RESPONSE BIOMEDICAL CORP - FORM 10-K

Attached files

file	filename
EX-31.1 - EXHIBIT 31.1 - RESPONSE BIOMEDICAL CORP	ex31-1.htm
EX-32.1 - EXHIBIT 32.1 - RESPONSE BIOMEDICAL CORP	ex32-1.htm
EX-23.1 - EXHIBIT 23.1 - RESPONSE BIOMEDICAL CORP	ex23-1.htm
EX-31.2 - EXHIBIT 31.2 - RESPONSE BIOMEDICAL CORP	ex31-2.htm
EX-32.2 - EXHIBIT 32.2 - RESPONSE BIOMEDICAL CORP	ex32-2.htm
EX-10.37 - EXHIBIT 10.37 - RESPONSE BIOMEDICAL CORP	ex10-37.htm
EX-21 - EXHIBIT 21 - RESPONSE BIOMEDICAL CORP	ex21.htm

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)
☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2015
	Or
☐	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 Number)

1781 - 75^th Avenue W. Vancouver, British Columbia, Canada	V6P 6P2
(Address of principal executive offices)	(Zip Code))

Registrant's telephone number, including area code: (604) 456-6010

Securities registered pursuant to Section 12(b) of the Act: NONE

Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK WITHOUT PAR VALUE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒

Indicate by check mark whether the 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 if the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The aggregate market value of the voting common stock held by non-affiliates of the Registrant (assuming officers, directors and 10% stockholders are affiliates), based on the last sale price for such stock on June 30, 2015: $2,728,083. The Registrant has no non-voting common stock.

As of February 28, 2016, there were 9,925,256 shares of the Registrant's common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement for the 2015 Annual Meeting of Stockholders of the Registrant to be held on May XX, 2016 will be incorporated by reference into Part III of this Form 10-K.

The Registrant makes available free of charge on or through its website (http://www.responsebio.com) its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. The material is made available through the Registrant's website as soon as reasonably practicable after the material is electronically filed with or furnished to the U.S. Securities and Exchange Commission, or SEC. All of the Registrant's filings may be read or copied at the SEC's Public Reference Room at 100 F Street, N.E., Room 1580, Washington D.C. 20549. Information on the hours of operation of the SEC's Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains a website (http://www.sec.gov) that contains reports and proxy and information statements of issuers that file electronically.

RESPONSE BIOMEDICAL CORP.

Form 10-K – ANNUAL REPORT

For the Fiscal Year Ended December 31, 2015

Table of Contents

		Page
PART II

ITEM 1.	BUSINESS	3
ITEM 1A.	RISK FACTORS	19
ITEM 2.	PROPERTIES	32
ITEM 3.	LEGAL PROCEEDINGS	32
ITEM 4.	MINE SAFETY DISCLOSURES	32

PART II

ITEM 5.	MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	33
ITEM 6.	Selected Financial Data	33
ITEM 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	35
ITEM 7A.	Quantitative and Qualitative Disclosures about Market Risk	45
ITEM 8.	Financial Statements and Supplementary Data	46
ITEM 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	74
ITEM 9A.	Controls and Procedures	74
ITEM 9B.	OTHER INFORMATION	74

PART III

ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	75
ITEM 11.	EXECUTIVE COMPENSATION	75
ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	75
ITEM 13.	Certain Relationships and Related Transactions, and Director Independence	75
ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	75

PART IV

ITEM 15.	Exhibits and Financial Statement Schedules	76

-i-

PART I

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

This Annual Report on Form 10-K 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 and our ability to retain distributors and increase product sales in existing and new markets;

●

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

●

Implementing aspects of our business plan and strategies, including our strategy to increase our sales and distribution in China;

●

Our ability to attain and maintain profitability;

●

Our financing goals and plans;

●

Our ability to conserve cash and reduce costs; and

●

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

These statements involve known and unknown risks, uncertainties and other factors, including the risks described in Part I, Item 1A. of this Annual Report on Form 10-K, 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 Annual Report on Form 10-K 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.

-2-

CORPORATE INFORMATION

ITEM 1. BUSINESS

GENERAL

Response Biomedical Corp. (“Response,” “Company,” “us,” “we” or “our”) is engaged in the research, development, commercialization and distribution of diagnostic technologies for the medical central-lab testing, point of care (“POC”) testing and on-site environmental testing markets. POC, 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. RAMP^® represents a paradigm in diagnostics that provides sensitive and reliable information in minutes. Response was incorporated in British Columbia in August 1980. Our principal offices are located at 1781 – 75^th Avenue West, Vancouver, British Columbia, Canada and we have a representative office based in Shanghai, China. The Company’s wholly-owned US subsidiary, Response Point of Care Inc., was incorporated on November 9, 2012 in the State of Delaware. Our common stock is traded on the Toronto Stock Exchange (“TSX”) under the trading symbol “RBM” and quoted on the OTC market under the symbol “RPBIF”.

OUR TECHNOLOGY – THE RAMP^® SYSTEM

Our RAMP^® system is a proprietary platform technology that combines a sensitive fluorescence detection system with simple lateral flow immunoassays. Although lateral flow immunoassay technology has been available for over 25 years, the market for early generation rapid immunoassays has been limited by their inability to provide the accurate, quantitative results required by the majority of test situations.

RAMP^® maintains the key positive attributes of lateral flow immunoassays - simplicity, specificity, reliability and rapid results, while adding a unique, patented feature that can improve test performance versus other companies’ traditional lateral flow systems. Specifically, in addition to analyzing a traditional “detection zone” in its tests, the RAMP^® system also has a second “control zone”. By introducing a second population of known antibodies into the “control zone” that are impacted by the same conditions as the test antibodies in the typical lateral flow technology’s “detection zone”, the ratio of a measurement of the signal from the two sets of antibodies effectively factors out uncontrolled variability, thereby providing an accurate result. The algorithm for this ratio is unique to our test system. Furthermore, the use of a fluorescent label in the cartridge combined with a custom optical scanner in the RAMP^® Reader or RAMP^®200Reader (“Reader”), results in a reliable and sensitive detection system. While the RAMP^®200Reader is currently limited to central-lab use in the U.S. for use with the cardiovascular tests, our RAMP^® System has demonstrated its capability to detect and quantify a wide variety of analytes with sensitivity and accuracy comparable to centralized lab systems, including testing multiple analytes simultaneously.

A large menu of tests can be run on our proprietary RAMP^® system, namely:

Cardiovascular Tests

	-	Troponin-I
	-	Myoglobin
	-	CK-MB
	-	NT-proBNP
	-	D-dimer (not available in the U.S.)

Vector Environmental Tests

West Nile virus

Dengue virus

Biodefense Tests

	-	Anthrax
	-	Small pox
	-	Ricin
	-	Botulinum toxin

-3-

Infectious Disease Tests

Influenza A + B

Respiratory syncytial virus (RSV)

Procalcitonin (PCT)

Minimal training is required to use our RAMP^® System. A test is performed by adding a sample (e.g., blood, nasal or sinus mucus, saliva, water or unknown powders) containing the analyte of interest (e.g., Myoglobin, anthrax spores, etc.) mixed with a proprietary buffer and labeled antibodies to the sample well of a test cartridge. The cartridge is then inserted into the Reader, which scans the test strip and provides the result in 20 minutes or less, depending on the assay. In the absence of rapid on-site and point of care (“POC”) test results like our RAMP^® test, health care providers and first responders may be forced to wait up to two (2) or more hours for a confirmatory result from a government- or hospital-run central lab.

Our RAMP^® system consists of a Reader and single-use disposable test cartridges, and has the potential to be adapted to any other medical and non-medical immunoassay based test currently performed in laboratories.

OUR PRODUCTS

MEDICAL LABORATORY AND POINT-OF-CARE (POC) CLINICAL DIAGNOSTICS

CARDIOVASCULAR TESTING

A major focus of our development programs in cardiovascular testing has been clinical tests for the quantification of cardiovascular markers. Cardiovascular markers are biochemical substances that are released by the body after it has been damaged or stressed. We have tests for elevated levels of the markers associated with three important health conditions: acute myocardial infarction (heart attack), congestive heart failure or thrombotic disease.

Acute myocardial infarction (i.e. heart attack) markers

Response sells tests that detect three of the primary markers for the detection of an acute myocardial infarction: Troponin I, Myoglobin and CK-MB.

Congestive Heart Failure (“CHF”) markers

Response sells tests to detect the two primary markers for congestive heart failure, NT-proBNP and B-type natriuretic peptide (“BNP”). Response’s NT-proBNP test is marketed in various countries both directly and by our international distributor network with the exception of Japan, where BNP is sold solely.

Thrombotic disease markers

Response sells tests to detect D-dimer, one of the most prescribed markers for deep venous thrombosis (“DVT”), pulmonary embolism (“PE”) or disseminated intravascular coagulation (“DIC”).

Acute Myocardial Infarction (Heart Attack) Testing

Serial measurement of biochemical markers is now universally accepted as an important determinant in the diagnosis of an acute myocardial infarction (“AMI”). The ideal AMI marker is one that has high clinical sensitivity and specificity, appears soon after the onset of a heart attack; remains elevated for several days following a heart attack and can be assayed with a rapid turnaround time.¹ Today, there is no single marker that meets all of these criteria, thus necessitating the need to test for multiple cardiac markers. The biochemical markers that are commonly used by physicians to aid in the diagnosis of a heart attack are Myoglobin, CK-MB, Troponin I and Troponin T. We sell tests to detect three of these markers (Myoglobin, CK-MB, and Troponin I). As seen in the figure below, cardiac markers follow a specific, predictable pattern of release kinetics following an acute coronary event. The differences in the time for each marker to reach its peak concentration has made it common practice for clinicians to make use of at least two different markers in tandem, an early marker such as Myoglobin and a later one such as Troponin I. International guidelines recommend the use of serial Troponin tests in order to identify a rising and falling pattern in Troponin I level and comparison to test-specific reference values for definitive diagnosis of heart attacks.

¹ Adams JE, III, Clin Chem Acta, 1999.

-4-

Release of Cardiac Markers into the Bloodstream Following a Heart Attack²

The turn-around times (“TAT”) for results from a hospital lab can vary from as little as thirty minutes to more than two hours due to the necessity of test ordering and specimen collection, specimen transport, sample preparation, test completion and reporting. In rural settings and physicians’ offices, the TAT can be many hours or even days. Evidence-based clinical practice guidelines recommend that the results from cardiac marker testing be available within 60 minutes of patient presentation and ideally within thirty minutes. POC testing with products such as our RAMP^® system could provide doctors with the information they need to diagnose and treat heart attack patients in a much shorter timeframe (e.g. less than 20 minutes from blood draw to result). In most cases, this is more likely to be within the critical window of time to minimize irreversible heart damage or death. Our RAMP^® System is expected to aid in the diagnosis of heart attack by enabling physicians to easily and frequently monitor changes in the levels of a patient’s AMI cardiac markers. Early access to this information enables physicians to use accelerated care protocols, which are intended to drive earlier and better treatment decisions. According to statistics published by the U.S. Centers for Disease Control and Prevention (“CDC”), approximately 7 million people visit U.S. hospital emergency departments each year with complaints of chest pain, a primary symptom of heart attack.³

Congestive Heart Failure (“CHF”) testing

Congestive heart failure is a chronic, progressive disease in which the heart muscle weakens overall and the left ventricle becomes distended, thus impeding the heart's ability to pump enough blood to support the body's metabolic demands. CHF is the only cardiovascular disorder to show a marked increase in incidence in the past 40 years and it is expected to continue rising due in part to the aging population and better survival prospects of patients with other cardiovascular diseases.⁴Many patients hospitalized with CHF will need to be repeatedly hospitalized due to their hearts’ continued functional degradation over time.

Previous methods for the diagnosis and assessment of CHF, which include physical examinations and chest x-rays, are not usually conclusive, making accurate diagnoses difficult. We sell tests to detect the two primary markers for congestive heart failure, BNP and NT-proBNP. The introduction of testing for the BNP and NT-proBNP markers of the disease dramatically changed the ability of physicians to make qualified diagnoses and to more effectively monitor the success of their treatment plans because the levels of the BNP and NT-proBNP markers are elevated in the blood whenever the heart is forced to work harder. BNP and NT-proBNP tests have proven to be more accurate than any other single physical or laboratory gauge of heart failure.⁵ Both BNP and NT-proBNP are fragments of proBNP, a neurohormone that is released by the heart in response to increased blood pressure and volume overload causing stretching of the ventricular muscle of the heart during heart failure. Both of these markers are elevated in the blood during heart failure and are sensitive and specific indicators of congestive heart failure.

² Wu AHB, Introduction to Coronary Artery Disease (CAD) and Biochemical Markers, 1998.

³ National Hospital Ambulatory Medical Care Survey: 2009 Emergency Department Summary Tables

⁴ McCullough, PA, Nowak, RM, McCord J, et al. B-type natriuretic peptide and clinical judgment in emergency diagnosis of heart failure. Clin Inv Rep. 2002;106:416-422.

⁵ http://www.stjohnsmercy.org/healthinfo/newsletters/heart/Aug02.asp

-5-

Thrombotic Disease testing

D-dimer is considered to be a marker of blood clotting and therefore D-dimer is present in the circulation as part of the normal wound healing process, but it is also valuable as a diagnostic marker for a spectrum of diseases where a clot has formed in blood vessels in other areas of the body such as Disseminated Intravascular Coagulation (“DIC”), Venous Thromboembolism (“VTE”), Deep Vein Thrombosis (“DVT”) and Pulmonary Embolism (“PE”). We sell a test to detect this marker.

Blood D-dimer levels are elevated in a number of additional disease states including malignant neoplasm, myocardial infarction, trauma, recent surgery, and hepatic insufficiency.6 This limits the test’s specificity for any one given disease, preventing it from becoming a screening test for the presence of PE and DVT. A negative test, however, has been found to have a high negative predictive value and is clinically useful as a predictor of the absence of both DVT and PE. Also, in situations when the patient presents at a time when the full range of diagnostic tests is not available, a negative D-dimer test may allow the patient to be discharged until further tests can be completed, avoiding hospital admission.

More than 2 million people in the US develop DVT each year. D-dimer testing can reduce length of stay and the rate of admission and discharge to the Emergency Room. D-dimer may improve medical outcome.7

Infectious Disease Testing

Influenza A + B

Influenza (“Flu”) viruses cause seasonal epidemics associated with high morbidity and mortality, especially affecting those with underlying medical conditions and the elderly.^–⁸ Influenza is characterized by a rapid start of high fever, chills, myalgia, headache, sore throat and cough. However, even during periods of a large outbreak, clinical diagnosis can be difficult due to the possibility of other respiratory viruses.^{http://www.cdc.gov/flu/about/qa/disease.htm}⁹ The rapid and accurate diagnosis of Influenza is important for determining appropriate treatment strategies and to minimize the unnecessary use of antibiotics.¹⁰ The laboratory diagnosis of Influenza infections is based on detection of the Influenza virus directly, isolation of the virus in a cell culture or the detection of nucleic acid by a polymerase chain reaction, each of which can take several hours to days before results become available.

Seasonal influenza is a highly variable, contagious and potentially life-threatening viral respiratory infection. Flu can lead to severe complications and results in approximately 3,000 - 49,000 seasonal influenza-related deaths in the United States each year11. With the recent development of different treatments for Influenza A and B and the need to begin therapy within the first 48 hours of infection12, the demand for rapid and accurate Influenza tests has grown. Being able to rapidly identify patients with Influenza in the clinic or hospital allows sites to reduce infections occurring in hospitals and reduces the amount of unnecessary or incorrect treatment and administration. We sell a test to detect Influenza A and B.

Respiratory Syncytial Virus (RSV)

Respiratory syncytial virus (“RSV”) is a respiratory virus that infects the lungs and breathing passages. Most otherwise healthy people recover from an RSV infection in 1- 2 weeks. RSV in the United States is responsible for thousands of hospitalizations annually among children younger than one year. It is believed to be the most common viral cause of death in children younger than five years and, in particular, children younger than one year. In the first two years of life, virtually all children are infected with the virus at some point.¹³ In fact, RSV is the most common cause of bronchiolitis (inflammation of the small airways in the lung) and pneumonia in children under one year of age in the United States. In addition, RSV is more often being recognized as an important cause of respiratory illness in older adults.^–¹⁴We sell a test to detect RSV.

⁶ Arch Pathol Lab Med. 1993. 117(10): 977-80

⁷ Point of Care Diagnostic Testing World Market, Trimark Publications April 2013.

⁸ Nicholson KG, Wood JM, Zambon M (2003) Influenza. Lancet 362:1733– 1745.

⁹ http://www.cdc.gov/flu/about/qa/disease.htm.

¹⁰ http://www.cdc.gov/flu/professionals/treatment/0506antiviralguide.htm.

¹¹ CDC. http:www.cdc.gov/flu/about/disease/us_flu-related_deaths.htm (MMWR 2010; 52(33): 1057-1062)

¹² http://www.cdc.gov/flu/keyfacts.htm.

¹³ CDC. http:www.cdc.gov/RSV

¹⁴ http://www.cdc.gov/RSV/

-6-

Procalcitonin (PCT)

Procalcitonin (“PCT”) is a biomarker elevated in the blood of patients suffering from sepsis, also known as blood poisoning. Physicians today use PCT to distinguish bacterial sepsis from other causes of similar symptoms15^,16 .Sepsis is a global problem, afflicting nearly 30 million people annually17. The incidence of sepsis continues to increase by 2% - 9% per year18^,19. Despite advances in critical care medicine, sepsis is the leading cause of death in intensive care units in the US and is listed as one of the most expensive conditions treated in US hospitals, with costs exceeding $20 billion annually20^,21. Early detection and treatment of sepsis has been proven to improve patient outcomes and reduce healthcare costs22^,23. The traditional methods of sepsis diagnosis can take 24 hours or more, lack sensitivity and specificity and frequently do not correlate to the level of severity of the illness24^.

ON-SITE ENVIRONMENTAL TESTING

Environmental tests are generally considered to be products and services used to detect and quantify substances and microbes in the environment that may have potentially harmful effects in humans. We participate in two distinct areas of the environmental market. The first is biodefense, where our RAMP^® products are used for the detection and identification of threatening biological agents. The second is the vector environmental testing market, where RAMP^® products are used to test samples from mosquito pools for West Nile Virus and Dengue Virus to monitor the threat to humans.

BIODEFENSE TESTING

We have developed and are selling RAMP^® tests for the rapid detection and identification of anthrax, ricin, botulinum toxin and orthopox viruses (including smallpox). The target market for our RAMP^® Biodefense tests is primarily public safety institutions, or first responders, such as fire and police departments, military installations, emergency response teams and hazardous materials (HAZMAT) units. Government agencies and corporations that handle mail are also candidates for on-site anthrax tests. The rapid detection and identification of biological agents is an important capability affecting the management of a bioterrorism event, forming the basis of emergency response, medical treatment and consequence management. In addition, the rapid identification of biological agents facilitates the quick dismissal of hoaxes and panic-based reports, thereby reducing the logistical burden on first responders who have to maintain a higher level of ongoing preparedness when facing a likely real biodefense threat. In the aftermath of the terrorist attacks on September 11, 2001, there was an increased desire to be prepared for potential terrorist attacks, particularly on the part of the U.S. government, as evidenced by numerous initiatives, including the creation of the U.S. Department of Homeland Security (“DHS”). The first priority of the DHS is to protect the United States against further terrorist attacks. Component agencies analyze threats and intelligence, guard borders and airports, protect critical infrastructure and coordinate the response of the U.S. to future emergencies.

¹⁵ Uzzan et al. Procalcitonin as a diagnostic test for sepsis in critically ill adults and after surgery or trauma: a systematic review and meta-analysis. Crit Care Med 2006. 34:1996-2003.

¹⁶ Schuetz et al. Procalcitonin for diagnosis of infection and guide to antibiotic decisions: past, present and future. BMC Medicine 2011. 9:107-15

¹⁷ Fleischmann et al. Global burden of sepsis: a systematic review. Critical Care 2015, 19(Suppl 1): P21.

¹⁸ Angus et al. Epidemiology of severe sepsis in the United States: Analysis of incidence, outcome, and associated costs of care. Crit Care Med 2001. 29(7): 1303-1310.

