AROA BIOSURGERY LIMITED — Interim / Quarterly Report 2021

Nov 25, 2020

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HALF-YEAR FINANCIAL REPORT TO 30 SEPTEMBER 2020

APPENDIX 4D – ASX Listing Rule 4.2A

Aroa Biosurgery Limited ARBN 638 867 473

1. Details of the reporting period and the previous corresponding period

Reporting period	30 September 2020
Previous corresponding period	30 September 2019

2. Results for announcement to the market

				30 September	30 September
				2020	2019
				NZ$000	NZ$000
2.1	Revenue – Product sales	down	10%	9,002	10,037
	Revenue – Other	down	94%	178	3,128
2.2	Normalised loss before tax from ordinary activities	up	457%	(4,049)	(727)
2.3	Loss after tax attributable to members	up	1,440%	(13,493)	(876)
2.4	Dividends			Nil	Nil
2.5	Record date for dividend entitlement			Not applicable	Not applicable

2.6 Brief explanation of figures 2.1 to 2.3:

Explanation of Revenue (Appendix 4D item 2.1)

Product sales of $9.0 million for the half-year were down 10%, compared to H1 FY20 ($10.0 million). Product sales in the first quarter were impacted by the COVID-19 pandemic, however the Company has seen an improvement throughout the second quarter, exceeding management’s internal expectations.

“Revenue – Other” includes project fees income of $178,000 (September 2019: $136,000) and royalties of $Nil (September 2019: $2,992,000). Revenues derived from royalties have no corresponding costs of sale and are one-off in nature.

Explanation of Loss (appendix 4D item 2.2 and 2.3) Normalised loss before tax from ordinary activities excludes oneoff expenses totalling $9,382,000 during the reporting period, relating to pre-IPO and IPO transactions undertaken by the Company. These expenses included transaction costs of $1,369,000 for the IPO and fair-value adjustments to preIPO preference shares of $8,013,000. The increase in Normalised loss before tax from ordinary activities is primarily attributable to the one-off royalties of $2,992,000 in the previous corresponding period and an increase in ‘Selling and administration expenses’.

Loss after tax attributable to members is inclusive of the one-off expenses relating to pre-IPO and IPO transactions undertaken by the Company.

3. Net tangible assets

	30 September	30 September
	2020	2019
Net tangible assets* (NZ$000)	37,433	(13,864)
Total number of securities on issue**	300,074,925	2,760,314
Net tangible assets per security (NZ$)	0.12	(5.02)

• Net tangibles assets exclude all Intangible assets and Right of use assets, as reported within the Consolidated Statement of Financial Position

**Total number of securities on issue excludes all share options on issue. In the comparative period the total number of securities includes all classes of shares on issue

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4. Details of entities over which control has been gained or lost during the period: Not applicable

5. Details of dividends paid: Not applicable

6. Details of dividend reinvestment plans: Not applicable

7. Details of associates and joint venture entities: Not applicable

8. Set of accounting standards used in compiling: NZ equivalent to International Financial Reporting Standards

This report is based on the half-year consolidated financial statements as at 30 September 2020, which have been reviewed by BDO Auckland (the Company’s auditor) with the Independent Auditor’s Review Report included in the 30 September 2020 half-year consolidated financial statements. The half-year report is not subject to a review report that includes a modified opinion, emphasis of matter or other matter paragraph.

This report should be read in conjunction with the annual report for the year ended 31 March 2020 and any public announcements made by Aroa Biosurgery Limited during the reporting period in accordance with the continuous disclosure requirements of the ASX Listing Rules.

Dated 25 November 2020

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James Agnew Company Secretary

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AROA BIOSURGERY LIMITED HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS 30 SEPTEMBER 2020

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AROABIO.COM

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CONTENTS

DIRECTORS’ REPORT .......................................................................................................................................... 1 CONSOLIDATED FINANCIAL STATEMENTS ........................................................................................................ 5 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ............................................................................... 9 INDEPENDENT AUDITOR’S REVIEW REPORT ................................................................................................... 23

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DIRECTORS’ REPORT

The Board of Directors of Aroa Biosurgery Limited (“the Company”) are pleased to present this report in respect of the half-year ended 30 September 2020 (“the Reporting Period”).

DIRECTORS

The Company’s Directors during the period are detailed below. All Directors were in office for the entire reporting period.

James McLean Independent Non-executive Director and Chairman Brian Ward Managing Director Steven Engle Independent Non-executive Director Philip McCaw Non-executive Director John R. Pinion Independent Non-executive Director John Diddams Independent Non-executive Director

REVIEW OF OPERATIONS

Aroa Biosurgery Limited (the “Company” or “Aroa”) is a soft-tissue regeneration company that develops, manufactures, sells and distributes medical and surgical products to improve healing in complex wounds and soft tissue reconstruction. Committed to ‘unlocking regenerative healing for everybody’, its products are developed from the Company’s proprietary Aroa ECM technology platform, a novel extracellular matrix biomaterial derived from ovine (sheep) forestomach. Clinically proven with peer reviewed publications, Aroa’s products have been used in more than four million procedures to date, with distribution into its key market of the United States by Appulse and Tela Bio. Founded in 2008, Aroa is headquartered in Auckland, New Zealand.

STEPPING UP US COMMERCIAL EXPANSION

The Company’s product revenues of NZ$9 million in the first half were ahead of the internal COVID-19 expectations. Following the delays experienced in elective surgery as a result of COVID-19 in April and May the Company has experienced increased demand as the levels of elective surgery and wound centre activity improve. Demonstrating this continued improvement, the Company expects to deliver revenue growth on H2 FY20 (NZ$11.9m) in the second half of FY21.

Buoyed by the improving outlook for the second half of FY21, Aroa will strengthen its US commercial team with three new field and two inside sales representatives and two medical science liaisons. The Company intends to add a further 10 field sales representatives in FY22 to primarily focus on sales of Myriad™ which has a total estimated market size globally of US$350 million. Similarly, Aroa’s US partner, TELA Bio, has added a further 10 field sales representatives to drive increased adoption of Ovitex and Ovitex PRS in hernia and breast surgery. Increased sales resources will allow a deeper penetration within existing accounts to expand usage in more procedures.

MORE EMPHASIS BEING PLACED ON VIRTUAL PROMOTION

With reduced face-to-face physical meetings, the Company has placed a strong focus on virtual presentations, webinars and their presence at major conferences. Increased focus has been placed on the engagement of key opinion leaders to highlight the use of Aroa’s Endoform® “high flow” product with negative pressure wound therapy and Myriad™ for soft tissue reconstruction. In the future, Aroa believes there is an increasing opportunity to build on its San Diego-based inside sales capability to complement the field sales team.

