AROA BIOSURGERY LIMITED — Interim / Quarterly Report 2022

Nov 24, 2021

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HALF-YEAR FINANCIAL REPORT TO 30 SEPTEMBER 2021

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	2021
Previous corresponding period			30 September	2020
2. Results for announcement to the market
			6 months	6 months
			ended	ended
			30 September	30 September
			2021	2020
			NZ$000	NZ$000
2.1 Revenue from ordinary activities – Product sales	up	96%	17,661	9,002
Revenue from ordinary activities – Project fees	up	7%	191	178
2.2 Loss before tax from ordinary activities	down	63%	(5,027)	(13,431)
Normalised* loss before tax from ordinary activities	down	9%	(3,682)	(4,049)
2.3 Loss after tax attributable to members	down	62%	(5,089)	(13,493)
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 $17.7 million for the half-year were up 96% (110% on a constant currency basis), compared to H1 FY21 ($9.0 million), reflecting strong growth in both the Myriad and Ovitex product sales.

Explanation of Loss (appendix 4D item 2.2 and 2.3) Normalised loss before tax from ordinary activities excludes expenses totalling $1.3 million (H1 FY21: $9.4 million) during the reporting period. These expenses included one-off transaction costs of $50,000 (H1 FY21: $1.4 million), fair value losses of $nil (H1 FY21: $8.0 million) financing losses and share based payments of $1.3 million (2020: $nil). The decrease in normalised loss before tax from ordinary activities of $3.7 million was down by 9%, compared to H1 FY21 ($4.0m), primarily attributable to the large increase in product sales.

Loss after tax attributable to members is inclusive of the expenses relating to financing activities undertaken by the company during H1 FY21 and H1 FY22 and share based payments. The loss after tax attributable to members of $5.1 million was down 62%, compared to H1 FY21 ($13.5m), attributable to the strong increase in product sales and the large one-off costs in H1 FY21 linked to the Company’s IPO in July 2020.

• Normalised loss removes any distortion from NZ GAAP accounting treatment specific to one-off transaction costs associated with financing activities. The impact of non-cash share-based payments expense has also been removed.

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3. Net tangible assets

3. Net tangible assets
	30 September	30 September
	2021	2020
Net tangible assets* (NZ$000)	79,323	37,433
Total number of securities on issue**	341,862,816	300,074,925
Net tangible assets per security (NZ$)	0.23	0.12

• 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.

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 2021, which have been reviewed by BDO Auckland (the Company’s auditor) with the Independent Auditor’s Review Report included in the 30 September 2021 half-year consolidated financial statements.

This report should be read in conjunction with the annual report for the year ended 31 March 2021 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 24 November 2021

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James Agnew Company Secretary

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AROA BIOSURGERY LIMITED

HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS 30 September 2021

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Unlocking regenerative healing for every body

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CONTENTS

DIRECTORS’ REPORT	1
CONSOLIDATED FINANCIAL STATEMENTS	6
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS	10
INDEPENDENT AUDITOR’S REVIEW REPORT	24

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DIRECTORS’ REPORT

The Board of Directors of Aroa Biosurgery Limited (the “Company” or “AROA”) are pleased to present this report in respect of the half-year ended 30 September 2021 (the “Reporting Period”).

DIRECTORS

The Company’s Directors 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 entered FY22 with momentum and has delivered a strong result despite the challenges presented by a resurgence of COVID-19. To date, AROA’s products have been used in more than four and a half million procedures globally.

RESULTS

Sales performance in H1 FY22 gathered momentum, with product sales of NZ$17.2 million on a constant currency basis,[1] reflecting growth (on a constant currency basis) of 110% on H1 FY21 and 39% on H2 FY21. Product gross margins also improved, with 75% in H1 FY22 on a constant currency basis. This represents an increase on a constant currency basis of 13% on H1 FY21 and 5% on H2 FY21. Finally, the Company ended the Reporting Period in a strong financial position, with cash on hand, including term deposits, of NZ$65.3 million and no debt.

This result reflects the Company’s implementation of the targeted growth strategies it outlined at the start of FY22.

As previously communicated, AROA expects its innovative and proprietary Myriad™ family of products to help deliver strong growth in FY22 and underpin growth in the medium term. The Company launched Myriad Morcells™, in the United States (“US”) in May 2021. Myriad Morcells is a powder format of Myriad Matrix™ that easily conforms to optimise contact with irregular wound beds and delivers a bolus of biologically important extracellular matrix proteins known to ‘kick start’ healing. The Company is continuing to invest in building out its US commercial operations, to drive Myriad growth and capitalise on the opportunities presented by its expanded product portfolio. The Company currently has 26 field and 8 inside sales representatives and is adding further sales representatives as new access is established in large accounts

In October, Myriad Matrix and Myriad Morcells were added to the Company’s agreement with HealthTrust. HealthTrust is the third largest group purchasing organisation in the US. This opens up access to approximately 1,500 new US hospitals and healthcare systems.[2]

AROA’s H1 FY22 results also reflect strong sales by TELA Bio, Inc. (“TELA Bio”), AROA’s US commercial partner for hernia and breast reconstruction products (selling OviTex™ and OviTex PRS™).[3] TELA Bio reported US$7.6 million in revenue for Q2 CY21, an increase of 116% compared to the prior year period and up 29% compared to Q1 CY21.[4] TELA Bio’s Q3 CY21 revenue was US$7.7 million, a 44% increase compared to the corresponding period in CY20.[5] AROA receives 27% of TELA Bio’s net product sales.

1 Constant currency removes the impact of exchange rate movements. This approach is used to assess the AROA group’s underlying comparative financial performance without any distortion from changes in foreign exchange rates, specifically the US dollar. The NZD/USD exchange rate of 0.72 has been used in the constant currency analysis, representing the AROA group’s budget rate for FY22. All references in this Director’s Report to ‘constant currency’ are as set out in this footnote.

