Measure, iMprove
AnnuAl RepoRt 2011
Medical
oil and Gas
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 2011
incoMe GrowtH
$5,3 M
$6,0 M
$2,4 M
2010
$4,2 M
2011
$3,1 M
$0,4 M
2009
Oil and Gaz
Other sectors
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 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.
our vision for 2012
• expand sales in each of our strategic markets.
• progress toward commercialization of our medical instrumentation
device in 2013.
• Growth of our customer base and diversification of our applications
for the opp-W oil and gas sensor.
• Continue development of new products and applications for existing
products in current and new markets.
end of civil year 2011
• opsens granted Canadian patent for the easyWire
• opsens receives ISo 13485 certification for FFR
- Certification is key in the development and anticipated marketing
of FFR products.
• Agreement with lios to offer DtS to oil and gas market
- this agreement allows opsens to offer complete SAGD well profile
to optimize and improve management.
July 2011
• Second commercial order for opp-W: 21 wells from major Alberta oil and
gas producer
- this is the second commercial opp-W order from this client.
June 2011
• Major oil and gas producer orders for high-temperature wells
MarcH 2011
• opsens receives lawsuit on the easyWire
february 2011
• FFR: Animal study a success
- the easyWire and optoWire performed exceptionally well in animal
study. Both devices had good trackability (ability to advance the
device through the artery to reach the lesion) and provided optimal
pressure measurements.
January 2011
• new client orders opp-W and DtS for multi-zone well
• optoWire – opsens presents second FFR product
- optoWire is a guide wire instrumented with a fiber optic pressure
sensor, which is drift free and provides a high fidelity measurement
of blood pressure in coronary arteries. In addition to more reliable
measurement, the optoWire offers better mechanical performance
in terms of trackability, torquability and support over other existing
pressure guide wires.
deceMber 2010
• easyWire – opsens presents first FFR product
- the easyWire is a miniature catheter instrumented with a fiber optic
sensor that slides onto a variety of guide wires. the easyWire provides
a no-drift, highly accurate and reliable measurement of pressure
in coronary arteries and gives cardiologists the freedom to use their
favourite guide wire. With the easyWire, cardiologists can access
lesions faster and easier than with other products on the market,
simplifying the procedure.
- opsens introduces its scientific advisory board for the development
of its medical instrumentation products.
• orders for opp-W and DtS combinations
october 2010
• new client orders opp-W in Alberta
septeMber 2010
• opsens selected by ptRC to design and produce well integrity
assessment tool
• new president to lead oil and gas operations
- opsens has chosen a veteran from the oil and gas industry to lead
the team and promote our solutions to the heavy oil market.
www.opsen s.com
the animal study conducted by Dr. olivier Bertrand, a member of our
scientific advisory board supporting the development and refinement
of our FFR products, showed that the easyWire and optoWire had
performed exceptionally well during animal testing. the easyWire and
optoWire delivered good trackability (ability to advance the device
through the artery to reach all types of lesions) and provided optimal
pressure measurements. these trials have demonstrated the superiority
of opsens’ FFR products. During the past year, opsens moved closer
to its target market by getting the required certification to manufacture
medical devices. opsens obtained ISo 13485 certification, a key milestone
in the development and marketing of medical products. ISo 13485
certification is an internationally recognized reference standard that
incorporates the quality and safety constraints specific to medical
devices, such as risk control, traceability and medical device monitoring.
By obtaining ISo 13485 certification, opsens has shown its ability to
develop products that are capable of meeting regulatory requirements.
ISo 13485 certification is confirmation from an independent party of
the quality of its processes with respect to maintaining the industry’s
highest standards.
outlook 2012
opsens intends to capitalize on the massive investments in Western
Canada’s oil market by continuing to grow its oil and gas business, in
SAGD wells, Co2 stimulated oil recovery and natural gas production.
the strategy of offering a wide range of products and services in
this area is essential to the development of opsens, as it promotes
long-term revenue growth.
the opp-W and DtS combination has already demonstrated its
performance in multiple applications for SAGD environment. opsens
will continue to diversify applications for its systems. the Company
will remain alert to opportunities to enhance its product line through
research and development.
With its miniature optical sensor technology, intellectual property,
team and scientific committee, opsens has all the cards to secure the
necessary approvals to market a very high potential medical product
in fiscal 2013. opsens intends to analyze the possibility of partnerships
to secure a well-established distribution network in the interventional
cardiology market.
I thank our customers for the confidence they show in our products.
I also thank the team for its dedication and for the quality of its work
supported by our compliance with ISo 13485. As well, I thank opsens
Solutions for the sustained growth in sales of our products, expert
installation and high level of customer service in Western Canada.
I wish to mention the commitment and contribution of our present
and past directors in the development of our strategic plan. Finally,
opsens is well aware that 2011 has been challenging for our shareholders.
We have the greatest confidence in the potential of our Company and
we intend to make the necessary efforts to get that value recognized
in the financial markets.
(s) Pierre Carrier
president and Chief executive officer
letter to sHareHolders
In recent years, opsens has established the foundation needed to
deliver sustainable growth and create value for its shareholders.
opsens continued in this direction in 2011. opsens promotes its unique
optical sensor technology in markets where measurements like pressure
and temperature can provide great benefits. the Company focuses in
particular, on the oil and gas and medical instrumentation markets.
oil and Gas
For a few years, opsens has been offering its opp-W fiber optic sensor
to measure pressure and temperature at high temperature to Western
Canada’s oil and gas producers using Steam Assisted Gravity Drainage
(SAGD). Gradually, opsens’ opp-W sensor has gained ground. the
Company received a second commercial order for its sensor and
expanded its customer base.
opsens’ sales for oil and gas rose 75%, for year 2011. the demand for
our patented sensor is progressing and now, for many more applications.
In recent months, opsens has signed a long-term agreement with lios
technology to provide integrated solutions for measuring pressure and
temperature in SAGD wells. With this agreement, opsens’ opp-W system
will be combined to lios’ Distributed temperature Sensing (“DtS”) system
in SAGD wells. the synergy of this combination has the advantage of
broadening the measurement spectrum by providing a complete profile
of SAGD wells to optimize and improve management. the signing of this
agreement formalizes a partnership that contributed to the successful
installation of several high-temperature solutions in SAGD projects
in Canada. Indeed, several opp-W and DtS combinations have been
installed and have shown to be effective prior to the agreement.
For more than three years, our sensors have been successfully installed
in SAGD producing wells. performance and reliability of the opp-W are
now recognized by our customers. this is just the beginning for the
opp-W. opsens’ innovative spirit for the creation and deployment of
new applications is reflected in the diversification of our sensor’s uses,
a promising element for revenues growth related to this product and to
this segment of our business.
Medical instruMentation
FFR product development progressing at high speed
FFR is an index of the functional severity of coronary stenoses calculated
from pressure measurements taken before and after narrowing of
arteries discovered during coronary angiography. FFR measurement
is an increasingly popular method used in the treatment of cardiac
lesions. the FAMe Study, published in 2009, outlined the positive result
this cost effective procedure has on patients’ overall outcome.