REGENERATIVE SCIENCE UNDERPINS AROA ECM PLATFORM

The Company continues to add to the substantial body of evidence which demonstrates that Aroa’s ECM has unique regenerative characteristics which distinguish it from synthetics and traditional biologics. A peer reviewed study published in July 2020 showed that a protein released from Aroa’s ECM during healing, was shown to communicate with stem cells and play an important role during normal soft tissue repair (https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0235784). This study builds on previous peer reviewed studies which have shown that the Aroa ECM platform includes over 150 proteins which are known to play an important role in wound healing and tissue regeneration.

STRONG CLINICAL OUTCOMES IN CHALLENGING CASES

Aroa continues to be very encouraged by emerging clinical evidence which shows that the healing properties of Aroa’s ECM consistently contributes to positive outcomes across the product portfolio in a mix of procedures. These benefits are pronounced in complex cases where the presence of infection and inflammation are a major challenge and can lead to high rates of complications. A recent investigatorled study by Parker et al from Indiana University titled “A novel biosynthetic scaffold mesh reinforcement affords the lowest hernia recurrence in the highest risk patients” (Surgical Endoscopy https://doi.org/10.1007/s00464-020-08009-1, published on-line 24 September 2020) compared 50 high risk patients with Ovitex implants versus 50 low risk patients implanted with synthetic mesh. Despite the marked difference in risk, Ovitex recurrence rates were 8% versus 12% for synthetic mesh. Similarly, in the multi-centre BRAVO study of complex hernia, where infection and inflammation are common, only one recurrence was reported in 57 patients at 12 months and there were no recurrences for the 20 patients at two years follow up. These studies are contributing to growing interest and demand for Ovitex which has now been used in over 10,000 patients.

Pleasingly, early use of Myriad™ in soft tissue reconstruction is showing similar outcomes. A recent study in six patients with Hydradenitis Supprativa (a skin condition where the tissue becomes highly inflamed and often involves infected lesions), showed 100% healing when Myriad™ was used for both implant procedures and dermal reconstruction in eight surgical sites. The complication rates in these patients typically ranges from 5-26%.

The Ovitex and Myriad™ outcomes are also consistent with previous Endoform® studies in diabetic foot ulcers and venous leg ulcers. In these conditions, Endoform® is frequently used in the presence of inflammation, bacterial colonisation and infection. Aroa expects to present further results from a 6,500 patient post market real world retrospective study in chronic wounds in Q4 FY21.

AROA BIOSURGERY LIMITED INTERIM REPORT – HALF YEAR ENDED 30 SEPTEMBER 2020

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DIRECTORS’ REPORT (Continued)

STRONG CLINICAL OUTCOMES IN CHALLENGING CASES (CONTINUED) Importantly, for the product portfolio, Aroa’s ECM platform is continuing to demonstrate that it can provide robust tissue regeneration in patients with impaired healing in the presence of inflammation and infection. The existing clinical evidence coupled with an upcoming readout in Q4 CY20 from the Bravo Study, Myriad™ studies investigating use as a graft over exposed tendon and bone and a further study in complex non-healing wounds are expected to provide further evidence to drive increased adoption for both complex and more routine cases.

STAGED PRODUCT PIPELINE SUPPORTS GROWTH

Myriad™ particles provide Aroa’s ECM in a convenient powdered format for surgical use in complex wounds in patients with impaired healing. In the last six months the Company has filed for a 510k clearance and is currently in a review process with the FDA. Aroa expects clearance in Q4 FY21 and with an immediate opportunity for this product to contribute to Myriad™ sales and increase gross margin.

Symphony was cleared by the US FDA in July 2020 and an application has been filed with Centres for Medicare and Medicaid Services (CMS) for reimbursement coding. The product has successfully been transferred to manufacturing and Aroa expects product to be available early in CY21 for clinical studies and a limited commercial launch. Full commercial launch is targeted for CY22.

Positive progress has been made with Aroa’s negative pressure wound therapy (NPWT) development programme in pre-clinical models and the Company expects to provide an update on development activities and commercialisation plans in Q4 FY21 The development team for this project has been expanded to 21 and a further patent application has been filed to build on the previous application for a fluid drainage and delivery device.

MANUFACTURING PRODUCTIVITY GAINS & COMMENCING FACILITY EXPANSION Aroa secured additional premises at the beginning of 2020, adjacent to the existing facility, to allow for further expansion of manufacturing facilities. Over the last six months, process improvements in manufacturing have led to significant improvements in capacity, which have helped to delay capital expenditure and will lead to margin improvements. With growing demand across the portfolio, the Company has initiated expansion plans and expects the first stage to be completed by December 2021.

OPPORTUNITY EXPANDING IN INTERNATIONAL MARKETS Outside of United States, Aroa is continuing to execute its international market expansion strategy and secure new regulatory approvals and local distributors. In the last six months Myriad™ has been approved by regulatory authorities in Europe, Malaysia, Thailand, Israel, Jordan and Saudi Arabia, while Endoform® has been approved in Malaysia and Mexico. In addition, local distributors have been appointed in Italy, Portugal, Malaysia, Indonesia, Mexico, Israel, Kuwait, Oman, Qatar, UAE and Saudi Arabia.

COVID-19 IMPACT

Following the initial postponement of elective surgery and closure of outpatient wound centres the Company is seeing an increasing number of hospitals implementing measures which allow elective surgery and wound centre treatment to resume. Activity continues to be at a lower level than pre-COVID but there is a positive trend towards strengthening sales. The Company remains on watch for a resurgence of COVID-19 cases as the northern hemisphere heads into winter.

2 AROA BIOSURGERY LIMITED INTERIM REPORT – HALF YEAR ENDED 30 SEPTEMBER 2020

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DIRECTORS’ REPORT

(Continued)

FINANCIAL RESULTS

NORMALISED PROFIT OR LOSS

The following Profit or Loss and Other Comprehensive Income is non-conforming financial information, as defined by the NZ Financial Markets Authority, and has been provided to assist users of financial information to better understand and assess the Group’s comparative financial performance without any distortion from NZ GAAP accounting treatment specific to the one-off, non-cash fair value adjustment of pre-offer shares issued in February and May 2020 and the one-off transaction costs associated with the initial public offering on ASX in July 2020. This approach is used by management and the Board assess the Group’s comparative financial performance.

Product sales Other revenue Total revenue Cost of sales Gross profit Gross margin % Other income Normalised selling and administrative expenses Research and development Normalised other losses Total normalised operating expenses Normalised EBIT Add back: Depreciation & amortisation Normalised EBITDA Finance income Finance expenses Normalised loss before income tax	Unaudited 30 September 2020 NZ$000 9,002 178 9,180 (3,145) 6,035 66% 1,869 (8,561) (2,791) (2) (11,354) (3,450) 1,134 (2,316) 519 (1,118) (4,049)	Unaudited 30 September 2019
		NZ$000
		10,037
		3,128
		13,165
		(3,057)
		10,108
		77%
		480
		(7,030)
		(2,474)
		(2)
		(9,506)
		1,082
		1,071
		2,153
		3
		(1,812)
		(727)

*These items have been normalised by the amounts outlined within the ‘Reconciliation to NZ GAAP Profit or Loss”

Product sales

Product sales of $9.0 million for the half-year were down 10%, compared to H1 FY20 ($10.0 million). Product sales in the first quarter were impacted by the COVID-19 pandemic, however the Company has seen an improvement throughout the second quarter, exceeding management’s internal expectations.

