NOVOHEART HOLDINGS LIMITED
Consolidated Financial Statements
For the years ended June 30, 2017 and 2016
(Expressed in United States Dollars)
Management’s Responsibility for Financial Reporting
To the Shareholders of Novoheart Holdings Limited:
Management is responsible for the preparation and presentation of the accompanying
consolidated financial statements, including responsibility for significant accounting judgments
and estimates
International Financial Reporting Standards. This
responsibility includes selecting appropriate accounting principles and methods, and making
decisions affecting the measurement of transactions in which objective judgment is required.
in accordance with
In discharging its responsibilities for the integrity and fairness of the consolidated financial
statements, management designs and maintains the necessary accounting systems and related
internal controls to provide reasonable assurance that transactions are authorized, assets are
safeguarded and financial records are properly maintained to provide reliable information for the
preparation of consolidated financial statements.
The Board of Directors is responsible for overseeing management in the performance of its
financial reporting responsibilities. The Board of Directors fulfil these responsibilities by
reviewing the financial information prepared by management and discussing relevant matters
with management and external auditors. The Board of Directors also has the responsibility of
recommending the appointment of the Company's external auditors and meeting with
management and external auditors to discuss the internal controls over the financial reporting
process, auditing matters and financial reporting issues.
MNP LLP, an independent firm of Chartered Professional Accountants, is appointed by the
shareholders to audit the consolidated financial statements and report directly to them; their
report follows. The external auditors have full and free access to, and meet periodically and
separately with the Board of Directors and management to discuss their audit findings.
October 25, 2017
“Ronald Li”
CEO
“Iris Lo”
CFO
Independent Auditors’ Report
To the Shareholders of Novoheart Holdings Limited:
We have audited the accompanying consolidated financial statements of Novoheart Holdings Limited, and its
subsidiary, (the “Company”), which comprise the consolidated statements of financial position as at June 30,
2017 and 2016, and the consolidated statements of loss and comprehensive loss, changes in shareholders’
equity and cash flows for the years then ended, and a summary of significant accounting policies and other
explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements
in accordance with International Financial Reporting Standards, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial statements that are free from
material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards
require that we comply with ethical requirements and plan and perform an audit to obtain reasonable assurance
about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud
or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
preparation and fair presentation of the consolidated financial statements in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies
used and the reasonableness of accounting estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated
financial position of Novoheart Holdings Limited and its subsidiary as at June 30, 2017 and 2016, and its
consolidated financial performance and its consolidated cash flows for the years then ended in accordance with
International Financial Reporting Standards.
Emphasis of Matter
Without qualifying our opinion, we draw attention to Note 2 in the consolidated financial statements which
discloses matters and conditions that indicate the existence of a material uncertainty that may cast significant
doubt about the Novoheart Holdings Ltd.’s ability to continue as a going concern.
October 25, 2017
Vancouver, BC
Chartered Professional Accountants
NOVOHEART HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Expressed in United States dollars)
ASSETS
Current
Cash and cash equivalents
Accounts and other receivables
Prepaid expenses and deposits
Due from related parties
Long-term prepayment
Equipment
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities
Deferred income
Due to related parties
Deferred government grants
Shareholders' Equity
Share capital
Share premium
Accumulated other comprehensive income
Accumulated deficit
Going concern (Note 2)
Subsequent event (Note 19)
APPROVED BY
“James Topham”
Director of the Company
Notes
June 30,
2017
June 30,
2016
6
7
12
8
12
9
10
10
$
$
1,016,000
463,709
75,651
10,683
1,566,043
-
165,494
1,891,500
-
101,998
-
1,993,498
6,272
173,489
$
1,731,537
$
2,173,259
$
$
341,208
-
31,317
372,525
264,194
26,161
76,620
366,975
49,289
70,163
421,814
437,138
13,199
4,519,075
(908)
(3,221,643)
1,309,723
11,834
2,962,300
4,711
(1,242,724)
1,736,121
$
1,731,537
$
2,173,259
“Victor Chang”
Director of the Company
The accompanying notes are an integral part of these consolidated financial statements.
4
NOVOHEART HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
FOR THE YEARS ENDED JUNE 30, 2017 AND 2016
(Expressed in United States dollars)
OPERATING EXPENSES
Research and development
IP and Patent
General and administrative expenses
Depreciation
LOSS FROM OPERATIONS
Government grants
Other income
Finance expense
Foreign exchange gain (loss)
Notes
2017
2016
15
8
9
6
$ 868,645
154,777
1,123,169
54,834
2,201,425
$ 576,478
79,815
289,287
47,181
992,761
(2,201,425)
(992,761)
17,074
209,599
(1,000)
(3,167)
222,506
41,236
64,478
(1,267)
56
104,503
NET LOSS FOR THE YEAR
(1,978,919)
(888,258)
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation adjustment
(5,619)
(364)
COMPREHENSIVE LOSS FOR THE YEAR
(1,984,538)
(888,622)
Loss per share – Basic and Diluted
$ (163.63) $ (87.43)
Weighted average number of shares outstanding – basic and
diluted
12,094
10,160
The accompanying notes are an integral part of these consolidated financial statements.
5
NOVOHEART HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Expressed in United States dollars)
Issued common shares
Notes Number Amount
$
Share
premium
$
Exchange
reverse
$
Deficit Total equity
$
$
BALANCE, JUNE 30, 2015
10,000
10,000
823,334
5,075
(354,466)
483,943
Issuance of common shares
Share issuance cost
Loss for the year
Foreign currency translation adjustment
BALANCE, JUNE 30, 2016
Issuance of common shares
Share issuance cost
Loss for the year
Foreign currency translation adjustment
10
10
10
10
1,834
-
-
-
1,834 2,198,966
(60,000)
-
-
-
-
-
-
-
-
(364)
-
-
(888,258)
-
2,200,800
(60,000)
(888,258)
(364)
11,834
11,834
2,962,300
4,711 (1,242,724)
1,736,121
1,365
-
-
-
1,365
-
-
-
1,636,635
(79,860)
-
-
1,638,000
-
-
-
(79,860)
-
- (1,978,919) (1,978,919)
(5,619)
-
(5,619)
BALANCE, JUNE 30, 2017
13,199
13,199
4,519,075
(908) (3,221,643)
1,309,723
The accompanying notes are an integral part of consolidated financial statements.
