Our sensors at Work
Measure • • • Improve
• O i l & GA s •
• M e d i c Al de v i c e s •
Helping operators optimize production in the
Partners are developing applications in areas such
Western Canadian oil sands.
as cardiac assistance and drug manufacturing.
• l AbO R A tO Ri e s & tR An s f O R MeRs •
Ensuring components that control systems are unaffected by magnetic interference.
Preventing heating in high-power transformers.
#125, 2014, Cyrille-Duquet St., Quebec City, QC G1N 4N6
# 2 01, 10456, 176th St., Edmonton, AB T5S 1L3
T• +1 418 . 6 8 2 .9 9 96 F • +1 418 . 6 8 2 .9 9 3 9
T• +1 7 8 0 .9 3 0 .17 7 7 F • +1 7 8 0 .9 3 0 . 2 0 7 7
w w w • o p s e n s • c o m
Annual R eport 2008
CO R P O R AT E P R Of i l e
Opsens is a leading developer, manufacturer and supplier of a wide
range of fiber optic sensors and associated signal conditioners based on proprietary patent and
patent-pending technologies. Opsens sensors provide long-term accuracy and reliability in the harshest
environments. Opsens provides sensors to measure pressure, temperature, strain and displacement
to original equipment manufacturers (OEM) and end users in the oil and gas, medical, transformers,
and laboratories fields. Opsens provides complete technical support, including installation, training
and after-sales service.
I n vEsTmEnT H iG Hl iG Ht s
F I nAnC I Al H iG Hl iG Ht s
• • • significant growth opportunity
Quarterly Revenue
driven by increased need to measure temperature
($000’s)
890
748
637
569
and pressure in SAGD oil sands wells.
• • • sensor technology proven
in oil sands installation, differentiating us from
R&D companies.
• • • Widely adaptable technology
giving us diverse growth opportunities in three
strategic markets.
• • • High-margin potential
suppported by recurring revenue streams from
regular sensor replacement.
• • • financial position
sufficient to commercialize our products in oil and
gas and medical market.
Emerging leader
in Oil sands Measurement
Opsens is working on projects in several areas of oil and gas, but its near-term focus is the Western Canadian oil
sands market, where it sees a huge opportunity. There are more than 80 active in situ oil sands projects in Alberta,
and all the major oil and gas companies are involved.
Steam assisted gravity drainage is the most common process for developing in situ reserves. In SAGD, recovery
rates are typically somewhere between 30% and 60%. To optimize recovery rates, the operator needs data on
temperature and pressure below the surface directly from the producer well, where temperatures may be between
200 and 300 degrees Celsius. Opsens’ OPP-W sensors have been proven to meet that need, measuring pressure and
temperature up to 300 degrees Celsius.
sT E Am As sIsT E D G R A vI T Y D R A InAG E (s AG d)
265
174
187
187
Producing
Well
steam
injection Well
sRU
installation
Q1
Q2
Q3
Q4
Q1
2 0 0 7
Q3
Q2
2 0 0 8
Q4
Key events in 2008
• Completed first installation of OPP-W fiber optic sensor for
• Receives order worth more than $300,000 from Japanese
major oil sands operator.
• Raised gross proceeds of C$3.8 million from private
placement of units at $0.80 each.
• Completed the acquisition of Inflo Solutions Inc., renamed
maker of medical devices for Opsens’ LifeSens signal
conditioners and pressure sensors.
• Receives $400,000 order from European medical
technology customer for its LifeSens OEM boards.
Opsens Solutions Inc., to spearhead the company’s
• Two major oil sands operators order conventional sensors
operations in the oil and gas market.
worth more than $300,000.
• Records annual revenue increase of 250%, to $2.8 million.
• In 1Q 2009, receives order to install OPP-W fiber optic
• BAE Systems, leader in the aerospace and defence industry,
orders RadSens-type signal conditioners and fiber optic
temperature sensors.
sensors in three wells at Nexen Inc.’s Long Lake SAGD
joint-venture project.
s
t
e
a
m
O
i
l
H O t s t eA M cH A Mb eR
( ~ 3 0 0 °c + )
H e a t e d O i l
Opsens sensors for in situ Pressure & t emperature Monitoring (300°c)
co ld Oil sand
w w w • o
p
s
e
n
s
•
c
o m
w w w • o
p
s
e
n
s
•
c
o m
MESSAGE TO OUR SHAREHOLDERS
2008 was a pivotal year for Opsens. Your company maintained its focus on its business plan and we are proud to
report that we reached some important milestones this year, and brought the company another step closer to its goal
of becoming a major monitoring-solutions provider.
OIL AND GAS
Our oil and gas operations got a boost early in fiscal 2008, with the acquisition of Inflo Solutions, a company
specializing in the design and installation of reservoir surveillance systems using optical and conventional sensors for
the oil and gas industry. This independent unit, now called Opsens Solutions Inc., is an essential element in our
expansion plan for the oil and gas market.
Opsens Solutions’ most promising product is the OPP-W fiber optic sensor for continuous pressure and temperature
measurement in very harsh environments, such as the oil sands. At temperatures up to 300 degrees Celsius, the
sensor is designed for use in the Steam Assisted Gravity Drainage (SAGD) production process. SAGD is a method in
which crude oil sands are heated by injecting steam into pipes below the earth’s surface in order to reduce viscosity
and extract crude oil.
With our new presence in Edmonton, Opsens has gained specific expertise in design and installation, allowing the
company to offer integrated monitoring services of wells and reservoirs directly to its customers. Needless to say,
Opsens Solutions is driving our aggressive commercialization efforts into Western Canada’s multi-billion dollar oil
sands market.
A PROVEN TECHNOLOGY
I am very proud to say that Opsens reached a significant milestone in fiscal 2008 with the successful first installation
of two OPP-W sensors in two wells using the SAGD process. To optimize oil sands production, well operators need
to continuously monitor pressure and temperature measurement at high temperatures. Opsens has been refining its
OPP-W sensors for this use for the past several years, and undertook extensive in-house testing. We can now say,
after several months of measurements in operating wells more than 600 meters below ground, that our OPP-W is a
proven technology, a significant differentiator from our competitors. This success makes us optimistic about our
prospects for fiscal 2009.
OTHER MARKETS
The 250% growth in revenue in fiscal 2008 is a mark of the growing acceptance our customers are showing of our
products in each of our markets, including medical devices, laboratory and high-powered transformers.
In medical devices, we made significant steps forward. We are working closely with a leader in the medical
instruments market to supply LifeSens OEM signal conditioners, which use white-light polarization interferometry
technology (WLPI). That company is integrating our fiber optic sensors into its device to measure human blood
pressure. A single-use optical pressure sensor, being developed in house, would also create recurring revenues in our
medical device segment.
We notably increased revenues from the laboratory and high-powered transformers markets by adding new
functionality to our fiber optic signal conditioners, as well as delivering high-quality sensors. In the laboratory
market, we received an order from BAE Systems, a world leader in the aerospace industry, and in the transformer
market, we delivered some units in Asia, expanding our distribution network.
1
OTHER EVENTS
Another 2008 achievement was the certification of our company as being ISO 9000:2001 compliant. Our team put a
lot of effort into achieving that milestone, which assures our customers that we will deliver only the finest quality
product, essential for any technology company such as Opsens.
On the financial side, we concluded a private placement of units for $3.8 million at $0.80 a unit, which each
comprised one share and half of a warrant. The financing provides us with cash to support our expansion in 2009.
LOOKING TO 2009
2009 already looks promising to us, despite the challenging economic environment. We expect our Opsens Solutions
unit to secure orders from new oil sands clients, and are targeting an order to install our technology in a full pad of
wells. Our products are designed to save producers money and increase their output, all the more important in the
current market. The order we received from Nexen Inc. in the first quarter confirms that customers see our
technology as a valuable means to optimize production.
We will be introducing new sensors for measuring multiple parameters in the well to better help maximize oil
recovery from producing fields.
We are confident that in fiscal 2009 we will realize major achievements in all of our segments, but in particular we
believe that our unique pressure sensor for SAGD optimization will ultimately become the standard in high-
temperature pressure measurement for all the SAGD fields.
Looking to our medical, laboratories and transformers markets, we will continue in 2009 to increase our efforts at the
world-wide commercialization of our products.
Finally, I would like to thank our customers for their confidence in the products and expertise we offer, as well as our
employees for their expertise and dedication which were vital in reaching this year’s achievements. The counsel and
experience of our directors continue to be key ingredients in our growth and creation of shareholder value. I also
wish to thank all investors for their trust in the Opsens team.
(s) Pierre Carrier
Chairman of the Board, President and CEO
2
MANAGEMENT DISCUSSION & ANALYSIS
Annual report for shareholders
Fiscal year ended August 31, 2008
The following comments are intended to provide a review and analysis of the operating results and financial position
of Opsens Inc. as of August 31, 2008, and for the fiscal year ended this date in comparison with the fiscal year ended
August 31, 2007. They should be read and interpreted in conjunction with the audited financial statements as well as
the accompanying notes as of August 31, 2008.
Unless stated otherwise, the interim Management Discussion and Analysis has been prepared in accordance with
Canadian Generally Accepted Accounting Principles (GAAP) on a consolidated basis. This document was prepared
on November 6, 2008. All amounts are in Canadian dollars unless otherwise noted.
This report contains forward-looking statements that involve risks and uncertainties. These forward-looking
statements are not guarantees of our future results, and actual results could differ significantly from those foreseen by
such statements due to several factors, including economic conditions, capital expenditures in the measuring
instrument sector, currency exchange rate variation, and our ability to manage Opsens successfully under these
uncertain conditions. Consequently, the reader should not place undue reliance on these forward-looking statements.
These forward-looking statements are only valid as at the date of this document. The Company is under no obligation
to revise or update these forward-looking statements in order to reflect the events or circumstances that occur after
the date of this analysis except when it is required by law.
CORPORATE OVERVIEW
Opsens Inc. (the “Company”) is a leading developer, manufacturer, and supplier of a wide range of fiber optic
sensors and associated signal conditioners based on proprietary patented and patent-pending technologies. Opsens
sensors provide long-term accuracy and reliability in the harshest environments. Opsens provides sensors to measure
pressure, temperature, strain, and displacement to original equipment manufacturers (OEM) and directly to end-users
in the oil and gas, medical instrumentation, high-power transformers, and scientific and military laboratory fields.
Opsens offers technical services, such as on-site installation, training, and turnkey fiber optic systems.
Opsens holds three (3) patents and three (3) pending patents covering its products and technology provided to its
markets, giving the Company freedom to operate on these markets. With its patented technologies and highly
recognized expertise, Opsens meets consumer needs in the medical, oil and gas, high-power transformers, and
scientific laboratory markets. Since December 11, 2007, activities in the field of oil and gas have been performed by
the wholly-owned subsidiary Opsens Solutions Inc. (“Opsens Solutions”), formerly Inflo Solutions Inc.
VISION, STRATEGY, AND OUTLOOK
The worldwide market for fiber optic and conventional is a multi-billion dollar market. The Opsens sales and
marketing strategy aims to provide solutions for the various current niche markets and develop new specific markets.
The Company's expertise, know-how, and patented technology are the keys to new production techniques improving
the reliability of measuring equipment. Also, the Opsens production technique called MEMS (Micro-Electro-
Mechanical-System) encourages penetration into markets traditionally occupied by conventional sensors through
higher production volumes and reduced manufacturing costs.
During fiscal 2009, Opsens expects its revenues from product sales to continue to grow compared to the comparative
fiscal year in the oil and gas, medical devices, high-power transformers, and scientific and military laboratory
sectors. The testing of the OPP-W sensor for the oil & gas during fiscal 2008 and greater maturity of our products,
particularly in the medical sector, are major elements that will contribute significantly to increased revenues. Despite
lower price of oil which could affect negatively investment in oil and gas, we perceive that lower oil and gas price
will cause producers to look for optimization on operations and encourage mid-term commercialization for the
OPP-W sensor.
3
Disclosures in volatile and uncertain times in the financial markets
In the current environment, Opsens continues to execute its business plan, targeting revenue growth in its four
strategic sectors. The company continues to invest in human resources to provide its clients with top quality products
and services. Given the controls in place in each of Opsens’ units, the company doesn’t at this point need to take any
unusual measures. The current period of uncertainty and volatility has not required the company to change its
method of dealing with credit, since Opsens’ clients are primarily businesses with strong capitalization, distributors
and government-related agencies.
As for recent currency fluctuations, an appreciating American dollar against the Canadian dollar generally favors
sales figures and gross margins, since most of Opsens’ sales are made in U.S. dollars.
Regarding cash management, the private placement that Opsens completed in 2008 gives the company the financial
resources necessary to operate for the next year. The company has not changed its cash management strategy, which
aims to protect its financial assets and defer spending that isn’t essential to enacting Opsens’ business plan in the
near to medium term. If Opsens did need to raise money in the future, success would depend on revenue growth.
The accounting estimates used in the financial statements for the year ended August 31, 2008 were not modified for
the current uncertain economic environment. These items are receivable tax credits, provisions for contractual
guarantees and assumptions tied to the fair value of share options and warrants. Management doesn’t anticipate an
impact on the company’s accounting estimates for fiscal 2009.
