MBX Biosciences, Inc. Common Stock Annual Report 2014

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FY2014 Annual Report · MBX Biosciences, Inc. Common Stock

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M I C R O B I X B I O S Y S T E M S I N C .

ANNUAL REPORT 2014

Microbix has a Virology products business

including the manufacturing and sale of cell

culture-based biological products, including one

the world’s most expansive sources of

Infectious Disease Antigens targeted at the

diagnostics market. This platform has led to the

development of VIRUSMAX®

(a virus yield

enhancement

technology), and Kinlytic®

thrombolytic drug), and LumiSort™ a semen

sexing technology. These products have been

selected based on their near term market potential

to provide an above average return on investment.

TABLE OF CONTENTS

Letter to Shareholders .................................................

Management’s Discussion and Analysis .....................

Auditors’ Report ...........................................................

Financial Statements ...................................................

Message to shareholders

In 2014 we continued

to build on

the

transformational changes

implemented

last

year, while we also pursued the successful

commercialization of our pipeline products.

We experienced extraordinary growth in our

Virology Products business driven by a new

multi-year commitment from a large European

customer. This was a very important vote of

confidence in our Company and we responded

by expanding our manufacturing capacity; adding

a second production shift and investing in new

process equipment. As a result, we successfully

satisfied all of the new shipment requests, which

increased our total virology product sales by 25%.

We also carefully controlled our costs during the

sexing providing dairy and beef producers with

much lower costs and improved productivity.

It was an extremely busy year

for our
VIRUSMAX® franchise. We successfully defended

our European patents against a challenge by

Novartis Vaccines and Diagnostics in Munich last

January. We also launched legal actions against

Novartis alleging patent infringement in both the

U.S. and Europe. We expect both actions will go

to trial in late 2015.

In the past year we have met with several
parties that are interested in returning Kinlytic® to

the U.S., Canadian and European markets. We

are now in advanced discussions with a small

number of parties, and I am optimistic that we will
secure a new Kinlytic® partner in 2015.

year helping to improve operating profits to nearly

In the past year I have presented Microbix’

$500,000 in 2014.

In February, we closed on new financing

to develop the LumiSort™ prototype, the first

step

towards eventually commercializing

the

LumiSort™ technology platform. This was part of

a larger refinancing of our overall debt position

with a major debenture holder that helped to

strategy to several investment houses in Canada

and the U.S. They like our story and they believe

our Company

is significantly undervalued.

Recently our share price reached a 52-week high

of $0.90, up from a low of $0.12 last December.

I am pleased our shareholders are finally being

rewarded for supporting our Company and we

improve our balance sheet. This new financing

have so much more work to accomplish.

arrangement also provided the opportunity to

In November, Microbix placed 2nd among 18

replace an earlier, very restrictive agreement with

finalists from across the province for the Ontario

an animal genetics company, thereby restoring

Business Achievement Award for medium-sized

our ability to independently decide on future

companies, sponsored by the Ontario Chamber of

partnering opportunities for Lumisort™.

Commerce. We are very proud of this recognition

In early March, we started developing the

from such a respected organization.

LumiSort™ prototype with Lathrop Engineering in

On behalf of everyone at Microbix, I extend to

California. As we publish our year-end results, we

you our best wishes for the coming year.

are also announcing completion of the LumiSort™

prototype, the first step in bringing a commercial

version of this platform to the global livestock

artificial insemination market valued at over $2

billion. LumiSort™ will introduce transformative

advantages in speed, yield and fertility to semen

Vaughn C. Embro-Pantalony
PrEsidEnt and ChiEf ExECutiVE offiCEr

Microbix biosysteMs inc.MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 2014 AND 2013

The Company prepares its financial statements in accordance with International Financial Reporting Standards
(“IFRS”) as set out in the Handbook of the Canadian Institute of Chartered Accountants (“CICA Handbook”).
The audited disclosures and values in this MD&A have been prepared using the standards and interpretations
currently issued and effective at the end of September 30, 2014.

The following analysis is prepared by Management and provides a review of the Company’s results of operations,
financial condition and cash flows for the years ended September 30, 2014 and 2013. This analysis should be read
in conjunction with the audited consolidated financial statements and related notes for the year ended September
30, 2014. The 2014 Annual Report for the Company and additional information regarding the business of the
Company are available on SEDAR at www.sedar.com.

Reference to “we”, “us”, “our”, or the “Company” means Microbix Biosystems Inc. unless otherwise stated.
All amounts are presented in Canadian dollars unless otherwise stated. Statements contained herein, which are
not historical facts, are forward looking statements that are subject to certain risks and uncertainties that could
cause actual results to differ materially from those set forth or implied. These forward-looking statements involve
risks and uncertainties, including the difficulty in predicting product approvals, acceptance of and demand for new
products, the impact of the products and pricing strategies of competitors, delays in developing and launching
new products, regulatory enforcement, changes in operating results and other risks, some or any of which could
make the results differ materially from those discussed or implied in the forward-looking statements. The Company
disclaims any intent or obligation to update these forward looking statements.

This Management Discussion and Analysis is dated December 19, 2014.

COMPANY OVERVIEW
Microbix Biosystems Inc. (Microbix or the Company) (TSX: MBX) develops biological products and technologies.
The Virology Business (Virology) manufactures and develops cell culture-based biological products and technologies.
The Company has developed and acquired three technologies for large life sciences markets including Virus Yield
Enhancement Technology, Virusmax®, the thrombolytic drug Kinlytic® (Urokinase), and an animal reproductive
technology in development, LumiSort™. The development of new products and technologies are funded with
income earned from Virology and additional cash flows from equity and debt issuance. Microbix has substantial
capability, both in technical expertise and laboratory facilities for development. Microbix is providing materials for
diagnoses of infectious diseases. The same expertise and competencies involved are applicable to developing materials
to facilitate treatment. The Company continually invests in Virology to adopt current technologies and standards,
upgrading capabilities to support its customers. Revenue generated from Virology is used to meet operational costs,
the development program and to service the Company’s debt.

The Virology Business is expected to continue to generate a profit, part of which will be invested in the
development pipeline. The Company may seek additional capital needed to maintain its current level of investment
in the development pipeline. If necessary, management and the Board of Directors have the discretion to
reduce or suspend investment in development depending on the cash/liquidity needs of the Company.

The Company operates the Virology Business in its owned manufacturing facility at 265 Watline Avenue,
Mississauga, Ontario. The manufacturing facility operates under an infectious diseases biological license from
the Canadian Food Inspection Agency.

Microbix biosysteMs inc.FINANCIAL OVERVIEW

Year Ended September 30, 2014
Total revenue for the year was $8,396,796 ($7,574,593 – 2013), or an increase of 11%. Virology Products revenue
was $8,258,175 ($6,584,844 – 2013), or an increase of 25% as a result of new antigen sales to a large European
diagnostics customer. Meanwhile, Research and Development Contract revenue declined by $851,128 in 2014 as
a result of the termination of the urokinase contract by Zydus Cadila in the first quarter of 2014.

Operating profit for the year was $475,624 ($168,178 – 2013). This improvement was entirely attributable
to higher Virology Products revenue, which resulted in an increased gross margin of $677,384 for fiscal 2014.
Operating expenses for the year at $4,035,877 ($3,665,939 – 2013) were up 10%. However, after removing one-time
gains in fiscal 2013 operating expenses ($131,379 gain on asset disposals, and a one-time debt recovery of $376,171),
2014 operating expenses actually declined 3% compared to normalized operating expenses in 2013.

Net cash inflows in 2014 were $287,308 compared with $31,619 in 2013. Cash used in operations of $1,170,842
($428,355 cash provided in 2013) was primarily due to higher accounts receivable and inventory of approximately $1
million and $0.5 million respectively, due primarily to significantly higher antigen sales in 2014. This higher level of
sales is expected to continue in fiscal 2015.

Cash from financing activities increased $5,002,766 in 2014 compared to 2013, while cash used in investing
activities increased $3,134,389 over 2013 primarily due to the development of the LumiSort prototype instrument.

Quarter Ended September 30, 2014
Total revenue in the fourth quarter was $2,355,879, 5% below the same quarter in 2013. Although Virology
sales at $2,258,029 were 3% above that of the comparative quarter in fiscal 2013, total revenue was down
due to a $185,394 reduction in research and development contract revenue due to the termination of the
urokinase contract by Zydus Cadila in the first quarter of fiscal 2014.

The operating loss in the fourth quarter was $302,963 compared to a normalized operating income of $64,382
in the fourth quarter of 2013, (after removing one-time gains of $131,379 on asset disposals and $376,171 on debt
restructuring in the last quarter of fiscal 2013). This operating loss is the result of lower sales in the fourth quarter
as well as increased spending on pipeline activities.

SELECTED ANNUAL FINANCIAL INFORMATION
The following table is a summary of highlights from the audited financial statements of the Company for the
past two years.

Total Revenue
Operating income (loss)

Total Assets

Total Long-term liabilities
Net Income (Loss) per share
(basic and diluted)
Current Ratio
Debt to Equity Ratio

2014
$

2013
$

8,396,796
475,624

7,574,593
168,178

17,998,928

12,716,036

5,517,175

5,026,217

0.006
1.78
0.60

0.000
1.34
0.91

The Company’s 2014 net income for tax purposes is $1,721,660. The company has sufficient income tax credits to
reduce resulting taxable income to nil.

Microbix biosysteMs inc.

SELECTED QUARTERLY FINANCIAL INFORMATION
The following summarizes key financial information from each of the last eight quarters.

Dec-31-12
$
(restated)
1,095,614

Mar-31-13
$
(restated)
2,103,426

Jun-30-13
$
(restated)
1,906,652

Sep-30-13
$
(restated)
2,468,899

SALES

Dec-31-13
$

Mar-31-14
$

Jun-30-14
$

Sep-30-14
$

1,927,885

2,073,097

2,039,935

2,355,879

Operating income (loss)
before income taxes

(689,538)

308,471

(22,687)

571,932

214,406

269,620

294,561

(302,963)

Sales fluctuate on a quarterly basis due to the timing of customer orders. Net losses in earlier quarters are due to
significant investment in new product development.

LIQUIDITY, CASH FLOWS AND CAPITAL RESOURCES
The consolidated financial statements have been prepared in accordance with the International Financial Reporting
Standards (“IFRS”) on a going concern basis, which presumes the Company will continue operating for the
foreseeable future and will be able to realize a return on its assets and discharge its liabilities and commitments in
the normal course of business.

The company has incurred operating losses resulting in an accumulated deficit of $24,426,070 as at September
30, 2014. Management continuously monitors the financial position of the Company with respect to working capital
needs, as well as long-term capital needs compared to the annual budget. Variances are highlighted and actions
are taken to ensure the Company is appropriately capitalized. The current annual operating budget confirms the
Company is on target and able to support its planned activities.

a) Sources and Uses of Cash
Overall, the Company has realized an improvement in its closing cash balance from $260,048 at the end of fiscal
2013 to $547,356 at the end of fiscal 2014. However, the sources and uses of cash changed significantly from the
prior year.

Cash used by operations in 2014 was $1,170,842 versus cash provided by operations of $428,355 in 2013. Most
of this change was due to the following: (1) an increase in Accounts Receivables of $990,526 which resulted from
higher sales in 2014; (2) a $526,278 increase in Inventory due to growth in Virology sales which required higher
volumes of finished goods inventory, plus significant price increases in various key raw materials; (3) a $421,984
increase in Prepaid Expenses, most of which relates to retainers with various legal counsel, and deposits with the
engineering firm associated with the Lumisort project.

Growth of accounts receivables and inventory are projected to moderate to about 5% in fiscal 2015, in line with

projected growth of Virology sales.

Cash of $4,588,340 provided by financing activities arose mainly from three sources: Issuance of a convertible
debenture for net proceeds of $1,434,441, conversion of warrants and stock options for proceeds of $1,260,481
and net proceeds of $1,953,328 from shares issued pursuant to a private placement.

Cash used in investing activities for new manufacturing equipment, new intellectual property development,
patents, Lumisort™ engineering and equipment totaled $3,380,190, partially offset by the receipts of $250,000
released from previously restricted cash. Projected capital spending in fiscal 2015 is $1.5 million for completion of
the Lumisort Phase 1 project and $1.1 million to upgrade and expand Virology manufacturing.

