NOVOHEART HOLDINGS INC. Condensed Consolidated Interim Financial Statements. Three and six months ended December 31, 2017 and 2016.

Transcription

1 NOVOHEART HOLDINGS INC Condensed Consolidated Interim Financial Statements Three and six months ended December 31, 2017 and 2016 (Unaudited)

2 Condensed Consolidated Interim Statement of Financial Position (unaudited) Notes December 31, 2017 June 30, 2017 ASSETS Current Cash and cash equivalents $ 4,723,926 $ 1,319,748 Accounts and other receivables 4 613, ,240 Prepaid expenses and deposits 5 420,832 98,255 Due from related parties 10 6,729 13,874 5,765,425 2,034,117 Long-term prepayment 6 42, ,336, ,934 LIABILITIES AND SHAREHOLDERS' EQUITY $ 7,144,347 $ 2,249,051 Current Accounts payable and accrued liabilities $ 1,154,492 $ 443,182 Due to related parties 10-39,554 1,154, ,736 Deferred government grants 51,025 64,013 1,205, ,749 Shareholders' Equity Share capital 8 17,426,693 5,819,874 Contributed surplus 620,994 - Accumulated other comprehensive income 44, ,170 Accumulated deficit (12,152,987) (4,219,743) 5,938,830 1,702,302 $ 7,144,347 $ 2,249,051 Going concern (Note 2) Commitments (Note 13) Subsequent events (Note 14) The accompanying notes are an integral part of these condensed consolidated interim financial statements. 2

3 Condensed Consolidated Interim Statements of Loss and Comprehensive Loss (unaudited) (Expressed in Canadian dollars, except number of common shares) Three months ended Six months ended Notes Dec 31, 2017 Dec 31, 2016 Dec 31, 2017 Dec 31, 2016 OPERATING EXPENSES Research and development 12 $ 377,043 $ 344,366 $ 615,838 $ 604,334 Intellectual property and patent 103,781 33, ,339 51,263 General and administrative 906, ,732 1,470, ,709 Share-based compensation 295, ,222 - Depreciation 54,800 19,048 72,933 34,884 1,737, ,165 2,820,756 1,362,190 LOSS FROM OPERATIONS (1,737,289) (867,165) (2,820,756) (1,362,190) Government grants 16,310 6,126 21,687 11,984 Other income 53,856 68, , ,271 Finance expense (1,263) (488) (1,768) (661) Foreign exchange gain (loss) 7,711 13,113 (29,475) (633) Non-cash loss on completion of reverse takeover (5,213,597) - 76,614 87,059 (5,112,488) 145,961 NET LOSS FOR THE QUARTER (1,660,675) (780,106) (7,933,244) (1,216,229) OTHER COMPREHENSIVE INCOME (LOSS) Foreign currency translation adjustment (17,215) 23,632 (58,041) (14,115) COMPREHENSIVE LOSS FOR THE QUARTER (1,677,890) (756,474) (7,991,285) (1,230,344) Loss per share Basic and Diluted $ (0.02) $ (0.15) $ (0.15) $ (0.23) Weighted average number of shares outstanding basic and diluted 93,462,025 5,210,843 52,425,645 5,210,843 The accompanying notes are an integral part of these condensed consolidated interim financial statements. 3

4 Condensed Consolidated Interim Statements of Changes in Equity (unaudited) (Expressed in Canadian dollars, except number of common shares) Six months ended December 31, 2016 Number of shares Accumulated other Share capital Contributed surplus comprehensive income Deficit Total equity $ $ $ $ $ BALANCE, JUNE 30, ,210,843 3,708, ,123 (1,593,992) 2,333,955 Loss for the period (1,216,229) (1,216,229) Foreign currency translation adjustment (14,115) - (14,115) BALANCE, DECEMBER 31, ,210,843 3,708, ,008 (2,810,221) 1,103,611 Six months ended December 31, 2017 Number of shares Share capital Contributed surplus Accumulated other comprehensive income Deficit Total equity $ $ $ $ $ BALANCE, JUNE 30, ,125,007 5,819, ,171 (4,219,743) 1,702,302 Loss for the period (7,933,244) (7,933,244) Share capital issued (note 3) 68,634,800 4,062, ,062,500 Reverse takeover (note 3) Share capital issued for finders of RTO (note 3) 2,402,218 1,201, ,201,109 Share capital issued subscription offering (note 8) 14,300,000 7,150, ,150,000 Cash share issuance cost to broker (note 8) - (486,018) (486,018) Warrants issued to broker - subscription offering (note 8) - (320,772) 320, Share-based compensation (note 9) , ,222 Foreign currency translation adjustment (58,041) (58,041) BALANCE, DECEMBER 31, ,462,025 17,426, ,994 44,130 (12,152,987) 5,938,830 The accompanying notes are an integral part of these condensed consolidated interim financial statements. 4