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands of dollars, except for information per
share)
Fiscal year ended
August 31, 2008
$
Fiscal year ended
August 31, 2007
$
Fiscal year ended
August 31, 2006
$
Sales
Partnership revenues
Revenues
Cost of sales
Gross margin
Administrative expenses
Marketing expenses
R&D expenses
Financial expenses (income)
Stock option-based compensation
Amortization of property, plant and equipment
Amortization of intangible assets
Write-off of intangible assets
Amortization of deferred financing fees
Class A retractable shares increase in value
Loss before income taxes
Income taxes
Net loss
Net loss per share - Basic
Net loss per share - Diluted
2,844
-
2,844
1,432
1,412
984
731
699
(58)
253
100
40
-
-
-
2,749
(1,337)
-
(1,337)
(0.04)
(0.04)
813
-
813
639
174
623
825
591
(9)
345
72
18
12
10
-
2,487
(2,313)
-
(2,313)
(0.08)
(0.08)
691
231
922
362
560
309
434
363
143
-
63
13
-
5
273
1,603
(1,043)
-
(1,043)
(0.05)
(0.05)
4
(In thousands of dollars)
Current assets
Total assets
Current liabilities
Long-term debt
Class A retractable shares
Shareholders' equity
As at
August 31, 2008
$
As at
August 31, 2007
$
As at
August 31, 2006
$
5,462
6,852
770
253
-
5,829
2,543
3,029
541
499
-
1,989
1,172
1,610
889
623
773
(675)
No dividend was declared per share for each share class.
On October 3, 2006, Opsens completed a qualifying transaction under the rules of the TSX Venture Exchange
Corporate Finance Manual. On April 8, 2008, the Company completed a private placement of 4,711,126 units at a
price of $0.80 per unit for gross proceeds of $ 3,768,901.
SUMMARY OF CONSOLIDATED QUARTERLY RESULTS
The summary below presents the periods in which Opsens published unaudited interim financial statements.
(In thousands of dollars)
Three-month
period ended
August 31, 2008
Three-month
period ended
May 31, 2008
Three-month
period ended
February 29, 2008
Revenues
Net loss for the period
Net loss per share - Basic
Net loss per share - Diluted
(In thousands of dollars)
Revenues
Net loss for the period
Net loss per share - Basic
Net loss per share - Diluted
$
748
228
(0.01)
(0.01)
$
890
359
(0.01)
(0.01)
$
637
403
(0.01)
(0.01)
Three-month
period ended
August 31, 2007
Three-month
period ended
May 31, 2007
Three-month
period ended
February 28, 2007
$
187
531
(0.02)
(0.02)
$
187
700
(0.02)
(0.02)
$
266
520
(0.02)
(0.02)
Three-month
period ended
November 30,
2007
$
569
347
(0.01)
(0.01)
Three-month
period ended
November 30,
2006
$
174
562
(0.02)
(0.02)
The acquisition of Inflo Solutions (See the Strategic Acquisition and Development of New Products section) on
December 11, 2007, stimulated sales in the oil and gas sector beginning in the second quarter of fiscal year 2008.
5
Usually, the Company’s industry and its revenues are affected very little by seasonal fluctuations. These fluctuations
will become more significant as the weighting of sales in the oil and gas sector increases, since business activity is
generally greater in the winter quarters for this sector.
FOURTH QUARTER 2008
For the fourth quarter ended August 31, 2008, the Company recorded a net loss of $228,000 or $0.01 per share. For
the same quarter in fiscal year 2007, the loss was $531,000 or $0.02 per share. The decreased loss during the fourth
quarter of fiscal year 2008 is explained in particular by an increase in revenues, the gross margin rate, the gross
margin and financial income. Seasonal fluctuations and year-end adjustments had no impacts on operating revenues
and net loss for fourth quarter 2008.
Revenues totalled $748,000 for the three-month period ended August 31, 2008, compared to $187,000 for the
corresponding period in 2007. The strong growth in revenues was generated primarily by increased sales in the oil
and gas, medical, and scientific and military laboratories sectors.
Administrative expenses amounted to $319,000 for the three-month period ended August 31, 2008, compared to
$189,000 for the same period in 2007. This increase was mainly due to the administrative expenses generated by the
new subsidiary Opsens Solutions and a rise in employment levels of $60,000.
Marketing expenses were $179,000 and $165,000 respectively for the fiscal years ended August 31, 2008 and 2007.
This increase was primarily caused by the $54,000 increase in consulting fees and the overall decrease in other
expenses.
R&D expenses totalled $165,000 for the fiscal year ended August 31, 2008, compared to $110,000 for the same
period in 2007. This increase resulted from higher employment levels and a decrease in tax credits.
PERFORMANCE INDICATORS
In order to evaluate the Company’s performance and generate long-term value for its shareholders, the Company has
identified the following financial and non-financial performance indicators:
1) Distribution, sales, and long-term recurring revenues;
2) Products and innovation;
3) Short-term financial performance and cash flows;
4) Strategic acquisitions and development of new projects.
FISCAL YEARS ENDED AUGUST 31, 2008 AND 2007
DISTRIBUTION, SALES, AND LONG-TERM RECURRING REVENUES
(In thousands of dollars except for
percentage data figures)
Fiscal year ended
August 31, 2008
$
Fiscal year ended
August 31, 2007
$
Revenues
Growth rate (%)
Gross margin
Growth rate (%)
2,844
1,412
250
710
813
174
The Company generated $2,844,000 in sales for the fiscal year ended August 31, 2008, compared to $813,000 for the
comparative fiscal year, registering an increase of 250%. The increased sales for fiscal year 2008 were generated by
6
organic growth in the medical device, scientific and military laboratory, and high-power transformers market of more
than $1,200,000 in addition to growth through the acquisition of a wholly-owned subsidiary based in Edmonton
dedicated to the oil and gas market. Sales within the oil and gas market reached nearly $800,000 ($207,000
accounted for within the Opsens Inc. reportable segment) for fiscal year 2008.
The gross margin rate and the gross margin on product sales increased for the fiscal year ended August 31, 2008, in
relation to the previous fiscal year, as the company realized economies of scale. The increase was generated by the
strong weighting, in relation to total sales, of the scientific and military laboratory market, a market where the
generated margin is high. The gross margin rate obtained during fiscal year 2008 is within the minimum expected
target of 40%. As at August 31, 2008, the backlog amounted to $295,000.
Given that a large proportion of the Company's revenue is generated in US dollars, while most costs are priced in
Canadian dollars, fluctuation in the exchange rate affects revenue. For the fiscal year ended August 31, 2008, the
average exchange rate was less than the previous year, which increased sales by $239,000 for the fiscal year ended
August 31, 2008.
Market acceptance of fiber optic sensors is increasing in various sectors. Consequently, some sectors, such as high-
power transformers, are seeing additional competition. To face this competition, Opsens is working to highlight the
performance characteristics of its products compared to competitors.
PRODUCTS AND INNOVATION
The Company is constantly working to improve its position in terms of intellectual property and what it can offer to
its customers. During the fiscal year ended August 31, 2008, Opsens emphasized the continuous improvement of its
existing product line and concentrated on its products intended for the medical devices and oil and gas markets. The
Company's R&D strategy involves focusing its new product development efforts toward markets with very high
potential. The oil and gas market is a concrete example of the application of this strategy.
R&D expenses increased to $699,000 in FY 2008 from $591,000 a year earlier. The change in R&D expenses during
the period was generated mainly by increased employment levels.
7
SHORT-TERM FINANCIAL PERFORMANCE AND CASH FLOWS
Net loss
Reconciliation of EBITDA to the Annual Results
(In thousands of dollars)
Fiscal year
ended August
31, 2008
$
Fiscal year
ended August
31, 2007
$
Fiscal year
ended August
31, 2006
$
Net loss for the period
Financial expenses (income)
Amortization of property, plant, and equipment
Amortization of intangible assets
Write-off of intangible assets
Amortization of deferred financing fees
Increase in the value of class A retractable shares
(1,337)
(58)
100
40
-
-
-
(2,313)
(9)
72
18
12
10
-
EBITDA1
(1,255)
(2,210)
Stock-based compensation costs
253
345
EBITDA before stock-based compensation costs
(1,002)
(1,865)
(1,043)
143
63
13
-
5
273
(546)
-
(546)
(1) The Company uses only one financial measure that is not consistent with Canadian GAAP, namely earnings
before interest, income taxes, depreciation and amortization (EBITDA). Such a measure is used because
management believes that it provides meaningful information about the Company’s performance and operating
results. Such a non-GAAP measure has no standardized meaning as prescribed by GAAP and is not necessarily
comparable to similarly titled measures presented by other companies. Accordingly, it should not be considered
independently of other figures.
For the fiscal year ended August 31, 2008, net loss totalled $1,337,000, compared to $2,313,000 for the fiscal year
ended August 31, 2007. This decrease in net loss as well as the EBITDA before stock-based compensation costs for
fiscal 2008 compared with a year earlier mainly reflects the increase in sales and gross margin combined with a
$262,000 increase in other expenses.
Fiscal 2009 results will be strongly influenced by product sales volume. The expansion of marketing activities within
the oil and gas market following the OPP-W installations in 2008 should contribute to the increase in EBITDA.
Information by reportable segments
The company’s reportable segments are strategic business units managed separately, as one is focused on
developing, producing, and supplying fiber optic sensors (Opsens Inc.) while the other (Opsens Solutions)
specializes in the marketing and installation of optical and conventional sensors for the oil and gas industry.
8
2008
Opsens
2007
Opsens
Opsens Inc.
Solutions
Total
Opsens Inc. Solutions
Total
$
$$$
External sales
Internal sales
Amortization of property,
2,249,000
4,000
595,000
87,000
2,844,000
91,000
813,000
-
plant and equipment
95,000
5,000
100,000
72,000
Amortization of
intangible assets
Financial expenses
Income taxes
Net income (loss)
Acquisition of property,
20,000
(72,000)
-
(1,232,000)
20,000
14,000
-
(105,000)
40,000
(58,000)
-
(1,337,000)
30,000
(9,000 )
-
(2,313,000 )
$$
-
-
-
-
-
-
-
813,000
-
72,000
30,000
(9,000)
-
(2,313,000)
plant and equipment
270,000
45,000
315,000
142,000
-
142,000
Acquisition of
intangible assets
38,000
-
38,000
74,000
-
74,000
The annual performance of the Opsens Inc. operating unit showed a sharp increase in revenues.
The Opsens Solutions operating unit began to generate earnings for the consolidated financial statements beginning
December 11, 2007. This sector’s performance contributed positively to sales growth while achieving major
milestones for the Company’s future, i.e. the successful installation of the OPP-W sensor within two wells operated
with the Steam Assisted Gravity Drainage (SAGD) technology.
These operating units generate revenue in various geographic segments as follows:
2008
2007
$$
Revenue by geographic sector
Canada
United States
Germany
United Kingdom
Other
652,000
934,000
417,000
285,000
556,000
2,844,000
27,000
316,000
229,000
50,000
192,000
813,000
Revenue is attributed to geographic segments based on the customers’ location.
Capital assets, which include property, plant and equipment and intangible assets, are all located in Canada.
During the fiscal year ended August 31, 2008, revenues from three customers individually represented more than
10% of the Company’s total revenues, i.e. approximately 18.09% (Opsens Solutions reportable segment),
17.62% (Opsens Inc. reportable segment) and 13.09% (Opsens Inc. reportable segment). For the fiscal year ended
August 31, 2007, revenues from one customer represented 28.11% of the Company’s total revenues.
9
Administrative expenses
Administrative expenses were $984,000 for the fiscal year ended August 31, 2008, compared to $623,000 for fiscal
year 2007.
Administrative expenses increased mainly due to the administrative expenses generated by the new subsidiary
Opsens Solutions and a rise in employment levels. In fiscal year 2009, administrative expenses will continue to
increase, particularly in light of the expansion of the headquarters and the full-scale increase in expenses to support
the anticipated growth in sales.
Sales and marketing expenses
Sales and marketing expenses decreased by $94,000 to $731,000 for the fiscal year ended August 31, 2008,
compared to $825,000 for fiscal year 2007.
This decrease is explained mainly by the reduced conference participation expenses. Sales and marketing expenses
for the next fiscal year should increase in relation to the previous year, given the expected deployment of our sales
and marketing activities at our Quebec installations as much as at our Edmonton installations.
Financial income (expenses)
Financial income was $58,000 for the fiscal year ended August 31, 2008, compared to $9,000 for the previous year.
The increased financial income during fiscal year 2008 was the direct consequence of the exchange rate gain
resulting from the appreciation of the American dollar against the Canadian dollar, particularly during the last quarter
of the fiscal year.
Financing activities cash flow
Private placement
On April 8, 2008, the Company completed a private placement of 4,711,126 units at a price of $0.80 per unit for
gross proceeds of $3,768,901. Each unit is comprised of one common share and one-half common share purchase
warrant in the Company. Each whole common share purchase warrant will entitle the holder to purchase one
common share in the Company at a price of $1.10 for a 24-month period following the closing of the private
placement or, should the 20-day volume weighted average price of Opsens common shares trade on the TSX Venture
Exchange at or above $1.50 during this same 24-month period, Opsens may accelerate the expiration date of the
share purchase warrants by giving prior written notice to the warrant holders within 10 working days immediately
following the date on which the triggering event occurs. The share purchase warrants will then expire 30 calendar
days after written notice of such an event is received or deemed received by the warrant holders.
Opsens has paid to the agents a cash commission equal to $263,823 and issued warrants to brokers entitling them to
purchase 329,779 common shares in Opsens. The issued broker warrants will have an exercise price per common
share equal to the issue price for a period of 24 months from the closing of the private placement. The securities
issued as part of the offering were subject to a mandatory four-month restricted period expiring on August 9, 2008.