Microbix biosysteMs inc.b) Future Liquidity and Capital Needs
Microbix funds new product development activities and capital expenditures through profits earned from its Virology
Business and, periodically, from additional equity and/or debt. The Virology business is expected to continue to
generate profits, which will be invested in new product development and manufacturing equipment.

c) Contractual Obligations
The Company had contractual obligations and commercial commitments at September 30, 2014 described in the
following table:

payments due

Total
$

Less than
One year
$

Accounts payable

1,825,614

2-3 Years
$

4-5 Years
$

After
5 years
$

Debentures

Long-term debt

Operating leases

13,772,843

694,284

1,322,318

1,208,568

10,537,673

2,623,085

119,820

234,565

222,240

2,046,460

110,621

65,515

40,422

4,684

Total Contractual Obligations

18,332,163

2,705,233

1,597,305

1,435,492

12,584,133

d) Outstanding Share Capital
Share capital issued and outstanding as at December 19, 2014 was $28,375,872 for 77,993,116 common shares, an
increase of $713,760 and 2,038,658 common shares since September 30, 2014, compared to $24,299,594 of share
capital with 66,684,350 common shares issued and outstanding as September 30, 2013.

RELATED PARTIES
During the fiscal 2014, the Company paid interest of $639,046 ($495,000 – 2013) on the convertible debentures
issued to related party shareholders.

LONG-TERM ASSETS

a) Tangible Assets
During fiscal 2014 the Company spent $3,192,421 on Virology Products production equipment and Lumisort
engineering and equipment.

b) Intangible Assets

Capital Spending
During 2014 the Company invested $187,769, primarily on its patent estate for pipeline projects.

Technology Investment - Lumisort™
In 2005 the Company acquired Sequent Biotechnologies Inc. involved in the development and commercialization
of semen-sexing technology. The fair value of the technology acquired was established as an intangible asset.
New intellectual property has been added as a result of our ongoing research program and new patents, accepted
and pending.

Technology Investment - Urokinase/Kinlytic®
On September 23, 2008, Microbix completed a $2,770,529 acquisition of all Kinlytic assets from ImaRx
Therapeutics, Inc.

Microbix biosysteMs inc.The recoverable amount of the Urokinase intangible has been determined based on a fair value less cost to sell
calculation. That calculation uses risk adjusted cash flow projections based on probability weighted financial budgets
approved by management covering an 11 year period, and a discount rate of 10% per cent. Management made
assumptions based on probabilities of technical, regulatory and clinical acceptances and financial support. Management
also believes that any reasonably possible change in the key assumptions on which the recoverable amount is based
would not cause the carrying amount to exceed its recoverable amount.

LONG-TERM DEBT
a) Non-Convertible Debenture
During the second quarter of fiscal 2014 the Company issued a $2,000,000 non-convertible debenture to a shareholder
of the Company, with principal and interest at 9% per annum payable on a quarterly basis, having a maturity date
of January 31, 2029. The debenture is secured against the Company’s property at 265 Watline Avenue, Mississauga
and other personal property of the Company and is subordinate only to indebtedness to a Canadian chartered bank
or similar financial institution on normal commercial terms up to the maximum principal amount of $2,000,000.

The debenture is being accounted for in accordance with its substance and is presented in the financial statements
in its component parts measured at the time of issue. The debt component was valued first at its present value based
on the effective interest rate on the debt at 25.69% per annum which reflects the inherent risk of investment in the
Company taking into account its underlying stock volatility, credit profile and the ranking of the debt behind the
secured mortgage and commercial banking creditors.

b) Convertible Debentures
During the second quarter, the Company cancelled the $2,000,000 convertible debenture issued on September 10,
2008 and replaced it with a non-convertible debenture. See preceding section a) for further details on the non-
convertible debenture.

On January 31, 2014, the Company issued a $1,500,000 debenture to a shareholder of the Company, with interest
only payable at 9% per annum on a quarterly basis, and having a maturity date of January 31, 2029. The debenture is
convertible into Common Shares at the option of the holder at any time on or prior to the maturity at a conversion
price of $0.35 per common share. The debenture is secured against the real property and the personal property of
the Company including without limiting the foregoing, a registered second mortgage on the property at 265 Watline
Avenue, Mississauga, Ontario in favour of the Holder, its successors and assigns subordinate only to indebtedness to
a Canadian chartered bank or similar financial institution on normal commercial terms up to the maximum principal
amount of $1,500,000.

Over the term of the convertible debenture, the debt component will be accreted to the face value of the
convertible debenture by the recording of additional interest expense. The effective interest rate on the debt
is 25.69%.

c) Business Development Corporation Debt
The Company negotiated a $3,000,000 loan with the Business Development Bank (BDC) for the purchase and build-
out of its new manufacturing facility. There was a further loan of $350,000 for the purchase of new equipment. The
first $1,500,000 from the Business Development Bank for the construction of the Watline facility. The mortgage
is secured with the building. The interest rate is floating, based on BDC’s Floating Base Rate plus a variance of
1.35%. At September 30, 2014 the Floating Base Rate was 5.00% on the outstanding balance of $2,602,060 (2013 -
$2,657,620). Consecutive monthly principal payments of $9,260 are due to February 2037.

Microbix biosysteMs inc.Additionally, BDC offered a 6 month deferral of principal payments on the mortgage beginning with the month
of April, 2014. The deferral amounts to $55,560. As a result the monthly principal payments of $9,260 have been
extended to August 2037.

The second BDC loan of $60,000 was for the purchase of equipment for the facility. The interest rate is floating,
based on BDC’s Floating Base Rate plus a variance of 1.80%, over a term of 8 years. At September 30, 2014 the
Floating Base Rate was 5.00% on the outstanding balance of $21,025 (2013 - $25,375). Consecutive monthly principal
payments of $725 are due to February 2017.

BUSINESS DEVELOPMENT CORPORATION EQUIPMENT LOAN
During the fiscal year, the Company negotiated an additional $615,000 loan with the BDC with a maturity of July, 2020,
subject to interest at the BDC’s Floating Base Rate plus 0.5%, with monthly repayments of principal and interest of
$10,250 starting in August, 2015. The funds were advanced to the Company from the BDC subsequent to year-end and
as at September 30, 2014, the outstanding balance on this loan is $Nil.

TREND INFORMATION
Historical spending patterns are no indication of future expenditures. Investment in the pipeline projects is at the
discretion of management. The Company is not aware of any material trends related to its business that have not been
discussed above.

OUTLOOK
The business of Microbix described in these documents is the result of years of investment in research and development,
which has delivered products and technologies that have received wide customer acceptance and continued growth in
demand. Microbix has both the manufacturing facilities and the scientific expertise in personnel to support this growth,
including the continuous demand for competitive process improvements, as well as new products.

In fiscal 2015, management is projecting continued growth of its Virology business of at least 5%. The Company
also expects to launch its initial offering of molecular genetics antigens primarily targeted at the North American
diagnostic testing marketplace.

Advanced discussions continue with a select group of potential partners interested in returning Kinlytic to the
U.S., Canadian and European markets. Management believes there is a reasonable opportunity to close a partnership
agreement during fiscal 2015.

Construction of the Lumisort prototype will be complete in early 2015. The Company will then commence
partnering discussions with select animal genetics companies in order to fund the pre-commercial phase of development
that will be initiated later in 2015. This will be followed by field trials currently projected for early in fiscal 2016.

Finally, the Company is involved in litigation relating to its VIRUSMAX technology. There are two actions wherein
the Company is alleging infringement of its VIRUSMAX patents in the U.S. and Europe. Both of these actions are
expected to reach the trial stage in late 2015.

RISKS AND UNCERTAINTIES
The Company is exposed to a wide variety of business risks, both known and unknown, which may or may not affect
its operations. Management works continuously to mitigate unacceptable risk, while still allowing the business to grow
and prosper. These risk factors include the following:

Virology Product sales are dependent on a few key clients, open borders, international transportation systems, and
access to raw materials.
The majority of the Company’s Virology sales are made to a small number of key customers located all over the world.
Since these products contributed a majority of the revenue during fiscal 2014, loss of a key customer or, restrictions
on export, import, international transportation of its products, raw materials or insufficient marketing resources, could
materially impact revenue and profitability.

Microbix biosysteMs inc.Environmental, safety and other regulatory
Microbix’ research and manufacturing operations involves potentially hazardous materials. The Company takes the
necessary precautions to appropriately manage such materials as required by applicable environmental and safety
regulations. Changes to environmental and safety legislation may limit the Company’s activities or increase costs. An
environmental accident could adversely impact its operations. Microbix’ diagnostic products are not regulated by
governments in Canada or other jurisdictions. Commercialization of certain products requires approval of regulatory
agencies such as the FDA, in which case Microbix will not receive revenue until regulatory approval is obtained.

Manufacturing of Kinlytic®
In December 2013, Zydus terminated the Kinlytic® license agreement due to a change in their strategic priorities.
During 2014 the Company entered into confidentiality agreements with several parties interested in returning Kinlytic
to the market.

Vaccine technology
The market for the Company’s proprietary Vaccine technology (VIRUSMAX) is limited to a small number of influenza
vaccine manufacturers and this is protected by patents in twenty-one countries globally. In 2014 the Company successfully
defended its European patents at the European Patent Office hearing, following a challenge by Novartis Vaccines &
Diagnostics. This patent defense has led to separate legal actions by the Company against Novartis alleging infringement
in the United States and Europe. These legal actions require significant investment and there is no assurance that the
Company will prevail in these actions.

Products in development
The Company has several products under development, however, it is impossible to ensure these development activities
will result in the completion of a commercial product. If the Company is unable to develop and commercialize products,
it will be unable to recover the related research and development and other expenses.

Product commercialization requires strategic relationships
To commercialize large market products in development, Microbix may need to establish strategic partnerships, joint
ventures or licensing relationships with other pharmaceutical and biotechnology companies. The Company may not be
able to form acceptable strategic relationships.

Operating and capital requirements
Microbix believes that its cash generated from operations is sufficient to meet normal operating and capital needs. However,
additional funding needs may depend upon several factors including: progress of research and development programs;
costs associated with the regulatory process; collaborative and license arrangements with third parties; cost of filing,
prosecuting and enforcing patent claims and other intellectual property rights; potential acquisitions and technological
and market developments. The Company earns most of its profit from sales of its Virology products and technologies
and thus it is a major source of funding for research and development activities. However the Company may, from time
to time, need to raise additional funds to satisfy the funding of current research and development programs, as well as
extraordinary operating costs noted above. Additional financings may not be available, and even if available, may not be
on acceptable terms. Financing from additional capital through an offering of common shares, or debt, may result in
dilution or the issuance of securities with rights senior to the rights of the holders of common shares.

The Company’s success depends on the successful commercialization of our technology
The successful commercialization of products under development is key to Microbix’ success. Product development in
the pharmaceutical and biotechnology industry is highly uncertain and there is no guarantee of market acceptance.

Microbix biosysteMs inc.Failure to obtain and protect intellectual property could adversely affect the business
Microbix’ success will depend, in part, on its ability to obtain patents, or licenses to patents, maintain trade secret protection
and enforce its rights against others. The Company’s intellectual property includes trade secrets and know-how that may
not be protected by patents and there is no complete assurance that it will be able to protect its trade secrets. To help
protect its intellectual property, the Company requires employees, consultants, advisors and collaborators to enter into
confidentiality agreements. However, these agreements may not adequately protect trade secrets, know-how or other
proprietary information in the event of any unauthorized use or disclosure. Protection of intellectual property may also
entail prosecuting claims against others who the Company believes are infringing its rights. Involvement in intellectual
property litigation could result in significant expenses, adversely affecting the development of products or sales of the
challenged product or intellectual property and diverting the efforts of its technical and management personnel, whether
or not such litigation is resolved in the Company’s favour.

Microbix faces and will continue to face significant competition
Competition from pharmaceutical companies, biotechnology companies and academic and research institutions is
significant. Many competitors have substantially greater product development capabilities and financial, scientific,
manufacturing, sales and marketing resources and experience than Microbix. While the Company continues to expand
its technological capabilities in order to remain competitive, Microbix’ competitors are also investing in research and
development activities and enhanced intellectual property positions, which could make it more difficult for Microbix to
commercialize its new technologies and products.

FINANCIAL RISK MANAGEMENT
The primary risks affecting the Company are summarized below and have not changed during the quarter. The list does not
cover all risks, nor is there an assurance that the strategy of management to mitigate the risks is sufficient to eliminate the risk.

Credit risk:
The Company’s cash and cash equivalents are held in accounts or short-term interest bearing accounts at a major Canadian
chartered bank. Management perceives the credit risk to be low. There is a concentration of accounts receivable risk
due to a few large customers comprising the Company’s international customer base. The Company has had virtually
no bad debts over the past several years and accordingly management has recorded an allowance of $1,018 ($54,013 –
2013). Accounts receivable at September 30, 2014 was $2,141,508 ($1,150,982 – 2013), an increase of 86% mostly due
to increased sales in 2014.