6
NOVOHEART HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2017 AND 2016
(in United States dollars)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the year
Items not affecting cash:
Depreciation
Changes in non-cash working capital items:
Increase in accounts and other receivables
Decrease/(increase) in prepaid expenses
Increase in accounts payable and accrued liabilities
Decrease in due to/from related parties
Decrease in deferred income
Decrease in deferred government grants
Notes
2017
$
2016
$
(1,978,919)
(888,258)
8
54,834
(1,924,085)
(466,044)
25,795
78,436
(58,606)
(26,167)
(20,571)
(467,157)
47,181
(841,077)
-
180,098
244,442
5,393
26,161
(41,236)
414,858
Net cash used in operating activities
(2,391,242)
(426,219)
CASH FLOWS FROM INVESTING ACTIVITIES
Prepayment for equipment
Acquisition of equipment
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Government grants
Issuance of common shares, net of share issuance cost
8
9
-
(41,576)
(41,576)
(6,272)
(9,041)
(15,313)
-
1,558,140
25,775
2,140,800
Net cash provided by financing activities
1,558,140
2,166,575
Change in cash during the year
(874,678)
1,725,043
Effect of exchange rate changes on cash held in a foreign
currency
Cash and cash equivalents, beginning of year
(822)
1,891,500
(91)
166,548
Cash and cash equivalents, end of year
1,016,000
1,891,500
The accompanying notes are an integral part of consolidated financial statements.
7
NOVOHEART HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2017 AND 2016
(Expressed in United States dollars)
1. NATURE OF OPERATIONS
Novoheart Holdings Limited (the “Company”) was incorporated in the territory of the British Virgin
Islands on June 27, 2014 under the BVI Business Companies Act, 2004. Through its wholly owned
subsidiary, Novoheart Limited, the Company focuses on engineering bio-artificial human heart
tissues and chambers for drug discovery, cardiotoxicity screening, disease modeling and future
therapeutic applications.
The registered address of the Company is P.O. Box 957, Offshore Incorporation Centre, Road
Town, Tortola, British Virgin Islands. The registered address of Novoheart Limited is Unit 229, 2/F,
Hong Kong Science Park, No. 12 Science Park West Avenue, Shatin, New Territories, Hong Kong.
2. BASIS OF PRESENTATION AND GOING CONCERN
Statement of compliance
These consolidated financial statements of the Company and its subsidiary are prepared in
accordance with International Financial Reporting Standards (“IFRS”) as issued by the International
Accounting Standards Board (“IASB”).
Certain prior year financial information has been reclassified to conform with the presentation in the
current year.
These consolidated financial statements were approved and authorized for issue by the Board of
Directors on October 25, 2017.
Going concern
These consolidated 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.
To date, the Company has not achieved profitability through the commercialization of its products
and services. At June 30, 2017, the Company has an accumulated deficit of $3,221,643 since
inception. For the year ended June 30, 2017, the Company incurred a net loss of $1,978,919 (2016
– $888,258) and used net cash in operating activities of $2,391,242 (2016 – $426,219).
The Company’s ability to continue as a going concern is dependent upon its ability to generate
service contracts, 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 circumstances comprise a material uncertainty which cast significant doubt as to the
Company’s ability to continue as a going concern. These consolidated 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.
8
NOVOHEART HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2017 AND 2016
(Expressed in United States dollars)
2. BASIS OF PRESENTATION AND GOING CONCERN (continued)
Basis of measurement
These consolidated financial statements have been prepared on a historical cost basis except for
certain financial instruments which are measured at their fair value as explained in the accounting
policies set out below. In addition, these consolidated financial statements have been prepared
using the accrual basis of accounting except for cash flow information.
Functional and presentation currency
These consolidated financial statements are presented in United States dollars, which is the
Company’s functional and reporting currency. The functional currency of its wholly owned
subsidiary, Novoheart Limited, is Hong Kong dollars.
Use of estimates
The preparation of these consolidated financial statements in conformity with IFRS requires
management to make judgments and estimates and form assumptions that affect the application of
accounting policies and the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amount of
revenues and expenses for the periods reported. The estimates and associated assumptions are
based on historical experience and various other factors that are considered to be relevant. Actual
results could differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis, and may change if new
information becomes available. Revisions to accounting estimates are recognized in the period in
which the estimates are revised and in any future periods affected.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies set out below have been applied consistently to all periods presented in
the consolidated financial statements.
Principles of consolidation
These consolidated financial statements include the accounts of the Company and its wholly-
owned subsidiary, Novoheart Limited.
Subsidiaries are entities controlled by the Company. The Company controls an entity when it is
exposed to, or has rights to, variable returns from its involvement with the entity and has the ability
to affect those returns through its power over the entity. The financial statements of the subsidiary
are included in the consolidated financial statements from the date that control commences until
the date that control ceases.
All significant inter-company balances and transactions between the Company and its wholly-
owned subsidiary have been eliminated in preparing the consolidated financial statements.
9
NOVOHEART HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2017 AND 2016
(Expressed in United States dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Foreign currency
Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional currencies of the
Company and its subsidiary at the exchange rate in effect at the transaction date. Monetary assets
and liabilities denominated in other than the functional currency are translated at the exchange
rates in effect at the financial position date. The resulting exchange gains and losses are
recognized in profit or loss. Non-monetary assets and liabilities denominated in other than the
functional currency that are measured at fair value are translated to the functional currency at the
exchange rate at the date that the fair value is determined. Non-monetary items that are measured
in terms of historical cost in other than the functional currency are translated using the exchange
rate at the date of transaction.
Foreign operations
For consolidation purposes, the assets and liabilities of foreign operations are translated to the
presentation currency using the exchange rate prevailing at the financial position date. The income
and expenses of foreign operations are translated to the presentation currency using the average
rates of exchange during the year. All resulting exchange differences are recorded as other
comprehensive income (loss) and accumulated in a separate component of shareholders’ equity,
described as foreign currency translation adjustment.
Financial instruments
Financial assets and liabilities are recognized when the Company becomes a party to the
contractual provisions of the instrument. Financial assets are derecognized when the rights to
receive cash flows from the assets have expired or have been transferred and the Company has
transferred substantially all risks and rewards of ownership. Financial liabilities are derecognized
when obligations are discharged, cancelled or expired. Financial assets and liabilities are offset
and the net amount reported in the statement of financial position when there is a legally
enforceable right to offset the recognized amounts and there is an intention to settle on a net basis,
or realize the asset and settle the liability simultaneously.