2 Refer to the Company’s ASX announcement of 6 October 2021 for more information.

3 TELA Bio, OviTex and OviTex PRS are trademarks of TELA Bio, Inc.

4 TELA Bio press release, 11 August 2021.

5 TELA Bio press release, 10 November 2021.

1 AROA BIOSURGERY LIMITED INTERIM REPORT – HALF YEAR ENDED 30 SEPTEMBER 2021

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DIRECTORS’ REPORT (Continued)

CLINICAL VALIDATION The Company has continued to build clinical evidence during the Reporting Period, with three studies published in leading peer-reviewed scientific journals.

The “ Retrospective Real World Comparative Effectiveness of Ovine Forestomach Matrix and Collagen/ORC in the management of Diabetic Foot Ulcers” was published in the International Wound Journal.[6] It is the first large clinical study comparing advanced extracellular matrix technology to a reconstituted collagen product (collagen/oxidized regenerated cellulose “ORC”), and the first large retrospective study of real-world data, comparing the healing efficacy of Endoform™ Natural to collagen/ORC. The study analysed ‘real-world’ use of both products from 2,222 qualifying Diabetic Foot Ulcers(“DFU”) from 1,590 patients treated in US based wound care centers. The study showed significantly improved wound closure times (between 1.9 and 3.5 weeks faster) and a greater probability of wound healing (between 18% and 38%) for DFUs in wounds treated with Endoform Natural compared to wounds treated with collagen/ORC. Up to one-third of the half billion people with diabetics worldwide will develop a DFU over the course of their lifetime.[7] The DFU related cost and burden to the US health care system has been estimated at $9-13 billion.[8,9]

A study published in the Journal of Biomaterials Applications[10] deepens understanding of the role AROA’s gentle manufacturing process plays in preserving the unique structural and biological characteristics of AROA ECM™. It also describes how these features can translate into better healing outcomes for patients.

TELA Bio completed the BRAVO study, a multi-center post market study designed to evaluate the clinical performance of OviTex Reinforced Tissue Matrix for the treatment of ventral hernia. The study has reported low hernia recurrence rates, with 2.7% in 12-month analysis and less than 5% in 24-month follow up.[11]

OTHER HIGHLIGHTS

Following limited selling by existing shareholders post 12-month escrow release, the Company received strong inbound demand from institutional investors and elected to complete a capital raise. The capital raise included an oversubscribed A$47 million institutional placement (approximately NZ$50 million) and ensures that AROA is well positioned to respond to emerging opportunities for faster growth.

The Company previewed its new dead space management platform technology during the Reporting Period. This is a new system to close dead space at a surgical site created by surgical dissection or tissue removal. It is comprised of a specially designed AROA ECM implant that is coupled to an external single-use negative pressure pump. When commercialised, the company expects that this product will be used to prevent surgical site complications in a wide range procedures.

AROA has filed three new patents relating to key aspects of this technology and intends to launch a new class of products based on it to address an unmet need in a number of surgical specialties. Management estimates that the market opportunity for this new class of products is more than US$2.5 billion.[12] The Company is targeting CY23 for commercialisation of the first product based on this technology for linear cavities, with final verification and testing currently underway.

6 Bosque, B. A., C. Frampton, A. E. Chaffin, G. A. Bohn, K. Woo, C. DeLeonardis, B. D. Lepow, M. M. Melin, T. Madu, S. G. Dowling and B. C. H. May (2021). “Retrospective real-world comparative effectiveness of ovine forestomach matrix and collagen/ORC in the treatment of diabetic foot ulcers.” Int Wound J 2021 Aug 6 (Epub ahead of print).

7 Armstrong, D.G., et al., Five year mortality and direct costs of care for people with diabetic foot complications are comparable to cancer. J Foot Ankle Res, 2020. 13(1): p. 16.

8 Rice, J.B., et al., Burden of diabetic foot ulcers for medicare and private insurers. Diabetes Care, 2014. 37(3): p. 651-8.

9 Barshes, N.R., et al., The system of care for the diabetic foot: objectives, outcomes, and opportunities. Diabet Foot Ankle, 2013. 10 Smith, M. J., S. G. Dempsey, R. W. Veale, C. G. Duston-Fursman, C. A. F. Rayner, C. Javanapong, D. Gerneke, S. G. Dowling, B. A. Bosque, T. Karnik, M. J. Jerram, A. Nagarajan, R. Rajam, A. Jowsey, S. Cutajar, I. Mason, R. G. Stanley, A. Campbell, J. Malmstrom, C. H. Miller and B. C. H. May (2021). "Further structural characterization of ovine forestomach matrix and multi-layered extracellular matrix composites for soft tissue repair." J Biomater Appl: 8853282211045770.

11 DeNoto, G., E. P. Ceppa, S. J. Pacella, M. Sawyer, G. Slayden, M. Takata, G. Tuma and J. Yunis (2021). "A Prospective, Single Arm, Multi-Center Study Evaluating the Clinical Outcomes of Ventral Hernias Treated with OviTex® 1S Permanent Reinforced Tissue Matrix: The BRAVO Study 12-Month Analysis." J. Clin. Med. 10(21): 4998.

12 Data on file.

2 AROA BIOSURGERY LIMITED INTERIM REPORT – HALF YEAR ENDED 30 SEPTEMBER 2021

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DIRECTORS’ REPORT

(Continued)

OUTLOOK

Following a strong first half and a review of internal forecasts, the Company upgraded its FY22 product revenue guidance (on a constant currency basis) to NZ$34-37 million. This reflects a 58% - 71% forecasted increase on FY21 product revenue on a constant currency basis. The Company also announced that it expects product gross margins to continue to improve, to be between 73-75%. EBITDA is expected to be negative as previously forecasted. Given the dynamic and evolving impact of COVID-19, this guidance is subject to there being no material decline in US medical procedure numbers. The guidance assumes an average NZD/USD exchange rate of 0.72.

The Company is pleased to report that it maintains that guidance and plans to continue investing in its US commercial operations to help drive that growth.