Currency risk:
The Company is exposed to currency risk through fluctuations in the exchanges rate affecting sales and receivables
denominated in US dollars and Euros. The Company does not use financial instruments to hedge these risks. At
September 30, 2014 the Company had US dollar and Euro balances in cash, accounts receivable and accounts payable.

Liquidity risk:
Liquidity risk is the risk that the Company will not be able to meets its financial obligations as they fall due. To manage
this situation, the Company projects and monitors its cash requirements to accommodate changes in liquidity needs.

Interest rate risk:
Financial instruments that expose the Company to cash flow interest rate risk are those assets and liabilities with a variable
interest rate. Interest risk exposure is primarily on the BDC debt and the Company’s $500,000 line of credit with a
chartered bank, each of which bear a variable rate pegged to the institution’s base rate. A 1% increase in the bank rate
would cost the Company about $30,000 per year for BDC and about $5,000 on the line of credit if each credit facility was
used to the limit. At September 30, 2014, the Company was not utilizing its line of credit.

Microbix biosysteMs inc.Market risk:
Market risk reflects changes in product prices based on changes in supply and demand, currency and interest rates and the
effect on the Company’s income or value of financial instruments held. Microbix’ products are valuable components of
our customers’ products and are not easily replaced. The Company works closely with customers to ensure its products
satisfy critical customer needs.

CRITICAL ACCOUNTING ESTIMATES
The preparation of these consolidated financial statements requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues and expenses. The Company’s audited consolidated
financial statements are prepared in accordance with Canadian GAAP and International Financial Reporting Standards
(“IFRS”) and the reporting currency is Canadian dollars. On an on-going basis, management bases its estimates on
historical and other experience and assumptions, which it believes are reasonable in the circumstances. The significant
accounting policies that the Company believes are the most critical in fully understanding and evaluating the reported
financial results include:

Intangible Assets
Intangible assets include technology costs, patents, trademarks and licenses. Each is recorded at cost and amortized
on a straight-line basis over the term of the agreements. Intangible assets with indefinite lives are not amortized but
are assessed for impairment on an annual basis.

Impairment of Long-lived Assets
The Company reviews the carrying value of non-financial assets with definite lives for potential impairment when
events or changes in circumstances indicate that the carrying amount may not be recoverable. The carrying value
of non-financial assets with indefinite lives, and of non-financial assets with definite lives but are not ready for
use, are assessed at least annually for impairment based on the impairment test on cash-generating units (CGUs).
The impairment test on CGUs is carried out by comparing the carrying amount of the CGU and its recoverable
amount. The recoverable amount of a CGU is the higher of fair value, less costs to sell and its value in use. This
complex valuation process entails the use of methods such as the discounted cash method which requires numerous
assumptions to estimate future cash flows. The recoverable amount is impacted significantly by the discount rate
selected to be used in the discounted cash flow model, as well as the quantum and timing of risk-adjusted future cash
flows and the growth rate used for the extrapolation.

The impairment loss is calculated as the difference between the fair value of the asset and its carrying value.
Management has determined that no long-lived assets of the Company as at September 30, 2014 have met the
criteria for impairment.

Convertible and Non-Convertible Debentures
Management determines the fair value of the debenture using valuation techniques. Those techniques are significantly
affected by the estimated assumptions used, including discount rates, expected life and estimates of future cash flows.

Deferred income taxes
Deferred income tax assets and liabilities are recognized for the estimated income tax consequences attributable
to differences between financial statement carrying amounts of assets and liabilities and their respective income
tax bases. Deferred income tax assets and liabilities are measured using tax rates expected to be in effect when
the temporary differences are expected to be recovered or settled. The effects of changes in income tax rates are
reflected in future income tax assets and liabilities in the year that the rate changes are substantively enacted.

Microbix biosysteMs inc.Share-based payments
The Company applies the fair value method of accounting for stock-based compensation for awards granted to
officers, directors, employees and consultants of the Company. The fair value of the award at the time of granting is
determined using the Black-Scholes option pricing model, and recognized as a compensation expense on a straight-
line basis over the vesting period with an offsetting amount recorded to contributed surplus. The amount of the
compensation cost recognized at any date at least equals the value of the portion of the options vested at that
date. When stock options are exercised, the consideration paid by employees or directors, together with the related
amount in contributed surplus, is credited to capital stock. When an employee leaves the Company, vested options
must be exercised within 90 days, or the options expire. Any options that are unvested are reversed in the period
that the employee leaves.

FINANCIAL INSTRUMENTS
The fair value of a financial instrument is approximated by the consideration that would be agreed to in an arm’s
length transaction between willing parties and through appropriate valuation methods, but considerable judgment
is required for the Company to determine the value. The actual amount that could be realized in a current market
exchange could be different than the estimated value.

The carrying amounts of cash and cash equivalents, accounts receivable, bank indebtedness and accounts

payable and accrued liabilities approximate fair value due to the short-term maturities of these instruments.

Based on available market information, the fair value of the obligation under capital lease approximates its

carrying value.

The fair value of the long-term debt is based on rates currently available for items with similar terms and
maturities. The fair value of the liability for each convertible debenture has been calculated and the residual is
accounted for in equity.

The Company does not have any off balance sheet financial instruments.

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING

DISCLOSURE CONTROLS
The Chief Executive Officer and the Chief Financial Officer have evaluated the effectiveness of the Company’s
disclosure controls and procedures, as defined in the National Instrument 52-109 Certification of Disclosure in
Issuer’s Annual Filings (NI 52-109F1). As at September 30, 2014, management has concluded that the disclosure
controls are effective in providing reasonable assurance that information required to be disclosed in the Company’s
reports is recorded, processed summarized and reported within the time periods specified in the Canadian Securities
Administrator’s rules and forms.

INTERNAL CONTROLS OVER FINANCIAL REPORTING
The design of internal controls over financial reporting (“ICFR”) within the company is a management responsibility
to provide reasonable assurance that the reliability of financial reporting and that the preparation of financial
statements for external purposes is in accordance with generally accepted accounting principles of IFRS. While
the CEO and CFO believe that the internal controls are adequate to provide the above information, the process to
evaluate and document all policies and procedures that could impact financial reporting is continuously reviewed
with consultation with the Audit Committee. Shareholders should be aware that Microbix is a small company
without the department resources associated with larger firms. Management is using the Committee of Sponsoring
Organization of the Treadway Commission (“COSO”) Framework and has concluded that the Internal Control
over Financial Reporting (“ICFR”) as defined in NI 52-109 is effective as at the period ended September 30, 2014.
Examination by the Chief Executive Officer and the Chief Financial Officer showed that there were no
changes to the internal controls over financial reporting during the period ended September 30, 2014 that have
materially affected, or are reasonably thought to materially affect, the internal control over financial reporting.

Microbix biosysteMs inc.RECENT ACCOUNTING PRONOUNCEMENTS
Periodically new standards, interpretations, amendments and improvements to existing standards are issued by
the International Accounting Standards Board (IASB) or IFRS Interpretation Committee (IFRIC) that become
mandatory at certain dates. Management routinely assesses the impact of these pronouncements on the Company.
There are no pending standards that may be applicable to the Company.

IFRS 7 – Financial Instruments: Disclosures
In December 2011, the IASB amended IFRS 7 to provide additional information about offsetting of financial assets and
financial liabilities. Additional disclosures will be required to enable users of financial statements to evaluate the effect
or potential effect of netting arrangements on the entity’s financial position. The amendments are effective for annual
periods beginning on or after January 1, 2013. There was no impact to the financial statements as a result of the adoption
of this update.

IFRS 9 – Financial Instruments
IFRS 9, issued in November 2009 and amended in October 2010, introduced new requirements for the classification and
measurement of financial assets and the classification and measurement of financial liabilities and for their de-recognition.

All recognized financial assets within the scope of IAS 39 Financial Instruments: Recognition and Measurement are to be
subsequently measured at amortized cost or fair value. Specifically, debt investments that have contractual cash flows that
are solely payments of principal and interest are generally measured at amortized cost at the end of subsequent periods.
All other debt and equity investments are measured at their fair value at the end of subsequent periods.

With regard to the measurement of financial liabilities designated as at fair value through profit or loss, IFRS 9 requires
that the amount of change in the fair value of the financial liability, that is attributable to changes in the credit risk of
that liability, is presented in other comprehensive income, unless the recognition of the effects of changes in the liability’s
credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in
fair value attributable to a financial liability’s credit risk are not subsequently reclassified to profit or loss.

The directors anticipate that the application of IFRS 9 in the future may have an impact on amounts reported in respect
of the Company’s financial assets and financial liabilities. However, it is not practicable to provide a reasonable estimate
of the effect of IFRS 9 until a detailed review has been completed.

IFRS 10 - Consolidated Financial Statements
In May 2011, the IASB issued IFRS 10, which establishes principles for the presentation and preparation of consolidated
financial statements when an entity controls one or more other entities. IFRS 10 supersedes International Accounting
Standards (“IAS”) 27, Consolidated and Separate Financial Statements and Standing Interpretations Committee (“SIC”)
12, Consolidation – Special Purpose Entities. IFRS 10 is effective for annual periods beginning on or after January 1, 2013.
There was no impact to the Company’s financial statements as a result of adopting this standard.

IFRS 11 - Joint Arrangements
In May 2011, the IASB issued IFRS 11, Joint Arrangements. This standard separates joint arrangements into joint
ventures and joint operations and provides guidance on accounting for these types of arrangements. IFRS 11 is effective
for annual periods beginning on or after January 1, 2013. There was no impact to the Company’s financial statements as
a result of adopting this standard.

Microbix biosysteMs inc.IFRS 12 - Disclosures of interests in other entities
In May 2011, the IASB issued IFRS 12, which outlines the disclosure requirements for interests in subsidiaries
and other entities to enable users to evaluate the risks associated with interests in other entities and the effects of
those interests on an entity’s financial position, financial performance and cash flows. IFRS 12 supersedes IAS 27,
Consolidated and Separate Financial Statements and SIC-12, Consolidation – Special Purpose Entities. IFRS 12
is effective for annual periods beginning on or after January 1, 2013. As a result of adoption of this standard, the
Company provided additional disclosure in note 1a. There was no impact to the Company’s financial statements as a
result of adopting this standard.

IFRS 13 - Fair value measurement
In May 2011, the IASB issued IFRS 13, Fair Value Measurement. This standard defines fair value, sets out a single IFRS
framework for measuring fair value and outlines disclosure requirements about fair value measurements. IFRS 13 is
effective for annual periods beginning on or after January 1, 2013, with early adoption permitted. This IFRS is to be
applied prospectively as of the beginning of the annual period in which it is initially applied. Disclosure requirements do
not need to be applied to the comparative periods prior to initial application. As a result of adoption of this standard, the
Company provided additional disclosures in note 2(e)(i) and note 15. There were no impacts to the consolidated financial
statements as a result of the adoption of this standard.

Microbix biosysteMs inc.Collins Barrow Toronto LLP
Collins Barrow Place
11 King Street West
Suite 700, Box 27
Toronto, Ontario
M5H 4C7 Canada

T. 416.480.0160
F. 416.480.2646

www.collinsbarrow.com

INDEPENDENT AUDITORS’ REPORT

To the Shareholders of Microbix Biosystems Inc.

We have audited the accompanying consolidated financial statements of Microbix Biosystems Inc. and its
subsidiaries, (collectively referred to as the “Company”), which comprise the consolidated statements of
financial position as at September 30, 2014, and the consolidated statements of comprehensive income,
changes in shareholders’ equity and cash flows for the year then ended and a summary of significant
accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with International Financial Reporting Standards, and for such internal control
as management determines is necessary to enable the preparation of consolidated financial statements
that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our
audit. We conducted our audit in accordance with Canadian generally accepted auditing standards.
Those standards require that we comply with ethical requirements and plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial statements are free from
material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditors’ judgment, including
the assessment of the risks of material misstatement of the consolidated financial statements, whether
due to fraud or error. In making those risk assessments, the auditors consider internal control relevant
to the entity’s preparation and fair presentation of the consolidated financial statements in order to
design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the entity’s internal controls. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our audit is sufficient and appropriate to provide
a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of Microbix Biosystems Inc. and its subsidiaries as at September 30, 2014, its financial performance
and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

Microbix biosysteMs inc.Opinion

Other Matter

The consolidated financial statements of Microbix Biosystems Inc. and its subsidiaries for the year ended
September 30, 2013 were audited by another auditor who expressed an unmodified opinion on those
statements on December 24, 2013.

