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  Exhibit 4.5    
    

SQI Diagnostics Inc.  

Management's Discussion and Analysis of Financial

Condition and Results of Operations 

September 30, 2010  

 

 Management's Discussion and Analysis of Financial Condition and Results of Operations  

        This discussion and analysis covers the audited financial statements for the years ended September 30, 2010 and 2009, prepared in accordance with Canadian
generally accepted accounting principles (Canadian GAAP). The fiscal year end of SQI Diagnostics Inc. ("SQI" or "Company") is
September 30 th.

        All amounts are expressed in Canadian dollars unless otherwise indicated.

        This discussion and analysis was performed by management using information available as at January 18, 2011. Certain portions of this document including
management's assessment of the Company's future plans and operations contain forward-looking statements that involve substantial known and unknown risks and uncertainties. These forward-looking
statements are subject to numerous risks and uncertainties, some of which are beyond the Company's control, including the impact of general imprecision of reserve estimates, taxation policies,
obtaining regulatory approvals, successful product development, competition from other producers, stock market volatility and the ability to access sufficient capital from internal or external
sources. The Company's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be
given that any of the events anticipated by the
forward-looking statements will transpire or occur, or if any of them do so, what benefits that the Company will derive from them. Additional information relating to the Company is available by
accessing the SEDAR website at www.sedar.com and the Company's website at www.sqidiagnostics.com.

 OVERVIEW  

        SQI Diagnostics Inc. is a medical systems company that develops proprietary human diagnostic technology through multiplexing,
miniaturization and automation. Our technologies enable laboratories to analyze multiple biomarkers simultaneously, deliver accurate and quantitative patient results in less time, significantly reduce
labour costs, and increase profits when compared with current diagnostic instrumentation. The Company's proprietary SQiDworksTM instrument and IgXPLEX consumable tests together form an
immunoassay system capable of providing many of the diagnostic tests currently performed in reference laboratories engaged in testing human blood for a wide range of disease markers. 

        The
Company has been primarily involved in research, development and commercialization activities related to its core technology platform since 2003. The Company has expended significant
resources to create and protect its technology platform through the filing of patents and in building an automated instrument and multiplexed IgXPLEX assay platform. The Company has invested in
fostering partnerships with clinicians who are leaders in our disease areas of focus and with potential novel biomarker collaborators. The Company has also incurred costs associated with gathering
market intelligence concerning prospective customers, developing a direct sales platform and in marketing and selling to prospective customers. 

        The
Company's strategy is to develop and commercialize test kits for the autoimmune disease market as further described below, and plans to pursue commercialization of tests in
infectious disease and allergen testing in the future. The Company also plans to explore in-licensing opportunities to expand its product pipeline as well as to continuously improve its
in-market product through the addition of novel biomarkers to the existing diagnostic panels of tests. To execute this strategy the Company plans to seek regulatory approvals to sell these
additional tests globally starting with the North American markets. Following the successful commercialization of several IgXPLEX test panels, management will evaluate selling in additional markets
starting with countries in the European Union. 

        During
the fiscal year ended September 30, 2010, the Company's strategic focus was to initiate the transition from a development Company to a commercial Company. During fiscal
2010, the Company entered into a contract with Gamma Dynacare Medical Laboratories (GDML) to supply them with a SQiDworks assay processing and analytical system and QuantiSpot RATM test
kits. GDML has also agreed to evaluate the Company's IgXPLEX Celiac test kits in the 2011 fiscal year and the Company expects to deliver validation IgXPLEX Celiac products to them in the second
quarter of fiscal 2011. GDML is a key customer for the Company; it processes significant test volumes of both rheumatoid arthritis and celiac disease tests. 

2

 

        The
Company is currently in the process of obtaining US FDA clearance of its IgXPLEX Celiac test. The Company believes the clearance of this product will significantly enhance its US
market position. The Company is also following up with and is optimistic of winning additional Canadian customers based on Health Canada licensing of its IgXPLEX Celiac product during 2010. 

        The
Company is focusing on the continued development of a pipeline of assays and SQiDworks and SQiDman assay processing and analytical platforms. The Company expects to advance
additional test kits through the regulatory process during fiscal 2011 as discussed further in this document. 

 Status of Development Program  

        The Company's development program includes several major components which the Company expects will advance its commercialization
strategy. The status of each component is summarized and discussed in further detail below: 

 

 

									
	 
	 	 
	 	Approval Status 
	 
	 	Development

Status 
	Product

 
	 	Canada 	 	United States 	 	Europe 
	 SQiDworks
	 	Complete	 	Approved	 	Cleared as a system with IgXPLEX RA	 	CE Marked
	 SQiDman
	 	Development RUO	 	Not required	 	Not required	 	Not required
	 IgXPLEX RA
	 	Complete	 	Approved	 	Cleared	 	CE Marked
	 QuantiSpot RATM
	 	Complete	 	Approved	 	 	 	CE Marked
	 IgXPLEX Celiac
	 	Complete	 	Approved	 	Filed	 	 
	 IgXPLEX RA Quantitative
	 	Development	 	 	 	 	 	 

 

  

 

 

			
	Product

 
	 	Development

Status 
	 IgXPLEX Celiac Quantitative
	 	Development
	 IgXPLEX TNF
	 	Development
	 IgXPLEX Vasculitis
	 	Development
	 IgXPLEX Lupus
	 	Development
	 IgXPLEX IBD
	 	Proof of Concept

 

 

	1.
	The
Company has developed fully automated SQiDworks and semi-automated SQiDmanTM microarray-based test platforms that enable
laboratory customers to generate multiple patient test results with less than one unit of traditional 'test effort'. The Company has received marketing clearance from the United States
Food & Drug Administration ("FDA"), Canadian regulatory approval for, and has CE Marked its fully automated, high throughput SQiDworks platform. SQiDworks is the only such platform to achieve
these regulatory clearances. 

The
SQiDworks platforms are to be used to run a menu of tests used to aid in the diagnosis of a wide range of diseases in targeted market segments. The Company has received clearance from the FDA,
Canadian regulatory approval for, and has CE Marked its IgXPLEX RA test kits used to detect and measure a panel of biomarkers to aid in the diagnosis of rheumatoid arthritis. The Company has also
received Canadian regulatory approval for, and has CE marked, its fully quantitative QuantiSpot RATM tests kits, run on the SQiDworks platforms. The QuantiSpot RA test kits provide fully
quantitative information to further aid in the diagnosis and diagnostic monitoring of rheumatoid arthritis. 

The
Company has received Canadian regulatory approval for its IgXPLEX Celiac test kits and filed for US FDA regulatory clearance to market this product. 

The
Company's SQiDworks and SQiDman platforms are also capable of running Research Use Only (RUO) and Investigational Use Only (IUO) test kits and the Company is exploring sales opportunities related
to these applications of its platform with the Company's products as well as through the potential development of target customer's content. Delivering RUO/IUO product based on customer owned content
would require collaboration and assay development though this effort would be materially less than that experienced with the Company's pipeline of regulatory-cleared products. 

	2.
	The
Company continues to focus on its in-market tests and believes that it must continuously improve and update its products.            The
company has identified and has moved into development enhancements to the existing IgXPLEX RA and IgXPLEX Celiac test panels. These improvements, requiring regulatory approvals, will represent second
generation, fully quantitative IgXPLEX microarray technology and include expanded biomarker content for IgXPLEX RA and IgXPLEX Celiac. All in-development tests will utilize this second
generation, fully quantitative multiplexing technology; the Company believes these enhancements will provide significant market advantages compared to our competitors. 

 

 3

 
 

	3.
	The
Company has completed proof of concept for a multiplexed test to measure the presence of anti-TNF-based biologic drugs used to
treat a variety of autoimmune diseases. The Company believes that a test to measure these biological drugs in patient serum will provide important clinical and treatment management tools for
clinicians treating autoimmune diseases. The Company also believes that the development of this companion diagnostic product will be used as a basis to
develop other companion diagnostic products that could be delivered and sold as RUO or IUO kits to a broader market including but not limited to the pharmaceutical development and academic research
markets. During the year, the Company completed development of the prototype of the IgXPLEX TNF and provided the prototype to its development partner, Mount Sinai Services (Toronto), to enable
validation studies of the product and to provide initial performance feedback to the Company. The validation studies were completed, the performance criteria were met, and the Company's partner's
feedback was received and is in the process of being implemented. The Company believes that it will deliver a commercial product to its partner during the 2011 calendar year.

	4.
	During
the fiscal year ended September 2010, the Company entered into an OEM development agreement with Silliker Inc. to complete development
of a multiplexed botulism assay. Owing to SQI project prioritization, and minor changes to the scope of the project, the Company decided to hold development of this project. The Company, in
association with Silliker will re-assess the viability of the project over the coming quarter and will prioritize it relative to the other development projects that are currently being
focussed on. 

 

  Status of Commercialization Activities and Other Events in the Year  

        During the year ended September 30, 2010, the Company invested in its sales and marketing team, its science, commercialization,
and regulatory groups, and in infrastructure. The Company's sales efforts are focusing on the North American market to generate sales to targeted customers of the currently approved system, including
the SQiDworks fully automated analytical platform, IgXPLEX RA panel, QuantiSpot RA panel, and IgXPLEX Celiac panel (Canada). The science, commercialization, and
regulatory groups are focusing on the continued development of pipeline assays and SQiDworks and SQiDman platforms. 

        Following
is an overview of the Company's achievements for the year to date: 

	(a)
	During
the year ended 2010, the Company entered into a sales agreement with Gamma Dynacare Medical Laboratories (GDML) for the supply of its QuantiSpot RA
test kits and SQiDworks platform. GDML has also requested that the Company provide to it sufficient IgXPLEX Celiac test kits upon the Company's successful validation of the product such that GDML can
perform its internal review of the product's performance. The Company expects to deliver these test kits to GDML during the second quarter of 2011. Successful internal review by GDML is expected to
lead to the expansion of the current contract to include IgXPLEX Celiac test kits;

	(b)
	Subsequent
to the year ended September 30, 2010 the Company executed an evaluation agreement with a significant US-based reference
laboratory and technology opinion-leader. The Company believes that the conversion of this target customer will result in a very positive general market reaction and demand for its products. The
Company expects to deliver the SQiDworks platform to this target customer in the second fiscal quarter of 2011;

	(c)
	Completed
an in-depth market survey of high potential target customers generating numerous high quality sales leads during the year;

	(d)
	Completed
50 sales calls with potential customers from our target list drawn from the top 100 diagnostic labs (based on volume) during the
second, third and fourth quarters. The Company believes that it has generated significant interest from these target customers and that there is a high level of interest to evaluate the SQiDworks
platform and available test kits upon the clearance of its IgXPLEX Celiac test kit;

	(e)
	Obtained
the patent "Method to Measure Dynamic Internal Calibration True Dose Response Curves". Management believes this patent to be a significant
achievement in its intellectual property portfolio establishing enhanced protection of in-array calibration and normalization; and, 

4

 

	(f)
	Progressed
a number of pipeline diagnostic tests through our discovery and development program;

	(i.)
	the
Company obtained clearance from the FDA to market and sell the IgXPLEX RA and SQiDwoks system; the first ever cleared multiplexed/microarray product.
Health Canada licenses were also obtained to market the IgXPLEX RA product in addition to the previously licensed QuantiSpot RA product and SQiDworks platform;

	(ii.)
	Applied
for and obtained Health Canada license to market the IgXPLEX Celiac 4-PLEX panel;

	(iii.)
	Applied
for US FDA regulatory clearance of its IgXPLEX Celiac 4-PLEX panel. Subsequent to the fiscal year ended September 30, 2010,
the Company received and responded to questions from the FDA regarding this panel. The questions and responses are described by the Company as those expected in the normal course of its regulatory
processes.;

	(iv.)
	Based
on market information obtained through in-depth market surveys and sales calls with potential customers the Company has identified
enhancements to its existing RA and Celiac products. These enhancements, requiring regulatory approvals, are in development and include transition from qualitative to fully quantitative reporting and
the expansion of additional biomarkers that the Company believes will be relevant in the market.

	(v.)
	The
IgXPLEX Vasculitis assay was advanced to the Assay Development stage and is expected to complete clinical validation in the second quarter
of 2011.

