PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
A. Directors and Senior Management
Not applicable.
B. Advisors
Not applicable.
C. Auditors
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
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ITEM 3. KEY INFORMATION
A. Selected Financial Data
The following table sets forth selected consolidated financial information for the periods indicated, prepared in
accordance with International Financial
Reporting Standards ("IFRS"). The selected consolidated financial information as at and for the years ended December 31, 2018, December 31, 2017, December 31,
2016, December 31, 2015 and December 31, 2014 has been derived from Neovasc's audited financial statements and accompanying notes.
The
selected consolidated financial information should be read in conjunction with "Management's Discussion and Analysis" and the audited financial statements and accompanying notes
contained elsewhere in this Annual Report. The selected consolidated financial information set out below may not be indicative of Neovasc's future performance.
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Year Ended December 31,
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2018
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2017
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2016
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2015
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2014
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Revenues
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$
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1,749,133
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$
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5,389,014
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$
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9,512,796
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$
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9,929,940
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14,370,667
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Loss
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(108,042,868
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)
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(22,908,721
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)
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(86,494,893
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)
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(26,730,490
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)
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(17,175,745
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)
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Basic and diluted loss per share
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(7.63
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)
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(0.28
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)
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(1.28
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)
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(0.41
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)
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(0.33
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)
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Total assets
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11,993,294
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22,206,443
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98,809,503
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61,228,394
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20,368,421
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Total long-term liabilities and damages provision
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13,384,415
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32,577,647
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111,781,096
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Cash dividend declared per share
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$
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nil
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$
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nil
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$
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nil
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$
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nil
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$
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nil
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B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
This document contains forward-looking statements regarding the Company, business,
prospects and results of operations that involve risks
and uncertainties. Neovasc's actual results could differ materially from the results that may be anticipated by such forward-looking statements and discussed elsewhere in this Annual Report. Factors
that could cause or contribute to such differences include, but are not limited to, those discussed below, as well as those discussed elsewhere in this Annual Report. If any of the following risks
occur, the Company's business, financial condition or operating results could be harmed. In that case, the trading price of the Common Shares could decline.
Investment in the Common Shares of the Company is highly speculative and involves a high degree of risk, is subject to the following specific risks among others,
and should be undertaken only by purchasers whose financial resources are sufficient to enable them to assume such risks. The Common Shares of the Company should not be purchased by persons who cannot
afford the possibility of the loss of their entire investment. Prospective purchasers should review these risks as well as other matters disclosed elsewhere in this Annual Report with their
professional advisors.
There is substantial doubt about our ability to continue as a going concern.
Our audited consolidated financial statements for the year ended December 31, 2018 were prepared under the
assumption that we
would continue our operations as a going concern. Our independent registered public accounting firm has included a "going concern" emphasis of matter paragraph in its report on our audited
consolidated financial statements as at and for the years ended December 31, 2018, 2017 and 2016. The terms of the 2017 Private Placement and the 2017 underwritten public offering
(the "2017 Public Transaction, and together with the 2017 Private Placement, the "2017 Financings") included, amongst other things, future priced
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securities,
full ratchet anti-dilution clauses and a senior convertible debt instrument secured on substantially all of the assets of the Company. These terms may make it more difficult to obtain
additional debt or equity financing in the future. As at December 31, 2018, the Company had approximately $9.2 million in cash and cash equivalents, sufficient cash to sustain operations
until approximately May 2019. After receipt of the net proceeds of approximately $4.05 million from the February 2019 Financing on February 28, 2019 and the net proceeds of
approximately $4.25 million from the March 2019 Financing on March 15, 2019, the Company expects that its cash is sufficient to sustain operations until approximately
September 2019. The Company will need to obtain additional debt or equity financing later in 2019 to fund ongoing operations. The Company can give no assurance that it will be able to raise the
additional funds needed, on terms agreeable to the Company, or at all. These circumstances indicate the existence of material uncertainty and cast substantial doubt about the Company's ability to
continue as a going concern. The audited consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The Notes issued pursuant to the 2017 Private Placement have resulted in significant dilution to our shareholders and may result in further significant dilution.
As part of the 2017 Financings, we issued certain warrants (the "2017 Warrants") and the Notes containing
so-called
full-ratchet anti-dilution provisions as well as other anti-dilution provisions. All of the 2017 Warrants have been exercised or cancelled, but these provisions may be triggered with respect to the
Notes upon any future issuance by us of Common Shares or Common Share equivalents at a price per share below the then- conversion price of the Notes, subject to some exceptions, which could result in
significant additional dilution to our shareholders. For example, as a result of the February 2019 Financing, the conversion price of the Notes was reset to $0.45. In addition, the Notes
contain future-priced conversion provisions and certain other provisions that reset the conversion price of such Notes based on the market price of the Common Shares at a future date. Such provisions
have resulted in the issuance of a large number of Common Shares because the market price for our Common Shares declined below the initial conversion and exercise prices following the 2017 Financings,
thereby putting pressure on the market price of our Common Shares and increasing the risk of further significant dilution upon subsequent conversions or exercises of the securities. For example, as of
March 19, 2019, $21,925,000 aggregate principle amount of the Notes had been converted for 19,773,718 Common Shares and $10,825,000 aggregate principle amount of the Notes remained
outstanding. To the extent that holders of the Notes
convert the Notes, the market price of our Common Shares may decrease further due to the additional dilution and selling pressure in the market. The risk of dilution from issuances of Common Shares
pursuant to conversions of the Notes may cause shareholders to sell their Common Shares, which could further contribute to any decline in the Common Share price. For a description of the 2017 Warrants
and Notes exercised and converted, respectively, and the Common Shares issued pursuant to such exercises and conversions to date, see Item 5.A "
Operating
Results Discussion of Liquidity and Capital Resources 2017 Financings
" and Item 10.A
"
Share Capital
" of this Annual Report.
We have significant additional future capital needs and there are uncertainties as to our ability to raise additional funding.
We require significant additional capital resources to expand our business, in particular the further development
of our medical
devices. Technical innovations often require substantial time and investment before we can determine commercial viability. Advancing our products, market expansion of our currently marketed products
or acquisition and development of any new products or medical devices will require considerable resources and additional access to capital markets. In addition, our future cash requirements may vary
materially from those now expected. For example, our future capital requirements may increase if:
-
-
we experience more competition for our medical devices from other medical device companies or in more markets than
anticipated;
-
-
we experience delays or unexpected increases in costs in connection with obtaining regulatory approvals for our products
in the various markets where we hope to sell our products;
-
-
we experience unexpected or increased costs relating to preparing, filing, prosecuting, maintaining, defending and
enforcing patent claims, or other lawsuits, brought by either us or our competition;
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-
-
we experience scientific progress sooner than expected in our discovery, research and development projects, if we expand
the magnitude and scope of these activities, or if we modify our focus as a result of our discoveries;
-
-
we experience setbacks in our progress with pre-clinical studies and clinical trials are delayed;
-
-
we are required to perform additional pre-clinical studies and clinical trials; or
-
-
we elect to develop, acquire or license new technologies, products or businesses.
We
could potentially seek additional funding through corporate collaborations and licensing arrangements, through public or private equity or debt financing, or through other
transactions. However, if sales are slow to increase or if capital market conditions in general, or with respect medical device companies such as ours, are unfavorable, our ability to obtain
significant additional funding on acceptable terms, if at all, will be negatively affected. Additional financing that we may pursue may involve the sale of our Common Shares or financial instruments
that are exchangeable for, or convertible into, our Common Shares which could result in significant dilution to our shareholders. Additionally, the cashless exercise, future-priced conversion
mechanism and the full-ratchet anti-dilution provisions in the Notes may make it more difficult and more expensive for us to raise capital in the future. See the risk factor entitled
"
Future-priced cashless conversion provisions and adjustment provisions in the Notes may make it more difficult and expensive for us to raise additional capital in the future
and may result in further dilution to investors.
"
If
sufficient capital is not available, we may be required to delay our business expansion or our research and development projects, either of which could have a material adverse effect
on our business, financial condition, prospects or results of operations.
Future-priced cashless conversion provisions and adjustment provisions in the Notes may make it more difficult and expensive for us to raise additional capital in the future
and may result in further dilution to investors.
The Notes include, among other things, provisions relating to future-priced conversion and may be converted on a
"net" or "cashless"
basis. Under such circumstances, holders of such Notes may, in lieu of making a cash payment when converting their Notes receive a "net" number of Common Shares determined in accordance with a formula
referred to in the Notes as the "Alternate Conversion Price", and pursuant to other terms and conditions. In addition, the Notes contain full-ratchet
anti-dilution provisions. If we are unable to raise additional capital at an effective price per Common Share that is higher than the conversion price of the Notes, the anti-dilution provisions
contained in the Notes may make it more difficult and more expensive to raise capital in the future. Any reduction in the conversion price of the Notes, or any increase in the number of Common Shares
issuable upon the conversion of the Notes, may also result in additional dilution in the per share net tangible book value of our Common Shares.
Sales of a significant number of Common Shares in the public markets, or the perception of such sales, have depressed and may continue to depress the market price of the
Common Shares.
Sales of a substantial number of Common Shares or other equity-related securities in the public markets by the
Company or its
shareholders could depress the market price of the Common Shares and impair our ability to raise capital through the sale of additional equity securities. While we cannot predict the effect that sales
of the securities issued pursuant to the 2017 Financings or other equity-related securities have on the market price of the Company's Common Shares, we believe that issuances of Common Shares upon the
exercise of 2017 Warrants and the conversion of Notes containing future-priced exercise formulae, and the sales of such Common Shares in the public markets, or the perception of such sales, have
materially impacted the market price for the Common Shares since the 2017 Financings, regardless of the performance of the Company. The price of the Common Shares could be affected by further sales of
the Common Shares issuable upon conversion of the Notes, or by hedging or arbitrage trading activity, which we expect may be occurring involving the Common Shares issuable upon conversion of
the Notes.
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The sale of Common Shares issued upon conversion of the Notes issued pursuant to the 2017 Private Placement could encourage short sales by third parties which could further
depress the price of the Common Shares.
Any downward pressure on the price of Common Shares caused by the sale of the Common Shares issued upon the
conversion of the Notes
could encourage short sales by third parties. In a short sale, a prospective seller borrows Common Shares from a shareholder or broker and sells the borrowed Common Shares. The prospective seller
hopes that the Common Share price will decline, at which time the seller can purchase Common Shares at a lower price for delivery back to the lender. The seller profits when the Common Share price
declines because it is purchasing Common Shares at a price lower than the sale price of the borrowed Common Shares. Such sales could place downward pressure on the price of our Common Shares by
increasing the number of Common Shares being sold, which could further contribute to any decline in the market price of our Common Shares.
Our Common Shares may be delisted from the Nasdaq or the TSX, which could affect their market price and liquidity. If our Common Shares were to be delisted, investors may
have difficulty in disposing of their shares.
Our Common Shares are currently listed on the Nasdaq and on the TSX under the symbol "NVCN". We must meet
continuing listing
requirements to maintain the listing of our Common Shares on the Nasdaq and the TSX. For example, for continued listing, the Nasdaq requires, among other things, that listed securities maintain a
minimum closing bid price of not less than $1.00 per share and a total market value of $35 million. On January 3, 2019, the Company received written notification (the "Market
Value Notification Letter") from the Nasdaq Listing Qualifications Department notifying the Company that it was not in compliance with the $35 million minimum market value requirement set forth
in the Nasdaq Marketplace Rules. In accordance with Nasdaq Listing Rule 5810(c)(3)(C), the Company has been provided 180 calendar days, or until July 2, 2019, to regain
compliance. To regain compliance, the market value of our listed securities must exceed $35 million for a minimum of 10 consecutive business days. On January 14, 2019, the Company
received written notification (the "Bid Price Notification Letter") from the Nasdaq Listing Qualifications Department that we were not in compliance with the $1.00 minimum bid price requirement
set forth in the Nasdaq Marketplace Rules. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have been provided 180 calendar days, or until July 15, 2019, to regain
compliance. To regain compliance, the closing bid price for our Common Shares on the Nasdaq must remain at or above $1.00 for a minimum of 10 consecutive business days. The Company intends to
monitor the market value and closing bid price of its listed securities and intends to attempt to cure these deficiencies within the prescribed grace period. The dilution from the 2017 Financings,
pressure on the share price from the future priced conversion features of the Notes, or from subsequent sales of Common Shares issued upon the conversion Notes, may continue to put downward pressure
on the price and market value of our Common Shares. If we effect a reverse stock split to regain compliance with the Nasdaq minimum bid price requirement, this would trigger a repricing under the
Notes in accordance with the provisions therein, which would result in further dilution to our shareholders.
In
addition to the specified criteria for continued listing, the Nasdaq also has broad discretionary public interest authority that it can exercise to apply additional or more stringent
criteria for the continued listing of the Common Shares, or suspend or delist securities even though the securities met all enumerated criteria for continued listing on the Nasdaq. We cannot assure
you that the Nasdaq will not exercise such discretionary authority.
There
can be no assurance that our Common Shares will remain listed on the Nasdaq or the TSX. If we fail to meet or regain compliance with any of the Nasdaq's or the TSX's continued
listing requirements, our Common Shares may be delisted. Any delisting of our Common Shares may adversely affect a shareholder's ability to dispose, or obtain quotations as to the market value, of
such shares.
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In connection with the preparation and audit of our financial statements for the year ended December 31, 2018, material weaknesses in our internal control over
financial reporting were identified, which means that a reasonable possibility exists that material misstatements in the Company's financial statements will not be prevented or detected on a
timely basis.
The Sarbanes-Oxley Act of 2002 ("SOX") and applicable Canadian securities laws require an annual assessment by
management of the
effectiveness of the Company's ICFR. The Company's management, under the supervision and with the participation of its President and Chief Executive Officer and Chief Financial Officer, conducted an
evaluation of the effectiveness of the Company's ICFR as of December 31, 2018. As a result of this evaluation, management concluded that it did not have appropriate controls in place to perform
an effective risk assessment process, to design and implement controls supported by documentation and to provide evidence that such controls were designed and operating effectively, which contributed
to a material weakness as the Company did not correctly accrue in a current period future liabilities from a non-routine agreement with a third party. A material weakness, as defined in National
Instrument 52-109 of the Canadian Securities Administrators and Rule 12b-2 under the U.S. Exchange Act, is a deficiency, or a combination of deficiencies, in ICFR, such that there
is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
In
light of the identified material weakness, the Company was unable to conclude that it had effective ICFR as of December 31, 2018 in accordance with Section 404 of SOX
and applicable Canadian securities laws. While the Company has concluded that its financial statements for the year ended December 31, 2018 fairly present in all material respects its financial
position, results of operations and cash flows for the periods presented in accordance with IFRS, the Company's inability to maintain effective ICFR could result in the loss of investor confidence in
the reliability of the Company's financial statements, which in turn could harm its business and negatively impact the trading price or the market value of its securities. The Company has commenced
taking measures, and plans to continue to take measures, to remediate this material weakness. However, the implementation of these measures may not fully address this material weakness in ICFR. In
addition, the material weakness cannot be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these
controls are operating effectively. If the Company is unable to correct this material weakness on a timely basis or to discover and address any other control deficiencies, this could result in
inaccuracies in its financial statements and could also impair its ability to comply with applicable financial reporting requirements and make related regulatory filings on a timely basis. No
evaluation can provide complete assurance that the Company's ICFR will detect or uncover all failures of persons within the Company to disclose material information otherwise required to be reported.
The effectiveness of the Company's processes, procedures and controls could also be limited by simple errors or faulty judgments. As the Company continues to expand, the challenges involved in
implementing appropriate ICFR will increase and will require that the Company continue to monitor its ICFR. Although the Company intends to expend substantial time and incur substantial costs, as
necessary, to remediate the material weakness and ensure ongoing compliance, it cannot be certain that it will be successful in complying with Section 404 of SOX and similar Canadian securities
law requirements.
Our Common Share price has experienced significant volatility and may be subject to fluctuation in the future based on market conditions or conversion of the Notes issued
pursuant to the 2017 Private Placement.
The market prices for the securities of medical companies, including our own, have historically been highly
volatile. The market has
from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of any particular company. In addition, because of the nature of our business,
certain factors such as our announcements and the public's reaction, our operating performance and the performance of competitors and other similar companies, government regulations, changes in
earnings estimates or recommendations by research analysts who track our securities or securities of other companies in the medical sector, general market conditions, announcements relating to
litigation, the arrival or departure of key personnel and the other factors listed under the heading "Cautionary Note Regarding Forward-Looking Statements" and "Risk Factors" can have an adverse
impact on the market price of the Common Shares. For example, from January 1, 2018 to March 19, 2019, the closing price of the Common Shares on the TSX has
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ranged
from a high of C$84.00 to a low of C$0.57 and from January 1, 2018 to March 19, 2019 the closing price of the Common Shares on the Nasdaq has ranged from a high of $68.02 to a low
of $0.44.
Any
negative change in the public's perception of our prospects could cause the price of our securities to decrease dramatically. Furthermore, selling pressure caused by the conversion
of the Notes issued pursuant to the 2017 Private Placement, adjustments to the conversion price of such Notes as a result of anti-dilution provisions therein or the future-priced conversion mechanism
in the Notes or otherwise, or negative change in the public's perception of the prospects of medical companies in general, could further depress the price of our securities, regardless of our
performance. Following declines in the market price of a company's securities, securities class-action litigation is often instituted. Litigation of this type, if instituted, could result in
substantial costs and a diversion of our management's attention and resources.
Certain shareholders of the Company hold significant amounts of the listed and outstanding Common Shares, or securities convertible into Common Shares, which could influence
our business operations and sales of our shares by such shareholders could influence our share price.
To the best knowledge of the Company, Hudson Bay Capital Management LP, Magnetar Financial LLC, Opko
Health, Inc.
("OPKO") and SMALLCAP World Trust Fund, Inc. each own beneficially, directly or indirectly, over 5% of the Common Shares on a diluted basis. The holdings of certain of these securityholders may
increase upon the conversion of Notes issued to them pursuant to the 2017 Private Placement. The exercise of voting rights associated with shares held by these shareholders at meetings of shareholders
may have significant influences on our business operations. If any of these major
securityholders sell their shares, it could have significant influences on our share price, depending on the market environment at the time of such sale.
Our significant indebtedness could adversely affect our financial condition, and we could have difficulty fulfilling our obligations under our indebtedness, which may have a
material adverse effect on us.
As of December 31, 2018, we had approximately $10,825,000 of senior secured indebtedness outstanding. Our
significant level of
indebtedness increases the risk that we may be unable to generate cash sufficient to pay amounts due in respect of our indebtedness. The level of our indebtedness could have other important
consequences on our business, including:
-
-
making it more difficult for us to satisfy our obligations with respect to our indebtedness;
-
-
increasing our vulnerability to adverse changes in general economic, industry, and competitive conditions;
-
-
requiring us to dedicate a significant portion of our cash flows from operations to make payments on our indebtedness,
thereby reducing the availability of our cash flows to fund working capital and other general corporate purposes;
-
-
limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which
we operate;
-
-
restricting us from capitalizing on business opportunities;
-
-
placing us at a competitive disadvantage compared to our competitors that have less debt;
-
-
limiting our ability to borrow additional funds for working capital, acquisitions, execution of our business strategy, or
other general corporate purposes; and
-
-
limiting our ability to enter into certain commercial arrangements because of concerns of counterparty risks.
The
occurrence of any one or more of these circumstances could have a material adverse effect on us. Our ability to make scheduled payments on or to refinance our indebtedness,
including on the Notes, depends on and is subject to our financial and operating performance, which in turn is affected by general and regional economic, financial, competitive, business, and other
factors (many of which are beyond our control), including the availability of financing in the international banking and capital markets. We cannot be certain that
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our
business will generate sufficient cash flows from operations or that future borrowings will be available to us in an amount sufficient to enable us to repay or refinance our debt, including the
Notes, or to fund our other liquidity needs. If we are unable to make our scheduled payments on our debt or to fund our other liquidity needs, we will need to restructure or refinance all or a portion
of our debt, including the Notes. Failure to successfully restructure or refinance our debt could cause us to default on our debt obligations and would impair our liquidity. Our ability to restructure
or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our indebtedness could be at higher interest rates and may
require us to comply with more onerous covenants that could further restrict our business operations.
Moreover,
in the event of a default, the holders of the applicable indebtedness, including holders of the Notes, could elect to declare all the funds borrowed to be due and payable. We
cannot be certain that our assets or cash flows would be sufficient to fully repay borrowings under our outstanding debt instruments if accelerated upon an event of default. In addition, the Notes are
secured by a first priority lien on all of our present and after-acquired personal property, which includes all of our assets in the U.S., Canada and Israel related to the Tiara and the Reducer, and,
upon the occurrence and continuation of any event of a default the Notes, the holders of the Notes generally would be entitled to seize the collateral. Any such event of defaults could materially and
adversely affect our results of operations and financial condition.
Third parties may claim we are infringing their intellectual property or have misappropriated their trade secrets and we could suffer significant litigation or licensing
expenses or be prevented from selling products.
We may be involved in substantial litigation regarding patent and other intellectual property and trade secret
rights in the medical
device industry. We may be subject to challenges by third parties regarding our intellectual property, including, among others, claims regarding validity, enforceability, scope and effective term.
From time to time, we have been and may in the future be forced to defend against claims and legal actions alleging infringement of the intellectual property rights of others, and such intellectual
property litigation is typically costly and time-consuming. In particular, see Item 8.A "
Consolidated Statements and Other Financial
Information Legal Proceedings
" herein for a description of certain pending and ongoing legal proceedings. Adverse determinations in any
such litigation could result in significant liabilities to third parties or injunctions, or could require us to seek licenses from third parties and, if such licenses are not available on commercially
reasonable terms, prevent us from manufacturing, selling or using certain products, any one of which could have a material adverse effect on us. In addition, some licenses may be non-exclusive, which
could provide our competitors access to the same technologies.
Third
parties could also obtain patents that may require us to either redesign products or, if possible, negotiate licenses from such third parties. Such licenses may materially
increase our expenses. If we are unable to redesign products or obtain a license, we might have to exit a particular product offering.
The
success of our business depends in part on our ability to obtain and maintain intellectual property protection for our technology and know-how, and operate without infringing the
intellectual property rights of other companies. It is possible that as a result of future litigation our products currently marketed or under development may be found to infringe or otherwise violate
third party intellectual property rights. Intellectual property litigation proceedings, if instituted against us, could result in substantial costs, inability to market our products including the
Tiara, loss of our proprietary rights and diversion of our management's and technical team's attention and resources.
The Company is subject to lawsuits that could divert its resources and result in the payment of significant damages and other remedies.
From time to time, the Company may be subject to litigation claims through the ordinary course of its business
operations or
otherwise, regarding, among other things, intellectual property rights matters, employment matters and tax matters. Litigation to defend the Company against claims by third parties, or to enforce any
rights that the Company may have against third parties, may be necessary, which could result in substantial costs and diversion of the Company's resources, causing a material adverse effect on its
business, financial condition and results of operations. Given the nature of the Company's business, it is, and may from time to time in the future be, party to various, and at times numerous, legal,
administrative and regulatory
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inquiries,
investigations, proceedings and claims that arise in the ordinary course of business, as well as potential class action lawsuits. Because the outcome of such legal matters is inherently
uncertain, if one or more of such legal matters were to be resolved against the Company for amounts in excess of management's expectations or any applicable insurance coverage or indemnification
right, the Company's results of operations and financial condition could be materially adversely affected. Any litigation to which the Company is a party may result in an onerous or unfavorable
judgment that may not be reversed upon appeal, or in payments of substantial monetary damages or fines, the posting of bonds requiring significant collateral, letters of credit or similar instruments,
or the Corporation may decide to settle lawsuits on similarly unfavorable terms. Moreover, the Company cannot be sure that the remedies available to it at law or under contract, or the indemnification
granted to it by sellers of acquired companies, will be sufficient in amount, scope or duration to fully or partially offset any such possible liabilities. Any of these factors, individually or in the
aggregate, could have a material adverse effect on the Company's business, results of operations, cash flows or liquidity. For a description of certain currently pending legal and regulatory
proceedings, see Item 8.A "
Consolidated Statements and Other Financial Information Legal Proceedings
" of
this Annual Report.
The
Company is engaged in litigation with Edwards Lifesciences CardiAQ LLC ("CardiAQ"), formerly known as CardiAQ Valve Technologies Inc., as further described below.
Litigation resulting from CardiAQ's claims has been, and is expected to continue to be, costly and time-consuming and could divert the attention of management and key personnel from our business
operations. We cannot assure that we will succeed in defending any of these claims and that further judgments will not be entered against us with respect to the litigation resulting from such claims.
If we are unsuccessful in our defense of these claims or unable to settle the claims in a manner satisfactory to us, we may be faced with significant monetary damages that could exceed our resources
and/or loss of intellectual property rights that could have a material adverse effect on the Company and its financial position.
On
June 6, 2014, Neovasc was named in a lawsuit filed by CardiAQ in the U.S. District Court for the District of Massachusetts concerning intellectual property rights
ownership, unfair trade practices and a breach of contract relating to Neovasc's transcatheter mitral valve technology, including the Tiara ("CardiAQ v. Neovasc Inc."). On May 19, 2016,
a jury awarded $70 million in favor of CardiAQ on certain trade secret claims. On October 31, 2016, a judge awarded an additional $21 million in enhanced damages to the jury's
award. On January 18, 2017, a judge granted CardiAQ's motion for pre- and post-judgment interest, all as more particularly described in Item 8.A "
Consolidated
Statements and Other Financial Information Legal Proceedings
" herein. Neovasc and CardiAQ each appealed on various grounds. The judgment
in the District of Massachusetts case, including the pre- and post- judgment interest amounts, was stayed pending completion of the appeal pursuant to a court order of December 23, 2016. Under
the terms of the stay, Neovasc deposited $70 million into a joint escrow account and entered into a general security agreement related to the remaining damages awarded by the court. On
September 1, 2017, the Appeals Court affirmed the trial court judgment against Neovasc, and denied CardiAQ's cross-appeal. On November 13, 2017, the final mandate was issued by the
Appeals Court and approximately $70 million was released from escrow to CardiAQ to partially settle approximately $112 million damages and interest awards. Upon closing of the 2017
Financings on November 17, 2017, the Company used approximately $42 million from the $65 million net proceeds of the 2017 Financings to settle the remaining damages and interest
awards.
On
June 23, 2014, CardiAQ filed a complaint against Neovasc in Munich, Germany (the "German Court") requesting that Neovasc assign its right to one of its European patent
applications to CardiAQ. After a hearing held on December 14, 2016, the German Court rendered its decision on June 16, 2017, granting co-ownership of the European patent application to
CardiAQ but denying their claim for full entitlement. There are no monetary awards associated with these matters and no damages award has been recognized. On July 14, 2017, Neovasc filed a
notice of appeal against the German Court's decision with the Appeals Court of Munich. On July 20, 2017, CardiAQ filed a notice of appeal with the same court. Both parties have in the meantime
substantiated their respective appeals. The oral hearing of the appeal before the Appeals Court of Munich was held on November 8, 2018. During that hearing CardiAQ dropped its affirmative
appeal of the underlying decision, while maintaining its opposition to Neovasc's appeal. The decision of the Appeals Court of Munich was rendered on March 21, 2019, wherein it amended
the decision of the German Court and dismissed the complaint of CardiAQ in full.
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On
March 24, 2017, CardiAQ filed a related lawsuit in the Court, asserting two claims for correction of patent inventorship as to Neovasc's U.S. Patents
Nos. 9,241,790 and 9,248,014. On October 4, 2017, CardiAQ amended its pleading to add a third claim for correction of patent inventorship as to Neovasc's U.S. Patent
No. 9,770,329. The lawsuit does not seek money damages and would not prevent the Company from practicing these patents. The Company moved to dismiss the complaint on November 16, 2017,
and the Court denied this motion on September 28, 2018. On August 3, 2018, Neovasc wrote the presiding District Judge regarding potential resolution of the case including as to a
statutory procedure available with the Patent Office concerning certain dependent claims of U.S. Patent 9,770,329 in particular, and the Court held a hearing to discuss this issue on
September 13, 2018. No other litigation schedule or deadlines have been set; the Court has stayed the case until April 15, 2019 to allow the parties to discuss a potential resolution.
Litigation is inherently uncertain. Therefore, until these matters have been resolved to their conclusion by the appropriate courts the Company cannot give any assurance as to the outcome.
On
January 22, 2019, the Company announced that pursuant to a settlement reached with Edwards Lifesciences PVT, Inc. and Edwards Lifesciences (Canada) Inc.
(collectively, the "Edwards Plaintiffs"), the patent infringement action that the Edwards Plaintiffs had previously commenced in the Federal Court of Canada against the Company, Boston Scientific and
Livanova, would be dismissed on a no-costs basis.
On
August 3, 2018, the Company announced that it had entered into a collaboration and licensing agreement (the "Penn Agreement") with Penn Medicine and the Gorman
Cardiovascular Research Group at the University of Pennsylvania (together, "Penn"), which resolved certain potential claims against the Company that had been previously disclosed. On
February 20, 2019, the Company announced that it had entered into a settlement agreement with Endovalve Inc. and Micro Interventional Devices, Inc. (collectively, "Endovalve"),
which resolved certain claims against the Company that had been previously disclosed.
The
Company intends to continue to vigorously defend itself in its ongoing litigation. The outcome of these matters is not currently determinable.
Our inability to protect our intellectual property could have a material adverse effect on our business.
Our success and competitive position are dependent in part upon our proprietary intellectual property. We rely on
a combination of
patents and trade secrets to protect our proprietary intellectual property, and we expect to continue to do so. Although we seek to protect our proprietary rights through a variety of means, we cannot
guarantee that the protective steps we have taken are adequate to protect these rights. Patents issued to or licensed by us in the past or in the future may be challenged and held invalid. The scope
of our patent claims also may vary between countries, as individual countries have distinctive patent laws. In addition, as our patents expire, we may be unsuccessful in extending their protection
through patent term extensions. The expiration of, or the failure to maintain or extend our patents, could have a material adverse effect on us.
We
also rely on confidentiality agreements with certain employees, consultants and other third parties to protect, in part, trade secrets and other proprietary information. These
agreements could be breached and we may not have adequate remedies for such a breach. In addition, others could independently develop substantially equivalent proprietary information or gain access to
our trade secrets or proprietary information.
We
may spend significant resources to enforce our intellectual property rights and such enforcement could result in litigation. Intellectual property litigation is complex and can be
expensive and time-consuming. However, our efforts in this regard may not be successful. We also may not be able to detect infringement. In addition, competitors may design around our technology or
develop competing technologies. Patent litigation can result in substantial cost and diversion of effort. Intellectual property protection may also be unavailable or limited in some foreign countries,
enabling our competitors to capture increased market position. The invalidation of key intellectual property rights or an unsuccessful outcome in lawsuits filed to protect our intellectual property
could have a material adverse effect on our financial condition, results of operations or prospects.
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Our products are continually the subject of clinical trials conducted by us, our competitors, or other third parties, the results of which may be unfavorable, or perceived
as unfavorable, and could have a material adverse effect on our business, financial condition, and results of operations.
The regulatory approval process for new products and new indications for existing products requires extensive
clinical trials and
procedures, including early clinical experiences and regulatory studies. Unfavorable or inconsistent clinical data from current or future clinical trials or procedures conducted by us, our
competitors, or third parties, or perceptions regarding this clinical data,
could adversely affect our ability to obtain necessary approvals and the market's view of our future prospects. Such clinical trials and procedures are inherently uncertain and there can be no
assurance that these trials or procedures will be completed in a timely or cost-effective manner or result in a commercially viable product. Failure to successfully complete these trials or procedures
in a timely and cost-effective manner could have a material adverse effect on our prospects. Clinical trials or procedures may experience significant setbacks even after earlier trials have shown
promising results. Further, preliminary results from clinical trials or procedures may be contradicted by subsequent clinical analysis. In addition, results from our clinical trials or procedures may
not be supported by actual long-term studies or clinical experience. If preliminary clinical results are later contradicted, or if initial results cannot be supported by actual long-term studies or
clinical experience, our business could be adversely affected. Clinical trials or procedures may be suspended or terminated by us or regulatory authorities at any time if it is believed that the trial
participants face unacceptable health risks.
A
number of companies in the medical device industry have suffered significant setbacks in advanced clinical trials, even after positive results in earlier trials. Clinical results are
frequently susceptible to varying interpretations that may delay, limit or prevent regulatory approvals. Negative or inconclusive results or adverse medical events during a clinical trial could cause
a clinical trial to be delayed, repeated or terminated. In addition, failure to construct appropriate clinical trial protocols could result in the test or control group experiencing a disproportionate
number of adverse events and could cause a clinical trial to be repeated or terminated.
Moreover,
principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and receive compensation in connection with such
services. Under certain circumstances, the Company may be required to report some of these relationships to the FDA. The FDA may conclude that a financial relationship between the Company and a
principal investigator has created a conflict of interest or otherwise affected interpretation of the study. The FDA may therefore question the integrity of the data generated at the applicable
clinical trial site and the utility of the clinical trial itself may be jeopardized. This could result in a delay in approval, or rejection, of our marketing applications by the FDA and may ultimately
lead to the denial of regulatory approval of one or more of our product candidates.
We have a history of significant losses and a significant accumulated deficit.
We may incur losses in the future and our losses may increase. We have incurred net losses in each fiscal year
since inception. In the
year ended December 31, 2018, we had a net loss of $108,042,868 and at December 31, 2018, we had an accumulated deficit of $332,735,195. We have increased our research and development
expenses in recent periods and we plan further increases in the future as cash flows allow. The planned increases in research and development expenses may result in larger losses in future periods. As
a result, we will need to generate significantly greater revenues than we have to date to achieve and maintain profitability. There can be no assurance that revenues will increase. Our business
strategies may not be successful and we may not be profitable in any future period. Our operating results have varied in the past and they may continue to fluctuate in the future. In addition, our
operating results may not follow any past trends.
We are subject to the risks associated with product liability claims, insurance and recalls.
Prior to patient use, our products undergo extensive clinical testing and are approved by the applicable
regulatory authorities.
However, despite all reasonable efforts to ensure safety, it is possible that we or our partners may sell products which are defectively manufactured or labeled, contain defective components or are
misused. Our products may also fail to meet patient expectations or produce harmful side effects. Such unexpected quality, safety or efficacy issues may be caused by a number of factors, including
manufacturing
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defects,
failure to adhere to good clinical practices, failure to adhere to good manufacturing practices, non-compliance with clinical protocols or the presence of other harmful conditions in a
clinical trial, inadequacies of product-related information conveyed to physicians or patients, or other factors or circumstances unique to the patient. Whether or not scientifically justified, such
unexpected safety or efficacy concerns can arise and may lead to product recalls, loss of or delays in market acceptance, market withdrawals, or declining sales, as well as product liability, consumer
fraud and/or other claims. Additionally, we may be exposed to product liability claims from patients in clinical trials. Such liability might result from claims made directly by consumers or by
medical device companies or others selling such products. It is impossible to predict the scope of injury or liability from such defects or unexpected reactions, or the impact on the market for such
products of any allegations of these claims, even if unsupported, or the measure of damages which might be imposed as a result of any claims or the cost of defending such claims. Substantial damage
awards and/or settlements have been handed down notably in the United States and other common law
jurisdictions against medical device companies based on claims for injuries allegedly caused by the use of their products. Although our shareholders would not
have personal liability for such damages, the expenses of litigation or settlements, or both, in connection with any such injuries or alleged injuries and the amount of any award imposed on us in
excess of existing insurance coverage, if any, may have a material adverse impact on us and on the price of our Common Shares. In addition, we may not be able to avoid significant product liability
exposure even if we take appropriate precautions, including maintaining product liability coverage (subject to deductibles and maximum payouts). Any liability that we may have as a result could have a
material adverse effect on our business, financial condition and results of operations, to the extent insurance coverage for such liability is not available. Product liability claims in the future,
regardless of their ultimate outcome, could have a material adverse effect on our reputation and on our ability to attract and retain customers for our products.
Use of our products in unapproved circumstances could expose us to liabilities.
The marketing approval from the FDA and other regulators of certain of our products are, or are expected to be,
limited to specific
indications. We are prohibited by law from marketing or promoting any unapproved use of our products. Physicians, however, in most jurisdictions, can use these products in ways or circumstances other
than those strictly within the scope of the regulatory approval. Although the product training we provide to physicians and other health care professionals is limited to
approved uses or for clinical trials, no assurance can be given that claims might not be asserted against us if our products are used in ways or for procedures that are not approved.
We have substantial competition in the medical device industry and with respect to our products.
The medical device industry is highly competitive and is characterized by extensive research and development and
rapid technological
change. Many companies, as well as research organizations, currently engage in, or have in the past engaged in, efforts related to the development of medical devices in the same therapeutic areas as
we do. Due to the size of the cardiovascular market and the large unmet medical need for products that treat cardiovascular illnesses, a number of the world's largest medical device companies are
developing, or could potentially develop, products that could compete with ours.
Many
of the companies developing competing technologies and products may have significantly greater financial resources and expertise in discovery, research and development,
manufacturing, pre-clinical studies and clinical testing, obtaining regulatory approvals and marketing than we do. Other smaller companies may also prove to be significant competitors, particularly
through collaborative arrangements with large and established companies. Academic institutions, government agencies and other public and private research organizations may also conduct research, seek
patent protection and establish collaborative arrangements for discovery, research, clinical development and marketing of products similar to ours. There is a risk that one or more of our competitors
may develop more effective or more affordable products than us and that such competitors will commercialize products that will render our medical devices obsolete. We face competition with respect to
product efficacy and safety, ease of use and adaptability to various modes of administration, acceptance by physicians, the timing and scope of regulatory approvals, availability of resources,
reimbursement coverage, price and patent positions of others. In addition, these companies and institutions also compete with us in recruiting and retaining qualified personnel. If we fail to develop
new products or enhance our existing products in the face of such strong competition, such competition could have a material adverse effect on our business, financial condition or results
of operations.
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Our approved products may not achieve or maintain expected levels of market acceptance, which could have a material adverse effect on our business, financial condition and
results of operations and could cause the market value of our securities to decline.
Even if we are able to obtain regulatory approvals for our products, the success of those products is dependent
upon achieving and
maintaining market acceptance. New medical devices that appear promising in development may fail to reach the market or may have only limited or no commercial success. Levels of market acceptance for
our products could be impacted by several factors, many of which are not within our control, including but not limited to:
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safety, efficacy, convenience and cost-effectiveness of our products compared to products of our competitors;
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scope of approved uses and marketing approval; timing of market approvals and market entry;
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difficulty in, or excessive costs to, manufacture; infringement or alleged infringement of the patents or intellectual
property rights of others;
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availability of alternative products from our competitors;
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acceptance of the price of our products; and
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ability to market our products effectively at the retail level.
In
addition, the success of any new product will depend on our ability to either successfully build our in-house sales capabilities or to secure new, or to realize the benefits of
existing arrangements with, third-party marketing or distribution partners. Seeking out, evaluating and negotiating marketing or distribution agreements may involve the commitment of substantial time
and effort and may not ultimately result in an agreement. In addition, the third-party marketing or distribution partners may not be as successful in promoting our products as we had anticipated. If
we are unable to commercialize new products successfully, whether through a failure to achieve market acceptance, a failure to build our own in-house sales capabilities, a failure to secure new
marketing partners or to realize the benefits of our arrangements with existing marketing partners, there may be a material adverse effect on our business, financial condition and results of
operations and it could cause the market value of our securities to decline.
In
addition, by the time any products are ready to be commercialized, the proposed market for these products may have changed. Our estimates of the number of patients who have received
or might have been candidates to use a specific product may not accurately reflect the true market or market prices for such products or the extent to which such products, if successfully developed,
will actually be used by patients. Our failure to successfully introduce and market our products that are under development would have a material adverse effect on our business, financial condition,
and results of operations.
If we are not able to convince public payors and hospitals to include our products on their approved product lists, our revenues may not meet expectations and our business,
results of operations and financial condition may be adversely affected.
The direct cost of implanting or using our medical devices is seldom paid by individual patients. Successful
commercialization of such
devices will depend largely upon the availability of reimbursement for the surgery and medical costs associated with the product from third-party payors. We expect that our products will be purchased
by health-care providers, clinics, and hospitals that will subsequently bill various third-party payors such as government programs and private insurance plans. These expectant payors carefully review
and increasingly challenge the prices charged for medical devices and services. Provincial government sponsored health programs in Canada and similar programs in the United States reimburse
hospitals a pre-determined fixed amount for the costs associated with a particular procedure based on the patient's discharge diagnosis and similarly reimburse the surgeon or physician based on the
procedure performed, without taking into consideration the actual costs incurred by either party or the actual cost of the device. New products are being scrutinized increasingly with respect to
whether or not they will be covered by the various health plans and at what level of reimbursement. Third-party payors may determine that our products are unnecessary, not cost-effective, too
experimental, or are primarily intended for non-approved indications.
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Our business may be materially adversely affected by new legislation, new regulatory requirements, and the continuing efforts of governmental and third-party payors to
contain or reduce the costs of healthcare through various means, including the U.S. healthcare reform legislation signed in 2010.
The government and regulatory authorities in Canada, the United States, Europe and other markets in which we
sell our products
may propose and adopt new legislation and regulatory requirements relating to medical product approval criteria and manufacturing requirements. Such legislation or regulatory requirements, or the
failure to comply with such, could adversely impact our operations and could have a material adverse effect on our business, financial condition and results of operations.
The
growth of overall healthcare costs as a percentage of gross domestic product in many countries means that governments and payors are under intense pressure to control healthcare
spending even more tightly. These pressures are particularly strong given the ongoing effects of the global economic and financial crisis, including the continuing debt crisis in certain countries in
Europe, and the risk of a similar crisis in the United States. As a result, our businesses and the healthcare industry in general are operating in an ever more challenging environment with very
significant pricing pressures. In recent years, national, federal, provincial, state, and local officials and legislators have proposed, or are reportedly considering proposing, a variety of
price-based reforms to the healthcare systems in the European Union, the United States and other countries. Some proposals include measures that would limit or eliminate payments for certain
medical procedures and treatments or subject pricing to government control. Furthermore, in certain foreign markets,
the pricing or profitability of healthcare products is subject to government controls and other measures that have been prepared by legislators and government officials. While we cannot predict
whether any such legislative or regulatory proposals or reforms will be adopted, the adoption of any such proposals or reforms could adversely affect the commercial viability of our existing and
potential products.
In
March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the "ACA") was enacted. The
ACA imposed new taxes on medical device makers in the form of a 2.3% excise tax on all U.S. medical device sales. In 2015, Congress imposed a 2-year moratorium on this medical device tax, so
that medical device sales during the period between January 1, 2016 and December 31, 2017 are exempt from the tax. New legislation was passed in January 2018 such that the tax
will be delayed until January 1, 2020. The device tax, if reinstated, could materially and adversely affect our business, cash flows and results of operations. The ACA also focuses on a number
of Medicare provisions aimed at improving quality and decreasing costs. It is uncertain at this point what negative unintended consequences these provisions will have on patient access to new
technologies. The Medicare provisions include value-based payment programs, increased funding of comparative effectiveness research, reduced hospital payments for avoidable readmissions and hospital
acquired conditions, and pilot programs to evaluate alternative payment methodologies that promote care coordination (such as bundled physician and hospital payments). Additionally, the ACA includes a
reduction in the annual rate of inflation for Medicare payments to hospitals and the establishment of an independent payment advisory board to recommend ways of reducing the rate of growth in Medicare
spending. Other legislative changes have been proposed and adopted since the ACA was enacted. These changes included an aggregate reduction in Medicare payments to providers of up to 2% per fiscal
year, which went into effect on April 1, 2013 and will remain in effect through 2025 unless additional Congressional action is taken. In addition, the Medicare Access and CHIP Reauthorization
Act of 2015, enacted on April 16, 2015, repealed the formula by which Medicare made annual payment adjustments to physicians and replaced the former formula with fixed annual updates and a new
system of incentive payments scheduled to begin in 2019 that are based on various performance measures and physicians' participation in alternative payment models such as accountable care
organizations. Individual states in the U.S. have also become increasingly aggressive in passing legislation and implementing regulations designed to control product pricing, including price or
patient reimbursement constraints and discounts, and require marketing cost disclosure and transparency measures. There have also been judicial and congressional challenges to certain aspects of the
ACA, as well as efforts by the U.S. administration to modify, repeal, or otherwise invalidate all, or certain provisions of, the ACA. Since January 2017, the U.S. President has
signed Executive Orders designed to delay the implementation of certain provisions of the ACA or otherwise circumvent some of the requirements for health insurance mandated by the ACA. The current
U.S. administration has also announced that it will discontinue the payment of cost-sharing reduction ("CSR") payments to insurance companies. A bipartisan bill
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to
appropriate funds for CSR payments has been introduced in the Senate, but the future of that bill is uncertain. In addition, CMS has recently proposed regulations that would give states greater
flexibility in setting benchmarks for insurers in the individual and small group marketplaces, which may have the effect of relaxing the essential health benefits required under the ACA for plans sold
through such marketplaces. Because of the Tax Cuts and Jobs Act enacted on December 22, 2017, the ACA's individual mandate penalty for not having health insurance coverage went effective on
January 1, 2019. Further, each chamber of Congress has put forth multiple bills designed to repeal or repeal and replace portions of the ACA. Although the majority of these measures have not
been enacted by Congress to date, Congress will likely continue to consider other legislation to repeal or repeal and replace elements of the ACA. Any regulatory or legislative developments in
domestic or foreign markets that eliminate or reduce reimbursement rates for
procedures performed with our products could harm our ability to sell our products or cause downward pressure on the prices of our products, either of which would adversely affect our business,
financial condition and results of operations.
Our industry is the subject of numerous governmental investigations into marketing and other business practices. These investigations could result in the commencement of
civil and/or criminal proceedings, substantial fines, penalties, and/or administrative remedies, divert the attention of our management, and have an adverse effect on our financial condition and
results of operations.
Our industry is the subject of numerous governmental investigations into marketing and other business practices.
This has included
increased regulation, enforcement, inspections, and governmental investigations of the medical device industry and disclosure of financial relationships with health care professionals. In the
United States, the laws in which we are subject to include:
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the federal Anti-Kickback Statute is a criminal statute that prohibits, among other things, soliciting, receiving,
offering or providing remuneration intended to induce the purchase or recommendation of an item or service reimbursable under a federal healthcare program, such as the Medicare or Medicaid programs.
This statute has been interpreted broadly to apply to a number of practices by manufacturers in the medical device industry, manufacturer marketing practices, educational programs, pricing policies
and relationships with healthcare providers. A person or entity does not need to have actual knowledge of this statute or specific intent to violate it to have committed a violation;
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federal civil and criminal false claims laws and civil monetary penalty laws, including civil whistleblower or qui tam
actions that prohibit, among other things, knowingly presenting, or causing to be presented, claims for payment or approval to the federal government that are false or fraudulent, knowingly making a
false statement material to an obligation to pay or transmit money or property to the federal government or knowingly concealing or knowingly and improperly avoiding or decreasing an obligation to pay
or transmit money or property to the federal government. The government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes
a false or fraudulent claim for purposes of the false claims statutes;
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the federal Health Insurance Portability and Accountability Act of 1996 ("HIPAA"), and its implementing regulations, which
created federal criminal laws that prohibit, among other things, executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;
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HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, also imposes certain
regulatory and contractual requirements regarding the privacy, security and transmission of individually identifiable health information;
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federal "sunshine" requirements imposed by the Patient Protection and Affordable Care Act, as amended by the Health Care
and Education Reconciliation Act, on device manufacturers regarding any "transfer of value" made or distributed to physicians and teaching hospitals; and
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state and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws that may
apply to items or services reimbursed by any third-party payor, including
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commercial
insurers; state laws that require device companies to comply with the industry's voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government
or otherwise restrict payments that may be made to healthcare providers; state laws that require device manufacturers to report information related to payments and other transfers of value to
physicians and other healthcare providers or marketing expenditures; and state laws governing the privacy and security of certain health information, many of which differ from each other in
significant ways and often are not pre-empted by HIPAA.
Because
of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available under such laws, it is possible that some of our business activities,
including certain sales and marketing practices and financial arrangements with physicians, could be subject to challenge under one or more of such laws. Any action against us, even if we successfully
defend against it, could result in the commencement of civil and/or criminal proceedings, exclusion from governmental health care programs, substantial fines, penalties, and/or administrative
remedies, divert the attention of our management, and have an adverse effect on our financial condition and results of operations. We anticipate that the government will continue to scrutinize our
industry closely, and that additional regulation by governmental authorities, both foreign and domestic, may increase compliance costs, exposure to litigation and other adverse effects to
our operations.
Our products are subject to extensive regulation, which can be costly and time consuming, cause unanticipated delays, or prevent the receipt of the required approvals to
commercialize products.
The pre-clinical and clinical trials of any products developed by us and the manufacturing, labeling, sale,
distribution, export or
import, marketing, advertising and promotion of any of those products are subject to rigorous regulation by federal, provincial, state and local governmental authorities. Our medical devices are
principally regulated in the United States by the FDA, in Canada by the Health Canada (particularly, the Therapeutic Products Directorate), in the European Union by the European Medicines
Agency ("EMA"), and by other similar regulatory authorities in other jurisdictions. Government regulation substantially increases the cost and risk of researching, developing, manufacturing and
selling products. Following several widely-publicized issues in recent years, the FDA and similar regulatory authorities in other jurisdictions have become increasingly focused on product safety. This
development has led to requests for more clinical trial data, for the inclusion of a significantly higher number of patients in clinical trials and for more detailed analysis of trial results.
Consequently, the process of obtaining regulatory approvals, particularly from the FDA, has become more costly, time consuming and challenging than in the past. Any product developed by us or our
future collaborative partners, if any, must receive all relevant regulatory approvals or clearances from the applicable regulatory authorities before it may be marketed and sold in a particular
country.
Any of our products that receive regulatory approval could be subject to extensive post-market regulation that can affect sales, marketing and profitability.
With respect to any products for which we obtain regulatory approval, we will be subject to post-marketing
regulatory obligations,
including the requirements by the FDA, EMA and similar agencies in other jurisdictions to maintain records regarding product safety and to report to regulatory authorities serious or unexpected
adverse events. The occurrence of unanticipated serious adverse events or other safety problems could cause the governing agencies to impose significant restrictions on the indicated uses for which
the product may be marketed, impose other restrictions on the distribution or sale of the product or require potentially costly post-approval studies. In addition, post-market discovery of previously
unknown safety problems or increased severity or significance of a pre-existing safety signal could result in withdrawal of the product from the market and product recalls. Compliance with extensive
post-marketing record keeping and reporting requirements requires a significant commitment of time and funds, which may limit our ability to successfully commercialize approved products.
Our industry is subject to health and safety risks.
We produce products for human implantation and use. While we take substantial precautions such as laboratory and
clinical testing,
clinical studies, quality control and assurance testing and controlled production methods, the associated health and safety risks cannot be eliminated. Our products may be found to be, or to
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contain
substances that are harmful to the health of our patients and customers and which, in extreme cases, may cause serious health conditions or death. This sort of finding may expose us to
substantial risk of litigation and liability.
Further,
we could be forced to discontinue production of certain products, which would harm our profitability. Neovasc maintains product liability insurance coverage; however, there is
no guarantee that our current coverage will be sufficient or that we can secure insurance coverage in the future at commercially viable rates or with the appropriate limits.
We may face risks associated with our manufacturing operations.
Manufacturing operations are subject to numerous unanticipated technological problems and delays. Our
manufacturing processes,
products and their various components are, and will be, subject to regulations specified by the various regulatory bodies such as Health Canada and the FDA. There can be no assurance that we will be
able to comply with all stated manufacturing regulations. Failure or delay by the Company to comply with such regulations or to satisfy regulatory inspections could have an adverse effect on the
Company's business and operations.
Additionally,
two critical components of the Reducer are not readily available. The balloon portion of the delivery system is technically challenging to manufacture and the Reducer
device, while a basic technology, must be manufactured in Israel due to restrictions on the transfer of intellectual property and manufacturing out of Israel stemming from certain research grants
received by Neovasc Medical Ltd. ("NML") prior to the acquisition in July 2008.
Use of our products may increase the risk of animal disease.
Our critical raw material used in most of our customers' devices is animal derived pericardial tissue. As this raw
material is derived
from an animal, it is subject to many inconsistencies and potential risks. The most notable risk is the disease Bovine Spongiform Encephalopathy ("BSE"), also known as mad cow disease which can arise
from bovine tissue. Although the tissue originates from the United States where strict controls are in place to prevent diseased animals from being processed, it cannot be assured that the
livestock in the United States will remain free from BSE. There is also no assurance that our supplier will regularly deliver tissue with the specifications required to manufacture
its products.
The manufacture of our products is highly regulated and complex and we may experience supply interruptions that could harm our ability to manufacture products.
We use a broad range of raw and organic materials and other items in the design and manufacture of our products.
Our products are
manufactured from treated natural animal tissue and man-made materials. Our non-implantable products are manufactured from man-made raw materials including resins, chemicals, electronics and metals.
We purchase certain of the materials and components used in the manufacture of our products from external suppliers, and we purchase certain supplies from single sources for reasons of quality
assurance, cost-effectiveness, availability or constraints resulting from regulatory requirements. General economic conditions could adversely affect the financial viability of our suppliers,
resulting in their inability to provide materials and components used in the manufacture of our products. While we work closely with suppliers to monitor their financial viability and to assure
continuity of supply and maintain high quality and reliability, these efforts may not be successful. In addition, due to the rigorous regulations and requirements of regulatory authorities regarding
the manufacture of our products (including the need for approval of any change in supply arrangements), we may have difficulty establishing additional or replacement sources on a timely basis or at
all if the need arises. Although alternative supplier options are considered and identified, we typically do not pursue regulatory qualification of alternative sources due to the strength of our
existing supplier relationships and the time and expense associated with the regulatory validation process. A change in suppliers could require significant effort or investment in circumstances where
the items supplied are integral to product performance or incorporate unique technology, and the loss of any existing supply contract could have a material adverse effect on us.
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In particular, the Tiara valve is made up of two major components: the leaflets and skirt, which are made from the
Peripatch and the nitinol frame, which is
manufactured by a well-established specialty manufacturer in the medical device industry. However, if this supplier were unable to provide the nitinol frame in the future, it would seriously impact
the further development of the Tiara.
Regulatory
agencies from time to time have limited or banned the use of certain materials used in the manufacture of medical device products. In these circumstances, transition periods
typically provide time to arrange for alternative materials.
We are dependent on limited products for substantially all of our current revenues. If the volume or price of these products decline or the costs of related manufacturing,
distribution or marketing increase, it could have a material adverse effect on our business, financial condition and results of operations and could cause the market value of our securities
to decline.
Sales of a limited number of our products represent substantially all of our current revenues. If the volume or
pricing of our
existing significant products decline in the future, or our cost to manufacture, distribute our existing significant products increase in the future, our market our business, financial condition and
results of operations could be materially adversely affected and this could cause the market value of our securities to decline. In addition, if these products were to become subject to any other
issues, such as material adverse changes in prescription growth rates, unexpected side effects, regulatory proceedings, material product liability litigation, publicity affecting doctor or patient
confidence or pressure from competitive products, the adverse impact on our business, financial condition, results of operations and the market value of our securities could be significant.
We may face exposure to adverse movements in foreign currency exchange rates.
Our business has expanded internationally and as a result, a significant portion of our revenues, expenses,
current assets and current
liabilities are preliminary denominated in U.S. dollars, Euros and other foreign currencies. Up until September 30, 2017, the functional currency of Neovasc and its subsidiaries was the
Canadian dollar and the presentation currency of our financial statements was U.S. dollars. A decrease in the value of such foreign currencies relative to the Canadian dollar could result in
losses in revenues from currency exchange rate fluctuations. To date, we have not hedged against risks associated with foreign exchange rate exposure. Effective on October 1, 2017, the
functional and reporting currency of Neovasc and its subsidiaries is the U.S. dollar. A decrease in the value of such foreign currencies relative to the U.S. dollar could result in
losses in revenues from currency exchange rate fluctuations. We continue not to hedge against risks associated with foreign exchange rate exposure.
If we were to lose our foreign private issuer status under U.S. federal securities laws, we would likely incur additional expenses associated with compliance with the
U.S. securities laws applicable to U.S. domestic issuers.
As a foreign private issuer, as defined in Rule 3b-4 under the Securities Exchange Act of 1934, as amended,
we are exempt from
certain of the provisions of the U.S. federal securities laws. For example, the U.S. proxy rules and the Section 16 reporting and "short swing" profit rules do not apply to
foreign private issuers. However, if we were to lose our status as a foreign private issuer, these regulations would immediately apply and we would also be required to commence reporting on forms
required of U.S. companies, such as Forms 10-K, 10-Q and 8-K, rather than the forms currently available to us, such as Forms 20-F and 6-K. Compliance with these
additional disclosure and timing requirements under these securities laws would likely result in increased expenses and would require our management to devote substantial time and resources to comply
with new regulatory requirements. Further, to the extent that we were to offer or sell our securities outside of the United States, we would have to comply with the more restrictive
Regulation S requirements that apply to U.S. companies, which could limit our ability to access the capital markets in the future.
There may be adverse U.S. federal income tax consequences for investors if we are or become a "passive foreign investment company" under the U.S. Internal
Revenue Code.
Although we do not currently anticipate that we will be treated as a "passive foreign investment company" ("PFIC")
in the current
taxable year or in the foreseeable future, the determination as to whether we
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are
a PFIC for any taxable year is based on the application of complex U.S. federal income tax rules, which are subject to differing interpretations, and is not determinable until after the end
of such taxable year. Further, the determination is based in part on the mix, use and value of our assets, which values may be treated as changing for U.S. federal income tax purposes as our
market capitalization changes. Because of the above described uncertainties, there can be no assurance that the U.S. Internal Revenue Service ("IRS") will not challenge the determination made
by us concerning our PFIC status or that we will not be a PFIC for any taxable year. Investors should read "U.S. Federal Income Tax Considerations" for more information, and consult their own
tax advisors regarding the application of the PFIC rules to their particular circumstances.
Failure to comply with the U.S. Foreign Corrupt Practices Act (the "FCPA"), as well as the anti-bribery laws of the nations in which we conduct business (such
as the UK's Bribery Act or the Corruption of Foreign Public Officials Act of Canada (the "CFPOA"), could subject us to penalties and other adverse consequences.
Our business is subject to the FCPA which generally prohibits companies and company employees from engaging in
bribery or other
prohibited payments to foreign officials for the purpose of obtaining or retaining business. The FCPA also requires companies to maintain accurate books and records and internal controls, including at
foreign-controlled subsidiaries. In addition, we are subject to other anti-bribery laws of the nations in which we conduct business that apply similar prohibitions as the FCPA (e.g., the UK's
Bribery Act, the CFPOA and the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions). Our employees or other agents may, without our knowledge and despite
our efforts, engage in prohibited conduct under our policies and procedures and the FCPA or other anti-bribery laws that we may be subject to for which we may be held responsible. If our employees or
other agents are found to have engaged in such practices, we could suffer severe penalties and other consequences that may have a material adverse effect on our business, financial condition and
results of operations.
Legislative actions, potential new accounting pronouncements, and higher insurance costs are likely to impact our future financial position or results of operations.
Future changes in financial accounting standards may cause adverse, unexpected revenue fluctuations and affect our
financial position
or results of operations. New pronouncements and varying interpretations of pronouncements have occurred with greater frequency and are expected to occur in the future. Compliance with changing
regulations of corporate governance and public disclosure may result in additional expenses. All of these uncertainties are leading generally toward increasing insurance costs, which may adversely
affect our business, results of operations and our ability to purchase any such insurance, at acceptable rates or at all, in the future.
We are dependent upon our key personnel to achieve our business objectives.
As a technology-driven company, intellectual input from key management and personnel is critical to achieve our
business objectives.
Consequently, our ability to retain these individuals and attract other qualified individuals is critical to our success. The loss of the services of key individuals might significantly delay or
prevent achievement of our business objectives. In addition, because of a relative scarcity of individuals with the high degree of education and scientific achievement required for our business,
competition among medical device companies for qualified employees is intense and, as a result, we may not be able to attract and retain such individuals on acceptable terms, or at all. We do not
maintain "key person" life insurance on any of our officers, employees, or consultants, and so any delay in replacing such persons, or an inability to replace them with persons of similar expertise,
would have a material adverse effect on our business, financial condition and results of operations.
We
also have relationships with scientific collaborators at academic and other institutions, some of whom conduct research at our request or assist us in formulating our research and
development strategies. These scientific collaborators are not our employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to
us. In addition, even though our collaborators are required to sign confidentiality agreements prior to working with us, they may have arrangements with other companies to assist such other companies
in developing technologies that may prove competitive to us.
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Incentive
provisions for our key executives include the granting of stock options that vest over time, designed to encourage such individuals to stay with us. However, a low share
price, whether as a result of disappointing progress in our sales or development programs or as a result of market conditions generally, could render such agreements of little value to our key
executives. In such event, our key executives could be susceptible to being hired away by our competitors who could offer a better compensation package. If we are unable to attract and retain key
personnel our business, financial conditions and results of operations may be adversely affected.
The continuing development of many of our products depends upon us maintaining strong relationships with physicians.