Additional operational highlights expected in H2 FY22 include the following:

• Limited commercial launch in early CY22 of the Company’s new Symphony™ product. Symphony is developed from the AROA ECM platform technology and is applied as a graft and surgically fixed at the margins. It is designed to support healing during the proliferative phase to reduce time to wound closure, particularly in patients whose healing is severely impaired or compromised due to disease. Symphony has an estimated market size in the US of US$1.15 billion.[13] The Company is targeting full commercial launch in CY23 following completion of clinical studies.

• Construction of AROA’s second manufacturing facility is expected to complete in CY21, with qualification for use in Q1 CY22. This will provide a three-fold increase in the Company’s manufacturing capacity, supporting approximately NZ$100 million in annual sales.

13 SmartTRAK BiomedGPS data 2020.

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AROA BIOSURGERY LIMITED INTERIM REPORT – HALF YEAR ENDED 30 SEPTEMBER 2021

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DIRECTORS’ REPORT

(Continued)

FINANCIAL RESULTS

NORMALISED PROFIT OR LOSS[1]

NORMALISED PROFIT OR LOSS1
Product sales Other revenue Total revenue Gross profit Product gross margin % Other income Normalised selling and administrative expenses3 Research and development Normalised other losses Total normalised operating expenses Normalised EBIT Add back: Depreciation & amortisation Normalised EBITDA Net finance expenses Normalised loss before income tax*	Reported H1 FY2022 NZ$000 17,661 191 17,852 13,469 75% 94 (12,647) (3,618) - (16,265) (2,702) 1,546 (1,156) (980) (3,682)	Reported H1 FY2021 NZ$000 9,002 178 9,180 6,035 65% 1,869 (8,561) (2,791) (2) (11,354) (3,450) 1,509 (1,941) (599) (4,049)	Reported YoY % 96 7 94 123 10 bps (95) 48 30 (100) 43 22 2 40 64 (9)	CC2 H1 FY2022 NZ$000 17,204 186 17,390 13,007 75% 94 (12,449) (3,618) - (16,067) (2,966) 1,546 (1,420) (869) (3,835)	CC2 H1 FY2021 NZ$000 8,176 162 8,338 5,192 62% 1,869 (8,150) (2,791) (2) (10,943) (3,882) 1,509 (2,373) (1,087) (4,969)	CC2 YoY % 110
						15
						109
						151
						13 bps
						(95)
						53
						30
						(100)
						47
						24
						2
						40
						(20)
						(23)

1. The normalised profit or loss is non-conforming financial information, as defined by the NZ Financial Markets Authority. It 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 one-off transaction costs associated with financing activities (AROA’s IPO on the ASX in July 2020 and its secondary capital raising on the ASX in August 2021). The impact of non-cash share-based payments expense has also been removed from the profit or loss. This approach is used by management and the Board to assess the Group’s comparative financial performance.

2. Constant currency (‘CC’) removes the impact of exchange rate movements. This approach is used to assess the Group’s underlying comparative financial performance without any distortion from changes in foreign exchange rates, specifically the USD. The USD/NZD exchange rate of 0.72 has been used in the constant currency analysis, representing the average rate for Q4 FY21 and the base rate for FY22 budget.

3. These items have been normalised by the amounts outlined within the section headed ‘Reconciliation of Normalised Profit or Loss to NZ GAAP Profit or Loss’ below.

Product sales

Product sales of $17.7 million for the half-year were up 96%, compared to H1 FY21 ($9.0 million). On a constant currency basis, Product sales of $17.2 million for the half year were up 110%, compared to H1 FY21 ($8.2 million) and up 39% compared to H2 FY21 ($12.3 million).

Other revenue

Other revenue represents project fees income, received for product development projects undertaken with TELA Bio.

Product gross margin %

On a constant currency basis, gross margin % of 75% for the half-year was up 13%, compared to H1 FY21 (62%), primarily due to the increase in sales in H1 FY22, but also supported by an increase in sales of Myriad products and efficiency improvements in manufacturing.

Normalised operating expenses

Selling and administrative expenses of $12.6 million for the half-year were up $4.1 million, compared to H1 FY21, primarily reflecting the increased investment into the Company’s US based sales operations.

Research and development expenses for the half-year were up $0.8 million, compared to H1 FY21, reflecting the increase in staffing on pipeline products.

AROA BIOSURGERY LIMITED INTERIM REPORT – HALF YEAR ENDED 30 SEPTEMBER 2021

4

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DIRECTORS’ REPORT

(Continued)

FINANCIAL RESULTS (Continued)

CASH FLOWS

Net cash outflow from operating activities of $5.8 million for H1 FY22 compared to a net cash outflow from operating activities of $3.0 million in H1 FY21, primarily reflecting the Group’s increased working capital from higher sales. Net cash outflow from operating activities for H1 FY22 included an interest payment of $1.5 million (H1 FY21: $0.9 million) due on the debt outstanding to Hollister Inc.

Purchases of property, plant and equipment of $2.0 million for H1 FY22 compared to $0.5 million in H1 FY21, reflecting the current investment into the expansion of the Group’s manufacturing facility.

Net cash inflow from financing activities of $37.9 million, reflecting the net proceeds from the Company’s capital raise in August 2021 of $47.9 million, less full repayment of the debt outstanding to Hollister of $9.5 million. As a result of this payment, the Company is now debt free. The Group ended H1 FY22 with cash on hand and term deposits of NZ$65.3 million, providing adequate cash reserves to further invest in expanding its US commercial operations and to accelerate and broaden its research and development pipeline.

RECONCILIATION OF NORMALISED PROFIT OR LOSS TO NZ GAAP PROFIT OR LOSS

Normalised loss before income tax Share based payments Transaction costs Other losses Loss before income tax (NZ GAAP)	Unaudited 30 September 2021 NZ$000 (3,682) (1,295) (50) - (5,027)	Unaudited 30 September 2020
		NZ$000
		(4,049)
		-
		(1,369)
		(8,013)
		(13,431)

Share Based Payments

Share based payments of $1.3 million relate to the vesting of the share options issued to Directors and employees of the Group on IPO in FY21 and during H1 FY22. New share options were granted to certain employees of the Group during H1 FY22.

