Annual
Report
2018
Opsens focuses on the measurement of pressure in interventional cardiology. The Company offers the OptoWire,
an advanced optical-based pressure guidewire that aims at improving the clinical outcomes of patients with coronary artery
disease. Instrumented with a second-generation optical sensor, the OptoWire is designed to provide the lowest drift in the
industry. Opsens is also engaged in industrial activities.
Mission – To promote patient health by providing products and technologies for high-quality diagnosis and treatment
by cardiologists, while creating value for shareholders, employees and community.
Cornerstone of Opsens’ Growth
» Product performance recognized by key opinion leaders
» Growing markets and sales channels in more than 30 countries
» Accumulation of clinical data in progress – 50,000 cases completed
» Continuous improvement of production processes.
Second-Generation Optical Sensor Positions
Opsens for Partnerships in Cardiology
Several companies, including Abiomed and Corflow, are integrating
Opsens’ sensor into their products used in interventional cardiology.
These collaborations highlight the quality of Opsens’ sensor and position
the Company for new agreements.
Value Creation
Opsens’ products benefit from growing recognition
interventional
cardiology through an increase in the number of uses and the release of data
showing the value of working with the OptoWire in clinical situations.
in
In the coming years, Opsens aims to create value through three primary
strategies:
» Gaining market share;
» Developing new products; and,
» Creating valuable partnerships.
25
20
15
10
5
0
Second-Generation Optical Pressure Guidewire, Designed to
Provide the Lowest Drift in the Industry – To Diagnose and
Treat with Confidence
OPSENS’ REVENUES ($M)
2016
2017
2018
FFR
Medical Total
Consolidated
OptoWire Stands Out from the
Competition and Used in Studies
Cardiologists used the OptoWire for its excellent navigation features and
seamless reconnection to measure FFR before and after percutaneous
coronary intervention (PCI). Opsens’ guidewire allowed post-PCI optimization
to increase FFR.
A recent registry1 using the OptoWire has highlighted further the value of
evaluating coronary blockages with pressure measurements, such as FFR,
after completing a successful PCI.
Among other things, this registry demonstrated that post-PCI FFR could
still be in the ischemic range, i.e. blood circulation not considered adequate,
despite treatment. In these cases, FFR could, in a good proportion of cases,
be improved by an immediate additional intervention.
These results suggest measuring FFR post PCI for all lesions to confirm
functional optimization.
New Product for the Diagnosis of Coronary
Blockages with the Heart at Rest
Opsens’ initial product line was intended for FFR, a measurement performed
in the context where the heart is stimulated by the injection of stimulant
drugs. Alongside the interest in FFR, cardiologists have expressed the desire
to measure pressure to make a diagnosis with the heart at rest, without the
injection of drugs.
To improve its offering, Opsens has developed a product for the diagnosis
of coronary blockages with the heart at rest. This new product, named dPR,
will be available via the OptoMonitor and will work in combination with the
OptoWire. Opsens has started marketing this product in Japan and Canada.
Larger scale commercialization will deploy with the anticipated receipt of
regulatory approvals.
Measurement Market for Coronary Heart Disease
More than 10 years after the publication of the FAME study results, which
showed that when a patient’s lesion is assessed with FFR before a treatment
is selected his results are significantly improved, the market continues to be
fueled by studies that demonstrate the benefits of basing the diagnosis and
treatment of coronary heart disease on reliable pressure measurements.
Cardiologists, medical cardiology societies,
insurance companies and
hospitals are increasingly benefiting from diagnosis and treatment based on
these measures as they:
» Facilitate decision making before performing invasive procedures;
»
» Avoid unnecessary medical procedures.
Improve the health of patients in general; and,
In 2017, new appropriate-use criteria have made FFR even more important by
extending its applications. For example, patients with STEMI-type infarction
benefit from FFR-guided treatment because it reduces the incidence of
major cardiovascular and cerebrovascular events. In 2018, evaluation criteria
extended the evaluation of blockages to the use of pressure measurements
with the heart at rest.
Moreover, in Japan, a key market for Opsens, regulations now require
evaluation of all coronary stenoses, specifically mentioning FFR as a method
that can be used. This change in regulations is expected to have a positive
impact on the use of FFR products in Japan, currently the largest user of
Opsens’ FFR products.
FFR MARKET
(IN US$ M**)
1 billion
520
456
400
350
300*
2009
2010 2011 2012 2013 2014 2015 2016 2017 2018
Beyond
* St. Jude Medical 2015 - Investor Conference, February 6, 2015
** Based on 14 % growth projected in Global FFR Market 2016-2020
1 Functional Optimization of Coronary Intervention Using Post-PCI Fractional Flow
Reserve: A Prospective Registry BF Uretsky MD, Shiv Agarwal MD, Kristin Miller
RN, Malek Al-Hawwas MD, Abdul Hakeem MD Central Arkansas VA Hospital and
UAMS, Little Rock, AR, September 2018
250
207
167
75
124
Letter to Shareholders
Opsens’ mission is to provide products that promote patient health and bring added effectiveness to the
healthcare systems. As part of this mission, Opsens’ technologies and expertise generated the highest
revenue in the Company’s history. In the future, Opsens intends to continue in this direction to promote
the quality of diagnoses for coronary heart disease patients, and to offer other medical applications in
order to position the Company as a leader in cardiology and create value for our shareholders.
Enhanced Confidence in the FFR Procedure
During the year, the Ministry of Health, Labor and Welfare
of Japan (MHLW) established a new regulation requiring
the evaluation of all coronary stenosis prior to its treatment,
specifically mentioning Fractional Flow Reserve (FFR) as a
preferred assessment method. These recommendations
are consistent with the results of studies, such as the
FAME report, which showed that when a patient’s lesions
are assessed with FFR before a treatment is selected,
clinical results are significantly higher. This change in the
regulations is expected to have a positive impact on the
use of FFR products in Japan, which currently represents
the largest user of Opsens’ FFR products.
Positioning of Opsens’ Offer for Pressure
Measurement to Evaluate Blockages
Cardiologists’ feedback on the OptoWire’s performance
continued to be commendable in 2018. With the evolution
of interventional cardiology practices, some users have
expressed an interest in measuring pressure with the
heart at rest, for some patients. To answer this need,
its own pressure algorithm, called
Opsens developed
dPR, to measure pressure with the heart at rest that led
to regulatory filings in the United States and Europe. This
product is already marketed in Canada and Japan. The dPR
is expected to further improve Opsens’ positioning in cath
labs and thereby boost revenue growth once approvals
are obtained. In addition to the dPR, Opsens intends to
commercialize a new version of the OptoWire and the
OptoMonitor in the year 2019.
In addition to the technological improvements brought to
the market, Opsens continued to invest in the generation
of clinical data related to the use of our products. These
investments are expected to materialize in 2019 with the
publication of new results on the performance, accuracy
and benefits generated by using our products in various
situations, including as diagnostic tools, for use in the delivery
of stents or to measure pressure after an intervention.
Financial Performance and Marketing
The expansion of the sales team and distribution network
in 36%
spanning more than 30 countries resulted
revenue growth this year. This growth was generated
by an increase in FFR sales and other medical sales. In
particular, consolidated revenues increased from 29%
in 2017 to 43% in 2018, in the United States. These
commercial and corporate developments provide solid
foundations for the Company to aspire to the efficient
execution of its business plan.
Optimization of Production Activities
In 2018, Opsens has maintained a steady improvement
in efficiency as demonstrated by the gradual increase
in our profit margin. With more than 50,000 OptoWire
uses combined with the launch of a new version of our
flagship product, Opsens will continue to evolve towards
operational excellence to reduce production costs,
improve market competitiveness and gross margins.
Industrial Sector
In the industrial sector, Opsens is now focusing on the
aerospace, military and semiconductor
industries. As
expected, Opsens Solutions’ revenues and profitability
increased during the year. The trend should continue in 2019
given our many discussions for high potential opportunities.
Perspectives
In 2019, our priority remains to increase the impact of our
products in interventional cardiology, from a commercial,
clinical and financial point of view. A generalized growth
of our revenues is anticipated for products to measure
pressure (FFR, dPR), for other medical revenues as well
as for the industrial sector.
I am confident in the strength of our team and in our
business plan to position Opsens as a leader in the market.
I thank shareholders for their support in the deployment
of our strategy. I also thank the customers, employees,
administrators, suppliers and partners
their
contribution to the development of Opsens.
for
In closing, we hope to meet you at our shareholders’
annual meeting to be held in January 2019.
Louis Laflamme
President and Chief Executive Officer
1 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 2018
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, 2018 in comparison with the
corresponding periods ended August 31, 2017. In this Management’s Discussion and Analysis (MD&A), Opsens, “the
Company”, “we”, “us” and “our” mean Opsens Inc. and its subsidiary. This MD&A should be read and interpreted in
conjunction with the information contained in our annual consolidated financial statements for the years ended August
31, 2018 and 2017, 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 27, 2018. 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 all currently available
information, 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 of
November 27, 2018 and is subject to change after this 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
The Company's primary focus is the measurement of Fractional Flow Reserve (FFR) in the interventional cardiology
market. This measurement is mainly used for the diagnosis of blockages in the coronary arteries and has begun to
extend to other peripheral specialties. Opsens offers an optical guidewire (OptoWire) to measure pressure to diagnose
and improve clinical outcomes in patients with coronary heart disease. Opsens also operates in the industrial sector
through its wholly-owned subsidiary Opsens Solutions Inc. (Solutions). Solutions develops, manufactures and installs
innovative measurement solutions using fiber optic sensors for critical and demanding industrial applications.
Opsens owns nine patents and has three patents pending to protect technologies in its medical and industrial sectors.
SECTORS OF ACTIVITY
In the medical field, Opsens markets the OptoWire and the OptoMonitor for interventional cardiology to provide
cardiologists with an optimized pressure guidewire to navigate coronary arteries and cross blockages with ease while
measuring intracoronary blood pressure. This procedure is called measurement of FFR or more broadly, physiology.
Opsens has obtained the required commercial approvals for the OptoWire and OptoMonitor in the world's largest
markets, namely the United States, Europe, Japan and Canada. Combined, these markets represent approximately 85%
of the global market for FFR products. Furthermore, Opsens developed a product that allows physicians to diagnose
the coronary-artery blockages at rest. This new product, known as dPR, is Opsens’ resting pressure measurement
3 method. It is available through the OptoMonitor and works in combination with the OptoWire. Opsens’ dPR is already
being marketed in Japan while the Company is awaiting regulatory approvals for the U.S., Canada and Europe.
Opsens has established a direct sales force in the U.S. and Canada and utilizes distributors in Europe (including the
Middle East) and Japan.
Opsens also provides a broad selection of miniature optical sensors to measure pressure and temperature that can be
used in a wide range of applications and can be integrated into other medical devices.
In the industrial sector, Opsens' expertise, technology and products meet the needs of multiple markets, including
aerospace, semiconductor, geotechnical, structural, oil and gas, mining, laboratories and others. Opsens' portfolio of
products and technologies can be adapted to measure various parameters under the most difficult conditions and bring
significant benefits in terms of optimizing production and reducing risks to the environment and health.
MARKET OVERVIEW
In the medical field, particularly in interventional cardiology, FFR represents a significant and growing opportunity
for the Company. In recent years, the prevalence of coronary heart disease has increased rapidly. In the AHA report,
"Heart Disease and Stroke Statistics - 2017", which is based on health data compiled in more than 190 countries,
coronary heart disease is the leading cause of death worldwide with 17.3 million deaths per year. This number is
expected to exceed 23.6 million deaths in 2030. Coronary heart disease is one of the leading causes of death in the
developed world, and the cost of managing and treating these diseases is a significant burden to society. The benefits
of FFR were demonstrated in various clinical studies such as FAME I and FAME II published in 2009 and 2012,
respectively in the New England Journal of Medicine. The FAME I study showed that the FFR-guided treatment rather
than the 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. Several reports have also shown
inaccurate diagnoses that can lead to misuse or inappropriate use of "stents."
The measurement of FFR has been shown to be more accurate and now holds the highest recommendation from the
European Society of Cardiology (Class IA).
In the United States, support for the increasing use of FFR continues to grow. In March 2017, the appropriate use
criteria ("AUC") for stable ischemic heart disease were updated to emphasize the use of FFR given its importance. The
goal of the AUC is to provide a framework for assessing general clinical practices and improving the quality of care.
