ANNUAL
REPORT
2016
Opsens focuses 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.
FFR: CORNERSTONE FOR OPSENS’ FUTURE GROWTH
r Product performance recognized by several Key Opinion Leaders
OPSENS – FFR SALES
In thousands of $
r FFR products approved in all target markets
r Growing markets: United States, European Union, Japan, Canada
r Over 10,000 cases performed
r Ongoing improvement process in manufacturing
r Sales channels in over 20 countries
FY 2016
r Growing market share quarter over quarter.
FY 2017 AND BEYOND
r Significant gain in market share.
FFR MARKET
Since 2009, the FFR market has been driven by studies that demonstrate
the benefits of basing diagnostic and treatment of coronary artery disease
(CAD) on reliable FFR measurement. Cardiologists, cardiology medical
societies, insurance companies and hospitals increasingly recognize the
benefits of performing FFR, as it:
r Facilitates decision making before invasive procedures;
r Improves patient outcomes; and,
r Avoids unnecessary medical procedures.
Growing confidence in the procedure has generated a need for products
that are easy to use, reliable and may be easily integrated into the workflow.
Originally, electrical technologies were the only option to measure FFR.
Opsens brought new freedom to the procedure with its OptoWire, an optical
guidewire. Unlike products instrumented with electrical technologies,
the OptoWire is not affected by procedural contaminant. It offers FFR
measurement reliability, freedom to disconnect, handle, reconnect and
measure FFR following a percutaneous coronary intervention. In the
future, the demonstration of these competitive advantages in structured
registers or clinical studies could contribute positively to the FFR market
and benefit the health of patients. With better tools and other growth
factors, industry players foresee penetration of the procedure could evolve
from the current 15%* to 45%**.
2,500
2,000
1,500
1,000
500
0
FY 2016: $5,242
2,115
1,252
893
982
FY 2015: $527
112
51
41
323
Q1
2015
Q2
2015
Q3
2015
Q4
2015
Q1
2016
Q2
2016
Q3
2016
Q4
2016
FFR MARKET
In millions of US$*
1,000
800
600
400
200
$1B
456
400
350
300
250
207
167
124
* R. Scott Huennekens, “Volcano NASDAQ Analyst Day” POWERPOINT PRESENTATION p.44 (2013-03-07)
[Huennekens “POWERPOINT].
** D. STARKS, “St Jude Medical 2013 Investor Conference” p.105 (2013-02-01) [D. STARKS]
* St. Jude Medical 2015 - Investor Conference, February 6, 2015
** Based on a projected growth of 14% - Research and Markets “FFR Global Market
2016-2020”
75
0
2009
2010
2011
2012
2013
2014
2015
2016
2017
Beyond
LETTER TO SHAREHOLDERS
In 2016, Opsens has embraced change to position itself for sustained growth and
to create value for its shareholders. Today, these changes allow us to have the
tools to demonstrate our leadership in the field of interventional cardiology for the
measurement of Fractional Flow Reserve (“FFR”).
AN IMPROVED VERSION OF THE OPTOWIRE FOR LARGE
SCALE MARKETING
In order to provide cardiologists with the most effective products to
measure FFR, Opsens has developed the OptoWire II, an improved
version of its original OptoWire, comprising a hydrophilic coating that
further facilitates navigation in the most tortuous and calcified vessels.
This enhanced version of our guidewire quickly received regulatory
approvals in the United States, Japan, Europe and Canada. The
OptoWire II is the version sold in each of these growing markets.
THE OPTOWIRE RECOGNIZED IN THE INTERVENTIONAL
CARDIOLOGY COMMUNITY
Our product was welcomed enthusiastically in the interventional
cardiology community, prompting Opsens to set up the resources
needed to grow strongly. The OptoWire’s performance was mentioned
in a prestigious medical journal, the Circulation Journal, the official
journal of the Japanese Circulation Society. In this editorial on drift in
FFR pressure wires, the authors report that the use of approximately
100 OptoWire units performed without any drift in the measurement.
The editorial also reports on the shortcomings in the performance
of competitors’ products from the point of view of reliability of the
measurement.
In December 2016, Opsens announced that the
OptoWire had been used as a diagnostic tool by cardiologists in 10,000
patients, demonstrating the product’s safety before marketing on a
larger scale.
IMPLEMENTATION OF OUR GROWTH STRATEGY
Opsens’ sales team was strengthened during the year. New employees
and experienced experts in the marketing of products for interventional
cardiology in the United States and in Canada joined the team. The
Company also signed several distribution agreements with strong
partners in their specific strategic markets, allowing Opsens to build
a sales network in more than 20 countries. Opsens will continue to
expand its network in the coming months and years in each of its key
markets. The effectiveness of these sales channels has generated a
growing demand for our FFR products in 2016.
THE MOVE INTO A FACILITY FITTED FOR OUR
GROWTH NEEDS
This growth required relocation into a facility at the cutting edge of
technology and adapted to our growing needs. This change resulted in
a temporary interruption of production. The quality of our facility and
the rigor of Opsens’ production processes helped in the rapid receipt of
the necessary approvals to resume the production of commercial units
from this new facility. A few months after this move, we appreciate
this much needed upgrade. In order to improve effectiveness, we are
implementing an ongoing improvement process in manufacturing.
Not only do we aim to increase efficiency and effectiveness of our
production, we are now targeting operational excellence.
STRENGTHENING OF OUR MEDICAL IDENTITY
Opsens has also strengthened its medical identity by consolidating its
medical activities within the Opsens business unit and the industrial
activities to the Opsens Solutions business unit. This structure will
contribute to the strengthening of our medical identity by focusing
our development and will allow financial markets to better assess the
performance of each business unit.
DIVERSIFICATION IN THE OWNERSHIP AND GOVERNANCE
During the 2016 fiscal year, the Company expanded its shareholder base
with major institutions by issuing new shares within the framework of
two financing which generated gross positive cash flow of more than
$10 million.
From the point of view of governance, Opsens added a second
American director during the year in order to increase our knowledge
of this strategic market.
INDUSTRIAL SECTOR
The need for precise optical measurement is growing in the industrial
sector. Opsens’ optical technologies can measure various parameters
in difficult conditions. Following discussions with major clients in 2016,
we are confident that 2017 will show revenue growth in this business unit.
WE ANTICIPATE 2017 WITH OPTIMISM
In 2016, we made measurable progress towards our goal of becoming a
key player in FFR. We are dedicated to meeting the expectations of our
shareholders and believe that the plan in place bears high value. We are
grateful for your trust.
I also want to thank our customers, employees, suppliers, directors
and partners for their constant support to the benefit of Opsens’
development.
In closing, we hope to see you at the annual shareholders’ meeting,
which will be held in our new headquarters this year.
Louis Laflamme
President and CEO
3
4
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 2016
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, 2016 in comparison with the
corresponding period ended August 31, 2015. 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, 2016 and 2015, 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 15, 2016. 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 15, 2016 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 initiated a limited market release of its OptoWire
and OptoMonitor. 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 I and OptoMonitor in the U.S., Europe,
Japan and Canada. These combined markets represent approximately 85% of the total market worldwide for FFR
products.
(1)
Opsens FFR Market Calculations based on R. Scott Huennekens, “Volcano’s CEO Hosts NASDAQ Analyst Day” TRANSCRIPT p.5 (2013-03-7), JOHN T. DAHLDORF, “Volcano’s Annual Report
2012” and St. Jude Medical 2015 – Investors Conference , February 6, 2015.
5
On March 16, 2016, Opsens announced receipt of the 510(k) clearance from the U.S. Food and Drug Administration
(FDA) for the OptoWire II. This major regulatory milestone allows the Company to commercialize its optical
guidewire in the U.S., the largest market in the world for these types of products and expanded regulatory clearance
for the OptoWire II to the U.S. from previous clearances in Europe and Japan. On June 22, 2016, the Company
announced the receipt of Health Canada’s approval to sell the OptoWire II in Canada.
The OptoWire II continues to draw positive comments from cardiology experts around the world. For example, an
article from the «Circulation Journal» highlighted the performance of the OptoWire. More specifically, the article
highlighted the fact that traditional guidewires showed an inevitable drift of the measure, despite major efforts to
minimize it. It is also said that the occurrence of drift is the most annoying problem that can occur during a procedure
in a patient because it is often unnoticed before the wire is pulled back to the guiding catheter at the end of the
procedure, and if it is present, it may invalidate the measurement. In the article, it is mentioned that in their laboratories,
they used approximately 100 OptoWire in the past year and they have not observed any drift in any of the OptoWire
up to now.
Subsequent to approvals received to commercialize the OptoWire II, the number of orders have increased. In addition,
many account conversions in Canada, in Europe and in Japan have materialized recently. Opsens also recently began
its limited market release in the U.S. These recent developments enable Opsens to compete in the growing FFR market.
In Canada, Opsens has been executing its limited market release with its direct sales force following the successful
completion of a clinical trials on 60 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.
Opsens expanded its sales channels during the year ended August 31, 2016. Opsens is currently present, with its sales
channels, in the U.S., in more than 20 countries, in Europe, in Middle East, in Canada and in Japan. To support revenue
growth with increased production capacity, Opsens recently moved its medical devices business into a new location in
Quebec City (Canada).
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, through a distributor, 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.
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 2 pending patents to protect its medical and industrial businesses.
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
6
On March 16, 2016, Opsens announced receipt of the 510(k) clearance from the U.S. Food and Drug Administration
(FDA) for the OptoWire II. This major regulatory milestone allows the Company to commercialize its optical
guidewire in the U.S., the largest market in the world for these types of products and expanded regulatory clearance
for the OptoWire II to the U.S. from previous clearances in Europe and Japan. On June 22, 2016, the Company
announced the receipt of Health Canada’s approval to sell the OptoWire II in Canada.
The OptoWire II continues to draw positive comments from cardiology experts around the world. For example, an
article from the «Circulation Journal» highlighted the performance of the OptoWire. More specifically, the article
highlighted the fact that traditional guidewires showed an inevitable drift of the measure, despite major efforts to
minimize it. It is also said that the occurrence of drift is the most annoying problem that can occur during a procedure
in a patient because it is often unnoticed before the wire is pulled back to the guiding catheter at the end of the
procedure, and if it is present, it may invalidate the measurement. In the article, it is mentioned that in their laboratories,
they used approximately 100 OptoWire in the past year and they have not observed any drift in any of the OptoWire
up to now.
Subsequent to approvals received to commercialize the OptoWire II, the number of orders have increased. In addition,
many account conversions in Canada, in Europe and in Japan have materialized recently. Opsens also recently began
its limited market release in the U.S. These recent developments enable Opsens to compete in the growing FFR market.
In Canada, Opsens has been executing its limited market release with its direct sales force following the successful
completion of a clinical trials on 60 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.
Opsens expanded its sales channels during the year ended August 31, 2016. Opsens is currently present, with its sales
channels, in the U.S., in more than 20 countries, in Europe, in Middle East, in Canada and in Japan. To support revenue
growth with increased production capacity, Opsens recently moved its medical devices business into a new location in
Quebec City (Canada).
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.
and health.
As for the oil and gas market, Opsens, through a distributor, 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.
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
Opsens holds 10 patents and 2 pending patents to protect its medical and industrial businesses.
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 fiscal 2016, Opsens expanded its sales
activities in several markets, which translated 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 is pursuing a comprehensive market development strategy that highlights the
features and distinctive capabilities of the OptoWire and exceed marketing requirements to gain market share
from competitors and contribute to the expansion of the FFR market. Initially, marketing efforts are focused
on the Japanese, U.S., European and Canadian markets.
(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
7
•
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 has signed distribution agreements in more than twenty countries
in Europe and Asia. These agreements enable Opsens to expand its market penetration worldwide.
Although the distribution agreements in place cover the most important potential markets, Opsens
expects to sign additional distribution agreements during fiscal year 2017.
Sales force: Opsens plans on expanding its sales force through hiring additional sales personnel for
FFR product commercialization. Sales force expansion will aim to increase Opsens’ marketing and
sales market penetration in the United States and in Canada.
o
The Company’s growth strategy in the Industrial sector will be achieved by:
•
Investing in innovation to enhance applications for the Company's technologies. The Company’s industrial
line of fiber optic sensors offers unique advantages over traditional sensors in many industries. For example
traditional sensors need to be shielded and grounded for their safe operation in aircrafts and spaceships. The
use of composite materials in the newly developed versions of these flying structures have seriously reduced
the natural shielding and grounding capacity provided by the older metallic version of these structures. The
Company’s fiber optic strain and pressure sensors received attention from major players in the aerospace
industry because they do not require any shielding or grounding and also because of their ease of deployment.
In the oil and gas upstream applications using thermal recovery methods like SAGD, the capacity to control
bottom hole pressure and temperature helps improving the steam/oil ratio and to reduce operating and
pumping costs. Integration of the corporation OPP-W fiber optic pressure and temperature sensor in thermal
recovery methods allows operators, production and reservoir engineers to monitor in real time, over a large
area, pressure and temperature at the bottom of the wells. They can manage efficiently the heavy oil
production reservoirs.
8
•
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:
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
Improved connectivity, as OptoWire’s connection and measurement accuracy is unaffected by blood
contamination and the guidewire can be reconnected easily without compromising measurement
Improved mechanical performance from key design attributes and product specifications such as
o
o
o
have higher drift levels;
accuracy;
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 has signed distribution agreements in more than twenty countries
in Europe and Asia. These agreements enable Opsens to expand its market penetration worldwide.