Classification and measurement
At initial recognition, financial instruments are classified into the following categories depending on
the purposes for which the instruments were acquired:
• Financial assets and liabilities at fair value through profit and loss (“FVTPL”):
A financial asset or liability is classified as FVTPL if acquired principally for the purpose of
selling or repurchasing in the short-term. Derivatives are also included in this category unless
they are designated as hedges. Financial instruments in this category are recognized initially
and subsequently at fair value. Gains and losses arising from changes in fair value are
presented in the statement of income (loss) within other gains and losses in the period in which
they arise. Financial assets and liabilities at FVTPL are classified as current except for the
portion expected to be realized or paid beyond twelve months of the financial position date,
which is classified as non-current.
10
NOVOHEART HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2017 AND 2016
(Expressed in United States dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial instruments (continued)
• Available-for-sale:
Financial assets classified as available-for-sale are measured at fair value with unrealized gains
and losses recognized in other comprehensive income (loss) except for losses in value that are
considered other than temporary or a significant or prolonged decline in the fair value of that
investment below its cost in which case the loss is recognized in the statement of income (loss).
They are included in current assets to the extent they are expected to be realized within 12
months after the end of the reporting period.
• Loans and receivables:
Loans and receivables are non-derivative financial assets with fixed or determinable payments
that are not quoted in an active market. Loans and receivables are initially recognized at the
amount expected to be received less, when material, a discount to reduce the loans and
receivables to fair value. Subsequently, loans and receivables are measured at amortized cost
using the effective interest method less a provision for impairment. They are included in current
assets to the extent they are expected to be realized within 12 months after the end of the
reporting period.
• Held-to-maturity investments
Held-to-maturity investments are non-derivative financial assets with fixed or determinable
payments and fixed maturities that the Company’s management has the positive intention and
ability to hold to maturity. These assets are measured at amortized cost using the effective
interest method less a provision for impairment. They are included in non-current assets,
except for those which are expected to mature within 12 months after the end of the reporting
period.
• Financial liabilities at amortized cost:
Financial liabilities other than those classified as FVTPL are initially recognized at the amount
required to be paid less, when material, a discount to reduce the payables to fair value.
Subsequently, they are measured at amortized cost using the effective interest method.
Financial liabilities at amortized costs are classified as current liabilities if payment is due within
twelve months after the end of the reporting period. Otherwise, they are presented as non-
current liabilities.
Transaction costs associated with financial assets or financial liabilities carried at FVTPL are
expensed as incurred while transaction costs associated with all other financial assets or financial
liabilities are included in the initial carrying amount of the asset or liabilities.
The Company classifies cash and cash equivalents as FVTPL, due from related parties as loans
and receivables, and accounts payable and accrued liabilities, due to related parties as financial
liabilities at amortized cost. The Company does not have any derivative financial instruments.
11
NOVOHEART HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2017 AND 2016
(Expressed in United States dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Impairment of financial assets
Financial assets not carried at FVTPL are assessed for impairment at each reporting date by
determining whether there is objective evidence that indicates that a loss event has occurred after
the initial recognition of the asset, and that the loss event had a negative effect on the estimated
future cash flows of that asset that can be estimated reliably.
Impairment losses on available-for-sale financial assets are recognized by transferring the
cumulative loss that has been recognized in other comprehensive income (loss) and presented in
accumulated other comprehensive income (loss) in equity, to net income (loss). The cumulative
loss that is removed from accumulated other comprehensive income (loss) and recognized in net
income (loss) is the difference between the acquisition costs, net of any principal repayment and
amortization, and the current fair value less any impairment loss previously recognized in net
(income) loss. If subsequently the fair value of any impaired available-for sale financial assets
increases, then the impairment loss is reversed with the amount of the reversal recognized in net
income (loss).
Cash and cash equivalents
Cash and cash equivalents consist of cash and highly liquid instruments that are readily convertible
to cash with a maturity of three months or less when initially purchased.
Equipment
Equipment is stated at cost less accumulated depreciation and any accumulated impairment
losses. The cost of equipment includes the acquisition cost and any direct costs to bring the asset
into productive use at its intended location. Depreciation is calculated on a straight-line basis over
equipment’s estimated useful lives of 60 months. Depreciation methods and useful lives are
reviewed at each reporting date and adjusted if appropriate.
Equipment are written down to the net recoverable value when management determines there has
been a change in circumstances which indicates its carrying amount may not be recoverable. Any
gain or loss on disposal of an item of equipment is recognized in profit or loss within the period of
disposal.
Provisions
Provisions for legal or constructive obligations are recognized when the Company has a present
legal or constructive obligation that has arisen as a result of a past event and it is probable that a
future outflow of resources will be required to settle the obligation, provided that a reliable estimate
can be made of the amount of the obligation. Provisions are measured at the present value of the
expenditures expected to be required to settle the obligation using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risk specific to the
obligation. The increase in the provision due to passage of time is recognized as interest expense.
12
NOVOHEART HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2017 AND 2016
(Expressed in United States dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Government grants
Government grants are recognized at their fair value where there is a reasonable assurance that
the grants will be received and the Company will comply with all attached conditions. Government
grants are recognized as follows:
• Grants relating to fixed assets are included in non-current liabilities as deferred government
grants and recognized in the statement of profit or loss on a straight line basis over the
expected lives of the related assets.
• Grants that compensate the Company for expenses incurred are deferred and recognized in
profit or loss on a systematic basis in the periods in which the intended expenses are
recognized.
Impairment of non-financial assets
The carrying amounts of the Company’s non-financial assets are reviewed at each reporting date
to determine whether there is any indication of impairment. If any such indication exists, the
recoverable amount is estimated by reference to the higher of the value in use and fair value less
costs to sell. Fair value less costs to sell is defined as the estimated price that would be received
on the sale of the asset in an orderly transaction between market participants at the measurement
date. In assessing value in use, the estimated future cash flows are discounted to their present
value using a pre-tax discount rate that reflects current market assessments of the time value of
money and the risks specific to the asset. For the purposes of impairment testing, assets that
cannot be tested individually are grouped together into the smallest group of assets that generates
cash inflows from continuing use that are largely independent of the cash inflows of other groups of
assets.
An impairment loss is recognized if the carrying amount of an asset or group of assets exceeds the
estimated recoverable amount. Impairment losses are recognized in the statement of profit or loss.
