Microbix Biosystems Inc. (MBX) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Annual Meeting of Shareholders of Microbix Biosystems, Inc. I am Christopher Lobb, Corporate Secretary to the company, and I will act as Chairman of the meeting. We'd like to thank our shareholders for being accommodating in conducting this meeting online and by conference call during the coronavirus pandemic. We'll start the meeting by addressing the formal matters. And once these matters have been addressed, Cameron Groome, the President and Chief Executive Officer of the company, will provide a short summary of recent activities and events. Questions can be asked online, and Cameron will answer them at the end of his presentation. I hereby appoint Nicole Silvera and Megan Rocha of TSX Trust Company, who have reported on the shareholders present in person and the number of shares represented in person and by proxy and have computed the votes on any poll taken. Notice calling this meeting and the accompanying Management Information Circular have been distributed using the notice and access provisions under applicable securities regulations to all registered and nonregistered shareholders. These provisions allow us to post electronic versions of the proxy-related materials online rather than mailing paper copy to shareholders. This allows us to reduce our postage and material costs and also has environmental benefits by reducing the volume of paper documents generated. Physical copies of the form of proxy, the supplemental mailing card and notice and access letter have been mailed to all shareholders of record to the directors and to the auditors of the company. And the registrar and transfer agent has filed with me proof of service. I direct that a copy of such materials with proof of service be next to the minutes of this meeting as a schedule. I'll now ask someone to move and second a resolution dispensing with the reading of the notice.

I move a resolution as follows: be it resolved that the reading of the notice of the meeting be dispensed to it.

And here as a shareholder and I second that resolution.

And I declare the resolution carried. The scrutineers' report shows a quorum to be present. I, therefore, declare the requisite quorum of shareholders is present and that the meeting is regularly constituted. I direct that the scrutineers report be annexed to the minutes of the meeting. Before commencing the business of the meeting, I'd like to comment on the voting procedure during this unique shareholders' meeting. Each holder of a common share is entitled to 1-vote for each common share held as the show of hands cannot be done during an online meeting. The shareholders have been asked to vote in advance of the meeting. At the time of each vote, we will indicate the result of that advanced voting. I now present to the meeting the financial statements of the company for the fiscal year ended September 30, 2022, and the auditor's report thereon. It's not proposed to ask shareholders to approve the financial statements. However, Jim Currie, the Chief Financial Officer of the company would be pleased to deal with any relevant questions that are asked online concerning the financial statements during the question-and-answer period at the end of the meeting. If the shareholders have questions of a general nature, they can also be asked online and answered after the formal part of the meeting is completed. It's now in order to proceed with the election of directors. The Board of Directors consists of 7 directors. I now declare the meeting open for nominations.

I nominate Peter M. Blecher, Mark A. Cochran, Vaughn C. Embro-Pantalony, Joseph D. Renner, Martin Marino, Cameron Groome and Jennifer Stewart as Directors of the company to hold office until the next Annual Meeting of Shareholders or until their successors are elected or appointed.

And I'm Jim Currie, a shareholder, second the resolution.

Based on the scrutineer's report, I declare the resolution carried and those nominated to have been duly elected as directors of the company to hold the office until the next Annual Meeting of Shareholders or until their successors are elected or appointed. The next item of business is the appointment of Ernst & Young LLP as auditors of the company. And the authorization of the directors to fix their remuneration. I'll now ask someone to move and second a resolution appointing auditors and directing the directors to fix their remuneration.

I, Jim Currie, as shareholder move a resolution as follows: Be it resolved that Ernst & Young LLP are hereby appointed auditors of the company to hold office until the next Annual Meeting of Shareholders or until their successor is appointed at such remuneration as may be fixed by the directors and the directors be and are hereby authorized to fix such remuneration.

And Hughes again, I second that resolution.

And based on the scrutineers' report, I declare the resolution carried. This concludes the formal part of the meeting, and I propose that we terminate the formal portion of the meeting and Cameron Groome, President and Chief Executive Officer of the company, will make a presentation to the shareholders and thereafter respond to questions from shareholders that have been asked online. Accordingly, I now ask someone to move and second a resolution terminating the meeting.

Mr. Chairman, I move that the meeting be terminated.

And I second that resolution.

I declare that this meeting is now terminated and invite Cameron Groome to speak to the shareholders.

Great. Thank you very much, Chris, how are running through the formal portion of the meeting and for Jim, your and Ken, your help in directing the resolutions, all the shareholders for taking the time and trouble to vote their shares. We have had an excellent participation with shareholders with nearly 49% of shareholders represented at meeting and very pleased to say that the overwhelmingly supporting the management of directors. So thank you so much for your support and will endeavor to keep earning. Thank you very much to Deborah and Adelaide Capital as well for helping us organize the meeting. I'm just going to share a screen and run through a bit of a presentation that will hopefully provide you some insights to where we are and where we're going and also ask Jim and Ken to participate in that in their respective spheres of our financial operation -- financials and operations. So let me sunscreen as we speak. Great. And if Jim or Ken, if you could just confirm that you're seeing my screen?

I am indeed.

I am.