Although the distribution agreements in place cover the most important potential markets, Opsens
expects to sign additional distribution agreements during fiscal year 2017.
o
Sales force: Opsens plans on expanding its sales force through hiring additional sales personnel for
FFR product commercialization. Sales force expansion will aim to increase Opsens’ marketing and
sales market penetration in the United States and in Canada.
The Company’s growth strategy in the Industrial sector will be achieved by:
•
Investing in innovation to enhance applications for the Company's technologies. The Company’s industrial
line of fiber optic sensors offers unique advantages over traditional sensors in many industries. For example
traditional sensors need to be shielded and grounded for their safe operation in aircrafts and spaceships. The
use of composite materials in the newly developed versions of these flying structures have seriously reduced
the natural shielding and grounding capacity provided by the older metallic version of these structures. The
Company’s fiber optic strain and pressure sensors received attention from major players in the aerospace
industry because they do not require any shielding or grounding and also because of their ease of deployment.
In the oil and gas upstream applications using thermal recovery methods like SAGD, the capacity to control
bottom hole pressure and temperature helps improving the steam/oil ratio and to reduce operating and
pumping costs. Integration of the corporation OPP-W fiber optic pressure and temperature sensor in thermal
recovery methods allows operators, production and reservoir engineers to monitor in real time, over a large
area, pressure and temperature at the bottom of the wells. They can manage efficiently the heavy oil
production reservoirs.
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 very
probable that this measure is comparable with measures of the same type presented by other issuers. EBITDAO is
defined by the Company as the addition of net loss, 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, 2016
$
Year Ended
August 31, 2015
$
Year Ended
August 31, 2014
$
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
(9,282)
-
57
732
549
73
-
(7,871)
451
(7,420)
(2,884)
340
(1)
73
385
62
796
(1,229)
317
(912)
(3,099)
-
114
102
346
48
-
(2,489)
236
(2,253)
The negative variance of EBITDAO for fiscal 2016 when compared with last year is mainly explained by the absence
of non-recurring revenues of $3,457,500 from distribution rights and licensing recorded in 2015. The negative variance
of EBITDAO is also explained by lower gross margin percentage due to ramp-up of FFR production and by higher
administrative, marketing and research and development expenses as explained further below. Other non-recurring
expenses such as the allowances for obsolete inventories and for doubtful accounts recorded in the industrial sector
negatively impacted EBITDAO.
9
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands of Canadian dollars, except for
information per share)
Year Ended
August 31, 2016
$
Year Ended
August 31, 2015
$
Year Ended
August 31, 2014
$
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
Loss before income taxes
Current income tax expense
Net loss and comprehensive loss
Net loss per share - Basic
Net loss per share - Diluted
Revenues
9,601
7,970
1,631
17%
3,685
3,694
2,744
57
733
-
10,913
(9,282)
-
(9,282)
(0.14)
(0.14)
8,665
3,921
4,744
55%
2,616
1,501
2,303
(1)
73
796
7,288
(2,544)
340
(2,884)
(0.05)
(0.05)
6,788
4,399
2,389
35%
2,398
1,131
1,743
114
102
-
5,488
(3,099)
-
(3,099)
(0.06)
(0.06)
The Company reported revenues of $9,601,000 for the year ended August 31, 2016, compared with revenues of
$8,665,000 a year earlier, an increase of $936,000 or 11%.
Revenues in the medical sector totalled $6,429,000 for the year ended August 31, 2016 compared with revenues of
$5,035,000 for the same period in 2015. The increase is explained by higher FFR revenues. FFR revenues totalled
$5,242,000 for the year ended August 31, 2016, an increase of $4,715,000 over the $527,000 reported for the same
period last year. The increase is also explained by higher other medical revenues of $136,000.
The increase in revenue was partly offset by the recognition during the year ended August 31, 2015 of non-recurring
revenues of $3,457,500 related to a milestone payment of $1,115,500 (US$1,000,000) received from its Japanese
distributor upon obtaining Shonin approval, deferred revenues amounting to $2,002,000 (US$2,000,000) (“non-
recurring revenues”) recognized in the statement of loss and comprehensive loss when the Company received the CE
mark approval in Europe and by an adjustment on revenues of $340,000 ($US300,000) to recognize additional
revenues from the distribution agreement.
Revenues in the industrial sector totalled $3,172,000 for the year ended August 31, 2016 compared with revenues of
$3,630,000 for the same period in 2015. The decrease in revenues is explained by a non-recurring 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. This negative impact was offset by an increase in revenues in the oil and gas activities
of $281,000 when compared with last year.
Given that a proportion of the Company's revenues is generated in U.S., Euro and British pounds dollars, fluctuations
in the exchange rate affect revenues and net loss. For the year ended August 31, 2016, the average exchange rate was
higher than the previous year, which affected sales positively by $551,000.
Market acceptance of FFR and for industrial fiber optic sensors is increasing in the Company’s potential markets.
However, some sectors, such as oil and gas, are experiencing challenging economic conditions. To address this
10
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands of Canadian dollars, except for
Year Ended
Year Ended
Year Ended
information per share)
August 31, 2016
August 31, 2015
August 31, 2014
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
Loss before income taxes
Current income tax expense
Net loss and comprehensive loss
Net loss per share - Basic
Net loss per share - Diluted
Revenues
$
9,601
7,970
1,631
17%
3,685
3,694
2,744
57
733
10,913
(9,282)
-
-
(9,282)
(0.14)
(0.14)
$
8,665
3,921
4,744
55%
2,616
1,501
2,303
(1)
73
796
7,288
(2,544)
340
(2,884)
(0.05)
(0.05)
$
6,788
4,399
2,389
35%
2,398
1,131
1,743
114
102
5,488
-
-
(3,099)
(3,099)
(0.06)
(0.06)
The Company reported revenues of $9,601,000 for the year ended August 31, 2016, compared with revenues of
$8,665,000 a year earlier, an increase of $936,000 or 11%.
Revenues in the medical sector totalled $6,429,000 for the year ended August 31, 2016 compared with revenues of
$5,035,000 for the same period in 2015. The increase is explained by higher FFR revenues. FFR revenues totalled
$5,242,000 for the year ended August 31, 2016, an increase of $4,715,000 over the $527,000 reported for the same
period last year. The increase is also explained by higher other medical revenues of $136,000.
The increase in revenue was partly offset by the recognition during the year ended August 31, 2015 of non-recurring
revenues of $3,457,500 related to a milestone payment of $1,115,500 (US$1,000,000) received from its Japanese
distributor upon obtaining Shonin approval, deferred revenues amounting to $2,002,000 (US$2,000,000) (“non-
recurring revenues”) recognized in the statement of loss and comprehensive loss when the Company received the CE
mark approval in Europe and by an adjustment on revenues of $340,000 ($US300,000) to recognize additional
revenues from the distribution agreement.
Revenues in the industrial sector totalled $3,172,000 for the year ended August 31, 2016 compared with revenues of
$3,630,000 for the same period in 2015. The decrease in revenues is explained by a non-recurring 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. This negative impact was offset by an increase in revenues in the oil and gas activities
of $281,000 when compared with last year.
Given that a proportion of the Company's revenues is generated in U.S., Euro and British pounds dollars, fluctuations
in the exchange rate affect revenues and net loss. For the year ended August 31, 2016, the average exchange rate was
higher than the previous year, which affected sales positively by $551,000.
Market acceptance of FFR and for industrial fiber optic sensors is increasing in the Company’s potential markets.
However, some sectors, such as oil and gas, are experiencing challenging economic conditions. To address this
situation, Opsens downsized and reviewed its business model. Consequently, a partnership was announced during
fiscal 2015 with a third party for the installation of its products for the oil and gas market in Western Canada. On
September 22, 2016, the Company announced a partnership with Precise Downhole Services Ltd. (“Precise”) for the
commercialization of its product line dedicated to the Canadian oil and gas market. As part of the agreement, Opsens
appoints Precise as exclusive distributors for the OPP-W sensor product line in the Canadian territory. For the periods
ended August 31, 2016 and 2015, 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 in Japan.
During the quarter ended August 31, 2016, the Company initiated the limited market release in the U.S. Management
expects that the proportion of revenues generated by FFR will increase in upcoming quarters.
As of August 31, 2016, the backlog of orders amounted to $1,295,000 ($1,131,000 as at August 31, 2015). Despite a
slowdown of capital expenditures by major oil and gas producers, significant efforts are being made to increase the
backlog and expand the customer base. In addition, the Company will benefit from increased revenues in the medical
field resulting from its regulatory clearances in the U.S., Europe, Japan and Canada.
Gross margin
Information and analysis in this section do not take into consideration revenues from distribution rights (nil and
$3,457,500 for the years ended August 31, 2016 and 2015, respectively).
Gross margin was $1,631,000 for the year ended August 31, 2016 compared with $1,287,000 for the same period last
year. The gross margin percentage decreased from 25% for the year ended August 31, 2015 to 17% for the year ended
August 31, 2016. The increase in gross margin is explained by higher revenues from FFR products. Despite the increase
in gross margin, the gross margin percentage for the year ended August 31, 2016 was affected by higher production
losses due to the arrival of a high number of new employees that needed to be trained and other ramp up costs. In
addition, gross margin percentage was also impacted by costs incurred by Opsens for the relocation of its activities
into a new facility. Following the relocation of its medical activities, the Company had to interrupt most of the
production activities for approximately half of the third quarter. Also, the Company assumed a high proportion of
unallocated production overhead costs due to lower level of production than expected. During the year ended August
31, 2016, the Company had to seek regulatory approval for the facility from various geographies in order to be allowed
to manufacture and ship FFR products. Finally, the Company recognized an allowance for obsolete inventory of
$457,000 related to its activities in the oil and gas.
Administrative expenses
Administrative expenses were $3,684,000 and $2,616,000, respectively, for the year ended August 31, 2016 and 2015.
The increase is explained by a higher allowance for doubtful account related to a client in the oil and gas sector and by
higher rental fees arising from the long-term lease signed by the Company to relocate its medical activities.
Sales and marketing expenses
Sales and marketing expenses totalled $3,694,000 for the year ended August 31, 2016, an increase of $2,193,000 over
the $1,501,000 reported during the same period in 2015. The increase is largely explained by higher headcount,
commissions, publicity, tradeshows, travelling and subcontractor expenses when compared with last year due to the
expansion of Opsens’ sales channel for its FFR products.
Research and development expenses
Research and development expenses totalled $2,744,000 for the year ended August 31, 2016, an increase of 441,000$
over the $2,303,000 reported during the same period in 2015. The variation is explained by higher headcount for our
FFR activities, partly offset by lower supplies and subcontractors expenses.
11
Financial expenses (revenues)
Financial expenses reached $57,000 for the year ended August 31, 2016 compared with financial revenues of $1,000
for the same period last year. The increase in financial expenses during fiscal 2016 is explained by lower interest
income of $43,000 related to lower short-term investments, less favorable exchange rate resulting in a negative impact
of $20,000 compared to last year and by an increase in interest on long-term debt of $12,000.
Change in fair value of embedded derivative
The change in fair value of embedded derivative comes from the variance of the fair market value of the conversion
option component of the convertible debenture. 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 $733,000 ($73,000 for the year ended August 31, 2015) was
recorded in the consolidated statements of loss and comprehensive loss.
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, 2016 was $9,282,000 compared with $2,884,000
for the year ended August 31, 2015.
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,
2016
$
As at
August 31,
2015
$
As at
August 31,
2014
$
12,570
16,861
3,067
6,482
7,312
11,077
12,763
2,584
4,286
5,893
14,613
16,789
4,428
4,152
8,209
Total assets as at August 31, 2016 were $16,861,000 compared with $12,763,000 as at August 31, 2015. The increase
is mainly related to higher property, plant and equipment of $2,515,000 because of acquisitions of equipment and
investments in leasehold improvements arising from the relocation into the new facility. The increase in total assets is
also explained by higher trade and other receivables of $1,420,000 and higher inventories of $1,219,000, a result of
the increase in the FFR activities. This was partly offset by lower cash and cash equivalents of $1,301,000.
Current liabilities totalled $3,067,000 as at August 31, 2016 compared with $2,584,000 as at August 31, 2015. The
increase is explained by higher accounts payable and accrued liabilities related to the increase of the production of
FFR products.
12
Financial expenses (revenues)
Financial expenses reached $57,000 for the year ended August 31, 2016 compared with financial revenues of $1,000
for the same period last year. The increase in financial expenses during fiscal 2016 is explained by lower interest
income of $43,000 related to lower short-term investments, less favorable exchange rate resulting in a negative impact
of $20,000 compared to last year and by an increase in interest on long-term debt of $12,000.
Long-term liabilities totalled $6,482,000 as at August 31, 2016 compared with $4,286,000 last year, an increase of
$2,196,000. The increase is explained by new loans amounting to $1,410,000 contracted during the year and by higher
deferred lease inducements of $880,000 related to an amount of $900,000 received from a landlord. These amounts
were used to finance the relocation costs into the new facility.
SUMMARY OF CONSOLIDATED QUARTERLY RESULTS
Change in fair value of embedded derivative
The summary below presents the periods in which Opsens published unaudited interim financial statements.
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 $733,000 ($73,000 for the year ended August 31, 2015) was
recorded in the consolidated statements of loss and comprehensive loss.
