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SQI Diagnostics Reports Fourth Quarter and Fiscal 2017 Results
Toronto, Ontario
November 16, 2017
SQI Diagnostics Inc. (“SQI” or the “Company”) (TSX-V: SQD; OTCQX: SQIDF),

today reported its financial and operational results for the fourth quarter and fiscal year ended September 30, 2017.

SQI is a Toronto-based life sciences and diagnostics company that develops and commercializes proprietary technologies and products for advanced multiplexed diagnostics.

Commercial Highlights

  • Achieved revenues of $968,000 continuing the momentum from 2016.
  • Added 3 additional revenue-producing customers in fiscal 2017.
  • Built a revenue pipeline with a total of 14 customers.

“Three new customers in fiscal 2017 with a solid and growing pipeline demonstrate the significant potential for our future”, said Andrew Morris, SQI’s President and CEO. “We have continued to transition our key, revenue-generating customers through commercialization. At the same time we have built a solid pipeline with new customers who are well-advanced to provide ongoing revenues in the coming fiscal year.”

Financial and Business Highlights for the Fourth Quarter and Fiscal 2017 Year

  • We progressed significantly in the technology transfer for our predictive diagnostic customer which was announced in March. We believe the technology risk for this process is low. We are advancing steadily towards a finished product that will lead to selling kits to this customer who is currently running tests for thousands of patients each month in its CLIA lab in California. To begin generating significant revenues from kit sales, SQI needs to transfer the developed test to this customer for their final in-house product acceptance testing.

  • The large comparative study we reported last quarter for our human diagnostic DNA customer was launched during the second half of 2017 and is well underway. This study and other final validation work is ongoing at the customer site and could be completed in the next four months. Management believes this will lead to commercial production of this product and recurring sales of kits following successful validation.

  • We have a total of five customers that are generating revenues, in addition to three in “contracting”, plus one with an Letter of Intent and a near-term pipeline of five additional opportunities and continue to advance additional customers along our sales pipeline. All told, there are now 14 customers in our revenue pipeline - up from seven at this time last year.

  • In fiscal 2017 we raised approximately $3.7 million in an oversubscribed private placement.

  • Subsequent to year-end we announced a private placement of up to 30,000,000 units of the Company at a price of $0.15 per Unit for gross proceeds of up to $4.5 million, subject to regulatory and stock exchange approval. The Company also announced an annual and special meeting of shareholders to be held on December 18th to, among other things, approve the creation of new control persons.

Q4 and Fiscal 2017 Financial Results Overview

Revenue for the year ended September 30, 2017 was $968,000 versus $1,421,000 for the year ended September 30, 2016. Revenue for the three months ended September 30, 2017 was $126,000 compared to $709,000 for the same period last year. Revenues from the fourth quarter in fiscal 2017 were lower than those recorded in the fourth quarter of 2016 owing to the two platform sales made in the last quarter of 2016 and larger development revenues in 2016. Our revenues for the first nine months of fiscal 2017 were greater than in 2016. In the last quarter of fiscal 2017 we were transitioning customers out of development and into customer site validation causing a decrease in quarter over quarter revenue in the fourth quarter of 2017. The sale of the platform announced in July of 2017 has not been recorded for accounting purposes as accounting rules require the completion of certain validation and training activities. This platform was delivered in the fourth quarter of 2017 and customer validation testing has pushed the recognition of platform revenue to the first quarter of fiscal 2018. In fiscal 2017, we continued to make commercial progress with our customers, albeit at a slower rate than originally anticipated. There was a decrease in service revenue in fiscal 2017 compared to fiscal 2016 as our customer activities in fiscal 2017 transitioned from development projects into product validation in advance of the expected ramp up of commercial purchases. Kit sales during validation studies have, as expected, been small but we expect will grow as the projects advance into commercial use.

The net loss for the year ended September 30, 2017 was $5,929,000 ($0.06 net loss per share) as compared to $5,039,000 ($0.07 net loss per share) for the year ended September 30, 2016. For the quarter, the Company recorded a net loss of $1,536,000 ($0.01 net loss per share) as compared to the net loss of $1,248,000 ($0.02 net loss per share) for the quarter-ended September 30, 2016. The increase in net loss for the year and quarter ended September 30, 2017 compared to the prior periods is a result of the lower 2017 fourth quarter revenues, increased marketing costs and increased research and development costs.

