MEASURE• • • IMPROVE
ANNUAL REPORT 2009
CORPORATE PROFILE
Opsens is a leading developer, manufacturer, supplier and installer of a wide range of fiber optic solutions based
on proprietary patented technologies. Opsens sensors provide long-term accuracy and reliability in the harshest
environments. Opsens develops applications and 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.
HIGHLIGHTS 2009
A PROMISING FUTURE
FOR OPSENS' PRODUCTS
• • • July 2009
Receipt of a grant of close to $500,000 to develop a medical
instrumentation device.
• • • June 2009
Closing of a $1.75M financing.
• • • May 2009
The OPP-W sensor completes its first year of successful
operation.
• • •
March 2009
Important sale in the power transformer market to a company
from an emerging market.
• • • February 2009
Order renewal for the OPP-W sensor.
• • • November 2008
Receipt of an order from Nexen for the OPP-W sensor.
• • • October 2008
Opsens gets ISO9001:2000 certification.
GREAT START FOR 2010
• • • November 2009
Receipt of first order to instrument permanent observation
well in CO2-enhanced oil recovery project.
• • • October 2009
Receipt of a commercial size order – 26 OPP-W sensors from
a major oil & gas producer. Backlog reaches record level,
exceeding the sales of previous year.
Capital structure – August 31, 2009
Shares outstanding: 43 million
Symbol TSX V: OPS
OUR VISION OF 2010
• • • Possibilities for significant growth generated by a growing
need to measure temperature and pressure in hostile
environments, including wells exploited by SAGD and the
human body (medical instrumentation).
• • • Opsens partners with major players well-established in their
fields.
• • • Opsens' products have been proven effective.
• • • Opsens' products benefit from a strong gross margin,
supported by recurring revenues and by the maintenance and
replacement of sensors.
• • • There is growing acceptance of optical products in oil and
gas, power transformers and laboratories.
VALUE CREATED BY RESEARCH
AND DEVELOPMENT
• • • Opsens continually identifies new applications.
• • • Opsens' expertise in optical sensors is well recognized.
• • • Opsens' team has a strong capacity to materialize ideas.
SHAREHOLDING STRUCTURE
• • • Through strong share ownership, executives' interests are
aligned with shareholders.
FINANCIAL POSITION
• • • That allows the company to execute its business plan.
Strong progression of sales in each of our strategic markets. • • • Trials of our medical instrumentation device in humans. • • • Enlargement
of our clientele for the OPP-W oil & gas sensor. • • • Delivery of order to instrument a permanent observation well in CO2 enhanced oil recovery
project. • • • Launching of our high-temperature fiber optic extensometer to measure cap rock integrity. • • • Pursuing development in our
actual and future markets of new products and new applications for our existing products. • • • The coming products will provide, among other
things, complete progressive solutions in cap rock integrity, CO2 stimulated production and medical instrumentation.
w w w • o p s e n s • c o m
LETTER TO OUR SHAREHOLDERS
2009 will leave a mark in the collective memory as a period of rapid change during which
uncertainty and unprecedented market volatility led both companies and consumers to reduce
spending. Nonetheless, Opsens rose to the challenge, making progress on several fronts, and
established a strong basis for future growth.
Oil & Gas
In fiscal 2009, oil and gas companies in Alberta slowed their investment projects which
temporarily reduced demand for Opsens’ products. Yet in the last few months, we believe the
winds have begun to change. The oil price has recovered considerably, allowing us to foresee
major investments. Oil and gas companies, particularly those using steam assisted gravity
drainage (SAGD) in oil sands projects, are refocusing their attention on optimizing production to
improve yield and reduce costs. Our OPP-W fiber optic sensors do just that.
Commercial order to instrument 26 wells with the OPP-W
The technical evaluation of the OPP-W sensor continues successfully since its installation in
SAGD’s hostile conditions in May 2008. In October 2009, Opsens received its first commercial-
sized order to equip 26 wells with our OPP-W sensors. The order came from a leader in the oil
and gas industry, which should further stimulate interest in our OPP-W sensor.
The Opsens OPP-W sensor system measures pressure and temperature, in real-time, at
temperatures up to 300° Celsius continuously in SAGD wells. The capacity to control pressure
and temperature at high temperatures allows in-situ producers to improve steam-to-oil ratios,
increase production, and reduce operation and lifting costs. The integration of OPP-W sensor
systems on a multi-well basis will allow unprecedented field-wide, real-time bottom-hole pressure
and temperature to operators, production engineers and reservoir engineers, enabling effective
and timely heavy oil reservoir management decisions. We are confident that the OPP-W is
destined to become a crucial instrument in the exploitation and the optimization of SAGD.
Since receiving our first large order, we have seen an increase in the number of requests for
information, a good sign for 2010.
Development of Opsens’ first medical instrumentation device
For a number of years, Opsens has made a miniature fiber optic sensor for international OEM
clients in the medical instrument industry. To build and capitalize on the success of that miniature
sensor, Opsens is developing its own medical device, and has filed a provisional patent for a
ground-breaking application. Opsens has received a $498,500 grant from the NRC-IRAP towards
this project, which should be released in 2011.
High-power transformers and scientific laboratories
Opsens has seen remarkable growth in the scientific laboratories sector. The high-power
transformers sector has set foot in emerging markets with a major delivery in Asia, demonstrating
progress in spreading Opsens’ products worldwide.
A Perspective on 2010
The 26-sensor order from the oil and gas market provided a strong start to 2010. This order has
helped push Opsens’ consolidated backlog to historical levels.
1
Opsens has created innovative products that generate a substantial return on investment for our
clients. In addition to our current product and services offering, we will launch new solutions to
measure various parameters for oil and gas to promote efficient and safe exploitation.
The November 2009 announcement of an order to instrument a permanent observation well in a
CO2 enhanced oil recovery project, is a concrete example of Opsens taking advantage of its
expertise to improve penetration in its markets.
Within our medical division, trials in humans are planned for 2010.
Also, we expect sustainable sales in other sectors.
In closing, I want to thank our clients for the confidence they demonstrate in our products. The
growth of our activities relies on our team’s dedication to providing high-quality products
developed in conformity with the ISO 9000:2001 norm. I salute their commitment to excellence.
The presence and the experience of our directors have provided inspiration, stability and focus in
these highly turbulent times. I thank them for bringing their creative energy into the mix. Finally, I
want to thank our shareholders for their continued support in our team. They are a following our
story closely; we want to make them proud.
(s) Pierre Carrier
President and Chief Executive Officer
2
3 MANAGEMENT DISCUSSION & ANALYSIS
Annual report for shareholders
Fiscal year ended August 31, 2009
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, 2009, and for the three months and year ended this date, in comparison with the
corresponding periods ended August 31, 2008. They should be read and interpreted in conjunction with the audited
financial statements as well as the accompanying notes as of August 31, 2009.
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, 2009. All amounts are in Canadian dollars.
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 end-users in the oil
and gas, medical, transformers, and laboratory fields. Opsens provides complete technical support, including
installation, training, and after-sales service in conformity with ISO 9001:2000.
Opsens holds three (3) patents and has three (3) patents pending covering its products and technology provided to its
markets, giving the Company freedom to operate. With its patented technologies and highly recognized expertise,
Opsens meets consumer needs in the medical, oil and gas, high-power transformers, and laboratory markets. Since
December 11, 2007, activities in the oil and gas market 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 sensors is a multi-billion dollar market. The Opsens sales and
marketing strategy aims to provide solutions for the various current niche markets and develop specific new 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.
In 2010, Opsens expects revenue from product sales to be higher than a year earlier, despite the challenging
economic environment. The recent order from a major Alberta oil and gas producer to instrument 26 wells with OPP-
W fibre optic sensors, and the greater maturity of our products, will contribute significantly to increase revenues.
Disclosures in volatile and uncertain times in the financial markets
Even in the current economic environment, Opsens continues to execute its business plan, targeting revenue growth
in all of its markets. The company continues to hire in human resources to provide its clients with top-quality
4
products and services. Given the controls in place in each of Opsens’ units, the company isn’t at this point taking any
unusual measures.
Regarding cash management, the private placements that Opsens completed in 2008 and 2009 give the company the
financial resources necessary to operate in 2010. 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 period ended August 31, 2009, 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 2010.
Majors drivers that have changed as a result of the financial crisis
Credit availability and cost
The availability of credit has decreased as a result of the global financial crisis. Opsens’ current assets are
enough to execute its current short-term business plan. If additional equity financing is required, current
fiscal incentives may help. It is uncertain what the impact of an equity financing on current shareholders
would be compared with doing such a financing under more normal market conditions.
