M I C R O B I X B I O S Y S T E M S I N C .
ANNUAL REPORT 2015
Microbix Biosystems Inc. (TSX: MBX) develops
biological products and technologies. The
Company has a Virology Products business
including the manufacturing and sale of cell
culture-based biological products, including
one of the world’s most expansive sources of
Infectious Disease Antigens targeted at the
diagnostics market. The Company
is also
utilizing this platform to support development of
Kinlytic® (a thrombolytic drug), and LumiSort™ a
semen sexing technology.
TABLE OF CONTENTS
Letter to Shareholders .................................................
Management’s Discussion and Analysis .....................
1
2
Auditors’ Report ...........................................................
15
Financial Statements ...................................................
16
Message to shareholders
Reflecting on 2015, I am pleased with our
overall financial performance, as both revenue
and profit continued to grow.
We continued to execute our strategic plan,
with the launch of our new line of molecular
diagnostics products, RED Controls, as well as
two new Toxoplasma antigens and three new
Dengue Fever antigens. Microbix is the first
company to offer the complete range of diagnostic
antigens for all strains of Dengue Fever.
After more than a year under development,
the state-of-the-art bioreactor manufacturing
process for Virology products will move into
production in early calendar 2016. Once it is
fully operational, the new manufacturing platform
will generate significant improvements in cost
efficiency and production capacity, which will
enhance our competitive position by contributing
additional productivity improvements of up to $2
million annually.
We completed development of the LumiSort
prototype instrument along with the continued
expansion of the LumiSort patent estate. This
achievement has reinforced our negotiating
position as we work to forge a new partnership
to complete the development of a commercial
instrument and eventually commence field trials
of this exciting new technology in the next two
to three years. We continue to evaluate several
proposals
from
interested animal genetics
companies as we work to finalize a deal that will
provide the most beneficial terms for Microbix and
unlock the maximum value for our shareholders.
that wants to work with Microbix to re-launch
Kinlytic® in the U.S. and Canadian markets.
In addition to the various government funding
sources that have already expressed conditional
interest, we are attracting expressions of interest
from other non-dilutive sources of funding that
would provide the required financial resources to
return this life saving therapeutic to the market.
I remain confident that we will be successful
in securing strong commercialization partners
for Kinlytic®.
In the past year, the U.S. Court overturned
Microbix’ claim of infringement of its VIRUSMAX
patent in the U.S., ruling in favour of Novartis.
The Court’s decision was disappointing, however
we remain committed to the continued defense
and enforcement of our patents around the world
to ensure our intellectual property rights are
preserved and respected.
We are committed to maximizing shareholder
value. To that end, we are focused on closing
strategic partnerships
for LumiSort and
Kinlytic and converting
these opportunities
into commercial realities
that will generate
new income streams for the Company. Also,
we will continue to drive improvements in the
performance of the Virology products business
to maximize its income generating potential.
On behalf of everyone at Microbix, I extend
our best wishes for the coming year.
Advanced discussions continue with a group
Vaughn C. Embro-Pantalony
PrEsidEnt and ChiEf ExECutiVE offiCEr
1
Canadian Funds MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 2015 AND 2014
Canadian Funds
The Company’s Management’s Discussion and Analysis (“MD&A”) should be read in conjunction with the
unaudited Consolidated Interim Financial Statements and notes and should also be read in conjunction with the
audited Consolidated Financial Statements, notes and MD&A for the year ended September 30, 2015, prepared in
accordance with International Financial Reporting Standards (“IFRS”) and filed on Sedar. Additional information
relating to the Company, including its Annual Information Form (“AIF”), can be found 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.
The Management Discussion and Analysis is dated December 31, 2015.
COMPANY OVERVIEW
Microbix Biosystems Inc. (Microbix or the Company) (TSX: MBX) develops biological products and technologies.
The Company has a Virology Products (Virology) business including the manufacturing and sale of cell culture-
based biological products, including one of the world’s most expansive sources of Infectious Disease Antigens
targeted at the diagnostics market. The Company also has VIRUSMAX (a virus yield enhancement technology),
and Kinlytic® (a thrombolytic drug), and is developing LumiSort™ a semen sexing technology.
Revenue from the Virology business which is expected to continue growing for the foreseeable future, is used
for operating and debt service costs, and to fund the Company’s development programs. Additional equity and/
or debt may be raised to finance development of new products and technologies. Management has discretion
to reduce development investment to manage the liquidity needs of the Company.
The Company owns and operates a Virology manufacturing facility at 265 Watline Avenue in Mississauga,
Ontario. The facility has an infectious diseases biological license from the Canadian Food Inspection Agency.
The Company’s administrative offices are located at 211 Watline Avenue.
2
Canadian Funds
FINANCIAL OVERVIEW
Canadian Funds
Year Ending September 30, 2015
Total revenue was $8,873,912, a 6% increase over 2014’s $8,396,796. Included was Virology product revenue at
$8,191,720, slightly lower than 2014, due to rescheduling of orders by the Company’s largest customer from the
fourth quarter of fiscal 2015 to first quarter of fiscal 2016, offset partially by the beneficial impact of the higher
U.S. dollar.
Revenue from licensing fees was $413,895 (2014 - $nil) following the recognition of non-refundable deferred
revenue received from a prospective distributor of the Company’s LumiSort™ technology. Upon completion of the
LumiSort™ prototype in 2015, the distributor advised the Company that it was not interested in representing the
Lumisort™ prototype technology.
Revenue from royalties was $268,297 (2014 - $108,369) recognizing two years’ royalties in fiscal 2015 from the
Company’s rabies virus technology.
Gross margin increased by $1,328,072, due to higher licensing and royalty revenues and the beneficial impact
of the higher U.S. dollar. Operating expenses increased by $1,454,712 compared to 2014. This increase resulted
primarily from higher legal costs related to the Virusmax litigation in the U.S. and Europe, as well as expenses related
to the granting of stock options to directors and employees. Operating income was $348,984 (2014 - $475,624).
Cash generated from operations in fiscal 2015 was $595,402 compared to a $1,170,842 of cash used in operations
in fiscal 2014. Cash used in investing activities was $4,842,022 (2014 - $3,130,190), as a result of completion of
the LumiSort™ prototype and development of the new automation process for the manufacturing of Virology
products. Cash generated from financing activities in fiscal 2015 was $3,803,444 (2014 - $4,588,340), due to the
exercising of common share warrants ($1,738,433) and stock options ($901,830), as well as the net proceeds from
equipment loans ($865,000) and a credit facility ($475,000) offset partially by payments on debt of $176,820. Net
cash flow was $443,176 negative in fiscal 2015 (2014 - $287,308 positive).
Quarter Ending September 30, 2015
Virology product revenue of $1,612,615 was significantly lower than 2014’s $2,355,879, as the Company’s
largest customer rescheduled sales from the fourth quarter of fiscal 2015 to the first and second quarters of
fiscal 2016.
Licensing revenue was $413,895 (2014 - $nil) due to the above mentioned recognition of deferred revenue,
received on a non-refundable basis from a prospective distributor for the Company’s LumiSort technology. Revenue
from royalties was $87,650 (2014 - nil).
Although gross margins were higher this quarter versus last year as a result of higher licensing and royalty
revenues, operating expenses were up almost as much, due to higher litigation costs and higher administration costs
for stock options granted to employees in 2015. The latter is part of the Company’s retention strategy for highly
skilled staff in the competitive labour market for scientific and technical positions. Operating income for the quarter
was $24,327 (2014 - $302,963 loss).
Cash provided by operations was $84,394 compared to $387,587 used in operations for the same period last year.
Cash used in investing activities was $499,512 (2014 - $962,746), reflecting completion of the Lumisort™ prototype
in the previous quarter, leaving only the ongoing development of the new automation process for manufacturing
Virology products. Cash provided by financing activities was $541,624 primarily from equipment loans and credit
facilities offset partially by $54,057 of debt repayment. In summary, the fourth quarter’s net cash flow was $125,865
positive (2014 – $ 95,409).
3
Canadian Funds
CHANGES IN FINANCIAL POSITION
Canadian Funds
Total Revenue
Operating income
Cash
Accounts receivable
Total current assets
Total assets
Total current liabilities
Total liabilities
Total shareholders’ equity
Current ratio
Debt to equity ratio
2015
$
8,873,912
348,984
104,180
1,692,074
5,788,161
23,546,958
4,135,457
9,870,048
13,676,910
1.40
0.72
2014
$
8,396,796
475,624
547,356
2,141,508
4,707,026
17,998,928
2,639,718
8,156,893
9,842,035
1. 78
0.83
SELECTED QUARTERLY FINANCIAL INFORMATION
Sep-30-13
$
Dec-31-13
$
Mar-31-14
$
Jun-30-14
$
Sep-30-14
$
Dec-31-14
$
Mar-31-15
$
Jun-30-15
$
Sep-30-15
$
2,468,900
1,927,885
2,073,097
2,039,935
2,355,879
1,995,833
2,544,900
2,219,019
2,114,160
571,932
214,406
269,620
294,561
(302,963)
90,553
86,335
147,769
24,327
SALES
Operating
Income
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
experienced continued growth in demand. Microbix has both the manufacturing capacity and the scientific
capability to support this growth, including the continuous demand for competitive process improvements, as well
as new products.