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
Current income tax expense
the Company.
Net loss
As a result of the foregoing, net loss for the year ended August 31, 2016 was $9,282,000 compared with $2,884,000
for the year ended August 31, 2015.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION DATA
(In thousands of Canadian dollars)
Current assets
Total assets
Current liabilities
Long-term liabilities
Shareholders' equity
August 31,
August 31,
August 31,
As at
2016
$
12,570
16,861
3,067
6,482
7,312
As at
2015
$
11,077
12,763
2,584
4,286
5,893
As at
2014
$
14,613
16,789
4,428
4,152
8,209
Total assets as at August 31, 2016 were $16,861,000 compared with $12,763,000 as at August 31, 2015. The increase
is mainly related to higher property, plant and equipment of $2,515,000 because of acquisitions of equipment and
investments in leasehold improvements arising from the relocation into the new facility. The increase in total assets is
also explained by higher trade and other receivables of $1,420,000 and higher inventories of $1,219,000, a result of
the increase in the FFR activities. This was partly offset by lower cash and cash equivalents of $1,301,000.
Current liabilities totalled $3,067,000 as at August 31, 2016 compared with $2,584,000 as at August 31, 2015. The
increase is explained by higher accounts payable and accrued liabilities related to the increase of the production of
FFR products.
(Unaudited, in thousands of Canadian dollars,
except for information per share)
Three-month
period ended
August 31, 2016
Three-month
period ended
May 31, 2016
Revenues
Net loss for the period
Net loss per share – Basic
Net loss per share – Diluted
$
3,024
(3,025)
(0.04)
(0.04)
$
2,125
(3,076)
(0.05)
(0.05)
(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
Revenues
Net earnings (loss) for the period
Net earnings (loss) per share – Basic
Net earnings (loss) per share – Diluted
$
1,110
(1,811)
(0.03)
(0.03)
$
831
(1,355)
(0.02)
(0.02)
Three-month
period ended
February 29,
2016
$
Three-month
period ended
November 30,
2015
$
2,741
(1,523)
(0.02)
(0.02)
1,711
(1,658)
(0.03)
(0.03)
Three-month
period ended
February 28,
2015
$
Three-month
period ended
November 30,
2014
$
2,287
(880)
(0.01)
(0.01)
4,437
1,162
0.02
0.02
Historically, the Company’s revenues and net earnings (net loss) results has experienced minimal seasonality.
LIQUIDITY AND CAPITAL RESOURCES
On May 27, 2016, the Company entered into a loan agreement of $836,000, net of transaction costs of $9,000, with
Investissement Québec. This loan bears interest at prime rate plus 0.25%, is payable in monthly instalments of $18,750,
and will be maturing in May 2020. This loan is secured by a movable hypothec on the Company’s assets. Under this
loan agreement, the Company is subject to certain covenants with respect to maintaining certain financial ratios, which
were met as of the date of this MD&A.
On May 16, 2016, the Company completed a non-brokered private placement offering for aggregate gross proceeds of
$4,999,050. In connection with the offering, the Company issued a total of 4,761,000 units at a price of $1.05 per unit.
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 $1.55 until November 16, 2017.
Expenses of the offering include professional fees and miscellaneous fees for total fees of $102,563.
13
On May 20, 2016, the Company received an amount $894,000 from the landlord in accordance with the long-term
lease signed by the Company to relocate its medical activities. This amount is presented in the balance sheet under the
caption “Deferred lease inducements”.
On April 18, 2016, the Company entered into a loan agreement amounting to $497,500, net of transaction costs of
$2,500, with Desjardins. This loan bears interest at prime rate plus 2.0%, is payable in monthly instalments of $10,417,
calculated over an amortization period of forty-eight (48) months and will be maturing in April 2017. This loan is
secured by a movable hypothec on the Company’s assets. Under this loan agreement, the Company is subject to certain
covenants with respect to maintaining certain financial ratios, which were met as of the date of this MD&A.
Under an agreement entered into with Canada Economic Development (“CED”), the Company may receive a
refundable contribution of a maximum amount $200,000, non-interest bearing, to cover expenses related to the
commercialization of its OptoWire product for the FFR market. This contribution is paid out based on presentation by
the Company of invoices related to specific expenses since May 22, 2015. On April 1, 2016, the Company received an
amount of $65,000 of which $28,000 was recognized against administrative and sales and marketing expenses.
On December 22, 2015, the Company completed a public offering for aggregate gross proceeds of $5,000,000. In
connection with the offering, the Company issued a total of 5,681,819 units at a price of $0.88 per unit. 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
$1.20 until June 22, 2017.
Expenses of the offering include underwriting fees of $276,202 and other professional fees and miscellaneous fees of
$323,713 for total fees of $599,915.
The Company also issued 313,886 broker warrants as additional compensation, each warrant entitling the holder to
purchase one common share of the Corporation at a price of $0.88 until June 22, 2017.
Concurrently with the public offering, the Company completed a non-brokered private placement offering of 184,400
units at a price of $0.88 per unit for aggregate gross proceeds of $162,272. Each unit comprises the same terms and
conditions than the units issued under the public offering. Expenses related to the private placement amount to $10,083.
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.
Expenses of the offering include 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.
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:
14
On May 20, 2016, the Company received an amount $894,000 from the landlord in accordance with the long-term
lease signed by the Company to relocate its medical activities. This amount is presented in the balance sheet under the
caption “Deferred lease inducements”.
On April 18, 2016, the Company entered into a loan agreement amounting to $497,500, net of transaction costs of
$2,500, with Desjardins. This loan bears interest at prime rate plus 2.0%, is payable in monthly instalments of $10,417,
calculated over an amortization period of forty-eight (48) months and will be maturing in April 2017. This loan is
secured by a movable hypothec on the Company’s assets. Under this loan agreement, the Company is subject to certain
covenants with respect to maintaining certain financial ratios, which were met as of the date of this MD&A.
Under an agreement entered into with Canada Economic Development (“CED”), the Company may receive a
refundable contribution of a maximum amount $200,000, non-interest bearing, to cover expenses related to the
commercialization of its OptoWire product for the FFR market. This contribution is paid out based on presentation by
the Company of invoices related to specific expenses since May 22, 2015. On April 1, 2016, the Company received an
amount of $65,000 of which $28,000 was recognized against administrative and sales and marketing expenses.
On December 22, 2015, the Company completed a public offering for aggregate gross proceeds of $5,000,000. In
connection with the offering, the Company issued a total of 5,681,819 units at a price of $0.88 per unit. 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
$1.20 until June 22, 2017.
$323,713 for total fees of $599,915.
Expenses of the offering include underwriting fees of $276,202 and other professional fees and miscellaneous fees of
The Company also issued 313,886 broker warrants as additional compensation, each warrant entitling the holder to
purchase one common share of the Corporation at a price of $0.88 until June 22, 2017.
Concurrently with the public offering, the Company completed a non-brokered private placement offering of 184,400
units at a price of $0.88 per unit for aggregate gross proceeds of $162,272. Each unit comprises the same terms and
conditions than the units issued under the public offering. Expenses related to the private placement amount to $10,083.
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.
Expenses of the offering include 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.
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 ($1,115,500) 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, 2016, the net book value of property, plant and equipment pledged as collateral was nil ($2,000 as at
August 31, 2015). This hypothec will rank second to certain long-term loans of the Company.
As noted above, the convertible debenture contains a conversion option that will result in an obligation to deliver a
fixed amount of equity in exchange of a variable amount of convertible debenture when translated in the functional
currency of the Company. Consequently, under IAS 32, “Financial Instruments: Presentation”, the convertible
debenture is accounted for as a compound instrument with a debt component and a separate embedded derivative
representing the conversion option. Both the debt and embedded derivative components of this compound financial
instrument are measured at fair value on initial recognition. The debt component is subsequently accounted for at
amortized cost using the effective interest rate method. The embedded derivative is subsequently measured at fair value
at each reporting date with gains and losses in fair value recognized through profit or loss.
The Company has an authorized line of credit for a maximum amount of $200,000, $50,000 of which is available at
all times and does not take into consideration 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 of August 31, 2016, the Company had cash and cash equivalents of $5,903,000 compared with $7,204,000 as of
August 31, 2015. Of this amount as of August 31, 2016, $5,448,000 was invested in highly liquid, safe investments.
As of August 31, 2016, Opsens had a working capital of $9,503,000, compared with $8,493,000 as of August 31, 2015.
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 of the annual MD&A. Changes in cash and cash equivalents position will largely
depend on the rate of revenue growth in upcoming quarters.
15
SUMMARY OF CASH FLOWS
(In thousands of Canadian dollars)
Year Ended
August 31, 2016
$
Year Ended
August 31, 2015
$
Operating activities
Investing activities
Financing activities
Effect of foreign exchange rate changes on cash and cash equivalent
Net change in cash and cash equivalents
(9,523)
(3,120)
11,311
31
(1,301)
(3,474)
(539)
65
531
(3,417)
Operating activities
Cash flows used by our operating activities for the year ended August 31, 2016 were $9,523,000 compared with
$3,474,000 for the same period last year. The increase in the cash flows used by our operating activities is mainly
explained by a lower EBITDAO as explained.
Investing activities
For the year ended August 31, 2016, cash flows used by our investing activities reached $3,120,000 and were used for
acquisition of property, plant and equipment for an amount of $3,088,000 and of intangible assets for an amount of
$127,000. This was partly offset by interest income received of $95,000. Acquisitions of property, plant and equipment
were made primarily for the relocation in the new facility.
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. Acquisitions of property, plant and equipment were made primarily for our FFR
activities.
Financing activities
For the year ended August 31, 2016, cash flows generated by our financing activities were $11,311,000. The net
proceeds from the issuance of shares and units of $10,251,000 and the increase in our long-term debt of $1,399,000
were partly offset by the $338,000 payment on the long-term debt.
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.
16
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 $3,135,000, required in each of the forthcoming years are as follows:
2017
2018
2019
2020
2021
Thereafter
$
471,000
416,000
297,000
303,000
310,000
1,338,000
SUMMARY OF CASH FLOWS
(In thousands of Canadian dollars)
Operating activities
Investing activities
Financing activities
Operating activities
Effect of foreign exchange rate changes on cash and cash equivalent
Net change in cash and cash equivalents
Year Ended
Year Ended
August 31, 2016
August 31, 2015
$
(9,523)
(3,120)
11,311
31
(1,301)
$
(3,474)
(539)
65
531
(3,417)
Cash flows used by our operating activities for the year ended August 31, 2016 were $9,523,000 compared with
$3,474,000 for the same period last year. The increase in the cash flows used by our operating activities is mainly
explained by a lower EBITDAO as explained.
Investing activities
For the year ended August 31, 2016, cash flows used by our investing activities reached $3,120,000 and were used for
acquisition of property, plant and equipment for an amount of $3,088,000 and of intangible assets for an amount of
$127,000. This was partly offset by interest income received of $95,000. Acquisitions of property, plant and equipment
were made primarily for the relocation in the new facility.
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. Acquisitions of property, plant and equipment were made primarily for our FFR
activities.
Financing activities
For the year ended August 31, 2016, cash flows generated by our financing activities were $11,311,000. The net
proceeds from the issuance of shares and units of $10,251,000 and the increase in our long-term debt of $1,399,000
were partly offset by the $338,000 payment on the long-term debt.
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.
17
INFORMATION BY REPORTABLE SEGMENTS
Sector’s Information
In order to strengthen its medical identity to develop its full potential in the FFR market, the Company reorganized, on
September 1, 2015, its corporate structure. Following the reorganization, the Company is now organized into two
segments: Medical and Industrial.
Medical segment: In this segment, Opsens focuses mainly on the measure of FFR in interventional cardiology.
Industrial segment: In this segment, Opsens’ develops, manufactures and installs innovative fiber optic sensing
solutions for critical applications such as the monitoring of oil wells and other demanding industrial applications.
The principal factors employed in the identification of the two segments reflected in this note include the Company’s
organizational structure, the nature of the reporting lines to the President and Chief Executive Officer and the structure
of internal reporting documentation such as management accounts and budgets.
In accordance with IFRS 8, Operating Segments, the Company has restated the corresponding information for the year
ended August 31, 2015 to reflect the corporate reorganization with the exception of the information on segment assets
and liabilities because the information was not available and the cost to develop it would have been excessive.
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,
Medical
Industrial
$
$
2016
Total
$
Medical
Industrial
$
$
2015
Total
$
6,429,256
3,171,561
9,600,817
5,034,767
3,629,963
8,664,730
-
413,982
413,982
-
-
-
443,355
105,875
549,230
214,780
170,051
384,831
64,543
8,224
72,767
48,352
13,748
62,100
(167,106)
223,970
56,864
(163,257)
162,691
(566)
-
-
-
(7,247,523)
(2,031,912)
(9,279,435)
340,000
708,560
-
340,000
(2,796,188)
(2,087,628)
2,934,675
131,924
3,066,599
553,062
71,577
624,639
108,264
54,376
162,640
137,036
23,383
160,419
14,281,597
2,579,879
16,861,476
8,973,258
575,795
9,549,053
N/A
N/A
N/A
N/A
N/A
N/A
External sales
Internal sales
Depreciation of property,
plant and equipment
Amortization of
intangible assets
Financial expenses
(revenues)
Current income tax
expense
Net earnings (loss)
Acquisition of property,
plant and equipment
Additions to
intangible assets
Segment assets
Segment liabilities
18
INFORMATION BY REPORTABLE SEGMENTS
Sector’s Information
In order to strengthen its medical identity to develop its full potential in the FFR market, the Company reorganized, on
September 1, 2015, its corporate structure. Following the reorganization, the Company is now organized into two
segments: Medical and Industrial.
