NEOVASC INC (Form: 40-F, Received: 03/11/2021 16:46:23)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 40-F

☐

REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934

☒

ANNUAL REPORT PURSUANT TO SECTION 13(a) OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2020

Commission File Number: 001-36458

Neovasc Inc.

(Exact name of Registrant as specified in its charter)

	Canada			3841			Not Applicable
	(Province or other jurisdiction of incorporation or organization)			(Primary Standard Industrial Classification Code Number)			(I.R.S. Employer Identification Number)

Suite 5138 – 13562 Maycrest Way
Richmond, British Columbia, Canada V6V 2J7
(604) 270-4344

(Address and telephone number of Registrant’s principal executive offices)

CT Corporation System
111 Eighth Avenue
New York, NY 10011
(212) 894-8940

(Name, address (including zip code) and telephone number (including area code) of agent for service in the United States)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Common Shares, No Par Value

NVCN

Nasdaq Capital Market

Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
For annual reports, indicate by check mark the information filed with this Form:

☒ Annual information form

☒ Audited annual financial statements

Indicate the number of outstanding shares of each of the Registrant’s classes of capital or common stock as of the close of the period covered by this annual report:

The registrant had 28,928,916 Common Shares issued and outstanding as of December 31, 2020.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 12b-2 of the Exchange Act.

Emerging growth company. ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.☐

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.☐

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this Annual Report on Form 40-F and the exhibits attached hereto (this “Annual Report”) are forward-looking statements under the provisions of the United States Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and forward-looking information within the meaning of applicable Canadian securities legislation (collectively, “forward-looking statements”). Forward-looking statements are subject to risks, uncertainties and contingencies that could cause actual results to differ materially from those expressed or implied by these forward-looking statements. Investors are cautioned not to put undue reliance on forward-looking statements. Applicable risks and uncertainties include, but are not limited to, those identified under the heading “Risk Factors” in the Annual Information Form for the year ended December 31, 2020 (“AIF”) of Neovasc Inc. (“Neovasc,” “we,” “our” or the “Company”), attached as Exhibit 99.1 to this Annual Report and incorporated herein by reference, and in other filings that the Company has made and may make with applicable securities authorities in the future. Please also see the section titled “Forward-Looking Information” in each of our AIF and Management’s Discussion & Analysis for the year ended December 31, 2020 (“MD&A”), attached as Exhibits 99.1 and 99.2, respectively, to this Annual Report, in each case incorporated by reference herein, for a discussion of forward-looking statements. Except as required by applicable law, the Company does not intend, and undertakes no obligation, to update any forward-looking statements to reflect, in particular, new information or future events, or otherwise.

DIFFERENCES IN UNITED STATES AND CANADIAN REPORTING PRACTICES

The Company is permitted, under a multijurisdictional disclosure system adopted by the United States, to prepare this report in accordance with Canadian disclosure requirements, which are different from those of the United States. The Company prepares its consolidated financial statements, which are filed with this Annual Report, in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”), and which are not comparable to financial statements of United States companies.

CURRENCY

Unless otherwise indicated, all dollar amounts in this Annual Report are in United States dollars.

DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING

A. Evaluation of disclosure controls and procedures. Disclosure controls and procedures are designed to ensure that (i) information required to be disclosed by the Company in reports that it files or submits to the Securities and Exchange Commission (the “Commission” or the “SEC”) under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms and (ii) material information required to be disclosed in the Company’s reports filed under the Exchange Act is accumulated and communicated to the Company’s management, including its Chief Executive Officer (“CEO”) and its Chief Financial Officer (“CFO”), as appropriate, to allow for timely decisions regarding required disclosure.

At the end of the period covered by this report, an evaluation was carried out under the supervision of and with the participation of the Company’s management, including the CEO and CFO, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act). The evaluation included documentation review, enquiries and other procedures considered by management to be appropriate in the circumstances. Based on that evaluation, the Company’s CEO and CFO have concluded that, as of December 31, 2020, the Company’s disclosure controls and procedures were effective and there was no material weakness. See the section titled “Disclosure Controls and Procedures” in the MD&A, attached as Exhibit 99.2 to this Annual Report and incorporated by reference herein.

B. Management’s report on internal control over financial reporting. The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. Rules 13a-15(f) and 15d-15(f) under the Exchange Act define “internal control over financial reporting” as a process designed

by, or under the supervision of, the registrant’s principal executive and principal financial officers and effected by the registrant’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the registrant; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the registrant are being made only in accordance with authorizations of management and directors of the registrant; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the registrant’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely basis. Also, projections of any evaluation of effectiveness of internal control over financial reporting to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The CEO and CFO, in cooperation with the other members of senior management and directors, are responsible for the Company’s design of internal control over financial reporting in order to provide reasonable assurance that the Company’s financial reporting is reliable and that financial statements prepared for external purposes are in accordance with IFRS.

Management assessed the effectiveness of the Company’s internal control over financial reporting as at December 31, 2020. This assessment included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this assessment. Based on this assessment, the Company’s management has concluded that the Company’s internal control over financial reporting was effective as of December 31, 2020. See the section titled “Internal Control Over Financial Reporting” in the MD&A, attached as Exhibit 99.2 to this Annual Report and incorporated by reference herein.

C. Attestation report of the registered public accounting firm. This Annual Report does not include an attestation report of the Company’s registered public accounting firm as this requirement is not applicable for non-accelerated filers pursuant to Section 404(b) of the Sarbanes-Oxley Act.

D. Changes in internal control over financial reporting. During the period covered by this Annual Report, the Company made certain changes to its internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. See the section titled “ Internal Control Over Financial Reporting” in the MD&A, attached as Exhibit 99.2 to this Annual Report and incorporated by reference herein.

The Company’s management, including the CEO and CFO, does not expect that its disclosure controls and procedures or internal controls and procedures will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

NOTICES PURSUANT TO REGULATION BTR

The Company was not required by Rule 104 of Regulation BTR to send any notices to any of its directors or executive officers during the fiscal year ended December 31, 2020.

AUDIT COMMITTEE FINANCIAL EXPERT

The Company’s board of directors (the “Board”) has determined that it has at least one audit committee financial expert serving on its audit committee. The Board has determined that Douglas Janzen is an audit committee financial expert and is independent, as that term is defined by the Exchange Act and the Nasdaq Capital Market’s (“Nasdaq”) corporate governance standards applicable to the Company.

The Commission has indicated that the designation of a person as an audit committee financial expert does not make such person an “expert” for any purpose, impose on such person any duties, obligations or liability that are greater than those imposed on such person as a member of the audit committee and the Board in the absence of such designation and does not affect the duties, obligations or liability of any other member of the audit committee or Board.

CODE OF ETHICS

The Board has adopted a written code of business conduct and ethics (the “Code”), by which it and all officers and employees of the Company, including the Company’s principal executive officer, principal financial officer and principal accounting officer or controller, abide. There were no waivers granted in respect of the Code during the fiscal year ended December 31, 2020. The Code is posted on the Company’s website at www.neovasc.com. If there is an amendment to the Code, or if a waiver of the Code is granted to any of Company’s principal executive officer, principal financial officer, principal accounting officer or controller, the Company intends to disclose any such amendment or waiver by posting such information on the Company’s website. Unless and to the extent specifically referred to herein, the information on the Company’s website shall not be deemed to be incorporated by reference in this Annual Report. Except for the Code, and notwithstanding any reference to the Company’s website or other websites in this Annual Report or in the documents incorporated by reference herein or attached as Exhibits hereto, no information contained on the Company’s website or any other site shall be incorporated by reference in this Annual Report or in the documents incorporated by reference herein or attached as Exhibits hereto.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

Grant Thornton LLP acted as the Company’s independent registered public accounting firm for the fiscal year ended December 31, 2020. See the section “External Auditor Service Fees” in our AIF, which section is incorporated by reference herein, for the total amount billed to the Company by Grant Thornton LLP for services performed in the last two fiscal years by category of service (for audit fees, audit-related fees, tax fees and all other fees).

AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES

See the section “Pre-Approval Policies and Procedures” in our AIF, which section is incorporated by reference herein.

OFF-BALANCE SHEET ARRANGEMENTS

The Company does not have any “off-balance sheet arrangements” (as that term is defined in paragraph 11(ii) of General Instruction B to Form 40-F) that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

The following is a summary of the Registrant’s contractual obligations as of December 31, 2020:

	Payments due by period (in thousands)
Contractual Obligations	Total		Less than 1 year		1 – 3 years		3 – 5 years		More than 5 years
Long-Term Debt Obligations		7,717		76		7,641		—		—
Capital (Finance) Lease Obligations		1,150		485		665		—		—
Operating Lease Obligations		—		—		—		—		—
Purchase Obligations		3,706		3,706		—		—		—
Other Long-Term Liabilities		1,250		1,250		—		—		—
Total		13,823		5,517		8,306		—		—

IDENTIFICATION OF THE AUDIT COMMITTEE

The Board has a separately designated standing audit committee established in accordance with section 3(a)(58)(A) of the Exchange Act and satisfies the requirements of Exchange Act Rule 10A-3. The Company’s audit committee is comprised of Paul Geyer, Steve Rubin and Douglas Janzen, all of whom, in the opinion of the Company’s Board, are independent (as determined under Rule 10A-3 of the Exchange Act and the rules of Nasdaq) and are financially literate.

CORPORATE GOVERNANCE PRACTICES

The Nasdaq Listing Rules generally require that a listed company’s by-laws provide for a quorum for any meeting of the holders of the company’s common shares of at least 331∕3% of the outstanding common shares of the company. As a foreign private issuer, we have elected to comply with practices that are permitted under Canadian law in lieu of this Nasdaq requirement. Our by-laws provide that the minimum quorum for a meeting of shareholders of common shares is two or more shareholders representing at least 5% of the common shares entitled to vote at the meeting. The Company’s quorum requirements are not prohibited by the requirements of the Business Corporations Act (Canada) and the Company intends to continue to comply with the requirements of the Business Corporations Act (Canada). The rules of the Toronto Stock Exchange, upon which our common shares are also listed, do not contain specific quorum requirements.

The Nasdaq Listing Rules also require all the members of a nominating committee of an issuer to be “independent” as defined in Rule 5605(a)(2) of the Nasdaq Listing Rules. The Company has informed Nasdaq that it follows applicable Canadian laws with respect to nominating committee composition, which do not mandate a nominating committee comprised entirely of independent directors. Alexei Marko, who is a non-independent director of the Company, was appointed as Chair of Neovasc’s governance and nominating committee on June 11, 2018. Alexei Marko became an independent director, subsequent to the year end on January 22, 2021.

Except as stated above, we are in compliance with the rules generally applicable to U.S. domestic companies listed on Nasdaq. We may in the future decide to use other foreign private issuer exemptions with respect to some of the other Nasdaq listing requirements. Following our home country governance practices, as opposed to the requirements that would otherwise apply to a company listed on the Nasdaq, may provide less protection than is accorded to investors under the Nasdaq listing requirements applicable to U.S. domestic issuers.

INCORPORATION BY REFERENCE

This Annual Report is incorporated by reference into the Company’s Registration Statements on Form S-8 (File No. 333-226075), Form F-10 (File No. 333-251330) and F-3 (File No. 333-245385).

UNDERTAKING AND CONSENT TO SERVICE OF PROCESS

A. Undertaking

The Registrant undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the Commission staff, and to furnish promptly, when requested to do so by the Commission

staff, information relating to: the securities registered pursuant to Form 40-F; the securities in relation to which the obligation to file an annual report on Form 40-F arises; or transactions in said securities.

B. Consent to Service of Process

The Registrant has previously filed a Form F-X in connection with the class of securities in relation to which the obligation to file this report arises.

Any change to the name or address of the agent for service of process of the registrant shall be communicated promptly to the Commission by an amendment to the Form F-X referencing the file number of the Registrant.

EXHIBIT INDEX

Exhibit Number			Description
99.1			Annual Information Form for the year ended December 31, 2020
99.2			Management’s Discussion & Analysis for the year ended December 31, 2020
99.3			Audited Consolidated Financial Statements for the year ended December 31, 2020
99.4			Certificate of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a), pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
99.5			Certificate of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a), pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
99.6			Certificate of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as enacted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.7			Consent of Grant Thornton LLP
101			Interactive Data File

SIGNATURES

Pursuant to the requirements of the Exchange Act, the Registrant certifies that it meets all of the requirements for filing on Form 40-F and has duly caused this Annual Report to be signed on its behalf by the undersigned, thereto duly authorized.

	Date: March 11, 2021			NEOVASC INC.
				By: /s/ Chris Clark Name: Chris Clark Title: Chief Financial Officer

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Exhibit 99.1

NEOVASC INC.

ANNUAL INFORMATION FORM

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2020

March 11, 2021

TABLE OF CONTENTS

	GLOSSARY					2
	TERMS OF REFERENCE					3
	CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND RISK FACTORS					4
	CORPORATE STRUCTURE					8
	Intercorporate Relationships					8
	GENERAL DEVELOPMENT AND DESCRIPTION OF THE BUSINESS					9
	Three Year Development					11
	Product Development					22
	Specialized Skill & Knowledge					22
	Intangible Property					23
	New Products/Components/Cycles					23
	Economic Dependence					24
	Foreign Operations					24
	Lending					25
	Reorganizations					25
	Employees					25
	Social or Environmental Policies					26
	RISK FACTORS					26
	DIVIDEND POLICY					44
	DESCRIPTION OF CAPITAL STRUCTURE AND MARKET FOR SECURITIES					44
	PRIOR SALES					52
	ESCROWED SECURITIES					55
	DIRECTORS AND OFFICERS					55
	CEASE TRADE ORDERS, BANKRUPTCIES, PENALTIES OR SANCTIONS					58
	Cease Trade Orders and Bankruptcies					59
	Penalties and Sanctions					59
	Individual Bankruptcies					59
	CONFLICTS OF INTEREST					59
	AUDIT COMMITTEE INFORMATION					59
	INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS					61
	MATERIAL CONTRACTS					61
	TAXATION					62
	LEGAL PROCEEDINGS					65
	NAMES AND INTEREST OF EXPERTS					67
	TRANSFER AGENT AND REGISTRAR					68
	ADDITIONAL INFORMATION					68
	ADDITIONAL FINANCIAL INFORMATION					68
	SCHEDULE “A” AUDIT COMMITTEE CHARTER					A-1

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GLOSSARY

This glossary contains general terms used in the discussion of the cardiovascular medical device industry, as well as specific technical terms used in the descriptions of the Company’s technology and business.

Angioplasty: a procedure for the elimination of areas of narrowing in blood vessels.

Aortic: of or pertaining to the aorta or aortic heart valve.

Artery: blood vessel that carries oxygenated blood from the heart to the body’s organs.

Balloon catheter: hollow tube with a tiny balloon on its tip, used for gaining access to the arteries; once the catheter is in position, the balloon is inflated in order to push open a section of artery that is obstructed (see Angioplasty).

Biocompatible: materials that can be implanted or used in a patient without the body reacting adversely to the material.

Bovine: of or derived from or pertaining to a cow.

Cardiac reconstruction: procedure to repair damaged portions of the heart in order to improve its function.

Cardiovascular: system encompassing the heart, veins and arteries.

Cardiovascular disease: disease that restricts blood flow within the arteries, generally due to a build-up of Plaque (as defined below); may refer to coronary or peripheral arteries, or both.

Catheter: hollow tube used for gaining access to the arteries, either to deliver medications or devices, or to withdraw fluids or samples from the body.

CCS: the Canadian Cardiovascular Society.

CE Mark: designation used to signify regulatory approval for the sale of a product in the European Union.

Coronary Artery: artery that supplies oxygen-rich blood to the heart muscle.

Coronary Artery Disease: disease that affects the Coronary Arteries (the arteries that provide oxygenated blood to the heart muscle); also called cardiovascular disease. (See Cardiovascular disease).

COSIRA: the Company’s Coronary Sinus Reducer for Treatment of Refractory Angina clinical trial — a multi-center, double blinded sham controlled study intended to assess the safety and efficacy of the Reducer (as defined below) in a rigorous, controlled manner.

COSIRA-II: the Company’s Coronary Sinus Reducer for Treatment of Refractory Angina clinical trial — a multicenter, randomized, double-blinded, sham-controlled clinical trial of approximately 380 participants at up to 35 investigational centers in North America who will be randomized and followed through 5 years.

FDA: U.S. Food and Drug Administration; governing body that regulates approval for the sale of medical devices in the United States.

French: The French size is a measure of the external diameter of a catheter, a catheter of 1 French has a diameter of 1∕3 mm.

IDE: an investigational device exemption, which allows the investigational device to be used in a U.S. clinical study in order to collect safety and effectiveness data required to support a Pre-market Approval (“PMA”) application or a Pre-market Notification 510(k) submission to the FDA. All clinical evaluations of investigational devices in the United States, unless exempt, must have an approved IDE before the study is initiated.

Interventional Cardiology: practice of treating Coronary Artery Disease intravascularly; that is, through the arterial system using minimally invasive techniques, rather than with open-heart surgery.

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MDD: Medical Device Directive a directive intended to harmonise the laws relating to medical devices within the European Union.

MDR: Medical Devices Regulation, to replace MDD on May 21, 2021

Mitral: of or pertaining to the mitral heart valve.

Mitral Regurgitation: inadequate function of the mitral valve allowing blood to leak back through the closed valve. This is a severe and debilitating medical condition.

Pericardium: sac in the chest cavity that contains the heart; pericardial tissue is the soft tissue that forms the sac.

PeripatchTM: tissue material made from bovine or Porcine pericardium; used to repair damaged/diseased vessels or organs by working as an internal bandage or as a component in the manufacture of heart valves.

Plaque: deposit of fats, cholesterol and other substances on artery walls that eventually causes arteries to become narrowed, restricting proper blood flow.

Porcine: of or derived from or pertaining to a swine or pig.

Reducer: the Neovasc Reducer™, Neovasc’s proprietary technology for the treatment of refractory angina.

SMG: the Strul Medical Group

Tiara: the Tiara™, Neovasc’s proprietary transcatheter mitral valve system in development for the transcatheter treatment of mitral valve disease.

Tiara TA: the Tiara transapical device, that is implanted via the apex of the heart through a small incision between the ribs.

Tiara TF: The Tiara transfemoral device, that is implanted through an access point in the femoral artery in the groin.

TIARA-I: the Company’s multinational, multicenter early feasibility study being conducted to assess the safety and performance of the Tiara in high risk surgical contexts.

TIARA-II: the Company’s multinational, multicenter study evaluating the Tiara’s safety and performance. It is expected that data from this study will be used to file for CE Mark approval.

Transcatheter: implanted or completed via a catheter or small tube instead of surgically.

Transcatheter heart valves: specialized artificial heart valves which are implanted via a catheter rather than a traditional surgical approach.

Vein: blood vessel that carries de-oxygenated blood from the body organs to the heart.

Vessel: artery, vein or duct that carries blood through the body.

TERMS OF REFERENCE

The information set forth in this Annual Information Form (“AIF”) is as of March 11, 2021, unless another date is indicated. All references to dollars ($) in this document are expressed in U.S. funds, unless otherwise indicated.

References to “Neovasc”, “the Company”, “we” or “our” refer to Neovasc Inc. and its subsidiaries, unless otherwise noted.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND RISK FACTORS

This Annual Information Form contains forward-looking statements within the meaning of applicable Canadian securities legislation and the U.S. Private Securities Litigation Reform Act of 1995 that may not be based on historical fact, including, without limitation, statements containing the words “believe”, “may”, “plan”, “will”, “estimate”, “continue”, “anticipate”, “intend”, “expect” and similar expressions. Forward- looking statements are necessarily based on estimates and assumptions made by us in light of our experience and perception of historical trends, current conditions and expected future developments, as well as the factors we believe are appropriate. Forward-looking statements in this Annual Information Form, but are not limited to, statements relating to:

•

our ability to continue as a going concern;

•

our need for significant additional financing and our estimates regarding our capital requirements and future revenues, expenses and profitability;

•

our intended use of the net proceeds from the February 2021 offering (the “February 2021 Offering”) of units comprised of one Common Share and one-half of one Common Share purchase warrant (each whole warrant, a “Warrant”) (and collectively, the “February 2021 Units”);

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our intended use of the net proceeds from the December 2020 offering (the “December 2020 Offering”) of units comprised of one Common Share and one common share purchase warrants (the “December 2020 Units”);

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our intended use of the net proceeds from the August 2020 offering (the “August 2020 Offering”) of units comprised of one Common Share and three-quarters of one common share purchase warrants (the “August 2020 Units”);

•

our anticipation that the proceeds from the February 2021 offering could be sufficient to extend operations of the Company for up to three years at the current burn rate and our anticipation that we will likely initiate programs that will require additional significant expenditures and that the cash needs of the Company will likely increase, shortening the time the proceeds will meet the requirements of the Company;

•

our estimates regarding our fully diluted share capital and future dilution to shareholders;

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our expectation that our remediation of our material weakness in internal control over financial reporting (“ICFR”) as of December 31, 2019 and 2018 will be sufficient;

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our intention to monitor the Company’s market value on the Nasdaq and our expectation that the common share of the Company (the “Common Shares”) will continue to be listed and traded on the Nasdaq;

•

our intention to expand the indications for which we may market the Tiara (which does not have regulatory approval and is not commercialized) and the Reducer (which has CE Mark approval for sale in the European Union);

•

clinical development of our products, including the results of current and future clinical trials and studies;

•

our anticipation that the Tiara will receive CE Mark approval in Europe from the Medical Device Directive in 2021;

•

the results of the European regulatory decision relating to the Tiara TA.

•

the anticipated timing of additional implantations in the TIARA-II trial

•

our plans to develop and commercialize products, including the Tiara and Reducer, and the timing and cost of these development programs;

•

our plans to develop and commercialize the Tiara transfemoral trans-septal system, including our ability to improve current prototypes;

•

our ability to grow revenues from the Reducer in a timely manner;

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•

whether we will receive, and the timing and costs of obtaining, regulatory approvals;

•

our belief that the U.S. Food and Drug Administration (the “FDA”) approval for Reducer in the United States is note likely in the near future following the ‘not approvable’ letter for the Reducer received on January 15, 2021;

•

the cost of post-market regulation and commercialization if we receive necessary regulatory approvals and if we decide to commercialize;

•

our ability to enroll patients in our clinical trials, studies and compassionate use cases in Canada, the United States, Europe, Israel and other markets;

•

our ability to advance and complete the COSIRA-II IDE pivotal clinical trial;

•

our belief that the full PMA application pathway, while costly and likely to take many years, brings the best chance of success for Tiara;

•

our belief that the TIARA-I Early Feasibility study demonstrates the safety of the Neovasc transcatheter mitral valve replacement (“TMVR”) system;

•

our belief that the clinical evidence already available will be sufficient to support the availability of Tiara for the treatment of patients in Europe;

•

our intention to continue directing a significant portion of our resources into sales expansion;

•

our ability to get our products approved for use;

•

the benefits and risks of our products as compared to others;

•

our ability to find strategic alternatives for adoption of the Reducer, including potential alliances in order to broaden and deepen therapy penetration and potentially advance the COSIRA-II study;

•

our plans to increase Reducer implants in Europe in 2021;

•

our expectation that in 2021 more German clinics will negotiate and finalize reimbursement negotiations with German insurance companies relating to the Reducer;

•

our estimates of the size of the potential markets for our products including the anticipated market opportunities for the Reducer and the Tiara;

•

our potential relationships with distributors and collaborators with acceptable development, regulatory and commercialization expertise and the benefits to be derived from such collaborative efforts;

•

sources of revenues and anticipated revenues, including contributions from distributors and other third-parties, product sales, license agreements and other collaborative efforts for the development and commercialization of products;

•

our ability to meet our financial and organizational restructuring goals to establish a lean and accountable organization with stable capitalization;

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our ability to meet our cash expenditure covenants;

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our creation of an effective direct sales and marketing infrastructure for approved products we elect to market and sell directly;

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the rate and degree of market acceptance of our products;

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the timing and amount of reimbursement for our products;

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the composition and compensation of our management team and board of directors;

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the impact of foreign currency exchange rates; and

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the composition and compensation of our board of directors and senior management team in the future.

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considered reasonable by us, are inherently subject to significant business, economic, competitive, political and social uncertainties and contingencies, many of which, with respect to future events, are subject to change. As of the date of this AIF, the extent to which the COVID-19 pandemic may materially impact the Company’s financial condition, liquidity, or results of operations is uncertain. The material factors and assumptions used by us to develop such forward-looking statements include, but are not limited to:

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our ability to continue as a going concern;

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our regulatory and clinical strategies will continue to be successful;

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our current positive interactions with regulatory agencies will continue;

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recruitment to clinical trials and studies will continue, specifically once COVD-19 is properly managed;

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the time required to enroll, analyze and report the results of our clinical studies will be consistent with projected timelines;

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current and future clinical trials and studies will generate the supporting clinical data necessary to achieve approval of marketing authorization applications;

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the regulatory requirements for approval of marketing authorization applications will be maintained;

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our current good relationships with our suppliers and service providers will be maintained;

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our estimates of market size and reports reviewed by us are accurate;

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our efforts to develop markets and generate revenue from the Reducer will be successful;

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our expectation that genericization of markets for the Tiara and the Reducer will develop;

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our ability to raise additional capital on terms that are favorable to us;

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our ability to retain and attract key personnel, including members of our board of directors and senior management team; and

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our estimates and assumptions about the impact that the COVID-19 crisis will have on the Company.

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the doubt about our ability to continue as a going concern;

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risks related to the recent COVID-19 coronvirus outbreak or other health epidemics, which could significantly impact our operations, sales or ability to raise capital or enroll patients in clinical trials and complete certain Tiara development milestones on our expected schedule;

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risks relating to our need for significant additional future capital and our ability to raise additional funding;

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risks relating to the sale of a significant number of Common Shares;

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risks relating to the possibility that our Common Shares may be delisted from the Nasdaq or the TSX, which could affect their market price and liquidity;

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risks relating to the Company’s conclusion that it did have effective ICFR as of December 31, 2020 but not at December 31, 2019 and 2018;

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risks relating to our Common Share price being volatile;

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risks relating to the possibility that our Common Shares may be delisted from the Nasdaq or the TSX, which could affect their market price and liquidity;

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risks relating to our significant indebtedness, and its effect on our financial condition;

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risks relating to lawsuits that we are subject to, which could divert our resources and result in the payment of significant damages and other remedies;

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risks relating to claims by third-parties alleging infringement of their intellectual property rights;

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risks relating to our ability to establish, maintain and defend intellectual property rights in our products;

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risks relating to results from clinical trials of our products, which may be unfavorable or perceived as unfavorable;

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our history of losses and significant accumulated deficit;

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risks associated with product liability claims, insurance and recalls;

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risks relating to use of our products in unapproved circumstances, which could expose us to liabilities;

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risks relating to competition in the medical device industry, including the risk that one or more competitors may develop more effective or more affordable products;

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risks relating to our ability to achieve or maintain expected levels of market acceptance for our products, as well as our ability to successfully build our in-house sales capabilities or secure third-party marketing or distribution partners;

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risks relating to our ability to convince public payors and hospitals to include our products on their approved products lists;

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risks relating to new legislation, new regulatory requirements and the efforts of governmental and third-party payors to contain or reduce the costs of healthcare;

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risks relating to increased regulation, enforcement and inspections of participants in the medical device industry, including frequent government investigations into marketing and other business practices;

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risks relating to the extensive regulation of our products and trials by governmental authorities, as well as the cost and time delays associated therewith;

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risks relating to post-market regulation of our products;

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risks relating to health and safety concerns associated with our products and our industry;

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risks relating to our manufacturing operations, including the regulation of our manufacturing processes by governmental authorities and the availability of two critical components of the Reducer;

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risks relating to the possibility of animal disease associated with the use of our products;

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risks relating to the manufacturing capacity of third-party manufacturers for our products, including risks of supply interruptions impacting the Company’s ability to manufacture its own products;

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risks relating to our dependence on limited products for substantially all of our current revenues;

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risks relating to our exposure to adverse movements in foreign currency exchange rates;

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risks relating to the possibility that we could lose our foreign private issuer status under U.S. federal securities laws;

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risks relating to the possibility that we could be treated as a “passive foreign investment company” (“PFIC”);

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risks relating to breaches of anti-bribery laws by our employees or agents;

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risks relating to future changes in financial accounting standards and new accounting pronouncements;

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risks relating to our dependence upon key personnel to achieve our business objectives;

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risks relating to our ability to maintain strong relationships with physicians;

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risks relating to the sufficiency of our management systems and resources in periods of significant growth;

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risks relating to consolidation in the health care industry, including the downward pressure on product pricing and the growing need to be selected by larger customers in order to make sales to their members or participants;

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risks relating to our ability to successfully identify and complete corporate transactions on favorable terms or achieve anticipated synergies relating to any acquisitions or alliances;

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risks relating to conflicts of interests among the Company’s officers and directors as a result of their involvement with other issuers; and

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risks relating to anti-takeover provisions in our constating documents which could discourage a third-party from making a takeover bid beneficial to our shareholders.

By their very nature, forward-looking statements or information involve known and unknown risks, uncertainties and other factors that may cause our actual results, events or developments, or industry results, to be materially different from any future results, events or developments expressed or implied by such forward-looking statements or information. In evaluating these statements, prospective purchasers should specifically consider various factors, including the risks outlined herein, under the heading “Risk Factors”. Should one or more of these risks or uncertainties or a risk that is not currently known to us materialize, or should assumptions underlying the forward-looking statements prove incorrect, actual results may vary materially from those described herein. These forward-looking statements are made as of the date of this Annual Information Form and we do not intend, and do not assume any obligation, to update these forward-looking statements, except as required by law. Investors are cautioned that forward-looking statements are not guarantees of future performance and investors are cautioned not to put undue reliance on forward-looking statements due to their inherent uncertainty.

CORPORATE STRUCTURE

Neovasc was incorporated on November 2, 2000 under the laws of the Province of British Columbia and was continued to federal jurisdiction under the Canada Business Corporations Act (“CBCA”) on April 19, 2002.

On July 1, 2008, the Company completed the acquisition of two Israel-based vascular device development companies, concurrently raising C$8.3 million in equity financing in a non-brokered private placement, completing a 20 for 1 share consolidation and changing its name from Medical Ventures Inc. to Neovasc Inc.

The registered and records office of the Company is located at Suite 2600, 595 Burrard Street, Three Bentall Center, Vancouver, British Columbia, V7X 1L3, and its head office and principal place of business is located at Suite 5138 – 13562 Maycrest Way, Richmond, British Columbia, V6V 2J7.

Intercorporate Relationships

The Company has seven wholly-owned subsidiaries as follows:

Name:	Date of Incorporation:	Jurisdiction of Incorporation:
Neovasc Medical Inc. (formerly PM Devices Inc.) (“NMI”)	May 7, 1998	British Columbia
Neovasc (US) Inc. (formerly Medical Ventures (US) Inc.)	July 2, 2007	United States
Neovasc GmbH	August 14, 2017	Germany
Neovasc Management Inc.	January 23, 2018	United States
Neovasc Tiara Inc. (“NTI”)	March 11, 2013	Canada (federal)
Neovasc Medical Ltd. (“NML”)	September 9, 2002	Israel
B-Balloon Ltd.	March 30,2004	Israel

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GENERAL DEVELOPMENT AND DESCRIPTION OF THE BUSINESS

Neovasc is a specialty medical device company that develops, manufactures and markets products for the rapidly growing cardiovascular marketplace. Its products include the Neovasc ReducerTM (“Reducer”), for the treatment of refractory angina, which is not currently commercially available in the United States (2 U.S. patients have been treated under Compassionate Use) and has been commercially available in Europe since 2015, and the TiaraTM (“Tiara”), for the transcatheter treatment of mitral valve disease, which is currently under clinical investigation in the United States, Canada, Israel and Europe.

In 2009, Neovasc started initial activities to develop novel technologies for catheter-based treatment of mitral valve disease. Based on the early positive results of these activities, the Company formally launched a program to develop the Tiara. Neovasc established a separate entity, NTI, in March 2013 to develop and own the intellectual property related to the Tiara (Neovasc has transferred all intellectual property related to Tiara to NTI). On February 3, 2014, Neovasc announced the first human implant of the Tiara under special access compassionate use exemptions. Subsequently additional patients have been treated with the Tiara bringing the total number of patients treated with the device to 83 through March 8, 2021. In December 2014, the Company announced that it had received approval from the FDA to initiate the TIARA-I study in the United States. The TIARA-I study is a multinational, multicenter early feasibility study being conducted to assess the safety and performance of the Tiara valve system in high-risk surgical patients. The study includes 27 patients enrolled at centers in the United States, Canada and Belgium. We received approval from the FDA to close enrollment in the TIARA-I study in the United States on November 15, 2019. On November 28, 2016, the Company announced that it had received both regulatory and ethics committee approval to initiate the TIARA-II in Italy. The TIARA-II study has since expanded through the opening of clinical sites in Germany, Israel, Spain and the United Kingdom. The TIARA-II study is a 115 patient, non-randomized, prospective clinical study evaluating the Tiara’s safety and performance. It is expected that data from this study will be used to file for CE Mark approval which would enable Neovasc to market the device in Europe.

In July 2008, Neovasc acquired NML, a pre-commercial vascular device company based in Israel. NML developed and owned intellectual property related to a novel catheter-based treatment for refractory angina, a debilitating condition resulting from inadequate blood flow to the heart muscle. Refractory angina, resulting in continuing symptoms despite maximal medical therapy and without further revascularization options, is estimated to affect 600,000 to 1.8 million Americans, with 50,000 to 100,000 new cases per year. A publication in the Cardiovascular Revascularization Medicine Journal by Benck and Henry suggests that the prevalence of No-Option Refractory Disabling Angina (“NORDA”) in the U.S. population is between 26,000 and 52,000. In another publication in the European Heart Journal by Crea et al., stated persistence of angina caused by incomplete coronary revascularization may occur in up to 30% in the current era, although definitions of incomplete revascularization are heterogeneous. It further stated that persistent angina is associated with a significant economic burden with healthcare costs almost being two-fold higher among patients with persistent angina post-percutaneous coronary intervention vs. those who become symptom free. The Company completed development of the Reducer and obtained authorization to affix the CE Mark, which allows for marketing of the Reducer product in the European marketplace. The Company initiated commercial sales of the Reducer product in early-2015. In March 2014, the Company announced that results of its COSIRA clinical trial had been presented at the ACC.14 medical conference. The COSIRA trial was a sham-controlled randomized, double-blinded study of the Reducer device in 104 patients with moderate to severe refractory angina. The results presented at ACC.14 confirmed that the COSIRA study had met its primary endpoint demonstrating the efficacy of the Reducer device with statistical significance. The COSIRA trial results were published in the New England Journal of Medicine in February 2015.

In 2016, Neovasc initiated the REDUCER-I observational study as a multi-center, multi-country, three-arm study collecting long-term data from European patients implanted with the Reducer. The study is expected to enroll up to 400 patients. Currently, 255 patients have been enrolled across 23 centers that are active in Italy, Germany, Austria, Belgium, the Netherlands, the United Kingdom, Spain and Switzerland In February 2018, the Reducer reached NUB 1 status in Germany, the highest level for important new therapies. NUB 1 status was renewed in January 2019 and again in January 2020. In 2020, more German clinics will continue to negotiate and finalize these reimbursement negotiations.

In October 2018, the Company announced that the FDA designated the Reducer as a “Breakthrough Device”. In December 2018, the Company filed a Q-Sub submission to the FDA containing a comprehensive

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overview of all available Reducer Clinical data, real world performance data and a risk/benefit analysis for patients with refractory angina requesting an FDA Sprint discussion meeting. The Sprint discussion occurred during January 2019. On February 20, 2019 the Company announced that the FDA had informed Neovasc that, despite “Breakthrough Device Designation”, the FDA review team recommends collection of further pre-market blinded data prior to PMA submission. Through the Sprint discussion process, Neovasc will continue discussions with the FDA and their senior management to attempt to bring this promising refractory angina device therapy to U.S. patients as soon as possible. Following the Sprint discussion held with the FDA on October 9, 2019 and weighing all available options a decision was made by the Company to pursue a PMA application for this Breakthrough medical device. On December 31, 2019, the Company announced the submission of a PMA to the FDA for the Reducer. On October 27, 2020, the FDA Circulatory Systems Devices Panel Meeting was held. The Panel voted 14 to 4 “in favor” that the Neovasc Reducer™ is safe when used as intended and voted 1 to 17 “against” on the issue of a reasonable assurance of effectiveness. The third vote was 13 to 3 “against” (2 abstained) on whether the relative benefits outweighed the relative risks. On January 15, 2021, the Company announced that it had received a not-approvable letter from FDA regarding its PMA submission for the Reducer.

Neovasc’s business operations started in March 2002, with the acquisition of NMI. NMI manufactured a line of collagen-based surgical patch products made for use in cardiac reconstruction and vascular repair procedures as well as other surgeries. Neovasc, through NMI, also sold biological tissue to industry partners and other customers who incorporated this tissue into their own products such as transcatheter heart valves. Neovasc’s biological products were made from chemically treated biocompatible pericardial tissue. In 2012, Neovasc sold the rights to manufacture a specific line of conventional surgical patch products to LeMaitre Vascular, Inc. for $4.6 million but retained rights to the underlying tissue technology for all other uses.

On December 2, 2016, the Company and Boston Scientific entered into a definitive agreement for Boston Scientific Corporation to acquire Neovasc’s advanced biologic tissue capabilities and certain manufacturing assets and make a 15% equity investment in Neovasc, for a total of $75 million in cash. Neovasc retained a license for its own Tiara products but ceased operations of its consulting services and contract manufacturing revenue line items in 2017.

Neovasc’s Strategy

The Company’s core strategy is to focus on re-establishing trust and confidence with its stakeholders, to re-structure the Company’s financing and to continue the development and commercialization of its products, the Tiara and the Reducer, providing minimally invasive medical devices for a cardiovascular market that the Company believes is both growing and under-served by current treatment solutions.

Key elements of this strategy include:

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Reducer — continuing therapy development of the Reducer, and supplementing the successful COSIRA prospective, multicenter, randomized, double-blind, sham-controlled clinical study with additional clinical experience through the Company’s targeted commercial launch of the Reducer in Europe and enrollment in the REDUCER-I, real world post market observational clinical study. Improving revenue growth in Europe by leveraging the renewed NUB 1 status in Germany and by further reimbursement initiatives in other international markets. Seeking strategic alternatives and alliances to build on the growing enthusiasm in the market for, and adoption of, the Reducer, in order to broaden and deepen therapy penetration in Europe and the Middle East.

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Following receipt of the “not approval” letter from FDA, January 15, 2021, the Company does not believe that FDA approval in the United States is likely in the near future, but the Company, working closely with the FDA, will evaluate the initiation of a U.S. IDE study.

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Tiara — with the Company’s clinical experience of the Tiara and the clinical data from the TIARA II multi center study, the Company has filed for CE Mark under the Medical Device Directive (“MDD”). Enrollment in the TIARA-I study was closed on November 15, 2019 with a total of 27 patients treated who will be followed out to 5 years. The Company is targeting a European regulatory decision for Tiara TA in the first half of 2021, although there is no assurance that European regulatory filing and an approval will be granted in the time frame anticipated by management or granted at any time in the

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future. Development of the Tiara transfemoral trans septal system for preclinical bench and animal studies to successful completion, followed by a first in human compassionate use case in the second half of 2021.

Three Year Development

Recent Developments Subsequent to December 31, 2020

On January 15, 2021, the Company received a “not approvable” letter from the FDA regarding its PMA submission for the Reducer. The FDA reviewed Reducer for treatment of patients with refractory angina pectoris despite guideline directed medical therapy, who are unsuitable for revascularization by coronary artery bypass grafting or by percutaneous coronary intervention.

On February 9, 2021 the Company announced that it had received written notification from the Nasdaq notifying the Company that it has regained compliance with the Minimum Bid Price Requirement under Nasdaq Listing Rule 5550(a)(2) pursuant to Nasdaq Listing Rule 5810 for continued listing on the Nasdaq. The Company has until June 8, 2021 to regain compliance with Nasdaq Listing Rule 5500(b)(2) with respect to the Market Value Requirements.

On February 12, 2021, the Company announced it has closed its previously announced sale of an aggregate of 36,000,000 Common Shares at a purchase price of $2.00 per Common Share in an offering priced at-the-market under the Nasdaq rules for aggregate gross proceeds to the Company of approximately $72 million, before deducting placement agent’s fees and estimated expenses of the offering payable by the Company.

On February 24, 2021, the Company announced it has received written notification from the Nasdaq Stock Market LLC informing the Company that it has regained compliance with the minimum market value requirement set forth in the rules for continued listing on the Nasdaq Capital Market.

Year Ended December 31, 2020

On January 6, 2020, the Company closed its previously announced registered direct offering (the “January 2020 Financing”) priced at-the-market under Nasdaq rules of an aggregate of 1,185,000 series A units (“Series A Units”) and 1,241,490 series B units (“Series B Units” and together with the Series A Units, the “ January Units”) at a price of $4.1351 per Series A Unit and $4.135 per Series B Unit for aggregate gross proceeds to the Company of approximately $10 million, before deducting placement agent’s fees and estimated expenses of the January 2020 Financing payable by the Company.

On April 27, 2020, the Company’s application for the Paycheck Protection Program loan through the U.S. Small Business Administration was approved for approximately $530,000. This program helps businesses keep their workforce employed during the COVID-19 crisis by providing relief in the form of a forgivable loan used for payroll costs. The amount is advanced in the form of a loan that is forgivable if the borrowers, being certain wholly owned subsidiaries of the Company, allocate the funds principally for the purposes of retaining employees in the US through the payment of payroll and group health care benefits costs and other expenses in accordance with the loan agreement.

On April 30, 2020, the Nasdaq Hearing Panel granted the Company’s request for an extension through August 17, 2020 to evidence compliance with the $35 million MVLS requirement for continued listing on the Nasdaq.

On May 6, 2020, the Company appointed John Panton, formerly the VP, Quality to Chief Quality Officer effective immediately.

On May 26, 2020, the Company announced the offering of secured convertible notes (the “2020 Notes”) and warrants (the “May 2020 Warrants”), the warrant exchange transaction, repayment of the secured convertible notes of the Company issued in November 2017 (the “2017 Notes”) issued pursuant to the November 2017 private placement (the “2017 Private Placement”) and a settlement agreement between the Company and a certain investor pursuant to which the Company issued the Settlement Warrants (the “May 2020 Offering”).

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On May 27, 2020, the Company announced that it has filed for CE Mark for its Tiara TA Transapical mitral valve replacement system.

