Response Biomedical 10Q 2013 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended:

June 30, 2013

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

For the transition period from _______________ to _______________

Commission File Number:000-50571

Response Biomedical Corp.

(Exact name of registrant as

specified in its charter)

Vancouver, British Columbia, Canada

98 -1042523

(State or other jurisdiction of incorporation or

organization)

(I.R.S. Employer Identification No.)

1781 - 75^th Avenue W.

Vancouver, British Columbia, Canada, V6P 6P2

(Address of principal executive offices)

(604) 456-6010

(Registrant’s telephone number, including area code)

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

Yes ☒ No ☐

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

Yes ☒ No ☐

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

Large accelerated filer ☐		Accelerated filer ☐

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 6,577,644 as of July 28, 2013.

Response Biomedical Corp.

Index to Form 10-Q

PART I. FINANCIAL INFORMATION		2

ITEM 1.	FINANCIAL STATEMENTS	2
CONSOLIDATED BALANCE SHEETS		3
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS		4
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY/ (DEFICIT)		5
CONSOLIDATED STATEMENTS OF CASH FLOWS		6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS		7
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	18
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	28
ITEM 4.	CONTROLS AND PROCEDURES	29

PART II. OTHER INFORMATION		30

ITEM 1.	LEGAL PROCEEDINGS	30
ITEM 1A.	RISK FACTORS	30
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	42
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	42
ITEM 4.	MINE SAFETY DISCLOSURES	42
ITEM 5.	OTHER INFORMATION	42
ITEM 6.	EXHIBITS	43
SIGNATURES		44

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

● Our future strategy, structure, and business prospects;

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

● Implementing aspects of our business plan and strategies;

● Our ability to attain and maintain profitability;

● Our financing goals and plans;

● Our existing working capital and cash flows and whether and how long these funds will be sufficient to fund our operations; and

● Our raising of additional capital through future equity and debt financings.

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

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

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Response Biomedical Corp.

Consolidated Financial Statements

(Unaudited)

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

As of June 30, 2013 and December 31, 2012 and for the Three and Six Month Periods Ended June 30, 2013 and 2012.

RESPONSE BIOMEDICAL CORP.

CONSOLIDATED BALANCE SHEETS

(See Note 2 – Basis of Presentation and Going Concern Uncertainty)

(Unaudited)

(In thousands of Canadian dollars)

	June 30, 2013			December 31, 2012
ASSETS		$			$
Current
Cash and cash equivalents		1,340			2,080
Trade receivables, net		1,567			1,483
Other receivables		88			187
Inventories [note 5]		1,909			1,791
Prepaid expenses and other		259			211
Total current assets		5,163			5,752
Long-term prepaid expenses		93			93
Restricted deposits [note 7]		901			901
Property, Plant and Equipment		7,135			7,602
Total assets		13,292			14,348

LIABILITIES AND SHAREHOLDERS' DEFICIT
Current
Accounts payable and accrued liabilities [notes 6 and 9]		2,243			1,897
Lease inducements - current portion [note 7]		171			173
Repayable leasehold improvement allowance - current portion [note 7]		391			370
Deferred revenue - current portion		189			255
Warrant liability [notes 4 and 8]		8,242			3,699
Total current liabilities		11,236			6,394
Lease inducements [note 7]		1,450			1,535
Repayable leasehold improvement allowance [note 7]		5,881			6,082
Deferred revenue		11			16
Total liabilities		18,578			14,027
Commitments and contingencies [notes 10 and 12]
Shareholders' deficit
Common shares [note 8]		99,852			99,289
Additional paid-in capital [note 8]		13,654			13,203
Deficit		(118,792	)		(112,171	)
Total shareholders' (deficit)/equity		(5,286	)		321
Total liabilities and shareholders’ (deficit)/equity		13,292			14,348

See accompanying notes

RESPONSE BIOMEDICAL CORP.

CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

(Unaudited)

(In thousands of Canadian dollars, except share data)

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
		$			$			$			$
REVENUE
Product sales [note 11]		2,748			3,038			6,309			6,020
Cost of sales [notes 5, 8, and 10]		1,606			1,888			3,571			3,601
Gross profit on product sales		1,142			1,150			2,738			2,419

EXPENSES [notes 8, 9, and 10]
Research and development		560			907			1,114			1,597
General and administrative		1,038			1,366			1,863			2,236
Sales and marketing		532			354			1,016			609
Total operating expenses		2,130			2,627			3,993			4,442

OTHER EXPENSES (INCOME)
Interest expense [note 7]		175			185			351			372
Interest income		(4	)		(10	)		(7	)		(15	)
Other income		-			-			(58	)		-
Income tax expense		14			-			14
Foreign exchange gain		(46	)		(48	)		(39	)		(71	)
Unrealized (gain) loss on revaluation of warrant liability [note 4]		(4,470	)		(3,995	)		5,105			1,006
Total other expenses/(income)		(4,331	)		(3,868	)		5,366			1,292

Net income (loss) and comprehensive income (loss) for the period		3,343			2,391			(6,621	)		(3,315	)

Income (loss) per common share - basic [note 8]		0.51			0.37			(1.01	)		(0.51	)

Loss per common share - diluted [note 8]		(0.14	)		(0.23	)		(1.01	)		(0.51	)

Weighted average number of common shares outstanding - basic [notes 1 and 8]		6,574,358			6,454,894			6,536,494			6,454,382

Weighted average number of common shares outstanding - diluted [notes 1 and 8]		8,885,549			7,102,046			6,536,494			6,454,382

See accompanying notes

RESPONSE BIOMEDICAL CORP.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY/ (DEFICIT)

(Unaudited)

(In thousands of Canadian dollars, except share data)

	Common Stock Issued and Outstanding			Additional paid in capital		Deficit			Total Shareholders' Equity
	# of shares		$		$		$			$
Balance at December 31, 2011		6,453,873	99,276		12,590		(106,890	)		4,976
Net loss		-	-		-		(5,281	)		(5,281	)
Net shares issued upon exercise of warrants		1,333	13							13
Stock-based compensation expense					613					613
Balance at December 31, 2012		6,455,206	99,289		13,203		(112,171	)		321
Net loss		-	-		-		(6,621	)		(6,621	)
Net shares issued upon exercise of warrants		122,458	563							563
Stock-based compensation expense					316					316
Restricted share units issued to settle a liability					135					135
Balance at June 30, 2013		6,577,664	99,852		13,654		(118,792	)		(5,286	)

See accompanying notes

RESPONSE BIOMEDICAL CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands of Canadian dollars)

Six Months Ended June 30,	2013			2012
OPERATING ACTIVITIES		$		$
Net loss for the period		(6,621	)	(3,315	)
Add (deduct) items not involving cash:
Depreciation of property, plant and equipment		516		565
Amortization of deferred lease inducements		(86	)	(84	)
Stock-based compensation		316		403
Unrealized loss on revaluation of warrant liability		5,105		1,006
Changes in non-cash working capital:
Trade receivables		(84	)	(128	)
Other receivables		97		11
Inventories		(118	)	(213	)
Prepaid expenses and other		(48	)	(141	)
Accounts payable and accrued liabilities		482		(1,675	)
Deferred revenue		(71	)	(79	)
Cash used in operating activities		(512	)	(3,650	)

INVESTING ACTIVITIES
Purchase of property, plant and equipment		(48	)	(90	)
Cash used in investing activities		(48	)	(90	)

FINANCING ACTIVITIES
Repayment of repayable leasehold improvement allowance		(180	)	(161	)
Cash used in financing activities		(180	)	(161	)

Decrease in cash during the period		(740	)	(3,901	)
Cash and cash equivalents, beginning of period		2,080		7,355
Cash and cash equivalents, end of period		1,340		3,454

See accompanying notes

RESPONSE BIOMEDICAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. DESCRIPTION OF BUSINESS

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

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

2. BASIS OF PRESENTATION AND GOING CONCERN UNCERTAINTY

These unaudited interim consolidated financial statements have been prepared by management in Canadian dollars in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required to be presented for complete financial statements. The accompanying unaudited consolidated financial statements reflect, in the opinion of management, all adjustments (which include reclassifications and normal recurring adjustments) necessary for a fair presentation of the results for the interim periods presented. The accompanying consolidated balance sheet at December 31, 2012 has been derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year then ended. The consolidated financial statements and related disclosures have been prepared with the assumption that users of the interim financial information have read or have access to the audited consolidated financial statements for the preceding fiscal year. Accordingly, these unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2012 and filed with the United States Securities and Exchange Commission (“SEC”) on March 15, 2013.