Virology product revenues are expected to continue growing in the coming years. The Company continues to
expand its conventional antigen product line and recently it announced the launch of its molecular diagnostic products.
In addition, the Company is experiencing a net favourable currency effect, due to the weakening Canadian dollar versus
the U.S. dollar (55% of sales). The Company also continues to invest in new process technologies that will improve its
manufacturing cost base and expand its production capacity to accommodate the sale of new products. In light of all
of these developments, management expects to realize improved profitability from the Virology products business.
Advanced discussions continue with potential partners interested in returning Kinlytic® to the U.S. and Canadian
markets, as well as other countries. These partner candidates would be expected to contribute to the overall investment
needed to develop and commercialize the product over an approximate 36 month timeframe. Management is optimistic
about the likelihood of closing a partnership during fiscal 2016,
Following the recent completion of the Lumisort™ prototype, partnering discussions with global animal genetics
companies continue to advance.
Finally, the Company has been involved in patent infringement actions in the U.S. and Europe against Novartis
Vaccines and Diagnostics relating to its VIRUSMAX vaccine yield enhancement technology. In fiscal 2015 a decision
was rendered in favour of the defendant and spending related to this litigation has ceased.
4
Canadian Funds
LIQUIDITY, CASH FLOWS AND CAPITAL RESOURCES
Canadian Funds
The consolidated interim 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 historical operating losses resulting in an accumulated deficit of $24,045,156 as at
September 30, 2015. However, in the past nine fiscal quarters, the Company has an accumulated operating profit of
$1.4 million.
Management continuously monitors the financial position of the Company with respect to working capital needs,
as well as long-term capital requirements compared to the annual operating budget. Variances are highlighted and
actions are taken to ensure the Company is appropriately capitalized.
Sources and Uses of Cash
Overall, the Company has realized a negative cash flow of $443,176 (2014 – $287,308 positive).
Cash provided by operations in 2015 was $595,402 versus cash used by operations of $1,170,842 in 2014,
a swing mostly due to improved profitability offset partially by increased inventories and work in process from
increased scheduled shipments in fiscal 2016 and materials for the automation process development. Inventories
increased as a result of rescheduling of orders by the Company’s largest customer from the fourth quarter of fiscal
2015 to first quarter of fiscal 2016. Inventories are projected to normalize in fiscal 2016 and the automation process
development is scheduled to complete in the second quarter of fiscal 2016. Additionally, with the settlement of the
Virusmax litigation, this one time expenditure will not repeat in fiscal 2016.
During the year, the Company invested $4,842,022, with spending mainly on three larger projects: $3 million
on the Lumisort™ new intellectual property development and prototype, $1.1 million on the Company’s new
automation process and $0.6 million on equipment for the new automation process. Completion of the automation
process to commercialization is projected at about $200,000 in fiscal 2016 after which it is expected to contribute
to productivity improvements. Future investment in the Lumisort™ technology will be provided by a development
partner for which an arrangement is presently under negotiation.
Cash of $3,803,444 provided by financing activities arose mainly from three sources: Issuance of debt of
$1,340,000 for equipment loans and operating lines, conversion of warrants of $1,738,433 and exercise of stock
options of $901,830.
Future Liquidity and Capital Needs
Microbix primarily funds new product development activities and capital expenditures from the profits earned by
its Virology business and, periodically, from additional equity and/or debt.
In fiscal 2016 cash flow is expected to improve considerably as the year progress due to: 1) Continuation of
strong profits from the Virology business, 2) Significant decrease in legal costs with the settlement of the Virusmax
litigation, 3) Financing of the next stage of the Lumisort™ development through a partnership arrangement and,
4) Independent funding of Kinlytic® also through a partnership arrangement. It is the opinion of management that
these developments will significantly reduce the cash burn and capital needs of the Company in fiscal 2016 and
improve its overall liquidity position.
5
Canadian Funds
LIQUIDITY, CASH FLOWS AND CAPITAL RESOURCES (Continued)
Canadian Funds
Contractual Obligations
a) Commitments and Contingencies
Over the next five years the Company has long-term commitments as at September 30, 2015 as described in the
following tables:
i) Lease commitments
2016
2017
2018
2019
2020
ii) Payments on convertible and non-convertible debentures
2016
2017
2018
2019
2020
$
42,622
7,552
6,082
4,153
463
60,872
$
694,284
1,649,242
604,242
604,284
604,284
4,156,336
b) Outstanding Share Capital
Share capital issued and outstanding as at December 31, 2015 was $31,590,459 for 84,704,257 common shares versus
83,204,257 common shares at September 30, 2015.
LONG-TERM ASSETS
a) Tangible Assets
During fiscal 2015 the Company spent $3,438,607 on Lumisort™ engineering and equipment and Virology
production equipment.
b) Intangible Assets
During fiscal 2015 the Company spent $340,989 on development of its patent estate and development of the
Lumisort™ prototype and $1,062,427 on the development of the new automation process.
Technology Investment - Lumisort™
In 2005 the Company acquired Sequent Biotechnologies Inc. a developer of semen-sexing technology. For financial
purposes the Company recognized the acquisition cost as the fair value of this technology.
Additional investment has been recognized under the ongoing development program, including intellectual
property in the form of new patents, as well as the work completed in the past year to build and successfully test
the new LumiSort prototype instrument.
6
Canadian Funds
LONG-TERM ASSETS (Continued)
Canadian Funds
Technology Investment – Urokinase/Kinlytic®
On September 23, 2008, Microbix completed a $2,770,529 acquisition of all Kinlytic® assets from ImaRx
Therapeutics, Inc.
The recoverable amount of the Urokinase intangible asset 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 reasonable change in the key assumptions on which the recoverable amount is
based would not cause the carrying amount to exceed its recoverable amount.
Technology Investment – Bioreactor
The Company has internally developed an improved automation process with bioreactors to increase the efficiency and
output of the manufacturing of its virology products. As at September 30, 2015, the process is still being developed.
LONG-TERM DEBT
Business Development Corporation Debt
In fiscal 2009 the Company negotiated a series of loans totalling $3,410,000 with the Business Development Bank
(BDC) for the original purchase and build-out of its manufacturing facility.
Purchase of the building
Construction of manufacturing facility
Purchase of equipment for facility
$
1,500,000
1,500,000
410,000
3,410,000
The loans are secured with the building and equipment. For loans totalling $3,350,000, consecutive monthly principal
payments of $9,260 are due to February 2037 on the outstanding balance of $2,490,940 (Sept 30, 2014 –$2,518,720).
For loans totalling $60,000, consecutive monthly principal payments of $725 are due to February 2017 on the
outstanding balance of $12,325 (Sept 30, 2014 – $14,500).
In fiscal 2015, the Company negotiated a series of loans totalling $865,000 with BDC for process equipment upgrades
in its manufacturing facility.
Equipment for Bioreactor Project
Construction of Manufacturing Facility
Purchase of Equipment for Facility
$
615,000
50,000
200,000
865,000
For a loan totalling $615,000, consecutive monthly principal payments of $10,250 are due to July 2020 on the outstanding
balance of $594,500 (September 30, 2014 - $Nil). The loan has a floating interest rate based on BDC’s Floating Base
Rate plus 0.5%.
For a loan totalling $50,000, consecutive monthly principal payments of $1,040 are due to December 2019 on
the outstanding balance of $50,000 (September 30, 2014 - $Nil). For a loan totalling $200,000, consecutive monthly
principal payments of $3,330 are due to December 2020 on the outstanding balance of $200,000 (September 30,
2014 - $Nil).
7
Canadian Funds
Business Development Corporation Debt (Continued)
Canadian Funds
These loans have a floating interest rate based on BDC’s Floating Base Rate plus 0.5%. At September 30, 2015,
the Floating Base Rate was 5.0%.
On April 16, 2015, the Company entered into a revolving line of credit agreement with its Canadian chartered
bank. The agreement allows the Company to draw on to a limit of $500,000 bearing 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, 2015, the Company had drawn $475,000 on the facility.
Following is the commitment for the next five years for the Business Development Corporation loans as at June 30:
2016
2017
2018
2019
2020
$
282,430
290,185
286,560
286,560
256,700
DEFERRED REVENUE
In 2007, the Company entered into an agreement with the Animal Fine Breeding Station (partner) 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 would receive an
additional payment upon a milestone achievement. This payment was being accounted for in accordance with its
substance and was presented in the financial statements as deferred revenue on the statement of financial position.
