10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2016

 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________

Commission File Number: 000-50571

Response Biomedical Corp.

(Exact name of registrant as

specified in its charter)

Vancouver, British Columbia, Canada	98 -1042523
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1781 - 75^th Avenue W.

Vancouver, British Columbia, Canada, V6P 6P2

(Address of principal executive offices)

(604) 456-6010

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  ☒   No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 

    Yes  ☒   No  ☐

Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer   ☐ (Do not check if a smaller reporting company)	Smaller reporting company ☒

Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act:              Yes  ☐   No  ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 10,917,269 as of November 1, 2016.

I 

Response Biomedical Corp.

Index to Form 10-Q

PART I.	FINANCIAL INFORMATION	2
ITEM 1.	FINANCIAL STATEMENTS	2
CONSOLIDATED BALANCE SHEETS		3
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)		4
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT		5
CONSOLIDATED STATEMENTS OF CASH FLOWS		6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS		7
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	18
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	28
ITEM 4.	CONTROLS AND PROCEDURES	29
PART II.	OTHER INFORMATION	30
ITEM 1.	LEGAL PROCEEDINGS	30
ITEM 1A.	RISK FACTORS	30
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	44
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	44
ITEM 4.	MINE SAFETY DISCLOSURES	44
ITEM 5.	OTHER INFORMATION	44

 II

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements relating to future events and our future performance within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  In some cases, you can identify forward-looking statements by terms such as "may", "will", "should", "could", "would", "hope", "expects", "plans", "intends", "anticipates", "believes", "estimates", "projects", "predicts", "potential" and similar expressions intended to identify forward-looking statements. These forward-looking statements include, without limitation, statements relating to future events, future results, and future economic conditions in general and statements about:

● Our ability to successfully continue as a going concern, given the extremely challenging market conditions we are facing;

● Our ability to receive the necessary approvals from the regulatory bodies in the People’s Republic of China in order to complete the arrangement described in note 2 of the consolidated financial statements in Item 1;

● Whether and how long our existing working capital and cash flows will be sufficient to fund our operations;

● Our ability to meet the milestones required by our collaboration agreement with Joinstar;

● Our ability to meet the covenants required by our debt obligations;

● Our ability to raise additional capital through equity and debt financings in order to continue as a going concern;

● Our future strategy, structure, and business prospects and our ability to retain distributors and increase product sales in existing and new markets;

● The development of new products, regulatory approvals of new and existing products and the expansion of the market for our current products;

● Implementing aspects of our business plan and strategies;

● Our ability to attain and maintain profitability; and

● Our financing goals and plans.

These statements involve known and unknown risks, uncertainties and other factors, including the risks described in Part II of this Quarterly Report on Form 10-Q, which may cause our actual results, performance or achievements to be materially different from any future results, performances, time frames or achievements expressed or implied by the forward-looking statements.  Given these risks, uncertainties and other factors, you should not place undue reliance on these forward-looking statements.  Information regarding market and industry statistics contained in this Quarterly Report on Form 10-Q is included based on information available to us that we believe is accurate.  It is generally based on academic and other publications that are not produced for purposes of securities offerings or economic analysis.  We have not reviewed or included data from all sources and cannot assure you of the accuracy of the market and industry data we have included.

Unless the context indicates or requires otherwise, in this Quarterly Report on Form 10-Q, references to the “Company” or “Response Biomedical” shall mean Response Biomedical Corp. References to “$” or “dollars” shall mean Canadian dollars and in thousands where indicated.

1

PART I.     FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS

Response Biomedical Corp.

Consolidated Financial Statements

(Unaudited)

(Expressed in Thousands of Canadian dollars, Except Share Data)

As of September 30, 2016 and December 31, 2015 and for the Three and Nine Month Periods Ended September 30, 2016 and 2015.

-2-

RESPONSE BIOMEDICAL CORP.

CONSOLIDATED BALANCE SHEETS

[See Note 2 - Basis of Presentation and Going Concern Uncertainty]

(Unaudited)

(In thousands of Canadian dollars)

	September 30, 2016			December 31, 2015
		$			$
ASSETS
Current
Cash and cash equivalents		1,346			2,511
Trade receivables, net		425			466
Other receivables		35			100
Inventories [note 5]		2,121			1,819
Prepaid expenses and other		898			182
Total current assets		4,825			5,078
Long-term prepaid expenses		93			93
Restricted deposits [note 8]		317			901
Property, plant and equipment		5,115			5,689
Total assets		10,350			11,761
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current
Accounts payable and accrued liabilities [note 6 ]		4,083			3,297
Term loan - current portion [note 7]		534			801
Lease inducements - current portion [note 8]		169			169
Repayable leasehold improvement allowance - current portion [note 8]		558			514
Deferred revenue		1,994			1,311
Warrant liability [notes 4 and 9]		1			301
Total current liabilities		7,339			6,393
Term loan [note 7]		-			357
Lease inducements [note 8]		901			1,028
Repayable leasehold improvement allowance [note 8]		4,270			4,694
		12,510			12,472
Commitments [note 11]
Shareholders' deficit
Common shares [note 9]		105,010			104,314
Additional paid-in capital [note 9]		15,639			15,384
Deficit		(122,809	)		(120,409	)
Total shareholders' deficit		(2,160	)		(711	)
Total liabilities and shareholders' deficit		10,350			11,761

See accompanying notes

-3-

RESPONSE BIOMEDICAL CORP.

CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(In thousands of Canadian dollars, except share data)

	Three Months Ended September 30,						Nine Months Ended September 30
	2016			2015			2016			2015
		$			$			$			$
REVENUE
Product sales [note 12]		1,528			2,425			4,885			9,259
Collaborative revenue [note 10]		56			1,103			225			2,075
Total revenue		1,584			3,528			5,110			11,334
Cost of sales [notes 5, 9, and 11]		923			1,423			2,898			5,719
Gross profit		661			2,105			2,212			5,615
EXPENSES [notes 9 and 11]
Research and development		321			786			1,302			2,220
General and administrative		571			596			2,030			1,952
Sales and marketing		359			493			1,176			1,626
Total operating expenses		1,251			1,875			4,508			5,798
OTHER EXPENSES (INCOME)
Interest expense and amortization of deferred financing costs and debt discount [note 7]		165			215			533			675
Other expenses		4			10			35			10
Foreign exchange loss (gain)		35			166			(164	)		300
Unrealized gain on revaluation of warrant liability [note 4]		(964	)		(890	)		(300	)		(795	)
Total other (income) expenses		(760	)		(499	)		104			190
Net income (loss) and comprehensive income (loss) for the period		170			729			(2,400	)		(373	)
Earnings (loss) per common share - basic [note 9]		0.02			0.07			(0.23	)		(0.04	)
Earnings (loss) per common share - diluted [note 9]		0.02			0.07			(0.23	)		(0.04	)
Weighted average number of common shares outstanding - basic [note 9]		10,917,269			9,925,256			10,303,598			9,863,609
Weighted average number of common shares outstanding - diluted [note 9]		11,173,374			10,037,745			10,303,598			9,863,609

See accompanying notes

-4-

RESPONSE BIOMEDICAL CORP.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT

(Unaudited)

(In thousands of Canadian dollars, except share data)

	Common Stock Issued and Outstanding			Additional paid in capital			Deficit			Total Shareholders' Deficit
	# of shares		$		$			$			$
Balance at December 31, 2014		9,759,560	104,124		15,241			(120,259	)		(894	)
Net loss		-	-		-			(150	)		(150	)
Net shares issued upon conversion of restricted share units		165,696	190		(190	)		-			-
Stock-based compensation expense		-	-		218			-			218
Restricted share units		-	-		115			-			115
Balance at December 31, 2015		9,925,256	104,314		15,384			(120,409	)		(711	)
Net loss		-	-		-			(2,400	)		(2,400	)
Private Placement, net of issue costs		892,858	599								599
Net shares issued upon conversion of restricted share units		99,155	97		(97	)		-			-
Stock-based compensation expense		-	-		178			-			178
Restricted share units		-	-		100			-			100
Deferred share units					74						74
Balance at September 30, 2016		10,917,269	105,010		15,639			(122,809	)		(2,160	)

See accompanying notes

-5-

RESPONSE BIOMEDICAL CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands of Canadian dollars)

Nine Months Ended September 30,	2016			2015
OPERATING ACTIVITIES		$			$
Net loss for the period		(2,400	)		(373	)
Add (deduct) items not involving cash:
Depreciation of property, plant and equipment		709			753
Amortization of deferred lease inducements		(127	)		(127	)
Amortization of deferred financing costs		36			71
Amortization of discount on debt		22			42
Stock-based compensation		178			160
Unrealized loss (gain) on revaluation of warrant liability		(300	)		(795	)
Unrealized foreign currency transactions		(87	)		408
Changes in non-cash working capital:
Trade receivables		41			262
Other receivables		65			(22	)
Inventories		(302	)		(46	)
Prepaid expenses and other		22			39
Accounts payable and accrued liabilities		183			(251	)
Deferred revenue		665			661
Cash (used in) generated from operating activities		(1,295	)		782
INVESTING ACTIVITIES
Purchase of property, plant and equipment		(50	)		(410	)
Reduction of restricted cash		584			0
Cash provided by (used in) investing activities		534			(410	)
FINANCING ACTIVITIES
Repayment of repayable leasehold improvement allowance		(380	)		(341	)
Repayment of term loan		(624	)		(397	)
Proceeds from issuance of common shares, net of share issue costs		599			0
Cash used in financing activities		(405	)		(738	)
Effect of exchange rate changes on cash and cash equivalents		1			23
Decrease in cash during the period		(1,165	)		(343	)
Cash and cash equivalents, beginning of period		2,511			3,221
Cash and cash equivalents, end of period		1,346			2,878

See accompanying notes

-6-

RESPONSE BIOMEDICAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. DESCRIPTION OF BUSINESS

Response Biomedical Corp. (“Response” or the “Company”) was incorporated on August 20, 1980 under the predecessor to the Business Corporations Act (British Columbia). The Company’s wholly owned US subsidiary, Response Point of Care Inc., was incorporated on November 9, 2012 in the State of Delaware. The Company is engaged in the research, development, commercialization and distribution of diagnostic technologies for the medical point of care (POC), laboratory and on-site environmental testing markets. POC and on-site diagnostic tests (or assays) are simple, non-laboratory based tests performed using portable hand-held devices, compact desktop analyzers, single-use test cartridges and/or dipsticks. Since 1996, the Company has developed and commercialized a proprietary diagnostic system called RAMP^®.

The RAMP^® System is a portable fluorescence immunoassay-based diagnostic technology that combines the performance of a clinical lab with the convenience of a dipstick test, establishing a new paradigm in diagnostic testing. Immunoassays are extremely sensitive and specific tests used to identify and measure small quantities of materials, such as proteins. A large variety of biological molecules and inorganic materials can be targeted. Accordingly, the RAMP^® technology is applicable to multiple distinct market segments and many products within those segments. RAMP^® tests are commercially available for use in the early detection of heart attack, congestive heart failure, thromboembolism, sepsis, influenza A+B, the respiratory syncytial virus, environmental detection of West Nile Virus and Dengue Virus antigen, and biodefense applications including the rapid on-site detection of anthrax, smallpox, ricin and botulinum toxin.

2. BASIS OF PRESENTATION AND GOING CONCERN UNCERTAINTY

These unaudited interim consolidated financial statements have been prepared by management in Canadian dollars in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required to be presented for complete financial statements. The accompanying unaudited consolidated financial statements reflect, in the opinion of management, all adjustments (which include reclassifications and normal recurring adjustments) necessary for a fair presentation of the results for the interim periods presented. The accompanying consolidated balance sheet at December 31, 2015 has been derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year then ended. The consolidated financial statements and related disclosures have been prepared with the assumption that users of the interim financial information have read or have access to the audited consolidated financial statements for the preceding fiscal year. Accordingly, these unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2015 and filed with the United States Securities and Exchange Commission (“SEC”) on March 24, 2016.

Going Concern Uncertainty

The accompanying financial statements have been prepared assuming the Company will continue to operate as a going concern, which contemplates the realization of assets and liabilities and commitments in the normal course of business.

During the nine month period ended September 30, 2016, the Company incurred a net loss of $2.4 million and negative cash flows of $1.2 million. As of September 30, 2016, the Company had a cash balance of $1.3 million, an accumulated deficit of $122.8 million, a shareholders’ deficit of $2.2 million, and a working capital deficit of $2.5 million. In addition, the Company has operating lease commitments of approximately $200,000 per month and outstanding purchase commitments for inventory and capital equipment of $1.8 million(refer to note 11).

Sales to the Company’s largest market, China, have decreased by 77%, or $4.7 million, during the nine month period ended September 30, 2016 due to a decrease of sales to the Company’s former national distributor in China. The majority of the purchases of products in China from the Company in the first nine months of 2016 were in satisfaction of rebates earned by this distributor that were accrued in 2015. The Company received the payment for these products in 2015 and therefore, no additional cash was received during 2016 for these products. No returns of the products purchased by the former national distributor are either expected or permitted under the terms of its distribution agreement. The Company converted this distributor’s national distribution rights to non-exclusive effective March 3, 2016. The Company has now contracted with new distributors in China, including Shanghai Runda Medical Technology Co., Ltd. (“Runda”), to attempt to improve our current sales levels. Sales to Runda have started in the third quarter of 2016.

-7-

The Company announced on June 16, 2016 that it has entered into a definitive arrangement agreement (the “Arrangement”) with 1077801 B.C. Ltd., a company owned by OrbiMed Asia Partners, LP, OrbiMed Private Investments III, LP, OrbiMed Associates III, LP, OrbiMed Advisors LLC, OrbiMed Advisors Limited and Samuel D. Isaly (together “OrbiMed”) and Runda pursuant to which 1077801 B.C. Ltd. will acquire all of the issued and outstanding common shares of the Company for cash consideration of $1.12 per share (except in the case of certain rollover shareholders who will instead receive shares of 1077891 B.C. Ltd. on a 1 to 1 basis). This transaction was approved by 99.98% of the votes cast in person or by proxy at the Special Meeting held on September 16, 2016 and by 99.88% of the shareholders’ votes cast, excluding shareholders whose votes may not be included pursuant to Multilateral Instrument 61-101. Court approval for the transaction was received on September 19, 2016. The closing of this transaction is subject to receiving the necessary approvals from the regulatory bodies in the People’s Republic of China in order to complete the Arrangement. Following the closing of this transaction, the Company intends to de-list from the Toronto Stock Exchange (“TSX”).

Concurrent, with the above transaction, the Company entered into subscription agreements to undertake a non-brokered private placement financing of up to 1,785,716 common shares of the Company (the “Private Placement”) at a price of U.S. $0.56 per share for total gross proceeds of approximately U.S. $1,000,000. Pursuant to the Private Placement, Response completed the first tranche of U.S. $500,000 on June 17, 2016 with the OrbiMed funds. Response has entered into subscription agreements with Runda where Runda may subscribe for 892,858 Response Common Shares for total gross proceeds to the Company of approximately U.S. $500,000. The Runda subscription is subject to receiving the necessary approvals from the regulatory bodies in the People’s Republic of China and has not been completed yet.

To address the actual and expected near term reduction in product sales in China during this transition period and the resulting significant deterioration of the Company’s near term cash position, in addition to the Private Placement, the Company has implemented several cash conservation and cost reduction initiatives including reducing staff levels and delaying certain research and development projects to extend its available cash resources. While the Company is pursuing these various initiatives, there is no assurance that these efforts will allow the available cash resources to be sufficient to fund the Company’s operations.

The ability of the Company to continue as a going concern is uncertain and dependent on the Company’s ability to complete the Arrangement, obtain additional financing, earn collaboration milestones and/or achieve sustained cash flow positive operations. Management has financed operations, thus far, through a series of equity financings, debt financing, and collaborative arrangements. The Company has received milestones totaling US$3.0 million to date from a collaborative agreement with Hangzhou Joinstar Biomedical Technology Co., Ltd. the (“Joinstar Agreements”) and is eligible to receive a further US$0.8 million from the last development milestone during the remaining project period. In addition, under the terms of a Supply Agreement with Joinstar, Response is eligible to receive a guaranteed US$1.78 million in revenue-based payments over the first five years of commercialization of the co-developed assays.

The Company is striving to meet its ongoing cash needs through continued efforts to improve sales in China and other markets, reduce costs and otherwise conserve cash, and raise additional financing through the private placement mentioned above. Without additional financing, the Company’s current cash may not be sufficient to allow the Company to continue as a going concern beyond the fourth quarter of 2016. Management believes that additional financing along with a combination of some or all of the various cost reduction, cash conservation, sales and marketing initiatives, and completion of our collaboration with Joinstar, including short term out of the ordinary cash management measures, will be required to meet its anticipated short term cash requirements. Due to the Company’s history of losses, recent significant decreases in China product sales, and current major transition of distributors in China, there is substantial doubt over the Company’s ability to continue as a going concern as it is dependent on obtaining additional financing and achieving profitable operations, the outcomes of which cannot be predicted at this time. The consolidated financial statements do not include any adjustments to the amounts and classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern. Such adjustments could be material.

3. RECENT ACCOUNTING PRONOUNCEMENTS

Newly Adopted Accounting Pronouncements

In April 2015, the FASB issued ASU 2015-03, Interest-Imputation of Interest (Subtopic 835-30) (“ASU 2015-03”). ASU 2015-03 was issued to simplify the presentation of debt issuance costs. The guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by these amendments. This guidance should be applied on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The adoption of this newly issued guidance resulted in the reclassification of the previously recorded Deferred Debt Financing Costs (both current and long term), which were previously included under the assets section of the consolidated balance sheet, as a deduction of the Term loan (both current and long term) on the consolidated balance sheet.

-8-

Accounting Pronouncements Not Yet Adopted

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” (Topic 606) (“ASU 2014-09”), which supersedes the revenue recognition requirements in Accounting Standards Codification 605, “Revenue Recognition.” ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. It also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. On July 9, 2015, the FASB decided to delay the effective date of the new standard by one year. ASU 2014-09 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We are evaluating the impact of adopting this pronouncement.

In July 2015, the FASB issued ASU No. 2015-11, “Simplifying the Measurement of Inventory,” (Topic 330) (“ASU 2015-11”), which amends the guidelines for the measurement of inventory. Under the amendments, an entity should measure inventory valued using a first-in, first-out or average cost method at the lower of cost and net realizable value. Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. ASU 2015-11 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. The Company has not chosen early adoption for this ASU and is currently evaluating the impact of adopting this pronouncement.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 2015-40) (“ASU 2014-15”). ASU 2014-15 provides guidance to U.S. GAAP about management’s responsibility to evaluate whether there is a substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. This new rule requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles currently in the U.S. auditing standards. Specifically, ASU 2014-15 (1) defines the term substantial doubt, (2) requires an evaluation of every reporting period including interim periods, (3) provides principles for considering the mitigating effect of management’s plans, (4) requires an express statement and other disclosures when substantial doubt is not alleviated, and (5) requires an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). This guidance is effective for annual periods ending after December 15, 2016. The Company is currently evaluating the potential effect of this ASU on its financial statements and related disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 requires lessees to put most leases on their balance sheets as a liability for the obligation to make lease payments and as a right-of-use asset, but recognize expenses on the income statements in a manner similar to today’s accounting. The guidance also eliminates the current real estate-specific provisions for all entities. This guidance is effective for annual period beginning after December 15, 2018. Early adoption is permitted for all entities. The Company has not chosen early adoption for this ASU and is currently evaluating its effect on the Company’s consolidated financial statements.

4. FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (“exit price”) in an orderly transaction between market participants at the measurement date. Fair value measurements of financial instruments are determined by using a fair value hierarchy that prioritizes the inputs to valuation techniques into three levels according to the relative reliability of the inputs used to estimate the fair values.

The three levels of inputs used to measure fair value are as follows:

Level 1 – Unadjusted quoted prices in active markets for identical financial instruments;

Level 2 – Inputs other than quoted prices that are observable for the financial instrument either directly or indirectly; and

Level 3 – Inputs that are not based on observable market data.

In determining fair value measurements, the Company uses the most observable inputs when available.

For certain of the Company’s financial instruments, including cash and cash equivalents, trade receivables, other receivables, and accounts payable and accrued liabilities the carrying amounts approximate fair values due to their short-term nature. The carrying value of the restricted deposits approximates its fair value due to the nature of the cash deposit. The fair value of the term loan approximates its carrying value as the effective interest rate in the term loan with Silicon Valley Bank (“SVB”) approximates the current market rate for the term loan. The fair value of the repayable leasehold improvement allowance approximates its carrying value as the fixed interest rate of 11% is considered to approximate the current market rate.

-9-

The fair value hierarchy level at which a financial instrument is categorized is determined on the basis of the lowest level input that is significant to the fair value measurement (in thousands):

Financial Instruments carried at fair value as of September 30, 2016

	Level 1		Level 2		Level 3		Total
Liabilities		$		$		$		$
Warrant Liability		-		-		1		1

As of September 30, 2016, the warrant liability is recorded at its fair value of $1,000. The Company reassesses the fair value of the common stock warrants at each reporting date utilizing a Black-Scholes pricing model. Inputs used in the pricing model include estimates of stock price volatility, contractual term of the warrant, and risk-free interest rate (refer to note 9[g]). The computation of expected volatility is based on the historical volatility of the Company’s stock. A small change in the estimates used in the Black-Scholes pricing model may have a relatively large change in the estimated valuation of the common stock warrants.

The following table presents the changes in fair value of the Company’s total Level 3 financial liabilities for the nine month period ended September 30, 2016 (in thousands):

	Balance at December 31, 2015		Unrealized gain			Balance at September 30, 2016
Warrant Liability		301		(300	)		1

Quantitative information about unobservable inputs used in Level 3 fair value measurements is presented below:

	Valuation Technique	Unobservable Input	As at September 30, 2016			As at December 31, 2015
Warrant Liability	Option Model	Stock Price Volatility		19	%		128	%

A 5% increase or decrease in stock price volatility would cause a nominal change to the Warrant Liability ($32,000 – December 31, 2015).

5. INVENTORIES

Inventories are comprised of the following (in thousands):

	September 30, 2016		December 31, 2015
		$		$
Raw materials		830		1,083
Work in progress		610		328
Finished goods		681		408
		2,121		1,819

The carrying value of inventory as of September 30, 2016 includes a write-down and a provision for expired, obsolete, and damaged inventory in the amount of $86,000 [December 31, 2015 - $51,000]. For the three and nine month period ended September 30, 2016, inventory write-downs and obsolescence charges were $73,000 and $122,000 [2015 - $68,000 and $196,000].

6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities comprise (in thousands):

	September 30, 2016		December 31, 2015
		$		$
Trade accounts payable		1,696		966
Employee related accounts payable and accrued liabilities		981		1,035
Royalties		448		325
Other accrued liabilities		958		971
		4,083		3,297

Accounts payable and accrued liabilities include $85,000 [December 31, 2015-$8,000] of additions to property, plant, and equipment and $741,000 [December 31, 2015 – $22,000] of deferred charges as at September 30, 2016. These amounts have been excluded from cash generated from investing activities and cash used in operating activities respectively on the consolidated statements of cash flows for the nine months ended September 30, 2016, as the cash had not been disbursed.

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7. TERM LOAN

On February 11, 2014, the Company entered into a loan and security agreement with SVB providing for up to a US$2.5 million term loan. The loan is secured by substantially all of the assets of the Company. The loan included financial covenants that were later removed in an amendment (refer to discussion below). The loan also includes certain non-financial covenants as well as a subjective acceleration clause. Under the terms of the original loan agreement, the loan bears an interest rate of Wall Street Journal Prime Rate plus 2.5% annually. Interest only payments were made until October 1, 2014 at which time, 32 equal monthly installments of principal plus accrued interest started to be made. On December 15, 2014, the Company entered into an amendment to the original loan agreement with SVB. Under the amendment, SVB agreed to continue to advance the remaining outstanding principal of US$1.4 million for the same term and interest rate under the original agreement. In addition, SVB waived its rights in respect of certain breaches and removed any future financial covenants. Interest only payments were made until April 1, 2015, at which time, 26 equal monthly installments of principal plus accrued interest are being made through to maturity on May 1, 2017. In addition, the Company will pay an additional final payment of up to 4% of the outstanding principal advanced upon repayment. The loan contains a voluntary prepayment option whereby the principal amount can be prepaid in whole, or in part, for a fixed fee if a prepayment is made on or before December 15, 2016.

In connection with the original loan and amendment discussed above, 107,701 warrants with exercise prices ranging from $1.00 to $1.831 per warrant and a term of 10 years were granted to SVB. These warrants were measured at their fair market value using the Black-Scholes model on the date of their grants and had a combined estimated fair market value of $113,000, which was recorded as a debt discount that is being amortized into income over the term of the loan using the effective interest method. In addition, there were $233,000 of fees related to the term loan that are also being amortized over the term of the loan using the effective interest method.

Amortization of the deferred financing costs for the three and nine month periods ended September 30, 2016 were $9,000 and $36,000 (2015 – $21,000 and $71,000) and amortization of the debt discount for the three and nine month periods ended September 30, 2016 was $5,000 and $22,000 (2015 – $12,000 and $42,000). Both of these amounts are included in interest expense and amortization of deferred financing costs and debt discount on the consolidated statements of loss and comprehensive loss.

The term loan is comprised of the following amounts (in thousands):

	September 30, 2016			December 31, 2015
		$			$
Current portion of long-term debt		548			868
Current portion of unamortized deferred financing costs		(9	)		(42	)
Current portion of unamortized debt discount		(5	)		(25	)
Current portion of long-term debt, net debt discount		534			801
Long-term portion of term loan		-			362
Long-term portion of unamortized deferred financing costs		-			(3	)
Long-term portion of unamortized debt discount		-			(2	)
Long-term portion of term loan, net debt discount		-			357
Total		534			1,158

Future principal payments for the term loan as of September 30, 2016, are as follows (in thousands):

September 30,	$
2016	548
Total	548

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8. LEASE INDUCEMENTS

Lease agreements entered into by the Company for its offices provides for lease inducements to be provided by the landlord to the Company, which are summarized as follows (in thousands):

	September 30, 2016	December 31, 2015
	$	$
Current Portion
Rent-free inducement [i]	54	54
Non-repayable leasehold improvement allowance [ii]	115	115
	169	169
Repayable leasehold improvement allowance [iii]	558	514
Total Current Portion	727	683
Long-Term Portion
Rent-free inducement [i]	289	330
Non-repayable leasehold improvement allowance [ii]	612	698
	901	1,028
Repayable leasehold improvement allowance [iii]	4,270	4,694
Total Long-Term Portion	5,171	5,722
Total	5,898	6,405

The lease inducements disclosed on the consolidated balance sheets as a result of these benefits is comprised of the following:

[i]     In 2007, the Company entered into a long-term facility lease agreement that included an eight and one half month rent-free period from May 17, 2007 to February 1, 2008. The lease inducement benefit arising from the rent-free period is being amortized on a straight-line basis over the term of the operating lease as a reduction to rental expense. Amortization expense for the three and nine month periods ended September 30, 2016 amounted to $14,000 and $41,000 [2015 - $14,000 and $41,000].

[ii]     The Company received a non-repayable allowance for an amount of $1.7 million for expenditures related to general upgrades to the facility. The lease inducement benefit arising from the non-repayable leasehold improvement allowance is being amortized on a straight-line basis over the balance of the term of the lease beginning April 1, 2008 as a reduction to rental expense. Amortization expense for the three and nine month periods ended September 30, 2016 amounted to $29,000 and $86,000 [2015 - $29,000 and $86,000].