Customers
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.
Currency fluctuations
As for recent currency fluctuations, an appreciating American dollar against the Canadian dollar generally
favours sales figures and gross margins, since most of Opsens’ sales are made in U.S. dollars. Additional
information is included below under the “Distribution, sales and long-term recurring revenues” and “Capital
management” headings.
Commodity prices
The oil and gas market is a strategic one for Opsens. In spite of the recovery in the price of oil and gas, the
high volatility of this commodity could affect negatively short-term investments in the oil and gas industry.
Counterparties
Because Opsens’ revenues and purchases are diversified, the company doesn’t anticipate any significant
impact from decreased solvency of certain clients, suppliers and bankers.
5
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands of Canadian dollars, except for
information per share)
Year Ended
August 31, 2009
$
Year Ended
August 31, 2008
$
Year Ended
August 31, 2007
$
Sales
Cost of revenues
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 reported financing fees
Loss before income taxes
Income taxes
Net loss
Net loss per share – Basic
Net loss per share - Diluted
(In thousands of Canadian dollars)
Current assets
Total assets
Current liabilities
Long-term debt
Shareholders' equity
3,088
2,000
1,088
1,179
872
828
(34)
229
164
21
-
-
3,259
(2,171)
-
(2,171)
(0.05)
(0.05)
2,844
1,432
1,412
984
731
699
(58)
253
100
40
-
-
2,749
(1,337)
-
(1,337)
(0.04)
(0.04)
813
639
174
623
825
591
(9)
345
72
18
12
10
2,487
(2,313)
-
(2,313)
(0.08)
(0.08)
As at August 31,
2009
$
As at August
31, 2008
$
As at August
31, 2007
$
4,880
6,450
652
256
5,542
5,462
6,852
770
253
5,829
2,543
3,029
541
499
1,989
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. On June 25, 2009, the Company completed a private placement of 2,916,667
units at a price of $0.60 per unit for gross proceeds of $1,750,000.
6
SUMMARY OF CONSOLIDATED QUARTERLY RESULTS
The summary below presents the periods in which Opsens published unaudited interim financial statements.
(In thousands of Canadian dollars)
Three months
ended August 31,
2009
$
Three months
ended May 31,
2009
$
Three months
ended February
28, 2009
$
Three months
ended November
30, 2008
$
Revenues
Net loss for the period
Net loss per share - Basic
Net loss per share - Diluted
591
(719)
(0.02)
(0.02)
1,279
(215)
(0.01)
(0.01)
606
(682)
(0.02)
(0.02)
612
(555)
(0.01)
(0.01)
(In thousands of Canadian 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
$
748
(228)
(0.01)
(0.01)
$
890
(359)
(0.01)
(0.01)
$
637
(403)
(0.01)
(0.01)
Three-month
period ended
November 30,
2007
$
569
(347)
(0.01)
(0.01)
The acquisition of Inflo Solutions on December 11, 2007, stimulated sales in the oil and gas sector beginning in the
second quarter of fiscal 2008.
In the first quarter of fiscal 2009, the Company performed leasehold improvements to its Quebec facilities, which
temporarily affected production and hence revenues, and increased the Company’s loss.
In the latest second quarter, Opsens incurred and recorded expenses related to the planned installation of two OPP-W
sensors. The installation was delayed by the client until the third quarter, when the sensors were installed, and the
revenue recorded.
FOURTH QUARTER 2009
Revenue totalled $591,000 for the quarter ended August 31, 2009, compared with $748,000 a year earlier. The
decrease resulted from weakness in the oil and gas market. The company had anticipated to completing two
installations from its oil and gas backlog in the fourth quarter, but the orders were postponed. Opsens expects to
proceed with these installations in the first half of 2010, further boosting expected revenue growth.
The Company recorded a loss of $719,000 or 2 cents a share in the fourth quarter, compared with a loss of $228,000
or 1 cent a share a year earlier. The increased loss reflects lower sales, gross margins and financial income. Seasonal
fluctuations and year-end adjustments had no impact on operating revenues and net loss for the fourth quarter 2009.
Administrative expenses were little changed at $285,000 for the latest quarter, compared with $275,000 for the same
period in 2008.
Marketing expenses for the quarter were declined to $203,000 versus $222,000 a year earlier.
7
Research and development expenses totalled $201,000 for the quarter ended August 31, 2009, compared with
$165,000 for the same period in 2008. The increased spending went towards a promising new project in medical
instrumentation.
Historically, the Company’s revenues have been little affected by seasons. Seasonal fluctuations will become more
significant as the weighting of sales to the oil and gas field increases, since business activity is generally greater in
the winter quarter for this sector.
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.
YEARS ENDED AUGUST 31, 2009, AND AUGUST 31, 2008
DISTRIBUTION, SALES, AND LONG-TERM RECURRING REVENUES
(In thousands of dollars except for
percentage data figures)
Year Ended
August 31, 2009
$
Year Ended
August 31, 2008
$
Revenues
Growth rate (%)
Gross margin
Growth rate (%)
3,088
2,844
(8.5 )
1,088
1,412
(-22.9)
The Company reported revenue of $3,088,000 for the year ended August 31, 2009, compared with $2,844,000 a year
earlier, an increase of 8.5%. The growth includes a sales increase of $800,000 in the high-power transformers market
and an increase of close to $180,000 in the scientific and military laboratories markets. The growth is attributable to
an emphasis on highlighting the added value of our products.
Sales in the oil and gas sector totalled $375,000, compared with $799,000 a year earlier ($207,000 accounted for
within the Opsens Inc. reportable segment) for 2008. In general, the drop reflects our oil and gas clients’ reluctance
to make investments in an uncertain economy.
Sales in medical instrumentation were $285,000 in fiscal 2009 compared with $612,000 for 2008. In 2008, we made
some major deliveries used for product evaluation that we expect will stimulate growth in this market in 2010.
8
(In thousands of Canadian dollars except
for percentage data figures)
Year ended
August 31, 2009
Opsens Inc.’s
reportable
segment
$
Year ended
August 31, 2009
Opsens Solutions
Inc.’s reportable
segment
$
Year ended
August 31, 2009
Eliminations
$
Year ended
August 31, 2009
Consolidated
financial
statements
$
Revenues
Cost of revenues
Gross margin
Gross margin rate (%)
2,803
1,431
1,372
49
366
651
(285)
(78)
(81)
(81)
-
-
3,088
2,000
1,088
35
The gross margin and the gross margin rate on product sales fell in fiscal 2009 from a year earlier, mostly because of
the increase in general costs of production and in the number of production employees in the Opsens Solutions Inc.
division, where the company is preparing for an expected growth in sales in coming quarters.
The company expects the gross margin rate for Opsens Solutions Inc. to go back to its minimum target of 40% next
year, as sales increase.
As at August 31, 2009, the backlog amounted to $617,000, more than double the $295,000 in backlog on August 31,
2008.
Given that a large proportion of the Company's revenue is generated in U.S. dollars, while most costs are incurred in
Canadian dollars, fluctuation in the exchange rate affects revenue. For the fiscal year ended August 31, 2009, the
average exchange rate was higher than the previous year, which affected positively sales by $518,000 for the fiscal
year ended August 31, 2009.
Market acceptance of fiber optic sensors is increasing in the company’s markets, leading to higher sales, despite the
recession. That said, some sectors, such as high-power transformers, are seeing additional competition. Opsens is
addressing the added competition by highlighting the performance characteristics of its products compared with
those of its competitors. For the periods ended August 31, 2009 and 2008, pricing fluctuations and new product
launches did not have a significant impact on revenues.
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. In fiscal 2009, the Company focused on continuous improvements to its technology in markets with
the highest perceived potential payoff, particularly oil and gas and medical devices.
During the first quarter, Opsens filed a provisionary patent to the USPTO for a strong potential medical application.
Opsens was also awarded a $498,500 grant from the National Research Council Industrial Research Assistance
Program (“NRC-IRAP”) for this project. In addition to the technical advice provided by the NRC-IRAP, this
financial assistance will help Opsens continue to develop this medical product. The innovative qualities of our
application lead us to believe Opsens will make a major breakthrough in the medical sector in 2011.
Research and development expenses increased to $828,000 from $699,000 in fiscal 2008. The increase reflects an
increase in the number of employees and higher prices for R&D supplies.
