Message to Shareholders
Results for the fourth quarter and full year of fiscal
2021 ended September 30, 2021 (“Q4” and “2021”)
highlight how positively Microbix has transformed
and evolved. Sales for Q4 reached $5.6 million for
another all-time record, while 2021 sales totalled
$18.6 million, up by over $8.0 million (77%) from 2020.
Such sales growth was the result of good planning
and disciplined execution, paired with many actions
to materially improve percentage gross margins (to
59% in 2021 from 44%) and operating income margin
(to 17% from a loss). In fact, across 2021, Microbix
achieved record top-line sales and materially positive
earnings each quarter.
Qualitative achievements were equally strong across
2021, with milestones such as strategic alliances (i.e.,
Copan & SpeeDx), four more “QAPs™” distribution
agreements, the creation and material sales of an
entirely new product line (our “DxTM™” viral transport
medium), a successful “bought-deal” prospectus
financing, a U.S. market upgrade to the OTC QX system,
and securing our third production site. All that while
managing through the pandemic.
However our success comes with the inevitability of
some future quarter’s sales being sequentially down.
Such normal-course fluctuations make it important
that I clearly explain our trajectory and goals for both
fiscal 2022 and further out. Succinctly, we’re gearing-
up to support sales of C$ 100 million per year within
several years – driven by our expanding portfolio of
innovative, proprietary, and branded medical devices.
This goal drives our scaling and automating of
production, upgrades to support infrastructure, hiring
of more staff, and our choice of products, customers,
and collaborators.
Nearer term, we are targeting for fiscal 2022 to be
another record year for Microbix, driven by improving
antigens margins, further sales of DxTM, and our
growing QAPs portfolio. We are absolutely working to
maintain double-digit percentage growth in annual
sales. Equally we are targeting to hold Microbix’s
full-year gross and net margins in the range of what
we achieved in 2021, suggesting strong profitability
across the full year of fiscal 2022.
Investor perception of Microbix has also changed,
with our stock market capitalization nearing C$ 100
million. Microbix is still considered a “micro-cap” at
this valuation, but our success is starting to be more
broadly noticed, with our shares having appreciated by
142% over fiscal 2021, as compared to 44% for the TSX
Small Cap Sub-Index. That having been said, Microbix
is still priced at a big discount from analyst-selected
peer companies, which means we must continue our
investor relations outreach activities.
Beyond valuation, Microbix is in a better financial
position than ever before. At the time of writing, our
cash balance remains at over C$ 10 million – in spite of
large ongoing investments into capacity and systems
upgrades. We’ll certainly work to maintain and build
that strength.
While I wish you stay safe and well through 2022, do
keep your eyes open if you do get a PCR, antigen, or
other medical test: There is a strong likelihood that,
if you’re in Ontario or elsewhere in Canada, your
sample will be collected using Microbix DxTM or your
test’s accuracy supported by our “REDx™FLOQ®” test
controls. Then do be proud of the innovative products,
improved health, skilled employment, and economic
prosperity you’ve helped to create.
In summary, Microbix is weathering the pandemic
and is supporting the roll-out of multiple new and
leading-edge diagnostic testing technologies. These
will enhance healthcare while COVID-19 persists
and beyond it, leading to our reasoned optimism for
Microbix to continue growing its sales and earnings.
In realizing such opportunities, we remain grateful
to our talented staff, strategic partners, committed
customers, international distributors, key suppliers,
and to the health authorities in all the regions in which
we have a presence. We really do appreciate everyone’s
help in enabling our current and future work, notably
including our many shareholders – whether big or
small, new or longstanding.
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
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Canadian Funds MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 2021 AND 2020
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, 2021, prepared
in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International
Accounting Standards Board 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 22, 2021.
COMPANY OVERVIEW
Microbix Biosystems Inc. (Microbix or the Company) (TSX: MBX) is an award-winning life sciences
innovator and exporter making critical ingredients that enable the production of clinical diagnostics
(antigens), creating and manufacturing medical devices, including quality assessment products that
help ensure test accuracy (also known as QAPs™), and viral transport medium for enabling the collection
of patient samples to test for pathogens such as the virus causing COVID-19 disease (branded as DxTM™).
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 or an analogue to a pathogen,
that are created to resemble patient samples in order to support one or more of (i) the proficiency
testing of clinical labs (usually unbranded “white label”), (ii) test development, instrument validation
and technician training (branded PROCEEDx™), or (iii) the quality management of patient test-workflows
by clinical laboratories (branded as REDx™). Microbix’ antigens and QAPs are sold to more than 100
customers worldwide, primarily to multinational diagnostics companies and laboratory accreditation
organizations. The first private sector sales of Microbix’s DxTM™ were recorded in fiscal Q2, 2021 with a
material first order from the Province of Ontario received in April, 2021 and delivered across the third and
fourth quarters of fiscal 2021.
Microbix also applies its biological expertise and infrastructure to develop other proprietary
products and technologies, most notably Kinlytic® urokinase, a biologic thrombolytic drug used to
treat blood clots.
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COMPANY OVERVIEW (Continued)
The COVID-19 pandemic is impacting all industries, including medical diagnostics. As a result, trend
discussions here may be disrupted. For example, in fiscal 2020 and 2021 sales of antigens have been
depressed due to fewer patients seeking or receiving care in relation to diseases other than COVID-19.
However, more broadly speaking, revenue from the antigens and QAPs business (Antigens & QAPs) are
expected to continue growing for the foreseeable future. Antigen sales growth may be largely driven
by certain public health tests becoming more widely used in the Asia Pacific region and, more recently,
increased global testing for respiratory pathogens. QAPs sales growth may be driven by Microbix’s creation
of new value-added, branded and proprietary products and by increasing European and American quality-
management regulation of clinical laboratories. Sales of DxTM began in fiscal Q2 of 2021 and, based on the
initial firm purchase order from Ontario, have now become a material new product category for Microbix.
The sales resulting from antigens, QAPs, and DxTM activities are expected to provide free cash flow to
cover operating and debt service costs, and funding for business initiatives that leverage Microbix’s expertise.
Microbix owns and operates a biologicals manufacturing facility at 265 Watline Avenue in Mississauga,
Ontario. For that facility, Microbix has a Pathogen and Toxin license issued by the Public Health Agency
of Canada. The Company’s administrative offices, along with further production and lab spaces, are in a
leased building located at 235 Watline Avenue, Mississauga, Ontario. A third adjacent site at 275 Watline
Avenue has been leased as of July, 2021 with renovation planning now underway to support automated
DxTM production. Microbix is ISO 9001 & 13485 accredited, FDA & Health Canada establishment licensed,
Australian TGA registered, and provides CE marked products.
FINANCIAL OVERVIEW
Year ending September 30, 2021 (“2021”)
2021 revenue was $18,592,960, a 77% increase from prior-year revenue of $10,524,904. Included were
antigen product revenues of $9,082,021 (2020 - $8,702,109), an increase of 4%. QAPs revenues were
$4,704,671, an increase of 208% from 2020 sales of $1,527,998. Finally, DxTM revenues were $4,506,900
(2020 - nil) and royalties were $299,368 (2020 - $294,797). 2021 sales were most influenced by the
uptake of Microbix’s COVID-19 related QAPs, especially PROCEEDx®FLOQ® and REDx™FLOQ®, followed
by the start of DxTM sales, and then a modest recovery in antigen sales.
2021 gross margin was 59%, up from 44% in 2020, due to significant increase in higher margin QAPs
sales, the start of DxTM sales, and changes in Antigens product mix & improving yields. 2021 operating
expenses increased by 20% from 2020, primarily due to year-over-year incremental foreign exchange
losses, increased investment in sales and marketing and U.S. investor relations efforts. Full-year fiscal
2021 interest accretion expenses related to debentures were up due to a $517,651 one-time and non-
cash charge related to the proposed early repayment of the $1.3 million outstanding balance on a non-
convertible debenture, repayment of which was made on October 1, 2021.
Stronger sales and improved gross margins led to an operating income of $4,836,595 and net income of
$3,233,390 versus an operating loss of $524,601 and a net loss of $6,227,525 in 2020 (which included one-
time write-downs totaling $4.6 million). Cash provided by operations (“CFO”) was $2,106,736, compared
to $8,566 in 2020, influenced by growth in accounts receivable, offset by strong operating income.
At the end of 2021, Microbix’s current ratio (current assets divided by current liabilities) was 3.68 and
its debt to equity ratio (total debt over shareholders’ equity) was 0.55. Both of these financial health
ratios are materially improved from fiscal 2020.
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FINANCIAL OVERVIEW (Continued)
Quarter Ending September 30, 2021 (“Q4”)
Canadian Funds
Q4 revenue was $5,629,694, a 108% increase from 2020 revenues of $2,705,732. Included were antigen revenues
of $2,020,861 (2020 - $2,151,767). QAPs revenues were $1,195,545 (2020 - $505,898) for segment growth of 136%.
In turn, revenue from DxTM was $2,327,600 (2020 - nil), and royalties were $85,689 (2020 - $48,067). Q4 2021
sales growth was most influenced by Ontario-driven deliveries of DxTM, followed by continued diagnostics
industry uptake of QAPs, and helped by stable antigen sales at improved margins.
Q4 gross margin was 58%, up from 35% in Q4 2020, due to a greater proportion of sales of QAPs, new
VTM sales, the effects of antigen product sales mix, and improved bioreactor-made antigen yields.
Operating expenses in Q4 increased by 63% relative to Q4 2020, due to increased investment in R&D/Sales and
lack of eligibility for any Canada Emergency Wage Subsidies. Interest accretion expenses related to debentures
were up by $501,878, for the reasons described in the above financial overview for 2021. Overall, greater sales
and more available gross margin dollars during the period led to an operating income $1,580,553 and net income
of $778,929 versus a Q4 2020 operating loss of $82,111 and net loss of $4,982,997 (the net loss including one-time
write-downs). Cash from operating activities was $1,621,621, compared to cash used of $216,083 in Q4 2020,
with the majority of the increase coming from the favourable year-over-year growth in net income.