[iii]     The Company received a repayable leasehold improvement for an amount of $7.8 million used for additional improvements to the facility. This lease inducement is being repaid over the term of the operating lease commencing February 1, 2008 at approximately $89,000 per month including interest calculated at an interest rate negotiated between the Company and the landlord. Principal repayments for the three and nine month periods ended September 30, 2016 amounted to $130,000 and $380,000 [2015 - $117,000 and $341,000]. Interest payments for the three and nine month periods ended September 30, 2016 amounted to $135,000 and $416,000 [2015 - $149,000 and $455,000].

To secure the lease, the Company is maintaining a security deposit with the landlord in the form of an irrevocable letter of credit in the amount of $317,000 collateralized by a term deposit with a market value of $317,000 that is presented as part of restricted deposits in the long-term asset section of the balance sheets. The face value of the letter of credit was reduced by 67% in March 2016 from its original face value due to the Company achieving an operating profit during the year ended December 31, 2015. The reduction of $584,000 is included in cash generated from investing activities in the consolidated statements of cash flows.

9. SHARE CAPITAL AND ADDITIONAL PAID-IN CAPITAL

[a]     Authorized - Unlimited common shares without par value.

[b]     Issued

2016 Private Placement

On June 17, 2016, the Company closed the first tranche of a non-brokered private placement of 892,858 common shares at a price of U.S. $0.56 (the “Private Placement”) with a group of investment funds controlled by OrbiMed, the Company’s majority shareholder. The net proceeds were $599,000 after deduction of $44,000 of financing costs.

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[c]     Stock option plan

At the Annual General Meeting held September 3, 2008, the Company’s shareholders approved a stock option plan (“2008 Plan”). Under the plan, the Company may grant options to purchase common shares in the Company to employees, directors, officers and consultants of the Company. The exercise price of the options is determined by the Board to be equal to the fair market value of the commons shares on the grant date. The Company estimates the fair value of options on the date of the grant. The options vest over the requisite service period in accordance with terms as determined by the Board, typically over four years. Stock options expire no later than ten years from the date of grant.

At the Annual General and Special Meeting held on June 18, 2013, the Company’s shareholders’ approved a change to the Company’s 2008 stock option plan permitting the maximum shares authorized to be issued under the plan to be up to 20% of the issued and outstanding common shares outstanding at any point in time. At the Annual General and Special Meeting held on June 13, 2016, the Company’s shareholders’ approved all unallocated options, rights and other entitlements under the 2008 Plan and the ability of the Company to continue granting options under the plan.

Of the 2,183,453 stock options authorized for grant under the 2008 Plan as at September 30, 2016, options for 1,350,894 shares were outstanding and 832,559 stock options were available for future grant.

The following assumptions were used to estimate the fair value of options granted during the nine month period ended September 30, 2016, and 2015 using a Black-Scholes option-pricing model:

Nine Months Ended September 30,	2016			2015
Risk-free interest rates		1.04	%		2.04	%
Expected dividend yield		0	%		0	%
Expected life (in years)		5.71			5.88
Expected volatility		125	%		126	%
Fair value per stock option	$	0.74		$	1.33

The expected volatility reflects the assumption that the historical volatility of common stock of the Company over a period similar to the expected life of the options is indicative of future trends. The Company estimates the risk-free interest rate using the Bank of Canada bond yield with a remaining term equal to the expected life of the option. The Company uses the simplified method for estimating the stock option term for stock option grants during the nine month period ended September 30, 2016 as the Company has determined that the stock options are “plain vanilla” and historical share option exercises do not apply as the vesting term and contractual lives have significantly changed from those stock options exercised previously.

At September 30, 2016, the following stock options were outstanding:

Range of exercise price			Number of shares under option		Weighted average remaining contractual life		Weighted average exercise price		Number of options currently exercisable		Weighted average exercise price
		$	#		(years)			$	#			$
0.60	-	0.92		658,155		8.83		0.73		172,249		0.78
1.02	-	1.80		217,948		6.70		1.49		188,652		1.48
	2.20			340,401		5.53		2.20		340,401		2.20
3.00	-	3.10		134,390		6.47		3.10		131,077		3.10
0.60	-	3.10		1,350,894		7.42		1.45		832,379		1.88

The options expire at various dates from April 2, 2022 to March 23, 2026.

Stock option transactions and the number of stock options outstanding are summarized below:

	Number of optioned			Weighted average
	common shares			exercise price
	#				$
Balance, December 31, 2015		1,533,022			1.38
Options granted		42,000			0.85
Options expired		(625	)		6.80
Options forfeited		(223,503	)		0.85
Balance, September 30, 2016		1,350,894			1.45

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[d]     Restricted share unit plan

At the Annual General and Special Meeting held on June 18, 2013, the Company’s shareholders approved a new restricted share unit plan (“RSU Plan”). At the Annual General and Special Meeting held on June 13, 2016, the Company’s shareholders’ approved all unallocated entitlements under the RSU Plan and the ability of the Company to continue granting Restricted Share Units (“RSUs”) under the RSU Plan. Under the plan, the Company may grant RSUs to employees, directors, and eligible consultants which entitle each participant to either one common share of the Company on a time vested basis or a cash payout equal to the number of vested RSUs multiplied by the then current market value of the RSUs. The fair market value of the RSUs is determined based upon the number of RSUs granted and the quoted closing price of the Company’s stock on the trading day immediately preceding the date of determination. The duration of the vesting period and other vesting terms applicable to the grant of the RSUs shall be determined by the Board.

	Number			Weighted average
	of RSUs			exercise price
	#				$
Balance, December 31, 2015		112,489			1.02
RSUs granted		118,527			0.85
RSUs converted to common shares		(99,155	)		(0.98	)
Balance, September 30, 2016		131,861			0.89

The restricted share units that were granted during the nine month period ended September 30, 2016 were to settle a director compensation liability that was recorded in accounts payable and accrued liabilities. The $100,000 liability has been excluded from the change in accounts payable and accrued liabilities on the consolidated statement of cash flows.

Of the 272,931 RSUs authorized for grant under the RSU Plan as at September 30, 2016, 141,070 RSUs are available for grant.

[e]     Deferred share unit plan

At the Annual General and Special Meeting held on June 18, 2013, the Company’s shareholders approved a new non-employee director deferred share unit plan (“DSU Plan”). At the Annual General and Special Meeting held on June 13, 2016, the Company’s shareholders’ approved all unallocated entitlements under the DSU Plan and the ability of the Company to continue granting Deferred Share Units (“DSUs”) under the DSU Plan. A DSU is a right granted to non-employee directors which entitle each participant to either one common share of the Company on a time vested basis or a cash payout equal to the number of DSUs multiplied by the then current market value of the DSUs. The fair market value of the DSU’s is determined based upon the number of DSUs granted and the quoted price of the Company’s stock on the trading day immediately preceding the determination date. The duration of the vesting period and other vesting terms applicable to the grant of the DSU’s shall be determined by the Board. 

	Number		Weighted average
	of DSUs		exercise price
	#			$
Balance, December 31, 2015		-		-
DSUs granted		86,918		0.85
Balance, September 30, 2016		86,918		0.85

The deferred share units that were granted during the nine month period ended September 30, 2016 were to settle a director compensation liability that was recorded in accounts payable and accrued liabilities. The $74,000 liability has been excluded from the change in accounts payable and accrued liabilities on the consolidated statement of cash flows.

Of the 272,931 DSUs authorized for grant under the DSU Plan as at September 30, 2016, 186,013 are available for grant.

[f]     Stock-based compensation

The following table shows stock-based compensation allocated by type of cost (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30
	2016		2015		2016		2015
		$		$		$		$
Cost of sales		6		6		23		23
Research and development		6		10		22		32
General and administrative		27		32		114		82
Sales and marketing		5		7		19		23
		44		55		178		160

As of September 30, 2016, the total unrecognized compensation related to stock options granted amounts to $270,000, which is expected to be recognized over a weighted average service period of 2.28 years.

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[g]     Common share purchase warrants

At September 30, 2016, there were 86,848,002 warrants outstanding to purchase shares of common stock, with expiry dates ranging from November 7, 2016 to December 15, 2024. Of the total 86,848,002 warrants outstanding, 86,103,744 warrants (the warrants related to the 2011 financing) that expire on December 30, 2016 entitle the holder thereof to purchase 1/20th of a common share of the Company at a price of $1.4231 per whole common share; 636,557 warrants (the private placement warrants) that expire on November 7, 2016 entitle the holder thereof to purchase one common share of the Company at a price of $3.58 per common share; 52,796 warrants entitle the holder thereof to purchase one common share of the Company at a price of $1.831 per common share; and 54,905 warrants entitle the holder thereof to purchase one common share of the Company at a price of $1.00 per common share.

 There has been no common share purchase warrant transactions during the nine months ended September 30, 2016.

The estimated fair value of the warrants related to the 2011 financing is reassessed at each balance sheet date using the Black-Scholes option pricing model. The following assumptions were used to value the warrants on the following balance sheet dates:

As at September 30,	2016			2015
Risk-free interest rates		0.51	%		0.52	%
Expected dividend yield		0	%		0	%
Expected life (in years)		0.25			1.25
Expected volatility		19	%		121	%
Fair value of warrant	$	0.000007		$	0.005300

[h]     Earnings per common share

The following is a reconciliation of the weighted average number of common shares outstanding used in calculating basic and diluted earnings (loss) per share (in thousands, except share and per share data):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016			2015
		$		$		$			$
Numerator:
Net income (loss) availabe to common shareholders	$	170	$	729	$	(2,400	)	$	(373	)
Denominator:
Weighted average number of common shares outstanding - basic		10,917,269		9,925,256		10,303,598			9,863,609
Weighted average effect of dilutive securities:
RSUs		131,861		112,489		-			-
DSUs		86,918		-		-			-
Warrants		3,963		-
Stock options		33,363		-		-			-
Weighted average number of common shares outstanding - diluted		11,173,374		10,037,745		10,303,598			9,863,609

Basic net income per share is computed by dividing the net income attributable to common shareholders by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing the net income attributable to common shareholders by the weighted average number of common shares that would have been outstanding during the period assuming the issuance of common shares for all potential dilutive common shares outstanding using the treasury stock method. Dilutive potential common shares outstanding include outstanding warrants, stock options, restricted share units, and deferred share units.

86,793,097 warrants and 871,339 stock options have been excluded from the computation of diluted earnings per share for the three month period ended September 30, 2016 as their inclusion would be anti-dilutive to the earnings per share. 86,848,002 warrants, 1,350,894 stock options, 131,861 RSUs and 86,918 DSUs have been excluded from the computation of diluted earnings per share for the nine month period ended September 30, 2016 as the Company has incurred a net loss during the period and their inclusion would be anti-dilutive to the loss per share (2015 – 86,865,691 warrants and 1,287,631 stock options have been excluded from the three month period ended September 30, 2015 and 86,865,691 warrants, 1,287,631 stock options, and 112,489 RSUs have been excluded from the nine month period ended September 30, 2015).

10. RELATED PARTY TRANSACTIONS

On June 17, 2016, the Company closed the Private Placement for common shares with a group of investment funds controlled by OrbiMed, the Company’s majority shareholder. The net proceeds were $599,000 after deduction of $44,000 of financing costs.

The Company received US$1.28 million from Joinstar upon signing of the Technology Development Agreement and Collaboration Agreement. These upfront payments are being recognized into income over the expected development period and for the three and nine month periods ended September 30, 2016, $56,000 and $225,000 was recognized (2015 – 246,000 and $761,000). These development fees are included under collaborative revenue in the consolidated statements of loss and comprehensive loss. The unrecognized portion of the development fees are included under deferred revenue on the consolidated balance sheet

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11. COMMITMENTS

[a]     License agreements

The Company entered into a non-exclusive license agreement, effective July 2005, as amended June 2008, to use and sublicense certain technology (“Technology”) for one of the Company’s cardiac tests. In consideration for these rights, the Company paid a non-refundable license issuance fee of $2.0 million in the first two years after execution of the agreement and is required to pay quarterly royalties on the sale of products that incorporate the Technology. For the three and nine month periods ended September 30, 2016, the Company incurred an expense of $28,000 and $221,000 [2015 - $158,000 and $623,000] for royalties. Royalty and license fees incurred are included in cost of sales.

[b]     Supply agreement

The Company entered into a supply agreement, effective September 2003 for certain reagents for the Company’s RAMP^® West Nile Virus Test. In addition to paying for the reagent purchased, the Company is required to pay the supplier semi-annual royalties equal to 10% of net revenue generated from the sale of the Company’s RAMP^® West Nile Virus Test. The initial term of the agreement was three years from the effective date and is automatically renewed for successive periods of one year until either party terminates the agreement. For the three and nine month periods ended September 30, 2016, the Company incurred an expense of $19,000 and $52,000 [2015 – $21,000 and $56,000] for royalties to the supplier. These royalties are included in cost of sales.

[c]     Lease agreements

[i]    The Company entered into a long-term agreement to lease a single tenant 46,000 square foot facility to house all of the Company’s operations. Rent is payable from February 1, 2008 to January 31, 2023. The Company is required to pay the landlord total gross monthly payments of approximately $175,000, which is comprised of base rent, administrative and management fees, estimated property taxes and repayments of the repayable leasehold improvement allowance [note 8[iii]].

[ii]    The Company has entered into a new lease agreement for new office space in Shanghai, China as of December 01, 2015 that expires on November 30, 2017. The Company is required to make monthly payments of approximately $5,000 for base rent and management fees under the new lease agreement. The Company has terminated the lease effective October 31, 2016 in accordance with the terms of the lease.

[iii]    The Company has entered into operating leases for administrative equipment.

For the three and nine month periods ended September 30, 2016, $218,000 and $625,000 [2015 - $211,000 and $617,000] was incurred for expenses related to base rent, administrative and management fees and estimated property taxes offset by amortization of both the rent-free inducement [note 8[i]] and non-repayable leasehold improvement allowance [note 8[ii]]. These expenses are allocated to cost of sales, research and development, general and administrative, and sales and marketing expenses.

[d]     Purchase Commitments

As at September 30, 2016, the Company has outstanding purchase commitments of $1.8 million to purchase inventory and capital equipment over the next five years of which $1.2 million will be completed within the next twelve months.

[e]     Indemnification of directors and officers

Under the Articles of the Company, applicable law and agreements with its directors and officers, the Company, in circumstances where the individual has acted legally, honestly and in good faith, may, or is required to indemnify its directors and officers against certain losses.  The Company's liability in respect of the indemnities is not limited. The maximum potential of the future payments is unlimited. However, the Company maintains appropriate liability insurance that limits the exposure and enables the Company to recover any future amounts paid, less any deductible amounts pursuant to the terms of the respective policies, the amounts of which are not considered material.

[f]     Indemnification of third parties

The Company has entered into license and research agreements with third parties that include indemnification provisions that are customary in the industry. These indemnifications generally require the Company to compensate the other party for certain damages and costs incurred as a result of third party claims for damages arising from these transactions. The nature of the indemnification obligations prevents the Company from making a reasonable estimate of the maximum potential amount that it could be required to pay. To date, the Company has not made any indemnification payments under such agreements and no amount has been accrued in these consolidated financial statements with respect to these indemnification obligations.

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12. SEGMENTED INFORMATION

The Company operates primarily in one business segment, the research, development, commercialization and distribution of diagnostic technologies, with primarily all of its assets and operations located in Canada. The Company’s revenues are generated from product sales primarily in Asia, the United States and Europe. Expenses are primarily incurred from purchases made from suppliers in Canada and the United States.

Customers that represent a concentration risk are those whose outstanding receivable is 10% or greater than the total balance or those customers who represent 10% or greater of our total revenue. For the three month period ended September 30, 2016, $0.9 million (60%) in product sales were generated from four customers of which one customer represented 17%, two customers each represented 15%, and one customer represented 13% [2015 - $1.1 million (46%) from one customer]. For the nine month period ended September 30, 2016, $2.3 million (47%) in product sales were generated from three customers of which one customer represents 21%, one customer represents 14%, and the other customer represents 12% [2015 - $6.0 million (64%) from one customer].

Sales attributable to a geographic area are based upon the customer’s country of domicile. Sales in a country that represent 5% or more of total product sales, in addition to sales in Canada, are as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30
	2016		2015		2016		2015
		$		$		$		$
China		317		1,119		1,386		6,043
United States		368		408		1,106		1,095
Russia		231		199		662		537
Japan		211		227		477		395
Iran		126		-		451		342
Venezuela		-		183		129		226
Canada		1		5		6		29
Other		274		284		668		592
Total		1,528		2,425		4,885		9,259

Product sales by type of product were as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30
	2016		2015		2016		2015
		$		$		$		$
Clinical products		1,247		2,127		4,088		8,409
Non-clinical products		281		298		797		850
Total		1,528		2,425		4,885		9,259

13. COMPARATIVE FIGURES

Certain comparative figures have been reclassified from the amounts previously reported to conform to the presentation adopted in the current year. As mentioned in Note 3, deferred financing costs have been reclassified from current and long term assets to the term loan in the liabilities section on the consolidated balance sheet.

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ITEM 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes. Unless otherwise specified, all dollar amounts are in Canadian dollars.

OVERVIEW

Response Biomedical develops manufactures and sells diagnostic tests for use with its proprietary RAMP^® System, a portable fluorescence immunoassay-based diagnostic testing platform. Our RAMP^® technology utilizes a unique method to account for sources of error inherent in conventional lateral flow immunoassay technologies, thereby providing the ability to quickly and accurately detect and quantify an analyte present in a liquid sample. Consequently, an end-user in a medical facility’s central-lab or in a point-of-care diagnostic testing setting can rapidly obtain important diagnostic information. We currently have thirteen tests available for clinical and environmental testing applications, and we have plans to commercialize additional tests.

We generally operate with a limited order backlog because our products are typically shipped shortly after orders are received. Product sales in any quarter are generally dependent on orders booked and shipped in that quarter. Our sales for any future periods are not predictable with a significant degree of certainty, and may depend on a number of factors outside of our control, including but not limited to the performance of our distributors including their inventory or timing considerations, their changing local competitive and/or reimbursement environments, and/or their ability or failure to meet minimum purchase commitments. As a result, any revenue shortfall would negatively affect our operating results and financial condition. In addition, our sales may be adversely impacted by pricing pressure and new product offerings from competitors. Our ability to be consistently profitable will depend, in part, on our ability to increase the sales volumes of our products, improve our gross margins, control our expenses and to successfully compete with other competitors. In addition, individual shipments to our largest distributors are sometimes very large—up to 50% of a quarter’s revenue may be in a single shipment. Timing of these large shipments can have a large impact on individual quarter revenues. Our financial performance from quarter to quarter may vary substantially based on timing of one or two large shipments, and as a result, we believe that period-to-period comparisons of our quarterly results of operations are not necessarily meaningful indicators of future results.

Sales to our largest market, China, have decreased by 77%, or $4.7 million, during the nine month period ended September 30, 2016 due to a decrease of sales to our former national distributor in China. The majority of the purchases of products in China from the Company in the first nine months of 2016 were in satisfaction of rebates earned by this distributor that were accrued in 2015. The Company received the payment for these products in 2015 and therefore, no additional cash was received during 2016 for these products. No returns of the products purchased by this distributor are either expected or permitted under the terms of its distribution agreement. We converted this distributor’s national distribution rights to non-exclusive effective March 3, 2016. We have now contracted with new distributors in China, including Shanghai Runda Medical Technology Co., Ltd. (“Runda”), to attempt to improve our current sales levels. Sales to Runda began in the third quarter of 2016.

We announced on June 16, 2016 that we entered into a definitive arrangement agreement (the “Arrangement”) with 1077801 B.C. Ltd., a company owned by OrbiMed Asia Partners, LP, OrbiMed Private Investments III, LP, OrbiMed Associates III, LP, OrbiMed Advisors LLC, OrbiMed Advisors Limited and Samuel D. Isaly (together “OrbiMed”) and Runda pursuant to which 1077801 B.C. Ltd. will acquire all of our issued and outstanding common shares for cash consideration of $1.12 per share (except in the case of certain rollover shareholders who will instead receive shares of 1077891 B.C. Ltd. on a 1 to 1 basis). This transaction was approved by 99.98% of the votes cast in person or by proxy at our Special Meeting held on September 16, 2016 and by 99.88% of the shareholders’ votes cast, excluding shareholders whose votes may not be included pursuant to Multilateral Instrument 61-101. Court approval for the transaction was received on September 19, 2016. The closing of this transaction is subject to receiving the necessary approvals from the regulatory bodies in the People’s Republic of China in order to complete the Arrangement. Following the closing of this transaction, the Company intends to de-list from the Toronto Stock Exchange (“TSX”).

Concurrent, with the above transaction, we entered into subscription agreements to undertake a non-brokered private placement financing of up to 1,785,716 common shares of the Company (the “Private Placement”) at a price of U.S. $0.56 per share for total gross proceeds of approximately U.S. $1,000,000. Pursuant to the Private Placement, we completed the first tranche of U.S. $500,000, on June 17, 2016 with the OrbiMed funds. Response has entered into subscription agreements with Runda where Runda may subscribe for 892,858 Response Common Shares for total gross proceeds to the Company of approximately U.S. $500,000. The Runda subscription is subject to receiving the necessary approvals from the regulatory bodies in the People’s Republic of China and has not been completed yet.

To address the expected near term reduction in product sales in China during this transition period and the resulting significant deterioration of our near term cash position, in addition to the Private Placement, we have implemented several cash conservation and cost reduction initiatives including reducing staff levels and delaying certain research and development projects to extend our available cash resources. While we are pursuing these various initiatives, there is no assurance that these efforts will allow our available cash resources to be sufficient to fund our operations.

-18-

Our ability to continue as a going concern is uncertain and dependent on our ability to complete the Arrangement, obtain additional financing, earn collaboration milestones and/or achieve sustained cash flow positive operations. We have financed operations, thus far, through a series of equity financings, debt financing, and collaborative arrangements. We have received milestones totaling US$3.0 million to date from a collaborative agreement with Hangzhou Joinstar Biomedical Technology Co., Ltd. the (“Joinstar Agreements”) and we are eligible to receive a further US$0.8 million from the last development milestone during the remaining project period. In addition, under the terms of a Supply Agreement with Joinstar, we are eligible to receive a guaranteed US$1.78 million in revenue-based payments over the first five years of commercialization of the co-developed assays.

We are striving to meet our ongoing cash needs through continued efforts to improve our sales in China and other markets, reduce costs and otherwise conserve cash, and raise additional financing through the private placement mentioned above. Without additional financing, our current cash may not be sufficient to allow us to continue as a going concern beyond the fourth quarter of 2016. We believe that additional financing along with a combination of some or all of the various cost reduction, cash conservation, sales and marketing initiatives, and completion of our collaboration with Joinstar, including short term out of the ordinary cash management measures, will be required to meet our anticipated short term cash requirements. Due to our history of losses, recent significant decreases in China product sales, and current major transition of distributors in China, there is substantial doubt over our ability to continue as a going concern as we are dependent on obtaining additional financing and achieving profitable operations, the outcomes of which cannot be predicted at this time. Our consolidated financial statements do not include any adjustments to the amounts and classification of assets and liabilities that might be necessary should we be unable to continue as a going concern. Such adjustments could be material.

RECENT DEVELOPMENTS

● On January 11, 2016, we announced that we received Health Canada approval and CE Mark for our new RAMP^® diagnostic test that measures levels of Procalcitonin (“PCT”). PCT is a biomarker elevated in the blood of patients suffering from sepsis.

● On February 18, 2016, we announced that we launched the RAMP® Dengue Environmental test at the American Mosquito Control Association annual general meeting. The RAMP® Dengue Environmental test is a rapid, quantitative test for detection of Dengue antigen in mosquitoes that transmit Dengue virus.

● On April 7, 2016, we announced that we were awarded a three-year Capital Equipment Supplier Contract with Vizient, Inc. for our cardiovascular and infectious disease product lines. Vizient is the largest member-owned health care company in the United States. Vizient serves a diverse membership and customer base including academic medical centers, pediatric facilities, community hospitals, integrated health delivery networks and non-acute health care providers.

● As mentioned above, on June 16, 2016, we announced that we have entered into a definitive arrangement agreement with 1077801 B.C. Ltd., a company owned by OrbiMed and Runda. 1077801 B.C. Ltd. will acquire all of our issued and outstanding common shares for $1.12 per share except for certain rollover shareholders who will receive shares of 1077801 B.C. Ltd. on a 1 for 1 basis.

● In addition, as mentioned above, we concurrently entered into subscription agreements with OrbiMed and Runda to undertake a non-brokered private placement financing of up to 1,785,716 common shares at a price of U.S. $0.56 per share for total gross proceeds of approximately U.S. $1.0 million. On June 17, 2016, we announced that we had closed the first tranche of the private placement with OrbiMed for 892,858 common shares for net proceeds of $599,000 after deducting $44,000 of issuing costs.

● On September 16, 2016, we held a special meeting (the “Meeting”) of our shareholders where the resolution approving the Arrangement was approved by 99.98% of the votes cast at the Meeting in person or by proxy and 99.88% of the votes cast at the Meeting in person or by proxy by holders of our shares, excluding the votes cast in respect of shares held by interested parties required to be excluded pursuant to applicable securities law.

● On September 19, 2016, the Supreme Court of British Columbia approved the Arrangement mentioned above. The completion of the Arrangement is subject to the receipt of approvals from various regulatory bodies in the People’s Republic of China. The timing and receipt of such approvals is not within the control of the Company.

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RESULTS OF OPERATIONS

For the three month periods ended September 30, 2016 and 2015:

Revenues, Cost of Goods Sold and Gross Margin (in thousands)

	Three Months Ended September 30,						Change 2015 to 2016
	2016			2015			Increase / (Decrease)			Percent Change
Product Sales		1,528			2,425			(897	)		(37	%)
Collaborative revenue		56			1,103			(1,047	)		(95	%)
Total revenue		1,584			3,528			(1,944	)		(55	%)
Cost of sales		923			1,423			(500	)		(35	%)
Gross profit	$	661		$	2,105		$	(1,444	)		(69	%)
Gross margin on product sales		39.6	%		41.3	%

Product Sales

Product sales decreased 37%, or $0.9 million, during the three month period ended September 30, 2016 as compared to September 30, 2015. The change is due to lower clinical test sales in China as we are transitioning to our new distribution partners in China while our former national distributor in China sells through inventory purchased from us in previous quarters. These decreased China sales were partially offset by increased clinical sales to customers outside of China.

Collaborative Revenue

Collaborative revenue decreased 95% or, $1.0 million, during the three month period ended September 30, 2016 as compared to September 30, 2015. This revenue represents the recognition of the initial payments received from Joinstar in the fourth quarter of 2014 and first quarter of 2015. The decrease is due to the milestone revenue recognized in the third quarter of 2015 upon the achievement of the fourth milestone under the Collaboration agreement with Joinstar. There was no similar milestone achieved in the third quarter of 2016.

Gross Profit

Gross profit decreased 69% during the three month period ended September 30, 2016 in comparison to the same period in 2015. Excluding the collaborative revenue, gross profit decreased 40%, or $0.4 million. The gross profit decrease is primarily the result of a decrease in product sales. Gross margin decreased to 39.6% from 41.3% primarily due to the overall decrease in product sales resulting in an increase of unallocated manufacturing overhead costs as production has been temporarily slowed and an increase in our inventory provisions.