Other revenue

Other revenue represents Royalties, received under the Company’s licensing agreement with Tela Bio Inc. and Project fees income, received for product development projects undertaken with TelaBio Inc. No Royalties were payable under the licensing agreement for the half-year, compared to the $3.0 million received in H1 FY20.

Gross margin %

Gross margin % of 66% for the half-year was down 11%, compared to H1 FY20 (77%), primarily due to the one-off Royalties received in H1 FY20. Product gross margin % of 65% for the half-year was down 5% compared to H1 FY20 (70%) as a result of the lower product revenues (due to COVID-19) combined with the higher level of fixed indirect costs invested in during H2 FY20 to support higher sales volumes.

Other income

Other income represents government grants and subsidies.

Normalised operating expenses

Selling and administrative expenses for the half-year were up $1.5 million, compared to H1 FY20, primarily reflecting the increased investment into the Company’s US based sales operations. Share based payments of $0.5 million for the half-year were up $0.4 million, compared to H1 FY20 and are a non-cash expense attributable to share options issued to Directors, key management and certain employees. The increase is a result of the new options issued upon the completion of the IPO in July 2020. In addition, expenses increased as a result of becoming a publicly listed entity.

Research and development expenses for the half-year were up $0.3 million, compared to H1 FY20, reflecting the increase in staffing on pipeline products.

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AROA BIOSURGERY LIMITED INTERIM REPORT – HALF YEAR ENDED 30 SEPTEMBER 2020

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DIRECTORS’ REPORT

(Continued)

FINANCIAL RESULTS (continued)

RECONCILIATION TO NZ GAAP PROFIT OR LOSS

Normalised loss before income tax Transaction costs Other losses Loss before income tax(NZ GAAP)	Unaudited 30 September 2020 NZ$000 (4,049) (1,369) (8,013) (13,431)	Unaudited 30 September 2019
		NZ$000
		(727)
		-
		-
		(727)

Transaction costs

Transaction costs of $1.4 million relate to the costs associated with the initial public offering on ASX in July 2020 including lead manager fees, legal fees, accounting and audit fees, ASX listing fees and road show expenses. Out of the total costs of $3.0 million incurred during the half-year ended 30 September 2020, $1.6 million was recognised against share capital, with the remaining $1.4 million recorded within operating expenses.

Other losses

Other losses of $8.0 million are a non-cash, one-off expense attributable to the fair value adjustment of pre-offer shares issued in February and May 2020, which were classified as financial liabilities as opposed to equity in accordance with NZ IAS 32. During the reporting period, these financial liabilities at fair value through profit or loss were fully reclassified as equity, following the successful IPO in July 2020.

BALANCE SHEET

Cash and cash equivalent

Cash on hand increased significantly during the half-year due to pre-IPO and IPO related capital raise. Cash on hand, including term deposits as at 30 September 2020 was $38.7 million.

Term loans

Interesting bearing loans were reduced by $13.0 million during the half-year as a result of the repayment in June 2020 of 50% of the outstanding balance owed to Hollister Incorporated. As a consequence, the maturity date for repayment of the balance was extended to 31 March 2022. As a result of the extension, the loan was classified as a non-current liability at reporting date.

Right of use assets

The increase in right of use assets during the half-year is predominantly due to the new lease agreement entered into for the Company’s second premise, to support the expansion of manufacturing capacity.

EVENTS SUBSEQUENT TO BALANCE DATE

No matters or circumstances have arisen since the end of the period which have significantly affected or may significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in future years.

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Jim McLean Chairman 25 November 2020

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Brian Ward CEO 25 November 2020

AROA BIOSURGERY LIMITED INTERIM REPORT – HALF YEAR ENDED 30 SEPTEMBER 2020

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CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For the half-year ended 30 September 2020

Total comprehensive loss for the period is attributable to: Earnings per share during the period: Notes Revenue 3 Cost of sales Gross profit Other income Selling and administrative expenses Research and development Other losses 6 Operating income/(loss) before net financing costs 4 Finance income 5 Finance expenses 5 Net finance income Loss before income tax Income tax expenses Loss for the period Other comprehensive income Items that will or maybe reclassified to profit or loss Exchange (losses)/gains arising on translation of foreign operations Items that will not be reclassified to profit or loss Changes in the fair value of equity investments at fair value through other comprehensive income 11 Total other comprehensive income Total comprehensive loss for the period Owners of Aroa BiosurgeryLimited Basic earnings per share (cents) 10 Diluted earnings per share (cents) 10	Unaudited 30 September 2020 NZ$000 9,180 (3,145) 6,035 1,869 (9,930) (2,791) (8,015) (12,832) 519 (1,118) (599) (13,431) (62) (13,493) (1) 892 891 (12,602) (12,602) (11.7) (11.7)	Unaudited 30 September 2019
		NZ$000
		13,165
		(3,057)
		10,108
		480
		(7,031)
		(2,474)
		-
		1,083
		2
		(1,812)
		(1,810)
		(727)
		(149)
		(876)
		5
		-
		-
		(871)
		(871)
		(31.8)
		(31.8)

The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes * Certain items have been restated in the consolidated statement of profit or loss and other comprehensive income. Refer to Note 16

AROA BIOSURGERY LIMITED INTERIM REPORT – HALF YEAR ENDED 30 SEPTEMBER 2020

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CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 September 2020

Notes Current assets Cash and cash equivalents Term deposits Derivative assets Trade and other receivables Inventories Tax receivable Financial assets at fair value through other comprehensive income Total current assets Non-current assets Property, plant and equipment Other receivable Right of use assets 7 Intangible assets Total non-current assets Total assets Current liabilities Trade and otherpayables Derivative liabilities Employee benefits Interest-bearing loans and borrowings 8 Lease liabilities 7 Financial liabilities at fair value through profit or loss 12 Total current liabilities Non-current liabilities Provisions Interest-bearingloans and borrowings 8 Lease liabilities 7 Total non-current liabilities Total liabilities Net assets Equity Share capital 13 Share basedpayment reserve 14 Foreign currencytranslation reserve Equity investment reserve Accumulated losses Total equity	Unaudited 30 September 2020 NZ$000 18,683 20,000 138 6,118 4,081 2 1,861 50,883 6,489 182 6,272 18,625 31,568 82,451 2,147 201 1,194 54 480 - 4,076 159 9,909 5,977 16,045 20,121 62,330 97,184 684 (135) 1,861 (37,264) 62,330	Audited 31 March 2020
		NZ$000
		3,850
		-
		1,188
		7,516
		4,005
		451
		969
		17,979
		6,559
		193
		2,175
		19,057
		27,984
		45,963
		4,548
		386
		949
		22,523
		215
		6,827
		35,448
		158
		1,119
		1,870
		3,147
		38,595
		7,368
		29,353
		951
		(134)
		969
		(23,771)
		7,368

