M eas ure... I Mprove
Medical Device
Oil and Gas
AnnuAl RepoRt 2010
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 provides sensors for the measurement of pressure, temperature,
displacement and strain to original equipment manufacturers (oeM) and end users in the oil and gas, medical and laboratories
fields. opsens’ sensors provide long-term accuracy and reliability in the harshest environments.
HigHligHts 2010
• • • September 2010
inCreasing reveNue
new president to lead oil and gas operations – opsens has chosen
a veteran of the oil and gas industry to lead the team and promote
our solutions to the heavy oil market.
$
3.1 million
5.2 million
• • • August 2010
Appointment of three directors – these directors bring solid experience
in oil and gas and medical instrumentation.
Sale of high-power transformer division for uS$3.1 million allows
opsens to focus on markets with higher growth potential, where we
want to become leaders, namely oil and gas, medical instrumentation
and laboratories.
• • • May 2010
Receipt of order to instrument observation wells in a Co2-eoR project.
Co2 injection for oil recovery allows producers to stimulate oil production
and permanently store Co2 in underground geological formations. this
method contributes to the reduction of greenhouse gas emissions.
Intellectual property and opsens’ expertise are key elements in its
positioning in the market.
• • • April 2010
Receipt of an order to instrument five wells with the opp-W system
from a recurring client.
• • • february 2010
Closing of a private placement of $3.6 million at $0.85 a unit.
• • • January 2010
Abiomed announces a partnership with opsens to integrate opsens’ sensor
to the Impella heart pump. opsens has been providing components
to oeM and end-users in the oil and gas, medical and laboratory fields
for years. the benefits of sensing solutions are increasingly recognized
in the medical field. For opsens, the integration of its fiber optic
pressure sensor in a product like Impella, a miniature cardiac pump,
is recognition of its efficiency and safety and is a strong basis for the
marketing of its own medical instrumentation product for Fractional
Flow Reserve (FFR) measurement.
2009
2010
WHy invest iN OPSeNS
its target markets
− opsens’ products target markets with growing needs to measure
pressure and temperature in hostile environments, particularly oil
and gas and medical instrumentation.
− opsens targets major, well-recognized companies who constantly
work at improving their methods and operations.
its offer
− opsens’ products have proven themselves.
− Acceptance of optical products is growing in each
of our target markets.
− opsens’ expertise in optical sensors is recognized.
− opsens’ team has a strong capacity to materialize new ideas.
− opsens’ products benefit from a strong gross margin,
supported by recurring revenues through the maintenance
and replacement of sensors.
its stability
− through strong share ownership, executives’ interests
are aligned with shareholders’ interests.
− opsens’ financial position allows the Company to execute
its business plan.
• • • November 2009
our vision fOr 2011
Receipt of order from major oil producer to instrument observation
wells in a Co2-eoR project.
• • • October 2009
Receipt of order for 26 opp-W sensors from major oil and gas
customer in Alberta. the opp-W fiber optic pressure and temperature
sensor for SAGD withstands high temperature. opsens received its
first commercial-sized order for its opp-W sensor from a client who
has been testing the product for several months.
− expand sales in each of our strategic markets.
− Application for regulatory approval (for example 510 K filing
with FDA) for commercialization of our medical instrumentation
device in humans in 2012.
− Growth of our clientele for the opp-W oil and gas sensor.
− new orders to instrument observation wells in Co2 enhanced
oil recovery operations.
− First deliveries of our high-temperature fiber optic extensometer
to measure cap rock integrity.
− Develop new products and applications for existing products
in current and new markets.
w w w • o
p
s
e
n
s
•
c
o m
letteR to SHAReHolDeRS
In 2010, opsens strengthened its leading position in the fiber optic-based measurement solutions market. The sustained
growth of sales shows a gradual adoption of our products.
It has also been a transitional period for opsens. The Company has taken measures to solidify its financial position and
focus its resources on the markets opsens considers having the best potential, that is the measurement of pressure and
temperature for oil and gas, medical instrumentation and laboratories. This is why opsens sold its high-power transformers
business to California-based Lumasense for us$3.1 million.
oil and gas
sales for oil and gas have grown considerably, going from $400 000 to more than $2.4 million. opsens received its first
commercial-sized order for its opp-W sensor and demand for its flagship oil and gas product is consistently growing. as
opsens is carving itself a position in the oil and gas market in alberta, the Company is diversifying its offering for saGD with,
among other things, its Distributed Temperature sensing (DTs) systems and cap rock integrity surveillance extensometer.
opsens solutions generates sales from various product lines. Because of its expertise, opsens was selected by the petroleum
Technology research Centre (“pTrC”) as manager of the International energy agency Greenhouse Gas (“IeaGHG”) program
sponsored Weyburn-Midale Co2 storage and Monitoring project to design and construct a state-of-the-art transient
pressure testing system for the assessment of well integrity in existing wellbores.
opsens solutions is proud of having been selected for this assignment. It is recognition of our team’s expertise and capabilities
to develop and deploy new applications. opsens has also provided solutions for Co2 enhanced oil recovery operations.
opsens solutions improves its team
In alberta, opsens solutions has been proving how effective its products are for several months. The Company has now
improved its team with experienced, well-recognized people from the oil and gas field. To lead the team and promote the
products designed for the oil and gas market, opsens has named Darren Wiltse, p.eng, as president. Mr. Wiltse has close
to 30 years experience in the field and has worked in manufacturing, marketing and production for several oil producing and
service related companies, such as petro Canada and Weatherford Canada.
mediCal instrumentation – major developments
opsens has also made great strides in the development of its first complete medical instrumentation product. First, opsens
has filed a patent for its product, the easyWire, designed for the Fractional Flow reserve (FFr) measurement. FFr is an index
that determines the severity of blood flow blockages in the coronary arteries. FFr measurement is a tool that helps physicians
in selecting a treatment for these lesions. The easyWire is at an advanced development stage. opsens has performed its first
promising trials on animals and built up an advisory committee to support development of this medical device. It is composed
of Morton J. Kern of Irvine university, olivier Bertrand of université Laval, Michael J. Lim of st-Louis university.
at the same time, the company has signed an agreement with abiomed to integrate its fiber optic pressure sensor in Impella,
the world’ smallest heart pump. For opsens, this is much more than an oeM provider agreement. It is recognition of the performance
of its unique technology in the medical market. This recognition from the medical field could become a key element in the marketing
of our own FFr product a few months from now.
1
board
steven arless, Colin Cook and Gordon Zive joined opsens’ board. These three new directors bring strong experience in oil
and gas and medical instrumentation.
2011 outlook
Now that the technical strengths of the opp-W have been established and recognized for more than two years, opsens
wants to speed up implementation of its flagship product and market new products like the fiber optic extensometer, the DTs
measurement system and solutions for Co2 enhanced oil production to its actual clients and client prospects. This strategy
to offer a wide range of products and services for oil and gas is essential in the development of opsens solutions as it will
support long term growth.
In the medical division, development of our own medical instrumentation product is progressing well. opsens’ experience
as an oeM provider will ease market access for our product. opsens anticipates applying for regulatory approval (for example
510 K with the FDa in the united states) in 2011 for commercialization in 2012.
I thank our clients for the confidence they show in our products. I also thank the team – our growth reflects the quality of
the team’s work, supported by our compliance to the Iso 9001:2008 norm. I want to emphasize the contribution of our directors,
past and present. Their dedication is the cornerstone of our drive and focus. Finally, I want to thank the shareholders for
the confidence they have placed in opsens and for their patience. We are determined to fulfill their expectations.
(s) Pierre Carrier
president and Chief executive officer
2
MANAGEMENT DISCUSSION & ANALYSIS
Annual report for shareholders
Fiscal year ended August 31, 2010
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, 2010, and for the three months and year ended this date, in comparison with the
corresponding periods ended August 31, 2009. They should be read and interpreted in conjunction with the audited
financial statements as well as the accompanying notes as of August 31, 2010.
Unless stated otherwise, the 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 8, 2010. 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, and laboratory fields. Opsens provides complete technical support, including installation, training,
and after-sales service in conformity with ISO 9001:2008.
Opsens holds four (4) 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, 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 2011, Opsens expects revenue from product sales to be higher than a year earlier, despite the exit from high-power
transformers and the challenging economic environment. 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
3
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 2010 and the use of proceeds from
high-power transformers sale give the company the financial resources necessary to operate in 2011. 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 mainly on revenue growth and innovation.
The accounting estimates used in the financial statements for the year ended August 31, 2010, 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 2011.
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 Canadian dollar against the American dollar generally
disfavours sales figures and gross margins, since a significant portion 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.