The net proceeds of the Private placement will be used for acquisitions, marketing and general working capital
purposes. The funding obtained will provide Opsens with cash resources to expand its sales and marketing activities
and finalize the three main product development partnerships, which should provide long-term recurring revenues to
the Company.
10
Warrants exercised
For the fiscal year ended August 31, 2008, 1,483,611 warrants entitling their holders to acquire one common share in
the Company at an average price of $0.56 per share were exercised for a total amount of $834,111. The book value
of the exercised warrants was transferred to share capital in the amount of $207,642.
As at the date of this Management Discussion and Analysis, the following components of shareholders' equity are
outstanding:
Common shares
Stock options
Warrants
Securities on a fully diluted basis
40,481,677
2,442,500
2,796,453
45,720,630
On October 3, 2008, 50,000 warrants entitling its holder to acquire one common share of the Company at a price of
$0.40 per share were exercised for an amount of $20,000. The book value of the exercised warrants was transferred
to Share Capital in the amount of $8,000.
After year end, 393,000 and 4,865,000 warrants entitling its holder to acquire one common share of the Company at
a price of $0.40 and $0.60 per share respectively expired.
In addition, the Company granted to some employees a total of 210,000 stock options with an average exercise price
of $0.48 per share and cancelled 10,000 stock options with an exercise price of $0.87 per share.
Investing activities cash flow
Opsens acquired various fixed assets for $315,000 during the fiscal year ended August 31, 2008, compared to
$142,000 for fiscal year 2007. These acquisitions were made primarily to gain access to high-tech R&D and
production equipment. Also, investments were made in order to optimize the recently acquired installations in
Edmonton.
As for intangible assets, Opsens invested $38,000 and $74,000 for fiscal years 2008 and 2007 respectively. These
investments involved patent protection for the Company's inventions.
Cash and cash equivalents
As at August 31, 2008, the Company had cash and cash equivalents of $3,743,000, compared to $1,839,000 as at
August 31, 2007. Of this amount as at August 31, 2008, $3,595,000 was invested in highly liquid, safe investments.
The Company also has an available line of credit in the amount of $200,000. This line of credit incurs interest at
prime +2%. The restrictive clauses of the Company’s financial institution are respected.
Financial position
As at August 31, 2008, Opsens had working capital of $4,691,000, compared to working capital of $2,002,000 as at
August 31, 2007. Based on the private placement completed on April 8, 2008, the exercised warrants, its cash and
cash-equivalents, its working capital, and its order backlog, Opsens has the financial resources necessary to maintain
short-term operations, honour its commitments, and support its anticipated growth and development activities. From
a medium-term perspective, Opsens may need to raise additional financing by issuing equity securities and debts. In
the long term, there is uncertainty about obtaining additional financing, given the risks and uncertainties identified in
the Risks and uncertainties section. During the coming quarters, fluctuation in cash assets will depend particularly on
the rate of revenue growth.
For the next twelve-month period, the widespread sales growth should require the Company to make an additional
investment of a few hundred thousand dollars in accounts receivable and inventory.
11
Commitments
The Company rents offices in Quebec under an operating lease expiring on January 31, 2014. This agreement is
renewable for an additional five-year period. Future rent, without considering the escalation clause, will amount to
$640,604.
Opsens Solutions rents offices in Alberta under a letter of agreement. A lease should be signed during the next
quarter in order to finalize a verbal commitment. In the event that the lease is not signed, the company was obligated
to pay the monthly lease payments until September 30, 2008. As a result, future lease payments will amount to
$4,478 as of August 31, 2008.
Opsens Solutions rents a vehicle under an operating lease expiring in November 2010. Future rent payments will
amount to $18,945.
The Company is committed to purchasing equipment in the amount of $62,885.
Future payments for the lease and other commitments, totalizing $1,068,241, required in each of the next five years
are as follows:
2009
2010
2011
2012
2013
Thereafter
$
372,239
214,443
184,628
121,023
121,523
54,385
The following table summarizes the Company’s minimum contractual commitments related to debt for the future
fiscal years ending August 31, 2009, 2010, 2011, 2012, and 2013.
Obligations – Capital leases
Other debts
Debts and principal
portion of capital leases
Total
payments
Imputed
interest
Principal
payments
2009
2010
2011
2012
2013
$7,000
$7,000
$7,000
$5,000
$-
$2,000
$1,000
$1,000
$-
$-
$5,000
$6,000
$6,000
$5,000
$-
$218, 000
$82,000
$76,000
$39,000
$38,000
$223,000
$88,000
$82,000
$43,000
$38,000
According to the terms of the agreement related to the long-term debt of Investissement Québec and its financial
institution, the Company is subject to certain restrictive clauses for maintaining minimum financial ratios.
The Company expects to meet its short-term cash needs with its working capital position.
License
According to an exclusive license agreement with a third party, the Company has committed to providing exclusivity
for the marketing of some of its products for a defined territory.
12
Related-party transactions
During the normal course of business, management and professional fees have been incurred from related parties.
These transactions have been valued at the exchange amount agreed by the parties. Professional fees were disbursed
in exchange for administrative support and management consulting.
Management fees paid to a
shareholder
Professional fees to a
company controlled
by a shareholder and director
Financial instruments
Credit risk
2008
$
-
2007
$
833
30,000
30,000
35,000
35,833
The Company grants credit to its customers in the normal course of business. Evaluations of all of its accounts
receivable are performed on an ongoing basis, and an allowance for bad debt is recorded when certain accounts are
deemed uncollectible.
Interest rate and cash flow risk
The Company is exposed to interest rate fluctuations on certain long-term debts with variable interest rates. The
Company does not actively manage this risk.
Foreign exchange risk
The Company makes some sales and partnership revenue and some purchases of supplies and professional services
in US dollars. Therefore, it is exposed to foreign currency fluctuations. The Company does not actively manage this
risk. The Company expects that its weighting of Canadian sales will increase simultaneously with sales in the oil and
gas sector, which will ease the fluctuation of foreign exchanges on sales in a weighted manner.
Fair value
The fair value of cash and cash equivalents, accounts receivable, income tax credits receivable, and accounts payable
and accrued expenses is approximately their carrying value because of their short time to maturity. The fair value of
long-term debt is based on the discounted value of future cash flows under the current financial arrangements at the
interest rate at which the Company currently expects to be able to obtain loans with similar terms and conditions and
maturity dates. The fair value of long-term debt is close to its carrying value because of current market rates.
13
STRATEGIC ACQUISITIONS AND NEW PROJECT DEVELOPMENT
In its business plan, Opsens has identified some acquisition targets for growth. In order to maximize value creation
for our shareholders, and based on the opportunities, Opsens may make strategic acquisitions during the next fiscal
year. Opsens remains open to any business opportunities that could occur at any time.
On December 11, 2007, the Company acquired all of the outstanding shares of Inflo Solutions Inc. (“Inflo”), which
designs and installs solutions intended for the analysis of reservoirs based on optical and conventional sensors within
the oil industry. The purchase price was 1,199,997 Opsens common shares and $120,000 cash. At the closing,
510,000 shares out of the first 600,000 shares were paid into escrow and will be released over a 48-month period.
The balance of the shares and the cash, represented by a series of promissory notes, have also been paid into escrow,
to be released or cancelled, as applicable, over a 48-month period ending December 11, 2011, following the
achievement or non-achievement of certain performance milestones. The Company has also committed to investing
up to $350,000 into the working capital of Inflo during the 48-month period following the acquisition. As at August
31, 2008, an amount of $425,000 has been advanced.
On April 8, 2008, a milestone was achieved, releasing a series of promissory notes with a total value of $60,000.
This amount has been booked as goodwill.
On August 31, 2008, the Company renegotiated the agreement made on December 11, 2007. The revised agreement
eliminated the possibility of cancelling 499,997 shares against an escrow ending on December 11, 2011.
This acquisition has been accounted for using the purchase method, and the operating results have been included in
the company’s consolidated financial statements from the date of acquisition. The purchase price allocation shown
below is based on the fair value estimate made by the company:
Assets
Cash
Current assets
Order backlog
Liabilities
Current liabilities
Net identifiable assets acquired
Goodwill
Purchase price
Less:
Cash acquired
Issuance of shares in connection with the acquisition
Net cash used for the acquisition
Amount
$
6,029
42,024
20,000
68,053
44,377
23,676
676,574
700,250
6,029
525,574
168,647
The value attributed to the order backlog as part of the purchase price allocation has been amortized based on the
realization of revenues from present contracts in the order backlog at the time of the acquisition. For the fiscal year
14
ended August 31, 2008, there was $20,000 in intangible asset amortization for the order backlog. Goodwill is not
deductible for the purposes of income taxes.
The Company now considers the activities of Opsens Solutions as a reportable segments as defined by the CICA
Handbook. Opsens Solutions participates in activities related to the oil and gas market. For the year ended August
31, 2008, Opsens Solutions made a positive contribution to revenue growth.
CHANGE IN ACCOUNTING POLICIES
Impact of adopting the new Financial instruments standards
On September 1, 2007, the Company adopted the new accounting standards issued by the Canadian Institute of
Chartered Accountants (“CICA”) regarding Financial instruments- Recognition and measurement (Section 3855),
Financial Instruments – Disclosure and presentation (Section 3861), Hedges (Section 3865) and Comprehensive
Income (section 1530). Information released prior to September 1, 2007 was not restated.
On September 1, 2007, the Company made the following adjustments in order to conform to the new accounting
standards:
Decrease
Balance Sheet
Assets
Deferred financing costs
Liabilities
Long-term debt
Statement of deficit
Change in accounting policies
Financial Instruments – Recognition and measurement
Short-term investments
Amount
$
4,336
78,023
73,687
Short-term investments are classified as financial instruments “held for trading”. As such, these financial instruments
are recorded at their fair values. Changes in the fair value of held for trading instruments are recorded as investment
income and disclosed as financial income in the statement of loss.
The fair value of financial instruments represents the amount at which the financial instruments could be traded
knowingly and voluntarily between the parties involved. The fair value is based on market prices (buyer-seller
prices) in an active market. If this is not the case, the fair value is based on market prices prevailing for instruments
with similar risk profiles or characteristics or on internal or external valuation models that use observable market
data.
Derivative financial instruments
Derivative financial instruments must be recorded at fair value unless they are specifically designated in an effective
hedging relationship, and the change in fair value will be recorded directly in net earnings.
Long-term debt
The long-term debt is classified as “other liabilities” and is recorded at amortized cost.
15
Transaction fees related to “other liabilities” are capitalized and presented against long-term debt. They are
amortized using the effective interest rate and are recorded in the statement of loss.
Other comprehensive income (loss)
According to the new accounting standards, the Company must present a comprehensive income statement. Since the
Company has classified all of its financial instruments as financial instruments “held for trading”, except for the
long-term debt which is classified as “other liabilities”, there is no element to be disclosed distinctively in other
comprehensive income. Consequently, the net earnings (net loss) also represents the results of the comprehensive
income (loss).
SIGNIFICANT ACCOUNTING PRINCIPLES
The financial statements have been prepared in accordance with Canadian generally accepted accounting principles
(“GAAP”) and include the following policies:
Principles of consolidation
The consolidated financial statements include the accounts of the Company and those of its wholly-owned subsidiary
Opsens Solutions Inc. since its acquisition.
Cash and cash equivalents
Cash and cash equivalents include cash and short-term investments redeemable anytime or with a maturity of three
months or less beginning on the acquisition date.
Inventories
Raw materials are valued at the lower of cost and replacement cost, and finished goods are valued at the lower of
cost and the net realizable value. Cost is determined using the moving average method.
Property, plant and equipment and intangible assets
Property, plant and equipment and intangible assets with finite lives are recorded at their acquisition cost.
Amortization is provided using the declining balance method based on their useful lives, except for patents, which
are amortized using the straight-line method, at the following annual rates:
Property, plant and equipment and intangible assets
Office furniture and equipment
Production equipment
Automative equipment
Research and development equipment
Research and development computer equipment
Computer equipment
Leasehold improvements
Intangible assets with limited lives
Patents
Software
20%
20%
30%
20%
30%
30%
Lease Term
Term of underlying
patent,
5 to 20 years
30%
16
Service contracts are intangible assets with definite useful life which were accounted for at cost. Amortization was
based on the fair value of the contracts on the total value of the contracts portfolio acquired. The service contracts
were fully amortized during the year.
Intangible assets with indefinite lives are recorded at cost and are tested for impairment annually or more frequently
if events of changes in circumstances indicate a potential impairment in value. The excess of the carrying value over
the fair value is recorded in loss.
Impairment of long-lived assets
Long-lived assets held are reviewed annually or more frequently when events or changes in circumstances cause its
carrying value to exceed the total undiscounted cash flows expected from its use and eventual disposition. The
impairment loss is calculated by deducting the fair value of the asset from its carrying value.
Deferred financing costs
Deferred financing costs comprise legal expenses and expenses incurred for the issuance of long-term debt and
expenses incurred to complete the qualifying transaction and the related placement. Until August 31, 2007, they were
amortized using the straight-line method over the term of the corresponding debt. Since September 1st, 2007, the
amounts paid are amortized using and presented against corresponding debt (Note 2). Expenses related to the
qualifying transaction are applied against shareholders’ equity.
Government assistance and income tax credits
for research and development
Government grants are recorded when there is reasonable assurance that the Company has complied with and will
continue to comply with all the conditions of the grant. Non-repayable grants or contributions related to operating
expenses are included in the statement of loss when the related expenses are incurred. Grants related to capital
expenditures are netted against the related assets when acquired.