9
SHORT-TERM FINANCIAL PERFORMANCE AND CASH FLOWS
Non-GAAP financial measure - EBITDA
EBITDA before stock-based compensation costs does not have any standardized meaning prescribed by GAAP and
is therefore unlikely to be comparable to similar measures presented by other issuers. EBITDA before stock-based
compensation costs provides investors and management burn rate related to operating activities of the Company.
Reconciliation of EBITDA to the Annual Results
(In thousands of Canadian dollars)
Year Ended
August 31, 2009
$
Year Ended
August 31, 2008
$
Year Ended
August 31, 2007
$
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 reported financing fees
(2,171)
(34)
164
21
-
-
(1,337)
(58)
100
40
-
-
(2,313)
(9)
72
18
12
10
EBITDA
Stock-based compensation costs
(2,020)
(1,255)
(2,210)
EBITDA before stock-based compensation costs
229
253
345
(1,791)
(1,002)
(1,865)
Net loss
For the year ended August 31, 2009, net loss totalled $2,171,000, compared with $1,337,000 a year earlier. This
increase, as well as the EBITDA for FY2009, reflects an increase in administrative, commercialization and R&D
expenses and a decrease in gross margin.
Fiscal 2010 results will be strongly influenced by product sales volume. The backlog, including the order for 26
OPP-W sensor systems received early in the year, and the expansion of marketing activities within the oil and gas
market following the OPP-W installations in 2008 and 2009, should contribute to an increase in EBITDA.
Capital management
The Company uses its capital to finance marketing expenses, research and development activities, administrative
charges, working capital and capital assets. Historically, the Company has financed activities through rounds of
public and private financing, debt financing as well as government grants.
The company reviews net loss and EBITDA quarterly.
The Company aims to improve these ratios which negatively varied for the period ended August 31, 2009, compared
with the same period in 2008. The Company believes that its current liquid assets are sufficient to finance its
activities for the short term.
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 is not limited by margin requirements. When using the line of credit in an amount varying from
10
$50,000 and $100,000, the available credit is limited to an amount 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. Under the
terms and conditions of the credit agreement, the Company is subject to certain covenants with respect to
maintaining minimum financial ratios related to the maintenance of a maximum ratio of 3 to 1 for total debt to
equity, and a ratio of at least than 1.5 to 1 for debt to working capital, with a minimum working capital of $200,000.
The covenants were met as of August 31, 2009.
INFORMATION BY REPORTABLE SEGMENTS
Segmented information
The Company’s reportable segments are strategic business units managed separately; one is focused on developing,
producing, and supplying fiber optic sensors (Opsens Inc.) and the other (Opsens Solutions Inc.) is specialized in the
commercialization and installation of optical and conventional sensors for the oil and gas industry.
The same accounting policies are used for both reportable segments. Operations are carried out in the normal course
of operations and are measured at the exchange value.
2009
Opsens
Solutions
Opsens inc.
2008
Opsens
Total Opsens inc.
Solutions
$
$
$
$
$
Total
$
2,721,088
366,728
3,087,816
2,248,817
595,422
2,844,239
81,481
-
81,481
4,000
87,094
91,094
147,940
16,520
164,460
94,748
5,507
100,255
21,387
(92,939)
-
58,252
21,387
(34,687)
20,340
(71,787 )
20,000
13,574
40,340
(58,213)
(1,212,563)
(958,069)
(2,170,632)
(1,231,708 )
(104,980)
(1,336,688)
256,792
76,912
333,704
270,625
44,519
315,144
31,418
5,182,350
-
1,267,924
31,418
6,450,274
37,664
5,787,433
-
1,064,786
37,664
6,852,219
External sales
Internal sales
Amortization of property,
plant and equipment
Amortization of
intangible assets
Financial expenses
Net loss
Acquisition of property,
plant and equipment
Acquisition of
intangible assets
Segment assets
11
Information by geographic segments
Revenue per geographic sector
Canada
United States
Germany
UK
Other
2009
$
464,061
754,214
363,586
146,767
1,359,188
3,087,816
2008
$
651,875
933,916
416,805
285,465
196,178
2,844,239
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 period ended August 31, 2009, revenues from two clients represent individually more than 10%
of the total revenues of the company, i.e. 15.92% (Opsens Inc.’s reportable segment), and 11.16% (Opsens
Inc.’s reportable segment). For the period ended August 31, 2008, revenues from three clients represented
respectively 18.09% (Opsens Solutions Inc.’s reportable segment), 17.62% (Opsens Inc.’s reportable
segment), and 13.09% (Opsens Inc.’s reportable segment) of the Company’s total revenues.
Administrative expenses
Administrative expenses were $1,179,000 and $984,000 respectively for the periods ended August 31, 2009, and
2008.
Administrative expenses increased mainly due to a rise in employment levels and communication expenses. In fiscal
2010, administrative expenses will continue to increase, particularly in light of a general rise in fees necessary to
support the anticipated growth in sales.
Sales and marketing expenses
Sales and marketing expenses were $872,000 for FY2009, up from $731,000 a year earlier.
This increase is explained mainly higher salaries and benefits. The company expects these costs to rise again in fiscal
2010, considering our planned activities.
Financial expenses (income)
Financial income was $34,000 for the period ended August 31, 2009, compared with $58,000 a year earlier. The
decrease resulted directly from a loss in the exchange rate compared with the year before. Financial income should
continue to decrease in 2010, notably because of lower interest rates.
Financing activities cash flow
On June 25, 2009, the Company completed a private placement of 2,916,667 common shares at a price of $0.60 a
share for gross proceeds of $1.75 million. Opsens also issued non-transferable warrants to the brokers entitling them
12
to acquire 204,167 common shares of Opsens at $0.60 a share for a period of 24 months from the closing of the
offering. The net proceeds of the private placement will be used for marketing, general working capital purposes and
potentially for acquisitions. Opsens will expand its sales and marketing activities and finalize main product
development partnerships, which should provide long-term recurring revenues.
Warrants exercised
During period ended August 31, 2009, 50,000 warrants entitling their holders to acquire common shares at $0.40
each were exercised, for a total of $20,000. The book value of the exercised warrants transferred to share capital was
$8,000.
In the latest period, warrants entitling holders to buy 393,000 shares at $0.40 each, 111,111 at $0.55 and 4,865,000
shares at $0.60 each expired.
For the period ended August 31, 2009, the Company granted to some employees a total of 705,500 stock options
with an average exercise price of $0.40, and cancelled 160,000 stock options with an exercise price of $0.52 a share.
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
Investing activities cash flow
43,398,344
2,788,500
2,889,509
49,075,853
Opsens performed leasehold improvements at its Quebec City manufacturing facility in 2009. Leasehold
improvements, R&D and production equipment purchases amounted to $334,000 for the period ended August 31,
2009. These acquisitions were made primarily to gain access to space and high-tech R&D and production equipment.
As for intangible assets, Opsens invested $31,000 for the period ended August 31, 2009. These investments involved
software and patent protection for the Company's inventions.
Cash and cash equivalents
On August 31, 2009, the Company had cash and cash equivalents of $2,887,000, compared with $3,743,000 as of
August 31, 2008. Of this amount as at August 31, 2009, $2,465,000 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, 2009, Opsens had working capital of $4,228,000, compared with working capital of $4,691,000 on
August 31, 2008. Based on the private placement completed on June 25, 2009, 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 debt. In
the long term, there is uncertainty about obtaining additional financing, given the risks and uncertainties identified in
the Risks and uncertainties section. During fiscal 2010, fluctuation in cash assets will depend particularly on the rate
of revenue growth.
In fiscal 2010, widespread sales growth should require the Company to make an additional investment of a few
hundred thousand dollars in accounts receivable and inventory.
13
Commitments
Leases
The Company leases office space 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
$523,477.
Opsens Solutions Inc. rents three vehicles under operating lease expiring in November 2010, September 2013, and
October 2013. Future rent payments will amount to $81,509.
Future payments for the leases and other commitments, totalizing $749,986, required in the next years are as follows:
2009
2010
2011
2012
2013
Licence
$
231,677
177,966
147,257
138,757
56,433
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.
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 to
A company controlled by a
shareholder and director
Financial instruments
Cash equivalents and temporary investments
2009
$
2008
$
-
-
30,000
30,000
The Company is exposed to various types of risks in the management of its cash and cash equivalents, including
those related to the use of financial instruments. To manage these risks, controls were put in place, particularly those
related to investment policy. The investment policy is approved by the Board of Directors. The Company’s
investment policy aims primarily to protect capital, while considering return on investment and income taxes.
