Opsens
Annual Report 2015

Plain-text annual report

ANNUAL REPORT 2015 LEADW I T H T H E LIGHT Sales (US$M) COMPANY PROFILE Opsens focuses mainly on the measure of Fractional Flow Reserve ("FFR") in interventional cardiology. Opsens offers an advanced optical-based pressure guidewire (OptoWire) that aims at improving the clinical outcome of patients with coronary artery disease. Opsens is also involved in industrial activities. The Company develops, manufactures and installs innovative fibre optic sensing solutions for critical applications such as the monitoring of oil wells and other demanding industrial applications. IMPORTANTS EVENTS RESULTS AND OUTLOOK FFR – Launch of OptoWire II. OptoWire used for the first time in the United States. FFR - Move into new facility - coming early 2016. FFR - Hiring of Tony Gibbons as Vice President, Sales and Marketing FFR. FFR – Receipt of approval required to sell OptoWire I in the markets that represent 85% of the global market, namely the United States, Europe, Japan and Canada. FFR – Founding fathers of FFR use Opsens’ products. Opsens - Corporate structure reorganization. Opsens is constantly working on product improvement. Capitalizing on the strengths of the original OptoWire, Opsens has added a hydrophilic coating to its guidewire to facilitate navigation in the most tortuous and calcified vessels. Opsens has received regulatory approval in Europe and Japan. Applications for regulatory approvals for OptoWire II are also underway in the U.S. and Canada. Commercialization of this product will be expanded in calendar year 2016. Dr. Morton J. Kern, one of the most renowned U.S. and worldwide cardiologists, who has been working with Opsens for many years, used the OptoWire in his practice. He commented on the performance of Opsens’ ”near” workhorse fibre optic guidewire, saying that its measurements were very reliable with an impressive zero-drift performance. He also noticed the reliability of the optical connection with a stable connect/re-connect capability without loss of signal stability. The new facility, at the cutting edge of technology, will enable the installation of additional equipment and the hiring of the human resources required to increase production for the expansion of the commercialization of Opsens’ FFR products. Mr. Gibbons has over 20 years experience in the worldwide commercialization of cardiovascular products for large medical companies. Opsens is confident that his expertise and contacts in the industry will have a catalytic effect on the expansion of the commercialization of its FFR products. Limited market release phase is underway. Cardiologists Drs. Bernard de Bruyne and Nico Pijls confirmed the strengths of the OptoWire, especially in regards to the reliability and accuracy of the FFR measurement, flexibility of the connection and quality of the mechanical performance. Medical activities were clustered within the parent company Opsens inc. Reorganization should contribute to the development of medical activities by focusing growth and development activities. Financial markets should be able to assess more easily the performance of each business unit in order to create value for shareholders. Opsens Solutions - Receipt of a large order for mining operations in South America. This major order, from the largest mining company in the world for one of the largest mining operations in the world, is a confirmation of the market potential of industrial activities. INTERVENTIONAL CARDIOLOGY – FFR Heart disease affects millions of people worldwide. It is often caused by a blockage in arteries, which restricts blood flow and decreases the amount of oxygen the heart receives. The measurement of FFR as a diagnostic procedure is increasingly performed by interventional cardiologists. It measures blood pressure after a blockage to help in the selection of a treatment. This practice is strongly supported by many studies that have shown that selecting a treatment based on this measure: • Reduces death and myocardial infarction for approximately 30% of patients; • Reduces procedure costs, as fewer stents are implanted; • Provides justification of treatment that supports claims with insurers. Five years after the publication of FAME I, monitoring demonstrates that the benefits of FFR are maintained and that the superior clinical results are sustained for patients diagnosed with FFR versus those diagnosed by angiography alone to guide intervention. Recognition of the value of FFR has brought the market to US$ 300 million in 2014 and industry sources predict that it will reach US$ 1 billion medium term. Warm reception for Opsens’ value proposition In Japan, Europe, Canada and the United States, Opsens’ OptoWire was presented to renowned cardiologists who had the chance to use it within their patients. The response to these clinical uses has been positive. The OptoWire answers cardiologists’ most common concerns raised about products available to measure FFR. This welcome has strengthened Opsens in its determination to become a key player in interventional cardiology. Expansion of the commercialization of OptoWire II in Calendar Year 2016 Opsens is confident it can capitalize on this growth opportunity with its single-use product, which generates high margins and for which the Company has a strong intellectual property protection. Penetration of a fraction of this market will have a major impact on sales. Once necessary approvals to commercialize the new version are secured, and the move into a new facility to accelerate production is completed, Opsens will expand on the marketing of its FFR products. LETTER TO SHAREHOLDERS We are proud of the year that ended. The Company has reached significant milestones and has initiated a limited market release phase for its FFR products, after obtaining commercial approvals in the U.S., Canada, Europe and Japan, regions that account for almost 85% of the total market for the measurement of FFR. in 1,000 patients, marking a milestone. The speed with which the limited market release phase took place, considering the relatively high number of procedures completed, reflects the positive receipt and the adequacy of our FFR products to the interventional cardiology community. We anticipate that growth will accelerate in the coming quarters now that this step was taken successfully. OPSENS STRENGTHENS MEDICAL IDENTITY TO DEVELOP FULL POTENTIAL IN THE FFR MARKET OPSENS EXPANDING ON THE MARKETING OF FFR PRODUCTS Opsens’ medical activities became of paramount importance in 2015 and much of our focus was on products developed to measure Fractional Flow Reserve ("FFR") and designed to optimize the diagnosis and guide treatment in patients with coronary heart disease. In this growing market, Opsens introduced its FFR products to renowned and influential cardiologists, and during live presentations as feature events in the world’s most important medical conferences. Cardiologists who have used the OptoWire during these occasions, recognize FFR as the gold standard in the assessment of coronary lesions, and they stress the importance of assessing FFR before selecting a treatment to improve the outcomes of patients with coronary blockages. Their response was enthusiastic and their comments praiseful, which allowed us to appreciate, how effectively we had been at pinpointing their needs and at implementing the qualities they seek in our FFR products, for the benefit of patients. For example, in Europe Drs Bernard de Bruyne and Nico Pijls, investigators in the FAME clinical studies and founding fathers of the FFR, have alternately tried our products in particularly complex procedures. They both said that using the OptoWire was a pleasure that had enabled them to appreciate its reliable measurements and impressive drift-free performance, in all the cases they performed. They also commented on the continued reliability of the connection and on the support of Opsens’ FFR products during coronary interventions. One of them even said that the arrival of the OptoWire in the FFR measurement market could be useful to promote the use of FFR. As one of the first users of the OptoWire in the U.S., Dr. Morton J. Kern, a renowned cardiologist who has been working with Opsens for many years, said that it was exciting to see the introduction of a new guidewire technology with such an exceptional performance for the measurement of FFR. He added that the OptoWire, a ‘near’ workhorse fibre optic guidewire, is a positive step for interventional cardiologists and that it will be helpful to the FFR procedure. He commented on how using the OptoWire in several patients, some of them with complex disease, demonstrated very reliable measurements and impressive zero signal drift performances. He also commented positively on the reliability of the optical connection, with its flawless connect/re-connect capability without loss of signal stability. These well-publicized uses provided us with excellent visibility. They were unique opportunities to demonstrate the performance of our products and have aroused the interest of cardiologists and created anticipation for our products. Last October, Opsens announced that the OptoWire had been used Aiming to become a key player in the FFR guidewire market, Opsens has put together the elements of a plan to expand on the commercialization of its FFR products. To respond to the expected uptick in demand, Opsens will move into an expanded state-of-the- art facility to accommodate the growing workforce and equipment needed to ramp-up production at the beginning of 2016. Opsens has also hired a seasoned leader to expand on its FFR sale activities. One of the remaining steps is the release of the OptoWire II, an upgraded version of the original pressure guidewire, which is designed to provide cardiologists with the most effective product to measure FFR. The OptoWire II will have a hydrophilic coating to minimize friction and further improve navigation in the most tortuous vessels and calcified arteries. Production will begin once the accelerated regulatory path is completed. Opsens has already received clearance for Europe and Japan. Year 2016 will mark a crucial passage, as Opsens will focus efforts on expanding the marketing of its FFR products to generate value for its shareholders. We are confident that the OptoWire’s distinctive qualities pave the way for a very successful market launch. INDUSTRIAL The need for high-precision optical measurement is growing in the industrial sector. Opsens’ fibre optic-based technology can be adapted to measure various parameters in harsh conditions. In 2015, Opsens received an order worth more than $1 million for fibre optic sensor systems for mining operations in South America. The order was placed by one of Opsens’ South American distributors to meet the needs of one of the world’s largest mining companies at one of the world’s largest copper mining operations. We believe that this business unit is well-positioned to generate several important contracts in the next year. We approach 2016 with optimism. In 2015, we made measurable progress towards our goal to become a major player in the FFR market. We are dedicated to meeting the expectations of our shareholders. We are confident that the plan we have put in place will produce high value for shareholders. We are grateful for your trust. I conclude by thanking our customers, employees, suppliers, administrators and partners for their ingenuity, their discipline and their continued efforts in achieving the Company’s goals. -- Louis Laflamme President and Chief Executive Officer MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 2015 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, 2015 in comparison with the corresponding periods ended August 31, 2014. 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, 2015 and 2014, 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 23, 2015. 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 23, 2015 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. OVERVIEW Opsens focuses mainly on the measure of Fractional Flow Reserve ("FFR") in interventional cardiology. Opsens offers an advanced optical-based pressure guidewire (OptoWire) that aims at improving the clinical outcome of patients with coronary artery disease. Opsens is also involved in industrial activities. The Company develops, manufactures and installs innovative fibre optic sensing solutions for critical applications such as the monitoring of oil wells and other demanding industrial applications. In the interventional cardiology field, during Fiscal 2015, Opsens has initiated a limited market release of its OptoWire and OptoMonitor and over 1000 clinical uses of the OptoWire were performed. OptoWire provides cardiologists with a guidewire that offers optimal performance to navigate in coronary arteries and cross blockages with ease, while measuring intracoronary blood pressure. This procedure is called measurement of FFR. According to management and industry sources(1), the FFR market was estimated at approximately US$300 million in 2014 and should exceed US$1 billion annually in the medium term. During Fiscal 2015, Opsens received approval to commercialize the OptoWire and OptoMonitor in the U.S., Europe, Japan and Canada. These combined markets represent approximately 85% of the total market worldwide for FFR products. In Japan, after receiving regulatory approval for the latest version of the OptoWire, several clinical uses were performed with Opsens’ FFR products. Dr. Shigeru Saito used Opsens’ FFR products during the 21st Kamakura Live Demonstration Course 2014 in Yokohama, Japan. This course represents an important platform to features new cardiology practices to Japanese cardiologists to improve treatment and patient health. Dr. Saito presented Opsens’ FFR products and highlighted the important advances they offer in terms of efficiency and effectiveness in the treatment of lesions. He also indicated his plan to use Opsens’ products in the future. In Europe, Dr. Bernard De Bruyne, a founding father of FFR, used Opsens’ products in several patients at the Cardiovascular Center of OLV Hospital Aalst in Belgium. In all the cases treated, he appreciated the impressive performance of the OptoWire, particularly with the absence of measurement drift, constant reliability of the connection and support of the guidewire. The OptoWire and OptoMonitor have also been successfully used in several other European centers of great reputation. One of these interventions was broadcasted live during the Cardiovascular Research Technologies Convention held in Washington last February. This event allowed Opsens to demonstrate the high performance of its products for the first time to American cardiologists. Also, during EuroPCR 2015, one of the world’s largest cardiology events, Opsens’ FFR products were broadcasted in a live event. Another founding father of FFR, Dr. Nico Pijls, a world renowned cardiologist and an investigator of the FAME clinical studies on FFR, also used Opsens’ FFR products in his practice at the Catharina Hospital in Eindhoven, Netherlands. He believes that the arrival on the market of an optical FFR guidewire such as the OptoWire is a positive development for interventional cardiologists and will contribute to further promote the use of FFR. Dr. Pijls also said that it had been a pleasure to use the OptoWire in several patients, some of them with complex diseases, and that it gave him the opportunity to appreciate the reliability of its measurements and impressive zero drift performance during all cases performed while also acknowledging the constant connection reliability as well as its support during percutaneous coronary intervention. On June 15, 2015, Opsens announced receipt of the 510(k) clearance from the U.S. Food and Drug Administration (FDA) for the OptoWire and OptoMonitor. This major regulatory milestone allows the Company to commercialize its FFR products in the U.S., the largest market in the world for these type of products. In Canada, Opsens has successfully completed clinical trials on 70 patients. The objectives of the study were to evaluate the ease of use, functionality and security of Opsens’ OptoWire and OptoMonitor in patients with ischemic coronary artery disease who were referred for diagnostic angiography. At this stage, Opsens has signed distribution agreements for Japan and a few other strategic markets. Additional distribution agreements are being negotiated and should be finalized in 2016 and beyond. In the industrial sector, Opsens’ technology, expertise and products can serve several markets including aerospace, geotechnical, infrastructures, oil and gas, mining, laboratories and others. For example, for the monitoring of the integrity of structures (“SHM” for Structural Health Monitoring), qualitative and non-continuous methods have long been used to assess the structures and their ability to perform their function. In the past 10 to 15 years, SHM technologies have emerged, creating new exciting fields within the different branches of engineering. SHM is widely applied to various types of infrastructures and represents solid growth opportunities considering that many countries are entering periods of pent up demand for the construction of various infrastructures ranging from bridges to skyscrapers. As for the oil and gas market, Opsens provides fiber optic sensor systems that provide reliable real-time pressure and temperature measurements at the bottom of the wells. This information is critical during operations such as Steam Assisted Gravity Drainage ("SAGD"), a process that recovers bitumen from oil sands. Since 2006, SAGD production has seen a compound annual growth rate ("CAGR") of 12%. SAGD is now the preferred technology used in the oil sands and is responsible for 81% of the increase in production between 2012 and 2013. Opsens’ broad portfolio of products and technologies can be adapted to measure various parameters in the most harsh conditions and provide significant advantages in terms of production optimization and reduced risk to the environment and health. Opsens holds 10 patents and 3 pending patents to protect its pressure guidewire technology and its industrial applications. FFR MARKET OPPORTUNITY For the FFR market, Opsens has developed the OptoWire and OptoMonitor, instruments that assess the significance of arterial narrowing (stenosis) resulting from coronary heart disease. Coronary artery disease is a leading cause of death in the developed world and the cost related to the management and treatment of this disease is a significant burden to society. In recent years, the prevalence of coronary heart disease has increased at a rapid pace. According to the American Heart Association ("AHA"), the number of Americans who undergo surgery or cardiovascular operations or procedures has increased to about 7.6 million patients in 2010. Based on health data compiled from over 190 countries, heart disease remains the No. 1 global cause of death with 17.3 million deaths annually based on a report from the AHA “Heart Disease and Stroke Statistics – 2015 Update”. That number is expected to rise to more than 23.6 million by 2030. The benefits of FFR were demonstrated in various clinical studies such as FAME I and FAME II published respectively in 2009 and 2012 in the New England Journal of Medicine. The FAME I study showed that FFR-guided treatment rather than standard angiography alone led to a reduction in mortality, myocardial infarction, readmission for percutaneous coronary intervention and coronary bypass by about 30% after a year. In 2011, the American College of Cardiology Foundation and the AHA established a class IIA recommendation for the use of FFR during angiography, meaning that the proposed procedure or treatment is beneficial, useful and effective. These developments have contributed to the growth of the market According to management and industry sources’ estimates, the global FFR market reached approximately US$300 million in 2014. Management estimates a potential market of approximately US$1 billion in the medium term. INDUSTRIAL MARKET OPPORTUNITY Structural Health Monitoring market: the opportunities in this market are related principally to strain, load and displacement measurements. The applications are found in geotechnical, civil engineering, energy, aerospace and O&G sectors. Monitoring of civil engineering structures accounts for a large proportion of this market. Only in Europe, there is more than 5 billion square meters of dams and bridges. In the U.S. alone, there are 67,000 unmonitored bridges with an anticipated cost to repair or replace of $76 billion. New industrial versions of the strain sensor like the extensometer and load cell are the main flagship products for these applications. Pressure Monitoring Solution market: the opportunities in this market are principally related to absolute and differential pressure measurements. The measure of the pressure is found in many industrial applications of the energy, geotechnical, oil and gas and aerospace sectors. New industrial versions of the pressure sensor and the recent addition of a differential pressure sensor are the main flagship products for these applications. Traditional Niche Applications market: include niche applications in which Opsens is currently involved like the electro explosive device (EED) application. It also includes applications such as SAGD in Western Canada and laboratories applications (special projects and custom products). BUSINESS STRATEGY Opsens’ growth strategy is to become a key player in the interventional cardiology market by focussing on the FFR procedure where its products and technologies have competitive advantages. The Company also aims to capitalize on its technologies and products in industrial markets. The Company’s FFR growth strategy will be executed by:  Gaining market shares in the fast-growing FFR market. In Fiscal 2015, for the first time, Opsens has generated revenues from its FFR offering in the limited market release phase. In 2016, Opsens plans to expand sales activities in several markets, which should translate in solid revenue growth. Management believes that FFR is used in over 15% of PCI, but industry analysts suggest that up to 45% of PCI could advantageously be combined with FFR(2). Management intends to pursue a comprehensive market development strategy that will highlight the features and distinctive capabilities of the OptoWire and meets regulatory and marketing requirements to gain market share from competitors and contribute to the expansion of the FFR market. Initially, marketing efforts will be focused on the Japanese, U.S., European and Canadian markets.  