The Company is also eligible for income tax credits for scientific research and experimental development (SR&ED)
awarded by the federal and provincial governments. The portion of SR&ED credits immediately receivable is
accounted for in the year during which the related costs or capital expenses are incurred. The portion of SR&ED
credits not immediately receivable is accounted for in the year during which these costs or expenses are incurred,
provided the Company has reasonable assurance that these credits will be recovered.
Income tax credits are applied against expenses or related assets. Recorded income tax credits are based on
management’s estimates of amounts expected to be recovered and are subject to an audit by the taxation authorities.
Loss per share
Loss per share is determined using the weighted average number of outstanding shares during the period. The
Company uses the treasury stock method to calculate the diluting effect of share purchase options and warrants.
Reconciliations of the numerators and the denominators used in the calculation of the basic and diluted loss are
disclosed in accordance with the GAAP.
Stock-based compensation and other stock-based payments
The Company uses the fair value method to assess the fair value of stock options or warrants as at their date of
allocation. The fair value is determined using the Black-Scholes option pricing model and is amortized to earnings
over the vesting period with an offset to contributed surplus. When stock options or warrants are exercised, the
corresponding contributed surplus and the proceeds received by the Company are credited to share capital.
17
Income taxes
The Company accounts for income taxes using the tax liability method. Under this method, future income tax assets
and liabilities are recognized for deductible or taxable temporary differences between the carrying value and the tax
value of the assets and liabilities based on the enacted or substantially enacted tax rates expected to apply to the year
in which the differences are expected to reverse.
The Company establishes a valuation allowance against future income tax assets if, based on available
information, it is more likely than not that some or all the future income tax assets will not be realized.
Foreign currency translation
Monetary assets and liabilities denominated in foreign currencies are translated at the exchange rate prevailing at the
balance sheet date while non-monetary items are translated at the historical rate. Revenues and expenses
denominated in foreign currencies are recorded at the average rate of exchange prevailing during the period, except
for depreciation and amortization, which is translated at the historical rate. Foreign exchange gains or losses are
included in expenses for the year.
Goodwill
Goodwill representing the excess of purchase price over fair value of the net identifiable assets of acquired
businesses is tested for impairment annually or more frequently when an event or circumstance occurs that indicates
that goodwill might be impaired. When the carrying amount exceeds the fair value, an impairment loss is recognized
in the statement of earnings in an amount equal to the excess.
Revenue recognition and work in progress
Revenues related to product sales are recognized when convincing evidence of an arrangement exists, delivery has
occurred, the price to the buyer is fixed or determinable, and collection is reasonably guaranteed.
Sensor installation services, contract revenues earned over a long period, and partnership revenues are recorded using
the percentage of completion method. Therefore, these revenues are recognized proportionately with the degree of
completion of the work. The Company uses the efforts expended method to calculate the degree of completion of
work based on the number of hours incurred as at the balance sheet date compared to the estimated total number of
hours. Work in progress is valued by taking into consideration the number of hours worked but not yet invoiced and
the payments received. Losses are recorded as soon as they become apparent.
Financial instruments
Short-term investments are classified as financial instruments “held for trading”. As such, these financial instruments
are recorded at their fair values. Changes in the fair value of held for trading instruments are recorded as investment
income and disclosed as financial expenses in the income statement.
The long-term debt is classified as “other liabilities” and is recorded at amortized cost.
Transaction fees related to “other liabilities” are capitalized and presented against long-term debt. They are
amortized using the effective interest rate and are recorded in the income statement.
Use of estimates
The presentation of financial statements in accordance with Canadian generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingencies at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. The main accounting estimates relate to the income tax credit receivable, the provision
for warranty and the assumptions used in the determination of the fair value of the stock options and warrants. Actual
results could differ from those estimates.
18
Future accounting changes
The CICA has issued new accounting standards:
Section 3031, Inventories. This Section provides guidance on the determination of cost and its subsequent
recognition as an expense, including any write-down to net realizable value. It also provides guidance on the cost
formulas that are used to assign costs to inventories. Management of the Company is a review of the new standard
and does not expect the adoption of this standard will have a significant impact on the Company’s consolidated
financial statements.
Section 3862, Financial Instruments – Disclosures. This section describes the required disclosures related to the
significance of financial instruments on the Company’s financial position and performance and the nature and extent
of risks arising for financial instruments to which the Company is exposed and how the Company manages those
risks. This Section complements the principles of recognition, measurement, and presentation of financial
instruments of Section 3855, Financial Instruments – Recognition and Measurement, Section 3863, Financial
Instruments – Presentation and Section 3865, Hedges. The Company’s management does not expect the adoption of
this standard will have an impact on the consolidated financial statements as the standard relates to note disclosure.
Section 3863, Financial Instruments – Presentation. This section establishes standards for presentation of financial
instruments and non-financial derivatives. It replaces standards of Section 3861, Financial Instruments – Disclosure
and Presentation. The Company does not expect the adoption of this standard will have an impact on the
consolidated financial statements as the standard relates to note disclosure.
Section 1535, Capital Disclosures. This section establishes standards for disclosing information about an entity’s
capital and how it is managed to enable users of financial statements to evaluate the entity’s objectives, policies and
procedures for managing capital. The Company does not expect the adoption of this standard will have an impact on
the consolidated financial statements as the standard relates to note disclosure.
The above standards will be effective for the Company as of September 1, 2008.
Section 3064, Goodwill and intangible assets, replacing Section 3062, Goodwill and other intangible assets
e)
and Section 3450, Research and development costs. The new section will be applicable to financial statements
relating to fiscal years beginning on or after October 1, 2008. Accordingly, the Company will adopt the new
standards for its fiscal year beginning September 1, 2009. It establishes standards for the recognition, measurement,
presentation and disclosure of goodwill subsequent to its initial recognition and of intangible assets by profit-oriented
enterprises. Standards concerning goodwill are unchanged from the standards included in the previous Section 3062.
The Company does not expect that the adoption of this new Section will have a material impact on its consolidated
financial statements.
International Financial Reporting Standards
The Accounting Standards Board of Canada has announced that accounting standards in Canada, as used by public
companies, will converge to International Financial Reporting Standards ("IFRS") over a transition period that is
expected to be complete by 2011. On February 13, 2008, the CICA confirmed 2011 as the official changeover date
from current Canadian GAAP to IFRS. The Company will convert to these new standards according to the timetable
set with these new rules.
The Company has not begun to assess the future impact of these new standards on its consolidated financial
statements.
RISK FACTORS AND UNCERTAINTIES
Opsens operates in an industry that is subject to various risks and uncertainties. The Company’s business, financial
position, and operating results could be impacted negatively by these risks and uncertainties. The risks and
uncertainties listed below are not the only risks and uncertainties that could impact the Company.
19
Capital requirements
Additional financing may be required for operating and investment activities. There is no guarantee that additional
capital would be available for situations that would be acceptable for Opsens and favourable for its growth.
Revenues
Opsens draws most of its revenue from the sale of readout devices and fiber optic sensors. The company feels that
the revenue from these products will continue to represent a significant share of Opsens’ revenue for the foreseeable
future. Consequently, Opsens is particularly vulnerable to fluctuations in the demand for its products. Therefore, if
demand for Opsens products decreases significantly, the company and the operating results could be unfavourably
affected.
Labour and key personnel
Opsens depends on the services of its engineers, technical employees, and key management personnel. The loss of
one of these people could have a significant unfavourable impact on the company, its operating results, and its
financial position. The success of Opsens is largely dependent upon its ability to identify, hire, train, motivate, and
retain highly skilled management employees, engineers, technical employees, and sales and marketing personnel.
Competition for its employees can be intense, and Opsens can only ensure that it will be able to bring in and retain
highly skilled technical and management personnel in the future. Its ability to bring in and retain management and
technical personnel and the necessary sales and marketing employees could have an unfavourable impact on its
growth and future profitability. Opsens may be obligated to increase the compensation paid to current or new
employees, which could substantially increase operating expenses.
Growth management and market development
There is no guarantee that Opsens can develop its market significantly, thus affecting its profitability. Opsens’
expected rapid growth may create significant pressure on management, operations, and technical resources. Opsens
foresees increased operating and personnel expenses in the future. In order to manage its growth, Opsens may need
to increase the size of its technical and operational staff and manage its personnel while maintaining many effective
relationships with third parties. There is no guarantee that Opsens will be able to manage its business growth. The
inability of Opsens to establish consistent management systems, add economic resources, or manage its expansion
adequately will have a significant, unforeseeable effect on its activities and operating results.
Pricing policies
The competitive market in which Opsens operates could force it to reduce its prices. If its competitors offer large
discounts on certain products and services in order to gain market share or sell products and services, Opsens may
need to lower its prices and offer other favourable terms in order to compete successfully. Such changes could reduce
profit margins and have an unfavourable impact on its operating results. Some of Opsens’ competitors could offer
products and services that compete with theirs for promotional purposes or as part of a long-term pricing strategy or
offer price guarantees or product implementation. With time, these practices could limit the prices that Opsens may
charge for its products and services. If Opsens cannot offset these price reductions with a corresponding increase in
sales or decreased expenses, the decreased revenues from products and services could unfavourably affect its profit
margins and operating results.
Product failures and mistakes
Opsens products are complex and therefore may contain failures and mistakes that could be detected at any time in a
product’s life cycle. Failures and mistakes in its products could have a significant unfavourable impact on its
reputation, open it up to significant costs, delay product launch dates, and harm its ability to sell its products in the
future. The costs of correcting a failure or mistake in one of these products could be significant and could negatively
affect its operating margins. Although Opsens expects to continue to test products to detect failures and mistakes and
20
to work with its customers through its support and maintenance services in order to find and correct failures and
mistakes, they could appear in its products in the future.
Warranties, recalls, and legal proceedings
Opsens is exposed to warranty expenses, product recalls, and other claims, particularly if the products prove to be
defective, which would harm business development and the Company’s reputation.
Intellectual property and exclusive rights
In order to protect its intellectual property rights, Opsens relies on a combination of laws related to patents and
trademarks, trade secrets, confidentiality procedures, and contractual provisions. Despite Opsens’ best efforts to
protect its intellectual property rights, unauthorized individuals may attempt to copy certain aspects of Opsens
products or obtain information that Opsens considers to be its property. The monitoring of the unauthorized use of
exclusive technologies, if applicable, may prove difficult, time-consuming, and expensive. In addition, the laws of
certain countries in which Opsens products will be sold do not protect their products and their related intellectual
property rights in the same way as the laws of Canada and the United States. There is no certainty that Opsens will
successfully protect its intellectual property rights, which could unfavourably affect it. Patents applications, claims,
PCTs, and Continuations in Part files by Opsens could be incomplete, invalid, circumvented, or deemed not
applicable. Legal proceedings could prove necessary to carry out patent applications, claims, PCTs, and
Continuations in Part. These cases could lead to considerable expenses without any guarantee of success. Despite
Opsens’ best efforts to ensure its right to market its products on its target markets, competitor patents could impede
the sales potential of certain products.
Competition and technological obsolescence
Competitors and new companies could launch new products. In order to remain on the cutting edge of technology,
Opsens may need to launch a new generation of fiber optic sensors and develop its related products and services.
Whether it is competition from development companies and/or marketing of fiber optic sensors or a merger or
acquisition of existing companies, competition within certain fiber optic sensor industry sectors offering solutions
similar to what Opsens offers is vigorous and could increase. Some of Opsens’ competitors have significantly greater
financial, technical, distribution, and marketing resources than Opsens. Technological progress and product
development could make Opsens products obsolete or reduce their value.
Currency exchange rate
Since Opsens makes most of its sales in US dollars, while a large part of its operating expenses are incurred in
Canadian dollars, exchange rate fluctuations between the two currencies may have an unfavourable impact on its
activities, financial position, and operating results. Based on outlooks and its expected penetration in the oil and gas
market, the weighting of Canadian sales should increase during the coming fiscal years and, consequently, reduce
Opsens’ currency exchange risk.
Restrictive clauses
The Company has restrictive clauses regarding indebtedness and working capital in the agreement with its financial
institution. If these restrictive clauses are not respected, Opsens may need to allocate a portion of its working capital
to repaying the LFPEC loan, valued at $77,132 as at August 31, 2008.
21
OTHER INFORMATION
Updated information on the Company can be found on the SEDAR Web site at http://www.sedar.com.
On behalf of management,
Chief Financial Officer and Secretary
(s) Louis Laflamme
_______________
November 26, 2008
22
Samson Bélair/Deloitte &
Touche s.e.n.c.r.l.
925 Grande Allée West
Suite 400
Québec City QC G1S 4Z4
Canada
Tel.: 418-624-3333
Fax: 418-624-0414
www.deloitte.ca
Auditors’ Report
To the Shareholders of
Opsens Inc.
We have audited the consolidated balance sheets of Opsens Inc. as at August 31, 2008 and 2007 and the
consolidated statements of loss and comprehensive loss, deficit and cash flows for the years then ended.
These financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those
standards require that we plan and perform an audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial
position of the Company as at August 31, 2008 and 2007 and the results of its operations and its cash
flows for the years then ended in accordance with Canadian generally accepted accounting principles.
Chartered Accountants
October 10, 2008
23
Opsens Inc.