In fiscal 2015, the Company advised the partner of the recent completion of its Lumisort™ prototype
technology, and offered the partner the opportunity as a distributor of this technology, which the partner declined.
As a result the non-refundable deposit was reclassified as revenue in fiscal 2015.
TREND INFORMATION
Historical spending patterns are no indication of future expenditures. Investment in the new products and
technologies is at the discretion of management. The Company is not aware of any material trends related to its
business that have not been discussed in this Management Discussion and Analysis dated December 31, 2015.
RISKS AND UNCERTAINTIES
The Company is exposed to 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:
A significant portion of Virology Product sales are dependent on key clients, open borders, international
transportation systems, and access to raw materials.
A significant share of the Company’s Virology products sales are sold to a few key customers globally. These products
contributed a significant share of the revenue in 2015. The loss of a key customer, or restrictions on export, import, or
international transportation of its products, raw materials or insufficient marketing resources, could materially impact
revenue and profitability.
Environmental, safety and other regulatory
Microbix’ research and manufacturing operations involves potentially hazardous materials. The Company takes
extensive precautions to appropriately manage these materials as regulated by the applicable environmental and safety
authorities. Changes to environmental and safety legislation may limit the Company’s activities or increase costs.
8
Canadian Funds
RISKS AND UNCERTAINTIES (Continued)
Canadian Funds
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®
The Company has entered into confidentiality agreements with several parties and advanced discussions are continuing
with a select group of potential partners interested in returning Kinlytic to the U.S. and Canadian markets, and ultimately
to Europe, Asia and developing world markets. There is no assurance the Company will be successful in this endeavour.
Vaccine Technology
The Company owns a proprietary vaccine technology (VIRUSMAX) that has a global patent estate. In January 2014 the
Company successfully defended its European patents at the European Patent Office hearing, following the filing of an
Opposition by Novartis Vaccines & Diagnostics. In 2014 the Company filed patent infringement actions against Novartis
in the U.S. And Europe. During fiscal 2015 a decision was rendered by the U.S. Court in favour of the defendant. The
Company has decided to not appeal this decision and the action against Novartis has ceased.
LumiSort™ Technology
The Company has developed a proprietary semen sexing technology that has a global patent estate. In 2014 and 2015
the Company built and successfully tested a prototype instrument that confirms the key patent claims. The Company is
currently working to secure a partner within the animal genetics industry to fund the next stage of development, to build a
commercial instrument and conduct field trials. There is no assurance the Company will be successful in this endeavour.
Products in development
The Company has several products under development. It is impossible to ensure that these development activities will
result in the completion of new commercial products. If the Company is unable to develop and commercialize products,
it will be unable to recover the related research and development, and investment.
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 pharmaceutical, biotechnology or animal genetics companies. It is possible the
Company may be unable to negotiate mutually acceptable terms.
Operating and capital requirements
Microbix earns a profit on the sale of its Virology Products, which is a major source of funding for its research and
development activities. The Company believes that cash generated from operations is sufficient to meet normal operating
and capital requirements. However, the Company may need to raise additional funds, from time to time for several reasons,
including - to advance its current research and development programs, - to support various collaboration initiatives with
third parties, - to underwrite the cost of filing, prosecuting and enforcing patents and other intellectual property rights, -
to invest in acquisitions, new technologies and new market developments. Additional financing may not be available, and
even if available, may not be offered on acceptable terms.
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.
9
Canadian Funds
RISKS AND UNCERTAINTIES (Continued)
Canadian Funds
Failure to obtain and protect intellectual property could adversely affect business
Microbix’ future success depends, 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. There is no assurance that the Company 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 costs, adversely affecting the development of products or sales of
the challenged product, or intellectual property, and divert the efforts of its scientific and management personnel, whether
or not such litigation is resolved in the Company’s favour.
Microbix will continue to face significant competition
Competition from life sciences companies, and academic and research institutions is significant. Many competitors have
substantially greater product development capabilities and financial, scientific, manufacturing, sales and marketing resources
than Microbix. While the Company continues to expand its technological capabilities in order to remain competitive,
Microbix’ competitors are also making significant investments in research and development activities, and in intellectual
property, which could make it more difficult for Microbix to commercialize its products and technologies.
FINANCIAL RISK MANAGEMENT
The primary risks affecting the Company are summarized below and have not changed during the fiscal year.
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 customers are primarily large multi-national companies with very high quality credit ratings. Given this
track record, management perceives the credit risk to be low. Typically the outstanding accounts receivable balance is
relatively concentrated with a few large customers representing the majority of the value. At September 30, 2015, six
customers accounted for 64% (2014 – six for 67%) of the outstanding balance. The Company has had minimal bad debts
over the past several years and accordingly management has recorded an allowance of $18,295 (2014 - $1,018).
Currency risk:
The Company is exposed to currency risk given its global customer base. Over 90% of its revenue is denominated in
either U.S. dollars or Euros. The Company does not use financial instruments to hedge this currency risk. At September
30, 2015, the significant balances, quoted in Canadian dollars, held in foreign currencies are:
Cash and cash equivalents
Accounts receivable
Accounts payable and
accrued liabilities
US dollars
Sep 30,
2015
59,419
944,667
Sep 30,
2014
99,491
1,259,391
Euros
Sep 30,
2015
-
934,864
Sep 30,
2014
-
738,372
554,642
650,440
76,552
32,621
The impact of a 15 cent increase in the Canadian dollar against the US dollar would result in a revenue loss of about 4%.
The impact of a 15 cent increase in the Canadian dollar against the Euro would result in a revenue loss of about 14%.
10
Canadian Funds
FINANCIAL RISK MANAGEMENT (Continued)
Canadian Funds
Liquidity risk
Liquidity risk measures the Company’s ability to meets its financial obligations when 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 potentially subject the Company to interest rate risk include those assets and liabilities
with a variable interest rate. Exposure to interest rate risk is primarily on the BDC debt that has a variable rate pegged
to the bank rate. The rate can be fixed, if the outlook indicates interest rates will 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 $32,000 per year for BDC and about
$5,000 on the line of credit usage.
Market risk
Market risk reflects changes in pricing for both Virology products and raw materials based on supply and demand
criteria; also market forces can affect foreign currency exchange rates as well as interest rates which could affect
the Company’s financial performance or the value of its financial instruments. Microbix products are valuable
components in our customers’ products and cannot be easily replaced. The Company works closely with customers
to ensure its products meet their specific criteria.
Fair value
The Company records all financial assets and liabilities at their fair value.
CRITICAL ACCOUNTING ESTIMATES
The preparation of these consolidated interim 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 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.
11
Canadian Funds
CRITICAL ACCOUNTING ESTIMATES (Continued)
Canadian Funds
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, 2015 have met the
criteria for impairment.
Non-Convertible and 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.
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.
12
Canadian Funds
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
Canadian Funds
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, 2015, 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, 2015.
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, 2015 that have materially
affected, or are reasonably thought to materially affect, the internal control over financial reporting.
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:
IAS 1 - Presentation of Financial Statements
IAS 1, Presentation of Financial Statements was amended by the IASB in December 2014. The amendments are designed
to further encourage companies to apply professional judgement in determining what information to disclose in their
financial statements.
For example, the amendments make clear that materiality applies to the whole of financial statements and that
the inclusion of immaterial information can inhibit the usefulness of the financial disclosures. Furthermore, the
amendments clarify that companies should use professional judgement in determining where and in what order
information presented in the financial disclosures. The amendments are effective for annual periods beginning on
or after January 1, 2016. Earlier application is permitted.
IAS 16 and IAS 38 – Property, Plant and Equipment and Intangible Assets
IAS 16 and IAS 38, Property, Plant and Equipment and Intangible Assets were amended by IASB in December 2013. The
amendments clarify that the use of revenue-based methods to calculate the depreciation of an asset are not appropriate
because revenue generated by an activity that includes the use of an asset generally reflects factors other than the
consumption of the economic benefits embodied in the asset. The IASB also clarified that revenue is generally presumed
to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset.
This presumption, however, can be rebutted in certain limited circumstances.
13
Canadian Funds
ACCOUNTING PRONOUNCEMENTS ISSUED BUT NOT YET APPLIED (Continued)
Canadian Funds
IFRS 9 - Financial Instruments
IFRS 9, Financial Instruments was issued in final form by the IASB in July 2014 and will replace IAS 39 Financial
Instruments: Recognition and Measurement. IFRS 9 uses a single approach to determine whether a financial asset is
measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based on
how an entity manages its financial instruments in the context of its business model and the contractual cash flow
characteristics of the financial assets.
Most requirements in IAS 39 for classification and measurement of financial liabilities were carried forward
unchanged to IFRS 9. The new standard also requires a single impairment method be used, replacing the multiple
impairment methods in IAS 39. IFRS 9 also includes requirements relating to a new hedge accounting model,
which represents a substantial overhaul of hedge accounting which will allow entities to better reflect their risk
management activities in the financial statements.