Medical segment: In this segment, Opsens focuses mainly on the measure of FFR in interventional cardiology.
Industrial segment: In this segment, Opsens’ develops, manufactures and installs innovative fiber optic sensing
solutions for critical applications such as the monitoring of oil wells and other demanding industrial applications.
The principal factors employed in the identification of the two segments reflected in this note include the Company’s
organizational structure, the nature of the reporting lines to the President and Chief Executive Officer and the structure
of internal reporting documentation such as management accounts and budgets.
In accordance with IFRS 8, Operating Segments, the Company has restated the corresponding information for the year
ended August 31, 2015 to reflect the corporate reorganization with the exception of the information on segment assets
and liabilities because the information was not available and the cost to develop it would have been excessive.
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.
$
-
-
Medical
Industrial
Medical
Industrial
Years ended August 31,
2016
Total
$
$
$
-
$
-
2015
Total
$
-
External sales
Internal sales
Depreciation of property,
plant and equipment
Amortization of
intangible assets
Financial expenses
(revenues)
Current income tax
expense
Net earnings (loss)
Acquisition of property,
plant and equipment
Additions to
intangible assets
Segment assets
Segment liabilities
6,429,256
3,171,561
9,600,817
5,034,767
3,629,963
8,664,730
413,982
413,982
443,355
105,875
549,230
214,780
170,051
384,831
64,543
8,224
72,767
48,352
13,748
62,100
(167,106)
223,970
56,864
(163,257)
162,691
(566)
(7,247,523)
(2,031,912)
(9,279,435)
(2,796,188)
(2,087,628)
340,000
708,560
2,934,675
131,924
3,066,599
553,062
71,577
624,639
108,264
54,376
162,640
137,036
23,383
160,419
14,281,597
2,579,879
16,861,476
8,973,258
575,795
9,549,053
N/A
N/A
N/A
N/A
N/A
N/A
The Company’s net loss per reportable segments reconciles to its consolidated financial statements as follows:
Net loss per reportable segments
Elimination of inter-segment profits
Impairment charge on property, plant and equipment
Impairment charge on goodwill
Net loss and comprehensive loss
Geographic sector’s information
Revenue per geographic sector
Japan
Canada
United States
Chile
Other*
Years ended August 31,
2016
$
(9,279,435)
(2,234)
-
-
(9,281,669)
2015
$
(2,087,628)
-
(119,663)
(676,574)
(2,883,865)
Years ended August 31,
2016
$
2015
$
3,521,669
2,207,299
1,506,971
6,396
2,358,482
9,600,817
3,978,097
1,350,228
870,179
1,169,182
1,297,044
8,664,730
* 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, 2016, revenues from one client represented individually more than 10% of the total
revenues of the Company, i.e. approximately 37% (medical’s reportable segment).
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% (medical’s reportable segment) and 13% (industrial’s reportable
segment).
-
-
-
340,000
Medical segment
For the year ended August 31, 2016, revenues from medical segment were $6,429,000 compared with $5,035,000 for
the year ended August 31, 2015, an increase of $1,394,000. The increase is explained by higher FFR revenues of
$4,714,000 and by higher other medical revenues of $137,000. This was partially offset by the non-recurring revenues
recognized during the year ended August 31, 2015 of $3,457,500 and by an adjustment on revenues of $340,000
(US$300,000) to recognize additional revenues from the distribution agreement.
Gross margin was $1,042,000 for the year ended August 31, 2016 compared with $4,035,000 for the year ended August
31, 2015, a decrease of $2,993,000. The gross margin percentage for the year ended August 31, 2015, without taking
into consideration the non-recurring revenues, was 37% compared to 16% for year ended August 31, 2016. The
decrease is explained by higher production losses due to the arrival of a high number of new employees that needed to
be trained and other ramp up costs. In addition, gross margin percentage was also impacted by costs incurred by Opsens
19
for the relocation of its activities into a new facility. Following the relocation of its medical activities, the Company
had to interrupt most of the production activities for approximately half of the third quarter. Also, the Company assume
a high proportion of unallocated production overhead due to lower level of production than expected. In addition, the
Company had to seek regulatory approvals for the facility from various geographies in order to be allowed to
manufacture and ship FFR products.
Net loss for the medical segment was $7,248,000 for the year ended August 31, 2016 compared with net earnings of
$708,000 for the year ended August 31, 2015. The increase in net loss is explained by the non-recurring revenues
recorded during the year ended August 31, 2015 and by higher administrative, sales and marketing and research and
development expenses as explained previously.
Working capital for the medical segment as at August 31, 2016 was $7,884,000 compared with $7,052,000 as at August
31, 2015. The increase of $832,000 is due to higher accounts receivables of $575,000, by higher inventory of
$2,017,000 and by higher prepaid expenses of $165,000. This was partly offset by lower cash and cash equivalents of
$1,500,000, by lower tax credit receivable of $135,000 and by a higher current portion of long-term debt of $247,000.
Industrial segment
For the year ended August 31, 2016, revenues from industrial segment were $3,172,000 compared with $3,630,000
for the year ended August 31, 2015, a decrease of $458,000. The decrease is explained by a non-recurring order worth
more than $1 million for fiber optic sensor systems for mining operations in South America completed in fiscal 2015
partly offset by an increase in revenues in the oil and gas when compared with last year.
Gross margin was $591,000 for the year ended August 31, 2016 compared with $709,000 for the same period in 2015,
a decrease of $118,000. Gross margin percentage decrease from 20% for the year ended August 31, 2015 to 19% for
the same period in 2016. The decrease in gross margin is due to lower revenues combine with an allowance for obsolete
inventory of $457,000 recorded during the year, a consequence of the difficult economic conditions prevailing in
Alberta for oil and gas producers.
Net loss for the industrial segment was $2,032,000 for the year ended August 31, 2016 compared to a net loss of
$2,796,000 for the year ended August 31, 2015. The decrease in the net loss is explained by lower administrative and
sales and marketing expenses reflecting the effectiveness of the Company’s implemented cost reduction measures.
This is partly offset by a higher allowance for doubtful accounts related to a client in the oil and gas.
Working capital for the industrial segment as at August 31, 2016 was $1,619,000 compared with $1,441,000 as at
August 31, 2015. The increase of $178,000 is due to higher cash and cash equivalents of $199,000, by higher accounts
receivable of $845,000, by higher tax credit receivable of $150,000 and by lower deferred revenues of $243,000. This
is partly offset by a decrease in inventories of $796,000 due to an allowance for obsolete inventory and by higher
accounts payable of $434,000 when compared with last year.
FOURTH QUARTER 2016
Revenues
Revenues totalled $3,025,000 for the quarter ended August 31, 2016 compared to $1,110,000 for the same period last
year. The increase in revenues is explained by higher FFR revenues and other medical revenues.
Gross margin
Gross margin was ($133,000) for the three-month period ended August 31, 2016 compared to ($105,000) for the same
period last year, a decrease of $28,000. Gross margin as a percentage of revenues increased from (9%) for the three-
month period ended August 31, 2015 to (4%) for the same period in 2016. The negative gross margin is explained by
recognition of an allowance for obsolete inventory of $462,000 as explained previously.
20
for the relocation of its activities into a new facility. Following the relocation of its medical activities, the Company
had to interrupt most of the production activities for approximately half of the third quarter. Also, the Company assume
a high proportion of unallocated production overhead due to lower level of production than expected. In addition, the
Company had to seek regulatory approvals for the facility from various geographies in order to be allowed to
manufacture and ship FFR products.
Net loss for the medical segment was $7,248,000 for the year ended August 31, 2016 compared with net earnings of
$708,000 for the year ended August 31, 2015. The increase in net loss is explained by the non-recurring revenues
recorded during the year ended August 31, 2015 and by higher administrative, sales and marketing and research and
development expenses as explained previously.
Working capital for the medical segment as at August 31, 2016 was $7,884,000 compared with $7,052,000 as at August
31, 2015. The increase of $832,000 is due to higher accounts receivables of $575,000, by higher inventory of
$2,017,000 and by higher prepaid expenses of $165,000. This was partly offset by lower cash and cash equivalents of
$1,500,000, by lower tax credit receivable of $135,000 and by a higher current portion of long-term debt of $247,000.
Industrial segment
For the year ended August 31, 2016, revenues from industrial segment were $3,172,000 compared with $3,630,000
for the year ended August 31, 2015, a decrease of $458,000. The decrease is explained by a non-recurring order worth
more than $1 million for fiber optic sensor systems for mining operations in South America completed in fiscal 2015
partly offset by an increase in revenues in the oil and gas when compared with last year.
Gross margin was $591,000 for the year ended August 31, 2016 compared with $709,000 for the same period in 2015,
a decrease of $118,000. Gross margin percentage decrease from 20% for the year ended August 31, 2015 to 19% for
the same period in 2016. The decrease in gross margin is due to lower revenues combine with an allowance for obsolete
inventory of $457,000 recorded during the year, a consequence of the difficult economic conditions prevailing in
Alberta for oil and gas producers.
Net loss for the industrial segment was $2,032,000 for the year ended August 31, 2016 compared to a net loss of
$2,796,000 for the year ended August 31, 2015. The decrease in the net loss is explained by lower administrative and
sales and marketing expenses reflecting the effectiveness of the Company’s implemented cost reduction measures.
This is partly offset by a higher allowance for doubtful accounts related to a client in the oil and gas.
Working capital for the industrial segment as at August 31, 2016 was $1,619,000 compared with $1,441,000 as at
August 31, 2015. The increase of $178,000 is due to higher cash and cash equivalents of $199,000, by higher accounts
receivable of $845,000, by higher tax credit receivable of $150,000 and by lower deferred revenues of $243,000. This
is partly offset by a decrease in inventories of $796,000 due to an allowance for obsolete inventory and by higher
accounts payable of $434,000 when compared with last year.
FOURTH QUARTER 2016
Revenues
Gross margin
Revenues totalled $3,025,000 for the quarter ended August 31, 2016 compared to $1,110,000 for the same period last
year. The increase in revenues is explained by higher FFR revenues and other medical revenues.
Gross margin was ($133,000) for the three-month period ended August 31, 2016 compared to ($105,000) for the same
period last year, a decrease of $28,000. Gross margin as a percentage of revenues increased from (9%) for the three-
month period ended August 31, 2015 to (4%) for the same period in 2016. The negative gross margin is explained by
recognition of an allowance for obsolete inventory of $462,000 as explained previously.
Administrative expenses
Administrative expenses were $833,000 and $631,000 for the three-month periods ended August 31, 2016 and 2015,
respectively. The increase is explained by higher headcount and professional fees.
Sales and marketing expenses
Sales and marketing expenses totalled $1,267,000 for the quarter ended August 31, 2016, an increase of $950,000 over
the $317,000 reported for the same period in 2015. The increase is largely explained by higher headcount,
commissions, travelling and subcontractor expenses when compared with last year due to the expansion of Opsens’
sales channel for its FFR products.
Research and development expenses
Research and development expenses totalled $702,000 for the quarter ended August 31, 2016, an increase of $24,000
over the $678,000 reported for the same period in 2015. The increase is explained by higher headcount for FFR
activities. This was partly offset by lower supplies and subcontractors expenses than last year because of the
manufacturing in fiscal 2015 of OptoWire II for the verification and validation phase.
Financial expenses
Financial expenses totalled $2,000 and $20,000 for the three-month periods ended August 31, 2016 and 2015,
respectively. The decrease in financial expenses is explained by a favorable exchange rate resulting in a positive impact
of $28,000. This was offset by higher interest expense on long-term debt of $9,000.
Change in fair value of embedded derivative
The change in fair value of embedded derivative comes from the variance of the fair market value of the conversion
option component for the convertible debenture. During the fourth quarter, an amount of $88,000 ($60,000 for the
three-month period ended August 31, 2015) 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, 2016 was $3,025,000 or 0.04 cent a share
compared with a net loss of $1,811,000 or 0.03 cent a share for the same quarter in 2015.
INFORMATION ON SHARE CAPITAL
For the year ended August 31, 2016, the Company granted to some employees, Directors and consultants a total of
2,154,750 stock options with an average exercise price of $0.95, cancelled 93,750 stock options with an exercise price
of $0.79 and 574,250 stock options with an average exercise price of $0.38 were exercised.
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, 2016, the Company issued 5,313,610 warrants with units with an average exercise price
of $1.36 and issued 313,886 warrants to brokers with an average exercise price of $0.88. Also, 2,670,110 warrants
expired with an average exercise price of $1.05 and 790,316 warrants with an average exercise price of $0.74 were
exercised.
For the year ended August 31, 2015, 25,000 warrants with an average exercise price of $0.73 were exercised.
