SoftOx Solutions AS — Interim / Quarterly Report 2018

Aug 27, 2018

Report 2 nd quarter 2018

SoftOx Solutions AS ("SoftQx") is a medtech company listed on the Merkur list, Oslo Stock Exchange with the ticker "SOFTOX-ME". SoftOx Solutions AS was founded in 2012 and is headquartered in Oslo, Norway, with subsidiaries in Malmö and Copenhagen.

SoftOx aims to develop a non-toxic and highly efficient antimicrobial technology, which eradicates and prevents biofilm infections, based on years of research and product development with leading Nordic research institutes.

Highlights for the 2 nd quarter 2018¹

• Finalized preclinical studies of SoftOx Wound Irrigation Solution (SWIS) according to ISO-10993-series
• Successfully finalized an equine wound treatment study on horse legs, showing no harmful effects of SoftOx Wound Rinse in addition to significant reduction in bioburden and favorable results for wound improvement
• Applied to the Danish Medicines Agency and Ethical committee for permission to start clinical investigation of SWIS

• Established a quality assurance system ISO 13485 accordance with requirements for medical device class III, rule 13 [ref: Manual on Borderline and Classification in the Community Regulatory Framework for Medical Devices, Version 1.18 (12-2017)]

• Listed on the Merkur list at the Oslo Stock Exchange 1st of June

• Performed a 1:50 stock split 2 nd of July
• Became member of the "The World Health Organization Collaborating Centre on Patient Safety Infection Control & Improving Practices"

¹ Includes also relevant information from 3 rd quarter

Key figures

Key figures (NOK 1,000)
	1H18	1H17	2 017
SoftOx Solutions Group
Total revenue and other income	167	1	1
Total operating expenses	9 144	6 952	13 170
Operating result	-8 978	-6 951	-13 169
Net result before taxes	-9 019	-6 951	-13 172
Net proceeds from equity issues	600	6 597	33 707
Net cash flow	-11 666	302	16 796
Cash and cash equivalents at end of period	5 432	604	17 098
Outstanding share, beginning of the period	49 770	0	43 659
Outstanding share, end of the period (*)	75 573	45 667	49 770
Employees, end of the period	8	5	6

(*) The share issue in 4Q17 was registered in 1Q18

Operational review

Clinical development

SoftOx has continued to develop SoftOx Wound Irrigation Solution (SWIS) and SoftOx Biofilm Eradicator (SBE). SWIS will prevent infections in acute wounds, and SBE will fight established biofilm infections in chronic wounds. Both products are intended to either reduce or replace the use of antibiotic treatment on skin-related infections. The Company has focused its activities to establish adequate documentation on SWIS in preparation for the Company's first-in-man clinical investigation. All these activities have been conducted according to the strictly regulated Design Control process for Medical Devices.

In parallel, we have performed preclinical studies for both products (SWIS and SBE).

Since we started our preclinical research at the beginning of the 1 st quarter, the Company has performed biocompatibility studies in addition to other relevant toxicological studies in animals (minipigs, horses). In an experiment in minipigs, full depth wounds were treated for 22 days with various concentrations of SoftOx wound cleaning solutions (including SWIS and SBE) together with relevant controls. The results were highly encouraging and revealed no toxicity issues with the test samples, neither macroscopically nor microscopically, and all wounds healed as expected. Furthermore, a wound treatment study has

been performed on surgically inflicted wounds on horse legs. Prior to 15 days of treatment with SBE, the wounds became colonized/infected with natural bacteria from the surroundings. Biopsies were taken to study bacterial burden and wound healing effects were scored (composite score). No harmful effect of treatment was observed. Treatment with SBE led to a significant reduction of bioburden at certain timepoints and had favorable effects on wound improvement score.

A Quality Management System has been established according to requirements for Medical device, ISO 13485.

The documentation requirements for clinical evaluation for new Medical Devices have substantially increased recently [MEDDEV 2.7/1 revision 4, 2016]. To comply with the Medical Device Directive (MDD) and the upcoming Medical Device Regulation (MDR), the Company plans to perform two clinical trials on SWIS. A first-in-man pilot study will be completed prior to executing a larger pivotal study. In this way the Company will fulfill the regulatory requirements for clinical evaluation of SWIS.

First product to market

SWIS, the product we first intend to take to market, is an acute wound irrigation solution. We expect SWIS to be an improvement to currently marketed products for acute wound irrigation, in terms of tolerability, antimicrobial activity on biofilm, and lack of resistance development. SWIS complies also with tests for hand disinfection (reference to EN 1500 test), reducing the pathogen bacterial load on healthy skin by 99.99%. In summary, the

results from laboratory and animal studies give us confidence in our ability to develop a unique product answering the need for infection control on breached or compromised skin. We believe this will give the Company a unique position in the wound cleanser market.

Organizational information

The Company has strengthened the board of directors with two new members, Kari Grønås and Dag Vangsnes, and employed Geir Utigard as Manager for Chemical Manufacturing and Control. The Company, including daughter companies, has eight employees by the end of the 2 nd quarter (whereof two employees on part-time status), giving a total of 7 FTE's.

Upcoming risk next three months

The Company has applied to the Danish Medicines Agency and Ethical committee for permission to start clinical investigation of SWIS. If permission is not granted, the Company will have to reapply, and its clinical development program will be delayed.

Financial review

Financial figures in this report are unaudited figures for the SoftOx Solution Group.

Personnel expenses increased to KNOK 2,579 in the first half of 2018, compared to KNOK 1,675 in the same period of 2017, due to the planned increase in staff.