On June 4, 2020, the Company announced that the Company issued a 2020 Note in the principal amount US$1 million. Following the earlier issuance of the 2020 Notes in the principal amount of $4 million and the May 2020 Warrants, the Company raised aggregate gross proceeds of $5 million.

On June 12, 2020 the Company announced an offering (the “June 2020 Offering”), whereby it has entered into definitive agreements with certain healthcare-focused institutional investors for the sale of an aggregate of 3,883,036 units comprised of one Common Share and three-quarters of one warrant (the “June 2020 Units”) at a purchase price of $2.97375 per June 2020 Units in a registered direct offering priced at-the-market under Nasdaq rules for aggregate gross proceeds to the Company of approximately $11.5 million, before deducting placement agent’s fees and estimated expenses of the June Offering payable by the Company.

On June 25, 2020, the Company announced that it received written notification from the Nasdaq notifying the Company that it has regained compliance with the minimum Market Value Requirement (as defined below) set forth in the rules for continued listing on the Nasdaq.

On July 9, 2020, the Company announced that it had been informed by the FDA that the Circulatory System Devices Panel of the Medical Devices Advisory Committee will review the PMA for the Reducer at its October 27, 2020 meeting.

On July 23, 2020, SMG exercised 1,424,049 of the May 2020 Warrants for aggregate exercise proceeds to the Company of $3,750,945 and partial repayment of $3,613,341 (the “July 2020 Prepayment”) of the principal of the 2019 Note (as defined herein). In connection with the July 2020 Prepayment of the 2019 Note, the Company also issued to SMG 481,778 warrants (the “July 2020 Prepayment Warrants”) at a current exercise price of US$7.50 per August Prepayment Warrant in accordance with the terms of the 2019 Note.

On August 10, 2020, the Company announced an offering (the “August 2020 Offering”), whereby it has entered into definitive agreements with certain healthcare-focused institutional investors for the sale of an aggregate of 4,532,772 units comprised of one Common Share and three-quarters of one Warrant (the “August 2020 Units”) at a purchase price of $ 2.77575 per August Unit in a registered direct offering priced at-the-market under Nasdaq rules for aggregate gross proceeds to the Company of approximately $12.6 million, before deducting placement agent’s fees and estimated expenses of the August Offering payable by the Company.

On August 12, 2020, the Company completed the August 2020 Offering of an aggregate 4,527,772 August Units at a price of $2.77575 per unit for aggregate gross proceeds to the Company of approximately $12,600,000 before deducting placement agent’s fee and estimated expenses of the August 2020 Offering payable by the Company.

On August 17, 2020 SMG exercised 501,000 of the remaining 1,149,910 May 2020 Warrants for aggregate exercise proceeds to the Company of $1,319,634 (the “August 2020 Prepayment”) of the principal of the 2019 Note (as defined herein). In connection with the prepayment of the 2019 Note, the Company also issued to SMG 168,518 Warrants (the “August Prepayment Warrants”) at a current exercise price of $7.50 per August Prepayment Warrant in accordance with the terms of the 2019 Note.

On December 10, 2020, the Company completed the registered direct offering of an aggregate of 6,230,803 units comprised of one Common Share and one Warrant (the “December Units”) at a price of $0.9801 per unit for aggregate gross proceeds to the Company of approximately $6,100,000 before deducting placement agent’s fee and estimated expenses payable by the Company (the “December Offering”).

On December 10, 2020 and December 14, 2020, the Company received written notifications (the “Notification Letters”) from the Nasdaq notifying that the Company is not currently in compliance with the Nasdaq’s continued listing requirements which require that an issuer’s listed securities maintain a total market value of US$35 million (the “Market Value Requirements”) and a minimum bid price of at least $1.00 per share (the “Minimum Bid Price Requirements”). In accordance with Nasdaq Listing Rules, the Company has until June 8, 2021 to regain compliance with the Market Value Requirements and until June 14, 2021 to regain

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compliance with the Minimum Bid Price Requirements. In the event the Company does not regain compliance by the applicable deadlines, the Company may be eligible for additional time to regain compliance or may face delisting. The Notification Letters do not impact the Company’s listing on the Nasdaq at this time and the Company intends to monitor its market value between now and the applicable deadlines. During this time, we expect that the Common Shares will continue to be listed and trade on the Nasdaq. The Company’s business operations are not affected by the receipt of the Notification Letters. The Company is also listed on the Toronto Stock Exchange and the Notification Letters do not affect the Company’s compliance status with such listing.

Year Ended December 31, 2019

On January 3, 2019, the Company received the Market Value Notification Letter from the Nasdaq Listing Qualifications Department notifying the Company that it was not in compliance with the $35 million minimum market value requirement set forth in the Nasdaq Marketplace Rules. The Market Value Notification Letter did not impact the Company’s listing on the Nasdaq at that time. In accordance with Nasdaq Listing Rule 5810(c)(3)(C), the Company was provided 180 calendar days, or until July 2, 2019, to regain compliance.

On January 14, 2019, the Company received the Bid Price Notification Letter from the Nasdaq Listing Qualifications Department notifying the Company that it was not in compliance with the $1.00 minimum bid price requirement set forth in the Nasdaq Marketplace Rules. The Bid Price Notification Letter did not impact the Company’s listing on the Nasdaq at that time. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company was provided 180 calendar days, or until July 15, 2019, to regain compliance.

In the event the Company does not regain compliance with the Nasdaq minimum market value or minimum bid price rules within the prescribed compliance periods, the Company may be eligible for additional time to regain compliance or may face delisting. Nasdaq also has broad discretionary public interest authority that it can exercise to apply additional or more stringent criteria for the continued listing of the Common Shares, or suspend or delist securities even if the securities meet all enumerated criteria for continued listing on the Nasdaq. The Nasdaq could use this discretionary authority at any time to delist the Common Shares. There can be no assurance that Nasdaq will not exercise such discretionary authority. In addition, there is no assurance that the Company will be able to regain compliance with the minimum bid price and minimum market value requirements prior to expiration of the prescribed compliance periods, or if it does, that the Company will be able to maintain such compliance as a result of the risks and uncertainties described above.

On January 22, 2019, the Company announced that pursuant to a settlement reached with the Edwards Plaintiffs (as defined below), the patent infringement action that the Edwards Plaintiffs had previously commenced in the Federal Court of Canada against the Company, Boston Scientific and Livanova, will be dismissed on a no-costs basis.

On January 23, 2019, the Company announced that the Journal of the American College of Cardiology: Cardiovascular Interventions had published a peer-reviewed article on the use of dipyridamole stress perfusion cardiac magnetic resonance to assess the performance of the Reducer, titled “Coronary Sinus Reducer Implantation to Reduce the Ischemic Burden in Refractory Angina.”

On January 29, 2019, the Company announced that it had completed the Phase 1 requirements of the TIARA-II study in both Germany and the United Kingdom and has received approval to proceed with Phase 2 of the TIARA-II study.

On January 30, 2019, the Company announced that the German Institute for the Hospital Remuneration System had awarded the Reducer NUB status 1 designation again for 2019.

On February 11, 2019, the Company announced that the Pierangeli Clinic of Pescara, Italy had initiated a program to provide its patients access to the Reducer.

On September 7, 2018, Endovalve filed a complaint in the United States District Court for the District of New Jersey against Neovasc Inc. and Neovasc Tiara Inc. (the “Neovasc Defendants”), alleging claims for trade secret misappropriation, breach of contract, and unfair competition. Endovalve alleged that it was a former customer of Neovasc Inc., and that the Neovasc Defendants improperly used trade secrets in the development

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of Tiara. The complaint sought injunctive relief, money damages, and attorneys’ fees. On February 20, 2019, the Company announced that it had entered into a settlement agreement with Endovalve. This agreement resolved certain potential claims against the Company. The settlement agreement contemplates certain fees being paid by Neovasc to Endovalve, including settlement fees in installments totaling $3 million over the two and a half years following the agreement’s execution. In addition, Neovasc agreed to pay Endovalve a royalty of 1.3% on the annual net sales of the Tiara following the first commercial sale of the Tiara. Also contained in the settlement agreement are buy-out clauses that allow Neovasc, or an acquirer of Neovasc or the Tiara assets, to buy out these royalty obligations. As part of the settlement agreement, the claims against the Neovasc Defendants were dismissed with prejudice.

On December 20, 2018, the Company filed a comprehensive Q-Sub submission to the FDA with all available Reducer clinical evidence, requesting a Sprint FDA discussion meeting. The Neovasc team, together with two top U.S. cardiologists, met with the FDA proposing moving forward with a PMA submission using the available Neovasc clinical evidence. On February 20, 2019, the Company announced that the FDA had informed Neovasc that, despite “Breakthrough Device Designation”, the FDA review team recommends collection of further pre-market blinded data prior to PMA submission. Through the Sprint discussion process, Neovasc will continue discussions with the FDA and their senior management, to attempt to bring this promising refractory angina device therapy to U.S. patients as soon as possible.

On February 21, 2019, the Company announced that a patient implanted with the Tiara had celebrated her fifth anniversary since undergoing the procedure. The Company believes that this patient is the longest surviving transcatheter mitral valve replacement therapy recipient in the world.

On February 27, 2019, the Company announced that it would present a corporate overview at the 8th Annual SVB Leerink Global Healthcare Conference held on February 27-March 1, 2019 in New York, NY.

On February 28, 2019, the Company completed an underwritten public offering of 11,111,111 Common Shares, at a price of $0.45 per Common Share, for gross proceeds of approximately $5 million before deducting the underwriting commission and offering expenses payable by the Company. The Company intends to use the approximately $4.02 million net proceeds of the February 2019 Financing for the development and commercialization of the Reducer, development of the Tiara and general corporate and working capital purposes. As part of the underwriter’s compensation in the February 2019 Financing, the Company issued the underwriter warrants (the “February Broker Warrants”) to purchase in aggregate up to a 722,222 Common Shares, exercisable at a price per Common Share equal to $0.5625 for a period of three years following issuance.

On March 4, 2019, the Company announced that the Tiara was featured in an update presentation at the Cardiovascular Research Technologies (CRT) meeting held March 2-5, 2019 in Washington, D.C.

On March 5, 2019, the Company announced that the Reducer was featured in a “Live Case” broadcast at the Cardiovascular Research Technologies (CRT) meeting held March 2-5, 2019 in Washington, D.C.

On March 12, 2019, the Company announced that it had entered into Exchange Agreements with the holders of all of its outstanding Series A common share purchase warrants (the “Series A Warrants”) and Series E common share purchase warrants (the “Series E Warrants”) issued pursuant to the 2017 Private Placement and the 2017 underwritten public offering (the “2017 Public Transaction”, and together with the 2017 Private Placement, the “2017 Financings”), pursuant to which the Company issued an aggregate of approximately 496,239 Common Shares for the surrender and cancellation of all of the Series A Warrants and Series E Warrants outstanding, on the basis of 0.0085 of a Common Share for each Series A Warrant or Series E Warrant (the “Exchange”). Following completion of the Exchange, there are no longer any warrants remaining outstanding from the 2017 Financings.

On March 14, 2019, the Company announced that it had successfully completed its 2019 mandatory Surveillance Audit with its Notified Body, resulting in the maintenance of the Regulatory Certification (EC marking) and maintenance of the ISO 13485: 2016 certification of its quality management system.

On March 15, 2019, the Company completed an underwritten public offering of 11,111,111 Common Shares, at a price of $0.45 per Common Share, for gross proceeds of approximately $5 million before deducting the underwriting commission and offering expenses payable by the Company. The Company intends to use the approximately $4.25 million net proceeds of the March 2019 Financing for the development and

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commercialization of the Reducer, development of the Tiara and general corporate and working capital purposes. As part of the underwriter’s compensation in the March 2019 Financing, the Company issued the underwriter warrants (the “March Broker Warrants”, and together with the February Broker Warrants, the “Broker Warrants”) to purchase in aggregate up to a 722,222 Common Shares, exercisable at a price per Common Share equal to $0.5625 for a period of three years following issuance.

On March 21, 2019, the Company announced that the Appeals Court in Munich rendered its decision with respect to the Company’s litigation with CardiAQ in Germany. The Appeals Court amended the decision of the German Court and dismissed the complaint of CardiAQ in full.

On May 16, 2019, the Company completed the an offering of (i) 15% original issue discount convertible notes (“2019 Notes”) with a face value of $11.5 million, for gross proceeds to the Company of $9,775,000, and (ii) 334,951 common shares of the Company at a price of $5.15 per Common Share, for gross proceeds to the Company of $1,725,000 (the “May 2019 Financing”).

On June 4, 2019, Dr. William O’Neill resigned from the board of directors and Fred Colen was elected in his place, and on September 16, 2019, Jane Hsiao resigned from the board of directors and Norman Radow was appointed in her place.

On August 22, 2019, the Company received written notification (the “Notification Letter”) from the Nasdaq notifying the Company that it is not in compliance with the minimum market value requirement set forth in Nasdaq Rules for continued listing on the Nasdaq Capital Market. Nasdaq Listing Rule 5550(b)(2) requires companies to maintain a minimum market value of US$35 million and Listing Rule 5810(c)(3)(C) provides that a failure to meet the market value requirement exists if the deficiency continues for a period of 30 consecutive business days. Based on the market value of the Company for the 30 consecutive business days from July 10, 2019 to August 20, 2019, the Company no longer meets the minimum market value requirement. The Notification Letter did not impact the Company’s listing on the Nasdaq Capital Market at that time. In accordance with Nasdaq Listing Rule 5810(c)(3)(C), the Company was been provided 180 calendar days, or until February 17, 2020, to regain compliance with Nasdaq Listing Rule 5550(b)(2). To regain compliance, the Company’s market value must exceed US$35 million for a minimum of 10 consecutive business days.

On November 7, 2019 the Company announced the appointment of Bill Little as Chief Operating Officer of the Company.

On December 31, 2019, the Company announced the submission of a PMA to the FDA for the Reducer.

Year Ended December 31, 2018

On January 22, 2018, the Company appointed Fred A. Colen as President and Chief Executive Officer.

On February 1, 2018, the Company announced that the German Institute for the Hospital Remuneration System had awarded the Reducer NUB status 1 designation for 2018.

On April 11, 2018, the Company announced that it had received $7,132,488 in proceeds from investor-initiated exercises of 4,885,266 of the Series C Warrants issued pursuant to the 2017 Public Transaction. Each Series C Warrant was exercised at an exercise price equal to $1.46.

On April 30, 2018, the Company announced that it had received $4,666,099 in proceeds from additional investor initiated exercised of 3,195,958 of the Series C Warrants issued pursuant to the 2017 Public Transaction. Each Series C Warrant was exercised at an exercise price equal to $1.46.

On May 15, 2018, the Company announced it was urging the shareholders of record to vote for the proposal authorizing the Board to effect a reverse stock split at the upcoming Annual General and Special Meeting of Shareholders, in order to best meet the needs of the Company and the shareholders.

On May 25, 2018, the Company announced it had a successfully generated increased interest with European physicians in either participating in the ongoing Tiara clinical trials or in using the Reducer for their patients suffering from refractory angina at the EuroPCR, the annual meeting of the European Association of Percutaneous Cardiovascular Interventions of the European Society of Cardiology.

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On June 4, 2018, the Company announced results of the Annual General and Special Meeting of Shareholders held on June 4, 2018. At the Meeting, the shareholders of the Company re-elected board members, approved amendments to the Company’s stock option plan and the unallocated options thereunder, approved the Company’s reverse stock split (common share consolidation) and re-appointed the auditors of the Company.

On June 20, 2018, the Company announced the first U.S. patient had been implanted with a Reducer under compassionate use. The compassionate use case was conducted by Dr. Gerald Koenig, along with Dr. Ryan Gindi and colleagues, of the Division of Cardiology at Henry Ford Hospital in Detroit, Michigan.

On June 21, 2018, the Company announced that the Tiara transcatheter mitral valve replacement device was featured in a “Live Case” broadcast at the 11th Annual Transcatheter Valve Therapy Conference. In a live case broadcast to the main arena of the conference, Dr. Anson Cheung, and Dr. John G. Webb of St. Paul’s Hospital (Vancouver, Canada) successfully implanted a 40mm Tiara transcatheter mitral valve in a patient suffering from severe mitral regurgitation.

On July 2, 2018, the Company announced that the Tiara and the Reducer were featured in presentations at the CSI Frankfurt 2018 conference held on June 27-30, 2018 in Frankfurt, Germany.

On July 9, 2018, the Company received an expected delisting determination from the Nasdaq Listing Qualifications Department for non-compliance with the $1.00 minimum bid price requirement. On July 16, 2018, Nasdaq scheduled an oral hearing for August 30, 2018, at which the panel would consider the Company’s appeal of the delisting determination. On September 11, 2018, the Company announced that it had received an extension from the panel until October 15, 2018 to regain compliance with the $1.00 minimum bid price requirement. The Company also announced its plans to execute the share consolidation (reverse stock split), approved at the Annual General and Special Meeting of Shareholders on June 4, 2018. On October 9, 2018, the Company announced that it had received written notification from the panel that the Company had regained compliance with the minimum bid price requirement, the Company was in compliance with all other applicable continued listing requirements and the panel had determined to continue listing the Common Shares on the Nasdaq.

On July 16, 2018, the Company announced that it had filed an “administrative” prospectus supplement relating to the expiration of its prior shelf prospectus and registration statement on July 9, 2018, so that the registration of the 2017 Financings from the Company’s prior registration statement was moved to the new registration statement.

On August 3, 2018, the Company announced that it had entered into the Penn Agreement, which resolved certain potential claims against the Company that had been previously disclosed.

On August 6, 2018, the Company announced that it would present at the 38th Annual Canaccord Genuity Growth Conference in Boston, Massachusetts.

On August 6, 2018, the Company announced the publication of the manuscript, “Safety and efficacy of the Reducer: A multicenter clinical registry — REDUCE study” in the International Journal of Cardiology. This study presented results on the safety and effectiveness of the Reducer using a sample of 141 patients suffering from coronary artery disease and chronic refractory angina.

On September 12, 2018, the Company announced that holders of its senior secured convertible 2017 Notes had agreed to amend certain terms of the 2017 Notes and other concessions, including a one-year extension of the maturity of the 2017 Notes from May 17, 2019 until May 17, 2020.

On September 18, 2018, the Company effected a share consolidation (reverse stock split) of its issued and outstanding Common Shares on the basis of one post-consolidation Common Share for every one hundred pre-consolidation Common Shares.

On September 19, 2019, the Company announced that the Reducer had been implanted in 100 patients in Germany.

On September 20, 2019, the Company announced that the Tiara and Reducer would both be featured in several presentations at the Transcatheter Cardiovascular Therapeutics 2018 scientific symposium from September 21-25, 2018, in San Diego, California.

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On October 3, 2018, the Company announced positive 12-week follow-up data from the first U.S. patient implanted with the Reducer. The Compassionate Use case was conducted in June 2018.

On October 10, 2018, the Company announced that the FDA has granted “Breakthrough Device Designation” for the Reducer. The FDA grants this designation to expedite the development and review of a device that demonstrates compelling potential to provide a more effective treatment or diagnosis for life-threatening or irreversibly debilitating diseases.

On October 16, 2018, the Company announced the publication of a peer-reviewed article on the Tiara in Circulation: Cardiovascular Interventions, titled “Transcatheter Mitral Valve Replacement in Patients with Previous Aortic Valve Replacement.” The article reports for the first time the experience of transcatheter mitral valve replacement using the Tiara valve in patients with previous aortic valve replacement.

On October 22, 2018, the Company announced that the Tiara was featured in a “Live Case” broadcast at the 32nd Annual European Association for Cardio-Thoracic Surgery Meeting held October 18-20 in Milan, Italy.

On November 20, 2018, the Company announced that the Journal of American College of Cardiology: Cardiovascular Interventions had published a peer-reviewed article on the clinical response of a patient that received the Reducer titled, “Coronary Sinus Reducer Implantation to Reduce the Ischemic Burden in Refractory Angina.”

On December 11, 2018, the Company announced that the Journal of the American College of Cardiology had published new, peer-reviewed Reducer data describing the long-term clinical and anatomical follow-up of patients with severe angina pectoris treated with the Reducer twelve years ago. The publication is entitled “First-in-Human Use of Coronary Sinus Reducer in Patients with Refractory Angina.”

On December 21, 2018, the Company announced that it had received ISO 13485:2016 certification, an internationally recognized quality standard specific to the medical device industry.

Neovasc’s Products

Tiara

In 2009, Neovasc started initial activities to develop novel technologies for catheter-based treatment of mitral valve disease. In the second quarter of 2011, the Company formally initiated a new project to develop the Tiara, a product for treating mitral valve disease. The transapically delivered Tiara is currently in the clinical trial phase providing a minimally invasive transcatheter device for patients who experience severe Mitral Regurgitation as a result of functional (most patients) or degenerative mitral heart valve disease, combined with an enlarged left ventricle. There are millions of patients worldwide who suffer from severe Mitral Regurgitation, the majority of them with functional Mitral Regurgitation. The unmet medical need in these patients is high. Mitral Regurgitation is often severe and can lead to heart failure and death. Currently, a significant percentage of patients with severe Mitral Regurgitation are not good candidates for conventional surgical repair or replacement due to frailty or comorbidities. Many of these patients are treated today via minimally invasive mitral valve repair procedures; however, these procedures are also complex, can take a long period of time to complete, and the clinical outcomes may not be optimal. Currently there is no transcatheter mitral valve replacement device approved for use in the U.S.

Our clinical experience to date has been with the 35 mm and 40 mm Tiara valves. First clinical use of the 40mm Tiara occurred in the fourth quarter of 2015. These two sizes allow for the treatment of approximately 75% of the annulus sizes in this high-risk patient population, in our TIARA-I and TIARA-II Clinical Studies. Currently, approximately 20% of this high-risk patient population meet all inclusion criteria for the Tiara studies and can be treated.

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with pre-existing prosthetic aortic valves and mitral surgical annuloplasty rings. On November 15, 2019, TIARA-I study enrollment was closed with 27 patients treated. This decision was not due to any safety concerns. The objective of the TIARA-I Early Feasibility study was to demonstrate the safety of the Neovasc TMVR system, while gathering preliminary information on device performance and clinical outcomes. With the experience to date, the Company believes it has accomplished this objective. The patients that are in follow-up will continue their follow up assessments, adverse event reporting requirements, etc., as per protocol through their 5-year visits. This decision had no impact on the TIARA-II CE Mark Study. There are currently 16 active sites across Germany, Israel, Spain, the Netherlands and the UK., however due to the COVID-19 pandemic restrictions, enrollment continues to be on temporary hold (sites were notified on April 24, 2020 of the temporary hold). The results from our clinical experience to-date continues to demonstrate the potential benefit for patients who otherwise have no treatment options.

Neovasc believes that there are several unique attributes of the Tiara that may provide advantages over other approaches to mitral valve replacement, in particular the low profile, its D shape, enabling a better anatomical fit and less risk of left ventricular outflow tract obstruction, and its unique combined skirt and anchoring mechanism. The Tiara has successfully treated 17 patients with previous aortic valves (AVR), including mechanical, bioprosthetic and TAVI, without any LVOT obstruction, no peri-procedural deaths or paravalvular leak. Data on the first 12 patients with previous AVR treated with Tiara was published in 2018 in Circulation: Cardiovascular Interventions.

There are several other transcatheter mitral valve replacement devices in development by third-parties, some of which have been implanted in early feasibility type studies, pivotal U.S. studies, and CE Mark studies with varying results. There is no certainty that the Tiara will successfully proceed through clinical evaluation and ultimately receive regulatory approval to treat these patients.

The Tiara valve is manufactured, packaged and labelled in-house by the Company and is made up of two major components: the leaflets which are made from the Peripatch bovine tissue licensed from Boston Scientific, a fabric skirt, and the nitinol frame (to which the leaflets and skirt are attached), which is manufactured by a well-established specialty manufacturer in the medical device industry. If this supplier were unable to provide the nitinol frame in the future, it would seriously impact further development of the Tiara. The Tiara delivery system is manufactured, packaged and labelled in-house by the Company using customized standard catheter construction components that are readily available through vendors.

The TIARA-II study is estimated to cost approximately $15 million. While many challenges remain prior to achieving commercialization (including, but not limited to, positive clinical trial results and obtaining regulatory approval from the relevant authorities), the Company believes the Tiara is being recognized as one of the leading mitral valve replacement devices. Neovasc is managing and conducting the TIARA-II study itself in conjunction with certain service providers who undertake portions of data collection, data management, data analysis, safety and event monitoring and similar functions. The Tiara is currently manufactured for use in these studies by Neovasc at its own facilities following required medical device quality requirements. In the event of a positive outcome from the TIARA-II study and the Company successfully obtaining CE Mark approval, and if the Company decides to commercialize the Tiara TA, the Tiara would be commercially manufactured in the same manner at Neovasc’s facility.

Regulatory Status

The Company has filed for CE Mark for Tiara TA in Europe under the Medical Device Directive and anticipates a CE Mark decision in the first half of 2021. There is no assurance that European regulatory filing and an approval will be granted in the time frame anticipated by management or granted at any time in the future or that any or all of the sizes will be approved. There is no expectation that this product will be revenue-generating in the near term, although management believes that the product is addressing an important unmet clinical need.

The Tiara TA and Tiara TF are early-stage development products without any regulatory approvals in any country. The Company intends to continue to fund development of this product as cash flow allows.

Reducer

The Reducer is a treatment for patients with refractory angina, a painful and debilitating condition that occurs when the coronary vasculature delivers an inadequate supply of blood to the heart muscle, despite treatment with standard revascularization or cardiac drug therapies.

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Worldwide, coronary artery disease (“CAD”) is the leading cause of death. It is the largest contributor to the global burden of disease as reflected in disability-adjusted life years, a measure which combines premature mortality and the prevalence and severity of ill-health. On this measure, the impact of CAD increased by 29% in the period from 1990 to 2010. This reflects the worldwide shift to those chronic diseases associated with an aging global population. The most frequent (and often the first) manifestation of stable CAD is chronic stable angina. As a result, angina is a significant burden on healthcare systems worldwide. There is a clear association between more frequent angina and greater utilization of healthcare resources.

Refractory angina, resulting in continued symptoms despite maximal medical therapy without revascularization options, is estimated to affect 600,000 to 1.8 million Americans, with 50,000 to 100,000 new cases per year. A recent publication in the Cardiovascular Revascularization Medicine journal by Benck and Henry suggests that the prevalence of No-Option Refractory Disabling Angina (NORDA) in the U.S. population is between 26,000 and 52,000. Another publication in the European Heart Journal by Crea et al., stated persistence of angina caused by incomplete coronary revascularization may occur in up to 30% in the current era, although definitions of incomplete revascularization are heterogeneous. It further stated that persistent angina is associated with a significant economic burden with healthcare costs almost being two-fold higher among patients with persistent angina post-percutaneous coronary intervention vs. those who become symptom free. Additionally, there is emerging interest in treating patients that have refractory angina despite patent coronary arteries. Angina with non-obstructive coronary artery disease may affect as many as 39% of patients with chest pain according to a study from Patel et. al, published in the New England Journal of Medicine. Furthermore, a publication in Circulation by Lee et. al, suggests upwards of 20% of patients with angina and non-obstructive coronary artery disease have evidence of microvascular dysfunction. Increasing interest in diagnosis and treatment of angina and microvascular dysfunction as evidenced by the 2019 ESC Guidelines for the diagnosis and management of chronic coronary syndromes provides growing support for Reducer treatment.

The pain and shortness of breath associated with refractory angina can make it difficult for patients to engage in routine activities, such as walking or climbing stairs. Clinical studies demonstrate that the Reducer can provide significant relief of chest pain, shortness of breath and other debilitating symptoms in refractory angina patients. A significant proportion of the refractory angina patients in the United States and in Europe are potential candidates for the current Reducer therapy, either because they cannot be revascularized or because they are otherwise poorly managed using conventional medical therapies. These patients represent a substantial potential market opportunity for the Reducer. There continues to be interest from the medical community to explore the use of Reducer for other indications. Further clinical trials will need to be conducted to explore this possibility.

The Reducer is targeting a patient population that has failed to gain relief of their symptoms, despite other medical treatment options. A refractory patient, by definition, is resistant to other existing interventional cardiology therapies and is not receiving adequate relief from available drug regimens to manage their chest pain, shortness of breath and other debilitating symptoms. Neovasc believes that further studies may demonstrate that additional patient populations may benefit from treatment with Reducer and thus could further increase its market potential.

The Reducer is an hourglass-shaped, balloon-expandable, stainless steel, bare metal device, which is implanted in the coronary sinus, creating a restriction in venous outflow from the myocardium (the muscular layer of the heart wall). It is implanted using conventional percutaneous, or needle puncture, techniques. The Reducer is provided sterile and pre-loaded on a balloon catheter system. The system is 9 French sheath compatible and operates over a 0.035 inch guidewire. The implant procedure requires minimal training for experienced interventionalists. Once guidewire access to the coronary sinus is achieved, implantation typically takes less than 20 minutes.

Using a catheter-based procedure, the Reducer is implanted in the coronary sinus (the main vein draining blood from the heart muscle). Following implantation, the Reducer (all but the mid-section) becomes covered with endothelial tissue after about 4-6 weeks. This tissue coverage creates a permanent (but reversible, if necessary) narrowing in the coronary sinus. The coronary sinus is narrowed from a typical diameter of 10-12mm to approximately 3mm at the site of implantation. This focal narrowing provides a backwards pressure elevation in the coronary sinus which is intended to improve blood perfusion to ischemic territories of the heart muscle by forcing redistribution of blood from the less ischemic areas to the more ischemic areas of the

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heart muscle. This can result in improved perfusion of the endocardium, which helps relieve ischemia and chest pain, shortness of breath and other debilitating symptoms.

The clinical utility of this approach was demonstrated by a number of analogous approaches used in the past that achieved positive clinical outcomes for angina patients by constricting or intermittently blocking the coronary sinus to improve perfusion to the heart muscle. However, these therapies required the use of highly invasive surgery, or leaving a catheter in the heart for a prolonged period, making them impractical or clinically unacceptable for use in modern medical practice. The Reducer was developed to deliver this therapy in a safe, simple and effective manner via a minimally invasive catheter that is consistent with contemporary medical practice.

The Reducer has demonstrated excellent results in multiple animal studies, a first-in-human clinical trial of 15 patients suffering from chronic refractory angina who were followed out to six months, and then again at three years post implantation. The six-month results from this clinical trial were published in the Journal of the American College of Cardiology and three-year follow-up data were presented at the annual scientific meeting of the American College of Cardiology in March 2010. In this clinical trial, implantation of the Reducer resulted in significant clinical improvements in stress test and perfusion measurements, as well as in overall quality of life in the majority of the patients at six months and these same results were noted at the three year follow up. During this period, the Reducer remained patent with no evidence of migration, and symptom relief was maintained in these patients.

The Company completed the COSIRA trial, a prospective, multicenter, randomized, double-blind, sham-controlled study to assess the safety and effectiveness of the Reducer device in 2013. The COSIRA trial’s primary endpoint was a two-class improvement in angina symptoms six months after implantation based on the patients’ ratings on the Canadian Cardiovascular Society “CCS” angina grading scale; a four-class functional classification that is widely used to characterize the severity of angina symptoms and disability. Only patients with severe angina, CCS Class III or IV, were enrolled in the COSIRA trial. The COSIRA trial analysis showed that the study met the primary endpoint, with patients receiving the Reducer achieving a statistically significant improvement in CCS scores (two classes or better) compared to patients receiving a sham control (18 of 52 [34.6%] of the Reducer patients improved ≥ 2 CCS classes compared to 8 of 52 [15.4%] of the control patients [p-value = 0.024]). The analysis also showed that patients treated with the Reducer showed a statistically significant improvement of one or more CCS classes compared to the sham control patients (37 of 52 [71.2%] of the Reducer patients showed this improvement compared to 22 of 52 [42.3%] of the control patients [p-value = 0.003]). The COSIRA trial results were published in the New England Journal of Medicine in February 2015.

In 2016, Neovasc initiated the REDUCER-I post market observational study as a multi-center, multi-country, three-arm study collecting long-term data from European patients implanted with the Reducer. The study is expected to enroll up to 400 patients. Currently, 291 patients have been enrolled across 22 centers that are active in Italy, Germany, Austria, Belgium, the Netherlands, the United Kingdom, Spain and Switzerland. Enrollment has been delayed due to the impact of COVID-19 in 2020.

In 2018 an article by Parikh, et al., was published in the Journal of the American College of Cardiology (JACC) titled, “First-in-Human Use of Coronary Sinus Reducer in Patients with Refractory Angina”. This article describes the long-term structural, anatomic, and clinical durability of the Reducer. Reducers were patent 12 years following implantation, with no signs of strut fractures, dislocation, thrombosis, or migration, and the sustained improvement in angina class seen at six months and three years, was also maintained at the 12-year follow-up.

Hundreds of patients have been enrolled in clinical studies conducted by third parties across Europe and Israel relating to the Reducer. These studies continue to show a strong safety profile and positive clinical results that trend closely to the COSIRA randomized study. Many of these studies have been published and presented in medical forums. It is anticipated that as the commercial use of the Reducer continues to expand, additional third-party studies, investigations and presentations will be undertaken. If the results from such third-party activities continue to show positive results from the product, they may provide additional data to support expanded adoption of the Reducer for the intended patient population. As a result of the clinical evidence from these studies and publications, the Reducer Therapy has now been recognized in the European Society of Cardiology Guidelines as a treatment option for refractory angina.

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Included in the numerous publications of clinical results since the COSIRA study was published in the New England Journal of Medicine in 2015, a recent publication in the European Heart Journal by Gallone, et al., on the “Cost-effectiveness of the coronary sinus Reducer and its impact on the healthcare burden of refractory angina” indicated that the Reducer was consistently cost-effective according to a range of cost-effectiveness thresholds after just one year of implant.

Following the positive data from the COSIRA trial, the Company initiated a pilot launch of the Reducer in select European markets in early 2015. The Company has signed distribution agreements in multiple jurisdictions across Europe. Direct sales are underway in select centers in Germany.

Based on achieving NUB 1 status in Germany and a general positive reception in the European market, with positive experiences by many physicians from the treatment of their own patients with the Reducer, we are seeing an increase in adoption of the Reducer therapy in Europe. COVID-19 had a marked impact on Reducer revenues in 2020 and we anticipate that the negative impact will be felt well into 2021. It is unclear how long the negative impact of COVID-19 will persist.

We are seeing a growing level of enthusiasm in Europe for the Reducer therapy and we believe that the therapy has significant potential. In order to further accelerate the penetration of the therapy, we are open to considering strategic alternatives for the Reducer, including potential alliances in Europe, and the rest of the world.

On May 6, 2019, the Company announced that 1,000 patients diagnosed with refractory angina have been treated with the Reducer. The Reducer therapy now benefits from medical evidence spanning 1,000 patients and 14 years of follow up.

On September 3, 2019, the Company announced that the European Society of Cardiology included Neovasc Reducer in the European Practice Guidelines for the Diagnosis and Management of Chronic Coronary Syndromes. The Reducer entered at Class 2 B.

On November 1, 2019, the Company announced it had advised the FDA of its decision to submit a PMA application, and on December 31, 2019, the Company announced the submission of a PMA to the FDA for the Reducer.

On July 9, 2020, the Company announced it had received notification of an FDA Circulatory Systems Devices Panel Meeting scheduled for October 27, 2020.

On October 28, 2020, the Company announced results from the FDA Circulatory Systems Devices Panel Meeting at which the Panel voted 14 to 4 “in favor” that the Reducer is safe when used as intended and voted 1 to 17 “against” on the issue of a reasonable assurance of effectiveness. The third vote was 13 to 3 “against” (2 abstained) on whether the relative benefits outweighed the relative risks. The FDA will provide the Company with their decision on the PMA at a later date.

On January 15, 2021, the Company announced that it had received a not-approvable letter from FDA regarding its PMA submission for the Neovasc Reducer.

Regulatory Status

The Reducer received CE Mark designation November 2011. On November 3, 2017, Neovasc received FDA approval for a U.S. IDE clinical trial, COSIRA-II (a trial design similar to the COSIRA study). While the principal investigator and co-principal investigator for this study were already appointed, the Company evaluated the timing for starting such a U.S. clinical trial, funding being the largest impediment. The cost of this U.S. clinical trial is expected to be approximately $30 million.

On October 10, 2018, the Company announced that the FDA had granted “Breakthrough Device Designation” for the Reducer. The FDA grants this designation in order to expedite the development and review of a device that demonstrates compelling potential to provide a more effective treatment or diagnosis for life-threatening or irreversibly debilitating diseases.

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top U.S. Cardiologists, met with the FDA proposing moving forward with a PMA submission using the available Neovasc clinical evidence including the prospective, multicenter, randomized, double-blind, sham controlled study assessing the safety and efficacy of the Reducer in 104 patients in the European Union and Canada (COSIRA), a multi-center, multi-country, three-arm observational post market study (REDUCER-I), and supportive safety and efficacy data from peer-reviewed journals.

On February 20, 2019, the Company announced that the FDA had informed Neovasc that, despite “Breakthrough Device Designation”, the FDA review team recommended collection of further pre-market blinded data prior to PMA submission.

On June 26, 2019, the Company and two top U.S. Cardiologists, met with FDA to further discuss available clinical evidence for the Reducer, to try to reach agreement on potential options to enter the U.S. Market. FDA provided the Company with guidance towards potential alternate options, including the HDE pathway for class IV refractory angina patients and/or alternate clinical trial designs for a broader refractory angina patient population.

Following the Sprint discussion held with the FDA on October 9, 2019 and weighing all available options a decision was made by the Company to pursue a PMA application for this Breakthrough medical device.

On October 27, 2020, the FDA Circulatory Systems Devices Panel Meeting was held. The Panel voted 14 to 4 “in favor” that the Neovasc Reducer™ is safe when used as intended and voted 1 to 17 “against” on the issue of a reasonable assurance of effectiveness. The third vote was 13 to 3 “against” (2 abstained) on whether the relative benefits outweighed the relative risks.

On January 15, 2021, the Company received a “not-approvable” letter from the FDA regarding its PMA submission for the Reducer.

Product Development

Product development activities have recently started at the Company for the development of Taira TF, a transfemoral trans-septal version of the Tiara system, focused on a suitable and novel transfemoral trans-septal delivery system, as well as on a few important but minor changes to the Tiara valve to make it deliverable in this manner and to further penetrate the patient population. These development activities are taking place both in our Vancouver facility as well as in our New Brighton, MN facility. Furthermore, engineering resources are continuing to support manufacturing for both the Reducer system (commercially available in Europe), as well as for the Tiara system for clinical studies.

Specialized Skill & Knowledge

Tiara

The team that developed the Tiara has extensive background experience developing medical devices and heart valves. As the product has progressed through the clinical and regulatory pathways, and to broaden its specialized staff, the Company opened an office in Minnesota. Since opening this office, the Company has been successful in attracting talent and filling out the team supporting the Tiara. The office in Minnesota now employs the majority of our clinical and regulatory affairs groups, as well as an engineering and project management group. The opening of this office was an important milestone in the ongoing development of the Tiara.

Reducer

The manufacture of the Reducer requires basic catheter and stent manufacturing techniques that are common in the industry. The one component that is more complex is the manufacture of the hour glass shaped balloon and the Company works closely with an industry partner who manufactures this component. The Reducer is assembled and sterilized by well-known medical device contract manufacturers. While the device is not manufactured in-house, the product is supported by a team with specialized background knowledge of refractory angina and the clinical and regulatory requirements for the device. Our Medical Director, Shmuel Banai, has been involved in the Reducer since its inception.

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Peripatch

The Company employs a proprietary process to manufacture Peripatch owned by Boston Scientific and licensed to the Company to allow it to continue its tissue and valve assembly activities for its own valve related programs, including advancing the Tiara through its clinical and regulatory pathways. The Company has an engineering team that is skilled and knowledgeable in the process and the Peripatch product has a 25-year implant history that differentiates it from other tissue processing techniques. It is a critical component in the Tiara valve.

Intangible Property

Patents

The Company’s ability to protect its products from unauthorized or infringing use by third parties depends substantially on its ability to obtain and maintain valid and enforceable patents. Neovasc has issued and pending patent applications in Canada, the United States, Europe and other select countries covering certain aspects of the technology that Neovasc intends to commercialize (including the Reducer and the Tiara). However, patents that have been issued to Neovasc or that may be issued in the future may not be valid upon challenge or enforceable. Further, even if valid and enforceable, Neovasc’s issued patents may not be sufficiently broad to prevent others from marketing products like the Company’s own, despite these patent rights. In addition, patents are country/jurisdiction specific, i.e. the rights afforded under a patent are limited to the jurisdiction of the government which granted the patent. Thus the rights afforded by a U.S. patent are limited to the United States or its territories, and are unenforceable elsewhere. In general, the exclusive rights provided by a patent begin on the date the patent issues and expires 20 years from the filing date of the application, though this term may differ slightly depending on the specific patent laws in the applicable jurisdiction (for example, U.S. patents may have a patent term adjustment granted by the U.S. Patent and Trademark Office to compensate for certain delays in examining an application). The Company also relies on trade secret protection to protect its interests in proprietary know-how and for processes for which patents are difficult to obtain or enforce.

Trademarks

The Company owns registrations and/or pending applications for, the trademark NEOVASC, TIARA, and NEOVASC REDUCER in the United States, Canada, and the European Union.

New Products/Components/Cycles

Tiara

A key strategic and focused activity for the Company in the Mitral Valve space is the development of the transfemoral, trans-septal version of the Tiara Mitral Valve, which the Company believes has the potential to lead to a breakthrough for the optimal treatment of severe Mitral Regurgitation, by providing a safe and broadly usable implantation technique. These development activities are taking place both in the Company’s Vancouver, BC and New Brighton, MN facilities. Outside of the development of a unique and innovative delivery system, the Company will make several minor, but meaningful changes to the Tiara TA valve, in order to enhance trans-septal delivery & deployment, as well as to further increase the suitable patient population, while maintaining the core features and functionality of the current valve in order to leverage clinical and technical performance data. We initiated the formal development of this system, based on the completed conceptual work at the end of the first quarter of 2019.

Reducer

The Reducer is a late-stage product with European CE Mark approval. The Company initiated a pilot launch of the Reducer in select European markets in 2015. The Company has also been exploring initiation of the Reducer sales in other non-US markets and has signed distribution agreements in several countries. Any sales of the product in the United States would follow obtaining U.S. regulatory approval, if such approval is granted, as described further above.