On behalf of the Board: 25 November 2020

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Jim McLean - Chairman Brian Ward – CEO

The above consolidated statement of financial position should be read in conjunction with the accompanying note

* Certain items have been restated in the consolidated statement of financial position. Refer to Note 16

AROA BIOSURGERY LIMITED INTERIM REPORT – HALF YEAR ENDED 30 SEPTEMBER 2020

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CONSOLIDATED STATEMENT OF MOVEMENTS IN EQUITY

For the half-year ended 30 September 2020

Notes Balance as at 1 April 2020 Adjustment to the opening retained earnings Balance as at 1 April 2020– Adjusted Comprehensive income Losses for theperiod Other comprehensive income for the period Total comprehensive income for the period Transactions with shareholders Reclassification of financial liabilities to equity 13 Shares issued from IPO 13 Shares issued from Share & Option Plans 13 Share basedpayments Total transactions with shareholders Balance as at 30 September 2020 unaudited Balance as at 1 April 2019 Comprehensive income Losses for theperiod Other comprehensive income for the period Total comprehensive income for the period Transactions with shareholders Employee shares exercised Share basedpayments Total transactions with shareholders Balance as at 30 September 2019 unaudited**	Share capital $000 29,353 - - - 33,832 30,554 3,445 - 67,831 97,184 28,889 - - - ** 121 - 121 29,010**	Accumul ated losses $000 (23,533) (238) (23,771) (13,493) - (13,493) - - - - - (37,264) (17,591) (876) 5 (871) - - - (18,462)	Foreign currency translation reserve $000 (134) (134) - (1) (1) - - - - - (135) - - - - - - - -	Equity investment reserve $000 969 969 - 892 892 - - - - - 1,861 - - - - - - - -	Share based payment reserve $000 951 951 - - - - (796) 529 (267) 684 702 - - - (43) 127 85 787	Total equity $000 7,606
						(238)
						7,368
						(13,493)
						891
						(12,602)
						33,832
						30,554
						2,649
						529
						67,564
						62,330
						12,000
						(876)
						5
						(871)
						79
						127
						206
						11,335

The above consolidated statement of movements in equity should be read in conjunction with the accompanying notes

* Certain items have been restated in the consolidated statement of movements in equity. Refer to Note 16

AROA BIOSURGERY LIMITED INTERIM REPORT – HALF YEAR ENDED 30 SEPTEMBER 2020

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CONSOLIDATED STATEMENT OF CASH FLOWS

For the half-year ended 30 September 2020

Notes Cash flows from operating activities Cash receipts from sales revenue Cash receipts from license fees,project fees, andgrant income Cashpaid to suppliers and employees Interest received Dividends received Interestpaid Income tax received/(paid) Net cash inflow/(outflow) from operating activities Cash flows from investing activities Purchase ofproperty,plant and equipment Purchase of intangible assets Term deposits Net cash (outflow) from investing activities Cash flows from financing activities Proceeds from issue of shares 13 Proceeds from borrowings Proceeds from financial liabilities at FVTPL 12 Transaction costs related to capital raising Repayment of borrowings/deferred consideration 8 Lease liability payments Net cash inflow/(outflow) from financing activities Net decrease in cash and cash equivalents Effect of exchange rate fluctuations on cash and cash equivalents Cash and cash equivalents at beginningof theperiod Cash and cash equivalents at end of the period	Unaudited 30 September 2020 NZ$000 9,930 1,704 (14,071) 3 - (853) 314 (2,973) (463) (172) (20,000) (20,635) 34,829 265 19,804 (4,355) (12,570) (302) 37,671 14,063 770 3,850 18,683	Unaudited 30 September 2019
		NZ$000
		11,076
		3,596
		(11,706)
		2
		1
		(57)
		(156)
		2,756
		(303)
		(78)
		-
		(381)
		78
		-
		-
		-
		(5,940)
		(243)
		(6,105)
		(3,730)
		696
		4,457
		1,423

The above consolidated statement of cash flows should be read in conjunction with the accompanying notes

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AROA BIOSURGERY LIMITED INTERIM REPORT – HALF YEAR ENDED 30 SEPTEMBER 2020

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CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the half-year ended 30 September 2020

1. Basis of preparation

These condensed interim consolidated financial statements of Aroa Biosurgery Limited ("the Company") and its subsidiaries (together “the Group”) for the half-year ended 30 September 2020 have been prepared in accordance with the requirements of NZ IAS 34 Interim Financial Reporting and IAS 34 Interim Financial Reporting. They do not include all disclosures that would otherwise be required in a complete set of financial statements and should be read in conjunction with the audited 2020 Annual Report. For the purposes of complying with generally accepted accounting practice in New Zealand, the Group is a for-profit entity. The condensed interim consolidated financial statements are presented in New Zealand dollars, rounded to the nearest thousand, unless otherwise stated.

The Group is a leading regenerative medicine company which develops and manufactures medical devices for wound and tissue repair using its proprietary extracellular matrix (ECM) technology.

The Company is a limited liability company incorporated and domiciled in New Zealand. The address of its registered office is 2 Kingsford Smith Place, Airport Oaks, Auckland.

Aroa Biosurgery Incorporated is a subsidiary of Aroa Biosurgery Limited and is incorporated and domiciled in the United States. The address of its registered office is 7220 Trade St, Suite 306, San Diego, California 92121.

The condensed interim consolidated financial statements of the Group for the half-year ended 30 September 2020 comprise the Company and its two subsidiaries, Aroa Biosurgery Incorporated and Mesynthes Nominee Limited. All subsidiary entities have a balance date of 31 March.

There is no effect of seasonality or cyclicality of interim operations.

There is no effect of seasonality or cyclicality of interim operations.
30 September 2020 Equity holding Principal Activity Place of Business % Aroa BiosurgeryIncorporated Sales & Distribution US 100 Mesynthes Nominee Limited Nominee Shareholder NZ 100	30 September 2019
	%
	100
	100

These unaudited condensed interim financial statements were authorised for issue by the Board of Directors on 25 November 2020.

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AROA BIOSURGERY LIMITED INTERIM REPORT – HALF YEAR ENDED 30 SEPTEMBER 2020

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CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

For the half-year ended 30 September 2020

2. Significant accounting policies

The Group has applied the same accounting policies and methods of computation in its condensed interim consolidated financial statements as in its 2020 annual financial statements.

Use of estimates and judgements

Significant estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

Estimates and judgements were made in respect of the value of development expenditure capitalised, the likely term of leased premises, which impacts leasehold improvements assets and right of use assets capitalised, TELA Bio Incorporated (“TELA Bio”) accrued revenue, the value of share-based payments, the impairment of intangible assets, the estimated fair value of financial assets at fair value through other comprehensive income, and the estimated fair value of financial liabilities at fair value through profit or loss.

