MEASURE, IMPROVE.
ANNUAL
REPORT
2013
OIL AND GAS
MEDICAL
CORPORATE
PROFILE
Focusing primarily on two high growth markets, oil and gas and FFR in medical
instrumentation, Opsens develops, manufactures, supplies and installs fiber
optic systems to measure pressure, temperature and other parameters.
These systems are designed around proprietary technologies that are
effective and durable in extreme conditions.
MEDICAL INSTRUMENTATION – Fractional Flow Reserve (“FFR”)
Heart disease affects millions of people worldwide. It is often caused by
a blockage in arteries, which restricts blood flow, reducing the amount of
oxygen the heart receives.
In 2012, the FFR market reached US$207 million, driven by growth of 43%
in the previous 4 years.
The benefits brought on by FFR are fueling this growth.
THE IMPORTANCE OF FFR
FFR is often performed by cardiologists during a Percutaneous
Coronary Intervention (PCI) to measure blood pressure before and after
a blockage to help in selecting treatment.
FFR is one of the few innovative medical practices that can achieve
better clinical outcomes and provide costs savings.
FFR IS BACKED BY MULTIPLE RECENT STUDIES
These studies have proven that selecting a treatment based on an
FFR exam:
• Reduces death by 30% in patients;
• Reduces procedure costs as fewer stents are installed; and,
• Provides
justification for treatment that supports claims for
reimbursement.
OPSENS AIMS TO ENTER THE FFR MARKET IN THE SECOND SEMESTER
OF 2014.
Unique IP in FFR and optical sensing has allowed Opsens and its team to
develop a product addressing the most common complaints brought on
by cardiologists about available devices for the measurement of FFR.
The OptoWire is a Nitinol-based guidewire designed around Opsens’
optical pressure sensing technology, which remains unaffected by blood,
providing an accurate and reliable measurement of FFR even after
multiple connections.
OIL & GAS
COMPLETED IN FISCAL 2013
In 2013, Opsens received its largest order to date from a new customer. In
addition, Opsens received a large number of orders for its OPP-W system.
Alberta’s market is our primary focus, as the number of barrels to be
produced by SAGD is expected to practically fourfold between 2012 and
2020, Opsens is on the lookout for new opportunities outside its current
markets as our technology may be adapted to new settings, opening new
streams of revenues.
OUTLOOK FOR 2014
• Opsens’ OPP-W sensor for SAGD has completed the adoption phase. It
can be expected that the number of installations continues to grow.
• Opsens aims to expand its customer base and applications for the
OPP-W sensor. Opsens also wants to extend its product line to
accentuate its competitive advantage.
• The market for SAGD wells instrumentation will be closely related to the
number of wells and to SAGD production, which are both expected to
grow sharply in the coming years.
www.opsens.co m
«
“Will FFR continue to grow? It’s in its infancy. We have
an over US$2 billion market opportunity here. We are
just getting started.”
Scott Huennekens, CEO Volcano, Jan. 2013.
This technology [FFR] is “well on its way to a new
billion-dollar market.”
Daniel Starks, CEO St. Jude, Jan. 2012.
»
COMPLETED IN FISCAL 2013
• US$5-million agreement for distribution rights and other rights for
the OptoWire in Japan, Korea and Taiwan.
OUTLOOK FOR 2014
• Filing for regulatory clearance in Japan (Shonin), the United States
(510(K)) and Europe (CE Marking);
• First in-man study;
• Completion of the Verification and Validation phase;
• Additional distribution agreements;
• Commercialization – Opsens to reach the FFR market in calendar
year 2014.
)
$
M
(
S
E
L
A
S
3,1 M $
0,4 M $
8,5 M $
6,0 M $
6,3 M $
5,3 M $
2,4 M $
4,2 M $
YEARS
2009
2010
2011
2012
Oil and Gas
Other divisions
BARRELS/ DAY X 000
2,500
2,000
1,500
1,000
500
0
SAGD PRODUCTION
(FORECASTS)
NUMBER OF BARRELS OF OIL PRODUCED BY
SAGD WILL QUADRUPLE BY 2020
YEARS
2012
2016
2020
SAGD Instrumentation Market Assessment, Ian Murray & Company Ltd.,
Consultant report, June 26, 2012.
FFR MARKET,
GROWTH OF
35 % / YEAR
500
)
$
M
(
S
E
L
A
S
250
0
YEARS
2008
2010
2012
2014
2016
LETTER TO SHAREHOLDERS
It is with great confidence and enthusiasm that we have started the
new year. In 2014, we expect to reap the fruits of our past efforts. We
continue to execute our business plan for the creation of value for our
shareholders, with particular emphasis on the sale of instruments in
two fast-growing markets, the oil and gas and the medical fields,
capitalizing on the competitive advantages our products offer.
OIL AND GAS
In the oil and gas market, Opsens generates most of its revenues from
the thermal process of Steam Assisted Gravity Drainage (“SAGD”),
widely used in Alberta. SAGD production is characterized by a hostile
environment, where intense heat is combined with the presence of
hydrogen and corrosive fluids.
MEDICAL INSTRUMENTATION - FFR
Opsens is targeting the Fractional Flow Reserve (“FFR”) market, which
is, according to the two players who share it, moving toward
US$ 1-billion annually. Opsens expects to become a key player in this
market, which has, in 2012, surpassed the US$200-million-mark, driven
by a compounded annual growth rate of 43% for the previous four
years. The strong growth in the practice of FFR is based on sound
clinical evidence.
Opsens’ products for the measurement of FFR aim to provide
cardiologists with a guidewire with optimized performance to navigate
easily in the human body to reach blockages and measure blood
pressure. In addition, the nitinol-based guide is instrumented with an
optical sensor immune to fluids and connects as often as needed while
maintaining reliability of the measurement.
In the coming months, the Company expects to file for regulatory
clearance, which will open the doors to major markets including the
United States, Europe, Japan and Canada. Obtaining clearance will give
Opsens the green light to commercialize the OptoWire in major world
markets.
On the marketing side, Opsens wants to continue to develop its sales
network to facilitate delivery of the OptoWire to end users. In the past
year, Opsens signed a US$5-million agreement with a Japanese
partner for the distribution rights and other rights for the OptoWire
for Japan, Korea and Taiwan.
The hostility of this environment makes Opsens’ products stand out
from traditional instruments. The OPP-W sensor measures pressure
and temperature at high temperature to provide oil sands producers
with reliable real-time information on SAGD wells. The ability to control
downhole pressure and temperature allows SAGD operators to
improve steam/oil ratio and reduce operating costs.
Alberta’s oil producers are increasingly investing in management and
monitoring of SAGD wells, as they are well aware of the added benefits
of these equipment in terms of increased production, lower costs and
improved security. For multiple well operations, our systems can
generate millions of dollars in savings by reducing water treatment
costs, optimizing the use of natural gas for steam production and
improving the lifespan for artificial lift systems.
SAGD barrel production forecasts are expected to nearly fourfold
between 2012 and 2020. Opsens is well-positioned to benefit from this
increase because of its product range and quality of its expertise in
sensor installation.
I thank our customers for their trust in our products. I thank Opsens’
team for the quality of its work, which supports the growth of our
business. I acknowledge the contribution of our directors who promote
our development. They deploy their knowledge and energy to the
benefit of the Company. Finally and most importantly, I want to thank
our shareholders for the confidence they have placed in Opsens. I am
grateful for the patience they have shown. Our goal is ultimately the
fulfillment of their expectations.
The OptoWire has the power to transform the Company. Penetration
of a fraction of the FFR market will have a major impact on Opsens’
consolidated sales. Opsens is sparing no effort to reach the market in
as little time as possible, so that the Company and its shareholders
can benefit from the efforts they have invested in this project.
(s) Louis Laflamme
President and CEO
www.opsens.co m
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 2013
The following comments are intended to provide a review and analysis of the results of operations, financial
condition and cash flows of Opsens Inc. for the fourth quarter and year ended August 31, 2013 in comparison with
the corresponding periods ended August 31, 2012. In this Management’s Discussion and Analysis (“MD&A”),
“Opsens”, “the Company”, “we”, “us” and “our” mean Opsens Inc. and its subsidiary. This discussion should be read
and interpreted in conjunction with the information contained in our annual consolidated financial statements for the
years ended August 31, 2013 and 2012, which have been prepared in accordance with International Financial
Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. This document was
prepared on November 25, 2013. All amounts are in Canadian dollars unless otherwise indicated.
This MD&A contains forward-looking statements with respect to the Company. These forward-looking statements,
by their nature, require the Company to make certain assumptions and necessarily involve known and unknown risks
and uncertainties that could cause actual results to differ materially from those expressed or implied in these forward-
looking statements. Forward-looking statements are not guarantees of performance. These forward-looking
statements, including financial outlooks, may involve, but are not limited to, comments with respect to the
Company’s business or financial objectives, its strategies or future actions, its targets, expectations for financial
condition or outlook for operations and future contingent payments. Words such as “may”, “will”, “would”, “could”,
“expect”, “believe”, “plan”, “anticipate”, “intend”, “estimate”, “continue”, or the negative or comparable
terminology, as well as terms usually used in the future and conditional, are intended to identify forward-looking
statements.
Information contained in forward-looking statements is based upon certain material assumptions that were applied in
drawing a conclusion or making a forecast or projection, including management’s perceptions of historical trends,
current conditions and expected future developments, as well as other considerations that are believed to be
appropriate in the circumstances. The Company considers these assumptions to be reasonable based on information
currently available to it, but cautions the reader that these assumptions regarding future events, many of which are
beyond its control, may ultimately prove to be incorrect since they are subject to risks and uncertainties that affect
the Company and its business. The forward-looking information set forth therein reflects the Company’s
expectations as at November 25, 2013 and is subject to change after such date. The Company disclaims any intention
or obligation to update or revise any forward-looking statements, whether as a result of new information, future
events or otherwise, other than as required by law.
CORPORATE OVERVIEW
Opsens is focusing on two main growth markets, oil and gas and Fractional Flow Reserve (“FFR”) in medical
instrumentation. The Company is also involved in laboratories activities. Opsens develops, manufactures, supplies
and installs systems for measuring parameters of pressure, temperature and others using fiber optic sensing
technologies. These systems are designed around patented technologies that are effective and durable in extreme
conditions.
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”).
VISION, STRATEGY AND OUTLOOK
The worldwide market for fiber optic and conventional sensors is a multi-billion dollar opportunity. Opsens’ sales
and marketing strategy aims to provide solutions for selected niche markets, in particular, markets with challenging
environments, where conventional solutions are either non-existent, operate marginally or quickly fail.
In its business plan, Opsens has identified markets where its products can bring better results to their users. Opsens’
management is confident that the products it offers and those it develops for these markets will deliver value to its
shareholders. In addition, Opsens remains open to business opportunities, including new projects and acquisitions, to
enhance its core activities and consequently add to shareholders value.
The Company’s expertise, know-how and patented technologies are key to new production techniques improving the
reliability of measuring equipment. Also, 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 2014, Opsens expects its net loss will increase from year 2013 due to verification and validation expenses and to
commercialization costs for the FFR device.
NON-IFRS FINANCIAL MEASURE - EBITDAO
The Company quarterly reviews net earnings (loss) and Earnings Before Interest, Taxes, Depreciation, Amortization
and Stock-based compensation costs ("EBITDAO"). EBITDAO has no normalized sense prescribed by IFRS. It is
not very probable that this measure is comparable with measures of the same type presented by other issuers.
EBITDAO is defined by the Company as the addition of net loss, depreciation and amortization, financial expenses
(revenues), change in fair value of embedded derivative and stock-based compensation costs. The Company uses
EBITDAO for the purposes of evaluating its historical and prospective financial performance. This measure also
help the Company to plan and forecast for future periods as well as to make operational and strategic decisions. The
Company believes that providing this information to investors, in addition to IFRS measures, allows them to see the
Company’s results through the eyes of management, and to better understand its historical and future financial
performance.
Reconciliation of EBITDAO to net loss
(In thousands of Canadian dollars)
Year Ended
August 31, 2013
$
Year Ended
August 31, 2012
$
Year Ended
August 31, 2011
$
Net loss for the year
Financial expenses (revenues)
Change in fair value of embedded derivative
Depreciation of property, plant, and equipment
Amortization of intangible assets
EBITDA
Stock-based compensation costs
EBITDAO
(2,366)
100
(17)
287
31
(1,965)
126
(1,839)
(1,930)
(97)
-
230
35
(1,762)
137
(1,625)
(2,469)
(89)
-
182
26
(2,350)
162
(2,188)
The negative variance of EBITDAO for fiscal year 2013 when compared to last year is mainly explained by the
increase in the net loss.
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 2013, the Company focused on continuous improvements to its technology in markets with
the highest perceived potential payoff, particularly oil and gas and medical instrumentation.
As for the oil and gas field over the next year, Opsens will continue to develop its existing product line while
improving its ability to respond to customer needs for multiple specifications in the measurement of pressure and
temperature and also by working on new products and applications to help the Company reach new markets and
increase its revenues consequently.
OptoWire for the Measurement of FFR
In 2011, Opsens Inc. unveiled its offering for cardiologists to use in the measurement of 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 significant opportunity for Opsens. Opsens intends to fully exploit this opportunity by
an aggressive development of the OptoWire through the stages of preclinical, regulatory and commercialization.
Opsens aims for the commercialization of its FFR product in the second half of calendar year 2014.
Unlike traditional guide wires, the OptoWire is a guide wire instrumented with a fiber optic pressure sensor, which is
low-drift and will provide a high-fidelity measurement of blood pressure in coronary arteries. In addition to reliable
measurement, the OptoWire aims to offer better mechanical performances in terms of trackability, torquability and
support over existing pressure guide wires.
Scientific Advisory Board
To support the development and refinement of the 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 OptoWire.
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands of Canadian dollars, except for
information per share)
Year Ended
August 31, 2013
$
Year Ended
August 31, 2012
$
Year Ended
August 31, 2011
$
Sales
Cost of sales
Gross margin
Gross margin rate
Administrative expenses
Marketing expenses
R&D expenses
Financial expenses (revenues)
Change in fair value of embedded derivative
Loss before income taxes
Net loss and comprehensive loss
Net loss per share - Basic
Net loss per share - Diluted
7,526
4,780
2,746
36%
2,313
954
1,762
100
(17)
5,112
(2,366)
(2,366)
(0.05)
(0.05)
8,462
5,722
2,740
32%
2,304
929
1,534
(97)
-
4,670
(1,930)
(1,930)
(0.04)
(0.04)
6,005
4,157
1,848
31%
2,204
659
1,543
(89)
-
4,317
(2,469)
(2,469)
(0.05)
(0.05)
Revenues
The Company reported revenues of $7,526,000 for the year ended August 31, 2013, compared to revenues of
$8,462,000 a year earlier, a decrease of $936,000 or 11%.
Revenues in the oil and gas sector totalled $5,818,000 for the year ended August 31, 2013 compared to $6,300,000 in
2012. Installations of the first OPP-W sensor systems from the 48-well contract placed by an oil and gas producer for
an Alberta SAGD oil sands project were delayed and began only in September 2013. They were originally planned to
begin during the last quarter of fiscal 2013. Management anticipates that revenues from oil and gas will show growth
for fiscal year 2014 when compared to fiscal year 2013, as the strong backlog as at August 31, 2013 already reflects
commitments from our customers to buy OPP-Ws.
Revenues in the laboratories field totaled $1,057,000 for the year ended August 31, 2013 compared with revenues of
$921,000 for the same period in 2012. The increase in revenues in the laboratory field is explained by a strong first
quarter in fiscal 2013 where significant orders were placed by an important client.
The Company reported revenues of $119,000 under a manufacturing agreement in the high-power transformers field
for the year ended August 31, 2013 compared with revenues of $674,000 for the same period last year. Following the
sale of the transformer business in 2010, the manufacturing agreement has expired and Opsens will no longer be
involved in the transformers field.
As at August 31, 2013, the backlog amounted to $4,380,000 ($888,000 at August 31, 2012).