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A well-known and well-established medical device contract manufacturer is manufacturing the Reducer for the Company. The majority of the components that make up the Reducer are readily available; however, two critical components of the device are not. The balloon portion of the delivery system is technically challenging to manufacture and the Reducer device, while a basic technology, must be manufactured in Israel due to restrictions on the transfer of intellectual property and manufacturing out of Israel stemming from certain research grants received by NML prior to the acquisition in July 2008.

Peripatch Technology used in our Tiara Mitral Valve

The basic Peripatch technology licensed from Boston Scientific was established over 25 years ago, when the material was used to fashion the leaflets and other components in surgical heart valves.

Neovasc sources its bovine tissue from abattoirs in New Zealand for the manufacture of Tiara devices. There is a degree of capacity constraint related to the supply of raw tissue but the risk of disruption is minimal, due to the relatively small amounts of tissue required for the current Tiara programs.

While a definitive pattern of demand has not yet been established and the effect is expected to be minimal, the cyclical nature of the meat industry could conceivably have an impact on the quality and availability of raw tissue and could potentially impact the yields and margins for the product over the course of any given year. Further information about Peripatch can be found above under the heading “Neovasc’s Products”.

Economic Dependence

For the year ended December 31, 2020, revenues from the Company’s three largest customers accounted for approximately 13%, 13% and 9% of the Company’s sales. These customers are typically established medical device distributors who distribute Reducer within a broader portfolio of third party products.

Foreign Operations

While the Company’s headquarters are in Vancouver, British Columbia and a large part of all its operations are in Vancouver, the Company is exposed to factors that influence its revenue from customers located in foreign locations and revenues that are denominated in foreign currencies. The majority of the Company’s revenues are derived from product sales in Europe, primarily denominated in U.S. dollars and Euros, while the majority of the Company’s costs are denominated in U.S. and Canadian dollars. The Company expects that foreign currency denominated international sales will continue to account for a significant portion of its revenues. Consequently, a decrease in the value of a Euro in relation to the U.S. dollar will have an adverse effect on the Company’s results of operations, with lower than expected revenue amounts and gross margins being reported in the Company’s U.S. dollar financial statements. In addition, any decrease in the value of the Euro occurring in between the time a sale is consummated and the time payment is received by Neovasc will lead to a foreign exchange loss being recognized on the foreign currency denominated trade account receivable. The fluctuation of foreign exchange may impose an adverse effect on the Company’s results of operations and cash flows in the future. The Company does not conduct any hedging activities to mitigate these foreign exchange risks.

Additionally, Neovasc may be materially and adversely affected by increases in duty rates, exchange or price controls, repatriation restrictions, or other restrictions on foreign currencies. The Company’s international operations are subject to certain other risks common to international operations, including, without limitation: government regulations, import restrictions and, in certain jurisdictions, reduced protection for the Company’s intellectual property rights. Foreign currency translation gains and losses arising from normal business operations are credited to or charged to operations in the period incurred.

To date, the Company has not entered into any foreign exchange forward contracts. For the year ended December 31, 2020, approximately 93% of the Company’s revenue was generated from customers in the European Union and 7% from customers in the rest of the world. Approximately 55% of the Company’s

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revenue was denominated in U.S. dollars and 45% was denominated in Euros. Substantially all of the Company’s long-lived assets are located in Canada.

Lending

The Company’s cash management policy is to maintain sufficient cash on hand to meet forecast expenditures and to invest any excess capital according to the Company’s investment policy. The Company’s investment policy for these excess cash balances will follow a conservative investment philosophy based on three fundamentals: preservation of capital, liquidity, and best available net return on invested capital.

The Company prohibits speculation on currencies. If there are insufficient foreign funds, foreign currencies will be purchased on an ad hoc basis at the spot rate to fund expenditures. If there are surplus foreign funds, foreign currencies will be converted to Canadian dollars.

The Company has not been involved in any bankruptcy, receivership or similar proceedings within the three most recent completed financial years.

Reorganizations

As described under the heading “Corporate Structure” above, the Company acquired two Israeli companies on July 1, 2008; B-Balloon Ltd. is in the process of being voluntarily liquidated and NML continues to operate as an intellectual property holding company of the Reducer technology. On September 30, 2013, Neovasc transferred the intangible assets, including patents, trademarks and other know-how, for the Tiara to its 100% wholly-owned subsidiary NTI. On January 1, 2015, Angiometrx Inc. was amalgamated with NMI.

The Company and its subsidiaries now operate as follows: Neovasc Inc. is the Canadian public company and 100% owner of each of the subsidiary entities. NMI and Neovasc (US) Inc. (“NUS”) are the operating companies for the group. They hold the majority of the tangible assets and NMI holds the Peripatch tissue license. NMI and NUS employ the majority of the employees of the Company. NTI holds all the intangible assets related to the Tiara and NML holds all the intangible assets related to the Reducer program. NMI charges both NTI and NML for the development services performed by its employees to develop the Tiara and the Reducer respectively. NML receives a royalty based on the Reducer revenues generated by NMI. NUS charges NMI for development services performed by its employees to develop the Tiara and the Reducer respectively and these are then passed on through NMI to NTI and NML respectively. Neovasc GmbH conducts sales and marketing activities on behalf of NMI as part of the license agreement between NML and NMI for NMI to manufacture, distribute and sell the Reducer on behalf of NML. Neovasc Management Inc provides executive management services to Neovasc Inc.

Employees

The Company has seen rapid growth and decline in its employee numbers. Up until mid-2015, the Company added additional staff in production to meet growing demand for the Company’s services and products, in research and development and clinical and regulatory affairs to accelerate the development of the Tiara and the Reducer and in support areas such as biology, chemistry, risk management, human resources and quality affairs to better assist the commercial and development activities. Since mid-2015, the Company has reduced its employee numbers. In connection with the Company’s sale of a portion of its tissue business to Boston Scientific, the Company reduced its number of employees by 60. At the end of 2017, the Company ended its tissue business activities and made cuts to its research and development and clinical and regulatory affairs teams reducing headcount by 40 staff in 2017, 22 staff in 2018 and 39 in 2019. As at the end of the end of fiscal 2020, the Company had 71 employees.

	December 31,
	2020		2019		2018
Employees and consultants by geographic location:
Canada		48		76		68
United States		19		27		24
Europe		4		7		6
Total number of employees and consultants		71		110		98

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Social or Environmental Policies

The Company’s processing of its pericardial tissue involves the use of some controlled and/or hazardous materials. The use and disposal of these materials is controlled by the Company’s quality control procedures and systems. Environmental factors are considered when disposing of these materials and the Company takes steps to ensure it is in compliance with the appropriate regulations surrounding disposal of these materials.

RISK FACTORS

This document contains forward-looking statements regarding the Company, business, prospects and results of operations that involve risks and uncertainties. Neovasc’s actual results could differ materially from the results that may be anticipated by such forward-looking statements and discussed elsewhere in this Annual Information Form. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below, as well as those discussed elsewhere in this Annual Information Form. If any of the following risks occur, the Company’s business, financial condition or operating results could be harmed. In that case, the trading price of the Common Shares could decline.

Investment in the Common Shares of the Company is highly speculative and involves a high degree of risk, is subject to the following specific risks among others, and should be undertaken only by purchasers whose financial resources are sufficient to enable them to assume such risks. The Common Shares of the Company should not be purchased by persons who cannot afford the possibility of the loss of their entire investment. Prospective purchasers should review these risks as well as other matters disclosed elsewhere in this Annual Information Form with their professional advisors.

There is doubt about our ability to continue as a going concern.

Our audited consolidated financial statements for the year ended December 31, 2020 were prepared under the assumption that we would continue our operations as a going concern. Our independent registered public accounting firm has included a “going concern” emphasis of matter paragraph in its report on our consolidated financial statements as at and for the years ended December 31, 2020, 2019 and 2018. As at December 31, 2020, the Company had approximately $12.9 million in cash and cash equivalents, sufficient to sustain operations until approximately May 2021 at the current burn rate. These circumstances indicate the existence of material uncertainty and cast substantial doubt about the Company’s ability to continue as a going concern.

The proceeds from the February 2021 Offering could be sufficient to extend the operations of the Company for up to three years at the current burn rate. However, given the FDA’s recent adverse panel decision and not approvable letter for the Reducer, it is likely that the Company will initiate programs that will require additional significant expenditures and that the cash needs of the Company will likely increase, shortening the time the proceeds will meet the requirements of the Company.

The going concern risk existed at December 31, 2020 but has been substantially mitigated by the proceeds from the February 2021 Financing. The Company will re-evaluate the going concern risk at each reporting period and will remove the going concern and uncertainty note when the Company can depend on the profitable commercialization of its products or is confident of obtaining additional debt or equity financing to fund ongoing operations until profitability is achieved, if at all.

The Company will need to obtain additional debt or equity financing to fund ongoing operations. The Company can give no assurance that it will be able to raise the additional funds needed, on terms agreeable to the Company, or at all.

The audited consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The recent coronavirus outbreak or other health epidemics could significantly impact our operations, sales or ability to raise capital.

In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China. The outbreak was initially concentrated in China, although numerous cases continue to be confirmed in other

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countries. Our results of operations could be adversely affected to the extent that the coronavirus or any other epidemic harms the global economy. We may also experience impacts to certain of our or suppliers as a result of a health epidemic or other outbreak occurring in one or more of our markets. Further, our operations have and may further experience disruptions, such as temporary closure of our offices and/or those of our suppliers and suspension of services, which may materially and adversely affect our business, financial condition and results of operations. Such a significant outbreak of contagious diseases in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, which could in turn adversely impact our ability to raise capital. The duration of the business disruption and related financial impact cannot be reasonably estimated at this time but may materially affect our consolidated results for the first quarter and fiscal year 2020. The extent to which the coronavirus impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others.

We have significant additional future capital needs and there are uncertainties as to our ability to raise additional funding.

We require significant additional capital resources to expand our business, in particular the further development of our medical devices. Technical innovations often require substantial time and investment before we can determine commercial viability. Advancing our products, market expansion of our currently marketed products or acquisition and development of any new products or medical devices will require considerable resources and additional access to capital markets. In addition, our future cash requirements may vary materially from those now expected. For example, our future capital requirements may increase if:

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we experience more competition for our medical devices from other medical device companies or in more markets than anticipated;

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we experience delays or unexpected increases in costs in connection with obtaining regulatory approvals for our products in the various markets where we hope to sell our products;

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we experience unexpected or increased costs relating to preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, or other lawsuits, brought by either us or our competition;

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we experience scientific progress sooner than expected in our discovery, research and development projects, if we expand the magnitude and scope of these activities, or if we modify our focus as a result of our discoveries;

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we experience setbacks in our progress with pre-clinical studies and clinical trials are delayed;

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we are required to perform additional pre-clinical studies and clinical trials; or

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we elect to develop, acquire or license new technologies, products or businesses.

We could potentially seek additional funding through corporate collaborations and licensing arrangements, through public or private equity or debt financing, or through other transactions. However, if sales are slow to increase or if capital market conditions in general, or with respect medical device companies such as ours, are unfavorable, our ability to obtain significant additional funding on acceptable terms, if at all, will be negatively affected. Additional financing that we may pursue may involve the sale of our Common Shares or financial instruments that are exchangeable for, or convertible into, our Common Shares which could result in significant dilution to our shareholders.

If sufficient capital is not available, we may be required to delay our business expansion or our research and development projects, either of which could have a material adverse effect on our business, financial condition, prospects or results of operations.

Sales of a significant number of Common Shares in the public markets, or the perception of such sales, have depressed and may continue to depress the market price of the Common Shares.

Sales of a substantial number of Common Shares or other equity-related securities in the public markets by the Company or its shareholders could depress the market price of the Common Shares and impair our ability to raise capital through the sale of additional equity securities.

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Our Common Shares may be delisted from the Nasdaq or the TSX, which could affect their market price and liquidity. If our Common Shares were to be delisted, investors may have difficulty in disposing of their shares.

Our Common Shares are currently listed on the Nasdaq and on the TSX under the symbol “NVCN”. We must meet continuing listing requirements to maintain the listing of our Common Shares on the Nasdaq and the TSX. For example, for continued listing, the Nasdaq requires, among other things, that an issuer’s listed securities maintain a total market value of $35 million pursuant to Nasdaq Listing Rule 5550(b)(2). In addition to the specified criteria for continued listing, the Nasdaq also has broad discretionary public interest authority that it can exercise to apply additional or more stringent criteria for the continued listing of the Common Shares, or suspend or delist securities even though the securities met all enumerated criteria for continued listing on the Nasdaq. We cannot assure you that the Nasdaq will not exercise such discretionary authority.

There can be no assurance that our Common Shares will remain listed on the Nasdaq or the TSX. If we fail to meet compliance with any of the Nasdaq’s or the TSX’s continued listing requirements, our Common Shares may be delisted. Any delisting of our Common Shares may adversely affect a shareholder’s ability to dispose, or obtain quotations as to the market value, of such shares.

In connection with the preparation and audit of our financial statements for the year ended December 31, 2019, 2018 and 2017, material weaknesses in our internal control over financial reporting were identified, which means that a reasonable possibility exists that material misstatements in the Company’s financial statements will not be prevented or detected on a timely basis.

The Sarbanes-Oxley Act of 2002 ("SOX") and applicable Canadian securities laws require an annual assessment by management of the effectiveness of the Company's ICFR. The Company's management, under the supervision and with the participation of its President and Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the Company's ICFR as of December 31, 2018. As a result of this evaluation, management concluded that it did not have appropriate controls in place to perform an effective risk assessment process, to design and implement controls supported by documentation and to provide evidence that such controls were designed and operating effectively, which contributed to a material weakness as the Company did not correctly accrue in a current period future liabilities from a non-routine agreement with a third party. A material weakness, as defined in National Instrument 52-109 of the Canadian Securities Administrators and Rule 12b-2 under the U.S. Exchange Act, is a deficiency, or a combination of deficiencies, in ICFR, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

In light of the identified material weakness, the Company was unable to conclude that it had effective ICFR as ofDecember 31, 2019, 2018 and 2017 in accordance with Section 404 of SOX and applicable Canadian securitieslaws. The Company's inability to maintain effective ICFR could result in the loss of investor confidence in thereliability of the Company's financial statements, which in turn could harm its business and negatively impact thetrading price or the market value of its securities. In light of the aforementioned material weakness, management conducted a thorough review of all research and development supplies has developed and implemented a remediation plan to strengthen the operating effectiveness of ICFR. As a result of this review, management believes that there are no material inaccuracies or omissions of material fact and, to the best its knowledge, believes that the audited consolidated financial statements for the year ended December 31, 2020 fairly present in all material respects and the financial condition and results of operations for the Company in conformity with IFRS. Management has assessed the effectiveness of the Company’s ICFR as of December 31, 2020. In making thisassessment, management used the criteria set forth by the Committee of Sponsoring Organizations of theTreadway Commission (“COSO”) in Internal Control-Integrated Framework (2013). Based on this assessment,management determined that the Company maintained effective ICFR as of December 31, 2020.

If the Company is unable to discover and address any other control deficiencies, this could result in inaccuracies inits financial statements and could also impair its ability to comply with applicable financial reporting requirementsand make related regulatory filings on a timely basis. No evaluation can provide complete assurance that theCompany's ICFR will detect or uncover all failures of persons within the Company to disclose material informationotherwise required to be reported. The effectiveness of the Company's processes, procedures and controls couldalso be limited by simple errors or faulty judgments. As the Company

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continues to expand, the challenges involvedin implementing appropriate ICFR will increase and will require that the Company continue to monitor its ICFR.

Our Common Share price has experienced significant volatility and may be subject to fluctuation in the future based on market conditions

The market prices for the securities of medical companies, including our own, have historically been highly volatile. The market has from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of any particular company. In addition, because of the nature of our business, certain factors such as our announcements and the public’s reaction, our operating performance and the performance of competitors and other similar companies, government regulations, changes in earnings estimates or recommendations by research analysts who track our securities or securities of other companies in the medical sector, general market conditions, announcements relating to litigation, the arrival or departure of key personnel and the other factors listed under the heading “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” can have an adverse impact on the market price of the Common Shares. For example, from January 1, 2020 to March 8, 2021 , the closing price of the Common Shares on the TSX has ranged from a high of C$5.44 to a low of C$0.89 and from January 1, 2020 to March 8, 2021 the closing price of the Common Shares on the Nasdaq has ranged from a high of $4.17 to a low of $0.68.

Any negative change in the public’s perception of our prospects could cause the price of our securities to decrease dramatically. Following declines in the market price of a company’s securities, securities class-action litigation is often instituted. Litigation of this type, if instituted, could result in substantial costs and a diversion of our management’s attention and resources.

Our significant indebtedness could adversely affect our financial condition, and we could have difficulty fulfilling our obligations under our indebtedness, which may have a material adverse effect on us.

As of December 31, 2020, we had approximately $12.4 million of secured indebtedness from the issuance of the convertible 2019 Notes that mature On May 16, 2023. Our significant level of indebtedness increases the risk that we may be unable to generate cash sufficient to pay amounts due in respect of our indebtedness. The level of our indebtedness could have other important consequences on our business, including:

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making it more difficult for us to satisfy our obligations with respect to our indebtedness;

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increasing our vulnerability to adverse changes in general economic, industry, and competitive conditions;

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requiring us to dedicate a significant portion of our cash flows from operations to make payments on our indebtedness, thereby reducing the availability of our cash flows to fund working capital and other general corporate purposes;

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limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

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restricting us from capitalizing on business opportunities;

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placing us at a competitive disadvantage compared to our competitors that have less debt;

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limiting our ability to borrow additional funds for working capital, acquisitions, execution of our business strategy, or other general corporate purposes; and

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limiting our ability to enter into certain commercial arrangements because of concerns of counterparty risks.

The occurrence of any one or more of these circumstances could have a material adverse effect on us. Our ability to make scheduled payments on or to refinance our indebtedness, depends on and is subject to our financial and operating performance, which in turn is affected by general and regional economic, financial, competitive, business, and other factors (many of which are beyond our control), including the availability of financing in the international banking and capital markets. We cannot be certain that our business will generate sufficient cash flows from operations or that future borrowings will be available to us in an amount sufficient to enable us to repay or refinance our debt, or to fund our other liquidity needs. If we are unable to make our

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scheduled payments on our debt or to fund our other liquidity needs, we will need to restructure or refinance all or a portion of our debt. Failure to successfully restructure or refinance our debt could cause us to default on our debt obligations and would impair our liquidity. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our indebtedness could be at higher interest rates and may require us to comply with more onerous covenants that could further restrict our business operations.

Moreover, in the event of a default, the holders of the applicable indebtedness could elect to declare all the funds borrowed to be due and payable. We cannot be certain that our assets or cash flows would be sufficient to fully repay borrowings under our outstanding debt instruments if accelerated upon an event of default.

The Company is subject to lawsuits that could divert its resources and result in the payment of significant damages and other remedies.

From time to time, the Company may be subject to litigation claims through the ordinary course of its business operations or otherwise, regarding, among other things, intellectual property rights matters, employment matters and tax matters. Litigation to defend the Company against claims by third parties, or to enforce any rights that the Company may have against third parties, may be necessary, which could result in substantial costs and diversion of the Company’s resources, causing a material adverse effect on its business, financial condition and results of operations. Given the nature of the Company’s business, it is, and may from time to time in the future be, party to various, and at times numerous, legal, administrative and regulatory inquiries, investigations, proceedings and claims that arise in the ordinary course of business, as well as potential class action lawsuits. Because the outcome of such legal matters is inherently uncertain, if one or more of such legal matters were to be resolved against the Company for amounts in excess of management’s expectations or any applicable insurance coverage or indemnification right, the Company’s results of operations and financial condition could be materially adversely affected. Any litigation to which the Company is a party may result in an onerous or unfavorable judgment that may not be reversed upon appeal, or in payments of substantial monetary damages or fines, the posting of bonds requiring significant collateral, letters of credit or similar instruments, or the Corporation may decide to settle lawsuits on similarly unfavorable terms. Moreover, the Company cannot be sure that the remedies available to it at law or under contract, or the indemnification granted to it by sellers of acquired companies, will be sufficient in amount, scope or duration to fully or partially offset any such possible liabilities. Any of these factors, individually or in the aggregate, could have a material adverse effect on the Company’s business, results of operations, cash flows or liquidity.

The Company was engaged in litigation with Edwards Lifesciences CardiAQ LLC (“CardiAQ”), formerly known as CardiAQ Valve Technologies Inc., as further described below. Litigation resulting from CardiAQ’s claims has been, and is expected to continue to be, costly and time-consuming and could divert the attention of management and key personnel from our business operations. We cannot assure that we will succeed in defending any of these claims and that further judgments will not be entered against us with respect to the litigation resulting from such claims. If we are unsuccessful in our defense of these claims or unable to settle the claims in a manner satisfactory to us, we may be faced with significant monetary damages that could exceed our resources and/or loss of intellectual property rights that could have a material adverse effect on the Company and its financial position.

On June 6, 2014, Neovasc was named in a lawsuit filed by CardiAQ in the U.S. District Court for the District of Massachusetts concerning intellectual property rights ownership, unfair trade practices and a breach of contract relating to Neovasc’s transcatheter mitral valve technology, including the Tiara (“CardiAQ v. Neovasc Inc.”). On May 19, 2016, a jury awarded $70 million in favor of CardiAQ on certain trade secret claims. On October 31, 2016, a judge awarded an additional $21 million in enhanced damages to the jury’s award. On January 18, 2017, a judge granted CardiAQ’s motion for pre- and post-judgment interest. Neovasc and CardiAQ each appealed on various grounds. The judgment in the District of Massachusetts case, including the pre- and post- judgment interest amounts, was stayed pending completion of the appeal pursuant to a court order of December 23, 2016. Under the terms of the stay, Neovasc deposited $70 million into a joint escrow account and entered into a general security agreement related to the remaining damages awarded by the court. On September 1, 2017, the Appeals Court affirmed the trial court judgment against Neovasc, and

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denied CardiAQ’s cross-appeal. On November 13, 2017, the final mandate was issued by the Appeals Court and approximately $70 million was released from escrow to CardiAQ to partially settle approximately $112 million damages and interest awards. Upon closing of the 2017 Financings on November 17, 2017, the Company used approximately $42 million from the $65 million net proceeds of the 2017 Financings to settle the remaining damages and interest awards.

On June 23, 2014, CardiAQ filed a complaint against Neovasc in Munich, Germany (the “German Court”) requesting that Neovasc assign its right to one of its European patent applications to CardiAQ. After a hearing held on December 14, 2016, the German Court rendered its decision on June 16, 2017, granting co-ownership of the European patent application to CardiAQ but denying their claim for full entitlement. On July 14, 2017, Neovasc filed a notice of appeal against the German Court’s decision with the Appeals Court of (the “Appeals Court”) Munich. On July 20, 2017, CardiAQ filed a notice of appeal with the same court. The decision of the Appeals Court of Munich was rendered on March 21, 2019, wherein it amended the decision of the German Court and dismissed the complaint of CardiAQ in full. On March 30, 2020, the German Supreme Court granted CardiAQ leave to appeal the Appeals Court decision and at a hearing held on August 4, 2020 the German Supreme Court set aside the prior decision of the Appeals Court and remanded the matter back to the Appeals Court for a new hearing and decision. The hearing at the Appeals Court was held on February 25, 2021 and a decision from the Appeals Court will be handed down on May 6, 2021. There are no monetary awards associated with these matters and no damages award was recognized.

On March 24, 2017, CardiAQ filed a related lawsuit in the U.S. District Court for the District of Massachusetts (the “Court”), asserting two claims for correction of patent inventorship as to Neovasc’s U.S. Patents Nos. 9,241,790 and 9,248,014. On October 4, 2017, CardiAQ amended its pleading to add a third claim for correction of patent inventorship as to Neovasc’s U.S. Patent No. 9,770,329. The lawsuit did not seek money damages and would not have prevented the Company from practicing these patents. The Company moved to dismiss the complaint on November 16, 2017, and the Court denied this motion on September 28, 2018. On April 17, 2019, the Company resolved the three claims for correction of patent inventorship and, without reaching conclusion on the merits of the claims, the parties agreed to the correction of patent inventorship and added co-inventors to the three patents in question. Each party will bear its own costs. There were no monetary awards associated with these matters and no damages award was recognized.

On January 22, 2019, the Company announced that pursuant to a settlement reached with Edwards Lifesciences PVT, Inc. and Edwards Lifesciences (Canada) Inc. (collectively, the “Edwards Plaintiffs”), the patent infringement action that the Edwards Plaintiffs had previously commenced in the Federal Court of Canada against the Company, Boston Scientific Corporation (“Boston Scientific”) and Livanova, would be dismissed on a no-costs basis.

On August 3, 2018, the Company announced that it had entered into a collaboration and licensing agreement (the “Penn Agreement”) with Penn Medicine and the Gorman Cardiovascular Research Group at the University of Pennsylvania, which resolved certain potential claims against the Company that had been previously disclosed.

On February 20, 2019, the Company announced that it had entered into a settlement agreement with Endovalve Inc. and Micro Interventional Devices, Inc., which resolved certain claims against the Company that had been previously disclosed.

Shareholder Litigation

On November 5, 2020, a putative shareholder class action lawsuit was filed in the United States District Court for the Southern District of New York (the “NY Court”) against the Company, Fred Colen, the Company’s CEO, and Christopher Clark, the Company’s CFO (the “Gonzalez Action”). The complaint in the Gonzalez Action purports to bring suit on behalf of a class consisting of all persons and entities that purchased or otherwise acquired Neovasc securities between November 1, 2019 and October 27, 2020, inclusive. On November 25, 2020, a second putative shareholder class action lawsuit was filed in the NY Court against the Company and Messrs. Colen and Clark: (the “Siple Action”). The complaint in the Siple Action purports to bring suit on behalf of a class consisting of all persons and entities that purchased or otherwise acquired Neovasc securities between October 10, 2018 and October 27, 2020, inclusive.

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On January 26, 2021, the court issued an order consolidating the Gonzalez Action and the Siple Action (the “Consolidated Action”). The order also appointed Pratap Golla as Lead Plaintiff. The order further directed Lead Plaintiff to file a Consolidated Amended Complaint in the Consolidated Action. On February 3, 2021, the court granted Lead Plaintiff’s request for an extension of time to file a Consolidated Amended Complaint, which is presently due on or before March 19, 2021.

The Company intends to continue to vigorously defend itself in its ongoing litigation. The outcome of these matters is not currently determinable.

Third parties may claim we are infringing their intellectual property or have misappropriated their trade secrets and we could suffer significant litigation or licensing expenses or be prevented from selling products.

We may be involved in substantial litigation regarding patent and other intellectual property and trade secret rights in the medical device industry. We may be subject to challenges by third parties regarding our intellectual property, including, among others, claims regarding validity, enforceability, scope and effective term. From time to time, we have been and may in the future be forced to defend against claims and legal actions alleging infringement of the intellectual property rights of others, and such intellectual property litigation is typically costly and time-consuming. In particular, see “Legal Proceedings" herein for a description of certain pending and ongoing legal proceedings. Adverse determinations in any such litigation could result in significant liabilities to third parties or injunctions, or could require us to seek licenses from third parties and, if such licenses are not available on commercially reasonable terms, prevent us from manufacturing, selling or using certain products, any one of which could have a material adverse effect on us. In addition, some licenses may be non-exclusive, which could provide our competitors access to the same technologies.

Third parties could also obtain patents that may require us to either redesign products or, if possible, negotiate licenses from such third parties. Such licenses may materially increase our expenses. If we are unable to redesign products or obtain a license, we might have to exit a particular product offering.

The success of our business depends in part on our ability to obtain and maintain intellectual property protection for our technology and know-how, and operate without infringing the intellectual property rights of other companies. It is possible that as a result of future litigation our products currently marketed or under development may be found to infringe or otherwise violate third party intellectual property rights. Intellectual property litigation proceedings, if instituted against us, could result in substantial costs, inability to market our products including the Tiara, loss of our proprietary rights and diversion of our management's and technical team's attention and resources.

Our inability to protect our intellectual property could have a material adverse effect on our business.

Our success and competitive position are dependent in part upon our proprietary intellectual property. We rely on a combination of patents and trade secrets to protect our proprietary intellectual property, and we expect to continue to do so. Although we seek to protect our proprietary rights through a variety of means, we cannot guarantee that the protective steps we have taken are adequate to protect these rights. Patents issued to or licensed by us in the past or in the future may be challenged and held invalid. The scope of our patent claims also may vary between countries, as individual countries have distinctive patent laws. In addition, as our patents expire, we may be unsuccessful in extending their protection through patent term extensions. The expiration of, or the failure to maintain or extend our patents, could have a material adverse effect on us.

We also rely on confidentiality agreements with certain employees, consultants and other third parties to protect, in part, trade secrets and other proprietary information. These agreements could be breached and we may not have adequate remedies for such a breach. In addition, others could independently develop substantially equivalent proprietary information or gain access to our trade secrets or proprietary information.

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We may spend significant resources to enforce our intellectual property rights and such enforcement could result in litigation. Intellectual property litigation is complex and can be expensive and time-consuming. However, our efforts in this regard may not be successful. We also may not be able to detect infringement. In addition, competitors may design around our technology or develop competing technologies. Patent litigation can result in substantial cost and diversion of effort. Intellectual property protection may also be unavailable or limited in some foreign countries, enabling our competitors to capture increased market position. The invalidation of key intellectual property rights or an unsuccessful outcome in lawsuits filed to protect our intellectual property could have a material adverse effect on our financial condition, results of operations or prospects.

Our products are continually the subject of clinical trials conducted by us, our competitors, or other third parties, the results of which may be unfavorable, or perceived as unfavorable, and could have a material adverse effect on our business, financial condition, and results of operations.

The regulatory approval process for new products and new indications for existing products requires extensive clinical trials and procedures, including early clinical experiences and regulatory studies. Unfavorable or inconsistent clinical data from current or future clinical trials or procedures conducted by us, our competitors, or third parties, or perceptions regarding this clinical data, could adversely affect our ability to obtain necessary approvals and the market’s view of our future prospects. Such clinical trials and procedures are inherently uncertain and there can be no assurance that these trials or procedures will be completed in a timely or cost-effective manner or result in a commercially viable product. Failure to successfully complete these trials or procedures in a timely and cost-effective manner could have a material adverse effect on our prospects. Clinical trials or procedures may experience significant setbacks even after earlier trials have shown promising results. Further, preliminary results from clinical trials or procedures may be contradicted by subsequent clinical analysis. In addition, results from our clinical trials or procedures may not be supported by actual long-term studies or clinical experience. If preliminary clinical results are later contradicted, or if initial results cannot be supported by actual long-term studies or clinical experience, our business could be adversely affected. Clinical trials or procedures may be suspended or terminated by us or regulatory authorities at any time if it is believed that the trial participants face unacceptable health risks.

A number of companies in the medical device industry have suffered significant setbacks in advanced clinical trials, even after positive results in earlier trials. Clinical results are frequently susceptible to varying interpretations that may delay, limit or prevent regulatory approvals. Negative or inconclusive results or adverse medical events during a clinical trial could cause a clinical trial to be delayed, repeated or terminated. In addition, failure to construct appropriate clinical trial protocols could result in the test or control group experiencing a disproportionate number of adverse events and could cause a clinical trial to be repeated or terminated.

Moreover, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and receive compensation in connection with such services. Under certain circumstances, the Company may be required to report some of these relationships to the FDA. The FDA may conclude that a financial relationship between the Company and a principal investigator has created a conflict of interest or otherwise affected interpretation of the study. The FDA may therefore question the integrity of the data generated at the applicable clinical trial site and the utility of the clinical trial itself may be jeopardized. This could result in a delay in approval, or rejection, of our marketing applications by the FDA and may ultimately lead to the denial of regulatory approval of one or more of our product candidates.

We have a history of significant losses and a significant accumulated deficit.

We may incur losses in the future and our losses may increase. We have incurred net losses in each fiscal year since inception. In the year ended December 31, 2020, we had a net loss of $30,170,251 and at December 31, 2020, we had an accumulated deficit of $395,227,205. We have increased our research and development expenses in recent periods and we plan further increases in the future as cash flows allow. The planned increases in research and development expenses may result in larger losses in future periods. As a result, we will need to generate significantly greater revenues than we have to date to achieve and maintain profitability. There can be no assurance that revenues will increase. Our business strategies may not be

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successful and we may not be profitable in any future period. Our operating results have varied in the past and they may continue to fluctuate in the future. In addition, our operating results may not follow any past trends.

We are subject to the risks associated with product liability claims, insurance and recalls.

Prior to patient use, our products undergo extensive clinical testing and are approved by the applicable regulatory authorities. However, despite all reasonable efforts to ensure safety, it is possible that we or our partners may sell products which are defectively manufactured or labeled, contain defective components or are misused. Our products may also fail to meet patient expectations or produce harmful side effects. Such unexpected quality, safety or efficacy issues may be caused by a number of factors, including manufacturing defects, failure to adhere to good clinical practices, failure to adhere to good manufacturing practices, non-compliance with clinical protocols or the presence of other harmful conditions in a clinical trial, inadequacies of product-related information conveyed to physicians or patients, or other factors or circumstances unique to the patient. Whether or not scientifically justified, such unexpected safety or efficacy concerns can arise and may lead to product recalls, loss of or delays in market acceptance, market withdrawals, or declining sales, as well as product liability, consumer fraud and/or other claims. Additionally, we may be exposed to product liability claims from patients in clinical trials. Such liability might result from claims made directly by consumers or by medical device companies or others selling such products. It is impossible to predict the scope of injury or liability from such defects or unexpected reactions, or the impact on the market for such products of any allegations of these claims, even if unsupported, or the measure of damages which might be imposed as a result of any claims or the cost of defending such claims. Substantial damage awards and/or settlements have been handed down — notably in the United States and other common law jurisdictions — against medical device companies based on claims for injuries allegedly caused by the use of their products. Although our shareholders would not have personal liability for such damages, the expenses of litigation or settlements, or both, in connection with any such injuries or alleged injuries and the amount of any award imposed on us in excess of existing insurance coverage, if any, may have a material adverse impact on us and on the price of our Common Shares. In addition, we may not be able to avoid significant product liability exposure even if we take appropriate precautions, including maintaining product liability coverage (subject to deductibles and maximum payouts). Any liability that we may have as a result could have a material adverse effect on our business, financial condition and results of operations, to the extent insurance coverage for such liability is not available. Product liability claims in the future, regardless of their ultimate outcome, could have a material adverse effect on our reputation and on our ability to attract and retain customers for our products.

Use of our products in unapproved circumstances could expose us to liabilities.

The marketing approval from the FDA and other regulators of certain of our products are, or are expected to be, limited to specific indications. We are prohibited by law from marketing or promoting any unapproved use of our products. Physicians, however, in most jurisdictions, can use these products in ways or circumstances other than those strictly within the scope of the regulatory approval. Although the product training we provide to physicians and other health care professionals is limited to approved uses or for clinical trials, no assurance can be given that claims might not be asserted against us if our products are used in ways or for procedures that are not approved.

We have substantial competition in the medical device industry and with respect to our products.

The medical device industry is highly competitive and is characterized by extensive research and development and rapid technological change. Many companies, as well as research organizations, currently engage in, or have in the past engaged in, efforts related to the development of medical devices in the same therapeutic areas as we do. Due to the size of the cardiovascular market and the large unmet medical need for products that treat cardiovascular illnesses, a number of the world’s largest medical device companies are developing, or could potentially develop, products that could compete with ours.

Many of the companies developing competing technologies and products may have significantly greater financial resources and expertise in discovery, research and development, manufacturing, pre-clinical studies and clinical testing, obtaining regulatory approvals and marketing than we do. Other smaller companies may also prove to be significant competitors, particularly through collaborative arrangements with large and

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established companies. Academic institutions, government agencies and other public and private research organizations may also conduct research, seek patent protection and establish collaborative arrangements for discovery, research, clinical development and marketing of products similar to ours. There is a risk that one or more of our competitors may develop more effective or more affordable products than us and that such competitors will commercialize products that will render our medical devices obsolete. We face competition with respect to product efficacy and safety, ease of use and adaptability to various modes of administration, acceptance by physicians, the timing and scope of regulatory approvals, availability of resources, reimbursement coverage, price and patent positions of others. In addition, these companies and institutions also compete with us in recruiting and retaining qualified personnel. If we fail to develop new products or enhance our existing products in the face of such strong competition, such competition could have a material adverse effect on our business, financial condition or results of operations.

Our approved products may not achieve or maintain expected levels of market acceptance, which could have a material adverse effect on our business, financial condition and results of operations and could cause the market value of our securities to decline.

Even if we are able to obtain regulatory approvals for our products, the success of those products is dependent upon achieving and maintaining market acceptance. New medical devices that appear promising in development may fail to reach the market or may have only limited or no commercial success. Levels of market acceptance for our products could be impacted by several factors, many of which are not within our control, including but not limited to:

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safety, efficacy, convenience and cost-effectiveness of our products compared to products of our competitors;

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scope of approved uses and marketing approval; timing of market approvals and market entry;

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difficulty in, or excessive costs to, manufacture; infringement or alleged infringement of the patents or intellectual property rights of others;

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availability of alternative products from our competitors;

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acceptance of the price of our products; and

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ability to market our products effectively at the retail level.

In addition, the success of any new product will depend on our ability to either successfully build our in-house sales capabilities or to secure new, or to realize the benefits of existing arrangements with, third-party marketing or distribution partners. Seeking out, evaluating and negotiating marketing or distribution agreements may involve the commitment of substantial time and effort and may not ultimately result in an agreement. In addition, the third-party marketing or distribution partners may not be as successful in promoting our products as we had anticipated. If we are unable to commercialize new products successfully, whether through a failure to achieve market acceptance, a failure to build our own in-house sales capabilities, a failure to secure new marketing partners or to realize the benefits of our arrangements with existing marketing partners, there may be a material adverse effect on our business, financial condition and results of operations and it could cause the market value of our securities to decline.

In addition, by the time any products are ready to be commercialized, the proposed market for these products may have changed. Our estimates of the number of patients who have received or might have been candidates to use a specific product may not accurately reflect the true market or market prices for such products or the extent to which such products, if successfully developed, will actually be used by patients. Our failure to successfully introduce and market our products that are under development would have a material adverse effect on our business, financial condition, and results of operations.

If we are not able to convince public payors and hospitals to include our products on their approved product lists, our revenues may not meet expectations and our business, results of operations and financial condition may be adversely affected.

The direct cost of implanting or using our medical devices is seldom paid by individual patients. Successful commercialization of such devices will depend largely upon the availability of reimbursement for the surgery

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and medical costs associated with the product from third-party payors. We expect that our products will be purchased by health-care providers, clinics, and hospitals that will subsequently bill various third-party payors such as government programs and private insurance plans. These expectant payors carefully review and increasingly challenge the prices charged for medical devices and services. Provincial government sponsored health programs in Canada and similar programs in the United States reimburse hospitals a pre-determined fixed amount for the costs associated with a particular procedure based on the patient’s discharge diagnosis and similarly reimburse the surgeon or physician based on the procedure performed, without taking into consideration the actual costs incurred by either party or the actual cost of the device. New products are being scrutinized increasingly with respect to whether or not they will be covered by the various health plans and at what level of reimbursement. Third-party payors may determine that our products are unnecessary, not cost-effective, too experimental, or are primarily intended for non-approved indications.

Our business may be materially adversely affected by new legislation, new regulatory requirements, and the continuing efforts of governmental and third-party payors to contain or reduce the costs of healthcare through various means, including the U.S. healthcare reform legislation signed in 2010.

The government and regulatory authorities in Canada, the United States, Europe and other markets in which we sell our products may propose and adopt new legislation and regulatory requirements relating to medical product approval criteria and manufacturing requirements. Such legislation or regulatory requirements, or the failure to comply with such, could adversely impact our operations and could have a material adverse effect on our business, financial condition and results of operations.

The growth of overall healthcare costs as a percentage of gross domestic product in many countries means that governments and payors are under intense pressure to control healthcare spending even more tightly. These pressures are particularly strong given the ongoing effects of the global economic and financial crisis, including the continuing debt crisis in certain countries in Europe, and the risk of a similar crisis in the United States. As a result, our businesses and the healthcare industry in general are operating in an ever more challenging environment with very significant pricing pressures. In recent years, national, federal, provincial, state, and local officials and legislators have proposed, or are reportedly considering proposing, a variety of price-based reforms to the healthcare systems in the European Union, the United States and other countries. Some proposals include measures that would limit or eliminate payments for certain medical procedures and treatments or subject pricing to government control. Furthermore, in certain foreign markets, the pricing or profitability of healthcare products is subject to government controls and other measures that have been prepared by legislators and government officials. While we cannot predict whether any such legislative or regulatory proposals or reforms will be adopted, the adoption of any such proposals or reforms could adversely affect the commercial viability of our existing and potential products.

In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “ACA”) was enacted. The ACA imposed new taxes on medical device makers in the form of a 2.3% excise tax on all U.S. medical device sales. In 2015, Congress imposed a 2-year moratorium on this medical device tax, so that medical device sales during the period between January 1, 2016 and December 31, 2017 are exempt from the tax. New legislation was passed in January 2018 that delayed the tax until January 1, 2020, and the tax was repealed in December 2019 pursuant to the Further Consolidated Appropriations Act. The device tax, if reinstated, could materially and adversely affect our business, cash flows and results of operations. The ACA also focuses on a number of Medicare provisions aimed at improving quality and decreasing costs. It is uncertain at this point what negative unintended consequences these provisions will have on patient access to new technologies. The Medicare provisions include value-based payment programs, increased funding of comparative effectiveness research, reduced hospital payments for avoidable readmissions and hospital acquired conditions, and pilot programs to evaluate alternative payment methodologies that promote care coordination (such as bundled physician and hospital payments). Additionally, the ACA includes a reduction in the annual rate of inflation for Medicare payments to hospitals and the establishment of an independent payment advisory board to recommend ways of reducing the rate of growth in Medicare spending. Other legislative changes have been proposed and adopted since the ACA was enacted. These changes included an aggregate reduction in Medicare payments to providers of up to 2% per fiscal year, which went into effect on April 1, 2013 and will remain in effect through 2025 unless additional Congressional action is taken. In addition, the Medicare Access and CHIP Reauthorization Act of 2015, enacted on April 16, 2015, repealed the formula by which Medicare made annual payment adjustments

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to physicians and replaced the former formula with fixed annual updates and a new system of incentive payments that began in 2019, which are based on various performance measures and physicians’ participation in alternative payment models such as accountable care organizations. Individual states in the U.S. have also become increasingly aggressive in passing legislation and implementing regulations designed to control product pricing, including price or patient reimbursement constraints and discounts, and require marketing cost disclosure and transparency measures. There have also been judicial, executive branch and congressional challenges to the ACA. For example, the former U.S. President signed Executive Orders designed to delay the implementation of certain provisions of the ACA or otherwise circumvent some of the requirements for health insurance mandated by the ACA. The former U.S. administration also discontinued the payment of cost-sharing reduction (“CSR”) payments to insurance companies in 2017, although insurers have brought judicial challenges against this decision that have been successful, in part. In addition, CMS under the former U.S. administration proposed regulations that would give states greater flexibility in setting benchmarks for insurers in the individual and small group marketplaces, which may have the effect of relaxing the essential health benefits required under the ACA for plans sold through such marketplaces. Because of the Tax Cuts and Jobs Act enacted on December 22, 2017, the ACA’s individual mandate penalty for not having health insurance coverage was repealed on January 1, 2019. Further, each chamber of Congress has put forth multiple bills designed to repeal or repeal and replace portions of the ACA. Although the majority of these measures have not been enacted by Congress to date, Congress will likely continue to consider other legislation to repeal or repeal and replace elements of the ACA, and the new U.S. administration has indicated that it will pursue additionalmeasures to control healthcare costs. Also, in addition to other judicial challenges to the ACA, the U.S. Supreme Court heard arguments in November 2020 on a December 2019 ruling in the U.S. Court of Appeals for the Fifth Circuit finding the individual mandate of the ACA to be unconstitutional, and a decision is expected during the current Supreme Court term in 2021. Any regulatory or legislative developments in domestic or foreign markets that eliminate or reduce reimbursement rates for procedures performed with our products could harm our ability to sell our products or cause downward pressure on the prices of our products, either of which would adversely affect our business, financial condition and results of operations.

