Opsens
Annual Report 2020

Plain-text annual report

Annual Report Experience and a bright future 2020 Mission Contribute to health with a unique expertise in innovative medical products. OpSens focuses primarily on interventional cardiology. The Company offers the OptoWire, a pressure measurement guidewire instrumented with Fidela,TM its second-generation optical sensor designed to deliver the lowest drift in the industry. Its unique design allows access to the most difficult lesions to offer a very accurate diagnosis, aiming to improve the clinical outcomes of patients in the treatment of coronary artery stenosis. OpSens has announced its entry in the aortic stenosis market with the development of a guidewire for the transcatheter replacement of the aortic valve (TAVR) in the treatment of aortic stenosis, the fastest growing market in structural cardiology. OpSens is also engaged in industrial activities. Cardiology – Cornerstone of OpSens’ Growth › Product performance is recognized by opinion leaders around the world › Company engaged in growing markets, supported by clinical evidence and aging population • Accumulation of clinical experience – 100,000 cases with the OptoWire • New agreement with major U.S. group purchasing organization › Development, innovation, and continuous improvement • New generation of products for the treatment of coronary artery stenosis • Upcoming aortic valve stenosis products, using our 3,000 monitor-base already installed in catheterization laboratories around the world • Fidela,TM precise measurement technology can be integrated into various applications opening the door to valuable business partnerships • Optimization of production costs. OpSens Revenues Millions $* 35 30 25 20 15 10 5 0 2016 2017 2018 2019 2020 Medical - non FFR FFR Medical total Revenues (excluding licensing) *The graph does not include licensing revenues 1. January 15, 2009 N Engl J Med 2009; 360:213-224DOI: 10.1056/NEJMoa0807611 Diagnosis and Treatment of Coronary Artery Stenosis OpSens has designed its first product for cardiology: the OptoWire, a pressure measurement guidewire for the diagnosis and treatment of coronary artery stenosis. The OptoWire has been used in the diagnosis and treatment of 100,000 patients worldwide in a procedure that is becoming the model of excellence in treatment. The FAME1 study showed that when a patient’s lesions are assessed by FFR, major cardiac events were reduced. Today, the market continues to be fueled by studies that demonstrate the clinical and economic benefits of using coronary pressure guidewires. Cardiologists, insurance companies and hospitals are increasing the demand for such products. OpSens is committed to developing innovative products that address the limitations of aging, competing technologies. Benefits of coronary pressure guidewires: › Facilitate decision-making before performing invasive procedures; › Improve the health of patients in general; and, › Avoid unnecessary medical procedures. After new criteria extended the evaluation of blockages to the use of pressure measurements without the injection of heart-stimulating drugs, OpSens developed a product that met the request of cardiologists and commercialized its diastolic pressure algorithm called dPR to perform this measurement. Treatment of Aortic Valve Stenosis by Transcatheter Valve Replacement Recently, Rolling Stones’ front man, Mick Jagger, made medical news, putting the TAVR procedure into the spotlight. At 75, his highly calcified aortic valve prevented a good flow of blood from the heart to the aorta and thus good oxygenation of his organs. He underwent the TAVR procedure. A new aortic valve was inserted into his heart through an artery from his groin. Avoiding general anesthesia and open-heart surgery with the minimally invasive procedure, the singer was able to return quickly to his normal life. To capitalize on the expertise acquired in the development of its first product for cardiology, OpSens plans to launch a product for the TAVR procedure in 2022, a pressure guidewire to help in valve positioning. This is the fastest growing segment in structural cardiology, driven by an aging population, superior clinical outcomes, and openness to new evidence that people of all health conditions benefit from this minimally invasive treatment. Business Partnerships OpSens’ sensor technology can be adapted to a variety of applications, enabling business partnerships in valuable medical markets. Several companies, including Abiomed and Monteris, are integrating OpSens’ sensors into their products used in medical applications. These collaborations highlight the quality of OpSens’ technology and position the Company for new agreements. OpSens’ products are gaining increasing recognition in cardiology thanks to a steady growth in the number of uses and the release of data demonstrating the value and benefits of working with the OptoWire in clinical situations. Letter to Shareholders OpSens’ mission is to contribute to health through unique expertise in innovative medical products. In 2021, OpSens is confident it can resume revenue growth, improve the health of patients with heart disease, and offer new medical applications to position itself as a leader in cardiology to create value for shareholders. In fiscal year 2020, OpSens continued its activities with a vision to become a world leader in optical measurement in medical instrumentation and contribute to health through its unique expertise. OpSens’ success is based on three development poles in the medical field. These poles were better defined after the launch of the OptoWire, a guidewire for the diagnosis and treatment of coronary artery stenosis. OpSens has capitalized on its technology and developed valuable medical partnerships, such as the one with Abiomed for ventricular assistance. OpSens is now targeting the fastest growing segment in cardiology, the treatment of aortic stenosis by transcatheter valve replacement (TAVR). OpSens ended 2020 by matching last year’s sales of $29.5 million, the sales record reached in 2019. The Company has put a lot of effort into optimizing its business, a commitment reflected in the increased profit margin. Among other things, with over 100,000 uses of the OptoWire, the launch of the third version of its flagship product has allowed OpSens to continue to evolve towards operational excellence to improve competitiveness, reduce production costs and elevate margins. We are confident revenues will return to growth in 2021. Fiscal 2020 saw a healthy progression of Opsens’ OptoWire in the U.S. coronary artery stenosis market with continued commendable physicians’ feedback on the OptoWire’s performance. Progress in the U.S. market – Contract with a Major American Group Purchasing Organization To accelerate penetration in the U.S., OpSens announced a three-year contract with one of the largest American group purchasing organizations. This contract, which provides access to the OptoWire to all their members across the U.S., is a recognition of the OptoWire’s ability to improve efficiency and reduce costs in the diagnosis and treatment of coronary artery stenosis and aligns with our new group purchasing organization partner’s mission to better treat patients. Collaborations like these are key in OpSens’ expansion. The Company aims to sign new agreements in the near future. Advances in the Development of OpSens’ Product for the Treatment of Aortic Stenosis, The Fastest Growing Segment in Structural Cardiology The TAVR procedure is growing rapidly, driven by an aging population, interest in less invasive procedures and convincing clinical evidence demonstrating the benefit of extending this procedure to all patients. Last year, OpSens announced it had identified an application, where a pressure measurement guidewire could simplify the TAVR procedure and make it easier for cardiologists to contribute to patient health. OpSens has made great strides in developing this application, which will position the Company as a leader in this segment of cardiology. This guidewire will provide continuous hemodynamic measurement before, during and after the TAVR procedure. The concept has been well received and is expected by a panel of international experts looking forward to using it. OpSens expects to market this product as early as 2022. OpSens will have a major advantage in commercialization: this product connects to the OptoMonitor already installed and used in several thousand catheterization laboratories around the world. Fidela,TM a Technology that Opens Doors in the Development of Products and Partnerships OpSens’ products are gaining recognition in cardiology and in other medical fields through continued growth in the number of uses and the publication of data demonstrating the value and benefits of working with the OptoWire in clinical situations. the OptoWire, OpSens’ success is based, notably on Fidela,TM that the second-generation optical sensor instruments the currently Company’s flagship product. This sensor is also at the heart of OpSens’ product for TAVR and is the key element that has enabled OpSens to develop high-value partnerships, such as the one with Abiomed in cardiology and Monteris in neurology. These partnerships highlight the superiority of the technology, the quality of the sensor, and place OpSens in an excellent position for value- bearing agreements. Portrait of 2020 – How OpSens Navigated the Pandemic Since its founding, OpSens has shown resilience and demonstrated a boundless will to achieve its mission and meet the expectations of shareholders, employees, and business partners. The COVID-19 pandemic has once again highlighted this resilience. customers, As an essential company, according to government criteria, OpSens put in place plans to ensure that activities continue. Production was maintained, without interruption, with the implementation of measures to ensure the health and safety of employees. Already accustomed to the strictest cleanroom protocols, employees complied with the new requirements guaranteeing their health and safety. Research and development, and administration employees, were energized by exchanges facilitated by remote working technologies. To support clients, OpSens developed equipment and tools for physicians to respect access limitations imposed by hospitals and catheterization laboratories. These virtual support instruments will remain relevant in the future. Despite COVID-19, patients with cardiovascular problems continued to need treatment. OpSens made sure to maintain a constant, high-quality supply to physicians providing care. With these actions, OpSens maintained its ability to meet the expectations of patients, physicians, and hospitals and impacts on the financial position. The Company’s technologies and expertise continued to gain recognition. limited In the end, results were maintained despite the context. We are convinced that in a normal situation, the revenues would have been positively different, and we are confident to resume growth in 2021, once the pandemic has subsided. The Company will be stronger, more organized, with a more mature sales network and in a better position to cover current and new markets. Industrial is now focusing on The industrial sector aeronautics, nuclear, and semiconductors. Revenues were stable for OpSens Solutions, OpSens’ wholly-owned subsidiary. We expect growth to resume in 2021 given our multiple discussions for high-potential opportunities. Perspective In 2021, our priority is to increase the impact of our products in cardiology, commercially, clinically, and financially. OpSens anticipates a resumption of revenue growth for products for the treatment of coronary artery stenosis, other medical incomes, as well as industrial revenues, as we move beyond the pandemic. The start of the regulatory phase for the TAVR product should lay the foundation for a successful future. I thank the shareholders for their support in deploying our strategy. I would also like to thank customers, employees, administrators, suppliers, and partners for their support in the development of OpSens. In closing, we look forward to meeting you at the Annual Meeting of Shareholders – to be held virtually this year – where we will outline the Company’s progress and prospects. Louis Laflamme President and CEO 2MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 2020 The following comments are intended to provide a review and analysis of the results of operations, financial conditions, and cash flows of OpSens Inc. for the year ended August 31, 2020, in comparison with the corresponding period ended August 31, 2019. 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, 2020 and 2019, 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 18, 2020. 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 18, 2020, 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. COVID-19 The global economy has significantly changed during the past few months. The spread of COVID-19 virus, declared on March 11, 2020, as a pandemic by the World Health Organization (WHO), has led many governments to adopt exceptional measures to slow the advancement of COVID-19. These events cause significant uncertainties that could damage the Company’s activities. At the current time, it is not possible to reliably estimate the duration and impact that these events may have on the Company’s future financial results because of the uncertainties about future developments. Thus far, the Company has had minimal manufacturing, supply chain, or distribution disruptions and has continued to fulfill orders to customers. However, the Company has had limited access to the cath labs and has adjusted its sales force consequently. 3 OVERVIEW The Company’s primary focus is physiological measurement such as Fractional Flow Reserve (“FFR”) and the diastolic pressure algorithm (“dPR”) in the coronary artery stenosis market. Physiological measurement could be used in other areas of cardiology. OpSens offers an optical guidewire (OptoWire) to measure pressure to diagnose and treat to improve clinical outcomes in patients with coronary heart disease. OpSens also operates in the Industrial segment through its wholly-owned subsidiary OpSens Solutions Inc. (“Solutions”). Solutions develops, manufactures and installs innovative measurement solutions using fibre optic sensors for critical and demanding industrial applications. OpSens owns ten patents and has nine pending patents to protect its technologies in the Medical and Industrial sectors. SECTORS OF ACTIVITY In the Medical sector, OpSens markets OptoWire and OptoMonitor to diagnose and treat coronary artery disease. OptoWire provides cardiologists with an optimized pressure guidewire to navigate coronary arteries and cross blockages with ease while measuring intracoronary blood pressure. This procedure is called FFR measurement, also referred to as physiological measurement. OpSens has obtained the required commercial approvals for the OptoWire and OptoMonitor in the world’s largest markets, namely the United States, Europe (including the Middle East), Japan and Canada. Furthermore, the need to diagnose coronary disease without hyperemia induced by the injection of heart-stimulating drugs has emerged. OpSens has developed its proprietary diastolic pressure ratio to meet this need. Non-Hyperemic Pressure Resting indices (“NHPR”), such as OpSens’ dPR, are beneficial for some patients as they reduce procedure time, costs and discomfort. This product is available through the OptoMonitor and works in combination with the OptoWire. OpSens’ dPR is already being marketed in Japan, the United States, Canada and Europe. OpSens has established a direct sales force in the United States 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 aeronautic, 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. As an example, fibre optic sensors perform well in the presence of electromagnetic fields, radio frequencies, micro- waves, high-intensity magnetic waves (MR) or high temperatures, elements that typically disrupt results with conventional sensors. Customers’ needs are wide-ranging and require measuring various parameters like pressure, temperature, strain, and others. The Company focuses on business opportunities with the highest returns and has developed new products to fulfill their specific needs. Amongst others, the new OPP-GD fibre optic differential pressure sensor and the new OEC fibre optic extensometer sensors have grabbed the attention of many industries such as aeronautic and energy. 