Investing in innovation to enhance the existing applications of the Company’s technology. The Company’s commitment to innovation has been a major driving force behind its success. Opsens is constantly working to improve its intellectual property portfolio and customer value proposition. In the FFR market, OptoWire is designed to provide: o o o Improved measurement reliability and fidelity from OptoWire’s no drift(3) sensing technology, which is essential to the decision-making process of cardiologists; competing FFR sensing technologies have higher drift levels; Improved connectivity, as OptoWire’s connection and measurement accuracy is unaffected by blood contamination and the guidewire can be reconnected easily without compromising measurement accuracy; Improved mechanical performance from key design attributes and product specifications such as torquability and steerability.  Developing new applications for the Company’s medical technology. Opsens plans to leverage its technologies and knowledge in the medical devices field to expand into new markets and increase clinical applications. As the Company pursues opportunities in these new markets, it plans to develop new FFR products and explore product development and marketing partnerships with other leading companies in the sector.  Expanding and investing in FFR-focused sales force and distribution channels. o Distribution agreements: Opsens signed an agreement with a leading Japanese medical supplier in November 2012, which provides the Japanese company with distribution rights for the OptoWire in Japan, Korea and Taiwan. In January 2014, this agreement translated into the first regulatory filing towards the commercialization of Opsens’ FFR product in Japan. In October 2014, the regulatory approval was obtained allowing Opsens to start the commercialization process in Japan. Opsens plans on continuing to expand its worldwide market penetration by pursuing additional distribution agreements with medical equipment companies to address large market potential opportunities in a cost-effective manner. o Sales force: Opsens plans to expand its sales force by hiring additional sales personnel for the FFR product commercialization phase. Opsens’ objective is to increase its marketing and market penetration in the North American, European and Asian health care sectors, particularly amongst cardiologists and hospitals. (2) (3) D. STARKS, “St Jude Medical 2013 Investor Conference” p.105 (2013-02-01); R. Scott Huennekens, “Volcano NASDAQ Analyst Day” POWERPOINT PRESENTATION p.44 (2013-03-07). Per 60601-2-34 ed3 The Company’s growth strategy in the Industrial sector will be achieved by:  Investing in innovation to enhance applications for the Company's technologies. In the industrial sector, Opsens’ pressure and temperature sensors provide more reliable measurements at higher temperatures (up to 300°C) than conventional sensors, and are not affected by electromagnetic interference. Also, Opsens is developing a new version of its pressure sensor that will open new markets in the industrial sector. NON-IFRS FINANCIAL MEASURE - EBITDAO The Company quarterly reviews net 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 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, current income tax expense, depreciation and amortization, impairment of assets, 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 helps 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, 2015 $ Year Ended August 31, 2014 $ Year Ended August 31, 2013 $ Net loss for the year Current income tax expense Financial expenses (revenues) Change in fair value of embedded derivative Depreciation of property, plant and equipment Amortization of intangible assets Impairment of assets EBITDA Stock-based compensation costs EBITDAO (2,884) 340 (1) 73 385 62 796 (1,229) 317 (912) (3,099) - 114 102 346 48 - (2,489) 236 (2,253) (2,366) - 100 (17) 287 31 - (1,965) 126 (1,839) The positive variance of EBITDAO for fiscal year 2015 when compared with last year is explained by non-recurring revenues arising from the milestone payment of $1,115,500 (US$1,000,000) received when the Company obtained Shonin approval in October 2014, the CE mark approval obtained in November 2014 that allowed the Company to record in the consolidated statement of loss and comprehensive loss deferred revenues amounting to $2,002,000 (US$2,000,000) and with the adjustment on revenues of $340,000 (US$300,000) to recognize additional revenues from the distribution agreement (the “non-recurring revenues”). This was partly offset by the decrease in sales for the year ended August 31, 2015 when compared with last year. SELECTED CONSOLIDATED FINANCIAL DATA (In thousands of Canadian dollars, except for information per share) Year Ended August 31, 2015 $ Year Ended August 31, 2014 $ Year Ended August 31, 2013 $ Revenues Cost of sales Gross margin Gross margin percentage Administrative expenses Sales and marketing expenses R&D expenses Financial expenses (revenues) Change in fair value of embedded derivative Impairment of assets 8,665 3,921 4,744 55% 2,616 1,501 2,303 (1) 73 796 7,237 6,788 4,399 2,389 35% 2,398 1,131 1,743 114 102 - 5,488 7,526 4,780 2,746 36% 2,313 954 1,762 100 (17) - 5,112 Loss before income taxes Current income tax expense (2,544) (3,099) (2,366) 340 - - Net loss and comprehensive loss (2,884) (3,099) (2,366) Net loss per share - Basic Net loss per share - Diluted (0.05) (0.05) (0.06) (0.06) (0.05) (0.05) Revenues The Company reported revenues of $8,665,000 for the year ended August 31, 2015, compared with revenues of $6,788,000 a year earlier, an increase of $1,877,000 or 28%. The increase in revenues for the year ended August 31, 2015 when compared with last year is explained by the recognition of non-recurring revenues of $3,457,500 and by higher revenues in the industrial and medical sectors. This was partly offset by lower revenues in the oil and gas sector. In the following paragraphs, additional explanations are given on these variations. Revenues in the medical sector totalled $1,211,000 for the year ended August 31, 2015 compared with revenues of $536,000 for the same period in 2014. The increase in revenues is explained by FFR revenues recorded during the year. In Fiscal 2015, FFR revenues were limited by production capacity. Also, some of the units produced during the last six months of Fiscal 2015 were dedicated to the verification and validation activities of OptoWire II which negatively impacted revenues. Revenues in the industrial sector totalled $2,362,000 for the year ended August 31, 2015 compared with revenues of $1,616,000 for the same period in 2014. The increase in revenues is explained by an order worth more than $1 million for fiber optic sensor systems for mining operations in South America that was completed during the second quarter of Fiscal 2015. Revenues in the oil and gas sector totalled $1,268,000 for the year ended August 31, 2015 compared with $4,497,000 in Fiscal 2014. The decrease in revenues is explained by the difficult economic environment in Alberta, Canada where major producers significantly reduced their investments because of the significant drop in crude oil prices. 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, 2015, the average exchange rate was higher than the previous year, which positively affected sales by $361,000. Market acceptance of fiber optic sensors is increasing the Company’s potential markets. However, some sectors, such as oil and gas, are experiencing challenging market conditions. To address this situation, Opsens downsized and reviewed its business model. Consequently, a partnership was announced during the year with a third party for the installation of its products for the oil and gas market in Western Canada. Moreover, Opsens is addressing the competition by highlighting the performance characteristics of its products compared with those of its competitors. For the periods ended August 31, 2015 and 2014, pricing fluctuations did not have a significant impact on revenues. During the year ended August 31, 2015, Opsens began the limited market release phase of its FFR products in Europe and Japan with a limited market release and management expects that the proportion of revenues generated by FFR will increase in upcoming quarters. As at August 31, 2015, backlog amounted to $1,131,000 ($927,000 as at August 31, 2014). Despite a slowdown of capital expenditures by major oil and gas producers, significant efforts are being made to increase backlog and expand the customer base. In addition, the Company will benefit from revenues in the medical field resulting from its right to commercialize in the U.S., Europe, Japan and Canada. Gross margin Gross margin on product sales, without taking into consideration the distribution rights and licensing revenues, decreased for the year ended August 31, 2015 when compared with last year, from $2,251,000 to $920,000. The gross margin percentage decreased from 34% for Fiscal 2014 to 19% for Fiscal 2015. The decrease in gross margin and gross margin percentage is explained by lower revenues in the oil & gas sector (as previously explained), by the recognition of an allowance for obsolete inventory of $375,000 during the year and by costs incurred to increase the manufacturing capacity. Administrative expenses For the years ended August 31, 2015 and 2014, administrative expenses were $2,616,000 and $2,398,000, respectively. The increase is explained by higher professional fees and higher insurance expenses. Sales and marketing expenses Sales and marketing expenses were $1,501,000 for the year ended August 31, 2015 compared with $1,131,000 in Fiscal 2014, an increase of $370,000. The increase is largely explained by the higher headcount, tradeshows and travelling expenses when compared with last year. Research and development expenses Research and development expenses amounted to $2,303,000 and $1,743,000 for the years ended August 31, 2015 and 2014, respectively. The increase in research and development expenses in Fiscal 2015 is explained by higher headcount and lower tax credits for research and development and grants applied against research and development expenses. Financial expenses (revenues) Financial revenues reached $1,000 for the year ended August 31, 2015 compared with financial expenses of $114,000 for Fiscal year 2014. The increase in financial revenues during Fiscal 2015 is explained by higher interest income of $36,000 related to higher short-term investments considering the public offering completed on February 18, 2014 and the up-front payment received upon the closing of the Abiomed agreement in April 2014. The increase in financial revenues is also explained by a more favourable exchange rate resulting in a positive impact of $109,000. This was partly offset by higher interest expense on the convertible debenture once converted into Canadian dollars because the average exchange rate was higher than the previous year. 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 expense of $73,000 ($102,000 for the year ended August 31, 2014) was recorded in the consolidated statements of loss and comprehensive loss. Impairment of assets During the three-month period ended November 30, 2014, the Company updated its long-term financial forecast for Opsens Solutions Inc.’s cash generating unit (“CGU”) which corresponds to a reportable segment of the Company. As a result of lower than anticipated long-term revenue projections due to economic factors, including the significant decrease of crude oil prices, the Company concluded its goodwill and some long-term assets may be impaired and as a result performed an impairment analysis. The recoverable amount of goodwill as at November 30, 2014 was determined using the fair value less costs to sell method. In applying this method to its goodwill impairment test, the Company used replacement costs, market data and comparable transactions to determine the recoverable value of Opsens Solutions Inc.’s CGU. As a result of the impairment analysis performed as at November 30, 2014, the Company concluded the carrying value of the Opsens Solutions Inc.’s CGU was in excess of its recoverable amount. The recoverable amount of Opsens Solutions Inc.’s CGU amounted to $1,611,000 ($8,708,000 as at August 31, 2014) and is classified at level 3 in the fair value hierarchy. The Company has recorded an impairment charge relating to its goodwill of $676,574 for the year ended August 31, 2015. In addition, an impairment charge of $119,663 was also recorded during the year ended August 31, 2015 for automotive equipment resulting from the challenging economic environment Opsens Solutions Inc.’ CGU is facing. Current income tax expense During the year ended August 31, 2015, an adjustment on revenues and income tax expense of $340,000 (US$300,000) was made to recognize additional revenues from the Japanese distribution agreement and withholding taxes paid by the Company. Net loss As a result of the foregoing, net loss for the year ended August 31, 2015 was $2,884,000 compared with $3,099,000 in Fiscal 2014. 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, 2015 $ As at August 31, 2014 $ As at August 31, 2013 $ 11,077 12,763 2,584 4,286 5,893 14,613 16,789 4,428 4,152 8,209 8,459 10,528 2,415 4,720 3,393 Total assets as at August 31, 2015 were $12,763,000 compared with $16,789,000 as at August 31, 2014. The decrease is related to the impairment of assets charge of $796,237, lower cash and cash equivalents associated with the net loss of $2,884,000, and cash flows used for investing activities amounting to $539,000. Current liabilities totalled $2,584,000 as at August 31, 2015 compared with $4,428,000 as at August 31, 2014. The decrease is explained by the deferred revenues recognized in the consolidated statement of loss and comprehensive loss amounting to $2,002,000 (US$2,000,000) when the Company received the CE mark approval in Europe. Long-term liabilities totalled $4,286,000 as at August 31, 2015 compared with $4,152,000 last year, an increase of $134,000. The increase is explained by a higher balance of convertible debenture of $639,000 once converted into Canadian dollars resulting from a less favorable exchange rate. This was partly offset by lower deferred revenues of $364,000 and by lower long-term debt of $190,000. 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, except for information per share) Three-month period ended August 31, 2015 Three-month period ended May 31, 2015 Three-month period ended February 28, 2015 Revenues Net earnings (net loss) for the period Net earnings (net loss) per share – Basic Net earnings (net loss) per share – Diluted $ $ 1,110 (1,811) (0.03) (0.03) 831 (1,355) (0.02) (0.02) $ 2,287 (880) (0.01) (0.01) (Unaudited, in thousands of Canadian dollars, except for information per share) Three-month period ended August 31, 2014 Three-month period ended May 31, 2014 Three-month period ended February 28, 2014 Revenues Net loss for the period Net loss per share – Basic Net loss per share – Diluted $ 1,765 (549) (0.01) (0.01) $ 1,703 (1,022) (0.02) (0.02) $ 1,118 (843) (0.02) (0.02) Three-month period ended November 30, 2014 $ 4,437 1,162 0.02 0.02 Three-month period ended November 30, 2013 $ 2,202 (685) (0.01) (0.01) Historically, the Company’s revenues and net earnings (net loss) results has experienced minimal seasonality. LIQUIDITY AND CAPITAL RESOURCES On April 15, 2014, the Company announced that it had entered into an agreement with Abiomed in connection with its miniature optical pressure sensor technology for applications in circulatory assist devices. The Company has granted Abiomed an exclusive worldwide license to integrate its miniature pressure sensor in connection with Abiomed’s circulatory assist devices. Under the agreement, Abiomed is expected to pay Opsens an aggregate amount of US$6 million. Of that amount, US$1,500,000 ($1,647,150) was paid upon closing of the deal, while the balance will be disbursed based on the achievement of certain milestones, such as the meeting of certain performance requirements, the filing of regulatory application, the obtaining of regulatory approval and the transfer of manufacturing to Abiomed. On February 18, 2014, the Company completed a public offering for aggregate gross proceeds of $8,505,104. In connection with the offering, the Company issued a total of 5,340,220 units at a price of $0.75 per unit and 6,164,300 common shares at a price of $0.73 per common share. Each unit consists of one common share in the capital stock of Opsens and one-half of one common share purchase warrant, with each whole common share purchase warrant entitling the holder thereof to purchase one common share at a price of $1.05 until February 18, 2016. The value of one-half of one common share purchase warrant was established at $0.02, being the difference between the issuing price of $0.75 per unit and of $0.73 per common share. Expenses of the offering include underwriting fees of 7% or $595,357 and other professional fees and miscellaneous fees of $373,991 for total fees of $969,348. The Company also issued 805,316 broker warrants as additional compensation, each warrant entitling the holder to purchase one common share at a price of $0.73 until February 17, 2016. The total issue fees of $969,348 and the broker warrants value of $32,213 have been allocated on a pro-rata basis between share capital and the warrants reserve, $989,015 and $12,546 respectively, based on the ratio established by their respective values as described above. On November 19, 2012, the Company announced the granting of distribution and other rights for OptoWire and OptoMonitor. Under the terms of the agreement, the Company received:  US$3,000,000 for the distribution rights for Japan, Korea and Taiwan, which includes: a. US$2,000,000 ($2,002,000) at signing; b. US$1,000,000 with the regulatory approval in Japan.  US$2,000,000 ($2,002,000) in a form of a 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. As at August 31, 2015, the net book value of property, plant and equipment pledged as collateral was $2,000 ($32,800 as at August 31, 2014). 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 for 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 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. As at August 31, 2015, the Company had cash and cash equivalents of $7,204,000 compared with $10,621,000 as at August 31, 2014. Of this amount as at August 31, 2015, $6,754,000 was invested in highly liquid, safe investments. As at August 31, 2015, Opsens had a working capital of $8,493,000 compared with $10,185,000 for the same period last year. Based on the cash and cash equivalents position, Opsens has the financial resources necessary to maintain short-term operations, honour its commitments and support its anticipated growth and development activities. From a medium- term perspective, Opsens may need to raise additional financing by issuing equity securities and/or 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. Changes in cash and cash equivalents position will largely depend on the rate of revenue growth in upcoming quarters. For fiscal year 2016, the Company anticipates additional investments into the working capital of approximately $800,000. 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, 2015 $ Year Ended August 31, 2014 $ (2,943) (539) 65 (3,417) (456) (403) 7,818 6,959 Cash flows used by our operating activities for the year ended August 31, 2015 were $2,943,000 compared with $456,000 for the same period last year, an increase of $2,487,000. The increase in cash flows used by our operating activities is explained by the negative impact of the changes in non-cash operating working capital items attributable to a decrease in deferred revenues of $2,462,000 mainly due to the recognition in the statement of loss and comprehensive loss of deferred revenues amounting to $2,002,000 (US$2,000,000) when the Company received the CE mark approval in Europe. Investing activities For the year ended August 31, 2015, cash flows used by our investing activities reached $539,000 and were used for acquisition of property, plant and equipment for an amount of $585,000 and of intangible assets for an amount of $137,000. This was partly offset by interest income received of $140,000 and by proceeds from disposal of property, plant and equipment of $43,000. Acquisition of property, plant and equipment were made primarily for our FFR project. For the year ended August 31, 2014, cash flows used by our investing activities reached $403,000 and were used for acquisition of property, plant and equipment for an amount of $390,000 and of intangible assets for an amount of $109,000. This was partly offset by interest income received of $96,000. Acquisition of property, plant and equipment were made primarily for our oil and gas activities and for our FFR project. Financing activities For the year ended August 31, 2015, cash flows generated by our financing activities reached $65,000. The proceeds from the issuance of shares of $251,000 were partly offset by the $186,000 payment on the long-term debt. For the year ended August 31, 2014, cash flows generated by our financing activities reached $7,818,000. The net proceeds from the issuance of shares and units of $7,679,000 and the increase in the long-term debt of $316,000 were partly offset by the $177,000 payment on the long-term debt. COMMITMENTS Leases The Company leases offices in Québec under operating leases expiring on April 30, 2018 and September 30, 2025. These agreements are renewable for an additional five-year period. Future payments for the leases, totalling $3,610,000, required in each of the forthcoming years are as follows: 2016 2017 2018 2019 2020 Thereafter $ 487,000 469,000 413,000 295,000 301,000 1,645,000 As at August 31, 2015, the Company signed an agreement amounting to $1,040,800 with a supplier for the acquisition of production equipments. INFORMATION BY REPORTABLE SEGMENTS Sector’s Information The Company’s reportable segments are strategic business units managed separately. Opsens Inc. is focused on developing, producing, and supplying fiber optic sensors. 