Financial Highlights
Total Revenue
Gross Margin
S,G&A Expenses
R&D Expense
For the years ended September 30
For the quarter ended September 30
2021
2020
2021
2020
$ 18,592,960
$ 10,524,904
$ 5,629,694
$ 2,705,732
11,043,940
4,660,897
3,245,723
940,955
5,174,091
4,172,372
1,317,579
847,666
1,033,254
1,013,126
347,591
175,400
Operating Income (Loss) before Impairment of Assets,
Interest Accretion Expense and Finance Expenses 4,836,595
(524,601)
1,580,553
(82,111)
Impairment of long-lived assets
-
3,078,585
-
3,078,585
Interest accretion expense on debenture due
to planned redemption, non cash
517,651
-
517,651
-
Financial Expenses
1,085,554
1,056,102
283,973
254,064
Income (Loss) before Income taxes
3,233,390
(4,659,288)
778,929
(3,414,760)
Net Comprehensive Income (Loss) for the period 3,233,390
(6,227,525)
778,929
(4,982,997)
Net Comprehensive Income (Loss) per share
0.028
(0.059)
0.006
(0.047)
Cash Provided (Used) by Operating Activities
2,106,736
8,566
1,621,621
(216,083)
Cash
Accounts receivable
Total current assets
Total assets
Total current liabilities
Total liabilities
Total shareholders’ equity
Current ratio
Debt to equity ratio
9,986,312
4,175,116
19,094,482
28,829,034
5,194,194
10,272,890
18,556,144
3.68
0.55
92,661
1,877,009
6,492,832
15,598,011
4,090,038
8,978,534
6,619,477
1.59
1.36
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FINANCIAL OVERVIEW (Continued)
SELECTED QUARTERLY FINANCIAL INFORMATION
Canadian Funds
Dec-31-19
$
Mar-31-20
$
Jun-30-20
$
Sep-30-20
$
Dec-31-20
$
Mar-31-21
$
Jun-30-21
$
Sep-30-21
$
Total Revenue
2,046,348
2,874,496
2,898,328
2,705,732
3,157,659
4,353,773
5,451,834
5,629,694
Net Income (Loss) and
Comprehensive Income (Loss)
Operating Income (Loss) before
Impairment of Assets, Interest
Accretion Expense and Finance Expenses
OUTLOOK
(585,265)
(219,030)
(440,233)
(4,982,997)
130,819
807,463
1,516,178
778,929
(308,281)
49,339
(183,548)
(82,111)
393,222
1,073,460
1,789,360
1,580,553
Microbix’ primary business is the result of over 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 being the general trend prior to the pandemic. 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.
From 2017 until the emergence of the COVID-19 pandemic, growth in demand for Microbix’ antigens had been
stronger to end-customers in both established and emerging markets. Much of that growth was 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 and across fiscal 2019, 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 were achieving growing sales into Asia. While we believe Asia-Pacific demand for antigens should
continue to grow over time, sales to this newer market were also adding to the quarter-to-quarter volatility of
Microbix’s revenues. From fiscal 2020, antigen demand has declined as a result of the COVID-19 pandemic and
its impacts on patient behaviours and global allocation of testing resources.
Beyond the COVID-19 pandemic, the long-term effect of increasing Asia-Pacific test usage may be to take
Microbix’s potential antigens market from being the population of North America and Western Europe to closer
to the much larger overall global population. As a leading global supplier of such vital native antigens that has
created and validated leading-edge production techniques, Microbix believes it is now well-prepared to fulfill such
demand growth, should it re-emerge as the pandemic ebbs.
In fiscal 2020, a different antigens market driver emerged in the form of the COVID-19 pandemic. While Microbix
does not currently supply native or recombinant antigens for immunoassay tests for the Coronavirus that causes
COVID-19 disease (properly called the SARS-CoV-2 virus), it does expect to see lasting long-term benefits within its
antigens business. Such benefits would initially come from increased testing resourcing/capacity in general, and
specifically from increased immunologic testing for exposure to respiratory pathogens other than the SARS-CoV-2
virus. Notably, healthcare practitioners and public health authorities are likely to want a definitive diagnosis of the
reason for illness if a patient tests negative for SARS-CoV-2 (i.e., if not that, then what is it?) and may want to know
if a patient is co-infected with another respiratory pathogen if they test positive for SARS-CoV-2 (e.g., at greater risk
because co-infected with an influenza virus or a resulting bacterial infection). Microbix has seen its flow of orders
for some of its respiratory antigens increase, as its products form an integral part of some approved tests. However,
at present, patient testing in relation to diseases other than respiratory infections is continuing to be disrupted as a
result of several factors, including testing resources limitations, patient reluctance to see medical professionals for
non-emergency issues, and recurring societal lockdowns. It is important to note that these factors are not unique
to Microbix, but are affecting the entire diagnostics industry on a worldwide basis.
Microbix’s QAPs business involves the use of antigens, nucleic acids, or proteins (collectively, biomaterials)
for purposes beyond the large-scale manufacturing of medical test kits. This newer usage packages a very small
5
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OUTLOOK (Continued)
Canadian Funds
amount of such stabilized and inactivated biomaterials into individual small vials (e.g., ~1.0 ml) or dried onto
sample collection swabs (i.e., Copan® “FLOQSwabs®”). 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, if staff has been adequately trained and is performing properly, or if reagents have spoiled.
Such innovative, proprietary, and branded quality assessment products (QAPs™, pronounced as “caps”) are a
high value end-use of Microbix’s biologicals expertise and there is a growing need for such products as regulators
progressively tighten their surveillance of the competence of medical testing labs. Notable drivers for such
demand are the U.S. “CLIA” regulations, European Union IVD-D and IVD-R regulations, and ISO 15189 standards,
that are all encouraging labs to increase their use of quality products from qualified third-parties across their
ever-broadening portfolio of tests. Across fiscal 2021, Microbix derived approximately one-quarter of its sales
from providing QAPs – to laboratory accreditation organizations, diagnostic test and instrument-makers and
to clinical laboratories (directly and via distributors). This is an increase from 15% across fiscal 2020, and 10%
historically – reflecting the strong growth of the QAPs product category (e.g., sales increase of 208% for YTD
fiscal 2021 compared to the prior year).
The COVID-19 pandemic has presented a pertinent illustration of the need for QAPs and Microbix’s
capabilities to create, license/register, and manufacture such products. As Microbix concluded this
emerging pathogen had potential to create a pandemic, it began the development of QAPs products
directed at supporting the accuracy of emerging molecular (RT-PCR) tests for the virus. Discussions
around the development of this product began in February, 2020, were followed by Canadian, EU and U.S.
licensings/registrations through the spring, and led to first sales in all three markets prior to June 30, 2020.
Subsequently, Microbix has also developed QAPs to support RT-PCR testing for multiple COVID variants-
of-concern, for COVID antigen-tests, and, most recently, for COVID serological tests. However important,
COVID remains only a portion of Microbix’s QAPs portfolio, which now comprises more than 70 discreet
products that are principally in the respiratory and sexually-transmitted disease categories. That broad
portfolio of QAPs has enabled Microbix to build-out a global distribution network for this product line, with
a total of nine distributors now providing end-user access and sales support in over 30 countries.
In fiscal 2021, Microbix announced further projects to support the fight against the pandemic – including
its project to produce viral transport medium (DxTM) in support of Ontario’s RT-PCR testing for COVID-19
disease. An Ontario Together Fund grant to support this project was announced in fiscal Q1, Microbix
completed its technical file to enable Canadian sales in fiscal Q2, and a material first order of $4.25 million
was received from Ontario-based procurement Authorities in April, 2021. The benefits from that first order
are reflected in the results for fiscal Q3 and Q4 2021.
It is worth repeating that everyone at Microbix has been working hard to help conquer the new
challenges to human health and well-being throughout this very challenging pandemic.
Due to the positive prospects of each of the above lines of its business and products, Microbix continues
to reinvest to better ensure that it can meet expected growth in demand across its product portfolio. Such
work includes upgrading its manufacturing technologies, quality systems, processes and training, capacity
and allocation of resources, 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. Starting in fiscal 2018, multiple upgrades to facilities have
been made and further investments will continue to be made in infrastructure going forward, such as those
discussed in the Public Offering prospectus dated May 19, 2021 Additionally, Microbix will be investing in
our people – with efforts to enhance training, career progression, and retention.
Benefits of the manufacturing upgrades have now become readily apparent, with Microbix capable
of supporting year-over-year sales growth of 77% in fiscal 2021. Additionally gross margins for fiscal 2021
improved to 59% from just 44% the prior year due to both a greater proportion of branded medical devices
(56% vs. 17%), better control of production processes and an improved product mix. Fiscal 2021 is the first
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OUTLOOK (Continued)
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year that fully reflects Microbix’s work in positioning for continuing sales growth, to materially improve its
percentage gross margins, and drive toward a higher proportion of higher margin Microbix-branded medical
devices. This statement is most conclusively supported by the $3.2 million of net earnings recorded for fiscal
2021, for a gratifying net earnings margin of 17%.
More broadly speaking though, fiscal 2020 and 2021 have proved to be challenging for many companies,
including Microbix. The COVID-19 pandemic is disrupting normal antigen ordering patterns and has delayed
the widespread uptake of Microbix’ novel and innovative QAPs for such areas as high-risk Human Papilloma
Virus (HPV) molecular testing. The development and registration of leading-edge QAPs to support COVID-19
test accuracy have partially, but not fully, offset these disruptions and delays in fiscal 2020 and 2021. However,
the full year of fiscal 2021 is now providing firm evidence of the interest in Microbix’s QAPs from the global
diagnostics and clinical laboratory industries, with fiscal 2021 sales of $4.7 million demonstrating substantial
growth from the prior year. Management sees this growth continuing.
Going forward, Microbix is working to keep improving its percentage gross margin while also growing its
sales of antigens and QAPs, and of DxTM. Strong percentage gross margins, such as those seen in fiscal 2021,
should be achievable by way of operational discipline across antigens, QAPs and DxTM, although variation
in product sales mix will drive some quarter-to-quarter volatility. Achievement of Microbix’s sales and gross
margin goals is expected to lead to increasingly meaningful quarterly net earnings, with results reporting to
regularly update shareholders on progress with such operational goals.
With regards to Kinlytic urokinase, Microbix’s biologic clot-buster therapeutic, it is management’s opinion
that the COVID-19 pandemic has increased the difficulty of securing a partnering agreement to obtain the
required re-development funding. This is for two reasons: (i) the pandemic has disrupted the business of the
hospital-oriented product companies that are the most evident potential partners for this asset (due to fewer
normal-course procedures being done) and thereby constrained the new product budgets of such companies,
and (ii) ongoing restrictions on physical travel (i.e., closed borders, quarantines, etc.) are making it more difficult
to advance negotiations, conclude partnerships, and manage off-site manufacturing or clinical trial work.
Accordingly, Microbix cannot represent a precise timeline for securing a funding partner to advance the
re-development of Kinlytic to sBLA filing and renewed commercial sales. As a consequence, management
followed International Financial Reporting Standards (IFRS) and fully impaired the book value of this asset
in Q4 of fiscal 2020. However, since that time, management has continued efforts to partner this asset and
thereby return the drug to the United States market for its catheter-clearance sub-indication. Microbix remains
optimistic that it will achieve that objective and thereby derive value from this asset.
To summarize, the company continues to target double-digit annual percentage growth in sales, while
concurrently working to expand gross margins and net earnings. Sustainable growth and consistent
profitability are core goals for Microbix. Those objectives should be attainable based on increasing long-term
demand for antigens, implementation of innovative antigen production methods, the launch of new QAPs
product lines, material sales of DxTM, 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.