If we fail to maintain our working relationships with physicians, many of our products may not be developed and
marketed in line with
the needs and expectations of the professionals who use and support our products, which could cause a decline in our earnings and profitability. The research, development, marketing, and sales of our
new and improved products is dependent upon our maintaining working relationships with physicians. We rely on these professionals to provide us with considerable knowledge and experience regarding the
development, marketing, and sale of our products. Physicians assist us as researchers, marketing and product consultants, inventors, and public speakers. If we are unable to maintain our strong
relationships with these professionals and continue to receive their advice and input, the development and marketing of our products could suffer, which could have a material adverse effect on our
consolidated earnings, financial condition, and/or cash flows.
A period of significant growth or significant decline can place a strain on management systems.
If we experience a period of significant growth or decline in the number of personnel, this could place a strain
upon its management
systems and resources. Our future will depend in part on the ability of its officers and other key employees to implement and improve its financial and management controls, reporting systems and
procedures on a timely basis and to expand or contract, train and manage its employee workforce. There can be no assurance that we will be able to effectively manage such growth or contraction. Our
failure to do so could have a material adverse effect upon our business, prospects, results of operation and financial condition.
Consolidation in the health care industry could have an adverse effect on our revenues and results of operations.
Many health care industry companies, including health care systems, are consolidating to create new companies with
greater market
power. Organizations such as group purchase organizations, independent delivery networks, and large single accounts such as the U.S. Veterans Administration, continue to consolidate purchasing
decisions for many of our health care provider customers. As a result, transactions with customers are larger, more complex, and tend to involve more long-term contracts. The purchasing power of these
larger customers has increased, and may continue to increase, causing downward pressure on product pricing. If we are not one of the providers selected by one of these organizations, we may be
precluded from making sales to its members or participants. Even if we are one of the selected providers, we may be at a disadvantage relative to other selected providers that are able to offer volume
discounts based on purchases of a broader range of medical equipment and supplies. Further, we may be required to commit to pricing that has a material adverse effect on our revenues and profit
margins, business, financial condition and results of operations. We expect that market demand, governmental regulation, third-party reimbursement policies and societal pressures will continue to
change the worldwide health care industry, resulting in further business consolidations and alliances, which may exert further
downward pressure on the prices of our products and could adversely impact our business, financial condition, and results of operations.
We may or may not successfully identify and complete corporate transactions on favorable terms or achieve anticipated synergies relating to any acquisitions or alliances,
and such acquisitions could result in unforeseen operating difficulties and expenditures, require significant management resources and require significant charges.
As a part of our growth strategy, we regularly explore potential acquisitions of complementary businesses,
technologies, services or
products as well as potential strategic alliances or divestitures of assets or a sale of the Company. We may be unable to find suitable acquisition candidates or appropriate partners with
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which
to form alliances. Even if we identify appropriate acquisition or alliance candidates, we may be unable to complete the acquisitions or alliances on favorable terms, if at all. Acquisition
activities can be thwarted by overtures from competitors for the targeted candidates, government regulation and replacement product developments in our industry. In addition, the process of
integrating an acquired business, technology, service or product into our existing operations could result in unforeseen difficulties and expenditures. Integration of an acquired company often
requires significant expenditures as well as significant management resources that otherwise would be available for ongoing development of our other businesses. Moreover, we may not realize the
anticipated financial or other benefits of an acquisition or alliance.
We
may be required to take charges or write-downs in connection with acquisitions. In particular, acquisitions of businesses engaged in the development of new products may give rise to
in-process research and development assets. To the extent that the value of these assets declines, we may be required to write down the value of the assets. Also, in connection with certain asset
acquisitions, we may be required to take an immediate charge related to acquired in-process research and development. Either of these situations could result in substantial charges, which could
adversely affect our results of operations.
Future
acquisitions could also involve the issuance of equity securities, the incurrence of debt, contingent liabilities or amortization of expenses related to other intangible assets,
any of which could adversely impact our financial condition or results of operations. In addition, equity or debt financing required for such acquisitions may not be available.
Any
corporate transaction will be accompanied by certain risks including but not limited to:
-
-
exposure to unknown liabilities of acquired companies and the unknown issues with any associated technologies
or research;
-
-
higher than anticipated acquisition costs and expenses;
-
-
exposure to other companies' shares that shareholders could receive as consideration for our shares in a corporate
transaction;
-
-
the difficulty and expense of integrating operations, systems, and personnel of acquired companies;
-
-
disruption of our ongoing business;
-
-
inability to retain key customers, distributors, vendors and other business partners of the acquired company; and
-
-
diversion of management's time and attention.
We
may not be able to successfully overcome these risks and other problems associated with acquisitions and this may adversely affect our business, financial condition or results
of operations.
The Notes issued pursuant to the 2017 Private Placement contain provisions that restrict the Company's ability to enter into Fundamental Transactions.
The Notes issued pursuant to the 2017 Private Placement contain provisions that restrict the Company's ability to
enter into a
transaction whereby (i) the Company or any of its subsidiaries, (1) consolidate or merge with any other person, (2) sell, lease, license, assign, transfer, convey or
otherwise dispose of all or substantially all of its respective properties or assets to any other person, (3) allow any other person to make a purchase, tender or exchange offer that is
accepted by the holders of more than 50% of the outstanding Common Shares of the Company, (4) consummate share purchase agreement or other business combination with any other person whereby
such other person acquires more than 50% of the outstanding Common Shares of the Company, (5) reorganize, recapitalize or reclassify the Common Shares of the Company, (ii) any "person"
or "group" is or shall become the "beneficial owner" of 50% of the aggregate ordinary voting power represented by issued and outstanding Common Shares of the Company, or (iii) any transaction
or series of related transactions which, directly or indirectly, could result in the issuance of Common Shares of the Company or convertible securities or the entering into any other agreement
structured in a manner to circumvent, or that circumvents, the intent of this definition (each a "Fundamental Transaction"), unless (i) the successor entity
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assumes
in writing all of the obligations of the Company under the Notes and other transaction documents, including entering into agreements to deliver to the holder in exchange for the Notes a
security of the successor entity evidenced by a written instrument substantially similar in form and substance to the Notes; and (ii) the successor entity is a publicly traded corporation
listed on The New York Stock Exchange, the NYSE American, the Nasdaq Global Select Market, the Nasdaq Global Market, the OTCQB or the Nasdaq (the "Eligible Markets"). These provisions
may impact the Company's ability to effect a transaction that it believes is in the best interest of the stakeholders, including a transaction with a foreign acquirer that is not listed on an Eligible
Market.
Anti-takeover provisions could discourage a third party from making a takeover offer that could be beneficial to our shareholders.
Some of the provisions in our articles of incorporation and by-laws could delay or prevent a third party from
acquiring us or
replacing members of our board of directors, even if the acquisition or the replacements would be beneficial to our shareholders. Such provisions include
the following:
-
-
shareholders cannot amend our articles of incorporation unless at least two-thirds of the shares entitled to vote approve
the amendment; and
-
-
our board of directors can, without shareholder approval, issue preferred shares having any terms, conditions, rights and
preferences that the board determines.
These
provisions could also reduce the price that certain investors might be willing to pay for our securities and result in the market price for our securities, including the market
price for our Common Shares, being lower than it would be without these provisions.
ITEM 4. INFORMATION ON THE COMPANY
A. History and development of the Company
1.
Name, Address and Incorporation; Trading Market
The
Company was incorporated under the name "Medical Ventures Inc." pursuant to the
Business Corporations Act
(British Columbia)
on November 2, 2000 and was continued to federal jurisdiction under the Canada Business Corporations Act on April 19, 2002. On July 1, 2008, the Company completed the acquisition
of two Israel-based vascular device development companies, concurrently raising C$8.3 million in equity financing in a non-brokered private placement, completing a 20 for 1 share
consolidation and changing its name from Medical Ventures Inc. to "Neovasc Inc."
The
Company's registered and records office is located at Suite 2600, 595 Burrard Street, Three Bentall Center, Vancouver, British Columbia, V7X 1L3, telephone
number (604) 270-4344. The Company's head office and principal place of business is located at Suite 5138 13562 Maycrest Way, Richmond,
British Columbia, V6V 2J7.
The
Company has been trading its Common Shares under the symbol "NVCN" on the Nasdaq since May 21, 2014 and on the TSX since March 13, 2017. Prior to that, the Company's
Common Shares traded under the symbol "NVC" on the TSX beginning on June 23, 2014.
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2.
Summary Corporate History and Intercorporate
Relationships
Intercorporate Relationships
The Company has the following seven wholly-owned subsidiaries:
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|
|
|
|
Name:
|
|
Date of Incorporation:
|
|
Jurisdiction of Incorporation:
|
Neovasc Medical Inc. (formerly PM Devices Inc.)
|
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May 7, 1998
|
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British Columbia
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Neovasc Tiara Inc.
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March 11, 2013
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Canada (federal)
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Neovasc Medical Ltd.
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September 9, 2002
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Israel
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Neovasc (US) Inc. (formerly Medical Ventures (US) Inc.)
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July 2, 2007
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United States
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B-Balloon Ltd.
(1)
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March 30, 2004
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Israel
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Neovasc GmbH
|
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August 14, 2017
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Germany
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Neovasc Management Inc.
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January 23, 2018
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United States
|
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(1)
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B-Balloon Ltd.
is in the process of being voluntarily wound up.
Overview
Neovasc is a specialty medical device company that develops, manufactures and markets products for the rapidly
growing cardiovascular
marketplace. Its products include the Tiara technology in development for the transcatheter treatment of mitral valve disease and the Reducer for the treatment of refractory angina.
Neovasc's
business operations started in March 2002, with the acquisition of Neovasc Medical Inc. ("NMI") (formerly PM Devices Inc.). NMI manufactured a line of
collagen based surgical patch products. The products are made from chemically treated pericardial tissue. In 2012, the Company sold the rights to the surgical patch products to LeMaitre
Vascular, Inc. ("LeMaitre"), but retained rights to the underlying tissue technology for all other uses.
In
May 2003, Neovasc acquired Angiometrx Inc. ("ANG"). ANG developed a technology called the Metricath, a catheter-based device that allowed clinicians to measure artery
and stent size and confirm deployment during interventional treatment of coronary and peripheral artery disease. In 2009, Neovasc ceased all activities related to Metricath and on January 1,
2015 ANG was amalgamated into NMI.
In
July 2008, Neovasc acquired two pre-commercial vascular device companies based in Israel: NML and B-Balloon Ltd. ("BBL"). NML developed and owned
intellectual property related to the Reducer, a novel catheter-based treatment for refractory angina, a debilitating condition resulting from inadequate blood flow to the heart muscle. In 2009,
Neovasc ceased all activities related to BBL's technologies and is in the process of voluntarily liquidating BBL.
In
late 2009, Neovasc started initial activities to develop novel technologies for the catheter-based treatment of mitral valve disease. Based on the positive results of these
activities, the Company launched a program to develop the Tiara transcatheter mitral valve.
In
late 2016, Neovasc sold its tissue processing technology and facility for $67,909,800 to Boston Scientific, and concurrently, Boston Scientific invested an additional $7,090,200 in
Neovasc for a 15% equity interest in the Company. Under the terms of the equity investment, Boston Scientific purchased 11,817,000 common shares of Neovasc at a price of $0.60 per common share,
for gross proceeds of $7,090,200. Under the terms of the asset purchase agreement, Neovasc has been granted a license to the purchased assets and access to the sold facilities to allow it to continue
its tissue and valve assembly activities for its remaining customers, and continue its own tissue-related programs, including advancing the Tiara through its clinical and regulatory pathways.
Additionally,
throughout the years 2014 to 2017, the Company announced a number of developments pertaining to litigation, all as more fully discussed under Item 8.A
"
Consolidated Statements and Other Financial Information Legal Proceedings
".
In
November 2017, Neovasc completed the 2017 Financings, comprising the 2017 Public Transaction and the 2017 Private Placement, for aggregate gross proceeds of approximately
$65 million. The Company used
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the
net proceeds of the 2017 Financings to fully fund the approximately $42 million balance of the damages and interest awards in its litigation with CardiAQ (after subtracting the
approximately $70 million that the Company had paid into escrow), with remaining funds being used (i) to partially fund the ongoing Tiara clinical program; (ii) to support the
completion of the TIARA-II study; and (iii) for general corporate purposes. The only securities issued pursuant to the 2017 Financings that remain outstanding are $10,825,000 aggregate
principal amount of the Notes. For a description of the terms of the 2017 Financings and the securities issued pursuant to the 2017 Financings, see Items 5.A "
Operating
and Financial Review and Prospects Discussion of Liquidity and Capital Resources
" and 10.A "
Share
Capital
" herein, and the prospectus supplement, dated November 10, 2017 (the "Prospectus Supplement") and the forms of securities, each as filed or furnished
under the Company's profiles on SEDAR at www.sedar.com and on the SEC's website at www.sec.gov.
The
Company and its subsidiaries now operate as follows: Neovasc Inc. is the Canadian public company and 100% owner of each of the subsidiary entities. NMI and Neovasc
(US) Inc. ("NUS") are the operating companies for the group. They hold the majority of the tangible assets and NMI holds the Peripatch tissue license. NMI and NUS employ the majority of the
employees of the Company. NTI holds all the intangible assets related to the Tiara and NML holds all the intangible assets related to the Reducer program. NMI charges both NTI and NML for the
development services performed by its employees to develop the Tiara and the Reducer respectively. NML receives a royalty based on the Reducer revenues generated by NMI. NUS charges NMI for
development services performed by its employees to develop the Tiara and the Reducer respectively and these are then passed on through NMI to NTI and NML respectively. Neovasc GmbH conducts
sales and marketing activities on behalf of NMI as part of the license agreement between NML and NMI for NMI to manufacture, distribute and sell the Reducer on behalf of NML. Neovasc Management Inc
provides executive management services to Neovasc Inc.
B. Business Overview
Introduction
Neovasc is a specialty medical device company that develops, manufactures and markets products for the rapidly
growing cardiovascular
marketplace. Its products include the Tiara
technology, in development for the transcatheter treatment of mitral valve disease, and the Reducer, for the treatment of refractory angina.
In
2009, Neovasc started initial activities to develop novel technologies for catheter-based treatment of mitral valve disease. Based on the early positive results of these activities,
the Company formally launched a program to develop the Tiara. Neovasc established a separate entity, Neovasc Tiara Inc. ("NTI"), in March 2013 to develop and own the intellectual
property related to the Tiara (Neovasc has transferred all intellectual property related to Tiara to NTI). On February 3, 2014, Neovasc announced the first human implant of the Tiara under
special access compassionate use exemptions. Subsequently 70 additional patients have been treated with the Tiara (21 additional under compassionate use approvals in Vancouver, Canada
and in Europe and 23 in the TIARA-I study and 26 in the TIARA-II clinical trial) bringing the total number of patients treated with the device to 71 through the March 19, 2019. In
December 2014, the Company announced that it had received approval from the U.S. Food and Drug Administration ("FDA") to initiate the TIARA-I study in the United States. The
TIARA-I study is a multinational (US, Canada, Belgium), multicenter early feasibility study being conducted to assess the safety and performance of the Tiara valve system in high risk surgical
patients. The study will include up to 30 patients enrolled at centers in the United States, Canada and Europe. The Tiara valve is currently available in two sizes (35mm and 40mm). On
November 28, 2016, the Company announced that it had received both regulatory and ethics committee approval to initiate the Tiara Transcatheter Mitral Valve Replacement Study ("TIARA-II") in
Italy. The TIARA-II study has since expanded through the opening of clinical sites in Germany, Israel, Spain and the UK. The TIARA-II study is a 115 patient, non-randomized, prospective
clinical study evaluating the Tiara's safety and performance. It is expected that data from this study will be used to file for CE Mark approval.
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In July 2008, Neovasc acquired NML, a pre-commercial vascular device company based in Israel. NML developed
and owned intellectual property related to a
novel catheter-based treatment for refractory angina, a debilitating condition resulting from inadequate blood flow to the heart muscle. Refractory angina, resulting in continuing symptoms despite
maximal medical therapy and without further revascularization options, is estimated to affect 600,000 to 1.8 million Americans, with 50,000 to 100,000 new cases per year. The Company
completed development of the Reducer and obtained authorization to affix the CE Mark, which allows for marketing of the Reducer product in the European marketplace. The Company initiated commercial
sales of the Reducer product in early-2015. In March 2014, the Company announced that results of its Coronary Sinus Reducer for Treatment of Refractory Angina clinical trial ("COSIRA") had been
presented at the ACC.14 medical conference. The COSIRA trial was a sham-controlled randomized, double-blinded study of the Reducer device in 104 patients with moderate to severe
refractory angina. The results presented at ACC.14 confirmed that the COSIRA study had met its primary endpoint demonstrating the efficacy of the Reducer device with statistical significance.
The COSIRA trial results were published in the New England Journal of Medicine in February 2015.
In
2016, Neovasc initiated the REDUCER-I observational study as a multi-center, multi-country, three-arm study collecting long-term data from European patients implanted with the
Reducer. The study is expected
to enroll up to 400 patients. Currently, 190 patients have been enrolled across 20 centers that are active in Italy, Germany, Belgium, Netherlands, United Kingdom and
Switzerland. In February 2018, the Reducer reached NUB 1 status in Germany, the highest level for important new therapies. NUB 1 status was renewed in January 2019. In
2018, approximately 30 clinics in Germany that used the Reducer successfully, completed negotiating reimbursement with the German insurance companies for the Reducer therapy, including the
procedure and the device. In 2019, more German clinics will continue to negotiate and finalize these reimbursement negotiations.
In
October 2018, the Company announced that the FDA designated the Reducer as a Breakthrough Device. In December 2018, the Company filed a Q-Sub submission to the FDA
containing a comprehensive overview of all available Reducer Clinical data, real world performance data and a risk/benefit analysis for patients with Refractory Angina requesting a FDA Sprint
discussion meeting. The Sprint discussion occurred during January 2019. On February 20, 2019 the Company announced that the FDA had informed Neovasc that, despite "Breakthrough Device
Designation", the FDA review team recommends collection of further pre-market blinded data prior to PMA submission. Through the Sprint discussion process, Neovasc will continue discussions with the
FDA and their senior management to attempt to bring this promising refractory angina device therapy to U.S. patients as soon as possible.
Neovasc's
business operations started in March 2002, with the acquisition of Neovasc Medical Inc. ("NMI"). NMI manufactured a line of collagen-based surgical patch
products made for use in cardiac reconstruction and vascular repair procedures as well as other surgeries. Neovasc, through NMI, also sold biological tissue to industry partners and other customers
who incorporated this tissue into their own products such as transcatheter heart valves. Neovasc's biological products were made from chemically treated biocompatible pericardial tissue. In 2012,
Neovasc sold the rights to manufacture a specific line of conventional surgical patch products to LeMaitre Vascular, Inc. ("LeMaitre") for $4.6 million but retained rights to the
underlying tissue technology for all other uses. On December 2, 2016, the Company and Boston Scientific entered into a definitive agreement for Boston Scientific Corporation ("Boston
Scientific") to acquire Neovasc's advanced biologic tissue capabilities and certain manufacturing assets and make a 15% equity investment in Neovasc, for a total of $75 million in cash. Neovasc
retained a license for its own Tiara products but ceased operations of its consulting services and contract manufacturing revenue line items in 2017.
Neovasc's Strategy
The Company's core strategy is to focus on re-establishing trust and confidence with its stakeholders, to
re-structure the Company's
financing and to continue the development and commercialization of its products, the Tiara and the Reducer, providing minimally invasive medical devices for a cardiovascular market that the Company
believes is both growing and under-served by current treatment solutions.
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Key
elements of this strategy include:
-
-
Tiara expanding the Company's clinical experience of the Tiara, continuing
enrollment in and expansion of the TIARA-II multi-center CE Mark clinical study, and applying for CE Mark approval in approximately 2020. Finalizing the TIARA-I study. Initiating the formal
development process of a conceptually developed transfemoral trans-septal Tiara system for preclinical bench and animal studies to successful completion, followed by initiation of a first human
feasibility clinical study.
-
-
Reducer continuing therapy development of the Reducer, and supplementing the
successful COSIRA prospective, multicenter, randomized, double-blind, sham-controlled clinical study with additional clinical experience through the Company's targeted commercial launch of the Reducer
in Europe and enrollment in the REDUCER-I, real world post-market observational clinical study. Improving revenue growth in Europe by leveraging the recently renewed NUB 1 status in Germany and
by further accelerated therapy development. Seeking strategic alternatives and alliances to build on the growing enthusiasm in the market for, and adoption of, the Reducer, in order to broaden and
deepen therapy penetration in Europe, the Middle East and Africa. Continuing to execute on our US strategy and work with the FDA to fine tune the requirements for entrance into the US market, based on
the Breakthrough Device designation.
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Financial and organizational restructuring to establish a lean and accountable organization with stable capitalization. We
are currently exploring additional financing options to bring additional capital into the Company and will provide public updates when appropriate.
Neovasc's Products
Tiara
In 2009, Neovasc started initial activities to develop novel technologies for catheter-based treatment of mitral
valve disease. In the
second quarter of 2011, the Company formally initiated a new project to develop the Tiara, a product for treating mitral valve disease. The transapically delivered Tiara is currently in the clinical
trial phase providing a minimally invasive transcatheter device for patients who experience severe Mitral Regurgitation as a result of functional (most patients) or degenerative
mitral heart valve disease, combined with an enlarged left ventricle. There are millions of patients worldwide who suffer from severe Mitral valve regurgitation, the majority of them with functional
Mitral Regurgitation. The unmet medical need in these patients is high. Mitral Regurgitation is often severe and can lead to heart failure and death. Currently, a significant percentage of patients
with severe Mitral Regurgitation are not good candidates for conventional surgical repair or replacement due to frailty or comorbidities. Many of these patients are treated in Europe today via
minimally invasive mitral valve repair procedures; however, these procedures are also complex, can take a long period of time to complete, and the clinical outcomes may not be optimal. Currently there
is no transcatheter mitral valve replacement device approved for use in any market.
Our
clinical experience to date has been with the 35 mm and 40 mm Tiara valve. First clinical use of the 40mm Tiara occurred in the fourth quarter of 2015. These two sizes
allow for the treatment of approximately 75% of the annulus sizes in this high-risk patient population, in our TIARA-I and TIARA-II Clinical Studies. Currently, approximately 18% of this high-risk
patient population meet all inclusion criteria for the Tiara studies and can be treated.
As
of March 19 2019, 71 patients have been treated with Tiara in either the TIARA-I Early Feasibility Clinical Study, compassionate use cases or in our TIARA-II CE Mark
Clinical Study. Neovasc believes that early results have been encouraging. The 30-day survival rate for the 70 patients treated with the Tiara (i.e. those treated more than
30 days ago) is 89% with one patient now over five years post implant. The Tiara has successfully treated both functional and degenerative Mitral Regurgitation patients, as well as patients
with pre-existing prosthetic aortic valves and mitral surgical annuloplasty rings.
The
medical community is showing more interest in exploring this new treatment option for patients who are unable or unsuited to receive a surgical valve replacement or repair,
demonstrated by the increased interest of more European clinics to participate in the TIARA-II Clinical Study. There are currently 16 active
32
Table of Contents
sites
across Germany, Israel, Spain, and the UK with additional sites being activated in Germany and The Netherlands. The Company continues to conduct pre/post implant analysis to review the overall
screening criteria. Additional field clinical engineering support has been established in Europe to provide patient screening and case support.
The
results from our clinical experience to-date in these studies and compassionate use cases have been instrumental in helping to demonstrate the potential of the Tiara. We have been
able to refine the screening criteria, physician training, and implantation procedure. Careful patient selection continues to be critical as the Company and clinical community continue to learn more
about treating this population of very sick patients.
Neovasc
believes that there are several unique attributes of the Tiara that may provide advantages over other approaches to mitral valve replacement, in particular the low atrial
profile, its D shape, enabling a better anatomical fit and less risk of left ventricular outflow tract obstruction, and its unique combined skirt and anchoring mechanism. The Tiara has successfully
treated 16 patients with previous aortic valves (AVR), including mechanical, bioprosthetic and TAVI, without any LVOT obstruction, no peri-procedural deaths or paravalvular leak. Data on the
first twelve patients with previous AVR, treated with Tiara was published in 2018 in Circulation: Cardiovascular Interventions.
There
are several other transcatheter mitral valve replacement devices in development by third parties, some of which have been implanted in early feasibility type studies and CE Mark
studies with varying results. There is no certainty that the Tiara will successfully proceed through clinical evaluation and ultimately receive regulatory approval to treat these patients, nor is it
possible to determine at this time if any of the other development-stage devices will succeed in obtaining regulatory approval.
The
Company reported that the Tiara was featured in a "live case" broadcast on October 19, 2018 at the 32nd Annual European Association of Cardio-Thoracic Surgery meeting.
The live case was performed by Dr. Lenard Conradi, and Dr. Ulrich Schaefer of the University Medical Center Hamburg-Eppendorf, (Hamburg, Germany), where they successfully implanted a
40mm Tiara transcatheter mitral valve in a patient suffering from severe mitral regurgitation.
The
Tiara valve is made up of two major components: the leaflets which are made from the Peripatch bovine tissue licensed from Boston Scientific, a fabric skirt, and the nitinol frame
(to which the leaflets and skirt are attached), which is manufactured by a well-established specialty manufacturer in the medical device industry. If this supplier were unable to provide the
nitinol frame in the future, it would seriously impact further development of the Tiara. The Tiara delivery system is manufactured, packaged and labelled in-house by the Company using customized
standard catheter construction components that are readily available through vendors.
33
Table of Contents
The
TIARA-II study is estimated to cost approximately $15 million. While many challenges remain prior to achieving commercialization (including, but not limited to, positive
clinical trial and study results and obtaining regulatory approval from the relevant authorities), the Company believes the Tiara is being recognized as one of the leading mitral valve replacement
devices. Neovasc is managing and conducting the
TIARA-II study itself in conjunction with certain service providers who undertake portions of data collection, data management, data analysis, safety and event monitoring and similar functions. The
Tiara is currently manufactured for use in these studies by Neovasc at its own facilities following required medical device quality requirements. In the event of a positive outcome from the TIARA-II
study and the Company successfully obtaining CE Mark approval, the Tiara would be commercially manufactured in the same manner at Neovasc's facility.
Regulatory Status
The Tiara is an early-stage development product without regulatory approvals in any country. The Company intends
to continue to fund
development of the product as cash flow allows and is targeting applying for CE Mark approval in Europe in approximately late 2020, assuming sufficient patients will have been enrolled with
sufficient follow-up time by then. There is no assurance that European regulatory filing and an approval will be granted in the time frame anticipated by management or granted at any time in the
future. There is no expectation that this product will be revenue-generating in the near term, although management believes that the product is addressing an important unmet clinical need.
On
November 28, 2016, the Company announced that it had received both regulatory and ethics committee approval to initiate the TIARA-II study in Italy. Since then Neovasc has
received regulatory and ethics committee approvals to conduct the study in Germany, Israel, Spain and the United Kingdom.
Reducer
The Reducer is a treatment for patients with refractory angina, a painful and debilitating condition that occurs
when the coronary
arteries deliver an inadequate supply of blood to the heart muscle, despite treatment with standard revascularization or cardiac drug therapies.
Worldwide,
coronary artery disease ("CAD") is the leading cause of death. It is the largest contributor to the global burden of disease as reflected in disability-adjusted life years, a
measure which combines premature mortality and the prevalence and severity of ill-health. On this measure, the impact of CAD increased by 29% in the period 1990 to 2010. This reflects the worldwide
shift to those chronic diseases associated with an ageing global population. The most frequent (and often the first) manifestation of stable CAD is chronic stable angina. As a result, angina is
a significant burden of healthcare systems worldwide. There is a clear association between more frequent angina and greater utilization of healthcare resources.
Refractory
angina, resulting in continued symptoms despite maximal medical therapy without revascularization options, is estimated to affect 600,000 to 1.8 million Americans,
with 50,000 to 100,000 new cases per year. A recent publication in the
European Heart Journal
by Crea et al., stated persistence of angina
caused by incomplete coronary revascularization may occur in up to 30% in the current era, although definitions of incomplete revascularization are heterogeneous.
The
pain associated with refractory angina can make it difficult for patients to engage in routine activities, such as walking or climbing stairs. Clinical studies demonstrate that the
Reducer can provide significant relief of chest pain in refractory angina patients. A significant proportion of the angina patients in the United States and in Europe are potential candidates
for the current Reducer therapy, either because they cannot be revascularized or because they are otherwise poorly managed using conventional medical therapies. These patients represent a substantial
market opportunity for the Reducer. There continues to be interest from the medical community to explore the use of Reducer for other indications. Further clinical trials will need to be conducted to
explore this possibility.
The
Reducer is targeting a patient population that has failed to gain relief of their symptoms, despite other medical treatment options. A refractory patient by definition is resistant
to other therapies, existing interventional cardiology therapies and is not receiving adequate relief from available drug regimens to manage their chest pain. As such there are currently no direct
competitors to the Reducer as the patient will have
34
Table of Contents
exhausted
all other treatment options before the Reducer is considered. Neovasc believes that further studies may demonstrate that additional patient populations may benefit from treatment with
Reducer and thus could further increase its market potential.
The
Reducer is an hourglass-shaped, balloon-expandable, stainless steel, bare metal device, which is implanted in the coronary sinus, creating a restriction in venous outflow from the
myocardium (the muscular layer of the heart wall). It is implanted using conventional percutaneous, or needle puncture, techniques. The Reducer is provided sterile and pre-loaded on a balloon
catheter system. The system is 9 French sheath compatible and operates over a .035 inch guide wire. The implant procedure requires minimal training for experienced interventionalists.
Once guide wire access to the coronary sinus is achieved, implantation typically takes less than 20 minutes.
Using
a catheter-based procedure, the Reducer is implanted in the coronary sinus (the main vein draining blood from the heart muscle). Following implantation, the Reducer becomes
covered with endothelial tissue after about 4-6 weeks. This tissue coverage creates a permanent (but reversible, if necessary) narrowing in the coronary sinus. The coronary sinus is
narrowed from a typical diameter of 10-12mm to approximately 3mm at the site of implantation. This focal narrowing provides a backwards pressure elevation in the coronary sinus which is intended to
improve blood perfusion to ischemic territories of the heart muscle by forcing redistribution of blood from the less ischemic areas to the more ischemic areas of the heart muscle. This can result in
improved perfusion of the endocardium, which helps relieve ischemia and chest pain. The physiological mechanism behind this effect is well documented in medical literature.
The
clinical utility of this approach was demonstrated by a number of analogous approaches used in the past that achieved positive clinical outcomes for angina patients by constricting
or intermittently blocking the coronary sinus to improve perfusion to the heart muscle. However, these therapies required the use of highly invasive surgery, or leaving a catheter in the heart for a
prolonged period, making them impractical or clinically unacceptable for use in modern medical practice. The Reducer was developed to deliver this therapy in a safe, simple and effective manner via a
minimally invasive catheter that is consistent with contemporary medical practice.
35
Table of Contents
The
Reducer has demonstrated excellent results in multiple animal studies, a first-in-human clinical trial of fifteen patients suffering from chronic refractory angina who were followed
out to six months, and then again at three years post implantation. The six-month results from this clinical trial were published in the Journal of the American College of Cardiology and three-year
follow-up data was presented at the annual scientific meeting of the American College of Cardiology in March 2010. In this clinical trial, implantation of the Reducer resulted in significant
clinical improvements in stress test and perfusion measurements, as well as in overall quality of life in the majority of the patients at 6 months and these same results were noted at the three
year follow up. During this period, the Reducer appeared safe and well tolerated in these patients.
The
Company completed the COSIRA, a prospective, multicenter, randomized, double-blind, sham-controlled study to assess the safety and effectiveness of the Reducer device in 2013. The
COSIRA trial's primary endpoint was a two-class improvement in Angina pain, six months after implantation in patients' ratings on the Canadian Cardiovascular Society ("CCS") angina grading scale, a
four-class functional classification that is widely used to characterize the severity of angina symptoms and disability. Only patients with severe angina, CCS Class 3 or 4, were enrolled
in the COSIRA trial. The COSIRA trial analysis showed that the study met the primary endpoint, with patients receiving the Reducer achieving a statistically significant improvement in
CCS scores (two classes or better) compared to patients receiving a sham control (18 of 52 [34.6%] of the Reducer patients improved
³
2 CCS classes compared to 8 of 52 [15.4%] of the control patients [p-value = 0.024]).
The analysis also showed that patients treated with the Reducer showed a statistically significant improvement of one or more CCS classes compared to the sham control patients (37 of 52
[71.2%] of the Reducer patients showed this improvement compared to 22 of 52 [42.3%] of the control patients
[p-value = 0.003]). The COSIRA trial results were published in the New England Journal of Medicine in February 2015.
In
2016, Neovasc initiated the REDUCER-I observational study as a multi-center, multi-country, three-arm study collecting long-term data from European patients implanted with the
Reducer. The study is expected to enroll up to 400 patients. Currently, 190 patients have been enrolled across 20 centers that are active in Italy, Germany, Belgium, Netherlands,
United Kingdom and Switzerland.
In
2018 an article by Parikh, Parth et al., was published in the
Journal of the American College of Cardiology
(JACC) titled,
"First-in-Human Use of Coronary Sinus Reducer in Patients with Refractory Angina". This article describes the long term clinical and anatomical follow-up of patients with severe angina pectoris
treated with Reducer more than 12 years ago.
More
recently, additional studies conducted by third parties and showing positive results from the Reducer implantations have been published and presented in medical forums. It is
anticipated that as the commercial use of the Reducer continues to expand, additional third-party studies, investigations and presentations will be undertaken. If the results from such third-party
activities continue to show positive results from the product they may provide additional data to support expanded adoption of the Reducer for the intended patient population. More recent studies and
publications of Reducer patients have conformed closely with the results of the COSIRA trial. We refer the reader to the following publications:
-
-
"Coronary Sinus Reducer Implantation for the Treatment of Chronic Refractory Angina" by Dr. Giannini et al.,
published in Volume 11, Issue 8 of the
Journal of the American College of Cardiology
in April 2018 and related Editorial.
-
-
"Coronary sinus Reducer implantation improves symptoms, ischemia, and physical capacity in patients with refractory angina
unsuitable for myocardial revascularization: a single center experience" by Dr. Konigstein, et al., published in
EuroIntervention
Volume 14.
-
-
"Safety and efficacy of reducer: A multi-center clinical registry-REDUCE study, by Dr. Giannini et al.,
published in the
International Journal of Cardiology
269 (2018) 40-44,
-
-
Review of the topic: Konigstein M, Giannini F, Banai S: The Reducer Device in Patients with Angina Pectoris: Mechanisms,
Indications and Perspectives.
European Heart Journal
2018 Mar 14;39(11):925-933.
36
Table of Contents
Following
the positive data from the COSIRA trial, the Company initiated a pilot launch of the Reducer in select European markets in early 2015. The Company has signed distribution
agreements in multiple jurisdictions across Europe. Direct sales are underway in select centers in Germany. Based on the initial results from the targeted launch, Neovasc has developed an expanded
sales plan and strategy for 2019 and beyond. Any sales of the product in the United States would follow obtaining U.S. regulatory approval, if such approval is granted, as described
further below.
Based
on achieving NUB 1 status in Germany and a general positive reception in the European market, with positive experiences by many physicians from the treatment of their own
patients with the Reducer, we are seeing an increase in adoption of the Reducer therapy in Europe. The commercial progress for the Reducer in 2018 was encouraging with a 55% increase in revenue
compared to 2017.
The
Reducer therapy requires broader therapy development in the market and in particular with referring physicians. The Company has launched pilot programs in Germany, with additional
support from a professional therapy development organization, to learn more about therapy development challenges and opportunities.
We
are seeing a growing level of enthusiasm in Europe for the Reducer therapy and we believe that the therapy has significant potential. In order to further accelerate the penetration
of the therapy, we are open to considering strategic alternatives for the Reducer, including potential alliances in Europe, the United States and the rest of the world.
On
January 18, 2018, the Company reported the Reducer was featured in a "live case" broadcast to more than 800 participants at the Kardiologie Symposium 2018 held in
Berlin, Germany. The successful live case was performed by Dr. Spyrantis and Professor Banai in the Sana-Klinikum Lichtenberg. During May 2018, at the Euro PCR Conference in Paris, the
Reducer was showcased during a dedicated Reducer symposium.
On
March 5, 2019, the Company reported the Reducer was featured in a "live case" broadcast to more than 3000 participants at the Cardiovascular Research Technologies (CRT)
meeting in Washington D.C. The successful live case was performed by Dr Giannini at Maria Cecilia Hospital in Cotignola, Italy.
On
June 20, 2018, the Company announced the first U.S. patient had been implanted with the Reducer under compassionate use. On October 3, 2018, the Company reported
the positive follow-up for this patient noting that the patient was able to walk several miles without any symptoms. The patient has reduced his use of nitroglycerin from 2-3 times a week to 1
or 2 times per month. A second patient received a Reducer implant under Compassionate Use on January 31
,
2019 in the U.S. The most recent update from the attending
physician indicated that this second patient was doing well.
Regulatory Status
The Reducer is approved for sale in Europe, having received CE Mark designation in November 2011. In
preparation for product
launch, Neovasc completed development of the commercial-generation Reducer and the product is currently in commercial scale manufacture.
On
November 3, 2017, Neovasc received FDA approval for a US IDE clinical trial, COSIRA II (a trial design similar to the COSIRA study). While the principal investigator
and co-principal investigator for this study have already been appointed, the Company is currently evaluating the timing for starting this U.S. clinical trial, funding being the largest
impediment. The cost of this U.S. clinical trial is expected to be approximately $20 million. U.S. marketing approval is expected about four years after the clinical trial begins.
There is no assurance that U.S. regulatory approval will be granted in the time frame anticipated by management, or granted at any time in the future.
On
October 10, 2018, the Company announced that the FDA has granted "Breakthrough Device Designation" for the Reducer. The FDA grants this designation in order to expedite the
development and review of a device that demonstrates compelling potential to provide a more effective treatment or diagnosis for life-threatening or irreversibly debilitating diseases.
37
Table of Contents
On December 20, 2018, Neovasc filed a comprehensive Q-Sub submission to the FDA with all available Reducer
Clinical evidence, requesting a Sprint FDA
discussion meeting. The Neovasc team, together with two top U.S. Cardiologists, met with the FDA proposing moving forward with a PMA submission using the available Neovasc clinical evidence
including the prospective, multicenter, randomized, double-blind, sham controlled study assessing the safety and efficacy of the Reducer in 104 patients in the European Union and Canada
(COSIRA), a multi-center, multi-country, three-arm observational post market study (REDUCER-I), and supportive safety and efficacy data from peer-reviewed journals.
On
February 20, the Company announced that the FDA had informed Neovasc that, despite "Breakthrough Device Designation", the FDA review team recommends collection of further
pre-market blinded data prior to PMA submission. Through the Sprint discussion process, Neovasc will continue discussions with the FDA and their senior management to attempt to bring this promising
refractory angina device therapy to U.S. patients as soon as possible.
New Products/Components/Cycles
Tiara
An additional strategic and focused activity for the Company in the Mitral Valve space is the development of the
transfemoral,
trans-septal version of the Tiara Mitral Valve, which the Company believes has the potential to lead to a breakthrough for the optimal treatment of severe Mitral Regurgitation, by providing a safe and
broadly usable implantation technique. These development activities are taking place both in the Company's Vancouver, BC and New Brighton, MN facilities. Outside of the development of a unique
and innovative delivery system, the Company will make a few minor, but meaningful changes to the current Tiara valve, in order to enhance trans-septal delivery & deployment, as well as to
further increase the suitable patient population, while maintaining the core features and functionality of the current valve in order to leverage clinical and technical performance data. We plan to
initiate the formal development of this system, based on the completed conceptual work at the end of the first quarter of 2019.
Reducer
The Reducer is a late-stage product with European CE Mark approval. The Company initiated a pilot launch of the
Reducer in select
European markets in 2015. The Company has also been exploring initiation of the Reducer sales in other non-US markets and has signed distribution agreements in several countries. Any sales of the
product in the United States would follow obtaining U.S. regulatory approval, if such approval is granted, as described further above.
A
well-known and well-established medical device contract manufacturer is manufacturing the Reducer for the Company. The majority of the components that make up the Reducer are readily
available; however, two critical components of the device are not. The balloon portion of the delivery system is technically challenging to manufacture and the Reducer device, whilst a basic
technology, must be manufactured in Israel due to restrictions on the transfer of intellectual property and manufacturing out of Israel stemming from certain research grants received by NML prior to
the acquisition in July 2008.
Peripatch Technology used in our Tiara Mitral Valve
The basic Peripatch technology licensed from Boston Scientific was established over 25 years ago, when the
material was used to
fashion the leaflets and other components in surgical heart valves.
Neovasc
sources its bovine tissue from abattoirs in New Zealand for the manufacture of Tiara devices. There is a degree of capacity constraint related to the supply of raw tissue
but the risk of disruption is minimal, due to the relatively small amounts of tissue required for the current Tiara programs.
While
a definitive pattern of demand has not yet been established and the effect is expected to be minimal, the cyclical nature of the meat industry could conceivably have an impact on
the quality and availability of raw tissue and could potentially impact the yields and margins for the product over the course of any given year. Further information about Peripatch can be found above
under the heading "
Neovasc's Products
".
38
Table of Contents
Principal Markets
Category of Activity
The Company's revenues have historically been derived from its sales of the Reducer, contract manufacturing and
consulting services.
The following table sets forth the breakdown of revenues by these categories of activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
% Revenue
|
|
|
|
Year Ended December 31,
|
|
Category of Activity
|
|
2018
|
|
2017
|
|
2015
|
|
Reducer Sales
|
|
$
|
1,749,133
|
|
$
|
1,128,126
|
|
$
|
1,004,948
|
|
Contract Manufacturing
|
|
|
|
|
$
|
949,379
|
|
$
|
3,746,521
|
|
Consulting Services
|
|
|
|
|
$
|
3,311,509
|
|
$
|
4,761,327
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,749,133
|
|
$
|
5,389,014
|
|
$
|
9,512,796
|
|
At
the end of 2017, the Company ceased all Contract Manufacturing and Consulting Services activities and is now focused on the commercialization of its own product, the
Reducer, only.
Marketing
The Company markets the Reducer through direct sales in Germany and through distributors for other countries in
Europe and the Middle
East. The Company has signed distribution agreements in a number of European countries as well as Saudi Arabia, and has ongoing
Reducer sales activities in these countries. In 2019, Neovasc's marketing plan is to focus its sales activities on Germany after retaining NUB 1 status in that country, as well as on further
penetration of markets where the Company already has a sales presence with distributors, rather than expanding into more countries at this point in time. The Company is unable to initiate marketing
activities in the United States until receiving U.S. regulatory approval, if such approval is granted. Based on achieving NUB 1 status in Germany and a general positive reception
of the Reducer in the European market, including positive experiences by many physicians treating their own patients with the Reducer, the Company is seeing an increase in adoption of the Reducer
therapy in Europe and is focusing on using its NUB 1 status to further develop its marketing efforts, in Germany in particular.
Economic Dependence
Our success and competitive position are dependent in part upon our proprietary intellectual property. We rely on
a combination of
patents and trade secrets to protect our proprietary intellectual property, and we expect to continue to do so.
Commercial Contracts
For the year ended December 31, 2018, revenues from the Company's three largest customers accounted for
approximately 28%, 9%
and 9% of the Company's sales. Some of these customers are either development-stage companies or do not have established markets for their products. The Company's contract manufacturing and consulting
service ceased at the end of 2017.
Intellectual Property Strategy
Both Neovasc and the broader medical device industry attach significant importance to patents for the protection
of new technologies,
products and processes. Accordingly, Neovasc's success depends, in part, on its ability to obtain patents or rights thereto, to protect commercial secrets and carry on activities without infringing
the rights of third parties. See "
Risk Factors
" in Item 3.D and "
Consolidated Statements and Other Financial
Information Legal Proceedings
" in Item 8.A elsewhere in this Annual Report for a description of certain pending, ongoing or
potential future legal proceedings and risks relating thereto. Where appropriate, and consistent with management's objectives, patents are pursued once concepts have been validated through
39
Table of Contents
appropriate
laboratory work. To that end, Neovasc will continue to seek patents in relation to those components or concepts that it perceives to be important.
Neovasc
has patents and patent applications with respect to its technology. The specific active patent applications and granted patents to which Neovasc has rights are listed below,
along with notes relating to the countries in which the patent applications have been filed and the expected expiration dates of such patent applications.
Tiara Pending Applications
|
|
|
|
|
|
|
TITLE
|
|
SERIAL NUMBER
|
|
COUNTRY
|
|
STANDARD
EXPIRATION
DATES
|
METHODS AND APPARATUS FOR LOADING A PROSTHESIS ONTO A DELIVERY SYSTEM
|
|
2874219
|
|
Canada
|
|
N/A
|
METHODS AND APPARATUS FOR LOADING A PROSTHESIS ONTO A DELIVERY SYSTEM
|
|
2016106476576
|
|
China
|
|
N/A
|
|
|
|
|
|
|
|
TITLE
|
|
SERIAL NUMBER
|
|
COUNTRY
|
|
STANDARD
EXPIRATION
DATES
|
METHODS AND APPARATUS FOR LOADING A PROSTHESIS ONTO A DELIVERY SYSTEM
|
|
137962783
|
|
European Patent Office
|
|
N/A
|
METHODS AND APPARATUS FOR LOADING A PROSTHESIS ONTO A DELIVERY SYSTEM
|
|
15890119
|
|
United States of America
|
|
N/A
|
PROSTHETIC VALVE WITH ANTI-PIVOTING MECHANISM
|
|
2014231689
|
|
Australia
|
|
N/A
|
PROSTHETIC VALVE WITH ANTI-PIVOTING MECHANISM
|
|
2900571
|
|
Canada
|
|
N/A
|
PROSTHETIC VALVE WITH ANTI-PIVOTING MECHANISM
|
|
2018112168938
|
|
China
|
|
N/A
|
PROSTHETIC VALVE WITH ANTI-PIVOTING MECHANISM
|
|
147641062
|
|
European Patent Office
|
|
N/A
|
PROSTHETIC VALVE WITH ANTI-PIVOTING MECHANISM
|
|
14195576
|
|
United States of America
|
|
N/A
|
METHODS AND SYSTEMS FOR RAPID RETRACTION OF A TRANSCATHETER HEART VALVE DELIVERY SYSTEM
|
|
15819512
|
|
United States of America
|
|
N/A
|
METHODS AND SYSTEMS FOR RAPID RETRACTION OF A TRANSCATHETER HEART VALVE DELIVERY SYSTEM
|
|
PCTCA2017051387
|
|
PCT
|
|
N/A
|
METHODS AND APPARATUS FOR ENGAGING A VALVE PROSTHESIS WITH TISSUE
|
|
2017239620
|
|
Australia
|
|
N/A
|
METHODS AND APPARATUS FOR ENGAGING A VALVE PROSTHESIS WITH TISSUE
|
|
2864160
|
|
Canada
|
|
N/A
|
METHODS AND APPARATUS FOR ENGAGING A VALVE PROSTHESIS WITH TISSUE
|
|
137495784
|
|
European Patent Office
|
|
N/A
|
METHODS AND APPARATUS FOR ENGAGING A VALVE PROSTHESIS WITH TISSUE
|
|
15378892
|
|
United States of America
|
|
N/A
|
TRANSCATHETER MITRAL VALVE PROSTHESIS
|
|
2797863
|
|
Canada
|
|
N/A
|
TRANSCATHETER MITRAL VALVE PROSTHESIS
|
|
117770651
|
|
European Patent Office
|
|
N/A
|
TRANSCATHETER MITRAL VALVE PROSTHESIS
|
|
2019000320
|
|
Japan
|
|
N/A
|
TRANSCATHETER MITRAL VALVE PROSTHESIS
|
|
16211708
|
|
United States of America
|
|
N/A
|
TRANSCATHETER MITRAL VALVE PROSTHESIS
|
|
15682890
|
|
United States of America
|
|
N/A
|
TRANSCATHETER MITRAL VALVE PROSTHESIS
|
|
15955286
|
|
United States of America
|
|
N/A
|
TRANSSEPTAL DELIVERY SYSTEM
|
|
3007660
|
|
Canada
|
|
N/A
|
TRANSSEPTAL DELIVERY SYSTEM
|
|
2016800818120
|
|
China
|
|
N/A
|
TRANSSEPTAL DELIVERY SYSTEM
|
|
168742054
|
|
European Patent Office
|
|
N/A
|
40
Table of Contents
|
|
|
|
|
|
|
TITLE
|
|
SERIAL NUMBER
|
|
COUNTRY
|
|
STANDARD
EXPIRATION
DATES
|
TRANSSEPTAL DELIVERY SYSTEM
|
|
2018530833
|
|
Japan
|
|
N/A
|
TRANSSEPTAL DELIVERY SYSTEM
|
|
15379748
|
|
United States of America
|
|
N/A
|
SEQUENTIALLY DEPLOYED TRANSCATHETER MITRAL VALVE PROSTHESIS
|
|
2017232067
|
|
Australia
|
|
N/A
|
|
|
|
|
|
|
|
TITLE
|
|
SERIAL NUMBER
|
|
COUNTRY
|
|
STANDARD
EXPIRATION
DATES
|
SEQUENTIALLY DEPLOYED TRANSCATHETER MITRAL VALVE PROSTHESIS
|
|
2856088
|
|
Canada
|
|
N/A
|
SEQUENTIALLY DEPLOYED TRANSCATHETER MITRAL VALVE PROSTHESIS
|
|
181716523
|
|
European Patent Office
|
|
N/A
|
SEQUENTIALLY DEPLOYED TRANSCATHETER MITRAL VALVE PROSTHESIS
|
|
15628924
|
|
United States of America
|
|
N/A
|
PROSTHETIC VALVE FOR AVOIDING OBSTRUCTION OF OUTFLOW
|
|
3007670
|
|
Canada
|
|
N/A
|
PROSTHETIC VALVE FOR AVOIDING OBSTRUCTION OF OUTFLOW
|
|
201780021798X
|
|
China
|
|
N/A
|
PROSTHETIC VALVE FOR AVOIDING OBSTRUCTION OF OUTFLOW
|
|
177435344
|
|
European Patent Office
|
|
N/A
|
PROSTHETIC VALVE FOR AVOIDING OBSTRUCTION OF OUTFLOW
|
|
2018539080
|
|
Japan
|
|
N/A
|
PROSTHETIC VALVE FOR AVOIDING OBSTRUCTION OF OUTFLOW
|
|
15418511
|
|
United States of America
|
|
N/A
|
eSEQUENTIALLY DEPLOYED TRANSCATHETER MITRAL VALVE PROSTHESIS
|
|
16111898
|
|
United States of America
|
|
N/A
|
SEQUENTIALLY DEPLOYED TRANSCATHETER MITRAL VALVE PROSTHESIS
|
|
PCTCA2018051019
|
|
PCT
|
|
N/A
|
METHODS AND APPARATUS FOR DELIVERING A PROSTHETIC VALVE TO A BEATING HEART
|
|
2014201920
|
|
Australia
|
|
N/A
|
METHODS AND APPARATUS FOR DELIVERING A PROSTHETIC VALVE TO A BEATING HEART
|
|
15404012
|
|
United States of America
|
|
N/A
|
VENTRICULAR DEPLOYMENT OF A TRANSCATHETER MITRAL VALVE PROSTHESIS
|
|
62757462
|
|
United States of America
|
|
N/A
|
Tiara Granted Patents
|
|
|
|
|
|
|
TITLE
|
|
PATENT NUMBER
|
|
COUNTRY
|
|
STANDARD
EXPIRATION
DATES
|
METHODS AND APPARATUS FOR LOADING A PROSTHESIS ONTO A DELIVERY SYSTEM
|
|
104507424
|
|
China
|
|
May 30, 2033
|
METHODS AND APPARATUS FOR LOADING A PROSTHESIS ONTO A DELIVERY SYSTEM
|
|
6329535
|
|
Japan
|
|
May 30, 2033
|
METHODS AND APPARATUS FOR LOADING A PROSTHESIS ONTO A DELIVERY SYSTEM
|
|
9345573
|
|
United States of America
|
|
April 2, 2034
|
METHODS AND APPARATUS FOR LOADING A PROSTHESIS ONTO A DELIVERY SYSTEM
|
|
10016275
|
|
United States of America
|
|
July 2, 2033
|
PROSTHETIC VALVE WITH ANTI-PIVOTING MECHANISM
|
|
ZL201480014460.8
|
|
China
|
|
Mar 6, 2034
|
PROSTHETIC VALVE WITH ANTI-PIVOTING MECHANISM
|
|
6464101
|
|
Japan
|
|
Mar 6, 2034
|
41
Table of Contents
|
|
|
|
|
|
|
TITLE
|
|
PATENT NUMBER
|
|
COUNTRY
|
|
STANDARD
EXPIRATION
DATES
|
METHODS AND APPARATUS FOR ENGAGING A VALVE PROSTHESIS WITH TISSUE
|
|
2013220881
|
|
Australia
|
|
Feb 13, 2033
|
METHODS AND APPARATUS FOR ENGAGING A VALVE PROSTHESIS WITH TISSUE
|
|
104203158
|
|
China
|
|
Feb 13, 2033
|
METHODS AND APPARATUS FOR ENGAGING A VALVE PROSTHESIS WITH TISSUE
|
|
ZL201610543000.5
|
|
China
|
|
Feb 13, 2033
|
METHODS AND APPARATUS FOR ENGAGING A VALVE PROSTHESIS WITH TISSUE
|
|
6209543
|
|
Japan
|
|
Feb 13, 2033
|
METHODS AND APPARATUS FOR ENGAGING A VALVE PROSTHESIS WITH TISSUE
|
|
9554897
|
|
United States of America
|
|
September 13, 2035
|
TRANSCATHETER MITRAL VALVE PROSTHESIS
|
|
2011250606
|
|
Australia
|
|
May 4, 2031
|
TRANSCATHETER MITRAL VALVE PROSTHESIS
|
|
2014203064
|
|
Australia
|
|
May 4, 2031
|
TRANSCATHETER MITRAL VALVE PROSTHESIS
|
|
103079498
|
|
China
|
|
May 4, 2031
|
TRANSCATHETER MITRAL VALVE PROSTHESIS
|
|
105287050
|
|
China
|
|
May 4, 2031
|
TRANSCATHETER MITRAL VALVE PROSTHESIS
|
|
202011110951.1
|
|
Germany
|
|
May 4, 2021
|
TRANSCATHETER MITRAL VALVE PROSTHESIS
|
|
202011110985.6
|
|
Germany
|
|
May 4, 2021
|
TRANSCATHETER MITRAL VALVE PROSTHESIS
|
|
6010530
|
|
Japan
|
|
May 4, 2031
|
TRANSCATHETER MITRAL VALVE PROSTHESIS
|
|
6463706
|
|
Japan
|
|
May 4, 2031
|
TRANSCATHETER MITRAL VALVE PROSTHESIS
|
|
8579964
|
|
United States of America
|
|
January 2, 2032
|
TRANSCATHETER MITRAL VALVE PROSTHESIS
|
|
9770329
|
|
United States of America
|
|
September 18, 2031
|
TRANSCATHETER MITRAL VALVE PROSTHESIS
|
|
9241790
|
|
United States of America
|
|
April 28, 2031
|
TRANSCATHETER MITRAL VALVE PROSTHESIS
|
|
9248014
|
|
United States of America
|
|
April 28, 2031
|
SEQUENTIALLY DEPLOYED TRANSCATHETER MITRAL VALVE PROSTHESIS
|
|
2782523
|
|
Austria
|
|
Nov 20, 2032
|
SEQUENTIALLY DEPLOYED TRANSCATHETER MITRAL VALVE PROSTHESIS
|
|
2782523
|
|
Switzerland
|
|
Nov 20, 2032
|
SEQUENTIALLY DEPLOYED TRANSCATHETER MITRAL VALVE PROSTHESIS
|
|
104302247
|
|
China
|
|
Nov 20, 2032
|
SEQUENTIALLY DEPLOYED TRANSCATHETER MITRAL VALVE PROSTHESIS
|
|
602012047283.9
|
|
Germany
|
|
Nov 20, 2032
|
SEQUENTIALLY DEPLOYED TRANSCATHETER MITRAL VALVE PROSTHESIS
|
|
2782523
|
|
Denmark
|
|
Nov 20, 2032
|
42
Table of Contents
|
|
|
|
|
|
|
TITLE
|
|
FILING DATE
|
|
COUNTRY
|
|
STANDARD
EXPIRATION
DATES
|
SEQUENTIALLY DEPLOYED TRANSCATHETER MITRAL VALVE PROSTHESIS
|
|
2782523
|
|
European Patent Office
|
|
Nov 20, 2032
|
SEQUENTIALLY DEPLOYED TRANSCATHETER MITRAL VALVE PROSTHESIS
|
|
2782523
|
|
Spain
|
|
Nov 20, 2032
|
SEQUENTIALLY DEPLOYED TRANSCATHETER MITRAL VALVE PROSTHESIS
|
|
2782523
|
|
France
|
|
Nov 20, 2032
|
SEQUENTIALLY DEPLOYED TRANSCATHETER MITRAL VALVE PROSTHESIS
|
|
2782523
|
|
United Kingdom
|
|
Nov 20, 2032
|
SEQUENTIALLY DEPLOYED TRANSCATHETER MITRAL VALVE PROSTHESIS
|
|
2782523
|
|
Italy
|
|
Nov 20, 2032
|
SEQUENTIALLY DEPLOYED TRANSCATHETER MITRAL VALVE PROSTHESIS
|
|
6133885
|
|
Japan
|
|
Nov 20, 2032
|
SEQUENTIALLY DEPLOYED TRANSCATHETER MITRAL VALVE PROSTHESIS
|
|
2782523
|
|
Netherlands
|
|
Nov 20, 2032
|
SEQUENTIALLY DEPLOYED TRANSCATHETER MITRAL VALVE PROSTHESIS
|
|
2782523
|
|
Sweden
|
|
Nov 20, 2032
|
SEQUENTIALLY DEPLOYED TRANSCATHETER MITRAL VALVE PROSTHESIS
|
|
9308087
|
|
United States of America
|
|
Nov 16, 2034
|
SEQUENTIALLY DEPLOYED TRANSCATHETER MITRAL VALVE PROSTHESIS
|
|
9713529
|
|
United States of America
|
|
December 31, 2032
|
METHODS AND APPARATUS FOR DELIVERING A PROSTHETIC VALVE TO A BEATING HEART
|
|
9572665
|
|
United States of America
|
|
April 18, 2035
|
Reducer Pending Applications
|
|
|
|
|
|
|
TITLE
|
|
FILING DATE
|
|
COUNTRY
|
|
STANDARD
EXPIRATION
DATES
|
VASCULAR IMPLANT
|
|
Nov 18, 2004
|
|
Canada
|
|
N/A
|
VASCULAR IMPLANT
|
|
Nov 18, 2004
|
|
European Patent Office
|
|
N/A
|
VASCULAR IMPLANT
|
|
Mar 16, 2018
|
|
United States of America
|
|
N/A
|
FLOW REDUCING IMPLANT
|
|
Oct 3, 2002
|
|
Canada
|
|
N/A
|
METHODS FOR TREATING ABNORMAL GROWTHS IN THE BODY USING A FLOW REDUCING IMPLANT
|
|
May 12, 2016
|
|
United States of America
|
|
N/A
|
VARYING DIAMETER VASCULAR IMPLANT AND BALLOON
|
|
Sep 29, 2017
|
|
United States of America
|
|
N/A
|
COVERED FLOW AND PRESSURE MODIFYING APPARATUS
|
|
Jan 23, 2019
|
|
United States of America
|
|
N/A
|
FLOW AND PRESSURE MODIFYING IMPLANTS
|
|
Jan 24, 2019
|
|
United States of America
|
|
N/A
|
43
Table of Contents
Reducer Granted Patents
|
|
|
|
|
|
|
TITLE
|
|
PATENT NUMBER
|
|
COUNTRY
|
|
STANDARD
EXPIRATION
DATES
|
NARROWING IMPLANT
|
|
EP1276437
|
|
Austria
|
|
Mar 27, 2021
|
NARROWING IMPLANT
|
|
EP1276437
|
|
Australia
|
|
Mar 27, 2021
|
NARROWING IMPLANT
|
|
EP1276437
|
|
Belgium
|
|
Mar 27, 2021
|
NARROWING IMPLANT
|
|
2404330
|
|
Canada
|
|
Mar 27, 2021
|
NARROWING IMPLANT
|
|
EP1276437
|
|
Switzerland
|
|
Mar 27, 2021
|
NARROWING IMPLANT
|
|
601 41 511.6
|
|
Germany
|
|
Mar 27, 2021
|
NARROWING IMPLANT
|
|
EP1276437
|
|
European Patent Office
|
|
Mar 27, 2021
|
NARROWING IMPLANT
|
|
EP1276437
|
|
Spain
|
|
Mar 27, 2021
|
NARROWING IMPLANT
|
|
EP1276437
|
|
France
|
|
Mar 27, 2021
|
NARROWING IMPLANT
|
|
EP1276437
|
|
United Kingdom
|
|
Mar 27, 2021
|
NARROWING IMPLANT
|
|
EP1276437
|
|
Ireland
|
|
Mar 27, 2021
|
NARROWING IMPLANT
|
|
151931
|
|
Israel
|
|
Mar 27, 2021
|
A REDUCER FOR INSERTION IN A BLOOD VESSEL AND A BLOOD VESSEL REDUCER DELIVERY KIT
|
|
208930
|
|
India
|
|
Mar 27, 2021
|
NARROWING IMPLANT
|
|
EP1276437
|
|
Italy
|
|
Mar 27, 2021
|
NARROWING IMPLANT
|
|
4398131
|
|
Japan
|
|
Mar 27, 2021
|
NARROWING IMPLANT
|
|
EP1276437
|
|
Liechtenstein
|
|
Mar 27, 2021
|
NARROWING IMPLANT
|
|
EP1276437
|
|
Luxembourg
|
|
Mar 27, 2021
|
NARROWING IMPLANT
|
|
EP1276437
|
|
Netherlands
|
|
Mar 27, 2021
|
NARROWING IMPLANT
|
|
EP1276437
|
|
Sweden
|
|
Mar 27, 2021
|
DEVICE AND METHOD FOR TREATING ISCHEMIC HEART DISEASE
|
|
6953476
|
|
United States of America
|
|
March 27, 2020
|
VASCULAR IMPLANT
|
|
2551081
|
|
Canada
|
|
Nov 18, 2024
|
VASCULAR IMPLANT
|
|
2823472
|
|
Canada
|
|
Nov 18, 2024
|
VASCULAR IMPLANT
|
|
60 2004 046 016.8
|
|
Germany
|
|
Nov 18, 2024
|
VASCULAR IMPLANT
|
|
60 2004 048 617.5
|
|
Germany
|
|
Nov 18, 2024
|
VASCULAR IMPLANT
|
|
EP1689324
|
|
European Patent Office
|
|
Nov 18, 2024
|
VASCULAR IMPLANT
|
|
EP2756821
|
|
European Patent Office
|
|
Nov 18, 2024
|
VASCULAR IMPLANT
|
|
EP1689324
|
|
France
|
|
Nov 18, 2024
|
VASCULAR IMPLANT
|
|
EP2756821
|
|
France
|
|
Nov 18, 2024
|
VASCULAR IMPLANT
|
|
EP1689324
|
|
United Kingdom
|
|
Nov 18, 2024
|
VASCULAR IMPLANT
|
|
EP2756821
|
|
United Kingdom
|
|
Nov 18, 2024
|
VASCULAR IMPLANT
|
|
175747
|
|
Israel
|
|
Nov 18, 2024
|
VASCULAR IMPLANT
|
|
5154799
|
|
Japan
|
|
Nov 18, 2024
|
VASCULAR IMPLANT
|
|
8911489
|
|
United States of America
|
|
Nov 18, 2024
|
VASCULAR IMPLANT
|
|
9744059
|
|
United States of America
|
|
Nov 18, 2024
|
FLOW REDUCING IMPLANT
|
|
EP1450727
|
|
Austria
|
|
Oct 3, 2022
|
FLOW REDUCING IMPLANT
|
|
EP1450727
|
|
Belgium
|
|
Oct 3, 2022
|
FLOW REDUCING IMPLANT
|
|
2769574
|
|
Canada
|
|
Oct 3, 2022
|
FLOW REDUCING IMPLANT
|
|
2870392
|
|
Canada
|
|
Oct 3, 2022
|
FLOW REDUCING IMPLANT
|
|
EP1450727
|
|
Switzerland
|
|
Oct 3, 2022
|
FLOW REDUCING IMPLANT
|
|
602 36 755.7
|
|
Germany
|
|
Oct 3, 2022
|
FLOW REDUCING IMPLANT
|
|
EP1450727
|
|
Denmark
|
|
Oct 3, 2022
|
FLOW REDUCING IMPLANT
|
|
EP1450727
|
|
European Patent Office
|
|
Oct 3, 2022
|
FLOW REDUCING IMPLANT
|
|
EP1450727
|
|
Spain
|
|
Oct 3, 2022
|
FLOW REDUCING IMPLANT
|
|
EP1450727
|
|
France
|
|
Oct 3, 2022
|
FLOW REDUCING IMPLANT
|
|
EP1450727
|
|
United Kingdom
|
|
Oct 3, 2022
|
FLOW REDUCING IMPLANT
|
|
161278
|
|
Israel
|
|
Oct 3, 2022
|
FLOW REDUCING IMPLANT
|
|
EP1450727
|
|
Italy
|
|
Oct 3, 2022
|
FLOW REDUCING IMPLANT
|
|
4398244
|
|
Japan
|
|
Oct 3, 2022
|
44
Table of Contents
|
|
|
|
|
|
|
TITLE
|
|
PATENT NUMBER
|
|
COUNTRY
|
|
STANDARD
EXPIRATION
DATES
|
FLOW REDUCING IMPLANT
|
|
EP1450727
|
|
Liechtenstein
|
|
Oct 3, 2022
|
FLOW REDUCING IMPLANT
|
|
EP1450727
|
|
Netherlands
|
|
Oct 3, 2022
|
FLOW REDUCING IMPLANT
|
|
EP1450727
|
|
Sweden
|
|
Oct 3, 2022
|
|
|
|
|
|
|
|
TITLE
|
|
PATENT NUMBER
|
|
COUNTRY
|
|
STANDARD
EXPIRATION
DATES
|
METHODS FOR TREATING ABNORMAL GROWTHS IN THE BODY USING A FLOW REDUCING IMPLANT
|
|
8556954
|
|
United States of America
|
|
Aug 9 2021
|
METHODS FOR TREATING ABNORMAL GROWTHS IN THE BODY USING A FLOW REDUCING IMPLANT
|
|
8858612
|
|
United States of America
|
|
March 27 2021
|
METHODS FOR TREATING ABNORMAL GROWTHS IN THE BODY USING A FLOW REDUCING IMPLANT
|
|
9364354
|
|
United States of America
|
|
June 6 2020
|
VARYING-DIAMETER VASCULAR IMPLANT AND BALLOON
|
|
EP1587449
|
|
Austria
|
|
Nov 25, 2023
|
VARYING-DIAMETER VASCULAR IMPLANT AND BALLOON
|
|
EP1587449
|
|
Belgium
|
|
Nov 25, 2023
|
VARYING-DIAMETER VASCULAR IMPLANT AND BALLOON
|
|
EP1587449
|
|
Switzerland
|
|
Nov 25, 2023
|
VARYING-DIAMETER VASCULAR IMPLANT AND BALLOON
|
|
603 26 883.8
|
|
Germany
|
|
Nov 25, 2023
|
VARYING-DIAMETER VASCULAR IMPLANT AND BALLOON
|
|
EP1587449
|
|
European Patent Office
|
|
Nov 25, 2023
|
VARYING-DIAMETER VASCULAR IMPLANT AND BALLOON
|
|
EP1587449
|
|
Spain
|
|
Nov 25, 2023
|
VARYING-DIAMETER VASCULAR IMPLANT AND BALLOON
|
|
EP1587449
|
|
France
|
|
Nov 25, 2023
|
VARYING-DIAMETER VASCULAR IMPLANT AND BALLOON
|
|
EP1587449
|
|
United Kingdom
|
|
Nov 25, 2023
|
VARYING-DIAMETER VASCULAR IMPLANT AND BALLOON
|
|
EP1587449
|
|
Italy
|
|
Nov 25, 2023
|
VARYING-DIAMETER VASCULAR IMPLANT AND BALLOON
|
|
EP1587449
|
|
Liechtenstein
|
|
Nov 25, 2023
|
VARYING-DIAMETER VASCULAR IMPLANT AND BALLOON
|
|
EP1587449
|
|
Netherlands
|
|
Nov 25, 2023
|
VARYING-DIAMETER VASCULAR IMPLANT AND BALLOON
|
|
EP1587449
|
|
Sweden
|
|
Nov 25, 2023
|
45
Table of Contents
C. Organizational Structure
The Company has the following seven wholly-owned subsidiaries:
|
|
|
|
|
Name:
|
|
Date of Incorporation:
|
|
Jurisdiction of Incorporation:
|
Neovasc Medical Inc. (formerly PM Devices Inc.)
|
|
May 7, 1998
|
|
British Columbia
|
Neovasc Tiara Inc.
|
|
March 11, 2013
|
|
Canada (federal)
|
Neovasc Medical Ltd.
|
|
September 9, 2002
|
|
Israel
|
Neovasc (US) Inc. (formerly Medical Ventures (US) Inc.)
|
|
July 2, 2007
|
|
United States
|
B-Balloon Ltd.
