SQI Diagnostics Inc.
Interim Consolidated Financial Statements
(Unaudited)
For the Three and Nine Month Periods Ended June 30, 2011 and 2010
SQI Diagnostics Inc.
Interim Consolidated Balance Sheets
(Unaudited)
(Amounts are in thousands of dollars)
| | Note | As at June 30, 2011 (Unaudited) | As at September 30, 2010 (audited) | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
Assets | ||||||||||
Current | ||||||||||
Cash and cash equivalents | $ | 2,817 | $ | 9,408 | ||||||
Amounts receivable | 12 | 3 | ||||||||
Inventory | 4 | 512 | 260 | |||||||
Prepaids and deposits | 425 | 165 | ||||||||
Due from related party | 5 | — | 66 | |||||||
| 3,766 | 9,902 | |||||||||
Due from related party | 5 | — | 32 | |||||||
Deferred costs | 17 | 433 | — | |||||||
Property and equipment | 6 | 2,717 | 2,713 | |||||||
Patents and trademarks | 572 | 469 | ||||||||
| $ | 7,488 | $ | 13,134 | |||||||
Liabilities | ||||||||||
Current | ||||||||||
Accounts payable and accrued liabilities | $ | 1,528 | $ | 972 | ||||||
Shareholders' Equity | ||||||||||
Capital stock | 8 | 35,377 | 35,026 | |||||||
Warrants | 9 | 1,614 | 1,799 | |||||||
Employee share purchase loan | 8 | — | (10 | ) | ||||||
Contributed surplus | 11 | 9,274 | 8,8832 | |||||||
Deficit | (40,305 | ) | (33,485 | ) | ||||||
| 5,960 | 12,162 | |||||||||
| $ | 7,488 | $ | 13,134 | |||||||
Subsequent Events (Note 17)
Contingencies (Note 14)
| | | | ||
|---|---|---|---|---|
| Approved by the Board | "Peter Winkley" | "Claude Ricks" | ||
| Director(Signed) | Director(Signed) |
See accompanying notes
2
SQI Diagnostics Inc.
Interim Consolidated Statement of Operations and Deficit
(Unaudited)
(Amounts are in thousands of dollars except per share amounts)
| | Note | Three Month Period Ended June 30, 2011 | Three Month Period Ended June 30, 2010 | Nine Month Period Ended June 30, 2011 | Nine Month Period Ended June 30, 2010 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenue | |||||||||||||||||
Product sales | $ | 9 | $ | — | $ | 22 | $ | — | |||||||||
Consulting fees | 7 | — | 6 | 9 | 21 | ||||||||||||
| 9 | 6 | 31 | 21 | ||||||||||||||
Expenses | |||||||||||||||||
Salaries and wages | 275 | 139 | 607 | 404 | |||||||||||||
General and administrative | 7 | 125 | 123 | 449 | 324 | ||||||||||||
Professional and consulting fees | 17 | 469 | 140 | 669 | 437 | ||||||||||||
Sales and marketing | 114 | 116 | 329 | 309 | |||||||||||||
Stock-based compensation | 13 | 144 | 69 | 372 | 184 | ||||||||||||
Research and development costs | 1,443 | 1,111 | 4,056 | 3,438 | |||||||||||||
Amortization — patents & trademarks | 31 | 29 | 88 | 85 | |||||||||||||
Amortization — property & equipment | 113 | 101 | 337 | 310 | |||||||||||||
| 2,714 | 1,828 | 6,907 | 5,491 | ||||||||||||||
Operating loss before interest | (2,705 | ) | (1,822 | ) | (6,876 | ) | (5,470 | ) | |||||||||
Interest Income | 14 | 8 | 56 | 20 | |||||||||||||
Interest Expense | — | 2 | — | (2 | ) | ||||||||||||
Net loss | (2,691 | ) | (1,812 | ) | (6,820 | ) | (5,452 | ) | |||||||||
Deficit at beginning of period | (37,614 | ) | (29,052 | ) | (33,485 | ) | (25,412 | ) | |||||||||
Deficit at end of period | $ | (40,305 | ) | $ | (30,864 | ) | $ | (40,305 | ) | $ | (30,864 | ) | |||||
Weighted average number of shares | 33,936 | 30,790 | 33,849 | 29,553 | |||||||||||||
Basic and diluted loss per share | $ | (0.08 | ) | $ | (0.06 | ) | $ | (0.20 | ) | $ | (0.18 | ) | |||||
See accompanying notes
3
SQI Diagnostics Inc.