	(vi.)
	Advanced
the IgXPLEX Lupus test kits to the proof of concept stage and subsequent to the year end it was progressed to the assay development stage. The
Company expects to initiate clinical validation of this product in the second calendar quarter of 2011, and complete regulatory filings shortly thereafter.

	(vii.)
	IgXPLEX
IBD was progressed into the proof of concept stage and is being actively developed with the expectation of being completed and filed for
regulatory approvals in 2011.

	(viii.)
	Continued
development of IgXPLEX TNF test kits based on the expanded performance requirements requested by our partner, Mount Sinai Services. During
this time, the R&D team also made significant technical improvements in the assay. The IgXPLEX TNF test is intended to be used to measure and monitor the concentration of
anti-TNF-based drugs including RemicadeTM, HumiraTM and EnbrelTM in patients with a range of autoimmune and inflammatory disorders including
but not limited to rheumatoid arthritis, crohn's disease, plaque psoriasis and ankylosing spondylitis. The Company believes that the cost-effective measurement of these drugs would provide
clinicians enhanced treatment options. The Company expects that it will be able to complete commercialization of an IgXPLEX TNF test that will be able to be cleared for IVD sale in Canada. It will
remain as a Research Use Only (RUO) product with limited performance claims in the US until expanded clinical studies are performed. However, the Company continues to believe that, as there are no
predicate tests currently approved to test for the presence and concentration of anti-TNF, there is a viable RUO market for the product in the US.

	(ix.)
	Initiated
platform development for SQiDman with a target to complete development that is expected to coincide with customer requirements for potential
research use collaborations. Subsequent to the year end this SQiDman platform became available for RUO/IUO applications. This platform is currently not targeted at IVD applications until the Company
is actively developing infectious disease content and at that time the SQiDman platform would require additional development for regulatory requirements;

 

	(g)
	Partnering Successes in 2010

During
and subsequent to the year ended 2010, the Company was successful in entering into multiple collaboration agreements with the leading institutes highlighting the market interest in multiplexing
and the Company's achievements to date. These collaborations significantly improve the Company's ability to progress its products through the development process through obtaining access to patient
sera needed for assay development, verification of in-development products and final product clinical validation. 

5

 

The
following table provides an overview of our partnering collaborations and the relevant pipeline product: 

 

 

								
	 	Partnering Institute*

 
	 	Principal

Investigator 	 	Pipeline Product 	 	Purpose 
	 	 Cleveland Clinic (i)
	 	Dr. Tubbs	 	IBD	 	Serum Samples

Collaboration
	 	 Beth Israel Deaconess Medical Center
	 	 Dr. Kelly
	 	 Celiac
	 	 Serum Samples

Collaboration/Publication

	 	 Beth Israel Deaconess Medical Center
	 	 Dr. Moss
	 	 Anti-TNF
	 	 Serum Samples

Collaboration/Publication

	 	 Hospital Clinic de Barcelona, Spain
	 	 Dr. Cervera
	 	 Vasculitis
	 	 Serum Samples

Collaboration/Publication

	 	 Cleveland Clinic
	 	 Dr. Wang
	 	 All

Rheumatoid Arthritis

Various
	 	 Clinical Validation

Collaboration

Serum Samples

	 	 University of Maryland
	 	 Dr. Fasano
	 	 Celiac
	 	 Serum Samples

	 	 University Hospital Maastricht, the Netherlands
	 	 Dr. Damoiseaux
	 	 Vasculitis
	 	 Serum Samples

Collaboration

	 	 University North Carolina Kidney Center (ii)
	 	 Dr. Falk
	 	 Vasculitis
	 	 Collaboration

Serum Samples

Clinical Validation

 

 

	*
	All
Partnering Institutes are located in the USA unless otherwise annotated. 

 

 

	(i.)
	Completed
an "IBD Multiplex Panel Development Collaboration" agreement with Dr. Tubbs of the Department of Molecular Pathology, Cleveland Clinic.
This agreement gives the Company access to a significant resource for professional collaboration of its IBD (Crohn's Disease) IgXPLEX product and next generation biomarkers as well as access to a
valuable bank of characterized patient serum for development and clinical validation.

	(ii.)
	Subsequent
to the fiscal year end, the Company entered into a clinical validation agreement with the University North Carolina Kidney Center (UNCKC),
Chapel Hill, with Dr. Falk acting as the principal investigator. This agreement gives the Company access to a significant bank of prospective and stored patient serum samples for characterized
positive vasculitis patients. These serum samples substantially improve the Company's ability to develop and validate its IgXPLEX Vasculitis product. The collaboration agreement also provides the
Company professional expertise from the world leader in diagnosing vasculitis disease. The Chapel Hill Protocol is the most recognized diagnostic algorithm used to diagnose vasculitis disease. As part
of the agreement, the Company is collaborating to establish a center of excellence for microarray-based multiplex testing of vasculitis with Dr. Falk through the collaboration and delivery of a
SQiDworks platform at Chapel Hill. The agreement calls for co-publishing of the results of the collaborative efforts. 

The
Company anticipates that this platform can be used for expanded purposes alongside the collaboration with Dr. Falk including, but not limited to validation of additional products in
its pipeline. 

 Corporate Financing Transactions  

        During the fiscal year ended 2010 the Company was successful in raising significant capital to sustain its operations from the exercise
of warrants and options and from two private placements, in total generating $13,997,000 in net cash. 

        On
December 04, 2009, the Company completed a private placement resulting in the issuance of 2,398,104 units at a price of $2.75 per share for gross proceeds of $6,595,000
(net of cash costs — $6,109,000). Each unit was comprised of one common share and one half common share purchase warrant. Each whole warrant entitles the
holder to purchase one additional common share at a price of $4.00, expiring December 4, 2011. The total share issuance costs were $611,000. 

6

 

        On
August 12, 2010, the Company complete another private placement resulting in the issuance of 2,280,000 units at a price of $2.50 per unit for gross proceeds of
$5,700,000 (net of cash costs — $5,399,000). Each unit was comprised of one common share and one half common share purchase warrant. Each whole warrant
entitles the holder to purchase one additional common share at a price of $5.00, expiring on August 12, 2012. The total share issuance costs were $363,000. 

        During
the fiscal year ended 2010 199,493 warrants with an expiry of April 26, 2010 were exercised resulting in the issuance of 199,493 shares and net
proceeds of $120,000. During the fiscal year ended 194,200 warrants with an expiry of June 3, 2010 were exercised resulting in the issuance of 194,200 shares and net proceeds of
$291,000. In addition, 576,563 warrants with an expiry date of June 29, 2010 were exercised resulting in the issuance of 576,563 shares and net proceeds of $1,384,000 the
remaining 1,207,213 warrants with an expiry date of June 29, 2010 expired unexercised. 

        During
the fiscal year ended 2010 the Company also issued 916,683 shares resulting from the exercise of options (850,017 of these option were issued under the Stock Option Plan).
The exercise of these options resulted in gross proceeds of $694,000. 

 CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES  

        Financial statements are prepared in accordance with Canadian GAAP. 

        The
significant accounting policies that management believes are the most critical in fully understanding and evaluating the reported financial results include the following: 

 Patents and Trademarks  

        The costs relating to patent and trademark fees are deferred and amortized over 10 years on a straight-line basis.
Patents and trademarks are recorded net of accumulated amortization of $627,000 (September 30, 2009 — $527,000). 

 Research and Development Costs  

        Research costs are charged to earnings in the period in which they are incurred. Development costs are expensed as incurred or deferred
if they meet the criteria for deferral under Canadian generally accepted accounting principles and are expected to provide future benefits with reasonable certainty. At September 30, 2010, the
Company was in development of its pipeline of novel tests for its diagnostic system. Deferral criteria have not yet been met, and accordingly, all development costs have been expensed. 

 Stock-Based Compensation and Other Stock-Based Payments  

        The Company applies a fair value based method of accounting for all stock-based payments. Accordingly, stock-based payments are
measured at the fair value of the consideration received or the fair value of the equity instruments issued or liabilities incurred, whichever is more reliably measurable. Stock-based compensation is
charged to operations over the vesting period and the offset is credited to contributed surplus. Consideration received upon the exercise of stock options is credited to share capital and the related
contributed surplus is transferred to share capital. 

 Share Issuance Costs  

        Costs incurred in connection with the issuance of capital stock are netted against the proceeds received. 

 Income Taxes  

        The Company follows the liability method of accounting for income taxes. Under this method, future income tax assets and liabilities
are determined based on temporary differences between financial reporting and tax bases of assets and liabilities, as well as for the benefit of losses available to be carried forward to future years
for tax purposes. Future income tax assets and liabilities are measured using enacted or substantively enacted tax rates and laws that will be in effect when the differences are expected to reverse.
Future income tax assets are recorded in the financial statements if realization is considered more likely than not. 

 Use of Estimates  

        The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amount of revenue and expenses during the year. Actual results could differ from those estimates. Significant areas requiring the use of management estimates relate to the determination of the useful
lives of property and equipment and patents and trademarks for amortization purposes, valuation of ITC's receivable, valuation of stock options and warrants and valuation allowance on future
tax assets. 

7

 

 Recent Accounting Pronouncements

Business Combinations  

        In January 2009, the CICA issued Section 1582, Business Combinations, which replaces former guidance on business
combinations. Section 1582 establishes principles and requirements of the acquisition method for business combinations and related disclosures. In addition, the CICA issued
Sections 1601, Consolidated Financial Statements, and 1602, Non-Controlling Interests, which replaces the existing guidance. Section 1601 establishes standards for the
preparation of consolidated financial statements, while section 1602 provides guidance on accounting for a non-controlling interest in a subsidiary in consolidated financial
statements subsequent to a business combination. 

        These
standards apply prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after
January 1, 2011 with earlier application permitted. The Company is currently evaluating the new sections to determine the potential impact of any future transactions on its consolidated
financial statements. 

 International Financial Reporting Standards (IFRS)  

        The CICA plans to converge Canadian Generally Accepted Accounting Principles with International Financial Reporting Standards ("IFRS")
over a transition period expected to end in 2011, when IFRS will be fully adopted. The Company will required to adopt IFRS for its 2012 fiscal year end and will be required to provide IFRS comparative
information for the previous fiscal year. The Company continues to monitor and assess the impact of the convergence of Canadian GAAP and IFRS on its financial statements. We have identified the main
differences between existing Canadian GAAP and IFRS standards. The Company has a conversion plan in place and believes it has the resources in place to meet the conversion timelines. The following are
the main differences and the expected impact on our business processes and information systems: 

 

 

			
	Key Accounting Areas

 
	 	Difference with potential impact on the Company

 

	IFRS 1 First time adoption of IFRS	 	The Company is in the process of selecting the applicable exemptions under IFRS.
	

 	
 	
Required reconciliations and disclosure upon the initial conversion to IFRS will be included in the initial statements presented under IFRS commencing in the first quarter of fiscal 2012.
	
IAS 16 Property Plant and Equipment	
 	
The Company will re-evaluate the useful life of each component of property plant and equipment and will restate, if applicable, the historic amortization expense.
	
IAS 36 Impairment of Assets	
 	
The Company will evaluate potential impairments using discounted cash flow analysis as required under IFRS
	
IAS 12 Income Tax	
 	
The Company has accumulated non-capital losses, undeducted scientific research and development costs, and investment tax credits that have not been reflected in the financial statements. These items will need to be
assessed based on the IFRS criteria to ensure proper classification on the balance sheet.
	
IFRS 2 Share based payments	
 	
The Company will treat all options with graded vesting as separate option awards as required under IFRS 2. The Company will utilize the exemptions under IFRS 1 when converting to the new
standard.
	
IAS 1 Financial Statement Presentation	
 	
Additional disclosure required as well as selection between presentation alternative will be addressed in the initial statements presented under IFRS.

 

 8

 
 
  SELECTED FINANCIAL INFORMATION  

        The table below summarizes annual financial information for the fiscal years ending September 30, 2010 and 2009. Certain
comparative information has been reclassified to conform to the current year's presentation. 