The most significant improvements apply to those that hedge non-financial risk, and so these improvements are
expected to be of particular interest to non-financial institutions. In addition, a single, forward-looking expected
loss impairment model is introduced, which will require more timely recognition of expected credit losses. IFRS 9
is effective for annual period beginning on or after January 1, 2018. Earlier application is permitted.
IFRS 15 - Revenue from Contracts with Customers
IFRS 15, Revenue from Contracts with Customers was issued by ISAB in May 2014. The core principle of the new
standard is for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that
reflect the consideration to which the Company expects to be entitled in exchange for those goods or services. The new
standard will also result in enhanced disclosures about revenue, provide guidance for transactions that were not previously
addressed comprehensively (for example, service revenue and contract modifications) and improve guidance for multiple-
element arrangements. The new standard is effective for annual periods beginning on or after January 1, 2018. Earlier
application if permitted.
14
Canadian Funds
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 subsidiary,
(collectively referred to as the “Company”), which comprise the consolidated statements of financial position
as at September 30, 2015 and 2014, and the consolidated statements of comprehensive income, changes in
shareholders’ equity and cash flows for the years 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 audits.
We conducted our audits 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 auditor’s judgement, 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 auditor considers 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 control. 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 audits 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 subsidiary as at September 30, 2015 and 2014, and its financial performance and its
cash flows for the years then ended in accordance with International Financial Reporting Standards.
Chartered Professional Accountants
Licensed Public Accountants
December 31, 2015
Toronto, Ontario
15
Canadian Funds CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at September 30, 2015 and 2014
ASSETS
CURRENT ASSETS
Cash
Accounts receivable
Inventory (note 5)
Prepaid expenses and other assets (note 6)
Investment tax credit receivable (note 18)
Canadian Funds
2015
$
2014
$
104,180
547,356
1,692,074 2,141,508
3,625,268 1,598,429
276,107
143,626
216,389
150,250
TOTAL CURRENT ASSETS
5,788,161
4,707,026
LONG-TERM ASSETS
Deferred tax asset (note 18)
Other assets (note 6)
Property, plant and equipment (note 7)
Intangible assets (note 8)
TOTAL LONG-TERM ASSETS
TOTAL ASSETS
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities
Current portion of finance lease obligation
Current portion of long-term debt (note 10)
Current portion of debentures (note 9)
Deferred revenue (note 11)
TOTAL CURRENT LIABILITIES
Finance lease obligation
Non-convertible debenture (note 9)
Convertible debentures (note 9)
Long-term debt (note 10)
Deferred revenue (note 11)
TOTAL LONG-TERM LIABILITIES
TOTAL LIABILITIES
SHAREHOLDERS’ EQUITY
SHARE CAPITAL (note 12)
EQUITY COMPONENT OF
CONVERTIBLE DEBENTURES (note 9)
CONTRIBUTED SURPLUS (note 13)
ACCUMULATED DEFICIT
TOTAL SHAREHOLDERS’ EQUITY
TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY
Commitments and Contingencies (Note 28)
Subsequent Events (Note 29)
530,000
-
11,867,476
5,361,321
265,000
221,704
8,751,760
4,053,438
17,758,797
13,291,902
23,546,958
17,998,928
2,488,013
6,180
757,430
694,284
189,550
1,825,614
-
119,820
694,284
-
4,135,457
2,639,718
12,658
690,062
1,966,536
3,065,335
-
-
680,416
1,920,844
2,503,265
412,650
5,734,591
5,517,175
9,870,048
8,156,893
30,990,459
27,662,112
2,351,425
4,380,182
(24,045,156)
2,351,425
4,487,638
(24,659,140)
13,676,910
9,842,035
$23,546,958
17,998,928
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.
16
Canadian Funds
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended September 30, 2015 and 2014
Canadian Funds
SALES
Virology products and technologies
Licensing fees
Royalties
Research and development contracts
TOTAL SALES
COST OF GOODS SOLD
Virology products and technologies (note 17)
Royalties
Research and development contracts
Total Cost of Goods Sold
GROSS MARGIN
EXPENSES
Selling and business development (note 17)
General and administrative (note 17)
Research and development (note 17)
Financial expenses (note 21)
TOTAL EXPENSES
NET COMPREHENSIVE OPERATING
INCOME FOR THE YEAR
INCOME TAXES
Deferred income taxes
Current income taxes (note 18)
NET COMPREHENSIVE INCOME
FOR THE YEAR
NET COMPREHENSIVE INCOME
PER SHARE
Basic (note 16)
Diluted (note 16)
2015
$
2014
$
8,191,720
413,895
268,297
-
8,258,175
-
108,369
30,252
8,873,912
8,396,796
2,980,615
53,724
-
3,769,255
27,086
88,954
3,034,339
3,885,295
5,839,573
4,511,501
602,231
2,868,592
1,277,327
742,439
656,989
1,846,745
691,067
841,076
5,490,589
4,035,877
348,984
475,624
(265,000)
-
-
306,645
613,984
168,979
0.008
0.007
0.002
0.002
The accompanying notes and summary of significant accounting policies are an integral part of these consolidated financial statements.
17
Canadian Funds
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended September 30, 2015 and 2014
OPERATING ACTIVITIES
Net comprehensive income for the year
Items not affecting cash
Amortization and depreciation
Accretion of debentures
Stock options expense (note 15)
Deferred revenue (note 11)
Deferred tax asset (note 18)
Change in non-cash working
capital balances (note 19)
Canadian Funds
2015
$
2014
$
613,984
168,979
418,423
110,676
580,627
(223,100)
(265,000)
403,263
39,394
14,200
-
(265,000)
(640,208)
(1,531,678)
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
595,402
(1,170,842)
INVESTING ACTIVITIES
Restricted cash
Purchase of property and equipment (note 7)
Additions from internal development of intangible assets (note 8)
-
(3,438,607)
(1,403,415)
250,000
(3,192,421)
(187,769)
CASH USED IN INVESTING ACTIVITIES
(4,842,022)
(3,130,190)
FINANCING ACTIVITIES
Repayments of long term debt (note 10)
Repayments of convertible and non-convertible debentures (note 9)
Proceeds from finance lease
Proceeds from issuance of convertible debenture (note 9)
Proceeds from equipment loans (note 10)
Proceeds from issuance of credit facility (note 10)
Proceeds from exercise of warrants, net of issue costs (note 14)
Issue of common shares, net of issue costs
(140,320)
(55,338)
18,838
-
865,000
475,000
1,738,434
901,830
(59,910)
-
-
1,434,441
-
-
1,051,381
2,162,428
CASH PROVIDED BY FINANCING ACTIVITIES
3,803,444
4,588,340
NET CHANGE IN CASH
DURING THE YEAR
CASH - BEGINNING OF YEAR
CASH - END OF YEAR
Supplementary Cash Flow Information (Note 20)
(443,176)
287,308
547,356
260,048
104,180
547,356
The accompanying notes and summary of significant accounting policies are an integral part of these consolidated financial statements.
18
Canadian Funds
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
As at and for the years ended September 30, 2015 and 2014
Canadian Funds
SHARE CAPITAL (note 12)
STATED
NUMBER OF
CAPITAL
SHARES
$
CONTRIBUTED
SURPLUS
$
EQUITY
TOTAL
COMPONENT OF SHAREHOLDERS’
DEFICIT
$
DEBENTURE
$
EQUITY
$
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
Share issuances pursuant to
stock options exercised
Share issuances pursuant to
conversion of warrants
Settlement of equity component
of convertible debenture
598,000
398,969
(189,869)
3,543,900
1,051,381
2,000,000
(46,672)
-
209,100
1,051,381
1,071,626
(1,264,914)
(193,288)
Equity component of convertible debentures
916,971
916,971
Stock option expense
14,200
Net comprehensive income for the year
168,979
14,200
168,979
BALANCE, SEPTEMBER 30, 2014 75,954,458
27,662,112
4,487,638 (24,659,140)
2,351,425
9,842,035
Share issuances pursuant to
stock options exercised
Share issuances pursuant to
conversion of warrants
Stock option expense
2,442,000
1,589,913
(688,083)
4,807,799
1,738,434
580,627
Net comprehensive income for the year
613,984
901,830
1,738,434
580,627
613,984
BALANCE, SEPTEMBER 30, 2015 83,204,257
30,990,459
4,380,182 (24,045,156)
2,351,425
13,676,910
The accompanying notes and summary of significant accounting policies are an integral part of these consolidated financial statements.
19
Canadian Funds
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2015 and 2014
Canadian Funds
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 markets including Virus Yield Enhancement Technology, Virusmax®, the
thrombolytic drug, Kinlytic® (Urokinase), and an animal reproductive technology in development, LumiSort™. The Company
continually invests in Virology to adopt current technologies and standards. The manufacturing facility operates under an infectious
diseases biological license from the Canadian Food Inspection Agency.