5 Condensed Consolidated Interim Statements of Cash (unaudited) For the six months ended Notes Dec 31, 2017 Dec 31, 2016 CASH FLOWS FROM OPERATING ACTIVITIES Net loss for the period (7,933,244) (1,216,229) Items not affecting cash: Non-cash loss on completion of reverse takeover 3 5,213,597 - Share-based compensation 9 300,222 - Depreciation 7 72,933 34,884 (2,346,492) (1,181,344) Changes in non-cash working capital items: Decrease/(increase) in accounts and other receivables (12,817) (99,244) Decrease/(increase) in prepaid expenses (321,664) (615,799) Increase/(decrease) in accounts payable and accrued liabilities 599, ,861 Increase/(decrease) in due to related parties (11,686) (225,619) Decrease in deferred income - (11,850) Decrease in deferred government grants (10,830) (34,521) 242,889 (860,173) Net cash used in operating activities (2,103,603) (2,041,517) CASH FLOWS FROM INVESTING ACTIVITIES Prepayment for equipment 6 (42,428) - Acquisition of equipment and payment for leasehold improvements 7 (1,213,048) (47,688) Net cash used in investing activities (1,255,476) (47,688) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from share issuance, net 8 6,663,982 Cash acquired in RTO 3 112,662 - Net cash provided by financing activities 6,776,644 - Change in cash during the period 3,417,565 (2,089,205) Effect of exchange rate changes on cash held in a foreign currency (13,387) 57,754 Cash and cash equivalents, beginning of period 1,319,748 2,460,038 Cash and cash equivalents, end of period 4,723, ,587 The accompanying notes are an integral part of these condensed consolidated interim financial statements. 5

6 1. CORPORATE INFORMATION Reverse Takeover On September 27, 2017, Novoheart Holdings Limited completed its reverse takeover transaction (the Transaction or RTO ) of Woodrose Ventures Corporation ( Woodrose ), pursuant to which Woodrose acquired all of the issued and outstanding shares of Novoheart Holdings Limited in exchange for the issuance of 5,200 Woodrose shares for each Novoheart share. Woodrose did not have any significant operations at the time of the Transaction. Following the closing of the Transaction, Woodrose changed its name to Novoheart Holdings Inc. ( Novoheart or the Company ). The Company reconstituted its board of directors and senior management team at that time. The Company s common shares are listed on the Toronto Stock Exchange s venture exchange ( TSX-V ) under the symbol NVH. Upon completion of the Transaction, Novoheart Holdings Limited became a wholly owned subsidiary of Novoheart Holdings Inc. Novoheart Holdings Limited has two wholly owned subsidiaries, Novoheart Limited and Novoheart U.S. Corp. Novoheart Holdings Inc. is a global stem cell biotechnology company which focuses on engineering prototypes of bio-artificial human heart tissues and chambers for drug discovery, cardiotoxicity screening, disease modeling and future therapeutic applications. The Company s office and principal place of business is located at West Pender Street, Vancouver, BC, Canada, V6C 2V6. 2. BASIS OF PRESENTATION AND GOING CONCERN These condensed consolidated interim financial statements of the Company and its subsidiaries are prepared in accordance with International Accounting Standards ( IAS ) 34, Interim Financial Reporting, as issued by the International Accounting Standards Board ( IASB ) on a basis consistent with those followed in the most recent annual consolidated financial statements. These condensed consolidated interim financial statements do not include all of the information required for full annual consolidated financial statements and should be read in conjunction with the Company s consolidated financial statements for the year ended June 30, These condensed consolidated interim financial statements were approved and authorized for issue by the directors of the Company on February 23, As a result of the Transaction (see Note 1), Novoheart Holdings Inc. became the parent entity of Novoheart Holdings Limited. Novoheart Holdings Inc. s functional currency is Canadian dollars and the presentation currency of these condensed consolidated interim financial statements is Canadian dollars. Novoheart Holdings Limited s functional currency changed from U.S. dollars to Canadian dollars as a result of the Transaction since Novoheart Holdings Limited expects future financings and a majority of its expenses to be in Canadian dollars. The change in functional currency has been accounted for prospectively. Prior year financial information has been translated into Canadian dollars to conform with the presentation in the current year. Novoheart Holdings Limited s two wholly-owned subsidiaries, Novoheart Limited and Novoheart U.S. Corp, have functional currencies of Hong Kong dollar and US dollar respectively. 6