4
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands of Canadian dollars, except for
information per share)
Year Ended
August 31, 2010
$
Year Ended
August 31, 2009
$
Year Ended
August 31, 2008
$
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
Gain on disposal
Profit (Loss) before income taxes
Income taxes
Net Profit (Net loss)
Net Profit (Net loss) per share – Basic
Net Profit (Net loss) per share - Diluted
5,281
3,173
2,108
1,521
870
1,047
(41)
282
179
32
(2,375)
1,515
593
-
593
0.01
0.01
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)
(In thousands of Canadian dollars)
As at August 31,
2010
$
As at August 31,
2009
$
As at August 31,
2008
$
Current assets
Total assets
Current liabilities
Long-term debt
Shareholders' equity
9,597
11,516
1,527
129
9,860
4,880
6,450
652
256
5,542
5,462
6,852
770
253
5,829
No dividend was declared per share for each share class.
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. On February 12, 2010, the Company completed a private placement
4,287,500 units at a price of $0.85 per unit for gross proceeds of $3,644,375.
5
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-month
period ended
August 31, 2010
$
Three-month
period ended
May 31, 2010
$
Three-month
period ended
February 28, 2010
$
Three-month
period ended
November 30, 2009
$
Revenues
Net profit (net loss) for the period
Net profit (net loss) per share – Basic
Net profit (net loss) per share – Diluted
1,695
2,016
0.04
0.04
1,469
(341)
(0.01)
(0.01)
1,047
(586)
(0.01)
(0.01)
1,070
(496)
(0.01)
(0.01)
(In thousands of Canadian dollars)
Three-month
period ended
August 31, 2009
Three-month
period ended May
31, 2009
Three-month
period ended
February 28, 2009
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)
Three-month
period ended
November 30,
2008
$
612
(555)
(0.01)
(0.01)
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.
FOURTH QUARTER 2010
The Company recorded a profit of $2,016,000 or 4 cents a share in the fourth quarter compared with a loss of
$719,000 or 2 cent a share a year earlier. The increased profit reflects a gain on disposal of high-power transformers
business, increase of sales and higher gross margin rate. Seasonal fluctuations and year-end adjustments had no
impact on operating revenues and net loss for the fourth quarter 2010.
Revenue totalled $1,695,000 for the quarter ended August 31, 2010, compared with $591,000 a year earlier. The
increase resulted from strong growth in each of our sectors. Oil & gas activities showed strongest sales which
amounted to 876,000 $.
Administrative expenses increase at $400,000 for the latest quarter, compared with $285,000 for the same period in
2009.
Marketing expenses for the quarter were slightly higher at $218,000 versus $203,000 a year earlier.
Research and development expenses totalled $228,000 for the quarter ended August 31, 2010, compared with
$201,000 for the same period in 2009. 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 for this sector.
6
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, 2010, AND AUGUST 31, 2009
DISTRIBUTION, SALES, AND LONG-TERM RECURRING REVENUES
(In thousands of dollars except for
percentage data figures)
Year Ended
August 31, 2010
$
Year Ended
August 31, 2009
$
Revenues
Growth rate (%)
Gross margin
Growth rate (%)
5,281
3,088
71.0%
2,108
1,088
93.8%
The Company reported revenue of $5,281,000 for the year ended August 31, 2010, compared with $3,088,000 a year
earlier, an increase of 71.0%. The growth includes a sales increase of $2,000,000 in the oil & gas market and an
increase of more than $300,000 in the scientific 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 $2,400,000, compared with $375,000 a year earlier for 2009. The increase in
this sector is the result of the combined impact of our commercial strategy and enhancement of the added value of
our products.
Sales in medical instrumentation were close to $500,000 in fiscal 2010 compared with $286,000 for 2009. For the
year ended August 31, 2010, significant proportion of medical sales were made to OEM for pressure measurement
for preclinical use. We expect increase sales for the year end 2011 in this market since advancement of development
programs of OEM customer and our more mature product line for pressure and temperature measurement.
(In thousands of Canadian dollars except
for percentage data figures)
Year ended
August 31, 2010
Opsens Inc.’s
reportable
segment
$
Year ended
August 31, 2010
Opsens Solutions
Inc.’s reportable
segment
$
Year ended
August 31, 2010
Eliminations
$
Year ended
August 31, 2010
Consolidated
financial
statements
$
Revenues
Cost of revenues
Gross margin
Gross margin rate (%)
3,343
1,651
1,692
51
2,388
1,972
416
17
(450)
(450)
-
-
5,281
3,173
2,108
40
7
(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 rose in fiscal 2010 from a year earlier, mostly because
of the distribution of production overhead costs over a higher sales volume. It is expected that the gross margin rate
for Opsens Solutions will continue to rise as the volume of sales goes up, to go back to its minimum target of 40%
next year.
As at August 31, 2010, the backlog amounted to $1,436,000 ($617,000 at August 31, 2009).
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, 2010, the
average exchange rate was lower than the previous year, which affected negatively sales by $350,000.
Market acceptance of fiber optic sensors is increasing in the company’s markets, leading to higher sales. That said,
some sectors, such as oil and gas, 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, 2010 and 2009, 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 2010, 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 fiscal 2010, Opsens made progress in the development of its own medical application for which Opsens filed
a provisionary patent with the USPTO. Opsens was 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 $1,047,000 in fiscal year 2010 from $828,000 in fiscal year 2009.
The increase reflects an increase in the number of employees and in subcontracting expenses linked to the
development of our new medical device.
8
SHORT-TERM FINANCIAL PERFORMANCE AND CASH FLOWS
Non-GAAP financial measure – EBITDA, EBITDAO and EBITDAO and gain on disposal
EBITDA, EBITDA before stock-based compensation costs (“EBITDAO”) and EBITDAO before gain on disposal do
not have any standardized meaning prescribed by GAAP and is therefore unlikely to be comparable to similar
measures presented by other issuers. EBITDAO and gain on disposal provides investors and management burn rate
related to operating activities of the Company.
Reconciliation of EBITDAO to the Annual Results
(In thousands of Canadian dollars)
Year Ended
August 31, 2010
$
Year Ended
August 31, 2009
$
Year Ended
August 31, 2008
$
Net gain (loss) for the period
Financial expenses (income)
Amortization of property, plant, and equipment
Amortization of intangible assets
EBITDA
Stock-based compensation costs
EBITDAO
Gain on disposal
593
(41)
179
32
763
282
(2,171)
(34)
164
21
(1,337)
(58)
100
40
(2,020)
(1,255)
229
253
1,045
(1,791)
(1,002)
(2,375)
-
-
EBITDAO and gain on disposal
(1,330)
(1,791)
(1,002)
Net gain (net loss)
For the year ended August 31, 2010, the net profit totalled $593,000, compared with a net loss of $2,171,000 a year
earlier. The increase in net profit as well as the EBITDAO for FY2010, reflects gain on disposal, an increase in the
sales and in the gross margin. The EBITDAO and gain on disposal were negative for an amount of $1,330,000 for
2010 compared with negative $1,791,000 the year before.
Fiscal 2010 results will be strongly influenced by product sales figures. The backlog of $1,436,000 and the
expansion of marketing activities within the oil and gas market following the OPP-W previous installations, should
contribute to an increase in the sales, to the stability of the EBITDAO and gain on disposal. The disposal of high-
power transformers activities should affect sales’ growth without impacting the EBITDAO and gain on disposal.
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 EBITDAO quarterly.
The Company aims to improve these ratios which positively varied for the period ended August 31, 2010, compared
with the same period in 2009. The Company believes that its current liquid assets are sufficient to finance its short-
term activities.
9
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
$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, 2010.
INFORMATION BY REPORTABLE SEGMENTS
Segmented information
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.
2010
Opsens
Solutions
Opsens inc.
2009
Opsens
Total Opsens inc.
Solutions
$
$
$
$
$
Total
$
2,892,819
2,387,897
5,280,716
2,721,088
366,728
3,087,816
450,211
-
450,211
81,481
-
81,481
151,961
26,793
178,754
147,940
16,520
164,460
30,146
(45,923)
1,720
5,084
31,866
(40,839)
21,387
-
(92,939 )
58,252
21,387
(34,687)
(1,317,306)
(464,429)
(1,781,735)
(1,212,563 )
(958,069)
(2,170,632)
2,375,107
-
2,375,107
-
-
-
1,057,801
(464,429)
593,372
(1,212,563 )
(958,069)
(2,170,632)
65,023
60,366
125,389
256,792
76,912
333,704
29,159
8,612,521
8,084
2,903,906
37,243
11,516,427
31,418
5,182,350
-
1,267,924
31,418
6,450,274
External sales
Internal sales
Amortization of property,
plant and equipment
Amortization of
intangible assets
Financial expenses
Net loss before gain on
disposal
Gain on disposal
Net earning (loss)
Acquisition of property,
plant and equipment
Acquisition of
intangible assets
Segment assets
10
These operating units generate revenue in various geographic segments as follows:
Revenue per geographic sector
Canada
United States
Germany
United Kingdom
Other
2010
$
2009
$
2,601,958
906,916
298,152
181,953
1,291,737
5,280,716
464,061
754,214
363,586
146,767
1,359,188
3,087,816
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, 2010, revenues from two clients represent individually more than 10% of the
total revenues of the Company, i.e. approximately 28.57% (Opsens Solutions Inc.’ reportable segment) and
11.34% (Opsens Solutions Inc.’ reportable segment).