When impairment subsequently reverses, the carrying amount of the asset is increased to the
revised estimated recoverable amount, but to an amount that does not exceed the carrying amount
that would have been determined had no impairment loss been recognized for the asset in prior
years. A reversal of an impairment loss is recognized immediately in profit or loss.
Share capital
The Company’s ordinary common shares are classified as equity. Incremental costs directly
attributable to the issue of ordinary shares, warrants and stock options, net of any tax effects, are
recognized as a deduction from equity.
13
NOVOHEART HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2017 AND 2016
(Expressed in United States dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Research and development
Expenditures on research activities, undertaken with the prospect of gaining new scientific or
technical knowledge and understanding, are recognized in profit or loss as incurred. Development
activities involve a plan or design for the production of new or substantially improved products and
processes. Development expenditures are capitalized only if development costs can be measured
reliably, the product or process is technically and commercially feasible, future economic benefits
are probable, and the Company intends to and has sufficient resources to complete development
and to use or sell the asset. No development costs have been capitalized to date.
Research and development costs include fees paid to universities and other research organizations
who conduct certain research and development activities on behalf of the Company. The amount
of expenses recognized in a period related to research arrangements with third parties is based on
estimates of work performed using an accrual basis of accounting. These estimates are based on
services provided, contractual terms and experience with similar contracts. The Company monitors
these factors and adjusted the estimates accordingly. Payments made to third parties under these
research arrangements in advance of receipt of the related services are recorded as prepaid
expenses until the services are rendered.
Income taxes
The Company follows the asset and liability method of accounting for income tax. Income tax
expense comprises current and deferred tax. Income tax expense is recognized in the consolidated
statement of income (loss) except to the extent that it relates to items recognized directly in equity,
in which case it is recognized in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted
or substantively enacted at the reporting date, and any adjustment to tax payable in respect of
previous years.
Deferred tax is recognized on temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax
is not recognized on the initial recognition of assets or liabilities in a transaction that is not a
business combination, nor is it recognized for taxable temporary differences arising on the initial
recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to
temporary differences when they reverse, based on the laws that have been enacted or
substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a
legally enforceable right to offset, and they relate to income taxes levied by the same tax authority
on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities
and assets on a net basis or their tax assets and liabilities will be realized simultaneously. A
deferred tax asset is recognized to the extent that it is probable that future taxable profits will be
available against which the temporary difference can be utilized. Deferred tax assets are reviewed
at each reporting date and are reduced to the extent that it is no longer probable that the related
tax benefit will be realized.
14
NOVOHEART HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2017 AND 2016
(Expressed in United States dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Other comprehensive income (loss)
Other comprehensive income (loss) is the change in the Company's net assets that results from
transactions, events and circumstances from sources other than the Company's shareholders and
includes items that would not normally be included in net income (loss) such as unrealized gains or
losses on available-for-sale investments and translation gains or losses on translation of foreign
operations to the presentation currency of the Company.
Earnings (loss) per share
The Company presents basic and diluted earnings (loss) per share data for its common shares,
calculated by dividing the earnings (loss) attributable to common shareholders of the Company by
the weighted average number of common shares outstanding during the year. Diluted earnings
(loss) per share does not adjust the loss attributable to common shareholders or the weighted
average number of common shares outstanding when the effect is anti-dilutive.
4. CRITICAL JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
Critical accounting judgments
The critical judgments that the Company’s management has made in the process of applying the
Company’s accounting policies that have the most significant effect on the amounts recognized in
the consolidated financial statements are as follows:
Evaluation of the Company’s ability to continue as a going concern
Management has applied judgments in the assessment of the Company's ability to continue as a
going concern when preparing these consolidated financial statements. Management prepares the
consolidated financial statements on a going concern basis unless management either intends to
liquidate the entity or to cease trading, or has no realistic alternative but to do so. In assessing
whether the going concern assumption is appropriate, management takes into account all available
information about the future, which is at least, but is not limited to, twelve months from the end of
the reporting period. The assessment of the Company’s ability to execute its strategy and finance
the operations through achieving positive cash flow from operations or by obtaining additional
funding through debt or equity financing involves judgments. Management monitors future cash
requirements to assess the Company’s ability to realize assets and discharge its liabilities in the
normal course of operations.
Determination of functional currency of the Company
The functional currency for each of the Company and its subsidiary is the currency of the primary
economic environment in which each entity operates. The determination of each entity’s functional
currency requires analyzing facts that are considered primary factors, and if the result is not
conclusive, the secondary factors. The analysis requires the management to apply significant
judgment since primary and secondary factors may be mixed. In determining its functional
currency, the management analyzed both the primary and secondary factors, including the
currency of each entity’s operating cash flow, and sources of financing.
15
NOVOHEART HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2017 AND 2016
(Expressed in United States dollars)
4. CRITICAL JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (continued)
Key sources of estimation uncertainty
Significant assumptions about the future and other sources of estimation uncertainty that
management has made at the statement of the financial position date, that could result in a
material adjustment to the carrying amounts of assets and liabilities, in the event that actual results
differ from assumptions made, relate to, but are not limited to, the following:
Depreciation
Equipment are depreciated based on the estimated useful life less their estimated residual value.
Significant assumptions are involved in the determination of useful life and residual values and no
assurance can be given that actual useful lives and residual values will not differ significantly from
current assumptions. Actual useful life and residual values may vary depending on a number of
factors including internal technical evaluation, physical condition of the assets and experience with
similar assets. Changes to these estimates may affect the carrying value of equipment, net income
(loss) and comprehensive income (loss) in future periods.
Current and deferred taxes
Accounting for income taxes is a complex process requiring management to interpret frequently
changing laws and regulations and make judgments relating to the application of tax law, the
estimated timing of temporary difference reversals, and the estimated realization of tax assets. The
Company recognizes the deferred tax benefit related to deferred tax assets to the extent recovery
is probable. Assessing the recoverability of deferred tax assets requires management to make
significant estimates of future taxable profit. In addition, future changes in tax laws could limit the
ability of the Company to obtain tax deductions in the future periods. To the extent that future cash
flows and taxable income differ significantly from estimates, the ability of the Company to realize
the net deferred tax assets recorded at the reporting date could be impacted. In addition, all tax
filings are subject to subsequent government audits and potential reassessment. These
interpretations, judgments and changes related to them impact current and deferred tax provisions,
deferred tax assets and liabilities and results of operations.