7 2. BASIS OF PRESENTATION AND GOING CONCERN (continued) These condensed consolidated interim financial statements have been prepared on a going concern basis, which contemplates that the Company will continue in operation for the foreseeable future and be able to realize its assets and discharge its liabilities and commitments in the normal course of business. The Company s ability to continue as a going concern is dependent upon its ability to generate product sales, negotiate collaboration or license agreements with upfront payments, obtain research grants, raise additional financing, and ultimately attain and maintain profitable operations. While the Company is striving to act on these initiatives, there is no assurance that these and other strategies will be successful or sufficient to permit the Company to continue as a going concern. These condensed consolidated interim financial statements do not reflect adjustments to the carrying values of the Company s assets and liabilities, revenue and expenses, and the statement of financial position classifications used, that would be necessary if the going concern assumption were not appropriate. Such adjustments could be material. 3. REVERSE TAKEOVER TRANSACTION ( RTO ) As a consequence of the plan of arrangement (Note 1), the shareholders of Novoheart Holdings Limited as a group acquired control over the combined entity. Because Woodrose was an inactive shell company, it did not meet the definition of a business. Therefore the transaction was outside of the scope of IFRS 3 Business Combinations and was accounted for using the reverse takeover method of acquisition accounting under IFRS 2 Share-based payments. Under this basis of accounting, the consolidated financial statements are presented as a continuation of the legal acquiree, Novoheart Holdings Limited, except for the capital structure which is that of Woodrose. In addition, the net identifiable assets of Woodrose are deemed to have been acquired by Novoheart Holdings Limited. Under the terms of the arrangement, Woodrose acquired all of the issued and outstanding shares of Novoheart Holdings Limited in exchange for Woodrose shares on a 1 to 5,200 basis, for a total of 68,634,800 Woodrose shares. Prior to the closing of the Transaction, Woodrose consolidated its common shares on the basis of old shares for 1 new share. For the Company s interim statements as at September 30, 2017, the Company had disclosed the opening number of shares to be 13,199, which was the number of shares of Novoheart Holdings Limited prior to the transaction. The number of shares has been revised to 8,125,007 to reflect the number of shares of the legal acquirer in the reverse takeover, Woodrose. The following is a reconciliation of the Company s number and value of common shares issued and outstanding from December 31, 2016 to June 30, 2017, on a post-consolidation basis: Shares Value BALANCE, DECEMBER 31, ,210,850 $ 3,708,824 Exercise of warrants 2,914,157 - Issuance of common shares - 2,115,050 BALANCE, JUNE 30, ,125,007 $ 5,819,874 7