Interim Consolidated Statement of Cash Flows
(Unaudited)
(Amounts are in thousands of dollars)
| | Three Month Period Ended June 30, 2011 | Three Month Period Ended June 30, 2010 | Nine Month Period Ended June 30, 2011 | Nine Month Period Ended June 30, 2010 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Cash flow from operating activities | ||||||||||||||||
Loss for the period | $ | (2,691 | ) | $ | (1,812 | ) | $ | (6,820 | ) | $ | (5,452 | ) | ||||
Add items not affecting cash | ||||||||||||||||
Amortization — patents & trademarks | 31 | 29 | 88 | 85 | ||||||||||||
— property and equipment | 113 | 101 | 337 | 310 | ||||||||||||
Stock-based compensation | 144 | 69 | 372 | 184 | ||||||||||||
Loss on sale of property and equipment | — | 43 | — | |||||||||||||
Interest accrual | — | (1 | ) | — | ||||||||||||
| (2,403 | ) | (1,613 | ) | (5,981 | ) | (4,873 | ) | |||||||||
Changes in non-cash working capital items | ||||||||||||||||
Amounts receivable | (9 | ) | (47 | ) | (8 | ) | (95 | ) | ||||||||
Investment tax credit recoverable | 300 | (295 | ) | — | (295 | ) | ||||||||||
Due from related party | 99 | — | 99 | 7 | ||||||||||||
Inventory | 1 | (153 | ) | (252 | ) | (458 | ) | |||||||||
Prepaids and deposits | (122 | ) | (75 | ) | (260 | ) | (95 | ) | ||||||||
Accounts payable and accrued liabilities | 795 | 100 | 555 | 305 | ||||||||||||
| (1,339 | ) | (2,083 | ) | (5,847 | ) | (5,504 | ) | |||||||||
Cash flows used in investing activities | ||||||||||||||||
Purchase of property and equipment | (36 | ) | (266 | ) | (368 | ) | (369 | ) | ||||||||
Additions to patents and trademarks | (94 | ) | (21 | ) | (191 | ) | (99 | ) | ||||||||
Sale of property and equipment | — | — | 2 | — | ||||||||||||
| (130 | ) | (287 | ) | (557 | ) | (468 | ) | |||||||||
Cash flows from financing activities | ||||||||||||||||
Repayment of loans payable | — | (1 | ) | — | (3 | ) | ||||||||||
Repayment of shareholder loan | 10 | — | 10 | — | ||||||||||||
Proceeds from private placement and exercise of warrants and options, net of share issuance costs | 40 | 2,093 | 236 | 8,561 | ||||||||||||
Deferred costs | (433 | ) | — | (433 | ) | — | ||||||||||
| (383 | ) | 2,092 | (187 | ) | 8,558 | |||||||||||
Increase (decrease) in cash during the period | (1,852 | ) | (278 | ) | (6,591 | ) | 2,586 | |||||||||
Cash at beginning of period | 4,669 | 6,044 | 9,408 | 3,180 | ||||||||||||
Cash at end of period | $ | 2,817 | $ | 5,766 | $ | 2,817 | $ | 5,766 | ||||||||
Supplemental disclosure | ||||||||||||||||
Cash paid for interest | — | $ | (2 | ) | — | $ | 2 | |||||||||
See accompanying notes
4
SQI Diagnostics Inc.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. NATURE OF OPERATIONS
SQI Diagnostics Inc., (the "Company"), has its head office and development centre in Toronto, Ontario. The Company is a life sciences company that develops proprietary and commercializes proprietary technologies and products for advanced microarray diagnostics. Our goal is to become a leader in the development and commercialization of microarray and multiplexed diagnostics by offering our customers a comprehensive "turnkey" solution that increases the efficiency and ease of diagnostic testing and test development.