4 MARKET OVERVIEW In the Medical sector, particularly in the coronary artery stenosis, coronary physiology measurement 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 increase in the use of coronary artery stenosis measurement 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 an expansion in the use of FFR technologies. Payers, including Medicare, use the AUC to help formulate their repayment criteria. In April 2018, the Ministry of Health, Labour and Welfare (“MHLW”) in Japan 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 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 coronary artery stenosis measurement (FFR and dPR) market. According to management and industry source estimates(1), this market exceeds US$500 million worldwide in 2020 and is expected to exceed US$1 billion annually in the medium term (2025). In the Industrial sector, under this reportable segment, the Corporation’s technology, expertise, and products can serve several markets including aeronautic, geotechnical, infrastructures, nuclear, mining, military, and others. The Company focuses mainly on the following markets: - Nuclear market: the opportunities in this market are related principally to new nuclear technologies to produce energy. The new and recently patented fibre optic differential pressure sensor is the main solution for that market; - Aeronautic market: the opportunities in this market are principally related to fuel monitoring systems for aircraft. New industrial version of the absolute pressure sensor and the recent addition of a differential pressure sensor are the main products for these applications; and - Traditional Niche Applications Market: they include niche applications in which the Company is currently engaged, such as electro-pyrotechnic devices. COMPETITION In the Medical sector, the market for coronary artery stenosis measurement has five competitors and is currently dominated by two major players who commercialize standard electrical technology. Competition is based on technological advantages, brand recognition, customer service, marketing support and price. In the Industrial sector, there is a significant number of competitors. Competition is based primarily on technological advantages. Our direct competition is made up of both opened and closed-ended companies with a global presence. (1) OpSens FFR Market Calculations based on GRAND VIEW RESEARCH (Feb. 2019). 5 CORPORATE GROWTH STRATEGY OpSens’ growth strategy is to become a key player in the Medical sector, particularly in the field of coronary artery stenosis, focusing on the diagnosis and treatment through physiological measurement, 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 an: - Increase of its market shares in the fast-growing coronary artery stenosis measurement market. To achieve this, management has set up the following sales forces:  Direct Sales Force: OpSens has established a sales team, hiring a seasoned staff with solid expertise in coronary artery stenosis. This sales force has been implemented to increase OpSens’ market and commercialization penetration in the United States and Canada. In the context of COVID-19, the Company has adjusted its methods and the number of representatives using remote approaches rather than in-person visits to catheterization laboratories. In the short term, this approach better aligns to customers wishing to limit the number of in-person visitors to hospitals. OpSens also targets agreements with group purchasing organizations to accelerate penetration, particularly in the United States. Two agreements have been signed already and additional agreements will possibly be added; and  Distributor Sales Force: OpSens has signed distribution agreements in Europe, Asia, and the Middle East. These agreements allow OpSens to focus on market penetration with leading business partners in their respective markets. Interventional cardiologists have started focusing on new measurements performed with the heart 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 in the OptoWire’s recognized features which include:   A low-drift measurement technology for improved reliability, essential to cardiologists’ decision- making in the diagnosis and treatment of coronary artery stenosis; and Better connectivity as OptoWire is insensitive to blood contamination. It can be easily reconnected without compromising measurement accuracy. - Clinical data Major clinical studies had been suspended due to the COVID-19 pandemic, however, they have recently resumed. - Innovation In this ever-evolving and state-of-the-art market, OpSens plans to leverage its expertise in fibre-optic sensing medical devices to create new coronary artery stenosis measurement products and develop new fibre optic sensing technologies for cardiology 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. As an example of innovation, the Company is developing a pressure guidewire designed to assist cardiologists during transaortic valve replacement procedures (TAVR). This innovation is a structural heart pressure guidewire that measures and displays critical hemodynamics information in real time during valve replacement procedures. Also, OpSens received approval for the commercialization of the newest version of its coronary pressure guidewire, OptoWire III, for the United States, Japan, and Canada thus far. 6 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 aims to partner with key players in the industry. The partnership with Abiomed Inc. (“Abiomed”), for the use of its miniature sensors and technology, is an example of the type of partnership the Company targets. In the Industrial sector, the Company’s business strategy is achieved by: • Target Market: Solutions’ target markets are aeronautic, geotechnical, infrastructures, nuclear, mining, military and others. These are markets where OpSens’ products offer unique advantages over its competitors; and • Innovation: Solutions continually invest in innovations for its products, so they can offer unique advantages over competitors. For example, the Company’s optical strain and pressure sensors have received the attention of major players in the aeronautic 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 (income), 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 it 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 EARNINGS (LOSS) (In thousands of Canadian dollars) Net loss Financial expenses (income) Depreciation of property, plant and equipment and right-of-use assets Amortization of intangible assets Change in fair value of embedded derivative EBITDAC Stock-based compensation costs EBITDACO Year ended August 31, 2020 $ Year ended August 31, 2019(2) $ Year ended August 31, 2018(2) $ (2,644) 684 (1,952) 157 1,548 120 - (292) 438 146 802 91 - (902) 489 (413) (4,550) (50) 801 98 501 (3,200) 618 (2,582) The positive variance of EBITDACO for the year ended August 31, 2020, is mainly explained by the fact that we reduced significantly our sales and marketing expenses following the adjustment of the size of our direct sales force in the United States and by a grant related to the Canada Emergency Wage Subsidy (“CEWS”) of $1,683,000. This was partially offset by the licensing revenue that we received last year. Also, the adoption on September 1, 2019, of IFRS 16, Leases, contributed to increase by $715,000 the EBITDACO for the year ended August 31, 2020. (2) Comparative figures have not been adjusted to reflect the adoption of IFRS 16, Leases, as set out in the accounting policy. 7 SELECTED CONSOLIDATED FINANCIAL DATA (In thousands of Canadian dollars, except for information per share) Year ended August 31, 2020 $ Year ended August 31, 2019(2) $ Year ended August 31, 2018(2) $ Revenues Sales Medical Industrial Licensing agreement Cost of sales Gross margin Gross margin percentage Operating expenses Administrative Sales and marketing Research and development Other income Financial expenses (income) Change in fair value of embedded derivative Net loss and comprehensive loss Basic and diluted net loss per share Revenues 26,996 2,457 29,453 - 29,453 13,834 15,619 53% 5,041 8,780 5,441 19,262 (1,683) 684 - (2,644) (0.03) 27,032 2,418 29,450 3,302 32,752 14,037 18,715 57% 4,593 11,116 4,801 20,510 - 157 - (1,952) (0.02) 19,991 2,121 22,112 1,958 24,070 11,330 12,740 53% 3,869 9,273 3,697 16,839 - (50) 501 (4,550) (0.05) The Company reported revenues of $29,453,000 for the year ended August 31, 2020, compared to revenues of $32,752,000 for the corresponding period in 2019, a decrease of $3,299,000 or 10%. Sales in the Medical segment totalled $26,996,000 for the year ended August 31, 2020, compared to sales of $27,032,000 for the same period in 2019. The slight decrease in Medical segment revenues is explained by lower sales in the coronary artery stenosis measurement line of business (FFR and dPR) due to the COVID-19 pandemic. Coronary artery stenosis measurement sales decreased by 7% or $1,365,000 compared with the same period in 2019. This decrease is partly offset by higher original equipment manufacturer (“OEM”) medical sales of $1,330,000 compared to the same period last year. Sales in the Industrial segment totalled $2,457,000 for the year ended August 31, 2020, compared to sales of $2,417,000 for the same period in 2019. The slight increase is mostly explained by a higher volume of orders compared to the same period last year despite COVID-19. The decrease in revenues is also explained by the recognition last year of a nonrecurring revenue of $3,302,000 for the achievement of the last technical milestones of the licensing agreement. For the years ended August 31, 2020 and 2019, pricing fluctuations did not have a significant impact on revenues. (2) Comparative figures have not been adjusted to reflect the adoption of IFRS 16, Leases, as set out in the accounting policy. 8 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, 2020, revenues were positively affected by $348,000 compared to the same period last year (sales were positively impacted by $771,000 for the year ended August 31, 2019). As at August 31, 2020, OpSens’ total backlog of orders amounted to $11,129,000 ($5,642,000 as at August 31, 2019). Gross Margin Information and analysis in this section do not take into consideration licensing revenues (nil for the year ended August 31, 2020, and $3,302,000 for the year ended August 31, 2019, respectively). Gross margin was $15,619,000 for the year ended August 31, 2020, compared to $15,413,000 for the same period last year. The gross margin percentage slightly increase from 52% for the year ended August 31, 2019, to 53% for the year ended August 31, 2020. The adoption of IFRS 16, Leases, resulted in an increase of the gross margin of $58,000 for the year ended August 31, 2020. Administrative Expenses Administrative expenses were $5,041,000 and $4,593,000, respectively, for the years ended August 31, 2020 and 2019. The increase is mainly explained by higher headcount, professional fees and insurance. This is partly offset by lower communication, travelling expenses and by the fact that we received a final settlement payment from an industrial client that was written off last year. The adoption of IFRS 16, Leases, resulted in a non-significant impact for the year ended August 31, 2020. Sales and Marketing Expenses Sales and marketing expenses totalled $8,780,000 for the year ended August 31, 2020, a decrease of $2,336,000 over the $11,116,000 reported during the same period in 2019. The decrease is largely explained by lower headcount, commissions, trade shows, travelling expenses and subcontractors’ fees when compared to last year related to the adjustment of the size of our direct sales force in the United States due to COVID-19. The adoption of IFRS 16, Leases, resulted in a non-significant impact for the year ended August 31, 2020. Research and Development Expenses Research and development expenses totalled $5,441,000 for the year ended August 31, 2020, an increase of $640,000 over the $4,801,000 reported during the same period in 2019. The increase is mainly explained by higher headcount, supplies and subcontractors’ fees for our development activities related to OW3, OM3 and the new structural heart project and by lower R&D tax credits. This is partially offset by higher grants related to the IRAP program for the new structural heart project. The adoption of IFRS 16, Leases, resulted in a non-significant impact for the year ended August 31, 2020. Other Income Other income was $1,683,000 and nil, respectively, for the years ended August 31, 2020 and 2019. The increase is explained by the recognition of a non-refundable contribution under the CEWS program for an amount of $1,683,000. Financial Expenses Financial expenses totalled $684,000 for the year ended August 31, 2020, compared to $157,000 for the same period in 2019. The increase in financial expenses is mainly explained by higher interest expenses of $194,000 related to the long-term debt, by $290,000 related to the implementation of IFRS 16, Leases, and by lower interest income of $52,000. 9 Net Loss As a result of the foregoing, net loss for the year ended August 31, 2020, was $2,644,000 compared to $1,952,000 for the same period in 2019. 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, 2020 $ As at August 31, 2019 $ As at August 31, 2018 $ 22,543 31,908 5,655 10,906 15,347 26,099 30,089 4,787 7,861 17,441 19,785 23,586 3,438 1,475 18,673 Total assets as at August 31, 2020, were $31,908,000 compared to $30,089,000 as at August 31, 2019. The increase is mainly related to the accounting of a right-of-use asset of $4,513,000 related to the implementation of IFRS 16, by a higher inventory of $1,372,000 and by a higher intangible asset of $595,000 for our medical activities. This is partly offset by lower cash and cash equivalents of $3,972,000. Current liabilities totalled $5,655,000 as at August 31, 2020, compared to $4,787,000 as at August 31, 2019. The increase is mainly explained by a higher current portion of long-term debt of $1,101,000 and by a higher current portion of lease liabilities of $447,000 related to the implementation of IFRS 16. This is partly offset by lower account payable and accrued liabilities of $748,000. Long-term liabilities totalled $10,906,000 as at August 31, 2020, compared to $7,861,000 as at August 31, 2019, an increase of $3,045,000. The increase is mainly explained by a long-term lease liability of $4,298,000 following the implementation of IFRS 16. This is offset by lower deferred lease inducement of $725,000 and by lower long-term debt of $527,000. 10 SUMMARY OF CONSOLIDATED QUARTERLY RESULTS The summary below presents the periods in which OpSens published unaudited consolidated interim financial statements. (Unaudited, in thousands of Canadian dollars, except for information per share) Three-month period ended August 31, 2020 $ Three-month period ended May 31, 2020 $ Three-month period ended February 29, 2020 $ Three-month period ended November 30, 2019 $ Revenues Net earnings (loss) for the period 7,576 557 Basic and diluted net earnings (loss) per share 0.01 6,630 52 0.00 8,258 (1,382) 6,989 (1,871) (0.02) (0.02) (Unaudited, in thousands of Canadian dollars, except for information per share) Three-month period ended August 31, 2019 $ Three-month period ended May 31, 2019 $ Three-month period ended February 28, 2019 $ Three-month period ended November 30, 2018 $ Revenues Net earnings (loss) for the period 7,867 (1,617) 7,863 (1,053) Basic and diluted net earnings (loss) per share (0.02) (0.01) 7,919 (374) (0.00) 9,103 1,092 0.01 For the Medical sector, activities are generally slower in the fourth quarter due to the summer vacations of physicians. For the year ended August 31, 2019, OpSens’ coronary artery stenosis measurement (FFR and dPR) business showed growth despite the usual seasonal impact. During the second semester of the year ended August 31, 2020, activities were slower due to the COVID-19 situation. LIQUIDITY AND CAPITAL RESOURCES As at August 31, 2020, the Company had cash and cash equivalents of $10,884,000 compared to $14,856,000 as at August 31, 2019. Of this amount as at August 31, 2020, $7,633,000 were invested in highly-liquid, safe investments. As at August 31, 2020, OpSens had a working capital of $16,888,000, compared to $21,312,000 as at August 31, 2019. The decrease in working capital is mainly related to lower cash and cash equivalents and by a higher current portion of long-term debt. Under a loan agreement with Investissement Québec (IQ), the Company may receive a maximum amount of $519,750, net of transaction costs of $5,250. The loan bears interest at the prime rate plus 0.25% and is repayable in monthly instalments of $10,938 and will mature in September 2024. The loan has a moratorium period without capital payment for a period of 12 months following the date of the first disbursement of the loan. It is secured by a movable hypothec on the universality of the property, tangible and intangible, present, and future of the Company. On October 4, 2019, the Company received $249,000 of this loan. Under this loan agreement, the Company is required to maintain certain financial ratios. As of the date of this MD&A, the financial ratios were all met. On February 27, 2019, OpSens announced that it has entered into a $8,000,000 credit agreement (the “Agreement”) with a Canadian financial institution. The Agreement consists of a $7,000,000 term loan, set to mature in 60 months with no principal payment for a 24-month period following the signature of the Agreement, bearing interest at prime rate plus 2.00% per annum and of a $1,000,000 revolving operating credit margin bearing interest at prime rate plus 11 1.00%, set to mature in one year and that may be renewed on an annual basis. The disbursement of the $7,000,000 term loan occurred on March 1, 2019, and the revolving operating credit was also available at that time. Deferred financing fees related to the Agreement include professional fees and miscellaneous fees of $87,468. Under this Agreement, the Company is subject to certain covenants, which were met as of the date of this MD&A. 