8 3. REVERSE TAKEOVER TRANSACTION ( RTO ) (continued) The consideration paid by Novoheart Holdings Limited to acquire Woodrose was measured on the basis of the fair value of the equity instruments issued considering the price per share of the subscription receipt offering closing concurrently with the Transaction. In accordance with IFRS 2, any excess of the fair value of the shares issued by the Company over the value of the net monetary assets of Woodrose is recognized in the interim consolidated statements of comprehensive loss, as a listing fee. The fair value of the consideration of $4,062,500 has been allocated as follows: Purchase Price 8,125,007 common shares of Novoheart $ 4,062,500 Total Purchase Price $ 4,062,500 Allocation of Purchase Price Cash $ 112,662 Accounts receivable 20,654 Prepaid expenses 3,836 Accounts payable and accrued liabilities (87,140) Non-cash loss on completion of reverse takeover 4,012,488 $ 4,062,500 In addition, finder s fee of 2,402,218 common shares, valued at $1,201,109, was issued and has been recorded in share capital and in non-cash loss on completion of reverse takeover. 4. ACCOUNTS AND OTHER RECEIVABLES As at December 31, 2017, accounts and other receivables is $613,938, which include $465,475 (HK$2,897,720) from HKU as a refund for the ITF project. The ITF project was completed in January 2017 and since actual expenses for the project were lower than budget, the Company s previous prepayment for the project that was not spent and will be refunded to the Company. The Company expects to receive the refund in the second half of calendar year 2018 once HKU completes an audit of the expenses for the ITF project. In addition, accounts and other receivables also include $112,976 from a pharmaceutical company (the Global Pharma Partner ) that the Company has a research agreement with. The research agreement was to build diseased cardiac tissues and chambers for Friedreich s ataxia. Pursuant to the agreement, the Company conducts research activities in accordance with an agreed upon research plan in exchange for payments of up to US$363,000 to reimburse portion of the associated costs incurred. The Company received the first, second and third tranche of payment of US$90,750 in January 2016, March 2017, and July 2017 respectively. The agreement was completed on December 17, 2017 and as such, the Company recorded the final US$90,750 (C$112,976) as accounts and other receivables while recognizing $53,856 and $110,665 as other income for the three and six months ended December 31, 2017 (three and six months ended December 31, $68,308 and $135,271). 8

9 5. PREPAID EXPENSES AND DEPOSITS Dec 31, 2017 June 30, 2017 Deposits $ 199,000 $ 24,246 Prepaid service fees 199,050 - Prepaid patent fees 12,456 12,903 Prepaid rent - 30,385 Prepaid legal fees - 14,801 Other 10,326 15,920 Prepaid expenses and deposits $ 420,832 $ 98, LONG TERM PREPAYMENT As at December 31, 2017, the Company has a $42,428 long term prepayment relating to deposits paid for equipment that are long term in nature. The equipment was acquired for the expansion of the Company s new lab and office facility in Phase 3 of the Hong Kong Science Park. 7. EQUIPMENT Cost Computer Lab Office Leasehold Improvement s Total June 30, , ,695 11, ,715 Additions 6,403 55, ,068 Exchange difference (118) (2,358) (85) - (2,561) June 30, 2017 $ 18,565 $ 345,002 $ 11,655 $ - $ 375,222 Additions 2,113 89,354 11,993 1,109,588 1,213,048 Exchange difference 748 (13,352) 5,099 (17,271) (24,776) December 31, 2017 $ 21,426 $ 421,004 $ 28,747 $ 1,092,317 $ 1,563,494 9

10 7. EQUIPMENT (continued) Accumulated Amortization Computer Lab Office Leasehold Improvements Total June 30, ,144 83,985 2,950-90,079 Additions 3,114 67,241 2,393-72,748 Exchange difference (104) (2,352) (83) - (2,539) June 30, 2017 $ 6,154 $ 148,874 $ 5,260 $ - $ 160,288 Additions 1,963 35,091 1,430 34,449 72,933 Exchange difference (231) (5,482) (195) (313) (6,221) December 31, 2017 $ 7,886 $ 178,483 $ 6,495 $ 34,136 $ 227,000 Carrying Amounts Computer Lab Office Leasehold Improvements Total June 30, 2017 $ 12,411 $ 196,128 $ 6,395 $ - $ 214,934 December 31, 2017 $ 13,540 $ 242,521 $ 22,252 $ 1,058,181 $ 1,336,494 In December 2017, the Company completed the first phase of its expansion into a new lab and office facility in Phase 3 of the Hong Kong Science Park. The deposit previously paid for the lab construction has been capitalized as leasehold improvement and will be amortized over the life of the lease. The lease is for a term of 3 years and will expire on July 30, SHARE CAPITAL Authorized: Unlimited number of preferred and common shares. Issued Common Shares and Warrants: Concurrent with the reverse takeover transaction, Woodrose announced closing of a subscription receipt financing on September 21, The subscription receipt financing was a non-brokered private placement offering pursuant to which Woodrose sold an aggregate of 14,300,000 subscription receipts at a price of $0.50 subscription receipt for gross proceeds of $7,150,000. Each subscription receipt was automatically converted into one Woodrose post-consolidation share. 10