Perfect. Great. I'd like to welcome everybody for this presentation, and thank everyone for taking the time out of your busy schedules to attend Microbix's 2023 Annual General Meeting. There's a lot going on with our company. And consequently, some of my comments are going to be, by definition, forward-looking. So we do claim the related safe harbor, legal protections for what is presented here. And we'll will certainly provide you as much insight in this presentation and the related questions as we can. Just in introducing some of us those that perhaps I haven't met in person I'm, of course, Cameron Groome, your CEO, also providing the roles of President and Board Director. We also have with us today Jim Currie, Chief Financial Officer; Ken Hughes, our Chief Operating Officer. And I know we have a number of our other senior staff that are listening in and our SVPs, Phil Casselli, and Mark Luscher and our other talented directors, managers and staff. So thank all of you who have taken the time to join us, and we greatly appreciate it. We'd likewise appreciate our -- the ongoing support and talent of our dedicated Board Directors. Martin Marino, our independent Board Chairman, Dr. Peter Blecher, Independent Director, Marl Cochran, the chair of our Human Resources Governance Compensation Committee, Vaughn Embro-Pantalony, the Chair of our Audit Committee; Joe Renner, Independent Director and Jennifer Stewart as well Independent Director. So I thank all of you for taking the time to attend today. And for your support and counsel throughout the past year and the current one we're in now. So thank you again. In terms of where we are, it's fascinating to see how Microbix is evolving, and we're really very broadly supporting the global diagnostics industry. We're helping with the pre-analytical stages with our test collection devices, notably our DxTM sample collection media through the conduct of the actual test themselves with our test ingredients business, notably our antigens and across the whole spectrum from validating from the initial stages of sample collection right through to the reporting of test results through our quality assessment products of your QAPs, test controls and really moving to support an ever-growing number of industry leaders by doing and gives us tremendous connectivity with world-leading companies that rely on Microbix to be supporting them and enabling them to provide the health care that all of us need. And certainly, everyone wants the access to medical testing and everybody needs that testing to be accurate, give proper accounts in for maintain and optimize everyone's heath. In so doing, you'll see this blue, red and gray that we set out on these slides. And that reflects the evolution of our business. A few years ago, we had 1 revenue generating are essentially our test ingredients business. And we certainly had ambitions to grow that and move to other segments of revenue generation. And we've done that success -- quite successfully. And we had to do it in the teeth of a pandemic, creating, building up our quality assessment products business in a period of real disruption to the clinical diagnostics industry. And to also find new opportunities like our viral DxTM brand, viral transport medium and building that up, adapting to the environment of the pademic. And then, of course, to that -- to the post-pandemic or likewise. So really demonstrating a tremendous resilience within the operation of our business to keep growing revenues and we saw some disruption to our sales with the very breadth of our offerings in 2020. We more than recovered that and built our businesses in 2021. And been adapted essentially to the end of the acute phase of the pandemic in 2022 and into 2023. So hopefully, it gives you some insights and comfort that management is able to successfully adapt to greatly changing circumstances as quickly, and that's something we'll continue to be. And part of that adaptation going forward, of course, is we're not done and we're not slowing down in growing our business. Microbix come close to $20 million in annual sales of [ '19 ] change in 2022. And certainly, we want to continue hitting records in 2023 and going forward. And you'll see, as we talk about some of our systems upgrades and the extent of our new product development that we're very much geared to taking Microbix to sales to the order of $100 million in sales over the next several years. And we're doing that with whole bunch of different ways, they are very -- all very targeted, certainly, cross-selling, looking at what else can we do for each customer across offerings and categories identifying new clients, perhaps we haven't worked with before or we haven't work the division of a certain client before, creating or acquiring new product classes across user and test categories, looking at some of the major emerging areas such as the continuing growth of molecular diagnostics disease or the PCR tests or analogous nucleic acid application systems and the point-of-care instruments, little tabletop instruments that can do sometimes the same work it's a very large sophisticated clinical lab on a tabletop or benchtop, also multiplexing. So you've seen the emergence of tests going, for example, in respiratory from just looking at COVID to looking for COVID in Flu A and Flu B and Respiratory syncytial virus, RSV, we see that trend across many disease syndromes, whether it's respiratory or sexually transmitted infections or bacterial infections. And then also taking the test of that next level where we're not just looking at what organism of it is but checking to see if it has antibiotic-resistance genes to direct drug therapy or to see what variance of viruses may need to give us prognostic and diagnostic therapeutic information of how best to treat patients. And all of these are growth areas for us that I believe we very much have the skills and team to realize opportunities in so many of these areas and that will be some of the -- those will be the drivers of our continued growth. I'll briefly speak about our 3 areas of products right now, our test collection devices led by DxTM, our test ingredients business in our antigens and our test controls and each one of these represents significant addressable markets for us. And certainly, each one of those as opportunities for us to keep growing sales in those areas and/or likewise improving margins we get off in each of our sales in these categories. So with test collection devices, of course, we stepped up to help Ontario make certain -- it could source the critical materials of sample collection for sample flagship during COVID and became the province's only domestic supplier. And now the