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, 2015 Opsens Inc. Opsens Solutions Inc. Total Opsens Inc. Opsens Solutions Inc. 2014 Total $ $ $ $ $ $ 7,395,766 1,268,964 8,664,730 2,290,654 4,497,083 6,787,737 85,561 - 85,561 486,447 - 486,447 278,106 106,725 384,831 212,645 132,916 345,561 55,129 6,971 62,100 38,447 9,333 47,780 (163,257 ) 162,691 (566 ) (211,342 ) 325,752 114,410 External sales Internal sales Depreciation of property, plant and equipment Amortization of intangible assets Financial expenses (revenues) Current income tax expense 340,000 - 340,000 - - - Net loss (697,490 ) (1,390,138 ) (2,087,628 ) (2,478,047 ) (620,665 ) (3,098,712 ) Acquisition of property, plant and equipment Additions to intangible assets Segment assets Segment liabilities 623,508 1,131 624,639 359,243 30,670 389,913 160,419 11,581,624 - 1,181,629 160,419 12,763,253 107,499 13,265,042 6,451,909 417,905 6,869,814 7,756,045 2,271 109,770 3,523,578 16,788,620 8,579,391 823,346 The Company’s net loss per reportable segments reconciles to its consolidated financial statements as follows: Net loss per reportable segments Impairment charge on property, plant and equipment Impairment charge on goodwill Net loss and comprehensive loss Years ended August 31, 2015 $ 2014 $ (2,087,628 ) 119,663 676,574 (3,098,712 ) - - (2,883,865 ) (3,098,712 ) Geographic sector’s information Revenue per geographic sector Japan Canada Chile United States Other* Years ended August 31, 2015 $ 2014 $ 3,978,097 1,350,228 1,169,182 870,179 1,297,044 8,664,730 307,714 4,725,688 - 833,802 920,533 6,787,737 * Comprised of revenues generated in countries for which amounts are individually no significant. Revenues are attributed to a precise 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, 2015, revenues from two clients represented individually more than 10% of the total revenues of the Company, i.e. approximately 40% (Opsens Inc. reportable segment) and 13% (Opsens Inc.’ reportable segment). During the year ended August 31, 2014, revenues from three clients represented individually more than 10% of the total revenues of the Company, i.e. approximately 33% (Opsens Solutions Inc.’ reportable segment), 15% (Opsens Solutions Inc.’ reportable segment) and 11% (Opsens Solutions Inc.’ reportable segment). Opsens Inc. segment For the year ended August 31, 2015, revenues from the Opsens Inc. segment were $7,481,000 compared with $2,777,000 in Fiscal 2014, an increase of $4,704,000. The increase is explained by the recognition of non-recurring revenues of $3,457,500 (US$3,300,000), higher industrial revenues of $817,000 and higher medical revenues of $675,000 mainly due to FFR revenues. This was partly offset by decreased orders from the wholly-owned subsidiary Opsens Solutions Inc. in the oil and gas sector. Gross margin was $4,713,000 in Fiscal 2015, compared with $937,000 in Fiscal 2014, an increase of $3,776,000. The increase in gross margin is mainly attributable to non-recurring revenues. Gross margin as a percentage of revenues increased from 34% in Fiscal 2014 to 63% in Fiscal 2015. Without taking into consideration non-recurring revenues, gross margin as a percentage of revenues would have been 31%. The decrease in gross margin as a percentage of revenues, when compared with last year, is explained by additional costs incurred by the Company to increase its manufacturing capacity. Net loss for the Opsens Inc. segment was $697,000 for the year ended August 31, 2015 compared with a net loss of $2,478,000 in 2014. The decrease in net loss is due to non-recurring revenues recorded during the year, partly offset by higher administrative and sales and marketing expenses, as explained in the “SELECTED CONSOLIDATED FINANCIAL DATA” section of this MD&A. Working capital for the Opsens Inc. segment as at August 31, 2015 was $8,005,000 compared with $8,654,000 as at August 31, 2014. The decrease of $649,000 is due to lower cash and cash equivalents of $3,044,000 resulting from the net loss recorded during the year and by higher accounts payable and accrued liabilities of $457,000 when compared with last year because of the increased level of activity as the Company can now commercialize its FFR products in Japan, the U.S., Europe and Canada. This was partly offset by the decrease in the current portion of deferred revenues of $2,002,000 resulting from the recognition in the consolidated statement of loss and comprehensive loss of deferred revenues when the Company received the CE mark approval in Europe and by higher level of inventories of $1,044,000 resulting from FFR activities. Opsens Solutions Inc. segment For the year ended August 31, 2015, revenues from the Opsens Solutions Inc. segment were $1,269,000 compared with $4,497,000 in 2014, a decrease of $3,228,000. The decrease is explained by lower installations of OPP-W sensors when compared with last year because of challenging economic conditions affecting oil and gas producers in Western Canada. Gross margin was $31,000 in Fiscal 2015 compared with $1,452,000 in Fiscal 2014, a decrease of $1,421,000. Gross margin as a percentage of revenues decreased from 32% in Fiscal 2014 to 2% in Fiscal 2015. The decrease in gross margin and gross margin as a percentage of revenues is due to lower revenues combined with semi-fixed costs not decreasing at the same rate as revenues and to an allowance for obsolete inventory of $375,000 recorded during the year, a consequence of the difficult economic conditions prevailing in Alberta for oil and gas producers. Net loss for the Opsens Solutions Inc. segment was $1,390,000 in Fiscal 2015 compared to a net loss of $621,000 in Fiscal 2014. The increase in net loss is mainly attributable to the decrease in gross margin as explained previously. This was partly offset by lower administrative and sales and marketing expenses, reflecting the effectiveness of the Company’s implemented cost reduction measures. Working capital for the Opsens Solutions Inc. segment as at August 31, 2015 was $488,000 compared with $1,531,000 as at August 31, 2014. The decrease of $1,043,000 is due to a decrease in inventories of $652,000 when compared with last year resulting from the downsizing of the Company’s operations in Western Canada and by the recognition of an allowance for obsolete inventory, as explained previously, and by lower cash and cash equivalents of $373,000. FOURTH QUARTER 2015 Revenues Revenues totalled $1,110,000 for the quarter ended August 31, 2015 compared to $1,764,000 for the same period last year. The decrease in revenues is explained by lower revenues in the oil and gas sector. Gross margin Gross margin was ($105,000) for the three-month period ended August 31, 2015 compared to $748,000 for the same period last year, a decrease of $853,000. Gross margin as a percentage of revenues decreased from 42% for the three- month period ended August 31, 2014 to (9%) for the same period in 2015. The decrease in gross margin and gross margin as a percentage of revenues is due to lower revenues as explained previously, recognition of an allowance for obsolete inventory of $375,000 recorded during the quarter and additional costs incurred by the Company to increase its manufacturing capacity. Administrative expenses Administrative expenses were $631,000 and $617,000 for the three-month periods ended August 31, 2015 and 2014, respectively. The increase is explained by higher insurance expenses. Sales and marketing expenses Sales and marketing expenses totalled $317,000 for the quarter ended August 31, 2015, an increase of $16,000 over the $301,000 reported for the same period in 2014. The increase is mainly explained by publicity expenses associated with the limited market release of OptoWire and OptoMonitor. Research and development expenses Research and development expenses totalled $678,000 for the quarter ended August 31, 2015, an increase of $326,000 over the $352,000 reported for the same period in 2014. The increase in research and development expenses is explained by higher headcount when compared with last year, higher supplies expenses arising from the manufacturing of units of OptoWire II for the verification and validation phase as well as lower tax credits for research and development and grants that are accounted for against research and development expenses. Financial expenses Financial expenses totalled $20,000 and $32,000 for the three-month periods ended August 31, 2015 and 2014, respectively. The decrease in financial expenses is explained by lower interest on long-term debt. 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 for the convertible debenture. During the fourth quarter, an amount of $60,000 ($5,200 was recorded as a gain for the three-month period ended August 31, 2014) was recorded as a loss in the consolidated statement of loss. Net loss As a result of the foregoing, net loss for the quarter ended August 31, 2015 was $1,811,000 or 0.03 cent a share compared with a net loss of $549,000 or 0.01 cent a share for the same quarter in 2014. INFORMATION ON SHARE CAPITAL For the year ended August 31, 2015, the Company granted to some employees and Directors a total of 862,000 stock options with an average exercise price of $0.81 and cancelled 620,000 stock options with an average exercise price of $0.29.Also, 17,500 stock options with an average exercise price of $0.81 expired and 854,250 stock options with an average exercise price of $0.27 were exercised. For the year ended August 31, 2014, the Company granted to some employees and Directors a total of 985,000 stock options with an average exercise price of $0.71 and cancelled 506,667 stock options with an average exercise price of $0.32. Also, 60,000 stock options with an average exercise price of $0.40 expired and 387,500 stock options with an average exercise price of $0.37 were exercised. For the year ended August 31, 2015, 25,000 warrants with an average exercise price of $0.73 were exercised. As at November 23, 2015, the following components of shareholders' equity are outstanding: Common shares Stock options Warrants Convertible debenture Securities on a fully diluted basis 60,731,003 3,949,000 3,450,426 3,466,667 71,597,096 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 exchange rate between the U.S. dollar and the Canadian dollar is 1.30 and the conversion price is equal to $0.75 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, 2015 2014 $ $ 25,459 10,035 Professional fees paid 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 debt component of the convertible debenture approximates $1,693,400 as at August 31, 2015 ($1,505,300 as at August 31, 2014) and is classified at level 2 in the fair value hierarchy. 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 Financial assets (liabilities) measured at fair value: Convertible debenture – embedded derivative As at August 31, 2015 Total Level 1 Level 2 Level 3 $ $ $ $ (245,773 ) - (245,773 ) - As at August 31, 2014 Total Level 1 Level 2 Level 3 $ $ $ $ (140,479 ) - (140,479 ) - 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 assumptions impacting the Company’s valuation of this embedded derivative is the implied volatility. The fair value of the convertible debenture was determined using the Black-Scholes pricing model using an implied volatility of 95% (111% in 2014), a discount rate of 0.44% (1.35% in 2014) and an expected life of 2.2 years (3.2 years in 2014). A 1% change in the implied volatility factor would have changed the fair value of the embedded derivative by $1,840 ($1,740 for the year ended August 31, 2014). 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 as trade receivables consist of a large number of customers spread across diverse geographical areas. 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 at risk and/or uncollectible. Two major customers represented 33% of the Company’s total accounts receivable as at August 31, 2015 (50% as at August 31, 2014). As at August 31, 2015, 4% (6% as at August 31, 2014) of the accounts receivable were over 90 days whereas 55% (60% as at August 31, 2014) 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, 2015, the allowance for doubtful accounts was established at $3,032 ($3,032 as at August 31, 2014). 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 and/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 the Company’s access to capital markets for equity and debt securities issues. The following are the contractual maturities of the financial liabilities (principal and interest, assuming current interest rates) as at August 31, 2015 and August 31, 2014: August 31, 2015 Carrying 0 to 12 12 to 24 After amount Cash flows months months 24 months Accounts payable and accrued liabilities 1,657,962 1,657,962 1,657,962 $ $ $ $ - $ - Long-term debt 695,088 862,821 244,458 180,646 437,717 Convertible debenture 2,998,702 2,907,594 - - 2,907,594 Total August 31, 2014 Accounts payable and 5,351,752 5,428,377 1,902,420 180,646 3,345,311 Carrying 0 to 12 12 to 24 After amount Cash flows months months 24 months $ $ $ $ - $ - accrued liabilities 1,412,792 1,412,792 1,412,792 Long-term debt 826,834 1,057,301 181,137 256,806 619,358 Convertible debenture 2,359,556 2,392,060 - - 2,392,060 Total 4,599,182 4,862,153 1,593,929 256,806 3,011,418 Interest Rate Risk 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 at August 31, 2015, the Company was holding more than 93% (92% as at August 31, 2014) of its cash and cash equivalents in all- time redeemable term deposits. All else being equal, a hypothetical 1% interest rate increase would have had an unfavourable impact of $1,100 and $1,717 on the net loss and comprehensive loss for the years ended August 31, 2015 and 2014, respectively. A hypothetical 1% interest rate decrease would have had a favourable impact of $1,300 and $1,780 on the net loss and comprehensive loss for the years ended August 31, 2015 and 2014, respectively. Financial expenses (revenues) Interest and bank charges Interest on long-term debt Interest and accreted interest on convertible debenture Loss (gain) on foreign currency translation Interest income Concentration Risk Years ended August 31, 2015 $ 60,868 32,665 83,225 (23,746 ) (153,678 ) (566 ) 2014 $ 58,183 34,906 54,527 84,941 (118,147 ) 114,410 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 at August 31, 2015 and 2014, the Company was holding 100% of its cash equivalents portfolio in all-time redeemable term deposits with financial institutions with high creditworthiness. Foreign Exchange Risk The Company realizes certain sales and purchases and certain supplies and professional services in US dollars and Euros. Therefore, it is exposed to foreign currency fluctuations. At this time, the Company does not actively manage this risk. Foreign Currency Sensitivity Analysis For the year ended August 31, 2015, if the Canadian dollar had strengthened 10% against the US dollar with all other variables held constant, net loss and comprehensive loss would have been $11,000 higher for the year ended August 31, 2015 ($4,700 higher for the year ended August 31, 2014). Conversely, if the Canadian dollar had weakened 10% against the US dollar with all other variables held constant, net loss and comprehensive loss would have been $11,000 lower for the year ended August 31, 2015 ($4,700 lower for the year ended August 31, 2014). For the year ended August 31, 2015, if the Canadian dollar had strengthened 10% against the Euros with all other variables held constant, net loss and comprehensive loss would have been $20,000 higher (nil for the year ended August 31, 2014). Conversely, if the Canadian dollar had weakened 10% against the Euros with all other variables held constant, net loss and comprehensive loss would have been $20,000 lower for the year ended August 31, 2015 (nil for the year ended August 31, 2014). As at August 31, 2015 and August 31, 2014, the risk to which the Company was exposed is established as follows: Cash and cash equivalents (US$2,097,017; US$2,362,635 as at August 31, 2014) Trade and other receivables (US$182,630; US$286,422 as at August 31, 2014) Trade and other receivables (Euro 53,625; nil as at August 31, 2014) Accounts payable and accrued liabilities (US$289,251; US$179,867 as at August 31, 2014) Convertible debenture (US$2,092,368; US$2,040,906 as at August 31, 2014) Embedded derivative (US$186,800; US$129,200 as at August 31, 2014) Total CAPITAL MANAGEMENT As at August 31, 2015 $ As at August 31, 2014 $ 2,759,045 2,568,893 240,286 79,167 311,427 - (380,567 ) (195,570 ) (2,752,929 ) (2,219,077 ) (245,773 ) (300,771 ) (140,479 ) 325,194 The Company's objective in managing capital, primarily comprised 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 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, 2015, the Company's working capital amounted to $8,492,636 ($10,184,611 as at August 31, 2014), including cash and cash equivalents of $7,203,612 ($10,621,011 as at August 31, 2014). The accumulated deficit at the same date was $21,257,345 ($18,373,480 as at August 31, 2014). Based on the Company's assessment, which takes into account current cash and cash equivalents, 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 consolidated statements of financial position date of August 31, 2015. 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, 2015 and 2014, the Company has not been in default under any of its obligations regarding the long-term debt. SUBSEQUENT EVENTS In June 2015, the Company announced an expansion project to increase the manufacturing capacity and accommodate a growing number of employees. The Company therefore signed a long-term lease as described in note 18. As at August 31, 2015, the Company signed an agreement for the acquisition of production equipments (note 18). In addition, in October and November 2015, the Company signed agreements amounting to approximately $302,000 with various suppliers with respect to the expansion project. In October 2015, to fund the expansion project, the Company entered into three loan agreements for a total amount of $1,775,000. The first loan agreement, with Desjardins, amounting to $700,000, bears interest at prime rate plus 2.0%, is payable in monthly instalments of $14,583, calculated over an amortization period of forty-eight (48) months and will be maturing twelve (12) months following the first disbursement. The second loan agreement with Desjardins, amounting to a maximum of $375,000, bears interest at prime rate plus 2.0%, and will be payable upon receipt by the Company of the reimbursement of its 2015 refundable research and development tax credits. This loan agreement will be maturing eighteen (18) months following the first disbursement. The third loan agreement, with Investissement Québec, amounting to $700,000, bears interest at prime rate plus 0.25%, is payable in monthly instalments of $14,583, and will be maturing forty-eight (48) months following the first disbursement. These loans are secured by various hypothecs on the Company’s assets. Under these three loan agreements, the Company will be subject to certain covenants with respect to maintaining certain financial ratios CAPACITY TO PRODUCE RESULTS As discussed in the section “LIQUIDITY AND CAPITAL RESOURCES”, 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 require additional investment in working capital of approximately $800,000. On June 25, 2015, Opsens announced a massive expansion to increase the manufacturing capacity and accommodate its growing number of employees. In order to do so, it will move its FFR activities into a new facility. An amount of approximately $2,600,000 is expected to be invested for leasehold improvements and for production equipment. An amount of $900,000 will be financed by the landlord, in addition to the financing already secured by the Company (see section “SUBSEQUENT EVENTS”). From the human resources’ perspective, there are no vacancies in the major executive positions within the Company. However, additional technical and production personnel as well as sales and marketing personnel will be required to support the expected growth. Taking into account the employment market, 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 2015 that would be expected to have a material impact on the Company. Adopted in 2015 IAS 32, Financial Instruments: Presentation In December 2011, amendments to IAS 32, Financial Instruments: Presentation, were issued to clarify the application of offsetting criteria with regard to offsetting financial assets and financial liabilities. The amendments to IAS 32 are effective for fiscal years beginning on or after January 1, 2014 with earlier adoption permitted. The adoption of these new requirements had no impact on the Company’s consolidated financial statements. IAS 36, Impairment of Assets IAS 36, Impairment of Assets, has been revised to integrate the amendments issued in May 2013. Those amendments make it possible to better reflect a prior decision to require the recoverable amount of impaired assets to be reported along with other disclosures regarding the measurement of the recoverable amount of impaired assets in cases where said recoverable amount is based on fair value less costs of disposal, including the discount rate, when a discounting technique is used to determine the recoverable amount. Those amendments are effective for fiscal years beginning on or after January 1, 2014 with earlier adoption permitted. The adoption of these IFRS amendments did not have a significant impact on the Company’s consolidated financial statements. IFRIC 21, Levies IFRIC 21, Levies, which is an interpretation of IAS 37, Provisions, Contingent Liabilities and Contingent Assets, applies to the accounting for levies imposed by governments. IAS 37 sets out criteria for the recognition of a liability, one of which is the requirement for the entity to have a present obligation as a result of a past event (“obligating event”). IFRIC 21 clarifies that the obligating event that gives rise to a liability to pay a levy is the activity described in the relevant legislation that triggers the payment of the levy. IFRIC 21 is effective for annual periods commencing on or after January 1, 2014. The adoption of IFRIC 21 did not have a significant impact on the Company’s consolidated financial statements. Not yet adopted IFRS 15, Revenue from Contracts with Customers In May 2014, the IASB issued IFRS 15, Revenue from contracts with customers. IFRS 15 replaces all previous revenue recognition standards, including IAS 18, Revenue, and related interpretations such as IFRIC 13, Customer loyalty programmes. The standard sets out the requirements for recognizing revenue. Specifically, the new standard introduces a comprehensive framework with the general principle being that an entity recognizes revenue to depict the transfer of promised goods and services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard introduces more prescriptive guidance than was included in previous standards and may result in changes in classification and disclosure in addition to changes in the timing of recognition for certain types of revenues. The new standard is effective for annual periods beginning on or after January 1, 2018 with early adoption permitted. The Company has not yet assessed the impact of this new standard. IFRS 9, Financial Instruments In July 2014, the IASB issued the final version of IFRS 9, Financial Instruments. The new standard will replace IAS 39, Financial instruments: recognition and measurement. The final amendments made in the new version include guidance for the classification and measurement of financial assets and a third measurement category for financial assets, fair value through other comprehensive income. The standard also contains a new expected loss impairment model for debt instruments measured at amortized cost or fair value through other comprehensive income, lease receivables, contract assets and certain written loan commitments and financial guarantee contracts. The standard is effective for annual periods beginning on or after January 1, 2018 and must be applied retrospectively with some exceptions. Early adoption is permitted. Restatement of prior periods in relation to the classification and measurement, including impairment, is not required. The Company has not yet assessed the impact of this new standard. 