14
Market Risk
Market risk is the risk that the value of a financial instrument will fluctuate as a result of changes in the
parameters underlying their measurement, particularly interest rates and market prices.
Interest Rate Risk
Interest rate risk exists when interest rate fluctuations modify the cash flows of the Company’s investments.
The Company owns investments with fixed interest rates. As of August 31, 2009, the Company was holding
85.4% of its cash equivalents portfolio in term deposits redeemable at any time.
Financial charges (income)
Interest and bank charges
Interest on long-term debt
Gain on foreign currency translation
Interest income
Credit Risk
Year Ended
August 31,
2009
$
25,599
42,684
(20,524 )
(82,446 )
(34,687 )
2008
$
13,173
48,964
(32,809)
(87,541)
(58,213)
The use of financial instruments can create a credit risk that is the risk of financial loss resulting from a
counterparty’s inability or refusal to fully discharge its contractual obligations. The Company’s credit risk
management policies include the authorization to carry out investment transactions with recognized financial
institutions, with credit ratings of at least A and higher, in either bonds, money market funds or guaranteed
investment certificates. Consequently, the Company manages credit risk by complying with established
investment policies.
Concentration Risk
Concentration risk exists when investments are made with multiple entities that share similar characteristics or
when a large investment is made with a single entity. As of August 31, 2009, the Company was holding more
than 85.4% of its cash equivalents portfolio in term deposits redeemable at any time.
Operational credit risk
The Company provides credit for a conventional period of 30 days 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. Four major customers represent 50.73% of the
Company’s accounts receivable as at August 31, 2009.
As at August 31, 2009, 23.66% of accounts receivable were older than 90 days, while 33.49% were less than 30 days
old. The maximum exposure to the risk of credit for receivable corresponded to their book value. On August 31,
2009, the bad debt provision was established at $14,678 ($14,031 on August 31, 2008).
Management considers that substantially all receivables are fully collectible, as most of our customers are large
corporations with good credit standing and no history of default.
15
Interest rate and cash flow risk
The Company is exposed to interest rate fluctuations on certain long-term debt that bears interest at variable rates.
The Company does not actively manage this risk.
Assuming the cash equivalents and long-term debt as reported on August 31, 2009, had been the same throughout the
period, a hypothetical 1% interest rate increase would have had a favourable impact of $1,975 and $2,926 on the net
loss respectively for years ended August 31, 2009 and 2008. The net result would have had an equal but opposite
effect for a hypothetical 1% interest rate decrease.
Foreign exchange risk
The Company realizes certain sales and purchases certain supplies and professional services in U.S. dollars.
Therefore, it is exposed to foreign currency fluctuations. The Company does not actively manage this risk.
For the years ended August 31, 2009 and 2008, if the Canadian dollar had strengthened 10% against the U.S. dollar
with all other variables held constant, after-tax net income and other comprehensive income would have been
$138,000 and $168,000 lower, respectively. Conversely, if the Canadian dollar had weakened 10% against the U.S.
dollar, with all other variables held constant, after-tax net income and other comprehensive income would have been
$138,000 and $168,000 higher for the same periods.
As at August 31, the risk to which the Company was exposed is established as follows:
Cash
Accounts receivable
Accounts payable and accrued liabilities
Total
Fair value
$
78,752
471,847
(30,545)
520,054
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.
Liquidity Risk
Liquidity risk represents the possibility of the Company not being able to raise the funds needed to meet financial
commitments at the appropriate time and under reasonable conditions. The Company manages this risk by
maintaining permanent and sufficient liquidity to meet current and future financial obligations, under both normal
and exceptional circumstances. The funding strategies used to manage this risk include turning to capital markets to
carry out issues of equity and debt securities.
16
The following are the contractual maturities of the financial liabilities, principal and interest (assuming current
interest rates), as at August 31, 2009:
2 to 5
More than 5
Accounts payable and
accrued liabilities
Long-term debt
Obligation under capital lease
Commitments
Total
Total
$
518,782
423,573
88,827
0 to 12
months
$
518,782
150,072
33,904
1 to 2
years
$
-
years
$
-
137,952
135,549
22,829
32,094
749,986
231,677
175,862
342,447
1,781,168
934,435
336,643
510,090
years
$
-
-
-
-
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. Opsens remains open
to any business opportunities that could occur at any time.
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 comprised 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 were subject to a statutory four-month hold period that ended on April 12,
2008.
On April 8, 2008, a milestone was achieved, releasing 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.
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:
17
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.
Amount
$
6,029
42,024
20,000
68,053
44,377
23,676
676,574
700,250
6,029
525,574
168,647
On December 11, 2007, Inflo changed its name to Opsens Solutions Inc. (“Opsens Solutions”).
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
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 operates in the oil and gas market.
CAPACITY TO PRODUCE RESULTS
As discussed in the section regarding financial position, the Company has the required financial resources for its
short-term operations, to fulfill its commitments, to support its growth plan and for the development of its activities.
In a mid-term perspective, it is possible that additional financing, through the issuance of shares or through debt
financing, might be required.
During the next year, the generalized growth in sales should require an additional investment of a few additional
hundreds of thousands of dollars in accounts receivable and inventories. Also, investments in capital of a few
hundreds of thousands of dollars will be needed to respond to Opsens’ operational needs.
From the point of view of human resources, the main corporate executive positions are filed within the Company.
However, additional production personnel will be required in Quebec and Alberta. Taking into account the
employment market in Canada, Opsens is confident in its capacity to recruit qualified human resources in a timely
fashion.
18
Regarding the strategy on corporate executive remuneration, it is oriented towards creation of long-term value for the
shareholders. Several corporate executives hold an important share and share-purchase option position, with rights to
be acquired over a four-year period in order to align shareholders’ interest with corporate executives’ interest. This
long-term vision stimulates innovation and the development of recurrent revenues.
CHANGES IN ACCOUNTING POLICIES
Changes applied for the exercise ended August 31, 2009
On September 1, 2008, the Company adopted the new accounting standards issued by the Canadian Institute of
Chartered Accountants (“CICA”) regarding “Capital Disclosures” (Section 1535), “Inventories” (Section
3031), “Instruments – Disclosures” (Section 3862) and “Financial Instruments – Presentation” (section 3863).
The new standards were applied without restatement of comparative financial statements.
Inventories
Section 3031 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.
Since this standard came into effect, the Company has been recording its raw materials inventory at the
lower of cost and net realizable value. In the past, the Company recorded raw materials inventory at the
lower of cost and replacement value. This new policy has no impact on the current consolidated financial
statements.
Capital Disclosures
Section 1535 “Capital Disclosures”, established standards for disclosing information about an entity’s
capital and how it is managed. It describes the disclosure requirements of the entity’s objectives, policies
and processes for managing capital, the quantitative data relating to what the entity regards as capital,
whether the entity has complied with capital requirements, and, if it has not complied, the consequences of
such non-compliance. Since the standard came into effect, the Company has been presenting relevant
information about capital management in the “Capital Management” note.
Financial Instruments
Sections 3862 and 3863 place heightened importance on disclosure, enabling financial statement users to
assess the nature and extent of the risks associated with the financial instruments to which the Company is
exposed and the manner in which it manages these risks.
Changes applied for the exercise ended August 31, 2008
On September 1, 2007, the Company adopted the new accounting standards issued by the 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.
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.
19
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).
Future accounting changes
The CICA has issued new accounting standards:
a) 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 interim and annual consolidated financial
statements.
b) In January 2009, the CICA issued Handbook Section 1582, Business Combinations, replacing Section 1581,
Business Combinations. The Section establishes standards for the accounting for a business combination.
It provides the Canadian equivalent to the IFRS standard, IFRS 3 (Revised), Business Combinations. The
Section applies prospectively to business combinations for which the acquisition date is on or after January
1, 2011. Earlier application is permitted. As this section is consistent with IFRS, it will be applied in
accordance with our IFRS conversion framework.
c) In January 2009, the CICA issued Section 1601, Consolidated Financial Statements, and Section 1602, non-
controlling interests, which together replace Section 1600, Consolidated Financial Statements. Section 1601
establishes standards for the preparation of consolidated financial statements. Section 1602 establishes
standards for accounting for a non-controlling interest in a subsidiary in consolidated financial statements
20
subsequent to a business combination. It is equivalent to the corresponding provisions of IFRS standard,
IAS 27 (Revised), Consolidated and Separate Financial Statements. The Sections apply to interim and
annual consolidated financial statements relating to fiscal years beginning on January 1, 2011. Earlier
adoption is permitted as of the beginning of a fiscal year. As these sections are consistent with IFRS, they
will be applied in accordance with our IFRS conversion framework.