province is in the midst of adjusting 2 things, 1 being that the COVID pandemic, it's not that you phase anymore, and the test volumes are not as they were, but more importantly, the provinces in the midst leader -- work in its procurement systems to better fulfill the strategic objectives of the provincial government of Ontario, whereby they want to have a strong domestic manufacturing industry with the economic and employment benefits and that generates, but also have the security of domestic supply and resilience that comes from being able to make things in home. So will that those changes are being made. There's been a lot of disruption in procurement. Certainly, we've been affected by that. But we're very deeply engaged with working through that process as a partner with government and we do see a [ continue ] role for our products in Ontario on an ongoing basis and elsewhere in Canada, certainly adapting same manufacturing skills that we've developed scale and we developed for other offerings as well that we have identified. In terms of our antigen business, this is where our company started in providing the ingredients to make a whole spec tests, and this is the font of our expertise in the infectious disease category, we continue to supply many major international companies and some of these are enabling biological ingredients with them to manufacture their test cartridges, their reagents running on large instruments across these many categories. And that's a business that is certainly not going away and/or is it slow down, it has only come down as a percentage of our sales because of the growth of our other businesses. And see the growth trend that was on pre-pandemic resuming as we move forward. A bit of apologize for a bit of the disruption in the pagination and slides and we'll get that cracked. Oftentimes with our quality assessment products, I find sometimes shareholders may have not quite crystallized what some of these are. So I'm just going to give a couple of examples or specific examples where we talk about the markets and market potential. One of these areas that we're deeply involved in is human papillomavirus. And human papillomavirus is a virus that is directly implicated as a cause of human cancers. It's a family of about 100 viral subtypes of which about 14 have been identified is not just causing warts to abnormal tissue growth, but in driving invasive and potentially deadly cancers. And most people are aware of that in terms of the Pap testing programs who are screening for cervical cancer in 1950s -- effective technology of its day looking for cells to transformed into pre-cancer -- cancer and thereby flagging them for surgical or other ablated treatments. But there's a much better way of doing that now, you can rather than wait for cancer to develop and detect it with a skilled pathologist rather to look and see if the type of the virus is present that will drive the formation of the cancer 5 or 4 years later. And PCR testing could do this, but the PCR testing has to be very, very accurate. If you're moving to a test every 5 years, for example, you do not want a false negative, whereby infection with one of the high-risk HPV variance goes undetected and permits cancer to emerge without the more regular follow-up that those at-risk patients received. Microbix using our skills and technologies in some cases, [ PacMed ] Technologies is the only company that can provide quality control materials for these extended HPV genotype tests, enabling better health care for all sorts of folks, including across Canada. But to enable, in fact, the rollout of these tests in multiple jurisdictions. We're working with multiple countries, in fact, to bring these better health care innovations to market. So very exciting opportunities for us there. And likewise, in other areas, for example, in sexually transmitted infections as we announced just in the beginning of March, work we're doing in Australia with the testing program in Australia for point-of-care testing for Chlamydia, Gonorrhea and Trichomoniasis, sexually transmitted infections where patients don't have access to ready access to clinical laboratories and perhaps wouldn't get proper treatment and diagnosis point a perfect environment for point-of-care testing and enabled by Microbix controls. In fact, in this case, even more so because our controls on our FLOQSwabs of our partner, Copan Italia do not require refrigeration and are, therefore, very well adapted to this sort of world usage. So all sorts of applications like this. And I picked these 2 frankly, just to illustrate just how broad Microbix is working in the industry and to disabuse anybody in the notion that or somehow our fortunes are rise and fall with case numbers of COVID that couldn't be further from the truth. We are working very broadly to support the industry in many, many ways and see our product lines and sales growth continuing. And so much of that is also driven by some of the competitive advantages that we've demonstrated. The performance of our quality assessment products, the formats, the stability, multiplexing have talked about resistance and variants and defended by intellectual property, both of ourselves and of our partners. So these are very significant markets. And it's taken us a while to break down exactly what the addressable market segments are but you can see all of these give us some very strong growth potential over the next few years, had good margins and give us all of the ammunition we need to -- all of the fuel in the tank, I should say, at the direction to go in to continue growing sales and profitability of our company. So this is, I think, it justifiably very optimistic outlook for our company based on our sales-driven businesses. And [ lest ] we not give it its due credit. We also still have a very active partnering program ongoing for our therapeutic asset Kinlytic Urokinase which is a clot-buster drug which is, in fact, already FDA approved, but must be validated for new manufacturing updates to process. And we're quite optimistic that we will identify as we sought to do, a partner to work with us to bring it back on to the U.S. and in other markets in a -- on a basis of full project funding whereby you're not starving our diagnostic business of growth capital which we need to drive it, but rather bring in outside capital and participating in the upside associated program. So again, this remains very much an active business project for Microbix. And with that, maybe I'll hand off to Jim Currie to speak a little bit about our financials and then to Ken Hughes to discuss our operational goals and what we've been up to over the past year. So Jim, take it away.