 

 

								
	 
	 	Year ending

September 30, 2010 	 	Year ending

September 30, 2009 	 
	 
	 	(000s)
	 	(000s)
	 
	 Revenue
	 	 	$35	 	 	$32	 
	 Net loss
	 	 	$8,073	 	 	$5,910	 
	 Net loss per share
	 	 	$(0.27	)	 	$(0.23	)
	 Weighted average shares
	 	 	30,349	 	 	25,158	 
	 Total Assets
	 	 	$13,134	 	 	$6,205	 

 

         The
increasing net loss trend between the year ended September 30, 2009 and the fiscal year ended September 30, 2010 was primarily related to increased development activity
and expenses for the scientific discovery and development of several IgXPLEX assays, the regulatory approval, and the commercialization of the QuantiSpot RA, IgXPLEX RA and IgXPLEX Celiac test panels
and SQiDworks system. In addition a number of diagnostic tests continued progression through our discovery and development program including IgXPLEX Vasculitis and, IgXPLEX SLE (Lupus), IgXPLEX TNF
and initial development of SQiDman. The Company also invested in the development of its second generation fully quantitative and expanded biomarker panels for IgXPLEX RA and Celiac products as
previously discussed. 

        Differences
in the net loss for 2010 versus 2009 were also related to increased professional and consulting fees including recruiting fees for personnel additions, legal and accounting
fees, increased stock-based compensation expenses, and expansion of infrastructure resulting in increased personnel and occupancy costs in the year ended September 30, 2010. 

        Gross
research and development ("R&D") costs, which include R&D salaries, laboratory consumables and operating expenses, clinical studies, scientific consultants and clinical partner
costs were $ 5,354,000 for the
year ending September 30, 2010 compared to $3,449,000 for the year ending September 30, 2009. The principle difference in Gross R&D expenses of $1,905,000 between the two periods was
due to: 

	•
	an expansion of development activities owing to an expanded number of autoimmune products in advanced stages of
development in 2010 compared to 2009. During 2009 IgXPLEX RA and Celiac were in the development stage with 2 other panels in early discovery. During 2010 the company advanced IgXPLEX Celiac to
the regulatory approval stage, obtained the regulatory approval of IgXPLEX Celiac in Canada, had 5 additional panels in the development stage (second generation IgXPLEX Celiac and RA, IgPLEX
Vasculitis, IgXPLEX Lupus, and IgPLEX TNF) and one product in the early discovery stage (IgPLEX IBD);   

	•
	Initiated development efforts toward the SQiDman platform and enhancements to the SQiDworks platform and software allowing
multi-plate/multi-product runs, pick and pay capability and Lab Information Management Systems ("LIMS") integration;   

	•
	a greater level of activity and personnel additions in 2010 to complete the required work;  

	•
	cost related to Autoimmune assay validation services;   

	•
	new expenditures for internal and third party clinical studies including increased acquisition costs for patient serum
tested in these studies. 

        In
the fiscal period ending 2010 the Company had a peak of 53 employees, 44 involved directly in R&D compared to the 2009 fiscal year when the Company had a peak of
36 employees with 29 involved directly in R&D. R&D salaries and payroll costs increased from $2,372,000 for the period ending September 30, 2009 to $3,159,000 for the year ending
September 30, 2010. R&D consumable costs rose in proportion to the number of R&D employees and development projects being prosecuted, and these expenses increased by $1,118,000 in the year
ending September 30, 2010 above the expenses incurred in the period ending September 30, 2009. 

9

 

        Gross
R&D expenses were offset by the recognition of Scientific Research and Experimental Development ("SRED") cash refunds received in the 2009 fiscal year of $87,000 resulting in net
R&D expenses of $3,362,000 and by $295,000 in the 2010 fiscal period resulting in net R&D expenses of $5,059,000. 

        General
and administrative ("G&A") expenses include occupancy costs (rent, maintenance and utilities), office supplies as well as other general operating costs and bank charges. G&A
expenses increased in the year ending September 30, 2010 compared to the period ending September 30, 2009 from $447,000 to $471,000. The primary reasons for the $24,000 increase were an
increase in travel related to corporate development activities, increased occupancy costs due to the increase in the number of employees, and other costs related to the general growth of the corporate
activities and related overheads to operate the business. General and administrative expenses included a $97,000 patent write down in 2009; there was no similar write down in the current year. Amounts
for sales and marketing included in general and administrative expenses in the prior year have been reclassified to sales and marketing expenses 

        Sales
and marketing costs were primarily related to sales and marketing consultant fees and to travel related to selling activities. Sales and marketing expenses totalled $474,000 for
the year ended September 30, 2010 compared to $409,000 for the year ended September 30, 2009. The increase of $65,000 was primarily a result of additional consultant costs as the company
expanded its commercialization efforts. 

 Fourth Quarter Commentary  

        The table below summarizes quarterly financial information for the 3 month periods shown. 

 

 

														
	 
	 	September 30, 2010 	 	June 30, 2010 	 	March 31, 2010 	 	December 31, 2009 	 
	 
	 	(000s)
	 	(000s)
	 	(000s)
	 	(000s)
	 
	 Revenue
	 	 	$14	 	 	$6	 	 	$10	 	 	$5	 
	 Net Loss
	 	 	$2,621	 	 	$1,811	 	 	$2,021	 	 	$1,620	 
	 Net Loss Per Share
	 	 	$(0.08	)	 	$(0.06	)	 	$(0.07	)	 	$(0.06	)
	 Weighted Average Shares
	 	 	32,705	 	 	30,790	 	 	29,917	 	 	27,930	 

 

  

 

 

														
	 
	 	September 30, 2009 	 	June 30, 2009 	 	March 31, 2009 	 	December 31, 2008 	 
	 
	 	(000s)
	 	(000s)
	 	(000s)
	 	(000s)
	 
	 Revenue
	 	 	$7	 	 	$8	 	 	$7	 	 	$10	 
	 Net Loss
	 	 	$1,616	 	 	$1,354	 	 	$1,473	 	 	$1,467	 
	 Net Loss Per Share
	 	 	$(0.06	)	 	$(0.05	)	 	$(0.06	)	 	$(0.07	)
	 Weighted Average Shares
	 	 	27,271	 	 	26,326	 	 	25,837	 	 	22,448	 

 

         Revenue
for the quarter ended September 30, 2010 was $14,000 compared to $7,000 for the quarter ended September 30, 2009. In the last quarter of 2010 the Company completed
its first sale of its QuantiSpot RA
test kit to a 3rd party. Other revenue for the three month periods ending September 30, 2010 and 2009 was from service-based revenue provided to a related party. 

        For
the quarter ended September 30, 2010, the Company recorded a net loss of $2,621,000 ($0.08 net loss per share) compared to a net loss of $1,616,000 ($0.06 net loss per share)
for the quarter ended September 30, 2009. Per share values are based on the weighted average shares outstanding in the period. For the quarter ended September 30, 2010 there was an
average of 32,705,000 shares outstanding. 

        Net
loss and net loss per share were greater for the quarter ended September 30, 2010 compared to September 30, 2009. The increased loss for the three months ending
September 30, 2010 was primarily related to increases in activity and expenses in the discovery efforts for and development of several IgXPLEX assays, including ordinary increases in wage and
wage-related expenses owing to an increase in personnel, increased lab expenditures to support the greater number of projects, and other direct costs including serum acquisition and
development and validation partner costs. Sales and Marketing expense was higher in the quarter ended 2010 owing to additional travel and contract resources in sales and marketing as the Company
increase its sales effort for approved IgXPLEX panels in Canada and the United States and in anticipation of further approval. 

10

 

        R&D
expenditures for the three month period ended September 30, 2010 were $1,621,000 compared to the $872,000 (before the effect of SR&ED tax credits) for the three month period
ended September 30, 2009. The increase in R&D expense for the three month period ended September 30, 2010 compared to the three months ending September 30, 2009 resulted from
increased R&D activity with an increased number of assay panels in development and toregulatory validation efforts related to the IgXPLEX Celiac assay. In the fourth quarter of 2009 the Company had
1 panel in development and one panel in the regulatory approval process. In the last quarter of 2010 in addition to the IgXPLEX Celiac assay in regulatory validation, the company had
5 panels in development and 1 additional panel in early discovery and development. The company has also expended developments efforts toward the SQiDman platform and enhancements to the
SQiDworks platform and software. The company also incurred costs related to autoimmune assay validation services and expenditures for internal and third party clinical studies. 

        Corporate
expenses include, primarily, all salaries and related expenses (including benefits and payroll taxes) of the Company other than salaries and related expenses paid to personnel
engaged in research and development. General and Administrative expenses include facility costs, insurance costs, and foreign exchange expenses. Corporate and general expenses totalled $299,000 for
the quarter ended September 30, 2010 compared to $290,000 for the quarter ended September 30, 2009. During the fourth quarter of 2010 corporate expenses increase as a result of higher
salary costs, including bonuses and increased personnel and increased occupancy costs. Corporate expenses included a write down for abandoned patents in the quartered ended September 30, 2009,
there was no similar write down in 2010. 

        Professional
consulting (legal, accounting, Board of Directors compensation, recruiting, administrative contractor, and investor relations) costs in the quarter ended
September 30, 2010 were $223,000 compared to $179,000 from the quarter ended September 30, 2009. The increase in professional and consulting costs in the quarter ended
September 30, 2010 were primarily related to the use of multiple experts in the areas of professional recruiting for science, regulatory, engineering and technical professionals, laboratory
cost analysis, competitive and product intelligence, and work-flow management. Professional recruiting costs were incurred primarily to increase staffing to support product pipeline and
commercialization efforts. Amounts for sales and marketing included in professional and consulting expenses in 2009 been reclassified to sales and marketing expenses to conform with the current year's
presentation. 

        Sales
and Marketing expenses were primarily related to sales and marketing consultant fees and to travel related to selling activities in the quarter. Sales and marketing expenses
totalled $165,000 for the quarter ended September 30, 2010 compared to $82,000 for the quarter ended September 30, 2009. The increase in sales and marketing expenses were primarily
related to additional consulting costs paid to increase staffing to support product pipeline and commercialization efforts. 

        Operational
expenses were partially offset by interest income earned on short-term investments. The interest income was $32,000 and $12,000 for the year and quarter ended
September 30, 2010 respectively. The interest earned for the year and quarter ended September 30, 2009 was $121,000 and $3,000. Interest in 2009 included interest earned on ITC credits
outstanding. The Company invests its cash in variable term cashable government investment certificates and short-term money market deposits. 

        Non-cash
stock based compensation charges totalled $218,000 for the quarter ended September 30, 2010 ($402,000 — year ended
September 30, 2010) compared to $89,000 for the quarter ended September 30, 2009 ($380,000 — year ended September 30, 2009). The related
stock option issuances are described further below in the Outstanding Share Capital section. 

11

 

 Outlook  

        Management expects losses to continue for the current fiscal year as investment continues in product development and commercialization
efforts on its pipeline of autoimmune test kits as well as investment in sales and marketing. During the 2011 fiscal year the Company will focus on sales and placing SQiDworks systems in Canadian and
US-based customers for system evaluation and expects that of the majority of these evaluation placements will lead to commercial acceptance and revenues from sales of consumable test kits.
The Company delivered one such evaluation placement in January 2010 to GDML. This system was installed and handed off to the customer in February following training of its operational
personnel. From the date of hand-off the customer was provided 90 days to run its internal acceptance validation. During the quarter ending June 30, 2010, the Company
converted the positive validation of the platform to a commercial agreement for commercial use by the customer, and generated revenue to the Company in the quarter ended Sept 30, 2010. 

        During
the 2010 fiscal year the Company utilized its significant positive customer feedback relating to the commercial feasibility of its system and consumable tests from this market
survey generated in the first two quarters of the 2010 fiscal year to focus on high-value customers with higher volumes of rheumatoid arthritis testing. Based on this market feedback, the
Company believes that its strategy of focusing development, commercialization and marketing efforts on panels of autoimmune assays targeted at medium and large reference laboratory customers continues
to be sound and aligns with customer demand. As well, the Company generated a significant number of qualified sales leads from its survey activity and is in the process of conducting both initial and
follow-up sales meetings with approximately 50 qualified prospective customers. 

        Our
analysis of the market would indicate that there are over 315 laboratories in the United States with sufficient volume of rheumatoid arthritis testing to be target
customers for the SQiDworks / IgXPLEX RA system. Management believes that the addressable market is sufficiently large and that with the completion of additional IgXPLEX panels, including IgXPLEX
Celiac, licensed in Canada and currently under FDA review, the company will be well-positioned for wider scale commercial acceptance of our platforms during the 2011 fiscal year, and
beyond. Management believes the number of potential customers upon regulatory clearance of multiple IgXPLEX products (ex IgXPLEX RA and IgXPLEX Celiac) in the US, to greatly exceed those
currently targeted with only one approved product in the US. Further, completion of SQiDworks Lite in 2011 for IVD and RUO/IUO applications will greatly enhance the addressable market into the 1,000s
of potential customers. 