5. IFRS STANDARDS ISSUED BUT NOT YET EFFECTIVE
The following is an overview of accounting standard changes that the Company will be required to
adopt in future years. The Company is still in the process of assessing the impact on the financial
statements of these new standards:
16
NOVOHEART HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2017 AND 2016
(Expressed in United States dollars)
5. IFRS STANDARDS ISSUED BUT NOT YET EFFECTIVE (continued)
IFRS 9 Financial instruments
On July 24, 2014, the IASB issued the complete IFRS 9, Financial Instruments (“IFRS 9”). IFRS 9
introduces new requirements for the classification and measurements of financial assets. Under
IFRS 9, financial assets are classified and measured based on the business model in which they
are held and the characteristics of their contractual cash flows. The standard introduces additional
changes relating to financial liabilities and amends the impairment model by introducing a new
“expected credit loss” model for calculating impairment. It also includes a new general hedge
accounting standard which aligns hedge accounting more closely with risk management. The
mandatory effective date of IFRS 9 is for annual periods beginning on or after January 1, 2018 and
must be applied retrospectively with some exemptions. Early adoption is permitted.
IFRS 15 Revenue from contracts with customers
On May 28, 2014 the IASB issued IFRS 15, Revenue from Contracts with Customers (“IFRS 15”).
IFRS 15 deals with revenue recognition and establishes principles for reporting useful information
to users of financial statements about the nature, amount, timing and uncertainty of revenue and
cash flows arising from an entity’s contracts with customers. Revenue is recognized when a
customer obtains control of a good or service and thus has the ability to direct the use and obtain
the benefits from the good or service. The standard replaces IAS 18 Revenue and IAS 11
Construction contracts and related interpretations. The effective date is for reporting periods
beginning on or after January 1, 2018 with early application permitted.
IFRS 16 Leases
On January 13, 2016, the International Accounting Standards Board published a new standard,
IFRS 16, Leases, eliminating the current dual accounting model for lessees, which distinguishes
between on-balance sheet finance leases and off-balance sheet operating leases. Under the new
standard, a lease becomes an on-balance sheet liability that attracts interest, together with a new
right-of-use asset. In addition, lessees will recognize a front-loaded pattern of expense for most
leases, even when cash rentals are constant. IFRS 16 is effective for annual periods beginning on
or after January 1, 2019, with earlier adoption permitted.
Other new standards or amendments are either not applicable or not expected to have a significant
impact on the Company’s consolidated financial statements.
17
NOVOHEART HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2017 AND 2016
(Expressed in United States dollars)
6. ACCOUNTS AND OTHER RECEIVABLES
June 30, 2017
June 30, 2016
Receivable for ITF project (note 15)
Receivable for agreement with Global Pharma Partner
Accounts and other receivables
$ 371,275
92,434
$ 463,709
$ -
-
$ -
At June 30, 2017, accounts and other receivables includes $371,275 (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 quarter of 2018 once HKU completes an audit of the expenses for the ITF
project.
On December 23, 2015, the Company entered into a research agreement with a global
pharmaceutical company (the “Global Pharma Partner”). Pursuant to the agreement, the Company
conducts research activities in accordance with an agreed upon research plan and receives the
following payments to reimburse portion of the associated costs incurred by the Company in its
conduct of the research plan:
• $90,750 within 30 days after the effective date;
• $90,750 within 30 days of the one-year anniversary of this agreement;
• $90,750 within 30 days after the acceptance by the Global Pharma Partner of the agreed upon
deliverables; and
• $90,750 within 30 days after the Company delivers its final report.
The Company received the first, second and third tranche of payment of $90,750 in January 2016,
March 2017, and July 2017 respectively. Based on the progress of the research plan, the Company
recorded $92,434 as accounts and other receivables (June 30, 2016: $26,161 was recorded as
deferred income) and recognized $209,599 (2016: $64,478) as other income for the 2017 fiscal
year.
7. PREPAID EXPENSES AND DEPOSITS
Deposits
Prepayment for research agreements (Note 15)
Prepaid service fees
Prepaid patent fee
Prepaid rent
Prepaid legal fee
Other
Prepaid expenses and deposits
18
June 30, 2017
June 30, 2016
$ 18,669
-
-
9,935
23,396
11,394
12,257
$ 75,651
$ 18,698
32,207
34,568
9,994
-
-
6,531
$ 101,998
NOVOHEART HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2017 AND 2016
(Expressed in United States dollars)
8. EQUIPMENT
Cost
June 30, 2015
Additions
Exchange difference
June 30, 2016
Additions
Exchange difference
Computer
Equipment
Lab
Equipment
Office
Equipment
Total
$ 9,451 $ 216,957 $ 7,522 $ 233,930
9,041
(221)
1,511
(6)
7,530
(206)
-
(9)
9,442
4,289
563
224,281
9,027
242,750
37,287
4,075
-
(52)
41,576
4,586
June 30, 2017
$ 14,294
$ 265,643
$ 8,975
$ 288,912
Accumulated
Amortization
Computer
Equipment
Lab
Equipment
Office
Equipment
Total
June 30, 2015
Additions
Exchange difference
June 30, 2016
Additions
Exchange difference
$ 529 $ 20,948 $ 622 $ 22,099
47,181
(19)
43,646
(19)
1,888
-
1,647
-
2,417
2,347
(26)
64,575
50,683
(628)
2,269
1,804
(23)
69,261
54,834
(677)
June 30, 2017
$ 4,738
$ 114,630
$ 4,050
$ 123,418
Carrying Amounts
Computer
Equipment
Lab
Equipment
Office
Equipment
Total
June 30, 2016
$ 7,025
$ 159,706
$ 6,758
$ 173,489
June 30, 2017
$ 9,556
$ 151,013
$ 4,925
$ 165,494
19
NOVOHEART HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2017 AND 2016
(Expressed in United States dollars)
9. GOVERNMENT GRANTS
The Innovation and Technology Commission of the Government of the Hong Kong Special
Administrative Region (the “ITC”), has set up a Technology Start-up Support Scheme for
Universities (“TSSSU”) to provide funding support to universities to support their students,
graduates and academic staff to start up technology business and commercialize their research
and development results. The University of Hong Kong (“HKU”) has assessed and recommended
Novoheart Limited to the ITC for financial assistance under the TSSSU and the ITC has agreed to
provide such assistance to the Company through HKU. Accordingly, the Company and HKU
entered into the following funding arrangements under the TSSSU (collectively referred as “TSSSU
grants”):
• On December 23, 2014, the Company entered into an agreement with HKU to receive a
TSSSU grant of $96,728 (HK$750,000) from the ITC through HKU (“2014 TSSSU grant”). The
purpose of the grant is to compensate the Company for its operating costs incurred and lab
equipment purchased during the period from December 2014 to June 2015. The grant was
received on January 19, 2015.