During fiscal 2009 the Company obtained Health Canada licenses and self authorization to sell in the EU and during fiscal 2010 received United States Food & Drug Administration ("FDA") clearance of its SQiDworks and IgX PLEX Rheumatoid Arthritis (RA) system. During fiscal 2010 the Company obtained a Health Canada license for its IgX PLEX Celiac™ microarray test kits that run on the Company's automated SQiDworks™ platform. During the nine months ended June 30, 2011 the company obtained FDA clearance for its IgX PLEX Celiac™ panel and obtained a Health Canada license and self authorization to sell in the EU its second generation fully quantitative IgX PLEX Celiac™ panel. The Company has earned limited revenues from its IgX PLEX RA™ and IgX PLEX Celiac™ test kits run on installed SQiDworks™ platforms to date, and as such is considered to be a development stage company. The Company has a pipeline of additional autoimmune diagnostic products in various stages of development and commercialization. The Company expects to generate revenues from its IgXPLEX RA and IgXPLEX Celiac products as it grows its installed base of customers as well as from products to be launched as they complete commercialization. The continuation of the Company's research, development and commercialization activities is dependent upon the Company's ability to successfully generate product revenues, or to finance its cash requirements through further equity financings.
2. SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles and follow the same accounting policies and methods of their application as the most recent audited consolidated financial statements for the years ended September 30, 2010 and 2009. These statements should be read in conjunction with the Company's above noted annual consolidated financial statements. The significant accounting policies are discussed below.
Basis of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. Inter-company balances and transactions are eliminated upon consolidation.
Cash and Cash Equivalents
Cash and cash equivalents include bank deposits and highly liquid money market investments such as bankers acceptance notes, treasury bills, cashable money market funds, and cashable guaranteed investment certificates.
Inventory
Inventory is valued at the lower of cost and replacement cost, with cost determined on a first-in, first-out basis.
Property and Equipment
Property and equipment are recorded at cost and are amortized on the straight-line basis over their estimated useful lives as follows:
| Computer hardware | — | 3 years | |||
| Computer software | — | 3 years | |||
| Laboratory fixtures and equipment | — | 10 years | |||
| Office equipment | — | 10 years | |||
| Leasehold improvements | — | 10 years |
Patents and Trademarks
The costs relating to initial 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 $715,000 (September 30, 2010 — $627,000).
5
SQI Diagnostics Inc.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Research and Development Costs
Research costs are charged to operations 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 June 30, 2011, the Company was developing IgXPLEX diagnostics assays for celiac, vasculitis, lupus (SLE), Crohn's (IBD), antiphospholipid syndrome and our second generation, fully quantitative IgXPLEX RA assay. The Company continued its work to complete scientific discovery and assay design work for a diagnostic assay to detect and measure infliximab (also referred to as anti-TNF) in the blood of autoimmune patients. Deferral criteria have not been met, and accordingly, all development costs have been expensed in the period.
Impairment of Long-Lived Assets
Long-lived assets comprise property and equipment and intangible assets with finite lives (patents and trademarks). The Company recognizes an impairment loss for a long-lived asset when events or changes in circumstances cause its carrying value to exceed the total undiscounted cash flows expected from its use and eventual disposition. An impairment loss is measured as the excess of the carrying value of the asset over its fair value.
Revenue Recognition
Product sales are recognized upon the shipment of products to customers, if a signed contract exists, the sales price is fixed and determinable, collection of the resulting receivables is reasonably assured and any uncertainties with regard to customer acceptance are insignificant. Sales are recorded net of discounts and sales returns.
The Company also provides consulting services from time to time. Consulting fee revenue is recognized when services are completed, amounts are invoiced to customers and collectability is reasonably assured.
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 at which time the related contributed surplus is transferred to share capital.
Foreign Currency Translation
Monetary assets and liabilities denominated in foreign currencies are translated to Canadian dollars at exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are translated at rates of exchange in effect at each transaction date. Revenue and expenses are translated at the rate of exchange at each transaction date. Gains or losses on translation are included in operations.
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.
Investment Tax Credits
Investment tax credits are accrued when qualifying expenditures are incurred and there is reasonable assurance that the credits will be realized. Investment tax credits earned with respect to current expenditures for qualified research and development activities are included in the statements of operations as a reduction of research and development costs. Investment tax credits associated with capital expenditures are reflected as reductions in the carrying amounts of capital assets. During the three and nine months ended June 30, 2011 the company recorded $Nil and $300,000, respectively, as a reduction of research and development costs ($295,000 for the three and nine months ended June 30, 2010).
6
SQI Diagnostics Inc.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Financial Instruments
Financial instruments are measured initially at fair value and thereafter based on their classification.