Despite the virtues attributed to this type of examination, cardiologists,
who recognize the benefits of the procedure, show some frustration
towards instruments currently available to perform FFR. that is why
opsens has developed, on the basis of his miniature fiber optic sensor,
two instruments perfectly suited to the measurement of FFR.
the first one, the optoWire is a guide wire instrumented with a fiber
optic pressure sensor which is drift-free, and provides a high-fidelity
measurement of blood pressure in coronary arteries. the second one
is the easyWire, a miniature catheter instrumented with a fiber optic
sensor that slides over a variety of guide wires. the easyWire provides
a no-drift, highly accurate and reliable measurement of pressure in
coronary arteries and gives cardiologists the freedom to use their
favourite guide wire by simply slipping on the catheter tip.
www.ops ens.com
MANAGEMENT DISCUSSION & ANALYSIS
Annual report for shareholders
Fiscal year ended August 31, 2011
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, 2011, and for the three months and year ended this date, in comparison with the
corresponding periods ended August 31, 2010. They should be read and interpreted in conjunction with the audited
financial statements as well as the accompanying notes as at August 31, 2011.
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 15, 2011. 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 and ISO 13485:2003.
Opsens holds six (6) patents and has four (4) 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 consumers 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. 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 2012, Opsens expects revenue from product sales to be higher than a year earlier. The enhanced development and
increased market acceptance, will likely lead to increased revenues.
1
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands of Canadian dollars, except for
information per share)
Year Ended
August 31, 2011
$
Year Ended
August 31, 2010
$
Year Ended
August 31, 2009
$
Sales
Cost of revenues
Gross margin
Administrative expenses
Marketing expenses
R&D expenses
Financial 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
6,005
4,095
1,910
2,036
645
1,417
(89)
185
200
27
-
4,421
(2,511)
-
(2,511)
(0.05)
(0.05)
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)
(In thousands of Canadian dollars)
As at August 31,
2011
$
As at August 31,
2010
$
As at August 31,
2009
$
Current assets
Total assets
Current liabilities
Long-term debt
Shareholders' equity
6,927
8,701
1,137
30
7,534
9,597
11,516
1,527
129
9,860
4,880
6,450
652
256
5,542
No dividend was declared per share for each share class.
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.
2
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,
2011
$
Three-month
period ended
May 31,
2011
$
Three-month
period ended
February 28,
2011
$
Three-month
period ended
November 30,
2010
$
Revenues
Net loss for the period
Net loss per share - Basic
Net loss per share - Diluted
1,107
(731)
(0.02)
(0.02)
2,415
(390)
(0.01)
(0.01)
1,336
(683)
(0.01)
(0.01)
1,147
(707)
(0.01)
(0.01)
(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)
FOURTH QUARTER 2011
The Company recorded a net loss of $731,000 or 2 cents a share in the fourth quarter compared with a net profit of
$2,016,000 or 4 cents a share a year earlier. The decrease in net income, in the fourth quarter of fiscal 2011, compared
with the comparative quarter is mainly due to the gain on disposal of high-power transformers activities recorded in
2010. Seasonal fluctuations and year-end adjustments had no impact on operating revenues and net loss for the fourth
quarter 2011.
Revenue totalled $1,107,000 for the quarter ended August 31, 2011, compared with $1,695,000 a year earlier, following
a widespread decline in revenues across all sectors of the Company. In oil and gas, revenue recognition for a few orders
has been postponed following some customers’ decision to delay installations until the first quarter 2012. The decrease
in sales in the laboratory sector is attributed to the decrease in government spending for a number of applications of our
products.
Administrative expenses increased at $601,000 for the latest quarter, compared with $400,000 for the same period in
2010. During the fourth quarter of 2011, the Company recorded a bad debt expense of $100,000. In addition, wages and
payroll taxes were also higher due to the enhancement of the administrative team.
Marketing expenses for the quarter were slightly lower at $198,000 versus $218,000 a year earlier due to the sale of our
high-power transformer business, which affected employment, levels.
Research and development expenses totalled $354,000 for the quarter ended August 31, 2011, compared with $228,000
for the same period in 2010. The variation is mainly explained by the absence of IRAP grants for the development of the
OptoWire and EasyWire for the measurement of FFR.
3
Historically, the Company’s revenues and net results 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.
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, 2011, AND AUGUST 31, 2010
DISTRIBUTION, SALES, AND LONG-TERM RECURRING REVENUES
(In thousands of dollars except for
percentage data figures)
Year Ended
August 31, 2011
$
Year Ended
August 31, 2010
$
Revenues
Variation (%)
Gross margin
Variation (%)
6,005
5,281
13.7 %
1,910
2,108
- 9.4 %
The Company reported revenue of $6,005,000 for the year ended August 31, 2011, compared with $5,281,000 a year
earlier, an increase of 13.7%. The growth includes a sales increase of close to $1,800,000 in the oil & gas market. Rising
income in oil and gas is due to the superior performance of our products. On the other hand, income in the laboratory
sector declined following the reduction of government budgets for this sector. Some discussions at an advanced stage
could bring growth back in the laboratory sector.
Sales in the oil and gas sector totalled $4,206,000, compared with $2,405,000 for 2010. Management anticipates that
revenues from oil and gas will continue to grow as the OPP-W sensor becomes more mature and as we expend its
applications and market other products.
Sales in medical instrumentation were close to $430,000 in fiscal 2011 compared with $483,000 for 2010. For the year
ended August 31, 2011, a significant proportion of medical sales were made to OEM customers for pressure
measurement for preclinical use. We expect sales to increase in this market in 2012 in view of the development
programs of OEM customer and our more mature product line for pressure and temperature measurement.
4
(In thousands of Canadian dollars except
for percentage data figures)
Year ended
August 31, 2011
Opsens Inc.’s
reportable
segment
$
Year ended
August 31, 2011
Opsens Solutions
Inc.’s reportable
segment
$
Year ended
August 31, 2011
Eliminations
$
Year ended
August 31, 2011
Consolidated
financial
statements
$
Revenues
Cost of revenues
Gross margin
Gross margin rate (%)
2,431
1,769
662
27
4,193
2,945
1,248
30
(619)
(619)
-
6,005
4,095
1,910
32
(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
The gross margin rate on product sales declined in fiscal 2011 from a year earlier, mostly because of decreased
margins in the Opsens Inc. business unit. This decrease is mainly due to lower high margins sales in the laboratory
sector and lower sales in general. For its part, Opsens Solutions has generated a substantial margin increase versus
the prior year. However, the rate remains below what is expected in the medium term, given the overhead costs to
cope with the increase in expected sales in coming quarters. The Company anticipates that the rates of consolidated
gross margin for Opsens Inc. will move toward the minimum target of 40% over the next few quarters, as revenue
grows.
As at August 31, 2011, the backlog amounted to $1,755,000 ($1,436,000 at August 31, 2010).
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, 2011, the
average exchange rate was lower than the previous year, which affected negatively sales by $96,000.
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, 2011 and 2010, 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 2011, the Company focused on continuous improvements to its technology in markets with
the highest perceived potential payoff, particularly oil and gas and medical devices.
Research and development costs were increased respectively to $1,417,000 and $1,047,000 for the years 2011 and
2010. The change in research and development expenses during the period was generated primarily by the increasing
number of employees and the reduction of subsidies.
5
In 2011, Opsens Inc. unveiled its complete tool box for cardiologists to use in the measurement of Fractional Flow
Reserve (“FFR”). FFR is an index of the functional severity of a coronary stenosis that is calculated from pressure
measurements taken before and after a narrowing of the arteries during coronary arteriography. This increasingly
used approach enables an “on the spot” diagnosis for a better assessment as to whether a stent is an appropriate
intervention to improve blood circulation in the cardiovascular system.
A study published in 2009 in the New England Journal of Medicine, “Fractional Flow Reserve vs. Angiography for
Multivessel Evaluation”, found that a stent was not always an appropriate intervention, and that its overuse was
actually doing patients more harm than good in some cases. Patients of doctors using FFR had fewer stents used and
better outcomes overall, the study found.