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LIQUIDITY, CASH FLOWS AND CAPITAL RESOURCES (Continued)
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The Company has incurred historical losses resulting in an accumulated deficit of $38,660,620 as at
September 30, 2021. 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 2022, cash flow is expected to improve due to: 1) continued growth in overall
product sales, 2) improvements in product pricing or other sales terms, 3) greater sales of higher percentage
gross margin products, and 4) other business development and financial initiatives. Management expects
these developments will continue to significantly improve the overall liquidity position, as the Company’s
plans come to fruition.
To support the continued growth of the business, on January 30, 2020, the Company completed
a non-brokered private placement offering of an aggregate of 11,800,000 units for total gross proceeds
of $2,360,000. Each unit consisted of one common share of Microbix and one common share purchase
warrant. Each warrant entitles the holder to purchase one additional common share at an exercise price
of $0.36 for five years. The financing was non-brokered. Cash commissions of $104,300 were paid and
an aggregate of 521,500 Broker’s Warrants were issued in the private placement offering. Each Broker’s
Warrant entitles the holder to purchase one unit at a price of $0.36 for a period of five years. All securities
issued under the private placement were subject to a hold period which expired four months and one day
from the date of closing.
In addition, on May 19, 2021, the Company completed a public offering and concurrent private
placement offering of an aggregate of 11,500,000 units for total gross proceeds of $6,900,000, and net
proceeds of $6,131,568 after share issuance costs of $768,432. Each unit consisted of one common share
of Microbix and one-half of one common share purchase warrant. Each whole warrant entitles the holder
to purchase one additional common share at an exercise price of $0.80 for two years. The financing was a
“bought deal”, with co-lead underwriters of the Offering (iA Private Wealth Inc. and Bloom Burton Securities
Inc.). Cash commissions of $402,500 were paid and an aggregate of 670,833 Broker’s Warrants were issued
in the public offering. Each Broker’s Warrant entitles the holder to purchase one unit at a price of $0.60 for
a period of two years. All securities issued under the concurrent private placement were subject to a hold
period which expired four months and one day from the date of closing.
On October 13, 2020, the Company announced a grant agreement with the Ontario Together Fund
(“OTF”) of the Ministry of Economic Development, Job Creation and Trade (the “Grant”). The Grant of
$1,445,000 will cover 50% of the cost to automate production of the Company’s quality assessment
products (QAPs™) that help ensure the accuracy of infectious disease diagnostic testing, and enable local,
secure, and cost-effective automated production of the quantities of viral transport medium (generically
“VTM” and branded “DxTM™”) needed for Ontario’s lab-based testing for COVID-19 disease or other tests of
concern to public health or safety. An initial Grant disbursement, upon execution of the agreement, in the
amount of $867,000, was received on October 13, 2020. The remaining $578,000 of the grant will be paid
upon project completion and a review of Eligible Project Expenditures incurred during the project, up to
February 28, 2022. During the year ended September 30, 2021 the Company recognized $717,587 (2020 -
nil) of grant income. The company also recorded a $680,202 reduction in capital asset costs. The excess
claims of $578,000 for the remainder of the grant have been recognized in accounts receivable. Microbix
believes that it has met the conditions necessary to receive this balance.
Subsequent to the end of fiscal 2021, the Company received $1,863,796 from the exercise of
5,239,919 warrants.
8
Canadian Funds
LIQUIDITY, CASH FLOWS AND CAPITAL RESOURCES (Continued)
Canadian Funds
Subsequent to the end of fiscal 2021, the Company made an early repayment of the remaining
outstanding principal relating to a $2 million non-convertible 9% interest debenture. A payment of
$1,331,758, including accrued interest, was made on October 1, 2021.
Microbix will continue to monitor and manage its cash position, with the objective of anticipating and
meeting all current and future liquidity and capital needs.
Outstanding Share Capital
Share capital issued and outstanding as at September 30, 2021 was $43,609,601 for 126,377,167 common
shares and September 30, 2020 was $35,357,144 for 108,772,705 common shares.
Global pandemic
In early 2020, the coronavirus (“COVID-19”) was confirmed in multiple countries throughout the world and
on March 11, 2020, the World Health Organization declared a global pandemic.
As a result of the continued and uncertain economic and business impact of the COVID-19 pandemic, the
Company has reviewed the estimates, judgments and assumptions used in the preparation of its financial
statements, including with respect to the determination of whether indicators of impairment exist for its
tangible and intangible assets and the credit risk of its counterparties.
The extent to which COVID-19 and any other pandemic or public health crisis impacts the Company’s
business, affairs, operations, financial condition, liquidity, availability of credit and results of operations will
depend on future developments that are highly uncertain and cannot be predicted with any meaningful
precision, including new information which may emerge concerning the severity of the COVID-19 virus and
the actions required to continue to contain the COVID-19 virus or remedy its impact, among others.
Any of these developments, and others, could have a material adverse effect on the Company’s business,
financial condition, operations and results of operations. In addition, because of the severity and global
nature of the COVID-19 pandemic, it is possible that estimates in the Company’s financial statements
will change in the near term and the effect of any such changes could be material, which could result in,
among other things, impairment of long-lived assets or a change in the estimated credit losses on accounts
receivable. The Company is constantly evaluating the situation and monitoring any impacts or potential
impacts to its business.
See the “Risks and uncertainties” section of this MD&A for a further discussion of the COVID-19 pandemic.
9
Canadian Funds
OFF-BALANCE SHEET ARRANGEMENTS
Canadian Funds
The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or
future material effect on its financial condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources.
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 22, 2021.
RISKS AND UNCERTAINTIES
The Company has exposure to credit risk, liquidity risk and market risk. The Company’s Board of Directors
has the overall responsibility for the oversight of these risks and reviews the Company’s policies on an
ongoing basis to ensure that these risks are appropriately managed, including through the use of financial
instruments where appropriate. Further discussion of the management of such risks is included in note
21 to the audited consolidated financial statements for the year ended September 30, 2021.
COVID-19 Pandemic
As previously discussed, the Company’s business may be negatively impacted by the COVID-19 pandemic,
which has created, and continues to create, significant societal and economic disruptions. The changing and
rapidly-evolving effects of the COVID-19 pandemic – the duration, extent and severity of which are currently
unknown – on investors, businesses, the economy, government bodies, society and the financial markets
could, among other things, add volatility to the global stock markets and change interest rate environments.
The COVID-19 pandemic and measures to prevent its spread may negatively impact the Company, its
customers, counterparties, employees, third-party service providers and other stakeholders, as applicable,
in a number of ways, including, but not limited to, by: (i) adversely affecting the business operations of
the Company, including the Company’s planned sales and marketing processes for its approved products;
(ii) disrupting the Company’s supply chain, including the manufacture and/or delivery of its products to
its customers and distributors on which the Company relies; (iii) adversely affecting local, national or
international economies and employment levels; (iv) causing business interruptions, including as a result of
steps taken by the Company in compliance with government recommendations and orders, such as requiring
employee to work remotely, which may cause strain on such existing resources as information technology
systems, and suspension of all non-essential travel; (v) disrupting public and private infrastructure, including
communications and financial services, which could disrupt the Company’s normal business operations;
(vi) disrupting health care delivery; disrupting or prolonging business development initiatives such as the
partnering of Kinlytic® urokinase. At this point, the extent to which the COVID-19 pandemic will or may impact
the Company is uncertain and these factors are beyond the Company’s control; however, any of these events,
in isolation or in combination, could have a material adverse effect on the Company’s business, results of
operations and financial condition and the market price of the Company’s securities.
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:
10
Canadian Funds
RISKS AND UNCERTAINTIES (Continued)
Canadian Funds
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 involve 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.
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.
Viral Transport Medium Products (DxTM)
Microbix’s newest product offering, DxTM is principally reliant upon sales to designates of the Government
of Ontario. There is no assurance that sales to such designates will be ongoing or that other customers will
be secured.
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 and VTM products, which is a major source
of funding for its new product oriented 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.
11
Canadian Funds
RISKS AND UNCERTAINTIES (Continued)
Canadian Funds
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 may have greater 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.
FINANCIAL RISK MANAGEMENT
The primary risks affecting the Company are summarized below and have not changed during the fiscal
year. The list does not cover all risks, nor is there an assurance that the strategy of management to mitigate
the risks is sufficient to eliminate the risk.
Credit risk:
The Company’s 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, 2021, five customers accounted for 80% (September 30, 2020 - five customers
accounted for 74%) of the outstanding balance. In addition, for the year ended September 30, 2021, five
customers accounted for 63% (September 30, 2020 - five customers accounted for 61%) of revenues. The
Company has had minimal bad debts over the past several years and accordingly management has recorded
an allowance of $35,000 (September 30, 2020 - $10,000).
12
Canadian Funds
FINANCIAL RISK MANAGEMENT (Continued)
Canadian Funds
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, 2021, the significant balances, quoted in Canadian dollars, held in foreign
currencies are:
U.S. dollars
2021
2020
Euros
2021
2020
Cash
Accounts receivable
Accounts payable and
accrued liabilites
$ 3,601,394 $
836,390
15,397
1,186,876
$ 135,388
727,708
$
1,551
273,858
131,002
150,600
47,009
-
Based upon 2021 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 $327,900 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 $180,200. 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 $327,900
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 $180,200.
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. When employed, this facility is helping to satisfy the Company’s liquidity needs and
to manage the liquidity risk.
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%. As at September 30, 2021 the Company has not drawn on this line
of credit. A 1% increase in the bank rate would cost the Company approximately $20,000 per year for BDC
and about $20,000 on the line of credit usage if it were fully used throughout the fiscal year.
13
Canadian Funds
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.
14
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, 2021, 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.
15
Canadian Funds
FINANCIAL INSTRUMENTS (Continued)
Canadian Funds
Internal Controls Over Financial Reporting
The design of internal controls over financial reporting (“ICFR”) within the company is a management
responsibility to provide reasonable assurance that the reliability of financial reporting and that the
preparation of financial statements for external purposes is in accordance with generally accepted
accounting principles of IFRS. While the CEO and CFO believe that the internal controls are adequate to
provide the above information, the process to evaluate and document all policies and procedures that
could impact financial reporting is continuously reviewed with consultation with the Audit Committee.
Shareholders should be aware that Microbix is a small company without the department resources
associated with larger firms. Management is using the Committee of Sponsoring Organization of the
Treadway Commission (“COSO”). Framework and has concluded that the Internal Control over Financial
Reporting (“ICFR”) as defined in NI 52-109 is effective as at the period ended September 30, 2021.
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, 2021
that have materially affected, or are reasonably thought to materially affect, the internal control over
financial reporting.
IMPACT OF NEW ACCOUNTING STANDARDS NOT YET ADOPTED
Amendments to IAS 1
In January 2020, the IASB issued Classification of Liabilities as Current or Non-current, which amends IAS
1. The narrow scope amendments affect only the presentation of liabilities in the statement of financial
position and not the amount or timing of their recognition. The amendments clarify that the classification
of liabilities as current or non-current should be based on rights that are in existence at the end of the
reporting period and align the wording in all affected paragraphs to refer to the right to defer settlement
by at least twelve months. That classification is unaffected by the likelihood that an entity will exercise its
deferral right. The amendments are effective for annual reporting periods beginning on or after January
1, 2023 and are to be applied retrospectively. The Company is still assessing the impact of adopting these
amendments on its financial statements.