The Company operates the Virology Business in its owned manufacturing facility at 265 Watline Avenue, Mississauga, Ontario, L4Z 1P3.
2. BASIS OF PREPARATION
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 for the year ended September 30, 2015. The Board of Directors approved these consolidated financial
statements on December 31, 2015.
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 wholly owned subsidiary, Crucible
Biotechnologies Limited. There has been no business activity in the subsidiary during the fiscal years ended September 30,
2015, and 2014. All significant intercompany transactions and balances have been eliminated upon consolidation.
Use of estimates and judgments
The preparation of financial statements requires management to make estimates and judgements 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 judgements and estimates are as follows:
i) Property, plant and equipment:
Measurement of property, plant and equipment involves the use of estimates for determining the expected useful lives of
depreciable assets. Management’s judgement 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.
20
Canadian Funds 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Use of estimates and judgements (Continued)
ii) Internally generated intangible assets:
Management monitors the progress of each internal research and development project. Significant judgement is required
to distinguish between the research and development phases. Development costs are recognized as an asset when the
following criteria are met: (i) technical feasibility; (ii) management’s intention to complete the project; (iii) the ability to use
or sell; (iv) the ability to generate future economic benefits; (v) availability of technical and financial resources; (vi) ability
to measure the expenditures reliably. Research costs are expensed as incurred. Management also monitors whether the
recognition requirements for development assets continue to be met and whether there are any indicators that capitalized
costs may be impaired.
iii) Revenue recognition:
The Company conducts its activities pursuant to contracts with customers and under which revenues and costs are
recognized using the percentage-of-completion method. The nature of these contracts requires the use of estimates of a
contract’s total costs and revenues upon completion. Estimated revenues upon completion are adjusted according to order
changes, claims, penalties and contractual terms providing for price adjustments. Management must exercise its judgement
to determine if it is probable that additional revenues related to order changes and claims will be realized, and these
amounts, if it is probable that they will be realized, are included in estimated revenues upon completion.
iv) Financial assets and liabilities:
Estimates and judgements are also made in the determination of fair value of financial assets and liabilities and include
assumptions and estimates regarding future interest rates, the relative creditworthiness of the Company to its counterparties,
the credit risk of the Company’s counterparties relative to the Company, the estimated future cash flows and discount rates.
v) 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 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.
vi) 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.
vii) Going concern:
The Company makes significant judgements with respect to uncertainties in the ability of the Company to continue as a going
concern based on estimates of future operations. The ability of the Company to continue as a going concern is dependent
on the successful generation of revenue and financing.
Revenue Recognition
Revenues from product sales are recognized when persuasive evidence of an arrangement exists, the product is shipped, the
purchase price is fixed and determinable, and collectability is reasonably assured.
Revenues from licensing are recognized when the service is rendered or the deliverables are substantially complete and other
revenue recognition criteria are met.
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. 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.
21
Canadian Funds 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue recognition (Continued)
Revenues from royalties are recognized on the accrual basis in accordance with the substance and terms of the agreement, when
royalties from the collaborative partner are determinable and collection is reasonably assured.
For upfront, non-refundable payments and milestone 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 (Note 11). The term over which upfront fees are
recognized is revised if the period over which the Company maintains substantive contractual obligations changes.
Cash
Cash consists of cash on hand and deposits with banks and investments in highly liquid instruments with original maturities of
three months or less. There are no cash equivalents held at September 30, 2015 or 2014.
Financial assets and liabilities
All financial instruments, including derivatives, are included on the consolidated statement of financial position 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 or losses included in other comprehensive
income until the asset is removed from the consolidated statements of financial position.
The following summarizes the Company’s classification and measurement of financial assets and liabilities:
Financial assets:
Cash
Accounts receivable
Financial liabilities:
Accounts payable and
accrued liabilities
Finance lease obligation
Non-convertible debentures
Convertible debentures
Long-term-debt
Total Financial liabilities
Classification
Measurement
2015
$
2014
$
Held-for-trading
Loans and receivables
Fair value
Amortized cost
104,180
1,692,074
547,356
2,141,508
Other liabilities
Other liabilities
Other liabilities
Other liabilities
Other liabilities
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
2,488,013
18,838
934,346
2,416,536
3,822,765
9,680,498
1,825,614
-
924,700
2,370,844
2,623,085
7,744,243
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 fair value through profit and loss (“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.
22
Canadian Funds
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 estimated selling price less the cost to complete less 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 are measured at cost less accumulated depreciation and impairment (if any). Cost includes the cost of
material, labour and other costs directly attributable to bringing the asset to a working condition for its intended use.
Depreciation is calculated at rates which will reduce the original cost to estimated residual value over the estimated useful life of
each asset. Depreciation commences once the asset is available for use.
Depreciation is provided for at the following basis and rates:
Research and development equipment
Other equipment and fixtures
Leasehold improvements
Buildings
Declining balance, 10-100%
Declining balance, 10-30%
Lesser of estimated useful life and lease term
Straight line, 50 years
Land is not depreciated. Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted
prospectively, if appropriate.
Convertible debentures
The convertible debenture can be converted to share capital at the option of the holder, and the number of shares to be issued
does not vary with changes in their fair value. The liability component of the convertible debenture is recognized initially at
the fair value of a similar liability that does not have an equity conversion option. The equity component is recognized initially
as the difference between the fair value of the convertible debenture as a whole and the fair value of the liability component.
The liability component accretes up to the principal balance at maturity with the accretion expense included in financial expenses
in the consolidated statements of comprehensive income.
The equity component is not re-measured subsequent to initial recognition. The equity component will be reclassified to share
capital on conversions. Any balance that remains after the settlement of the liability is transferred to contributed surplus. The
equity portion is recognized net of deferred income taxes.
Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial
carrying amounts.
Leases
Leases are classified as either capital or operating based on their nature. 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. Finance lease obligation 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.
23
Canadian Funds 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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. The impairment loss is calculated as the
difference between the carrying value of the asset and the recoverable amount. The recoverable amount is the higher of the fair
value less costs to sell and value in use.
Management has determined that no long-lived assets of the Company in the years ended September 30, 2015 and 2014 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
Foreign currency denominated revenues and expenses are translated by use of the exchange rate in effect at the end of the month in
which the transaction occurs. Foreign currency denominated monetary assets and liabilities are translated at the year-end date. Exchange
gains and losses arising on these transactions are included in the consolidated statements of comprehensive income for the year.
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 are recognized to the extent that it is probable that future taxable profit will be available against which temporary differences
can be utilized. 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.
Borrowing costs
Borrowing costs incurred for the construction of qualifying assets are capitalized during the period of time that is required to
complete and prepare the assets for their intended use or sale. All other borrowing costs are recognized in the consolidated
statements of comprehensive income using the effective interest method. Interest has been capitalized at the rate of interest
applicable to the specific borrowings financing the asset.
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 and a reduction of the related asset cost for items of a long-term 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.
24
Canadian Funds 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:
IAS 1 - Presentation of Financial Statements
IAS 1, Presentation of Financial Statements was amended by the IASB in December 2014. The amendments are designed to further
encourage companies to apply professional judgement in determining what information to disclose in their financial statements.
For example, the amendments make clear that materiality applies to the whole of financial statements and that the inclusion of immaterial
information can inhibit the usefulness of the financial disclosures. Furthermore, the amendments clarify that companies should use
professional judgement in determining where and in what order information presented in the financial disclosures. The amendments
are effective for annual periods beginning on or after January 1, 2016. Earlier application is permitted.
IAS 16 and IAS 38 – Property, Plant and Equipment and Intangible Assets
IAS 16 and IAS 38, Property, Plant and Equipment and Intangible Assets were amended by IASB in December 2013. The amendments
clarify that the use of revenue-based methods to calculate the depreciation of an asset are not appropriate because revenue generated
by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied
in the asset. The IASB also clarified that revenue is generally presumed to be an inappropriate basis for measuring the consumption of
the economic benefits embodied in an intangible asset. This presumption, however, can be rebutted in certain limited circumstances.
IFRS 9 - Financial Instruments
IFRS 9, Financial Instruments was issued in final form by the IASB in July 2014 and will replace IAS 39 Financial Instruments:
Recognition and Measurement. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or
fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments in
the context of its business model and the contractual cash flow characteristics of the financial assets.
Most requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged to IFRS 9. The
new standard also requires a single impairment method be used, replacing the multiple impairment methods in IAS 39. IFRS 9 also
includes requirements relating to a new hedge accounting model, which represents a substantial overhaul of hedge accounting which
will allow entities to better reflect their risk management activities in the financial statements.
The most significant improvements apply to those that hedge non-financial risk, and so these improvements are expected to be of
particular interest to non-financial institutions. In addition, a single, forward-looking expected loss impairment model is introduced,
which will require more timely recognition of expected credit losses. IFRS 9 is effective for annual period beginning on or after January
1, 2018. Earlier application is permitted.