Our industry is the subject of numerous governmental investigations into marketing and other business practices. These investigations could result in the commencement of civil and/or criminal proceedings, substantial fines, penalties, and/or administrative remedies, divert the attention of our management, and have an adverse effect on our financial condition and results of operations.

Our industry is the subject of numerous governmental investigations into marketing and other business practices. This has included increased regulation, enforcement, inspections, and governmental investigations of the medical device industry and disclosure of financial relationships with health care professionals. In the United States, the laws in which we are subject to include:

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the federal Anti-Kickback Statute is a criminal statute that prohibits, among other things, soliciting, receiving, offering or providing remuneration intended to induce the purchase or recommendation of an item or service reimbursable under a federal healthcare program, such as the Medicare or Medicaid programs. This statute has been interpreted broadly to apply to a number of practices by manufacturers in the medical device industry, manufacturer marketing practices, educational programs, pricing policies and relationships with healthcare providers. A person or entity does not need to have actual knowledge of this statute or specific intent to violate it to have committed a violation;

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federal civil and criminal false claims laws and civil monetary penalty laws, including civil whistleblower or qui tam actions that prohibit, among other things, knowingly presenting, or causing to be presented, claims for payment or approval to the federal government that are false or fraudulent, knowingly making a false statement material to an obligation to pay or transmit money or property to the federal government or knowingly concealing or knowingly and improperly avoiding or decreasing an obligation to pay or transmit money or property to the federal government. The government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the false claims statutes;

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the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), and its implementing regulations, which created federal criminal laws that prohibit, among other things, executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;

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HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, also imposes certain regulatory and contractual requirements regarding the privacy, security and transmission of individually identifiable health information;

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federal “sunshine” requirements imposed by the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, on device manufacturers regarding any “transfer of value” made or distributed to physicians and teaching hospitals; and

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state and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws that may apply to items or services reimbursed by any third-party payor, including commercial insurers; state laws that require device companies to comply with the industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers; state laws that require device manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; and state laws governing the privacy and security of certain health information, many of which differ from each other in significant ways and often are not pre-empted by HIPAA.

Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available under such laws, it is possible that some of our business activities, including certain sales and marketing practices and financial arrangements with physicians, could be subject to challenge under one or more of such laws. Any action against us, even if we successfully defend against it, could result in the commencement of civil and/or criminal proceedings, exclusion from governmental health care programs, substantial fines, penalties, and/or administrative remedies, divert the attention of our management, and have an adverse effect on our financial condition and results of operations. We anticipate that the government will continue to scrutinize our industry closely, and that additional regulation by governmental authorities, both foreign and domestic, may increase compliance costs, exposure to litigation and other adverse effects to our operations.

Our products are subject to extensive regulation, which can be costly and time consuming, cause unanticipated delays, or prevent the receipt of the required approvals to commercialize products.

The pre-clinical and clinical trials of any products developed by us and the manufacturing, labeling, sale, distribution, export or import, marketing, advertising and promotion of any of those products are subject to rigorous regulation by federal, provincial, state and local governmental authorities. Our medical devices are principally regulated in the United States by the FDA, in Canada by the Health Canada (particularly, the Therapeutic Products Directorate), in the European Union by the European Medicines Agency (“EMA”), and by other similar regulatory authorities in other jurisdictions. Government regulation substantially increases the cost and risk of researching, developing, manufacturing and selling products. Following several widely publicized issues in recent years, the FDA and similar regulatory authorities in other jurisdictions have become increasingly focused on product safety. This development has led to, among other things, requests for more clinical trial data, for the inclusion of a significantly higher number of patients in clinical trials and for more detailed analysis of trial results. Consequently, the process of obtaining regulatory approvals, particularly from the FDA, has become more costly, time consuming and challenging than in the past. Any product developed by us or our future collaborative partners, if any, must receive all relevant regulatory approvals or clearances from the applicable regulatory authorities before it may be marketed and sold in a particular country.

Any of our products that receive regulatory approval could be subject to extensive post-market regulation that can affect sales, marketing and profitability.

With respect to any products for which we obtain regulatory approval, we will be subject to post-marketing regulatory obligations, including the requirements by the FDA, EMA and similar agencies in other jurisdictions to maintain records regarding product safety and to report to regulatory authorities serious or unexpected adverse events. The occurrence of unanticipated serious adverse events or other safety problems could cause the governing agencies to impose significant restrictions on the indicated uses for which the product may be marketed, impose other restrictions on the distribution or sale of the product or require potentially costly post-approval studies. In addition, post-market discovery of previously unknown safety

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problems or increased severity or significance of a pre-existing safety signal could result in withdrawal of the product from the market and product recalls. Compliance with extensive post-marketing record keeping and reporting requirements requires a significant commitment of time and funds, which may limit our ability to successfully commercialize approved products.

Our industry is subject to health and safety risks.

We produce products for human implantation and use. While we take substantial precautions such as laboratory and clinical testing, clinical studies, quality control and assurance testing and controlled production methods, the associated health and safety risks cannot be eliminated. Our products may be found to be, or to contain substances that are harmful to the health of our patients and customers and which, in extreme cases, may cause serious health conditions or death. This sort of finding may expose us to substantial risk of litigation and liability.

Further, we could be forced to discontinue production of certain products, which would harm our profitability. Neovasc maintains product liability insurance coverage; however, there is no guarantee that our current coverage will be sufficient or that we can secure insurance coverage in the future at commercially viable rates or with the appropriate limits.

We may face risks associated with our manufacturing operations.

Manufacturing operations are subject to numerous unanticipated technological problems and delays. Our manufacturing processes, products and their various components are, and will be, subject to regulations specified by the various regulatory bodies such as Health Canada and the FDA. There can be no assurance that we will be able to comply with all stated manufacturing regulations. Failure or delay by the Company to comply with such regulations or to satisfy regulatory inspections could have an adverse effect on the Company’s business and operations.

Additionally, two critical components of the Reducer are not readily available. The balloon portion of the delivery system is technically challenging to manufacture and the Reducer device, while a basic technology, must be manufactured in Israel due to restrictions on the transfer of intellectual property and manufacturing out of Israel stemming from certain research grants received by Neovasc Medical Ltd. prior to the acquisition in July 2008.

Use of our products may increase the risk of animal disease.

Our critical raw material used in most of our customers’ devices is animal derived pericardial tissue. As this raw material is derived from an animal, it is subject to many inconsistencies and potential risks. The most notable risk is the disease Bovine Spongiform Encephalopathy (“BSE”), also known as mad cow disease which can arise from bovine tissue. Although the tissue originates from the United States where strict controls are in place to prevent diseased animals from being processed, it cannot be assured that the livestock in the United States will remain free from BSE. There is also no assurance that our supplier will regularly deliver tissue with the specifications required to manufacture its products.

The manufacture of our products is highly regulated and complex and we may experience supply interruptions that could harm our ability to manufacture products.

We use a broad range of raw and organic materials and other items in the design and manufacture of our products. Our products are manufactured from treated natural animal tissue and man-made materials. Our non-implantable products are manufactured from man-made raw materials including resins, chemicals, electronics and metals. We purchase certain of the materials and components used in the manufacture of our products from external suppliers, and we purchase certain supplies from single sources for reasons of quality assurance, cost-effectiveness, availability or constraints resulting from regulatory requirements. General economic conditions could adversely affect the financial viability of our suppliers, resulting in their inability to provide materials and components used in the manufacture of our products. While we work closely with suppliers to monitor their financial viability and to assure continuity of supply and maintain high quality and reliability, these efforts may not be successful. In addition, due to the rigorous regulations and requirements of regulatory authorities regarding the manufacture of our products (including the need for approval of any

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change in supply arrangements), we may have difficulty establishing additional or replacement sources on a timely basis or at all if the need arises. Although alternative supplier options are considered and identified, we typically do not pursue regulatory qualification of alternative sources due to the strength of our existing supplier relationships and the time and expense associated with the regulatory validation process. A change in suppliers could require significant effort or investment in circumstances where the items supplied are integral to product performance or incorporate unique technology, and the loss of any existing supply contract could have a material adverse effect on us.

In particular, the Tiara valve is made up of two major components: the leaflets and skirt, which are made from the Peripatch and the nitinol frame, which is manufactured by a well-established specialty manufacturer in the medical device industry. However, if this supplier were unable to provide the nitinol frame in the future, it would seriously impact the further development of the Tiara.

Regulatory agencies from time to time have limited or banned the use of certain materials used in the manufacture of medical device products. In these circumstances, transition periods typically provide time to arrange for alternative materials.

We are dependent on limited products for substantially all of our current revenues. If the volume or price of these products decline or the costs of related manufacturing, distribution or marketing increase, it could have a material adverse effect on our business, financial condition and results of operations and could cause the market value of our securities to decline.

Sales of a limited number of our products represent substantially all of our current revenues. If the volume or pricing of our existing significant products decline in the future, or our cost to manufacture, distribute our existing significant products increase in the future, our market our business, financial condition and results of operations could be materially adversely affected and this could cause the market value of our securities to decline. In addition, if these products were to become subject to any other issues, such as material adverse changes in prescription growth rates, unexpected side effects, regulatory proceedings, material product liability litigation, publicity affecting doctor or patient confidence or pressure from competitive products, the adverse impact on our business, financial condition, results of operations and the market value of our securities could be significant.

We may face exposure to adverse movements in foreign currency exchange rates.

Our business has expanded internationally and as a result, a significant portion of our revenues, expenses, current assets and current liabilities are preliminary denominated in U.S. dollars, Euros and other foreign currencies. Up until September 30, 2017, the functional currency of Neovasc and its subsidiaries was the Canadian dollar and the presentation currency of our financial statements was U.S. dollars. A decrease in the value of such foreign currencies relative to the Canadian dollar could result in losses in revenues from currency exchange rate fluctuations. To date, we have not hedged against risks associated with foreign exchange rate exposure. Effective on October 1, 2017, the functional and reporting currency of Neovasc and its subsidiaries is the U.S. dollar. We continue not to hedge against risks associated with foreign exchange rate exposure.

If we were to lose our foreign private issuer status under U.S. federal securities laws, we would likely incur additional expenses associated with compliance with the U.S. securities laws applicable to U.S. domestic issuers.

As a foreign private issuer, as defined in Rule 3b-4 under the Securities Exchange Act of 1934, as amended, we are exempt from certain of the provisions of the U.S. federal securities laws. For example, the U.S. proxy rules and the Section 16 reporting and “short swing” profit rules do not apply to foreign private issuers. However, if we were to lose our status as a foreign private issuer, these regulations would immediately apply and we would also be required to commence reporting on forms required of U.S. companies, such as Forms 10-K, 10-Q and 8-K, rather than the forms currently available to us, such as Forms 40-F and 6-K. Compliance with these additional disclosure and timing requirements under these securities laws would likely result in increased expenses and would require our management to devote substantial time and resources to comply with new regulatory requirements. Further, to the extent that we were to offer or sell our securities outside of the United States, we would have to comply with the more restrictive Regulation S requirements that apply to U.S. companies, which could limit our ability to access the capital markets in the future.

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There may be adverse U.S. federal income tax consequences for investors if we are or become a “passive foreign investment company” under the U.S. Internal Revenue Code of 1986, as amended.

Although we do not currently anticipate that we will be treated as a PFIC in the current taxable year or in the foreseeable future, the determination as to whether we are a PFIC for any taxable year is based on the application of complex U.S. federal income tax rules, which are subject to differing interpretations, and is not determinable until after the end of such taxable year. Further, the determination is based in part on the mix, use and value of our assets, which values may be treated as changing for U.S. federal income tax purposes as our market capitalization changes. Because of the above described uncertainties, there can be no assurance that the U.S. Internal Revenue Service (“IRS”) will not challenge the determination made by us concerning our PFIC status or that we will not be a PFIC for any taxable year. Investors should read “U.S. Federal Income Tax Considerations” for more information, and consult their own tax advisors regarding the application of the PFIC rules to their particular circumstances.

Failure to comply with the U.S. Foreign Corrupt Practices Act (the “FCPA”), as well as the anti-bribery laws of the nations in which we conduct business (such as the United Kingdom’s Bribery Act or the Corruption of Foreign Public Officials Act of Canada (the “CFPOA”)), could subject us to penalties and other adverse consequences.

Our business is subject to the FCPA which generally prohibits companies and company employees from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. The FCPA also requires companies to maintain accurate books and records and internal controls, including at foreign-controlled subsidiaries. In addition, we are subject to other anti-bribery laws of the nations in which we conduct business that apply similar prohibitions as the FCPA (e.g., the United Kingdom’s Bribery Act, the CFPOA and the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions). Our employees or other agents may, without our knowledge and despite our efforts, engage in prohibited conduct under our policies and procedures and the FCPA or other anti-bribery laws that we may be subject to for which we may be held responsible. If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties and other consequences that may have a material adverse effect on our business, financial condition and results of operations.

Legislative actions, potential new accounting pronouncements, and higher insurance costs are likely to impact our future financial position or results of operations.

Future changes in financial accounting standards may cause adverse, unexpected revenue fluctuations and affect our financial position or results of operations. New pronouncements and varying interpretations of pronouncements have occurred with greater frequency and are expected to occur in the future. Compliance with changing regulations of corporate governance and public disclosure may result in additional expenses. All of these uncertainties are leading generally toward increasing insurance costs, which may adversely affect our business, results of operations and our ability to purchase any such insurance, at acceptable rates or at all, in the future.

We are dependent upon our key personnel to achieve our business objectives.

As a technology-driven company, intellectual input from key management and personnel is critical to achieve our business objectives. Consequently, our ability to retain these individuals and attract other qualified individuals is critical to our success. The loss of the services of key individuals might significantly delay or prevent achievement of our business objectives. In addition, because of a relative scarcity of individuals with the high degree of education and scientific achievement required for our business, competition among medical device companies for qualified employees is intense and, as a result, we may not be able to attract and retain such individuals on acceptable terms, or at all. We do not maintain “key person” life insurance on any of our officers, employees, or consultants, and so any delay in replacing such persons, or an inability to replace them with persons of similar expertise, would have a material adverse effect on our business, financial condition and results of operations.

We also have relationships with scientific collaborators at academic and other institutions, some of whom conduct research at our request or assist us in formulating our research and development strategies. These scientific collaborators are not our employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us. In addition, even though our collaborators

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are required to sign confidentiality agreements prior to working with us, they may have arrangements with other companies to assist such other companies in developing technologies that may prove competitive to us.

Incentive provisions for our key executives include the granting of stock options that vest over time, designed to encourage such individuals to stay with us. However, a low share price, whether as a result of disappointing progress in our sales or development programs or as a result of market conditions generally, could render such agreements of little value to our key executives. In such event, our key executives could be susceptible to being hired away by our competitors who could offer a better compensation package. If we are unable to attract and retain key personnel our business, financial conditions and results of operations may be adversely affected.

The continuing development of many of our products depends upon us maintaining strong relationships with physicians.

If we fail to maintain our working relationships with physicians, many of our products may not be developed and marketed in line with the needs and expectations of the professionals who use and support our products, which could cause a decline in our earnings and profitability. The research, development, marketing, and sales of our new and improved products is dependent upon our maintaining working relationships with physicians. We rely on these professionals to provide us with considerable knowledge and experience regarding the development, marketing, and sale of our products. Physicians assist us as researchers, marketing and product consultants, inventors, and public speakers. If we are unable to maintain our strong relationships with these professionals and continue to receive their advice and input, the development and marketing of our products could suffer, which could have a material adverse effect on our consolidated earnings, financial condition, and/or cash flows.

A period of significant growth or significant decline can place a strain on management systems.

If we experience a period of significant growth or decline in the number of personnel, this could place a strain upon its management systems and resources. Our future will depend in part on the ability of its officers and other key employees to implement and improve its financial and management controls, reporting systems and procedures on a timely basis and to expand or contract, train and manage its employee workforce. There can be no assurance that we will be able to effectively manage such growth or contraction. Our failure to do so could have a material adverse effect upon our business, prospects, results of operation and financial condition.

Consolidation in the health care industry could have an adverse effect on our revenues and results of operations.

Many health care industry companies, including health care systems, are consolidating to create new companies with greater market power. Organizations such as group purchase organizations, independent delivery networks, and large single accounts such as the U.S. Veterans Administration, continue to consolidate purchasing decisions for many of our health care provider customers. As a result, transactions with customers are larger, more complex, and tend to involve more long-term contracts. The purchasing power of these larger customers has increased, and may continue to increase, causing downward pressure on product pricing. If we are not one of the providers selected by one of these organizations, we may be precluded from making sales to its members or participants. Even if we are one of the selected providers, we may be at a disadvantage relative to other selected providers that are able to offer volume discounts based on purchases of a broader range of medical equipment and supplies. Further, we may be required to commit to pricing that has a material adverse effect on our revenues and profit margins, business, financial condition and results of operations. We expect that market demand, governmental regulation, third-party reimbursement policies and societal pressures will continue to change the worldwide health care industry, resulting in further business consolidations and alliances, which may exert further downward pressure on the prices of our products and could adversely impact our business, financial condition, and results of operations.

We may or may not successfully identify and complete corporate transactions on favorable terms or achieve anticipated synergies relating to any acquisitions or alliances, and such acquisitions could result in unforeseen operating difficulties and expenditures, require significant management resources and require significant charges.

As a part of our growth strategy, we regularly explore potential acquisitions of complementary businesses, technologies, services or products as well as potential strategic alliances or divestitures of assets or a sale of the

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Company. We may be unable to find suitable acquisition candidates or appropriate partners with which to form alliances. Even if we identify appropriate acquisition or alliance candidates, we may be unable to complete the acquisitions or alliances on favorable terms, if at all. Acquisition activities can be thwarted by overtures from competitors for the targeted candidates, government regulation and replacement product developments in our industry. In addition, the process of integrating an acquired business, technology, service or product into our existing operations could result in unforeseen difficulties and expenditures. Integration of an acquired company often requires significant expenditures as well as significant management resources that otherwise would be available for ongoing development of our other businesses. Moreover, we may not realize the anticipated financial or other benefits of an acquisition or alliance.

We may be required to take charges or write-downs in connection with acquisitions. In particular, acquisitions of businesses engaged in the development of new products may give rise to in-process research and development assets. To the extent that the value of these assets declines, we may be required to write down the value of the assets. Also, in connection with certain asset acquisitions, we may be required to take an immediate charge related to acquired in-process research and development. Either of these situations could result in substantial charges, which could adversely affect our results of operations.

Future acquisitions could also involve the issuance of equity securities, the incurrence of debt, contingent liabilities or amortization of expenses related to other intangible assets, any of which could adversely impact our financial condition or results of operations. In addition, equity or debt financing required for such acquisitions may not be available.

Any corporate transaction will be accompanied by certain risks including but not limited to:

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exposure to unknown liabilities of acquired companies and the unknown issues with any associated technologies or research;

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higher than anticipated acquisition costs and expenses;

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exposure to other companies’ shares that shareholders could receive as consideration for our shares in a corporate transaction;

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the difficulty and expense of integrating operations, systems, and personnel of acquired companies;

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disruption of our ongoing business;

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inability to retain key customers, distributors, vendors and other business partners of the acquired company; and

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diversion of management’s time and attention.

We may not be able to successfully overcome these risks and other problems associated with acquisitions and this may adversely affect our business, financial condition or results of operations.

Conflicts of interests among the Company's officers and directors as a result of their involvement with other issuers

Some or all of the Company’s directors and officers of the Company may act as directors and/or officers of other issuers and situations may arise where these directors and officers will be in direct competition with the Company. Conflicts, if any, will be dealt with in accordance with the relevant provisions of the CBCA. If a conflict of interest arises at a meeting of the Company’s board of directors, any director in a conflict will be required to disclose their interest and abstain from voting on such matter.

Anti-takeover provisions could discourage a third party from making a takeover offer that could be beneficial to our shareholders.

Some of the provisions in our articles of incorporation and by-laws could delay or prevent a third party from acquiring us or replacing members of our board of directors, even if the acquisition or the replacements would be beneficial to our shareholders. Such provisions include the following:

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shareholders cannot amend our articles of incorporation unless at least two-thirds of the shares entitled to vote approve the amendment; and

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our board of directors can, without shareholder approval, issue preferred shares having any terms, conditions, rights and preferences that the board determines.

These provisions could also reduce the price that certain investors might be willing to pay for our securities and result in the market price for our securities, including the market price for our Common Shares, being lower than it would be without these provisions.

DIVIDEND POLICY

Neovasc has not declared or paid any dividends on the outstanding Common Shares since its inception and does not anticipate that it will do so in the foreseeable future. The declaration of dividends on the Common Shares is within the discretion of the board of directors and will depend on the assessment of, among other factors, earnings, capital requirements and the Company’s operating and financial condition. At the present time, anticipated capital requirements are such that the Company intends to follow a policy of retaining earnings in order to finance the further development of the business.

DESCRIPTION OF CAPITAL STRUCTURE AND MARKET FOR SECURITIES

Common Shares

The Company is authorized to issue an unlimited number of Common Shares without par value. As of March 8, 2021, there were 66,984,063 Common Shares issued and outstanding and 2,968,546 Common Shares issuable upon exercise of outstanding stock options and 647,013 Common Shares issuable upon the vesting of RSUs. Taking into account the total number of warrants and principal amount of the notes remaining outstanding and assuming full exercise of the outstanding warrants and conversion of the notes, the maximum number of Common Shares issuable would be 35,154,194 representing approximately 52% of Neovasc’s current issued and outstanding number of Common Shares.

The Common Shares all have equal voting rights and are entitled to receive notice of any shareholders meeting at which they have the right to vote. Subject to the rights of any other class of shares, upon any liquidation, dissolution, winding-up or other distribution of the Company’s assets, the holders of Common Shares are entitled to participate equally.

Preferred Shares

The Company is also authorized to issue an unlimited number of preferred shares, which do not have voting rights and are not entitled to receive notice of any shareholders’ meetings. Upon liquidation, dissolution, winding-up or other distribution of the Company’s assets, the holders of preferred shares are entitled to participate in priority to the holders of Common Shares. The preferred shares may be issued in series and the Company’s board of directors may attach special rights, privileges, restrictions or conditions to any preferred shares. There were no preferred shares issued and outstanding as of the date of this AIF.

February 2021 Warrants

In connection with the February 2021 Offering, the Company issued 18,000,000 warrants (the “February 2021 Warrants”) in certificated form. Each whole February 2021 Warrant entitles the holder to acquire, subject to adjustment as summarized below, one Common Share at an exercise price of US$2.88 per share on or prior to 5:00 p.m. (New York time) on the 60 months following issuance of the February 2021 Warrants, after which time the February 2021 Warrant will be void and of no value. The February 2021 Warrants are in the same form as the June 2020 Warrants (as defined below).

As of March 8, 2021, there are 18,000,000 February Warrants outstanding.

February 2021 Compensation Warrants

In connection with the February 2021 Offering, the Company issued 2,340,000 warrants (the “February 2021 Compensation Warrants”) at an exercise price of US$2.50 per Common Share (equal to 125% of the public offering price for the February 2021 Units sold in this February 2021 Offering). The February 2021 Compensation Warrants are exercisable immediately for a period of 5 years from February 10,

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2021 and are in the same form as the February 2021 Warrants issued to the investors, except as otherwise required by the Financial Industry Regulatory Authority (“FINRA”).

December 2020 Warrants

In connection with the December 2020 Offering, the Company issued 6,230,803 warrants (the “December 2020 Warrants”) in certificated form. Each whole December 2020 Warrant entitles the holder to acquire, subject to adjustment as summarized below, one Common Share at an exercise price of US$0.856 per share on or prior to 5:00 p.m. (New York time) on the 66 months following issuance of the December 2020 Warrants, after which time the December 2020 Warrant will be void and of no value. The December 2020 Warrants are in the same form as the June 2020 Warrants (as defined below).

As of March 8, 2021, there are 2,506,516 December 2020 Warrants outstanding.

December 2020 Compensation Warrants

In connection with the December 2020 Offering, the Company issued 405,002 warrants (the “December 2020 Compensation Warrants”) at an exercise price of US$1.225125 per Common Share (equal to 125% of the public offering price for the December 2020 Units sold in this December 2020 Offering). The December 2020 Compensation Warrants are exercisable immediately for a period of 5 years from December 8, 2020 and are in the same form as the December 2020 Warrants issued to the investors, except as otherwise required by FINRA.

August 2020 Prepayment Warrants

In connection with the Prepayment, the Company issued 168,518 warrants (“the August 2020 Prepayment Warrants”)with an exercise price equal to $7.50 per Common Share for any such exercise prior to the second anniversary of the original closing date of May 16, 2019 (the “August Closing Date”), $8.50 per Common Share for any such exercise on or after the second anniversary of the August Closing Date but prior to the third anniversary of the August Closing Date, and $9.70 per Common Share on or after the third anniversary of the August Closing Date per Common Share until 4:30 p.m. (Vancouver Time) on May 16, 2023. The exercise price is subject to appropriate adjustment in the event of certain capital reorganization events including a reclassification of the Company’s Common Shares, a change in the Company’s Common Shares into other shares or securities, a subdivision or consolidation of the Company’s Common Shares.

August 2020 Warrants

In connection with the August 2020 Offering, the Company issued 3,399,579 warrants (the “August 2020 Warrants”) in certificated form. Each whole August 2020 Warrant entitles the holder to acquire, subject to adjustment as summarized below, one Common Share at an exercise price of US$2.69 per share on or prior to 5:00 p.m. (New York time) on the fifth year following issuance of the August 2020 Warrant, after which time the August 2020 Warrant will be void and of no value. The Warrants are exercisable, at the option of each holder, in whole or in part, by delivering to the Company a duly executed notice of exercise, thereby canceling all or a portion of such holder’s August 2020 Warrants. The August 2020 Warrants may be exercised on a “net” or “cashless” basis to the extent that the Company does not have an effective registration statement registering (or the related prospectus is not available) the shares issuable upon exercise of the August 2020 Warrants. The August 2020 Warrants are in the same form as the June 2020 Warrants (as defined below).

As of March 8, 2021, there are 3,274,579 August 2020 Warrants outstanding.

August 2020 Broker Warrants

In connection with the August Offering, the Company issued 294,630 warrants (the “August 2020 Broker Warrants”) at an exercise price of US$3.46969 per Common Share (equal to 125% of the public offering price for the August Units sold in this August Offering). The August 2020 Broker Warrants are exercisable immediately for a period of 5 years from August 2020 and are in the same form as the June 2020 Warrants issued to the investors, except as otherwise required by FINRA. The August 2020 Broker Warrants were issued under the same terms as the June 2020 Warrants.

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July 2020 Prepayment Warrants

In connection with the Prepayment, the Company issued 481,778 warrants (the “July 2020 Prepayment Warrants”) with an exercise price equal to $7.50 per Common Share for any such exercise prior to the second anniversary of the original closing date of May 16, 2019 (the “July Closing Date”), $8.50 per Common Share for any such exercise on or after the second anniversary of the July Closing Date but prior to the third anniversary of the July Closing Date, and $9.70 per Common Share on or after the third anniversary of the July Closing Date per Common Share until 4:30 p.m. (Vancouver Time) on May 16, 2023. The exercise price is subject to appropriate adjustment in the event of certain capital reorganization events including a reclassification of the Company’s Common Shares, a change in the Company’s Common Shares into other shares or securities, a subdivision or consolidation of the Company’s Common Shares.

June 2020 Warrants

In connection with the June offering, the Company issued 2,912,277 Warrants (the “June 2020 Warrants”) in certificated form. Each whole Warrant entitles the holder to acquire, subject to adjustment as summarized below, one Common Share at an exercise price of US$2.88 per share on or prior to 5:00 p.m. (New York time) on the fifth year following issuance of the June 2020 Warrant, after which time the June 2020 Warrant will be void and of no value.

The form of certificate for the June 2020 Warrants (the “Warrant Certificate”) provide that the number of underlying shares and exercise price of the June 2020 Warrants are subject to adjustment in the event of certain share dividends or distributions or of a subdivision or consolidation of the Common Shares or similar events.

The Warrant Certificate also provide that, during the period in which the June 2020 Warrants are exercisable, it will give notice to holders of June 2020 Warrants of certain stated events, at least 20 days prior to the record date or effective date, as the case may be, of such events.

In connection with a Fundamental Transaction (as defined below), holders of the June 2020 Warrants have the right to receive, upon exercise, the same consideration as holders of Common Shares in respect of the Common Shares that would be issuable upon exercise of the June 2020 Warrants immediately prior to such Fundamental Transaction, in addition to any additional consideration receivable by holders of Common Shares in connection with such Fundamental Transaction. Holders of the June 2020 Warrants also have the option, within 30 days of the closing of a Fundamental Transaction, to require the Company (or its successor) to repurchase their June 2020 Warrants in cash or, if the Fundamental Transaction is not in the Company’s control, in the consideration received by other holders of Common Shares in respect of such Fundamental Transaction, at a value determined by using the Black-Scholes option pricing model.

The Warrant Certificate also contain restrictions on the number of Common Shares that may be acquired by a holder of June 2020 Warrants upon any exercise of the June 2020 Warrants that would result in the holder and its affiliates holding in excess of 4.99% (or, at the election of the holder, 9.99%) of the number of Common Shares outstanding immediately after giving effect to the issuance of Common Shares upon exercise of such June 2020 Warrants, which beneficial ownership limitation may be increased or decreased up to 9.99% upon notice to us, provided that any increase in the beneficial ownership limitation shall not be effective until 61 days following notice to us. No fractional Common Shares is issuable upon the exercise of any June 2020 Warrants. Holders of June 2020 Warrants will not have any voting or pre-emptive rights or any other rights which a holder of Common Shares would have, except as set forth in the June 2020 Warrants.

June 2020 Broker Warrants

In connection with the June Offering, the Company issued 252,397 Warrants (the “June 2020 Broker Warrants”) at an exercise price of US$3.71719 per Common Share (equal to 125% of the public offering price for the June Units sold in this June Offering). The June 2020 Broker Warrants are exercisable immediately for a period of 5 years from June 2020 and are in the same form as the June 2020 Warrants issued to the investors, except as otherwise required by FINRA. Pursuant to FINRA Rule 5110(g), the June 2020 Broker Warrants (as defined below) and any Common Shares issued upon the exercise of the June 2020 Broker Warrants shall not be sold, transferred, assigned, pledged, or hypothecated, or be the subject of any hedging, short sale,

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derivate, put or call transaction that would result in the effective economic disposition of the securities by any person for a period of 180 days immediately following the date of effectiveness of, or commencement of sales under, the August Offering, except the transfer of any security: (i) by operation of law or by reason of our reorganization; (ii) to any FINRA member firm participating in the August Offering and the officers or partners thereof, if all securities so transferred remain subject to this lock-up restriction for the remainder of the time period; (iii) if the aggregate amount of our securities held by the placement agent or related persons does not exceed 1% of the securities being offered in the August Offering; (iv) that is beneficially owned on a pro-rata basis by all equity owners of an investment fund, provided that no participating member manages or otherwise directs investments by the fund and the participating members in the aggregate do not own more than 10% of the equity in the fund; or (v) issued upon the exercise or conversion of any security, if all securities remain subject to this lock-up restriction for the remainder of the time period.

May 2020 Notes

The 2020 Notes were issued in the aggregate principal amount of US$4,000,000 on May 28, 2020 pursuant to the securities purchase agreement (the “May 2020 SPA”) dated May 26, 2020. 2,573,959 May 2020 Warrants were also issued on May 28, 2020 pursuant to the May 2020 SPA. An additional US$1,000,000 in principal amount of 2020 Notes was issued on June 3, 2020. The 2020 Notes will bear interest at the rate of 8% computed on the basis of a 360-day year and twelve 30-day months and shall be payable in additional 2020 Notes on the date that is six-months after issuance and on each six-month period thereafter up to, and including, the maturity date. The 2020 Notes will have a maturity date of 48-months after issuance with a holder’s option for early redemption at 24-months. The 2020 Notes are to be issued at par and shall rank in senior priority to all other current and future debentures of the Company. The 2020 Notes shall also include blocking rights to all future proposed debentures of equal or senior priority to the 2020 Notes. Each 2020 Note will be convertible at the option of the holder of the 2020 Note into Common Shares (the “Conversion Shares”) at a conversion price of US$2.81525 per Conversion Share.

Upon an event of default, the interest rate shall automatically be increased by 3% percent per annum. The 2020 Notes are senior to all other indebtedness and secured by all assets. The terms of the 2020 Notes prohibit a holder from converting its 2020 Notes if doing so would result in such holder (together with any person acting jointly or in concert with the holder, including such holder’s affiliates) beneficially owning, or exercising control or direction over more than 9.99% of the number of Common Share outstanding immediately after giving effect to the conversion, as such percentage ownership is determined in accordance with the terms of the 2020 Notes. The Company shall not issue any fraction of a share issued upon any conversion. If the issuance would result in the issuance of a fraction of a share of Common Shares, the Company shall round such fraction of a share of Common Shares down to the nearest whole share.

The 2020 Note holders are entitled to participate in any dividends or other distributions by the Company and the sale, by the Company, of any options, convertible securities or rights to purchase stock, warrants, securities or other property pro rata to the holders of Common Shares as if they had converted their 2020 Notes and were holders of the Conversion Shares. The Company shall not enter into or be party to a Fundamental Transaction (as defined in the 2020 Note) unless the successor entity assumes in writing all of the obligations of the Company under the 2020 Note and it delivers to each holder of 2020 Notes in exchange for such 2020 Notes a security of the successor entity evidenced by a written instrument substantially similar in form and substance to the 2020 Notes. Under the 2020 Notes, an event of default triggers a redemption right.

The 2020 Notes contain certain covenants, which include: limitations on restricted payments, restrictions on asset transfers (other than ordinary course of business), and restrictions on cash burn. The 2020 Notes and any Common Shares issued upon conversion of the 2020 Notes may be offered, sold, assigned or transferred by the holder without the consent of the Company.

Upon a change of control the holder may require the Company to redeem the 2020 Note at a price equal to 125% of the principal amount of the note, decreasing by 10% on each anniversary of the issuance of the 2020 Note to a price of 100% from the third anniversary of the issuance of the 2020 Note until maturity. Any amendment to the terms of the 2020 Notes shall require the consent of the Company and the Required Holders (as defined in the 2020 Note), provided that that such limitation shall not apply upon the prior written consent

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of each such holder of the 2020 Notes in the event such holder would be treated adversely and disproportionally by such an amendment.

Particulars concerning the Conversion Shares and shares issuable upon the exercise of the May 2020 Warrants (the “May 2020 Warrant Shares”) are set below.

May 2020 Warrants

The May 2020 Warrants are exercisable at any time from four years after the date of issuance. The May 2020 Warrants will be exercisable, at the option of each holder. No fractional warrant shares will be issued in connection with the exercise of a May 2020 Warrant. Any entitlement to May 2020 Warrant Shares shall be rounded down to the nearest whole May 2020 Warrant Share. The holder will not have the right to exercise any portion of the May 2020 Warrant if the holder (together with any acting jointly or in concert with it, including its affiliates) would beneficially own or exercise control or direction over 9.99% of the number of our Common Shares outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the May 2020 Warrants. Each May 2020 Warrant represents the right to purchase one May 2020 Warrant Share at an exercise price equal to US$2.634 per May 2020 Warrant Share, subject to adjustment. The exercise price is subject to appropriate adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting our Common Shares.

If, at the time a holder exercises its May 2020 Warrant, there is no effective registration statement covering the issuance of the shares underlying the May 2020 Warrant to the holder, then in lieu of making the cash payment otherwise contemplated to be made to us upon such exercise in payment of the aggregate exercise price, the holder may elect instead to receive upon such exercise (either in whole or in part) the net number of Common Shares determined according to a formula set forth in the May 2020 Warrant. The May 2020 Warrant holders are entitled to participate in any dividends or other distributions by the Company and the sale, by the Company, of any options, convertible securities or rights to purchase stock, warrants, securities or other property pro rata to the shareholders of the Common Shares as if they had exercised their May 2020 Warrant and were holders of the May 2020 Warrant Shares. In the event of a Fundamental Transaction and at the request of the holder of the May 2020 Warrant, the Company must purchase the May 2020 Warrant from such holder on the date of such request by paying to the holder cash in an amount equal to the value of the unexercised May 2020 Warrants according to the Black Scholes Option Pricing Model.

As of March 8, 2021, there are 648,910 May 2020 Warrants outstanding.

May 2020 Settlement Warrants

In connection with the settlement agreement between the Company and certain investors (the “Settlors”) on May 26, 2020 (the “Settlement Agreement”), the Company issued warrants (the “Settlement Warrants”) to purchase up to 500,000 Common Shares (the “Settlement Warrant Shares”). The Settlement Warrants were issued to the Settlors pursuant to the Settlement Agreement, whereby the Settlors and the Company have agreed to a mutual release and certain rights and obligations as further set forth in the Settlement Agreement. The Settlement Warrants are exercisable beginning on the date of issuance, and at any time prior to 11:59 p.m. (New York time) on the date that is four years after the date of issuance. The Settlement Warrants will be exercisable, at the option of each holder, in whole or in part, by delivering to us a duly executed exercise notice, thereby canceling all or a portion of the Settlement Warrant. No fractional Settlement Warrant Shares will be issued in connection with the exercise of a Settlement Warrant. Any entitlement to Settlement Warrant Shares shall be rounded down to the nearest whole Settlement Warrant Share. The holder will not have the right to exercise any portion of the Settlement Warrant if the holder (together with its affiliates and any other persons acting as a group together with the holder or any of the holder’s affiliates) would beneficially own in excess of 9.99% of the number of our Common Shares outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the Settlement Warrants. Each Settlement Warrant represents the right to purchase one Settlement Warrant Share at an exercise price equal to US$2.634 per Settlement Warrant Share, subject to adjustment. The exercise price is subject to appropriate adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting our Common Shares. If the Company issues, sells, or is deemed to have issued or sold, any Common Shares for less than the exercise price of the Settlement Warrants, the

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exercise price of the Settlement Warrants will be reduced to an amount equal to a price determined in accordance with the dilutive issuance formula set out in the Settlement Warrant.

If, at the time a holder exercises its Settlement Warrant, there is no effective registration statement covering the issuance of the shares underlying the Settlement Warrant to the holder, then in lieu of making the cash payment otherwise contemplated to be made to us upon such exercise in payment of the aggregate exercise price, the holder may elect instead to receive upon such exercise (either in whole or in part) the net number of Common Shares determined according to a formula set forth in the Settlement Warrant. The Settlement Warrant holders are entitled to participate in any dividends or other distributions by the Company and the sale, by the Company, of any options, convertible securities or rights to purchase stock, warrants, securities or other property pro rata to the shareholders of the Common Shares as if they had exercised their Settlement Warrant and were holders of the Settlement Warrant Shares. In the event of a Fundamental Transaction and at the request of the holder of the Settlement Warrant, the Company must purchase the Settlement Warrant from such holder on the date of such request by paying to the holder cash in an amount equal to the value of the unexercised Settlement Warrants according to the Black Scholes Option Pricing Model.

The Settlement Agreement imposes the restrictions on the Settlement Warrants and Settlement Warrant Shares set forth below:

Until August 12, 2020, the holder may not sell any of the Settlement Warrant Shares unless the aggregate market value of the Company’s public float of its outstanding equity shares is at least US$75 million (as determined pursuant to Item I.C. of the General Instructions to Form F-10) for at least one full trading day prior to such date;

Until August 19, 2020, the holder may not sell any of the Settlement Warrant Shares unless the Company’s market value of its listed securities is at least US$35 million (as determined pursuant to Nasdaq Listing Rule 5810) (the “MVLS Requirement”) or the Company has received written confirmation from Nasdaq that the Company has regained compliance with the MVLS Requirement; and

The holder may not, on any trading day, sell such amount of Settlement Warrant Shares that would exceed 10% of the total trading volume of the Company’s Common Shares on such trading day.

January 2020 Warrants

In connection with the January 2020 Financing, the Company issued 1,185,000 Series A Units and 1,241,490 Series B Units at a price of US$4.1351 per Series A Unit and US$4.135 per Series B Unit. Each Series A Unit is comprised of (i) one Common Share and (ii) one Warrant (each, a “January 2020 Warrant”) Each Series B unit is comprised of (i) one pre-funded January 2020 Warrant and (ii) one January 2020 Warrant.

The January 2020 Warrants entitle the holder to acquire, subject to certain adjustments, one Common Share at an exercise price of US$4.1351 per share on or prior to 5:00 p.m. (New York time) on January 6, 2024. The January 2020 Warrants will be exercisable, at the option of each holder, in whole or in part, by delivering to the Company a duly executed notice of exercise, thereby canceling all or a portion of the January 2020 Warrant holder’s January 2020 Warrants. The January 2020 Warrants may be exercised on a “net” or “cashless” basis to the extent that the Company does not have an effective registration statement registering (or the related prospectus is not available) the shares issuable upon exercise of the January 2020 Warrants.

In connection with certain specified mergers, sales, business combinations, recapitalizations or similar events (a “Fundamental Transaction”), holders of the January 2020 Warrants will have the right to receive, upon exercise, the same consideration as holders of Common Shares in respect of the Common Shares that would be issuable upon exercise of the January 2020 Warrants immediately prior to such Fundamental Transaction, in addition to any additional consideration receivable by holders of Common Shares in connection with such Fundamental Transaction.

