MICROBIX
BIOSYSTEMS INC.
ANNUAL REPORT 2022
Message to Shareholders
Results for the full 12-months of fiscal 2022 ended
September 30, 2022 (“2022”) capped-off a second
consecutive year of profitability for Microbix, along
with record sales. This achievement is the result of
our successful transformation into a creator, maker,
and marketer of innovative, proprietary, branded,
and fully-regulated medical devices. Additionally,
Microbix’s finances are strong, with the necessary
funds to execute on our current strategic objectives in
the face of today’s socioeconomic uncertainties.
However, I must note that Microbix did not achieve
fiscal 2022 budget targets for sales and earnings. In
large part, this was due to delayed new product roll-
outs at our customers, which in turn delay Microbix’s
sales of QAPs™ to them. Such delays directly impacted
our fourth quarter of fiscal 2022 (“Q4”) which, coupled
with a lack of DxTM™ sales in Q4, led to a down year-
over-year result. We are hard at work to again be
posting record quarterly results and aim for our next
“streak” to exceed the seven profitable quarters we
recorded through Q3 2022.
(“PoCT”)
Such timing challenges are inevitable in the highly-
regulated field of medical diagnostics, but in no way
change our positive outlook for Microbix’s business.
Most notably, we see many exciting new Point-of-
Care-Test
instruments being perfected
and readied for launch. Such PoCT innovations will
bring sophisticated, accurate, and fast, testing out
of the central lab and into local clinics, long-term
care homes, pharmacies, schools, and workplaces.
Yet to succeed, such PoCTs must secure test-controls
to catch faults relating to operators, consumables,
instruments. Microbix’s FLOQSwab-formatted
or
QAPs are proving optimal for PoCT usage, providing
opportunities to supply large and recurring numbers
as in-kit controls to the leading PoCT companies.
We see QAPs for PoCTs as being Microbix’s largest
near-term sales growth driver, with our QAPs to be
included in kits of test cartridges at a fixed ratio (e.g.,
1 QAP per 20 tests). We were pleased to announce the
first purchase and supply agreement with a leading
PoCT-maker in August, 2022, and are now pursuing
more such long-term alliances.
Microbix’s other product lines are also progressing,
starting with our test ingredients (antigens). Our
antigens continue to be at the core of many firms’
tests and, as more normal doctor-appointment and
diagnostic testing patterns resume, demand has
resumed for our antigens. Consequently, we foresee
strong antigen sales across calendar 2023.
Our newest product, DxTM™ brand viral transport
medium, was created for the Province of Ontario and
has therefore unsurprisingly been sold principally to
its designates. Microbix is now working with Ontario
to pinpoint its needs given changing respiratory virus
testing guidelines and reorganized procurement
leadership. To Microbix’s knowledge, we remain one
of three meaningful VTM suppliers to Ontario and the
only one manufacturing locally.
Having spoken about our latest financial results and
each revenue-generating facet of our business, I’d
now like to pan-back for a more holistic view and
explain how we’re working to build shareholder
value through technical, supply-chain, and business
engagement with world-leading diagnostics firms.
Longstanding test-ingredient relationships are now
being extended to include provision of custom-
designed in-kit controls and from that base, we’ll
continue to add to our suite of value-added products
and services. We are not trying to become giant-
slayers, and are instead becoming valued allies to the
giants of our industry. While perhaps less-glamorous,
we prefer the odds of our strategy.
To execute our strategy, we must also prove we’re a
reliable supply-chain partner. This drives our need
for system upgrades and capacity investments. I’m
therefore pleased to note that work on automation,
ERP software upgrades, and transition to eQMS
continue to progress well, ably-driven by our teams.
To conclude, know that every level of the Microbix
team remains dedicated to enabling better health
care and building lasting shareholder value.
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
1
Canadian Funds MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 2022 AND 2021
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, 2022, 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, quality assessment products, and
viral transport medium businesses, 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 21, 2022.
COMPANY OVERVIEW
Microbix Biosystems Inc. (Microbix or the Company) (TSX: MBX, OTCQX: MBXBF) is an award-winning life
sciences innovator, manufacturer, 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, viruses, or their components 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) incorporated into kits of test consumables by OEM multinational diagnostics companies (usually
unbranded “white label”), (iii) test development, instrument validation and technician training (often
branded PROCEEDx®), or (iv) 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 followed by a material first
order from the Province of Ontario received in April, 2021 and a material reorder secured in December,
2021. Further DxTM re-orders from Ontario are being pursued, along with other private-sector and
governmental customers.
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COMPANY OVERVIEW (Continued)
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.
The COVID-19 pandemic and its health, economic, and societal impacts are affecting all industries,
including medical diagnostics. As a result, trend discussions here may be disrupted. For example,
since early fiscal 2020 sales of antigens have been reduced 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 are expected to be
driven by Microbix’s creation of new value-added and proprietary products for test-makers and clinical
laboratories, and by increasing American, European and international quality-management regulation
of clinical laboratories. Sales of DxTM began in fiscal Q2 of 2021 and, based on multiple purchase orders
from representatives of the Province of Ontario and interest in supply chain security from other parties
across Canada, has been 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 was leased as of July, 2021 and renovations have since been completed to support larger-scale
DxTM production, workstations and warehousing. 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, 2022 (“2022”)
2022 revenue was $19,076,241, a 3% increase from prior year revenues of $18,592,960. Included were
antigen revenues of $8,287,908 (2021 - $9,082,021). QAPs revenues grew by 14% in 2022 to $5,375,329
(2021 - $4,704,671). Revenue from DxTM was strong in 2022 at $5,004,359, up 11% from the prior year
(2021 - $4,506,900), and royalties were $408,694 (2021 - $299,368). 2022 revenues were most influenced by
the continued uptake of our growing base of QAPs products and strong DxTM sales.
2022 gross margin was 58%, down slightly from 2021 gross margins of 59%. Margins were impacted by
increased labour costs, manufacturing operating expenses, and increased supply chain costs; all due to
inflationary pressures.
Operating and finance expenses in 2022 increased by 19% relative to 2021, due to increased investment
in R&D projects for our QAPs business, incremental spending on IT infrastructure, additional spending on
sales and marketing to support sales growth, and expiry of Ontario Together Fund (“OTF”) grant funding at
the end of fiscal 2021; all collectively offsetting reduced interest costs due to the repayment of debentures
and BDC loans and greater interest income from short term investments.
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FINANCIAL OVERVIEW (Continued)
Year ending September 30, 2022 (“2022”) (Continued)
Stronger sales were offset by lower gross margin percent and increased operating expenses (due to
increased investment into business growth and infrastructure) led to an operating income (before finance
expenses) of $2,610,213 and net income of $1,788,689 versus a 2021 operating income of $4,836,595 and net
income of $3,233,390. Cash provided by operating activities was $3,465,199, compared to $2,106,736 in 2021,
an improvement largely driven by non-cash working capital account balances in 2022.
At the end of 2022, Microbix’s current ratio (current assets divided by current liabilities) was 8.45 and its
debt to equity ratio (total debt over shareholders’ equity) was 0.33. Both of these financial health ratios
continued to improve from those in 2021.