21
As at November 15, 2016, the following components of shareholders' equity are outstanding:
Common shares
Stock options
Warrants
Convertible debenture
Securities on a fully diluted basis
72,995,038
5,198,500
5,582,496
3,520,000
87,296,034
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 1.32 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,
2016
$
2015
$
29,248
25,459
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
$1,905,700 as at August 31, 2016 ($1,693,400 as at August 31, 2015) 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:
22
As at November 15, 2016, the following components of shareholders' equity are outstanding:
Common shares
Stock options
Warrants
Convertible debenture
Securities on a fully diluted basis
72,995,038
5,198,500
5,582,496
3,520,000
87,296,034
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 1.32 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,
2016
$
2015
$
29,248
25,459
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
$1,905,700 as at August 31, 2016 ($1,693,400 as at August 31, 2015) and is classified at level 2 in the fair value
hierarchy.
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
Total
$
(979,635)
As at August 31, 2016
Level 1
Level 2
Level 3
$
-
$
(979,635)
$
-
As at August 31, 2015
Total
$
Level 1
Level 2
Level 3
$
$
$
(245,773)
-
(245,773)
-
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 55% (95% in 2015), a
discount rate of 0.57% (0.44% in 2015) and an expected life of 1.2 years (2.2 years in 2015). A 1% change in the
implied volatility factor would have changed the fair value of the embedded derivative by $9,575 ($1,840 for the year
ended August 31, 2015).
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.
Valuation Techniques and Assumptions Applied for the Purposes of Measuring Fair Value
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
23
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 50% of the Company’s total accounts receivable as at August 31, 2016 (33% as at August
31, 2015).
As at August 31, 2016, 56% (4% as at August 31, 2015) of the accounts receivable were of more than 90 days whereas
30% (55% as at August 31, 2015) 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, 2016, the allowance for doubtful accounts was
established at $491,623 ($3,032 as at August 31, 2015).
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, 2016 and August 31, 2015:
August 31, 2016
Carrying
amount
Cash flows
$
$
0 to 12
months
$
Accounts payable and
accrued liabilities
Long-term debt
Convertible debenture
Total
2,041,873
2,041,873
2,041,873
1,784,654
1,930,582
530,651
502,285
897,646
3,792,839
2,898,533
-
2,898,533
-
7,619,366
6,870,988
2,572,524
3,400,818
897,646
12 to 24
After
months
24 months
$
-
$
-
August 31, 2015
Carrying
amount
Cash flows
$
$
0 to 12
months
$
Accounts payable and
accrued liabilities
1,657,962
1,657,962
1,657,962
12 to 24
After
months
24 months
$
-
$
-
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
5,351,752
5,428,377
1,902,420
180,646
3,345,311
24
bonds, money market funds or guaranteed investment certificates. Consequently, the Company manages credit risk by
Interest Rate Risk
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 50% of the Company’s total accounts receivable as at August 31, 2016 (33% as at August
As at August 31, 2016, 56% (4% as at August 31, 2015) of the accounts receivable were of more than 90 days whereas
30% (55% as at August 31, 2015) 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, 2016, the allowance for doubtful accounts was
established at $491,623 ($3,032 as at August 31, 2015).
31, 2015).
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, 2016 and August 31, 2015:
August 31, 2016
Carrying
amount
Cash flows
$
$
0 to 12
months
$
12 to 24
After
months
24 months
Accounts payable and
accrued liabilities
Long-term debt
Convertible debenture
Total
Accounts payable and
2,041,873
2,041,873
2,041,873
1,784,654
1,930,582
530,651
502,285
897,646
3,792,839
2,898,533
-
2,898,533
7,619,366
6,870,988
2,572,524
3,400,818
897,646
August 31, 2015
Carrying
0 to 12
months
12 to 24
After
months
24 months
amount
Cash flows
$
$
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
5,351,752
5,428,377
1,902,420
180,646
3,345,311
$
-
$
-
-
$
-
$
-
$
-
-
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,
2016, the Company was holding more than 92% (93% as at August 31, 2015) 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 $2,487 on net
loss and comprehensive loss for the year ended August 31, 2016 (unfavourable impact of $1,100 for the year ended
August 31, 2015). A hypothetical 1% interest rate decrease would have had a favourable impact of $3,670 on net loss
and comprehensive loss for the year ended August 31, 2016 (favourable impact of $1,300 for the year ended August
31, 2015).
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,
2016
$
57,298
44,967
69,629
(3,988)
(111,042)
56,864
2015
$
60,868
32,665
83,225
(23,746)
(153,678)
(566)
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, 2016 and 2015, 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, Euros
and British pound. Therefore, it is exposed to foreign currency fluctuations. At this time, the Company does not actively
manage this risk.
25
Foreign Currency Sensitivity Analysis
For the year ended August 31, 2016, 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 $260,000 lower ($11,000 higher for the year
ended August 31, 2015). 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 $260,000 higher for the year ended August
31, 2016 ($11,000 lower for the year ended August 31, 2015).
For the year ended August 31, 2016, if the Canadian dollar had strengthened 10% against the Euros with all other
variables held constant, net loss and comprehensive loss would have been $159,000 higher ($20,000 higher for the
year ended August 31, 2015). 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 $159,000 lower for the year ended August
31, 2016 ($20,000 lower for the year ended August 31, 2015).
For the year ended August 31, 2016, if the Canadian dollar had strengthened 10% against the British pound with all
other variables held constant, net loss and comprehensive loss would have been $42,000 higher (nil for the year ended
August 31, 2015). Conversely, if the Canadian dollar had weakened 10% against the British pound with all other
variables held constant, net loss and comprehensive loss would have been $42,000 lower for the year ended August
31, 2016 (nil for the year ended August 31, 2015).
As at August 31, 2016 and August 31, 2015, the risk to which the Company was exposed is established as follows:
Cash and cash equivalents (US$125,202; US$2,097,017 as at August
31, 2015)
Cash and cash equivalents (Euro 22,450; nil as at August 31, 2015)
Trade and other receivables (US$440,847; US$182,630 as at August
31, 2015)
Trade and other receivables (Euro 205,129; Euro 53 625 as at
August 31, 2015)
Trade and other receivables (British pound 85,745; nil as at August
31, 2015)
Accounts payable and accrued liabilities
(US$317,632; US$289,251 as at August 31, 2015)
Convertible debenture (US$2,144,864; US$2,092,368 as at
August 31, 2015)
Embedded derivatives (US$746,900; US$186,800 as at August
31, 2015)
Total
CAPITAL MANAGEMENT
As at
August 31,
2016
$
163,903
32,842
578,410
300,083
147,679
As at
August 31,
2015
$
2,759,045
-
240,286
79,167
-
(416,288)
(380,567)
(2,813,204)
(2,752,929)
(979,635)
(2,986,210)
(245,773)
(300,771)
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,
sales and marketing expenses, long-term debt, 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,
long-term debt, investment tax credits and government assistance, interest income and public equity offerings.
26
Foreign Currency Sensitivity Analysis
For the year ended August 31, 2016, 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 $260,000 lower ($11,000 higher for the year
ended August 31, 2015). 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 $260,000 higher for the year ended August
31, 2016 ($11,000 lower for the year ended August 31, 2015).
For the year ended August 31, 2016, if the Canadian dollar had strengthened 10% against the Euros with all other
variables held constant, net loss and comprehensive loss would have been $159,000 higher ($20,000 higher for the
year ended August 31, 2015). 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 $159,000 lower for the year ended August
31, 2016 ($20,000 lower for the year ended August 31, 2015).
For the year ended August 31, 2016, if the Canadian dollar had strengthened 10% against the British pound with all
other variables held constant, net loss and comprehensive loss would have been $42,000 higher (nil for the year ended
August 31, 2015). Conversely, if the Canadian dollar had weakened 10% against the British pound with all other
variables held constant, net loss and comprehensive loss would have been $42,000 lower for the year ended August
31, 2016 (nil for the year ended August 31, 2015).
As at August 31, 2016 and August 31, 2015, the risk to which the Company was exposed is established as follows:
Cash and cash equivalents (US$125,202; US$2,097,017 as at August
Cash and cash equivalents (Euro 22,450; nil as at August 31, 2015)
Trade and other receivables (US$440,847; US$182,630 as at August
Trade and other receivables (Euro 205,129; Euro 53 625 as at
Trade and other receivables (British pound 85,745; nil as at August
31, 2015)
31, 2015)
August 31, 2015)
31, 2015)
Accounts payable and accrued liabilities
(US$317,632; US$289,251 as at August 31, 2015)
Convertible debenture (US$2,144,864; US$2,092,368 as at
Embedded derivatives (US$746,900; US$186,800 as at August
August 31, 2015)
31, 2015)
Total
CAPITAL MANAGEMENT
As at
August 31,
2016
$
163,903
32,842
578,410
300,083
147,679
August 31,
As at
2015
$
2,759,045
240,286
79,167
-
-
(416,288)
(380,567)
(2,813,204)
(2,752,929)
(979,635)
(2,986,210)
(245,773)
(300,771)
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,
sales and marketing expenses, long-term debt, 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,
long-term debt, investment tax credits and government assistance, interest income and public equity offerings.
As at August 31, 2016, the Company's working capital amounted to $9,502,625 ($8,492,636 as at August 31, 2015),
including cash and cash equivalents of $5,903,040 ($7,203,612 as at August 31, 2015). The accumulated deficit at the
same date was $30,539,014 ($21,257,345 as at August 31, 2015). 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, 2016.
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, 2016 and 2015, the Company has not been in default under any of its obligations
regarding the long-term debt.
CAPACITY TO PRODUCE RESULTS
As discussed in the section “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 increase in the activity level should require additional investment in working capital of
approximately $3,100,000. Additional investments of approximately $2,600,000 will also be required for the
acquisition of property, plant and equipment and to finance the anticipated negative EBITDAO.
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 in Canada, Opsens is confident in its capacity
to recruit qualified human resources in a timely fashion.
Regarding the strategy on corporate executive remuneration, it is oriented towards creation of long-term value for the
shareholders. Several corporate executives hold an important share and share-purchase option position, with rights to
be acquired over a four-year period in order to align shareholders’ interest with corporate executives’ interest. This
long-term vision stimulates innovation and the development of recurrent revenues.
NEW ACCOUNTING STANDARDS
There are no IFRSs or International Financial Reporting Interpretations Committee ("IFRIC") that are effective for the
first time in 2016 that would be expected to have a material impact on the Company.
Not yet adopted
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
27
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.
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. On July 22, 2015, the IASB has confirmed a one-year deferral of the effective
date of IFRS 15 to January 1, 2018.
In April 2016, the IASB issued clarifications to IFRS 15, Revenue from contracts with customers. These clarifications
provide additional clarity on revenue recognition related to identifying performance obligations, application guidance
on principal versus agent and licenses of intellectual property. The Company has not yet assessed the impact of this
new standard.
IFRS 16, Lease
On January 13, 2016, the IASB released IFRS 16, Leases, which replace IAS 17, Leases, and the related interpretations
on leases such as IFRIC 4, Determining whether an arrangement contains a lease, SIC 15, Operating leases –
Incentives and SIC 27, Evaluating the substance of transactions in the legal form of a lease. This new standard specifies
how to recognize, measure, present and disclose leases. It also provides a single lessee accounting model, requiring
lessees to recognize assets and liabilities for all leases unless lease term is 12 months or less or the underlying asset
has a small value. Accounting for the lessor remain substantially unchanged. The standard is effective for periods
beginning on or after January 1, 2019, with earlier application permitted for companies that also apply IFRS 15,
Revenue from Contracts with Customers. The Company has not yet assessed the impact of this new standard.
IAS 7, Statement of cash flows
On January 29, 2016, the IASB published amendments to IAS 7, Statements of cash flows. The amendments are
intended to clarify IAS 7 to improve information provided to users of financial statements about an entity’s financing
activities. They are effective for annual periods beginning on or after January 1, 2017, with earlier application being
permitted. 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:
28
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.
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. On July 22, 2015, the IASB has confirmed a one-year deferral of the effective
date of IFRS 15 to January 1, 2018.
In April 2016, the IASB issued clarifications to IFRS 15, Revenue from contracts with customers. These clarifications
provide additional clarity on revenue recognition related to identifying performance obligations, application guidance
on principal versus agent and licenses of intellectual property. The Company has not yet assessed the impact of this
new standard.
IFRS 16, Lease
On January 13, 2016, the IASB released IFRS 16, Leases, which replace IAS 17, Leases, and the related interpretations
on leases such as IFRIC 4, Determining whether an arrangement contains a lease, SIC 15, Operating leases –
Incentives and SIC 27, Evaluating the substance of transactions in the legal form of a lease. This new standard specifies
how to recognize, measure, present and disclose leases. It also provides a single lessee accounting model, requiring
lessees to recognize assets and liabilities for all leases unless lease term is 12 months or less or the underlying asset
has a small value. Accounting for the lessor remain substantially unchanged. The standard is effective for periods
beginning on or after January 1, 2019, with earlier application permitted for companies that also apply IFRS 15,
Revenue from Contracts with Customers. The Company has not yet assessed the impact of this new standard.
IAS 7, Statement of cash flows
On January 29, 2016, the IASB published amendments to IAS 7, Statements of cash flows. The amendments are
intended to clarify IAS 7 to improve information provided to users of financial statements about an entity’s financing
activities. They are effective for annual periods beginning on or after January 1, 2017, with earlier application being
permitted. 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;
29
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 12 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
30
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 12 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 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 and 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 of 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
31
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 and Euros 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 later 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
32
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 and Euros 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
changes in medical reimbursement programs and regulatory requirements in international markets in which
factors;
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 later 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 jurisdictions the incident occurred. If this were 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, 2016 and 2015 were $9,282,000 and $2,884,000, 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
33
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,
2016, revenues from one client represented individually more than 10% of the total revenues of the Company, i.e.
approximately 37%. The Company believes that the degree of dependence will diminish as its sales progress. However,
if this client reduces 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, preferential pricing and bundling of products, 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
34
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,
2016, revenues from one client represented individually more than 10% of the total revenues of the Company, i.e.
approximately 37%. The Company believes that the degree of dependence will diminish as its sales progress. However,
if this client reduces 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, preferential pricing and bundling of products, 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.