In December 2019, a new virus, COVID-19 was detected in Wuhan, China. The virus was soon common in other countries and on 11 March 2020 the World Health Organization declared that the outbreak should be considered a pandemic.

The result of this pandemic has been a substantial reduction in economic activity throughout the world, as governments have introduced measures (such as the closure of national borders, the closure of non-essential businesses, the cancellation of public events and the imposition of restrictions on individuals) in an attempt to reduce transmission of the virus.

In late March 2020, the New Zealand Government ordered a four-week lockdown, during which non-essential businesses and organisations were not allowed to operate and individuals (other than essential workers or those undertaking essential business) were required to stay at home. In late April 2020, the lockdown period ended and the New Zealand Government started gradually easing the restrictions that had been placed on businesses, organisations and individuals.

The Group has experienced reduced demand during the first quarter due to the overall reduction in economic activity caused by the COVID-19 pandemic. The pandemic has also impacted a number of financial statement areas, as outlined below.

• Going concern: The Directors have concluded that the Company is a going concern. Refer below.

• Trade receivables: The impairment provision has been reduced since the year-end through pro-active debt management efforts. No material risks are deemed to exist as of the reporting date.

• Inventory: Despite reduced trading levels, management considers that any risks caused by COVID-19 as of reporting date is not material given the average remaining shelf life for inventories on hand being more than 12 months, apart from those already provided for obsolescence.

• Investments: The Group’s financial assets include listed equity (refer to Note 11). Management is satisfied that there is no impairment to the value as of reporting date as the quoted price in the active market has not significantly deteriorated post reporting date.

• Intangible assets: The Group measured the recoverable amounts of assets by assessing their fair value less cost of disposal. No impairment, or the indicator of the same, was noted.

During the first quarter, the Group has undertaken the following steps to reduce the impact of COVID-19 on its operations:

• Reduced expenditure in non-critical business areas.

• Taken advantage of wage subsidies and other business support measures made available by the New Zealand and US Governments.

Going concern

The Group posted a net loss before tax of $13,431,000 for the half-year ended 30 September 2020 (unaudited) (H1 FY2020 (unaudited): loss before tax of $727,000). The Group posted total operating cash outflow of $2,973,000 for the half-year ended 30 September 2020 (unaudited) (H1 FY2020 (unaudited): inflow of $2,756,000).

The Directors have continued to apply the going concern assumption as the basis of the preparation of the condensed interim consolidated financial statements.

In reaching their conclusion that the going concern assumption is appropriate, the Directors have considered the ability to achieve financial performance and cash flow forecasts prepared by management, the ability to repay the outstanding deferred consideration to Hollister Incorporated (“Hollister”) in accordance with the extended contractual terms, and the sufficiency of the cash on hand as at the reporting date.

10 AROA BIOSURGERY LIMITED INTERIM REPORT – HALF YEAR ENDED 30 SEPTEMBER 2020

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CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

For the half-year ended 30 September 2020

3. Revenue and segment information

Revenue and segment information
Sales ofgoods(USA) Sales ofgoods(Rest of world) Royalties Project fees income Total revenue Revenue recognisedpoint in time Revenue recognised over time Total revenue	Unaudited 30 September 2020 $000 8,353 649 - 178 9,180 9,002 178 9,180	Unaudited 30 September 2019 $000 9,752 285 2,992 136 13,165
		13,029 136 13,165

Segment information

Revenues from external customers are from sales of goods, royalties and project fees as noted above.

The Group sells its products to external customers who are largely located in the United States of America (“the USA”) as noted above. Sales to the global market outside of the USA continue to grow.

For the purpose of the internal reporting provided to the chief operating decision makers, business activities, performances and any associated assets and liabilities are reviewed as a consolidated group.

Revenues of $3,782,000 (H1 FY2020: $7,312,000) are derived from a single external customer.

The Group held all of its non-current assets in New Zealand with an exception of the right-of-use assets of $184,000 for the leasehold property in the USA as of the reporting date.

11 AROA BIOSURGERY LIMITED INTERIM REPORT – HALF YEAR ENDED 30 SEPTEMBER 2020

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CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

For the half-year ended 30 September 2020

4. Operating income/(loss) before net financing costs

Operating income/(loss) before net financing costs
Operating income/(loss) before net financing costs includes the following: Fair value adjustments to financial liabilities at FVTPL 12 Transaction costs Employee salaries and share-based payments benefits Auditor's fees Raw materials and consumables Depreciation: Research and development Administration and manufacturing Directors' fees Insurance Rental and operating lease costs – low value and short term leases Amortisation: Patents Customer relationships and reacquired rights Research and development	Unaudited 30 September 2020 $000 8,013 1,369 4,319 134 1,259 173 355 183 326 68 25 581 2,618	Unaudited 30 September 2019
		$000
		-
		-
		3,493
		93
		1,464
		134
		335
		138
		165
		65
		21
		581
		2,340

5. Net finance expenses

Finance income and finance expenses have been accrued to reporting date using the effective interest method.

Finance income– assets at amortised cost Interest received on bank balances Total finance income Finance expenses – liabilities at amortised cost Interest expenses – borrowings Interest expenses – deferred consideration Interest expenses – lease liabilities Total finance expenses Other finance income/(expenses) Foreign currency (losses)/gains Foreign currency gains/(losses)on deferred consideration Total other finance income/(expenses) Net finance expenses	Unaudited 30 September 2020 $000 32 32 (23) (890) (205) (1,118) (710) 1,197 487 (599)	Unaudited 30 September 2019
		$000
		2
		2
		(42)
		(1,383)
		(75)
		(1,500)
		1,368
		(1,680)
		(312)
		(1,810)

12 AROA BIOSURGERY LIMITED INTERIM REPORT – HALF YEAR ENDED 30 SEPTEMBER 2020

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CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

For the half-year ended 30 September 2020

5. Net finance expenses (continued)

Interest expenses on deferred consideration of $890,061 (H1 FY2020 (unaudited): $1,382,556) relates to the deferred consideration owing to Hollister for the purchase of the Wound Care business.

Foreign currency gains on deferred consideration of $1,197,080 (H1 FY2020 (unaudited): losses of $1,680,280) relates to the deferred consideration owing to Hollister for the purchase of the Wound Care business.

6. Other losses

Fair value adjustments to financial liabilities at FVTPL Finance cost – makegoodprovision Total other losses	Unaudited 30 September 2020 $000 (8,013) (2) (8,015)	Unaudited 30 September 2019
		$000
		-
		-
		-

Fair value adjustments to financial liabilities at FVTPL reflects the fair value adjustments of pre-offer shares issued in FY20 and H1 FY21, which were classified as financial liabilities as opposed to equity in accordance with NZ IAS 32 and NZ IFRS 13. The adjustment reflects the change in fair value of the financial liabilities at FVTPL between the issuance date and the final valuation date.