¹⁹ Martin G. Sepsis, severe sepsis and septic shock: changes in incidence, pathogens and outcome. Expert Rev Anti Infect Ther 2012. 10(6):701-706.

²⁰ Müller et al. Calcitonin precursors are reliable markers of sepsis in a medical intensive care unit. Crit Care Med 2000. 28(4): 977-983.

²¹ Torio et al. National Inpatient Hospital Costs: The Most Expensive Conditions by Payer, 2011. HCUP Statistical Brief #160. August 2013. Agency for Healthcare Research and Quality, Rockville, MD.

²² Kumar et al. Duration of hypotension before initiation of effective antimicrobial therapy is the critical determinant of survival in human septic shock. Crit Care Med 2006. 34:1589-1596.

²³ Shorr et al. Economic implications of an evidence-based sepsis protocol: can we improve outcomes and lower costs? Crit Care Med 2007. 35(5):1257-1262.

²⁴ McGee et al. Procalcitonin: clinical utility in diagnosing sepsis. Clin Lab News 2009. 35(7).

-7-

Following the use of anthrax as a weapon for terrorist attacks in the United States in October 2001, we saw an opportunity to adapt our RAMP^® technology for the rapid detection and identification of agents used in acts of bioterrorism and initiated development of a test for the rapid, on-site detection of Bacillus anthracis, the causative agent for anthrax, referred to as the Anthrax Test. Development of the Anthrax Test was substantially completed in April 2002 following successful initial validation by the Maryland State Department of Health where testing confirmed that our RAMP^® Anthrax Test could reliably detect anthrax spores at levels lower than an infectious dose of 10,000 spores. These results were supported by further independent testing conducted by Defense Research and Development Canada in Suffield. Response’s Anthrax Test was launched commercially in May 2002. In September 2006, our RAMP^® Anthrax Test was the first biodetection technology approved for field use by first responders in the United States for the detection of anthrax in an independent testing program conducted by the Association of Analytical Communities (AOAC) and sponsored by the U.S. Department of Homeland Security. Since the commercial launch of Response’s Anthrax Test in May 2002, we have commercialized tests for ricin, botulinum toxin and orthopox (including smallpox), three other priority, bio-threat agents. Commercial sales of the ricin test and the botulinum toxin test commenced in November 2002 and the orthopox test was launched in May 2003.

VECTOR ENVIRONMENTAL TESTING

West Nile Virus (“WNV”) is an arbovirus that can cause a fatal neurological disease in humans and is commonly found in North America, Europe, Africa, the Middle East, and West Asia. In the first ten years of prevalence in the United States, the Center for Disease Control (“CDC”) reported an average mortality rate of 5-10% and over 1,100 WNV deaths. The virus is mainly transmitted to people through the bites of infected mosquitoes, thus mosquito surveillance programs for WNV have been successfully implemented in the US to monitor and mitigate the spread of the virus.

Dengue virus is a Flavivirus that is transmitted from mosquitoes to humans and leads to Dengue Fever, a potentially life-threatening illness. Dengue virus is a global concern, infecting an estimated 400 million people each year in over 100 countries, resulting in approximately 100 million cases of Dengue fever, a severe flu-like illness that can be fatal. The RAMP^®Dengue test is the first protein based quantitative test for the detection of Dengue Virus in mosquitoes. In an independent evaluation of the technology, the CDC showed that the RAMP^®Dengue test could detect a single positive infected mosquito for each of the four (4) serotypes of the Dengue virus, gave no false positives and did not cross-react with other Flaviviruses.

The RAMP^® Vector Environmental tests are used by state health labs, vector control groups and local government agencies to monitor for these viruses in their local mosquito populations and to determine the need for vector control efforts as well as public health notifications.

OUR MARKETS

We develop, manufacture and sell our RAMP^® system for the global medical point of care market including cardiovascular testing, infectious disease testing market and the on-site environmental testing market including biodefense and vector environmental testing. In the U.S., our RAMP^®200 Reader is limited to central-lab use with the cardiovascular tests.

CARDIOVASCULAR TESTING MARKETS

Our RAMP^®cardiovascular tests are intended for use primarily in hospital emergency rooms, laboratories and walk-in clinics around the world. We have obtained clearance to market these tests in the U.S., Canada, the European Union, China and other regulated jurisdictions around the world. RAMP^® Cardiovascular testing products represent approximately 90% of our sales around the world.

In China, we sell our RAMP^®and RAMP^®200 readers, as well as our Myoglobin, CK-MB, Troponin I, D-dimer and NT-proBNP tests to Shanghai Elite Biotech Co., Ltd. (“Shanghai Elite”) under the RAMP^® brand. Effective March 3, 2016 Shanghai Elite no longer has exclusive rights to sell our products in China. In Japan, our distributor, Shionogi & Co., Ltd. (“Shionogi”), sells a rapid quantitative test for BNP under its own brand name. Effective January 5, 2016, the marketing of BNP in Japan has been restructured to Alere Medical Co., Ltd. (“Alere Japan”). Alere Japan is now the exclusive national distributor in Japan for the marketing and sales of Response manufactured BNP tests and readers.

We have agreements with regional distributors that sell our RAMP^® cardiovascular products in the United States and various countries in Asia, Latin and South America, Europe and the Middle East.

-8-

INFECTIOUS DISEASE TESTING MARKETS

INFLUENZA A + B AND RSV

In the United States, we sell our RAMP^®200 reader as well as our Influenza A + B and RSV tests primarily to Fisher HealthCare, which then distributes these RAMP^®-branded readers and tests directly to end-users, nationwide. These tests provide hospitals with reliable and objective electronic results in approximately 15 minutes.

For our Flu tests, we were granted a Special 510(k) clearance by the U.S. Food and Drug Administration (“FDA”) for an update to our RAMP^® Influenza A + B Assay Package Insert to include analytical reactivity information for a strain of the 2009 H1N1 virus cultured from positive respiratory specimens. Although our RAMP^® Influenza A + B Assay has been shown to detect the 2009 influenza A (H1N1) virus in cultured isolates, the performance characteristics of this device with clinical specimens that are positive for the 2009 influenza A (H1N1) virus have not been established. Our RAMP^® Influenza A + B Assay can distinguish between influenza A and B viruses, but it cannot differentiate influenza subtypes.

PCT

Our RAMP^® Procalcitonin test has received Health Canada approval and CE Mark in early 2016 and therefore, is cleared to be marketed in Canada and select countries in the European Union.

ON-SITE ENVIRONMENTAL TESTING MARKETS

Environmental tests are generally considered to be products and services used to detect and quantify substances and microbes in the environment that have potentially harmful effects to humans. We participate in two distinct areas of the environmental market. The first is biodefense, where our RAMP^® tests are used for the detection and identification of threatening biological agents. The second is the vector environmental testing market, where our RAMP^® tests are used to test samples from mosquito pools for West Nile Virus and Dengue Virus to monitor the threat of the disease to humans.

BIODEFENSE TESTING MARKETS

We market and sell our biodefense products directly and through a network of regional and national distributors. The majority of our sales of biodefense products are to the United States and Canada with some sales to countries such as China, Ireland, and Australia. Our systems are sold primarily to first responder units, such as police and fire departments, and to governmental agencies.

VECTOR ENVIRONMENTAL TESTING MARKETS

The market for our WNV and Dengue tests is comprised of the following end users: state public health/veterinary labs, mosquito control districts and universities. We estimate that approximately 300,000 tests are performed throughout North America each year to screen for WNV. We have a sole distribution agreement with ADAPCO Inc., the largest distributor of mosquito control products in the United States.

KEY SALES AND DISTRIBUTION AGREEMENTS

SHANGHAI ELITE BIOTECH CO., LTD. (SHANGHAI ELITE)

In 2013, we signed a distribution agreement with Shanghai Elite authorizing them to exclusively market our Cardiovascular POC readers and tests, which were approved by the China Food and Drug Administration (CFDA) in November 2013, in the East, Central, South, and Southwestern provinces of China. In 2015, this agreement was amended to expand the territory for Shanghai Elite to all of China excluding Taiwan, Hong Kong and Macao Special Administration Region. Effective March 3, 2016 Shanghai Elite no longer has exclusive rights to sell our products in China.

HANGZHOU JOINSTAR BIOMEDICAL TECHNOLOGY CO. LTD. (JOINSTAR)

On October 15, 2014, we announced that we had entered into a funded Technology Development Agreement with Hangzhou Joinstar Biomedical Technology Co. Ltd. (“Joinstar”) to support the co-development of components and multiple assays that will run on a high throughput rapid immunoassay analyzer developed by Joinstar. Joinstar related entities purchased 1,800,000 of our common shares of at a price of $1.21 per share for net proceeds of $2.0 million on December 12, 2014. Under the terms of the Technology Development Agreement, Joinstar paid US$560,000 upon the signing of the Technology Development Agreement on October 15, 2014 and US$720,000 upon the signing of the Collaborative Agreement, which was signed on February 16, 2015. We received three additional milestones in 2015 totaling a further US$1.73 million. We are eligible to receive a further US$792,000 in development milestones over the development period. In conjunction with the signing of the Collaborative Agreement, we entered into a definitive Supply Agreement with Joinstar whereby we will provide certain materials required for Joinstar to manufacture and sell the developed assays specifically to run on their analyzer. Under the terms of the Supply Agreement, we are eligible to receive a guaranteed US$1.78 million in revenue-based payments over the first five years of commercialization of the co-developed assays.

-9-

ANALYTICA LTD. (ANALYTICA)

In 2012, we signed a distribution agreement with Analytica, amended in 2012 and 2013, authorizing them to exclusively market our Cardiovascular readers and tests in the Russian Federation.

SHIONOGI & CO., LTD. (SHIONOGI) / ALERE MEDICAL CO., LTD (ALERE)

In May 2006, we signed an agreement with Shionogi, amended August 2012 and 2013, to market and sell our BNP tests in Japan. Under the terms of the agreement, we agreed to become the exclusive manufacturer of BNP tests on an OEM basis. The agreement may be terminated by either party with twelve months notice, should either party be in breach under the terms of the agreement, or under certain other conditions.

As mentioned above, effective January 5, 2016, Alere Japan became the exclusive national distributor in Japan for the marketing and sales of Response manufactured BNP tests and readers. Shionogi will continue to supply biological reagents to Response under separate license and supply agreements.

THERMO FISHER SCIENTIFIC L.L.C. (FISHER)

In January 2013, we announced that we entered into a nonexclusive distribution agreement with Fisher HealthCare, a subsidiary of Fisher, to distribute our Infectious Disease portfolio of our RAMP^® products in the United States.

Fisher will market our Infectious Disease Point of Care (POC) test panel, which currently includes the RAMP^® Influenza A + B test and the RAMP^® RSV test, on the RAMP^® 200.

ADAPCO, INC. (ADAPCO)

In April 2008, we entered into a distribution agreement with ADAPCO, which replaced an earlier agreement signed in March 2006. The initial term of the agreement was for one year, and is automatically renewed on an annual basis. This agreement appoints ADAPCO as the exclusive distributor of our tests and readers for detection of West Nile Virus in the United States; however, the agreement also gives us the right to sell these products directly.

-10-

COMPETITION

MEDICAL POINT-OF-CARE (POC) MARKET

The medical POC test market is comprised of five basic segments: clinical chemistry, hematology, immunoassay, blood glucose and urinalysis, plus miscellaneous other tests. Dozens of companies sell qualitative POC tests in these segments, and several have substantially greater financial resources and larger, more established marketing, sales and service organizations than we do. Few companies, however, participate in the quantitative POC immunoassay market. The following table summarizes our key known competitors in the POC testing market:

	Test Market Segment
Company	Cardiac Markers	CHF Marker	Drugs of Abuse	Sepsis	Flu and Infectious Disease	Pregnancy / Ovulation	Blood Gases/ Electrolytes	Coagulation
Response Biomedical Corp.	√	√		√	√			√
Abbott Point of Care Inc.	√⁽¹⁾	√				√	√	√
Alere Inc.	√	√	√		√	√	√	√
Becton Dickinson Corporation					√
Radiometer	√	√		√		√	√
Mitsubishi Chemical Medience Corporation ⁽²⁾	√	√		√		√
Quidel Corporation					√	√
Roche Diagnostics ⁽³⁾	√	√	√				√	√

(1)	Only Troponin I, CK-MB and BNP cardiac tests at this time.

(2)	Mitsubishi Pathfast weighs 33kg, which for some would not be considered a POC system but rather a small laboratory analyzer.

(3)	The Cardiac Reader measures Troponin T rather than TnI and does not measure CK-MB. This platform uses semi-quantitative technology. This limits the upper end of their NT-proBNP assay to only 20% of the entire clinical range.

Certain of the competitors listed in the table above have stated their intention to broaden their category offerings. In addition to the key competitors listed above, we believe that each of the major diagnostics companies has an active interest in POC testing and, as well as being potential competitors, are also potential business partners.

Alere Inc. (formerly Inverness Medical Innovations Inc.), or Alere, has sold a three-in-one quantitative immunoassay and reader system for cardiac markers (CK-MB, Troponin I and Myoglobin) on the market since 1999 and is currently one of the leading participants in quantitative POC cardiovascular testing on the basis of market share, revenues and technology. They also sell a “shortness of breath” panel cartridge, which includes Myoglobin, CK-MB, Troponin I, BNP and D-dimer. In 2007, Biosite Incorporated (Biosite) was acquired by Inverness Medical Innovations in a transaction valued at $1.68 billion. Based on published list prices for the Biosite products and data from the completed multi-site clinical study entitled “Evaluation of a point-of-care assay for cardiac markers for patients suspected of acute myocardial infarction,”²⁵ we believe that RAMP^® has several advantages over the competing Biosite products including product performance and menu flexibility.

Since 2003, Abbott Point of Care Inc., formerly i-STAT Corporation, has sold a 10-minute Troponin I test for use on the i-STAT Portable Clinical Analyzer, a biosensor-based technology. In 2005, Abbott Point of Care launched a CK-MB test and, in 2006, launched a POC BNP test. In addition, Abbott Point of Care offers several tests for other markers in whole blood, predominantly electrolytes and blood gases. We believe that the requirement for different sample types for the i-STAT markers for heart attack (TnI and CK-MB) and congestive heart failure (BNP) is a significant disadvantage as compared to our RAMP^® system.

Quidel Corporation has sold rapid, qualitative tests for the detection of RSV and Influenza A and B since 2001 as the QuickVue^® Influenza A+B test and the QuickVue^® RSV test. Based on data published in March 2011, we believe that our RAMP^® RSV test offers superior performance versus the QuickVue^® RSV test. Binax, Inc., a division of Alere, has been selling Influenza A, Influenza B and RSV tests under the BinaxNOW^® brand since 2002 and a combined Influenza A+B test since 2004. Both of these tests have received Clinical Laboratory Improvement Amendments of 1988, or CLIA-waived status, which has allowed for their use in physician office laboratories. Quidel has developed a reader-based detection instrument, the Sofia, available in the US since 2011 that can run tests for Influenza, RSV, Strep A and ®hCG. The Sofia Influenza A+B test received CLIA-waiver in 2012.

Becton-Dickenson developed the Veritor System Digital Reader in 2011 with the Influenza A+B, RSV and Strep tests. The BD Veritor along with the Influenza A+B and Strep tests is CLIA-waived.

²⁵ Munjal I, Gialanella P, Goss C, McKitrick JC, Avner JR, Quiulu Pan, Litman C, Levi ML, J Clin Micro 2011Mar 49(3):1151-3.

-11-

Other technologies that may compete against RAMP^® in the future by delivering highly sensitive, quantitative results, for some POC tests include immunosensors or biosensors and nanotechnology-based approaches. Biosensor methods use specific binding molecules such as antibodies to generate a measurable signal as a direct result of binding to their target molecule (or analyte). These technologies are extremely complex and have been under development for many years with limited commercial success to date. Immunobiosensors, to date, have limited sensitivity and are not competitive with RAMP^®. Although methods of testing using biosensors and nanotechnology can be fast, they generally suffer from a significant lack of accuracy, repeatability and reliability, and can be expensive to manufacture. Biosensors are now in limited use for selected diagnostic applications, most notably for blood glucose monitoring using non-immunoassay methods. Nanotechnology is a relatively new and growing field that deals with the use of inert micro-etched wafers, or chips, to provide templates for chemical, biochemical and biological processes.

Much of the research effort for recent diagnostic testing has been directed toward the development of DNA hybridization probe tests. These tests identify specific gene sequences that can be associated with certain genetically based disorders, infectious diseases and the prediction of predisposition to certain medical conditions, such as cancer. Several companies, such as Cepheid, Luminex, Bio-Fire (Biomerieux), Becton-Dickinson and Gen-Probe Inc., are now marketing specific probe tests for various infectious diseases. DNA probe technology is useful for gene markers that have been shown to be associated with specific disease states or clinical conditions. Although more useful gene sequences are being discovered all the time, we believe they will not displace the need for high-sensitivity immunoassays; while there is limited evidence of changes in gene expression for patients with obstructive coronary artery disease, there is no evidence of a genetic change when a person has a heart attack. In addition, our RAMP^® format may be applicable to hybridization probe methods if a need is found for these tests to be quantitative and for use at the point-of-care.

BIODEFENSE MARKET

The following table summarizes our known competitors in the rapid on-site environmental biodefense testing market (note that this table may not include all biological agents for which these companies may have tests):

Company	Biological Agent
	Anthrax	Ricin	Botulinum Toxin	Orthopox	Brucella	Plague	Tularemia	SEB
Response Biomedical Corp.	√	√	√	√
Alexeter Technologies LLC ⁽¹⁾	√	√	√	√	√	√	√	√
New Horizons Diagnostics	√	√	√			√	√	√
ADVNT Inc.	√	√	√			√		√
Idaho Technology Inc.⁽²⁾	√	√	√	√	√	√	√
Tetracore, Inc.	√	√	√	√	√	√	√	√
Smiths Detection BioSeeq Plus ⁽³⁾	√			√		√	√
QTL/MSA	√	√						√

(1)	Product includes a portable reader based on reflectance technology.

(2)	Product includes a portable reader based on polymerase chain reaction technology.

(3)	Product includes a portable reader based on polymerase chain reaction technology.

A number of independent studies have been conducted on biodefense tests. Our RAMP^® Anthrax Test has been evaluated at four sites in the United States and Canada: DRDC Suffield,²⁶ a division of the Canadian Department of National Defense; the Maryland State Department of Health;²⁷ Intertox Inc.,²⁸ a Seattle-based public and occupational health firm, and, Edgewood Chemical Biological Center, part of the U.S. Army's Aberdeen proving ground, and AOAC testing.²⁹ Data from these four evaluations show that our RAMP^® Anthrax Test meets or exceeds its product claims of reliably detecting less than 4,000 live spores, with 99 percent confidence in specificity. The CDC defines a lethal dose of anthrax as 10,000 spores.

²⁶ Defense Research and Development Canada, July, 2002.

²⁷ Maryland State Department of Health, March 2002.

²⁸ Intertox Inc., July 2002.

²⁹ The U.S. Army Aberdeen Proving Ground, November 2004.

-12-

In November 2004, our RAMP^® System was the only commercially available rapid on-site anthrax detection system of those tested that met the new performance standards introduced by AOAC for rapid immunoassay-based anthrax detection systems and to receive the AOAC Official Methods Certificate 070403 stating that our RAMP^® Anthrax Test performed as we claimed and that we are authorized to display the AOAC Performance Tested certification mark. All other commercially available rapid on-site anthrax detection systems tested failed to meet the AOAC’s performance standard. A further intensive, independent field testing program conducted by AOAC and sponsored by the DHS, culminated in the announcement in September 2006 that our RAMP^® Anthrax Test was the first biodetection technology approved for field use by first responders in the United States for the detection of anthrax in an independent testing program conducted by AOAC.

Since our initial RAMP^® product launch, many competitors have launched competitive products into the market place, including Alexeter Biotechnologies and ADVNT Inc., both of which also market rapid detection tests in the United States for Anthrax, Ricin and Botulinum, in addition to SEB, Y. pestis (plague) and others. Internationally, Smith Detection maintains a strong market share. We also believe that a number of diagnostics companies have an active interest in rapid on-site biodefense testing and have the potential to become either competitors or business affiliates.