The Company has classified and measured its financial instruments as follows:
Financial Instrument | Classification | Measurement Basis | |||
|---|---|---|---|---|---|
Cash and cash equivalents | Held-for-trading | Fair value | |||
Amounts receivable | Loans and receivable | Amortized cost | |||
Investment tax credits receivable | Loans and receivable | Amortized cost | |||
Due from related party | Loans and receivable | Amortized cost | |||
Accounts payable and accruals | Other financial liabilities | Amortized cost |
Comprehensive Income
The Company has not presented a statement of comprehensive income as it has no other comprehensive income.
Loss Per Share
Basic loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted loss per share is computed using the weighted average number of common and potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options and warrants determined using the treasury stock method.
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 period. 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.
3. 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 adopted the new standards on October 1, 2010.
International Financial Reporting Standards
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 transition date of October 1, 2010 for the Company will require restatement for comparative purposes of amounts reported by the Company for the year ended September 30,
7
SQI Diagnostics Inc.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
3. RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
2011. The Company continues to monitor, assess and quantify the impact of the convergence of Canadian GAAP and IFRS on its financial statements.
4. INVENTORY
Inventory consists of component parts that are to be used in the future production of SQiDworks™ Platform and IgXPLEX consumable assays.
5. DUE FROM RELATED PARTY
| | June 30, 2011 ($000s) | September 30, 2010 ($000s) | ||||||
|---|---|---|---|---|---|---|---|---|
| | (unaudited) | (audited) | ||||||
Amount due from an officer and director (i) and (ii) | $ | — | $ | 98 | ||||
Less: Current portion | — | (66 | ) | |||||
| $ | — | $ | 32 | |||||
6. PROPERTY AND EQUIPMENT
As at June 30, 2011 (unaudited): | Cost ($000s) | Accumulated Amortization ($000s) | Net ($000s) | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
Computer hardware | $ | 266 | $ | 174 | $ | 92 | |||||
Computer software | 179 | 143 | 36 | ||||||||
Laboratory fixtures and equipment | 4,343 | 1,888 | 2,455 | ||||||||
Office equipment | 176 | 135 | 41 | ||||||||
Leasehold improvements | 265 | 172 | 93 | ||||||||
| $ | 5,229 | $ | 2,512 | $ | 2,717 | ||||||
As at September 30, 2010 (audited): | Cost ($000s) | Accumulated Amortization ($000s) | Net ($000s) | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
Computer hardware | $ | 193 | $ | 141 | $ | 52 | |||||
Computer software | 153 | 130 | 23 | ||||||||
Laboratory fixtures and equipment | 4,172 | 1,670 | 2,502 | ||||||||
Office equipment | 176 | 128 | 48 | ||||||||
Leasehold improvements | 263 | 157 | 106 | ||||||||
| $ | 4,957 | $ | 2,226 | $ | 2,731 | ||||||
8
SQI Diagnostics Inc.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
7. RELATED PARTY TRANSACTIONS
Transactions with related parties occur in the normal course of business and are measured at the exchange amount. Related party transactions have been listed below, unless they have been disclosed elsewhere in the financial statements.
Included in general and administrative expense for the three month period ended June 30, 2011 is $13,000 (three month period ended June 30, 2010 — $12,000) compared to $38,000 for the nine month period ended June 30, 2011 (nine month period ended June 30, 2010 $37,000), 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 June 30, 2011 (three month ended June 30, 2010 — $6,000) was earned from this corporation compared to $9,000 for the nine month period ended June 30, 2011 (nine month period ended June 30, 2010 $21,000). At quarter-end, $1,000 (September 30, 2010 — $1,000) due from this corporation is included in amounts receivable.