Quarter Ending September 30, 2022 (“Q4”)
Q4 revenue was $4,329,052, down from 2021 revenues of $5,629,694. Included were antigen sales of $2,629,783
(2021 - $2,020,861), up 30% due to order timing and bounce back in business. QAPs revenues were $1,601,950
up 34% in fiscal 2022 (2021 - $1,195,545). In turn, revenue from DxTM were $nil due to timing of orders (2021
- $2,327,600), and royalties were $97,319 (2021 - $85,689). The Q4 sales decline was most influenced the lack
of Ontario-driven deliveries of DxTM, offset by continued diagnostics industry uptake of QAPs and stronger
antigen sales.
Q4 gross margin was 47%, down from 58% during Q4 2021, due to a greater proportion of lower margin
antigen sales, antigen product sales mix for the quarter and the lack of DxTM sales in the quarter.
Operating expenses (including financial expenses) in Q4 2022 were relatively flat when compared to Q4
2021. The quarter also showed increased investment in R&D projects for our QAPs business, additional
spending in sales and marketing to support sales growth and the lack of Ontario Together Fund (“OTF”)
grant funding this year vs. last year. This was offset by a reduction in interest costs due to the repayment of
debentures and BDC loans and increased short-term investment income in fiscal 2022.
Overall, lower sales and less available gross margin dollars led to a Q4 2022 operating loss (before finance
expenses) of $256,885 and net loss of $464,080 versus Q4 2021 operating income of 1,580,553 and net income
of $778,929. Cash provided by operating activities was $146,437 for Q4 2022, compared to cash provided by
of $1,621,621 for Q4 2021, with the majority of the change coming from change in Q4 operating income and
changes in non-cash working capital.
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FINANCIAL OVERVIEW (Continued)
Financial Highlights
For the years ended September 30
For the quarter ended September 30
2022
2021
2022
2021
Total Revenue
$ 19,076,241 $ 18,592,960 $ 4,329,052 $ 5,629,694
Gross Margin
S,G&A Expenses
R&D Expense
11,124,842
6,715,354
1,799,275
11,043,940
5,174,091
1,033,254
2,020,539
1,832,907
444,517
3,245,723
1,317,579
347,591
Operating Income (Loss) before Interest
Accretion Expense and Finance Expenses 2,610,213
Interest accretion expense on debenture
due to planned redemption, non cash
Finance Expenses
Income Tax Expense
Net Income (Loss) and Comprehensive
Income (Loss) for the period
744,290
77,234
1,788,689
-
4,836,595
(256,885)
1,580,553
517,651
1,085,554
-
-
129,961
77,234
517,651
283,973
-
3,233,390
(464,080)
778,929
Net Comprehensive Income (Loss) per share
0.013
0.028
(0.009)
0.006
Cash Provided (Used) by Operating Activities 3,465,199
2,106,736
146,437
1,621,621
Cash
Accounts receivable
Total current assets
Total assets
Total current liabilities
Total liabilities
Total shareholders’ equity
Current ratio
Debt to equity ratio
13,488,075
3,057,797
22,408,372
33,145,196
2,650,521
8,206,541
24,938,655
8.45
0.33
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
SELECTED QUARTERLY FINANCIAL INFORMATION
Dec-31-20
$
Mar-31-21
$
Jun-30-21
$
Sep-30-21
$
Dec-31-21
$
Mar-31-22
$
Jun-30-22
$
Sep-30-22
$
Total Revenue
3,157,659
4,353,773
5,451,834
5,629,694
4,855,600
4,880,564
5,011,025
4,329,052
Net Income (Loss) and
Comprehensive Income (Loss)
Operating Income (Loss) before
Impairment of Assets, Interest
Accretion Expense and Finance Expenses
130,819
807,463
1,516,178
778,929
880,778
733,489
638,502
(464,080)
393,222
1,073,460
1,789,360
1,580,553
1,121,528
936,614
808,956
(256,885)
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OUTLOOK
Microbix’s business was started over 30 years ago by our founder, Bill Gastle, a skilled virologist. The first products
were types of the growth media used in cell-culturing, which were sold to public health laboratories and research-
oriented customers across Ontario. Eventually, this was followed by such regional lab customers asking Microbix
to do some of their bacteriological, cellular, and viral culturing work. In due course, international manufacturers
of diagnostic tests learned of Microbix’s abilities and approached the company to grow such organisms on a
large-scale, then purify and inactivate them to become “antigens” – the biological ingredients at the heart of
“immunoassay” tests used to diagnose infection with, exposure to, or immunity from, bacteria and viruses.
That test-ingredients business remained Microbix’s only major source of revenues for many years, and
underpins its deep expertise in matters relating to infectious disease diagnostics. During those years, Microbix
sought to branch out into other areas of healthcare, such as into the production of biological therapeutics and
vaccines. Although it had much of the expertise required for such initiatives, it sadly could not gain access to
the capital required to bring those projects to fruition. That being recounted, one asset from that era remains
in the Microbix portfolio, a well-validated biological “clot-buster” drug called Kinlytic® urokinase. Kinlytic is
not assigned any value on Microbix’s balance sheet, but may yet be advanced to meaningful revenues by way
of partnering with a better-funded entity.
Microbix’s antigen test-ingredients business had been 90% or more of sales. Over the past five years however,
Microbix has sought to more broadly employ its deep diagnostics industry expertise and thereby incrementally
build its revenues. This effort has succeeded, with test-ingredients comprising only 43% of Microbix’s sales in
fiscal 2022 due to its creating and growing other revenue streams.
Notably, Microbix has been successfully transformed from a manufacturer of largely-unregulated test-
ingredients, into producing of a catalogue of fully-regulated medical devices. The Company has thereby created
new opportunities for both increasing sales and expanding gross margins. Specifically, Microbix medical devices
products are innovative, proprietary and branded – permitting access to new markets and customers at better
margins than usual for test-ingredients. Upgrading to the ISO 13485 medical devices quality standard, obtaining
a Health Canada Medical Devices Establishment License, and taking the necessary steps to be able to sell into the
EU, US, and other markets were integral to those goals.
In medical devices, the first category of Microbix products are its diagnostic-test quality assessment
products, which are branded as “QAPs™” and colloquially known as test-controls. The QAPs business
started with providing mimics of positive patient-samples to enable assessment of the proficiency of
clinical laboratories by industry accreditation agencies. Sales of Microbix QAPs were largely limited to that
customer base and had come to exceed C$ 1.0 million per year (i.e., about 10% of sales) when the COVID-19
pandemic began (the “Pandemic”).
While respiratory virus tests was not the principal focus of QAPs in early 2020, Microbix suspected the
Pandemic in January and validated its first COVID-related product by the end of March. Microbix has since
supported governments and industry with many QAPs products related to testing for respiratory pathogens
– to lab accreditation agencies, international test-makers, governments and hospitals, clinical labs, and many
workplaces and schools. Respiratory disease has become an important portion of QAPs sales, but the Microbix
portfolio has been expanded to include QAPs for many bacteria, viruses, and parasites that can cause acute
sickness, chronic disease, and even cancers. Collectively, QAPs comprised 28% of sales across fiscal 2022 and
Microbix expects this segment to be its fastest-growing revenue source for the foreseeable future.