Given that a proportion of the Company's revenues is generated in U.S. dollars, fluctuations in the exchange rate
affect revenues and net loss. For the year ended August 31, 2013, the average exchange rate was approximately the
same than for 2012 and consequently, it had no effect on the total sales.
Market acceptance of fiber optic sensors is increasing in the Company’s markets. That being 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,
2013 and 2012, pricing fluctuations and new product launches did not have a significant impact on revenues.
Gross margin
The gross margin on product sales remained stable in fiscal year 2013 from a year earlier, going from $2,740,000 to
$2,746,000. However, the gross margin rate increased from 32% for the year ended August 31, 2012 to 36% for the
year ended August 31, 2013. The increase in the gross margin rate is explained by the completion of higher margin
contracts in oil and gas, laboratories and medical instrumentation and to a lesser extent by a change in business mix
where a higher proportion of gross margin was generated by businesses with gross margins above group average
such as our oil and gas and medical revenues.
The Company expects the gross margin rate for the Company to move toward its target of 40% as revenues grow.
Administrative expenses
Administrative expenses remained stable at $2,314,000 for the year ended August 31, 2013 compared to $2,304,000
for the year ended August 31, 2012.
Marketing expenses
Sales and marketing expenses were $954,000 for the year ended August 31, 2013 compared to $929,000 in 2012, an
increase of $25,000. The increase is explained by additional subcontractor fees incurred for the commercialization of
our products.
Research and development expenses
Research and development expenses amounted to $1,762,000 and $1,534,000, respectively, for the years ended
August 31, 2013 and 2012. The increase in the research and development expenses in 2013 when compared to 2012
is explained by costs incurred during the year for the FFR project because the verification and validation phase made
significant progress.
Financial expenses (revenues)
Financial expenses reached $100,000 for the year ended August 31, 2013 compared to financial revenues of $97,000
for fiscal year 2012. The increase in the financial expenses during fiscal year 2013 is explained by lower interest
revenues of $75,000 compared with last year explained by a lower balance on sale receivable, by an unfavourable
change of $61,000 in the gain (loss) on foreign exchange and by higher interest expense of $41,000 arising from the
issuance of the convertible debenture in November 2012.
Change in fair value of embedded derivative
The change in fair value of embedded derivative comes from the variance of the fair market value of the conversion
option component of the convertible debenture. The convertible debenture contains a cash settlement feature, which
under IAS 32, “Financial Instruments: Presentation”, is accounted for as a compound instrument with a debt
component and a separate embedded derivative representing the conversion option. Both the debt and embedded
derivative components of this compound financial instrument are measured at fair value on initial recognition. The
debt component is subsequently accounted for at amortized cost using the effective interest rate method. The
embedded derivative is subsequently measured at fair value at each reporting date with gains and losses in fair value
recognized through profit or loss. During the year, an amount of $17,000 was recorded as a gain in the consolidated
statement of loss.
Net loss
As a result of the foregoing, net loss for the year ended August 31, 2013 was $2,366,000 compared to $1,930,000 in
2012.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION DATA
(In thousands of Canadian dollars)
Current assets
Total assets
Current liabilities
Long-term liabilities
Shareholders' equity
As at
August 31,
2013
$
As at
August 31,
2012
$
As at
August 31,
2011
$
8,459
10,528
2,415
4,720
3,393
5,895
7,735
1,595
507
5,633
6,927
8,593
1,137
30
7,426
Total assets as at August 31, 2013 were $10,528,000 compared to $7,735,000 as at August 31, 2012. The increase is
mainly related to additional cash and cash equivalents arising from the issuance of the convertible debenture and to
the amount received for the distribution rights for its FFR products, to higher inventories level compared to last year
explained by the delay in the installations of the first OPP-W sensor systems from the 48-well contract and to the
investments in property, plant and equipment required to support future growth of the Company.
Long-term liabilities totalled $4,720,000 as at August 31, 2013 compared to $507,000 as at August 31, 2012, an
increase of $4,213,000. The increase is explained by the issuance of the convertible debenture and by the amount
received for the distribution rights of the FFR products accounted for as deferred revenues in the long-term portion
of the liabilities.
SUMMARY OF CONSOLIDATED QUARTERLY RESULTS
The summary below presents the periods in which Opsens published unaudited interim financial statements.
(Unaudited, in thousands of Canadian dollars) Three-month
period ended
August 31, 2013
Three-month
period ended
May 31, 2013
Three-month
period ended
February 28, 2013
Revenues
Net profit (net loss) for the period
Net profit (net loss) per share – Basic
Net profit (net loss) per share – Diluted
$
1,451
(1,075)
(0.02)
(0.02)
$
1,706
(689)
(0.01)
(0.01)
$
1,836
(623)
(0.01)
(0.01)
(Unaudited, in thousands of Canadian dollars) Three-month
period ended
August 31, 2012
Three-month
period ended
May 31, 2012
Three-month
period ended
February 28, 2012
Revenues
Net profit (net loss) for the period
Net profit (net loss) per share – Basic
Net profit (net loss) per share – Diluted
$
1,416
(639)
(0.01)
(0.01)
$
2,174
(357)
(0.01)
(0.01)
$
2,377
(675)
(0.01)
(0.01)
Three-month
period ended
November 30,
2012
$
2,533
21
0.00
0.00
Three-month
period ended
November 30,
2011
$
2,495
(259)
(0.01)
(0.01)
Historically, the Company’s revenues and net profit (net loss) results has experienced minimal seasonality. Seasonal
fluctuations have become more significant with the increase weighting of sales in the oil and gas field, since business
activity is generally greater in the fall and winter for this sector.
LIQUIDITY AND CAPITAL RESOURCES
On November 19, 2012, the Company announced the granting of distribution and other rights for OptoWire and
OptoMonitor, Opsens’ products for measuring FFR. Under the terms of the agreement, the Company received:
• US$3,000,000 for the distribution rights for its FFR products for Japan, Korea and Taiwan, which includes:
a. US$2,000,000 ($2,002,000) at signing;
b. US$1,000,000 once Opsens gets regulatory approval for its FFR devices in Japan;
• US$2,000,000 ($2,002,000) in subordinated secured convertible debenture, at signing.
The convertible debenture bears interest at a rate of 2.0% per annum payable at maturity which is November 19,
2017. At the holder’s option, the convertible debenture may be converted into common shares of the Company at any
time up to the maturity date at a conversion price representing the market price of the shares. However, the
conversion price is subject to a minimum of $0.50 and a maximum of $0.75 per common share (the “conversion
price”).
The convertible debenture is also convertible at the Company’s option at the conversion price if the volume-
weighted average closing price per common share for the twenty trading days immediately preceding the fifth
trading day before such conversion date is at least $1.20 and if a minimum of 50,000 common shares have traded on
the TSX Venture Exchange during each of the twenty trading days taken into account in the calculation of the
conversion price.
To secure the repayment of the convertible debenture, a movable hypothec on certain equipment has been given.
This hypothec will rank second to certain long-term loans of the Company.
As noted above, the convertible debenture contains a conversion option that will result in an obligation to deliver a
fixed amount of equity in exchange of a variable amount of convertible debenture when translated in the functional
currency of the Company. Consequently, under IAS 32, “Financial Instruments: Presentation”, the convertible
debenture is accounted for as a compound instrument with a debt component and a separate embedded derivative
representing the conversion option. Both the debt and embedded derivative components of this compound financial
instrument are measured at fair value on initial recognition. The debt component is subsequently accounted for at
amortized cost using the effective interest rate method. The embedded derivative is subsequently measured at fair
value at each reporting date with gains and losses in fair value recognized through profit or loss.
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 does not take into consideration any margining of accounts receivable and inventories. 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 insured 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 an agreement entered into with Canada Economic Development (“CED”), the Company may receive a
refundable contribution of a maximum amount $300,000, non-interest bearing, to cover expenses related to the
development of its OptoWire product for the Fractional Flow Reserve market. This contribution is paid out based on
the project’s percentage of completion at the rate of 40% of eligible expenses since February 1, 2013. During the
year ended August 31, 2013, the Company recognized for this refundable contribution an amount of $57,554 against
research and development expenses. As at August 31, 2013, an amount of $150,000 remained to be received under
the agreement.
At the end of the year ended August 31, 2012, the Company has received approval for financial support from the
Ministère des Finances et de l’Économie (“MFE”) in the form of a repayable contribution of $413,590 for the
development of a portfolio of products for FFR. As at August 31, 2013, $164,213 remains to be received under the
agreement.
As at August 31, 2013, the Company had cash and cash equivalents of $3,662,000 compared with $2,577,000 as at
August 31, 2012. Of this amount as at August 31, 2013, $2,974,000 was invested in highly liquid, safe investments.
As at August 31, 2013, Opsens had a working capital of $6,043,000, compared with a working capital of $4,300,000
as at August 31, 2012.
Based on the agreement announced on November 19, 2012 for the granting of distribution and other rights for FFR
products, on the debt financings with the MDEIE, the CED and its financial institution, on the private placement
completed on February 12, 2010, on the use of proceeds from the high-power transformers sale, on its cash and cash
equivalents, on 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
mid-term perspective, Opsens may need to raise additional financing by issuing equity securities and debt. From a
long-term perspective, there is uncertainty about obtaining additional financing, given the risks and uncertainties
identified in the Risks and Uncertainties section. Fluctuation in cash and cash equivalents will depend particularly on
the rate of revenue growth for the coming quarters.
For fiscal year 2014, the Company does not anticipate additional investments into the working capital.
SUMMARY OF CASH FLOWS
(In thousands of Canadian dollars)
Operating activities
Investing activities
Financing activities
Net change in cash and cash equivalents
Operating activities
Year Ended
August 31, 2013
$
Year Ended
August 31, 2012
$
(319)
(548)
2,044
1,177
(1,795)
60
544
(1,191)
Cash flows used by our operating activities for the year ended August 31, 2013 were $319,000 compared to
$1,795,000 for the same period last year, a decrease of $1,476,000. The decrease in the cash flows used by our
operating activities is explained by the amount of $2,002,000 received for the granting of distribution and other
rights for the FFR products and recognized as deferred revenues in the balance sheet and by an increase in the
accounts payable and accrued liabilities of $698,000, partly offset by the increase in inventories of $1,049,000 for the
year ended August 31, 2013 when compared to last year. The increase in inventories reflects the investments made
by the Company to prepare the installations of the OPP-W sensors from the 48-well contract that began in September
2013.
Investing activities
For the year ended August 31, 2013, cash flows used by our investing activities reached $548,000 and were used for
acquisitions of property, plant and equipment for an amount of $473,000 and $75,000 was used for additions to
intangible assets. Acquisitions of property, plant and equipment were made primarily for our oil and gas activities
and for our FFR project.
For the year ended August 31, 2012, cash flows generated by our investing activities reached $60,000. The proceeds
from assets disposal of $499,000 was partly offset by acquisitions of property, plant and equipment of $302,000 and
by additions to intangible assets of $137,000.
Financing activities
For the year ended August 31, 2013, cash flows generated by our financing activities reached $2,044,000. The
proceeds from the issuance of the convertible debenture of $2,002,000 and the increase in our long-term debt of
$265,000 were partly offset by the $191,000 payments on the long-term debt and by the $32,000 used for interest
payments.
For the year ended August 31, 2012, cash flows generated by our financing activities reached $544,000. The increase
in our long-term debt of $696,000 was partly offset by payments of $144,000 on the long-term debt and by the
$8,000 used for interest payments.
COMMITMENTS
Leases
The Company leases offices in Québec under operating leases expiring on January 31, 2015. These agreements are
renewable for an additional four-year period. Future rent, without considering the escalation clause, will amount to
$310,254.
The Company leases offices in Alberta under an operating lease expiring on April 30, 2015. This agreement is
renewable for an additional five-year period. Future rent, without considering the escalation clause, will amount to
$220,280.
Opsens Solutions Inc. rents five vehicles under operating leases expiring in September 2013, October 2013, May
2014 and July 2015. Future rent payments will amount to $30,664.
Future payments for the leases and other commitments, totalling $561,198, required in each of the next two years are
as follows:
2014
2015
Licence
$
363,530
197,668
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.
INFORMATION BY REPORTABLE SEGMENTS
Segment’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 installation of optical and conventional sensors for the oil and gas industry.
The same accounting policies are used for both reportable segments. Operations are carried out in the normal course
of operations and are measured at the exchange amount which approximates prevailing prices in the markets.
Years ended August 31,
2013
Opsens
Opsens Inc.
Solutions
Total Opsens inc.
2012
Total
Opsens
Solutions
Inc.
$
$
$
$
$
$
1,773,715
5,752,707
7,526,422
2,179,251
6,282,679
8,461,930
1,369,950
-
1,369,950
1,260,182
-
1,260,182
External sales
Internal sales
Depreciation of property,
plant and equipment
168,953
118,516
287,469
148,492
81,632
230,124
Amortization of
intangible assets
Financial expenses
(revenues)
Net profit (net loss)
Acquisition of property,
plant and equipment
Additions to
intangible assets
Segment assets
Segment liabilities
Geographic sector’s information
Revenue per geographic sector
Canada
United States
Other*
25,294
5,709
31,003
30,425
4,133
34,558
(193,991 )
293,764
99,773
(371,978 )
275,611
(96,367 )
(2,440,218 )
74,393
(2,365,825 )
(1,895,102 )
(34,576 )
(1,929,678 )
159,202
313,586
472,788
88,871
212,747
301,618
74,639
6,150,782
600
4,377,345
6,042,685
1,092,264
75,239
10,528,127
7,134,949
91,943
44,758
136,701
4,741,097
2,993,942
7,735,039
1,593,538
508,020
2,101,558
Years ended August 31,
2013
$
2012
$
5,825,550
571,160
1,129,712
6,396,767
1,297,038
768,125
7,526,422
8,461,930
* Comprised of revenues generated in countries for which amounts are individually no significant.
Revenues are attributed to 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, 2013, revenues from three clients represented individually more than 10% of the
total revenues of the Company, i.e. approximately 49.4% (Opsens Solutions Inc.’ reportable segment), 12.2%
(Opsens Solutions Inc.’ reportable segment) and 10.3% (Opsens Solutions Inc.’ reportable segment).
During the year ended August 31, 2012, revenues from two clients represented individually more than 10% of the
total revenues of the Company, i.e. approximately 47.4% (Opsens Solutions Inc.’ reportable segment) and
18.2% (Opsens Solutions Inc.’ reportable segment).
Opsens Inc. segment
For the year ended August 31, 2013, revenues from Opsens Inc. segment were $1,774,000 compared to $2,179,000
in 2012, a decrease of $405,000. The decrease is explained by the termination of the manufacturing agreement in the
high-power transformers field that negatively impacted our revenues by $555,000. The decrease was partly offset by
higher revenues in the laboratories field where significant revenues were realized with a governmental agency in the
United States.
Gross margin was $611,000 for the year ended August 31, 2013, compared to $847,000 for 2012, a decrease of
$236,000. The decrease in the gross margin is mainly explained by the decrease in the gross margin rate that went
from 25% for the year ended August 31, 2012 to 19% for the fiscal year 2013. The decrease of the gross margin rate
arises from the decrease in the revenues as explained above where a portion of the cost of sales is comprised of semi-
fixed costs which do not necessarily decrease at the same rate as revenues.
Net loss for the Opsens Inc. segment was $2,440,000 for the year ended August 31, 2013 compared to a net loss of
$1,895,000 for the year ended August 31, 2012. The increase in net loss reflects lower gross margin as explained
above and the increase in research and development expenses as explained in the “SELECTED CONSOLIDATED
FINANCIAL DATA” section of this MD&A. Finally, the increase in the net loss is explained by higher financial
expenses arising from the issuance of the convertible debenture in November 2012, by an unfavorable variance of
the gain (loss) on foreign exchange and by lower interest revenues when compared with the corresponding period in
2012 because of a lower balance on sale receivable.