We currently have over 350 RAMP^® biodefense systems in field use by our customers.

VECTOR ENVIRONMENTAL MARKET

Our main competitor in the rapid on-site vector environmental testing market is VecTor Test Systems Inc. who sells qualitative tests for the detection of viruses such as WNV, Chikungunya, Malaria, Dengue, SLE, EEE and WEE among others.

Emerging competition in the detection of West Nile Virus in the United States market is from RT-PCR systems, as more labs are investing in PCR technology in lieu of rapid detection.

OPERATIONS AND MANUFACTURING

Our RAMP^® System consists of a Reader and test kits (“Kits”) of applicable RAMP^® tests. Until the end of 2013, manufacturing of the Readers was outsourced to an electronics manufacturer located in British Columbia, Canada. Starting in January 2014, we now manufacture and repair both our Readers in-house at our manufacturing facility. We also manufacture all Kits in-house in order to maximize return on investment, protect proprietary technology, and ensure compliance with government and internal quality standards. Kit manufacturing includes reagent and component production, cartridge assembly and final packaging.

In advance of the expected growth of our products, we invested significantly, starting in 2007, to increase the automation, quality and capacity of our manufacturing operations. In March 2008, we moved into our current corporate headquarters, a leased, multi-use, 46,000 square foot facility in Vancouver, British Columbia, Canada where we coordinate all support operations including customer support, technical and instrument service, production planning, shipping and receiving. The facility houses all of our administrative and manufacturing operations and will allow us to achieve our projected manufacturing capacity targets for the next five or more years. Our manufacturing scale-up is ongoing, and our test production capacity has increased from approximately 500,000 tests per shift per year to approximately 2 million tests per shift per year. The initial term of the lease agreement is 15 years with two 5-year renewal options.

Where possible, we require distribution and marketing partners to provide a twelve-month rolling forecast in order to ensure timely and adequate product supply and to allow efficient production, materials, shipping and inventory planning. We plan to meet cost and quality targets through strict scale-up validation procedures and by negotiating supplier agreements for key materials that emphasize both reasonable costs and the highest possible quality. Final packaging, inventory storage and product distribution to marketing partners are managed in accordance with individual partner agreements.

The primary raw materials required to manufacture a test cartridge consist of: antibody reagents, nitrocellulose membrane and injection molded plastic parts to act as housing for the cartridge assembly. There are several different components required to perform the test that are included with the Kit. These are a sample transfer device, a solution for diluting the test sample and reagent-containing tips (for placing the sample being tested into the cartridge). For Readers, the primary raw materials are electronics and mechanical components, optical components, display screens and an injection molded plastic housing. We purchase these primary raw materials from unaffiliated domestic and international suppliers, some of which are sole suppliers. If any single-source supplier were no longer able to supply a component, we may experience a delay while we identify and enter into a purchase arrangement with an alternate supplier. Interruptions in the delivery of these materials or services could adversely impact the Company.

-13-

PATENTS AND PROPRIETARY RIGHTS

We rely on a combination of patents, trademarks, confidential procedures, contractual provisions and similar measures to protect our proprietary information. To develop and maintain our competitive position, we also rely upon continuing invention, trade secrets, technology in-licensing and technical know-how.

It has been our practice to periodically file for patent and trademark protection in the United States and other countries with significant markets, such as Canada, Western European countries, Japan and China. No assurance can be given that patents or trademarks will be issued to us pursuant to our applications or that our patent portfolio will provide us with a meaningful level of commercial protection. We file patent applications on our own behalf as assignee and, when appropriate, have filed and expect to continue to file, applications jointly with our collaborators. Our ability to obtain and enforce patents is uncertain and we cannot guarantee that any patents will issue from any pending or future patent applications owned by or licensed to us, see “Risk Factors”.

In the United States, we own a total of eight utility patents with expiration dates ranging from 2020 to 2028 and two design patents having expiration dates in 2024. We have many foreign counterparts (patents/applications) in other jurisdictions. In addition, patent applications related to our key technologies are pending or granted in China and Hong Kong. We also have multiple registered trademarks in the United States and counterparts in other jurisdictions.

We seek to protect our trade secrets and technology by entering into confidentiality agreements with employees and third parties (such as potential licensees, customers, strategic partners and consultants). In addition, we have implemented certain security measures in our laboratories and offices. Despite such efforts, no assurance can be given that the confidentiality of our proprietary information can be maintained. Also, to the extent that consultants or contracting parties apply technical or scientific information independently developed by them to our projects, disputes may arise as to the proprietary rights to such data.

We have technology in-licensing agreements including the license of NTpro-BNP from Roche Diagnostics GmbH that expires in November 2024. In addition, we have a non-exclusive license of certain intellectual property required to manufacture our lateral flow immunoassay products that expires in December 2019.

GOVERNMENT REGULATION

REGULATORY APPROVAL

CLINICAL DIAGNOSTICS

The Food and Drug Administration, Health Canada and comparable agencies in foreign countries impose substantial requirements upon the development, manufacturing and marketing of drugs and medical devices through the regulation of laboratory and clinical testing procedures, manufacturing, marketing and distribution by requiring labeling, registration, notification, clearance or approval, record keeping and reporting, among other things. See “Risk Factors.”

In China, clearance to market drugs and medical devices must be granted by the China Food & Drug Administration (“CFDA”). Our previous distributors in China obtained their own regulatory clearances however, in November 2013, we received clearance from the CFDA to market our RAMP^® Myoglobin, CK-MB, Troponin I and NT-proBNP tests. In January 2014, we received clearance for our Readers under the names of Response Reader System and Response Reader System Advanced. In August 2014, we received clearance to market our RAMP^®D-dimer test.

As of December 7, 2003, all medical devices sold in the countries of the European Union (“EU”) are required to be compliant with the EU In-Vitro Diagnostic Directive. All new in-vitro diagnostic devices must bear a mark, called the CE Mark, to be registered and legally marketed in the EU after that date. The regulatory requirements for marketing are based on the classification of the individual products and EU member countries are not allowed to impose any additional requirements on medical device manufacturers other than the language used in product labeling. In April 2003, we fulfilled the requirements of the EU In-Vitro Diagnostic Directive Essential Requirements for our three RAMP^® cardiac tests and RAMP^®Reader; in December 2006, we registered our NT-proBNP test as well as our RAMP^® liquid cardiac marker controls used by laboratories to verify Kit performance and user technique; in May 2009, we registered our RAMP^® 200 Reader, in December 2009, we registered our Influenza A+B Test and in September, 2010 our RSV Test. In November 2012, we received the CE mark for D-dimer, capable of the quantification of D-dimer in the blood important for detecting a variety of thrombotic disorders. In May 2013, we received CE Mark for our second generation RAMP^® Cardiac Controls used by laboratories to verify Kit performance and user technique. These controls are manufactured for us by a European company who holds the 510(k) clearance with the FDA. Through the EC Declaration of Conformity, we are entitled to apply the CE Mark to these products. In January 2016, we received CE Mark for our Procalcitonin test. As with the FDA, future RAMP^® tests may have different classifications, which would require ISO 13485 registration as well as a technical file review by a registration organization, known as a Notified Body, prior to authorization to apply the CE Mark.

-14-

Prior to sale in the United States, RAMP^® clinical products will typically require pre-marketing clearance through a filing with the FDA called a 510(k) submission. A 510(k) submission claims substantial equivalence to a similar, previously cleared product known as a “predicate device” and minimally takes about ninety (90) days for clearance approval once a submission is made. Some RAMP^® tests may detect analytes or have applications or intended uses for which there are no equivalent products on the market. In such cases, the test will require pre-market approval, a process that requires clinical trials to demonstrate clinical utility, as well as the safety and efficacy of the product. Including clinical trials, the pre-market approval process can take approximately two years.

Marketing clearance for our RAMP^® Myoglobin Assay and RAMP^® Reader was received in 2001. Marketing clearances for the RAMP^® CK-MB Assay and the RAMP^® Troponin I Assay on our RAMP^® Reader were received in May 2004. The marketing clearance for our RAMP^® Influenza A+B Assay and our RAMP^® 200 Reader was received in April 2008. The marketing clearance for our RAMP^® NT-proBNP Assay on our RAMP^® Reader was received in July 2008. The marketing clearance for our RAMP^® RSV Assay on our RAMP^® 200 was received in July 2009.

As of March 23, 2012, we have received FDA premarket clearance for Myoglobin, CK-MB, Troponin I and NT-proBNP on our RAMP^® Reader for POC and central-lab use and Influenza A+B and RSV on our RAMP^®200 reader for POC and central-lab use. In January 2013, documentation of extensive internal validation testing was completed as required by the FDA guidance “Replacement Reagent and Instrument Family Policy”, to allow for the addition of the 510(k) cleared RAMP^® 200 as a central laboratory analyzer for use with the 510(k) cleared RAMP^® Troponin I, NT-proBNP, CK-MB and Myoglobin cardiovascular tests. This testing demonstrated that the RAMP^® Reader and the RAMP^® 200 give equivalent results when the cardiac products are used in a laboratory setting. We concluded that additional 510(k) clearance of the RAMP^®200 use with the cardiovascular products was not required under the FDA’s regulations. Our D-dimer and PCT assays are not cleared by the FDA in the U.S.

We are currently developing additional tests that we will have to clear with the FDA through the 510(k) notification procedures. These new test products are crucial for our continued success in the human medical market. If we do not receive 510(k) clearance for a particular product, we will not be able to market that product in the United States until we provide additional information to the FDA and gain premarket clearance. The inability to market a new product during this time could harm our future sales in the United States.

In order to fully penetrate the physician’s office lab market in the United States, we will need to obtain waiver status under the CLIA. A CLIA-waived test is a test that employs methodologies that are so simple and accurate as to render the likelihood of erroneous results negligible and/or pose no reasonable risk of harm to the patient if the test is performed incorrectly. CLIA-waived tests are designed to be performed by less experienced and untrained personnel. The current CLIA regulations divide laboratory tests into three categories: “waived,” “moderately complex” and “highly complex.” Many of the tests performed using our RAMP^® platform are in the “moderately complex” category. Moderately complex tests can only be performed in laboratories fulfilling certain criteria, which are fulfilled by a minority of physician office laboratories in the United States.

In Canada, in vitro diagnostics are regulated by the Therapeutic Products Directorate of Health Canada (“TPD”) and are licensed for sale through submission to the TPD. The timeline for approval is similar to that of the FDA’s 510(k) process. As of January 2003, all new and existing class II, III and IV Medical Device Licenses (“MDL”) in Canada also require a valid International Organization for Standardization (“ISO”), 13485 or ISO 13488 Quality System Certificate from a registrar recognized by the Canadian Medical Devices Conformity Assessment System (“CMDCAS”). We achieved registration to the ISO 13485:2003 standard in April 2004. An MDL was issued for our Myoglobin Assay and Reader in 2002. MDLs were received for our RAMP^® CK-MB Assay and RAMP^® Troponin I Assay in August 2004; for our RAMP^® NT-proBNP Assay in June 2007, and for our RAMP^® liquid cardiac marker controls used by laboratories to verify Kit performance and user technique. These controls are manufactured for us by a U.S. company who holds the 510(k) clearance with the FDA. An MDL was received for our RAMP^® Influenza A+B Assay and RAMP^® 200 reader in May 2009. An MDL was received for our RAMP^® RSV Assay in May 2010. In October 2012, we received an MDL from Health Canada for our RAMP^®D-dimer Assay. In May 2013, we received an MDL from Health Canada as a private labeler for our second generation RAMP^® Cardiac Controls. In January 2016, we received an MDL from Health Canada for our RAMP^®PCT Assay.

In other parts of the world, the regulatory process varies greatly and is subject to rapid change. Many developing countries only require an import permit from their own government agency or proof of approval from the regulatory agency in the manufacturer’s country of origin. We require our marketing and distribution partners to ensure that all regulatory requirements are met in order to sell our RAMP^® tests in their respective territories.

Clinical consultants are used to support in-house resources where necessary to develop protocols and prepare regulatory submissions for government agencies such as the FDA and the TPD. We completed multi-center clinical trials for our RAMP^® Myoglobin Assay and our RAMP^® Reader in 2001, for our RAMP^® CK-MB Assay and our RAMP^® Troponin I Assay in November 2003, for our RAMP^® NT-proBNP Assay in November 2006 and for our Influenza A+B Assay and our RAMP^® 200 reader in May 2007, and for our RAMP^® RSV Assay in November 2008. We completed a single site clinical study to determine the reference range for our RAMP^® D-dimer Assay in August 2012. We completed a single site clinical study to determine the reference range for our RAMP^® PCT Assay in October 2015.

-15-

ON-SITE ENVIRONMENTAL TESTING

Biodefense Testing

There are currently no regulatory approvals or clearances required to market on-site environmental biodefense tests in North America. There appears to be some support from the market for regulatory oversight of such testing, and regulatory agencies such as the Department of Homeland Security may in the future impose substantial requirements upon the development, manufacturing and marketing of devices through the regulation of laboratory and clinical testing procedures, manufacturing, marketing and distribution by requiring labeling, registration, pre-market notification, clearance or approval, record keeping and reporting. While additional regulatory requirements will make it more difficult for poorly performing products to participate in the market, they could also significantly increase the time and cost for companies to bring new tests to market, creating a barrier to entry.

The lack of regulatory oversight in the biodefense industry means there is virtually no independent data available for a customer to verify a manufacturer’s product claims. Since launching our Anthrax Test, we have received third party validation of the product’s performance. See “On-Site Environmental Testing Market, Competition.” Currently, however, companies are not required to have any form of regulatory clearance to market handheld assays for the detection of biodefense threats such as anthrax. See “Risk Factors.”

The performance and field-testing programs conducted by the AOAC in 2004 through 2006 were developed in collaboration with and funded by the DHS. One of the goals of the testing programs was to develop industry performance standards. The final form and substance of these possible standards and the impact on our industry is currently unclear.

Vector Environmental Testing

There is no regulatory clearance required for our RAMP^® West Nile Virus or RAMP^®Dengue tests because it is only used for testing mosquitoes.

MANUFACTURING REGULATIONS AND VARIOUS FEDERAL, STATE, LOCAL AND INTERNATIONAL REGULATIONS

The 1976 Medical Device Amendment also requires us to manufacture our RAMP^® products in accordance with Good Manufacturing Practice regulations. Current Good Manufacturing Practices (“CGMPs”) requirements are set forth in the 21CFR 820 Quality System Regulation. These requirements regulate the methods used in, and the facilities and controls used for the design, manufacture, packaging, storage, installation and servicing of our medical devices intended for human use. Our manufacturing facility is subject to periodic inspections. In addition, various state regulatory agencies may regulate the manufacture of our products.

Federal, state, local and international regulations regarding the manufacture and sale of health care products and diagnostic devices may change. In addition, as we continue to sell in foreign markets, we may have to obtain additional governmental clearances in those markets.

To date, we have complied with the following federal, state, local and international regulatory requirements:

●

In December 2012, the United States FDA conducted its second routine Quality Systems Inspection at Response since August of 2007. The four-day FDA visit covered FDA’s Quality System/CGMPs Regulations for Medical Devices. The inspection was successful and there were no Form 483 observations issued to Response. Health Canada Therapeutic Products Directorate: In 2004, the TPD granted our manufacturing facility Medical Device Licenses, based on the Medical Device Regulations (SOR/98-282), Section 36, for the manufacture of our medical devices.

●

International Organization for Standardization: In July 2004, we received our ISO 9001 certification, expanding our compliance with international quality standards. In April 2004, we received ISO 13485 Quality System certification as required by the 2003 European In Vitro Device Directive. This certified our quality system specifically to medical devices. In April 2004, we received the Canadian Medical Device Conformity Assessment System stamp on our ISO 13485 certificate to signify compliance with Health Canada regulations. In June 2010, we received our recertification to the ISO 13485:2003 Quality System Standard for medical devices.

RESEARCH AND DEVELOPMENT EXPENDITURES

Research and development activities relate to development of new tests and test methods, clinical trials, product improvements and optimization, activities required under our research collaborations and enhancement of existing products. Our research and development expenses, which consist of personnel costs, facilities, materials and supplies, regulatory and clinical trial activities and other related expenses were $2.9 million, $3.5 million, and $2.4 million for the years ended December 31, 2015, 2014, and 2013, respectively.

-16-

SEASONAL VARIATIONS IN BUSINESS

Our operating results may fluctuate from quarter to quarter due to many seasonal factors. Many of our end-users 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 fluorescent 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. Sales of our Influenza A+B Tests are typically slower in the non-traditional influenza months of April through September.

BACKLOG

Because we ship our products shortly after we receive the orders from our customers, we generally operate with a limited order backlog. 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 and (iii) to the purchasing requirements by various international governments to acquire our products.

RISKS ATTENDANT TO FOREIGN OPERATIONS AND DEPENDENCE

63% of our sales in 2015 were generated from China primarily through Shanghai Elite whose territory was expanded to encompass all of China in early 2015, thus resulting in a greater dependence on Shanghai Elite’s performance. Shanghai Elite met its contractual minimums for purchases of products from us in the first half of the year. In August 2015, Shanghai Elite advised us that they had built up inventory at a higher rate than their end user sales at the time. As a result, they made lower purchases than their contractual minimums during the second half of the year. Effective March 3, 2016 Shanghai Elite no longer has exclusive rights to sell our products in China.

FINANCIAL INFORMATION AND INDUSTRY SEGMENTS

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 and Canada. Expenses are primarily incurred from purchases made from suppliers in Canada and the United States.

The geographical distribution of our product sales is as follows (in thousands):

Years ended December 31,	2015		2014		2013
		$		$		$
China		7,516		6,906		7,153
United States		1,379		1,246		1,670
Russia		991		1,031		918
Japan		521		378		625
Canada		42		73		35
Other		1,524		1,194		1,130
Total		11,973		10,828		11,531

-17-

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

Years ended December 31,	2015		2014		2013
	$		$		$
Cardiovascular		10,826		9,785		10,056
Infectious Diseases		122		163		450
Biodefense products		312		360		403
Vector Environmental		713		520		622
Total		11,973		10,828		11,531

For further information, please see Item 6 (“Selected Financial Data”).

WORKING CAPITAL

Please see Item 6 (“Selected Financial Data”) and Item 7 (“Management's Discussion and Analysis of Financial Condition and Results of Operations").

EMPLOYEES

On December 31, 2015, we had 56 full-time employees.

AVAILABLE INFORMATION

Our corporate internet address is http://responsebio.com. At the "Investors" section of this website, we make available free of charge our Annual Report on Form 10-K, our Annual Proxy statement, our quarterly reports on Form 10-Q, our press releases, and any amendments to these reports, as soon as reasonably practicable after we electronically file them with, or furnish them to, the Securities and Exchange Commission, or the SEC. The information found on our website is not part of this Annual Report on Form 10-K. In addition to our website, the Securities and Exchange Commission, or the SEC, maintains an Internet site at www.sec.gov/edgar that contains reports, proxy and information statements, and other information regarding us and other issuers that file electronically with the SEC.

-18-

ITEM 1A. RISK FACTORS

We operate in a rapidly changing environment that involves numerous uncertainties and risks. If any of the following risks actually occur, our business could be harmed and the trading price of our common stock could decline. This Annual Report on Form 10-K also contains forward-looking statements that involve risks and uncertainties. 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. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of factors that are described below and elsewhere in this report.

RISKS RELATED TO OUR COMPANY

We may 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 although we have positive cash flows from operations in 2015, we historically have had negative cash flow from operations. We believe that with a combination of some or all of various cost reduction, cash conservation, sales and marketing, and financing initiatives, and with the targeted execution under the Joinstar Agreements, and strengthening of our China sales/distribution, based on the projected level of operations, our cash and cash equivalent balances, including cash generated from operations, will be sufficient to meet our anticipated cash requirements through the next twelve months. If we are unable to sustain cash flow positive operations and we are unable to obtain additional financing, we will be required to reduce or restructure operations or we may be required to cease operations. We have historically relied primarily on debt and equity financings to fund our operations and commercialize our products. Additional capital may not be available, at such times or in amounts as needed by us. Even if capital is available, it might be on adverse terms. Any additional equity financing will be dilutive to our shareholders. If access to sufficient capital is not available as and when needed, our business will be materially impaired and we may be required to cease operations, curtail one or more product development, manufacturing improvement, or sales generation programs, attempt to obtain funds through collaborative partners or others that may require us to relinquish rights to certain technologies or product candidates, or we may be required to significantly reduce expenses, sell assets, seek a merger or joint venture partner, file for protection from creditors or liquidate all our assets.