35
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.
36
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 15, 2016
37
Consolidated Financial Statements
Opsens Inc.
Years ended August 31, 2016 and 2015
38
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, 2016, and August 31, 2015, 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 as issued by the International
Accounting Standards Board, 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.
39
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, 2016, and August 31, 2015, and its financial performance and its
cash flows for the years then ended in accordance with International Financial Reporting Standards.
/s/ Deloitte LLP 1
November 15, 2016
___________________
1 CPA auditor, CA, public accountancy permit No. A112991
40
41
Opsens Inc.
Consolidated Statements of Loss and Comprehensive Loss
Years ended August 31, 2016 and 2015
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)
2016
$
2015
$
9,233,401
-
367,416
9,600,817
4,840,821
3,457,500
366,409
8,664,730
7,970,239
3,920,547
1,630,578
4,744,183
3,684,431
3,694,310
2,744,217
56,864
732,425
-
2,615,830
1,500,911
2,302,365
(566)
73,271
796,237
10,912,247
7,288,048
(9,281,669 )
(2,543,865)
-
340,000
Net loss and comprehensive loss attributable to shareholders
(9,281,669 )
(2,883,865)
Basic and diluted net loss per share (note 16)
(0.14 )
(0.05)
The accompanying notes are an integral part of the consolidated financial statements.
42
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44 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)
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 inducements
Shareholders’ equity
Share capital (note 15a)
Reserve – Stock option plan (note 15b)
Reserve – Warrants (note 15c)
Deficit
Commitments (note 18)
As at August 31,
2016
$
As at August 31,
2015
$
5,903,040
1,981,426
365,000
4,056,824
263,734
12,570,024
3,646,849
644,603
16,861,476
2,041,873
177,870
366,408
481,248
3,067,399
408,085
1,303,406
3,792,839
977,324
9,549,053
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
32,677,611
1,920,089
3,253,737
(30,539,014 )
7,312,423
16,861,476
23,226,679
1,608,161
2,315,944
(21,257,345)
5,893,439
12,763,253
The accompanying notes are an integral part of the consolidated financial statements.
Approved by the board
Signed [Jean Lavigueur] director
Signed [Louis Laflamme] director
45
Opsens Inc.
Consolidated Statements of Cash Flows
Years ended August 31, 2016 and 2015
Operating activities
Net loss
Adjustments for:
Depreciation of property, plant and equipment
Amortization of intangible assets
Impairment of assets (note 9)
Loss (gain) on disposal of property, plant and equipment
Stock-based compensation costs
Change in fair value of embedded derivative
Interest expense (revenue)
Effect of foreign exchange rate changes on cash and cash
equivalents
Unrealized foreign exchange loss (gain)
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, net of transaction costs
Reimbursement of long-term debt
Proceeds from issuance of shares and warrants (note 15a)
Shares and warrants issue costs (note 15a)
Effect of foreign exchange rate changes on cash
and cash equivalents
Decrease in cash and cash equivalents
Cash and cash equivalents – Beginning of year
Cash and cash equivalents – End of year
2016
$
2015
$
(9,281,669 )
(2,883,865)
549,230
72,767
-
2,199
451,096
732,425
32,095
(31,730 )
(8,159 )
(27,858 )
384,831
62,100
796,237
(11,721)
316,873
73,271
(1,790)
(530,598)
482,649
-
(2,013,884 )
(9,523,488 )
(2,161,771)
(3,473,784)
(3,088,204 )
(126,723 )
-
94,806
(3,120,121 )
1,398,637
(338,243 )
10,962,118
(711,205 )
11,311,307
(584,985)
(136,700)
43,000
139,614
(539,071)
-
(186,344)
251,202
-
64,858
31,730
530,598
(1,300,572 )
7,203,612
5,903,040
(3,417,399)
10,621,011
7,203,612
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.
46
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2016 and 2015
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 750, boulevard
du Parc-Technologique, Québec, Québec, Canada, G1P 4S3.
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 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.
Basis 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.
47
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2016 and 2015
2. Summary of Significant Accounting Policies (continued)
Revenue Recognition
The Company’s revenue related to the sales of products are measured at the fair value of the consideration
received or receivable upon shipment of the product and when the risks and rewards of ownership have been
transferred to the customer, when there is no continuing managerial involvement to the degree usually associated
with ownership nor effective control over the goods sold, when the amount of revenue can be measured reliably
and when the recovery of the consideration is probable and the associated costs and possible return of goods
can be measured.
Industrial 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. Expected losses
are recorded as an expense when it is probable that total contract costs will exceed total contract revenue.
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, revenues and expenses are translated at the exchange rates in effect at the time of the
transaction and exchange gains and losses resulting from translation are reflected in the consolidated statements
of loss 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.
48
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2016 and 2015
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
issuance 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 purchase warrants using the Black-
Scholes option pricing model. The difference between the unit price and the fair value of each warrants represents
the fair value attributable to each common share. 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.
49
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2016 and 2015
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
Diagnostic and demonstration equipment
Research and development computer equipment
Computer equipment
Leasehold improvements
10 years
7 years
7 years
7 years
3 to 5 years
3 years
3 years
Remaining lease terms
of nine years
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.
Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the
proceeds from disposal with the carrying amount and are recognized in the consolidated statements of loss and
comprehensive loss.
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.
50
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2016 and 2015
2. Summary of Significant Accounting Policies (continued)
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.
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 tenant inducements. 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.
51
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2016 and 2015
2. Summary of Significant Accounting Policies (continued)
Warranty Provision
The Company offers a standard 12-month warranty excluding consumable and accessories.
For downhole materials, the Company guarantees that the downhole materials shall be free from defects but
given that the downhole environmental conditions are not exactly known, the Company does not guarantee the
performance of the downhole materials once they have entered the wellbore. The estimated cost of the warranty
is based on the history of defective products and accessories, the probability that these defects will arise and the
costs to repair them.
Income Taxes
Income tax expenses comprise current and deferred income taxes. Income taxes are recognized in the
consolidated statements of loss 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.
52
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2016 and 2015
2. Summary of Significant Accounting Policies (continued)
Loss per Share
Basic net loss per share is calculated by dividing the net loss for the year attributable to equity owners of the
Company by the weighted-average number of common shares outstanding during the year.
Diluted net loss per share is calculated by dividing the net loss for the year attributable to equity owners of the
Company adjusted for the interests on the convertible debenture, net of tax, 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.
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 liabilities 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.
53
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2016 and 2015
2. Summary of Significant Accounting Policies (continued)
Financial Instruments (continued)
b)
Impairment of financial assets
A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial
recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of
that asset that can be estimated reliably.
Objective evidence that financial assets are impaired can include default or delinquency by a debtor and
indications that a debtor or issuer will enter bankruptcy.
c) Compound Financial Instrument
The compound financial instrument issued by the Company consists of the convertible debenture that can
be converted into common shares of the Company at the option of the holder. Since the debenture is
convertible into shares and contains a cash settlement feature, as described in note 14, it is accounted for
as a compound instrument with a debt component and a separate embedded derivative representing the
conversion option also classified as a liability. Both the debt and embedded derivative components of this
compound financial instrument are measured at fair value on initial recognition.
The debt component is subsequently accounted for at amortized cost using the effective interest rate
method. The embedded derivative is subsequently measured at fair value at each reporting date, with gains
and losses in fair value recognized in the consolidated statements of loss 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 revenues, expenses, assets and liabilities and
the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in a
material adjustment to the carrying value of the asset or liability affected.
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.
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.
54
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2016 and 2015
3. Critical Accounting Estimates, Assumptions and Judgments (continued)
Useful Life of Depreciable Assets
Management reviews the useful life of depreciable assets at each reporting date. As at August 31, 2016,
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. These calculations require the
use of estimates, assumptions and judgments. Information on goodwill is presented in note 9.
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.
Warrants
Warrants are issued as part of equity financing. Warrants may be exercised at any moment after their issuance
until the expiration date. The Company uses judgment in assessing parameters like volatility and risk-free interest
rate.
55
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2016 and 2015
4. Changes in Accounting Policies
New and amended standards issued but not yet effective
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.
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. On July 22, 2015, the
IASB has confirmed a one-year deferral of the effective date of IFRS 15 to January 1, 2018.
In April 2016, the IASB issued clarifications to IFRS 15, Revenue from contracts with customers. These
clarifications provide additional clarity on revenue recognition related to identifying performance obligations,
application guidance on principal versus agent and licenses of intellectual property. The Company has not yet
assessed the impact of this new standard.
IFRS 16, Lease
On January 13, 2016, the IASB released IFRS 16, Leases, which replace IAS 17, Leases, and the related
interpretations on leases such as IFRIC 4, Determining whether an arrangement contains a lease, SIC 15,
Operating leases – Incentives and SIC 27, Evaluating the substance of transactions in the legal form of a lease.
This new standard specifies how to recognize, measure, present and disclose leases. It also provides a single
lessee accounting model, requiring lessees to recognize assets and liabilities for all leases unless lease term is
12 months or less or the underlying asset has a small value. Accounting for the lessor remain substantially
unchanged. The standard is effective for periods beginning on or after January 1, 2019, with earlier application
permitted for companies that also apply IFRS 15, Revenue from Contracts with Customers. The Company has
not yet assessed the impact of this new standard.
IAS 7, Statement of cash flows
On January 29, 2016, the IASB published amendments to IAS 7, Statements of cash flows. The amendments
are intended to clarify IAS 7 to improve information provided to users of financial statements about an entity’s
financing activities. They are effective for annual periods beginning on or after January 1, 2017, with earlier
application being permitted. The Company has not yet assessed the impact of this new standard.
56
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2016 and 2015
5. Trade and other receivables
Trade
Allowance for doubtful accounts
Sales taxes receivable
Other receivables
Total
Allowance for doubtful accounts variation
Balance – Beginning of year
Amounts written off during the year
Additional provisions recognized
Balance – End of year
6.
Inventories
Raw materials
Work in progress
Finished goods
Total
As at
August 31,
2016
$
2,176,251
(491,623 )
217,817
78,981
1,981,426
As at
August 31,
2015
$
469,038
(3,032)
95,087
-
561,093
Years ended August 31,
2016
$
(3,032 )
1,759
(490,350 )
(491,623 )
2015
$
(3,032)
-
-
(3,032)
As at
August 31,
2016
$
2,205,139
1,240,091
611,594
4,056,824
As at
August 31,
2015
$
1,674,001
168,281
995,488
2,837,770
For the year ended August 31, 2016, $4,556,764 of inventories were expensed in the consolidated statements
of loss and comprehensive loss and presented in cost of sales ($2,039,668 for the year ended August 31, 2015).
Write-downs of inventories amounting to $809,000 ($347,000 in 2015) were included under cost of sales.
57
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7
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2016 and 2015
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
$
13,567
5,153
18,720
-
-
-
30,000
5,060
35,060
5,025
2,193
7,218
108,172
73,153
181,325
81,442
24,047
105,489
708,015
79,274
859,754
162,640
787,289 1,022,394
218,557
46,527
265,084
305,024
72,767
377,791
Cost
Balance as at August 31, 2015
Additions
Balance as at August 31, 2016
Accumulated amortization
Balance as at August 31, 2015
Amortization
Balance as at August 31, 2016
Net book value
as at August 31, 2016
18,720
27,842
75,836
522,205
644,603
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
85,723
22,449
108,172
583,412
124,603
708,015
699,335
160,419
859,754
-
-
-
3,174
1,851
5,025
65,853
15,589
81,442
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
60
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2016 and 2015
9. Goodwill
During the three-month period ended November 30, 2014, the Company performed its annual test for goodwill,
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.
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 and was 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.
10. Authorized Line of Credit
The Company has an authorized line of credit for a maximum amount of $200,000, $50,000 of which is available
at all times and does not take into consideration the margining. When using the line of credit in an amount varying
from $50,000 and $100,000, the available credit is limited to an amount that is equal to 75% of Canadian accounts
receivable and 65% of foreign accounts receivable plus 50% of inventories of raw materials and finished goods.
If the amount used exceeds $100,000, the credit available is limited to an amount equal to 75% of Canadian
accounts receivable and 90% of insured foreign accounts receivable plus 50% of inventories of raw materials
and finished goods. This line of credit bears interest at the financial institution’s prime rate plus 2% and is
repayable on a weekly basis by $5,000 tranches. It is secured by a first-rank movable hypothec for an amount of
$750,000 on the universality of receivables and inventories. The credit line was not used as at August 31, 2016
and 2015.
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%.
61
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2016 and 2015
11. Accounts payable and accrued liabilities
Suppliers
Salaries, employee benefits and others
Other liabilities
Total
12. Deferred Revenues
a) Distribution and Other Rights Agreement
As at
August 31,
2016
$
875,027
423,716
743,130
2,041,873
As at
August 31,
2015
$
666,278
427,499
564,185
1,657,962
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 revenues.
