Message to Shareholders
On behalf of Microbix, I’m pleased to inform you of
another year of record sales, totaling $13.4 million
for fiscal 2019 and $3.6 million for the fourth quarter,
each up materially from 2018.
Still more importantly, gross margin improved by $1.2
million, while growth in SG&A expenses was held to a
minimum. As a result, net earnings from operations
exceeded breakeven for the year, as opposed to the
material losses of prior years. Similarly, Microbix
recorded positive cash flow from operations in fiscal
2019, for another financial win.
We are building from this strengthening financial
foundation and continuing to improve operations at
every level – across finance & admin., sales & service,
production, QC, QA, and product development. We
believe the benefits of such changes will be seen in
fiscal 2020 and beyond, in the form of continuing
sales growth and accelerating profitability.
The signs of such progress are already evident, with
full-scale antigen production in bioreactors now
underway to improve margins, federal government
contribution funding secured to help automate
and expand quality assessment products (QAPs™)
capacity, recognition of our export sales success, and
our first regulated product registrations.
That last achievement is a very critical milestone for
Microbix. Specifically, our company has always been
a relatively-anonymous maker of critical ingredients
for the diagnostics industry. On obtaining approvals
to sell its initial high-risk Human Papilloma Virus
(HPV) QAPs across the European Union and the
United States, Microbix now becomes a creator and
marketer of innovative, proprietary, branded and
regulated medical devices. We thereby open large
new potential markets into which Microbix can sell
large volumes of its higher margin QAPs.
Our QAPs are a very natural extension of our
longstanding expertise with human pathogens.
Each QAP closely mimics the clinical sample of an
infected patient and enables diagnostic tests to
be checked for accuracy using a “control” that is
known to contain the pathogen and human cells (as
appropriate), while being stable and non-infectious.
1
Under modern regulatory standards, clinical labs
are being required to use QAPs (a.k.a., IVD Controls)
as a part of their quality management systems,
providing opportunities for Microbix to identify and
create important new products. Thus far in QAPs,
there is intense interest in a number of current and
emerging Microbix products, and the main rate-
limiters to rolling-out a series of successful products
are enough trained staff and production equipment,
with plans underway to address each constraint. So
we’re pleased and excited about the prospects for
our sales-driven business (antigens & QAPs)!
We can also offer encouragement about Microbix’s
biologic drug asset, Kinlytic® urokinase. Slowly,
but steadily, we are progressing toward an alliance
to fund the re-introduction of this FDA and Health
Canada approved “clot buster” for its catheter-
clearance sub-indication. Confidential discussions
continue with multiple qualified parties about this
asset and we continue to believe in the prospects
for an alliance on terms that would enable Microbix
to retain a meaningful proportion of very attractive
project economics. News release disclosure of details
would follow execution of either a binding letter of
intent or a definitive agreement.
On the flip side, it is inevitable that Microbix faces
obstacles and challenges. In fiscal 2019, our two
main challenges were (i) reductions in the level
of antigen inventories carried by our Asia-Pacific
distributor and (ii) sequential delays of conversion
to bioreactor-antigen by a leading customer. The
former issue reduced sales growth, while the latter
impacted margins. Doubtless fiscal 2020 will have its
own challenges which we’ll overcome in due course.
is ongoing, gross
To summarize, sales growth
margins are continuing to improve, and we believe
sustained positive net earnings and cash flow will be
achieved in fiscal 2020. Your company is now poised
for accelerating operational success and share price
appreciation.
Personally and on behalf of our team, I thank you for
your continuing support and wish you all the best.
Cameron L. Groome
Chief Executive Officer and President
Canadian Funds MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 2019 AND 2018
Canadian Funds
The Company’s Management’s Discussion and Analysis (“MD&A”) should be read in conjunction with the
audited Consolidated Financial Statements and notes for the year ended September 30, 2019, 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 include, without limitation, discussion of financial results or the outlook
for the business, risks associated with its financial results and stability, its antigens and quality assessment
products business, development projects such as those referenced herein, sales to foreign jurisdictions,
engineering and construction, production (including control over costs, quality, quantity and timeliness of
delivery), foreign currency and exchange rates, maintaining adequate working capital and raising further
capital on acceptable terms or at all, and other similar statements concerning anticipated future events,
conditions or results that are not historical facts. These statements reflect management’s current estimates,
beliefs, intentions and expectations; they are not guarantees of future performance. The Company cautions
that all forward looking information is inherently uncertain and that actual performance may be affected
by a number of material factors, many of which are beyond the Company’s control. Accordingly, actual
future events, conditions and results may differ materially from the estimates, beliefs, intentions and
expectations expressed or implied in the forward looking information. All statements are made as of the
date of this disclosure and represent the Company’s judgment as of that date and the Company disclaims
any intent or obligation to update such forward-looking statements.
The Management Discussion and Analysis is dated December 19, 2019.
COMPANY OVERVIEW
Microbix Biosystems Inc. (Microbix or the Company) (TSX: MBX) specializes in developing biological and
technology solutions for human health and well-being. It manufactures a wide range of critical biological
materials for the global diagnostics industry in two categories, (1) antigens and (2) quality assessment
products (QAPs™).
In the context of Microbix’s business, antigens are purified and inactivated bacteria and viruses, which
are used in the immunoassay format of medical tests to assess exposure to, or immunity from, those
pathogens. QAPs are inactivated and stabilized samples of a pathogen, that are created to resemble
patient samples in order to support one or more of (i) the proficiency testing of clinical labs, (ii) test
development, instrument validation and technician training, or (iii) the quality management of patient
tests by clinical laboratories. Microbix’ antigens and QAPs are sold to more than 100 customers worldwide,
primarily to multinational diagnostics companies and laboratory accreditation organizations.
Microbix has also applied its biological expertise and infrastructure to create proprietary products
or technologies. Currently it has two; (1) Kinlytic® urokinase, a biologic thrombolytic drug (used to
dissolve blood clots), and (2) LumiSort™ cell-sorting, a technology for ultra-rapid and efficient sorting
of particles that can be used to enrich cell populations of interest.
Revenue from the antigens and QAPs business (Antigens & QAPs) is expected to continue growing for
the foreseeable future. Antigen sales growth will be largely driven by certain public health tests starting
to be adopted in the Asia Pacific region. QAPs sales growth will be driven by Microbix’s creation of new
value-added, branded and proprietary products and by increasing European and American regulation
of clinical laboratories. Resulting sales are expected to provide free cash flow to cover operating and
debt service costs, and funding for business initiatives that leverage Microbix’s expertise.
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Canadian Funds
COMPANY OVERVIEW (Continued)
The Company owns and operates a biologicals manufacturing facility at 265 Watline Avenue in
Mississauga, Ontario. Microbix has a Pathogen and Toxin license for its facility, issued by the Public
Health Agency of Canada. The Company’s administrative offices are in a leased building located at 235
Watline Avenue, Mississauga, Ontario.
FINANCIAL OVERVIEW
Year Ending September 30, 2019 (“2019”)
2019 revenue was $13,412,341, a 7% increase from 2018 revenues of $12,510,558. Included were antigen
and QAPs revenues of $13,067,727, 7% higher than 2018. Sales were strong across multiple customers
in North America and Europe and several of our key products. Revenue from royalties were $344,614
(2018 - $319,201).
Gross margin for the year was 49%, up from 43% in fiscal 2018, due to resolution of 2018 antigen
yield control issues and changes to overall product mix that had a positive impact on margins.
Operating expenses increased by 6% from 2018, primarily a result of increased investment in sales and
marketing, and $135,000 of financing expenses in fiscal 2019 which had been capitalized in prior years.
Stronger sales and gross margins in 2019 led to an operating income of $43,681 versus an operating
loss before impairment of assets of $742,808 in 2018 and a net income of $31,918 in 2019 versus a net
loss of $8,621,566 in 2018 (following a large one-time impairment charge). Cash provided by operations
(“CFO”) was $44,368, compared to cash used of $537,005 in 2018.
Quarter Ending September 30, 2019 (“Q4”)
Total Q4 revenue was $3,587,285, a 6% increase from 2018 fourth quarter revenue of $3,389,574. Included
were antigen and QAPs revenues of $3,503,268 (2018 - $3,308,913) and revenue from royalties were
$84,017 (2018 - $80,661). Q4 sales were principally to antigen customers in North American and Europe
and were across multiple customers and key products.
Gross margin for Q4 was 44%, up from 41% in Q4 of fiscal 2018. This increase was due to the mix of
products sold in Q4 and the year-over-year improvement in margins of one of our key antigen products.
Revenues from bioreactor-produced antigen were lower than expected, due to an on-going delay in the
conversion of a key customer, resulting in most sales of that antigen continuing to be from conventional
methods in Q4.
Operating expenses for Q4 increased by $22,286 from 2018, due to further investment in sales and
marketing and debenture interest costs that were previously capitalized in 2018.
As a result of all the foregoing, a net loss of $48,816 was reported in Q4 versus a net loss of $8,185,894
(or a net loss of $307,136 without the one-time impairment charge) in Q4 2018. Cash provided by
operations (“CFO”) in Q4 was $574,570 (primarily due to higher gross margins for the quarter), compared
to cash provided of $349,783 in 2018.
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Canadian Funds
Financial Highlights
as at and for the year ended
Canadian Funds
Sept 30, 2019
Sept 30, 2018
Revenue
$ 13,412,341
$
12,510,558
Gross Margin
Sales, General and Administrative Expenses
Research and Development Expense
Financial Expenses
6,547,447
4,395,496
1,042,192
1,066,078
5,369,436
4,170,641
1,089,746
851,857
Operating Income (Loss) before impairment of assets
43,681
(742,808)
Income (Loss) and Comprehensive Income (Loss)
31,918
(8,621,566)
Net Income (Loss) per share
0.000
(0.090)
Cash Provided (Used) by Operating Activities
44,368
(537,005)
Cash
Accounts receivable
Total current assets
Total assets
Total current liabilities
Total liabilities
Total shareholders’ equity
Current ratio
Debt to equity ratio
SELECTED QUARTERLY FINANCIAL INFORMATION
95,571
1,709,470
6,452,308
19,629,573
4,765,895
9,092,165
10,537,408
1.35
0.86
44,358
1,313,480
6,067,018
19,310,067
4,161,417
8,956,565
10,353,502
1.46
0.87
Dec-31-17
$
Mar-31-18
$
Jun-30-18
$
Sep-30-18
$
Dec-31-18
$
Mar-31-19
$
Jun-30-19
$
Sep-30-19
$
Revenue
2,885,567
3,000,193
3,235,224
3,389,574
2,460,812
4,253,629
3,110,615
3,587,285
Net Income (Loss) and
Comprehensive Income (Loss)
Operating Income (Loss) before debt
restructuring, settlement expenses
and Impairment of assets
(94,128)
(342,502)
958
(8,185,894)
(119,296)
391,352
(191,322)
(48,816)
(94,128)
(342,502)
958
(307,136)
(119,296)
482,037
(191,322)
(127,738)
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Canadian Funds
OUTLOOK
Microbix’ primary business is the result of nearly three decades of experience manufacturing high quality
viral and bacterial antigens – for use in the medical diagnostic testing industry. Its many antigen products
have received widespread and longstanding acceptance by “immunoassay” diagnostic test makers, with
continuing growth in demand. Microbix antigens are now used by over 100 diagnostics manufacturers and
are the critical biology inside tens of millions of medical tests for bacterial and viral diseases.