Consolidated Statements of Loss and Comprehensive Loss
Years ended August 31, 2008 and 2007
Revenues
Sales
Cost of sales
Gross margin
Expenses (Revenues)
Administrative
Marketing
Research and development
Stock option-based compensation (Note 12b)
Amortization of property, plant and equipment
Amortization of intangible assets
Write-off of intangible assets
Amortization of deferred financing fees
Financial income
Loss before income taxes
Income taxes (Note 18)
2008
$
2007
$
2,844,239
813,108
1,432,385
638,898
1,411,854
174,210
984,316
730,309
698,957
252,576
100,257
40,340
-
-
622,991
825,392
590,772
345,368
71,723
17,696
12,209
9,938
(58,213 )
(8,861 )
2,748,542
2,487,228
(1,336,688 )
(2,313,018 )
-
-
Net loss and comprehensive loss
(1,336,688 )
(2,313,018 )
Net loss per share (Note 13)
Basic
Diluted
(0.04 )
(0.04 )
(0.08 )
(0.08 )
The accompanying notes are an integral part of the consolidated financial statements.
Additional information on the Statements of Loss is presented in Note 22.
24
Opsens Inc.
Consolidated Statements of Deficit
Years ended August 31, 2008 and 2007
Balance at beginning
Changes in accounting policies (Note 2)
Net loss
Issuance expenses on equity component
Balance at end
2008
$
2007
$
4,587,145
1,757,494
(73,687 )
-
1,336,688
2,313,018
532,340
516,633
6,382,486
4,587,145
The accompanying notes are an integral part of the consolidated financial statements.
25
Opsens Inc.
Consolidated Balance Sheets
August 31, 2008 and 2007
Assets
Current
Cash and cash equivalents (Note 14)
Accounts receivable (Note 5)
Income tax credits receivable (Note 18)
Work in progress
Inventories (Note 6)
Prepaid expenses
Property, plant and equipment (Note 7)
Intangible assets (Note 8)
Deferred financing costs
Goodwill
Liabilities
Current
Accounts payable and accrued liabilities (Notes 10 and 16)
Deferred revenue
Current portion of
long-term debt (Note 11)
Long-term debt (Note 11)
Shareholders’ equity
Share capital (Note 12a)
Stock-options (Note 12b)
Warrants (Note 12c)
Deficit
The accompanying notes are an integral part of the financial statements.
References:
Commitments (Note 15)
Contractual guarantees (Note 16)
Subsequent events (Note 24)
Approved by the Board
Signed [Mario Jacob] Director
Signed [Pierre Carrier] Director
2008
$
2007
$
3,742,520
743,951
183,950
237,551
453,271
100,454
5,461,697
554,180
159,768
-
676,574
1,839,379
120,697
177,355
-
372,650
32,593
2,542,674
339,293
142,444
4,336
-
6,852,219
3,028,747
547,204
-
320,960
20,000
223,265
770,469
200,315
541,275
252,380
498,927
1,022,849
1,040,202
10,257,259
554,528
1,400,069
(6,382,486 )
5,332,483
408,701
834,506
(4,587,145 )
5,829,370
1,988,545
6,852,219
3,028,747
26
Opsens Inc.
Consolidated Statements of Cash Flows
Years ended August 31, 2008 and 2007
Operating activities
Net loss
Adjustments for:
Amortization of property, plant
and equipment
Amortization of intangible assets
Write-off of intangible assets
Amortization of deferred financing costs
Premium payable to Canada Economic
Development
Premium payable to Investissement Québec
Stock option-based compensation
Changes in non-cash operating
working capital items (Note 14)
Investing activities
Acquisition of property, plant and equipment
Disposal of property, plant and equipment
Acquisition of intangible assets
Cash and cash equivalents paid in business combination (Note 4)
Financing activities
Increase in deferred financing costs
Increase in long-term debt
Reimbursement of demand loan
Reimbursement of long-term debt
Issuance of equity component
Issuance of equity component expenses
Cash and cash equivalents acquired in the qualifying transaction (Note 1)
Increase in cash and cash equivalents
Cash and cash equivalents at beginning
Cash and cash equivalents at end
2008
$
2007
$
(1,336,688 )
(2,313,018 )
100,257
40,340
-
-
16,799
8,520
252,576
71,723
17,696
12,209
9,938
10,908
8,520
345,368
(811,991 )
185,878
(1,730,187 )
(1,650,778 )
(315,144 )
-
(37,664 )
(168,647 )
(142,300 )
20
(73,661 )
-
(521,455 )
(215,941 )
-
72,966
-
(243,859 )
4,741,011
(415,335 )
-
(48,164 )
106,900
(204,824 )
(183,615 )
3,495,000
(341,335 )
558,716
4,154,783
3,382,678
1,903,141
1,839,379
1,515,959
323,420
3,742,520
1,839,379
The accompanying notes are an integral part of the consolidated financial statements.
Additional information is presented in Note 14.
27
Opsens inc.
Notes to the Consolidated Financial Statements
August 31, 2008 and 2007
1. Description of business
During the year ended August 31, 2007, the Company, formerly known as DCB Capital Inc., changed
its name to Opsens Inc. following the completion of a qualifying transaction.
The Company issued from the qualifying transaction specializes in developing and manufacturing
technical and scientific instruments.
This transaction constitutes a qualifying transaction as per Policy 2.4 of the TSX Venture Exchange
Corporate Finance Manual. The transaction was realized by means of an acquisition followed by a
merger carried out on October 3, 2006.
As part of the qualifying transaction and according to the rules of the TSX Venture Exchange, DCB
Capital Inc. issued 20,000,000 of its common shares to shareholders holding Opsens Inc. class A
shares in exchange for the acquisition of all Opsens Inc. class A shares, at the price of $0.40 per
common share.
For accounting and disclosure purposes, this type of share exchange constitutes a reverse takeover,
under which Opsens Inc. is deemed to have issued shares in consideration for the net assets of DCB
Capital Inc. Consequently, the control of DCB Capital Inc. was transferred to the shareholders of
Opsens Inc.
In compliance with EIC-10 of the CICA Handbook, this reverse takeover constitutes an equity
transaction rather than a business combination. Consequently, no goodwill or intangible assets are
accounted for, and the company’s financial statements present the continuance of Opsens Inc.
Under the terms of the qualifying transaction, the net value of the acquired assets of DCB Capital Inc.
is as follows:
Cash and cash equivalents ($558,716)
and other current assets
Demand loan receivable from Opsens Inc.
Liabilities
Net value
The consideration issued as part of this business combination is allocated as follows:
20,000,000 common shares
333,333 stock options revalued
at fair value as of October 3, 2006
October 3,
2006
$
576,735
250,000
(18,432 )
808,303
October 3,
2006
$
744,970
63,333
808,303
28
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2008 and 2007
2. Changes in accounting policies
Impact of adopting the new Financial instruments standards
On September 1, 2007, the Company adopted the new accounting standards issued by the Canadian
Institute of Chartered Accountants (“CICA”) regarding Financial instruments- Recognition and
measurement (Section 3855), Financial Instruments – Disclosure and presentation (Section 3861),
Hedges (Section 3865) and Comprehensive Income (section 1530). Information released prior to
September 1, 2007 was not restated.
On September 1, 2007, the Company made the following adjustments in order to conform to the new
accounting standards:
Decrease
Balance Sheet
Assets
Deferred financing costs
Liabilities
Long-term debt
Statement of deficit
Change in accounting policies
Amount
$
4,336
78,023
73,687
Financial Instruments – Recognition and measurement
Short-term investments
Short-term investments are classified as financial instruments “held for trading”. As such, these
financial instruments are recorded at their fair values. Changes in the fair value of held for
trading instruments are recorded as investment income and disclosed as financial income in the
statement of loss.
The fair value of financial instruments represents the amount at which the financial instruments
could be traded knowingly and voluntarily between the parties involved. The fair value is based
on market prices (buyer-seller prices) in an active market. If this is not the case, the fair value is
based on market prices prevailing for instruments with similar risk profiles or characteristics or
on internal or external valuation models that use observable market data.
Derivative financial instruments
Derivative financial instruments must be recorded at fair value unless they are specifically
designated in an effective hedging relationship, and the change in fair value will be recorded
directly in net earnings.
Long-term debt
The long-term debt is classified as “other liabilities” and is recorded at amortized cost.
Transaction fees related to “other liabilities” are capitalized and presented against long-term
debt. They are amortized using the effective interest rate and are recorded in the statement of
loss.
Other comprehensive income (loss)
According to the new accounting standards, the Company must present a comprehensive income
statement. Since the Company has classified all of its financial instruments as financial instruments
“held for trading”, except for the long-term debt which is classified as “other liabilities”, there is no
element to be disclosed distinctively in other comprehensive income. Consequently, the net earnings
(net loss) also represents the results of the comprehensive income (loss).
29
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2008 and 2007
3. Accounting policies
The financial statements have been prepared in accordance with Canadian generally accepted
accounting principles (“GAAP”) and include the following policies:
Principles of consolidation
The consolidated financial statements include the accounts of the Company and those of its wholly-
owned subsidiary Opsens Solutions Inc. since its acquisition.
Cash and cash equivalents
Cash and cash equivalents include cash and short-term investments redeemable anytime or with a
maturity of three months or less beginning on the acquisition date.
Inventories
Raw materials are valued at the lower of cost and replacement cost, and finished goods are valued at
the lower of cost and the net realizable value. Cost is determined using the moving average method.
Property, plant and equipment and intangible assets
Property, plant and equipment and intangible assets with finite lives are recorded at their acquisition
cost. Amortization is provided using the declining balance method based on their useful lives, except
for patents, which are amortized using the straight-line method, at the following annual rates:
Property, plant and equipment and intangible assets
Office furniture and equipment
Production equipment
Automative equipment
Research and development equipment
Research and development computer equipment
Computer equipment
Leasehold improvements
Intangible assets with limited lives
Patents
Software
20%
20%
30%
20%
30%
30%
Lease Term
Term of underlying
patent,
5 to 20 years
30%
Service contracts are intangible assets with definite useful life which were accounted for at cost.
Amortization was based on the fair value of the contracts on the total value of the contracts
portfolio acquired. The service contracts were fully amortized during the year.
Intangible assets with indefinite lives
Intangible assets with indefinite lives are recorded at cost and are tested for impairment annually
or more frequently if events of changes in circumstances indicate a potential impairment in value.
The excess of the carrying value over the fair value is recorded in loss.
30
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2008 and 2007
3. Accounting policies (continued)
Impairment of long-lived assets
Long-lived assets held are reviewed annually or more frequently when events or changes in
circumstances cause its carrying value to exceed the total undiscounted cash flows expected from
its use and eventual disposition. The impairment loss is calculated by deducting the fair value of the
asset from its carrying value.
Deferred financing costs
Deferred financing costs comprise legal expenses and expenses incurred for the issuance of long-term
debt and expenses incurred to complete the qualifying transaction and the related placement. Until
August 31, 2007, they were amortized using the straight-line method over the term of the
corresponding debt. Since September 1st, 2007, the amounts paid are amortized using and presented
against corresponding debt (Note 2). Expenses related to the qualifying transaction are applied
against shareholders’ equity.
Government assistance and income tax credits
for research and development
Government grants are recorded when there is reasonable assurance that the Company has complied
with and will continue to comply with all the conditions of the grant. Non-repayable grants or
contributions related to operating expenses are included in the statement of loss when the related
expenses are incurred. Grants related to capital expenditures are netted against the related assets
when acquired.
The Company is also eligible for income tax credits for scientific research and experimental
development (SR&ED) awarded by the federal and provincial governments. The portion of SR&ED
credits immediately receivable is accounted for in the year during which the related costs or capital
expenses are incurred. The portion of SR&ED credits not immediately receivable is accounted for in
the year during which these costs or expenses are incurred, provided the Company has reasonable
assurance that these credits will be recovered.
Income tax credits are applied against expenses or related assets. Recorded income tax credits are
based on management’s estimates of amounts expected to be recovered and are subject to an audit
by the taxation authorities.
Loss per share
Loss per share is determined using the weighted average number of outstanding shares during the
period. The Company uses the treasury stock method to calculate the diluting effect of share purchase
options and warrants. Reconciliations of the numerators and the denominators used in the calculation
of the basic and diluted loss are disclosed in accordance with the GAAP.
Stock-based compensation and other stock-based payments
The Company uses the fair value method to assess the fair value of stock options or warrants as at
their date of allocation. The fair value is determined using the Black-Scholes option pricing model and
is amortized to earnings over the vesting period with an offset to contributed surplus. When stock
options or warrants are exercised, the corresponding contributed surplus and the proceeds received by
the Company are credited to share capital.
31
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2008 and 2007
3. Accounting policies (continued)
Income taxes
The Company accounts for income taxes using the tax liability method. Under this method, future
income tax assets and liabilities are recognized for deductible or taxable temporary differences
between the carrying value and the tax value of the assets and liabilities based on the enacted or
substantially enacted tax rates expected to apply to the year in which the differences are expected to
reverse.
The Company establishes a valuation allowance against future income tax assets if, based on available
information, it is more likely than not that some or all the future income tax assets will not be
realized.
Foreign currency translation
Monetary assets and liabilities denominated in foreign currencies are translated at the exchange rate
prevailing at the balance sheet date while non-monetary items are translated at the historical rate.
Revenues and expenses denominated in foreign currencies are recorded at the average rate of
exchange prevailing during the period, except for depreciation and amortization, which is translated at
the historical rate. Foreign exchange gains or losses are included in expenses for the year.
Goodwill
Goodwill representing the excess of purchase price over fair value of the net identifiable assets of
acquired businesses is tested for impairment annually or more frequently when an event or
circumstance occurs that indicates that goodwill might be impaired. When the carrying amount
exceeds the fair value, an impairment loss is recognized in the statement of earnings in an amount
equal to the excess.
Revenue recognition and work in progress
Revenues related to product sales are recognized when convincing evidence of an arrangement exists,
delivery has occurred, the price to the buyer is fixed or determinable, and collection is reasonably
guaranteed.
