NOVOHEART HOLDINGS INC. Condensed Consolidated Interim Financial Statements. Three months ended September 30, 2017 and 2016.

Transcription

1 NOVOHEART HOLDINGS INC Condensed Consolidated Interim Financial Statements Three months ended September 30, 2017 and 2016 (Unaudited)

2 Condensed Consolidated Interim Statement of Financial Position (unaudited) Notes September 30, 2017 June 30, 2017 ASSETS Current Cash and cash equivalents $ 6,954,574 $ 1,319,748 Accounts and other receivables 4 542, ,240 Prepaid expenses and deposits 5 211,186 98,255 Due from related parties 9-13,874 7,708,240 2,034,117 Long-term prepayment 6 248,542 - Equipment 189, ,934 LIABILITIES AND SHAREHOLDERS' EQUITY $ 8,146,257 $ 2,249,051 Current Accounts payable and accrued liabilities $ 664,815 $ 443,182 Due to related parties 9 104,188 39, , ,736 Deferred government grants 56,033 64, , ,749 Shareholders' Equity Share capital 7 17,426,693 15,213 Contributed surplus 325,494 5,804,661 Accumulated other comprehensive income 61, ,171 Accumulated deficit (10,492,312) (4,219,743) 7,321,221 1,702,302 $ 8,146,257 $ 2,249,051 Going concern (Note 2) Subsequent events (Note 12) 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) Notes Three months ended September 30, 2017 September 30, 2016 OPERATING EXPENSES Research and development 11 $ 238,796 $ 259,968 Intellectual property and patent 257,558 18,244 General and administrative 564, ,976 Share-based compensation 4,722 - Depreciation 18,133 15,836 1,083, ,024 LOSS FROM OPERATIONS (1,083,466) (495,024) Government grants 5,377 5,858 Other income 56,809 66,963 Finance expense (505) (173) Foreign exchange gain (loss) (37,187) (13,746) Non-cash loss on completion of reverse takeover 3 (5,213,597) - (5,189,103) 58,902 NET LOSS FOR THE QUARTER (6,272,569) (436,122) OTHER COMPREHENSIVE INCOME (LOSS) Foreign currency translation adjustment (40,825) (37,747) COMPREHENSIVE LOSS FOR THE QUARTER (6,313,394) (473,869) Loss per share Basic and Diluted $ (0.09) $ (36.85) Weighted average number of shares outstanding basic and diluted 69,444,383 11,834 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) Three months ended September 30, 2016 Number of shares Accumulated other Share capital Contributed surplus comprehensive income Deficit Total equity $ $ $ $ $ BALANCE, JUNE 30, ,834 13,363 3,695, ,123 (1,593,992) 2,333,955 Loss for the period (436,122) (436,122) Foreign currency translation adjustment (37,747) - (37,747) BALANCE, SEPTEMBER 30, ,834 13,363 3,695, ,376 (2,030,114) 1,860,086 Three months ended September 30, 2017 Number of shares Share capital Contributed surplus Accumulated other comprehensive income Deficit Total equity $ $ $ $ $ BALANCE, JUNE 30, ,199 15,213 5,804, ,171 (4,219,743) 1,702,302 Loss for the period (6,272,569) (6,272,569) Share capital issued (note 3) 68,621,601 5,804,661 (5,804,661) Reverse takeover (note 3) 8,125,000 4,062, ,062,500 Share capital issued for finders of RTO (note 3) 2,402,218 1,201, ,201,109 Share capital issued subscription offering (note 7) 14,300,000 7,150, ,150,000 Share issuance cost subscription offering (note 7) - (486,018) (486,018) Warrants issued to finders of subscription offering (note 7) - (320,772) 320, Share-based compensation (note 8) - - 4, ,722 Foreign currency translation adjustment (40,825) (40,825) BALANCE, SEPTEMBER 30, ,462,018 17,426, ,494 61,346 (10,492,312) 7,321,221 The accompanying notes are an integral part of these condensed consolidated interim financial statements. 4

5 Condensed Consolidated Interim Statements of Cash (unaudited) Three months ended Notes September 30, 2017 September 30, 2016 $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net loss for the period (6,272,569) (436,122) Items not affecting cash: Non-cash loss on completion of reverse takeover 3 5,213,597 - Share-based compensation 4,722 - Depreciation 18,133 15,836 (1,036,117) (420,286) Changes in non-cash working capital items: Decrease/(increase) in accounts and other receivables 55,948 (47,997) Decrease/(increase) in prepaid expenses (113,186) 35,862 Increase/(decrease) in accounts payable and accrued liabilities 107,953 (75,326) Increase/(decrease) in due to related parties 115,170 (108,854) Decrease in deferred income - (34,132) Decrease in deferred government grants (5,377) (5,858) 160,508 (236,305) Net cash used in operating activities (875,609) (656,591) CASH FLOWS FROM INVESTING ACTIVITIES Prepayment for equipment (244,178) - Acquisition of equipment (7,105) - Net cash used in investing activities (251,283) - CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from share issuance, net 7 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 5,649,752 (656,591) Effect of exchange rate changes on cash held in a foreign currency (14,926) 24,936 Cash and cash equivalents, beginning of period 1,319,748 2,460,038 Cash and cash equivalents, end of period 6,954,574 1,828,383 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 U.S. Corp. was incorporated on August 3, 2017 in the State of Delaware. 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 November 28, As a result of the Transaction (see Note 1), Novoheart Holdings Inc. became the parent entity of the 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. 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 acquired control over the combined entity. Woodrose was an inactive shell company and 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 entity is considered to be a continuation of Novoheart Holdings Limited, with the net identifiable assets of Woodrose 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. 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: 7