The new AUCs reflect a recognition of the role and value of FFR, which should be beneficial for the expand use of
FFR technologies. Payers, including Medicare, use the AUC to help formulate their repayment criteria.
Recently, in Japan, the Ministry of Health, Labour and Welfare (MHLW) introduced a new regulation requiring the
physiology evaluation of all coronary artery stenosis prior to its treatment, specifically mentioning FFR as an
evaluation method. The MHLW revised the medical fees and established a requirement to assess functional ischemia
(blockage of arteries) prior to treatment.
These recent developments contribute to the steady growth of the FFR market. According to management and industry
sources estimates (1), this market exceeds US$500 million worldwide in 2018 and is expected to exceed US$1 billion
annually in the medium term.
(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.
4 In the industrial field, the vast market presents numerous opportunities. The Company focuses mainly on the
following markets:
-
Structural Integrity Monitoring Market: Opportunities are mainly related to stress, load and displacement
measures. The applications are in geotechnics, civil engineering, energy and oil and gas. The new industrial
versions of strain sensors such as the extensometer and the load cell are the main flagship products for these
applications;
- Pressure Monitoring Solutions Market: Opportunities are mainly related to absolute and differential pressure
measurements. Pressure measurements are at the heart of many industrial applications in energy, geotechnics,
oil and gas, and aerospace. The new industrial versions of the pressure sensor and the latest of a differential
pressure sensor are the main flagship products for these applications;
- Traditional Niche Applications Market: Opsens is currently engaged in niche applications such as
semiconductor, electro-explosive devices (EEDs), Steam Assisted Gravity Drainage (SAGD) in Western
Canada, and in laboratories (special projects and customized products).
COMPETITION
In the medical sector, the FFR measurement market has five competitors and is currently dominated by two major
players who commercialize a first-generation electrical technology. Competition is based on technological advantages,
brand recognition, customer service, marketing support and price.
In the industrial sector, there are significant number of competitors in the field. This competition is based primarily
on technological advantages. Our direct competition is made up of both open and closed-end companies with a global
presence.
5
CORPORATE GROWTH STRATEGY
Opsens' growth strategy is to become a key player in the medical sector, particularly in the field of interventional
cardiology, focusing on the measurement of FFR, where its products and technologies offer major advantages over the
competition. The Company also aims to capitalize on its technologies and products in the industrial markets. To this
end, the Company implements its corporate strategy based on its various segments of operations.
In the medical sector, the Company's growth strategy in the field of interventional cardiology is carried out by:
-
Increase of its market shares in the fast-growing FFR market
To achieve this, management has set up the following sales force:
Direct Sales Force: Opsens has established a sales team, hiring a seasoned staff with solid expertise
in interventional cardiology. This sales force has been implemented to increase Opsens’ market and
commercialization penetration in the United States and Canada;
Distributor Sales Force: Opsens has signed distribution agreements in Europe, the Middle East,
Japan and Asia. These agreements allow Opsens to focus on market penetration with leading
business partners in their respective markets.
The FFR market has started focusing on new measurements performed at rest. These measurements require
greater accuracy and constant and repeated guidewire performance over time. With its second-generation
optical sensor, the Company is convinced that there will be a growing interest with the OptoWire’s recognized
features that produce:
Better design features and product specifications for improved mechanical performances (e.g.,
torque capacity and handling);
A no-drift(2) measurement technology for improved reliability of FFR measurements, essential in
cardiologists' decision-making. Competing FFR technologies have higher drift levels;
Better connectivity as the OptoWire is insensitive to blood contamination. It can be easily
reconnected without compromising accuracy of the measurement.
- Clinical Data
The Company is presently undertaking and planning to conduct clinical studies. The objective of these studies
is to demonstrate the superiority of Opsens’ FFR products.
-
Innovation
In this ever-evolving and state-of-the-art market, Opsens plans to leverage its expertise in fiber optic sensing
medical devices to create new FFR products and develop new fiber optic sensing technologies for physiology
assessment that address other invasive unmet medical needs. Commitment to innovation has always been a
driving force behind the Company’s success and desire to improve its intellectual property portfolio and value
proposition for customers.
In other medical products, Opsens offers a broad selection of miniature optical sensors to measure pressure
and temperature that can be used in a wide range of applications and that can be integrated into other medical
devices. The Company also aims to partner with key players in the industry, such as its partnership with
Abiomed inc. (Abiomed), for the use of its miniature sensors and technology.
(2)
Per 60601-2-34 ed3
6
In the industrial sector, the Company's business strategy is achieved by:
• Development of a sales and distribution network Opsens Solutions has set up a network development
strategy to increase its visibility in the various markets;
• Target Market Potential markets for Opsens Solutions' technology are very broad—targeting only
specific markets such as semiconductors, aerospace and laboratories. These are markets where Opsens'
products offer unique advantages over its competitors;
•
Innovation Opsens Solutions continually invests in innovations of its products, so they can offer unique
advantages over its competitors. For example, the Company's optical strain and pressure sensors have
received the attention of major players in the aerospace industry because they require no shielding or
grounding and because of their ease of deployment.
NON-IFRS FINANCIAL MEASURES - EBITDACO
The Company quarterly reviews net loss and Earnings Before Interest, Taxes, Depreciation, Amortization, Change in
fair value of embedded derivative and Stock-based compensation costs (EBITDACO). EBITDACO 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. EBITDACO is defined by the Company as the addition of net loss, financial expenses,
depreciation and amortization, change in fair value of embedded derivative and stock-based compensation costs. The
Company uses EBITDACO 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 EBITDACO to Net Loss
(In thousands of Canadian dollars)
Year Ended
August 31, 2018
$
Year Ended
August 31, 2017
$
Year Ended
August 31, 2016
$
Net loss
Financial expenses (revenues)
Amortization of property, plant and equipment
Amortization of intangible assets
Change in fair value of embedded derivative
EBITDAC
(4,550)
(50)
801
98
501
(3,200)
(6,537)
(7)
699
90
164
(5,591)
(9,282)
57
549
73
732
(7,871)
Stock-based compensation costs
618
864
451
EBITDACO
(2,582)
(4,727)
(7,420)
The positive variance of EBITDACO for fiscal 2018 when compared to last year is explained by the increase in
revenues in the medical and industrial sectors. This was partly offset by higher sales and marketing and research and
development expenses as explained further below.
7
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands of Canadian dollars, except for
information per share)
Year Ended
August 31, 2018
$
Year Ended
August 31, 2017
$
Year Ended
August 31, 2016
$
Revenues
Sales
Medical
Industrial
Licensing agreement
Cost of sales
Gross margin
Gross margin percentage
Expenses (revenues)
Administrative
Sales and marketing
Research and development
Financial expenses (revenues)
Change in fair value of embedded derivative
Net loss and comprehensive loss
Basic and diluted net loss per share
Revenues
19,991
2,121
22,112
1,958
24,070
11,330
12,740
53%
3,869
9,273
3,697
(50)
501
17,290
(4,550)
(0.05)
14,895
1,483
16,378
1,374
17,752
10,252
7,500
42%
3,774
6,975
3,131
(7)
164
14,037
(6,537)
(0.08)
6,062
3,172
9,234
367
9,601
7,970
1,631
17%
3,685
3,694
2,744
57
733
10,913
(9,282)
(0.14)
The Company reported revenues of $24,070,000 for the year ended August 31, 2018 compared to revenues of
$17,752,000 for the corresponding period in 2017, an increase of $6,318,000 or 36%.
Sales in the medical sector totalled $19,991,000 for the year ended August 31, 2018 compared to sales of $14,895,000
for the same period in 2017. The increase in sales in the medical sector of $3,198,000 is mainly explained by higher
original equipment manufacturer (OEM) medical sales. FFR sales totalled $14,249,000 for the year ended August 31,
2018, an increase of $1,898,000 compared to the $12,351,000 reported for the same period last year.
Sales in the industrial sector totalled $2,121,000 for the year ended August 31, 2018 compared to sales of $1,483,000
for the same period in 2017. This increase is mostly explained by higher volume of orders compared to last year.
For the year ended August 31, 2018 and 2017, pricing fluctuations did not have a significant impact on revenues.
The Company's revenues are generated in U.S. dollars, Canadian dollars, Euros and British pounds; fluctuations in the
exchange rate affect revenues and net loss. For the year ended August 31, 2018, revenues were positively affected by
$372,000 compared to the same period last year (sales were negatively impacted by $143,000 for the year ended August
31, 2017).
As at August 31, 2018, Opsens’ total backlog of orders amounted to $5,266,000 ($5,608,000 as at August 31, 2017).
8
Gross Margin
Information and analysis in this section do not take into consideration licensing revenues ($1,958,000 for the year
ended August 31, 2018 and $1,374,000 for the year ended 2017, respectively).
Gross margin was $10,782,000 for the year ended August 31, 2018 compared to $6,126,000 for the same period last
year. The gross margin percentage increased from 37% for the year ended August 31, 2017 to 49% for the year ended
August 31, 2018. The increase in gross margin is mainly explained by higher sales from our OEM and FFR medical
products line, as previously explained. The increase in gross margin percentage reflects a higher sales volume and the
related benefits of scale combined with enhanced productivity.
Administrative Expenses
Administrative expenses were $3,869,000 and $3,774,000, respectively, for the years ended August 31, 2018 and 2017.
The increase is mainly explained by higher salaries and fringe benefits, professional fees, insurance fees and recruiting
expenses. This was partly offset by a lower allowance for doubtful accounts.
Sales and Marketing Expenses
Sales and marketing expenses totalled $9,273,000 for the year ended August 31, 2018, an increase of $2,298,000 over
the $6,975,000 reported during the same period in 2017. The increase is largely explained by higher headcount,
commissions, tradeshows, travelling and subcontractors’ expenses when compared to last year due to the expansion of
Opsens’ direct sales presence for its FFR products in the United States.
Research and Development Expenses
Research and development expenses totalled $3,697,000 for the year ended August 31, 2018, an increase of $566,000
over the $3,131,000 reported during the same period in 2017. The increase is mainly explained by higher salaries and
fringe benefits, supplies and subcontractors for our FFR activities.
Financial Revenues
Financial revenues reached $50,000 for the year ended August 31, 2018 compared to $7,000 for the same period in
2017. The increase in financial revenues is explained by lower interest expenses of $56,000 on long-term debt.
Change in Fair Value of the Embedded Derivative
The change in fair value of embedded derivative comes from the change in fair market value of the conversion option
component of the convertible debenture. The convertible debenture contained a cash settlement feature, which under
IAS 32, Financial Instruments: Presentation, was accounted for as a compound financial 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 were measured at fair value on initial recognition. The
debt component was subsequently accounted for at amortized cost using the effective interest rate method. The
embedded derivative was subsequently measured at fair value at each reporting date with gains and losses in fair value
recognized through profit or loss. During the year ended August 31, 2018, an expense of $501,000 ($164,000 for the
year ended August 31, 2017) was recorded in the consolidated statements of loss and comprehensive loss. On
November 16, 2017 the holder of the debenture exercised its conversion option.
Net Loss
As a result of the foregoing, net loss for the year ended August 31, 2018 was $4,550,000 compared to $6,537,000 for
the same period in 2017.
9
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION DATA
(In thousands of Canadian dollars)
Current assets
Total assets
Current liabilities
Long-term liabilities
Shareholders' equity
As at
August 31,
2018
$
As at
August 31,
2017
$
As at
August 31,
2016
$
19,785
23,586
3,438
1,475
18,673
23,607
27,610
7,698
1,947
17,965
12,570
16,861
3,067
6,482
7,312
Total assets as at August 31, 2018 were $23,586,000 compared to $27,610,000 as at August 31, 2017. The decrease is
mainly related to lower cash and cash equivalents of $1,684,000, by lower trade and other receivables of $1,403,000
and by lower tax credits receivable of $562,000. Significant efforts have been made over the year to decrease the delay
in conversion of accounts receivable.
Current liabilities totalled $3,438,000 as at August 31, 2018 compared to $7,698,000 as at August 31, 2017. The
decrease is mainly explained by the conversion of the convertible debenture into shareholders’ equity amounting to
$3,853,000. Also, this decrease is explained by lower deferred revenues of $325,000.