Amendments to IFRS 9, Financial Instruments (“IFRS 9”)
As part of its 2018-2020 annual improvements to IFRS standards process, the IASB issued an amendment
to IFRS 9. The amendment clarifies the fees that an entity includes when assessing whether the terms
of a new or modified financial liability are substantially different from the terms of the original financial
liability. These fees include only those paid or received between the borrower and the lender, including
fees paid or received by either the borrower or lender on the other’s behalf. An entity applies the
amendment to financial liabilities that are modified or exchanged on or after the beginning of the annual
reporting period in which the entity first applies the amendment. The amendment is effective for annual
reporting periods beginning on or after January 1, 2022 with earlier adoption permitted. The Company is
still assessing the impact of adopting these amendments on its financial statements.
Amendments to IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors (“IAS 8”)
In February 2021, the IASB issued Definition of Accounting Estimates, which amends IAS 8. The amendment
replaces the definition of a change in accounting estimates with a definition of accounting estimates.
Under the new definition, accounting estimates are “monetary amounts in financial statements that
are subject to measurement uncertainty”. The amendment provides clarification to help entities to
distinguish between accounting policies and accounting estimates. The amendments are effective for
annual periods beginning on after January 1, 2023. The Company is still assessing the impact of adopting
these amendments on its financial statements.
16
Canadian Funds
IMPACT OF NEW ACCOUNTING STANDARDS NOT YET ADOPTED (Continued)
Canadian Funds
Amendments to IAS 1 and IFRS Practice Statement 2
In February 2021, the IASB issued Disclosure of Accounting Policies, which amends IAS 1 and IFRS Practice
Statement 2. The amendments are intended to help preparers in deciding which accounting policies
to disclose in their financial statements. The amendment to IAS 1 requires companies to disclose their
material accounting policy information rather than its significant accounting policies. The amendment
also clarifies that not all accounting policy information that relates to material transactions, other events
or conditions is material to the financial statements. The amendment to IFRS Practice Statement 2 adds
guidance and examples to the materiality practice statement, which explains how to apply the materiality
process to identify material accounting policy information. The amendments are effective for annual
periods beginning on or after January 1, 2023 and are to be applied prospectively. The Company is still
assessing the impact of adopting these amendments on its financial statements.
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Canadian Funds
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of Microbix Biosystems Inc.
Opinion
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,
2021 and 2020, 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, 2021 and 2020, 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.
Key audit matter
Key audit matters are those matters that, in our professional judgment, were of most significance in the
audit of the consolidated financial statements of the current period. These matters were addressed in
the context of the audit of the consolidated financial statements as a whole, and in forming the auditor’s
opinion thereon, and we do not provide a separate opinion on these matters. For the matter below, our
description of how our audit addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the
consolidated financial statements section of our report, including in relation to this matter. Accordingly,
our audit included the performance of procedures designed to respond to our assessment of the risks
of material misstatement of the financial statements. The results of our audit procedures, including
the procedures performed to address the matters below, provide the basis for our audit opinion on the
accompanying consolidated financial statements.
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Canadian Funds
Key Audit Matter
How our audit addressed the key audit matter
Inventories Costing – work in process and finished goods
As at September 30, 2021, the inventories balance
was $4.4 million, which was comprised of raw
materials, work in process and finished goods.
Inventory is recorded at the lower of cost and net
realizable value. The cost for work in process and
finished goods includes direct costs incurred
in production including raw materials, direct
labour, depreciation and directly attributable
overhead costs and indirect overhead costs
based on normal operating capacity. Note 3 of
the consolidated financial statements describes
the accounting policy for inventories.
Auditing the Group’s inventory costing requires
significant audit effort in performing procedures
to evaluate management’s application of the
standard cost and overhead absorption for work
in process and finished goods inventories due to
the inputting of various inventory cost elements.
As a result, the nature of management’s process
gives rise to a risk that an error may occur in the
costing process for work in process and finished
goods inventories.
Other information
The procedures, amongst others, performed to test
the inventory costing process for work in process and
finished goods, included:
• We assessed the Group’s accounting policy for
inventories for compliance with IAS 2;
• Examined evidence of cost
in
the determination of standard cost rates for
inventories on a product by product basis;
inputs used
• For a sample of work in process and finished
goods inventories, we recalculated the underlying
inventories standard cost elements; including
materials, labour and overheads;
• For a sample of work in process and finished
goods inventories, we examined the actual costs
of raw materials, direct labour and overhead by
comparing the amounts to external and internal
data sources such as invoices and payroll records;
• Obtained managements over/under absorption
analysis and compared the allocation of labour
and overhead cost to products in the standard
cost calculation used by management to the
actual costs incurred; and
• Recalculated the over/under absorption amounts
to be capitalized to work in process and finished
goods inventories.
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.
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Canadian Funds
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. 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.
20
Canadian Funds
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.
From the matters communicated with those charged with governance, we determine those matters that
were of most significance in the audit of the consolidated financial statements of the current period and
are theresfore the key audit matters. We describe these matters in our auditor’s report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is Laura Sluce.
Toronto, Canada
December 22, 2021
21
Canadian Funds
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at September 30, 2021 and 2020
ASSETS
CURRENT ASSETS
Cash
Accounts receivable (Note 21)
Inventories (Note 5)
Prepaid expenses and other assets
Investment tax credit receivable
TOTAL CURRENT ASSETS
LONG-TERM ASSETS
Property, plant and equipment (Note 6)
Intangible assets (Note 7)
TOTAL LONG-TERM ASSETS
TOTAL ASSETS
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities
Current portion of long-term debt (Note 9)
Current portion of debentures (Note 8)
Current portion of lease liability (Note 4, 6)
Deferred revenue (Note 9, 23)
TOTAL CURRENT LIABILITIES
Non-convertible debentures (Note 8)
Convertible debentures (Note 8)
Lease liabilities (Note 4, 6)
Long-term debt (Note 9)
TOTAL LONG-TERM LIABILITIES
TOTAL LIABILITIES
SHAREHOLDERS’ EQUITY
Share capital (Note 11)
Equity component of
convertible debentures (Note 8)
Contributed surplus
Accumulated deficit
TOTAL SHAREHOLDERS’ EQUITY
Canadian Funds
2021
2020
$ 9,986,312
4,175,116
4,407,509
495,045
30,500
19,094,482
$
92,661
1,877,009
4,292,664
220,065
10,433
6,492,832
8,082,749
1,651,803
9,734,552
7,363,155
1,742,024
9,105,179
$ 28,829,034
$ 15,598,011
$ 1,794,923
212,760
2,233,758
209,821
742,932
5,194,194
$ 1,488,312
235,230
892,125
158,633
1,315,738
4,090,038
-
1,508,640
988,291
2,581,765
5,078,696
713,853
1,419,834
383,306
2,371,503
4,888,496
$ 10,272,890
$ 8,978,534
$ 43,609,601 $ 35,357,144
2,903,789
10,703,374
(38,660,620)
$ 18,556,144
2,903,789
10,252,554
(41,894,010)
$ 6,619,477
TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY
$ 28,829,034
$ 15,598,011
Commitments and Contingencies (Note 25)
(Signed) “Martin Marino”
Martin Marino
Director
(Signed) “Cameron L. Groome”
caMeron L. GrooMe
Director
The accompanying notes and summary of significant accounting policies are an integral part of these interim condensed consolidated financial statements.
22
Canadian Funds
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
For the years ended September 30, 2021 and 2020
SALES
Product Sales
Royalties
TOTAL SALES
COST OF GOODS SOLD
Product costs (Notes 5, 15)
Royalties
TOTAL COST OF GOODS SOLD
GROSS MARGIN
EXPENSES
Selling and business development (Note 15)
General and administrative (Note 15)
Research and development (Note 15)
OPERATING INCOME (LOSS) BEFORE IMPAIRMENT OF ASSETS,
INTEREST ACCRETION AND FINANCE EXPENSES
Impairment of long-lived assets (Note 7)
Interest accretion expense on debenture due to
planned redemption, non-cash (Note 8)
Finance expenses (Note 18)
Canadian Funds
2021
2020
$ 18,293,592
299,368
18,592,960
$ 10,230,107
294,797
10,524,904
7,500,042
48,978
7,549,020
5,808,978
55,029
5,864,007
11,043,940
4,660,897
858,059
4,316,032
1,033,254
632,554
3,539,818
1,013,126
4,836,595
-
(524,601)
3,078,585
517,651
1,085,554
-
1,056,102
INCOME (LOSS) FOR THE YEAR, BEFORE INCOME TAXES
3,233,390
(4,659,288)
INCOME TAXES
Deferred income taxes (Note 16)
NET INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
FOR THE YEAR
NET INCOME (LOSS) PER SHARE
Basic (Note 14)
Diluted (Note 14)
-
1,568,237
$ 3,233,390
$ (6,227,525)
$
$
0.028
0.026
$
$
(0.059)
(0.059)
The accompanying notes and summary of significant accounting policies are an integral part of these interim condensed consolidated financial statements.
23
Canadian Funds
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended September 30, 2021 and 2020
OPERATING ACTIVITIES
Net income (loss) for the year
Items not affecting cash
Amortization and depreciation (Note 15)
Accretion of debentures (Note 8)
Share-based compensation (Note 13)
Accretion interest expense (Note 18)
Deferred tax asset (Note 16)
Impairment of long-term assets (Note 7)
Change in non-cash working capital balances (Note 17)
CASH PROVIDED BY OPERATING ACTIVITIES
INVESTING ACTIVITIES
Purchase of property, plant and equipment (Note 6)
Proceeds from Government Grant (Note 10)
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 and Government Loan (Notes 9)
Repayments of non-convertible debentures (Note 8)
Payment of lease liabilities
Issue of common share units, net of issue costs (Notes 11)
Proceeds from exercise of warrants (Notes 12)
Proceeds (repayments) of credit facility (Note 9)
CASH PROVIDED BY FINANCING ACTIVITIES
NET CHANGE IN CASH - DURING THE YEAR
CASH - BEGINNING OF YEAR
CASH - END OF PERIOD
Canadian Funds
2021
2020
$ 3,233,390
$ (6,227,525)
822,040
835,567
377,828
56,386
-
-
(3,218,475)
690,087
255,883
158,836
23,027
1,568,237
3,078,585
461,436
2,106,736
8,566
(1,242,837)
680,202
(59,702)
(812,708)
-
(1,200)
(622,337)
(813,908)
(235,230)
630,510
(118,981)
(192,495)
6,131,567
2,193,881
-
(408,260)
742,085
(108,504)
(173,648)
2,150,759
-
(1,400,000)
8,409,252
802,432
9,893,651
92,661
(2,910)
95,571
$ 9,986,312
$
92,661
The accompanying notes and summary of significant accounting policies are an integral part of these interim condensed consolidated financial statements.