Holders of the January 2020 Warrants will also have the option, within 30 days of the closing of a Fundamental Transaction, to require the Company (or its successor) to repurchase their January 2020 Warrants in cash or, if the Fundamental Transaction is not in the Company’s control, in the consideration

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received by other holders of Common Shares in respect of such Fundamental Transaction, at a value determined by using the Black-Scholes option pricing model.

As of March 8, 2021, there are 250,000 January 2020 Warrants outstanding.

2020 Broker Warrants

In connection with the January 2020 Financing, the Company issued Warrants (the “2020 Broker Warrants”) to purchase up to 157,721 Common Shares at an exercise price of $5.1689 per Common Share to the underwriter in the January 2020 Financing. The 2020 Broker Warrants are exercisable immediately and for three years from their dates of issuance. Pursuant to FINRA Rule 5110(g), the 2020 Broker Warrants and any Common Shares issued upon the exercise of the 2020 Broker Warrants shall not be sold, transferred, assigned, pledged, or hypothecated, or be the subject of any hedging, short sale, derivate, put or call transaction that would result in the effective economic disposition of the securities by any person for a period of 180 days immediately following the date of effectiveness of, or commencement of sales under, the relevant January 2020 Financing pursuant to which such 2020 Broker Warrants were issued, except the transfer of any security: (i) by operation of law or by reason of our reorganization; (ii) to any FINRA member firm participating in such 2019 financing and the officers or partners thereof, if all securities so transferred remain subject to the Lock up restriction set forth below for the remainder of the time period; (iii) if the aggregate amount of our securities held by the underwriter in the relevant January 2020 Financing or related persons does not exceed 1% of the securities being offered in the relevant January 2020 Financing; (iv) that is beneficially owned on a pro rata basis by all equity owners of an investment fund, provided that no participating member manages or otherwise directs investments by the fund and the participating members in the aggregate do not own more than 10% of the equity in the fund; or (v) issued upon the exercise or conversion of any security, if all securities remain subject to the lock up restriction set forth below for the remainder of the time period.

May 2019 Note

Pursuant to the financing conducted in May 2019, a secured convertible debenture (the “2019 Note”) was issued at a 15% original issue discount with a face value of US$11,500,000, for gross proceeds to the Company of $9,775,000. The 2019 Note is secured by a general security agreement dated as of May 16, 2019 granted by the Company and its subsidiaries to and in favour of SMG over all of the Company’s present and after-acquired personal property, which includes all of its assets in the U.S., Canada and Israel related to Tiara and Reducer. The 2019 Note matures on May 16, 2023 and has the following key terms:

•

For the first year after its issuance, interest accrues at a rate of 8%, of which 5% is payable in cash on or about May 17, 2020. The remainder is deferred and will be due on maturity of the 2019 Note.

•

After the first year and until maturity, interest accrues at a rate of 10%, of which 7% is payable in cash at the end of May and November each year. The remainder is deferred and will be due on maturity of the 2019 Note.

•

The 2019 Note was issued at an original discount of $1.725 million. A separate subscription for Common Shares by the holder of the 2019 Note was made for this amount (at market price) concurrent with the issuance of the 2019 Note.

•

The Company has a prepayment option whereby it may voluntarily prepay the 2019 Note prior to maturity. Prepayment penalties of 3% (if prepaid prior to the 1st anniversary of issuance), 2% (if prepaid between the first and second anniversaries of issuance) and 1% (if prepaid after the second anniversary) apply.

•

The 2019 Note is convertible into Common Shares at the option of the holder (however, the holder may not own in excess of 19.99% of the total outstanding Common Shares of the Company as a result of the conversion). The conversion price is $7.50 per Common Share prior to the second anniversary of issuance, $8.50 between the second and third anniversaries of issuance and $9.70 after the third anniversary of issuance. The conversion price would also be proportionally adjusted upon any Common Share reorganization events, including stock dividends, distributions, stock splits or reverse-stock splits.

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On July 22, 2020 and August 17, 2020, the Company voluntarily repaid $3,613,341.12 and $1,263,884, respectively, of the 2019 Note, leaving $6,622,775 of the principal amount of the 2019 Note outstanding.

2019 Broker Warrants

In connection with the financing conducted in February 2019 (the “February 2019 Financing”), and the financing conducted in March 2019 (the “March 2019 Financing”), the Company issued 144,444 Warrants (the “2019 Broker Warrants”). The 2019 Broker Warrants are exercisable at a price per Common Share equal to $5.625 for a period of three years following issuance. Pursuant to FINRA Rule 5110(g), the 2019 Broker Warrants and any Common Shares issued upon the exercise of the underwriter warrants shall not be sold, transferred, assigned, pledged, or hypothecated, or be the subject of any hedging, short sale, derivate, put or call transaction that would result in the effective economic disposition of the securities by any person for a period of 180 days immediately following the date of effectiveness of, or commencement of sales under, the February 2019 Financing and the March 2019 Financing, except the transfer of any security: (i) by operation of law or by reason of our reorganization; (ii) to any FINRA member firm participating in the February 2019 Financing and the March 2019 Financing and the officers or partners thereof, if all securities so transferred remain subject to their respective lock-up restrictions for the remainder of the time period; (iii) if the aggregate amount of our securities held by the holder of such securities or related persons does not exceed 1% of the securities offered in the February 2019 Financing, in respect of the February 2019 Broker Warrants, or the March 2019 Financing, in respect of the March 2019 Broker Warrants; (iv) that is beneficially owned on a pro-rata basis by all equity owners of an investment fund, provided that no participating member manages or otherwise directs investments by the fund and the participating members in the aggregate do not own more than 10% of the equity in the fund; or (v) issued upon the exercise or conversion of any security, if all securities remain subject to the lock-up restriction set forth below for the remainder of the time period.

Market for our Common Shares

Our Common Shares are listed under the trading symbol NVCN on the TSX in Canada and on the Nasdaq in the United States. Our Common Shares began trading on the TSX on June 23, 2014. The following table sets forth, for the periods indicated, the reported high, low and closing prices (in Canadian dollars) and volume traded on the TSX.

Month

High

Low

Total Volume

February 2020

C$4.15

C$3.13

C$3.45

383,473

March 2020

C$3.82

C$1.98

C$2.08

262,720

April 2020

C$5.30

C$1.78

C$3.51

571,845

May 2020

C$4.26

C$3.26

C$3.97

172,108

June, 2020

C$4.50

C$3.10

C$3.25

538,435

July, 2020

C$3.65

C$3.01

C$3.41

234,648

August, 2020

C$4.05

C$2.70

C$2.82

505,675

September 2020

C$2.96

C$2.70

C$2.84

139,769

October 2020

C$3.48

C$1.14

C$1.24

723,367

November 2020

C$1.26

C$0.95

C$1.13

941,741

December 2020

C$1.43

C$0.89

C$1.23

2,246,309

January 2021

C$1.81

C$1.14

C$1.48

2,324,217

February, 2021

C$3.25

C$1.46

C$1.84

7,592,800

March 1 to 10, 2021

C$1.90

C$1.19

C$1.58

2,235,709

Our Common Shares began trading on the Nasdaq on May 21, 2014. The following table sets forth, for the periods indicated, the reported high, low and closing prices (in U.S. dollars) and volume traded on the Nasdaq.

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Month

High

Low

Total Volume

February 2020

US$3.22

US$2.36

US$2.60

748,779

March 2020

US$2.85

US$1.38

US$1.46

488,764

April 2020

US$3.86

US$1.25

US$2.53

1,269,962

May 2020

US$3.09

US$2.30

US$2.88

397,655

June, 2020

US$3.37

US$2.27

US$2.38

1,673,227

July, 2020

US$2.71

US$2.23

US$2.56

784,597

August, 2020

US$3.05

US$2.04

US$2.17

1,806,557

September 2020

US$2.29

US$2.05

US$2.14

527,263

October 2020

US$2.65

US$0.87

US$0.93

2,190,426

November 2020

US$0.96

US$0.71

US$0.86

1,607,197

December 2020

US$1.14

US$0.68

US$0.95

13,018,273

January 2021

US$1.44

US$0.89

US$1.19

5,834,928

February, 2021

US$2.6

US$1.13

US$1.42

270,867,500

March 1 to 10, 2021

C$1.50

C$0.93

C$1.24

4,667,898

PRIOR SALES

The following table sets forth information in respect of the Common Shares that we issued upon the exercise of options granted under our incentive stock option plan during the fiscal year ended December 31, 2020.

Exercise Date	Number of Common Shares		Exercise Price
January 3, 2020		50		$	6.83
Total		50		$	6.83

The following table sets forth information in respect of options to acquire Common Shares that we granted under our incentive stock option plan during the fiscal year ended December 31, 2020.

Grant Date	Number of Options		Grant Price
January 20, 2020		535,475		$	3.35
June 22, 2020		705,125		$	2.42
August 13, 2020		6,000		$	2.27
September 22, 2020		553,500		$	2.11
October 7, 2020		695,000		$	2.17
Total		2,495,100		$	2.48

The following table sets forth information in respect of the Common Shares that we issued upon the vesting of restricted share units (“RSUs”) granted under our restricted share unit plan during the fiscal year ended December 31, 2020.

Vesting Date	Number of Common Shares
December 2, 2020		50,986
Total		50,986

The following table sets forth information in respect of the RSUs that we granted under our restricted share unit plan during the fiscal year ended December 31, 2020.

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Grant Date	Number of RSUs
January 23, 2020		110,000
February 20, 2020		220,000
June 22, 2020		293,044
August 21, 2020		8,000
October 7, 2020		75,000
Total		706,044

The following table sets forth information in respect of securities that we issued, other than on exercise of stock options and vesting of RSUs as set out above, during the fiscal year ended December 31, 2020.

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Issuance Date	Type of Security	Number of Securities			Issue Price
January 6, 2020	Common Shares related to June 2020 Units issued in connection with the June 2020 Offering			2,426,490		$	4.1351
January 6, 2020	Warrants related to June 2020 Units issued in connection with the June 2020 Offering			2,426,490			Nil
January 6, 2020	Compensation warrants issued in connection with the January 2020 Offering			157,721			Nil
May 19, 2020	Common Shares issued on conversion of $1,001,000 of the 2017 Notes			492,631		$	2.03
May 26, 2020	Common Shares issued in connection with the Exchange Agreement upon exchange of 672,937 warrant issued for the January 2020 Financing			672,937		$	2.71
May 26, 2020	Common Shares issued on conversion of $15,000 of the 2017 Notes			7,383		$	2.03
May 28, 2020	2020 Notes issued in connection with the May Offering		$	4,000,000		$	4,000,000
May 28, 2020	Warrants issued in connection with the May Offering			2,573,959			Nil
May 28, 2020	Settlement Warrants issued in connection with the Settlement Agreement			500,000			Nil
June 3, 2020	2020 Notes issued in connection with the May Offering		$	1,000,000		$	1,000,000
June 16, 2020	Common Shares related to June 2020 Units issued in connection with the June 2020 Offering			3,883,036		$	2.97
June 16, 2020	Warrants related to June 2020 Units issued in connection with the June 2020 Offering			2,912,277			Nil
June 16, 2020	Compensation warrants issued in connection with the June 2020 Offering			252,397
July 23, 2020	Common Shares issued in connection with the May 2020 Warrant exercise			1,424,049		$	2.634
July 23, 2020	Prepayment Warrants issued upon prepayment of the 2019 Note			481,778			Nil
August 12, 2020	Common Shares related to August 2020 Units issued in connection with the August 2020 Offering			4,532,772		$	2.78
August 12, 2020	Warrants related to August 2020 Units issued in connection with the August 2020 Offering			3,399,579			Nil
August 12, 2020	Compensation warrants issued in connection with the August 2020 Offering			294,630			Nil
August 17, 2020	Common Shares issued in connection with the May 2020 Warrant exercise			501,000		$	2.634
August 17, 2020	August Prepayment Warrants issued upon prepayment of the 2019 Note			168,518			Nil
December 10, 2020	Common Shares related to December 2020 Units issued in connection with the December 2020 Offering			6,230,803		$	0.9801
December 10, 2020	Warrants related to December 2020 Units issued in connection with the 2020 December Offering			6,230,803			Nil
December 10, 2020	Compensation warrants issued in connection with the December 2020 Offering			405,004			Nil

No other Common Shares, preferred shares, debt securities or warrants, or securities exchangeable or convertible into Common Shares, preferred shares, debt securities or warrants have been issued during the 2020 financial year.

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ESCROWED SECURITIES

The Company does not have any escrowed securities or securities subject to contractual restrictions on transfer.

DIRECTORS AND OFFICERS

All directors hold office until the next annual general meeting of the Company’s shareholders or until they resign or are removed from office in accordance with the Company’s articles and the CBCA.

Each director has formally consented to serve as a director with Neovasc.

Neovasc’s current directors and officers, their business background and principal occupations during the five preceding years and the periods during which each has served in their positions as directors or officers are as follows:

Fred Colen — President, Chief Executive Officer

Fred Colen has over 40 years of experience in the medical device field spans product development, sales and marketing and executive management. Mr. Colen has held management positions with Neovasc since January 2018. Mr. Colen is a resident of Florida, United States.

Fred Colen has contributed to many significant turnarounds in his career, including the post-acquisition Guidant Company, which became the CRM division of Boston Scientific, a firm with which he held progressively senior executive roles over 11 years, including Chief Technology Officer from 2001-2008 and Member of the Executive Committee from 2001-2010. During his tenure at Boston Scientific, Mr. Colen is credited with numerous successes. As President of the company’s Cardiac Rhythm Management (CRM) Group his team regained trust and confidence in the division’s implantable pacemakers, leads, defibrillators and re-synchronization devices, increasing annual product revenue growth by over 10% in a flat US market and growing global divisional operating income from below 10% to 25% of sales, exceeding the planned annual free cash flow goals. As Chief Technology Officer, he led the development and global commercial launch for the Company’s first- and second-generation implantable drug-eluting coronary stents (the Taxus Express and Taxus Liberte), leading to global market leadership with incremental revenues of $2 billion annually. The Taxus Express market introduction is viewed as one of the most successful launches ever in the medical device industry.

Prior to joining Boston Scientific, Mr. Colen, in his role as Executive Vice President in the Pacesetter division, played a key role in the execution of St. Jude Medical’s diversification strategy, which resulted in its evolution from a successful heart valve company to a broad-based medical device company with a highly successful cardiac rhythm management business. In addition to restructuring organizational processes, he introduced the “Fast Cycle Time” approach in R&D to reduce development cycle times and optimize timing of new product introductions and manufacturing processes. During this time period, St. Jude also achieved a sharp increase in European sales through business focus, additional sales capacity, and marketing campaigns.

Mr. Colen also served as the President and Chief Executive Officer of BeneChill, building its early stage business in Europe and developing its clinical, regulatory and marketing strategy for the US market. He oversaw financing rounds E and F before the company was acquired by a Swedish firm that specializes in brain cooling.

Mr. Colen has also held a number of Board Directorships or Advisory roles, including Mölnlycke Healthcare, Biim Ultrasound, and is currently a director of Onward (formally GTX Medical), a private medical device company. He served on the Board of Middle Peak Medical, a company developing a mitral valve replacement device, until its acquisition by Symetis, which in turn was acquired by Boston Scientific.

Bill Little — Chief Operating Officer

On November 7, 2019, Bill Little was appointed Chief Operating Officer of the Company. Mr. Little is an accomplished global marketing executive with more than two decades of experience in the medical device and technology spaces, specializing in interventional cardiology and structural heart disease.

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Mr. Little joined Neovasc after serving as Abbott Laboratories’ (“Abbott”) Global Head of Customer and New Market Insights and Divisional Vice President of Global Marketing, where he led strategy for the company’s $3B vascular business unit. He also led organizational integration during Abbott’s $30B merger with St. Jude Medical, providing U.S. sales leadership for a 300-strong commercial field team. Prior to Abbott, Mr. Little was Vice President, Global Marketing at C.R. Bard, Inc. now part of Becton Dickson, where he executed on a marketing strategy for the company’s $600M peripheral vascular franchise, completing 12 new product launches that generated total revenue in excess of $100M annually. He also spent over 13 years at Boston Scientific in a variety of domestic and international commercial roles. Mr. Little holds a Bachelor of Science in business administration and marketing from the University of Colorado.

Chris Clark — Chief Financial Officer and Corporate Secretary

In April 2007, Mr. Clark was appointed Chief Financial Officer of the Company. Prior to that, Mr. Clark was Director of Finance of Mr. Lube Canada Inc. from 2005 to 2007. Mr. Clark was Director of Finance, One Person Health Services Inc. from 2004 to 2005. He is a resident of British Columbia, Canada.

Mr. Clark has over 25 years finance and accounting experience in public practice and in public and private companies, most recently focused in the medical device sector. He received his designation as a Chartered Accountant from the Institute of Chartered Accountants of England and Wales and articled with KPMG before moving to Canada in 1998. He has an honors degree in Economics from Swansea University and a post graduate diploma from Keble College, Oxford.

John Panton, Chief Quality Officer

John Panton has over 30 years of engineering experience spread over the Total Product Life Cycle, in small, medium and large organizations and across different industrial sectors; medical devices, semiconductor, oil and gas, telecommunications, consumer electronics and military avionics. In England, John held various engineering roles of increasing responsibility specializing in new product introduction; in R&D, product and process design and development, manufacturing engineering, process engineering and product engineering. In 2005, John started his Canadian career as a Quality professional, as the Quality Assurance Manager of a start-up company serving semiconductor Fortune 500 customers. He then moved to a Class 2 reusable medical device company initially as Quality and Regulatory Manager and then later to Global Director of Quality Systems, where he had responsibility for sites in Canada, US, Europe and Australia. John joined Neovasc in May 2015 as Director of Quality Systems and moved to VP of Quality in November, 2017 and then to Chief Quality Officer in May, 2020. John holds a Post Graduate Diploma in Microelectronics Technology and Applications from Middlesex University, and a Higher National Diploma in physics from Portsmouth Polytechnic.

Vicki Bebeau, Vice-President of Clinical and Regulatory Affairs

In May 2014, Ms. Bebeau joined Neovasc as Vice-President of Clinical Affairs. Ms. Bebeau has more than 20 years of clinical research experience, fulfilling various leadership roles, which include multinational cardiovascular device firms such as St. Jude Medical, Boston Scientific, and Medtronic. Having planned and directed numerous successful clinical studies, including prosthetic heart valves and other cardiovascular devices in support of IDE, PMA, and post market programs to support regulatory approvals, Ms. Bebeau’s efforts have contributed to the adoption of some of the industry’s most novel devices in the United States, Canada, Europe, Australia, and Japan.

Ms. Bebeau is a Registered Nurse whose specific areas of clinical research have included heart valves (open heart and percutaneous), vascular access and closure devices, FFR, OCT, renal denervation, and hypothermia. Ms. Bebeau holds a Bachelor of Science in Nursing from Bethel College. She represents Canada on the ISO 5840 Committee as a clinical expert in heart valves. She is a resident of White Bear Lake, Minnesota, USA.

Steven Rubin — Chairman of the Board and Director

Mr. Rubin is Chairman of the Board. He has served as Executive Vice President — Administration of OPKO since May 2007 and as a director of OPKO since February 2007. Mr. Rubin currently serves on the

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board of directors of Red Violet Inc. (NASDAQ:RDVT), a leading provider of information and analytical solutions, Non-Invasive Monitoring Systems, Inc. (OTCBB:NIMU), a medical device company, Cocrystal Pharma, Inc. (NASDAQ: COCP), a biotechnology company developing new treatments for viral diseases, Chromadex Corporation (NASDAQ: CDXC), an integrated, global nutraceutical company devoted to improving the way people age, and Eloxx Pharmaceuticals, Inc. (NASDAQ:ELOX), a clinical stage biopharmaceutical company developing novel RNA-modulating drug candidates. Mr. Rubin previously served as a director of Castle Brands, Inc., a developer and marketer of premium brand spirits, Dreams, Inc., a vertically integrated sports licensing and products company, Safestitch Medical, Inc. prior to its merger with TransEnterix, Inc., VBI Vaccines, Inc., Tiger X Medical, Inc. prior to its merger with BioCardia, Inc., and PROLOR Biotech, Inc., prior to its acquisition by OPKO in August 2013. Mr. Rubin was elected to the Company’s board of directors on July 1, 2008. He is a resident of the state of Florida, United States. Mr. Rubin is also a member of the Company’s Audit and Strategic Activities Committee and the Company’s Compensation Committee.

Paul Geyer — Director

Mr. Geyer resigned as President and Chief Executive Officer of the Company on July 1, 2008. Mr. Geyer has served on the Company’s Board since November 2, 2000 and is a resident of British Columbia, Canada. In addition, Mr. Geyer is a member of the Company’s Audit and Strategic Activities Committee and the Company’s Compensation Committee.

From June 2009 to March 2017, Mr. Geyer was Chairman and CEO of LightIntegra Technology Inc., a private medical device company focused on the development of the ThromboLux technology, used as a point of care device to determine platelet quality for blood transfusions.

Since March 2017, Mr. Geyer has been the Chief Executive Officer of Discovery Parks and Nimbus Synergies, focused on investment in the growth of Health Technology companies in BC. He is also an active angel investor and supporter of local technology and life sciences firms. Mr. Geyer is on the board of directors of several public private Health Technology companies. Mr. Geyer is also actively involved in BC Social Venture Partners and is on the Board of the Vancouver General Hospital Foundation and Junior Achievement BC. In April 2011, Mr. Geyer was awarded the LifeSciences BC Leadership Award.

Norman Radow — Director

On September 16, 2019, Norman Radow, Managing Partner at Strul, a leading investment firm, was appointed to the Company’s board of directors. In addition to his duties as a Managing Partner at Strul, Mr. Radow founded the RADCO Companies, an opportunistic real estate investment group specializing in the acquisition and repositioning of multifamily assets, in 1994. In 2006, RADCO became a nationally recognized workout company and then oversaw much of the Lehman bankruptcy estate residential portfolio from 2008 through 2010. In both 2017 and 2018, RADCO was named one of the fastest growing private companies in Atlanta by the Atlanta Business Chronicle, one of the fastest growing mid-market companies in the state of Georgia by the Association for Corporate Growth, and one of the fastest growing companies in the nation by Inc. 5000. In 2018, Norman was recognized as one of the Most Admired CEOs in the commercial real estate industry by the Atlanta Business Chronicle. Prior to founding RADCO, Mr. Radow practiced law. He was awarded a Juris Doctor by New York Law School in 1981 and currently serves on its board. Mr. Radow also received a Bachelor of Arts degree from SUNY Plattsburgh in 1978. Mr. Radow is a member of the Company’s Governance and Nominating Committee.

Douglas Janzen — Director

Mr. Janzen has been involved in the life sciences industry for the past 20 years. He is currently the CEO of Northview Ventures, an entity which invests in, and provides strategic advisory services to, a number of technology companies predominately in the life sciences industry. Mr. Janzen has also been Chairman of Lexington Biosciences., a company listed on the TSXV, since January 2017. Most Recently, Mr. Janzen has taken the position of CEO of Aequus Pharmaceuticals Inc., which listed on the TSXV on March 17, 2015. Mr. Janzen was originally elected to the Company’s board of directors on June 2, 2005 and is a resident of British Columbia, Canada. In addition, Mr. Janzen is a member of the Company’s Audit and Strategic Activities and Compensation Committees.

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Previously, he was President and CEO of Cardiome Pharma Corp. (Cardiome), a Nasdaq-listed drug development company that completed an C$800 million licensing deal with subsidiaries of Merck & Co. and saw its lead product approved in Europe in 2010. Prior to his involvement with Cardiome, Mr. Janzen was an investment banker with Cormark Securities Inc., a Toronto-based investment bank, acting as Managing Director of Life Sciences. Mr. Janzen is the past Chairman of Life Sciences British Columbia, has served as a director of Biotech Canada, and sits as a director on a number of public and private boards. Mr. Janzen is a past winner of Vancouver’s “Top 40 under 40” award.

Alexei Marko — Director

Alexei Marko’s almost 25 years of experience in the medical device field spans product development, sales and marketing and executive management. Mr. Marko held management positions with Neovasc’s predecessor companies since 1999 and assumed the role of CEO in 2008 in conjunction with the company’s expansion and restructuring. Mr. Marko was appointed to the Company’s board of directors on June 12, 2003 and is a resident of British Columbia, Canada. Mr. Marko resigned from his position as Chief Executive Officer of Neovasc in January 2018. He is a member of the Company’s Governance and Nominating Committee.

In October 2007, Mr. Marko was appointed President and Chief Operating Officer of Medical Ventures Corp. (MEV), a predecessor company. Previously, Mr. Marko was the Vice President and Chief Operating Officer and Vice President, Development and Engineering of MEV.

Mr. Marko is a listed inventor on a number of issued or pending patents related to medical technologies. He is also a registered professional engineer and sits on the board of directors for the Medical Device Development Centre in Vancouver. In 2005, he was named one of Business in Vancouver’s “Top Forty Under 40” in recognition of his achievements.

Mr. Marko completed his B.A.Sc. (Hons) at Queen’s University and M.A.Sc. in electrical engineering at the University of British Columbia, specializing in medical device development.

Director & Officer Ownership of Securities

The following table sets out details of the Company’s shares, options and warrants that are directly or indirectly held by directors and executive officers as at the date hereof:

Name	Number of Common Shares(1)		Percentage of Outstanding Common Shares		Number of Options, Restricted Share Units and Warrants(1)
Steven Rubin		3,472		0.01%		76,667
Paul Geyer		127,116		0.19%		76,667
Doug Janzen		18,536		0.03%		76,667
Alexei Marko		nil		0.00%		76,667
Norman Radow		291,073		0.43%		45,000
Fred Colen		31,504		0.05%		293,333
Bill Little		nil		0.00%		255,681
Chris Clark		4,674		0.01%		293,333
John Panton		2,064		0.00%		186,000
Vicki Bebeau		3,039		0.00%		196,000
TOTAL		481,478		0.72%		1,951,015

Note 1: The information as to shares beneficially owned or over which control or direction is exercised, not being within the knowledge of Neovasc, has been furnished by each director and executive officer individually or from insider reports filed by the individuals and available at www.sedi.ca.

CEASE TRADE ORDERS, BANKRUPTCIES, PENALTIES OR SANCTIONS

Except as disclosed below, no director or executive officer of the Company:

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Cease Trade Orders and Bankruptcies

No director or executive officer of the Company is, as of the date of this Annual Information Form, or has been, within the ten years prior to the date hereof, a director or chief executive officer or chief financial officer of any company (including the Company) that: (i) was subject to an order that was issued while the proposed director was acting as a director, chief executive officer or chief financial officer; or (ii) was subject to an order that was issued after the director ceased to be a director, chief executive officer or chief financial officer and which resulted from an event that occurred while that person was acting in the capacity as director, chief executive officer or chief financial officer.

No director or executive officer of the Company, or shareholder holding a sufficient number of securities to materially affect the control of the Company, is, at the date of this Annual Information Form, or has been within ten years before the date of this Annual Information Form, a director or executive officer of any company (including the Company) that, while that person was acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets.

Penalties and Sanctions

No director or executive officer of the Company, or shareholder holding a sufficient number of securities to materially affect the control of the Company, has been subject to any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority, or has been subject to any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable investor in deciding whether to vote for a director.

Individual Bankruptcies

No director or executive officer of the Company, or shareholder holding a sufficient number of securities to materially affect the control of the Company, has, within the ten years before the date of this Annual Information Form, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of the director.

CONFLICTS OF INTEREST

Some of the Company’s directors and officers are also directors and officers of other reporting companies. It is possible, therefore, that a conflict may arise between their duties as a director or officer of the Company and their duties as a director or officer of such other companies. All such conflicts are disclosed by them in accordance with the CBCA and they govern themselves in respect thereof to the best of their ability in accordance with the obligations imposed upon them by law.

In the event that any of the Company’s directors or officers has a material interest in any material contract or proposed contract involving the Company they are required to disclose their interest to the board of directors either in writing or in person at a meeting of the directors. Any such contract is then considered and approved by a majority of the disinterested directors. Additionally, any non-arm’s length or related party transaction that requires the approval of the TSX will be subject to more restricted filing and disclosure requirements. Related party transactions are required to be disclosed in the Company’s financial statements.

AUDIT COMMITTEE INFORMATION

Pursuant to National Instrument 52-110, Neovasc is required to have an Audit Committee and make the following disclosure.

The Audit Committee’s Charter

See Schedule “A”.

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Composition of the Audit Committee

The members of the Audit Committee are Steve Rubin (Chair), Paul Geyer and Doug Janzen. Information regarding their relevant education and experience can be found under the heading “Directors and Officers”.

Messrs. Rubin, Geyer and Janzen are independent members(1) of the Audit Committee. All members of the Audit Committee are considered to be financially literate(2).

(1)

A member of an audit committee is independent if the member has no direct or indirect material relationship with the Company, which could, in the view of the board of directors, reasonably interfere with the exercise of a member’s independent judgment.

(2)

An individual is financially literate if he has the ability to read and understand a set of financial statements that present a breadth of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the Company’s financial statements.

Audit Committee Oversight

The Audit Committee has not made any recommendations to the Board to nominate or compensate any auditor other than Grant Thornton LLP.

Reliance on Certain Exemptions

The Company’s auditor, Grant Thornton LLP, has not provided any material non-audit services during the financial year ended December 31, 2020.

Since the effective date of NI 52-110, the Company has not relied on the exemptions contained in section 2.4 or Part 8 of NI 52-110. Section 2.4 provides an exemption from the requirements that the Audit Committee must pre-approve all non-audit services to be provided by the auditor, where the total amount of fees related to the non-audit services are not expected to exceed 5% of the total fees payable to the auditor in the fiscal year in which the non-audit services were provided. Part 8 permits a company to apply to a securities regulatory authority for an exemption from the requirements of NI 52-110, in whole or in part.

Pre-Approval Policies and Procedures

See Audit Committee Charter for specific policies and procedures for the engagement of non-audit services.

External Auditor Service Fees

The Audit Committee has reviewed the nature and amount of the non-audited services provided by Grant Thornton LLP to the Company to ensure auditor independence. Fees incurred with Grant Thornton LLP for audit and non-audit services in the last two fiscal years for audit fees are outlined in the following table:

	Year ended December 31, 2020	Year ended December 31, 2019
Audit Fees	C$391,130	C$347,800
Tax Fees	C$Nil	C$Nil
All Other Fees	C$Nil	C$Nil
Total	C$391,130	C$347,800

Audit fees: All services performed by Grant Thornton LLP in connection with the review of annual consolidated financial statements of the Company including services performed to comply with generally accepted auditing standards, the review of quarterly financial statements in accordance with generally accepted standards for a review; equity due diligence required by underwriters, regulators and other parties in connection with raising capital for the Company.

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Tax Fees: All services performed by Grant Thornton LLP in connection with tax planning, compliance and advice.

Other Fees: All services performed by Grant Thornton LLP outside of the services described above.

INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS

Other than as set forth herein and other than transactions carried out in the ordinary course of business of the Company or any of its subsidiaries, none of the directors or executive officers of the Company, any shareholder directly or indirectly beneficially owning, or exercising control or direction over, shares carrying more than 10% of the voting rights attached to the shares of the Company, nor an associate or affiliate of any of the foregoing persons has during the three most recently completed financial years, or during the current financial year, had any material interest, direct or indirect, in any transactions that materially affected or is reasonably expected to materially affect the Company or any of its subsidiaries.

MATERIAL CONTRACTS

There are no contracts that are material to the Company, that were entered into other than in the ordinary course of business and not excepted from disclosure and filing requirements, and that were entered into within the financial year ended December 31, 2020 or before such period but are still in effect other than as noted below:

On December 2, 2016, the Company and Boston Scientific entered into a definitive agreement for Boston Scientific to acquire Neovasc’s advanced biologic tissue capabilities and certain manufacturing assets and make a 15% equity investment in Neovasc, for a total of $75 million in cash. Under the terms of the asset purchase agreement Neovasc has been granted a license to the purchased assets and access to the sold facilities to allow it to continue its tissue and valve assembly activities for its remaining customers, and continue its own tissue-related programs, including the Tiara through its clinical and regulatory pathways. Under the terms of the equity investment, Boston Scientific acquired 11,817,000 Common Shares in the capital of Neovasc at a price of $0.60 per share, for gross proceeds of $7,090,200.

On August 3, 2018, the Company announced that it had entered into a collaboration and licensing agreement with Penn Medicine and the Gorman Cardiovascular Research Group at the University of Pennsylvania and on February 20, 2019, the Company announced that it had entered into a settlement agreement with Endovalve Inc. and Micro Interventional Devices, Inc. See “LEGAL PROCEEDINGS” for further information.

On January 1, 2020, the Company and a group of buyers entered into a securities purchase agreement in connection with the January 2020 Offering. Pursuant to the securities purchase agreement, the Company agreed to issue 2,426,490 Series A Units and Series B units at a price of $4.1351 per Series A Unit and $4.135 per Series B Unit. Each Series A Unit consisting of one Common Share of the Company and one Warrant at a price of $4.1351 and each Series B Unit consisting of one pre-funded warrant of the Company (each, a “Pre-Funded Warrant”) and one Warrant. Each Pre-Funded Warrant will entitle the holder to acquire one Common Share of the Company at a price of $0.0001. Together the Series A Units and Series B Units generated aggregate gross proceeds to the Company of approximately $10,000,000.

On May 26, 2020, the Company and a group of buyers entered into a securities purchase agreement in connection with the May Offering. Pursuant to the securities purchase agreement, the Company agreed to issue warrants and new series of senior secured convertible notes of the Company, in the aggregate principal amount of $5,000,000 to the buyers listed in the securities purchase agreement. Further, the Company entered into an agreement (“Exchange Agreement”) to exchange most of the outstanding warrants issued in the January 2020 Financing for Common Shares of the Company (“Exchange Shares”).

On June 12, 2020, the Company and a group of buyers entered into a securities purchase agreement in connection with the June 2020 Offering. Pursuant to the securities purchase agreement, the Company agreed to issue 3,883,036 units consisting of one Common Share of the Company and three-quarters of one Warrant at a price of $2.97375 per unit for aggregate gross proceeds to the Company of approximately $11,500,000.

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On August 9, 2020, the Company and a group of buyers entered into a securities purchase agreement in connection with the August 2020 Offering. Pursuant to the securities purchase agreement, the Company agreed to issue 4,532,772 units consisting of one Common Share of the Company and three-quarters of one Warrant at a price of $2.77575 per unit for aggregate gross proceeds to the Company of approximately $12,600,000.

On December 9, 2020, the Company and a group of buyers entered into a securities purchase agreement in connection with the December 2020 Offering. Pursuant to the securities purchase agreement, the Company agreed to issue 6,230,803 Common Share of the Company at a price of $0.9801 per Common Share for aggregate gross proceeds to the Company of approximately $6,100,000.

TAXATION

U.S. Federal Income Tax Considerations

The following is a summary of the anticipated U.S. federal income tax considerations generally applicable to a “U.S. Holder” of the ownership and disposition of Common Shares. This summary addresses only holders who hold Common Shares as capital assets (generally, property held for investment purposes). This summary does not address all potentially relevant U.S. federal income tax matters, and unless otherwise specifically provided, it does not address any state, local, foreign, alternative minimum, unearned income “Medicare” contribution, estate or gift tax consequences of holding or disposing of Common Shares.

As used herein, the term “U.S. Holder” means any beneficial owner of Common Shares, who, for U.S. federal income tax purposes, is: (i) a citizen or individual resident of the United States; (ii) a corporation (or other entity classified as a corporation for U.S. federal tax purposes) organized under the laws of the United States or of any state thereof or the District of Columbia, (iii) an estate whose income is subject to U.S. federal income taxation regardless of its source, and (iv) a trust (A) if a U.S. court is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (B) that has elected to be treated as a U.S. person under applicable U.S. Treasury Regulations.

If a partnership (or other entity or arrangement treated as a partnership for U.S. federal tax purposes) holds Common Shares, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. Partnerships (or other entities or arrangements classified as a partnership for U.S. federal tax purposes) holding Common Shares, and their partners and other owners, should consult their own tax advisors to determine the U.S. federal, state, local and other tax consequences that may be relevant to them.

This summary is based on the Canada-United States Income Tax Convention (1980), as amended, the U.S. Internal Revenue Code of 1986, as amended (the “Code”), administrative pronouncements and rulings of the IRS, judicial decisions and existing and proposed U.S. Treasury Regulations, changes to any of which subsequent to the date of this AIF may affect the tax consequences described herein, possibly on a retroactive basis. This summary is for general guidance only and does not address the consequences applicable to certain categories of shareholders subject to special treatment under the Code, including tax-exempt organizations, pass-through entities, certain financial institutions, insurance companies, qualified retirement plans, individual retirement accounts or other tax-deferred accounts, persons that hold Common Shares as part of a straddle, hedging transaction, conversion transaction, constructive sale or other arrangement involving more than one position, persons that acquired Common Shares in connection with the exercise of employee stock options or otherwise as compensation for services, dealers in securities or foreign currencies, traders in securities that elect to use a mark-to-market method of accounting, U.S. persons whose functional currency (as defined in the Code) is not the U.S. dollar, former citizens or permanent residents of the United States, or persons that own directly, indirectly or constructively 10% or more of our Common Shares by voting power or by value. Holders and prospective investors should consult their own tax advisors with regard to the application of the income tax laws of the United States and any other taxing jurisdiction to their particular circumstances.

Distributions with respect to the Common Shares

Subject to the PFIC rules discussed below, a U.S. Holder will generally recognize, to the extent out of our current and accumulated earnings and profits (determined in accordance with U.S. federal income tax

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principles), dividend income on the receipt of distributions on Common Shares (including amounts withheld to pay Canadian withholding taxes). We do not intend to calculate our earnings and profits under U.S. federal income tax rules. Accordingly, U.S. Holders should expect that a distribution will generally be treated as a dividend for U.S. federal income tax purposes.

The amount of any dividend paid to a U.S. Holder in Canadian dollars (including amounts withheld to pay Canadian withholding taxes) will be includible in income in a U.S. dollar value amount by reference to the exchange rate between the U.S. dollar and the Canadian dollar in effect on the date of receipt of such dividend by the U.S. Holder, regardless of whether the Canadian dollars so received are in fact converted into U.S. dollars. A U.S. Holder will have a tax basis in the Canadian dollars equal to their U.S. dollar value on the date of receipt. If the Canadian dollars received are converted into U.S. dollars on the date of receipt, the U.S. Holder should generally not be required to recognize foreign currency gain or loss in respect of the dividend. If the Canadian dollars received are not converted into U.S. dollars on the date of receipt, a U.S. Holder may recognize foreign currency gain or loss on a subsequent conversion or other disposition of the Canadian dollars. Such gain or loss will generally be treated as U.S. source ordinary income or loss.

We believe that we are a “qualified foreign corporation” and therefore, distributions treated as dividends and received by certain non-corporate U.S. Holders will be taxed at preferential rates, provided applicable holding period and certain other requirements are satisfied, including that we are not treated as a PFIC for the year of the distribution or for the prior taxable year. Any amount of such distributions treated as dividends will generally not be eligible for the “dividends received” deduction ordinarily available to certain U.S. corporate shareholders.

Distributions on Common Shares that are treated as dividends will generally constitute income from sources outside the United States and will generally be categorized for U.S. foreign tax credit purposes as “passive category income.” A U.S. Holder may be eligible to elect to claim a U.S. foreign tax credit against its U.S. federal income tax liability, subject to applicable limitations and holding period requirements, for Canadian tax withheld, if any, from distributions received in respect of Common Shares. A U.S. Holder that does not elect to claim a U.S. foreign tax credit may instead claim a deduction for Canadian tax withheld, but only for a taxable year in which the U.S. Holder elects to do so with respect to all non-U.S. income taxes paid or accrued in such taxable year. The rules relating to U.S. foreign tax credits are complex, and each U.S. Holder should consult its own tax adviser regarding the application of such rules.

Sale, Exchange or Other Taxable Disposition of Common Shares

Subject to the PFIC rules discussed below, upon a sale, exchange or other taxable disposition of a common share, a U.S. Holder will generally recognize a capital gain or loss equal to the difference between the amount realized on such sale, exchange or other taxable disposition (or, if the amount realized is denominated in Canadian dollars, its U.S. dollar equivalent, generally, for U.S. Holders that use the cash method and for electing U.S. Holders that use accrual method, determined by reference to the spot rate of exchange on the date of settlement) and the holder’s tax basis of such common share. Such gain or loss will be a long-term capital gain or loss if the common share has been held for more than one year and will be short-term capital gain or loss if the holding period is equal to or less than one year. Such gain or loss will generally be considered U.S. source gain or loss for U.S. foreign tax credit purposes. Long-term capital gains of non-corporate taxpayers are eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations.

Passive Foreign Investment Company Rules

A foreign corporation will be considered a PFIC for any taxable year in which (i) 75% or more of its gross income is “passive income” or (ii) 50% or more of the average quarterly value of its assets produce (or are held for the production of) “passive income.” For this purpose, “passive income” generally includes interest, dividends, rents, royalties and certain gains. We currently do not believe that we were a PFIC in the preceding taxable year nor do we anticipate that we will be a PFIC in the current taxable year or in future taxable years. However, the determination as to whether we are a PFIC for any taxable year is based on the application of complex U.S. federal income tax rules, which are subject to differing interpretations, and is not determinable until after the end of such taxable year. Further, the determination is based in part on the mix, use and value of our assets, which values may be treated as changing for U.S. federal income tax purposes as our market capitalization changes. Because of the above described uncertainties, there can be no assurance that the IRS

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will not challenge the determination made by us concerning our PFIC status or that we will not be a PFIC for any taxable year. If we were classified as a PFIC in any taxable year during which a U.S. Holder owns our Common Shares, certain adverse tax consequences could apply to such U.S. Holder. Certain elections may be available to U.S. Holders of Common Shares that may mitigate some of the adverse consequences resulting from our treatment as a PFIC. U.S. Holders should consult their own tax advisors regarding the application of the PFIC rules to their investments in Common Shares and whether to make an election or protective election.

Required Disclosure with Respect to Foreign Financial Assets

Certain U.S. Holders are required to report information relating to an interest in Common Shares, subject to exceptions (including an exception for Common Shares held in accounts maintained by certain financial institutions), by attaching a completed IRS Form 8938, Statement of Specified Foreign Financial Assets, with their tax return for each year in which they hold an interest in Common Shares. U.S. Holders should consult their own tax advisors regarding information reporting requirements relating to their ownership of Common Shares.