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.’ reportable segment).
Administrative expenses
Administrative expenses were $1,521,000 and $1,179,000 respectively for the years ended August 31, 2010, and
2009.
Administrative expenses increased mainly due to a rise in employment levels and recruitment expenses. In fiscal
2011, administrative expenses will continue to increase, mainly because of the added executive personal needed to
support the anticipated growth in sales.
Sales and marketing expenses
Sales and marketing expenses were $870,000 for FY2010, compared to $872,000 a year earlier, a $2,000 reduction.
Sales and marketing expenses should remain stable in 2011 because of the emphasis on commercialization and our
development stage
Financial expenses (income)
Financial income was $41,000 for the period ended August 31, 2010, compared with $34,000 a year earlier. The
increase resulted directly from lower long-debt interest expense compared with the year before. Financial income
should increase in 2011, notably because of higher interest revenues.
11
Financing activities cash flow
On February 12, 2010, the Company realized a private placement of 4,287,500 units at a price of $0.85 per unit for
gross proceeds of $3,644,375. 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 $1.15 for a period of 24 months following the closing of the offering. Opsens paid to the agents a cash
commission equal to $254,404 and issue broker compensation warrants entitling the agents to purchase 299,299
common shares of Opsens. The broker warrants shall be issuable at an exercise price per common share equal to the
offering price for a period of 24 months from the closing of the offering. The 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.
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
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.
Warrants exercised and expired
During the year ended August 31, 2010, 178,889 warrants entitling their holders to acquire one common share of the
Company at a price of $0.80 per share were exercised for a total amount of $143,111. The book value of the
exercised warrants was transferred to share capital for an amount of $63,469.
During the year ended August 31, 2010, 150,890 and 2,355,563 warrants entitling its holder to acquire one common
share of the Company at a price of $0.80 and $1.10 per share respectively expired.
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.
Stock options exercised, granted and cancelled
During the year ended August 31, 2010, 1,250 stock options entitling their holders to acquire one common share of
the Company at a price of $0.87 per share were exercised for a total amount of $1,088. The book value of the
exercised warrants was transferred to share capital for an amount of $316.
For the period ended August 31, 2010, the Company granted to some employees and Directors a total of 1,359,750
stock options with an average exercise price of $0.40, and cancelled 6,000 stock options with an exercise price of
$0.68 a share.
For the period ended August 31, 2009, the Company granted to some employees and Directors 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.
12
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
47,865,983
4,140,500
2,647,216
54,653,699
Opsens performed equipment purchases for each of its units. R&D equipment, production equipment and
administrative equipment purchases amounted to $125,000 for the year ended August 31, 2010. These acquisitions
were made primarily to gain access to high-tech R&D and production equipment.
As for intangible assets, Opsens invested $37,000 for the period ended August 31, 2010. These investments involved
software and patent protection for the Company's inventions.
Cash and cash equivalents
On August 31, 2010, the Company had cash and cash equivalents of $5,348,000, compared with $2,887,000 as of
August 31, 2009. Of this amount as at August 31, 2010, $4,351,000 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, 2010, Opsens had working capital of $8,069,000, compared with working capital of $4,228,000 on
August 31, 2009. Based on the private placement completed on February 12, 2010, the use of proceeds from high-
power transformers sale, 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.
For the year 2011, the Company does not anticipate additional investment into the working capital.
Commitments
(cid:131)
Leases
The Company leases offices in Québec 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 $404,954.
Opsens Solutions Inc. rents four vehicles under an operating lease expiring in November 2010,
October 2013 and May 2014. Future rent payments will amount to $97,550.
13
Future payments for the leases and other commitments, totalizing $649,604, required in each of the next five
years are as follows:
2011
2012
2013
2014
2015
Licence
$
276,091
157,886
149,386
66,241
-
Under an exclusive licence with a third party, the Company is committed to provide exclusive distribution of some of
its products for a defined territory.
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, 2010, the Company was holding more than
81.4% of its cash equivalents in all time redeemable term deposit.
Financial charges (income)
Interest and bank charges
Interest on long-term debt
Gain on foreign currency translation
Interest income
14
2010
$
20,033
23,457
(14,200 )
(70,129 )
(40,839 )
2009
$
25,599
42,684
(20,524)
(82,446)
(34,687)
Credit Risk
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, 2010, the Company was holding more than 81.4%
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. One major customer represents 66.13% of the
Company’s accounts receivable as at August 31, 2010.
As at August 31, 2010, 23.79% of the accounts receivable were of more than 90 days whereas 61.48% 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, 2010, the bad debt provision was established at $6,110 ($14,031 on August 31, 2009).
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, 2010 had been the same throughout the
period, a hypothetical 1% interest rate increase would have had an unfavourable impact of $1,029 on the net profit
for the year ended August 31, 2010 and $1,975 on the net loss for the year ended August 31, 2009. The net profit
(loss in 2009) 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, 2010 and 2009, 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
$142,000 and $138,000 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
$142,000 and $138,000 higher for the same periods.
15
As at August 31, 2010, the risk to which the Company was exposed is established as follows:
Cash (US$467,612)
Accounts receivable (US$468,010)
Balance of purchase price to be received (US$786,250)
Accounts payable and accrued liabilities (US$87,587)
Total
Fair value
2010
$
509,164
501,350
826,037
(93,826 )
2009
$
78,752
471,847
-
(30,545)
1,742,725
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.
The following are the contractual maturities of the financial liabilities, principal and interest (assuming current
interest rates), as at August 31, 2010:
2 to 5
More than 5
Accounts payable and
accrued liabilities
Long-term debt
0 to 12
months
$
Total
$
1,402,249
1,402,249
263,252
136,620
Obligation under capital lease
54,933
22,838
1 to 2
years
$
-
80,035
15,345
years
$
-
46,597
16,750
Commitments
Total
649,604
276,091
157,886
215,627
2,370,038
1,837,798
253,266
278,974
16
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 August 16, 2010, Opsens reached agreement to license through an Intellectual Property and Assignment
Agreement (“The Agreement”) its technology in the high-power transformers business to a subsidiary of LumaSense
Technologies Inc., of Santa Clara, California, representing Opsens’ exit from that line of business.
The Agreement gives LumaSense exclusive rights to use Opsens’ technology in the transformer business.
LumaSense will have also have access to Opsens’ existing distribution channels for its transformer business.
LumaSense has paid Opsens US$2.1 million in cash upon closing and will pay a further US$500,000 in one year and
US$500,000 two years after closing.
The Agreement was recorded as a disposal. Gain on disposal calculation had been calculated as following:
Proceeds
Cash received at closing
Balance of purchase price to be received as of
August 16, 2011 (nominal value of 500,000 $US)
Balance of purchase price to be received as of
August 16, 2012 (nominal value of 500,000 $US)
Disposal expenses
Inventory and purchases credit
Other expenses and accrued expenses
Deferred revenues – manufacturing agreement*
Gain on disposal
Amount
$
2,190,720
443,360
376,856
3,010,936
150,000
265,829
220,000
635,829
2,375,107
* Opsens engaged in a manufacturing agreement with terms and conditions that are beneficial to LumaSense.
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 not require an additional investment in accounts
receivable and inventories. 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
17
employment market in Canada, Opsens is confident in its capacity to recruit qualified human resources in a timely
fashion.
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, 2010
On September 1, 2009, the Company adopted the new accounting standards issued by the Canadian Institute of
Chartered Accountants (“CICA”):
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 adopted 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 adoption of this new
Section did not have a material impact on its interim and annual consolidated financial statements.
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
18
exposed and the manner in which it manages these risks.
Future accounting changes
The CICA has issued new accounting standards:
a) 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.
b) 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.
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.
19
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
Intangible assets with indefinite lives
20%
20%
30%
20%
30%
30%
Lease Term
Term of underlying
patent,
5 to 20 years
30%
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
20
management’s estimates of amounts expected to be recovered and are subject to an audit by the taxation
authorities.
Earnings (Loss) per share
Earnings (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 earnings (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.
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, onsite installation has occurred, the
price to the buyer is fixed or determinable and collection is reasonably assured. For contract revenues earned
21
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
Cash and cash equivalents 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.
Accounts receivable and income tax credits receivable are classified as loans and receivables. They are
recorded at cost, which at initial recognition corresponds to fair value. Subsequent revaluations of accounts
receivable are recorded at amortized cost, which generally corresponds to the initially recognized amount less
any allowance for doubtful accounts.