Going Concern Uncertainty

The accompanying financial statements have been prepared assuming the Company will continue to operate as a going concern, which contemplates the realization of assets and liabilities and the settlement of commitments in the normal course of business. During the six months ended June 30, 2013, the Company has incurred a net loss of $6.6 million and had negative cash flows from operations of $0.5 million. As of June 30, 2013, the Company had a cash balance of $1.3 million, an accumulated deficit of $118.8 million, a shareholders’ deficit of $5.3 million, and a negative working capital balance of $6.1 million. In addition, the Company has various operating leases and purchase commitments for inventory (see note 10). Included in current liabilities is a warrant liability in the amount of $8.2 million that is required to be measured at fair value and is presented as a current liability in accordance with ASC 815. Each warrant may only be exercised on a net cashless exercise basis and no warrant may be exercised at a time when the exercise price equals or exceeds the current market price meaning the potential settlement of any warrant does not require any cash disbursement. Without taking into account the warrant liability mentioned above, current assets exceed current liabilities by $2.2 million.

The ability of the Company to continue as a going concern is uncertain and dependant on the Company’s ability to obtain additional financing to fund ongoing operations. Management has, thus far, financed the operations through a series of equity financings. Management will continue, as appropriate, to seek other sources of financing, including equity and debt, on favorable terms. However, there are no assurances that any such financing can be obtained on favorable terms, if at all. Management believes that without additional financing, based on the current level of operations, and excluding out of the ordinary cash management measures, the Company’s cash and cash equivalents balances, including cash generated from operations, will not be sufficient to meet the anticipated cash requirements beyond mid-fourth quarter, 2013. If additional financing is not obtained, the Company may be required to significantly reduce, restructure or cease operations. In view of these conditions, there is substantial doubt over the Company’s ability to continue as a going concern as it is dependent on financing and ultimately achieving profitable operations, the outcome of which cannot be predicted at this time. The consolidated financial statements do not include any adjustments to the amounts and classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern. Such adjustments could be material.

Stock Consolidation

On June 19, 2012, the Company’s shareholders authorized a 20 to 1 consolidation of its issued and outstanding common shares (the “Consolidation”). The Company’s Board of Directors determined to proceed with the Consolidation on August 16, 2012 that became effective on September 24, 2012. All references to common shares, common shares outstanding, weighted-average number of shares outstanding, and per share amounts in these consolidated financial statements and notes to consolidated financial statements have been restated to reflect the Consolidation. In addition, references to stock options have also been restated to reflect the Consolidation. The number of stock options available for grant, exercised, and outstanding have been consolidated on the basis of every twenty (20) stock options being consolidated into one (1) stock option and the exercise price of each stock option has been multiplied by twenty (20) to account for the consolidation. Finally, as a result of the Consolidation, the number of shares each common share purchase warrant can purchase was reduced from one (1) to one-twentieth (1/20th) and the exercise price was adjusted to $1.492 per whole common share.

3. RECENT ACCOUNTING PRONOUNCEMENTS

In February 2013, the Financial Accounting Standards Board issued updated authoritative guidance requiring entities to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under GAAP to be reclassified in its entirety to net income. For other amounts that are not required under GAAP to be reclassified in their entirety from accumulated other comprehensive income to net income in the same reporting period, an entity is required to cross-reference other disclosures required under GAAP that provide additional detail about those amounts. The Company adopted this guidance effective January 1, 2013. The adoption of this standard did not have a material effect on the Company’s consolidated financial statements.

4. FAIR VALUE MEASUREMENTS

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

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

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

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

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

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

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

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

Financial Instrument carried at fair value as of June 30, 2013

	Level 1		Level 2		Level 3		Total
Liabilities		$		$		$		$
Warrant Liability		-		-		8,242		8,242

As of June 30, 2013, the warrant liability is recorded at its fair value of $8.2 million. The Company reassesses the fair value of the common stock warrants at each reporting date utilizing a Black-Scholes pricing model. Inputs used in the pricing model include estimates of stock price volatility, contractual term of the warrant, and risk-free interest rate (refer to note 8[e]). The computation of expected volatility was based on the historical volatility of the Company’s stock. A small change in the estimates used in the Black-Scholes pricing model may have a relatively large change in the estimated valuation of the common stock warrants.

The following table presents the changes in fair value of the Company’s total Level 3 financial liabilities for the six month period ended June 30, 2013 (in thousands):

Balance at

December 31,

2012

Unrealized loss

Exercise of Warrants

Balance at

June 30,

2013

Warrant Liability

3,699

5,106

(563

)

8,242

The unrealized loss recorded during the six months ended June 30, 2013 is the result of an increase in the market price of the Company’s shares, which is an input into the pricing model noted above.

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

Valuation Technique

Unobservable Input

As at June 30,

2013

As at December 31,

2012

Warrant Liability

Option Model

Stock Price Volatility

132%

128%

A 5% increase in stock price volatility would cause a corresponding $130,000 increase to the Warrant Liability ($100,000 – December 31, 2012) and a 5% decrease in stock price volatility would cause a $140,000 decrease to the Warrant Liability ($100,000 – December 31, 2012).

5. INVENTORIES

Inventories are comprised of the following (in thousands):

	June 30, 2013		December 31, 2012
		$		$
Raw materials		796		684
Work in progress		243		381
Finished goods		870		726
		1,909		1,791

The carrying value of inventory as of June 30, 2013 includes a provision for lower of cost and market value on the Company’s reader inventory in the amount $80,000 [December 31, 2012 - $81,000]. The carrying value of inventory as of June 30, 2013 also includes a writedown and a provision for expired and damaged inventory in the amount of $134,000 [December 31, 2012 - $59,000]. For the three and six month periods ended June 30, 2013, inventory write-down charges were $111,000 and $163,000 [2012 - $10,000 and 67,000].

6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities comprise (in thousands):

	June 30, 2013		December 31, 2012
		$		$
Trade accounts payable		666		521
Employee related accounts payable and accrued liabilities		811		684
Royalties		223		166
Other accrued liabilities		543		526
		2,243		1,897

7. LEASE INDUCEMENTS

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

	June 30, 2013		December 31, 2012
		$		$
Current Portion
Rent-free inducement [i]		56		58
Non-repayable leasehold improvement allowance [ii]		115		115
		171		173
Repayable leasehold improvement allowance [iii]		391		370
Total Current Portion		562		543

Long-Term Portion
Rent-free inducement [i]		466		493
Non-repayable leasehold improvement allowance [ii]		984		1,042
		1,450		1,535
Repayable leasehold improvement allowance [iii]		5,881		6,082
Total Long-Term Portion		7,331		7,617
Total		7,893		8,160

During the year ended December 31, 2007, the Company entered into a 15 year facility lease agreement [note 10[c][i]]. The agreement provides for lease inducements to be provided by the landlord to the Company which are summarized as follows:

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

[i] In 2007, the Company entered into a long-term facility lease agreement that included an eight and one half month rent-free period from May 17, 2007 to February 1, 2008. The lease inducement benefit arising from the rent-free period is being amortized on a straight-line basis over the term of the operating lease as a reduction to rental expense. Amortization for the three and six month periods ended June 30, 2013 amounted to a reduction of rental expense $14,000 and $27,000 [2012 - $14,000 and $27,000].

[ii] The Company received a non-repayable allowance for an amount of $1.7 million for expenditures related to general upgrades to the facility. The lease inducement benefit arising from the non-repayable leasehold improvement allowance is being amortized on a straight-line basis over the balance of the term of the lease beginning April 1, 2008 as a reduction to rental expense. Amortization for the three and six month periods ended June 30, 2013 amounted to a reduction of rental expense of $29,000 and $57,000 [2012 - $29,000 and $57,000].

[iii] The Company received a repayable leasehold improvement for an amount of $7.8 million used for additional improvements to the facility. This lease inducement is being repaid over the term of the operating lease commencing February 1, 2008 at approximately $88,500 per month including interest calculated at an interest rate negotiated between the Company and the landlord. Principal repayments for the three and six month periods ended June 30, 2013 amounted to $91,000 and $180,000 [2012 - $82,000 and $161,000] Interest payments for the three and six month periods ended June 30, 2013 amounted to $177,000 and $351,000 [2012 - $184,000 and $369,000].

To secure the lease, the Company is maintaining a security deposit with the landlord in the form of an irrevocable letter of credit in the amount of $871,000 collateralized by a term deposit with a market value of $871,000 that is presented as part of restricted deposits in the long-term asset section of the balance sheets.

8. SHARE CAPITAL AND ADDITIONAL PAID-IN CAPITAL

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

[b] Issued

The Company’s issued and outstanding common shares were consolidated on the basis of every twenty (20) common shares being consolidated into one (1) common share during the year. Refer to note 2 for discussion of the effect of this stock consolidation.

The Company closed a shareholder rights offering on December 29, 2011 consisting of 4,506,395 units, with each unit consisting of one common share and one common share purchase unit at a price of $1.492 per share for total gross proceeds of $6,723,542.