As the Pandemic emerged, Microbix was also quick to recognize the fragility of supply-chains for testing-related
medical supplies. This alertness extended to noting pending shortages of viral transport medium (“VTM”), a medical
device that is essential for stabilizing patient-samples in order that they remain intact while transported to, and when
processed at, the central laboratories conducting most PCR-based tests. Having decades of expertise in producing
complex cell-culturing media, Microbix volunteered to begin domestic production of VTM for the province of Ontario.
6
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OUTLOOK (Continued)
Canadian Funds
With the assistance of a grant from the Ontario Together Fund of the Ministry of Economic Development,
Job Creation, and Trade, Microbix created a VTM formulation to meet the exacting requirements of Public
Health Ontario, perfected its methods and scaled its production, and became the only fully-regulated and
validated local supplier to the Province. Sales of Microbix’s “DxTM™” brand VTM began in fiscal 2021 and
comprised 26% of Microbix’s revenues in fiscal 2022.
Looking ahead, Microbix believes that it has considerable opportunities to continue growing its sales
to the global diagnostics and clinical laboratory industries. Most notable among its business segments
is QAPs, for which it has identified the Point-of-Care-Test (“PoCT”) companies as its most promising
customers. While PoCT has been promised for many years, the Pandemic resulted in major investments
to roll-out sophisticated and high-quality testing beyond central-lab settings. Today, table-top portable
PCR-based and antigen-based PoCT instruments are coming into widespread usage in settings such as
local clinics, long-term care homes, pharmacies, schools, and workplaces. However, such PoCTs require
accompanying test-controls to satisfy health regulators that errors relating to operators, consumables, or
instruments will be quickly and reliably identified. Microbix QAPs are ideally-suited for that purpose, most
notably when formatted onto the FLOQSwab™ flocked-swabs of Copan Italia S.p.A., made using Microbix’s
innovative techniques, and protected by the intellectual property of each firm.
The largest of such opportunities involves FLOQswab-based QAPs being incorporated into kits of PoCT
cartridges at fixed ratios (e.g., 1 QAP per 20 PoCT tests). With major international test-makers intending
to sell millions of cartridges per month across multiple pathogen categories, it is not difficult to see how
revenues may build for Microbix in this industry area. A first such alliance was announced by Microbix in
August 2022, and meaningful revenues are expected as soon as that multinational test-maker, and others,
wend their way through the needed regulatory approvals for instruments and test kits.
Microbix is also enhancing infrastructure to support its growth objectives and expectations. Such
enhancements include investments into people, equipment, and systems. Concerning people, the
Company continue to work to retain our current great team, while adding new members with further
skills and capabilities. For equipment, Microbix is investing to improve reliability, enhance capacity,
and remove drudgery. With systems, the Company is making material investments into modernized
and scalable Enterprise Resource Planning (ERP) software, alongside moving to a paperless Quality
Management System (eQMS) – both of which are essential for Microbix continuing to grow the business.
In the immediate term such investments can compress margins, but Management is convinced of their
mid- and long-term benefits.
We thereby come to Microbix in 2022 and beyond. Already, a Company approaching C$ 20 million in
annual sales with deep and broad life sciences capabilities that has achieved profitability and attained
a strong financial position. Now a fully-fledged medical devices firm poised to benefit from medical
diagnostics being used more effectively and frequently than ever, via over 100 established international
customer relationships. Management’s near-term goals comprise still higher and more consistent sales
volumes at expanding gross margins to drive growth in net earnings, free cash flow, and the value of
Microbix’s common stock for all shareholders.
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LIQUIDITY, CASH FLOWS AND CAPITAL RESOURCES
Canadian Funds
The consolidated financial statements have been prepared in accordance with the International Financial
Reporting Standards (“IFRS”) on a going concern basis, which presumes the Company will continue operating
for the foreseeable future and will be able to realize a return on its assets and discharge its liabilities and
commitments in the normal course of business.
The Company has incurred historical losses resulting in an accumulated deficit of $36,871,931 as at
September 30, 2022. 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 2023, 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 was to 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 was 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.
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LIQUIDITY, CASH FLOWS AND CAPITAL RESOURCES (Continued)
Future Liquidity and Capital Needs (Continued)
Canadian Funds
During the year ending September 30, 2022, the Company received $2,637,330 from the exercise of
7,480,293 warrants and received $806,800 from the exercise of 2,960,00 options. In addition, a $500,000
debenture was converted to 2,173,913 shares during the fourth quarter of fiscal 2022.
During this fiscal year, 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. In addition, in April 2022 the Company repaid a non-convertible
$500,000 debenture when it came due.
On December 3, 2021 the Company prepaid in full the outstanding balance including accrued interest
for a BDC loan, totalling $266,094. See the long-term debt note for further details.
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, 2022 was $49,918,916 for 138,991,373 common
shares and September 30, 2021 was $43,609,601 for 126,377,167 common shares.
Global pandemic
In early 2020, a novel Corona virus (SARS-COV-2) was identified to be spreading in human populations
around the world and on March 11, 2020, the World Health Organization declared a global pandemic (The
“Pandemic”). The Pandemic has since caused significant health, social, and economic harms and instability
that continues to be felt worldwide.
Microbix has reviewed, and continues to review, the effects of the Pandemic and its aftermath on
its operations. Such effects may include impacts on the Company’s business that cannot be predicted,
including upon the estimates, judgments, and assumptions used in the preparation of it financial
statements, the setting of strategic objectives, or the realization of such objectives.
See the “Risks and uncertainties” section of this MD&A for a further discussion of the COVID-19 pandemic.
Normal Course Issuer Bid (“NCIB”)
On October 3, 2022 the Company initiated a Normal Course Issuer Bid (“NCIB”) program for the repurchase
and cancellation of outstanding common shares. In accordance with the rules of the Toronto Stock Exchange
and as detailed in the Company’s news release of September 28, 2022, the NCIB enables the Company to
repurchase up to 5% of its common shares over a 12-month period.
OFF-BALANCE SHEET ARRANGEMENTS
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 21, 2022.
9
Canadian Funds
RISKS AND UNCERTAINTIES
Canadian Funds
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, 2022.
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 pricing, availability and measures to prevent its spread
and associated government economic policies 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 materials needed for its products; (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:
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 antigen product 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.
10
Canadian Funds
RISKS AND UNCERTAINTIES (Continued)
Canadian Funds
Quality Assessment Products in development
The Company has multiple quality assessment products under development, with the goal of building
its sales of this category of product. There is no assurance that these development activities will result
in the completion of new commercial products. If the Company is unable to develop and commercialize
products, it will be unable to recover its related product development investments.
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.
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.
11
Canadian Funds
RISKS AND UNCERTAINTIES (Continued)
Canadian Funds
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, 2022, five customers accounted for 56% (September 30, 2021 - five customers
accounted for 80%) of the outstanding balance. In addition, for the year ended September 30, 2022, five
customers accounted for 58% (September 30, 2021 - five customers accounted for 63%) 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, 2021 - $35,000).