Long-term liabilities totalled $1,475,000 as at August 31, 2018 compared to $1,947,000 as at August 31, 2017, a
decrease of $472,000. The decrease is mainly explained by a lower portion of long-term debt of $352,000.
SUMMARY OF CONSOLIDATED QUARTERLY RESULTS
The summary below presents the periods in which Opsens published unaudited interim financial statements.
(Unaudited, in thousands of Canadian dollars,
except for information per share)
Revenues
Net loss for the period
Basic and diluted net loss per share
(Unaudited, in thousands of Canadian dollars,
except for information per share)
Three-month
period ended
August 31,
2018
$
Three-month
period ended
May 31,
2018
$
Three-month
period ended
February 28,
2018
$
Three-month
period ended
November 30,
2018
$
5,866
(1,501)
(0.02)
6,398
(846)
(0.01)
5,442
(1,267)
(0.01)
6,364
(936)
(0.01)
Three-month
period ended
August 31,
2017
$
Three-month
period ended
May 31,
2017
$
Three-month
period ended
February 28,
2017
$
Three-month
period ended
November 30,
2016
$
Revenues
Net loss for the period
4,307
(1,153)
4,892
(1,842)
4,808
(1,001)
3,745
(2,541)
Basic and diluted net loss per share
(0.02)
(0.02)
(0.01)
(0.03)
For the medical sector, activities are generally slower in the fourth quarter due to the summer vacations of physicians.
10
LIQUIDITY AND CAPITAL RESOURCES
As at August 31, 2018, the Company had cash and cash equivalents of $10,887,000 compared to $12,570,000 as at
August 31, 2017. Of this amount as at August 31, 2018, $9,856,000 was invested in highly-liquid, safe investments.
As at August 31, 2018, Opsens had a working capital of $16,347,000, compared to $15,909,000 as at August 31, 2017.
The increase in working capital is mainly related to the conversion of the convertible debenture
On February 6, 2018, the Company entered into a loan agreement of $213,840, net of transaction costs of $2,160, with
Investissement Québec. This loan bears interest at prime rate plus 0.25%, is payable in monthly instalments of $4,500,
and will be maturing in February 2022. 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 ratio,
which were met as of the date of this MD&A.
On December 8, 2016, the Company completed a public offering for aggregate gross proceeds of $14,950,500. In
connection with the offering, the Company issued a total of 9,967,000 shares at a price of $1.50 per share. Expenses
of the offering include underwriting fees of $889,530 and other professional fees and miscellaneous fees of $305,403
for total fees of $1,194,933.
The Company intends to use the proceeds from the investment as follows:
(In thousands of Canadian dollars)
Use of
funds as
planned
Over-
allotment
Funds
available
to Opsens
from
equity
financing
Reclassifica-
tion of use
of funds as
planned
Funds
used as at
August 31,
2018
Funds
remaining
to be used
$
$
$
$
$
$
Net proceeds from the issue, including
the over-allotment option
Use of proceeds
Sales and marketing
Research and development
11,870,470
1,885,097 13,755,567 13,755,567
-
7,869,970
1,885,097
9,755,067 10,580,830
825,763
Production of clinical data
Expanded development of Opsens’
FFR technology
Working capital
920,000
2,360,000
720,500
-
-
-
2,360,000
2,360,000
720,500
720,500
920,000
94,237
(825,763)
Total use of proceeds
11,870,470
1,885,097 13,755,567 13,755,567
-
-
-
-
-
-
-
-
-
As production of clinical data was less expensive than expected by management, funds were used for marketing
activities of Opsens’ FFR products.
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. Furthermore, on March 7, 2017, the Company received the final disbursement
of the loan amounting to $55,000.
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
11
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
expenses for total fees of $102,563.
On May 20, 2016, the Company received an amount of $894,000 from the landlord in accordance with the 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 2018. 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 of $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
March 29, 2017, the Company received the final disbursement of the contribution amounting to $135,000 of which
$48,000 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 expenses 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.
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.
Based on its 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 Information Form. Changes in cash and cash equivalents will
largely depend on the rate of revenue growth in upcoming quarters.
12 SUMMARY OF CASH FLOWS
(In thousands of Canadian dollars)
Year Ended
August 31, 2018
$
Year Ended
August 31, 2017
$
Operating activities
Investing activities
Financing activities
Effect of foreign exchange rate changes on cash and cash equivalents
Net change in cash and cash equivalents
(1,052)
(530)
(148)
47
(1,683)
(8,777)
(430)
15,888
(14)
6,667
Operating Activities
Cash flows used by our operating activities for the year ended August 31, 2018 were $1,052,000 compared to
$8,777,000 for the same period last year. The decrease in cash flows used by our operating activities is mainly
explained by a positive variance of EBITDACO as explained previously. Also, the decrease is explained by positive
changes in non-cash operating working capital items mostly related to trade and other receivables, inventories and tax
credits receivable.
Investing Activities
For the year ended August 31, 2018, cash flows used by our investing activities reached $530,000 compared to
$430,000 for the year ended August 31, 2017. The increase is mainly explained by an increase in the acquisition of
property, plant and equipment for the medical sector compared to the same period last year. This is partly offset by the
receipt of a tax credit for the acquisition of property, plant and equipment.
Financing Activities
For the year ended August 31, 2018, cash flows used by financing activities reach $148,000 compared to cash flows
generated of $15,888,000 for the year ended August 31, 2017. The decrease is mainly explained by the fact that we
closed an equity financing of $14,950,500 during the year ended August 31, 2017.
13
COMMITMENTS
Leases
The Company leases offices in Quebec under operating leases expiring on April 30, 2020 and September 30, 2025.
The main agreement is renewable for an additional five-year period.
Future payments for the leases, required in each of the forthcoming years total $4,638,249 as follows:
2019
2020
2021
2022
2023
Thereafter
$
736,967
695,706
600,915
613,800
628,951
1,361,910
Other
On September 8, 2017, the Company signed an agreement amounting to $1,574,734 with a supplier for raw material
purchases for a 24-month period. As at August 31, 2018, the remaining amount regarding this agreement is $787,367.
SUBSEQUENT EVENT
On September 28, 2018, the Company achieved a technical milestone related to the agreement with Abiomed and the
Company received a payment of $2,260,900 (US$1,750,000) that will be recorded as licensing revenues in the
consolidated statements of loss and comprehensive loss for fiscal year 2019.
On October 15, 2018, the Company signed a loan agreement amounting to a maximum of $525,000 for the acquisition
of property, plant and equipment.
14 INFORMATION BY REPORTABLE SEGMENTS
Segmented Information
The Company is organized into two segments: Medical and Industrial.
Medical segment: In this segment, Opsens focuses mainly on the measure of FFR in interventional cardiology but also
supplies a wide range of miniature optical sensors to measure pressure and temperature to be used in a wide range of
applications that can be integrated in others medical devices.
Industrial segment: In this segment, Opsens develops, manufactures and installs innovative fibre optic sensing
solutions for critical and 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.
The same accounting policies are used for both reportable segments. Operations are carried out in the normal course
of business and are measured at the exchange amount, which approximates prevailing prices in the markets.
Years ended August 31,
2018
Total
$
2017
Total
$
Medical
Industrial
Medical
Industrial
$
21,949,230
-
$
2,120,501
24,069,731
149,210
149,210
$
16,269,011
-
$
1,482,985
17,751,996
269,505
269,505
11,416,874
1,322,538 12,739,412
6,886,549
610,992
7,497,541
728,375
72,220
800,595
608,453
90,163
698,616
82,292
15,396
97,688
75,927
14,566
90,493
(320,393 )
270,289
(50,104 )
(289,936 )
282,743
(7,193 )
501,250
-
501,250
163,745
-
163,745
External sales
Internal sales
Gross margin
Amortization of property,
plant and equipment
Amortization of
intangible assets
Financial expenses
(revenues)
Change in fair value of
embedded derivative
Net loss
(4,240,173 )
(309,311 )
(4,549,484 )
(4,879,287 )
(1,659,988 )
(6,539,275 )
Acquisition of property,
plant and equipment
Additions to
intangible assets
Segment assets
Segment liabilities
642,054
49,624
691,678
490,155
9,024
499,179
79,076
21,982,087
4,651,422
21,155
1,603,809
261,511
100,231
23,585,896
4,912,933
86,285
25,992,083
9,487,517
18,515
1,617,718
156,960
104,800
27,609,801
9,644,477
15
The Company’s net loss per reportable segment reconciles to its consolidated financial statements as follows:
Gross margin per reportable segment
Elimination of intersegment profits
Gross margin
Net loss per reportable segments
Elimination of intersegment profits
Net loss and comprehensive loss
Geographic sector’s information
Revenue per geographic sector
United States
Japan
Canada
Other*
Years ended August 31,
2018
$
12,739,412
-
12,739,412
(4,549,484 )
-
(4,549,484 )
2017
$
7,497,541
2,232
7,499,773
(6,539,275 )
2,232
(6,537,043 )
Years ended August 31,
2018
$
2017
$
10,250,126
6,539,888
1,987,216
5,292,501
24,069,731
5,100,077
6,586,561
1,625,567
4,439,791
17,751,996
* 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, 2018, revenues from two clients represented individually more than 10% of the total
revenues of the Company, i.e., 27% (medical’s reportable segment) and 25% (medical’s reportable segment).
During the year ended August 31, 2017, revenues from two clients represented individually more than 10% of the total
revenues of the Company, i.e., 40% (medical’s reportable segment) and 17% (medical’s reportable segment).
Medical Segment
Information and analysis in this section for sales and gross margin do not take into account licensing revenues
($1,958,000 for the year ended August 31, 2018 and $1,374,000 for the year ended August 31, 2017).
For the year ended August 31, 2018, sales from medical segment were $19,991,000 compared to $14,895,000 for the
year ended August 31, 2017, an increase of $5,096,000. The increase is explained by higher OEM sales of $3,198,000
and by higher FFR sales of $1,898,000.
Gross margin was $9,459,000 for the year ended August 31, 2018 compared to $5,512,000 for the year ended August
31, 2017, an increase of $3,947,000. The gross margin percentage for the year ended August 31, 2017 was 37%
compared to 47% for the year ended August 31, 2018. The increase in gross margin is mainly explained by higher
sales from our OEM products line and FFR products combined with a decrease in our production cost. The increase in
gross margin percentage reflects higher sales volume and the related economies of scale combined with enhanced
productivity.
16
Net loss for the medical segment was $4,240,000 for the year ended August 31, 2018 compared to $4,879,000 for the
same period last year. The decrease in net loss is mainly explained by higher medical sales and also the improvement
of the gross margin, partly offset by higher sales and marketing expenses, as explained previously.
Working capital for the medical segment as at August 31, 2018 was $15,183,000 compared to $14,675,000 as at August
31, 2017. The increase of $508,000 is mainly explained by the conversion of the convertible debenture into common
shares for an amount of $3,853,000. This is partly offset by lower trade and other receivables of $1,722,000 and by
lower cash and cash equivalents of $1,586,000.
Industrial Segment
For the year ended August 31, 2018, sales from industrial segment were $2,121,000 compared to $1,483,000 for the
year ended August 31, 2017, an increase of $638,000. This increase is mostly explained by significant orders placed
by customers.
Gross margin was $1,323,000 for the year ended August 31, 2018 compared to $611,000 for the same period in 2017,
an increase of $712,000. Gross margin percentage increase from 35% for the year ended August 31, 2017 to 58% for
the year ended August 31, 2018. The increase in gross margin percentage is mainly explained by sales of products with
a higher margin over last year.
Net loss for the industrial segment was $309,000 for the year ended August 31, 2018 compared to $1,660,000 for the
year ended August 31, 2017. The decrease in net loss is mainly explained by an increase in sales and by a decrease in
administrative and marketing expenses.
Working capital for the industrial segment as at August 31, 2018 was $1,163,000 compared to $1,235,000 as at August
31, 2017. The decrease of $72,000 is mainly explained by lower tax credits receivable of $207,000. This is partly offset
by higher accounts payable and accrued liabilities of $98,000.
FOURTH QUARTER 2018
Revenues
Revenues totalled $5,866,000 for the quarter ended August 31, 2018 compared to $4,307,000 a year earlier. The
increase is explained by higher FFR sales of $1,288,000 and industrial sales revenues of $308,000.