More recently, growth in demand for Microbix’ antigens has been stronger to end customers in both
established and emerging markets. Much of that growth is believed to be due to a number of diagnostics for
infectious diseases important to public health beginning to be adopted in the Asia-Pacific region. In fiscal 2018,
we saw the emergence of this Asian demand materialize in orders from our distribution partner for such markets,
as well as from customers based in North America and Europe that are reporting growing sales into Asia.
The long-term effect of this trend may be to take our potential market from being the population of
~700 million of North America and Western Europe to closer to the global population of 7.6 billion. As a
leading global supplier of such vital native antigens that has created and validated leading-edge production
techniques, Microbix believes it is now prepared to fulfill such demand growth.
Microbix’s emerging QAPs business involves the use of antigens for purposes beyond the large-scale
manufacturing of medical test kits. This newer usage packages a very small amount of stabilized and
inactivated bacteria or virus into individual one milliliter vials or dried onto swabs. Such samples are used as
tools to establish whether the quality objectives of clinical laboratories are being met – for example to assess
whether testing equipment is functioning properly and whether staff has been adequately trained. Such
finished quality assessment products (QAPs™, pronounced as “caps”) are a high value end-use of Microbix’
antigens and there is a growing need for such products as regulators progressively tighten their surveillance
of the competence of medical testing labs. A notable driver for such demand are the U.S. “CLIA” regulations
and ISO 15189 standards, that are requiring labs to use quality products from qualified third parties across
their ever-broadening portfolio of tests. Microbix now derives about 10% of its sales from providing QAPs
to laboratory accreditation organizations and is building-out this business segment to test and instrument
makers, and to clinical laboratories directly.
Due to the positive prospects of each of the above two lines of its business, Microbix is reinvesting
to better ensure that it can meet the expected growth in demand. Such work includes upgrading its
manufacturing technologies, quality systems, processes and training, capacity and allocation of capacity,
along with developing and launching new products. This has involved many steps to both de-bottleneck
and de-risk our production processes, work that will be ongoing as Microbix continues to grow sales across
our product lines. In fiscal 2018 and 2019, multiple upgrades to facilities were completed and further
investments will be made in infrastructure going forward. Additionally, Microbix will be investing in people
– with efforts to enhance training, career progression and retention.
Initial benefits of the manufacturing upgrades were seen in the sales of fiscal 2018 and 2019, which
demonstrated an annual compound growth rate of 15% over the two year period. In fiscal 2020, Microbix
aims for continuing sales growth alongside material improvement to its percentage gross margins, with
margin gains being driven by the use of new production technologies and a growing proportion of higher
margin products.
Further progress on enhancing production capabilities are expected to result from the $2.75 million
contribution agreement with FedDev Ontario, announced on July 30, 2019. Additionally, on August 1,
Microbix confirmed the timetable of conversion of a major antigen product into its bioreactor technology
and, over the month of September, approvals to sell innovative new QAPs to clinical laboratories in the
European Union and the United States.
5
Canadian Funds
OUTLOOK (Continued)
Canadian Funds
Going forward, Microbix is continuously working to improve its percentage gross margin while also growing
its sales of both antigens and QAPs. Percentage gross margin improvements should be achievable by way of
an increasing proportion of bioreactor-driven antigen sales, improving antigen yields on a broader basis and
larger sales of quality products. Achievement of sales and gross margin goals is expected to lead to meaningful
quarterly net earnings. Quarterly reporting will update shareholders on progress with such operational goals.
Headway is also being made with Kinlytic® urokinase. Microbix has been actively working with a U.S.
agent on outreaches to potential out-licensing and development partners. Multiple potential partners are
now under confidentiality agreements and Microbix is engaged with assisting such parties in conducting due
diligence on its “Data Room” materials. Management views progress as satisfactory at this stage and will likely
update shareholders based on either of two process milestones, (i) executing a binding letter-of intent, or (ii)
signing a definitive agreement.
To summarize, the company continues to target double-digit annual percentage growth in sales, while
concurrently expanding gross margins and net earnings. Sustainable growth and consistent profitability
are core goals for Microbix. Those objectives should be attainable based on increasing demand for
antigens, implementation of innovative antigen production methods, the launch of new QAPs product
lines and successful partnering of Kinlytic. It is intended for success with such initiatives to drive share
price appreciation.
LIQUIDITY, CASH FLOWS AND CAPITAL RESOURCES
The consolidated financial statements have been prepared in accordance with the International Financial
Reporting Standards (“IFRS”) on a going concern basis, which presumes the Company will continue operating
for the foreseeable future and will be able to realize a return on its assets and discharge its liabilities and
commitments in the normal course of business.
The Company has incurred historical losses resulting in an accumulated deficit of $35,666,485
as at September 30, 2019. 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.
Future Liquidity and Capital Needs
The Company primarily funds new product development activities and capital expenditures from profits
earned by its business and, periodically from additional equity and/or debt.
Over the course of fiscal 2020, cash flow is expected to improve due to: 1) continued growth in antigen
and quality product sales, 2) improvements in product pricing or other sales terms, 3) commencement of
sales of higher percentage gross margin product from the Company’s bioreactor production process, and
4) other business development and financial initiatives. Management expects these developments will
significantly improve the overall liquidity position, as the Company’s plans come to fruition.
Microbix will continue to monitor and manage its cash position, with the objective of anticipating and
meeting all future liquidity and capital needs.
6
Canadian Funds
LIQUIDITY, CASH FLOWS AND CAPITAL RESOURCES (Continued)
Canadian Funds
Related Party Transactions
On March 28, 2018 the board of directors approved the repricing of 1,500,000 of warrants held by a director
of the Company, in lieu of other director compensation. These warrants were repriced from $0.55 to $0.32
and the expiry was extended by one year. The non-cash financial impact was $128,901, which is included in
general and administrative expenses.
Outstanding Share Capital
Share capital issued and outstanding as at September 30, 2019 and September 30, 2018 was $33,912,460 for
96,972,705 common shares.
TREND INFORMATION
Historical spending patterns are no indication of future expenditures. Investment in the new products and
technologies is at the discretion of management and the board of directors. 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 19, 2019.
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 Antigens Product sales are dependent on key clients, open borders, international
transportation systems, and access to raw materials.
A significant share of the Company’s antigens products sales are sold to a few key customers globally.
These products contributed a significant share of the revenues. 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 in environmental and safety legislation may limit the Company’s activities
or increase costs. An environmental accident could adversely impact its operations. Microbix’ antigen
products are considered a production ingredient and not directly regulated by governments in Canada or
other jurisdictions. Commercialization of certain quality assessment products require approval of regulatory
agencies such as the FDA, in which case Microbix will not receive revenue until regulatory approval is obtained.
Re-Launch of Kinlytic® urokinase
Microbix’ goal is to re-launch this biologic clot-buster drug into the United States market. The Company has
consulted with the United States Food and Drug Administration about the viability of its re-launch plans and
secured quotations for major project tasks from third-party service providers to independently validate budgets
and timelines. Outreach has been undertaken to secure project funding from development partners on the basis
of the resulting re-launch plans. There is no assurance the Company will be successful in this endeavour.
7
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RISKS AND UNCERTAINTIES (Continued)
Canadian Funds
Quality Assessment Products in development
The Company has multiple quality assessment products under development, with the goal of building its sales of
this category of product. There is no assurance 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 its related product development investments.
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 seeks to earn a profit on the sale of its Antigens & QAPs, 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 expand production capacity, 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.
Future success may depend on successfully commercializing new products or technologies
In the nearer term, Microbix must maintain and grow its existing product sales. To survive and prosper over
the longer term, Microbix may need to commercialize new products or technologies. Such work is inherently
uncertain and there is no guarantee that Microbix will be successful with its efforts.
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 know-how. 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 or securing its freedom to operate
relative to the rights of other parties. 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 resources and general capabilities in the areas of scientific and product
development, legal review, manufacturing, sales and marketing, and financial support than Microbix. While
the Company continues to expand its technological, commercial, legal and financial capabilities in order to
remain competitive, Microbix’ competitors may also be making significant investments in all of these areas,
which could make it more difficult for Microbix to commercialize its products and technologies.
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Canadian Funds
FINANCIAL RISK MANAGEMENT
Canadian Funds
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. For the period ended September 30, 2019, five customers accounted for 78% (2018 - five customers
accounted for 66%) of the outstanding balance. The Company has had minimal bad debts over the past
several years and accordingly management has recorded an allowance of $25,625 (2018- $10,000).
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, 2019, the significant balances, quoted in Canadian dollars, held in foreign currencies are:
US dollars
Euros
2019
2018
2019
2018
Cash
Accounts receivable
Accounts payable
$ 88,820
797,352
197,551
$
42,557
652,429
204,696
$
5,223
591,454
-
$
247
314,402
-
Based upon 2019 results, the impact of a 5% increase in the U.S. dollar against the Canadian dollar would
result in an increase in annual U.S. dollar based revenue of approximately $354,100 Cdn. The impact of a 5%
increase in the Euro against the Canadian dollar would result in an increase in annual Euro based revenue of
approximately $298,700. Correspondingly, the impact of a 5% decrease in the U.S. dollar against the Canadian
dollar would result in a loss in annual U.S. dollar based revenue of approximately $354,100 Cdn. The impact
of a 5% decrease in the Euro against the Canadian dollar would result in a loss in annual Euro-based revenue
of approximately $298,700.
Liquidity risk
Liquidity risk measures the Company’s ability to meet 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. In addition, during fiscal 2017 the Company announced that it has arranged a secured
revolving credit facility with The Toronto-Dominion Bank (“TD Bank”) and Export Development Canada
(“EDC”). The credit facility is being used to fund the Company’s need for working capital to grow its existing
business. This facility is helping to satisfy the Company’s liquidity needs and to manage the liquidity risk
going forward.
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 $2,000,000 line of credit that bears interest at the
bank’s prime lending rate plus 2.0%. A 1% increase in the bank rate would cost the Company approximately
$30,000 per year for BDC and about $20,000 on the line of credit usage if it were fully used throughout the
fiscal year.
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FINANCIAL RISK MANAGEMENT (Continued)
Canadian Funds
Market risk
Market risk reflects changes in pricing for both Antigens & QAPs 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 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 fair values of financial instruments included in current assets and current liabilities approximate
their carrying values due to their short-term nature.
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. The fair values of financial
instruments in other long-term liabilities approximate their carrying values as they are recorded at the net
present values of their future cash flows, using an appropriate discount rate.
CRITICAL ACCOUNTING ESTIMATES
The preparation of these consolidated financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. The Company’s
audited consolidated financial statements are prepared in accordance with 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 or useful life of the asset. Amortization
commences when the intangible asset is available for use. Intangibles with definite lives but not yet
available for use are assessed at least annually for impairment or more frequently if there are indicators
of impairment.
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 definite lives but are not ready for use, are assessed at least
annually for impairment based on the impairment test on cash-generating units (CGUs). The impairment
test on CGUs is carried out by comparing the carrying amount of the CGU and its recoverable amount.