Thanks Cameron. It's hard to believe that it's been -- this is our fourth remote access, Zoom AGM. It doesn't seem that long ago when we -- the pandemic just initiated, and we had to scramble for 3 weeks. Sorry, I apologize I wasn't able to turn off my phone behind me. So I'm just going to cover a few slides on the financial side. This one is a sort of standard one that we incorporate into our presentation, give some sort of outline on our financial capital structure. We're currently sitting with a market cap of about $50 million, 138 million shares. We've been happy to have had some analyst coverage over the last number of years. You can see in the bottom right, the analysts who have covered us over the last year. We've got our cash position in a much better situation over the last couple of years. And between cash and short-term investments and available line of credit, we've got about $14 million to $15 million available to us to invest in the business. We've also utilized some of the cash that we've accumulated over the last few years to reduce our debt. So we've taken out $3 million of our debenture debt. And we've also reduced our -- sort of our loans that we received from the BDC as well. So our -- from a current ratio and debt equity ratio we're in the best situation we've been to since at least since I've started, next to 7 years ago. So we're in good shape to keep our ability to invest in the business as we try to achieve the growth targets that Cameron as outlined in the previous slides. Maybe you can move to the next slide, Cameron.

Sure. Sure. Jim, and I'll just say one of the things I think, certainly, with the rate tightening cycle, it has not been kind to equity valuations. But unlike many of our peers, we're in a very strong capital position. We did remain in a very strong capital position. So we continue to grow a genuine revenue-driven business.

Thanks, Cameron. So just a bit of a review of fiscal 2022. It seems like a long time ago, but it wasn't that long ago I guess. But in record revenues, so it was our third year of record revenues. And I think the next slide will show some charts, but we've almost -- we will have almost doubled our revenue base that we had in fiscal 2020 and we certainly are forecasting for another record year of revenues as we move forward. We also launched and introduced 22 new products for the QAPs business, and we saw year-over-year growth in the QAPs business of 14%. Our Antigen business, at least for 2020 through, I guess, through 2022 has really softened, let's just say, people weren't going to doctors, people weren't getting the diagnostic tests that they were getting pre-COVID. So our customers, a diagnostic industry wasn't ordering as much from us. So we saw a bit of a drop-off or a leveling off. However, we're really starting to see that pop back up. And in fact, I was just going through our open purchase orders and noticing that we're at as high a level on the open purchase orders as we've been through our history. So it is starting to bounce back, which is good to see. We've also saw a 58% gross margin in 2022. It was down slightly from the year before. That was not a lot to do more so with the pressures on our cost base, whether it's our labor, whether it's the supply chain, transportation costs, et cetera, we're really pushing us. However, while that's going on, we're also going back to our customers and looking for price increases to offset these cost increases that we have seen more specifically in the last year and even into the first half of this year. So at the end of 2022, as I mentioned before, we had an excellent current ratio and our debt-to-equity ratio was -- sorry, bear with me here -- 0.33. And so it was an excellent shape. So our focus is on expanding our business, and we're expanding our facilities to meet those needs and continue with our record performance. Again, on this particular slide, you'll see that we've had the trend over the last few years on the revenues as expected, we expect to be about double what we were in 2020 at the end of fiscal '23. Our gross margins, our expectation is to maintain them in the high 50s range in the near to next year. And you'll see -- hopefully see our EBITDA performance. I don't like this slide that just reflects a rather weak first quarter, but we certainly expect the EBITDA to be up to the levels of this fiscal '22 and '23.

Amen to that?

So in summary, we've got a strong balance sheet. We've got a good base of business and cash position to support the growth of the business, investing in our facilities, investing in our people. We've just announced recently funding from both the federal and provincial government to the tune of $1.7 million, which will also help to fund our growth. And we've got a lot of strong level of -- I think I covered this was the strong level of orders and backlog that we currently got for our core business. We don't tend to see the backlog for some of our other businesses, but certainly, our core antigen business or the ingredients business, we know or should know in advance what the level of sales are going to be for the year because typically, from order to shipment is can be up to 6 months in time frame. So we like to see our orders in place well in advance, and we are seeing that more so now than we have in the last 3 years. So we're in a good, strong position.

Great. Thank you, Jim. That's a great summary, and I look forward to that listing some further questions from shareholders, and I'm sure we'll be pleased to address in the Q&A section. I know you haven't been busy at all with anything. And just some of, I think, what's discussed in the operations teasing aside, we'll highlight just how busy we've been all of us working on stuff that Jim has been doing some tremendous work in upgrading our systems as well from our enterprise resource planning and making certain we have the financial systems to support that $100 million targeted sales number as well. Ken, why don't you jump in and talk a little bit about what we've been doing operationally in that? I think this is a good segue slide is just showing, illustrating the pace at which we're creating and have been creating new products and worth keeping in mind that we only announce new products, not when the notion occurs to us, but when we have a fully validated product.