24
Canadian Funds
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
As at September 30, 2021 and 2020
SHARE CAPITAL (Note 11)
STATED
NUMBER OF
CAPITAL
SHARES
CONTRIBUTED
SURPLUS
DEFICIT
Canadian Funds
EQUITY
COMPONENT OF
DEBENTURE
TOTAL
SHAREHOLDERS’
EQUITY
BALANCE, SEPTEMBER 30, 2019 96,972,705 $ 33,912,460 $ 9,387,644 $ (35,666,485) $2,903,789 $10,537,408
Share-based
compensation expense
Issue of Warrants pursuant to
Private Placement
Share Issuance pursuant to
Private Placement
-
-
158,836
-
-
158,836
-
-
748,550
-
-
748,550
11,800,000
1,611,450
-
-
-
1,611,450
Share Issue Costs pursuant to
Private Placement
Net loss and comprehensive loss
for the year
-
(166,766)
(42,476)
-
-
(209,242)
-
-
-
(6,227,525)
-
(6,227,525)
BALANCE, SEPTEMBER 30, 2020 108,772,705 $ 35,357,144 $ 10,252,554 $(41,894,010) $2,903,789
$ 6,619,477
Share-based
compensation expense
Share Issuance pursuant to
Exercise of Warrents
Issuance of Warrants pursuant
to Public Offering and
Private Placement
-
-
377,828
-
-
377,828
6,104,462
3,085,455
(891,574)
-
-
2,193,881
-
-
1,096,585
-
-
1,096,585
Share Issuance pursuant
to Public Offering and
Private Placement
Share Issue Costs pursuant
to Public Offering and
Private Placement
11,500,000
5,803,415
-
-
-
5,803,415
-
(636,413)
(132,019)
-
-
(768,432)
Net income and comprehensive
income for the year
-
-
-
3,233,390
-
3,233,390
BALANCE, SEPTEMBER 30, 2021 126,377,167 $43,609,601 $10,703,374 $(38,660,620) $2,903,789 $18,556,144
The accompanying notes and summary of significant accounting policies are an integral part of these interim condensed consolidated financial statements.
25
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2021 and 2020
1. NATURE OF THE BUSINESS
Microbix Biosystems Inc. and it’s subsidiaries (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 well-being.
Microbix manufactures a wide range of critical biological materials for the global diagnostics industry, notably antigens
(Antigen business) used in immunoassays or quality assessment and proficiency testing controls (QAPs business).
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 22, 2021.
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. All significant
intercompany transactions have been eliminated upon consolidation.
Global pandemic
In early 2020, the Coronavirus (“COVID-19”) was confirmed in multiple countries throughout the world and on March 11,
2020, the World Health Organization declared a global pandemic. As a result of the continued and uncertain economic
and business impact of the COVID-19 pandemic, the Company has reviewed the estimates, judgments and assumptions
used in the preparation of its financial statements, including with respect to the determination of whether indicators of
impairment exist for its tangible and intangible assets and the credit risk of its counterparties.
The extent to which COVID-19 and any other pandemic or public health crisis impacts the Company’s business, affairs,
operations, financial condition, liquidity, availability of credit and results of operations will depend on future developments
that are highly uncertain and cannot be predicted with any meaningful precision, including new information which may
emerge concerning the severity of the COVID-19 virus and the actions required to continue to contain the COVID-19 virus
or remedy its impact, among others.
Any of these developments, and others, could have a material effect on the Company’s business, financial condition,
operations and results of operations. In addition, because of the severity and global nature of the COVID-19 pandemic, it
is possible that estimates in the Company’s consolidated financial statements will change in the near term and the effect
of any such changes could be material, which could result in, among other things, an impairment of long-lived assets
or a change in the estimated credit losses on accounts receivable. The Company is constantly evaluating the situation
and monitoring any impacts or potential impacts to its business. The duration and impact of the COVID-19 outbreak are
unknown at this time, as is the efficacy of the government and central bank interventions. It is not possible to reliably
estimate the length and severity of these developments and the impact on the financial results and condition of the
Company in future periods.
26
Canadian Funds NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2021 and 2020
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of estimates and judgments
The preparation of consolidated financial statements requires management to make estimates and judgments that
affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods.
Actual results could differ from estimates and such differences could be material.
Key areas of managerial judgments and estimates are as follows:
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 judgment is also required to determine depreciation methods and an asset’s residual
value and whether an asset is a qualifying asset for the purposes of capitalizing borrowing costs.
Internally generated intangible assets
Management monitors the progress of each internal research and development project. Significant judgment 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; and (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.
Financial assets and liabilities
Estimates and judgments 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.
Income taxes
The Company recognizes tax-related items such as deferred tax assets, 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.
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.
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 or “CGUs”).
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.
27
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2021 and 2020
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.
The company may also provide services to customers, such as for development of custom products. Such service
revenues are recognized of a percentage of completion basis.
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, 2021 or 2020.
Financial assets and liabilities
The Company’s financial assets and liabilities (financial instruments) include cash, accounts receivable, accounts payable
and accrued liabilities, long-term debt, bank indebtedness, convertible and non-convertible debentures. All financial
instruments are recorded at fair value at recognition. Financial instruments are measured by grouping them into classes
upon initial recognition, based on the purpose of the individual instruments.
Subsequent to initial recognition, the classification and measurement of the Company’s financial assets are included in
one of the following categories:
• 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 Other Comprehensive Income (“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 or 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.
Subsequent to initial measurement 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.
28
Canadian Funds NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2021 and 2020
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The following summarizes the Company’s classification and measurement of financial assets and liabilities as at
September 30:
Classification and
Measurement
Method
2021
2020
FVTPL
Amortized cost
$
9,986,312
4,175,116
$
92,661
1,877,009
Amortized cost
Amortized cost
Amortized cost
Amortized cost
$ 1,794,923
1,769,854
1,972,544
2,794,525
$ 1,488,312
1,221,617
1,804,195
2,606,733
Financial assets:
Cash
Accounts receivable
Financial liabilities:
Accounts payable and
accrued liabilities
Non-convertible debentures
Convertible debentures
Long-term-debt
Inventories
Inventories are comprised of raw materials, work in process and finished goods. Inventories are carried at the lower of
cost and net realizable value. The cost of raw materials is determined on the weighted average cost method. Cost of
work in process and finished goods consists of direct costs incurred in production including raw materials, direct labour,
depreciation on property, plant and equipment and amortization of intangible assets and directly attributable overhead
costs and indirect overhead costs based on normal operating capacity. Net realizable value is the estimated selling price
in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.
Inventories are written down to net realizable value when the cost of inventories is estimated to be unrecoverable due to
obsolescence, damage or declining selling prices.
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.
29
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2021 and 2020
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
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 income (loss) and comprehensive income (loss) for the period.
30
Canadian Funds NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2021 and 2020
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income (loss) per common share
The Company calculates basic income (loss) 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.
Leases
The Company as lessee
The Company determines whether a contract is or contains a lease at inception of the contract. A contract is, or
contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in
exchange for consideration.
(i) Right-of-use assets
The Company recognizes a right-of-use asset and a lease liability based on the present value of future lease payments
when the lessor makes the leased asset available for use by the Company. The right-of-use asset is initially measured
at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the
commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying
asset. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to
the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of
right-of-use assets are determined on the same basis as those of property, plant and equipment. Right-of-use assets are
subject to impairment.
31
Canadian Funds NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2021 and 2020
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Leases (Continued)
(ii) Lease liabilities
The Company recognizes lease liabilities measured at the present value of lease payments to be made over the lease
term, discounted using the interest rate implicit in the lease. The lease payments include fixed payments (including in-
substance fixed payments), variable payments that depend on an index or a rate, renewal options that are reasonably
certain to be exercised less any lease incentives receivable. Variable lease payments that do not depend on an index or
rate are recognized as an expense in the period in which the event that triggers the payment occurs. In addition, the
carrying amount of lease payments is reassessed if there is a modification, a change in the lease term or a change in the
in-substance fixed lease payments. The Company has elected to apply the practical expedient to not separate the lease
component and its associated non-lease component.
Management exercises judgment in the process of applying Leases (“IFRS 16”) and determining the appropriate lease
term on a lease by lease basis. Renewal options are only included if Management are reasonably certain that the option
will be renewed. As most of the Company’s operating lease contracts do not provide the implicit interest rate, nor can
the implicit interest rate be readily determined, the Company uses its incremental borrowing rate as the discount rate for
determining the present value of lease payments. The Company’s incremental borrowing rate for a lease is the rate that
the Company would pay to borrow an amount necessary to obtain an asset of a similar value to the right-of-use asset on
a collateralized basis over a similar term.
(iii) Short term leases and leases of low-value assets
The Company has elected not to recognize right-of-use assets and lease liabilities for short-term leases of property,
plant and equipment that have a lease term of 12 months or less and leases of low-value assets, e.g. laptop computers.
The Company recognizes the lease payments associated with these leases as an expense on a straight-line basis over
the lease term.
Government Financing and Assistance
Government assistance that requires repayment and that is non-interest bearing is accounted for at its fair value, based
on management’s best estimate. The difference between the assistance amount and its fair value is accounted for as a
government grant and recognized in income over the period in which the related costs they are intended to compensate
are recognized.
In fiscal 2020 and 2021, the Company determined that it was eligible for the Canada Emergency Wage Subsidy. Funding
from this program provided a reimbursement for a portion of salaries paid out to employees during the COVID-19 pandemic
and was recorded as a reduction of salary expense when eligible expenditures were made and there was reasonable
assurance of realization.
32
Canadian Funds NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2021 and 2020
4. IMPACT OF NEW ACCOUNTING STANDARDS NOT YET ADOPTED
Amendments to IAS 1
In January 2020, the IASB issued Classification of Liabilities as Current or Non-current, which amends IAS 1. The narrow
scope amendments affect only the presentation of liabilities in the statement of financial position and not the amount or
timing of their recognition. The amendments clarify that the classification of liabilities as current or non-current should
be based on rights that are in existence at the end of the reporting period and align the wording in all affected paragraphs
to refer to the right to defer settlement by at least twelve months. That classification is unaffected by the likelihood
that an entity will exercise its deferral right. The amendments are effective for annual reporting periods beginning on or
after January 1, 2023 and are to be applied retrospectively. The Company is still assessing the impact of adopting these
amendments on its financial statements.
Amendments to IFRS 9, Financial Instruments (“IFRS 9”)
As part of its 2018-2020 annual improvements to IFRS standards process, the IASB issued an amendment to IFRS 9. The
amendment clarifies the fees that an entity includes when assessing whether the terms of a new or modified financial
liability are substantially different from the terms of the original financial liability. These fees include only those paid or
received between the borrower and the lender, including fees paid or received by either the borrower or lender on the
other’s behalf. An entity applies the amendment to financial liabilities that are modified or exchanged on or after the
beginning of the annual reporting period in which the entity first applies the amendment. The amendment is effective
for annual reporting periods beginning on or after January 1, 2022 with earlier adoption permitted. The Company is still
assessing the impact of adopting these amendments on its financial statements.