The FFR market represents a real and significant opportunity for Opsens. Opsens intends to fully exploit this
opportunity by aggressive development of the EasyWire and OptoWire through the stages of animal and human
testing, and then commercialization. For the year 2012, Opsens expects R&D expenses to increase by a few hundred
thousands of dollars in comparison with the previous year because of work performed on the FFR opportunity.
Opsens wants to proceed to commercialization of a FFR product in the year 2013 by securing an agreement with a
partner who already has an established distribution network.
EasyWire for the Measurement of Fractional Flow Reserve
The EasyWire is a miniature catheter that slides over a vast variety of guide wires. The EasyWire provides a no-drift,
highly accurate and reliable measurement of blood pressure in coronary arteries and gives cardiologists the freedom
to use their favourite guide wire. With the EasyWire the cardiologist can reach the area under investigation faster and
easier than with other products on the market, simplifying the procedure. Opsens obtained a Canadian patent for the
EasyWire, “Eccentric Pressure Catheter with Guidewire Capability” and has filed applications in other jurisdictions
for the same invention.
OptoWire for the Measurement of Fractional Flow Reserve
Unlike traditional guide wires, the OptoWire is a guide wire instrumented with a fiber optic pressure sensor, which is
drift free and provides a high fidelity measurement of blood pressure in coronary arteries. In addition to more reliable
measurement, the OptoWire offers better mechanical performance in terms of trackability, torquability and support
over other existing pressure guide wires.
Scientific Advisory Board
To support the development and refinement of the EasyWire and OptoWire, Opsens has put together a scientific
advisory board of experts in the field of FFR and clinical research, composed of Drs. Morton Kern, Olivier F.
Bertrand and Michael J. Lim. These leading cardiologists are advising the Company on the development, clinical
studies and commercialization of the EasyWire and OptoWire.
Contingencies
On March 9, 2011, Opsens stated that it would vigorously defend itself against a lawsuit filed by ACIST Medical
Systems Inc., a Delaware corporation (ACIST), alleging the improper use of alleged ACIST confidential information
in connection with Opsens’ EasyWire device and certain patent applications Opsens has filed, including U.S. Patent
Application No. 12/725,951 and International Application No. PCT/CA2010/000396 (the “Applications”). ACIST’s
lawsuit seeks unspecified monetary damages, and further seeks that Opsens assign or abandon the Applications and
cease development and testing of its EasyWire device.
Opsens has denied all of ACIST’s legal claims in its Answer to the lawsuit filed in the United States District Court
for the District of Minnesota. Opsens maintains that ACIST’s lawsuit is entirely without merit and looks forward to
proving its case in Court.
6
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. The Company defines the EBITDAO as the cash flows from operating activities
without taking in consideration non-cash expenses and changes in non-cash operating working capital items.
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, 2011
$
Year Ended
August 31, 2010
$
Year Ended
August 31, 2009
$
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
(2,511)
(89)
200
27
(2,373)
185
593
(41)
179
32
763
282
(2,171)
(34)
164
21
(2,020)
229
(2,188)
1,045
(1,791)
-
(2,375)
-
EBITDAO and gain on disposal
(2,188)
(1,330)
(1,791)
Net gain (net loss)
For the year ended August 31, 2011, the net loss totalled $2,511,000, compared with a net profit of $593,000 a year
earlier. The decrease in net income for fiscal 2011 compared with the previous year mainly reflects the non-recurring
gain on disposal for 2010. In addition, when ignoring the gain on disposal, the negative variation of EBITDAO is the
result of increased research and development costs, increased administrative costs and decreased gross profit.
Fiscal 2012 results will be strongly influenced by product sales figures. The backlog of $1,755,000 and the
expansion of marketing activities within the oil and gas market following previous OPP-W installations, should
contribute to an increase in the sales, to the stability of the EBITDAO.
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 anticipates stability of these performance indicators as the increase in gross margin and increased
R&D expenses for the period ended August 31, 2011, compared with the same period in 2010. The Company
believes that its current liquid assets are sufficient to finance its short-term activities.
7
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, 2011.
At the end of fiscal year ended August 31, 2011, the Company has received approval for financial support from the
Ministry of Economic Development, Innovation and Export, in the form of a repayable contribution of $413,590 for
the development of a portfolio of products for FFR. Simultaneously, a loan worth $500,000 was granted to the
Company to support the project. Opsens expects to receive the cash proceeds from both loans in the year 2012.
INFORMATION BY REPORTABLE SEGMENTS
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 commercialization and 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.
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 earnings (loss)
Acquisition of property,
plant and equipment
Acquisition of
intangible assets
Segment assets
2011
2010
Opsens
Opsens
Opsens Inc. Solutions Inc
Total Opsens Inc. Solutions Inc
Total
$
1,812,047
618,977
$
4,193,092
$
6,005,139
$
2,892,819
$
2,387,897
$
5,280,716
-
618,977
450,211
-
450,211
148,131
51,433
199,564
151,961
26,793
178,754
24,282
2,661
26,943
30,146
(311,484 )
222,613
(88,871 )
(45,923 )
1,720
5,084
31,866
(40,839 )
(2,159,948 )
(351,405 )
(2,511,353 )
)
(1,317,306
)
(464,429
)
(1,781,735
-
-
-
2,375,107
-
2,375,107
(2,159,948 )
(351,405 )
(2,511,353 )
1,057,801
(464,429 )
593,372
153,401
218,085
371,486
65,023
60,366
125,389
85,724
6,137,333
21,465
2,564,032
107,189
8,701,365
29,159
8,612,521
8,084
37,243
2,903,906 11,516,427
8
Geographic segment’s information
Revenue per geographic sector
Canada
United States
Germany
United Kingdom
Other
2011
$
2010
$
4,332,673
1,020,566
-
-
2,601,958
906,916
298,152
181,953
651,900
1,291,737
6,005,139
5,280,716
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, 2011, revenues from four clients represent individually 35.5% (Opsens Solutions
Inc.’ reportable segment), 14.8% (Opsens Solutions Inc.’ reportable segment), 11.8% (Opsens Solutions Inc.’
reportable segment) and 10.0% (Opsens Inc.’ reportable segment).
During the year ended August 31, 2010, revenues from two clients represent individually 28.6% (Opsens Solutions
Inc.’ reportable segment) and 11.3% (Opsens Solutions Inc.’ reportable segment).
Administrative expenses
Administrative expenses were $2,036,000 and $1,521,000 respectively for the years ended August 31, 2011, and
2010.
The increase in administrative expenses is the result of an increase in wages expenses in both operating units
(Opsens Inc. and Opsens Solutions Inc.), the bad debt expense of $100,000 and legal fees related to the EasyWire
lawsuit. In the coming quarters, administrative costs should be less than $600,000 per quarter in spite of the
additional legal fees.
Sales and marketing expenses
Sales and marketing expenses were $645,000 for FY2011, compared to $870,000 a year earlier, a $224,000
reduction. Sales and marketing decreased due to the sale of our high-power transformer business, which affected
employment levels. Sales and marketing expenses should remain relatively stable in 2012.
Sales and marketing expenses should increase over fiscal 2012 given the increased resources allocated to sales in the
Opsens Solutions business unit.
Financial expenses (income)
Financial income reached $89,000 for the year ended August 31, 2011 compared with financial income of $41,000
the previous year. The increase in financial income during fiscal 2011 is the direct result of increased interest income
of over $160,000 generated by interest earned on the balance of sale receivable and an unfavourable change of
$115,000 in the gain / loss on foreign exchange.