• On May 28, 2015, the Company entered into an agreement with HKU to receive a TSSSU grant
of $51,569 (HK$400,000) from the ITC through HKU (“2015 TSSSU grant”). The purpose of the
grant is to compensate the Company for its operating costs incurred and lab equipment
purchased during the period from May 2015 to March 2016. The 2015 TSSSU grant was
received through two installment payments of HK$200,000 on June 8, 2015 ($25,794) and
December 11, 2015 ($25,775).
In April 2017, the Company received notification that certain expenditures submitted for
reimbursement were rejected for the 2015 TSSSU Grant. The rejection was for expenses the
Company incurred beyond the grant period due to the delay in the commencement of the
research project with the Global Pharma Partner. As a result, the Company has paid back
US$3,493 in August 2017. The amount was included in the accounts payable and accrued
liabilities as of June 30, 2017. At June 30, 2017, $2,790 has been recognized as an adjustment
to the deferred government grant balance and $702 has been recognized as an expense for the
year then ended.
20
NOVOHEART HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2017 AND 2016
(Expressed in United States dollars)
9. GOVERNMENT GRANTS (continued)
The recognition of the TSSSU grants is summarized as below:
Deferred government grants - June 30, 2015
2014 TSSSU
Grant
2015 TSSSU
Grant
$ 65,490 $ 20,216
Total TSSSU
Grants
$ 85,706
Receipt of TSSSU grants
Government grant income recognized
Exchange difference
-
(13,810)
(63)
25,775
(27,426)
(19)
25,775
(41,236)
(82)
Deferred government grants - June 30, 2016
51,617
18,546
70,163
Government grant income recognized
Adjustment to TSSSU Grant
Exchange difference
(13,254)
-
(777)
(3,820)
(2,790)
(233)
(17,074)
(2,790)
(1,010)
Deferred government grants - June 30, 2017
$ 37,586
$ 11,703
$ 49,289
10. SHARE CAPITAL
Authorized:
50,000 common shares with a par value of $1.
Issued and outstanding:
On June 27, 2014, the Company issued 1 share at $1.
In 2015, the Company issued 9,999 shares for total proceeds of $833,333. Amount of $823,334
was recorded as share premium.
In 2016, the Company issued 1,834 shares at $1,200 each for total proceeds of $2,200,800.
$1,199,000 was recorded as share premium. As finders’ fee, the Company incurred $60,000 of
share issuance cost, which was recorded in share premium.
In 2017, the Company issued 1,365 shares at $1,200 each for total proceeds of $1,638,000.
$1,636,635 was recorded as share premium. As finders’ fee, the Company incurred $79,860 of
share issuance cost, which was recorded in share premium.
21
NOVOHEART HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2017 AND 2016
(Expressed in United States dollars)
11. EXPENSES BY NATURE
Research and development
IP and Patent
Personnel costs
Professional and regulatory fees
Occupancy costs
Travelling expenses
Office and administrative expenses
Depreciation
12. RELATED PARTY TRANSACTIONS
2017
$ 517,046
2016
$ 451,557
154,777
938,682
281,168
65,532
96,298
93,088
54,834
79,815
173,635
102,804
64,584
44,781
28,404
47,181
$ 2,201,425
$ 992,761
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.
Due from related parties
Due to related parties
June 30, 2017
$ 10,683
$ 31,317
June 30, 2016
$ -
$ (76,620)
The amounts due to/from related parties are a result of consulting fees payable in accordance with
management’s contract with the Company, or are advances and expenses incurred by the CEO
and Directors on behalf of the Company. 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 $548,919 for the year ended June 30, 2017 (2016 -
$48,714).
22
NOVOHEART HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2017 AND 2016
(Expressed in United States dollars)
13. FINANCIAL INSTRUMENTS
The following table summarizes the carrying values of the Company’s financial instruments:
Financial Assets
FVTPL at fair value:
Cash and cash equivalents
Loans and receivables at amortized cost:
Accounts and other receivables
Due from related parties
Financial Liabilities
Other financial liabilities at amortized cost:
Accounts payable and accrued liabilities
Due to related parties
June 30, 2017
$
June 30, 2016
$
1,016,000
1,891,500
463,709
10,683
-
-
341,208
31,317
264,194
76,620
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
As at June 30, 2017
As at June 30, 2016
Level 1
$
1,016,000
1,891,500
Level 2
$
Level 3
$
Total
$
-
-
-
-
1,016,000
1,891,500
The carrying value of due from related parties, accounts payable and accrued liabilities and due to
related parties approximates the fair value because of the short-term nature of these instruments.
23
NOVOHEART HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2017 AND 2016
(Expressed in United States dollars)
13. FINANCIAL INSTRUMENTS (continued)
Financial risk management
The risks associated with financial instruments and the policies on how to mitigate these risks are
set out below. Management monitors these exposures to ensure appropriate measures are
implemented on a timely and effective manner.
Credit risk
Credit risk is the risk of financial loss to the Company if a counterparty to a financial instrument fails
to meet its contractual obligations. The Company’s cash and cash equivalents as well as accounts
and other receivables are subject to credit risk for a maximum of the amount shown on the
consolidated statements of financial position. The Company limits its exposure to credit risk on
cash and cash equivalents by depositing only with reputable financial institutions, and limits its
exposure to credit risk on accounts and other receivables by only working with large and well-
funded organizations. Management believes that the Company is subject to minimal credit risk.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they
fall due. The purpose of liquidity risk management is to maintain a sufficient amount of cash and
cash equivalents to meet its liquidity requirements at any point in time. The Company uses cash to
settle its financial obligations as they fall due. The ability to do this relies on the Company
maintaining sufficient cash on hand through equity and debt financing. Significant commitments in
years subsequent to June 30, 2017 are as follows:
Accounts payable and accrued
liabilities
Total
Carrying
value
$
Contractual
Cash flows
$
Within 1
year
$
1 – 3 Years
$
341,208
341,208
341,208
341,208
341,208
341,208
-
-
Interest rate risk
Interest rate risk is the risk that the fair value or the future cash flows of a financial instrument will
fluctuate because of changes in market interest rates. The Company is only subject to interest rate
risk on its cash balance in the bank and there is unlikely to be a material impact on net income
(loss) as the bank deposits are short term.