Operating Expenses (in thousands)

	Three Months Ended September 30,				Change 2015 to 2016
	2016		2015		Increase / (Decrease)			Percent Change
Research and development		321		786		(465	)		(59	%)
General and administrative		571		596		(25	)		(4	%)
Sales and marketing		359		493		(134	)		(27	%)
Total Operating Expenses	$	1,251	$	1,875	$	(624	)		(33	%)

Research and Development Expenses

Research and development expenses decreased by 59%, or $0.5 million, during the three month period ended September 30, 2016 in comparison to the same period in 2015. The decrease is primarily due to the reduction of clinical and regulatory staff as part of our cost reduction initiatives. In addition, there was a reduction in professional fees and development costs associated with decreased product development, clinical, and regulatory work this quarter as development activities related to the Joinstar project wind down and the PCT and dengue fever tests were developed in the prior year. We expect research and development expenses to follow this trend in the near term as a result of our cost reduction initiatives.

General and Administrative Expenses

General and administrative expenses decreased by 4%, or $25,000, during the three month period ended September 30, 2016 in comparison to the same period in 2015. These decreases were due to lower severance and travel costs in comparison to the prior year. We expect general and administrative expenses to follow this trend in the near term as a result of our cost reduction initiatives.

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Sales and Marketing Expenses

Sales and marketing expenses decreased by 27%, or $0.1 million, during the three month period ended September 30, 2016 in comparison to the same period in 2015 primarily due to lower salaries and wages and recruiting costs as a result of a decrease in the number staff in our China office. In addition, there were lower marketing costs incurred. We expect sales and marketing expenses to follow this trend in the near term because of our cost reduction initiatives and as our new distributors take more responsibility for sales and marketing expenses in China.

Other Expenses, Net (in thousands)

	Three Months Ended September 30,						Change 2015 to 2016
	2016			2015			Increase / (Decrease)			Percent Change
Interest expense and amortization of deferred financing costs and debt discount		165			215			(50	)		(23	%)
Other expense		4			10			(6	)		(60	%)
Foreign exchange loss		35			166			(131	)		(79	%)
Unrealized gain on revaluation of warrant liability		(964	)		(890	)		(74	)		8	%
Total Other Income	$	(760	)	$	(499	)	$	(261	)		52	%

Interest Expense and Amortization of Deferred Financing Costs and Debt Discount

Interest expenses and amortization of deferred financing costs and debt discount decreased by 23%, or $50,000, during the three month period ended September 30, 2016 compared to the same period in 2015. The decrease is primarily due to lower principal balances on the SVB debt and the repayable leasehold improvement allowance resulting in lower interest charges.

Foreign Exchange Loss

Foreign exchange loss decreased by $131,000 during the nine month period ended September 30, 2016 compared to the same period in 2015. Foreign exchange gains and losses are largely due to U.S. dollar balances of cash and cash equivalents, accounts receivable, accounts payable and SVB debt affected by the fluctuations in the value of the U.S. dollar as compared to the Canadian dollar. The decrease in the loss is due to the relative depreciation of the U.S. dollar during the first nine months of 2016 on our net US dollar liabilities.

Unrealized Gain on Revaluation of Warrant Liability

The unrealized gain on revaluation of the warrant liability is solely due to the mark-to-market revaluation each reporting period of the outstanding warrants, issued during our 2011 rights offering. The fair market value decreased from June 30, 2016 resulting in an unrealized gain of $964,000. The fair market value is calculated using a Black-Scholes model with inputs for volatility, risk free interest rate, and expected life of the warrants. The primary reason for the decrease in the value of the liability is the decrease in expected volatility and expected life as the warrants are near expiry. A small change in the estimates used in the Black-Scholes pricing model may have a relatively large change in the estimated valuation of the common stock warrants.

For the nine month periods ended September 30, 2016 and 2015:

Revenues, Cost of Goods Sold and Gross Margin (in thousands)

	Nine Months Ended September 30,						Change 2015 to 2016
	2016			2015			Increase / (Decrease)			Percent Change
Product Sales		4,885			9,259			(4,374	)		(47	%)
Collaborative revenue		225			2,075			(1,850	)		(89	%)
Total revenue		5,110			11,334			(6,224	)		(55	%)
Cost of sales		2,898			5,719			(2,821	)		(49	%)
Gross profit	$	2,212		$	5,615		$	(3,403	)		(61	%)
Gross margin on product sales		40.7	%		38.2	%

-21-

Product Sales

Product sales decreased 47%, or $4.4 million, during the nine month period ended September 30, 2016 as compared to September 30, 2015. The change is due to a $4.7 million decrease in sales in China as a result of the current transition to a new Chinese distribution partner while our former national distributor in China sells through inventory purchased from us in previous quarters. This decrease was partially offset by increased clinical sales to customers outside of China.

Collaborative Revenue

Collaborative revenue was $0.2 million during the nine month period ended September 30, 2016. This revenue represents the recognition of the initial payments received from Joinstar in the fourth quarter of 2014 and first quarter of 2015. The decrease is due to the milestone revenue recognized in the comparable 2015 period upon the achievement of the third and fourth milestones under the Collaboration agreement with Joinstar. There were no similar milestones achieved during the first nine months of 2016.

Gross Profit

Gross profit decreased 56%, or $2.0 million, during the nine month period ended September 30, 2016 in comparison to the same period in 2015. Excluding the collaborative revenue, gross profit decreased 44%, or $1.6 million. The gross profit decrease is primarily the result of the decreased product sales mentioned above. Gross margin increased to 40.7% from 38.2% primarily due to an increase of our higher margin product sales outside of China, a decrease in our lower margin products sold in China, a reduction of our manufacturing costs, and a decrease of estimated product warranties. These offset the increase in estimated inventory provisions due to the slower near term sales and the increase in unallocated manufacturing overhead costs as a result of the lower production levels.

Operating Expenses (in thousands)

	Nine Months Ended September 30,				Change 2015 to 2016
	2016		2015		Increase / (Decrease)			Percent Change
Research and development		1,302		2,220		(918	)		(41	%)
General and administrative		2,030		1,952		78			4	%
Sales and marketing		1,176		1,626		(450	)		(28	%)
Total Operating Expenses	$	4,508	$	5,798	$	(1,290	)		(22	%)

Research and Development Expenses

Research and development expenses decreased by 41%, or $918,000, during the nine month period ended September 30, 2016 in comparison to the same period in 2015. The decrease is primarily due to the reduction of clinical and regulatory staff as part of our cost reduction initiatives. In addition, there was a reduction in professional fees and development costs associated with decreased product development, clinical, and regulatory work as development projects have been completed and/or are winding down. We expect research and development expenses to follow this trend in the near term as a result of our cost reduction initiatives.

General and Administrative Expenses

General and administrative expenses increased by 4%, or $78,000, during the nine month period ended September 30, 2016 in comparison to the same period in 2015. The increase is primarily due to an increase in legal expenses evaluating different financing options and the increased work and Board fees related to the Arrangement mentioned above. In addition, there were increased personnel and stock based compensation costs as a result of the appointment of Dr. Kinnaird to CEO in the prior year. These increases were partially offset by lower travel, administrative, and regulatory costs. We expect general and administrative expenses to follow this trend in the near term as a result of our cost control initiatives.

Sales and Marketing Expenses

Sales and marketing expenses decreased by 28%, or $0.5 million, during the nine month period ended September 30, 2016 in comparison to the same period in 2015. This was primarily due to lower salaries and wages as a result of a decrease in the number staff in our China office and lower recruiting costs due to the hiring of China GM in the prior year. In addition, there were lower legal costs incurred as the Joinstar supply agreement was entered into in the prior year. We expect sales and marketing expenses to follow this trend in the near term because of our cost reduction initiatives and as our new distributors take more responsibility for sales and marketing expenses in China.

-22-

Other Expenses, Net (in thousands)

	Nine Months Ended September 30,						Change 2015 to 2016
	2016			2015			Increase / (Decrease)			Percent Change
Interest expense and amortization of deferred financing costs and debt discount		533			675			(142	)		(21	%)
Other expense		35			10			25			250	%
Foreign exchange (gain) loss		(164	)		300			(464	)		(155	%)
Unrealized gain on revaluation of warrant liability		(300	)		(795	)		495			(62	%)
Total Other Expenses	$	104		$	190		$	(86	)		(45	%)

Interest Expense and Amortization of Deferred Financing Costs and Debt Discount

Interest expenses and amortization of deferred financing costs and debt discount decreased by 21%, or $142,000, during the nine month period ended September 30, 2016 compared to the same period in 2015. The decrease is primarily due to lower principal balances on the SVB debt and the repayable leasehold improvement allowance resulting in lower interest charges.

Foreign Exchange (Gain) Loss

Foreign exchange gain increased by $464,000 during the nine month period ended September 30, 2016 compared to a foreign exchange loss in the same period in 2015. Foreign exchange gains and losses are largely due to U.S. dollar balances of cash and cash equivalents, accounts receivable, accounts payable and SVB debt affected by the fluctuations in the value of the U.S. dollar as compared to the Canadian dollar. The increase in the gain is due to the relative depreciation of the U.S. dollar in during the first nine months of 2016 on our net US dollar liabilities.

Unrealized Gain on Revaluation of Warrant Liability

The unrealized gain on revaluation of the warrant liability is solely due to the mark-to-market revaluation each reporting period of the outstanding warrants, issued during our 2011 rights offering. The fair market value decreased from December 31, 2015 resulting in an unrealized gain of $300,000. The fair market value is calculated using a Black-Scholes model with inputs for volatility, risk free interest rate, and expected life of the warrants. The primary reason for the decrease in the value of the liability is the decrease in the estimated volatility and the expected life in comparison to December 31, 2015 as the warrant is near expiry. A small change in the estimates used in the Black-Scholes pricing model may have a relatively large change in the estimated valuation of the common stock warrants.

Liquidity and Capital Resources

Total cash and cash equivalents and working capital at September 30, 2016, and December 31, 2015 were as follows (in thousands):

As at,	September 30, 2016			December 31, 2015
Cash and cash equivalents	$	1,346		$	2,511
Percentage of total assets		13	%		21	%
Working capital	$	(2,514	)	$	(1,315	)
Warrant liability	$	1		$	301
Working capital, excluding Warrant liability	$	(2,513	)	$	(1,014	)

As of September 30, 2016, the Company had a working capital deficit. Included in current liabilities is a warrant liability that is required to be measured at fair value and is presented as a current liability in accordance with ASC 815. Each warrant may only be exercised on a net cashless exercise basis and no warrant may be exercised at a time when the exercise price equals or exceeds the current market price. As a result, the potential settlement of any warrant does not require any cash disbursement. Without taking into account the warrant liability mentioned above, the Company’s working capital as at September 30, 2016 is negative $2.5 million (December 31, 2015 – negative $1.3 million). The decrease of $1.2 million during the nine months ended September 30, 2016 is primarily due to the cash used in operating and financing activities offset by cash generated from investing activities as described below.

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Financial Condition

We have financed our operations primarily through equity and debt financings. As of September 30, 2016, the Company has raised approximately $108.4 million from the sale and issuance of equity securities and debt, net of issue costs. On June 16, 2016, we entered into a definitive Arrangement Agreement with 1077801 B.C. Ltd., a company owned by OrbiMed and Runda pursuant to which 1077801 B.C. Ltd. will acquire all of our issued and outstanding common shares for cash consideration of $1.12 per share (except in the case of certain rollover shareholders who will instead receive shares of 1077891 B.C. Ltd. on a 1 to 1 basis). This transaction is was approved by our shareholders at a special meeting held on September 16, 2016 and by the Supreme Court of British Columbia on September 19, 2016. The closing of this transaction is subject to receiving the necessary approvals from the regulatory bodies in the People’s Republic of China in order to complete the Arrangement. Following the closing of this transaction, we intend to de-list from the TSX. We also entered into subscription agreements to undertake a Private Placement at a price of U.S. $0.56 per common share for total gross proceeds of approximately U.S. $1,000,000 with OrbiMed and Runda. The first tranche of U.S. $500,000 closed on June 17, 2016 with the OrbiMed funds; however, the second tranche with Runda, which is subject to receiving the necessary approvals from the regulatory bodies in the People’s Republic of China, has not completed yet.

Sales to our largest market, China, have decreased by 77%, or $4.7 million, during the nine month period ended September 30, 2016 due to a decrease of sales to our former national distributor in China. The majority of the purchases of products in China from the Company in the first nine months of 2016 were in satisfaction of rebates earned by this distributor that were accrued in 2015. The Company received the payment for these products in 2015 and therefore, no additional cash was received during 2016 for these products. No returns of the products purchased by this distributor are either expected or permitted under the terms of its distribution agreement. We converted this distributor’s national distribution rights to non-exclusive effective March 3, 2016. We have now contracted with new distributors in China, including Runda, to attempt to improve our current sales levels. Sales to Runda began in the third quarter of 2016.

On October 15, 2014, we entered into a funded Technology Development Agreement and on February 16, 2015, a Collaboration Agreement with Joinstar to support the co-development by Response and Joinstar of components and multiple assays that will run on a high throughput rapid immunoassay analyzer developed by Joinstar. Under the terms of the agreements, we have received milestones totaling US$3.0 million to date and are eligible to receive a further US$0.8 million in development milestones over the remaining project period. We expect these funds, in part, to be used to reduce working capital deficiencies, if any, at the time they are received In conjunction with the signing of the Collaborative Agreement, we entered into a definitive Supply Agreement with Joinstar whereby we will provide certain materials required for Joinstar to manufacture and sell the developed assays specifically to run on their analyzer. Under the terms of the Supply Agreement, we are eligible to receive a guaranteed US$1.78 million in revenue-based payments over the first five years of commercialization of the co-developed assays. In addition to the Joinstar agreements, the Company has a term loan from SVB with an outstanding principal balance of approximately US$0.4 million as of September 30, 2016.

To address the expected near term reduction in product sales to our distributors in China during this transition period and the resulting significant deterioration our near term cash position, in addition to the Private Placement, we have implemented several cash conservation and cost reduction initiatives including reducing staff levels and delaying certain research and development projects to extend our available cash resources. While we are pursuing these various initiatives, there is no assurance that these efforts will allow our available cash resources to fund our operations.

Our ability to continue as a going concern is uncertain and dependent on our ability to complete the Arrangement, obtain additional financing, earn collaboration milestones and/or achieve sustained cash flow positive operations. We have financed our operations, thus far, through a series of equity financings, debt financing, and collaborative agreements. We are striving to meet our ongoing cash needs through continued efforts to improve sales in China and other markets, reduce costs and otherwise conserve cash, and raise additional financing through the private placement mentioned above. Without additional financing, our current cash may not be sufficient to allow us to continue as a going concern beyond the fourth quarter of 2016. We believe that additional financing along with a combination of some or all of the various cost reduction, cash conservation, sales and marketing initiatives, and completion of our collaboration with Joinstar, including short term out of the ordinary cash management measures, will be required to meet our anticipated cash requirements until our announced acquisition is completed. Due to our history of losses, recent significant decreases in China product sales, and current transition of distributors in China, there is substantial doubt over our ability to continue as a going concern as it is dependent on obtaining additional financing and achieving profitable operations, the outcomes of which cannot be predicted at this time.

-24-

Ongoing Sources and Uses of Cash

Changes in Cash Flows

Changes in cash flows were as follows (in thousands):

For the Nine Months Ended September 30,	2016			2015
Cash (used in) generated from operating activities		(1,295	)		782
Cash provided by (used in) investing activities		534			(410	)
Cash used in financing activities		(405	)		(738	)
Decrease in cash during the period	$	(1,166	)	$	(366	)

As at September 30, 2016, our cash and cash equivalents balance was $1.3 million. The decrease in our cash and cash equivalents during the nine months ended September 30, 2016 was the result of $1.3 million of cash used in operating activities and $0.4 million of cash used in financing activities offset by $0.5 million provided by investing activities described below.

Cash (Used In) Generated From Operating Activities

Cash used in operating activities during the nine month period ended September 30, 2016 was $1.3 million versus the $0.8 generated in the prior year. The net cash used in operating activities in 2016 was primarily the result of cash used in operations because our cash expenses exceeded our gross profit earned on our revenue. Changes in non-cash working capital are described below (in thousands):

For the Nine Months Ended September 30,	2016			2015
Trade receivables		41			262
Other receivables		65			(22	)
Inventories		(302	)		(46	)
Prepaid expenses and other		22			39
Accounts payable and accrued liabilities		183			(251	)
Deferred revenue		665			661
Total change in non-cash working capital	$	674		$	643

Explanations of the more significant net changes in non-cash working capital during the nine month period ended September 30, 2016 are as follows:

● Inventory balances increased from $1.8 million to $2.1 million as a result of a delay in planned shipments to China as the transition to a new distribution partner is occurring;

● Accounts payable and accrued liabilities increased from $3.3 million to $4.1 million due to the timing of vendor payments and cash management strategies; and

● Deferred revenue increased from $1.3 million to $1.9 million due to the timing of prepayments received from customers for future orders.

Cash Provided By (Used In) Investing Activities

Net cash generated from investing activities for the nine month period ended September 30, 2016 was $534,000 compared to net cash used in investing activities for the same period in 2015 of $410,000. The cash generated during 2016 was the result of $584,000 of restricted cash that was released as a result of achieving an operating profit during the year ended December 31, 2015 as outlined in our lease agreement for our Vancouver headquarters. This was offset by $50,000 of cash used for the purchase of manufacturing equipment.

Cash Used In Financing Activities

Net cash used in financing activities in the nine month period ended September 30, 2016 is related to principal payments of our leasehold improvement allowance and the repayment of our term loan with SVB of $1.0 million offset by the private placement completed for net proceeds of $0.6 million. The cash used in financing activities in 2015 was solely for repaying our leasehold improvement allowance and term loan with SVB.

-25-

Off-Balance-Sheet Arrangements

The Company does not have any off-balance sheet financing arrangements at September 30, 2016.

Tabular Disclosure of Contractual Obligations

There have been no material changes, outside of the ordinary course of business, in our outstanding contractual obligations from those disclosed within “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, as contained in our Annual Report on Form 10K filed by the Company with the SEC on March 24, 2016.

Related Party Transactions

We closed the private placement with a group of investment funds controlled by OrbiMed, our majority shareholder. The net proceeds were $599,000 after deduction of $44,000 of financing costs.

We received US$1.28 million from Joinstar upon signing of the Technology Development Agreement and Collaboration Agreement. These upfront payments are being recognized into income over the expected development period and for the three and nine month periods ended September 30, 2016, $56,000 and $225,000 was recognized (2015 – $246,000 and $761,000). These development fees are included under collaborative revenue in the consolidated statements of loss and comprehensive loss. The unrecognized portion of the development fees are included under deferred revenue on the consolidated balance sheet.

Critical Accounting Policies and Estimates

A summary of the significant accounting policies is as follows:

USE OF ESTIMATES

Our consolidated financial statements are prepared in accordance with U.S. GAAP. In the application of U.S. GAAP, we are required to make estimates that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities in our consolidated financial statements. Changes in the accounting estimates from period to period are reasonably likely to occur. Accordingly, actual results could differ significantly from the estimates made by management. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation of our financial condition or results of operations may be affected.

On an ongoing basis, we evaluate our estimates, including those related to revenue recognition including the recognizing of revenue under the milestone method, valuation of stock based compensation, valuation of long-lived assets, tax related contingencies, recoverability of receivables, valuation of inventories, and warranty accruals. We base our estimates on historical experience and on various other assumptions, including expected trends that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

In addition to making critical accounting estimates, we must ensure that our financial statements are properly stated in accordance with U.S. GAAP. In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. GAAP and does not require a high degree of management judgment in its application, while in other cases, management’s judgment is required in selecting among available alternative accounting standards that allow different accounting treatment for similar transactions.

Our significant accounting policies are discussed in Note 3, “Significant Accounting Policies,” to the consolidated financial statements included in Item 8 of our Annual Report on Form 10-K that we filed with the SEC on March 24, 2016. We believe that the following are our most critical accounting policies and estimates, each of which is critical to the portrayal of our financial condition and results of operations and requires our most difficult, subjective and complex judgments. Our management has reviewed our critical accounting policies and the related disclosures with the Audit Committee of our Board of Directors.

Inventories

Raw material, finished goods, and work in progress inventories are carried at the lower of actual cost, determined on a first-in first-out basis, and market value. Cost of finished goods and work in progress inventories includes direct materials, direct labor and applicable overhead. We write down our inventory balances for estimates of excess and obsolete amounts. These write-downs are recorded as a component of cost of sales. At the point of the write-down, a new, lower-cost basis for that inventory is established, and any subsequent improvements in facts and circumstances do not result in the restoration or increase in that newly established cost basis.

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Long Lived Asset Impairment

Long-lived assets to be held and used are periodically reviewed to determine whether any events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. For long-lived assets to be held and used, we base our evaluation on such impairment indicators such as the nature of the assets, the future economic benefit of the assets, any historical or future profitability measurements, as well as other external market conditions or factors that may be present. In the event that facts and circumstances indicate that the carrying amount of an asset may not be recoverable and an estimate of future undiscounted cash flows is less than the carrying amount of the asset, an impairment loss will be recognized for the difference between the carrying value and the fair value.

Revenue recognition

Product sales are recognized when legal title passes to distributors or customers, the sales price is fixed and determinable, collection of the resulting receivables is reasonably assured and no uncertainties with regard to customer acceptance exist. Sales are recorded net of discounts and sales returns.

When arrangements include multiple elements, we use objective evidence of fair value to allocate revenue to the elements, and recognize revenue when the criteria for revenue recognition have been met for each element, in accordance with authoritative guidance on multiple-element arrangements.

Upfront fees from collaborative research arrangements that are non-refundable, require the ongoing involvement of the Company and are directly linked to specific milestones are deferred and amortized into income as services are rendered. Upfront fees from collaborative research arrangements that are non-refundable, require the ongoing involvement of the Company and are not directly linked to specific milestones are deferred and amortized into income on a straight-line basis over the term of ongoing development. Upfront fees from collaborative research arrangements that are refundable are deferred and recognized once the refundable period has lapsed.

Milestone Revenue – Our collaboration agreements generally include contingent contractual payments related to achievement of specific research, development and regulatory milestones that are based in whole or in part upon our performance. Research, development and regulatory contingent contractual payments and milestone payments are typically payable under our collaborations upon completion of assay development, upon completion of clinical trial testing of the developed assay, and upon receipt of actual marketing approvals of a developed assay.

At the inception of each arrangement that includes contingent contractual payments, we evaluate whether each potential payment and milestone is substantive and at risk to both parties based on the basis of the contingent nature of the milestone event. We evaluate factors such as scientific, regulatory, and other risks that we must overcome to achieve the respective milestone event, whether the contractual payments due at each milestone event is reasonable relative to all deliverables and payment terms in the arrangement in making this assessment and whether the contingent contractual payment relates solely to past performance. The determination of whether a milestone is substantive requires judgment by the Company.

We recognize any payment that is contingent upon the achievement of a substantive milestone entirely in the period in which the milestone is achieved. A milestone is defined as an event that can only be achieved based in whole or in part either on our performance, or the performance of our collaborators, or the occurrence of a specific outcome resulting from our past performance for which there is a substantive uncertainty at the date the arrangement is entered into that the event will be achieved.

Warrant Liability

We account for warrants, issued in the 2011 rights offering, pursuant to the authoritative guidance on accounting for derivative financial instruments indexed to, and potentially settled in, a company’s own stock. We have classified the warrants on the consolidated balance sheet as a liability that is revalued at each balance sheet date subsequent to the initial issuance. Determining the appropriate fair-value model, and calculating the fair value of warrants requires considerable judgment, including estimating stock price volatility and expected warrant life. The computation of expected volatility is based on the historical volatility of shares of our common stock for a period that coincides with the expected life of the warrants. A small change in the estimates used may have a relatively large change in the estimated valuation. We use the Black-Scholes pricing model to value the warrants.

Stock-based Compensation

The Company uses the fair value method of accounting for all stock-based awards for non-employees and for all stock-based awards to employees that were granted, modified or settled since January 1, 2003. The fair value of stock options is determined using the Black-Scholes option-pricing model, which requires certain assumptions, including future stock price volatility, estimated forfeiture rates and expected time to exercise. Stock-based compensation expense is recorded net of estimated forfeitures such that expense is recorded only for those stock-based awards that are expected to vest. A forfeiture rate is estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. Changes to any of these assumptions could produce different fair values for stock-based compensation. The expense is amortized on a straight-line basis over the graded vesting period.

See note 3, “Recent Accounting Pronouncements,” of the consolidated financial statements in Item 1 for information related to upcoming new accounting standards introduced by the FASB. We are evaluating the impact of these upcoming standards.

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ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Under the rules and regulations of the United States Securities and Exchange Commission, (the “SEC”) and Canadian regulatory authorities, as a smaller reporting company, we are not required to provide information required under this item.

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ITEM 4.     CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that material information required to be disclosed in our periodic reports filed or submitted under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Our disclosure controls and procedures are also designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including its principal executive officer and principal financial officer as appropriate, to allow timely decisions regarding required disclosure.

During the quarter ended September 30, 2016, we carried out an evaluation, under the supervision and with the participation of our management, including the principal executive officer and the principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective, as of the end of the period covered by this report.

 Changes in Internal Control Over Financial Reporting

We have not made any changes to our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II.     OTHER INFORMATION

ITEM 1.       LEGAL PROCEEDINGS

We are not aware of any material litigation involving us that is outstanding, threatened or pending.

ITEM 1A.   RISK FACTORS

Our future performance is subject to a number of risks. If any of the following risks actually occur, our business could be harmed and the trading price of our common stock could decline. In evaluating our business, you should carefully consider the following risks in addition to the other information in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. It is not possible to predict or identify all such factors and, therefore, you should not consider the following risks to be a complete statement of all the potential risks or uncertainties that we face.

Risks Related to Our Company

We will need to raise additional capital to continue as a going concern. If we are unsuccessful in attracting capital to our Company, we will not be able to continue operations or will be forced to sell assets to do so. Alternatively, capital may not be available to our Company on favorable terms, or at all. If available, financing terms may lead to significant dilution to the shareholders' equity in our Company.

We are not profitable and will need to raise additional capital to continue as a going concern. We historically have had negative cash flow from operations and expect to have negative cash flow from operations in the near future. We also have substantial debt obligations with associated interest and principal payments. We are striving to meet our ongoing cash needs through continued efforts to improve sales in China and other markets, reduce costs and conserve cash, and raise additional financing. We have entered into a definitive arrangement agreement (the “Arrangement”) with 1077801 B.C. Ltd., a company owned by OrbiMed Asia Partners, LP, OrbiMed Private Investments III, LP , OrbiMed Associates III, LP, OrbiMed Advisors LLC, OrbiMed Advisors Limited and Samuel D. Isaly (together “OrbiMed”) and Shanghai Runda Medical Technology Co., Ltd. (“Runda”) pursuant to which 1077801 B.C. Ltd. will acquire all of the issued and outstanding common shares of the Company for cash consideration of $1.12 per share (except in the case of certain rollover shareholders who will instead receive shares of 1077891 B.C. Ltd. on a 1 to 1 basis). This transaction has been approved by our shareholders at a special meeting held on September 16, 2016 and approved by the Supreme Court of British Columbia on September 19, 2016. The closing of this transaction is subject to receiving the necessary approvals from the regulatory bodies in the People’s Republic of China in order to complete the Arrangement. There are no assurances that such approvals will be received at all and the timing and receipt of such approvals is not within the control of the Company.