9
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.
Warrants exercised and expired
During the year ended August 31, 2011, 204,167 warrants entitling their holders to acquire one common share of the
Company at a price of $0.60 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.
Stock options exercised, granted and expired
For the period ended August 31, 2011, the Company granted to some employees and Directors a total of 453,000
stock options with an average exercise price of $0.36, and cancelled 416,500 stock options with an exercise price of
$0.68 a share.
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 year 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.
On November 15, 2011, 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
3,877,000
2,443,049
54,186,032
Opsens purchases amounted, for each of its segmented units R&D equipment, production equipment and
administrative equipment, to $371,000 for the year ended August 31, 2011. Investments have been made especially
to support FFR product development and commercial production.
As for intangible assets, Opsens invested $107,000 for the period ended August 31, 2011. These investments
involved software and patent protection for the Company's inventions.
10
Cash and cash equivalents
On August 31, 2011, the Company had cash and cash equivalents of $3,747,000, compared with $5,348,000 as of
August 31, 2010. Of this amount as at August 31, 2011, $2,939,000 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, 2011, Opsens had a working capital of $5,790,000, compared with a working capital of $8,069,000
on August 31, 2010. 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
2012, fluctuation in cash assets will depend particularly on the rate of revenue growth.
For the year 2012, the Company does not anticipate additional investment into the working capital.
Commitments
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
$354,631.
Opsens Solutions Inc. rents four vehicles under operating lease expiring in September 2013, October 2013 and May
2014. Future rent payments will amount to $84,565.
Future payments for the leases and other commitments, totalizing $449,696, required in each of the next five years
are as follows:
2012
2013
2014
2015
2016
Licence
$
185,479
186,446
77,771
-
-
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.
11
Related-party transactions
In the normal course of its operations, the Company has entered into transactions with related parties. These
transactions have been measured at the exchange amount.
Professional fees to a company
Controlled by a director
Fees are incurred for the Company’s FFR activities.
Financial instruments
Cash equivalents and temporary investments
2011
$
50,511
50,511
2010
$
-
-
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 Board of Directors approves the investment policy. 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, 2011, the Company was holding more than
78.4% of its cash equivalents in all time redeemable term deposit.
Financial charges (income)
Interest and bank charges
Interest on long-term debt
Loss (gain) on foreign currency translation
Interest income
2011
$
22,107
18,187
100,880
(230,045 )
(88,871 )
2010
$
20,033
23,457
(14,200 )
(70,129 )
(40,839 )
12
Credit Risk
The use of financial instruments can create a credit risk that is the risk of financial loss resulting from 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, 2011, the Company was holding more than 78.4%
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. Two major customers represent 69.7% of the
Company’s accounts receivable as at August 31, 2011 (66.1% as at August 31, 2010).
As at August 31, 2011, 10.8% (23.8% as at August 31, 2010) of the accounts receivable were of more than 90 days
whereas
than
31,
30 days. The maximum exposure to the risk of credit for receivable corresponded to their book value. On August 31,
2011, the bad debt provision was established at $3,082 ($6,110 on August 31, 2010).
those were with
at August
(61.5%
55.8%
2010)
less
of
as
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.
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, 2011 had been the same throughout the
period, a hypothetical 1% interest rate increase would have had an unfavourable impact of $589 on the net loss for
the year ended August 31, 2011 and $1,029 on the net profit for the year ended August 31, 2010. The net loss (net
profit in 2010) 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, 2011 and 2010, if the Canadian dollar had strengthened 10% against the US dollar
with all other variables held constant, net loss would have been $6,000 higher (net income would have been
$142,000 lower in 2010). Conversely, if the Canadian dollar had weakened 10% against the US dollar with all other
variables held constant, net loss would have been $6,000 lower (net income would have been $142,000 higher in
2010) for the same periods.
13
As at August 31, 2011, the risk to which the Company was exposed is established as follows:
Cash (US$237,074)
Accounts receivable (US$120,686)
Balance of purchase price to be received (US$433,422)
Accounts payable and accrued liabilities (US$49,156)
Total
Liquidity Risk
2011
$
232,191
118,200
424,493
(48,217 )
2010
$
509,164
501,350
826,037
(93,826 )
726,667
1,742,725
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, 2011:
Total
$
0 to 12
months
$
1 year to
2 years to
More than
2 years
5 years
5 years
$
$
$
Accounts payable and
accrued liabilities
Long-term debt
Obligation under capital lease
Commitments
Total
Fair value
1,045,840
1,045,840
108,277
32,184
449,696
89,605
15,434
185,479
1,635,997
1,336,358
-
18,672
10,047
186,446
215,165
-
-
6,703
77,771
84,474
-
-
-
-
-
The fair value of 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.
14
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 an 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 also have access to Opsens’ existing distribution channels for its transformer business. LumaSense
has paid Opsens US$2.2 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.
** Amount received as at August 31, 2011.
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 working capital.
Investments in capital of a few hundreds of thousands of dollars will be needed to respond to Opsens’ operational
needs.
15
From the point of view of human resources, the main corporate executive positions are filed within the Company.
However, additional production personnel will be required in Quebec and Alberta. Taking into account the
employment market in Canada, Opsens is confident in its capacity to recruit qualified human resources in a timely
fashion.
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):
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.
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 will be required to use International Financial Reporting Standards (IFRS) for its interim and
annual financial statements beginning on September 1, 2011 and to provide a restated comparative statement in
accordance with IFRS.
To prepare for the adoption of IFRS, the Company has developed an IFRS conversion plan. The Company
completed the diagnostic phase in 2010, which involved a high-level review of the differences between current
Canadian GAAP and IFRS, as well as a review of the alternatives available on adoption. Phase 2 of the plan,
which was completed by the end of 2011, allowed the Company to evaluate the detailed consequences of the
transition and helped the Company to implement the required changes to its information systems and internal
control mechanisms. In fact, no major changes were required to the Company’s information systems and
internal control mechanisms.
The last phase, which consists of preparing the opening balance sheet, the financial results (current and
comparative), reconciliation notes as well as additional notes under IFRS, started at the end the last quarter of
2011 and will be completed during the first quarter of 2012.
16
The following table presents certain choices made by management pertaining to the
Standard IFRS 1 (First-time adoption of IFRS).
Standards
Topic
International standards
IFRS 1
First-time Adoption of
IFRS
Deemed cost of
property, plant
and equipment
Stock option
costs
Designation of
financial
instruments
An entity may elect to
measure an item of
property, plant and
equipment at the date
of transition to IFRS
at its fair value and
use that fair value as
its deemed cost at
that date.
A first-time adopter is
encouraged, but not
required, to apply
IFRS 2 to equity
instruments that were
granted after
November 7, 2002
and that vested
before the date of
transition to IFRS.
Possibility of
redesignating
financial
instruments on the
transition date
Business combinations Costs incurred to effect a
business combination are
expensed in the period
incurred.
Management’s
comments
Given the type of
capital assets held,
management plans to
account for them as at
the transition date at
their depreciated cost
in accordance with
IFRS rather than at
their fair value on this
date.
Management intends
to make this choice in
order to avoid revising
calculations of equity
instruments on which
the rights were vested
before September 1,
2010.
Management
reviewed the
classification of its
financial instruments and
decided to maintain
its prior designation
after the transition.
The Corporation plans to
elect not to
retrospectively apply
IFRS 3 to business
combinations that
occurred prior to its
transition date and such
business combinations
will not be restated.