Collins Barrow Toronto LLP
Licensed Public Accountants
Chartered Accountants
December 19, 2014

Microbix biosysteMs inc.CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

ASSETS

CURRENT ASSETS
Cash and cash equivalents
Accounts receivable (note 26)
Inventory (note 5)
Prepaid expenses and other assets (note 6)
Investment tax credit receivable

As at
September 30,
2014
$

As at
September 30,
2013
$

547,356

260,048
2,141,508 1,150,982
1,598,429 1,072,151
75,827
78,757

276,107
143,626

TOTAL CURRENT ASSETS

4,707,026

2,637,765

LONG-TERM ASSETS
Restricted cash (note 7)
Deferred tax asset (note 20)
Prepared expenses (note 6)
Property, plant and equipment (note 8)
Intangible assets (note 9)

TOTAL LONG-TERM ASSETS

TOTAL ASSETS

LIABILITIES

CURRENT LIABILITIES
Accounts payable and accrued liabilities
Current portion of long-term debt (note 12)
Current portion of debentures (note 11)

TOTAL CURRENT LIABILITIES

Non-Convertible debenture (note 11)
Convertible debentures (note 11)
Long-term debt (note 12)
Deferred revenue (note 13)

TOTAL LONG-TERM LIABILITIES

TOTAL LIABILITIES

SHAREHOLDERS’ EQUITY
SHARE CAPITAL (note 14)
EQUITY COMPONENT OF
CONVERTIBLE DEBENTURES (note 11)
CONTRIBUTED SURPLUS (note 15)
ACCUMULATED DEFICIT

TOTAL SHAREHOLDERS’ EQUITY

TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY

265,000
221,704
8,751,760
4,053,438

250,000
-
-
5,929,168
3,899,103

13,291,902

10,078,271

17,998,928

12,716,036

1,825,614
119,820
694,284

1,353,635
119,820
495,000

2,639,718

1,968,455

680,416
1,920,844
2,503,265
412,650

-
2,050,392
2,563,175
412,650

5,517,175

5,026,217

8,156,893

6,994,672

27,662,112

24,299,594

2,351,425
4,487,638
(24,659,140)

2,699,368
3,550,521
(24,828,119)

9,842,035

5,721,364

17,998,928

12,716,036

William J. gastlE
dirECtor

Vaughn Embro-Pantalony
dirECtor

The accompanying notes and summary of significant accounting policies are an integral part of these consolidated financial statements.

Microbix biosysteMs inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

SALES

Virology products and technologies
Research and development contracts

TOTAL SALES

COST OF GOODS SOLD

Virology products and technologies (note 5, 19)
Research and development contracts

Total Cost of Goods Sold

GROSS MARGIN

EXPENSES

Selling and business development (note 19)

General and administrative (note 19)
Research and development (note 19)

Gain on disposal of assets

Financial expenses (note 23)

TOTAL EXPENSES

NET COMPREHENSIVE OPERATING
INCOME FOR THE YEAR

INCOME TAXES

Current income taxes (note 20)

NET COMPREHENSIVE INCOME
FOR THE YEAR

NET COMPREHENSIVE INCOME
PER SHARE (note 18)

Basic

Diluted

Years ended September 30

2014
$

2013
$

8,258,175
138,621

6,584,844
989,749

8,396,796

7,574,593

3,769,255
116,040

2,891,136
849,340

3,885,295

3,740,476

4,511,501

3,834,117

656,989
1,846,745
691,067
-
841,076

893,579
1,789,012
445,817
(131,379)
668,910

4,035,877

3,665,939

475,624

168,178

306,645

166,800

168,979

1,378

0.002
0.002

0.000
0.000

The accompanying notes and summary of significant accounting policies are an integral part of these consolidated financial statements.

Microbix biosysteMs inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

OPERATING ACTIVITIES

Net income for the year
Items not affecting cash
Amortization (note 19)
Accretion of debentures (note 11)
Accretion of asset retirement obligation
Unrealized foreign exchange loss (gain)
Stock options expense
(Gain) loss on disposal of assets
Loss on sale of assets
Recognition of deferred tax asset (note 20)
Change in non-cash working

capital balances (note 21)

Years ended September 30
2013
2014
$
$

168,979

1,378

403,263
39,394
-
-
14,200
-
-
(265,000)

419,195
37,171
(40,708)
(13,491)
186,654
(143,520)
12,142
-

(1,531,678)

(30,466)

CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

(1,170,842)

428,355

INVESTING ACTIVITIES

Restricted cash (note 7)
Proceeds from sale of business
Proceeds from sale of assets (note 8)
Purchase of property and equipment and intangible assets (note 8, 9)

250,000
-
-
(3,380,190)

-
143,520
89,214
(228,535)

CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

(3,130,190)

4,199

FINANCING ACTIVITIES

Decrease in bank indebtedness
Repayments of long term debt
Proceeds from issuance of convertible debenture, net of issue cost (note 11)
Proceeds from exercise of warrants, net of issue costs (note 14)
Issue of common shares, net of issue costs (note 14)

-
(59,910)
1,434,441
1,051,381
2,162,428

(494,736)
(110,560)
(100,000)
10,000
280,870

CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

4,588,340

(414,426)

Effect of foreign currency exchange rate changes
on cash and cash equivalents

NET CHANGE IN CASH AND CASH EQUIVALENTS

DURING THE YEAR

13,491

287,308

31,619

CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR

260,048

228,429

CASH AND CASH EQUIVALENTS - END OF YEAR

547,356

260,048

The accompanying notes and summary of significant accounting policies are an integral part of these consolidated financial statements.

Microbix biosysteMs inc.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

SHARE CAPITAL (note 14)
STATED
NUMBER OF
SHARES
CAPITAL
$

CONTRIBUTED
SURPLUS
$

EQUITY

TOTAL

COMPONENT OF SHAREHOLDERS’

DEFICIT
$

DEBENTURE
$

EQUITY
$

OPENING BALANCE, OCTOBER 1, 2012 65,594,350

24,033,712

3,338,881 (24,829,497)

2,699,368

5,242,464

Share issuances pursuant to
private placement

1,050,000

315,000

Share issue costs, private placements

(59,118)

24,986

Share issuances pursuant to
conversion of warrants

40,000

10,000

Stock option expense

Net income for the year

186,654

1,378

315,000

(34,132)

10,000

186,654

1,378

BALANCE, SEPTEMBER 30, 2013

66,684,350 24,299,594 3,550,521 (24,828,119) 2,699,368

5,721,364

Share issuances pursuant to
private placement

5,128,208

2,000,000

Share issue costs, private placements

(46,672)

Share issue costs related to warrants

(41,160)

41,160

598,000

398,969

(189,869)

3,543,900

1,051,381

Share issuances pursuant to
stock options exercised

Share issuances pursuant to
conversion of warrants

Settlement of equity component
of convertible debenture

Equity component of convertible
debentures

Stock option expense

Net income for the year

1,071,626

(1,264,914)

(193,288)

916,971

14,200

168,979

14,200

168,979

2,000,000

(46,672)

209,100

1,051,381

BALANCE, SEPTEMBER 30, 2014 75,954,458 27,662,112 4,487,638 (24,659,140) 2,351,425

9,842,035

The accompanying notes and summary of significant accounting policies are an integral part of these consolidated financial statements.

Microbix biosysteMs inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2014 and 2013

1. NATURE OF THE BUSINESS

Microbix Biosystems Inc. (Microbix or the Company) (TSX: MBX) develops biological products and technologies. The Virology
Business (Virology) manufactures and develops cell culture-based biological products and technologies. The Company has developed
and acquired three technologies for large life sciences markets including Virus Yield Enhancement Technology, Virusmax®, the
thrombolytic drug Kinlytic® (Urokinase), and an animal reproductive technology in development, LumiSort™. The development
of new products and technologies are funded with income earned from Virology and additional cash flows from equity and debt
issuance. Microbix has substantial capability, both in technical expertise and laboratory facilities for development. Microbix is
providing materials for diagnoses of infectious diseases. The same expertise and competencies involved are applicable to developing
materials to facilitate treatment. The Company continually invests in Virology to adopt current technologies and standards, upgrading
capabilities to support its customers. Revenue generated from Virology is used to meet operational costs, the development program
and to service the Company’s debt.

The Virology business is expected to continue to generate a profit, part of which will be invested in the development pipeline. The
Company may seek additional capital needed to maintain its current level of investment in the development pipeline. If necessary,
management and the Board of Directors have the discretion to reduce or suspend investment in development depending on the
cash/liquidity needs of the Company.

The Company operates the Virology business in its owned manufacturing facility at 265 Watline Avenue, Mississauga, Ontario. The
manufacturing facility operates under an infectious diseases biological license from the Canadian Food Inspection Agency.

2. BASIS OF PREPARATION

Statement of Compliance
The Company’s management prepared these consolidated financial statements in accordance with International Financial
Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB) applicable to the preparation
of financial statements. The Board of Directors approved these Consolidated Financial Statements on December 19, 2014.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Measurement
The consolidated financial statements have been prepared under the historical cost convention, except for the revaluation of certain
financial assets and financial liabilities to fair value. Items included in the financial statements of each consolidated entity in the
Company are measured using the currency of the primary economic environment in which the entity operates (the functional
currency). The consolidated financial statements are presented in Canadian dollars, which is the Company’s functional currency.

Basis of consolidation
These consolidated financial statements include the accounts of the Company and its subsidiary Crucible Biotechnologies
Limited. There has been no business activity in the subsidiary during the fiscal years ended September 30, 2014, and 2013.

Use of estimates and judgments
The preparation of financial statements requires management to make estimates and judgments that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the Consolidated Financial
Statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from
estimates and such differences could be material.

Key areas of managerial judgments and estimates are as follows:

i) Property, Plant and Equipment (PP&E):
Measurement of PP&E involves the use of estimates for determining the expected useful lives of depreciable assets.
Management’s judgment is also required to determine depreciation methods and an asset’s residual value and whether an
asset is a qualifying asset for the purposes of capitalizing borrowing costs.

Microbix biosysteMs inc.3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

ii) Impairment of non-financial assets:
The Company reviews the carrying value of non-financial assets with definite lives for potential impairment when events
or changes in circumstances indicate that the carrying amount may not be recoverable. The carrying value of non-financial
assets with indefinite lives, and of non-financial assets with definite lives but not ready for use, are assessed at least annually
for impairment based on the impairment test on cash-generating units (CGUs). The impairment test on CGUs is carried
out by comparing the carrying amount of the CGU and its recoverable amount. The recoverable amount of a CGU is the
higher of fair value, less costs to sell and its value in use. This complex valuation process entails the use of methods such as
the discounted cash method which requires numerous assumptions to estimate future cash flows. The recoverable amount
is impacted significantly by the discount rate selected to be used in the discounted cash flow model, as well as the quantum
and timing of risk-adjusted future cash flows and the growth rate used for the extrapolation.

iii) Foreign Currency translation:
The determination of functional currency requires judgment. The functional currency is determined based on the currencies
of the main economic activity, the magnitude of these revenue streams and the payments for materials and employees. The
Company generates cash in a variety of currencies and expends cash mainly in one currency, the Canadian dollar.

iv) Income Taxes:
The Company recognizes deferred tax assets, related tax-loss carry-forwards and other deductible temporary differences
where it is probable that sufficient future taxable income can be generated in order to fully utilize such losses and deductions.
This requires significant estimates and assumptions regarding future earnings, and the ability to implement certain tax
planning opportunities in order to assess the likelihood of utilizing such losses and deductions.

v) Share-based payments:
The Company measures the cost of share-based payments, either equity or cash-settled, with employees by reference to the
fair value of the equity instrument or underlying equity instrument at the date granted. Estimating the fair value for share-
based payments requires management to determine the appropriate valuation model for a grant, which is dependent of the
terms and conditions of each grant. In valuing certain types of stock-based payments, such as incentive stock options, the
Company uses the Black-Scholes option pricing model. This valuation includes assumptions about the expected life of the
option, stock price volatility and forfeiture rates.

vi) Accounts receivable:
The Company uses valuation techniques to estimate the fair value of accounts receivable. Note 26 (a) provides additional
information about the aging of accounts receivable. This information was used by management in the determination of the
fair value of these balances.

vii) Debentures:
The Company uses valuation techniques that include inputs that are not based on observable market data to estimate the
fair value of convertible and non-convertible debentures. Note 11 provides additional information about the terms of these
debentures which were used by management in the determination of their fair values.

Revenue Recognition
Revenues from product sales are recognized when persuasive evidence of an arrangement exists, the product is shipped, received
or accepted by the customer, there are no future performance obligations, the purchase price is fixed and determinable, and
collectability is reasonably assured.