On the final valuation date, being the successful IPO in July 2020, these liabilities were converted to equity. Refer to Note 13.

7. Leases

Right of use assets

Balance 1 April 2020 – Audited Addition Depreciation Rent incentives Makegoodprovision Balance 30 September 2020 - Unaudited Balance 1 April 2019 – Audited Addition Modification adjustment Depreciation Rent incentives Makegoodprovision Balance 31 March 2020- Audited	Properties $000 2,154 4,431 (431) (35) 146 6,265 Properties $000 2,411 285 (244) (409) (35) 146 2,154	Equipment $000 21 - (14) - - 7 Equipment $000 49 - 1 (29) - - 21	Total $000 2,175
			4,431
			(445)
			(35)
			146
			6,272
			Total $000 2,460
			285
			(243)
			(438)
			(35)
			146
			2,175

13 AROA BIOSURGERY LIMITED INTERIM REPORT – HALF YEAR ENDED 30 SEPTEMBER 2020

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CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

For the half-year ended 30 September 2020

7. Lease (continued)

Lease liabilities

Balance 1 April 2020 – Audited Additions Interests Leasepayments Balance 30 September 2020- Unaudited Current Non-current Balance 1 April 2019 – Audited Additions Modification Interests Leasepayments Balance 31 March 2020- Audited Current Non-current	Properties $000 2,063 4,431 199 (244) 6,449 472 5,977 Properties $000 2,411 285 (244) 126 (515) 2,063 193 1,870	Equipment $000 22 - 1 (15) 8 8 - Equipment $000 49 - 1 2 (30) 22 22 -	Total $000 2,085
			4,431
			200
			(259)
			6,457
			480
			5,977
			Total $000 2,460
			285
			(243)
			128
			(545)
			2,085
			215
			1,870

The addition to the right of use assets and lease liabilities during the reporting period relates to the new lease agreement entered into for the new premise to expand manufacturing capacity.

There were no rent forgiveness or rent deferrals outside of the period and no rent payments are overdue as of 30 September 2020. Accordingly, the Company did not apply any practical expedient introduced by the amendments to NZ IFRS 16 to all rent concessions that satisfy the criteria.

8. Interest bearing loans and borrowings

Interest bearing liabilities are initially recognised at fair value, net of transaction costs incurred. Interest bearing liabilities are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit and loss over the period of the borrowings using the effective interest method.

Interest bearing liabilities are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date.

14 AROA BIOSURGERY LIMITED INTERIM REPORT – HALF YEAR ENDED 30 SEPTEMBER 2020

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CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

For the half-year ended 30 September 2020

8. Interest bearing loans and borrowings (continued)

Interest bearing loans and borrowings (continued)
Interest-bearingloans and borrowings Deferred consideration Total interest bearing liabilities – current Interest-bearingloans and borrowings Deferred consideration Total interest bearing liabilities – non-current	Unaudited 30 September 2020 $000 54 - 54 - 9,909 9,909	Audited 31 March 2020
		$000
		841
		21,682
		22,523
		1,119
		-
		1,119

On 1 May 2020, the Group renegotiated the terms of its existing borrowing with Hollister. As a result, the final repayment date is now 31 March 2022.

Bank Loan

As at 30 September 2020 (unaudited), the Credit Plus facility from Bank of New Zealand (“BNZ”) had a total limit of $1,614,980 (March 2020: $1,761,468), of which $1,614,980 (March 2020: $42,486) was unused and $nil (March 2020: $1,718,982) was used, secured by assets owned by the Group.

The Group has no overdraft facility as at 30 September 2020 (unaudited) (March 2020: $2,000,000).

The Group has no committed cash advance facility as at 30 September 2020 (unaudited) (March 2020: $4,000,000).

9. Related parties

(i) Transactions with related parties

During the reporting period, Series C(3) Preference shares were issued to directors and key management for the value of $21,000 (FY2020: Series C(2) Preference shares were issued to directors and key management for the value of $267,000). Refer to Note 14 for share options issued to key management.

(ii) Subsidiaries

Interests in subsidiaries are set out in note 1.

(iii) Directors and key management compensation

The compensation for key management for the reporting period is $1,362,000 inclusive of the value of all benefits (unaudited) (H1 FY2020 (unaudited): $654,000). Total Directors compensation including fees and share based payment expense are $343,000 for the half-year ended 30 September 2020 (unaudited) (H1 FY2020 (unaudited): $166,000).

(iv) Period end balances

There were no related party receivables and related party payables as at 30 September 2020 (unaudited) (March 2020: nil).

AROA BIOSURGERY LIMITED INTERIM REPORT – HALF YEAR ENDED 30 SEPTEMBER 2020

15

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CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

For the half-year ended 30 September 2020

10. Earnings per share

Earnings per share has been calculated based on shares and share options issued at the respective measurement dates.

Numerator Loss for the half-year after tax(“N”)in $ Denominator Weighted average number of ordinaryshares used in basic EPS(“D1”) Effects of: Employee share options Preference shares Period end number of shares used in diluted EPS(“D2”) Basic earningsper share(N/D1 x 100) Diluted earningsper share(N/D2 x 100)	Unaudited 30 September 2020 000 13,493 114,915 112 1,367 114,915 Cents (11.7) (11.7)	Restated Unaudited 30 September 2019
		000
		876
		2,757
		176
		2,135
		2,757
		Cents
		(31.8)
		(31.8)

The weighted average number of ordinary shares as at the reporting date was significantly higher than that as at 30 September 2019 due to the share split at the ratio of 75:1 upon the completion of the IPO in July 2020 (i.e. every existing share was split into 75 new ordinary shares).

11. Financial assets at fair value through other comprehensive income

The Group classifies the following financial assets at fair value through other comprehensive income (“FVTOCI”):

• Equity investments for which the Group has elected to recognise fair value gains or losses through other comprehensive income.

Financial assets measured at FVTOCI include the following:

US listed equitysecurities Total financial assets at FVTOCI	Unaudited 30 September 2020 NZ$000 1,861 1,861	Audited 31 March 2020
		NZ$000
		969
		969

The US listed equity securities comprise of the Group’s investment in TELA Bio. In November 2019, TELA Bio listed on the NASDAQ. The Group held 74,316 shares at a value of US$16.54 per share as at the reporting date which previously had been impaired in 2016.

The fair value of the listed equity securities is based on published market price (level 1 in the fair value hierarchy) and is revalued at reporting date.

AROA BIOSURGERY LIMITED INTERIM REPORT – HALF YEAR ENDED 30 SEPTEMBER 2020

16

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CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

For the half-year ended 30 September 2020

12. Financial liabilities at fair value through profit or loss

The Group issued Series C(3) Preference shares during the reporting period and received $19,804,000 as consideration for the shares issued. Whilst these Preference shares can only convert into share capital, the terms of the offer include multiple embedded derivatives (variable number of shares to be issued and impact of foreign exchange rates) and as a result, these shares do not meet the definition of equity per NZ IAS 32. Management elected that the entire instrument was designated as fair value through profit or loss (“FVTPL”), through the designation exemption as allowed in NZ IFRS 9. With the exception of conversion rights, all other rights attached to these shares are consistent with Series C Preference shares.