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. In the FFR market, the Company is dependent on the success of the OptoWire, its guidewire measuring FFR and cannot be certain that it will achieve the broad acceptance necessary to develop a profitable business. Expected future revenues are primarily derived from sales of the OptoWire. The OptoWire is designed to provide cardiologists with a pressure guidewire to navigate coronary arteries and cross blockages with ease, while also measuring intra- coronary blood pressure. The Company expects that sales of its FFR products will account for a majority of its revenues for the foreseeable future, however it is difficult to predict the penetration and future growth rate or size of the market for FFR technology. The expansion of the FFR market depends on a number of factors, such as:            physicians accepting the benefits of the use of FFR in conjunction with angiography; physicians experience with FFR products either used alone or jointly used in a single percutaneous coronary intervention, or PCI; the availability of training necessary for proficient use of FFR products, as well as willingness by physicians to participate in such training; the additional procedure time required for use of FFR compared to the perceived benefits; the perceived risks generally associated with the use of the Company’s products and procedures, especially its new products and procedures; the placement of the Company’s products in treatment guidelines published by leading medical organizations; the availability of alternative treatments or procedures that are perceived to be or are more effective, safer, easier to use or less costly; hospitals' willingness, and having sufficient budgets, to purchase the Company’s FFR products; the size and growth rate of the PCI market in the major geographies in which the Company operates; the availability of adequate reimbursement; and the success of the Company’s marketing efforts and publicity regarding FFR technology. Even if FFR technology gains wide market acceptance, the Company’s FFR products may not adequately address market requirements and may not continue to gain market acceptance among physicians, healthcare payors and the medical community due to factors such as:      the lack of perceived benefit from information related to pressure characteristics of blood around blockages available to the physician; the actual and perceived ease of use of the Company’s FFR products; the quality of the measurements provided by the Company’s FFR products; the cost, performance, benefits and reliability of the Company’s FFR products relative to competing products and services; and the extent and timing of technological advances. If FFR technology generally, or the Company’s FFR products specifically, do not gain wide market acceptance, the Company may not be able to achieve its anticipated growth, revenues or profitability and its results of operations would suffer. The risks inherent in the Company’s international operations may adversely impact its revenues, results of operations and financial condition. The Company anticipates that it will derive a significant portion of its revenues from operations in Japan, the United States and Europe. As the Company expands internationally, it will need to retain and train its distributors, hire, train and retain qualified personnel for its direct sales efforts and train other personnel in countries where language, cultural or regulatory impediments may exist. The Company cannot ensure that distributors, physicians, regulators or other government agencies outside Canada will accept its products, services and business practices. Current or future trade, social and environmental regulations or political issues could restrict the supply of resources used in production or increase its costs. Compliance with such regulations is costly. Any failure to comply with applicable legal and regulatory obligations could impact the Company in a variety of ways that include, but are not limited to, significant criminal, civil and administrative penalties, including imprisonment of individuals, fines and penalties, denial of export privileges, seizure of shipments and restrictions on certain business activities. Failure to comply with applicable legal and regulatory obligations could result in the disruption of the Company’s manufacturing, shipping and sales activities. The Company’s international sales operations expose it and its representatives, agents and distributors to risks inherent in operating in foreign jurisdictions, including:           the Company’s ability to obtain, and the costs associated with obtaining export licenses and other required export or import licenses or approvals; changes in duties and tariffs, taxes, trade restrictions, license obligations and other non-tariff barriers to trade; burdens of complying with a wide variety of foreign laws and regulations related to healthcare products; costs of localizing product and service offerings for foreign markets; business practices favoring local companies; longer payment cycles and difficulties collecting receivables through foreign legal systems; difficulties in enforcing or defending agreements and intellectual property rights; differing local product preferences, including as a result of differing reimbursement practices; fluctuations in foreign currency exchange rates and their impact on the Company’s operating results; and changes in foreign political or economic conditions. The Company cannot ensure that one or more of these factors will not harm the Company. Inability to expand the Company’s international operations would adversely impact its revenues, results of operations and financial condition. If the third-party distributors that the Company will rely on to market and sell its products are not successful, the Company may be unable to increase or maintain its level of revenues. A portion of its revenue will be generated by third-party distributors, especially in international markets. If these distributors cease or limit operations or experience a disruption of their business operations, or are not successful in selling the Company’s products, it may be unable to increase or maintain its level of revenues, and any such developments could negatively affect its international sales strategy. Over the long term, the Company intends to grow its business internationally, and to do so it will need to attract additional distributors to expand the territories in which the Company does not directly sell its products. The Company’s distributors may not commit the necessary resources to market and sell its products. If current or future distributors do not continue to distribute the Company’s products or do not perform adequately or if the Company is unable to locate distributors in particular geographic areas, it may not realize revenue growth internationally. The Company may require significant additional capital to pursue its growth strategy, and its failure to raise capital when needed could prevent the Company from executing its growth strategy. The Company believes that its existing cash and cash equivalents will be sufficient to meet its anticipated cash needs for at least the next 24 months. However, the Company may need to obtain additional financing to pursue its strategy, to respond to new competitive pressures or to act on opportunities to acquire or invest in complementary businesses, products or technologies. The timing and amount of the Company’s working capital and capital expenditure requirements may vary significantly depending on numerous factors, including:  market acceptance of its products;     the revenues generated by its products; the need to adapt to changing technologies and technical requirements, and the costs related thereto; the costs associated with expanding its manufacturing, marketing, sales and distribution efforts; the existence and timing of opportunities for expansion, including acquisitions and strategic transactions; and costs and fees associated with defending existing or potential litigation.  If the Company fails to properly manage its anticipated growth, the Company could suffer. Rapid growth of the Company is likely to place a significant strain on its managerial, operational and financial resources and systems. To execute the Company’s anticipated growth successfully, it must attract and retain qualified personnel and manage and train them effectively. The Company anticipates hiring additional distributors and personnel to assist in the commercialization of its current products and in the development of future products. The Company will be dependent on its personnel and third parties to effectively market and sell its products to an increasing number of customers. It will also depend on its personnel to develop and manufacture in anticipated increased volumes its existing products, as well as new products and product enhancements. Further, the Company anticipated growth will place additional strain on its suppliers resulting in increased need for it to carefully monitor for quality assurance. Any failure by the Company to manage its growth effectively could have an adverse effect on its ability to achieve its development and commercialization goals. If the Company is unable to protect its intellectual property effectively, its financial condition and results of operations could be adversely affected. Patents and other proprietary rights are essential to the Company and its ability to compete effectively with other companies is dependent upon the proprietary nature of its technologies. The Company also relies upon trade secrets, know-how, continuing technological innovations and licensing opportunities to develop, maintain and strengthen its competitive position. The Company seeks to protect these, in part, through confidentiality agreements with certain employees, consultants and other parties. The Company pursues a policy of generally obtaining patent protection in both Canada and in key foreign countries for patentable subject matter in its proprietary devices and also attempt to review third-party patents and patent applications to the extent publicly available to develop an effective patent strategy, avoid infringement of third-party patents, and monitor the patent claims of others. The Company currently owns numerous Canadian and foreign patents and has patent applications pending. The Company cannot be certain that any pending or future patent applications will result in issued patents, that any current or future patents issued will not be challenged, invalidated or circumvented or that the rights granted thereunder will provide a competitive advantage to it or prevent competitors from entering markets which the Company currently serves. In addition, the Company may have to take legal action in the future to protect its trade secrets or know-how or to defend itself against claimed infringement of the rights of others. Any legal action of that type could be costly and time consuming to the Company despite insurance policies owned by the Company and it cannot be certain of the outcome. The invalidation of key patents or proprietary rights which the Company owns or an unsuccessful outcome in lawsuits to protect its intellectual property could have a material adverse effect on its financial condition and results of operations. Pending and future patent litigation could be costly and disruptive to the Company and may have an adverse effect on its financial condition and results of operations. The Company operates in an industry that is susceptible to significant patent litigation and, in recent years, it has been common for companies in the medical device field to aggressively challenge the rights of other companies to prevent the marketing of new devices. Companies that obtain patents for products or processes that are necessary for or are useful to the development of its products may bring legal actions against the Company claiming infringement. Defending intellectual property litigation is expensive and complex and outcomes are difficult to predict. Any pending or future patent litigation may result in significant royalty or other payments or injunctions despite insurance policies owned by the Company that can prevent the sale of products and may cause a significant diversion of the efforts of the Company’s technical and management personnel. While the Company intends to defend any such lawsuits vigorously, it cannot be certain that it will be successful. In the event that the Company’s right to market any of its products is successfully challenged or if the Company fails to obtain a required license or is unable to design around a patent, the Company’s financial condition and results of operations could be materially adversely affected. Quality problems with the processes and products could harm the Company’s reputation for producing high- quality products and diminish its competitive advantage, sales and market share. The manufacturing of the FFR products is a highly rigorous and complex process, due in part to strict regulatory requirements. Any failure to manufacture our products in accordance with product specifications 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. Quality is extremely important to us and our customers due to the serious and costly consequences of product failure. Opsens’ quality certifications are critical to the marketing success of its products. If the Company’s fails to meet these standards, its reputation could me damaged, it could lose customers, and its revenue and results of operations could decline. Aside from specific customer standards, our success depends generally on our ability to manufacture to exact tolerances precision-engineered components, subassemblies, and finished devices from multiple materials. If the components fail to meet these standards or fail to adapt to evolving standards, Opsens’ reputation as a manufacturer pf high-quality devices will be harmed, its competitive advantage could be damaged, and it could lose customers and market share. The loss of any of the Company’s sole-source suppliers or an increase in the price of inventory supplied to it could have an adverse effect on the Company’s financial condition and results of operations. The Company purchases certain supplies used in its manufacturing processes from single sources due to quality considerations, costs or constraints resulting from regulatory requirements. Agreements with certain suppliers are terminable by either party upon short notice and the Company has been advised periodically by some suppliers that in an effort to reduce their potential product liability exposure, they may terminate sales of products to customers that manufacture implantable medical devices, and the Company may not be able to establish additional or replacement suppliers for certain components or materials quickly. In addition, the Company may lose a sole-source supplier due to, among other things, the acquisition of such a supplier by a competitor (which may cause the supplier to stop selling its products to it) or the bankruptcy of such a supplier, which may cause the supplier to cease operations. A reduction or interruption by a sole-source supplier of the supply of materials or key components used in the manufacturing of the Company’s products or an increase in the price of those materials or components could adversely affect the Company’s financial condition and results of operations. The Company’s might encounter challenges relating to the management and operation of its new facility, and the expansion has and will continue to increase its fixed costs, which may have a negative impact on its financial results and condition. In June 2015, the Company announced a massive expansion to increase its manufacturing capacity and accommodate its growing number of employees. Therefore, Opsens entered into a leasing agreement for a 30,000 square foot building. There is no guarantee that the Company will be able to successfully operate this facility in an efficient or profitable manner. The Company will also need to transfer its manufacturing processes, technology and know-how to the new facility. If the Company is unable to operate this facility, or successfully transfer its manufacturing processes, technology and know-how in a timely and cost-effective manner, or at all, then it might experience disruption in its operations, which could negatively impact its business and financial results. Instability in international markets or foreign currency fluctuations could adversely affect the Company’s results of operations. The Company’s products will be marketed in many countries, with its largest geographic markets being Japan, Europe, and the United States. As a result, the Company’s faces currency and other risks associated with its international sales. The Company is exposed to foreign currency exchange rate fluctuations due to transactions denominated primarily in United States dollars, Euros and Japanese Yen, which may potentially reduce the Canadian dollars the Company receives for sales denominated in any of these foreign currencies and/or increase the Canadian dollars the Company reports as expenses in these currencies, thereby affecting its reported consolidated revenues, profit margins and results of operations. Fluctuations between the currencies in which the Company does business will cause foreign currency transaction gains and losses. The Company cannot predict the effects of currency exchange rate fluctuations upon its future operating results because of the number of currencies involved, the variability of currency exposures and the volatility of currency exchange rates. In addition to foreign currency exchange rate fluctuations, there are a number of additional risks associated with the Company’s international operations, including those related to:        the imposition of or increase in import or export duties, surtaxes, tariffs or customs duties; the imposition of import or export quotas or other trade restrictions; foreign tax laws and potential increased costs associated with overlapping tax structures; compliance with import/export laws; longer accounts receivable cycles in certain foreign countries, whether due to cultural, economic or other factors; changes in medical reimbursement programs and regulatory requirements in international markets in which the Company operates; and economic and political instability in foreign countries, including concerns over excessive levels of sovereign debt and budget deficits in countries where the Company markets its products that could result in an inability to pay or timely pay outstanding payables. Modifications to the Company’s products may require new regulatory clearances or approvals or may require the Company to recall or cease marketing its products until clearances or approvals are obtained. Modifications to the Company’s products may require the submission