The following are some of our key changes in accounting policies and their impacts with respect to the
recognition and measurement of certain balance sheet and income statement items. Unless otherwise indicated,
all changes in accounting policy will be applied retrospectively and the cumulative significant impact will
affect opening balance of deficit as of September 1, 2010.
17
Standards
International standards
Management’s comments
IFRS 2
Share-based Payment
Entities must estimate at the
end of each period the number
of equity instruments expected
to vest and revise that estimate,
if necessary.
IAS 16
Property, Plant and
Equipment
Following initial recognition, property,
plant and equipment may be carried at
their depreciated cost or their fair value in
accordance with the accounting policy
adopted by management.
Parts of an item must be
depreciated separately, each
over the length of its useful life.
IAS 36
Impairment of assets
IAS 36 requires that an entity assess at each
reporting date whether there is any indication
that an asset may be impaired, and if any such
indication exists, that the entity estimate the
recoverable amount of the asset.
Under IAS 36, an impairment loss is the
amount by which the carrying amount of an
asset exceeds its recoverable amount. The
recoverable amount is defined as the higher of
its fair value less costs to sell and its value in
use.
Historical information by
employee class was collected
to support estimates of future
vesting and integrated in our
calculations.
At the date of transition, Opsens
determined that financial impact.
A retrospective application has
been made and the opening
balance of Deficit as of
September 1, 2010 has been
adjusted. As a result, the balance
of deficit has been decreased of
$214,071.
Given the nature of the capital
assets, management plans to
use the depreciated cost model.
Management does not believe that
presentation at fair value has
significant benefits, given the
difficulties associated with
determining fair value and
managing fair value in accounting
systems
Management performed an
analysis of the Company’s
property, plant and equipment
and none of the assets is
considered to have significant
parts with a specific useful life.
Also, the Company is presently
reviewing its depreciation
methods for its assets and
their estimated useful lives.
Determination of the financial
impact of these changes is in
progress.
The level of impairment
consideration has been identified
at the asset and cash generating
unit level. To date there are no
impairment indicators realized in
the Corporation’s cash generating
units.
18
Reconciliation of Equity as of September 1st, 2010
Share capital
Stock options
Warrants
Contributed surplus
Deficit
Canadian GAAP
Balance
August 31, 2010
Audited
$
15,201,618
1,065,677
861,782
1,328,600
(8,597,742 )
9,859,935
IFRS
Reclassification
IFRS
Adjustments
IFRS
Balance
September 1,
2010
$
-
-
1,328,600
(1,328,600 )
-
-
-
$
$
-
15,201,618
ii) (214,071)
-
-
i)
(126,737 )
851,606
2,190,382
-
ii) 214,071
(8,510,408 )
(126,737 )
9,733,198
The contributed surplus has been reclassified according to the nature of the different elements of which it
consists. An amount of $1,328,600 was recorded in the contributed surplus under Canadian GAAP following
the expiry of warrants. This amount has been reclassified in accordance with IFRS requirements.
i) The adjustment results from a change in accounting policies for property, plant and equipment. The
Company has decided to change its current diminishing balance method for tangible assets for the
straight-line method. A retrospective application has been made and the opening balance of Deficit as
of September 1, 2010 has been adjusted. As a result, the balance of property, plant and equipment has
been reduced by $126,737.
ii) The adjustment results from stock options costs. A retrospective application has been made and the opening
balance of Deficit as of September 1, 2010 has been adjusted. As a result, the balance of deficit has
been decreased by $214,071.
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
management’s estimates of amounts expected to be recovered and are subject to an audit by the taxation authorities.
20
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 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
21
compared to the estimated total number of hours. Work in progress is valued by taking into consideration the number
of hours worked but not yet invoiced and the payments received. Losses are recorded as soon as they become
apparent.
Financial instruments
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, balance of purchase price 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 at conditions 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 might 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.
Opsens’ inability 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 shares 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 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 products and their related intellectual
property rights in the same way the laws of Canada and the United States would. 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.
Intellectual property rights could be disputed as they are in the ongoing dispute over the EasyWire. Despite Opsens’
best efforts to ensure its right to market its products on its target markets, competitor patents could impede the sale
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 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 $7,937 as at August 31, 2011.
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 15, 2011
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
Independent auditor’s report
To the Shareholders of Opsens Inc.
We have audited the accompanying consolidated financial statements of Opsens Inc., which comprise the
consolidated balance sheets as at August 31, 2011 and 2010, and the consolidated statements of earnings
(loss) and comprehensive earnings (loss), shareholders’ equity and cash flows for the years then ended, and
a summary of significant accounting policies and other explanatory information.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with Canadian generally accepted accounting principles, and for such internal
control as management determines is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those
standards require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to
fraud or error. In making those risk assessments, the auditor considers internal control relevant to the
entity’s preparation and fair presentation of the consolidated financial statements in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a
basis for our audit opinion.
Independant auditor’s report
Opsens inc.
Page 2
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of Opsens Inc. as at August 31, 2011 and 2010, and the results of its operations and its cash
flows for the years then ended in accordance with Canadian generally accepted accounting principles.
1
November 14, 2011
____________________
1 Chartered accountant auditor permit No. 11848
Opsens Inc.
Consolidated statements of earnings (loss) and comprehensive earnings (loss)
Years ended August 31, 2011 and 2010
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)
2011
$
2010
$
6,005,139
5,280,716
4,094,791
3,172,311
1,910,348
2,108,405
2,036,263
645,564
1,417,037
185,201
199,564
26,943
(88,871 )
1,521,224
870,157
1,046,921
282,057
178,754
31,866
(40,839)
-
(2,375,107)
4,421,701
1,515,033
Earnings (loss) before income taxes
Net earnings (loss) and comprehensive earnings (loss)
(2,511,353 )
(2,511,353 )
593,372
593,372
Net earnings (loss) per share (Note 16)
Basic
Diluted
(0.05 )
(0.05 )
0.01
0.01
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 25.
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Opsens Inc.
Consolidated balance sheets
August 31, 2011 and 2010
Assets
Current
Cash and cash equivalents
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 (Note 11)
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
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 [Denis M. Sirois] director
Signed [Pierre Carrier] director
2011
$
2010
$
3,747,320
585,174
269,147
-
1,770,609
130,644
424,494
6,927,388
-
841,981
255,422
676,574
8,701,365
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
11,516,427
1,045,840
91,355
1,137,195
1,402,249
125,001
1,527,250
30,387
1,167,582
129,242
1,656,492
15,201,618
1,109,752
802,727
1,528,781
(11,109,095 )
7,533,783
8,701,365
15,201,618
1,065,677
861,782
1,328,600
(8,597,742)
9,859,935
11,516,427
Opsens Inc.
Consolidated statements of cash flows
Years ended August 31, 2011 and 2010
Operating activities
Net earnings (loss)
Adjustments for:
Amortization of property, plant
and equipment
Amortization of intangible assets
Premium payable to Canada Economic Development
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
Proceeds of assets disposal
Financing activities
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
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.
2011
$
2010
$
(2,511,353 )
593,372
199,564
26,943
13,404
185,201
178,754
31,866
19,260
282,057
-
(2,375,107)
(75,607 )
(5,821)
(2,161,848 )
(1,275,619)
708,797
(1,579,750)
(1,453,051 )
(2,855,369)
(371,486 )
(107,189 )
(125,389)
(37,243)
477,150
2,190,720
(1,525 )
2,028,088
(145,905 )
(154,896)
-
-
3,788,574
(345,681)
(145,905 )
3,287,997
(1,600,481 )
2,460,716
5,347,801
2,887,085
3,747,320
5,347,801
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2011 and 2010
1. Description of business
Opsens inc. (the “Company”) is incorporated under Business Corporation Act (Quebec). 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.