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 changeover date applies to the annual and interim
financial statements opened from January 1, 2011. The Company will convert to these new standards according
to the timetable set with these new rules.
The Company is currently assessing the future impact of these new standards on its financial information
systems and its consolidated financial statements.
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
Inventories are valued at the lower of cost and 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
Automotive equipment
Research and development equipment
Research and development computer equipment
Computer equipment
Leasehold improvements
20%
20%
30%
20%
30%
30%
Lease Term
21
Intangible assets with limited lives
Patents
Software
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.
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.
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 the corresponding shareholder’s equity account. When stock
options or warrants are exercised, the corresponding account and the proceeds received by the Company are
credited to share capital.
22
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
Opsens Inc. reportable segment revenues related to the sale of products are recognized when persuasive
evidence of an arrangement exists, delivery has occurred, the price to the buyer is fixed or determinable and
collection is reasonably assured.
Opsens Solutions Inc. reportable segment revenues related to the sale or products and sensor installation
services are recognized when persuasive evidence of an arrangement exists, on site installation has occurred,
the price to the buyer is fixed or determinable and collection is reasonably assured. For contract revenues
earned over a long period, 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 worded 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.
23
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.
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.
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 not 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 would have a significant, unforeseeable effect on its activities and operating results.
24
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
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.
25
Currency exchange rate
Since Opsens makes most of its sales in U.S. 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.
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 18, 2009
26
27 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, 2009 and 2008 and the
consolidated statements of loss and comprehensive loss, shareholders’ equity 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, 2009 and 2008 and the results of its operations and its cash
flows for the years then ended in accordance with Canadian generally accepted accounting principles.
1
Chartered Accountants
October 9, 2009
____________________
1 Chartered accountant auditor permit no 11848
28
Opsens Inc.
Consolidated Statements of Loss and Comprehensive Loss
Years ended August 31, 2009 and 2008
Revenues
Sales
Cost of sales
Gross margin
Expenses (Revenues)
Administrative
Marketing
Research and development
Stock option-based compensation (Note 14b)
Amortization of property, plant and equipment
Amortization of intangible assets
Financial income
Loss before income taxes
Income taxes (Note 20)
2009
$
2008
$
3,087,816
2,844,239
1,999,843
1,432,385
1,087,973
1,411,854
1,178,659
871,972
827,406
229,408
164,460
21,387
984,316
730,309
698,957
252,576
100,257
40,340
(34,687 )
(58,213 )
3,258,605
2,748,542
(2,170,632 )
(1,336,688 )
-
-
Net loss and comprehensive loss
(2,170,632 )
(1,336,688 )
Net loss per share (Note 15)
Basic
Diluted
(0.05 )
(0.05 )
(0.04 )
(0.04 )
The accompanying notes are an integral part of the consolidated financial statements.
Additional information on the Statements of Loss is presented in Note 24.
29
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31
Opsens Inc.
Consolidated Balance Sheets
August 31, 2009 and 2008
Assets
Current
Cash and cash equivalents (Note 16)
Accounts receivable (Note 7)
Income tax credits receivable (Note 20)
Work in progress
Inventories (Note 8)
Prepaid expenses
Property, plant and equipment (Note 9)
Intangible assets (Note 10)
Goodwill
Liabilities
Current
Accounts payable and accrued liabilities (Note 12)
Current portion of long-term debt (Note 13)
Long-term debt (Note 13)
Shareholders’ equity
Share capital (Note 14a)
Stock options (Note 14b)
Warrants (Note 14c)
Contributed surplus
Deficit
2009
$
2008
$
2,887,085
3,742,520
573,310
214,624
-
1,125,260
80,198
743,951
183,950
237,551
453,271
100,454
4,880,477
5,461,697
723,424
169,799
676,574
554,180
159,768
676,574
6,450,274
6,852,219
518,782
133,440
652,222
547,204
223,265
770,469
256,439
252,380
908,661
1,022,849
12,035,259
10,257,259
783,936
554,528
856,077
1,400,069
595,047
-
(8,728,706 )
(6,382,486 )
5,541,613
5,829,370
6,450,274
6,852,219
The accompanying notes are an integral part of the consolidated financial statements.
References:
Commitments (Note 17)
Contractual guarantees (Note 18)
Approved by the Board
Signed [Mario Jacob] Director
Signed [Pierre Carrier] Director
32
Opsens Inc.
Consolidated Statements of Cash Flows
Years ended August 31, 2009 and 2008
Operating activities
Net loss
Adjustments for:
Amortization of property, plant
and equipment
Amortization of intangible assets
Premium payable to Canada Economic
Development
Premium payable to Investissement Québec
Stock option-based compensation
Changes in non-cash operating
working capital items (Note 16)
Investing activities
Acquisition of property, plant and equipment
Acquisition of intangible assets
Cash and cash equivalents
paid in business combination (Note 6)
Financing activities
Increase in long-term debt
Reimbursement of long-term debt
Issuance of equity component
Issuance of equity component expenses
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning
Cash and cash equivalents at end
2009
$
2008
$
(2,170,632 )
(1,336,688 )
164,460
21,387
100,257
40,340
24,353
8,520
16,799
8,520
229,408
252,576
(302,637 )
(811,991 )
(2,025,141 )
(1,730,187 )
(333,704 )
(315,144 )
(31,418 )
(37,664 )
-
(168,647 )
(365,122 )
(521,455 )
84,295
72,966
(202,934 )
(243,859 )
1,770,000
4,741,011
(116,533 )
(415,335 )
1,534,828
4,154,783
(855,435 )
1,903,141
3,742,520
1,839,379
2,887,085
3,742,520
The accompanying notes are an integral part of the consolidated financial statements.
Additional information is presented in Note 16.
33
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2009 and 2008
1. Description of business
The Company, issued from a merger completed as of October 3, 2006, is incorporated under part IA of
the Québec Companies Act. The Company specializes in developing and manufacturing technical and
scientific instruments.
2. Changes in accounting policies
Changes applied for the exercise ended August 31, 2009
On September 1, 2008, the Company adopted the new accounting standards issued by the Canadian
Institute of Chartered Accountants (“CICA”) regarding “Capital Disclosures” (Section 1535),
“Inventories” (Section 3031), “Instruments – Disclosures” (Section 3862) and “Financial
Instruments – Presentation” (section 3863). The new standards were applied without restatement of
comparative financial statements.
Inventories
Section 3031 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.
Since this standard came into effect, the Company has been recording its raw materials inventory
at the lower of cost and net realizable value. In the past, the Company recorded raw materials
inventory at the lower of cost and replacement value. This new policy has no impact on the current
consolidated financial statements.
Capital Disclosures
Section 1535 “Capital Disclosures”, established standards for disclosing information about an
entity’s capital and how it is managed. It describes the disclosure requirements of the entity’s
objectives, policies and processes for managing capital, the quantitative data relating to what the
entity regards as capital, whether the entity has complied with capital requirements, and, if it has
not complied, the consequences of such non-compliance. Since the standard came into effect, the
Company has been presenting relevant information about capital management in the “Capital
Management” note.
Financial Instruments
Sections 3862 and 3863 place heightened importance on disclosure, enabling financial statement
users to assess the nature and extent of the risks associated with the financial instruments to
which the Company is exposed and the manner in which it manages these risks.
Changes applied for the exercise ended August 31, 2008
On September 1, 2007, the Company adopted the new accounting standards issued by the 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.
34
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2009 and 2008
2. Changes in accounting policies (continued)
Changes applied for the exercise ended August 31, 2008 (continued)
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).
35
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2009 and 2008
2. Changes in accounting policies (continued)
Future accounting changes
The CICA has issued new accounting standards:
a) 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 interim and annual consolidated financial statements.
b) In January 2009, the CICA issued Handbook Section 1582, Business Combinations, replacing
Section 1581, Business Combinations. The Section establishes standards for the accounting for a
business combination. It provides the Canadian equivalent to the IFRS standard, IFRS 3 (Revised),
Business Combinations. The Section applies prospectively to business combinations for which the
acquisition date is on or after January 1, 2011. Earlier application is permitted. As this section is
consistent with IFRS, it will be applied in accordance with our IFRS conversion framework.
c) In January 2009, the CICA issued Section 1601, Consolidated Financial Statements, and Section
1602, non-controlling interests, which together replace Section 1600, Consolidated Financial
Statements. Section 1601 establishes standards for the preparation of consolidated financial
statements. Section 1602 establishes standards for accounting for a non-controlling interest in a
subsidiary in consolidated financial statements subsequent to a business combination. It is
equivalent to the corresponding provisions of IFRS standard, IAS 27 (Revised), Consolidated and
Separate Financial Statements. The Sections apply to interim and annual consolidated financial
statements relating to fiscal years beginning on January 1, 2011. Earlier adoption is permitted as
of the beginning of a fiscal year. As these sections are consistent with IFRS, they will be applied in
accordance with our IFRS conversion framework.