Indeed, and I think this is very illustrative of the fact that no way should we be considered a COVID play or that we're at the mercy of COVID. When you look at our product offerings and offerings that we were developing before, the pandemic, including various human papilloma virus products and the STI panels you can see that we've been involved in this space for a long time, and it will continue to grow as that capacity within the globe, the testing is further deployed. And what COVID did was focus everybody's mind on the value of diagnostics and doing diagnostics right and that's what we help everybody do. One of the comments we make is about our controls is that we don't make tests, we make controls and make everybody's test better. So we're agnostic to the test platform, our controls make them all better by having fewer false positives and false negatives, which, of course, can lead to poor outcomes. So that being said, let's go to my next slide -- a little bit more granular. So Microbix, as we all know in the last few years, has done some pretty rapid growth. And we've -- in the last few years, we've doubled in staff. We've tripled in square footage and have gone from 1 building to 3. This not only supported our increased sales over that period of time, but its future proofed us and stabilized us and built capacity when we get past the $20 million, which is not going to be long and then up to $50 million and $100 million in sales, which is to target in the next several years, which is what Cameron has said previously. I do want to shout out to the staff generally at Microbix. We have a fabulous directorial core -- is haven't suggested. But right to remind there are supervisors, technicians, scientists, engineers, and everything else, we have a wonderful and skilled staff that make my job not easy but fun and our job is not easy but fun. And I want to show that we have a very scientifically sophisticated manufacturing group, a very scientifically sophisticated QC group, wonderful R&D, QA, regulatory staff human resources, sales and marketing, IT and even finance because Jim's here and operations and facilities, people are putting together and are buying into the vision and often shareholders in Microbix that are driving us towards that lead sales level that we're targeting right now. So we've gone -- we're now over 110 staff, and we're hiring. There's 2 very nice thing the views for supervisors that happen today. So we're supporting the business and moving forward. In 2022, we actually did 22 medical device QAPs. We developed a whole lot of R&D type products in our portfolio. So we now have 22 medical device quality assessment product to 33 in total, and we're going to build more as you move forward. And you can see just from this particular -- the second bullet on this slide, there are 6 HPVs identified and several STI-related respiratory panels, including flu and respiratory syncytical virus, not just COVID and other entities as well. HSV and appropriate negative control. So again, to scotch the idea that we're a COVID company, well certainly are not. In the last little while, we in -- particularly in 2022, we completed the build-out of building 2, the 235 Watline, which is our QAPs production facility. We now have capacity for liquid QAPs at 150,000 a month and 200,000 swabs a month out of that facility in a semi-automated function. We're actually dropping further automation in there and continue to build capacity as the use of these types of controls becomes clear throughout the world, and we're working on that business development side, of course. Now our third building, we have implemented semi-automated VTM production. We can produce 100,000 units per week right now. The fully automated line is about to go in, and that will allow us to make further VTM as we move out our business development into other provinces and in other areas and also our technology and speaks to capacity building and future proofing capabilities which are deductible to other SKUs, liquid fills and other products that we're developing in this sample collection space and indeed for this basis. And of course, now we have the warehousing offices in place to support that growth $20 million, $50 million and $100 million and beyond. Next slide, please. Cool. So just a few illustrative highlights of what we've done in 2022. I think that most people are knowing that we operate under the auspices of ISO13485 and ISO9001 quality management systems. This is already on an annual basis. And recently, this last year in 2022, we had a further soup-to-nuts audit, which then included 235 of our Building 3 our DxTM production suite under that quality management system, quality management certification. We also have medical devices establishment license in Health Canada and Pathogens license from a public health agency of Canada. So we can operate as we move forward. In 2022, there was the delivery of 1.2 million units of DxTM to the government of Ontario, which was delivered on time, on budget in August of 2022. We've extended the stability of the DxTM to 18 months that obviously gives us some inventory management capabilities, which is great and speaks again the quality of the science and quality groups at Microbix and we're looking to sales and GR to bring in new customers, get that third order, be it a book order or indeed a longitudinal order going forward. And Cameron talked a little bit about how procurement is changing in Ontario and elsewhere, how they're looking to bring in domestic suppliers as they get their house in order, and we were certainly in discussions in that regard for the long term. And again, we'll be looking outside of Ontario for sales as well as we continue to build capacity. To support the growth, I've talked a lot about future proofing and capacity building we have extensively paper-based quality management system right now, and we're looking to -- part from the environmental component increase to the -- upgrade to the software as a solution electronic quality management system through the implementation of the master control software and then U.S. enterprise resource planning software through NetSuite. Next step after that will be the laboratory information system. The idea ultimately is to go paperless, but those efficiencies are going to allow us to grow without adding extra headcount, without I think necessarily any extra space. But we have to -- if we're going to get the $50 million and $100 million, we have to be efficient in what we do. And this initiative, which is being discussed, I think, a lot is going to support us getting there. And we have a wonderful IT department who's driving that process as we speak in collaboration with Jim for the ERP side and with our [ OB ] and scientific leaders in the quality management system side. On Antigen production, we're going to continue to see linear growth. Our manufacturing quality R&D group are fabulous. Our only problem there really is challenges with suppliers and equipment. We're very good at managing that, but supply chain difficulties are a reality. We're managing better than anybody, I would say, but we still have to deal with that. But in terms of manufacturing and releasing it Microbix we've got that covered, and we will meet market demand going forward quite little. So that was 2022 pretty good. One brief slide on 2023, more QAPs, we talked about mycoplasma genitalium. We're going to do antimicrobial-resistant versions of them and other pathogens, which is a very key focus in diagnostic testing going forward. The QAPs liquid and swab manufacturing will be an underway and full scaleat 235 Watline on schedule as promised. QAPs-related QA and R&D. As Jim said, we raised some financing. We released another grant from the Ontario together fund for a total of $860,000. That's a grant. And we also raised another $860,000 from FedDev Ontario with interest-free loans. That's really inexpensive capital, which is going to cover the build-out of some space in Building 3, the 275 Watline to increase QC and R&D capacity and manufacturing capacity, but also give us a tile and the opportunity to reconstruct Building 1 in our owned building at 265 put in that level BSL-3 suite and increase the efficiency, the manufacturing capabilities there. We will have that time to do that, and we will be deploying the OTF and FedDev moneys to drive that. In 2023, we will implement the ERP and eQMS, I talked about with the IT upgrades and plan for the LIMS, Laboratory Information Management system and electronic lab books as we move to a fully digital future which will support our growth. And we expect to see, of course, large growth in QAPs, primarily swabs and we're set up to meet that as we move forward in all aspects of the business growing as Cameron alluded to. So I think I'm very optimistic in the future, of course, probably seen me buying shares because I think we're going to be very successful. And we have the team to do with the capabilities, the expertise, the IP and the facilities. So I think I'll stop there, and I hope my positivity came through.