Each warrant entitles the holder thereof to purchase one-twentieth common share of the Company at a price of $1.492 per whole common share for a period of five years after the closing date. Each warrant may only be exercised on a net cashless exercise basis, and no warrant may be exercised at a time when the exercise price equals or exceeds the current market price. Subject to certain exceptions, the holders of the warrants will be entitled to full ratchet anti-dilution price protection for a period of two years after the closing of the offering and volume weighted anti-dilution price protection thereafter. The Company accounts for warrants under the authoritative guidance on accounting for derivative financial instruments. As a result of these price protection features, the Company has classified these warrants on the accompanying balance sheet as a liability that is revalued at each balance sheet date subsequent to the initial issuance in accordance with Accounting Standards Codification (ASC) Topic 815 – Derivatives and Hedging. On the date of issuance, the Company used the Black-Scholes pricing model to value these warrants based on an assumed risk-free interest rate of 1.18%, estimated stock price volatility of 110%, and a contractual term to expiry of five years. Subsequent changes in the fair value of the warrants between the date of issuance and the balance sheet date are reflected in the consolidated statements of loss and comprehensive loss as unrealized gain (loss) on revaluation of warrant liability.

The net proceeds of the rights offering were $6,037,803 after deducting issue costs of $685,739. Of these net proceeds, $2,330,921 was allocated to common shares and $3,706,882 was allocated to the warrants. Further, of this amount allocated to the warrants, $4,127,888 was recorded as warrant liability and $421,008 of issue costs allocated to the warrants was expensed to warrant issue costs on the consolidated statements of loss and comprehensive loss.

[c] Stock option plan

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

At the Annual General and Special Meeting held June 18, 2013, the Company’s shareholders’ approved a change to the maximum number of the Company’s authorized shares under its 2008 stock option plan permitting a maximum of 20% of the issued and outstanding common shares outstanding at any point in time.

Of the 1,315,532 stock options authorized for grant under the 2008 Plan as at June 30, 2013, 135,273 stock options are available for grant.

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

	Number of optioned common shares #			Weighted average exercise price $
Balance at December 31, 2012		989,064		1.98
Options granted		207,670		3.09
Options forfeited		(15,912	)	1.86
Options expired		(563	)	133.49
Balance, June 30, 2013		1,180,259		2.12

At June 30, 2013, the following stock options were outstanding:

Range of exercise price $			Number of shares under option #	Weighted average remaining contractual life (years)	Weighted average exercise price $	Number of options currently exercisable #	Weighted average exercise price $
1.02	-	1.60	510,250	9.15	1.53	-	-
	2.20		459,101	8.76	2.20	322,781	2.20
3.00	-	3.10	206,390	9.73	3.09	-	-
6.80	-	8.20	2,249	2.58	7.79	560	7.79
23.00	-	24.00	2,269	1.06	23.38	1,557	23.55
1.02	-	24.00	1,180,259	9.07	2.12	324,898	2.31

The fair value of each stock award is estimated on the grant date using the Black-Scholes option-pricing model based on the assumptions noted in the following table:

Six Months Ended June 30,	2013			2012
Risk-free interest rates		1.66	%		1.76	%
Expected dividend yield		0	%		0	%
Expected life (in years)		5.7444			5.70
Expected volatility		123	%		112	%
Fair value per stock option	$	2.68		$	1.80

d] Restricted share unit plan

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

	Number of RSU’s #		Weighted average exercise price $
Balance at December 31, 2012		-		-
RSUs granted		53,258		2.54
Balance, June 30, 2013		53,258		2.54

The restricted share units that were granted during the 6 month period ended June 30, 2013 were to settle a director compensation liability that was recorded in Accounts payable and accrued liabilities. The $135,000 liability has been excluded from the change in accounts payable and accrued liabilities on the statement of cash flows.

Of the 164,441 RSUs authorized for grant under the RSU Plan as at June 30, 2013, 111,183 RSUs are available for grant.

e] Deferred share unit plan

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

Of the 164,441 DSUs authorized for grant under the DSU Plan as at June 30, 2013, all are available for grant.

[f] Share-based compensation

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

	Three Months Ended June 30,			Six Months Ended June 30,
		2013 $	2012 $		2013 $	2012 $
Cost of sales		10	16		15	16
Research and development		13	27		22	30
General and administrative		148	352		262	355
Sales and marketing		10	2		17	2
		181	397		316	403

As of June 30, 2013, the total compensation expense to be recognized in future periods related to stock options granted amounts to $1,174,290, which is expected to be recognized over a weighted average service period of 2.56 years.

[g] Common share purchase warrants

Common share purchase warrant transactions and the number of warrants outstanding are summarized below:

	Number of warrants #			Weighted average exercise price $
Balance, December 31, 2012		89,976,289		0.0746
Exercise of warrants		(3,872,545	)	0.0746
Balance, June 30, 2013		86,103,744		0.0746

As discussed in note 2, each warrant entitles the holder thereof to purchase 1/20^th of a common share of the Company at a price of $1.492 per whole common share.

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

	June 30, 2013			December 31, 2012
Risk-free interest rates		1.65	%		1.33	%
Expected dividend yield		0	%		0	%
Expected life (in years)		3.5			4
Expected volatility		132	%		128	%
Fair value of warrant	$	0.0957		$	0.0411

[h] Earnings per common share

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

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2013 $			2012 $			2013 $			2012 $
Numerator:
Net income	$	3,343		$	2,391		$	(6,621	)	$	(3,315	)
Unrealized gain on revaluation of warrantliability		(4,470	)		(3,995	)		-			-
Net income available to common shareholders	$	(1,127	)	$	(1,604	)	$	(6,621	)	$	(3,315	)
Denominator:
Weighted average number of commonshares outstanding - basic		6,574,358			6,454,894			6,536,494			6,454,382
Weighted average effect of dilutive securities:
Warrants		2,311,191			647,152			-			-
Weighted average number of common shares outstanding - diluted		8,885,549			7,102,046			6,536,494			6,454,382

1,180,259 stock options and 53,258 restricted share units have been excluded from the computation of diluted earnings per share for the three month period\ended June 30, 2013 as their inclusion would be anti-dilutive to our loss per share (2012 – 517,762 stock options were excluded). 86,103,744 warrants, 1,180,259 stock options, and 53,258 restricted share units have been excluded from the computation of diluted earnings per share for the six month period\ended June 30, 2013 as the Company has incurred a net loss during the period and their inclusion would be anti-dilutive to our loss per share (2012 - 89,985,289 warrants and 517,762 stock options were excluded).

The basic and diluted earnings per share for the three months and the six months ended June 30, 2012 has been adjusted to reflect the stock consolidation. In addition, the diluted earnings per share for the three months ended June 30, 2012 has been revised to reflect an adjustment to net income related to the unrealized gain on the revaluation of the warrant liability.

9. RELATED PARTY TRANSACTIONS

During the three and six month periods ended June 30, 2012, the Company incurred consulting fees to a director of $75,000 and $149,000, respectively. There were no such fees incurred during the three and six month periods ended June 30, 2013. These consulting fees have been fully paid as of June 30, 2013.

All related party transactions are recorded at their exchange amounts, established and agreed between the related parties.

10. COMMITMENTS

[a] License agreements

[i] The Company entered into a non-exclusive license agreement, effective July 2005, as amended September 2008, to use and sublicense certain technology (“Technology”) for one of the Company’s cardiac tests. In consideration for these rights, the Company paid a non-refundable license issuance fee of $2,000,000 in the first two years after execution of the agreement and is required to pay quarterly royalties on the sale of products that incorporate the Technology. For the three and six month periods ended June 30, 2013, the Company incurred an expense of $176,000 and $371,000 [2012 - $176,000 and $294,000] for royalties.

[ii] The Company entered into a non-exclusive license and supply agreement, effective September 30, 2009 to purchase certain proprietary materials and use related intellectual property to manufacture and sell lateral flow immunoassay products. In consideration for these rights, the Company is to pay a non-refundable, non-creditable license fee, of USD$85,000 in 17 equal quarterly payments of USD$5,000 commencing December 31, 2009. For the three and six month periods ended June 30, 2013, the Company incurred an expense of $5,000 and $10,000 [2012 - $5,000 and $ 10,000] for license fees.

All royalty and license fees incurred are included in cost of sales.

[b] Supply agreement

The Company entered into a supply agreement, effective September 2003 for certain reagents for the Company’s RAMP^® West Nile Virus Test. In addition to paying for the reagent purchased, the Company is required to pay the supplier semi-annual royalties equal to 10% of net revenue generated from the sale of the Company’s RAMP^® West Nile Virus Test. The initial term of the agreement was three years from the effective date and is automatically renewed for successive periods of one year until either party terminates the agreement. For the three and six month periods ended June 30, 2013, the Company incurred an expense of $22,000 and $35,000 [2012 - $17,000 and $28,000] for royalties to the supplier. These royalties are included in cost of sales.