Currency risk:
The Company is exposed to currency risk given its global customer base. 60-70% 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, 2022, the significant balances, quoted in Canadian dollars, held in foreign currencies are:
U.S. dollars
Euros
2022
2021
2022
2021
Cash
Accounts receivable
Accounts payable
and accrued liabilities
$ 302,698 $ 3,601,394 $
$ 1,645,040 $ 836,390
87,613
$ 1,221,837
$ 135,388
$ 727,708
$ 126,716 $ 131,002
$
45,994
$
47,009
Based upon 2022 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 $478,300 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 $165,800. 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 $478,300
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 $165,800.
12
Canadian Funds
FINANCIAL RISK MANAGEMENT (Continued)
Canadian Funds
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 has helped 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, 2022 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.
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.
13
Canadian Funds
CRITICAL ACCOUNTING ESTIMATES
Canadian Funds
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.
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.
14
Canadian Funds
CRITICAL ACCOUNTING ESTIMATES (Continued)
Canadian Funds
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, 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, 2022, management has concluded that the
disclosure controls are effective in providing reasonable assurance that information required to be disclosed
in the Company’s reports is recorded, processed summarized and reported within the time periods specified
in the Canadian Securities Administrator’s rules and forms.
Internal Controls Over Financial Reporting
The design of internal controls over financial reporting (“ICFR”) within the company is a management
responsibility to provide reasonable assurance that the reliability of financial reporting and that the
preparation of financial statements for external purposes is in accordance with generally accepted accounting
principles of IFRS. While the CEO and CFO believe that the internal controls are adequate to provide the above
information, the process to evaluate and document all policies and procedures that could impact financial
reporting is continuously reviewed with consultation with the Audit Committee. Shareholders should be
aware that Microbix is a small company without the department resources associated with larger firms.
Management is using the Committee of Sponsoring Organization of the Treadway Commission (“COSO”).
Framework and has concluded that the Internal Control over Financial Reporting (“ICFR”) as defined in NI
52-109 is effective as at the period ended September 30, 2022. 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, 2022 that have materially affected, or are reasonably
thought to materially affect, the internal control over financial reporting.
15
Canadian Funds
FINANCIAL INSTRUMENTS (Continued)
IMPACT OF NEW ACCOUNTING STANDARDS NOT YET ADOPTED
Canadian Funds
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.
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.
16
Canadian Funds
IMPACT OF NEW ACCOUNTING STANDARDS NOT YET ADOPTED (Continued)
Canadian Funds
Amendments to IAS 12 – Income Taxes (“IAS 12”)
Amendments to IAS 12 were issued in May 2021, IASB issued Deferred Tax related to Assets and Liabilities
arising from a Single Transaction, which amends IAS 12. The amendment narrows the scope of the initial
recognition exemption so that it does not apply to transactions that give rise to equal and offset temporary
differences. As a result, companies will need to recognize a deferred tax asset and deferred tax liability for
temporary differences arising on initial recognition of transactions such as leases and decommissioning
obligations. The amendments are effective for annual periods beginning on or after January 1, 2023 and
are to be applied retrospectively.
Amendments to IAS 37: Onerous Contracts (“IAS 37”)
In May 2020, the IASB issued amendments to IAS 37, Provisions, Contingent Liabilities and Contingent
Assets, to specify that the cost of fulfilling a contract comprises the costs that relate directly to the contract,
and can either be incremental costs of fulfilling that contract or an allocation of other costs that relate
directly to fulfilling contracts. The new guidance will be effective for annual periods beginning on or after
January 1, 2022 and is to be applied to contracts that have unfulfilled obligations as at the beginning of
that period. The Company has not yet determined the impact of these amendments on its consolidated
financial statements.
17
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,
2022 and 2021, and the consolidated statements of income and comprehensive income, 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, 2022 and 2021, 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.
18
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, 2022, the inventories balance
was $5.3 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.
19
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 therefore 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 21, 2022
21
Canadian Funds
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at September 30, 2022 AND 2021
Canadian Funds
2022
2021
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Accounts receivable (Note 21)
Inventories (Note 5)
Prepaid expenses and other assets
Investment tax credit receivable
TOTAL CURRENT ASSETS
LONG-TERM ASSETS
Long-term deposits
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 liabilities (Note 6)
Deferred revenue (Note 9, 23)
TOTAL CURRENT LIABILITIES
Debentures (Note 8)
Lease liabilities (Note 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
$ 13,488,075 $
3,057,797
5,284,920
546,318
31,262
22,408,372
9,986,312
4,175,116
4,407,509
495,045
30,500
19,094,482
332,250
8,906,256
1,498,318
10,736,824
-
8,082,749
1,651,803
9,734,552
$ 33,145,196 $ 28,829,034
$ 1,828,539
111,120
-
156,231
554,631
2,650,521
1,628,262
846,114
3,081,644
5,556,020
$ 1,794,923
212,760
2,233,758
209,821
742,932
5,194,194
1,508,640
988,291
2,581,765
5,078,696
$ 8,206,541
$ 10,272,890
$ 49,918,916 $ 43,609,601
2,272,566
9,619,104
(36,871,931)
$ 24,938,655 $ 18,556,144
2,903,789
10,703,374
(38,660,620)
TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY
$ 33,145,196
$ 28,829,034
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 consolidated financial statements.
22
Canadian Funds
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the years ended September 30, 2022 and 2021
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 (Notes 15)
General and administrative (Notes 15)
Research and development (Notes 15)
OPERATING INCOME BEFORE INTEREST
ACCRETION AND FINANCE EXPENSES
Interest accretion expense on debenture due to
planned redemption, non cash (Notes 8)
Finance expenses (Notes 18)
INCOME FOR THE YEAR, BEFORE INCOME TAXES
INCOME TAXES
Current income taxes (Notes 16)
NET INCOME AND COMPREHENSIVE INCOME
FOR THE YEAR
NET INCOME PER SHARE
Basic (Note 14)
Diluted (Note 14)
Canadian Funds
2022
2021
$ 18,667,558
408,683
19,076,241
$ 18,293,592
299,368
18,592,960
7,889,140
62,259
7,951,399
7,500,042
48,978
7,549,020
11,124,842
11,043,940
1,553,802
5,161,552
1,799,275
858,059
4,316,032
1,033,254
2,610,213
4,836,595
-
744,290
517,651
1,085,554
1,865,923
3,233,390
77,234
-
$ 1,788,689
$ 3,233,390
$
$
0.013
0.013
$
$
0.028
0.026
The accompanying notes and summary of significant accounting policies are an integral part of these consolidated financial statements.
23
Canadian Funds
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended September 30, 2022 and 2021
OPERATING ACTIVITIES
Net income 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)
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 (Note 9)
Repayments of non-convertible debentures (Note 8)
Payment of lease liabilities
Issue of common share units, net of issue costs (Note 11)
Proceeds from exercise of warrants and options (Note 12, 13)
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 YEAR
Canadian Funds
2022
2021
$ 1,788,689
$ 3,233,390
1,036,400
202,685
649,693
127,824
(340,092)
822,040
835,567
377,828
56,386
(3,218,475)
3,465,199
2,106,736
(2,025,638)
-
-
(1,242,837)
680,202
(59,702)
(2,025,638)
(622,337)
(390,630)
1,072,102
(1,816,821)
(246,579)
-
3,444,130
-
(235,230)
630,510
(118,981)
(192,495)
6,131,567
2,193,881
-
2,062,202
8,409,252
3,501,763
9,986,312
9,893,651
92,661
$ 13,488,075 $ 9,986,312
The accompanying notes and summary of significant accounting policies are an integral part of these consolidated financial statements.