It is uncertain how long our current cash will last, although without additional financing or the completion of the Arrangement, we may not be able to continue as a going concern beyond the fourth quarter of 2016. We are actively pursuing additional financing and believe that such financing along with a combination of some or all of the various cost reduction, cash conservation, sales and marketing initiatives, and completion of our collaboration with Joinstar, including short term out of the ordinary cash management measures, will be required to meet our anticipated cash requirements. Due to our history of losses and recent significant decreases in China product sales, there is substantial doubt over our ability to continue as a going concern as we are dependent on obtaining additional financing and achieving profitable operations, the outcomes of which cannot be predicted at this time. If we are unable to return to cash flow positive operations and/or we are unable to obtain additional financing, we will be required to reduce or restructure operations or we may be required to cease operations. We have historically relied primarily on debt and equity financings to fund our operations and commercialize our products. Additional capital may not be available, at such times or in amounts as needed by us. Even if capital is available, it might be on adverse terms. Any additional equity financing will be dilutive to our shareholders. If access to sufficient capital is not available as and when needed, our business will be materially impaired and we may be required to cease operations, curtail one or more product development, manufacturing improvement, or sales generation programs, attempt to obtain funds through collaborative partners or others that may require us to relinquish rights to certain technologies or product candidates, or we may be required to significantly reduce expenses, sell assets, seek a merger or joint venture partner, file for protection from creditors or liquidate all our assets.

In February 2014, we secured a US$2.5 million term loan from SVB of which an initial US$1.5 million was drawn. This term loan contains covenants that may limit our flexibility in planning for or reacting to changes in our business and our industry, including limitations on incurring additional indebtedness, making investments, granting liens and merging or consolidating with other companies. Complying with these covenants may impair our ability to finance our future operations or capital needs or to engage in other favorable business activities.

If a future event of default under the term loan were to occur and it is not cured, waived, or forbeared, SVB could cause all amounts outstanding with respect to the term loan to be due and payable immediately. We cannot assure that our assets or cash flow would be sufficient to fully repay borrowings under our outstanding debt instruments, either upon maturity or if accelerated upon the event of default, or that we would be able to refinance or restructure the payments on those debt instruments.

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Our inability to generate sufficient cash flows may result in our Company not being able to continue as a going concern.

We have incurred significant losses to date and we expect these losses to continue for the near future. As of September 30, 2016, we had an accumulated deficit of $122.8 million and have only generated positive cash flow from operations during 2015. Our existing cash resources, along with the additional cash milestone anticipated from the funded development from our collaboration agreement, may not be sufficient to fund operations beyond the fourth quarter of 2016. In addition, we may not be able to successfully earn the final development milestone in our collaboration agreement with Joinstar on a timely basis or at all. Accordingly, there is substantial doubt about our ability to continue as a going concern as it is uncertain presently how long our current cash will last. We are currently seeking additional financing in addition to the Arrangement to support our continued operations; however, there are no assurances that any such financing can be obtained on favorable terms, if at all. In view of these conditions, our ability to continue as a going concern is dependent upon our ability to obtain such financing and, ultimately, on achieving profitable operations. The outcome of these matters cannot be predicted at this time. The consolidated financial statements for the three and nine months ended September 30, 2016 do not include any adjustments to the amounts and classification of assets and liabilities that might be necessary should we be unable to continue in business. Such adjustments could be material. If we are unable to generate sufficient revenue, positive cash flow or earnings, or raise sufficient capital to maintain operations, we may not be able to continue operating our business and be forced to sell our Company or liquidate our assets.

We have evolved from a pure development company to a commercial enterprise but to date have realized minimal operating revenues from product sales. For the nine months ended September 30, 2016 and 2015, we have a net loss of $2.4 million and $0.4 million respectively; however, excluding the non-cash unrealized loss or gain on revaluation of our warrant liability we have incurred adjusted losses of $2.7 million and $1.2 million respectively. We generated positive operating income in fiscal 2015 but are not profitable during the first nine months of 2016. Generating revenues and profits will depend significantly on our ability to obtain sufficient financing and to successfully develop, commercialize, manufacture and market our products. The time necessary to achieve market success for any individual product is uncertain. No assurance can be given that product development efforts will be successful, that required regulatory approvals can be obtained on a timely basis, if at all, or that approved products can be successfully manufactured or marketed. Consequently, we cannot assure that we will ever generate significant revenue or achieve or sustain profitability. As well, there can be no assurance that the costs and time required to complete commercialization will not exceed current estimates. We may also encounter difficulties or problems relating to research, development, manufacturing, distribution and marketing of our products. In the event that we are unable to generate adequate revenues, cash flow or earnings, to support our operations, or we are unable to raise sufficient capital to do so, we may be forced to cease operations and either sell our business or liquidate our assets.

If the Arrangement is not consummated or delayed, we may not be able to continue as a going concern.

If the Arrangement described in note 2 of the consolidated financial statements in Item 1 is not consummated or is significantly delayed, the following effects may occur:

●     our directors, officers and other employees will have expended extensive time and effort and will have experienced significant distractions from their work during the pendency of the transaction, and we will have incurred significant transaction costs attempting to consummate the transaction;

●     Runda may not continue with the distribution agreement and our sales in China could suffer resulting in the need for us to secure alternate forms of financing in a short period of time and there can be no assurance that such financing could be secured under acceptable terms or in an acceptable time frame or at all;

●     the market’s perception of our continuing business could potentially result in a loss of customers, vendors, business partners, collaboration partners and employees; and

●     the trading price of our Common Stock would likely materially decrease.

In addition, the pendency of the Arrangement may have a potential negative effect on our business and relationships with customers, vendors, business partners, collaboration partners and employees, including the risk that certain key members of our management might choose not to remain employed with us prior to the completion of the Arrangement, regardless of whether or not it is completed.

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We must increase sales of our products and/or decrease our expenses, or we may not be able to become profitable.

Our ability to achieve and maintain profitability will depend, in part, on our ability to increase our sales volumes. Increasing the sales volume of our products will depend upon, among other things, our ability to:

●     continue to improve our existing products and develop new and innovative products;

●     increase our sales and marketing activities;

●     effectively manage our manufacturing activities; and

●     effectively compete against current and future competitors.

We cannot provide assurance that we will be able to successfully increase our sales volumes of our products and/or decrease our expenses to become profitable or sustain profitability.

Current and future conditions in the global economy and in key country markets we serve may have a material adverse effect on our business prospects, financial condition and results of operations.

Economic performance in markets we serve has been mixed, with some countries experiencing slow growth or recessions. In addition, country specific crises such as the impact of low oil prices on certain oil producing countries and economic sanctions on countries such as Russia may impact our sales in those specific countries. Though we cannot predict the extent, timing, or ramifications of future financial crisis, world political events, and the economic outlook in different economies, we believe that a downturn in the world's major economies and the related constraints in the credit markets will heighten a number of material risks to our business, results of operations, cash flows and financial condition, as well as our future prospects, including the following:

● Credit availability and access to equity markets — Issues involving liquidity and capital adequacy affecting lenders could affect our ability to fully obtain credit facilities or additional debt and could affect the ability of any lenders to meet their funding requirements when we need to borrow. Further, the high level of volatility in the equity markets and the decline in our stock price may make it difficult for us to access the equity markets for additional capital at attractive prices, if at all. If we are unable to obtain credit, or access the capital markets, where required, our business could be negatively impacted.

● Credit availability to our customers — We believe that many of our customers are reliant on liquidity from global credit markets and, in some cases, require external financing to fund their operations. As a consequence, if our customers lack liquidity, it would likely negatively impact their ability to pay amounts due to us.

● Currency and import controls – Our customers may be impacted by various governmental controls on currency and restrictions on imports. These controls may impact our customers’ ability to order and pay for our product.

● Commitments from our customers — There is a greater risk that customers may be slower to make purchase commitments during times of economic uncertainty or significant currency fluctuations, which may negatively impact the sales of our new and existing products.

● Supplier difficulties — If one or more of our suppliers experiences difficulties that result in a reduction or interruption in supplies or services to us, or they fail to meet any of our manufacturing requirements, our business could be adversely impacted until we are able to secure alternative sources, if any.

Many of these and other factors affecting the diagnostic technology industry are inherently unpredictable and beyond our control.

We rely significantly on third party distributors and alliance partners to market and sell our products. If we are unable to successfully negotiate or maintain acceptable agreements with potential distributors, our ability to access various markets with our products may be significantly restricted. Further, we may not be able to negotiate agreements that would permit us to sell our products at a profit.

Our marketing strategy in both the environmental and the medical diagnostics markets depends significantly on our ability to establish and maintain arrangements with third party distributors for marketing and distribution. We have recently added new distributors in a number of markets, including China, and we plan to add additional new distributors in existing and new markets. There can be no assurance that we will be able to negotiate or maintain acceptable arrangements with new and/or existing distributors enabling us to sell our products in new and existing markets or be able to sell our products at acceptable prices or volumes. Consequently, we may not be able to generate sufficient revenue or gross margins to achieve and maintain profitability.

We rely on a limited number of third party distributors to market and sell our products in China.

In the first quarter of 2015, we granted Shanghai Elite exclusive distribution rights to all of China excluding Taiwan, Hong Kong and Macao Special Administration Region effective March 3, 2016 this exclusivity was revoked and we continue to work with Shanghai Elite as a non-exclusive distributor. Since March 2016, we have entered into several new non-exclusive distribution agreements in China, including with Runda who, as mentioned earlier, is involved in the Arrangement described above. We cannot predict whether our new distributors will fully replace the sales previously provided by our former distributors, which would have an adverse impact on our business performance in future years.

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A substantial portion of our business is in China where we have limited direct presence to closely monitor and understand the rapidly expanding market.

Approximately 28% of our 2016 product revenue (62% in 2015) derives from sales of our products through our distribution channel partners in China. China is a dynamic and rapidly evolving market for medical technology including the POC diagnostic testing market in which we compete. While we have established a direct presence in China via a Representative Office to allow us to better monitor and understand this market, there is no assurance that these activities will be effective and will enable us to anticipate changes in this market or may impact the relationships that we have with new and existing Chinese distributors which would materially and adversely impact our product sales in China.

As we generate a large part of our revenues from international product sales and services for international customers, we are subject to risks inherent in international business, including currency exchange risk, difficulty in collecting accounts receivable, and possible marketing restrictions. Consequently, we may be restricted from selling our products in certain jurisdictions or our products may not be able to be sold at a profit.

There are various operational and financial risks associated with international activity. We may face difficulties and risks in our international business, including changing economic or political conditions, export restrictions, currency risks, export controls relating to technology, compliance with existing and changing regulatory requirements, tariffs and other trade barriers, longer payment cycles, problems in collecting accounts receivable, reimbursement levels, government mandated price reductions, reduced protection for intellectual property, potentially adverse tax consequences, limits on repatriation of earnings, the burdens of complying with a wide variety of foreign laws, nationalization, war, insurrection, terrorism and other political risks and factors beyond our control. In addition, sales to countries such as Russia and Iran may be disrupted by short and long-term international sanctions, which may involve the requirement to obtain export licenses, the cessation of business activities in those countries, implementations of compliance programs, and prohibitions on the conduct of our business. As a consequence, these potential international risks may prevent us from selling our products in certain jurisdictions, lead to competitive products similar to ours developed and sold without properly licensing our IP, may make it very difficult or even impossible to collect on accounts receivable or may impose a variety of additional expenses on our business such that we cannot sell our products at a profit. For international sales, we price and invoice our products primarily in U.S. dollars and consequently incur a U.S./Canadian foreign exchange risk. Similarly, our customers in countries that do not have the U.S. dollar as their home currency, such as China and Russia, may face additional pricing pressure if the U.S. dollar moves unfavorably against their home currency. We also expect that there may be a greater requirement in the future for sales to European customers to be priced and invoiced in Euros. Any significant adverse change in currency exchange rates may negatively impact our profit margins such that we may not be able to generate positive cash flow or earnings from our operations. To date, we have not made any provision for a currency-hedging program. We periodically evaluate options to mitigate our exposure to currency fluctuations, but there can be no assurance that we will be able to do so.

We are not able to predict sales in future quarters and a number of factors affect our periodic results, which makes our quarterly operating results less predictable.

We are not able to accurately predict our sales in future quarters. A significant portion of our product sales is made through distributors, both domestically and internationally. Many of our distributors or sales agencies in our biggest markets are new. We do not have adequate experience working with them to accurately predict their future performance. As a result, our financial results, quarterly product sales, trends and comparisons are affected by as-yet-untried new distributors, seasonal factors and fluctuations in the buying patterns of end-user customers, our distributors, and by the changes in inventory levels of our products held by these distributors. For example, higher utilization rates of our NT-proBNP test may be due to a higher number of emergency department visits by patients exhibiting shortness of breath, a symptom of both heart failure and of influenza. However, higher utilization may also result from greater awareness, education and acceptance of the uses of our tests, as well as from additional users within the hospitals. Accordingly, our sales in any one quarter or period are not indicative of our sales in any future period.

We generally operate with a limited order backlog, because we ship our products shortly after we receive the orders from our customers. As a result, our product sales in any quarter are generally dependent on orders that we receive and ship in that quarter. As a result, any such revenue shortfall would immediately materially and adversely impact our operating results and financial condition. The sales cycle for our products can fluctuate, which may cause revenue and operating results to vary significantly from period to period. We believe this fluctuation is primarily due to (i) seasonal patterns in the decision-making processes by our independent distributors and direct customers, (ii) inventory or timing considerations by our distributors (iii) the purchasing requirements by various international governments to acquire our products and (iv) the ordering frequency of our distributors and direct customers. In addition, distributors may fail to make their contractually required minimum purchases, may change their own business priorities and interests without notifying us in advance, may otherwise violate distribution agreements or may not renew upon the expiration of current distribution agreements.

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Accordingly, we believe that period to period comparisons of our results of operations are not necessarily meaningful. In the future, our periodic operating results may vary significantly depending on, but not limited to, a number of factors, including:

●     new product announcements made by us or our competitors;

●     changes in our pricing structures or the pricing structures of our competitors;

●     our ability to develop, introduce and market new products on a timely basis, or at all;

●     the timing and size of orders from our distributors;

●     country specific issues or restrictions affecting the ability of our distributors to purchase our products;

●     the seasonality of sales of our Influenza A+B products and the impact on demand based on the severity of the Influenza season;

●     our ability to maintain existing distributors and grow our Cardiovascular and Influenza A+B and RSV testing revenues;

●     our manufacturing capacities and our ability to increase the scale of these capacities;

●     the mix of product sales between our instruments and our consumable products;

●     our ability to take advantage of supply constraints by our competitors due to regulatory and other issues;

●     the amount we spend on research and development; and

●     changes in our strategy.

Although we are a Canadian company, a small number of our products are subject to U.S. export control and economic sanctions laws.

We have determined that some of our products are subject to U.S. export controls and may require a license from the U.S. Government prior to export to countries subject to economic sanctions. Although these products are manufactured in Canada, they incorporate U.S. origin components, and for that reason, they may be subject to U.S. controls. 

As a result, we must monitor, on an on-going basis, our compliance with economic sanctions, if any, and the level of U.S. origin components contained in our products that may lead to more of our products being subject to U.S. controls. If we inadvertently violate U.S. export control and economic sanction laws, significant penalties that could include fines, termination of our ability to export our products, and/or referral for criminal prosecution may be imposed against us, our management, or other employees. These penalties may have a material adverse effect on our business, operating results, and financial condition.

We may not be able to compete effectively with larger, more established entities or their products, or with future organizations or future products, which could cause our sales to decline.

In-vitro diagnostics is a well-established field in which several competitors have substantially greater financial resources and larger, more established marketing, sales and service organizations than we do.

Our principal competitors in the human diagnostic market are Alere Inc. (Alere), Abbott Point of Care Inc. (Abbott), Mitsubishi Chemical Corporation (Mitsubishi), Roche Diagnostics (Roche), Siemens AG (Siemens), Becton Dickinson Corporation, and Quidel Corporation. Alere, Abbott and Roche have quantitative POC systems, and Mitsubishi and Siemens produce a small quantitative bench-top system, for the detection of some cardiac markers.

In addition, in various emerging markets such as China, there may be local competitors who sell only in that specific country. Some of these local competitors may be very strong competitors in their local markets due to factors which may include lower cost of production, stronger sales, marketing and distribution capabilities, less stringent quality standards and customer quality expectations, customer familiarity and preference for local suppliers and local government environments which may favor local companies and their products and/or may preferentially, or by statute, favor POC testing device manufacturers offering the lowest price.

In the biodefense testing market, our primary competitors are Alexeter Technologies LLC (Alexeter), Idaho Technology Inc., Cepheid Inc. (Cepheid) and Biofire Defense. Alexeter sells rapid on-site immunoassay tests that are read by an instrument and Cepheid and Biofire Defense have a polymerase chain reaction test system being sold in this marketplace.

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In the Vector environmental testing market, our primary competitor is VecTor Test Systems, Inc., VecTor Test Systems, Inc. markets and sells a product for the rapid detection of WNV, Chikungunya, Malaria, Dengue, SLE, EEE and WEE among other tests.

We believe the primary competitors in the POC Influenza A+B and RSV testing market are Binax, Inc., a division of Alere, Becton Dickinson Corporation and Quidel Corporation. Each of these companies has qualitative POC tests for the detection of Influenza A+B and RSV.

Many of our competitors have significantly larger product lines to offer and greater financial and other resources to acquire or develop new or competing technologies than we do. In addition, many of these competitors have large sales forces, well-established distribution channels, and well-known brand names. In the event that we are not able to compete successfully in the marketplace, we may face limited adoption of our products by potential customers or erosion of current market share, which would seriously impede our ability to generate revenue.

Our business may be impacted by political events, war, terrorism, public health issues, natural disasters and other circumstances.

War, terrorism, geopolitical uncertainties, and other business interruptions have caused and could cause damage or disruption to international commerce and the global economy, and thus could have a material adverse effect on our Company, our suppliers, logistics providers, manufacturing vendors, and customers, including our channel partners. Our operations are subject to interruption by events beyond our control, which could decrease demand for our products, make it difficult or impossible to make and deliver products to our customers, including channel partners, or to receive components from our suppliers, and create delays and inefficiencies in our supply chain. Should any of these events occur, we could incur significant losses, require substantial recovery time and experience significant expenditures in order to re-obtain market share or resume operations.

A larger-than-required and high cost facility lease and associated cash used to repay additional financial obligations associated with the facility will negatively impact our operating results and financial position.

In May 2007, we entered into an agreement to lease a multi-use, 46,000 square foot facility in Vancouver, British Columbia, Canada. This facility, which we have occupied as our main operation center since 2008, is significantly larger than required for our near term production requirements. The excess space is difficult to sublease due to the current layout of the company’s manufacturing operations and the significant availability of space in other buildings in the local real estate market. In addition to rental payments for the facility, we are obligated to repay with interest over the next approximate 6.5 years the $4.8 million balance due as of September 30, 2016 on the repayable leasehold improvement allowance.

We believe that the financial obligation associated with this facility lease and associated liabilities represent a total facilities cost significantly above the current real estate market prevailing lease rates. This factor, together with the excessive size of the facility, may adversely affect the company’s financial performance.

Should there be a downturn in our business or the markets in which we compete, we may not achieve maximum utilization of our facility. As a result, we may then seek an alternative use for all or a portion of the property or seek to sub-lease some or all of our property. We may experience unanticipated decreases in productivity and other losses due to inefficiencies relating to any such transition, or delays in obtaining any required approvals or clearances from regulatory agencies related to the validation of any new manufacturing facilities. For instance, the scale-up of manufacturing at our planned facility could result in lower than expected manufacturing output and higher than expected product costs.

Sole-source suppliers provide some of our raw materials. In the event a sole-sourced raw material became unavailable, there may be a delay in obtaining an alternate source, and the alternate source may require significant development to meet product specifications. It is also possible that we may not be able to locate an acceptable alternate source on a timely basis, or at all. Consequently, we may face difficulty in manufacturing, or be entirely unable to manufacture, some of our products.

Single-source suppliers provide some key components, in particular antibodies, used in the manufacture of our products. We do not have supply agreements with all of our single-sourced suppliers. We are currently negotiating supply agreements for some of the key reagents that we use. Although we maintain inventories of some key components, including antibodies, any loss or interruption in the supply of a sole-sourced component or raw material would have a material adverse effect on our ability to manufacture these products until a new source of supply is qualified and, as a result, may temporarily or even permanently prevent us from being able to sell our products. Given the nature of variations in biological raw materials, a new supply source of antibodies may require considerable time and resources to develop manufacturing procedures to meet the required product performance levels for commercial sale. Additionally, it may require us to enter into supply agreements on commercially reasonable terms with the new suppliers to ensure supply or there could be a material adverse effect on our ability to manufacture product for commercial sale.

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Interruption in the supply of any sole-sourced component or raw material would likely have a material adverse effect on our profit margins, our ability to develop and manufacture products on a timely and competitive basis, and the timing of market introductions and subsequent sales of products.

We rely significantly on third party manufacturers for some components of our products and rely on third party manufacturers of certain equipment necessary for us to scale-up our internal capacity to manufacture products. If these third party manufacturers experience difficulties, our ability to serve various markets with our products may be significantly restricted.

All of our test kits, or Kits, and our portable fluorescence readers, or Readers, are currently produced in-house. Some of the components of our Readers are assembled by third party manufacturers. To meet the projected demand for our products, we will require additional equipment to scale up our manufacturing processes. Some of this equipment will require customization that may increase the lead-time from the supplier. If demand for our products significantly exceeds forecasts, or manufacturing equipment is unable to be delivered to us on schedule, we may not be able to meet customer requirements.

Some components of our instruments face obsolescence pressure. If we are not able to secure enough of these components or design and receive any required regulatory approvals for replacement components to meet our future demands, our ability to serve various markets may be significantly restricted or eliminated.

As component manufacturers manage their product lifecycles, some critical components used in the manufacturing of our Readers may become unavailable resulting in delays in production or lead to the inability to manufacture our instrument as currently designed. In some cases, we are able to secure sufficient quantities of the components prior to their obsolescence to continue manufacturing until replacement components can be sourced or designed and the required regulatory approvals are received. Should these safety stocks of older components or product design updates for replacement components prove insufficient, we may experience significant delays in production or the potential inability to manufacture our instrument as currently designed may occur. As a result, we may not be able to meet customer requirements, and that could have a material adverse effect on future sales.

To the extent we are able to enter into collaborative arrangements or strategic partnerships, we will be exposed to risks related to those collaborations and partnerships.

We are currently party to a collaboration agreement and related supply agreement with Joinstar. The success of the collaboration agreement and the timing of our receipt of the development milestones is dependent on our and Joinstar’s success in the co-development of components and assays to be run on a new immunoassay analyzer developed by Joinstar. In addition, since marketing and distribution of the co-developed assays will be the responsibility of Joinstar, we are dependent on the success of their marketing efforts under the supply agreement. Additionally, the collaboration and related supply agreements contain limited non-compete clauses that prevent us from developing an instrument that has the same specific attributes of the Joinstar instrument as well as prevents us from developing similar assays that would run on such an instrument during the terms of the agreements.

The collaboration with Joinstar could subject us to a number of risks, including the risk that:

● We may not be able to control the amount and timing of resources that Joinstar will devote to the co-development and marketing of the assays;

● Joinstar may experience financial difficulties or technical difficulties in the development of their new immunoassay analyzer;

● Significant changes in a Joinstar’s business strategy may adversely affect their willingness or ability to complete their obligations under our agreements; and

● The limited non-compete clauses may inhibit our ability to enter into a strategic partnership with a Company with an instrument that has the same specific attributes of the Joinstar instrument during the terms of the agreements.

We may not be able to adequately protect our technology and proprietary rights, and third parties may claim that we infringe on their proprietary rights. If we cannot protect our technology, companies with greater resources than us may be able to use our technology to make products that directly compete with ours. Additionally, third parties claiming that we infringe on their proprietary rights may be able to prevent us from marketing our products or force us to enter into license agreements to do so. Both situations may negatively impact our ability to generate revenues, cash flows and earnings.

The success of our technology and products is highly dependent on our intellectual property portfolio, for which we have sought protection through a variety of means, including patents (both issued and pending) and trade secrets, see "Intellectual Property" in our Annual Report on Form 10-K. There can be no assurance that any additional patents will be issued on existing or future patent applications or on patent applications licensed from third parties. Even when such patents have been issued, there can be no assurance that the claims allowed will be sufficiently broad to protect our technologies or that the patents will provide protection against competitive products or otherwise be commercially valuable. No assurance can be given that any patents issued to or licensed to us will not be challenged, invalidated, infringed, circumvented or held unenforceable. In addition, enforcement of our patents in foreign countries will depend on the attitudes, laws and procedures in those foreign jurisdictions. Monitoring and identifying unauthorized use of our technologies or licensed technologies may prove difficult, and the cost of litigation to enforce our IP may impair our ability to guard adequately against such infringement. If we are unable to successfully defend our intellectual property, third parties may be able to use our technology to commercialize products that compete with ours. Further, defending intellectual property can be a very costly and time-consuming process. The costs and delays associated with such a defense, even if successful, may negatively impact our financial position.

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There are many patent claims in the area of lateral flow immunoassays and some patent infringement lawsuits have occurred amongst parties, other than ourselves, with respect to patents in this area. Our commercial success may depend upon our products not infringing on any intellectual property rights of others and upon no such claims of infringement being made. In the event that a third party was able to substantiate a claim against us, it could result in us not being able to sell our products in certain markets or at all. Further, as a result we may be required to enter into license agreements with said third parties on terms that would negatively impact our ability to conduct our business. Even if such claims were found to be invalid, the dispute process would likely have a materially adverse effect on our business, results of operations and prospects. To date, to the best of our knowledge, there have been no threats of litigation, legal actions or other claims made against any of our intellectual property. Although we attempt to identify patents that pose a risk of infringement, there is no assurance that we have identified all U.S. and foreign patents that present such a risk.

In addition to patent protection, we also rely on trade secrets, proprietary know-how and technological advances which we seek to protect, in part, through confidentiality agreements with our collaborative partners, employees and consultants. There can be no assurance that these agreements will not be breached, that we will have adequate remedies for any breach, or that the trade secrets and proprietary know-how will not otherwise become known or be independently discovered by others, which could negatively impact our ability to compete in the marketplace.

To continue developing new products or enhance existing ones, we may need to obtain licenses to certain technologies and rights from third parties, and such licenses may not be available on acceptable terms, or at all. If our product development efforts are hindered, we may face considerable challenges competing in the market place with our existing products or be unable to introduce new products.

Although we believe we are able to conduct our business based on our current intellectual property portfolio, there is a risk that additional non-core technology licenses may be required in the development of new products or to enhance the performance characteristics of our existing products. We believe that such licenses would generally be available on a non-exclusive basis; however, there is no guarantee that they will be available on acceptable terms, or at all. If we are unable to license any required non-core technology, it may impede our product development capabilities, which may put us at a competitive disadvantage in the market place and negatively affect our ability to generate revenue or profits.

We may not be able to protect our intellectual property rights throughout the world.

Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries, including China, do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our product candidates and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

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We depend on our key personnel, the loss of whose services could adversely affect our business.