Transaction costs

Transaction costs reflect one-off costs including the costs associated with the capital raise in August 2021. The costs in H1 FY21 relate to costs associated with the IPO in July 2020.

Other Losses

Other losses of $8.0 million for H1 FY21 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.

DIVIDENDS

No dividends have been paid or proposed.

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

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Brian Ward – CEO

Dated this 24th November 2021

5 AROA BIOSURGERY LIMITED INTERIM REPORT – HALF YEAR ENDED 30 SEPTEMBER 2021

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CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For the half-year ended 30 September 2021

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 loss before net financing costs 4 Finance income 5 Finance expenses 5 Net finance expenses Loss before income tax Income tax expenses Loss for the period attributable to shareholders Other comprehensive income Items that will or maybe reclassified to profit or loss Exchange losses 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 13 Total other comprehensive (losses)/income Total comprehensive loss for the period attributable to shareholders Basic earnings per share (cents) 12 Diluted earnings per share (cents) 12	Unaudited 30 September 2021 NZ$000 17,852 (4,383) 13,469 94 (13,992) (3,618) - (4,047) 86 (1,066) (980) (5,027) (62) (5,089) (57) (107) (164) (5,253) (1.6) (1.6)	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)
		(11.7)
		(11.7)

The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes

AROA BIOSURGERY LIMITED INTERIM REPORT – HALF YEAR ENDED 30 SEPTEMBER 2021

6

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CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 September 2021

Notes Current assets Cash and cash equivalents 7 Term deposits 7 Derivative assets Trade and other receivables 9 Inventories Tax receivable Financial assets at fair value through other comprehensive income 13 Total current assets Non-current assets Property, plant and equipment Other receivable Right of use assets 8 Intangible assets Total non-current assets Total assets Current liabilities Trade and other payables Employee benefits Interest-bearing loans and borrowings 10 Lease liabilities 8 Tax liabilities Total current liabilities Non-current liabilities Provisions Lease liabilities 8 Total non-current liabilities Total liabilities Net assets Equity Share capital 14 Share based payment reserve 15 Foreign currency translation reserve Equity investment reserve Accumulated losses Total equity	Unaudited 30 September 2021 NZ$000 45,291 20,000 - 11,658 3,521 - 1,477 81,947 8,179 160 5,669 17,562 31,570 113,517 2,575 2,149 - 607 35 5,366 164 5,504 5,668 11,034 102,483 145,516 3,180 141 1,477 (47,831) 102,483	Audited 31 March 2021
		NZ$000
		15,381
		20,000
		31
		8,106
		3,608
		39
		1,584
		48,749
		6,707
		171
		5,951
		18,077
		30,906
		79,655
		2,744
		2,030
		9,952
		566
		-
		15,292
		161
		5,716
		5,877
		21,169
		58,486
		97,316
		2,130
		198
		1,584
		(42,742)
		58,486

On behalf of the Board: 24 November 2021

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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 notes

7 AROA BIOSURGERY LIMITED INTERIM REPORT – HALF YEAR ENDED 30 SEPTEMBER 2021

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CONSOLIDATED STATEMENT OF MOVEMENTS IN EQUITY

For the half-year ended 30 September 2021

Notes Balance as at 1 April 2021 Losses for theperiod Other comprehensive loss for theperiod Total comprehensive loss for theperiod Transactions with shareholders Shares issued 14 Employee shares exercised Employee shares forfeiture Share basedpayments Total transactions with shareholders Balance as at 30 September 2021 unaudited Balance as at 1 April 2020 Comprehensive income Losses for theperiod Other comprehensive (loss)/income for the period Total comprehensive (loss)/income for the period Transactions with shareholders Reclassification of financial liabilities to equity 14 Shares issued from IPO Shares issued from Share & Option Plans Share basedpayments Total transactions with shareholders Balance as at 30 September 2020 unaudited	Share Capital $000 97,316 - - - 47,740 400 - 60 48,200 145,516 29,353 - - - ** 33,832 30,554 3,445 - 67,831 97,184**	Accumul ated Losses $000 (42,742) (5,089) - (5,089) - - - - - (47,831) (23,771) (13,493) - (13,493) - - - - - (37,264)	Foreign Currency Translation Reserve $000 198 - (57) (57) - - - - - 141 (134) - (1) (1) - - - - - (135)	Equity Investment Reserve $000 1,584 - (107) (107) - - - - - 1,477 969 - 892 892 - - - - - 1,861	Share Based Payment Reserve $000 2,130 - - - (244) (20) 1,314 1,050 3,180 951 - - - - - (796) 529 (267) 684	Total Equity $000 58,486
						(5,089)
						(164)
						(5,253)
						47,740
						156
						(20)
						1,374
						49,250
						102,483
						7,368
						(13,493)
						891
						(12,602)
						33,832
						30,554
						2,649
						529
						67,564
						62,330

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

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AROA BIOSURGERY LIMITED INTERIM REPORT – HALF YEAR ENDED 30 SEPTEMBER 2021

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CONSOLIDATED STATEMENT OF CASH FLOWS

For the half-year ended 30 September 2021

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 Interestpaid Income tax received Net cash (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 14 Proceeds from borrowings Proceeds from financial liabilities at FVTPL Transaction costs related to issue of equitysecurities or convertible debt securities Repayment of borrowings/deferred consideration 10 Lease liability payments – Principalpayments Lease liability payments – Interest payments Net cash inflow from financing activities Net increase 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 2021 NZ$000 13,363 1,711 (19,395) 93 (1,548) 12 (5,764) (2,020) (95) - (2,115) 50,116 - - (2,214) (9,514) (282) (199) 37,907 30,028 (118) 15,381 45,291	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)
		(95)
		(207)
		37,671
		14,063
		770
		3,850
		18,683

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 2021

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CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the half-year ended 30 September 2021

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 2021 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 2021 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, manufactures and sells medical devices for wound and soft 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 64 Richard Pearse Drive, 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 2021 comprise the Company and its two subsidiaries, Aroa Biosurgery Incorporated and Mesynthes Nominee Limited. All subsidiary entities have a reporting 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 2021 Equity holding Principal Activity Place of Business % Aroa BiosurgeryIncorporated Sales & Distribution US 100 Mesynthes Nominee Limited Nominee Shareholder NZ 100	30 September 2020
	%
	100
	100

These unaudited condensed interim financial statements were authorised for issue by the Board of Directors on 24 November 2021.