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 changeover date
applies to the annual and interim financial statements beginning on or after January 1, 2011. The
Company will convert to these new standards according to the timetable set with these new rules.
The Company is currently assessing the future impact of these new standards on its financial
information systems and its consolidated financial statements.
36
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2009 and 2008
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
Inventories are valued at the lower of cost and 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
Automotive 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.
37
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2009 and 2008
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.
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 the corresponding shareholder’s
equity account. When stock options or warrants are exercised, the corresponding account and the
proceeds received by the Company are credited to share capital.
38
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2009 and 2008
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
Opsens Inc. reportable segment revenues related to the sale of products are recognized when
persuasive evidence of an arrangement exists, delivery has occurred, the price to the buyer is fixed or
determinable and collection is reasonably assured.
Opsens Solutions Inc. reportable segment revenues related to the sale or products and sensor
installation services are recognized when persuasive evidence of an arrangement exists, on site
installation has occurred, the price to the buyer is fixed or determinable and collection is reasonably
assured. For contract revenues earned over a long period, 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 worded but not yet invoiced and the payments received. Losses are
recorded as soon as they become apparent.
39
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2009 and 2008
3. Accounting policies (continued)
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.
4. Financial instruments
Cash equivalents and temporary investments
The Company is exposed to various types of risks in the management of its cash and cash equivalents,
including those related to the use of financial instruments. To manage these risks, controls were put in
place, particularly those related to investment policy. The investment policy is approved by the Board
of Directors. The Company’s investment policy aims primarily to protect capital, while considering
return on investment and income taxes.
Market Risk
Market risk is the risk that the value of a financial instrument will fluctuate as a result of changes in
the parameters underlying their measurement, particularly interest rates and market prices.
Interest Rate Risk
Interest rate risk exists when interest rate fluctuations modify the cash flows of the Company’s
investments. The Company owns investments with fixed interest rates. As of August 31, 2009, the
Company was holding more than 85.4% of its cash equivalents in all time redeemable term-deposit.
40
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2009 and 2008
4. Financial instruments (continued)
Financial charges (income)
Interest and bank charges
Interest on long-term debt
Gain on foreign currency translation
Interest income
Credit Risk
2009
$
2008
$
25,599
42,684
(20,524 )
(82,446 )
13,173
48,964
(32,809 )
(87,541 )
(34,687 )
(58,213 )
The use of financial instruments can create a credit risk that is the risk of financial loss resulting from
a counterparty’s inability or refusal to fully discharge its contractual obligations. The Company’s credit
risk management policies include the authorization to carry out investment transactions with
recognized financial institutions, with credit ratings of at least A and higher, in either bonds, money
market funds or guaranteed investment certificates. Consequently, the Company manages credit risk
by complying with established investment policies.
Concentration Risk
Concentration risk exists when investments are made with multiple entities that share similar
characteristics or when a large investment is made with a single entity. As of August 31, 2009, the
Company was holding more than 85.4% of its cash equivalents portfolio in all time redeemable
term-deposit.
Operational credit risk
The Company provides credit for a conventional period of 30 days 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.
Four major customers represent 50.73% of the Company’s accounts receivable as at August 31, 2009.
As at August 31, 2009, 23.66% of the accounts receivable were of more than 90 days whereas
33.49% of those were with less than 30 days. The maximum exposure to the risk of credit for
receivable corresponded to their book value. On August 31, 2009, the bad debt provision was
established at $14,678 ($14,031 on August 31, 2008).
Management considers that substantially all receivables are fully collectible as most of our customers
are large corporations with good credit standing and no history or default.
Interest rate and cash flow risk
The Company is exposed to interest rate fluctuations on certain long-term debt that bears interest at
variable rates. The Company does not actively manage this risk.
Assuming the cash equivalents and long-term debt as reported on August 31, 2009 had been the
same throughout the period, a hypothetical 1% interest rate increase would have had an unfavourable
impact of $1,975 and $2,926 on the net loss for the years ended August 31, 2009 and 2008. The net
loss would have had an equal but opposite effect for a hypothetical 1% interest rate decrease.
41
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2009 and 2008
4. Financial instruments (continued)
Foreign exchange risk
The Company realizes certain sales 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.
For the years ended August 31, 2009 and 2008, if the Canadian dollar had strengthened 10% against
the U.S. dollar with all other variables held constant, after-tax net income and other comprehensive
income would have been respectively $138,000 and $168,000 lower. Conversely, if the Canadian
dollar had weakened 10% against the U.S. dollar with all other variables held constant, after-tax net
income and other comprehensive income would have been $138,000 and $168,000 higher for the
same periods.
As at August 31, 2009, the risk to which the Company was exposed is established as follows:
Cash
Accounts receivable
Accounts payable and accrued liabilities
Total
Fair value
2009
$
78,752
471,847
(30,545 )
520,054
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.
Liquidity Risk
Liquidity risk represents the possibility of the Company not being able to raise the funds needed to
meet financial commitments at the appropriate time and under reasonable conditions. The Company
manages this risk by maintaining permanent and sufficient liquidity to meet current and future
financial obligations, under both normal and exceptional circumstances. The funding strategies used to
manage this risk include turning to capital markets to carry out issues of equity and debt securities.
42
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2009 and 2008
4. Financial instruments (continued)
Liquidity Risk (continued)
The following are the contractual maturities of the financial liabilities, principal and interest (assuming
current interest rates), at August 31, 2009:
0 to 12
1 year to
2 years to
More than
Total
months
2 years
5 years
5 years
$
$
$
$
$
Accounts payable and
accrued liabilities
518,782
518,782
-
-
Long-term debt
423,573
150,072
137,952
135,549
Obligation under capital lease
88,827
33,904
22,829
32,094
Commitments
Total
749,986
231,677
175,862
342,447
1,781,168
934,435
336,643
510,090
-
-
-
-
-
5. Capital management
The Company uses its capital to finance marketing expenses, research and development activities,
administrative and working capital and capital assets. Historically, the Company has financed activities
through rounds of public and private financing, debt financing as well as government grants.
The Company quarterly reviews net loss and Earnings before Interest, Taxes, Depreciation,
Amortization and Stock option-based compensation "EBITDAO". The EBITDAO has no normalized
sense prescribed by the CICA. It is not very probable that this measure is comparable with measures
of the same type presented by other issuers. The EBITDAO is defined by the Company as the cash
flows from operating activities without taking in consideration changes in non-cash operating working
capital items.
Net loss
Financial income
Amortization of property, plant and
equipment
Amortization of intangible assets
Stock option-based compensation
2009
$
2008
$
(2,170,632 )
(1,336,688 )
(34,687 )
(58,213 )
164,460
21,387
229,408
100,257
40,340
252,576
EBITDAO
(1,790,064 )
(1,001,728 )
43
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2009 and 2008
5. Capital management (continued)
The Company targets to improve these ratios which negatively vary for the year ended August 31,
2009 compare to the same period in 2008. The Company believes that its current liquid assets are
sufficient to finance its activities on the short-term.
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.
Under the terms and conditions of the credit agreement, the Company is subject to certain covenants
with respect to maintaining minimum financial ratios related to the maintenance of a maximum ratio
of 3 to 1 for total debt to equity, and a ratio of at least than 1.5 for debt to working capital, with a
minimum working capital of $200,000. The covenants are met as of August 31, 2009.
6. 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.
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.