24
Canadian Funds
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
As at September 30, 2022 and 2021
SHARE CAPITAL (Note 11)
STATED
NUMBER OF
CAPITAL
SHARES
CONTRIBUTED
SURPLUS
DEFICIT
Canadian Funds
EQUITY
COMPONENT OF
DEBENTURE
TOTAL
SHAREHOLDERS’
EQUITY
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 Warrants
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
Share-based compensation
expense
Share Issuance pursuant to
Exercise of Warrants
Share Issuance pursuant to
Exercise of Options
-
-
649,693
-
-
649,693
7,480,293
3,808,072
(1,170,743)
-
-
2,637,329
2,960,000
1,370,020
(563,220)
-
-
806,800
Conversion of Debentures
2,173,913
1,131,222
-
-
(631,223)
499,999
Net income and comprehensive
income for the year
-
-
-
1,788,689
-
1,788,689
BALANCE, SEPTEMBER 30, 2022 138,991,373 $49,918,916
$9,619,104 $(36,871,931) $2,272,566 $24,938,655
The accompanying notes and summary of significant accounting policies are an integral part of these consolidated financial statements.
25
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2022 and 2021
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 and medical devices for the global diagnostics
industry, notably test ingredients (Antigen business) used in immunoassays, quality assessment and proficiency testing
controls (QAPsTM business), and sample collection devices (DxTMTM 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 21, 2022.
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, a novel Corona virus (SARS-COV-2) was identified to be spreading in human populations around the world
and on March 11, 2020, the World Health Organization declared a global pandemic (The “Pandemic”). The Pandemic has
since caused significant health, social, and economic harms and instability that continues to be felt worldwide.
Microbix has reviewed, and continues to review, the effects of the Pandemic and its aftermath on its operations.
Such effects may include impacts on the Company’s business that cannot be predicted, including upon the estimates,
judgments, and assumptions used in the preparation of it financial statements, the setting of strategic objectives, or the
realization of such objectives.
26
Canadian Funds NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2022 and 2021
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, 2022 and 2021
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 and Cash Equivalents
Cash consists of cash on hand and deposits with banks and investments in highly liquid instruments with original
maturities of three months or less.
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 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.
When the financial instrument is derecognized, the cumulative gain or loss previously recognized in OCI is
reclassified from equity to net income 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 and presented net in comprehensive
income 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, 2022 and 2021
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
2022
2021
Financial assets:
Cash and cash equivalents
Accounts receivable
FVTPL
Amortized cost
$
13,488,075
3,057,797
$ 9,986,312
4,175,116
Financial liabilities:
Accounts payable and
accrued liabilities
Non-convertible debentures
Convertible debentures
Long-term-debt
Inventories
Amortized cost
Amortized cost
Amortized cost
Amortized cost
$ 1,828,539
-
1,628,262
3,192,764
$ 1,794,923
1,769,854
1,972,544
2,794,525
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, 2022 and 2021
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 and comprehensive income for the period.
30
Canadian Funds NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2022 and 2021
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income per common share
The Company calculates basic income per share amounts for profit or loss attributable to ordinary equity holders. Basic
income per share is calculated using the weighted average number of common shares outstanding during the period.
Diluted income per share is calculated in the same manner as basic income per share except for adjusting the profit or
loss attributable to ordinary equity holders and the weighted average number of shares outstanding for the effects of all
dilutive potential ordinary shares.
Deferred taxes
Deferred income tax assets and liabilities are recognized for the estimated income tax consequences attributable to
differences between financial statement carrying amounts of assets and liabilities and their respective income tax bases.
Deferred income tax assets 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, 2022 and 2021
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 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, 2022 and 2021
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, 2022 and 2021
4. IMPACT OF NEW ACCOUNTING STANDARDS NOT YET ADOPTED (Continued)
Amendments to IAS 12 – Income Taxes (“IAS 12”)
Amendments to IAS 12 were issued in May 2021, IASB issued Deferred Tax related to Assets and Liabilities arising from
a Single Transaction, which amends IAS 12. The amendment narrows the scope of the initial recognition exemption so
that it does not apply to transactions that give rise to equal and offset temporary differences. As a result, companies will
need to recognize a deferred tax asset and deferred tax liability for temporary differences arising on initial recognition of
transactions such as leases and decommissioning obligations. The amendments are effective for annual periods beginning
on or after January 1, 2023 and are to be applied retrospectively.
Amendments to IAS 37: Onerous Contracts (“IAS 37”)
In May 2020, the IASB issued amendments to IAS 37, Provisions, Contingent Liabilities and Contingent Assets, to specify that
the cost of fulfilling a contract comprises the costs that relate directly to the contract, and can either be incremental costs
of fulfilling that contract or an allocation of other costs that relate directly to fulfilling contracts. The new guidance will
be effective for annual periods beginning on or after January 1, 2022 and is to be applied to contracts that have unfulfilled
obligations as at the beginning of that period. The Company has not yet determined the impact of these amendments on
its consolidated financial statements.
5. INVENTORIES
Inventories consist of the following:
Raw materials
Work in process
Finished goods
$
September 30, 2022 September 30, 2021
1,092,359
1,677,437
1,637,713
4,407,509
1,106,113
1,716,451
2,462,356
5,284,920
$
$
$
During the year ended September 30, 2022, inventories in the amount of $7,889,140 (September 30, 2021 -
$7,500,042) were recognized as an expense through cost of goods sold. The allowance for inventory impairment
as at September 30, 2022 was $279,963 (September 30, 2021 - $383,110).
34
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2022 and 2021
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, 2020
$ 5,166,925
$ 557,308
$ 5,890,936
$ 854,904
$ 800,000
$ 13,270,073
Additions
Balance, as at September 30, 2021
114,218
5,281,143
1,130
558,438
447,287
6,338,223
829,076
1,683,980
-
800,000
1,391,711
14,661,784
Additions
Balance, as at September 30, 2022
917,168
6,198,311
41,820
600,258
734,401
7,072,624
13,034
1,697,014
-
800,000
1,706,422
16,368,206
ACCUMULATED DEPRECIATION
Balance, as at September 30, 2020
Depreciation
Balance, as at September 30, 2021
1,744,844
203,838
1,948,682
446,507
12,786
459,293
3,509,210
322,827
3,832,037
206,356
132,667
339,023
Depreciation
Balance, as at September 30, 2022
273,125
2,221,807
13,444
472,737
417,167
4,249,204
179,180
518,203
-
-
-
-
-
5,906,917
672,117
6,579,035
882,915
7,461,950
NET BOOK VALUE
Balance, September 30, 2021
Balance, September 30, 2022
3,332,461
$ 3,976,504
99,145
$ 127,521
2,506,186
1,344,957
$ 2,823,420 $ 1,178,811
800,000
$ 800,000
8,082,749
$ 8,906,256
Activity within right-of-use assets and lease liabilities during the quarter were as follows:
Balance, September 30, 2020
Additions
Depreciation Expense
Interest Accretion
Payments
Balance, September 30, 2021
Additions
Depreciation Expense
Interest Accretion
Payments
Right-of-Use Assets
Property
Equipment
$ 345,755
829,076
(92,931)
-
-
$ 1,081,900
13,034
(153,315)
-
-
$ 302,793
-
(39,736)
-
-
$ 263,057
-
(25,865)
-
-
Lease Liabilities
$ 541,939
829,076
-
19,592
(192,495)
$ 1,198,112
13,034
-
37,779
(246,580)
Balance, September 30, 2022
$ 941,619
$ 237,192
$ 1,002,345
Current portion
Non-current portion
$ 156,231
846,114
35
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2022 and 2021
6. PROPERTY, PLANT, AND EQUIPMENT AND LEASES (Continued)
Lease liabilities for leases that were entered during the year ended September 30, 2022 were discounted using an
incremental borrowing rate of 3.5% (September 30, 2021 – 3.5%).