We are highly dependent upon the members of our management and scientific staff, who could leave Response at any time. The loss of these key individuals could impede our ability to achieve our business goals. Our Chief Executive Officer and Senior Vice President of Worldwide Sales and Marketing resigned during the third quarter of 2014. The Board consequently promoted a senior executive to Chief Operating Officer and then as our Chief Executive Officer. In addition, we have hired additional staff for our China office during the third and fourth quarters of 2015 but key employee turnover in China continues. The Board continues to work closely and support the remaining management team and believes this team has the potential to effectively lead the company’s recovery and future growth. There can be no assurance however that the current management team can continue to improve operations and achieve strong targeted future growth due to the substantial workload facing the small leadership team.

We face competition for qualified employees from numerous industry and academic sources, and there can be no assurance that we will be able to retain our key managers and other qualified personnel on acceptable terms. We currently do not have key person insurance in place on any of our key employees. In the event that we are unable to retain key personnel, and recruit qualified key personnel on favorable terms, we may not be able to successfully manage our business operations, including sales and marketing activities, product research and development and manufacturing. As a consequence, we may not be able to effectively develop and manufacture new products, negotiate strategic alliances or generate sufficient revenue growth from existing products.

Compliance with changing regulations and standards for accounting, corporate governance and public disclosure may result in additional expenses.

To maintain high standards of corporate governance and public disclosure, we intend to invest all reasonably necessary resources to comply with evolving regulations and standards for accounting. These investments may result in increased general and administrative expenses and a diversion of management time and attention from strategic revenue generating and cost management activities. If we fail to maintain effective internal controls and procedures for financial reporting, or the SEC requirements applicable to these, we could be unable to provide timely and accurate financial information and therefore be subject to investigation by the SEC, and civil or criminal sanctions. Additionally, ineffective internal control over financial reporting would place us at increased risk of fraud or misuse of corporate assets and could cause our stockholders, lenders, suppliers and others to lose confidence in the accuracy or completeness of our financial reports.

Management is required to determine if material weaknesses exist in our internal control over financial reporting.

We are required to maintain internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes. If we fail to maintain effective internal controls over financial reporting and disclosure controls and procedures, our business and results of operations could be harmed, we may be unable to report properly or timely the results of our operations and investors may lose faith in the reliability of our financial statements. Ineffective internal control over financial reporting may also increase the risk of, or result in, fraud or misuse of our corporate assets. As a consequence, the market price of our securities may be harmed. In addition, our current or former officers, directors and employees, may be subject to investigation by the SEC or Canadian securities regulators, and civil or criminal sanctions, or shareholder lawsuits, any of which could result in a significant expense whether directly or indirectly through the Company’s statutory or contractual obligations to indemnify such persons, and require significant investments of management time, which may prevent management from focusing its efforts on our business operations.

We may be subject to breaches of our information technology systems, which could cause substantial harm to our business.

We maintain significant proprietary information and manage personal data and confidential information about our employees and customers. Although cybersecurity and the continued development and enhancement of our controls, processes and practices designed to protect our systems, computers, software, data and networks from attack, damage or unauthorized access are a high priority for us, this may not successfully protect our systems against all vulnerabilities, including technologies developed to bypass our security measures. In addition, outside parties may attempt to fraudulently induce employees or customers to disclose sensitive information in order to gain access to our secure systems and networks.

As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities. Further, because the techniques used to gain access to, or sabotage, systems often are not recognized until launched against a target, we may be unable to anticipate the correct methods necessary to defend against these types of attacks. Any actual breach, the perceived threat of a breach or a perceived breach, could cause our customers to cease doing business with us, subject us to lawsuits, regulatory fines or other action or liability, which would harm our business, financial condition and results of operations.

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We may be subject to product liability claims, which may adversely affect our operations.

We may be held liable or incur costs to settle liability claims if any of the products we sell cause injury or are found unsuitable. Although we currently maintain product liability insurance, we cannot be assured that this insurance is adequate, and, at any time, it is possible that such insurance coverage may cease to be available on commercially reasonable terms, if at all. A product liability claim could result in liability to us greater than our total assets or insurance coverage. Moreover, product liability claims could have an adverse impact on our business even if we have adequate insurance coverage.

Manufacturing risks and inefficiencies may adversely affect our ability to produce products and could reduce our gross margins and increase our research and development expenses.

We are subject to manufacturing risks, including our manufacturing experience with newer products and processes, which may hinder our ability to scale-up manufacturing. Additionally, unanticipated acceleration or deceleration of customer demand may lead to manufacturing inefficiencies. We must manufacture our products in compliance with regulatory requirements, in sufficient quantities and on a timely basis, while maintaining acceptable product quality and manufacturing costs. Significant additional resources, implementation of additional automated and semi-automated manufacturing equipment and changes in our manufacturing processes and organization have been, and are expected to continue to be, required for scale-up to meet increasing customer demand, and this work may not be affordable and/or successfully or efficiently completed.

In addition, although we expect some of our newer products and products under development to share production attributes with our existing products, production of these products may require the development of new manufacturing technologies and expertise. It may not be possible for us, or any other party, to manufacture these products at a cost or in quantities to make these products commercially viable.

Manufacturing and quality problems have arisen and may arise in the future as we attempt to scale-up our manufacturing capacity to meet potentially higher future sales growth and implement automated and semi-automated manufacturing methods. We rely on third parties for the manufacture of much of our automated and semi-automated manufacturing equipment. Consequently, implementation of automated and semi-automated manufacturing methods may not be achieved in a timely manner or at a commercially reasonable cost, or at all. In addition, we continue to make investments to improve our manufacturing processes and to design, develop and purchase manufacturing equipment that may not yield the improvements that we expect. Unanticipated acceleration and deceleration of customer demand for our products has resulted, and may continue to result, in inefficiencies or constraints related to our manufacturing, which has harmed, and may in the future harm, our gross margins and overall financial results. Such inefficiencies or constraints may also result in delays, lost potential product sales or loss of current or potential customers due to their dissatisfaction.

We may not be able to effectively and efficiently manage the planned growth of our operations and, as a result, we may find ourselves unable to effectively compete in the marketplace with our products resulting in lost revenue, poor operational performance, and sustained losses.

We anticipate growth in the scope of the operating and financial systems and the geographic area of operations as new products are developed and commercialized. This growth will result in increases in responsibilities for both existing and new management personnel. Managing growth effectively will require us to continue to implement and improve operational, financial and management information systems, and to successfully attract, hire on favorable terms, develop, motivate and manage employees. This growth may require additional locations and new capital equipment. If we are unable to successfully manage and finance our expansion, we may experience an inability to take advantage of new sales opportunities, poor employee morale, an inability to attract new employees and management, an inability to generate adequate financial and other relevant reports, poor quality control and customer service and difficulty managing our operating expenses and working capital. As a consequence, we may find ourselves unable to compete effectively in the market place with our products leading to loss of revenue and poor operational performance, including sustained losses.

The research and development of our products carries substantial technical risk. We may not be able to successfully commercialize future products. As a consequence, our ability to expand our product portfolio to generate new revenue opportunities may be severely limited.

Our future growth will depend upon, among other factors, our ability to afford and to successfully develop new products and to make product improvements to meet evolving market needs. Although we believe that we have the scientific and technical resources available, future products will nevertheless be subject to the risks of failure inherent in the development of products based on innovative technologies and our ability to fund the timely development of new products. Any specific new product in research and development may face technical challenges that may significantly increase the costs to develop that product, cause delays to commercialization or prevent us from commercializing that product at all. Additionally, our currently constrained financial resources may limit our ability to develop new products and technologies. Although we expect to continue to expend resources on research and development efforts, to enhance existing products and develop future ones, we are unable to predict whether research and development activities will result in any commercially viable products. There can be no assurance that we will be able to successfully develop future products and tests. This would prevent us from introducing new or improved products in the marketplace, could allow competing products to capture additional market shares and would negatively impact our ability to grow our revenues and become profitable.

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Our Company is organized under the laws of British Columbia, Canada, and certain of our directors and officers and substantially all of our assets are located outside of the United States, which may make enforcement of United States judgments against us difficult.

We are organized under the laws of British Columbia, Canada, substantially all of our assets are located outside of the United States and certain members of our directors and officers are residents outside of the United States. Currently, we only maintain a permanent place of business within the United States, for our wholly owned U.S. subsidiary, Response Point Of Care, Inc. As a result, it may be difficult for U.S. investors to affect service of process, or enforce within the United States any judgments obtained against us or those officers or directors, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof. In addition there is uncertainty as to whether the courts of Canada would recognize, or enforce, judgments of United States courts obtained against us, or our directors and officers, predicated upon the civil liability provisions of the securities laws of the United States, or any state thereof; or be competent to hear original actions brought in Canada against us, or our directors and officers, predicated upon the securities laws of the United States, or any state thereof.

Valuation of stock-based payments, which we are required to perform for purposes of recording compensation expense under FASB – ASC 718 "Compensation - Stock Compensation", involves significant assumptions that are subject to change and difficult to predict.

On January 1, 2006, we adopted FAS 123(R), which is now codified as FASB ASC 718 Compensation – Stock Compensation, which requires that we record compensation expense in the statement of income for stock-based payments, such as stock options, using the fair value method. As long as stock-based awards are utilized as part of our compensation strategy, the requirements of ASC 718 have had, and will continue to have, a material effect on our future financial results reported under Generally Accepted Accounting Principles, and make it difficult for us to accurately predict our future financial results.

For instance, estimating the fair value of stock-based payments is highly dependent on assumptions regarding the future exercise behavior of our employees and changes in our stock price. Our stock-based payments have characteristics significantly different from those of freely traded options, and changes to the subjective input assumptions of our stock-based payment valuation models can materially change our estimates of the fair values of our stock-based payments. In addition, the actual values realized upon the exercise, expiration, early termination, or forfeiture of stock-based payments might be significantly different from our estimates of the fair values of those awards as determined at the date of grant.

ASC 718 could also adversely affect our ability to provide accurate guidance on our future financial results as assumptions that are used to estimate the fair value of stock-based payments are based on estimates and judgments that may differ from period to period. For instance, we may be unable to accurately predict the timing, amount, and form of future stock-based payments to employees or directors. We may also be unable to accurately predict the amount and timing of the recognition of tax benefits associated with stock-based payments as they are highly dependent on the exercise behavior of our employees, and the price of our stock relative to the exercise and fair value of each outstanding stock option.

For those reasons, among others, ASC 718 may create variability and uncertainty in the compensation expense we will record in future periods, potentially negatively impacting our ability to provide accurate financial guidance. This variability and uncertainty could further adversely impact our stock price, and increase our expected stock price volatility as compared to prior periods.

Risks Related to Our Industry

Products in the biomedical industry, including ours, may be subject to government regulation. Obtaining government approvals can be costly and time consuming. Any failure to obtain necessary regulatory clearances will restrict our ability to sell those products and impede our ability to generate revenue.

As we operate in the biomedical industry, some of our products are subject to a wide variety of government regulation (federal, state, and municipal) within the United States, China and in other international jurisdictions. For example, Health Canada, the FDA, the CFDA and comparable regulatory agencies in other countries impose substantial pre-market approval requirements on the introduction of medical products, through lengthy and detailed clinical testing programs and other costly and time consuming procedures. Satisfaction of these requirements is expensive and can take a long period of time depending upon the type, complexity, and novelty of the product. All medical devices manufactured for sale in the United States and Canada, regardless of country of origin, must be manufactured in accordance with Good Manufacturing Practices specified in regulations under the Federal Food, Drug, and Cosmetic Act. These practices control the product design process as well as every phase of production from incoming receipt of raw materials, components, and subassemblies to product labeling, tracing of consignees after distribution, and follow-up and reporting of complaint information. Both before and after a product is commercialized, we have ongoing responsibilities under the regulations of Health Canada, the FDA, the CFDA and other agencies. Noncompliance with applicable laws and the requirements of Health Canada, the FDA, the CFDA and other agencies can result in, among other things, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, failure of the government to grant pre-market clearance or pre-market approval for devices, withdrawal of marketing clearances or approvals, and criminal prosecution. Health Canada, the FDA, the CFDA and other agencies have the authority to request recall, repair, replacement, or refund of the cost of any device manufactured or distributed by us. The FDA and CFDA also administer certain controls over the import and export of medical devices to and from the United States and China respectively. The U.S. Clinical Laboratory Improvement Acts of 1988 also affects our medical products. This law is intended to assure the quality and reliability of all medical testing in the United States regardless of where tests are performed. The regulations require laboratories performing clinical tests to meet specified standards in the areas of personnel qualification, administration, and participation in proficiency testing, patient test management, quality control, quality assurance, and inspections.

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Sales and pricing of medical products, including ours, are affected by third-party reimbursement. Depending on our manufacturing costs, we may not be able to profitably sell our products at prices that would be acceptable to customers affected by third party reimbursement programs. Consequently, we may have difficulty generating revenue from these customers, resulting in reduced profit margins and potential operating losses.

Third party payers can indirectly affect the pricing and, therefore, the relative attractiveness of our products by regulating the maximum amount of reimbursement provided for testing services. These third party payers increasingly challenge prices paid for medical products, and the cost effectiveness of such products due to global pressure on healthcare costs. If the reimbursement amounts for testing services are decreased in the future, it may decrease the amount that physicians and hospitals are able to charge patients for such services and therefore the prices that we, or our distributors, can charge for our products. Consequently, our ability to generate revenue and/or profits may be negatively impacted for both existing and new products. Significant uncertainty exists as to the reimbursement potential of newly cleared health care products, if any. The reimbursement amounts paid by third-party payers on existing medical products can be reduced at any time. There can be no assurance that products will be considered cost effective, or that reimbursement from third party payers will be available, or, if available, that reimbursement will not be limited, thereby adversely affecting our ability to sell products or sell our products at a profit.

Our business is substantially dependent on market acceptance of our products. As well, our environmental and biodefense business is affected by industry, governmental and public perceptions of these products in general. Failure to obtain or retain market acceptance for some or all of our products would have a negative impact on our revenue and ability to operate profitably.

The commercial success of our clinical tests is highly dependent upon the acceptance and adoption of the tests by the medical community. The medical community tends to be very conservative about adopting new technologies and products. Often substantial data and evidence supporting product performance is required to generate market acceptance. If we are unsuccessful in generating market acceptance, our ability to generate revenue and hence profits would be severely limited.

The commercial success of our environmental and biodefense tests is dependent upon their acceptance by the public safety community and government funding agencies as being useful and cost effective. In addition, the purchase of our biodefense products in the United States (our largest potential market) by the public safety community is highly dependent on the availability of federal and state government funds dedicated to "homeland security". In the event that homeland security funds became unavailable for use (to purchase our products or otherwise) or the release of such funds was significantly delayed, it would have a negative effect on our ability to generate revenue or profits.

Federal, state and foreign regulations regarding the manufacture and sale of medical devices continue to evolve and are constantly subject to change. We cannot predict what regulations may come into effect in the future and what impact, if any; such regulatory changes may have on our business.

A majority of our sales are through distributors in foreign markets who sell our products or modifications of our products in their local country markets. Sales through these distributors in these markets are usually subject to the regulators in those markets. Frequently our distributors are responsible for obtaining and maintaining regulatory approval in their territories and are thus subject to all of those requirements. In the future, should we elect to build our own sales and marketing operations in certain countries outside the US, we would be subject to extensive regulations in each of those countries. We may not be successful in such new initiatives.

If products in the biodefense testing industry and other environmental testing segments, including ours, become subject to government legislation in the future, obtaining necessary government approvals may be very costly and time consuming. Failure to obtain government approvals will restrict our ability to sell our products and impede our ability to generate revenue.

In the biodefense and Vector Environmental testing markets, there is currently an absence of regulatory checks and balances and there is significant market uncertainty and misinformation. While we believe it is likely that future regulatory requirements in these markets will come into effect, the form and substance of these regulations remain highly uncertain. The effect of government regulations may be to prevent or to delay marketing and pricing of any new products for a considerable or indefinite period or to require additional studies prior to approval. Federal, state and foreign regulations, or lack thereof, regarding the sale of environmental testing devices are subject to change. We cannot predict the impact, if any, such changes may have on our business.

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We operate primarily selling through distributors in highly competitive markets, with continual developments in new technologies and products. Some of our competitors have significantly greater resources than we do. Others, while having fewer resources than we do, may nevertheless have a very strong market or other leadership position in a specific local market where we or our distributors compete. We or our distributors may not be able to compete successfully based on many factors, including product price or performance characteristics, sales and marketing effort or customer support capabilities. An inability to successfully compete could lead to us having limited prospects for establishing market share or generating revenues.

The diagnostic industry is characterized by extensive research efforts, ongoing technological progress and intense competition. There are many public and private companies, including well-known diagnostic companies, engaged in marketing and developing products for the markets we have targeted. Many of these companies have substantially greater financial, technical and human resources than we do, including direct sales in countries in which we are selling our products. While we are in the process of establishing our distribution networks in the United States and China, our competitors may be more successful in convincing potential customers to adopt their products over ours and hence gain greater market share. Competitors with greater financial resources may also have an advantage when dealing with suppliers, particularly sole source suppliers providing antibodies or unique reagents. Additionally, they may develop technologies and products that are more effective than any products developed by us, or that would render our technologies and products obsolete or non-competitive.

In addition, in various emerging markets such as China, there may be local competitors who sell only in that specific country. Some of these local competitors may be very strong competitors in their local markets due to factors, which may include lower cost production, stronger sales, marketing and distribution capabilities, customer familiarity and preference for local suppliers and local government environments, which may favor local companies and their products.

In addition to the specific competitive risks from rapid diagnostic manufacturers that we face in the market for our tests, we face intense competition in the general market for diagnostic testing including companies making laboratory-based tests and analyzers, and clinical reference laboratories. Currently, the majority of diagnostic tests prescribed by physicians and other healthcare providers are performed by independent clinical reference laboratories and hospital-based laboratories using automated testing systems. Therefore, in order to achieve market acceptance for our products, we will be required to demonstrate that our products provide clinical benefit and are cost-effective and time saving alternatives to automated tests traditionally used by clinical reference laboratories or hospital-based laboratories.

Companies operating in our industry may be impacted by potential healthcare reform, including decreased reimbursement for our product’s use. Such healthcare reform may include pricing restrictions on medical products, including ours, that may restrict our ability to sell our products at a profit.

Healthcare reform bills that have been before the United States Congress and government officials in other countries contemplate changes in the structure, financing, and delivery of healthcare services. These and any future healthcare reforms may have a substantial impact on the operations of companies in the healthcare industry worldwide, including us. Such reforms could include product pricing restrictions, excise taxes, or additional regulations governing the usage of medical products. No assurances can be given that any such proposals, or other current, or future, legislation in the United States, or other countries, will not adversely affect our product development and commercialization efforts, results of operations, or financial condition. At this time, we are unaware of any recent legislation or pending legislative proposals that will materially negatively affect our business.

The impact of consolidation of several major competitors in the market for immunoassay testing is difficult to predict and may harm our business.

The market for immunoassay-based diagnostic testing is rapidly changing as a result of consolidation in the industry. There have been many acquisitions in the medical diagnostics market including several by Alere, which helped the company expand its presence in the market for rapid diagnostic tests used in hospitals and doctors' offices. Siemens, Abbott and Alere both have significant existing businesses in diagnostics and/or related markets for healthcare equipment and services. Abbott has recently proposed to acquire Alere although there is no assurance when and if this transaction will close. It is unclear how these completed, or future, acquisitions will impact the competitive landscape for our products, or for hospital-based diagnostic testing in general. However, because these competitors sell a broad range of product offerings to our prospective hospital customers, and because of the substantially greater financial resources and more established marketing, sales, and service organizations that they each have, we believe there is greater risk that these new consolidated competitors may offer discounts as a competitive tactic, or may hold other competitive advantages as a result of their ability to sell to a broader menu of important hospital infrastructures, for equipment and information systems, on a combined, or bundled basis.

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Our business and industry is affected by seasonality, including governmental budget cycles. We may not be able to successfully scale up operations to meet demand during peak seasonal periods or scale down operations during periods of low demand, which could result in lost revenue and/or reduced manufacturing efficiencies, negative cash flows and losses.

Our operating results may fluctuate from quarter to quarter due to many seasonal factors. Many of our prospective customers are government related organizations at a federal, state/provincial or municipal level. Consequently, our sales may be tied to government budget and purchasing cycles. Sales may also be slower in the traditional vacation months, could be accelerated in the first or fourth calendar quarters by customers whose annual budgets are about to expire (especially affecting purchases of our test Readers), may be distorted by unusually large Reader shipments from time to time, or may be affected by the timing of customer test cartridge ordering patterns. Seasonality may require us to invest significantly in additional resources including equipment, labor, and inventory to meet demand during peak seasonal periods. There can be no assurance that we will be successful in putting in place the resources to meet anticipated demand, which could lead to lost revenue opportunities. If we cannot scale down our operations and expenses sufficiently during periods of low demand for our products, we may experience significantly negative cash flow and operating losses. If we are unable to adequately forecast seasonal activity, we may experience periods of inventory shortages or excesses that would negatively impact our working capital position.

Risks Related to Our Common Stock

As we have a large number of warrants and stock options outstanding, our shareholders will experience dilution from these options and warrants in the event that they are exercised.

As of September 30, 2016, we had outstanding stock options to purchase an aggregate of 1,350,894 shares, at exercise prices between $0.60 and $3.10, warrants to purchase an aggregate of 5,049,445 shares at exercise prices between $1.00 and $3.58, 131,816 restricted share units, and 86,918 deferred share units, which in total represents 38% of our fully diluted outstanding share capitalization at that date. To the extent that these outstanding options and warrants are exercised, considerable dilution to the interests of our shareholders will occur.

The price of our common stock may be volatile, and a shareholder's investment in our common stock could suffer a decline in value.

There has been significant volatility in the volume and market price of our common stock, and this volatility may continue in the future. This volatility may be caused by a variety of factors, including the announcement of the Arrangement, the lack of readily available quotations, the absence of consistent administrative supervision of "bid" and "ask" quotations, and generally lower trading volume. In addition, factors such as quarterly variations in our operating results, changes in financial estimates by securities analysts or our failure to meet our or their projected financial and operating results, litigation involving us, general trends relating to the medical device industry, actions by governmental agencies, national economic and stock market considerations, as well as other events and circumstances beyond our control, could have a significant impact on the future market price of our common stock and the relative volatility of such market price.

Because our common stock is considered a "penny stock," a shareholder may have difficulty selling shares in the secondary trading market.

Our common stock is subject to certain rules and regulations relating to "penny stock" (generally defined as any equity security that is not quoted on the NASDAQ Stock Market and that has a price less than US$5.00 per share, subject to certain exemptions). Broker-dealers who sell penny stocks are subject to certain "sales practice requirements" for sales in certain nonexempt transactions (e.g., sales to persons other than established customers and institutional "accredited investors"), including requiring delivery of a risk disclosure document relating to the penny stock market and monthly statements disclosing recent price information for the penny stock held in the account, and certain other restrictions. For as long as our common stock is subject to the rules on penny stocks, the market liquidity for such securities could be significantly limited. This lack of liquidity may also make it more difficult for us to raise capital in the future through sales of equity in the public or private markets.

Because our common stock is not traded on a national securities exchange in the U.S., a U.S. shareholder's ability to sell shares in the secondary trading market may be limited.

Our common stock is currently listed for trading in Canada on the Toronto Stock Exchange (“TSX”). Our common stock is also quoted in the United States on the OTC. Shareholders may find it more difficult to dispose of or to obtain accurate quotations as to the price of our securities than if the securities were traded on a national securities exchange like The New York Stock Exchange, the NASDAQ Stock Market or the NYSE Amex LLC. The continued listing of our common stock on the TSX is currently under review. We have been granted 60 days from September 22, 2016 to demonstrate compliance with the continued listing requirements of the TSX. In the event we are unable to continue with the listing of our common stock on the TSX, other listing alternatives exist for reporting issuers in the U.S. and Canada, including the TSX Venture Exchange.

-43-

ITEM 2.     UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

ITEM 3.     DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4.     MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.     OTHER INFORMATION

None

-44-

ITEM 6.     EXHIBITS

Exhibit Number	Exhibit Description	Incorporated by Reference
2.1	Arrangement Agreement dated June 16, 2016 between the Company and 1077801 B.C. Ltd., a company owned by OrbiMed Asia Partners, LP, OrbiMed Private Investments III, LP and OrbiMed Associates III, LP and Shanghai Runda Medical Technology Co., Ltd	Previously filed as an exhibit to, and incorporated herein by reference from, our Current Report on Form 8-K, as filed on June 20, 2016.
3.1	Certificate of Incorporation dated August 20, 1980.	Previously filed as an exhibit to, and incorporated herein by reference from, our Annual Report on Form 20-F for the year ended December 31, 2004, as filed on May 2, 2005.
3.2	Company Act Name Change dated October 15, 1991.	Previously filed as an exhibit to, and incorporated herein by reference from, our Annual Report on Form 10-K for the year ended December 31, 2011 as filed on March 29, 2012.
3.3	Articles of the Company dated April 10, 1997.	Previously filed as an exhibit to, and incorporated herein by reference from, our Registration Statement on Form 20-F filed on February 4, 2004.
4.1	Escrow Agreement dated July 29, 2004.	Previously filed as an exhibit to, and incorporated herein by reference from, our Annual Report on Form 20-F for the year ended December 31, 2004, as filed on May 2, 2005.
31.1	CEO's Certification required by Rule 13A-14(a) of the Securities Exchange Act of 1934
31.2	CFO's Certification required by Rule 13A-14(a) of the Securities Exchange Act of 1934
32.1	CEO's Certification of periodic financial reports pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, U.S.C. Section 1350
32.2	CFO's Certification of periodic financial reports pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, U.S.C. Section 1350
101	The following materials from Response Biomedical Corp.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016, formatted in XBRL (Extensible Business Reporting Language): (i) unaudited Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) for the three and nine months ended September 30, 2016 and 2015, (ii) unaudited Consolidated Balance Sheets as of September 30, 2016, (iii) audited Consolidated Balance Sheets as of December 31, 2015, (iv) unaudited Consolidated Statements of Shareholders’ Deficit as of September 30, 2016 (v) unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015, and (vi) unaudited Notes to Consolidated Financial Statements

-45-

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		Response Biomedical Corp.
		(Registrant)
Date:	November 14, 2016	/s/ Dr. Barbara R. Kinnaird
		Dr. Barbara R. Kinnaird
		Chief Executive Officer
Date:	November 14, 2016	/s/William J. Adams
		William J. Adams
		Chief Financial Officer

 -46-

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

RULE 13A-14 OR 15D-14 OF THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Dr. Barbara R. Kinnaird, certify that:

1.     I have reviewed this Quarterly Report on Form 10-Q of Response Biomedical Corp.;

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.     The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)     Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)     Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)     Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)     Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.     The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)     All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated:     November 14, 2016

 /s/ Dr. Barbara R. Kinnaird

 Dr. Barbara R. Kinnaird

 Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

RULE 13A-14 OR 15D-14 OF THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, William J. Adams, certify that:

1.     I have reviewed this Quarterly Report on Form 10-Q of Response Biomedical Corp.;

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.     The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)     Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)     Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)     Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)     Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.     The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)     All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated:     November 14, 2016

 /s/ William J. Adams

 William J. Adams

 Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Response Biomedical Corp. (the “Company”) for the period ended September 30, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Dr. Barbara R. Kinnaird, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1.	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:	/s/ Dr. Barbara R. Kinnaird
	Dr. Barbara R. Kinnaird
	Chief Executive Officer

Dated: November 14, 2016

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Response Biomedical Corp. (the “Company”) for the period ended September 30, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, William J. Adams, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1.	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:	/s/ William J. Adams
	William J. Adams
	Chief Financial Officer

Dated: November 14, 2016

XML

Document And Entity Information - shares	9 Months Ended
	Sep. 30, 2016	Nov. 01, 2016
Document Information [Line Items]
Entity Registrant Name	RESPONSE BIOMEDICAL CORP
Entity Central Index Key	0000806888
Trading Symbol	rpbif
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Common Stock, Shares Outstanding (in shares)		10,917,269
Document Type	10-Q
Document Period End Date	Sep. 30, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q3
Amendment Flag	false

XML

Consolidated Balance Sheets (Current Period Unaudited) - CAD		Sep. 30, 2016	Dec. 31, 2015
Current assets
Cash and cash equivalents		CAD 1,346,000	CAD 2,511,000
Trade receivables, net		425,000	466,000
Other receivables		35,000	100,000
Inventories [note 5]		2,121,000	1,819,000
Prepaid expenses and other		898,000	182,000
Total current assets		4,825,000	5,078,000
Long-term prepaid expenses		93,000	93,000
Restricted deposits [note 8]		317,000	901,000
Property, plant and equipment		5,115,000	5,689,000
Total assets		10,350,000	11,761,000
Current liabilities
Accounts payable and accrued liabilities [note 6 ]		4,083,000	3,297,000
Term loan - current portion [note 7]		534,000	801,000
Lease inducements - current portion [note 8]		169,000	169,000
Repayable leasehold improvement allowance - current portion [note 8]	[1]	558,000	514,000
Deferred revenue		1,994,000	1,311,000
Warrant liability [notes 4 and 9]		1,000	301,000
Total current liabilities		7,339,000	6,393,000
Term loan [note 7]			357,000
Lease inducements [note 8]		901,000	1,028,000
Repayable leasehold improvement allowance [note 8]		4,270,000	4,694,000
Liabilities		12,510,000	12,472,000
Commitments [note 11]
Shareholders' deficit
Common shares [note 9]		105,010,000	104,314,000
Additional paid-in capital [note 9]		15,639,000	15,384,000
Deficit		(122,809,000)	(120,409,000)
Total shareholders' deficit		(2,160,000)	(711,000)
Total liabilities and shareholders' deficit		CAD 10,350,000	CAD 11,761,000

[1] The Company received a repayable leasehold improvement for an amount of $7.8 million used for additional improvements to the facility. This lease inducement is being repaid over the term of the operating lease commencing February 1, 2008 at approximately $89,000 per month including interest calculated at an interest rate negotiated between the Company and the landlord. Principal repayments for the three and nine month periods ended September 30, 2016 amounted to $130,000 and $380,000 [2015 - $117,000 and $341,000]. Interest payments for the three and nine month periods ended September 30, 2016 amounted to $135,000 and $416,000 [2015 - $149,000 and $455,000].