The working capital of Opsens Inc. segment as at August 31, 2013 was $4,125,000 compared to $2,936,000 as at
August 31, 2012. The increase of $1,189,000 in the working capital is due to the amounts received by Opsens Inc.
following the signing of the distribution agreement with a Japanese medical company in November 2012 partly
offset by the cash flows used in our operating activities and investing activities amounting to $2,596,000 and
$234,000, respectively.
Opsens Solutions Inc. segment
For the year ended August 31, 2013, revenues from Opsens Solutions Inc. segment were $5,753,000 compared to
$6,283,000 in 2012, a decrease of $530,000. The decrease is explained by several oil & gas installations carried over
in time and by delays encountered for the installation of the first OPP-W systems for the 48-well contract that was
announced back in March.
Gross margin was $2,135,000 for the year ended August 31, 2013 compared to $1,893,000 in 2012, an increase of
$242,000. The increase of the gross margin is explained by an increase in the gross margin rate that increased from
30% in 2012 to 37% in 2013. The increase in the gross margin rate is explained by the completion of higher margin
contracts during the first quarter of fiscal 2013 and by increased efficiencies in the production department resulting
from better costs control.
Net profit (loss) for Opsens Solutions Inc. segment rose from a net loss of $35,000 in 2012 to a net profit of $74,000
in 2013. The increase in the net profit is mainly explained by the increase in the gross margin as explained
previously.
The working capital of Opsens Solutions Inc. segment as at August 31, 2013 was $2,095,000 compared to
$1,364,000 as at August 31, 2012. The increase of $731,000 in the working capital is explained by increased
inventory level as at August 31, 2013 to support future installations.
FOURTH QUARTER 2013
Revenues
Revenue totalled $1,451,000 for the quarter ended August 31, 2013 compared with $1,416,000 a year earlier. The
increase is mainly explained by higher revenues in the oil and gas field.
Gross margin
Gross margin was $321,000 for the three-month period ended August 31, 2013 compared to $405,000 for the same
period last year, a decrease of $84,000. The decrease in gross margin is primarily attributable to higher overhead
costs to cope with the expected growth in revenues for fiscal 2014.
Administrative expenses
Administrative expenses were $619,000 and $493,000 respectively for the three-month periods ended August 31,
2013 and 2012. The increase is explained by higher salaries and employee benefits resulting from the performance-
based compensation and to a lesser extent by additional recruiting fees of $38,000 compared with last year.
Marketing expenses
Marketing expenses for the quarter were $224,000 during the fourth quarter ended August 31, 2013, an increase of
$42,000 over the $182,000 reported during the same period in 2012. The increase is mainly explained by grants
received from the provincial government during the fourth quarter last year.
Research and development expenses
Research and development expenses totalled $525,000 for the quarter ended August 31, 2013, an increase of
177,000$ over the $348,000 reported during the same period in 2012. The variation is explained by the numerous
OptoWire devices manufactured during the last quarter of fiscal 2013 for the Verification and Validation phase.
Financial expenses (revenues)
Financial expenses reached $29,000 for the quarter ended August 31, 2013 compared to $20,000 in the same quarter
last year. The increase in the financial expenses is explained by higher interest expense of $14,000 related to the
convertible debenture issued in November 2012 and by an unfavourable change of $10,000 in the gain (loss) on
foreign exchange, partly offset by the change in fair value of embedded derivative of $17,000.
Change in fair value of embedded derivative
The change in fair value of embedded derivative comes from the variance of the fair market value of the conversion
option component of the convertible debenture. During the quarter, an amount of $18,000 was recorded as a gain in
the consolidated statement of loss.
Net loss
As a result of the foregoing, net loss for the quarter ended August 31, 2013 was $1,075,000 or 2 cent a share
compared to $639,000 or 1 cent a share for the same quarter in 2012.
INFORMATION ON SHARE CAPITAL
For the year ended August 31, 2013, the Company granted to some employees and Directors a total of 1,483,667
stock options with an average exercise price of $0.24, cancelled 46,000 stock options with an exercise price of $0.22
and 715,000 stock options with an exercise price of $0.77 expired.
For the year ended August 31, 2012, the Company granted to some employees and Directors a total of 1,684,000
stock options with an average exercise price of $0.22, cancelled 1,092,000 stock options with an exercise price of
$0.47 and 1,350,000 stock options with an exercise price of $0.47 expired.
As at the date of this MD&A, the following components of shareholders' equity are outstanding:
Common shares
Stock options
Convertible debenture
Securities on a fully diluted basis
47,905,983
4,161,667
4,000,000
56,067,650
The number of shares that would be issued upon conversion of the debenture may vary depending on various
parameters such as the exchange rate and the conversion price per share. In the table above, the conversion was
carried out on the assumption that the Canadian dollar is even with the U.S. dollar and the conversion price is equal
to the minimum conversion price which is $0.50 per share.
No dividend was declared per share for each share class.
RELATED-PARTY TRANSACTIONS
In the normal course of its operations, the Company has entered into transactions with related parties.
Years ended August 31,
2013
2012
$
$
34,216
34,937
34,216
34,937
Professional fees to a company
controlled by a director
Fees are incurred for the Company’s FFR activities.
FINANCIAL INSTRUMENTS
Fair Value
The fair value of cash and cash equivalents, trade and other receivables 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.
The fair value of the convertible debenture 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 the convertible debenture approximates $1,338,000 as at
August 31, 2013.
Valuation Techniques and Assumptions Applied for the Purposes of Measuring Fair Value
The Company must maximize the use of observable inputs and minimize the use of unobservable inputs when
measuring fair value. The Company primarily applies the market approach for recurring fair value measurements.
The three input levels used by the Company to measure fair value are the following:
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities. An active market for the asset
or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to
provide pricing information on an ongoing basis.
Level 2 – Quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs
that are observable or can be corroborated by observable market data for substantially the full term of the assets or
liabilities.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair
value of the assets or liabilities.
The following table summarizes the fair value hierarchy under which the Company’s financial instruments are
valued.
Financial assets (liabilities) measured at
fair value:
Convertible debenture – embedded
derivative
As at August 31, 2013
Total
Level 1
Level 2
Level 3
$
$
$
$
(34,012 )
-
(34,012 )
-
As at August 31, 2012, there were no assets or liabilities measured at fair value.
The convertible debenture contains an embedded derivative that must be measured at fair value at each reporting date
with gains and losses in fair value recognized through profit or loss. One of the most significant assumption
impacting the Company’s valuation of these embedded derivative is the implied volatility. For 2013, the Company
used an implied volatility of 122%. A 1% change in the implied volatility factor would have changed the fair value
of the embedded derivative by $321 and a 1% change in the credit spread factor would have changed the fair value of
the embedded derivative by $4,928.
Risk Management
The main risks arising from the Company’s financial instruments are credit risk, liquidity risk, interest rate risk and
foreign exchange risk. These risks arise from exposures that occur in the normal course of business and are managed
on a consolidated Company basis.
Credit Risk
Credit risk is the risk of an unexpected loss if a customer or counterparty to a financial instrument fails to meet its
contractual obligations. The Company regularly monitors credit risk exposure and takes steps to mitigate the
likelihood of this exposure resulting in losses. The Company's exposure to credit risk currently relates to cash and
cash equivalents and to trade and other receivables. 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.
Generally, the Company does not require collateral or other security from customers for trade accounts receivable;
however, credit is extended following an evaluation of creditworthiness. In addition, the Company performs ongoing
credit reviews of all of its customers and establishes an allowance for doubtful accounts when accounts are
determined to be uncollectible. Two major customers represent 64.4% of the Company’s accounts receivable as at
August 31, 2013 (71.4% as at August 31, 2012).
As at August 31, 2013, 12.8% (25.1% as at August 31, 2012) of the accounts receivable were of more than 90 days
whereas 42.8% (60.5% as at August 31, 2012) of those were less than 30 days. The maximum exposure to the risk of
credit for receivable corresponded to their book value. As at August 31, 2013, the allowance for doubtful accounts
was established at $21,000 ($21,861 on August 31, 2012).
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.
The maximum exposure to credit risk approximates the amount recognized in the consolidated statement of financial
position.
Liquidity Risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial
liabilities that are settled in cash or another financial asset. The Company’s approach is to ensure it will have
sufficient liquidity to meet operational, capital and regulatory requirements and obligations, under both normal and
stressed circumstances. Cash flow projections are prepared and reviewed quarterly by the Board of Directors to
ensure a sufficient continuity of funding. 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, 2013 and August 31, 2012:
August 31, 2013
Carrying
0 to 12
12 to 24
After
amount Cash flows
months
months
24 months
$
$
$
$
$
Accounts payable and
accrued liabilities
2,042,063
2,042,063
2,042,063
-
-
Long-term debt
765,104
943,130
201,884
181,137
560,109
Convertible debenture
2,129,811
2,316,600
-
-
2,316,600
Total
4,936,978
5,301,793
2,243,947
181,137
2,876,709
August 31, 2012
Carrying
0 to 12
12 months to
After
amount
Cash flows
months
24 months
24 months
$
$
$
$
$
Accounts payable and
accrued liabilities
1,343,905
1,343,905
1,343,905
Long-term debt
Total
Interest Rate Risk
673,380
837,302
195,523
2,017,285
2,181,207
1,539,428
-
164,247
164,247
-
477,532
477,532
The Company’s exposure to interest rate risk is summarized as follows:
Cash and cash equivalents
Trade and other receivables
Accounts payable and accrued liabilities
Long-term debt
Convertible debenture
Interest Rate Sensitivity Analysis
Fixed interest rates
Non-interest bearing
Non-interest bearing
Non-interest bearing, fixed and variable interest rates
Fixed interest rates
Interest rate risk exists when interest rate fluctuations modify the cash flows or the fair value of the Company’s
investments and embedded derivative. The Company owns investments with fixed interest rates. As of August 31,
2013, the Company was holding more than 81.2% (49.8% as at August 31, 2012) of its cash and cash equivalents in
all time redeemable term deposits.
For fiscal 2013, all else being equal, a hypothetical 1% interest rate increase would have had an unfavourable impact
of $3,700 on the net loss for the year ended August 31, 2013 (unfavourable impact of $3,400 on the net loss for the
year ended August 31, 2012). A hypothetical 1% interest rate decrease would have had a favourable impact of
$3,700 on the net loss for the year ended August 31, 2013 (favourable impact of $3,400 for the year ended August
31, 2012).
Financial expenses (revenues)
Interest and bank charges
Interest on long-term debt
Interest on convertible debenture
Loss (gain) on foreign currency translation
Interest income
Years ended August 31,
2013
$
54,108
39,307
39,599
26,638
(59,735 )
99,117
2012
$
34,500
27,634
-
(34,184 )
(124,317 )
(96,367 )
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, 2013 and 2012, the Company was holding 100% of
its cash equivalents portfolio in all-time redeemable term deposits with the same financial institution.
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.
Foreign currency sensitivity analysis
For the years ended August 31, 2013 and 2012, if the Canadian dollar had strengthened 10% against the US dollar
with all other variables held constant, net loss would have been $154,000 lower for the year ended August 31, 2013
(net loss would have been $39,000 lower for the year ended August 31, 2012). Conversely, if the Canadian dollar
had weakened 10% against the US dollar with all other variables held constant, net loss would have been $154,000
higher for the year ended August 31, 2013 (net loss would have been $39,000 higher for the year ended August 31,
2012).
As at August 31, 2013 and August 31, 2012, the risk to which the Company was exposed is established as follows:
Cash and cash equivalents (US$1,620,546)
Trade and other receivables (US$186,033)
Accounts payable and accrued liabilities
(US$296,434)
Convertible debenture (US$1,990,316)
Embedded derivative (US$32,300)
Total
CAPITAL MANAGEMENT
As of
August 31,
2013
$
1,706,435
195,892
(356,149 )
(2,095,799 )
(34,012 )
(583,633 )
As of
August 31,
2012
$
498,551
205,388
(292,195 )
-
-
411,744
The Company's objective in managing capital, primarily composed of shareholders' equity, long-term debt and the
convertible debenture, is to ensure sufficient liquidity to fund R&D activities, general and administrative expenses,
working capital and capital expenditures.
In the past, the Company has had access to liquidity by non-dilutive sources, including the sale of non-core assets,
investment tax credits and grants, interest income and by dilutive source such as public equity offerings.
As at August 31, 2013, the Company's working capital amounted to $6,043,352, including cash and cash equivalents
of $3,662,259. The accumulated deficit at the same date was $15,274,768. Based on the Company's assessment,
which took into account current cash levels, as well as its strategic plan and corresponding budgets and forecasts, the
Company believes that it has sufficient liquidity and financial resources to fund planned expenditures and other
working capital needs for at least, but not limited to, the 12-month period following the statement of financial
position date of August 31, 2013
The Company believes that its current liquid assets are sufficient to finance its activities in the short-term.
The Company manages the capital structure and make adjustments to it in light of changes in economic conditions
and the risk characteristics of the underlying assets. Capital management objectives, policies and procedures have
remained unchanged since the last fiscal year.
For the years ended August 31, 2013 and 2012, the Company has not been in default under any of its obligations
regarding the long-term debt.
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.
On a mid-term perspective, it is possible that additional financing, through the issuance of shares or debt financing or
any other means of financing might be required.
During the next year, the activity level should not require 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.
From the human resources’ perspective, there are no vacancies in the major executive and technical positions 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.
NEW ACCOUNTING STANDARDS
There are no IFRSs or International Financial Reporting Interpretations Committee ("IFRIC") that are effective for
the first time in 2013 that would be expected to have a material impact on the Company.
Adopted in 2013
In June 2011, the IASB amended IAS 1, Presentation of Financial Statements ("IAS 1"), to change the disclosure of
items presented in other comprehensive income into two groups, based on whether those items may be recycled to
profit or loss in the future. The amendments to IAS 1 apply to financial statements for annual periods beginning after
July 1, 2012, with early adoption permitted.
Not yet adopted
Financial Instruments
a.
IFRS 9, “Financial Instruments”
IFRS 9, “Financial Instruments” was issued in November 2009 and addresses classification and measurement of
financial assets. It replaces the multiple category and measurement models in IAS 39, “Financial Instruments:
Recognition and Measurement” for debt instruments with a new mixed measurement model consisting of only two
categories: amortized cost and fair value through profit or loss. IFRS 9 also replaces the models for measuring equity
instruments. Such instruments are either recognized at fair value through profit or loss or at fair value through other
comprehensive income. Where equity instruments are measured at fair value through other comprehensive income,
dividends are recognized in profit or loss to the extent that they do not clearly represent a return on investment.
However, other gains and losses (including impairment losses) related to such instruments remain in accumulated
other comprehensive income indefinitely. Requirements for financial liabilities were added to IFRS 9 in October
2010, largely carrying forward existing requirements in IAS 39, except that changes in fair value due to credit risk
for liabilities designated at fair value through profit or loss are generally recorded in other comprehensive income. In
July 2013, the International Accounting Standards Board (“IASB”) confirmed that the January 1, 2015 initial
adoption date will be deferred. The Company is currently evaluating the impact of adopting this new standard on its
financial statements. The Company does not intend to opt for early adoption.
b.
IAS 32, “Financial Instruments : Presentation”
In December 2011, the IASB issued amendments to IAS 32, “Financial Instruments: Presentation”, clarifying the
requirements for offsetting financial assets and liabilities. The amendments will be effective for fiscal years
beginning on or after January 1, 2014. The IASB also issued amendments to IFRS 7, “Financial Instruments:
Disclosure”, improving disclosure on offsetting of financial assets and liabilities. IFRS 7 will be effective for annual
and interim periods beginning on or after January 1, 2013 and IAS 32 will be effective for annual and interim periods
beginning on or after January 1, 2014. The Company is currently evaluating the impact of adopting these
amendments on its financial statements. The Company does not intend to opt for early adoption.
Consolidation
In May 2011, the IASB issued the following standards: IFRS 10, “Consolidated Financial Statements”, IFRS 11,
“Joint Arrangements” and IFRS 12, “Disclosure of Interests in Other Entities”. Each of the new standards is effective
for annual periods beginning on or after January 1, 2013 with early adoption permitted. The Company has assessed
that the new and amended standards will have no significant impact on the consolidated financial statements and
decided not to early adopt any of the new requirements.
a.
