NOVOHEART HOLDINGS INC
(Formerly Novoheart Holdings Limited)
Consolidated Financial Statements
For the years ended June 30, 2018 and 2017
(Expressed in Canadian dollars)
KPMG LLP
PO Box 10426 777 Dunsmuir Street
Vancouver BC V7Y 1K3
Canada
Telephone (604) 691-3000
Fax (604) 691-3031
INDEPENDENT AUDITORS’ REPORT
To the Shareholders of Novoheart Holdings Inc.
Inc.
(formerly Novoheart Holdings Limited), which comprise
We have audited the accompanying consolidated financial statements of Novoheart
Holdings
the
consolidated statement of financial position as at June 30, 2018, the consolidated
statements of loss and comprehensive loss, changes in equity and cash flows for the year
then ended, and notes, comprising 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 audit. We conducted our audit in accordance with Canadian generally
accepted auditing standards. Those standards require that we comply with ethical
requirements and plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the consolidated financial statements. The procedures selected depend on
our 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, we consider 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.
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent
Member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
KPMG Canada provides services to KPMG LLP.
Novoheart Holdings Inc.
Page 2
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects,
the consolidated financial position of Novoheart Holdings Inc. (formerly Novoheart
Holdings Limited) as at June 30, 2018, and its consolidated financial performance and its
consolidated cash flows for the year then ended in accordance with International Financial
Reporting Standards.
Comparative Information
Without modifying our opinion, we draw attention to Note 2 to the consolidated financial
statements which indicates that the comparative information presented as at and for the
year ended June 30, 2017, has been adjusted.
The consolidated financial statements of Novoheart Holdings Inc. (formerly Novoheart
Holdings Limited) as at and for the year ended June 30, 2017, excluding the
adjustment described in Note 2 to the consolidated financial statements, were audited by
another auditor who expressed an unmodified opinion on those financial statements on
October 25, 2017.
As part of our audit of the consolidated financial statements as at and for the year ended
June 30, 2018, we audited
the
consolidated financial statements that was applied to adjust the comparative information
presented as at and for the year ended June 30, 2017. In our opinion, the adjustment is
appropriate and has been properly applied.
the adjustment described
in Note 2
to
We were not engaged to audit, review, or apply any procedures to the June 30, 2017,
consolidated financial statements, other than with respect to the adjustment described in
Note 2 to the consolidated financial statements. Accordingly, we do not express an opinion
or any other form of assurance on those financial statements taken as a whole.
Emphasis of Matter
Without modifying our opinion, we draw attention to Note 2 in the consolidated financial
statements which indicates that Novoheart Holdings Inc. (formerly Novoheart Holdings
Limited) incurred a loss from operations of $12,463,044 and had negative cash flow from
operating activities of $4,777,820 during the year ended June 30, 2018 These conditions,
along with other matters as set forth in Note 2 in the consolidated financial statements,
indicate the existence of a material uncertainty that may cast significant doubt about
Novoheart Holdings Inc.’s (formerly Novoheart Holdings Limited) ability to continue as a
going concern.
Chartered Professional Accountants
Vancouver, Canada
August 21, 2018
NOVOHEART HOLDINGS INC.
(Formerly Novoheart Holdings Limited)
Consolidated Statement of Financial Position
(Expressed in Canadian dollars)
ASSETS
Current
Cash and cash equivalents
Accounts and other receivables
Prepaid expenses and deposits
Due from related parties
Property and equipment, net
Intangible assets, net
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities
Due to related parties
Deferred government grants
Long-term license payable
Shareholders' Equity
Share capital
Contributed surplus
Accumulated other comprehensive income
Accumulated deficit
Notes
June 30,
2018
June 30,
2017
7
8
14
9
10
14
11
10
12
$
$
1,595,094
615,332
312,161
-
2,522,587
1,245,981
277,948
1,319,748
602,240
98,255
13,874
2,034,117
214,934
-
$
4,046,516
$
2,249,051
$
$
1,357,713
60,684
1,418,397
40,648
75,424
443,182
39,554
482,736
64,013
-
1,534,469
546,749
17,426,693
1,493,175
303,261
(16,711,082)
2,512,047
5,819,874
-
130,466
(4,248,038)
1,702,302
$
4,046,516
$
2,249,051
Going concern (Note 2)
Commitments (Note 20)
APPROVED BY
“James Topham”
“Allen Ma”
Director of the Company
Director of the Company
The accompanying notes are an integral part of these consolidated financial statements.
3
NOVOHEART HOLDINGS INC.
(Formerly Novoheart Holdings Limited)
Consolidated Statements of Loss and Comprehensive Loss
For the Years Ended June 30, 2018 and 2017
(Expressed in Canadian dollars, except number of common shares)
Notes
2018
2017
Revenue
Cost of sales
OPERATING EXPENSES
Research and development
Intellectual property and patent
General and administrative
Share-based compensation
Depreciation and amortization
LOSS FROM OPERATIONS
Government grants
Other income
Interest income / (finance expense)
Foreign exchange (loss) / gain
Non-cash loss on completion of reverse
takeover
17
18
19
13
6
$
95,124
38,208
56,916
$
-
-
-
1,478,816
420,399
3,775,144
1,172,403
399,018
7,245,780
1,152,576
205,369
1,490,412
-
72,769
2,921,126
(7,188,864)
(2,921,126)
63,383
118,303
31,926
(274,195)
(5,213,597)
(5,274,180)
22,657
278,155
(1,327)
(32,405)
-
267,080
NET LOSS FOR THE YEAR
$ (12,463,044)
$
(2,654,046)
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation adjustment
172,795
(88,657)
COMPREHENSIVE LOSS FOR THE YEAR
$ (12,290,249)
$
(2,742,703)
Loss per share – Basic and Diluted
$
(0.17)
$
(0.51)
Weighted average number of shares
outstanding – basic and diluted
72,616,534
5,196,260
The accompanying notes are an integral part of these consolidated financial statements.