Lease obligations as at September 30, 2022 are:
2023
2024
2025
2026
2027
2028 and thereafter
Total
7. INTANGIBLE ASSETS
Intangible assets consist of:
COST
Balance, as at September 30, 2020
Additions
Balance, as at September 30, 2021
Additions
$
Amount
189,459
180,574
151,322
96,363
96,318
444,211
$ 1,155,447
Capitalized
development costs
Bioreactor
(a)
$ 2,088,575
-
$ 2,088,575
-
Patents and
trademarks
QAPs
(b)
$ 82,768
59,702
$ 142,470
-
Total
$ 2,171,343
59,702
$ 2,231,045
-
Balance, as at September 30, 2022
2,088,575
142,470
2,231,045
ACCUMULATED AMORTIZATION
Balance at September 30, 2020
Amortization expense
Balance at September 30, 2021
Amortization expense
Balance, as at September 30, 2022
NET BOOK VALUE
429,319
139,238
568,557
139,238
707,795
-
10,685
10,685
14,247
24,932
429,319
149,923
579,242
153,485
732,727
Balance, as at September 30, 2021
Balance, as at September 30, 2022
1,520,018
$ 1,380,780
131,785
$ 117,538
1,651,803
$ 1,498,318
36
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2022 and 2021
7. INTANGIBLE ASSETS (Continued)
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) 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.
(b) 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.
37
Canadian Funds NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2022 and 2021
8. DEBENTURES
The Company has convertible and non-convertible debentures issued and outstanding as at September 30, 2022.
The carrying values of the debt component of these debentures are as follows:
Non-convertible
debentures
Total non-convertible
debentures
(a)
(b)
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, 2020
Accretion
Repayments
832,833
602,969
(118,981)
388,784
64,249
-
1,221,617
667,218
(118,981)
Balance, September 30, 2021
Accretion
Repayments/Conversion
Balance, September 30, 2022
1,316,821
-
(1,316,821)
-
453,033
46,967
(500,000)
-
1,769,854
46,967
(1,816,821)
-
523,366
31,012
-
554,378
41,830
-
596,208
384,361
79,543
-
463,904
36,096
(500,000)
-
896,468
57,794
-
1,804,195
168,349
-
954,262
77,792
-
1,032,054
1,972,544
155,718
(500,000)
1,628,262
Less: current portion
Non-current portion
Balance, September 30, 2022
$
-
-
-
$
-
-
-
$
-
-
-
-
596,208
596,208
$
-
-
-
-
1,032,054
$ 1,032,054
-
1,628,262
$ 1,628,262
Equity component at
September 30, 2022
Conversion price
per common share
-
-
-
574,435
-
1,698,131
2,272,566
$
-
$
-
$ 0.23
$
0.23
$
0.23
Effective interest rate charged
Payment frequency
Maturity of financial instrument
Stated interest rate
Terms of repayment
Blended quarterly repayment
25.69%
Quarterly
Jan, 2029
9%
Principal
and interest
61,071
$
30.20%
Quarterly
Apr, 2022
12%
Interest
only
N/A
31.07%
Quarterly
Jan, 2029
9%
Interest
only
N/A
30.20%
Quarterly
Feb, 2022
9%
Interest
only
N/A
30.85%
Quarterly
Sep, 2028
9%
Interest
only
N/A
The debentures denoted as (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 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 are being accreted to the face value of the debentures by the recording of additional interest
expense using the effective interest rate, as detailed above. During Q4 fiscal 2021, 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.
During this fiscal year, 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. In addition, on
February 15, 2022 the debenture denoted as (d) above was converted into 2,173,913 common shares. During Q3 of
fiscal 2022, the debenture denoted as (b) was fully repaid at maturity at the end of April 2022.
38
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2022 and 2021
9. LONG-TERM DEBT, BANK INDEBTEDNESS AND OTHER DEBT
a) The Company has used term loans with the Business Development Bank (“BDC”) for a variety of purposes. The
following summarizes these loans as at September 30, 2022:
Term Loans with the Business
Development Bank (“BDC”)
(a)
(b)
(c)
(d)
Total
Effective date of loan
Initial Loan Amount
Jun, 2008
$ 3,000,000
Oct, 2015
200,000
$
Nov, 2015
$ 250,000
Jul, 2018
$ 323,906
$ 3,773,906
Balance, September 30, 2020
1,935,340
9,990
12,480
381,150
2,338,960
Proceeds from laon
Loan repayments during the period
-
(111,120)
-
(9,990)
-
(12,480)
-
(101,640)
-
(235,230)
Balance, September 30, 2021
$ 1,824,220
Proceeds from loan
Loan repayments during the period
-
(111,120)
Balance, September 30, 2022
$ 1,713,100
Current Portion
Non-current portion
$
111,120
1,601,980
-
-
-
-
-
-
-
$ 279,510
$ 2,103,730
-
-
-
(279,510)
-
(390,630)
-
-
$ 1,713,100
-
-
-
-
$ 111,120
1,601,980
Payment frequency
Maturity of loan
Terms of repayment
Monthly
Feb, 2038
Principal
and interest
Monthly
Dec, 2020
Principal
Monthly
Dec, 2020
Principal
and interest 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 manufacturing equipment
(c) Working Capital loan
(d) Loan for the purchase of manufacturing equipment
39
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2022 and 2021
9. LONG-TERM DEBT, BANK INDEBTEDNESS AND OTHER DEBT (Continued)
The remaining BDC loan has a floating interest rate based on BDC’s floating base rate less 1.0%. At September 30, 2022,
the rate was 6.55% (2021 – 5.05%). The loan is secured with the building and equipment. On December 3, 2021 the
Company prepaid in full the outstanding balance including accrued interest for loan (d) above, totalling $266,094.