[c] Lease agreements

[i] The Company entered into a long-term agreement to lease a single tenant 46,000 square foot facility to house all of the Company’s operations beginning March 2008. Rent is payable from February 1, 2008 to January 31, 2023. The Company is required to pay the landlord total gross monthly payments of approximately $170,000, which is comprised of base rent, administrative and management fees, estimated property taxes and repayments of the repayable leasehold improvement allowance [note 7[iii]].

For the three and six month periods ended June 30, 2013 $206,000 and $405,000 [2012 - $193,000 and $386,000] was incurred for expenses related to base rent, administrative and management fees, estimated property taxes offset by amortization of both the rent-free inducement [note 7[i]] and non-repayable leasehold improvement allowance [note 7[ii]]. These expenses are allocated to cost of sales, research and development, general and administrative, and sales and marketing expenses.

[d] Purchase Commitments

As of June 30, 2013, the Company has outstanding purchase commitments of $994,000 to purchase inventory over the next 12 month period. In addition, the Company has certain commitments to purchase on hand inventory with suppliers in the event of termination of various supply agreements. These commitments are not fixed and are dependent on the level of inventory at the time of termination.

[e] Indemnification of directors and officers

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

[f] Indemnification of third parties

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

11. SEGMENTED INFORMATION

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

Customers that represent a concentration risk are those customers who represent 10% or greater of our total revenue. For the three month period ended June 30, 2013, $1.5 million (55%) in product sales was generated from one customer [2012 - $1.3 million (42%) from one customer]. For the six month period ended June 30, 2013, $3.9 million (61%) in product sales was generated from two customers of whom one customer represents $3.0 million (47%) [2012 - $2.9 million (48%) from one customer].

Product sales by customer location were as follows (in thousands):

	Three months ended June 30,				Six months ended June 30,
	2013 $		2012 $		2013 $		2012 $
China		1,806		1,764		3,918		3,735
United States		392		329		1,158		653
Asia (excluding China)		201		465		359		592
Europe		261		261		580		473
Canada		21		5		28		16
Other		67		214		266		551
Total		2,748		3,038		6,309		6,020

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

	Three months ended June 30,				Six months ended June 30,
	2013 $		2012 $		2013 $		2012 $
Cardiovascular		2,389		2,763		5,235		5,447
Infectious Diseases		-		-		455		47
Bio-defense products		126		109		251		229
West Nile Virus		233		166		368		297
Total		2,748		3,038		6,309		6,020

12. CONTINGENCIES

In 2009, the Company sold approximately $0.9 million of RAMP^®200 readers and accessories to Roche Diagnostics. On September 2, 2011, the Company received notification from Roche Diagnostics that they had terminated, effective September 30, 2011, the sales and distribution agreement between Roche Diagnostics and the Company dated September 25, 2008. Roche Diagnostics terminated the agreement because the Company had not obtained the necessary approvals from the U.S. Food and Drug Administration (FDA) to permit Roche Diagnostics to market certain of the Company’s cardiovascular tests for use in point of care settings in the United States using the RAMP® 200 Reader. On November 1, 2012, Roche Diagnostics advised the Company that they believe the Company has an obligation to repurchase the unsold products remaining in Roche Diagnostics’ inventory. The Company believes Roche Diagnostics’ claim does not have legal merit and no provision has been recognized. However, in the event the Company is required to re-purchase the products, it believes that any loss contingency would be reduced by the Company’s ability to re-sell the purchased products.

13. COMPARATIVE INFORMATION

Certain comparative figures in the notes to the financial statements have been reclassified from the amounts previously reported to conform to the presentation in the current year.

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

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

OVERVIEW

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

Our sales for any future periods are not predictable with a significant degree of certainty, and may depend on a number of factors outside of our control, including but not limited to the performance of our distributors including their inventory or timing considerations, their changing local competitive and/or reimbursement environments, and/or their failure to meet minimum purchase commitments. We generally operate with a limited order backlog because our products are typically shipped shortly after orders are received. Product sales in any quarter are generally dependent on orders booked and shipped in that quarter. As a result, any such revenue shortfall would negatively affect our operating results and financial condition. In addition, our sales may be adversely impacted by pricing pressure from competitors. Our ability to be consistently profitable will depend, in part, on our ability to increase the sales volumes of our products and to successfully compete with other competitors. We believe that period to period comparisons of our results of operations are not necessarily meaningful indicators of future results.

During the six months ended June 30, 2013, we have incurred a net loss of $6.6 million and negative cash flows from operations of $0.5 million. As of June 30, 2013, we have a cash balance of $1.3 million, an accumulated deficit of $118.8 million, a shareholders’ deficit of $5.3 million, and a negative working capital balance of $6.1 million. In addition, we have various operating leases and purchase commitments for inventory. Included in current liabilities is a warrant liability in the amount of $8.2 million that is required to be measured at fair value and is presented as a current liability in accordance with GAAP. Each warrant may only be exercised on a net cashless exercise basis meaning the potential settlement of any warrant does not require any cash disbursement by the holder of the warrant. Without taking into account the warrant liability mentioned above, current assets exceed current liabilities by $2.2 million.

Our ability to continue as a going concern is uncertain and dependent on our ability to obtain additional financing to fund our ongoing operations. We have, thus far, financed our operations through a series of equity financings and we will continue, as appropriate, to seek other sources of financing including equity and debt on favorable terms. However, there are no assurances that any such financing can be obtained on favorable terms, if at all. We expect that we will have net negative cash flow from operations over the next several quarters until our growth initiatives provide sustained cash flow positive income (net income (loss) excluding items not involving cash) and sufficient cash flow to offset the additional working capital required to support the growth. We believe that without additional financing, based on the current level of our operations, and excluding out of the ordinary cash management measures, our cash and cash equivalents balances, including cash generated from operations will not be sufficient to meet the anticipated cash requirements beyond mid-fourth quarter, 2013. If additional financing is not obtained, we may be required to significantly reduce, restructure or cease operations. In view of these conditions, there is substantial doubt over our ability to continue as a going concern as it is dependent upon our ability to obtain financing and ultimately achieving profitable operations. The outcome of these matters cannot be predicted at this time.

RECENT DEVELOPMENTS

■

On June 19, 2013, we announced the voting results of our 2013 Annual General and Special Meeting of Shareholders. At the meeting our shareholders approved the following:

Reappointment of PricewaterhouseCoopers LLP as our auditors;

Reelection of Dr. Anthony Holler, Dr. Joseph Keegan, Jeffery Purvin, Clinton Severson, Lewis Shuster, Dr. Peter Thompson, Dr. David Wang, and Dr. Jonathan Wang to our Board of Directors;

Amendment and restatement of 2008 Stock Option Plan including an amendment to remove insider participation limits;

Approval of new Restricted Share Unit and Non-Employee Director Deferred Share Unit Plans including amendments to remove insider participation limits;

Approval of Option Grants issued to the Board of Directors and certain members of Management; and,

Non-binding advisory vote to approve our Executive Compensation and that future non-binding advisory votes should be held every three years.

RESULTS OF OPERATIONS

For the three month period ended June 30, 2013 and 2012:

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

Revenue

	Three Months Ended June 30,						Change 2012 to 2013
	2013			2012			Increase / (Decrease)			Percent Change
Product Sales		2,748			3,038			(290	)		(10%	)
Cost of Sales		1,606			1,888			(282	)		(15%	)
Gross profit on product sales		1,142			1,150			(8	)		(1%	)
Gross margin		41.6	%		37.9	%		3.7	%		10	%

Revenues decreased 10% or $290,000 during the three month period ended June 30, 2013 as compared to June 30, 2012. The change in total revenue is due to the following:

	●	Cardiovascular sales have decreased 14%, or $374,000, primarily due to a temporary delay in shipments requested by our second largest distributor in China due to the timing of their receipt of earlier shipments. In addition, 2012 sales included higher than usual sales to our distributor in Japan; and

	●	Biodefense and West Nile Virus sales have increased by 31% or $84,000 primarily due to increases in West Nile Virus sales in the quarter.

Gross Margin

Gross profit on product sales decreased by $8,000 during the three month period ended June 30, 2013 as compared to the comparative period ended June 30, 2012 despite a $290,000 decrease in product sales. This is due to an increase in gross margin from 37.9% in 2012 to 41.6% in 2013. This increase in gross margin is primarily due to:

	●	A $235,000, or 22%, decrease in manufacturing costs incurred spread over the relative same level of production as 2012 combined with an increase in manufacturing efficiency in comparison in 2012 resulting in lower costs per test cartridge produced; and

	●	Product mix in the quarter of a lower proportion of cardiovascular sales which are sold at lower average selling prices and lower gross margin percentages in comparison to biodefense and West Nile Virus tests which increased in sales in the quarter.