IFRS 10, “Consolidated Financial Statements”
IFRS 10, “Consolidated Financial Statements” requires an entity to consolidate an investee when it is exposed, or has
rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its
power over the investee. Under existing IFRS, consolidation is required when a company has the power to govern
the financial and operating policies of an entity so as to obtain benefits from its activities. IFRS 10 replaces Standing
Interpretations Committee (“SIC”) 12, “Consolidation - Special Purpose Entities” and parts of IAS 27, “Consolidated
and Separate Financial Statements”.
b.
IFRS 11, “Joint Arrangements”
IFRS 11, “Joint Arrangements” requires a venturer to classify its interest in a joint arrangement as a joint venture or
joint operations. Joint ventures will be accounted for using the equity method of accounting while for a joint
operation the venturer will recognize its share of the assets, liabilities, revenues and expenses of the joint operation.
Under existing IFRS, entities have the choice to proportionately consolidate or equity account for interests in joint
ventures. IFRS 11 replaces IAS 31, “Interests in Joint Ventures” and SIC 13, “Jointly Controlled Entities - Non-
monetary Contributions by Venturers”.
c.
IFRS 12, “Disclosure of Interests in Other Entities”
IFRS 12, “Disclosure of Interests in Other Entities” establishes disclosure requirements for interests in other entities,
such as joint arrangements, associates, special purpose vehicles and off consolidated statement of financial position
vehicles. This standard carries forward existing disclosures and also introduces significant additional disclosures
requirements that address the nature of, and risks associated with, an entity's interests in other entities.
Fair Value Measurement
IFRS 13, “Fair Value Measurement” is a comprehensive standard for fair value measurement and disclosure
requirements for use across all IFRS standards. The new standard clarifies that fair value is the price that would be
received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, at the
measurement date. It also establishes disclosures about fair value measurement. Under existing IFRS, guidance on
measuring and disclosing fair value is dispersed among the specific standards requiring fair value measurements and
in many cases does not reflect a clear measurement basis or consistent disclosures.
This new standard applies to fiscal years beginning on or after January 1, 2013. The Company is currently evaluating
the impact of adopting this new standard on its financial statements. The Company does not intend to opt for early
adoption.
RISK FACTORS AND UNCERTAINTIES
The Company operates in an industry that contains various risks and uncertainties. The risks and uncertainties listed
below are not the only ones to which the Company is subject. Additional risks and uncertainties not presently known
by the Company, or which the Company deems to be currently insignificant, may impede the Company’s
performance. The materialization of one of the following risks could harm the Company’s activities and have
significant negative impacts on its financial situation and its operating results. In that case, the Company’s stock
price could be affected.
Intellectual property and exclusive rights
In order to protect its intellectual property rights, the Company relies on a combination of laws related to patents and
trademarks, trade secrets, confidentiality procedures and contractual provisions. Despite the Company’s best efforts
to protect its intellectual property rights, unauthorized individuals may attempt to copy certain aspects of the
Company’s products or obtain information that the Company considers to be its property. The monitoring of the
unauthorized use of exclusive technologies, if applicable, may prove difficult, time consuming and expensive. In
addition, the laws of certain countries in which the Company’s products will be sold do not protect their products and
their related intellectual property rights in the same way as the laws of Canada and the United States. There is no
certainty that the Company will successfully protect its intellectual property rights, which could unfavourably affect
it. Patents applications, claims, PCTs and Continuations in Part filed by the Company could be incomplete, invalid,
circumvented or deemed not applicable. Legal proceedings could prove necessary to carry out patent applications,
claims, PCTs and Continuation in Part. These cases could lead to considerable expenses without any guarantee of
success. Intellectual property rights could be disputed. Despite the Company’s best efforts to ensure its right to
market its products on its target markets, competitor patents could impede the sales potential of certain products.
Quality problems with processes and products
The manufacture of the Company’s products is a highly exacting and complex process, due in part to strict regulatory
requirements. Failure to manufacture its products in accordance with product specifications could result in increased
costs, lost revenues, field corrective actions, customer dissatisfaction or voluntary product recalls, any of which
could harm the Company’s profitability and commercial reputation. Problems may arise during manufacturing for a
variety of reasons, including equipment malfunction, failure to follow specific protocols and procedures, problems
with raw materials, natural disasters and environmental factors. Quality is extremely important to the Company and
its customers due to the serious and costly consequences of product failure. The Company’s quality certifications are
critical to the marketing success of its products. If the Company fails to meet these standards, its reputation could be
damaged, it could lose customers and its revenues and results of operations could decline. Aside from specific
customer standards, the Company’s success depends generally on its ability to manufacture to exact tolerances
precision-engineered components, subassemblies and finished devices from multiple materials. If the Company’s
components fail to meet these standards or fail to adapt to evolving standards, its reputation as a manufacturer of
high-quality devices will be harmed, its competitive advantage could be damaged and the Company could lose
customers and market share.
Competition and technological obsolescence
Competitors and new companies could launch new products or new medical procedures. In order to remain on the
cutting edge of technology, the Company may need to launch a new generation of products and develop 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 markets targeted by the
Company is strong and is likely to increase. Some of the Company’s competitors have significantly greater financial,
technical, distribution and marketing resources than the Company. Technological progress and product development
could make the Company's products obsolete or reduce their value.
Product failures and mistakes
The Company’s 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 the Company 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
The Company 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.
Delays in planned product introductions
The Company is currently developing new products as well as product enhancements with respect to its existing
products. The Company has in the past experienced, and may again in the future experience, delays in various phases
of product development and commercial launch, including during research and development, manufacturing, limited
release testing, marketing and customer education efforts. Any delays in its product launches may significantly
impede the Company’s ability to successfully compete in its markets and may reduce its revenues.
The Company and its present and future collaborators may fail to develop or effectively commercialize products
covered by its present and future collaborations if:
•
•
•
the Company does not achieve its objectives under its collaboration agreements;
the Company or its collaborators are unable to obtain patent protection for the products or proprietary
technologies it develops in its collaborations; or
the Company or its collaborators encounter regulatory hurdles that prevent commercialization of its
products.
If the Company or its collaborators are unable to develop or commercialize products, the Company will be delayed
or prevented from developing and commercializing products, which will harm its business and financial results.
Divestitures of any businesses or product lines
The Company continues to evaluate the performance of all of its businesses and may sell a business or product line.
Any divestitures may result in significant write-offs, including those related to goodwill and other intangible assets,
which could have a material adverse effect on the Company’s business, results of operations and financial condition.
Divestitures could involve additional risks, including difficulties in the separation of operations, services, products
and personnel, the diversion of management's attention from other business concerns, the disruption of its business
and the potential loss of key employees. The Company may not be successful in managing these or any other
significant risks that it encounters in divesting a business or product line.
Future capital requirements
The Company incurred operating losses in the past fiscal years. The Company’s ability to satisfy its obligations and
to finance future activities depends on its capacity to reach a profitability level or to be supported by its shareholders
and creditors. Nothing guarantees that the Company will be able to attract the capital required to continue the
development and the marketing of its technologies. In the event that the Company does not manage to find additional
capital, this could have unfavourable impacts on the Company’s activities, revenues, financial situation and operating
results.
Revenues
The Company draws most of its revenues from the sale of products such as sensors and signal contitioners in the oil
and gas. The Company feels that the revenues from these products will continue to represent a significant share of
the Company’s revenues for the foreseeable future. Consequently, the Company is particularly vulnerable to
fluctuations in the demand in this market. Therefore, if demand for the Company’s products decreases significantly
in this market, the Company and the operating results could be unfavourably affected.
Labour and key personnel
The Company depends on the services of its engineers, technical employees and key management personnel. The
loss of one of these people could have a significant unfavorable impact on the Company, its operating results and its
financial position. The success of the Company 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 the Company cannot ensure that it will be able to bring in and
retain highly skilled technical and management personnel in the future. Its inability to bring in and retain
management and technical personnel and the necessary sales and marketing employees could have unfavourable
impacts on its growth and future profitability. The Company 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 the Company can develop its market share significantly in its targeted markets, thus
affecting its profitability. The Company’s expected rapid growth might create significant pressure on management,
operations and technical resources. The Company foresees increased operating and personnel expenses in the future.
In order to manage its growth, the Company 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 the
Company will be able to manage its business growth. The Company’s 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 the Company operates could force it to reduce its prices. If its competitors offer
large discounts on certain products and services in order to gain market share or sell products and services, the
Company 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 the
Company’s competitors could offer products and services that compete with theirs for promotional purposes or as
part of a long-term pricing strategy or offer price guarantees or product implementation. With time, these practices
could limit the prices that the Company may charge for its products and services. If the Company cannot offset these
price reductions with a corresponding increase in sales or decreased expenses, the decreased revenues from the sale
of products and services could unfavourably affect its profits margins and operating results.
Currency exchange rate
The Company expects that a significant portion of Opsens Inc. segment revenues be denominated in American
dollars while a greater part of Opsens Solutions Inc. segment expenses are incurred in American dollars. The
exchange rate fluctuations between the two currencies may have an unfavourable impact on its activities, financial
position and operating results. Based on future prospects in the FFR market, the proportion of sales denominated in
American dollars should increase in the coming years. This change could have the effect of reducing the risk on a
consolidated basis.
Restrictive clauses
The Company has a restrictive clause regarding working capital in the agreement with its financial institution. If this
restrictive clause is not respected, the Company may need to allocate a portion of its working capital to repaying a
loan valued at $325,524 as ay August 31, 2013.
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 Corporate Secretary
(s) Thierry Dumas
_______________
November 25, 2013
Consolidated Financial Statements
Opsens Inc.
Years ended August 31, 2013 and 2012
Opsens Inc.
Years ended August 31, 2013 and 2012
Table of contents
Independent Auditor’s Report ............................................................................................................................ 1-2
Consolidated Statements of Loss and Comprehensive Loss ................................................................................ 3
Consolidated Statements of Changes in Equity ................................................................................................. 4-5
Consolidated Statements of Financial Position ..................................................................................................... 6
Consolidated Statements of Cash Flows .............................................................................................................. 7
Notes to Consolidated Financial Statements ................................................................................................... 8-43
Deloitte s.e.n.c.r.l.
925 Grande Allée West
Suite 400
Québec QC G1S 4Z4
Canada
Tel.: 418-624-3333
Fax. : 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 statements of financial position as at August 31, 2013 and 2012, and
the consolidated statements of loss and comprehensive loss, changes in 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 International Financial Reporting Standards 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 audits 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.
Membre de / Member of Deloitte Touche Tohmatsu
Independent 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, 2013 and 2012, and its financial performance
and its cash flows for the years then ended in accordance with International Financial Reporting
Standards.
November 25, 2013
____________________
1 CPA auditor, CA, public accountancy permit No A112991
Opsens Inc.
Consolidated Statements of Loss and Comprehensive Loss
Years ended August 31, 2013 and 2012
Revenues
Sales
Cost of sales
Gross margin
Expenses (revenues) (note 25)
Administrative
Marketing
Research and development
Financial expenses (revenues) (note 26)
Change in fair value of embedded derivative (note 14)
2013
$
2012
$
7,526,422
8,461,930
4,779,824
5,721,529
2,746,598
2,740,401
2,313,634
2,303,747
953,716
928,784
1,762,161
1,533,915
99,917
(17,005 )
(96,367)
-
5,112,423
4,670,079
Net loss and comprehensive loss
(2,365,825 )
(1,929,678)
Net loss per share (note 16)
Basic
Diluted
(0.05 )
(0.05 )
(0.04)
(0.04)
The accompanying notes are an integral part of the consolidated financial statements.
Opsens Inc.
Consolidated Statements of Changes in Equity
Years ended August 31, 2013 and 2012
Common
Stock
Common
Reserve – Stock option
shares
options
Total
shares
Warrants
(number)
(number)
(number)
$
$
plan
$
Deficit
Total
$
$
Reserve –
Balance as at
August 31, 2012
47,865,983
3,419,000
51,284,983
15,201,618
2,190,382
1,150,424
(12,908,943)
5,633,481
Options granted (note 15b)
Options forfeited (note 15b)
Options cancelled (note 15b)
Stock-based compensation
(note 15b)
Net loss
Balance as at
-
-
-
-
-
1,483,667
1,483,667
(715,000)
(715,000)
(46,000)
(46,000)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
125,522
-
-
-
-
-
-
-
125,522
-
(2,365,825)
(2,365,825)
August 31, 2013
47,865,983
4,141,667
52,007,650
15,201,618
2,190,382
1,275,946
(15,274,768)
3,393,178
The accompanying notes are an integral part of the consolidated financial statements.
Opsens Inc.
Consolidated Statements of Changes in Equity
Years ended August 31, 2013 and 2012
Common
Stock
Common
Reserve –
Stock option
shares
Warrants
options
Total
shares Warrants
plan
Deficit
Total
(number)
(number)
(number)
(number)
$
$
$
$
$
Reserve –
Balance as at
August 31, 2011
47,865,983
2,443,049
4,177,000 54,486,032 15,201,618
2,190,382
1,013,335
(10,979,265)
7,426,070
Options granted (note 15b)
Options forfeited (note 15b)
Options cancelled (note 15b)
Warrants expired (note 15c)
Stock-based compensation
(note 15b)
Net loss
Balance as at
-
-
-
-
-
-
-
-
-
1,684,000
1,684,000
(1,350,000)
(1,350,000)
(1,092,000)
(1,092,000)
(2,443,049)
-
(2,443,049)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
137,089
-
137,089
-
(1,929,678)
(1,929,678)
August 31, 2012
47,865,983
-
3,419,000 51,284,983 15,201,618
2,190,382
1,150,424
(12,908,943)
5,633,481
The accompanying notes are an integral part of the consolidated financial statements.
Opsens Inc.
Consolidated Statements of Financial Position
As of August 31, 2013 and 2012
Assets
Current
Cash and cash equivalents (note 17)
Trade and other receivables (note 5)
Income tax credits receivable (note 22)
Work in progress
Inventories (note 6)
Prepaid expenses
Property, plant and equipment (note 7)
Intangible assets (note 8)
Goodwill (note 9)
Liabilities
Current
Accounts payable and accrued liabilities (note 11)
Warranty provision (note 19)
Deferred revenues
Current portion of long-term debt (note 13)
Deferred revenues (note 12)
Long-term debt (note 13)
Convertible debenture (note 14)
Shareholders’ equity
Share capital (note 15a)
Reserve – Stock option plan
Reserve – Warrants
Deficit
Commitments (note 18)
2013
$
2012
$
3,662,259
959,857
565,086
55,491
3,028,306
187,672
8,458,671
998,461
394,421
676,574
10,528,127
2,042,063
144,783
51,188
177,285
2,415,319
2,002,000
587,819
2,129,811
7,134,949
2,576,586
901,311
299,395
-
1,979,073
138,773
5,895,138
813,142
350,185
676,574
7,735,039
1,343,905
84,273
-
166,404
1,594,582
-
506,976
-
2,101,558
15,201,618
1,275,946
2,190,382
(15,274,768 )
3,393,178
10,528,127
15,201,618
1,150,424
2,190,382
(12,908,943)
5,633,481
7,735,039
The accompanying notes are an integral part of the consolidated financial statements.
Approved by the board
Signed [Jean Lavigueur] director
Signed [Louis Laflamme] director
Opsens Inc.