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 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. SUMMARY OF CASH FLOWS (In thousands of Canadian dollars) Operating activities Investing activities Financing activities Effect of foreign exchange rate changes on cash and cash equivalents Net change in cash and cash equivalents Operating Activities Year ended August 31, 2020 $ Year ended August 31, 2019 $ (985) (1,765) (1,211) (11) (3,972) (1,247) (1,005) 6,245 (24) 3,969 For the year ended August 31, 2020, cash flows used by our operating activities were $985,000 compared to $1,247,000 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, partially offset by a negative variance in changes in non-cash operating working capital items of $282,000 mainly related to our medical activities. Investing Activities For the year ended August 31, 2020, cash flows used by our investing activities reached $1,765,000 compared to $1,005,000 for the same period in 2019. The increase in cash flows used is mainly explained by a higher acquisition of intangible assets and property, plant, and equipment for the Medical sector. Financing Activities For the year ended August 31, 2020, cash flows used by financing activities reached $1,211,000 compared to cash flows generated of $6,245,000 for the same period in 2019. The variation is mainly explained by the fact that we signed a credit agreement last year and the disbursement occurred on March 1, 2019. The adoption of IFRS 16, Leases, resulted in an increase of cash flows used for our financing activities of $410,000 for the year ended August 31, 2020. 12 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 physiological measurement such as FFR and dPR in the coronary artery stenosis market 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 other medical devices. This also includes licensing revenues related to its optical sensor technology. 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. Medical Industrial $ $ Years ended August 31, 2020 Total $ Medical Industrial $ $ 2019 Total $ 26,996,184 - 14,179,616 2,457,166 29,453,350 96,090 96,090 1,439,876 15,619,492 30,334,061 - 17,350,499 2,417,457 32,751,518 66,040 66,040 1,364,634 18,715,133 1,298,636 249,077 1,547,713 748,728 53,421 802,149 108,845 1,383,939 10,935 119,780 75,660 15,624 91,284 298,669 1,682,608 - - - 340,946 343,121 684,067 (138,855 ) 295,398 156,543 (2,647,823 ) 4,019 (2,643,804 ) (1,630,315 ) (321,493 ) (1,951,808 ) 1,224,453 28,748 1,253,201 619,766 45,389 665,155 676,967 29,777,672 16,070,310 37,928 714,895 2,130,767 491,267 31,908,439 16,561,577 487,301 28,506,354 12,357,132 13,276 500,577 1,582,129 290,615 30,088,483 12,647,747 External sales Internal sales Gross margin Depreciation of property, plant and equipment and right-of-use assets Amortization of intangible assets Other income Financial expenses (income) Net (loss) earnings Acquisition of property, plant and equipment Additions to intangible assets Segment assets Segment liabilities 13 Information by geographic segment Revenue by geographic segment United States Japan Canada Others* Years ended August 31, 2020 $ 2019 $ 11,408,452 6,313,784 2,644,881 9,086,233 29,453,350 14,016,549 10,068,564 2,744,248 5,922,157 32,751,518 * 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. Non-current assets, which include property, plant and equipment, intangible assets and right-of-use assets, are mainly located in Canada, but also in other countries for which amounts are individually not significant. For the year ended August 31, 2020, revenues from two clients from the Medical’s reportable segment represented individually more than 10% of the total revenues of the Company (i.e. 24% and 21%). For the year ended August 31, 2019, revenues from two clients from the Medical’s reportable segment represented individually more than 10% of the total revenues of the Company (i.e. 31% and 27%). Medical Segment Information and analysis in this section for revenue and gross margin do not take into consideration licensing revenues (nil for the year ended August 31, 2020, and $3,302,000 for the year ended August 31, 2019). For the year ended August 31, 2020, sales from the Medical segment were $26,996,000 compared to $27,032,000 for the year ended August 31, 2019, a decrease of $36,000. The decrease is explained by lower coronary artery stenosis measurement (FFR and dPR) sales of $1,365,000 following the COVID-19 pandemic situation. This is partly offset by higher OEM medical sales of $1,330,000. Gross margin was $14,180,000 for the year ended August 31, 2020, compared to $14,048,000 for the year ended August 31, 2019, an increase of $132,000. The gross margin percentage slightly increased at 53% for the year ended August 31, 2020, compared to 52% for the year ended August 31, 2019. The adoption of IFRS 16, Leases, resulted in an increase in the gross margin of $48,000 for the year ended August 31, 2020. Net loss for the Medical segment was $2,648,000 for the year ended August 31, 2020, compared to $1,629,000 for the same period last year. The increase in net loss is mainly explained by a licensing revenue of $3,302,000 accounted last year, partially offset by a reduction in sales and marketing expenses and by the CEWS grant. Working capital for the Medical segment as at August 31, 2020, was $15,495,000 compared to $20,192,000 as at August 31, 2019. The decrease of $4,697,000 is mainly explained by lower cash and cash equivalents of $4,480,000, by a higher current portion of long-term debt of $1,101,000 and by a higher current portion of lease liabilities of $322,000. This is partly offset by a higher inventory of $1,374,000 and by lower accounts payable and accrued liabilities of $760,000. 14 Industrial Segment For the year ended August 31, 2020, external sales from the Industrial segment were $2,457,000 compared to $2,417,000 for the year ended August 31, 2019, an increase of $40,000 mostly explained by a higher volume of orders compared to the same period last year. Gross margin was $1,440,000 for the year ended August 31, 2020, compared to $1,365,000 for the same period in 2019, an increase of $75,000. The gross margin percentage slightly increased from 55% for the year ended August 31, 2019, to 56% for the year ended August 31, 2020. The adoption of IFRS 16, Leases, resulted in an increase of the gross margin of $10,000 for the year ended August 31, 2020. Net earnings for the Industrial segment was $4,000 for the year ended August 31, 2020, compared to a net loss of $321,000 for the year ended August 31, 2019. The increase in net earnings is mainly explained by the recognition of a government assistance related to the CEWS program of $299,000. Working capital for the Industrial segment as at August 31, 2020, was $1,393,000 compared to $1,119,000 as at August 31, 2019. The increase is mainly explained by higher cash and cash equivalents of $508,000. This is partly offset by lower tax credits receivable of $86,000 and by a higher current portion of lease liabilities of $125,000 related to the implementation of IFRS 16. FOURTH QUARTER 2020 Revenues Revenues totalled $7,576,000 for the quarter ended August 31, 2020, compared to revenues of $7,867,000 for the corresponding period in 2019, a decrease of $291,000 or 4%. The decrease is explained by lower sales in coronary artery stenosis measurement segment (FFR, dPR) of $511,000 and by lower industrial sales of $230,000. This is partly offset by higher OEM sales of $450,000. Gross Margin Gross margin was $3,816,000 for the quarter ended August 31, 2020, compared to $3,993,000 for the same period last year. The gross margin percentage was stable at 51% for the quarters ended August 31, 2020 and 2019. The adoption of IFRS 16, Leases, resulted in a non-significant impact for the quarter ended August 31, 2020. Administrative Expenses Administrative expenses were $1,015,000 and $1,160,000, respectively, for the quarters ended August 31, 2020 and 2019. The decrease is mainly explained by the fact that we received a final settlement payment from an industrial client that was written off last year. The adoption of IFRS 16, Leases, resulted in a non-significant impact for the quarter ended August 31, 2020. Sales and Marketing Expenses Sales and marketing expenses totalled $1,458,000 for the quarter ended August 31, 2020, a decrease of $1,656,000 over the $3,175,000 reported during the same period in 2019. The decrease is largely explained by lower headcounts, commissions, trade shows, travelling and subcontractors’ expenses when compared to last year related to the adjustment of the size of our direct sales force in the United States due to COVID-19. The adoption of IFRS 16, Leases, resulted in a non-significant impact for the quarter ended August 31, 2020. Research and Development Expenses Research and development expenses totalled $1,312,000 for the quarter ended August 31, 2020, an increase of $192,000 over the $1,116,000 reported during the same period in 2019. The increase is mainly explained by higher supplies and subcontractors’ fees for our development activities related to the new structural heart project and by lower 15 R&D tax credit. The adoption of IFRS 16, Leases, resulted in a non-significant impact for the quarter ended August 31, 2020. Other Income Other income was $882,000 and nil, respectively, for the quarters ended August 31, 2020 and 2019. The increase is explained by the recognition a non-refundable contribution under the CEWS program for an amount of $882,000. Financial Expenses Financial expenses totalled $356,000 for the quarter ended August 31, 2020, compared to $160,000 for the same period in 2019. The increase in financial expenses is mainly explained by higher interest expenses of $69,000 related to the implementation of IFRS 16, Leases, by lower interest revenues of $57,000 and by a higher foreign exchange loss of $77,000. Net Earnings (Loss) As a result of the foregoing, net earnings for the quarter ended August 31, 2020, was $557,000 compared to a net loss of 1,617,000 for the same period in 2019. INFORMATION ON SHARE CAPITAL For the year ended August 31, 2020, the Company granted to some employees and directors a total of 1,400,000 stock options with an average exercise price of $0.75, cancelled 1,239,750 stock options with an exercise price of $0.94, whereas 100,000 stock options with an average exercise price of $0.72 were exercised, and 467,875 stock options with an exercise price of $0.95 expired. For the year ended August 31, 2019, the Company granted to some employees and directors a total of 2,818,500 stock options with an average exercise price of $0.82, cancelled 588,250 stock options with an exercise price of $1.06, whereas 311,500 stock options with an average exercise price of $0.62 were exercised, and 609,750 stock options with an exercise price of $0.79 expired. As at November 18, 2020, the following components of shareholders’ equity are outstanding: Common shares Stock options Securities on a fully diluted basis 90,280,317 7,018,625 97,298,942 No dividend was declared per share for each share class. RELATED PARTY TRANSACTIONS Key management personnel, having authority and responsibility for planning, directing and controlling the activities of the Company, comprise the Chief Executive Officer, the Executive Chairman, the Chief Financial Officer and the President of OpSens Solutions Inc. Compensation of key management personnel and directors for the years ended August 31, 2020 and 2019, were as follows: 16 Short-term salaries and other benefits Option-based awards Years ended August 31, 2020 $ 1,109,901 153,867 1,263,768 2019 $ 923,554 131,177 1,054,731 The compensation of key executives is determined by the Human Resources and Compensation Committee, taking into consideration individual performance and market trends. 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. 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. Risk Management The main risks arising from the Company’s financial instruments are credit risk, liquidity risk, interest rate risk, concentration 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 17 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 31.72% of the Company’s total accounts receivable as at August 31, 2020 (50.03% as at August 31, 2019). As at August 31, 2020, 0.38% (2.59% as at August 31, 2019) of the accounts receivable were of more than 90 days whereas 34.51% (59.31% as at August 31, 2019) 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, 2020 and 2019, the allowance for doubtful accounts was nil. Liquidity Risk Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities that are settled in cash or another financial asset. The Company’s approach is to ensure it will have sufficient liquidity to meet operational, capital, and regulatory requirements and obligations, under both normal and stressed circumstances. Cash flow projections are prepared and reviewed quarterly by the Board of Directors to ensure a sufficient continuity of funding. The funding strategies used to manage this risk include 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, 2020 and 2019: As at August 31, 2020 Carrying amount Cash flows $ $ 0 to 12 months $ Accounts payable and accrued liabilities Long-term debt Total 3,545,323 3,545,323 3,545,323 8,068,565 8,079,330 1,497,590 2,586,536 11,613,888 11,624,653 5,042,913 2,586,536 3,995,204 3,995,204 As at August 31, 2019 Carrying amount Cash flows $ $ 0 to 12 months $ Accounts payable and accrued liabilities Long-term debt Total 4,293,483 4,293,483 4,293,483 7,494,325 7,613,137 405,463 1 260,663 5,947,011 11,787,808 11,906,620 4,698,946 1 260,663 5,947,011 12 to 24 After months 24 months $ - $ - 12 to 24 After months 24 months $ - $ - 18 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 Fixed and variable interest rates Non-interest-bearing Non-interest-bearing Non-interest-bearing and fixed and variable interest rates Interest Rate Sensitivity Analysis Interest rate risk exists when interest rate fluctuations modify the cash flows or the fair value of the Company’s investments. The Company owns investments with fixed and variable interest rates. As at August 31, 2020, the Company was holding more than 70% (91% as at August 31, 2019) 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 have an impact of $74,220 on net loss and comprehensive loss for the year ended August 31, 2020 ($40,176 for the year ended August 31, 2019). Financial Expenses (Revenues) Interest and bank charges Interest on long-term debt Interest on lease liabilities Loss on foreign currency translation Interest income Concentration Risk Years ended August 31, 2020 $ 71,262 472,298 289,510 90 (149,093 ) 684,067 2019 $ 79,522 267,096 - 10,578 (200,653 ) 156,543 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, 2020 and 2019, 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 mainly of raw materials, supplies and professional services in U.S. dollars, euros and British pounds. 