8. CAPITAL STOCK
| | Number (000s) | Value ($000s) | ||||||
|---|---|---|---|---|---|---|---|---|
Balance, September 30, 2010 (audited) | 33,758 | $ | 35,026 | |||||
Options exercised | 8 | 22 | ||||||
Balance, December 31, 2010 | 33,766 | $ | 35,048 | |||||
Options exercised | 40 | 104 | ||||||
Warrants exercised (Note 9(i)) | 107 | 193 | ||||||
Share issuance costs | — | (16 | ) | |||||
Balance, March 31, 2011 | 33,913 | $ | 35,329 | |||||
Options exercised | 33 | 48 | ||||||
Balance, June 30, 2011 | 33,946 | $ | 35,377 | |||||
9. WARRANT CAPITAL
The following summarizes the change in warrants:
| | Nine Months Ended June 30, 2011 ($000s) | Year Ended September 30, 2010 ($000s) | ||||||
|---|---|---|---|---|---|---|---|---|
| | | (audited) | ||||||
Balance, beginning of period | $ | 1,799 | $ | 461 | ||||
Issued on private placement | — | 1,424 | ||||||
Finder warrants | — | 187 | ||||||
Exercise of warrants (i) | (60 | ) | (213 | ) | ||||
Expiry of warrants (ii) | (125 | ) | (60 | ) | ||||
Balance, end of period | $ | 1,614 | $ | 1,799 | ||||
9
SQI Diagnostics Inc.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
9. WARRANT CAPITAL (Continued)
10. WARRANTS
The Company had the following warrants outstanding at June 30, 2011:
| Number of Warrants (000s) | Purchase Price | Expiry Date | |||
|---|---|---|---|---|---|
| 1,199 | $4.00 | December 4, 2011 | |||
| 237 | $1.90 | December 23, 2011 | |||
| 1,140 | $5.00 | August 12, 2012 | |||
| 57 | $2.50 | August 12, 2012 | |||
2,633 | |||||
11. CONTRIBUTED SURPLUS
The following summarizes the change in contributed surplus:
| | Nine Months Ended June 30, 2011 ($000s) | Year Ended September 30, 2010 ($000s) | ||||||
|---|---|---|---|---|---|---|---|---|
| | | (audited) | ||||||
Balance, beginning of period | $ | 8,832 | $ | 8,431 | ||||
Stock-based compensation (Note 13) | 372 | 402 | ||||||
Options exercised (Note 12 (i)) | (55 | ) | (61 | ) | ||||
Warrants expired (Note 9(ii)) | 125 | 60 | ||||||
Balance, end of period | $ | 9,274 | $ | 8,832 | ||||
12. STOCK OPTIONS
The Company maintains a Stock Option Plan (the "Plan") for the benefit of directors, officers, employees and consultants. The maximum number of common shares reserved for issuance under the Plan, together with any other employee stock option plans, options for services and employee share purchase plans, will not exceed 10% of the issued and outstanding shares at the time of the option grant. Options granted pursuant to the Plan will have terms not to exceed five years, and are granted at an option price which will not be less than the fair market price at the time the options are granted. All options granted to individual optionees, other than consultants, generally vest in three equal installments over a period of 36 months.
10
SQI Diagnostics Inc.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
12. STOCK OPTIONS (Continued)
The following summarizes the stock option activities under the Plan:
| | Nine Month Period Ended June 30, 2011 | Nine Month Period Ended June 30, 2010 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Number of Options (000s) | Weighted Average Exercise Price | Number of Options (000s) | Weighted Average Exercise Price | ||||||||||
Beginning balance | 1,814 | $ | 1.77 | 2,368 | $ | 1.31 | ||||||||
Granted | 175 | $ | 2.88 | 209 | $ | 2.32 | ||||||||
Exercised (i) | (81 | ) | $ | 1.45 | (830 | ) | $ | 0.81 | ||||||
Cancelled/Expired | (122 | ) | $ | 0.88 | ||||||||||
Forfeited | (49 | ) | $ | 2.26 | (2 | ) | $ | 1.74 | ||||||
Ending balance | 1,859 | $ | 1.85 | 1,623 | $ | 1.67 | ||||||||
Exercisable | 1,519 | $ | 1.74 | 1,021 | $ | 1.37 | ||||||||
The Company had the following stock options outstanding under the Plan at June 30, 2011:
| Number of Options (000s) | Exercise Price | Expiry Date | |||
|---|---|---|---|---|---|
| 58 | $1.20 | August 29, 2011 | |||
| 143 | $1.74 | August 7, 2012 | |||
| 50 | $1.50 | October 23, 2012 | |||
| 758 | $1.60 | February 26, 2013 | |||
| 255 | $1.75 | August 26, 2013 | |||
| 78 | $1.30 | May 22, 2014 | |||
| 25 | $3.26 | November 3, 2014 | |||
| 107 | $2.25 | February 22, 2015 | |||
| 50 | $2.10 | May 27, 2015 | |||
| 175 | $2.50 | August 16, 2015 | |||
| 100 | $2.90 | October 4, 2015 | |||
| 60 | $2.85 | January 31, 2016 | |||
1,859 | |||||
13. STOCK-BASED COMPENSATION
The fair value of the options granted during the nine month period ended June 30, 2011 was $327,000 (nine month period ended June 30, 2010 — $315,000), which will be recognized over the vesting period of 36 months. The total compensation expense for three and nine month period ended June 30, 2011 was $144,000 and $372,000 respectively (three and nine month period ended June 30, 2010 — $69,000 and $184,000 respectively). The total amount credited to contributed surplus for the nine month period ended June 30, 2011 was $144,000 and $372,000 respectively (three and nine month period ended June 30, 2010 — $69,000 and $184,000 respectively).