Consolidated Statements of Cash Flows
Years ended August 31, 2013 and 2012
Operating activities
Net loss
Adjustments for:
Depreciation of property, plant
and equipment
Amortization of intangible assets
Stock-based compensation costs
Change in fair value of embedded derivative
Interest expense (revenues)
Effect of foreign exchange rate changes on cash
and cash equivalents
Unrealized foreign exchange gain (loss)
Changes in non-cash operating
working capital items (note 17)
Investing activities
Acquisition of property, plant and equipment
Additions to intangible assets
Proceeds of assets disposal
Financing activities
Proceeds from the issuance of the convertible debenture
Increase in long-term debt
Reimbursement of long-term debt
Interest paid
Effect of foreign exchange rate changes on cash
and cash equivalents
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents – Beginning of year
Cash and cash equivalents – End of year
2013
$
2012
$
(2,365,825 )
(1,929,678)
287,469
31,003
125,522
(17,005 )
90,324
91,116
104,105
230,124
34,558
137,089
-
(62,456)
(19,921)
(4,019)
1,333,996
(180,640)
(319,295 )
(1,794,943)
(472,788 )
(75,239 )
-
(548,027 )
2,002,000
265,222
(191,025 )
(32,086 )
2,044,111
(301,618)
(136,701)
498,740
60,421
-
695,601
(143,963)
(7,771)
543,867
(91,116 )
19,921
1,085,673
2,576,586
3,662,259
(1,170,734)
3,747,320
2,576,586
The accompanying notes are an integral part of the consolidated financial statements.
Additional information on the consolidated statements of cash flows is presented in note 17.
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2013 and 2012
1.
Incorporation and Description of Business
Opsens Inc. (the “Company”) is incorporated under the Business Corporation Act (Quebec). The Company is
focusing on two main growth markets, oil and gas and Fractional Flow Reserve (“FFR”). The Company is also
involved in laboratories activities. Opsens develops, manufactures, supplies and installs systems for measuring
parameters of pressure, temperature and others. These systems are designed around patented technologies
that are effective and durable in extreme conditions. The Company’s head office is located at 125-2014, Cyrille-
Duquet, Quebec, Quebec, Canada, G1N 4N6.
2. Summary of Significant Accounting Policies
The significant accounting policies used in the preparation of the consolidated financial statements are as
follows:
Basis of Measurement
The consolidated financial statements have been prepared under the historical cost convention, except for the
embedded derivative, which is measured at fair value.
Basis of Preparation
The Company prepares its consolidated financial statements in accordance with the International Financial
Reporting Standards (IFRS) as set out in the Canadian Institute of Chartered Accountants (CICA) Handbook.
The Company has consistently applied the accounting policies throughout all fiscal years presented.
The preparation of consolidated financial statements in conformity with IFRS requires the use of certain critical
accounting estimates. It also requires management to exercise its judgement in the process of applying the
Company's accounting policies. The areas involving a higher degree of judgement or complexity, or areas
where assumptions and estimates are significant to the consolidated financial statements are disclosed in
note 3.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and those of its wholly-owned
subsidiary, Opsens Solutions Inc. All intra-group transactions, balances, revenues and expenses are eliminated
in full on consolidation until they are realized with a third party.
Subsidiaries
Subsidiaries are all entities controlled by the Company. Control is achieved where the Company has the power
to govern the financial and operating policies of an entity so as to obtain benefits from its activities, and
continue to be consolidated until the date that such control ceases.
Changes in the parent company’s ownership interest in subsidiaries that do not result in a loss of control are
accounted for as equity transactions.
Revenue Recognition
Opsens Inc. reportable segment revenues related to the sales of products are measured at the fair value of the
consideration received or receivable upon shipment of the product and when the risks and rewards of
ownership have been transferred to the customer, when there is no continuing managerial involvement to the
degree usually associated with ownership nor effective control over the goods sold, when the amount of
revenue can be measured reliably and when the recovery of the consideration is probable and the associated
costs and possible return of goods can be measured.
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2013 and 2012
2. Summary of Significant Accounting Policies (continued)
Revenue Recognition (continued)
Opsens Solutions Inc. reportable segment revenues related to the sale of 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 and contract costs incurred but not yet invoiced
and the payments received. For contracts where billings exceed contract costs incurred to date plus recognized
profits less recognized losses, the excess is shown on the consolidated statement of financial position as
deferred revenues. Losses are recorded as soon as they become apparent.
Reporting Currency and Foreign Currency Transactions
The consolidated financial statements are presented in Canadian dollars, which is also the functional currency
of the Company, as this is the principal currency of the economic environment in which it operates.
Foreign currency transactions are translated into Canadian dollars as follows: monetary assets and liabilities
are translated at the exchange rate in effect at the consolidated statements of financial position date,
non-monetary assets and liabilities are translated at historical rates, revenues and expenses are translated at
the exchange rates in effect at the time of the transaction and exchange gains and losses resulting from
translation are reflected in the consolidated statements of loss.
Research and Development Costs
Research costs are expensed as incurred. Development costs are expensed as incurred except for those which
meet generally accepted criteria for deferral, in which case, the costs are capitalized and amortized to
operations over the estimated period of benefit. No costs have been deferred during any of the periods
presented.
Research and Development Refundable Tax Credits and Government Assistance
Refundable research and development (“R&D”) tax credits and government assistance are accounted for using
the cost reduction method. Accordingly, refundable R&D tax credits and government assistance are recorded
as a reduction of the related expenses or capital expenditures in the period the expenses are incurred, provided
that the Company has reasonable assurance the refundable R&D tax credits or government assistance will be
realized.
Stock-based Compensation and Other Stock-based Payments
The Company offers a stock option plan described in note 15, which is determined as an equity-settled plan,
and issues warrants to certain investors from time to time.
The Company uses the fair value-based 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 recognized
in the consolidated statements of loss over the vesting period and are credited to the stock option plan reserve.
Any consideration received by the Company upon the exercise of stock options is credited to share capital, and
the stock option plan reserve component resulting from stock-based compensation is transferred to share
capital upon the issuance of the shares.
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2013 and 2012
2. Summary of Significant Accounting Policies (continued)
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 essentially determined using the
weighted average cost. The cost of work in progress and finished goods comprises the cost of raw materials,
direct labor costs and an allocation of fixed and variable manufacturing overhead, including applicable
depreciation of property, plant and equipment based on normal production capability.
Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of
completion and selling expenses. Inventories are written down to net realizable value when the cost of
inventories is determined not to be recoverable. When the circumstances that previously caused the inventories
to be written down below cost no longer exist or when there is clear evidence of an increase in net realizable
value because of changed economic circumstances, the amount of the write-down is reversed. The reversal is
limited to the amount of the original write-down.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost, less accumulated depreciation and accumulated
impairment losses, if any. The cost of property, plant and equipment includes the purchase price and the
directly attributable costs of acquisition.
Depreciation is recorded using the straight-line method based on estimated useful lives, taking into account any
residual value, as follows:
Office furniture and equipment
Production equipment
Automotive equipment
Research and development equipment
Research and development computer equipment
Computer equipment
Leasehold improvements
10 years
7 years
7 years
7 years
3 years
3 years
Remaining lease terms
between seventeen
and twenty months
Depreciation methods, residual values and useful lives of property, plant and equipment are reviewed annually.
Any change is accounted for prospectively as a change in accounting estimates.
Intangible Assets
Intangible assets with finite useful lives consist of patents and software. They are recorded at cost and
amortization is recorded using the straight-line method based on estimated useful lives taking into account any
residual values, as follows:
Patents
Software
Term of underlying
patent, 5 to 20 years
3 years
The Company’s indefinite-life intangible assets consist of trademarks resulting from a business combination
and are not amortized.
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2013 and 2012
2. Summary of Significant Accounting Policies (continued)
Goodwill
Goodwill represents the excess of the purchase price of an acquisition over the fair value of the Company’s
share of the identifiable net assets of acquired businesses at the date of acquisition. Goodwill is carried at cost
less any accumulated impairment losses. Goodwill is allocated to each Cash Generating Unit (“CGU”) or group
of CGUs that is expected to benefit from the related business combination. A CGU is the smallest identifiable
group of assets that generates cash inflows that are largely independent of cash inflows from other assets or
group of assets. Gains and losses on the disposal of an entity include the carrying amount of goodwill related to
the entity sold.
Impairment of Non-financial Assets
Goodwill and Indefinite-Life Intangible Assets
The carrying values of identifiable intangible assets with indefinite life and goodwill are tested annually for
impairment. Goodwill and indefinite-life intangible assets are allocated to CGUs for the purpose of impairment
testing based on the level at which management monitors it, which is not higher than an operating segment.
The allocation is made to those CGUs that are expected to benefit from the business combination in which
goodwill arose. The Company has elected to carry its annual impairment test during the last quarter of each
year or at any time if an indicator of impairment exist.
Non-Financial Assets with Definite Useful Life
The carrying values of non-financial assets with definite useful life, such as property, plant and equipment and
intangible assets with definite useful life, are assessed for impairment whenever events or changes in
circumstances indicate that their carrying amounts may not be recoverable. If any such indication exists, the
recoverable amount of the asset must be determined. Such assets are impaired if their recoverable amount is
lower than their carrying amount. If it is not possible to estimate the recoverable amount of an individual asset,
the recoverable amount of the CGU to which the asset belongs is tested for impairment.
Recognition of Impairment Charge
The recoverable amount is the higher of an asset’s fair value less costs to sell or its value in use. If the
recoverable amount of an asset or CGU is estimated to be less than its carrying amount, the carrying amount
of the asset or CGU is reduced to its recoverable amount. The resulting impairment loss is recognized in the
consolidated statements of loss. Impairment losses recognized in prior periods are determined at each
reporting date for any indications that the loss has decreased or no longer exists. When an impairment loss is
subsequently reversed, the carrying amount of the asset or CGU is increased to the revised estimate of its
recoverable amount so that the increased carrying amount does not exceed the carrying amount that would
have been recorded had no impairment losses been recognized for the asset or CGU in prior years. An
impairment loss recognized for goodwill cannot be reversed.
Leases
Leases are classified as either operating or finance, based on the substance of the transaction at the inception
of the lease. The Company leases certain office premises and equipment in which a significant portion of the
risks and rewards of ownership are retained by the lessor. These are classified as operating leases. Payments
made under these leases (net of any incentives received from the lessor) are charged to the consolidated
statements of loss on a straight-line basis over the period of the lease.
Finance leases which transfer to the Company substantially all the risks and benefits of ownership of the asset
are capitalized at the inception of the lease at the fair value of the leased asset or at the present value of the
minimum lease payments. Finance expenses are charged to the consolidated statements of loss over the
period of the agreement. Obligations under finance leases are included in financial liabilities net of finance
costs allocated to future periods. Capitalized leased assets are depreciated over the shorter of the estimated
life of the asset or the lease term.
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2013 and 2012
2. Summary of Significant Accounting Policies (continued)
Warranty Provision
The Company offers a standard 12-month warranty for surface materials.
For downhole materials, the Company guarantees that the downhole materials shall be free from defects but
given that the downhole environmental conditions are not exactly known, the Company does not guarantee the
performance of the downhole materials once they have entered the wellbore. The estimated cost of the
warranty is based on the history of defective products and accessories, the probability that these defects will
arise and the costs to repair them.
Income Taxes
Income tax expenses comprise current and deferred income taxes. Income taxes are recognized in the
consolidated statements of loss except to the extent that it relates to items recognized directly in equity, in
which case the income taxes are also recognized directly in equity.
Current Income Taxes
The current income tax assets and liabilities for the current and prior periods are measured at the amount
expected to be paid to or recovered from the taxation authorities. The income tax rates used to calculate the
amount are those that are enacted or substantively enacted at the consolidated statements of financial position
date in the tax jurisdiction where the Company and its subsidiary generate taxable income/loss.
Deferred Income Taxes
The Company provides for deferred income taxes using the liability method. Under this method, deferred
income tax assets and liabilities are determined based on deductible or taxable temporary differences between
carrying values and tax values of assets and liabilities as well as the carryforward of unused tax losses and
deductions, using enacted or substantively enacted income tax rates expected to be in effect for the years in
which the assets are expected to be realized or the liabilities settled.
Deferred income tax assets are recognized only to the extent that it is probable that taxable profits will be
available against which the deductible temporary differences can be utilized. The carrying amount of deferred
tax assets is reviewed at each statement of financial position date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax liabilities are generally recognized for all taxable temporary differences and for taxable temporary
differences arising on investments in subsidiaries, except where the reversal of the temporary differences can
be controlled and it is probable that the differences will not reverse in the foreseeable future. However, deferred
tax is not recognized if it arises from the initial recognition of goodwill or the initial recognition of an asset or
liability in a transaction other than a business combination that, at the time of the transaction, affects neither
accounting nor taxable profit or loss.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets
against current tax liabilities and when the deferred tax assets and liabilities relate to income taxes levied by the
same taxation authority on either the same taxable entity or different taxable entities where there is an intention
to settle the balances on a net basis.
Deferred income tax assets and liabilities are presented as non-current in the consolidated statements of
financial position.
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2013 and 2012
2. Summary of Significant Accounting Policies (continued)
Loss per Share
Basic net loss per share is calculated by dividing the net loss for the year attributable to equity owners of the
Company by the weighted-average number of common shares outstanding during the year.
Diluted net loss per share is calculated by dividing the net loss for the year attributable to equity owners of the
Company adjusted for the interests on the convertible debenture net of tax and for the change in fair value of
embedded derivative, net of tax by the weighted-average number of common shares outstanding during the
year, plus the effects of dilutive common share equivalents. This method requires that diluted net loss per share
be calculated using the treasury stock method, as if all dilutive potential common share equivalents had been
exercised at the beginning of the reporting period, or period of issuance, as the case may be, and that the
funds obtained thereby be used to purchase common shares of the Company at the fair value of the common
shares during the period.
Financial Instruments
a) Classification
Financial assets and liabilities are recognized when the Company becomes a party to the contractual
provisions of the instrument. Financial assets are derecognized when the rights to receive cash flows from
the assets have expired or have been transferred and the Company has transferred substantially all risks
and rewards of ownership.
Financial assets and liabilities are offset and the net amount reported in the consolidated statements of
financial position when there is a legally enforceable right to offset the recognized amounts and there is an
intention to settle on a net basis, or realize the assets and settle the liability simultaneously.
At initial recognition, the Company classifies its financial instruments in the following categories,
depending on the purpose for which the instruments are required:
Loans and receivables: Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. The Company’s loans and receivables
are comprised of cash and cash equivalents and trade and other receivables and are included in the
current assets due to their short-term nature. Loans and receivables are initially recognized at fair
value plus transaction costs. Subsequently, loans and receivables are measured at amortized cost
using the effective interest method, which generally corresponds to the nominal amount due to their
short-term maturity, less a provision for impairment.
Financial liabilities at amortized cost: Financial liabilities at amortized cost include accounts payable
and accrued liabilities, long-term debt and the debt component of the convertible debenture. They are
initially recognized at fair value less transaction costs. Subsequently, they are measured at amortized
cost using the effective interest method.
Financial liabilities are classified as current liabilities if payment is due within twelve months.
Otherwise, they are presented as non-current liabilities.
Derivative financial instruments: Derivative financial instruments are comprised of the embedded
derivative representing the conversion option of the convertible debenture. The embedded derivative
has been classified as held-for-trading and is included in the consolidated statement of financial
position within the convertible debenture. It is classified as non-current based on the contractual terms
specific to the instrument. Gains and losses on re-measurement of the embedded derivative are
recognized in the consolidated statements of loss.
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2013 and 2012
2. Summary of Significant Accounting Policies (continued)
Financial Instruments (continued)
b)
Impairment of financial assets
A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial
recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows
of that asset that can be estimated reliably.
Objective evidence that financial assets are impaired can include default or delinquency by a debtor and
indications that a debtor or issuer will enter bankruptcy.
c) Compound Financial Instrument
The compound financial instrument issued by the Company consists of the convertible debenture that can
be converted into common shares of the Company at the option of the holder. Since the debenture is
convertible into shares and contains a cash settlement feature, as described in note 14, it is accounted for
as a compound instrument with a debt component and a separate embedded derivative representing the
conversion option also classified as a liability. Both the debt and embedded derivative components of this
compound financial instrument are measured at fair value on initial recognition.
The debt component is subsequently accounted for at amortized cost using the effective interest rate
method. The embedded derivative is subsequently measured at fair value at each reporting date, with
gains and losses in fair value recognized in the consolidated statements of loss.