of new regulatory filings. If a modification is implemented to address a safety concern, the Company may also initiate a recall or cease distribution of the affected device. In addition, if the modified devices require the submission of a new regulatory filing and the Company distributes such modified devices without obtaining regulatory clearances or approvals, then the Company may be required to recall or cease distributing the devices. Regulatory bodies can review a manufacturer’s decision not to submit a modification and may disagree. Regulatory bodies can also on their own initiatives determine that clearances or approvals are required. The Company may make additional modifications in the future that it believes do not or will not require clearance or approval. If the Company begins manufacture and distribution of the modified devices and regulatory bodies late disagree the Company’s determination and require the submission of new regulatory filing for the modifications, the Company may also be required to recall the distributed modified devices and to stop distribution of the modified devices, which could have an adverse effect on its business. If the regulatory bodies do not clear or approve the modified devices, the Company may need to redesign the devices, which could also harm its business. When a device is marketed without a required clearance or approval, the regulatory bodies have the authority to bring an enforcement action, including injunction, seizure and criminal prosecution. Regulatory bodies consider such additional actions generally when there is a serious risk to public health or safety and the Company’s corrective and preventive actions are inadequate to address the regulatory bodies’ concerns. If the Company or its suppliers fail to comply with regulatory bodies’ quality system or ISO quality management systems, manufacturing of its products could be negatively impacted and sales of its products could suffer. The Company’s manufacturing practices must be in compliance with regulatory bodies’ quality system regulation, which governs the facility, methods, controls procedures, and records of the design, manufacture, packaging, labeling, storage, shipping, installation, and servicing its products intended for human use. The Company is also subject to similar state and foreign requirements and licenses, including the current Good Manufacturing Practice (cGMP) for medical devices, MDD-93/42/EEC and the ISO 13485 Quality Management Systems, standard applicable to medical devices. In addition, the Company must engage in regulatory reporting in the case of potential patient safety risks and makes available its manufacturing facility, procedures, and records for periodic inspections and audits by governmental agencies. If the Company fails to comply with these regulations and standards, its operations could be disrupted and its manufacturing interrupted, and it may be subject to enforcement actions if its corrective actions are not adequate to ensure compliance. The Company’s products may in the future be subject to product recalls or voluntary market withdrawals that could harm its reputation, business and financial results. Local and foreign governmental authorities have the authority to require the recall of commercialized products in the event of material deficiencies or defects in design or manufacture that could affect patient safety. Manufacturers may, under their own initiative, recall a product if any material deficiency in a device is found or suspected. A government-mandated recall or voluntary recall by the Company or one of its distributors could occur as a result of component failures, manufacturing errors, design, labeling defects or other issues. Recalls, which include corrections as well as removals, of any of the Company’s products would divert managerial and financial resources and could have an adverse effect on its financial condition, harm its reputation with customers, and reduce its ability to achieve expected revenues. The Company is required to comply with medical device reporting, or MDR, requirements and must report certain malfunctions, deaths, and serious injuries associated with its products, which can result in voluntary corrective actions or agency enforcement actions. Under MDR regulations, medical device manufacturers are required to submit information to regulatory bodies when they receive a report or become aware that a device has or may have caused or contributed to a death or serious injury or has or may have a malfunction that would likely cause or contribute to death or serious injury if the malfunction were to recur. All manufacturers placing medical devices on the market are legally bound to report any serious or potentially serious incidents involving devices they produce or sell to the competent authority in those jurisdiction the incident occurred. Were this to happen to the Company, the relevant competent authority would file an initial report, and there would then be a further inspection or assessment if there were particular issues. This would be carried out either by the competent authority or it could require that the BSI, as the notified body, carry out the inspection or assessment. Malfunctions of the Company’s products could result in future voluntary corrective actions, such as recalls, including corrections, or customer notifications, or agency action, such as inspection or enforcement actions. If malfunctions do occur, the Company cannot guarantee that it will be able to correct the malfunctions adequately or prevent further malfunctions, in which case we may need to cease manufacture and distribution of the affected devices, initiate voluntary recalls, and redesign the devices; nor can we ensure that regulatory authorities will not take actions against us, such as ordering recalls, imposing fines, or seizing the affected devices. If someone is harmed by a malfunction or by product mishandling, the Company may be subject to product liability claims. Any corrective action, whether voluntary or involuntary, as well as defending ourselves in a lawsuit, will require the dedication of its time and capital, distract management from operating the business, and may harm its reputation and financial results. The Company has a limited operating history, and cannot assure you that it achieves and sustains profitability in future periods. The Company was incorporated in 2006 and has been profitable, on a full year basis, only in 2010. Net losses for fiscal years ended August 31, 2015 and 2014 were $2,884,000 and $3,099,000, respectively. To the extent that the Company is able to increase revenues, it expects its operating expenses will also increase as the Company will be expanded to meet anticipated growing demand for its products and will devote resources to its sales, marketing and research and development activities. If the Company is unable to reduce its operating expenses, the Company may not achieve profitability. Additionally, expenses will fluctuate as the Company makes future investments in research and development, selling and marketing and general and administrative activities, including as a result of new product introductions. This will cause the Company to experience variability in its reported earnings and losses in future periods. You should not rely on the Company’s operating results for any prior quarterly or annual period as an indication of its future operating performance. Dependence upon a limited number of clients. Although the Company has numerous clients, a relatively small number of them contribute a significant percentage of the Company’s consolidated revenues. For the year ended August 31, 2015, revenues from two clients represented individually more than 10% of the total revenues of the Company, i.e. approximately 40% and 13%. The Company believes that the degree of dependence will diminish as its sales progress. However, if these clients reduce current or expected purchases, this could have unfavourable impacts on the Company’s activities, its revenues, its financial position and its operating results. The Company faces intense competition and may not be able to keep pace with the rapid technological changes in the medical devices industry. The medical device market is intensely competitive and is characterized by extensive research and development and rapid technological change. The Company’s future customers will consider many factors when choosing suppliers, including product reliability, clinical outcomes, product availability, inventory consignment, price and product services provided by the manufacturer, and market share can shift as a result of technological innovation and other business factors. Major shifts in industry market share have occurred in connection with product problems, physician advisories and safety alerts, reflecting the importance of product quality in the medical device industry, and any quality problems with the Company’s processes, goods and services could harm its reputation for producing high-quality products and erode its competitive advantage, sales and potential market share. The Company’s competitors are larger companies which have significantly greater resources and broader product offerings than the Company, and it anticipates that in the coming years, other technologies or corporations could enter the FFR market. In addition, the Company expects that competition will intensify with the increased use of strategies such as consigned inventory, and the Company anticipates increasing price competition as a result of managed care, consolidation among healthcare providers, increased competition and declining reimbursement rates. Product introductions or enhancements by competitors which have advanced technology, better features or lower pricing may make the Company’s products or proposed products obsolete or less competitive. As a result, the Company will be required to devote continued efforts and financial resources to bring its products under development to market, enhance its existing products and develop new products for the medical marketplace. If the Company fails to develop new products, enhance existing products or compete effectively, the Company’s financial condition and results of operations will be adversely affected. Failure to innovate may adversely impact the Company’s competitive position and may adversely impact its ability to drive price increases for its products and its product revenues. The Company’s future success will depend upon its ability to innovate and introduce enhancements to its existing products in order to address the changing needs of the marketplace. The Company also relies on product enhancements to attempt to drive price increases for its products in its markets. Frequently, product development programs require assessments to be made of future clinical need and commercial feasibility, which are difficult to predict. Customers may forego purchases of its products and purchase its competitors' products as a result of delays in introduction of its new products and enhancements, failure to choose correctly among technical alternatives or failure to offer innovative products or enhancements at competitive prices and in a timely manner. Any delays in product releases may negatively affect the Company. Delays in planned product introductions may adversely affect the Company and negatively impact future revenues. The Company may 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 the Company’s product launches may significantly impede its ability to successfully compete in its markets and may reduce its revenues. The Company and its future collaborators may fail to develop or effectively commercialize products covered by its 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 the Company develops with 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, or if conflicts arise with its collaborators, the Company will be delayed or prevented from developing and commercializing products, which will harm the Company and financial results. Divestitures of any of the Company’s businesses or product lines may materially adversely affect the Company, results of operations and financial condition. 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 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 the Company’s 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. If the Company’s facilities or systems are damaged or destroyed, it may experience delays that could negatively impact its revenues or have other adverse effects. The Company’s facilities may be affected by natural or man-made disasters. If one of its facilities were affected by a disaster, the Company would be forced to rely on third-party manufacturers or to shift production to another manufacturing facility. In such an event, the Company would face significant delays in manufacturing which would prevent it from being able to sell its products. In addition, the Company’s insurance may not be sufficient to cover all of the potential losses and may not continue to be available to it on acceptable terms, or at all. Furthermore, although its computer and communications systems are protected through physical and software safeguards, they are still vulnerable to fire, storm, flood, power loss, earthquakes, telecommunications failures, physical or software break-ins, software viruses, and similar events, and any failure of these systems to perform for any reason and for any period of time could adversely impact the Company’s ability to operate. The Company is subject to stringent domestic and foreign medical device regulation and any adverse regulatory action may materially adversely affect its financial condition and business operations. The Company’s products, development activities and manufacturing processes are subject to extensive and rigorous regulation by numerous government agencies. To varying degrees, each of these agencies monitors and enforces the Company’s compliance with laws and regulations governing the development, testing, manufacturing, labelling, marketing and distribution of its medical devices. The process of obtaining marketing approval or clearance from these government agencies for new products, or for enhancements or modifications to existing products, could:     take a significant amount of time; require the expenditure of substantial resources; involve rigorous pre-clinical and clinical testing, as well as increased post-market surveillance; and involve modifications, repairs or replacements of the Company’s products, and result in limitations on the indicated uses of its products. The Company cannot be certain that it will receive required approval or clearance from government agencies for new products or modifications to existing products on a timely basis. The failure to receive approval or clearance for significant new products or modifications to existing products on a timely basis could have a material adverse effect on the Company’s financial condition and results of operations. Foreign governmental regulations have become increasingly stringent and more common, and the Company may become subject to even more rigorous regulation by foreign governmental authorities in the future. Penalties for a company's noncompliance with foreign governmental regulation could be severe, including revocation or suspension of a company's business license and criminal sanctions. Any domestic or foreign governmental medical device law or regulation imposed in the future may have a material adverse effect on the Company’s financial condition and business operations. The FFR procedures and the cardiovascular field in general are continually the subject of clinical trials conducted by the Company’s competitors or other third parties, the results of which may be unfavorable, or perceived as unfavorable by the market, and could have a material adverse effect on the Company’s financial condition and results of operations. Unfavorable or inconsistent clinical data from existing or future clinical trials conducted by the Company, by its competitors or by third parties, or the market's perception of this clinical data, may adversely impact its ability to obtain product approvals, the size of the markets in which the Company participates, its position in, and share of, the markets in which the Company participates and the Company’s financial condition and results of operations. Any defects or malfunctions in the computer hardware or software the Company utilizes in its products could cause severe performance failures in such products, which would harm its reputation and adversely affect its results of operations and financial condition. The Company’s existing and new products depend and will depend on the continuous, effective and reliable operation of computer hardware and software. Any defect, malfunction or other failing in the computer hardware or software utilized by the Company’s products, including products it develops in the future, could result in inaccurate readings, misinterpretations of data, or other performance failures that could render the Company’s products unreliable or ineffective and could lead to decreased confidence in its products, damage to its reputation, reduction in its sales and product liability claims, the occurrence of any of which could have a material adverse effect on the Company’s results of operations and financial condition. Although the Company updates the computer software utilized in its products on a regular basis, there can be no guarantee that defects do not or will not in the future exist or that unforeseen malfunctions, whether within the Company’s control or otherwise, will not occur. If the Company fails to obtain or maintain, or experience significant delays in obtaining, regulatory clearances or approvals for its products or product enhancements, the Company’s ability to commercially distribute and market its products could suffer. The Company’s products are subject to rigorous regulation by federal, provincial, state and foreign governmental authorities. The Company’s failure to comply with such regulations or to make adequate, timely corrections, could lead to the imposition of injunctions, suspensions or loss of marketing clearances or approvals, product recalls, manufacturing cessation, termination of distribution, product seizures, civil penalties, or some combination of such actions. The process of obtaining regulatory authorizations to market a medical device can be costly and time consuming, and there can be no assurance that such authorizations will be granted on a timely basis, if at all. If regulatory clearance or approvals are received, additional delays may occur related to manufacturing, distribution or product labeling. Cost containment pressures and domestic and foreign legislative or administrative reforms resulting in restrictive reimbursement practices of third-party payors or preferences for alternate therapies could decrease the demand for products purchased by the Company’s customers, the prices which they are willing to pay for those products and the number of procedures using its devices. FFR products will be purchased principally by healthcare providers that typically bill various third-party payors, such as governmental, private insurance plans and managed care plans, for the healthcare services provided to their patients. The ability of customers to obtain appropriate reimbursement for their services and the products they provide from government and third-party payors is critical to the success of medical technology companies. The availability of reimbursement affects which products customers purchase and the prices they are willing to pay. Reimbursement varies from country to country and can significantly impact the acceptance of new technology. After the Company develops a promising new product, it may find limited demand for the product unless reimbursement approval is obtained from private and governmental third-party payors. Major third-party payors for healthcare provider services continue to work to contain healthcare costs. The introduction of cost containment incentives, combined with closer scrutiny of healthcare expenditures by both private health insurers and employers, has resulted in increased discounts and contractual adjustments to healthcare provider charges for services performed and in the shifting of services between inpatient and outpatient settings. Initiatives to limit the growth of healthcare costs, including price regulation, are also underway in several countries in which the Company will do business. Implementation of healthcare reforms in the United States and in significant overseas markets such as Germany, Japan and other countries may limit the price or the level at which reimbursement is provided for the Company’s products and adversely affect both its pricing flexibility and the demand for its products. Healthcare providers may respond to such cost-containment pressures by substituting lower cost products or other therapies for the Company’s products. Consolidation in the healthcare industry could lead to demands for price concessions or limit or eliminate the Company’s ability to sell to certain of its significant market segments. The cost of healthcare has risen significantly over the past decade and numerous initiatives and reforms initiated by legislators, regulators and third-party payors to curb these costs have resulted in a consolidation trend in the medical device industry as well as among the Company’s future customers, including healthcare providers. This in turn has resulted in greater pricing pressures and limitations on the Company’s ability to sell to important market segments, as group purchasing organizations, independent delivery networks and large single accounts. The Company expects that market demand, government regulation, third-party reimbursement policies and societal pressures will continue to change the worldwide healthcare industry, resulting in further business consolidations and alliances which may exert further downward pressure on the prices of its products and adversely impact the Company’s financial condition and results of operations. The success of the OptoWire depends upon strong relationships with physicians and other healthcare professionals. If the Company fails to build working relationships with physicians and other healthcare professionals, many of its products may not be developed and marketed in line with the needs and expectations of the professionals who support its products. The research, development, marketing and sales of many of its new and improved products is dependent upon the Company maintaining working relationships with physicians as well as other healthcare professionals, who are becoming increasingly instrumental in making purchasing decisions for its products. The Company relies on these professionals to provide it with considerable knowledge and experience regarding its products and the marketing and sale of its products. Physicians also assist the Company as researchers, marketing consultants, product consultants, inventors and as public speakers. If the Company is unable to maintain its strong relationships with these professionals and continue to receive their advice and input, the development and marketing and sales of its products could suffer, which could have a material adverse effect on its financial condition and results of operations. The Company’s relationships with physicians and other healthcare professionals and other providers that use its products are regulated under various laws. In addition, the Company has in place and is continuously improving its internal business integrity and compliance program and policies. Failure to comply with the United States federal anti kickback law or similar state or foreign law could result in criminal or civil penalties. 