Amendments to IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors (“IAS 8”)
In February 2021, the IASB issued Definition of Accounting Estimates, which amends IAS 8. The amendment replaces
the definition of a change in accounting estimates with a definition of accounting estimates. Under the new definition,
accounting estimates are “monetary amounts in financial statements that are subject to measurement uncertainty”. The
amendment provides clarification to help entities to distinguish between accounting policies and accounting estimates.
The amendments are effective for annual periods beginning on or after January 1, 2023. The Company is still assessing the
impact of adopting these amendments on its financial statements.
Amendments to IAS 1 and IFRS Practice Statement 2
In February 2021, the IASB issued Disclosure of Accounting Policies, which amends IAS 1 and IFRS Practice Statement
2. The amendments are intended to help preparers in deciding which accounting policies to disclose in their financial
statements. The amendment to IAS 1 requires companies to disclose their material accounting policy information rather
than its significant accounting policies. The amendment also clarifies that not all accounting policy information that
relates to material transactions, other events or conditions is material to the financial statements. The amendment to IFRS
Practice Statement 2 adds guidance and examples to the materiality practice statement, which explains how to apply the
materiality process to identify material accounting policy information. The amendments are effective for annual periods
beginning on or after January 1, 2023 and are to be applied prospectively. The Company is still assessing the impact of
adopting these amendments on its financial statements.
33
Canadian Funds NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2021 and 2020
5. INVENTORIES
Inventories consist of the following:
Raw materials
Work in process
Finished goods
$
September 30, 2021 September 30, 2020
710,587
1,122,584
2,459,493
4,292,664
1,092,359
1,677,437
1,637,713
4,407,509
$
$
$
During the year ended September 30, 2021, inventories in the amount of $7,500,042 (September 30, 2020 -
$5,808,978) were recognized as an expense through cost of goods sold. The allowance for inventory impairment
as at September 30, 2021 was $383,110 (September 30, 2020 - $241,378).
34
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2021 and 2020
6. PROPERTY, PLANT, AND EQUIPMENT AND LEASES
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 and
Leasehold
Improvements
Research and
Development
Equipment
Other
Equipment
and Fixtures
Right of Use
Assets
Land
Total
COST
Balance, as at September 30, 2019
Additions
Disposals
$ 4,987,107
179,818
-
$ 517,131
40,177
-
$ 5,299,223 $ 848,209
6,695
-
592,713
-
$ 800,000
-
-
$ 12,450,670
819,403
-
Balance, as at September 30, 2020
5,166,925
557,308
5,890,936
854,904
800,000
13,270,073
Additions
Disposals
114,218
-
1,130
-
447,287
-
829,076
-
-
-
1,391,711
-
Balance, as at September 30, 2021
5,281,143
558,438
6,338,223
1,683,980
800,000
14,661,784
ACCUMULATED DEPRECIATION
Balance, as at September 30, 2019
Depreciation
Disposals
1,573,858
170,986
-
433,989
12,518
-
3,263,554
245,656
-
84,668
121,688
-
-
-
-
5,356,070
550,848
-
Balance, as at September 30, 2020
1,744,844
446,507
3,509,210
206,356
-
5,906,917
Depreciation
Disposals
203,838
-
12,786
-
322,826
-
132,667
-
-
-
672,117
-
Balance, as at September 30, 2021
1,948,682
459,293
3,832,037
339,023
-
6,579,035
NET BOOK VALUE
Balance, September 30, 2020
Balance, September 30, 2021
3,422,081
$ 3,332,461
110,801
$ 99,145
2,381,726
$ 2,506,187
648,548
$ 1,344,957
800,000
$ 800,000
7,363,155
$ 8,082,749
35
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2021 and 2020
6. PROPERTY, PLANT, AND EQUIPMENT AND LEASES (Continued)
Activity within right-of-use assets and lease liabilities during the year were as follows:
Balance, October 1, 2019
Additions
Depreciation Expense
Interest Accretion
Payments
Balance, September 30, 2020
Additions
Depreciation Expense
Interest Accretion
Payments
Right-of-Use Assets
Property
Equipment
Lease Liabilities
$ 419,843
-
(74,088)
-
-
$ 345,755
829,076
(92,931)
-
-
$ 343,698
6,695
(47,600)
-
-
$ 302,793
-
(39,736)
-
-
$ 693,747
6,695
-
15,146
(173,649)
$ 541,939
829,076
-
19,592
(192,495)
Balance, as at September 30, 2021
$ 1,081,900
$ 263,057
$ 1,198,112
Current Portion
Non-current portion
-
-
-
-
$ 209,821
988,291
Lease liabilities for leases that were entered during the year ended September 30, 2021 were discounted using an
incremental borrowing rate of 3.5% (September 30, 2020 – 3.7%).
Lease obligations as at September 30, 2021 are:
2022
2023
2024
2025
2026 and thereafter
Total
$
Amount
250,258
186,692
177,249
148,197
631,243
$ 1,393,639
36
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2021 and 2020
7. INTANGIBLE ASSETS
Intangible assets consist of:
COST
Balance, as at September 30, 2019
Additions
Impairment (a)
Balance, as at September 30, 2020
Additions
Capitalized
Development Costs
Bioreactor
(b)
$ 2,088,575
-
-
2,088,575
-
Patents and
Trademarks
$
Kinlytic®
(a)
3,078,585
-
(3,078,585)
-
-
$
QAPs
(c)
81,568
1,200
-
82,768
59,702
Total
$
5,248,728
1,200
(3,078,585)
2,171,343
59,702
Balance, as at September 30, 2021
2,088,575
-
142,470
2,231,045
ACCUMULATED AMORTIZATION
Balance, as at September 30, 2019
Amortization expense
Balance, as at September 30, 2020
Amortization expense
290,080
139,239
429,319
139,238
Balance, as at September 30, 2021
568,557
-
-
-
-
-
-
-
-
10,685
290,080
139,239
429,319
149,923
10,685
579,242
NET BOOK VALUE
Balance, as at September 30, 2020
Balance, as at December 31, 2021
1,659,256
$ 1,520,018
$
-
-
82,768
$ 131,785
$
1,742,024
1,651,803
The Bioreactor intangible asset is depreciated on a straight line basis at a rate of 7%. 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) 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 as management has determined that it will
require an investment of approximately US$20 million to validate the new manufacturing needed pursuant to filing a
supplemental Biologics Licensing Application (“sBLA”) with the United States Food and Drug Administration in order to
return the product to that market.
The COVID-19 pandemic has increased the difficulty of partnering Kinlytic to obtain the required re-development
funding. This is for two reasons: (i) the pandemic has disrupted the business of the hospital-oriented product companies
that are the logical partners for this asset (due to fewer normal-course procedures being done) and thereby constrained the
new product budgets of such companies, and (ii) ongoing restrictions on physical travel (i.e., closed borders, quarantines,
etc.) are making it more difficult to advance negotiations, conclude partnerships, and manage off-site manufacturing or
clinical trial work.
During the year ended September 30, 2020, in accordance with IAS 36, Impairment of Assets, the Company determined
that the recoverable amount of the Kinlytic® asset did not support its continued value and wrote-down the asset in Q4
of fiscal 2020, which is presented as an impairment of long-lived assets of $3,078,586 in the consolidated statement of
income (loss) and comprehensive income (loss).
37
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2021 and 2020
7. INTANGIBLE ASSETS (Continued)
(b) Bioreactor
The Company has internally developed an improved bioreactor production process (“Bioreactor”) to increase the
efficiency and output of manufacturing certain Antigen products. This process is being successfully employed for
ongoing production of a key Antigen product.
(c) 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 and continues
to capitalize various patent application costs. The Company is amortizing these patent costs, in accordance with
IFRS standards.
8. DEBENTURES
The Company has convertible and non-convertible debentures issued and outstanding as at September 30, 2021.
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
1,197,328
461,550
223,050
780,750
1,465,350
Balance, September 30, 2019
Accretion
Repayments
858,854
82,483
(108,504)
Balance, September 30, 2020
Accretion
Repayments
Balance, September 30, 2021
832,833
602,969
(118,981)
1,316,821
340,765
48,019
-
388,784
64,249
-
453,033
1,199,619
130,502
(108,504)
1,221,617
667,218
(118,981)
1,769,854
500,375
22,991
-
523,366
31,012
-
554,378
324,909
59,452
-
384,361
79,543
-
463,904
853,530
42,938
-
896,468
57,794
-
954,262
1,678,814
125,381
-
1,804,195
168,349
-
1,972,544
Less: current portion
Non-current portion
Balance, September 31, 2021
1,316,821
-
$ 1,316,821
453,033
-
453,033
1,769,854
-
$ 1,769,854
$
-
554,378
554,378
$
463,904
-
463,904
$
$
-
954,262
954,262
463,904
1,508,640
$ 1,972,544
Equity component at
September 30, 2021
Conversion price
per common share
-
-
-
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
38
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2021 and 2020
8. DEBENTURES (Continued)
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.
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. 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. During the year, the Company recorded additional non-
cash interest accretion of $517,651 associated with the revised estimate of the planned timing of repaying of the
debenture denoted as (a) above.
Subsequent to the end of fiscal 2021, the Company made an early repayment of a 9% interest debenture (denoted
as (a) above), repaying in full. A payment of $1,331,758, including accrued interest, was made on October 1, 2021.
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, 2021:
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, 2019
Proceeds from loan
Loan repayments during the period
2,046,460
-
(111,120)
102,500
-
(102,500)
Balance, September 30, 2020
Proceeds from loan
Loan repayments during the period
1,935,340
-
(111,120)
-
-
-
3,120
-
(3,120)
-
-
-
49,950
-
(39,960)
9,990
-
(9,990)
62,400
-
(49,920)
12,480
-
(12,480)
196,696
286,094
(101,640)
2,461,126
286,094
(408,260)
381,150
-
(101,640)
2,338,960
-
(235,230)
Balance, September 30, 2021
$ 1,824,220
$
-
$
-
$
-
$
-
$ 279,510 $ 2,103,730
Current Portion
Non-current portion
111,120
1,713,100
-
-
-
-
-
-
-
-
101,640
177,870
$
212,760
1,890,970
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
Jun, 2024
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, 2021, the
rate was 5.05% (2020 – 5.05%). The loans are secured with the building and equipment.