Revenue from a contract to provide services is recognized by reference to the stage of completion of the contract.

Revenues from licensing are recognized when the service is rendered or the deliverables are substantially complete and other
revenue recognition criteria are met.

For upfront, non-refundable payments received in accordance with the execution of licensing and collaboration agreements,
revenue is deferred and recognized over the performance period, the period over which the Company maintains substantive
contractual obligations. Amounts the Company expects to earn in the current year are included in the current portion of deferred
revenue and amounts expected to be earned in subsequent periods are included in deferred revenue. The term over which upfront
fees are recognized is revised if the period over which the Company maintains substantive contractual obligations changes.

Microbix biosysteMs inc.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Milestone payments are immediately recognized as licensing revenue when the condition is met, if the milestone is not a condition
to future deliverables and collectability is reasonably assured. Otherwise, they are recognized over the remaining term of the
agreement or the performance period.

Revenues from research and development contracts are recognized based on the percentage of completion method, measured
by the percentage of costs incurred over the estimated total costs for each contract or based on the achievement of milestones
specified in the contract. Management considers expended costs to be the best available measure of progress on these contracts.
Contract costs include all direct material and labour costs and those indirect costs related to contract performance. Provisions for
estimated losses on incomplete contracts are made in the period in which such losses are determined.

Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, deposits with banks and investments in highly liquid instruments with original
maturities of three months or less. Due to the liquid nature of these financial assets the Company has elected to classify them
as held for trading. There are no cash equivalents held at September 30, 2014 or 2013.

Financial assets and liabilities
All financial instruments, including derivatives, are included on the consolidated balance sheet and are measured either at fair
market value or, in limited circumstances, at cost or amortized cost. Subsequent measurement and recognition of the changes
in fair value of financial instruments depends upon their initial classifications as follows:

- Held-for-trading financial assets, measured at fair value with subsequent changes in fair value recognized in current period

net income;

- Held-to-maturity assets, loans and receivables and other financial liabilities, initially measured at fair value and subsequently

measured at amortized cost with changes recognized in current period net income; and

- Available-for-sale financial assets, measured at fair value with subsequent gains and losses included in other comprehensive

income until the asset is removed from the balance sheet.

The following summarizes the Property’s classification and measurement of financial assets and liabilities:

Financial assets:
Cash and cash equivalents
Accounts receivable
Restricted cash
Financial liabilities:
Accounts payable and
accrued liabilities

Non-convertible debentures
Convertible debentures
Long-term-debt

Classification

Measurement

Held-for-trading
Loans and receivables
Held-for-trading

Fair value
Amortized cost
Fair value

Other liabilities
Other liabilities
Other liabilities
Other liabilities

Amortized cost
Amortized cost
Amortized cost
Amortized cost

Transaction costs that are directly attributable to the acquisition or issuance of financial assets or financial liabilities, other than
financial assets and financial liabilities measured at FVTPL, are accounted for as part of the carrying amount of the respective
asset or liability at inception. Transaction costs related to financial instruments measured at amortized cost are amortized using
the effective interest rate over the anticipated life of the related instrument.

Transaction costs on financial assets and financial liabilities measured at FVTPL are expensed in the period incurred.

Financial assets are derecognized when the contractual rights to the cash flows from financial assets expire or have been transferred.

All derivative instruments, including embedded derivatives, are recorded in the financial statements at fair value, except for
embedded derivatives exempted from derivative accounting treatment.

Share issuance and financing costs
Share issue costs are recorded as a reduction of share capital at the date of closing. Financing costs due to the issuance of debt
are deferred, recorded as a reduction of the carrying value of the related debt and amortized over the term of the related debt
using the effective interest method.

Microbix biosysteMs inc.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Inventory
Inventory is carried at the lower of cost and market. Cost consists of direct materials, direct labour and an overhead allocation
and is determined on a first-in, first-out basis. Market is defined as net realizable value, which is defined as the summation of
the selling price plus the cost to complete plus the cost to sell. Management reviews its reserve for obsolete inventory annually
for finished goods and work-in-process.

Property and equipment
Property and equipment is carried at cost less accumulated amortization. Amortization is calculated at rates which will reduce
the original cost to estimated residual value over the estimated useful life of each asset. Amortization commences once the asset
is available for use.

The following rates and methods are used:

Research and development equipment
Other equipment and fixtures
Leasehold improvements
Buildings

Declining balance, 10-100%
Declining balance, 10-30%
Declining balance, 20%
Declining balance, 4%

Assets under lease
Leases that transfer substantially all of the benefits and risks of ownership of the asset to the Company are accounted for as
finance leases. At the time a finance lease is entered into, an asset is recorded together with its related long-term obligation,
reflecting the fair value of future lease payments, discounted at the appropriate interest rates. Assets under finance leases are
amortized over their estimated useful lives at the same rates used for other equipment and fixtures. All other leases are classified
as operating leases and expensed on a straight line basis.

Intangible assets
Intangible assets represent technology costs, patents and trademarks, and rights and licenses. Each is recorded at cost and is
amortized on a straight-line basis over the term of the agreements or over the useful life of the asset. Amortization commences
when the intangible asset is available for use. Intangible assets with definite lives but not yet available for use are assessed
annually for impairment.

Impairment of long-lived assets
An impairment charge is recognized for long-lived assets, including intangible assets with definite lives, when an event or
change in circumstances indicates that the assets’ carrying value may not be recoverable. Intangible assets not yet available
for use are tested annually for impairment. The impairment loss is calculated as the difference between the fair value of the
asset, less costs to sell and its value in use. Management has determined that no long-lived assets of the Company in the years
ended September 30, 2014 and 2013 have met the criteria for impairment.

Share-based compensation
The Company applies the fair value method of accounting for share-based compensation for awards granted to officers, directors
and employees of the Company. The fair value of the award at the time of granting is determined using the Black-Scholes
option pricing model, and recognized as a compensation expense over the vesting period with an offsetting amount recorded to
contributed surplus. Each tranche in an award is considered a separate award with its own vesting period and grant date fair value.

Share options issued to consultants of the Company are based on the fair value of the services provided. The amount of the
compensation cost recognized at any date at least equals the value of the portion of the options vested at that date. When
stock options are exercised, the consideration paid by employees or directors, together with the related amount in contributed
surplus, is credited to share capital. When an employee leaves the Company, vested options must be exercised within 90 days, or
the options expire. Any options that are unvested are reversed in the period that the employee leaves. No valuation allowance
has been made for the expected forfeitures upon issuance of stock options with vesting periods, due to minor expectation of
such events.

Foreign currency translation
Each asset, liability, revenue and expense is translated into Canadian dollars by the use of the exchange rate in effect at the end
of the month in which the transaction occurs. Monetary assets and liabilities denominated in foreign currencies are translated
into Canadian dollars at the exchange rate determined by the Bank of Canada at the year-end date. Exchange gains and losses
arising on these transactions are included in the statement of comprehensive income for the year.

Microbix biosysteMs inc.3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Income per common share
The Company calculates basic income per share amounts for profit or loss attributable to ordinary equity holders. Basic income
per share is calculated using the weighted average number of common shares outstanding during the period. Diluted income per
share is calculated in the same manner as basic income per share except for adjusting the profit or loss attributable to ordinary
equity holders and the weighted average number of shares outstanding, for the effects of all dilutive potential ordinary shares.

Deferred taxes
Deferred income tax assets and liabilities are recognized for the estimated income tax consequences attributable to differences
between financial statement carrying amounts of assets and liabilities and their respective income tax bases. Deferred income
tax assets and liabilities are measured using tax rates expected to be in effect when the temporary differences are expected to be
recovered or settled. The effects of changes in income tax rates are reflected in deferred income tax assets and liabilities in the year
that the rate changes are substantively enacted.

Research and development expenses
Costs associated with research and development activities are expensed during the year in which they are incurred net of tax credits
earned, except where product development costs meet the criteria under IFRS for deferral and amortization.

Investment tax credits
The Company is entitled to Canadian federal and provincial investment tax credits which are earned as a percentage of eligible
research and development expenditures incurred in each taxation year. Investment tax credits are accounted for as a reduction of
the related expenditure for items of a current nature. These credits are only recognized to the extent that it is probable that there
will be sufficient taxable profits against which to utilize the benefits of the credits in the foreseeable future.

4. ACCOUNTING PRONOUNCEMENTS ISSUED BUT NOT YET APPLIED

Certain new standards, interpretations, amendments and improvements to existing standards were issued by the International
Accounting Standards Board (IASB) or IFRS Interpretation Committee (IFRIC) that are mandatory at certain dates or later.
Management is still assessing the effects of the pronouncements on the Company. The standards impacted that may be applicable
to the Company are following:

IFRS 7 – Financial Instruments: Disclosures
In December 2011, the IASB amended IFRS 7 to provide additional information about offsetting of financial assets and financial
liabilities. Additional disclosures will be required to enable users of financial statements to evaluate the effect or potential effect of
netting arrangements on the entity’s financial position. The amendments are effective for annual periods beginning on or after January
1, 2013. There was no impact to the financial statements as a result of the adoption of this update.

IFRS 9 – Financial Instruments
IFRS 9, issued in November 2009 and amended in October 2010, introduced new requirements for the classification and measurement
of financial assets and the classification and measurement of financial liabilities and for their de-recognition.

All recognized financial assets within the scope of IAS 39 Financial Instruments: Recognition and Measurement are to be subsequently
measured at amortized cost or fair value. Specifically, debt investments that have contractual cash flows that are solely payments of
principal and interest are generally measured at amortized cost at the end of subsequent periods. All other debt and equity investments
are measured at their fair value at the end of subsequent periods.

With regard to the measurement of financial liabilities designated as at fair value through profit or loss, IFRS 9 requires that the amount
of change in the fair value of the financial liability, that is attributable to changes in the credit risk of that liability, is presented in other
comprehensive income, unless the recognition of the effects of changes in the liability’s credit risk in other comprehensive income
would create or enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to a financial liability’s credit risk are
not subsequently reclassified to profit or loss.

The directors anticipate that the application of IFRS 9 in the future may have an impact on amounts reported in respect of the
Company’s financial assets and financial liabilities. However, it is not practicable to provide a reasonable estimate of the effect of IFRS
9 until a detailed review has been completed.

Microbix biosysteMs inc.4. ACCOUNTING PRONOUNCEMENTS ISSUED BUT NOT YET APPLIED (continued)

IFRS 10 - Consolidated Financial Statements
In May 2011, the IASB issued IFRS 10, which establishes principles for the presentation and preparation of consolidated financial
statements when an entity controls one or more other entities. IFRS 10 supersedes International Accounting Standards (“IAS”) 27,
Consolidated and Separate Financial Statements and Standing Interpretations Committee (“SIC”) 12, Consolidation – Special Purpose
Entities. IFRS 10 is effective for annual periods beginning on or after January 1, 2013. There was no impact to the Company’s financial
statements as a result of adopting this standard.

IFRS 11 - Joint Arrangements
In May 2011, the IASB issued IFRS 11, Joint Arrangements. This standard separates joint arrangements into joint ventures and joint
operations and provides guidance on accounting for these types of arrangements. IFRS 11 is effective for annual periods beginning on
or after January 1, 2013. There was no impact to the Company’s financial statements as a result of adopting this standard.

IFRS 12 - Disclosures of interests in other entities
In May 2011, the IASB issued IFRS 12, which outlines the disclosure requirements for interests in subsidiaries and other entities to
enable users to evaluate the risks associated with interests in other entities and the effects of those interests on an entity’s financial
position, financial performance and cash flows. IFRS 12 supersedes IAS 27, Consolidated and Separate Financial Statements and SIC-
12, Consolidation – Special Purpose Entities. IFRS 12 is effective for annual periods beginning on or after January 1, 2013. There was
no impact to the Company’s financial statements as a result of adopting this standard.

IFRS 13 - Fair value measurement
In May 2011, the IASB issued IFRS 13, Fair Value Measurement. This standard defines fair value, sets out a single IFRS framework
for measuring fair value and outlines disclosure requirements about fair value measurements. IFRS 13 is effective for annual periods
beginning on or after January 1, 2013, with early adoption permitted. This IFRS is to be applied prospectively as of the beginning of the
annual period in which it is initially applied. Disclosure requirements do not need to be applied to the comparative periods prior to initial
application. As a result of adoption of this standard, the Company provided additional disclosures in Notes 25 and 26. There were no
other impacts to the consolidated financial statements as a result of the adoption of this standard.