The Company has chosen to classify its financial liabilities (accounts payable, accrued liabilities, and long term
debt) as other liabilities. Financial liabilities are initially measured at cost, and subsequent revaluations are
recorded at amortized cost using the effective interest rate method.
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.
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.
22
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 cannot 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.
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
23
certain countries in which Opsens products will be sold do not protect their products and their related intellectual
property rights in the same way as the laws of Canada and the United States. There is no certainty that Opsens will
successfully protect its intellectual property rights, which could unfavourably affect it. Patents applications, claims,
PCTs, and Continuations in Part files by Opsens could be incomplete, invalid, circumvented, or deemed not
applicable. Legal proceedings could prove necessary to carry out patent applications, claims, PCTs, and
Continuations in Part. These cases could lead to considerable expenses without any guarantee of success. Despite
Opsens’ best efforts to ensure its right to market its products on its target markets, competitor patents could impede
the sales potential of certain products.
Competition and technological obsolescence
Competitors and new companies could launch new products. In order to remain on the cutting edge of technology,
Opsens may need to launch a new generation of fiber optic sensors and develop its related products and services.
Whether it is competition from development companies and/or marketing of fiber optic sensors or a merger or
acquisition of existing companies, competition within certain fiber optic sensor industry sectors offering solutions
similar to what Opsens offers is vigorous and could increase. Some of Opsens’ competitors have significantly greater
financial, technical, distribution, and marketing resources than Opsens. Technological progress and product
development could make Opsens products obsolete or reduce their value.
Currency exchange rate
Since Opsens makes significant 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 $31,749 as at August 31, 2010.
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, 2010
24
Samson Bélair/Deloitte &
Touche s.e.n.c.r.l.
925, Grande Allée Ouest
Bureau 400
Québec QC G1S 4Z4
Canada
Tél.: 418-624-3333
Télec. : 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, 2010 and 2009 and the
consolidated statements of earnings (loss) and comprehensive earnings (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, 2010 and 2009 and the results of its operations and its cash
flows for the years then ended in accordance with Canadian generally accepted accounting principles.
1
October 20, 2010
____________________
1 Chartered accountant auditor permit no. 11848
26
Opsens Inc.
Consolidated statements of earnings (loss) and comprehensive earnings (loss)
Years ended August 31, 2010 and 2009
Revenues
Sales
Cost of sales
Gross margin
Expenses (revenues)
Administrative
Marketing
Research and development
Stock option-based compensation (Note 15b)
Amortization of property, plant and equipment
Amortization of intangible assets
Financial income (Note 4)
Gain on disposal (Note 6)
2010
$
2009
$
5,280,716
3,087,816
3,172,311
1,999,843
2,108,405
1,087,973
1,521,224
1,178,659
870,157
1,046,921
282,057
178,754
31,866
871,972
827,406
229,408
164,460
21,387
(40,839)
(34,687)
(2,375,107)
-
1,515,033
3,258,605
Earnings (loss) before income taxes
593,372
(2,170,632)
Net earnings (loss) and comprehensive earnings (loss)
593,372
(2,170,632)
Net earnings (loss) per share (Note 16)
Basic
Diluted
0.01
0.01
(0.05)
(0.05)
The accompanying notes are an integral part of the consolidated financial statements.
Additional information on the statements of earnings (loss) and comprehensive earnings (loss) is presented
in Note 24.
Page 2
27
5
7
3
,
4
4
6
,
3
-
7
2
7
,
6
1
1
-
1
1
1
,
3
4
1
8
8
0
,
1
-
-
-
-
-
-
-
)
8
0
4
,
2
6
4
(
)
8
0
4
,
2
6
4
(
7
5
0
,
2
8
2
-
2
7
3
,
3
9
5
2
7
3
,
3
9
5
l
a
t
o
T
t
i
c
i
f
e
D
l
s
u
p
r
u
s
s
n
o
i
t
p
o
s
t
n
a
r
r
a
W
s
e
r
a
h
s
l
a
t
o
T
d
e
t
u
b
i
r
t
n
o
C
k
c
o
t
S
n
o
m
m
o
C
k
c
o
t
S
s
n
o
i
t
p
o
s
t
n
a
r
r
a
W
s
e
r
a
h
s
n
o
m
m
o
C
$
$
$
$
$
$
)
r
e
b
m
u
n
(
)
r
e
b
m
u
n
(
)
r
e
b
m
u
n
(
)
r
e
b
m
u
n
(
0
1
0
2
3
1
6
,
1
4
5
,
5
)
6
0
7
,
8
2
7
,
8
(
7
4
0
,
5
9
5
6
3
9
,
3
8
7
7
7
0
,
6
5
8
9
5
2
,
5
3
0
,
2
1
3
5
8
,
5
7
0
,
9
4
0
0
0
,
8
8
7
,
2
9
0
5
,
9
8
8
,
2
4
4
3
,
8
9
3
,
3
4
9
0
0
2
,
1
3
t
s
u
g
u
A
t
a
s
a
e
c
n
a
a
B
l
y
t
i
u
q
e
’
s
r
e
d
l
o
h
e
r
a
h
s
f
o
s
t
n
e
m
e
t
a
t
s
d
e
t
a
d
i
l
o
s
n
o
C
0
1
0
2
,
1
3
t
s
u
g
u
A
d
e
d
n
e
r
a
e
Y
.
c
n
I
s
n
e
s
p
O
28
-
-
-
3
5
5
,
3
3
7
-
-
-
-
0
0
0
,
6
8
6
5
7
3
,
8
5
9
,
2
0
5
2
,
1
3
4
,
6
7
2
7
,
6
1
1
-
9
9
2
,
9
9
2
)
9
6
4
,
3
6
(
0
8
5
,
6
0
2
-
)
3
5
5
,
3
3
7
(
-
)
3
5
4
,
6
0
5
,
2
(
-
-
-
-
0
5
7
,
3
4
1
,
2
0
0
5
,
7
8
2
,
4
t
n
e
m
e
c
a
p
l
e
t
a
v
i
r
P
–
e
c
n
a
u
s
s
i
t
n
a
r
r
a
w
d
n
a
e
r
a
h
S
9
9
2
,
9
9
2
-
e
t
a
v
i
r
P
–
s
e
s
n
e
p
x
e
e
c
n
a
u
s
s
I
–
s
r
e
k
o
r
b
o
t
e
c
n
a
u
s
s
i
t
n
a
r
r
a
W
s
t
n
a
r
r
a
W
–
e
c
n
a
u
s
s
i
e
r
a
h
S
t
n
e
m
e
c
a
p
l
)
9
8
8
,
8
7
1
(
9
8
8
,
8
7
1
d
e
s
i
c
r
e
x
e
)
3
5
4
,
6
0
5
,
2
(
-
d
e
l
l
e
c
n
a
c
s
t
n
a
r
r
a
W
5
3
9
,
9
5
8
,
9
)
2
4
7
,
7
9
5
,
8
(
0
0
6
,
8
2
3
,
1
7
7
6
,
5
6
0
,
1
2
8
7
,
1
6
8
8
1
6
,
1
0
2
,
5
1
9
9
6
,
3
5
6
,
4
5
0
0
5
,
0
4
1
,
4
6
1
2
,
7
4
6
,
2
3
8
9
,
5
6
8
,
7
4
3
e
g
a
P
.
s
t
n
e
m
e
t
a
t
s
l
a
i
c
n
a
n
i
f
d
e
t
a
d
i
l
o
s
n
o
c
e
h
t
f
o
t
r
a
p
l
a
r
g
e
t
n
i
n
a
e
r
a
s
e
t
o
n
i
g
n
y
n
a
p
m
o
c
c
a
e
h
T
-
-
-
-
-
-
)
6
1
3
(
-
-
-
7
5
0
,
2
8
2
-
-
-
-
-
-
-
4
0
4
,
1
-
)
0
5
2
,
1
(
-
-
-
-
-
)
0
0
0
,
6
(
)
0
0
0
,
6
(
0
5
7
,
9
5
3
,
1
0
5
7
,
9
5
3
,
1
-
-
-
-
-
-
-
-
-
-
-
-
0
5
2
,
1
-
-
-
-
-
y
t
i
u
q
e
n
o
s
e
s
n
e
p
x
e
e
c
n
a
u
s
s
I
s
t
n
e
n
o
p
m
o
c
n
o
i
t
a
s
n
e
p
m
o
c
d
e
s
a
b
-
k
c
o
t
S
k
c
o
t
S
–
e
c
n
a
u
s
s
i
e
r
a
h
S
d
e
s
i
c
r
e
x
e
s
n
o
i
t
p
o
d
e
l
l
e
c
n
a
c
s
n
o
i
t
p
O
d
e
t
n
a
r
g
s
n
o
i
t
p
O
0
1
0
2
,
1
3
t
s
u
g
u
A
t
a
s
a
e
c
n
a
a
B
l
i
s
g
n
n
r
a
e
t
e
N
l
a
t
o
T
t
i
c
i
f
e
D
l
s
u
p
r
u
s
s
t
n
a
r
r
a
W
s
n
o
i
t
p
o
s
e
r
a
h
s
l
a
t
o
T
d
e
t
u
b
i
r
t
n
o
C
k
c
o
t
S
n
o
m
m
o
C
k
c
o
t
S
s
n
o
i
t
p
o
s
t
n
a
r
r
a
W
s
e
r
a
h
s
n
o
m
m
o
C
$
$
$
$
$
$
)
r
e
b
m
u
n
(
)
r
e
b
m
u
n
(
)
r
e
b
m
u
n
(
)
r
e
b
m
u
n
(
9
0
0
2
y
t
i
u
q
e
’
s
r
e
d
l
o
h
e
r
a
h
s
f
o
s
t
n
e
m
e
t
a
t
s
d
e
t
a
d
i
l
o
s
n
o
C
9
0
0
2
,
1
3
t
s
u
g
u
A
d
e
d
n
e
r
a
e
Y
.