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

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

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 December 31, 2015, we had an accumulated deficit of $120.4 million and until the last three quarters, have only generated positive cash flow from operations in one other period, in the first quarter of 2013. Our existing cash resources, along with cash generated from operations, may not be sufficient to fund operations for at least the next twelve months. In addition, we may not be able to successfully achieve the last development milestone in our collaboration agreement with Joinstar on a timely basis, or at all. Accordingly, there is substantial doubt about our ability to continue as a going concern. We may need to seek additional financing to support our continued operations and 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 sustaining profitable operations. The outcome of these matters cannot be predicted at this time. The consolidated financial statements for the year ended December 31, 2015 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.

-19-

We have evolved from a pure development company to a commercial enterprise but to date have realized minimal operating profits from product sales. For the years ended December 31, 2015, 2014 and 2013, we have a net loss of $0.2 million, $2.1 million, and $6.0 million, respectively; however, excluding the non-cash unrealized loss or gain on revaluation of our warrant liability we have incurred adjusted losses of $1.1 million, $6.1 million, and $3.9 million. This fiscal year is the first time we have generated income from operations but there is uncertainty if this will 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.

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

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 and/or decrease our expenses to become profitable or sustain profitability.

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

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

●

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

●

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

●

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

●

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

●

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

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

-20-

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

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

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

In the first quarter of 2015, we granted Shanghai Elite exclusive distribution rights to all of China excluding Taiwan, Hong Kong and Macao Special Administration Region effective April 23, 2015. We cannot predict whether our new national distributor will fully replace the sales previously provided by our former distributors or that Shanghai Elite will be able to accurately determine end-user buying patterns, which would have an adverse impact on our business performance in future years, as was the case in the second and third quarters of 2013 and the first quarter of 2014. Additionally, our national distributor in China made fewer purchases from us during the third and fourth quarters of 2015 as they are still trying to determine end-user buying patterns. Effective March 3, 2016 Shanghai Elite no longer has exclusive rights to sell our products in China.

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 during the year ended December 31, 2015 came from sales of our products through our distribution channel partner in China. China is a dynamic and rapidly evolving market for medical technology including the POC diagnostic testing market in which we compete. While we have established a direct presence in China via a Representative Office to allow us to better monitor and understand this market, there is no assurance that these activities will be effective and will enable us to anticipate changes in this market or may impact the relationships that we have with existing Chinese distributors which could materially and adversely impact our product sales in China.

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

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

-21-

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

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

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

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

●

new product announcements made by us or our competitors;

●

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

●

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

●

the timing and size of orders from our distributors;

●

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

●

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

●

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

●

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

●

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

●

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

●

the amount we spend on research and development; and

●

changes in our strategy.

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

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

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

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

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

-22-

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

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

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

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

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

Many of our competitors have significantly larger product lines to offer and greater financial and other resources to acquire or develop new or competing technologies than we do. In addition, many of these competitors have large sales forces 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 business may be impacted by political events, war, terrorism, public health issues, natural disasters and other circumstances.

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

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

In May 2007, we entered into an agreement to lease a multi-use, 46,000 square foot facility in Vancouver, British Columbia, Canada. Although we have recently brought our Reader manufacturing in-house, this facility, which we have occupied as our main operation center since 2008, is significantly larger than required for our near term production requirements. The excess space is difficult to sublease due to the current layout of the company’s manufacturing operations and the significant availability of space in other buildings in the local real estate market. In addition to rental payments for the facility, we are obligated to repay with interest over the next 7 years the $5.2 million balance due as of December 31, 2015 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.

-23-

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

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

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

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

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

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

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

●

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

●

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

	●	Significant changes in a Joinstar’s business strategy may adversely affect their willingness or ability to complete their obligations under our agreements.
	●	The limited non-compete clauses may inhibit our ability to enter into a strategic partnership with a Company with an instrument that has the same specific attributes of the Joinstar instrument during the terms of the agreements.

-24-

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.

-25-

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

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

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

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

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

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

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

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

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

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

-26-

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

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

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

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

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

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

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

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

-27-

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

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

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

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

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

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

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

-28-

RISKS RELATED TO OUR INDUSTRY

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

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

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

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

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

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

The commercial success of our clinical tests is highly dependent upon the acceptance and adoption of the tests by the medical community. The medical community tends to be very conservative 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.

-29-

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 our distribution networks in the United States and China, our competitors may be more successful in convincing potential customers to adopt their products over ours and hence gain greater market share. Competitors with greater financial resources may also have an advantage when dealing with suppliers, particularly sole source suppliers providing antibodies or unique reagents. Additionally, they may develop technologies and products that are more effective than any products developed by us, or that would render our technologies and products obsolete or non-competitive.

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

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

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

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

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

The market for immunoassay-based diagnostic testing is rapidly changing as a result of consolidation in the industry. There have been many acquisitions in the medical diagnostics market including several by Alere, which helped the company expand its presence in the market for rapid diagnostic tests used in hospitals and doctors' offices. Siemens and Alere both have significant existing businesses in diagnostics and/or related markets for healthcare equipment and services. It is unclear how these completed, or future, acquisitions will impact the competitive landscape for our products, or for hospital-based diagnostic testing in general. However, because these competitors sell a broad range of product offerings to our prospective hospital customers, and because of the substantially greater financial resources and more established marketing, sales, and service organizations that they each have, we believe there is greater risk that these new consolidated competitors may offer discounts as a competitive tactic, or may hold other competitive advantages as a result of their ability to sell to a broader menu of important hospital infrastructures, for equipment and information systems, on a combined, or bundled basis.

-30-

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 December 31, 2015, we had outstanding stock options to purchase an aggregate of 1,533,022 shares, at exercise prices between $0.60 and $6.80, warrants to purchase an aggregate of 5,049,445 shares at exercise prices between $1.00 and $3.58, and 112,489 restricted share units, which in total represents 34% 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.

-31-

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

Our common stock is currently listed for trading in Canada on the Toronto Stock Exchange (“TSX”). Our common stock is also quoted in the United States on the OTC. Shareholders may find it more difficult to dispose of or to obtain accurate quotations as to the price of our securities than if the securities were traded on a national securities exchange like The New York Stock Exchange, the NASDAQ Stock Market or the NYSE Amex LLC. The continued listing of our common stock on the TSX is currently under review. We have been granted 30 days from March 21, 2016 to demonstrate compliance with the continued listing requirements of the TSX. In the event we are unable to continue with the listing of our common stock on the TSX, other listing alternatives exist for reporting issuers in the U.S. and Canada, including the TSX Venture Exchange.

ITEM 2. PROPERTIES.

Our business offices are located in Vancouver, British Columbia. In May 2007, we entered into an agreement to lease a multi-use, 46,000 square foot facility. The facility has housed all of our operations since March 31, 2008 and requires us to pay approximately $185,000 per month in rent and operating expenses. Initial capital modifications to the facility were paid by the landlord and managed by us. The agreement has an initial term of 15 years with two five-year renewal options. To secure the lease, we are required to maintain a security deposit with the landlord in the form of an irrevocable letter of credit in the amount of $870,000. As a result of our realizing an operating profit for calendar 2015, we are permitted to reduce the security deposit to 33% of the of the original amount . As part of the agreement, we received a repayable leasehold improvement allowance for an amount of $7.8 million, used for additional improvements to the facility. The allowance is being repaid over the term of the operating lease at approximately $89,000 per month including interest at an annual rate of 11%, compounded monthly.

We believe that the facilities we currently lease are sufficient for our anticipated near-term needs.

ITEM 3. LEGAL PROCEEDINGS.

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. We are not currently a party to any legal proceedings, the adverse outcome of which, in management’s opinion, individually or in the aggregate, would have a material adverse effect on our results of operations or financial position. There are no material proceedings to which any director, officer or any of our affiliates, any owner of record or beneficially of more than five percent of any class of our voting securities is a party adverse to us or has a material interest adverse thereto.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

-32-

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATEED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

MARKET FOR COMMON EQUITY

Our common stock is traded on the Toronto Stock Exchange (TSX) under the trading symbol “RBM” and quoted on the OTC under the symbol “RPBIF”. As of February 28, 2016, there were 9,925,256 shares of our common stock outstanding held by approximately 1,500 stockholders of record and 2 beneficial stockholders. The high and low sales prices of our common stock as reported on the TSX for the periods indicated are as follows:

	HIGH		LOW
	(in CDN $)		(in CDN $)
Response Biomedical Corp.
YEAR ENDED DECEMBER 31, 2014
First quarter	$	1.94	$	1.41
Second quarter		1.60		1.41
Third quarter		1.80		1.22
Fourth quarter		1.37		0.70

YEAR ENDED DECEMBER 31, 2015
First quarter	$	1.00	$	0.66
Second quarter		0.92		0.68
Third quarter		0.99		0.38
Fourth quarter		0.80		0.34

DIVIDEND POLICY

We have not declared or paid any dividends on the outstanding common shares since our inception and we do not anticipate that we will do so in the foreseeable future. The declaration of dividends on our common shares is within the discretion of the Board of Directors and will depend on the assessment of, among other factors, earnings, capital requirements and our operating and financial condition. At the present time, anticipated capital requirements are such that we intend to follow a policy of retaining earnings in order to finance the further development of the business.

SALES OF UNREGISTERED SECURITIES

On December 12, 2014, the Company closed a non-brokered private placement with Joinstar of 1,800,000 common shares at a price of $1.21 per common share for total gross proceeds of $2.2 million before share issuance costs of approximately $150,000. The offering was exempt under Rule 506 of Regulation D promulgated under Securities Exchange Act of 1934, as amended (Rule 506).

On November 7, 2013, the Company’s shareholders approved a brokered and non-brokered private placement of 1,273,117 subscription receipts at a price of $2.45 for aggregate gross proceeds of $3.1 million before share issuance costs of approximately $400,000. Each Subscription Receipt automatically entitled the holder to receive one unit. Each unit consists of one common share and one-half of one warrant to purchase one common share. Each whole warrant has a term of 36 months and an exercise price of $3.58. The offering was exempt under Rule 506.

REPURCHASES OF EQUITY SECURITIES

We did not repurchase any of our equity securities during the year ending December 31, 2015.

ITEM 6. SELECTED FINANCIAL DATA

The selected historical financial information presented below for each of the five years ended December 31, 2011 through to 2015, has been derived from our consolidated financial statements prepared in accordance with U.S. GAAP.

-33-

The information below should be read in conjunction with our consolidated financial statements, the related notes thereto and the information contained in "Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations".


Year ended December 31,	2015			2014			2013			2012			2011
Consolidated Statements of Income Data:
Product sales	$	11.973		$	10,828		$	11,531		$	11,750		$	9,024
Collaborative revenue		3,445			186			-			-			450
Total revenue	$	15,418		$	11,014		$	11,531		$	11,750		$	9,474
Cost of sales		7,339			6,647			6,588			7,504			6,969
Gross profit		8,079			4,367			4,943			4,246			2,505
Operating expenses		7,794			9,400			8,147			8,449			7,392
Income/(loss) from operations		285			(5,033	)		(3,204	)		(4,203	)		(4,887	)
Other expense / (income)		435			(2,943	)		2,794			1,078			484
Net loss	$	(150	)	$	(2,090	)	$	(5,998	)	$	(5,281	)	$	(5,371	)
Loss per common share - basic and diluted	$	(0.02	)	$	(0.26	)	$	(0.89	)	$	(0.82	)	$	(2.72	)
Weighted average common shares outstanding - basic and diluted		9,879,148			8,025,143			6,747,369			6,437,158			1,972,171


As of December 31,	2015			2014			2013			2012		2011
Consolidated Balance Sheets Data:
Total assets	$	11,806		$	13,628		$	14,204		$	14,348	$	20,893
Long-term obligations		6,082			7,411			7,063			7,633		8,236
Total shareholders' equity/(deficit)		(711	)		(894	)		(1,482	)		321		4,976

-34-

ITEM 7. 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, included in Item 8 of this Report. Unless otherwise specified, all dollar amounts are Canadian dollars.

OVERVIEW

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

Sales to the Company’s national distributor in China represented 62% of product sales during the year ended December 31, 2015. While this distributor met its contractual minimums for purchases of products from the Company in the first six months of the year, it advised the Company that it has built up inventory at a higher rate than its current sales to end-users. Consequently, this distributor made lower purchases from the Company during the last two quarters of the year compared to the first two quarters of 2015. This national distributor is still in the process of expanding into additional territories within China and determining end-user buying patterns. No returns of the products purchased by the national distributor are either expected or permitted under the terms of its distribution agreement.

To address the recent expected near term reductions in our shipments to this China distributor, we implemented several cash conservation and cost reduction initiatives during the third quarter in 2015 to extend our available cash resources. These actions included selected staff layoffs and work-sharing programs, reductions in discretionary spending, and additional efforts to sell inventory accumulated late in the second quarter. In parallel, our China office staff are now actively engaged in expanding our sales and marketing activities in China working with our distributor. As a further step to strengthen our financial position, the Company is also seeking additional financing alternatives. While the Company is pursuing these various initiatives, there is no assurance that these efforts will be sufficient to fund the Company’s operations or that quarter-over-quarter product sales will increase.

We have thus far financed our operations through a series of equity financings, debt financings, and collaborative arrangements. On October 15, 2014, we entered into a funded Technology Development Agreement and on February 16, 2015, a Collaboration Agreement with Hangzhou Joinstar Biomedical Technology Co. Ltd. (“Joinstar”) to support the co-development by Response and Joinstar of components and multiple assays that will run on a high throughput rapid immunoassay analyzer developed by Joinstar. Under the terms of the agreements, we have received milestones totaling US$3.0 million to date and are eligible to receive a further US$0.8 million for the last development milestone that is expected to be paid to Response during the remaining six month project period. In conjunction with the signing of the Collaborative Agreement, we entered into a definitive Supply Agreement with Joinstar whereby we will provide certain materials required for Joinstar to manufacture and sell the developed assays specifically to run on their analyzer. Under the terms of the Supply Agreement, we are eligible to receive a guaranteed US$1.78 million in revenue-based payments over the first five years of commercialization of the co-developed assays. To date, commercialization of the co-developed assays has not commenced.

In addition to the Joinstar agreements, the Company has a term loan from Silicon Valley Bank (“SVB”) with an outstanding principal balance of approximately US$0.9 million as of December 31, 2015, which is being repaid monthly over the next seventeen months. We believe that with a combination of some or all of the various cost reduction, cash conservation, sales and marketing, and, if necessary, financing initiatives and with the targeted execution under the Joinstar Agreements and strengthening of our China sales/distribution, based on the projected level of operations, our cash and cash equivalent balances, including cash generated from operations, will be sufficient to meet our anticipated cash requirements through the next twelve months. However, due to our history of losses, the challenges of our sales activities in our China market and uncertain success of our various cost, cash, and financing efforts, there is substantial doubt over our ability to continue as a going concern as we are dependent on expanding distribution in China and meeting the development milestones required to earn the additional US$0.8 million in development fees under the Collaboration Agreement with Joinstar, achieving profitable operations, and/or additional financings, the outcomes of which cannot be predicted at this time. 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.

-35-

RECENT DEVELOPMENTS

●

On February 6, 2015, we announced that we had expanded the scope of our agreement with Shanghai Elite to distribute our Cardiovascular portfolio of RAMP^® products effective April 23, 2015. Under the agreement, Shanghai Elite became our exclusive national distributor in China. Effective March 3, 2016 Shanghai Elite no longer has exclusive rights to sell our products in China.

●

On February 16, 2015, we announced that we had earned the second milestone of US$720,000 in the funded Technology Development Agreement with Joinstar. We received the milestone payment upon the signing of the definitive Collaboration Agreement.

●

On April 14, 2015, we earned the third milestone of US$360,000 in the Collaboration Agreement with Joinstar. We earned the milestone upon the delivery of certain components for the high throughput rapid immunoassay analyzer developed by Joinstar.

●

On May 19, 2015, we announced that Dr. Barbara Kinnaird, Ph.D. was promoted to our Chief Executive Officer.

●

On August 6, 2015, following a successful search process, we hired Julius Wu as our new General Manager for China..

●

On September 9, 2015, we received the fourth milestone of US$648,000 in the funded Collaboration Agreement with Joinstar. We earned this milestone during the quarter ended September 30, 2015 upon the delivery of certain components for the high throughput rapid immunoassay analyzer developed by Joinstar.

●

On November 19, 2015, we announced that we received notice that the Toronto Stock Exchange (“TSX”) has initiated a review of the continued listing of our common shares. The TSX initiated its review because the price of our shares traded below $0.68 for 30 consecutive trading days, and as a result, the market value of the publicly held common shares (as defined by the TSX) did not meet the minimum threshold of $2 million required under the TSX rules. TSX rules exclude shares held by certain of our significant shareholders and directors and officers, which total approximately 70% of our outstanding shares, from their calculation. As of March 21, 2016, the TSX has granted a thirty (30) day extension of their review.

●

On December 8, 2015, we announced that, effective January 5, 2016, Alere Medical Co., Ltd. (“Alere Japan”) became the exclusive national distributor in Japan for the marketing and sales of Response manufactured BNP tests and readers. Shionogi & Co. Ltd will continue to supply biological reagents to us under separate license and supply agreements.

●

On December 30, 2015, we announced that we earned the fifth milestone of US$720,000 in the Collaboration Agreement with Joinstar. We earned this milestone upon the receipt of certain reports for the high throughput rapid immunoassay analyzer developed by Joinstar.

●

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

●

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

-36-

RESULTS OF OPERATIONS

REVENUES, COST OF GOODS SOLD AND GROSS MARGIN (IN THOUSANDS EXCEPT PERCENTAGES)

	Year ended December 31,									Change 2014 to 2015					Change 2013 to 2014
	2015			2014			2013			Increase / (Decrease)		Percent Change			Increase / (Decrease)			Percent Change
Product sales		11,973			10,828			11,531			1,145		11	%		(703	)		(6%	)
Collaborative revenue		3,445			186			-			3,259		1,752	%		186			100	%
Total revenue		15,418			11,014			11,531			4,404		40	%		(517	)		(4%	)
Cost of Sales		7,339			6,647			6,588			692		10	%		59			1	%
Gross profit		8,079			4,367			4,943			3,712		85	%		(576	)		12	%
Gross margin on product sales		38.7	%		38.6	%		42.9	%

FISCAL 2015 VERSUS FISCAL 2014

Product Sales

Product sales increased 11%, or $1.1 million, in fiscal 2015 as compared to fiscal 2014. The change is due primarily to an increase in worldwide instrument and cardiovascular test sales worldwide with the largest increase coming from China. As mentioned above, our national distributor in China met its contractual minimums in each of the first two quarters of 2015 but as a new national distributor still in the process of expanding into additional territories within China and determining end-user buying patterns, they built up inventory at a higher rate than their current sales to end-users. Consequently, the distributor made fewer purchases from us during the second half of 2015.

Collaborative Revenue

Collaborative revenue increased by $3.3 million in fiscal 2015 due to recognition of revenue associated with the collaboration with Joinstar signed in the fourth quarter of 2014. We earned three of the four substantive milestones under the collaboration agreement during the year ended December 31, 2015.

Gross Profit

Gross profit increased 85%, or $3.7 million, in fiscal 2015 as compared to fiscal 2014. Excluding the collaborative revenue, gross profit increased 11%, or $0.5 million. Gross margin on product sales stayed relatively the same due to the following factors:

●

A 4% decrease in manufacturing overhead costs leading to a lower cost per unit; and

●

Inflation and foreign exchange fluctuations from an appreciated US dollar relative to the Canadian dollar during the year.

Offsetting the above was:

●

A significant increase in subsidized promotional reader placement programs intended to increase our customer base and stimulate future test sales growth;

●

An increase in our estimated product warranties; and

●

An increase in the volume rebate earned by our largest distributor.