The recoverable amount of a CGU is the higher of fair value less costs to sell and its value in use. This
complex valuation process entails the use of methods such as the discounted cash method which requires
numerous assumptions to estimate future cash flows. The recoverable amount is impacted significantly
by the discount rate selected to be used in the discounted cash flow model, as well as the quantum and
timing of risk-adjusted future cash flows and the growth rate used for the extrapolation. The impairment
loss is calculated as the difference between the fair value of the asset and its carrying value.
10
Canadian Funds
CRITICAL ACCOUNTING ESTIMATES (Continued)
Canadian Funds
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.
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, 2019, 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
11
Canadian Funds
FINANCIAL INSTRUMENTS (Continued)
Canadian Funds
Internal Controls Over Financial Reporting (Continued)
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, 2019.
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, 2019
that have materially affected, or are reasonably thought to materially affect, the internal control over
financial reporting.
IMPACT OF NEW ACCOUNTING STANDARDS
Certain new standards, interpretations, amendments and improvements to existing standards were
issued by the 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 described below.
NEW ACCOUNTING PRONOUNCEMENTS ADOPTED IN FISCAL 2019
The Company has adopted new amendments to the following accounting standards effective for its
interim and annual consolidated financial statements commencing October 1, 2018. The effect of these
pronouncements on the Company’s results and operations are described below.
IFRS 2, Share-based Payment (“IFRS 2”)
In September 2016, the IASB issued final amendments to IFRS 2, clarifying how to account for certain
types of share-based payment transactions. The amendments, which were developed through the IFRS
Interpretations Committee, provide requirements on the accounting for: (i) the effect of vesting and non-
vesting conditions on the measurement of cash-settled share-based payments; (ii) share-based payment
transactions with a net settlement feature for withholding tax obligations; and (iii) a modification to the
terms and conditions of a share-based payment that changes the classifications of the transaction from
cash-settled to equity-settled. The effective date for this standard is for reporting periods beginning on or
after January 1, 2018, with earlier application permitted.
The Company has completed the review process to assess the impact and application of the
aforementioned amendments and has determined it will have no impact on the Company.
IFRS 9 - Financial instruments (“IFRS 9”)
The Company has adopted IFRS 9, effective October 1, 2018 on a modified retrospective basis, in accordance
with the transitional provisions of IFRS 9. As such, comparative figures have not been restated. IFRS 9 provides
a revised model for recognition, measurement and impairment of financial instruments and includes a new
model for hedge accounting aligning the accounting treatment with risk management activities.
As detailed below, the Company has changed its accounting policy for financial instruments retrospectively,
except where described below.
12
Canadian Funds
NEW ACCOUNTING PRONOUNCEMENTS ADOPTED IN FISCAL 2019 (Continued)
IFRS 9 - Financial instruments (“IFRS 9”) (Continued)
Canadian Funds
Financial assets
IFRS 9 includes a revised model for classifying financial assets, which results in classification according to a
financial instrument’s contractual cash flow characteristics and the business models under which they are
held. At initial recognition, financial assets are measured at fair value. Under the IFRS 9 model for classification
of financial assets, the Company has classified and measured its financial assets as described below:
Cash and cash equivalents measured at fair value through profit or loss under International Accounting
Standard 39 - Financial Instruments: Recognition and Measurement (“IAS 39”) continue to be measured
as such under IFRS 9.
Accounts receivable classified as financial assets continue to be measured at amortized cost
under IFRS 9.
The adoption of IFRS 9 did not result in a change in the carrying values of any of the Company’s
financial assets on the transition date.
Financial liabilities
Financial liabilities are recognized initially at fair value, and in the case of financial liabilities, not
subsequently measured at fair value, net of directly attributable transaction costs. Financial liabilities
are derecognized when the obligation specified in the contract is discharged, cancelled, or expired. For
financial liabilities, IFRS 9 retains most of the IAS 39 requirements and, since the Company does not
have any financial liabilities designated at fair value through profit or loss, the adoption of IFRS 9 did not
impact the Company’s accounting policies for financial liabilities. Accounts payable and accrued liabilities,
interest payable, and long-term debt are classified as financial liabilities to be subsequently measured at
amortized cost.
The adoption of IFRS 9 did not result in a change in the carrying values of any of the Company’s
financial liabilities on the transition date.
Expected credit loss impairment model
IFRS 9 requires a forward-looking expected credit loss impairment (“ECL”) model as opposed to an
incurred credit loss model under IAS 39. As the Company’s financial assets are substantially made up of
trade receivables, the Company has opted to use the simplified approach for measuring the loss allowance
at an amount equal to lifetime ECL. The simplified approach does not require the tracking of changes in
credit risk, but instead requires the recognition of lifetime ECLs at all times. Lifetime ECL represents the
ECL that would result from all possible default events over the expected life of a financial instrument. The
adoption of the ECL model did not have a significant impact on the Company’s financial statements, and
did not result in a transitional adjustment.
Financial instruments
The Company’s financial assets and liabilities (financial instruments) include cash and cash equivalents,
accounts receivable, accounts payable and accrued liabilities and long-term debt financial instruments. All
financial instruments are recorded at fair value at recognition. Subsequent to initial recognition, financial
instruments classified as accounts receivables, accounts payable and accrued liabilities, and long-term
debt are measured at amortized cost using the effective interest method. Other financial assets and
liabilities are recorded at fair value subsequent to initial recognition.
IFRS 15, Revenue from Contracts with Customers (“IFRS 15”)
Effective October 1, 2018, the Company adopted IFRS 15. IFRS 15 supersedes International Accounting
Standard 18, Revenue (“IAS 18”). IFRS 15 establishes a single comprehensive model for entities to use in
accounting for revenue arising from contracts with customers. Under IFRS 15, revenue is recognized at an
amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring
13
Canadian Funds
NEW ACCOUNTING PRONOUNCEMENTS ADOPTED IN FISCAL 2019 (Continued)
Canadian Funds
IFRS 15, Revenue from Contracts with Customers (“IFRS 15”) (Continued)
goods or services to a customer. The principles in IFRS 15 provide a more structured approach to measuring
and recognizing revenue.
The Company has elected to use the modified retrospective method, which requires the cumulative
effect of initially applying the Standard to be recognized at the date of initial application, which is October
1, 2018, and that the financial information previously presented for the year ended September 30, 2018
would remain unchanged. The transition to the new standard had no material impact on the measurement
and recognition of revenue in the current or prior periods.
The Company has elected to make use of the following practical expedients:
(i) Completed contracts under IAS 18 before the date of transition have not been reassessed.
(ii) Financing components are not considered in the Company’s transaction price as the time gap
between payment and delivery of goods and services is expected to be less than one year.
(iii) Contract costs incurred related to contracts with an amortization period of less than one year have
been expensed as incurred.
IFRIC 22, Foreign Currency Transactions and Advance Consideration
In 2016, the IASB issued IFRIC Interpretation 22, Foreign Currency Transactions and Advance Consideration
(“IFRIC 22”) which provides requirements about which exchange rate to use in reporting foreign currency
transactions (such as revenue transactions) when payment is made or received in advance. IFRIC 22 is
effective for annual periods beginning on or after January 1, 2018, with earlier adoption permitted. On
initial application, entities have the option to apply either retrospectively or prospectively.
The Company has elected to adopt IFRIC 22 prospectively beginning on October 1, 2018. The adoption
of the standard has had no significant impact on the Company’s unaudited interim consolidated financial
statements for the three-month ended period September 30, 2019.
ACCOUNTING PRONOUNCEMENTS ISSUED BUT NOT YET APPLIED
IFRS 16, Leases (“IFRS 16”)
On January 13, 2016, the IASB issued IFRS 16, which outlines requirements for lessees to recognize assets
and liabilities for most leases. Lessees are required to recognize the lease liability for the obligations to
make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term.
Lease liability is measured at the present value of lease payments to be made over the term of the lease. The
right-of-use asset is initially measured at the amount of the lease liability and adjusted for prepayments,
direct costs and incentives received.
The new standard will be effective for annual periods beginning on or after January 1, 2019. The Company
is currently assessing the impact of the new interpretation on its consolidated financial statements.
14
Canadian Funds
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of Microbix Biosystems Inc.
We have audited the consolidated financial statements of Microbix Biosystems Inc. and its subsidiaries (the Group),
which comprise the consolidated statements of financial position as at September 30, 2019 and September 30, 2018,
and the consolidated statements of income (loss) and comprehensive income (loss), consolidated statements of
changes in shareholders’ equity and consolidated statements of cash flows for the years then ended, and notes to the
consolidated financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects the
consolidated financial position of the Group as at September 30, 2019 and September 30, 2018, and its consolidated
financial performance and its consolidated cash flows for the years then ended in accordance with International
Financial Reporting Standards (IFRS).
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities
under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial
Statements section of our report. We are independent of the Group in accordance with the ethical requirements
that are relevant to our audit of the consolidated financial statements in Canada, and we have fulfilled our other
ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained
is sufficient and appropriate to provide a basis for our opinion.
Other information
Management is responsible for the other information. The other information comprises:
• Management’s Discussion and Analysis; and
• The information, other than the consolidated financial statements and our auditor’s report thereon, in
the Annual Report.
Our opinion on the consolidated financial statements does not cover the other information and we do not and
will not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent with the consolidated
financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.
We obtained Management’s Discussion and Analysis and Annual Report prior to the date of this auditor’s report. If,
based on the work we have performed, we conclude that there is a material misstatement of this other information,
we are required to report that fact in this auditor’s report. We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements
in accordance with IFRS, 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.
In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going
concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or
has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Group’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our
opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance
with Canadian generally accepted auditing standards will always detect a material misstatement when it exists.
15
Canadian Funds
INDEPENDENT AUDITOR’S REPORT (Continued)
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated
financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional
judgment and maintain professional skepticism throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of
not detecting a material misstatement resulting from fraud is higher than for one resulting from error,
as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
• Obtain an understanding of internal control relevant to the audit 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 Group’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the Group’s ability to continue as a going concern.
If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s
report to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the Group to cease
to continue as a going concern.
• Evaluate the overall presentation, structure, and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the
underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Group to express an opinion on the consolidated financial statements.
We are responsible for the direction, supervision and performance of the group audit. We remain
solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
The engagement partner on the audit resulting in this independent auditor’s report is Laura Sluce.