11 8. SHARE CAPITAL (continued) In connection with the subscription receipt offering, a finders fee of $486,018 was paid and was recorded as share issuance cost, in share capital. In addition, 972,037 finders warrants were issued with a fair value of $320,772 recorded as share issuance cost, in share capital. Each finder s warrant is exercisable at a price of $0.50 into one Novoheart share for 24 months following completion of the transaction. The following table reflects the continuity of warrants for the six months ended December 31, 2017: Number of warrants Weighted average exercise price Balance, June 30, Issued 972,037 $0.50 Balance, December 31, ,037 $0.50 The following is a summary of the warrants outstanding as at December 31, 2017: Grant Date Expiry Date Exercise Price Number of Warrants Outstanding Fair Value of Warrants September 27, 2017 September 27, 2019 $ ,037 $ 320,772 Total 972,037 $ 320,772 The fair values of warrants issued during the six months ended December 31, 2017 were measured using the Black-Scholes option pricing model. Expected volatility was determined based on comparable publicly listed companies. The inputs used in the measurement of the fair values at the grant dates for the six months ended December 31, 2017 were as follows: Risk-free interest rate 1.53% Expected life of warrants 2 years Expected volatility % Expected dividend rate 0% 11

12 9. SHARE-BASED COMPENSATION The Company has an equity incentive plan that enables it to grant stock options to its directors, employees, consultants and members of the Company s Scientific Advisory Board up to a 10% of the issued and outstanding common shares. In general, stock options vest over 3 years and expires after 5 years. The following table reflects the continuity of stock options for the six months ended December 31, 2017: Number of stock options Weighted average exercise price Balance, June 30, Issued 4,203,576 $0.50 Balance, December 31, ,203,576 $0.50 At December 31, 2017, stock options granted to directors, officers, employees and consultants in were outstanding as follows: Date of Grant September 27, 2017 September 27, 2017 September 27, 2017 Number of Number of Options Options Exercise Expiry Date Exercisable Price 3,548,576 - $0.50 September 27, ,000 - $0.50 September 27, ,000 - $0.50 September 27, 2019 The weighted average contractual life remaining of all stock options as at December 31, 2017 is 4.61 years. During the three and six months ended December 31, 2017, the Company recorded share-based payments of $295,500 and $300,222. The fair values of options granted during the six months ended December 31, 2017 were measured using the Black-Scholes option pricing model. Expected volatility was determined based on comparable publicly listed companies. The inputs used in the measurement of the fair values at the grant dates and vesting dates (in the case of options issued to non-employees) for the six months ended December 31, 2017 were as follows: Risk-free interest rate % Expected life of options years Expected volatility % % Expected dividend rate 0% 12

13 10. RELATED PARTY TRANSACTIONS The related party transactions are in the normal course of operations and have been valued in these consolidated financial statements at the exchange amount, which is the amount of consideration established and agreed to by the related parties. Related party transactions not disclosed elsewhere in these consolidated financial statements are listed below. December 31, 2017 June 30, 2017 Due from related parties $ 6,729 $ 13,874 Due to related parties $ - $ 39,554 The amounts due to/from related parties are a result of consulting fees payable in accordance with management s contracts with the Company, or are advances and expenses incurred by the Officers and Directors on behalf of the Company. Amounts due to related parties are unsecured, non-interest bearing, and due on demand with no specific terms of repayment. Key management compensation Key management personnel include those persons having authority and responsibility for planning, directing and controlling the activities of the Company as a whole. The Company has identified its directors and key officers, including our Chief Executive Officer, Chief Operating Officer, Chief Scientific Officer and Chief Financial Officer, as its key management personnel. Compensation awarded to key management amounted to $214,643 and $627,242 for the three and six months ended December 31, 2017 (three and six months ended December 31, $231,294 and $346,873). Compensation for the six months ended December 31, 2017 includes bonus payment of $214,643 paid to key management personnel for achievements in fiscal year 2017 and the Company milestone of public listing. 11. FINANCIAL INSTRUMENTS The following table summarizes the carrying values of the Company s financial instruments: Dec 31, 2017 $ June 30, 2017 $ Financial Assets Financial assets at amortized cost: Cash and cash equivalents 4,723,926 1,319,748 Accounts and other receivables 613, ,240 Due from related parties 6,729 13,874 Financial Liabilities Other financial liabilities at amortized cost: Accounts payable and accrued liabilities 1,154, ,183 Due to related parties - 39,554 13