4
NOVOHEART HOLDINGS INC.
(Formerly Novoheart Holdings Limited)
Consolidated Statements of Changes in Equity
(Expressed in Canadian dollars, except number of common shares)
Number of
shares
Share
capital
$
Contributed
surplus
$
Accumulated
other
comprehensive
income
$
Deficit Total equity
$
$
BALANCE, JUNE 30, 2016
2,296,693 3,708,824
Loss for the year
Exercise of warrants (note 12)
Issuance of Woodrose’s common
shares (note 12)
Issuance of common shares
(note 12)
Foreign currency translation
adjustment
-
1,861,979
2,914,157
-
-
-
- 2,111,050
-
-
BALANCE, JUNE 30, 2017
7,072,829 5,819,874
Loss for the year
Exercise of warrants (note 12)
Share capital issued (note 6)
Reverse takeover (note 6)
Share capital issued for finders
of RTO (note 6)
Share capital issued –
-
1,052,178
-
-
68,634,800 4,062,500
2,402,218 1,201,109
subscription offering (note 12)
14,300,000 7,150,000
Cash share issuance cost
to broker (note 12)
Warrants issued to broker -
subscription offering (note 12)
Share-based compensation
(note 13)
Foreign currency translation
adjustment
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
219,123
(1,593,992)
2,333,955
-
-
-
-
(88,657)
(2,654,046)
-
(2,654,046)
-
-
-
-
-
2,111,050
(88,657)
130,466
(4,248,038)
1,702,302
- (12,463,044)
-
-
(12,463,044)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4,062,500
1,201,109
7,150,000
(486,018)
-
1,172,403
172,795
(486,018)
(320,772)
320,772
1,172,403
-
-
-
172,795
BALANCE, JUNE 30, 2018
93,462,025 17,426,693
1,493,175
303,261 (16,711,082)
2,512,047
The accompanying notes are an integral part of these consolidated financial statements.
5
NOVOHEART HOLDINGS INC.
(Formerly Novoheart Holdings Limited)
Consolidated Statements of Cash Flows
For the years ended June 30, 2018 and 2017
(Expressed in Canadian dollars)
Notes
2018
2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the year
Items not affecting cash:
Non-cash loss on completion of reverse takeover
Share-based compensation
Depreciation and amortization
6
13
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
Increase/(decrease) in due to related parties
Increase in other long-term liabilities
Decrease in deferred government grants
Decrease in deferred income
$ (12,463,044)
$ (2,654,046)
5,213,597
1,172,043
399,378
(5,678,026)
(5,504)
(212,245)
793,432
270,812
75,474
(21,763)
-
900,206
-
-
72,769
(2,581,277)
(618,458)
34,424
145,523
(87,723)
-
(27,295)
(34,688)
(588,217)
Net cash used in operating activities
(4,777,820)
(3,169,494)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment and payment of leasehold
improvements
Acquisition of intangible assets
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from share issuance, net
Cash acquired in RTO
9
10
12
6
(1,374,690)
(339,630)
(1,714,320)
(55,139)
-
(55,139)
6,663,982
112,662
2,067,445
-
Net cash provided by financing activities
6,776,644
2,067,445
Change in cash during the year
284,504
(1,157,188)
Effect of exchange rate changes on cash held in a foreign
currency
Cash and cash equivalents, beginning of year
(9,158)
1,319,748
16,898
2,460,038
Cash and cash equivalents, end of year
1,595,094
1,319,748
The accompanying notes are an integral part of these consolidated financial statements.
6
NOVOHEART HOLDINGS INC.
(Formerly Novoheart Holdings Limited)
Notes to Consolidated Financial Statements
Years Ended June 30, 2018 and 2017
(Expressed in Canadian dollars)
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 1430-800 West Pender Street,
Vancouver, BC, Canada, V6C 2V6.
2. BASIS OF PRESENTATION AND GOING CONCERN
Statement of compliance
These consolidated financial statements of the Company and its subsidiaries are prepared in
accordance with International Financial Reporting Standards (“IFRS”) as issued by the International
Accounting Standards Board (“IASB”).
These consolidated financial statements were approved and authorized for issue by the directors of
the Company on August 21, 2018.
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 a scalable commercialization of its products. At June 30, 2018,
the Company has an accumulated deficit of $16,711,082 (2017 - $4,248,038) since inception. For
the year ended June 30, 2018, the Company incurred a net loss of $12,463,044 (2017 – $2,654,046)
and used net cash in operating activities of $4,777,820 (2016 – $3,169,494). These circumstances
comprise a material uncertainty which cast significant doubt as to the Company’s ability to continue
as a going concern.
7
NOVOHEART HOLDINGS INC.