Good. Well, no, I think it does. And I know that it's justified. In terms of some of the highlights and catalysts that I want to leave off with before we jump over to shareholder questions. Certainly, I think we -- I spoke to the adaptability that we've demonstrated going into a pandemic, going through a pandemic, coming out of the pandemic, we're proving our ability to grow revenues we're managing multiple lines of business and many customer relationships successfully. They're already, of course, listed on TSX and tradable in the United States on the OTC QX system, we have positive earnings and cash flow differentiates us from quite a number of companies in our sector. Pleased to have equity analyst coverage and reasonable trading volume as well. We're maintaining a strong cash balance in working capital with low leverage. And we're also actively repurchasing shares now. So certainly, we do not foresee a situation where there's going to be a successive rounds of share offerings that dilutes the ownership at the company. Quite to the contrary, we see our share count stabilized and perhaps coming down outside of warrant exercise in the current future. We have the leadership skills, systems and facilities to fulfill our needs. And as Ken was discussing, we're continuing to build up those capabilities, both in terms of the human skills and the systems and facilities that we have. We have already many accreditations enabling us to sell around the world with active distribution into more than 30 countries under ISO, public health agency in Canada, Health Canada, U.S. FDA, the European Union, U.K., Australian Therapy Goods Administration, all of these are markets that are now open to us and believe me, we're going to be selling into those markets. And we've got very large opportunities across some of the fastest-growing segments of the diagnostics industry, whether that's molecular, whether that's point-of-care, antimicrobial resistance, spiral variants, so many opportunities we have to prioritize carefully. That's 1 of the reasons why Peter can't talk about our hiring more people. It's not because we want to increase our head count to have people sitting around doing nothing. It's just we have great value-building opportunities that we put sharp lines to work on. And then expanding the range of products and customers continue and the more we lock up formalized agreements that give predictable and ongoing revenue streams and work with the best companies in the world in our space, the more we're delighted to doing so. And that's how we see ourselves building value for shareholders and make no mistake, all of our executive leadership, our directors, our managers are all incented the same way as shareholders. So we take it seriously. We run the company professionally and we work our tails off intelligent. So -- and can't thank you enough for trusting us with a portion of your capital and we'll endeavor to create value as much as we can, consistently and intelligently improve. So with that, I'm going to close down the stock shares so you can see us a little more than thumbnail, and we can get into addressing some shareholder questions. Deborah, did you want to curate questions? Or should I jump into them directly. I don't see too many to say.

Whichever you prefer, Cameron.

Okay. Well, why don't I run through them, Deborah? I have a question about AI, artificial intelligence suggesting that ChatGPT, the program has taken off in the past several months and asking how that may affect the industry going forward. Certainly, Ken Hughes has tremendous experience in using algorithms and some of the things for diagnosis and prognosis impact, but a lot of what we do is very clear in binary looking for an infection. Do you have it or do not. There are more autoimmune and other syndromes that may benefit more from AI algorithm diagnosis as well as things like cancer prognosis, which is an area that Ken's work directly can benefit for somebody. So I think we'll start to see that edge into disease condition outlooks for autoimmune and oncology. I don't see it being so disruptive in the infectious diseases areas in which we operate. But Ken, what are your thoughts about that?

Well, I mean that's a very specific application of AI type approaches. I mean anything where you're feeding the information and it's an AI situation, it could learn. If it's managed properly because obviously, AIs can go down blind allies as well, but they're going to be looking at the sufficiency of a therapy or a particular diagnostic process and the outcomes of that. I think when you're looking at the benefits of these types of activities, which oftentimes are hard to quantify or hot articulate, letting these types of analyses go is going to lead to a clear description for the healthy benefit if you asking about the diagnostic industry as a separate descriptor to the general human kind of health economic evaluation. So that's a big -- at the bigger level. Obviously, AI in terms of delineating targets is something where the world the scientific world is going and so it should. And as long as it's managed properly, it's going to lead to a benefit. We all -- I think we all intuitively know and there's enough work on this, that describe the long-term benefit of doing diagnostics right and stopping people being false negatives, and therefore, getting [ LNB ] expensive down the line as well as dying, which is a bad thing is obviously a benefit. And we can -- any mechanism by which we can determine that and confirm that is going to drive the thought processes of the people who make the decision makers in power.

Yes. And what 1 area that AI might come into, I'm just thinking about our areas, it would be really nice if AI starts to get applied to the economic decisions or the health economics decisions and really look at what is the value of diagnostics rather than what is the cost associated with it? If you spend dollars or tens of dollars to get a definitive diagnosis fast and accurately, you can save thousands, tens of thousands, even hundreds of thousands of dollars to the system and avoid somebody being hospitalized or dying. So I'd certainly love to see some of that come to bear in decision-making and saying, where are the real health economic values because diagnostics to me is really big is a really big area of where it's underrated in terms of the value that it creates. So -- then we'll move to the next question. Asking us to elaborate a little bit on the recent granted loan from Ontario and Canada and where we plan to use this money. And the question really relating are we just about building capacity or is this more direct strategic? So Ken, maybe I can ask you to jump in here.

Well, I mean, we're at a point now where we could -- I mean, you could kind of just stay where we are and not grow from there. But there are multiple SKUs in multiple directions. In the last 3 years, we've changed our product menu quite significantly, and that's based on the application of good science and manufacturing processes. So the moneys that were granted and [ loans interest-free ] from OTF and FedDev respectively are to build out specific technical capabilities in manufacturing, which are additive to what we currently have and future-proof the company to term I'll use a lot, we're not going to stand in the steady state. There's a huge opportunity to be addressed here and we're going to be ready to address it. We're not going to have somebody come to and say, "Oh, can you make this -- area?" Well, no, we haven't got the capacity to do that. That would be rather foolish. And it would not support the development activities and the creative development activities are currently underway at Microbix as well for the new product lines that are coming down the pike. So to answer the question directly, we're not going to get a new building or anything. We're going to build it within the buildings we have, we're going to build new capabilities like the CL3 lab we talked about. We're going to refurb the rather all building at 265 Building 1 for additional capacity and build new R&D in QC and manufacturing space in 275. It's not on square footage, but it's a whole lot of capabilities. And that's going to allow us to address that $20 million, $50 million, $100 million objective. Cameron and I talked about it earlier. That's what it's about, it's about future proofing and capacity building not just for fun, but because we have that much market opportunity coming at us and more that we haven't even realized this yet.