International Financial Reporting Standards
In 2008, the Accounting Standards Board (AcSB) published an exposure draft and confirmed that all publicly
accountable entities will have to adopt International Financial Reporting Standards (IFRS) for the accounting and
presentation of financial information. These standards will replace current generally accepted accounting
principles (GAAP) and will take effect for wears beginning on or after January 1, 2011. Consequently, the
Company will adopt IFRS on September 1, 2011 and will produce its first financial statements in IFRS in the first
quarter of 2011, including comparative data.
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. from the acquisition date.
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.
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2011 and 2010
3. Accounting policies (continued)
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.
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.
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2011 and 2010
3. Accounting policies (continued)
Government assistance and income tax credits
for research and development (continued)
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.
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.
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2011 and 2010
3. Accounting policies (continued)
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.
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, balance of purchase price 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.
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2011 and 2010
4. Financial instruments
Cash equivalents and temporary investments
The Company is exposed to various types of risks in the management of its cash and cash equivalents, including
those related to the use of financial instruments. To manage these risks, controls were put in place, particularly
those related to investment policy. The investment policy is approved by the board of directors. The Company’s
investment policy aims primarily to protect capital, while considering return on investment and income taxes.
Market risk
Market risk is the risk that the value of a financial instrument will fluctuate as a result of changes in the
parameters underlying their measurement, particularly interest rates and market prices.
Interest rate risk
Interest rate risk exists when interest rate fluctuations modify the cash flows of the Company’s investments. The
Company owns investments with fixed interest rates. As of August 31, 2011, the Company was holding more
than 78.4% (81.4% as August 31, 2010) of its cash equivalents in all time redeemable term-deposit.
Financial charges (income)
Interest and bank charges
Interest on long-term debt
Loss (gain) on foreign currency translation
Interest income
Credit risk
2011
$
22,107
18,187
100,880
(230,045 )
(88,871 )
2010
$
20,033
23,457
(14,200)
(70,129)
(40,839)
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, 2011, the Company was holding more
than 78.4% (81.4% as at August 31, 2010) of its cash equivalents portfolio in all-time redeemable term deposit
with the same financial institution.
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2011 and 2010
4. Financial instruments (continued)
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. Two major customers
represent 69.7% of the Company’s accounts receivable as at August 31, 2011 (66.1% as at August 31, 2010).
As at August 31, 2011, 10.8% (23.8% as at August 31, 2010) of the accounts receivable were of more than
90 days whereas 55.8% (61.5% as at August 31, 2010) 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, 2011, the bad debt
provision was established at $3,082 ($6,110 on August 31, 2010).
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.
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, 2011 had been the same
throughout the period, a hypothetical 1% interest rate increase would have had an unfavourable impact of $589
on the net loss for the year ended August 31, 2011 and $1,029 on the net profit for the year ended
August 31, 2010. The net loss (net profit in 2010) 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, 2011 and 2010, if the Canadian dollar had strengthened 10% against the US
dollar with all other variables held constant, net loss would have been $6,000 higher (net income would have
been $142,000 lower in 2010). Conversely, if the Canadian dollar had weakened 10% against the US dollar with
all other variables held constant, net loss would have been $6,000 lower (net income would have been $142,000
higher in 2010) for the same periods.
As at August 31, 2011, the risk to which the Company was exposed is established as follows:
Cash (US$237,074)
Accounts receivable (US$120,686)
Balance of purchase price to be received (US$433,422)
Accounts payable and accrued liabilities (US$49,156)
Total
2011
$
232,191
118,200
424,493
(48,217 )
726,667
2010
$
509,164
501,350
826,037
(93,826)
1,742,725
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2011 and 2010
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, 2011:
0 to 12
1 year to
2 years to
More than
Total
months
2 years
5 years
5 years
$
$
$
$
$
1,045,840
1,045,840
108,277
32,184
89,605
15,434
-
18,672
10,047
449,696
185,479
186,446
1,635,997
1,336,358
215,165
-
-
6,703
77,771
84,474
-
-
-
-
-
Accounts payable and
accrued liabilities
Long-term debt
Obligation under capital lease
Commitments
Total
Fair value
The fair value of 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.
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 non-cash expenses and changes in non-cash operating working capital items.
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2011 and 2010
5. Capital management (continued)
Net earnings (loss)
Financial income
Amortization of property, plant and
equipment
Amortization of intangible assets
Stock option-based compensation
EBITDAO
2011
$
(2,511,353 )
(88,871 )
199,564
26,943
185,201
2010
$
593,372
(40,839)
178,754
31,866
282,057
(2,188,516 )
1,045,210
The Company targets to improve these ratios which negatively vary for the year ended August 31, 2011
compare to the same period in 2010. 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 access to Opsens’ existing distribution channels for its transformer business.
LumaSense has paid Opsens US$2.2 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
* Opsens engaged in a manufacturing agreement with terms and conditions that are beneficial
to LumaSense.
** Amount received as at August 31, 2011.
Amount
$
2,190,720
443,360
376,856
3,010,936
150,000
265,829
220,000
635,829
2,375,107
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2011 and 2010
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,
2011
$
2010
$
542,993
1,938,099
(3,082 )
45,263
-
(6,110)
28,901
95,033
585,174
2,055,923
2011
$
2010
$
753,826
1,016,783
669,149
759,290
1,770,609
1,428,439
2011
Accumulated
Net book
Cost
amortization
$
$
89,320
8,326
405,208
59,028
50,988
6,757
96,742
35,476
value
$
38,332
1,569
308,466
23,552
net of income tax credits of $23,834
828,610
492,590
336,020
Research and development computer equipment,
net of income tax credits of $3,078
Computer equipment
Leasehold improvements
30,599
180,691
92,180
1,693,962
23,295
112,213
33,920
851,981
7,304
68,478
58,260
841,981
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2011 and 2010
9. Property, plant and equipment (continued)
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
Research and development computer equipment,
net of income tax credits of $3,078
Computer equipment
Leased computer equipment
Leasehold improvements
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
$
85,114
8,326
173,383
59,028
Accumulated
amortization
$
41,971
6,365
51,864
25,382
2010
Net book
value
$
43,143
1,961
121,519
33,646
761,751
399,671
362,080
27,122
138,836
29,009
39,908
1,322,477
21,176
70,213
14,796
20,980
652,418
Cost
$
Accumulated
amortization
$
5,946
68,623
14,213
18,928
670,059
2011
Net book
value
$
200
-
200
327,630
49,795
377,625
83,431
38,772
122,203
Cost
$
Accumulated
amortization
$
244,199
11,023
255,422
2010
Net book
value
$
200
-
200
223,485
46,751
270,436
60,921
34,339
95,260
162,564
12,412
175,176
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2011 and 2010
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
2011
$
2010
$
353,808
70,686
424,494
424,494
-
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, 2011, but the credit line was
not used at the end of the period.
The Company also has credit cards for a maximum amount of $75,000 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 expenses payable (Note 6)
2011
$
2010
$
942,046
734,560
74,732
29,062
31,860
635,829
1,045,840
1,402,249
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2011 and 2010
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 2010
Amounts carried forward
2011
$
2010
$
79,562
(10,044 )
69,518
139,129
(23,448)
115,681
15,630
59,910
7,937
31,749
-
-
4,513
1,043
93,085
212,896
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2011 and 2010
14. Long-term debt (continued)
2011
$
2010
$
Amounts carried forward
93,085
212,896
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
2,318
3,575
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
23,542
30,925
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
$
15,434
10,047
6,703
-
Imputed
interest
$
2,190
1,099
237
-
Principal
payments
$
13,244
8,948
6,466
-
2012
2013
2014
2015
2,797
121,742
91,355
30,387
6,847
254,243
125,001
129,242
Debt and
principal portion
of capital
lease
Other
debts
$
$
78,111
14,973
-
-
91,355
23,921
6,466
121,742
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).