(1)
|
|
March 30, 2004
|
|
Israel
|
Neovasc GmbH
|
|
August 14, 2017
|
|
Germany
|
Neovasc Management Inc.
|
|
January 23, 2018
|
|
United States
|
-
(1)
-
B-Balloon Ltd.
is in the process of being voluntarily wound up.
D. Property, Plants and Equipment
Neovasc's operating plan does not include building infrastructure in the form of an in-house laboratory, capital
equipment, headcount, or administrative burden.
Neovasc operates from its head office located in Richmond, British Columbia, Canada. Neovasc sold its office and laboratory building, previously used for manufacture and testing of devices as well as
office space, in June 2018.
The
following table outlines significant properties that Neovasc currently leases:
|
|
|
|
|
|
|
|
LOCATION
|
|
AREA
(IN SQUARE FEET)
|
|
LEASE EXPIRATION DATE
|
|
USE
|
Richmond, Canada
|
|
|
10,692
|
|
May 31, 2022
|
|
Office space and research and development lab
|
Richmond, Canada
|
|
|
14,965
|
|
May 31, 2022
|
|
Unoccupied space
|
Richmond, Canada
|
|
|
10,956
|
|
July 31, 2021
|
|
Manufacturing
|
Richmond, Canada
|
|
|
2,660
|
|
December 18, 2018
|
|
Office and warehousing
|
New Brighton, MN
|
|
|
6,716
|
|
March 21, 2023
|
|
Office and research and development lab
|
The
Richmond office space costs $35,194 per month and is rented on an annual basis. The New Brighton office and research and development space costs $6,573 per month and is
rented on an annual basis. Neovasc believes that its current facilities are adequate to meet its ongoing needs and that, if Neovasc requires additional space, it will be able to obtain additional
facilities on commercially reasonable terms.
Social or Environmental Policies
The Company's processing of its pericardial tissue involves the use of some controlled and/or hazardous materials.
The use and
disposal of these materials is controlled by the
Company's quality control procedures and systems. Environmental factors are considered when disposing of these materials and the Company takes steps to ensure it is in compliance with the appropriate
regulations surrounding disposal of these materials.
ITEM 4A UNRESOLVED STAFF COMMENTS
Not applicable.
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ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
A. Operating Results
Three Year Development
Recent Developments Subsequent to December 31, 2018
On January 3, 2019, the Company received the Market Value Notification Letter from the Nasdaq Listing
Qualifications Department
notifying the Company that it was not in compliance with the $35 million minimum market value requirement set forth in the Nasdaq Marketplace Rules. The Market Value Notification Letter does
not impact the Company's listing on the Nasdaq at this time. In accordance with Nasdaq Listing Rule 5810(c)(3)(C), the Company has been provided 180 calendar days, or until
July 2, 2019, to regain compliance. The Company intends to monitor the market value of its listed securities between now and July 2, 2019 and intends to attempt to cure the deficiency
within the prescribed grace period.
On
January 14, 2019, the Company received the Bid Price Notification Letter from the Nasdaq Listing Qualifications Department notifying the Company that it was not in compliance
with the $1.00 minimum bid price requirement set forth in the Nasdaq Marketplace Rules. The Bid Price Notification Letter does not impact the Company's listing on the Nasdaq at this time. In
accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company has been provided 180 calendar days, or until July 15, 2019, to regain compliance. The Company intends to monitor
the closing bid price of its common shares between now and July 15, 2019 and intends to attempt to cure the deficiency within the prescribed grace period.
In
the event the Company does not regain compliance with the Nasdaq minimum market value or minimum bid price rules within the prescribed compliance periods, the Company may be eligible
for additional time to regain compliance or may face delisting. Nasdaq also has broad discretionary public interest authority that it can exercise to apply additional or more stringent criteria for
the continued listing of the Common Shares, or suspend or delist securities even if the securities meet all enumerated criteria for continued listing on the Nasdaq. The Nasdaq could use this
discretionary authority at any time to delist the Common Shares. There can be no assurance that Nasdaq will not exercise such discretionary authority. In addition, there is no assurance that the
Company will be able to regain compliance with the minimum bid price and minimum market value requirements prior to expiration of the prescribed compliance periods, or if it does, that the Company
will be able to maintain such compliance as a result of the risks and uncertainties described above.
On
January 22, 2019, the Company announced that pursuant to a settlement reached with the Edwards Plaintiffs, the patent infringement action that the Edwards Plaintiffs had
previously commenced in the Federal Court of Canada against the Company, Boston Scientific and Livanova, will be dismissed on a no-costs basis.
On
January 23, 2019, the Company announced that the
Journal of the American College of Cardiology: Cardiovascular Interventions
had published a peer-reviewed article on the use of dipyridamole stress perfusion cardiac magnetic resonance to assess the performance of the Reducer, titled "Coronary Sinus Reducer Implantation to
Reduce the Ischemic Burden in Refractory Angina."
On
January 29, 2019, the Company announced that it had completed the Phase 1 requirements of the TIARA-II study in both Germany and the United Kingdom and has
received approval to proceed with Phase 2 of the TIARA-II study.
On
January 30, 2019, the Company announced that the German Institute for the Hospital Remuneration System had awarded the Reducer NUB status 1 designation again
for 2019.
On
February 11, 2019, the Company announced that the Pierangeli Clinic of Pescara, Italy had initiated a program to provide its patients access to the Reducer.
On
September 7, 2018, Endovalve filed a complaint in the United States District Court for the District of New Jersey against Neovasc Inc. and Neovasc
Tiara Inc. (the "Neovasc Defendants"), alleging claims for trade secret misappropriation, breach of contract, and unfair competition. Endovalve alleged that it was a former customer of
Neovasc Inc., and that the Neovasc Defendants improperly used trade secrets in the development of Tiara. The Complaint sought injunctive relief, money damages, and attorneys' fees. On
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February 20,
2019, the Company announced that it had entered into a settlement agreement with Endovalve. This agreement resolved certain potential claims against the Company. The settlement
agreement contemplates certain fees being paid by Neovasc to Endovalve, including settlement fees in installments totaling $3 million over the two and a half years following the agreement's
execution. In addition, Neovasc agreed to pay Endovalve a royalty of 1.3% on the annual net sales of the Tiara following the first commercial sale of the Tiara. Also contained in the settlement
agreement are buy-out clauses that allow Neovasc, or an acquirer of Neovasc or the Tiara assets, to buy out these royalty obligations. As part of the settlement agreement, the claims against the
Neovasc Defendants were dismissed with prejudice.
On
December 20, 2018, the Company filed a comprehensive Q-Sub submission to the FDA with all available Reducer clinical evidence, requesting a Sprint FDA discussion meeting. The
Neovasc team, together with two top U.S. Cardiologists, met with the FDA proposing moving forward with a PMA submission using the available Neovasc clinical evidence. On February 20,
2019, the Company announced that the FDA had informed Neovasc that, despite "Breakthrough Device Designation", the FDA review team recommends collection of further pre-market blinded data prior to PMA
submission. Through the Sprint discussion process, Neovasc will continue discussions with the FDA and their senior management, to attempt to bring this promising refractory angina device therapy to
U.S. patients as soon as possible.
On
February 21, 2019, the Company announced that a patient implanted with the Tiara had celebrated her fifth anniversary since undergoing the procedure. The Company believes that
this patient is the longest surviving transcatheter mitral valve replacement therapy recipient in the world.
On
February 27, 2019, the Company announced that it would present a corporate overview at the 8
th
Annual SVB Leerink Global Healthcare Conference held on
February 27-March 1, 2019 in New York, NY.
On
February 28, 2019, the Company completed an underwritten public offering of 11,111,111 Common Shares, at a price of $0.45 per Common Share, for gross proceeds of
approximately $5 million before deducting the underwriting commission and offering expenses payable by the Company. The Company intends to use the approximately $4.02 million net
proceeds of the February 2019 Financing for the development and commercialization of the Reducer, development of the Tiara and general corporate and working capital purposes. As part of the
underwriter's compensation in the February 2019 Financing, the Company issued the underwriter warrants (the "February Broker Warrants") to purchase in aggregate up to a
722,222 Common Shares, exercisable at a price per Common Share equal to $0.5625 for a period of three years following issuance.
On
March 4, 2019, the Company announced that the Tiara was featured in an update presentation at the Cardiovascular Research Technologies (CRT) meeting held March 2-5,
2019 in Washington, D.C.
On
March 5, 2019, the Company announced that the Reducer was featured in a "Live Case" broadcast at the Cardiovascular Research Technologies (CRT) meeting held March 2-5,
2019 in Washington, D.C.
On
March 12, 2019, the Company announced that it had entered into Exchange Agreements with the holders of all of its outstanding Series A common share purchase warrants
(the "Series A Warrants") and Series E common share purchase warrants (the "Series E Warrants") issued pursuant to the 2017 Financings, pursuant to which the Company
issued an aggregate of approximately 496,239 Common Shares for the surrender and cancellation of all of the Series A Warrants and Series E Warrants outstanding, on the basis of
0.0085 of a Common Share for each Series A Warrant or Series E Warrant (the "Exchange"). Following completion of the Exchange, there are no longer any warrants remaining
outstanding from the 2017 Financings.
On
March 14, 2019, the Company announced that it had successfully completed its 2019 mandatory Surveillance Audit with its Notified Body, resulting in the maintenance of the
Regulatory Certification (EC marking) and maintenance of the ISO 13485: 2016 certification of its quality management system.
On
March 15, 2019, the Company completed an underwritten public offering of 11,111,111 Common Shares, at a price of $0.45 per Common Share, for gross proceeds of
approximately $5 million before deducting the underwriting commission and offering expenses payable by the Company. The Company intends to use the approximately $4.25 million net
proceeds of the March 2019 Financing for the development and
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commercialization
of the Reducer, development of the Tiara and general corporate and working capital purposes. As part of the underwriter's compensation in the March 2019 Financing, the Company
issued the underwriter warrants (the "March Broker Warrants", and together with the February Broker Warrants, the "Broker Warrants") to purchase in aggregate up to a 722,222 Common
Shares, exercisable at a price per Common Share equal to $0.5625 for a period of three years following issuance.
On
March 21, 2019, the Company announced that the Appeals Court in Munich rendered its decision with respect to the Company's litigation with CardiAQ in Germany. The Appeals
Court amended the decision of the German Court and dismissed the complaint of CardiAQ in full.
Year Ended December 31, 2018
On January 22, 2018, the Company appointed Fred A. Colen as President and Chief Executive Officer.
On
February 1, 2018, the Company announced that the German Institute for the Hospital Remuneration System had awarded the Reducer NUB status 1 designation for 2018.
On
April 11, 2018, the Company announced that it had received $7,132,488 in proceeds from investor-initiated exercises of 4,885,266 of the Series C Warrants issued
pursuant to the 2017 Public Transaction. Each Series C Warrant was exercised at an exercise price equal to $1.46.
On
April 30, 2018, the Company announced that it had received $4,666,099 in proceeds from additional investor initiated exercised of 3,195,958 of the Series C Warrants
issued pursuant to the 2017 Public Transaction. Each Series C Warrant was exercised at an exercise price equal to $1.46.
On
May 15, 2018, the Company announced it was urging the shareholders of record to vote for the proposal authorizing the Board to effect a reverse stock split at the upcoming
Annual General and Special Meeting of Shareholders, in order to best meet the needs of the Company and the shareholders.
On
May 25, 2018, the Company announced it had a successfully generated increased interest with European physicians in either participating in the ongoing Tiara clinical trials or
in using the Reducer for their patients suffering from refractory angina at the EuroPCR, the annual meeting of the European Association of Percutaneous Cardiovascular Interventions of the European
Society of Cardiology.
On
June 4, 2018, the Company announced results of the Annual General and Special Meeting of Shareholders held on June 4, 2018. At the Meeting, the shareholders of the
Company re-elected board members, approved amendments to the Company's stock option plan and the unallocated options thereunder, approved the Company's reverse stock split (common share consolidation)
and re-appointed the auditors of the Company.
On
June 20, 2018, the Company announced the first U.S. patient had been implanted with a Reducer under compassionate use. The compassionate use case was conducted by
Dr. Gerald Koenig, along with Dr. Ryan Gindi and colleagues, of the Division of Cardiology at Henry Ford Hospital in Detroit, Michigan.
On
June 21, 2018, the Company announced that the Tiara transcatheter mitral valve replacement device was featured in a "Live Case" broadcast at the 11th Annual
Transcatheter Valve Therapy Conference. In a live case broadcast to the main arena of the conference, Dr. Anson Cheung, and Dr. John G. Webb of St. Paul's Hospital (Vancouver,
Canada) successfully implanted a 40mm Tiara transcatheter mitral valve in a patient suffering from severe mitral regurgitation.
On
July 2, 2018, the Company announced that the Tiara and the Reducer were featured in presentations at the CSI Frankfurt 2018 conference held on June 27-30, 2018 in
Frankfurt, Germany.
On
July 9, 2018, the Company received an expected delisting determination from the Nasdaq Listing Qualifications Department for non-compliance with the $1.00 minimum bid price
requirement. On July 16, 2018, Nasdaq scheduled an oral hearing for August 30, 2018, at which the panel would consider the Company's appeal of the delisting determination. On
September 11, 2018, the Company announced that it had received an extension from the panel until October 15, 2018 to regain compliance with the $1.00 minimum bid price requirement. The
Company also announced its plans to execute the share consolidation (reverse stock split),
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approved
at the Annual General and Special Meeting of Shareholders on June 4, 2018. On October 9, 2018, the Company announced that it had received written notification from the panel
that the Company had regained compliance with the minimum bid price requirement, the Company was in compliance with all other applicable continued listing requirements and the panel had determined to
continue listing the Common Shares on the Nasdaq.
On
July 16, 2018, the Company announced that it had filed an "administrative" prospectus supplement relating to the expiration of its prior shelf prospectus and registration
statement on July 9, 2018, so that the registration of the 2017 Financings from the Company's prior registration statement was moved to the new registration statement.
On
August 3, 2018, the Company announced that it had entered into the Penn Agreement, which resolved certain potential claims against the Company that had been previously
disclosed.
On
August 6, 2018, the Company announced that it would present at the 38
th
Annual Canaccord Genuity Growth Conference in Boston, Massachusetts.
On
August 6, 2018, the Company announced the publication of the manuscript, "Safety and efficacy of the Reducer: A multicenter clinical
registry REDUCE study" in the
International Journal of Cardiology
. This study presented results on the safety
and effectiveness of the Reducer using a sample of 141 patients suffering from coronary artery disease and chronic refractory angina.
On
September 12, 2018, the Company announced that holders of its senior secured convertible Notes had agreed to amend certain terms of the Notes and other concessions, including
a one-year extension of the maturity of the Notes from May 17, 2019 until May 17, 2020.
On
September 18, 2018, the Company effected a share consolidation (reverse stock split) of its issued and outstanding Common Shares on the basis of one post-consolidation Common
Share for every one hundred pre-consolidation Common Shares.
On
September 19, 2019, the Company announced that the Reducer had been implanted in 100 patients in Germany.
On
September 20, 2019, the Company announced that the Tiara and Reducer would both be featured in several presentations at the Transcatheter Cardiovascular Therapeutics 2018
scientific symposium from September 21-25, 2018, in San Diego, California.
On
October 3, 2018, the Company announced positive 12-week follow-up data from the first U.S. patient implanted with the Reducer. The Compassionate Use case was conducted
in June 2018.
On
October 10, 2018, the Company announced that the FDA has granted "Breakthrough Device Designation" for the Reducer. The FDA grants this designation to expedite the development
and review of a device that demonstrates compelling potential to provide a more effective treatment or diagnosis for life-threatening or irreversibly debilitating diseases.
On
October 16, 2018, the Company announced the publication of a peer-reviewed article on the Tiara in
Circulation: Cardiovascular
Interventions
, titled "Transcatheter Mitral Valve Replacement in Patients with
Previous Aortic Valve Replacement." The article reports for the first time the experience of transcatheter mitral valve replacement using the Tiara valve in patients with previous aortic valve
replacement.
On
October 22, 2018, the Company announced that the Tiara was featured in a "Live Case" broadcast at the 32
nd
Annual European Association for Cardio-Thoracic
Surgery Meeting held October 18-20 in Milan, Italy.
On
November 20, 2018, the Company announced that the
Journal of American College of Cardiology: Cardiovascular Interventions
had
published a peer-reviewed article on the clinical response of a patient that received the Reducer titled, "Coronary Sinus Reducer Implantation to Reduce the Ischemic Burden in Refractory Angina."
On
December 11, 2018, the Company announced that the
Journal of the American College of Cardiology
had published new,
peer-reviewed Reducer data describing the long-term clinical and anatomical
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follow-up
of patients with severe angina pectoris treated with the Reducer twelve years ago. The publication is entitled "First-in-Human Use of Coronary Sinus Reducer in Patients with Refractory
Angina."
On
December 21, 2018, the Company announced that it had received ISO 13485:2016 certification, an internationally recognized quality standard specific to the medical
device industry.
Year Ended December 31, 2017
On January 18, 2017, in CardiAQ v. Neovasc Inc., the trial court granted CardiAQ's motion for
pre- and
post-judgment interest. The Court awarded $20,675,154 in pre-judgment interest and assessed a running rate of $2,354.27 per day from November 16, 2016 until the judgment was satisfied, unless
the Company prevailed on appeal.
On
June 16, 2017, the Company announced that the District Court in Munich, Germany partially found in favor of CardiAQ in its case against Neovasc. The German court found CardiAQ
had contributed in part to the invention of the Tiara and awarded to CardiAQ co-entitlement rights to the disputed Tiara European patent application. There are currently no monetary awards associated
with this matter. The Company and CardiAQ each filed notices of appeal in July 2017. The case is likely to be heard in the fourth quarter of 2018.
On
September 1, 2017, the Company announced that a panel of the United States Court of Appeals for the Federal Circuit affirmed the judgment of the United States
District Court for the District of Massachusetts in the case of CardiAQ v. Neovasc Inc. The panel also affirmed the district court's decision not to enjoin the Tiara program. As a result,
Neovasc owed the full judgement of approximately $112 million and there are no other monetary damages arising from this award. Neovasc remained the joint inventor of the '964 patent, one
of the patents in the Tiara patent family, along with two employees of CardiAQ, both parties having freedom to use the patent without an obligation to pay royalties to the other.
On
November 3, 2017, the Company reported that the United States Court of Appeals for the Federal Circuit affirmed the judgment of the United States District Court
for the District of Massachusetts in the case of CardiAQ v. Neovasc Inc. and denied the petition for panel rehearing. At this point, the appeals process was exhausted and the full judgment of
approximately $112 million became due on November 13, 2017.
On
November 6, 2017, the Company announced that it had received approval of the FDA to initiate the COSIRA-II IDE pivotal clinical trial. The trial's purpose will be to
demonstrate the safety and effectiveness of the Company's novel Reducer system for treatment of patients with refractory angina. Once completed, the trial data is intended to support an application to
the FDA for approval to begin marketing the Reducer in the United States.
In
November 2017, Neovasc completed two financing transactions, the 2017 Public Transaction and the 2017 Private Placement, for aggregate gross proceeds of approximately
$65 million. The Company used the net proceeds of the 2017 Financings to fully fund the approximately $42 million balance of the damages and interest awards in the case of CardiAQ v.
Neovasc Inc. (after subtracting the approximately $70 million that the Company had paid into escrow), with remaining funds being used (i) to partially fund the ongoing Tiara
clinical program; (ii) to support the completion of the TIARA-II study; and (iii) for general corporate purposes.
On
November 13, 2017, the TSX reported that Neovasc was under a remedial delisting review as a result of the financial hardship exemption application filed by the Company in
connection with the 2017 Financings. The Company subsequently regained compliance with the TSX's continued listing requirements.
Year Ended December 31, 2016
On January 11, 2016, the Company announced that the FDA had granted approval for participating physicians to
treat patients
with its 40mm Tiara in the TIARA-I study.
On
May 13, 2016, the Company filed a preliminary short form base shelf prospectus with certain securities regulatory authorities in Canada and a corresponding shelf registration
statement with the United States Securities and Exchange Commission (the "SEC"). The filing was intended to restore the original capacity which was available to Neovasc under its
previous base shelf prospectus (which expired on June 13,
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2016),
as well as to provide Neovasc with flexibility to take advantage of financing opportunities when market conditions are favorable.
On
May 19, 2016, in the case of CardiAQ v. Neovasc Inc., a jury found in favor of CardiAQ on CardiAQ's claims for relief for breach of contract, breach of the duty of
honesty in contractual performance, and three of CardiAQ's six asserted trade secrets. The jury also issued advisory findings in favor of CardiAQ regarding its causes of action under Massachusetts
Gen. Law. Ch. 93A and patent inventorship. The jury awarded $70 million on the trade secret claim for relief, and no damages on the contractual claims for relief.
On
November 1, 2016, in the case of CardiAQ v. Neovasc Inc., Judge Allison D. Burroughs ruled in favor of CardiAQ on the issue of inventorship of Neovasc's
'964 Patent. At the same time, the judge denied CardiAQ's motion for an injunction that would have shut down the development of the Tiara, thus allowing Neovasc to continue development and
commercialization of the Tiara, while also denying Neovasc's motions for a new trial. Judge Burroughs upheld the jury's verdict and $70 million award against Neovasc, and awarded
$21 million in enhanced damages to that award.
On
November 28, 2016, the Company announced that it had received both regulatory and ethics committee approval to initiate the TIARA-II study in Italy. The TIARA-II study is a
115 patient, non-randomized, prospective clinical study evaluating the Tiara's safety and performance. It is expected that data from this study will be used to file for CE Mark approval.
On
December 2, 2016, the Company and Boston Scientific entered into a definitive agreement for Boston Scientific to acquire Neovasc's advanced biologic tissue capabilities and
certain manufacturing assets and make a 15% equity investment in Neovasc, for a total of $75 million in cash. Under the terms of the approximate $68 million asset purchase agreement
Neovasc has been granted a license to the purchased assets and access to the sold facilities to allow it to continue its tissue and valve assembly activities for its remaining customers, and continue
its own tissue-related programs, including advancing the Tiara through its clinical and regulatory pathways. Under the terms of the equity investment, Boston Scientific acquired
11,817,000 Common Shares in the capital of Neovasc at a price of $0.60 per share, for gross proceeds of $7,090,200.
On
December 23, 2016 the United States District Court for the District of Massachusetts granted a stay of judgment pending the completion of an appeal in the case of
CardiAQ v. Neovasc Inc. As a result of the court order imposing a stay, CardiAQ could not enforce the money judgment pending the outcome of the appeal. Under the terms of the stay, Neovasc
deposited $70 million into a joint escrow account and entered into a general security agreement related to the remaining damages awarded by the court.
Trends, Risks and Uncertainties
Losses and Additional Funding Requirements
Neovasc has a limited operating history, which makes it difficult to predict how its business will develop or what
its future
operating results will be. The Company has a history of operating losses since its inception and will need to generate significantly greater revenues than it has to date to achieve and maintain
profitability. There is no certainty of future profitability, and results of operations in future periods cannot be predicted based on results of operations in past periods. The securities of the
Company should be considered a highly speculative investment.
The
Company has incurred losses and comprehensive losses of $108,042,868 and $109,052,460 for the year ended December 31, 2018, respectively (2017: $22,908,721 and $24,859,117)
and has a deficit of $332,735,195 at December 31, 2018 compared to a deficit of $224,692,327 as at December 31, 2017. As at December 31, 2018 the Company had $9,242,809 in cash
and cash equivalents (2017: $17,507,157). The Company will need to raise additional capital to fund its short and medium-term objectives for the Tiara and the Reducer prior to the successful
commercialization of these products. There is no certainty that the Company will be able to raise additional capital through debt or equity or other means on terms acceptable to the Company or at all.
There is also no certainty that the programs will be successfully commercialized or any required funds will be available to the Company at the time needed or on terms acceptable to the Company. The
terms of the 2017 Financings included, amongst other things, future priced securities, full ratchet anti-dilution clauses and a senior convertible debt instrument secured on substantially all of the
assets of the Company. These terms may make it
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more
difficult to obtain additional debt or equity financing in the future. As at December 31, 2018, the Company had approximately $9.2 million in cash and cash equivalents, sufficient
cash to sustain operations until approximately May 2019. After receipt of the net proceeds of approximately $4.05 million from the February 2019 Financing on February 28,
2019 and the net proceeds of approximately $4.25 million from the March 2019 Financing on March 15, 2019, the Company expects that its cash is sufficient to sustain operations
until approximately September 2019. The Company will need to obtain additional debt or equity financing later in 2019 to fund ongoing operations. The Company can give no assurance that it will
be able to raise the additional funds needed, on terms agreeable to the Company, or at all. These circumstances indicate the existence of material uncertainty and cast substantial doubt about the
Company's ability to continue as a going concern. For a description of the risks relating to the Company's need for additional financing and the securities issued pursuant to the 2017 Financings see
Items 3.D
"Risk Factors"
and 10.A
"Share Capital"
of this Annual Report.
The
audited consolidated financial statements do not reflect adjustments that would be necessary if the going concern assumption were not appropriate. Material adjustments may be
necessary to the audited consolidated financial statements should these circumstances impair the Company's ability to continue as a going concern.
Litigation Matters
Between June 2016 and November 2017, Neovasc was engaged in litigation with CardiAQ in the
U.S. District Court
for the District of Massachusetts and, upon appeal, in the United States Court of Appeals for the Federal Circuit (the "Appeals Court"). On November 13, 2017, the final mandate
was issued by the Appeals Court and approximately $112 million damages and interest awards became due and payable. The Company had approximately $70 million placed in escrow but needed
to raise an additional approximately $42 million or face bankruptcy proceedings. On November 17, 2017, the Company closed the 2017 Financings for gross proceeds of approximately
$65 million and used approximately $42 million to settle the remaining damages and interest awards. For a description of the Company's ongoing litigation, see Item 8.A
"
Consolidated Statements and Other Financial Information Legal Proceedings
" of this Annual Report.
Operating Risks
In addition to these litigation matters, the Company may need to raise additional capital prior to the successful
commercialization of
its products. There is no certainty that the Company's programs will be successfully commercialized or that any required funds will be available to the Company at the time needed or on terms
acceptable to the Company.
Neovasc
is subject to risks and uncertainties associated with operating in the life sciences industry and as a company engaged in significant development, regulatory, production and
commercialization activity. Neovasc cannot anticipate or prevent all of the potential risks to its success, nor predict the impact of any such risk.
Operating
risks include but are not limited to: the clinical success of the Tiara; market acceptance of the Company's technologies and products; litigation risk associated with the
Company's intellectual property and the Company's defense and protection thereof; the Company's ability to obtain and enforce timely patent protection of its technologies and products; the Company's
ability to develop, manufacture and commercialize its products cost-effectively and according to the regulatory standards of numerous governments; the competitive environment and impact of
technological change and/or product obsolescence; the Company's ability to conduct and complete successful clinical trials; the Company's ability to garner regulatory approvals for its products in a
timely fashion; the Company's ability to attract and retain key personnel, effectively manage growth and smoothly integrate newly acquired businesses or technologies; limitations on third-party
reimbursement; instances of product or third-party liability; dependence on a single
supplier for some products; animal disease or other factors affecting the quality and availability of raw materials; conflicts of interest among the Company's directors, officers, promoters and
members of management; fluctuations in the values of relative foreign currencies; volatility of the Company's share price; fluctuations in quarterly financial results; unanticipated expenses; changes
in business strategy; impact of any negative publicity; general political and economic conditions; and acts of god and other unforeseeable events, natural or human-caused.
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Risks Relating to the 2017 Financings
The securities issued pursuant to the 2017 Financings contain, among other things, so-called full-ratchet
anti-dilution and future
pricing provisions, which create a high degree of risk relating to, among other things, significant dilution to shareholders and the Company's ability to raise additional financing. The exercise of
2017 Warrants and conversion of Notes issued pursuant to the 2017 Financings have resulted in significant dilution to our shareholders. Future conversions of the Notes may result in further
significant dilution in the future. For details concerning the terms of the securities issued pursuant to the 2017 Financings, see the prospectus supplement and the forms of such securities filed on
SEDAR at www.sedar.com and with the SEC at www.sec.gov. For a description of the risks associated with these securities, the amount of such securities exercised to date, the dilution to date and the
potential dilution in the future due to such conversions, see Items 3.D "
Risk Factors
" and 10.A "
Share
Capital
" of this Annual Report.
Foreign Operations
The Company changed functional currency on October 1
st
, 2017 from Canadian to U.S. dollars.
The
majority of the Company's revenues are derived from product sales in Europe, primarily denominated in U.S. dollars and Euros, while the majority of the Company's costs are
denominated in Canadian dollars. A decrease in the value of the Euro in relation to the U.S. dollar will have an adverse effect on the Company's results of operations, with lower than expected
revenue amounts and gross margins being reported in the Company's U.S. dollar financial statements. In addition, any decrease in the value of the Euro occurring in between the time a sale is
consummated and the time payment is received by Neovasc will lead to a foreign exchange loss being recognized on the foreign currency denominated trade account receivable. The fluctuation of foreign
exchange may impose an adverse effect on the Company's results of operations and cash flows in the future. The Company does not conduct any hedging activities to mitigate these foreign exchange risks.
Additionally, Neovasc may be materially and adversely affected by increases in duty rates, exchange or price controls, repatriation restrictions, or other restrictions on foreign currencies. The
Company's international operations are subject to certain other risks common to international operations, including, without limitation: government regulations; import restrictions and, in certain
jurisdictions, reduced protection for the Company's intellectual property rights.
Foreign
currency translation gains and losses arising from normal business operations are credited to or charged to operations in the period incurred. To date, Neovasc has not entered
into any foreign exchange forward contracts.
Selected Financial Information
The following discussion should be read in conjunction with the audited consolidated financial statements for the
years ended
December 31, 2018, 2017 and 2016.
Discussion of Operations and Financial Condition
Results
for the years ended December 31, 2018 and 2017 follow:
Losses
The losses and comprehensive losses for the year ended December 31, 2018 were $108,042,868 and $109,052,460,
respectively, or
$7.63 basic and diluted loss per share, as compared with losses and comprehensive losses of $22,908,721 and $24,859,117, respectively, or $28.10 basic and diluted loss per share, for the same period
in 2017.
The
$84,193,343 increase in the comprehensive loss incurred for the year ended December 31, 2018 compared to the same period in 2017 can be substantially explained by a
$85,190,307 increase in other losses (the accounting treatment of the 2017 Financings resulting in an increase in charges of $83,092,711 in the year) and a $321,175 increase in operating losses
($754,153 increase in general and administrative expenses and a $1,428,235 reduction in product development and clinical trials expenses as the Company continues to control costs).
54
Table of Contents
Revenues
Revenues decreased 68% to $1,749,133 for the year ended December 31, 2018, compared to revenues of $5,389,014
for the same
period in 2017. In December 2017, the Company closed its contract manufacturing and consulting services business and is now focused on the commercialization of its own product,
the Reducer.
Sales
of the Reducer for the year ended December 31, 2018 were $1,749,133 compared to $1,128,126 for the same period in 2017, representing an increase of 55%. The Company is
encouraged by the progress this year, but recognizes that future revenues may be unstable before the Reducer becomes widely adopted. The continued success of the commercialization of the Reducer will
be dependent on the amount of internal resources allocated to the product, obtaining appropriate reimbursement codes in various territories and correctly managing the referrals process.
Cost of Goods Sold
The cost of goods sold for the year ended December 31, 2018 was $366,258 compared to $3,477,821 for the same
period in 2017.
The overall gross margin for the year ended December 31, 2018 was 79%, compared to 35% gross margin for the same period in 2017. The gross margin now reflects the gross margin on the Reducer
product only, whereas the comparable period included contract manufacturing and consulting services.
Expenses
Total expenses for the year ended December 31, 2018 were $33,852,958 compared to $34,060,101 for 2017,
representing a decrease
of $207,143 or 1%. The decrease in total expenses for the year ended December 31, 2018 compared to 2017 can be substantially explained by a $1,428,235 decrease in product development and
clinical trial expenses as we continue to preserve cash resources offset by a $754,153 increase in general and administrative expenses and a $466,939 increase in selling expenses.
Selling
expenses for the year ended December 31, 2018 were $1,353,165, compared to $886,226 for 2017, representing an increase of $466,939, or 53%. The increase in selling
expenses for the year ended December 31, 2018 compared to 2017 reflects an increase in costs incurred for commercialization activities related to the Reducer. The Company continues to minimize
its selling expenses as the cash resources of the Company are still limited.
General
and administrative expenses for the year ended December 31, 2018 were $16,438,936, compared to $15,684,783 for 2017, representing an increase of $754,153 or 5%. The
increase in general and administrative expenses for the year ended December 31, 2018 compared to 2017 can be substantially explained by a $1,067,205 increase in stock based compensation and a
$2,379,790 charge for collaboration and settlement expenses and a $2,749,968 charge for settlement expenses (see Item 8.A "
Consolidated Statements and Other
Financial Information Legal Proceedings
" below) and a $1,441,125 increase in other expenses including a substantial increase in legal
expenses as we renewed the base shelf prospectus, filed XBRL for the first time and filed our annual report on the more demanding Form 20-F, as compared to the Form 40-F filed
in 2017, offset by a decrease in expenses related to the 2017 Financings of $5,447,182 and a decrease in litigation expenses of $1,870,225.
Product
development and clinical trial expenses for the year ended December 31, 2018 were $16,060,857 compared to $17,489,092 for 2017, representing a decrease of $1,428,235 or
8%. The decrease in product development and clinical trial expenses for the year ended December 31, 2018 was the result of a $918,016 decrease in employee expenses and a $330,906 decrease in
share-based payments due to a restructuring of the Company in early 2017 and a $120,999 decrease in other expenses, as the Company continues to control costs.
The
Company's expenses are subject to inflation and cost increases. The Company has not seen a material increase in the price of any of the components used in the manufacture of its
products and services.
55
Table of Contents
Other Loss
The other loss for the year ended December 31, 2018 was $75,465,692 compared to other income of $9,724,615
for 2017, an adverse
change of $85,190,307. The increase in the other loss can be substantially explained by the accounting treatment of the 2017 Financings resulting in a $83,092,712 adverse change (charges of
$75,712,610 in the year compared to other income of $7,380,102 in the prior year) and a $2,901,782 adverse change in foreign exchange losses and gains compared to the prior year.
Tax Expense
The tax expense for the year ended December 31, 2018 was $107,093 compared to $484,428 in 2017. Neovasc
(US) Inc. was
established in 2015 to provide clinical trial services to Neovasc Medical Inc. The cross border intercompany charges from Neovasc (US) Inc. to Neovasc Medical Inc. created a
taxable profit in Neovasc (US) Inc. and U.S. federal and state taxes were incurred.
Results for the years ended December 31, 2017 and 2016 follow:
Losses
The losses and comprehensive losses for the year ended December 31, 2017 were $22,908,721 and $24,859,117,
respectively, or
$28.10 basic and diluted loss per share, as compared with
losses and comprehensive losses of $86,494,893 and $82,397,922, respectively, or $128.21 basic and diluted loss per share, for the same period in 2016.
The
$63,586,172 decrease in the loss for the period incurred for the year ended December 31, 2017 compared to the same period in 2016 can be substantially explained by a
$111,781,096 damages provision in relation in the Company's litigation with CardiAQ charged in year ended December 31, 2016 and an offsetting of a $65,095,733 gain on sale of assets related to
an agreement with Boston Scientific in the same year. The accounting treatment of the 2017 Financings resulted in a net $7,380,102 gain and foreign exchange changes accounted for a $5,690,603 gain
between the years. In addition, there was a $3,498,004 reduction in general and administrative expenses (of which, $10,759,788 relates to a decrease in litigation expenses offset by expenses
related to the 2017 Financings of $5,447,182) and a decrease in product development and clinical trial expenses of $1,875,411.
Revenues
Revenues decreased 43% to $5,389,014 for the year ended December 31, 2017, compared to revenues of $9,512,796
for the same
period in 2016. The Company continues to focus its business away from its traditional revenue streams towards development and commercialization of its own products, the Reducer and the Tiara. In
December 2017, the Company closed its contract manufacturing and consulting services.
Sales
of the Reducer for the year ended December 31, 2017 were $1,128,126, compared to $1,004,948 for the same period in 2016, representing an increase of 12%.
Contract
manufacturing revenues for the year ended December 31, 2017 were $949,379, compared to $3,746,521 for the same period in 2016, representing a decrease of 75%. The
decrease in revenue for the year ended December 31, 2017 compared to the same period in 2016 is primarily due to the loss of Boston Scientific as a customer. In December 2016, the
Company entered into an agreement for Boston Scientific to acquire the Company's advanced biologic tissue capabilities and certain manufacturing assets and make a 15% equity investment in Neovasc, for
a total of $75 million in cash. Under the terms of the $68 million asset purchase agreement the Company has been granted a license to the purchased trade secrets and know-how and access
to the sold facilities to allow it to continue its tissue and valve assembly activities for its own tissue-related programs, including advancing the Tiara through its clinical and regulatory pathways.
Revenues
from consulting services for the year ended December 31, 2017 were $3,311,509, compared to $4,761,327 for the same period in 2016, representing a decrease of 30%. The
loss is indicative of the trend the Company was seeing in consulting service revenue prior to closing its consulting services.
56
Table of Contents
Where
possible, the Company updates its charge out rates and product prices on an annual basis to maintain its margins and reflect increases in the cost of goods sold. Some customer
contracts include a mechanism to calculate the price increase or to limit the maximum increase allowable each year.
Cost of Goods Sold
The cost of goods sold for the year ended December 31, 2017 was $3,477,821, compared to $7,091,761 for the
same period in 2016.
The overall gross margin for the year ended December 31, 2017 was 35%, compared to 25% gross margin for the same period in 2016. The Company has seen its gross margins increase due to a change
in the product mix as Reducer revenues reflect an increasing proportion of the overall revenues.
Expenses
Total expenses for the year ended December 31, 2017 were $34,060,101, compared to $39,243,928 for the same
period in 2016,
representing a decrease of $5,183,827 or 13%. The decrease in total expenses for the year ended December 31, 2017 compared to the same period in 2016 reflects a $3,498,004 reduction in general
and administrative expenses (of which, $10,759,788 relates to a decrease in litigation expenses offset by expenses related to the 2017 Financings of $5,447,182) and a $1,875,411 decrease in
product development and clinical trial expenses to preserve cash resources.
Selling
expenses for the year ended December 31, 2017 were $886,226, compared to $696,638 for the same period in 2016, representing an increase of $189,588, or 27%. The increase
in selling expenses for the year ended December 31, 2017 compared to the same period in 2016 reflects an increase in costs incurred for commercialization activities related to the Reducer. The
Company continues to minimize its selling expenses in the light of the impact of litigation on the cash resources of the Company.
General
and administrative expenses for the year ended December 31, 2017 were $15,684,783, compared to $19,182,787 for the same period in 2016, representing a decrease of
$3,498,004 or 18%. The decrease in general and administrative expenses for the year ended December 31, 2017 compared to the same period in 2016 can be substantially explained by a $10,759,788
decrease in litigation expenses offset by an increase in expenses related to the 2017 Financings of $5,447,182.
Product
development and clinical trial expenses for the year ended December 31, 2017 were $17,489,092 compared to $19,364,503 for the same period in 2016, representing a decrease
of $1,875,411 or 10%. The decrease in product development and clinical trial expenses for the year ended December 31, 2017 was the result of a decision and need to preserve cash resources until
the decision from the Appeals Court in the primary U.S. litigation with CardiAQ was final.
The
Company's expenses are subject to inflation and cost increases. Salaries and wages have increased on average by 4% in the year ended December 31, 2017 compared to the same
period in 2016. The Company has not seen a material increase in the price of any of the components used in the manufacture of its products and services.
Other Loss
The other income for the year ended December 31, 2017 was $9,724,615, compared to a loss of $49,471,477 for
the same period in
2016, an increase in other income of $59,196,092. The increase in the other income can be substantially explained by a $111,781,096 damages provision in relation in the Company's litigation with
CardiAQ charged in year ended December 31, 2016 and an offsetting $65,095,733 gain on sale of assets related to an agreement with Boston Scientific in the same year. The accounting treatment of
the 2017 Financings resulted in a $7,380,102 net gain and foreign exchange changes accounted for a $5,690,603 gain between the years.
Tax Expense
The tax expense for the year ended December 31, 2017 was $484,428, compared to $200,523 for the same period
in 2016. Neovasc
(US) Inc. was established in 2015 to provide clinical trial services to Neovasc
57
Table of Contents
Medical Inc.
The cross border intercompany charges from Neovasc (US) Inc. to Neovasc Medical Inc. created a taxable profit in Neovasc (US) Inc. and U.S. federal and
state taxes were charged. In addition, the Company resolved its tax due to the State of California and paid $290,539 to bring the account up to date.
Results
for the three months ended December 31, 2018 and 2017 follow:
Losses
The income and comprehensive income for the three months ended December 31, 2018 were $11,620,015 and
$10,842,733,
respectively, or $0.51 basic and diluted loss per share, as compared with losses and comprehensive losses of $5,026,466 and $5,026,466, respectively, or $0.06 basic and diluted loss per share, for the
same period in 2017.
The
$16,646,481 increase in the income incurred for the three months ended December 31, 2018 compared to the same period in 2017 can be substantially explained by a $14,652,143
increase in other income, substantially due to the accounting treatment of the 2017 Financings, and a $2,902,915 decrease in general and administrative expenses related to the decrease in $5,447,182
expenses from the 2017 Financings.
Revenues
Revenues decreased 57% to $523,424 for the three months ended December 31, 2018, compared to revenues of
$1,227,625 for the
same period in 2017. In December 2017, the Company closed its contract manufacturing and consulting services business and is now focused on the commercialization of its own product,
the Reducer.
Sales
of the Reducer for the three months ended December 31, 2018 were $523,424 compared to $285,598 for the same period in 2017, representing an increase of 83%. The Company is
encouraged by the progress this year, but recognizes that future revenues may be unstable before the Reducer becomes widely adopted. The continued success of the commercialization of the Reducer will
be dependent on the amount of internal resources allocated to the product, obtaining appropriate reimbursement codes in various territories and correctly managing the referrals process.
Cost of Goods Sold
The cost of goods sold for the three months ended December 31, 2018 was $93,519 compared to $1,136,804 for
the same period in
2017. The overall gross margin for the three months ended December 31, 2018 was 82%, compared to 7% gross margin for the same period in 2017. The gross margin now reflects the gross margin on
the Reducer product only, whereas the comparable period included contract manufacturing and consulting services.
Expenses
Total expenses for the three months ended December 31, 2018 were $10,742,892, compared to $12,301,582 for the
same period in
2017, representing a decrease of $1,558,690 or 13%. The increase in total expenses for the three months ended December 31, 2018 compared to the same period in 2017 can be substantially
explained by a $2,902,915 decrease in general and administrative expenses due to the decrease of $5,447,182 related to expenses from the 2017 Financings offset by a $393,857 increase in selling
expenses due to an increase in costs incurred for commercialization activities related to the Reducer and a $950,368 increase in product development and clinical trial expenses from increased
share-based payments as options were granted.
Selling
expenses for the three months ended December 31, 2018 were $614,742, compared to $220,885 for the same period in 2017, representing an increase of $393,857, or 178%. The
increase in selling expenses for the three months ended December 31, 2018 compared to the same period in 2017 reflects an increase in costs incurred for commercialization activities related to
the Reducer. The Company continues to manage its selling expenses as the cash resources of the Company are still limited.
General
and administrative expenses for the three months ended December 31, 2018 were $5,415,634, compared to $8,318,549 for the same period in 2017, representing a decrease of
$2,902,915 or 35%.
58
Table of Contents
The
decrease in general and administrative expenses for the three months ended December 31, 2018 compared to the same period in 2017 can be substantially explained by a decrease of $5,447,182
related to expenses from the 2017 Financings, offset by a $2,749,968 charge for settlement expenses (see Item 8.A "
Consolidated Statements and Other Financial Information
Legal Proceedings
" below).
Product
development and clinical trial expenses for the three months ended December 31, 2018 were $4,712,516 compared to $3,762,148 for the same period in 2017, representing an
increase of $950,368 or 25%. The increase in product development and clinical trial expenses for the three months ended December 31, 2018 was primarily the result of a $626,271 increase in
share-based payments as options were granted.
The
Company's expenses are subject to inflation and cost increases. The Company has not seen a material increase in the price of any of the components used in the manufacture of its
products and services.
Other Loss
The other income for the three months ended December 31, 2018 was $21,862,040 compared to other income of
$7,209,897 for the
same period in 2017, an increase of $14,652,143. The increase in the other income can be substantially explained by the accounting treatment of the 2017 Financings resulting in charges of $14,506,846
in the quarter.
Tax Expense
The tax expense for the three months ended December 31, 2018 was $70,961 compared to $25,602 for the same
period in 2017.
Neovasc (US) Inc. was established in 2015 to provide clinical trial services to Neovasc Medical Inc. The cross border intercompany charges from Neovasc (US) Inc. to Neovasc
Medical Inc. created a taxable profit in Neovasc (US) Inc. and U.S. federal and state taxes were incurred.
Results for the three months ended December 31, 2017 and 2016 follow:
Losses
The comprehensive losses for the three months ended December 31, 2017 were $5,026,466, or $6.16 basic and
diluted loss per
share, as compared with losses and comprehensive income of
$37,213,791 and $37,095,024, or $54.00 basic earnings and $47.00 fully diluted earnings per share for the same period in 2016.
The
$42,240,257 decrease in the loss for the period incurred for the three months ended December 31, 2017 compared to the same period in 2016 can be substantially explained by a
$70 million damages provision related to the jury award against the Company and a $21 million enhanced damages provision against the Company in its litigation with CardiAQ, charged in
the year ended December 31, 2017, a $5,857,116 increase in general and administrative expenses (of which $1,065,390 was a decrease in litigation expense offset by $5,447,182 increase in
financing fees from derivative liabilities), and a $65 million decrease in gain on sale of asset attributed to the Boston Scientific sale. The Company has incurred significant costs in
defending itself in lawsuits filed by CardiAQ.
Revenues
Revenues decreased 56% to $1,227,625 for the three months ended December 31, 2017, compared to revenues of
$2,761,122 for the
same period in 2016. The Company continued to focus its business away from its traditional revenue streams towards development and commercialization of its own products, the Reducer and
the Tiara.
Reducer
sales for the three months ended December 31, 2017 were $285,598 compared to $282,515 for the same period in 2016, representing an increase of 1%. The continued success
of the commercialization of the Reducer will be dependent on the amount of internal resources allocated to the product, obtaining appropriate reimbursement codes in various territories and correctly
managing the referrals process.
Contract
manufacturing revenues for the three months ended December 31, 2017 were $465,205, compared to $1,355,385 for the same period in 2016, representing a decrease of 66%.
The decrease in revenue for the three months ended December 31, 2017 compared to the same period in 2016 is primarily due to the loss
59
Table of Contents
of
Boston Scientific as a customer. In December 2016, the Company entered into an agreement for Boston Scientific to acquire the Company's advanced biologic tissue capabilities and certain
manufacturing assets and make a 15% equity investment in Neovasc, for a total of $75 million in cash. Under the terms of the $68 million asset purchase agreement the Company has been
granted a license to the purchased trade secrets and know-how and access to the sold facilities to allow it to continue its tissue and valve assembly activities for its remaining customers, and
continue its own tissue-related programs, including advancing the Tiara through its clinical and regulatory pathways. In 2017, the Company has redirected their focus away from contract manufacturing.
Going forward, with the reorganization of the Company concentrating on the Tiara
and the Reducer, all contract manufacturing revenue streams will be exhausted. The Company ceased all contract manufacturing revenues at the end of December 2017.
Revenues
from consulting services for the three months ended December 31, 2017 were $476,822 compared to $1,123,222 for the same period in 2016, representing a decrease of 58%.
The decrease is indicative of the trend the Company is seeing in consulting service revenue. The Company ceased all consulting services revenues at the end of December 2017.
Where
possible the Company updates its charge out rates and product prices on an annual basis to maintain its margins and reflect increases in the cost of goods sold. Some customer
contracts include a mechanism to calculate the price increase or to limit the maximum increase allowable each year.
Cost of Goods Sold
The cost of goods sold for the three months ended December 31, 2017 was $1,136,804, compared to $2,052,969
for the same periods
in 2016. The overall gross margin for the three months ended December 31, 2017 was 7%, compared to 26% gross margin for the same period in 2016. The Company has seen its gross margins decrease
due to a change in focus towards Tiara and Reducer, closing its contract manufacturing and consulting businesses.
Expenses
Total expenses for the three months ended December 31, 2017 were $12,301,582, compared to $7,437,156 for the
same period in
2016, representing an increase of $4,864,426 or 65%. The decrease in total expenses for the three months ended December 31, 2017 compared to the same period in 2016 reflects a $5,857,116
increase in general and administrative expenses (of which $5,447,182 was an increase in financing fees for the derivative liability) and a $1,071,842 decrease in product development and
clinical trial expenses to preserve cash resources.
Selling
expenses for the three months ended December 31, 2017 were $220,885, compared to $141,733 for the same period in 2016, representing an increase of $79,152, or 56%. The
increase in selling expenses for the three months ended December 31, 2017 compared to the same period in 2016 reflects costs incurred for commercialization activities for the Reducer in 2017.
The Company continues to minimize its selling expenses in the light of the impact of litigation on the Company.
General
and administrative expenses for the three months ended December 31, 2017 were $8,318,549 compared to $2,461,433 for the same period in 2016, representing an increase of
$5,857,116 or 238%. The
increase in general and administrative expenses for the three months ended December 31, 2017 compared to the same period in 2016 can be substantially explained by a $5,447,182 increase in
financing fee from derivative liabilities.
Product
development and clinical trial expenses for the three months ended December 31, 2017 were $3,762,148 compared to $4,833,990 for the same period in 2016, representing a
decrease of $1,071,842 or 22%. The overall gradual decrease in product development and clinical trial expenses for the three months ended December 31, 2017 occurred as the Company focused on
clinical activities and slowed product development activities to preserve cash resources.
The
Company's expenses are subject to inflation and cost increases. Salaries and wages have increased on average by 4% in the year ended December 31, 2017 compared to the same
period in 2016. The
60
Table of Contents
Company
has not seen a material increase in the price of any of the components used in the manufacture of its products and services.
Other Income and Loss
The other income for the three months ended December 31, 2017 was $7,209,897, compared to $43,957,927 for the
same period in
2016, a decrease in other income of $36,748,030. The decrease in the other income can be substantially explained by a $65 million decrease in gain on sale of asset from Boston Scientific and a
$21 million decrease in the charge for the damages provision. Included within other income for the three months ended December 31, 2017 is a charge of $738,021 for post-judgment interest
on the damages provision related to the litigation with CardiAQ (see Item 8.A "
Consolidated Statements and Other Financial
Information Legal Proceedings
" below), (2016: $nil).
Annual Information
The following is a summary of selected financial information for the three fiscal years to December 31,
2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Revenues
|
|
$
|
1,749,133
|
|
$
|
5,389,014
|
|
$
|
9,512,796
|
|
Loss
|
|
|
(108,042,868
|
)
|
|
(22,908,721
|
)
|
|
(86,494,893
|
)
|
Basic and diluted loss per share
|
|
|
(7.63
|
)
|
|
28.10
|
|
|
28.21
|
|
Total assets
|
|
|
11,993,294
|
|
|
22,206,443
|
|
|
98,809,503
|
|
Total long-term liabilities and damages provision
|
|
|
13,384,415
|
|
|
32,577,647
|
|
|
111,781,096
|
|
Cash dividend declared per share
|
|
|
nil
|
|
|
nil
|
|
|
nil
|
|
Revenues
have declined year-over-year as the development of transcatheter aortic valves by our customers has reached its peak. The Company closed all of its revenue generating business
segments except its Reducer business at the end of 2017.
The
Company has incurred significant costs in defending itself in lawsuits filed by CardiAQ. In 2016 the Company provided $111,781,096 for damages and interest awards related to the
primary U.S. litigation with CardiAQ (see Item 8.A "
Consolidated Statements and Other Financial Information Legal
Proceedings
" of this Annual Report), which is only partially offset by a $65,095,733 gain on sale of assets related to the agreement with Boston Scientific.
In
December 2016, the Company entered into an agreement for Boston Scientific to acquire the Company's advanced biologic tissue capabilities and certain manufacturing assets and
make a 15% equity investment in Neovasc, for a total of $75 million in cash. Under the terms of the approximate $68 million asset purchase agreement the Company has been granted a
license to the purchased trade secrets and know-how and access to the sold facilities to allow it to continue its tissue and valve assembly activities for its remaining customers, and continue its own
tissue-related programs, including advancing Tiara through its clinical and regulatory pathways.
The
Company remains focused on the development and commercialization of the Tiara and the Reducer over the next several years. The 2017 Financings completed in November 2017
allowed us to settle the claims against us related to the primary U.S. litigation with CardiAQ and continue our business. The Company intends to use the remaining capital to execute our
development and commercialization plans.
The
accounting treatment of the 2017 Financings as derivative financial instruments resulted in non-cash charges of $79,935,783 for the year ended December 31, 2018,
substantially explaining the significant increase in loss compared to 2017.