        Based
on its successful FDA clearance, its Health Canada licenses and EU authorization, management increased the intensity of the development and commercialization of several new IgXPLEX
test kits in 2010 and expects this development to result in the submission of a continuous flow of autoimmune test kit applications to the US, Canadian and EU regulatory bodies during the 2011
calendar year. This activity will generate similar R&D expenses in 2011 as was experienced in the second half of the 2010 fiscal year related to internal development, internal verification and
validation studies and third party validation studies. This activity is expected to continue in the foreseeable future as the company completes the autoimmune pipeline, continues to improve
in-market tests and initiates development in new clinical areas. 

        During
the 2011 calendar year the Company believes it to be strategic to expand its marketing and sales program to RUO/IUO customers that conduct research in the relevant disease markets
or that have an interest in companion testing during drug development and that are targeted in our clinical areas of interest. The Company would target lower throughput customers conducting research
with SQiDman platform and RUO/IUO products, higher throughput customers with our SQiDworks platform or SQiDworks Lite, the Company's intermediate platform expected to start in development in the first
half of calendar 2011 and anticipated to be completed with nine months after initiation. Management believe that SQiDworks Lite will be an important system for future clinical areas and
non-reference lab customers. SQiDworks Lite is expected to be fully automated, allow smaller batch sizes and to have equivalent analytical performance when compared to the current fully
automated SQiDworks Platform. 

        It
will also be necessary to invest in expanding the Company's customer service and administrative elements to support our customers and sales, as we are successful in growing our
placement of SQiDworks platforms across Canada and the United States, and increase our product menu available to our customers. Management 

12

 

will
add these expenses as needed to support forecasted customer installations of SQiDworks platforms and sales of consumable kits. 

        Management
will continue to monitor the cash burn rate in relation to the capital available to it and will manage cash flows as required in the context of the capital markets. Management
believes that it may, at some point, seek additional capital to advance and accelerate the number of tests under development and being validated for regulatory submissions, to expand our areas of
focus beyond autoimmune disease at the appropriate times, expand our fully marketed analytical platform system portfolio enabling us to address a
broader market, to build SQiDworks platforms to address customer demand, as well as to expand our sales team and its efforts in the United States and other jurisdictions as appropriate. 

 Related Party Transactions  

        Transactions with related parties occur in the normal course of business and are measured at the exchange amount. Related party
transactions are described below, unless they have been disclosed elsewhere in the financial statements. 

        Included
in general and administrative expense for the year ended September 30, 2010 is $49,000 (September 30, 2009 — $50,000),
related to recovery of occupancy costs, from a corporation in which an officer of the Company was also an officer. Consulting fee revenue of $30,000 for the year ended September 30, 2010 (year
ended September 30, 2009- $27,000) was earned from this corporation. At year end, $1,000 (September 30, 2008 — $6,000) due from this
corporation is included in amounts receivable. 

 Sources and Uses of Cash  

        Operational activities for the year ended September 30, 2010 were financed by cash on hand. 

        During
the year ended September 30, 2010 the Company: 

	1.
	Completed
two non-brokered private placement for combined gross proceeds of $12,295,000 through the issuance of
4,678,000 shares; and,

	2.
	Received
net proceeds of $1,795,000 following the exercise 970,256 warrants resulting in the issuance of 970,256 shares.

	3.
	Received
$694,000 for new shares issued upon the exercise of 916,684 options. 

        At
September 30, 2010, current assets were $9,902,000 compared to $3,649,000 at September 30, 2009. Working capital as at September 30, 2010 was $8,928,000 compared
to $3,280,000 at September 30, 2009. 

        Management
believes that cash on hand at September 30, 2010, and cash generated from revenues will be sufficient to fund Company operations for at least 12 months. The
continued successful commercial launch and generation of revenue in the 2011 fiscal years will extend this period. 

 Risks  

        The Company is subject to various risks. Factors that could cause results or events to differ materially from management's current
expectations include, but are not limited to: 

	•
	changing competitive technology and market conditions;   

	•
	the Company's ability to successfully commercialize additional IgXPLEX tests in the autoimmune disease market;  

	•
	the successful and timely completion of clinical validation studies at partner sites;   

	•
	the failure to obtain requisite regulatory approvals (including the clearance of the FDA) for the Company's diagnostic
tests in a timely manner, if at all, and other inherent uncertainties related to the regulatory approval process;   

	•
	the ability to generate sufficient acceptance of the Company's platforms and sales of test kits; and, 

13

 

	•
	the ability of the Company to fund its cash requirements from internal and external sources. 

        Management
seeks to mitigate these risks, and others, primarily by retaining experienced employees and advisors who have expertise in the scientific, medical business, regulatory,
manufacturing and operational disciplines of automated platform integration and immunoassay diagnostic test development. 

        The
Company's SQiDworks automated analytical platform and its lead IgXPLEX RA test kit used to detect and quantify a panel of biomarkers to aid in the diagnosis of rheumatoid arthritis
was cleared and licensed to be sold and marketed in Canada during the quarter ended December 31, 2008 and in the United States in November of 2009, and in the quarter ended
March 31, 2009 were authorized to be CE Marked and to be sold in Europe. To the best of the Company's knowledge, this was the first and remains the only multiplexed microarray test in the
autoimmune disease market to have been successfully cleared by the FDA or, in combination with IgXPLEX Celiac, the only tests of this nature licensed in Canada. The Company sought regulatory approvals
and clearances for its IgXPLEX Celiac test kit in the fourth quarter and received Health Canada approval prior to year end. The Company is awaiting FDA clearance. 

        IgXPLEX
and QuantiSpot tests are designed to run only on the SQiDworks platform. In order to obtain approval for the SQiDworks platform and the Company's consumable tests for sale in the
United States, our largest target market, the FDA typically requires the conduct of clinical validation studies to compare the performance of a new test to predicate tests currently approved
for sale in the US. Upon successful completion of validation studies conducted at both SQI's labs and at multiple third party labs, the data derived are then presented to the FDA in the form of a
510(k) Pre-market Notification. It is typical for the external validation studies to take several months to complete and upon receipt of a completed 510(k) submission the FDA may take up
to 180 days to render a decision on the application, not including any "time-outs" which the Company may take to prepare responses to various inquiries from the FDA. The Company
believes the experience gained in obtaining the clearance of the SQiDworks- IgXPLEX RA system will enable it to complete and file applications for clearance of subsequently developed pipeline IgXPLEX
assays more efficiently. This in turn may result in shorter review periods at the FDA than was experienced with the SQiDworks-IgXPLEX RA system. The timing of such clearances is dependent on several
factors some of which are not controlled by the Company. 

        The
IgXPLEX multiplexed test panels used to detect and quantify a panel of biomarkers to aid in the diagnosis of lupus, vasculitis, and Crohn's disease, are currently in the Company's
discovery and development pipeline along with the IgXPLEX TNF panel to detect the drug, anti-TNF, that is used in the management of multiple autoimmune diseases. The IgXPLEX TNF panel is
used to measure the quantity of therapeutic agents in the body and the information from this test could be used by clinicians in the
management of several autoimmune diseases, including but not limited to rheumatoid arthritis, vasculitis and irritable bowel disease. 

        The
Company is expecting one, or all of its pipeline of new multiplexed test panels in the autoimmune disease market under development (Vasculitis, Lupus, IBD (Crohn's), and the second
generation and expanded IgXPLEX RA and Celiac tests, and the SQiDworks platform, together each a system, to be commercially ready to file applications with the applicable regulatory jurisdictions in
calendar 2011. Management believes that the IgXPLEX TNF test kits will be available for commercial sale for diagnostic use in Canada and research use in the US prior to the end of the 2011
calendar year. 

        During
the current reporting period the Company did not earn material revenues from its test kits or SQiDworks platform. The continuation of the Company's research, development and
commercialization activities along with investment in marketing and sales is dependent upon the Company's ability to successfully manage its growth, investment in continued pipeline development and
its cash requirements. Management believes that it has sufficient cash reserves to support the development, validation and commercialization of Vasculitis, Lupus, IBD (Crohn's), and the second
generation and expanded IgXPLEX RA and Celiac tests and SQiDworks in North America. 

        We
are exposed to market risks related to changes in interest rates and foreign currency exchange rates, which could affect the value of our current assets and liabilities. We do not
believe that the results of operations or cash flows would be affected to any significant degree by a sudden change in market interest rates relative to our cash investment, due to the prime interest
rate based nature of the investment. We have not entered into any 

14

 

forward
currency contracts or other financial derivatives to hedge foreign exchange risk. We are subject to foreign exchange rate changes that could have a material effect on future operating results
or cash flows. 

        Management
will continue to review the Company's financial needs and to seek additional capital financing as required from sources that may include equity financing, debt financing,
collaborative projects and licensing arrangements. However, there can be no assurance that such additional funding will be available or if available, whether acceptable terms will be offered. 

 Outstanding Share Capital  

        As at September 30, 2010, there were 33,758,000 common shares issued and outstanding. 

        The
following tables describe the securities that have been issued that are convertible under certain conditions into common shares: 

        The
Company had the following warrants outstanding at September 30, 2010: 

 

 

					
	Number of Warrants 	 	Purchase Price 	 	Expiry Date 
	

 144,000	 	$2.750	 	December 4, 2010
	107,000	 	$1.250	 	January 22, 2011
	

 1,199,000	 	$4.000	 	December 4, 2011
	237,000	 	$1.900	 	December 23, 2011
	

 1,140,000	 	$4.000	 	August 12, 2012
	57,000	 	$2.500	 	August 12, 2012
	 	 	 	 	 
	

 2,884,000	 	 	 	 
	 	 	 	 	 

 

         The
Company had the following stock options outstanding under the Plan at September 30, 2010: 

 

 

					
	Number of Options

(000s) 	 	Exercise Price 	 	Expiry Date 
	

 33,000	 	$1.200	 	June 29, 2011
	67,000	 	$1.200	 	August 29, 2011
	

 180.000	 	$1.740	 	August 7, 2012
	50,000	 	$1.500	 	October 23, 2012
	

 758,000	 	$1.600	 	February 15, 2013
	269,000	 	$1.750	 	August 26, 2013
	

 80,000	 	$1.300	 	May 21, 2014
	25,000	 	$3.260	 	November 03, 2014
	

 68,000	 	$2.250	 	February 22, 2015
	60,000	 	$2.100	 	May 27, 2015
	

 175,000	 	$2.500	 	August 16, 2015
	 	 	 	 	 
	1,764,000	 	 	 	 
	 	 	 	 	 

 

  Off-Balance Sheet Arrangements  

        The Company has no off-balance sheet arrangements. 

 Future Prospects  

        In its current state of evolution, management believes that the Company has assembled the necessary intellectual, financial, and human
capital to advance its current pipeline of autoimmune test panels and the SQiDworks system through the completion of clinical validation studies and regulatory filings in Canada, the U.S. and Europe.
The Company believes that completion of its lead product IgXPLEX RA and its clearance in the United States plus the filing for clearance in the United States of IgXPLEX Celiac, the
licensing in Canada of QuantiSpot RA, IgXPLEX RA and IgXPLEX Celiac, and authorization to CE Mark it in Europe of 

15

 

QuantiSpot
RA justifies the current intensified investment in development and commercialization of its pipeline of an additional group of at least eight autoimmune microarray diagnostic panels over
the next eighteen months, with four novel and two second generation tests currently in the Company's discovery or assay development processes. It further believes that successful completion of these
pipeline tests may lead to the development and commercialization of other test panels addressing unmet medical needs in the detection of known analytes used in the diagnosis or therapies for
autoimmune, infectious disease and allergy management. 

        SQI's
operational objectives are straightforward: generate revenue from products in the regulatory jurisdictions for which we have acquired regulatory approvals or licenses; continued
successful commercialization and continuous improvement of a menu of autoimmune test kits; and, expansion of partnerships and other strategic relationships to enhance our product offerings or
revenues. Success in these steps will allow the Company to further validate its multiplexing model, value proposition and to roll-out and sell its products to customers in its
target markets. 