IFRS 15 - Revenue from Contracts with Customers
IFRS 15, Revenue from Contracts with Customers was issued by the IASB in May 2014. The core principle of the new standard is
for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration
to which the company expects to be entitled in exchange for those goods or services. The new standard will also result in enhanced
disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively (for example, service
revenue and contract modifications) and improve guidance for multiple-element arrangements. The new standard is effective for annual
periods beginning on or after January 1, 2018. Earlier application is permitted. IFRS 15 supersedes the following standards: IAS 11
Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of
Real Estate, IFRIC 18 Transfers of Assets from Customers, and SIC-31 Revenue - Barter Transactions Involving Advertising Services.
25
Canadian Funds 5. INVENTORY
Inventories as at September 30, 2015 and 2014 consist of the following:
Raw material
Work in process
Finished goods
2015
$
685,332
739,826
2,200,110
3,625,268
2014
$
404,809
347,698
845,922
1,598,429
During the year ended September 30, 2015, inventories in the amount of $799,845 (2014 - $1,780,819) were recognized as an
expense through cost of sales. The allowance for inventory impairment as at September 30, 2015 was $53,597 (2014 - $27,993).
6. PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other assets as at September 30, 2015 were $216,389 (2014 - $497,811) 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.
26
Canadian Funds
7. PROPERTY, PLANT, AND EQUIPMENT
The freehold land and buildings have been pledged as security for bank loans under a mortgage (see Note 10). Property plant and
equipment consists of:
Cost
Building
$
Research &
development
equipment
$
Other
equipment
& fixtures
$
Land
$
Leasehold
improvements
$
Total
$
Balance, Oct 1, 2013 4,533,518
2,770
Additions
Other transfers
-
-
Disposals
738,527
2,842,981
-
-
3,285,816
800,000
346,670 -
(61,890) -
- -
94,810
-
-
(94,810)
9,452,671
3,192,421
(61,890)
(94,810)
Balance, Sept 30, 2014 4,536,288
Additions
14,814
-
Disposals
3,581,508
2,645,503
-
3,570,596 800,000
778,290 -
-
-
-
-
-
12,488,392
3,438,607
-
Balance, Sept 30, 2015
4,551,102
6,227,011
4,348,886 800,000
-
15,926,999
Accumulated depreciation
637,964
Balance, Oct 1, 2013
-
Disposals
Depreciation 152,356
471,654
-
29,461
2,319,075
-
- -
-
126,122
94,810
(94,810)
-
3,523,503
(94,810)
307,939
Balance, Sept 30, 2014 790,320
-
Disposals
Depreciation 152,288
501,115
-
30,162
2,445,197
-
- -
140,441 -
-
-
-
3,736,632
-
322,891
Balance, Sept 30, 2015
942,608
531,277
2,585,638 -
-
4,059,523
Net book value
Balance, October 1, 2013 3,895,554
Balance, September 30, 2014 3,745,968
Balance, September 30, 2015 3,608,494
266,873
3,080,393
5,695,734
966,741 800,000
1,125,399 800,000
1,763,248 800,000
-
-
-
5,929,168
8,751,760
11,867,476
Included in research and development equipment is $5,463,612 and in other equipment and fixtures $610,524 related to assets not
yet available for use. Included in these amounts is directly attributable interest from borrowings to finance these asset additions of
$135,000 and $32,099 respectively. These assets are not yet subject to depreciation.
27
Canadian Funds
8. INTANGIBLE ASSETS
Intangible assets are depreciated on a straight line basis at the following rates:
License agreement, LumiSort™ (Note 8a)
Technology investments:
LumiSort™ (Note 8a)
Kinlytic® (Note 8b)
Bioreactor (Note 8c)
5%
5%
0%
0%
Intangible assets consist of:
Cost
Capitalized
development costs
Patents and trademarks
Licenses
LumiSort™
(a)
$
Bioreactor
(c)
$
Kinlytic®
(b)
$
LumiSort™
(a)
$
LumiSort™
(a)
$
Total
Balance at October 1, 2013
Additions from internal developments
Acquisitions
Other transfers
18,645
-
6,150
-
-
-
-
-
2,770,529
-
-
-
1,463,016
181,619
-
61,890
278,528
-
-
-
4,530,718
181,619
6,150
61,890
Balance at September 30, 2014
Additions from internal developments
24,795
5,737
-
1,062,427
2,770,529
-
1,706,525
335,252
278,528
-
4,780,377
1,403,415
Balance at September 30, 2015
30,532
1,062,427
2,770,529
2,041,777
278,528
6,183,792
Accumulated amortization
Balance at October 1, 2013
Amortization expense
Balance at September 30, 2014
Amortization expense
Balance at September 30, 2015
Net book value
3,021
748
3,769
956
4,725
-
-
-
-
-
-
-
-
-
457,193
73,151
171,401
21,425
530,344
73,151
192,826
21,425
631,615
95,324
726,939
95,532
-
603,495
214,251
822,471
Balance, October 1, 2013
Balance, September 30, 2014
Balance, September 30, 2015
15,624
21,026
25,807
-
-
1,062,427
2,770,529
2,770,529
2,770,529
1,005,823
1,176,181
1,438,282
107,127
85,702
64,277
3,899,103
4,053,438
5,361,321
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
ImaRX Therapeutics, Inc. in 2008. These assets are in the process of being developed and new patents are pending and
under development.
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 financial budgets.
28
Canadian Funds
8. INTANGIBLE ASSETS (Continued)
b) Kinlytic® (Continued)
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.
c) Bioreactor
The Company has internally developed an improved bioreactor production process (“Bioreactor”) to increase the
efficiency and output of manufacturing certain virology products. As at September 30, 2015, the process is still
being developed.
9. 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:
Note
Date of issue
Face value
Issue costs
Liability component at:
the date of issue
the report date
Equity component at:
the date of issue
the report date
(a)
(b)
(c)
(d)
(e)
(f)
Jan, 2014
$ 2,000,000
$
-
Jan, 2014
$ 1,500,000
65,559
$
Feb, 2007
$ 500,000
$
-
Oct, 2006
$ 500,000
$
-
Feb, 2006
$ 2,000,000
$
-
Sep, 2008
$ 2,500,000
-
$
$
$
928,373
934,346
N/A
N/A
$
$
$
$
517,470
528,603
$ 388,958
$ 474,294
$ 413,320
$ 483,723
$ 735,086
-
$
$
$
885,089
929,916
916,971
916,971
$ 111,042
$ 111,042
$
$
86,680
86,680
$ 1,264,914
$ 1,236,732
$ 1,614,911
-
$
Conversion price per common share
$
-
$
0.35
$
0.90
$
0.90
$
0.90
$
0.65
Effective interest rate charged
Payment frequency
Maturity of financial instrument
Stated interest rate
Terms of repayment
Blended quarterly repayment
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
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.
The debenture denoted (e) was extinguished in the prior 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.
All of the debentures were issued to a shareholder of the Company.
29
Canadian Funds
9. DEBENTURES (Continued)
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:
Note
Date of issue
Face value
Issue costs
Liability component at:
the date of issue
the report date
Equity component at:
the date of issue
the report date
(a)
(b)
(c)
(d)
(e)
(f)
Jan, 2014
$ 2,000,000
$
-
Jan, 2014
$ 1,500,000
65,559
$
Feb, 2007
$ 500,000
$
-
Oct, 2006
$ 500,000
$
-
Feb, 2006
$ 2,000,000
$
-
Sep, 2008
$ 2,500,000
-
$
$
$
928,373
934,346
N/A
N/A
$
$
$
$
517,470
528,603
$ 388,958
$ 474,294
$ 413,320
$ 483,723
$ 735,086
-
$
$
$
885,089
929,916
916,971
916,971
$ 111,042
$ 111,042
$
$
86,680
86,680
$ 1,264,914
$ 1,236,732
$ 1,614,911
-
$
Conversion price per common share
$
-
$
0.35
$
0.90
$
0.90
$
0.90
$
0.65
Effective interest rate charged
Payment frequency
Maturity of financial instrument
Stated interest rate
Terms of repayment
Blended quarterly repayment
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.
10. LONG-TERM DEBT
In fiscal 2009 the Company negotiated a series of loans totalling $3,410,000 with the Business Development Bank (BDC) for the
original purchase and build-out of its manufacturing facility.
Purchase of the building
Construction of manufacturing facility
Purchase of equipment for facility
$
1,500,000
1,500,000
410,000
3,410,000
The loans are secured with the building and equipment. For loans totalling $3,350,000, consecutive monthly principal payments
of $9,260 are due to February 2037 on the outstanding balance of $2,490,940 (September 30, 2014 - $2,518,720). For loans
totalling $60,000, consecutive monthly principal payments of $725 are due to February 2017 on the outstanding balance of
$12,325 (September 30, 2014 – $14,500). Both of the loans have a floating interest rate based on BDC’s Floating Base Rate
plus 0.5%. At September 30, 2015 the Floating Base Rate was 5.0%.