(Formerly Novoheart Holdings Limited)
Notes to Consolidated Financial Statements
Years Ended June 30, 2018 and 2017
(Expressed in Canadian dollars)
2. BASIS OF PRESENTATION AND GOING CONCERN (continued)
Going concern (continued)
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 and/or continuing
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 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.
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
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 consolidated 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 to be in Canadian
dollars. The change in functional currency has been accounted for prospectively. The change in
presentation currency represents a voluntary change that is accounted for retrospectively. The
consolidated financial statements of the Company for the periods before July 1, 2017 which were
based on a U.S. dollar presentation currency have been translated into a Canadian dollar
presentation as follows: assets and liabilities using the exchange rates prevailing at the balance
sheet date; shareholders’ equity using the applicable historical exchange rates prevailing at the dates
of transactions; and revenue, expenses and cash flows using average exchange rates for the
relevant period. The change in the presentation currency has resulted in changes to the previously
reported foreign currency translation adjustment account which is included as a component of
accumulated other comprehensive income. 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.
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
8
NOVOHEART HOLDINGS INC.
(Formerly Novoheart Holdings Limited)
Notes to Consolidated Financial Statements
Years Ended June 30, 2018 and 2017
(Expressed in Canadian dollars)
2. BASIS OF PRESENTATION AND GOING CONCERN (continued)
Use of estimates (continued)
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.
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 as at June 30, 2018 and 2017.
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.
Translation of foreign currencies
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. 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. The foreign currency gains and losses arising from settlement of foreign
currency transactions are recognized on a net basis in profit or loss.
Foreign operations translation
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.
9
NOVOHEART HOLDINGS INC.
(Formerly Novoheart Holdings Limited)
Notes to Consolidated Financial Statements
Years Ended June 30, 2018 and 2017
(Expressed in Canadian dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
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.
10
NOVOHEART HOLDINGS INC.
(Formerly Novoheart Holdings Limited)
Notes to Consolidated Financial Statements
Years Ended June 30, 2018 and 2017
(Expressed in Canadian dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial instruments (continued)
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, accounts and other receivable, 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.
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).
11
NOVOHEART HOLDINGS INC.
(Formerly Novoheart Holdings Limited)
Notes to Consolidated Financial Statements
Years Ended June 30, 2018 and 2017
(Expressed in Canadian dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
Property and equipment
Property and equipment is stated at cost less accumulated depreciation and any accumulated
impairment losses. The cost of property and 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.
Property and 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.
Leasehold improvements are amortized on a straight-line basis over the lesser of their estimated
useful life or the initial lease term. Leasehold improvements are currently amortized over the following
periods:
Leasehold improvements
Estimated Useful life
3 years
Intangible Assets
Licenses that are acquired by the Company in an acquisition that have a finite useful life are
measured at acquisition cost less accumulated amortization and accumulated impairment losses.
Amortization is recognized in profit or less on a straight-line basis over the estimated useful life of
the license from the date that it is available for the Company, since this most closely reflects the
expected pattern of consumption of the future economic benefits embodied in the asset. The
Company continually evaluates the remaining useful life of its intangible asset being amortized to
determine whether events and circumstances warrant a revision to the remaining period of
amortization.
Intangible assets with finite lives are currently amortized over the following periods:
Licenses
Estimated Useful life
2 – 5 years
12
NOVOHEART HOLDINGS INC.
(Formerly Novoheart Holdings Limited)
Notes to Consolidated Financial Statements
Years Ended June 30, 2018 and 2017
(Expressed in Canadian dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
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.
13
NOVOHEART HOLDINGS INC.
(Formerly Novoheart Holdings Limited)
Notes to Consolidated Financial Statements
Years Ended June 30, 2018 and 2017
(Expressed in Canadian dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
Revenue Recognition
The Company has initially adopted IFRS 15 Revenue from Contracts with Customers as at July 1,
2017. The effect of initially applying these standards did not have a material impact on the
Company’s consolidated financial statements and related disclosures.
IFRS 15 establishes a comprehensive framework for determining whether, how much and when
revenue is recognized. It replaced IAS 18 Revenue, IAS 11 Construction Contracts and related
interpretations. The Company has early adopted IFRS 15 using the cumulative effect method,
without practical expedients, with the effect of initially applying this standard recognized at the date
of initial application of January 1, 2018. Accordingly, the information presented for 2017 has not
been restated. It is presented, as previously reported, under IAS 18, IAS 11 and related
interpretations.
Under IFRS 15, revenue is recognized when a customer obtains control of the goods or services.
Determining the timing of the transfer of control, at a point in time or over time, requires judgment.
The Company generates revenues primarily from drug screening services using its bio-artificial
human heart tissues and chambers. On the fixed price drug screening contracts, the customer
controls all of the work in progress as the services are being provided; the deliverables are made to
a customer’s specification and if a contract is terminated by the customer, then the Company is
entitled to reimbursement of the costs incurred to date. Revenue from these drug screening
contracts and the associated costs are recognized over time on the percentage-of-completion
basis as those services are provided, which consists of recognizing revenue on a given contract
proportionately with its percentage of completion at any given time. The percentage of completion
is determined by dividing the cumulative costs incurred as at the balance sheet date by
the sum of incurred and anticipated costs for completing a contract.