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, 2020, 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 $205,000 higher ($1,036,000 higher for the year ended August 31, 2019). Conversely, if the Canadian dollar had weakened 10% against the U.S. dollar with all 19 other variables held constant, net loss and comprehensive loss would have been $205,000 lower for the year ended August 31, 2020 ($1,036,000 lower for the year ended August 31, 2019). For the year ended August 31, 2020, if the Canadian dollar had strengthened 10% against the euro with all other variables held constant, net loss and comprehensive loss would have been $530,000 higher ($284,000 higher for the year ended August 31, 2019). 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 $530,000 lower for the year ended August 31, 2020 ($284,000 lower for the year ended August 31, 2019). For the year ended August 31, 2020, if the Canadian dollar had strengthened 10% against the British pound with all other variables held constant, net loss and comprehensive loss would have been $36,000 higher ($26,000 higher for the year ended August 31, 2019). Conversely, if the Canadian dollar had weakened 10% against the British pound with all other variables held constant, net loss and comprehensive loss would have been $36,000 lower for the year ended August 31, 2020 ($26,000 lower for the year ended August 31, 2019). 20 As at August 31, 2020 and 2019, the risk to which the Company was exposed is established as follows: Cash and cash equivalents (US$1,516,591; US$616,438 as at August 31, 2019) Cash and cash equivalents (€228,611; €68,066 as at August 31, 2019) Cash and cash equivalents (£36,258; £54,329 as at August 31, 2019) Trade and other receivables (US$1,913,967; US$2,506,505 as at August 31, 2019) Trade and other receivables (€613,597; €495,207 as at August 31, 2019) Trade and other receivables (£69,040; £49,060 as at August 31, 2019) Accounts payable and accrued liabilities (US$692,710; US$1,044,681 as at August 31, 2019) Accounts payable and accrued liabilities (€41,569; €2,300 as at August 31, 2019) Accounts payable and accrued liabilities (£9,520; £37,712 as at August 31, 2019) Total CAPITAL MANAGEMENT As at August 31, 2020 $ As at August 31, 2019 $ 1,977,938 819,554 356,016 63,169 99,574 87,931 2,496,196 3,332,399 955,554 724,438 120,282 79,404 (903,432 ) (1,388,903 ) (64,736 ) (3,365 ) (16,585 ) 4,984,402 (61,037 ) 3,689,995 The Company’s objective in managing capital, primarily composed of shareholders’ equity, long-term debt and lease liabilities, is to ensure sufficient liquidity to fund production and R&D activities, general and administrative expenses, sales and marketing expenses, working capital and capital expenditures. In the past, the Company has had access to liquidity through non-dilutive sources, including the sale of non-core assets, long-term debts, government assistance, R&D tax credits, interest income and to liquidity through dilutive sources as public equity offerings. As at August 31, 2020, the Company’s working capital amounted to $16,888,129 ($21,311,770 as at August 31, 2019), including cash and cash equivalents of $10,884,019 ($14,855,982 as at August 31, 2019). The accumulated deficit at the same date was $43,245,021 ($40,678,055 as at August 31, 2019). 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, 2020. 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 adjusts it in light of changes in economic conditions and the risk characteristics of the underlying assets. Capital management objectives, policies and procedures have broadly remained unchanged since the last fiscal year. For the years ended August 31, 2020 and 2019, the Company has not been in default on any of its obligations regarding long-term debt and lease liabilities. 21 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, 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 United States and Europe, the Company is confident in its capacity to recruit qualified human resources in a timely fashion. Regarding the strategy on corporate executive compensation, it is oriented toward 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 STANDARD New Standards Adopted By the Company During the Year IFRS 16, Leases On January 13, 2016, the IASB released IFRS 16, Leases, which replace IAS 17, Leases, and the related interpretations of 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 twelve months or less or the underlying asset has a small value. Accounting for the lessor remains substantially unchanged. The standard is effective for periods beginning on or after January 1, 2019, with earlier application permitted for companies that also apply IFRS 15, Revenue from Contracts with Customers. The Company has chosen the retrospective application of IFRS 16 with the cumulative effect of initially applying the standard recognized at the date of initial application. Consequently, the Company did not restate the comparative information. The approach allows for two transition options to measure the right-of-use assets at transition. The Company has chosen that the right-of-use assets will be equal to the lease liabilities at the date of the initial application. Under IFRS 16, the Company recognizes right-of-use assets and lease liabilities in the consolidated statement of financial position for its leases that were considered operating leases under IAS 17. A depreciation expense on the right-of-use assets and an interest expense on the lease liabilities replace the straight-line operating lease expense under IAS 17. As at August 31, 2019, under IAS 17, the Company’s leases were classified as operating leases as they did not transfer substantially all the risks and rewards of ownership to the Company. Consequently, lease payments related to the Company’s operating leases were recognized as rent expense on a straight-line basis over the period of the lease. The lease inducements were classified as Deferred lease inducements in the consolidated statement of financial position. At transition on September 1, 2019, the Company recognized right-of-use assets for leases. Right-of-use assets were measured for an amount equal to the lease liabilities. Lease liabilities were measured at the present value of the remaining lease payments on a discounted basis, using the incremental borrowing rate. As a practical expedient, the deferred lease inducements related to free rents have been derecognized as an adjustment to the deficit and the deferred lease inducement related to financing activity, which does not represent a locative component, have been reclassified as a long-term debt for the Company as at September 1, 2019. The following table summarizes the impacts of adopting IFRS 16: 22 Right-of-use assets Lease liabilities Adjustment recognized in deficit September 1, 2019 $ 5,272,723 5,272,723 76,838 To measure the lease liabilities, the Company used the present value of the remaining lease payments on a discounted basis, using the incremental borrowing rate applied as at September 1, 2019, which was 5.95%. The lease liabilities recognized can be reconciled to the lease commitments as at August 31, 2019, as follows: Lease commitments as at August 31, 2019 Effect of discounting Lease commitments relating to low-value assets Renewal options reasonably certain to be exercised Lease liabilities recognized as at September 1, 2019 IFRIC 23, Uncertainty over Income Tax Treatments September 1, 2019 $ 4,147,840 (1,827,981 ) (24,573 ) 2,977,437 5,272,723 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. 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 taxes 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 adoption of the interpretation did not have an impact on the Company’s consolidated financial statements. 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, 2020, 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. 23 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 consolidated 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 consolidated 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. 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, 2020. 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. An outbreak of infectious disease, a pandemic or a similar public health threat, such as the recent outbreak of the novel coronavirus known as COVID-19, or a fear of any of the foregoing, could adversely impact the Company by decreasing short-term market for its products by delaying the execution of elective interventional cardiology procedures and by causing operating, supply chain and project development delays and disruptions, labour shortages, reduced product demand, travel disruption and shutdowns (including as a result of government regulation and prevention measures), and increased costs to the Company. There are other 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, 2020, 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 18, 2020 24 2526Consolidated Financial Statements OpSens Inc. Years ended August 31, 2020 and 2019 27OpSens Inc. Years ended August 31, 2020 and 2019 Table of contents Independent Auditor’s Report .......................................................................................................................... 29-31 Consolidated Statements of Loss and Comprehensive Loss ................................................................................ 32 Consolidated Statements of Changes in Equity ............................................................................................... 33-34 Consolidated Statements of Financial Position ..................................................................................................... 35 Consolidated Statements of Cash Flows .............................................................................................................. 36 Notes to the Consolidated Financial Statements ............................................................................................. 37-70 28 Independent Auditor’s Report To the shareholders and the Board of Directors of OpSens Inc. Opinion We have audited the consolidated financial statements of OpSens Inc. (the “Company”), which comprise the consolidated statements of financial position as at August 31, 2020 and 2019, and the consolidated statements of loss and comprehensive loss, changes in equity and cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies (collectively referred to as the “financial statements”). In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as at August 31, 2020 and 2019, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards (“IFRS”). Basis for Opinion We conducted our audit in accordance with Canadian generally accepted auditing standards (“Canadian GAAS”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Other Information Management is responsible for the other information. The other information comprises:   Management’s Discussion and Analysis The information, other than the financial statements and our auditor’s report thereon, in the Annual Report. Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. We obtained Management’s Discussion and Analysis prior to the date of this auditor’s report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in this auditor’s report. We have nothing to report in this regard. The Annual Report is expected to be made available to us after the date of the auditor’s report. If, based on the work we will perform on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact to those charged with governance. Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. 29In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company’s financial reporting process. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian GAAS will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with Canadian GAAS, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:       Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit 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 Company’s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. 30The engagement partner on the audit resulting in this independent auditor’s report is Sophie Fortin. Quebec City, Canada November 18, 2020 __________________ 1 CPA auditor, CA, public accountancy permit No. A124208 31OpSens Inc. Consolidated Statements of Loss and Comprehensive Loss Years ended August 31, 2020 and 2019 Revenues Sales Licensing (Note 5) Cost of sales Gross margin Operating expenses (Note 24) Administrative Sales and marketing Research and development Other income (Note 19) Financial expenses (Note 25) 2020 $ 2019 $ 29,453,350 29,449,124 - 3,302,394 29,453,350 32,751,518 13,833,858 14,036,385 15,619,492 18,715,133 5,040,700 4,593,182 8,780,110 11,116,277 5,441,027 4,800,939 19,261,837 20,510,398 (1,682,608 ) - 684,067 156,543 Net loss and comprehensive loss (2,643,804 ) (1,951,808 ) Basic and diluted net loss per share (Note 16) (0.03 ) (0.02 ) The accompanying notes are an integral part of the consolidated financial statements. 32$ l a t o T $ t i c i f e D $ n a p l – e v r e s e R n o i t p o k c o t S l a t i p a c e r a h S l a t o T d e b i r c s b u S d e u s s I $ ) r e b m u n ( ) r e b m u n ( ) r e b m u n ( s e r a h s n o m m o C 6 3 7 , 0 4 4 , 7 1 ) 5 5 0 , 8 7 6 , 0 4 ( 0 9 3 , 9 0 4 , 3 1 0 4 , 9 0 7 , 4 5 6 6 4 , 1 3 2 , 0 9 9 4 1 , 1 5 7 1 3 , 0 8 1 , 0 9 9 1 0 2 , 1 3 t s u g u A t a s a e c n a a B l 8 3 8 , 6 7 8 3 8 , 6 7 - - - - - ) 4 e t o N ( 6 1 S R F I g n i t p o d a f o t c a p m I y t i u q E n i s e g n a h C f o t n e m e t a t S d e t a d i l o s n o C 0 2 0 2 , 1 3 t s u g u A d e d n e r a e Y . c n I s n e S p O 7 9 7 , 4 3 5 9 2 , 8 3 4 - - ) 4 0 8 , 3 4 6 , 2 ( ) 4 0 8 , 3 4 6 , 2 ( - 5 9 2 , 8 3 4 - - - - ) 1 7 1 , 4 2 ( 8 6 9 , 8 5 1 5 8 , 8 4 ) 9 4 1 , 1 5 ( 0 0 0 , 0 0 1 - - - - - 2 6 8 , 6 4 3 , 5 1 ) 1 2 0 , 5 4 2 , 3 4 ( 4 1 5 , 3 2 8 , 3 9 6 3 , 8 6 7 , 4 5 7 1 3 , 0 8 2 , 0 9 7 1 3 , 0 8 2 , 0 9 0 2 0 2 , 1 3 t s u g u A t a s a e c n a a B l n a p l n o i t p o k c o t s e h t o t t n a u s r u p d e u s s i s e r a h S ) a 5 1 e t o N ( ) b 5 1 e t o N ( s t s o c n o i t a s n e p m o c d e s a b - k c o t S s s o l i e v s n e h e r p m o c d n a s s o l t e N . s t n e m e t a t s l i a c n a n i f d e t a d i l o s n o c e h t f o t r a p l a r g e t n i n a e r a s e t o n i g n y n a p m o c c a e h T 33 $ l a t o T $ t i c i f e D s t n a r r a W – e v r e s e R k c o t S – e v r e s e R n a p l n o i t p o l a t i p a c e r a h S l a t o T d e b i r c s b u S d e u s s I $ $ $ ) r e b m u n ( ) r e b m u n ( ) r e b m u n ( e r a h s n o m m o C 3 6 9 , 2 7 6 , 8 1 ) 1 4 5 , 5 2 6 , 1 4 ( 4 9 2 , 9 9 8 , 2 6 9 1 , 8 5 0 , 3 4 1 0 , 1 4 3 , 4 5 7 1 8 , 8 6 8 , 9 8 - 7 1 8 , 8 6 8 , 9 8 8 1 0 2 , 1 3 t s u g u A t a s a e c n a a B l y t i u q E n i s e g n a h C f o t n e m e t a t S d e t a d i l o s n o C 9 1 0 2 , 1 3 t s u g u A d e d n e r a e Y . c n I s n e S p O 2 0 4 , 0 3 2 - - ) 5 8 9 , 7 3 1 ( 7 8 3 , 8 6 3 9 4 6 , 2 6 3 9 4 1 , 1 5 0 0 5 , 1 1 3 9 7 1 , 9 8 4 - ) 8 0 8 , 1 5 9 , 1 ( ) 8 0 8 , 1 5 9 , 1 ( 6 3 7 , 0 4 4 , 7 1 ) 5 5 0 , 8 7 6 , 0 4 ( - - - - 4 9 2 , 9 9 8 , 2 ) 4 9 2 , 9 9 8 , 2 ( - - 9 7 1 , 9 8 4 - - - - - - - - - - - - 0 9 3 , 9 0 4 , 3 1 0 4 , 9 0 7 , 4 5 6 6 4 , 1 3 2 , 0 9 9 4 1 , 1 5 7 1 3 , 0 8 1 , 0 9 9 1 0 2 , 1 3 t s u g u A t a s a e c n a a B l w o n y n a p m o C e h t , d e l l e c n a c e r a r o i d e s c r e x e g n e b i t u o h t i w e r i p x e s t n a r r a w n e h W . s t n a r r a W – e v r e s e R s t i i g n d r a g e r y c i l o p g n i t n u o c c a s t i d e g n a h c l y e v i t c e p s o r p y n a p m o C e h T ) 1 ( . s t n a r r a W – e v r e s e R e h t n i d e d u c n l i l y s u o v e r p i s a w t a h t t n u o m a i g n d n o p s e r r o c e h t t i c i f e D e h t o t s r e f s n a r t . s t n e m e t a t s l i a c n a n i f d e t a d i l o s n o c e h t f o t r a p l a r g e t n i n a e r a s e t o n i g n y n a p m o c c a e h T k c o t s e h t o t t n a u s r u p d e u s s i s e r a h S ) a 5 1 e t o N ( n a p l n o i t p o o t r e f s n a r t s t n a r r a W – e v r e s e R ) 1 ( t i c i f e d s t s o c n o i t a s n e p m o c d e s a b - k c o t S ) b 5 1 e