Yes. And there's a whole bunch of different areas where you can reach pinch points in the business. We can have a customer come to us and say, My gosh, I've realized I have an acute need and can you do this for -- you need to have some capacity to be able to react quickly and get that piece, not just that piece of business, but open the relationship with that potential new customer. And that might require a fast response from product development and R&D, a fast response from product management in driving what is the definitional term of that manufacturing to move that into validation QC and QA to create -- to be able to create assays and be able to release product and have technical files for regulatory purposes. So all of this needs to be in place, and we've now been building it and increasing the capabilities of case on all those levels. So this is the kind of work that those grant funds have gone for. And likewise, there's a follow-on question that flows from that relating to VTM capacity, and say, Gosh, you've got all this capacity and we're not filling much VTM these days. What are we doing, well, that's -- this is a filling lot. We used to -- it used to be considered gosh, doing 100,000 files a year of filling and that was seeming a lot of work. We created the systems. Our teams create systems on a semi-automated basis to do the same amount of filling in week that we used to do in a year and do that as under a fully regulated environment. And now we're looking at increasing that capacity further. And that isn't just about VTM that can be all sorts of consumables, reagents for our customers associated with their business much more broadly. So the capacity we're building is very flexible whether that's applied to sample collection devices, whether that's apply to other test consumables, whether that's liquid controls, whether that's swab-based controls, and we've got to be in a position if somebody says, I love what you're doing I needed 10 times the capacity you're now producing at, can you do it? You've got to be able to show that we've got a viable plan to get from the current scaling to this kind of scaling that we're -- that our customers need. So it's creating systems, it's creating capacity, it's creating expertise and bandwidth and brain band as well. Got enough sharp lines in building that know our business that can quickly task to help world-leading customers and can't usually be identified precisely we were working with, but these are amongst the largest companies in our field in the world. So we're very privileged and pleased to be working. And we certainly see the economic potential and the health care benefits of working with people on a scale. I have a very -- go ahead.

It's not just capacity in terms of throughput of an individual. It's not a case of necessarily you're making 1 and then making 10 and making 100 that's part of it. It's capacity and differential expertise to play in different markets and address those opportunities and maybe bring the separate expertise together to synergize new opportunities. The capacity is not just volume, it's also expertise. And that's what's going to create the opportunities going forward.

And also, Jim, with respect to costs, really looking at are we creating things on an artisanal basis more on industrial scale and how that affects the cost and in turn, what business we could secure. You're on mute Jim.

I realized that I didn't really have any thing to add. Just got it. Got it, yes. You're correct. Certainly, anything that we can do to improve our cost base and be able to deliver stronger margins is also something that we look at on a regular basis.

Yes. Thank you, Jim. That's great. The next question we have is quite specific asking any update on timing of QAPs shipments for the large diagnostic test maker. Yes. As I mentioned previously, there was quite a bit of iterating going on, on the design of the test cartridges as it were in finalizing those and until those specifications were fully locked in for each menu of tests, we were consequently unable to lock in the formulation for the controls and specifications for our swab-based test controls. I'm very pleased to say that those -- at least the first couple of such tests have been locked in, which means we've now moved from product development charges, which are nice, but not what we get dressed up for through to producing multiple validation lots to support regulatory approvals of those menu tests and those are shipping this quarter have been shipping this quarter. And then we'll be seeing additional more additions to the menu of different tests. And those, in turn, will move to validation lots. We're the ones that have already -- where we've already provided validation lots, we'll move to stocking orders for launch and then restocking orders. So again, moving through the normal business cycle to see. And so we do see that revenue build occurring, albeit over a longer time frame than initially foreseen. But it is very much happening, and it's very nice to see that happening and those are moving into 6-figure numbers, orders that will ultimately progress to 7 figures and beyond. So very nice to see that happening, and thank you for the question. Another question I had previously been looking at a fourth building for increasing QAPs production. And will we now be doing the same level of expansion with the rebuildings. Yes, we had been looking at a fourth building. It decided we pulled back a little bit on with a softer first quarter and say lays in scale up. We felt we might have been getting a little bit ahead of ourselves by taking on a fourth building at this time. And we also look at the economic situation and we're feeling that we might have been hitting the top of the market in terms of commercial [indiscernible]. Have you pulled the trigger on that in late 2022. So we did pull back from that as we gained a bit of visibility around our Q1 December, the quarter ended December 31. So we're looking at using every -- all of the available space we can spare within our current 3 facilities, and we'll continue to evaluate the prospect of fourth site, but we would have been looking at a significant period where that capacity wouldn't have been strip [indiscernible]. You kind of want to get to 60%, 70% of capacity utilization, it could be far enough ahead to be able to jump out on that. But we might be quicker if we end up planning another big piece of business see more capacity getting consumed a little bit faster. So it continues to be a moving target. I wouldn't rule it out, but we did decide to defer taking on a fourth site. Then I think it was the right decision. I see Jim noding.