Gross Margin
Information and analysis in this section do not take into consideration licensing revenues ($92,000 the quarters ended
August 31, 2018 and 2017).
Gross margin was $2,929,000 for the three-month period ended August 31, 2018 compared to $1,913,000 for the same
period last year, an increase of $1,016,000. The gross margin percentage increased from 44% for the three-month
period ended August 31, 2017 to 51% for the three-month period ended August 31, 2018. The increase in gross margin
is explained by higher medical and industrial sales. The increase in gross margin percentage reflects higher sales
volume and the related scale economy combined with enhanced productivity in the medical segment and sales of
product with a higher margin in the industrial segment.
Administrative Expenses
Administrative expenses were $1,126,000 and $767,000, respectively, for the three-month periods ended August 31,
2018 and 2017. The increase is mainly explained by higher salaries and fringe benefits and professional fees. This is
partly offset by a lower allowance for doubtful accounts.
17
Sales and Marketing Expenses
Sales and marketing expenses for the three-month period ended August 31, 2018 totalled $2,382,000, an increase of
$677,000 over the $1,705,000 reported during the same period in 2017. The increase is largely explained by a higher
headcount, commissions, clinical studies, tradeshows, travelling and subcontractor expenses when compared to last
year due to the expansion of Opsens’ direct sales presence for its FFR products in the United States.
Research and Development Expenses
Research and development expenses totalled $1,046,000 for the three-month period ended August 31, 2018, an increase
of $310,000 over the $736,000 reported during the same period in 2017. The variation is mainly explained by higher
supplies and subcontractors for our FFR activities. This is also explained by a lower tax credits.
Financial revenues
Financial revenues reached $32,000 for the three-month period ended August 31, 2018 compared to $134,000 for the
same period last year. The decrease in financial revenues during the period is explained by a less favourable exchange
rate of $121,000. This is partly offset by lower interest on long-term debt of $20,000.
Change in Fair Value of the Embedded Derivative
During the three-month period ended August 31, 2018, no expense ($84,000 for the three-month period ended August
31, 2017) was recorded in the consolidated statements of loss and comprehensive loss.
Net Loss
As a result of the foregoing, net loss for the three-month period ended August 31, 2018 was $1,501,000 or $0.02 per
share compared to net loss of $1,153,000 or $0.02 per share for the same period in 2017.
INFORMATION ON SHARE CAPITAL
For the year ended August 31, 2018, the Company granted to some employees, directors and consultant a total of
2,284,500 stock options with an average exercise price of $0.99, cancelled 1,477,750 stock options with an exercise
price of $1.24, whereas 650,750 stock options with an average exercise price of $0.30 were exercised, and 427,250
stock options with an exercise price of $1.14 expired.
For the year ended August 31, 2017, the Company granted to some employees, directors and consultants a total of
2,992,750 stock options with an average exercise price of $1.49, cancelled 981,750 stock options with an exercise
price of $1.03, while 1,074,250 stock options with an average exercise price of $0.40 were exercised.
For the year ended August 31, 2018, 2,380,500 warrants with an average exercise price of $1.55 expired.
For the year ended August 31, 2017, 1,366,468 warrants expired with an average exercise price of $1.20 and 1,870,528
warrants with an average exercise price of $1.14 were exercised.
As at November 27, 2018, the following components of shareholders' equity are outstanding:
Common shares
Stock options
Securities on a fully diluted basis
89,968,817
5,321,250
95,290,067
No dividend was declared per share for each share class.
18
RELATED PARTY TRANSACTIONS
In the normal course of business, the Company has entered into transactions with related parties.
Years ended August 31,
2018
2017
$
$
-
59,134
Professional fees paid to a company
controlled by a director
The fees were 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 was $2,143,900 as at
August 31, 2017 and was 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.
19
Financial assets (liabilities) measured at
fair value:
Convertible debenture – embedded
derivative
Total
$
-
Total
$
As at August 31, 2018
Level 1
Level 2
Level 3
$
-
$
-
$
-
As at August 31, 2017
Level 1
Level 2
Level 3
$
$
Financial assets (liabilities) measured at
fair value:
Convertible debenture – embedded
derivative
(1,097,653 )
-
(1,097,653 )
$
-
On November 16, 2017, the Company received a notice of conversion from the holder of the convertible debenture.
At the date of the conversion, the embedded derivative must be measured at fair value with gains and losses in fair
value recognized in the consolidated statements of net loss. The price use to determine the value of the embedded
derivative was the difference between the closing price of the shares of the Company on the TSX Exchange on the
trading day immediately preceding the date of the conversion and the conversion price used to determine the common
shares issued. For the year ended August 31, 2017, the fair value of the convertible debenture was determined using
the Black-Scholes pricing model using an implied volatility of 51%, a discount rate of 1.26% and an expected life of
0.2 years.
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 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. In general, 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 checks of all its customers and
establishes an allowance for doubtful accounts when accounts are determined to be uncollectible. Two major customers
represented 25% of the Company’s total accounts receivable as at August 31, 2018 (34% as at August 31, 2017).
20 As at August 31, 2018, 32% (37% as at August 31, 2017) of the accounts receivable were of more than 90 days whereas
52% (34% as at August 31, 2017) 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, 2018, the allowance for doubtful accounts was
established at $817,823 ($940,929 as at August 31, 2017).
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.
The following are the contractual maturities of the financial liabilities (principal and interest, assuming current interest
rates) as at August 31, 2018 and August 31, 2017:
August 31, 2018
Carrying
amount
Cash flows
$
$
0 to 12
months
$
Accounts payable and
accrued liabilities
2,719,690
2,719,690
2,719,690
12 to 24
After
months
24 months
$
-
$
-
Long-term debt
Total
1,193,112
1,276,509
580,052
3,912,802
3,996,199
3,299,742
488,783
488,783
207,674
207,674
August 31, 2017
Carrying
amount
Cash flows
$
$
0 to 12
months
$
Accounts payable and
accrued liabilities
2,909,516
2,909,516
2,909,516
12 to 24
After
months
24 months
$
-
$
-
Long-term debt
1,445,168
1,580,231
492,722
526,052
561,457
Convertible debenture
3,853,225
2,770,358
2,770,358
-
-
Total
8,207,909
7,260,105
6,172,596
526,052
561,457
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 and variable interest rates
Fixed interest rates
21
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 derivatives. The Company owns investments with fixed interest rates. As at August 31,
2018, the Company was holding more than 91% (94% as at August 31, 2017) of its cash and cash equivalents in all-
time redeemable term deposits.
All else being equal, a hypothetical 1% interest rate increase or decrease would not have a significant impact on net
loss and comprehensive loss for the year ended August 31, 2018 (not significant for the year ended August 31, 2017).
Financial Expenses (revenues)
Interest and bank charges
Interest on long-term debt
Interest and imputed interest on the convertible debenture
Gain on foreign currency translation
Interest income
Concentration Risk
Years ended August 31,
2018
$
68,079
75,505
14,763
(42,170 )
(166,281 )
(50,104 )
2017
$
56,323
70,379
69,979
(19,374 )
(184,500 )
(7,193 )
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, 2018 and 2017, 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 U.S. 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, 2018, if the Canadian dollar had strengthened 10% against the U.S. dollar with all other
variables held constant, net loss and comprehensive loss would have been $591,000 higher ($79,000 higher for the
year ended August 31, 2017). Conversely, if the Canadian dollar had weakened by 10% against the U.S. dollar with
all other variables held constant, net loss and comprehensive loss would have been $591,000 lower for the year ended
August 31, 2018 ($79,000 lower for the year ended August 31, 2017).
For the year ended August 31, 2018, if the Canadian dollar had strengthened 10% against the Euro with all other
variables held constant, net loss and comprehensive loss would have been $345,000 higher ($322,000 higher for the
year ended August 31, 2017). Conversely, if the Canadian dollar had weakened by 10% against the Euro with all other
variables held constant, net loss and comprehensive loss would have been $345,000 lower for the year ended August
31, 2018 ($322,000 lower for the year ended August 31, 2017).
For the year ended August 31, 2018, if the Canadian dollar had strengthened or weakened by 10% against the British
pound, the impact on net loss and comprehensive loss would not have been significant.
22 As at August 31, 2018 and August 31, 2017, the risk to which the Company was exposed is established as follows:
Cash and cash equivalents (US$599,807; US$252,720 as at
August 31, 2017)
Cash and cash equivalents (€ 643; € 28,968 as at
August 31, 2017)
Cash and cash equivalents (£11,498; £64 as at August 31, 2017)
Trade and other receivables (US$1,502,031; US$1,741,221 as at
August 31, 2017)
Trade and other receivables (€ 145,249; € 625,813 as at
August 31, 2017)
Trade and other receivables (£131,788; £116,377 as at
August 31, 2017)
Accounts payable and accrued liabilities (US$526,291;
US$757,978 as at August 31, 2017)
Accounts payable and accrued liabilities (€ 3,854;
€ 4,408 as at August 31, 2017)
Accounts payable and accrued liabilities (£4,537;
£830 as at August 31, 2017)
Convertible debenture (nil; US$2,198,125 as at August 31, 2017)
Embedded derivative (nil; US$875,600 as at August 31, 2017)
Total
CAPITAL MANAGEMENT
As at
August 31,
2018
$
As at
August 31,
2017
$
783,048
316,810
975
19,467
43,125
103
1,960,902
2,182,794
220,270
931,647
223,130
188,463
(687,073 )
(950,202 )
(5,845 )
(6,563 )
(7,682 )
-
-
2,507,192
(1,342 )
(2,755,572 )
(1,097,653 )
(1,148,390 )
The Company's objective in managing capital, primarily composed of shareholders' equity and long-term debt, is to
ensure sufficient liquidity to fund production activities, R&D, 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, 2018, the Company's working capital amounted to $16,346,939 ($15,909,209 as at August 31, 2017),
including cash and cash equivalents of $10,886,788 ($12,570,299 as at August 31, 2017). The accumulated deficit at
the same date was $41,625,541 ($37,076,057 as at August 31, 2017). 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 after the reporting date of August 31, 2018.
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, 2018 and 2017, the Company has not been in default on any of its obligations regarding
long-term debt.
23
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.
From the human resources’ perspective, there are no vacancies in the major executive positions within the Company.
However, following the retirement of the former Vice-president, Medical Devices, management reorganized duties
within the organization and assigned his duties to various employees.
Also, additional technical and production personnel as well as sales and marketing personnel will be required to support
the expected growth. Considering the employment market in Canada, the U.S. and Europe, 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 creating 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 to align shareholders’ interest with corporate executives’ interest. This long-term
vision stimulates innovation and the development of recurring revenues.
NEW ACCOUNTING STANDARDS
There are no IFRS or International Financial Reporting Interpretations Committee (IFRIC) that are in effect for the
first time in 2018 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
exceptions. Early adoption is permitted. Restatement of prior periods in relation to the classification and measurement,
including impairment, is not required. To date, the Company does not expect the new standard to result in material
changes in the consolidated financial statements, aside from disclosure requirements.
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 what 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 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 licences of intellectual property. To date, the Company does not expect the new standard
to result in material changes in the consolidated financial statements, aside from disclosure requirements.
24 IFRS 16, Leases
On January 13, 2016, the IASB released IFRS 16, Leases, which replaces 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 involving 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 lessors remain substantially unchanged. The standard
is effective for annual 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.
IFRIC 23, Uncertainty over Income Tax Treatments
On June 7, 2017, the IASB issued IFRIC 23, Uncertainty over Income Tax Treatments (the Interpretation). The
Interpretation provides guidance on the accounting for current and deferred tax liabilities and assets in circumstances
in which there is uncertainty over income tax treatments. The Interpretation is effective for annual periods beginning
on or after January 1, 2019. Early application is permitted.
The Interpretation requires an entity to:
- contemplate whether uncertain tax treatments should be considered separately, or together as a group, based on
which approach provides better predictions of the resolution;
- reflect an uncertainty in the amount of income tax payable (recoverable) if it is probable that it will pay (or
recover) an amount for the uncertainty; and
- measure a tax uncertainty based on the most likely amount or expected value depending on whichever method
better predicts the amount payable (recoverable).
The Company has not yet assessed the impact of this new interpretation.