As at September 30, 2022, the commitments for the next five fiscal years and thereafter for the BDC loan is as follows:
2023
2024
2025
2026
2027
2028 and thereafter
Amount
111,120
111,120
111,120
111,120
111,120
1,157,500
$
$
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% (5.45% on September 30, 2022). As at September 30, 2022 the Company had no
funds drawn on the facility (September 30, 2021- nil). The Company’s availability and 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 following 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, 2022, the Company has received contributions totalling $2,158,603 (September 30,
2021 – $1,086,501). 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 $1,352,428 (September 30, 2021 – $646,118), based on a discount rate of 8%, which represents management’s
best estimate of fair value. The residual amount of $806,175 (September 30, 2021 – $440,383) 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, 2022, the carrying value of the Loan is $1,479,664 (September
30, 2021 – $690,795) and $351,050 is recognized as a deferred grant within deferred revenue on the statement of
financial position (September 30, 2021 – $228,157).
The Company is in compliance with the covenants associated with this loan as at September 30, 2022.
The estimated repayments on the existing term facilities in future fiscal years are as follows:
Fiscal Years
2025
2026
2027
2028
2029
2030 and thereafter
$
Amount
359,767
431,720
431,720
431,720
431,720
71,954
40
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2022 and 2021
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 was to 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 was paid upon project completion following 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 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 previously recognized in accounts receivable.
During Q3 of fiscal 2022, a final review of the project was completed and the contractual $578,000 holdback was received
by Microbix during April 2022.
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 stated capital and $964,566 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 pricing 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, 2022 and 2021
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, 2021
126,377,167
$ 43,609,601
Exercise of Warrants
Exercise of stock options
Conversion of Debenture (Note 8)
7,480,293
2,960,000
2,173,913
3,808,072
1,370,020
1,131,222
Balance, as at September 30, 2022
138,991,373
$ 49,918,916
12. COMMON SHARE PURCHASE WARRANTS
A continuity of the Company’s warrants outstanding as at September 30, 2022 is presented in the following table:
Balance, September 30, 2020
Issued (see note 11)
Exercised
Expired
Balance, September 30, 2021
Exercised
Expired
Balance, September 30, 2022
Weighted
average
exercise
price
Units
23,284,552
6,420,833
(6,104,462)
(81,550)
$ 0.36
0.78
0.36
0.46
23,519,373
(7,480,293)
(465,683)
$ 0.47
0.35
0.48
15,573,397 $ 0.53
42
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2022 and 2021
12. COMMON SHARE PURCHASE WARRANTS (Continued)
A summary of the Company’s warrants outstanding as at September 30, 2022 and 2021 is presented in the following table:
September 30, 2022
September 30, 2021
Weighted
average
exercise
price
Number
outstanding
Weighted
average
remaining
contractual
life
years
Weighted
average
exercise
price
Number
outstanding
Weighted
average
remaining
contractual
life
years
6,420,833
9,152,564
$
15,573,397 $
0.78
0.36
0.53
0.63
2.29
1.61
7,621,333
15,898,040
23,519,373
$ 0.74
0.34
$ 0.47
1.38
2.39
2.07
Range of exercise prices:
$0.60 to $0.80
$0.30 to $0.36
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,
2022, the Company has a total of 9,724,000 options (September 30, 2021 – 10,154,000) issued and is eligible to issue
up to a total of 13,899,137 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, 2022 is as follows:
Balance, September 30, 2020
Options Expired/Forfeited
Stock options issued
Balance, September 30, 2021
Options Expired/Forfeited
Stock options exercised
Stock options issued
Balance, September 30, 2021
Exercisable, September 30, 2021
Units
10,040,000
(2,400,000)
2,514,000
10,154,000
(400,000)
(2,960,000)
2,930,000
9,724,000
2,080,000
Weighted average
exercise price
0.32
0.54
0.61
$
$
$
$
$
$
$
$
$
0.34
0.28
0.27
0.60
0.44
0.24
43
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2022 and 2021
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, 2022 and 2021:
September 30, 2022
September 30, 2021
Weighted
average
exercise
price
Number
outstanding
Weighted
average
remaining
contractual
life
years
Weighted
average
exercise
price
Number
outstanding
Weighted
average
remaining
contractual
life
years
$
5,444,000
4,280,000
$
9,724,000 $
0.61
0.22
0.44
3.94
1.98
3.08
2,514,000
7,640,000
10,154,000
$ 0.61
$ 0.25
$ 0.34
4.41
3.09
2.66
Range of exercise prices:
$0.46 to $0.73
$0.215 to $0.28
The fair value of options granted during fiscal 2022 was estimated at the grant date using the Black-Scholes options
pricing model, resulting in the following weighted-average assumptions:
Option Grant Dates
Share price on issue date
Dividend yield
Volatility
Risk-free interest rate
Expected option life (years)
Weighted average fair value of
each option ($ / option)
2022
Feb 2022
$ 0.60
0%
68%
1.4%
5
Nov 2021
$ 0.730
0%
70%
0.1%
5
2021
May 2022
$ 0.570
0%
67%
1.3%
5
Dec 2020
$ 0.460
0%
72%
0.3%
5
Feb 2021 Jul 2021 Aug 2021
$ 0.60
$ 0.62 $ 0.540
0%
0%
70%
71%
0.3%
0.5%
5
5
0%
71%
0.5%
5
$ 0.42
$ 0.34
$ 0.31
$ 0.27
$ 0.36
$ 0.31
$ 0.34
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
$649,693 (2021 - $377,828).
44
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2022 and 2021
14. INCOME PER SHARE
Basic income per share is calculated using the weighted average number of shares outstanding. Diluted income per
share reflects the dilutive effect of the exercise of stock options, warrants and convertible debt. The following table
reconciles the net income and the number of shares for the basic and diluted income per share computations:
for the year ended September 30
2022
2021
Numerator for basic income per share:
Net loss available to common shareholders
Net income for dilutive earnings per share
Denominator for basic income per share:
Weighted average common shares outstanding
Dilutive Effect
Dilutive weighted average common shares outstanding
Net income per share:
Basic
Diluted
$
$
1,788,689
1,788,689
$
$
3,233,390
3,682,196
135,376,255
6,311,994
141,688,249
114,845,425
26,837,784
141,683,209
$0.013
$0.013
$0.028
$0.026
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
2022
2021
Pursuant to warrants
Under stock options
Pursuant to convertible debentures
6,420,833
5,169,000
17,391,304
28,981,138
7,621,333
2,414,000
2,173,913
12,209,246
45
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2022 and 2021
15. EXPENSES BY NATURE
The Company has chosen to present its consolidated statements of income and comprehensive income 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
2022
2021
$ 848,365
160,344
27,691
$
$ 1,036,400
$
699,167
99,403
23,470
822,040
2022
2021
$ 9,305,688
442,319
9,748,007
$
$ 7,023,148
260,978
$ 7,284,126
$ 4,836,461
1,786,802
2,187,466
937,278
$ 9,748,007
$
3,688,213
1,067,326
1,878,100
650,487
7,284,126
$
During the year, the Company received $nil (2021 - $70,046) 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
2022
2021
$
466,480
$
808,348
1,209
162,423
(468,768)
(84,110)
77,234
$
198
94,457
(681,801)
(221,202)
-
$
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, 2022 and 2021
16. INCOME TAXES AND INVESTMENT TAX CREDITS (Continued)
The significant components of deferred income tax assets are summarized as follows:
2022
2021
Deferred income tax assets:
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
Difference between government assistance amount and fair market value
Right of use assets
Tax assets not recognized
Deferred tax assets recognized
$
2,810,272
190,879
3,914,095
250,841
(592,934)
(81,973)
(236,507)
(6,254,673)
$
3,276,414
274,961
3,755,690
302,124
(639,706)
-
(271,577)
(6,697,905)
$
-
$
-
The unrecognized balance of federal research and development investment tax credits carried forward is $2,926,593,
reduced by a deferred tax liability of $757,380. The credits expire between 2023 and 2042. The unrecognized balance
of Ontario research and development tax credits carried forward is $nil.