Certain Material Canadian Federal Income Tax Considerations

The following is a summary, as of today’s date, of the principal Canadian federal income tax considerations under the Income Tax Act (Canada) (“Tax Act”) that generally apply to an investor who acquires Common Shares, who, for the purposes of the Tax Act and at all relevant times, deals at arm’s length, and is not affiliated with the Company and who acquires and holds Common Shares, as capital property (a “Holder”). Generally, Common Shares will be considered to be capital property to a Holder provided that the Holder does not use Common Shares in the course of carrying on a business of trading or dealing in securities and such Holder has not acquired them or been deemed to have acquired them in one or more transactions considered to be an adventure or concern in the nature of trade.

This summary is based upon the current provisions of the Canada-United States Income Tax Convention (1980) (“Treaty”), the Tax Act and its regulations and the current published administrative policies and assessing practices of the Canada Revenue Agency (“CRA”). This summary takes into account all specific proposals to amend the Tax Act and its regulations publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof (the “Tax Proposals”) and assumes that the Tax Proposals will be enacted in the form proposed, although no assurance can be given that the Tax Proposals will be enacted in their current form or at all. This summary does not otherwise take into account any changes in law or in the administrative policies or assessing practices of the CRA, whether by legislative, governmental or judicial decision or action, nor does it take into account or consider any provincial, territorial or foreign income tax considerations, which considerations may differ significantly from the Canadian federal income tax considerations discussed in this summary.

This summary only applies to Holders who (i) for the purposes of the Tax Act, have not and will not be resident in Canada at any time, (ii) do not and is not deemed to use or hold the Common Shares in carrying on a business in Canada, (iii) are resident solely in the United States for income tax purposes and entitled to benefits under the Treaty, and (iv) are not “specified shareholders” (as defined in subsection 18(5) of the Tax Act). Special rules, which are not discussed in this summary, may apply to a United States Holder that is an insurer that carries on business in Canada and elsewhere.

This summary is of a general nature only, is not exhaustive of all possible Canadian federal income tax considerations and is not intended to be, nor should it be construed to be, legal or tax advice to any particular Holder. Holders should consult their own tax advisors with respect to their particular circumstances.

Currency

For purposes of the Tax Act, all amounts relating to the acquisition, holding or disposition of Common Shares must be expressed in Canadian dollars. Amounts denominated in any other currency must be converted into Canadian dollars using the daily exchange rate of the Bank of Canada on the particular day, or such other rate of exchange as is acceptable to the CRA.

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Dividends

Dividends paid or credited or deemed to be paid or credited to a Holder by the Company are subject to Canadian withholding tax at the rate of 25% on the gross amount of the dividend unless such rate is reduced by the terms of the Treaty. The rate of withholding tax on dividends paid or credited to a Holder who is resident in the U.S. for purposes of the Treaty, entitled to benefits under the Treaty, and is the beneficial owner of the dividend is generally limited to 15% of the gross amount of the dividend (or 5% in the case of such a Holder that is a company beneficially owning at least 10% of the Company’s voting shares). Holders should consult their own tax advisors regarding the application of the Treaty to dividends based on their particular circumstances.

Dispositions of Common Shares

A Holder generally will not be subject to tax under the Tax Act in respect of a capital gain realized on the disposition or deemed disposition of Common Shares, nor will capital losses arising therefrom be recognized under the Tax Act, unless Common Shares constitute “taxable Canadian property” to the Holder for purposes of the Tax Act, and the gain is not exempt from tax pursuant to the terms of the Treaty.

Provided Common Shares are listed on a “designated stock exchange”, as defined in the Tax Act (which currently includes the TSX and the NASDAQ), at the time of disposition, the Common Shares generally will not constitute taxable Canadian property of a Holder at that time, unless at any time during the 60 month period immediately preceding the disposition the following two conditions are met concurrently:

(i)

the Holder, persons with whom the Holder did not deal at arm’s length, and partnerships in which the Holder or such non-arm’s length person holds a membership interest (either directly or indirectly through one or more partnerships), or the Holder together with all such persons, owned 25% or more of the issued shares of any class or series of the capital stock of the Company; and

(ii)

more than 50% of the fair market value of the Common Shares was derived directly or indirectly from one or any combination of real or immovable property situated in Canada, “Canadian resource properties” (as defined in the Tax Act), “timber resource properties” (as defined in the Tax Act) or an option, an interest or right in such property, whether or not such property exists.

Notwithstanding the foregoing, a Common Share may otherwise be deemed to be taxable Canadian property to a Holder for purposes of the Tax Act in particular circumstances.

Even if Common Shares constitute “taxable Canadian property” to a Holder, under the Treaty, such a Holder will not be subject to tax under the Tax Act on any capital gain realized by such holder on the disposition of such Common Shares, provided the value of such Common Shares is not derived principally from real property situated in Canada (within the meaning of the Treaty). Holders whose Common Shares are taxable Canadian property should consult their own tax advisors.

LEGAL PROCEEDINGS

The Company is engaged as a defendant and appellant in certain lawsuits, as further described below. Litigation resulting from third party claims has been, and is expected to be, costly and time-consuming and could divert the attention of management and key personnel from our business operations. Although we intend to vigorously defend ourselves against the remaining claims, we cannot assure that we will succeed in appealing and defending any of these claims and that judgments will not be upheld against us. If we are unsuccessful in our appeal and defense of these claims or unable to settle the claims in a manner satisfactory to us, we may be faced with significant loss of intellectual property rights that could have a material adverse effect on the Company and its financial condition. Except for as otherwise disclosed below, there are no material outstanding legal proceedings or regulatory actions to which the Company is party, nor, to Neovasc’s knowledge, are there any such proceedings or actions contemplated.

Claims by CardiAQ in Germany

On June 23, 2014, Edwards Lifesciences CardiAQ LLC (“CardiAQ”) filed a complaint against Neovasc in Munich, Germany (the “German Court”) requesting that Neovasc assign its right to one of its European

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patent applications to CardiAQ. After a hearing held on December 14, 2016, the German Court rendered its decision on June 16, 2017, granting co-ownership of the European patent application to CardiAQ but denying their claim for full entitlement. On July 14, 2017, Neovasc filed a notice of appeal against the German Court’s decision with the Appeals Court of Munich (the ‘Appeals Court’). On July 20, 2017, CardiAQ filed a notice of appeal with the same court. The decision of the Appeals Court of Munich was rendered on March 21, 2019, wherein it amended the decision of the German Court and dismissed the complaint of CardiAQ in full. There are no monetary awards associated with these matters and no damages award was recognized. On March 30, 2020, the German Supreme Court granted CardiAQ leave to appeal the Appeals Court decision and at a hearing held on August 4, 2020 the German Supreme Court set aside the prior decision of the Appeals Court and remanded the matter back to the Appeals Court for a new hearing and decision.

The hearing at the Appeals Court was held on February 25, 2021 and a decision from the Appeals Court will be handed down on May 6, 2021. There are no monetary awards associated with these matters and no damages award was recognized.

Claims by CardiAQ in the United States

On March 24, 2017, CardiAQ filed a related lawsuit in the in the U.S. District Court for the District of Massachusetts (the “Court”), asserting two claims for correction of patent inventorship as to Neovasc’s U.S. Patents Nos. 9,241,790 and 9,248,014. On October 4, 2017, CardiAQ amended its pleading to add a third claim for correction of patent inventorship as to Neovasc’s U.S. Patent No. 9,770,329. The lawsuit did not seek money damages and would not have prevented the Company from practicing these patents. The Company moved to dismiss the complaint on November 16, 2017, and the Court denied this motion on September 28, 2018. On April 17, 2019, the Company resolved the three claims for correction of patent inventorship and, without reaching conclusion on the merits of the claims, the parties agreed to the correction of patent inventorship and added co-inventors to the three patents in question. Each party will bear its own costs. There were no monetary awards associated with these matters and no damages award was recognized.

Other Matters

By way of Amended Statement of Claim in Federal Court of Canada Action T-1831-16 (the “Action”), Neovasc Inc. and Neovasc Tiara Inc. (the “Neovasc Defendants”) were added as defendants to an existing action commenced by Edwards Lifesciences PVT, Inc. and Edwards Lifesciences (Canada) Inc. (collectively the “Edwards Plaintiffs”) against Livanova Canada Corp., Livanova PLC, Boston Scientific and Boston Scientific Ltd. (collectively, the “BSC/Livanova Defendants”). The Action was first filed in October 2016 and first concerned an allegation by the Edwards Plaintiffs that the manufacturing, assembly, use, sale and export of the Lotus Aortic Valve devices by the BSC/Livanova Defendants infringes on the Edwards Plaintiffs’ patents. In February 2017, the Neovasc Defendants were added to the Edwards Plaintiffs’ claim making related allegations. On January 22, 2019, the Company announced that pursuant to a settlement reached with the Edwards Plaintiffs, the patent infringement action that the Edwards Plaintiffs had previously commenced in the Federal Court of Canada against the Neovasc Defendants, Boston Scientific and Livanova, has been dismissed on a no-costs basis. No damages award was recognized.

On August 3, 2018, the Company announced that it had entered into a collaboration and licensing agreement with Penn Medicine and the Gorman Cardiovascular Research Group at the University of Pennsylvania (collectively, “UPenn”), which resolved certain potential claims against the Company that had been previously disclosed. The collaboration and licensing agreement with UPenn contemplates certain fees being paid by Neovasc to UPenn, including fees in installments totaling $2.65 million over the four years following the agreement’s execution. In addition, Neovasc agreed to pay UPenn a royalty of 1.0-1.5% on the annual net sales of the Tiara following the first commercial sale of the Tiara. Also contained in the collaboration and licensing agreement are buy-out clauses that allow Neovasc, or an acquirer of Neovasc or the Tiara assets, to buy out these royalty obligations. As part of the collaboration and licensing agreement, certain potential claims against the Neovasc Defendants were resolved.

When the Company assesses that it is more likely that a present obligation exists at the end of the reporting period and that the possibility of an outflow of economic resources embodying economic benefits is probable, a provision is recognized and contingent liability disclosure is required. The Company has accrued $470,349 as at December 31, 2020 representing the discounted value of future payments anticipated under the settlement

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agreement with UPenn. The Company has not accrued for any future royalty payments in the settlement agreement with UPenn as the amounts are undeterminable at this time.

On September 7, 2018, Endovalve Inc. and Micro Interventional Devices, Inc. (collectively, “Endovalve”) filed a complaint in the United States District Court for the District of New Jersey against the Neovasc Defendants, alleging claims for trade secret misappropriation, breach of contract, and unfair competition. Endovalve alleged that it was a former customer of Neovasc Inc., and that the Neovasc Defendants improperly used trade secrets in the development of Tiara. The complaint sought injunctive relief, money damages, and attorneys’ fees. On February 20, 2019, the Company announced that it had entered into a settlement agreement with Endovalve. The settlement agreement with Endovalve contemplates certain fees being paid by Neovasc to Endovalve, including settlement fees in installments totaling $3 million over the two and a half years following the agreement’s execution. In addition, Neovasc agreed to pay Endovalve a royalty of 1.3% on the annual net sales of the Tiara following the first commercial sale of the Tiara. Also contained in the settlement agreement are buy-out clauses that allow Neovasc, or an acquirer of Neovasc or the Tiara assets, to buy out these royalty obligations. As part of the settlement agreement, the claims against the Neovasc Defendants were dismissed with prejudice.

When the Company assesses that it is more likely that a present obligation exists at the end of the reporting period and that the possibility of an outflow of economic resources embodying economic benefits is probable, a provision is recognized and contingent liability disclosure is required. The Company has accrued $716,251 as at December 31, 2020 representing the discounted value of future payments anticipated under the settlement agreement with Endovalve. The Company has not accrued for any future royalty payments in the settlement agreement with Endovalve as the amounts are undeterminable at this time.

Shareholder Litigation

On November 5, 2020, a putative shareholder class action lawsuit was filed in the United States District Court for the Southern District of New York against Neovasc Inc. (“Neovasc”), Fred Colen, Neovasc’s CEO, and Christopher Clark, Neovasc’s CFO: Gonzalez v. Neovasc Inc., et al., Case No. 7:20-cv-09313 (S.D.N.Y.) (the “Gonzalez Action”). The complaint in the Gonzalez Action purports to bring suit on behalf of a class consisting of all persons and entities that purchased or otherwise acquired Neovasc securities between November 1, 2019 and October 27, 2020, inclusive. On November 25, 2020, a second putative shareholder class action lawsuit was filed in the United States District Court for the Southern District of New York against Neovasc and Messrs. Colen and Clark: Siple v. Neovasc Inc., et al., Case No. 1:20-cv-09948 (S.D.N.Y.) (the “Siple Action”). The complaint in the Siple Action purports to bring suit on behalf of a class consisting of all persons and entities that purchased or otherwise acquired Neovasc securities between October 10, 2018 and October 27, 2020, inclusive.

The complaints in both the Gonzalez Action and the Siple Action contain similar allegations that the defendants made materially false and/or misleading statements, as well as failed to disclose material adverse facts about Neovasc’s business, operations, and prospects. Specifically, the complaints’ allegations relate to the premarket approval process with the U.S. Food and Drug Administration for Nevoasc’s Reducer medical device for the treatment of refractory angina. Both complaints assert the same two causes of action: (i) a violation of Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 promulgated thereunder against all defendants; and (ii) a violation of Section 20(a) of the Exchange Act against Messrs. Colen and Clark.

On January 26, 2021, the court issued an order consolidating the Gonzalez Action and the Siple Action under a new case style: In re Neovasc Inc. Securities Litigation, Case No. 7:20-cv-09313 (S.D.N.Y.) (the “Consolidated Action”). The order also appointed Pratap Golla as Lead Plaintiff and the law firms of Pomerantz LLP and Holzer & Holzer LLC as Co-Lead Counsel for the Class in the Consolidated Action. The order further directed Lead Plaintiff to file a Consolidated Amended Complaint in the Consolidated Action. On February 3, 2021, the court granted Lead Plaintiff’s request for an extension of time to file a Consolidated Amended Complaint, which is presently due on or before March 19, 2021.

NAMES AND INTEREST OF EXPERTS

No person or company, whose profession or business gives authority to the statement, report, valuation or opinion, who is named as having prepared or certified a statement, report, valuation or opinion described

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or included in a filing, or referred to in a filing, made under National Instrument 51-102 by the Company during, or relating to, the Company’s most recently completed financial year holds any beneficial interest, direct or indirect, in any securities or property of the Company or of an associate or affiliate of the Company and no such person is expected to be elected, appointed or employed as a director, officer or employee of the Company or of an associate or affiliate of the Company and no such person is a promoter of the Company or an associate or affiliate of the Company. In particular, the current auditors of the Company are Grant Thornton, LLP, Chartered Professional Accountants, 1600 — 333 Seymour St., Vancouver, BC, V6B 5A6. Grant Thornton LLP has reported on Neovasc’s fiscal 2020 audited consolidated financial statements, which have been filed with the securities regulatory authorities.

As of March 8, 2021, Grant Thornton LLP has informed the Company that it is independent with respect to the Company within the meaning of the Rules of Professional Conduct of the Institute of Chartered Professional Accountants of British Columbia.

TRANSFER AGENT AND REGISTRAR

Neovasc’s transfer agent and registrar is Computershare Investor Services Inc., 510 Burrard Street, 2nd Floor, Vancouver, British Columbia, Canada, V6C 3B9.

ADDITIONAL INFORMATION

Additional information relating to the Company is available under the Company’s profile on the SEDAR website at www.sedar.com and on the website of the SEC at www.sec.gov. Additional information, including directors’ and officers’ remuneration and indebtedness, principal holders of the Company’s securities and securities authorized for issuance under equity compensation plans, if applicable, is contained in the Company’s management information circular dated 11, 2020.

ADDITIONAL FINANCIAL INFORMATION

Additional financial information relating to our Company is provided in our comparative financial statements and management’s discussion and analysis for the years ended December 31, 2020, 2019 and 2018.

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SCHEDULE “A”

AUDIT COMMITTEE CHARTER

Neovasc Inc. (formerly Medical Ventures Corporation)

2007

MEDICAL VENTURES CORPORATION

PURPOSE

The Audit Committee is responsible for assisting the Board of Directors (the “Board”) in fulfilling its oversight responsibilities in relation to:

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the integrity of Medical Ventures Corp. (the “Corporation”) financial statements;

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the Corporation’s compliance with legal and financial regulatory requirements;

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the qualifications and independence of the Corporation’s auditor;

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the adequacy and effectiveness of internal controls over financial reporting and disclosure controls;

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the performance of the Corporation’s internal audit function and independent auditor;

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preparing an audit committee report to be included in the Corporation’s management information circular; and

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any additional matters delegated to the Audit Committee by the Board.

MEMBERS

The Board must appoint a minimum of three directors to be members of the Audit Committee. All of the members of the Audit Committee will meet the criteria for independence contained in applicable laws and stock exchange rules and regulations and at least a majority must be residents of Canada (so long as this is required under applicable law). In addition, every member of the Audit Committee will be Financially Literate and at least one member will have accounting or related financial management expertise, as the Board interprets such qualification in its business judgment. “Financially Literate” means the ability to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the Corporation’s financial statements.

RESPONSIBILITIES

The Audit Committee is responsible for performing the duties set out below as well as any other duties delegated to the Audit Committee by the Board.

(a)

Appointment and Review of the Auditor

The auditor is ultimately accountable to the Audit Committee and reports directly to the

Audit Committee. Accordingly, the Audit Committee will evaluate and be responsible for the Corporation’s relationship with the auditor. Specifically, the Audit Committee will:

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select, evaluate and nominate the auditor to be proposed for appointment or reappointment, as the case may be, by the shareholders;

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review and approve the auditor’s engagement letter;

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after seeking and taking into account the opinions of senior management and the officer in charge of internal audit, review the independence, experience, qualifications and performance of the auditor, including the lead audit partner, in recommending its appointment or reappointment, including considering whether the auditor’s quality controls are adequate and the auditor’s provision of any permitted non-audit services is compatible with maintaining its independence;

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oversee the auditor’s work, including resolving any disagreements between management and the auditor regarding financial reporting;

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at least annually, obtain and review a report by the auditor describing its internal quality-control procedures, any material issues raised by the most recent internal quality-control review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the auditor and any steps taken to deal with any such issues; and

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where appropriate, terminate the auditor.

(b)

Confirmation of the Auditor’s Independence

At least annually, and before the auditor issues its report on the Corporation’s annual financial statements, the Audit Committee will:

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confirm that the auditor has submitted a formal written statement describing all of its relationships with the Corporation that in the auditor’s professional judgment may reasonably be thought to bear on its independence;

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discuss with the auditor any disclosed relationships or services that may affect its independence;

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obtain written confirmation from the auditor that it is independent with respect to the Corporation within the meaning of the Rules of Professional Conduct adopted by the Canadian Institute of Chartered Accountants to which it belongs and that it is an independent public accountant with respect to the Corporation within the meaning of federal securities legislation; and

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confirm that the auditor has complied with applicable laws with respect to the rotation of certain members of the audit engagement team for the Corporation.

(c)

Pre-Approval of Non-Audit Services

The Audit Committee will pre-approve the appointment of the auditor for any non-audit service to be provided to the Corporation or its subsidiaries, provided that it will not approve any service that is prohibited under applicable laws, rules and regulations. The Audit Committee may establish policies and procedures, that may be revised from time to time, which pre-approve the appointment of the auditor for certain non-audit services. In addition, the Audit Committee may delegate to one or more independent members the authority to pre-approve the appointment of the auditor for any non-audit service to the extent permitted by applicable law, provided that any pre-approvals granted pursuant to such delegation shall be reported to the full Audit Committee at its next scheduled meeting following such pre-approval.

(d)

Communications with the Auditor

The Audit Committee has the authority to communicate directly with the auditor and will meet privately with the auditor as frequently as the Audit Committee feels is appropriate to fulfill its responsibilities, which will not be less frequently than annually, to discuss any items of concern to the Audit Committee or the auditor, including, without limitation:

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planning and staffing of the audit;

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any material written communications between the auditor and management, such as any management letter or schedule of unadjusted differences;

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whether or not the auditor is satisfied with the quality and effectiveness of financial recording procedures and systems;

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the extent to which the auditor is satisfied with the nature and scope of its examination;

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any instances of fraud or other illegal acts involving senior management of the Corporation;

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whether or not the auditor has received the full co-operation of senior management and other employees of the Corporation and whether the auditor has encountered any audit problems or difficulties in the course of its audit work, including any restrictions on the scope of the auditor’s work or access to required information and any significant disagreements with management (along with management’s response);

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the auditor’s opinion of the competence and performance of the Chief Financial Officer and other key financial personnel; and

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the items required to be communicated to the Audit Committee under the Canadian authoritative guidance or under Canadian generally accepted auditing standards.

(e)

Review of the Audit Plan

The Audit Committee will discuss with the auditor the nature of an audit and the responsibility assumed by the auditor when conducting an audit under Canadian generally accepted auditing standards. The Audit Committee will review a summary of the auditor’s audit plan for each audit.

(f)

Review of Audit Fees

The Audit Committee will determine the auditor’s fee and the terms of the auditor’s engagement. In determining the auditor’s fee, the Audit Committee will consider, among other things, the number and nature of reports to be issued by the auditor, the quality of the internal controls of the Corporation, the size, complexity and financial condition of the Corporation and the extent of internal audit and other support to be provided to the auditor by the Corporation.

(g)

Review of Financial Statements

The Audit Committee will review and discuss with management and the auditor the annual audited financial statements, together with the auditor’s report thereon, and the interim financial statements, before recommending them for approval by the Board. The Audit Committee will also review and discuss with management and the auditor:

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management’s discussion and analysis relating to the annual audited financial statements and interim financial statements;

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all critical accounting policies and practices used or to be used by the Corporation; and

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all alternative treatments of financial information within generally accepted accounting principles that have been discussed with management, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the auditor.

The Audit Committee may also engage the auditor to review the interim financial statements and any reconciliation of the Corporation’s financial statements prior to the Audit Committee’s review of such financial statements or reconciliation.

(h)

Review of Other Financial Information

The Audit Committee will:

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review annual and interim earnings press releases prior to their public release, as well as financial information and earnings guidance provided to analysts and rating agencies. The Audit Committee will also review the type and presentation of information to be included in such press releases and guidance (including the use of “pro forma” or “adjusted” non-GAAP financial measures);

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ensure that adequate procedures are in place for management’s review of all other financial information extracted or derived from the Corporation’s financial statements that were previously reviewed by the Audit Committee before such information is released to the public, including, without limitation, financial information or statements for use in prospectuses or other offering or public disclosure documents and financial statements required by regulatory authorities, and the Audit Committee shall periodically assess the adequacy of those procedures;

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review major issues regarding accounting principles and financial statement presentations, including any significant changes in the Corporation’s selection or application of accounting principles, and major issues as to the adequacy of the Corporation’s internal controls and any special audit steps adopted in light of any material control deficiencies;

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review analyses prepared by management and/or the auditor setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements, including analyses of the effects of alternative GAAP methods of the financial statements; and

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review the effect of regulatory and accounting initiatives as well as off-balance sheet structures on the Corporation’s financial statements.

(i)

Relations with Senior Management

The Audit Committee members will meet privately with senior management as frequently as the Audit Committee feels is appropriate to fulfill its responsibilities, which will not be less frequently than annually to discuss any areas of concern to the Audit Committee or senior management.

(j)

Oversight of Internal Controls and Disclosure Controls

The Audit Committee will review with senior management the adequacy of the internal controls that have been adopted by the Corporation to safeguard assets from loss and unauthorized use, to prevent, deter and detect fraud, and to verify the accuracy of the financial records. The Audit Committee will review any special audit steps adopted in light of material weaknesses or significant deficiencies.

The Audit Committee will review with senior management the controls and procedures that have been adopted by the Corporation to confirm that material information about the Corporation and its subsidiaries that is required to be disclosed under applicable law or stock exchange rules is disclosed within the required time periods. The Audit Committee will also review disclosures made to it by the Chief Executive Officer and Chief Financial Officer during their certification process for applicable securities law filings about any significant deficiencies and material weaknesses in the design or operation of the Corporation’s internal control over financial reporting which are reasonably likely to adversely affect the Corporation’s ability to record, process, summarize and report financial information required to be disclosed by the Corporation in the reports that it files or submits under applicable Canadian federal and provincial legislation and regulations within the required time periods, and any fraud, whether or not material, involving management or other employees who have a significant role in the Corporation’s internal control over financial reporting.

(k)

Legal and Regulatory Compliance

The Audit Committee will review with the Corporation’s legal counsel any legal or regulatory matters that could have a significant effect on the Corporation’s financial statements. It will also review with legal counsel material inquiries received from regulators and governmental agencies and advise the Board accordingly.

(l)

Risk Assessment and Risk Management

The Audit Committee will review periodically with senior management the Corporation’s guidelines and policies with respect to risk assessment and risk management, including the steps and process taken to monitor and control risks.

(m) Taxation Matters

The Audit Committee will periodically review with senior management the status of significant taxation matters of the Corporation.

(n)

Hiring Employees of the Auditor

The Audit Committee has established and will continue to maintain and monitor compliance with policies for hiring partners and employees and former partners and employees of the auditor.

COMPLAINTS PROCEDURE

The Audit Committee has established, and will continue to maintain, procedures for the receipt, retention and treatment of complaints received by the Corporation regarding accounting, internal accounting controls, auditing matters and disclosure controls and procedures for the confidential, anonymous submission of concerns by employees of the Corporation regarding questionable accounting or auditing matters or disclosure controls.

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REPORTING

The Audit Committee will regularly report to the Board on:

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the auditor’s independence;

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the performance of the auditor and the Audit Committee’s recommendations regarding its reappointment or termination;

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the performance of the internal audit function;

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the adequacy of the Corporation’s internal controls and disclosure controls;

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its recommendations regarding the annual and interim financial statements of the Corporation and any reconciliation of the Corporation’s financial statements, including any issues with respect to the quality or integrity of the financial statements;

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its review of the annual and interim management’s discussion and analysis;

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any issues that arise with respect to the Corporation’s compliance with legal and regulatory requirements; and

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all other significant matters it has addressed and with respect to such other matters that are within its responsibilities.

REVIEW AND DISCLOSURE

The Audit Committee will review this Charter at least annually and submit it to the Board together with any proposed amendments. The Board will review the Charter and approve such further amendments as it deems necessary and appropriate.

ASSESSMENT

At least annually, the Corporate Governance Committee will review the effectiveness of the Audit Committee in fulfilling its responsibilities and duties as set out in this Charter and in a manner consistent with the corporate governance guidelines adopted by the Board.

CHAIR

Each year, the Board will appoint one member to be Chair of the Audit Committee. If, in any year, the Board does not appoint a Chair, the incumbent Chair will continue in office until a successor is appointed.

REMOVAL AND VACANCIES

Any member may be removed and replaced at any time by the Board and will automatically cease to be a member as soon as the member ceases to meet the qualifications set out above. The Board will fill vacancies on the Audit Committee by appointment from among qualified members of the Board. If a vacancy exists on the Audit Committee, the remaining members will exercise all of its powers so long as a quorum remains in office.

10.

ACCESS TO INDEPENDENT COUNSEL AND OTHER ADVISORS

In carrying out its duties, the Audit Committee may retain independent counsel and any other outside advisor at the expense of the Corporation without Board approval at any time and has the authority to determine any such counsel’s or advisor’s fees and other retention terms. The Corporation shall also provide appropriate funding, as determined by the Audit Committee, for the payment of the compensation of the auditor, independent counsel and outside advisors and any ordinary administrative expenses of the Audit Committee that are necessary or appropriate in carrying out its duties.

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Exhibit 99.2

Neovasc Inc.

Management’s
Discussion and Analysis

FOR THE YEARS ENDED
DECEMBER 31 2020, 2019 AND 2018

(Expressed in U.S. Dollars)

2020

MANAGEMENT’S DISCUSSION AND ANALYSIS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) covers the audited consolidated financial statements of Neovasc Inc. (the “Company”, “Neovasc”, “we”, “us”, or “our”) for the years ended December 31, 2020, 2019 and 2018 and should be read in conjunction with the audited consolidated financial statements and notes thereto for the years ended December 31, 2020, 2019 and 2018 and the Company’s Annual Information Form.

The Company has prepared this MD&A with reference to National Instrument 51-102 — Continuous Disclosure Obligations of the Canadian Securities Administrators.

The names TiaraTM (“Tiara”), and Neovasc ReducerTM (“Reducer”) are our trademarks; other trademarks, product names and Company names appearing herein are the property of their respective owners.

All financial information is prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. The Company presents its consolidated financial statements in U.S. dollars.

On September 18, 2018, the Company effected a share consolidation (reverse stock split) of its issued and outstanding common shares in the capital of the Company (the “Common Shares”) on the basis of one post-consolidation Common Share for every one hundred pre-consolidation Common Shares. On June 25, 2019, the Company effected a share consolidation (reverse stock split) of its issued and outstanding Common Shares on the basis of one post-consolidation Common Share for every ten pre-consolidation Common Shares. All references in this MD&A to Common Shares and options have been retroactively adjusted to reflect the share consolidations. The number of warrants and aggregate principal amount of the notes outstanding from the 2017 Financings (as defined below) were not affected by the consolidations, but the Common Shares issuable upon exercise of the warrants or conversion of the notes have been adjusted in accordance with the adjustment provisions in such warrants or notes, as applicable.

On December 31, 2019, the Company identified certain accounting differences requiring restatement of previously issued consolidated financial statements for the years ended December 31, 2018 and 2017. The accounting differences are related to Reducer units purchased for research and development during the year ended December 31, 2017 and recognized as product development and clinical trials expenses during that period. Not all of the units were used for product development and clinical trials and during the year ended December 31, 2019, as Reducer revenue increased, the Company used certain of those units in commercial activities. In order to correctly state the cost of goods sold for the year ended December 31, 2019 and the correct period expense for the years ended December 31, 2019, 2018 and 2017 the Company has restated the years ended December 31, 2018 and 2017 to include those Reducer units as research and development supplies assets with potential future economic value at the end of each of those periods. All references relating to financial information for the years ended December 2018 have been adjusted to be reflected in this Annual Report.

Additional information about the Company, including the Company’s audited consolidated financial statements and Annual Information Form, is available on SEDAR at www.sedar.com and in the Company’s Annual Report on Form 40-F filed with the U.S. Securities and Exchange Commission (the “SEC”) on the website of the SEC at www.sec.gov.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND RISK FACTORS

This MD&A contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and applicable Canadian securities laws. The words “expect”, “anticipate”, “plan”, “may”, “will”, “estimate”, “continue”, “intend”, “believe”, “target”, “potential”, “seek”, “explore” and other similar words or expressions are intended to identify such forward-looking statements. Forward-looking statements are necessarily based on estimates and assumptions made by us in light of our experience and perception of historical trends, current conditions and expected future developments, as well as the factors we believe are appropriate. Forward-looking statements in this MD&A include, but are not limited to, statements relating to:

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our ability to continue as a going concern;

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our need for significant additional financing and our estimates regarding our capital requirements and future revenues, expenses and profitability;

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our intended use of the net proceeds from the February 2021 offering (the “February 2021 Offering”) of units comprised of one Common Share and one common share purchase warrants (the “February 2021 Units”);

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our estimates regarding our fully diluted share capital and future dilution to shareholders;

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our expectation that our remediation of our material weakness in internal control over financial reporting (“ICFR”) as of December 31, 2019, and 2018 will be sufficient;

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our intention to monitor the Company’s market value on the Nasdaq and our expectation that the Common Shares will continue to be listed and traded on the Nasdaq;

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clinical development of our products, including the results of current and future clinical trials and studies;

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a decision by our European Notified Body on CE Mark approval for Tiara TA in Europe according to the Medical Device Directive, sometime in 2021;

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the anticipated timing of additional implantations in the TIARA-II trial

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our plans to develop and commercialize products, including the Tiara and the Reducer, and the timing and cost of these development programs;

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our plans to develop and commercialize the Tiara transfemoral trans-septal system, including our ability to improve current prototypes;

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our ability to grow revenues from the Reducer in a timely manner;

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whether we will receive, and the timing and costs of obtaining, regulatory approvals;

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our efforts to obtain approval for entrance into the U.S. market for the Reducer, including our discussions with the U.S. Food and Drug Administration (the “FDA”), including the not approval letter for the Reducer received on January 15, 2021, and potential pathways to the U.S. market;

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the cost of post-market regulation and commercialization if we receive necessary regulatory approvals and if we decide to commercialize ;

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our ability to enroll patients in our clinical trials, studies and compassionate use cases in Canada, the United States, Europe, Israel and other markets;

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our ability to advance and complete a potential COSIRA-II IDE pivotal clinical trial;

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our belief that the full PMA application pathway, while costly and likely to take many years, brings the best chance of success for Tiara;

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our belief that the TIARA-I Early Feasibility study demonstrates the safety of the Neovasc transcatheter mitral valve replacement (“TMVR”) system;

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our belief that the clinical evidence already available will be sufficient to support the availability of Tiara for the treatment of patients in Europe;

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our intention to continue directing a significant portion of our resources into sales expansion;

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our ability to get our products approved for use;

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the benefits and risks of our products as compared to others;

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our ability to find strategic alternatives for adoption of the Reducer, including potential alliances in order to broaden and deepen therapy penetration and potentially advance the COSIRA-II study;

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our plans to increase Reducer implants in Europe in 2021;

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our expectation that in 2021 more German clinics will negotiate and finalize reimbursement negotiations with German insurance companies relating to the Reducer;

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our estimates of the size of the potential markets for our products including the anticipated market opportunities for the Reducer and the Tiara;

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our potential relationships with distributors and collaborators with acceptable development, regulatory and commercialization expertise and the benefits to be derived from such collaborative efforts;

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our ability to meet our financial and organizational restructuring goals to establish a lean and accountable organization with stable capitalization;

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our ability to meet our cash expenditure covenants;

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our creation of an effective direct sales and marketing infrastructure for approved products we elect to market and sell directly;

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the rate and degree of market acceptance of our products;

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the timing and amount of reimbursement for our products;

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the composition and compensation of our management team and board of directors;

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the impact of foreign currency exchange rates; and

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the composition and compensation of our board of directors and senior management team in the future.

Forward-looking statements are based on estimates and assumptions made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors that the Company believes are appropriate in the circumstances. Many factors could cause the Company’s actual results, performance or achievements to differ materially from those expressed or implied by the forward-looking statements, including, without limitation:

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the doubt about our ability to continue as a going concern;

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risks related to the recent COVID-19 coronavirus outbreak or other health epidemics, which could significantly impact our operations, sales or ability to raise capital or enroll patients in clinical trials and complete certain Tiara development milestones on our expected schedule;

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risks relating to our need for significant additional future capital and our ability to raise additional funding;

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risks relating to the sale of a significant number of Common Shares;

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risks relating to the Company’s conclusion that it did have an effective ICFR as of December 31, 2020, but not December 31, 2019 and 2018;

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risks relating to our Common Share price being volatile;

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risks relating to the possibility that our Common Shares may be delisted from the Nasdaq or the TSX, which could affect their market price and liquidity

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risks relating to the influence of significant shareholders of the Company over our business operations and share price;

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risks relating to our significant indebtedness, and its effect on our financial condition;

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risks relating to lawsuits that we are subject to, which could divert our resources and result in the payment of significant damages and other remedies;

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risks relating to claims by third-parties alleging infringement of their intellectual property rights;

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risks relating to our ability to establish, maintain and defend intellectual property rights in our products;

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risks relating to results from clinical trials of our products, which may be unfavorable or perceived as unfavorable;

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our history of losses and significant accumulated deficit;

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risks associated with product liability claims, insurance and recalls;

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risks relating to use of our products in unapproved circumstances, which could expose us to liabilities;

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risks relating to competition in the medical device industry, including the risk that one or more competitors may develop more effective or more affordable products;

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risks relating to our ability to convince public payors and hospitals to include our products on their approved products lists;

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risks relating to new legislation, new regulatory requirements and the efforts of governmental and third-party payors to contain or reduce the costs of healthcare;

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risks relating to the extensive regulation of our products and trials by governmental authorities, as well as the cost and time delays associated therewith;

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risks relating to post-market regulation of our products;

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risks relating to health and safety concerns associated with our products and our industry;

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risks relating to our manufacturing operations, including the regulation of our manufacturing processes by governmental authorities and the availability of two critical components of the Reducer;

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risks relating to the possibility of animal disease associated with the use of our products;

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risks relating to the manufacturing capacity of third-party manufacturers for our products, including risks of supply interruptions impacting the Company’s ability to manufacture its own products;

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risks relating to our dependence on limited products for substantially all of our current revenues;

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risks relating to our exposure to adverse movements in foreign currency exchange rates;

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risks relating to the possibility that we could lose our foreign private issuer status under U.S. federal securities laws;

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risks relating to the possibility that we could be treated as a “passive foreign investment company” (“PFIC”);

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risks relating to breaches of anti-bribery laws by our employees or agents;

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risks relating to future changes in financial accounting standards and new accounting pronouncements;

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risks relating to our dependence upon key personnel to achieve our business objectives;

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risks relating to our ability to maintain strong relationships with physicians;

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risks relating to the sufficiency of our management systems and resources in periods of significant growth;

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risks relating to our ability to successfully identify and complete corporate transactions on favorable terms or achieve anticipated synergies relating to any acquisitions or alliances;

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risks relating to conflicts of interests among the Company’s officers and directors as a result of their involvement with other issuers;

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risks relating to future issuances of equity securities by us, or sales of Common Shares or conversions of convertible notes by our existing security holders, causing the price of our securities to fall;

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risks relating to the broad discretion in our use of proceeds from an offering of our securities;

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risks relating to our intention to not pay dividends in the foreseeable future; and

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risks relating to anti-takeover provisions in our constating documents which could discourage a third-party from making a takeover bid beneficial to our shareholders.

Forward-looking statements reflect our current views with respect to future events and are subject to risks and uncertainties and are necessarily based upon a number of estimates and assumptions that, while considered reasonable by us, are inherently subject to significant business, economic, competitive, political and social uncertainties and contingencies, many of which, with respect to future events, are subject to change. The material factors and assumptions used by us to develop such forward-looking statements include, but are not limited to:

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our ability to continue as a going concern;

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our regulatory and clinical strategies will to be successful;

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our current positive interactions with regulatory agencies will continue;

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our recruitment to clinical trials and studies will continue, specifically once COVID-19 is properly managed;

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the time required to enroll, analyze and report the results of our clinical studies will be consistent with projected timelines;

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our current and future clinical trials and studies will generate the supporting clinical data necessary to achieve approval of marketing authorization applications;

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our current regulatory requirements for approval of marketing authorization applications will be maintained;

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our current good relationships with our suppliers and service providers will be maintained;

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our estimates of market size and reports reviewed by us are accurate;

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our efforts to develop markets and generate revenue from the Reducer will be successful;

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our expectation that genericization of markets for the Tiara and the Reducer will develop;

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our ability to raise additional capital on terms that are favorable to us;

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our ability to retain and attract key personnel, including members of our board of directors and senior management team; and

•

our estimates and assumptions about the impact that the COVID-19 crisis will have on the Company

By their very nature, forward-looking statements or information involve known and unknown risks, uncertainties and other factors that may cause our actual results, events or developments, or industry results, to be materially different from any future results, events or developments expressed or implied by such forward-looking statements or information. In evaluating these statements, prospective purchasers should specifically consider various factors, including the risks outlined herein, under “Risk Factors” in our most recent Annual Information Form, which is available on SEDAR at www.sedar.com and as filed with the SEC at www.sec.gov. These factors should be considered carefully, and readers should not place undue reliance on the Company’s forward-looking statements. Should one or more of these risks or uncertainties or a risk that is not currently known to us materialize, or should assumptions underlying the forward-looking statements prove incorrect, actual results may vary materially from those described herein. These forward-looking statements are made as of the date of this MD&A and we do not intend, and do not assume any obligation, to update these forward-looking statements, except as required by law. Investors are cautioned that forward-looking statements are not guarantees of future performance and investors are cautioned not to put undue reliance on forward-looking statements due to their inherent uncertainty.

The Company advises that these cautionary remarks expressly qualify in their entirety all forward looking statements attributable to the Company or persons acting on its behalf.

Date: March 11, 2021

OVERVIEW

Description of the Business

Neovasc is a specialty medical device company that develops, manufactures and markets products for the rapidly growing cardiovascular marketplace. Its products include the Reducer, for the treatment of refractory angina, which is not currently commercially available in the United States (2 U.S. patients have been treated under Compassionate Use) and has been commercially available in Europe since 2015, and Tiara, for the transcatheter treatment of mitral valve disease, which is currently under clinical investigation in the United States, Canada, Israel and Europe.

Neovasc’s business operations started in March 2002, with the acquisition of Neovasc Medical Inc. (“NMI”) (formerly PM Devices Inc.). NMI manufactured a line of collagen based surgical patch products. The products are made from chemically treated pericardial tissue. In 2012, the Company sold the rights to the surgical patch products to LeMaitre Vascular, Inc. (“LeMaitre”), but retained rights to the underlying tissue technology for all other uses.

In May 2003, Neovasc acquired Angiometrx Inc. (“ANG”). ANG developed a technology called the Metricath, a catheter-based device that allowed clinicians to measure artery and stent size and confirm deployment during interventional treatment of coronary and peripheral artery disease. In 2009, Neovasc ceased all activities related to Metricath and on January 1, 2015 ANG was amalgamated into NMI.

In July 2008, Neovasc acquired two pre-commercial vascular device companies based in Israel: Neovasc Medical Ltd. (“NML”) and B-Balloon Ltd. (“BBL”). NML developed and owned intellectual property related to the Reducer. In 2009, Neovasc ceased all activities related to BBL’s technologies and is in the process of voluntarily liquidating BBL.

In late 2009, Neovasc started initial activities to develop novel technologies for the catheter-based treatment of mitral valve disease. Based on the positive results of these activities, the Company launched a program to develop the Tiara transcatheter mitral valve.

Throughout the years 2014 to 2019, the Company announced a number of developments pertaining to litigation, all as more fully discussed under the heading “Trends, Risks and Uncertainties” and “Contractual Obligations and Contingencies” herein.

In late 2016, Neovasc sold its tissue processing technology and facility for $67,909,800 to Boston Scientific Corporation (“Boston Scientific”), and concurrently, Boston Scientific invested an additional $7,090,200 in Neovasc for a 15% equity interest in the Company. Under the terms of the equity investment, Boston Scientific purchased 11,817 Common Shares of Neovasc at a price of $600 per Common Share, for gross proceeds of $7,090,200. Under the terms of the asset purchase agreement, Neovasc has been granted a license to the purchased assets and access to the sold facilities to allow it to continue its tissue and valve assembly activities for its remaining customers, and continue its own tissue-related programs, including advancing the Tiara through its clinical and regulatory pathways. $70 million of the proceeds were placed in escrow to fund the damages and interest awards in its litigation with Edwards Lifesciences CardiAQ LLC (“CardiAQ”) formerly known as CardiAQ Valve Technologies Inc.