Operating Expenses (in thousands)

	Three Months Ended June 30,				Change 2012 to 2013
	2013		2012		Increase / (Decrease)			Percent Change
Research and development		560		907		(347	)		(38%	)
General and administrative		1,038		1,366		(328	)		(24%	)
Sales and marketing		532		354		178			50	%
Total Operating Expenses		2,130		2,627		(497	)		(19%	)

Research and Development Expenses

Research and Development Expenses decreased by 38%, or $347,000, during the three month period ended June 30, 2013 in comparison to the same period ended June 30, 2012. The decrease is primarily due to a $103,000 decrease in legal and consulting costs and a $57,000 decrease in product development costs due to the timing of the clinical development of our new assay for D-dimer in 2012. In addition, there was a $94,000 decrease in salaries and wages as a result of government funding received supporting a portion of development salaries and a lower headcount compared to 2012. Finally, there was a $68,000 decrease in administrative and overhead expenses incurred.

General and Administrative Expenses

General and Administrative Expenses decreased by 24%, or $328,000 during the three month period ended June 30, 2013 in comparison to the same period ended June 30, 2012. The decrease is primarily due to a $204,000 decrease in stock based compensation expense, a $130,000 decrease in recruiting fees incurred for senior management personnel in 2012, a $50,000 decrease in salaries and wages, and a $36,000 decrease in consulting costs. These decreases were offset by a $95,000 increase in legal expenses related primarily to preparations for our shareholders’ meeting and implementation of our new RSU and DSU Plans.

Sales and Marketing Expenses

Sales and Marketing Expenses increased by 50%, or $178,000 during the three month period ended June 30, 2013 in comparison to the same period ended June 30, 2012. The increase is primarily due to a $213,000 increase in salaries and wages due to the addition of sales and marketing personnel in the U.S. and China and a $76,000 increase in travel and overhead expenses related to these additional personnel. These increases were offset by a $78,000 decrease in bad debt expense and $65,000 decrease in legal costs incurred in 2012 related to business development work.

Other Expense (Income), Net (in thousands)	Three Months Ended June 30,						Change 2012 to 2013
	2013			2012			Increase / (Decrease)			Percent Change
Interest expense		175			185			(10	)		(5%	)
Interest income		(4	)		(10	)		6			(60%	)
Income Tax Expense		14			-			14			100	%
Foreign exchange (gain) loss		(46	)		(48	)		2			4	%
Unrealized gain on revaluation of warrant liability		(4,470	)		(3,995	)		(475	)		(12%	)
Total Other Expenses / (Income)		(4,331	)		(3,868	)		(463	)		12	%

Interest Expense

Interest expenses decreased by 5%, or $10,000 during the three month period ended June 30, 2013 compared to the same period ended June 30, 2012. The decrease is primarily due to a reduction in the interest paid on the repayable leasehold improvement allowance as a result of a decrease in principal in 2013 versus 2012.

Interest Income

Interest income decreased by 60% during the three month period ended June 30, 2013 compared to the same period ended June 30, 2012. Interest is earned on our cash on hand and short term investments and has decreased due to a lower average cash balance during the second quarter versus the same quarter last year.

Income Tax Expense

The income tax expense is the result of the establishment of our representative office in Shanghai, China. Income tax is owed based on a percentage of operating expenses incurred.

Foreign exchange (gain)/loss

Foreign exchange gain decreased by $2,000 during the three month period ended June 30, 2013 compared to the same period ended June 30, 2012. Foreign exchange gains and losses are largely due to U.S. dollar balances of cash and cash equivalents, accounts receivable and accounts payable affected by the fluctuations in the value of the U.S. dollar as compared to the Canadian dollar.

Unrealized loss on revaluation of warrant liability

The unrealized loss on revaluation of the warrant liability is solely due to the mark-to-market revaluation of the outstanding warrants each reporting period. The fair market value of the liability has decreased from March 31, 2013 resulting in an unrealized gain of $4.5 million. The fair market value is calculated using a Black-Scholes model with inputs for volatility, risk free interest rate, and expected life of the warrants. The primary reason for the decrease in the value of the liability is the decrease in the fair market value of the shares of the Company at June 30, 2013 due to a decrease in our share price since March 31, 2013. A small change in the estimates used in the Black-Scholes pricing model may have a relatively large change in the estimated valuation of the common stock warrants.

For the six month period ended June 30, 2013 and 2012:

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

	Six Months Ended June 30,						Change 2012 to 2013
	2013			2012			Increase / (Decrease)			Percent Change
Product Sales		6,309			6,020			289			5	%
Cost of Sales		3,571			3,601			(30	)		(1%	)
Gross profit on product sales		2,738			2,419			319			13	%
Gross margin		43.4	%		40.2	%		3.2	%		8	%

Revenue

Revenues increased 5% or $289,000 during the six month period ended June 30, 2013 as compared to June 30, 2012. The change in total revenue is due to the following:

●	Infectious Diseases sales have increased 868%, or $408,000, primarily due to the seasonal increase in the demand for Influenza tests during the first quarter based on the severity of the 2012-2013 Influenza season. Influenza A+B test kits, in general, are a seasonal product with the majority of our sales for these products occurring typically in the first and fourth quarters;
●	Biodefense and West Nile Virus sales have increased by 18% or $93,000 due to timing of orders; and
●	Cardiovascular sales have decreased 4%, or $212,000, primarily due to decreased sales from our distributor in Japan due to their second quarter 2012 orders being increased to account for no planned orders in the third quarter of 2012.

Gross Margin

Gross profit on product sales increased by $319,000 during the six month period ended June 30, 2013 as compared to the comparative period ended June 30, 2012 due to an increase in gross margin from 40.2% in 2012 to 43.4% in 2013. This increase in gross margin is primarily due to:

● A relative decrease in cardiovascular sales which are sold at lower average selling prices and lower gross margin percentages in comparison to infectious disease, biodefense and West Nile Virus tests which have increased in sales; and

● A $413,000, or 20%, decrease in manufacturing costs incurred spread over the relative same level of production as 2012 combined with an increase in manufacturing efficiency in comparison in 2012 resulting in lower costs per test cartridge produced.

Operating Expenses (in thousands)

	Six Months Ended June 30,				Change 2012 to 2013
	2013		2012		Increase / (Decrease)			Percent Change
Research and development		1,114		1,597		(483	)		(30%	)
General and administrative		1,863		2,236		(373	)		(17%	)
Sales and marketing		1,016		609		407			67	%
Total Operating Expenses		3,993		4,442		(449	)		(10%	)

Research and Development Expenses

Research and Development Expenses decreased by 30%, or $483,000, during the six month period ended June 30, 2013 in comparison to the same period ended June 30, 2012. The decrease is primarily due to a $173,000 decrease in salaries and wages as a result of government funding received supporting a portion of development salaries and a lower headcount compared to 2012. In addition, there was a $100,000 decrease in legal and consulting costs and a $91,000 decrease in product development costs due to the timing of the clinical development of our new assay for D-dimer in 2012. Finally, there was an $83,000 decrease in administrative and overhead expenses.

General and Administrative Expenses

General and Administrative Expenses decreased by 17%, or $373,000 during the six month period ended June 30, 2013 in comparison to the same period ended June 30, 2012. The decrease is primarily due to a $130,000 decrease in recruiting fees incurred for senior management personnel in 2012, a $93,000 decrease in stock based compensation expense, a $82,000 decrease in salaries and wages, and a $74,000 decrease in administrative and overhead expense.

Sales and Marketing Expenses

Sales and Marketing Expenses increased by 67%, or $407,000 during the six month period ended June 30, 2013 in comparison to the same period ended June 30, 2012. The increase is primarily due to a $400,000 increase in salaries and wages and stock based compensation due to the addition of sales and marketing personnel in the U.S. and China, a $73,000 increase in travel and administrative expenses related to the above additional personnel, and a $67,000 increase in administrative and overhead expenses. These increases were offset by a $ $122,000 decrease in legal costs incurred in 2012 related to business development work and a $87,000 decrease in bad debt expense.

Other Expense (Income), Net (in thousands)

	Six Months Ended June 30,						Change 2012 to 2013
	2013			2012			Increase / (Decrease)			Percent Change
Interest expense		351			372			(21	)		(6%	)
Interest income		(7	)		(15	)		8			(53%	)
Other Income		(58	)		-			(58	)		(100%	)
Income Tax Expense		14			-			14			100	%
Foreign exchange (gain) loss		(39	)		(71	)		32			(45%	)
Unrealized loss on revaluation of warrant liability		5,105			1,006			4,099			407	%
Total Other Expenses / (Income)		5,366			1,292			4,074			315	%

Interest Expense

Interest expenses decreased by 6%, or $21,000 during the six month period ended June 30, 2013 compared to the same period ended June 30, 2012. The decrease is primarily due to a reduction in the interest paid on the repayable leasehold improvement allowance as a result of a decrease in principal in 2013 versus 2012.