30
Canadian Funds
10. Long-term debt (Continued)
In fiscal 2015 the Company negotiated a series of loans totalling $865,000 with the Business Development Bank (BDC) for
process equipment upgrades in its manufacturing facility.
Equipment for Bioreactor Project
Construction of manufacturing facility
Purchase of equipment for facility
$
615,000
50,000
200,000
865,000
For loans totalling $615,000, consecutive monthly principal payments of $10,250 are due to July 2020 on the outstanding
balance of $594,500 (September 30, 2014 - $Nil). The loan has a floating interest rate based on BDC’s Floating Base Rate
plus 0.5%.
For loans totalling $50,000, consecutive monthly principal payments of $1,040 are due to December 2019 on the outstanding
balance of $50,000 (September 30, 2014 – $Nil). For loans totalling $200,000, consecutive monthly principal payments of
$3,330 are due to December 2020 on the outstanding balance of $200,000 (Sept 30, 2014 – $Nil). These loans have a floating
interest rate based on BDC’s Floating Base Rate plus 0.5%. At September 30, 2015 the Floating Base Rate was 5.0%.
The commitment for the next five years for the BDC loans is as follows:
2016
2017
2018
2019
2020
2021 and thereafter
$
282,430
290,185
286,560
286,560
256,700
1,945,330
On April 16, 2015, the Company entered into a revolving line of credit agreement with its Canadian chartered bank. The
agreement allows the Company to draw on to a limit of $500,000 bearing 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, 2015, the Company had drawn on $475,000 of the facility.
11. deFerred reVenUe
In 2007, the Company entered into an agreement with the Animal Fine Breeding Station (partner) 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 was being accounted for
in accordance with its substance and was presented in the prior year financial statements as long term deferred revenue on
the consolidated statement of financial position. In 2015 the Company advised the partner that the SST program has been
abandoned as the Company has gone in a different direction with the recent completion of its Lumisort prototype technology.
With SST development permanently cancelled, the non-refundable deposit was recorded as revenue in the consolidated
statements of comprehensive income.
As at September 30, 2015, the Company has received payment, in the amount of $189,500 (2014 - $Nil), for a portion of
product sales which was not yet shipped. This amount has been recognized as deferred revenue under the current liabilities in
the consolidated statements of comprehensive income.
31
Canadian Funds
12. 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 during the year
Proceeds, net of financing costs
Warrants exercised
Stock options exercised
2015
7,249,799
$3,328,347
2014
9,270,108
$3,362,518
4,807,799
2,442,000
3,543,900
598,000
The number of issued and outstanding common shares and the stated capital of the Company as at September 30, 2015 are
presented below:
Balance, October 1, 2013
Issued on private placement
Exercise of warrants
Exercise of stock options
Balance, September 30, 2014
Exercise of warrants
Exercise of stock options
Balance, September 30, 2015
13. CONTRIBUTED SURPLUS
Changes in contributed surplus up to September 30, 2015 are described as follows:
Balance, October 1, 2013
Warrant issue costs
Stock options exercised
Settlement of equity component of convertible debentures
Stock option expense
Balance, September 30, 2014
Stock options exercised
Stock option expense
Balance, September 30, 2015
Number of
Shares
66,684,350
5,128,208
3,543,900
598,000
75,954,458
4,807,799
2,442,000
83,204,257
Stated
Capital ($)
24,299,594
1,912,168
1,051,381
398,969
27,662,112
1,738,434
1,589,913
30,990,459
$
3,550,521
41,160
(189,869)
1,071,626
14,200
4,487,638
(688,083)
580,627
4,380,182
32
Canadian Funds
14. COMMON SHARE PURCHASE WARRANTS
A continuity of the Company’s warrants outstanding as at September 30, 2015 and 2014 is presented in the following table:
Outstanding, October 1, 2013
Issued
Exercised
Expired
Extended
Outstanding, September 30, 2014
Exercised
Expired
Outstanding, September 30, 2015
Weighted
average
exercise
price
$
Units
11,891,468
5,249,763
(3,543,900)
(6,160,706)
2,844,016
10,280,641
(4,807,799)
(30,000)
5,442,842
$ 0.34
$ 0.55
$ 0.30
$ 0.39
$ 0.40
$ 0.46
$ 0.36
$ 0.40
$ 0.54
A summary of the Company’s warrants outstanding as at September 30, 2015 and 2014 is presented in the following table:
2015
Weighted
average
exercise
price
$
Weighted
average
remaining
contractual
life
years
2014
Weighted
average
exercise
price
$
Weighted
average
remaining
contractual
life
years
Number
outstanding
Number
outstanding
5,249,763
193,079
5,442,842
$
$
$
0.55
0.25
0.54
3.92
0.17
3.82
5,249,763
4,883,753
10,133,516
$ 0.55
$ 0.36
$ 0.46
4.92
0.58
2.83
Range of exercise prices:
$0.47 to $0.55
$0.24 to $0.40
15. 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 4,872,000 options
issued and pending (2014 – 4,354,000).
On January 16, 2015, the Board of Directors amended the Company’s stock option plan. The amendment added a provision
regarding change of control and the ability for non-executive directors who have resigned to exercise vested options up to
the date of resignation.
Change in control is defined as: (i) the acquisition, directly or indirectly of holdings greater than 20% of the outstanding
common shares; (ii) resolution of the shareholders of the Corporation, more than 51% of the then incumbent Board of
Directors of the Corporation, or election of majority of the members of the Company’s Board of Directors who were not
members of the Company’s incumbent board at the time preceding such election; (iii) the consummation of a sale of all or
substantially all of the assets of the Company; or (iv) reorganization, amalgamation or mergers.
When a change in control happens, the holders of options which have not vested shall be deemed to be fully vested and
exercisable for the sole purposes of participating in the change of control transaction. If a change of control transaction is
not completed or does not occur, then the optioned shares shall be returned to the Company and reinstated as authorized but
unissued common shares, and the terms of the option set forth in the plan shall apply to the option. If any optioned shares
are returned, the Company shall refund the exercise price to the holder for such optioned shares.
33
Canadian Funds
15. STOCK OPTION PLAN (Continued)
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 activity under the Company’s stock option plan for the year ended September 30, 2015 and 2014 is as follows:
Outstanding, October 1, 2013
Issued
Exercised
Expired or forfeitted
Outstanding, September 30, 2014
Issued
Exercised
Expired or forfeitted
Outstanding, September 30, 2015
Weighted
average
exercise
price
$
Units
$
6,660,000
$
-
$
(598,000)
$
(1,708,000)
$
4,354,000
$
3,010,000
(2,442,000) $
(50,000)
$
4,872,000 $
0.36
-
0.35
1.08
0.36
0.54
0.37
0.35
0.45
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, 2015 and 2014:
2015
Weighted
average
exercise
price
$
Weighted
average
remaining
contractual
life
years
2014
Weighted
average
exercise
price
$
Weighted
average
remaining
contractual
life
years
Number
outstanding
Number
outstanding
2,985,000
1,887,000
4,872,000
$
$
$
0.33
0.32
0.45
3.09
0.10
3.62
4,534,000
-
4,534,000
$ 0.36
$
$ 0.36
-
1.37
-
1.37
Range of exercise prices:
$0.33 to $0.55
$0.26 to $0.32
The fair value of options granted during the year ended September 30, 2015 was estimated at the grant date using the Black-
Scholes options pricing model, resulting in the following weighted-average assumptions:
Share price on issue date
Dividend yield
Volatility
Risk-free interest rate
Expected option life (years)
Weighted average fair value of each option ($ / option)
34
$
$
Amount
0.54
-
93.3%
1.40%
5.0
0.40
Canadian Funds
15. STOCK OPTION PLAN (Continued)
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.