From an operational perspective, we are building out the high-end manufacturing, development and testing space in building 3. The truth of the matter is it's a lot easier to get a warehouse than it is to get a fully loaded CL2 lab. And so we'll build that capability there and as we need to acquire warehouse space, then we will. But we'll build it in that way. The idea is to have the high-end space in our control right now.

Yes. Very good. Got a question on DxTM, our viral transport mediun, whether it's competitive versus U.S. producers. And I would say, yes, it is very much competitive with U.S. producers. It's competitive, both on its quality and it's competitive on its cost of price as well. That said, pursuing the U.S. market is not our focus currently where we see supply chains are really looking to say, is it within my own country? And am I having , can I appoint any risk that somebody just says no, my citizens come first, your supply is cut off. So really, our advantages. We want to make sure we regain the clarity we'd hoped to achieve earlier with regards to providing for Ontario, look to be able to get some baseload supply for other provinces and likewise, utilize as we indicated that filling line for production, some other products related to the industry, but maybe not strictly in sample collection also. So fully competitive internationally in quality and price, but the focus on the domestic market. And next question, QAP customer base to expand and diversify, when do we expect it to expand and diversify. It's moving quickly in that direction. There was 1 additional customer that we had thought we were going to land some business from. They wanted us to do an inordinate amount of work for free without a guarantee of further business and we declined. And we said we have many calls on our time and many customers that we want to be working with, but we're not we're not doing it in a northern amount of work without getting paid for it, without greater certainty of ultimate revenues. So there is tremendous engagement even today, our team is at an international conference in Toronto doing business development and we'll be at the ECCMID conference in a few weeks, the ASM conference in June and they are literally -- I'll be traveling in May. There is literally contact going on a daily basis with all on the order of -- Well, a couple of dozen large international companies. And some of those will be on their what are called their IFUs or their instructions for use, so they'll be directing the buyers of their instruments and tests, when you need controls, you order them for Microbix here is the catalog number. And then some of them we'll be looking at creating products on a white label basis that actually go into their kits, which is a more predictable stream of business and more desirable, but not as high margin as the other. So lots going on. And price competition, there's a lot we're doing here that is unique in terms of the formulations capabilities and thus far, we do not see -- we obviously have to be competitive with what the end user will pay what the payer for the test will provide. We're very conscious of that. But we have not seen a lot of direct competition with what we're doing due to the technical nature of that and the intellectual property associate. And we're just -- question with the move from paper to electronics, thought given to having an on-site generator for electricity backup. Hell, yes. We have what's called an uninterruptible power supply, so we have at our principal site where that sort of work is required. We have a massive lithium-ion battery bank that takes the full building load within a few milliseconds in order there's absolutely no disruption to any of our equipment or processes. And then that is immediately with -- that is a natural gas generator sufficient to support the whole building immediately comes up. And once the voltage drops generator and amperage will stabilizes, there is a handoff from the battery bank to the generator. So literally, our shop can run as long as there is gas in the grid indefinitely off-grid power. So we're already way ahead on that.

So this is a great question because obviously, the electronic systems we're putting in place are on the cloud and managed by people that are working with [ anywhere ], so the security in a path. But to Cameron's point there and the point about continuous power, we are operating pressurized to [ bought diesel ] at all times. And people are -- sometimes the products are protected for people and sometimes the people who protect from product. And you kind of be having systems shut done because of a power for any period of time. So that's why we have the [ battery pack open ] and we have the generator in place. We've had that for a long time. So it's seamless so to it's possible for people to be caught without any power. And therefore, this is potentially exposed to a pathogenic agent doing that work. That's part of what we do. But again, that system applies to everything, but anywhere the -- software as a solutions on the cloud.

Yes. And we likewise have systems backups, but we also have liquid nitrogen backups for freezers. We have off-site duplicate storage for critical biological cell banks and seed banks. So there's a lot with the business continuity and resiliency is a big part of planning and in fact, is one of working on some of those and perfecting those plans is a key priority for Ken this year on his strategic deliveries.

Absolutely. And we, of course, have real-time monitoring in all of the key pieces of equipment we call out and add to Cameron's point we want to make sure the freezers don't go in on the left for a weekend, so vital product can melt. That's not -- that's just not allowed.

Yes. So yes, so lots of great questions. Thank you all so much. And I see we've still got a full house listening. So I'm just going to say 1 final thing, and we'll do a last round for questions. I'll just do a little shout-out to Phil Casselli to wish him a happy birthday today and we'll also be posting a social insurance number and bank account information online for those who have stocking on the [ Phil ], so well, I'm kidding. Well, with that, I see we've got 1 last question. And the question is, is the Kinlytic negotiation down to just finalizing with 1 potential partner at this time. Very specific question, I would say the answer to that would be yes. and I'm just going to leave it there. So with that, I would -- well, hold on, we've got another question. Now that is answered. I'm just dismissed that. So with that, I would just thank everybody for your ongoing support to the management and the Board of Directors. We take our jobs very seriously as stewards of our capital, and we're working very hard, and I hope very smart to continue building the true fundamental value of the company and for sustained long-term [ wealth creation ] for everybody and health creation for everybody as well. So thank you, one and all. And do follow up with us through Adelaide Capital or directly. Should you have further questions, and we look forward to further reports of results and disclosure of material information. Thank you, thank you everybody.

Thanks all.

Thank you, everyone.

Bye-Bye.

Bye.