14 11. FINANCIAL INSTRUMENTS (continued) Fair value of financial instruments Financial instruments recorded at fair value are measured using a three-level fair value hierarchy: Level 1 Fair value is determined by reference to quoted prices in active markets for identical assets and liabilities. Level 2 Fair value is determined based on inputs other than quoted prices for which all significant inputs are observable, either directly or indirectly. Level 3 Fair value is determined based on inputs that are unobservable and significant to the overall fair value measurement. Fair value of financial instruments The following table sets forth the Company s financial assets measured at fair value on a recurring basis by level within the fair value hierarchy as follows: Cash and cash equivalents Level 1 Level 2 Level 3 Total $ $ $ $ As at December 31, ,723, ,723,926 As at June 30, ,319, ,319,748 The carrying value of accounts and other receivables, due from related parties, accounts payable and accrued liabilities and due to related parties approximates the fair value because of the shortterm nature of these instruments. 12. RESEARCH AGREEMENTS Innovation and Technology Fund Agreement On January 12, 2015, the Company entered into an agreement with the Government of Hong Kong Special Administrative Region ( the Government ) and HKU to carry out a research and development project titled Establishing an Internationally Competitive Stem Cell Biotech Cluster in HK: Bio-artificial Human Heart (the ITF Project or the Project ). The ITF project was completed in January As such, the Company made no cash contributions nor incurred any research and development expenses for the three and six months ended December 31, No in-kind contributions from the Company was recognized and approved by the Government during the three and six months ended December 31, As of December 31, 2017, $465,475(HK$2,897,720) (June 30, $482,192 (HK$2,897,720)) has been included in accounts and other receivables as a refund that the Company expects to receive from HKU since the expenses incurred for the ITF project were lower than expected. The Company expects to receive the refund in the second half of calendar year 2018 once HKU completes an audit of the expenses for the ITF project. 14

15 13. COMMITMENTS Leases On August 21, 2017, the Company entered into a leasing agreement with Hong Kong Science and Technology Park to expand its lab and office facilities. Concurrently, the Company extended its previous leases with Hong Kong Science and Technology Park. The previous office lease was extended to December 11, 2017 and the previous lab lease was extended to February 28, Future minimum lease payments for the leases for each of the fiscal years ending June 30 are as follows: $336,209; $336,209; and $28,017. IP Licensing Agreements The Company has IP licensing agreements with the University of California, Irvine Campus, the Ichan School of Medicine at Mount Sinai, GE Healthcare, and the Wisconsin Alumni Research Foundation. The commitments under these agreements include upfront payments (paid over twelve or more months), maintenance fees, and minimum royalties. Future minimum payments for each of the fiscal years ending June 30 are as follows: $134,620; $72,390; 2021 $81,915; 2022 and thereafter - $43, SUBSEQUENT EVENTS Commercial Agreement with Sumocor LLC On February 13, 2017, the Company entered into a commercial agreement with Sumocor LLC to test Sumocor s candidate therapeutics in three phases on Novoheart s MyHeart TM Platform of human bioengineered heart constructs. The Company will provide thorough pre-clinical assessment of efficacy and cardiotoxicity in the context of the human heart tissues and chambers in preparation for filing an Investigational New Drug (IND) application to the United States Food and Drug Administration by Sumocor. Phase I of the agreement is to focus on intensive toxicity screening of Sumocor s lead compounds on Novoheart s MyHeart TM Platform, following which additional candidates may be screened for efficacy as well as toxicity in Phase II. In Phase III, the best candidate(s) will be comprehensively profiled using the proprietary human heart-in-a-jar technology. The multi-phase project is expected to last 10 months, generating estimated income of $380,