The cumulative effect of changes to anticipated revenues and anticipated costs for completing a
contract are recognized in the period in which the revisions are identified. In the event that the
anticipated costs exceed the anticipated revenues on a contract, such loss is recognized in its
entirety in the period it becomes known.
14
NOVOHEART HOLDINGS INC.
(Formerly Novoheart Holdings Limited)
Notes to Consolidated Financial Statements
Years Ended June 30, 2018 and 2017
(Expressed in Canadian dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Share-based compensation
Share-based compensation and other share-based payments, including stock options and restricted
share units granted to the Company’s directors, executive officers, scientific advisory board members
and employees are accounted for using the fair-value based method. Under this method,
compensation expense for stock options is measured at fair value at the date of grant using the
Black-Scholes valuation model and is expensed over the award’s vesting period on a graded basis.
Stock options granted to consultants are subject to variable accounting treatment and are re-valued
at fair value at each balance sheet date until exercise, expiry or forfeiture. Compensation expense
for restricted share units is measured at fair value at the date of grant, which is the market price of
the underlying security, and is expensed over the award’s vesting period on a straight-line basis. The
Company estimated the forfeiture rate to be nil on restricted share units due to the short vesting
period. Management will revise the estimate if actual forfeitures differ and adjust stock-based
compensation expense accordingly.
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 includes fees paid to contract research organizations and other
vendors 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.
15
NOVOHEART HOLDINGS INC.
(Formerly Novoheart Holdings Limited)
Notes to Consolidated Financial Statements
Years Ended June 30, 2018 and 2017
(Expressed in Canadian dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income taxes (continued)
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.
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
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
these consolidated financial statements are as follows:
16
NOVOHEART HOLDINGS INC.
(Formerly Novoheart Holdings Limited)
Notes to Consolidated Financial Statements
Years Ended June 30, 2018 and 2017
(Expressed in Canadian dollars)
4. CRITICAL JUDGMENTS
Evaluation of the Company’s ability to continue as a going concern
Management has applied judgements 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.
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:
IFRS 9 Financial instruments
In July 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. IFRS 9 aligns hedge accounting more
closely with risk management. This does not fundamentally change the types of hedging
relationships or the requirement to measure and recognize ineffectiveness, however it will provide
more hedging strategies that are used for risk management to qualify for hedge accounting and
introduce more judgment to assess the effectiveness of a hedging relationship. Special transitional
requirements have been set for the application of the new general hedging model. IFRS 9 is effective
for annual periods beginning on or after January 1, 2018 and must be applied retrospectively with
some exemptions.
17
NOVOHEART HOLDINGS INC.
(Formerly Novoheart Holdings Limited)
Notes to Consolidated Financial Statements
Years Ended June 30, 2018 and 2017
(Expressed in Canadian dollars)
5. IFRS STANDARDS ISSUED BUT NOT YET EFFECTIVE
IFRS 9 Financial instruments (continued)
The Company will adopt IFRS 9 in its financial statements for the annual period beginning on July 1,
2018. The Company has evaluated the impact of IFRS 9 and has determined that IFRS 9 will not
have a significant impact on the Company. The Company is continuing to evaluate the impact of
disclosures to its future consolidated financial statements.
IFRS 16 Leases
In January 2016, the IASB issued IFRS 16 - Leases, which supersedes IAS 17 - Leases. IFRS 16
establishes principles for the recognition, measurement, presentation and disclosure of leases. The
standard establishes a single model for lessees to bring leases on-balance sheet while lessor
accounting remains largely unchanged and retains the finance and operating lease distinctions. IFRS
16 is effective for annual periods beginning on or after January 1, 2019, with earlier adoption
permitted, but only if also applying IFRS 15 - Revenue from contracts with Customers.
The Company is currently evaluating the impact on IFRS 16 on its financial statements and does not
intend to early adopt the standard.
6. 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 as a share-based payment
transaction 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 3.56878449 old shares for 1 new share.
For the Company’s consolidated financial statements as at June 30, 2017, the Company had
disclosed the ending number of shares to be 13,199 (2016 – 11,834), which was the number of
shares of Novoheart Holdings Limited prior to the transaction. The number of shares has been
revised to 7,072,829 (2016 – 2,296,693) to reflect the number of shares of the legal acquirer in the
reverse takeover, Woodrose.
18
NOVOHEART HOLDINGS INC.
(Formerly Novoheart Holdings Limited)
Notes to Consolidated Financial Statements
Years Ended June 30, 2018 and 2017
(Expressed in Canadian dollars)
6. 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 notional equity instruments deemed to have been 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
8,125,000 common shares of Novoheart
Total Purchase Price
Allocation of Purchase Price
Cash
Accounts receivable
Prepaid expenses
Accounts payable and accrued liabilities
Non-cash loss on completion of reverse takeover
$ 4,062,500
$ 4,062,500
$ 112,662
20,654
3,836
(87,140)
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.
7. ACCOUNTS AND OTHER RECEIVABLES
Receivable for ITF project
Receivable for agreement with Sumocor (Note 17)
Receivable for internship grants
Receivable for agreement with Pfizer (Note 19)
Other
Accounts and other receivables
June 30, 2018
June 30, 2017
$ 433,223
97,198
41,592
-
43,319
$ 615,332
$ 482,192
-
-
120,048
-
$ 602,240
As at June 30, 2018, accounts and other receivables include $433,223 (HK$2,670,921) from HKU
as a refund for the ITF project (June 30, 2017 - $482,192 (HK$2,897,720)). 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.