XML

Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) (Unaudited) $ in Thousands	3 Months Ended				9 Months Ended				12 Months Ended
	Sep. 30, 2016 CAD CAD / shares shares	Sep. 30, 2016 USD ($) shares	Sep. 30, 2015 CAD CAD / shares shares	Sep. 30, 2015 USD ($) shares	Sep. 30, 2016 CAD CAD / shares shares	Sep. 30, 2016 USD ($) shares	Sep. 30, 2015 CAD CAD / shares shares	Sep. 30, 2015 USD ($) shares	Dec. 31, 2015 CAD
REVENUE
Product sales [note 12]	CAD 1,528,000	$ 1,528	CAD 2,425,000	$ 2,425	CAD 4,885,000	$ 4,885	CAD 9,259,000	$ 9,259
Collaborative revenue [note 10]	56,000		1,103,000		225,000		2,075,000
Total revenue	1,584,000		3,528,000		5,110,000		11,334,000
Cost of sales [notes 5, 9, and 11]	923,000		1,423,000		2,898,000		5,719,000
Gross profit	661,000		2,105,000		2,212,000		5,615,000
EXPENSES [notes 9 and 11]
Research and development	321,000		786,000		1,302,000		2,220,000
General and administrative	571,000		596,000		2,030,000		1,952,000
Sales and marketing	359,000		493,000		1,176,000		1,626,000
Total operating expenses	1,251,000		1,875,000		4,508,000		5,798,000
OTHER EXPENSES (INCOME)
Interest expense and amortization of deferred financing costs and debt discount [note 7]	165,000		215,000		533,000		675,000
Other expenses	4,000		10,000		35,000		10,000
Foreign exchange loss (gain)	35,000		166,000		(164,000)		300,000
Unrealized loss (gain) on revaluation of warrant liability	(964,000)		(890,000)		(300,000)		(795,000)
Total other (income) expenses	(760,000)		(499,000)		104,000		190,000
Net income (loss) and comprehensive income (loss) for the period	CAD 170,000		CAD 729,000		CAD (2,400,000)		CAD (373,000)		CAD (150,000)
Earnings (loss) per common share - basic [note 9] (in Canadian Dollar per share) | CAD / shares	CAD 0.02		CAD 0.07		CAD (0.23)		CAD (0.04)
Earnings (loss) per common share - diluted [note 9] (in Canadian Dollar per share) | CAD / shares	CAD 0.02		CAD 0.07		CAD (0.23)		CAD (0.04)
Weighted average number of common shares outstanding - basic [note 9] (in shares) | shares	10,917,269	10,917,269	9,925,256	9,925,256	10,303,598	10,303,598	9,863,609	9,863,609
Weighted average number of common shares outstanding - diluted [note 9] (in shares) | shares	11,173,374	11,173,374	10,037,745	10,037,745	10,303,598	10,303,598	9,863,609	9,863,609

XML

Consolidated Statements of Shareholders' Deficit (Unaudited) - CAD	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Total
Balance (in shares) at Dec. 31, 2014	9,759,560
Balance at Dec. 31, 2014	CAD 104,124,000	CAD 15,241,000	CAD (120,259,000)	CAD (894,000)
Net Income (Loss) Attributable to Parent			(150,000)	(150,000)
Net shares issued upon conversion of restricted share units (in shares)	165,696
Net shares issued upon conversion of restricted share units	CAD 190,000	(190,000)
Stock-based compensation expense		218,000		218,000
Restricted share units		115,000		115,000
Balance (in shares) at Dec. 31, 2015	9,925,256
Balance at Dec. 31, 2015	CAD 104,314,000	15,384,000	(120,409,000)	(711,000)
Net Income (Loss) Attributable to Parent			(2,400,000)	(2,400,000)
Net shares issued upon conversion of restricted share units (in shares)	99,155
Net shares issued upon conversion of restricted share units	CAD 97,000	(97,000)
Stock-based compensation expense		178,000		178,000
Restricted share units		100,000		100,000
Balance (in shares) at Sep. 30, 2016	10,917,269
Balance at Sep. 30, 2016	CAD 105,010,000	15,639,000	(122,809,000)	(2,160,000)
Private Placement, net of issue costs (in shares)	892,858
Private Placement, net of issue costs	CAD 599,000			599,000
Deferred share units		CAD 74,000		CAD 74,000

XML

Consolidated Statements of Cash Flows (Unaudited) - CAD	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
OPERATING ACTIVITIES
Net Income (Loss) Attributable to Parent	CAD (2,400,000)	CAD (373,000)
Add (deduct) items not involving cash:
Depreciation of property, plant and equipment	709,000	753,000
Amortization of deferred lease inducements	(127,000)	(127,000)
Amortization of deferred financing costs	36,000	71,000
Amortization of discount on debt	22,000	42,000
Stock-based compensation	178,000	160,000
Unrealized loss (gain) on revaluation of warrant liability	(300,000)	(795,000)
Unrealized foreign currency transactions	(87,000)	408,000
Changes in non-cash working capital:
Trade receivables	41,000	262,000
Other receivables	65,000	(22,000)
Inventories	(302,000)	(46,000)
Prepaid expenses and other	22,000	39,000
Accounts payable and accrued liabilities	183,000	(251,000)
Deferred revenue	665,000	661,000
Cash (used in) generated from operating activities	(1,295,000)	782,000
INVESTING ACTIVITIES
Purchase of property, plant and equipment	(50,000)	(410,000)
Reduction of restricted cash	584,000	0
Cash provided by (used in) investing activities	534,000	(410,000)
FINANCING ACTIVITIES
Repayment of repayable leasehold improvement allowance	(380,000)	(341,000)
Repayment of term loan	(624,000)	(397,000)
Proceeds from issuance of common shares, net of share issue costs	599,000	0
Cash used in financing activities	(405,000)	(738,000)
Effect of exchange rate changes on cash and cash equivalents	1,000	23,000
Decrease in cash during the period	(1,165,000)	(343,000)
Cash and cash equivalents, beginning of period	2,511,000	3,221,000
Cash and cash equivalents, end of period	CAD 1,346,000	CAD 2,878,000

XML

Note 1 - Description of Business

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Business Description and Basis of Presentation [Text Block]

1. DESCRIPTION OF BUSINESS

Response Biomedical Corp. (“Response” or the “Company”) was incorporated on August 20, 1980 under the predecessor to the Business Corporations Act (British Columbia). The Company’s wholly owned US subsidiary, Response Point of Care Inc., was incorporated on November 9, 2012 in the State of Delaware. The Company is engaged in the research, development, commercialization and distribution of diagnostic technologies for the medical point of care (POC), laboratory and on-site environmental testing markets. POC and on-site diagnostic tests (or assays) are simple, non-laboratory based tests performed using portable hand-held devices, compact desktop analyzers, single-use test cartridges and/or dipsticks. Since 1996, the Company has developed and commercialized a proprietary diagnostic system called RAMP

®

.

The RAMP

®

System is a portable fluorescence immunoassay-based diagnostic technology that combines the performance of a clinical lab with the convenience of a dipstick test, establishing a new paradigm in diagnostic testing. Immunoassays are extremely sensitive and specific tests used to identify and measure small quantities of materials, such as proteins. A large variety of biological molecules and inorganic materials can be targeted. Accordingly, the RAMP

®

technology is applicable to multiple distinct market segments and many products within those segments. RAMP

®

tests are commercially available for use in the early detection of heart attack, congestive heart failure, thromboembolism, sepsis, influenza A+B, the respiratory syncytial virus, environmental detection of West Nile Virus and Dengue Virus antigen, and biodefense applications including the rapid on-site detection of anthrax, smallpox, ricin and botulinum toxin.

XML

Note 2 - Basis of Presentation and Going Concern Uncertainty

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

2. BASIS OF PRESENTATION AND GOING CONCERN UNCERTAINTY

These unaudited interim consolidated financial statements have been prepared by management in Canadian dollars in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required to be presented for complete financial statements. The accompanying unaudited consolidated financial statements reflect, in the opinion of management, all adjustments (which include reclassifications and normal recurring adjustments) necessary for a fair presentation of the results for the interim periods presented. The accompanying consolidated balance sheet at December 31, 2015 has been derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year then ended. The consolidated financial statements and related disclosures have been prepared with the assumption that users of the interim financial information have read or have access to the audited consolidated financial statements for the preceding fiscal year. Accordingly, these unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2015 and filed with the United States Securities and Exchange Commission (“SEC”) on March 24, 2016.

Going Concern Uncertainty

The accompanying financial statements have been prepared assuming the Company will continue to operate as a going concern, which contemplates the realization of assets and liabilities and commitments in the normal course of business.

During the nine month period ended September 30, 2016, the Company incurred a net loss of $2.4 million and negative cash flows of $1.2 million. As of September 30, 2016, the Company had a cash balance of $1.3 million, an accumulated deficit of $122.8 million, a shareholders’ deficit of $2.2 million, and a working capital deficit of $2.5 million. In addition, the Company has operating lease commitments of approximately $200,000 per month and outstanding purchase commitments for inventory and capital equipment of $1.8 million(refer to note 11).

Sales to the Company’s largest market, China, have decreased by 77%, or $4.7 million, during the nine month period ended September 30, 2016 due to a decrease of sales to the Company’s former national distributor in China. The majority of the purchases of products in China from the Company in the first nine months of 2016 were in satisfaction of rebates earned by this distributor that were accrued in 2015. The Company received the payment for these products in 2015 and therefore, no additional cash was received during 2016 for these products. No returns of the products purchased by the former national distributor are either expected or permitted under the terms of its distribution agreement. The Company converted this distributor’s national distribution rights to non-exclusive effective March 3, 2016. The Company has now contracted with new distributors in China, including Shanghai Runda Medical Technology Co., Ltd. (“Runda”), to attempt to improve our current sales levels. Sales to Runda have started in the third quarter of 2016.

The Company announced on June 16, 2016 that it has entered into a definitive arrangement agreement (the “Arrangement”) with 1077801 B.C. Ltd., a company owned by OrbiMed Asia Partners, LP, OrbiMed Private Investments III, LP, OrbiMed Associates III, LP, OrbiMed Advisors LLC, OrbiMed Advisors Limited and Samuel D. Isaly (together “OrbiMed”) and Runda pursuant to which 1077801 B.C. Ltd. will acquire all of the issued and outstanding common shares of the Company for cash consideration of $1.12 per share (except in the case of certain rollover shareholders who will instead receive shares of 1077891 B.C. Ltd. on a 1 to 1 basis). This transaction was approved by 99.98% of the votes cast in person or by proxy at the Special Meeting held on September 16, 2016 and by 99.88% of the shareholders’ votes cast, excluding shareholders whose votes may not be included pursuant to Multilateral Instrument 61-101. Court approval for the transaction was received on September 19, 2016. The closing of this transaction is subject to receiving the necessary approvals from the regulatory bodies in the People’s Republic of China in order to complete the Arrangement. Following the closing of this transaction, the Company intends to de-list from the Toronto Stock Exchange (“TSX”).

Concurrent, with the above transaction, the Company entered into subscription agreements to undertake a non-brokered private placement financing of up to 1,785,716 common shares of the Company (the “Private Placement”) at a price of U.S. $0.56 per share for total gross proceeds of approximately U.S. $1,000,000. Pursuant to the Private Placement, Response completed the first tranche of U.S. $500,000 on June 17, 2016 with the OrbiMed funds. Response has entered into subscription agreements with Runda where Runda may subscribe for 892,858 Response Common Shares for total gross proceeds to the Company of approximately U.S. $500,000. The Runda subscription is subject to receiving the necessary approvals from the regulatory bodies in the People’s Republic of China and has not been completed yet.

To address the actual and expected near term reduction in product sales in China during this transition period and the resulting significant deterioration of the Company’s near term cash position, in addition to the Private Placement, the Company has implemented several cash conservation and cost reduction initiatives including reducing staff levels and delaying certain research and development projects to extend its available cash resources. While the Company is pursuing these various initiatives, there is no assurance that these efforts will allow the available cash resources to be sufficient to fund the Company’s operations.

The ability of the Company to continue as a going concern is uncertain and dependent on the Company’s ability to complete the Arrangement, obtain additional financing, earn collaboration milestones and/or achieve sustained cash flow positive operations. Management has financed operations, thus far, through a series of equity financings, debt financing, and collaborative arrangements. The Company has received milestones totaling US$3.0 million to date from a collaborative agreement with Hangzhou Joinstar Biomedical Technology Co., Ltd. the (“Joinstar Agreements”) and is eligible to receive a further US$0.8 million from the last development milestone during the remaining project period. In addition, under the terms of a Supply Agreement with Joinstar, Response is eligible to receive a guaranteed US$1.78 million in revenue-based payments over the first five years of commercialization of the co-developed assays.

The Company is striving to meet its ongoing cash needs through continued efforts to improve sales in China and other markets, reduce costs and otherwise conserve cash, and raise additional financing through the private placement mentioned above. Without additional financing, the Company’s current cash may not be sufficient to allow the Company to continue as a going concern beyond the fourth quarter of 2016. Management believes that additional financing along with a combination of some or all of the various cost reduction, cash conservation, sales and marketing initiatives, and completion of our collaboration with Joinstar, including short term out of the ordinary cash management measures, will be required to meet its anticipated short term cash requirements. Due to the Company’s history of losses, recent significant decreases in China product sales, and current major transition of distributors in China, there is substantial doubt over the Company’s ability to continue as a going concern as it is dependent on obtaining additional financing and achieving profitable operations, the outcomes of which cannot be predicted at this time. The consolidated financial statements do not include any adjustments to the amounts and classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern. Such adjustments could be material.

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Note 3 - Recent Accounting Pronouncements

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

New Accounting Pronouncements and Changes in Accounting Principles [Text Block]

3. RECENT ACCOUNTING PRONOUNCEMENTS

Newly Adopted Accounting Pronouncements

In April 2015, the FASB issued ASU 2015-03, Interest-Imputation of Interest (Subtopic 835-30) (“ASU 2015-03”). ASU 2015-03 was issued to simplify the presentation of debt issuance costs. The guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by these amendments. This guidance should be applied on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The adoption of this newly issued guidance resulted in the reclassification of the previously recorded Deferred Debt Financing Costs (both current and long term), which were previously included under the assets section of the consolidated balance sheet, as a deduction of the Term loan (both current and long term) on the consolidated balance sheet.

Accounting Pronouncements Not Yet Adopted

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” (Topic 606) (“ASU 2014-09”), which supersedes the revenue recognition requirements in Accounting Standards Codification 605, “Revenue Recognition.” ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. It also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts

, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. On July 9, 2015, the FASB decided to delay the effective date of the new standard by one year. ASU 2014-09 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We are evaluating the impact of adopting this pronouncement.

In July 2015, the FASB issued ASU No. 2015-11, “Simplifying the Measurement of Inventory,” (Topic 330) (“ASU 2015-11”), which amends the guidelines for the measurement of inventory. Under the amendments, an entity should measure inventory valued using a first-in, first-out or average cost method at the lower of cost and net realizable value. Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. ASU 2015-11 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. The Company has not chosen early adoption for this ASU and is currently evaluating the impact of adopting this pronouncement.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 2015-40) (“ASU 2014-15”). ASU 2014-15 provides guidance to U.S. GAAP about management’s responsibility to evaluate whether there is a substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. This new rule requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles currently in the U.S. auditing standards. Specifically, ASU 2014-15 (1) defines the term substantial doubt, (2) requires an evaluation of every reporting period including interim periods, (3) provides principles for considering the mitigating effect of management’s plans, (4) requires an express statement and other disclosures when substantial doubt is not alleviated, and (5) requires an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). This guidance is effective for annual periods ending after December 15, 2016

.

The Company is currently evaluating the potential effect of this ASU on its financial statements and related disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 requires lessees to put most leases on their balance sheets as a liability for the obligation to make lease payments and as a right-of-use asset, but recognize expenses on the income statements in a manner similar to today’s accounting. The guidance also eliminates the current real estate-specific provisions for all entities. This guidance is effective for annual period beginning after December 15, 2018. Early adoption is permitted for all entities. The Company has not chosen early adoption for this ASU and is currently evaluating its effect on the Company’s consolidated financial statements.

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Note 4 - Fair Value Measurements

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Fair Value Disclosures [Text Block]

4. FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (“exit price”) in an orderly transaction between market participants at the measurement date. Fair value measurements of financial instruments are determined by using a fair value hierarchy that prioritizes the inputs to valuation techniques into three levels according to the relative reliability of the inputs used to estimate the fair values.

The three levels of inputs used to measure fair value are as follows:

Level 1

– Unadjusted quoted prices in active markets for identical financial instruments;

Level 2 – Inputs other than quoted prices that are observable for the financial instrument either directly or indirectly; and

Level 3 – Inputs that are not based on observable market data.

In determining fair value measurements, the Company uses the most observable inputs when available.

For certain of the Company’s financial instruments, including cash and cash equivalents, trade receivables, other receivables, and accounts payable and accrued liabilities the carrying amounts approximate fair values due to their short-term nature. The carrying value of the restricted deposits approximates its fair value due to the nature of the cash deposit. The fair value of the term loan approximates its carrying value as the effective interest rate in the term loan with Silicon Valley Bank (“SVB”) approximates the current market rate for the term loan. The fair value of the repayable leasehold improvement allowance approximates its carrying value as the fixed interest rate of 11% is considered to approximate the current market rate.

The fair value hierarchy level at which a financial instrument is categorized is determined on the basis of the lowest level input that is significant to the fair value measurement (in thousands):

Financial Instrument

s

carried at fair value as of

September 30

, 201

6

	Level 1		Level 2		Level 3		Total
Liabilities		$		$		$		$
Warrant Liability		-		-		1		1

As of September 30, 2016, the warrant liability is recorded at its fair value of $1,000. The Company reassesses the fair value of the common stock warrants at each reporting date utilizing a Black-Scholes pricing model. Inputs used in the pricing model include estimates of stock price volatility, contractual term of the warrant, and risk-free interest rate (refer to note 9[g]). The computation of expected volatility is based on the historical volatility of the Company’s stock. A small change in the estimates used in the Black-Scholes pricing model may have a relatively large change in the estimated valuation of the common stock warrants.

The following table presents the changes in fair value of the Company’s total Level 3 financial liabilities for the nine month period ended September 30, 2016 (in thousands):

	Balance at December 31, 2015		Unrealized gain			Balance at September 30, 2016
Warrant Liability		301		(300	)		1

Quantitative information about unobservable inputs used in Level 3 fair value measurements is presented below:

	Valuation Technique	Unobservable Input	As at September 30, 201 6			As at December 31, 201 5
Warrant Liability	Option Model	Stock Price Volatility		19	%		128	%

A 5% increase or decrease in stock price volatility would cause a nominal change to the Warrant Liability ($32,000 – December 31, 2015).

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Note 5 - Inventories

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Inventory Disclosure [Text Block]

5. INVENTORIES

Inventories are comprised of the following (in thousands):

	September 30, 2016		December 31, 2015
		$		$
Raw materials		830		1,083
Work in progress		610		328
Finished goods		681		408
		2,121		1,819

The carrying value of inventory as of September 30, 2016 includes a write-down and a provision for expired, obsolete, and damaged inventory in the amount of $86,000 [December

 31, 2015 - $51,000]. For the three and nine month period ended September 30, 2016, inventory write-downs and obsolescence charges were $73

,000 and $122

,000 [2015 - $68

,000 and $196,000].

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Note 6 - Accounts Payable and Accrued Liabilities

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Accounts Payable and Accrued Liabilities Disclosure [Text Block]

6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities comprise (in thousands):

	September 30, 2016		December 31, 2015
		$		$
Trade accounts payable		1,696		966
Employee related accounts payable and accrued liabilities		981		1,035
Royalties		448		325
Other accrued liabilities		958		971
		4,083		3,297

Accounts payable and accrued liabilities include $85,000 [December 31, 2015-$8,000] of additions to property, plant, and equipment and $741,000 [December 31, 2015 – $22,000] of deferred charges as at September 30, 2016. These amounts have been excluded from cash generated from investing activities and cash used in operating activities respectively on the consolidated statements of cash flows for the nine months ended September 30, 2016, as the cash had not been disbursed.

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Note 7 - Term Loan

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Long-term Debt [Text Block]

7. TERM LOAN

On February 11, 2014, the Company entered into a loan and security agreement with SVB providing for up to a US$2.5 million term loan. The loan is secured by substantially all of the assets of the Company. The loan included financial covenants that were later removed in an amendment (refer to discussion below). The loan also includes certain non-financial covenants as well as a subjective acceleration clause. Under the terms of the original loan agreement, the loan bears an interest rate of Wall Street Journal Prime Rate plus 2.5% annually. Interest only payments were made until October 1, 2014 at which time, 32 equal monthly installments of principal plus accrued interest started to be made. On December 15, 2014, the Company entered into an amendment to the original loan agreement with SVB. Under the amendment, SVB agreed to continue to advance the remaining outstanding principal of US$1.4 million for the same term and interest rate under the original agreement. In addition, SVB waived its rights in respect of certain breaches and removed any future financial covenants. Interest only payments were made until April 1, 2015, at which time, 26 equal monthly installments of principal plus accrued interest are being made through to maturity on May 1, 2017. In addition, the Company will pay an additional final payment of up to 4% of the outstanding principal advanced upon repayment. The loan contains a voluntary prepayment option whereby the principal amount can be prepaid in whole, or in part, for a fixed fee if a prepayment is made on or before December 15, 2016.

In connection with the original loan and amendment discussed above, 107,701 warrants with exercise prices ranging from $1.00 to $1.831 per warrant and a term of 10 years were granted to SVB. These warrants were measured at their fair market value using the Black-Scholes model on the date of their grants and had a combined estimated fair market value of $113,000, which was recorded as a debt discount that is being amortized into income over the term of the loan using the effective interest method. In addition, there were $233,000 of fees related to the term loan that are also being amortized over the term of the loan using the effective interest method.

Amortization of the deferred financing costs for the three and nine month periods ended September 30, 2016 were $9,000 and $36,000 (2015 – $21,000 and $71,000) and amortization of the debt discount for the three and nine month periods ended September 30, 2016 was $5,000 and $22,000 (2015 – $12,000 and $42,000). Both of these amounts are included in interest expense and amortization of deferred financing costs and debt discount on the consolidated statements of loss and comprehensive loss

.

The term loan is comprised of the following amounts (in thousands):

	September 30, 2016			December 31, 2015
		$			$
Current portion of long-term debt		548			868
Current portion of unamortized deferred financing costs		(9	)		(42	)
Current portion of unamortized debt discount		(5	)		(25	)
Current portion of long-term debt, net debt discount		534			801
Long-term portion of term loan		-			362
Long-term portion of unamortized deferred financing costs		-			(3	)
Long-term portion of unamortized debt discount		-			(2	)
Long-term portion of term loan, net debt discount		-			357
Total		534			1,158

Future principal payments for the term loan as of September 30, 2016, are as follows (in thousands):

September 30,	$
2016	548
Total	548

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Note 8 - Lease Inducements

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Other Liabilities Disclosure [Text Block]

8. LEASE INDUCEMENTS

Lease agreements entered into by the Company for its offices provides for lease inducements to be provided by the landlord to the Company, which are summarized as follows (in thousands):

	September 30, 2016	December 31, 2015
	$	$
Current Portion
Rent-free inducement [i]	54	54
Non-repayable leasehold improvement allowance [ii]	115	115
	169	169
Repayable leasehold improvement allowance [iii]	558	514
Total Current Portion	727	683
Long-Term Portion
Rent-free inducement [i]	289	330
Non-repayable leasehold improvement allowance [ii]	612	698
	901	1,028
Repayable leasehold improvement allowance [iii]	4,270	4,694
Total Long-Term Portion	5,171	5,722
Total	5,898	6,405

The lease inducements disclosed on the consolidated balance sheets as a result of these benefits is comprised of the following:

[i]     In 2007, the Company entered into a long-term facility lease agreement that included an eight and one half month rent-free period from May 17, 2007 to February 1, 2008. The lease inducement benefit arising from the rent-free period is being amortized on a straight-line basis over the term of the operating lease as a reduction to rental expense. Amortization expense for the three and nine month periods ended September 30, 2016 amounted to $14,000 and $41,000 [2015 - $14,000 and $41 ,000].

[ii]     The Company received a non-repayable allowance for an amount of $1.7 million for expenditures related to general upgrades to the facility. The lease inducement benefit arising from the non-repayable leasehold improvement allowance is being amortized on a straight-line basis over the balance of the term of the lease beginning April 1, 2008 as a reduction to rental expense. Amortization expense for the three and nine month periods ended September 30, 2016 amounted to $29,000 and $86,000 [2015 - $29 ,000 and $86 ,000].