t o N ( s s o l i e v s n e h e r p m o c d n a s s o l t e N OpSens Inc. Consolidated Statements of Financial Position Assets Current Cash and cash equivalents (Note 17) Trade and other receivables (Note 6) Government assistance receivable (Note 19) Tax credits receivable (Note 21) Inventories (Note 7) Prepaid expenses Property, plant and equipment (Note 8) Intangible assets (Note 9) Right-of-use assets (Notes 4 and 14) Liabilities Current Accounts payable and accrued liabilities (Note 12) Warranty provision (Note 18) Deferred revenues Current portion of long-term debt (Note 13) Current portion of lease liabilities (Notes 4 and 14) Long-term debt (Note 13) Lease liabilities (Notes 4 and 14) Deferred lease inducements (Note 4) Shareholders’ equity Share capital (Note 15a) Reserve – Stock option plan (Note 15b) Deficit As at August 31, 2020 $ As at August 31, 2019 $ 10,884,019 4,041,080 428,601 105,677 6,505,094 578,893 22,543,364 3,229,787 1,622,310 4,512,978 31,908,439 3,545,323 153,138 48,951 1,460,654 447,169 5,655,235 6,607,911 4,298,431 - 16,561,577 14,855,982 5,115,249 - 297,391 5,133,051 697,345 26,099,018 2,962,270 1,027,195 - 30,088,483 4,293,483 134,460 - 359,305 - 4,787,248 7,135,020 - 725,479 12,647,747 54,768,369 3,823,514 (43,245,021 ) 15,346,862 31,908,439 54,709,401 3,409,390 (40,678,055 ) 17,440,736 30,088,483 The accompanying notes are an integral part of the consolidated financial statements. Approved by the Board Signed [Jean Lavigueur] , director Signed [Louis Laflamme] , director 35OpSens Inc. Consolidated Statements of Cash Flows Years ended August 31, 2020 and 2019 Operating activities Net loss Adjustments for: Depreciation of property, plant and equipment and right-of-use assets (Notes 8 and 14) Amortisation of intangible assets (Note 9) Loss on disposal of property, plant and equipment Write-off of intangible assets Stock-based compensation costs (Note 15b) Interest expense Unrealized foreign exchange loss 2020 $ 2019 $ (2,643,804 ) (1,951,808 ) 1,547,713 119,780 80,381 - 438,295 616,472 10,565 802,149 91,284 75,585 7,988 489,179 87,300 23,936 Changes in non-cash operating working capital items (Note 17) (1,154,458 ) (872,786 ) Investing activities Acquisition of property, plant and equipment (Notes 8 and 17) Additions to intangible assets (Notes 9 and 17) Interest received Financing activities Increase in long-term debt, net of transaction costs Reimbursed of long-term debt Payment of lease liabilities Proceeds from issuance of shares (Note 15a) Interest paid (985,056 ) (1,247,173 ) (1,220,582 ) (689,896 ) 145,228 (1,765,250 ) 244,206 (372,391 ) (409,788 ) 34,797 (707,916 ) (1,211,092 ) (704,768 ) (499,244 ) 199,694 (1,004,318 ) 6,912,532 (663,381 ) - 230,402 (234,932 ) 6,244,621 Effect of foreign exchange rate changes on cash and cash equivalents (10,565 ) (23,936 ) (Decrease) increase in cash and cash equivalents Cash and cash equivalents – Beginning of year Cash and cash equivalents – End of year (3,971,963 ) 14,855,982 10,884,019 3,969,194 10,886,788 14,855,982 Additional information on the consolidated statements of cash flows is presented in Note 17. The accompanying notes are an integral part of the consolidated financial statements. 36 OpSens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2020 and 2019 1. Incorporation and Description of Business OpSens Inc. (OpSens or the Company) is incorporated under the Business Corporations Act (Quebec). OpSens focuses mainly on physiological measurement such as Fractional Flow Reserve (FFR) and dPR in the coronary artery stenosis market and 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 other medical devices. OpSens offers an advanced optical-based pressure guidewire (OptoWire) that aims at improving the clinical outcome of patients with coronary artery stenosis. 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, du Parc-Technologique Blvd., 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. 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, except for the changes in accounting policies as disclosed in note 4. 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 judgment 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. 37OpSens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2020 and 2019 2. Summary of Significant Accounting Policies (continued) Revenue Recognition The Company sells products through a direct sales force and to distributors. The Company recognizes sales revenues for both medical and industrial segments upon shipment of products to customers, when the control has been transferred to the buyer, there is no continuing management involvement with the products, the recovery of the consideration is probable and the amount of revenue can be measured reliably. Sales are measured at the fair value of the consideration to which the Company is entitled to receive in exchange for transferring the promised products, net of any trade and volume discounts. Milestone Milestone income is recognized over the agreement residual terms at the point in time when it is highly probable that the respective milestone event criteria is met, and the risk of reversal of revenue recognition is remote. 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 that are denominated in foreign currencies are translated at the exchange rate in effect at the date of the consolidated statements of financial position, non monetary assets and liabilities that are denominated in foreign currencies are translated at historical rates, revenues and expenses are translated at the exchange rates in effect at the time of the transaction and exchange differences are recognized in consolidated statements of loss and comprehensive loss in the period in which they arise. 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 amortised to operations over the estimated period of benefit. No development costs have been capitalized during any of the years presented. Refundable Research and Development Tax Credits and Government Assistance Refundable research and development (R&D) tax credits and government assistance, except for the Canada Emergence Wage Subsidy (CEWS), 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. The Company receive a non-refundable contribution for admissible salaries related to its workforce according to the CEWS program. This contribution is classified as Other income in the consolidated statements of loss and comprehensive loss. The contribution receivable regarding the CEWS is classified as Government assistance receivable in the consolidated statements of financial position Refundable R&D tax credits and government assistance are accounted when the Company has reasonable assurance that it will comply with the conditions attaching to them and that the grants will be received. 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. 38OpSens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2020 and 2019 2. Summary of Significant Accounting Policies (continued) Share-based Compensation The Company offers a stock option plan described in note 15b, 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 depreciation of property, plant and equipment and right-of-use assets 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. 39OpSens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2020 and 2019 2. Summary of Significant Accounting Policies (continued) Property, Plant and Equipment Property, plant and equipment are recorded at cost, less accumulated depreciation and accumulated impairment losses, if any. The cost of property, plant and equipment includes the purchase price and the directly attributable costs of acquisition. Depreciation is recorded using the straight-line method over the estimated useful life, considering any residual value, as follows: Office furniture and equipment Production equipment Research and development equipment Diagnostic and demonstration equipment Research and development computer equipment Computer equipment Leasehold improvements 10 years 7 years 7 years 3 to 5 years 3 years 3 years Remaining lease terms of six years and one year Depreciation methods, residual values and useful life 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 life consist of patents and software, including software development costs. Intangible assets acquired separately are for internally-generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria, and comprises all directly attributable costs necessary to create, produce, and prepare the asset to be capable of operating in the manner intended by management. After initial recognition, intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recorded using the straight-line method over the estimated useful life considering any residual value, as follows: recorded at cost. The amount recognized initially Patents Software Software development in progress Term of underlying patent - 20 years 3 to 15 years 5 years The Company’s indefinite-life intangible assets consist of trademarks and are not amortised. 40OpSens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2020 and 2019 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 life 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 Life The carrying values of non-financial assets with finite useful life, such as property, plant and equipment, intangible assets with finite useful life and right-of-use assets, 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. 41OpSens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2020 and 2019 2. Summary of Significant Accounting Policies (continued) Leases At inception of a contract, the Company assesses whether the contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. All leases are recognized on the statements of financial position with right-of-use assets and lease liabilities, except for short-term leases and leases for which the underlying asset is of low value. For these, the Company decided to recognize lease payments as expenses on a straight-line basis over the period of the lease. Right-of-Use Assets The Company recognizes right-of-use assets and lease liabilities at the start date of the contract. Right-of-use assets are measured at cost less any accumulated depreciation and any accumulated impairment losses and adjusted for any remeasurement of the lease liabilities. The cost of the right-of-use asset comprises the amount of the initial measurement of the lease liability, any initial direct costs, any lease payments made at or before the commencement date, less any lease incentives received and the costs to be incurred to dismantle and remove the underlying asset. Right-of-use assets are depreciated using the straight-line method over the period from the commencement date to the earlier of the end of the useful life of the right-of-use assets or the end of the leases term. The leases term includes the non-cancellable period and the renewal options reasonably certain to be exercised. Depreciation methods and useful lives are reviewed annually. Lease Liabilities At the commencement date of the lease, the lease liabilities are measured at the present value of the lease payments to be made over the period of the lease. The present value is determined using the incremental borrowing rate of the Company at the start date of the contract if the implicit interest rate cannot be readily determined. The lease payments include fixed payments and variable lease payments that depend on an index or a rate. Variable lease payments that do not depend on an index or a rate are not included in the measurement of lease liabilities but instead are recognized as expenses when the payment occurs. After the commencement date, the carrying amount of lease liabilities is then increased to reflect interest on the lease liabilities and reduced to reflect the lease payments made. The carrying amount of lease liabilities is remeasured when there is a change in future lease payments, in renewal options or in the periods of the lease. The remeasurement amount of the lease liabilities is recognized as an adjustment to the right-of-use assets, or in the consolidated statements of loss and comprehensive loss when the carrying amount of the right-of-use assets is reduced to zero. Classification and Presentation Depreciation charge for right-of-use assets, expenses related to variable lease payments not included in the measurement of lease liabilities and loss (gain) related to lease modifications are, if applicable, allocated between the functions presented in the consolidated statements of loss and comprehensive loss. Interests related to the lease liabilities are rather classified as financial expenses. Lease payments related to the principal portion of the lease liabilities are classified as Payment of lease liabilities within cash flows from financing activities. Lease payments related to the interest portion of the lease liabilities are classified as Interest paid within cash flows from financing activities. Warranty Provision The Company offers a standard 12-month warranty excluding consumables and accessories. Provision for the expected cost of warranty obligations are recognized at the date of sale of the relevant products, at the management’s best estimate of the expenditure required to settle the warranty obligation. 42OpSens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2020 and 2019 2. Summary of Significant Accounting Policies (continued) Income Taxes Income tax expenses comprise current and deferred income taxes. Income taxes are recognized in the consolidated statements of loss and comprehensive loss except to the extent that it relates to items recognized directly in equity, in which case the income taxes are also recognized directly in equity. Current Income Taxes The current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be paid to or 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 carry forward 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. 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 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. 43OpSens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2020 and 2019 2. Summary of Significant Accounting Policies (continued) Financial Instruments Financial assets at fair value through profit and loss (FVTPL): Financial assets carried at FVTPL are initially recorded at fair value and transaction costs are expensed in the consolidated statements of loss and comprehensive loss. Realized and unrealized gains and losses arising from changes in the fair value of the financial assets held at FVTPL are included in the consolidated statements of loss and comprehensive loss in the period in which they arise. Financial liabilities at FVTPL: These financial liabilities are initially recognized at fair value, and transaction costs directly attributable to issuing the financial liabilities are expensed in the consolidated statements of loss and comprehensive loss. Financial liabilities that are required to be measured at FVTPL have all fair value movements, including those related to changes in the credit risk of the liability, recognized in the consolidated statements of loss and comprehensive loss. Financial assets at fair value through other comprehensive income (FVTOCI): Investments in equity and debt instruments at FVTOCI are initially recognized at fair value plus transaction costs. Subsequently they are measured at fair value, with gains and losses arising from changes in fair value recognized in other comprehensive loss and comprehensive loss in the period in which they arise without subsequent reclassification to net income in the case of equity instruments. Financial assets at amortised cost: A financial asset is measured at amortised cost if the objective of the business model is to hold the financial asset for the collection of contractual cash flows, and the asset's contractual cash flows are comprised solely of payments of principal and interest. They are classified as current assets or non-current assets based on their maturity date and are initially recognized at fair value and subsequently carried at amortised cost less any impairment. Impairment of financial assets at amortised cost: The Company recognizes a loss allowance for expected credit losses on financial assets that are measured at amortised cost. As at August 31, 2020 and 2019, the loss allowance was nil. 