8 3. REVERSE TAKEOVER TRANSACTION ( RTO ) (continued) Purchase Price 8,125,000 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 September 30, 2017, total accounts and other receivables is $542,480, which includes $462,363 (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 will be refunded to the Company. The Company expects to receive the refund in the second half of 2018 once HKU completes an audit of the expenses for the ITF project. 5. PREPAID EXPENSES AND DEPOSITS September 30, 2017 June 30, 2017 Deposits $ 180,681 $ 24,246 Prepaid service fees 6,825 - Prepaid patent fees 12,373 12,903 Prepaid rent - 30,385 Prepaid legal fees - 14,801 Other 11,307 15,920 Prepaid expenses and deposits $ 211,186 $ 98,255 8

9 6. LONG TERM PREPAYMENT As at September 30, 2017, long term prepayment includes a $5,653 deposit paid for equipment and a $242,889 deposit paid for leasehold improvements, both of which are long term in nature. The deposit paid for leasehold improvements relates to the Company s new and expanded office and lab facilities at Hong Kong Science Park. 7. 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. 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 Woodrose share (on a post-consolidation basis) for 24 months following completion of the transaction. The following table reflects the continuity of warrants for the three months ended September 30, 2017: Number of warrants Weighted average exercise price Balance, June 30, Issued 972,037 $0.50 Balance, September 30, ,037 $0.50 9

10 7. SHARE CAPITAL (continued) Issued Common Shares and Warrants (continued): The following is a summary of the warrants outstanding as at September 30, 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 Black-Scholes option pricing model, with the following assumptions, was used to estimate the fair value of warrants issued on their grant date: 3 months ended September 30, 2017 Risk-free interest rate 1.53% Expected life of warrants 2 years Expected volatility % Expected dividend rate 0% The expected volatility is estimated by using the average historical volatility of comparable companies that have a trading history. The risk-free interest rate is based on yields from Canadian government bond yields with a term equal to the expected term of the options being valued. The expected life of warrants represents the period of time that the options are expected to be outstanding based on the contractual term of the warrants. 8. 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. In connection with the reverse takeover transaction, the Company issued 4,203,576 stock options with an exercise price of $0.50 per option. The following table reflects the continuity of stock options for the three months ended September 30, 2017: Number of stock options Weighted average exercise price Balance, June 30, Issued 4,203,576 $0.50 Balance, September 30, ,203,576 $

11 8. SHARE-BASED COMPENSATION (continued) At September 30, 2017, stock options granted to directors, officers, employees and consultants in were outstanding as follows: Number of Options Options Vested Number of Options Exercisable Date of Grant Exercise Price Expiry Date September 27, ,028,576 - $0.50 September 27, September 27, ,000 - $0.50 September 27, The weighted average fair value of stock options granted during the three months ended September 30, 2017 was $0.32 per option. The weighted average contractual life remaining of all stock options as at September 30, 2017 is 4.88 years. During the three months ended September 30, 2017, the Company recorded share-based payments of $4,722 for all stock options granted during the period. The Black-Scholes option pricing model, with the following assumptions, was used to estimate the fair value of warrants issued on their grant date: 3 months ended September 30, 2017 Risk-free interest rate 1.53% Expected life of options years Expected volatility % Expected dividend rate 0% The expected volatility is estimated by using the average historical volatility of comparable companies that have a trading history. The risk-free interest rate is based on yields from Canadian government bond yields with a term equal to the expected term of the options being valued. The expected life of options represents the period of time that the options are expected to be outstanding based on the contractual term of the options. 9. 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. September 30, 2017 June 30, 2017 Due from related parties $ - $ 13,874 Due to related parties $ 104,188 $ 40,674 11

12 9. RELATED PARTY TRANSACTIONS (continued) 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 $194,153 for the three months ended September 30, 2017 (three months ended September 30, $65,505). 10. FINANCIAL INSTRUMENTS The following table summarizes the carrying values of the Company s financial instruments: September 30, 2017 $ June 30, 2017 $ Financial Assets FVTPL at fair value: Cash and cash equivalents 6,954,574 1,319,748 Loans and receivables at amortized cost: Accounts and other receivables 542, ,240 Due from related parties - 98,255 Financial Liabilities Other financial liabilities at amortized cost: Accounts payable and accrued liabilities 664, ,781 Due to related parties 104,188 40,674 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. 12

13 10. FINANCIAL INSTRUMENTS (continued) 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 September 30, ,954, , 954,574 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. 11. 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 months ended September 30, No in-kind contributions from the Company was recognized and approved by the Government during the three months ended September 30, As of September 30, 2017, $462,363 (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 was lower than expected. The Company expects to receive the refund in the second half of 2018 once HKU completes an audit of the expenses for the ITF project. 12. SUBSEQUENT EVENTS License agreement with GE Healthcare UK Limited On October 23, 2017, the Company entered into a non-exclusive, sub-license agreement with GE Healthcare UK Limited ( GE Healthcare ) for the use of certain patents. Pursuant to the agreement, the Company agrees to pay an upfront fee of US$120,000 over four years, a 5-9% royalty on its net sales of products using the patents, as well as compensation for certain milestones. 13

14 12. SUBSEQUENT EVENTS (continued) License agreement with the Wisconsin Alumni Research Foundation On November 3, 2017, the Company entered into a non-exclusive license agreement with the Wisconsin Alumni Research Foundation ( WARF ) for the use of certain patents. Pursuant to the agreement, the Company agrees to pay an upfront fee of US$100,000 over 18 months, a $5,000 fee as reimbursement of patent fees, and a 2-4% royalty on its sales of products using the patents with a minimum royalty of US$20,000 per year. 14