FISCAL 2014 VERSUS FISCAL 2013

Product Sales

Product sales decreased 6%, or $0.7 million, in fiscal 2014 as compared to fiscal 2013. The change in total revenue is due to the following:

●

Cardiovascular sales decreased 2.7%, or $0.3 million, primarily due to reduced sales in China as a result of the transition to new distribution partners in the fourth quarter of 2013; and

●

Infectious disease, Biodefense and West Nile Virus sales decreased 29%, or $0.4 million, primarily due to lower sales of Influenza tests during the first quarter of 2014 compared with the first quarter of 2013, because the flu season was more severe during the first quarter of 2013;

-37-

Collaborative Revenue

Collaborative revenue was $0.2 million in fiscal 2014 due to recognition of revenue associated with the collaboration with Joinstar signed in the fourth quarter of 2014. We did not record any collaborative revenue in 2013.

Gross Profit

Gross profit decreased 12%, or $0.6 million, in fiscal 2014 as compared to fiscal 2013. The change in total gross profit is primarily due to the decrease in product sales of 6% and a decrease in gross margin on product sales to 38.6% from 42.9% in fiscal 2013. This decrease in gross margin is primarily due to the following:

●

A decrease in the sale of our higher margin products (Infectious disease, Biodefense, and West Nile Virus ) described under Product Sales above;

●

An increase in promotional reader placement programs implemented during the year intended to stimulate future test sale growth;

●

A $0.3 million increase in the amount of inventory provided for or written off related to scrapped, expired, obsolete or damaged inventory; and

●

A 2%, increase in unit manufacturing costs as inflationary cost factors outweighed productivity gains during the year.

OPERATING EXPENSES (IN THOUSANDS EXCEPT PERCENTAGES)

	Year ended December 31,						Change 2014 to 2015						Change 2013 to 2014
	2015		2014		2013		Increase / (Decrease)			Percent Change			Increase / (Decrease)			Percent Change
Research and development		2,901		3,525		2,402		(624	)		(18%	)		1,123			47	%
General and administrative		2,564		3,297		3,574		(733	)		(22%	)		(277	)		(8%	)
Sales and marketing		2,329		2,578		2,171		(249	)		(10%	)		407			19	%
Total operating expenses		7,794		9,400		8,147		(1,606	)		(17%	)		1,253			15	%

FISCAL 2015 VERSUS 2014

Research and Development Expenses

Research and development expenses decreased by 18%, or $0.6 million. This was the result of lower legal and professional costs associated with the timing of clinical and regulatory work being done in 2015, which were partially offset by higher development costs related to the Joinstar collaboration and development of our new PCT and Dengue tests.

General and Administrative Expenses

General and administrative expenses decreased by 22%, or $0.7 million. The decrease is primarily due to decreased stock based compensation and salaries and wages as a result of the resignation of our former CEO in the third quarter of 2014 and an associated severance accrual in 2014.

Sales and Marketing Expenses

Sales and marketing expenses decreased by 10%, or $0.2 million. This was primarily the result of lower salaries and wages due to a smaller staff and severance accrued for the resignation of our senior vice president of sales in 2014 offset by higher marketing costs incurred in China.

-38-

FISCAL 2014 VERSUS FISCAL 2013

Research and Development Expenses

Research and development expenses increased by 47%, or $1.1 million. The increase is primarily due to a $0.9 million increase in professional fees and development costs associated with increased product development, clinical and regulatory work and a $0.2 million increase in salaries and wages primarily the result of a reduction in government funding support that funds some of our research and development salaries and wages.

General and Administrative Expenses

General and administrative expenses decreased by 8%, or $0.3 million. The decrease is primarily due to a $0.3 million decrease in stock based compensation expense, a $0.2 million decrease in legal and professional fees and overhead costs due primarily to a decrease in the amount of legal work required in 2014. This was offset by a $0.1 million increase in salaries and wages as a result of higher severance costs that more than offset the savings from reduced headcount in 2014.

Sales and Marketing Expenses

Sales and marketing expenses increased by 19%, or $0.4 million. The increase is primarily due to a $0.3 million increase in salaries and wages and recruiting costs as a result of severance incurred in 2014 and an increase in the number of sales employees in the U.S. and China. The remaining increase is due to higher travel and marketing expenditures due to an increase tradeshow and conference presence.

OTHER EXPENSE/(INCOME), NET (IN THOUSANDS EXCEPT PERCENTAGES)

	Year ended December 31,									Change 2014 to 2015						Change 2013 to 2014
	2015			2014			2013			Increase / (Decrease)			Percent Change			Increase / (Decrease)			Percent Change
Interest expense and amortization of deferred financing costs and debt discount		878			874			696			4			0	%		178			26	%
Interest income		(10	)		(15	)		(15	)		5			(33%	)		-			0	%
Other (income)/expense		43			68			(17	)		(25	)		(37%	)		85			(500%	)
Foreign exchange loss		472			132			16			340			258	%		116			725	%
Unrealized (gain) loss on revaluation of warrant liability		(948	)		(4,002	)		2,114			3,054			(76%	)		(6,116	)		(289%	)
Total Other Expenses /(Income)		435			(2,943	)		2,794			3,378			(115%	)		(5,737	)		(205%	)

FISCAL 2015 VERSUS 2014

Interest Expense and Amortization of Deferred Financing Costs and Debt Discount

Interest expenses and amortization of deferred financing costs and debt discount increased by $4,000. The increase is primarily due to the interest and amortization costs related to the SVB debt offset by a decrease in interest paid on the repayable leasehold improvement allowance as a result of a decrease in principal in 2015 versus 2014.

Other (Income)/Expense

Other expenses represent business taxes paid for the operations of our representative office in Shanghai, China. Tax is owed based on a percentage of operating expenses incurred. The expense decreased due to reduced costs in 2015 in our representative office.

Foreign exchange loss

Foreign exchange loss increased by 258%, or $0.3 million. Foreign exchange gains and losses are largely due to U.S. dollar balances of cash and cash equivalents, accounts receivable, accounts payable, and debt affected by the fluctuations in the value of the U.S. dollar as compared to the Canadian dollar. The increase in the loss is due to the appreciation of the U.S. dollar in 2015 versus 2014 on our net US dollar liabilities.

-39-

Unrealized (gain) loss on revaluation of warrant liability

The unrealized gain 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 decreased from December 31, 2014 resulting in an unrealized gain of $0.9 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 in relation to December 31, 2014. 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.

FISCAL 2014 VERSUS 2013

Interest Expense and Amortization of Deferred Financing Costs and Debt Discount

Interest expenses and amortization of deferred financing costs and debt discount increased by 26%, or $0.2 million. The increase is primarily due to the interest and amortization costs related to the SVB debt offset by a decrease in interest paid on the repayable leasehold improvement allowance as a result of a decrease in principal in 2014 versus 2013.

Other (Income)/Expense

Other expenses represent business taxes paid for the operations of our representative office in Shanghai, China. Tax is owed based on a percentage of operating expenses incurred. The increase is due to tax paid on a full year’s of expenses in 2014 versus a partial year in 2013.

Foreign exchange loss

Foreign exchange loss increased by 725%, or $0.1 million. Foreign exchange gains and losses are largely due to U.S. dollar balances of cash and cash equivalents, accounts receivable, accounts payable, and debt affected by the fluctuations in the value of the U.S. dollar as compared to the Canadian dollar.

Unrealized (gain) loss on revaluation of warrant liability

The unrealized gain 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 decreased from December 31, 2013 resulting in an unrealized gain of $4.0 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 in relation to December 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.

LIQUIDITY AND CAPITAL RESOURCES (IN THOUSANDS EXCEPT PERCENTAGES)

Total cash and cash equivalents and working capital at December 31, 2015 and 2014 were as follows:


	2015			2014
Cash and cash equivalents	$	2,511		$	3,221
Percentage of total assets		21	%		24	%
Working capital		(1,315	)		(774	)
Warrant liability		301			1,249
Working capital, excluding Warrant liability		(1,014	)		475

As at December 31, 2015, 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, which means that 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 December 31, 2015 is negative $1.0 million (December 31, 2014 - $0.5 million). The decrease of $1.5 million during the year ended December 31, 2015 is primarily due to the cash used in investing and financing activities.

-40-

FINANCIAL CONDITION

We have financed our operations primarily through equity and debt financings. As of December 31, 2015, the Company has raised approximately $107.8 million from the sale and issuance of equity securities and debt, net of issue costs. On October 15, 2014, we entered into a funded Technology Development Agreement and on February 16, 2015, a Collaboration Agreement with Joinstar to support the co-development by Response and Joinstar of components and multiple assays that will run on a high throughput rapid immunoassay analyzer developed by Joinstar. Under the terms of the agreements, we have received milestones totaling US$3.0 million to date and are eligible to receive a further US$0.8 million in development milestones over the remaining six month project period. We expect these funds, in part, to be used to reduce working capital deficiencies, if any, at the time they are received. In conjunction with the signing of the Collaborative Agreement, we entered into a definitive Supply Agreement with Joinstar whereby we will provide certain materials required for Joinstar to manufacture and sell the developed assays specifically to run on their analyzer. Under the terms of the Supply Agreement, we are eligible to receive a guaranteed US$1.78 million in revenue-based payments over the first five years of commercialization of the co-developed assays. In addition to the Joinstar agreements, the Company has a term loan from SVB with an outstanding principal balance of approximately US$0.9 million as of December 31, 2015.

Sales to the Company’s national distributor in China represented 62% of product sales during the year ended December 31, 2015. While this distributor met its contractual minimums for purchases of products from the Company in the first six months of the year, it advised the Company that it has built up inventory at a higher rate than its current sales to end-users. Consequently, this distributor made lower purchases from the Company during the last two quarters of 2015 compared to the first two quarters of 2015. We are continuing to work with the national distributor we used in 2015 on a non-exclusive basis while it is in the process of expanding into additional territories within China and determining end-user buying patterns. No returns of the products purchased by the national distributor are either expected or permitted under the terms of its distribution agreement.

In order to address this recent and expected temporary decline in our shipments to this China distributor, we implemented several cash conservation and cost reduction initiatives to extend our available cash resources during the year. These actions included selected staff layoffs and work-sharing programs, reductions in discretionary spending, and additional efforts to sell inventory accumulated late in the second quarter in anticipation of Q3 sales in China. In parallel, our China office staff are now actively engaged in increasing our sales and marketing activities in China working with our distributor and expanding distribution. As a further step to strengthen our financial position, the Company is also seeking additional financing alternatives. While the Company is pursuing these various cost, sales, and financing initiatives, there is no assurance that these efforts will be sufficient to fund the Company’s 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. We expect that we will have net negative cash flow over the next several quarters until our growth initiatives and Joinstar milestone provide sufficient cash flow to cover internal operating expenses, capital purchases and provide the additional working capital required to support the growth. In addition, we continue to require cash for our contractual debt and other obligations outlined below.

We believe that with a combination of some or all of the various cost reduction, cash conservation, sales and marketing, and, if necessary, financing initiatives and with the targeted execution under the Joinstar Agreements and strengthening of our China sales/distribution, based on the projected level of operations, our cash and cash equivalent balances, including cash generated from operations, will be sufficient to meet our anticipated cash requirements through the next twelve months. However, due to our history of losses, the challenges of our sales activities in our China market and uncertain success of our various cost, cash, and financing efforts, there is substantial doubt over our ability to continue as a going concern as we are dependent on meeting the development milestones required to earn the additional US$0.8 million under the Collaboration Agreement with Joinstar, achieving profitable operations, and/or additional financings, the outcomes of which cannot be predicted at this time.

ONGOING SOURCES AND USES OF CASH

Changes in Cash Flows (in thousands):

Year ended December 31,	2015			2014			2013
Cash provided by (used in) operating activities		813			(2,292	)		(1,272	)
Cash used in investing activities		(449	)		(410	)		(196	)
Cash provided by (used in) financing activities		(1,093	)		2,954			2,348
Increase/(decrease) in cash during the period	$	(710	)	$	263		$	878

-41-

As at December 31, 2015, the Company had cash and cash equivalents balance of $2.5 million as a result of a $0.7 million decrease in cash during the year. The cash decrease was primarily the result of cash used in investing and financing activities offset by cash provided by operating activities described below:

Cash Provided by / (Used in) Operating Activities (in thousands):

During the year ended December 31, 2015, we generated $0.8 million in cash from operating activities, compared to using $2.3 million and $1.3 million during the years ended December 31, 2014 and 2013 respectively. The cash generated from operating activities was the result of a net loss of $0.1 million, adjusted for the total effects of non-cash adjustments of $0.9 million. In addition, changes in working capital excluding cash were as follows:

Year ended December 31,	2015			2014			2013
Trade receivables		242			175			662
Other receivables		(11	)		23			25
Inventories		237			194			(459	)
Prepaid expenses and other		50			(57	)		90
Accounts payable and accrued liabilities		(680	)		1,196			956
Deferred revenue		247			777			(181	)
Net change in working capital excluding cash	$	85		$	2,308		$	1,093

The net changes in working capital during 2015 were primarily due to the following:

●

Accounts payable and accrued liabilities decreased from $3.9 million to $3.3 million due to the payment of severance costs accrued but not fully paid in 2014 and the timing of vendor payments during the year;

●

Deferred revenue increased from $873,000 to $1.3 million primarily the result of the increase in prepaid orders and volume rebates accrued for future sales;

●

Trade receivable balances decreased from $702,000 to $466,000 as a result of more product sales that were prepaid during the year; and

●

Inventory balances decreased from $2.1 million to $1.8 million primarily due to an effort to reduce raw material inventories in response to the reduction in Chinese product sales mentioned above and improved inventory management processes.

Cash Used in Investing Activities

Net cash used in investing activities for the years ended December 31, 2015, 2014, and 2013 was $449,000, $410,000, and $196,000. This cash was primarily used for the purchase of equipment used in manufacturing and research and development activities.

Cash Provided by (Used In) Financing Activities

Net cash used in financing activities during the year ended December 31, 2015 of $1.1 million was used to repay the SVB debt and repayable leasehold improvements allowance during the year.

The net cash provided by financing activities during the year ended December 31, 2014 of $3.0 million was primarily due to the private placement with Joinstar for gross proceeds of $2.2 million offset by $154,000 of financing costs. In addition, we received $1.7 million of debt proceeds from SVB during the year. These proceeds were offset by the repayment of the SVB debt and the leasehold improvements allowance.

The net cash provided by financing activities for the years ended December 31, 2013 were primarily the result of the private placements completed in 2013 for gross proceeds of $3.1 million less $388,000 of financing costs. This offset the repayment of the repayable leasehold improvement allowance of $371,000.

-42-

CONTRACTUAL OBLIGATIONS AND CONTINGENCIES

The following table summarizes our contractual commitments as of December 31, 2015 and the effect those commitments are expected to have on liquidity and cash flow in future periods (in thousands):


Payments due by Period
Contractual Obligations	Total		Less than 1 Year		1-3 years		3 - 5 years		More than 5 years
Long-term debt obligations ⁽¹⁾		6,561		1,426		1,657		1,511		1,967
Operating lease obligations ⁽²⁾		7,984		1,040		2,163		2,278		2,502
Purchase obligations ⁽³⁾		2,352		1,727		446		179		-
Total	$	16,897	$	4,193	$	4,266	$	3,968	$	4,469

(1) Long-term debt obligations consist of the principle and interest payments of our term loan with SVB and repayable leasehold improvement allowance. The term of the SVB debt ends on May 1, 2017. The term of the repayable leasehold improvement allowance coincides with the term of the lease mention in note (2).

(2) Operating lease obligations consist of leases of the facilities and property, plant, and equipment. These lease obligations expire on various dates between 2017 and 2023. The lease for the facility, which commenced in 2008, has a term of 15 years.

(3) Purchase obligations consist of obligations to purchase raw materials, manufacturing equipment, and other supplies from suppliers.

OFF-BALANCE-SHEET ARRANGEMENTS

As of December 31, 2015, we have no material off-balance sheet arrangement as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

RELATED PARTY TRANSACTIONS

We received US$1.28 million from Joinstar, a significant shareholder, upon signing of the Technology Development Agreement and Collaboration Agreement. These upfront payments are being recognized into income over the expected development period of which $972,000 was recognized during the year ended December 31, 2015. These development fees are included under collaborative revenue in the consolidated statements of loss and comprehensive loss. The unrecognized portion of the development fees are included under deferred revenue on the consolidated balance sheet.

In addition, we received US $1.73 million upon achieving the third, fourth, and fifth milestones under the Collaboration Agreement with Joinstar in 2015. For the year ended December 31, 2015, $2.4 million was included under collaborative revenue in the consolidated statements of loss and comprehensive loss.

During the year, we paid Orbimed Advisors, LLC, a majority shareholder, $12,000 relating to financing costs that are included under general and administrative expenses in the consolidated statements of loss and comprehensive loss.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

A summary of the significant accounting policies is as follows:

USE OF ESTIMATES

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

On an ongoing basis, we evaluate our estimates, including those related to revenue recognition including the recognizing of revenue under the milestone method, valuation of stock based compensation, valuation of long-lived assets, tax related contingencies, recoverability of receivables, valuation of inventories, and warranty accruals. We base our estimates on historical experience and on various other assumptions, including expected trends that 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.

-43-

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

INVENTORIES

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

LONG LIVED ASSET IMPAIRMENT

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

REVENUE RECOGNITION

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

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

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

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

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

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

-44-

WARRANT LIABILITY

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

STOCK-BASED COMPENSATION

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

For information on the recent accounting pronouncements impacting our business, see Note 4 of the Notes to Consolidated Financial Statements included in Item 8.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Currency Fluctuations and Exchange Risk

We are subject to foreign exchange risk as a significant portion of our revenues are denominated in U.S. dollars. Significant losses may occur due to significant balances of cash held in or receivables denominated in U.S. dollars that may be affected negatively by a decline in the value of the U.S. dollar as compared to the Canadian dollar. In addition, we have significant trade payables and long term debt denominated in U.S. dollars that may be negatively impacted by an increase in the value of the U.S. dollar as compared to the Canadian dollar. We mitigate foreign exchange risk by maintaining a U.S. dollar bank account for all U.S. revenues and expenditures, thereby minimizing currency exchange. A 10% depreciation or appreciation of the Canadian dollar against the U.S. dollar would result in an increase/decrease of approximately $184,000 in the our loss as a result of revaluing the Company’s balance sheet items as at December 31, 2015.

Interest Rate Risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company’s exposure to interest rate risk is limited as its restricted cash are long-term in nature and the interest rate related to both its repayable leasehold improvement allowance is fixed over the term of the debt. The Company is exposed to interest rate risk on its SVB term loan as it has a variable interest rate that will vary with changes to the Wall Street Journal Prime Rate.

-45-

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

RESPONSE BIOMEDICAL CORP.

CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN CANADIAN DOLLARS)

(PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPALS USED IN THE UNITED STATES OF AMERICA (U.S. GAAP))

AS AT DECEMBER 31, 2015 AND 2014, AND FOR EACH OF THE THREE YEARS ENDED

DECEMBER 31, 2015

-46-

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING

The consolidated financial statements contained in this annual report have been approved by the board of directors and were prepared by management in accordance with United States generally accepted accounting principles. Management is responsible for the preparation and integrity of the consolidated financial statements and all other information in the annual report, and for ensuring that this information is consistent, where appropriate, with the information contained in the financial statements.

Management has developed and is maintaining a system of policies and procedures and internal controls to obtain reasonable assurance that the Company’s assets are safeguarded, transactions are authorized and financial information is reliable.

The Board of Directors is responsible for ensuring that management fulfills its responsibility for financial reporting and internal control. The Board of Directors exercises this responsibility principally through the Audit Committee. The Audit Committee consists of directors not involved in the daily operations of the Company. The Audit Committee meets with management, and, the independent registered public accounting firm, satisfied itself that management’s responsibilities are properly discharged, and reviewed the financial statements prior to their presentation to the Board of Directors for approval. The independent registered public accounting firm, PricewaterhouseCoopers LLP, conducted an independent audit of the consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Their report expresses their opinion on the consolidated financial statements of the Company. The external auditors have free and full access to the Audit Committee with respect to their findings.

/s/ Dr. Barbara R. Kinnaird	/s/ William J. Adams

Dr. Barbara R. Kinnaird	William J. Adams

Chief Executive Officer	Chief Financial Officer

-47-

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Directors of

Response Biomedical Corp.