Toronto, Canada
December 19, 2019
16
Canadian Funds
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
AS AT SEPTEMBER 30, 2019 AND 2018
ASSETS
CURRENT ASSETS
Cash
Accounts receivable (Note 20)
Inventories (Note 5)
Prepaid expenses and other assets
Investment tax credit receivable (Note 15)
TOTAL CURRENT ASSETS
LONG-TERM ASSETS
Deferred tax asset (Note 15)
Property, plant and equipment (Note 6)
Intangible assets (Note 7)
TOTAL LONG-TERM ASSETS
TOTAL ASSETS
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities
Bank indebtedness (Note 9)
Current portion of finance lease obligation
Current portion of long-term debt (Note 9)
Current portion of debentures (Note 8)
Deferred revenue (Note 22)
TOTAL CURRENT LIABILITIES
Finance lease obligation
Non-convertible debenture (Note 8)
Convertible debentures (Note 8)
Long-term debt (Note 9)
TOTAL LONG-TERM LIABILITIES
TOTAL LIABILITIES
SHAREHOLDERS’ EQUITY
Share capital (Note 10)
Equity component of
convertible debentures (Note 8)
Contributed surplus
Accumulated deficit
TOTAL SHAREHOLDERS’ EQUITY
Canadian Funds
2019
2018
$
95,571
1,709,470
4,480,192
99,201
67,874
6,452,308
$
44,358
1,313,480
4,446,968
169,965
92,247
6,067,018
1,568,237
6,650,380
4,958,648
13,177,265
1,580,000
6,646,730
5,016,319
13,243,049
$ 19,629,573
$ 19,310,067
$ 1,462,616
1,400,000
80,378
408,260
774,178
640,463
4,765,895
169,149
750,350
1,353,905
2,052,866
4,326,270
$
1,766,592
260,000
80,627
438,120
684,953
931,125
4,161,417
249,526
779,536
1,304,960
2,461,126
4,795,148
$ 9,092,165
$
8,956,565
$ 33,912,460 $ 33,912,460
2,903,789
2,903,789
9,235,656
9,387,644
(35,698,403)
(35,666,485)
$ 10,537,408 $ 10,353,502
TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY
$ 19,629,573 $ 19,310,067
Commitments and Contingencies (Note 24)
(Signed) “William J. Gastle”
William J. Gastle
Director
(Signed) “Cameron L. Groome”
cameron l. Groome
Director
The accompanying notes and summary of significant accounting policies are an integral part of these consolidated financial statements.
17
Canadian Funds
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
For the years ended September 30, 2019 and 2018
Canadian Funds
SALES
Antigen products and technologies
Royalties
TOTAL SALES (Note 22)
COST OF GOODS SOLD
Antigen products and technologies (Notes 14)
Royalties
TOTAL COST OF GOODS SOLD
GROSS MARGIN
EXPENSES
Selling and business development (Note 14)
General and administrative (Note 14)
Research and development (Note 14)
Financial expenses (Note 17)
OPERATING INCOME (LOSS)
BEFORE IMPAIRMENT OF ASSETS
Impairment of long-term assets (Notes 6, 7)
INCOME (LOSS) FOR THE YEAR,
BEFORE INCOME TAXES
INCOME TAXES
Deferred income taxes (Note 15)
Current income taxes
NET INCOME (LOSS) AND COMPREHENSIVE
INCOME (LOSS) FOR THE YEAR
NET INCOME (LOSS) PER SHARE
Basic (Note 13)
Diluted (Note 13)
2019
2018
$ 13,067,727
344,614
13,412,341
$ 12,191,357
319,201
12,510,558
6,796,735
68,159
6,864,894
7,076,797
64,325
7,141,122
6,547,447
5,369,436
651,460
3,744,036
1,042,192
1,066,078
556,414
3,614,227
1,089,746
851,857
43,681
(742,808)
-
7,878,758
43,681
(8,621,566)
11,763
-
-
-
$
31,918
$ (8,621,566)
$
$
0.000
0.000
$
$
(0.090)
(0.090)
The accompanying notes and summary of significant accounting policies are an integral part of these consolidated financial statements.
18
Canadian Funds
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended September 30, 2019 and 2018
OPERATING ACTIVITIES
Net income (loss) for the period
Items not affecting cash
Amortization and depreciation (Note 6, 7)
Accretion of debentures
Stock options and warrants expense (Note 12)
Share and warrant issuance for services (Note 10, 11)
Deferred tax asset (Note 3)
Impairment of long-term asset (Note 6, 7)
Change in non-cash working capital balances (Note 16)
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
INVESTING ACTIVITIES
Purchase of property, plant and equipment (Note 6)
Additions from internal development
of intangible assets (Note 7)
CASH USED IN INVESTING ACTIVITIES
FINANCING ACTIVITIES
Repayments of long-term debt (Note 9)
Proceeds from Equipment Loan (Note 9)
Repayments of convertible and
non-convertible debentures (Note 8)
Repayments of shareholders’ loans
Repayments of finance lease obligation
Proceeds (repayments) of credit facility (Note 9)
Proceeds from exercise of stock options and warrants
Issue of common shares, net of issue costs
CASH PROVIDED BY FINANCING ACTIVITIES
NET CHANGE IN CASH - DURING THE YEAR
CASH - BEGINNING OF YEAR
CASH - END OF YEAR
Canadian Funds
2019
2018
$
31,918
$ (8,621,566)
568,822
208,592
151,988
-
11,763
-
(928,715)
690,078
161,934
458,525
99,969
-
7,878,758
(1,204,703)
44,368
(537,005)
(433,233)
(944,252)
(81,567)
(273,747)
(514,800)
(1,217,999)
(438,120)
-
(362,050)
323,906
(99,609)
-
(80,626)
1,140,000
-
-
(91,127)
(200,000)
(72,719)
(1,095,000)
104,608
3,137,283
521,645
1,744,901
51,213
(10,102)
44,358
54,460
$
95,571
$
44,358
The accompanying notes and summary of significant accounting policies are an integral part of these consolidated financial statements.
19
Canadian Funds
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For the years ended September 30, 2019 and 2018
SHARE CAPITAL (Note 10)
STATED
NUMBER OF
CAPITAL
SHARES
CONTRIBUTED
SURPLUS
DEFICIT
Canadian Funds
EQUITY
COMPONENT OF
DEBENTURE
TOTAL
SHAREHOLDERS’
EQUITY
BALANCE, SEPTEMBER 30, 2017 84,704,257 $31,299,416 $8,048,315 $(27,076,837) $2,903,789 $15,174,683
Stock option expense
Share Issuance pursuant
to Stock Options Exercised
Share Issuance pursuant to
Warrants Exercised
Issue of Warrants pursuant to
Private Placement
458,525
400,000
181,516
(77,516)
1,815
811
(203)
Issue of Broker Warrants
Share Issuance pursuant
to Private Placement
11,666,633
2,756,085
Share Issue Costs pursuant to
Private Placement
(380,368)
(102,667)
Share Issuance for Services
200,000
55,000
Warrants Issuance for Services
44,969
743,905
120,328
458,525
104,000
608
743,905
120,328
2,756,085
(483,035)
55,000
44,969
Net loss for the year
(8,621,566)
(8,621,566)
BALANCE, SEPTEMBER 30, 2018 96,972,705 $33,912,460 $9,235,656 $(35,698,403) $2,903,789 $10,353,502
Stock option expense
Net income for the year
151,988
31,918
151,988
31,918
BALANCE, SEPTEMBER 30, 2019 96,972,705 $33,912,460 $9,387,644 $(35,666,485) $2,903,789 $10,537,408
The accompanying notes and summary of significant accounting policies are an integral part of these consolidated financial statements.
20
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2019 and 2018
1. NATURE OF THE BUSINESS
Microbix Biosystems Inc. (the “Company” or “Microbix”), incorporated under the laws of the Province of Ontario,
develops and commercializes proprietary biological and technology solutions for human health and wellbeing. Microbix
manufactures a wide range of critical biological materials for the global diagnostics industry, notably antigens used in
immunoassays or quality assessment and proficiency testing controls (the Antigen Business).
Microbix has also applied its biological expertise and infrastructure to create proprietary new products or technologies.
Currently it has two; (1) Kinlytic® urokinase, a biologic thrombolytic drug (used to dissolve blood clots), and (2) LumiSort™
cell-sorting, a technology platform for ultra-rapid and efficient sorting of particles that can be used to enrich cell
populations of interest (such as sexing semen for the livestock industry).
The registered office and principal place of business of the Company is located 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”). The Board of Directors
approved these consolidated financial statements on December 19, 2019.
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. 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, over which the Company has control. Control exists when the entity is exposed, or has rights, to
variable returns from its involvement with the entity and has the ability to affect those returns through its power over the
entity. The non-controlling interest component, if any, of the Company’s subsidiaries is included in equity.
The financial statements of the Company’s subsidiary is prepared for the same reporting period as the Company,
using consistent accounting policies. All intra-company balances, transactions, unrealized gains and losses resulting from
intra-company transactions and dividends are eliminated in full. There has been no business activity in the subsidiary
during the years ended September 30, 2019 and 2018. 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.
21
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2019 and 2018
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Use of estimates and judgements (Continued)
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.
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. The amortization period and amortization
method for intangible assets are reviewed at least at the end of each reporting period.
iii) 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.
iv) Income taxes:
The Company recognizes deferred tax assets, related tax-loss carry-forwards and other deductible temporary
differences where it is probable that sufficient future taxable income can be generated in order to fully utilize such
losses and deductions. This requires significant estimates and assumptions regarding future earnings, and the
ability to implement certain tax planning opportunities in order to assess the likelihood of utilizing such losses
and deductions.
v) Fair value of share-based compensation:
The Company measures the cost of equity-settled transactions with employees by reference to the fair value of
the equity instruments at the date on which they are granted. Estimating fair value for share-based compensation
transactions requires determining the most appropriate valuation model, which is dependent on the terms and
conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation
model including the expected life of the share option, volatility, dividend yield and forfeiture rates and making
assumptions about them.
vi) Impairments:
Long-lived assets are reviewed for impairment upon the occurrence of events or changes in circumstances
indicating that the carrying value of the asset may not be recoverable. For the purpose of measuring recoverable
amounts, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-
generating units). The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use.
An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable
amount. Management evaluates impairment losses for potential reversals when events or circumstances warrant
such consideration.
22
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2019 and 2018
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition
Revenues from product sales are recognized when control of the promised good is transferred to the Company’s
customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for
those goods.
Revenues from licensing of the Company’s intangible assets are recognized when the service is rendered and control
of the service is transferred to the Company’s customers. Royalty income is recognized based on activity at the point in
time each service instance is provided.
The Company may invoice certain customers in advance for contracted product sales. Amounts received in advance
of control of the product transferring to the customer are deferred and recognized as revenue in the period control is
transferred.
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, 2019 or 2018.
Financial assets and liabilities
Effective September 1, 2018, the Company adopted IFRS 9 – Financial Instruments (IFRS 9) (See Note 4, Changes
in Accounting Policies). The following are policies on financial instruments under IFRS 9.
There are three measurement categories in which the Company classifies its financial assets:
• Amortized cost: Financial instruments that are held for collection of contractual cash flows, where those cash flows
represent solely payments of principal and interest, are measured at amortized cost. Interest income (expense)
from these financial instruments is recorded in net income (loss) using the effective interest rate method.
• Fair value through other comprehensive income (FVOCI): Debt instruments that are held for collection of
contractual cash flows and for selling the financial instruments, where the financial instruments’ cash flows
represent solely payments of principal and interest, are measured at FVOCI. Movements in the carrying
amount are taken through OCI, except for the recognition of impairment gains or losses, interest income and
foreign exchange gains and losses that are recognized in net income (loss). When the financial instrument is
derecognized, the cumulative gain or loss previously recognized in OCI is reclassified from equity to net income
(loss) and recognized in other gains (losses). Interest income (expense) from these financial instruments is
included in interest using the effective interest rate method. Foreign exchange gains (losses) is presented in
other gains (losses) and impairment expenses in other expenses.