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2011 and 2010
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, 2011
Outstanding shares and the changes occurred during the year are as follows:
Issued and fully paid
Balance at beginning of year
Balance as at August 31, 2011
Year ended August 31, 2010
Number
Amount
$
47,865,983
15,201,618
47,865,983
15,201,618
Outstanding shares and the changes occurred during the year are as follows:
Issued and fully paid
Number
Amount
$
Balance at beginning of year
Share issuance – Warrants exercised (Note 15a)i)
Share issuance – Stock options exercised (Note 15a)ii)
43,398,344
12,035,259
178,889
1,250
206,580
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
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2011 and 2010
15. Share capital, stock options
and warrants (continued)
a) Share capital (continued)
Year ended August 31, 2010 (continued)
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.
b) Stock options
The Shareholders approved the stock option plan on January 19, 2011. 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 1,080,000 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, 2011 is
$185,201 ($282,057 for the year ended August 31, 2010).
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2011 and 2010
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 2.31%
Between 79% and 88%
- %
5 years
Fair value per option at the grant date
Between $0.22 and $0.80
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, 2011 and 2010 are as follows:
2011
2010
Weighted
average
Number of
exercise
Number of
options
4,140,500
453,000
(416,500)
-
4,177,000
price
$
0.54
0.36
0.68
-
0.51
options
2,788,000
1,359,750
(6,000 )
(1,250 )
4,140,500
Weighted
average
exercise
price
$
0.61
0.40
0.68
0.87
0.54
Outstanding at beginning of year
Options granted
Options cancelled
Options exercised
Outstanding at end of the year
Options exercisable at end of the year
2,812,563
0.54
2,047,063
0.59
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2011 and 2010
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, 2011:
Exercise price
Number of outstanding stock
options
Number of exercisable stock
options
Weighted average
residual duration
(years)
$
0.35
0.36
0.37
0.38
0.40
0.42
0.45
0.50
0.60
0.64
0.72
0.80
0.87
1.15
298,000
204,000
240,000
1,150,000
90,000
50,000
50,000
1,060,000
50,000
50,000
500,000
150,000
245,000
40,000
80,000
111,938
149,375
500,000
45,000
25,000
50,000
1,055,000
25,000
25,000
375,000
137,500
193,750
40,000
c) Warrants
4,177,000
2,812,563
The fair value of the warrants was determined using the Black-Scholes option pricing model with the
following assumptions:
4.85
2.86
2.35
4.02
2.27
2.39
0.26
0.11
2.83
2.79
1.28
0.91
1.49
1.12
2.19
Exercisable price
Risk-free interest rates
Expected volatility
Expected dividend yield on shares
Duration
Fair value by warrant
Units issued
Broker compensation
warrant
$1.15
1.14%
86%
-%
2 years
$0.32
$0.85
1.14%
86%
-%
2 years
$0.39
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2011 and 2010
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, 2011 and 2010 are as follows:
2011
2010
Number of
warrants
Weighted
average
exercise
price
$
Number of
warrants
Outstanding at beginning of year
Warrants issued, private placement
(Note 15 c)iii)
Warrants expired
Warrants exercised during the year
(Note 15 c)i)
Outstanding at end of year
2,647,216
1.07
2,889,509
-
(204,167)
-
2,443,049
-
0.60
-
1.11
2,443,049
(2,506,453 )
(178,889 )
2,647,216
Weighted
average
exercise
price
$
1.03
1.11
1.08
0.80
1.07
Warrants exercisable at end of year
2,443,049
1.11
2,647,216
1.07
The table below provides information on the outstanding warrants as at August 31, 2011:
Number of outstanding
warrants
Number of exercisable
warrants
Weighted average residual
duration
(years)
299,299
2,143,750
2,443,049
299,299
2,143,750
2,443,049
0.45
0.45
0.45
Exercise price
$
0.85
1.15
i) Warrants expired
During the year ended August 31, 2011, 204,167 warrants entitling its holder to acquire one common
share of the Company at a price of $0.60 per share 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.
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2011 and 2010
16. Earnings (loss) per share
The table below presents a reconciliation between the basic net profit and the diluted net profit per share:
2011
$
2010
$
(2,511,353 )
593,372
(2,511,353 )
593,372
Numerator
Net earnings (loss)
Amount available for calculating
the earnings (loss) per share
Denominator
Number of shares
Weighted average number of shares outstanding
47,865,983
47,865,983
Dilutive effect of stock options and warrants
-
2,924
Weighted average number of shares
outstanding on diluted basis
47,865,983
47,868,907
Amount per share
Net earnings (loss) per share
Basic
Diluted
(0.05 )
(0.05 )
0.01
0.01
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 year 2011, some options
and warrants, at an exercise price of $0.36 and $0.37 would have been dilutive and would have resulted in the
addition of 6,357 shares to the weighted average number of shares outstanding used in the diluted earnings per
share calculation for year ended August 31, 2011.
In 2010, 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.
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2011 and 2010
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
2011
$
2010
$
1,470,749
(1,482,613)
(117,067 )
(342,170 )
40,000
13,694
62,544
(303,179)
(40,000)
(64,140)
(356,409 )
247,638
708,797
(1,579,750)
808,085
997,072
2,939,235
4,350,729
3,747,320
5,347,801
8,228
26,008
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.
For the year ending August 31, 2010, there is also a licence disposal balance of purchase price to be received of
$820,216 and disposal fees payable of $635,828 which have no impact on cash flows (Note 6).
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2011 and 2010
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 $354,631.
Opsens Solutions Inc. rents four vehicles under operating lease expiring in September 2013, October 2013 and
May 2014. Future rent payments will amount to $84,565.
Future payments for the leases and other commitments, totalizing $449,696, required in each of the next five
years are as follows:
2012
2013
2014
2015
2016
Licence
$
185,479
186,446
77,771
-
-
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 generally 12 months. During the year ended August 31, 2011,
the Company recognized an expense for $59,872 ($4,539 for the year ended August 31, 2010) for guarantees.
A provision for $74,732 was recorded for guarantees as of August 31, 2011 ($31,860 as at August 31, 2010).
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
received non-refundable contributions for an 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, 2011, the Company recorded
contributions totalling $130,686 ($345,698 for the year ended August 31, 2010) which were accounted against
research and development fees.
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2011 and 2010
20. Government assistance (continued)
During the year ended August 31, 2011, the Company received a cash contribution for training of $6,450 from
Emploi-Québec. This amount was recorded against research and development expenses.
During the year ended August 31, 2011, the Company received a cash contribution for intellectual properties
expenses of $6,400 from “Ministère du Développement économique, de l’innovation et de l’Exportation’’. This
amount was recorded against intangible assets.
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 carried forward
Income tax using effective income tax rate
2011
$
2010
$
(719,104 )
424,353
-
(73,669 )
(132,027 )
500,447
-
194,134
268,255
(313,494 )
(86,894)
(69,018)
7,017
-
As at August 31, 2011, the Company has tax losses of approximately $6,820,400 for federal purposes and
$6,540,900 for provincial purposes that can be used to reduce future taxable income. These losses expire as
follows:
2023
2024
2025
2027
2028
2029
2030
2031
Federal
$
483,000
42,000
400
1,780,000
691,000
1,201,000
500,000
2,123,000
Provincial
$
463,000
40,000
400
1,509,000
692,000
1,214,000
500,000
2,122,500
6,820,400
6,540,900
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2011 and 2010
21.