5. INVENTORY

Inventories as at year-end consist of the following:

Raw material
Work in process
Finished goods

2014
$

404,809
347,698
845,922
1,598,429

2013
$

195,801
207,076
669,274
1,072,151

During the year ended September 30, 2014, inventories in the amount of $1,780,819 (2013 - $1,640,581) were recognized as an
expense through cost of sales. The cost of inventories recognized as an expense includes $Nil (2013 - $67,813) in respect of
write-downs of inventory to net realizable value. The allowance for inventory impairment as at September 30, 2014 was $27,933
(2013 - $27,933).

6. PREPAID EXPENSES AND OTHER ASSETS

Prepaid expenses as at September 30, 2014 were $497,811 (2013 - $75,827) and primarily consist of insurance policy premiums, a
contractually required refundable deposit with a research and development partner, and retainers with the Company’s legal counsel.

7. RESTRICTED CASH

As a condition of the loan agreement with the Business Development Bank in Note 12, $250,000 was restricted and held as an
irrevocable unconditional Letter of Credit. On February 7, 2014 the Business Development Bank advised the Company it had met
the performance criteria required to release the restricted cash of $250,000. On meeting the performance criteria, the Company
reclassified these monies into Cash and cash equivalents on the statement of financial position.

Microbix biosysteMs inc.

8. PROPERTY, PLANT AND EQUIPMENT

The freehold land and buildings have been pledged as security for bank loans under a mortgage (see Note 12). The Company is not
allowed to pledge these assets as security for other borrowings or to sell them to another entity.

Property, plant and equipment consists of:

Cost

Building

Research &
development
equipment
$

Other
equipment
& fixtures
$

Land

Leasehold
improvements

Total

Balance, Oct 1, 2012
Additions
Disposals

4,424,004
109,514
-

Balance, Sept 30, 2013 4,533,518
Additions
2,770
Other transfers
Disposals

907,574 3,217,824

800,000
116,957 -
48,965 -

-
169,047

738,527 3,285,816 800,000
2,842,981 346,670 -
(61,890) -
-

351,660
-
256,850

9,701,062
226,471
474,862

94,810
-
-
(94,810)

9,452,671
3,192,421
(61,890)
(94,810)

Balance, Sept 30, 2014

4,536,288

3,581,508 3,570,596 800,000

12,488,392

Accumulated depreciation

487,568
Balance, Oct 1, 2012
Reversals
-
Depreciation 150,396

Balance, Sept 30, 2013
Disposals
Depreciation 152,356

637,964
-

563,059 2,234,715
(126,646)

-
(34,664) -
-

35,241 119,024

471,654 2,319,075

-
- -
29,461 126,122 -

287,798
(212,195)
19,207

3,573,140
(373,505)
323,868

94,810
(94,810)
-

3,523,503
(94,810)
307,939

Balance, Sept 30, 2014

790,320

501,115 2,445,197 -

3,736,632

Carrying value

Oct 1, 2012
3,936,436
Sept 30, 2013 3,895,554
Sept 30, 2014 3,745,968

344,515
266,873

983,109 800,000
966,741 800,000
3,080,393 1,125,399 800,000

63,862
-
-

6,127,922
5,929,168
8,751,760

Included in Research and development equipment is $2,842,981 related to assets not yet available for use. These assets are not
subject to depreciation.

Microbix biosysteMs inc.

9. INTANGIBLE ASSETS

Intangible assets are depreciated on a straight line basis at the following rates:

License agreement, LumiSort™ (Note 9a)
Technology investments
LumiSort™ (Note 9a)
Kinlytic® (Note 9b)

Intangible assets consist of:

5%
0%

Cost

Capitalized
development
LumiSort™
$

Balance at October 1, 2012
Additions from internal developments
Acquisitions through business transactions
Disposals or classified as held for sale
Other transfers

23,307
-
-
(4,662)
-

Patents and trademarks

Licenses

Kinlytic®
$

2,770,529
-
-
-
-

LumiSort™
$

1,463,016
-
-
-
-

LumiSort™
$

Total
$

278,528
-
-
-
-

4,535,380
-
-
(4,662)
-

Balance at September 30, 2013

18,645

2,770,529

1,463,016

278,528

4,530,718

Additions from internal developments
Acquisitions through business transactions
Disposals or classified as held for sale
Other transfers

-
6,150
-
61,890

-
-
-
-

181,619
-
-
-

-
-
-
-

181,619
6,150
-
61,890

Balance at September 30, 2014

86,685

2,770,529

1,644,635

278,528

4,780,377

Accumulated amortization

Balance at October 1, 2012
Amortization expense
Disposals or classified as held for sale

Balance at September 30, 2013

Amortization expense

Balance at September 30, 2014

Carrying value

7,032
650
(4,661)

3,021

748

3,769

-
-
-

384,042
73,151
-

149,975
21,426
-

541,049
95,227
(4,661)

457,193

171,401

631,615

73,151

21,425

95,324

530,344

192,826

726,939

Net carrying amount, October 1, 2012
Net carrying amount, September 30, 2013
Net carrying amount, September 30, 2014

16,275
15,624
82,916

2,770,529
2,770,529
2,770,529

1,078,974
1,005,823
1,114,291

128,553
107,127
85,702

3,994,331
3,899,103
4,053,438

Microbix biosysteMs inc.

9. INTANGIBLE ASSETS (Continued)

a) Lumisort™
The Company acquired a license agreement from Sequent Biotechnologies Inc. (“Sequent”), a biotechnology company solely
involved in the development and commercialization of the Lumisort™ technology under license. New intellectual property
with the issue of patents has resulted from this research program. These assets are in the process of being developed and
new patents are pending and under development.

b) Kinlytic®
The Company acquired the assets and rights pertaining to development, production, and licensing of Kinlytic® from
Abbott Laboratories in 2008. These assets are in the process of being commercialized.

The recoverable amount of the Kinlytic® intangible has been determined based on its fair value less cost to sell. This
estimate uses risk-adjusted cash flow projections based on probability-weighted financial budgets.

Management made these assumptions based on probabilities of technical, regulatory and clinical acceptances and financial
support. Management believes that any reasonably-possible change in the key assumptions on which the recoverable amount
is based would not cause the carrying amount to exceed its recoverable amount.

10. BANK INDEBTEDNESS

The Company has a revolving line of credit of $500,000 with its Canadian chartered bank that bears interest at the bank’s
prime lending rate plus 2.25%. Accounts receivable and property, plant and equipment are pledged as collateral for the
bank credit facility. As at September 30, 2014 and 2013, the line of credit was fully unused.

Microbix biosysteMs inc.11. DEBENTURES

The Company has convertible and non-convertible debentures issued and outstanding as at year-end. The carrying values of
the debt component of these debentures are as follows:

Non-convertible

Convertible

Total

Date of issue
Proceeds of issue

Jan, 2014
$2,000,000

Jan, 2014
$1,500,000

Feb, 2007
$500,000

Oct, 2006
$500,000

Feb, 2006
$2,000,000

Sep, 2008
$2,500,000

Balance, October 1, 2012
Accretion expense
Repayments
Balance, September 30, 2013
Issuance (extinguishment)
Accretion expense
Repayments
Balance, September 30, 2014
Less: current portion

-
-
-
-
928,373
128,425
(132,098)
924,700
244,284
680,416

-
-
-
-
517,470
77,464
(73,048)
521,886
135,000
386,886

434,077
56,990
(45,000)
446,067
-
58,636
(45,000)
459,703
45,000
414,703

451,758
54,638
(45,000)
461,396
-
55,842
(45,000)
472,238
45,000
427,238

725,312
7,060
-
732,372
(735,085)
74,596
(71,883)
-
-
-

897,074
233,483
(225,000)
905,557
-
236,460
(225,000)
917,017
225,000
692,017

2,508,221
352,171
(315,000)
2,545,392
(217,615)
502,998
(459,931)
2,370,844
450,000
1,920,844

Note

(a)

(b)

(c)

(d)

(e)

(f)

The debentures denoted (a), (b), and (f) are secured against the real property and the personal property of the Company
including without limiting the foregoing, a registered second mortgage on the property at 265 Watline Avenue, Mississauga,
Ontario in favour of the holder, its successors and assigns subordinate only to indebtedness to a Canadian chartered bank or
similar financial institution on normal commercial terms up to their maximum principal.

The debentures denoted (c) and (d) are secured by a subordinated security agreement covering all of the Company’s property
and assets, including its goodwill.

The debenture denoted (e) was extinguished in the current fiscal year. Upon extinguishment, the Company allocated the
consideration paid along with transaction costs incurred consistent with the method used in the allocation of proceeds between
debt and equity when the debenture was originally issued. The result of this allocation was a $Nil gain in the consolidated
statement of comprehensive income and recognition of $1,071,626 of contributed surplus.

Microbix biosysteMs inc.

11. DEBENTURES (Continued)

Convertible debentures contain two components: liability and equity elements. The equity element is presented in equity under
the heading of “equity component of debenture”. Convertible debentures are initially accounted for in accordance with their
substance and are presented in the financial statements in their component parts measured at the time of issue. The debt
components were valued first with the residual to shareholders’ equity. Over the term of the convertible debentures, the debt
components will be accreted to the face value of the debentures by the recording of additional interest expense using the
effective interest rate, as detailed below.

All of the debentures were issued to a shareholder of the company.

Note

(a)

(b)

(c)

(d)

(e)

(f)

Date of issue
Proceeds of issue
Issue costs
Liability component at the date of issue

Jan, 2014
$ 2,000,000
$
$

-
928,373

Jan, 2014
$ 1,500,000
65,559
$
517,470
$

Feb, 2007
$ 500,000
$
$ 388,958

Oct, 2006
$ 500,000
$
$ 413,320

Feb, 2006
$ 2,000,000
$
$ 735,086

Sep, 2008
$ 2,500,000
-
$
885,089
$

Equity component at the date of issue
Conversion price per common share

N/A
$

$
$

916,971
0.35

$ 111,042
0.90
$

$
$

86,680
0.90

$ 1,264,914
0.90
$

$ 1,614,911
0.65
$

Effective interest rate charged
Payment frequency
Maturity of financial instrument
Stated interest rate
Terms of repayment

Blended quarterly payments

25.69%
Quarterly
Jan, 2029
9%
Principal
and interest
61,071
$

25.69%
Quarterly
Jan, 2029
9%
Interest
only
N/A

13.00%
Quarterly
Feb, 2017
9%
Interest
only
N/A

12.00%
Quarterly
Oct, 2016
9%
Interest
only
N/A

25.69%
Quarterly
Jan, 2028
9%
Interest
only
N/A

25.69%
Quarterly
Sep, 2028
9%
Interest
only
N/A

As the issuance of the non-convertible debenture denoted as (a) and the cancellation of the convertible debenture denoted
as (e), were transacted with the same shareholder and represented a substantial modification in the terms, the non-convertible
debenture is being accounted for in accordance with its substance and is presented in the financial statements as new debt,
measured at fair value at the time of the issue.

12. LONG-TERM DEBT

The Company negotiated a series of loans totalling $3,410,000 with the Business Development Bank (BDC) for the purchase and
build-out of its new manufacturing facility.

Purchase of the building
Construction of manufacturing facility
Purchase of equipment for facility

The loans are secured with the building.

$
1,500,000
1,500,000
410,000
3,410,000

For loans totalling $3,350,000, the interest rate is floating, based on BDC’s Floating Base Rate plus 1.35%. At September 30,
2014 the Floating Base Rate was 5.00% on the outstanding balance of $2,602,060 (2013 - $2,657,620). Consecutive monthly
principal payments of $9,260 are due to February 2037.

For loans totalling $60,000, the interest rate is floating, based on BDC’s Floating Base Rate plus 1.80%, over a term of 8 years.
At September 30, 2014 the Floating Base Rate was 5.00% on the outstanding balance of $21,025 (2013 - $25,375). Consecutive
monthly principal payments of $725 are due to February 2017.

Microbix biosysteMs inc.

During the fiscal year, the BDC offered a 6 month deferral of principal payments on the mortgage, beginning with the payment
for April, 2014. The deferral amounted to $55,560 and, as a result, the monthly principal payments of $9,260 have been
extended into August of 2037.

Following is the commitment for the Business Development Corporation loans.

2015
2016
2017
2018
2019
Thereafter

$
119,820
119,820
114,745
111,120
111,120
2,046,460

During the fiscal year, the Company negotiated an additional $615,000 loan with the BDC with a maturity of July, 2020, subject
to interest at the BDC’s Floating Base Rate plus 0.5%, with monthly repayments of principal and interest of $10,250 starting in
August, 2015. The funds were advanced to the Company from the BDC subsequent to year-end and as at September 30, 2014,
the outstanding balance on this loan is $Nil.