19
NOVOHEART HOLDINGS INC.
(Formerly Novoheart Holdings Limited)
Notes to Consolidated Financial Statements
Years Ended June 30, 2018 and 2017
(Expressed in Canadian dollars)
8. PREPAID EXPENSES AND DEPOSITS
Deposits
Prepaid service fees
Prepaid patent fees
Prepaid rent
Prepaid legal fees
Other
Prepaid expenses and deposits
June 30, 2018
June 30, 2017
$ 216,387
83,197
12,577
-
-
-
$ 312,161
$ 24,246
-
12,903
30,385
14,801
15,920
$ 98,255
As at June 30, 2018, Deposits of $216,387 included $148,659 of security deposit for the
Company’s new lab and office facility in Phase 3 of the Hong Kong Science Park.
9. PROPERTY AND EQUIPMENT
Cost
June 30, 2016
Additions
Exchange
difference
Computer
Equipment
Lab
Equipment
Office
Equipment
Leasehold
Improvements
Total
$ 12,280
5,688
$ 291,695
49,451
$ 11,740
-
$ -
-
$ 315,715
55,139
597
3,856
(85)
-
4,368
June 30, 2017
$ 18,565
$ 345,002
$ 11,655
$ -
$ 375,222
Additions
Exchange
difference
26,191
204,338
40,464
1,103,697
1,374,690
(487)
(8,853)
(320)
(737)
(10,397)
June 30, 2018
$ 44,269
$ 540,487
$ 51,799
$ 1,102,960 $ 1,739,515
20
NOVOHEART HOLDINGS INC.
(Formerly Novoheart Holdings Limited)
Notes to Consolidated Financial Statements
Years Ended June 30, 2018 and 2017
(Expressed in Canadian dollars)
9. PROPERTY AND EQUIPMENT (continued)
Accumulated
Amortization
Computer
Equipment
Lab
Equipment
Office
Equipment
Leasehold
Improvements
Total
June 30, 2016
Additions
Exchange
difference
$ 3,144
3,114
$ 83,985
67,241
$ 2,950
2,393
$ -
-
$ 90,079
72,748
(104)
(2,352)
(83)
-
(2,539)
June 30, 2017
$ 6,154
$ 148,874
$ 5,260
$ - $ 160,288
Additions
Exchange
difference
6,158
(160)
83,522
(3,816)
6,407
(137)
241,434
337,521
(162)
(4,275)
June 30, 2018
$ 12,152
$ 228,580
$ 11,530
$ 241,272 $ 493,534
Carrying
Amounts
Computer
Equipment
Lab
Equipment
Office
Equipment
Leasehold
Improvements
Total
June 30, 2017
$ 12,411
$ 196,128
$ 6,395
$ - $ 214,934
June 30, 2018
$ 32,117
$ 311,907
$ 40,269
$ 861,688 $ 1,245,981
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, 2020.
21
NOVOHEART HOLDINGS INC.
(Formerly Novoheart Holdings Limited)
Notes to Consolidated Financial Statements
Years Ended June 30, 2018 and 2017
(Expressed in Canadian dollars)
10. INTANGIBLE ASSETS
As at June 30, 2018, the Company had the following intangible asset:
Licenses
Cost
$ 339,404
Accumulated
Amortization
$ 61,456
Net
$ 277,948
The licenses comprise of intellectual properties that were licensed-in from universities and
organizations. Many of the upfront payments are paid over a period of time, and as at June 30, 2018,
$138,276 (June 30, 2017 – $nil) of these upfront payments have been recorded in accounts payable
and accrued liabilities, as well as $75,424 (June 30, 2017 – $ nil) in long-term license payable for
payments that are due beyond a 12 month period.
11. GOVERNMENT GRANTS
Technology Start-up Support Scheme for Universities (“TSSSU”) grants
The Innovation and Technology Commission of the Government of the Hong Kong Special
Administrative Region (the “ITC”), has set up 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 $113,547 (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 $60,558 (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 $30,279 on June 8, 2015 and $34,201 December
11, 2015.
22
NOVOHEART HOLDINGS INC.
(Formerly Novoheart Holdings Limited)
Notes to Consolidated Financial Statements
Years Ended June 30, 2018 and 2017
(Expressed in Canadian dollars)
11. GOVERNMENT GRANTS (continued)
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 Pfizer. As a result, the Company has paid back $4,436 in August 2017.
The amount was included in the accounts payable and accrued liabilities as of June 30, 2017. At
June 30, 2017, $3,705 has been recognized as an adjustment to the deferred government grant
balance and $931 has been recognized as an expense for the year then ended.
The recognition of the TSSSU grants is summarized as below:
Deferred government grants - June 30, 2016
Government grant income recognized
Adjustments to TSSSU Grant
Exchange difference
2014 TSSSU
Grant
2015 TSSSU
Grant
$ 67,131 $ 24,121
(5,277)
(3,705)
61
(18,312)
-
(6)
Total TSSSU
Grants
$ 91,252
(23,589)
(3,705)
55
Deferred government grants - June 30, 2017
48,813
15,200
64,013
Government grant income recognized
Exchange difference
(17,393)
(1,221)
(4,370)
(381)
(21,763)
(1,602)
Deferred government grants - June 30, 2018
$ 30,199
$ 10,449
$ 40,648
Internship grants
On August 24, 2017 and February 13, 2018, Novoheart received two internship grants, totaling
approximately $142,540, from the ITC of Hong Kong to support the recruitment of local graduates
over a period of 24 months each. The internship grants provide financial support towards the
expansion of the R&D team in Hong Kong.