3. Critical Accounting Estimates, Assumptions and Judgments
The preparation of the Company’s consolidated financial statements requires management to make judgments,
estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and
the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in a
material adjustment to the carrying value of the asset or liability affected. The estimates, assumptions and
judgments that have a risk of causing a material adjustment to the carrying amounts of assets and liabilities
within the next financial year are addressed below:
Inventories
The Company states its inventories at the lower of cost, determined with the weighted-average cost basis
method, and net realizable value, and provides reserves for excess and obsolete inventories. The Company
determines its reserves for excess and obsolete inventories based on the quantities on hand at the reporting
dates, compared to foreseeable needs over the next twelve months, taking into account changes in demand,
technology or market.
Useful Life of Depreciable Assets
Management reviews the useful life of depreciable assets at each reporting date. As at August 31, 2013,
management assesses that the useful lives represent the expected utility of the assets to the Company. The
carrying amounts are presented in notes 7 and 8. Actual results, however, may vary due to technical
obsolescence or changes in the market, particularly for computer equipment and software.
Impairment of Goodwill
The Company performs an annual test for goodwill impairment, or when there is any indication that goodwill
has suffered impairment, in accordance with the accounting policy stated in the summary of significant
accounting policies of the consolidated financial statements. The recoverable amounts of CGUs have been
determined based on fair value less costs to sell calculations using the discounted future cash flows method
and the market-based method. These calculations require the use of estimates, such as assumptions and
judgments, and determination of CGUs. Information on goodwill is presented in note 9.
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2013 and 2012
3. Critical Accounting Estimates, Assumptions and Judgments (continued)
Government Assistance and Research and Development Tax Credits
Government assistance and research and development tax credits are recorded in the consolidated financial
statements when there is reasonable assurance that the Company has complied with, and will continue to
comply with, all of the conditions necessary to obtain the government assistance and research and
development tax credits.
Warranty Provision
The Company estimated warranty provision based on the history of defective products and the probability that
these defects will arise, as well as the related costs.
Revenue Recognition
Delivery generally occurs when the product is handed over to a transporter for shipment. At the time of the
transaction, the Company assesses whether the price associated with its revenue transaction is fixed or
determinable and whether or not collection is reasonably assured. The Company assesses collection based on
a number of factors, including past transaction history and the creditworthiness of the customer.
Stock-based Compensation
The Company uses judgment in assessing expected life, volatility, risk-free interest rate, as well as the
estimated number of options that will ultimately vest.
For all these items, relevant accounting policies are discussed in the other parts of note 2.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognized in the period in which the estimates are revised if the revision affects only that period
or in the period of the revision and future periods, if the revision affects both the current and future periods.
4. Future Accounting Changes
Financial Instruments
a.
IFRS 9, “Financial Instruments”
IFRS 9, “Financial Instruments” was issued in November 2009 and addresses the classification and
measurement of financial assets. It replaces the multiple category and measurement models in IAS 39,
“Financial Instruments: Recognition and Measurement”, for debt instruments with a new mixed measurement
model consisting of only two categories: amortized cost and fair value through profit or loss. IFRS 9 also
replaces the models for measuring equity instruments. Such instruments are either recognized at fair value
through profit or loss or at fair value through other comprehensive income. Where equity instruments are
measured at fair value through other comprehensive income, dividends are recognized in profit or loss to the
extent that they do not clearly represent a return on investment. However, other gains and losses (including
impairment losses) related to such instruments remain in accumulated other comprehensive income
indefinitely. Requirements for financial liabilities were added to IFRS 9 in October 2010, largely carrying forward
existing requirements in IAS 39, except that changes in fair value due to credit risk for liabilities designated at
fair value through profit or loss are generally recorded in other comprehensive income. In July 2013, the
International Accounting Standards Board (“IASB”) confirmed that the January 1, 2015 initial adoption date will
be deferred. The Company is currently evaluating the impact of adopting this new standard on its financial
statements. The Company does not intend to opt for early adoption.
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2013 and 2012
4. Future Accounting Changes (continued)
Financial Instruments (continued)
b.
IAS 32, “Financial Instruments : Presentation”
In December 2011, the IASB issued amendments to IAS 32, “Financial Instruments: Presentation”, clarifying
the requirements for offsetting financial assets and liabilities. The amendments will be effective for fiscal years
beginning on or after January 1, 2014. The IASB also issued amendments to IFRS 7, “Financial Instruments:
Disclosure”, improving disclosure on offsetting of financial assets and liabilities. IFRS 7 will be effective for
annual and interim periods beginning on or after January 1, 2013 and IAS 32 will be effective for annual
periods beginning on or after January 1, 2014. The Company is currently evaluating the impact of adopting
these amendments on its financial statements. The Company does not intend to opt for early adoption.
Consolidation
In May 2011, the IASB issued the following standards: IFRS 10, “Consolidated Financial Statements”, IFRS 11,
“Joint Arrangements” and IFRS 12, “Disclosure of Interests in Other Entities”. Each of the new standards is
effective for annual periods beginning on or after January 1, 2013, with early adoption permitted. The Company
has assessed that the new and amended standards will have no significant impact on the consolidated financial
statements and decided not to early adopt any of the new requirements.
a.
IFRS 10, “Consolidated Financial Statements”
IFRS 10, “Consolidated Financial Statements,” requires an entity to consolidate an investee when it is exposed,
or has rights, to variable returns from its involvement with the investee and has the ability to affect those
returns through its power over the investee. Under existing IFRS, consolidation is required when a company
has the power to govern the financial and operating policies of an entity so as to obtain benefits from its
activities. IFRS 10 replaces Standing Interpretations Committee (“SIC”) 12, “Consolidation - Special Purpose
Entities” and parts of IAS 27, “Consolidated and Separate Financial Statements”.
b.
IFRS 11, “Joint Arrangements”
IFRS 11, “Joint Arrangements” requires a venturer to classify its interest in a joint arrangement as a joint
venture or joint operations. Joint ventures will be accounted for using the equity method of accounting while for
a joint operation the venturer will recognize its share of the assets, liabilities, revenues and expenses of the
joint operation. Under existing IFRS, entities have the choice to proportionately consolidate or equity account
for interests in joint ventures. IFRS 11 replaces IAS 31, “Interests in Joint Ventures” and SIC 13, “Jointly
Controlled Entities - Non-monetary Contributions by Venturers.”
c.
IFRS 12, “Disclosure of Interests in Other Entities”
IFRS 12, “Disclosure of Interests in Other Entities”, establishes disclosure requirements for interests in other
entities, such as joint arrangements, associates, special purpose vehicles and off consolidated statement of
financial position vehicles. This standard carries forward existing disclosures and also introduces significant
additional disclosures requirements that address the nature of, and risks associated with, an entity's interests in
other entities.
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2013 and 2012
4. Future Accounting Changes (continued)
Fair Value Measurement
IFRS 13, “Fair Value Measurement”, is a comprehensive standard for fair value measurement and disclosure
requirements for use across all IFRS standards. The new standard clarifies that fair value is the price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. It also establishes disclosures about fair value measurement. Under
existing IFRS, guidance on measuring and disclosing fair value is dispersed among the specific standards
requiring fair value measurements and in many cases does not reflect a clear measurement basis or consistent
disclosures.
This new standard applies to fiscal years beginning on or after January 1, 2013. The Company is currently
evaluating the impact of adopting this new standard on its financial statements. The Company does not intend
to opt for early adoption.
5. Trade and other receivables
Trade
Allowance for doubtful accounts
Sales taxes receivable
Government assistance receivable
Total
Allowance for doubtful accounts variation
Balance – Beginning of year
Unused amounts reversed during the year
Additional provisions recognized
Balance – End of year
6.
Inventories
Raw materials
Finished goods
Total
As of
August 31,
2013
$
836,570
(21,000 )
40,041
104,246
959,857
As of
August 31,
2012
$
724,383
(21,861)
38,075
160,714
901,311
Years ended August 31,
2013
$
(21,861 )
861
-
(21,000 )
2012
$
(3,082 )
-
(18,779)
(21,861)
As of
August 31,
2013
$
1,234,566
1,793,740
3,028,306
As of
August 31,
2012
$
795,918
1,183,155
1,979,073
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2013 and 2012
7. Property, Plant and Equipment
Office
Leased
office
Research and
development Research and
equipment, development
net of
computer
income tax
equipment,
credits and
net of
furniture
furniture
Leased
government
income tax
and
and
Production
automotive
assistance of
credits of
Computer
Leasehold
equipment
equipment
equipment
equipment
$55,303
$3,078
equipment
improvements
$
$
$
$
$
$
$
$
Total
$
Cost
Balance at August 31, 2012
Additions
Balance at August 31, 2013
103,407
4,031
107,438
Accumulated depreciation
Balance at August 31, 2012
Depreciation
Balance at August 31, 2013
57,118
8,078
65,196
8,326
-
8,326
7,071
833
7,904
607,245
329,036
936,281
165,456
114,787
280,243
59,028
-
59,028
42,542
8,433
50,975
889,852
84,027
973,879
647,308
94,940
742,248
30,979
6,585
37,564
29,585
2,470
32,055
185,653
31,548
217,201
173,076
14,994
188,070
111,091
1,995,581
17,561
472,788
128,652
2,468,369
60,283
42,934
1,182,439
287,469
103,217
1,469,908
Net book value
at August 31, 2013
42,242
422
656,038
8,053
231,631
5,509
29,131
25,435
998,461
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2013 and 2012
7. Property, Plant and Equipment (continued)
Office
Leased
office
Research and
development Research and
equipment, development
net of
computer
income tax
equipment,
credits and
net of
furniture
furniture
Leased
government
income tax
and
and
Production
automotive
assistance of
credits of
Computer
Leasehold
equipment
equipment
equipment
equipment
$23,834
$3,078
equipment
improvements
$
$
$
$
$
$
$
$
Total
$
Cost
Balance at August 31, 2011
Additions
Balance at August 31, 2012
89,320
14,087
103,407
Accumulated depreciation
Balance at August 31, 2011
Depreciation
Balance at August 31, 2012
49,769
7,349
57,118
8,326
-
8,326
6,757
314
7,071
405,209
202,036
607,245
89,135
76,321
165,456
59,028
-
59,028
35,476
7,066
42,542
828,610
61,242
889,852
560,253
87,055
647,308
30,599
180,691
380
4,962
92,180
18,911
1,693,963
301,618
30,979
185,653
111,091
1,995,581
27,776
1,809
29,585
149,230
23,846
173,076
33,919
26,364
60,283
952,315
230,124
1,182,439
Net book value
at August 31, 2012
46,289
1,255
441,789
16,486
242,544
1,394
12,577
50,808
813,142
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2013 and 2012
8.
Intangible Assets
Indefinite
lives –
Trademarks
$
200
-
200
-
-
-
Limited
lives –
Patents
$
30,000
-
30,000
-
-
-
Limited lives –
software,
net of
income tax
credits of
$1,518
$
Internally
developed
Limited
lives –
Patents
$
Total
$
61,056
6,589
67,645
49,439
5,784
55,223
423,070
68,650
514,326
75,239
491,720
589,565
114,702
25,219
164,141
31,003
139,921
195,144
Cost
Balance as at August 31, 2012
Additions
Balance as at August 31, 2013
Accumulated amortization
Balance as at August 31, 2012
Amortization
Balance as at August 31, 2013
Net book value
as at August 31, 2013
200
30,000
12,422
351,799
394,421
Indefinite
lives –
Trademarks
$
200
-
200
-
-
-
Limited
lives –
Patents
$
-
30,000
30,000
-
-
-
Limited lives –
software,
net of
income tax
credits of
$1,518
$
49,795
11,261
61,056
46,152
3,287
49,439
Internally
developed
Limited
lives –
Patents
$
Total
$
327,630 377,625
95,440 136,701
423,070 514,326
83,431 129,583
34,558
31,271
114,702 164,141
Cost
Balance as at August 31, 2011
Additions
Balance as at August 31, 2012
Accumulated amortization
Balance as at August 31, 2011
Amortization
Balance as at August 31, 2012
Net book value
as at August 31, 2012
200
30,000
11,617
308,368 350,185
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2013 and 2012
9. Goodwill
The Company performs its annual test for goodwill in the fourth quarter, in accordance with its policy described
in note 2. For the purposes of the impairment test, goodwill was entirely allocated to Opsens Solutions Inc.’s
CGU. The recoverable value of the CGU of Opsens Solutions Inc. was based on fair value less cost to sell.
The fair value less cost to sell approach is predicated on the value of the future cash flows that a business will
generate going forward. The discounted cash flow method is used, which involves projecting cash flows and
converting them into a present value through discounting. The discounting performed uses a rate of return that
is commensurate with the risk associated with the business and the time value of money. This approach
requires assumptions about revenue growth rates, operating margins, tax rates and discount rates.
Revenue growth rates and operating margins are based on the Company’s approved budget. The Company
projects revenue, operating margins and cash flows for a period of five years, and applies a perpetual long-
term growth rate thereafter. In arriving at its forecasts, the Company considers past experience, economic
trends such as inflation, as well as industry and market trends. The projections also take into account the
expected impact of new product and service initiatives. The Company assumes a discount rate to calculate the
present value of projected cash flows, representing a pre-tax discount rate using a weighted-average cost of
capital (“WACC”) for the Company, adjusted for income taxes, and is an estimate of the total overall required
rate of return on an investment for both debt and equity owners. Determination of the WACC requires separate
analysis of the cost of equity and debt, and considers a risk premium based on an assessment of risks related
to the projected cash flows of the Company.
The Company projects cash flows net of income taxes using enacted or substantively enacted tax rates
effective during the forecast periods. Tax assumptions are sensitive to changes in tax laws as well as
assumptions about the jurisdictions in which profits are earned. It is possible that actual tax rates could differ
from those assumed.
The determination of the value in use was based on the following key assumptions:
Growth rate
Long-term growth rate
Discount rate
As of
As of
August 31,
August 31,
2013
%
4
4
17.9
2012
%
4
4
17.9
Based on the discounted cash flow calculations, the recoverable amount of Opsens Solutions Inc.’s CGUs
exceeded its carrying value. The recoverable amount of Opsens Solutions Inc.’s CGU amounted to $4,445,000
as at August 31, 2013 and 2012.
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2013 and 2012
10. Authorized Line of Credit
The Company has an authorized line of credit for a maximum amount of $200,000, $50,000 of which is
available at all times and 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 insured 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. The credit line was not used as at
August 31, 2013 and 2012.
The Company also has credit cards for a maximum of $85,000 to finance its current operations. The balance
used on these credit cards bears interest at the financial institution’s prime rate plus 7%.
11. Accounts payable and accrued liabilities
As of
As of
August 31,
August 31,
2013
$
982,136
375,681
684,246
2012
$
541,637
314,924
487,344
2,042,063
1,343,905
Suppliers
Salaries, employee benefits and others
Other liabilities
Total
12. Deferred Revenues
On November 19, 2012, the Company announced the granting of distribution and other rights for OptoWire and
OptoMonitor, Opsens’ products for measuring Fractional Flow Reserve (FFR). Under the terms of the
agreement, the Company received:
US$3 million for the distribution rights for its FFR products for Japan, Korea and Taiwan, which includes:
a. US$2 million at signing (“upfront license fee”);
b. US$1 million once Opsens gets regulatory approval for its FFR devices in Japan (“milestone
payment”);
US$2 million in convertible debenture, at signing, as described in note 14 of these consolidated financial
statements.
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2013 and 2012
12. Deferred Revenues (continued)
The Company shall reimburse the upfront license fee upon the occurrence of any of the following events:
a. The Company fails to obtain regulatory approval for the OptoWire and the OptoMonitor within five
years of the agreement date for all the following geographic regions: Canada, European Union and the
United States;
b. The Company abandons the development of the OptoWire and OptoMonitor before obtaining the
milestone payment;
c. The Company materially breaches any terms of the agreement or is subject to bankruptcy.
Because the Company doesn’t have regulatory approvals, it has recorded the $2,002,000 (US$2,000,000)
upfront license fee as deferred revenues.