10

AROA BIOSURGERY LIMITED INTERIM REPORT – HALF YEAR ENDED 30 SEPTEMBER 2021

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CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the half-year ended 30 September 2021

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 2021 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.

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 August 2021, the New Zealand Government ordered a level 4 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 October 2021, the level 4 lockdown period ended and the New Zealand Government started gradually easing the restrictions that had been placed on businesses, organisations and individuals.

The Group continued to experience reduced demand from certain countries but overall trading activity, particularly in the USA, has been stronger than expected.

An assessment of the impact of COVID-19 on the Group’s interim financial statements as at 30 September 2021 is set out below, based on information available at the time of preparing the interim financial statements.

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

• Trade receivables: The Group has undertaken a review to ensure that the provision for expected credit losses reflects the current estimated exposure of defaults. Impairment provision has been managed effectively since the year-end through proactive debt management efforts. No material risks are deemed to exist as of the reporting date.

• Inventory: 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 13). 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 the recoverable amount based on value in use calculations for goodwill. No impairment was noted.

The Group has undertaken no new steps to reduce the impact of COVID-19 on its operations since 31 March 2021.

Going concern

The Group posted a net loss before tax of $5,027,000 for the half-year ended 30 September 2021 (unaudited) (H1 FY2021 (unaudited): loss before tax of $13,431,000). The Group posted total operating cash outflow of $5,764,000 for the half-year ended 30 September 2021 (unaudited) (H1 FY2021 (unaudited): outflow of $2,973,000).

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 and the sufficiency of the cash on hand as at the reporting date.

In addition, management considers that the impact of COVID-19 pandemic does not cast significant doubt on the Group’s ability to continue as a going concern. This is in line with the product revenue recovering strongly, in excess of management’s internal expectations, during the reporting period. Management is not aware of any other event or condition that may cast significant doubt on its going concern assumptions.

11 AROA BIOSURGERY LIMITED INTERIM REPORT – HALF YEAR ENDED 30 SEPTEMBER 2021

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CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

For the half-year ended 30 September 2021

3. Revenue and segment information

Revenue and segment information
Sales ofgoods(USA) Sales ofgoods(Rest of world) Project fees(USA) Total revenue Revenue recognisedpoint in time Revenue recognised over time Total revenue	Unaudited 30 September 2021 $000 17,212 449 191 17,852 17,661 191 17,852	Unaudited 30 September 2020 $000 8,353 649 178 9,180
		9,002 178 9,180

Segment information

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

The Group sells its products and services to external customers who are largely located in the United States of America (“the USA”) as noted above.

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 $10,761,000 (H1 FY2021: $3,782,000) are derived from a single external customer, being sales of products and services to TELA Bio, which is the Group’s USA sales and distribution partner.

The Group held all of its non-current assets in New Zealand with an exception of the right-of-use assets of $134,000 (H1 FY21: $184,000) for the leasehold property and property, plant and equipment of $47,000 (H1 FY21: $nil) in the USA as of the reporting date.

12 AROA BIOSURGERY LIMITED INTERIM REPORT – HALF YEAR ENDED 30 SEPTEMBER 2021

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CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

For the half-year ended 30 September 2021

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 6 Transaction costs Employee salaries and share-based payments benefits Auditor's fees relating to audit or review of financial statements Raw materials and consumables Depreciation: Research and development Right of use assets Administration and manufacturing Directors' fees 11 Insurance Low-value and short-term leases Amortisation: Patents Customer relationships and reacquired rights Research and development	Unaudited 30 September 2021 $000 - 50 13,451 120 1,984 183 386 367 205 408 61 29 581 3,377	Unaudited 30 September 2020
		$000
		8,013
		1,369
		8,273
		134
		1,259
		173
		375
		355
		183
		326
		68
		25
		581
		2,618

5. Net finance expenses

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

Finance income Interest received on bank balances Foreign currency gain Total finance income Finance expenses Interest expenses – borrowings Interest expenses – deferred consideration Interest expenses – lease liabilities Foreign currencylosses Finance cost – makegoodprovision Total finance expenses Net finance expenses	Unaudited 30 September 2021 $000 86 - 86 - (748) (205) (111) (2) (1,066) (980)	Unaudited 30 September 2020
		$000
		32
		487
		519
		(23)
		(890)
		(205)
		-
		-
		(1,118)
		(599)

13 AROA BIOSURGERY LIMITED INTERIM REPORT – HALF YEAR ENDED 30 SEPTEMBER 2021

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CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the half-year ended 30 September 2021

5. Net finance expenses (continued)

Interest expenses on deferred consideration of $747,141 (H1 FY2021 (unaudited): $890,061) relates to the deferred consideration owing to Hollister for the purchase of the Wound Care business.

Foreign currency gains on deferred consideration of $10,785 (H1 FY2021 (unaudited): gain of $1,197,080) 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 2021 $000 - - -	Unaudited 30 September 2020
		$000
		(8,013)
		(2)
		(8,015)

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.

7. Cash and cash equivalents & term deposits

Cash and cash equivalents include cash on hand, deposits held at call with financial institutions and other short term deposits with maturities of three months or less and bank overdrafts.