c
n
I
s
n
e
s
p
O
3
1
6
,
1
4
5
,
5
)
6
0
7
,
8
2
7
,
8
(
7
4
0
,
5
9
5
7
7
0
,
6
5
8
6
3
9
,
3
8
7
9
5
2
,
5
3
0
,
2
1
3
5
8
,
5
7
0
,
9
4
0
0
0
,
8
8
7
,
2
9
0
5
,
9
8
8
,
2
4
4
3
,
8
9
3
,
3
4
0
0
0
,
0
2
5
5
0
,
9
0
8
,
1
-
-
0
7
3
,
9
2
8
,
5
)
6
8
4
,
2
8
3
,
6
(
)
8
8
5
,
5
7
1
(
)
8
8
5
,
5
7
1
(
-
-
-
8
0
4
,
9
2
2
-
-
-
-
)
2
3
6
,
0
7
1
,
2
(
)
2
3
6
,
0
7
1
,
2
(
-
-
-
-
5
5
0
,
9
5
)
0
0
0
,
8
(
-
7
4
0
,
5
9
5
)
7
4
0
,
5
9
5
(
-
-
-
-
-
-
-
-
-
-
-
-
-
-
8
0
4
,
9
2
2
-
0
0
0
,
8
2
-
-
-
-
-
-
0
0
5
,
5
0
7
0
0
5
,
5
0
7
)
0
0
0
,
0
6
1
(
)
0
0
0
,
0
6
1
(
-
-
-
-
-
-
-
-
)
1
1
1
,
9
6
3
,
5
(
-
)
1
1
1
,
9
6
3
,
5
(
-
-
-
-
-
-
-
-
-
-
-
-
)
0
0
0
,
0
5
(
0
0
0
,
0
5
9
6
0
,
0
0
4
,
1
8
2
5
,
4
5
5
9
5
2
,
7
5
2
,
0
1
0
3
6
,
8
7
7
,
0
5
0
0
5
,
2
4
2
,
2
3
5
4
,
4
0
1
,
8
7
7
6
,
1
3
4
,
0
4
8
0
0
2
,
1
3
t
s
u
g
u
A
t
a
s
a
e
c
n
a
a
B
l
0
0
0
,
0
5
7
,
1
4
3
8
,
0
2
1
,
3
7
6
1
,
4
0
2
7
6
6
,
6
1
9
,
2
t
n
e
m
e
c
a
p
l
e
t
a
v
i
r
P
–
t
n
a
r
r
a
w
d
n
a
e
c
n
a
u
s
s
i
e
r
a
h
S
s
t
n
a
r
r
a
W
–
e
c
n
a
u
s
s
i
e
r
a
h
S
d
e
s
i
c
r
e
x
e
y
t
i
u
q
e
n
o
s
e
s
n
e
p
x
e
e
c
n
a
u
s
s
I
d
e
r
i
p
x
e
s
t
n
a
r
r
a
W
)
c
5
1
e
t
o
N
(
d
e
t
n
a
r
g
s
n
o
i
t
p
O
d
e
l
l
e
c
n
a
c
s
n
o
i
t
p
O
s
t
n
e
n
o
p
m
o
c
n
o
i
t
a
s
n
e
p
m
o
c
d
e
s
a
b
-
k
c
o
t
S
9
0
0
2
,
1
3
t
s
u
g
u
A
t
a
s
a
e
c
n
a
a
B
l
s
s
o
l
t
e
N
4
e
g
a
P
29
.
s
t
n
e
m
e
t
a
t
s
l
a
i
c
n
a
n
i
f
d
e
t
a
d
i
l
o
s
n
o
c
e
h
t
f
o
t
r
a
p
l
a
r
g
e
t
n
i
n
a
e
r
a
s
e
t
o
n
i
g
n
y
n
a
p
m
o
c
c
a
e
h
T
Opsens Inc.
Consolidated balance sheets
August 31, 2010 and 2009
Assets
Current
Cash and cash equivalents (Note 17)
Accounts receivable (Note 7)
Income tax credits receivable (Note 22)
Work in progress
Inventories (Note 8)
Prepaid expenses
Balance of purchase price to be received – short term
Balance of purchase price to be received – long term (Note 11)
Property, plant and equipment (Note 9)
Intangible assets (Note 10)
Goodwill
Liabilities
Current
Accounts payable and accrued liabilities (Note 13)
Current portion of long-term debt (Note 14)
Long-term debt (Note 14)
Shareholders’ equity
Share capital (Note 15a)
Stock options (Note 15b)
Warrants (Note 15c)
Contributed surplus
Deficit
2010
$
2009
$
5,347,801
2,055,923
152,080
40,000
1,428,439
144,338
428,024
9,596,605
398,013
670,059
175,176
676,574
2,887,085
573,310
214,624
-
1,125,260
80,198
-
4,880,477
-
723,424
169,799
676,574
11,516,427
6,450,274
1,402,249
125,001
1,527,250
129,242
1,656,492
518,782
133,440
652,222
256,439
908,661
15,201,618
1,065,677
861,782
1,328,600
(8,597,742)
9,859,935
11,516,427
12,035,259
783,936
856,077
595,047
(8,728,706)
5,541,613
6,450,274
The accompanying notes are an integral part of the consolidated financial statements.
References:
Commitments (Note 18)
Contractual guarantees (Note 19)
Approved by the board
Signed [Gordon Zive]
director
Signed [Pierre Carrier]
director
30
Page 5
Opsens Inc.
Consolidated statements of cash flows
Years ended August 31, 2010 and 2009
Operating activities
Net earnings (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
Gain on disposal
Implicit interest on balance of purchase price to be received
Changes in non-cash operating
working capital items (Note 17)
Investing activities
Acquisition of property, plant and equipment
Acquisition of intangible assets
Assets disposal
Financing activities
Increase in long-term debt
Reimbursement of long-term debt
Issuance of equity components
Issuance of equity component expenses
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning
Cash and cash equivalents at end
2010
$
2009
$
593,372
(2,170,632)
178,754
31,866
164,460
21,387
-
-
24,353
8,520
282,057
229,408
(2,375,107)
(5,821)
(1,579,750)
(302,637)
(2,874,629)
(2,025,141)
(125,389)
(333,704)
(37,243)
(31,418)
2,190,720
-
2,028,088
(365,122)
19,260
84,295
(154,896)
(202,934)
3,788,574
1,770,000
(345,681)
(116,533)
3,307,257
1,534,828
2,460,716
(855,435)
2,887,085
3,742,520
5,347,801
2,887,085
The accompanying notes are an integral part of the consolidated financial statements.
Additional information on consolidated statements of cash flows is presented in Note 17.
Page 6
31
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2010 and 2009
1. Description of business
The Company 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, 2010
On September 1, 2009, the Company adopted the new accounting standards issued by the Canadian
Institute of Chartered Accountants (“CICA”):
Section 3064, “Goodwill and intangible assets,” replacing Section 3062, “Goodwill and other
intangible assets” and Section 3450, “Research and development costs.” 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 adoption
of this new Section did not have a material impact on its consolidated financial statements.
Changes applied for the exercise ended August 31, 2009
On September 1, 2008, the Company adopted the new accounting standards issued by the 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,” establishes 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.
32
Page 7
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2010 and 2009
2. Changes in accounting policies (continued)
Changes applied for the exercise ended August 31, 2009 (continued)
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.
Future accounting changes
a) 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.
b) 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 (“AcSB”) 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 January 1, 2011. On February 13,
2008, the AcSB confirmed 2011 as the official changeover date from current Canadian generally
accepted accounting principles (“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 commercial
activities, its financial information systems and its consolidated financial statements.