39
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2021 and 2020
9. LONG-TERM DEBT, BANK INDEBTEDNESS AND OTHER DEBT (Continued)
As at September 30, 2021, the commitments for the next five fiscal years and thereafter for the BDC loans is as follows:
2022
2023
2024
2025
2026
2027 and thereafter
Amount
212,760
212,760
187,350
111,120
111,120
1,268,620
$
$
b) The Company has a $2,000,000 line of credit with its Chartered Bank that is available for use. This line of credit
bears interest at prime plus 2% (4.45% on September 30, 2021). As at September 30, 2021 the Company had
no funds drawn on the facility (September 30, 2020- nil). The Company’s usage of this facility varies across its
manufacturing, sales and Accounts Receivable collection cycles.
c) On July 29, 2019, the Company signed an agreement with Federal Economic Development Agency for Southern
Ontario to provide a repayable government contribution where the Federal Development Agency has agreed to
contribute funding for 30% of the Business Scale-up and Productivity Project expenditures made by the Company,
up to $2,752,500 over the next four years. The Company is required to submit eligible expenses on a quarterly
basis to receive the interest-free contributions. Repayment of the contribution does not begin until December
15, 2024. As at September 30, 2021, the Company has received contributions totalling $1,086,501 (September 30,
2020 – $455,991). The Company determined that the “Loan” consists of two components: an obligation to repay;
and a government grant in the form of exemption from interest. The Company fair valued the obligation to repay
at $646,118 (September 30, 2020 – $267,771), based on a discount rate of 8%, which represents management’s
best estimate of fair value. The residual amount of $440,383 (September 30, 2020 – $188,491) is allocated to the
associated government grant and recognized as income over the period in which the related costs they are intended
to compensate are recognized. As at September 30, 2021, the carrying value of the Loan is $690,795 (September
30, 2020 – $267,770) and $116,947 is recognized as a deferred grant within deferred revenue on the statement of
financial position (September 30, 2020 – $111,210).
The Company is in compliance with the covenants associated with this loan as at September 30, 2021.
The estimated repayments on the existing term facilities in future fiscal years are as follows:
Fiscal Year
2025
2026
2027
2028
2029
2030 and thereafter
$
Amount
181,083
217,300
217,300
217,300
217,300
36,217
40
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2021 and 2020
10. GOVERNMENT GRANT
On October 13, 2020, the Company announced a grant agreement with the Ontario Together Fund (“OTF”) of the
Ministry of Economic Development, Job Creation and Trade (the “Grant”). The Grant of $1,445,000 will cover 50% of
the cost to automate production of the Company’s quality assessment products (QAPs™) that help ensure the accuracy
of infectious disease diagnostic testing, and enable local, secure, and cost-effective automated production of the
quantities of viral transport medium (generically “VTM” and branded “DxTM™”) needed for Ontario’s lab-based testing
for COVID-19 disease or other tests of concern to public health or safety.
An initial Grant disbursement, upon execution of the agreement, in the amount of $867,000, was received on October
13, 2020. The remaining $578,000 of the grant will be paid upon project completion and a review of Eligible Project
Expenditures incurred during the project, up to February 28, 2022. During the year ended September 30, 2021 the
Company recognized $717,587 (2020 - nil) of grant income. The company also recorded a $680,202 reduction in capital
asset costs. The excess claims of $578,000 for the remainder of the grant have been recognized in accounts receivable.
Microbix believes that it has met the conditions necessary to receive this balance.
11. 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 January 30, 2020, the Company completed a private placement offering of an aggregate of 11,800,000 units
for total gross proceeds of $2,360,000, net proceeds of $2,150,759 after share issuance costs of $209,242. Each unit
consisted of one common share of Microbix and one common share purchase warrant. Each warrant entitles the holder
to purchase one additional common share at an exercise price of $0.36 for five years. Fair value of the common share
purchase warrants was determined to be $ 1,205,892. Gross proceeds were allocated to common shares and common
share purchase warrants in the amount of $ 1,611,450 and $748,550 respectively. The financing was non-brokered.
Cash commissions of $104,300 were paid and an aggregate of 521,500 Broker’s Warrants were issued in the private
placement offering. Fair value of the broker warrants was determined to be $42,476 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 (69%) and the risk free rate of interest of 1.38% is based upon the Government
of Canada benchmark bond yields - 3 to 5 year at the date of the award of the Broker’s warrants and a five 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 common share at a price of
$0.36 for a period of five years. All securities issued under the private placement were subject to a holding period, which
expired four months and one day from the date of closing.
On May 19, 2021, the Company completed a public offering and concurrent private placement offering of an aggregate
of 11,500,000 units for total gross proceeds of $6,900,000, for net proceeds of $6,131,568 after share issuance costs of
$768,432. $5,167,002 has been allocated to stayed capital and $964,560 has been allocated to warrants. Each unit
consisted of one common share of Microbix and one-half of one common share purchase warrant. Each whole warrant
entitles the holder to purchase one additional common share at an exercise price of $0.80 for two years. The financing was
a bought deal, with co-lead underwriters of the Offering (iA Private Wealth Inc. and Bloom Burton Securities Inc.). Cash
commissions of $402,500 were paid and an aggregate of 670,833 Broker’s Warrants were issued in the public offering.
Each Broker’s Warrant entitles the holder to purchase one unit at a price of $0.60 for a period of two years. Fair value of
the broker warrants was determined to be $157,762 using the Black-Scholes option pricing model. The volatility of the
stock for the Black-Scholes options model was based on 2-year historic volatility of the Company’s stock price (77%) and
the risk free rate of interest of .32% is based upon the Government of Canada benchmark bond yields at the date of the
award of the Broker’s warrants. 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
common share at a price of $0.60 for a period of two years. All securities issued under the concurrent private placement
were subject to a hold period, which expired four months and one day from the date of closing.
41
Canadian Funds NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2021 and 2020
11. SHARE CAPITAL (Continued)
The number of issued and outstanding common shares and the stated capital of the Company are presented below:
Number
of Shares
Stated
Capital
Balance, as at September 30, 2020
108,772,705
$ 35,357,144
Issued on public offering and concurrent private placement
Exercise of Warrants
11,500,000
6,104,462
5,167,002
3,085,455
Balance, as at September 30, 2021
126,377,167
$ 43,609,601
12. COMMON SHARE PURCHASE WARRANTS
A continuity of the Company’s warrants outstanding as at September 30, 2021 is presented in the following table:
Balance, September 30, 2019
Issued
Expired
Balance, September 30, 2020
Issued (see note 11)
Exercised
Expired
Balance, September 30, 2021
Weighted
average
exercise
price
Units
11,718,816
12,321,500
(755,764)
$ 0.36
0.36
0.34
23,284,552
6,420,833
(6,104,462)
(81,550)
$ 0.36
0.78
0.36
0.46
23,519,373 $ 0.47
42
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2021 and 2020
12. COMMON SHARE PURCHASE WARRANTS (Continued)
A summary of the Company’s warrants outstanding as at September 30, 2021 and 2020 is presented in the following table:
September 30, 2021
September 30, 2020
Weighted
average
exercise
price
Number
outstanding
Weighted
average
remaining
contractual
life
years
Weighted
average
exercise
price
Number
outstanding
Weighted
average
remaining
contractual
life
years
7,621,333
15,898,040
23,519,373
$
$
0.74
0.34
0.47
1.38
2.39
2.07
1,500,000
21,784,552
23,284,552
$ 0.55
0.35
$ 0.36
0.03
2.66
2.49
Range of exercise prices:
$0.55 to $0.80
$0.23 to $0.46
On September 28, 2020, the Company extended the term of an aggregate of 7,413,052 common share purchase
warrants (“Warrants”) by one year, which were issued in connection with Microbix’s October, 2015 and October, 2017
private placement financings.
The extended Warrants entitled holders to purchase common shares of Microbix at prices from $0.36 to $0.55 until
October, 2021. All other Warrant terms remain unchanged.
13. STOCK OPTION PLAN
Under the Company’s stock option plan, the Company may grant options to purchase common shares up to a
maximum of 10% of the Company’s issued and outstanding common shares. Under the plan as at September 30,
2021, the Company has a total of 10,154,000 options (September 30, 2020 – 10,040,000) issued and is eligible to issue
up to a total of 12,637,717 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 year ended September 30, 2021 is as follows:
Balance, September 30, 2019
Stock options forfeited
Stock options issued
Balance, September 30, 2020
Options Expired/Forfeited
Stock options issued
Balance, September 30, 2021
Exercisable, September 30, 2021
43
Weighted average
exercise price
Units
7,738,000
(48,000)
2,350,000
10,040,000
(2,400,000)
2,514,000
10,154,000
3,400,000
$
$
$
$
$
$
$
$
0.35
0.54
0.22
0.32
0.54
0.61
0.34
0.26
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2021 and 2020
13. STOCK OPTION PLAN (Continued)
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, 2021 and 2020:
September 30, 2021
September 30, 2020
Weighted
average
exercise
price
Number
outstanding
Weighted
average
remaining
contractual
life
years
Weighted
average
exercise
price
Number
outstanding
Weighted
average
remaining
contractual
life
years
$
2,514,000
7,640,000
$
10,154,000 $
0.61
0.25
0.34
4.41
2.09
2.66
2,400,000
7,640,000
10,040,000
$ 0.54
$ 0.25
$ 0.32
0.04
3.09
2.36
Range of exercise prices:
$0.46 to $0.62
$0.215 to $0.28
The fair value of options granted during fiscal 2021 was estimated at the grant date using the Black-Scholes options
pricing model, resulting in the following weighted-average assumptions:
2021
2020
Option Grant Dates
Share price on issue date
Dividend yield
Volatility
Risk-free interest rate
Expected option life (years)
Weighted average fair value of
each option ($ / option)
Dec 2020
$ 0.460
0%
72%
0.3%
5
Feb 2021
$ 0.62
0%
71%
0.5%
5
Jul 2021
$ 0.540
0%
71%
0.5%
5
Aug 2021
$ 0.60
0%
70%
0.3%
5
Feb 2020
$ 0.22
0%
69%
1.4%
5
Aug 2020
$ 0.28
0%
71%
0.3%
5
$ 0.27
$ 0.36
$ 0.31
$ 0.34
$ 0.12
$ 0.16
Stock options are assumed to be exercised at the end of the option’s life, as management believes the probability
of an early exercise is remote. During the year, the fair value of the options vested in the year were expensed and
credited to contributed surplus. During the year, the Company recorded share-based compensation expense of
$377,828 (2020 - $158,836).
44
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2021 and 2020
14. 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 year ended September 30
2021
2020
Numerator for basic income (loss) per share:
Net loss available to common shareholders
Net income (loss) for dilutive earnings per share
Denominator for basic income (loss) per share:
Weighted average common shares outstanding
Dilutive Effect
Dilutive weighted average common shares outstanding
Net income (loss) per share:
Basic
Diluted
$
$
3,233,390
3,682,196
$
$
(6,227,525)
(6,227,525)
114,845,425
26,837,784
141,683,209
104,839,372
-
104,839,372
$0.028
$0.026
($0.059)
($0.059)
The following represents the warrants, stock options and convertible debentures not included in the calculation
of diluted EPS due to their anti-dilutive impact:
for the year ended September 30
2021
2020
Pursuant to warrants
Under stock options
Pursuant to convertible debentures
7,621,333
2,414,000
2,173,913
12,209,246
23,284,552
10,040,000
19,565,217
52,889,769
45
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2021 and 2020
15. 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 for the year ended September 30:
Depreciation and amortization
Included in:
Cost of goods sold
General and administrative expenses
Reasearch and development
Total depreciation and amortization
Employee costs
Short-term wages, bonuses and benefits
Share based payments
Total employee costs
Included in:
Cost of goods sold
Research and development
General and administrative expenses
Selling and business development
Total employee costs
2021
2020
$
$
699,167
99,403
23,470
822,040
$
$
598,003
79,566
12,518
690,087
2021
2020
$ 7,023,148
260,978
7,284,126
$
$
$
5,809,758
114,980
5,924,738
$ 3,688,213
1,067,326
1,878,100
650,487
$ 7,284,126
$
2,972,026
978,086
1,489,355
485,271
5,924,738
$
During the year, the Company received $70,046 (2020 - $531,760) in assistance from the Canada Emergency Wage
Subsidy program. This subsidy has been recorded against the related employee costs.