13. DEFERRED REVENUE

In 2007, the Company entered into an agreement with the Animal Fine Breeding Station of Hebei Province in China, as the
exclusive distributor of Microbix’ proprietary Semen Sexing Technology (“SST”). Under the terms of the agreement, the
Company had received a non-refundable payment of $400,000 US and will receive an additional payment upon a milestone
achievement. Royalty fees and payment for materials will be made with product sales.

This payment is being accounted for in accordance with its substance and is presented in the financial statements as deferred
revenue on the statement of financial position. The Company will defer recognition of this revenue until all of the deliverables
in the agreement are complete. At September 30, 2014, all of the deliverables have not been met and are not expected to be met
within the next fiscal year and therefore no amount has been recognized or reclassified to current liabilities.

14. SHARE CAPITAL

The Company is authorized to issue an unlimited number of Common Shares with no par value and an unlimited number
of Preference Shares with no par value. The changes in issued and fully paid common shares are noted in the Consolidated
Statement of Shareholder’s Equity and are as follows:

Common shares issued
Proceeds, net of financing costs

Warrants exercised
Stock options exercised

2014
9,270,108
$3,403,678

3,543,900
598,000

2013
1,090,000
$290,868

40,000
-

Microbix biosysteMs inc.

14. SHARE CAPITAL (continued)

The Company closed the following private placement offerings for the years ended September 30, 2014 and 2013:

Date of private placement
Private placement unit, consisting of:
Common shares
Common share purchase warrants

Price, per unit
Gross proceeds of private placement
Less: transaction costs
Net proceeds of private placement

Exercise price of purchase warrant
Term of purchase warrant

Note

2014
Aug, 2014

2013
Oct, 2012

5,128,208
5,128,208

1,050,000
1,050,000

$
0.39
$ 2,000,000
$
(46,672)
$ 1,953,328

0.55
5 years

$
$
$
$

0.30
315,000
(59,118)
255,882

0.33
24 months

(a)

(b)

(a) Each unit consisted of one common share of Microbix and one common share purchase warrant. Securities issued are
subject to a holding period of four months plus a day. A total of 121,555 finder’s warrants were issued. Each finder’s
warrant allows the holder to purchase a unit for $0.47 for a period of 5 years and one day from the date of issue.

(b) Each unit consisted of one common share of Microbix and one common share purchase warrant. Securities issued are
subject to a holding period of four months plus a day. A total of 192,000 finder’s warrants were issued. Each finder’s
warrant allows the holder to purchase a unit for $0.33 for a period of 24 months and one day from the date of issue.

The number of issued and outstanding common shares and the stated capital of Microbix as at September 30, 2014 are
presented below:

Balance, October 1, 2012
Issued on private placement
Exercise of warrants
Balance, September 30, 2013
Issued on private placement
Exercise of warrants
Exercise of stock options
Balance, September 30, 2014

15. CONTRIBUTED SURPLUS

Balance, October 1, 2012
Share issue costs
Stock option expense
Balance, September 30, 2013
Warrant issue costs
Stock options exercised
Settlement of equity component of convertible debentures
Stock option expense
Balance, September 30, 2014

Number of
Shares
65,594,350
1,050,000
40,000
66,684,350
5,128,208
3,543,900
598,000
75,954,458

Stated
Capital ($)
24,033,712
255,882
10,000
24,299,594
1,912,168
1,051,381
398,969
27,662,112

$
3,338,881
24,986
186,654
3,550,521
41,160
(189,869)
1,071,626
14,200
4,487,638

Microbix biosysteMs inc.

16. COMMON SHARE PURCHASE WARRANTS
A total of 2,990,641 warrants scheduled to expire in fiscal 2014, were extended one additional year to March 29, 2015.

A continuity of the Company’s warrants outstanding as at September 30, 2014 and 2013 is presented in the following table:

Outstanding, October 1, 2012
Issued
Exercised
Expired
Extended
Outstanding, September 30, 2013
Issued
Exercised
Expired
Extended
Outstanding, September 30, 2014

Weighted
average
exercise
price
$

0.59
0.33
0.25
0.98
0.40
0.34
0.55
0.30
0.39
0.40
0.48

Units

12,625,694 $
$
1,242,000
(40,000) $
(5,186,226) $
3,250,000 $
11,891,468 $
5,249,763 $
(3,543,900) $
(6,454,455) $
2,990,641 $
10,133,517 $

A summary of the Company’s warrants outstanding as at September 30, 2014 and 2013 is presented in the following table:

2014

Weighted
average
exercise
price
$

Weighted
average
remaining
contractual
life
years

Number
outstanding

5,128,208
5,005,309
-
10,133,517

$
$
$
$

0.55
0.36
-
0.48

4.92
0.43
-
2.70

-
-

11,891,468
11,891,468

2013

Weighted
average
exercise
price
$

-
$
$
-
$ 0.34
$ 0.34

Weighted
average
remaining
contractual
life
years

-
-
0.90
0.90

Range of exercise prices:

$0.55
$0.24 to $0.40
$0.24 to $0.44

Microbix biosysteMs inc.

17. STOCK OPTION PLAN
On March 5, 2013, the shareholders of the Company approved a resolution to amend the Company’s stock option plan.
This amendment changed the total number of Common Shares available to be issued under the plan from a maximum of
10,000,000 to a maximum of 12,000,000 common shares. Under the plan, the Company has a total of 4,354,000 options
issued and pending (2013 - 6,660,000).

The exercise price of each option equals no less that the market price at the date immediately preceding the date of the
grant. In general, options issued under the plan vest and are exercisable in equal amounts in three steps, at the issue date and
at the anniversary date in the subsequent two years. Management does not expect any stock options issued in the year and
remaining unvested at the year-end to be forfeited before they vest.

The following table reflects the activity under the Company’s stock option plan period ended September 30, 2014 and 2013.

Weighted
average
exercise
price
$

Units

Outstanding, October 1, 2012
Issued
Exercised
Expired or forfeitted
Outstanding, September 30, 2013
Issued
Exercised
Expired or forfeitted
Outstanding, September 30, 2014

7,201,666
400,000
-
(941,666)
6,660,000
-

$
$
$
$
$
$
(598,000) $
$
$

(1,708,000)
4,354,000

0.46
0.26
-
1.08
0.36
-
0.35
1.08
0.36

The exercise price of each option equals the closing market price of the Company’s capital stock on the day preceding the
grant date.

The following table reflects the number of options, their weighted average price and the weighted average remaining contract
life for the options grouped by price range as of September 30, 2014 and 2013.

2014

Weighted
average
exercise
price
$

Weighted
average
remaining
contractual
life
years

2013

Weighted
average
Number
of options exercise
outstanding

price
$

Number
of options
outstanding

4,354,000
-
-
4,354,000

$
$
$
$

0.36
-
-
0.36

1.37
-
-
1.37

-
6,535,000
125,000
6,660,000

$
$ 0.35
$ 0.65
$ 0.36

Weighted
average
remaining
contractual
life
years

-
1.38
0.25
1.35

Range of exercise prices:
$0.26 to $0.39
$0.26 to $0.60
$0.64 to $0.73

Microbix biosysteMs inc.

17. STOCK OPTION PLAN (continued)

The fair value of options granted during the year ended September 30 was estimated at the grant date using the Black-
Scholes options pricing model, resulting in the following weighted-average assumptions:

Share price on issue date
Dividend yield
Volatility
Risk-free interest rate
Expected option life (years)
Weighted average fair value
of each option ($/option)

2013

$0.28
0.00%
94.7%
5.00%
5

0.19

The volatility of the stock for the Black-Scholes options pricing model was based on 5-year historic volatility of the Company’s
stock price on the Toronto Stock Exchange. Management believes that the historic stock volatility provides a fair and appropriate
basis of estimate for the expected future volatility of the stock. Stock options are assumed to be exercised at the end of the option’s
life, as management believes the probability of an early exercise is remote.

During the year, the fair value of the options vested in the year were expensed and credited to contributed surplus.

18. INCOME PER SHARE

Basic income per share is calculated using the weighted average number of shares outstanding. Diluted income per share
reflects the dilutive effect of the exercise of stock options, warrants and convertible debt. The following table reconciles
the net income and the number of shares for the basic and diluted loss per share computations:

Numerator

Net income available to common shareholders

Denominator for basic EPS – weighted average
common shares outstanding
Effect of dilutive securities:
Warrants
Stock Options
Convertible Debentures

Denominator for diluted EPS
Earnings per share
Basic
Diluted

2014

$168,979

68,977,187

2,039,737
1,215,000

72,231,924

$0.002
$0.002

2013

$1,378

66,599,987

-
-
-

66,599,987

$0.000
$0.000

The following represents the warrants, stock options and convertible debentures not included in the calculation of diluted
EPS due to their anti-dilutive impact:

Pursuant to warrants
Under stock options
Pursuant to convertible debentures

2014

8,093,779
3,139,000
9,242,979
20,475,758

2013

11,891,468
6,660,000
7,179,487
25,730,955

Microbix biosysteMs inc.

19. EXPENSES BY NATURE

The Company has chosen to present its Statements of Comprehensive Income based on the functions of the entity. The
Consolidated Statements of Comprehensive Income include the following expenses by nature:

a) Employee costs:

Short-term wages, bonuses and benefits
Share based payments
Total employee costs

Included in:
Cost of goods sold
Research and development
General and administrative expenses
Selling and business development
Total employee costs

b) Depreciation and amortization

Included in:
Cost of goods sold
General and administrative expenses
Research and development
Total depreciation and amortization

20. INCOME TAXES

Income Taxes consist of the following, as at September 30:

Provision based on combined federal
and provincial statutory rates
of 26.50% (2013 – 26.50%)

Increase (decrease) resulting from
Permanent differences
Adjustment to previous year’s federal investment tax credits
Adjustment to previous year’s other deferred tax assets
Federal investment tax credits and Ontario research and
development tax credits utilized/refundable (net of tax)
Changes in deferred tax assets not recognized
Benefit of deferred tax assets recognized
Other

Current income tax expense

2014
$

2,234,024
14,200
2,248,224

1,076,258
451,975
385,575
334,416

2,248,224

278,478
748
124,037
403,263

2014
$

126,040

7,851
(1,774,320)
(87,146)

232,867
1,567,554
265,000
(31,201)

306,645

2013
$

3,406,376
186,654
3,593,030

2,069,280
513,526
687,096
323,128
3,593,030

266,041
23,337
129,817
419,195

2013
$

44,600

63,600
-
-

-
70,100
-

(11,500)

166,800

Microbix biosysteMs inc.

20. INCOME TAXES (continued)

The Company has unclaimed research and development expenses, research and development investment tax credits and
accumulated losses for income tax purposes. Certain of these credits have been recognized to the extent that it is probable
that there will be sufficient taxable profits against which to utilize the benefits of the credits in the foreseeable future.

The accumulated non-capital losses may be used to reduce taxable income in future years and must be claimed no later than:

2026
2027
2028
2029
2030
2031
2032

The significant components of future income tax assets are summarized as follows:

Deferred income tax assets
Non-capital loss carry-forwards
Difference in net book value compared
to undepreciated capital cost
Deferred revenue
Unclaimed research and
development expenditures

Future income tax liability related to debentures
Tax assets not recognized
Deferred tax asset

$
449,900
630,700
1,821,400
975,100
475,800
1,144,800
1,223,100
6,720,800

2014
$

2013
$

1,780,978

1,755,400

617,715
187,416

640,100
215,00

3,734,309

3,480,800

(970,124)
(5,350,294)

(783,000)
(5,308,300)

The unclaimed research and development investment tax credits before income tax effect may be carried forward and used
to reduce federal income taxes. These must be claimed no later than:

2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033

$
1,000
149,000
303,000
293,000
304,000
394,000
175,000
220,000
170,000
123,000
107,000
2,239,000

Microbix biosysteMs inc.

20. INCOME TAXES (continued)

The associated tax benefits relating to the unclaimed credits are as follows:

Unclaimed research and development tax credits
Tax assets not recognized
Asset related to investment tax credits

21. CHANGES IN NON-CASH WORKING CAPITAL BALANCE

Accounts receivable
Inventory
Prepaid expenses & other assets
Investment tax credits receivable
Accounts payable and accrued liabilities

22. SUPPLEMENTARY CASH FLOW INFORMATION

Cash paid for interest
Non-cash investing and financing activities
Fees for equity placements
Purchase of assets under capital leases

23. FINANCIAL EXPENSES

Cash interest
Interest on long-term debt
Interest on debentures
Interest other
Interest income
Non-cash interest
Accretion on debentures
Accretion on asset retirement
Financial expenses

2014
$

2013
$

1,790,540
(1,525,540)

2,428,300
(2,428,300)

265,000 -

2014
$

(990,526)
(526,278)
(421,984)
(64,869)
471,979
(1,531,678)

2013
$

296,588
175,123
71,903
(12,865)
(561,215)
(30,466)

2014
$

2013
$

804,393

681,611

44,672
6,907

34,130
-

2014
$

2013
$

168,096
639,046
7,059
(9,807)

36,682
-
841,076

172,393
495,000
14,218
(9,164)

37,171
(40,708)
668,910

Microbix biosysteMs inc.