Interest Income

Interest income decreased by 53% during the six month period ended June 30, 2013 compared to the same period ended June 30, 2012. Interest is earned on our cash on hand and short term investments and has decreased due to a lower average cash balance during the first half of 2013 versus the same period last year.

Other Income

Other income increased by 100% during the six month period ended June 30, 2013 compared to the same period ended June 30, 2012. Other income represents cash received upon the demutualization of our insurance provider.

Income Tax Expense

The income tax expense is the result of the establishment of our representative office in Shanghai, China. Income tax is owed based on a percentage of operating expenses incurred.

Foreign exchange (gain)/loss

Foreign exchange gain decreased by $32,000 during the six month period ended June 30, 2013 compared to the same period ended June 30, 2012. Foreign exchange gains and losses are largely due to U.S. dollar balances of cash and cash equivalents, accounts receivable and accounts payable affected by the fluctuations in the value of the U.S. dollar as compared to the Canadian dollar.

Unrealized loss on revaluation of warrant liability

The unrealized loss on revaluation of the warrant liability is solely due to the mark-to-market revaluation of the outstanding warrants each reporting period. The fair market value of the liability has increased from December 31, 2012 resulting in an unrealized loss of $5.1 million. The fair market value is calculated using a Black-Scholes model with inputs for volatility, risk free interest rate, and expected life of the warrants. The primary reason for the increase in the value of the liability is the increase in the fair market value of the shares of the Company at June 30, 2013 due to an increase in our share price since December 31, 2012. A small change in the estimates used in the Black-Scholes pricing model may have a relatively large change in the estimated valuation of the common stock warrants.

Liquidity and Capital Resources

Total cash and cash equivalents and working capital at June 30, 2013, and December 31, 2012 were as follows (in thousands):

As at,	June 30, 2013			December 31, 2012
Cash and cash equivalents		1,340			2,080
Percentage of total assets		10	%		14	%
Working capital		(6,073	)		(642	)
Warrant liability		8,242			3,699
Working capital, excluding Warrant liability		2,169			3,057

As at June 30, 2013, the Company had a negative working capital balance. Included in current liabilities is a warrant liability that is required to be measured at fair value and is presented as a current liability in accordance with ASC 815. Each warrant may only be exercised on a net cashless exercise basis and no warrant may be exercised at a time when the exercise price equals or exceeds the current market price meaning the potential settlement of any warrant does not require any cash disbursement. Without taking into account the warrant liability mentioned above, the Company’s working capital as at June 30, 2013 is $2.2 million (December 31, 2012 - $3.1 million). This decrease of $900,000 is primarily due to the cash used in operating activities as described below.

Financial Condition

We have financed our operations primarily through equity financings. As of June 30, 2013, the Company has raised approximately $103.0 million from the sale and issuance of equity securities and debt, net of issue costs.

We have sustained continuing losses since our formation and at June 30, 2013, had a deficit of $118.8 million and historically, have incurred negative cash flows from operations. We believe that without additional financing, based on the current level of operations, and excluding out of the ordinary cash management measures, cash and cash equivalents balances, including cash generated from operations, will not be sufficient to meet the anticipated cash requirements beyond mid- fourth quarter, 2013. If additional financing is not obtained, we may be required to significantly reduce, restructure or cease operations. Cash flows from operations are generally impacted by our level of quarterly sales and our ability to manage operating expenses. However, increased quarter over quarter growth also requires additional working capital in the form of higher accounts receivable and greater inventory balances to meet the increased demand. Although net cash generated from non-cash working capital was positive this quarter, it was combined with a net loss resulting in net negative cash flows from operations. We expect that we will have net negative cash flow from operations over the next several quarters until our growth initiatives provide sustained cash flow positive income (net income (loss) excluding items not involving cash) and sufficient cash flow to offset the additional working capital required to support the growth. In addition, we continue to require cash for our inventory purchase commitments as described in note 10[d] of our financial statements, the repayment of our leasehold improvement allowance as described below under “Cash used in Investing Activities” and cash for capital asset purchases as described below under “Cash used in Investing Activities” which we do not expect to increase materially until additional sources of funding, if any, are secured. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

We have been able, thus far, to finance our operations through a series of equity financings and the management of working capital. We will continue, as appropriate, to seek other sources of financing, including debt and equity, on favorable terms; however, there are no assurances that any such financing can be obtained on favorable terms, if at all. In view of these conditions, our ability to continue as a going concern is dependent upon our ability to obtain such financing and, ultimately, on achieving profitable operations. The outcome of these matters cannot be predicted at this time.

Ongoing Sources and Uses of Cash

Changes in Cash Flows

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

For the Six Months Ended June 30,	2013			2012
Cash generated from (used in) operating activities		(512	)		(3,650	)
Cash used in investing activities		(48	)		(90	)
Cash used in financing activities		(180	)		(161	)
Increase (decrease) in cash during the period	$	(740	)	$	(3,901	)

As at June 30, 2013, our cash and cash equivalents balance was $1.3 million as a result of a $740,000 decrease in cash during the first half of 2013. The cash decrease was primarily the result of $512,000 of cash used in operating activities along with the cash used in investing and financing activities as described below:

Cash Used in Operating Activities

Cash used in operating activities during the six month periods ended June 30, 2013 and 2012 was $512,000 and $3.7 million. The net cash used in operating activities in 2013 was primarily the result of $770,000 of cash used in operations as a result of our cash expenses exceeding our gross profit earned on product sales. This was offset by the net change in non-cash working capital of $258,000. The net change in non-cash working capital related to operations consists of the following (in thousands):

For the Six Months Ended June 30,	2013			2012
Trade receivables		(84	)		(128	)
Other receivables		97			11
Inventories		(118	)		(213	)
Prepaid expenses and other		(48	)		(141	)
Accounts payable and accrued liabilities		482			(1,675	)
Deferred revenue		(71	)		(79	)
Total change in non-cash working capital	$	258		$	(2,225	)

Explanations of the more significant net changes in working capital during the three month period ended June 30, 2013 are as follows:

● Accounts payable and accrued liabilities increased from $1.9 million to $2.2 million as a result of the timing of payments made to certain vendors for working capital management purposes;

● Trade receivable balances increased from $1.5 million to $1.6 million due to the timing of sales made during the quarter;

● Inventory balances increased from $1.8 million to $1.9 million primarily as a result of amount of finished goods on hand as at June 30, 2013 in comparison to December 31, 2012;

● Other receivables decreased from $187,000 to $88,000 as a result of the timing of government funding claims made; and

● Deferred revenue decreased from $271,000 to $200,000 due to timing of shipments of prepaid products.

Cash Used in Investing Activities

Net cash used in investing activities for the three month period ended June 30, 2013 and 2012 was $48,000 and $90,000 respectively which represents cash that was used primarily for the purchase of manufacturing, demonstration, and computer equipment in 2013.

Cash Used in Financing Activities

Net cash used in financing activities for the six month period ended June 30, 2013 and 2012 was $180,000 and $161,000 respectively which represents cash that was used in the repayment of the leasehold improvement allowance. The increase is due to the increase of principal paid on every payment made to our landlord as per the loan’s amortization schedule.

Off-Balance-Sheet Arrangements

The Company does not have any off-balance sheet financing arrangements at June 30, 2013.

Tabular Disclosure of Contractual Obligations

There have been no material changes, outside of the ordinary course of business, in our outstanding contractual obligations from those disclosed within “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, as contained in our Annual Report on Form 10-K filed by the Company with the SEC on March 15, 2013.

Critical Accounting Policies and Estimates

A summary of the significant accounting policies is as follows:

Use of Estimates

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

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

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

Our significant accounting policies are discussed in Note 3, “Significant Accounting Policies,” to the consolidated financial statements included in Item 8 of Form 10-K filed with the SEC on March 15, 2013. We believe that the following are our most critical accounting policies and estimates, each of which is critical to the portrayal of our financial condition and results of operations and requires our most difficult, subjective and complex judgments. Our management has reviewed our critical accounting policies and the related disclosures with the Audit Committee of our Board of Directors.

Inventories

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

Long Lived Asset Impairment

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

Contingent Liabilities

The Company provides for contingent liabilities when (1) it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements and (2) the amount of the loss can be reasonably estimated. Disclosure in the notes to the financial statements is required for loss contingencies that do not meet both these conditions if there is a reasonable possibility that a loss may have been incurred. The costs of defending legal claims against the Company are expensed as incurred.

Revenue recognition

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

Stock-based compensation

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

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect reported amounts and related disclosures. We have discussed those estimates that we believe are critical and require the use of complex judgment in their application in our 2012 Form 10-K filed with the SEC on March 15, 2013. Since the date of our 2012 Form 10-K, there have been no material changes to our critical accounting policies or the methodologies or assumptions we apply under them.