In November 2017, Neovasc completed the 2017 underwritten public offering (the “2017 Public Offering”) and a private placement (the “2017 Private Placement” and collectively with the 2017 Public Offering, the “2017 Financings”) for aggregate gross proceeds of approximately $65 million. The Company used the net proceeds of the 2017 Financings to fully fund the approximately $42 million balance of the damages and interest awards in its litigation with CardiAQ (after subtracting the approximately $70 million that the Company had paid into escrow from the proceeds of the sale of the tissue processing technology to Boston Scientific), with remaining funds being used (i) to partially fund the ongoing Tiara clinical program; (ii) to support the completion of the TIARA-II study; and (iii) for general corporate purposes. For a description of the terms of the 2017 Financings and the securities issued pursuant to the 2017 Financings, see “Operating Results” and “Share Capital” of the Company’s Annual Information Form and the prospectus supplement, dated November 10, 2017 and the form of 2017 Notes, each as filed or furnished under the Company’s profiles on SEDAR at www.sedar.com and on the SEC’s website at www.sec.gov.

On February 28, 2019, the Company completed an underwritten public offering of 1,111,111 Common Shares, at a price of $4.50 per Common Share, for gross proceeds of approximately $5 million before deducting the underwriting commission and offering expenses payable by the Company (“February 2019 Financing”). As part of the underwriter’s compensation in the February 2019 Financing, the Company issued the underwriter warrants (the “February Broker Warrants”) to purchase in aggregate up to a 72,222 Common Shares, exercisable at a price per Common Share equal to $5.625 for a period of three years following issuance.

On March 15, 2019, the Company completed an underwritten public offering of 1,111,111 Common Shares, at a price of $4.50 per Common Share, for gross proceeds of approximately $5 million before deducting the underwriting commission and offering expenses payable by the Company (“March 2019 Financing)” and together with the February 2019 Financing and May 2019 Financing, the “2019 Financings”. As part of the underwriter’s compensation in the March 2019 Financing, the Company issued the underwriter warrants (the “March Broker Warrants”, and together with the February Broker Warrants, the “2019 Broker Warrants”) to purchase in aggregate up to a 72,222 Common Shares, exercisable at a price per Common Share equal to $5.625 for a period of three years following issuance.

On May 16, 2019, the Company completed an offering of (i) 15% original issue discount convertible notes (“2019 Notes”) with a face value of $11.5 million, for gross proceeds to the Company of $9,775,000, and (ii) 334,951 Common Shares at a price of $5.15 per Common Share, for gross proceeds to the Company of $1,725,000 (the “May 2019 Financing”).

On June 4, 2019, Dr. William O’Neill resigned from the board of Directors and Fred Colen was elected in his place, and on September 16, 2019, Jane Hsiao resigned from the board of Directors and Norman Radow was appointed in her place.

On January 6, 2020, the Company completed the registered direct January 2020 Offering of an aggregate of 1,185,000 series A units (“Series A Units”) and 1,241,490 series B units (“Series B Units”) at a price of US$4.1351 per Series A Unit and US$4.1351 per Series B Unit for aggregate gross proceeds to the Company of approximately US$10 million, before deducting placement agent’s fees and estimated expenses of the offering payable by the Company. Each Series A Unit consisted of one Common Share and one warrant (a

“January 2020 Warrant”) to purchase one Common Share. Each January 2020 Warrant entitles the holder to acquire one Common Share of the Company at a price of US$4.1351 at any time prior to the date which is four years following the date of issuance. Each Series B Unit consists of one pre-funded warrant of the Company (each, a “January 2020 Pre-Funded Warrant”) and one January 2020 Warrant. Each January 2020 Pre-Funded Warrant entitles the holder to acquire one Common Share of the Company at a price of US$0.0001 at any time until the exercise in full of each Pre-Funded Warrant.

On May 26, 2020, the Company made a final payment of $2,897,000 to holders of the 2017 Notes and $1,016,000 in 2017 Notes was converted for the issuance of 500,014 Common Shares. The Company and certain holders of the 2017 Notes have also agreed to a mutual release (the “Settlement”) in return for the issuance by the Company, in the aggregate, of 500,000 settlement warrants (the “Settlement Warrants”) to such holders.

On May 28, 2020, the Company completed the May Offering of the 2020 Notes with a principal amount of $5 million, convertible at $2.815 per Common Share for 1,776,041 Common Shares and 2,573,959 warrants (“May 2020 Warrants”) exercisable at $2.634 per May 2020 Warrant share with a 4-year term. The May Offering was completed in two tranches comprised of an initial closing of US$4 million aggregate principal amount of 2020 Notes and 2,573,959 May 2020 Warrants and an additional closing of US$1,000,000 aggregate principal amount of 2020 Notes.

On June 16, 2020, the Company completed the registered direct June 2020 Offering of an aggregate 3,883,036 June 2020 Units at a price of $2.973 per unit for aggregate gross proceeds to the Company of approximately $11,500,000 before deducting placement agent’s fee and estimated expenses of the June Offering payable by the Company.

On July 23, 2020 Strul Medical Group LLC (“SMG”) exercised 1,424,049 of the 2,573,959 May 2020 Warrants at an exercise price of US$2.634 per May 2020 Warrant for aggregate exercise proceeds to the Company of US$3,750,945.07 (the “Exercise Proceeds”). Using the Exercise Proceeds, the Company has prepaid a portion of the 2019 Notes. The total aggregate amount of the Exercise Proceeds has been applied to the prepayment of the 2019 Note whereby US$3,613,341.12 has been applied to the US$11,500,000 principal of the 2019 Note, US$72,266.82 has been paid as a prepayment penalty pursuant to the terms of the 2019 Note and US$65,337.13 has been paid in accrued interest. In connection with the prepayment of the 2019 Note, the Company also issued to SMG 481,778 common share purchase warrants (the “Repayment Warrants”) at an exercise price of US$7.50 per Repayment Warrant in accordance with the terms of the 2019 Note.

On August 12, 2020 the Company completed the registered direct August 2020 Offering of 4,532,772 August 2020 Units at a price of $2.775 per August 2020 Unit, with each August 2020 Unit comprised of one Common Share and three-quarters of one Common Share purchase warrant for aggregate gross proceeds to the Company for approximately $12,600,000 before deducting placement agent’s fee and estimated expenses of the August 2020 Offering payable by the Company.

On August 17, 2020 SMG exercised 501,000 of the remaining 1,149,910 May 2020 Warrants at an exercise price of US$2.634 per May 2020 Warrant for aggregate exercise proceeds to the Company of US$1,319,634. Using the Exercise Proceeds, the Company has prepaid a portion of the 2019 Notes. The total aggregate amount of the Exercise Proceeds has been applied to the prepayment of the 2019 Note whereby US$1,263,884.57 has been applied to the remaining US$7,886,658.88 principal of the 2019 Note, US$25,277.69 has been paid as a prepayment penalty pursuant to the terms of the 2019 Note and US$30,471.74 has been paid in accrued interest. In connection with the prepayment of the 2019 Note, the Company also issued to SMG 168,518 common share purchase warrants at an exercise price of US$7.50 per Repayment Warrant in accordance with the terms of the 2019 Note.

On December 10, 2020 the Company completed the registered direct December 2020 Offering of an aggregate 6,230,803 December 2020 Units at a price of US$0.9801 per unit for aggregate gross proceeds to the Company of approximately US$6,100,000 before deducting placement agent’s fee and estimated expenses of the December 20020 Offering payable by the Company.

On August 22, 2019, the Company received written notification (the “Notification Letter”) from the Nasdaq Stock Market LLC (the “Nasdaq”) notifying the Company that it is not in compliance with the

minimum market value requirement set forth in Nasdaq Rules for continued listing on the Nasdaq Capital Market. Nasdaq Listing Rule 5550(b)(2) requires companies to maintain a minimum market value of US$35 million and Listing Rule 5810(c)(3)(C) provides that a failure to meet the market value requirement exists if the deficiency continues for a period of 30 consecutive business days. Based on the market value of the Company for the 30 consecutive business days from July 10, 2019 to August 20, 2019, the Company no longer met the minimum market value requirement. The Notification Letter did not impact the Company’s listing on the Nasdaq Capital Market at that time. In accordance with Nasdaq Listing Rule 5810(c)(3)(C), the Company was provided 180 calendar days, or until February 17, 2020, to regain compliance with Nasdaq Listing Rule 5550(b)(2). To regain compliance, the Company’s market value must exceed US$35 million for a minimum of 10 consecutive business days. The Company did not regain compliance by February 17, 2020. On February 19, 2020, the Company received notice from the Listing Qualifications Staff (the “Staff”) of the Nasdaq indicating that the Staff had determined to delist the Company’s common shares from Nasdaq unless the Company requests a hearing before the Nasdaq Hearings Panel (the “Panel”). On February 26, 2020, the Company requested such a hearing and the date of the hearing was set by the Nasdaq for April 2, 2020. This request for a hearing stayed any further action by the Staff and the Company’s securities continued to be eligible to trade on Nasdaq at least pending the ultimate conclusion of the hearing process. On April 30, 2020, the Panel granted the Company’s request for an extension through August 17, 2020 to evidence compliance with the $35 million minimum market value of listed securities requirement for continued listing on the Nasdaq. On June 25, 2020, the Nasdaq Notice confirmed that the Company had regained compliance with Listing Rule 5550(b)(2) pursuant to Listing Rule 5810 as the Company’s market value exceeded $35 million for 10 consecutive business days between May 29, 2020 through June 11, 2020.

On December 10, 2020 and December 14, 2020, the Company received additional Notification Letters from the Nasdaq notifying that the Company is not currently in compliance with the Nasdaq’s continued listing requirements which require that an issuer’s listed securities maintain a total market value of US$35 million (the “Market Value Requirements”) and a minimum bid price of at least US$1.00 per share (the “Minimum Bid Price Requirements”). In accordance with Nasdaq Listing Rules, the Company was given until June 8, 2021 to regain compliance with the Market Value Requirements and until June 14, 2021 to regain compliance with the Minimum Bid Price Requirements.

The Company and its subsidiaries now operate as follows: Neovasc Inc. is the Canadian public Company and 100% owner of each of the subsidiary entities. NMI and Neovasc (US) Inc. (“NUS”) are the operating companies for the group. They hold the majority of the tangible assets and NMI holds the Peripatch tissue license from Boston Scientific. NMI and NUS employ the majority of the employees of the Company. Neovasc Tiara Inc. (“NTI”) in Canada holds all the intangible assets related to the Tiara and NML in Israel holds all the intangible assets related to the Reducer program. NMI charges both NTI and NML for the development services performed by its employees to develop the Tiara and the Reducer respectively. NML receives a royalty based on the Reducer revenues generated by NMI and pays royalties to the Office of the Chief Scientist (“OCS”) in Israel to repay certain research grants funded by the OCS prior to the acquisition of NML in July 2008. NUS, charges NMI for development services performed by its employees to develop the Tiara and the Reducer respectively and these are then passed on through NMI to NTI and NML respectively. Neovasc GmbH conducts sales and marketing activities on behalf of NMI as part of the license agreement between NML and NMI for NMI to manufacture, distribute and sell the Reducer on behalf of NML. Neovasc Management Inc provides executive management services to Neovasc Inc.

Subsequent Events

On February 9, 2021, the Company announced that it had received written notification from the Nasdaq notifying the Company that it has regained compliance with the minimum bid price requirement under Nasdaq Listing Rule 5550(a)(2) pursuant to Nasdaq Listing Rule 5810 for continued listing on the Nasdaq.

On February 12, 2021, the Company completed the registered direct February 2021 Offering of 36,000,000 February 2021 Units at a price of $2.00 per February 2021 Unit, with each February 2021 Unit comprised of one Common Share and one-half of one Common Share purchase warrant for aggregate gross proceeds to the Company for approximately $72,000,000 before deducting placement agent’s fee and estimated expenses of the February 2021 Offering payable by the Company.

On February 25, 2021, the Company announced that it had received written notification from the Nasdaq notifying the Company that it has regained compliance with the minimum market value requirement under Nasdaq Listing Rule 5550(b)(2) pursuant to Nasdaq Listing Rule 5810 for continued listing on the Nasdaq.

Neovasc’s Strategy

The Company’s core strategy is to i) expand revenue and global reimbursement for Reducer and evaluate the initiation of a U.S. IDE Study and ii) advance Tiara development programs for both the Tiara TF Transfemoral system and the Tiara TA transapical system. Additionally, the Company focuses on providing minimally invasive medical devices for a cardiovascular market that the Company believes is both growing and under-served by current treatment solutions.

Key elements of this strategy include:

•

Tiara — with the Company’s clinical experience of the Tiara and the clinical data from the TIARA-II multi-center study, the Company has filed for CE Mark under the Medical Device Directive (“MDD”). Enrollment in the TIARA-I study was closed on November 15, 2019 with a total of 27 patients treated who will be followed out to 5 years. The Company is targeting a European regulatory decision for Tiara TA in the first half of 2021, although there is no assurance that European regulatory filing and an approval will be granted in the time frame anticipated by management or granted at any time in the future. Development of the Tiara transfemoral trans-septal system for preclinical bench and animal studies to successful completion, followed by a first in human compassionate use case in the second half of 2021.

Neovasc’s Products

Tiara

period of time to complete, and the clinical outcomes may not be optimal. Currently there is no transcatheter mitral valve replacement device approved for use in the U.S.

As of March 8, 2021, 83 patients have been treated with Tiara in either the TIARA-I Early Feasibility Clinical Study, compassionate use cases or in our TIARA-II CE Mark Clinical Study. Neovasc believes that early results have been encouraging. The 30-day survival rate at the time of data cut-off November 12, 2020, for the 83 patients treated with the Tiara is 89% with one patient now reaching 7 years post implant. The Tiara has successfully treated both functional and degenerative Mitral Regurgitation patients, as well as patients with pre-existing prosthetic aortic valves and mitral surgical annuloplasty rings. On November 15, 2019, TIARA-I study enrollment was closed with 27 patients treated. This decision was not due to any safety concerns. The objective of the TIARA-I Early Feasibility study was to demonstrate the safety of the Neovasc TMVR system, while gathering preliminary information on device performance and clinical outcomes. With the experience to date, the Company believes it has accomplished this objective. The patients that are in follow-up will continue their follow up assessments, adverse event reporting requirements, etc., as per protocol through their 5-year visits. This decision had no impact on the TIARA-II CE Mark Study. There are currently 16 active sites across Germany, Israel, Spain, the Netherlands and the UK., however due to the COVID-19 pandemic restrictions, enrollment continues to be on temporary hold (sites were notified on April 24, 2020 of the temporary hold). The results from our clinical experience to-date continues to demonstrate the potential benefit for patients who otherwise have no treatment options.

Regulatory Status

Reducer

demonstrate that additional patient populations may benefit from treatment with Reducer and thus could further increase its market potential.

are active in Italy, Germany, Austria, Belgium, the Netherlands, the United Kingdom, Spain and Switzerland. Enrollment has been delayed due to the impact of COVID-19 in 2020.

On July 9, 2020, the Company announced it had received notification of an FDA Circulatory Systems Devices Panel Meeting scheduled for October 27, 2020.

(2 abstained) on whether the relative benefits outweighed the relative risks. The FDA will provide the Company with their decision on the PMA at a later date.

On January 15, 2021, the Company announced that it had received a not-approvable letter from FDA regarding its PMA submission for the Neovasc Reducer.

Regulatory Status

On December 20, 2018, Neovasc filed a comprehensive Q-Sub submission to the FDA with all available Reducer Clinical evidence, requesting a Sprint FDA discussion meeting. The Neovasc team, together with two top U.S. Cardiologists, met with the FDA proposing moving forward with a PMA submission using the available Neovasc clinical evidence including the prospective, multicenter, randomized, double-blind, sham controlled study assessing the safety and efficacy of the Reducer in 104 patients in the European Union and Canada (COSIRA), a multi-center, multi-country, three-arm observational post market study (REDUCER-I), and supportive safety and efficacy data from peer-reviewed journals.

On January 15, 2021, the Company announced that it had received a not-approvable letter from FDA regarding its PMA submission for the Reducer.

New Products/Components/Cycles

Tiara

A key strategic and focused activity for the Company in the Mitral Valve space is the development of the transfemoral, trans-septal version of the Tiara Mitral Valve, which the Company believes has the potential to be an important advance for the optimal treatment of severe Mitral Regurgitation, by providing a safe and broadly usable implantation technique. These development activities are taking place both in the Company’s Vancouver, BC and New Brighton, MN facilities. Outside of the development of a unique and innovative delivery system, the Company will make several minor, but meaningful changes to the current Tiara valve, in order to enhance trans-septal delivery and deployment, as well as to further increase the suitable patient population, while maintaining the core features and functionality of the current valve in order to leverage

clinical and technical performance data. We initiated the formal development of this system, based on the completed conceptual work, at the end of the first quarter of 2019.

Reducer

The Reducer is a commercial-stage product with European CE Mark approval. The Company initiated a pilot launch of the Reducer in select European markets in 2015. The Company has also initiated Reducer sales in other non-US markets with distribution agreements in several countries.

A well-known and well-established medical device contract manufacturer is manufacturing the Reducer for the Company and we are in the process of transitioning manufacture of the device to another similar contract manufacturer. The majority of the components that make up the Reducer are readily available; however, two critical components of the device are not. The balloon portion of the delivery system is technically challenging to manufacture and the Reducer device, while a basic technology, must be manufactured in Israel due to restrictions on the transfer of intellectual property and manufacturing out of Israel stemming from certain research grants received by NML prior to the acquisition in July 2008.

Peripatch Technology used in our Tiara Mitral Valve

The basic Peripatch technology licensed from Boston Scientific was established over 25 years ago, when the material was used to fashion the leaflets and other components in surgical heart valves.

Neovasc sources its bovine tissue from abattoirs in New Zealand for the manufacture of Tiara devices. There is a degree of capacity constraint related to the supply of raw tissue, but the risk of disruption is minimal, due to the relatively small amounts of tissue required for the current Tiara programs.

TRENDS, RISKS AND UNCERTAINTIES

Losses and Additional Funding Requirements

Neovasc has a limited operating history, which makes it difficult to predict how its business will develop or what its future operating results will be. The Company has a history of operating losses since its inception and will need to generate significantly greater revenues than it has to date to achieve and maintain profitability. There is no certainty of future profitability, and results of operations in future periods cannot be predicted based on results of operations in past periods. The securities of the Company should be considered a highly speculative investment.

The Company has incurred losses and comprehensive losses of $28,695,041 and $30,170,251 for the year ended December 31, 2020, respectively (2019: $35,131,015 and $33,618,494, respectively) and has a deficit of $395,227,205 as at December 31, 2020 compared to a deficit of $366,532,164 as at December 31, 2019. As at December 31, 2020 the Company had $12,935,860 in cash and cash equivalents (December 31, 2019: $5,292,833).

The Company will need to raise additional capital to fund its short and medium-term objectives for the Tiara and the Reducer prior to the successful commercialization of these products. There is no certainty that the Company will be able to raise additional capital through debt or equity or other means on terms acceptable to the Company or at all. There is also no certainty that the programs will be successfully commercialized or any required funds will be available to the Company at the time needed or on terms acceptable to the Company. These terms may make it more difficult to obtain additional debt or equity financing in the future.

As of December 31, 2020, the Company had approximately $12.9 million in cash and cash equivalents being sufficient cash on hand to sustain operations until May 2021 at the current burn rate.

Given the current nature of the Company’s capital structure, the Company can give no assurance that it will be able to obtain additional funds needed in the future, on terms agreeable to the Company, or at all. These circumstances indicate the existence of material uncertainty and cast substantial doubt about the

Company’s ability to continue as a going concern at December 31, 2020. For a description of the risks relating to the Company’s need for additional financing see the Company’s Annual Information Form, which is available on SEDAR at www.sedar.com and as filed with the SEC at www.sec.gov.

The audited consolidated financial statements do not reflect adjustments that would be necessary if the going concern assumption were not appropriate. Material adjustments may be necessary to the audited consolidated financial statements should these circumstances impair the Company’s ability to continue as a going concern.

Subsequent to the year end the Company raised $72 million in a registered direct offering that closed on February 12, 2021 with estimated net proceeds of $65 million to the Company. The proceeds from the February 2021 Financing could be sufficient to extent the operations of the Company for up to three years at the current burn rate. However, given the FDA’s recent adverse panel decision and not approvable letter for the Reducer, it is likely that the Company will initiate programs that will require additional significant expenditures and that the cash needs of the Company will likely increase and that the cash needs of the Company will increase, shortening the time the proceeds will meet the requirements of the Company.

Litigation Matters

The litigation matters are more fully described in “Contractual Obligations and Contingencies” below.

Operating Risks

The Company may need to raise additional capital prior to the successful commercialization of its products. There is no certainty that the Company’s programs will be successfully commercialized or that any required funds will be available to the Company at the time needed or on terms acceptable to the Company.

Neovasc is subject to risks and uncertainties associated with operating in the life sciences industry and as a Company engaged in significant development, regulatory, production and commercialization activity. Neovasc cannot anticipate or prevent all of the potential risks to its success, nor predict the impact of any such risk.

Operating risks include but are not limited to: the clinical success of the Tiara; market acceptance of the Company’s technologies and products; litigation risk associated with the Company’s intellectual property and the Company’s defense and protection thereof; securities litigation risk and the Company’s defense thereof: the Company’s ability to obtain and enforce timely patent protection of its technologies and products; the Company’s ability to develop, manufacture and commercialize its products cost-effectively and according to the regulatory standards of numerous governments; the competitive environment and impact of technological change and/or product obsolescence; the Company’s ability to conduct and complete successful clinical trials; the Company’s ability to garner regulatory approvals for its products in a timely fashion; the Company’s ability to attract and retain key personnel, effectively manage growth and smoothly integrate newly acquired businesses or technologies; limitations on third-party reimbursement; instances of product or third-party liability; dependence on a single supplier for some products; animal disease or other factors affecting the quality and availability of raw materials; conflicts of interest among the Company’s directors, officers, promoters and members of management; fluctuations in the values of relative foreign currencies; volatility of the Company’s share price; fluctuations in quarterly financial results; unanticipated expenses; changes in business strategy; impact of any negative publicity; general political and economic conditions; and acts of god and other unforeseeable events, natural or human-caused.

Risks Relating to Potential Global Pandemics

A global pandemic could cause temporary closure of businesses in regions that are significantly impacted by the health crises, or cause governments to take preventative measures such as the closure of points of entry,

including ports and borders. These restrictive measures along with market uncertainty could cause an economic slowdown resulting in a decrease in the demand or sales for our products. The recent outbreak of the novel coronavirus (COVID-19) has had a negative impact on capital markets and governmental actions to contain the outbreak may impact our ability to transport or market our products, enroll patients in our clinical studies or adversely affect our ability to raise capital.

FOREIGN OPERATIONS

The Company changed its functional currency on October 1, 2017 from Canadian to U.S. dollars.

The majority of the Company’s revenues are derived from product sales in Europe, primarily denominated in U.S. dollars and Euros, while the majority of the Company’s costs are denominated in Canadian and U.S. dollars. A decrease in the value of the Euro in relation to the U.S. dollar will have an adverse effect on the Company’s results of operations, with lower than expected revenue amounts and gross margins being reported in the Company’s U.S. dollar financial statements. In addition, any decrease in the value of the Euro occurring in between the time a sale is consummated and the time payment is received by Neovasc will lead to a foreign exchange loss being recognized on the foreign currency denominated trade account receivable. The fluctuation of foreign exchange may impose an adverse effect on the Company’s results of operations and cash flows in the future. The Company does not conduct any hedging activities to mitigate these foreign exchange risks. Additionally, Neovasc may be materially and adversely affected by increases in duty rates, exchange or price controls, repatriation restrictions, or other restrictions on foreign currencies. The Company’s international operations are subject to certain other risks common to international operations, including, without limitation: government regulations; import restrictions and, in certain jurisdictions, reduced protection for the Company’s intellectual property rights.

Foreign currency translation gains and losses arising from normal business operations are credited to or charged to operations in the period incurred. To date, Neovasc has not entered into any foreign exchange forward contracts.

SELECTED FINANCIAL INFORMATION

The following discussion should be read in conjunction with the audited consolidated financial statements for the years ended December 31, 2020, 2019 and 2018.

DISCUSSION OF OPERATIONS AND FINANCIAL CONDITION

Results for the years ended December 31, 2020 and 2019 follow:

Losses

The operating losses and comprehensive losses for the year ended December 31, 2020 were $35,168,428 and $30,170,251, respectively, or $1.72 basic and diluted loss per share, as compared with $30,047,080 operating losses and $33,618,494 comprehensive losses, or $5.40 basic and diluted loss per share, for the same period in 2019. The increase of $5,121,348 in operating losses can be explained by a $4,067,421 increase in general and administrative expenses (principally due to an increase of $2,528,240 in legal costs related to financing activities and an increase of $1,071,709 in share-based payments), a $550,818 increase in selling expenses and a $380,636 increase in product development and clinical trial expenses as the Company continues its PMA and CE mark applications for Reducer and Tiara respectively.

The $3,448,243 decrease in the loss and comprehensive loss incurred for the year ended December 31, 2020 compared to the same period in 2019 can be substantially explained by a $10,776,056 decrease in losses related to the accounting treatment of the 2019 Notes, 2020 Notes and the derivative liability warrants and a $1,209,123 increase in other income related to the Canadian Emergency Wage subsidy received in September and December and the Paycheck Protection Program loan forgiveness granted in November, offset by a $5,121,348 increase in operating losses, summarized above, a $2,987,731 increase in other comprehensive losses and a $902,875 increase in interest and penalty expense related to the 2019 and 2020 Notes.

Revenues

Revenues decreased by 6% to $1,957,362 for the year ended December 31, 2020, compared to revenues of $2,092,032 for the same period in 2019. A restriction on elective procedures, which included Reducer implants was implemented by the hospitals, health authorities or governments of a substantial portion of all our major markets due to COVID-19, which caused Reducer implantations to significantly slow beginning in March 2020. Beginning in June, we saw a return of implants in several of our international markets with a strong rebound in Germany, Italy and other select markets. We have seen many of our markets implement additional restrictions related to COVID-19 as the third quarter 2020 came to a close and our future revenues maybe impacted by COVID-19 again. We continue to work on our reimbursement activities in several countries to further streamline payment of the ongoing implantations. The Company recognizes that future revenues may be unstable before the Reducer becomes widely adopted. The continued success of the commercialization of the Reducer will be dependent on the amount of internal resources allocated to the product, obtaining appropriate reimbursement in various territories and continuing our market development efforts.

Cost of Goods Sold

The cost of goods sold for the year ended December 31, 2020 was $446,239 compared to $458,436 for the same period in 2019. The overall gross margin for the year ended December 31, 2020 was 77%, compared to 78% gross margin for the same period in 2019. The Company continues to focus on Germany where the Company sells the Reducer direct for higher margins.

Expenses

Total expenses for the year ended December 31, 2020 were $36,679,551 compared to $31,680,676 for the same period in 2019, representing an increase of $4,998,875 or 16%. The increase in total expenses for the year ended December 31, 2020 compared to the same period in 2019 can be substantially explained by i) a $2,528,240 increase in legal costs related to the 2020 financings ii) a $1,716,004 increase in share-based payments and iii) a $1,130,794 increase in employee related expenses due to a) an increase in headcount including our COO and b) an increase in the vacation accrual as a direct impact of COVID-19, offset by a $501,716 decrease in other product development and clinical trial expenses and a $384,109 decrease in non-cash charges for accretion on collaboration, license and settlement agreements provision.

Selling expenses for the year ended December 31, 2020 were $2,196,803, compared to $1,645,985 for 2019, representing an increase of $550,818 or 33%. The increase in selling expenses for the year ended December 31, 2020 compared to 2019 can be substantially explained by a $365,015 increase in employee expenses as two sales representatives have been added since March 2019 and a $131,956 increase in share-based payment. The Company continues to minimize its selling expenses as the cash resources of the Company are still limited.

General and administrative expenses for the year ended December 31, 2020 were $14,081,153, compared to $10,013,732 for the same period in 2019, representing an increase of $4,067,421 or 41%. The increase in general and administrative expenses for the year ended December 31, 2020 compared to 2019 can be substantially explained by a $2,528,240 increase in legal costs related to the 2020 financings and a $1,071,709 increase in share-based payments offset by a $384,109 decrease in non-cash charges for accretion on collaboration, license and settlement agreements provision.

Product development and clinical trial expenses for the year ended December 31, 2020 were $20,401,595 compared to $20,020,959 for 2019, representing an increase of $380,636 or 2%. The increase in product development and clinical trial expenses for the year ended December 31, 2020 can be substantially explained by a $512,339 increase in share-based payments and a $342,280 increase in employee related expenses due to an increase in the vacation accrual as a direct impact of COVID-19, offset by a $501,715 decrease in other product development and clinical trial expenses.

The Company’s expenses are subject to inflation and cost increases. The Company has not seen a material increase in the price of any of the components used in the manufacture of its products and services.

Other Loss

The other income for the year ended December 31, 2020 was $5,949,330 compared to an other loss of $5,055,142 for the same period in 2019, a change of $11,004,472. The decrease in other loss can be substantially explained by a $10,776,056 decrease in loss related to related to the accounting treatment of the 2019 Notes, 2020 Notes and warrants and derivative liabilities and a $1,209,123 increase in other income related to the Canadian Emergency Wage subsidy received in September and December and the Paycheck Protection Program loan forgiveness granted in November, offset by a $902,875 increase in interest and penalty expense related to the 2019 and 2020 Notes.

Tax Expense

The tax recovery for the year ended December 31, 2020 was $524,057 compared to the tax expense of $28,793 in 2019. Neovasc (US) Inc. was established in 2015 to provide clinical trial services to Neovasc Medical Inc. The cross border intercompany charges from Neovasc (US) Inc. to Neovasc Medical Inc. created a taxable profit in Neovasc (US) Inc. and U.S. federal and state taxes were incurred.

Results for the years ended December 31, 2019 and 2018 follow:

Losses

The operating losses and comprehensive losses for the year ended December 31, 2019 were $35,131,015 and $33,618,494 respectively, or $5.40 basic and diluted loss per share, as compared with losses of $107,983,475 and $108,993,067 respectively, or $76.26 basic and diluted loss per share, for the same period in 2018.

The $75,374,573 decrease in the comprehensive loss incurred for the year ended December 31, 2019 compared to the same period in 2018 can be substantially explained by a $70,784,391 decrease in the charges related to the accounting treatment of the 2017 Financing and May 2019 Financing, a $2,522,113 decrease in other comprehensive loss, and a decrease in operating loss of $2,363,610.

Revenues

Revenues increased 20% to $2,092,032 for the year ended December 31, 2019, compared to revenues of $1,749,133 for the same period in 2018. The Company sees continued physician interest and solid scientific credibility for Reducer therapy as evidenced by its validation by the European Society of Cardiology in its recent practice guidelines. We have led in Germany, together with our local partners, various therapy development sessions to stimulate patient flow from general cardiologists to Reducer implanting centers. Germany has been a driver in our gross margin and top line growth. The Company is encouraged by the progress this year but recognizes that future revenues may be unstable before the Reducer becomes widely adopted. The continued success of the commercialization of the Reducer will be dependent on the amount of internal resources allocated to the product, obtaining appropriate reimbursement in various territories and correctly managing the referral process.

Cost of Goods Sold

The cost of goods sold for the year ended December 31, 2019 was $458,436 compared to $366,258 for the same period in 2018. The overall gross margin for the year ended December 31, 2019 was 78%, compared to 79% gross margin for the same period in 2018. The Company continues to focus on Germany where the Company sells the Reducer direct for higher margins. The Company voluntarily replaced certain expired inventory of Reducers for newly sterilized product, which reduced the gross margin in the third quarter of 2019 by $59,800.

Expenses

Total expenses for the year ended December 31, 2019 were $31,680,676, compared to $33,793,565 for the same period in 2018, representing a decrease of $2,112,889 or 6%. The decrease in total expenses for the year ended December 31, 2019 compared to the same period in 2018 reflects i) a $4,436,711 decrease in non-cash charges for accretion on collaboration, license and settlement agreements provision, ii) a $735,304 decrease in employee termination expenses, iii) a $458,954 decrease in litigation expenses as litigation matters came to a

close, iv) a $1,333,717 increase in overall employee expenses, v) a $662,201 increase in other expenses to reclassify research and development supplies and vi) a $2,012,230 increase in other expenses primarily relating to other product development and clinical trial expenses as the Company continues to incur development and clinical costs related to Tiara and regulatory costs related to Tiara and Reducer.

Selling expenses for the year ended December 31, 2019 were $1,645,985, compared to $1,353,165 for the same period in 2018, representing an increase of $292,820 or 22%. The increase in selling expenses for the year ended December 31, 2019 compared to the same period in 2018 reflects an increase in costs incurred for commercialization activities related to the Reducer as we add more sales representatives in Germany and increase our commercialization efforts. The investments in Germany are carefully focused on increasing our coverage in the most active Reducer centers and targeting experienced therapy development representatives around the top implanting centers. The new German structure will be established to drive our growth into 2020.

General and administrative expenses for the year ended December 31, 2019 were $10,013,732, compared to $16,438,936 for the same period in 2018, representing a decrease of $6,425,204 or 39%. The decrease in general and administrative expenses for the year ended December 31, 2019 compared to the same period in 2018 can be substantially explained by i) a $4,436,711 decrease in non-cash charges for accretion on collaboration, license and settlement agreements provisions as the liabilities for the collaboration and licensing agreements were accrued during the third quarter in 2018, ii) a $735,304 decrease in employee termination expenses, iii) a $458,954 decrease in litigation expenses as litigation matters have come to a close and iv) a $399,172 decrease in non-cash stock-based compensation charges as fewer incentives were issued in 2019. The Company continues to minimize its general and administrative expenses when possible as the cash resources of the Company are still limited.

Product development and clinical trial expenses for the year ended December 31, 2019 were $20,020,959 compared to $16,001,464 for the same period in 2018, representing an increase of $4,019,495 or 25%. The increase in product development and clinical trial expenses for the year ended December 31, 2019 was the result of i) a $2,674,431 increase in other expenses as the Company continues to incur development and clinical costs related to Tiara and regulatory costs related to Tiara and Reducer, ii) a $931,976 increase in employee expenses iii) a $277,589 increase in non-cash stock-based compensation charges and iv) a $135,499 increase in non-cash depreciation charges.

Other Loss

The other loss for the year ended December 31, 2019 was $5,055,142 compared to loss of $75,465,692 for the same period in 2018, a decrease in other loss of $70,410,550. The decrease in the other loss can be substantially explained by a $70,784,391 decrease in charges related to the accounting treatment of the 2017 Financing and May 2019 Financing.

Tax Expense

The tax expense for the year ended December 31, 2019 was $28,793, compared to a $107,093 expense for the same period in 2018. Neovasc (US) Inc. was established in 2015 to provide clinical trial services to Neovasc Medical Inc. The cross border intercompany charges from Neovasc (US) Inc. to Neovasc Medical Inc. created a taxable profit in Neovasc (US) Inc. and U.S. federal and state taxes were charged.

Results for the three months ended December 31, 2020 and 2019 follow:

Losses

The operating losses and comprehensive losses for the three months ended December 31, 2020 were $9,185,501 and $4,869,468, respectively, or $0.18 basic and diluted loss per share, as compared with $9,573,489 operating losses and $11,154,637 comprehensive loss, or $1.45 basic and diluted loss per share, for the same period in 2019. The decrease of $387,988 in operating losses can be explained by a $1,069,867 decrease in product development and clinical trial expenses, principally due to the reclass of research and development

supplies in 2019, offset by a $453,744 increase in general and administrative expenses, principally due to legal expenses related to financing activities, and a $189,261 increase in selling expenses.

The $6,285,169 decrease in the comprehensive loss incurred for the year ended December 31, 2020 compared to the same period in 2019 can be substantially explained by i) a $6,586,522 decrease in losses related to the accounting treatment of the 2019 Notes, 2020 Notes and the derivative liability warrants, ii) an $832,228 increase in other income related to the Canadian Emergency Wage subsidy received in December and the Paycheck Protection Program loan forgiveness granted in November and iii) a $387,988 decrease in operating losses, summarized above, offset by a $1,645,558 increase in other comprehensive losses.

Revenues

Revenues decreased by 9% to $514,002 for the three months ended December 31, 2020, compared to revenues of $565,821 for the same period in 2019. A restriction on elective procedures, which included Reducer implants was implemented by the hospitals, health authorities or governments of a substantial portion of all our major markets due to COVID-19, which caused Reducer implantations to significantly slow beginning in March 2020. Beginning in June, we saw a return of implants in several of our international markets with a strong rebound in Germany, Italy and other select markets. We have seen many of our markets implement additional restrictions related to COVID-19 as the third quarter 2020 came to a close and our future revenues maybe impacted by COVID-19 again. We continue to work on our reimbursement activities in several countries to further streamline payment of the ongoing implantations. The Company recognizes that future revenues may be unstable before the Reducer becomes widely adopted. The continued success of the commercialization of the Reducer will be dependent on the amount of internal resources allocated to the product, obtaining appropriate reimbursement in various territories and continuing our market development efforts.

Cost of Goods Sold

The cost of goods sold for the three months ended December 31, 2020 was $96,504 compared to $109,449 for the same period in 2019. The overall gross margin for the three months ended December 31, 2020 and for the three months ended December 31, 2019 was 81%. The Company continues to focus on Germany where the Company sells the Reducer direct for higher margins.

Expenses

Total expenses for the three months ended December 31, 2020 were $9,602,999 compared to $10,029,861 for 2019, representing a decrease of $426,862 or 4%. The increase in total expenses for the three months ended December 31, 2020 compared to 2019 can be substantially explained by $907,851 decrease in other product development and clinical trial costs principally due the reclass of research and development supplies in 2019, a $468,722 decrease in employee related expenses and a $238,384 decrease in non-cash charges for accretion on collaboration, license and settlement agreements provision offset by an $887,873 increase in share-based payments and a $236,014 increase in other general and administrative expenses

Selling expenses for the three months ended December 31, 2020 were $692,089, compared to $502,828 for 2019, representing an increase of $189,261 or 38%. The increase in selling expenses for the three months ended December 31, 2020 compared to 2019 can be substantially explained by a $118,248 increase in employee expenses as two sales representatives have been added since March 2019 and a $57,322 increase in share-based payment. The Company continues to minimize its selling expenses as the cash resources of the Company are still limited.

General and administrative expenses for the three months ended December 31, 2020 were $3,125,162, compared to $2,671,418 for the same period in 2019, representing an increase of $453,744 or 17%. The increase in general and administrative expenses for the three months ended December 31, 2020 compared to 2019 can be substantially explained by a $561,190 increase in share-based payments and a $236,014 increase in other expenses offset by a $238,384 decrease in non-cash charges for accretion on collaboration, license and settlement agreements provision.

Product development and clinical trial expenses for the three months ended December 31, 2020 were $5,785,748 compared to $6,855,615 for 2019, representing a decrease of $1,069,867 or 16%. The decrease in

product development and clinical trial expenses for the three months ended December 31, 2020 can be substantially explained by a $907,851 decrease in other product development and clinical trial costs principally due the reclass of research and development supplies in 2019 and a $447,273 decrease in employee related expenses offset by a $269,361 increase in share-based payments.

Other Loss

The other income for the three months ended December 31, 2020 was $4,231,989 compared to other loss of $2,739,008 for the same period in 2019, a change of $6,970,997. The decrease in other loss can be substantially explained by a $6,586,522 decrease in loss related to related to the accounting treatment of the 2019 Notes, 2020 Notes and derivative liability warrants and a $832,228 increase in other income related to the Canadian Emergency Wage subsidy received in December and the Paycheck Protection Program loan forgiveness granted in November, offset by a $272,679 increase in interest and penalty expense related to the 2019 and 2020 Notes.

Tax Expense

The tax recovery for the three months ended December 31, 2020 was $530,054 compared to a $41,688 tax expense in 2019. Neovasc (US) Inc. was established in 2015 to provide clinical trial services to Neovasc Medical Inc. The cross border intercompany charges from Neovasc (US) Inc. to Neovasc Medical Inc. created a taxable profit in Neovasc (US) Inc. and U.S. federal and state taxes were incurred.

Results for the three months ended December 31, 2019 and 2018 follow (as restated):

Losses

The operating losses and comprehensive losses for the three months ended December 31, 2019 were $9,573,489 and $11,154,637, respectively, or $1.45 basic and diluted loss per share, as compared with $10,253,593 operating losses and $10,902,126 comprehensive income, or $5.07 basic and diluted earnings per share, for the same period in 2018. The reduction of $1,401,698 in operating losses can be explained by the decrease in general and administrative expenses due to the collaboration and licensing agreement in 2018.

The $22,056,763 decrease in the comprehensive income incurred for the three months ended December 31, 2019 compared to the same period in 2018 can be substantially explained by a $24,709,870 decrease in income related to the accounting treatment of the 2017 Notes and May 2019 Financing, offset by a $1,976,830 decrease in other comprehensive loss.

Revenues

Revenues increased 8% to $565,821 for the three months ended December 31, 2019, compared to revenues of $523,424 for the same period in 2018 as the Company continues its commercialization strategies. Physician interest continues to be high, as displayed at well attended Reducer Symposia during the National Cardiology Meetings of Germany and Italy respectively in Berlin and Milano in October. The validation in September of Reducer Therapy by the ESC in its most recent Practice Guidelines, is a significant milestone, particularly for referring physicians who are considering sending a patient to an implanting center. In Germany we now have four sales representatives. We continue to work on our reimbursement strategies in several European countries to further streamline the processes to get approval for and payment of the ongoing implantations. The Company recognizes that future revenues may be unstable before the Reducer becomes widely adopted. The continued success of the commercialization of the Reducer will be dependent on the amount of internal resources allocated to the product, obtaining appropriate reimbursement codes in various territories and correctly managing the referrals process.

Cost of Goods Sold

The cost of goods sold for the three months ended December 31, 2019 was $109,449 compared to $93,519 for the same period in 2018. The overall gross margin for the three months ended December 31, 2019 was 81%,

compared to 82% gross margin for the same period in 2018. The Company voluntarily replaced certain expired inventory of Reducers for newly sterilized product, which increased the cost of goods by $59,800 and reduced the overall gross margin in the third quarter of 2019.