44
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2009 and 2008
6. 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
7. Accounts receivable
Trade
Allowance for doubtful accounts
Taxes receivable
2009
$
2008
$
537,573
729,406
(14,678 )
(14,031 )
50,415
573,310
28,576
743,951
45
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2009 and 2008
8. Inventories
Raw materials
Finished goods
9. Property, plant and equipment
Office furniture and equipment
Leased office furniture and equipment
Production equipment
Leased Automative equipment
Research and development equipment,
2009
$
2008
$
636,084
380,885
489,176
72,386
1,125,260
453,271
2009
Accumulated
Net Book
Cost
Amortization
Value
$
$
$
74,483
8,326
113,514
59,028
32,283
42,200
5,875
37,366
10,963
2,451
76,148
48,065
net of income tax credits of $23,834
734,428
300,469
433,959
Research and development computer equipment,
net of income tax credits of $3,078
Computer equipment
Leased computer equipment
Leasehold improvements
27,122
111,269
29,009
39,908
18,617
44,466
8,703
14,921
8,505
66,803
20,306
24,987
1,197,087
473,663
723,424
46
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2009 and 2008
9. Property, plant and equipment (continued)
Office furniture and equipment
Leased office furniture and equipment
Production equipment
Leased Automotive equipment
Research and development equipment,
net of income tax credits of $23,834
Research and development computer equipment,
net of income tax credits of $3,078
Computer equipment
Leasehold improvements
10. 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
Cost
$
52,723
12,535
88,020
16,500
Accumulated
Amortization
$
24,666
3,225
25,018
2,200
2008
Net Book
Value
$
28,057
9,310
63,002
14,300
582,134
202,577
379,557
24,270
74,298
12,905
863,385
15,649
27,713
8,157
8,621
46,585
4,748
309,205
554,180
2009
Cost
$
Accumulated
amortization
Net Book
value
$
$
200
-
200
203,454
41,578
245,232
46,414
29,019
75,433
Cost
$
Accumulated
amortization
$
157,040
12,559
169,799
2008
Net Book
value
$
200
-
200
172,036
41,578
213,814
30,445
23,601
54,046
141,591
17,977
159,768
47
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2009 and 2008
11. 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 (see Note 5).
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%.
12. Accounts payable and accrued liabilities
Suppliers
Provision for warranty (Note 18)
2009
$
2008
$
491,461
527,204
27,321
20,000
518,782
547,204
48
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2009 and 2008
13. Long-term debt
Contributions repayable to Canada Economic Development, without
interest, repayable in five equal and consecutive annual instalments
effective of 39,567 and $20,000, maturing in February2012 and June
2013
Debt balance
Imputed interest
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 reimbursed during year end 2009
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 13,5%, payable in monthly
instalments of $1,367, including interest and a final payment of
$1,417, maturing in December 2010
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
Amounts carried forward
2009
$
2008
$
198,696
258,263
(42,707 )
(67,060 )
155,989
191,203
104,190
126,330
-
58,417
55,561
77,132
19,211
-
2,054
2,964
337,005
456,046
49
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2009 and 2008
13. Long-term debt
2009
$
2008
$
Amounts carried forward
337,005
456,046
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 9.7%, payable in monthly
instalments of $837, including interest and a final payment of $837
maturing in April 2014
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
Principal payments required over the next five years are as follows:
Obligations – Capital lease
4,689
5,663
37,632
-
10,553
13,936
389,879
475,645
133,440
223,265
256,439
252,380
Debt and
principal portion
Other
debts
of capital
lease
Total
payments
$
Imputed
interest
$
Principal
payments
$
$
$
2010
2011
2012
2013
2014
33,904
22,829
15,343
10,047
6,703
6,629
3,678
2,210
1,099
236
27,275
19,151
13,133
8,112
6,468
106,165
107,090
62,657
39,828
-
133,440
126,241
75,790
47,940
6,468
Under the terms and conditions of the agreement on long-term debt with its financial institution,
the Company is subject to certain covenants with respect to maintaining minimum financial ratios
(see Note 5).
50
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2009 and 2008
14. Share capital, stock options
and warrants
a) Share capital
Authorized, unlimited number
Common shares, voting and participating without par value
Year ended August 31, 2009
Outstanding shares and the changes occurred during the year are as follows:
Issued and fully paid
Number
Amount
Balance at beginning of year
Share issuance – warrants exercised i)
Share issuance – Private placement ii)
Balance as at August 31, 2009
40,431,677
50,000
2,916,667
43,398,344
$
10,257,259
28,000
1,750,000
12,035,259
i) Warrants exercised
During the year ended August 31, 2009, 50,000 warrants entitling their holders to acquire one
common share of the Company at an average price of $0.40 per share were exercised for a total
amount of $20,000. The book value of the exercised warrants was transferred to Share capital
for an amount of $8,000.
ii) Private Placement
On June 25, 2009, the Company realized a private placement of 2,916,667 shares at a price of
$0.60 per unit for gross proceeds of $1,750,000. Opsens paid to the Agents a cash commission
equal to $87,500 and issue broker compensation warrants entitling the Agents to purchase
204,167 common shares of Opsens. The Broker Warrants shall be issuable at an exercise price
of $0.60 for a period of 24 months from the closing of the Offering.
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 6)
Share issuance – options exercised
Share issuance – warrants exercised iii)
Share issuance – Private placement iv)
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
51
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2009 and 2008
14. Share capital, stock options
and warrants
a) Common share capital (continued)
iii) 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.
iv) 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. The warrants will expire 30 days after actual or demmed receipt, by the warrants holders,
of the notice confirming the occurrence of such an event.
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.
b) Stock options
The Company changed the stock option plan on January 20, 2009. 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. These
options generally vest over a four-year period, except for 580,000 outstanding options granted
which are completely vested at grant.
The compensation expense in regards to the stock option plan included in the administrative
expenses for the year ended August 31, 2009 is $229,408 ($252,576 for the year ended
August 31, 2008).
52
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2009 and 2008
14. 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 1.57% 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, 2009 and 2008 are as follows:
2009
2008
Weighted
average
Number of
exercise Number of
options
price
options
$
Outstanding at beginning of year
2,242,500
0.65 2,033,333
Options granted
Options cancelled
Options exercised
705,500
0.40
912,500
(160,000 )
0.52
(295,000 )
-
-
(408,333 )
Outstanding at end of the year
2,788,000
0.61 2,242,500
Weighted
average
exercise
price
$
0.53
0.77
0.58
0.34
0.65
Options exercisable at end of the year 1,228,125
0.61
765,000
0.59
53
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2009 and 2008
14. 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, 2009:
Exercise price
Number of outstanding
stock options
Number of exercisable
stock options
Weighted average
residual duration
(years)
$
0.37
0.40
0.42
0.45
0.50
0.60
0.64
0.72
0.80
0.87
0.95
305,500
90,000
50,000
50,000
1,060,000
70,000
50,000
500,000
150,000
262,500
200,000
40,000
-
-
25,000
725,000
5,000
-
125,000
112,500
95,625
100,000
2,788,000
1,228,125
4,64
4,27
4,39
2.26
2.11
4.59
4.79
3.28
2.91
3.64
2.62
3.05
c) Warrants
The fair value of the warrants was determined using the Black-Scholes option pricing model with
the following assumptions:
Exercisable price
Risk-free interest rates
Expected volatility
Expected dividend yield on shares
Duration
Fair value by warrant
Units issued
Broker compensation
warrant
$1.10
2.72%
76%
- %
2 years
$0.28
$0.60 and $0.80
From 1.33% to 2.72%
From 76% to 90%
- %
2 years
$0.29 and $0.35
54
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2009 and 2008
14. 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, 2009 and 2008 are as follows:
2009
2008
Weighted
average
exercise
price
Number of
warrants
$
Number of
warrants
Weighted
average
exercise
price
$
8,104,453
0.74
6,902,722
0.58
204,167
(5,369,111 )
0.60
0.56
-
-
(50,000 )
0.40
-
-
-
-
(1,483,611 )
-
2,355,563
-
2,889,509
-
1.03
329,779
8,104,453
-
-
-
0.56
1.10
0.80
0.74
Outstanding at beginning of year
Warrants issued, private placement
(Note 14 a)ii)
Warrants cancelled
Warrants exercised during the year
2009 (Note 14 a)i)
Warrants exercised during the period
2008 (Note 14a)iii)
Warrants issued, private placement
(Note 14a)iv)
Warrants issued, private placement
(Note 14a)iv)
Outstanding at end of year
Warrants exercisable at end of year
2,889,509
1.03
8,104,453
0,74
The table below provides information on the outstanding warrants as at August 31, 2009:
Exercise price
$
0.60
0.80
1.10
Number of outstanding
warrants
Number of exercisable
warrants
Weighted average residual
duration
(years)
204,167
329,779
2,355,563
2,889,509
204,167
329,779
2,355,563
2,889,509
1.82
0.60
0.60
0.69
55
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2009 and 2008
15. Loss per share
The table below presents a reconciliation between the basic net loss and the diluted net loss per
share:
2009
$
2008
$
(2,170,632 )
(1,336,688 )
(2,170,632 )
(1,336,688 )
Numerator
Net loss
Amount available for calculating
the loss per share
Denominator
Number of shares
Weighted average number of shares outstanding
41,010,627
36,327,185
Dilutive effect of stock options and warrants
-
-
Weighted average number of shares
outstanding on diluted basis
41,010,627
36,327,185
Amount per share
Net loss per share
Basic
Diluted
(0.05 )
(0.05 )
(0.04 )
(0.04 )
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 $0.37, $0.42, $0.45, $0.50 and $0.60, would have been dilutive and
would have resulted in the addition of 106,072 shares to the weighted average number of shares
outstanding used in the diluted earnings per share calculation for year ended August 31, 2009
(2,434,422 as at August 31, 2008).