Bank balances Total cash and cash equivalents	Unaudited 30 September 2021 $000 45,291 45,291	Audited 31 31 March 2021
		$000
		15,381
		15,381

During the year, the Group entered into short-term deposit arrangements with the Bank of New Zealand and ASB Bank for $10 million each at the average rate of 1.1% per annum with a maturity of up to 6 months from the reporting date.

Term deposits Total term deposits	Unaudited 30 September 2021 $000 20,000 20,000	Audited 31 31 March 2021
		$000
		20,000
		20,000

14 AROA BIOSURGERY LIMITED INTERIM REPORT – HALF YEAR ENDED 30 SEPTEMBER 2021

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CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

For the half-year ended 30 September 2021

8. Leases

Right of use assets

Balance 1 April 2021 – Audited Addition Depreciation Modification adjustment Balance 30 September 2021 - Unaudited Balance 1 April 2020 – Audited Addition Depreciation Modification adjustment Balance 31 March 2021- Audited	Properties $000 5,951 - (386) 104 5,669 Properties $000 2,154 4,431 (721) 87 5,951	Equipment $000 - - - - - Equipment $000 21 - (21) - -	Total $000 5,951
			-
			(377)
			95
			5,669
			Total $000 2,175
			4,431
			(742)
			87
			5,951

Lease liabilities

Balance 1 April 2021 – Audited Additions Interests Leasepayments Modification adjustment Balance 30 September 2021- Unaudited Current Non-current Total Balance 1 April 2020 – Audited Additions Modification Interests Leasepayments Balance 31 March 2021- Audited Current Non-current Total	Properties $000 6,282 - 205 (482) 106 6,111 607 5,504 6,111 Properties $000 2,063 4,431 87 409 (708) 6,282 566 5,716 6,282	Equipment $000 - - - - - - - - - Equipment $000 22 - - 1 (23) - - - -	Total $000 6,282
			-
			205
			(482)
			106
			6,111
			607
			5,504
			6,111
			Total $000 2,085
			4,431
			87
			410
			(731)
			6,282
			566
			5,716
			6,282

There was no rent forgiveness or rent deferral outside of the period and no rent payment was overdue as of 30 September 2021. As a result, the Company did not apply any practical expedient introduced by the amendments to NZ IFRS 16 to all rent concessions that satisfy the criteria.

15 AROA BIOSURGERY LIMITED INTERIM REPORT – HALF YEAR ENDED 30 SEPTEMBER 2021

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CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Continued) For the half-year ended 30 September 2021

9. Trade and other receivables

Trade and other receivables are recognised initially at fair value plus directly attributable transaction costs and subsequently measured at amortised cost using the effective interest method less provision for impairment.

The Group applies the NZ IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss provision for trade receivables. To measure expected credit losses on a collective basis, trade receivables are grouped based on similar credit risk and aging. The expected loss rates are based on the Group’s historical credit losses experienced over the threeyear period prior to the period end. The historical loss rates are then adjusted for current and forward-looking information on macroeconomic factors affecting the Group’s customers.

Trade receivables Lessprovision for impairment of trade receivables Net trade receivables Prepayments Other receivables Other receivables – Revenue share Other receivables – Grant accrual Total current trade and other receivables Prepayments Total non-currentprepayments	Unaudited 30 September 2021 $000 4,885 (19) 4,866 1,109 699 4,930 54 11,658 Unaudited 30 September 2021 $000 160 160	Audited 31 31 March 2021
		$000
		2,790
		(10)
		2,780
		918
		573
		3,116
		719
		8,106
		Audited 31 March 2021
		$000
		171
		171

Trade receivables amounting to $4,866,000 (March 2021: $2,780,000) are shown net of impairment losses. Provisions have been made appropriately after considering the impact of COVID-19. Trade receivables are interest free. Trade receivables of a short-term duration are not discounted. Other receivables include accrued revenue share from TELA Bio which is based on the historical performance and trends. The Group has a high probability of receiving this revenue share.

The non-current portion of prepayment relates to the Group’s contract with Watercare for its access to water and associated investments made in its premises. The prepayment is amortised over the same period that the premises are leased by the Group.

• (i) Impaired receivables

As at 30 September 2021, current trade receivables with a nominal value of $19,000 (2021: $10,000) were impaired and provided for.

• (ii) Past due but not impaired receivables

As at 30 September 2021, trade receivables of $813,000 (2021: $135,000) were past due but not impaired.

The ageing analysis of trade receivables is as follows:

Current 1 - 30 days overdue 30 - 60 days overdue 60 - 90 days overdue 90+ days overdue Total trade receivables	Unaudited 30 September 2021 $000 4,053 546 233 33 20 4,885	Audited 31 March 2021
		$000
		2,645
		88
		49
		2
		6
		2,790

16 AROA BIOSURGERY LIMITED INTERIM REPORT – HALF YEAR ENDED 30 SEPTEMBER 2021

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CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the half-year ended 30 September 2021

10. 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.

Interest-bearingloans and borrowings Deferred consideration Total interest bearing liabilities – current	Unaudited 30 September 2021 $000 - - -	Audited 31 March 2021
		$000
		-
		9,952
		9,952

During the reporting period, the Group fully repaid its borrowing with Hollister.

Bank Loan

During the reporting period, the Credit Plus facility from Bank of New Zealand (“BNZ”) was cancelled as it is no longer required by the Group.

11. Related parties

(i) Transactions with related parties

There were no related party transactions outside of key management compensation for the half year.

(ii) Subsidiaries

Interests in subsidiaries are set out in note 1.

(iii) Key management compensation

Key management includes Directors (Executive and Non-Executive) and the senior leadership team. The total key management compensation excluding the compensation for Directors is $1,334,000 (H1 FY2021 (unaudited): $966,000). (excluding share based payments of $277,000 (H1 FY2021 (unaudited): $396,000)). The total compensation for Directors, excluding share based payments of $87,000 (H1 FY2021 (unaudited): $161,000), are $205,000 (H1 FY2021 (unaudited): $183,000).