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 23, 2015 Consolidated Financial Statements Opsens Inc. Years ended August 31, 2015 and 2014 Deloitte LLP 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, 2015 and August 31, 2014, and the consolidated statements of loss and comprehensive loss, consolidated statements of changes in equity and consolidated statements of 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 audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Opsens Inc. Page 2 We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Opsens Inc. as at August 31, 2015 and August 31, 2014, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards. /s/ Deloitte LLP1 November 23, 2015 1 CPA auditor, CA, public accountancy permit No. A112991 Opsens Inc. Consolidated Statements of Loss and Comprehensive Loss Years ended August 31, 2015 and 2014 Revenues Sales Distribution rights (note 12a) Licensing (note 12b) Cost of sales Gross margin Expenses (revenues) (note 25) Administrative Sales and marketing Research and development Financial expenses (revenues) (note 26) Change in fair value of embedded derivative (note 14) Impairment of assets (note 9) Loss before income taxes Current income tax expense (note 12a) 2015 $ 2014 $ 4,840,821 3,457,500 366,409 6,649,205 - 138,532 8,664,730 6,787,737 3,920,547 4,398,321 4,744,183 2,389,416 2,615,830 1,500,911 2,302,365 (566) 73,271 796,237 2,397,909 1,130,462 1,743,407 114,410 101,940 - 7,288,048 5,488,128 (2,543,865 ) (3,098,712) 340,000 - Net loss and comprehensive loss attributable to shareholders (2,883,865 ) (3,098,712) Basic and diluted net loss per share (note 16) (0.05 ) (0.06) The accompanying notes are an integral part of the consolidated financial statements. $ l a t o T $ t i c i f e D $ s t n a r r a W – e v r e s e R $ n a p l k c o S t n o i t p o – e v r e s e R $ e r a h S l a t i p a c l a t o T ) r e b m u n ( s t n a r r a W ) r e b m u n ( d e b i r c s b u S d e u s s I ) r e b m u n ( ) r e b m u n ( n o m m o C s e r a h s 9 2 2 , 9 0 2 , 8 ) 0 8 4 , 3 7 3 , 8 1 ( 4 5 8 , 6 1 3 , 2 6 5 0 , 6 2 4 , 1 9 9 7 , 9 3 8 , 2 2 9 2 4 , 3 3 2 , 3 6 6 2 4 , 5 7 4 , 3 - 3 0 0 , 8 5 7 , 9 5 4 1 0 2 , 1 3 t s u g u A t a s a e c n a a B l 2 5 9 , 2 3 2 0 5 2 , 8 1 3 7 8 , 6 1 3 - - - ) 5 6 8 , 3 8 8 , 2 ( ) 5 6 8 , 3 8 8 , 2 ( - - - 3 7 8 , 6 1 3 - - ) 0 1 9 ( - 0 6 1 , 9 1 - - - - - ) 0 0 0 , 5 2 ( - - - - - 0 0 0 , 5 2 - ) 8 6 7 , 4 3 1 ( 0 2 7 , 7 6 3 0 5 2 , 4 5 8 - 0 0 0 , 0 4 1 0 5 2 , 4 1 7 n o i t p o k c o t s e h t ) a 5 1 e t o n ( n a p l o t t n a u s r u p d e u s s I i d e s c r e x e s t n a r r a W ) c 5 1 e t o n ( d e s a b - k c o t S ) b 5 1 e t o n ( s t s o c n o i t a s n e p m o c t a s a e c n a a B l s s o l t e N 9 3 4 , 3 9 8 , 5 ) 5 4 3 , 7 5 2 , 1 2 ( 4 4 9 , 5 1 3 , 2 1 6 1 , 8 0 6 , 1 9 7 6 , 6 2 2 , 3 2 9 7 6 , 7 8 0 , 4 6 6 2 4 , 0 5 4 , 3 0 0 0 , 0 4 1 3 5 2 , 7 9 4 , 0 6 5 1 0 2 , 1 3 t s u g u A . s t n e m e t a t s l i a c n a n i f d e t a d i l o s n o c e h t f o t r a p l a r g e t n i n a e r a s e t o n i g n y n a p m o c c a e h T y t i u q E n i s e g n a h C f o s t n e m e t a t S d e t a d i l o s n o C 4 1 0 2 d n a 5 1 0 2 , 1 3 t s u g u A d e d n e s r a e Y . c n I s n e s p O $ l a t o T $ t i c i f e D $ s t n a r r a W – e v r e s e R $ n a p l – e v r e s e R n o i t p o k c o t S l a t i p a c e r a h S l a t o T $ ) r e b m u n ( s t n a r r a W ) r e b m u n ( s e r a h s n o m m o C ) r e b m u n ( 8 7 1 , 3 9 3 , 3 ) 8 6 7 , 4 7 2 , 5 1 ( 2 8 3 , 0 9 1 , 2 6 4 9 , 5 7 2 , 1 8 1 6 , 1 0 2 , 5 1 3 8 9 , 5 6 8 , 7 4 - 3 8 9 , 5 6 8 , 7 4 6 5 7 , 5 3 5 , 7 5 0 5 , 3 4 1 2 0 5 , 5 3 2 - - - ) 2 1 7 , 8 9 0 , 3 ( ) 2 1 7 , 8 9 0 , 3 ( - - - - 2 0 5 , 5 3 2 - - - - ) 2 9 3 , 5 8 ( 7 9 8 , 8 2 2 0 0 5 , 7 8 3 - - - - - 0 0 5 , 7 8 3 2 7 4 , 6 2 1 - 4 8 2 , 9 0 4 , 7 6 4 9 , 9 7 9 , 4 1 6 2 4 , 5 7 4 , 3 0 2 5 , 4 0 5 , 1 1 a h t i w n o i t c e n n o c n i d e u s s i ) a 5 1 e t o n ( g n i r e f f o c i l b u p s t n a r r a w d n a s e r a h s n o m m o C k c o t s e h t o t t n a u s r u p d e u s s I ) a 5 1 e t o n ( n a p l n o i t p o n o i t a s n e p m o c d e s a b - k c o t S ) b 5 1 e t o n ( s t s o c 3 1 0 2 , 1 3 t s u g u A t a s a e c n a a B l t a s a e c n a a B l s s o l t e N 9 2 2 , 9 0 2 , 8 ) 0 8 4 , 3 7 3 , 8 1 ( 4 5 8 , 6 1 3 , 2 6 5 0 , 6 2 4 , 1 9 9 7 , 9 3 8 , 2 2 9 2 4 , 3 3 2 , 3 6 6 2 4 , 5 7 4 , 3 3 0 0 , 8 5 7 , 9 5 4 1 0 2 , 1 3 t s u g u A . s t n e m e t a t s l i a c n a n i f d e t a d i l o s n o c e h t f o t r a p l a r g e t n i n a e r a s e t o n i g n y n a p m o c c a e h T y t i u q E n i s e g n a h C f o s t n e m e t a t S d e t a d i l o s n o C 4 1 0 2 d n a 5 1 0 2 , 1 3 t s u g u A d e d n e s r a e Y . c n I s n e s p O Opsens Inc. Consolidated Statements of Financial Position Assets Current Cash and cash equivalents (note 17) Trade and other receivables (note 5) Tax credits receivable (note 22) 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) Current portion of deferred revenues (note 12) Current portion of long-term debt (note 13) Deferred revenues (note 12) Long-term debt (note 13) Convertible debenture (note 14) Deferred lease inducement Shareholders’ equity Share capital (note 15a) Reserve – Stock option plan (note 15b) Reserve – Warrants (note 15c) Deficit Commitments (note 18) Subsequent events (note 29) As at August 31, 2015 $ As at August 31, 2014 $ 7,203,612 561,093 350,000 2,837,770 124,369 11,076,844 1,131,679 554,730 - 12,763,253 1,657,962 84,000 609,937 232,309 2,584,208 774,499 462,779 2,998,702 49,626 6,869,814 10,621,011 969,311 383,500 2,445,884 193,116 14,612,822 1,042,813 456,411 676,574 16,788,620 1,412,792 133,500 2,708,371 173,548 4,428,211 1,138,338 653,286 2,359,556 - 8,579,391 23,226,679 1,608,161 2,315,944 (21,257,345 ) 5,893,439 12,763,253 22,839,799 1,426,056 2,316,854 (18,373,480) 8,209,229 16,788,620 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, 2015 and 2014 Operating activities Net loss Adjustments for: Depreciation of property, plant and equipment Amortization of intangible assets Impairment of assets (note 9) Gain on disposal of property, plant and equipment Stock-based compensation costs Change in fair value of embedded derivative Interest (revenue) expense Effect of foreign exchange rate changes on cash and cash equivalents Unrealized foreign exchange loss Government grants on long-term debt Changes in non-cash operating working capital items (note 17) Investing activities Acquisition of property, plant and equipment Additions to intangible assets Proceeds from disposal of property, plant and equipment Interest received Financing activities Increase in long-term debt Reimbursement of long-term debt Proceeds from the issuance of shares and warrants (note 15a) Shares and warrants issue costs (note 15a) 2015 $ 2014 $ (2,883,865 ) (3,098,712) 384,831 62,100 796,237 (11,721 ) 316,873 73,271 (1,790 ) (530,598 ) 482,649 - (2,161,771 ) (3,473,784 ) (584,985 ) (136,700 ) 43,000 139,614 (539,071 ) - (186,344 ) 251,202 - 64,858 345,561 47,780 - - 235,502 101,940 5,254 (20,578) 71,811 (122,730) 1,957,568 (476,604) (389,913) (109,770) - 96,426 (403,257) 316,055 (177,281) 8,648,609 (969,348) 7,818,035 Effect of foreign exchange rate changes on cash and cash equivalents (Decrease) increase in cash and cash equivalents Cash and cash equivalents – Beginning of year Cash and cash equivalents – End of year 530,598 20,578 (3,417,399 ) 10,621,011 7,203,612 6,958,752 3,662,259 10,621,011 Additional information on the consolidated statements of cash flows is presented in note 17. The accompanying notes are an integral part of the consolidated financial statements. Opsens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2015 and 2014 1. Incorporation and Description of Business Opsens Inc. (“Opsens” or the “Company”) is incorporated under the Business Corporations Act (Quebec). Opsens focuses mainly on the measure of Fractional Flow Reserve (“FFR”) in interventional cardiology. Opsens offers an advanced optical-based pressure guidewire (OptoWire) that aims at improving the clinical outcome of patients with coronary artery disease. Opsens is also involved in industrial activities. The Company develops, manufactures and installs innovative fibre optic sensing solutions for critical applications such as the monitoring of oil wells and other demanding industrial applications. The Company’s head office is located at 125-2014, Cyrille-Duquet, Québec, Québec, 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 consolidated financial statements have been prepared in accordance with Part 1 of the CPA Canada Handbook referred to as International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”). The Company has consistently applied the accounting policies throughout all 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. The Company controls an entity when it is exposed to, or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date control is obtained and they are no longer consolidated at the date 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. Opsens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2015 and 2014 2. Summary of Significant Accounting Policies (continued) Revenue Recognition The Company’s reportable segment revenue related to the sales of products is 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 Solutions Inc. reportable segment revenues related to the sales 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 reporting 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 statements 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 reporting date, non-monetary assets and liabilities are translated at historical rates, revenue 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 and comprehensive 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 years 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. Opsens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2015 and 2014 2. Summary of Significant Accounting Policies (continued) Equity Share capital represents the value of shares that have been issued. Any transaction costs associated with the issuing of shares are deducted from share capital. From time to time, the Company issues units consisting of common shares and common share purchase warrants. The Company estimates the fair value of the common shares based on their market price on the date of the issuance of the units. The residual difference, if any, between the unit price and the fair value of each common share represents the fair value attributable to each warrant. Any transaction costs associated with the issuance of units are apportioned between the common shares and warrants based on their relative fair values. Share-based Payments The Company offers a stock option plan described in note 15, which is determined as an equity-settled plan. The Company uses the fair value-based method to assess the fair value of stock options 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 and comprehensive loss as a compensation expense and credited to the stock option plan reserve, using a graded vesting schedule over the vesting period, based on the Company’s estimate of the number of shares that will eventually vest. At the end of each reporting period, the Company revises its estimate of the number of equity instruments expected to vest. The impact of the revision of original estimates, if any, is recognized in the consolidated statements of loss and comprehensive loss such that the cumulative compensation expense reflects the revised estimate, with a corresponding adjustment 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. 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. Opsens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2015 and 2014 2. Summary of Significant Accounting Policies (continued) 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 of eight 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 - 20 years 3 years The Company’s indefinite-life intangible assets consist of trademarks resulting from a business combination and are not amortized. 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 exists. Opsens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2015 and 2014 2. Summary of Significant Accounting Policies (continued) Impairment of Non-Financial Assets (continued) 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 of disposal 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 charge is recognized in the consolidated statements of loss and comprehensive loss. Impairment charges recognized in prior periods are determined at each reporting date for any indications that the impairment charge has decreased or no longer exists. When an impairment charge 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 charges been recognized for the asset or CGU in prior years. An impairment charge 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 are charged to the consolidated statements of loss and comprehensive loss on a straight-line basis over the period of the lease. The Company has a facility lease arrangement that includes an initial rent-free period. Rent expense is recorded evenly over the term of the lease agreement. The difference between cash rental payments and the rent expense recorded for accounting purposes is reflected as a deferred lease inducement in the consolidated statements of financial position. 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 and comprehensive 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. 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. Opsens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2015 and 2014 2. Summary of Significant Accounting Policies (continued) Income Taxes Income tax expenses comprise current and deferred income taxes. Income taxes are recognized in the consolidated statements of loss and comprehensive 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 reporting 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. 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, the unrealized foreign exchange gain or loss, 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. Opsens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2015 and 2014 2. Summary of Significant Accounting Policies (continued) 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 rate 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 is measured at fair value at each reporting date. The embedded derivative has been classified as held-for- trading and is included in the consolidated statements 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 and comprehensive loss. 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. Opsens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2015 and 2014 2. Summary of Significant Accounting Policies (continued) Financial Instruments (continued) 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 and comprehensive 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 revenue, 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, 2015, 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 the fair value less costs to sell calculations for the 2015 impairment test and based on the value in use for the 2014 impairment test. These calculations require the use of estimates, assumptions and judgments. Information on goodwill is presented in note 9. Opsens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2015 and 2014 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 note 2 of these consolidated financial statements. 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. Changes in Accounting Policies New and amended standards adopted by the Company IAS 32, Financial Instruments: Presentation In December 2011, amendments to IAS 32, Financial Instruments: Presentation, were issued to clarify the application of offsetting criteria with regard to offsetting financial assets and financial liabilities. The amendments to IAS 32 are effective for fiscal years beginning on or after January 1, 2014 with earlier adoption permitted. The adoption of these new requirements had no impact on the Company’s consolidated financial statements. IAS 36, Impairment of Assets IAS 36, Impairment of Assets, has been revised to integrate the amendments issued in May 2013. Those amendments make it possible to better reflect a prior decision to require the recoverable amount of impaired assets to be reported along with other disclosures regarding the measurement of the recoverable amount of impaired assets in cases where said recoverable amount is based on fair value less costs of disposal, including the discount rate, when a discounting technique is used to determine the recoverable amount. Those amendments are effective for fiscal years beginning on or after January 1, 2014 with earlier adoption permitted. The adoption of these IFRS amendments did not have a significant impact on the Company’s consolidated financial statements. Opsens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2015 and 2014 4. Changes in Accounting Policies (continued) New and amended standards adopted by the Company (continued) IFRIC 21, Levies IFRIC 21, Levies, which is an interpretation of IAS 37, Provisions, Contingent Liabilities and Contingent Assets, applies to the accounting for levies imposed by governments. IAS 37 sets out criteria for the recognition of a liability, one of which is the requirement for the entity to have a present obligation as a result of a past event (“obligating event”). IFRIC 21 clarifies that the obligating event that gives rise to a liability to pay a levy is the activity described in the relevant legislation that triggers the payment of the levy. IFRIC 21 is effective for annual periods commencing on or after January 1, 2014. The adoption of IFRIC 21 did not have a significant impact on the Company’s consolidated financial statements. New and amended standards issued but not yet effective IFRS 15, Revenue from Contracts with Customers In May 2014, the IASB issued IFRS 15, Revenue from contracts with customers. IFRS 15 replaces all previous revenue recognition standards, including IAS 18, Revenue, and related interpretations such as IFRIC 13, Customer loyalty programmes. The standard sets out the requirements for recognizing revenue. Specifically, the new standard introduces a comprehensive framework with the general principle being that an entity recognizes revenue to depict the transfer of promised goods and services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard introduces more prescriptive guidance than was included in previous standards and may result in changes in classification and disclosure in addition to changes in the timing of recognition for certain types of revenue. On July 22, 2015, the IASB has confirmed a one-year deferral of the effective date of IFRS 15 to January 1, 2018. The Company has not yet assessed the impact of this new standard. IFRS 9, Financial Instruments In July 2014, the IASB issued the final version of IFRS 9, Financial Instruments. The new standard will replace IAS 39, Financial instruments: recognition and measurement. The final amendments made in the new version include guidance for the classification and measurement of financial assets and a third measurement category for financial assets, fair value through other comprehensive income. The standard also contains a new expected loss impairment model for debt instruments measured at amortized cost or fair value through other comprehensive income, lease receivables, contract assets and certain written loan commitments and financial guarantee contracts. The standard is effective for annual periods beginning on or after January 1, 2018 and must be applied retrospectively with some exceptions. Early adoption is permitted. Restatement of prior periods in relation to the classification and measurement, including impairment, is not required. The Company has not yet assessed the impact of this new standard. 