16. 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 % (2020 – 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
2021
2020
$
808,348
$
(1,164,822)
198
94,457
(681,801)
(221,202)
$
-
$
343
39,709
2,747,317
(54,310)
1,568,237
The Company has unclaimed research and development expenses, research and development investment tax
credits and accumulated losses for income tax purposes. The associated tax benefits have not been recognized in
the financial statements.
46
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2021 and 2020
16. INCOME TAXES AND INVESTMENT TAX CREDITS (Continued)
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 reserves
Unclaimed research and development expenses
Lease liabilities
Deferred income tax liability related to debentures
Right of use assets
Tax assets not recognized
Deferred tax assets recognized
2021
2020
$
-
3,200,282
274,961
3,755,690
302,124
(639,706)
(271,577)
(6,621,774)
$
446,404
3,376,299
132,468
3,806,260
137,143
(848,935)
(90,290)
(6,959,349)
$
-
$
-
In fiscal 2021 the Company incurred $636,413 of share issuance costs which will be deducted from
taxable income at $127,283 over five years. The deferred tax assets for these transactions have not
been recognized.
The unrecognized balance of federal research and development investment tax credits carried forward is
$3,035,583, reduced by a deferred tax liability of $769,714. The credits expire between 2022 and 2041. The unrecognized
balance of Ontario research and development tax credits carried forward is $5,011 and these credits expire in 2041.
17. 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
18. FINANCIAL EXPENSES
Cash interest:
Interest on long-term debt
Interest on debentures
Interest other
Non-cash interest:
Accretion on debentures (Note 8)
Accretion interest expense (Note 6, 9)
Financial expenses
47
2021
2020
$ (2,298,107)
(114,845)
(274,980)
(20,067)
(689,753)
179,277
$ (3,218,475)
$
$
(167,539)
187,528
(120,864)
57,441
486,784
18,086
461,436
2021
2020
$
112,145
590,304
8,803
$
144,899
600,780
31,513
317,916
56,386
1,085,554
$
255,883
23,027
$ 1,056,102
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2021 and 2020
19. CAPITAL MANAGEMENT
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 any drawn portion
of the revolving line of credit, shareholders’ equity, long-term debt, and debentures. The capital at September 30,
2021 was $25,093,066 (September 30, 2020 - $12,052,022).
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 provided through public offerings or 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 (BDC), FedDev 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. Similarly, the Board of Directors my, from time to time, choose to initiate a buy-back of
issued common shares. There was no change during the year in how the Company defines its capital or how it manages
its capital.
20. 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 year ended September 30, 2021 and 2020, the Company has carried at fair value financial instruments
in Level 1. At September 30, 2021, 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.
48
Canadian Funds NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2021 and 2020
20. FINANCIAL INSTRUMENTS (Continued)
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-21
$ 9,986,312
-
-
Liabilities for which fair values are disclosed:
Non-convertible debentures
Convertible debentures
Long-term-debt and other debt
30-Sep-21
30-Sep-21
30-Sep-21
-
-
-
1,769,854
1,972,544
2,794,525
-
-
-
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-20
$ 92,661
-
-
Liabilities for which fair values are disclosed:
Non-convertible debentures
Convertible debentures
Long-term-debt and other debt
30-Sep-20
30-Sep-20
30-Sep-20
-
-
-
1,221,617
1,804,195
2,606,733
-
-
-
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 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.
49
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2021 and 2020
21. FINANCIAL RISK MANAGEMENT
The primary risks that affect the Company are set out below and the risks have not changed materially 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, 2021,
five customers accounted for 80% (September 30, 2020 - five customers accounted for 74%) of the outstanding
balance. In addition, for the year ended September 30, 2021, five customers accounted for 63% (September 30, 2020
- five customers accounted for 61%) of revenues. The Company has had minimal bad debts over the past several
years and accordingly management has recorded an allowance of $35,000 (September 30, 2020 - $10,000).
Trade accounts receivable are aged as follows:
Current
0 - 30 days past due
31 - 60 days past due
61 days and over past due
September 30, 2021 September 30, 2020
$ 3,909,253
209,312
9,696
46,855
$ 4,175,116
$ 1,872,928
1,431
732
1,918
1,877,009
$
50
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2021 and 2020
21. 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:
U.S. dollars
Euros
2021
2020
2021
2020
Cash
Accounts receivable
Accounts payable and accrued liabilities
$ 3,601,394 $ 15,397 $ 135,388 $ 1,551
273,858
-
836,390
131,002
1,186,876
150,600
727,708
47,009
The Company’s revenue and expenses by foreign currency for the years ended September 30, 2021 and 2020 are
as follows:
Revenue
Euros
U.S. dollars
Expenses
U.S. dollars
2021
26%
44%
8%
2020
34%
62%
5%
Based upon 2021 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 $327,900 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 $180,200.
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 $327,900 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 $180,200.
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.
51
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2021 and 2020
21. 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 $20,000 per year
for BDC and about $20,000 on the line of credit usage if it were fully used throughout the fiscal year.
22. SEGMENTED INFORMATION
The Company operates in two ways: (i) the development, manufacturing and sales of products relating to the medical
diagnostics industry, namely antigens as test ingredients, quality assessment products to help ensure the accuracy of
test workflows and viral transport medium to enable collection of patient test samples and, (ii) the development and
commercialization of novel and proprietary products or technologies such as Kinlytic. The following is an analysis
of the Company’s revenues and profits from continuing operations for the year ended September 30, segmented
between categories (i) and (ii) (including Kinlytic):
Segment revenue
2021
2020
Income (loss)
2021
2020
Antigens, QAPs and DxTM
Other (Includes Kinlytic ®)
Total for continuing operations
$ 18,591,055 $ 10,514,847
1,905
$ 18,592,960
10,057
$ 10,524,904
$ 3,266,936 $ (1,433,097)
(3,226,191)
$ (4,659,288)
(33,546)
$ 3,233,390
Segment revenue reported above represents revenue generated from external customers. There were no inter-
segment sales in the current period (2020 - $nil).
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 category (i) and (ii)
segments. This is the measure reported to the chief operating decision maker for the purposes of resource allocation
and assessment of segment performance.
52
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2021 and 2020
22. SEGMENTED INFORMATION (Continued)
Segmented assets and liabilities as at September 30 are as follows:
Segment assets
2021
2020
Segment liabilities
2020
2021
Antigens, QAPs and DxTM
Other (Includes Kinlytic ®)
$ 28,829,034
$ 15,598,010
$ 10,272,890
$ 8,978,534
-
-
-
-
$ 28,829,034
$ 15,598,010
$ 10,272,890
$ 8,978,534
All assets are allocated to reportable segments other than interests in associates and current and deferred tax assets.
Assets used jointly by reportable segments are allocated on the basis of the revenues earned by individual reportable
segments. All liabilities are allocated to reportable segments other than borrowings and current and deferred tax
liabilities. Liabilities for which reportable segments are jointly liable are allocated in proportion to segment assets.
Segmented depreciation and amortization, impairment of long-lived assets and additions to non-current assets
as at September 30 are as follows:
Depreciation and
amortization
2021
2020
Additions to
non-current assets
2020
2021
Impairment of
long-lived assets
2021
2020
Antigens, QAPs and DxTM
Other (Includes Kinlytic ®)
$ 822,040
$ 690,087
-
-
$ 822,040
$ 690,087
$ 1,302,539
-
$ 1,302,539
$ 813,908
-
$ 813,908
$ -
-
$ -
$ -
3,078,585
$3,078,585
53
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2021 and 2020
23. 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.
For the year ended September 30,
2021
2020
2021
2020
Revenue from
external customers
Non-current
assets
North America
Europe
Other foreign countries (directly)
$ 12,137,350
6,445,942
9,668
$ 18,592,960
$ 5,590,760
4,854,353
79,791
$ 9,734,552 $ 9,105,179
-
-
-
-
$ 10,524,904
$ 9,734,552 $ 9,105,179
The following table reflects the movement in the Company’s deferred revenues:
For the year ended September 30,
2021
2020
Balance, beginning of the year
$ 1,315,738
$ 640,463
Cash payments or advance payments on performance obligations
Revenue recognized during the year
Deferred government grants (see note 9)
Balance, September 30
2,336,133
(3,025,886)
116,947
742,932
$
2,382,730
(1,818,665)
111,210
$ 1,315,738
24. 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 six independent directors and four key
management executive officers. Compensation for the Company’s key management personnel was as follows:
For the year ended September 30,
2021
2020
Short-term wages, bonuses and benefits
Share based payments
Total key management compensation
$ 1,415,595
183,061
$ 1,598,656
$ 998,674
77,392
$ 1,076,066
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Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2021 and 2020
25. COMMITMENTS AND CONTINGENCIES
Payments on convertible and non-convertible debentures (Note 8)
2022
2023
2024
2025
2026
2027 and thereafter
Contingencies
Amount
$ 2,745,508
360,000
360,000
360,000
360,000
4,759,497
8,945,005
$
The Company is not party to any legal proceedings arising out of the normal course of business.
26. COMPARATIVE CONSOLIDATED FINANCIAL STATEMENTS
The comparative consolidated financial statements have been reclassified from statements previously presented to
conform to the presentation of the 2021 consolidated financial statements.
27. SUBSEQUENT EVENTS
Subsequent to the end of fiscal 2021, the Company received $1,863,796 from the exercise of 5,239,919 warrants.
Subsequent to the end of fiscal 2021, the Company made an early repayment of the remaining outstanding principal
relating to a $2 million non-convertible 9% interest debenture (denoted, repaying in full). A payment of $1,331,758,
including accrued interest, was made on October 1, 2021. See note 8.
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Canadian Funds
CORPORATE INFORMATION
Corporate Counsel
Boyle & Co. LLP
Auditors
Ernst Young LLP
Chartered Accountants
Transfer Agent
TSX Trust Company
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
CPM - Centres for Pain Management
Mark A. Cochran
Virginia, USA
Executive Director (Retired)
Johns Hopkins Healthcare
Vaughn C. Embro-Pantalony (1) (2)
Ontario, Canada
Pharmaceutical Executive
Anthony J. Giavinazzo (1) (2)
Ontario, Canada
Executive Chairman
Sublimity Therapeutics
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
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
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Canadian Funds