• Fair value through profit (loss) (FVTPL): Financial instruments that do not meet the criteria for amortized cost or
FVOCI are measured at FVTPL. A gain or loss on a financial instrument that is subsequently measured at FVTPL
and is not part of a hedging relationship is recognized in net income (loss) and presented net in comprehensive
income (loss) within other gains (losses) in the period in which it arise.
Financial liabilities are either classified as amortized cost or FVTPL when the Company revises its estimates of
payments of a financial liability to reflect actual and revised estimated contractual cash flows. Gross carrying
amount of the amortized cost of the financial liability as the present value of the estimated future contractual
cash flows that are discounted adjustment is recognized in income
23
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2019 and 2018
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Financial assets and liabilities (Continued)
The following summarizes the Company’s classification and measurement of financial assets and liabilities as at
September 30:
Measurement
2019
2018
Financial assets:
Cash
Accounts receivable
Financial liabilities:
Accounts payable and
accrued liabilities
Bank Indebtedness
Deferred revenue
Finance lease obligation
Non-convertible debentures
Convertible debentures
Long-term-debt
Total Financial liabilities
Fair value through profit or loss $
Amortized cost
95,571
1,709,470
$
44,358
1,313,480
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
$ 1,462,616
1,400,000
640,463
249,527
1,199,619
1,678,814
2,461,126
$ 9,092,165
$
1,766,592
260,000
931,125
330,153
1,184,014
1,585,435
2,899,246
8,956,565
$
Inventories
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 at each reporting date for finished goods and work-in-process.
Property, plant and equipment
Property, plant 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
Buildings
Declining balance, 10-100%
Declining balance, 10-30%
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.
24
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2019 and 2018
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Finance lease obligation
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 obligations 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 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 or useful life of the asset. Amortization commences when the intangible
asset is available for use. Intangibles with definite lives but not yet available for use are assessed at least annually for
impairment or more frequently if there are indicators of impairment.
Impairment of long-lived assets
An impairment charge is recognized for long-lived assets, including intangible assets with definite lives, when an event
or change in circumstances indicates that the assets’ carrying value may not be recoverable. 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.
Borrowing costs
Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes
a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the asset. All
other borrowing costs are expensed in the period they are incurred.
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 forfeiture rate is incorporated into the Company’s assumptions on awarding options. To the extent actual forfeitures
occur, share-based compensation related to these awards will be different from the Company’s estimate and are revised.
25
Canadian Funds NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2019 and 2018
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Foreign currency translation
For each entity, the Company determines the functional currency and items included in the financial statements of each
entity are measured using the functional currency, which represents the currency of the primary economic environment
in which each entity operates.
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 period-end date. Exchange gains and losses arising on these transactions are included in the consolidated statements
of loss and comprehensive loss for the period.
Income (loss) per common share
The Company calculates basic income per share amounts for profit or loss attributable to ordinary equity holders. Basic
income (loss) 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 income 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, with a corresponding charge to income. The amount of deferred tax assets recognized is limited to
the amount that is more likely than not to be realized.
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.
26
Canadian Funds NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2019 and 2018
4. IMPACT OF NEW ACCOUNTING STANDARDS
Certain new standards, interpretations, amendments and improvements to existing standards were issued by the 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 described below.
NEW ACCOUNTING PRONOUNCEMENTS ADOPTED IN FISCAL 2019
The Company has adopted new amendments to the following accounting standards effective for its interim and annual
consolidated financial statements commencing October 1, 2018. The effect of these pronouncements on the Company’s
results and operations are described below.
IFRS 2, Share-based Payment (“IFRS 2”)
In June 2016, the IASB issued final amendments to IFRS 2, clarifying how to account for certain types of share-based payment
transactions. The amendments, which were developed through the IFRIC, provide requirements on the accounting for: (i)
the effect of vesting and non-vesting conditions on the measurement of cash-settled share-based payments; (ii) share-
based payment transactions with a net settlement feature for withholding tax obligations; and (iii) a modification to the
terms and conditions of a share-based payment that changes the classifications of the transaction from cash-settled to
equity-settled. The effective date for this standard is for reporting periods beginning on or after January 1, 2018, with earlier
application permitted.
The Company has completed the review process to assess the impact and application of the aforementioned amendments
and has determined it will have no impact on the Company.
IFRS 9 - Financial instruments (“IFRS 9”)
The Company has adopted IFRS 9, effective October 1, 2018 on a modified retrospective basis, in accordance with the
transitional provisions of IFRS 9. As such, comparative figures have not been restated. IFRS 9 provides a revised model
for recognition, measurement and impairment of financial instruments and includes a new model for hedge accounting
aligning the accounting treatment with risk management activities. The Company has changed its accompanying
policy for financial instruments retrospectively.
Financial assets
IFRS 9 includes a revised model for classifying financial assets, which results in classification according to a financial
instrument’s contractual cash flow characteristics and the business models under which they are held. At initial
recognition, financial assets are measured at fair value. Under the IFRS 9 model for classification of financial assets, the
Company has classified and measured its financial assets as described below:
Cash and cash equivalents measured at fair value through profit or loss under International Accounting Standard
39 - Financial Instruments: Recognition and Measurement (“IAS 39”) continue to be measured as such under IFRS 9.
Accounts receivable classified as financial assets continue to be measured at amortized cost under IFRS 9.
The adoption of IFRS 9 did not result in a change in the carrying values of any of the Company’s financial assets on
the transition date.
27
Canadian Funds NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2019 and 2018
4. IMPACT OF NEW ACCOUNTING STANDARDS (Continued)
NEW ACCOUNTING PRONOUNCEMENTS ADOPTED IN FISCAL 2019 (Continued)
IFRS 9 - Financial instruments (“IFRS 9”) (Continued)
Financial liabilities
Financial liabilities are recognized initially at fair value, and in the case of financial liabilities, not subsequently measured
at fair value, net of directly attributable transaction costs. Financial liabilities are derecognized when the obligation
specified in the contract is discharged, cancelled, or expired. For financial liabilities, IFRS 9 retains most of the IAS 39
requirements and, since the Company does not have any financial liabilities designated at fair value through profit or
loss, the adoption of IFRS 9 did not impact the Company’s accounting policies for financial liabilities. Accounts payable
and accrued liabilities, interest payable, and long-term debt are classified as financial liabilities to be subsequently
measured at amortized cost.
The adoption of IFRS 9 did not result in a change in the carrying values of any of the Company’s financial liabilities
on the transition date.
Expected credit loss impairment model
IFRS 9 requires a forward-looking expected credit loss impairment (“ECL”) model as opposed to an incurred credit loss
model under IAS 39. As the Company’s financial assets are substantially made up of trade receivables, the Company has
opted to use the simplified approach for measuring the loss allowance at an amount equal to lifetime ECL. The simplified
approach does not require the tracking of changes in credit risk, but instead requires the recognition of lifetime ECLs
at all times. Lifetime ECL represents the ECL that would result from all possible default events over the expected life
of a financial instrument. The adoption of the ECL model did not have a significant impact on the Company’s financial
statements, and did not result in a transitional adjustment.
Financial instruments
The Company’s financial assets and liabilities (financial instruments) include cash and cash equivalents, accounts
receivable, accounts payable and accrued liabilities and long-term debt financial instruments. All financial instruments
are recorded at fair value at recognition. Subsequent to initial recognition, financial instruments classified as accounts
receivables, accounts payable and accrued liabilities, and long-term debt are measured at amortized cost using the
effective interest method. Other financial assets and liabilities are recorded at fair value subsequent to initial recognition.
IFRS 15, Revenue from Contracts with Customers (“IFRS 15”)
Effective October 1, 2018, the Company adopted IFRS 15. IFRS 15 supersedes International Accounting Standard 18,
Revenue (“IAS 18”). IFRS 15 establishes a single comprehensive model for entities to use in accounting for revenue arising
from contracts with customers. Under IFRS 15, revenue is recognized at an amount that reflects the consideration to
which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in IFRS
15 provide a more structured approach to measuring and recognizing revenue.
The Company has elected to use the modified retrospective method, which requires the cumulative effect of initially
applying the Standard to be recognized at the date of initial application, which is October 1, 2018, and that the financial
information previously presented for the year ended September 30, 2018 would remain unchanged. The transition to the
new standard had no material impact on the measurement and recognition of revenue in the current or prior periods.
The Company has elected to make use of the following practical expedients:
(i) Completed contracts under IAS 18 before the date of transition have not been reassessed.
(ii) Financing components are not considered in the Company’s transaction price as the time gap between payment
and delivery of goods and services is expected to be less than one year.
(iii) Contract costs incurred related to contracts with an amortization period of less than one year have been
expensed as incurred.
28
Canadian Funds NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2019 and 2018
4. IMPACT OF NEW ACCOUNTING STANDARDS (Continued)
NEW ACCOUNTING PRONOUNCEMENTS ADOPTED IN FISCAL 2019 (Continued)
IFRIC 22, Foreign Currency Transactions and Advance Consideration
In 2016, the IASB issued IFRIC Interpretation 22, Foreign Currency Transactions and Advance Consideration (“IFRIC 22”)
which provides requirements about which exchange rate to use in reporting foreign currency transactions (such as
revenue transactions) when payment is made or received in advance. IFRIC 22 is effective for annual periods beginning
on or after January 1, 2018, with earlier adoption permitted. On initial application, entities have the option to apply
either retrospectively or prospectively.
The Company has elected to adopt IFRIC 22 prospectively beginning on October 1, 2018. The adoption of the
standard has had no significant impact on the Company’s consolidated financial statements for the year ended period
September 30, 2019.
ACCOUNTING PRONOUNCEMENTS ISSUED BUT NOT YET APPLIED
IFRS 16, Leases (“IFRS 16”)
On January 13, 2016, the IASB issued IFRS 16, which outlines requirements for lessees to recognize assets and liabilities
for most leases. Lessees are required to recognize the lease liability for the obligations to make lease payments and a
right-of-use asset for the right to use the underlying asset for the lease term. Lease liability is measured at the present
value of lease payments to be made over the term of the lease. The right-of-use asset is initially measured at the amount
of the lease liability and adjusted for prepayments, direct costs and incentives received.
The new standard will be effective for annual periods beginning on or after January 1, 2019. The Company is currently
assessing the impact of the new interpretation on its consolidated financial statements.
5. INVENTORIES
Inventories as at September 30 consist of the following:
Raw material
Work in process
Finished goods
$
2019
496,021
1,387,824
2,596,347
$ 4,480,192
$
2018
488,060
1,679,926
2,278,982
$ 4,446,968
During the year ended September 30, 2019, inventories in the amount of $6,796,735 (2018 - $7,076,797) were
recognized as an expense through cost of sales. The allowance for inventory impairment as at September 30, 2019
was $55,747 (2018 - $55,747).