We have audited the accompanying consolidated balance sheets of Response Biomedical Corp. and its subsidiaries as of December 31, 2015 and December 31, 2014 and the related consolidated statements of loss and comprehensive loss, shareholders’ deficit, and cash flows for each of the years in the three-year period ended December 31, 2015. Management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall consolidated financial statement presentation. We were not engaged to perform an audit of the company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Response Biomedical Corp. and its subsidiaries as of December 31, 2015 and December 31, 2014 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2015 in conformity with accounting principles generally accepted in the United States of America.

Emphasis of matter

The accompanying consolidated financial statements have been prepared assuming the company will continue as a going concern. As discussed in note 2 to the consolidated financial statements, the company has incurred recurring losses from operations and has an accumulated deficit at December 31, 2015 that raises substantial doubt about its ability to continue as a going concern. Management’s plans in this regard are also described in note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

(signed) PricewaterhouseCoopers LLP

Chartered Accountants

Vancouver, Canada

March 24, 2016

-48-

RESPONSE BIOMEDICAL CORP.

CONSOLIDATED BALANCE SHEETS

[SEE NOTE 2 - BASIS OF PRESENTATION AND GOING CONCERN UNCERTAINTY]

(IN THOUSANDS OF CANADIAN DOLLARS)

	December 31, 2015			December 31, 2014
ASSETS		$			$
Current
Cash and cash equivalents		2,511			3,221
Trade receivables, net [note 6]		466			702
Other receivables		100			89
Inventories [note 7]		1,819			2,056
Prepaid expenses and other		134			183
Deferred debt financing costs - current portion [note 11]		90			88
Total current assets		5,120			6,339
Deferred debt financing costs [note 11]		3			45
Long-term prepaid expenses		93			93
Restricted deposits [note 10]		901			901
Property, plant and equipment [note 8]		5,689			6,250
Total assets		11,806			13,628

LIABILITIES AND SHAREHOLDERS' DEFICIT
Current
Accounts payable and accrued liabilities [note 6 and 9]		3,297			3,867
Term loan - current portion [note 11]		843			494
Lease inducements - current portion [note 10]		169			169
Repayable leasehold improvement allowance - current portion [note 6 and 10]		514			461
Deferred revenue		1,311			873
Warrant liability [notes 5 and 12]		301			1,249
Total current liabilities		6,435			7,113
Term loan (note 11)		360			1,004
Lease inducements [note 10]		1,028			1,197
Repayable leasehold improvement allowance [note 10]		4,694			5,208
		12,517			14,522
Commitments [note 15]
Shareholders' deficit
Common shares [note 12]		104,314			104,124
Additional paid-in capital [note 12]		15,384			15,241
Deficit		(120,409	)		(120,259	)
Total shareholders' deficit		(711	)		(894	)
Total liabilities and shareholders’ deficit		11,806			13,628

See accompanying notes

-49-

RESPONSE BIOMEDICAL CORP.

CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

(IN THOUSANDS OF CANADIAN DOLLARS)

	2015			2014			2013
	$			$			$
REVENUE
Product sales [note 16]		11,973			10,828			11,531
Collaborative revenue [note 2 and 13]		3,445			186			0
Total revenue		15,418			11,014			11,531

Cost of sales [notes 7, 8, 12 and 15]		7,339			6,647			6,588
Gross profit		8,079			4,367			4,943

EXPENSES *[notes 8, 10, 12, 13 and 15]*
Research and development		2,901			3,525			2,402
General and administrative		2,564			3,297			3,574
Sales and marketing		2,329			2,578			2,171
Total operating expenses		7,794			9,400			8,147

OTHER EXPENSES (INCOME)
Interest expense and amortization of deferred financing costs and debt discount [note 11]		878			874			696
Interest income		(10	)		(15	)		(15	)
Other expense/(income)		43			68			(17	)
Foreign exchange loss		472			132			16
Unrealized (gain) loss on revaluation of warrant liability [note 5]		(948	)		(4,002	)		2,114
Total other expenses (income)		435			(2,943	)		2,794
Net loss and comprehensive loss for the year		(150	)		(2,090	)		(5,998	)

Loss per common share - basic and diluted *[note 12]*		(0.02	)		(0.26	)		(0.89	)

Weighted average number of common shares outstanding - basic and diluted *[note 12]*		9,879,148			8,025,143			6,747,369

See accompanying notes

-50-

RESPONSE BIOMEDICAL CORP.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT

(IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT SHARE DATA)

	Common Stock Issued and Outstanding		Additional paid in capital					Deficit			Total Shareholders' Deficit
	# of shares		$		$			$			$
Balance at December 31, 2013		7,870,925		101,945		14,742			(118,169	)		(1,482	)
Net loss		-		-		-			(2,090	)		(2,090	)
Private placement, net of issue costs		1,800,000		2,024		-			-			2,024
Net shares issued upon conversion of restricted share units		88,635		155		(155	)		-			-
Net warrants issued per terms of loan		-		-		113			-			113
Stock-based compensation expense		-		-		381			-			381
Restricted share units		-		-		160			-			160
Balance at December 31, 2014		9,759,560		104,124		15,241			(120,259	)		(894	)
Net loss		-		-		-			(150	)		(150	)
Net shares issued upon conversion of restricted share units		165,696		190		(190	)		-			-
Stock-based compensation expense		-		-		218			-			218
Restricted share units		-		-		115			-			115
Balance at December 31, 2015		9,925,256		104,314		15,384			(120,409	)		(711	)

See accompanying notes

-51-

RESPONSE BIOMEDICAL CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS OF CANADIAN DOLLARS)

Year Ended December 31,	2015			2014			2013
OPERATING ACTIVITIES	$			$			$
Net loss for the year		(150	)		(2,090	)		(5,998	)
Add (deduct) items not involving cash:
Depreciation of property, plant and equipment		1,003			994			992
Amortization of deferred lease inducements		(169	)		(170	)		(171	)
Amortization of deferred financing costs		88			99			-
Amortization of discount on debt		52			34			-
Restricted stock compensation		28			-			-
Stock-based compensation		218			381			660
Unrealized loss (gain) on revaluation of warrant liability		(948	)		(4,002	)		2,114
Unrealized foreign currency transactions		606			154			38
Changes in non-cash working capital:
Trade receivables		242			175			662
Other receivables		(11	)		23			25
Inventories		237			194			(459	)
Prepaid expenses and other		50			(57	)		90
Accounts payable and accrued liabilities		(680	)		1,196			956
Deferred revenue		247			777			(181	)
Cash provided by (used in) operating activities		813			(2,292	)		(1,272	)

INVESTING ACTIVITIES
Purchase of property, plant and equipment		(449	)		(410	)		(196	)
Cash used in investing activities		(449	)		(410	)		(196	)

FINANCING ACTIVITIES
Repayment of repayable leasehold improvement allowance		(461	)		(413	)		(371	)
Proceeds from issuance of common shares, net of share issue costs		-			2,024			2,055
Proceeds from issuance of warrants, net of warrant issue costs		-			-			695
Proceeds from debt		-			1,661			-
Repayment of term loan		(606	)		(159	)		-
Debt financing cost		(26	)		(159	)		(31	)
Cash provided by (used in) financing activities		(1,093	)		2,954			2,348

Effect of exchange rate changes on cash and cash equivalents		19			11			(2	)

Increase/(decrease) in cash during the year		(710	)		263			878
Cash and cash equivalents, beginning of year		3,221			2,958			2,080
Cash and cash equivalents, end of year		2,511			3,221			2,958
Supplemental Disclosure:
Interest paid in cash		699			731			696
Taxes paid in cash		50			50			27

See accompanying notes

-52-

RESPONSE BIOMEDICAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Canadian dollars unless US noted)

1. DESCRIPTION OF BUSINESS

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

The RAMP^® System is a portable fluorescence immunoassay-based diagnostic technology that combines the performance of a clinical lab with the convenience of a dipstick test, establishing a new paradigm in diagnostic testing. Immunoassays are extremely sensitive and specific tests used to identify and measure small quantities of materials, such as proteins. A large variety of biological molecules and inorganic materials can be targeted. Accordingly, the RAMP^® technology is applicable to multiple distinct market segments and many products within those segments. RAMP^® tests are now commercially available for use in the early detection of heart attack, congestive heart failure, influenza A+B, the respiratory syncytial virus, environmental detection of West Nile Virus and Dengue 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 consolidated financial statements have been prepared by management in Canadian dollars in accordance with United States generally accepted accounting principles (“U.S. GAAP”).

Going Concern Uncertainty

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

During the year ended December 31, 2015, the Company has incurred a net loss of $150,000 and negative cash flows of $710,000. As of December 31, 2015, the Company had a cash balance of $2.5 million, an accumulated deficit of $120.4 million, a shareholders’ deficit of $711,000, and a negative working capital balance of $1.3 million. In addition, the Company has various operating leases and purchase commitments for inventory (refer to note 15). Included in current liabilities is a warrant liability in the amount of $301,000 that is required to be measured at fair value and is presented as a current liability in accordance with Accounting Standards Codification Topic 815 – Derivatives and Hedging (“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 liabilities exceed current assets by $1.0 million.

Sales to the Company’s national distributor in China represented 62% of product sales during the year ended December 31, 2015. While this distributor met its contractual minimums for purchases of products from the Company in the first six months of the year, it advised the Company that it has built up inventory at a higher rate than its current sales to end-users. Consequently, this distributor made lower purchases from the Company during the second half of 2015 compared to the first two quarters of 2015. No returns of the products purchased by the national distributor are either expected or permitted under the terms of its distribution agreement.

As a result, to address the recent expected near term reductions in product sales, the Company implemented several cash conservation and cost reduction initiatives to extend its available cash resources. In addition, the Company is also seeking additional financing alternatives. While the Company is pursuing these various initiatives, there is no assurance that these efforts will be sufficient to fund the Company’s operations or that quarter-over-quarter product sales will increase.

The ability of the Company to continue as a going concern is uncertain and dependent on the Company’s ability to obtain additional financing and/or achieve sustained cash flow positive operations. Management has, thus far, financed the operations through a series of equity financings, debt financing, and collaborative arrangements. The Company has received milestones totaling US$3.0 million to date from the Joinstar Agreements described in Note 2 and is eligible to receive a further US$0.8 million from the last development milestone during the remaining six month project period. In addition, under the terms of the Supply Agreement with Joinstar, Response is eligible to receive a guaranteed US$1.78 million in revenue-based payments over the first five years of commercialization of the co-developed assays.

-53-

RESPONSE BIOMEDICAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Canadian dollars unless US noted)

Management believes that, with a combination of some or all of the various cost reduction, cash conservation, sales and marketing, and, if necessary, financing initiatives, and with the targeted execution under the Joinstar Agreements and strengthening of our China sales and distribution, based on the current level of operations and excluding out of the ordinary cash management measures, the Company’s cash and cash equivalent balances, including cash generated from operations, will be sufficient to meet the anticipated cash requirements through the next twelve months. However, due to the Company’s history of losses, there is substantial doubt over the Company’s ability to continue as a going concern as it is dependent on meeting the development milestones required to earn the additional US$0.8 million in development fees under the Collaboration Agreement with Joinstar, achieving profitable operations, or obtaining additional financing, the outcomes of which cannot be predicted at this time. The consolidated financial statements do not include any adjustments to the amounts and classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern. Such adjustments could be material.

3. SIGNIFICANT ACCOUNTING POLICIES

A summary of the significant accounting policies is as follows:

Principles of Consolidation

The consolidated financial statements include the accounts of the Company, and its wholly owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation.

Use of estimates

The preparation of these consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Areas of significant estimates include revenue recognition, stock-based compensation expense, the value of the warrant liability, the resolution of uncertain tax positions, recoverability of long-lived assets and provisions for doubtful accounts, inventory obsolescence, inventory valuation, warranty accruals, and going concern assessments. Actual results could differ from those estimates.

Certain Significant Risks and Uncertainties

The Company is subject to certain risks and uncertainties and believes that changes in any of the following areas could have a material adverse effect on its future financial position or results of operations: continued regulatory compliance or regulatory changes; the ability to develop new products and services that are accepted in the marketplace; competition, including, but not limited to, pricing and products or product features and services; litigation or other claims; the adequate and timely sourcing and manufacturing of inventories; and the hiring, training and retention of key employees.

Cash equivalents

The Company considers all highly liquid investments with an original maturity of 90 days or less, when acquired, to be cash equivalents.

Inventories

Raw material, finished goods and work in progress inventories are carried at the lower of actual cost, determined on a first-in first-out basis, and market value. The cost of finished goods and work in progress 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.

-54-

RESPONSE BIOMEDICAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Canadian dollars unless US noted)

Property, plant and equipment

Property, plant and equipment is recorded at cost and depreciated over the estimated useful lives using the straight-line method as follows:

Office and laboratory furniture and equipment (years)		5
Computer hardware and software (years)	2	-	3
Manufacturing equipment (years)	2	-	10
Leasehold improvements		Initial term of lease

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 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.

Leases

Leases are classified as either capital or operating leases. Leases that transfer substantially all the benefits and risks of ownership of the property to the Company are accounted for as capital leases. All other leases are accounted for as operating leases wherein rental payments are expensed in a manner that results in the total rent payments being recognized on a straight-line basis over the term of the lease.

Deferred lease inducements

Lease inducements arising from rent-free inducements and non-repayable leasehold improvement allowances received from the landlord are being amortized over the term of the lease on a straight-line basis.

Revenue recognition

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

-55-

RESPONSE BIOMEDICAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Canadian dollars unless US noted)

Collaborative Research Agreement with Joinstar – On October 15, 2014, the Company entered into a funded Technology Development Agreement with Hangzhou Joinstar Biomedical Technology Co. Ltd. (“Joinstar”) to support the co-development by Response and Joinstar of components and multiple assays that will run on a high throughput rapid immunoassay analyzer developed by Joinstar. Under the terms of the Technology Development Agreement, Joinstar paid US$560,000 upon the signing of the Technology Development Agreement on October 15, 2014 and US$720,000 upon the signing of the Collaborative Agreement, which was signed on February 16, 2015. We received three additional milestones in 2015 totaling a further US$1.73 million. Response is eligible to receive a further US$792,000 in development milestones over the project period. In conjunction with the signing of the Collaborative Agreement, Response and Joinstar entered into a definitive Supply Agreement whereby Response will provide certain materials required for Joinstar to manufacture and sell the developed assays specifically to run on their analyzer. Under the terms of the Supply Agreement, Response is eligible to receive a guaranteed US$1.78 million in revenue-based payments over the first five years of commercialization of the co-developed assays.

The Company determined that the deliverables under the arrangement were the participation on the Joint Steering Committee required in the agreement and the achievement of the development milestones outlined in the agreement. The Company determined that the milestone payments upon the signing of the Technology Development Agreement and Collaborative Agreement were not substantive milestones and the consideration related to these upfront payments is being amortized over the term of the project. The Company determined that the remaining four contingent payments are substantive milestones. The US$2.52 million in contingent milestones are broken down as follows: US$360,000 upon the delivery by Response of certain prototype components for the analyzer developed by Joinstar; US$648,000 upon the delivery of multiple assays by Response to Joinstar; US$720,000 upon the receipt of certain testing reports for the analyzer developed by Joinstar; and US$792,000 upon regulatory approval and completion of the project. Response determined that these milestones are all substantive because they are commensurate with the Company’s performance to achieve the milestones, they relate solely to past performance, and they are reasonable relative to all of the deliverables and payment terms within the arrangement. As of December 31, 2015, the Company earned all development milestones except the final one, which is to be earned upon regulatory approval and completion of the development project.

Accounts Receivable

For product sales, the Company typically invoices its customers at shipment for the sales order value of products shipped. For contract revenue, invoicing occurs based upon the terms of the specific research contract, typically one month in arrears for services rendered and any other allowable direct costs. Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company does not have any off-balance sheet credit exposure related to any of its customers.

Allowance for Doubtful Accounts

The Company evaluates the collectability of accounts receivable based on a combination of factors. In cases where the Company becomes aware of circumstances that may impair a specific customer’s ability to meet its financial obligations subsequent to the original sale, the Company will record an allowance against amounts due, and thereby reduce the net recognized receivable to the amount the Company reasonably believes will be collected. For all other customers, the Company recognizes an allowance for doubtful accounts based on the length of time the receivables are past due and consideration of other factors such as industry conditions, the current business environment and its historical experience.

Deferred Financing Costs

The Company capitalizes incremental costs directly attributable to obtaining debt. The deferred financing costs are subsequently amortized using the effective interest rate method to interest expense over the contractual life of the debt. Under a modification to a debt arrangement, only the incremental costs directly paid to the lender are capitalized and amortized over the contractual life of the debt. All incremental costs paid to third parties are expensed when incurred and are included in general and administrative expenses on the consolidated statements of loss and comprehensive loss.

-56-

RESPONSE BIOMEDICAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Canadian dollars unless US noted)

Warranty accrual

The Company offers a standard limited warranty on its products. The Company estimates costs that may be incurred under its warranty program as liabilities at the time the products are sold. Factors that affect the Company’s warranty liability include the number of units sold, anticipated rate of warranty claims, and costs per claim, which require management to make estimates about future costs. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. The initial recognition of and subsequent adjustments to the warranty accrual are recorded to cost of sales.

Research and development costs

Research and development costs are expensed as incurred and include expenses associated with new product research and regulatory activities.

Shipping and Handling Costs

Shipping and handling costs are included in cost of revenues and are recognized as a period expense during the period in which they are incurred.

Stock-based compensation

Restricted deposits

Restricted deposits consist of long-term deposits pledged as security as part of certain contractual obligations. The interest earned on these deposits is recorded in interest income on the consolidated statements of loss and comprehensive loss.

Financial Instruments

Financial instruments include cash, cash equivalents, receivables, restricted deposits, accounts payable, accrued and other liabilities, term loan, warrant liability, and the repayable leasehold improvement allowance. The Company has classified restricted deposits as held-to-maturity. Trade receivables and other receivables are classified as loans and receivables. Accounts payable, accrued and other liabilities, term loan, warrant liability and the repayable leasehold improvement allowance are classified as other financial liabilities.

Held-for-trading financial instruments are initially measured at fair value with subsequent changes in fair value recorded to net income. Held-to-maturity investments are measured at amortized cost using the effective interest method with changes in amortized cost recorded to net income. Loans and receivables and other financial liabilities are initially measured at amortized cost with subsequent changes in amortized cost recorded to net income. Transaction costs (except for transaction costs related to held-for-trading financial instruments, which are expensed as incurred) are included in the carrying amounts of financial instruments as they are carried on the consolidated balance sheet.

Warrants

The Company accounts for warrants, issued in the 2011 rights offering, pursuant to the authoritative guidance on accounting for derivative financial instruments indexed to, and potentially settled in, a company’s own stock. The Company classifies warrants on the consolidated balance sheet as a liability that is revalued at each balance sheet date subsequent to the initial issuance. Determining the appropriate fair-value model, and calculating the fair value of warrants requires considerable judgment, including estimating stock price volatility and expected warrant life. The computation of expected volatility was based on the historical volatility of shares of the Company’s common stock for a period that coincides with the expected life of the warrants. A small change in the estimates used may have a relatively large change in the estimated valuation. The Company uses the Black-Scholes pricing model to value the warrants. Changes in the fair market value of the warrants are reflected in the consolidated statement of loss as Unrealized (gain)/loss on revaluation of warrant liability.

-57-

RESPONSE BIOMEDICAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Canadian dollars unless US noted)

Foreign currency translation

Monetary items denominated in foreign currencies are translated into Canadian dollars using exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are translated at historical exchange rates. Revenue and expense items are translated at the average exchange rate for the period. Foreign exchange gains and losses are included in the determination of loss for the year.

Income taxes

The Company accounts for income taxes using the liability method of tax allocation. Deferred income taxes are recognized for the future income tax consequences attributable to differences between the carrying values of assets and liabilities and their respective income tax bases. Deferred income tax assets and liabilities are measured using substantively enacted income tax rates expected to apply to taxable income in the years in which temporary differences are expected to reverse. The effect on deferred income tax assets and liabilities of a change in substantively enacted rates is included in earnings in the period that includes the substantive enactment date. Deferred income tax assets, net of a valuation allowance, are recorded in the consolidated financial statements if realization is considered more likely than not.