See note 3, “Recent Accounting Pronouncements,” of the consolidated financial statements in Item 1 for information related to the adoption of new accounting standards in 2013, none of which had a material impact on our financial statements, and the future adoption of recently issued accounting standards, which we do not expect to have a material impact on our financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

During the quarter ended June 30, 2013, we carried out an evaluation, under the supervision and with the participation of our management, including the principal executive officer and the principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective, as of the end of the period covered by this report.

Changes in Internal Control Over Financial Reporting

We have not made any changes to our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

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

Risks Related to Our Company

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

We are not profitable and have had negative cash flow from operations. Based on our current cash resources, expected cash burn, and anticipated revenues, we expect that we can maintain operations through mid-December 2013. We will need to raise additional capital to fund our operations or we may be required to significantly reduce, restructure or cease operations. We have relied primarily on debt and equity financings to fund our operations and commercialize our products. Additional capital may not be available, at such times or in amounts as needed by us. Even if capital is available, it might be on adverse terms. Any additional equity financing will be dilutive to our shareholders. If access to sufficient capital is not available as and when needed, our business will be materially impaired and we may be required to cease operations, curtail one or more product development, manufacturing improvement, or sales generation programs, attempt to obtain funds through collaborative partners or others that may require us to relinquish rights to certain technologies or product candidates, or we may be required to significantly reduce expenses, sell assets, seek a merger or joint venture partner, file for protection from creditors or liquidate all our assets.

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

We have incurred significant losses to date and we expect these losses to continue for the near future. As at June 30, 2013, we had an accumulated deficit of $118.8 million and have only generated positive cash flow from operations once, in the first quarter of 2013. Accordingly, there is substantial doubt about our ability to continue as a going concern. We may need to seek additional financing to support our continued operations; however, there are no assurances that any such financing can be obtained on favorable terms, if at all. In view of these conditions, our ability to continue as a going concern is dependent upon our ability to obtain such financing and, ultimately, on achieving profitable operations. The outcome of these matters cannot be predicted at this time. The consolidated financial statements for the period ended June 30, 2013 do not include any adjustments to the amounts and classification of assets and liabilities that might be necessary should we be unable to continue in business. Such adjustments could be material. If we are unable to generate sufficient revenue, positive cash flow or earnings, or raise sufficient capital to maintain operations, we may not be able to continue operating our business and be forced to sell our Company or liquidate our assets.

We have evolved from a pure development company to a commercial enterprise but to date have realized minimal operating revenues from product sales. For the three months ended June 30, 2013 and 2012, we have net income of $3.3 million and $2.4 million respectively however, excluding the non-cash Unrealized gain on revaluation of our warrant liability we have incurred adjusted losses of $1.1 million and $1.6 million respectively. We currently are not profitable and expect operating losses to continue. Generating revenues and profits will depend significantly on our ability to obtain sufficient financing and to successfully develop, commercialize, manufacture and market our products. The time necessary to achieve market success for any individual product is uncertain. No assurance can be given that product development efforts will be successful, that required regulatory approvals can be obtained on a timely basis, if at all, or that approved products can be successfully manufactured or marketed. Consequently, we cannot assure that we will ever generate significant revenue or achieve or sustain profitability. As well, there can be no assurance that the costs and time required to complete commercialization will not exceed current estimates. We may also encounter difficulties or problems relating to research, development, manufacturing, distribution and marketing of our products. In the event that we are unable to generate adequate revenues, cash flow or earnings, to support our operations, or we are unable to raise sufficient capital to do so, we may be forced to cease operations and either sell our business or liquidate our assets.

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

During the second half of fiscal year 2008, the global financial crisis, particularly affecting the credit and equity markets, accelerated and the global recession deepened, with an exceptionally weak global economy in 2009 and 2010 followed by a mixed economic performance during 2011 and 2012. Though we cannot predict the extent, timing or ramifications of the global financial crisis and the economic outlook in different economies, we believe that the current downturn in the world's major economies and the constraints in the credit markets have heightened or could heighten a number of material risks to our business, results of operations, cash flows and financial condition, as well as our future prospects, including the following:

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

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

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

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

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

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

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

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

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

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

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

● new product announcements made by us or our competitors;

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

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

● the timing and size of orders from our distributors;

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

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

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

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

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

● the amount we spend on research and development; and

● changes in our strategy.

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

Our marketing strategy in both the environmental and the medical diagnostics markets depends significantly on our ability to establish and maintain arrangements with third party distributors for marketing and distribution. In addition, we plan to add new distributors in markets where we do not traditionally sell our products. There can be no assurance that we will be able to negotiate or maintain acceptable arrangements with new and/or existing distributors enabling us to sell our products in new and existing markets or be able to sell our products at acceptable prices or volumes. Consequently, we may not be able to generate sufficient revenue or gross margins to be profitable.

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

We sell in China through an exclusive distributor for RAMP^® branded products, O&D Biotech Co. Ltd., China (O&D), and an exclusive distributor for private labeled OEM products, Wondfo Biotech Co. Ltd. (Wondfo). Sales to O&D accounted for 47% of our total product sales during the six months ended in June 30, 2013. If O&D or Wondfo underperforms at any time, we may not be able to generate alternative distribution channels rapidly enough to prevent a significant disruption in sales generated in China, which would have an adverse impact on our business performance as was the case in the second quarter of 2013.

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

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

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

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

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

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

In May 2007, we entered into an agreement to lease a multi-use, 46,000 square foot facility in Vancouver, British Columbia, Canada. This facility, which the company has occupied as its main operation center since 2008, is significantly larger than required for our near term production requirements. The excess space is difficult to sublease due to the current layout of the company’s manufacturing operations and the significant availability of space in other buildings in the local real estate market. In addition to rental payments for the facility, we are obligated to repay with interest over the next 10 years the $6.3 million balance due as of June 30, 2013 on the repayable leasehold improvement allowance.

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

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

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

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

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

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

All of our test kits, or Kits, are currently produced in-house and our portable fluorescence readers, or Readers, are manufactured and supplied to us under contract. We have qualified a local contract manufacturer for Readers. To meet the projected demand for our products, we will require additional equipment to scale up our manufacturing processes. Some of this equipment will require customization that may increase the lead-time from the supplier. In addition, we are currently in the process of moving the assembly of our Readers in house. We expect his transition from the contract manufacturer to our facility to complete by December 2013. If demand for our products significantly exceeds forecast, or if the third party manufacturers of Readers or manufacturing equipment are unable to deliver to us on schedule, or we are unable to successfully transition the assembly of Readers in house on a timely basis, we may not be able to meet customer requirements.

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

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

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

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

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

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

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

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

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

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

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

We must increase sales of our products or we may not be able to become profitable.

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

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

● increase our sales and marketing activities;

● effectively manage our manufacturing activities; and

● effectively compete against current and future competitors.

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

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

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

Management’s determination that material weaknesses existed in our internal control over financial reporting could have a material adverse impact on the Company.

We are required to maintain internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes. If we fail to maintain effective internal controls over financial reporting and disclosure controls and procedures, our business and results of operations could be harmed, we may be unable to report properly or timely the results of our operations and investors may lose faith in the reliability of our financial statements. Ineffective internal control over financial reporting may also increase the risk of, or result in, fraud or misuse of our corporate assets. As a consequence, the market price of our securities may be harmed.

The Company determined that material weaknesses had existed in the Company’s internal control over financial reporting in 2010 and 2011, and as a result, had concluded that the respective disclosure controls and procedures and internal control over financial reporting were not effective at the time. Management has addressed the past ineffectiveness of its disclosure controls and procedures and internal controls over financial reporting through improved processes put in place, monitoring of the design and effectiveness of its controls, and changing the management team. As a result of these past material weaknesses, we or our current or former officers, directors and employees may be subject to investigation by the SEC or Canadian securities regulators, and civil or criminal sanctions, or shareholder lawsuits, any of which could result in a significant expense whether directly or indirectly through the Company’s statutory or contractual obligations to indemnify such persons, and require significant investments of management time, which may prevent management from focusing its efforts on our business operations.

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

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

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

We are subject to manufacturing risks, including our limited manufacturing experience with newer products and processes which may hinder our ability to scale-up manufacturing. Additionally, unanticipated acceleration or deceleration of customer demand may lead to manufacturing inefficiencies. We must manufacture our products in compliance with regulatory requirements, in sufficient quantities and on a timely basis, while maintaining acceptable product quality and manufacturing costs. Significant additional resources, implementation of additional automated and semi-automated manufacturing equipment and changes in our manufacturing processes and organization have been, and are expected to continue to be, required for scale-up to meet increasing customer demand once commercialization begins, and this work may not be affordable and/or successfully or efficiently completed.In addition, although we expect some of our newer products and products under development to share production attributes with our existing products, production of these products may require the development of new manufacturing technologies and expertise. It may not be possible for us, or any other party, to manufacture these products at a cost or in quantities to make these products commercially viable.