Sensor installation services, contract revenues earned over a long period, and partnership revenues
are recorded using the percentage of completion method. Therefore, these revenues are recognized
proportionately with the degree of completion of the work. The Company uses the efforts expended
method to calculate the degree of completion of work based on the number of hours incurred as at the
balance sheet date compared to the estimated total number of hours. Work in progress is valued by
taking into consideration the number of hours worked but not yet invoiced and the payments received.
Losses are recorded as soon as they become apparent.
Financial instruments
Short-term investments are classified as financial instruments “held for trading”. As such, these
financial instruments are recorded at their fair values. Changes in the fair value of held for trading
instruments are recorded as investment income and disclosed as financial expenses in the income
statement.
The long-term debt is classified as “other liabilities” and is recorded at amortized cost.
Transaction fees related to “other liabilities” are capitalized and presented against long-term debt.
They are amortized using the effective interest rate and are recorded in the income statement.
32
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2008 and 2007
3. Accounting policies (continued)
Use of estimates
The presentation of financial statements in accordance with Canadian generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingencies at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. The main accounting
estimates relate to the income tax credit receivable, the provision for warranty and the assumptions
used in the determination of the fair value of the stock options and warrants. Actual results could
differ from those estimates.
Future accounting changes
The CICA has issued new accounting standards:
a) Section 3031, Inventories. This Section provides guidance on the determination of cost and its
subsequent recognition as an expense, including any write-down to net realizable value. It also
provides guidance on the cost formulas that are used to assign costs to inventories. Management
of the Company is a review of the new standard and does not expect the adoption of this standard
will have a significant impact on the Company’s consolidated financial statements.
b) Section 3862, Financial Instruments – Disclosures. This section describes the required disclosures
related to the significance of financial instruments on the Company’s financial position and
performance and the nature and extent of risks arising for financial instruments to which the
Company is exposed and how the Company manages those risks. This Section complements the
principles of recognition, measurement, and presentation of financial instruments of Section 3855,
Financial Instruments – Recognition and Measurement, Section 3863, Financial Instruments –
Presentation and Section 3865, Hedges. The Company’s management does not expect the adoption
of this standard will have an impact on the consolidated financial statements as the standard
relates to note disclosure.
c) Section 3863, Financial Instruments – Presentation. This section establishes standards for
presentation of financial instruments and non-financial derivatives. It replaces standards of Section
3861, Financial Instruments – Disclosure and Presentation. The Company does not expect the
adoption of this standard will have an impact on the consolidated financial statements as the
standard relates to note disclosure.
d) Section 1535, Capital Disclosures. This section establishes standards for disclosing information
about an entity’s capital and how it is managed to enable users of financial statements to evaluate
the entity’s objectives, policies and procedures for managing capital. The Company does not expect
the adoption of this standard will have an impact on the consolidated financial statements as the
standard relates to note disclosure.
The above standards will be effective for the Company as of September 1, 2008.
e) Section 3064, Goodwill and intangible assets, replacing Section 3062, Goodwill and other
intangible assets and Section 3450, Research and development costs. The new section will be
applicable to financial statements relating to fiscal years beginning on or after October 1, 2008.
Accordingly, the Company will adopt the new standards for its fiscal year beginning September 1,
2009. It establishes standards for the recognition, measurement, presentation and disclosure of
goodwill subsequent to its initial recognition and of intangible assets by profit-oriented enterprises.
Standards concerning goodwill are unchanged from the standards included in the previous Section
3062. The Company does not expect that the adoption of this new Section will have a material
impact on its consolidated financial statements.
33
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2008 and 2007
3. Accounting policies (continued)
Future accounting changes (continued)
International Financial Reporting Standards
The Accounting Standards Board of Canada has announced that accounting standards in Canada, as
used by public companies, will converge to International Financial Reporting Standards ("IFRS")
over a transition period that is expected to be complete by 2011. On February 13, 2008, the CICA
confirmed 2011 as the official changeover date from current Canadian GAAP to IFRS. The Company
will convert to these new standards according to the timetable set with these new rules.
The Company has not begun to assess the future impact of these new standards on its consolidated
financial statements.
4. Business acquisition
On December 11, 2007, the Company concluded the acquisition of all outstanding shares of Inflo
Solutions Inc. (“Inflo”), a company dedicated to the design and installation of reservoir surveillance
solutions based on optical and conventional sensors to the oil and gas market. The purchase price is
comprised of 1,199,997 Opsens common shares and $120,000 cash. At the closing, 510,000 shares
out of the first 600,000 shares were paid into escrow and will be released over a 48-month period.
The balance of the shares and the cash, represented by a series of promissory notes, have also been
paid in escrow, to be released or cancelled, as applicable, over a 48-month period ending December
11, 2011, following the achievement or non achievement of certain performance milestones. The
Company has also committed to invest up to $350,000 into the working capital of Inflo during the
48-month period following the acquisition. The shares issued at closing are subject to a statutory
4-month hold period ending on April 12, 2008.
On April 8, 2008, a milestones had been achieved which had effect to release a series of promissory
notes for a total value of $60,000. This amount had been booked as goodwill.
On August 31, 2008, the Company renegotiated the agreement made on December 11, 2007. The
revised agreement eliminated the possibility of cancelling 499,997 shares against an escrow ending on
December 11, 2011.
34
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2008 and 2007
4. Business acquisition (continued)
The acquisition has been accounted for using the purchase method, and the results of operations have
been included in the consolidated financial statements of the company from the date of acquisition.
The purchase price allocation shown below is based on the fair value estimate made by the company :
Assets
Cash
Current assets
Service contracts
Liabilities
Current liabilities
Net identifiable assets acquired
Goodwill*
Purchase price
Less :
Cash acquired
Issuance of shares in connection with the acquisition
Net cash used for the acquisition
* Goodwill is not deductible for income taxes calculation.
On December 11, 2007, the company Inflo changed its name for Opsens Solutions Inc.
(“Opsens Solutions”).
Amount
$
6,029
42,024
20,000
68,053
44,377
23,676
676,574
700,250
6,029
525,574
168,647
5. Accounts receivable
Trade
Allowance for doubtful accounts
Taxes receivable
Others
2008
$
729,406
(14,031 )
28,576
-
2007
$
73,929
-
33,824
12,944
743,951
120,697
35
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2008 and 2007
6. Inventories
Raw materials
Finished goods
7. Property, plant and equipment
Office furniture and equipment
Leased office furniture and equipment
Production equipment
Leased Automative equipment
Research and development equipment,
2008
$
380,885
72,386
453,271
2007
$
299,007
73,643
372,650
2008
Accumulated
Net Book
Cost
Amortization
$
$
52,723
12,535
88,020
16,500
24,666
3,225
25,018
2,200
Value
$
28,057
9,310
63,002
14,300
net of income tax credits of $23,834
582,134
202,577
379,557
Research and development computer equipment,
net of income tax credits of $3,078
Computer equipment
Leasehold improvements
Office furniture and equipment
Leased office furniture and equipment
Production equipment
Research and development equipment,
24,270
74,298
12,905
15,649
27,713
8,157
8,621
46,585
4,748
863,385
309,205
554,180
2007
Accumulated
Net Book
Cost
Amortization
$
$
44,942
12,535
51,267
16,276
2,128
14,153
Value
$
28,666
10,407
37,114
net of income tax credits of $23,834
360,109
145,139
214,970
Research and development computer equipment,
net of income tax credits of $3,078
Computer equipment
Leasehold improvements
20,331
52,158
6,900
12,304
18,182
767
8,027
33,976
6,133
548,242
208,949
339,293
36
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2008 and 2007
8. Intangible assets
Indefinite lives
Trademarks
Limited lives
Patents
Software, net of income tax credits of $1,518
Indefinite lives
Trademarks
Limited lives
Patents
Software, net of income tax credits of $1,518
2008
Accumulated
Net Book
Cost
Amortization
$
$
Value
$
200
-
200
172,036
41,578
213,814
30,445
23,601
54,046
141,591
17,977
159,768
2007
Accumulated
Net Book
Cost
Amortization
$
$
Value
$
200
-
200
139,260
36,690
176,150
16,772
16,934
33,706
122,488
19,756
142,444
Due to the abandonment of a patent application, an impairment loss of $12,209 was recognized as of
August 31, 2007.
9. Authorized line of credit
The Company has an authorized line of credit for a maximum amount of $200,000, $50,000 of which
is available at all times and which does not take into consideration the margining. When using the line
of credit in an amount varying from $50,000 and $100,000, the available credit is limited to an
amount that is equal to 75% of Canadian accounts receivable and 65% of foreign accounts receivable
plus 50% of inventories of raw materials and finished goods. If the amount used exceeds $100,000,
the credit available is limited to an amount equal to 75% of Canadian accounts receivable and 90% of
ensured foreign accounts receivable plus 50% of inventories of raw materials and finished goods. This
line of credit bears interest at the financial institution’s prime rate plus 2% and is repayable on a
weekly basis by $5,000 tranches. It is secured by a first-rank movable hypothec for an amount of
$750,000 on the universality of receivables and inventories. Under the terms and conditions of the
credit agreement, the Company is subject to certain covenants with respect to maintaining minimum
financial ratios.
The Company also has credit cards for a maximum amount of $50,000 to finance its current
operations. The balance used on these credit cards bears interest at the financial institution’s prime
rate plus 4%.
37
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2008 and 2007
10. Accounts payable and accrued liabilities
Suppliers
Provision for warranty
11. Long-term debt
BDC loan of an authorized amount of $285,000, bearing interest at
the Bank’s prime rate plus 2.5%, repayable in monthly principal
instalments of $3,690 and a final payment of $870 in January 2011,
secured by a first-rank movable hypothec in the amount of $285,000
on the universality of the Company’s present and future, tangible and
intangible property, subordinated only with respect to trade accounts
receivable and inventories provided as security for the operating
loans or operating lines of credits, and for which the BDC granted a
subordinate clause in favour of Investissement Québec for an amount
of $255,750 on the intellectual property, and by joint and several
suretyship of certain shareholders for an amount equal to 25% of the
outstanding commitment
Investissement Québec loan of an authorized amount of $213,000,
bearing interest at the weekly variable rate plus 3%, repayable in
monthly principal instalments of $5,071 and a monthly premium of
$1,014 starting in March 2006, maturing in September 2009, secured
by a first-rank movable hypothec in the amount of $255,750 on the
universality of the Company’s present and future, tangible and
intangible property, subordinated only with respect to trade accounts
receivable and inventories provided as security for the operating
loans or operating lines of credit, up to a maximum amount of
$213,000
Amounts carried forward
2008
$
2007
$
527,204
304,648
20,000
16,312
547,204
320,960
2008
$
2007
$
126,330
170,610
58,417
129,017
184,747
299,627
38
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2008 and 2007
11. Long-term debt (continued)
2008
$
2007
$
Amounts carried forward
184,747
299,627
Contribution repayable to Canada Economic Development for a
maximum amount of $100,000, repayable by annual royalties equal
to 4% of gross annual sales effective September 1, 2004 up to 150%
of the contribution paid. The total amount of the contribution should
be repaid no later than November 1, 2011. The first repayment is due
and payable effective November 1, 2006. Subsequent payments are
due annually
Contributions repayable to Canada Economic Development for a
maximum amount of $297,835, repayable in five equal and
consecutive annual instalments effective February 1, 2008 for the
first contribution and June 11, 2009 for the second
Canada Small Business Financing Act loan, for an authorized amount
of $119,340, bearing interest at the financial institution’s prime rate
plus 2.75% annually, repayable in monthly principal instalments of
$1,423 until May 2009, secured by a first-rank movable hypothec in
the amount of $119,340 on specific property
Capital lease, bearing interest at 10.6%, payable in monthly
instalments of $98, including interest and a final payment of $486
maturing in March 2011
Capital lease, bearing interest at 13.5%, payable in monthly
instalments of $140, including interest and a final payment of $740
maturing in August 2012
Capital lease, bearing interest at 13.5%, payable in monthly
instalments of $375, including interest and a final payment of $1,650
maturing in August 2012
Current portion
-
33,121
191,203
331,036
77,132
25,160
2,964
3,783
5,663
6,515
13,936
-
475,645
699,242
223,265
200,315
252,380
498,927
39
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2008 and 2007
11. Long-term debt (continued)
Principal payments required over the next five years are as follows:
Obligations – Capital lease
Total
payments
$
Imputed
interest
$
Principal
payments
$
Debt and
principal portion
of capital
lease
Other
debt
$
$
2009
2010
2011
2012
2013
7,363
7,363
7,258
5,296
-
2,094
1,535
901
187
-
5,269
5,828
6,357
5,109
-
217,996
82,440
75,932
38,479
38,235
223,265
88,268
82,289
43,588
38,235
Under the terms and conditions of the agreement on long-term debt with Investissement Québec and
its financial institution, the Company is subject to certain covenants with respect to maintaining
minimum financial ratios.