The Company believes that the three conditions for a reimbursement of the upfront license fee listed above will
not occur over the next twelve months. Consequently, the deferred revenues have been recorded in the long-
term liabilities section of the consolidated statement of financial position.
13. Long-term Debt
As of
August 31,
2013
$
As of
August 31,
2012
$
Desjardins Loan, bearing interest at prime rate plus 2.4%, payable in
monthly instalments of $10,905 and a final payment of $9,286, maturing
in February 2016
325,524
456,382
Contributions repayable to Ministère des Finances et de l’Économie
(MFE), without interest, repayable in five equal and consecutive annual
instalments of $49,875, maturing in September 2018
Debt balance
Imputed interest
249,377
(74,863 )
174,514
249,377
(108,409)
140,968
Term loans, bearing interest at rates varying from 5.69% to 6.79%,
payable in monthly instalments of $3,161, including interest, maturing in
November and December 2017
140,718
-
Amounts carried forward
640,756
597,350
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2013 and 2012
13. Long-term Debt (continued)
As of
August 31,
2013
$
As of
August 31,
2012
$
Amounts carried forward
640,756
597,350
Contributions repayable to Canada Economic Development, without
interest, repayable in twenty equal and consecutive quarterly instalments
of $7,408, maturing in August 2020
Debt balance
Imputed interest
148,158
(64,293 )
83,865
-
-
-
Capital lease, bearing interest at 7.25%, payable in monthly instalments
of $1,029, including interest, and a final payment of $1,029, maturing in
September 2016
34,011
43,522
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
6,472
15,420
Contributions repayable to Canada Economic Development, without
interest, repayable in five equal and consecutive annual instalments of
$39,567 and $20,000, matured in June 2013
Debt balance
Imputed interest
Capital lease, bearing interest at 13.5%, payable in monthly instalments
of $140, including interest, and a final payment of $740, matured in
October 2012
Current portion
-
-
-
19,996
(3,772)
16,224
-
765,104
177,285
587,819
864
673,380
166,404
506,976
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2013 and 2012
13. Long-term Debt (continued)
Principal payments required over the next five years are as follows:
Obligations – Capital lease
Total
payments
$
19,053
12,350
12,350
992
-
Imputed
interest
$
2,364
1,362
540
6
-
Principal
payments
$
16,689
10,988
11,810
986
-
2014
2015
2016
2017
2018
Debt and
principal portion
of capital
lease
Other
debts
$
$
160,596
162,555
139,588
74,553
58,689
177,285
173,543
151,398
75,539
58,689
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. As at August 31, 2013 and
2012, these financial ratios were met by the Company.
14. Convertible Debenture
Debt component reported as long-term liability (US$1,990,316)
Embedded derivative reported as long-term liability (US$32,300)
Total
As of
As of
August 31,
August 31,
2013
$
2,095,799
34,012
2,129,811
2012
$
-
-
-
On November 19, 2012, the Company issued a US$2,000,000 ($2,002,000) subordinated secured convertible
debenture maturing November 19, 2017. The convertible debenture bears interest at a rate of 2.0% per annum,
payable at maturity. At the holder’s option, the convertible debenture may be converted into common shares of
the Company at any time up to the maturity date, at a conversion price representing the market price of the
shares. However, the conversion price is subject to a minimum of $0.50 and a maximum of $0.75 per common
share (the “conversion price”).
The convertible debenture is also convertible at the Company’s option at the conversion price if the volume-
weighted average closing price per common share for the twenty trading days immediately preceding the fifth
trading day before such conversion date is at least $1.20 and if a minimum of 50,000 common shares have
traded on the TSX Venture Exchange during each of the twenty trading days taken into account in the
calculation of the conversion price.
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2013 and 2012
14. Convertible Debenture (continued)
To secure the repayment of the convertible debenture, a movable hypothec on certain equipment has been
given. As at August 31, 2013, the net book value of property, plant and equipment pledged as collateral was
$66,000 ($99,300 as at August 31, 2012). This hypothec will rank second to certain long-term loans of the
Company.
As noted above, the convertible debenture contains a conversion option that will result in an obligation to
deliver a fixed amount of equity in exchange of a variable amount of convertible debenture when translated in
the functional currency of the Company. Consequently, under IAS 32, “Financial Instruments: Presentation”,
the convertible debenture is accounted for as a compound instrument with a debt component and a separate
embedded derivative representing the conversion option. Both the debt and embedded derivative components
of this compound financial instrument are measured at fair value on initial recognition. The debt component is
subsequently accounted for at amortized cost using the effective interest rate method. The embedded
derivative is subsequently measured at fair value at each reporting date, with gains and losses in fair value
recognized through profit or loss.
Financial expenses (revenues) associated with the debenture consist of:
Interest expense on face value
Notional interest representing accretion
Change in fair value of embedded derivative
Total
Years ended August 31,
2013
$
33,069
7,639
(17,005 )
23,703
2012
$
-
-
-
-
As at August 31, 2013, the convertible debenture has an estimated fair value of $1,338,000.
15. Share Capital, Stock-Options and Warrants
a) Share capital
Authorized, unlimited number
Common shares, voting and participating, without par value
Issued and fully paid
Balance as at August 31, 2013 and 2012
47,865,983
15,201,618
Number
Amount
$
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2013 and 2012
15. Share Capital, Stock-Options and Warrants (continued)
b) Stock options
The Shareholders approved the stock option plan on January 21, 2013 because, according to the policies of
the TSX Venture Exchange, the stock option plan must be approved by the Company’s shareholders every
year. 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 the TSX Venture Exchange.
The exercise period cannot exceed five years, beginning on the grant date. These options generally vest
over a four-year period, except for 580,000 outstanding options granted, which were completely vested at
grant date. The exercise price of the options is the closing price of the shares of the Company on the TSX
Venture on the trading day immediately preceding the date of grant.
The compensation expense in regards to the stock option plan for the year ended August 31, 2013 is
$125,522 ($137,089 for the year ended August 31, 2012).
The fair value of options granted in 2013 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
Weighted share price
Weighted fair value per option at the
grant date
Years ended August 31,
2013
2012
Between 1.20% and 1.72%
Between 0.93% and 1.25%
Between 89% and 134%
Between 62% and 88%
Nil
5 years
$0.24
$0.15
Nil
5 years
$0.22
$0.12
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 expected volatility is based on the historical volatility of the underlying share price for a period
equivalent to the expected remaining life of the options.
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2013 and 2012
15. Share Capital, Stock-Options and Warrants (continued)
b) Stock options (continued)
The situation of the outstanding stock option plan and the changes that took place between
August 31, 2011 and August 31, 2013 are as follows:
Outstanding as at August 31, 2011
Options granted
Options forfeited
Options cancelled
Outstanding as at August 31, 2012
Options granted
Options forfeited
Options cancelled
Outstanding as at August 31, 2013
Options exercisable as at
August 31, 2013
Number of
options
4,177,000
1,684,000
(1,350,000 )
(1,092,000 )
3,419,000
1,483,667
(715,000 )
(46,000 )
4,141,667
Weighted-
average
exercise
price
$
0.51
0.22
0.47
0.47
0.39
0.24
0.77
0.22
0.27
1,500,313
0.33
The table below provides information on the outstanding stock options as at August 31, 2013:
Number of outstanding stock
options
Number of exercisable stock
options
Weighted-average
remaining contractual life
(years)
Exercise price
$
0.20
0.21
0.23
0.24
0.25
0.35
0.36
0.37
0.38
0.40
0.60
0.64
1.15
813,000
250,000
870,000
80,000
1,103,667
278,000
115,750
181,250
250,000
90,000
50,000
50,000
10,000
4,141,667
265,750
-
292,500
80,000
-
169,000
86,813
181,250
225,000
90,000
50,000
50,000
10,000
1,500,313
3.85
4.36
3.21
4.24
4.39
2.84
1.71
0.62
2.08
0.27
0.82
0.79
1.21
3.37
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2013 and 2012
15. Share Capital, Stock-Options and Warrants (continued)
c) Warrants
The situation of the outstanding warrants and the changes that took place between August 31, 2011 and
August 31, 2012 are as follows:
Outstanding as at August 31, 2011
Warrants expired
Outstanding as at August 31, 2012
Number of
warrants
2,443,049
(2,443,049 )
-
Weighted-
average
exercise
price
$
1.11
1.11
-
Warrants exercisable as at August 31, 2012
-
-
i) Warrants expired
During the year ended August 31, 2012, 2,443,049 warrants entitling its holder to acquire one common
share of the Company at an average price of $1.11 per share expired.
16. Loss per Share
The table below presents a reconciliation between the basic net loss and the diluted net loss per share:
Net loss attributable to shareholders
Basic and diluted
Number of shares
Years ended August 31,
2013
$
2012
$
(2,365,825 )
(1,929,678)
Basic and diluted weighted-average number of shares outstanding
47,865,983
47,865,983
Amount per share
Net loss per share
Basic
Diluted
(0.05 )
(0.05 )
(0.04)
(0.04)
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2013 and 2012
16. Loss per Share (continued)
Stock options and warrants are excluded from the calculation of the diluted weighted-average number of
shares outstanding when their exercise price is greater than the average market price of common shares. The
number of such stock options and warrants is presented below:
Stock options
Warrants
Years ended August 31,
2013
2012
1,025,000
-
1,745,000
2,443,049
For the years ended August 31, 2013 and 2012, the diluted amount per share was the same amount as the
basic amount per share, since the dilutive effect of the stock options and convertible debenture was not
included in the calculation; otherwise, the effect would have been antidilutive. Accordingly, the diluted amount
per share for these years was calculated using the basic weighted average number of shares outstanding.
17. Additional Information on the Statements of Cash Flows
Changes in non-cash operating working capital items
Trade and other receivables
Income tax credits receivable
Work in progress
Inventories
Prepaid expenses
Accounts payable and accrued liabilities
Warranty provision
Deferred revenues
Cash and cash equivalents
Cash
Short-term investments
Years ended August 31,
2013
$
2012
$
(58,546 )
(265,691 )
(55,491 )
(1,049,233 )
(48,899 )
698,158
60,510
2,053,188
1,333,996
As of
August 31,
2013
$
(316,137)
(30,248)
-
(208,464)
(8,129)
372,797
9,541
-
(180,640)
As of
August 31,
2012
$
687,881
2,974,378
3,662,259
1,292,845
1,283,741
2,576,586
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2013 and 2012
18. Commitments
Leases
The Company leases offices in Québec under operating leases expiring on January 31, 2015. These
agreements are renewable for an additional four-year period. Future rent, without considering the escalation
clause, will amount to $310,254.
The Company leases offices in Alberta under an operating lease expiring on April 30, 2015. This agreement is
renewable for an additional five-year period. Future rent, without considering the escalation clause, will amount
to $220,280.
Opsens Solutions Inc. rents five vehicles under operating leases expiring in September 2013, October 2013,
May 2014 and July 2015. Future rent payments will amount to $30,664.
Future payments for the leases and other commitments, totalling $561,198, required in each of the forthcoming
years are as follows:
2014
2015
In 2013, the offices lease expense is $367,188 ($295,221 in 2012).
Licence
$
363,530
197,668
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, 2013,
the year ended
August 31, 2012) for guarantees. A provision for $144,783 is recorded for guarantees as of August 31, 2013
($84,273 as at August 31, 2012). The following table summarizes changes in warranty provision:
the Company recognized an expense of $158,470 ($99,741
for
Balance – Beginning of year
Additional provisions recognized
Amounts used during the year
Balance – End of year
Years ended August 31,
2013
$
84,273
158,470
(97,960 )
144,783
2012
$
74,732
99,741
(90,200)
84,273
This provision estimate is based on past experience. 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.
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2013 and 2012
20. Government Assistance
Under an agreement entered into with Canada Economic Development (CED), the Company may receive a
refundable contribution of a maximum amount of $300,000, non-interest bearing, to cover expenses related to
the development of its OptoWire product for the Fractional Flow Reserve market. This contribution is paid out
based on the project’s percentage of completion at the rate of 40% of eligible expenses since February 1,
2013. During the year ended August 31, 2013, the Company recognized for this refundable contribution an
amount of $57,554 against research and development expenses. As at August 31, 2013, an amount of
$150,000 remained to be received under the agreement.
Under an agreement reached with the National Research Council Canada with respect to the Industrial
Research Assistance Program (IRAP), the Company may receive a non-refundable contribution for a maximum
amount of $262,500 to cover some of its incurred costs to develop a new product. During the year ended
August 31, 2013, the Company recorded contributions totalling $183,486 which were accounted against
research and development expenses.
Under an agreement reached with the Ministère des Finances et de l’Économie, the Company was granted a
non-refundable contribution of $100,000 to cover some of its expenses incurred for the market development of
its products. For the year ended August 31, 2012, the Company recorded contributions of $44,502 and
$23,533, which were accounted respectively against marketing expenses and administration expenses.
Under an agreement reached with the Ministère des Finances et de l’Économie, the Company was granted a
refundable contribution of $413,590, non-interest bearing, to cover some of its incurred costs to carry out
development of the OptoWire for Fractional Flow Reserve. For the year ended August 31, 2012, the Company
recorded for this refundable contribution of $78,717 against research and development expenses. As at
August 31, 2013, $164,213 remains to be received under the agreement.
21.
Income Taxes
The reconciliation of the income tax provision calculated using the combined Canadian federal and provincial
statutory income tax rate with the income tax provision in the financial statements is as follows:
Income tax payable using the combined federal and provincial
statutory tax rate (26.9%; 27.0% in 2012)
Non-deductible expenses
Deductible financing fees
Taxable income
Non-taxable income tax credits
Losses carried forward
Income tax using effective income tax rate
Years ended August 31,
2013
$
2012
$
(637,820 )
444,611
(28,995 )
269,269
(86,953 )
39,888
-
(528,075)
429,523
(51,139)
-
(111,408)
261,099
-
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2013 and 2012
21.
Income Taxes (continued)
As at August 31, 2013, the Company has tax losses of approximately $8,685,400 for federal purposes and
$8,373,900 for provincial purposes that can be used to reduce future taxable income. These losses expire as
follows:
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
Federal
Provincial
$
$
515,000
42,000
400
463,000
40,000
400
1,552,000
1,509,000
716,000
692,000
1,404,000
1,214,000
500,000
2,123,000
1,282,000
551,000
500,000
2,122,500
1,281,000
552,000
8,685,400
8,373,900
The Company also has undeducted research and development expenses of $4,825,000 for federal purposes
and $7,266,000 for provincial purposes that are deferred over an undetermined period.
Deferred income tax assets related to unclaimed tax losses, financing costs and research and development
expenses as well as non-refundable scientific research tax credits adding up to approximately $5,488,000 were
entirely provisioned due to the uncertainty concerning the Company’s ability to generate taxable income. In
addition, deferred tax liabilities of approximately $391,408 related to federal investment tax credits, property,
plant and equipment were recognized and offset by a deferred income tax asset.
22.
Income Tax Credits for Scientific Research and Experimental Development
For tax purposes, research and development expenses are detailed as follows:
Federal
Provincial
Years ended August 31,
2013
$
2012
$
1,122,674
1,225,609
1,122,674
1,230,765
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2013 and 2012
22.
Income Tax Credits for Scientific Research and Experimental Development (continued)
These expenses have enabled the Company to become eligible for scientific research and experimental
development tax credits reimbursable for the following amounts:
Federal
Provincial
Years ended August 31,
2013
2012
$
-
$
-
265,691
265,691
327,882
327,882
These credits were recorded in research and development expenses in the consolidated statement of loss.
Reimbursable scientific research income tax credits earned for the year ended August 31, 2013 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 for 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 August 31, 2013 are about $1,607,749 and expire over a period of 10 to 20 years
beginning in 2014.
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.
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2013 and 2012
23. Segmented Information (continued)
Sector’s Information (continued)
The same accounting policies are used for both reportable segments. Operations are carried out in the normal
course of operations and are measured at the exchange amount, which approximates prevailing prices in the
markets.
Years ended August 31,
Opsens
Opsens
Solutions
Inc.
$
Inc.