62
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2016 and 2015
12. Deferred Revenues (continued)
a) Distribution and Other Rights Agreement (continued)
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.
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, 2016, an amount of $367,416 ($366,409 for
the year ended August 31, 2015) 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.
63
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2016 and 2015
13. Long-term Debt
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 of
August 31,
2016
$
As of
August 31,
2015
$
330,872
(52,841 )
278,031
413,590
(80,364)
333,226
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.
45,492
79,291
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
Contributions repayable to Canada Economic Development, without
interest (effective rate of 12%), repayable in 59 equal and consecutive
monthly instalments of $1,086 and a final payment of $1,063, maturing in
October 2023. The difference between amounts received and estimated
fair value is recognized as government grants.
Debt balance
Imputed interest
Secured loan from Export Development Canada, bearing interest at prime
rate plus 2.0%, secured by a movable hypothec on the universality of the
Company’s present and future property, plant and equipment and
intangible assets, payable in 48 monthly instalments of $10,417, maturing
in April 2017. Amounts received are net of transaction costs of $2,500.
Term loan, bearing interest at prime rate plus 0.25%, secured by a
movable hypothec on the universality of the Company’s present and
future property, plant and equipment and intangible assets, payable in
forty-eight monthly instalments of $18,750, maturing in May 2020.
Amounts received are net of transaction costs of $9,000.
Reimbursed during the year
Current portion
64
240,000
(54,664 )
185,336
300,000
(81,239)
218,761
65,137
(26,054 )
39,083
456,241
780,471
-
1,784,654
481,248
1,303,406
-
-
-
-
-
63,810
695,088
232,309
462,779
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2016 and 2015
13. Long-term Debt (continued)
The annual principal instalments due on the long-term debt are $481,248 in 2017, $466,493 in 2018, $465,749 in
2019, $336,335 in 2020 and $9,679 in 2021.
Under the terms and conditions of the agreements on long-term debt with its lenders, the Company is subject to
certain covenants with respect to maintaining minimum financial ratios. As at August 31, 2016 and 2015, these
financial ratios were met by the Company.
14. Convertible Debenture
As at
August 31,
2016
$
As at
August 31,
2015
$
Debt component reported as long-term liability (US$2,144,864;
US$2,092,368 as at August 31, 2015)
Embedded derivative reported as long-term liability (US$746,900;
US$186,800 as at August 31, 2015)
Total
2,813,204
2,752,929
979,635
3,792,839
245,773
2,998,702
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, 2016, the net book value of property, plant and equipment pledged as collateral was nil ($2,000
as at August 31, 2015). This hypothec ranks 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.
65
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2016 and 2015
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,
2016
$
56,659
12,970
732,425
802,054
2015
$
71,465
11,760
73,271
156,496
As at August 31, 2016, the debt component of the convertible debenture has a fair value of $1,905,700
($1,693,400 as at August 31, 2015).
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.
On May 16, 2016, the Company completed a non-brokered private placement offering for aggregate gross
proceeds of $4,999,050. In connection with the offering, the Company issued a total of 4,761,000 units at a
price of $1.05 per unit. 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 $1.55 until November 16, 2017. The value of one-half of
one common share purchase warrant was established at $0.08.
Expenses of the offering include professional fees and miscellaneous fees for total fees of $102,563. The
fees have been allocated on a prorata basis between share capital and the warrants reserve, $94,749 and
$7,814 respectively, based on the ratio established by their respective values as discussed above.
On December 22, 2015, the Company completed a public offering for aggregate gross proceeds of
$5,000,000. In connection with the offering, the Company issued a total of 5,681,819 units at a price of $0.88
per unit. 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 $1.20 until June 22, 2017. The value of one-half of one common
share purchase warrant was established at $0.10.
Expenses of the offering include underwriting fees of $276,202 and other professional fees and miscellaneous
fees of $323,713 for total fees of $599,915 of which $598,559 have been paid and $1,356 are included in
accounts payable and accrued liabilities.
66
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2016 and 2015
15. Share Capital, Stock Options and Warrants (continued)
a) Share capital (continued)
The Company also issued 313,886 broker warrants as additional compensation, each warrant entitling the
holder to purchase one common share of the Corporation at a price of $0.88 until June 22, 2017. The value
of one broker warrant was established at $0.29.
The total fees of $599,915 and the broker warrants value of $91,027 have been allocated on a prorata basis
between share capital and the warrants reserve, $612,179 and $78,763 respectively, based on the ratio
established by their respective values as described above.
Concurrently with the public offering, the Company completed a non-brokered private placement offering of
184,400 units at a price of $0.88 per unit for aggregate gross proceeds of $162,272. Each unit comprises the
same terms and conditions than the units issued under the public offering. Expenses related to the private
placement amounted to $10,083. The fees have been allocated on a prorata basis between share capital and
the warrants reserve, $8,937 and $1,146 respectively, based on the ratio established by their respective
values as discussed above.
During the year ended August 31, 2016, following the exercise of stock options, the Company issued 574,250
common shares (714,250 common shares and 140,000 common shares were subscribed but not issued for
the year ended August 31, 2015) for a cash consideration of $219,166 ($232,952 for the year ended August
31, 2015). As a result, an amount of $139,168 was reallocated from “Reserve – Stock option plan” to “Share
capital” in shareholders’ equity ($134,768 for the year ended August 31, 2015).
During the year ended August 31, 2016, following the exercise of warrants, the Company issued 790,316
common shares (25,000 common shares for the year ended August 31, 2015) for a cash consideration of
$581,630 ($18,250 for the year ended August 31, 2015). As a result, an amount of $33,013 was reallocated
from “Reserve – Warrants” to “Share capital” in shareholders’ equity ($910 for the year ended August 31,
2015).
b) Stock options
The Shareholders approved the stock option plan on January 18, 2016 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 600,000 outstanding stock options granted (700,000 stock options granted as at August
31, 2015), 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 Exchange 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, 2016 is
$451,096 ($316,873 for the year ended August 31, 2015).
67
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2016 and 2015
15. Share Capital, Stock Options and Warrants (continued)
b) Stock options (continued)
The fair value of options granted was determined using the Black-Scholes option pricing model with the
following assumptions:
Years ended August 31,
2016
2015
Risk-free interest rate
Between 0.32% and 0.80%
Between 0.63% and 1.55%
Volatility
Dividend yield on shares
Expected life
Weighted share price
Weighted fair value per option at the
grant date
Between 62% and 112%
Between 88% and 124%
Nil
5 years
$0.95
$0.55
Nil
5 years
$0.80
$0.52
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.
The situation of the outstanding stock option plan and the changes that took place between August 31, 2014
and August 31, 2016 are as follows:
Outstanding as at August 31, 2014
Options granted
Options exercised*
Options forfeited
Options cancelled
Outstanding as at August 31, 2015
Options granted
Options exercised
Options forfeited
Options cancelled
Outstanding as at August 31, 2016
Options exercisable as at
August 31, 2016
Number of
options
4,172,500
862,000
(854,250 )
(17,500 )
(620,000 )
3,542,750
2,154,750
(574,250 )
-
(93,750 )
5,029,500
Weighted-
average
exercise
price
$
0.36
0.81
0.27
0.81
0.29
0.50
0.95
0.38
-
0.79
0.70
1,913,125
0.43
* 140,000 common shares arising from the exercise of stock options were issued after August 31, 2015.
68
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2016 and 2015
15. Share Capital, Stock Options and Warrants (continued)
b) Stock options (continued)
The table below provides information on the outstanding stock options as at August 31, 2016:
Number of outstanding stock
options
Number of exercisable stock
options
Weighted-average
remaining contractual life
(years)
Exercise price
$
0.20
0.21
0.23
0.24
0.25
0.44
0.66
0.68
0.69
0.70
0.72
0.75
0.80
0.85
0.90
0.93
0.94
1.20
1.22
1.66
160,750
250,000
282,500
40,000
608,500
100,000
200,000
200,000
140,000
400,000
100,000
351,000
25,000
120,000
350,000
1 002,250
402,000
97,500
50,000
150,000
5,029,500
160,750
187,500
282,500
40,000
456,375
100,000
100,000
50,000
140,000
-
25,000
175,500
-
80,000
-
-
115,500
-
-
-
1,913,125
0.55
1.35
0.21
1.24
1.39
2.13
2.92
3.06
3.38
4.02
3.23
2.65
4.09
2.23
4.41
4.38
3.64
4.63
4.63
4.94
3.04
c) Warrants
The situation of the outstanding warrants and the changes that took place between August 31, 2014 and
August 31, 2016 are as follows:
Outstanding as at August 31, 2014
Warrants exercised (note 15a)
Outstanding as at August 31, 2015
Issued with units (note 15a)
Issued to brokers (note 15a)
Warrants expired
Warrants exercised (note 15a)
Outstanding as at August 31, 2016
Number of
warrants
3,475,426
(25,000 )
3,450,426
5,313,610
313,886
(2,670,110 )
(790,316 )
5,617,496
Weighted-
average
exercise
price
$
0.98
0.73
0.98
1.36
0.88
1.05
0.74
1.33
Warrants exercisable as at August 31, 2016
5,617,496
1.33
69
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2016 and 2015
15. Share Capital, Stock Options and Warrants (continued)
c) Warrants (continued)
The fair value of the warrants issued was estimated using the Black-Scholes option pricing model using the
following assumptions:
Risk-free interest rate
Volatility
Dividend yield on shares
Expected life
Weighted share price
Weighted fair value per warrant at the grant date
Year ended
August 31, 2016
Between 0.51% and 0.56%
Between 58% and 69%
Nil
1.5 years
$1.33
$0.19
In addition, option valuation models require the input of highly-subjective assumptions, including the expected
stock price volatility. Any changes in the subjective 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 warrants.
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,
2016
$
2015
$
(9,281,669 )
(2,883,865)
Basic and diluted weighted-average number of shares outstanding
66,735,651
60,179,119
Amount per share
Net loss per share
Basic
Diluted
70
(0.14 )
(0.14 )
(0.05)
(0.05)
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2016 and 2015
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,
2016
2015
297,500
5,303,610
$2,002,000
542,000
2,670,110
$2,002,000
For the years ended August 31, 2016 and 2015, the diluted amount per share was the same amount as the basic
amount per share, since the dilutive effect of 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.
71
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2016 and 2015
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
Inventories
Prepaid expenses
Accounts payable and accrued liabilities
Warranty provision
Deferred revenues
Deferred lease inducement
Supplementary information
Unpaid acquisition of property, plant and equipment
Unpaid additions to intangible assets
Cash and cash equivalents
Cash
Short-term investments
Years ended August 31,
2016
$
2015
$
(1,420,333 )
(15,000 )
(1,219,054 )
(139,365 )
368,243
93,870
(609,943 )
927,698
(2,013,884 )
18,049
59,636
As at
August 31,
2016
$
408,218
33,500
(391,886)
68,747
181,797
(49,500)
(2,462,273)
49,626
(2,161,771)
39,654
23,719
As at
August 31,
2015
$
454,740
5,448,300
5,903,040
449,658
6,753,954
7,203,612
72
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2016 and 2015
18. 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 $3,135,000, required in each of the forthcoming years are as follows:
2017
2018
2019
2020
2021
Thereafter
$
471,000
416,000
297,000
303,000
310,000
1,338,000
In 2016, the offices lease expense is $909,969 ($393,106 in 2015).
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, 2016, the
Company recognized an expense of $93,870 (reversal of $49,500 recognized for the year ended
August 31, 2015) for guarantees. A provision of $177,870 is recorded for guarantees as at August 31, 2016
($84,000 as at August 31, 2015). The following table summarizes changes in warranty provision:
Balance – Beginning of year
Provisions recognized (reversed)
Balance – End of year
Years ended August 31,
2016
$
84,000
93,870
177,870
2015
$
133,500
(49,500)
84,000
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 entered into with Canada Economic Development (CED), the Company may receive a
refundable contribution of a maximum amount of $200,000, non-interest bearing, to cover expenses related to
the commercialization of its FFR products. This contribution is paid out based on presentation by the
Company of invoices related to specific expenses since May 22, 2015. During the year ended August 31,
2016, the Company received an amount of $65,137 for which an amount of $27,858 (nil for the year ended
August 31, 2015) was recognized against administrative and sales and marketing.
73
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2016 and 2015
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 (26.9%; 26.0% in 2015)
Non-deductible expenses and others
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,
2016
$
2015
$
(2,498,200 )
1,317,525
(98,835 )
(95,929 )
(114,103 )
1,489,542
-
-
(660,646)
1,023,486
(58,012)
(734,951)
(121,752)
551,875
340,000
340,000
As at August 31, 2016, the Company has tax losses of approximately $17,512,400 for federal purposes and
$17,248,400 for provincial purposes that can be used to reduce future taxable income. These losses expire as
follows:
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
1,091,000
2,513,000
5,534,000
500,000
2,146,000
1,280,000
239,000
1,125,000
2,510,000
5,530,000
17,512,400
17,248,400
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
74
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2016 and 2015
21.