29
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2019 and 2018
6. PROPERTY, PLANT AND EQUIPMENT
The freehold land and buildings have been pledged as security for bank loans under a mortgage (see Note 9). Property,
plant and equipment consists of:
Building
Research and
Development
Equipment
Other
Equipment
and Fixtures
Land
Total
COST
Balance, as at September 30, 2017 $ 4,565,379
Additions
357,654
-
Impairment
$ 6,939,732
147,637
(6,586,660
$ 4,605,040
744,435
-
$ 800,000
-
-
$ 16,910,151
1,249,726
(6,586,660)
Balance, as at September 30, 2018 4,923,033
Additions
64,074
-
Disposals
500,709
16,422
-
5,349,475
352,737
-
800,000
-
-
11,573,217
433,233
-
Balance, as at September 30, 2019 4,987,107
517,131
5,702,212
800,000
12,006,450
ACCUMULATED DEPRECIATION
Balance, as at September 30, 2017 1,247,532
-
Impairment
159,266
Depreciation
Balance, as at September 30, 2018 1,406,798
-
Disposals
167,060
Depreciation
582,968
(180,276)
20,662
423,354
-
10,635
2,867,881
-
228,453
3,096,334
-
251,888
-
-
-
-
-
-
4,698,381
(180,276)
408,381
4,926,487
-
429,583
Balance, as at September 30, 2019 1,573,858
433,989
3,348,222
-
5,356,070
NET BOOK VALUE
3,516,235
Balance, as at September 30, 2018
Balance, as at September 30, 2019 $ 3,413,249
77,355
$ 83,142
2,253,141
$ 2,353,990
800,000
$ 800,000
6,646,730
$ 6,650,380
In fiscal 2018, the Company determined that the Lumisort related research and development equipment was impaired.
See note 7 for discussion.
30
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2019 and 2018
7. INTANGIBLE ASSETS
Intangible assets are depreciated on a straight line basis at the following rates:
Technology investments:
LumiSort™ (Note 7a)
Kinlytic® (Note 7b)
Bioreactor (Note 7c)
Intangible assets consist of:
COST
5%
0%
7%
Capitalized
Development Costs
Patents and Trademarks
Licenses
LumiSort™
(a)
Bioreactor
(c)
Kinlytic®
(b)
LumiSort™
(a)
QAPs
(d)
LumiSort™
(a)
Total
Balance, as at September 30, 2017
Additions
Impairment
$30,532 $2,088,575
-
-
-
(30,532)
$3,078,586 $2,115,236
286,384
(2,401,620)
-
-
$ -
81,567
-
$278,528
-
(278,528)
$7,591,457
367,951
(2,710,680)
Balance, as at September 30, 2018
Additions
-
-
2,088,575
-
3,078,586
-
-
-
-
81,567
-
-
5,167,161
81,567
Balance, as it September 30, 2019
- 2,088,575
3,078,586
-
81,567
-
5,248,728
ACCUMULATED AMORTIZATION
Balance, as at September 30, 2017
Amortization expense
Impairment
6,748
951
(7,699)
11,603
139,239
-
Balance, as at September 30, 2018
Amortization expense
-
-
150,842
139,238
-
-
-
-
-
831,998
120,079
(952,077)
-
-
-
-
-
-
-
257,102
21,426
(278,528)
1,107,451
281,695
(1,238,304)
-
-
150,842
139,238
Balance, as at September 30, 2019
-
290,080
-
-
-
-
290,080
NET BOOK VALUE
Balance, as at September 30, 2018
Balance, as at September 30, 2019 $
1,937,733
3,078,586
-
- 1,798,495 3,078,586
-
-
-
81,567
-
-
5,016,319
4,958,648
At each reporting date, the Company is required to assess its long-lived assets for potential indicators of impairment.
If any such indication exists, the Company estimates the recoverable amount of the asset or CGU and compares it
to the carrying value. In addition, irrespective of whether there is any indication of impairment, the Company is
required to test long-lived assets with definite lives which are not yet available for use at least annually.
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. Subsequent
to the acquisition and in prior years, the Company incurred new intellectual property with the issue of patents has
resulted from this research program, as well as the cost incurred for the research and development equipment that is
not yet available for use.
In fiscal 2018, the Company assessed that it could not fund the development of LumiSort™ assets in a timely
manner and that licensing terms may not adequately support its continued value. The decision was therefore
made to write down all of the LumiSort™ related assets, including the original investment, capitalized research and
development equipment, prototype costs and patent related costs.
31
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2019 and 2018
7. INTANGIBLE ASSETS (Continued)
b) Kinlytic®
The Company acquired the assets and rights pertaining to development, production, and licensing of Kinlytic® from
ImaRX Therapeutics, Inc. in 2008. The asset is not yet available for use, accordingly no amortization has been recorded.
The recoverable amount of the Kinlytic® intangible has been determined based on its fair value less cost to sell. The
recoverable amount considered assumptions based on probabilities of technical, regulatory and clinical acceptances
and financial support. Further, Management uses risk-adjusted cash flow projections based on financial budgets.
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. The discount rate has been determined
based on the Company’s best estimate of a risk adjusted discount rate.
c) Bioreactor
The Company has internally developed an improved bioreactor production process (“Bioreactor”) to increase the
efficiency and output of manufacturing certain Antigen products.
d) Quality Assessment Products (“QAPs”)
To enhance its QAPs business of providing sample mimics for use in quality checks across various laboratory test
applications, Microbix has been developing intellectual property. Accordingly, it has capitalized various patent
application costs. When the resulting patent issues in key markets, those costs will begin to be amortized in accordance
with IFRS standards.
32
Canadian Funds NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2019 and 2018
8. DEBENTURES
The Company has convertible and non-convertible debentures issued and outstanding as at September 30, 2019. The
carrying values of the debt component of these debentures are as follows:
Non-convertible
debentures
(a)
(b)
Total non-convertible
debentures
Convertible debentures
(d)
(c)
(e)
Total convertible
debentures
Date of issue
Face value
Jan, 2014
$ 2,000,000
Apr, 2017
500,000
$
$ 2,500,000
Oct, 2016
$ 1,500,000
Oct, 2016
$
500,000 $
Oct, 2016
2,500,000
$ 4,500,000
Liability component at
the date of issue
928,373
268,955
-
461,550
223,050
780,750
Balance, September 30, 2017
Accretion
Repayments
Balance, September 30, 2018
Accretion
Repayments
Balance, September 30, 2019
894,955
75,312
(91,127)
879,140
79,323
(99,609)
858,854
275,162
29,712
-
304,875
35,890
-
340,765
1,170,117
105,024
(91,127)
1,184,014
115,213
(99,609)
1,199,618
470,692
12,637
-
483,330
17,045
-
500,375
247,265
33,210
-
280,475
44,434
-
324,909
797,931
23,700
-
821,630
31,900
-
853,530
1,515,888
69,547
-
1,585,435
93,379
-
1,678,814
Less: current portion
Non-current portion
Balance, September 30, 2019
Equity component at
September 30, 2019 and 2018
Conversion price
per common share
108,504
763,692
858,854
$
340,765
-
340,765
449,269
750,350
$ 1,199,619
$
-
500,375
500,375
324,909
-
324,909
$
$
-
853,530
853,530
324,909
1,353,905
$ 1,678,814
$
-
-
-
-
574,435
631,222
1,698,132
2,903,789
$
-
$
-
$ 0.23
$
0.23
$
0.23
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
$
30.20%
Quarterly
Apr, 2022
12%
Interest
only
N/A
31.07%
Quarterly
Jan, 2029
9%
Interest
only
N/A
30.20%
Quarterly
Feb, 2022
9%
Interest
only
N/A
30.85%
Quarterly
Sep, 2028
9%
Interest
only
N/A
The debentures denoted as (a), (c), and (e) above 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 as (b) and (d) are secured by a subordinated security agreement covering all of the Company’s
property and assets.
Convertible debentures contain two components: liability and equity elements. The equity element is presented
in equity under the heading of “equity component of debentures”. Convertible debentures are initially accounted for
in accordance with their substance and are presented in the consolidated financial statements in their component
parts measured at the time of issue. The debt components were valued first with the residual to shareholders’ equity.
The convertible debentures are convertible at the option of the holder, at any time, into fully paid and non-assessable
common shares of the Company at the conversion price then in effect.
All of the debentures were issued to shareholders of the Company. A holder of a debenture has an economic interest
in future earnings of the Lumisort asset and will receive a distribution equal to 10% of any future earnings that are
derived from the Lumisort asset. 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 above.
33
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2019 and 2018
9. LONG-TERM DEBT, BANK INDEBTEDNESS AND OTHER DEBT
a) The Company has term loans with the Business Development Bank (“BDC”) for a variety of purposes. The following
summarizes these loans as at September 30, 2019:
Term Loans with the Business
Development Bank (“BDC”)
(a)
(b)
(c)
(d)
(e)
(f)
Total
Effective date of loan
Initial Loan Amount
Jun, 2008
$ 3,000,000
Oct, 2014
615,000
$
Oct, 2015
$ 50,000
Oct, 2015
$ 200,000
Nov, 2015
$ 250,000
Jul, 2018
323,906
$
$ 4,438,906
Balance, September 30, 2017
Proceeds from loan
Loan repayments during the period
Balance, September 30, 2018
Proceeds from loan
Loan repayments during the period
Balance, September 30, 2019
2,268,700
-
(111,120)
2,157,580
-
(111,120)
$ 2,046,460
348,500
-
(123,000)
225,500
-
(123,000)
$ 102,500
28,080
-
(12,480)
15,600
-
(12,480)
$ 3,120
129,870
-
(39,960)
89,910
-
(39,960)
$ 49,950
162,240
-
(49,920)
112,320
-
(49,920)
$ 62,400
-
323,906
(25,570)
298,336
-
(101,640)
$ 196,696
2,937,390
323,906
(362,050)
2,899,246
-
(438,120)
$ 2,461,126
Current Portion
Non-current portion
111,120
1,935,340
102,500
-
3,120
-
39,960
9,990
49,920
12,480
101,640
95,056
$ 408,260
2,052,866
Payment frequency
Maturity of loan
Terms of repayment
Monthly
Feb, 2038
Principal
and interest and interest and interest and interest
Monthly
Dec, 2019
Principal
Monthly
Dec, 2020
Principal
Monthly
Jul, 2020
Principal
Monthly
Dec, 2020
Principal
and interest
Monthly
Sep, 2021
Principal
and interest
Notes:
(a) Loan for the purchase of manufacturing facility and building improvements.
(b) Loan for the purchase of equipment for our bioreactor project
(c) Loan for the purchase of building improvements.
(d) Loan for the purchase of manufacturing equipment
(e) Working Capital loan
(f) Loan for the purchase of manufacturing equipment
All BDC loans have a floating interest rate based on BDC’s floating base rate plus 0.5% - 1.8%. At September 30,
2019, the rate was 6.55% (2018 – 5.80%). The loans are secured with the building and equipment.
As at September 30, 2019, the commitments for the next five fiscal years and thereafter for the BDC loans is as follows:
2020
2021
2022
2023
2024
2025 and thereafter
$
Amount
408,260
228,645
111,120
111,120
111,120
$ 1,490,861
On April 28, 2017, the Company received approval from its Chartered Bank to increase the borrowing limit on its
credit facility to $1.5 million. The expanded credit facility was made available on May 4, 2017.
On September 18, 2019, the Company received approval from its Chartered Bank to increase the borrowing limit on
its line of credit to $2.0 million. This line of credit bears interest at prime plus 2% (5.95% on September 30, 2019).