DISCLOSURE CONTROLS AND PROCEDURES
In accordance with the requirements of National Instrument 52-109 – Certification of Disclosure in Issuers’ Annual
and Interim Filings (NI 52-109), the Company’s management, including the Chief Executive Officer (CEO) and the
Chief Financial Officer (CFO), have evaluated the effectiveness of the Company’s disclosure controls and procedures
(DC&P). Based upon the results of the evaluation, the Company’s CEO and CFO have concluded that as at August 31,
2018, the Company’s disclosure controls and procedures to provide reasonable assurance that the information required
to be disclosed by the Company in reports it files is recorded, processed, summarized and reported within the
appropriate time periods and forms were effective.
INTERNAL CONTROL OVER FINANCIAL REPORTING
Internal control over financial reporting (ICFR) is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
applicable IFRS. Internal control over financial reporting should include those policies and procedures that establish
the following:
• maintenance of records in reasonable detail, that accurately and fairly reflect the transactions and disposals
•
•
•
of assets;
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with applicable IFRS;
receipts and expenditures are only being made in accordance with authorizations of management or the Board
of Directors; and
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposal of
the Company’s assets that could have a material effect on the financial instruments.
25
An evaluation was carried out, under the supervision of the CEO and the CFO, of the design and effectiveness of our
internal controls over financial reporting. Based on this evaluation, the CEO and the CFO concluded that the internal
controls over financial reporting are effective as at August 31, 2018.
RISK FACTORS
The Company operates in an industry that contains various risks and uncertainties. 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 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.
There are important risks which management believes could impact the Company’s business. For information on risks
and uncertainties, please also refer to the “Risk Factors” section of our most recent Annual Information Form.
OFF-BALANCE SHEET ARRANGEMENTS
As of August 31, 2018, the Company was not the primary beneficiary in Special Purpose Entities and there were no
off-balance sheet arrangements.
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) Robin Villeneuve, CPA, CA
_______________
November 27, 2018
26 Consolidated Financial Statements
Opsens Inc.
Years ended August 31, 2018 and 2017
Opsens Inc.
Years ended August 31, 2018 and 2017
Table of contents
Independent Auditor’s Report ............................................................................................................................... 29
Consolidated Statements of Loss and Comprehensive Loss ................................................................................ 30
Consolidated Statements of Changes in Equity ............................................................................................... 31-32
Consolidated Statements of Financial Position ..................................................................................................... 33
Consolidated Statements of Cash Flows .............................................................................................................. 34
Notes to Consolidated Financial Statements ................................................................................................... 34-71
28
Deloitte LLP
801 Grande Allée West
Suite 350
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, 2018, and August 31, 2017, and
the consolidated statements of loss and comprehensive loss, changes in equity and cash flows for the
years then ended, and a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with International Financial Reporting Standards 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.
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, 2018, and August 31, 2017, and its financial performance and
its cash flows for the years then ended in accordance with International Financial Reporting Standards.
November 27, 2018
___________________
1 CPA auditor, CA, public accountancy permit No. A112991
29
Opsens Inc.
Consolidated Statements of Loss and Comprehensive Loss
Years ended August 31, 2018 and 2017
Revenues
Sales
Licensing agreement (Note 11)
Cost of sales (Note 24)
Gross margin
Expenses (revenues) (Note 24)
Administrative
Sales and marketing
Research and development
Financial revenues (Note 25)
Change in fair value of embedded derivative (Note 13)
2018
$
2017
$
22,112,019
16,377,834
1,957,712
1,374,162
24,069,731
17,751,996
11,330,319
10,252,223
12,739,412
7,499,773
3,868,655
9,272,717
3,696,378
(50,104 )
501,250
3,774,473
6,975,208
3,130,583
(7,193 )
163,745
17,288,896
14,036,816
Net loss and comprehensive loss
(4,549,484 )
(6,537,043 )
Basic and diluted net loss per share (Note 15)
(0.05 )
(0.08 )
The accompanying notes are an integral part of the consolidated financial statements.
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Opsens Inc.
Consolidated Statements of Financial Position
Assets
Current
Cash and cash equivalents (Note 16)
Trade and other receivables (Note 5)
Tax credits receivable (Note 21)
Inventories (Note 6)
Prepaid expenses
Property, plant and equipment (Note 7)
Intangible assets (Note 8)
Liabilities
Current
Accounts payable and accrued liabilities (Note 10)
Warranty provision (Note 18)
Current portion of deferred revenues (Note 11)
Current portion of long-term debt (Note 12)
Convertible debenture (Note 13)
Deferred revenues (Note 11)
Long-term debt (Note 12)
Deferred lease inducements
Shareholders’ equity
Share capital (Note 14a))
Reserve – Stock option plan (Note 14b))
Reserve – Warrants (Note 14c))
Deficit
Commitments (Note 17)
Subsequent events (Note 27)
As at August 31,
2018
$
As at August 31,
2017
$
10,886,788
2,816,285
354,788
5,219,960
507,336
19,785,157
3,174,849
625,890
23,585,896
2,719,690
137,420
41,669
539,439
-
3,438,218
-
653,673
821,042
4,912,933
12,570,299
4,218,938
916,675
5,446,508
454,286
23,606,706
3,355,410
647,685
27,609,801
2,909,516
128,910
366,408
439,438
3,853,225
7,697,497
41,673
1,005,730
899,577
9,644,477
54,341,014
3,058,196
2,899,294
(41,625,541 )
18,672,963
23,585,896
49,581,504
2,560,583
2,899,294
(37,076,057 )
17,965,324
27,609,801
The accompanying notes are an integral part of the consolidated financial statements.
Approved by the Board
Signed [Jean Lavigueur] Director
Signed [Louis Laflamme] Director
33
Opsens Inc.
Consolidated Statements of Cash Flows
Years ended August 31, 2018 and 2017
Operating activities
Net loss
Adjustments for:
Amortization of property, plant and equipment (Note 7)
Amortization of intangible assets (Note 8)
Loss (gain) on disposal of property, plant and equipment
Write-off of intangible assets
Stock-based compensation costs
Change in fair value of embedded derivative
Interest expense (revenue)
Unrealized foreign exchange loss (gain)
Changes in non-cash operating
working capital items (Note 16)
Investing activities
Acquisition of property, plant and equipment
Income tax credit on 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
Government grants on long-term debt
Reimbursement of long-term debt
Proceeds from issuance of shares and warrants (Note 14a))
Shares issue costs (Note 14a))
Interest paid
Effect of foreign exchange rate changes on cash
and cash equivalents
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents – Beginning of year
Cash and cash equivalents – End of year
2018
$
2017
$
(4,549,484 )
(6,537,043 )
800,595
97,688
66,076
24,338
618,050
501,250
(59,153 )
26,399
698,616
90,493
(39,213 )
11,225
864,054
163,745
52,085
(159,616 )
1,421,813
(1,052,428 )
(3,920,886 )
(8,776,540 )
(757,076 )
161,138
(103,041 )
2,600
166,281
(530,098 )
213,840
-
(519,716 )
196,070
-
(38,546 )
(148,352 )
(544,389 )
24,886
(158,491 )
131,217
116,522
(430,255 )
189,863
(48,416 )
(538,214 )
17,520,823
(1,194,933 )
(41,344 )
15,887,779
47,367
(13,725 )
(1,683,511 )
12,570,299
10,886,788
6,667,259
5,903,040
12,570,299
Additional information on the consolidated statements of cash flows is presented in Note 16.
The accompanying notes are an integral part of the consolidated financial statements.
34
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2018 and 2017
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 but also supplies a
wide range of miniature optical sensors to measure pressure and temperature to be used in a wide range of
applications that can be integrated in others medical devices. 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 through its wholly-owned subsidiary Opsens Solutions Inc. (Solutions).
Solutions develops, manufactures and installs innovative fibre optic sensing solutions for critical and demanding
industrial applications. The Company’s head office is located at 750 Boulevard du Parc-Technologique, Quebec
City, Quebec, 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 on the historical cost basis, 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 accordance with IFRS requires the use of certain critical
accounting estimates. It also requires management to exercise its judgement in applying the Company's
accounting policies. The areas with a higher degree of judgment 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 fully
eliminated upon consolidation until they are realized with a third party.
Subsidiary
A subsidiary is an entity over which the Company has control. 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. A subsidiary is 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 a subsidiary that do not result in a loss of control are
accounted for as equity transactions.
35
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2018 and 2017
2. Summary of Significant Accounting Policies (continued)
Revenue Recognition
The Company’s revenues related to the sales of products are measured at the fair value of the consideration
received or receivable upon shipment of the product and when the risks and rewards of ownership have been
transferred to the customer, when there is no management to the degree usually associated with ownership or
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.
Reporting Currency and Foreign Currency Translation
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 date of the consolidated statements of financial position,
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 from translation are
recognized 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 development costs have been capitalized during any of the years
presented.
Research and Development Refundable Tax Credits and Government Grant
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 in which the expenses are incurred,
provided that the Company has reasonable assurance the refundable R&D tax credits or government assistance
will be recovered.
Shareholders’ 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 warrants to purchase common
shares. The Company estimates the fair value of warrants using the Black-Scholes option pricing model. The
difference between the unit price and the fair value of each warrant 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.
36
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2018 and 2017
2. Summary of Significant Accounting Policies (continued)
Share-based Compensation
The Company offers a stock option plan described in Note 14b), which is determined as an equity-settled plan.
The Company uses the fair value-based method to measure the fair value of stock options as at their grant date.
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 labour costs and an allocation of fixed and variable manufacturing overhead, including applicable
amortization 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 a change in economic circumstances, the amount of the write-down is reversed. The reversal is limited to the
amount of the original write-down.
37
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2018 and 2017
2. Summary of Significant Accounting Policies (continued)
Property, Plant and Equipment
Property, plant and equipment are recorded at cost, less accumulated amortization and accumulated impairment
losses, if any. The cost of property, plant and equipment includes the purchase price and the directly attributable
costs of acquisition.
Amortization is recorded using the straight-line method over the 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 eight and two years
Amortization 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 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 over the 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.
38
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2018 and 2017
2. Summary of Significant Accounting Policies (continued)
Impairment of Non-Financial Assets
Indefinite-Life Intangible Assets
The carrying values of identifiable intangible assets with indefinite lives are tested annually for impairment.
Indefinite-life intangible assets are allocated to cash generating units (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
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 Finite Useful Lives
The carrying values of non-financial assets with finite useful life, such as property, plant and equipment and
intangible assets with finite useful lives, are assessed for impairment whenever events or changes in
circumstances indicate that their carrying amounts may not be recoverable. If such an indicator 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. Assets are depreciated over the shorter of their
estimated useful lives or the lease term.
39
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2018 and 2017
2. Summary of Significant Accounting Policies (continued)
Warranty Provision
The Company offers a standard 12-month warranty excluding consumables and accessories.
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 received by the taxation authorities. The income tax rates used to calculate the amount
are those that are enacted or substantively enacted at the date of the consolidated statements of financial position
in the tax jurisdiction where the Company and its subsidiary generate taxable income/loss.
Deferred Income Taxes
The Company follows the liability method of accounting for deferred income taxes. 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 apply to taxable income in 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 assets 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 to different taxable entities that intend to settle the
balances on a net basis.
40
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2018 and 2017
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 shareholders 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 shareholders of the
Company adjusted for the interests on the convertible debenture, net of the related income taxes, the unrealized
foreign exchange gain or loss, net of the related income taxes, and for the change in fair value of embedded
derivative, net of the related income taxes, 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.
41 Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2018 and 2017
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 and that a reliable estimate of that negative effect can be made.
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 13, 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 upon 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 related asset or related liability.
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 following critical estimates, judgments and assumptions that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within the next financial year:
Inventories
The Company measures 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.
42 Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2018 and 2017
3. Critical Accounting Estimates, Assumptions and Judgments (continued)
Useful Life of Depreciable Assets
Management reviews the useful lives of depreciable assets at each reporting date. As at August 31, 2018,
management stated 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.
Government Assistance and R&D Tax Credits
Government assistance and R&D 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 R&D 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 rates, 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.
Functional Currency
The functional currency for the Company and its subsidiary is the currency of the primary economic environment
in which each operates. The Company has determined that the functional currency for the Company and its
subsidiary is the Canadian dollar. The determination of functional currency may require certain judgments to
determine the primary economic environment. The Company reconsiders the functional currency used when
there is a change in events and conditions which determined the primary economic environment.