61
Table of Contents
Quarterly Information
The following is a summary of selected unaudited financial information for the twelve fiscal quarters to
December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2018
|
|
September 30,
2018
|
|
June 30,
2018
|
|
March 31,
2018
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reducer
|
|
$
|
523,424
|
|
$
|
480,540
|
|
$
|
405,247
|
|
$
|
339,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
523,424
|
|
|
480,540
|
|
|
405,247
|
|
|
339,922
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Goods Sold
|
|
|
93,519
|
|
|
96,743
|
|
|
88,603
|
|
|
87,393
|
|
Gross Profit
|
|
|
429,905
|
|
|
383,797
|
|
|
316,644
|
|
|
252,529
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses
|
|
|
614,742
|
|
|
202,947
|
|
|
248,538
|
|
|
286,938
|
|
General and administrative expenses
|
|
|
5,415,634
|
|
|
6,340,747
|
|
|
2,213,464
|
|
|
2,469,091
|
|
Product development and clinical trials expenses
|
|
|
4,712,516
|
|
|
3,490,696
|
|
|
3,858,255
|
|
|
3,999,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,742,892
|
|
|
10,034,390
|
|
|
6,320,256
|
|
|
6,755,420
|
|
Operating Loss
|
|
|
(10,312,986
|
)
|
|
(9,650,593
|
)
|
|
(6,003,613
|
)
|
|
(6,502,891
|
)
|
|
|
|
|
|
|
|
|
|
|
Other Income/(expense)
|
|
|
21,862,040
|
|
|
(4,932,151
|
)
|
|
(43,071,578
|
)
|
|
(49,324,003
|
)
|
Tax expense
|
|
|
70,961
|
|
|
(54,000
|
)
|
|
(70,400
|
)
|
|
(53,654
|
)
|
|
|
|
|
|
|
|
|
|
|
Gain/(Loss) for the Period
|
|
$
|
11,620,015
|
|
$
|
(14,636,744
|
)
|
$
|
(49,145,591
|
)
|
$
|
(55,880,548
|
)
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Loss Per Share
|
|
$
|
0.51
|
|
$
|
(0.78
|
)
|
$
|
(3.66
|
)
|
$
|
(38.59
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2017
|
|
September 30,
2017
|
|
June 30,
2017
|
|
March 31,
2017
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reducer
|
|
$
|
285,598
|
|
$
|
334,208
|
|
$
|
247,555
|
|
$
|
260,765
|
|
Contract manufacturing
|
|
|
465,205
|
|
|
197,494
|
|
|
152,717
|
|
|
133,963
|
|
Consulting services
|
|
|
476,822
|
|
|
843,191
|
|
|
904,864
|
|
|
1,086,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,227,625
|
|
|
1,374,893
|
|
|
1,305,136
|
|
|
1,481,360
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Goods Sold
|
|
|
1,136,804
|
|
|
659,686
|
|
|
872,703
|
|
|
808,628
|
|
Gross Profit
|
|
|
90,821
|
|
|
715,207
|
|
|
432,433
|
|
|
672,732
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses
|
|
|
220,885
|
|
|
253,791
|
|
|
224,382
|
|
|
187,168
|
|
General and administrative expenses
|
|
|
8,318,549
|
|
|
1,864,302
|
|
|
2,253,219
|
|
|
3,248,713
|
|
Product development and clinical trials expenses
|
|
|
3,762,148
|
|
|
4,422,641
|
|
|
4,250,780
|
|
|
5,053,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,301,582
|
|
|
6,540,734
|
|
|
6,728,381
|
|
|
8,489,404
|
|
Operating Loss
|
|
|
(12,210,761
|
)
|
|
(5,825,527
|
)
|
|
(6,295,948
|
)
|
|
(7,816,672
|
)
|
|
|
|
|
|
|
|
|
|
|
Other Income/(expense)
|
|
|
7,209,897
|
|
|
1,473,493
|
|
|
1,012,926
|
|
|
28,299
|
|
Tax expense
|
|
|
(25,602
|
)
|
|
(343,926
|
)
|
|
(58,286
|
)
|
|
(56,614
|
)
|
|
|
|
|
|
|
|
|
|
|
Loss for the Period
|
|
$
|
(5,026,466
|
)
|
$
|
(4,695,960
|
)
|
$
|
(5,341,308
|
)
|
$
|
(7,844,987
|
)
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Loss Per Share
|
|
$
|
(6.17
|
)
|
$
|
(5.95
|
)
|
$
|
(6.78
|
)
|
$
|
(9.97
|
)
|
|
|
|
|
|
|
|
|
|
|
62
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
September 30,
2016
|
|
June 30,
2016
|
|
March 31,
2016
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reducer
|
|
$
|
282,515
|
|
$
|
262,546
|
|
$
|
246,122
|
|
$
|
213,765
|
|
Contract manufacturing
|
|
|
1,355,385
|
|
|
1,543,516
|
|
|
240,837
|
|
|
606,783
|
|
Consulting services
|
|
|
1,123,222
|
|
|
1,227,938
|
|
|
1,223,973
|
|
|
1,186,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,761,122
|
|
|
3,034,000
|
|
|
1,710,932
|
|
|
2,006,742
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Goods Sold
|
|
|
2,052,969
|
|
|
2,201,440
|
|
|
1,391,708
|
|
|
1,445,644
|
|
Gross Profit
|
|
|
708,153
|
|
|
832,560
|
|
|
319,224
|
|
|
561,098
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses
|
|
|
141,733
|
|
|
208,884
|
|
|
181,174
|
|
|
164,847
|
|
General and administrative expenses
|
|
|
2,461,433
|
|
|
3,466,825
|
|
|
7,427,124
|
|
|
5,827,405
|
|
Product development and clinical trials expenses
|
|
|
4,833,990
|
|
|
4,742,691
|
|
|
5,705,035
|
|
|
4,082,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,437,156
|
|
|
8,418,400
|
|
|
13,313,333
|
|
|
10,075,039
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss
|
|
|
(6,729,003
|
)
|
|
(7,585,840
|
)
|
|
(12,994,109
|
)
|
|
(9,513,941
|
)
|
|
|
|
|
|
|
|
|
|
|
Other income/(expense)
|
|
|
43,957,927
|
|
|
(21,461,950
|
)
|
|
(70,648,431
|
)
|
|
(1,319,023
|
)
|
Tax expense
|
|
|
(15,133
|
)
|
|
(87,296
|
)
|
|
(49,920
|
)
|
|
(48,174
|
)
|
|
|
|
|
|
|
|
|
|
|
Profit/(Loss) for the Period
|
|
$
|
37,213,791
|
|
$
|
(29,135,086
|
)
|
$
|
(83,692,460
|
)
|
$
|
(10,881,138
|
)
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Loss Per Share
|
|
$
|
54.16
|
|
$
|
(43.57
|
)
|
$
|
(125.18
|
)
|
$
|
(16.28
|
)
|
|
|
|
|
|
|
|
|
|
|
The
Company closed its contract manufacturing and consulting services revenue generating business segments at the end of 2017 and the only revenue going forward will be derived from
sales of the Reducer.
Selling
expenses are expected to generally increase as the Company continues its focused commercialization of the Reducer in select countries in Europe. General and administrative
expense reached peaks in the third quarter of 2018 due to the accrual of future collaboration and license fees and an increase in share-based payments as options were granted, in the fourth quarter of
2017 due to expense related to obtaining the convertible Notes and in the second quarter of 2016 mainly due to litigation expenses during the jury trial in the primary U.S. litigation with
CardiAQ. While we aim to increase product development and clinical trial activities quarter over quarter, with quarterly fluctuations depending on the activities conducted in that quarter to develop
the Tiara and the Reducer, the Company has been resource constrained since the litigation loss in the second quarter of 2016 as we have been forced to defer or cancel certain otherwise desirable
projects we would like to have undertaken.
Discussion of Liquidity and Capital Resources
Results
for the years ended December 31, 2018 and 2017 follow:
Neovasc
finances its operations and capital expenditures with cash generated from operations and through equity and debt financings. As at December 31,
2018 the Company had cash and cash equivalents of $9,242,809 compared to cash and cash equivalents of $17,507,157 as at December 31, 2017. The Company will require significant additional
financing in order to continue to operate its business. Given the current nature of the Company's capital structure, there can be no assurance that such financing will be available on favorable terms,
or at all.
The
Company is in a positive working capital position of $2,464,167, with current assets of $10,739,930 and current liabilities of $8,275,763. The Company will require additional
working capital in order to continue to operate its business and there can be no assurance that such additional working capital will be available on favorable terms, or at all.
Cash
used in operating activities for the twelve months ended December 31, 2018 was $22,794,748, compared to $138,613,945 for the same period in 2017. For the twelve months ended
December 31, 2018, operating activities were $23,924,650, compared to $26,403,092 for the same period in 2017, a decrease of
63
Table of Contents
$2,478,442.
Net cash provided from the net change in non-cash working capital items for the twelve months ended December 31, 2018 was $1,124,891, compared to a net cash outflow of $112,067,771
in the same period in 2017. The decrease in net cash outflow can be attributed to the payment of the damages and interest awards in relation in the Company's primary U.S. litigation with
CardiAQ in 2017.
Net
cash received from investing activities for the twelve months ended December 31, 2018 was $713,752 compared to net cash applied to investing activities of $69,496,853 for the
same period in 2017, primarily due the release of cash held in escrow to settle damages and interest awards in the Company's primary U.S. litigation with CardiAQ in 2017.
The
majority of the revenue and expenses of the Company are incurred in the parent and in two of its subsidiaries, NMI, which is located in Canada, and Neovasc (US) Inc. which is
located in the United States. There were no significant restrictions on the transfer of funds between these entities during the periods ended December 31, 2018 and 2017 and the Company
had no complications in transferring funds to and from its subsidiaries in Israel and the United States.
The
Company is exposed to foreign currency fluctuations on $1,508,963 of its cash and cash equivalents and restricted cash held in Canadian dollars and Euros.
Results
for the years ended December 31, 2017 and 2016 follow:
Neovasc
finances its operations and capital expenditures with cash generated from operations and equity and debt financings. As at December 31, 2017
the Company had cash and cash equivalents of $17,507,157 compared to cash and cash equivalents of $22,954,571 as at December 31, 2016.
The
Company was in a negative working capital position of $6,060,895, with current assets of $20,043,002 and current liabilities of $26,103,897. However, of the current liabilities,
only 1,844,955 were cash liabilities, as the liability for the convertible Notes and the derivative liability from the 2017 Financings are accounting entries to account for the value of the
instruments issued in the 2017 Financings.
Cash
used in operating activities for the year ended December 31, 2017 was $138,613,945, compared to $39,794,159 for the same period in 2016. The Company settled the $112,519,117
damages and interest awards in connection with its primary U.S. litigation with CardiAQ in full in 2017. For the year ended December 31, 2017, operating expenses were $26,403,092,
compared to $37,220,923 for the same period in 2016, a decrease of $10,841,962 that can be substantially explained by a $5,690,603 gain related to foreign exchange between the two periods and a
$5,856,239 reduction in departmental cash expenses.
Net
cash applied to investing activities for the year ended December 31, 2017 was $69,496,853 compared to net cash applied by investing activities of $3,364,190 in 2016, as the
$70,000,000 held in escrow was released in 2017 to settle the damages and interest awards in the Company's primary U.S. litigation with CardiAQ.
Net
cash provided by financing activities for the year ended December 31, 2017 was $65,578,699 compared to $7,129,852 for the same period in 2016, as the Company completed the
2017 Financings.
The
majority of the revenue and expenses of the Company are incurred in the parent and in one of its subsidiaries, NMI, both of which are Canadian companies. There were no significant
restrictions on the transfer of funds between these entities and during the years ended December 31, 2017 and 2016 and the Company had no complications in transferring funds to and from its
subsidiaries in Israel and the United States.
The
Company is exposed to foreign currency fluctuations on $17,985,417 of its cash and cash equivalents and restricted cash held in U.S. dollars and Euros.
2017 Financings
In November 2017, Neovasc completed two financing transactions, the 2017 Public Transaction and the 2017
Private Placement, for
aggregate gross proceeds of approximately $65 million. The Company used the net proceeds of the 2017 Financings to fully fund the approximately $42 million balance of the damages and
interest awards in the case of CardiAQ v. Neovasc Inc. (after subtracting the approximately $70 million that the
64
Table of Contents
Company
had paid into escrow), with remaining funds being used (i) to partially fund the ongoing Tiara clinical program; (ii) to support the completion of the TIARA-II study; and
(iii) for general corporate purposes.
On
November 17, 2017, the Company completed the underwritten 2017 Public Transaction of 6,609,588 Series A units (the "Series A Units") of Neovasc and
19,066,780 Series B units (the "Series B Units" and together with the Series A Units, the "Units") of Neovasc, at a price of $1.46 per Unit for gross proceeds of
approximately $37.487 million, before deducting the underwriting discounts and commissions and other estimated offering expenses payable by Neovasc. The price of $1.46 per Unit represents the
market price
(as defined in the TSX Company Manual) of Neovasc's common shares as of the date of announcement of the 2017 Financings.
Each
Series A Unit was comprised of (i) one common share of the Company (each, a "Unit Share"), (ii) one Series A Warrant, (iii) one Series B
Warrant and (iv) 0.40 Series C Warrant to purchase a unit (each, a "Series C Unit") comprised of one Common Share, one Series A Warrant and one Series B Warrant.
Each Series B Unit was comprised of (i) either one Unit Share or one pre-funded Series D common share purchase warrant of the Company (each, a "Series D Warrant"),
(ii) one Series A Warrant, (iii) one Series B Warrant, (iv) 0.40 Series C Warrant, and (v) 1.1765 Series F common share purchase warrant
of the Company (each, a "Series F Warrant"). The Series A Units and Series B Units separated into their component parts upon distribution.
Each
Series A Warrant entitled the holder to purchase one Common Share (each, a "Series A Warrant Share") at an exercise price of $1.61 per Series A Warrant Share
at any time prior to 11:59 p.m. (New York time) on November 17, 2022. Each Series B Warrant entitled the holder to purchase one Common Share (each, a "Series B
Warrant Share") at an exercise price of $1.61 per Series B Warrant Share at any time prior to 11:59 p.m. (New York time) on November 17, 2019. Each Series C Warrant
entitled the holder to purchase a Series C Unit comprised of a Common Share (each a "Series C Unit Share"), a Series A Warrant and a Series B Warrant, at an exercise price
of $1.46 per Series C Unit at any time prior to 11:59 p.m. (New York time) on November 17, 2019. Each Series D Warrant entitled the holder to purchase one Common
Share (each, a "Series D Warrant Share") at an exercise price of $1.46 per Series D Warrant Share, all of which were pre-funded except for a nominal exercise price of $0.01 per
Series D Warrant Share at any time prior to 11:59 p.m. (New York time) on November 17, 2022. Each Series F Warrant entitled the holder to purchase one Common Share
(each, a "Series F Warrant Share" and together with the Series A Warrant Shares, Series B Warrant Shares, Series C Unit Shares, and Series D Warrant Shares, the
"2017 Warrant Shares") at an exercise price of $1.61 per Series F Warrant Share at any time prior to 11:59 p.m. (New York time) on November 17, 2019.
Concurrent
with the 2017 Public Transaction, the Company completed the 2017 Private Placement for the sale of $32,750,000 aggregate principal amount of senior secured convertible Notes
of the Company and Series E common share purchase warrants of the Company (the "Series E Warrants") to purchase one Common Share at a price of $1.61 per Series E Warrant.
As a result of the February 2019 Financing, the exercise prices of the Notes were adjusted to $0.45. The Notes were issued with an original issue price of $850 per $1,000 principal amount of
note. The Notes initially carried an 18-month term and carry an interest rate of 0.0% per annum (increasing to 15% upon an event of default) from November 17, 2018. The maturity date of the
Notes was extended to May 17, 2020, pursuant to certain waiver agreements between the Company and the holders of the Notes, along with certain other amendments. The form of waiver agreement is
available on the Company's profiles on SEDAR at www.sedar.com and with the SEC at www.sec.gov. Interest on the Notes will commence accruing on November 17, 2018, will be computed on the basis
of a 360-day year and twelve 30-day months and will be payable in cash on January 1, 2018 and on the first day of each calendar quarter thereafter up to, and including, the maturity date. The
Series E Warrants had the same terms and conditions as the Series A Warrants.The Notes are secured by a first priority security interest on all of Neovasc's assets. The Notes and
Series E Warrants are subject to adjustment, at any time prior to their expiry. The Notes contain, among other things, provisions relating to future-priced conversion or exercise formula and
full-ratchet anti-dilution.
As
of March 19, 2019, all of the warrants issued pursuant to the 2017 Financings have been either exercised or cancelled, such that no such warrants remain outstanding.
65
Table of Contents
For
a description of the terms of the securities issued pursuant to the 2017 Financings, see the prospectus supplement and the forms of such securities filed on SEDAR at www.sedar.com
and with the SEC at www.sec.gov. For a description of the risks associated with these securities, the amount of such securities exercised to date, the dilution to date and potential dilution in the
future due to such exercises or conversions, see Items 3.D "
Risk Factors
" and 10.A "
Share
Capital
" of this Annual Report.
Conversions of Notes and Exercises of 2017 Warrants
The Series A Warrants, Series B Warrants, Series C Warrants, Series E Warrants and
Series F
Warrants were each subject to a hold period that restricted each warrant from being exercised until January 17, 2018. As of March 19, 2019, all of the 25,676,368 Series B
Warrants initially granted and 10,273,972 Series B Warrants issued upon exercise of Series C Warrants have been exercised and all of the 22,431,506 Series F Warrants
initially granted have been exercised, in each case using the cashless alternate net number mechanism, for 18,343,551 Common Shares. As of March 19, 2019, all of the
10,273,972 Series C Warrants initially granted have been exercised, for proceeds to the Company of $14,999,999.12. Such exercises of Series C Warrants resulted in the issuance of
102,740 Common Shares and the issuance of an additional 10,273,972 Series A Warrants. As of March 19, 2019, all of the warrants issued pursuant to the 2017 Financings have
been either exercised or cancelled, such that no 2017 Warrants remain outstanding.
As
of March 19, 2019, of the $32,750,000 aggregate principle amount of Notes initially issued, $21,925,000 aggregate principle amount has been converted using the alternate
conversion price mechanism, resulting in the issuance of 19,773,718 Common Shares, and $10,825,000 aggregate principle amount remains outstanding. As a result of the February 2019
Financing, the conversion price of the Notes reset, as of that time, to $0.45.
For
a description of the risks associated with the securities issued pursuant to the 2017 Financings, the amount of such securities exercised or converted to date, the dilution to date,
and the potential dilution in the future due to such exercises or conversions, see Items 3.D "
Risk Factors
" and 10.A
"
Share Capital
" of this Annual Report.
Outstanding Share Data
As at March 19, 2019, the Company had 61,985,116 common voting shares issued and outstanding. Further,
the following
securities are convertible into Common Shares: 3,682,469 stock
options with a weighted average price of $7.70, 1,444,444 Broker Warrants and the $10,825,000 convertible Notes that could convert into 24,055,555 Common Shares (not taking into
account the alternate conversion price mechanism in the Notes). Our fully diluted share capital as of the same date is 91,167,584. Our fully diluted share capital, adjusted on the assumption that all
the outstanding Notes are exercised using the alternate conversion price at the closing price on March 19, 2019 is 94,869,863.
For
details concerning the terms of the securities issued pursuant to the 2017 Financings, see the prospectus supplement and the forms of such securities filed on SEDAR at www.sedar.com
and with the SEC at www.sec.gov. For a description of the risks associated with these securities, the amount of such securities exercised to date, the dilution to date and the potential dilution in
the future due to such exercises or conversions, see Items 3.D "
Risk Factors
" and 10.A "
Share
Capital
" of this Annual Report.
Contractual Obligations and Contingencies
For a description of legal claims and litigation involving the Company, see Item 8.A "
Consolidated
Statements and Other Financial Information Legal Proceedings
" of this Annual Report.
Contractual obligations
The following table summarizes our contractual obligations as at December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual Obligations
|
|
Total
|
|
Less than 1 year
|
|
2 - 3 years
|
|
4 - 5 years
|
|
Operating leases
|
|
$
|
1,397,351
|
|
$
|
479,301
|
|
$
|
816,189
|
|
$
|
101,861
|
|
66
Table of Contents
Off Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
Related Party Transactions
There were no ongoing contractual commitments and transactions with related parties during the years ended
December 31, 2018,
2017 or 2016, other than those as described elsewhere herein and those compensation-based payments disclosed in Note 23 of the consolidated financial statements for the years ended
December 31, 2018, 2017 and 2016.
Critical Accounting Estimates and Management Judgment
The preparation of consolidated financial statements in conformity with IFRS requires management to make estimates
and assumptions
that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual
results may differ from those estimates.
Estimates
and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any
future periods affected.
Significant
areas requiring the use of estimates relate to the determination of the net realizable value of inventory (obsolescence provisions), allowance for doubtful accounts
receivable, impairment of non-financial assets, useful lives of depreciable assets and expected life, and volatility and forfeiture rates for share-based payments.
Inventories
The Company estimates the net realizable values of inventories, taking into account the most reliable evidence
available at each
reporting date. The future realization of these inventories may be affected by future technology or other market-driven changes that may reduce future selling prices.
Allowance for doubtful accounts receivable
The Company has established and applied a provision matrix to the trade accounts receivables balances in order to
calculate an
allowance for doubtful accounts on adoption of IFRS 9. Actual collectability of customer balances can vary from the Company's estimation.
Impairment of long-lived assets
In assessing impairment, the Company estimates the recoverable amount of each asset or cash generating unit based
on expected future
cash flows and uses an interest rate to discount them. Estimation uncertainty relates to assumptions about future operating results and the determination of a suitable discount rate.
Useful lives of depreciable assets
The Company reviews its estimate of the useful lives of depreciable assets at each reporting date, based on the
expected utilization
of the assets.
Share-based payment
The Company measures the cost of equity-settled transactions by reference to the fair value of the equity
instruments at the date at
which they are granted. Estimating fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the
grant. This estimate also requires determining the most appropriate inputs to the valuation model including the expected life of the share option, risk free interest rate, volatility and forfeiture
rates and making assumptions about them.
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Determination of functional currency
The Company determines its functional currency as the United States dollar based on the primary economic
environment in which
it operates. IAS 21 The Effects of Changes in Foreign Exchange Rates outlines a number of factors to apply in determining the functional currency, which is subject to significant judgment by
management. Management uses a number of factors to determine the primary economic environment in which the Company operates; it is normally the one in which it primarily generates and
expends cash.
Deferred tax assets
Deferred tax assets are recognized in respect of tax losses and other temporary differences to the extent probable
that there will be
taxable income available against which the losses can be utilized. Judgment is required to determine the amount of deferred tax assets that can be recognized based on estimates of future
taxable income.
Contingent Liabilities
Contingent liabilities are assessed continually to determine whether an outflow of resources embodying economic
benefits has become
probable. If it becomes probable that an outflow of future economic benefits will be required for an item previously dealt with as a contingent liability, a provision is recognized in the consolidated
financial statements of the year in which the change in probability occurs.
Accounting for financing and determination of fair value of derivative liabilities
The determination of the accounting treatment for the financing transaction completed in November 2017 is an
area of
significant management judgment. In particular, this involved the determination of whether the warrants issued and the conversion feature associated with the convertible note should be classified as
equity or as derivative liabilities. The difference between the transaction amount and the fair value of the instruments issued in connection with the financing gives rise to a loss which has been
deferred as the fair values were not determined using only observable market inputs. The manner in which the deferred loss will be recognized within income involves management judgment.
The
Company's warrants and convertible notes will be measured at fair value through profit and loss at each period end. The calculations of the fair value of these instruments involves
the use of a number of estimates and a complex valuation model. The carrying amounts of these liabilities may change significantly as a result of changes to these estimates. Details of the estimates
used as at December 31, 2018 are disclosed in Note 15 to the Company's audited consolidated financial statements as at and for the years ended December 2018, 2017
and 2016.
Changes in Accounting Policies Including Initial Adoption
During the year ended December 31, 2018, there have been no changes in accounting policies, except as
disclosed herein. The
Company has not adopted any new accounting policies during the year ended December 31, 2018.
Adoption of New Standard
Accounting
standard issued and effective January 1, 2018
IFRS 9 Financial
Instruments
The
Company adopted IFRS 9 on January 1, 2018 in accordance with the transitional provisions of the standard. IFRS 9 addresses the
classification, measurement and recognition of financial assets and liabilities and supersedes the guidance relating to the classification and measurement of financial instruments in IAS 39,
Financial Instruments: Recognition and Measurement (IAS 39).
IFRS 9
requires financial assets to be classified into three measurement categories on initial recognition: those measured at fair value through profit and loss, those measured
at fair value through other comprehensive income and those measured at amortized cost. Measurement and classification of financial assets
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is
dependent on the entity's business model for managing the financial assets and the contractual cash flow characteristics of the financial asset. For financial liabilities, the standard retains most
of the IAS 39 requirements. The main change is that, in cases where the fair value option is taken for financial liabilities,
the part of a fair value change relating to an entity's own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch.
The
Company has assessed the classification and measurement of financial assets and financial liabilities under IFRS 9 and have summarized the original measurement categories
under IAS 39 and the new measurement categories under IFRS 9 in the following table:
|
|
|
|
|
|
|
Measurement Category
|
|
|
Original (IAS 39)
|
|
New (IFRS 9)
|
Financial assets:
|
|
|
|
|
Cash and cash equivalents, cash held in escrow
|
|
Loans and receivables
|
|
Amortized cost
|
Trade receivables
|
|
Loans and receivables
|
|
Amortized cost
|
Financial liabilities:
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
Amortized cost
|
|
Amortized cost
|
Derivative liability from financing
|
|
Fair value through profit or loss
|
|
Fair value through profit or loss
|
Convertible Note
|
|
Fair value through profit or loss
|
|
Fair value through profit or loss or OCI (for own credit risk)
|
As
a result of the change in measurement categories for the Notes, an adjustment of $1,009,592 for the twelve months ended December 31, 2018 has been made to opening retained
earnings and accumulated other comprehensive income to reclassify the change in fair value associated with the Company's own credit risk. There has been no other change in the carrying value of our
financial instruments or to previously reported figures as a result of changes to the measurement categories in the table noted above.
IFRS 9
introduces a new three-stage expected credit loss model for calculating impairment for financial assets. IFRS 9 no longer requires a triggering event to have
occurred before credit losses are recognized. An entity is required to recognize expected credit losses when financial instruments are initially recognized and to update the amount of expected credit
losses recognized at each reporting date to reflect changes in the credit risk of the financial instruments. There is a simplified approach where expected credit losses can be estimated and recognized
upon initial recognition of the receivables. In addition, IFRS 9 requires additional disclosure requirements about expected credit losses and credit risk.
The
Company has reviewed expected credit losses on trade receivables on transition to IFRS 9. The Company also implemented a process for managing and estimating provisions
relating to trade receivables going forward under IFRS 9. For trade accounts receivables, the Company has applied the simplified approach for determining expected credit losses which
requires us to determine the lifetime expected losses for all trade receivables. The expected lifetime credit loss provision for trade receivables is based on historical counterparty default rates and
adjusted for relevant forward-looking information, when required. As the
majority of customers are considered to have low default risk and the Company does not extend credit to customers with high default risk, historical default rates are low and the lifetime expected
credit loss allowance for trade receivables is nominal as at January 1, 2018 and December 31, 2018. Accordingly, the Company did not record an adjustment relating to the implementation
of the expected credit loss model for trade receivables.
IFRS 15 Revenue
from contracts with customers
The
Company adopted IFRS 15 on January 1, 2018 in accordance with the transitional provisions of the standard. The IASB issued IFRS 15 Revenue
from Contracts with Customers, a new standard for the recognition of revenue, which replaces IAS 18 Revenue, IAS 11 Construction Contracts, and related interpretations. IFRS 15 is
effective for annual periods beginning on or after January 1, 2018. The new standard is based on the principle that revenue is recognized when control of a good or service transfers to
a customer.
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The
standard is required to be adopted either retrospectively or using a modified retrospective approach. In accordance with the transition provisions in IFRS 15, the Company has
adopted the new standard using the modified retrospective method; the cumulative effect of initially applying the standard is recognized as an adjustment to the opening balance of retained earnings as
of January 1, 2018. Comparative prior year periods are not restated. The adoption of IFRS 15 did not result in any changes in the timing of revenue recognition for the Company's goods
and services and therefore no adjustment to opening retained earnings was necessary.
Accounting
standard issued and effective January 1, 2019
IFRS 16 Leases
IFRS 16
Leases will replace IAS 17 Leases. IFRS 16 eliminates the classification of leases as either operating leases or finance leases
for a lessee. Instead, all leases are treated in a similar way to finance leases applying IAS 17. Leases are 'capitalized' by recognizing the present value of the lease payments and showing
them either as lease assets (right-of-use assets) or together with property, plant and equipment. If lease payments are made overtime, a company will also recognize a financial liability
representing its obligation to make future lease payments. The IASB has set the effective date to annual periods beginning on or after January 1, 2019. The Company has not early adopted this
standard and is currently evaluating any potential impact.
While
the Company continues to assess all potential impacts and transition provisions of this standard, the Company believes that the most significant impact will be related to the
accounting for operating leases associated with office space. At this time, a quantitative estimate of the effect of the new standard has not been determined, but the Company anticipates a material
impact to its statements of financial position due to the recognition of the present value of unavoidable future lease payments as lease assets and lease liabilities. The measurement of the total
lease expense over the term of the lease is unaffected by the new standard; however, the required presentation on the consolidated statements of earnings (loss) will result in lease expenses being
presented as depreciation of lease assets and finance costs rather than being fully recognized as general and administrative costs.
IFRIC 23 Uncertainty
over Income Tax Treatments
In
June 2017, the IASB issued IFRIC 23, Uncertainty over Income Tax Treatments. This interpretation specifies that if an entity concludes it is
probable that the taxation authority will accept an uncertain tax treatment, it shall determine the tax result consistently with the tax treatment used or planned to be used in its income tax filing.
If it is not probable, the entity shall reflect the effect of uncertainty for each uncertain tax treatment by using either of the following methods, depending on which one the entity expects to better
predict the resolution of the uncertainty:
-
-
Most likely amount: single most likely amount in a range of possible outcomes;
-
-
Expected value: sum of the probability-weighted amounts in a range of possible outcomes.
An
entity shall apply IFRIC 23 for annual reporting periods beginning on or after January 1, 2019 with earlier application permitted. The Company will not early adopt
IFRIC 23 and does not expect a significant impact.
Financial Instruments
The Company's financial instruments include its cash and cash equivalents, restricted cash, accounts receivable,
and accounts payable
and accrued liabilities.
-
(a)
-
Foreign
Exchange Risk A portion of the Company's revenues are derived from product sales in Europe, denominated in
Euros. Management has considered the stability of the foreign currency and the impact a change in the exchange rate may have on future earnings during the forecasting process. The Euro represents
approximately 23% of the revenue for the year ended December 31, 2018 (year ended December 2017 and 2016: 65% and 38%, respectively). A 10% change in the foreign exchange rates for the
Euro for foreign currency denominated accounts
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receivable
will impact net income as at December 31, 2018 by approximately $6,000 (as at December 31, 2017 and 2016: $50,000 and $49,000, respectively), and a similar change in
foreign currency denominated accounts payable, which are denominated in Canadian dollars and Euros, will impact net income by approximately $13,000 and $30,000, respectively, as at December 31,
2018 (as at December 31, 2017 and 2016, $32,000 and $10,000, respectively). The Company does not hedge its foreign exchange risk.
-
(b)
-
Interest
rate risk The Company is not exposed to material cash flow interest rate risk on fixed rate cash balances,
and short-term accounts receivable.
-
(c)
-
Liquidity
risk As at December 31, 2018, the Company had $9,242,809 in cash and cash equivalents as compared
to cash and cash equivalents of $17,507,157 and $22,954,571 at December 31, 2017 and 2016, respectively. The Company is dependent on the profitable commercialization of its products or
obtaining additional debt or equity financing to fund ongoing operations until profitability is achieved.
The
Company monitors its cash flow on a monthly basis and compares actual performance to the budget for the period. After receipt of the net proceeds of approximately $4.05 million from the
February 2019 Financing on February 28, 2019 and the net proceeds of approximately $4.25 million from the March 2019 Financing on March 15, 2019, the Company expects
that its cash is sufficient to sustain operations until approximately September 2019 at the current burn rate. The Company may obtain additional debt or equity financing during that period.
Further into the future the Company is dependent on the profitable commercialization of its products or obtaining additional debt or equity financing to fund ongoing operations until profitability
is achieved.
-
(d)
-
Credit
risk Credit risk arises from the possibility that the entities to which the Company sells products may
experience financial difficulty and be unable to fulfill their contractual obligations. This risk is mitigated by proactive credit management policies that include regular monitoring of the debtor's
payment history and performance. The Company does not require collateral from its customers as security for trade accounts receivable but may require certain customers to pay in advance of any work
being performed or product being shipped.
The
maximum exposure, if all of the Company's customers were to default at the same time is the full carrying value of the trade accounts receivable as at December 31, 2018 is $637,421
(as at December 31, 2017 and 2016: $1,201,292 and $2,532,114, respectively). As at December 31, 2018, the Company had $311,642 (as at December 31, 2017 and 2016:
$588,282 and $1,555,469, respectively) of trade accounts receivable that were overdue, according to the customers' credit terms. During the year ended December 31, 2018 the Company wrote down
$489,449 of accounts receivable owed by customers (year ended December 2017 and 2016: $26,931 and $5,556, respectively).
The
Company may also have credit risk related to its cash and cash equivalents and restricted cash, with a maximum exposure of $9,682,545 as at December 31, 2018 (as at
December 31, 2017 and 2016: $17,985,417 and $93,404,331, respectively). The Company minimizes its risk to cash and cash equivalents by maintaining the majority of its cash and cash equivalents
with Canadian Chartered Banks.
Disclosure Controls and Internal Controls Over Financial Reporting
See Item 15.A "
Disclosure Controls and Procedures
" of this
Annual Report for
details regarding Neovasc's ICFR and disclosure controls and procedures ("DC&P").
JOBS Act
As a company with less than $1.07 billion in revenue during the last fiscal year, Neovasc qualifies as an
"emerging growth
company" pursuant to the JOBS Act. An emerging growth company may take advantage of specified exemptions from various requirements that are otherwise applicable generally to public companies in the
United States.
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Table of Contents
The
JOBS Act also permits an emerging growth company such as Neovasc to take advantage of an extended transition period to comply with new or revised accounting standards applicable to
public companies. Neovasc will not take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards.
This election is irrevocable. Neovasc will remain an emerging growth company until the earliest of:
-
-
the last day of the Company's fiscal year during which it has total annual gross revenues of at least
$1.07 billion;
-
-
the last day of the Company's fiscal year following the fifth anniversary of the completion of an initial public offering;
-
-
the date on which Company has, during the previous three-year period, issued more than $1 billion in
non-convertible debt securities; or
-
-
the date on which the Company is deemed to be a "large accelerated filer" under the Exchange Act, which would occur if the
market value of Neovasc's Common Shares that are held by non-affiliates exceeds $700 million as of the last business day of its most recently completed second fiscal quarter.
As
a result of Neovasc's status as an emerging growth company, the information that the Company provides shareholders may be less comprehensive than what you might receive from other
public companies that are
not emerging growth companies. When Neovasc is no longer deemed to be an emerging growth company, Neovasc will not be entitled to the exemptions provided in the JOBS Act.
B. Liquidity and Capital Resources
See Item 5.A "
Operating Results
" of this Annual Report for
details regarding Neovasc's liquidity and
capital resources.
Commitments for Capital Expenditures
See Item 5.A "
Operating Results
" of this Annual Report for
details regarding
Neovasc's commitments for capital expenditures.
Transfer Restrictions
The majority of the revenue and expenses of the Company are incurred in the parent and in one of its subsidiaries,
NMI, both of which
are Canadian companies. There were no significant restrictions on the transfer of funds between these entities and during the years ended December 31, 2018 and 2017 the Company had no
complications in transferring funds to and from its subsidiaries in Israel and the United States.
Foreign Operations and Currency Exposure
See Item 5.A "
Operating Results
" of this Annual Report for
details regarding
Neovasc's foreign operations and currency exposure.
C. Research and Development, Patents and Licenses, etc.
See Item 5.A "
Operating Results
" of this Annual Report for
details regarding Neovasc's research and
development policies and practices.
Key Patent Applications
See "
Patents Applications
" in Item 4 of this Annual Report for
details
regarding Neovasc's key patent applications.
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Licensed Pending Applications
See "
Pending Licensed Applications
" in Item 4 of this Annual
Report for details
regarding Neovasc's licensed intellectual property pending applications.
D. Trend Information
See Item 5.A
"Operating Results"
of this Annual Report for
details regarding recent affecting Neovasc's
business and operations.
E. Off-Balance Sheet Arrangements
Neovasc has no material undisclosed off-balance sheet arrangements that have, or are reasonably likely to have, a
current or future effect on its results of
operations, financial condition, revenues or expenses, liquidity, capital expenditures or capital resources that is material to investors.
F. Tabular Disclosure of Contractual Obligations
See Item 5.A "
Operating Results
" of this Annual Report for
details regarding Neovasc's contractual
obligations.
G. Safe Harbor
See "
Cautionary Note Regarding Forward-Looking Statements
" in the
introduction to this Annual Report.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
The following table sets forth the names and municipalities of residence of the Company's directors and executive
officers as well as their positions with the
Company and principal occupations for the previous five years. All directors, officers and employees are required to sign standard confidentiality and non-disclosure
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agreements
with the Company. Each director's terms of office expires at the next annual general meeting of the shareholders of the Company.
|
|
|
|
|
Name and Place of Residence
|
|
Age
|
|
Principal Occupations
|
Fred Colen
Florida,
USA
|
|
66
|
|
President and Chief Executive Officer, Neovasc Inc. (January 2018 Present); President and Chief Executive Officer, Benechill, Inc. (November, 2011 March, 2016)
|
Chris Clark
British Columbia,
Canada
|
|
48
|
|
Chief Financial Officer, Neovasc Inc. (April 2007 Present)
|
Brian McPherson
British Columbia,
Canada
|
|
57
|
|
Former Chief Operating Officer, Neovasc Inc. (June 2009 January 2018)
|
Vicki Bebeau
Minnesota,
USA
|
|
68
|
|
Vice-President of Clinical and Regulatory Affairs, Neovasc Inc. (May 2014 Present), Vice-President Clinical Affairs, Velomedix, Inc. (November, 2012 March 2014)
|
Randy Lane
British Columbia,
Canada
|
|
46
|
|
Former Vice-President of New Concept Development & Intellectual Property, Neovasc Inc. (March 2018 September 2018), Vice-President, Research & Development,
Neovasc Inc. (May 2014 March 2018)
|
Aaron Chalekian
Minnesota,
USA
|
|
40
|
|
Vice-President, Product Development & Manufacturing Engineering, Neovasc Inc. (March 2015 Present), Director, Research & Development, St Jude Medical
(November 2007 March 2015)
|
John Panton
British Columbia,
Canada
|
|
54
|
|
Vice-President, Quality, Neovasc Inc (January 2018 Present), Director, Quality, Neovasc Inc (May 2015 January 2018), Global Director, Quality Systems, Verathon Medical
Canada ULC (May 2009 April 2015)
|
Steve Rubin
(1)
British Columbia,
Canada
|
|
58
|
|
Chairman of the Board, Neovasc Inc. (June 2018 Present); Director, Neovasc Inc. (February 2008 Present); Executive Vice President Administration, OPKO
Health, Inc. (May 2007 Present)
|
Paul Geyer
(1)
British Columbia,
Canada
|
|
55
|
|
Director, Neovasc Inc. (January 2016 Present); Chairman of the Board, Neovasc Inc. (January 2016 May 2018); CEO, Discovery Parks and Nimbus Synergies
(March 2017 Present); CEO, LightIntegra Technology Inc. (June 2009 March 2017)
|
Dr. Jane Hsiao
(2)(3)
Florida,
USA
|
|
72
|
|
Director, Neovasc Inc. (February 2007 Present); Vice-Chairman and Chief Technical Officer, OPKO Health, Inc. (May 2007 Present)
|
Douglas Janzen
(1)(2)
British Columbia,
Canada
|
|
50
|
|
Director, Neovasc Inc. (June 2005 Present); CEO, Northview Ventures (2012 Present); CEO, Aequus Pharmaceuticals Inc.(January 2013 Present)
|
Alexei Marko
(3)
British Columbia,
Canada
|
|
50
|
|
Director (June 2003 Present) and President and Chief Executive Officer (July 2008 January 2018), Neovasc Inc.
|
William O'Neill
(2)(3)
Michigan,
USA
|
|
67
|
|
Director, Neovasc Inc. (July 2008 Present); Medical Director, Center for Structural Heart Disease, Henry Ford Hospital (August 2012 Present); Leonard M. Miller School of
Medicine, University of Miami (June 2006 May 2014)
|
-
(1)
-
Member
of the Audit and Strategic Activities Committee.
-
(2)
-
Member
of the Compensation Committee.
-
(3)
-
Member
of the Governance and Nominating Committee.
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Table of Contents
Biographies
Fred Colen President, Chief Executive Officer
Fred Colen has over 40 years of experience in the medical device field spans product development, sales and
marketing and
executive management. Mr. Colen has held management positions with Neovasc since January 2018. Mr. Colen is a resident of Florida, United States.
Fred
Colen has contributed to many significant turnarounds in his career, including the post-acquisition Guidant Company, which became the CRM division of Boston Scientific, a firm with
which he held progressively senior executive roles over 11 years, including Chief Technology Officer from 2001-2008 and Member of the Executive Committee from 2001-2010. During his tenure at
Boston Scientific, Mr. Colen is credited with numerous successes. As President of the company's Cardiac Rhythm Management (CRM) Group his team regained trust and confidence in the division's
implantable pacemakers, leads, defibrillators and re-synchronization devices, increasing annual product revenue growth by over 10% in a flat US market and growing global divisional operating income
from below 10% to 25% of sales, exceeding the planned annual free cash flow goals. As Chief Technology Officer, he led the development and global commercial launch for the Company's
first- and second-generation implantable drug-eluting coronary stents (the Taxus Express and Taxus Liberte), leading to global market leadership with incremental revenues of
$2 billion annually. The Taxus Express market introduction is viewed as one of the most successful launches ever in the medical device industry.
Prior
to joining Boston Scientific, Mr. Colen, in his role as Executive Vice President in the Pacesetter division, played a key role in the execution of St. Jude Medical's
diversification strategy, which resulted in its evolution from a successful heart valve company to a broad-based medical device company with a highly successful cardiac rhythm management business. In
addition to restructuring organizational processes, he introduced the "Fast Cycle Time" approach in R&D to reduce development cycle times and optimize timing of new product introductions and
manufacturing processes. During this time period, St. Jude also achieved a sharp increase in European sales through business focus, additional sales capacity, and marketing campaigns.
Mr. Colen
also served as the President and Chief Executive Officer of BeneChill, building its early stage business in Europe and developing its clinical, regulatory and marketing
strategy for the US market. He oversaw financing rounds E and F before the company was acquired by a Swedish firm that specializes in brain cooling.
Mr. Colen
has also held a number of Board Directorships or Advisory roles, including Mölnlycke Healthcare, Biim Ultrasound, and is currently a director of GTX
Medical, a private medical device company. He served on the Board of Middle Peak Medical, a company developing a mitral valve replacement device, until its acquisition by Symetis, which in turn was
acquired by Boston Scientific.
Chris Clark Chief Financial Officer and Corporate Secretary
In April 2007, Mr. Clark was appointed Chief Financial Officer of the Company. Prior to that,
Mr. Clark was
Director of Finance of Mr. Lube Canada Inc. from 2005 to 2007. Mr. Clark was Director of Finance, Healthpricer Interactive Inc. (formerly One Person Health
Services Inc.) from 2004 to 2005. He is a resident of British Columbia, Canada.
Mr. Clark
has over 20 years finance and accounting experience in public practice and in public and private companies, most recently focused in the medical device sector.
He received his designation as a Chartered Accountant from the Institute of Chartered Accountants of England and Wales and articled with KPMG before moving to Canada in 1998. He has an honors degree
in Economics from Swansea University and a post graduate diploma from Keble College, Oxford.
Brian McPherson Chief Operating Officer
In June 2009, Mr. McPherson was appointed Chief Operations Officer of the Company. Prior to that
Mr. McPherson
was Director of Operations from 2008 to 2009. Mr. McPherson resigned from his position as Chief Operating Officer of Neovasc in January 2018.
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Table of Contents
Mr. McPherson
was Operations Manager for Pyng Medical from 2003 to 2006, where he also served on the board of directors. Prior to its acquisition by Medtronic, he was a Senior
Operations Manager and served on the board of directors of Arterial Vascular Engineering Canada from 1995 to 1999. Mr. McPherson has more
than 25 years' experience in medical device manufacturing and operations. He holds two diplomas in technology from the British Columbia Institute of Technology, with the most recent in
Biomedical Engineering. He is a resident of British Columbia, Canada.
Vicki Bebeau, Vice-President of Clinical and Regulatory Affairs
In May 2014, Ms. Bebeau joined Neovasc as Vice-President of Clinical Affairs. Ms. Bebeau has more
than
20 years of clinical research experience, fulfilling various leadership roles, which include multinational cardiovascular device firms such as St. Jude Medical, Boston Scientific, and
Medtronic. Having planned and directed numerous successful clinical studies, including prosthetic heart valves and other cardiovascular devices in support of IDE, PMA, and post market programs to
support regulatory approvals, Ms. Bebeau's efforts have contributed to the adoption of some of the industry's most novel devices in the United States, Canada, Europe, Australia,
and Japan.
Ms. Bebeau
is a Registered Nurse whose specific areas of clinical research have included heart valves (open heart and percutaneous), vascular access and closure devices, FFR,
OCT, renal denervation, and hypothermia. Ms. Bebeau holds a Bachelor of Science in Nursing from Bethel College. She represents Canada on the ISO 5840 Committee as a clinical expert in
heart valves. Ms. Bebeau is also a MedTech Industry Advisory Board Member for St. Cloud State University. She is a resident of White Bear Lake, Minnesota, USA.
Randy Lane, Vice-President, New Concept Development & Intellectual Property
In July 2007, Mr. Lane joined Neovasc, and in May 2014 he was promoted to the position of
Vice-President,
Research and Development. His title was changed to "Vice-President, New Concept Development & Intellectual Property" in February 2018. Mr. Lane resigned from his position
of Vice-President, New Concept Development & Intellectual Property in September 2018. Prior to joining the Company, Mr. Lane held senior roles at global cardiovascular
device firms, including 10 years in product development and manufacturing with Sorin Group Canada Inc.
Mr. Lane
has more than 20 years' experience in the medical device industry. Possessing expertise in prosthetic heart valve design and testing, Mr. Lane represents
Canada on the ISO 5840 Committee as a technical expert in heart valves and has led teams throughout the complete development program, including the development of process improvements, product
development and regulatory testing. Mr. Lane leads a team developing the Tiara.
Mr. Lane
holds a Bachelor of Science degree from McGill University, Montreal, Quebec, and is a resident of British Columbia, Canada.
Aaron Chalekian, Vice-President, Product Development & Manufacturing Engineering
Aaron J. Chalekian has been in the medical device industry for nearly 15 years with a Bachelor of Science
degree in Biomedical
Engineering from Michigan Technological University, and a Master's degree in Mechanical Engineering from the University of Wisconsin Madison.
Mr Chalekian's experience includes early and late stage product development cycles for coronary stenting systems, transcatheter heart valves, surgical heart valves & repair technologies,
along with numerous other catheter based and imaging technologies. Prior to Neovasc, Aaron has served in various roles, including management roles within research & development and support of
manufacturing activities at Oakriver Technology, Boston Scientific and St. Jude Medical. In addition to his role at Neovasc, Aaron has actively served on the ISO 5840 committee (Surgical
and Transcatheter valves) for nearly a decade as a committee member and most recently, a leader of a task force as it relates to the transcather mitral valve replacements space.
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John Panton, Vice-President, Quality
John Panton has over 30 years of engineering experience spread over the Total Product Life Cycle, in small,
medium and large
organizations and across different industrial sectors; medical devices, semiconductor, oil and gas, telecommunications, consumer electronics and military avionics. In England, John held various
engineering roles of increasing responsibility specializing in New Product Introduction; in R&D, product and process design and development, manufacturing engineering, process engineering and
product engineering. In 2005, John started his Canadian career as a Quality professional, as the Quality Assurance Manager of a start-up company serving semiconductor Fortune 500 customers. He
then moved to a Class 2 reusable medical device company initially as Quality and Regulatory Manager and then later to Global Director of Quality Systems, where he had responsibility for sites
in Canada, US, Europe and Australia. John joined Neovasc in May 2015 as Director of Quality Systems and moved to VP of Quality in November, 2017. John holds a Post Graduate Diploma in
Microelectronics Technology and Applications from Middlesex University, and a Higher National Diploma in physics from Portsmouth Polytechnic.
Steven Rubin Chairman of the Board and Director
Mr. Rubin is Chairman of the Board. He has served as Executive Vice
President Administration of OPKO since May 2007 and as a director of OPKO since February 2007. Mr. Rubin currently serves on the board of
directors of Red Violet Inc. (NASDAQ:RDVT), a leading provider of information and analytical solutions, Non-Invasive Monitoring Systems, Inc. (OTCBB:NIMU), a medical device company,
Cocrystal Pharma, Inc. (NASDAQ: COCP), a biotechnology company developing new treatments for viral diseases, Chromadex Corporation (NASDAQ: CDXC), an integrated, global nutraceutical company
devoted to improving the way people age, Eloxx Pharmaceuticals,Inc. (Formerly Sevion Therapeutics, Inc.) (NASDAQ:ELOX), a clinical stage company which discovers and develops next-generation
biologics for the treatment of cancer and immunological diseases, and Castle Brands, Inc. (NYSE American: ROX), a developer and marketer of premium brand spirits. Mr. Rubin previously
served as a director of Dreams, Inc., a vertically integrated sports licensing and products company, Safestitch Medical, Inc. prior to its merger with TransEnterix, Inc., SciVac
Therapeutics, Inc. prior to its merger with VBI Vaccines, Inc., Tiger X Medical, Inc. prior to its merger with BioCardia, Inc., and PROLOR Biotech, Inc., prior to
its acquisition by OPKO in August 2013. Mr. Rubin was elected to the Company's board of directors on July 1, 2008. He is a resident of the state of Florida, United States.
Mr. Rubin is also a member of the Company's Audit and Strategic Activities Committee.
Paul Geyer Director
Mr. Geyer resigned as President and Chief Executive Officer of the Company on July 1, 2008.
Mr. Geyer has served
on the Company's board since November 2, 2000 and is a resident of British Columbia, Canada. In addition, Mr. Geyer is a member of the Company's Audit and Strategic Activities Committee.
Since
June 2009, Mr. Geyer has been Executive Chair of the board of directors of LightIntegra Technology Inc., a private medical device company focused on the
development of the ThromboLux technology, used as a point of care device to determine platelet quality for blood transfusions. From June 2009 to March 2017, Mr. Geyer was Chief
Executive Officer of LightIntegra Technology Inc.
Mr. Geyer
is currently the Chief Executive Officer of Discovery Parks and Nimbus Synergies, focused on investment in the growth of Health Technology companies in BC. He is also
an active angel investor and supporter of local technology and life sciences firms. Mr. Geyer is on the board of directors of several private Health Technology companies. Mr. Geyer is
also a Board member and past Chairman of BC Social Venture Partners. In April 2011, Mr. Geyer was awarded the LifeSciences BC Leadership Award.
Dr. Jane Hsiao Director
Dr. Hsiao has served as Vice-Chairman and Chief Technical Officer of OPKO (NASDAQ: OPK) since May 2007
and as a director
of OPKO since February 2007. Dr. Hsiao has served as Chairman of the Board of Non-Invasive Monitoring Systems, Inc. (OTCBB: NIMU), a medical device company, since
October 2008 and was named Interim Chief Executive Officer of Non-Invasive Monitoring Systems, Inc. in February 2012. Dr. Hsiao is also a director of each of
TransEnterix, Inc. (NYSE American: TRXC), a medical device company,
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Table of Contents
Cocrystal
Pharma, Inc. (NASDAQ: COCP), a publicly traded biotechnology company developing new treatments for viral diseases and OPKO Health, Inc. (NASDAQ: OPK). Dr. Hsiao was
elected to the Company's board of directors on July 1, 2008. She is a resident of the state of Florida, United States. Dr. Hsiao is also a member of the Company's Compensation and
Governance and Nominating Committees.
Douglas Janzen Director
Mr. Janzen has been involved in the life sciences industry for the past 20 years. He is currently the
CEO of Northview
Ventures, an entity which invests in, and provides strategic advisory services to, a number of technology companies predominately in the life sciences industry. Mr. Janzen has also been
Chairman of Lexington Biosciences., a company listed on the TSXV, since January 2017. Most Recently, Mr. Janzen has taken the position of CEO of Aequus Pharmaceuticals Inc., which listed
on the TSXV on March 17, 2015. Mr. Janzen was originally elected to the Company's Board of Directors on June 2, 2005 and is a resident of British Columbia, Canada. In addition,
Mr. Janzen is a member of the Company's Audit and Strategic Activities and Compensation Committees.
Previously,
he was President and CEO of Cardiome Pharma Corp. (Cardiome), a Nasdaq-listed drug development company that completed an C$800 million licensing deal with
subsidiaries of Merck & Co. and saw its lead product approved in Europe in 2010. Prior to his involvement with Cardiome, Mr. Janzen was an investment banker with Cormark
Securities Inc., a Toronto-based investment bank, acting as Managing Director of Life Sciences. Mr. Janzen is the past Chairman of Life Sciences British Columbia, has served as a
director of Biotech Canada, and sits as a director on a number of public and private boards. Mr. Janzen is a past winner of Vancouver's "Top 40 under 40" award.
Alexei Marko Director
Alexei Marko's almost 25 years of experience in the medical device field spans product development, sales and
marketing and
executive management. Mr. Marko held management positions with Neovasc's predecessor companies since 1999 and assumed the role of CEO in 2008 in conjunction with the company's expansion and
restructuring. Mr. Marko was appointed to the Company's board of directors on June 12, 2003 and is a resident of British Columbia, Canada. Mr. Marko resigned from his position as
Chief Executive Officer of Neovasc in January 2018. He is a member of the Company's Governance and Nominating Committee.
In
October 2007, Mr. Marko was appointed President and Chief Operating Officer of Medical Ventures Corp. (MEV), a predecessor company. Previously, Mr. Marko was the
Vice President and Chief Operating Officer and Vice President, Development and Engineering of MEV.
Mr. Marko
is a listed inventor on a number of issued or pending patents related to medical technologies. He is also a registered professional engineer and sits on the board of
directors for the Medical Device Development Centre in Vancouver. In 2005, he was named one of Business in Vancouver's "Top Forty Under 40" in recognition of his achievements.
Mr. Marko
completed both his B.A.Sc. (Hons) at Queen's University and an M.A.Sc. in electrical engineering at the University of British Columbia, specializing in medical device
development.
Dr. William O'Neill Director
Currently, Dr. O'Neill is the Medical Director, Center for Structural Heart Disease, Henry Ford Hospital,
Detroit, Michigan.
Previously, he was Executive Dean of Clinical Affairs and Chief Medical Officer, University of Miami Health System at the Miller School of Medicine, University of Miami. Prior to this position, from
1987 to 2006, Dr. O'Neill was the director of the division of Cardiovascular Disease at William Beaumont Hospital, Royal Oak, co-director of the Beaumont Heart Center, Royal Oak, and Corporate
Chief of Cardiology, William Beaumont Hospitals, Royal Oak and Troy. Dr. O'Neill was named Vice Chair Department of Internal Medicine for Research in January 2003. Prior to joining
Beaumont, he was Director of the cardiac catheterization laboratory at the University of Michigan in Ann Arbor and was an Associate Professor of Medicine at the University of Michigan Medical School.
Dr. O'Neill is an international leader in the field of interventional cardiology and in the research of new techniques to diagnose and treat obstructed heart arteries.
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Dr. O'Neill
was originally elected to the Company's board of directors on July 1, 2008. He is a resident of the state of Michigan, United States. Dr. O'Neill
is also a member of the Company's Compensation and Governance and Nominating Committees.
He
is certified in interventional cardiology and cardiovascular disease by the American Board of Internal Medicine. An author of more than 35 book chapters, 230 articles
and 330 abstracts, Dr. O'Neill is a graduate of Wayne State University School of Medicine and completed a cardiology fellowship at the University of Michigan Hospital.
B. Compensation
Executive Compensation
Compensation Discussion and Analysis
For the purposes of this Annual Report, a named executive officer ("NEO") of the Company, using the definition
contained in applicable
Canadian securities laws, means each of the following individuals:
-
(a)
-
the
Chief Executive Officer ("CEO") of the Company;
-
(b)
-
the
Chief Financial Officer ("CFO") of the Company;
-
(c)
-
each
of the three most highly compensated Executive Officers, or the three most highly compensated individuals acting in a similar capacity, other than the
CEO and CFO, at the end of the most recently completed financial year whose total compensation was, individually, more than $150,000. "Executive Officer" means the chairman, and any vice-chairman,
president, secretary or any vice-president and any officer of the Company or a subsidiary who performs a policymaking function in respect of the Company; and
-
(d)
-
each
individual who would be an NEO under paragraph (c) but for the fact that the individual was neither an executive officer of the Company, nor
acting in a similar capacity, at the end of that financial year.
Each
of Fred Colen, President and CEO, Chris Clark, CFO and Secretary, Alexei Marko, Director and Former CEO ("Former CEO"), Brian McPherson, Chief Operating Officer ("Former COO"),
Vicki Bebeau, Vice-President of Clinical and Regulatory Affairs ("VP, C&R") and Randy Lane, Former Vice-President of New Concept Development & Intellectual Property ("VP, R&D"), Aaron
Chalekian, Vice-President, Product Development & Manufacturing Engineering ("VP, PD&E"), John Panton, Vice-President, Quality is an NEO of the Company for purposes of this disclosure.
Compensation Philosophy and Objectives
The Executive Compensation Program is set to attract and retain the best available talent while efficiently
utilizing available
resources. The Company compensates executive management with a package typically including a base salary, an incentive compensation plan and equity compensation designed to be competitive with
comparable employers and to align management's compensation with the long-term interests of the Company's shareholders. Incentive compensation is used as a short-term incentive to achieve Company
objectives and equity compensation is designed to allow the participants to enjoy the benefits of any increase in Company valuation and share price, should such an increase occur.
The
base salary, incentive compensation and equity compensation for the Company's NEOs were determined by the Compensation Committee. Each of the Compensation Committee members has
direct experience that is relevant to his or her responsibilities in executive compensation. The Compensation Committee set the compensation of the NEOs using their combined industry experience. The
Compensation Committee delegated to the NEOs the responsibility to set the compensation packages for all other senior management and staff. Given the evolving nature of the Company's business, the
Board continues to review and redesign the overall compensation plan for senior management so as to continue to address the objectives identified above.
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Table of Contents
Elements of Compensation
Base Salary
The Base Salary is set in comparison to the
comparable positions in the market and in the industry. In considering the Base Salary, as well as the other components of executive management's compensation, the Board takes into consideration the
financial condition of the Company. The base salaries for NEOs of Neovasc during the financial year ended December 31, 2018 were:
|
|
|
|
|
NEO
|
|
BASE SALARY
|
|
Fred Colen (President & CEO)
|
|
$
|
390,000/year
|
|
Alexei Marko (Former CEO)
|
|
C$
|
234,000/year
|
|
Chris Clark (CFO)
|
|
C$
|
351,000/year
|
|
Brian McPherson (Former COO)
|
|
C$
|
149,906/year
|
|
Vicki Bebeau (VP, C&R)
|
|
$
|
263,680/year
|
|
Randy Lane (Former VP, R&D)
|
|
C$
|
280,890/year
|
|
Aaron Chalekian (VP, PD&E)
|
|
$
|
220,000/year
|
|
John Panton (VP, Quality)
|
|
C$
|
209,167/year
|
|
Stock-Based
and Cash-Based Bonuses
For the years ended December 31, 2016, 2017, the Compensation Committee
implemented a cash-based bonus whereby cash awards up to a maximum of 30% of each NEO's Base Salary were paid based on objectives pertaining to the development of the Tiara and Reducer. The NEOs were
awarded 30% of their potential cash-based award for 2016 based on their achievements against the objectives and 50% of their potential cash-based award for 2017 based on their achievements against the
objectives. Under the terms of Mr. Colen's employment agreement, cash awards up to a maximum of 100% of his Base Salary may be paid based on the achievement of certain objectives. For the year
ended December 31, 2018, the Compensation Committee implemented a cash-based bonus whereby cash awards up to a maximum of 100% of Fred Colen's, 70% of Chris Clark and Vicki Bebeau's and 30% of
each the remaining NEO's Base Salary were paid based on objectives pertaining to the development of the Tiara and Reducer and on certain corporate objectives.