Enterprise Support Scheme (“ESS”)
Effective June 1, 2018 the Company entered into an agreement with the ITC to receive funding under
the Enterprise Support Scheme (“ESS”) as part of its Innovative and Technology Fund. This grant
was awarded to the Company to further enhance the drug screening capabilities of its proprietary
human ventricular cardiac tissue strip.
The ESS provides funding support on a matching basis for conducting research and development.
The project is estimated to have a total cost of $775,640 (HK$4,782,000). Under the agreement,
23
NOVOHEART HOLDINGS INC.
(Formerly Novoheart Holdings Limited)
Notes to Consolidated Financial Statements
Years Ended June 30, 2018 and 2017
(Expressed in Canadian dollars)
11. GOVERNMENT GRANTS (continued)
Enterprise Support Scheme (“ESS”) (continued)
the ITC will contribute up to a maximum of $387,820 (HK$2,391,000) and the Company will be
responsible for the remaining costs.
Payment from the ITC is subject to performance of the agreement by the Company to the satisfaction
of the ITC and subject to the terms and condition of the agreement. As at June 30, 2018, the
Company has not incurred any expenses pertaining to this project.
12. SHARE CAPITAL
Authorized:
Unlimited number of preferred and common shares.
Issued Common Shares and Warrants:
On July 19, 2016, Woodrose completed a non-brokered private placement of 2,914,157 units on a
consolidated basis (prior to consolidation - 10,400,000 units). Each unit consisted of one common
share and one share purchase warrant. Each common share purchase warrant entitles the holder to
purchase one additional common share until July 19, 2017. Prior to the reverse takeover transaction,
1,052,178 and 1,861,979 warrants were exercised by the holder during the year ended June 30,
2018 and 2017 respectively.
During the year ended June 30, 2017, Novoheart Holdings Limited issued 1,365 shares for total
proceeds of $2,111,050. 1,365 shares are not reflected in the statement of change in equity as the
number of shares has been revised to reflect the number of shares of Woodrose (note 6).
Concurrent with the reverse takeover transaction, the Company announced the closing of a
subscription receipt financing on September 21, 2017. The subscription receipt financing was a non-
brokered private placement offering pursuant to which the Company 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 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
Novoheart share for 24 months following completion of the transaction. The following table reflects
the continuity of warrants for the year ended June 30, 2018:
24
NOVOHEART HOLDINGS INC.
(Formerly Novoheart Holdings Limited)
Notes to Consolidated Financial Statements
Years Ended June 30, 2018 and 2017
(Expressed in Canadian dollars)
12. SHARE CAPITAL (continued)
Balance, June 30, 2017
Issued
Balance, June 30, 2018
Number of
warrants
-
972,037
972,037
Weighted average
exercise price
-
$0.50
$0.50
The following is a summary of the warrants outstanding as at June 30, 2018:
Outstanding as at June 30, 2017
Issuance of warrants
Outstanding as at June 30, 2018
Expiry date
September 27, 2017
Warrants Weighted average exercise
price
$ -
-
972,037
972,037
0.50
0.50
Weighted
average
remaining
contractual life
(in years)
Exercise Price
$ 0.50
$0.50
1.24
1.24
Warrants
outstanding
972,037
972,037
The fair values of warrants issued during the year ended June 30, 2018 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 year ended June 30, 2018 were as follows:
Risk-free interest rate
Expected life of warrants
Expected volatility
Expected dividend rate
1.53%
2 years
132.04%
0%
25
NOVOHEART HOLDINGS INC.
(Formerly Novoheart Holdings Limited)
Notes to Consolidated Financial Statements
Years Ended June 30, 2018 and 2017
(Expressed in Canadian dollars)
13. SHARE-BASED COMPENSATION
Stock options
The Company has an equity incentive plan that enables it to grant stock options and restricted share
units 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
year ended June 30, 2018:
Balance, June 30, 2017
Granted
Balance, June 30, 2018
Number of
stock options
-
4,897,098
4,897,098
Weighted average
exercise price
-
$0.49
$0.49
At June 30, 2018, 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
February 23, 2018
February 23, 2018
Number of
Options
3,548,576
480,000
175,000
520,000
173,522
Number of
Options
Exercisable
Exercise
Price
$0.50
$0.50
$0.50
$0.50
$0.50
-
-
-
-
-
Expiry Date
September 27, 2022
September 27, 2022
September 27, 2019
September 27, 2022
February 23, 2023
The weighted average contractual life remaining of all stock options as at June 30, 2018 is 4.20
years. During the year ended June 30, 2018, the Company recorded share-based payments of
$877,182 (2017 – $nil).
The fair values of options granted during the year ended June 30, 2018 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 reporting dates (in the case of options issued to non-employees) for the year ended June 30,
2018 were as follows:
26
NOVOHEART HOLDINGS INC.