        The
Company plans to execute on the following components of its operational strategy: 

	•
	Generate, maintain and grow customer sales in North America;   

	•
	Complete commercialization and regulatory filings (where appropriate) for, vasculitis, lupus, IBD, anti-TNF
and second generation product extensions for RA and Celiac panels;   

	•
	Work with our partners to enhance our product offerings;   

	•
	Provide world-class customer support and service to ensure satisfaction; and,   

	•
	Publish scientific papers to broaden our product value proposition. 

        The
Company will continue to invest in research and development activities related to its core platform technologies of microarray-based assays and detection devices. 

 DISCLOSURE CONTROLS AND PROCEDURES, AND INTERNAL CONTROL OVER FINANCIAL REPORTING  

        The accompanying financial statements have been prepared by management in accordance with Canadian generally accepted accounting
principles. For quarterly reporting periods, the Company's financial statements are approved by the Audit Committee and the Board of Directors. For annual reporting periods, the Company's financial
statements are approved by the Board of Directors upon recommendation by the Audit Committee. The integrity and objectivity of these financial statements are the responsibility of management. In
addition, management is responsible for all other information in this report and for ensuring that this information is consistent, where appropriate, with the information contained in the financial
statements. 

        In
support of this responsibility, management maintains a system of internal controls to provide reasonable assurance as to the reliability of financial information and the safeguarding
of assets. 

        In
particular, the CEO and CFO are responsible for establishing and maintaining disclosure controls and procedures ("DC&Ps") and internal controls over financial reporting ("ICFRs") for
the Company, and have: 

	(a)
	designed
such DC&Ps, or caused them to be designed under supervision, to provide reasonable assurance that material information is made known during the
period in which the annual and quarterly filings are being prepared;

	(b)
	designed
such ICFRs, or caused them to be designed under supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with Canadian GAAP;

	(c)
	evaluated
the design and effectiveness of the Company's DC&Ps as of the quarter ended September 30, 2010;

	(d)
	have
concluded that a material design weakness in the ICFRs may exist in terms of the inadequate segregation of certain duties, which is typical of
development stage companies; mitigating factors, including dual-payment authorization policies and transparent internal financial transaction reporting 

16

 

processes,
serve to minimize the risk that such design weakness could result in a material misstatement of results for the quarter ended September 30, 2010; and 

	(e)
	have
concluded that, other than the item described above in sub-point (d), there are no additional material design weaknesses in the DC&Ps or
ICFRs, and that the effectiveness of the DC&Ps is sufficient to expect the prevention or detection of material misstatements of results. 

        The
financial statements include amounts that are based on the best estimates and judgments of management. The Board of Directors is responsible for ensuring that management fulfills its
responsibility for financial reporting and internal control. The Board of Directors exercises this responsibility principally through the Audit Committee. The Audit Committee consists of three
directors, all of whom are independent and not involved in the daily operations of the Company. The Audit Committee meets with management and the external auditors to satisfy itself that management's
responsibilities are properly discharged and to review the financial statements prior to their presentation to the Board of Directors for approval. 

17

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  Exhibit 4.8    
    

SQI Diagnostics Inc.  

Management's Discussion and Analysis of Financial

Condition and Results of Operations 

March 31, 2011  

 

 Management's Discussion and Analysis of Financial Condition and Results of Operations  

        This discussion and analysis covers the unaudited financial statements for the quarters ended March 31, 2011 and 2010, prepared in accordance with Canadian
generally accepted accounting principles (Canadian GAAP). The fiscal year end of SQI Diagnostics Inc. ("SQI" or "Company") is
September  30th.

        All amounts are expressed in Canadian dollars unless otherwise indicated.

        This discussion and analysis was prepared by management using information available as at May 26, 2011. Certain portions of this document including
management's assessment of the Company's future plans and operations contain forward-looking statements that involve substantial known and unknown risks and uncertainties. These forward-looking
statements are subject to numerous risks and uncertainties, some of which are beyond the Company's control, including the impact of general imprecision of reserve estimates, taxation policies,
obtaining regulatory approvals, successful product development, competition from other producers, stock market volatility and the ability to access sufficient capital from internal or external
sources. The Company's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be
given that any of the events anticipated by the
forward-looking statements will transpire or occur, or if any of them do so, what benefits that the Company will derive from them. Additional information relating to the Company is available by
accessing the SEDAR website at www.sedar.com and the Company's website at www.sqidiagnostics.com.

 OVERVIEW  

        SQI Diagnostics Inc. is a medical systems company that has developed, manufactured and markets a proprietary human diagnostic
technology using multiplexing, miniaturization and automation. Our technologies enable laboratories to analyze multiple biomarkers simultaneously (multiplexing), deliver accurate and quantitative
patient results in less time, significantly reduce labour costs, and increase profits when compared with current diagnostic instrumentation. The Company's proprietary SQiDworksTM instrument
and its consumable tests together form a system capable of providing many of the diagnostic tests currently performed in reference laboratories engaged in testing human blood for a wide range
of disease markers. The Company's strategy is to develop and commercialize test kits for the autoimmune disease market as further described below, and plans to pursue commercialization of tests in
infectious disease and allergen testing in the future. 

        The
Company has been primarily involved in research, development and commercialization activities related to its core technology platform since 2003. The Company has expended significant
resources to create and protect its technology platform through the filing of patents and in building an automated instrument and multiplexed assay platform. The Company has invested in fostering
partnerships with clinicians who are leaders in our disease areas of focus and with potential novel biomarker collaborators. The Company has also incurred costs associated with gathering market
intelligence concerning prospective customers, developing a direct sales platform and in marketing and selling to prospective customers. 

        The
Company has developed its fully automated SQiDworks and semi-automated SQiDmanTM microarray-based test platforms that enable laboratory customers to generate
multiple patient test results with less than one unit of traditional 'test effort'. The Company has received marketing clearance from the United States Food & Drug Administration
("FDA"), Canadian regulatory approval for, and has CE Marked its fully automated, high throughput SQiDworks platform. SQiDworks is the only such platform to achieve these regulatory clearances. 

        The
SQiDworks platforms are to be used to run a menu of tests used to aid in the diagnosis of a wide range of diseases in targeted market segments. The Company has received clearance
from the FDA and Canadian regulatory approval for qualitative rheumatoid arthritis (RA) test kits used to detect and measure a panel of biomarkers to aid in the diagnosis of rheumatoid arthritis. The
quantitative RA assay has been licensed in Canada and CE Marked in Europe. 

        Subsequent
to quarter end the Company received Health Canada approval for IgX PLEX Celiac Quantitative test. This represents the first approval of the Company's second generation fully
quantitative test. The Company has also received Canadian regulatory approval for its qualitative celiac test kits and filed for US FDA regulatory clearance to market its qualitative
celiac product. 

2

 

        The
Company is currently pursuing and is optimistic of winning additional Canadian customers based on Health Canada licensing of its quantitative celiac product during 2011. 

        Gamma
Dynacare Medical Labs (GDML) is in the process of evaluating the Company's quantitative celiac test kits. The Company believes that if the GDML evaluation is positive, GDML will
purchase the quantitative celiac test kits, in addition to their commercial use of our RA product. 

        The
Company is focusing on the continued development of a pipeline of other tests that can be processed on the SQiDworks platform. The Company is moving these assays through the
development pipeline and expects to advance additional test kits through the regulatory process during fiscal 2011 as discussed further in this document. The Company is also focused on the release of
SQiDlite, our second generation diagnostic platform. This platform will be a fully-automated microarray processing and analytic platform. It is intended to be a bench-top system able to
process multiple sizes of microarray devices from single 8-well strips up to a single 96 well microarray plate. This system is based on the same technology and uses many of the same
components as our SQiDworks system. It is targeted at small to medium sized diagnostic customers. 

        We
plan to add additional services targeted at laboratory and other customers to leverage our expertise in assay design and microarray printing. This initiative is intended to enable our
customers to expand the use of our SQiDworks and SQiDlite platforms by converting their content to microarrays. Subsequent to the period end, we presented the results of a collaborative research study
where we included biomarkers of interest to a target customer to our in-development vasculitis panel. Our additional services will enable customers to add target biomarkers to an existing
panel of biomarkers that they can then offer to their customers, or they may request an entire panel of protein-based biomarkers to be developed into a Research Use Only (RUO) microarray for which
they may decide to seek Lab Developed Test regulatory clearance. 

        The
Company also has future plans to explore in-licensing opportunities to expand its product pipeline as well as to continuously improve its in-market products
through the addition of novel biomarkers to the existing diagnostic panels of tests. 

 Status of Development Program  

        The Company's development program includes several major components which the Company expects will advance its commercialization
strategy. The status of each component is summarized and discussed in further detail below: 

 

 

									
	 
	 	 
	 	Approval Status 
	 
	 	Development Status 
	Product

 
	 	Canada 	 	United States 	 	Europe 
	 SQiDworksTM Diagnostics Platform
	 	Complete	 	Licensed	 	Cleared as a system with

IgX PLEX RA Assay	 	CE Marked*
	 SQiDlite Platform
	 	Development	 	 	 	 	 	 
	 SQiDman Analyzer
	 	Development	 	Not required — RUO	 	Not required — RUO	 	Not required — RUO
	 IgX PLEX Rheumatoid Arthritis Assay (Qualitative)
	 	Complete	 	Licensed	 	Cleared	 	 
	 QuantiSpotTM Rheumatoid Arthritis Assay (Quantitative)
	 	Complete	 	Licensed	 	 	 	CE Marked*
	 IgX PLEX Celiac Qualitative Assay
	 	Complete	 	Licensed	 	Filed	 	 
	 IgX PLEX Celiac Panel (Quantitative)
	 	Complete	 	Licensed (on April 27, 2011 subsequent to quarter end)	 	IUO	 	CE Marked*
	 IgX PLEX Vasculitis Panel
	 	Final Development	 	 	 	 	 	 
	 IgX PLEX Celiac DGP Panel
	 	Final Development	 	 	 	 	 	 
	 IgX PLEX Rheumatoid Arthritis Panel with expanded markers
	 	Final Development	 	 	 	 	 	 
	 IgX PLEX Lupus Panel
	 	Development	 	 	 	 	 	 
	 IgX PLEX TNF Assay
	 	Development	 	 	 	 	 	 
	 IgX PLEX IBD — Crohn's Disease
	 	Proof of Concept	 	 	 	 	 	 

 

 

	*
	Devices
were self-certified or re-self-certified, in May 2011 following a change of our Authorized Representative 

 

 3

 

        The Company's SQiDworks and SQiDman platforms are also capable of running Research Use Only (RUO) and Investigational Use Only (IUO) test kits and
the Company is exploring sales opportunities related to these applications of its platform with the Company's products as well as through the potential development of target customer's content.
Delivering RUO/IUO product based on customer owned content would require collaboration and assay development though this effort would be materially less than that experienced with the Company's
pipeline of regulatory-cleared products. This creates additional new revenue opportunities for the Company. The Company continues to focus on its in-market tests and believes that
it must continuously improve and update its products. The Company has identified and has moved into development enhancements to the existing RA and celiac test panels. Subsequent to quarter end the
Company received Health Canada approval for IgX PLEX Celiac Quantitative test kit. This represents the first approval of the Company's second generation fully quantitative test. The enhancements to
the RA panel are in the advanced stages of development. These improvements, requiring regulatory approvals, will represent second
generation, fully quantitative IgX PLEX microarray technology and include expanded biomarker content for IgX PLEX RA and IgX PLEX Celiac. 

        All
in-development tests will utilize this second generation, fully quantitative multiplexing technology; the Company believes these enhancements will provide significant
market advantages compared to our competitors. 

        The
Company's development pipeline includes multiplexed test for vasculitis, lupus and IBD-Crohn's. These tests are advancing through the development pipeline with the goal
of moving some if not all of these tests into the regulatory filed stage during the remainder of fiscal 2011 

        During
the quarter ended March 31, 2011 the Company began implementing the feedback received from our partner related to the development of our IgX PLEX TNF assay used to measure
the quantity of therapeutic agents in the body and the information from this test could be used by clinicians in the management of several autoimmune diseases, including but not limited to rheumatoid
arthritis, vasculitis and irritable bowel disease. The Company believes that it will deliver a commercial product to its partner during the 2011 calendar year. 