As at September 30, 2019 the Company had drawn on $1,400,000 of the facility (2018 - $260,000). The Company’s
usage of this facility varies across its manufacturing, sales and AR collection cycles.
34
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2019 and 2018
9. LONG-TERM DEBT, BANK INDEBTEDNESS AND OTHER DEBT (Continued)
b) On May 3, 2017, the Company signed an agreement with Business Development Corporation for a new equipment
credit facility in the amount of $610,000. On July 4, 2018 the Company received funds in the amount of $323,906,
drawn on this facility. No further funds have been drawn since that date.
10. 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.
On October 18, 2017 and October 26, 2017 (the “Closing Date”), the Company completed a private placement
offering of an aggregate of 11,666,633 units for total gross proceeds of $3,499,990, net proceeds of $3,137,283 after
share issuance costs of $362,707. Each unit consisted of one common share of Microbix and one half of a common
share purchase warrant. Each whole warrant entitles the holder to purchase one additional common share at
an exercise price of $0.36 for three years. Fair value of the common share purchase warrants was determined to
be $ 1,102,144. Gross proceeds were allocated to common shares and common share purchase warrants in the
amount of $ 2,756,085 and $ 743,905 respectively. The financing was brokered. Cash commissions of $226,729
were paid and an aggregate of 755,764 Broker’s Warrants were issued in the private placement offering. Fair
value of the broker warrants was determined to be $120,328 using the Black-Scholes option pricing model. 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 (86%), a risk free rate of interest of 1.45% based upon the
two year Government of Canada Bond Yield at the date of the award of the Broker’s warrants and a two year term.
Management believes that the historic stock volatility provides a fair and appropriate basis of estimate for the
expected future volatility of the stock. Each Broker’s Warrant entitles the holder to purchase one unit at a price
of $0.335 for a period of two years. All securities issued under the private placement will be subject to a holding
period, expiring four months and one day from the date of closing.
During 2018, the Company issued 200,000 shares at a price of $0.275 and 250,000 warrants at an exercise price
of $0.30 as partial compensation for a consulting agreement. The transaction was measured at the fair value of
the common shares issued and warrants awarded, as the fair value of the services provided could not be measured
reliably. The number of issued and outstanding common shares and the stated capital of the Company as at
September 30, 2018 and 2019 are presented below:
Balance, September 30, 2018 and 2019
96,972,705
$ 33,912,460
Number
of Shares
Stated
Capital
35
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2019 and 2018
11. COMMON SHARE PURCHASE WARRANTS
A continuity of the Company’s warrants outstanding as at September 30, 2019 and September 30, 2018 is presented
in the following table:
Balance, September 30, 2017
Issued
Exercised
Expired
Balance, September 30, 2018
Issued
Exercised
Expired
Balance, September 30, 2019
Weighted
average
exercise
price
$ 0.48
0.36
0.34
-
$ 0.40
-
-
0.55
$ 0.36
Units
8,331,313
6,839,081
(1,815)
-
15,168,579
-
-
(3,449,763)
11,718,816
A summary of the Company’s warrants outstanding as at September 30, 2019 and September 30, 2018 is presented in
the following table:
September 30, 2019
September 30, 2018
Weighted
average
exercise
price
Number
outstanding
Weighted
average
remaining
contractual
life
years
Weighted
average
exercise
price
Number
outstanding
Weighted
average
remaining
contractual
life
years
1,500,000
10,218,816
11,718,816
$
$
0.55
0.33
0.36
1.03
1.37
1.32
4,949,763
10,218,816
15,168,579
$ 0.55
0.33
$ 0.40
1.24
2.37
2.00
Range of exercise prices:
$0.47 to $0.55
$0.23 to $0.46
36
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2019 and 2018
12. STOCK OPTION PLAN
On March 28, 2018 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 12,000,000 common shares to a rolling maximum of 10% of issued and outstanding common shares.
Under the plan as at September 30, 2019, the Company has a total of 7,738,000 options (2018 – 5,590,000) issued and
pending and is eligible to issue up to a total of 9,697,270 options.
The exercise price of each option equals no less than the market price at the date immediately preceding the date
of the grant. In general, the Company’s stock option plan vests options in equal amounts across a period following
their issue date. The options granted during this year and future options grants will generally be vested in a single
step on the third anniversary date following their issue. Management does not expect any remaining unvested stock
options 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, 2019 is as follows:
Balance, September 30, 2017
Stock options exercised
Stock options forfeited
Stock options issued
Balance, September 30, 2018
Stock options exercised
Stock options forfeited
Stock options issued
Balance, September 30, 2019
Exercisable, September 30, 2019
Weighted average
exercise price
Units
6,470,000
(400,000)
(480,000)
-
5,590,000
-
(22,000)
2,170,000
7,738,000
4,934,400
$
$
$
$
0.39
0.26
0.54
-
0.39
-
0.54
0.23
0.35
0.38
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, 2019 and
September 30, 2018:
September 30, 2019
September 30, 2018
Weighted
average
exercise
price
Number
outstanding
Weighted
average
remaining
contractual
life
years
Weighted
average
exercise
price
Number
outstanding
Weighted
average
remaining
contractual
life
years
2,418,000
5,320,000
7,738,000
$
$
$
0.54
0.25
0.35
1.08
3.72
2.83
2,440,000
3,150,000
5,590,000
$ 0.54
$ 0.28
$ 0.39
2.08
4.18
3.41
Range of exercise prices:
$0.54
$0.23 to $0.28
37
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2019 and 2018
12. STOCK OPTION PLAN (Continued)
The fair value of options granted during the year ended September 30, 2019 was estimated at the grant date
using the Black-Scholes options pricing model, resulting in the following weighted-average assumptions:
Option Grant Dates
Share price on issue date
Dividend yield
Volatility
Risk-free interest rate
Expected option life (years)
Weighted average fair value of each option ($ / option)
Feb 2019
0.23
0%
67%
0.5%
5
0.13
$
$
Apr 2019
$
0.25
0%
67%
0.5%
5
0.14
$
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 period, the fair value of the options vested in the year were expensed and
credited to contributed surplus. During the year, the Company recorded share-based compensation expense of
$151,988 (2018 - $458,525).
13. INCOME (LOSS) PER SHARE
Basic income (loss) 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:
For the years ended September 30
2019
2018
Numerator for basic income (loss) per share:
Net income (loss) available to common shareholders
$ 31,918
$ (8,621,566)
Denominator for basic income (loss) per share:
Weighted average common shares outstanding
Effect of dilutive securities:
Warrants
Stock Options
Convertible debentures
96,972,705
96,198,810
105,325
7,022
-
-
-
-
Denominator for diluted net income (loss) per share
97,085,052
96,198,810
Net income (loss) per share:
Basic
Diluted
$0.000
$0.000
($0.090)
($0.090)
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
2019
11,613,491
7,730,978
19,565,217
38,909,686
2018
15,168,579
5,590,000
19,565,217
40,323,796
38
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2019 and 2018
14. EXPENSES BY NATURE
The Company has chosen to present its consolidated statements of income (loss) and comprehensive income
(loss) 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
2019
2018
$
$
553,346
4,841
10,635
568,822
$
$
526,958
951
162,169
690,078
Amortization expense included within cost of goods sold includes amortization of Bioreactor development costs
that were capitalized in previous years and began amortization at the beginning of fiscal 2018.
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
2019
2018
$
6,074,929
151,987
6,226,916
$
5,797,619
180,121
5,977,740
$
$
3,135,253
960,924
1,656,456
474,283
6,226,916
$
3,222,526
788,367
1,551,893
414,954
5,977,740
$
15. INCOME TAXES AND INVESTMENT TAX CREDITS
Income taxes consist of the following, for the years ended September 30:
Provision based on combined federal and provincial
statutory rates of 25.00 % (2018 – 25.00%)
Increase (decrease) resulting from:
Non deductible expenses
Stock-based compensation
Change in deferred tax assets not recognized
Adjustment in respect of income taxes of prior year and other
Income tax expense
2019
$
2018
$
7,980
(2,155,391)
869
37,997
(274,083)
239,000
11,763
2,076
125,874
2,098,271
(70,830)
-
39
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2019 and 2018
15. INCOME TAXES AND INVESTMENT TAX CREDITS (Continued)
The Company has unclaimed research and development expenses and accumulated losses for income tax
purposes. Certain amounts have been recognized to the extent that it is probable that there will be sufficient
taxable income against which to utilize the benefits of the losses and expenses 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 September 30:
2031
2032
2037
$
901,000
1,127,000
278,000
2,306,000
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 financing fees and other reserve
Unclaimed research and development expenses
Deferred income tax liability related to debentures
Tax assets not recognized
Deferred tax assets recognized
2019
2018
576,538
2,720,015
78,165
3,785,915
(913,213)
(4,679,182)
1,568,237
595,897
2,606,720
95,811
3,908,332
(965,644)
(4,661,116)
1,580,000
In fiscal 2018 the Company incurred $362,707 of share issuance costs recorded directly to equity and which will be deducted
from taxable income at $72,541 over five years. The deferred tax asset for this transaction has not been recognized.
The unrecognized balance of federal research and development investment tax credits carried forward is $2,673,988,
reduced by a deferred tax liability of $668,497. The credits expire between 2023 and 2039. The unrecognized balance
of Ontario research and development tax credits carried forward is $142,464 and these credits expire between 2033
and 2039.
40
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2019 and 2018
16. CHANGES IN NON-CASH WORKING CAPITAL
Accounts receivable
Inventory
Prepaid expenses and other assets
Investment tax credits receivable
Deferred Revenue
Accounts payable and accrued liabilities
17. FINANCIAL EXPENSES
Cash interest:
Interest on long-term debt
Interest on debentures
Interest other
Interest income
Non-cash interest:
Accretion on debentures
Financial expenses
18. CAPITAL MANAGEMENT
2019
2018
$
$
(395,990)
(33,224)
70,764
24,373
(290,662)
(303,976)
(928,715)
$
$
24,008
20,138
(16,976)
57,547
(214,060)
(1,075,358)
(1,204,701)
2019
2018
$ 175,798
609,675
72,013
-
208,592
$ 1,066,078
$
$
172,565
483,158
34,373
(172)
161,933
851,857
The Company’s capital management objective is to safeguard its ability to function as a going concern to maintain
and grow its operations and to fund its development activities. Microbix defines its capital to include the drawn
portion of the revolving line of credit, shareholders’ equity, the Business Development Bank capital loans, and the
debentures. The capital at September 30, 2019 was $17,276,967 (2018 - $16,282,197).
To date, the Company has used cash provided by operating activities, 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 and TD Bank. If possible, the Company tries to optimize its liquidity needs by non-dilutive sources,
including cash provided by operating activities, investment tax credits, grants and interest income. The Company
has a revolving line of credit of $2,000,000 with its Canadian chartered bank, Note 9.
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.
41
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2019 and 2018
19. FINANCIAL INSTRUMENTS
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 years ended September 30, 2019 and 2018, the Company has carried at fair value financial instruments in Level
1. At September 30, 2019, the Company’s only financial instrument measured at fair value is cash, which is considered to
be a Level 1 instrument. 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.