16. 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 for basic and diluted earnings per share:
Net income available to common shareholders ($)
Denominator for basic earnings per share:
Weighted average common shares outstanding
Effect of dilutive securities:
Warrants
Stock Options
Denominator for diluted earnings per share
Earnings per share
Basic
Diluted
2015
2014
$613,984
$168,979
80,868,855
293,822
984,729
82,147,406
$0.008
$0.007
68,977,187
2,039,737
1,215,000
72,231,924
$0.002
$0.002
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
2015
-
-
7,000,000
7,000,000
2014
8,093,779
3,139,000
9,242,979
20,475,758
35
Canadian Funds
17. EXPENSES BY NATURE
The Company has chosen to present its consolidated statements of comprehensive income based on the functions of the
entity and include the following expenses by nature:
Depreciation and amortization
Included in:
Cost of goods sold
General and administrative expenses
Reasearch and development
Total depreciation and amortization
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
18. INCOME TAXES
Income Taxes consist of the following, as at September 30:
Provision based on combined federal
and provincial statutory rates
of 26.50% (2014 – 26.50%)
Increase (decrease) resulting from
Permanent differences
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
Non-capital losses utilized
Other
2015
$
292,729
956
124,738
418,423
2015
$
3,707,140
580,627
4,287,767
2,500,247
536,036
928,248
323,236
4,287,767
2014
$
278,478
748
124,037
403,263
2014
$
2,234,024
14,200
2,248,224
1,076,258
451,975
385,575
334,416
2,248,224
2015
$
2014
$
92,481
126,040
157,978
-
-
364,745
(656,461)
41,257
7,851
(87,146)
232,867
58,234
-
(31,201)
Current income tax expense
-
$306,645
36
Canadian Funds
18. 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:
2029
2030
2031
2032
The significant components of deferred 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
Deferred income tax liability related to debentures
Tax assets not recognized
Deferred tax asset
$
668,416
475,775
1,144,800
1,223,100
$3,512,091
2015
$
2014
$
930,702
1,780,978
330,406
105,441
617,715
187,416
3,926,246
3,734,309
(955,460)
(4,337,335)
-
(970,124)
(5,350,294)
-
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:
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
$
15,300
159,500
149,000
303,000
293,000
304,000
394,000
175,000
219,000
170,000
123,100
107,300
183,000
144,000
2,739,200
37
Canadian Funds
18. 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
Deferred tax asset related to investment tax credits
19. CHANGES IN NON-CASH WORKING CAPITAL
Accounts receivable
Inventory
Prepaid expenses & other assets
Investment tax credits receivable
Accounts payable and accrued liabilities
20. SUPPLEMENTARY CASH FLOW INFORMATION
Cash paid for interest
Non-cash investing and financing activities:
Fees for equity placements
Purchase of assets under capital leases
21. FINANCIAL EXPENSES
Cash interest:
Interest on long-term debt
Interest on debentures
Interest other
Interest income
Non-cash interest:
Accretion on debentures
Financial expenses
38
2015
$
2014
$
2,133,674
(1,603,674)
530,000
1,790,540
(1,525,540)
265,000
2015
$
449,434
(2,026,839)
281,422
(6,624)
662,399
(640,208)
2014
$
(990,526)
(526,278)
(421,984)
(64,869)
471,979
(1,531,678)
2015
$
2014
$
771,424
804,393
-
$15,876
44,672
$6,907
2015
$
2014
$
142,717
488,682
3,149
(2,785)
168,096
639,046
7,059
(9,807)
110,676
$742,439
36,682
$841,076
Canadian Funds
22. 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 loans, and the debentures. The capital at September
30, 2015 was $20,423,853 (2014 - $15,760,664).
To date, the Company has used common equity issues, debentures, bank mortgage and other financing 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 and other financing are 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.
23. 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 judgement 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 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.
24. 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.
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 2015, six
customers account for 63% (2014 - four customers account for 66%) of revenue. The Company has had minimal bad
debts over the past several years and accordingly management has recorded an allowance of $18,295 (2014 - $1,018).
39
Canadian Funds 24. FINANCIAL RISK MANAGEMENT (Continued)
Credit risk (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
Currency risk
2015
$
1,424,128
7,715
505
259,726
1,692,074
2014
$
1,350,443
526,022
48,482
216,561
2,141,508
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
2015
$
59,419
944,667
2014
$
99,491
1,259,391
Euros
2015
$
-
934,864
2014
$
-
738,372
554,642
650,440
76,552
32,621
The impact of a 15 cent increase in the Canadian dollar against the US dollar would result in a revenue loss of
approximately 4%. The impact of a 15 cent increase in the Canadian dollar against the Euro would result in a revenue
loss of approximately 14%.
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulties in meeting its financial liability obligations as they
become due. The Company has a planning and budgeting process in place to help determine the funds required to support
the normal operating requirements on an ongoing basis. The Company has financed its cash requirements primarily
through issuance of securities, short-term borrowings, long-term debt and debentures. The Company controls liquidity
risk through management of working capital, cash flows and the availability of sourcing of financing. Financial liabilities
are due as follows:
Accounts payable and accrued liabilities
Leases
Convertible and non-convertible debentures
Long-term debt
< 1 year
$
2,488,013
42,622
694,284
757,430
1-2 years
$
-
7,552
1,638,034
290,185
3-5 years
$
-
10,698
1,812,852
829,820
> 5 years
$
-
-
9,009,000
1,945,330
40
Canadian Funds
24. FINANCIAL RISK MANAGEMENT (Continued)
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 if it were fully used throughout the fiscal year.
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.
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 2015 and 2014 fiscal periods, the Company has carried at fair value financial instruments in Level 1. At September
30, 2015, the Company’s only financial instruments are cash which are considered to be Level 1 instruments. There were
no transfers between levels during the year.
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.
25 . 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
2015
$
2014
$
8,873,912
-
-
8,873,912
8,396,796
-
-
8,396,796
2015
$
613,984
-
-
613,984
2014
$
168,979
-
-
168,979
Segment revenue reported above represents revenue generated from external customers. There were no inter-segment
sales in the current year (2014 - $Nil).
41
Canadian Funds
25 . SEGMENTED INFORMATION (Continued)
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.
Virology Products and Technologies
Lumisort ™
Kinlytic®
Segment assets
Segment liabilities
2015
$
2014
$
13,784,452
6,991,978
2,770,528
23,546,958
11,122,269
4,106,130
2,770,529
17,998,928
2015
$
9,066,596
803,452
-
9,870,048
2014
$
6,638,406
1,518,487
-
8,156,893
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.
Depreciation and
amortization
Additions to
non-current assets
2015
$
322,864
95,559
-
418,423
2014
$
307,939
95,324
-
403,263
2015
$
1,752,284
3,089,738
-
4,842,022
2014
$
369,200
3,010,990
-
3,380,190
Virology Products and Technologies
Lumisort ™
Kinlytic®
26. GEOGRAPHIC INFORMATION
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
$
Non-current
assets
2015
$
2014
$
1,652,425
5,835,078
909,293
8,396,796
17,758,797
-
-
17,758,797
13,291,902
-
-
13,291,902
North America
Europe
Other foreign countries
2015
$
3,138,875
5,100,407
634,630
8,873,912
42
Canadian Funds
27. 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 four directors, of which three are 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
28. COMMITMENTS AND CONTINGENCIES
Lease commitments
2016
2017
2018
2019
2020
Payments on convertible and non-convertible debentures (Note 9)
2016
2017
2018
2019
2020
2021 and thereafter
Contingencies
2015
$
897,282
-
182,045
1,079,327
2014
$
890,869
-
-
890,869
$
42,622
7,552
6,082
4,153
463
$60,872
$
694,284
1,638,034
604,284
604,284
604,284
9,009,00
13,154,170
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.
43
Canadian Funds
29. SUBSEQUENT EVENTS
On October 9, 2015, the Company entered into a loan agreement with BDC for $250,000, monthly principal payments of
$1,104 are due December 22, 2020. The loan has a floating interest rate based on BDC’s Floating Base Rate plus 0.5%. At
the date of the agreement the Floating Base Rate was 4.70%.
On October 19, 2015, the Company completed a two-tranche private placement (the “Offering”) which resulted in an
aggregate total of $600,000 in gross proceeds. The Offering resulted in an issuance of an aggregate of 1,500,000 units
at a price of $0.40 per unit. Each unit consists of one common share and one common share purchase warrant. Each
warrant entitles the holder to purchase one additional common share at an exercise price of $0.55 for a period of five
years. In addition, an aggregate of 81,550 finder’s warrants were issued in the offering. Each finder’s warrant entitles
the holder to purchase one unit at a price of $0.46 for a period of five years. The arrangement was non-brokered. The
net proceeds of this financing will be used for general working capital purposes. The private placement is subject to the
Toronto Stock Exchange approval.
On November 17, 2015, the Company entered into a settlement agreement with Novartis Vaccines and Diagnostics, Inc.
(“Novartis”) regarding its patent infringement case relating to U.S. Patent No. 7,270,990. Pursuant to the settlement
arrangement, the Company and Novartis are each responsible for their own costs and attorney fees. As at September 30,
2015, $118,460 related to legal costs and attorney fees are included in accounts payable and accrued liabilities. The court
dismissed the Company’s appeal on December 2, 2015.
30. COMPARATIVE BALANCES
The comparative amounts presented in these consolidated financial statements have been reclassified to conform to the
current year’s presentation.
44
Canadian Funds 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 Wednesday, March 2, 2016 at 1:00 PM.
ANNUAL REPORT
Additional copies of the Company’s 2015 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
45
Canadian Funds
265 Watline Avenue,
Mississauga, ON
Canada L4Z 1P3
Tel: 905-361-8910
Fax: 905-361-8911
1-800-794-6694
Web Site: www.microbix.com