Deferred Income Tax Asset
A deferred income tax asset will be recognized in the financial statements only when the Company concludes
that these tax assets will probably be materialized by shielding profits from taxes or otherwise. The tax asset
amount will be recorded based on the enacted and substantively enacted income tax rates for the year in which
the differences are expected to reverse.
43
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2018 and 2017
4. Changes in Accounting Policies
New and Revised Standards Issued But Not Yet in Effect
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. To date, the Company does
not expect the new standard to result in material changes in the consolidated financial statements, aside from
disclosure requirements.
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 what 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 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 licences of intellectual property. To date, the Company does
not expect the new standard to result in material changes in the consolidated financial statements, aside from
disclosure requirements.
IFRS 16, Leases
On January 13, 2016, the IASB released IFRS 16, Leases, which replaces 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 involving 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 lessors remain
substantially unchanged. The standard is effective for annual 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.
44
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2018 and 2017
4. Changes in Accounting Policies (continued)
IFRIC 23, Uncertainty over Income Tax Treatments
On June 7, 2017, the IASB issued IFRIC 23, Uncertainty over Income Tax Treatments (the Interpretation). The
Interpretation provides guidance on the accounting for current and deferred tax liabilities and assets in
circumstances in which there is uncertainty over income tax treatments. The Interpretation is effective for annual
periods beginning on or after January 1, 2019. Early application is permitted.
The Interpretation requires an entity to:
- contemplate whether uncertain tax treatments should be considered separately, or together as a group, based
on which approach provides better predictions of the resolution;
- reflect an uncertainty in the amount of income tax payable (recoverable) if it is probable that it will pay (or
recover) an amount for the uncertainty; and
- measure a tax uncertainty based on the most likely amount or expected value depending on whichever method
better predicts the amount payable (recoverable).
The Company has not yet assessed the impact of this new interpretation.
5. Trade and Other Receivables
Trade
Allowance for doubtful accounts
Sales taxes receivable
Other receivables
Total
Allowance for Doubtful Accounts
Balance, beginning of year
Additional provisions recognized
Amounts recovered during the year
Foreign exchange variance
Balance, end of year
As at
August 31,
2018
$
3,358,916
(817,823 )
171,624
103,568
2,816,285
As at
August 31,
2017
$
4,716,013
(940,429 )
402,640
40,714
4,218,938
Years ended August 31,
2018
$
(940,429 )
-
128 519
(5 913 )
(817,823 )
2017
$
(491,623 )
(448,806 )
-
-
(940,429 )
45
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2018 and 2017
6.
Inventories
Raw materials
Work in progress
Finished goods
Total
As at
August 31,
2018
$
2,134,634
1,404,518
1,680,808
5,219,960
As at
August 31,
2017
$
2,415,146
1,566,244
1,465,118
5,446,508
For the year ended August 31, 2018, $7,044,171 of inventories were expensed in the consolidated statements
of loss and comprehensive loss and presented in cost of sales ($6,096,080 for the year ended August 31, 2017).
46
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a
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2018 and 2017
8.
Intangible Assets
Indefinite
lives –
Trademarks
$
Finite
lives –
Patents
$
Finite lives –
Software,
net of
income tax
credits of
$1,518
$
Internally
developed
Finite
lives –
Patents
$
Total
$
21,237
1,080
-
22,317
-
-
-
-
35,060
-
(35,060 )
-
8,970
1,752
(10,722 )
-
210,655
-
-
210,655
141,613
36,323
-
177,936
842,758 1,109,710
100,231
(35,060 )
941,909 1,174,881
99,151
-
311,442
59,613
-
371,055
462,025
97,688
(10,722 )
548,991
Cost
Balance as at August 31, 2017
Additions
Disposals
Balance as at August 31, 2018
Accumulated amortization
Balance as at August 31, 2017
Amortization
Disposals
Balance as at August 31, 2018
Net book value
as at August 31, 2018
22,317
-
32,719
570,854
625,890
Indefinite
lives –
Trademarks
$
18,720
2,517
-
21,237
-
-
-
-
Finite
lives –
Patents
$
35,060
-
-
35,060
7,218
1,752
-
8,970
Finite lives –
Software,
net of
income tax
credits of
$1,518
$
181,325
29,330
-
210,655
105,489
36,124
-
141,613
Internally
developed
Finite
lives –
Patents
$
Total
$
787,289 1,022,394
104,800
72,953
(17,484 )
(17,484 )
842,758 1,109,710
265,084
52,617
(6,259 )
311,442
377,791
90,493
(6,259 )
462,025
Cost
Balance as at August 31, 2016
Additions
Disposals
Balance as at August 31, 2017
Accumulated amortization
Balance as at August 31, 2016
Amortization
Disposals
Balance as at August 31, 2017
Net book value
as at August 31, 2017
21,237
26,090
69,042
531,316
647,685
The Company has considered indicators of impairment as at August 31, 2018 and recorded an impairment loss
of $24,338 attributable to patent requests that have not been pursued ($11,225 for year ended August 31,
2017).
49
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2018 and 2017
9.
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 usual margin. 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,
2018 and 2017.
The Company also has credit cards for a maximum of $75,000 to finance its current operations. The balance
used on these credit cards bears interest at the financial institution’s prime rate plus 8.5%.
10. Accounts Payable and Accrued Liabilities
Suppliers
Salaries, employee benefits and other
Other liabilities
Total
11. Deferred Revenues
Licensing agreement
As at
August 31,
2018
$
1,022,843
632,449
1,064,398
2,719,690
As at
August 31,
2017
$
1,460,847
575,582
873,087
2,909,516
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 licence 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. An amount of $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. As at August 31, 2018, the
Company still has an amount of US$2,500,000 left to receive from this agreement.
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 will be 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, 2018, an amount of $366,412 ($366,412 for the year
ended August 31, 2017) related to the Abiomed agreement has been recognized as licensing revenues in the
consolidated statements of loss and comprehensive loss.
For the year ended August 31, 2018, the Company achieved two technical milestones related to the agreement
with Abiomed and consequently, it allows the Company to record, in the consolidated statements of loss and
comprehensive loss as licensing revenues an amount of $1,591,300 (US$1,250,000) ($1,007,750 (US$750,000)
for the year ended August 31, 2017).
50 Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2018 and 2017
12. Long-term Debt
Contributions repayable to Ministère des Finances et de l’Économie
(MFE), without interest (effective rate of 9%), repayable in 5 equal and
consecutive annual instalments of $82,718, maturing in February 2020.
Debt balance
Imputed interest
Contributions repayable to Canada Economic Development, without
interest (effective rate of 13.5%), repayable in 20 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 $3,333 and a final payment of $3,353, 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 2020. 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 48
monthly instalments of $18,750, maturing in May 2020. Amounts received
are net of transaction costs of $9,000.
As at
August 31,
2018
$
As at
August 31,
2017
$
165,436
(13,999 )
151,437
248,153
(30,583 )
217,570
120,000
(15,660 )
104,340
180,000
(32,601 )
147,399
200,000
(49,473 )
150,527
200,000
(65,601 )
134,399
207,802
332,156
391,630
613,644
Amounts to be carried forward
1,005,736
1,445,168
51
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2018 and 2017
12. Long-term Debt (continued)
Amounts to be carried forward
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 48
monthly instalments of $4,500, maturing in February 2022. Amounts
received are net of transaction costs of $2,160.
Current portion
As at
August 31,
2018
$
As at
August 31,
2017
$
1,005,736
1,445,168
187,376
1,193,112
539,439
653,673
-
1,445,168
439,438
1,005,730
The annual principal instalments due on the long-term debt are $539,439 in 2019, $466,061 in 2020, $83,456 in
2021, $60,217 in 2022 and $37,279 in 2023.
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, 2018 and 2017, these
financial ratios were met by the Company.
13. Convertible Debenture
Debt component reported as liability (nil; US$2,198,125)
Embedded derivative reported as liability (nil; US$875,600)
Total
As at
August 31,
2018
$
-
-
-
As at
August 31,
2017
$
2,755,572
1,097,653
3,853,225
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 bore interest at a rate of 2.0% per annum,
payable at maturity. At the holder’s option, the convertible debenture was convertible 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 was subject to a minimum of $0.50 and a maximum of $0.75 per common share
(the conversion price).
The convertible debenture was 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 had been at least $1.20 and if a minimum of 50,000 common
shares had been traded on the TSX Exchange during each of the twenty trading days taken into account in the
calculation of the conversion price.
52
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2018 and 2017
13. Convertible Debenture (continued)
To secure the repayment of the convertible debenture, a movable hypothec on certain equipment was pledged
as collateral. As at November 16, 2017, the net book value of property, plant and equipment pledged as collateral
was nil (nil as at August 31, 2017). This hypothec ranked second to some of the Company’s long-term debts.
As mentionned above, the convertible debenture contained a conversion option that resulted in an obligation to
deliver a fixed amount of equity instruments in exchange for a variable amount of a convertible debenture when
translated in the functional currency of the Company. Consequently, under IAS 32, Financial Instruments:
Presentation, the convertible debenture was accounted for as a compound instrument with a debt component
and a separate embedded derivative component representing the conversion option. Both the debt and
embedded derivative components of this compound financial instrument were measured at fair value upon initial
recognition. The debt component was subsequently accounted for at amortized cost using the effective interest
rate method. The embedded derivative was subsequently measured at fair value at each reporting date, with
gains and losses in fair value recognized through profit or loss.
On November 16, 2017, the Company received a notice of conversion from the holder of the convertible
debenture. At that date, the debt component was at $2,816,548 ($2,755,572 as at August 31, 2017) including
accrued interest of $267,545 ($251,070 as at August 31, 2017). The debt component was converted into
3,413,333 common shares of the Company at a price of $0.75 per share and accrued interest was converted into
263,918 common shares of the Company at a price of $0.97 per share. The embedded derivative had a value of
$1,626,455 ($1,097,653 as at August 31, 2017). These two components were credited to share capital.
Expenses associated with the debenture consist of:
Interest expense
Imputed interest
Change in fair value of embedded derivative
Total
Years ended August 31,
2018
$
12,067
2,696
501,250
516,013
2017
$
57,103
12,876
163,745
233,724
As at August 31, 2017, the debt component of the convertible debenture had a fair value of $2,143,900.
14. Shareholders’ Equity
a) Shares Capital
The Company has authorized an unlimited number of common shares (voting and participating shares)
without par value.
On December 8, 2016, the Company completed a public offering for aggregate gross proceeds of
$14,950,500. In connection with the offering, the Company issued a total of 9,967,000 shares at a price of
$1.50 per share. Expenses of the offering include underwriting fees of $889,530 and other professional fees
and miscellaneous fees of $305,403 for total fees of $1,194,933.
53
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2018 and 2017
14. Shareholders’ Equity (continued)
a) Share capital (continued)
During the year ended August 31, 2018, following the exercise of stock options, the Company issued 650,750
common shares (1,074,250 common shares for the year ended August 31, 2017) for a cash consideration of
$196,070 ($426,126 for the year ended August 31, 2017). As a result, an amount of $120,437 was reallocated
from “Reserve – Stock option plan” to “Share capital” in shareholders’ equity ($223,560 for the year ended
August 31, 2017).
During the year ended August 31, 2018, there was no exercise of warrants (1,870,528 for the year ended
August 31, 2017 for a cash consideration of $2,144,197). As a result, no amount was reallocated from
“Reserve – Warrants” to “Share capital” in shareholders’ equity ($354,443 for the year ended August 31,
2017).
b) Stock Options
The shareholders approved the stock option plan on January 24, 2017 because, according to the policies of
the TSX Exchange, the stock option plan must be approved by the Company’s shareholders every three
years. 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 Exchange. The exercise period
cannot exceed five years, beginning on the grant date. These options generally vest over a four-year period,
except for 800,000 stock options (700,000 stock options granted as at August 31, 2017), 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 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, 2018 is
$618,050 ($864,054 for the year ended August 31, 2017).