5. Trade and other receivables Trade Allowance for doubtful accounts Sales taxes receivable Government assistance receivable Other receivables Total As at August 31, 2015 $ 469,038 (3,032 ) 95,087 - - 561,093 As at August 31, 2014 $ 745,835 (3,032) 204,631 16,000 5,877 969,311 Opsens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2015 and 2014 5. Trade and other receivables (continued) Allowance for doubtful accounts variation Balance – Beginning of year Unused amounts reversed during the year Amounts written off during the year Balance – End of year 6. Inventories Raw materials Finished goods Total Years ended August 31, 2015 $ (3,032 ) - - (3,032 ) 2014 $ (21,000) 13,954 4,014 (3,032) As at As at August 31, August 31, 2015 $ 2014 $ 1,842,282 995,488 2,837,770 1,245,914 1,199,970 2,445,884 For the year ended August 31, 2015, $2,039,668 of inventories were expensed in the consolidated statements of loss and comprehensive loss and presented in cost of sales ($2,257,128 for the year ended August 31, 2014). Write-downs of inventories amounting to $347,000 (nil in 2014) were included under cost of sales. $ l a t o T $ $ $ $ $ $ $ $ l d o h e s a e L r e t u p m o C f o s t i d e r c f o e c n a t s i s s a e v i t o m o t u a n o i t c u d o r P d n a d n a s t n e m e v o r p m i t n e m p u q e i 8 7 0 , 3 $ 3 0 3 , 5 5 $ t n e m p u q e i t n e m p u q e i t n e m p u q e i t n e m p u q e i x a t e m o c n i t n e m n r e v o g d e s a e L e r u t i n r u f e r u t i n r u f 9 3 6 , 4 2 6 ) 0 7 2 , 0 0 1 ( ) 1 9 6 , 4 8 1 ( - - 4 7 4 , 1 3 2 8 2 , 8 5 8 , 2 8 7 6 , 6 4 3 9 8 0 , 1 5 6 7 7 , 4 2 2 8 6 7 , 6 7 5 6 , 3 4 9 5 3 , 6 5 - 0 3 8 , 5 2 0 , 1 8 2 0 , 9 5 - - - - - - - ) 8 2 7 , 4 4 ( 0 4 9 , 7 9 9 7 1 5 , 1 4 4 ) 2 4 5 , 5 5 ( ) 1 9 6 , 4 8 1 ( - - - 6 2 3 , 8 - - 2 3 4 , 7 3 7 4 0 , 2 5 1 t n e m p o l e v e d , t n e m p u q e i d n a h c r a e s e R t n e m p o l e v e d r e t u p m o c f o t e n , t n e m p u q e i x a t e m o c n i f o t e n d n a s t i d e r c d n a h c r a e s e R e c i f f o d e s a e L e c i f f O 4 1 0 2 , 1 3 t s u g u A t a s a e c n a a B l s n o i t i d d A t s o C ) 9 e t o n ( t n e m r i a p m I l s a s o p s D i 0 6 9 , 7 9 1 , 3 2 5 1 , 8 7 3 5 6 8 , 5 7 2 5 2 4 , 0 5 9 8 1 , 2 8 0 , 1 0 0 3 , 4 1 4 2 2 , 9 9 1 , 1 6 2 3 , 8 9 7 4 , 9 8 1 5 1 0 2 , 1 3 t s u g u A t a s a e c n a a B l s t n e m e t a t S l a i c n a n i F d e t a d i l o s n o C e h t o t s e t o N 4 1 0 2 d n a 5 1 0 2 , 1 3 t s u g u A d e d n e s r a e Y . c n I s n e s p O i t n e m p u q E d n a t n a l P , y t r e p o r P . 7 ) 1 9 9 , 8 6 ( ) 8 2 0 , 5 6 ( 1 3 8 , 4 8 3 - - - - 3 8 1 , 5 1 1 2 9 1 , 0 2 - - 7 3 1 , 6 - - 9 7 0 , 1 9 9 6 4 , 5 1 8 , 1 6 5 7 , 4 8 1 2 6 2 , 3 0 2 0 3 9 , 5 3 2 6 9 , 6 3 8 - 1 0 0 , 8 5 ) 8 2 7 , 4 4 ( 7 2 0 , 1 1 8 2 , 6 6 0 , 2 9 3 9 , 9 9 2 4 5 4 , 3 2 2 7 6 0 , 2 4 1 4 0 , 8 2 9 0 0 3 , 4 1 ) 3 6 2 , 4 2 ( 5 9 4 , 2 1 4 9 1 6 , 5 3 1 ) 8 2 0 , 5 6 ( 3 2 8 , 8 5 4 6 2 3 , 8 7 3 7 , 5 7 4 1 0 2 , 1 3 t s u g u A t a s a e c n a a B l n o i t a i c e r p e d d e t a l u m u c c A - - - - - 4 9 5 , 5 1 ) 9 e t o n ( t n e m r i a p m I i n o i t a c e r p e D l s a s o p s D i 6 2 3 , 8 1 3 3 , 1 9 5 1 0 2 , 1 3 t s u g u A t a s a e c n a a B l e u l a v k o o b t e N 9 7 6 , 1 3 1 , 1 3 1 2 , 8 7 1 1 4 , 2 5 8 5 3 , 8 8 4 1 , 4 5 1 - 1 0 4 , 0 4 7 - 8 4 1 , 8 9 5 1 0 2 , 1 3 t s u g u A t a s a $ l a t o T $ $ $ $ $ $ $ $ s t n e m e v o r p m i t n e m p u q e i 8 7 0 , 3 $ 3 0 3 , 5 5 $ t n e m p u q e i t n e m p u q e i t n e m p u q e i t n e m p u q e i l d o h e s a e L r e t u p m o C f o s t i d e r c f o e c n a t s s s a i e v i t o m o t u a n o i t c u d o r P d n a t n e m p o e v e d l , t n e m p u q e i d n a h c r a e s e R t n e m p o e v e d l r e t u p m o c f o t e n , t n e m p u q e i x a t e m o c n i f o t e n d n a s t i d e r c d n a h c r a e s e R x a t e m o c n i t n e m n r e v o g d e s a e L e c i f f o d e s a e L e r u t i n r u f d n a e c i f f O e r u t i n r u f 3 1 9 , 9 8 3 9 6 3 , 8 6 4 , 2 2 5 6 , 8 2 1 6 2 0 , 8 1 2 2 8 2 , 8 5 8 , 2 8 7 6 , 6 4 3 1 6 5 , 5 4 3 9 3 5 , 1 8 8 0 9 , 9 6 4 , 1 7 1 2 , 3 0 1 9 6 4 , 5 1 8 , 1 6 5 7 , 4 8 1 5 7 5 , 7 1 0 2 , 7 1 2 6 7 7 , 4 2 2 2 9 1 , 5 1 0 7 0 , 8 8 1 2 6 2 , 3 0 2 3 9 0 , 6 4 6 5 , 7 3 7 5 6 , 3 4 5 7 8 , 3 5 5 0 , 2 3 0 3 9 , 5 3 1 5 9 , 1 5 9 7 8 , 3 7 9 - 8 2 0 , 9 5 0 3 8 , 5 2 0 , 1 8 2 0 , 9 5 4 1 7 , 4 9 8 4 2 , 2 4 7 2 6 9 , 6 3 8 6 2 0 , 7 5 7 9 , 0 5 1 0 0 , 8 5 9 5 6 , 1 6 1 8 2 , 6 3 9 0 4 9 , 7 9 9 3 4 2 , 0 8 2 2 5 2 , 2 3 1 5 9 4 , 2 1 4 - 6 2 3 , 8 6 2 3 , 8 2 2 4 4 0 9 , 7 6 2 3 , 8 9 0 6 , 4 4 8 3 4 , 7 0 1 7 4 0 , 2 5 1 6 9 1 , 5 6 1 4 5 , 0 1 7 3 7 , 5 7 3 1 0 2 , 1 3 t s u g u A t a s a e c n a a B l s n o i t i d d A 4 1 0 2 , 1 3 t s u g u A t a s a e c n a a B l t s o C 3 1 0 2 , 1 3 t s u g u A t a s a e c n a a B l n o i t a i c e r p e d d e t a l u m u c c A i n o i t a c e r p e D 4 1 0 2 , 1 3 t s u g u A t a s a e c n a a B l e u l a v k o o b t e N 3 1 8 , 2 4 0 , 1 2 2 9 , 1 6 1 4 1 5 , 1 2 7 2 7 , 7 8 6 8 , 8 8 1 7 2 0 , 1 5 4 4 , 5 8 5 - 0 1 3 , 6 7 4 1 0 2 , 1 3 t s u g u A t a s a s t n e m e t a t S l a i c n a n i F d e t a d i l o s n o C e h t o t s e t o N 4 1 0 2 d n a 5 1 0 2 , 1 3 t s u g u A d e d n e s r a e Y . c n I s n e s p O ) d e u n i t n o c ( i t n e m p u q E d n a t n a l P , y t r e p o r P . 7 Opsens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2015 and 2014 8. Intangible Assets Indefinite lives – Trademarks $ Limited lives – Patents $ Limited lives – Software, net of income tax credits of $1,518 $ Internally developed Limited lives – Patents $ Total $ 200 13,367 13,567 - - - 30,000 - 30,000 3,174 1,851 5,025 85,723 22,449 108,172 65,853 15,589 81,442 583,412 124,603 708,015 699,335 160,419 859,754 173,897 44,660 218,557 242,924 62,100 305,024 Cost Balance as at August 31, 2014 Additions Balance as at August 31, 2015 Accumulated amortization Balance as at August 31, 2014 Amortization Balance as at August 31, 2015 Net book value as at August 31, 2015 13,567 24,975 26,730 489,458 554,730 Indefinite lives – Trademarks $ Limited lives – Patents $ Limited lives – Software, net of income tax credits of $1,518 $ Internally developed Limited lives – Patents $ Total $ 200 - 200 30,000 - 30,000 - - - - 3,174 3,174 67,645 18,078 85,723 55,223 10,630 65,853 491,720 91,692 583,412 589,565 109,770 699,335 139,921 33,976 173,897 195,144 47,780 242,924 Cost Balance as at August 31, 2013 Additions Balance as at August 31, 2014 Accumulated amortization Balance as at August 31, 2013 Amortization Balance as at August 31, 2014 Net book value as at August 31, 2014 200 26,826 19,870 409,515 456,411 Opsens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2015 and 2014 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 determined based on the fair value less costs to sell method (value in use method for the year ended August 31, 2014). 2015 Impairment Test The fair value less costs to sell method is based on the best information available to reflect the amount that could be obtained from the disposal of the CGU in an arm’s length transaction between knowledgeable parties, net of estimates of the costs of disposal. During the three-month period ended November 30, 2014, the Company updated its long-term financial forecast for Opsens Solutions Inc.’s CGU which corresponds to a reportable segment of the Company. As a result of lower than anticipated long-term revenue projections due to economic factors, including the significant decrease of the crude oil prices, the Company concluded its goodwill and some long-term assets may be impaired and as a result performed an impairment analysis. The recoverable amount of the goodwill as at November 30, 2014 was determined using the fair value less costs to sell method. In applying this method to its goodwill impairment test, the Company used replacement costs, market data and comparable transactions to determine the recoverable value of Opsens Solutions Inc.’s CGU. As a result of the impairment analysis performed as at November 30, 2014, the Company concluded the carrying value of the Opsens Solutions Inc.’s CGU was in excess of its recoverable amount. The recoverable amount of Opsens Solutions Inc.’s CGU amounted to $1,611,000 ($8,708,000 as at August 31, 2014) and is classified at level 3 in the fair value hierarchy. The Company has recorded an impairment charge relating to its goodwill of $676,574 for the year ended August 31, 2015. In addition, an impairment charge of $119,663 was also recorded during the year ended August 31, 2015 for automotive equipment resulting from the challenging economic environment Opsens Solutions Inc.’s CGU is facing. There were no tax impacts as a result of the impairment charges. 2014 Impairment Test The value in use 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. Opsens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2015 and 2014 9. Goodwill (continued) 2014 Impairment Test (continued) 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, for the impairment test performed during the fourth quarter of the year ended August 31, 2014, was based on the following key assumptions: Growth rate Long-term growth rate Discount rate 10. Authorized Line of Credit As at August 31, 2014 % 3 3 19.5 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, 2015 and 2014. 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 8.5%. 11. Accounts payable and accrued liabilities Suppliers Salaries, employee benefits and others Other liabilities Total As at August 31, 2015 $ 666,278 427,499 564,185 As at August 31, 2014 $ 448,280 396,327 568,185 1,657,962 1,412,792 Opsens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2015 and 2014 12. Deferred Revenue a) Distribution and Other Rights Agreement 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 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. Under the terms of the agreement, 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. On October 2, 2014, the Company announced it had received Shonin approval from the Japanese Ministry of Health, Labor and Welfare to market the OptoWire and the OptoMonitor. Obtaining Shonin approval was the final condition for the release of a milestone payment of $1,115,500 (US$1,000,000), net of income taxes. This amount has been recorded in the consolidated statements of loss and comprehensive loss under the caption “Distribution rights”. On November 19, 2014, the Company announced it has received CE Mark approval to market in Europe its FFR products. The CE mark approval allows the Company to record in the consolidated statements of loss and comprehensive loss under the caption “Distribution rights” the $2,002,000 (US$2,000,000) upfront license fee, net of income taxes, it received upon the signature of the agreement that were previously accounted for as deferred revenue. During the year ended August 31, 2015, an adjustment on revenues and income tax expense of $340,000 (US$300,000) was made to recognize additional revenues from the distribution agreement and withholding taxes paid by the Company. b) Licensing Agreement On April 15, 2014, the Company announced it had entered into an agreement with Abiomed, Inc. (“Abiomed”) in connection with its miniature optical pressure sensor technology for applications in circulatory assist devices. The Company has granted Abiomed an exclusive worldwide license to integrate its miniature pressure sensor in connection with Abiomed’s circulatory assist devices. Under the agreement, Abiomed will pay Opsens an aggregate amount of US$6,000,000. $1,647,000 (US$1,500,000) has been paid on closing, while the balance will be disbursed based on the achievement of certain milestones. Opsens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2015 and 2014 12. Deferred Revenue (continued) b) Licensing Agreement (continued) The Company applies the principles of IAS 18, Revenue, to record revenues arising from the agreement with Abiomed. Therefore, the amount of $1,647,000 (US$1,500,000) paid on closing is recognized over the term of the agreement. Revenues from milestone payments will be limited to costs incurred as long as the milestones are not achieved. Upon the achievement of a milestone, the unrecognized portion of the milestone will be recorded as revenues. During the year ended August 31, 2015, an amount of $366,409 ($138,532 for the year ended August 31, 2014) related to the Abiomed agreement has been recognized as licensing revenues in the consolidated statements of loss and comprehensive loss. c) Other Deferred Revenues Deferred revenues also comprise contracts where billings exceed contract costs incurred to date plus recognized profits less recognized losses or when the Company receives payments in advance of meeting the revenue recognition criteria. 13. Long-term Debt Desjardins Loan, bearing interest at prime rate plus 2.4%, secured by a movable hypothec on the universality of the Company’s present and future, property, plant and equipment and intangible assets, payable in monthly instalments of $10,905 and a final payment of $9,286, maturing in February 2016 Contributions repayable to Ministère des Finances et de l’Économie (MFE), without interest (effective rate of 9%), repayable in five equal and consecutive annual instalments of $82,718, maturing in February 2020 Debt balance Imputed interest As at August 31, 2015 $ As at August 31, 2014 $ 63,810 194,667 413,590 (80,364 ) 333,226 413,590 (108,942) 304,648 Term loans, bearing interest at rates varying from 5.69% to 6.79%, payable in monthly instalments of $3,161, including interest, maturing from October to December 2017 79,291 110,989 Contributions repayable to Canada Economic Development, without interest (effective rate of 13.5%), repayable in twenty equal and consecutive quarterly instalments of $15,000, maturing in August 2020 Debt balance Imputed interest Reimbursed during the year Current portion 300,000 (81,239 ) 218,761 - 695,088 232,309 462,779 300,000 (107,259) 192,741 23,789 826,834 173,548 653,286 Opsens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2015 and 2014 13. Long-term Debt (continued) The annual principal instalments due on the long-term debt are $232,309 in 2016, $157,599 in 2017, $119,195 in 2018, $99,117 in 2019 and $86,868 in 2020. 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, 2015 and 2014, these financial ratios were met by the Company. 14. Convertible Debenture As at August 31, 2015 $ As at August 31, 2014 $ Debt component reported as long-term liability (US$2,092,368; US$2,040,906 as at August 31, 2014) 2,752,929 2,219,077 Embedded derivative reported as long-term liability (US$186,800; US$129,200 as at August 31, 2014) Total 245,773 2,998,702 140,479 2,359,556 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. To secure the repayment of the convertible debenture, a movable hypothec on certain equipment has been given. As at August 31, 2015, the net book value of property, plant and equipment pledged as collateral was $2,000 ($32,800 as at August 31, 2014). This hypothec will rank second to certain long-term debts 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. Opsens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2015 and 2014 14. Convertible Debenture (continued) Expenses associated with the debenture consist of: Interest expense Accretion interest Change in fair value of embedded derivative Total Years ended August 31, 2015 $ 71,465 11,760 73,271 156,496 2014 $ 44,119 10,408 101,940 156,467 As at August 31, 2015, the debt component of the convertible debenture has a fair value of $1,693,400 ($1,505,300 as at August 31, 2014). 15. Share Capital, Stock-Options and Warrants a) Share capital The Company has authorized an unlimited number of common shares (being voting and participating shares) with no par value. Subscribed share capital represents amounts received for the exercise of stock options for which shares have not been issued prior to August 31, 2015. On February 18, 2014, the Company completed a public offering for aggregate gross proceeds of $8,505,104. In connection with the offering, the Company issued a total of 5,340,220 units at a price of $0.75 per unit and 6,164,300 common shares at a price of $0.73 per common share. Each unit consists of one common share in the capital stock of Opsens and one-half of one common share purchase warrant, with each whole common share purchase warrant entitling the holder thereof to purchase one common share at a price of $1.05 until February 18, 2016. The value of one-half of one common share purchase warrant was established at $0.02, being the difference between the issuing price of $0.75 per unit and of $0.73 per common share. Expenses of the offering include 7% underwriting fees of $595,357 and other professional fees and miscellaneous fees of $373,991 for total fees of $969,348. The Company also issued 805,316 broker warrants as additional compensation, each warrant entitling the holder to purchase one common share at a price of $0.73 until February 18, 2016. The total fees of $969,348 and the broker warrants value of $32,213 have been allocated on a prorata basis between share capital and the warrants reserve, $989,015 and $12,546 respectively, based on the ratio established by their respective values as described above. Opsens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2015 and 2014 15. Share Capital, Stock-Options and Warrants (continued) a) Share capital (continued) During the year ended August 31, 2015, following the exercise of stock options, the Company issued 714,250 common shares and 140,000 common shares were subscribed but not issued (387,500 shares issued for the year ended August 31, 2014) for a cash consideration of $232,952 ($143,505 for the year ended August 31, 2014). As a result, an amount of $134,768 was reallocated from “Reserve – Stock option plan” to “Share capital” in shareholders’ equity ($85,392 for the year ended August 31, 2014). During the year ended August 31, 2015, following the exercise of warrants, the Company issued 25,000 common shares for a cash consideration of $18,250. As a result, an amount of $910 was reallocated from “Reserve – Warrants” to “Share capital” in shareholders’ equity. b) Stock options The Shareholders approved the stock option plan on January 19, 2015 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 700,000 outstanding stock options granted (830,000 stock options granted as at August 31, 2014), 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, 2015 is $316,873 ($235,502 for the year ended August 31, 2014). The fair value of options granted was determined using the Black-Scholes option pricing model with the following assumptions: Years ended August 31, 2015 2014 Risk-free interest rate Between 0.63% and 1.55% Between 1.05% and 1.52% Volatility Dividend yield on shares Expected life Weighted share price Weighted fair value per option at the grant date Between 88% and 124% Between 110% and 139% Nil 5 years $0.80 $0.52 Nil 5 years $0.71 $0.33 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 life of the options. Opsens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2015 and 2014 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, 2013 and August 31, 2015, are as follows: Outstanding as at August 31, 2013 Options granted Options exercised Options forfeited Options cancelled Outstanding as at August 31, 2014 Options granted Options exercised* Options forfeited Options cancelled Outstanding as at August 31, 2015 Options exercisable as at August 31, 2015 Number of options 4,141,667 985,000 (387,500 ) (60,000 ) (506,667 ) 4,172,500 862,000 (854,250 ) (17,500 ) (620,000 ) 3,542,750 1,811,125 Weighted- average exercise price $ 0.27 0.71 0.37 0.40 0.32 0.36 0.81 0.27 0.81 0.29 0.50 0.40 * 140,000 common shares arising from the exercise of stock options were issued after August 31, 2015. The table below provides information on the outstanding stock options as at August 31, 2015: Exercise price $ 0.20 0.21 0.23 0.24 0.25 0.35 0.38 0.44 0.66 0.68 0.69 0.72 0.75 0.85 0.94 Number of outstanding stock options Number of exercisable Weighted-average remaining contractual life (years) stock options 174,250 250,000 610,000 40,000 616,000 33,000 50,000 100,000 200,000 200,000 160,000 100,000 467,500 140,000 402,000 3,542,750 155,250 125,000 470,000 40,000 316,000 33,000 50,000 100,000 50,000 - 160,000 - 191,875 100,000 20,000 1,811,125 1.57 2.35 1.21 2.24 2.39 0.76 0.39 3.13 3.93 4.06 4.39 4.23 3.66 2.86 4.64 2.37 Opsens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2015 and 2014 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, 2013 and August 31, 2015, are as follows: Outstanding as at August 31, 2013 Issued with units (note 15a) Issued to brokers (note 15a) Outstanding as at August 31, 2014 Warrants exercised (note 15a) Outstanding as at August 31, 2015 Number of warrants - 2,670,110 805,316 3,475,426 (25,000 ) 3,450,426 Warrants exercisable as at August 31, 2015 3,450,426 Weighted- average exercise price $ - 1.05 0.73 0.98 0.73 0.98 0.98 16. Net 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, 2015 $ 2014 $ (2,883,865 ) (3,098,712) Basic and diluted weighted-average number of shares outstanding 60,179,119 54,177,457 Amount per share Net loss per share Basic Diluted (0.05 ) (0.05 ) (0.06) (0.06) Opsens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2015 and 2014 16. Net Loss per Share (continued) Stock options, warrants and the convertible debenture 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 or when their effect is antidilutive. The number of such stock options, warrants and the nominal value of the convertible debenture is presented below: Stock options Warrants Convertible debenture (US$2,000,000) Years ended August 31, 2015 2014 542,000 2,670,110 $2,002,000 695,000 3,475,426 $2,002,000 For the years ended August 31, 2015 and 2014, the diluted amount per share was the same amount as the basic amount per share, since the dilutive effect of the stock options, warrants 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 Consolidated Statements of Cash Flows Changes in non-cash operating working capital items Trade and other receivables Tax credits receivable Work in progress Inventories Prepaid expenses Accounts payable and accrued liabilities Warranty provision Deferred revenues Deferred lease inducement Supplementary information Years ended August 31, 2015 $ 2014 $ 408,218 33,500 - (391,886 ) 68,747 181,797 (49,500 ) (2,462,273 ) 49,626 (2,161,771 ) (9,454) 181,586 55,491 582,422 (5,444) (629,271) (11,283) 1,793,521 - 1,957,568 Unpaid acquisition of property, plant and equipment Unpaid additions to intangible assets 39,654 23,719 - - Opsens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2015 and 2014 17. Additional Information on the Consolidated Statements of Cash Flows (continued) As at August 31, 2015 $ As at August 31, 2014 $ Cash and cash equivalents Cash Short-term investments 18. Commitments Leases 449,658 6,753,954 7,203,612 785,907 9,835,104 10,621,011 The Company leases offices in Québec under operating leases expiring on April 30, 2018 and September 30, 2025. These agreements are renewable for an additional five-year period. Future payments for the leases, totalling $3,610,000, required in each of the forthcoming years are as follows: 2016 2017 2018 2019 2020 Thereafter $ 487,000 469,000 413,000 295,000 301,000 1,645,000 In 2015, the offices lease expense is $393,106 ($337,696 in 2014). As at August 31, 2015, the Company signed an agreement amounting to $1,040,800 with a supplier for the acquisition of production equipments. Opsens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2015 and 2014 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, 2015, the Company reversed an amount of $49,500 (reversal of $2,783 recognized for the year ended August 31, 2014) for guarantees. A provision of $84,000 is recorded for guarantees as at August 31, 2015 ($133,500 as at August 31, 2014). The following table summarizes changes in warranty provision: Balance – Beginning of year Provisions reversed Amounts used during the year Balance – End of year Years ended August 31, 2015 $ 133,500 (49,500) - 84,000 2014 $ 144,783 (2,783) (8,500) 133,500 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. 