The
bonuses available and paid to the NEOs during the financial year ended December 31, 2018 were:
|
|
|
|
|
|
|
|
NEO
|
|
BONUS AVAILABLE
|
|
BONUS PAID
|
|
Fred Colen (President & CEO)
|
|
$
|
390,000
|
|
$
|
349,500
|
|
Alexei Marko (Former CEO)
|
|
C$
|
129,600
|
|
|
nil
|
|
Chris Clark (CFO)
|
|
C$
|
245,700
|
|
C$
|
208,845
|
|
Brian McPherson (Former COO)
|
|
C$
|
83,025
|
|
|
nil
|
|
Vicki Bebeau (VP, C&R)
|
|
$
|
184,576
|
|
$
|
92,288
|
|
Randy Lane (Former VP, R&D)
|
|
C$
|
84,975
|
|
|
nil
|
|
Aaron Chalekian (VP, PD&E)
|
|
$
|
66,000
|
|
$
|
33,000
|
|
John Panton (VP, Quality)
|
|
C$
|
71,484
|
|
C$
|
48,300
|
|
Option-Based
Awards
The Board maintains the authority to award Equity Compensation, including stock options pursuant
to the Company's stock option plan (the "Option Plan"), to the Company's NEOs in such amounts and on such terms as the Board determines in its sole discretion. As discussed elsewhere herein,
the Company may reserve up to 15% of the Common Shares issued and outstanding at any time pursuant to the exercise of options under the Option Plan. In determining NEOs' option-based Equity
Compensation, the Compensation Committee reviews each executive's contribution to the Company's strategic goals periodically and makes recommendations to the Board. The Board will take factors such as
changes in control provisions, performance criteria and previous grants into account in granting these
executives' options. The CEO and CFO were consulted on the grant of Equity Compensation and made recommendations on the
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grant
of stock options, but the actual compensation amount was recommended by the Compensation Committee and approved by the Board. The stock options granted to the Company's NEOs as at
December 31, 2018 were:
|
|
|
NEO
|
|
OPTIONS
|
Fred Colen (President & CEO)
|
|
20,000 ($63.00 exercise price per Common Share, expiring January 24, 2026), 2,500 ($6.00 exercise price per Common Share, expiring March 31, 2026), 600,000 ($2.72 exercise price per Common Share,
expiring September 30, 2026), 250,000 ($0.88 exercise price per Common Share, expiring December 3, 2026)
|
Alexei Marko (Former CEO)
|
|
2,500 Options (C$650 exercise price per Common Share, expiring April 15, 2019), 1,250 Option
(C$190 exercise price per Common Share, expiring March 31, 2022), 700 ($63.00 exercise price per Common Share, expiring January 24, 2026), 100,000 ($2.72 exercise price per Common Share, expiring September 30, 2026),
|
Chris Clark (CFO)
|
|
2,000 Options (C$650 exercise price per Common Share, expiring April 15, 2019), 1,000 Option
(C$190 exercise price per Common Share, expiring March 31, 2022), 3,000 ($63.00 exercise price per Common Share, expiring January 24, 2026), 1,250 ($6.00 exercise price per Common Share, expiring March 31, 2026), 300,000 ($2.72
exercise price per Common Share, expiring September 30, 2026), 100,000 ($0.88 exercise price per Common Share, expiring December 3, 2026)
|
Brian McPherson (Former COO)
|
|
1,500 Options (C$650 exercise price per Common Share, expiring April 15, 2019), 500 Options (C$190
exercise price per Common Share, expiring March 31, 2022), 240 ($63.00 exercise price per Common Share, expiring January 24, 2026)
|
Vicki Bebeau (VP, C&R)
|
|
1,500 Options (C$680 exercise price per Common Share, expiring May 12, 2019), 500 Options (C$1,176
exercise price per Common Share, expiring February 24, 2020), 2,000 Options (C$190 exercise price per Common Share, expiring March 31, 2022), 3,000 ($63.00 exercise price per Common Share, expiring January 24, 2026), 1,250 ($6.00
exercise price per Common Share, expiring March 31, 2026), 100,000 ($2.72 exercise price per Common Share, expiring September 30, 2026), 50,000 ($0.88 exercise price per Common Share, expiring December 3, 2026)
|
Randy Lane (Former VP, R&D)
|
|
2,250 Options (C$650 exercise price per Common Share, expiring April 15, 2019), 500 Options
(C$1,176 exercise price per Common Share, expiring February 24, 2020), 1,500 Options (C$190 exercise price per Common Share, expiring March 31, 2022), 2,000 ($63.00 exercise price per Common Share, expiring January 24, 2026), 750
($6.00 exercise price per Common Share, expiring March 31, 2026), 50,000 ($2.72 exercise price per Common Share, expiring September 30, 2026)
|
Aaron Chalekian (VP, PD&E)
|
|
750 Options (C$1,111 exercise price per Common Share, expiring April 16, 2020), 278 Options (C$519
exercise price per Common Share, expiring December 28, 2020), 500 Options (C$190 exercise price per Common Share, expiring March 31, 2022), 2,000 ($63.00 exercise price per Common Share, expiring January 24, 2026), 750 ($6.00
exercise price per Common Share, expiring March 31, 2026), 100,000 ($2.72 exercise price per Common Share, expiring September 30, 2026), 50,000 ($0.88 exercise price per Common Share, expiring December 3, 2026)
|
John Panton (VP, Quality)
|
|
500 Options (C$843 exercise price per Common Share, expiring June 1, 2020), 250 Options ($792
exercise price per Common Share, expiring July 31, 2020), 217 Options (C$519 exercise price per Common Share, expiring December 28, 2020), 500 Options (C$190 exercise price per Common Share, expiring March 31, 2022), 2,000
($63.00 exercise price per Common Share, expiring January 24, 2026), 750 ($6.00 exercise price per Common Share, expiring March 31, 2026), 100,000 ($2.72 exercise price per Common Share, expiring September 30, 2026), 50,000 ($0.88
exercise price per Common Share, expiring December 3, 2026)
|
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Table of Contents
Compensation Risks
The Compensation Committee Mandate tasks the Compensation Committee with reviewing the Company's compensation
policies on an annual
basis to determine whether they are aligned with the Company's risk management principles and whether they might or are reasonably likely to encourage executives and employees to take excessive risks.
In doing so, the Compensation Committee assesses whether the compensation policy would likely give rise to material risks to the Company. The Company has not identified any risks arising from the
compensation policy that are reasonably likely to have a material adverse effect on the Company.
General Equity-Compensation Arrangements
The shareholders of the Company approved the Option Plan at the annual general meeting of shareholders held on
June 12, 2012,
subsequently at the annual general meetings held on June 18, 2013, June 18, 2014 and June 13, 2017. The Board subsequently amended the Option Plan on April 12, 2018.
Pursuant to the Option Plan, up to a maximum of 15% of the Common Shares issued and outstanding at any time may be reserved for issuance pursuant to the exercise of Options. The Option Plan does not
contain any provisions that would restrict an NEO or director from purchasing financial instruments that are designed to hedge or offset a decrease in market value of the Common Shares granted to such
individuals.
In
accordance with the term of the Option Plan, as administered by the Board, the Board may grant options to directors, executive officers, employees and consultants of the Company and
its affiliates. The Option Plan was adopted to offer incentives to directors, executive officers, employees, management and others who provide services to the Company or any subsidiary, to act in the
best interests of the Company. The Board, in consultation with the Company's Compensation Committee, has the discretion to determine to whom options will be granted, the number and exercise price of
such options and the terms and time frames in which the options will vest and be exercisable.
The
Option Plan provides that the Company can reserve for issuance up to 15% of the Common Shares issued and outstanding at any time as options (each, an "Option"). As of
March 19, 2019, there were 3,682,469 options issued and outstanding, this number represents 5.9% of the Company's issued and outstanding Common Shares. As of March 19, 2019, there
were 9,297,767 Common Shares reserved for issuance upon the exercise of outstanding Options, representing 15% of the Company's issued and outstanding Common Shares. Accordingly, as of
March 19, 2019 there were 5,615,298 Common Shares available for issuance under the Option Plan representing 9.1% of the Company's issued and outstanding Common Shares.
The
Option Plan also contains a replenishment feature, which provides that the maximum number of Common Shares that may be issued as Options does not increase, provided that the number
of Common Shares reserved for issuance under the Option Plan will automatically be replenished by an amount equal to the number of Common Shares issued upon the exercise of any Options under the
Option Plan.
The
exercise price for Options issued under the Option Plan will be set by the Board; however, the exercise price of an Option cannot be less than the Market Price (as defined
therein) at the time of such grant of Options. The Market Price is defined as the closing price of the Common Shares on the TSX on the trading day immediately preceding the grant date. To exercise
their Options, participants must either provide a certified cheque, wire transfer or bank draft, or may utilize the net settlement feature of the Option Plan. Upon a net settlement exercise, the
Company will deliver to such participant that number of Common Shares equal to the following formula:
That
number of fully paid and non-assessable Common Shares ("X") equal to the number of options ("Y") multiplied by the quotient obtained by dividing the result of the Market Price of one Common Share
("B") less the Exercise Price per Common Share ("A") by the Market Price of one Common Share ("B"). Expressed as a formula, such conversion shall be computed as follows:
The
Option Plan provides that a holder may exercise their options in cash, or by providing a written notice to the Company pursuant to which the holder agrees to transfer and dispose of
a specified number of
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Table of Contents
options
to the Company in exchange for Common Shares having a fair market value equal to the fair market value of such options disposed of and transferred to the Company.
The
Option Plan provides that the maximum number of Common Shares issuable to insiders under such plan cannot exceed the "Insider Participation Limit", which means the number of Common
Shares: (i) issued to Insiders within any one year period; and (ii) issuable to Insiders at any time; under the Option Plan, or when combined with all of the Company's other security
based compensation arrangements, cannot exceed 10% of the Company's total issued and outstanding Common Shares, respectively.
An
option is personal to the grantee of the option and is non-transferable and non-assignable. The Option Plan does not provide for or contemplate the provision of financial assistance
to facilitate the exercise of options and the issuance of Common Shares. If the employment or appointment of an option holder with the Company or its affiliates is terminated by either party for any
reason other than termination for cause or
death, the options held by such option holder must be exercised within 120 days of the date of termination of the option holder's employment or appointment with the Company. If terminated for
cause, the options held by such option holder terminate and are cancelled upon the holder ceasing to be a director, executive officer or employee of the Company or its affiliates. In the case of the
death of a holder, any vested option held by him at the date of death will become exercisable by the holder's lawful personal representatives, heirs or executors until the earlier of one year after
the date of death of such holder and the date of expiration of the term otherwise applicable to such option.
In
the normal course of business, there are times when the Company's directors, executive officers and employees are party to material undisclosed information about the Company. Such
periods are referred to as a "Blackout Period". During a Blackout Period, securities laws prohibit such persons from trading in the Company's securities, including exercising any option they may hold.
Blackout Periods can be put into effect at any time, but are scheduled to occur prior to the release of the Company's financial statements. The Option Plan provides that if the expiry date for any
Option should fall within a Blackout Period, or within nine days of the expiration of a Blackout Period, such expiry date shall be automatically extended for a period of ten days beyond the expiration
of the Blackout Period.
The
Option Plan contains standard adjustment and anti-dilution provisions for changes in the capital structure of the Company. The Option Plan also includes provisions pursuant to the
recent amendments to the Income Tax Act (Canada) which requires the Company to withhold and remit to Canada Revenue Agency, the estimated tax on the deemed benefit arising from the exercise of
a stock option. The Option Plan also provides that in the event of a change of control of the Company, or in the event of a sale of all or substantially all of either the Tiara or Reducer assets, all
previously granted options will immediately vest and become exercisable.
In
order to comply with certain provisions of Section 422 of the Internal Revenue Code of 1986, as amended, of the United States (the "Code"), in the granting of
Options to eligible participants who are citizens or residents of the United States (including its territories, possessions and all areas subject to its jurisdiction), the Option Plan provides
that subject to certain conditions, such Options may be granted as incentive stock options (within the meaning of the Code) ("ISOs"). The Option Plan limits the aggregate total of ISOs available to
grant to 500,000 of the maximum number of Options available for issuance.
The
Board may, subject to the requirements of the TSX Company Manual, at any time and from time to time, amend any of the provisions of the Option Plan without consent or approval from
shareholders, including without limitation:
-
(a)
-
amend,
modify or terminate the Option Plan with respect to all Common Shares in respect of Options which have not yet been granted hereunder;
-
(b)
-
to
make any amendment of a typographical, grammatical, clerical or administrative nature or clarification correcting or rectifying any ambiguity, immaterial
inconsistency, defective provision, mistake, or error or omission;
-
(c)
-
to
change the provisions relating to the manner of exercise of Options, including changing or adding any form of financial assistance provided by the
Company, or adding or amending provisions relating to a cashless exercise of Options which provisions so added or amended
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Table of Contents
The
above amendment provisions are also subject to, among other things, the following restricted amendment provisions (which will require Disinterested Shareholder Approval as such term
is defined in the TSX Company Manual):
-
(a)
-
any
reduction in the exercise price of an Option previously granted to an Insider (as defined in the TSX Company Manual);
-
(b)
-
subject
to limited exceptions, any extension of the expiry date of an Option previously granted to an Insider (as defined in the TSX Company Manual);
-
(c)
-
any
amendment to remove or to exceed the Insider Participation Limit (as defined in the TSX Company Manual);
-
(d)
-
any
increase in the maximum number of securities issuable under the Option Plan, either as a fixed number or a fixed percentage of the Company's issued and
outstanding common shares; and
-
(e)
-
any
amendment to the amendment provisions described above.
NEO Compensation
As of December 31, 2018, Neovasc had five NEOs: Fred Colen, President and CEO, Chris Clark, Secretary and CFO,
Vicki Bebeau,
VP, C&R, Aaron Chalekian, VP PD&E and John Panton, VP, Quality. Information for both Fred Colen and Alexei Marko are provided below as Mr. Colen replaced Mr. Marko as President and CEO
in January 2018. Brian McPherson resigned from his position as COO in January 2018. Randy Lane resigned from his position as VP, R&D in September 2018.
Defined Benefits Plans
Neovasc currently does not intend to have a defined benefits pension plan.
Defined Contribution Plans
The Company matches 50% of the contributions paid by certain NEOs into their Registered Retirement Savings Plans
or 401(k) plans in
the United States ("RRSP"). The NEOs each contribute 7.5% of their salaries to their respective RRSPs and receive a benefit of a 3.75% contribution paid by the Company.
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Deferred Compensation Plans
Neovasc currently does not intend to have a deferred compensation plan.
Termination and Change of Control Benefits
Except as follows, the Company has not entered into any contracts, agreements, plans or arrangements that provide
payments to a NEO
at, following or in connection with any termination (whether voluntary, involuntary or constructive), resignation, retirement, a change in control of the Company or a change in a NEO's
responsibilities:
For
Mr. Fred Colen:
-
-
Upon termination without cause, Mr. Colen is entitled to receive his base salary for an additional 6-month period.
In addition, if such termination occurs within 12 months of a change of control, Mr. Colen will receive a cash payment equal to approximately 2 times his base salary and
2 times 3.75% of his base salary as additional retirement plan contributions and 100% of his Options will immediately vest. Mr. Colen's employment agreement also provides for certain
non-competition and non-solicitation restrictions within 12 months of the termination of his employment, for any reason.
-
-
Assuming Mr. Colen was terminated on the last business day of the most recently completed financial year, he would
receive the following estimated payments:
-
-
Termination without cause: $195,000
-
-
Termination within 12 months following a change of control: $809,250
For
Mr. Alexei Marko
(1)
:
-
-
Upon termination without cause, Mr. Marko is entitled to receive the entirety of his compensation for an additional
12-month period. In addition, if such termination occurs within 12 months of a change of control, Mr. Marko will receive a cash payment equal to approximately 2 times his existing
compensation. Mr. Marko's employment agreement also provides for certain non-competition and non-solicitation restrictions within 12 months of the termination of his employment, for
any reason.
-
-
Assuming Mr. Marko was terminated on the last business day of the most recently completed financial year, he would
receive the following estimated payments:
-
-
Termination without cause: C$561,600
-
-
Termination within 12 months following a change of control: C$1,123,200
-
(1)
-
Alexei Marko resigned as President and CEO in January 2018. He was not terminated without cause or following
a change of control. He is receiving C$216,000/year until December 31, 2019.
For
Mr. Chris Clark:
-
-
Upon termination without cause, Mr. Clark is entitled to receive the entirety of his compensation for an additional
15-month period. In addition, if such termination occurs within 12 months of a change of control, Mr. Clark will receive a cash payment equal to approximately 1.5 times his
existing compensation. Mr. Clark's employment agreement also provides for certain non-competition and non-solicitation restrictions within 15 months of the termination of his employment,
for any reason.
-
-
Assuming Mr. Clark was terminated on the last business day of the most recently completed financial year, he would
receive the following estimated payments:
-
-
Termination without cause: C$745,875
-
-
Termination within 12 months following a change of control: C$1,118,812
85
Table of Contents
For
Mr. Brian McPherson
(1)
:
-
-
Upon termination without cause, Mr. McPherson is entitled to receive the entirety of his compensation for an
additional 9-month period. In addition, if such termination occurs within 12 months of a change of control, Mr. McPherson would receive a cash payment equal to approximately
1.25 times his existing compensation. Mr. McPherson's employment agreement also provides for certain non-competition and non-solicitation restrictions within 9 months of the
termination of his employment, for any reason.
-
-
Assuming Mr. McPherson was terminated on the last business day of the most recently completed financial year, he
would receive the following estimated payments:
-
-
Termination without cause: C$269,831
-
-
Termination within 12 months following a change of control: C$337,289
-
(1)
-
Brian McPherson resigned as COO in January 2018. He was not terminated without cause or following a change of
control. He is receiving C$138,375/year until July 31, 2019.
For
Ms. Vicki Bebeau:
-
-
Upon termination without cause, Ms. Bebeau is entitled to receive the entirety of his compensation for one month's
notice for each complete year of service up to a maximum of 9 months. In addition, if such termination occurs within 12 months of a change of control. Ms. Bebeau will receive a
cash payment equal to approximately 1.25 times her existing compensation. Ms. Bebeau's employment agreement also provides for certain non-competition and non-solicitation restrictions
within 12 months of the termination of her employment, for any reason.
-
-
Assuming Ms. Bebeau was terminated on the last business day of the most recently completed financial year, he would
receive the following estimated payments:
-
-
Termination without cause: $164,049
-
-
Termination within 12 months following a change of control: $205,061
For
Mr. Randy Lane:
-
-
Upon termination without cause, Mr. Lane is entitled to receive the entirety of his compensation for an additional
9-month period. In addition, if such termination occurs within 12 months of a change of control, Mr. Lane receives a cash payment equal to approximately 1.25 times his existing
compensation. Mr. Lane's employment agreement also provides for certain non-competition and non-solicitation restrictions within 9 months of the termination of his employment, for
any reason.
-
-
Assuming Mr. Lane was terminated on the last business day of the most recently completed financial year, he would
receive the following estimated payments:
-
-
Termination without cause: C$284,135
-
-
Termination within 12 months following a change of control: C$355,169
-
(1)
-
Randy Lane resigned as VP, R&D in September 2018. He was not terminated without cause or following a change
of control. He is receiving C$283,250/year until July 31, 2019.
For
Mr. Aaron Chalekian:
-
-
Upon termination without cause, Mr. Chalekian is entitled to receive the entirety of his compensation for one
month's notice for each complete year of service up to a maximum of 9 months. In addition, if such termination occurs within 12 months of a change of control, Mr. Chalekian would
receive a cash payment equal to approximately 1.25 times his existing compensation. Mr. Chalekian's employment agreement also provides for certain non-competition
86
Table of Contents
For
Mr. John Panton:
-
-
Upon termination without cause, Mr. Panton is entitled to receive the entirety of his compensation for an
additional 9-month period. In addition, if such termination occurs within 12 months of a change of control, Mr. Panton receives a cash payment equal to approximately 1.25 times
his existing compensation. Mr. Panton's employment agreement also provides for certain non-competition and non-solicitation restrictions within 9 months of the termination of his
employment, for any reason.
-
-
Assuming Mr. Panton was terminated on the last business day of the most recently completed financial year, he would
receive the following estimated payments:
-
-
Termination without cause: C$239,025
-
-
Termination within 12 months following a change of control: C$298,780
Summary Compensation Table
Neovasc's key management personnel include Fred Colen, CEO, Alexei Marko, Former CEO, Chris Clark, CFO, Brian
McPherson, Former COO,
Vicki Bebeau, VP, C&R, Randy Lane, Former VP, R&D, Aaron Chalekian, VP, PD&E and John Panton, VP, Quality. Compensation paid to key management personnel was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
(C$)
|
|
2018
|
|
2017
|
|
2016
|
|
Salaries and consulting fees
|
|
|
2,410,133
|
|
|
1,678,172
|
|
|
1,633,200
|
|
Cash-based awards
|
|
|
904,946
|
|
|
251,726
|
|
|
146,988
|
|
Stock-based awards
|
|
|
|
|
|
|
|
|
|
|
Option-based awards
(1)
|
|
|
2,099,447
|
|
|
933,189
|
|
|
|
|
Pension value
(2)
|
|
|
46,610
|
|
|
20,677
|
|
|
17,336
|
|
|
|
|
|
|
|
|
|
Total compensation
|
|
|
5,461,136
|
|
|
2,883,764
|
|
|
1,797,524
|
|
-
(1)
-
The
Company uses the Black-Scholes option pricing model to calculate the fair value of option-based awards. The model requires six key inputs: risk free
interest rate, exercise price, market price at date of issue, expected dividend yield, expected life and expected volatility, all of which, other than the exercise price and market price, are
estimates by management of the Company. The Black-Scholes model was used to compute option fair values because it is the most commonly used option pricing model and is considered to produce a
reasonable estimate of fair value.
-
(2)
-
Amounts
equal to RRSP monthly payments by the Company. See "Defined Contribution Plans".
87
Table of Contents
The compensation paid to the NEOs during the Company's three most recently completed financial years ended
December 31, 2016, 2017 and 2018 is summarized
as follows and expressed in Canadian dollars unless otherwise noted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity Incentive Plan Compensation
|
|
|
|
|
|
|
|
Name and
Principal
Position
|
|
Year
|
|
Salary ($)
|
|
Share-
Based
Awards
($)
|
|
Option-
Based
Awards
($)
|
|
Annual
Incentive
Plans
($)
|
|
Long-term
Incentive
Plan
($)
|
|
Pension
Value
($)
(3)
|
|
All Other
Compensation
($)
|
|
Total
Compensation
($)
|
|
Fred Colen
|
|
|
2018
|
|
$
|
390,000
|
|
|
N/A
|
|
$
|
679,401
|
(1)
|
$
|
349,500
|
|
|
N/A
|
|
|
NIL
|
|
|
NIL
|
|
$
|
1,418,901
|
|
President & CEO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alexei Marko
|
|
|
2018
|
|
C$
|
234,000
|
|
|
N/A
|
|
C$
|
203,278
|
(1)
|
|
NIL
|
|
|
N/A
|
|
|
NIL
|
|
|
NIL
|
|
C$
|
437,278
|
|
Former CEO &
|
|
|
2017
|
|
C$
|
432,000
|
|
|
N/A
|
|
C$
|
186,638
|
(2)
|
C$
|
64,800
|
|
|
N/A
|
|
|
NIL
|
|
|
NIL
|
|
C$
|
683.438
|
|
Director
(4)
|
|
|
2016
|
|
C$
|
415,000
|
|
|
N/A
|
|
|
NIL
|
(3)
|
C$
|
37,350
|
|
|
N/A
|
|
|
NIL
|
|
|
NIL
|
|
C$
|
452,350
|
|
Chris Clark
|
|
|
2018
|
|
C$
|
351,000
|
|
|
N/A
|
|
C$
|
294,885
|
(1)
|
C$
|
208,845
|
|
|
N/A
|
|
|
NIL
|
|
|
NIL
|
|
C$
|
854,730
|
|
CFO & Secretary
|
|
|
2017
|
|
C$
|
351,000
|
|
|
N/A
|
|
C$
|
149,310
|
(2)
|
C$
|
52,500
|
|
|
N/A
|
|
|
NIL
|
|
|
NIL
|
|
C$
|
552,960
|
|
|
|
|
2016
|
|
C$
|
338,000
|
|
|
N/A
|
|
|
NIL
|
(3)
|
C$
|
30,420
|
|
|
N/A
|
|
|
NIL
|
|
|
NIL
|
|
C$
|
368,420
|
|
Brian McPherson
|
|
|
2018
|
|
C$
|
149,906
|
|
|
N/A
|
|
C$
|
5,580
|
(1)
|
|
NIL
|
|
|
N/A
|
|
|
NIL
|
|
|
NIL
|
|
C$
|
155,486
|
|
Former COO
|
|
|
2017
|
|
C$
|
267,750
|
|
|
N/A
|
|
C$
|
74,655
|
(2)
|
C$
|
41,513
|
|
|
N/A
|
|
|
NIL
|
|
|
NIL
|
|
C$
|
392,918
|
|
|
|
|
2016
|
|
C$
|
266,000
|
|
|
N/A
|
|
|
NIL
|
(3)
|
C$
|
23,940
|
|
|
N/A
|
|
|
NIL
|
|
|
NIL
|
|
C$
|
289,940
|
|
Vicki Bebeau
|
|
|
2018
|
|
$
|
263,680
|
|
|
N/A
|
|
$
|
137,252
|
(1)
|
$
|
92,288
|
|
|
N/A
|
|
$
|
6,449
|
|
|
NIL
|
|
$
|
499,669
|
|
VP, C&R
|
|
|
2017
|
|
C$
|
335,216
|
|
|
N/A
|
|
C$
|
298,620
|
(2)
|
C$
|
50,282
|
|
|
N/A
|
|
C$
|
6,704
|
|
|
NIL
|
|
C$
|
694,123
|
|
|
|
|
2016
|
|
C$
|
339,200
|
|
|
N/A
|
|
|
NIL
|
(3)
|
C$
|
30,528
|
|
|
N/A
|
|
C$
|
7,023
|
|
|
NIL
|
|
C$
|
376,751
|
|
Randy Lane
|
|
|
2018
|
|
C$
|
280,890
|
|
|
N/A
|
|
C$
|
105,017
|
(1)
|
|
NIL
|
|
|
N/A
|
|
C$
|
10,533
|
|
|
NIL
|
|
C$
|
396,440
|
|
Former VP, R&D
|
|
|
2017
|
|
C$
|
283,250
|
|
|
N/A
|
|
C$
|
223,965
|
(2)
|
C$
|
42,487
|
|
|
N/A
|
|
C$
|
10,622
|
|
|
NIL
|
|
C$
|
560,324
|
|
|
|
|
2016
|
|
C$
|
275,000
|
|
|
N/A
|
|
|
NIL
|
(3)
|
C$
|
24,750
|
|
|
N/A
|
|
C$
|
10,313
|
|
|
NIL
|
|
C$
|
310,063
|
|
Aaron
|
|
|
2018
|
|
$
|
214,958
|
|
|
N/A
|
|
$
|
140,959
|
(1)
|
$
|
33,000
|
|
|
N/A
|
|
$
|
6,449
|
|
|
NIL
|
|
$
|
395,366
|
|
Chalekian VP, R&D
|
|
|
2017
|
|
$
|
190,200
|
|
|
N/A
|
|
$
|
98,512
|
(2)
|
$
|
55,350
|
|
|
N/A
|
|
$
|
4,063
|
|
|
NIL
|
|
$
|
348,125
|
|
|
|
|
2016
|
|
$
|
180,000
|
|
|
N/A
|
|
|
NIL
|
(3)
|
|
NIL
|
|
|
N/A
|
|
$
|
5,400
|
|
|
NIL
|
|
$
|
185,400
|
|
John Panton VP, Quality
|
|
|
2018
|
|
C$
|
209,167
|
|
|
N/A
|
|
C$
|
184,121
|
(1)
|
C$
|
48,300
|
|
|
N/A
|
|
C$
|
5,229
|
|
|
NIL
|
|
C$
|
446,816
|
|
|
|
|
2017
|
|
C$
|
170,393
|
|
|
N/A
|
|
C$
|
114,615
|
(2)
|
C$
|
50,182
|
|
|
N/A
|
|
C$
|
4,265
|
|
|
NIL
|
|
C$
|
339,454
|
|
|
|
|
2016
|
|
C$
|
164,800
|
|
|
N/A
|
|
|
NIL
|
(3)
|
|
NIL
|
|
|
N/A
|
|
C$
|
4,120
|
|
|
NIL
|
|
C$
|
168,920
|
|
-
(1)
-
The
Company uses the Black-Scholes option pricing model to calculate the fair value of option based awards. The model requires six key inputs: risk free
interest rate, exercise price, market price at date of issue, expected dividend yield, expected life and expected volatility, all of which, other than the exercise price and market price, are
estimates by management of the Company. The fair value was computed using the Black-Scholes option pricing model with the following assumptions: a) average risk-free interest rate of 2.24%;
b) expected life of 4 years; c) the price of the stock on the grant date of $3.03; d) expected volatility of 72%; and e) no expected dividend payments. The
Black-Scholes model was used to compute option fair values because it is the most commonly used option pricing model and is considered to produce a reasonable estimate of fair value.
-
(2)
-
These
numbers are calculated in accordance with IFRS 2 Share-based Payment (pre and post adoption of IFRS) and are the same numbers as used in
the Company's financial statements.
-
(3)
-
Amounts
equal to RRSP monthly payments by the Company. See "Pension Plan Benefits".
-
(4)
-
Mr. Marko
did not receive any compensation related to his services as a director of the Company. Mr. Marko resigned as CEO in
January 2018.
88
Table of Contents
Options to Purchase Securities
No share-based awards were granted to the NEOs in the most recent financial year. The following table sets out all
option-based awards
as at December 31, 2018, for each NEO:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based Awards
|
|
|
Option-based Awards
|
|
|
|
|
Market or
payout value
of share-
based
awards that
have not
vested
($)
|
|
Market or
payout value
of vested
share-based
awards not
paid out or
distributed
($)
|
Name and
Principal
Position
|
|
Number of
securities
underlying
unexercised
options
|
|
Option
exercise
price
($)
|
|
Option
expiration date
|
|
Value of
unexercised
in-the-
money
options
($)
(1)
|
|
Number of
shares or
units of
shares
that have
not vested
|
Fred Colen
|
|
|
20,000
|
|
$
|
63.00
|
|
January 24, 2026
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
President & CEO
|
|
|
2,500
|
|
$
|
6.00
|
|
March 31, 2026
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
600,000
|
|
$
|
2.72
|
|
September 30, 2026
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
250,000
|
|
$
|
0.88
|
|
December 3, 2026
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
Alexei Marko
|
|
|
2,500
|
|
C$
|
650.00
|
|
April 15, 2019
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
Former CEO & Director
|
|
|
1,250
|
|
C$
|
190.00
|
|
March 31, 2022
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
700
|
|
$
|
63.00
|
|
January 24, 2026
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
100,000
|
|
$
|
2.72
|
|
September 30, 2026
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
Chris Clark
|
|
|
2,000
|
|
C$
|
650.00
|
|
April 15, 2019
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
CFO & Secretary
|
|
|
1,000
|
|
|
C190.00
|
|
March 31, 2022
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
3,000
|
|
$
|
63.00
|
|
January 24, 2026
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
1,250
|
|
$
|
6.00
|
|
March 31, 2026
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
300,000
|
|
$
|
2.72
|
|
September 30, 2026
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
100,000
|
|
$
|
0.88
|
|
December 3, 2026
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
Brian McPherson
|
|
|
1,500
|
|
C$
|
650.00
|
|
April 15, 2019
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
Former COO
|
|
|
500
|
|
C$
|
190.00
|
|
March 31, 2022
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
240
|
|
$
|
63.00
|
|
January 24, 2026
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
Vicki Bebeau
|
|
|
1,500
|
|
C$
|
680.00
|
|
May 12, 2019
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
VP, C&R
|
|
|
500
|
|
C$
|
1,176.00
|
|
February 24, 2020
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
2,000
|
|
C$
|
190.00
|
|
March 31, 2022
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
3,000
|
|
$
|
63.00
|
|
January 24, 2026
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
1,250
|
|
$
|
6.00
|
|
March 31, 2026
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
100,000
|
|
$
|
2.72
|
|
September 30, 2026
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
50,000
|
|
$
|
0.88
|
|
December 3, 2026
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
Randy Lane
|
|
|
2,250
|
|
C$
|
650.00
|
|
April 15, 2019
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
Former VP, R&D
|
|
|
500
|
|
C$
|
1,176.00
|
|
February 24, 2020
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
1,500
|
|
C$
|
190.00
|
|
March 31, 2022
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
2,000
|
|
$
|
63.00
|
|
January 24, 2026
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
750
|
|
$
|
6.00
|
|
March 31, 2026
|
|
NI
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
50,000
|
|
$
|
2.72
|
|
September 30, 2026
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
Aaron Chalekian
|
|
|
750
|
|
C$
|
1,111.00
|
|
April 16, 2020
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
VP, PD&E
|
|
|
278
|
|
C$
|
519.00
|
|
December 28, 2020
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
500
|
|
C$
|
190.00
|
|
March 21, 2022
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
2,000
|
|
$
|
63.00
|
|
January 24, 2026
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
750
|
|
$
|
6.00
|
|
March 31, 2026
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
100,000
|
|
$
|
2.72
|
|
September 30, 2026
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
50,000
|
|
$
|
0.88
|
|
December 3, 2026
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
John Panton
|
|
|
500
|
|
C$
|
843.00
|
|
June 1,2020
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
VP, Quality
|
|
|
250
|
|
|
C792.00
|
|
July 31, 2020
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
217
|
|
C$
|
519.00
|
|
December 28, 2020
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
500
|
|
C$
|
190.00
|
|
March 31, 2022
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
2,000
|
|
$
|
63.00
|
|
January 24, 2026
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
750
|
|
$
|
6.00
|
|
March 31, 2026
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
100,00
|
|
$
|
2.72
|
|
September 30, 2026
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
50,000
|
|
$
|
0.88
|
|
December 3, 2026
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
-
(1)
-
Value
of unexercised in-the-money options is calculated based upon the difference between the market value of the Company's common shares as at
December 31, 2018 (C$0.83 closing price on the TSX) and the exercise price of the options.
89
Table of Contents
Director Compensation
In 2018, the directors of the Company (excluding any executive officers) were paid an annual retainer of $50,000,
without any meeting
fees. In addition, the Chairman of the Board, Mr. Paul Geyer, was paid an extra annual retainer of $10,000 and the Chairman of the Audit and Strategic Activities Committee, Mr. Steven
Rubin, was paid an extra annual retainer of $10,000. On June 4, 2018, Mr. Paul Geyer resigned as Chairman of the Board and was appointed Chairman of the Audit and Strategic Activities
Committee and Mr Steven Ruben resigned as Chairman of the Audit and Strategic Activities Committee and was appointed Chairman of the Board.
Summary Director Compensation Table
During the Company's most recently completed financial year of December 31, 2018, the compensation paid to
each director, who
was not an NEO, is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity Incentive Plan Compensation
|
|
|
|
|
|
|
|
Name and
Principal Position
|
|
Salary ($)
|
|
Share-
Based
Awards
($)
|
|
Option-
Based
Awards
($)
|
|
Annual
Incentive
Plans
($)
|
|
Long-term
Incentive
Plan
($)
|
|
Pension
Value
($)
|
|
All Other
Compensation
($)
|
|
Total
Compensation
($)
|
|
Paul Geyer former
|
|
|
60,000
|
|
|
N/A
|
|
|
145,576
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
$
|
205,576
|
|
Chairman and Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven Rubin
|
|
|
60,000
|
|
|
N/A
|
|
|
145,576
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
$
|
205,576
|
|
Chairman and Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Douglas Janzen
|
|
|
50,000
|
|
|
N/A
|
|
|
148,987
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
$
|
198,987
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jane Hsiao
|
|
|
50,000
|
|
|
N/A
|
|
|
145,576
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
$
|
195,576
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William O'Neill
|
|
|
50,000
|
|
|
N/A
|
|
|
145,576
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
$
|
195,576
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alexei Marko
|
|
|
NIL
|
|
|
N/A
|
|
|
148,987
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
$
|
148,987
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90
Table of Contents
Share-based Awards and Option-based Awards
No share-based awards were granted to the directors in the most recent financial year. The following table sets
out all option-based
awards as at December 31, 2018, for each director who was not an NEO:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based Awards
|
|
|
Option-based Awards
|
|
|
Number
of shares
of units or
shares
that have
not vested
|
|
Market or
payout value
of share-based
awards that
have not
vested
($)
|
|
Market or
payout value of
vested share-
based awards
not paid out or
distributed
($)
|
Name and
Principal Position
|
|
Number of
securities
underlying
unexercised
options
|
|
Option
exercise
price
($)
|
|
Option
expiration
date
|
|
Value of
unexercised
in-the-money
options
($)
(1)
|
Paul Geyer
|
|
|
800
|
|
C$
|
650.00
|
|
April 15, 2019
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
Director
|
|
|
150
|
|
C$
|
1,176.00
|
|
February 24, 2020
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
300
|
|
C$
|
190.00
|
|
March 31, 2022
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
Douglas Janzen
|
|
|
650
|
|
C$
|
650.00
|
|
April 15, 2019
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
Director
|
|
|
150
|
|
C$
|
1,176.00
|
|
February 24, 2020
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
300
|
|
C$
|
190.00
|
|
March 31, 2022
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
Jane Hsiao
|
|
|
650
|
|
C$
|
650.00
|
|
April 15, 2019
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
Director
|
|
|
150
|
|
C$
|
1,176.00
|
|
February 24, 2020
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
300
|
|
C$
|
190.00
|
|
March 31, 2022
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
Steven Rubin
|
|
|
750
|
|
C$
|
650.00
|
|
April 15, 2019
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
Chairman
|
|
|
150
|
|
C$
|
1,176.00
|
|
February 24, 2020
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
300
|
|
C$
|
190.00
|
|
March 31, 2022
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
William O'Neill
|
|
|
650
|
|
C$
|
650.00
|
|
April 15, 2019
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
Director
|
|
|
150
|
|
C$
|
1,176.00
|
|
February 24, 2020
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
300
|
|
C$
|
190.00
|
|
March 31, 2022
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
Alexei Marko
|
|
|
2,500
|
|
C$
|
650.00
|
|
April 15, 2019
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
Former CEO & Director
|
|
|
1,250
|
|
C$
|
190.00
|
|
March 31, 2022
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
Notes:
-
(1)
-
Value
of unexercised in-the-money options is calculated based upon the difference between the market value of the Company's common shares as at
December 31, 2018 (C$0.83 closing price on the TSX) and the exercise price of the options.
The following table summarizes the value vested or earned under incentive plans for the most recently completed
financial year, for
each NEO:
|
|
|
|
|
|
|
Name and Principal Position
|
|
Option-Based Awards Value
Vested During the Year
($)
(1)
|
|
Share-Based Awards Value
Vested During the Year
($)
|
|
Non-Equity Incentive Plan
Compensation Value Earned
During the Year
($)
|
Fred Colen,
|
|
NIL
|
|
N/A
|
|
N/A
|
President & CEO
|
|
|
|
|
|
|
Alexei Marko
|
|
NIL
|
|
N/A
|
|
N/A
|
Former CEO & Director
|
|
|
|
|
|
|
Chris Clark
|
|
NIL
|
|
N/A
|
|
N/A
|
CFO & Secretary
|
|
|
|
|
|
|
Brian McPherson
|
|
NIL
|
|
N/A
|
|
N/A
|
Former COO
|
|
|
|
|
|
|
Vicki Bebeau
|
|
NIL
|
|
N/A
|
|
N/A
|
VP, C&R
|
|
|
|
|
|
|
Randy Lane
|
|
NIL
|
|
N/A
|
|
N/A
|
Former VP, R&D
|
|
|
|
|
|
|
Aaron Chalekian
|
|
NIL
|
|
N/A
|
|
N/A
|
VP, PD&E
|
|
|
|
|
|
|
John Panton
|
|
NIL
|
|
N/A
|
|
N/A
|
VP, Quality
|
|
|
|
|
|
|
-
(1)
-
All
options are granted at market price.
91
Table of Contents
The
following table sets out the burn rate of the Existing Option Plan for the three most recently completed financial years:
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
Options Granted
|
|
Weighted Average
Securities Outstanding
(000,000)
|
|
Burn Rate
|
|
2018
|
|
|
3,660,530
|
|
|
14,160,115
|
|
|
25.85%
|
|
2017
|
|
|
1,844,500
|
|
|
81,523,874
|
|
|
2.26%
|
|
2016
|
|
|
170,061
|
|
|
67,465,300
|
|
|
0.25%
|
|
C. Board Practices
Item 6.A. "
Directors, Senior Management and Employees Directors and
Senior
Management
" above sets out each directors' and officers' date of expiration of their current term of office, as applicable, and the period during which such person has served
in that office.
For
specific termination and change-of-control provisions for the Company's NEOs, see Item 6.B "
Compensation.
"
As
of March 19, 2019, all NEOs are engaged in a contract providing for benefits upon termination of employment with the Company.
Board Committees
The Board believes that its proper governance and effectiveness in carrying out its duties is greatly enhanced by
the use of
committees. To assist in the discharge of its responsibilities, the Board has designated three standing committees: the Audit and Strategic Activities Committee (the "Audit and Strategic
Activities Committee"), the Compensation Committee (the "Compensation Committee") and the Corporate Governance and Nominating Committee (the "CGNC"). The written mandates governing each
of these committees require that the committees be comprised of independent directors.
The
Board has from time to time designated and may in the future designate ad hoc committees to assist in the discharge of its responsibilities. During the most recently completed
financial year, the Company designated a pricing committee in relation to the 2017 Financings.
Audit and Strategic Activities Committee
The Audit and Strategic Activities Committee is comprised of Paul Geyer (Chair), Steve Rubin and Douglas Janzen,
all of whom are
"financially literate" as defined in National Instrument 52-110 Audit Committees ("NI 52-110") and the rules of the Nasdaq. Each member of the
Audit and Strategic Activities Committee is considered independent pursuant to NI 52-110, Rule 10A-3 under the U.S. Exchange Act and the rules of the Nasdaq. Douglas Janzen served
as the Audit and Strategic Activities Committee's financial expert for the 2018 fiscal year. A description of the education and experience of each Audit and Strategic Activities Committee member that
is relevant to the performance of his responsibilities as an Audit and Strategic Activities Committee member may be found above under the heading "
Directors, Senior Management
and Employees Directors and Senior Management
".
The
Audit and Strategic Activities Committee is responsible for reviewing the Company's financial reporting procedures, internal controls and the performance of the financial management
and the Auditor. The Audit and Strategic Activities Committee also reviews the annual audited financial statements and makes recommendations to the board. A copy of the Audit and Strategic Activities
Committee's charter is set out below.
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Audit and Strategic Activities Committee Charter
I. Purpose
The
Audit and Strategic Activities Committee is responsible for assisting the Board of Directors (the "Board") in fulfilling its oversight responsibilities in
relation to:
-
-
the integrity of Medical Ventures Corp. (the "Corporation") financial statements;
-
-
the Company's compliance with legal and financial regulatory requirements;
-
-
the qualifications and independence of the Company's auditor;
-
-
the adequacy and effectiveness of internal controls over financial reporting and disclosure controls;
-
-
the performance of the Company's internal audit function and independent auditor;
-
-
preparing an audit committee report to be included in the Company's management information circular; and
-
-
any additional matters delegated to the Audit and Strategic Activities Committee by the Board.
-
II.
-
Members
The
Board must appoint a minimum of three directors to be members of the Audit and Strategic Activities Committee. All of the members of the Audit and Strategic Activities Committee
will meet the criteria for independence contained in applicable laws and stock exchange rules and regulations and at least a majority must be residents of Canada (so long as this is required
under applicable law). In addition, every member of the Audit and Strategic Activities Committee will be Financially Literate and at least one member will have accounting or related financial
management expertise, as the Board interprets such qualification in its business judgment. "Financially Literate" means the ability to read and understand a set of financial statements that present a
breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the Company's financial
statements.
-
III.
-
Responsibilities
The
auditor is ultimately accountable to the Audit and Strategic Activities Committee and reports directly to the Audit and Strategic Activities Committee. Accordingly, the Audit and
Strategic Activities Committee will evaluate and be responsible for the Company's relationship with the auditor. Specifically, the Audit and Strategic Activities
Committee will:
-
-
select, evaluate and nominate the auditor to be proposed for appointment or reappointment, as the case may be, by the
shareholders;
-
-
review and approve the auditor's engagement letter;
-
-
after seeking and taking into account the opinions of senior management and the officer in charge of internal audit,
review the independence, experience, qualifications and performance of the auditor, including the lead audit partner, in recommending its appointment or reappointment, including considering whether
the auditor's quality controls are adequate and the auditor's provision of any permitted non-audit services is compatible with maintaining its independence;
-
-
oversee the auditor's work, including resolving any disagreements between management and the auditor regarding financial
reporting;
-
-
at least annually, obtain and review a report by the auditor describing its internal quality-control procedures, any
material issues raised by the most recent internal quality-control review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional authorities, within the
preceding five years, respecting one or more independent audits carried out by the auditor and any steps taken to deal with any such issues; and
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-
-
where appropriate, terminate the auditor.
At
least annually, and before the auditor issues its report on the Company's annual financial statements, the Audit and Strategic Activities
Committee will:
-
-
confirm that the auditor has submitted a formal written statement describing all of its relationships with the Company
that in the auditor's professional judgment may reasonably be thought to bear on its independence;
-
-
discuss with the auditor any disclosed relationships or services that may affect its independence;
-
-
obtain written confirmation from the auditor that it is independent with respect to the Company within the meaning of the
Rules of Professional Conduct adopted by the Canadian Institute of Chartered Accountants to which it belongs and that it is an independent public accountant with respect to the Company within the
meaning of federal securities legislation; and
-
-
confirm that the auditor has complied with applicable laws with respect to the rotation of certain members of the audit
engagement team for the Company.
The
Audit and Strategic Activities Committee will pre-approve the appointment of the auditor for any non-audit service to be provided to the Company or its subsidiaries, provided that
it will not approve any service that is prohibited under applicable laws, rules and regulations. The Audit and Strategic Activities Committee may establish policies and procedures, that may be revised
from time to time, which pre-approve the appointment of the auditor for certain non-audit services. In addition, the Audit and Strategic Activities Committee may delegate to one or more independent
members the authority to pre-approve the appointment of the auditor for any non-audit service to the extent permitted by applicable law, provided that
any pre-approvals granted pursuant to such delegation shall be reported to the full Audit and Strategic Activities Committee at its next scheduled meeting following such pre-approval.
The
Audit and Strategic Activities Committee has the authority to communicate directly with the auditor and will meet privately with the auditor as frequently as the Audit and Strategic
Activities Committee feels is appropriate to fulfill its responsibilities, which will not be less frequently than annually, to discuss any items of concern to the Audit and Strategic Activities
Committee or the auditor, including, without limitation:
-
-
planning and staffing of the audit;
-
-
any material written communications between the auditor and management, such as any management letter or schedule of
unadjusted differences;
-
-
whether or not the auditor is satisfied with the quality and effectiveness of financial recording procedures
and systems;
-
-
the extent to which the auditor is satisfied with the nature and scope of its examination;
-
-
any instances of fraud or other illegal acts involving senior management of the Company;
-
-
whether or not the auditor has received the full co-operation of senior management and other employees of the Company and
whether the auditor has encountered any audit problems or difficulties in the course of its audit work, including any restrictions on the scope of the auditor's work or access to required information
and any significant disagreements with management (along with management's response);
-
-
the auditor's opinion of the competence and performance of the Chief Financial Officer and other key financial
personnel; and
-
-
the items required to be communicated to the Audit and Strategic Activities Committee under the Canadian authoritative
guidance or under Canadian generally accepted auditing standards.
The
Audit and Strategic Activities Committee will discuss with the auditor the nature of an audit and the responsibility assumed by the auditor when conducting an audit under Canadian
generally accepted auditing standards. The Audit and Strategic Activities Committee will review a summary of the auditor's audit plan for each audit.
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Table of Contents
The
Audit and Strategic Activities Committee will determine the auditor's fee and the terms of the auditor's engagement. In determining the auditor's fee, the Audit and Strategic
Activities Committee will consider, among other things, the number and nature of reports to be issued by the auditor, the quality of the internal controls of the Company, the size, complexity and
financial condition of the Company and the extent of internal audit and other support to be provided to the auditor by the Company.
The
Audit and Strategic Activities Committee will review and discuss with management and the auditor the annual audited financial statements, together with the auditor's report thereon,
and the interim financial statements, before recommending them for approval by the Board. The Audit and Strategic Activities Committee will also review and discuss with management and
the auditor:
-
-
management's discussion and analysis relating to the annual audited financial statements and interim financial statements;
-
-
all critical accounting policies and practices used or to be used by the Company; and
-
-
all alternative treatments of financial information within generally accepted accounting principles that have been
discussed with management, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the auditor.
The
Audit and Strategic Activities Committee may also engage the auditor to review the interim financial statements and any reconciliation of the Company's financial statements prior to
the Audit and Strategic Activities Committee's review of such financial statements or reconciliation.
The
Audit and Strategic Activities Committee will:
-
-
review annual and interim earnings press releases prior to their public release, as well as financial information and
earnings guidance provided to analysts and rating agencies. The Audit and Strategic Activities Committee will also review the type and presentation of information to be included in such press releases
and guidance (including the use of "pro forma" or "adjusted" non-GAAP financial measures);
-
-
ensure that adequate procedures are in place for management's review of all other financial information extracted or
derived from the Company's financial statements that were previously reviewed by the Audit and Strategic Activities Committee before such information is released to the public, including, without
limitation, financial information or statements for use in prospectuses or other offering or public disclosure documents and financial statements required by regulatory authorities, and the Audit and
Strategic Activities Committee shall periodically assess the adequacy of those procedures;
-
-
review major issues regarding accounting principles and financial statement presentations, including any significant
changes in the Company's selection or application of accounting principles, and major issues as to the adequacy of the Company's internal controls and any special audit steps adopted in light of any
material control deficiencies;
-
-
review analyses prepared by management and/or the auditor setting forth significant financial reporting issues and
judgments made in connection with the preparation of the financial statements, including analyses of the effects of alternative GAAP methods of the financial statements; and
-
-
review the effect of regulatory and accounting initiatives as well as off-balance sheet structures on the Company's
financial statements.
The
Audit and Strategic Activities Committee members will meet privately with senior management as frequently as the Audit and Strategic Activities Committee feels is appropriate to
fulfill its responsibilities,
which will not be less frequently than annually to discuss any areas of concern to the Audit and Strategic Activities Committee or senior management.
The
Audit and Strategic Activities Committee will review with senior management the controls and procedures that have been adopted by the Company to confirm that material information
about the Company
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Table of Contents
and
its subsidiaries that is required to be disclosed under applicable law or stock exchange rules is disclosed within the required time periods. The Audit and Strategic Activities Committee will also
review disclosures made to it by the Chief Executive Officer and Chief Financial Officer during their certification process for applicable securities law filings about any significant deficiencies and
material weaknesses in the design or operation of the Company's ICFR which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial
information required to be disclosed by the Company in the reports that it files or submits under applicable Canadian federal and provincial legislation and regulations within the required time
periods, and any fraud, whether or not material, involving management or other employees who have a significant role in the Company's ICFR.
The
Audit and Strategic Activities Committee will review with the Company's legal counsel any legal or regulatory matters that could have a significant effect on the Company's financial
statements. It will also review with legal counsel material inquiries received from regulators and governmental agencies and advise the Board accordingly.
The
Audit and Strategic Activities Committee will review periodically with senior management the Company's guidelines and policies with respect to risk assessment and risk management,
including the steps and process taken to monitor and control risks.
The
Audit and Strategic Activities Committee will periodically review with senior management the status of significant taxation matters of the Company.
The
Audit and Strategic Activities Committee has established and will continue to maintain and monitor compliance with policies for hiring partners and employees and former partners and
employees of the auditor.
-
IV.
-
Complaints
Procedure
The
Audit and Strategic Activities Committee has established, and will continue to maintain, procedures for the receipt, retention and treatment of complaints received by the Company
regarding accounting, internal accounting controls, auditing matters and disclosure controls and procedures for the confidential, anonymous submission of concerns by employees of the Company regarding
questionable accounting or auditing matters or disclosure controls.
-
V.
-
Reporting
The
Audit and Strategic Activities Committee will regularly report to the Board on:
-
-
the auditor's independence;
-
-
the performance of the auditor and the Audit and Strategic Activities Committee's recommendations regarding its
reappointment or termination;
-
-
the performance of the internal audit function;
-
-
the adequacy of the Company's internal controls and disclosure controls;
-
-
its recommendations regarding the annual and interim financial statements of the Company and any reconciliation of the
Company's financial statements, including any issues with respect to the quality or integrity of the financial statements;
-
-
its review of the annual and interim management's discussion and analysis;
-
-
any issues that arise with respect to the Company's compliance with legal and regulatory requirements; and
-
-
all other significant matters it has addressed and with respect to such other matters that are within its
responsibilities.
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Table of Contents
-
VI.
-
Review
and Disclosure
The
Audit and Strategic Activities Committee will review this Charter at least annually and submit it to the Board together with any proposed amendments. The Board will review the
Charter and approve such further amendments as it deems necessary and appropriate.
-
VII.
-
Assessment
At
least annually, the Corporate Governance Committee will review the effectiveness of the Audit and Strategic Activities Committee in fulfilling its responsibilities and duties as set
out in this Charter and in a manner consistent with the corporate governance guidelines adopted by the Board.
-
VIII.
-
Chair
Each
year, the Board will appoint one member to be Chair of the Audit and Strategic Activities Committee. If, in any year, the Board does not appoint a Chair, the incumbent Chair will
continue in office until a successor is appointed.
-
IX.
-
Removal
and Vacancies
Any
member may be removed and replaced at any time by the Board, and will automatically cease to be a member as soon as the member ceases to meet the qualifications set out above. The
Board will fill vacancies on the Audit and Strategic Activities Committee by appointment from among qualified members of the Board. If a vacancy exists on the Audit and Strategic Activities Committee,
the remaining members will exercise all of its powers so long as a quorum remains in office.
-
X.
-
Access
to Independent Counsel and Other Advisors
In
carrying out its duties, the Audit and Strategic Activities Committee may retain independent counsel and any other outside advisor at the expense of the Company without Board
approval at any time and has the authority to determine any such counsel's or advisor's fees and other retention terms. The Company shall also provide appropriate funding, as determined by the Audit
and Strategic Activities Committee, for the payment of the compensation of the auditor, independent counsel and outside advisors and any ordinary administrative expenses of the Audit and Strategic
Activities Committee that are necessary or appropriate in carrying out its duties.
Audit and Strategic Activities Committee Oversight
Since the commencement of the Company's most recently completed financial year, the Audit and Strategic Activities
Committee has not
made any recommendations to the Board to nominate or compensate any auditor other than Grant Thornton LLP.
Reliance on Certain Exemptions
The Company's auditor, Grant Thornton LLP, has not provided any material non-audit services during the
financial year ended
December 31, 2018.
Since
the effective date of NI 52-110, the Company has not relied on the exemptions contained in section 2.4 or Part 8 of NI 52-110. Section 2.4
provides an exemption from the requirements that the Audit and Strategic Activities Committee must pre-approve all non-audit services to be provided by the auditor, where the total fees related to the
non-audit services are not expected to exceed 5% of the total fees payable to the auditor
in the fiscal year in which the non-audit services were provided. Section 8 permits a company to apply to a securities regulatory authority for an exemption from the requirements of
NI 52-110, in whole or in part.
Pre-Approval Policies and Procedures
The Audit and Strategic Activities Committee will pre-approve the appointment of the auditor for any non-audit
service to be provided
to the Company or its subsidiaries, provided that it will not approve any
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Table of Contents
service
that is prohibited under applicable laws, rules and regulations. The Audit and Strategic Activities Committee may establish policies and procedures, that may be revised from time to time,
which pre-approve the appointment of the auditor for certain non-audit services. In addition, the Audit and Strategic Activities Committee may delegate to one or more independent members the authority
to pre-approve the appointment of the auditor for any non-audit service to the extent permitted by applicable law, provided that any pre-approvals granted pursuant to such delegation shall be reported
to the full Audit and Strategic Activities Committee at its next scheduled meeting following such pre-approval.
External Auditor Service Fees by Category
The Audit and Strategic Activities Committee has reviewed the nature and amount of the non-audited services
provided by Grant
Thornton LLP to the Company to ensure auditor independence. Fees incurred with Grant Thornton LLP for audit and non-audit services in the last three fiscal years for audit fees are
outlined in the table below. "Audit Fees" means all services performed by Grant Thornton LLP in connection with the review of annual consolidated financial statements of the Company including
services performed to comply with generally accepted auditing standards. "Audit Related Fees" means all services performed by Grant Thornton LLP in connection with: the review of quarterly
financial statements in accordance with generally accepted standards for a review; equity due diligence required by underwriters, regulators and other parties in connection with raising capital for
the Company and internal control reviews. "Tax Fees" means all services performed by Grant Thornton LLP in connection with tax planning, compliance and advice. "Other Fees" means all services
performed by Grant Thornton LLP outside of the services described above.
|
|
|
|
|
|
|
|
|
Financial Year Ending
|
|
Audit Fees
|
|
Audit-Related Fees
|
|
Tax Fees
|
|
All Other Fees
|
December 31, 2018
|
|
C$158,880
|
|
C$57,250
|
|
C$nil
|
|
C$nil
|
December 31, 2017
|
|
C$87,084
|
|
C$90,200
|
|
C$nil
|
|
C$nil
|
December 31, 2016
|
|
C$95,573
|
|
C$60,300
|
|
C$nil
|
|
C$nil
|
Compensation Committee
The Compensation Committee of the Company is composed of Doug Janzen (Chair), Dr. Jane Hsiao and
Dr. William O'Neill,
all of whom are independent directors of the Company. For a detailed description of the relevant experience of each member of the Compensation Committee, please see the section "Election of
Directors Director Biographies" above. The Compensation Committee provides, on behalf of the Board, detailed review, oversight and approval of the Company's
policies, practices and procedures relating to human resources to ensure ongoing, long-term development and deployment of high-caliber senior management resources. The Compensation
Committee:
-
-
reviews and makes recommendations to the Board about the objectives, performance and compensation of the CEO;
-
-
reviews the recommendations of the CEO regarding:
-
-
compensation of the senior executive officers of the Company that report to the CEO;
-
-
the compensation policy of the Company (the "Executive Compensation Program"), including internal structure, annual
review and relationship to market levels and changes to ensure the relationship between senior management performance and compensation is appropriate;
-
-
significant changes in the Company's benefit plan and human resources policies with emphasis on overall strategy and
programs relating to the recruitment, development and retention of personnel; and
-
-
issuance of stock options to employees, consultants, and directors; and
-
-
reviews overall compensation programs.
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Table of Contents
Corporate Governance and Nominating Committee
The Corporate Governance and Nominating Committee of the Company ("CGNC") is composed of Alexi Marko (Chair),
Dr. Jane Hsiao
and Dr. William O'Neill, of whom Dr. Jane Hsiao and Dr. William O'Neill are independent directors of the Company. Alexei Marko (an executive officer of the Company in the
last three years) is deemed not to be an independent director of the Company. For a detailed description of the relevant experience of each member of the Compensation Committee, please see
the section "Election of Directors Director Biographies" above. The CGNC is responsible for making recommendations to the Board concerning governance matters
pertaining to the shareholders and the Board. Such matters include the establishment and review of the Company's corporate governance principles and guidelines, orientation and education of directors
and the nomination of new directors. The CGNC has a written mandate, which requires that the CGNC:
-
-
ensure that a process is established for the orientation and education of new directors, to both the nature and operation
of the Company's business and their responsibilities and duties as directors (including the contribution individual directors are expected to make and the commitment of time and resources that the
Company expects from its directors); and
-
-
ensure that the directors receive adequate information and continuing education opportunities on an on-going basis to
enable them to maintain their skills and abilities as directors and to ensure their knowledge and understanding of the Company's business remains current.
Statement of Corporate Governance Practices
Corporate governance refers to the policies and structure of the board of directors of a corporation, whose
members are elected by and
are accountable to the shareholders of the corporation. Corporate governance encourages establishing a reasonable degree of independence of the board of directors from executive management and
adoption of policies to ensure the board of directors recognizes the principles of good management. The Board is committed to sound corporate governance practices, as such practices are both in the
interests of shareholders and help to contribute to effective and efficient decision-making.
The
Board believes that good corporate governance improves corporate performance and benefits all shareholders. The Canadian Securities Administrators (the "CSA") have adopted
National Policy 58-201
Corporate Governance Guidelines
, which provides non-prescriptive guidelines on corporate governance practices for
reporting issuers such as the Company. In addition, the CSA have implemented National Instrument 58-101
Disclosure of Corporate Governance
Practices
("NI 58-101"), which prescribes certain disclosure by the Company of its corporate governance practices. This section sets out the Company's approach to
corporate governance and addresses the Company's compliance with NI 58-101.
The
Company's approach to corporate governance is set forth below.
Mandate of the Board
The Board approved a board mandate on April 29, 2014 (the "Board Mandate"). The Board Mandate requires
that the Board
meet as required, but at least once a quarter. In addition, management provides updates to the Board as needed between Board meetings. Depending on the level of activity, the Board will meet on an ad
hoc basis where necessary to provide input and guidance to management. In general, management consults with the Board frequently and the Board is well informed regarding the Company's affairs.
The
Board Mandate requires that the Board be comprised of a majority of "independent" directors. Paul Geyer, Doug Janzen, Steven Rubin, Dr. Jane Hsiao and Dr. William
O'Neill are independent directors as defined in NI 58-101 and National Instrument 52-110 Audit Committees ("NI 52-110"). Alexei Marko (an executive officer of the Company)
is deemed not to be an independent director of the Company.