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. Because of the economic and business uncertainties caused by the spread of COVID-19 virus, the Company reviewed all the critical accounting estimates, assumptions and judgements that are made by management during the preparation of the consolidated financial statements. No significant change is necessary following this review for these consolidated financial statements. However, because of the uncertain and evolving situation associated with the spread of COVID-19, new information could emerge after the approval date of the consolidated financial statements. This could lead to the necessity for the Company to review the critical accounting estimates, assumptions and judgements prospectively over the next years. 44OpSens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2020 and 2019 3. Critical Accounting Estimates, Assumptions and Judgments (continued) Thus far, the Company has had no manufacturing, supply chain, or distribution disruptions and has continued to fulfill orders to customers. However, it is not possible to reliably estimate the length, severity and long-term impact the global pandemic may have on the Company's financial results, business conditions and cash flows because of the uncertainties about future developments. The following critical estimates, judgments and assumptions 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, considering changes in demand, technology and market. Useful Life of Depreciable Assets Management reviews the useful life of depreciable assets at each reporting date. As at August 31, 2020, management stated that the useful life represents the expected utility of the assets to the Company. The carrying amounts are presented in notes 8 and 9. Actual results, however, may vary due to technical obsolescence or changes in the market, particularly for computer equipment and software. Impairment of Non-Financial Assets When the Company performs an impairment test for its non-financial assets, the fair value of CGU must be determined. For that purpose, the Company evaluates the recoverable amount, which is the higher of assets fair value less costs of disposal and its value in use. This evaluation requires a high degree of judgment and several estimates including future cash flows, discount rates and other variables. Leases Upon the occurrence of either a significant event or a significant change in circumstances, the Company reviews if it has the reasonable certainty to exercise an extension option of the lease, or not to exercise a termination option. Future lease payments are also reviewed by management, resulting in a remeasurement of the carrying amount of right-of-use assets and lease liabilities. To measure lease liabilities at the present value of the remaining lease payments, the Company must also determine its incremental borrowing rate when the implicit interest rate of the contract cannot be readily determined. Government Assistance and Refundable R&D Tax Credits Government assistance, including the CEWS, and refundable 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 refundable 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. 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. 45OpSens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2020 and 2019 3. Critical Accounting Estimates, Assumptions and Judgments (continued) 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 collection is reasonably assured. The Company assesses collection based on several factors, including past transaction history and the creditworthiness of the customer. 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 consolidated 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. 4. Changes in Accounting Policies New standards adopted by the Company during the year IFRS 16, Leases On January 13, 2016, the IASB released IFRS 16, Leases, which replace IAS 17, Leases, and the related interpretations on leases such as IFRIC 4, Determining whether an arrangement contains a lease, SIC 15, Operating leases – Incentives and SIC 27, Evaluating the substance of transactions in the legal form of a lease. This new standard specifies how to recognize, measure, present and disclose leases. It also provides a single lessee accounting model, requiring lessees to recognize assets and liabilities for all leases unless lease term is twelve months or less or the underlying asset has a small value. Accounting for the lessor remains substantially unchanged. The standard is effective for periods beginning on or after January 1, 2019, with earlier application permitted for companies that also apply IFRS 15, Revenue from Contracts with Customers. The Company has chosen the retrospective application of IFRS 16 with the cumulative effect of initially applying the standard recognized at the date of initial application. Consequently, the Company did not restate the comparative information. The approach allows for two transition options to measure the right-of-use assets at transition. The Company has chosen that the right-of-use assets will be equal to the lease liabilities at the date of initial application. Under IFRS 16, the Company recognizes right-of-use assets and lease liabilities on the consolidated statements of financial position for its leases that were considered operating leases under IAS 17. A depreciation expense on the right-of-use assets and an interest expense on the lease liabilities replace the straight-line operating lease expense under IAS 17. As at August 31, 2019, under IAS 17, the Company’s leases were classified as operating leases as they did not transfer substantially all the risks and rewards of ownership to the Company. Consequently, lease payments related to the Company’s operating leases were recognized as rent expense on a straight-line basis over the period of the lease. The lease inducements were classified as Deferred lease inducements in the consolidated statements of financial position. 46OpSens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2020 and 2019 4. Changes in Accounting Policies (continued) New standards adopted by the Company during the year (continued) At transition on September 1, 2019, the Company recognized right-of-use assets for leases. Right-of-use assets were measured for an amount equal to the lease liabilities. Lease liabilities were measured at the present value of the remaining lease payments on a discounted basis, using the incremental borrowing rate. As a practical expedient, the deferred lease inducements related to free rents have been derecognized as an adjustment to the deficit and the deferred lease inducement related to financing activity, which does not represent a locative component, have been reclassified as a long-term debt for the Company as at September 1, 2019. The following table summarizes the impacts of adopting IFRS 16: Right-of-use assets Lease liabilities Adjustment recognized in deficit September 1, 2019 $ 5,272,723 5,272,723 76,838 To measure the lease liabilities, the Company used the present value of the remaining lease payments on a discounted basis, using the incremental borrowing rate applied as at September 1, 2019, which was 5.95%. The lease liabilities recognized can be reconciled to the lease commitments as at August 31, 2019 as follows: Lease commitments as at August 31, 2019 Effect of discounting Lease commitments relating to low-value assets Renewal options reasonably certain to be exercised Lease liabilities recognized as at September 1, 2019 IFRIC 23, Uncertainty Over Income Tax Treatments September 1, 2019 $ 4,147,840 (1,827,981 ) (24,573 ) 2,977,437 5,272,723 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. 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; - measure a tax uncertainty based on the most likely amount or expected value depending on whichever method better predicts the amount payable (recoverable). The adoption of the interpretation did not have an impact on the Company’s consolidated financial statements. 47OpSens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2020 and 2019 5. Licensing Agreement On April 15, 2014, the Company announced it had entered into an agreement with Abiomed, Inc. (Abiomed) in connection with its miniature optical pressure sensor technology for applications in circulatory assisted devices. The Company has granted Abiomed an exclusive worldwide license to integrate its miniature pressure sensor in connection with Abiomed’s circulatory assisted devices. Under the agreement, Abiomed had to 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 has been disbursed based on the achievement of certain milestones. For the year ended August 31, 2019, the Company achieved the last technical milestones related to the agreement with Abiomed and consequently, it allowed the Company to record, in the consolidated statements of loss and comprehensive loss as licensing revenues an amount of $3,260,725 (US$2,500,000). 6. Trade and Other Receivables Trade Sales taxes receivable Other receivables Total Loss allowance Balance – Beginning of year Additional provisions recognized Amounts recovered during the year Unused amounts reversed during the year Foreign exchange variance Balance – End of year 7. Inventories Raw materials Work in progress Finished goods Total As at August 31, 2020 $ As at August 31, 2019 $ 3,922,452 4,619,148 99,902 18,726 441,189 54,912 4,041,080 5,115,249 Years ended August 31, 2020 $ - - - - - - As at August 31, 2020 $ 2,695,700 1,153,315 2,656,079 6,505,094 2019 $ (817,823 ) (2,347 ) 18,568 796,240 5,362 - As at August 31, 2019 $ 2,534,907 1,831,171 766,973 5,133,051 For the year ended August 31, 2020, $8,493,824 of inventories were expensed in the consolidated statements of loss and comprehensive loss and presented in cost of sales ($9,369,472 for the year ended August 31, 2019). Write-downs of inventories amounting to $122,945 ($131,530 for the year ended August 31, 2019) were included under cost of sales. 48 $ l a t o T $ 3 2 8 , 4 4 $ f o s t i d e r c l d o h e s a e L , s t n e m e v o r p m i x a t e m o c n i f o t e n $ r e t u p m o C t n e m p u q e i $ 8 7 0 , 3 $ f o s t i d e r c x a t e m o c n i r e t u p m o c t n e m p o l e v e d d n a h c r a e s e R f o t e n , t n e m p u q e i $ $ $ 3 0 3 , 5 5 $ t n e m p o l e v e d d n a h c r a e s e R x a t e m o c n i f o t e n , t n e m p u q e i d n a s t i d e r c t n e m n r e v o g f o e c n a t s i s s a t n e m p u q e i d n a c i t s o n g a i D n o i t a r t s n o m e d n o i t c u d o r P , t n e m p u q e i 0 6 1 , 3 0 1 $ e m o c n i f o t e n f o s t i d e r c x a t $ d n a e c i f f O e r u t i n r u f , t n e m p u q e i f o t e n 0 2 4 , 3 $ f o s t i d e r c x a t e m o c n i s t n e m e t a t S l a i c n a n i F d e t a d i l o s n o C e h t o t s e t o N 9 1 0 2 d n a 0 2 0 2 , 1 3 t s u g u A d e d n e s r a e Y . c n I s n e S p O i t n e m p u q E d n a t n a l P , y t r e p o r P . 8 ) 9 2 2 , 3 7 1 ( - 5 5 6 , 9 7 5 , 7 1 0 2 , 3 5 2 , 1 3 3 0 , 7 8 1 7 4 , 3 1 2 , 1 - 2 7 6 , 1 6 3 1 0 , 6 3 5 7 2 6 , 9 5 6 , 8 4 0 5 , 0 0 3 , 1 5 8 6 , 7 9 5 5 8 3 , 7 1 6 , 4 4 6 1 , 5 5 6 ) 8 4 8 , 2 9 ( 3 0 3 , 5 0 9 - 8 9 2 , 9 1 1 0 4 8 , 9 2 4 , 5 2 6 4 , 4 7 7 9 2 8 , 0 7 4 - 2 1 4 , 1 5 1 4 2 , 2 2 5 - 3 6 9 , 8 9 4 0 5 , 6 2 7 6 4 , 5 2 1 8 4 6 , 3 7 - 6 4 4 , 6 1 4 9 0 , 0 9 - 5 0 6 , 2 8 2 6 4 , 5 8 4 , 1 7 6 0 , 8 6 5 , 1 - 5 6 9 , 5 8 6 5 8 , 9 9 1 , 1 1 2 8 , 5 8 2 , 1 3 1 3 , 3 4 5 3 7 1 , 0 8 2 ) 9 2 2 , 3 7 1 ( 7 5 2 , 0 5 6 ) 8 4 8 , 2 9 ( 8 4 7 , 6 1 2 4 6 5 , 4 3 1 4 6 4 , 8 5 2 - 6 1 1 , 8 9 6 7 6 3 , 7 5 1 , 3 - 8 9 0 , 7 1 6 6 0 , 5 4 5 9 1 0 2 , 1 3 t s u g u A t a s a e c n a a B l s n o i t i d d A t s o C l s a s o p s D i 3 8 4 , 5 5 8 , 3 4 6 1 , 2 6 5 0 2 0 2 , 1 3 t s u g u A t a s a e c n a a B l 2 1 1 , 6 6 7 , 1 8 2 0 , 5 3 2 9 1 0 2 , 1 3 t s u g u A t a s a e c n a a B l n o i t a i c e r p e d d e t a l u m u c c A - 2 3 1 , 0 5 4 4 4 2 , 6 1 2 , 2 - 6 8 4 , 7 4 4 1 5 , 2 8 2 0 2 0 2 , 1 3 t s u g u A t a s a e c n a a B l i n o i t a c e r p e D e u l a v k o o b t e N l s a s o p s D i 7 8 7 , 9 2 2 , 3 2 4 0 , 6 2 5 4 4 4 , 5 7 3 7 3 , 5 3 6 4 2 , 2 8 2 3 9 7 , 1 9 3 9 3 2 , 9 3 6 , 1 0 5 6 , 9 7 2 0 2 0 2 , 1 3 t s u g u A t a s a 49 $ l a t o T $ 3 2 8 , 4 4 $ f o s t i d e r c l d o h e s a e L , s t n e m e v o r p m i x a t e m o c n i f o t e n $ r e t u p m o C t n e m p u q e i $ 8 7 0 , 3 $ f o s t i d e r c x a t e m o c n i r e t u p m o c t n e m p o e v e d l d n a h c r a e s e R f o t e n , t n e m p u q e i $ $ $ t n e m p o e v e d l d n a h c r a e s e R x a t e m o c n i f o t e n , t n e m p u q e i 3 0 3 , 5 5 $ d n a s t i d e r c t n e m n r e v o g f o e c n a t s s s a i t n e m p u q e i d n a c i t s o n g a D i n o i t a r t s n o m e d n o i t c u d o r P , t n e m p u q e i 0 6 1 , 3 0 1 $ e m o c n i f o t e n f o s t i d e r c x a t $ e c i f f O , t n e m p u q e i d n a e r u t i n r u f f o t e n 0 2 4 , 3 $ f o s t i d e r c x a t e m o c n i s t n e m e t a t S l a i c n a n i F d e t a d i l o s n o C e h t o t s e t o N 9 1 0 2 d n a 0 2 0 2 , 1 3 t s u g u A d e d n e s r a e Y . c n I s n e S p O ) d e u n i t n o c ( i t n e m p u q E d n a t n a l P , y t r e p o r P . 8 5 5 1 , 5 6 6 ) 1 4 5 , 2 2 1 ( - 2 5 0 , 9 1 1 1 4 0 , 7 3 0 , 7 9 1 4 , 4 9 0 , 1 - 2 8 2 , 7 4 1 3 7 , 8 8 4 5 5 6 , 9 7 5 , 7 1 7 4 , 3 1 2 , 1 3 1 0 , 6 3 5 2 9 1 , 2 6 8 , 3 7 9 0 , 0 5 5 ) 6 5 9 , 6 4 ( 9 4 1 , 2 0 8 - 7 6 0 , 5 0 1 5 8 3 , 7 1 6 , 4 4 6 1 , 5 5 6 8 3 9 , 0 2 4 - 1 9 8 , 9 4 9 2 8 , 0 7 4 - 1 7 9 , 4 7 2 9 9 , 3 2 3 6 9 , 8 9 6 1 2 , 2 6 - 2 3 4 , 1 1 8 4 6 , 3 7 - 7 0 1 , 7 0 1 5 5 3 , 8 7 3 , 1 2 6 4 , 5 8 4 , 1 - 4 7 8 , 8 7 2 8 9 , 0 2 1 , 1 6 5 8 , 9 9 1 , 1 7 3 1 , 1 7 4 7 1 7 , 4 9 1 ) 1 4 5 , 2 2 1 ( 3 1 3 , 3 4 5 ) 6 5 9 , 6 4 ( 3 1 5 , 1 5 1 1 9 1 , 2 1 1 8 4 7 , 6 1 2 - 3 4 9 , 0 8 4 2 4 , 6 7 0 , 3 - 2 6 0 , 2 9 4 0 0 , 3 5 4 8 1 0 2 , 1 3 t s u g u A t a s a e c n a a B l s n o i t i d d A t s o C l s a s o p s D i 7 6 3 , 7 5 1 , 3 6 6 0 , 5 4 5 9 1 0 2 , 1 3 t s u g u A t a s a e c n a a B l 2 5 4 , 6 6 3 , 1 4 9 9 , 9 8 1 8 1 0 2 , 1 3 t s u g u A t a s a e c n a a B l n o i t a i c e r p e d d e t a l u m u c c A - 0 6 6 , 9 9 3 2 1 1 , 6 6 7 , 1 - 4 3 0 , 5 4 8 2 0 , 5 3 2 9 1 0 2 , 1 3 t s u g u A t a s a e c n a a B l i n o i t a c e r p e D e u l a v k o o b t e N l s a s o p s D i 0 7 2 , 2 6 9 , 2 7 0 3 , 8 5 5 4 8 1 , 5 6 5 1 3 , 5 2 6 0 6 , 5 8 2 5 6 5 , 6 2 3 5 5 2 , 1 9 3 , 1 8 3 0 , 0 1 3 9 1 0 2 , 1 3 t s u g u A t a s a OpSens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2020 and 2019 9. Intangible Assets Indefinite life – Trademarks $ Finite life – Software in progress $ Finite life – Software, net of income tax credits of $1,518 $ Internally developed Finite life – Patents $ Total $ 25,982 19,691 - - 45,673 - - - - 188,965 521,827 322,702 27,089 1,125,519 272,816 1,663,168 841,423 (126,528 ) - 584,264 - - - - - - 349,791 204,099 17,085 - 221,184 - - 1,398,335 (126,528 ) - 2,378,063 431,874 102,695 - 534,569 635,973 119,780 - 755,753 Cost Balance as at August 31, 2019 Additions Grant recorded against intangible assets (Note 19) Disposals Balance as at August 31, 2020 Accumulated amortisation Balance as at August 31, 2019 Amortisation Disposals Balance as at August 31, 2020 Net book value as at August 31, 2020 45,673 584,264 128,607 863,766 1,622,310 Indefinite life – Trademarks Finite life – Software in progress $ $ Finite life – Software, net of income tax credits of $1,518 $ Internally developed Finite life – Patents $ Total $ 22,317 3,665 - - 25,982 - - - - - 217,965 210,655 112,047 941,909 195,900 1,174,881 529,577 (29,000 ) - 188,965 - - 322,702 - (12,290 ) 1,125,519 (29,000 ) (12,290 ) 1,663,168 - - - - 177,936 26,163 - 204,099 371,055 65,121 (4,302 ) 431,874 548,991 91,284 (4,302 ) 635,973 Cost Balance as at August 31, 2018 Additions Grant recorded against intangible assets (Note 19) Disposals Balance as at August 31, 2019 Accumulated amortisation Balance as at August 31, 2018 Amortisation Disposals Balance as at August 31, 2019 Net book value as at August 31, 2019 25,982 188,965 118,603 693,645 1,027,195 The Company has considered indicators of impairment as at August 31, 2020 and did not record an impairment loss attributable to patent requests that have not been pursued ($7,988 for the year ended August 31, 2019). 