At initial recognition, the instrument was measured at transaction price, represented by the fair value of consideration given or received in exchange for the financial instrument. Its transaction costs were immediately recognised in profit or loss as the instrument is carried at FVTPL. The fair value is determined in accordance with NZ IFRS 13 Fair Value Measurement.

The Group does not recognise a gain or loss on initial recognition of the financial liabilities because the fair value is neither evidenced by a quoted price in an active market for an identical liability (i.e. a level 1 input) nor based on a valuation technique that uses only data from observable markets. The difference between the fair value at initial recognition and the transaction price is recognised in profit or loss on a straight-line basis over the estimated life of the liability, with the aggregate difference yet to be recognised in profit or loss being held off the consolidated statement of financial position.

The change between the initial fair value and fair value at reporting date is recognised in profit or loss.

When valuing the instrument, management exercised judgement to estimate the probabilities of different scenarios allowed for in the terms of the offer to determine the period over which the fair value adjustments would be recognised in profit or loss on a straight-line basis.

The opening balance of $6.8 million below relates to Series C(2) Preference shares issued in FY2020.

Notes Opening financial liabilities at FVTPL at 1 April 2020(audited) Transactionprice - Series C(3) Transaction costs - Series C(3) Fair value change duringtheperiod Reclassification to equity 13 Closing financial liabilities at FVTPL at 30 September 2020(unaudited)	Unaudited 30 September 2020 $000 6,827
	19,804
	(812)
	8,013
	(33,832)
	-

17 AROA BIOSURGERY LIMITED INTERIM REPORT – HALF YEAR ENDED 30 SEPTEMBER 2020

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CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the half-year ended 30 September 2020

13. Share capital

• (i) Ordinary shares

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects.

• (ii) Preference share capital

All preference shares were converted to ordinary shares during the period.

Notes Share capital at beginningof theperiod Reclassification of financial liabilities at FVTPL to equity 12 Shares issued from IPO Shares issued from Share Plan and Option Plan Share capital at end of theperiod	Unaudited 30 September 2020 $000 29,353 33,832 30,554 3,445 97,184	Audited 31 March 2020
		$000
		28,889
		-
		-
		464
		29,353

On 24 July 2020, the Group was listed on Australian Securities Exchange (“ASX”) and raised net capital of $30,554,000. In addition, Series C(2) and C(3) Preference shares were reclassified from financial liabilities at FVTPL to equity, increasing the share capital by $33,832,000.

At 1 April 2019 Issue of share capital At 31 March 2020 Issue of share capital Conversion of Series C(2) & C(3) shares Converted to ordinaryshares Impact of share split At 30 September 2020	# of Series C preference shares 257,715 - 257,715 - - (257,715) - -	# of Series B preference shares 798,088 - 798,088 - - (798,088) - -	# of Series A preference shares 1,079,610 - 1,079,610 - - (1,079,610) - -	# of ordinary shares 617,901 32,332 650,233 602,407 366,474 2,135,413 296,320,398 300,074,925	Total shares 2,753,314
					32,332
					2,785,646
					602,407
					366,474
					-
					296,320,398
					300,074,925

18

AROA BIOSURGERY LIMITED INTERIM REPORT – HALF YEAR ENDED 30 SEPTEMBER 2020

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CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

For the half-year ended 30 September 2020

14. Share based payments

Aroa Employee Incentive Share Plan (the “Share Plan”)

The Group offered selected employees the opportunity to participate in an employee share ownership plan (ESOP) in 2014.

Under the terms of the Share Plan, a liquidity event (including a listing), triggers the right for the Board to make a call on all amounts that remain unpaid on the ordinary shares issued under the Share Plan. In connection with the listing in July 2020, the Board resolved to make the call but at the same time offered employees who held unpaid shares under the Share Plan the opportunity to take out an interest free loan from the Company to pay up their shares. The maximum amount of the loans from the Company was $0.8 million.

The employee loans were held off balance sheet as at the reporting date.

The exercise price and the number of shares referred below represent amount and number prior to the 75:1 share split, which took effect upon the initial public offering.

Summary of shares granted under the Share Plan

Openingbalance Granted duringtheperiod Exercised duringtheperiod Forfeited duringtheperiod Closing balance Vested and exercisable at reporting date	H1 FY21 Average exercise price per share NZ$ 11.86 - 11.56 13.15 -		H1 FY21 # of shares 100,296 - (99,188) (1,108) - -	FY20	FY20
				Average exercise price per share NZ$	# of shares
				11.83	105,470
				-	-
				11.27	(5,174)
				-	-
				11.86	100,296
					100,296

Shares outstanding at the end of the period have the following expiry dates:

Grant date 1 April 2014 1 October 2014 1 April 2015 1 October 2015 1 April 2016 1 October 2016 Total	Expiry date 31 March 2024 30 September 2024 31 March 2025 30 September 2025 31 March 2026 30 September 2026	Shares Unaudited 30 September 2020 - - - - - - -	Shares
			Audited 31 March 2020
			48,123
			6,281
			12,450
			20,316
			6,820
			6,306
			100,296

19

AROA BIOSURGERY LIMITED INTERIM REPORT – HALF YEAR ENDED 30 SEPTEMBER 2020

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CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

For the half-year ended 30 September 2020

14. Share based payments (continued)

Aroa Biosurgery share option plan (the “Option Plan”) – prior to IPO

Under the Option Plan prior to IPO, the Company granted directors, key management and certain employees, options to subscribe for ordinary shares since 2017.

The opening balance of share options and the share options exercised during the period are prior to the 75:1 share split, which took effect upon the initial public offering.

Summary of options granted under the Option Plan – prior to IPO

Openingbalance Granted duringtheperiod Exercised duringtheperiod Impact of share split Forfeited duringtheperiod Closing balance Vested and excisable at reporting date	H1 FY21 Average exercise price per option NZ$ 7.42 - 7.46 - - 0.10	H1 FY21 # of options 131,695 - (70,182) 4,551,962 - 4,613,475 1,322,850	FY20	FY20
			Average exercise price per option NZ$	# of options
			7.34	128,211
			7.63	40,016
			7.34	(32,332)
			-	-
			7.34	(4,200)
			7.42	131,695
				49,112

Share options outstanding at the end of the year have the following expiry dates:

Grant date 1 October 2018 1 July2019 1 December 2019 14 February2020 Total	Expiry date 30 September 2028 30 June 2029 30 November 2029 13 February2030	Share options Unaudited 30 September 2020 2,700,975 472,500 1,440,000 - 4,613,475	Share options
			Audited 31 March 2020
			91,679
			9,450
			25,064
			5,502
			131,695

20

AROA BIOSURGERY LIMITED INTERIM REPORT – HALF YEAR ENDED 30 SEPTEMBER 2020

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CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

For the half-year ended 30 September 2020

14. Share based payments (continued)

Aroa Biosurgery share option plan (the “Option Plan”) – on and after IPO

During the half-year ended 30 September 2020, the Group offered the executive employees and directors new share options upon the listing of the Group in July 2020. Additionally, certain employees received share options on 29 September 2020.