The
Board Mandate requires that the independent directors meet as required without non-independent directors and management, but at least once quarterly. Additionally, where necessary,
the Board strikes special committees of independent directors to deal with matters requiring independence. The
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Table of Contents
Board
Mandate requires that the Board maintain a supervisory role over management, and requires that the Board will:
-
(a)
-
to
the extent feasible, satisfy itself as to the integrity of the Chief Executive Officer ("CEO") and other executive officers and that all such executive
officers are creating a culture of integrity throughout the Company;
-
(b)
-
ensure
that the CEO is appropriately managing the business of the Company;
-
(c)
-
ensure
appropriate succession planning is in place;
-
(d)
-
establish
corporate objectives for the CEO annually and evaluate the performance of the CEO against these corporate objectives;
-
(e)
-
consider
and approve major business initiatives and corporate transactions proposed by management; and
-
(f)
-
ensure
the Company has internal control and management information systems in place.
Composition
of the Board is such that a majority of the independent directors have significant experience in corporate affairs. As a result, these Board members are able to provide
significant and valuable independent supervision over management.
Attendance
The table below shows the number of Board meetings each director attended in 2018.
|
|
|
|
|
|
|
Name of Director
|
|
Number of
Meetings Attended
|
|
Percentage
Attendance
|
|
Paul Geyer
|
|
3 of 3
|
|
|
100
|
%
|
Alexei Marko
|
|
3 of 3
|
|
|
100
|
%
|
Douglas Janzen
|
|
2 of 3
|
|
|
67
|
%
|
Steven Rubin
|
|
3 of 3
|
|
|
100
|
%
|
Dr. Jane Hsiao
|
|
2 of 3
|
|
|
67
|
%
|
Dr. William O'Neill
|
|
3 of 3
|
|
|
100
|
%
|
Directorships
The following directors of the Company are also directors of other reporting issuers as set out below:
|
|
|
|
|
Name of Director
|
|
Name of Reporting Issuer
|
|
Name of Exchange Listed On
|
Douglas Janzen
|
|
Aequus Pharmaceuticals Inc.
Lexington Biosciences Inc.
|
|
TSXV
TSXV
|
Steven Rubin
|
|
Castle Brands, Inc.
Cocrystal Pharma, Inc.
Chromadex Corporation
Non-Invasive Monitoring Systems, Inc.
OPKO Health, Inc.
Eloxx Pharmaceuticals, Inc.
Red Violet, Inc.
|
|
NYSE American
Nasdaq
Nasdaq
OTCBB
Nasdaq
Nasdaq
Nasdaq
|
Dr. Jane Hsiao
|
|
Cocrystal Pharma, Inc.
Non-Invasive Monitoring Systems, Inc.
OPKO Health, Inc.
TransEnterix, Inc.
|
|
Nasdaq
OTCBB
Nasdaq
NYSE American
|
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Orientation and Education
The Board Mandate requires the Board to develop a process for the orientation and education of new members of the
Board, and support
continuing education opportunities for all members of the board. In addition, the Company's CGNC has a written Mandate (the "CGNC Mandate"), which requires that
the CGNC:
-
(a)
-
ensure
that a process is established for the orientation and education of new directors, to both the nature and operation of the Company's business and
their responsibilities and duties as directors (including the contribution individual directors are expected to make and the commitment of time and resources that the Company expects from its
directors); and
-
(b)
-
ensure
that the directors receive adequate information and continuing education opportunities on an on-going basis to enable them to maintain their skills
and abilities as directors and to ensure their knowledge and understanding of the Company's business remains current.
Most
Board meetings are held by conference call, often including presentations by various functional areas, to give Board members additional insight into the business.
Ethical Business Conduct
Neovasc has adopted a Code of Business Conduct and Ethics (the "Code") applicable to all of its directors and
employees,
including its Chief Executive Officer and Chief Financial Officer, which is a "code of ethics" as defined in Item 16B of Form 20-F promulgated by the SEC and which is a "code" under
National Instrument NI 58-101. The Code governs directors, executive officers and employees of the Company and its subsidiaries, setting forth basic standards of ethical and legal
behavior, and provides mechanisms for known or suspected ethical or legal violations. A copy of the Code was filed on the Company's SEDAR profile at www.sedar.com on May 15, 2014. The Board
monitors compliance with the Code by ensuring that all employees have read and understood the Code and by charging management with bringing to the Board's attention any issues that arise with respect
to the Code.
In
addition, the Board has adopted a Whistleblower Policy and process, which allows for anonymous submission of complaints or issues relating to the Code or to any accounting or
financial improprieties that may arise.
The
Company also has a Disclosure Policy (the "Disclosure Policy") that is required to be followed by members of the Board, executive officers, and employees. The Disclosure
Policy seeks to ensure that material information about the Company is communicated in a timely, factual and accurate manner, and broadly disseminated in accordance with applicable legal and regulatory
requirements. The Disclosure Policy also establishes trading restrictions and blackout periods applicable to the Company's directors, executive officers, employees, and certain other persons as
described in the Disclosure Policy.
The
Company has also adopted a Harassment Policy which seeks to provide a safe and respectful work environment that is free from harassment by, among other things, providing mechanisms
through which harassing behavior may be reported, investigated and addressed.
Under
Item 16B of the SEC's Form 20-F, if a waiver or amendment of the Code of Business Conduct applies to the Company's principal executive officer, principal financial
officer, principal accounting officer or controller and relates to standards promoting any of the values described in Item 16B(b) of such Form 20-F,
Neovasc will disclose such waiver or amendment on its website in accordance with the requirements of Instruction 4 to such Item 16B.
Nomination of Directors
The process of nominating new directors to the Board involves the CGNC, the Board and management. The Board
Mandate requires that
appointments to the Board be reviewed on an annual basis. The CGNC Mandate requires that the CGNC identify, in consultation with the CEO, and recommend new directors
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with
appropriate skills to the Board. The CGNC must assess whether each of the candidates so identified will be an independent director. In making its recommendations, the CGNC is required
to consider:
-
(a)
-
the
competencies and skills considered necessary for the Board as a whole to possess;
-
(b)
-
the
competencies and skills that each existing director possesses; and
-
(c)
-
the
competencies and skills each new nominee will bring to the Board.
In
addition, the CGNC considers whether each new nominee can devote sufficient time and resources to his or her duties as a member of the Board. Recommendations made by the CGNC are
considered and discussed, and if a candidate looks promising, the CGNC, the Board and management will conduct due diligence on the candidate. If the results are satisfactory, the candidate is invited
to join the Board.
The
Company currently has two women serving as executive officers or directors of the Company. The Company has not adopted a formal policy for the identification and nomination of
female directors on a
going forward basis nor has the Company imposed any formal targets for representation on its Board. The Company annually considers the experience and qualifications of its existing directors before
nominating directors for re-election but at this time does not have a formal policy that imposes director term limits. When vacancies arise on its Board, the Company thoroughly considers the Board's
current composition, the Board's needs on a going forward basis, as well as the experience and qualifications of potential nominees. The Company will continue to review its nomination procedures and
will consider updating those procedures as necessary.
Assessments
The CGNC Mandate requires that the CGNC be responsible for establishing systems and ensuring that the Board and
its committees are
performing effectively. At present, the CGNC assesses the effectiveness of the Board and its committees on an ongoing basis.
D. Employees
As of March 19, 2019, Nevoasc had a total of 98 employees and consultants on a full-time or part-time
basis. Nevoasc has in the past, and may in
the future, retain additional expert consultants on an ad-hoc basis if required in connection with the Company's development program. None of Nevoasc's employees are represented by a union. The
following table sets forth the total number of Nevoasc's employees at December 31, 2018, 2017 and 2016, respectively, and a breakdown of persons employed by category of activity and geographic
location for the corresponding periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Employees and consultants by category of activity:
|
|
|
|
|
|
|
|
|
|
|
Management
|
|
|
5
|
|
|
3
|
|
|
3
|
|
Administration and quality systems
|
|
|
18
|
|
|
21
|
|
|
24
|
|
Research
|
|
|
71
|
|
|
30
|
|
|
34
|
|
Commercial
|
|
|
4
|
|
|
56
|
|
|
90
|
|
Total number of employees and consultants
|
|
|
98
|
|
|
110
|
|
|
151
|
|
Employees and consultants by geographic location:
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
|
68
|
|
|
91
|
|
|
130
|
|
United States
|
|
|
24
|
|
|
17
|
|
|
20
|
|
Europe
|
|
|
6
|
|
|
2
|
|
|
1
|
|
Total number of employees and consultants
|
|
|
98
|
|
|
110
|
|
|
151
|
|
E. Share Ownership
As at March 19, 2019, as a group, the Company's directors and executive officers beneficially owned, directly
or indirectly, or exercised control over
127,900 Common Shares being 0.00% of the 61,985,116 Common Shares issued and outstanding.
102
Table of Contents
The
following table states the number of Common Shares beneficially owned by each person, directly or indirectly, or over which each person exercised control or direction as at
March 19, 2019. The persons listed below are deemed to be the beneficial owners of Common Shares underlying stock options or other securities that are exercisable or convertible within
60 days from the above date.
|
|
|
|
|
|
|
|
Name of Beneficial Owner
|
|
Common
Shares
(1)
|
|
Percent of
Common Shares
(2)
|
|
Fred Colen
CEO
|
|
|
50,000
|
|
|
0.00
|
%
|
Alexei Marko
Former CEO
|
|
|
6,750
|
|
|
0.00
|
%
|
Brian McPherson
Former COO
|
|
|
nil
|
|
|
nil
|
|
Chris Clark
CFO & Secretary
|
|
|
5,708
|
|
|
0.00
|
%
|
Vicki Bebeau
VP, C&R
|
|
|
4,000
|
|
|
0.00
|
%
|
Randy Lane
Former VP, R&D
|
|
|
4,171
|
|
|
0.00
|
%
|
Aaron Chalekian
VP, PD&E
|
|
|
nil
|
|
|
nil
|
|
John Panton
VP, Quality
|
|
|
nil
|
|
|
nil
|
|
Paul Geyer
Director
|
|
|
22,702
|
|
|
0.00
|
%
|
Douglas Janzen
Director
|
|
|
2,515
|
|
|
0.00
|
%
|
Jane Hsiao
Director
|
|
|
26,869
|
|
|
0.00
|
%
|
Steven Rubin
Chairman
|
|
|
3,269
|
|
|
0.00
|
%
|
William O'Neill
Director
|
|
|
1,106
|
|
|
0.00
|
%
|
-
(1)
-
These
numbers include Common Shares underlying stock options or other securities that are exercisable or convertible within 60 days from
March 19, 2019.
-
(2)
-
Based
on an aggregate total of 61,985,116 Common Shares, being the 61,985,116 Common Shares issued and outstanding as at March 19, 2019
plus the nil Common Shares underlying stock options or other securities that are exercisable within 60 days from March 19, 2019.
Item 6.B.,
"
Directors, Senior Management and Employees Compensation
" above sets out
information regarding options granted to members of the Board of Directors and describes arrangements for involving employees in the capital of the Company.
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Table of Contents
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
The following table shows the name and information about Neovasc's voting securities owned by each person or
company which, as at March 19, 2019, owned of
record, or which, to Neovasc's knowledge, owned beneficially, directly or indirectly, more than 5% of any class or series of the Company's voting securities:
|
|
|
|
|
|
|
|
|
Name
|
|
Number and Type of Securities
|
|
Type of
Ownership
|
|
Percentage of
Class
on a Diluted
Basis
(1)
|
|
Hudson Bay Capital Management LP
(2)
|
|
5,767,693 Common Shares
|
|
Beneficial
|
|
|
9.30%
|
|
Magnetar Financial LLC
(3)
|
|
6,198,512 Common Shares
|
|
Beneficial
|
|
|
9.99%
|
|
Opko Health, Inc.
|
|
3,385,752 Common Shares
|
|
Beneficial
|
|
|
5.46%
|
|
SMALLCAP World Fund, Inc.
|
|
4,942,046 Common Shares
|
|
Beneficial
|
|
|
7.97%
|
|
-
(1)
-
Based
on 61,985,116 outstanding Common Shares as of March 19, 2019. The Common Shares issuable upon conversion of the Notes are calculated
using the conversion price or exercise prices of such Notes as of March 19, 2019.
-
(2)
-
Hudson
Bay Capital Management LP and Sander Gerber share beneficial ownership to these Common Shares. Consists of 639,225 Common Shares and
5,128,468 Common Shares issuable upon conversion Notes subject to the Ownership Limitation. Accordingly, Hudson Bay Capital Management LP and Sander Gerber disclaim beneficial ownership
of the Common Shares issuable upon conversion of such Notes to the extent that upon such exercise the number of shares beneficially owned by them would exceed the Ownership Limitation.
-
(3)
-
Magnetar
Financial LLC, Magnetar Capital Partners LP, Supernova Management LLC and Alec N. Litowitz share beneficial ownership to these
Common Shares. Consists of 1,018,344 Common Shares and 22,629,366 Common Shares issuable upon conversion Notes subject to the Ownership Limitation. Accordingly, Magnetar
Financial LLC, Magnetar Capital Partners LP, Supernova Management LLC and Alec N. Litowitz disclaim beneficial ownership of the Common Shares issuable upon conversion of such
Notes to the extent that upon such exercise the number of shares beneficially owned by them would exceed the Ownership Limitation.
The
information in the table above was supplied by Computershare Trust Company of Canada, the Company's registrar and transfer agent, and by the individuals themselves.
No
major shareholders have different voting rights.
As
of March 19, 2019, the number of registered shareholders of record (and the number and percentage of shares held by such shareholders) is as follows:
|
|
|
|
|
|
|
|
|
|
|
Location:
|
|
Number of registered
shareholders of record
|
|
Number of Common
Shares
|
|
Percentage of
total Common
Shares
|
|
Canada
|
|
|
48
|
|
|
2,088,064
|
|
|
3.37%
|
|
United States
|
|
|
23
|
|
|
59,896,593
|
|
|
96.63%
|
|
Other
|
|
|
26
|
|
|
459
|
|
|
0.00%
|
|
Total
|
|
|
97
|
|
|
61,985,116
|
|
|
100%
|
|
The
Company is not aware that it is directly owned or controlled by another corporation, any foreign government or any other natural or legal person(s) severally or jointly.
Given
the potential dilutive effect of future conversions of the Company's Notes issued pursuant to the 2017 Private Placement, it is possible that the aggregate conversion of these
Notes and subsequent sale of the Common Shares issued could effect a change in control of the Company. For greater detail about the Notes issued pursuant to the 2017 Private Placement, the Common
Shares issued to date pursuant to such conversions, and aggregate principal amount of Notes remaining outstanding, see Item 10.A "
Share Capital
"
of this Annual Report.
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Table of Contents
B. Related Party Transactions
In addition to the compensation arrangements discussed under Item 6.B "
Compensation
," the following is a
description of the material terms of those transactions with related parties to which Neovasc is a party and which it is required to disclose pursuant to the disclosure rules of the SEC and the
British Columbia Securities Commission.
Agreements with Directors and Officers
Indemnity Agreements
Neovasc has entered into indemnity agreements with its directors and certain officers which provide, among other
things, that it will
indemnify him or her to the fullest extent permitted by law from and against all liabilities, costs, charges and expenses incurred as a result of his or her actions in the exercise of his or her
duties as a director or officer.
Employment Agreements
Neovasc has entered into employment agreements with its officers. For more information regarding certain of these
agreements, see
"
Compensation
" in Item 6.B of this Annual Report.
Consulting Agreements
Neovasc has not entered into consulting agreements with any directors or officers.
Equity Awards
Since Neovasc's inception, it has granted equity awards to certain of its directors and officers. Neovasc
describes its equity plans
under "
Executive Compensation
" in Item 6 of this Annual Report.
Indebtedness
Included in accounts payable and accrued liabilities at December 31, 2018 is $360,576 (compared to $nil on
December 31,
2017) due to related parties with respect to the transactions described under "
Executive Compensation
" in Item 6 of this Annual Report and
expense reimbursements. Amounts due to related parties are non-interest bearing, with no fixed terms of repayment.
Included
in accounts payable and accrued liabilities at December 31, 2017 was $nil (compared to $67,500 on December 31, 2016) due to related parties with respect to the
transactions described under "
Executive Compensation
" in Item 6 of this Annual Report and expense reimbursements. Amounts due to related parties
are non-interest bearing, with no fixed terms of repayment.
Indebtedness of Directors, Executive Officers and Employees
None of Neovasc's directors, executive officers, employees, former directors, former executive officers or former
employees, and none
of their associates, is indebted to Neovasc or another entity whose indebtedness is the subject of a guarantee, support agreement, letter of credit or other similar agreement or understanding provided
by Neovasc, except for routine indebtedness as defined under applicable securities legislation.
Significant Influence
On December 2, 2016, the Company and Boston Scientific Corporation ("Boston Scientific") entered into a
definitive agreement
for Boston Scientific to acquire Neovasc's advanced biologic tissue capabilities and certain manufacturing assets and make a 15% equity investment in Neovasc, for a total of $75 million in
cash. Under the terms of the approximate $68 million asset purchase agreement Neovasc has been granted a license to the purchased assets and access to the sold facilities to allow it to
continue its tissue and valve assembly activities for its remaining customers, and continue its own tissue-related programs, including advancing the Tiara through its clinical and regulatory pathways.
Under the terms of the equity investment,
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Table of Contents
Boston
Scientific acquired 11,817,000 Common Shares in the capital of Neovasc at a price of $0.60 per share, for gross proceeds of $7,090,200. Boston Scientific no longer exercises significant
influence over the Company.
C. Interests of Experts and Counsel
Not applicable.
ITEM 8. FINANCIAL INFORMATION
A. Consolidated Statements and Other Financial Information
The Company's audited consolidated financial statements as at and for the years ended December 31, 2018, 2017
and 2016, as required under this
Item 8, are attached hereto and found immediately following the text of this Annual Report. The audit report of Grant Thornton LLP is included herein immediately preceding the
consolidated financial statements and schedules.
Legal Proceedings
The Company is engaged as a defendant and appellant in certain lawsuits, as further described below. Litigation
resulting from third
party claims has been, and is expected to be, costly and time-consuming and could divert the attention of management and key personnel from our business
operations. Although we intend to vigorously defend ourselves against the remaining claims, we cannot assure that we will succeed in appealing and defending any of these claims and that judgments will
not be upheld against us. If we are unsuccessful in our appeal and defense of these claims or unable to settle the claims in a manner satisfactory to us, we may be faced with significant loss of
intellectual property rights that could have a material adverse effect on the Company and its financial condition.
Claims by CardiAQ in Germany
On June 23, 2014, CardiAQ filed a complaint against Neovasc in Munich, Germany (the "German Court")
requesting that
Neovasc assign its right to one of its European patent applications to CardiAQ. After a hearing held on December 14, 2016, the German Court rendered its decision on June 16, 2017,
granting co-ownership of the European patent application to CardiAQ but denying their claim for full entitlement. There are no monetary awards associated with these matters and no damages award has
been recognized. On July 14, 2017, Neovasc filed a notice of appeal against the German Court's decision with the Appeals Court of Munich. On July 20, 2017, CardiAQ filed a notice of
appeal with the same court. Both parties have in the meantime substantiated their respective appeals. The oral hearing of the appeal before the Appeals Court of Munich was held on November 8,
2018. During that hearing CardiAQ dropped its affirmative appeal of the underlying decision, while maintaining its opposition to Neovasc's appeal. The decision of the Appeals Court of Munich was
rendered on March 21, 2019, wherein it amended the decision of the German Court and dismissed the complaint of CardiAQ in full.
Claims by CardiAQ in the United States
On March 24, 2017, CardiAQ filed a related lawsuit in the Court, asserting two claims for correction of
patent inventorship as
to Neovasc's U.S. Patents Nos. 9,241,790 and 9,248,014. On October 4, 2017, CardiAQ amended its pleading to add a third claim for correction of patent inventorship as to
Neovasc's U.S. Patent No. 9,770,329. The lawsuit does not seek money damages and would not prevent the Company from practicing these patents. The Company moved to dismiss the complaint
on November 16, 2017, and the Court denied this motion on September 28, 2018. On August 3, 2018, Neovasc wrote the presiding District Judge regarding potential resolution of the
case including as to a statutory procedure available with the Patent Office concerning certain dependent claims of U.S. Patent 9,770,329 in particular, and the Court held a hearing to
discuss this issue on September 13, 2018. No other litigation schedule or deadlines have been set; the Court has stayed the case until April 15, 2019 to allow the parties to discuss a
potential resolution. Litigation is inherently uncertain. Therefore, until these matters have been resolved to their conclusion by the appropriate courts the Company cannot give any assurance as to
the outcome.
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Table of Contents
Between
June 2016 and November 2017, Neovasc was engaged in litigation with CardiAQ in the U.S. District Court for the District of Massachusetts
(the "Court") and, upon appeal, in the United States Court of Appeals for the Federal Circuit (the "Appeals Court"). This litigation concerned intellectual property rights
ownership, unfair trade practices and breach of contract relating to Neovasc's transcatheter mitral valve technology, including the Tiara. Following a trial in Boston, Massachusetts, a jury found in
favor of CardiAQ and awarded $70 million on the trade secret claim for relief, and no damages on the contractual claims for relief. The Court later awarded CardiAQ $21 million in
enhanced damages on the trade secret claim for relief and $20,675,154 in pre-judgment interest and $2,354 per day in post judgment interest from November 21, 2016. Neovasc and CardiAQ each
appealed on various grounds, and on September 1, 2017, the Appeals Court affirmed the trial court judgment against Neovasc, and denied CardiAQ's cross appeal. On November 13, 2017, the
final mandate was issued by the Appeals Court and approximately $70 million was released from escrow to CardiAQ to partially settle approximately $112 million damages and interest
awards. Upon closing of the 2017 Financings on November 17, 2017, the Company used approximately $42 million from the $65 million net proceeds of the 2017 Financings to settle the
remaining damages and interest awards.
Other Matters
By way of Amended Statement of Claim in Federal Court of Canada Action T-1831-16 (the "Action"), the Neovasc
Defendants were
added as defendants to an existing action commenced by Edwards Lifesciences PVT, Inc. and Edwards Lifesciences (Canada) Inc. (collectively the "Edwards Plaintiffs") against Livanova
Canada Corp., Livanova PLC, Boston Scientific and Boston Scientific Ltd. (collectively, the "BSC/Livanova Defendants"). The Action was first filed in October 2016 and first
concerned an allegation by the Edwards Plaintiffs that the manufacturing, assembly, use, sale and export of the Lotus Aortic Valve devices by the BSC/Livanova Defendants infringes on the Edwards
Plaintiffs' patents. In February 2017, the Neovasc Defendants were added to the Edwards Plaintiffs' claim making related allegations. In summary, the Edwards Plaintiffs make three types of
allegations as against the Neovasc Defendants: (a) indirect infringement claims; (b) direct infringement claims; and (c) claims of inducement. The Edwards Plaintiffs seek various
declarations, injunctions and unspecified damages and costs. The Neovasc Defendants filed their Statement of Defence in November 2017. The other defendants filed their Statement of Defence and
Counterclaim against the Edwards Plaintiffs on April 30, 2018. On January 22, 2019, the Company announced that pursuant to a settlement reached with the Edwards Plaintiffs, the patent
infringement action that the Edwards Plaintiffs had previously commenced in the Federal Court of Canada against the Company, Boston Scientific and Livanova, will be dismissed on a
no-costs basis.
On
September 7, 2018, Endovalve filed a complaint in the United States District Court for the District of New Jersey against the Neovasc Defendants, alleging claims
for trade secret misappropriation, breach of contract, and unfair competition. Endovalve alleged that it was a former customer of Neovasc Inc., and that the Neovasc Defendants improperly used
trade secrets in the development of Tiara. The Complaint sought injunctive relief, money damages, and attorneys' fees. On February 20, 2019, the Company announced that it had entered into a
settlement agreement with Endovalve. The settlement agreement contemplates certain fees being paid by Neovasc to Endovalve, including settlement fees in installments totaling $3 million over
the two and a half years following the agreement's execution. In addition, Neovasc agreed to pay Endovalve a royalty of 1.3% on the annual net sales of the Tiara following the first commercial sale of
the Tiara. Also contained in the settlement agreement are buy-out clauses that allow Neovasc, or an acquirer of Neovasc or the Tiara assets, to buy out these royalty obligations. As part of the
settlement agreement, the claims against the Neovasc Defendants were dismissed with prejudice. See the Material Change Report and Settlement Agreement filed on SEDAR at www.sedar.com and furnished to
the SEC on Form 6-K at www.sec.gov on February 20, 2019.
On
August 3, 2018, the Company announced that it had entered into the Penn Agreement, which resolved certain potential claims against the Company that had been previously
disclosed.
Dividend Policy
Neovasc has never declared or paid any dividends on its securities. Neovasc does not have any present intention to
pay cash dividends
on its Common Shares and it does not anticipate paying any cash dividends on its Common Shares in the foreseeable future. Neovasc currently intends to invest its future
107
Table of Contents
earnings,
if any, to fund its growth. However, any future determination as to the declaration and payment of dividends will be at the discretion of Neovasc's board of directors and will depend on its
financial condition, operating results, contractual restrictions, capital requirements, business prospects and other factors its board of directors may deem relevant.
B. Significant Changes
There have been no significant changes in the Company's financial condition since the most recent consolidated
financial statements for the fiscal year ended
December 31, 2018, except that:
-
i.
-
On
February 28, 2019, the Company completed the 2019 Financing for net proceeds of approximately $4.02 million.
-
ii.
-
On
March 15, 2019 the Company completed the 2019 Financing for net proceeds for approximately $4.25 million
-
iii.
-
On
February 13,2019, the Company received proceeds of $1,200,400 from the exercise of Series C Warrants, which represents an increase in cash
and cash equivalents of approximately 13% compared to the reported cash and cash equivalents of $9,242,809 as at December 31, 2018. The Company issued 8,222 2017 Warrant Shares,
822,192 Series A Warrants and 822,192 Series B Warrants upon exercise of the Series C Warrants. As of March 19, 2019, all of the Series B Warrants
(including those issued upon exercise of the Series C Warrants) had been exercised using the cashless alternative net number mechanism for 2,233,347 Common Shares. On March 11,
2019, all of the remaining Series A Warrants (including those issued upon exercise of the Series C Warrants) were surrendered and cancelled pursuant to the Exchange.
-
iv.
-
On
March 11, 2019, the Company completed the previously announced Exchange, pursuant to which the Company issued an aggregate of approximately
496,239 Common Shares for the surrender and cancellation of all of the Series A Warrants and Series E Warrants outstanding, on the basis of 0.0085 of a Common Share for each
Series A Warrant or Series E Warrant. No 2017 Warrants remain outstanding or issuable.
-
v.
-
As
of March 19, 2019, an additional $4,285,000 aggregate principle amount of the Notes has been converted using the alternate conversion price
mechanism, resulting in the issuance of 9,007,866 Common Shares, and $10,825,000 aggregate principle amount remains outstanding.
ITEM 9. THE OFFER AND LISTING
A. Offer and Listing Details
As at March 19, 2019, the Company had 61,985,116 Common Shares outstanding. Our Common Shares began
trading under the symbol "NVCN" on the Nasdaq
on May 21, 2014 and on the TSX on June 23, 2014.
B. Plan of Distribution
Not applicable.
C. Markets
The Company's Common Shares are listed under the symbol "NVCN" on the Nasdaq and the TSX. The Company's Common
Shares trade in U.S. dollars on the Nasdaq
and in Canadian dollars on the TSX. On March 19, 2019, the closing prices of the Company's Common Shares on the Nasdaq and the TSX were $0.4588 and C$0.61, respectively.
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
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Table of Contents
F. Expenses of the Issue
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
A. Share Capital
Common Shares
The Company is authorized to issue an unlimited number of Common Shares without par value. As of March 19,
2019, there were
61,985,116 Common Shares issued and outstanding, 3,682,469 Common Shares issuable upon exercise of outstanding stock options and 1,444,444 Common Shares issuable upon exercise of
the Broker Warrants. Taking into account the total principal amount of the Notes remaining outstanding, and assuming full conversion of the Notes if the Market Price (as defined below) of the
Common Shares remained at $0.4588 per Common Share (being the closing price of the Common Shares on March 19, 2019) on the date of conversion, assuming conversion of the outstanding Notes using
the Alternate Conversion Price (as defined below) mechanism, the maximum number of Common Shares issuable would be 27,757,834 representing approximately 45% of Neovasc's current issued and
outstanding number of Common Shares. If the Market Price of the Common Shares on the date of exercise reduces to a point lower than the closing price of the Common Shares on March 19, 2019, the
future-priced conversion provisions contained in the Notes would result in a further increase in the number of shares issuable.
The
Common Shares all have equal voting rights and are entitled to receive notice of any shareholders meeting at which they have the right to vote. Subject to the rights of any other
class of shares, upon any liquidation, dissolution, winding-up or other distribution of the Company's assets, the holders of Common Shares are entitled to participate equally.
The
history of our share capital is described in more detail above in Item 5.A "
Operating Results
".
Preferred Shares
The Company is also authorized to issue an unlimited number of preferred shares, which do not have voting rights
and are not entitled
to receive notice of any shareholders' meetings. Upon liquidation, dissolution, winding-up or other distribution of the Company's assets, the holders of preferred shares are entitled to participate in
priority to the holders of Common Shares. The preferred shares may be issued in series and the Company's board of directors may attach special rights, privileges, restrictions or conditions to any
preferred shares. There were no preferred shares issued and outstanding as of March 19, 2019.
Senior Secured Convertible Note
Pursuant to the 2017 Private Placement, the Notes were issued in an aggregate principal amount of $32,750,000. As
of March 19,
2019, $21,925,000 aggregate principle amount of the Notes had been converted for 19,773,718 Common Shares and $10,825,000 aggregate principle amount of the Notes remained outstanding. For a
more fulsome description of the terms of the Notes, see the Form of Note previously filed on SEDAR and furnished to the SEC on Form 6-K and the prospectus supplement previously filed on
SEDAR and with the SEC.
The
Notes were issued at an original issue price of $850 per $1,000 principal amount of notes. Interest on the Notes commenced accruing on the date of issuance at the 0% interest rate,
computed on the basis of a 360-day year and twelve 30-day months and payable in cash on January 1, 2018 and on the first day of each calendar quarter thereafter up to, and including the date of
maturity on which the principal of the Notes is repayable. The Notes were initially granted with an 18-month term, however the maturity date was extended to May 17, 2020 pursuant to certain
waiver agreements between the Company and the holders of the Notes, as described above. The form of waiver agreement is available on the Company's profiles on SEDAR at www.sedar.com and with the SEC
at www.sec.gov. Upon an event of default, the interest rate shall automatically be increased to 15% per annum. The Notes are senior to all other indebtedness and secured by all assets of the Company.
Any portion of the outstanding and unpaid amount remaining under the Notes are convertible into
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Table of Contents
Common
Shares (the "Note Conversion Shares"). The conversion rate will be the number of Common Shares issuable upon conversion of any conversion amount determined by dividing (x) the sum
of the portion of the principal to be converted, redeemed or otherwise with respect to which this determination is being made and all accrued and unpaid interest with respect to such portion of the
principal amount and accrued and unpaid late charges with respect to such portion of such principal and any such interest by (y) $1.46 (the "Note Conversion Price"), subject to certain
adjustments. The Notes contain a future-priced conversion mechanism upon the earlier of (x) the later of (i) upon the occurrence of an event of default, the twentieth day following the
cure of such event of default and (ii) the twentieth day following the holder of the Note having received notice of such event of default and (y) the fourth month anniversary of the
closing of the sale of the Notes.
The
Notes are subject to full ratchet anti-dilution provisions in certain circumstances. Pursuant to these provisions, if the Company issues or sells any Common Shares for a
consideration per share (the "Note Issuance Price") less than the Note Conversion Price then immediately after such dilutive issuance, the Note Conversion Price then in effect shall be reduced
to the Note Issuance Price. If the Company issues options or convertible securities, the holder of a Note may elect to replace the Note Conversion Price with the variable price of such option or
convertible security in accordance with the terms of the Note. If there is a stock split, stock dividend, stock combination or similar transaction and the market price of the Common Shares at the time
of the event is lower than the Note Conversion Price, then on the sixteenth trading date following such event, the Note Conversion Price will be reduced to the Event Market Price (as defined in
the Notes). Simultaneously with any adjustment to the Note Conversion Price as described above, the Note
Conversion Shares issuable upon conversion of the Notes shall be increased or decreased proportionately so that after such adjustment the Note Conversion Price payable upon such conversion is equal to
the Note Conversion Price in effect immediately prior to the Note Conversion Price. With effect from and after 5:00 p.m. New York City time on August 17, 2018, the Conversion
Price (as defined in the Notes) will be adjusted to be the lower of (x) the then-current Conversion Price and (y) the greater of (i) the amount in USD equal to the VWAP
(as defined in the Notes) for the Common Stock on the Conversion Price Reset Date (or, if the Conversion Price Reset Date is not a Trading Day (as defined in the Notes), the immediately
following Trading Day) and (ii) $0.50.
The
holder of any Note may, in its sole discretion, convert the Note at an alternate conversion price ("Alternate Conversion Price") rather than the Note Conversion Price, where the
Alternate Conversion Price equals 85% of the lowest VWAP of the Common Shares during the ten consecutive trading day period ending and including the date of delivery or deemed delivery of the
applicable conversion notice. The effect of the Alternate Conversion Price mechanism is that the number of Common Shares issued upon conversion of the Note increases as the market price falls. As an
example, if as of the conversion date the lowest VWAP of the Common Shares during the prior ten-day trading period (including the conversion date) is $0.4588, then, if the holders exercise all of the
Notes remaining issued and outstanding as at March 19, 2019 at the Alternate Conversion Price, a total of 27,757,834 Common Shares will be issued pursuant to such conversion.
The
terms of the Notes prohibit a holder from converting its Notes if doing so would result in such holder (together with such holder's affiliates) beneficially owning more than 9.99%
of the number of Common Share outstanding immediately after giving effect to the conversion, as such percentage ownership is determined in accordance with the terms of the Notes. The Company shall not
issue any fraction of a share issued upon any conversion. If the issuance would result in the issuance of a fraction of a share of Common Shares, the Company shall round such fraction of a share of
Common Shares up to the nearest whole share. Upon a change of control of the Company, the portion of the Note subject to redemption shall be redeemed by the Company in cash at the premium price equal
to the Change of Control Redemption Price (which is 125%). The Note holders are entitled to participate in any dividends or other distributions by the Company and the sale, by the Company, of any
options, convertible securities or rights to purchase stock, warrants, securities or other property pro rata to the holders of Common Shares as if they had converted their Notes and were
holders of the Note Conversion Shares. The Company shall not enter into or be party to a Fundamental Transaction (as described under the risk factor entitled "
The Notes
issued pursuant to the 2017 Financings contain provisions that restrict the Company's ability to enter into Fundamental Transactions
") unless the Successor Entity assumes in
writing all of the obligations of the Company under the Note and it delivers to each holder of Notes in exchange for such Notes a security of the successor entity evidenced by a written
instrument substantially similar in form and substance to the Notes. Under the Notes, an event of default triggers a redemption right with a redemption premium
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regardless
of whether the event of default is cured. Under the Notes, a change of control triggers a redemption right with a redemption premium.
The
Notes contain certain covenants, which include: restricted payments upon an event of default, restrictions on distributions, and restrictions on asset transfers (other than ordinary
course of business). The
Notes and any Common Shares issued upon conversion of the Notes may be offered, sold, assigned or transferred by the holder without the consent of the Company.
The
Note is secured by a general security agreement dated as of November 17, 2017 granted by the Company to and in the favor of Bio IP Ventures II LLC, as collateral agent
for the benefit of the Noteholders over all of the Company's present and after-acquired personal property, which includes all of its assets in the U.S., Canada and Israel related to Tiara
and Reducer.
Broker Warrants
In connection with the 2019 Financings, the Company issued the Broker Warrants to purchase up to
1,444,444 Common Shares at an
exercise price of $0.5625 per Common Share to the underwriter in the 2019 Financings. The Broker Warrants are exercisable immediately and for three years from their dates of issuance. Pursuant to
FINRA Rule 5110(g), the Broker Warrants and any common shares issued upon the exercise of the Broker Warrants shall not be sold, transferred, assigned, pledged, or hypothecated, or be the
subject of any hedging, short sale, derivate, put or call transaction that would result in the effective economic disposition of the securities by any person for a period of 180 days
immediately following the date of effectiveness of, or commencement of sales under, the relevant 2019 Financing pursuant to which such Broker Warrants were issued, except the transfer of any security:
(i) by operation of law or by reason of our reorganization; (ii) to any FINRA member firm participating in such 2019 Financing and the officers or partners thereof, if all securities so
transferred remain subject to the Lock up restriction set forth below for the remainder of the time period; (iii) if the aggregate amount of our securities held by the underwriter in the
relevant 2019 Financing or related persons does not exceed 1% of the securities being offered in the relevant 2019 Financing; (iv) that is beneficially owned on a pro rata basis by all
equity owners of an investment fund, provided that no participating member manages or otherwise directs investments by the fund and the participating members in the aggregate do not own more than 10%
of the equity in the fund; or (v) issued upon the exercise or conversion of any security, if all securities remain subject to the lock up restriction set forth below for the remainder of the
time period.
B. Memorandum and Articles of Association
Incorporation
The Company was incorporated on November 2, 2000 under the
Business Corporations
Act
(British Columbia) and was continued under the
Canada Business Corporations Act
(the "Act") on April 19, 2002.
Neovasc's federal incorporation number is 404811-3.
Objects and Purposes of Our Company
The articles and by-laws do not contain a description of the Company's objects and purposes.
Voting on Certain Proposal, Arrangement, Contract or Compensation by Directors
Under the Company's articles and by-laws, any director who is in any way, directly or indirectly, interested in an
existing or
proposed contract or transaction with the Company or who holds any office or possesses any property whereby, directly or indirectly, a duty or interest might be created that conflicts with his or her
duty or interest as a director shall declare the nature and extent of his or her interest in such contract or transaction or of the conflict or potential conflict with his or her duty and interest as
a director, as the case may be, in accordance with the provisions of the Act. A director cannot vote in respect of any such contract or transaction in which he or she is interested and if he or she
does, the vote will not be counted, although the
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director
will be counted in the quorum present at the meeting at which such vote is taken. Subject to the provisions of the Act, these prohibitions do not apply to:
-
1.
-
any
contract or transaction relating to a loan to the Company, the repayment of all or part of which a director or a specified corporation or a specified
firm in which he or she has an interest has guaranteed or joined in guaranteeing;
-
2.
-
any
contract or transaction made, or to be made, with or for the benefit of an affiliated corporation of which a director is a director or officer;
-
3.
-
any
contract by a director to subscribe for or underwrite shares or debentures to be issued by the Company or a subsidiary of the Company, or any contract,
arrangement or transaction in which a director is, directly or indirectly interested if all the other directors are also, directly or indirectly interested in the contract, arrangement
or transaction;
-
4.
-
determining
the remuneration of the directors in that capacity;
-
5.
-
purchasing
and maintaining insurance to cover directors against liability incurred by them as directors; or
-
6.
-
the
indemnification of any director by the Company.
The
directors are entitled to the remuneration for acting as directors, if any, as the directors may from time to time determine, or, if the directors so decide, as determined by the
shareholders. Such remuneration may be in addition to any salary or other remuneration paid to any director in his or her capacity as officer or employee of the Company. The directors shall be
reimbursed for reasonable travelling, hotel and other expenses they incur in and about the business of the Company and if any director shall perform any professional or other services for the Company
that in the opinion of the directors are outside the ordinary duties of a director or shall otherwise be specially occupied in or about the Company's business, he or she may be paid a remuneration to
be fixed by the board, or, at the option of such director, by the Company in general meeting, and such remuneration may be either in addition to, or in substitution for any other remuneration that he
or she may be entitled to receive.
Every
officer of the Company who holds any office or possesses any property whereby, whether directly or indirectly, duties or interests might be created in conflict with his or her
duties or interests as an officer of the Company shall, in writing, disclose to the President the fact and the nature, character and extent of the conflict in accordance with the provisions of
the Act.
Borrowing Powers of Directors
The Company's articles and by-laws provide that, subject to the provisions of the Act, the directors may from time
to time authorize
the Company to:
-
-
borrow money on the credit of the Company;
-
-
issue, resell, sell or pledge debt obligations of the Company;
-
-
give a guarantee on behalf of the Company to secure performance of an obligation of any person;
-
-
mortgage, charge, hypothecate, pledge or otherwise create a security interest on all or any property of the Company, owned
or subsequently acquired to secure any obligation of the Company; and
-
-
give financial assistance to any person, directly or indirectly, by way of loan, guarantee, the provision of security
or otherwise.
The
directors may authorize the issue of any bonds, debentures or other debt obligations of the Company at a discount, premium or otherwise and with special or other rights or
privileges as to redemption, surrender, drawings, allotment of or conversion into or exchange for shares, attending and voting at general meetings of the Company and otherwise as the directors may
determine at or before the time of issue.
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Qualifications of Directors
Under the articles and by-laws, a director is not required to hold a share in the Company's capital as
qualification for his or her
office but shall be qualified as required by the Act to become or act as a director. Any director who is not a shareholder shall be deemed to have agreed to be bound by the provisions of the articles
and by-laws of the Company to the same extent as if he or she were a shareholder of the Company.
There
are no provisions under our by-laws or the Act that specify the retirement or non-retirement of directors under an age limit requirement. Our directors are also not required to
own any of our shares to qualify as director. The Act requires that 25% of the directors of a corporation must be resident Canadians.
Share Rights
The Company is authorized to issue an unlimited number of Common Shares and an unlimited number of preferred
shares, issuable in
series, with rights, privileges, restrictions and conditions attached thereto as set out in the articles of continuance.
All
of the Common Shares are of the same class and, once issued, have the right to: vote at all meetings of shareholders of the Company except meetings at which only holders of a
specified class of shares are entitled to vote; receive, subject to the rights of the holders of another class of shares, any dividends declared by the Company (less any tax required to be deducted
and withheld by the Company); and receive, subject to the rights of the holders of another class of shares, the remaining property of the Company on the liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary. No Common Shares have been issued subject to call or assessment. The Common Shares contain no preemptive or conversion rights and have no provisions for
redemption or purchase for cancellation, surrender, or sinking or purchase funds. Provisions as to the modification, amendment or variation of such rights or provisions are contained in our articles
and by-laws and in the Act. The holders of the Common Shares are entitled to receive notice and to attend all meetings of the shareholders of the Company and shall have one vote for each Common Share
held at all meetings of the shareholders of the Company, except meetings at which only holders of another specified class or series of shares of the Company are entitled to vote separately as a class
or series. There are no limitations on the rights of holders to own Common Shares.
Preferred
shares may be issued by the Board at any time and from time to time in one or more series without shareholder approval. The Board may, by resolution passed before the issue of
any preferred shares of any particular series, fix the number of preferred shares in, and determine the designation and the special rights, privileges, restrictions and conditions to be attached to
the preferred shares of that series, but without in any way limiting or restricting the generality of the foregoing, the rate or amount of dividends, whether cumulative, non-cumulative or partially
cumulative; the dates, places and currencies of payment thereof; the consideration for, and the terms and conditions of, any purchase for cancellation or redemption thereof, including redemption after
a fixed term or at a premium; conversion or exchange rights or rights of retraction; the terms and conditions of any share purchase plan or sinking fund; and voting rights and restrictions.
Holders
of preferred shares shall be entitled, on the distribution of assets of the Company or on the liquidation, dissolution or winding-up of the Company, whether voluntary or
involuntary, or on any other distribution of assets of the Company among its shareholders for the purpose of winding-up its affairs, to receive before any distribution to be made to holders of Common
Shares or any other shares of the Company ranking junior to the preferred shares with respect to repayment of capital, the amount paid up with respect to each preferred share held by them, together
with the fixed premium (if any) thereon, all accrued and unpaid cumulative dividends (if any and if preferential) thereon, and all declared and unpaid non-cumulative dividends
(if any and if preferential) thereon. After payment to holders of preferred shares of
the amounts so payable to them, such holders shall only be entitled to share in any further distribution of the property or assets of the Company if specifically provided in the special rights and
restrictions attached to any particular series of the preferred shares.
Except
for such voting rights as may be attached to any series of preferred shares by the Board, holders of preferred shares shall not be given notice of, and shall not be entitled as
such to vote at, any general meeting of shareholders of the Company.
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Subject
to the Act, the articles and the special rights and restrictions attached to any class of shares of the Company, the Company may, by a resolution of the directors and in
compliance with the Act, purchase any of its shares in accordance with the special rights and restrictions attached thereto. No such purchase or redemption shall be made if the Company is insolvent at
the time of the proposed purchase or redemption or if the proposed purchase or redemption will render the Company insolvent. Subject to the Act, any shares purchased or redeemed by the Company may be
sold or, if cancelled, reissued by it, but while such shares are held by the Company, it shall not exercise any vote in respect of such shares and no dividend or other distribution shall be paid or
made thereon. If the Company proposes at its option to redeem some but not all of the shares of any class or series, the directors may, subject to the special rights and restrictions attached to such
shares, decide the manner in which the shares to be redeemed shall be selected and such redemption may or may not be made pro rata among every shareholder holding any such shares as the
directors may determine.
Procedures to Change the Rights of Shareholders
Provision as to modification, amendment or variation of the rights attached to the shareholders are contained in
the Company's
articles and by-laws and the Act. Generally speaking, the Company may, by special resolution (at least two-thirds of the votes cast):
-
1.
-
change
any maximum number of shares that the Company is authorized to issue;
-
2.
-
create
new classes of shares;
-
3.
-
reduce
or increase its stated capital, if its stated capital is set out in the articles;
-
4.
-
change
the designation of all or any of its shares, and add, change or remove any rights, privileges, restrictions and conditions, including rights to
accrued dividends, in respect of all or any of its shares, whether issued or unissued;
-
5.
-
change
the shares of any class or series, whether issued or unissued, into a different number of shares of the same class or series or into the same or a
different number of shares of other classes or series;
-
6.
-
divide
a class of shares, whether issued or unissued, into series and fix the number of shares in each series and the rights, privileges, restrictions and
conditions thereof;
-
7.
-
authorize
the directors to divide any class of unissued shares into series and fix the number of shares in each series and the rights, privileges,
restrictions and conditions thereof;
-
8.
-
authorize
the directors to change the rights, privileges, restrictions and conditions attached to unissued shares of any series; or
-
9.
-
add,
change or remove restrictions on the issue, transfer or ownership of shares.
Meetings
Each director holds office until our next annual general meeting or until his or her office is earlier vacated in
accordance with the
articles or with the provisions of the Act. A director appointed or elected to fill a vacancy on the Board also holds office until our next annual general meeting.
The
directors have the power to convene general meetings of the shareholders of the Company and to set the record date for such meetings to determine the shareholders of record entitled
to receive notice of and attend and vote at such meetings. Pursuant to the Company's articles and by-laws and the Act, our annual meetings of shareholders must be held at least once in each calendar
year, not more than 15 months after holding the last annual meeting but no later than six months after the end of the Company's preceding financial year. The annual meeting may be held at any
place within Canada as the Board may, from time to time, determine, or, if all of the shareholders entitled to vote at such meeting so agree, outside of Canada. Notice of the time and place of each
meeting must be provided not less than 21 days, or more than 50 days, before the day of the meeting.
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Pursuant
to the Act, shareholders who hold not less than five per cent of the issued shares of a corporation that carry the right to vote at a meeting sought to be held may
requisition the directors to call a meeting of shareholders for the purposes stated in the requisition.
Under
the articles and by-laws, the quorum for the transaction of business at a meeting of shareholders is two shareholders, or two proxyholders representing shareholders, or any
combination thereof, holding not less than one-twentieth of the issued shares entitled to be voted at the meeting. If there is only one shareholder the quorum is one person present and being, or
representing by proxy, such shareholder.
A
special meeting of the shareholders may be convened by order of the Board at any date and time and at any place within Canada or, if all the shareholders entitled to vote at such
meeting so agree, outside Canada.
Limitations on Ownership of Securities
Except as provided in the
Investment Canada Act
(Canada), there are
no limitations
specific to the rights of non-Canadians to hold or vote the Common Shares under the laws of Canada or British Columbia, or in the Company's charter documents.
Change in Control
There are no provisions in the articles and by-laws or in the Act that would have the effect of delaying,
deferring or preventing a
change in the Company's control, and that would operate only with respect to a merger, acquisition or corporate restructuring involving the Company or the its subsidiaries.
Ownership Threshold
The articles of continuance, by-laws and the Act do not contain any provisions governing the ownership threshold
above which
shareholder ownership must be disclosed. Securities legislation in Canada, however, requires that the Company disclose in its information circular for our annual general meetings, holders who
beneficially own, directly or indirectly, or control or direct, voting securities of the Company carrying 10% or more of the voting rights attached to any class of outstanding voting securities. Most
state corporation statutes do not contain provisions governing the threshold above which shareholder ownership must be disclosed. Upon the effectiveness of this Form 20-F, we expect that the
United States federal securities laws will require us to disclose, in an annual report on Form 20-F, holders who own 5% or more of the Company's issued and outstanding shares.
C. Material Contracts
Except for contracts entered into in the ordinary course of business, the only contracts entered into by Neovasc
within two years immediately preceding this
Annual Report that are still in effect, which may be regarded as material, are as follows:
-
1.
-
Underwriting
Agreement, dated March 13, 2019, between the Company and H.C. Wainwright & Co., LLC.
-
2.
-
Underwriting
Agreement, dated February 26, 2019, between the Company and H.C. Wainwright & Co., LLC.
-
3.
-
Settlement
Agreement, dated February 19, 2019, by and between the Company, Neovasc Tiara Inc., Endovalve Inc. and Micro Interventional
Devices Inc.
-
4.
-
Waiver
Agreement, dated September 11, 2018, between the Company and the Holders of Senior Convertible Notes.
-
5.
-
License
and Collaboration Agreement, dated August 3, 2018, between the Company and the Trustees of the University of Pennsylvania.
-
6.
-
Employment
Agreement, dated January 22, 2018, between the Company and Fred Colen.
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-
7.
-
Securities
Purchase Agreement, dated November 9, 2017, between the Company and the investors listed therein.
-
8.
-
Form
of Senior Secured Convertible Note.
D. Exchange Controls
There is currently no law, governmental decree or regulation in Canada that restricts the export or import of
capital, or which would affect the remittance of
dividends, interest or other payments by us to non-resident holders of our Common Shares, other than withholding tax requirements, as discussed below under
"Taxation Certain Material Canadian Federal Income Tax Considerations".
There
is currently no limitation imposed by Canadian law or our notice of articles or articles that will be in effect prior to closing on the right of non-residents to hold or vote our
Common Shares, other than those imposed by the Investment Canada Act and the Competition Act (Canada). These acts generally will not apply to the above except where control of an existing Canadian
business or company that has Canadian assets or revenues over a certain threshold is acquired or to trading of securities listed on a stock exchange.
E. Taxation
U.S. Federal Income Tax Considerations
The following is a summary of the anticipated U.S. federal income tax considerations generally applicable to
a
"U.S. Holder" of the ownership and disposition of Common Shares. This summary addresses only holders who hold Common Shares as capital assets (generally, property held for investment purposes).
This summary does not address all potentially relevant U.S. federal income tax matters, and unless otherwise specifically provided, it does not address any state, local, foreign, alternative
minimum, unearned income "Medicare" contribution, estate or gift tax consequences of holding or disposing of Common Shares.
As
used herein, the term "U.S. Holder" means any beneficial owner of Common Shares, who, for U.S. federal income tax purposes, is: (i) a citizen or individual
resident of the United States; (ii) a corporation (or other entity classified as a corporation for U.S. federal tax purposes) organized under the laws of the
United States or of any state thereof or the District of Columbia, (iii) an estate whose income is subject to U.S. federal income taxation regardless of its source, and
(iv) a trust (A) if a U.S. court is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all
substantial decisions of the trust, or (B) that has elected to be treated as a U.S. person under applicable U.S. Treasury Regulations.
If
a partnership (or other entity or arrangement treated as a partnership for U.S. federal tax purposes) holds Common Shares, the tax treatment of a partner will generally
depend upon the status of the partner and the activities of the partnership. Partnerships (or other entities or arrangements classified as a partnership for U.S. federal tax purposes)
holding Common Shares, and their partners and other owners, should consult their own tax advisors to determine the U.S. federal, state, local and other tax consequences that may be relevant
to them.
This
summary is based on the Canada-United States Income Tax Convention (1980), as amended, the U.S. Internal Revenue Code of 1986, as amended (the "Code"),
administrative pronouncements and rulings of the IRS, judicial decisions and existing and proposed U.S. Treasury Regulations, changes to any of which subsequent to the date of this prospectus
supplement may affect the tax consequences described herein, possibly on a retroactive basis. This summary is for general guidance only and does not address the
consequences applicable to certain categories of shareholders subject to special treatment under the Code, including tax-exempt organizations, pass-through entities, certain financial institutions,
insurance companies, qualified retirement plans, individual retirement accounts or other tax-deferred accounts, persons that hold Common Shares as part of a straddle, hedging transaction, conversion
transaction, constructive sale or other arrangement involving more than one position, persons that acquired Common Shares in connection with the exercise of employee stock options or otherwise as
compensation for services, dealers in securities or foreign currencies, traders in securities that elect to use a mark-to-market method of accounting, U.S. persons whose functional currency
(as defined in the Code) is not the U.S. dollar, former citizens or permanent residents of the
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United States,
or persons that own directly, indirectly or constructively 10% or more of our Common Shares by voting power or by value. Holders and prospective investors should consult their
own tax advisors with regard to the application of the income tax laws of the United States and any other taxing jurisdiction to their particular circumstances.
Distributions with respect to the Common Shares
Subject to the PFIC rules discussed below, a U.S. Holder will generally recognize, to the extent out of our
current and
accumulated earnings and profits (determined in accordance with U.S. federal income tax principles), dividend income on the receipt of distributions on Common Shares (including amounts withheld
to pay Canadian withholding taxes). We do not intend to calculate our earnings and profits under U.S. federal income tax rules. Accordingly, U.S. Holders should expect that a
distribution will generally be treated as a dividend for U.S. federal income tax purposes.
The
amount of any dividend paid to a U.S. Holder in Canadian dollars (including amounts withheld to pay Canadian withholding taxes) will be includible in income in a
U.S. dollar value amount by reference to the exchange rate between the U.S. dollar and the Canadian dollar in effect on the date of receipt of such dividend by the U.S. Holder,
regardless of whether the Canadian dollars so received are in fact converted into U.S. dollars. A U.S. Holder will have a tax basis in the Canadian dollars equal to their
U.S. dollar value on the date of receipt. If the Canadian dollars received are converted into U.S. dollars on the date of receipt, the U.S. Holder should generally not be required
to recognize foreign currency gain or loss in respect of the dividend. If the Canadian dollars received are not converted into U.S. dollars on the date of receipt, a U.S. Holder may
recognize foreign currency gain or loss on a subsequent conversion or other disposition of the Canadian dollars. Such gain or loss will generally be treated as U.S. source ordinary income
or loss.
We
believe that we are a "qualified foreign corporation" and therefore, distributions treated as dividends and received by certain non-corporate U.S. Holders will be taxed at
preferential rates, provided applicable holding period and certain other requirements are satisfied, including that we are not treated as a PFIC for the year of the distribution or for the prior
taxable year. Any amount of such distributions treated as
dividends will generally not be eligible for the "dividends received" deduction ordinarily available to certain U.S. corporate shareholders.
Distributions
on Common Shares that are treated as dividends will generally constitute income from sources outside the United States and will generally be categorized for
U.S. foreign tax credit purposes as "passive category income." A U.S. Holder may be eligible to elect to claim a U.S. foreign tax credit against its U.S. federal income tax
liability, subject to applicable limitations and holding period requirements, for Canadian tax withheld, if any, from distributions received in respect of Common Shares. A U.S. Holder that does
not elect to claim a U.S. foreign tax credit may instead claim a deduction for Canadian tax withheld, but only for a taxable year in which the U.S. Holder elects to do so with respect to
all non-U.S. income taxes paid or accrued in such taxable year. The rules relating to U.S. foreign tax credits are complex, and each U.S. Holder should consult its own tax adviser
regarding the application of such rules.
Sale, Exchange or Other Taxable Disposition of Common Shares
Subject to the PFIC rules discussed below, upon a sale, exchange or other taxable disposition of a common share, a
U.S. Holder
will generally recognize a capital gain or loss equal to the difference between the amount realized on such sale, exchange or other taxable disposition (or, if the amount realized is denominated in
Canadian dollars, its U.S. dollar equivalent, generally, for U.S. Holders that use the cash method and for electing U.S. Holders that use accrual method, determined by reference
to the spot rate of exchange on the date of settlement) and the holder's tax basis of such common share. Such gain or loss will be a long-term capital gain or loss if the common share has been held
for more than one year and will be short-term capital gain or loss if the holding period is equal to or less than one year. Such gain or loss will generally be considered U.S. source gain or
loss for U.S. foreign tax credit purposes. Long-term capital gains of non-corporate taxpayers are eligible for reduced rates of taxation. The deductibility of capital losses is subject
to limitations.
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Passive Foreign Investment Company Rules
A foreign corporation will be considered a PFIC for any taxable year in which (i) 75% or more of its gross
income is "passive
income" or (ii) 50% or more of the average quarterly value of its assets produce (or are held for the production of) "passive income." For this purpose, "passive income" generally
includes interest, dividends, rents, royalties and certain gains. We currently do not believe that we were a PFIC in the preceding taxable year nor do we anticipate that we will be a PFIC in the
current taxable year or in future taxable years. However, the determination as to whether we are a PFIC for any taxable year is based on the application of complex U.S. federal income tax
rules, which are subject to differing
interpretations, and is not determinable until after the end of such taxable year. Further, the determination is based in part on the mix, use and value of our assets, which values may be treated as
changing for U.S. federal income tax purposes as our market capitalization changes. Because of the above described uncertainties, there can be no assurance that the IRS will not challenge the
determination made by us concerning our PFIC status or that we will not be a PFIC for any taxable year. If we were classified as a PFIC in any taxable year during which a U.S. Holder owns our
Common Shares, certain adverse tax consequences could apply to such U.S. Holder. Certain elections may be available to U.S. Holders of Common Shares that may mitigate some of the adverse
consequences resulting from our treatment as a PFIC. U.S. Holders should consult their own tax advisors regarding the application of the PFIC rules to their investments in Common Shares and
whether to make an election or protective election.
Required Disclosure with Respect to Foreign Financial Assets
Certain U.S. Holders are required to report information relating to an interest in Common Shares, subject to
exceptions
(including an exception for Common Shares held in accounts maintained by certain financial institutions), by attaching a completed IRS Form 8938, Statement of Specified Foreign Financial
Assets, with their tax return for each year in which they hold an interest in Common Shares. U.S. Holders should consult their own tax advisors regarding information reporting requirements
relating to their ownership of Common Shares.
Certain Material Canadian Federal Income Tax Considerations
The following is a summary, as of today's date, of the principal Canadian federal income tax considerations under
the
Income Tax Act
(Canada) ("Tax Act") that generally apply to an investor who acquires Common Shares, who, for the purposes of the
Tax Act and at all relevant times, deals at arm's length, and is not affiliated with the Company and who acquires and holds Common Shares, as capital property (a "Holder"). Generally,
Common Shares will be considered to be capital property to a Holder provided that the Holder does not use Common Shares in the course of carrying on a business of trading or dealing in securities and
such Holder has not acquired them or been deemed to have acquired them in one or more transactions considered to be an adventure or concern in the nature of trade.
This
summary is based upon the current provisions of the
Canada United States Income Tax Convention
(1980)
("Treaty"), the Tax Act and its regulations and the current published administrative policies and assessing practices of the Canada Revenue Agency ("CRA"). This
summary takes into account all specific proposals to amend the Tax Act and its regulations publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof
(the "Tax Proposals") and assumes that the Tax Proposals will be enacted in the form proposed, although no assurance can be given that the Tax Proposals will be enacted in their current form or
at all. This summary does not otherwise take into account any changes in law or in the administrative policies or assessing practices of the CRA, whether by legislative, governmental or judicial
decision or action, nor does it take into account or consider any provincial, territorial or foreign income tax considerations, which considerations may differ significantly from the Canadian federal
income tax considerations discussed in this summary.
This
summary only applies to Holders who (i) for the purposes of the Tax Act, have not and will not be resident in Canada at any time, (ii) do not and is not deemed
to use or hold the Common Shares in carrying on a business in Canada, (iii) are resident solely in the United States for income tax purposes and entitled to benefits under the Treaty,
and (vi) are not "specified shareholders" (as defined in subsection 18(5) of the
118
Table of Contents
Tax Act).
Special rules, which are not discussed in this summary, may apply to a United States Holder that is an insurer that carries on business in Canada and elsewhere.
This
summary is of a general nature only, is not exhaustive of all possible Canadian federal income tax considerations and is not intended to be, nor should it be construed to be, legal
or tax advice to any particular Holder. Holders should consult their own tax advisors with respect to their particular circumstances.
Currency
For purposes of the Tax Act, all amounts relating to the acquisition, holding or disposition of Common Shares
must be expressed
in Canadian dollars. Amounts denominated in any other currency must be converted into Canadian dollars using the daily exchange rate of the Bank of Canada on the particular day, or such other rate of
exchange as is acceptable to the CRA.
Dividends
Dividends paid or credited or deemed to be paid or credited to a Holder by the Company are subject to Canadian
withholding tax at the
rate of 25% on the gross amount of the dividend unless such rate is reduced by the terms of the Treaty. The rate of withholding tax on dividends paid or credited to a Holder who is resident in the
U.S. for purposes of the Treaty, entitled to benefits under the Treaty, and is the beneficial owner of the dividend is generally limited to 15% of the gross amount of the dividend (or 5%
in the case of such a Holder that is a company beneficially owning at least 10% of the Company's voting shares). Holders should consult their own tax advisors regarding the application of the Treaty
to dividends based on their particular circumstances.