Currency risk
Foreign currency exchange rate risk is the risk that the fair value of future cash flows of a financial
instrument will fluctuate because of changes in foreign exchange rates. The Company’s functional
and reporting currency is United States dollars. The Company is exposed to currency risk through
the financial assets and liabilities denominated in currencies other than United States Dollars. The
Company currently does not use derivative instruments to hedge its exposure to the currency risk.
As at June 30, 2017, the exposure of the Company’s financial assets and financial liabilities to
currency risk is summarized as follows:
24
NOVOHEART HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2017 AND 2016
(Expressed in United States dollars)
13. FINANCIAL INSTRUMENTS (continued)
Financial risk management (continued)
Currency risk (continued)
Financial Assets
Cash and cash equivalents
Accounts and other receivables
Due from related parties
Financial Liabilities
Accounts payable and accrued liabilities
Due to related parties
Denominated
in CAD
Denominated
in HKD
-
-
-
140,555
11,317
302,311
371,276
10,683
34,945
-
A 1% strengthening (weakening) of the United States dollars against the Hong Kong dollars, with
other variables unchanged, would have decreased (increased) the net comprehensive loss by
approximately $7,095.
14. CAPITAL RISK MANAGEMENT
The Company’s primary objective when managing capital is to maintain sufficient resources and
raise funding to support current and long-term operating needs. The ability to continue as a going
concern is essential to the Company’s goal of providing returns to shareholders and other
stakeholders. The capital structure of the Company consists of shareholders’ equity. The Company
manages its capital structure and makes adjustments to it, based on the level of funds available to
the Company to manage its operations. The Company balances its overall capital through new
share issuances or by undertaking other activities as deemed appropriate in the circumstances.
The Company is not subject to externally imposed capital requirements. There have been no
significant changes in the Company’s approach to capital management during the year. These
objectives and strategies are reviewed on a continuous basis.
25
NOVOHEART HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2017 AND 2016
(Expressed in United States dollars)
15. RESEARCH AGREEMENTS
Innovation and Technology Fund Agreement
The Government of the Hong Kong Special Administrative Region (the “Government”) has set up
an Innovation and Technology Fund (the “ITF”). HKU, in collaboration with the Company, applied to
the Government for financial assistance from the ITF to carry out a research and development
project. The aim of the project is to develop the next generation 3D heart tissue constructs in the
form of monolayers, heart muscle strips and mini-heart for cardiotoxicity screening and drug
discovery (the “ITF Project” or the “Project”). The Company is now using the technology generated
from this project in its myHeartTM platform.
The ITF Project commenced on January 12, 2015 and was completed on January 12, 2017, with
the final report now being submitted. The ITF project is carried out by a group of scientists and
research technicians in HKU, led by a research team comprised of professors from HKU and other
universities/research institutes, and governed by a steering committee comprised of the CEO and
CSO of the Company. The estimated total cost of the Project is $2,740,769 (HK$21,240,960) (the
“Project Cost”). Of the total Project Cost, the Government committed to contribute approximately
$1,290,323 (HK$10,000,000) in cash (47.1% of the estimated Project Cost), and the Company
committed to contribute approximately $1,450,446 (HK$11,240,960) (52.9% of the estimated
Project Cost) consisting of $1,209,156 (HK$9,370,960) in cash and $241,290 (HK$1,870,000)
contribution in-kind.
Pursuant to the ITF Agreement, the ownership title to all equipment acquired under the Project
shall vest in and remain with HKU during and after the Project, unless the Government directs HKU
to deliver the equipment to the Government within 2 years after the end of the Project. All right,
title and interest in all resulted intellectual properties (the “Project IPs”) shall vest in and remain with
the Company during and after the Project. The Company grants the Government a non-exclusive
license to use and exercise the Project IPs strictly for the purposes of design, development, and
manufacture of products and use of such products by the Government for the provision of services
to the public.
On October 17, 2016, the Company and HKU entered into an agreement pursuant to which HKU
agrees that it will not share in any income generated by the Company from the exploitation of the
Project IPs, and that all such income will be entirely allocated to the Company. The Company
commits a gratuitous contribution to HKU in an amount equivalent to 1% of the net revenue
generated from its exploitation of the Project IPs, during the period commencing from July 1, 2016
to June 30, 2026, at a maximum of $386,622 (HK$3,000,000) in total, payable within 30 days of the
end of each calendar year from 2017 to 2026, from revenue generated in the immediately
preceding year commencing from July 1 to June 30.
26
NOVOHEART HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2017 AND 2016
(Expressed in United States dollars)
16. RESEARCH AGREEMENTS (continued)
Innovation and Technology Fund Agreement (continued)
The expenditure incurred by the Company under the Project is recorded as research and
development expenses on an accrual basis as the Project progresses over its term. In 2017, the
Company made cash contribution of $647,909 (2016: $372,731) and in-kind contributions of
$170,832 (2016: $nil), while the Government made cash contribution of $650,875 (2016: $nil). For
the year ended June 30, 2017, the Company recorded $232,328(2016: $305,170) as research and
development expenses in the consolidated statements of loss and comprehensive loss based on
the actual amount of the Project Costs incurred by HKU.
Actual expenses for the completed project were lower than budget and the Company’s previous
prepayment for the project that was not spent will be refunded to the Company. The Company
expects to receive approximately $371,275 of refund in the second half of 2018 once HKU
completes an audit of the expenses for the Project.
Sponsored research agreement with Mount Sinai
Effective February 29, 2016, the Company entered into a sponsored research agreement with
Icahn School of Medicine at Mount Sinai (“Mount Sinai”). Pursuant to the agreement, the Company
agrees to reimburse Mount Sinai in the conduct of a sponsored research with respect to human
cardiac tissue engineering and related bioreactor technology development for therapeutic discovery
in an amount totaling $176,400. Payment is scheduled to be made in two installments, with one
third made within 60 days of the effective date, and two-thirds six months thereafter. Mount Sinai
shall retain all right, title and interest in all resulted intellectual properties. The agreement
commenced on the effective date of February 29, 2016.