11
SQI Diagnostics Inc.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
13. STOCK-BASED COMPENSATION (Continued)
The fair value of each option granted has been estimated at the date of grant or the date when it became measurable using the Black-Scholes option pricing model with the following weighted average assumptions at the measurement date:
| | Nine Months Ended June 30, 2011 | Nine Months Ended June 30, 2010 | |||||
|---|---|---|---|---|---|---|---|
Dividend yield | 0% | 0% | |||||
Expected volatility | 80% | 80% | |||||
Risk-free interest rate | 2.31% | 1.98% | |||||
Expected life (years) | 5.00 | 5.00 | |||||
Weighted average grant date fair value | $ | 1.87 | $ | 1.51 | |||
The Company has assumed no forfeiture rate as adjustments for actual forfeitures are made in the year they occur.
14. CONTINGENCIES
In the ordinary course of business, the Company may be contingently liable for litigation and claims with customers, suppliers, former employees or competitors. Management believes that adequate provisions have been recorded in accounts where required.
15. CAPITAL RISK MANAGEMENT
The Company's objective when managing capital is to safeguard the Company's ability to continue as a going concern so that it can complete its lead assay commercialization efforts and receive the required regulatory approvals to sell and market its products and provide returns for shareholders and benefits for other stakeholders.
The capital structure of the Company consists of shareholders' equity. The Company is not subject to externally imposed capital requirements.
16. FINANCIAL RISK MANAGEMENT
Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The Company's cash and cash equivalents are exposed to credit risk. The credit risk on cash and cash equivalents is small because the counterparties are highly rated Canadian banks.
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company's cash and cash equivalents are exposed to cash flow interest rate risk as the Company invests cash and cash equivalents at floating rates of interest in highly liquid instruments. Fluctuations in interest rates would not significantly impact interest income.
Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company is exposed to currency risk due to its purchases in US dollars. A 1% change in the foreign exchange rate would result in a change of approximately $13,000 in the reported profit and loss.
Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. The Company's accounts payable and accrued liabilities are all current. The Company ensures that it has sufficient capital to meet short term financial obligations after taking into account its cash on hand.
12
SQI Diagnostics Inc.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
17. SUBSEQUENT EVENTS
On July 4, 2011 the Company announced that it has entered into an agreement to acquire all of the share capital of Scienion AG, a German-based microarray manufacturing equipment and microarray print and development services company for a purchase price of $15,000,000 in cash and the issuance of 735,294 common shares in the capital of SQI. The closing of the transaction is subject to a number of customary closing conditions and regulatory approvals, and is subject to financing.
On July 7, 2011 the Company announced that it has filed a preliminary short form PREP based prospectus with the Ontario Securities Commission and a registration statement on form F-10 with the U.S. Securities and Exchange Commission in connection with a proposed offering of common shares. The anticipated amount of the offering is approximately $30,000,000 of which $15,000,000 will be used in payment of the cash portion of the purchase price of the Company's acquisition of Scienion. The completion of the public offering is subject to and conditional upon the receipt of all necessary approvals, including regulatory approval.
At June 30, 2011, the Company had incurred costs relating to the planned offering in the amount of $433,000 (September 30, 2010 — $Nil). These amounts have been reflected in deferred costs and will be offset against share capital upon completion of the offering. The Company also incurred cost relating to the acquisition as at June 30, 2011 in the amount of $324,000 (June 30, 2010 — $Nil). These amounts have been included in professional and consulting fees.
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