56
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2009 and 2008
16. 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
2009
$
2008
$
170,641
(584,425 )
(30,674 )
(6,595 )
(671,989 )
(78,450 )
237,551
(237,551 )
20,256
(66,837 )
(28,422 )
181,867
-
(20,000 )
(302,637 )
(811,991 )
422,168
147,574
2,464,917
3,594,946
2,887,085
3,742,520
49,456
56,283
On June 25, 2009, Opsens issued broker compensation warrants entitling the Agents to purchase
204,167 common shares of Opsens at an exercise price of $0.60 per share for a book value of
$59,055.
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.
The Company concluded the acquisition of all outstanding shares at December 11, 2007 of Inflo
Solutions Inc. (“Inflo”) by the issuance of 1,199,997 Opsens common shares with a book value of
$525,574.
57
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2009 and 2008
17. 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 $523,477.
Opsens Solutions rents three vehicles under an operating lease expiring in November 2010,
September 2013 and October 2013. Future rent payments will amount to $81,509.
Future payments for the leases and other commitments, totalizing $749,986, required in each of the
next five years are as follows:
2010
2011
2012
2013
Thereafter
Licence
$
231,677
175,862
147,257
138,757
56,433
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.
18. 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, 2009, the Company recognized an expense of $7,321 ($3,688 for the year ended
August 31, 2008) for guarantees. A provision for $27,321 ($20,000 as at August 31, 2008) 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.
19. Government assistance
Industrial Research Assistance Programme (IRAP)
Under an agreement reached with the National Research Council with respect to the Industrial
Research Assistance Programme (IRAP), the Company may receive non-refundable contributions for a
maximum amount of $498,500 to cover some of its incurred costs to carry out a development project
of medical devices sensors. For the year ended August 31, 2009, the Company recorded contributions
totalling $22,116 which were accounted for against Research and development fees.
58
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2009 and 2008
19. Government assistance (continued)
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, training and product conception. During the year ended August 31, 2009, the
Company received a cash contribution of $45,640 which was recorded against research and
development, marketing and administrative expenses.
During the year ended August 31, 2009, the Company received a cash contribution of $4,856 from
Emploi Québec. This amount was recorded against research and development expenses.
20. 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
2009
$
2008
$
(657,312 )
(411,847 )
478,946
(102,007 )
(77,450 )
357,823
-
88,566
(57,801 )
(18,123 )
399,205
-
As at August 31, 2008, the Company has tax losses of approximately $4,037,400 for federal purposes
and $4,039,400 for provincial purposes that can be used to reduce future taxable income. These
losses expire as follows:
2015
2023
2024
2025
2027
2028
2029
Federal
$
Provincial
$
96,000
483,000
42,000
400
1,524,000
691,000
1,201,000
121,000
463,000
40,000
400
1,509,000
692,000
1,214,000
4,037,400
4,039,400
59
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2009 and 2008
20. Income taxes (continued)
The Company also has undeducted research and development expenses in the amount of
$2,411,000 for federal purposes and $3,535,000 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.
21. Income tax credits for scientific research
and experimental development
For tax purposes, research and development expenses are detailed as follows:
Federal
Provincial
2009
$
2008
$
2,434,000
1,175,000
1,695,000
597,000
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
2009
$
-
214,624
214,624
2008
$
-
158,975
158,975
214,624
158,975
-
-
Reimbursable scientific research income tax credits earned
214,624
158,975
Reimbursable scientific research income tax credits earned for the year ended August 31, 2009 have
not yet been reviewed by the taxation authorities, and the amounts granted could differ from those
that have been recorded.
Over the years, the Company qualified to federal Research and development credit, which were non
refundable and could be used against Part I Company tax. The accumulated credit for the year ended
on August 31, 2009 is about $655,000 and expired on a 10 years period beginning in 2014.
60
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2009 and 2008
22. 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.
Professional fees to a
company controlled
by a shareholder and director
23. Segmented information
Sector’s information
2009
$
2008
$
-
-
30,000
30,000
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 Inc.) is specialized in the commercialization and the installation of optical and
conventional sensors for the oil and gas industry.
Same accounting policies are used for both reportable segments. Operations are carried out in the
normal course of operations and are measured at the exchange value.
2009
Opsens
2008
Opsens
Opsens inc.
Solutions
Total Opsens inc.
Solutions
Total
$
$
$
$
$
$
External sales
Internal sales
Amortization of property,
2,721,088
366,728 3,087,816 2,248,817
595,422
2,844,239
81,481
-
81,481
4,000
87,094
91,094
plant and equipment
147,940
16,520
164,460
94,748
5,507
100,255
Amortization of
intangible assets
21,387
-
21,387
20,340
20,000
40,340
Financial expenses
(92,939 )
58,252
(34,687 )
(71,787 )
13,574
(58,213 )
Net loss
(1,212,563 ) (958,069 ) (2,170,632 ) (1,231,708 )
(104,980 ) (1,336,688 )
Acquisition of property,
plant and equipment
256,792
76,912
333,704
270,625
44,519
315,144
Acquisition of
intangible assets
31,418
-
31,418
37,664
-
37,664
Segment assets
5,182,350 1,267,924 6,450,274 5,787,433 1,064,786
6,852,219
61
Opsens Inc.
Notes to the Consolidated Financial Statements
August 31, 2009 and 2008
23. 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
2009
2008
$
$
464,061
651,875
754,214
933,916
363,586
416,805
146,767
285,465
1,359,188
556,178
3,087,816
2,844,239
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, 2009, revenues from two clients represent individually more than
10% of the total revenues of the Company, i.e. approximately 15.92% (Opsens Inc.’ reportable
segment) and 11.16% (Opsens Inc.’s reportable segment). During the year ended August 31, 2008,
revenues from three clients represent approximately 18.09% (Opsens Solutions’ reportable segment),
17.62% (Opsens Inc.’s reportable segment) and 13.09% (Opsens Inc.’s reportable segment).
24. 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 on foreign currency translation
Interest income
2009
$
2008
$
(76,391 )
(4,699 )
(250,648 )
(158,975 )
25,599
42,684
(20,524 )
(82,446 )
13,173
48,964
(32,809 )
(87,541 )
62
63 Opsens inc.
Shareholder Information
Corporate Information
Directors
Head Office
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
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 Marie-Claude
Poitras at the head office address, or
marie-claude.poitras@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 19, 2010
10:30 a.m.
l’Hôtel ALT Quebec
Quebec City, QC
64
EMERGING LEADER
IN OIL SANDS MEASUREMENT
Opsens offers integrated services for the management of reservoirs and in situ environments for the oil
and gas market. Its near-term focus is the Western Canadian oil sands market, where a growing demand to
measure pressure and temperature is identified. There is a large number of 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 injecting and producer wells,
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.
STE AM ASSISTE D GRAVIT Y DRA IN AGE (S AGD)
Producing
Well
Steam
Injection Well
SRU
Installation
S
t
e
a
m
O
i
l
Hot Steam Chamber
( ~ 3 0 0 ° C + )
H e a t e d O i l
Opsens Sensors for in situ Pressure & Temperature Monitoring (300°C)
Cold Oil San d
w w w • o p s e n s • c o m
SENSORS AT WORK
• OIL & GAS •
Helping operators optimize production in the
Western Canadian oil sands.
• MEDICAL DEVICES •
Development in partnerships of applications in areas
such as cardiac assistance. Development of our first
medical instrument.
• LABORATORIES & TRANSFORMERS •
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
# 201, 10456, 176th St., Edmonton, AB T5S 1L3
T• +1 418 .6 8 2. 9 9 9 6 F • +1 418 .6 8 2. 9 9 3 9
T• +1 78 0 . 9 3 0 .17 7 7 F • +1 78 0 . 9 3 0 . 207 7
w w w • o p s e n s • c o m