The following table provides the fair value measurement hierarchy of the Company’s assets and liabilities.
Date of
valuation
Quoted prices
in active
markets
(Level 1)
Significant
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Assets measured at fair value:
Cash
30-Sep-19
$
95,571
-
-
Liabilities for which fair values are disclosed:
Non-convertible debentures
Convertible debentures
Long-term-debt and other debt
30-Sep-19
30-Sep-19
30-Sep-19
-
-
-
-
-
$ 1,199,618
1,678,814
$ 3,861,126
-
Date of
valuation
Quoted prices
in active
markets
(Level 1)
Significant
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Assets measured at fair value:
Cash
30-Sep-18
$
44,358
-
-
Liabilities for which fair values are disclosed:
Non-convertible debentures
Convertible debentures
Long-term-debt and other debt
30-Sep-18
30-Sep-18
30-Sep-18
-
-
-
-
-
3,159,246
$
$ 1,184,014
1,585,435
-
42
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2019 and 2018
19. FINANCIAL INSTRUMENTS (Continued)
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 fair values of financial instruments included in current assets and current liabilities approximate their carrying
values due to their short-term nature.
The fair value of the long-term debt is based on rates currently available for items with similar terms and maturities
and is repriced to floating market interest rates and as such, the carrying value of the long-term debt and other debt
approximates fair value. The convertible and non-convertible debenture fair values are estimated based on rates for
items with similar terms and maturity. The fair values of financial instruments in other long-term liabilities approximate
their carrying values as they are recorded at the net present values of their future cash flows, using an appropriate
discount rate.
20. FINANCIAL RISK MANAGEMENT
The primary risks that affect the Company are set out below and the risks have not changed during the reporting
periods. 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.
Risks arising from financial instruments and risk management
The Company’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk),
credit risk and liquidity risk. The Company’s overall risk management program focuses on the unpredictability of
financial markets and seeks to minimize potential adverse effects on the Company’s financial performance.
Risk management is the responsibility of the corporate finance function. Material risks are monitored and are
regularly discussed with the Audit Committee of the Board of Directors.
Credit risk
The Company’s cash is 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. Typically the outstanding accounts receivable
balance is relatively concentrated with a few large customers representing the majority of the value. As at September
30, 2019, five customers accounted for 78% (2018 - five customers accounted for 66%) of the outstanding balance.
The Company has had minimal bad debts over the past several years and accordingly management has recorded
an allowance of $25,625 (2018 - $10,000).
Trade accounts receivable are aged as follows as at September 30:
Current
0 - 30 days past due
31 - 60 days past due
61 days and over past due
2019
2018
$ 1,602,262
102,962
4,246
-
$ 1,709,470
$ 1,171,341
117,975
18,686
5,478
$ 1,313,480
43
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2019 and 2018
20. FINANCIAL RISK MANAGEMENT (Continued)
Market risk and foreign currency risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, will affect the Company’s
income or the value of its financial instruments. The Company’s activities that result in exposure to fluctuations
in foreign currency exchange rates consist of the sale of products and services to customers invoiced in foreign
currencies and the purchase of services invoiced in foreign currencies. The Company does not use financial
instruments to hedge these risks. As at September 30 the significant balances, quoted in Canadian dollars, held
in foreign currencies are:
Canadian Dollar Equivalents
Cash
Accounts receivable
Accounts payable
U.S. dollars
Euros
2019
2018
2019
2018
$ 88,820
797,352
197,551
$
42,557
652,429
204,696
$
591,454
-
5,223 $
247
314,402
-
The Company’s revenue and expenses by foreign currency for the years ended September 30, 2019 and 2018 are as follows:
Revenue
Euros
U.S. dollars
Expenses
U.S. dollars
2019
45%
53%
7%
2018
43%
53%
6%
Based upon 2019 results, the impact of a 5% increase in the U.S. dollar against the Canadian dollar would result
in an increase in annual U.S. dollar based revenue of approximately $354,100 Cdn. The impact of a 5% increase in the
Euro against the Canadian dollar would result in an increase in annual Euro based revenue of approximately $298,700.
Correspondingly, the impact of a 5% decrease in the U.S. dollar against the Canadian dollar would result in a loss in
annual U.S. dollar based revenue of approximately $354,100 Cdn. The impact of a 5% decrease in the Euro against the
Canadian dollar would result in a loss in annual Euro-based revenue of approximately $298,700.
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 and sourcing of
financing. Based on current funds available and expected cash flow from operating activities, management believes
that the Company has sufficient funds available to meet its liquidity requirements for the foreseeable future. However,
if cash from operating activities is significantly lower than expected, if the Company incurs major unanticipated
expenses or the Company’s borrowings are called, it may be required to seek additional capital in the form of debt
or equity or a combination of both. Management’s current expectations with respect to future events are based on
currently available information and the actual outcomes may differ materially from those current expectations.
44
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2019 and 2018
20. 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 rate 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 at the Company’s option, if the outlook for interest rates should move
higher. The only other variable debt the Company has is the $2,000,000 line of credit that bears interest at the bank’s
prime lending rate plus 2.0%. A 1% increase in the bank rate would cost the Company approximately $30,000 per year
for BDC and about $20,000 on the line of credit usage if it were fully used throughout the fiscal year.
21. SEGMENTED INFORMATION
The Company operates in two ways: (i) the development, manufacturing and sales of antigens as materials for the
medical diagnostic industry or as quality assessment products and, (ii) the development and commercialization of
novel and proprietary products or technologies such as Lumisort and Kinlytic. The following is an analysis of the
Company’s revenues and profits from continuing operations for the year, segmented between antigens, Lumisort
and Kinlytic:
Segment revenue
2019
2018
Segment profit (loss)
2018
2019
Antigen Products and Technologies
Lumisort ™
Kinlytic®
Total for continuing operations
$ 13,412,341
$ 12,510,558
-
-
-
-
$ 13,412,341
$ 12,510,558
$ 303,935
(156,901)
(115,116)
$ 31,918
$ (407,379)
(8,101,911)
(112,276)
$ (8,621,566)
Segment revenue reported above represents revenue generated from external customers. There were no inter-segment
sales in the current period (2018 - $Nil).
The accounting policies of the reportable segments are the same as the Company’s accounting policies described
in Note 3. Segment loss represents the profit (loss) before tax earned by each segment without allocation of central
administration costs, directors’ fees, and finance costs. These general costs are reflected in the Antigen Products and
Technologies segment. This is the measure reported to the chief operating decision maker for the purposes of resource
allocation and assessment of segment performance.
Segmented assets and liabilities as at September 30 are as follows:
Segment revenue
2019
2018
Segment liabilities
2019
2018
Antigen Products and Technologies
Lumisort ™
Kinlytic®
Total for continuing operations
$ 14,982,751
$ 14,651,482
$ 7,692,165
$ 8,696,565
-
-
3,078,585
$ 18,061,336
3,078,585
$ 17,730,067
-
-
-
-
$ 7,692,165
$ 8,696,565
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. During fiscal 2018, a decision was made to write-down all of the LumisortTM related assets. 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.
45
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2019 and 2018
21. SEGMENTED INFORMATION (Continued)
Segmented depreciation and amortization and additions to non-current assets as at September 30 are as follows:
Depreciation and
amortization
2019
2018
Additions to
non-current assets
2019
2018
Antigen Products and Technologies
Lumisort ™
Kinlytic®
$ 568,822
-
-
$ 548,572
141,506
-
$ 514,800
-
-
$ 1,102,089
434,021
-
$ 568,822
$ 690,078
$ 514,800
$ 1,536,110
22. REVENUES AND GEOGRAPHIC INFORMATION
The Company operates in three principal geographical areas – North America (where it is domiciled), Europe and in
other foreign countries. The Company’s revenue from external customers is tracked based on the bill-to location.
Information about its non-current assets by location of assets are also detailed below. It should be noted that our
distribution partner for Asia is based in the United States, so most sales destined to Asia are reflected in the North
American total.
Revenue from
external customers
Non-current
assets
2019
2018
2019
2018
North America
Europe
Other foreign countries
$ 4,958,987
8,129,031
324,323
$ 5,863,529
$ 13,177,265
$ 13,243,049
6,493,927
153,102
-
-
-
-
$ 13,412,341
$ 12,510,558
$ 13,177,265
$ 13,243,049
The following table reflects the movement in the Company’s deferred revenues:
Balance, beginning of year
$
931,125
$
1,145,185
Cash payments or advance payments on performance obligations
Revenue recognized during the y ear
2,777,273
(3,067,935)
2,523,096
(2,737,156)
Balance, end of year
$
640,463
$
931,125
2019
2018
46
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2019 and 2018
23. 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 directors and key management executive
officers. Compensation for the Company’s key management personnel was as follows:
Short-term wages, bonuses and benefits
Share-based payments
Total key management compensation
24. COMMITMENTS AND CONTINGENCIES
Lease commitments
2020
2021
2022
2023
2024
2025 and thereafter
Payments on convertible and non-convertible debentures (Note 9)
2020
2021
2022
2023
2024
2025 and thereafter
Contingencies
2019
2018
$
927,603
99,945
$ 1,027,548
$
$
901,575
403,743
1,305,318
Amount
168,770
168,308
133,768
11,339
-
-
482,185
$
$
$
Amount
709,242
709,242
1,657,992
604,242
604,242
6,527,924
$ 10,812,884
The Company is not party to any legal proceedings arising out of the normal course of business.
25. COMPARATIVE CONSOLIDATED FINANCIAL STATEMENTS
The comparative consolidated financial statements have been reclassified from statements previously presented to
conform to the presentation of the 2019 consolidated financial statements.
47
Canadian Funds
CORPORATE INFORMATION
Corporate Counsel
Boyle & Co. LLP
Auditors
Transfer Agent
Ernst Young LLP
Chartered Accountants
AST Trust Company Inc.
as the Administrative Agent for
CIBC Mellon Trust Company
416-682-3860 1-800-387-0825
Bankers
The Toronto Dominion Bank
Head Office
Microbix Biosystems Inc.
265 Watline Avenue, Mississauga,
Ontario Canada L4Z 1P3
Tel: 905-361-8910
Fax: 905-361-8911
www.microbix.com
DIRECTORS
Peter M. Blecher
Ontario, Canada
Medical Director
Centres for Pain Management
Mark A. Cochran
Virginia, USA
Managing Director
Johns Hopkins Medicine
Vaughn C. Embro-Pantalony (1) (2)
Ontario, Canada
Pharmaceutical Executive
William J. Gastle (2)
Ontario, Canada
Executive Chairman
Microbix Biosystems Inc.
Cameron Groome (2)
Ontario, Canada
Chief Executive Officer and President
Microbix Biosystems Inc.
Martin A. Marino (1) (2)
Ontario, Canada
Pharmaceutical Executive
Joseph D. Renner (1) (2)
New Jersey, USA
Pharmaceutical Executive
(1)Member of Audit Committee.
(2)Member of the Human Resources,
Compensation and Governance Committee.
SENIOR MANAGEMENT
William J. Gastle
Executive Chairman
Cameron L. Groome
Chief Executive Officer and President
James S. Currie
Chief Financial Officer
Kenneth Hughes
Chief Operating 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
48
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