(Formerly Novoheart Holdings Limited)
Notes to Consolidated Financial Statements
Years Ended June 30, 2018 and 2017
(Expressed in Canadian dollars)
13. SHARE-BASED COMPENSATION (continued)
Risk-free interest rate
Expected life of options
Expected volatility
Expected dividend rate
Restricted share unit plan
1.68-1.97%
1.0-3.5 years
103.38%-139.98%
0%
The Company has a treasury-based Restricted Share Unit Plan (the “RSU Plan”) to provide long-
term incentives to certain executives, scientific advisory board members and other key employees
and to support the objective of employee share ownership through the granting of restricted share
units (“RSUs”). There is no exercise price and no monetary payment is required from the employees
to the Company upon grant of the RSUs or upon the subsequent issuance of shares to settle the
award. The vested RSUs are settled through the issuance of common shares from treasury. Vesting
of RSUs is conditional upon the expiry of a time-based vesting period. The duration of the vesting
period and other vesting terms applicable to the grant of the RSUs are determined at the time of the
grant. Generally, RSUs vest monthly over one year, in equal amounts, from the date of grant.
The following table reflects the continuity of restricted share units for year ended June 30, 2018:
Balance, June 30, 2017
Issued
Released
Forfeited
Balance, June 30, 2018
Vested, June 30, 2018
Number of RSUs
-
2,080,000
-
-
2,080,000
130,000
Weighted Average
Grant Date Fair Value
-
$ 0.47
-
-
0.47
$ 0.51
During 2018, the Company granted 2,080,000 RSUs of which 130,000 RSUs were vested as at June
30, 2018. The RSUs granted vests equally every month over a one-year period. For the year June
30, 2018, stock-based compensation expense related to RSUs of $295,221 (2017 – $nil) was
recorded.
27
NOVOHEART HOLDINGS INC.
(Formerly Novoheart Holdings Limited)
Notes to Consolidated Financial Statements
Years Ended June 30, 2018 and 2017
(Expressed in Canadian dollars)
14. 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.
Due from related parties
Due to related parties
$ -
$ 60,684
2018
2017
$ 13,874
$ 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 $1,331,255 for the year ended June 30, 2018 (2017 –
$686,799). Compensation includes bonus payments of $504,117 which compromises of a one-off
milestone payment for successfully listing the Company as well as an annual bonus for the
achievements of the Company’s 2018 corporate goals. Share-based payments awarded to key
management amounted to $678,165 (2017 – $nil).
15. FINANCIAL INSTRUMENTS
The following table summarizes the carrying values of the Company’s financial instruments:
Financial Assets
Financial assets at amortized cost:
Cash and cash equivalents
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
28
June 30, 2018
$
June 30, 2017
$
1,595,094
615,332
-
1,319,748
602,240
13,874
1,357,713
60,684
443,183
39,554
NOVOHEART HOLDINGS INC.
(Formerly Novoheart Holdings Limited)
Notes to Consolidated Financial Statements
Years Ended June 30, 2018 and 2017
(Expressed in Canadian dollars)
15. 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.
The carrying value of cash and cash equivalent, 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 short-term nature of these instruments.
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, 2018 are as follows:
29
NOVOHEART HOLDINGS INC.
(Formerly Novoheart Holdings Limited)
Notes to Consolidated Financial Statements
Years Ended June 30, 2018 and 2017
(Expressed in Canadian dollars)
15. FINANCIAL INSTRUMENTS (continued)
Financial risk management (continued)
Liquidity risk (continued)
Accounts payable and accrued
liabilities
Total
Carrying
value
$
Contractual
Cash flows
$
Within 1
year
$
1 – 3 Years
$
1,357,713
1,357,713
1,357,713
1,357,713
1,357,713
1,357,713
-
-
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 Canadian dollars. The Company is exposed to currency risk through the
financial assets and liabilities denominated in currencies other than Canadian Dollars. The Company
currently does not use derivative instruments to hedge its exposure to the currency risk. As at June
30, 2018, the exposure of the Company’s financial assets and financial liabilities to currency risk is
summarized as follows:
(Presented in Canadian dollars)
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
USD
Denominated in
HKD
28,738
97,198
-
79,516
-
383,602
474,816
68,186
951,446
-
A 1% strengthening (weakening) of the Canadian dollars against the Hong Kong dollars and US
dollars, with other variables unchanged, would have decreased (increased) the net loss by
approximately $42,952 and $3,504 respectively.
30
NOVOHEART HOLDINGS INC.
(Formerly Novoheart Holdings Limited)
Notes to Consolidated Financial Statements
Years Ended June 30, 2018 and 2017
(Expressed in Canadian dollars)
16. 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.
17. REVENUE
On February 6, 2018, Novoheart entered into a commercial agreement with Sumocor LLC, a biotech
company based in New York City that is focused on the development of therapeutics for
cardiovascular diseases. Pursuant to the agreement, Novoheart will test Sumocor’s candidate
therapeutics in three phases on Novoheart’s MyHeart Platform of human bioengineered heart
constructs, to provide thorough pre-clinical assessment of efficacy and cardiotoxicity in the context
of human heart tissues and chambers. For the year ended June 30, 2018, Novoheart recognized
$95,124 (US$74,900) of revenue relating to Phase 1 of the commercial agreement. Phase 1 was
completed in June 2018. In addition, Novoheart has an accounts receivable balance of $97,198
(US$74,900) as at June 30, 2018, and the outstanding balance was received subsequent to year-
end.