51 OpSens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2020 and 2019 10. Impairment Testing The COVID-19 pandemic has resulted in an overall decline in equity markets, as well as ongoing economic uncertainty, impacted the Company activities and revenues during the year ended August 31, 2020. Management identified a potential impairment indicator of assets and as a result, has performed an impairment test for the Medical segment cash-generating unit (CGU). The Company estimated the CGU’s fair value less costs of disposal to determine the recoverable amount and considers the relationship between its market capitalization and its book value, among other factors, when assessing for impairment. As at August 31, 2020, the market capitalization of the Company exceeded the carrying amount of the CGU, indicating no impairment required. 11. Authorized Line of Credit The Company has a revolving operating credit facility for a maximum of $1,000,000 (the credit limit). The available revolving operating credit is limited to the lesser of the credit limit and 75% of eligible accounts receivable, plus 50% of eligible inventories, minus priority claims. The aggregate outstanding amount under the revolver may not at any time exceed the credit limit. This revolving operating credit bears interest at the prime rate plus 1% and is repayable on the first anniversary of the date of the agreement. The Company is also allowed to prepay this facility in whole or in part at any time without penalty. It is secured by a first-rank movable hypothec on the universality of receivables and inventories. The credit line was not used as at August 31, 2020 and 2019. The Company also has credit cards for a maximum of $100,000 to finance its current operations. The balance used on these credit cards bears interest at a rate of 19.99%. 12. Accounts Payable and Accrued Liabilities Suppliers Salaries, employee benefits and other Other liabilities Total As at August 31, 2020 $ 1,421,986 1,284,450 838,887 3,545,323 As at August 31, 2019 $ 2,159,323 798,411 1,335,749 4,293,483 52OpSens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2020 and 2019 13. Long-term Debt Contributions repayable to Ministère des Finances, without interest (effective rate of 9.00%), 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 (CED), without interest (effective rate of 13.50%), repayable in 20 equal and consecutive quarterly instalments of $15,000, initially maturing in August 2020. Since April 2020, all payments due to CED are deferred for nine months (revised deadline in May 2021). Debt balance Imputed interest Contributions repayable to Canada Economic Development (CED), without interest (effective rate of 12.00%), repayable in 59 equal and consecutive monthly instalments of $3,333 and a final payment of $3,353, initially maturing in October 2023. The difference between amounts received and estimated fair value is recognized as government grants. Since April 2020, all payments due to CED are deferred for nine months (revised deadline in July 2024). Debt balance Imputed interest 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, initially maturing in May 2020. Amounts received are net of transaction costs of $9,000. Since March 2020, all capital payments are deferred for a maximum period of six months (revised deadline in November 2020). 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, initially maturing in February 2022. Amounts received are net of transaction costs of $2,160. Since March 2020, all capital payments are deferred for a maximum period of six months (revised deadline in August 2022). Amounts to be carried forward As at August 31, 2020 $ As at August 31, 2019 $ - - - 82,718 (3,618 ) 79,100 30,000 (400 ) 29,600 60,000 (4,531 ) 55,469 143,339 (20,513 ) 122,826 166,670 (33,199 ) 133,471 56,236 168,336 107,624 134,147 316,286 570,523 53OpSens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2020 and 2019 13. Long-term Debt (continued) Amounts carried over Term loan, bearing interest at prime rate plus 2.00%, secured by a movable hypothec on the universality of the Company’s present and future property, plant and equipment and intangible assets, maturing in February 2024 with no principal payment for a 24-month period following the signature of the agreement on March 2019. The principal is payable in 36 monthly instalments of $194,444. Amounts received are net of transaction costs of $87,468. 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, maturing in September 2024 with no principal payment for a 12-month period following the receipt of the loan on October 2019. The principal is payable in 48 monthly instalments of $5,197. Amounts received are net of transaction costs of $5,250. Term loan bearing interest at 6.66% payable in 111 monthly instalments of $8,070, maturing in September 2025. Current portion The annual principal instalments due on the long-term debt are: Less than 1 year 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years More than 5 years As at August 31 , 2020 $ As at August 31, 2019 $ 316,286 570,523 6,947,412 6,923,802 245,704 - 559,163 8,068,565 1,460,654 6,607,911 As at August 31, 2020 $ 1,460,654 2,566,429 2,531,305 1,369,586 129,821 10,770 8,068,565 - 7,494,325 359,305 7,135,020 As at August 31, 2019 $ 359,305 1,226,054 2,376,009 2,361,417 1,171,540 - 7,494,325 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, 2020 and 2019, these financial ratios were met by the Company. 54OpSens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2020 and 2019 14. Leases The Company has leases for buildings and hosting servers. Right-of-Use Assets The following table presents the right-of-use assets for the Company as at August 31, 2020: Opening balance as at September 1, 2019 New leases / leases modifications Depreciation of right-of-use assets Net book value as at August 31, 2020 Lease Liabilities Year ended August 31, 2020 Buildings $ 5,190,001 (118,424 ) (609,212 ) 4,462,365 Hosting servers $ 82,722 1,089 (33,198 ) 50,613 Total $ 5,272,723 (117,335 ) (642,410 ) 4,512,978 The following table presents the lease liabilities for the Company as at August 31, 2020: Opening balance as at September 1, 2019 New leases / leases modifications Payment of lease liabilities Sublease income from right-of-use assets Interest expense on lease liabilities Lease liabilities as at August 31, 2020 Current portion Long-term lease liabilities as at August 31, 2020 Year ended August 31, 2020 Buildings $ 5,190,001 (118,424 ) (688,874 ) 24,301 285,527 4,692,531 411,290 4,281,241 Hosting servers $ 82,722 1,089 (34,725 ) - 3,983 53,069 35,879 17,190 Total $ 5,272,723 (117,335 ) (723,599 ) 24,301 289,510 4,745,600 447,169 4,298,431 55 OpSens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2020 and 2019 14. Leases (continued) The lease payments, based on the expected undiscounted contractual cash flows, are as follows over the period of the leases: Less than 1 year 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years More than 5 years As at August 31, 2020 $ 703,578 568,676 564,999 579,124 593,602 3,254,251 6,264,230 For the year ended August 31, 2020, expenses relating to short-term leases and leases for which the underlying asset is of low value were not significant. The Company is not exposed to a significant liquidity risk regarding its lease liabilities. The Company’s treasury function oversees lease liabilities. 15. Shareholders’ Equity a) Share Capital During the year ended August 31, 2020, following the exercise of stock options, the Company issued 48,851 common shares (311,500 common shares for the year ended August 31, 2019) for a cash consideration of $34,797 ($230,402 for the year ended August 31, 2019). As a result, an amount of $24,171 was reallocated from “Reserve – Stock option plan” to “Share capital” in shareholders’ equity ($137,985 for the year ended August 31, 2019). Also, 51,149 subscribed common shares have been issued (nil for the year ended August 31, 2019). b) Stock Options According to the policies of the TSX Exchange, the stock option plan must be approved by the Company’s shareholders every three years. So, the shareholders approved the stock option plan on January 21, 2020. 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 subjected 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 1,070,000 stock options (1,000,000 stock options granted as at August 31, 2019), 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, 2020 is $438,295 ($489,179 for the year ended August 31, 2019). 56OpSens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2020 and 2019 15. Shareholders’ Equity (continued) b) Stock Options (continued) The fair value of options granted issued was estimated using the Black-Scholes option pricing model using with the following assumptions: Risk-free interest rate Volatility Dividend yield on shares Expected life Weighted share price Weighted fair value per option at the grant date Years ended August 31, 2020 2019 Between 0.24% and 1.67% Between 1.23% and 2.27% Between 46.43% and 66.51% Between 45.24% and 56.05% Nil 0 to 5 years $0.75 $0.27 Nil 0 to 5 years $0.82 $0.30 Option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Any changes in the subjective input assumptions can affect the fair value estimate. The expected volatility is based on the historical volatility of the underlying share price for a period equivalent to the expected life of the options. The changes in the number of stock options granted by the Company and their weighted-average exercise prices between August 31, 2018 and August 31, 2020 are as follows: Outstanding as at August 31, 2018 Options granted Options exercised Options expired Options cancelled Outstanding as at August 31, 2019 Options granted Options exercised Options expired Options cancelled Outstanding as at August 31, 2020 Options exercisable as at August 31, 2020 Number of options 5,695,000 2,818,500 (311,500 ) (609,750 ) (588,250 ) 7,004,000 1,400,000 (100,000 ) (467,875 ) (1,239,750 ) 6,596,375 3,352,844 Weighted- average exercise price $ 1.10 0.82 0.62 0.79 1.06 1.04 0.75 0.72 0.95 0.94 1.01 1.15 57OpSens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2020 and 2019 15. Shareholders’ Equity (continued) b) Stock Options (continued) The table below provides information on the outstanding stock options as at August 31, 2020: Exercise price $ 0.51 – 0.75 0.76 – 1.00 1.01 – 1.25 1.26 – 1.50 1.51 – 1.75 1.01 16. Net Loss per Share Number of outstanding stock options Number of exercisable stock options Weighted average remaining contractual life (years) 492,500 4,064,250 449,000 719,375 871,250 6,596,375 50,000 1,664,250 308,125 564,531 765,938 3,352,844 4.64 3.32 3.46 1.66 1.25 2.87 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, 2020 $ 2019 $ (2,643,804 ) (1,951,808 ) Basic and diluted weighted average number of shares outstanding 90,276,765 90,010,061 Amount per share Basic and diluted net loss per share (0.03 ) (0.02 ) Stock options 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 stock options excluded from the calculation because their exercise price is greater than the average market price of common shares is presented below: Stock options Years ended August 31, 2020 2019 6,023,936 4,663,500 For the years ended August 31, 2020 and 2019, the diluted amount per share was the same amount as the basic amount per share, since the dilutive effect of stock options was not included in the calculation; otherwise, the effect would have been antidilutive. Accordingly, the diluted amount per share for these periods was calculated using the basic weighted average number of shares outstanding. 58OpSens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2020 and 2019 17. Additional Information on the Consolidated Statements of Cash Flows Changes in non-cash operating working capital items Trade and other receivables Government assistance receivable Tax credits receivable Inventories Prepaid expenses Accounts payable and accrued liabilities Warranty provision Deferred revenues Deferred lease inducements Supplementary information Years ended August 31, 2020 $ 2019 $ 1,045,169 (428,601 ) 191,714 (1,372,043 ) 118,452 (776,778 ) 18,678 48,951 - (1,154,458 ) (2,269,964 ) - 57,397 86,909 (190,009 ) 1,583,073 (2,960 ) (41,669 ) (95,563 ) (872,786 ) Uncashed grant recorded against intangible assets Unpaid acquisition of property, plant and equipment Unpaid additions to intangible assets - 83,505 29,467 29,000 50,886 33,468 Cash and cash equivalents Cash Short-term investments As at August 31, 2020 $ As at August 31, 2019 $ 3,251,374 7,632,645 10,884,019 1,275,252 13,580,730 14,855,982 59 OpSens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2020 and 2019 18. Warranty provision During the normal course of business, the Company replaces defective parts under warranty provision offered at the sale of the products. The term of the warranty is generally 12 months. The following table summarizes changes in warranty provision: Balance – Beginning of year Additional provision recognized Unused amount reversed during the year Amount used during the year Balance – End of year Years ended August 31, 2020 $ 134,460 80,500 - (61,822 ) 153,138 2019 $ 137,420 119,502 (16,000 ) (106,462 ) 134,460 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 The global economy has significantly changed with the spread of COVID-19 virus. This situation was declared on March 11, 2020, as a pandemic by the World Health Organization (WHO) and has led many governments to adopt exceptional measures like the implementation of the Canada Emergency Wage Subsidy (CEWS). For the year ended August 31, 2020, the Company recorded, as Other income, a non-refundable contribution under the CEWS program for an amount of $1,682,608 for admissible salaries related to its workforce (nil for the year ended August 31, 2019). Under an agreement reached with the National Research Council Canada with respect to the Industrial Research Assistance Program (IRAP), the Company may receive a non-refundable contribution for a maximum amount of $500,000 to cover some of its incurred costs to develop a new product for the structural heart market. For the year ended August 31, 2020, the Company recorded contributions totalling $187,590 ($86,567 for the year ended August 31, 2019) which were accounted for against research and development expenses. Under an agreement reached with the Ministère de l’Économie et de l’Innovation, through the Centre de Collaboration MiQro Innovation (C2MI) with respect to the Projet stratégique mobilisateur (PSM), the Company may receive a non-refundable contribution for a maximum amount of $290,234 to cover some of its costs to develop a new product for the structural heart market. For the year ended August 31, 2020, the Company recorded contributions totalling $94,007 (nil for the year ended August 31, 2019) which were accounted for against research and development expenses. Under an agreement reached with the Ville de Québec, the Company may receive a non-refundable contribution for a maximum amount of $350,000 to cover expenses related to development of a software and sales and marketing expenses. For the year ended August 31, 2020, the Company recorded contributions totalling $180,000 (nil for the year ended August 31, 2019) which were accounted for against software – development in progress and sales and marketing expenses. Under an agreement reached with the Ministère de l’Économie et de l’Innovation, the Company may receive a non-refundable contribution for a maximum amount of $50,000 to cover expenses related to development of a software. For the year ended August 31, 2020, the Company recorded contributions totalling $46,528 (nil for the year ended August 31, 2019) which were accounted for against software – development in progress. 