Income taxes (continued)
The Company also has undeducted research and development expenses in the amount of $3,463,000 for
federal purposes and $5,115,000 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
2011
$
2010
$
1,117,301
1,117,301
1,065,717
1,069,462
These expenses have enabled the Company to become eligible for scientific research and experimental
development tax credits reimbursable for the following amounts:
Federal
Provincial
2011
$
-
269,147
269,147
2010
$
-
152,080
152,080
These credits were recorded in research and development expenses in the statement of loss.
Reimbursable scientific research income tax credits earned for the year ended August 31, 2011 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, 2011 are about $1,094,959 and expire on a period of 10 to 20 years
beginning in 2014.
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2011 and 2010
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.
2011
Opsens
Opsens
Opsens Inc.
Solutions
Total Opsens inc.
Solutions
$
$
$
$
$
2010
Total
$
1,812,047
4,193,092
6,005,139
2,892,819
2,387,897
5,280,716
618,977
-
618,977
450,211
-
450,211
External sales
Internal sales
Amortization of property,
plant and equipment
148,131
51,433
199,564
151,961
26,793
178,754
Amortization of
intangible assets
24,282
2,661
26,943
30,146
Financial expenses
(311,484)
222,613
(88,871)
(45,923 )
1,720
5,084
31,866
(40,839)
Net loss before gain on
disposal
Gain on disposal
(2,159,948 )
(351,405)
(2,511,353)
)
(1,317,306
(464,429
)
(1,781,735
)
-
-
-
2,375,107
-
2,375,107
Net earnings (loss)
(2,159,948)
(351,405)
(2,511,353)
1,057,801
(464,429)
593,372
Acquisition of property,
plant and equipment
Acquisition of
intangible assets
Segment assets
153,401
218,085
371,486
65,023
60,366
125,389
85,724
6,137,333
21,465
2,564,032
107,189
8,701,365
29,159
8,084
37,243
8,612,521
2,903,906
11,516,427
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2011 and 2010
23. Segmented information (continued)
Geographic segment’s information
Revenue per geographic sector
Canada
United States
Germany
United Kingdom
Other
2011
$
2010
$
4,332,673
2,601,958
1,020,566
-
-
906,916
298,152
181,953
651,900
1,291,737
6,005,139
5,280,716
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, 2011, revenues from four clients represent individually more than 10% of the
total revenues of the company, i.e. approximately 35.5% (Opsens Solutions Inc.’ reportable segment),
14.8% (Opsens Solutions Inc.’ reportable segment), 11.8% (Opsens Solutions Inc.’ reportable segment) and
10.0% (Opsens Inc.’ reportable segment).
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 28.6% (Opsens Solutions Inc.’ reportable segment) and 11.3%
(Opsens Solutions Inc.’ reportable segment).
24. Related-party transactions
In the normal course of its operations, the Company has entered into transactions with related parties. These
transactions have been measured at the exchange amount.
Professional fees to a company
Controlled by a director
Fees are incurred for the Company’s FFR activities.
2011
$
50,511
50,511
2010
$
-
-
Opsens Inc.
Notes to the consolidated financial statements
August 31, 2011 and 2010
25. 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
Loss (gain) on foreign currency translation
Interest income
26. Contingencies
2011
$
2010
$
(143,536 )
(326,154 )
22,107
18,187
100,880
(230,045 )
(345,698)
(222,010)
20,033
23,457
(14,200)
(70,129)
On March 9, 2011, Opsens stated that it would vigorously defend itself against a lawsuit filed by ACIST Medical
Systems Inc., a Delaware corporation (ACIST), alleging the improper use of alleged ACIST confidential
information in connection with Opsens’ EasyWire device and certain patent applications Opsens has filed,
including U.S. Patent Application No. 12/725,951 and International Application No. PCT/CA2010/000396
(the “Applications”). ACIST’s lawsuit seeks unspecified monetary damages, and further seeks that Opsens
assign or abandon the Applications and cease development and testing of its EasyWire device.
Opsens has denied all of ACIST’s legal claims in its Answer to the lawsuit filed in the United States District Court
for the District of Minnesota. Opsens maintains that ACIST’s lawsuit is entirely without merit and looks forward to
proving its case in Court.
27. Subsequent event
On November 14, 2011, the Board of the Company has authorized the grant of a total of 870,000 stock options,
of which 100,000 are immediately exercisable. Each stock option granted entitles the holder to subscribe one
common share at the latest on November 14, 2016, at a price equal to $0.23 per share.
28. Comparative financial statements
Certain comparative figures have been reclassified in order to conform to the presentation adopted for the
current year.
corporate information
HeaD office
2014 Cyrille-Duquet St., Suite 125
Quebec City QC G1N 4N6
Phone: 1 418 682-9996
Fax: 1 418 682-9939
opsens solutions
10456 176th St., Suite 201
Edmonton AB T5S 1L3
Phone: 1 780 930-1777
Fax: 1 780 930-2077
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, 2011)
transfer aGent & reGistrar
Canadian Stock Transfer Company Inc. (CST) as administrative agent for
CIBC Mellon Trust Company (CIBC Mellon)
320 Bay Street
Banking Hall
Toronto, ON M5H 4A6
1 800 387-0825
annual meetinG of sHareHolDers
Monday, January 16, 2012 - 10:30 a.m.
Alt Hotel, Quebec, Mezzanine.
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
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
Darren Wiltse
President Opsens Solutions
www.ops ens.com
Medical instruMentation
Fiber optic sensors are infinitely small which allows
their integration in instruments of very small size. they
are immune to electrical and magnetic interference
encountered in hospital settings and their reliable
measurements are not affected by heat or humidity.
In recent years, opsens’ ultra-miniature sensors for
pressure/temperature have been integrated as oeM
in our partners’ medical instrumentation products.
Motivated by the high performance of its miniature
pressure sensor, opsens pushed its business model
toward FFR products.
Why FFr?
• Benefits from procedure recognized
• Strong market growth
• 510K approval process in the united States
opsens has been working for several months to
develop its own medical device product. For opsens,
the attractiveness of the FFR market also lays in the
fact that our sensors are ideal for integration into
these types of products.
oil and Gas
opsens offers integrated services for the management
of reservoirs and in situ environments to the oil and
gas market. Its near-term focus is Western Canada’s
oil sands market, where a growing demand to measure
pressure / temperature is identified. there is a large
number of active in situ oil sands projects in Alberta,
and the majority of oil and gas companies are involved.
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/pressure below the surface
directly from the injecting and producer wells, where
temperatures may reach 300 degrees Celsius. opsens’
opp-W sensors have been proven to meet that
need, measuring pressure and temperature up to
300 degrees Celsius.
www.opsen s.com
sensors at work
Medical devices
Development of our first complete medical device
for the measurement of FFR.
oil and Gas
Helping operators optimize production
in the Western Canadian oil sands.
laboratories and scientific r&d
ensuring measurement for
high-tech applications.
2014, Cyrille-Duquet St., Suite 125, Quebec City QC G1n 4n6
t• 418.682.9996 F• 418.682.9939
10456, 176th St., Suite 201, edmonton AB t5S 1l3
t• 780.930.1777 F• 780.930.2077
ww w.opsens.com