18. EXPENSES BY NATURE
Research and development, excluding personnel costs
IP and Patent
Personnel costs
Professional and regulatory fees
Occupancy costs
Travelling expenses
Stock based compensation expenses
Office and administrative expenses
Depreciation and amortization
31
2018
2017
$ 386,483
420,399
2,870,160
1,041,270
280,144
292,154
1,172,403
383,749
399,018
$ 686,051
205,369
1,245,452
373,144
86,963
127,857
123,521
72,769
$ 7,245,780 $ 2,921,126
NOVOHEART HOLDINGS INC.
(Formerly Novoheart Holdings Limited)
Notes to Consolidated Financial Statements
Years Ended June 30, 2018 and 2017
(Expressed in Canadian dollars)
19. 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
2017. As such, the Company made no cash contributions nor incurred any research and
development expenses for the year ended June 30, 2018. No in-kind contributions from the Company
was recognized and approved by the Government during the year ended June 30, 2018. As of June
30, 2018, $433,223 (HK$2,670,921) 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.
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 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 $78,807 in 2016. As of June 30, 2018, the Company
recorded $152,610 in accounts payable and accrued liabilities. For the year ended June 30, 2018,
the Company recognized $ nil (2017 – $167,155) as research and development expenses in the
consolidated statements of loss and comprehensive loss based on the progress of the sponsored
research project.
Research agreement with Pfizer
The Company entered into research agreement with Pfizer on December 23, 2015 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 $481,571 (US$363,000) to reimburse portion of the associated costs incurred.
The agreement was completed on December 17, 2017 and as such, the Company recognized
$111,214 as other income for the year-ended June 30, 2018 (2017 - $278,111).
32
NOVOHEART HOLDINGS INC.
(Formerly Novoheart Holdings Limited)
Notes to Consolidated Financial Statements
Years Ended June 30, 2018 and 2017
(Expressed in Canadian dollars)
20. 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. Future minimum lease payments for
the lease for each of the fiscal years ending June 30 are as follows:
2019
2020
2021
Total
335,204
335,204
27,934
$ 698,342
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, the Wisconsin Alumni Research Foundation, and
iPS Academia Japan. 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: 2019 - $186,692; 2020 - $100,331; 2021
– $109,856; 2022 and thereafter - $215,268.
21. SEGMENT DISCLOSURES
The Company operates in one reporting segment. During the year ended June 30, 2018, the
Company had a single customer located in the United States which accounted for 100% of total
revenue and all of the Company’s capital assets are located in Hong Kong as at June 30, 2018.
22. INCOME TAX
The following table reconciles the expected tax expense (recovery) at the Canadian statutory income
tax rates to the amounts recognized in the consolidated statements of loss and comprehensive loss
for the years ended June 30, 2018 and 2017:
33
NOVOHEART HOLDINGS INC.
(Formerly Novoheart Holdings Limited)
Notes to Consolidated Financial Statements
Years Ended June 30, 2018 and 2017
(Expressed in Canadian dollars)
22. INCOME TAX (continued)
Net loss before tax
Statutory tax rate
Expected tax recovery
Share-based compensation
Non-cash loss on completion of reverse takeover
Non-deductible expenses
Foreign tax rate difference
Other
Change in deferred tax assets not recognized
2018
2017
$ (12,463,044)
$ (2,654,046)
26.5%
(3,302,707)
310,687
1,381,603
61,047
482,316
1,355
1,065,699
0%
-
-
-
-
(365,942)
3,269
362,673
Total tax expense (recovery)
$ -
$ -
As a result of the Transaction (see Note 1), Novoheart Holdings Inc. became the parent entity of
Novoheart Holdings Limited. Novoheart Holdings Inc. domiciles in British Columbia, Canada,
whereby Novoheart Limited domiciled in the British Virgin Islands, which resulted in a change in
statutory tax rate from 0% in 2017 to 26.5% in 2018. The statutory tax rate reflects the tax rate that
the parent company is subject to in its jurisdiction of domicile.
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, 2018 and 2017 are comprised of the following:
Tax losses
Equipment
2018
2017
$ 12,773
$ 19,011
(12,773)
(19,011)
$ -
$ -
34
NOVOHEART HOLDINGS INC.
(Formerly Novoheart Holdings Limited)
Notes to Consolidated Financial Statements
Years Ended June 30, 2018 and 2017
(Expressed in Canadian dollars)
22. INCOME TAX (continued)
The unrecognized deductible temporary differences are as follows:
2018
2017
Tax losses
$ 9,186,014
$ 3,754,925
Issuance costs
Unrecognized deductible temporary differences
388,814
$ 9,574,828
-
$ 3,754,925
As at June 30, 2018, the Company has not recognized a deferred tax asset in respect of tax losses
which may be carried forward to apply against future year income tax for Hong Kong profit tax
purposes, Canadian tax purposes, and US tax purposes, subject to the final determination by taxation
authorities. Losses in Hong Kong may be carried forward indefinitely, and the Canadian and US tax
losses expire beginning in 2038.
Tax losses carried forward – Hong Kong
Tax losses carried forward – Canada
Tax losses carried forward – US
2018
2017
$ 7,461,369
1,337,453
358,020
$ 3,754,925
-
-
35