[iii]     The Company received a repayable leasehold improvement for an amount of $7.8 million used for additional improvements to the facility. This lease inducement is being repaid over the term of the operating lease commencing February 1, 2008 at approximately $89,000 per month including interest calculated at an interest rate negotiated between the Company and the landlord. Principal repayments for the three and nine month periods ended September 30, 2016 amounted to $130,000 and $380,000 [2015 - $117,000 and $341,000]. Interest payments for the three and nine month periods ended September 30, 2016 amounted to $135,000 and $416,000 [2015 - $149,000 and $455,000].

To secure the lease, the Company is maintaining a security deposit with the landlord in the form of an irrevocable letter of credit in the amount of $317,000 collateralized by a term deposit with a market value of $317,000 that is presented as part of restricted deposits in the long-term asset section of the balance sheets. The face value of the letter of credit was reduced by 67% in March 2016 from its original face value due to the Company achieving an operating profit during the year ended December 31, 2015. The reduction of $584,000 is included in cash generated from investing activities in the consolidated statements of cash flows.

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Note 9 - Share Capital and Additional Paid-in Capital

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

9

.

SHARE CAPITAL AND ADDITIONAL PAID-IN CAPITAL

[a]     Authorized - Unlimited common shares without par value.

[b]     Issued

2016 Private Placement

On June 17, 2016, the Company closed the first tranche of a non-brokered private placement of 892,858 common shares at a price of U.S. $0.56 (the “Private Placement”) with a group of investment funds controlled by OrbiMed, the Company’s majority shareholder. The net proceeds were $599,000 after deduction of $44,000 of financing costs.

[c]     Stock option plan

At the Annual General Meeting held September 3, 2008, the Company’s shareholders approved a stock option plan (“2008 Plan”). Under the plan, the Company may grant options to purchase common shares in the Company to employees, directors, officers and consultants of the Company. The exercise price of the options is determined by the Board to be equal to the fair market value of the commons shares on the grant date. The Company estimates the fair value of options on the date of the grant. The options vest over the requisite service period in accordance with terms as determined by the Board, typically over four years. Stock options expire no later than ten years from the date of grant.

At the Annual General and Special Meeting held on June 18, 2013, the Company’s shareholders’ approved a change to the Company’s 2008 stock option plan permitting the maximum shares authorized to be issued under the plan to be up to 20% of the issued and outstanding common shares outstanding at any point in time. At the Annual General and Special Meeting held on June 13, 2016, the Company’s shareholders’ approved all unallocated options, rights and other entitlements under the 2008 Plan and the ability of the Company to continue granting options under the plan.

Of the 2,183,453 stock options authorized for grant under the 2008 Plan as at September 30, 2016, options for 1,350,894 shares were outstanding and 832,559 stock options were available for future grant

.

The following assumptions were used to estimate the fair value of options granted during the nine month period ended September 30, 2016, and 2015 using a Black-Scholes option-pricing model:

Nine Months Ended September 30,	2016			2015
Risk-free interest rates		1.04	%		2.04	%
Expected dividend yield		0	%		0	%
Expected life (in years)		5.71			5.88
Expected volatility		125	%		126	%
Fair value per stock option	$	0.74		$	1.33

The expected volatility reflects the assumption that the historical volatility of common stock of the Company over a period similar to the expected life of the options is indicative of future trends. The Company estimates the risk-free interest rate using the Bank of Canada bond yield with a remaining term equal to the expected life of the option. The Company uses the simplified method for estimating the stock option term for stock option grants during the nine month period ended September 30, 2016 as the Company has determined that the stock options are “plain vanilla” and historical share option exercises do not apply as the vesting term and contractual lives have significantly changed from those stock options exercised previously.

At September 30, 2016, the following stock options were outstanding:

Range of exercise price			Number of shares under option		Weighted average remaining contractual life		Weighted average exercise price		Number of options currently exercisable		Weighted average exercise price
		$	#		(years)			$	#			$
0.60	-	0.92		658,155		8.83		0.73		172,249		0.78
1.02	-	1.80		217,948		6.70		1.49		188,652		1.48
	2.20			340,401		5.53		2.20		340,401		2.20
3.00	-	3.10		134,390		6.47		3.10		131,077		3.10
0.60	-	3.10		1,350,894		7.42		1.45		832,379		1.88

The options expire at various dates from April 2, 2022 to March 23, 2026.

Stock option transactions and the number of stock options outstanding are summarized below:

	Number of optioned			Weighted average
	common shares			exercise price
	#				$
Balance, December 31, 2015		1,533,022			1.38
Options granted		42,000			0.85
Options expired		(625	)		6.80
Options forfeited		(223,503	)		0.85
Balance, September 30, 2016		1,350,894			1.45

[d]     Restricted share unit plan

At the Annual General and Special Meeting held on June 18, 2013, the Company’s shareholders approved a new restricted share unit plan (“RSU Plan”). At the Annual General and Special Meeting held on June 13, 2016, the Company’s shareholders’ approved all unallocated entitlements under the RSU Plan and the ability of the Company to continue granting Restricted Share Units (“RSUs”) under the RSU Plan. Under the plan, the Company may grant RSUs to employees, directors, and eligible consultants which entitle each participant to either one common share of the Company on a time vested basis or a cash payout equal to the number of vested RSUs multiplied by the then current market value of the RSUs. The fair market value of the RSUs is determined based upon the number of RSUs granted and the quoted closing price of the Company’s stock on the trading day immediately preceding the date of determination. The duration of the vesting period and other vesting terms applicable to the grant of the RSUs shall be determined by the Board.

	Number			Weighted average
	of RSUs			exercise price
	#				$
Balance, December 31, 2015		112,489			1.02
RSUs granted		118,527			0.85
RSUs converted to common shares		(99,155	)		(0.98	)
Balance, September 30, 2016		131,861			0.89

The restricted share units that were granted during the nine month period ended September 30, 2016 were to settle a director compensation liability that was recorded in accounts payable and accrued liabilities. The $100,000 liability has been excluded from the change in accounts payable and accrued liabilities on the consolidated statement of cash flows.

Of the 272,931 RSUs authorized for grant under the RSU Plan as at September 30, 2016, 141,070 RSUs are available for grant.

[e]     Deferred share unit plan

At the Annual General and Special Meeting held on June 18, 2013, the Company’s shareholders approved a new non-employee director deferred share unit plan (“DSU Plan”). At the Annual General and Special Meeting held on June 13, 2016, the Company’s shareholders’ approved all unallocated entitlements under the DSU Plan and the ability of the Company to continue granting Deferred Share Units (“DSUs”) under the DSU Plan. A DSU is a right granted to non-employee directors which entitle each participant to either one common share of the Company on a time vested basis or a cash payout equal to the number of DSUs multiplied by the then current market value of the DSUs. The fair market value of the DSU’s is determined based upon the number of DSUs granted and the quoted price of the Company’s stock on the trading day immediately preceding the determination date. The duration of the vesting period and other vesting terms applicable to the grant of the DSU’s shall be determined by the Board. 

	Number		Weighted average
	of DSUs		exercise price
	#			$
Balance, December 31, 2015		-		-
DSUs granted		86,918		0.85
Balance, September 30 , 2016		86,918		0.85

The deferred share units that were granted during the nine month period ended September 30, 2016 were to settle a director compensation liability that was recorded in accounts payable and accrued liabilities. The $74,000 liability has been excluded from the change in accounts payable and accrued liabilities on the consolidated statement of cash flows.

Of the 272,931 DSUs authorized for grant under the DSU Plan as at September 30, 2016, 186,013 are available for grant.

[f]     Stock-based compensation

The following table shows stock-based compensation allocated by type of cost (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30
	2016		2015		2016		2015
		$		$		$		$
Cost of sales		6		6		23		23
Research and development		6		10		22		32
General and administrative		27		32		114		82
Sales and marketing		5		7		19		23
		44		55		178		160

As of September 30, 2016, the total unrecognized compensation related to stock options granted amounts to $270,000, which is expected to be recognized over a weighted average service period of 2.28 years.

[g]     Common share purchase warrants

At September 30, 2016, there were 86,848,002 warrants outstanding to purchase shares of common stock, with expiry dates ranging from November 7, 2016 to December 15, 2024. Of the total 86,848,002 warrants outstanding, 86,103,744 warrants (the warrants related to the 2011 financing) that expire on December 30, 2016 entitle the holder thereof to purchase 1/20th of a common share of the Company at a price of $1.4231 per whole common share; 636,557 warrants (the private placement warrants) that expire on November 7, 2016 entitle the holder thereof to purchase one common share of the Company at a price of $3.58 per common share; 52,796 warrants entitle the holder thereof to purchase one common share of the Company at a price of $1.831 per common share; and 54,905 warrants entitle the holder thereof to purchase one common share of the Company at a price of $1.00 per common share.

 There has been no common share purchase warrant transactions during the nine months ended September 30, 2016.

The estimated fair value of the warrants related to the 2011 financing is reassessed at each balance sheet date using the Black-Scholes option pricing model. The following assumptions were used to value the warrants on the following balance sheet dates:

As at September 30,	2016			2015
Risk-free interest rates		0.51	%		0.52	%
Expected dividend yield		0	%		0	%
Expected life (in years)		0.25			1.25
Expected volatility		19	%		121	%
Fair value of warrant	$	0.000007		$	0.005300

[h]     

Earnings per common share

The following is a reconciliation of the weighted average number of common shares outstanding used in calculating basic and diluted earnings (loss) per share (in thousands, except share and per share data):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016			2015
		$		$		$			$
Numerator:
Net income (loss) availabe to common shareholders	$	170	$	729	$	(2,400	)	$	(373	)
Denominator:
Weighted average number of common shares outstanding - basic		10,917,269		9,925,256		10,303,598			9,863,609
Weighted average effect of dilutive securities:
RSUs		131,861		112,489		-			-
DSUs		86,918		-		-			-
Warrants		3,963		-
Stock options		33,363		-		-			-
Weighted average number of common shares outstanding - diluted		11,173,374		10,037,745		10,303,598			9,863,609

Basic net income per share is computed by dividing the net income attributable to common shareholders by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing the net income attributable to common shareholders by the weighted average number of common shares that would have been outstanding during the period assuming the issuance of common shares for all potential dilutive common shares outstanding using the treasury stock method. Dilutive potential common shares outstanding include outstanding warrants, stock options, restricted share units, and deferred share units.

86,793,097 warrants and 871,339 stock options have been excluded from the computation of diluted earnings per share for the three month period ended September 30, 2016 as their inclusion would be anti-dilutive to the earnings per share. 86,848,002 warrants, 1,350,894 stock options, 131,861 RSUs and 86,918 DSUs have been excluded from the computation of diluted earnings per share for the nine month period ended September 30, 2016 as the Company has incurred a net loss during the period and their inclusion would be anti-dilutive to the loss per share (2015 – 86,865,691 warrants and 1,287,631 stock options have been excluded from the three month period ended September 30, 2015 and 86,865,691 warrants, 1,287,631 stock options, and 112,489 RSUs have been excluded from the nine month period ended September 30, 2015).

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Note 10 - Related Party Transactions

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Related Party Transactions Disclosure [Text Block]

10. RELATED PARTY TRANSACTIONS

On June 17, 2016, the Company closed the Private Placement for common shares with a group of investment funds controlled by OrbiMed, the Company’s majority shareholder. The net proceeds were $599,000 after deduction of $44,000 of financing costs.

The Company received US$1.28 million from Joinstar upon signing of the Technology Development Agreement and Collaboration Agreement. These upfront payments are being recognized into income over the expected development period and for the three and nine month periods ended September 30, 2016, $56,000 and $225,000 was recognized (2015 – 246,000 and $761,000). These development fees are included under collaborative revenue in the consolidated statements of loss and comprehensive loss. The unrecognized portion of the development fees are included under deferred revenue on the consolidated balance sheet

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Note 11 - Commitments

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Commitments Disclosure [Text Block]

11. COMMITMENTS

[a]     License agreements

The Company entered into a non-exclusive license agreement, effective July 2005, as amended June 2008, to use and sublicense certain technology (“Technology”) for one of the Company’s cardiac tests. In consideration for these rights, the Company paid a non-refundable license issuance fee of $2.0 million in the first two years after execution of the agreement and is required to pay quarterly royalties on the sale of products that incorporate the Technology. For the three and nine month periods ended September 30, 2016, the Company incurred an expense of $28,000 and $221,000 [2015 - $158,000 and $623,000] for royalties. Royalty and license fees incurred are included in cost of sales.

[b]     Supply agreement

The Company entered into a supply agreement, effective September 2003 for certain reagents for the Company’s RAMP

®

West Nile Virus Test. In addition to paying for the reagent purchased, the Company is required to pay the supplier semi-annual royalties equal to 10% of net revenue generated from the sale of the Company’s RAMP

®

West Nile Virus Test. The initial term of the agreement was three years from the effective date and is automatically renewed for successive periods of one year until either party terminates the agreement. For the three and nine month periods ended September 30, 2016, the Company incurred an expense of $19,000 and $52,000 [2015 – $21,000 and $56,000] for royalties to the supplier. These royalties are included in cost of sales.

[c]     Lease agreements

[i]

    The Company entered into a long-term agreement to lease a single tenant 46,000 square foot facility to house all of the Company’s operations. Rent is payable from February 1, 2008 to January 31, 2023. The Company is required to pay the landlord total gross monthly payments of approximately $175,000, which is comprised of base rent, administrative and management fees, estimated property taxes and repayments of the repayable leasehold improvement allowance [note 8[iii]].

[ii]

    

The Company has entered into a new lease agreement for new office space in Shanghai, China as of December 01, 2015 that expires on November 30, 2017. The Company is required to make monthly payments of approximately $5,000 for base rent and management fees under the new lease agreement. The Company has terminated the lease effective October 31, 2016 in accordance with the terms of the lease.

[iii]

    The Company has entered into operating leases for administrative equipment.

For the three and nine month periods ended September 30, 2016, $218,000 and $625,000 [2015 - $211,000 and $617,000] was incurred for expenses related to base rent, administrative and management fees and estimated property taxes offset by amortization of both the rent-free inducement [note 8[i]] and non-repayable leasehold improvement allowance [note 8[ii]]. These expenses are allocated to cost of sales, research and development, general and administrative, and sales and marketing expenses.

[d]

Purchase Commitments

As at September 30, 2016, the Company has outstanding purchase commitments of $1.8 million to purchase inventory and capital equipment over the next five years of which $1.2 million will be completed within the next twelve months.

[e

]     

Indemnification of directors and officers

Under the Articles of the Company, applicable law and agreements with its directors and officers, the Company, in circumstances where the individual has acted legally, honestly and in good faith, may, or is required to indemnify its directors and officers against certain losses.  The Company's liability in respect of the indemnities is not limited. The maximum potential of the future payments is unlimited. However, the Company maintains appropriate liability insurance that limits the exposure and enables the Company to recover any future amounts paid, less any deductible amounts pursuant to the terms of the respective policies, the amounts of which are not considered material.

[f]

Indemnification of third parties

The Company has entered into license and research agreements with third parties that include indemnification provisions that are customary in the industry. These indemnifications generally require the Company to compensate the other party for certain damages and costs incurred as a result of third party claims for damages arising from these transactions. The nature of the indemnification obligations prevents the Company from making a reasonable estimate of the maximum potential amount that it could be required to pay. To date, the Company has not made any indemnification payments under such agreements and no amount has been accrued in these consolidated financial statements with respect to these indemnification obligations.

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Note 12 - Segmented Information

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

12. SEGMENTED INFORMATION

The Company operates primarily in one business segment, the research, development, commercialization and distribution of diagnostic technologies, with primarily all of its assets and operations located in Canada. The Company’s revenues are generated from product sales primarily in Asia, the United States and Europe. Expenses are primarily incurred from purchases made from suppliers in Canada and the United States.

Customers that represent a concentration risk are those whose outstanding receivable is 10% or greater than the total balance or those customers who represent 10% or greater of our total revenue. For the three month period ended September 30, 2016, $0.9 million (60%) in product sales were generated from four customers of which one customer represented 17%, two customers each represented 15%, and one customer represented 13% [2015 - $1.1 million (46%) from one customer]. For the nine month period ended September 30, 2016, $2.3 million (47%) in product sales were generated from three customers of which one customer represents 21%, one customer represents 14%, and the other customer represents 12% [2015 - $6.0 million (64%) from one customer].

Sales attributable to a geographic area are based upon the customer’s country of domicile. Sales in a country that represent 5% or more of total product sales, in addition to sales in Canada, are as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30
	2016		2015		2016		2015
		$		$		$		$
China		317		1,119		1,386		6,043
United States		368		408		1,106		1,095
Russia		231		199		662		537
Japan		211		227		477		395
Iran		126		-		451		342
Venezuela		-		183		129		226
Canada		1		5		6		29
Other		274		284		668		592
Total		1,528		2,425		4,885		9,259

Product sales by type of product were as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30
	2016		2015		2016		2015
		$		$		$		$
Clinical products		1,247		2,127		4,088		8,409
Non-clinical products		281		298		797		850
Total		1,528		2,425		4,885		9,259

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Note 13 - Comparative Figures

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Comparative Figures [Text Block]

13. COMPARATIVE FIGURES

Certain comparative figures have been reclassified from the amounts previously reported to conform to the presentation adopted in the current year. As mentioned in Note 3, deferred financing costs have been reclassified from current and long term assets to the term loan in the liabilities section on the consolidated balance sheet.

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Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2016

Accounting Policies [Abstract]

New Accounting Pronouncements, Policy [Policy Text Block]

Newly Adopted Accounting Pronouncements

In April 2015, the FASB issued ASU 2015-03, Interest-Imputation of Interest (Subtopic 835-30) (“ASU 2015-03”). ASU 2015-03 was issued to simplify the presentation of debt issuance costs. The guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by these amendments. This guidance should be applied on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The adoption of this newly issued guidance resulted in the reclassification of the previously recorded Deferred Debt Financing Costs (both current and long term), which were previously included under the assets section of the consolidated balance sheet, as a deduction of the Term loan (both current and long term) on the consolidated balance sheet.

Accounting Pronouncements Not Yet Adopted

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” (Topic 606) (“ASU 2014-09”), which supersedes the revenue recognition requirements in Accounting Standards Codification 605, “Revenue Recognition.” ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. It also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts

, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. On July 9, 2015, the FASB decided to delay the effective date of the new standard by one year. ASU 2014-09 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We are evaluating the impact of adopting this pronouncement.

In July 2015, the FASB issued ASU No. 2015-11, “Simplifying the Measurement of Inventory,” (Topic 330) (“ASU 2015-11”), which amends the guidelines for the measurement of inventory. Under the amendments, an entity should measure inventory valued using a first-in, first-out or average cost method at the lower of cost and net realizable value. Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. ASU 2015-11 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. The Company has not chosen early adoption for this ASU and is currently evaluating the impact of adopting this pronouncement.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 2015-40) (“ASU 2014-15”). ASU 2014-15 provides guidance to U.S. GAAP about management’s responsibility to evaluate whether there is a substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. This new rule requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles currently in the U.S. auditing standards. Specifically, ASU 2014-15 (1) defines the term substantial doubt, (2) requires an evaluation of every reporting period including interim periods, (3) provides principles for considering the mitigating effect of management’s plans, (4) requires an express statement and other disclosures when substantial doubt is not alleviated, and (5) requires an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). This guidance is effective for annual periods ending after December 15, 2016

.

The Company is currently evaluating the potential effect of this ASU on its financial statements and related disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 requires lessees to put most leases on their balance sheets as a liability for the obligation to make lease payments and as a right-of-use asset, but recognize expenses on the income statements in a manner similar to today’s accounting. The guidance also eliminates the current real estate-specific provisions for all entities. This guidance is effective for annual period beginning after December 15, 2018. Early adoption is permitted for all entities. The Company has not chosen early adoption for this ASU and is currently evaluating its effect on the Company’s consolidated financial statements.

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Note 4 - Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2016

Notes Tables

Fair Value, by Balance Sheet Grouping [Table Text Block]

	Level 1		Level 2		Level 3		Total
Liabilities		$		$		$		$
Warrant Liability		-		-		1		1

Fair Value, Liabilities Measured on Recurring Basis [Table Text Block]

	Balance at December 31, 2015		Unrealized gain			Balance at September 30, 2016
Warrant Liability		301		(300	)		1

Fair Value Inputs, Liabilities, Quantitative Information [Table Text Block]

	Valuation Technique	Unobservable Input	As at September 30, 201 6			As at December 31, 201 5
Warrant Liability	Option Model	Stock Price Volatility		19	%		128	%

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Note 5 - Inventories (Tables)

9 Months Ended

Sep. 30, 2016

Notes Tables

Schedule of Inventory, Current [Table Text Block]

	September 30, 2016		December 31, 2015
		$		$
Raw materials		830		1,083
Work in progress		610		328
Finished goods		681		408
		2,121		1,819

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Note 6 - Accounts Payable and Accrued Liabilities (Tables)

9 Months Ended

Sep. 30, 2016

Notes Tables

Schedule of Accounts Payable and Accrued Liabilities [Table Text Block]

	September 30, 2016		December 31, 2015
		$		$
Trade accounts payable		1,696		966
Employee related accounts payable and accrued liabilities		981		1,035
Royalties		448		325
Other accrued liabilities		958		971
		4,083		3,297

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Note 7 - Term Loan (Tables)

9 Months Ended

Sep. 30, 2016

Notes Tables

Schedule of Long-term Debt Instruments [Table Text Block]

	September 30, 2016			December 31, 2015
		$			$
Current portion of long-term debt		548			868
Current portion of unamortized deferred financing costs		(9	)		(42	)
Current portion of unamortized debt discount		(5	)		(25	)
Current portion of long-term debt, net debt discount		534			801
Long-term portion of term loan		-			362
Long-term portion of unamortized deferred financing costs		-			(3	)
Long-term portion of unamortized debt discount		-			(2	)
Long-term portion of term loan, net debt discount		-			357
Total		534			1,158

Schedule of Maturities of Long-term Debt [Table Text Block]

September 30,	$
2016	548
Total	548

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Note 8 - Lease Inducements (Tables)

9 Months Ended

Sep. 30, 2016

Notes Tables

Lease Inducements [Table Text Block]

	September 30, 2016	December 31, 2015
	$	$
Current Portion
Rent-free inducement [i]	54	54
Non-repayable leasehold improvement allowance [ii]	115	115
	169	169
Repayable leasehold improvement allowance [iii]	558	514
Total Current Portion	727	683
Long-Term Portion
Rent-free inducement [i]	289	330
Non-repayable leasehold improvement allowance [ii]	612	698
	901	1,028
Repayable leasehold improvement allowance [iii]	4,270	4,694
Total Long-Term Portion	5,171	5,722
Total	5,898	6,405

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Note 9 - Share Capital and Additional Paid-in Capital (Tables)

9 Months Ended

Sep. 30, 2016

Notes Tables

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

Nine Months Ended September 30,	2016			2015
Risk-free interest rates		1.04	%		2.04	%
Expected dividend yield		0	%		0	%
Expected life (in years)		5.71			5.88
Expected volatility		125	%		126	%
Fair value per stock option	$	0.74		$	1.33

Schedule of Share-based Compensation, Activity [Table Text Block]

Range of exercise price			Number of shares under option		Weighted average remaining contractual life		Weighted average exercise price		Number of options currently exercisable		Weighted average exercise price
		$	#		(years)			$	#			$
0.60	-	0.92		658,155		8.83		0.73		172,249		0.78
1.02	-	1.80		217,948		6.70		1.49		188,652		1.48
	2.20			340,401		5.53		2.20		340,401		2.20
3.00	-	3.10		134,390		6.47		3.10		131,077		3.10
0.60	-	3.10		1,350,894		7.42		1.45		832,379		1.88

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

	Number of optioned			Weighted average
	common shares			exercise price
	#				$
Balance, December 31, 2015		1,533,022			1.38
Options granted		42,000			0.85
Options expired		(625	)		6.80
Options forfeited		(223,503	)		0.85
Balance, September 30, 2016		1,350,894			1.45

Schedule of Share-based Compensation, Restricted Stock Units Award Activity [Table Text Block]

	Number			Weighted average
	of RSUs			exercise price
	#				$
Balance, December 31, 2015		112,489			1.02
RSUs granted		118,527			0.85
RSUs converted to common shares		(99,155	)		(0.98	)
Balance, September 30, 2016		131,861			0.89

	Number		Weighted average
	of DSUs		exercise price
	#			$
Balance, December 31, 2015		-		-
DSUs granted		86,918		0.85
Balance, September 30 , 2016		86,918		0.85

Schedule of Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Table Text Block]

	Three Months Ended September 30,				Nine Months Ended September 30
	2016		2015		2016		2015
		$		$		$		$
Cost of sales		6		6		23		23
Research and development		6		10		22		32
General and administrative		27		32		114		82
Sales and marketing		5		7		19		23
		44		55		178		160

Estimated Fair Value Of Warrants Issued, Valuation Assumptions [Table Text Block]

As at September 30,	2016			2015
Risk-free interest rates		0.51	%		0.52	%
Expected dividend yield		0	%		0	%
Expected life (in years)		0.25			1.25
Expected volatility		19	%		121	%
Fair value of warrant	$	0.000007		$	0.005300

Schedule of Weighted Average Number of Shares [Table Text Block]

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016			2015
		$		$		$			$
Numerator:
Net income (loss) availabe to common shareholders	$	170	$	729	$	(2,400	)	$	(373	)
Denominator:
Weighted average number of common shares outstanding - basic		10,917,269		9,925,256		10,303,598			9,863,609
Weighted average effect of dilutive securities:
RSUs		131,861		112,489		-			-
DSUs		86,918		-		-			-
Warrants		3,963		-
Stock options		33,363		-		-			-
Weighted average number of common shares outstanding - diluted		11,173,374		10,037,745		10,303,598			9,863,609

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Note 12 - Segmented Information (Tables)

9 Months Ended

Sep. 30, 2016

Notes Tables

Schedule of Revenue from External Customers Attributed to Foreign Countries by Geographic Area [Table Text Block]

	Three Months Ended September 30,				Nine Months Ended September 30
	2016		2015		2016		2015
		$		$		$		$
China		317		1,119		1,386		6,043
United States		368		408		1,106		1,095
Russia		231		199		662		537
Japan		211		227		477		395
Iran		126		-		451		342
Venezuela		-		183		129		226
Canada		1		5		6		29
Other		274		284		668		592
Total		1,528		2,425		4,885		9,259

Schedule of Segment Reporting Information, by Segment [Table Text Block]

	Three Months Ended September 30,				Nine Months Ended September 30
	2016		2015		2016		2015
		$		$		$		$
Clinical products		1,247		2,127		4,088		8,409
Non-clinical products		281		298		797		850
Total		1,528		2,425		4,885		9,259