The fair value of options granted was determined using the Black-Scholes option pricing model with the
following assumptions:
Years ended August 31,
2018
2017
Risk-free interest rate
Between 1.44% and 2.20%
Between 0.50% and 1.39%
Volatility
Dividend yield on shares
Expected life
Weighted share price
Weighted fair value per option at the
grant date
Between 44.09% and 75.49% Between 49.98% and 102.25%
Nil
0 to 5 years
$0.99
$0.40
Nil
0 to 5 years
$1.49
$0.70
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.
54
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2018 and 2017
14. Shareholders’ Equity (continued)
b) Stock Options (continued)
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 table below summarizes the changes to stock options that took place between August 31, 2016 and
August 31, 2018:
Outstanding as at August 31, 2016
Options granted
Options exercised
Options cancelled
Outstanding as at August 31, 2017
Options granted
Options exercised
Options expired
Options cancelled
Outstanding as at August 31, 2018
Options exercisable as at
August 31, 2018
Number of
options
5,029,500
2,992,750
(1,074,250 )
(981,750 )
5,966,250
2,284,500
(650,750 )
(427,250 )
(1,477,750 )
5,695,000
Weighted-
average
exercise
price
$
0.70
1.49
0.40
1.03
1.10
0.99
0.30
1.14
1.24
1.10
2,615,688
1.04
55
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2018 and 2017
14. Shareholders’ Equity (continued)
b) Stock Options (continued)
The table below provides information on the outstanding stock options as at August 31, 2018:
Number of outstanding stock Number of exercisable stock
options
options
100,000
869,500
2 291,750
619,000
792,500
1,022,250
5,695,000
100,000
844,500
733,875
146,125
273,125
518,063
2,615,688
Weighted average
remaining contractual life
(years)
0.13
1.34
3.53
3.98
3.66
3.26
3.15
Exercise price
$
0.26 – 0.50
0.51 – 0.75
0.76 – 1.00
1.01 – 1.25
1.26 – 1.50
1.51 – 1.75
1.10
c) Warrants
The situation of the outstanding warrants and the changes that took place between August 31, 2016 and
August 31, 2018 are as follows:
Outstanding as at August 31, 2016
Warrants expired
Warrants exercised (Note 14a))
Outstanding as at August 31, 2017
Warrants expired
Outstanding as at August 31, 2018
Number of
warrants
5,617,496
(1,366,468 )
(1,870,528 )
2,380,500
(2,380,500 )
-
Weighted
average
exercise
price
$
1.33
1.20
1.14
1.55
1.55
-
56
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2018 and 2017
15. 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,
2018
$
2017
$
(4,549,484 )
(6,537,043 )
Basic and diluted weighted average number of shares outstanding
88,762,239
80,954,643
Amount per share
Basic and diluted net loss per share
(0.05 )
(0.08 )
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 are presented below:
Stock options
Warrants
Convertible debenture
Years ended August 31,
2018
2017
2,433,750
-
-
1,783,250
2,380,500
$2,002,000
For the years ended August 31, 2018 and 2017, 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.
57
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2018 and 2017
16. 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
Tax credits recorded against property, plant and equipment
Unpaid acquisition of property, plant and equipment
Unpaid additions to intangible assets
Cash and cash equivalents
Cash
Short-term investments
Years ended August 31,
2018
$
2017
$
1,402,653
400,749
226,548
(53,050 )
(118,650 )
8,510
(366,412 )
(78,535 )
1,421,813
-
90,499
3,135
As at
August 31,
2018
$
(2,237,512 )
(390,537 )
(1,389,684 )
(190,552 )
780,518
(48,960 )
(366,412 )
(77,747 )
(3,920,886 )
161,138
158,865
5,945
As at
August 31,
2017
$
1,031,017
9,855,771
10,886,788
794,470
11,775,829
12,570,299
58
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2018 and 2017
17. Commitments
a) Leases
The Company leases offices in Quebec City under operating leases expiring on April 30, 2020 and September
30, 2025. The main agreement is renewable for an additional five-year period.
Future payments for the leases required in each of the forthcoming years totalling $4,638,249 are as follows:
2019
2020
2021
2022
2023
Thereafter
$
736,967
695,706
600,915
613,800
628,951
1,361,910
In 2018, the offices lease expense is $775,018 ($801,600 in 2017).
b) Other
On September 8, 2017, the Company signed an agreement amounting to $1,574,734 with a supplier for raw
material purchases for a 24-month period. As at August 31, 2018, the remaining amount regarding this agreement
is $787,367.
18. 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, 2018, the
Company recognized an expense of $70,000 ($12,130 for the year ended August 31, 2017) for guarantees. A
provision of $137,420 is recorded for guarantees as at August 31, 2018 ($128,910 as at August 31, 2017). The
following table summarizes changes in warranty provision:
Balance, beginning of year
Provisions recognized
Amounts used during the period
Balance, end of year
Years ended August 31,
2018
$
128,910
70,000
(61,490 )
137,420
2017
$
177,870
12,130
(61,090)
128,910
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.
19. Government Assistance
Under an agreement entered into with Canada Economic Development, 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, 2018, the
Company did not received any amount ($134,863 for the year ended August 31, 2017, for which an amount of
$48,416 was recognized against administrative and sales and marketing expenses).
59
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2018 and 2017
20.
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:
Years ended August 31,
2018
$
2017
$
Income tax payable using the combined federal and provincial
statutory tax rate (26.7%; 26.8% in 2017)
(1,216,229 )
(1,754,705 )
Non-deductible expenses and other
Deductible financing fees
Taxable income
Non-taxable income tax credits
Losses carried forward
Income tax using effective income tax rate
864,381
(155,537 )
(97,954 )
(94,847 )
700,186
-
893,561
(157,252 )
(98,321 )
(101,430 )
1,218,147
-
As at August 31, 2018, the Company has tax losses of approximately $25,976,400 for federal purposes and
$25,349,400 for provincial purposes that can be used to reduce future taxable income. These losses expire as
follows:
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
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
5,759,000
5,481,000
2,758,000
500,000
2,146,000
1,280,000
239,000
1,125,000
2,510,000
5,493,000
5,427,000
2,711,000
25,976,400
25,349,400
60
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2018 and 2017
20.
Income Taxes (continued)
The Company also has undeducted research and development expenses of $10,204,000 ($9,211,000 as at
August 31, 2017) for federal purposes and $13,249,000 ($12,203,000 as at August 31, 2017) for provincial
purposes that are deferred over an undetermined period.
Deferred income tax assets related to unclaimed tax losses, financing costs, research and development
expenses and others as well as non-refundable R&D tax credits totalling approximately $14,032,000
($12,680,000 as at August 31, 2017) were not recognized due to the uncertainty about the Company’s ability to
generate taxable income. In addition, deferred tax liabilities of approximately $771,000 ($701,000 as at August
31, 2017) related to federal investment tax credits on research and development expenses were recognized and
offset by a deferred income tax asset.
21. R&D Tax Credits
For tax purposes, research and development expenses are detailed as follows:
Federal
Provincial
Years ended August 31,
2018
$
2017
$
1,305,000
1,353,000
1,548,000
1,598,000
These expenses have enabled the Company to become eligible for R&D tax credits reimbursable for the following
amounts:
Federal
Provincial
Years ended August 31,
2018
2017
$
-
$
-
354,788
354,788
378,000
378,000
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 years ended
August 31, 2018 and 2017 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 R&D tax credits, which were non-refundable and could be used
against Part I Company tax. The accumulated credits as at August 31, 2018 are about $2,908,000 ($2,643,000
for the year ended August 31, 2017) and expire over a period of 6 to 20 years beginning in 2018.
61
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2018 and 2017
22. Segmented Information
Segmented Information
The Company is organized into two segments: Medical and Industrial.
Medical segment: In this segment, Opsens focuses mainly on the measure of FFR in interventional cardiology
but also supplies a wide range of miniature optical sensors to measure pressure and temperature to be used in
a wide range of applications that can be integrated in others medical devices.
Industrial segment: In this segment, Opsens develops, manufactures and installs innovative fibre optic sensing
solutions for critical and 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.
The same accounting policies are used for both reportable segments. Operations are carried out in the normal
course of business and are measured at the exchange amount, which approximates prevailing prices in the
markets.
Years ended August 31,
Medical
Industrial
$
$
2018
Total
$
Medical
Industrial
$
$
2017
Total
$
External sales
Internal sales
Gross margin
Amortization of property,
plant and equipment
Amortization of
intangible assets
Financial expenses
(revenues)
Change in fair value of
embedded derivative
Net loss
Acquisition of property,
plant and equipment
Additions to
intangible assets
Segment assets
Segment liabilities
21,949,230
-
11,416,874
2,120,501 24,069,731 16,269,011
-
6,886,549
1,322,538 12,739,412
149,210
149,210
1,482,985 17,751,996
269,505
269,505
610,992
7,497,541
728,375
72,220
800,595
608,453
90,163
698,616
82,292
15,396
97,688
75,927
14,566
90,493
(320,393 )
270,289
(50,104 )
(289,936 )
282,743
(7,193 )
501,250
-
501,250
163,745
-
163,745
(4,240,173 )
(309,311 )
(4,549,484 )
(4,879,287 )
(1,659,988 )
(6,539,275 )
642,054
49,624
691,678
490,155
9,024
499,179
79,076
21,982,087
4,651,422
21,155
86,285
100,231
1,603,809 23,585,896 25,992,083
9,487,517
4,912,933
261,511
18,515
1,617,718
104,800
27,609,801
156,960
9,644,477
62
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2018 and 2017
22. Segmented Information (continued)
The Company’s net loss per reportable segments reconciles to its consolidated financial statements as follows:
Gross margin per reportable segments
Elimination of intersegment profits
Gross margin
Net loss per reportable segments
Elimination of intersegment profits
Net loss and comprehensive loss
Information by geographic segment
Revenue by geographic segment
United States
Japan
Canada
Other*
Years ended August 31,
2018
$
12,739,412
-
12,739,412
2017
$
7,497,541
2,232
7,499,773
(4,549,484 )
(6,539,275 )
-
2,232
(4,549,484 )
(6,537,043 )
Years ended August 31,
2018
$
2017
$
10,250,126
6,539,888
1,987,216
5,292,501
5,100,077
6,586,561
1,625,567
4,439,791
24,069,731
17,751,996
* Comprised of revenues generated in countries for which amounts are individually not significant.
Revenues are attributed to the geographic segment 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, 2018, revenues from two clients represented individually more than 10% of
the total revenues of the Company, i.e., 27% (medical’s reportable segment) and 25% (medical’s reportable
segment).
During the year ended August 31, 2017, revenues from two clients represented individually more than 10% of
the total revenues of the Company, i.e., 40% (medical’s reportable segment) and 17% (medical’s reportable
segment).
63
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2018 and 2017
23. Related Party Transactions
In the normal course of business, the Company has entered into transactions with related parties.
Professional fees paid to a company
controlled by a director
Fees were incurred for the Company’s FFR activities.
Years ended August 31,
2018
$
-
2017
$
59,134
Key management personnel, having authority and responsibility for planning, managing 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 and
directors during the year were as follows:
Short-term salaries and other benefits
Termination benefits
Option-based awards
Years ended August 31,
2018
$
1,239,012
161,098
118,086
1,518,197
2017
$
1,274,309
-
172,762
1,447,071
The compensation of key executives is determined by the Human Resources and Compensation Committee,
taking into consideration individual performance and market trends.
64
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2018 and 2017
24. Additional Information to the Consolidated Statements of Loss and Comprehensive Loss
Expenses (revenues) by function
Salaries and Other Benefits
Cost of sales
Administrative
Sales and marketing
Research and development
Years ended August 31,
2018
$
2017
$
11,133,453
9,866,131
Amortization of Property, Plant and Equipment
800,595
698,616
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
97,688
90,493
(63,466)
(48,416 )
Income Tax Credits for Research and Development
(443,651 )
(390,537 )
Research and development
25. 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.
65
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2018 and 2017
25. Financial Instruments (continued)
Fair Value (continued)
The fair value of the convertible debenture was 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
was $2,143,900 as at August 31, 2017 and was classified at Level 2 in the fair value hierarchy.
Valuation Techniques and Assumptions Applied for the Purposes of Measuring Fair Value
The Company must maximize the use of observable inputs and minimize the use of unobservable inputs when
measuring fair value. The Company primarily applies the market approach for recurring fair value measurements.