20. Government Assistance 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 $349,500 to cover some of its incurred costs to develop a new product. During the year ended August 31, 2015, the Company recorded contributions totalling $25,920 ($140,094 for the year ended August 31, 2014) which were accounted for against research and development expenses. 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 consolidated financial statements is as follows: Income tax payable using the combined federal and provincial statutory tax rate (26.0%; 26.9% in 2014) Non-deductible expenses Deductible financing fees Taxable income Non-taxable income tax credits Losses carried forward Foreign income taxes Income tax using effective income tax rate Years ended August 31, 2015 $ 2014 $ (660,646 ) 1,023,486 (58,012 ) (734,951 ) (121,752 ) 551,875 340,000 340,000 (833,553) 657,611 (76,610) 221,501 (154,519) 185,570 - - Opsens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2015 and 2014 21. Income Taxes (continued) As at August 31, 2015, the Company has tax losses of approximately $11,592,400 for federal purposes and $11,284,400 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 2034 2035 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 1,285,000 237,000 1,112,000 2,106,000 500,000 2,146,000 1,280,000 239,000 1,125,000 2,076,000 11,592,400 11,284,400 The Company also has undeducted research and development expenses of $7,106,000 ($6,035,000 as at August 31, 2014) for federal purposes and $9,798,000 ($8,699,000 as at August 31, 2014) 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 $7,461,000 ($6,523,000 as at August 31, 2014) were not recognized due to the uncertainty concerning the Company’s ability to generate taxable income. In addition, deferred tax liabilities of approximately $507,500 ($364,700 as at August 31, 2014) related to federal investment tax credits on property, plant and equipment were recognized and offset by a deferred income tax asset. 22. 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, 2015 $ 2014 $ 1,519,018 1,519,018 1,690,790 1,690,790 Opsens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2015 and 2014 22. 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, 2015 2014 $ - $ - 350,000 350,000 383,500 383,500 These credits were recorded in research and development expenses in the consolidated statements of loss and comprehensive loss. Reimbursable scientific research and experimental development income tax credits earned for the year ended August 31, 2015 and 2014 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, 2015 are about $2,217,000 ($1,970,255 as at August 31, 2014) and expire over a period of 10 to 20 years beginning in 2015. 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. 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. Opsens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2015 and 2014 23. Segmented Information (continued) Sector’s Information (continued) Years ended August 31, 2015 2014 Opsens Opsens Opsens Solutions Opsens Solutions Inc. $ Inc. $ Total $ Inc. $ Inc. $ Total $ External sales Internal sales Depreciation of property, 7,395,766 1,268,964 8,664,730 2,290,654 4,497,083 6,787,737 85,561 - 85,561 486,447 - 486,447 plant and equipment 278,106 106,725 384,831 212,645 132,916 345,561 Amortization of intangible assets 55,129 6,971 62,100 38,447 9,333 47,780 Financial expenses (revenues) (163,257 ) 162,691 (566) (211,342) 325,752 114,410 Current income tax expense 340,000 - 340,000 - - - Net loss (697,490 ) (1,390,138) (2,087,628) (2,478,047) (620,665 ) (3,098,712) Acquisition of property, plant and equipment 623,508 1,131 624,639 359,243 30,670 389,913 Additions to intangible assets 160,419 - 160,419 107,499 2,271 109,770 Segment assets 11,581,624 1,181,629 12,763,253 13,265,042 3,523,578 16,788,620 Segment liabilities 6,451,909 417,905 6,869,814 7,756,045 823,346 8,579,391 The Company’s net loss per reportable segments reconciles to its consolidated financial statements as follows: Years ended August 31, 2015 $ 2014 $ Net loss per reportable segments (2,087,628 ) (3,098,712) Impairment charge on property, plant and equipment (note 9) Impairment charge on goodwill (note 9) Net loss and comprehensive loss 119,663 676,574 - - (2,883,865 ) (3,098,712) Opsens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2015 and 2014 23. Segmented Information (continued) Geographic sector’s information Revenue per geographic sector Japan Canada Chile United States Other* Years ended August 31, 2015 $ 2014 $ 3,978,097 1,350,228 1,169,182 870,179 1,297,044 8,664,730 307,714 4,725,688 - 833,802 920,533 6,787,737 * 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. During the year ended August 31, 2015, revenues from two clients represented individually more than 10% of the total revenues of the Company, i.e. approximately 40% (Opsens Inc.’s reportable segment) and 13% (Opsens Inc.’s reportable segment). During the year ended August 31, 2014, revenues from three clients represented individually more than 10% of the total revenues of the Company, i.e. approximately 33% (Opsens Solutions Inc.’s reportable segment), 15% (Opsens Solutions Inc.’s reportable segment) and 11% (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 paid to a company controlled by a director Fees are incurred for the Company’s FFR activities. Years ended August 31, 2015 $ 2014 $ 25,459 10,035 Opsens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2015 and 2014 24. Related-party Transactions (continued) 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 Business Unit Manager 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 Termination benefits Years ended August 31, 2015 $ 966,200 83,300 57,500 1,107,000 2014 $ 1,023,600 55,250 - 1,078,850 The compensation of key executives is determined by the Human Resources Committee, taking into consideration individual performance and market trends. 25. Additional Information to the Consolidated Statements of Loss and Comprehensive Loss Expenses (revenues) included in functions Salaries & Other Benefits Cost of sales Administrative Marketing Research and development Depreciation of Property, Plant and Equipment Cost of sales Administrative Research and development Amortization of Intangible Assets Administrative Research and development Government Assistance Research and development Income tax credits for research and development Research and development Years ended August 31, 2015 $ 2014 $ 4,856,965 4,831,238 384,831 345,561 62,100 47,780 (25,920 ) (255,643) (447,610 ) (613,431) Opsens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2015 and 2014 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 debt component of the convertible debenture approximates $1,693,400 as at August 31, 2015 ($1,505,300 as at August 31, 2014) and is classified at level 2 in the fair value hierarchy. 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, 2015 Total $ Level 1 $ Level 2 $ Level 3 $ Financial assets (liabilities) measured at fair value: Convertible debenture – embedded derivative (245,773) - (245,773 ) - As at August 31, 2014 Total $ Level 1 $ Level 2 $ Level 3 $ Financial assets (liabilities) measured at fair value: Convertible debenture – embedded derivative (140,479) - (140,479 ) - Opsens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2015 and 2014 26. Financial Instruments (continued) Fair Value (continued) Valuation Techniques and Assumptions Applied for the Purposes of Measuring Fair Value (continued) As explained in note 14, 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 assumptions impacting the Company’s valuation of these embedded derivatives is the implied volatility. The fair value of the convertible debenture was determined using the Black-Scholes pricing model using an implied volatility of 95% (111% in 2014), a discount rate of 0.44% (1.35% in 2014) and an expected life of 2.2 years (3.2 years in 2014). A 1% change in the implied volatility factor would have changed the fair value of the embedded derivative by $1,840 ($1,740 for the year ended August 31, 2014). 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 as trade receivables consist of a large number of customers spread across diverse geographical areas. 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 at risks and/or uncollectible. Two major customers represented 33% of the Company’s total accounts receivable as at August 31, 2015 (50% as at August 31, 2014). As at August 31, 2015, 4% (6% as at August 31, 2014) of the accounts receivable were of more than 90 days whereas 55% (60% as at August 31, 2014) 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, 2015, the allowance for doubtful accounts was established at $3,032 ($3,032 as at August 31, 2014). 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 and/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 the Company’s access to capital markets and debt securities issues. Opsens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2015 and 2014 26. Financial Instruments (continued) Risk Management (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, 2015 and August 31, 2014: August 31, 2015 Accounts payable and accrued liabilities Long-term debt Convertible debenture Total August 31, 2014 Accounts payable and accrued liabilities Long-term debt Convertible debenture Total Interest Rate Risk Carrying amount Cash flows $ $ 0 to 12 months $ 12 to 24 months $ After 24 months $ 1,657,962 695,088 2,998,702 5,351,752 1,657,962 862,821 2,907,594 5,428,377 1,657,962 244,458 - 1,902,420 - 180,646 - 180,646 - 437,717 2,907,594 3,345,311 Carrying amount Cash flows $ $ 0 to 12 months $ 12 to 24 months $ After 24 months $ 1,412,792 826,834 2,359,556 4,599,182 1,412,792 1,057,301 2,392,060 4,862,153 1,412,792 181,137 - 1,593,929 - 256,806 - 256,806 - 619,358 2,392,060 3,011,418 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 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 at August 31, 2015, the Company was holding more than 93% (92% as at August 31, 2014) of its cash and cash equivalents in all-time redeemable term deposits. All else being equal, a hypothetical 1% interest rate increase would have had an unfavourable impact of $1,100 on the net loss and comprehensive loss for the year ended August 31, 2015 (unfavourable impact of $1,717 for the year ended August 31, 2014). A hypothetical 1% interest rate decrease would have had a favourable impact of $1,300 on the net loss and comprehensive loss for the year ended August 31, 2015 (favourable impact of $1,780 for the year ended August 31, 2014). Opsens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2015 and 2014 26. Financial Instruments (continued) Risk Management (continued) Financial expenses (revenues) Interest and bank charges Interest on long-term debt Interest and accreted interest on convertible debenture (note 14) Loss (gain) on foreign currency translation Interest income Years ended August 31, 2015 $ 60,868 32,665 83,225 (23,746 ) (153,578 ) (566 ) 2014 $ 58,183 34,906 54,527 84,941 (118,147) 114,410 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 at August 31, 2015 and 2014, the Company was holding 100% of its cash equivalents portfolio in all-time redeemable term deposits with financial institutions with high creditworthiness. Foreign Exchange Risk The Company realizes certain sales and purchases and certain supplies and professional services in US dollars and Euros. Therefore, it is exposed to foreign currency fluctuations. The Company does not actively manage this risk. Foreign Currency Sensitivity Analysis For the year ended August 31, 2015, if the Canadian dollar had strengthened 10% against the US dollar with all other variables held constant, net loss and comprehensive loss would have been $11,000 higher ($4,700 higher for the year ended August 31, 2014). Conversely, if the Canadian dollar had weakened 10% against the US dollar with all other variables held constant, net loss and comprehensive loss would have been $11,000 lower for the year ended August 31, 2015 ($4,700 lower for the year ended August 31, 2014). For the year ended August 31, 2015, if the Canadian dollar had strengthened 10% against the Euros with all other variables held constant, net loss and comprehensive loss would have been $20,000 higher (nil for the year ended August 31, 2014). Conversely, if the Canadian dollar had weakened 10% against the Euros with all other variables held constant, net loss and comprehensive loss would have been $20,000 lower for the year ended August 31, 2015 (nil for the year ended August 31, 2014). Opsens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2015 and 2014 26. Financial Instruments (continued) Risk Management (continued) Foreign Exchange Risk (continued) Foreign Currency Sensitivity Analysis (continued) As at August 31, 2015 and August 31, 2014, the risk to which the Company was exposed is established as follows: Cash and cash equivalents (US$2,097,017; US$2,362,635 as at August 31, 2014) Trade and other receivables (US$182,630; US$286,422 as at August 31, 2014) Trade and other receivables (Euro 53,625; nil as at August 31, 2014) Accounts payable and accrued liabilities (US$289,251; US$179,867 as at August 31, 2014) Convertible debenture (US$2,092,368; US$2,040,906 as at August 31, 2014)) Embedded derivative (US$186,800; US$129,200 as at August 31, 2014) Total 27. Capital Management As at August 31, 2015 $ As at August 31, 2014 $ 2,759,045 2,568,893 240,286 311,427 79,167 - (380,567 ) (195,570) (2,752,929 ) (2,219,077) (245,773 ) (300,771 ) (140,479) 325,194 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, 2015, the Company’s working capital amounted to $8,492,636 ($10,184,611 as at August 31, 2014), including cash and cash equivalents of $7,203,612 ($10,621,011 as at August 31, 2014). The accumulated deficit at the same date was $21,257,345 ($18,373,480 as at August 31, 2014). Based on the Company’s assessment, which took into account current cash and cash equivalents, 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 consolidated statements of financial position date of August 31, 2015. 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, 2015 and 2014, 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, 2015 and 2014 28. Approval of Consolidated Financial Statements The consolidated financial statements were approved by the Board of Directors and authorized for issue on November 23, 2015. 29. Subsequent Events In June 2015, the Company announced an expansion project to increase the manufacturing capacity and accommodate a growing number of employees. The Company therefore signed a long-term lease as described in note 18. As at August 31, 2015, the Company signed an agreement for the acquisition of production equipments (note 18). In addition, in October and November 2015, the Company signed agreements amounting to approximately $302,000 with various suppliers with respect to the expansion project. In October 2015, to fund the expansion project, the Company entered into three loan agreements for a total amount of $1,775,000. The first loan agreement, with Desjardins, amounting to $700,000, bears interest at prime rate plus 2.0%, is payable in monthly instalments of $14,583, calculated over an amortization period of forty-eight (48) months and will be maturing twelve (12) months following the first disbursement. The second loan agreement with Desjardins, amounting to a maximum of $375,000, bears interest at prime rate plus 2.0%, and will be payable upon receipt by the Company of the reimbursement of its 2015 refundable research and development tax credits. This loan agreement will be maturing eighteen (18) months following the first disbursement. The third loan agreement, with Investissement Québec, amounting to $700,000, bears interest at prime rate plus 0.25%, is payable in monthly instalments of $14,583, and will be maturing forty-eight (48) months following the first disbursement. These loans are secured by various hypothecs on the Company’s assets. Under these three loan agreements, the Company will be subject to certain covenants with respect to maintaining certain financial ratios. GOVERNANCE DIRECTORS Denis M. Sirois Chairman of the Board of Directors Louis Laflamme President and Chief Executive Officer Claude Belleville Vice President, Medical Devices Gaétan Duplain President, Opsens Solutions Denis Harrington Director Jean Lavigueur Director OFFICIERS Louis Laflamme, CPA, CA President and Chief Executive Officer Claude Belleville Vice President, Medical Devices Gaétan Duplain President, Opsens Solutions Thierry Dumas, CPA, CA Chief Financial Officer and Corporate Secretary Allister MacIsaac Business Unit Manager, Opsens Solutions Western Canada CORPORATE INFORMATION HEAD OFFICE 2014 Cyrille-Duquet St., Suite 125 Quebec City, QC G1N 4N6 Phone: 418 682-9996 Fax: 418 682-9939 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. STOCK EXCHANGE LISTING Toronto Venture Exchange - Symbol: OPS OTCQX - Symbol: OPSSF AUDITORS Deloitte LLP Quebec, QC SHARES OUTSTANDING 60,674,753 (as at August 31, 2015) Transfer Agent & Registrar CST Trust Company (CST) 320 Bay Street – B1 Level Toronto, ON M5H 4A6 1-800-387-0825 ANNUAL MEETING OF SHAREHOLDERS Monday, January 18, 2016 - 10:30 a.m., Alt Hotel, Quebec, Rochette and Nadeau Rooms, ground floor (Restaurant Le Bistango). OPSENS’ MARKETS INTERVENTIONAL CARDIOLOGY - MEASUREMENT OF FFR Opsens aims to become a key player in the guidewire FFR market with the OptoWire, a nitinol-based optical guidewire for FFR. The OptoWire provides intra-coronary blood pressure measurements with unique, patented optical pressure guidewire technologies. It is immune to adverse effects related to blood contact, and allows easy and reliable connectivity that leads to reliable FFR measurements in extended conditions of usage. The OptoWire is also designed to provide cardiologists with a guidewire delivering optimized performances to navigate coronary arteries and cross blockages with ease and safety. Based on industry sources, the FFR market represented more than US$300 million in sales in 2014 and is expected to reach US$1 billion in the medium-term. Opsens is confident that it is well positioned to capitalize on this significant growth opportunity. Sales (US$M) FFR MARKET SIZE 1 billion $ and + 300 M 250 M 207 M 167 M 124 M 75 M 2009 2010 2011 2012 2013 2014 Beyond Years Sources FFR market 2014: US$300 M, St. Jude Medical 2015 - Investor Conference, February 6, 2015. Forecasts: Company reports, RBC Capital Markets Estimates. INDUSTRIAL In the Industrial sector, Opsens extends the applications of its products to increase its business in various markets. Opsens’ products perform in the most demanding environments and provide benefits in terms of improved production, cost reduction and security of sites. The sensor’s electromagnetic immunity is the perfect option in explosive environments. Here are a few examples of markets in which Opsens offers solutions. MINING – This year, Opsens has received a large order in the mining sector. Applications for this field are numerous: extraction processes, environmental control and monitoring of explosive environments. CIVIL ENGINEERING – Opsens provides monitoring solutions for aging structures, preventive maintenance and more. OIL AND GAS – Opsens measures in real time and continuously, pressure and temperature in Steam Assisted Gravity Drainage wells ("SAGD"), a hostile environment characterized by the presence of corrosive gases and temperatures as high as 300°C. The ability to control SAGD pressure at high temperature allows producers to improve production, reduce operating costs and improve site security. MARITIME – Opsens presents solutions for the monitoring of loads, underwater structures and for preventive maintenance. INTERVENTIONAL CARDIOLOGY – FFR Elevate standards in interventional cardiology. Workhorse pressure guidewire to measure FFR. INDUSTRIAL APPLICATIONS Fiber optic-based innovative solutions for various industries. 2014, Cyrille-Duquet Street, Suite 125, Quebec, QC, G1N 4N6 Tel: 418.682.9996 | Fax: 418.682.9939 opsens.com 

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