Dispositions of Common Shares
A Holder generally will not be subject to tax under the Tax Act in respect of a capital gain realized on the
disposition or
deemed disposition of Common Shares, nor will capital losses arising therefrom be recognized under the Tax Act, unless Common Shares constitute "taxable Canadian property" to the Holder for
purposes of the Tax Act, and the gain is not exempt from tax pursuant to the terms of the Treaty.
Provided
Common Shares are listed on a "designated stock exchange", as defined in the Tax Act (which currently includes the TSX and the Nasdaq), at the time of disposition, the
Common Shares generally will not constitute taxable Canadian property of a Holder at that time, unless at any time during the 60 month period immediately preceding the disposition the following
two conditions are met concurrently:
-
(i)
-
the
Holder, persons with whom the Holder did not deal at arm's length, and partnerships in which the Holder or such non-arm's length person holds a
membership interest (either directly or indirectly through one or more partnerships), or the Holder together with all such persons, owned 25% or more of the issued shares of any class or series of the
capital stock of the Company; and
-
(ii)
-
more
than 50% of the fair market value of the Common Shares was derived directly or indirectly from one or any combination of real or immovable property
situated in Canada, "Canadian resource properties" (as defined in the Tax Act), "timber resource properties" (as defined in the Tax Act) or an option, an interest or right
in such property, whether or not such property exists.
Notwithstanding the foregoing, a Common Share may otherwise be deemed to be taxable Canadian property to a Holder for purposes of the Tax Act in
particular circumstances.
Even
if Common Shares constitute "taxable Canadian property" to a Holder, under the Treaty, such a Holder will not be subject to tax under the Tax Act on any capital gain
realized by such holder on the disposition of such Common Shares, provided the value of such Common Shares is not derived principally from real property situated in Canada (within the meaning of the
Treaty). Holders whose Common Shares are taxable Canadian property should consult their own tax advisors.
119
Table of Contents
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
The consolidated financial statements as of December 31, 2018, 2017 and 2016, and the related consolidated
statements of loss and comprehensive loss,
changes in shareholders' equity, and cash flows for the years ended December 31, 2018, 2017 and 2016, and a summary of significant accounting policies and other explanatory information included
in this Annual Report have been audited by Grant Thornton LLP, Chartered Accountants, 1600 333 Seymour St., Vancouver, BC, V6B 5A6, an
independent registered public accounting firm, as stated in their report appearing herein. Such financial statements are included in reliance upon the report of such firm given upon their consent and
authority as experts in accounting and auditing.
H. Documents on Display
This Annual Report and the related exhibits are available for viewing at the offices of Neovasc,
13562 Maycrest Way, Suite 5138, Richmond, British
Columbia, Canada V6V 2J7, telephone: (604) 248-4138. Copies of Neovasc's financial statements and other continuous disclosure documents required under the Securities Act (Ontario) are
available for viewing on SEDAR at www.sedar.com. All of the documents referred to are in English.
Electronic
SEC filings with reports, proxy and information statements and other information regarding Neovasc are available at www.sec.gov. Further information about the Company is
available at www.neovasc.com.
I. Subsidiary Information
Not applicable.
120
Table of Contents
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to various market risks associated with its underlying assets, liabilities and anticipated
transactions. Refer
to Item 18, "
Financial Statements Note 5. Financial Risk Management
" of the Company's audited
consolidated financial statements as at and for the years ended December 31, 2018, 2017 and 2016, for a qualitative and quantitative discussion of the Company's exposure to these
market risks.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
NEOVASC INC.
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
For years ended December 31,
(Expressed in U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
|
|
2018
|
|
2017
|
|
2016
|
|
REVENUE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reducer
|
|
|
18
|
|
$
|
1,749,133
|
|
$
|
1,128,126
|
|
$
|
1,004,948
|
|
Contract manufacturing and consulting services
|
|
|
|
|
|
|
|
|
4,260,888
|
|
|
8,507,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,749,133
|
|
|
5,389,014
|
|
|
9,512,796
|
|
COST OF GOODS SOLD
|
|
|
|
|
|
366,258
|
|
|
3,477,821
|
|
|
7,091,761
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
|
|
|
1,382,875
|
|
|
1,911,193
|
|
|
2,421,035
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses
|
|
|
20
|
|
|
1,353,165
|
|
|
886,226
|
|
|
696,638
|
|
General and administrative expenses
|
|
|
20
|
|
|
16,438,936
|
|
|
15,684,783
|
|
|
19,182,787
|
|
Product development and clinical trials expenses
|
|
|
20
|
|
|
16,060,857
|
|
|
17,489,092
|
|
|
19,364,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,852,958
|
|
|
34,060,101
|
|
|
39,243,928
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING LOSS
|
|
|
|
|
|
(32,470,083
|
)
|
|
(32,148,908
|
)
|
|
(36,822,893
|
)
|
|
|
|
|
|
|
|
|
|
|
|
OTHER (EXPENSE)/INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
183,065
|
|
|
355,806
|
|
|
177,761
|
|
Gain on sale of assets
|
|
|
|
|
|
238,907
|
|
|
|
|
|
65,095,733
|
|
Damages provision
|
|
|
|
|
|
|
|
|
(738,021
|
)
|
|
(111,781,096
|
)
|
(Loss)/gain on foreign exchange
|
|
|
|
|
|
(175,054
|
)
|
|
2,726,728
|
|
|
(273,746
|
)
|
Unrealized (loss)/gain on derivative liability and convertible note
|
|
|
15
|
|
|
(814,827
|
)
|
|
10,732,089
|
|
|
|
|
Realized loss on exercise of warrants and convertible note
|
|
|
17
|
|
|
(28,003,594
|
)
|
|
|
|
|
|
|
Amortization of deferred loss
|
|
|
15
|
|
|
(46,894,189
|
)
|
|
(3,351,987
|
)
|
|
|
|
Unrealized gain on damages provision
|
|
|
|
|
|
|
|
|
|
|
|
(2,690,129
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(75,465,692
|
)
|
|
9,724,615
|
|
|
(49,471,477
|
)
|
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE TAX
|
|
|
|
|
|
(107,935,775
|
)
|
|
(22,424,293
|
)
|
|
(86,294,370
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Tax expense
|
|
|
16
|
|
|
(107,093
|
)
|
|
(484,428
|
)
|
|
(200,523
|
)
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FOR THE YEAR
|
|
|
|
|
$
|
(108,042,868
|
)
|
$
|
(22,908,721
|
)
|
$
|
(86,494,893
|
)
|
|
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE INCOME FOR THE YEAR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange difference on translation other than for damages provision
|
|
|
|
|
|
|
|
|
(1,950,396
|
)
|
|
1,406,842
|
|
Fair market value changes in convertible note due to changes in own credit risk
|
|
|
|
|
|
(1,009,592
|
)
|
|
|
|
|
2,690,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,009,592
|
)
|
|
(1,950,396
|
)
|
|
4,096,971
|
|
LOSS AND OTHER COMPREHENSIVE LOSS FOR THE YEAR
|
|
|
|
|
$
|
(109,052,460
|
)
|
$
|
(24,859,117
|
)
|
$
|
(82,397,922
|
)
|
|
|
|
|
|
|
|
|
|
|
|
LOSS PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
|
22
|
|
$
|
(7.63
|
)
|
$
|
(28.10
|
)
|
$
|
(128.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to the Consolidated Financial Statements
F-5
Table of Contents
NEOVASC INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Expressed in U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
|
|
Share
Capital
|
|
Contributed
Surplus
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Deficit
|
|
Total Equity
|
|
Balance at January 1, 2016
|
|
|
|
$
|
161,505,037
|
|
$
|
20,569,110
|
|
$
|
(8,790,011
|
)
|
$
|
(115,288,713
|
)
|
$
|
57,995,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issue of share capital pursuant to a private placement
|
|
17(b)
|
|
|
7,090,200
|
|
|
|
|
|
|
|
|
|
|
|
7,090,200
|
|
Share issue costs
|
|
17(b)
|
|
|
(35,540
|
)
|
|
|
|
|
|
|
|
|
|
|
(35,540
|
)
|
Issue of share capital on exercise of options
|
|
17(b)
|
|
|
152,976
|
|
|
(77,784
|
)
|
|
|
|
|
|
|
|
75,192
|
|
Share-based payments
|
|
20
|
|
|
|
|
|
1,810,111
|
|
|
|
|
|
|
|
|
1,810,111
|
|
Transaction with owners during the year
|
|
|
|
|
7,207,636
|
|
|
1,732,327
|
|
|
|
|
|
|
|
|
8,939,963
|
|
Loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(86,494,893
|
)
|
|
(86,494,893
|
)
|
Other comprehensive loss for the year
|
|
|
|
|
|
|
|
|
|
|
4,096,971
|
|
|
|
|
|
4,096,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
|
|
$
|
168,712,673
|
|
$
|
22,301,437
|
|
$
|
(4,693,040
|
)
|
$
|
(201,783,606
|
)
|
$
|
(15,462,536
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issue of share capital on exercise of options
|
|
17(b)
|
|
|
1,964,086
|
|
|
(1,729,134
|
)
|
|
|
|
|
|
|
|
234,952
|
|
Issue of share capital on exercise of warrants
|
|
17(b)
|
|
|
1,127,057
|
|
|
|
|
|
|
|
|
|
|
|
1,127,057
|
|
Share-based payments
|
|
20
|
|
|
|
|
|
2,484,543
|
|
|
|
|
|
|
|
|
2,484,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with owners during the year
|
|
|
|
|
3,091,143
|
|
|
755,409
|
|
|
|
|
|
|
|
|
3,846,552
|
|
Loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,908,721
|
)
|
|
(22,908,721
|
)
|
Other comprehensive loss for the year
|
|
|
|
|
|
|
|
|
|
|
(1,950,396
|
)
|
|
|
|
|
(1,950,396
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2017
|
|
|
|
$
|
171,803,816
|
|
$
|
23,056,846
|
|
$
|
(6,643,436
|
)
|
$
|
(224,692,327
|
)
|
$
|
(36,475,101
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issue of share capital on exercise of options
|
|
17(b)
|
|
|
88,917
|
|
|
(88,917
|
)
|
|
|
|
|
|
|
|
|
|
Issue of share capital on exercise of warrants
|
|
17(b)
|
|
|
113,985,426
|
|
|
|
|
|
|
|
|
|
|
|
113,985,426
|
|
Issue of share capital on conversion of notes
|
|
17(b)
|
|
|
18,582,374
|
|
|
|
|
|
|
|
|
|
|
|
18,582,374
|
|
Share-based payments
|
|
20
|
|
|
|
|
|
3,292,877
|
|
|
|
|
|
|
|
|
3,292,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with owners during the year
|
|
|
|
|
132,656,717
|
|
|
3,203,960
|
|
|
|
|
|
|
|
|
135,860,677
|
|
Loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(108,042,868
|
)
|
|
(108,042,868
|
)
|
Other comprehensive loss for the year
|
|
|
|
|
|
|
|
|
|
|
(1,009,592
|
)
|
|
|
|
|
(1,009,592
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018
|
|
|
|
$
|
304,460,533
|
|
$
|
26,260,806
|
|
$
|
(7,653,028
|
)
|
$
|
(332,735,195
|
)
|
$
|
(9,666,884
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to the Consolidated Financial
Statements
F-6
Table of Contents
NEOVASC INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For years ended December 31,
(Expressed in U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the year
|
|
|
|
$
|
(108,042,868
|
)
|
$
|
(22,908,721
|
)
|
$
|
(86,494,893
|
)
|
Adjustments for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
20
|
|
|
384,126
|
|
|
534,545
|
|
|
755,734
|
|
Share-based payments
|
|
20
|
|
|
3,292,877
|
|
|
2,484,543
|
|
|
1,810,111
|
|
Damages provision
|
|
|
|
|
|
|
|
738,021
|
|
|
111,781,096
|
|
Accrued employee termination expenses
|
|
|
|
|
373,171
|
|
|
|
|
|
|
|
Collaboration and services provision
|
|
|
|
|
1,379,790
|
|
|
|
|
|
|
|
Settlement provision
|
|
|
|
|
2,749,968
|
|
|
|
|
|
|
|
Gain on sale of assets
|
|
|
|
|
(238,907
|
)
|
|
|
|
|
(65,095,733
|
)
|
Loss on disposal of assets
|
|
|
|
|
51,106
|
|
|
|
|
|
|
|
Unrealized loss/(gain) on derivative liability and convertible note
|
|
15
|
|
|
814,827
|
|
|
(10,732,089
|
)
|
|
|
|
Realized loss on exercise of warrants and convertible note
|
|
17
|
|
|
28,003,594
|
|
|
|
|
|
|
|
Amortization of deferred loss
|
|
15
|
|
|
46,894,189
|
|
|
3,351,987
|
|
|
|
|
Write-down accounts receivable
|
|
|
|
|
489,449
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
|
|
107,093
|
|
|
484,428
|
|
|
200,523
|
|
Interest income
|
|
|
|
|
(183,065
|
)
|
|
(355,806
|
)
|
|
(177,761
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,924,650
|
)
|
|
(26,403,092
|
)
|
|
(37,220,923
|
)
|
|
|
|
|
|
|
|
|
|
|
Net change in non-cash working capital items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
|
198,331
|
|
|
1,907,768
|
|
|
(1,357,201
|
)
|
Inventory
|
|
|
|
|
139,814
|
|
|
(174,392
|
)
|
|
(470
|
)
|
Prepaid expenses and other assets
|
|
|
|
|
282,091
|
|
|
(235,366
|
)
|
|
(221,973
|
)
|
Accounts payable and accrued liabilities
|
|
|
|
|
504,655
|
|
|
(1,046,664
|
)
|
|
(842,360
|
)
|
Damages Provision
|
|
|
|
|
|
|
|
(112,519,117
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,124,891
|
|
|
(112,067,771
|
)
|
|
(2,422,004
|
)
|
|
|
|
|
|
|
|
|
|
|
Income tax and Interest paid and received:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax paid
|
|
|
|
|
183,065
|
|
|
(255,118
|
)
|
|
(326,492
|
)
|
Interest received
|
|
|
|
|
(178,054
|
)
|
|
112,036
|
|
|
175,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,011
|
|
|
(143,082
|
)
|
|
(151,232
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash applied to operating activities
|
|
|
|
|
(22,794,748
|
)
|
|
(138,613,945
|
)
|
|
(39,794,159
|
)
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITES
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase)/Decrease in restricted cash
|
|
|
|
|
38,524
|
|
|
2,520
|
|
|
(449,760
|
)
|
Increase in cash held in escrow
|
|
|
|
|
|
|
|
70,000,000
|
|
|
(70,000,000
|
)
|
Purchase of property, plant and equipment
|
|
12
|
|
|
(190,382
|
)
|
|
(505,667
|
)
|
|
(656,170
|
)
|
Proceeds from sale of assets
|
|
|
|
|
865,610
|
|
|
|
|
|
67,741,740
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (applied to)/ received from investing activities
|
|
|
|
|
713,752
|
|
|
69,496,853
|
|
|
(3,364,190
|
)
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of warrants
|
|
17(b)
|
|
|
13,816,648
|
|
|
18,750
|
|
|
|
|
Proceeds from private placements and public offerings
|
|
|
|
|
|
|
|
|
|
|
7,054,660
|
|
Proceeds from financing before fees
|
|
|
|
|
|
|
|
65,324,997
|
|
|
|
|
Proceeds from exercise of options
|
|
|
|
|
|
|
|
234,952
|
|
|
75,192
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from financing activities
|
|
|
|
|
13,816,648
|
|
|
65,578,699
|
|
|
7,129,852
|
|
|
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH AND CASH EQUIVALENTS
|
|
|
|
|
(8,264,348
|
)
|
|
(3,538,393
|
)
|
|
(36,028,497
|
)
|
CASH AND CASH EQUIVALENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of the year
|
|
|
|
|
17,507,157
|
|
|
22,954,571
|
|
|
55,026,171
|
|
Exchange difference on cash and cash equivalents
|
|
|
|
|
|
|
|
(1,909,021
|
)
|
|
3,956,897
|
|
|
|
|
|
|
|
|
|
|
|
End of the year
|
|
|
|
$
|
9,242,809
|
|
$
|
17,507,157
|
|
$
|
22,954,571
|
|
|
|
|
|
|
|
|
|
|
|
Represented by:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
6
|
|
$
|
9,242,809
|
|
$
|
17,507,157
|
|
|
13,961,537
|
|
Cashable high interest savings accounts
|
|
|
|
|
|
|
|
|
|
|
8,993,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,242,809
|
|
$
|
17,507,157
|
|
$
|
22,954,571
|
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to the Consolidated Financial
Statements
F-7
Table of Contents
NEOVASC INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For years ended December 31, 2018, 2017 and 2016
(Expressed in
U.S. dollars)
1. INCORPORATION AND GOING CONCERN
-
(a)
-
Business Description
Neovasc Inc.
("Neovasc" or the "Company") is a limited liability company incorporated and domiciled in Canada. The Company was incorporated as Medical Ventures Corp. under the Company Act
(British Columbia) on November 2, 2000 and was continued under the Canada Business Corporations Act on April 19, 2002. On July 1, 2008, the Company changed its name to
Neovasc Inc. Neovasc is the parent company.
The
consolidated financial statements of the Company for the years ended December 31, 2018, 2017 and 2016 comprise of the Company and its subsidiaries, all of which are wholly owned. The
Company's principal place of business is located at Suite 5138 13562 Maycrest Way, Richmond, British Columbia, V6V 2J7 and the Company's
registered office is located at Suite 2600 595 Burrard Street, Vancouver, British Columbia, V7X 1L3, Canada. The Company's common shares
(the "Common Shares") are listed on the Toronto Stock Exchange (TSX:NVCN) and the Nasdaq Capital Market (NASDAQ:NVCN).
Neovasc
is a specialty medical device company that develops, manufactures and markets products for the rapidly growing cardiovascular marketplace. Its products include the Reducer
(the "Reducer"), for the treatment of refractory angina, which is not currently commercially available in the United States and has been commercially available in Europe since 2015, and
the Tiara (the "Tiara"), for the transcatheter treatment of mitral valve disease, which is currently under clinical investigation in the United States, Canada and Europe.
-
(b)
-
Going Concern and Uncertainty
As
at December 31, 2018, the Company had approximately $9.2 million in cash and cash equivalents, sufficient cash for approximately five months of operations, and will need to obtain
additional debt or equity financing in 2019 to fund ongoing operations. The Company can give no assurance that it will be able to obtain the additional funds needed, on terms agreeable to the Company,
or at all. These circumstances indicate the existence of material uncertainty and cast substantial doubt about the Company's ability to continue as a going concern.
These
consolidated financial statements do not reflect adjustments that would be necessary if the going concern assumption were not appropriate. Should the Company be unable to obtain additional
capital in the future and the Company's ability to continue as a going concern be impaired, material adjustments may be necessary to these consolidated financial statements.
-
c)
-
Share Consolidation (reverse stock split)
On
September 18, 2018, the Company effected a share consolidation (reverse stock split) of its issued and outstanding Common Shares on the basis of one post-consolidation Common Share for every
one hundred pre-consolidation Common Shares. All references in these consolidated financial statements to Common Shares and options have been retroactively adjusted to reflect the share consolidation.
The number of 2017 Warrants (as defined below) and aggregate principal amount of Notes (as defined below) were not affected by the consolidation, but the Common Shares issuable upon
exercise of the 2017 Warrants or conversion of the Notes will be adjusted proportionally to the share consolidation ratio.
2. BASIS OF PREPARATION
-
(a)
-
Statement of compliance with IFRS
These
consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS), as issued by the International Accounting Standards
Board ("IASB").
-
(b)
-
Basis of measurement
The
Company's consolidated financial statements have been prepared on the historical cost basis except as explained in the accounting policies set out in Note 3.
-
(c)
-
Basis of consolidation
The
consolidated financial statements include the financial statements of the Company and its wholly-owned subsidiaries, Neovasc Medical Inc., Neovasc Tiara Inc., Neovasc
(US) Inc., Neovasc Medical Ltd., B-Balloon Ltd. (which is in the process of being voluntarily liquidated), Neovasc GmbH, and Neovasc Management Inc. All intercompany
balances and transactions have been eliminated upon consolidation.
F-8
Table of Contents
NEOVASC INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For years ended December 31, 2018, 2017 and 2016
(Expressed in U.S. dollars)
2. BASIS OF PREPARATION (Continued)
The
preparation of consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the
date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting year. Actual results may differ from those estimates.
Estimates
and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the year in which the estimates are revised and in any future
years affected.
Significant
areas requiring the use of estimates relate to the determination of the net realizable value of inventory (obsolescence provisions), allowance for doubtful accounts receivable, impairment
of non-financial assets, useful lives of depreciable assets and expected life, and volatility and forfeiture rates for share-based payments.
Inventories
The
Company estimates the net realizable values of inventories, taking into account the most reliable evidence available at each reporting date. The future realization of these inventories may be
affected by future technology or other market-driven changes that may reduce future selling prices.
Allowance for doubtful accounts receivable
The
Company has established and applied a provision matrix to the trade accounts receivables balances in order to calculate an allowance for doubtful accounts on adoption of IFRS 9. Actual
collectability of customer balances can vary from the Company's estimation.
Impairment of long-lived assets
In
assessing impairment, the Company estimates the recoverable amount of each asset or cash generating unit based on expected future cash flows and uses an interest rate to discount them. Estimation
uncertainty relates to assumptions about future operating results and the determination of a suitable discount rate.
Useful lives of depreciable assets
The
Company reviews its estimate of the useful lives of depreciable assets at each reporting date, based on the expected utilization of the assets.
Share-based payments
The
Company measures the cost of equity-settled transactions by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based
payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining the most
appropriate inputs to the valuation model including the expected life of the share option, risk free interest rate, volatility and forfeiture rates.
Determination of functional currency
The
Company determines its functional currency as the United States dollar based on the primary economic environment in which it operates. IAS 21 The Effects of Changes in Foreign
Exchange Rates outlines a number of factors to apply in determining the functional currency, which is subject to significant judgment by management. Management uses a number of factors to determine
the primary economic environment in which the Company operates; it is normally the one in which it primarily generates and expends cash.
F-9
Table of Contents
NEOVASC INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For years ended December 31, 2018, 2017 and 2016
(Expressed in U.S. dollars)
2. BASIS OF PREPARATION (Continued)
Deferred tax assets
Deferred
tax assets are recognized in respect of tax losses and other temporary differences to the extent probable that there will be taxable income available against which the losses can be utilized.
Judgment is required to determine the amount of deferred tax assets that can be recognized based on estimates of future taxable income.
Contingent Liabilities
Contingent
liabilities are assessed continually to determine whether an outflow of resources embodying economic benefits has become probable. If it becomes probable that an outflow of future economic
benefits will be required for an item previously dealt with as a contingent liability, a provision is recognized in the consolidated financial statements of the year in which the change in probability
occurs.
Accounting for financing and determination of fair value of derivative liabilities
The
determination of the accounting treatment for the financing transactions completed in November 2017 is an area of significant management judgment. In particular, this involved the
determination of whether the warrants issued and the conversion feature associated with the convertible note should be classified as equity or as derivative liabilities. The difference between the
transaction amount and the fair value of the instruments issued in connection with the financing gives rise to a loss which has been deferred as the fair values were not determined using only
observable market inputs. The manner in which the deferred loss will be recognized within income involves management judgment.
The
warrants and convertible notes will be measured at fair value through profit and loss at each year end. The calculations of the fair value of these instruments involves the use of a number of
estimates and a complex valuation model. The carrying amounts of these liabilities may change significantly as a result of changes to these estimates. Details of the estimates used as at
December 31, 2018 are disclosed in Note 15.
3. SIGNIFICANT ACCOUNTING POLICIES
The
accounting policies set out below have been applied consistently to all years presented in these consolidated financial statements.
-
(a)
-
Foreign currency translation
The
presentation currency of the consolidated financial statements is the United States dollar. Where functional currency is different than presentation currency, all revenues, expenses and
cash flows for each year are translated into the presentation currency using average rates for the year, or the rates in effect at the date of the transaction for significant transactions. Assets and
liabilities are translated using the exchange rate at the end of the year and stockholders' equity was translated at historical rates. The resulting translation adjustment was recorded as accumulated
foreign currency translation adjustment in accumulated other comprehensive income.
Foreign
currency denominated non-monetary assets and liabilities are translated at the historical rates of exchange in effect on the date the asset was acquired or liability incurred. Foreign currency
denominated revenues and expenses are translated at the rate of exchange on the date on which such transactions occur. Foreign currency gains or losses arising on the settlement of foreign-currency
denominated monetary assets and liabilities are recognized in profit or loss in the year in which they arise.
Financial
assets and financial liabilities are recognized on the Company's consolidated statement of financial position when the Company becomes party to the contractual provisions of the instrument.
Financial assets are de-recognized when the contractual rights to the cash flows from the financial asset expire or when the contractual rights to those assets are transferred. Financial liabilities
are de-recognized when the obligation specified in the contract is discharged, cancelled or expired.
Financial
assets
The
Company classifies its cash and cash equivalents, cash held in escrow, restricted cash, and accounts receivable at amortized cost. Such assets are recognized initially at fair value plus any
directly attributable transaction costs. Subsequent to initial recognition loans and receivables are measured at amortized cost using the effective interest method.
F-10
Table of Contents
NEOVASC INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For years ended December 31, 2018, 2017 and 2016
(Expressed in U.S. dollars)
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
-
(b)
-
Financial Instruments
Financial
liabilities
The
Company classifies its accounts payable and accrued liabilities as other financial liabilities. These financial liabilities are recognized initially at fair value less any directly attributable
transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortized cost using the effective interest method.
The
Company classifies its convertible note as a financial liability at fair value through profit and loss. The entire instrument is recognized initially at fair value with any subsequent changes in
fair value recognized as an unrealized gain or loss in the statement of loss and comprehensive loss. All related transaction costs are expensed as incurred.
Derivative
instruments, including derivative instruments embedded in other contracts and instruments designated for hedging activities, are recognized as either asset or liabilities in the statement
of financial position and measured at fair value. The Company has not used derivative instruments to hedge exposures to cash flow or foreign currency risks. Any change in the fair value of a
derivative or an embedded derivative not designated as a hedging instrument is recognized as an unrealized gain or loss in the statement of loss and comprehensive loss.
-
(c)
-
Cash and cash equivalents
Cash
and cash equivalents include cash on hand and short-term, highly liquid investments that are readily convertible to known amounts of cash within 90 days of purchase.
-
(d)
-
Cash held in escrow
Cash
held in escrow represents cash placed in a joint escrow account that cannot be accessed by the Company without prior authorization from parties not related to the Company. Restricted cash is
disclosed separately as part of other current assets. In the past, such cash was used to settle awards against the Company in its litigation with Edwards Lifesciences CardiAQ LLC ("CardiAQ"),
formerly known as CardiAQ Valve Technologies Inc. (see Note 23).
-
(e)
-
Restricted cash
Restricted
cash represents secured cash that cannot be accessed by the Company without prior authorization from parties not related to the Company. Restricted cash is disclosed separately as part of
other non-current assets.
-
(f)
-
Inventory
Inventory
is valued at the lower of cost and net realizable value for finished goods, work in progress and raw materials. Cost is determined on a first-in, first-out basis. Cost of finished goods and
work in progress includes direct material and labor costs and an allocation of manufacturing overhead and applicable shipping and handling costs. In determining net realizable value, the Company
considers factors such as obsolescence, future demand for inventory and contractual arrangements with customers.
-
(g)
-
Property, plant and equipment
Items
of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses.
As
no finite useful life for land can be determined, related carrying amounts are not depreciated.
Depreciation
of property, plant and equipment is recognized in profit or loss over the estimated useful lives using the following rates and methods:
|
|
|
|
|
Building
|
|
4% declining balance
|
|
Leasehold improvements
|
|
amortized over the life of the lease
|
|
Production & development equipment
|
|
30% declining balance
|
|
Computer hardware
|
|
30% declining balance
|
|
Computer software
|
|
100% declining balance
|
|
Office equipment
|
|
20% declining balance
|
F-11
Table of Contents
NEOVASC INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For years ended December 31, 2018, 2017 and 2016
(Expressed in U.S. dollars)
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Gains
or losses arising on the disposal of property, plant and equipment are determined as the difference between the disposal proceeds and the carrying amount of the assets and are recognized in
profit or loss.
-
(h)
-
Impairment of assets
Financial
instruments (including accounts receivable)
The
Company reviews its accounts receivable at least at each reporting date to determine whether there is objective evidence that it is impaired.
The
Company considers evidence of impairment for accounts receivable when the amounts are past due or when other objective information is received that a specific counterparty may default. Accounts
receivable that are not considered to be individually impaired are reviewed for impairment in groups, using historical trends of the probability of default, timing of recoveries and the amount of loss
incurred, adjusted for management's judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends.
An
impairment loss is calculated as the difference between an asset's carrying amount and the present value of the estimated future cash flows discounted at the asset's original effective interest
rate. Losses are recognized in profit or loss and reflected in an allowance account against receivables. When subsequent events cause the amount of impairment loss to decrease, the decrease in
impairment loss is reversed through profit or loss.
Non-financial
assets
The
carrying amounts of the Company's non-financial assets, other than inventories are reviewed at each reporting date to determine whether there is any indication of impairment. If any such
indication exists, then the asset's recoverable amount is estimated.
The
recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs of disposal. 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 purpose of impairment
testing, if it is not possible to estimate the recoverable amount of an individual asset, the asset is included in the cash-generating unit to which it belongs and the recoverable amount of the
cash-generating unit is estimated. As a result, some assets are tested individually for impairment and some are tested at the cash-generating unit level. A cash-generating unit is the smallest group
of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets.
An
impairment loss is recognized if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss. Impairment
losses recognized in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amounts of the other
assets in the unit on a pro-rata basis.
-
(i)
-
Contingent Liabilities and Provisions
Provisions
for product warranties, legal disputes, onerous contracts or other claims are recognized when the Company has a present legal or constructive obligation as a result of a past event, it is
probable that an outflow of economic resources will be required from the Company and amounts can be estimated reliably. No liability is recognized if an outflow of economic resources as a result of
present obligations is not probable. Such situations are disclosed as contingent liabilities unless the outflow of resources is remote.
-
(j)
-
Employee benefits
The
Company provides short-term employee benefits and post-employment benefits to current employees. The short-term employee benefits include wages, salaries, social security contributions, paid
annual leave, paid sick leave and medical care. Short-term employee benefits obligations are measured on an undiscounted basis and are expensed as the related service is provided.
The
Company provides post-employment benefits through defined contribution plans, including contributions to the Canadian Pension Plan and individual Registered Retirement Savings Plans of qualified
employees. Contributions to defined contribution pension plans are recognized as an employee benefit expense in the years during which services are rendered by employees.
F-12
Table of Contents
NEOVASC INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For years ended December 31, 2018, 2017 and 2016
(Expressed in U.S. dollars)
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
In
December 2017, the Company closed its contract manufacturing and consulting services business and is now focused on the commercialization of its own product, the Reducer. Revenues from the
Reducer are recognized at a point in time as follows:
Effective
January 1, 2018, upon adoption of IFRS 15 Revenue from Contracts with Customers, the Company recognizes revenue for goods provided when the performance obligations have been
completed, when control of the goods transfer to the customer, when the goods have been accepted by the customer and when collectability is reasonably assured.
The
consideration for goods provided is measured at the fair value of the consideration received. The standalone selling prices are determined based on the agreed upon list prices at which the Company
sells its services in separate transactions. Payment terms with customers vary by country and contract. Standard payment terms are 60 days from invoice date. The transaction price is documented
on the contract or purchase order and agreed to by the customer.
The
adoption of this new standard has had no significant impact on the Company's consolidated financial statements.
Revenue
recognition policy applicable before January 1, 2018
The
Company earned revenue from four sources: the Reducer, product sales, contract manufacturing and consulting services. Revenues from these four sources were recognized as follows:
Revenue
from the sale of goods was recognized when the Company transferred to the buyer the significant risks and rewards of ownership of the goods, the Company retained neither continuing managerial
involvement nor effective control over the goods sold, the amount of revenue was measured reliably, it was probable that the economic benefits associated with the transaction will flow to the Company
and the costs incurred or to be incurred in respect of the transaction was measured reliably. For consulting services, revenue
was recognized when the amount of revenue can be measured reliably, it was probable that the economic benefits associated with the transaction will flow to the Company and the stage of completion and
the costs incurred or to be incurred in respect of the transaction was measured reliably.
Reducer, Product sales and Contract manufacturing
For
the Reducer, product sales and contract manufacturing, these criteria were met upon time of shipment at shipping point.
Consulting services
For
consulting services, these criteria were met as the services were delivered under the terms of the related consulting services contract.
-
(l)
-
Research and development
The
Company is engaged in research and development. Research costs are expensed as incurred. Development costs are expensed in the year incurred, unless they meet the criteria for capitalization. The
criteria include that 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. Other development expenditure is recognized in profit or loss as incurred. Management reviews the applicable criteria on
a regular basis and if the criteria are no longer met, any remaining unamortized balance is written off as a charge to profit or loss. Research and development costs are reduced by any scientific
research and experimental development tax credits to which the Company is entitled.
-
(m)
-
Interest income and interest expense
Interest
income comprises interest income from high interest savings accounts and guaranteed investment certificates. Interest income is recognized in profit or loss, using the effective interest
method.
-
(n)
-
Operating lease
Leases
where the Company does not assume substantially all the risks and rewards of ownership are classified as operating leases. Payments on operating leases are recognized as an expense on a
straight-line basis over the lease term. Associated costs, such as maintenance and insurance, are expensed as incurred.
F-13
Table of Contents
NEOVASC INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For years ended December 31, 2018, 2017 and 2016
(Expressed in U.S. dollars)
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
-
(o)
-
Income taxes
Tax
expense represents current tax and deferred tax. Tax is recognized in profit or loss except to the extent it relates to items recognized in other comprehensive income or directly in equity.
Current tax is based on the taxable profits for the year, and is calculated using tax rates that have been enacted or substantively enacted by the reporting date.
Deferred
tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their respective carrying amounts in the consolidated
financial statements. However, deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction, other than a business combination, that at the time of
the transaction affects neither the accounting profit nor taxable profit. Deferred tax assets are recognized to the extent that it is probable that the future taxable profit will be available against
which the deductible temporary differences and the carry forward of unused tax credits and unused tax losses can be utilized. Deferred tax assets and liabilities are offset when the Company has a
right and intention to offset tax assets and liabilities from the same taxation authority.
Deferred
tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the reporting date and are expected to apply when the related deferred tax asset is
realized or the deferred tax liability settled.
-
(p)
-
Equity
Share
capital represents the value of shares that have been issued. Any transaction costs associated with the issuing of shares are deducted from share capital.
From
time to time the Company may issue units consisting of common shares and common share purchase warrants. The Company estimates the fair value of the common shares based on their market price on
the date of the issuance of the units. The residual difference, if any, between the unit price and the fair value of each common share represents the fair value attributable to each warrant. Any
transaction costs associated with the issuance of units would be apportioned between the common shares and warrants based on their relative fair values.
Professional,
consulting, regulatory fees and other costs that are directly attributable to financing transactions are deferred until such time as the transactions are completed. Share issue costs are
charged to share capital when the related shares are issued. Costs relating to financing transactions that are abandoned are charged to profit and loss.
Contributed
surplus includes the fair value of vested stock options (see Note 3(q)).
Deficit
includes all current and prior year losses.
-
(q)
-
Share-based payments
The
Company has an equity-settled share-based stock option plan. The Company grants stock options to buy common shares of the Company to directors, officers, employees and consultants
(see Note 20(c)).
The
fair value of the stock options awarded to employees, directors, officers and service providers is measured at grant date, using the Black-Scholes Option Pricing Model with assumptions for
risk-free interest rates, dividend yields, volatility factors of the expected market price of the Company's common shares, based on historic market price volatility, and an expected life of the
options. The fair value of the options is recognized as an employee expense, with a corresponding increase in equity, over the year that the employees unconditionally become entitled to the options.
The amount recognized as expense is adjusted to reflect the number of stock options expected to vest.
For
stock options with non-vesting conditions, the grant date fair value of the options is recognized to reflect such conditions and there is no true-up for differences between expected and actual
outcomes.
-
(r)
-
Loss per share
Loss
per share is computed using the weighted average number of common shares outstanding during the year. Diluted loss per share is computed using the treasury stock method and weighted average
number of common shares outstanding during the year for the effects of all potentially dilutive shares.
F-14
Table of Contents
NEOVASC INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For years ended December 31, 2018, 2017 and 2016
(Expressed in U.S. dollars)
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
-
(s)
-
Operating segment
The
Company operates its business in one segment. The Company reports information about revenues from customers for the Reducer, from geographical areas, and from major customers.
-
(t)
-
Adoption of new standard
Accounting
standard issued and effective January 1, 2018
IFRS 9 Financial
Instruments
The
Company adopted IFRS 9 on January 1, 2018 in accordance with the transitional provisions of the standard. IFRS 9 addresses the classification, measurement and recognition of
financial assets and liabilities and supersedes the guidance relating to the classification and measurement of financial instruments in IAS 39, Financial Instruments: Recognition and
Measurement (IAS 39).
IFRS 9
requires financial assets to be classified into three measurement categories on initial recognition: those measured at fair value through profit and loss, those measured at fair value
through other comprehensive income and those measured at amortized cost. Measurement and classification of financial assets is dependent on the entity's business model for managing the financial
assets and the contractual cash flow characteristics of the financial asset. For financial liabilities, the standard retains most of the IAS 39 requirements.
The
main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change relating to an entity's own credit risk is recorded in other
comprehensive income rather than the income statement, unless this creates an accounting mismatch.
The
Company has assessed the classification and measurement of financial assets and financial liabilities under IFRS 9 and has summarized the original measurement categories under IAS 39
and the new measurement categories under IFRS 9 in the following table:
|
|
|
|
|
|
|
|
|
Measurement Category
|
|
|
|
Original (IAS 39)
|
|
New (IFRS 9)
|
|
Financial assets:
|
|
|
|
|
|
Cash and cash equivalents, cash held in escrow
|
|
Loans and receivables
|
|
Amortized cost
|
|
Trade receivables
|
|
Loans and receivables
|
|
Amortized cost
|
|
Financial liabilities:
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
Amortized cost
|
|
Amortized cost
|
|
Derivative liability from financing
|
|
Fair value through profit or loss
|
|
Fair value through profit or loss
|
|
Convertible Note
|
|
Fair value through profit or loss
|
|
Fair value through profit or loss or OCI (for own credit risk)
|
As
a result of the change in measurement categories for the convertible note, an adjustment of $1,009,592 for the year ended on December 31, 2018 has been made to opening retained earnings and
accumulated other comprehensive income to reclassify the change in fair value associated with the Company's own credit risk. There has been no other change in the carrying value of our financial
instruments or to previously reported figures as a result of changes to the measurement categories in the table noted above.
IFRS 9
introduces a new three-stage expected credit loss model for calculating impairment for financial assets. IFRS 9 no longer requires a triggering event to have occurred before
credit losses are recognized. An entity is required to recognize expected credit losses when financial instruments are initially recognized and to update the amount of expected credit losses
recognized at each reporting date to reflect changes in the credit risk of the financial instruments. There is a simplified approach where expected credit losses can be estimated and recognized upon
initial recognition of the receivables. In addition, IFRS 9 requires additional disclosure requirements about expected credit losses and credit risk.
The
Company has reviewed expected credit losses on trade receivables on transition to IFRS 9. The Company also implemented a process for managing and estimating provisions relating to trade
receivables going forward under IFRS 9. For trade accounts receivables, the Company has applied the simplified approach for determining expected credit losses which requires us to determine the
lifetime expected losses for all trade receivables.
F-15
Table of Contents
NEOVASC INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For years ended December 31, 2018, 2017 and 2016
(Expressed in U.S. dollars)
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
The
expected lifetime credit loss provision for trade receivables is based on historical counterparty default rates and adjusted for relevant forward-looking information, when required. As the
majority of customers are considered to have low default risk and the Company does not extend credit to customers with high default risk, historical default rates are low and the lifetime expected
credit loss allowance for trade receivables is nominal as at January 1, 2018 and December 31, 2018. Accordingly, the Company did not record an adjustment relating to the implementation
of the expected credit loss model for trade receivables.
IFRS 15 Revenue
from contracts with customers
The
Company adopted IFRS 15 on January 1, 2018 in accordance with the transitional provisions of the standard. The IASB issued IFRS 15 Revenue from Contracts with Customers, a new standard for
the recognition of revenue, which replaces IAS 18 Revenue, IAS 11 Construction Contracts, and related interpretations. IFRS 15 is effective for annual periods beginning on or
after January 1, 2018. The new standard is based on the principle that revenue is recognized when control of a good or service transfers to a customer.
The
standard is required to be adopted either retrospectively or using a modified retrospective approach. In accordance with the transition provisions in IFRS 15, the Company has adopted the
new standard using the modified retrospective method; the cumulative effect of initially applying the standard is recognized as an adjustment to the opening balance of retained earnings as of
January 1, 2018. Comparative prior year periods are not restated. The adoption of IFRS 15 did not result in any changes in the timing of revenue recognition for the Company's goods and
services and therefore no adjustment to opening retained earnings was necessary.
Accounting
standard issued and effective January 1, 2019
IFRS 16 Leases
IFRS 16
sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract. All leases result in the lessee obtaining the right to
use an asset at the start of the lease and, if lease payments are made over time, also obtaining financing. Accordingly, from the perspective of the lessee, IFRS 16 eliminates the
classification of leases as either operating leases or finance leases as is required by IAS 17 Leases and, instead, introduces a single lessee accounting model. From the perspective of the
lessor, IFRS 16 substantially carries forward the accounting requirements in IAS 17. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and
accounts for those two types of leases differently. The new standard is required to be applied for annual reporting years beginning on or after January 1, 2019. Early application of this
standard is permitted.
While
the Company continues to assess all potential impacts and transition provisions of this standard, the Company believes that the most significant impact will be related to the accounting for
operating leases associated with office space. At this time, a quantitative estimate of the effect of the new standard has not been determined, but the Company anticipates a material impact to its
statements of financial position due to the recognition of the present value of unavoidable future lease payments as lease assets and lease liabilities.
The
measurement of the total lease expense over the term of the lease is unaffected by the new standard; however, the required presentation on the consolidated statements of earnings (loss) will
result in lease expenses being presented as depreciation of lease assets and finance costs rather than being fully recognized as general and administrative costs.
IFRIC 23 Uncertainty
over Income Tax Treatments
In
June 2017, the IASB issued IFRIC 23, Uncertainty over Income Tax Treatments. This interpretation specifies that if an entity concludes it is probable that the taxation authority will
accept an uncertain tax treatment, it shall determine the tax result consistently with the tax treatment used or planned to be used in its income tax filing. If it is not probable, the entity shall
reflect the effect of uncertainty for each uncertain tax treatment by using either of the following methods, depending on which one the entity expects to better predict the resolution of the
uncertainty:
-
-
Most likely amount: single most likely amount in a range of possible outcomes;
-
-
Expected value: sum of the probability-weighted amounts in a range of possible outcomes.
An
entity shall apply IFRIC 23 for annual reporting periods beginning on or after January 1, 2019 with earlier application permitted. The Company will not early adopt IFRIC 23 and
does not expect a significant impact.
F-16
Table of Contents
NEOVASC INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For years ended December 31, 2018, 2017 and 2016
(Expressed in U.S. dollars)
4. MANAGING CAPITAL
The
Company's objectives, when managing capital, are to safeguard cash as well as maintain financial liquidity and flexibility in order to preserve its ability to meet financial obligations and deploy
capital to grow its business. In the definition of capital, the Company includes equity and the convertible debt. There has been no change in the definition since the prior year.
The
Company's financial strategy is designed to maintain a flexible capital structure consistent with the objectives stated above and to respond to business growth opportunities and changes in
economic conditions. In order to maintain or adjust its capital structure, the Company may issue new shares, new units or new debt (secured, unsecured, convertible and/or other types of available debt
instruments). For the years ended December 31, 2018, 2017 and 2016 there were no changes in the Company's capital management policy.
The
capital of the Company is comprised of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2018
|
|
December 31,
2017
|
|
December 31,
2016
|
|
|
Convertible Note
|
|
$
|
14,617,336
|
|
$
|
20,007,559
|
|
$
|
|
|
|
Equity
|
|
|
(9,666,884
|
)
|
|
(36,475,101
|
)
|
|
(15,462,536
|
)
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
$
|
4,950,452
|
|
$
|
(16,467,542
|
)
|
$
|
(15,462,536
|
)
|
|
|
|
|
|
|
|
|
|
5. FINANCIAL RISK MANAGEMENT
-
(a)
-
Fair value estimation
The
fair value hierarchy establishes three levels to classify fair value measurements based upon the observability of significant inputs used in the valuation techniques. The three levels of the fair
value hierarchy are described below:
Level 1 -- Quoted
prices (unadjusted) in active markets for identical assets or liabilities
Level 2 -- Inputs
other than quoted prices included in level 1 that are observable for the asset or liability, either directly (that is, as prices) or
indirectly (that is, derived from prices)
Level 3 -- Inputs
for the assets or liability that are not based on observable market data (that is, unobservable inputs)
The
following table sets forth the Company's financial assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy as at December 31, 2018 and
December 31, 2017. As required by IFRS 13, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
As
at December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
Financial liabilities at fair value through profit and loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Note
|
|
$
|
|
|
$
|
|
|
$
|
20,007,559
|
|
$
|
20,007,559
|
|
|
Derivative financial liabilities
|
|
$
|
|
|
$
|
|
|
$
|
36,829,030
|
|
$
|
36,829,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
Financial liabilities at fair value through profit and loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Note
|
|
$
|
|
|
$
|
|
|
$
|
14,617,336
|
|
$
|
14,617,336
|
|
|
Derivative financial liabilities
|
|
$
|
|
|
$
|
|
|
$
|
190,303
|
|
$
|
190,303
|
|
F-17
Table of Contents
NEOVASC INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For years ended December 31, 2018, 2017 and 2016
(Expressed in U.S. dollars)
5. FINANCIAL RISK MANAGEMENT (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
|
|
December 31,
2018
|
|
December 31,
2017
|
|
December 31,
2016
|
|
|
Amortized cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
6
|
|
$
|
9,242,809
|
|
$
|
17,507,157
|
|
$
|
22,954,571
|
|
|
Cash held in escrow
|
|
7
|
|
|
|
|
|
|
|
|
70,000,000
|
|
|
Accounts receivable
|
|
8
|
|
|
647,143
|
|
|
1,334,923
|
|
|
3,117,474
|
|
|
Restricted cash
|
|
11
|
|
|
439,736
|
|
|
478,260
|
|
|
449,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,329,688
|
|
$
|
19,320,340
|
|
$
|
96,521,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other financial liabilities at amortized cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
13
|
|
$
|
6,852,539
|
|
$
|
1,844,955
|
|
$
|
2,490,943
|
|
|
Financial liabilities at fair value through profit and loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Note (current)
|
|
15
|
|
|
1,423,224
|
|
|
4,261,597
|
|
|
|
|
|
Derivative liability from financing (current)
|
|
15
|
|
|
|
|
|
19,997,345
|
|
|
|
|
|
Convertible Note (non-current)
|
|
15
|
|
|
13,194,112
|
|
|
15,745,962
|
|
|
|
|
|
Derivative liability from financing (non-current)
|
|
15
|
|
|
190,303
|
|
|
16,831,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
21,660,178
|
|
$
|
58,681,544
|
|
$
|
2,490,943
|
|
|
|
|
|
|
|
|
|
|
|
|
The
carrying amounts of cash and cash equivalents, accounts receivable, restricted cash and accounts payable and accrued liabilities are considered a reasonable approximation of fair value due to
their short-term nature.
-
(b)
-
Foreign exchange risk
A
portion of the Company's revenues are derived from product sales in Europe, denominated in Euros. Management has considered the stability of the foreign currency and the impact a change in the
exchange rate may have on future earnings during the forecasting process. The Euro represents approximately 23% of the revenue for the year ended December 31, 2018 (year ended
December 2017 and 2016: 65% and 38%, respectively). A 10% change in the foreign exchange rates for the Euro for foreign currency denominated accounts receivable will impact net income as at
December 31, 2018 by approximately $6,000 (as at December 31, 2017 and 2016: $50,000 and $49,000, respectively), and a similar change in foreign currency denominated accounts
payable, which are denominated in Canadian dollars and Euros will impact net income by approximately $13,000 and $30,000, respectively, as at December 31, 2018 (as at December 31,
2017 and 2016, Euro: $32,000 and $10,000, respectively). The Company does not hedge its foreign exchange risk.
-
(c)
-
Interest rate risk
The
Company is not exposed to material cash flow interest rate risk on fixed rate cash balances, and short-term accounts receivable and accounts payable that do not accrue interest.
-
(d)
-
Liquidity risk
As
at December 31, 2018, the Company had $9,242,809 in cash and cash equivalents as compared to cash and cash equivalents of $17,507,157 at December 31, 2017 and $22,954,571 at
December 31, 2016. The Company is dependent on the profitable commercialization of its products or obtaining additional debt or equity financing to fund ongoing operations until profitability
is achieved.
The
Company monitors its cash flow on a monthly basis and compares actual performance to the budget for the period. After receipt of the net proceeds of approximately $4.05 million from the
February 2019 underwritten public offering of Common Shares on February 28, 2019 (the "February 2019 Financing") and $4.25 million from the March 2019
underwritten public offering of Common Shares on March 15, 2019 (the "March 2019 Financing"), the Company expects that its cash is sufficient to sustain operations until
approximately September 2019 at the current burn rate. The Company may obtain additional debt or equity financing during that period. Further into the future the Company is dependent on the
profitable commercialization of its products or obtaining additional debt or equity financing to fund ongoing operations until profitability is achieved.
F-18
Table of Contents
NEOVASC INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For years ended December 31, 2018, 2017 and 2016
(Expressed in U.S. dollars)
5. FINANCIAL RISK MANAGEMENT (Continued)
Credit
risk arises from the possibility that the entities to which the Company sells products may experience financial difficulty and be unable to fulfill their contractual obligations. This risk is
mitigated by proactive credit management policies that include regular monitoring of the debtor's payment history and performance. The Company does not require collateral from its customers as
security for trade accounts receivable but may require certain customers to pay in advance of any work being performed or product being shipped.
The
maximum exposure, if all of the Company's customers were to default at the same time is the full carrying value of the trade accounts receivable as at December 31, 2018 is $637,421
(as at December 31, 2017 and 2016: $1,201,292 and $2,532,114, respectively). As at December 31, 2018, the Company had $311,642 (as at December 31, 2017 and 2016:
$588,282 and $1,555,469, respectively) of trade accounts receivable that were overdue, according to the customers' credit terms. During the year ended December 31, 2018 the Company wrote down
$489,449 of accounts receivable owed by customers (year ended December 2017 and 2016: $26,931 and $5,556, respectively).
The
Company may also have credit risk related to its cash and cash equivalents and restricted cash, with a maximum exposure of $9,682,545 as at December 31, 2018 (as at
December 31, 2017 and 2016: $17,985,417 and $93,404,331, respectively). The Company minimizes its risk to cash and cash equivalents by maintaining the majority of its cash and cash equivalents
with Canadian Chartered Banks.
6. CASH AND CASH EQUIVALENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2018
|
|
December 31,
2017
|
|
December 31,
2016
|
|
|
Cash held in:
|
|
|
|
|
|
|
|
|
|
|
|
United States dollars
|
|
$
|
8,173,582
|
|
$
|
16,989,119
|
|
$
|
6,386,135
|
|
|
Canadian dollars
|
|
|
483,730
|
|
|
70,112
|
|
|
7,231,160
|
|
|
Euros
|
|
|
585,497
|
|
|
447,926
|
|
|
344,242
|
|
|
Cashable Canadian dollar high interest savings accounts
|
|
|
|
|
|
|
|
|
4,713,385
|
|
|
Cashable United States dollar high interest savings accounts
|
|
|
|
|
|
|
|
|
4,279,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,242,809
|
|
$
|
17,507,157
|
|
$
|
22,954,571
|
|
|
|
|
|
|
|
|
|
|
7. CASH HELD IN ESCROW
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2018
|
|
December 31,
2017
|
|
December 31,
2016
|
|
|
Cash held in escrow
|
|
|
|
|
|
|
|
$
|
70,000,000
|
|
|
|
|
|
|
|
|
|
|
The
Company placed $70 million into a joint escrow account to partially cover the damages awarded against the Company in its primary U.S. litigation with CardiAQ. On November 13,
2017, the final mandate of the court was issued and approximately $70 million was released from escrow to CardiAQ to partially settle the approximately $112 million damages and interest
awards.
8. ACCOUNTS RECEIVABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2018
|
|
December 31,
2017
|
|
December 31,
2016
|
|
|
Trade accounts receivable
|
|
$
|
637,421
|
|
$
|
1,201,292
|
|
$
|
2,532,114
|
|
|
Other accounts receivable
|
|
|
9,722
|
|
|
133,631
|
|
|
585,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
647,143
|
|
$
|
1,334,923
|
|
$
|
3,117,474
|
|
|
|
|
|
|
|
|
|
|
F-19
Table of Contents
NEOVASC INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For years ended December 31, 2018, 2017 and 2016
(Expressed in U.S. dollars)
8. ACCOUNTS RECEIVABLE (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2018
|
|
December 31,
2017
|
|
December 31,
2016
|
|
|
Not past due
|
|
$
|
361,469
|
|
$
|
693,010
|
|
$
|
976,645
|
|
|
Past due 0 - 30 days
|
|
|
18,614
|
|
|
255,348
|
|
|
969,652
|
|
|
30 - 60 days
|
|
|
|
|
|
79,600
|
|
|
54,064
|
|
|
60 - 90 days
|
|
|
54,428
|
|
|
4,334
|
|
|
134,468
|
|
|
90 - 120 days
|
|
|
|
|
|
139,000
|
|
|
189,640
|
|
|
Over 120 days
|
|
|
238,600
|
|
|
110,000
|
|
|
327,645
|
|
|
Loss Allowance
|
|
|
(35,690
|
)
|
|
(80,000
|
)
|
|
(120,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
637,421
|
|
$
|
1,201,292
|
|
$
|
2,532,114
|
|
|
|
|
|
|
|
|
|
|
All
of the Company's trade and other receivables have been reviewed for impairment. During the year ended December 31, 2018, the Company wrote off $489,449 of accounts receivable (2017: $26,931
and 2016: $5,071).
9. INVENTORY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2018
|
|
December 31,
2017
|
|
December 31,
2016
|
|
|
Raw materials
|
|
$
|
242,300
|
|
$
|
175,487
|
|
$
|
83,934
|
|
|
Work in progress
|
|
|
2,435
|
|
|
171,599
|
|
|
62,040
|
|
|
Finished goods
|
|
|
14,007
|
|
|
51,470
|
|
|
50,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
258,742
|
|
$
|
398,556
|
|
$
|
196,723
|
|
|
|
|
|
|
|
|
|
|
During
the years ended December 31, 2018 and 2017 the Company did not write down any inventory. During the year ended December 31, 2018, $366,258 of inventory was expensed in cost of
goods sold (2017: $752,810 and 2016: $4,082,504).
10. PREPAID EXPENSES AND OTHER ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2018
|
|
December 31,
2017
|
|
December 31,
2016
|
|
|
Prepaid Expenses
|
|
$
|
|
|
$
|
20,041
|
|
$
|
187,480
|
|
|
Prepaid insurance
|
|
|
190,849
|
|
|
125,043
|
|
|
114,988
|
|
|
Deposits on rental agreements
|
|
|
276,500
|
|
|
308,492
|
|
|
53,771
|
|
|
Retainers for professional services
|
|
|
5,593
|
|
|
324,062
|
|
|
23,938
|
|
|
Other prepaid expenses and other assets
|
|
|
118,294
|
|
|
24,728
|
|
|
125,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
591,236
|
|
$
|
802,366
|
|
$
|
505,340
|
|
|
|
|
|
|
|
|
|
|
11. RESTRICTED CASH
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2018
|
|
December 31,
2017
|
|
December 31,
2016
|
|
|
Restricted cash
|
|
$
|
439,736
|
|
$
|
478,260
|
|
$
|
449,760
|
|
|
|
|
|
|
|
|
|
|
Restricted
cash represents C$600,000 security held by a Canadian Chartered Bank as a guarantee for the Company's same day electronic processing facility and corporate credit card facility.
F-20
Table of Contents
NEOVASC INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For years ended December 31, 2018, 2017 and 2016
(Expressed in U.S. dollars)
12. PROPERTY, PLANT AND EQUIPMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
Building
|
|
Leasehold
improvements
|
|
Production &
development
equipment
|
|
Computer
hardware
|
|
Computer
software
|
|
Office
equipment
|
|
Total
|
|
|
COST
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2016
|
|
$
|
374,766
|
|
$
|
2,200,804
|
|
$
|
118,009
|
|
$
|
1,870,715
|
|
$
|
431,090
|
|
$
|
326,358
|
|
$
|
276,245
|
|
$
|
5,597,987
|
|
|
Additions during the year
|
|
|
|
|
|
89,263
|
|
|
|
|
|
409,899
|
|
|
28,765
|
|
|
128,243
|
|
|
|
|
|
656,170
|
|
|
Disposals during the year
|
|
|
(157,791
|
)
|
|
(1,994,191
|
)
|
|
(84,808
|
)
|
|
(964,018
|
)
|
|
(45,641
|
)
|
|
(41,724
|
)
|
|
|
|
|
(3,288,173
|
)
|
|
Cumulative translation adjustment
|
|
|
14,926
|
|
|
111,679
|
|
|
5,447
|
|
|
71,521
|
|
|
14,933
|
|
|
12,265
|
|
|
8,526
|
|
|
239,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
$
|
231,901
|
|
$
|
407,555
|
|
$
|
38,648
|
|
$
|
1,388,117
|
|
$
|
429,147
|
|
$
|
425,142
|
|
$
|
284,771
|
|
$
|
3,205,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions during the year
|
|
|
|
|
|
|
|
|
127,181
|
|
|
146,388
|
|
|
77,518
|
|
|
145,424
|
|
|
9,156
|
|
|
505,667
|
|
|
Cumulative translation adjustment
|
|
|
17,592
|
|
|
30,916
|
|
|
4,109
|
|
|
115,223
|
|
|
37,257
|
|
|
41,707
|
|
|
22,158
|
|
|
268,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2017
|
|
$
|
249,493
|
|
$
|
438,471
|
|
$
|
169,938
|
|
$
|
1,649,728
|
|
$
|
543,922
|
|
$
|
612,273
|
|
$
|
316,085
|
|
$
|
3,979,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions during the year
|
|
|
|
|
|
|
|
|
|
|
|
149,583
|
|
|
|
|
|
40,799
|
|
|
|
|
|
190,382
|
|
|
Disposals during the year
|
|
|
(249,493
|
)
|
|
(438,471
|
)
|
|
|
|
|
(310,353
|
)
|
|
|
|
|
|
|
|
|
|
|
(998,317
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at December 31, 2018
|
|
$
|
|
|
$
|
|
|
$
|
169,938
|
|
$
|
1,488,958
|
|
$
|
543,922
|
|
$
|
653,072
|
|
$
|
316,085
|
|
$
|
3,171,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACCUMULATED DEPRECIATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2016
|
|
$
|
|
|
$
|
335,239
|
|
$
|
33,015
|
|
$
|
834,027
|
|
$
|
257,606
|
|
$
|
268,926
|
|
$
|
148,618
|
|
$
|
1,877,431
|
|
|
Depreciation for the year
|
|
|
|
|
|
77,205
|
|
|
50,101
|
|
|
402,426
|
|
|
61,645
|
|
|
137,682
|
|
|
26,675
|
|
|
755,734
|
|
|
Disposals during the year
|
|
|
|
|
|
(395,674
|
)
|
|
(57,933
|
)
|
|
(584,186
|
)
|
|
(29,746
|
)
|
|
(14,779
|
)
|
|
|
|
|
(1,082,318
|
)
|
|
Cumulative translation adjustment
|
|
|
|
|
|
18,130
|
|
|
1,567
|
|
|
31,536
|
|
|
7,694
|
|
|
5,647
|
|
|
4,225
|
|
|
68,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
$
|
|
|
$
|
34,900
|
|
$
|
26,750
|
|
$
|
683,803
|
|
$
|
297,199
|
|
$
|
397,476
|
|
$
|
179,518
|
|
$
|
1,619,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation for the year
|
|
|
|
|
|
15,484
|
|
|
35,702
|
|
|
254,794
|
|
|
64,166
|
|
|
140,652
|
|
|
23,747
|
|
|
534,545
|
|
|
Cumulative translation adjustment
|
|
|
|
|
|
3,179
|
|
|
3,964
|
|
|
60,347
|
|
|
24,730
|
|
|
33,889
|
|
|
14,429
|
|
|
140,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2017
|
|
$
|
|
|
$
|
53,563
|
|
$
|
66,416
|
|
$
|
998,944
|
|
$
|
386,095
|
|
$
|
572,017
|
|
$
|
217,694
|
|
$
|
2,294,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation for the year
|
|
|
|
|
|
7,698
|
|
|
23,439
|
|
|
211,908
|
|
|
47,348
|
|
|
74,055
|
|
|
19,678
|
|
|
384,126
|
|
|
Disposals during the year
|
|
|
|
|
|
(61,261
|
)
|
|
|
|
|
(259,247
|
)
|
|
|
|
|
|
|
|
|
|
|
(320,508
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at December 31, 2018
|
|
$
|
|
|
$
|
|
|
$
|
89,855
|
|
$
|
951,605
|
|
$
|
433,443
|
|
$
|
646,072
|
|
$
|
237,372
|
|
$
|
2,358,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CARRYING AMOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2016
|
|
$
|
231,901
|
|
$
|
372,655
|
|
$
|
11,898
|
|
$
|
704,314
|
|
$
|
131,948
|
|
$
|
27,666
|
|
$
|
105,253
|
|
$
|
1,585,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2017
|
|
$
|
249,493
|
|
$
|
384,907
|
|
$
|
103,522
|
|
$
|
650,784
|
|
$
|
157,827
|
|
$
|
40,256
|
|
$
|
98,391
|
|
$
|
1,685,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2018
|
|
$
|
|
|
$
|
|
|
$
|
80,083
|
|
$
|
537,353
|
|
$
|
110,479
|
|
$
|
7,000
|
|
$
|
78,713
|
|
$
|
813,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2018
|
|
December 31,
2017
|
|
December 31,
2016
|
|
|
Trade payables
|
|
$
|
898,711
|
|
$
|
1,256,795
|
|
$
|
943,922
|
|
|
Accrued liabilities
|
|
|
5,247,431
|
|
|
346,984
|
|
|
217,036
|
|
|
Accrued vacation
|
|
|
142,730
|
|
|
157,198
|
|
|
1,270,306
|
|
|
Accrued employee termination expenses
|
|
|
373,171
|
|
|
|
|
|
|
|
|
Other accounts payable
|
|
|
190,496
|
|
|
83,978
|
|
|
59,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,852,539
|
|
$
|
1,844,955
|
|
$
|
2,490,943
|
|
|
|
|
|
|
|
|
|
|
Included
in accounts payable and accrued liabilities are $1,379,790 related to settlement charges as part of a collaboration agreement and $2,749,968 related to a settlement provision
(Note 24). This represents the calculated net present value of the amounts set out per the agreement with payments due over the next three years. Included in accounts payable and accrued
liabilities are $2,749,968 related to a settlement provision. This represents the calculated net present value of the amounts set out per the agreement with payments due over the next three years.