The three input levels used by the Company to measure fair value are the following:
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities. An active market for the
asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
Level 2 – Quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs
that are observable or can be corroborated by observable market data for substantially the full term of the assets
or liabilities.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair
value of the assets or liabilities.
The following table summarizes the fair value hierarchy under which the Company’s financial instruments are
valued.
Financial assets (liabilities) measured at
fair value:
Convertible debenture – embedded
derivative
As at August 31, 2018
Total
Level 1
Level 2
Level 3
$
-
$
-
$
-
$
-
As at August 31, 2017
Total
Level 1
Level 2
Level 3
Financial assets (liabilities) measured at
fair value:
Convertible debenture – embedded
derivative
(1,097,653 )
-
(1,097,653 )
$
$
$
$
-
66
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2018 and 2017
25. Financial Instruments (continued)
Valuation Techniques and Assumptions Applied for the Purposes of Measuring Fair Value
(continued)
As explained in Note 13, on November 16, 2017, the Company received a notice of conversion from the holder
of the convertible debenture. At the date of the conversion, the embedded derivative must be measured at fair
value with gains and losses in fair value recognized in the consolidated statements of net loss. The price use to
determine the value of the embedded derivative was the difference between the closing price of the shares of
the Company on the TSX Exchange on the trading day immediately preceding the date of the conversion and
the conversion price used to determine the common shares issued. For the year ended August 31, 2017, the
fair value of the convertible debenture was determined using the Black-Scholes pricing model using an implied
volatility of 51%, a discount rate of 1.26% and an expected life of 0.2 years.
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 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. In general, 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 checks of all its
customers and establishes an allowance for doubtful accounts when accounts are determined to be
uncollectible. Two major customers represented 25% of the Company’s total accounts receivable as at August
31, 2018 (34% as at August 31, 2017).
As at August 31, 2018, 32% (37% as at August 31, 2017) of the accounts receivable were of more than 90 days
whereas 52% (34% as at August 31, 2017) 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, 2018, the allowance for
doubtful accounts was established at $817,823 ($940,929 as at August 31, 2017).
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.
67
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2018 and 2017
25. 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, 2018 and August 31, 2017:
August 31, 2018
Carrying
0 to 12
12 to 24
After
amount Cash flows
months
months
24 months
Accounts payable and
accrued liabilities
Long-term debt
Total
$
$
$
2,719,690
2,719,690
2,719,690
1,193,112
1,276,509
580,052
3,912,802
3,996,199
3,299,742
August 31, 2017
Carrying
amount
Cash flows
$
$
0 to 12
months
$
Accounts payable and
accrued liabilities
2,909,516
2,909,516
2,909,516
$
-
$
-
488,783
488,783
207,674
207,674
12 to 24
After
months
24 months
$
-
$
-
Long-term debt
1,445,168
1,580,231
492,722
526,052
561,457
Convertible debenture
3,853,225
2,770,358
2,770,358
-
-
Total
8,207,909
7,260,105
6,172,596
526,052
561,457
Interest Rate Risk
The Company’s exposure to interest rate risk is summarized as follows:
Cash and cash equivalents
Trade and other receivables
Accounts payable and accrued liabilities
Long-term debt
Convertible debenture
Interest Rate Sensitivity Analysis
Fixed interest rates
Non-interest-bearing
Non-interest-bearing
Non-interest bearing 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 derivatives. The Company owns investments with fixed interest rates. As at
August 31, 2018, the Company was holding more than 91% (94% as at August 31, 2017) of its cash and cash
equivalents in all-time redeemable term deposits.
All else being equal, a hypothetical 1% interest rate increase or decrease would not have a significant impact on
net loss and comprehensive loss for the year ended August 31, 2018 (not significant for the year ended
August 31, 2017).
68
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2018 and 2017
25. Financial Instruments (continued)
Risk Management (continued)
Financial Expenses (Revenues)
Interest and bank charges
Interest on long-term debt
Interest and imputed interest on the convertible debenture (Note 13)
Gain on foreign currency translation
Interest income
Years ended August 31,
2018
$
68,079
75,505
14,763
(42,170 )
(166,281 )
(50,104 )
2017
$
56,323
70,379
69,979
(19,374 )
(184,500 )
(7,193 )
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, 2018 and 2017, 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
U.S. 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, 2018, if the Canadian dollar had strengthened 10% against the U.S. dollar with
all other variables held constant, net loss and comprehensive loss would have been $591,000 higher ($79,000
higher for the year ended August 31, 2017). Conversely, if the Canadian dollar had weakened 10% against the
U.S. dollar with all other variables held constant, net loss and comprehensive loss would have been $591,000
lower for the year ended August 31, 2018 ($79,000 lower for the year ended August 31, 2017).
For the year ended August 31, 2018, if the Canadian dollar had strengthened 10% against the Euro with all other
variables held constant, net loss and comprehensive loss would have been $345,000 higher ($322,000 higher
for the year ended August 31, 2017). Conversely, if the Canadian dollar had weakened 10% against the Euro
with all other variables held constant, net loss and comprehensive loss would have been $345,000 lower for the
year ended August 31, 2018 ($322,000 lower for the year ended August 31, 2017).
For the year ended August 31, 2018, if the Canadian dollar had strengthened or weakened by 10% against the
British pound, the impact on net loss and comprehensive loss would not have been significant.
69
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2018 and 2017
25. Financial Instruments (continued)
Risk Management (continued)
Foreign Currency Sensitivity Analysis (continued)
As at August 31, 2018 and August 31, 2017, the risk to which the Company was exposed is established as
follows:
Cash and cash equivalents (US$599,807; US$252,720 as at
August 31, 2017)
Cash and cash equivalents (€ 643; € 28,968 as at
August 31, 2017)
Cash and cash equivalents (£11,498; £64 as at August 31, 2017)
Trade and other receivables (US$1,502,031; US$1,741,221 as at
August 31, 2017)
Trade and other receivables (€ 145,249; € 625,813 as at
August 31, 2017)
Trade and other receivables (£131,788; £116,377 as at
August 31, 2017)
Accounts payable and accrued liabilities (US$526,291;
US$757,978 as at August 31, 2017)
Accounts payable and accrued liabilities (€ 3,854;
€ 4,408 as at August 31, 2017)
Accounts payable and accrued liabilities (£4,537;
£830 as at August 31, 2017)
Convertible debenture (nil; US$2,198,125 as at
August 31, 2017)
Embedded derivative (nil; US$875,600
as at August 31, 2017)
Total
26. Capital Management
As at
August 31,
2018
$
As at
August 31,
2017
$
783,048
316,810
975
19,467
43,125
103
1,960,902
2,182,794
220,270
223,130
931,647
188,463
(687,073 )
(950,202 )
(5,845 )
(7,682 )
(6,563 )
(1,342 )
-
(2,755,572 )
-
2,507,192
(1,097,653 )
(1,148,390 )
The Company's objective in managing capital, primarily composed of shareholders' equity and long-term debt, is
to ensure sufficient liquidity to fund production activities, R&D, 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, 2018, the Company's working capital amounted to $16,346,939 ($15,909,209 as at August 31,
2017), including cash and cash equivalents of $10,886,788 ($12,570,299 as at August 31, 2017). The
accumulated deficit at the same date was $41,625,541 ($37,076,057 as at August 31, 2017). 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 after the reporting date of August 31, 2018.
70
Opsens Inc.
Notes to the Consolidated Financial Statements
Years ended August 31, 2018 and 2017
26. Capital Management (continued)
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, 2018 and 2017, the Company has not been in default on any of its obligations
regarding long-term debt.
27. Subsequent Events
On September 28, 2018, the Company achieved a technical milestone related to the agreement with Abiomed
and the Company received a payment of $2,260,000 (US$1,750,000) that will be recorded as licensing revenues
in the consolidated statements of loss and comprehensive loss for fiscal year 2019.
On October 15, 2018, the Company signed a loan agreement amounting to a maximum of $525,000 for the
acquisition of property, plant and equipment.
28. Approval of Consolidated Financial Statements
The consolidated financial statements were approved by the Board of Directors and authorized for issue on
November 27, 2018.
71
Governance
DIRECTORS
OFFICERS
Denis M. Sirois
Chairman of the Board of Directors
Louis Laflamme, CPA, CA
President and Chief Executive Officer
Louis Laflamme
President and Chief Executive Officer
Gaétan Duplain
President, Opsens Solutions
Gaétan Duplain
President, Opsens Solutions
Robin Villeneuve, CPA, CA
Chief Financial Officer and Corporate Secretary
Denis Harrington
Director
Jean Lavigueur
Director
Pat Mackin
Director
Corporate information
HEAD OFFICE
AUDITORS
750 boulevard du Parc-Technologique
Quebec, QC G1P 4S3
Telephone: 418.781.0333
Fax: 418.781.0024
INVESTOR RELATIONS
For additional information or to receive quarterly reports
and press releases, contact Marie-Claude Poitras at the
head office or at marie-claude.poitras@opsens.com.
STOCK EXCHANGE LISTINGS
Toronto Stock Exchange- Symbol: OPS
OTCQX - Symbol: OPSSF
Deloitte S.E.N.C.R.L./s.r.l, Quebec, QC
SHARES IN CIRCULATION
89,868,817 (as at August 31, 2018)
TRANSFER AGENT AND REGISTRAR
AST Trust Company (AST) (Canada)
2001 boulevard Robert-Bourassa, suite 1600
Montreal, QC H3A 2A6
T: 514.285.8824 F: 514.285.8846
ANNUAL MEETING OF SHAREHOLDERS
Will be held at Hôtel Québec, Morisot Room:
3115 Avenue des Hôtels, Quebec, QC G1W 3Z6
Thursday, January 24, 2019 – 10:30 a.m.
72 Opsens’
Target Markets
Interventional Cardiology –
Pressure Measurement
The OptoWire, Designed to Provide the Lowest Drift in the Industry -
To Diagnose and Treat with Confidence
Opsens Headquarters,
Quebec, QC, Canada
Electrical technologies account for the largest share of the measurement
market for coronary heart disease today. Opsens has revolutionized
the offering with the OptoWire, a second-generation optical guidewire
designed to provide the lowest drift in the industry. Unlike guidewires
instrumented with electrical sensors, the OptoWire
Is not affected by procedural contaminants;
Offers reliable pressure measurement, and the ability
to deliver stents directly on the wire; and,
Provides the freedom to reconnect and measure after
the intervention to validate optimization of the lesion.
»
»
»
In the United States, Europe, Japan and Canada, Opsens’ OptoWire is
proving itself in clinical uses and has been the subject of scientific articles
that strengthen its profile among cardiologists. Recently, in a prospective
registry for the Functional Optimization of Coronary Intervention Using
Post-PCI FFR1, Opsens’ guidewire distinguished itself by its capacity to
routinely cross severe lesions to measure post-PCI pressure to validate
lesion optimization and, if necessary, to further improve a patient’s lesion
by conducting an additional immediate intervention.
A leader in optical pressure measurement technology, Opsens has made
sure to protect its intellectual property with a dozen patents, which
positively positions Opsens and opens the door to high-value partnerships
in interventional cardiology and in the medical field in general, thanks to the
possibilities its technology offers for new applications.
Opsens is based in Quebec, QC, Canada, registered with the FDA and
ISO 13485. The Company has 140 employees.
Opsens, Clean Room
Industrial – Growing Markets
Opsens’ versatile technologies can answer needs in key, valuable markets.
There is a positive sentiment around Opsens’ 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 in
innovation to create applications for growing markets, like structure
monitoring and various other applications in sectors such as aerospace,
military, semiconductor and other diverse applications.
1 Functional Optimization of Coronary Intervention Using Post-PCI FFR: A
Prospective Registry BF Uretsky MD, Shiv Agarwal MD, Kristin Miller RN, Malek
Al-Hawwas MD, Abdul Hakeem MD Hospital Central Arkansas VA and UAMS, Little
Rock, AR, September 2018
INTERVENTIONAL
CARDIOLOGY - FFR
OptoWire – A guidewire used from
the beginning to the end of the FFR procedure.
Second-generation guidewire, designed to provide the lowest drift in the industry
To diagnose and treat with confidence
INDUSTRIAL
APPLICATIONS
Innovative fiber optic solutions
for various industries.
750 boulevard du Parc-Technologique
Quebec, QC G1P 4S3
Phone 418.781.0333
Fax 418.781.0024
opsens.com