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Note 2 - Basis of Presentation and Going Concern Uncertainty (Details Textual)		3 Months Ended		9 Months Ended			12 Months Ended
	Jun. 17, 2016 USD ($)	Sep. 30, 2016 CAD shares	Sep. 30, 2015 CAD	Sep. 30, 2016 CAD shares	Sep. 30, 2016 USD ($)	Sep. 30, 2015 CAD	Dec. 31, 2015 CAD	Sep. 30, 2016 USD ($) shares	Sep. 16, 2016	Jun. 16, 2016 CAD / shares	Jun. 16, 2016 USD ($) $ / shares shares	Dec. 31, 2014 CAD
CHINA
Increase (Decrease) in Sales Revenue Goods, Percentage				(77.00%)	(77.00%)
Increase (Decrease) in Sales Revenue Goods, Amount				CAD (4,700,000)
1077801 B.C. Ltd. [Member] | Response Biomedical Corp. [Member]
Business Acquisition, Share Price | CAD / shares										CAD 1.12
Percentage of Votes Cast in Person or Proxy that Approved the Definitive Arrangement Agreement									99.98%
Percentage of Shareholders Votes Cast that Approved the Definitive Arrangement Agreement									99.88%
Private Placement [Member] | Runda [Member]
Common Stock, Shares Subscribed but Unissued | shares		892,858		892,858				892,858
Common Stock, Value, Subscriptions | $								$ 500,000
Private Placement [Member]
Common Stock, Shares Subscribed but Unissued | shares											1,785,716
Share Price | $ / shares											$ 0.56
Common Stock, Value, Subscriptions | $											$ 1,000,000
Stock Issued During Period, Value, New Issues | $	$ 500,000
Hangzhou Joinstar Biomedical Co. Ltd. [Member] | Development Milestone, Remaining Six Months [Member]
Cash Proceeds from Technology Development Agreement | $					$ 3,000,000
Revenue Recognition, Milestone Method, Revenue Receivable | $								$ 800,000
Hangzhou Joinstar Biomedical Co. Ltd. [Member] | Revenue Based Payments [Member]
Commercialization Period				5 years	5 years
Hangzhou Joinstar Biomedical Co. Ltd. [Member]
Supply Agreement, Eligible Royalty Revenue | $					$ 1,780,000
Net Income (Loss) Attributable to Parent		CAD 170,000	CAD 729,000	CAD (2,400,000)		CAD (373,000)	CAD (150,000)
Cash and Cash Equivalents, Period Increase (Decrease)				(1,165,000)		(343,000)
Cash and Cash Equivalents, at Carrying Value		1,346,000	CAD 2,878,000	1,346,000		CAD 2,878,000	2,511,000					CAD 3,221,000
Retained Earnings (Accumulated Deficit)		(122,809,000)		(122,809,000)			(120,409,000)
Stockholders' Equity Attributable to Parent		(2,160,000)		(2,160,000)			CAD (711,000)					CAD (894,000)
Working Capital Deficit		2,500,000		2,500,000
Operating Lease, Monthly Payments				200,000
Purchase Obligation		CAD 1,800,000		1,800,000
Stock Issued During Period, Value, New Issues				CAD 599,000

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Note 4 - Fair Value Measurements (Details Textual) - CAD	9 Months Ended	12 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Warrant [Member]
Derivative Liability, Current	CAD 1,000
Increase (Decrease) in Stock Price Volatility	5.00%
Fair Value Inputs, Discount Rate	11.00%
Derivative Liability, Current	CAD 1,000	CAD 301,000
Fair Value Measurement, Liability, Impact of 5 Percent Change in Volatility		CAD 32,000

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Note 4 - Fair Value Measurements - Financial Instrument Carried at Fair Value (Details) - CAD CAD in Thousands	Sep. 30, 2016	Dec. 31, 2015
Fair Value, Inputs, Level 3 [Member]
Derivative Liability, Current	CAD 1
Derivative Liability, Current	CAD 1	CAD 301

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Note 4 - Fair Value Measurements - Changes in Fair Value of the Level 3 Financial Liabilities (Details) - CAD	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Warrant [Member] | Fair Value, Inputs, Level 3 [Member]
Warrant Liability, Beginning of Period			CAD 301,000
Warrant Liability, Unrealized Gain			(300,000)
Warrant Liability, End of Period	CAD 1,000		1,000
Fair Value, Inputs, Level 3 [Member]
Warrant Liability, End of Period	1,000		1,000
Warrant Liability, Beginning of Period			301,000
Warrant Liability, Unrealized Gain	(964,000)	CAD (890,000)	(300,000)	CAD (795,000)
Warrant Liability, End of Period	CAD 1,000		CAD 1,000

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Note 4 - Fair Value Measurements - Quantitative Information about Unobservable Inputs (Details)	9 Months Ended	12 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Warrant [Member]
Warrant Liability	19.00%	128.00%

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Note 5 - Inventories (Details Textual) - CAD	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Expired and Damaged [Member]
Inventory Valuation Reserves	CAD 86,000		CAD 86,000		CAD 51,000
Inventory Write-down	CAD 73,000	CAD 68,000	CAD 122,000	CAD 196,000

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Note 5 - Inventories - Schedule of Inventory (Details) - CAD CAD in Thousands	Sep. 30, 2016	Dec. 31, 2015
Raw materials	CAD 830	CAD 1,083
Work in progress	610	328
Finished goods	681	408
Total	CAD 2,121	CAD 1,819

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Note 6 - Accounts Payable and Accrued Liabilities (Details Textual) - CAD	Sep. 30, 2016	Dec. 31, 2015
Additions to PPE [Member]
Accrued Liabilities and Other Liabilities	CAD 85,000	CAD 8,000
Deferred Financing Costs [Member]
Accrued Liabilities and Other Liabilities	CAD 741,000	CAD 22,000

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Note 6 - Accounts Payable and Accrued Liabilities - Schedule of Accounts Payable and Accrued Liabilities (Details) - CAD CAD in Thousands	Sep. 30, 2016	Dec. 31, 2015
Trade accounts payable	CAD 1,696	CAD 966
Employee related accounts payable and accrued liabilities	981	1,035
Royalties	448	325
Other accrued liabilities	958	971
Accounts payable and accrued liabilities	CAD 4,083	CAD 3,297

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Note 7 - Term Loan (Details Textual) CAD / shares in Units, $ in Millions			3 Months Ended		9 Months Ended
	Dec. 15, 2014 CAD CAD / shares shares	Feb. 11, 2014 USD ($)	Sep. 30, 2016 CAD	Sep. 30, 2015 CAD	Sep. 30, 2016 CAD shares	Sep. 30, 2015 CAD	Apr. 01, 2015	Dec. 15, 2014 USD ($)	Oct. 01, 2014
Silicon Valley Bank [Member] | Minimum [Member]
Class of Warrant or Right, Exercise Price of Warrants or Rights | CAD / shares	CAD 1
Silicon Valley Bank [Member] | Maximum [Member]
Class of Warrant or Right, Exercise Price of Warrants or Rights | CAD / shares	CAD 1.831
Silicon Valley Bank [Member]
Term Loan, Maximum Borrowing Capacity | $		$ 2.5
Debt Instrument, Basis Spread on Variable Rate		2.50%
Debt Instrument, Periodic Payment, Number of Installments							26		32
Debt Instrument, Face Amount | $								$ 1.4
Final Payment, Percentage of Principal							4.00%
Class of Warrant or Right, Issued During Period | shares	107,701
Fair Value Assumptions, Expected Term	10 years
Fair Value Of Warrant	CAD 113,000
Debt Issuance Costs, Net	CAD 233,000
Class of Warrant or Right, Issued During Period | shares					0
Amortization of Debt Issuance Costs			CAD 9,000	CAD 21,000	CAD 36,000	CAD 71,000
Amortization of Debt Discount (Premium)			CAD 5,000	CAD 12,000	CAD 22,000	CAD 42,000

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Note 7 - Term Loan - Term Loan Components (Details) - CAD CAD in Thousands	Sep. 30, 2016	Dec. 31, 2015
Current portion of long-term debt	CAD 548	CAD 868
Current portion of unamortized deferred financing costs	(9)	(42)
Current portion of unamortized debt discount	(5)	(25)
Current portion of long-term debt, net debt discount	534	801
Long-term portion of term loan		362
Long-term portion of unamortized deferred financing costs		(3)
Long-term portion of unamortized debt discount		(2)
Long-term portion of term loan, net debt discount		357
Total	CAD 534	CAD 1,158

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Note 7 - Term Loan - Future Principal Payments for Term Loan (Details) - Term Loan [Member] CAD in Thousands	Sep. 30, 2016 CAD
2016	CAD 548
Total	CAD 548

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Note 8 - Lease Inducements (Details Textual) - CAD			1 Months Ended	3 Months Ended		9 Months Ended
	Apr. 01, 2008	Feb. 01, 2008	Mar. 31, 2016	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Lease Incentive One [Member]
Amortization Of Lease Incentives Lessee				CAD 14,000	CAD 14,000	CAD 41,000	CAD 41,000
Lease Incentive Two [Member]
Amortization Of Lease Incentives Lessee				29,000	29,000	86,000	86,000
Allowance For Leasehold Improvement Nonpayable	CAD 1,700,000
Lease Incentive Three [Member]
Amortization Of Lease Incentives Lessee				130,000	117,000	380,000	341,000
Allowance For Leasehold Improvement Nonpayable		CAD 7,800,000
Monthly Allowance For Leasehold Improvement Repayable		CAD 89,000
Interest Expense				135,000	149,000	416,000	455,000
Letter of Credit [Member]
Line of Credit Facility, Maximum Borrowing Capacity				317,000		317,000
Certificates of Deposit [Member]
Restricted Cash and Cash Equivalents, Noncurrent				317,000		317,000
Interest Expense				165,000	CAD 215,000	533,000	675,000
Restricted Cash and Cash Equivalents, Noncurrent				CAD 317,000		317,000		CAD 901,000
Face Value Reduction of Letter of Credit			67.00%
Increase (Decrease) in Restricted Cash						CAD (584,000)	CAD 0

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Note 8 - Lease Inducements - Summary of Lease Inducements (Details) - CAD CAD in Thousands		Sep. 30, 2016	Dec. 31, 2015
Rent Free Inducement [Member]
Lease Incentive Payable, Current	[1]	CAD 54	CAD 54
Lease Incentive Payable, Noncurrent	[1]	289	330
Repayable Leasehold Improvement Allowance [Member]
Lease Incentive Payable, Current	[2]	115	115
Lease Incentive Payable, Noncurrent	[2]	612	698
Lease Incentive Payable, Current		169	169
Repayable leasehold improvement allowance	[3]	558	514
Total Current Portion		727	683
Lease Incentive Payable, Noncurrent		901	1,028
Repayable leasehold improvement allowance	[3]	4,270	4,694
Total Long-Term Portion		5,171	5,722
Total		CAD 5,898	CAD 6,405

[1] In 2007, the Company entered into a long-term facility lease agreement that included an eight and one half month rent-free period from May 17, 2007 to February 1, 2008. The lease inducement benefit arising from the rent-free period is being amortized on a straight-line basis over the term of the operating lease as a reduction to rental expense. Amortization expense for the three and nine month periods ended September 30, 2016 amounted to $14,000 and $41,000 [2015 - $14,000 and $41,000].

[2] The Company received a non-repayable allowance for an amount of $1.7 million for expenditures related to general upgrades to the facility. The lease inducement benefit arising from the non-repayable leasehold improvement allowance is being amortized on a straight-line basis over the balance of the term of the lease beginning April 1, 2008 as a reduction to rental expense. Amortization expense for the three and nine month periods ended September 30, 2016 amounted to $29,000 and $86,000 [2015 - $29,000 and $86,000].

[3] The Company received a repayable leasehold improvement for an amount of $7.8 million used for additional improvements to the facility. This lease inducement is being repaid over the term of the operating lease commencing February 1, 2008 at approximately $89,000 per month including interest calculated at an interest rate negotiated between the Company and the landlord. Principal repayments for the three and nine month periods ended September 30, 2016 amounted to $130,000 and $380,000 [2015 - $117,000 and $341,000]. Interest payments for the three and nine month periods ended September 30, 2016 amounted to $135,000 and $416,000 [2015 - $149,000 and $455,000].

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Note 9 - Share Capital and Additional Paid-in Capital (Details Textual)			3 Months Ended		9 Months Ended
	Jun. 17, 2016 CAD shares	Sep. 03, 2008	Sep. 30, 2016 CAD CAD / shares shares	Sep. 30, 2015 shares	Sep. 30, 2016 CAD CAD / shares shares	Sep. 30, 2015 shares	Jun. 17, 2016 $ / shares	Jun. 16, 2016 $ / shares	Dec. 31, 2015 shares	Jun. 18, 2013
Private Placement [Member] | Orbi Med [Member]
Stock Issued During Period, Shares, New Issues	892,858
Share Price | $ / shares							$ 0.56
Proceeds from Issuance of Common Stock | CAD	CAD 599,000
Payments of Stock Issuance Costs | CAD	CAD 44,000
Private Placement [Member] | Related to 2011 Financing [Member]
Class of Warrant or Right, Exercise Price of Warrants or Rights | CAD / shares			CAD 1.4231		CAD 1.4231
Private Placement [Member] | Common Stock [Member]
Class of Warrant or Right, Outstanding			636,557		636,557
Class of Warrant or Right, Exercise Price of Warrants or Rights | CAD / shares			CAD 3.58		CAD 3.58
Class of Warrant or Right, Number of Securities Called by Each Warrant or Right			1		1
Private Placement [Member]
Share Price | $ / shares								$ 0.56
Employee Stock Option [Member] | Stock Option Plan 2008 [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period		4 years
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period		10 years
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized			2,183,453		2,183,453
Employee Stock Option [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount			871,339	1,287,631	1,350,894	1,287,631
Restricted Stock Units (RSUs) [Member] | Accounts Payable and Accrued Liabilities [Member]
Stock Issued During Period, Value, Issued for Services | CAD					CAD 100,000
Restricted Stock Units (RSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized			272,931		272,931
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant			141,070		141,070
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount					131,861	112,489
Deferred Share Unit Plan (DSUs) [Member] | Accounts Payable and Accrued Liabilities [Member]
Stock Issued During Period, Value, Issued for Services | CAD					CAD 74,000
Deferred Share Unit Plan (DSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized			272,931		272,931
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant			186,013		186,013
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount					86,918
Stock Option Plan 2008 [Member]
Share-based Compensation Arrangement By Share-based Payment Award, Maximum Percentage Of Shares										20.00%
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number			1,350,894		1,350,894
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant			832,559		832,559
Related to 2011 Financing [Member]
Class of Warrant or Right, Outstanding			86,103,744		86,103,744
Agent Warrants [Member] | Common Stock [Member]
Class of Warrant or Right, Outstanding			52,796		52,796
Class of Warrant or Right, Exercise Price of Warrants or Rights | CAD / shares			CAD 1.831		CAD 1.831
Silicon Valley Bank [Member]
Class of Warrant or Right, Outstanding			54,905		54,905
Class of Warrant or Right, Exercise Price of Warrants or Rights | CAD / shares			CAD 1		CAD 1
Common Stock [Member]
Stock Issued During Period, Shares, New Issues					892,858
Warrant [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount			86,793,097	86,865,691	86,848,002	86,865,691
Class of Warrant or Right, Issued During Period					0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number			1,350,894		1,350,894				1,533,022
Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Stock Options | CAD			CAD 270,000		CAD 270,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition					2 years 102 days
Class of Warrant or Right, Outstanding			86,848,002		86,848,002

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Note 9 - Share Capital and Additional Paid-in Capital - Share-based Payment Award, Stock Options, Valuation Assumptions (Details) - CAD / shares	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Risk-free interest rates	1.04%	2.04%
Expected dividend yield	0.00%	0.00%
Expected life (in years)	5 years 259 days	5 years 321 days
Expected volatility	125.00%	126.00%
Fair value per stock option (in Canadian Dollar per share)	CAD 0.74	CAD 1.33

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Note 9 - Share Capital and Additional Paid-in Capital - Outstanding Stock Options (Details)	9 Months Ended
	Sep. 30, 2016 CAD / shares shares
Range One [Member]
Lower exercise price (in Canadian Dollar per share)	CAD 0.60
Upper exercise price (in Canadian Dollar per share)	CAD 0.92
Number of shares under option (in shares) | shares	658,155
Weighted average remaining contractual life	8 years 302 days
Weighted average exercise price, options outstanding (in Canadian Dollar per share)	CAD 0.73
Number of options currently exercisable (in shares) | shares	172,249
Weighted average exercise price, options exercisable (in Canadian Dollar per share)	CAD 0.78
Range Two [Member]
Lower exercise price (in Canadian Dollar per share)	1.02
Upper exercise price (in Canadian Dollar per share)	CAD 1.80
Number of shares under option (in shares) | shares	217,948
Weighted average remaining contractual life	6 years 255 days
Weighted average exercise price, options outstanding (in Canadian Dollar per share)	CAD 1.49
Number of options currently exercisable (in shares) | shares	188,652
Weighted average exercise price, options exercisable (in Canadian Dollar per share)	CAD 1.48
Range Three [Member]
Number of shares under option (in shares) | shares	340,401
Weighted average remaining contractual life	5 years 193 days
Weighted average exercise price, options outstanding (in Canadian Dollar per share)	CAD 2.20
Number of options currently exercisable (in shares) | shares	340,401
Weighted average exercise price, options exercisable (in Canadian Dollar per share)	CAD 2.20
Range Four [Member]
Lower exercise price (in Canadian Dollar per share)	3
Upper exercise price (in Canadian Dollar per share)	CAD 3.10
Number of shares under option (in shares) | shares	134,390
Weighted average remaining contractual life	6 years 171 days
Weighted average exercise price, options outstanding (in Canadian Dollar per share)	CAD 3.10
Number of options currently exercisable (in shares) | shares	131,077
Weighted average exercise price, options exercisable (in Canadian Dollar per share)	CAD 3.10
Lower exercise price (in Canadian Dollar per share)	0.60
Upper exercise price (in Canadian Dollar per share)	CAD 3.10
Number of shares under option (in shares) | shares	1,350,894
Weighted average remaining contractual life	7 years 153 days
Weighted average exercise price, options outstanding (in Canadian Dollar per share)	CAD 1.45
Number of options currently exercisable (in shares) | shares	832,379
Weighted average exercise price, options exercisable (in Canadian Dollar per share)	CAD 1.88

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Note 9 - Share Capital and Additional Paid-in Capital - Stock Options Activity (Details)	9 Months Ended
	Sep. 30, 2016 CAD / shares shares
Balance (in shares) | shares	1,533,022
Balance (in Canadian Dollar per share) | CAD / shares	CAD 1.38
Options granted (in shares) | shares	42,000
Options granted (in Canadian Dollar per share) | CAD / shares	CAD 0.85
Options expired (in shares) | shares	(625)
Options expired (in Canadian Dollar per share) | CAD / shares	CAD 6.80
Options forfeited (in shares) | shares	(223,503)
Options forfeited (in Canadian Dollar per share) | CAD / shares	CAD 0.85
Balance (in shares) | shares	1,350,894
Balance (in Canadian Dollar per share) | CAD / shares	CAD 1.45

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Note 9 - Share Capital and Additional Paid-in Capital - Restricted Share Unit Plan (Details)	9 Months Ended
	Sep. 30, 2016 CAD / shares shares
Restricted Stock Units (RSUs) [Member]
Balance (in shares) | shares	112,489
Balance (in Canadian Dollar per share) | CAD / shares	CAD 1.02
Granted in period (in shares) | shares	118,527
Granted in period (in Canadian Dollar per share) | CAD / shares	CAD 0.85
Balance (in shares) | shares	131,861
Balance (in Canadian Dollar per share) | CAD / shares	CAD 0.89
Deferred Share Unit Plan (DSUs) [Member]
Balance (in shares) | shares
Balance (in Canadian Dollar per share) | CAD / shares
Granted in period (in shares) | shares	86,918
Granted in period (in Canadian Dollar per share) | CAD / shares	CAD 0.85
Balance (in shares) | shares	86,918
Balance (in Canadian Dollar per share) | CAD / shares	CAD 0.85
RSUs converted to common shares (in shares) | shares	(99,155)
RSUs converted to common shares (in Canadian Dollar per share) | CAD / shares	CAD (0.98)

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Note 9 - Share Capital and Additional Paid-in Capital - Allocation of Stock-based Compensation by Type of Cost (Details) - CAD CAD in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Cost of Sales [Member]
Share based compensation expense	CAD 6	CAD 6	CAD 23	CAD 23
Research and Development Expense [Member]
Share based compensation expense	6	10	22	32
General and Administrative Expense [Member]
Share based compensation expense	27	32	114	82
Selling and Marketing Expense [Member]
Share based compensation expense	5	7	19	23
Share based compensation expense	CAD 44	CAD 55	CAD 178	CAD 160

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Note 9 - Share Capital and Additional Paid-in Capital - Estimated Fair Value of Warrants Issued (Details) - Warrant [Member] - CAD	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Risk-free interest rates	0.51%	0.52%
Expected dividend yield	0.00%	0.00%
Fair Value Assumptions, Expected Term	91 days	1 year 91 days
Expected volatility	19.00%	121.00%
Fair Value Of Warrant	CAD 0.000007	CAD 0.0053

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Note 9 - Share Capital and Additional Paid-in Capital - Reconciliation of Weighted Average Number of Common Shares Used in Calculating EPS (Details) - CAD	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Restricted Stock Units (RSUs) [Member]
Weighted average effect of dilutive securities:
Dilutive Securities, Share-based Payment Arrangements (in shares)	131,861	112,489
Deferred Share Unit Plan (DSUs) [Member]
Weighted average effect of dilutive securities:
Dilutive Securities, Share-based Payment Arrangements (in shares)	86,918
Employee Stock Option [Member]
Weighted average effect of dilutive securities:
Dilutive Securities, Share-based Payment Arrangements (in shares)	33,363
Net income (loss) availabe to common shareholders	CAD 170,000	CAD 729,000	CAD (2,400,000)	CAD (373,000)	CAD (150,000)
Weighted average number of common shares outstanding - basic [note 9] (in shares)	10,917,269	9,925,256	10,303,598	9,863,609
Warrants (in shares)	3,963
Weighted average number of common shares outstanding - diluted [note 9] (in shares)	11,173,374	10,037,745	10,303,598	9,863,609

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Note 10 - Related Party Transactions (Details Textual) $ in Thousands		3 Months Ended		9 Months Ended
	Jun. 17, 2016 CAD	Sep. 30, 2016 CAD	Sep. 30, 2015 CAD	Sep. 30, 2016 CAD	Sep. 30, 2016 USD ($)	Sep. 30, 2015 CAD
Orbi Med [Member] | Private Placement [Member]
Proceeds from Issuance of Common Stock	CAD 599,000
Payments of Stock Issuance Costs	CAD 44,000
Hangzhou Joinstar Biomedical Co. Ltd. [Member] | Upfront Payment [Member]
Cash Proceeds from Technology Development Agreement | $					$ 1,280
Contracts Revenue		CAD 56,000	CAD 246,000	CAD 225,000		CAD 761,000
Contracts Revenue		CAD 56,000	CAD 1,103,000	CAD 225,000		CAD 2,075,000

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Note 11 - Commitments (Details Textual)		1 Months Ended	3 Months Ended		9 Months Ended		24 Months Ended
	Dec. 01, 2015 CAD	Sep. 30, 2003	Sep. 30, 2016 CAD ft²	Sep. 30, 2015 CAD	Sep. 30, 2016 CAD ft²	Sep. 30, 2015 CAD	Jun. 30, 2007 CAD
Developed Technology Rights [Member]
Royalty Expense			CAD 28,000	CAD 158,000	CAD 221,000	CAD 623,000
West Nile Virus [Member]
Royalty Expense			CAD 19,000	21,000	CAD 52,000	56,000
Royalty Expense, Percentage of Revenue		10.00%
Operation Facility [Member]
Area of Real Estate Property | ft²			46,000		46,000
Operating Lease, Monthly Payments					CAD 175,000
Office in China [Member]
Operating Lease, Monthly Payments	CAD 5,000
Royalty Expense							CAD 2,000,000
Operating Lease, Monthly Payments					200,000
Operating Leases, Rent Expense, Net			CAD 218,000	CAD 211,000	625,000	CAD 617,000
Purchase Obligation			1,800,000		1,800,000
Purchase Obligation, Due in Next Twelve Months			CAD 1,200,000		CAD 1,200,000

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Note 12 - Segmented Information (Details Textual) CAD in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2016 CAD	Sep. 30, 2015 CAD	Sep. 30, 2016 CAD	Sep. 30, 2015 CAD
Customer Concentration Risk [Member] | Sales Revenue, Goods, Net [Member] | Four Customers [Member]
Revenues	CAD 0.9
Concentration Risk, Percentage	60.00%
Customer Concentration Risk [Member] | Sales Revenue, Goods, Net [Member] | Customer One [Member]
Concentration Risk, Percentage	17.00%		21.00%
Customer Concentration Risk [Member] | Sales Revenue, Goods, Net [Member] | Customer Two [Member]
Concentration Risk, Percentage	15.00%		14.00%
Customer Concentration Risk [Member] | Sales Revenue, Goods, Net [Member] | Customer Three [Member]
Concentration Risk, Percentage	15.00%		12.00%
Customer Concentration Risk [Member] | Sales Revenue, Goods, Net [Member] | Customer Four [Member]
Concentration Risk, Percentage	13.00%
Customer Concentration Risk [Member] | Sales Revenue, Goods, Net [Member] | One Customer [Member]
Revenues		CAD 1.1		CAD 6.0
Concentration Risk, Percentage		46.00%		64.00%
Customer Concentration Risk [Member] | Sales Revenue, Goods, Net [Member] | Three Customers [Member]
Revenues			CAD 2.3
Concentration Risk, Percentage			47.00%
Customer Concentration Risk [Member] | Sales Revenue, Goods, Net [Member]
Number Of Major Customers	4	1	3	1
Number of Operating Segments			1

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Note 12 - Segmented Information - Product Sales by Customer Location (Details) CAD in Thousands, $ in Thousands	3 Months Ended				9 Months Ended
	Sep. 30, 2016 CAD	Sep. 30, 2016 USD ($)	Sep. 30, 2015 CAD	Sep. 30, 2015 USD ($)	Sep. 30, 2016 CAD	Sep. 30, 2016 USD ($)	Sep. 30, 2015 CAD	Sep. 30, 2015 USD ($)
CHINA
Product sales		$ 317		$ 1,119		$ 1,386		$ 6,043
UNITED STATES
Product sales		368		408		1,106		1,095
RUSSIAN FEDERATION
Product sales		231		199		662		537
JAPAN
Product sales		211		227		477		395
IRAN, ISLAMIC REPUBLIC OF
Product sales | CAD	CAD 126				CAD 451		CAD 342
VENEZUELA
Product sales | CAD			183		129		226
CANADA
Product sales		1		5		6		29
Segment, Geographical, Groups Of Countries, Group Three [Member]
Product sales		274		284		668		592
Product sales	CAD 1,528	$ 1,528	CAD 2,425	$ 2,425	CAD 4,885	$ 4,885	CAD 9,259	$ 9,259

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Note 12 - Segmented Information - Product Sales by Type of Product (Details) CAD in Thousands, $ in Thousands	3 Months Ended				9 Months Ended
	Sep. 30, 2016 CAD	Sep. 30, 2016 USD ($)	Sep. 30, 2015 CAD	Sep. 30, 2015 USD ($)	Sep. 30, 2016 CAD	Sep. 30, 2016 USD ($)	Sep. 30, 2015 CAD	Sep. 30, 2015 USD ($)
Clinical Products [Member]
Product sales	CAD 1,247		CAD 2,127		CAD 4,088		CAD 8,409
Non-clinical Products [Member]
Product sales	281		298		797		850
Product sales	CAD 1,528	$ 1,528	CAD 2,425	$ 2,425	CAD 4,885	$ 4,885	CAD 9,259	$ 9,259