Research and development (“R&D”) costs, excluding amortization and stock based compensation were $3,030,000 for the year ending September 30, 2017 (three month - $757,000) compared to $2,786,000 for the year ending September 30, 2016 (three month - $775,000). In fiscal 2017, R&D efforts were focused on development work for customer projects in our Pharma and diagnostic businesses. R&D costs were higher for fiscal 2017 as compared to fiscal 2016 due to additional personnel costs including specialized scientific professionals hired in 2016 to achieve customer goals. Research and development expenditures focused on two customer projects, the xPlex product development as well as an internal development project that, if successful, will significantly reduce our overall consumable kit costs. Also, R&D expenditures were reduced in 2016 by SR&ED investment tax credits of $360,000 which represented tax credits claimed for the 2014 and 2015 tax years. R&D expenditures in 2017 were offset by SR&ED investment tax credits of $229,000 related to the 2016 tax year.

Corporate and general expenses excluding stock-based compensation totaled $1,332,000 for the year ended September 30, 2017 and $1,503,000 for the year ended September 30, 2016. Corporate and general expenses excluding stock-based compensation, totaled $383,000 for the three months ended September 30, 2017 as compared to $360,000 for the three months ended September 30, 2016. Corporate and general expenses are higher for the three months ended September 30, 2017 as compared to the prior period due to a loss on sale of certain equipment. This increase in expenses was partially offset by lower administrative personnel costs and lower professional fees. Corporate and general expenses are lower over the comparable fiscal periods due to reduced administrative personnel costs and lower professional fees.

Sales and marketing expenses, excluding stock based compensation, totaled $1,067,000 for the year ended September 30, 2017 compared to $685,000 for the year ended September 30, 2016. Sales and marketing expenses, excluding stock based compensation, totaled $258,000 for the three months ended September 30, 2017 compared to $200,000 for the three months ended September 30, 2016. The increase in sales and marketing costs is a result of the addition of two sales contractors in fiscal 2017 as well as the payment of retention bonuses.

At September 30, 2017, current assets were $2,414,000 compared to $4,244,000 at September 30, 2016. As at September 30, 2017, the Company’s current assets exceeded current liabilities by $1,919,000 compared to a surplus of $3,420,000 at September 30, 2016.

Conference Call

President and CEO, Andrew Morris, along with Company management, will host a conference call to review financial results and discuss business developments for the period. Details are as below:

Conference Call Details:
Date: Friday November 17, 2017
Time: 10:00 a.m. ET
Live Call: 1-888-231-8191 (Canada and the United States)
Conference ID: 5598948
Webcast: http://event.on24.com/r.htm?e=1544316&s=1&k=9AA7FC76B9563A0482298E8B3CCA5F12

An archived copy of the conference call will be available for 90 days on the Company website at www.sqidiagnostics.com/about/investors and also at http://event.on24.com/r.htm?e=1544316&s=1&k=9AA7FC76B9563A0482298E8B3CCA5F12

Detailed financial statements and the management’s discussion and analysis (MD&A) will also be made available on the Company website at www.sqidiagnostics.com and at www.sedar.com.

Investor relations contact:

Chief Executive Officer
Andrew Morris
416.674.9500 ext. 229
amorris@sqidiagnostics.com

Vice President of Finance
Patricia Lie
416.674.9500 ext. 277
plie@sqidiagnostics.com

About SQI Diagnostics

SQI Diagnostics is a life sciences and diagnostics company that develops clinical grade multiplexed microarray and molecular assays run on its automated instrumentation for the pharmaceutical research, animal health, and clinical diagnostics markets. SQI develops custom research and diagnostic assays that are multiplexed; meaning the simplification, consolidation and automation of many individual tests into one. This increases sample throughput, reduces time, cost and chance for human error, and provides excellent data quality. For more information, please visit sqidiagnostics.com.

Forward-looking Statements

This press release contains certain statements including, without limitation, the words “may”, “plan”, “will”, “estimate”, “continue”, “anticipate”, “intend”, “expect”, “believe”, “in the process”, “benefits”, “leading to”, “position” “possible”, “is subject to” and other similar expressions which may constitute “forward-looking statements” within the meaning of applicable securities laws. Forward-looking statements reflect the Company's current expectations and assumptions, and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. Readers are cautioned not to place undue reliance on these forward-looking statements. These forward-looking statements involve risks and uncertainties including, but not limited to: our ability to market and sell our products including our novel multiplexing technologies and detection platforms; our ability to maintain any technical or product advantages; the success of our Diagnostic Tools and Services business and our intent to build near-term revenue streams from this business; the successful regulatory filing and receipt of regulatory approvals for our later stage quantitative diagnostic consumable kits; adverse changes in general economic conditions; international risk and currency exchange fluctuations; competitor activity; technology changes; regulatory approvals and the impact of healthcare reform legislation; and, SQI's ability to raise additional funds in the future.

Such statements, risks and uncertainties are detailed in the Company’s ongoing filings with the securities regulatory authorities, and are available to the public at www.sedar.com. The Company undertakes no obligation to publicly update or revise any forward-looking statements either as a result of new information, future events or otherwise, except as required by applicable securities laws.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.