Spectral Diagnostics Announces Fourth Quarter and 2010 Year End Results

Spectral Diagnostics Inc., has announced its financial results for the fourth quarter and year ended December 31, 2010.

Fourth Quarter Highlights:

• Initiated its US pivotal trial for Toraymyxin, a therapeutic hemoperfusion device that removes endotoxin from the bloodstream, for patients with severe sepsis. The EUPHRATES trial - the first theranostics trial combining a therapeutic and a diagnostic in the area of sepsis - is targeted to enrol approximately 360 patients at 15 sites in the US over a period of 24 to 30 months, with interim results expected, as planned, at the midpoint of the trial in the first half of 2012;

• Completed the conversion of certain promissory notes at a principal amount of $1,343,750 into an aggregate of 4,648,512 common shares in the capital of Spectral at a conversion price of approximately $0.29 per common share, all in accordance with the terms of the notes. Following the conversion, the notes were cancelled;

• Signed a long-term, exclusive distribution agreement with Toray Industries, Inc. and Toray Medical Co., Ltd. of Japan to market and sell Toraymyxin in Canada. Toraymyxin and Spectral's EAA™ diagnostic, which measures endotoxin and identifies patients for treatment, are already approved for sale by Health Canada;

• Concluded the reporting period with $15.3 million in cash and short term investments.

"The fourth quarter was a highly productive period for Spectral as we made important progress with our business development, capital markets and clinical initiatives," said Dr. Paul Walker, President and CEO of Spectral. "We are confident that 2011 will be another successful year for the Company as the enrolment for the EUPHRATES trial accelerates and as our theranostic treatment modality for patients with severe sepsis and septic shock gains more acceptance."

Outlook

Spectral's strategic focus for the next few years will be on the successful implementation of the EUPHRATES trial, with all clinical sites expected to be enrolling patients during the first half of 2011. Interim results from the trial are anticipated in the first half of 2012. Management expects that the Company will have sufficient funds for these activities.

Financial Review

For the fourth quarter ended December 31, 2010, Spectral reported revenues of $673,000, compared to $850,000 for the corresponding period in 2009. For the year ended December 31, 2010, revenues were $2,821,000 compared to $3,283,000 for the same period in 2009. Full year 2010 revenues were lower in part because EAA™ diagnostic sales were moderately lower in 2010 due mainly to the expiry of certain distribution agreements, and because royalty revenues from the Company's proprietary Troponin I products were impacted by the strengthening Canadian dollar compared to the US currency.

For the fourth quarter ended December 31, 2010, the Company reported a loss of $2,064,000 or ($0.03) per share, compared to a loss of $1,230,000 or ($0.05) per share for the corresponding period in 2009. For the year ended December 31, 2010, the Company reported a loss of $6,567,000 or ($0.10) per share, compared to a loss of $2,764,000 or ($0.11) per share for the corresponding period in 2009.

The higher year-over-year loss is attributable primarily to the increase in the EUPHRATES clinical trial costs and to the trial start-up; service fees paid to Medwell Capital (formerly BioMS Medical) pursuant to a three year, $3 million service contract that became effective January 1, 2010; the stock based compensation expense that arose on the issuance of 1,950,000 stock options in the first quarter of 2010; and, slightly higher operating expenses related to increased commercialization activities for Toraymyxin and EAA™.

Cash and short term investments as at December 31, 2010 totalled $15,332,000, compared to $2,944,000 as at December 31, 2009. The increase is due to net proceeds of the financing completed in the first quarter of 2010 ($17,608,000). Total shares outstanding at December 31, 2010 amounted to 80,550,061 compared to 75,901,549 on September 30, 2010 and 24,118,424 on December 31, 2009.