Annual Report  2013  Management Discussion & Analysis  Risks Relating Specifically to Sequel  35  Risks Relating Specifically to SCR  Foreign Exchange Risk  Labstat is exposed to foreign exchange volatility as approximately 50% of its revenue is based in  U.S dollars. Labstat currently mitigate the risk of large swings in currency rates by entering into  forward contracts to match a majority of its contracted USD work. This ensures margins on those  specific contracts are as anticipated when Labstat bid on those specific jobs. However, a large  un-hedged swing in the USD/CAD exchange rate could negatively affect Labstat's cash flow,  which in turn may hinder its ability to pay its obligations to creditors and Alaris. Also, a strong  CAD vs the USD means Labstat could be less competitive with U.S laboratories when bidding on  new contracts as it will generate less exchange adjusted CAD income in times of an elevated  CAD vs the USD. It may have to bid at prices which are well below typical margins in order to be  competitive and win the contract in this situation, which could negatively impact cash flows.  Generally, a lower CAD vs the USD is a benefit to Labstat. Commodity Pricing and  Future Exploration and Mine  Development  A prolonged decrease in base and precious metals pricing could lead to future mining projects  becoming uneconomical and therefore could impact SCR's ability to replace revenue as existing  mines come to the end of their life cycles. Such a decrease could also impact current mine  operations if the mine operator decreases mine development or production due to a prolonged  decrease in commodity prices.  Industrial Accidents  Although SCR has a strong track record of safety on its work sites, an industrial accident could  result in a prolonged mine shut down and/or liability for damages in the event SCR is held  responsible for an accident, both of which could have an adverse effect on SCR's financial  performance, even if adequate insurance is in place.  Customer Production Issues  If the operator of any of the mines SCR operates in experiences a prolonged halt to or decrease  in production, SCR's financial performance could be adversely impacted.  Customer Concentration  SCR operates primarily in the Sudbury Basin and Red Lake regions of Ontario, Canada and  provides services to customers operating multiple mines in the region. As such SCR is subject to  customer concentration risks and any significant reduction in operations of its key customers or a  reduction of mining operations in the Sudbury Basin and Red Lake regions and generally could  have an adverse effect on SCR's operations and financial performance. Also, if a customer puts  a major project to tender and SCR is not awarded the new contract, it could negatively affect its  cash flows.  Referral Loss  Sequel receives referrals from many sources and relies on these referrals to drive its business. Though Sequel has a well-diversified referral base and does not have significant exposure to a  single referral source, the loss of a few major referral sources could have an adverse effect on  Sequel's revenues. Regulatory Environment  The healthcare industry in the United States is regulated at the federal, state and municipal levels. In order for Sequel to operate its business and obtain reimbursement from third party payors, they  must obtain and maintain a variety of licenses, permits and certifications and accreditations.  Failure to meet the regulatory requirements could have an adverse effect on Sequel's financial  performance.  Healthcare Reform  Sequel relies on income generated from treating patients covered by health insurance, whether it  is a government source or third party payor. If there were to be a material adverse change in the  United States healthcare system as it relates to the coverage of mental and behavioral health it  could have an adverse effect on Sequel's financial performance.  Reimbursement Rate  Reductions  Although Sequel does not have significant concentration from a single payor source, a reduction  in the reimbursement rate by any of the payors in the industry could have an adverse effect on  Sequel's financial performance. 