12. Share capital, stock-options
and warrants
a) Share capital
Authorized, unlimited number
Common shares, voting and participating without par value
Year ended August 31, 2008
Outstanding shares and the changes occurred during the year are as follows:
Issued and fully paid
Balance at beginning of year
Share issuance – Inflo Solutions Inc. (Note 4)
Share issuance – options exercised
Share issuance – warrants exercised i)
Share issuance – Private placement ii)
Balance as at August 31, 2008
Number
32,628,610
1,199,997
408,333
1,483,611
4,711,126
40,431,677
Amount
$
5,332,483
525,574
244,249
1,042,253
3,112,700
10,257,259
40
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2008 and 2007
12. Share capital, stock-options
and warrants
a) Common share capital (continued)
i) Warrants exercised
During the year ended August 31, 2008, 1,483,611 warrants entitling their holders to acquire
one common share of the Company at an average price of $0.56 per share were exercised for a
total amount of $834,611. The book value of the exercised warrants was transferred to Share
capital for an amount of $207,642.
ii) Private Placement
On April 8, 2008, the Company realized a private placement of 4,711,126 units at a price of
$0.80 per unit for gross proceeds of $3,768,901. Each unit is comprised of one common share
and one-half common share purchase warrant of the Company. Each warrant will entitle the
holder to purchase one common share of the Company at a price of $1.10 for a period of
24 months following the closing of the Offering, or in the event the 20-day volume weighted
average price of the common shares of Opsens trade, on the TSX Venture Exchange, is at or
above $1.50 during this same 24-month period. Then, the warrants must be exercised or will
expire 30 calendar days after notice of such event is received or deemed received by the
warrant holders. The notice must be given within the 10-working-day period following the event
date.
Opsens paid to the Agents a cash commission equal to $263,823 and issue broker compensation
warrants entitling the Agents to purchase 329,779 common shares of Opsens. The Broker
Warrants shall be issuable at an exercise price per common share equal to the Offering Price for
a period of 24 months from the closing of the Offering. The securities issued pursuant to the
Offering will be subject to a 4-month restricted period expiring on August 9, 2008.
41
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2008 and 2007
12. Share capital, stock-options
and warrants (continued)
a) Common share capital (continued)
Year ended August 31, 2007
Following the transaction described in Note 1 and in accordance with EIC-10, the capital structure
appearing is that of DCB Capital Inc. and the dollar amounts presented are that of Opsens Inc.
Outstanding shares and the changes occurred during the year ended August 31, 2007 are as
follows:
Balance as at August 31, 2006
Reclassification of Class A common shares
retractable at the option of the shareholder
following the cancellation of the retraction right iii)
Common shares issued pursuant to the reverse
takeover iv)
Share issuance – Private placement v)
Share issuance – Private placement vi)
Share issuance – Private placement vii)
Share issuance – warrants exercised viii)
Balance as at August 31, 2007
Number
4,346,666
20,000,000
2,600,000
2,937,500
2,444,444
300,000
32,628,610
Amount
$
1,082,372
773,767
1,856,139
744,970
754,000
851,875
912,499
213,000
5,332,483
iii) Termination of the shareholders’ agreement and cancellation of the retraction right
Immediately preceding the share exchange, the agreement between shareholders of Opsens Inc.
was terminated and the retraction right of the shares was also cancelled. Consequently, the Class A
retractable shares retractable at the option of the shareholder, in the amount of $773,767,
presented in the liabilities of Opsens Inc. as at August 31, 2006 were reclassified in equity.
iv) Qualifying transaction
As part of the qualifying transaction and according to the rules of the TSX Venture Exchange, DCB
Capital Inc. issued 20,000,000 of its common shares to shareholders holding Opsens Inc. class A
shares in exchange for the acquisition of all Opsens Inc. class A shares, at the price of $0.40 per
common share.
v) Private placement – October 3, 2006
On October 3, 2006, the Company realized a private placement of 2,600,000 units at a price of
$0.40 per unit, for a total of $1,040,000. Each unit is made up of one common share and one
share purchase warrant of the Company. Each purchase warrant entitles its holder to acquire one
common share of the Company at a price of $0.60 per share no later than October 3, 2008. The
underlying securities for the units issued as part of this placement are subject to a holding period
until February 4, 2007.
vi) Private placement – October 11, 2006
On October 11, 2006, the Company realized a private placement of 2,937,500 units at a price of
$0.40 per unit, for a total of $1,175,000. Each unit is made up of one common share and one
share purchase warrant of the Company. Each purchase warrant entitles its holder to acquire one
common share of the Company at a price of $0.60 per share no later than October 11, 2008. The
underlying securities for the units issued as part of this placement are subject to a holding period
until February 12, 2007.
42
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2008 and 2007
12. Share capital, stock-options
and warrants (continued)
a) Common share capital (continued)
vii) Private placement – December 5, 2006
On December 5, 2006, the Company realized a private placement of 2,444,444 units at a price
of $0.45 per unit, for a total of $1,100,000. Each unit is made up of one common share and a
half share purchase warrant of the Company. Each complete warrant entitles its holder to
acquire one common share of the Company at a price of $0.55 per share no later than
December 5, 2008. The underlying securities for the units issued as part of this placement are
subject to a holding period until April 6, 2007. Pursuant to an underwriting agreement entered
into with Desjardins Securities Inc. dated October 3, 2006, the Company paid a lump sum of
$50,000 in fees.
viii) Warrants exercised
During the year ended August 31, 2007, 300,000 warrants entitling their holders to acquire
one common share of the Company at a price of $0.60 per share were exercised for a total
amount of $180,000. The book value of the exercised warrants was transferred to Share
Capital in the amount of $33,000.
b) Stock options
The Company changed the stock option plan on January 22, 2008. The number of common shares
reserved by the Board of Directors for options granted under the plan shall not exceed 10% of the
issued and outstanding common shares of the Company. The plan is available to the Company’s
directors, consultants, officers and employees.
The stock option plan stipulates that the terms of the options and the option price shall be fixed
by the directors subject to the price restrictions and other requirements imposed by TSX Venture
Exchange. The exercise period cannot exceed five years, beginning on the grant date.
The compensation expense in regards to the stock option plan included in the administrative
expenses for the year ended August 31, 2008 is $252,576 ($345,368 for the year ended
August 31, 2007).
43
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2008 and 2007
12. Share capital, stock-options
and warrants (continued)
b) Stock options (continued)
The fair value of these options was determined using the Black-Scholes option pricing model with
the following assumptions:
Risk-free interest rate
Expected volatility
Expected dividend yield on shares
Duration
Between 2.98% and 4.15%
Between 70% and 95%
- %
5 years
Fair value per option at the grant date
Between $0.22 and $0.70
The Black-Scholes options valuation model was developed to estimate the fair value of traded
options, which have no vesting restrictions and are fully transferable, a practice which differs
significantly from the Company’s stock option awards. In addition, option valuation models require
the input of highly-subjective assumptions including the expected stock price volatility. Any
changes in the subjective input assumptions can affect the fair value estimate.
The situation of the outstanding stock option plan and the changes that took place during the
years ended August 31, 2007 and 2008 are as follows:
2008
2007
Weighted
average
Number of
exercise Number of
options
price
options
$
Weighted
average
exercise
price
$
Outstanding at beginning of year
2,033,333
0.53
-
-
Options assumed following the
qualifying transaction with DCB
Capital Inc.
Options granted
Options cancelled
Options exercised
-
-
333,333
912,500
0.77 1,700,000
(295,000 )
(408,333 )
0.58
0.34
-
-
Outstanding at end of the year
2,242,500
0.65 2,033,333
0.30
0.57
-
-
0.53
Options exercisable at end of the year
765,000
0.59
833,333
0.46
44
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2008 and 2007
12. Share capital, stock-options
and warrants (continued)
b) Stock options (continued)
The table below provides information on the outstanding stock options as at August 31, 2008:
Exercise price
Number of outstanding
stock options
Number of exercisable
stock options
Weighted average
residual duration
(years)
$
0.45
0.50
0.60
0.72
0.80
0.87
0.95
50,000
1,050,000
20,000
500,000
150,000
272,500
200,000
2,242,500
12,500
562,500
-
-
100,000
40,000
50,000
765,000
3.26
3.09
4.99
4.28
3.91
4.64
3.62
3.67
c) Warrants
The fair value of the warrants was determined using the Black-Scholes option pricing model with
the following assumptions:
Units issued
Commission paid
Exercisable price
$0.55 and $0.60
$0.40 and $0.80
Risk-free interest rates
From 2.72% to 4.04%
From 2.72 to 4.04%
Expected volatility
From 70% to 76%
From 70% to 76%
Expected dividend yield on shares
Duration
- %
2 years
- %
2 years
Fair value by warrant
$0.11, $0.15 and $0.28
$0.16 and $0.35
45
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2008 and 2007
12. Share capital, stock-options
and warrants (continued)
c) Warrants (continued)
The situation of the outstanding warrants and the changes that took place during the years ended
August 31, 2007 and 2008 are as follows:
2008
2007
Weighted
average
exercise
price
Number of
warrants
$
Number of
warrants
Weighted
average
exercise
price
$
6,902,722
0,58
-
-
-
-
-
-
2,600,000
208,000
2,937,500
235,000
-
-
-
-
1,222,222
(300,000 )
(1,483,611 )
0.56
-
2,355,563
1.10
-
329,779
8,104,453
0.80
0.74
-
6,902,722
0.60
0.40
0.60
0.40
0.55
0.60
-
-
-
0.58
Outstanding at beginning of year
Warrants issued on October 3, 2006
in relation with the private placement
(Note 12 a)v)
Warrants issued on October 10, 2006
in relation with the private placement
(Note 12 a)vi)
Warrants issued on December 5,
2006 in relation with the private
placement (Note 12 a)vii)
Warrants exercised
Warrants exercised during the period
(Note 12a)i)
Warrants issued, private placement
(Note 12a)ii)
Warrants issued, private placement
(Note 12a)ii)
Outstanding at end of year
Warrants exercisable at end of year
8,104,453
0,74
6,902,722
0.58
The table below provides information on the outstanding warrants as at August 31, 2008:
Exercise price
$
0.40
0.55
0.60
0.80
1.10
Number of outstanding
warrants
Number of exercisable
warrants
Weighted average residual
duration
(years)
443,000
111,111
4,865,000
329,779
2,355,563
8,104,453
443,000
111,111
4,865,000
329,779
2,355,563
8,104,453
0.10
0.26
0.10
1.60
1.60
0.60
46
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2008 and 2007
13. Loss per share
The table below presents a reconciliation between the basic net loss and the diluted net loss per
share:
2008
$
2007
$
(1,336,688 )
(2,313,018 )
(1,336,688 )
(2,313,018 )
Numerator
Net loss
Amount available for calculating
the loss per share
Denominator
Number of shares
Weighted average number of shares outstanding
36,327,185
30,819,163
Dilutive effect of stock options and warrants
-
-
Weighted average number of shares
outstanding on diluted basis
36,327,185
30,819,163
Amount per share
Net loss per share
Basic
Diluted
(0.04 )
(0.04 )
(0.08 )
(0.08 )
The calculation of dilution effects excludes options and warrants that have an anti-diluting effect.
However, should the Company's basic earnings per share have been positive, some options and
warrants, at an exercise price of $0.30, $0.40, $0.45, $0.50, $0.55, $0.60, $0.72, $0.80 and $0.87,
would have been dilutive and would have resulted in the addition of 2,434,422 shares to the weighted
average number of shares outstanding used in the diluted earnings per share calculation for year
ended August 31, 2008 (1,544,293 as at August 31, 2007).
47
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2008 and 2007
14. Additional information on
the Statements of Cash Flows
Changes in non-cash operating working capital items
(net of effects of the business acquisition)
Accounts receivable
Income tax credits receivable
Inventories
Work in progress
Prepaid expenses
Accounts payable and accrued liabilities
Deferred revenue
Cash and cash equivalents
Cash
Short-term investments
Other information
Interests paid
Non-cash transactions
2008
$
2007
$
(584,425 )
69,113
(6,595 )
299,795
(78,450 )
(192,869 )
(237,551 )
-
(66,837 )
(12,770 )
181,867
(20,000 )
22,609
-
(811,991 )
185,878
147,574
84,063
3,594,946
1,755,316
3,742,520
1,839,379
56,283
56,343
The Company concluded the acquisition of all outstanding shares of Inflo Solutions Inc. (“Inflo”) by
the issuance of 1,199,997 Opsens common shares with a book value of $525,574.
On April 8, 2008, Opsens issued broker compensation warrants entitling the Agents to purchase
329,779 common shares of Opsens at an exercise price of $0.80 per share for a book value of
$117,005.
48
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2008 and 2007
15. Commitments
Lease
The Company leases offices under an operating lease expiring on January 31, 2014. This agreement is
renewable for an additional five-year period. Future rent, without considering the escalation clause,
will amount to $640,604.
Opsens Solutions rents an office in Alberta with respect to a letter agreement. A lease should be
signed in the next quarter in order to finalize a verbal commitment. In case the lease is not signed,
the company is committed to pay the monthly lease payments until September 30, 2008. As a result,
future lease payments will amount to $4,478.
Opsens Solutions rents a vehicle under an operating lease expiring in November 2010. Future rent
payments will amount to $18,945.
The Company is committed to purchase an equipment for $62,885.
Future payments for the leases and other commitments, totalizing $1,068,241, required in each of the
next five years are as follows:
2009
2010
2011
2012
2013
Thereafter
$
372,239
214,443
184,628
121,023
121,523
54,385
Licence
Under an exclusive licence with a third party, the Company is committed to provide exclusive
marketing of some of its products for a defined territory.
16. Contractual guarantees
During the normal course of business, the Company replaces defective parts under warranties
offered at the sale of the products. The term of the warranties is 12 months. During the year ended
August 31, 2008, the Company recognized an expense of $3,688 ($4,609 for the year ended
August 31, 2007) for guarantees. A provision for $20,000 ($16,312 as at August 31, 2007) was
recorded for guarantees. This provision estimate is based on past experience and is presented in
liabilities under "Accounts payable and accrued liabilities." The actual costs that the Company may
incur, as well as the moment when the parts should be replaced, can differ from the estimated
amount.