The Company accounts for uncertain tax positions using a “more-likely-than-not” threshold for recognizing and resolving uncertain tax positions. The Company evaluates uncertain tax positions on a quarterly basis and considers various factors, including, but not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, new audit activity and changes in facts or circumstances related to a tax position. The Company includes interest and penalties related to gross unrecognized tax benefits in the provision for income taxes.

Scientific Research and Development Tax Credits

The benefits of tax credits for scientific research and development expenditures are recognized in the year the qualifying expenditure is made provided there is reasonable assurance of recoverability. The tax credits recorded are based on the Company’s estimates of amounts expected to be recovered and are subject to audit by taxation authorities. All qualifying expenditures are eligible for non-refundable tax credits only.

Loss per common share

Basic loss per common share is calculated using the weighted average number of common shares outstanding during the year, excluding contingently issuable shares. Diluted loss per common share is computed in accordance with the treasury stock method that uses the weighted average number of common shares outstanding during the period. The effect of potentially issuable common shares from outstanding stock options and outstanding warrants is anti-dilutive for all periods presented.

Segment Information

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is its senior management team. The Company has one operating segment that is dedicated to the manufacture and sale of RAMP^® tests. In note 16, the Company discloses information about Products and Services, Geographic Areas, and Major Customers.

4. RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Pronouncements Not Yet Adopted

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

-58-

RESPONSE BIOMEDICAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Canadian dollars unless US noted)

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

In July 2015, the FASB issued ASU No. 2015-11, “Simplifying the Measurement of Inventory,” (Topic 330) (“ASU 2015-11”), which amends the guidelines for the measurement of inventory. Under the amendments, an entity should measure inventory valued using a first-in, first-out or average cost method at the lower of cost and net realizable value. Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. ASU 2015-11 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. We are evaluating the impact of adopting this pronouncement.

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

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

5. 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.

-59-

RESPONSE BIOMEDICAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Canadian dollars unless US noted)

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

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

Financial Instrument carried at fair value as of December 31, 2015

	Level 1		Level 2		Level 3		Total
Liabilities	$		$		$		$
Warrant Liability		-		-		301		301

Financial Instrument carried at fair value as of December 31, 2014

Liabilities	$		$		$		$
Warrant Liability		-		-		1,249		1,249

As of December 31, 2015, the warrant liability is recorded at its fair value of $301,000. The Company reassesses the fair value of the common stock warrants at each reporting date utilizing a Black-Scholes pricing model. Inputs used in the pricing model include estimates of stock price volatility, contractual term of the warrant, and risk-free interest rate (refer to note 12[g]). 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 year ended December 31, 2015 (in thousands):

Balance at

December 31, 2014

Unrealized loss

Exercise of Warrants

Balance at

December 31, 2015

Warrant Liability

1,249

(948

)

301

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

Valuation Technique

Unobservable Input

As at December 31,

2015

As at December 31,

2014

Warrant Liability

Option Model

Stock Price Volatility

128

106

A 5% increase or decrease in stock price volatility would cause an approximate corresponding $32,000 increase or decrease to the Warrant Liability ($82,000 – December 31, 2014).

-60-

RESPONSE BIOMEDICAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Canadian dollars unless US noted)

6. FINANCIAL INSTRUMENTS

Credit Risk

Credit risk is the risk of a financial loss if a customer or counterparty to a financial instrument fails to meet its obligations under a contract. The risk arises primarily from the Company’s cash, cash equivalents, restricted deposits and receivables from customers.

Cash, cash equivalents and restricted deposits are placed with high quality financial institutions and are regularly monitored by management. These deposits are in excess of the amount of the insurance provided by governmental agencies on such deposits. To date, the Company has not experienced any losses on such deposits.

The Company’s exposure to credit risk related to its receivables is dependent upon the characteristics of each customer. The Company continually monitors the credit of its customers and requires orders to be prepaid by certain customers.

The Company is subject to concentration risk related to its accounts receivable. The Company defines concentration risk as customers whose outstanding receivable is 10% or greater than the total receivable balance or who represent 10% or greater of total revenue. At December 31, 2015, three customers represent 58% [2014 - three customers represent 87%] of the trade receivables balance. Refer to note 16 for a discussion of concentration risk on the Company’s revenues.

The Company reviews the collectability of its accounts receivable on a regular basis and establishes an allowance for doubtful accounts based on its best estimates of any potentially uncollectible accounts. As at December 31, 2015, the balance of the Company’s allowance for doubtful accounts was nil [2014 – nil]. The amount written off during the year ended December 31, 2015 was nil [2014 - $8,000 and 2013 - nil].

Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they are due. The Company continuously monitors actual and forecasted cash flows to ensure there is sufficient working capital to satisfy its operating requirements. Refer to note 2 for a discussion of the Company’s liquidity plans.

Pursuant to their respective terms, accounts payables, accrued liabilities, the term loan, and the repayable leasehold improvement allowance are aged as follows (in thousands):

	2016		2017		2018		2019		2020		Thereafter
	$		$		$		$		$		$
Accounts payable and accrued liabilities		3,297		-		-		-		-		-
Term loan		868		362		-
Repayable leasehold improvement allowance		514		574		640		714		797		1,969
		4,679		936		640		714		797		1,969

7. INVENTORIES

Inventories are comprised of the following (in thousands):

	December 31, 2015		December 31, 2014
	$		$
Raw materials		1,083		1,212
Work in progress		328		309
Finished goods		408		535
		1,819		2,056

The carrying value of inventory as of December 31, 2015 includes a write-down and a provision for expired, obsolete, and damaged inventory in the amount of $51,000 [December 31, 2014 - $135,000]. For the year ended December 31, 2015, inventory write-downs and obsolescence charges were $272,000 [2014 - $285,000; 2013 - $25,000].

-61-

RESPONSE BIOMEDICAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Canadian dollars unless US noted)

8. PROPERTY, PLANT AND EQUIPMENT

Property, plant, and equipment is comprised of the following (in thousands):

			Accumulated		Net book
	Cost		amortization		value
	$		$		$

December 31, 2015
Office and laboratory furniture and equipment		1,564		1,543		21
Computer hardware and software		1,150		1,067		83
Manufacturing equipment		3,730		2,847		883
Leasehold improvements		9,828		5,126		4,702
		16,272		10,583		5,689

December 31, 2014
Office and laboratory furniture and equipment		1,549		1,537		12
Computer hardware and software		1,166		964		202
Manufacturing equipment		3,312		2,622		690
Leasehold improvements		9,810		4,464		5,346
		15,837		9,587		6,250

The following table shows depreciation expense allocated by type of cost (in thousands):

Years ended December 31,	2015		2014		2013
Cost of sales		622		628		614
Research and development		250		241		252
General and administrative		65		66		73
Sales and marketing		66		59		53
		1,003		994		992

As at December 31, 2015, $464,000 [2014 - $187,000] of manufacturing equipment was in the validation phase and not ready for use and therefore has not been depreciated.

9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities comprise (in thousands):

	December 31, 2015		December 31, 2014
	$		$
Trade accounts payable		966		1,624
Employee related accounts payable and accrued liabilities		1,035		1,307
Royalties		325		287
Other accrued liabilities		971		649
		3,297		3,867

Accounts payable and accrued liabilities include $8,000 [2014 - $15,000] of additions to property, plant, and equipment and $22,000 of additions to deferred financing costs [2014 – nil] as at December 31, 2015. These amounts have been excluded from cash used in investing activities and cash provided by/(used in) financing activities respectively on the consolidated statements of cash flows for the year ended December 31, 2015, as the cash had not been disbursed. Consequently, they have also been excluded from cash provided by/(used in) operating activities.

-62-

RESPONSE BIOMEDICAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Canadian dollars unless US noted)

10. 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):

	December 31, 2015		December 31, 2014
	$		$
Current Portion
Rent-free inducement [i]		54		54
Non-repayable leasehold improvement allowance [ii]		115		115
		169		169
Repayable leasehold improvement allowance [iii]		514		461
Total Current Portion		683		630

Long-Term Portion
Rent-free inducement [i]		330		385
Non-repayable leasehold improvement allowance [ii]		698		812
		1,028		1,197
Repayable leasehold improvement allowance [iii]		4,694		5,208
Total Long-Term Portion		5,722		6,405
Total		6,405		7,035

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

[i] In 2007, the Company entered into a long-term facility lease agreement that included an eight and one half month rent-free period from May 17, 2007 to February 1, 2008. The lease inducement benefit arising from the rent-free period is being amortized on a straight-line basis over the term of the operating lease as a reduction to rental expense Amortization expense for the year ended December 31, 2015 amounted to $54,000 [2014 - $54,000; 2013 - $54,000].

[ii] The Company received a non-repayable allowance for an amount of $1.7 million for expenditures related to general upgrades to the facility. The lease inducement benefit arising from the non-repayable leasehold improvement allowance is being amortized on a straight-line basis over the balance of the term of the lease beginning April 1, 2008 as a reduction to rental expense. Amortization expense for the year ended December 31, 2015 amounted to $115,000 [2014 - $115,000; 2013 - $115,000].

[iii] The Company received a repayable leasehold improvement for an amount of $7.8 million used for additional improvements to the facility. This lease inducement is being repaid over the term of the operating lease commencing February 1, 2008 at approximately $89,000 per month including interest calculated at an interest rate negotiated between the Company and the landlord. Principal repayments for the year ended December 31, 2015 amounted to $461,000 [2014 - $413,000; 2013 - $370,000], respectively. Interest payments for the year ended December 31, 2015 amounted to $601,000 [2014 - $649,000; 2013 - $691,000].

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.

11. TERM LOAN

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

-63-

RESPONSE BIOMEDICAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Canadian dollars unless US noted)

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

Amortization of the deferred financing costs for the year ended December 31, 2015 was $88,000 (2014-$99,000 and 2013 – nil) and amortization of the debt discount for the year ended December 31, 2015 was $52,000 (2014-$34,000 and 2013 – nil). Both of these amounts are included in interest expense and amortization of deferred financing costs and debt discount on the consolidated statements of loss and comprehensive loss.

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

	December 31, 2015			December 31, 2014
	$			$
Current portion of term loan		868			546
Current portion of unamortized debt discount		(25	)		(52	)
Current portion of term loan, net debt discount		843			494

Long-term portion of term loan		362			1,031
Long-term portion of unamortized debt discount		(2	)		(27	)
Long-term portion of term loan, net debt discount		360			1,004
Total		1,203			1,498

Future principal payments for the term loan as of December 31, 2015, are as follows (in thousands):

December 31,	$
2016		868
2017		362
Total		1,230

12. SHARE CAPITAL AND ADDITIONAL PAID-IN CAPITAL

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

[b] Issued

2014 Private Placement

On December 12, 2014, the Company closed a private placement with Joinstar related entities consisting of 1,800,000 common shares at a price of $1.21 per share for total gross proceeds of $2,178,000. The net proceeds were $2,024,000 after deduction of $154,000 of financing costs.

[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.

-64-

RESPONSE BIOMEDICAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Canadian dollars unless US noted)

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

Of the 1,985,051 stock options authorized for grant under the 2008 Plan as at December 31, 2015, options for 1,533,022 shares were outstanding and 452,029 stock options were available for future grant.

The following assumptions were used to estimate the fair value of options granted during the years ended December 31, 2015, 2014, and 2013 using a Black-Scholes option-pricing model:

Year ended December 31,	2015			2014			2013
Risk-free interest rates		1.23	%		1.98	%		1.69	%
Expected dividend yield		0	%		0	%		0	%
Expected life (in years)		5.95			5.96			5.76
Expected volatility		122	%		126	%		123	%
Fair value per stock option	$	0.60		$	1.20		$	2.63

The expected volatility reflects the assumption that the historical volatility of common stock of the Company over a period similar to the expected life of the options is indicative of future trends. The Company estimates the risk-free interest rate using the Bank of Canada bond yield with a remaining term equal to the expected life of the option. The Company uses the simplified method for estimating the stock option term for stock option grants during the year ended December 31, 2015 as the Company has determined that the stock options are “plain vanilla” and historical share option exercises do not apply as the vesting term and contractual lives have significantly changed from those stock options exercised previously.

The total fair value of options vested during the years ended December 31, 2015, 2014, and 2013 was $217,000, $357,000, and $605,000 respectively.

Total aggregate intrinsic value represents the pre-tax intrinsic value, based on the Company’s closing stock price as of December 31, 2015, that would have been received by the option holders had all option holders exercised their stock options as of that date. The intrinsic value of the options outstanding as at December 31, 2015, 2014, 2013 was nil, nil, and $31,000 respectively. There were no stock option exercises during the years ended December 31, 2015, 2014, and 2013.

At December 31, 2015, the following stock options were outstanding:

Range of exercise price			Number of shares under option		Weighted average remaining contractual life		Weighted average exercise price		Number of options currently exercisable		Weighted average exercise price
$			#		(years)		$		#		$
0.60	-	0.92		807,924		9.63		0.70		18,190		0.88
1.02	-	1.80		228,007		7.48		1.49		166,965		1.47
2.20				354,145		6.28		2.20		345,983		2.20
3.00	-	3.10		142,321		7.22		3.09		136,071		3.10
6.80				625		0.48		6.80		625		6.80
0.6	-	6.80		1,533,022		8.31		1.39		667,834		2.17

The options expire at various dates from June 22, 2016 to December 21, 2025.

-65-

RESPONSE BIOMEDICAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Canadian dollars unless US noted)

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

	Number of optioned			Weighted average
	common shares			exercise price
	#			$
Balance, December 31, 2013		1,130,628			2.08
Options granted		506,780			1.36
Options forfeited		(629,194	)		1.62
Options expired		(585	)		23.00
Balance at December 31, 2014		1,007,629			1.99
Options granted		869,253			0.69
Options forfeited		(342,691	)		1.38
Options expired		(1,169	)		8.20
Balance, December 31, 2015		1,533,022			1.38

[d] Restricted share unit plan

At the Annual General and Special Meeting held on June 18, 2013, the Company’s shareholders approved a new restricted share unit plan (“RSU Plan”). 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			Weighted average
	of RSUs			exercise price
	#			$
Balance at December 31, 2013		98,325			1.88
RSUs granted		126,688			1.27
RSUs converted to common shares		(88,665	)		1.75
RSUs forfeited		-			-
RSUs expired		-			-
Balance, December 31, 2014		136,348			1.39
RSUs granted		141,837			0.81
RSUs converted to common shares		(165,696	)		(1.15	)
RSUs forfeited		-			-
RSUs expired		-			-
Balance, December 31, 2015		112,489			1.02

The RSUs that were granted during the years ended December 31, 2015 and 2014 were to settle a director compensation liability that was recorded in accounts payable and accrued liabilities on the consolidated balance sheets. The $115,000 of director fees paid by RSUs during the year ended December 31, 2015 (2014 - $160,000) were excluded from the change in accounts payable and accrued liabilities on the statement of cash flows.

Of the 248,131 RSUs authorized for grant under the RSU Plan as at December 31, 2015, 135,642 RSUs are available for grant.

-66-

RESPONSE BIOMEDICAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Canadian dollars unless US noted)

[e] Deferred share unit plan

At the Annual General and Special Meeting held on June 18, 2013, the Company’s shareholders approved a new non-employee director deferred share unit plan (“DSU Plan”). 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 248,131 DSUs authorized for grant under the DSU Plan as at December 31, 2015, all are available for grant.

[f] Stock-based compensation

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

Year ended December 31,	2015		2014		2013
	$		$		$
Cost of sales		31		36		29
Research and development		43		45		44
General and administrative		113		259		551
Sales and marketing		31		41		36
		218		381		660

As of December 31, 2015, the total unrecognized compensation expense related to stock options granted amounts to $524,000, which is expected to be recognized over a weighted average service period of 2.8 years.

[g] Common share purchase warrants

At December 31, 2015, there were 86,848,002 warrants outstanding to purchase shares of common stock, with expiry dates ranging from November 7, 2016 to December 15, 2024. Of the total 86,848,002 warrants outstanding, 86,103,744 warrants (the warrants related to the 2011 financing) entitle the holder thereof to purchase 1/20^th of a common share of the Company at a price of $1.461 per whole common share; 636,557 warrants (the private placement warrants) entitle the holder thereof to purchase one common share of the Company at a price of $3.58 per common share; 52,796 warrants entitle the holder thereof to purchase one common share of the Company at a price of $1.831 per common share, and 54,905 warrants entitle the holder thereof to purchase one common share of the Company at a price of $1.00 per common share.

Common share purchase warrant transactions are summarized as follows:

	Number of			Weighted average
	warrants			exercise price
	#			$
Balance, December 31, 2013		86,757,990			0.1088
Warrants issued		107,701			1.4074
Balance, December 31, 2014		86,865,691			0.1024
Expiration of warrants		(17,689	)		2.4500
Balance, December 31, 2015		86,848,002			0.1004

-67-

RESPONSE BIOMEDICAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Canadian dollars unless US noted)

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

	2015			2014			2013
Risk-free interest rates		0.48	%		1.00	%		1.10	%
Expected dividend yield		0	%		0	%		0	%
Expected life (in years)		1			2			3
Expected volatility		128	%		111	%		140	%
Fair value of warrant	$	0.0035		$	0.0355		$	0.0610

[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.

86,848,002 warrants, 1,533,022 stock options and 112,489 restricted share units have been excluded from the computation of diluted earnings per share for the year ended December 31, 2015 as the Company has incurred a net loss during the year and their inclusion would be anti-dilutive to the loss per share (2014 – 86,865,691 warrants, 1,007,629 stock options and 136,348 restricted share units were excluded).

13. RELATED PARTY TRANSACTIONS

On October 15, 2014, the Company entered into a funded Technology Development Agreement and on February 16, 2015, a Collaboration Agreement with Hangzhou Joinstar Biomedical Technology Co. Ltd. (“Joinstar”) to support the co-development by Response and Joinstar of components and multiple assays that will run on a high throughput rapid immunoassay analyzer developed by Joinstar. Under the terms of the agreements, Response has received milestones totaling US$3.0 million to date and is eligible to receive a further US$0.8 million in development milestones over the remaining project period. In conjunction with the signing of the Collaborative Agreement, Response and Joinstar entered into a definitive Supply Agreement whereby Response will provide certain materials required for Joinstar to manufacture and sell the developed assays specifically to run on their analyzer. Under the terms of the Supply Agreement, Response is eligible to receive a guaranteed US$1.78 million in revenue-based payments over the first five years of commercialization of the co-developed assays. In addition, Joinstar related entities purchased 1,800,000 of the Company’s common shares of at a price of $1.21 per share for net proceeds of $2.0 million on December 12, 2014 making them a significant shareholder.

The Company received US$1.28 million from Joinstar upon signing of the Technology Development Agreement and Collaboration Agreement. These upfront payments are being recognized into income over the expected development period and for the year ended December 31, 2015, $972,000 was recognized (2014 – $186,000 and 2013-nil). These development fees are included under collaborative revenue in the consolidated statements of loss and comprehensive loss. The unrecognized portion of the development fees are included under deferred revenue on the consolidated balance sheet.

In addition, the Company received US $1.73 million upon achieving the third, fourth, and fifth milestones under the Collaboration Agreement with Joinstar in 2015. For the year ended December 31, 2015, $2.4 million (2014 – nil and 2013-nil) was included under collaborative revenue in the consolidated statements of loss and comprehensive loss.

During the year, the Company paid Orbimed Advisors, LLC (“OrbiMed”), a majority shareholder, $12,000 relating to financing costs that are included under general and administrative expenses in the consolidated statements of loss and comprehensive loss.

-68-

RESPONSE BIOMEDICAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Canadian dollars unless US noted)

14. INCOME TAXES

At December 31, 2015, the Company had approximately $53.1 million [2014 - $60.0 million] of non-capital loss carry forwards, approximately $3.3 million [2014 - $3.1 million] of federal investment tax credits and approximately $876,000 [2014 - $794,000] of provincial investment tax credits available to reduce taxable income and taxes payable for future years. These losses and investment tax credits expire as follows (in thousands):

Year of Expiry	Provincial investment tax credit		Federal investment tax credits		Non-capital loss carryforwards
2016		142		-		-
2017		205		-		-
2018		198		151		-
2019		56		227		-
2020		-		430		-
2021		28		384		-
2022		53		233		-
2023		20		168		-
2024		32		36		-
2025		142		105		-
2026		-		256		7,669
2027		-		370		8,560
2028		-		357		4,107
2029		-		101		7,217
2030		-		-		9,266
2031		-		50		5,796
2032		-		96		3,887
2033		-		35		3,166
2034		-		43		3,402
2035		-		255		-
		876		3,297		53,070

In addition, the Company has unclaimed tax deductions of approximately $13.5 million [2014 - $12.5 million] related to scientific research and experimental development expenditures available to carry forward indefinitely to reduce taxable income of future years and other deductible temporary differences of approximately $19.4 million [2014 - $19.8 million].