(iv) Period end balances

There were no related party receivables and related party payables as at 30 September 2021 (unaudited) (March 2021: nil).

AROA BIOSURGERY LIMITED INTERIM REPORT – HALF YEAR ENDED 30 SEPTEMBER 2021

17

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CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the half-year ended 30 September 2021

12. 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 2021 000 5,089 321,295 15,011 - 321,295 Cents (1.6) (1.6)	Unaudited 30 September 2020
		000
		13,493
		114,915
		112
		1,367
		114,915
		Cents
		(11.7)
		(11.7)

• As employee share options are anti-dilutive, these were not included in the calculation of diluted earnings per share above.

The weighted average number of ordinary shares as at the reporting date was significantly higher than that as at 30 September 2020 due to the weighted average of the comparative period including the shares prior to the share split at the ratio of 75:1 that took effect upon the completion of the IPO in July 2020.

13. 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 2021 NZ$000 1,477 1,477	Audited 31 March 2021
		NZ$000
		1,861
		1,861

The US listed equity securities comprise of the Group’s investment in TELA Bio. In November 2020, TELA Bio listed on the NASDAQ. The Group held 74,316 shares at a value of US$13.66 per share as at the reporting date (March 2021: US$14.90).

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.

18

AROA BIOSURGERY LIMITED INTERIM REPORT – HALF YEAR ENDED 30 SEPTEMBER 2021

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CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the half-year ended 30 September 2021

14. 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 year ended 31 March 2021.

Share capital at beginning of theperiod Reclassification of financial liabilities at FVTPL to equity Shares issued Shares issued from Share Plan and Option Plan Share capital at end of theperiod	Unaudited 30 September 2021 $000 97,316 - 47,740 460 145,516	Audited 31 March 2021
		$000
		29,353
		33,832
		30,554
		3,577
		97,316

At 1 April 2020 Issue of share capital Conversion of Series C(2) & C(3) shares Converted to ordinaryshares Impact of share split Issue of share capital post IPO At 31 March 2021 Issue of share capital At 30 September 2021	# of Series C preference shares 257,715 - - (257,715) - - -	# of Series B preference shares 798,088 - - (798,088) - - -	# of Series A preference shares 1,079,610 - - (1,079,610) - - -	# of ordinary shares 650,233 602,407 366,474 2,135,413 296,320,398 651,489 300,726,414 41,136,402 341,862,816	Total shares 2,785,646
					602,407
					366,474
					-
					296,320,398
					651,489
					300,726,414
					41,136,402
					341,862,816

In August 2021, the Group raised additional capital of AU$45,435,000 net of acquisition costs and issued 40,684,305 ordinary shares in addition to 452,097 shares issued under the share purchase and share option scheme for $460,000.

19

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CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

For the half-year ended 30 September 2021

15. Share based payments

Share option plan

During the year ended 31 March 2019 the Group implemented a share option plan for selected employees to provide an opportunity to participate in a Share Option Plan. This is an offer of options to acquire ordinary shares. Under the terms of the plan, a parcel of options was issued to employees with an exercise price equal to the market valuation of shares at the time of offer. The grant of share options is split into three tranches vesting over a three year period.

The fair value of the options has been measured using the Revenue Ruling 59-60 and standard practice. Revenue Ruling 59-60 outlines the standard of value, approach, methods, and factors to be considered in valuing shares of the stock of the closely held entity similar to the Company. Revenue rulings are public administrative rulings by the Internal Revenue Service in the United States Department of the Treasury of the United States federal government.

The share based payments reserve comprises the fair value of the employee share purchase plan before its classifications to share capital upon settlement.

The grant date fair value of equity-settled share-based payment awards granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and nonmarket performance conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that do meet the related service and non-market performance conditions at the vesting date. For sharebased payment awards with non-vesting conditions, the grant date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.

Key valuation assumptions for the share option plan are:

Parameters	Assumptions for Share Options	Assumptions for Share Options	Assumptions for Share Options	Assumptions for Share Options	Assumptions for Share Options
	Issued on July 2020	Issued on September 2020	Issued on April 2021	Issued on June 2021	Issued on August 2021
Valuation date	Grant date
Beginning stock price	The Group's stock price was assumed to be $0.75 at the Valuation Date per management’s guidance	The Group's stock price was based on the publicly traded share price at the valuation date.
Risk free rate	The risk-free rate was based on the rate of treasury securities with the same term as the estimated time for the projection period.
Volatility	The volatility (standard deviation) was estimated based on an analysis of the historical and implied volatility for the Group’s guideline publicly traded competitors.
Dividend yield	The dividend yield was assumed to be nil.

Opening balance Share basedpayment expense Employee shares exercised Forfeited of shares Closing balance	Unaudited 30 September 2021 $000 2,130 1,314 (244) (20) 3,180	Audited 31 March 2021
		$000
		951
		2,011
		(807)
		(25)
		2,130

20 AROA BIOSURGERY LIMITED INTERIM REPORT – HALF YEAR ENDED 30 SEPTEMBER 2021

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CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the half-year ended 30 September 2021

15. Share based payments (continued)

a) 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.

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

Openingbalance Granted duringtheperiod Exercised duringtheperiod Impact of share split Forfeited duringtheperiod Closing balance	H1 FY22 Average exercise price per option NZ$ 0.10 - 0.10 - - 0.11	H1 FY22 # of options 3,919,575 - (196,875) - - 3,722,700	FY21		FY21
			Average exercise price per option NZ$		# of options
			7.42		131,695 *
			-		-
			7.47		(79,434)
			-		3,867,314
			-		-
			0.10		3,919,575

• The opening balance of share options and the share options exercised during FY21 are prior to the 75:1 share split, which took effect upon the initial public offering.