Page 8
33
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2010 and 2009
3. Accounting policies
The financial statements have been prepared in accordance with Canadian 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
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
Intangible assets with indefinite lives
20%
20%
30%
20%
30%
30%
Lease term
Term of underlying
patent, 5 to 20 years
30%
Intangible assets with indefinite lives are recorded at cost and are tested for impairment annually or
more frequently if events or changes in circumstances indicate a potential impairment in value. The
excess of the carrying value over the fair value is recorded in loss.
34
Page 9
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2010 and 2009
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.
Earnings (loss) per share
Earnings (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 earnings (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.
Page 10
35
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2010 and 2009
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 worked but not yet invoiced and the payments received. Losses are recorded as soon
as they become apparent.
36
Page 11
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2010 and 2009
3. Accounting policies (continued)
Financial instruments
Cash and cash equivalents 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.
Accounts receivable and income tax credits receivable are classified as loans and receivables. They are
recorded at cost, which at initial recognition corresponds to fair value. Subsequent revaluations of
accounts receivable are recorded at amortized cost, which generally corresponds to the initially
recognized amount less any allowance for doubtful accounts.
The Company has chosen to classify its financial liabilities (accounts payable, accrued liabilities, and
long term debt) as other liabilities. Financial liabilities are initially measured at cost, and subsequent
revaluations are recorded at amortized cost using the effective interest rate method.
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 GAAP 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 credits 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.
Page 12
37
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2010 and 2009
4. Financial instruments (continued)
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, 2010, the
Company was holding more than 81.4% (85.4% as August 31, 2009) of its cash equivalents in all
time redeemable term-deposit.
Financial charges (income)
Interest and bank charges
Interest on long-term debt
Gain on foreign currency translation
Interest income
Credit risk
2010
$
20,033
23,457
(14,200)
(70,129)
(40,839)
2009
$
25,599
42,684
(20,524)
(82,446)
(34,687)
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, 2010, the
Company was holding more than 81.4% (85.4% as at August 31, 2009) of its cash equivalents
portfolio in all time redeemable term-deposit with the same financial institution.
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.
One major customer represents 66.13% of the Company’s accounts receivable as at August 31, 2010
(50.73% as at August 31, 2009).
As at August 31, 2010, 23.79% (23.66% as at August 31, 2009) of the accounts receivable were of
more than 90 days whereas 61.48% (33.49% as at August 31, 2009) 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, 2010, the bad debt provision was established at $6,110 ($14,678 on August 31, 2009).
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.
38
Page 13
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2010 and 2009
4. Financial instruments (continued)
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, 2010 had been the
same throughout the period, a hypothetical 1% interest rate increase would have had an unfavourable
impact of $1,029 on the net profit for the year ended August 31, 2010 and $1,975 on the net loss for
the year ended August 31, 2009. The net profit (loss in 2009) 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 and 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, 2010 and 2009, if the Canadian dollar had strengthened 10% against
the US dollar with all other variables held constant, after-tax net income would have been $142,000
lower (net loss would have been $138,000 higher in 2009). Conversely, if the Canadian dollar had
weakened 10% against the US dollar with all other variables held constant, after-tax net income would
have been $142,000 higher (net loss would have been $138,000 lower in 2009) for the same periods.
As at August 31, 2010, the risk to which the Company was exposed is established as follows:
Cash (US$467,612)
Accounts receivable (US$468,010)
Balance of purchase price to be received (US$786,250)
Accounts payable and accrued liabilities (US$87,587)
Total
Fair value
2010
$
509,164
501,350
826,037
(93,826)
2009
$
78,752
471,847
-
(30,545)
1,742,725
520,054
The fair value of cash and cash equivalents, accounts receivable, income tax credits receivable,
balance of purchase price receivable and accounts payable and accrued liabilities approximates 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.
Page 14
39
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2010 and 2009
4. Financial instruments (continued)
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.
The following are the contractual maturities of the financial liabilities, principal and interest (assuming
current interest rates), as at August 31, 2010:
0 to 12
1 year to
2 years to
More than
Total
months
2 years
5 years
5 years
$
$
$
$
$
Accounts payable and
accrued liabilities
Long-term debt
1,402,249
1,402,249
263,252
136,620
Obligation under capital lease
54,933
22,838
-
80,035
15,345
-
46,597
16,750
Commitments
Total
649,604
276,091
157,886
215,627
2,370,038
1,837,798
253,266
278,974
-
-
-
-
-
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 GAAP. 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 earnings (loss)
Financial income
Amortization of property, plant and
equipment
Amortization of intangible assets
Stock option-based compensation
EBITDAO
40
2010
$
2009
$
593,372
(2,170,632)
(40,839)
(34,687)
178,754
31,866
282,057
164,460
21,387
229,408
1,045,210
(1,790,064)
Page 15
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2010 and 2009
5. Capital management (continued)
The Company targets to improve these ratios which positively vary for the year ended August 31,
2010 compare to the same period in 2009. 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 which is described at Note 12.
6. Gain on disposal
On August 16, 2010, Opsens reached agreement to license through an Intellectual Property and
Assignment Agreement (“The Agreement”) its technology in the high-power transformers business to
a subsidiary of LumaSense Technologies Inc., of Santa Clara, California (United States).
The Agreement gives LumaSense exclusive rights to use Opsens’ technology in the transformer
business. LumaSense will have also have access to Opsens’ existing distribution channels for its
transformer business. LumaSense has paid Opsens US$2.1 million in cash upon closing and will pay a
further US$500,000 in one year and US$500,000 two years after closing.
The Agreement was recorded as a disposal. Gain on disposal calculation had been calculated as
following:
Proceeds
Cash received at closing
Balance of purchase price to be received as of
August 16, 2011 (nominal value of US$500,000)
Balance of purchase price to be received as of
August 16, 2012 (nominal value of US$500,000)
Disposal fees
Inventory and purchases credit
Other expenses and accrued expenses
Deferred revenues – manufacturing agreement*
Gain on disposal
Amount
$
2,190,720
443,360
376,856
3,010,936
150,000
265,829
220,000
635,829
2,375,107
* Opsens engaged in a manufacturing agreement with terms and conditions that are beneficial
to LumaSense.
Page 16
41
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2010 and 2009
7. Accounts receivable
Trade
Allowance for doubtful accounts
Taxes receivable
Contributions receivable
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,
2010
$
2009
$
1,938,099
(6,110)
28,901
95,033
511,678
(14,678)
50,415
25,895
2,055,923
573,310
2010
$
2009
$
669,149
759,290
636,084
489,176
1,428,439
1,125,260
2010
Accumulated
Net book
Cost
amortization
value
$
$
$
85,114
8,326
173,383
59,028
41,971
6,365
43,143
1,961
51,864
121,519
25,382
33,646
net of income tax credits of $23,834
761,751
399,671
362,080
Research and development computer equipment,
net of income tax credits of $3,078
Computer equipment
Leased computer equipment
Leasehold improvements
27,122
138,836
29,009
39,908
21,176
70,213
14,796
20,980
5,946
68,623
14,213
18,928
1,322,477
652,418
670,059
42
Page 17
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2010 and 2009
9. Property, plant and equipment (continued)
Cost
$
74,483
8,326
113,514
59,028
Accumulated
amortization
$
32,283
5,875
37,366
10,963
2009
Net book
value
$
42,200
2,451
76,148
48,065
Office furniture and equipment
Leased office furniture and equipment
Production equipment
Leased automative equipment
Research and development equipment,
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
10. Intangible assets
Indefinite lives
Trademarks
Limited lives
Patents
Softwares, net of income tax credits of $1,518
Indefinite lives
Trademarks
Limited lives
Patents
Softwares, net of income tax credits of $1,518
Cost
$
Accumulated
amortization
$
2010
Net book
value
$
200
-
200
223,485
46,751
270,436
60,921
34,339
95,260
Cost
$
Accumulated
amortization
$
162,564
12,412
175,176
2009
Net book
value
$
200
-
200
203,454
41,578
245,232
46,414
29,019
75,433
157,040
12,559
169,799
Page 18
43
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2010 and 2009
11. Balance of purchase price to be received
Balance of purchase price to be received of US$1,000,000 payable in
two amounts of US$500,000 at the end of each next two years
following agreement signature, actualized at an implicit annual rate
of 15%
Imputed interests (at 15% rate)
Balance receivable – short term
Balance receivable – long term
12. Authorized line of credit
2010
$
2009
$
820,216
5,821
826,037
428,024
398,013
-
-
-
-
-
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 respects these financial ratios as at August 31, 2010, but
the credit line was not used at the end of the period.
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%.