 Status of Commercialization Activities and Other Events in the Fiscal Year to Date  

        During the quarter ended March 31, 2011, the Company invested in its sales and marketing team, its science, commercialization,
and regulatory groups, and in infrastructure. The Company's sales efforts are focusing on the North American market and European targets to generate sales to targeted customers of the currently
approved system, including the SQiDworks fully automated analytical platform and RA and celiac tests. 

        Following
is an overview of the Company's achievements for the fiscal year to date: 

	(a)
	The
company continued to develop its commercial relationship with Gamma Dynacare Medical Labs (GDML) during the quarter ended March 31, 2011 and
achieved additional sales of our RA product in this quarter. The Company is working closely with GDML to develop its multiplexed RA business and during the quarter ended March 31, 2011 GDML
released its first monthly newsletter that focussed on our RA multiplexed product. This marketing material featured the benefits of multiplexing rheumatoid arthritis biomarkers on an automated
platform to all of GDML's customers and is featured on GDML's website. The Company believes that this and similar marketing efforts will drive the continued growth of our
RA product at GDML.

	(b)
	The
company has provided quantitative celiac test kits on an investigational use only basis to GDML enabling their internal review of the product's
performance. Successful internal review by GDML is expected to lead to the expansion of the current contract to include the sale to them of our quantitative celiac test kits. The approval by Health
Canada of our quantitative celiac tests, achieved subsequent to the quarter end, will enable the company to actively pursue such an expansion with GDML, as well as pursue opportunities with other
laboratories in Canada.

	(c)
	Progressed
a number of pipeline diagnostic tests through our discovery and development program;

	(i)
	During
the first half of fiscal 2011, the Company received and responded to questions from the FDA regarding its celiac panel. The questions and responses
are described by the Company as those expected in the normal course of its regulatory processes. 

4

 

	(ii)
	The
Company's vasculitis assay continues to progress through the assay development pipeline and is expected to complete clinical validation in the third
quarter of fiscal 2011. Collaborative studies demonstrating the utility of the Company's assays were presented at the 15th International Vasculitis and ANCA Workshop
May 15th — 18th, 2011.

	(iii)
	The
Company's quantitative lupus test panel is in the assay development stage. Moving the lupus panel through development is a significant achievement.
The current development results show that SQI is able to effectively multiplex up to 16 protein biomarkers, including double stranded DNA. This is our largest panel to date and management
believes the progress will provide SQI with the only such product in the market. Management believes that the successful completion and clearance of the lupus product will be transformative to the
Company's commercial position. The Company expects to initiate clinical validation of this product in the second calendar quarter of 2011, and to complete regulatory filings shortly thereafter.

	(iv)
	The
Company's IBD-Crohn's candidate test panel is in the proof of concept stage and is being actively developed with the expectation of being
completed and filed for regulatory approvals during 2012.

	(v)
	Development
continued on the anti-TNF test candidate, based on the expanded performance requirements requested by our partner, Mount Sinai
Services. The Company continues to complete the commercialization of this product and expects to have a commercial product available by the end of 2011.

	(vi)
	Initiated
the platform development program for SQiDlite and continued platform development to commercialize our SQiDman platform with a target to complete
development on a timeline to coincide with customer requirements for potential research use collaborations. The SQiDman platform is currently not targeted at IVD applications but in the
near-term may be used by our collaborators and customers to assist in the development of their content into SQI-developed microarray RUO/IUO or Lab Developed Test products. The
development of the SQiDlite platform addresses the needs of smaller and mid-market IVD customers and of the research market. The SQiDlite platform will be developed as an automated device
with the flexibility to process and analyze varying sizes of consumables up to the current 96-well consumable used in the SQiDworks;

	(d)
	Partnering
Summary 

        The
following table provides an overview of our partnering collaborations and the relevant pipeline product as at the period end: 

 

 

							
	Partnering

Institute*

 
	 	Principal

Investigator 	 	Pipeline Product 	 	Purpose 
	 Cleveland Clinic
	 	Dr. R. Tubbs	 	IBD-Crohn's	 	Serum Samples

Collaboration
	 Beth Israel Deaconess Medical Center
	 	Dr. C. Kelly	 	Celiac	 	Serum Samples

Collaboration/Publication
	 Beth Israel Deaconess Medical Center
	 	Dr. A. Moss	 	Anti-TNF	 	Serum Samples

Collaboration/Publication
	 Hospital Clinic de Barcelona, Spain
	 	Dr. R. Cervera	 	Vasculitis	 	Serum Samples

Collaboration/Publication
	 Cleveland Clinic
	 	Dr. S. Wang	 	All

Rheumatoid Arthritis

Various	 	Clinical Validation

Collaboration

Serum Samples
	 University Hospital Maastricht, the Netherlands
	 	Dr. J. Damoiseaux	 	Vasculitis	 	Serum Samples

Collaboration
	 The University of North Carolina at Chapel Hill
	 	Dr. R. Falk	 	Vasculitis	 	Collaboration

Serum Samples

Clinical Validation
	 University of Maryland
	 	Dr. A. Fasano	 	Celiac	 	Serum Samples
	 Mount Sinai Services Toronto, Canada
	 	Dr. G. Greenberg and Dr. M. Silverberg	 	IBD-Crohn's	 	Serum Samples

 

 

	*
	All
Partnering Institutes are located in the USA unless otherwise annotated. 

 

 5

 

	(e)
	PATENTS.
In the quarter ended March 31, 2011 the company received the patent "METHOD AND DEVICE TO OPTIMIZE ANALYTE AND ANTIBODY SUBSTRATE BINDING BY
LEAST ENERGY ADSORPTION (LEAP) in Europe. This patent is a key element of the Company's intellectual property strategy related to its multiplexing surfaces and capture analyte binding. 

 CORPORATE FINANCING TRANSACTIONS  

        During the three months ended March 31, 2011 a total of 40,834 employee stock options were exercised at an average price
of $1.60 for total proceeds of $65,000. 

        Also
during the quarter ended March 31, 2011 106,520 warrants with an expiry of January 22, 2011 were exercised for total proceeds of $133,000. 

 CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES  

        These financial statements are prepared in accordance with Canadian GAAP. 

        The
significant accounting policies that management believes are the most critical in fully understanding and evaluating the reported financial results include the following: 

 Patents and Trademarks  

        The costs relating to patent and trademark fees are deferred and amortized over 10 years on a straight-line basis.
Patents and trademarks are recorded net of accumulated amortization of $685,000 (September 30, 2010 — $627,000). 

 Research and Development Costs  

        Research costs are charged to earnings in the period in which they are incurred. Development costs are expensed as incurred or deferred
if they meet the criteria for deferral under Canadian generally accepted accounting principles and are expected to provide future benefits with reasonable certainty. At March 31, 2011, the
Company has developed a pipeline of novel tests for its diagnostic system. Deferral criteria have not yet been met, and accordingly, all development costs have been expensed. 

 Stock-Based Compensation and Other Stock-Based Payments  

        The Company applies a fair value based method of accounting for all stock-based payments. Accordingly, stock-based payments are
measured at the fair value of the consideration received or the fair value of the equity instruments issued or liabilities incurred, whichever is more reliably measurable. Stock-based compensation is
charged to operations over the vesting period and the offset is credited to contributed surplus. Consideration received upon the exercise of stock options is credited to share capital and the related
contributed surplus is transferred to share capital. 

 Share Issuance Costs  

        Costs incurred in connection with the issuance of capital stock are netted against the proceeds received. 

 Income Taxes  

        The Company follows the liability method of accounting for income taxes. Under this method, future income tax assets and liabilities
are determined based on temporary differences between financial reporting and tax bases of assets and liabilities, as well as for the benefit of losses available to be carried forward to future years
for tax purposes. Future income tax assets and liabilities are measured using enacted or substantively enacted tax rates and laws that will be in effect when the differences are expected to reverse.
Future income tax assets are recorded in the financial statements if realization is considered more likely than not. 

6

 

 Use of Estimates  

        The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amount of revenue and expenses during the year. Actual results could differ from those estimates. Significant areas requiring the use of management estimates relate to the determination of the useful
lives of property and equipment and patents and trademarks for amortization purposes, valuation of ITC's receivable, valuation of stock options and warrants and valuation allowance on future
tax assets. 

 Recent Accounting Pronouncements

Business Combinations  

        In January 2009, the CICA issued Section 1582, Business Combinations, which replaces former guidance on business
combinations. Section 1582 establishes principles and requirements of the acquisition method for business combinations and related disclosures. In addition, the CICA issued
Sections 1601, Consolidated Financial Statements, and 1602, Non-Controlling Interests, which replaces the existing guidance. Section 1601 establishes standards for the
preparation of consolidated financial statements, while section 1602 provides guidance on accounting for a non-controlling interest in a subsidiary in consolidated financial
statements subsequent to a business combination. 

        These
standards apply prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after
January 1, 2011 with earlier application permitted. The Company is currently evaluating the new sections to determine the potential impact of any future transactions on its consolidated
financial statements. 

 International Financial Reporting Standards (IFRS)  

        The CICA plans to converge Canadian generally accepted accounting principles with International Financial Reporting Standards ("IFRS")
over a transition period expected to end in 2011, when IFRS will be fully adopted. The Company will be required to adopt IFRS for its 2012 fiscal year end and will be required to provide IFRS
comparative information for the previous fiscal year. The Company continues to monitor and assess the impact of the convergence of Canadian GAAP and IFRS on its financial statements. We have
identified the main differences between existing Canadian GAAP and IFRS standards and begun quantifying the reporting differences. The Company has a conversion plan in place and believes it has the
resources in place to meet the conversion timelines. The following are the main differences and the expected impact on our business processes and information systems: 

 

  

			
	Key Accounting Areas

 
	 	Difference with potential impact on the Company

 

	IFRS 1 First time adoption of IFRS	 	 The Company is in the process of selecting the applicable exemptions under IFRS.
	

 	
 	
 Additional reconciliations and disclosure upon the initial conversion to IFRS will be included in the initial statements presented under IFRS commencing in the first quarter of fiscal 2012. During 2011 the company
will assess and prepare the additional disclosures. The Company is reviewing the disclosure requirements including the disclosure of other corporations adopting earlier in 2011.
	

  IAS 16 Property Plant and Equipment	

 	

  The Company has commenced a study of the useful life of each component of property plant and equipment and will restate, if applicable, the historic amortization expense.
	

  IAS 36 Impairment of Assets	

 	

  The Company will evaluate potential impairments using discounted cash flow analysis as required under IFRS

 

 7

 
 

  

			
	Key Accounting Areas

 
	 	Difference with potential impact on the Company

 

	
 IAS 12 Income Tax	
 	
 The Company has accumulated non-capital losses, undeducted scientific research and development costs, and investment tax credits that have not been reflected in the financial statements. These items will need to be
assessed based on the IFRS criteria to ensure proper classification on the balance sheet.
	

  IFRS 2 Share based payments	

 	

  IFRS 2 requires that each tranche of options with graded vesting be treated as a separate award. IFRS 2 also requires an estimate of forfeitures to be factored into the determination of compensations
costs.
	

 	
 	
 The Company expects to utilize the exemptions under IFRS 1 when converting to the new standard. The company has begun to calculate the impact on all unvested tranches of options at the date of
transition.
	

  IAS 1 Financial Statement Presentation	

 	

  Additional disclosure required as well as selection between presentation alternative will be addressed in the initial statements presented under IFRS.
	

 	
 	
 The Company is analyzing the impact of the changes on its financial statements through a review of the standards as well as a review of the financial reports of corporations with earlier adoption dates.

 

  SELECTED FINANCIAL INFORMATION  

 Second Quarter Commentary  

        The table below summarizes quarterly financial information for the 3 month periods shown. 