Significant components of the Company’s deferred tax assets are shown below (in thousands):

	2015			2014
	$			$
Future Tax Assets:
Book amortization in excess of tax capital cost allowance		2,923			2,647
Non-capital loss carry forwards		13,798			15,609
Research and development deductions and credits		6,847			6,336
Share issue costs		54			113
Unearned revenue		341			227
Free rent liability		96			110
Non-repayable lease inducements		203			232
Repayable lease inducements		1,302			1,417
Other		51			86
Total future tax assets		25,615			26,777
Valuation allowance		(25,615	)		(26,777	)
Net future tax assets		-			-

-69-

RESPONSE BIOMEDICAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Canadian dollars unless US noted)

The potential income tax benefits relating to these deferred tax assets have not been recognized in the consolidated financial statements as their realization does not meet the requirements of “more likely than not” under the liability method of tax accounting. Accordingly, a valuation allowance has been recorded and no deferred tax assets have been recognized as at December 31, 2015 and 2014.

The reconciliation of income tax attributable to operations computed at the statutory tax rate to income tax expense, using a 26.0% [2014 – 26.0%; 2013 – 25.0%] statutory tax rate is as follows (in thousands):

	2015			2014			2013
	$			$			$
Income tax expense (recovery) at statutory rates		22			(526	)		(1,500	)
Expenses not deductible for tax purposes		(59	)		(923	)		691
Non-capital losses for which no benefit has been recognized		(180	)		907			755
Other temporary differences for which no benefit has been recognized		217			542			54
Total income tax expense		-			-			-

The reconciliation of the unrecognized tax benefits of uncertain tax positions is as follows (in thousands):

	$
Balance at December 31, 2013		44
Balance at December 31, 2014		44
Additions based on tax positions related to the current year		-
Balance at December 31, 2015		44

As of December 31, 2015, unrecognized benefits of approximately $44,000, if recognized, would affect the Company’s effective tax rate, and would reduce the Company’s deferred tax assets. Interest and penalties related to the unrecognized tax benefits that are accrued in the Company’s balance sheets as at December 31, 2015 were $24,000.

The Company is subject to taxes in Canada, the United States of America, and China. The tax years which remain subject to examination as of December 31, 2015 for Canada include 2008 to 2015. The tax years which remain subject to examination as of December 31, 2015 for the United States of America and China include 2013 to 2015.

15. COMMITMENTS

[a] License agreements

The Company entered into a non-exclusive license agreement, effective July 2005, as amended June 2008, to use and sublicense certain technology (“Technology”) for one of the Company’s cardiac tests. In consideration for these rights, the Company paid a non-refundable license issuance fee of $2.0 million in the first two years after execution of the agreement and is required to pay quarterly royalties on the sale of products that incorporate the Technology. For the year ended December 31, 2015, the Company incurred an expense of $878,000 [2014 - $628,000; 2013 - $616,000] for royalties. Royalty and license fees incurred are included in cost of sales

[b] Supply agreement

The Company entered into a supply agreement, effective September 2003 for certain reagents for the Company’s RAMP^® West Nile Virus Test. In addition to paying for the reagent purchased, the Company is required to pay the supplier semi-annual royalties equal to 10% of net revenue generated from the sale of the Company’s RAMP^® West Nile Virus Test. The initial term of the agreement was three years from the effective date and is automatically renewed for successive periods of one year until either party terminates the agreement. For the year ended December 31, 2015, the Company incurred an expense of $61,000 [2014 - $49,000; 2013 - $56,000] for royalties to the supplier. These royalties are included in cost of sales.

-70-

RESPONSE BIOMEDICAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Canadian dollars unless US noted)

[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 $175,000, which is comprised of base rent, administrative and management fees, estimated property taxes and repayments of the repayable leasehold improvement allowance [note 10[iii]].

[ii] The Company had entered into a lease agreement for office space for its Representative Office in China on November 18, 2012 where the Company was required to make monthly payments of approximately $5,000 for base rent and management fees. The lease agreement expired on September 17, 2014. Subsequently, the Company entered into a new lease agreement for new office space that has since expired on September 9, 2015 where the Company was required to make monthly payments of approximately $8,000 for base rent and management fees. The Company has entered into a new lease agreement for new office space as of December 01, 2015 that expires on November 30, 2017. The Company is required to make monthly payments of approximately $5,000 for base rent and management fees under the new lease agreement.

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

[iii] The minimum annual cost of lease commitments is estimated as follows (in thousands):

	Premise		Equipment		Total
December 31,	$		$		$
2016		2,154		13		2,167
2017		2,181		16		2,197
2018		2,157		14		2,171
2019		2,186		14		2,200
2020		2,216		14		2,230
Thereafter		4,714		4		4,718
		15,608		75		15,683

For the year ended December 31, 2015, $814,000 [2014 - $802,000; 2013 - $807,000] was incurred for expenses related to base rent, administrative and management fees and estimated property taxes offset by amortization of both the rent-free inducement [note 10[i]] and non-repayable leasehold improvement allowance [note 10[ii]]. These expenses are allocated to cost of sales, research and development, general and administrative, and sales and marketing expenses.

[d] Purchase Commitments

As at December 31, 2015, the Company has outstanding purchase commitments to purchase inventory, equipment, and other services. The purchase commitments are summarized as follows (in thousands):

December 31,	$
2016		1,727
2017		213
2018		233
2019		179
		2,352

[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.

-71-

RESPONSE BIOMEDICAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Canadian dollars unless US noted)

[f] Indemnification of third parties

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

16. 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 the United States, Europe, Asia 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 whose outstanding receivable is 10% or greater than the total balance or those customers who represent 10% or greater of our total revenue. Refer to note 6 for a discussion of concentration risk in relation to outstanding receivables. For the year ended December 31, 2015, $7.4 million (62%) in product sales was generated from one customer [2014 - $6.3 million (58%) from two customers of which one customer represented 33% and the other customer 25%; 2013 - $5.8 million (50%) from two customers of which one customer represented 36% and the other customer 14%].

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

Years ended December 31,	2015		2014		2013
	$		$		$
China		7,516		6,906		7,153
United States		1,379		1,246		1,670
Russia		991		1,031		918
Japan		521		378		625
Canada		42		73		35
Other		1,524		1,194		1,130
Total		11,973		10,828		11,531

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

Years ended December 31,	2015		2014		2013
	$		$		$
Cardiovascular		10,826		9,785		10,056
Infectious Diseases		122		163		450
Biodefense products		312		360		403
Environmental		713		520		622
Total		11,973		10,828		11,531

-72-

RESPONSE BIOMEDICAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Canadian dollars unless US noted)

17. COMPARATIVE FIGURES

Certain comparative figures have been reclassified from the amounts previously reported to conform to the presentation adopted in the current year. For the years ended December 31, 2014 and 2013, $68,000 and $41,000 respectively of taxes paid in China for the representative office previously presented as income taxes have been retroactively reclassified as other expenses.

-73-

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

There have been no changes in or disagreements on any matters of accounting principles or financial statement disclosure between us and our independent registered public accountants.

ITEM 9A. CONTROLS AND PROCEDURES.

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

As required by Rule 13a-15(b) under the Exchange Act, we have evaluated, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, 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) as of the end of the period covered by this 2015 Form 10-K. Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2015 at the reasonable assurance level.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed by management, under the supervision of our principal executive officer and principal financial officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management, under the supervision and with the participation of our principal executive officer and principal financial officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2015 based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) (2013 framework). Based on our evaluation under the framework in Internal Control — Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2015.

CHANGE IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There have been no changes in our system of internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION.

None

-74-

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

The information required by this item will be set forth in the Proxy Statement and is incorporated in this report by reference.

Our board of directors has adopted a Mandate and Responsibilities of the Board of Directors. This mandate addresses items such as the qualifications and responsibilities of our directors and director candidates and corporate governance policies and standards applicable to us in general. Our board of directors has also adopted a Code of Business Conduct and Ethics that applies to all of our employees, officers and directors, including our Chief Executive Officer, Chief Financial Officer, and other executive and senior financial officers. The full text of our Mandate and Responsibilities of the Board of Directors and the full text of our Code of Business Conduct and Ethics are posted on our website at www.responsebio.com in the Governance section of our Investor Relations webpage. We intend to post any amendments to our Code of Business Conduct and Ethics, and any waivers of our Code of Business Conduct and Ethics for directors and executive officers, on the same website.

ITEM 11. EXECUTIVE COMPENSATION.

The information required by this item will be set forth in the Proxy Statement and is incorporated in this report by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The information required by this item will be set forth in the Proxy Statement and is incorporated in this report by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

The information required by this item will be set forth in the Proxy Statement and is incorporated in this report by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The information required by this item will be set forth in the Proxy Statement and is incorporated in this report by reference.

-75-

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) (1) and (2) The financial statements and reports of independent registered public accounting firm are filed as part of this Annual Report at Item 8. The financial statement schedules are not included in this item as they are either not applicable or are included as part of the consolidated financial statements.

(b) Exhibits: The following exhibits are filed as a part of this report:

All other financial statement schedules have been omitted because they are not applicable, not required, or the information required is shown within the financial statements or the notes thereto.

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.

10.1	Alexandria New Facility Lease Agreement dated April 24, 2007	Previously filed as an exhibit to, and incorporated herein by reference from, our Annual Report on Form 20F for the year ended December 31, 2008 as filed on March 31, 2009.

10.2	Alexandria – First Amendment to Lease Agreement dated May 18, 2007	Previously filed as an exhibit to, and incorporated herein by reference from, our Annual Report on Form 20F for the year ended December 31, 2008 as filed on March 31, 2009.

10.3	Roche License Agreement – NT-proBNP dated July 22, 2005*	Previously filed as an exhibit to, and incorporated herein by reference from, our Annual Report on Form 20F for the year ended December 31, 2008 as filed on March 31, 2009.

10.4	Roche License Agreement –Amendment 2 concluded July 26, 2005 – dated June 24, 2008*	Previously filed as an exhibit to, and incorporated herein by reference from, our Annual Report on Form 20F for the year ended December 31, 2008 as filed on March 31, 2009.

10.5	Shionogi Supply Agreement dated May 12, 2006	Previously filed as an exhibit to, and incorporated herein by reference from, our Annual Report on Form 20F for the year ended December 31, 2008 as filed on March 31, 2009.

10.6	Shionogi Supply Agreement – Amendment 1 dated July 11, 2008	Previously filed as an exhibit to, and incorporated herein by reference from, our Annual Report on Form 20F for the year ended December 31, 2008 as filed on March 31, 2009.

10.7#	Short Term Incentive Plan dated March 18, 2008	Previously filed as an exhibit to, and incorporated herein by reference from, our Annual Report on Form 20F for the year ended December 31, 2008 as filed on March 31, 2009.

-76-

Exhibit Number	Exhibit Description	Incorporated by Reference
10.8#	2008 Stock Option Plan	Previously filed as an exhibit to, and incorporated herein by reference from, our Annual Report on Form 20F for the year ended December 31, 2008 as filed on March 31, 2009.

10.9	Irrevocable Commercial Letter of Credit dated May 1, 2007	Previously filed as an exhibit to, and incorporated herein by reference from, our Annual Report on Form 20F for the year ended December 31, 2008 as filed on March 31, 2009.

10.10#	Form of Indemnification Agreement between Response Biomedical Corp. and applicable officers	Previously filed as an exhibit to, and incorporated herein by reference from, our Annual Report on Form 20F for the year ended December 31, 2008 as filed on March 31, 2009.

10.11	Note Purchase Agreement dated November 22, 2011	Previously filed as an exhibit to, and incorporated herein by reference from, our Annual Report on Form 10K for the year ended December 31, 2012 as filed on March 28, 2012.

10.12	Standby Purchase Agreement dated November 28, 2011	Previously filed as an exhibit to, and incorporated herein by reference from, our Annual Report on Form 10K for the year ended December 31, 2012 as filed on March 28, 2012.

10.13#	Management Consulting Agreement with Jeffrey L. Purvin	Previously filed as an exhibit to, and incorporated herein by reference from, our Current Report on Form 8K as filed on June 29, 2012.

10.14#	Employment Agreement with Jeffrey L. Purvin	Previously filed as an exhibit to, and incorporated herein by reference from, our Current Report on Form 8K as filed on July 27, 2012.

10.15#	Employment Agreement with William J. Adams	Previously filed as an exhibit to, and incorporated herein by reference from, our Current Report on Form 8K as filed on August 10, 2012.

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

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

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

10.19	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 8K as filed on July 26, 2013.

10.20	Agency Agreement, dated September 26, 2013	Previously filed as an exhibit to, and incorporated herein by reference from, our Current Report on Form 8K as filed on September 26, 2013.

10.21	Subscription Agreement for Subscription Receipts, dated September 24, 2013	Previously filed as an exhibit to, and incorporated herein by reference from, our Current Report on Form 8K as filed on September 26, 2013.

-77-

Exhibit Number	Exhibit Description	Incorporated by Reference
10.22	Subscription Receipt Agreement, dated September 26, 2013	Previously filed as an exhibit to, and incorporated herein by reference from, our Current Report on Form 8K as filed on September 26, 2013.

10.23	Loan Agreement, dated as of February 11, 2014, by and between Silicon Valley Bank and Response Biomedical Corp.	Previously filed as an exhibit to, and incorporated herein by reference from, our Current Report on Form 8K as filed on February 13, 2014.

10.24	Security Agreement, dated as of February 11, 2014, by and between Silicon Valley Bank and Response Biomedical Corp.	Previously filed as an exhibit to, and incorporated herein by reference from, our Current Report on Form 8K as filed on February 13, 2014.

10.25	First Amendment to Loan Agreement, dated as of April 14, 2014, by and between Silicon Valley Bank and Response Biomedical Corp.	Previously filed as an exhibit to, and incorporated herein by reference from, our Current Report on Form 8K as filed on April 14, 2014.

10.26	Separation Agreement and Release, dated August 13, 2014, by and between Response Biomedical Corp. and Timothy Shannon.	Previously filed as an exhibit to, and incorporated herein by reference from, our Current Report on Form 8K as filed on August 15, 2014.

10.27	Forbearance to Loan Agreement, dated as of September 30, 2014, by and between the Company and Silicon Valley Bank.	Previously filed as an exhibit to, and incorporated herein by reference from, our Current Report on Form 8K as filed on October 6, 2014 and our amended Current Report on Form 8K/A as filed on November 14, 2014.

10.28	Technology Development Agreement, dated as of October 15, 2014, by and between the Company and Hangzhou Joinstar Biomedical Technology Co., Ltd	Previously filed as an exhibit to, and incorporated herein by reference from, our Current Report on Form 8K as filed on October 20, 2014.

10.29	Binding Term Sheet - Supply, dated as of October 15, 2014, by and between the Company and Hangzhou Joinstar Biomedical Technology Co., Ltd.	Previously filed as an exhibit to, and incorporated herein by reference from, our Current Report on Form 8K as filed on October 20, 2014 and our amended Current Report on Form 8K/A as filed on December 30, 2014.

10.30	Binding Term Sheet – Equity Investment (JMIR), dated as of October 15, 2014, by and between the Company and Hangzhou Joinstar Medical Instrument & Reagent Co., Lt	Previously filed as an exhibit to, and incorporated herein by reference from, our Current Report on Form 8K as filed on October 20, 2014.

10.31	Binding Term Sheet – Equity Investment (HZLZ), dated as of October 15, 2014, by and between the Company and Hangzhou Lizhu Medical Instrument & Reagent Co., Ltd.	Previously filed as an exhibit to, and incorporated herein by reference from, our Current Report on Form 8K as filed on October 20, 2014.

10.32	Forbearance to Loan Agreement, dated as of October 31, 2014, by and between the Company and Silicon Valley Bank.	Previously filed as an exhibit to, and incorporated herein by reference from, our Current Report on Form 8K as filed on November 6, 2014 and our amended Current Report on Form 8K/A as filed on December 24, 2014.

10.33	Second Amendment to Loan Agreement, dated as of December 15, 2014, by and between Silicon Valley Bank and Response Biomedical Corp.	Previously filed as an exhibit to, and incorporated herein by reference from, our Current Report on Form 8K as filed on December 18, 2014.

10.34	Second Amendment to International Distribution Agreement, by and between the Company and Shanghai Elite Bio Co., Ltd.	Previously filed as an exhibit to, and incorporated herein by reference from, our Current Report on Form 8K as filed on February 10, 2015.

-78-

Exhibit Number	Exhibit Description	Incorporated by Reference
10.35	Collaboration Agreement, dated as of February 16, 2015, by and between the Company and Hangzhou Joinstar Biomedical Technology Co., Ltd.	Previously filed as an exhibit to, and incorporated herein by reference from, our Current Report on Form 8K as filed on February 20, 2015.

10.36	Supply Agreement, dated as of February 16, 2015, by and between the Company and Hangzhou Joinstar Biomedical Technology Co., Ltd.	Previously filed as an exhibit to, and incorporated herein by reference from, our Current Report on Form 8K as filed on February 20, 2015.

10.37#	Employment Agreement with Dr. Barbara R. Kinnaird

21	List of Subsidiaries

23.1	Consent of Independent Registered Public Accounting Firm – PricewaterhouseCoopers LLP

24	Power of Attorney (included on signature page)

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 Annual Report on Form 10-K for the year ended December 31, 2015, formatted in XBRL (Extensible Business Reporting Language): (i) audited Consolidated Statements of Loss and Comprehensive Loss for the years ended December 31, 2015, 2014, and 2013, (ii) audited Consolidated Balance Sheets as of December 31, 2015, and 2014, (iii) audited Consolidated Statements of Shareholders’ Equity/Deficit (iv) audited Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014, and 2013, and (v) audited Notes to Consolidated Financial Statements

#	Management compensatory plan, contract or arrangement

*	Portions of the exhibit have been omitted pursuant to an order granted by the Securities and Exchange Commission for confidential treatment.

Copies of the exhibits filed with this Annual Report on Form 10-K or incorporated by reference herein do not accompany copies hereof for distribution to stockholders of the Registrant. The Registrant will furnish a copy of any of such exhibits to any stockholder requesting the same for a nominal charge to cover duplicating costs.

-79-

POWER OF ATTORNEY

The registrant and each person whose signature appears below hereby appoint Dr. Barbara R. Kinnaird and William J. Adams as attorney-in-fact with full power of substitution, severally, to execute in the name and on behalf of the registrant and each such person, individually and in each capacity stated below, one or more amendments to this Annual Report on Form 10-K, which amendments may make such changes in this Annual Report as the attorney-in-fact acting in the premises deems appropriate and to file any such amendments to this Annual Report on Form 10-K with the Securities and Exchange Commission.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Dated: March 24, 2016	Response Biomedical Corp.

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

Dated: March 24, 2016	By:	/s/ William J. Adams
		William J. Adams
		Director
		Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Dated: March 24, 2016	By:	/s/ Lewis J. Shuster
		Lewis J. Shuster
		Chairman of Board of Directors

Dated: March 24, 2016	By:	/s/ Dr. Anthony F. Holler
		Dr. Anthony F. Holler
		Director

Dated: March 24, 2016	By:	/s/ Dr. Joseph D. Keegan
		Dr. Joseph D. Keegan
		Director

Dated: March 24, 2016	By:	/s/ Clinton H. Severson
		Clinton H. Severson
		Director

Dated: March 24, 2016	By:	/s/ Dr. Peter A. Thompson
		Dr. Peter A. Thompson
		Director

Dated: March 24, 2016	By:	/s/ Jonathan Wang
		Jonathan Wang
		Director

-80-

Attached files

RESPONSE BIOMEDICAL CORP Reports

Also read