$
2013
Total
$
Opsens
Opsens
Solutions
Inc.
$
Inc.
$
2012
Total
$
External sales
Internal sales
Depreciation of property,
1,773,715
5,752,707
7,526,422
2,179,251
6,282,679
8,461,930
1,369,950
-
1,369,950
1,260,182
-
1,260,182
plant and equipment
168,953
118,516
287,469
148,492
81,632
230,124
Amortization of
intangible assets
Financial expenses
25,294
5,709
31,003
30,425
4,133
34,558
(revenues)
(193,991 )
293,764
99,773
(371,978)
275,611
(96,367)
Net profit (net loss)
(2,440,218 )
74,393
(2,365,825)
(1,895,102)
(34,576 )
(1,929,678)
Acquisition of property,
plant and equipment
159,202
313,586
472,788
88,871
212,747
301,618
Additions to
intangible assets
74,639
600
75,239
91,943
44,758
136,701
Segment assets
6,150,782
4,377,345
10,528,127
4,741,097
2,993,942
7,735,039
Segment liabilities
6,042,685
1,092,264
7,134,949
1,593,538
508,020
2,101,558
Geographic sector’s information
Revenue per geographic sector
Canada
United States
Other*
Years ended August 31,
2013
$
2012
$
5,825,550
571,160
1,129,712
7,526,422
6,396,767
1,297,038
768,125
8,461,930
* Comprised of revenues generated in countries for which amounts are individually not significant.
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.
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2013 and 2012
23. Segmented Information (continued)
Geographic sector’s information (continued)
During the year ended August 31, 2013, revenues from three clients represented individually more than 10% of
the total revenues of the Company, i.e. approximately 49.4% (Opsens Solutions Inc.’s reportable segment),
12.2% (Opsens Solutions Inc.’s reportable segment) and 10.3% (Opsens Solutions Inc.’s reportable segment).
During the year ended August 31, 2012, revenues from two clients represented individually more than 10% of
the total revenues of the Company, i.e. approximately 47.4% (Opsens Solutions Inc.’s reportable segment) and
18.2% (Opsens Solutions Inc.’s reportable segment).
24. Related-party Transactions
In the normal course of its operations, the Company has entered into transactions with related parties.
Professional fees due to a company
controlled by a director
Years ended August 31,
2013
$
34,216
34,216
2012
$
34,937
34,937
Fees are incurred for the Company’s Fractional Flow Reserve (FFR) activities.
Key management personnel, having authority and responsibility for planning, directing and controlling the
activities of the Company, comprise the Chief Executive Officer, the Chief Financial Officer, the President of
Opsens Solutions Inc. and other vice presidents. Compensation of key management personnel during the year
was as follows:
Short-term salaries and other benefits
Option-based awards
Years ended August 31,
2013
$
885,879
154,348
1,040,227
2012
$
857,181
86,683
943,864
The compensation of key executives is determined by the Human Resources Committee, taking into
consideration individual performance and market trends.
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2013 and 2012
25. Additional Information to the Statements of Loss and
Comprehensive Loss
Expenses (revenues) included in functions
Years ended August 31,
2013
$
2012
$
Salaries & Other Benefits
4,816,921
4,198,650
Cost of sales
Administrative
Marketing
Research and development
Depreciation of Property, Plant and Equipment
287,469
230,124
Cost of sales
Administrative
Marketing
Research and development
Amortization of Intangible Assets
31,003
34,558
Cost of sales
Administrative
Marketing
Research and development
Government Assistance
Administrative
Marketing
Research and development
(241,040 )
(146,752)
Income tax credits for research and development
(265,691 )
(327,882)
Research and development
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2013 and 2012
26. Financial Instruments
Fair Value
The fair value of cash and cash equivalents, trade and other receivables 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.
The fair value of the convertible debenture 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 the convertible debenture approximates
$1,338,000 as at August 31, 2013.
Valuation Techniques and Assumptions Applied for the Purposes of Measuring Fair Value
The Company must maximize the use of observable inputs and minimize the use of unobservable inputs when
measuring fair value. The Company primarily applies the market approach for recurring fair value
measurements. The three input levels used by the Company to measure fair value are the following:
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities. An active market for the
asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
Level 2 – Quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable market data for substantially the full term of
the assets or liabilities.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair
value of the assets or liabilities.
The following table summarizes the fair value hierarchy under which the Company’s financial instruments are
valued.
As at August 31, 2013
Total
Level 1
Level 2
Level 3
$
$
$
Financial assets (liabilities) measured at
fair value:
Convertible debenture – embedded
derivative
(34,012)
-
(34,012 )
As at August 31, 2012, there were no assets or liabilities measured at fair value.
$
-
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2013 and 2012
26. Financial Instruments (continued)
Valuation Techniques and Assumptions Applied for the Purposes of Measuring Fair Value
As explained in Note 14, the convertible debentures contain an embedded derivative that must be measured at
fair value at each reporting date with gains and losses in fair value recognized through profit or loss. One of the
most significant assumptions impacting the Company’s valuation of these embedded derivatives is the implied
volatility. For 2013, the Company used an implied volatility of 122%. A 1% change in the implied volatility factor
would have changed the fair value of the embedded derivative by $321.
Risk Management
The main risks arising from the Company’s financial instruments are credit risk, liquidity risk, interest rate risk
and foreign exchange risk. These risks arise from exposures that occur in the normal course of business and
are managed on a consolidated Company basis.
Credit Risk
Credit risk is the risk of an unexpected loss if a customer or counterparty to a financial instrument fails to meet
its contractual obligations. The Company regularly monitors credit risk exposure and takes steps to mitigate the
likelihood of this exposure resulting in losses. The Company's exposure to credit risk currently relates to cash
and cash equivalents and to trade and other receivables. 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.
The credit risk associated with trade and other receivables is generally considered normal since the majority of
its customers are well-established and financed oil and gas companies. Generally, the Company does not
require collateral or other security from customers for trade accounts receivable; however, credit is extended
following an evaluation of creditworthiness. In addition, the Company performs ongoing credit reviews of all of
its customers and establishes an allowance for doubtful accounts when accounts are determined to be
uncollectible. Two major customers represent 64.4% of the Company’s accounts receivable as at
August 31, 2013 (71.4% as at August 31, 2012).
As at August 31, 2013, 12.8% (25.1% as at August 31, 2012) of the accounts receivable were of more than
90 days whereas 42.8% (60.5% as at August 31, 2012) of those were less than 30 days. The maximum
exposure to the risk of credit for accounts receivable corresponded to their book value. As at August 31, 2013,
the allowance for doubtful accounts was established at $21,000 ($21,861 as at August 31, 2012).
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.
The maximum exposure to credit risk approximates the amount recognized in the consolidated statement of
financial position.
Liquidity Risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with
financial liabilities that are settled in cash or another financial asset. The Company’s approach is to ensure it
will have sufficient liquidity to meet operational, capital and regulatory requirements and obligations, under both
normal and stressed circumstances. Cash flow projections are prepared and reviewed quarterly by the Board of
Directors to ensure a sufficient continuity of funding. The funding strategies used to manage this risk include
turning to capital markets to carry out issues of equity and debt securities.
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2013 and 2012
26. Financial Instruments (continued)
Liquidity Risk (continued)
The following are the contractual maturities of the financial liabilities (principal and interest, assuming current
interest rates) as at August 31, 2013 and August 31, 2012:
August 31, 2013
Carrying
0 to 12
12 to 24
After
amount Cash flows
months
months
24 months
Accounts payable and
accrued liabilities
2,042,063
2,042,063
2,042,063
$
$
$
$
-
$
-
Long-term debt
765,104
943,130
201,884
181,137
560,109
Convertible debenture
2,129,811
2,316,600
-
-
2,316,600
Total
4,936,978
5,301,793
2,243,947
181,137
2,876,709
August 31, 2012
Carrying
0 to 12 12 months to
After
amount
Cash flows
months
24 months
24 months
$
$
$
Accounts payable and
accrued liabilities
1,343,905
1,343,905
1,343,905
$
-
$
-
Long-term debt
Total
Interest Rate Risk
673,380
837,302
195,523
164,247
477,532
2,017,285
2,181,207
1,539,428
164,247
477,532
The Company’s exposure to interest rate risk is summarized as follows:
Cash and cash equivalents
Trade and other receivables
Accounts payable and accrued liabilities
Long-term debt
Convertible debenture
Fixed interest rates
Non-interest bearing
Non-interest bearing
Non-interest bearing, fixed and variable interest rates
Fixed interest rates
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2013 and 2012
26. Financial Instruments (continued)
Interest rate sensitivity analysis
Interest rate risk exists when interest rate fluctuations modify the cash flows or the fair value of the Company’s
investments and embedded derivative. The Company owns investments with fixed interest rates. As of
August 31, 2013, the Company was holding more than 81.2% (49.8% as at August 31, 2012) of its cash and
cash equivalents in all-time redeemable term deposits.
For fiscal 2013, all else being equal, a hypothetical 1% interest rate increase would have had an unfavourable
impact of $3,697 on the net loss for the year ended August 31, 2013 (unfavourable impact of $3,386 on the net
loss for the year ended August 31, 2012). A hypothetical 1% interest rate decrease would have had a
favourable impact of $3,721 on the net loss for the year ended August 31, 2013 (favourable impact of $3,386
for the year ended August 31, 2012).
Financial expenses (revenues)
Interest and bank charges
Interest on long-term debt
Interest on convertible debenture
Loss (gain) on foreign currency translation
Interest income
Concentration risk
Years ended August 31,
2013
$
54,108
39,307
39,599
26,638
(59,735 )
99,917
2012
$
34,500
27,634
-
(34,184)
(124,317)
(96,367)
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, 2013 and 2012, the Company was
holding 100% of its cash equivalents portfolio in all-time redeemable term deposits with the same financial
institution.
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.
Foreign currency sensitivity analysis
For the years ended August 31, 2013 and 2012, if the Canadian dollar had strengthened 10% against the US
dollar with all other variables held constant, net loss would have been $154,000 lower for the year ended
August 31, 2013 (net loss would have been $39,000 lower for the year ended August 31, 2012). Conversely, if
the Canadian dollar had weakened 10% against the US dollar with all other variables held constant, net loss
would have been $154,000 higher for the year ended August 31, 2013 (net loss would have been $39,000
higher for the year ended August 31, 2012).
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2013 and 2012
26. Financial Instruments (continued)
Foreign currency sensitivity analysis (continued)
As at August 31, 2013 and August 31, 2012, the risk to which the Company was exposed is established as
follows:
Cash and cash equivalents (US$1,620,546)
Trade and other receivables (US$186,033)
Accounts payable and accrued liabilities
(US$296,434)
Convertible debenture (US$1,990,316)
Embedded derivative (US$32,300)
Total
27. Capital Management
As of
August 31,
2013
$
1,706,435
195,892
(356,149 )
(2,095,799 )
(34,012 )
(583,633 )
As of
August 31,
2012
$
498,551
205,388
(292,195)
-
-
411,744
The Company's objective in managing capital, primarily composed of shareholders' equity, long-term debt and
the convertible debenture, is to ensure sufficient liquidity to fund R&D activities, general and administrative
expenses, working capital and capital expenditures.
In the past, the Company has had access to liquidity through non-dilutive sources, including the sale of non-
core assets, investment tax credits and government assistance, interest income and public equity offerings.
As at August 31, 2013, the Company's working capital amounted to $6,043,352, including cash and cash
equivalents of $3,662,259. The accumulated deficit at the same date was $15,274,768. Based on the
Company's assessment, which took into account current cash levels, as well as its strategic plan and
corresponding budgets and forecasts, the Company believes that it has sufficient liquidity and financial
resources to fund planned expenditures and other working capital needs for at least, but not limited to, the
12-month period following the statement of financial position date of August 31, 2013
The Company believes that its current liquid assets are sufficient to finance its activities in the short-term.
The Company manages the capital structure and makes adjustments to it in light of changes in economic
conditions and the risk characteristics of the underlying assets. Capital management objectives, policies and
procedures have remained unchanged since the last fiscal year.
For the years ended August 31, 2013 and 2012, the Company has not been in default under any of its
obligations regarding the long-term debt.
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2013 and 2012
28. Approval of Consolidated Financial Statements
The consolidated financial statements were approved by the Board of Directors and authorized for issue on
November 25, 2013.
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
7019 – 68th avenue NW
Edmonton, AB T6B 3E3
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
Deloitte, s.e.n.c.r.l.
Quebec, QC
STOCK EXCHANGE LISTING
Toronto Venture Exchange
Symbol: OPS
Shares outstanding: 47,865,983 (as at August 31, 2013)
Transfer Agent & Registrar
Canadian Stock Transfer Company Inc. (CST)
320 Bay Street
B1 Level
Banking Hall
Toronto, ON M5H 4A6
1-800-387-0825
ANNUAL MEETING OF SHAREHOLDERS
Monday, January 20, 2014
10:30 a.m.
Alt Hotel, Quebec, Mezzanine
GOVERNANCE
DIRECTORS
Pierre Carrier
Chairman
Louis Laflamme
President, Chief Executive Officer
Claude Belleville
Vice President, Medical Devices
Gaétan Duplain
Vice President, Oil and Gas
Steven G. Arless
Director
Jean Lavigueur
Director
Denis M. Sirois
Director
OFFICERS
Louis Laflamme, CPA, CA
President, Chief Executive Officer
Claude Belleville
Vice President, Medical Devices
Gaétan Duplain
Vice President Oil and Gas
Thierry Dumas, CPA, CA
Chief Financial Officer, Corporate Secretary
Tom J. Keegan
President, Opsens Solutions Inc.
www.opsens.co m
OIL AND GAS
MEDICAL INSTRUMENTATION
Opsens offers integrated services for the management of
reservoirs and in situ environments to the oil and gas market.
Its primary focus is Western Canada’s oil sands market,
where a growing demand to measure pressure and
temperature is identified. There is a large number of active in
situ oil sands projects in Alberta, and 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. Opsens’ OPP-W sensor has
demonstrated its ability to meet this need by its real-time
continuous measurement of pressure and temperature.
Based on its patented fiber optic sensor, Opsens has developed the
OptoWire, a guidewire to measure Fractional Flow Reserve (“FFR”), a
procedure increasingly used in interventional cardiology to guide
treatment of coronary blockages. Two major studies on the practice
of FFR concluded that treatment guided by this procedure reduces
patient mortality by 30% and reduces costs.
The market has been growing at a compounded annual rate of 43%
over the past four years and it is expected to surpass US$1-billion
annually in the future.
Two players share the market today with guidewires instrumented
with conventional sensors. Opsens plans to become a key player in
this market, the first one with a guidewire instrumented with a fiber
optic sensor. Opsens has integrated its patented miniature fiber
optic pressure sensor into its OptoWire for a unique and effective
guidewire designed to facilitate navigation through the human body
to easily reach lesions. In addition, our optical sensor is immune to
fluids (blood) and will allow physicians to connect the guidewire
multiple times while maintaining reliability of the measurement.
OPSENS’ OPTOWIRE HAS COMPLETED MOST OF THE
DESIGN VALIDATION PHASE.
Opsens has signed its first distribution agreement for Japan, Korea
and Taiwan.
Opsens plans the first in-man study in early 2014.
In 2014, Opsens plans on filing for regulatory clearance in the United
States, Japan, and Europe.
Completion of the clearance process is the ultimate step before
market launch.
www.opsen s. co m
PRODUCTS
AT WORK
MEDICAL DEVICES - OPTOWIRE
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.
Picture: Animal study performed at AccelLab GLP facilities in Montreal
(Canada) by Dr. Olivier Bertrand and members of Opsens’ team.
LABORATORIES AND
SCIENTIFIC R&D
Ensuring measurement for
high-tech applications.
2014, Cyrille-Duquet St., Suite 125, Quebec City, QC G1N 4N6
T• 1 418 682-9996 F• 1 418 682-9939
7019 – 68th avenue NW, Edmonton, AB T6B 3E3
T• 1 780 930-1777 F• 1 780 930-2077
ww w.opsens.com