 

 

														
	 
	 	March 31, 2011 	 	December 31, 2010 	 	September 30, 2010 	 	June 30, 2010 	 
	 
	 	(000s)
	 	(000s)
	 	(000s)
	 	(000s)
	 
	 Revenue
	 	$	4	 	$	18	 	$	14	 	$	6	 
	 Net Loss
	 	$	1,874	 	$	2,255	 	$	2,621	 	$	1,811	 
	 Net Loss Per Share
	 	$	(0.06	)	$	(0.07	)	$	(0.08	)	$	(0.06	)
	 Weighted Average Shares
	 	 	33,852	 	 	33,759	 	 	32,705	 	 	30,790	 

 

  

 

 

														
	 
	 	March 31, 2010 	 	December 31, 2009 	 	September 30, 2009 	 	June 30, 2009 	 
	 
	 	(000s)
	 	(000s)
	 	(000s)
	 	(000s)
	 
	 Revenue
	 	$	10	 	$	5	 	$	7	 	$	8	 
	 Net Loss
	 	$	2,020	 	$	1,620	 	$	1,616	 	$	1,354	 
	 Net Loss Per Share
	 	$	(0.07	)	$	(0.06	)	$	(0.06	)	$	(0.05	)
	 Weighted Average Shares
	 	 	29,917	 	 	27,930	 	 	27,271	 	 	26,326	 

 

         Revenue
for the quarter ended March 31, 2011 was $4,000 compared to $10,000 for the quarter ended March 31, 2010. Revenue for the six months ended March 31, 2011 was
$22,000 compared to $15,000 for the
six months ended March 31, 2011. Revenue for the first and second quarter of 2011 included sales of its QuantiSpot RA test kits, there were no product sales during the same period in 2010.
Revenue in the three and six months ended March 31, 2010 resulted from consulting services provided to a related party; these services were not performed in the quarter ended
March 31, 2011. 

        For
the quarter ended March 31, 2011, the Company recorded a net loss of $1,874,000 ($0.06 net loss per share) compared to a net loss of $2,020,000 ($0.07 net loss per share) for
the quarter ended March 31, 2010. Per share values are based on the weighted average shares outstanding in the period. The net loss for the six months ended March 31, 2011 was $4,129,000
($0.12 net loss per share) compared to a net loss of $3,640,000 ($0.13 net loss per share) for the six months ended March 31, 2010. For the quarter ended March 31, 2011 there was an
average of 33,852,000 shares outstanding (six months ended March 31, 2011 — 33,806,000). 

8

 

        The
net loss was greater for the six months ended March 31, 2011 compared to the six months ended March 31, 2010. The increase in costs is primarily related the Company's
increased activity and expenses in the discovery efforts for and development of assays as detailed below. Additional other expenses incurred included ordinary increases in wage and
wage-related expenses owing to an increase in personnel, increased lab expenditures to support the greater number of projects, and other direct costs including serum acquisition and
development and validation partner costs. Sales and marketing expense was higher in the six months ended March 31, 2011 owing to additional travel and contract resources in sales and marketing
as the company continued to increase its sales effort for approved IgX PLEX assays in Canada and the United States and in anticipation of further product approvals. The decrease in the loss for
the three months ending March 31, 2011 was related to the Scientific Research and Experimental Development ("SRED") cash refund accrued in the quarter ended March 31, 2011 as discussed
in detail below. Also contributing to the reduced cost was the decreased in recruiting fees in the quarter ended March 31, 2011 compared to the quarter ended March 31, 2010. Sales and
Marketing expense were lower in the quarter ended March 31, 2011 owing to sales incentives paid out in the quarter ended March 31, 2010 upon the placement of our first platform with a
major Canadian laboratory. These decreases in expenses offset the increases in R&D and other expenses in the quarter. 

        R&D
expenditures for the quarter ended March 31, 2011 were $1,114,000 compared to the $1,273,000 for the quarter ended March 31, 2010. R&D expenditures for the six month
period ended March 31, 2011 were $2,612,000 compared to the $2,327,000 for the six month period ended March 31, 2010. The increase in R&D expense for the six month period ended
March 31, 2011 compared to the six months ending March 31, 2010 resulted from increased R&D activity with an increased number of assay panels in development and to continued regulatory
validation efforts related to the celiac products. In the second quarter of fiscal 2011, in addition to the celiac assay in regulatory validation, the company had 5 panels in development and
1 additional panel in early discovery and development. In the second quarter of fiscal 2010 the Company had 3 panels in discovery and development. The decrease in R&D expenditures for
the quarter ended March 31, 2011 compared to the quarter ended March 31, 2010 is due to the accrual of the SRED cash refund. This ITC tax credit has offset the increased expenses
incurred in the quarter ended March 31, 2011 compared to the same quarter in 2010. The SRED cash refund for the prior year was recorded in the third quarter of 2010. 

        Corporate
expenses include, primarily, salaries and related expenses (including benefits and payroll taxes) of the Company other than salaries and related expenses paid to personnel
engaged in research and development. General and Administrative expenses include facility costs, insurance costs, and foreign exchange expenses. Corporate and general expenses totalled $326,000 for
the three months ended March 31, 2011 compared to $258,000 for the three months ended March 31, 2010. Corporate and general expenses totalled $656,000 for the six months ended
March 31, 2011 compared to $467,000 for the six months ended March 31, 2010. The increase from the quarter and six months ended March 31, 2010 compared to the same periods in 2011
was primarily a result of higher salary costs, increased personnel and increased occupancy costs. Corporate expenses also included a loss on the disposition of equipment in the six months ended
March 31, 2011, there was no similar loss in the six months ended March 31, 2010. 

        Professional
consulting (legal, accounting, Board of Directors compensation, recruiting, administrative contractor, and investor relations) costs in the three months ended
March 31, 2011 were $94,000 compared to $176,000 for the three months ended March 31, 2010. Professional consulting costs were $200,000 for the six months ended March 31, 2011
compared $297,000 for the six months ended March 31, 2010. The decrease in professional and consulting costs in the quarter ended March 31, 2011 were primarily related to reduced legal
and recruiting fees. The Company incurred significant recruiting fees in the first half of fiscal 2010 as it increased personnel to expand its research and development efforts. 

        Sales
and Marketing expenses were primarily related to sales and marketing consultant fees and to travel related to selling activities in the quarter. Sales and marketing expenses
totalled $109,000 for the three months ended March 31, 2011 compared to $129,000 for the three months ended March 31, 2010. Sales and marketing expenses totalled $215,000 for the six
months ended March 31, 2011 compared to $193,000 for the six months ended March 31, 2010. The increase in sales and marketing expenses for the six months ended March 31, 2011
compared to the six months ended March 31, 2010 were primarily related to additional consulting costs paid to increase staffing to support product pipeline and commercialization efforts. The
decrease in sales and marketing expenses for the three months ended March 31, 2011 compared to the three months ended March 31, 2010 is 

9

 

due
to a sale incentive paid in the second quarter of fiscal 2010 upon the placement of our first platform with a major Canadian laboratory. 

        Operational
expenses were partially offset by interest income earned on short-term investments of $18,000 for the three ended March 31, 2011
(six months — $42,000) compared to $9,000 for three months ended March 31, 2010 (six months — $12,000).
The Company invests its cash in variable term cashable government investment certificates and short-term money market deposits. 

        Non-cash
stock based compensation charges totalled $113,000 for the three ended March 31, 2011 (six months — $228,000)
compared to $66,000 for the three months ended March 31, 2010 (six months — $115,000). The related stock option issuances are described further
below in the Outstanding Share Capital section. 

 Outlook  

        Management expects losses to continue for the current fiscal year as investment continues in product development and commercialization
efforts on its pipeline of autoimmune test kits and platforms, as well as investment in sales and marketing. During the 2011 fiscal year the Company will focus on sales and placing SQiDworks systems
in Canadian, US and European customers for system evaluation and expects that some, or all, of these evaluation placements will lead to commercial acceptance and revenues from sales of consumable test
kits in the future. The Company delivered one such evaluation placement in the 2010 fiscal year to GDML. Subsequent to GDMLs 90 day internal acceptance and validation testing the Company
executed a commercial agreement and has generated revenue since the fourth quarter of fiscal 2010. The Company is in the process of having GDML evaluate its quantitative celiac test kits and with the
Health Canada approval, obtained subsequent to quarter end, is optimistic that this evaluation will lead to additional revenues from GDML attributed to IgX PLEX Quantitative Celiac kits starting in
the first half of calendar 2011. 

        Our
analysis of the market would indicate that there are over 315 laboratories in the United States with sufficient volume of rheumatoid arthritis testing to be target
customers for the SQiDworks platform running RA tests. Management believes that the addressable market is sufficiently large and that with the completion of additional quantitative test kits,
including celiac, licensed in Canada and targeted for US FDA review in 2011, the company will be well-positioned for wider scale commercial acceptance of our platforms during the 2011
fiscal year, and beyond. Management believes the number of potential customers will, upon regulatory clearance of multiple products (ex RA and celiac) in the US, greatly exceed the number
currently targeted with only one approved product in the US. Further, completion of the SQiDlite platform in 2011 for IVD and RUO/IUO applications will greatly enhance the addressable market into the
1,000s of potential customers. Following licensing in Canada of its quantitative celiac product subsequent to quarter end the Company has intensified its Canadian sales efforts and is optimistic that
it will convert additional Canadian reference laboratories to customers in the ensuing several quarters. The Company plans to further explore interest expressed by target customers in the US with a
stated desire for the custom design, microarray development and printing of biomarkers by the Company as further described below. 

        In
the quarter ended March 31, 2011 and in anticipation of successful validation and CE marking of its next product, IgX PLEX Quantitative Vasculitis, the Company began exploring
customer opportunities in a focussed business development effort in Europe. The initial feedback on the benefits and performance of the SQiDworks platform and multiplexed test panels for RA and celiac
testing has been very positive. These meetings have also resulted in a positive response to the expanded product and service offerings to assist these customers to convert their content into
SQI-based microarrays. During the remainder of 2011 the Company will continue to evaluate its capability to generate revenue in Europe — successful
test marketing may lead the Company to officially launch its European sales efforts in the 2011 fiscal year. 

10

 

        Based on its successful FDA clearance, its Health Canada licenses and EU authorization, management increased the intensity of the development and commercialization of several new test
candidates in 2010. This increased intensity continued into the first half of 2011 and the Company expects this expanded development activity to result in the submission of an on-going
flow of autoimmune test kit applications to the US, Canadian and EU regulatory bodies during the 2011 calendar year. This activity has generated similar R&D expenses in the first half of fiscal 2011
as was experienced in the second half of the 2010 fiscal year related to internal development, internal verification and validation studies and third party validation studies. This activity is
expected to continue in the foreseeable future as the company completes the autoimmune pipeline, continues to improve in-market tests and initiates development in new
clinical areas. 

        During
the 2011 calendar year the Company believes it to be strategic to expand its marketing and sales program to RUO/IUO customers that conduct research in the relevant disease markets
or to those that have an interest in companion testing during drug development and that are targeted in our clinical areas of interest. The Company may target customers conducting research with its
SQiDman platform and RUO/IUO products, higher throughput customers with our SQiDworks platform or SQiDlite platform. Management believes that SQiDlite will be an important system for future clinical
areas and non-reference lab customers. SQiDlite is expected to be fully automated, allow smaller batch sizes and to have equivalent analytical performance when compared to the fully
automated SQiDworks platform. 

        We
also intend to work with third parties who have developed their own proprietary assay biomarkers for multiplexed tests. Our goal is to provide both these companies and their customers
with the services to develop SQI-based microarray tests and with SQiDworks or SQiDlite systems to process these tests as well as print and manufacturing services for their
SQI-based microarray products. 

        These
third parties may include reference laboratories, diagnostic companies, or research organizations. We intend to target companies which intend to convert their biomarkers to
microarrays but which have been unable to develop fully functioning assay systems or who have customers who require high throughput automated systems to process microarray tests. We believe that our
expertise in the areas of microarray printing, microarray test development and systems integration will enable us to generate revenues from customers in a market that is not currently served by a
fully integrated service and product offering. 

        It
will also be necessary to invest in expanding the Company's customer service and administrative elements to support our customers and sales, as we are successful in growing our
placement of SQiDworks platforms across Canada and the United States, and increase our product menu available to our customers. Management will add these resources as needed to support
forecasted customer installations of SQiDworks platforms and sales of consumable kits. 

        Management
will continue to monitor its cash resources in relation to the capital available to it and will manage cash flows as required in the context of the capital markets. Management
believes that it may, at some point, seek additional capital to advance and accelerate the number of tests under development and being validated for regulatory submissions, to expand our areas of
focus beyond autoimmune disease at the appropriate times, expand our fully marketed analytical platform system portfolio enabling us to address a broader market, to build SQiDworks platforms to
address customer demand, as well as to expand our sales team and its efforts in the United States and other jurisdictions as appropriate. 