Vested and exercisable at reporting date 0.10 1,975,200 0.10 1,660,220

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

Grant date 1 October 2018 1 July2019 1 December 2019 Total	Expiry date 1 October 2028 1 October 2028 30 November 2029	Share options Unaudited 30 September 2021 1,891,150 393,750 1,437,800 3,722,700	Share options
			Audited 31 March 2021
			2,009,275
			472,500
			1,437,800
			3,919,575

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CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the half-year ended 30 September 2021

15. Share based payments (continued)

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

During the half-year ended 30 September 2021, the Group offered its senior and key employees new share options. These options were issued in April, June and August 2021.

Grants under the Option Plan comprised 6.41 million share options with various vesting conditions including non-market service conditions and non-market performance conditions.

Key assumptions and variables used in the calculation of share based payments relating to these grants are as follows:

Fair Value (AU$) Option Pricing Model Exercise price (AU$) Term Expected volatility Risk-free interest rate	22 April 2021 0.58 Black-Scholes 1.15 5 years 60% 0.70%	28 June 2021 0.52 Black-Scholes 1.06 5 years 57% 0.73%	9 August 2021 0.49
			Black-Scholes
			1.165
			5 years
			55%
			0.66%

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

Openingbalance Granted duringtheperiod – 24 July grant Granted duringtheperiod – 29 Septembergrant Granted duringtheperiod – 22 Aprilgrant Granted duringtheperiod – 28 Junegrant Granted duringtheperiod – 9 Augustgrant Exercised duringtheyear Forfeited duringtheperiod Closing balance Vested and exercisable at reporting date		H1 FY22 Average exercise price per option NZ$ 0.93		H1 FY22 # of options 7,950,200 - - 350,000 2,535,000 3,525,000 (402,425) (120,000) 13,837,775 1,940,970		FY21	FY21
						Average exercise price per option NZ$	# of options
						-	-
		-				0.81	6,177,000
		-				1.45	1,873,200
		1.20				-	-
		1.11				-	-
		1.22				-	-
		0.56				-	-
		1.28				1.45	(100,000)
		1.04				0.93	7,950,200
		0.88				0.82	1,828,550

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 22 April 2021 28 June 2021 9 August 2021 Total	Expiry date 23 July2025 28 September 2025 31 March 2026 28 June 2026 8 August 2026	Share options Unaudited 30 September 2021 5,774,575 1,703,200 350,000 2,485,000 3,525,000 13,837,775	Share options
			Audited 31 March 2021
			6,177,000
			1,773,200
			-
			-
			-
			7,950,200

22 AROA BIOSURGERY LIMITED INTERIM REPORT – HALF YEAR ENDED 30 SEPTEMBER 2021

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CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

For the half-year ended 30 September 2021

16. 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.

17. Other disclosures

Capital commitment

As at 30 September 2021, the Group had capital commitments of $456,376 (unaudited) (H1 FY2021 (unaudited): $289,615). Contingent liabilities

As at 30 September 2021, the Group had no material contingent liabilities (unaudited) (H1 FY2021 (unaudited): $nil).

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AROA BIOSURGERY LIMITED INTERIM REPORT – HALF YEAR ENDED 30 SEPTEMBER 2021

BDO Auckland

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INDEPENDENT AUDITOR’S REVIEW REPORT

TO THE SHAREHOLDERS OF AROA BIOSURGERY LIMITED

Report on the Review of the Interim Condensed Consolidated Financial Statements

Conclusion

We have reviewed the interim condensed consolidated financial statements of Aroa Biosurgery Limited (“the Company”) and its controlled entities (collectively, “the Group”), which comprise the consolidated statement of financial position as at 30 September 2021, 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 other explanatory information.

Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim condensed consolidated financial statements of Aroa Biosurgery Limited do not present fairly, in all material respects, the financial position of the Group as at 30 September 2021, and of its financial performance and its cash flows for the six month period ended on that date, in accordance with NZ IAS 34 Interim Financial Reporting .

Basis for Conclusion

We conducted our review in accordance with NZ SRE 2410 (Revised) Review of Financial Statements Performed by the Independent Auditor of the Entity . Our responsibilities are further described in the Auditor’s Responsibilities for the Review of the Interim Condensed Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the relevant ethical requirements in New Zealand relating to the audit of the annual financial statements, and we have fulfilled our other ethical responsibilities in accordance with these ethical requirements. Other than in our capacity as assurance practitioner we have no relationship with, or interests in, Aroa Biosurgery Limited or its controlled entities.

Directors’ Responsibilities for the Interim Condensed Consolidated Financial Statements

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

Auditor’s Responsibilities for the Review of the Interim Condensed Consolidated Financial Statements

Our responsibility is to express a conclusion on the interim condensed consolidated financial statements based on our review. NZ SRE 2410 (Revised) requires us to conclude whether anything has come to our attention that causes us to believe that the interim condensed consolidated financial statements, taken as a whole, are not prepared in all material respects, in accordance with NZ IAS 34 Interim Financial Reporting .

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BDO Auckland

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A review of interim condensed consolidated financial statements in accordance with NZ SRE 2410 (Revised) is a limited assurance engagement. We perform procedures, 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) and consequently does not enable us to obtain assurance that we might identify in an audit. Accordingly, we do not express an audit opinion on those interim condensed consolidated financial statements.

The engagement partner on the review resulting in this independent auditor’s review report is Chris Neves.

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BDO Auckland Auckland New Zealand 24 November 2021

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DIRECTORY

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ARBN 638 867 473

Registered Office and Address for Service

Non-Executive Director and Chairman

Jim McLean

Non-Executive Directors

Steve Engle Phil McCaw John Pinion John F Diddams

Chief Executive Officer and Managing Director

64 Richard Pearse Drive Mangere Auckland 2022 Telephone: +64 9 869 3035

Auditor

BDO Auckland Level 4, BDO Centre 4 Graham Street Auckland 1010

Brian Ward

Banker

Company Secretaries

James Agnew Tracy Weimar

Bank of New Zealand Deloitte Centre 80 Queen Street Auckland 1010

Share Registry

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

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AROA BIOSURGERY LIMITED INTERIM REPORT – HALF YEAR ENDED 30 SEPTEMBER 2021