The Company had made the first installment of $58,800 in 2016. As of June 30, 2017, the
Company recorded $117,600 in accounts payable and accrued liabilities. For the year ended June
30, 2017, the Company recognized $125,977 (2016: $50,423) as research and development
expenses in the consolidated statements of loss and comprehensive loss based on the progress of
the sponsored research project.
Sponsored research agreement with UCI
Effective October 12, 2015, the Company entered into a sponsored research agreement with the
Regents of the University of California, Irvine campus (UCI). Pursuant to the agreement, the
Company agrees to reimburse UCI in the conduct of a sponsored research entitled “Biomimetic
Heart Constructs with Machine Learning for Predictive Cardiotoxicity” in an amount of $81,628.
Payment is scheduled to be made in two installments with the first installment of $30,000 made
upon execution of this agreement and the second installment of $51,628 made six months starting
from the effective date of the agreement. UCI shall retain all right, title and interest in all resulted
intellectual properties. The agreement commenced on October 12, 2015, and was completed on
March 31, 2017.
The Company paid the entire agreed amount of $81,628 in 2016. For the year ended June 30,
2017, the Company recognized $23,825 (2016: $57,803) as research and development expenses
in the consolidated statements of loss based on the progress of the sponsored research project.
27
NOVOHEART HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2017 AND 2016
(Expressed in United States dollars)
16. COMMITMENTS
Leases
The Company entered into an office lease agreement and a lab lease agreement with Hong Kong
Science and Technology Park in 2014. Both leases were effective from August 30, 2014 to August
30, 2017. Subsequent to year-end, the office lease was extended to November 4, 2017 and the
lab lease was extended to November 29, 2017. In addition, the Company expanded its office and
lab facilities by signing a new lease agreement with Hong Kong Science and Technology Park
(note 19). The minimum lease payments for both leases are as follow:
2018
2019
2020
2021
Total
269,828
265,430
265,430
22,119
$ 822,807
IP Licensing Agreements
In March 2017, the Company entered into an IP licensing agreement with the University of
California Irvine Campus. Under the agreement, the Company will have to pay an annual
maintenance fee of $2,500 in 2018, $3,500 in 2019, and $4,500 from 2020 onwards until the
expiration of the agreement, which is at the expiration or abandonment of the last of the patent
rights licensed.
Please refer to note 19, Subsequent Event, for the Company’s commitments under the new IP
licensing agreements signed with the Ichan School of Medicine at Mount Sinai and GE Healthcare.
17. SEGMENT DISCLOSURES
The Company operates in one reporting segment. All of the Company’s capital assets are located
in Hong Kong.
28
NOVOHEART HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2017 AND 2016
(Expressed in United States dollars)
18. INCOME TAX
The following table reconciles the expected tax expense (recovery) at the BVI statutory income tax
rates to the amounts recognized in the consolidated statements of loss and comprehensive loss for
the years ended June 30, 2017 and 2016:
Net loss before tax
Statutory tax rate
Expected tax recovery
Functional currency adjustments
2017
2016
$ (1,978,919)
$ (888,258)
0%
-
2,574
0%
-
49
Foreign tax rate difference
(288,139)
(133,063)
Change in deferred tax assets not recognized
285,565
133,014
Total tax expense (recovery)
$ -
$ -
Deferred taxes reflect the tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and their corresponding values for tax
purposes. Deferred tax assets (liabilities) at June 30, 2017 and 2016 are comprised of the
following:
Tax losses
Equipment
2017
2016
$ 14,598
$ 16,188
(14,598)
(16,188)
Deferred tax asset (liability)
$ -
$ -
29
NOVOHEART HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2017 AND 2016
(Expressed in United States dollars)
18. INCOME TAX (continued)
The unrecognized deductible temporary differences are as follows:
Tax losses
2017
2016
$ 2,883,236
$ 1,152,537
Unrecognized deductible temporary differences
$ 2,883,236
$ 1,152,537
As at June 30, 2017, the Company has not recognized a deferred tax asset in respect of tax losses
of $2,883,236 (2016: $1,152,537) which may be carried forward indefinitely to apply against future
year income tax for Hong Kong profit tax purposes, subject to the final determination by taxation
authorities.
19. SUBSEQUENT EVENTS
Share exchange agreement
On September 28, 2017, the Company announced the completion of the reverse takeover
transaction with Woodrose Venture Corporation (“Woodrose”), a TSX-V listed company. The
Company sold to Woodrose all of its outstanding shares. As part of the transaction, the
shareholders of Novoheart received 5,200 post-consolidation Woodrose shares for each Novoheart
share.
Concurrent with the reverse takeover transaction, Woodrose announced closing of a subscription
receipt financing on September 21, 2017. 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 C$0.50 subscription receipt for gross proceeds of C$7,150,000.
Each subscription receipt will automatically convert into one Woodrose post-consolidation share. In
connection with the subscription receipt, finders’ fee of C$486,018 was paid and 972,037 finders’
warrants were issued. Each finder’s warrants will be exercisable at a price of C$0.50 into one
Woodrose share (on a post-consolidation basis) for 24 months following completion of the
transaction.
In addition, at the closing of the reverse takeover transaction, the Company issued 4,203,576 stock
options at an exercise price of C$0.50. Each stock option entitles the holder to acquire one
common share of Novoheart. 175,000 of the issued stock options vests in equal monthly portions
over 12 months from the date of grant. The remaining 4,028,576 issued stock options vests over a
three year period with 40% vesting on 12 months from the date of grant and 30% to be vested on
24 and 36 months from the date of grant.
30
NOVOHEART HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2017 AND 2016
(Expressed in United States dollars)
19. SUBSEQUENT EVENTS (continued)
License agreement with Icahn School of Medicine at Mount Sinai
On August 31, 2017 (“Effective Date”), the Company entered into an exclusive license agreement
with the Icahn School of Medicine at Mount Sinai (“MSSM”), for the exclusive use of certain patents
developed by Kevin Costa, Ron Li, Camie Chan and Roger Hajjar, officers and scientific advisory
board member of Novoheart. Pursuant to the agreement, the Company agrees to pay an upfront
license fee of $5,000, an annual maintenance fee of $2,500 to $10,000, a 5.0% royalty on its net
sales of products using the patents, as well as compensation for certain milestones and change of
control scenarios.
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.
Rental agreement with Hong Kong Science and Technology Park
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. The lease will be for a term of 3 years
commencing on July 31, 2017. The annual lease commitment will be approximately $265,430
(HK$2,066,610), including service charges.
31