60OpSens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2020 and 2019 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: Income tax payable using the combined federal and provincial statutory tax rate (26.5%; 26.6% in 2019) 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 Years ended August 31, 2020 $ 2019 $ (701,489 ) 739,747 (106,145 ) - (28,040 ) 95,927 - (519,832 ) 806,064 (106,265 ) (11,098 ) (79,205 ) (89,664 ) - As at August 31, 2020, the Company has tax losses of approximately $26,789,400 for federal purposes and $27,657,400 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 2039 2040 Federal Provincial $ $ 515,000 42,000 400 463,000 40,000 400 1,552,000 1,509,000 641,000 617,000 500,000 2,123,000 1,285,000 237,000 1,091,000 2,513,000 5,759,000 5,447,000 2,912,000 271,000 1,284,000 617,000 426,000 500,000 2,146,000 1,280,000 239,000 1,125,000 2,510,000 5,493,000 5,427,000 4,308,000 325,000 1,249,000 26,789,400 27,657,400 61OpSens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2020 and 2019 20. Income Taxes (continued) The Company also has undeducted research and development expenses of $11,719,000 ($11,224,000 as at August 31, 2019) for federal purposes and $14,814,000 ($14,264,000 as at August 31, 2019) 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 $15,043,000 ($14,586,000 as at August 31, 2019) were not recognized due to the uncertainty about the Company’s ability to generate taxable income. In addition, deferred tax liabilities of approximately $878,000 ($841,000 as at August 31, 2019) 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, 2020 $ 2019 $ 598,000 633,000 1,238,000 1,267,000 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, 2020 2019 $ - $ - 105,677 105,677 297,391 297,391 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, 2020 and 2019 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, 2020 are about $3,314,000 ($3,172,000 for the year ended August 31, 2019) and expire over a period of 5 to 20 years beginning in 2020. 62OpSens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2020 and 2019 22. Segmented Information Segmented Information The Company is organized into two segments: Medical and Industrial. Medical segment: in this segment, OpSens focuses mainly on physiological measurement such as FFR and dPR in the coronary artery stenosis market and 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 other medical devices. This also includes licensing revenue related to its optical sensor technology. 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. Medical Industrial $ $ Years ended August 31, 2020 Total $ Medical Industrial $ $ 2019 Total $ 26,996,184 2,457,166 29,453,350 30,334,061 2,417,457 32,751,518 - 14,179,616 96,090 - 1,439,876 15,619,492 17,350,499 96,090 66,040 66,040 1,364,634 18,715,133 1,298,636 249,077 1,547,713 748,728 53,421 802,149 108,845 1,383,939 10,935 119,780 75,660 15,624 91,284 298,669 1,682,608 - - - 340,946 343,121 684,067 (138,855 ) 295,398 156,543 External sales Internal sales Gross margin Depreciation of property, plant and equipment and right-of-use assets Amortisation of intangible assets Other income Financial expenses (income) Net (loss) earnings (2,647,823 ) 4,019 (2,643,804 ) (1,630,315 ) (321,493 ) (1,951,808 ) Acquisition of property, plant and equipment Additions to intangible assets Segment assets Segment liabilities 1,224,453 28,748 1,253,201 619,766 45,389 665,155 676,967 29,777,672 16,070,310 37,928 487,301 714,895 2,130,767 31,908,439 28,506,354 491,267 16,561,577 12,357,132 13,276 500,577 1,582,129 30,088,483 290,615 12,647,747 63 OpSens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2020 and 2019 22. Segmented Information (continued) Information by geographic segment Revenue by geographic segment United States Japan Canada Other* Years ended August 31, 2020 $ 2019 $ 11,408,452 6,313,784 2,644,881 9,086,233 29,453,350 14,016,549 10,068,564 2,744,248 5,922,157 32,751,518 * 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. Non-current assets, which include property, plant and equipment, intangible assets and right-of-use assets, are mainly located in Canada, but also in other countries for which amounts are individually not significant. For the year ended August 31, 2020, revenues from two clients from the Medical’s reportable segment represented individually more than 10% of the total revenues of the Company, i.e. 24% and 21%. For the year ended August 31, 2019, revenues from two clients from the Medical’s reportable segment represented individually more than 10% of the total revenues of the Company, i.e. 31% and 27%. 23. Related Party Transactions Key management personnel, having authority and responsibility for planning, directing and controlling the activities of the Company, comprise the Chief Executive Officer, the Executive Chairman, the Chief Financial Officer and the President of OpSens Solutions Inc. Compensation of key management personnel and directors for the years ended August 31, 2020 and 2019 were as follows: Short-term salaries and other benefits Option-based awards Years ended August 31, 2020 $ 1,109,901 153,867 1,263,768 2019 $ 923,554 131,177 1,054,731 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, 2020 and 2019 24. Additional Information to the Consolidated Statements of Loss and Comprehensive Loss Expenses (revenues) by function Years ended August 31, 2020 $ 2019 $ Salaries and Other Benefits 13,254,678 12,504,035 Cost of sales Administrative Sales and marketing Research and development Depreciation of Property, Plant and Equipment and Righ-of-Use 1,547,713 802,149 Assets Cost of sales Administrative Sales and marketing Research and development Amortisation of Intangible Assets 119,780 91,284 Administrative Research and development Government Assistance (391,797 ) (142,177 ) Cost of sales Administrative Sales and marketing Research and development Refundable Research and Development Tax Credits (89,943 ) (316,743 ) Research and development 65 OpSens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2020 and 2019 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. Risk Management The main risks arising from the Company’s financial instruments are credit risk, liquidity risk, interest rate risk, concentration 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 31.72% of the Company’s total accounts receivable as at August 31, 2020 (50.03% as at August 31, 2019). As at August 31, 2020, 0.38% (2.59% as at August 31, 2019) of the accounts receivable were of more than 90 days whereas 34.51% (59.31% as at August 31, 2019) 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, 2020 and 2019, the allowance for doubtful accounts was nil. 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. 66OpSens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2020 and 2019 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, 2020 and 2019: As at August 31, 2020 Carrying amount Cash flows $ $ 0 to 12 months $ 12 to 24 After months 24 months $ - $ - 12 to 24 After months 24 months $ - $ - Accounts payable and accrued liabilities Long-term debt Total 3,545,323 3,545,323 3,545,323 8,068,565 8,079,330 1,497,590 2,586,536 3,995,204 11,613,888 11,624,653 5,042,913 2,586,536 3,995,204 As at August 31, 2019 Carrying amount Cash flows $ $ 0 to 12 months $ Accounts payable and accrued liabilities Long-term debt Total Interest Rate Risk 4,293,483 4,293,483 4,293,483 7,494,325 7,613,137 405,463 1 260,663 5,947,011 11,787,808 11,906,620 4,698,946 1 260,663 5,947,011 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 Fixed and variable interest rates Non-interest-bearing Non-interest-bearing Non-interest-bearing and fixed and variable interest rates Interest Rate Sensitivity Analysis Interest rate risk exists when interest rate fluctuations modify the cash flows or the fair value of the Company’s investments. The Company owns investments with fixed and variable interest rates. As at August 31, 2020, the Company was holding more than 70% (91% as at August 31, 2019) 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 have an impact of $74,220 on net loss and comprehensive loss for the year ended August 31, 2020 ($40,176 for the year ended August 31, 2019). 67 OpSens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2020 and 2019 25. Financial Instruments (continued) Risk Management (continued) Interest Rate Risk (continued) Financial Expenses (Revenues) Interest and bank charges Interest on long-term debt Interest on lease liabilities Loss on foreign currency translation Interest income Concentration Risk Years ended August 31, 2020 $ 71,262 472,298 289,510 90 (149,093 ) 684,067 2019 $ 79,522 267,096 - 10,578 (200,653 ) 156,543 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, 2020 and 2019, 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 mainly of raw materials, supplies and professional services in U.S. dollars, Euros and British pounds. 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, 2020, 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 $205,000 higher ($1,036,000 higher for the year ended August 31, 2019). 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 $205,000 lower for the year ended August 31, 2020 ($1,036,000 lower for the year ended August 31, 2019). For the year ended August 31, 2020, if the Canadian dollar had strengthened 10% against the Euro with all other variables held constant, net loss and comprehensive loss would have been $530,000 higher ($284,000 higher for the year ended August 31, 2019). 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 $530,000 lower for the year ended August 31, 2020 ($284,000 lower for the year ended August 31, 2019). For the year ended August 31, 2020, if the Canadian dollar had strengthened 10% against the British pound with all other variables held constant, net loss and comprehensive loss would have been $36,000 higher ($26,000 higher for the year ended August 31, 2019). Conversely, if the Canadian dollar had weakened 10% against the British pound with all other variables held constant, net loss and comprehensive loss would have been $36,000 lower for the year ended August 31, 2020 ($26,000 lower for the year ended August 31, 2019). 68 OpSens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2020 and 2019 25. Financial Instruments (continued) Risk Management (continued) Foreign Exchange Risk (continued) Foreign Currency Sensitivity Analysis (continued) As at August 31, 2020 and 2019, the risk to which the Company was exposed is established as follows: Cash and cash equivalents (US$1,516,591; US$616,438 as at August 31, 2019) Cash and cash equivalents (€ 228,611; € 68,066 as at August 31, 2019) Cash and cash equivalents (£ 36,258; £ 54,329 as at August 31, 2019) Trade and other receivables (US$1,913,967; US$2,506,505 as at August 31, 2019) Trade and other receivables (€ 613,597; € 495,207 as at August 31, 2019) Trade and other receivables (£ 69,040; £ 49,060 as at August 31, 2019) Accounts payable and accrued liabilities (US$692,710; US$1,044,681 as at August 31, 2019) Accounts payable and accrued liabilities (€ 41,569; € 2,300 as at August 31, 2019) Accounts payable and accrued liabilities (£ 9,520; £ 37,712 as at August 31, 2019) Total 26. Capital Management As at August 31, 2020 $ As at August 31, 2019 $ 1,977,938 819,554 356,016 99,574 63,169 87,931 2,496,196 3,332,399 955,554 724,438 120,282 79,404 (903,432 ) (1,388,903 ) (64,736 ) (3,365 ) (16,585 ) 4,984,402 (61,037 ) 3,689,995 The Company's objective in managing capital, primarily composed of shareholders' equity, long-term debt and lease liabilities, is to ensure sufficient liquidity to fund production and R&D activities, general and administrative expenses, sales and marketing expenses, working capital and capital expenditures. In the past, the Company has had access to liquidity through non-dilutive sources, including the sale of non-core assets, long-term debts, government assistance, R&D tax credits, interest income and to liquidity through dilutive sources as public equity offerings. As at August 31, 2020, the Company's working capital amounted to $16,888,129 ($21,311,770 as at August 31, 2019), including cash and cash equivalents of $10,884,019 ($14,855,982 as at August 31, 2019). The accumulated deficit at the same date was $43,245,021 ($40,678,055 as at August 31, 2019). 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, 2020. The Company believes that its current liquid assets are sufficient to finance its activities in the short-term. 69OpSens Inc. Notes to the Consolidated Financial Statements Years ended August 31, 2020 and 2019 26. Capital Management (continued) 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 broadly remained unchanged since the last fiscal year. For the years ended August 31, 2020 and 2019, the Company has not been in default on any of its obligations regarding long-term debt and lease liabilities. 27. Approval of Consolidated Financial Statements The consolidated financial statements were approved by the Board of Directors and authorized for issue on November 18, 2020. 7071Governance Directors Alan Milinazzo Executive Chairman of the Board of Directors Louis Laflamme, CPA, CA President and Chief Executive Officer Gaétan Duplain President, OpSens Solutions Denis Harrington Director Jean Lavigueur, CPA, CA Director Pat Mackin Director Denis M. Sirois Director Officers Louis Laflamme, CPA, CA President and Chief Executive Officer Gaétan Duplain President, OpSens Solutions Robin Villeneuve, CPA, CA Chief Financial Officer and Corporate Secretary Corporate Information Head Office 750 Boulevard du Parc-Technologique Quebec, QC G1P 4S3 Phone: 418.781.0333 Fax: 418.781.0024 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. Registration Toronto Stock Exchange – Symbol: OPS OTCQX – Symbol: OPSSF Auditors Deloitte S.E.N.C.R.L./s.r.l, Quebec, QC Shares in Circulation 90,280,317 (as at August 31, 2020) 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 The annual general meeting of shareholders of OpSens Inc. will be held virtually via live webcast available at https://us02web.zoom. us/j/89279414696 on January 19, 2021 at 10:00 a.m. (local time). The Company encourages its shareholders to exercise their right to vote with AST during the advance voting period that ends on Friday, January 15, or 48 business hours prior to the event scheduled for Tuesday, January 19, 2021 at 10:00 a.m. The instructions are available in the proxy circular included in the annual documents, by the access button located on the OpSens. com opening page or by accessing https://us02web.zoom. us/j/89279414696 on January 19, 2021 at 10:00 a.m. (local time). OpSens - New Markets Medical New Opportunity – TAVR › OpSens develops a pressure guidewire for the TAVR procedure (transcatheter aortic valve replacement) in the treatment of aortic stenosis › Aortic stenosis is a narrowing of the aortic valve, which creates an obstacle to the ejection of blood, often leading to heart failure. › To solve this problem, cardiologists traditionally performed open-heart surgery to replace the narrowed valve. In recent years, the percutaneous replacement of this valve has gained in popularity. Very minimally invasive, the method was initially reserved for the most physically compromised patients, those who could not realistically consider open-heart surgery. Progress has made this intervention simpler and more efficient. Studies presented in 2019 showed that patients of all conditions could benefit from the percutaneous treatment, which is less stressful for the patient and more economical. The results of these studies and other factors could double the number of replacements by 20231. OpSens’ innovation aims to optimize the implantation of replacement aortic valves. This new guidewire will continuously provide hemodynamic pressure measurements before, during and after the procedure. It will also simplify the cardiologists’ workflow by minimizing the number of steps and equipment exchanges to promote safety and speed in the intervention. OpSens’ product addresses a market that represents an extraordinary opportunity for the Company and its shareholders. It answers an unmet need of cardiologists and will create a synergy in the sales network that will benefit both the OptoWire and this new sector of activities. Its integration will be facilitated by the fact that it works with the OptoMonitor, which is already installed in thousands of catheterization laboratories around the world. OpSens possesses the rare skills needed to develop this advanced technology. OpSens plans to capitalize on this opportunity through aggressive development. The recent pioneering experience gained in the development and marketing of the OptoWire will allow the Company to quickly reach an efficient marketing of the product. Industrial OpSens’ versatile technologies can meet a variety of needs in 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, such as semiconductors, aeronautics, and other diverse applications. 1 TAVR/TMVR Market Likely to Double by 2023, Daniel Allar May 10, 2019 Structural - Congenital Heart Disease Cardiology – physiological measurement Measuring, a key step towards better heart health. Industrial applications Innovative fiber optic solutions for a variety of industries 750 boulevard du Parc-Technologique Quebec, QC G1P 4S3 Phone: 418.781.0333 Opsens.com 

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