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
Interest income
Non-cash interest:
Accretion on debentures (Note 8)
Accretion interest expense (Note 6, 9)
Financial expenses
47
2022
2021
$
$
1,117,319
(877,411)
(51,273)
(762)
(311,196)
(216,769)
(340,092)
$ (2,298,107)
(114,845)
(274,980)
(20,067)
(689,753)
179,277
$ (3,218,475)
2022
2021
$
93,257
396,269
6,525
(82,270)
$
112,145
590,304
8,869
(66)
202,685
127,824
744,290
317,916
56,386
$ 1,085,554
$
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2022 and 2021
19. CAPITAL MANAGEMENT
The Company’s capital management objective is to safeguard its ability to function as a going concern while also
maintaining and growing its operations and funding 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, 2022 was $29,759,681(September 30, 2021 - $25,093,066).
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. Similarly, the Board of Directors may, from time to time, choose to declare a dividend in assets
if warranted by circumstances. Also, the Board of Directors may, 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, 2022 and 2021, the Company has carried at fair value financial instruments
in Level 1. At September 30, 2022, 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, 2022 and 2021
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 and Cash Equivalents
30-Sep-22
$ 13,488,075
-
-
Liabilities for which fair values are disclosed:
Non-convertible debentures
Convertible debentures
Long-term-debt and other debt
30-Sep-22
30-Sep-22
30-Sep-22
-
-
-
-
1,628,262
3,192,764
-
-
-
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
-
-
-
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.
49
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2022 and 2021
20. FINANCIAL INSTRUMENTS (Continued)
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.
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 at one of the major Canadian chartered banks or in short-term interest bearing
securities. 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,
2022, five customers accounted for 56% (September 30, 2021 - five customers accounted for 80%) of the outstanding
balance. In addition, for the year ended September 30, 2022, five customers accounted for 58% (September 30, 2021
- five customers accounted for 63%) 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, 2021 - $35,000).
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, 2022 September 30, 2021
$
$
2,887,261
11,769
25,216
133,551
3,057,797
$ 3,909,253
209,312
9,696
46,855
$ 4,175,116
50
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2022 and 2021
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
2022
2021
2022
2021
Cash
Accounts receivable
Accounts payable and accrued liabilities
$
302,698
1,645,040
126,716
$ 3,601,394 $
836,390
131,002
87,613 $ 135,388
727,708
47,009
1,221,837
45,994
The Company’s revenue and expenses by foreign currency for the years ended September 30, 2022 and 2021 are
as follows:
Revenue
Euros
U.S. dollars
Expenses
U.S. dollars
2022
17%
50%
10%
2021
26%
44%
8%
Based upon 2022 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 $478,300 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 $165,800.
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 $478,300 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 $165,800.
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, 2022 and 2021
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
2022
2021
Income (loss)
2022
2021
Antigens, QAPs and DxTM
Other (Includes Kinlytic®)
Total for continuing operations
$ 19,071,819 $ 18,591,055 $ 1,833,783 $ 3,266,936
(33,546)
$ 1,788,689 $ 3,233,390
1,905
$ 19,076,241 $ 18,592,960
(45,094)
4,422
Segment revenue reported above represents revenue generated from external customers. There were no inter-segment
sales in the current period (2021 - $nil).
Segment income represents the profit 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.
Segmented assets and liabilities as at September 30 are as follows:
Segment assets
2022
2021
Segment liabilities
2021
2022
Antigens, QAPs and DxTM
Other (Includes Kinlytic®)
Total for continuing operations
$ 33,145,196 $ 28,829,034 $ 8,206,541 $ 8,978,534
-
-
-
-
$ 33,145,196 $ 28,829,034
$ 8,206,541 $ 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.
52
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2022 and 2021
22. SEGMENTED INFORMATION (Continued)
Segmented depreciation and amortization, impairment of long-lived assets and additions to non-current assets
as at September 30 are as follows:
Antigens, QAPs and DxTM
Other (Includes Kinlytic®)
Depreciation and
amortization
2022
2021
Additions to
non-current assets
2022
2021
$ 1,036,400 $ 822,040 $ 2,038,672 $ 1,302,539
-
-
-
-
$ 1,036,400 $ 822,040 $ 2,038,672 $ 1,302,539
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,
North America
Europe
Other foreign countries (directly)
Total for continuing operations
Revenue from
external customers
2021
2022
Non-current
assets
2022
2021
$ 13,142,485 $ 12,137,350 $ 10,736,824 $ 9,734,552
5,918,554
15,202
6,445,942
9,668
$ 19,076,241 $ 18,592,960
-
-
-
-
$ 10,736,824 $ 9,734,552
The following table reflects the movement in the Company’s deferred revenues:
For the year ended September 30,
2022
2021
Balance, beginning of the year
$
742,932
$ 1,315,738
Cash payments or advance payments on performance obligations
Revenue recognized during the year
Deferred government grants (see note 9)
1,797,026
(2,108,220)
122,893
554,631
$
2,336,133
(3,025,886)
116,947
742,932
$
53
Canadian Funds
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the years ended September 30, 2022 and 2021
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,
2022
2021
Short-term wages, bonuses and benefits
Share based payments
Total key management compensation
$ 1,309,760
307,187
$ 1,616,947
$ 1,415,595
183,061
$ 1,598,656
25. COMMITMENTS AND CONTINGENCIES
Payments on convertible and non-convertible debentures (Note 8)
2023
2024
2025
2026
2027
2028 and thereafter
Contingencies
Amount
360,000
360,000
360,000
360,000
360,000
4,399,497
6,199,497
$
$
The Company is not party to any legal proceedings arising out of the normal course of business.
26. SUBSEQUENT EVENTS
On October 3, 2022 the Company initiated a Normal Course Issuer Bid (“NCIB”) program for the repurchase and
cancellation of outstanding common shares. In accordance with the rules of the Toronto Stock Exchange and as
detailed in the Company’s news release of September 28, 2022, the NCIB enables the Company to repurchase up to 5%
of its common shares over a 12-month period.
54
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
NeuPath Centre for Pain & Spine
Mark A. Cochran (2)
Virginia, USA
Managing Director
Johns Hopkins Medicine
Vaughn C. Embro-Pantalony (1) (2)
Ontario, Canada
Pharmaceutical Executive
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
Jennifer A. Stewart (2)
Ontario, Canada
Chief Executive Officer
Syntax Strategic
(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
Christopher B. Lobb
General Counsel & Secretary
55
Canadian Funds
265 Watline Avenue,
Mississauga, ON
Canada L4Z 1P3
Tel: 905-361-8910
Fax: 905-361-8911
1-800-794-6694
Web Site: www.microbix.com