business development initiatives regarding blast protection kits for military personnel transport vehicles, transportation of explosives and the development of SmartMetalTM for use in multi-threat construction panels were ongoing during fiscal 2021.
Although not significantly represented in annual sales, Cymat continued its efforts to develop a market for SmartMetalTM within the automotive industry. Significant developments included signing a co-operation agreement with Tesseract Structural Innovations Inc. ("Tesseract"). Tesseract brings proven product design, engineering and testing capabilities to the value proposition offered by SmartMetalTM targeting the automotive sector. Cymat also added a senior auto industry executive, Blair Alton, to its business development team.
At the end of the fiscal year, Cymat commenced an equity private placement, culminating in a financing that completed in the first week of May 2021 and raised gross proceeds of $5M. Common shares in the amount of 7,719,725 and common share purchase warrants in the amount of 3,859,862 were issued as the result of this financing.
During fiscal 2021 Cymat received proceeds from various government assistance programs including a $40,000 loan from the Canada Emergency Business Account and an $180,000 loan from the Federal Economic Development Agency for Southern Ontario under their Regional Relief and Recovery Fund.
The following table presents selected annual financial information for the three most recent fiscal years, prepared in accordance with IFRS.
Selected Financial Information by Fiscal Year
All Items in $ 000's, except Net Loss per Share
Cash flow provided by (used in) operations
Net Loss per Share, basic and diluted
The following tables present selected quarterly financial information for the eight most recent quarters for the period ended April 30, 2021.
Selected Financial Information by Fiscal Quarter
All Items in $ 000's, except Net Loss per Share
Research and material testing expenses
The following table presents significant changes in the Company's financial position from April 30, 2020 to April 30, 2021.
Property, plant and equipment, net
Cash and cash equivalents increase of $4,766,000: See Liquidity and Capital Resources section for an explanation of the change in cash and cash equivalents for fiscal 2021.
Restricted cash increase of $1,000: Restricted cash is comprised of cash held in a Hungarian financial institution as the result of the incorporation of ALU-MMC Hungary Zrt. The increase is a result of a VAT refund, partially offset by the payment of administrative expenses.
Trade and other receivables decrease of $39,000: The decrease in receivables was primarily the result of the receipt of government grant/subsidy receivables of $121,000 from the end of fiscal 2020, partially offset by increased trade receivables and an increased HST receivable.
Inventory increase of $133,000: The increase in inventory is the result of increases in raw material inventory ($122,000) and work in process/finished goods inventory ($11,000).
Property, plant and equipment decrease of $137,000: The decrease is a result of depreciation expense of $168,000, partially offset by production equipment purchases of $31,000.
Payables increase of $464,000: The increase in payables was primarily the result of an increase in unpaid royalties and an increase in sales bonuses payable.
Deferred revenue increase of $119,000: Deferred revenue increased as a result of the relatively higher volume of order activity at the end of the fiscal 2021 year end.
Lease liability decrease of $84,000. The decrease was the result of principal repayment.
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Cymat Technologies Ltd. published this content on 15 August 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 15 August 2022 18:45:09 UTC.