 Related Party Transactions  

        Transactions with related parties occur in the normal course of business and are measured at the exchange amount. Related party
transactions are described below, unless they have been disclosed elsewhere in the financial statements. 

        Included
in general and administrative expense for the three month period ended March 31, 2011 is $13,000 (three month period ended March 31,
2010 — $21,000) compared to $25,000 for the six month period ended March 31, 2011 (six month period ended March 31, 2010 $39,000), related to
recovery of occupancy costs from a corporation in which an officer of the Company is also an officer. Consulting fee revenue of NIL for the three month ended March 31, 2011 (three month ended
March 31, 2010 — $10,000) was earned from this corporation compared to $9,000 for the six month period ended March 31, 2011 (six month period
ended March 31, 2010 

11

 

$15,000).
At quarter end, $2,000 (September 30, 2010 — $1,000) due from this corporation is included in amounts receivable. 

 Sources and Uses of Cash  

        Operational activities for the quarter ended March 31, 2011 were financed by cash on hand. 

        At
March 31, 2011, current assets were $5,855,000 compared to $9,902,000 at September 30, 2010. Working capital as at March 31, 2011 was $5,121,000 compared to
$8,930,000 at September 30, 2010. 

        Cash
used in investing activities for the quarter ended March 31, 2011 was $146,000 compared to $95,000 for the quarter ended March 31, 2010. The increase in investing
activities is due to the increase in patent assets as the company continued to protect is proprietary technology. Cash used in investing activities for the six months ended March 31, 2011 were
$427,000 compared to $181,000 for the six months ended March 31, 2010. Increased additions to property and equipment in the current six month period reflect the Company's investment in
(1) an overhaul of its out-dated network and data storage infrastructure to expand its data storage capacity required to support the research and development program and to enhance
its disaster recovery system to protect the vast amounts of data generated through product development and validation, and (2) a SQiDworks platform for internal use for platform development
activities. 

        During
the quarter ended March 31, 2011 a total of 40,834 options were exercised at an average price of $1.60 for total proceeds of $65,000. 

        During
the quarter 106,520 warrants with an expiry date of January 22, 2011 were exercised for total proceeds of $133,000. 

        Management
believes that cash on hand at March 31, 2011, and cash generated from revenues will be sufficient to fund the Company's operations for at least 12 months. The
continued successful commercial launch and generation of revenue in the 2011 fiscal years will extend this period. 

 Risks  

        The Company is subject to various risks. Factors that could cause results or events to differ materially from management's current
expectations include, but are not limited to: 

	•
	changing competitive technology and market conditions;   

	•
	the Company's ability to successfully commercialize additional IgX PLEX tests in the autoimmune disease market;  

	•
	the successful and timely completion of clinical validation studies at partner sites;   

	•
	the failure to obtain requisite regulatory approvals (including the clearance of the FDA) for the Company's diagnostic
tests in a timely manner, if at all, and other inherent uncertainties related to the regulatory approval process;   

	•
	the ability to generate sufficient acceptance of the Company's platforms and sales of test kits; and,  

	•
	the ability of the Company to fund its cash requirements from internal and external sources. 

        Management
seeks to mitigate these risks, and others, primarily by retaining experienced employees and advisors who have expertise in the scientific, medical business, regulatory,
manufacturing and operational disciplines of automated platform integration and immunoassay diagnostic test development. 

        The
Company's SQiDworks automated analytical platform and its lead IgX PLEX RA multiplexed test kit, which have received regulatory clearances in Canada, Europe and the
United States, are believed to be the first microarray technologies in the autoimmune disease market to receive such clearances. The Company has continued to build on this regulatory success
with the Health Canada licensing of its IgX PLEX Celiac Qualitative test and subsequent to quarter end its IgX PLEX Celiac Quantitative test, also CE Market in Europe. With the Health Canada approval
for the first second generation fully quantitative assay, the Company 

12

 

anticipates
that its quantitative celiac product line will progress commercially, later this year with the release of a 6-plex quantitative panel that adds additional emerging biomarkers
for markets in Canada, the US and Europe. 

        Our
tests are designed to run only on the SQiDworks platform. In order to obtain approval for the SQiDworks platform and the Company's consumable tests for sale in the
United States, our largest target market, the FDA typically requires the conduct of clinical validation studies to compare the performance of a new test to predicate tests currently approved
for sale in the US. Upon successful completion of validation studies conducted at both SQI's labs and at multiple third party labs, the data derived are then presented to the FDA in the form of a
510(k) Pre-market Notification. It is typical for the external validation studies to take several months to complete and upon receipt of a completed 510(k) submission the FDA may take up
to 180 days to render a decision on the application, not including any "time-outs" which the Company may take to prepare responses to various inquiries from the FDA. The Company
believes the experience gained in obtaining the clearance of the SQiDworks and RA test, together a system, will enable it to complete and file applications for clearance of the subsequently developed
pipeline of assays more efficiently. This in turn may result in shorter review periods at the FDA than was experienced with the SQiDworks-RA system. The timing of such clearances is
dependent on several factors some of which are not controlled by the Company. 

        During
the current reporting period the Company did not earn significant revenues from its test kits or SQiDworks platform. Management believes that material revenues from the sale of
its test kits may be achieved in the 2011 calendar year; this is subject to certain risks including without limitation, the continued success of the development program and regulatory approvals of the
products. The continuation of the Company's research, development and commercialization activities along with investment in marketing and sales is dependent upon the Company's ability to successfully
manage its growth, investment in continued pipeline development and its cash requirements. 

        We
are exposed to market risks related to changes in interest rates and foreign currency exchange rates, which could affect the value of our current assets and liabilities. We do not
believe that the results of operations or cash flows would be affected to any significant degree by a sudden change in market interest rates relative to our cash investment, due to the prime interest
rate based nature of the investment. We have not entered into any forward currency contracts or other financial derivatives to hedge foreign exchange risk. We are subject to foreign exchange rate
changes that could have a material effect on future operating results or cash flows. 

        Management
will continue to review the Company's financial needs and to seek additional capital financing as required from sources that may include equity financing, debt financing,
collaborative projects and
licensing arrangements. However, there can be no assurance that such additional funding will be available or if available, whether acceptable terms will be offered. Management believes that it will
need to seek such additional financing during the 2011 fiscal year. 

 Outstanding Share Capital  

        As at March 31, 2011, there were 33,913,000 common shares issued and outstanding. 

        The
following tables describe the securities that have been issued that are convertible under certain conditions into common shares: 

        The
Company had the following warrants outstanding at March 31, 2011: 

 

 

					
	Number of Warrants 	 	Purchase Price 	 	Expiry Date 
	

 1,199,000	 	$4.00	 	December 4, 2011
	237,000	 	$1.90	 	December 23, 2011
	

 1,140,000	 	$5.00	 	August 12, 2012
	57,000	 	$2.50	 	August 12, 2012
	 	 	 	 	 
	

 2,633,000	 	 	 	 
	 	 	 	 	 

 

 13

 
 

        The
Company had the following stock options outstanding under the Plan at March 31, 2011: 

 

 

					
	Number of Options

(000s) 	 	Exercise Price 	 	Expiry Date 
	

 33,000	 	$1.20	 	June 29, 2011
	58,000	 	$1.20	 	August 29, 2011
	

 143,000	 	$1.74	 	August 7, 2012
	50,000	 	$1.50	 	October 23, 2012
	

 758,000	 	$1.60	 	February 15, 2013
	255,000	 	$1.75	 	August 26, 2013
	

 78,000	 	$1.30	 	May 21, 2014
	25,000	 	$3.26	 	November 03, 2014
	

 57,000	 	$2.25	 	February 22, 2015
	60,000	 	$2.10	 	May 27, 2015
	

 175,000	 	$2.50	 	August 16, 2015
	100,000	 	$2.90	 	October 4, 2015
	

 75,000	 	$2.85	 	January 31, 2016
	 	 	 	 	 
	1,867,000	 	 	 	 
	 	 	 	 	 

 

  Off-Balance Sheet Arrangements  

        The Company has no off-balance sheet arrangements. 

 Future Prospects  

        In its current state of evolution, management believes that the Company has assembled the necessary intellectual, financial, and human
capital to advance its current pipeline of autoimmune test panels and the SQiDworks system through the completion of clinical validation studies and regulatory filings in Canada, the U.S. and Europe.
The Company believes that completion of its quantitative RA and celiac products justifies the current intensified investment in development and commercialization of its pipeline of an additional group
of at least eight autoimmune microarray diagnostic panels over the next eighteen months. It further believes that successful completion of these tests in development, and collaborations with its
partners, may lead to the identification and commercialization of other test panels, not currently contemplated or in development, addressing unmet medical needs in the diagnosis or therapies for
autoimmune, infectious disease and allergy management. 

        SQI's
operational objectives are straightforward: generate revenue from products in the regulatory jurisdictions for which we have acquired regulatory approvals or licenses; continued
successful commercialization and continuous improvement of a menu of autoimmune test kits; and, expansion of partnerships and other strategic relationships to enhance our product offerings or
revenues. Success in these steps will allow the Company to further validate its multiplexing model, value proposition and to roll-out and sell its products to customers in its
target markets. 

        The
Company plans to execute on the following components of its operational strategy: 

	•
	Generate, maintain and grow customer sales in North America;   

	•
	Explore near-term revenue opportunities in Europe;   

	•
	Complete commercialization and regulatory filings (where appropriate) for, vasculitis, lupus, IBD-Crohn's,
anti-TNF and second generation product extensions for RA and celiac panels;   

	•
	Work with our partners to enhance our product offerings and produce collaborative research identifying product strengths;  

	•
	Provide world-class customer support and service to ensure satisfaction; and,   

	•
	Publish scientific papers to broaden our product value proposition. 

14

 

        The
Company will continue to invest in research and development activities related to its core platform technologies of microarray-based assays and detection devices. 

 DISCLOSURE CONTROLS AND PROCEDURES, AND INTERNAL CONTROL OVER FINANCIAL REPORTING  

        The accompanying financial statements have been prepared by management in accordance with Canadian generally accepted accounting
principles. For quarterly reporting periods, the Company's financial statements are approved by the Audit Committee and the Board of Directors. For annual reporting periods, the Company's financial
statements are approved by the Board of Directors upon recommendation by the Audit Committee. The integrity and objectivity of these financial statements are the responsibility of management. In
addition, management is responsible for all other information in this report and for ensuring that this information is consistent, where appropriate, with the information contained in the financial
statements. 

        In
support of this responsibility, management maintains a system of internal controls to provide reasonable assurance as to the reliability of financial information and the safeguarding
of assets. 

        In
particular, the CEO and CFO are responsible for establishing and maintaining disclosure controls and procedures ("DC&Ps") and internal controls over financial reporting ("ICFRs") for
the Company, and have: 

	(a)
	designed
such DC&Ps, or caused them to be designed under supervision, to provide reasonable assurance that material information is made known during the
period in which the annual and quarterly filings are being prepared;

	(b)
	designed
such ICFRs, or caused them to be designed under supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with Canadian GAAP;

	(c)
	evaluated
the design and effectiveness of the Company's DC&Ps as of the quarter ended March 31, 2011;

	(d)
	have
concluded that a material design weakness in the ICFRs may exist in terms of the inadequate segregation of certain duties, which is typical of
development stage companies; mitigating factors, including dual-payment authorization policies and transparent internal financial transaction reporting processes, serve to minimize the
risk that such design weakness could result in a material misstatement of results for the quarter ended March 31, 2011; and

	(e)
	have
concluded that, other than the item described above in sub-point (d), there are no additional material design weaknesses in the DC&Ps or
ICFRs, and that the effectiveness of the DC&Ps is sufficient to expect the prevention or detection of material misstatements of results. 

        The
financial statements include amounts that are based on the best estimates and judgments of management. The Board of Directors is responsible for ensuring that management fulfills its
responsibility for financial reporting and internal control. The Board of Directors exercises this responsibility principally through the Audit Committee. The Audit Committee consists of three
directors, all of whom are independent and not involved in the daily operations of the Company. The Audit Committee meets with management and the external auditors to satisfy itself that management's
responsibilities are properly discharged and to review the financial statements prior to their presentation to the Board of Directors for approval. 

15

QuickLinks

Exhibit 4.8

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