49
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2008 and 2007
17. Government assistance
Under an agreement reached with Ministère du Développement économique, de l’Innovation et de
l’Exportation, the Company received non-refundable contributions to cover some of its incurred costs
for hiring an employee and for training. During the year ended August 31, 2008, the Company
received a cash contribution of $4,699 which was recorded against marketing expenses.
During the year ended August 31, 2007, the Company received a cash contribution of $17,315 from
Emploi Québec. Of this amount, $12,105 was recorded against research and development expenses
and $5,210 against administrative expenses.
18. Income taxes
The effective income tax rate of the Company differs from the rate that would have been calculated
using the combined statutory tax rate (federal and provincial). The difference is generated as follows:
Income tax recovery using the combined federal and provincial
statutory tax rate
Non-deductible expenses
Deductible financing fees
Non-taxable income tax credits
Losses carried forward
Income tax using effective income tax rate
2008
$
2007
$
(411,847 )
(717,834 )
88,566
(57,801 )
(18,123 )
399,205
-
116,854
(46,466 )
(16,684 )
664,130
-
As at August 31, 2008, the Company has tax losses of approximately $3,186,000 for federal purposes
and $3,133,500 for provincial purposes that can be used to reduce future taxable income. These
losses expire as follows:
2009
2013
2023
2024
2025
2027
2028
Federal
Provincial
$
$
380,000
96,000
483,000
42,000
400
1,524,000
660,600
3,186,000
340,000
121,000
463,000
40,000
400
1,508,000
661,100
3,133,500
50
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2008 and 2007
18. Income taxes (continued)
The Company also has undeducted research and development expenses in the amount of
$1,747,000 for federal purposes and $2,629,000 for provincial purposes that are deferred over an
undetermined period.
Future income tax assets related to tax losses, undeducted research and development expenses, and
the difference between the undepreciated capital cost for tax purposes and the net book value of
property, plant and equipment will be recorded in the financial statements once the Company
concludes that these losses and tax benefits will likely be realized.
Loss of private company status for purposes of income tax credits
for scientific research and experimental development
Following the qualifying transaction described in Note 1, Opsens has lost its private company status
and, consequently, income tax credits for scientific research and experimental development have been
reduced by half. Also, the federal government credits are no longer reimbursable, but can be used
only to compensate for income taxes otherwise payable.
19. Income tax credits for scientific research
and experimental development
For tax purposes, research and development expenses are detailed as follows:
Federal
Provincial
2008
$
2007
$
1,175,000
1,048,000
597,000
569,000
These expenses have enabled the Company to become eligible for scientific research and experimental
development tax credits reimbursable for the following amounts:
Federal
Provincial
These credits were recorded in
research and development expenses
in the statements of loss
These credits were recorded
against the related property, plant
and equipment
2008
$
-
158,975
158,975
2007
$
41,285
190,473
231,758
158,975
231,758
-
-
Reimbursable scientific research income tax credits earned
158,975
231,758
Reimbursable scientific research income tax credits earned for the year ended August 31, 2008 have
not yet been reviewed by the taxation authorities, and the amounts granted could differ from those
that have been recorded.
51
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2008 and 2007
20. Related party transactions
In the normal course of its operations, the Company has entered into transactions with related
parties. These transactions have been measured at the exchange amount.
Management fees paid to a
shareholder
Professional fees to a
company controlled
by a shareholder and director
21. Segmented information
Sector’s information
2008
$
2007
$
-
833
30,000
30,000
35,000
35,833
The Company’s reportable segments are strategic business units managed separately as one is
focused on developing, producing, and supplying fiber optic sensors (Opsens Inc.) and the other
(Opsens Solutions) is specialized in the commercialization and the installation of optical and
conventional sensors for the oil and gas industry.
2008
Opsens
2007
Opsens
Opsens inc.
Solutions
Total Opsens inc.
Solutions
Total
$
$
$
$
$
$
External sales
Internal sales
2,248,817
595,422 2,844,239
813,108
4,000
87,094
91,094
-
-
-
813,108
-
Amortization of property,
plant and equipment
Amortization of
94,748
5,507
100,255
71,723
-
71,723
intangible assets
20,340
20,000
40,340
29,905
Financial expenses
(71,787 )
13,574
(58,213 )
(8,861 )
-
-
29,905
(8,861 )
Net loss
(1,231,708 ) (104,980 ) (1,336,688 ) (2,313,018 )
- (2,313,018 )
Acquisition of property,
plant and equipment
Acquisition of
270,625
44,519
315,144
142,280
-
142,280
intangible assets
37,664
-
37,664
73,661
-
73,661
52
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2008 and 2007
21. Segmented information (continued)
These operating units generate revenue in various geographic segments as follows:
Revenue per geographic sector
Canada
United States
Germany
United Kingdom
Other
2008
$
2007
$
651,875
933,916
416,805
285,465
556,178
2,844,239
27,047
315,883
228,538
49,994
191,646
813,108
Revenues are attributed to the geographic sector based on the clients’ location.
Capital assets, which include property, plant and equipment and intangible assets, are all located in
Canada.
During the year ended August 31, 2008, revenues from three clients represent individually more than
10% of the total revenues of the Company, i.e. approximately 18.09% (Opsens Solutions’ reportable
segment), 17.62% (Opsens Inc.’s reportable segment) and 13.09% (Opsens Inc.’s reportable
segment). For the year ended August 31, 2007, revenues from one client represented 28.11% of the
Company’s total revenues.
22. Additional information to the Statements of Loss
Government assistance
Income tax credits for research and development
Interest and bank charges
Interest on demand loan and long-term debt
(Gain) loss on foreign currency translation
Interest income
2008
$
2007
$
(4,699 )
(17,315 )
(158,975 )
(231,758 )
13,174
48,964
(32,809 )
(87,541 )
19,225
44,195
14,013
(86,292 )
53
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2008 and 2007
23. Financial instruments
Credit risk
The Company provides credit to its customers in the normal course of business. Credit evaluations are
performed on an ongoing basis of all its accounts receivable and an allowance for doubtful accounts is
recorded when those accounts are deemed uncollectible. Two major customers represent 49% of the
Company’s accounts receivable as at August 31, 2008.
Interest rate and cash flow risk
The Company is exposed to interest rate fluctuations on the demand loan and certain long-term debt
that bears interest at variable rates. The Company does not actively manage this risk.
Foreign exchange risk
The Company realizes certain sales and partnership revenue and purchases certain supplies and
professional services in US dollars. Therefore, it is exposed to foreign currency fluctuations. The
Company does not actively manage this risk.
Fair value
The fair value of cash and cash equivalents, accounts receivable, income tax credits receivable and
accounts payable and accrued liabilities approximate their carrying value due to their short-term
maturities.
The fair value of long-term debt is based on the discounted value of future cash flows under the
current financial arrangements at the interest rate the Company expects to currently negotiate for
loans with similar terms and conditions and maturity dates. The fair value of long-term debt
approximates its carrying value due to the current market rates.
24. Subsequent events
On October 3, 2008, 50,000 warrants entitling its holder to acquire one common share of the
Company at a price of $0.40 per share were exercised for an amount of $20,000. The book value of
the exercised warrants was transferred to Share Capital in the amount of $8,000.
After year end, 393,000 and 4,865,000 warrants entitling its holder to acquire one common share of
the Company at a price of $0.40 and $0.60 per share respectively expired.
In addition, the Company granted to some employees a total of 210,000 stock options with an
average exercice price of $0.48 per share.
25. Comparative figures
Certain comparative figures have been reclassified in order to conform to the presentation adopted for
the current year.
54
55
Opsens Inc.
Shareholder Information
Directors
Pierre Carrier
President, Chief Executive Officer, Chairman
Claude Belleville
Vice President, Medical Devices, Laboratories &
Transformers
Gaétan Duplain
Vice President Oil and Gas, President, Opsens
Solutions
Bertrand Bolduc
Director
Mario Jacob
Director
Jean Rochette
Director
Denis M. Sirois
Director
Senior Officers
Pierre Carrier
President, Chief Executive Officer, Chairman
Claude Belleville
Vice President, Medical Devices, Laboratories &
Transformers
Gaétan Duplain
Vice President Oil and Gas, President, Opsens
Solutions
Louis Laflamme, CA
Chief Financial Officer, Corporate Secretary
Corporate Information
Head Office
2014 Cyrille-Duquet St.
Suite 125
Quebec City QC G1N 4N6
Phone: (418) 682-9996
Fax: (418) 682-9939
Opsens Solutions
10456 176th St.
Suite 201
Edmonton AB T5S 1L3
Phone: (780) 930-1777
Fax: (780) 930-2077
Website: www.opsens.com
Investor Relations:
For further information about Opsens Inc. or to be
placed on the mailing list for quarterly reports and news
releases, please contact Louis Laflamme at the head
office address, or louis.laflamme@opsens.com.
Auditors
Samson Bélair Deloitte & Touche
Quebec QC
Stock Exchange Listing
Toronto Venture Exchange Trading Symbol: OPS
Transfer Agent & Registrar
CIBC Mellon
2001, University Street
Suite 1600
Montreal QC H3A 2A6
Phone: (514) 285-3600
Annual Meeting of Shareholders
Tuesday, January 20, 2009
10:30 a.m.
l’Hôtel ALT Quebec
Quebec City, QC
56
CO R P O R AT E P R Of i l e
Opsens is a leading developer, manufacturer and supplier of a wide
range of fiber optic sensors and associated signal conditioners based on proprietary patent and
patent-pending technologies. Opsens sensors provide long-term accuracy and reliability in the harshest
environments. Opsens provides sensors to measure pressure, temperature, strain and displacement
to original equipment manufacturers (OEM) and end users in the oil and gas, medical, transformers,
and laboratories fields. Opsens provides complete technical support, including installation, training
and after-sales service.
I n vEsTmEnT H iG Hl iG Ht s
F I nAnC I Al H iG Hl iG Ht s
• • • significant growth opportunity
Quarterly Revenue
driven by increased need to measure temperature
($000’s)
890
748
637
569
and pressure in SAGD oil sands wells.
• • • sensor technology proven
in oil sands installation, differentiating us from
R&D companies.
• • • Widely adaptable technology
giving us diverse growth opportunities in three
strategic markets.
• • • High-margin potential
suppported by recurring revenue streams from
regular sensor replacement.
• • • sufficient funding
to commercialize our products in oil and gas
and medical market.
Emerging leader
in Oil sands Measurement
Opsens is working on projects in several areas of oil and gas, but its near-term focus is the Western Canadian oil
sands market, where it sees a huge opportunity. There are more than 80 active in situ oil sands projects in Alberta,
and all the major oil and gas companies are involved.
Steam assisted gravity drainage is the most common process for developing in situ reserves. In SAGD, recovery
rates are typically somewhere between 30% and 60%. To optimize recovery rates, the operator needs data on
temperature and pressure below the surface directly from the producer well, where temperatures may be between
200 and 300 degrees Celsius. Opsens’ OPP-W sensors have been proven to meet that need, measuring pressure and
temperature up to 300 degrees Celsius.
sT E Am As sIsT E D G R A vI T Y D R A InAG E (s AG d)
265
174
187
187
Producing
Well
steam
injection Well
sRU
installation
Q1
Q2
Q3
Q4
Q1
2 0 0 7
Q3
Q2
2 0 0 8
Q4
Key events in 2008
• Completed first installation of OPP-W fiber optic sensor for
• Receives order worth more than $300,000 from Japanese
major oil sands operator.
• Raised gross proceeds of C$3.8 million from private
placement of units at $0.80 each.
• Completed the acquisition of Inflo Solutions Inc., renamed
maker of medical devices for Opsens’ LifeSens signal
conditioners and pressure sensors.
• Receives $400,000 order from European medical
technology customer for its LifeSens OEM boards.
Opsens Solutions Inc., to spearhead the company’s
• Two major oil sands operators order conventional sensors
operations in the oil and gas market.
worth more than $300,000.
• Records annual revenue increase of 250%, to $2.8 million.
• In 1Q 2009, receives order to install OPP-W fiber optic
• BAE Systems, leader in the aerospace and defence industry,
orders RadSens-type signal conditioners and fiber optic
temperature sensors.
sensors in three wells at Nexen Inc.’s Long Lake SAGD
joint-venture project.
s
t
e
a
m
O
i
l
H O t s t eA M cH A Mb eR
( ~ 3 0 0 °c + )
H e a t e d O i l
Opsens sensors for in situ Pressure & t emperature Monitoring (300°c)
co ld Oil sand
w w w • o
p
s
e
n
s
•
c
o m
w w w • o
p
s
e
n
s
•
c
o m
Our sensors at Work
Measure • • • Improve
• O i l & GA s •
• M e d i c Al de v i c e s •
Helping operators optimize production in the
Partners are developing applications in areas such
Western Canadian oil sands.
as cardiac assistance and drug manufacturing.
• l AbO R A tO Ri e s & tR An s f O R MeRs •
Ensuring components that control systems are unaffected by magnetic interference.
Preventing heating in high-power transformers.
#125, 2014, Cyrille-Duquet St., Quebec City, QC G1N 4N6
# 2 01, 10456, 176th St., Edmonton, AB T5S 1L3
T• +1 418 . 6 8 2 .9 9 96 F • +1 418 . 6 8 2 .9 9 3 9
T• +1 7 8 0 .9 3 0 .17 7 7 F • +1 7 8 0 .9 3 0 . 2 0 7 7
w w w • o p s e n s • c o m
Annual R eport 2008