Other operating expenses increased to KNOK 6,153 in the first half of 2018, compared to KNOK 5,113 in the same period in 2017. The increase was mainly due to product development.

On 30.06.18 the Group had cash and cash equivalents of KNOK 5,432.

On 30.06.18 the Group had deferred tax assets of KNOK 7,661, which reflects the deferred tax assets at yearend 2017. Tax calculations will be done on full year figures.

On 30.06.18 the Group had other intangible assets of KNOK 2,816, mainly including the capitalized patent expenses in the Swedish subsidiary.

For 2H 2018, the Group had a negative cash flow of KNOK -11,666. The difference between this net cash flow and KNOK -9,019 in net result before taxes is largely due to an increase in current assets of KNOK 2,235, which mainly relates to an accrued Skattefunn-grant, and to a reduction in current liabilities of KNOK 1,188, which is largely due to a reduction of accounts payable.

Outlook

The Company's plans for the upcoming twelve months include:

• ➢ Finalizing the first-in-man pilot study on SWIS and initiating the final pivotal clinical investigation
• ➢ Completing preclinical toxicology studies on SBE, aiming to develop and initiate the first clinical trial in hard-toheal wounds

Events after 30.06.18

There have not been any substantial financial events affecting the Company's P&L after 30.06.2018.

Declaration

We declare that to the best of our knowledge the accounts for the 1 st quarter of 2018 have been prepared in accordance with current accounting standards for the Group and that the disclosures in the accounts provide a true and fair view of the Company's and the Group's assets, liabilities, financial position and results as a whole and that the quarterly report, including a description of the most important risk and uncertainty factors facing the Group, gives a true and fair view of the development, results and position of the entity and the Group.

Oslo, 24. August 2018

SIGN

Lars Johan Frigstad, Chairman

SIGN

Kristian Almås, Director

SIGN

Olav Trygve Jarlsby, Director

SIGN

Kari Grønås, Director

SIGN

Dag Vangsnes, Director

SIGN

Geir Hermod Almås, CEO

Profit and loss statement
SoftOx Solutions Group
NOK 1,000	1H18	1H17	2017
Other operating revenues	167	1	1
Total operating revenues	167	1	1
Personnel expenses	2 579	1 675	4 079
Other operating expenses	6 153	5 113	8 121
Depreciation	413	103	846
Depreciation, goodwill	0	62	124
Total operating expenses	9 144	6 952	13 170
Operating result	-8 978	-6 951	-13 169
Net financial items	-42	1	-4
Net result before taxes	-9 019	-6 951	-13 172
Tax			3 764
Net result after tax			-9 408

Statement of financial position	1H18	1H17	2017
SoftOx Solutions Group
NOK 1,000
Other intangible assets	2 816	2 016	2 869
Deferred tax asset	7 661	4 038	7 802
Goodwill from acquisition of subsidiary	0	62	0
Total intangible assets	10 477	6 116	10 671
Production equipment	364	539	472
Total fixed assets	364	539	472
Total non-current assets	10 841	6 655	11 143
Other receivables	5 031	3 044	2 796
Total receivables	5 031	3 044	2 796
Cash and cash equivalents	5 432	604	17 098
Current assets	10 463	3 648	19 895
Total assets	21 304	10 303	31 037
Share capital	76	46	50
Other paid in equity	48 051	20 371	47 477
Total paid in equity	48 127	20 417	47 527
Other equity	-29 826	-18 380	-20 681
Total equity	18 301	2 037	26 846
Shareholder loans		1 000
Other non-current liabilities	0	1 000
Public duties payable	513	292	233
Other current liabilities	384	2 984	760
Accounts payable	2 105	3 989	3 197
Total current liabilities	3 002	7 266	4 191
Total liabiities	3 002	8 266	4 191
Total equity and liabilities	21 304	10 303	31 037

Cash flow statement	1H18	1H17	2017
SoftOx Solutions Group
NOK 1,000
Cash flow from operating activities
Net result before taxes	-9 019	-6 951	-13 172
Tax paid	0	0	0
Depreciation	413	165	969
Change in current assets	-2 235	-1 199	-951
Change in current liabilities	-1 188	887	-2 188
Net cash flow from operating activities	-12 030	-7 097	-15 342
Cash flow from investment activities
Investments in non-current assets	-535	0	-1 486
Net cash flow from investment activities	-535	0	-1 486
Cash flow from financing activities
Proceeds from equity issues	600	6 597	33 707
Other financing activities	0	1 000	0
Translation differences	299	-197	-83
Net cash flow from financing activities	899	7 400	33 624
Net change in cash and cash equivalents	-11 666	302	16 796
Cash and cash equivalents at begining of period	17 098	302	302
Cash and cash equivalents at end of period	5 432	604	17 098

Statement of changes in equity
SoftOx Solutions Group
	Share	Other paid	Other	Total
NOK 1,000	capital	in equity	equity	equity
Balance at 01.01.2017	44	13 776	-11 339	2 481
Loss for the period			-9 408	-9 408
Share issues	6	33 701		33 707
Other changes in equity			67	67
Balance at 31.12.2017	50	47 477	-20 680	26 847
Balance at 01.01.2018	50	47 477	-20 680	26 847
Loss for the period			-9 019	-9 019
Share issue registration	25	-25		0
Other changes in equity	0	600	-126	474
Balance at 30.06.2018	76	48 051	-29 826	18 301

Notes to the Quarterly Financial Statement

Note 1 Accounting policies

The financial statements of SoftOx Solutions Group for 2017 and 2018 are presented in accordance with the Norwegian Accounting Act and generally accepted accounting principles for small-size companies.