13. Accounts payable and accrued liabilities
Suppliers
Provision for warranty (Note 19)
Disposal fees payables (Note 6)
2010
$
2009
$
734,560
491,461
31,860
27,321
635,829
-
1,402,249
518,782
44
Page 19
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2010 and 2009
14. 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 February 2012 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 2012,
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
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 December 2011, 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
2010
$
2009
$
139,129
198,696
(23,448)
(42,707)
115,681
155,989
59,910
104,190
31,749
55,561
4,513
19,211
1,043
2,054
212,896
337,005
Page 20
45
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2010 and 2009
14. Long-term debt (continued)
Amounts carried forward
212,896
337,005
2010
$
2009
$
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
Total
payments
$
Imputed
interest
$
Principal
payments
$
3,575
4,689
30,925
37,632
6,847
10,553
254,243
389,879
125,001
129,242
133,440
256,439
Debt and
principal portion
Other
debts
of capital
lease
$
$
2011
2012
2013
2014
22,838
15,345
10,047
6,703
3,678
2,209
1,099
236
19,160
13,136
8,948
6,467
105,841
62,314
38,557
-
125,001
75,450
47,505
6,467
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).
46
Page 21
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2010 and 2009
15. Share capital, stock options
and warrants
a) Share capital
Authorized, unlimited number
Common shares, voting and participating without par value
Year ended August 31, 2010
Outstanding shares and the changes occurred during the year are as follows:
Issued and fully paid
Number
Amount
$
Balance at beginning of year
43,398,344
12,035,259
Share issuance – Warrants exercised (Note 15a)i)
178,889
206,580
Share issuance – Stock options exercised (Note 15a)ii)
1,250
1,404
Share issuance – Private placement (Note 15a)iii)
4,287,500
2,958,375
Balance as at August 31, 2010
47,865,983
15,201,618
i) Warrants exercised
During the year ended August 31, 2010, 178,889 warrants entitling their holders to acquire
one common share of the Company at a price of $0.80 per share were exercised for a total
amount of $143,111. The book value of the exercised warrants was transferred to share capital
for an amount of $63,469.
ii) Stock options exercised
During the year ended August 31, 2010, 1,250 stock options entitling their holders to acquire
one common share of the Company at a price of $0.87 per share were exercised for a total
amount of $1,088. The book value of the exercised warrants was transferred to share capital
for an amount of $316.
iii) Private placement
On February 12, 2010, the Company realized a private placement of 4,287,500 units at a price
of $0.85 per unit for gross proceeds of $3,644,375. 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 $1.15 for a period of
24 months following the closing of the offering. Opsens paid to the agents a cash commission
equal to $254,404 and issue broker compensation warrants entitling the agents to purchase
299,299 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.
Page 22
47
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2010 and 2009
15. Share capital, stock options
and warrants (continued)
a) Share capital (continued)
Year ended August 31, 2009
Outstanding shares and the changes occurred during the year are as follows:
Issued and fully paid
Balance at beginning of year
Share issuance – warrants exercised
(Note 15a)iv))
Share issuance – Private placement
(Note 15a)v))
Balance as at August 31, 2009
iv) Warrants exercised
Number
Amount
$
40,431,677
10,257,259
50,000
28,000
2,916,667
43,398,344
1,750,000
12,035,259
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.
v) 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, at the closing of the offering, non-transferable 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.
b) Stock options
The Company changed the stock option plan on January 19, 2010. 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 1,000,000 outstanding options granted
which are completely vested at grant.
The compensation expense in regards to the stock option plan for the year ended August 31, 2010
is $282,057 ($229,408 for the year ended August 31, 2009).
48
Page 23
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2010 and 2009
15. 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 1.79% and 2.29%
Between 82% and 88%
-%
5 years
Fair value per option at the grant date
Between $0.24 and $0.79
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, 2010 and 2009 are as follows:
2010
2009
Weighted
average
Number of
exercise
Number of
options
price
options
Outstanding at beginning of year
2,788,000
Options granted
Options cancelled
Options exercised
1,359,750
(6,000)
(1,250 )
Outstanding at end of the year
4,140,500
$
0.61
0.40
0.68
0.87
0.54
2,242,500
705,500
(160,000)
-
2,788,000
Weighted
average
exercise
price
$
0.65
0.40
0.52
-
0.61
Options exercisable at end of the year 2,047,063
0.59
1,228,125
0.61
Page 24
49
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2010 and 2009
15. 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, 2010:
Exercise price
Number of outstanding
stock options
Number of exercisable
stock options
Weighted average
residual duration
(years)
$
0.36
0.37
0.38
0.40
0.42
0.45
0.50
0.60
0.64
0.72
0.80
0.87
0.95
1.15
219,750
303,250
1,100,000
90,000
50,000
50,000
1,060,000
70,000
50,000
500,000
150,000
257,500
200,000
40,000
80,000
75,813
300,000
22,500
12,500
37,500
790,000
22,500
12,500
250,000
125,000
128,750
150,000
40,000
c) Warrants
4,140,500
2,047,063
4.85
3.64
5.00
3.27
3.39
1.26
1.11
3.59
3.79
2.28
1.91
2.64
1.62
4.21
2.70
The fair value of the warrants was determined using the Black-Scholes option pricing model with
the following assumptions:
Units issued
Broker compensation
warrant
Exercisable price
Risk-free interest rates
Expected volatility
Expected dividend yield on shares
Duration
Fair value by warrant
$1.15
1.14%
86%
-%
2 years
$0.32
$0.85
1.14%
86%
-%
2 years
$0.39
50
Page 25
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2010 and 2009
15. 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, 2010 and 2009 are as follows:
2010
2009
Weighted
average
exercise
price
Number of
warrants
$
Number of
warrants
Outstanding at beginning of year
Warrants issued, private placement
(Note 15 a)iii))
Warrants cancelled
Warrants exercised during the year
(Note 15 a)i))
Outstanding at end of year
2,889,509
1.03
8,104,453
2,443,049
(2,506,453)
(178,889)
2,647,216
1.11
1.08
0.80
1.07
204,167
(5,369,111)
(50,000)
2,889,509
Weighted
average
exercise
price
$
0.74
0.60
0.56
0.40
1.03
Warrants exercisable at end of year
2,647,216
1.07
2,889,509
1.03
The table below provides information on the outstanding warrants as at August 31, 2010:
Exercise price
Number of outstanding
warrants
Number of exercisable
warrants
Weighted average residual
duration
(years)
$
0.60
0.85
1.15
204,167
299,299
2,143,750
2,647,216
204,167
299,299
2,143,750
2,647,216
0.82
1.45
1.45
1.40
i) Warrants expired
During the year ended August 31, 2010, 150,890 and 2,355,563 warrants entitling its holder to
acquire one common share of the Company at a price of $0.80 and $1.10 per share
respectively expired.
Page 26
51
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2010 and 2009
16. Earnings (loss) per share
The table below presents a reconciliation between the basic net profit and the diluted net profit per
share:
2010
$
2009
$
Numerator
Net earnings (loss)
593,372
(2,170,632)
Amount available for calculating
the earnings (loss) per share
593,372
(2,170,632)
Denominator
Number of shares
Weighted average number of shares outstanding
47,865,983
41,010,627
Dilutive effect of stock options and warrants
2,924
-
Weighted average number of shares
outstanding on diluted basis
Amount per share
Net earnings (loss) per share
Basic
Diluted
47,868,907
41,010,627
0.01
0.01
(0.05)
(0.05)
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 for the first
three quarters, some options and warrants, at an exercise price of $0.37, $0.40, $0.42, $0.45, $0.50,
$0.60, $0.64, $0.72, $0.80, $0.85 and $0.87 would have been dilutive and would have resulted in the
addition of 602,246 shares to the weighted average number of shares outstanding used in the diluted
earnings per share calculation for year ended August 31, 2010 (106,072 in 2009).
52
Page 27
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2010 and 2009
17. Additional information on
the statements of cash flows
Changes in non-cash operating working capital items
Accounts receivable
Income tax credits receivable
Inventories
Work in progress
Prepaid expenses
Accounts payable and accrued liabilities
Cash and cash equivalents
Cash
Short-term investments
Other information
Interests paid
Non-cash transactions
2010
$
2009
$
(1,482,613)
170,641
62,544
(30,674)
(303,179)
(671,989)
(40,000)
237,551
(64,140)
20,256
247,638
(28,422)
(1,579,750)
(302,637)
997,072
422,168
4,350,729
2,464,917
5,347,801
2,887,085
26,008
49,456
On February 12, 2010, Opsens issued broker compensation warrants entitling the agents to purchase
299,299 common shares of Opsens at an exercise price of $0.85 per share for a book value of
$116,727.
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.
There is also a licence disposal balance of purchase price to be received of $820,216 and disposal fees
payables of $635,828 which they have no impact on cash flows (Note 6).
Page 28
53
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2010 and 2009
18. Commitments
Lease
The Company leases offices in Québec 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 $404,954.