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

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

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

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

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

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

We are highly dependent upon the members of our management and scientific staff, who could leave Response at any time. The loss of these key individuals could impede our ability to achieve our business goals. We face competition for qualified employees from numerous industry and academic sources and there can be no assurance that we will be able to retain qualified personnel on acceptable terms. We currently do not have key person insurance in place on any of our key employees. In the event that we are unable to retain key personnel, and recruit qualified key personnel on favorable terms, we may not be able to successfully manage our business operations, including sales and marketing activities, product research and development and manufacturing. As a consequence, we may not be able to effectively develop and manufacture new products, negotiate strategic alliances or generate revenue from existing products.

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

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

Our principal competitors in the human diagnostic market are Alere Inc. (Alere), Abbott Point of Care Inc. (Abbott), Mitsubishi Chemical Medience Corporation (Mitsubishi), Roche Diagnostics (Roche), Siemens AG (Siemens), Becton Dickinson Corporation, and Quidel Corporation.

Alere, Abbott and Roche have quantitative POC systems, and Mitsubishi and Siemens produce a small quantitative bench-top system, for the detection of some cardiac markers. In addition, in various emerging markets such as China, there may be local competitors who sell only in that specific country. Some of these local competitors may be very strong competitors in their local markets due to factors which may include lower cost of production, stronger sales, marketing and distribution capabilities, less stringent quality standards and customer quality expectations, customer familiarity and preference for local suppliers and local government environments which may favor local companies and their products and/or may preferentially, or by statute, favor POC testing device manufacturers offering the lowest price.

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

In the environmental West Nile Virus testing market, our primary competitor is Medical Analysis Systems, Inc., which is wholly owned by Thermo Fisher Scientific, Inc. Medical Analysis Systems, Inc. markets and sells a product for the rapid detection of West Nile virus.

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

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

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

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

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

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

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

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

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

Risks Related to Our Industry

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

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

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

Third party payers can indirectly affect the pricing and therefore, the relative attractiveness of our products by regulating the maximum amount of reimbursement provided for testing services. These third party payers are increasingly challenging prices paid for medical products and the cost effectiveness of such products due to global pressure on healthcare costs. If the reimbursement amounts for testing services are decreased in the future, it may decrease the amount that physicians and hospitals are able to charge patients for such services and therefore the prices that we, or our distributors, can charge for our products. Consequently our ability to generate revenue and/or profits may be negatively impacted for both existing and new products.

Significant uncertainty exists as to the reimbursement potential of newly cleared health care products, if any. The reimbursement amounts paid by third-party payers on existing medical products can be reduced at any time. There can be no assurance that products will be considered cost effective or that reimbursement from third party payers will be available or, if available, that reimbursement will not be limited, thereby adversely affecting our ability to sell products or sell our products at a profit.

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

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

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

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

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

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

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

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

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

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

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

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

Healthcare reform bills that have been before the United States Congress and government officials in other countries contemplate changes in the structure, financing and delivery of healthcare services. These and any future healthcare reforms may have a substantial impact on the operations of companies in the healthcare industry, worldwide, including us. Such reforms could include product pricing restrictions, excise taxes or additional regulations governing the usage of medical products. No assurances can be given that any such proposals, or other current or future legislation in the United States or in other countries, will not adversely affect our product development and commercialization efforts, results of operations or financial condition. At this time, we are unaware of any recent legislation or pending legislative proposals that will negatively affect our business other than the imposition of a 2.3% Excise Tax on the importation price of our products into the U.S. effective December 31, 2012.

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

The market for immunoassay-based diagnostic testing is rapidly changing as a result of recent consolidation in the industry. Previously, Siemens acquired Bayer Diagnostics, Diagnostic Products Corp. and Dade; and Biosite entered into a merger agreement with Alere. There have been many acquisitions in the medical diagnostics market including several by Alere, helping the company expand its presence in the market for rapid diagnostic tests used in hospitals and doctors' offices. Siemens and Alere both have significant existing businesses in diagnostics and/or related markets for healthcare equipment and services. Given the period of time since the announcement of these transactions, it is unclear how these completed and proposed acquisitions will impact the competitive landscape for our products or for hospital-based diagnostic testing in general. However, because these competitors sell a broad range of product offerings to our prospective hospital customers and because of the substantially greater financial resources and more established marketing, sales and service organizations that they each have, we believe there is greater risk that these new consolidated competitors may offer discounts as a competitive tactic or may hold other competitive advantages as a result of their ability to sell a broader menu of important hospital infrastructure equipment and information systems on a combined or bundled basis.

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

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

Risks Related to Our Common Stock

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

As of June 30, 2013, we had outstanding stock options to purchase an aggregate of 1,180,259 shares, at exercise prices between $1.02 and $24.00, warrants to purchase an aggregate of 4,305,187 shares at an exercise price of $1.492, and 53,258 restricted share units, which in total, represents 46% of our fully diluted outstanding share capitalization at that date. To the extent that these outstanding options and warrants are exercised, considerable dilution to the interests of our shareholders will occur.

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

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

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

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

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

Our common stock is currently listed for trading in Canada on the Toronto Stock Exchange. Our common stock is also quoted in the United States on the OTC Bulletin Board. Shareholders may find it more difficult to dispose of or to obtain accurate quotations as to the price of our securities than if the securities were traded on a national securities exchange like The New York Stock Exchange, the NASDAQ Stock Market or the NYSE Amex LLC.

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

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

Exhibit Number	Exhibit Description	Incorporated by Reference
3.1	Certificate of Incorporation dated August 20, 1980.	Previously filed as an exhibit to, and incorporated herein by reference from, our Annual Report on Form 20-F for the year ended December 31, 2004, as filed on May 2, 2005.

3.2	Company Act Name Change dated October 15, 1991.	Previously filed as an exhibit to, and incorporated herein by reference from, our Annual Report on Form 10-K for the year ended December 31, 2011 as filed on March 29, 2012.

3.3	Articles of the Company dated April 10, 1997.	Previously filed as an exhibit to, and incorporated herein by reference from, our Registration Statement on Form 20-F filed on February 4, 2004.

4.1	Escrow Agreement dated July 29, 2004.	Previously filed as an exhibit to, and incorporated herein by reference from, our Annual Report on Form 20-F for the year ended December 31, 2004, as filed on May 2, 2005.

14	Company’s Code of Ethics	Previously filed as an exhibit to, and incorporated herein by reference from, our Annual Report on Form 10-K for the year ended December 31, 2011 as filed on March 29, 2012

10.1	Amended and Restated 2008 Stock Option Plan	Previously filed as an exhibit to, and incorporated herein by reference from, our Current Report on Form 8-K as filed on June 20, 2013

10.2	Restricted Share Unit Plan	Previously filed as an exhibit to, and incorporated herein by reference from, our Current Report on Form 8-K as filed on June 20, 2013

10.3	Non-Employee Directors Deferred Share Unit Plan	Previously filed as an exhibit to, and incorporated herein by reference from, our Current Report on Form 8-K as filed on June 20, 2013

10.4	Separation Agreement and Mutual Release, dated July 26, 2013, by and between Response Biomedical Corp. and Patricia Massitti.	Previously filed as an exhibit to, and incorporated herein by reference from, our Current Report on Form 8-K as filed on July 26, 2013

31.1	CEO's Certification required by Rule 13A-14(a) of the Securities Exchange Act of 1934

31.2	CFO's Certification required by Rule 13A-14(a) of the Securities Exchange Act of 1934

32.1	CEO's Certification of periodic financial reports pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, U.S.C. Section 1350

32.2	CFO's Certification of periodic financial reports pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, U.S.C. Section 1350

101	The following materials from Response Biomedical Corp.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013, formatted in XBRL (Extensible Business Reporting Language): (i) unaudited Consolidated Statements of Loss and Comprehensive Loss for the three and six months ended June 30, 2013 and 2012, (ii) unaudited Consolidated Balance Sheets as of June 30, 2013, (iii) audited Consolidated Balance Sheets as of December 31, 2012, (iv) unaudited Consolidated Statements of Shareholders’ Equity/Deficit (v) unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2013 and 2012, and (vi) unaudited Notes to Consolidated Financial Statements

SIGNATURES

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

		Response Biomedical Corp.
		(Registrant)


Date:	August 13, 2013	/s/ Jeffrey L. Purvin
		Jeffrey L. Purvin
		Chief Executive Officer
Date:	August 13, 2013	/s/William J. Adams
		William J. Adams
		Chief Financial Officer

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Response Biomedical (RPBIF) Inactive 10-Q2013 Q2 Quarterly report

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