F-21
Table of Contents
NEOVASC INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For years ended December 31, 2018, 2017 and 2016
(Expressed in U.S. dollars)
14. DAMAGES PROVISION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2018
|
|
December 31,
2017
|
|
December 31,
2016
|
|
|
Initial damages
|
|
$
|
|
|
$
|
|
|
$
|
70,000,000
|
|
|
Enhanced damages
|
|
|
|
|
|
|
|
|
21,000,000
|
|
|
Pre-judgment interest
|
|
|
|
|
|
|
|
|
20,675,154
|
|
|
Accrued post-judgment interest
|
|
|
|
|
|
|
|
|
105,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
111,781,096
|
|
|
|
|
|
|
|
|
|
|
On
May 19, 2016, in the Company's primary U.S. litigation with CardiAQ, following a trial in Boston, Massachusetts, a jury awarded $70 million on certain trade secret claims made
by CardiAQ. On October 31, 2016, during post-trial motions, the judge awarded $21 million enhanced damages on those claims and on January 18, 2017 during post-trial motions the
judge awarded $20,675,154 in pre-judgment interest and $2,354 per day in post-judgment interest from November 21, 2016. During 2017 interest of $738,021 was accrued. On
November 13, 2017, the final mandate of the Appeals Court was issued and on November 17, 2017, a total of $112,519,117 was paid to settle the remaining damages and interest awards
in full.
15. DERIVATIVE FINANCIAL LIABILITY AND CONVERTIBLE NOTE
-
(a)
-
Derivative Financial Liabilities
On
November 17, 2017, Neovasc completed an underwritten public offering (the "2017 Public Transaction") of 6,609,588 Series A units (the "Series A Units") and
19,066,780 Series B units (the "Series B Units") of the Company, at a price of $1.46 per Unit for gross proceeds of $37,487,497 before deducting the underwriting discounts
and commissions and other estimated offering costs.
Each
Series A Unit was comprised of:
(i) one
Common Share
(ii) one
Series A Common Share purchase warrant of the Company at an exercise price of $1.61 per Series A Warrant Share for a period of five years following issuance (each,
a "Series A Warrant"),
(iii) one
Series B Common Share purchase warrant of the Company at an exercise price of $1.61 per Series B Warrant Share for a period of two years following issuance (each,
a "Series B Warrant"); and
(iv) 0.40 Series C
Warrant of the Company to purchase a unit at an exercise price of $1.46 per unit for a period of two years following issuance (each, a "Series C
Unit") comprised of one Common Share, one Series A Warrant and one Series B Warrant.
Each
Series B Unit was comprised of:
(i) either
one Common Share or one Series D Common Share purchase warrant of the Company (each, a "Series D Warrant") at an exercise price of $1.46 per Series D
Warrant Share, all of which were be pre-funded except for a nominal exercise price of $0.01 per Series D Warrant Share for a period of five years following issuance,
(ii) one
Series A Warrant,
(iii) one
Series B Warrant,
(iv) 0.40 Series C
Warrant, and
(v) 1.1765 Series F
Common Share purchase warrant of the Company at an exercise price of $1.61 per Series F Warrant Share for a period of two years following issuance
(each, a "Series F Warrant").
154,930 Common
Shares and 3,573,830 Series D Warrants were issued as part of the Series B Unit. Since initial issuance and during the period up to December 31, 2018,
all of the 3,573,830 Series D Warrants were exercised for gross proceeds of $35,738 and 35,738 Common Shares were issued from treasury. All the warrants (collectively, the "2017
Warrants") issued pursuant to the 2017 Public Transaction and the 2017 Private Placement (as defined below) included various price adjustment clauses, some of which caused the number of shares
to be issued upon exercise to be variable, and therefore do not meet the fixed for fixed test under IAS 32 Financial instruments; presentation
(see Note 13 for further disclosure of the terms of the warrants). Accordingly, the warrants have
F-22
Table of Contents
NEOVASC INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For years ended December 31, 2018, 2017 and 2016
(Expressed in U.S. dollars)
15. DERIVATIVE FINANCIAL LIABILITY AND CONVERTIBLE NOTE (Continued)
been
accounted for as derivative financial liabilities and measured at fair value through profit and loss ("FVTPL"). The fair values of the warrants were calculated using a binomial
option pricing model and have been classified as level 3 in the fair value hierarchy.
The
total fair value of the warrants issued in connection with the Public Transaction, together with the Series E Warrants (as defined below) issued in connection with the Private
Transaction (as defined below), was $89,470,273 which exceeded the transaction price giving rise to a loss of $45,132,259. Since the fair values of the derivatives are not determined using a
valuation that only uses data from observable markets, the loss on initial recognition has been deferred and will be recognized in income over the expected term of the instruments on a straight-line
basis depending on the term of the warrants.
-
(b)
-
Convertible Note
On
November 17, 2017, the Company also completed a brokered private placement (the "2017 Private Placement" and together with the Public Transaction the "2017 Financings") for the sale
of $32,750,000 aggregate principal amount of senior secured convertible notes of the Company (the "Notes") and Series E warrants (the "Series E Warrants") to purchase one
Common Share per Series E Warrant for gross proceeds of $27,837,500.
The
Notes were issued with an original issue price of $850 per $1,000 principal amount of note. The Notes have an 18-month term and carry an interest rate of 0.0% per annum (increasing to 15% upon an
event of default) from the closing date of the 2017 Private Transaction. On September 12, 2018, the Company and the holders of Notes amended certain terms of the Notes, including a
one-year extension of the maturity date of the Notes from May 17, 2019 until May 17, 2020 and certain other amendments. Upon any event of a default, the interest rate applicable to the
Notes would automatically be increased to 15% per annum. Interest on the Notes, as applicable, will commence accruing on the date of issue, will be computed on the basis of a 360-day year and twelve
30-day months and became payable in cash on January 1, 2018 and on the first day of each calendar quarter thereafter up to, and including, the maturity date.
The
conversion option contained within the Notes contains similar price adjustment characteristics to certain of the warrants, which precludes the Notes from being recognized within equity. The Notes
contain a future-priced conversion mechanism that allows the holder of a Note to replace the conversion price then in effect with a price (the "Alternate Conversion Price") that is 85% of the
lowest volume weighted average price ("VWAP") of the Common Shares during the ten consecutive trading day period ending and including the date of delivery of the applicable conversion notice. Further,
with effect from and after 5:00 p.m. (New York City time) on August 17, 2018, the conversion price of the Notes may also be adjusted to be the lower of (x) the then in
effect conversion price and (y) the greater of (i) the amount in U.S. dollars equal to the VWAP for the Common Shares on August 17, 2018 and (ii) $0.50. The Notes
are also subject to full ratchet anti-dilution provisions in certain circumstances.
Accordingly,
the Company has elected to measure the Notes at FVTPL. The Series E Warrants are also classified as derivative financial liabilities and measured at FVTPL
(see Note 14 for further disclosure of the terms of the Series E Warrants). The fair values of the warrants were calculated using a binomial option pricing model and have been
classified as level 3 in the fair value hierarchy. The fair value of the convertible debt was $26,100,900 which exceeded the transaction price giving rise to a loss of $5,113,917. Since the
fair value of the convertible debt is not determined using a valuation that only uses data from observable markets, the loss on initial recognition has been deferred and will be recognized in income
over the expected term of the instrument. As at December 31, 2018 the loss on initial recognition has been fully amortized.
-
(c)
-
Warrants and Convertible Notes Model
The
2017 Warrants were accounted for based on the level 3 fair value estimate of Series A Warrants, Series B Warrants, Series C Warrants, Series D Warrants,
Series E Warrants and Series F Warrants by using a binomial option pricing model.
The
Notes were accounted for based on the level 3 fair value estimate of the notes based on a binomial tree model.
F-23
Table of Contents
NEOVASC INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For years ended December 31, 2018, 2017 and 2016
(Expressed in U.S. dollars)
15. DERIVATIVE FINANCIAL LIABILITY AND CONVERTIBLE NOTE (Continued)
Key
assumptions used in the model at initial recognition and as at December 31, 2018 are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation Date
|
|
November 17,
2017
|
|
December 31,
2017
|
|
December 31,
2018
|
|
|
Price of Common Shares
|
|
$
|
87.27
|
|
$
|
60.00
|
|
$
|
0.6030
|
|
|
Dividend Yield
|
|
|
0
|
%
|
|
0
|
%
|
|
0
|
%
|
|
Historical volatility of Common Shares
|
|
|
122.99
|
%
|
|
121.70
|
%
|
|
141.96
|
%
|
|
Historical volatility of index
|
|
|
14.28
|
%
|
|
14.43
|
%
|
|
15.37
|
%
|
|
Volatility input
|
|
|
68.63
|
%
|
|
68.07
|
%
|
|
78.67
|
%
|
|
Risk-free rate
|
|
|
2.08
|
%
|
|
2.20
|
%
|
|
2.52
|
%
|
|
Credit spread
|
|
|
32.63
|
%
|
|
34.24
|
%
|
|
24.51
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A Units
|
|
Series B Units
|
|
Series E
Warrants
|
|
Total
|
|
|
Fair value, November 17, 2017
|
|
$
|
13,139,650
|
|
$
|
67,810,835
|
|
$
|
8,519,788
|
|
$
|
89,470,273
|
|
|
Add: Deferred loss
|
|
|
(7,054,787
|
)
|
|
(36,408,201
|
)
|
|
(1,669,271
|
)
|
|
(45,132,259
|
)
|
|
Amortization of deferred loss
|
|
|
390,379
|
|
|
2,067,557
|
|
|
41,732
|
|
|
2,499,668
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value adjustment on exercised warrants
|
|
|
|
|
|
(511,122
|
)
|
|
|
|
|
(511,122
|
)
|
|
Exercise of Series D Warrants
|
|
|
|
|
|
(1,108,306
|
)
|
|
|
|
|
(1,108,306
|
)
|
|
Fair value adjustment, December 31, 2017
|
|
|
(1,542,457
|
)
|
|
(2,911,914
|
)
|
|
(3,934,853
|
)
|
|
(8,389,224
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, Derivative financial liability December 31, 2017
|
|
$
|
4,932,785
|
|
$
|
28,938,849
|
|
$
|
2,957,396
|
|
$
|
36,829,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred loss
|
|
|
6,664,408
|
|
|
34,340,645
|
|
|
1,627,539
|
|
$
|
42,632,591
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of 1,698,841 Series D Warrants
|
|
|
|
|
|
(1,004,185
|
)
|
|
|
|
|
(1,004,185
|
)
|
|
Exercise of 11,170,788 Series B Warrants
|
|
|
(303,919
|
)
|
|
(6,250,110
|
)
|
|
|
|
|
(6,554,029
|
)
|
|
Exercise of 21,041,660 Series F Warrants
|
|
|
|
|
|
(26,552,270
|
)
|
|
|
|
|
(26,552,270
|
)
|
|
Exercise of 14,505,580 Series B Warrants
|
|
|
(11,614,224
|
)
|
|
(14,820,745
|
)
|
|
|
|
|
(26,434,969
|
)
|
|
Exercise of 8,951,780 Series C Warrants
|
|
|
(833,987
|
)
|
|
(3,371,375
|
)
|
|
|
|
|
(4,205,362
|
)
|
|
Exercise of 1,389,846 Series F Warrants
|
|
|
|
|
|
(2,532,855
|
)
|
|
|
|
|
(2,532,855
|
)
|
|
Exercise of 500,000 Series C Warrants
|
|
|
|
|
|
(253,887
|
)
|
|
|
|
|
(253,887
|
)
|
|
Fair value adjustment, December 31, 2018
|
|
|
1,190,630
|
|
|
(8,411,543
|
)
|
|
(4,512,848
|
)
|
|
(11,733,761
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, Derivative financial liability December 31, 2018
|
|
$
|
35,693
|
|
$
|
82,523
|
|
$
|
72,087
|
|
$
|
190,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial liability, current
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
Derivative financial liability, non-current
|
|
|
|
|
|
|
|
|
|
|
$
|
190,303
|
|
F-24
Table of Contents
NEOVASC INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For years ended December 31, 2018, 2017 and 2016
(Expressed in U.S. dollars)
15. DERIVATIVE FINANCIAL LIABILITY AND CONVERTIBLE NOTE (Continued)
|
|
|
|
|
|
|
|
|
Convertible
Notes
|
|
|
Fair value, November 17, 2017
|
|
$
|
26,100,900
|
|
|
Add: Deferred loss
|
|
|
(5,113,917
|
)
|
|
Amortization of deferred loss
|
|
|
852,319
|
|
|
Fair value adjustment, December 31, 2017
|
|
|
(1,831,743
|
)
|
|
|
|
|
|
|
Balance, Convertible Notes December 31, 2017
|
|
$
|
20,007,559
|
|
|
|
|
|
|
|
Add:
|
|
|
|
|
|
Amortization of deferred loss
|
|
|
4,261,598
|
|
|
Less:
|
|
|
|
|
|
Exercise of 5,567,500 Convertible Notes
|
|
|
(5,146,924
|
)
|
|
Exercise of 1,772,500 Convertible Notes
|
|
|
(1,536,596
|
)
|
|
Exercise of 10,300,000 Convertible Notes
|
|
|
(13,872,312
|
)
|
|
Fair value adjustment, December 31, 2018
|
|
|
10,904,011
|
|
|
|
|
|
|
|
Balance, Convertible Notes December 31, 2018
|
|
$
|
14,617,336
|
|
|
|
|
|
|
|
Convertible Notes, current
|
|
$
|
1,423,224
|
|
|
Convertible Notes, non-current
|
|
$
|
13,194,112
|
|
16. INCOME TAXES
The
relationship between the expected tax expense based on the combined federal and provincial income tax rate in Canada and the reported tax expense in the consolidated statement of comprehensive
income can be reconciled as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended
December 31,
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
Loss before income taxes
|
|
$
|
(107,935,775
|
)
|
$
|
(22,424,293
|
)
|
$
|
(86,294,370
|
)
|
|
Statutory tax rate
|
|
|
27.00
|
%
|
|
26.00
|
%
|
|
26.00
|
%
|
|
Recovery of income taxes based on the combined Canadian
|
|
|
|
|
|
|
|
|
|
|
|
federal and provincial statutory rates
|
|
|
(29,142,659
|
)
|
|
(5,830,316
|
)
|
|
(22,436,536
|
)
|
|
Share-based remuneration
|
|
|
1,073,142
|
|
|
650,335
|
|
|
468,939
|
|
|
Effect of rate change
|
|
|
|
|
|
(2,344,122
|
)
|
|
|
|
|
Foreign exchange adjustment
|
|
|
|
|
|
(28,668
|
)
|
|
333,276
|
|
|
Other permanent differences
|
|
|
20,930,238
|
|
|
(1,798,205
|
)
|
|
(8,821,908
|
)
|
|
Unrecognized deferred tax benefits
|
|
|
7,183,316
|
|
|
9,670,642
|
|
|
30,531,995
|
|
|
Difference in tax rates between foreign jurisdictions and Canada
|
|
|
63,056
|
|
|
164,762
|
|
|
124,757
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
107,093
|
|
$
|
484,428
|
|
$
|
200,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended
December 31,
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
Current tax
|
|
$
|
107,093
|
|
$
|
484,428
|
|
$
|
200,523
|
|
|
Deferred tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
107,093
|
|
$
|
484,428
|
|
$
|
200,523
|
|
|
|
|
|
|
|
|
|
|
F-25
Table of Contents
NEOVASC INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For years ended December 31, 2018, 2017 and 2016
(Expressed in U.S. dollars)
16. INCOME TAXES (Continued)
The
Company has recorded no deferred tax assets in the consolidated statement of financial position. The unrecognized deferred tax assets include tax losses, research and development pools and
differences between the carrying amount and the tax basis of the following items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended
December 31,
|
|
|
Deferred tax assets
|
|
2018
|
|
2017
|
|
2016
|
|
|
Investment tax credits
|
|
$
|
2,525,545
|
|
$
|
3,108,576
|
|
$
|
2,689,744
|
|
|
Capital assets
|
|
|
182,385
|
|
|
500,445
|
|
|
328,039
|
|
|
Share issue expenses
|
|
|
1,198,653
|
|
|
1,774,820
|
|
|
772,687
|
|
|
Non-capital loss carry forwards
|
|
|
65,556,024
|
|
|
56,627,473
|
|
|
22,828,376
|
|
|
Foreign exchange
|
|
|
5,453
|
|
|
5,500
|
|
|
(12,388
|
)
|
|
Research and development expenditures
|
|
|
|
|
|
265,260
|
|
|
68,037
|
|
|
Reserve for legal damages
|
|
|
|
|
|
|
|
|
28,205,068
|
|
|
Deferred compensation
|
|
|
22,232
|
|
|
31,387
|
|
|
50,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
69,490,292
|
|
$
|
62,313,461
|
|
$
|
54,930,017
|
|
|
|
|
|
|
|
|
|
|
|
Tax attributes not Recognized
|
|
$
|
(69,490,292
|
)
|
$
|
(62,313,461
|
)
|
$
|
(54,930,017
|
)
|
|
|
|
|
|
|
|
|
|
The
Company has loss carry forward balances for income tax purposes of approximately $244,571,943 that are available to reduce taxable income in Canada in the future years, if any, expiring at various
times through to the year 2038. The Company also has investment tax credits of approximately $3,054,186 available to reduce income taxes in the future years, expiring at various times through to the
year 2038.
17. SHARE CAPITAL
All
Common Shares are equally eligible to receive dividends and the repayment of capital and represent one vote at shareholders' meetings. All preferred shares have no voting rights at shareholders'
meetings but on liquidation, winding-up or other distribution of the Company's assets are entitled to participate in priority to Common Shares. There are no preferred shares issued and outstanding.
-
(a)
-
Authorized
Unlimited
number of Common Shares without par value.
Unlimited
number of preferred shares without par value.
F-26
Table of Contents
NEOVASC INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For years ended December 31, 2018, 2017 and 2016
(Expressed in U.S. dollars)
17. SHARE CAPITAL (Continued)
-
(b)
-
Issued and outstanding
All
share and per share amounts have been adjusted to retroactively reflect the impact of the September 18, 2018 reverse stock split on a 1 for 100 basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares
|
|
|
|
|
|
|
Contributed
Surplus
|
|
|
|
|
Number
|
|
Amount
|
|
|
Balance, January 1, 2016
|
|
|
667,649
|
|
$
|
161,505,037
|
|
$
|
20,569,110
|
|
|
Issued for cash pursuant to a private placement
(ii)
|
|
|
118,170
|
|
|
7,090,200
|
|
|
|
|
|
Share issue costs
(ii)
|
|
|
|
|
|
(35,540
|
)
|
|
|
|
|
Issued for cash on exercise of options
|
|
|
1,014
|
|
|
152,976
|
|
|
(77,784
|
)
|
|
Share-based payments
|
|
|
|
|
|
|
|
|
1,810,111
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2016
|
|
|
786,833
|
|
$
|
168,712,673
|
|
$
|
22,301,437
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares issued from Series A Units andSeries B Units
(i)
|
|
|
221,025
|
|
|
|
|
|
|
|
|
Common Shares issued from exercise ofSeries D Warrants
(ii)
|
|
|
18,750
|
|
|
1,127,057
|
|
|
|
|
|
Common Shares issued for cash on exercise of options
|
|
|
2,548
|
|
|
1,964,086
|
|
|
(1,729,134
|
)
|
|
Share-based payments
|
|
|
|
|
|
|
|
|
2,484,543
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2017
|
|
|
1,029,156
|
|
$
|
171,803,816
|
|
$
|
23,056,846
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares issued from exercise ofSeries B Warrants
(iii)
|
|
|
13,152,807
|
|
|
54,119,300
|
|
|
|
|
|
Common Shares issued from exercise ofSeries F Warrants
(iv)
|
|
|
2,957,397
|
|
|
42,990,737
|
|
|
|
|
|
Common Shares issued from exercise ofSeries C Warrants
(v)
|
|
|
94,518
|
|
|
15,854,206
|
|
|
|
|
|
Common Shares issued from exercise ofSeries D Warrants
(vi)
|
|
|
16,988
|
|
|
1,021,183
|
|
|
|
|
|
Common Shares issued from exercise ofConvertible Notes
(vii)
|
|
|
10,765,834
|
|
|
18,582,374
|
|
|
|
|
|
Common Shares issued for cash on exercise of options
|
|
|
503
|
|
|
88,917
|
|
|
(88,917
|
)
|
|
Share-based payments
|
|
|
|
|
|
|
|
|
3,292,877
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2018
|
|
|
28,017,203
|
|
$
|
304,460,533
|
|
$
|
26,260,806
|
|
|
|
|
|
|
|
|
|
|
-
(i)
-
On
November 17, 2017, Neovasc completed an underwritten public offering of 6,609,588 Series A Units and
19,066,780 Series B Units, at a price of $1.46 per Unit for gross proceeds of $37,487,497. No amount has been recognized with respect to the Common Shares within equity because the fair
value of the derivative instruments issued (being the warrants which form part of the units issued) exceeded the cash proceeds received.
-
(ii)
-
On
December 27, 2017, 1,874,989 of the Series D Warrants that were issued as part of the Series B Units were exercised for cash
proceeds of $18,750. In addition, the fair value of the related derivative liability of $1,108,307 (see Note 15) was recognized within equity upon exercise.
-
(iii)
-
During
the year ended December 31, 2018, 13,152,808 Common Shares were issued on the exercise of 35,128,148 Series B Warrants.
The related derivative liability of $32,988,998 (see Note 15) was derecognized at the dates of exercise.
-
(iv)
-
During
the year ended December 31, 2018, 2,957,397 Common Shares were issued on the exercise of the 22,431,506 Series F
Warrants. The related derivative financial liability of $29,085,125 (see Note 15) was derecognized at the dates of exercise.
-
(v)
-
During
the year ended December 31, 2018, of the 10,273,972 Series C Warrants initially granted, 9,451,780 were exercised for
94,518 Common Shares, 9,451,780 Series A Warrants and 9,451,780 Series B Warrants and cash proceeds of $13,799,659. The related derivative financial liability of
$4,459,249 (see Note 15) was derecognized at the dates of exercise.
-
(vi)
-
On
January 30, 2018, 1,698,841 of the Series D Warrants that were issued as part of the Series B Units were exercised for cash
proceeds of $16,988. The related derivative financial liability of $1,004,195 was derecognized (see Note 15) at the date of exercise.
-
(vii)
-
During
the year ended December 31, 2018, 10,765,834 Common Shares were issued on the conversion of $17,640,000 of aggregate principal amount
of Notes. The $20,555,832 aggregate principal amount of Notes (see Note 15) was derecognized at the date of exercise.
F-27
Table of Contents
NEOVASC INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For years ended December 31, 2018, 2017 and 2016
(Expressed in U.S. dollars)
17. SHARE CAPITAL (Continued)
The
Company adopted an equity-settled stock option plan under which the directors of the Company may grant options to purchase Common Shares to directors, officers, employees and service providers
(the "optionees") of the Company on terms that the directors of
the Company may determine within the limitations set forth in the stock option plan. Effective June 4, 2018, at the Annual General Meeting ("AGM"), the board of directors and shareholders of
the Company approved an amendment to the Company's incentive stock option plan to increase the number of options available for grant under the plan to 15% of the number of Common Shares of the Company
outstanding at any time.
Options
under the Company's stock option plan granted to directors, officers and employees vest immediately on the grant date, unless a vesting schedule is specified by the board. The directors of the
Company have discretion within the limitations set forth in the stock option plan to determine other vesting terms on options granted to directors, officers, employees and others. The minimum exercise
price of a stock option cannot be less than the applicable market price of the Common Shares on the date of the grant and the options have a maximum life of ten years from the date of grant. The
Company also assumed options from the acquisition of Neovasc Medical Ltd. and B-Balloon Ltd. which were not issued under the Company's stock option plan. The following table summarizes
stock option activity for the respective years as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
options
|
|
Weighted
average
exercise
price
|
|
Average
remaining
contractual life
(years)
|
|
|
Options outstanding, January 1, 2016
|
|
|
81,282
|
|
|
293.06
|
|
|
|
|
|
Granted
|
|
|
1,697
|
|
|
364.77
|
|
|
|
|
|
Exercised
|
|
|
(1,013
|
)
|
|
74.14
|
|
|
|
|
|
Forfeited
|
|
|
(3,316
|
)
|
|
449.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, December 31, 2016
|
|
|
78,650
|
|
$
|
290.85
|
|
|
1.77
|
|
|
Options exercisable, December 31, 2016
|
|
|
67,978
|
|
$
|
252.95
|
|
|
1.54
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
18,445
|
|
|
150.81
|
|
|
|
|
|
Exercised
|
|
|
(21,740
|
)
|
|
82.36
|
|
|
|
|
|
Forfeited
|
|
|
(17,616
|
)
|
|
183.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, December 31, 2017
|
|
|
57,739
|
|
$
|
384.90
|
|
|
2.28
|
|
|
Options exercisable, December 31, 2017
|
|
|
45,134
|
|
$
|
397.66
|
|
|
1.94
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
3,660,530
|
|
|
3.03
|
|
|
|
|
|
Exercised
|
|
|
(499
|
)
|
|
0.73
|
|
|
|
|
|
Forfeited
|
|
|
(12,027
|
)
|
|
173.69
|
|
|
|
|
|
Expired
|
|
|
(8,091
|
)
|
|
181.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, December 31, 2018
|
|
|
3,697,652
|
|
$
|
7.58
|
|
|
7.88
|
|
|
Options exercisable, December 31, 2018
|
|
|
1,462,535
|
|
$
|
12.74
|
|
|
7.62
|
|
|
|
|
|
|
|
|
|
|
The
following table lists the options outstanding at December 31, 2018 by exercise price:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise price
|
|
Options
outstanding
|
|
Weighted average
remaining term (yrs)
|
|
Options
exercisable
|
|
Weighted average
remaining term (yrs)
|
|
|
$0.88
|
|
|
899,000
|
|
|
7.92
|
|
|
299,666
|
|
|
7.92
|
|
|
$2.72
|
|
|
2,710,550
|
|
|
7.75
|
|
|
1,125,572
|
|
|
7.75
|
|
|
$6.00 - $63.00
|
|
|
44,200
|
|
|
7.06
|
|
|
|
|
|
|
|
|
$63.01 - $892
|
|
|
43,902
|
|
|
1.65
|
|
|
37,297
|
|
|
1.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,697,652
|
|
|
|
|
|
1,462,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-28
Table of Contents
NEOVASC INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For years ended December 31, 2018, 2017 and 2016
(Expressed in U.S. dollars)
17. SHARE CAPITAL (Continued)
The
following table lists the options outstanding at December 31, 2017 by exercise price:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise price
|
|
Options
outstanding
|
|
Weighted average
remaining term (yrs)
|
|
Options
exercisable
|
|
Weighted average
remaining term (yrs)
|
|
|
$185 - $1,216
|
|
|
57,739
|
|
|
2.24
|
|
|
45,134
|
|
|
2.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,739
|
|
|
|
|
|
45,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following table lists the options outstanding at December 31, 2016 by exercise price:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise price
|
|
Options
outstanding
|
|
Weighted average
remaining term (yrs)
|
|
Options
exercisable
|
|
Weighted average
remaining term (yrs)
|
|
|
$0.01 - $200
|
|
|
44,330
|
|
|
0.96
|
|
|
43,570
|
|
|
0.95
|
|
|
$200 - 600
|
|
|
28,169
|
|
|
2.72
|
|
|
21,480
|
|
|
2.51
|
|
|
$600 - 905
|
|
|
6,151
|
|
|
3.28
|
|
|
2,928
|
|
|
3.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78,650
|
|
|
|
|
|
67,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
weighted average share price at the date of exercise for share options exercised for the year ended December 31, 2018 was $3.03 (year ended December 31, 2017: $190 and year ended
December 31, 2016: $490). During the year ended December 31, 2018, the Company recorded $3,292,877, as compensation expense for share-based compensation awarded to eligible optionees
(year ended December 31, 2017 and 2016: $2,484,543 and $1,810,111, respectively). The Company used the Black-Scholes Option Pricing Model to estimate the fair value of the options at each
measurement date using the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
Weighted average fair value
|
|
$
|
1.64
|
|
$
|
1.49
|
|
$
|
3.02
|
|
|
Weighted average exercise price
|
|
$
|
3.03
|
|
$
|
190
|
|
$
|
490
|
|
|
Weighted average share price at grant
|
|
$
|
3.03
|
|
$
|
190
|
|
$
|
490
|
|
|
Dividend yield
|
|
|
nil
|
|
|
nil
|
|
|
nil
|
|
|
Volatility
|
|
|
72
|
%
|
|
110
|
%
|
|
76
|
%
|
|
Risk-free interest rate
|
|
|
2.24
|
%
|
|
1.12
|
%
|
|
0.75
|
%
|
|
Expected life
|
|
|
4 years
|
|
|
5 years
|
|
|
5 years
|
|
|
Forfeiture rate
|
|
|
7.00
|
%
|
|
6.00
|
%
|
|
1.00
|
%
|
F-29
Table of Contents
NEOVASC INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For years ended December 31, 2018, 2017 and 2016
(Expressed in U.S. dollars)
17. SHARE CAPITAL (Continued)
The
following table lists the number of warrants issued on November 17, 2017 as well as the number exercised during the year and the remaining warrants outstanding at
December 31, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
As at
November 17,
2017
|
|
Issued
|
|
Exercised
|
|
December 31,
2018
|
|
Exercise
Price
|
|
Weighted
average
remaining
contractual
life (years)
|
|
|
Series A Warrants
|
|
|
25,676,368
|
|
|
9,451,780
|
|
|
|
|
|
35,128,148
|
|
$
|
1.61
|
|
|
4.13
|
|
|
Series B Warrants
|
|
|
25,676,368
|
|
|
9,451,780
|
|
|
(35,128,148
|
)
|
|
|
|
$
|
1.61
|
|
|
|
|
|
Series C Warrants
|
|
|
10,273,972
|
|
|
|
|
|
(9,451,780
|
)
|
|
822,192
|
|
$
|
1.46
|
|
|
0.63
|
|
|
Series D Warrants
|
|
|
3,573,830
|
|
|
|
|
|
(3,573,830
|
)
|
|
|
|
$
|
0.01
|
|
|
|
|
|
Series E Warrants
|
|
|
22,431,506
|
|
|
|
|
|
|
|
|
22,431,506
|
|
$
|
1.61
|
|
|
4.13
|
|
|
Series F Warrants
|
|
|
22,431,506
|
|
|
|
|
|
(22,431,506
|
)
|
|
|
|
$
|
1.61
|
|
|
|
|
Effect of reverse stock split share consolidation on outstanding warrants
On
September 18, 2018, the Company effected a share consolidation (reverse stock split in the ratio of 1 for 100 Common Shares outstanding) of the Common Shares on the basis of
one post-consolidation Common Shares for every 100 pre-consolidation Common Shares. The number of warrants and aggregate principal amount of Notes were not affected by the consolidation, but
the Common Shares issuable upon exercise of the warrants or conversion of the Notes will be adjusted proportionally to the share consolidation ratio.
The
share consolidation adjusted the notional exercise price of the Series A Warrants, Series B Warrants and Series E Warrants. There were no Series D Warrants and
Series F Warrants outstanding at the date of the share consolidation.
Below
is a description of the features of the warrants.
Series A Warrants
There
were 35,128,148 Series A Warrants issued and outstanding post share consolidation as of December 31, 2018 and 822,192 Series A Warrants issuable upon the
exercise of the remaining Series C Warrants. Each Series A Warrant represents the right to purchase one Common Share at a notional exercise price equal to $1.61 per Common Share, subject
to adjustment. The Series A Warrants are subject to full ratchet anti-dilution provisions in certain circumstances.
Series B Warrants
There
were no Series B Warrants outstanding as of December 31, 2018 and 822,192 Series B Warrants issuable upon the exercise of the remaining Series C Warrants. Each
Series B Warrant represents the right to purchase one Common Share at a notional exercise price
equal to $1.61 per Common Share, subject to adjustment. The Series B Warrants are also subject to full ratchet anti-dilution provisions in certain circumstances.
At
any time prior to their expiration, the holder of the Series B Warrant may, in its sole discretion, exercise the Series B Warrant in whole or in part and, in lieu of making any cash
payment otherwise contemplated to be made to the Company upon such exercise in payment of the exercise price, elect instead to receive upon such exercise a number of Series B Warrant Shares
equal to the number determined by an alternate cashless exercise formula (the "Alternate Net Number"). The Alternate Net Number is equal to the product of (i) the quotient obtained by
dividing (x) the total number of Series B Warrant Shares with respect to which the Series B Warrant is being exercised and (y) the maximum number of Series B Warrant
Shares (as adjusted for share splits, share dividends, share combinations, recapitalizations or other similar events) initially issuable upon a cash exercise of the Series B Warrant on
the date of issuance and (ii) the quotient obtained by dividing (A) the difference obtained by subtracting (x) the lowest daily VWAP during the ten trading days period ending on
and including such exercise date (the "Market Price") from (y) the exercise price as of the subscription date (as adjusted for share splits, share dividends, share combinations,
recapitalizations or other similar events) by (B) 85% of the Market Price.
F-30
Table of Contents
NEOVASC INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For years ended December 31, 2018, 2017 and 2016
(Expressed in U.S. dollars)
17. SHARE CAPITAL (Continued)
Series C Warrants
There
were 822,192 Series C Warrants issued and outstanding post share consolidation as of December 31, 2018. Each Series C Warrant may be exercised for a Series C
Unit, with each Series C Unit being comprised of a Common Share, a Series A Warrant and a Series B Warrant. Each Series C Warrant represents the right to purchase one
Series C Unit at a notional exercise price equal to $1.46 per Series C Unit, subject to adjustment.
Series D Warrants
There
were no Series D Warrants remaining as of December 31, 2018. Each Series D Warrant represented the right to purchase one Common Share at a notional exercise price equal to
$1.46 per Common Share, subject to adjustment. $1.45 of the exercise price of the Series D Warrants was prepaid to the Company on November 17, 2017 on the closing of
the financing.
Series E Warrants
There
were 22,431,506 Series E Warrants issued and outstanding post share consolidation as of December 31, 2018. Each Series E Warrant represents the right to purchase one
Common Share at a notional exercise price equal to $1.61 per Common Share, subject to adjustment. The Series E Warrants were also subject to full ratchet anti-dilution provisions in certain
circumstances.
Series F Warrants
There
were no Series F warrants remaining or issuable as of December 31, 2018. Each Series F Warrant represented the right to purchase one Common Share at a notional exercise
price equal to $1.61 per Common Share, subject to adjustment. The Series F Warrants were also subject to full ratchet anti-dilution provisions in certain circumstances.
18. SEGMENT INFORMATION
The
Company's operations are in one business segment: the development, manufacture and marketing of medical devices. Each of the Company's product lines has similar characteristics, customers,
distribution and marketing strategies, and are subject to similar regulatory requirements. Substantially all of the Company's long-lived assets are located in Canada. The Company carries on business
in Canada and the United States. The Company earns revenue from sales to customers in the following geographic locations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31,
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
REVENUE
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
$
|
1,600,633
|
|
$
|
466,471
|
|
$
|
4,832,977
|
|
|
Rest of the World
|
|
|
148,500
|
|
|
4,393,303
|
|
|
4,251,260
|
|
|
United States
|
|
|
|
|
|
529,240
|
|
|
428,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,749,133
|
|
$
|
5,389,014
|
|
$
|
9,512,796
|
|
|
|
|
|
|
|
|
|
|
Sales
to the Company's three largest customers accounted for approximately 28%, 9%, and 9% of the Company's sales for the year ended December 31, 2018. Sales to the Company's three largest
customers accounted for approximately 57%, 9%, and 6% of the Company's sales for the year ended December 31 2017. Sales to the Company's three largest customers accounted for approximately 36%,
32%, and 15% of the Company's sales for the year ended December 31, 2016.
F-31
Table of Contents
NEOVASC INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For years ended December 31, 2018, 2017 and 2016
(Expressed in U.S. dollars)
19. EMPLOYEE BENEFITS EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31,
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
Salaries and wages
|
|
$
|
8,477,335
|
|
$
|
9,244,473
|
|
$
|
10,155,918
|
|
|
Pension plan and employment insurance
|
|
|
418,303
|
|
|
509,966
|
|
|
583,093
|
|
|
Contribution to defined contribution pension plan
|
|
|
170,358
|
|
|
194,123
|
|
|
209,494
|
|
|
Health benefits
|
|
|
476,217
|
|
|
613,918
|
|
|
810,609
|
|
|
|
|
|
|
|
|
|
|
|
Cash-based employee expenses
|
|
|
9,542,213
|
|
|
10,562,480
|
|
|
11,759,114
|
|
|
|
|
|
|
|
|
|
|
|
Employee termination expenses
|
|
|
761,354
|
|
|
|
|
|
|
|
|
Share-based payments
|
|
|
3,292,877
|
|
|
2,484,543
|
|
|
1,810,111
|
|
|
|
|
|
|
|
|
|
|
|
Total employee expenses
|
|
$
|
13,596,444
|
|
$
|
13,047,023
|
|
$
|
13,569,225
|
|
|
|
|
|
|
|
|
|
|
20. DEPRECIATION, SHARE-BASED PAYMENTS, EMPLOYEE AND OTHER EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31,
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses
|
|
|
|
|
|
|
|
|
|
|
|
Share-based payments
|
|
$
|
170,416
|
|
$
|
98,379
|
|
$
|
138,334
|
|
|
Cash-based employee expenses
|
|
|
352,837
|
|
|
202,261
|
|
|
109,150
|
|
|
Other expenses
|
|
|
829,912
|
|
|
585,586
|
|
|
449,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,353,165
|
|
$
|
886,226
|
|
$
|
696,638
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
60,206
|
|
|
93,196
|
|
|
119,977
|
|
|
Share-based payments
|
|
|
2,147,832
|
|
|
1,080,627
|
|
|
510,508
|
|
|
Cash-based employee expenses
|
|
|
2,498,005
|
|
|
2,792,897
|
|
|
2,713,110
|
|
|
Litigation expenses
|
|
|
540,125
|
|
|
2,410,350
|
|
|
13,170,138
|
|
|
Employee termination expenses
|
|
|
761,354
|
|
|
|
|
|
|
|
|
Collaboration and settlement expenses (see Note 24)
|
|
|
2,379,790
|
|
|
|
|
|
|
|
|
Settlement provision (see Note 24)
|
|
|
2,749,968
|
|
|
|
|
|
|
|
|
Expenses related to the 2017 Financings
|
|
|
|
|
|
5,447,182
|
|
|
|
|
|
Other expenses
|
|
|
5,301,656
|
|
|
3,860,531
|
|
|
2,669,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
16,438,936
|
|
$
|
15,684,783
|
|
$
|
19,182,787
|
|
|
|
|
|
|
|
|
|
|
|
Product development and clinical trials expenses
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
323,920
|
|
|
382,234
|
|
|
426,144
|
|
|
Share-based payments
|
|
|
974,629
|
|
|
1,305,535
|
|
|
1,160,269
|
|
|
Cash-based employee expenses
|
|
|
6,691,371
|
|
|
7,609,387
|
|
|
10,195,949
|
|
|
Other expenses
|
|
|
8,070,937
|
|
|
8,191,936
|
|
|
7,582,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,060,857
|
|
|
17,489,092
|
|
|
19,364,503
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL EXPENSES
|
|
$
|
33,852,958
|
|
$
|
34,060,101
|
|
$
|
39,243,928
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation per Statements of Cash Flows
|
|
$
|
384,126
|
|
$
|
534,545
|
|
$
|
755,734
|
|
|
|
|
|
|
|
|
|
|
|
Share-based payments per Statements of Cash Flows
|
|
$
|
3,292,877
|
|
$
|
2,484,543
|
|
$
|
1,810,111
|
|
|
|
|
|
|
|
|
|
|
|
Cash-based employee expenses (see Note 19)
|
|
$
|
9,542,213
|
|
$
|
10,562,480
|
|
$
|
11,759,114
|
|
|
|
|
|
|
|
|
|
|
F-32
Table of Contents
NEOVASC INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For years ended December 31, 2018, 2017 and 2016
(Expressed in U.S. dollars)
21. OPERATING LEASES
The
Company entered into an agreement for additional office space in September 2014 in Richmond, Canada. The agreement did not contain any contingent rent clauses, or purchase options or
escalation clauses. The term of the lease was 36 months commencing on October 1, 2014. The lease contained an option to renew for an additional 36 months. In February 2017,
the Company renewed the lease and added additional office premises. The term of the combined lease is 60 months commencing June 1, 2017. The amended agreement does not contain any
contingent rent clauses, or purchase options or escalation clauses.
The
Company entered into an agreement for additional office space in September 2014 in Minneapolis. The agreement did not contain any contingent rent clauses, or purchase options or escalation
clauses. The original term of the lease was 66 months commencing on September 1, 2014. Additional office space was added in July 2015 in Minneapolis. The term of the combined
lease is 69 months commencing on July 1, 2015. The lease contains an option to renew for an additional 36 months.
The
Company entered into an agreement for additional office space in December 2016 in Richmond, Canada. The agreement does not contain any contingent rent clauses, renewal or purchase options
or escalation clauses. The term of the lease is 24 months commencing on December 19, 2016. In December 2018, the Company renewed the lease for another 24 months commencing
on Dec 19, 2018.
The
Company entered into an agreement for additional office space in June 2018 in Richmond, Canada. The agreement does not contain any contingent rent clauses, purchase options or escalation
clauses. The term of the lease is 36 months commencing on August 1, 2018. The lease contains an option to renew for an additional 24 months.
The
future minimum operating lease payments due over the next five years and thereafter are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31,
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
Year 1
|
|
$
|
479,301
|
|
$
|
343,564
|
|
$
|
198,814
|
|
|
Year 2
|
|
|
478,040
|
|
|
320,999
|
|
|
110,303
|
|
|
Year 3
|
|
|
338,149
|
|
|
292,845
|
|
|
79,852
|
|
|
Year 4
|
|
|
101,861
|
|
|
265,873
|
|
|
33,838
|
|
|
Year 5
|
|
|
|
|
|
110,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,397,351
|
|
$
|
1,334,061
|
|
$
|
422,807
|
|
|
|
|
|
|
|
|
|
|
Lease
payments recognized as an expense during the year ended December 31, 2018 amounted to $403,523 (the year ended December 31, 2017 and 2016: $308,037 and $459,394,
respectively).
22. LOSS PER SHARE
Both
the basic and diluted loss per share have been calculated using the loss attributable to shareholders of the Company as the numerator. The weighted average number of Common Shares outstanding
used for basic loss per share for the year ended December 31, 2018 amounted to 14,160,115 shares (year ended December 31, 2017 and 2016: 81,523,874 shares and 67,465,300,
respectively)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31,
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
Weighted average number of Common Shares
|
|
|
14,160,115
|
|
|
815,239
|
|
|
674,653
|
|
|
Loss for the year
|
|
$
|
(108,042,868
|
)
|
$
|
(22,908,721
|
)
|
$
|
(86,494,893
|
)
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
$
|
(7.63
|
)
|
$
|
(28.10
|
)
|
$
|
(128.21
|
)
|
|
|
|
|
|
|
|
|
|
As
the Company is currently operating at a loss no dilutive potential ordinary shares have been identified as the conversion would lead to a decrease in loss per share.
F-33
Table of Contents
NEOVASC INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For years ended December 31, 2018, 2017 and 2016
(Expressed in U.S. dollars)
23. RELATED PARTY TRANSACTIONS
The
Company's key management personnel include members of the board of directors, executive officers and former executive officers. The Company provides salaries or cash compensation, and other
non-cash benefits to directors and executive officers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31,
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
Short-term employee benefits
|
|
|
|
|
|
|
|
|
|
|
|
Employee salaries and bonuses
|
|
$
|
2,112,605
|
|
$
|
1,326,702
|
|
$
|
1,224,103
|
|
|
Directors fees
|
|
|
270,000
|
|
|
267,785
|
|
|
270,000
|
|
|
Social security and medical care costs
|
|
|
63,529
|
|
|
32,912
|
|
|
43,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,446,134
|
|
|
1,627,399
|
|
|
1,537,327
|
|
|
Post-employment benefits
|
|
|
|
|
|
|
|
|
|
|
|
Contributions to defined contribution pension plan
|
|
|
34,162
|
|
|
15,928
|
|
|
13,646
|
|
|
Employee termination expenses
|
|
|
296,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
330,754
|
|
|
15,928
|
|
|
13,646
|
|
|
Share-based payments
|
|
|
2,270,023
|
|
|
1,055,719
|
|
|
253,766
|
|
|
|
|
|
|
|
|
|
|
|
Total key management remuneration
|
|
$
|
5,046,911
|
|
$
|
2,699,046
|
|
$
|
1,804,739
|
|
|
|
|
|
|
|
|
|
|
24. CONTINGENT LIABILITIES AND PROVISIONS
Litigation
Litigation
resulting from third party claims has been, and is expected to be, costly and time-consuming and could divert the attention of management and key personnel from our business operations.
Although we intend to vigorously defend ourselves against the remaining claims, we cannot assure that we will succeed in appealing and defending any of these claims and that judgments will not be
upheld against us. If we are unsuccessful in our appeal and defense of these claims or unable to settle the claims in a manner satisfactory to us, we may be faced with significant loss of intellectual
property rights that could have a material adverse effect on the Company and its financial condition.
Claims by CardiAQ in Germany
On
June 23, 2014, CardiAQ filed a complaint against Neovasc in Munich, Germany (the "German Court") requesting that Neovasc assign its right to one of its European patent applications to
CardiAQ. After a hearing held on December 14, 2016, the German Court rendered its decision on June 16, 2017, granting co-ownership of the European patent application to CardiAQ but
denying their claim for full entitlement. There are no monetary awards associated with these matters and no damages award has been recognized. On July 14, 2017, Neovasc filed a notice of appeal
against the German Court's decision with the Appeals Court of Munich. On July 20, 2017, CardiAQ filed a notice of appeal with the same court. Both parties have in the meantime substantiated
their respective appeals. The oral hearing of the appeal before the Appeals Court of Munich was held on November 8, 2018. During that hearing CardiAQ dropped its affirmative appeal of the
underlying decision, while maintaining its opposition to Neovasc's appeal. The decision of the Appeals Court of Munich was rendered on March 21, 2019, wherein it amended the decision of the
German Court and dismissed the complaint of CardiAQ in full.
Claims by CardiAQ in the United States
On
March 24, 2017, CardiAQ filed a related lawsuit in the Court, asserting two claims for correction of patent inventorship as to Neovasc's U.S. Patents Nos. 9,241,790
and 9,248,014. On October 4, 2017, CardiAQ amended its pleading to add a third claim for correction of patent inventorship as to Neovasc's U.S. Patent No. 9,770,329. The
lawsuit does not seek money damages and would not prevent the Company from practicing these patents. The Company moved to dismiss the complaint on November 16, 2017, and the Court denied this
motion on September 28, 2018. On August 3, 2018, Neovasc wrote the presiding District Judge regarding potential resolution of the case including as to a statutory procedure available
with the Patent Office concerning certain dependent claims of U.S. Patent 9,770,329 in particular, and the Court held a hearing to discuss this issue on September 13, 2018. No
other litigation schedule or deadlines have been set; the Court has stayed the case until April 15, 2019 to allow the parties to discuss a potential resolution. Litigation is inherently
uncertain. Therefore, until these matters have been resolved to their conclusion by the appropriate courts the Company cannot give any assurance as to the outcome.
F-34
Table of Contents
NEOVASC INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For years ended December 31, 2018, 2017 and 2016
(Expressed in U.S. dollars)
24. CONTINGENT LIABILITIES AND PROVISIONS (Continued)
Between
June 2016 and November 2017, Neovasc was engaged in litigation with CardiAQ in the U.S. District Court for the District of Massachusetts (the "Court") and, upon
appeal, in the United States Court of Appeals for the Federal Circuit (the "Appeals Court"). This litigation concerned intellectual property rights ownership, unfair trade practices and
breach of contract relating to Neovasc's transcatheter mitral valve technology, including the Tiara. Following a trial in Boston, Massachusetts, a jury found in favor of CardiAQ and awarded
$70 million on the trade secret claim for relief, and no damages on the contractual claims for relief. The Court later awarded CardiAQ $21 million in enhanced damages on the trade secret
claim for relief and $20,675,154 in pre-judgment interest and $2,354 per day in post judgment interest from November 21, 2016. Neovasc and CardiAQ each appealed on various grounds, and on
September 1, 2017, the Appeals Court affirmed the trial court judgment against Neovasc, and denied CardiAQ's cross appeal. On November 13, 2017, the final mandate was issued by the
Appeals Court and approximately $70 million was released from escrow to CardiAQ to partially settle approximately $112 million damages and interest awards. Upon closing of the 2017
Financings on November 17, 2017, the Company used approximately $42 million from the $65 million net proceeds of the 2017 Financings to settle the remaining damages and interest
awards.
Other Matters
By
way of Amended Statement of Claim in Federal Court of Canada Action T-1831-16 (the "Action"), Neovasc Inc. and Neovasc Tiara Inc. (the "Neovasc Defendants") were added
as defendants to an existing action commenced by Edwards Lifesciences PVT, Inc. and Edwards Lifesciences (Canada) Inc. (collectively the "Edwards Plaintiffs") against Livanova Canada
Corp., Livanova PLC, Boston Scientific and Boston Scientific Ltd. (collectively, the "BSC/Livanova Defendants"). The Action was first filed in October 2016 and first concerned an
allegation by the Edwards Plaintiffs that the manufacturing, assembly, use, sale and export of the Lotus Aortic Valve devices by the BSC/Livanova Defendants infringes on the Edwards Plaintiffs'
patents. In February 2017, the Neovasc Defendants were added to the Edwards Plaintiffs' claim making related allegations. In summary, the Edwards Plaintiffs make three types of allegations as
against the Neovasc Defendants: (a) indirect infringement claims; (b) direct infringement claims; and (c) claims of inducement. The Edwards Plaintiffs seek various declarations,
injunctions and unspecified damages and costs. The Neovasc Defendants filed their Statement of Defence in November 2017. The other defendants filed their Statement of Defence and Counterclaim
against the Edwards Plaintiffs on April 30, 2018. On January 22, 2019, the Company announced that pursuant to a settlement reached with the Edwards Plaintiffs, the patent infringement
action that the Edwards Plaintiffs had previously commenced in the Federal Court of Canada against the Company, Boston Scientific and Livanova, will be dismissed on a no-costs basis.
On
August 3, 2018, the Company announced that it had entered into a collaboration and licensing agreement with Penn Medicine and the Gorman Cardiovascular Research Group at the University of
Pennsylvania, which resolved certain potential claims against the Company that had been previously disclosed.
On
September 7, 2018, Endovalve Inc. and Micro Interventional Devices, Inc. (collectively, "Endovalve") filed a complaint in the United States District Court for the
District of New Jersey against the Neovasc Defendants, alleging claims for trade secret misappropriation, breach of contract, and unfair competition. Endovalve alleged that it was a former
customer of Neovasc Inc., and that the Neovasc Defendants improperly used trade secrets in the development of Tiara. The Complaint sought injunctive relief, money damages, and attorneys' fees.
When
the Company assesses that it is more likely that a present obligation exists at the end of the reporting period and that the possibility of an outflow of economic resources embodying economic
benefits is probable, a provision is recognized and contingent liability disclosure is required. The Company has accrued $2,749,968 as at December 31, 2018 representing the discounted value of
future
payments anticipated under the settlement agreement signed with Endovalve on February 20, 2019 (see note 25). The Company has not accrued for any future royalty payments in the
settlement agreement with Endovalve as the amounts are undeterminable at this time.
25. SUBSEQUENT EVENTS
On
January 3, 2019, the Company received written notification (the "Market Value Notification Letter") from the Nasdaq Listing Qualifications Department notifying the Company that it was
not in compliance with the $35 million minimum market value requirement set forth in the Nasdaq Marketplace Rules. The Market Value Notification Letter does not impact the Company's listing on
the Nasdaq at this time. In accordance with Nasdaq Listing Rule 5810(c)(3)(C), the Company has been provided 180 calendar days, or until July 2, 2019, to regain compliance. The
Company intends to monitor the market value of its listed securities between now and July 2, 2019 and intends to attempt to cure the deficiency within the prescribed grace period.
On
January 14, 2019, the Company received written notification (the "Bid Price Notification Letter") from the Nasdaq Listing Qualifications Department notifying the Company that it was
not in compliance with the $1.00 minimum bid price requirement set forth
F-35
Table of Contents
NEOVASC INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For years ended December 31, 2018, 2017 and 2016
(Expressed in U.S. dollars)
25. SUBSEQUENT EVENTS (Continued)
in
the Nasdaq Marketplace Rules. The Bid Price Notification Letter does not impact the Company's listing on the Nasdaq at this time. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the
Company has been provided 180 calendar days, or until July 15, 2019, to regain compliance. The Company intends to monitor the closing bid price of its common shares between now and
July 15, 2019 and intends to attempt to cure the deficiency within the prescribed grace period.
In
the event the Company does not regain compliance with the Nasdaq minimum market value or minimum bid price rules within the prescribed compliance periods, the Company may be eligible for additional
time to regain compliance or may face delisting. Nasdaq also has broad discretionary public interest authority that it can exercise to apply additional or more stringent criteria for the continued
listing of the Common Shares, or suspend or delist securities even if the securities meet all enumerated criteria for continued listing on the Nasdaq. The Nasdaq could use this discretionary authority
at any time to delist the Common Shares. There can be no assurance that Nasdaq will not exercise such discretionary authority. In addition, there is no assurance that the Company will be able to
regain compliance with the minimum bid price and minimum market value requirements prior to expiration of the prescribed compliance
periods, or if it does, that the Company will be able to maintain such compliance as a result of the risks and uncertainties described above.
On
January 22, 2019, the Company announced that pursuant to a settlement reached with Edwards Lifesciences PVT, Inc. and Edwards Lifesciences (Canada) Inc. (collectively,
"Edwards"), the patent infringement action that Edwards had previously commenced in the Federal Court of Canada against the Company, Boston Scientific and Livanova, will be dismissed on a
no-costs basis.
On
February 20, 2019, the Company announced that it had entered into a settlement agreement with Endovalve. This agreement resolved certain potential claims against the Company. The settlement
agreement contemplates certain fees being paid by Neovasc to Endovalve, including settlement fees in installments totaling $3 million over the two and a half years following the agreement's
execution. In addition, Neovasc agreed to pay Endovalve a royalty of 1.3% on the annual net sales of the Tiara following the first commercial sale of the Tiara. Also contained in the settlement
agreement are buy-out clauses that allow Neovasc, or an acquirer of Neovasc or the Tiara assets, to buy out these royalty obligations. As part of the settlement agreement, the claims against the
Neovasc Defendants were dismissed with prejudice.
On
December 20, 2018, the Company filed a comprehensive Q-Sub submission to the U.S. Food and Drug Administration (the "FDA") with all available Reducer clinical evidence,
requesting a Sprint FDA discussion meeting. The Neovasc team, together with two top U.S. Cardiologists, met with the FDA proposing moving forward with a premarket approval ("PMA") submission
using the available Neovasc clinical evidence. On February 20, 2019, the Company announced that the FDA had informed Neovasc that, despite "Breakthrough Device Designation", the FDA review team
recommends collection of further pre-market blinded data prior to PMA submission. Through the Sprint discussion process, Neovasc will continue discussions with the FDA and their senior management, to
attempt to bring this promising refractory angina device therapy to U.S. patients as soon as possible.
On
February 28, 2019, the Company completed an underwritten public offering (the "February 2019 Financing") of 11,111,111 Common Shares, at a price of $0.45 per Common
Share, for gross proceeds of approximately $5 million before deducting the underwriting commission and offering expenses payable by the Company. The Company intends to use the approximately
$4.02 million net proceeds of the February 2019 Financing for the development and commercialization of the Reducer, development of the Tiara and general corporate and working capital
purposes. As part of the underwriter's compensation in the February 2019 Financing, the Company issued the underwriter warrants (the "February Broker Warrants") to purchase in aggregate
up to a 722,222 Common Shares, exercisable at a price per Common Share equal to $0.5625 for a period of three years following issuance.
On
March 12, 2019, the Company announced that it had entered into Exchange Agreements with the holders of all of its outstanding Series A common share purchase warrants
(the "Series A Warrants") and Series E common share purchase warrants (the "Series E Warrants") issued pursuant to the 2017 Financings, pursuant to which the Company
issued an aggregate of approximately 496,239 Common Shares for the surrender and cancellation of all of the Series A Warrants and Series E Warrants outstanding, on the basis of
0.0085 of a Common Share for each Series A Warrant or Series E Warrant (the "Exchange"). Following completion of the Exchange, there are no longer any warrants remaining
outstanding from the 2017 Financings.
On
March 15, 2019, the Company completed an underwritten public offering (the "March 2019 Financing") of 11,111,111 Common Shares, at a price of $0.45 per Common Share, for
gross proceeds of approximately $5 million before deducting the underwriting commission and offering expenses payable by the Company. The Company intends to use the approximately
$4.25 million net proceeds of the March 2019 Financing for the development and commercialization of the Reducer, development of the Tiara and general corporate and working capital
purposes. As part of the underwriter's compensation in the March 2019 Financing, the Company issued the underwriter warrants (the "March Broker Warrants", and together with the February
Broker Warrants, the "Broker Warrants") to purchase in aggregate up to a 722,222 Common Shares, exercisable at a price per Common Share equal to $0.5625 for a period of three years following
issuance.
F-36
Table of Contents
NEOVASC INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For years ended December 31, 2018, 2017 and 2016
(Expressed in U.S. dollars)
25. SUBSEQUENT EVENTS (Continued)
On
March 21, 2019, the Company announced that the Appeals Court in Munich rendered its decision with respect to the Company's litigation with CardiAQ in Germany. The Appeals Court amended the
decision of the German Court and dismissed the complaint of CardiAQ in full.
Updated Share Capital
As
at March 19, 2019, all Series A Warrants, Series B warrants, Series C Warrants, Series D warrants, Series E Warrants and Series F warrants from the
2017 Financings have now been exercised or exchanged into Common Shares. Of the $32,750,000 aggregate principal amount of Notes issued pursuant to the 2017 Financings, only $10,825,000 aggregate
principal amount of Notes remains outstanding.
As
of March 19, 2019, the Company had 61,985,116 Common Shares issued and outstanding. The following securities are convertible into Common Shares: 3,682,469 stock options with a
weighted average exercise price of $7.70, 1,444,444 Broker Warrants and $10,825,000 principal amount of Notes, which Notes could convert into 24,055,555 Common Shares (not taking
into account the alternate conversion price or anti-dilution mechanisms). Our fully diluted share capital as of the same date is 91,167,584. Our fully diluted share capital, adjusted on the assumption
that all of the outstanding Notes are converted using the alternate conversion price at the closing price on March 18, 2018, is 94,869,863.
26. AUTHORIZATION OF FINANCIAL STATEMENTS
The
consolidated financial statements for the years ended December 31, 2018 (including comparatives) were approved by the the board of directors on March 21, 2019.
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(signed)
Chris Clark
Chris Clark, Chief Financial Officer
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(signed)
Steve Rubin
Steve Rubin, Chairman
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F-37
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