Opsens Solutions Inc. rents four vehicles under an operating lease expiring in November 2010,
October 2013 and May 2014. Future rent payments will amount to $97,550.
Future payments for the leases and other commitments, totalizing $649,604, required in each of the
next five years are as follows:
2011
2012
2013
2014
2015
Licence
$
276,091
157,886
149,386
66,241
-
Under an exclusive licence with a third party, the Company is committed to provide exclusive
distribution of some of its products for a defined territory.
19. 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, 2010, the Company recognized an expense of $4,539 ($7,321 for the year ended
August 31, 2009) for guarantees. A provision for $31,860 ($27,321 as at August 31, 2009) 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.
20. Government assistance
Industrial Research Assistance Programme (“IRAP”)
Under an agreement reached with the National Research Council with respect to the 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, 2010, the Company recorded contributions totalling $345,698 ($22,116 for the year
ended August 31, 2009) which were accounted against research and development fees.
54
Page 29
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2010 and 2009
20. Government assistance (continued)
During the year ended August 31, 2010, the Company received a cash contribution for training of
$3,000 from Emploi Québec. This amount was recorded against research and development expenses.
Under agreements reached with the 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 market research, hiring of an employee 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 for training of
$4,856 from Emploi Québec. This amount was recorded against research and development expenses.
21. 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 payable using the combined federal and provincial
statutory tax rate
Non-deductible expenses
Asset disposal
Deductible financing fees
Non-taxable income tax credits
Losses used
Income tax using effective income tax rate
2010
$
2009
$
194,134
268,255
(313,494)
(86,894)
(69,018)
7,017
-
(657,312)
478,946
-
(102,007)
(77,450)
357,823
-
As at August 31, 2010, the Company has tax losses of approximately $4,441,400 for federal purposes
and $4,418,400 for provincial purposes that can be used to reduce future taxable income. These
losses expire as follows:
2023
2024
2025
2027
2028
2029
2030
Federal
Provincial
$
$
483,000
42,000
400
1,524,000
691,000
1,201,000
500,000
463,000
40,000
400
1,509,000
692,000
1,214,000
500,000
4,441,400
4,418,400
Page 30
55
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2010 and 2009
21. Income taxes (continued)
The Company also has undeducted research and development expenses in the amount of
$2,925,000 for federal purposes and $4,125,000 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.
22. Income tax credits for scientific research
and experimental development
For tax purposes, research and development expenses are detailed as follows:
Federal
Provincial
2010
$
2009
$
1,065,717
1,069,462
946,387
933,061
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
2010
$
-
152,080
152,080
2009
$
-
214,624
214,624
152,080
214,624
-
-
Reimbursable scientific research income tax credits earned
152,080
214,624
Reimbursable scientific research income tax credits earned for the year ended August 31, 2010 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 income tax credits for scientific research and
experimental development, which were non-refundable and could be used against Part I Company tax.
The accumulated credits for the year ended on August 31, 2010 are about $867,000 and expire on a
period of 10 to 20 years beginning in 2014.
56
Page 31
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2010 and 2009
23. Segmented information
Sector’s information
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.
2010
Opsens
2009
Opsens
Opsens inc.
Solutions
Total Opsens inc.
Solutions
Total
$
$
$
$
$
$
External sales
Internal sales
Amortization of property,
2,892,819 2,387,897
5,280,716 2,721,088
366,728
3,087,816
450,211
-
450,211
81,481
-
81,481
plant and equipment
151,961
26,793
178,754
147,940
16,520
164,460
Amortization of
intangible assets
Financial expenses
Net loss before gain on
disposal
30,146
(45,923)
1,720
5,084
31,866
21,387
-
21,387
(40,839)
(92,939)
58,252
(34,687)
(1,317,306)
(464,429) (1,781,735) (1,212,563)
(958,069) (2,170,632)
Gain on disposal
2,375,107
-
2,375,107
-
-
-
Net earnings (loss)
1,057,801
(464,429)
593,372 (1,212,563)
(958,069) (2,170,632)
Acquisition of property,
plant and equipment
65,023
60,366
125,389
256,792
76,912
333,704
Acquisition of
intangible assets
29,159
8,084
37,243
31,418
-
31,418
Segment assets
8,612,521 2,903,906 11,516,427 5,182,350 1,267,924
6,450,274
Page 32
57
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2010 and 2009
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
2010
$
2009
$
2,601,958
906,916
298,152
181,953
464,061
754,214
363,586
146,767
1,291,737
1,359,188
5,280,716
3,087,816
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, 2010, revenues from two clients represent individually 28.57%
(Opsens Solutions Inc.’ reportable segment) and 11.34% (Opsens Solutions Inc.’ reportable segment).
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.’ reportable segment).
24. Additional information to the statements of earnings (loss) and
comprehensive earnings (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
2010
$
2009
$
(345,698)
(76,391)
(222,010)
(250,648)
20,033
23,457
(14,200)
(70,129)
25,599
42,684
(20,524)
(82,446)
25. Comparative figures
Certain comparative figures have been reclassified in order to conform to the presentation adopted for
the current year.
58
Page 33
Governance
direCtors
Pierre Carrier
Chairman, Chief executive officer
Claude Belleville
vice president, Medical Devices & Laboratories
Gaétan Duplain
vice president oil and Gas
Steven G. Arless
Director
Colin H. G. Cook
Director
Denis M. Sirois
Director
Gordon P. Zive
Director
offiCers
Pierre Carrier
president, Chief executive officer
Claude Belleville
vice president, Medical Devices & Laboratories
Gaétan Duplain
vice president oil and Gas
louis laflamme, CA
Chief Financial officer, Corporate secretary
60
Corporate Information
Head offiCe
2014 Cyrille-Duquet st., suite 125
Quebec City QC G1N 4N6
phone: 1 418 682-9996
1 418 682-9939
Fax:
opsens solutions
10456 176th st., suite 201
edmonton aB T5s 1L3
phone: 1 780 930-1777
1 780 930-2077
Fax:
Website: www.opsens.com
investor relations:
For information about opsens Inc. or to be placed on
the mailing list for quarterly reports and news releases,
contact Marie-Claude Poitras at the head office or
marie-claude.poitras@opsens.com.
auditors
Samson Bélair Deloitte & Touche
Quebec QC
stoCk exCHange listing
Toronto venture exchange
symbol: ops
shares outstanding: 47,865,983 (as at august 31, 2010)
transfer agent & registrar
CIBC Mellon
2001, university street, suite 1600
Montreal QC H3a 2a6
phone: 1 514 285-3600
annual meeting of sHareHolders
Friday, January 21, 2011
10:30 a.m.
Hotel W, room studio 2,
901 square victoria, Montreal, QC
leader in pressure MeASureMeNT
opsens offers integrated services for the management of
oIL aND Gas
reservoirs and in situ environments for the oil and gas market. Its near-term
opsens is aiming for a leading position
MeDICaL INsTruMeNTaTIoN
in optical pressure measurement where recognition of the added value
focus is the Western Canadian oil sands market, where a growing demand
of fiber optic technologies is on the right track. Infinitely small, fiber optic
to measure pressure and temperature is identified. there is a large
can be integrated to small size tools. Immune to electrical and magnetic
number of active in situ oil sands projects in Alberta, and most of the major
interferences found in hospitals, its reliability is marginally affected by heat
oil and gas companies are involved.
or humidity.
Steam assisted gravity drainage (SAGD) is the most common process
for developing in situ reserves. In SAGD, recovery rates are typically
between 30 and 60%. to optimize production and recovery rates, operators
need 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.
In 2010, opsens signed an agreement with ABIoMeD to integrate our pressure
sensor to the world’s smallest heart pump.
With a group of world-class medical experts, opsens has been working
for several months on the development of its own complete medical
instrumentation product for the Fractional Flow Reserve (FFR) market.
the interest in becoming a player in the FFR market lies in the facts that
it is growing strongly, that it is supported by recognized clinical data and
that it is highly compatible with our technology.
ste am assi st ed grav it y drainage ( SAGD)
Producing
Well
Steam
injection Well
Sru
installation
S
t
e
a
m
O
i
l
H O T S T e A M C H A M B e r
( ~ 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 Sa nd
w w w • o
p
s
e
n
s
•
c
o m
Sensors at work
• Oil and Gas •
• Me di cal Dev ices •
Helping operators optimize production
Development of our first complete medical
and perform cap rock integrity surveillance
instrumentation device for the measurement of FFR.
in the Western Canadian oil sands.
ensuring components that control systems are unaffected by magnetic interference.
• la b ora tori es •
2014, Cyrille-Duquet St., Suite 125, Quebec City QC G1n 4n6
10456, 176th St., Suite 201, edmonton AB t5S 1l3
t• 1 418 682-9996 f• 1 418 682-9939
t• 1 780 930-1777 f• 1 780 930-2077
w w w • o
p
s
e
n
s
•
c
o m