Income Taxes (continued)
The Company also has undeducted research and development expenses of $8,205,000 ($7,106,000 as at
August 31, 2015) for federal purposes and $10,920,000 ($9,798,000 as at August 31, 2015) 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 $10,974,000
($7,461,000 as at August 31, 2015) were not recognized due to the uncertainty concerning the Company’s ability
to generate taxable income. In addition, deferred tax liabilities of approximately $672,000 ($507,500 as at August
31, 2015) 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,
2016
$
2015
$
1,499,000
1,539,000
1,519,018
1,519,018
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,
2016
2015
$
-
$
-
365,000
365,000
350,000
350,000
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, 2016 and 2015 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, 2016 are about $2,496,000 ($2,217,000 as at August 31, 2015) and expire
over a period of 8 to 20 years beginning in 2016.
75
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2016 and 2015
23. Segmented Information
Sector’s Information
In order to strengthen its medical identity to develop its full potential in the FFR market, the Company reorganized,
on September 1, 2015, its corporate structure. Following the reorganization, the Company is now organized into
two segments: Medical and Industrial.
Medical segment: In this segment, Opsens focuses mainly on the measure of FFR in interventional cardiology.
Industrial: In this segment, Opsens’ develops, manufactures and installs innovative fiber optic sensing solutions
for critical applications such as the monitoring of oil wells and other demanding industrial applications.
The principal factors employed in the identification of the two segments reflected in this note include the
Company’s organizational structure, the nature of the reporting lines to the President and Chief Executive Officer
and the structure of internal reporting documentation such as management accounts and budgets.
In accordance with IFRS 8, Operating Segments, the Company has restated the corresponding information for
the year ended August 31, 2015 to reflect the corporate reorganization with the exception of the information on
segment assets and liabilities because the information was not available and the cost to develop it would have
been excessive.
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,
Medical
Industrial
$
$
2016
Total
$
Medical
Industrial
$
$
2015
Total
$
6,429,256
3,171,561
9,600,817
5,034,767
3,629,963
8,664,730
-
413,982
413,982
-
-
-
443,355
105,875
549,230
214,780
170,051
384,831
64,543
8,224
72,767
48,352
13,748
62,100
(167,106 )
223,970
56,864
(163,257)
162,691
(566)
External sales
Internal sales
Depreciation of property,
plant and equipment
Amortization of
intangible assets
Financial expenses
(revenues)
Current income tax
expense
Net earnings (loss)
(7,247,523 )
(2,031,912)
(9,279,435)
-
-
-
340,000
708,560
-
340,000
(2,796,188 )
(2,087,628)
Acquisition of property,
plant and equipment
Additions to
intangible assets
2,934,675
131,924
3,066,599
553,062
71,577
624,639
108,264
54,376
162,640
137,036
23,383
160,419
Segment assets
14,281,597
2,579,879
16,861,476
Segment liabilities
8,973,258
575,795
9,549,053
N/A
N/A
N/A
N/A
N/A
N/A
76
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2016 and 2015
23. Segmented Information (continued)
The Company’s net loss per reportable segments reconciles to its consolidated financial statements as follows:
Net loss per reportable segments
Elimination of inter-segment profits
Impairment charge on property, plant and equipment (note 9)
Impairment charge on goodwill (note 9)
Net loss and comprehensive loss
Geographic sector’s information
Revenue per geographic sector
Japan
Canada
United States
Chile
Other*
Years ended August 31,
2016
$
2015
$
(9,279,435 )
(2,234 )
-
-
(9,281,669 )
(2,087,628)
-
(119,663)
(676,574)
(2,883,865)
Years ended August 31,
2016
$
2015
$
3,521,669
2,207,299
1,506,971
6,396
2,358,482
9,600,817
3,978,097
1,350,228
870,179
1,169,182
1,297,044
8,664,730
* 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, 2016, revenues from one client represented individually more than 10% of the
total revenues of the Company, i.e. approximately 37% (medical’s reportable segment).
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% (medical’s reportable segment) and 13% (industrial’s
reportable segment).
77
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2016 and 2015
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,
2016
$
2015
$
29,248
25,459
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,
2016
$
1,317,208
95,646
-
2015
$
966,200
83,300
57,500
1,412,854
1,107,000
The compensation of key executives is determined by the Human Resources and Compensation Committee,
taking into consideration individual performance and market trends.
78
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2016 and 2015
25. Additional Information to the Consolidated Statements of Loss and Comprehensive Loss
Expenses (revenues) included in functions
Salaries & Other Benefits
Cost of sales
Administrative
Sales and marketing
Research and development
Years ended August 31,
2016
$
2015
$
7,604,580
4,856,965
Depreciation of Property, Plant and Equipment
549,230
384,831
Cost of sales
Administrative
Sales and Marketing
Research and development
Amortization of Intangible Assets
Administrative
Research and development
Government Assistance
Cost of sales
Administrative
Sales and marketing
Research and development
72,767
62,100
(113,054 )
(25,920)
Income tax credits for research and development
(424,173 )
(447,610)
Research and development
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.
79
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2016 and 2015
26. Financial Instruments (continued)
Fair Value (continued)
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 $1,905,700 as at August 31, 2016 ($1,693,400 as at August 31, 2015) 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, 2016
Total
Level 1
Level 2
Level 3
Financial assets (liabilities) measured at
fair value:
Convertible debenture – embedded
derivative
(979,635)
-
(979,635 )
$
$
$
$
-
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 )
$
$
$
$
-
80
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2016 and 2015
26. Financial Instruments (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 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 55% (95% in 2015), a discount rate of 0.57% (0.44% in 2015) and an expected life of 1.2
years (2.2 years in 2015). A 1% change in the implied volatility factor would have changed the fair value of the
embedded derivative by $9,575 ($1,840 for the year ended August 31, 2015).
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 50% of the Company’s total accounts receivable as at
August 31, 2016 (33% as at August 31, 2015).
As at August 31, 2016, 56% (4% as at August 31, 2015) of the accounts receivable were of more than 90 days
whereas 30% (55% as at August 31, 2015) 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, 2016, the allowance for
doubtful accounts was established at $491,623 ($3,032 as at August 31, 2015).
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.
81
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2016 and 2015
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, 2016 and August 31, 2015:
August 31, 2016
Carrying
amount Cash flows
$
$
0 to 12
months
$
Accounts payable and
accrued liabilities
2,041,873
2,041,873
2,041,873
12 to 24
After
months
24 months
$
-
$
-
Long-term debt
1,784,654
1,930,582
530,651
502,285
897,646
Convertible debenture
3,792,839
2,898,533
-
2,898,533
-
Total
7,619,366
6,870,988
2,572,524
3,400,818
897,646
August 31, 2015
Carrying
amount Cash flows
$
$
0 to 12
months
$
Accounts payable and
accrued liabilities
1,657,962
1,657,962
1,657,962
12 to 24
After
months
24 months
$
-
$
-
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
5,351,752
5,428,377
1,902,420
180,646
3,345,311
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
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, 2016, the Company was holding more than 92% (93% as at August 31, 2015) 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 $2,487
on net loss and comprehensive loss for the year ended August 31, 2016 (unfavourable impact of $1,100 for the
year ended August 31, 2015). A hypothetical 1% interest rate decrease would have had a favourable impact of
$3,670 on net loss and comprehensive loss for the year ended August 31, 2016 (favourable impact of $1,300 for
the year ended August 31, 2015).
82
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2016 and 2015
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)
Gain on foreign currency translation
Interest income
Years ended August 31,
2016
$
57,298
44,967
69,629
(3,988 )
(111,042 )
56,864
2015
$
60,868
32,665
83,225
(23,746)
(153,578)
(566)
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, 2016 and 2015, 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,
Euros and British pound. 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, 2016, 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 $260,000 lower ($11,000 higher
for the year ended August 31, 2015). 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 $260,000 higher for the
year ended August 31, 2016 ($11,000 lower for the year ended August 31, 2015).
For the year ended August 31, 2016, if the Canadian dollar had strengthened 10% against the Euros with all
other variables held constant, net loss and comprehensive loss would have been $159,000 higher ($20,000
higher for the year ended August 31, 2015). 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 $159,000 lower
for the year ended August 31, 2016 ($20,000 lower for the year ended August 31, 2015).
For the year ended August 31, 2016, if the Canadian dollar had strengthened 10% against the British pound with
all other variables held constant, net loss and comprehensive loss would have been $42,000 higher (nil for the
year ended August 31, 2015). Conversely, if the Canadian dollar had weakened 10% against the British pound
with all other variables held constant, net loss and comprehensive loss would have been $42,000 lower for the
year ended August 31, 2016 (nil for the year ended August 31, 2015).
83
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2016 and 2015
26. Financial Instruments (continued)
Risk Management (continued)
Foreign Currency Sensitivity Analysis (continued)
As at August 31, 2016 and August 31, 2015, the risk to which the Company was exposed is established as
follows:
Cash and cash equivalents (US$125,202; US$2,097,017 as at
August 31, 2015)
Cash and cash equivalents (Euro 22,450; nil as at August
31, 2015)
Trade and other receivables (US$440,847; US$182,630 as at
August 31, 2015)
Trade and other receivables (Euro 205,129; Euro 53 625 as at
August 31, 2015)
Trade and other receivables (British pound 85,745; nil as at
August 31, 2015)
Accounts payable and accrued liabilities
(US$317,632; US$289,251 as at August 31, 2015)
Convertible debenture (US$2,144,864; US$2,092,368 as at
August 31, 2015)
Embedded derivative (US$746,900; US$186,800
as at August 31, 2015)
Total
27. Capital Management
As at
August 31,
2016
$
As at
August 31,
2015
$
163,903
2,759,045
32,842
-
578,410
240,286
300,083
147,679
79,167
-
(416,288 )
(380,567)
(2,813,204 )
(2,752,929)
(979,635 )
(2,986,210 )
(245,773)
(300,771)
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, sales and marketing 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, long-term debts, investment tax credits and government assistance, interest income and public equity
offerings.
As at August 31, 2016, the Company's working capital amounted to $9,502,625 ($8,492,636 as at August 31,
2015), including cash and cash equivalents of $5,903,040 ($7,203,612 as at August 31, 2015). The accumulated
deficit at the same date was $30,539,014 ($21,257,345 as at August 31, 2015). 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, 2016.
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.
84
Opsens Inc.
Notes to Consolidated Financial Statements
Years ended August 31, 2016 and 2015
27. Capital Management (continued)
For the years ended August 31, 2016 and 2015, the Company has not been in default under any of its obligations
regarding the long-term debt.
28. Approval of Consolidated Financial Statements
The consolidated financial statements were approved by the Board of Directors and authorized for issue on
November 15, 2016.
85
GOVERNANCE
CORPORATE INFORMATION
Head office
750 boulevard du Parc-Technologique
Quebec, QC G1P 4S3
Telephone: 418.781.0333
Fax: 418.781.0024
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
72,629,038 (August 31, 2016)
Transfer Agent & Registrar
CST Trust Company (CST)
320 Bay Street – B1 Level
Toronto, ON M5H 4A6
Telephone: 1.800.387.0825
Annual meeting of shareholders
750 boulevard du Parc-Technologique
Quebec, QC G1P 4S3
Tuesday, January 24 2017 – 10:30 a.m.
Directors
DENIS M. SIROIS
Chairman of the Board of Directors
LOUIS LAFLAMME, CPA, CA
President and Chief Executive Officer
CLAUDE BELLEVILLE
Vice President, Medical Devices
GAÉTAN DUPLAIN
President, Opsens Solutions
DENIS HARRINGTON
Director
JEAN LAVIGUEUR
Director
PAT MACKIN
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
86
OPSENS’ MARKETS
INTERVENTIONAL CARDIOLOGY – MEASURE OF FFR
OPSENS POSITIONED FOR GROWTH
During fiscal year 2016, Opsens has taken a share in the global FFR
market, which offers great growth opportunities. For 2017 and beyond,
Opsens is targeting significant gains in market share.
This performance has also been highlighted in a prestigious
medical journal, the Circulation Journal, the official journal of the
Japanese Circulation Society.
In the United States, Europe, Japan and Canada, Opsens’ OptoWire
impressed key opinion
in cardiology, who commented
positively on its performance. The OptoWire addresses cardiologists’
most common concerns regarding products available to measure FFR.
leaders
EDITORIAL
CIRCULATION JOURNAL
OFFICIAL JOURNAL OF THE JAPANESE CIRCULATION SOCIETY
http://www.j-circ.or.jp
FRACTIONAL FLOW RESERVE, CORONARY
PRESSURE WIRES, AND DRIFT
Nico HJ Pijls, MD, PhD; Bernard De Bruyne, MD, PhD
Circulation Journal, Official Journal of the Japanese Circulation Society; Vol. 80, Aug. 2016: 1704-1706.
INDUSTRIAL - GROWING MARKETS
Opsens’ versatile technologies can answer needs in key, valuable
markets. There is a positive sentiment around our single-point
measurement technology in leading areas. This growing interest stems
from the fact that traditional technologies do not perform as expected
under certain conditions, opening avenues for Opsens’ fiber optic
technology.
Opsens capitalizes on its easily adaptable technology and invests to
offer applications to growing markets, like structure monitoring and
various other applications in sectors such as mining, energy, marine
and laboratories.
INTERVENTIONAL
CARDIOLOGY – FFR
RELIABLE FFR
MEASUREMENT
INDUSTRIAL APPLICATIONS
FIBER-OPTIC-BASED INNOVATIVE
SOLUTIONS FOR VARIOUS INDUSTRIES
750 boulevard du Parc-Technologique
Quebec, QC G1P 4S3
T 418.781.0333 F 418.781.0024
Opsens.com