Grants under the Option Plan comprised 8 million share options with various vesting conditions including non-market service conditions, market conditions and non-market performance conditions.

The exercise price and the number of share options referred below represent amounts and numbers post the 75:1 share split, which took effect upon the initial public offering.

Summary of options granted under the Option Plan – on and after IPO

Openingbalance Granted duringtheperiod – 24 July grant Granted duringtheperiod – 29 Septembergrant Closing balance Vested and excisable at reporting date	H1 FY21 Average exercise price per option NZ$ - 0.81 1.34 0.93		H1 FY21 # of options - 6,177,000 1,873,200 8,050,200 -	FY20	FY20
				Average exercise price per option NZ$	# of options
				-	-
				-	-
				-	-
					-

Share options – on and after IPO outstanding at the end of the year have the following expiry dates:

Grant date 24 July2020 29 September 2020 Total	Expiry date 23 July2025 28 September 2025	Share options Unaudited 30 September 2020 6,177,000 1,873,200 8,050,200	Share options
			Audited 31 March 2020
			-
			-
			-

Below is a summary of movements in share based payment reserve.

Opening balance Share basedpayment expense Employee shares exercised Closing balance	Unaudited 30 September 2020 $000 951 529 (796) 684	Audited 31 March 2020
		$000
		702
		418
		(169)
		951

21 AROA BIOSURGERY LIMITED INTERIM REPORT – HALF YEAR ENDED 30 SEPTEMBER 2020

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CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the half-year ended 30 September 2020

15. Events occurring after the reporting date

There have been no significant events subsequent to the reporting date which required disclosure in or adjustment to the condensed interim consolidated financial statements.

16. Restatements

Certain comparative amounts have been adjusted to enhance disclosure as follows:

Consolidated statement of profit or loss and other comprehensive income

Basic earningsper share(cents) Diluted earningsper share(cents)	Unaudited 30 September 2019 (141.0) (29.9)	Restated 30 September 2019 (31.8) (31.8)

The adjustment to the calculation of earnings per share was made to ensure the consistent methodology (i.e. inclusion of preference shares) was applied as in the FY2020 annual financial statements and the condensed interim consolidated financial statements for the half-year ended 30 September 2020.

Consolidated statement of financial position and consolidated statement of movements in equity

Trade and otherpayables Accumulated losses Total	Audited 31 March 2020 4,310 (23,533) (19,223)	Adjustment 238 (238)	Restated 31 March 2020 4,548
			(23,771)
			(19,223)

The adjustment was made to the opening retained earnings and trade and other payables by $238,000 to reflect certain transaction costs that were incurred in FY20 but not recognised in the same period.

17. Other disclosures

Capital commitment

As at 30 September 2020, the Group had equipment capital commitments of $289,615 (unaudited) (H1 FY2020 (unaudited): $437,764).

Contingent liabilities

As at 30 September 2020, the Group had no material contingent liabilities (unaudited) (H1 FY2020 (unaudited): $Nil).

22 AROA BIOSURGERY LIMITED INTERIM REPORT – HALF YEAR ENDED 30 SEPTEMBER 2020

BDO Auckland

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INDEPENDENT AUDITOR’S REVIEW REPORT TO THE SHAREHOLDERS OF AROA BIOSURGERY LIMITED

Report on the Condensed Interim Consolidated Financial Statements

We have reviewed the accompanying condensed interim consolidated financial statements of Aroa Biosurgery Limited (“the Company”) and its subsidiaries (together, “the Group”), which comprise the consolidated statement of financial position as at 30 September 2020, and the consolidated statement of profit or loss and other comprehensive income, consolidated statement of movements in equity and consolidated statement of cash flows for the six month period ended on that date, and condensed notes to the interim financial statements.

Board of Directors’ Responsibility

The Board of Directors of the Company is responsible for the preparation and fair presentation of the condensed interim consolidated financial statements in accordance with NZ IAS 34 Interim Financial Reporting, and for such internal control as the Board of Directors determine is necessary to enable the preparation and fair presentation of the condensed interim consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Our Responsibility

Our responsibility is to express a conclusion on the condensed interim consolidated financial statements based on our review. We conducted our review in accordance with NZ SRE 2410 Review of Financial Statements Performed by the Independent Auditor of the Entity . NZ SRE 2410 requires us to conclude whether anything has come to our attention that causes us to believe that the financial statements, taken as a whole, are not prepared in all material respects in accordance with NZ IAS 34 Interim Financial Reporting . As the auditor of the Group, NZ SRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial statements.

A review of the condensed interim consolidated financial statements in accordance with NZ SRE 2410 is a limited assurance engagement. The auditor performs procedures, primarily consisting of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

The procedures performed in a review are substantially less than those performed in an audit conducted in accordance with International Standards on Auditing (New Zealand). Accordingly, we do not express an audit opinion on the condensed interim consolidated financial statements.

Our network firm was the Investigating Accountant in relation to the Company’s listing on the ASX. The firm has no other relationship with, or interests in, the Company or any of its subsidiaries.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that these condensed interim consolidated financial statements of the Group do not present fairly, in all material respects, the financial position of the Group as at 30 September 2020, and of its financial performance and its cash flows for the period ended on that date, in accordance with NZ IAS 34 Interim Financial Reporting .

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BDO Auckland 25 November 2020 Auckland New Zealand

23

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CORPORATE DIRECTORY

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New Zealand Company Number 1980577 Australian Registered Body Number 638 867 473

Registered office

Aroa Biosurgery Limited 2 Kingsford Smith Place Mangere, Auckland 2022 New Zealand

Share register

Boardroom Pty Limited Level 12, 225 George Street Sydney NSW 2000 Australia

Board of Directors

James McLean – Independent Non-executive Chairman Brian Ward – Managing Director Steven Engle – Independent Non-executive Philip McCaw – Non-executive John R. Pinion – Independent Non-executive John Diddams – Independent Non-executive

Company Secretary James Agnew Tracy Weimer (Co-company Secretary)

Australian registered office

Level 1, 357 Military Road Mosman NSW 2088 Australia

Auditor

BDO Auckland Level 4, BDO Centre 4 Graham St, Auckland 1010 New Zealand

Legal advisers

Chapman Tripp (New Zealand) Mills Oakley (Australia)

Bankers

Bank of New Zealand (New Zealand) ASB Bank (New Zealand) Citibank (USA)

Website

www.aroabio.com

24 AROA BIOSURGERY LIMITED INTERIM REPORT – HALF YEAR ENDED 30 SEPTEMBER 2020