24. CAPITAL MANAGEMENT

The Company’s capital management objective is to safeguard its ability to function as a going-concern to maintain its
virology operations and to fund its development activities. Microbix defines its capital to include the revolving line of
credit, shareholders’ equity, the Business Development Bank capital loan, and the debentures. The capital at September
30, 2014 was $15,760,664 (2013 - $11,199,751).

To date, the Company has used common equity issues, debentures and a bank mortgage to fund its activities. The equity
is through private placements, the debentures are all controlled by private individuals known to the Company and the
mortgage is with the Business Development Bank. If possible, the Company tries to optimize its liquidity needs by non-
dilutive sources, including investment tax credits, grants and interest income. The Company has a revolving line of credit
of $500,000 with its Canadian chartered bank, Note 10.

The Company’s general policy is to not pay dividends and retain cash to keep funds available to finance the Company’s
growth. However, the Board of Directors may, from time to time, choose to declare a dividend in assets if warranted by
circumstances. There was no change during the year in how the Company defines its capital or how it manages its capital.

25. FINANCIAL INSTRUMENTS

The fair value of a financial instrument is approximated by the consideration that would be agreed to in an arm’s length
transaction between willing parties and through appropriate valuation methods, but considerable judgment is required for
the Company to determine the value. The actual amount that could be realized in a current market exchange could be
different than the estimated value.

The carrying amounts of cash and cash equivalents, accounts receivable, bank indebtedness and accounts payable and
accrued liabilities approximate fair value due to the short-term maturities of these instruments.

The fair value of the long-term debt is based on rates currently available for items with similar terms and maturities. The
convertible and non-convertible debenture fair values are not readily determinable as the convertible debentures have been
issued to shareholders of the Company.

26. FINANCIAL RISK MANAGEMENT

The primary risks that affect the Company are set out below and the risks have not changed during the reporting year.
The list does not cover all risks to the Company, nor is there an assurance that the strategy of management to mitigate the
risks is sufficient to eliminate the risk.

a) Credit risk

The Company’s cash and cash equivalents are held in accounts or short-term interest bearing accounts at one of the
major Canadian chartered banks. Management perceives the credit risk to be low. There is a concentration of accounts
receivable risk due to the few large customers comprising the Company’s international customer base. In fiscal 2014, four
customers account for 82% (2013 - four customers account for 43%) of revenue. The Company has had minimal bad
debts over the past several years and accordingly management has recorded an allowance of $1,018 (2013 - $54,013).

Microbix biosysteMs inc.26. FINANCIAL RISK MANAGEMENT (Continued)

Trade accounts receivable are aged as follows at September 30:

Current
0 - 30 days past due
31 - 60 days past due
61 - days and over past due

b) Currency risk

2014
$

1,350,443
526,022
48,482
216,561
2,141,508

2013
$

1,061,661
111,630
(22,309)
-

1,150,982

Through its global sales the Company is exposed to currency risk, through fluctuations in the exchange rate affecting sales
and receivables denominated in US dollars and Euros. The Company does not use financial instruments to hedge these
risks. At September 30, the significant balances, quoted in Canadian dollars, held in foreign currencies are:

Cash
Accounts receivable
Accounts payable and
accrued liabilities

US dollars

2014
99,491
1,259,391

2013
54,736
1,000,454

Euros

2014
-
738,372

2013
-

140,460

650,440

289,747

32,621

7,024

The impact of a 1 cent increase in the Canadian dollar against the US dollar would result in a revenue loss of about 1%.
The impact of a 1 cent increase in the Canadian dollar against the Euro would result in a revenue loss of about 1.4%.

c) Liquidity risk

Liquidity risk is the risk that the Company will not be able to meets its financial obligations as they fall due. To manage
this situation, the Company projects and monitors its cash requirements to accommodate changes in liquidity needs.

d) Interest rate risk

Financial instruments that potentially subject the Company to cash flow interest rate risk are those assets and liabilities with
a variable interest rate. Interest risk exposure is primarily on the BDC debt that has a variable rate that is pegged to the bank
rate. The rate can be fixed, if the outlook for interest rates should move higher. The only other variable debt the Company
has is the $500,000 line of credit that bears interest at the bank’s prime lending rate plus 2.25%. A 1% increase in the bank
rate would cost the Company approximately $30,000 per year for BDC and about $5,000 on the line of credit usage.

e) Market risk

Market risk is the risk that changes in product prices based on supply and demand criteria, foreign exchange rates and
interest rates will affect the Company’s income or the value of the financial instruments held. Microbix products are
valuable components in many of our customers’ products and not easily replaced. The Company works closely with key
customers to ensure our products meet critical customer results.

f) Fair value

The Company categorizes its financial assets and liabilities measured at the fair value into one of three different levels
depending on the observation of the inputs used in the measurement.

For the 2014 and 2013 fiscal periods, the Company has only the financial instruments in Level 1. At September 30, 2014,
the Company`s financial instruments are cash and cash equivalents for an amount of $547,356 (2013 - $260,048) which
are considered to be Level 1 instruments. There were no transfers between levels during the year.

Microbix biosysteMs inc.

26. FINANCIAL RISK MANAGEMENT (Continued)
f) Fair value (Continued)

The three levels are defined as follows:

a) Level 1: Fair value is based on unadjusted quoted prices for identical assets or liabilities in active markets.

b) Level 2: Fair value is based on inputs other than quoted prices included within Level 1 that are not observable for the

asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

c) Level 3: Fair value is based on valuation techniques that require one or more significant unobservable inputs.

27 . SEGMENTED INFORMATION

The Company operates in two industries: the development, manufacturing and distribution of cell based products and
technology and, provision of facility, technical and production personnel for contract research and development. External
revenue by segment is attributed to geographic regions based on the location of customers: North America, Europe and
Other foreign countries.

The following is an analysis of the Company’s revenue and results from continuing operations by reportable segment:

Virology Products and Technologies
Lumisort ™
Kinlytic®
Total for continuing operations

Segment revenue

Segment profit

2014
$

8,396,796
-
-
8,396,796

2013
$

7,574,593
-
-
7,574,593

2014
$

168,979
-
-
168,979

2013
$

1,378
-
-
1,378

Segment revenue reported above represents revenue generated from external customers. There were no inter-segment
sales in the current year (2013 - $Nil).

The accounting policies of the reportable segments are the same as the Company’s accounting policies described in Note 3.
Segment profit represents the profit before tax earned by each segment without allocation of central administration costs
and directors’ salaries, share of profits of associates, gain recognised on disposal of interest in former associate, investment
income, other gains and losses as well as finance costs. This is the measure reported to the chief operating decision maker
for the purposes of resource allocation and assessment of segment performance.

Segment assets

Segment liabilities

2014
$

2013
$

2014
$

2013
$

Virology Products and Technologies
Lumisort ™
Kinlytic®
Total for continuing operations

11,122,269
4,106,130
2,770,529
17,998,928

8,816,932
1,128,575
2,770,529
12,716,036

2,238,264

1,766,285

-
-

2,238,264

1,766,285

All assets are allocated to reportable segments other than interests in associates and current and deferred tax assets. Assets
used jointly by reportable segments are allocated on the basis of the revenues earned by individual reportable segments. All
liabilities are allocated to reportable segments other than borrowings and current and deferred tax liabilities. Liabilities for
which reportable segments are jointly liable are allocated in proportion to segment assets.

Microbix biosysteMs inc.

27 . SEGMENTED INFORMATION (Continued)

Virology Products and Technologies
Lumisort ™
Kinlytic®
Total for continuing operations

28. GEOGRAPHIC INFORMATION

Depreciation and
amortization

Additions to
non-current assets

2014
$

307,939
95,324
-

403,263

2013
$

323,968
95,227
-
419,195

2014
$

369,200
3,010,990
-
3,380,190

2013
$

228,535
-
-
228,535

The Company operates in three principal geographical areas – North America (country of domicile), Europe and in other
foreign countries. The Company’s revenue from continuing operations from external customers by location of operations
and information about its non-current assets by location of assets are detailed below.

Revenue from
external customers

2014
$

1,652,425
5,835,078
909,293
8,396,796

2013
$

2,638,189
4,287,621

648,783
7,574,593

Non-current
assets

2014
$

2013
$

13,291,902

10,078,271

-
-

13,291,902

10,078,271

North America
Europe
Other foreign countries

29. RELATED PARTY TRANSACTIONS

Key Management Compensation

Key management personnel are those persons having authority and responsibility for planning, directing and controlling
the activities of the Company. Key management includes three executive officers. Compensation for the Company’s key
management personnel was as follows:

Short-term wages, bonuses and benefits
Termination benefits
Share based payments
Total key management compensation

2014
$

595,690
-
-
595,690

2013
$

621,339
87,000
77,516
785,855

During the year ended September 30, 2014, the Company paid interest of $595,721 (2013 - $495,000) on the convertible
debentures issued to related party shareholders.

Microbix biosysteMs inc.

30. COMMITMENTS AND CONTINGENCIES

a) Lease commitments

2015
2016
2017
2018
2019

b) Payments on convertible and non-convertible debentures (Note 11)

2015
2016
2017
2018
2019

c) Contingencies

$
65,515
35,646
4,776
3,306
1,378
110,621

$
694,284
694,284
638,034
604,284
604,284
3,235,170

The Company is party to legal proceedings arising out of the normal course of business. The results of these litigations cannot
be predicted with certainty, and management is of the opinion that the outcome of these proceedings is not determinable. Any
loss resulting from these proceedings will be charged to operations in the period when the loss becomes probable to occur and
reasonably measurable.

Microbix biosysteMs inc.

DIRECTORS

Peter M. Blecher
Ontario, Canada
Staff Emergency Physician
Lakeridge Health Hospital

Mark A. Cochran
Virginia, USA
Managing Director
Johns Hopkins Medicine

Vaughn C. Embro-Pantalony (1) (2)
Ontario, Canada
Chief Executive Officer and President
Microbix Biosystems Inc.

William J. Gastle (2)
Ontario, Canada
Executive Chairman
Microbix Biosystems Inc.

Cameron Groome (1)
Ontario, Canada
Pharmaceutical Executive

Martin A. Marino (1) (2)
Ontario, Canada
Pharmaceutical Executive

Andrew C. Pollock (1) (2)
Ontario, Canada
Marketing Excecutive

Joseph D. Renner (2)
New Jersey, USA
Pharmaceutical Executive

CORPORATE INFORMATION

Corporate Counsel

Boyle & Co. LLP

Auditors

Transfer Agent

Collins Barrow Toronto LLP
Chartered Accountants

Canadian Stock Transfer Company Inc.
as the Administrative Agent for
CIBC Mellon Trust Company
416-682-3860 1-800-387-0825

Bankers

Bank of Montreal

Head Office

Microbix Biosystems Inc.
265 Watline Avenue, Mississauga,
Ontario Canada L4Z 1P3
Tel: 905-361-8910
Fax: 905-361-8911
www.microbix.com

NOTICE OF ANNUAL MEETING
The Annual Meeting of the Shareholders will be held
at the University Club, 380 University Avenue, Toronto,
Ontario on Tuesday, March 3, 2015 at 1:00 PM.

ANNUAL REPORT
Additional copies of the Company’s 2014 Annual Report
are available by contacting Microbix’ head office.

(1)Member of Audit Committee.
(2)Member of the Human Resources,
Compensation and Governance Committee.

SENIOR MANAGEMENT

William J. Gastle
Executive Chairman

Vaughn C. Embro-Pantalony
President and Chief Executive Officer

Charles S. Wallace
Chief Finanical Officer

Dr. Mark Luscher
Senior Vice-President, Scientific Affairs

Phillip Casselli
Senior Vice-President, Sales & Business Development

Kevin J. Cassidy
Vice President, Biopharmaceuticals

Christopher B. Lobb
General Counsel & Secretary

Microbix biosysteMs inc.

M I C R O B I X B I O S Y S T E M S I N C .

265 Watline Avenue,
Mississauga, Ontario
Canada L4Z 1P3
Tel: 905-361-8910
Fax: 905-361-8911
1-800-794-6694
Web Site: www.microbix.com