Expenses

Total expenses for the three months ended December 31, 2019 were $10,029,861 compared to $10,683,498 for 2018, representing a decrease of $653,637 or 6%. The decrease in total expenses for the three months ended December 31, 2019 compared to 2018 can be substantially explained by a $2,336,216 decrease in non-cash charges for on collaboration, license and settlement agreements provisions booked in 2018, offset by a $662,201 increase in other expenses to reclassify R&D supplies and a $1,571,157 increase in other expenses primarily relating to other product development and clinical trial expenses as the Company continues to incur development and clinical costs related to Tiara and regulatory costs related to Tiara and Reducer.

Selling expenses for the three months ended December 31, 2019 were $502,828, compared to $614,742 for 2018, representing a decrease of $111,914 or 18%. The Company continues to minimize its selling expenses as resources of the Company are still limited.

General and administrative expenses for the three months ended December 31, 2019 were $2,671,418, compared to $5,415,634 for the same period in 2018, representing a decrease of $2,744,216. The decrease in general and administrative expenses for the three months ended December 31, 2019 compared to 2018 can be substantially explained by a $2,336,216 decrease in non-cash charges for collaboration, license and settlement agreements provision as liabilities for the collaboration and licensing agreement were accrued during the fourth quarter of 2018, and a $266,517 decrease in litigation expenses as litigation matters came to a close.

Product development and clinical trial expenses for the three months ended December 31, 2019 were $6,855,615 compared to $4,653,122 for 2018, representing an increase of $2,202,493 or 47%. The increase in product development and clinical trial expenses for the three months ended December 31, 2019 can be substantially explained by a a $662,201 increase in other expenses to reclassify research and development supplies and a $1,571,157 increase in other product development and clinical trial expenses as the Company continues to incur development and clinical costs related to Tiara and regulatory costs related to Tiara and Reducer.

Other Loss

The other loss for the three months ended December 31, 2019 was $2,739,008 compared to other income of $21,862,040 for the same period in 2018, a decrease of $24,601,048. The decrease in the other loss can be substantially explained by a $24,709,870 decrease in income related to the accounting treatment of the 2017 Financing and May 2019 Financing.

Tax Expense

The tax expense for the three months ended December 31, 2019 was $41,688 compared to a $70,961 recovery in 2018. Neovasc (US) Inc. was established in 2015 to provide clinical trial services to Neovasc Medical Inc. The cross border intercompany charges from Neovasc (US) Inc. to Neovasc Medical Inc. created a taxable profit in Neovasc (US) Inc. and U.S. federal and state taxes were incurred.

QUARTERLY INFORMATION

The following is a summary of selected unaudited financial information for the twelve fiscal quarters to December 31, 2020:

	December 31, 2020			September 30, 2020			June 30, 2020			March 31, 2020
REVENUE		$	514,002		$	626,418		$	284,047		$	532,895
COST OF GOODS SOLD			96,504			150,503			74,669			124,563
GROSS PROFIT			417,498			475,915			209,378			408,332
EXPENSES
Selling expenses			692,089			498,671			452,514			553,529
General and administrative expenses			3,125,162			4,642,979			3,825,510			2,487,502
Product development and clinical trials expenses			5,785,748			5,502,717			4,589,724			4,523,406
			9,602,999			10,644,367			8,867,748			7,564,437
OPERATING LOSS			(9,185,501)			(10,168,452)			(8,658,370)			(7,156,105)
Other (expense)/income			4,231,989			(66,225)			(1,268,020)			3,051,586
Tax (expense)/income			530,054			—			1,075			(7,072)
LOSS FOR THE PERIOD		$	(4,423,458)		$	(10,234,677)		$	(9,925,315)		$	(4,111,591)
BASIC AND DILLUTED LOSS PER SHARE		$	(0.18)		$	(0.51)		$	(0.81)		$	(0.38)

	December 31, 2019			September 30, 2019			June 30, 2019			March 31, 2019
REVENUE		$	565,821		$	500,498		$	439,920		$	585,793
COST OF GOODS SOLD			109,449			137,999			66,994			143,994
GROSS PROFIT			456,372			362,499			372,926			441,799
EXPENSES
Selling expenses			502,828			380,412			394,512			368,233
General and administrative expenses			2,671,418			2,197,922			2,463,461			2,680,931
Product development and clinical trials expenses			6,855,615			4,777,197			4,148,184			4,239,963
			10,029,861			7,355,531			7,006,157			7,289,127
OPERATING LOSS			(9,573,489)			(6,993,032)			(6,633,231)			(6,847,328)
Other income/(expense)			(2,739,008)			775,550			(1,287,267)			(1,804,417)
Tax income/(expense)			(41,688)			15,505			(38,980)			36,370
INCOME/(LOSS) FOR THE PERIOD		$	(12,354,185)		$	(6,201,977)		$	(7,959,478)		$	(8,615,375)
BASIC AND DILLUTED (LOSS)/GAIN PER SHARE		$	(1.45)		$	(0.83)		$	(1.17)		$	(2.10)

	December 31, 2019			September 30, 2019			June 30, 2019			March 31, 2019
REVENUE		$	523,424		$	480,540		$	405,247		$	339,922
COST OF GOODS SOLD			93,519			96,743			88,603			87,393
GROSS PROFIT			429,905			383,797			316,644			252,529
EXPENSES
Selling expenses			614,742			202,947			248,538			286,938
General and administrative expenses			5,415,634			6,340,747			2,213,464			2,469,091
Product development and clinical trials expenses			4,653,122			3,490,696			3,858,255			3,999,391
			10,683,498			10,034,390			6,320,257			6,755,420
OPERATING LOSS			(10,253,593)			(9,650,593)			(6,003,613)			(6,502,891)
Other income/(expense)			21,862,040			(4,932,151)			(43,071,578)			(49,324,003)
Tax income/(expense)			70,961			(54,000)			(70,400)			(53,654)
INCOME/(LOSS) FOR THE PERIOD		$	11,679,408		$	(14,636,744)		$	(49,145,591)		$	(55,880,548)
BASIC AND DILLUTED (LOSS)/GAIN PER SHARE		$	5.07		$	(7.80)		$	(36.59)		$	(385.90)

Selling expenses are expected to generally increase as the Company continues its focused commercialization of the Reducer in select countries in Europe. General and administrative expenses reached a new peak in the third quarter of 2020 due to the increase in legal costs related to the 2020 financings in that period. While we aim to increase product development and clinical trial activities quarter over quarter, with quarterly fluctuations depending on the activities conducted in that quarter to develop the Tiara and the Reducer, the Company has been resource-constrained since the litigation loss in the second quarter of 2016 as we have been forced to defer or cancel certain otherwise desirable projects we would like to have undertaken.

USE OF PROCEEDS

	PROPOSED USE OF NET PROCEEDS			ACTUAL USE OF NET PROCEEDS
	August 2020 $11.3M Equity Financing			Use of Proceeds			Remaining to be Spent
Continuing operations		$	11,226,658		$	3,529,709		$	7,696,949
NET PROCEEDS		$	11,226,658		$	3,529,709		$	7,696,949

	PROPOSED USE OF NET PROCEEDS			ACTUAL USE OF NET PROCEEDS
	December 2020 $6.2M Equity Financing			Use of Proceeds			Remaining to be Spent
Continuing operations		$	5,238,911		$	NIL		$	5,238,911
NET PROCEEDS		$	5,238,911		$	NIL		$	5,238,911

The Company used all the proceeds from the January 2020 and June 2020 Financing for continuing operations. The Company has cash on hand of $12,935,860 as at December 31, 2020.

DISCUSSION OF LIQUIDITY AND CAPITAL RESOURCES

Results for the years ended December 31, 2020 and 2019 follow:

Neovasc finances its operations and capital expenditures with cash generated from operations and through equity and debt financings. As at December 31, 2020 the Company had cash and cash equivalents of $12,935,860 compared to cash and cash equivalents of $5,292,833 as at December 31, 2019. Subsequent to

December 31, 2020 the Company raised $72 million in a registered direct offering that closed on February 12, 2021 with estimated net proceeds of $65 million to the Company.

The Company is in a positive working capital position of $8,068,519 with current assets of $15,731,087 and current liabilities of $7,662,568. The Company may require additional working capital in order to continue to operate its business and there can be no assurance that such additional working capital will be available on favorable terms, or at all. The proceeds from the February 2021 Financing could be sufficient to extend the operations of the Company for up to three years at the current burn rate. However, it is likely that the Company will initiate programs that were on hold given cash constraints and that the cash needs of the Company will increase, shortening the time the proceeds will meet the requirements of the Company.

Net cash applied to operating activities for the year ended December 31, 2020 was $29,441,856, compared to $23,972,126 for the same period in 2019. For the year ended December 31, 2020, cash operating expenses were $28,015,916, compared to $25,959,718 for the same period in 2019, an increase of $2,056,198 (principally due to the increase in legal costs related to the 2020 financings) as the Company continues to manage its cash flows while still advancing the commercialization and development of its products. Net cash applied to the net change in non-cash working capital items for the year ended December 31, 2020 was $2,017,732, compared to net cash received of $1,831,473 in the same period in 2019, a change of $3,849,205.

Net cash applied to investing activities for the year ended December 31, 2020 was $349,353 compared to $266,639 for the same period in 2019, primarily due to an increase in expenditure of property and equipment.

During the year ended December 31, 2020, the Company received proceeds of $35,397,547 from the January 2020, June 2020, August 2020 and December 2020 Offerings and received $5,000,000 from the issuance of the 2020 Notes. In addition, the Company received $4,973,035 from the exercise of May 2020 Warrants, which was used to prepay $4,877,225 of the 2019 Note and settled the remaining principal on the 2017 Note which matured during the period. For the same period in 2019, the Company received $1,200,400 from the exercise of 2017 Warrants and $19,601,526 proceeds from the 2019 financings during the year ended September 30, 2019.

The majority of the revenue and expenses of the Company are incurred in the parent and in two of its subsidiaries, NMI, which is located in Canada, and Neovasc (US) Inc. which is located in the United States. There were no significant restrictions on the transfer of funds between these entities during the periods ended December 31, 2020 and 2019 and the Company had no complications in transferring funds to and from its subsidiaries in Israel and the United States.

The Company is exposed to foreign currency fluctuations on $1,774,476 of its cash and cash equivalents and restricted cash held in Canadian dollars and Euros.

Results for the years ended December 31, 2019 and 2018 follow:

Neovasc finances its operations and capital expenditures with cash generated from operations and through equity and debt financings. As at December 31, 2019 the Company had cash and cash equivalents of $5,292,833 compared to cash and cash equivalents of $9,242,809 as at December 31, 2018. The Company will require significant additional financing in order to continue to operate its business. Given the current nature of the Company’s capital structure, there can be no assurance that such financing will be available on favorable terms, or at all.

The Company is in a negative working capital position of $6,705,728, with current assets of $8,015,830 and current liabilities of $14,721,558. The Company will require additional working capital in order to continue to operate its business and there can be no assurance that such additional working capital will be available on favorable terms, or at all.

Net cash applied to operating activities for the year ended December 31, 2019 was $23,972,126, compared to $22,794,748, for the same period in 2018. For the year ended December 31, 2019, cash operating expenses were $25,959,718, compared to $23,865,257 for the same period in 2018, an increase of $2,094,461 as the Company continues to manage its cash flows while still advancing the commercialization and development of its products. Net cash provided from the net change in non-cash working capital items for the year ended December 31, 2019 was $1,831,473, compared to $1,065,498 in the same period in 2018, a $765,975 increase.

Net cash applied to investing activities for the year ended December 31, 2019 was $266,639 compared to net cash received from investing activities of $713,752 for the same period in 2018, primarily due to the $865,610 cash inflow from the sale of a manufacturing building in 2018.

During the year ended December 31, 2019, the Company received net proceeds of $19,601,526 from the 2019 Financings and $1,200,400 from the exercise of 2017 Warrants, compared to $13,086,587 proceeds from the exercise of 2017 Warrants in 2018.

The majority of the revenue and expenses of the Company are incurred in the parent and in two of its subsidiaries, NMI, which is located in Canada, and Neovasc (US) Inc. which is located in the United States. There were no significant restrictions on the transfer of funds between these entities during the periods ended December 31, 2019 and 2018 and the Company had no complications in transferring funds to and from its subsidiaries in Israel and the United States.

The Company is exposed to foreign currency fluctuations on $1,266,206 of its cash and cash equivalents and restricted cash held in Canadian dollars and Euros.

SUBSEQUENT EVENTS

OUTSTANDING SHARE DATA

As of March 8, 2021, subsequent to the effect of the share consolidations, the Company had 66,984,063 Common Shares issued and outstanding. The following securities are convertible into Common Shares:

•

18,000,000 February 2021 Warrants with an exercise price of $2.30, 2,506,516 December 2020 Warrants with an exercise price of $0.86, 3,274,579 August 2020 Warrants with an exercise price of $2.69, 2,912,277 June 2020 Warrants with an exercise price of $2.88, 648,910 May 2020 Warrants with an exercise price of $2.634, 250,000 January 2020 Warrants with an exercise price of $4.14, In addition the Company had 650,296 Repayment Warrants with an exercise price of $7.50 (escalating during the life of the warrant as per the terms of the 2019 Notes) and 500,000 settlement warrants with an exercise price of $2.01.

•

144,444 2019 Broker Warrants with an exercise price of $5.63, 157,721 January 2020 Broker Warrants with an exercise price of $5.17, 252,397 June 2020 compensation warrants with an exercise price of $3.72, 294,630 August 2020 compensation warrants with an exercise price of $3.47, 405,002 December 2020 compensation warrants with an exercise price of $1.23 and 2,340,000 February 2021 compensation warrants with an exercise price of $2.50.

•

$6,622,774 principal amount of 2019 Notes and additional accrued interest which could convert into 952,038 Common Shares at $7.50 per share and $5,000,000 principal amount of 2020 Notes and additional accrued interest which could convert into 1,865,384 Common Shares at $2.82 per share.

•

647,013 restricted share units and 2,968,546 options

Our fully diluted share capital as of the same date is 105,753,816, including any payment in kind interest that may be due and convertible into common shares on the outstanding notes.

CONTRACTUAL OBLIGATIONS AND CONTINGENCIES

Contingencies

Litigation

Litigation resulting from third party claims has been, and may be, costly and time-consuming and could divert the attention of management and key personnel from our business operations. Although we intend to vigorously defend ourselves against any future claims that may occur, we cannot assure that we will succeed in appealing and defending any of these claims and that judgments will not be upheld against us. If we are unsuccessful in our appeal and defense of these claims or unable to settle the claims in a manner satisfactory to us, we may be faced with significant loss of intellectual property rights that could have a material adverse effect on the Company and its financial condition.

Claims by CardiAQ in Germany

On June 23, 2014, CardiAQ filed a complaint against Neovasc in Munich, Germany (the “German Court”) requesting that Neovasc assign its right to one of its European patent applications to CardiAQ. After a hearing held on December 14, 2016, the German Court rendered its decision on June 16, 2017, granting co-ownership of the European patent application to CardiAQ but denying their claim for full entitlement. On July 14, 2017, Neovasc filed a notice of appeal against the German Court’s decision with the Appeals Court of Munich (the ‘Appeals Court’). On July 20, 2017, CardiAQ filed a notice of appeal with the same court. The decision of the Appeals Court of Munich was rendered on March 21, 2019, wherein it amended the decision of the German Court and dismissed the complaint of CardiAQ in full. On March 30, 2020, the German Supreme Court granted CardiAQ leave to appeal the Appeals Court decision and at a hearing held on August 4, 2020 the German Supreme Court set aside the prior decision of the Appeals Court and remanded the matter back to the Appeals Court for a new hearing and decision. The hearing at the Appeals Court was held on February 25, 2021 and a decision from the Appeals Court will be handed down on May 6, 2021. There are no monetary awards associated with these matters and no damages award was recognized.

Claims by CardiAQ in the United States

Other Matters

allegations. On January 22, 2019, the Company announced that pursuant to a settlement reached with the Edwards Plaintiffs, the patent infringement action that the Edwards Plaintiffs had previously commenced in the Federal Court of Canada against the Neovasc Defendants, Boston Scientific and Livanova, has been dismissed on a no-costs basis. No damages award was recognized.

On August 3, 2018, the Company announced that it had entered into a collaboration and licensing agreement with Penn Medicine and the Gorman Cardiovascular Research Group at the University of Pennsylvania (collectively, “UPenn”), which resolved certain potential claims against the Company that had been previously disclosed. The collaboration and licensing agreement with UPenn contemplates certain fees being paid by Neovasc to UPenn, including fees in installments totaling $2.65 million over the four years following the agreement’s execution. In addition, Neovasc agreed to pay UPenn a royalty of 1.0-1.5% on the annual net sales of the Tiara following the first commercial sale of the Tiara. Also contained in the collaboration and licensing agreement are buy-out clauses that allow Neovasc, or an acquirer of Neovasc or the Tiara assets, to buy out these royalty obligations. As part of the collaboration and licensing agreement, certain potential claims against the Neovasc Defendants were resolved.

When the Company assesses that it is more likely that a present obligation exists at the end of the reporting period and that the possibility of an outflow of economic resources embodying economic benefits is probable, a provision is recognized and contingent liability disclosure is required. The Company has accrued $458,186 as at December 31, 2020 representing the discounted value of future payments anticipated under the settlement agreement with UPenn. The Company has not accrued for any future royalty payments in the settlement agreement with UPenn as the amounts are undeterminable at this time.

When the Company assesses that it is more likely that a present obligation exists at the end of the reporting period and that the possibility of an outflow of economic resources embodying economic benefits is probable, a provision is recognized and contingent liability disclosure is required. The Company has accrued $703,990 as at December 31, 2020 representing the discounted value of future payments anticipated under the settlement agreement with Endovalve. The Company has not accrued for any future royalty payments in the settlement agreement with Endovalve as the amounts are undeterminable at this time.

Shareholder Litigation

OFF BALANCE SHEET ARRANGEMENTS

The Company has no off-balance sheet arrangements.

RELATED PARTY TRANSACTIONS

There were no ongoing contractual commitments and transactions with related parties during the year ended December 31, 2020 and 2019, other than those as described elsewhere herein and those compensation-based payments disclosed in Note 24 Related Party Transactions of the audited consolidated financial statements for the year ended December 31, 2020, 2019 and 2018.

RISK FACTORS

A comprehensive list of the risks and uncertainties affecting us can be found in our most recent Annual Information Form, which is available on SEDAR at www.sedar.com and as filed with the SEC at www.sec.gov. Investors are urged to consult and carefully consider these risk factors as an investment in the securities of the Company should be considered a highly speculative investment.

CRITICAL ACCOUNTING ESTIMATES AND MANAGEMENT JUDGMENT

The preparation of consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting year. Actual results may differ from those estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the year in which the estimates are revised and in any future years affected.

Significant areas requiring the use of estimates relate to the determination of the net realizable value of inventory (obsolescence provisions), allowance for doubtful accounts receivable, impairment of non-financial assets, useful lives of depreciable assets and expected life, and volatility and forfeiture rates for share-based payments.

Inventories

The Company estimates the net realizable values of inventories, taking into account the most reliable evidence available at each reporting date. The future realization of these inventories may be affected by future technology or other market-driven changes that may reduce future selling prices. Reducer research and development supplies are expensed as the supplies are used.

Allowance for doubtful accounts receivable

The Company has established and applied a provision matrix to the trade accounts receivables balances in order to calculate an allowance for doubtful accounts on adoption of IFRS 9. Actual collectability of customer balances can vary from the Company’s estimation.

Impairment of long-lived assets

In assessing impairment, the Company estimates the recoverable amount of each asset or cash generating unit based on expected future cash flows and uses an interest rate to discount them. Estimation uncertainty relates to assumptions about future operating results and the determination of a suitable discount rate.

Useful lives of depreciable assets

The Company reviews its estimate of the useful lives of depreciable assets at each reporting date, based on the expected utilization of the assets.

Share-based payments

The Company measures the cost of equity-settled transactions by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including the expected life of the share option, risk free interest rate, volatility and forfeiture rates and making assumptions about them.

Determination of functional currency

The Company determines its functional currency as the United States dollar based on the primary economic environment in which it operates. IAS 21 The Effects of Changes in Foreign Exchange Rates outlines a number of factors to apply in determining the functional currency, which is subject to significant judgment by management. Management uses a number of factors to determine the primary economic environment in which the Company operates; it is normally the one in which it primarily generates and expends cash.

Deferred tax assets

Deferred tax assets are recognized in respect of tax losses and other temporary differences to the extent probable that there will be taxable income available against which the losses can be utilized. Judgment is required to determine the amount of deferred tax assets that can be recognized based on estimates of future taxable income.

Contingent Liabilities

Contingent liabilities are assessed continually to determine whether an outflow of resources embodying economic benefits has become probable. If it becomes probable that an outflow of future economic benefits will be required for an item previously dealt with as a contingent liability, a provision is recognized in the consolidated financial statements of the year in which the change in probability occurs.

Determination of discount rate to measure lease liabilities

The Company enters into leases with third-party landlords and as a consequence the rate implicit in the relevant lease is not readily determinable. Therefore, the Company uses its incremental borrowing rate as the discount rate for determining its lease liabilities at the lease commencement date. The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow over similar terms which requires estimations when no observable rates are available.

Accounting for financing and determination of fair value of derivative liabilities

The determination of the accounting treatment for the financing transactions, most notably for those completed in November 2017, May 2019 and May 2020 is an area of significant management judgment. In particular, this involved the determination of whether the warrants issued and the conversion feature associated with the convertible note should be classified as equity or as derivative liabilities. The difference between the transaction amount and the fair value of the instruments issued in connection with the financing

gives rise to a loss which has been deferred as the fair values were not determined using only observable market inputs. The manner in which the deferred loss will be recognized within income involves management judgment.

The warrants and convertible notes will be measured at fair value through profit and loss at each year end. The calculations of the fair value of these instruments involves the use of a number of estimates and a complex valuation model. The carrying amounts of these liabilities may change significantly as a result of changes to these estimates. Details of the estimates used as at December 31, 2020 are disclosed in Note 16.

FINANCIAL INSTRUMENTS

The Company’s financial instruments include its cash and cash equivalents, restricted cash, accounts receivable and accounts payable, derivative warrant liability from financing, convertible notes, and accrued liabilities.

Fair value estimation

The fair value hierarchy establishes three levels to classify fair value measurements based upon the observability of significant inputs used in the valuation techniques. The three levels of the fair value hierarchy are described below:

Level 1

Quoted prices (unadjusted) in active markets for identical assets or liabilities

Level 2

Inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices)

Level 3

Inputs for the assets or liability that are not based on observable market data (that is, unobservable inputs)

The following table sets forth the Company’s financial assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy as at December 31, 2020, 2019 and 2018. As required by IFRS 13, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

As at December 31, 2018:

	Level 1			Level 2			Level 3			Total
Financial liabilities at fair value through profit and loss
2017 Convertible Notes		$	—		$	—		$	14,617,336		$	14,617,336
Derivative warrant financial liability from financing		$	—		$	—		$	190,303		$	190,303

As at December 31, 2019:

	Level 1			Level 2			Level 3			Total
Financial liabilities at fair value through profit and loss
2017 Convertible Notes		$	—		$	—		$	5,400,189		$	5,400,189
2019 Convertible Notes		$	—		$	—		$	9,265,480		$	9,265,480

As at December 31, 2020:

	Level 1			Level 2			Level 3			Total
Financial liabilities at fair value through profit and loss
2019 Convertible Notes		$	—		$	—		$	6,195,357		$	6,195,357
2020 Convertible notes and warrants and derivative warrant liabilities		$	—		$	—		$	1,522,054		$	1,522,054

The carrying amounts of financial assets and financial liabilities in each category are as follows:

	Note	2020			2019			2018
Amortized cost
Cash and cash equivalents	6		$	12,935,860		$	5,292,833		$	9,242,809
Accounts receivable	7			987,057			715,696			647,143
Restricted cash	11			470,460			462,874			439,736
			$	14,393,377		$	6,471,403		$	10,329,688
Other financial liabilities at amortized cost
Accounts payable and accrued liabilities (current)	14		$	7,243,500		$	7,794,456		$	4,610,560
Accounts payable and accrued liabilities (non-current)	14			—			1,186,601			2,241,979
Financial liabilities at fair value through profit and loss
2017 Convertible Notes (current)	16(b)		$	—		$	5,400,189		$	1,423,224
2017 Convertible Notes (non-current)	16(b)			—			—			13,194,112
2017 Derivative warrant liability (current)	16(b)			—			—			190,303
2019 Convertible Notes (current)	16(c)			38,633			1,090,561			—
2019 Convertible Notes (non-current)	16(c)			6,156,724			8,174,919			—
2020 Convertible Notes (current)	16(d)			37,525			—			—
2020 Convertible notes and warrants and derivative warrant liabilities (non-current)	16(d)			1,484,529			—			—
			$	14,960,911		$	23,646,726		$	21,660,178

The carrying amounts of cash and cash equivalents, accounts receivable, restricted cash and accounts payable and accrued liabilities are considered a reasonable approximation of fair value due to their short-term nature.

(b)

Foreign exchange risk

A portion of the Company’s revenues are derived from product sales in Europe, denominated in Euros. Management has considered the stability of the foreign currency and the impact a change in the exchange rate may have on future earnings during the forecasting process. The Euro represents approximately 45% of revenues for the year ended December 31, 2020, (years ended December 31, 2019 and 2018: 30% and 23%, respectively). A 10% change in the foreign exchange rates for the Euro for foreign currency denominated accounts receivable will impact net income as at December 31, 2020 by approximately $8,114 (as at December 31, 2019 and 2018: $6,288 and $6,000), and a similar change in foreign currency denominated accounts payable, which are denominated in Canadian dollars and Euros will impact net income by approximately $102,662 and $108,703 respectively, as at December 31, 2020 (as at December 31, 2019 $80,654 and $176,569 and as at December 31, 2018 :$13,000 and $30,000). A similar change in foreign currency denominated cash and cash equivalents, and restricted cash, which are denominated in Canadian dollars and Euros will impact net income by approximately $80,953 and $49,459, respectively, as at December 31, 2020 (as at December 31, 2019 $5,254 and $2,780 and as at December 31, 2018: $4,837 and $5,855). The Company does not hedge its foreign exchange risk.

(c)

Interest rate risk

The Company is not exposed to material cash flow interest rate risk on fixed rate cash balances, and short-term accounts receivable, accounts payable, 2019 and 2020 Notes that have fixed interest terms.

(d)

Liquidity risk

As at December 31, 2020, the Company had $12,935,860 in cash and cash equivalents as compared to cash and cash equivalents of $5,292,833 at December 31, 2019. The Company is dependent on the profitable commercialization of its products or obtaining additional debt or equity financing to fund ongoing operations until profitability is achieved.

Subsequent to December 31, 2020, on February 12, 2021 the Company received aggregate gross proceeds of $72 million from the February 2021 Financing. The proceeds from the February 2021 Financing could be sufficient to extend the operations of the Company for up to three years at the current burn rate. However, it is likely that the Company will initiate programs that were on hold given cash constraints and that the cash needs of the Company will increase, shortening the time the proceeds will meet the requirements of the Company.

Trade payables were aged as follows as at December 31, 2020 and do not include accrued liabilities. All trades payables are current liabilities:

	Total
Current		$	1,612,254
31 – 60 days			869,498
Over 60 days			1,223,874
		$	3,705,626

The following is an analysis of the contractual maturities of the Company’s non-derivative accrued liabilities as at December 31, 2020:

	Within One Year			Between One and Two Years
Collaboration, license and settlement agreements (undiscounted)		$	1,250,000		$	—
		$	1,250,000		$	—

(e)

Credit risk

Credit risk arises from the possibility that the entities to which the Company sells products may experience financial difficulty and be unable to fulfill their contractual obligations. This risk is mitigated by proactive credit management policies that include regular monitoring of the debtor’s payment history and performance. The Company does not require collateral from its customers as security for trade accounts receivable but may require certain customers to pay in advance of any work being performed or product being shipped.

The maximum exposure, if all the Company’s customers were to default at the same time is the full carrying value of the trade accounts receivable as at December 31, 2020 is $322,201 (as at December 31, 2019 and 2018: $597,505 and $637,421, respectively). As at December 31, 2020, the Company had $146,658 (as at December 31, 2019 and 2018: $148,814 and $311,642, respectively) of trade accounts receivable that were overdue according to the customers’ credit terms. During the year ended December 31, 2020, the Company wrote down $nil of accounts receivable owed by customers (years ended December 31, 2019 and 2018: $64,600 and $489,449, respectively).

The Company may also have credit risk related to its cash and cash equivalents and restricted cash, with a maximum exposure of $13,406,320 as at December 31, 2020 (as at December 31, 2019 and 2018: $5,755,707 and $9,682,545, respectively). The Company minimizes its risk to cash and cash equivalents and restricted cash by maintaining the majority of its balances with Canadian Chartered Banks.

DISCLOSURE CONTROLS AND PROCEDURES

The Company’s management, under the supervision of the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), has designed disclosure controls and procedures (“DC&P”). DC&P are defined in Rule 13a-15(e) and Rule 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as those controls and procedures designed to ensure that information required to be disclosed in the annual filings and interim filings and other reports filed or submitted by the Company under the Exchange Act is duly recorded, processed, summarized and reported, within the time periods specified in rules and forms of the SEC.

DC&P are designed to provide reasonable assurance that material information relating to the Company is made known to the CEO and CFO during the reporting period and the information required to be disclosed

by the Company is recorded, processed, summarized and reported in a timely and appropriate manner. Due to the inherent limitations associated with any such controls and procedures, management recognizes that, no matter how well designed and operated, they may not prevent or detect misstatements on a timely basis.

The Company’s management, under the supervision of the CEO and CFO, has evaluated both the design and operating effectiveness of its DC&P and concluded that they are effective in DC&P as at December 31, 2020.

INTERNAL CONTROL OVER FINANCIAL REPORTING

The Company’s management, under the supervision of the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), has designed controls and procedures for internal control over financial reporting, based on the Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). ICFR is designed to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with international financial reporting standards. Due to the inherent limitations associated with any such controls and procedures, management recognizes that, no matter how well designed and operated, they may not prevent or detect misstatements on a timely basis.

The Company’s management, under the supervision of the CEO and CFO, has evaluated both the design and operating effectiveness of its DC&P and ICFR and concluded that both were ineffective as of December 31, 2019 and 2018 as detailed below.

A material weakness is a significant deficiency, or combination of significant deficiencies, that result in more than a remote likelihood that a material misstatement of the annual or interim financial statements will occur and not be detected by management before the financial statements are published. Controls can potentially be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Due to the remediation changes in ICFR as at December 31, 2020, management concluded that ICFR was effective as at December 31, 2020.

Material Changes in ICFR

On December 31, 2019, the Company identified certain accounting differences requiring restatement of previously issued consolidated financial statements for the years ended December 31, 2018 and 2017. The accounting differences are related to Reducer units purchased for research and development during the year ended December 31, 2017 and recognized as product development and clinical trials expenses during that period. Not all of the units were used for product development and clinical trials and during the year ended December 31, 2019, as Reducer revenue increased, the Company used certain of those units in commercial activities. In order to correctly state the cost of goods sold for the year ended December 31, 2019 and the correct period expense for the years ended December 31, 2019, 2018 and 2017 the Company has restated the years ended December 31, 2018 and 2017 to include those Reducer units as research and development supplies assets with potential future economic value at the end of each of those periods. All references relating to financial information for the years ended December 2018 and 2017 have been adjusted to be reflected in this Annual Report.

Remediation for Material Weakness in ICFR

In light of the aforementioned material weakness, management conducted a thorough review of all research and development supplies and can conclude that ICFR is effective for the year ended December 31, 2020. The Company has developed and implemented a remediation plan; the following actions were implemented to improve ICFR included:

•

Flagged all Reducer units scheduled for testing at each period end to ensure they were correctly accounted for as an asset.

•

Reviewed all Reducer units included in period expenses as product development and clinical trials expenses to ensure all the units were correctly used in testing during that period.

•

Deployed an internal control compliance program, in accordance with COSO, designed to identify potential deficiencies in DC&P and ICFR throughout the year ending December 31, 2020, to ensure that deficiencies are identified and remediated in a timely manner.

•

Further matured DC&P and ICFR practices in addition to enhancing risk assessment, control design assessment and operating effectiveness testing practices throughout the year ending December 31, 2020.

Management’s Report on ICFR

As a result of this process the operating effectiveness of ICFR has been strengthened and management believes that there are no material inaccuracies or omissions of material fact and, to the best its knowledge, believes that the audited consolidated financial statements for the year ended December 31, 2020 fairly present in all material respects and the financial condition and results of operations for the Company in conformity with IFRS.

Management has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020. In making this assessment, management used the criteria set forth by COSO in Internal Control-Integrated Framework (2013). Based on this assessment, management determined that the Company maintained effective internal control over financial reporting as of December 31, 2020.

Auditor attestation on ICFR

Non-accelerated filers are exempt from Section 404(b) of the Sarbanes-Oxley Act, which generally requires public companies to provide an independent auditor attestation of management's assessment of the effectiveness of their internal control over financial reporting. The Company qualifies as a non-accelerated filer and therefore has not included an independent auditor attestation of management's assessment of the effectiveness of its internal control over financial reporting in this Annual Report or in its audited consolidated financial statements for the years ended December 31, 2020, 2019 and 2018.

ADDITIONAL INFORMATION

Additional information about the Company, including the Company’s Financial Statements and Annual Report on Form 40-F, are available on SEDAR at www.sedar.com and on the website of the SEC at www.sec.gov.

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Exhibit 99.3

Neovasc Inc.

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED
DECEMBER 31, 2020, 2019 and 2018

(Expressed in U.S. dollars)

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CONTENTS

			Page
Report of Independent Registered Public Accounting Firm			1 – 2
Consolidated Statements of Financial Position			3
Consolidated Statements of Loss and Comprehensive Loss			4
Consolidated Statements of Changes in Equity			5
Consolidated Statements of Cash Flows			6
Notes to the Consolidated Financial Statements			7 – 57

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Report of independent registered public accounting firm

Grant Thornton LLP
Suite 1600
333 Seymour Street
Vancouver, BC
V6B 0A4

T +1 604 687 2711
F +1 604 685 6569

To the Board of Directors and Shareholders of Neovasc Inc.

Opinion on the financial statements

We have audited the accompanying consolidated statements of financial position of Neovasc Inc. (the “Company”) as of December 31, 2020, December 31, 2019 and December 31, 2018, the related consolidated statements of loss and comprehensive loss, changes in equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, December 31, 2019 and December 31, 2018 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Material uncertainty related to going concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company incurred a comprehensive loss of $30.2 million during the year ended December 31, 2020. These conditions, along with other matters as set forth in Note 1, raise substantial doubt about the Company’s ability to continue as a going concern as at December 31, 2020. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

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Critical audit matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Valuation of the derivative financial instruments

As described in Note 16 to the consolidated financial statements, as at December 31, 2020, the Company’s fair value of the 2019 Convertible Notes was $6.2 million, and fair value of the 2020 Convertible Notes and warrants and derivative warrant liabilities was $1.5 million. The fair values of these financial instruments (together, the “financial instruments”) were determined using the Cox-Ross Rubinstein binomial tree model. The fair value of the financial instruments is based on significant management assumptions, including the stock price, the conversion price, credit spread, risk-free rate, volatility, probability of change of control or special sale, probability of prepayment of the principal amount of the convertible notes, probability and expected date of a fundamental transaction (as defined in the agreement), and restrictions related to the derivative warrant liability from financing.

The principal considerations for our determination that the valuation of the financial instruments is a critical audit matter are:

(i)

the significant judgment required by management when developing the model used to value the financial instruments; and

(ii)

the high degree of auditor judgment, subjectivity, and effort in performing procedures to evaluate management’s significant assumptions (as noted above).

Our audit procedures related to the fair value of the financial instruments included utilizing a valuation specialist to:

•

test the process used by management for developing the model used to value the financial instruments;

•

evaluate the appropriateness of the model;

•

test the completeness, accuracy, and relevance of underlying data used in the model; and

•

evaluate the reasonableness of significant assumptions used by management (as noted above).

Evaluating the reasonableness of these significant assumptions involved considering:

•

the terms of the relevant agreements;

•

the historical performance of the Company;

•

the Company’s credit rating;

•

comparability of key market-related assumptions, such the risk-free rate, used in the model to external market and third-party data, and

•

consistency with evidence obtained in other areas of the audit.

We have served as the Company’s auditor since 2002.

Vancouver, Canada
March 10, 2021

Chartered Professional Accountants

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NEOVASC INC.
Consolidated Statements of Financial Position
As at December 31,
(Expressed in U.S. dollars)

	Notes	2020			2019			2018
ASSETS
Current assets
Cash and cash equivalents	6		$	12,935,860		$	5,292,833		$	9,242,809
Accounts receivable	7			987,057			715,696			647,143
Finance lease receivable	8			95,849			86,764			—
Inventory	9			839,472			618,650			318,135
Research and development supplies	9			167,378			671,845			1,274,653
Prepaid expenses and other assets	10			705,471			630,042			591,236
Total current assets				15,731,087			8,015,830			12,073,976
Non-current assets
Restricted cash	11			470,460			462,874			439,736
Right-of-use asset	12			830,551			720,473			—
Finance lease receivable	8			42,841			138,690			—
Property and equipment	13			803,280			767,973			813,628
Total non-current assets				2,147,132			2,090,010			1,253,364
Total assets			$	17,878,219		$	10,105,840		$	13,327,340
LIABILITIES AND EQUITY
Liabilities
Current liabilities
Accounts payable and accrued liabilities	14		$	7,243,500		$	7,794,456		$	4,610,560
Lease liabilities	15			342,910			436,352			—
2017 Convertible notes	16			—			5,400,189			1,423,224
2019 Convertible notes	16			38,633			1,090,561			—
2020 Convertible notes	16			37,525			—			—
Total current liabilities				7,662,568			14,721,558			6,033,784
Non-Current Liabilities
Accounts payable and accrued liabilities	14			—			1,186,601			2,241,979
Lease liabilities	15			596,881			468,527			—
2017 Convertible notes	16			—			—			13,194,112
2017 Derivative warrant liability	16			—			—			190,303
2019 Convertible notes	16			6,156,724			8,174,919			—
2020 Convertible notes and warrants and derivative warrant liabilities	16			1,484,529			—			—
Total non-current liabilities				8,238,134			9,830,047			15,626,394
Total liabilities			$	15,900,702		$	24,551,605		$	21,660,178
Equity
Share capital	18		$	369,775,383		$	328,460,681		$	304,460,533
Contributed surplus	18			35,045,056			29,766,225			26,260,806
Accumulated other comprehensive loss				(7,615,717)			(6,140,507)			(7,653,028)
Deficit				(395,227,205)			(366,532,164)			(331,401,149)
Total equity				1,977,517			(14,445,765)			(8,332,838)
Total liabilities and equity			$	17,878,219		$	10,105,840		$	13,327,340

Going Concern and Uncertainty (see Note 1(b) and 5(d))
Contingent Liabilities and Provisions (see Note 24)
Subsequent Events (see Note 26)

See Accompanying Notes to the Consolidated Financial Statements

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NEOVASC INC.
Consolidated Statements of Loss and Comprehensive Loss
For the years ended December 31,
(Expressed in U.S. dollars)

	Notes	2020			2019			2018
REVENUE	18		$	1,957,362		$	2,092,032		$	1,749,133
COST OF GOODS SOLD				446,239			458,436			366,258
GROSS PROFIT				1,511,123			1,633,596			1,382,875
EXPENSES
Selling expenses	21			2,196,803			1,645,985			1,353,165
General and administrative expenses	21			14,081,153			10,013,732			16,438,936
Product development and clinical trials expenses	21			20,401,595			20,020,959			16,001,464
TOTAL EXPENSES				36,679,551			31,680,676			33,793,565
OPERATING LOSS				(35,168,428)			(30,047,080)			(32,410,690)
OTHER (EXPENSE)/ INCOME
Interest and other income				1,394,035			184,912			183,065
Interest and prepayment penalty expense				(1,035,957)			(133,082)			—
Impairment on right-of-use asset				—			(104,544)			—
Gain on sale of asset				—			—			238,907
Loss on foreign exchange				(256,585)			(74,209)			(175,054)
Unrealized gain/(loss) on warrants, derivative liability warrants and convertible notes	16			8,528,255			(3,235,591)			(814,827)
Realized gain/(loss) on exercise or conversion of warrants, derivative liability warrants and convertible notes	16			814,083			(1,692,628)			(28,003,594)
Amortization of deferred loss	16			(3,494,501)			—			(46,894,189)
TOTAL OTHER (EXPENSE)/ INCOME				5,949,330			(5,055,142)			(75,465,692)
LOSS BEFORE TAX				(29,219,098)			(35,102,222)			(107,876,382)
Tax recovery/(expense)				524,057			(28,793)			(107,093)
LOSS FOR THE YEAR			$	(28,695,041)		$	(35,131,015)		$	(107,983,475)
OTHER COMPREHENSIVE (LOSS)/INCOME FOR THE YEAR
Fair market value changes in convertible notes due to changes in own credit risk				(1,475,210)			1,512,521			(1,009,592)
				(1,475,210)			1,512,521			(1,009,592)
LOSS AND OTHER COMPREHENSIVE LOSS FOR THE YEAR			$	(30,170,251)		$	(33,618,494)		$	(108,993,067)
LOSS PER SHARE
Basic and diluted loss per share	22		$	(1.72)		$	(5.40)		$	(76.26)

See Accompanying Notes to the Consolidated Financial Statements

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NEOVASC INC.
Consolidated Statements of Changes in Equity
(Expressed in U.S. dollars)

	Notes	Share Capital			Contributed Surplus			Accumulated Other Comprehensive Loss			Deficit			Total Equity
Balance at January 1, 2018			$	171,803,816		$	23,056,846		$	(6,643,436)		$	(223,417,674)		$	(35,200,448)
Issue of share capital on exercise of options	18(a)			88,917			(88,917)			—			—			—
Issue of share capital on exercise of 2017 Warrants	18(a)			113,985,426			—			—			—			113,985,426
Issue of share capital on conversion of 2017 Notes	18(a)			18,582,374			—			—			—			18,582,374
Share-based payments	21			—			3,292,877			—			—			3,292,877
Transactions with owners during the year				132,656,717			3,203,960			—			—			135,860,677
Loss for the year				—			—			—			(107,983,475)			(107,983,475)
Other comprehensive loss for the year				—			—			(1,009,592)			—			(1,009,592)
Balance at December 31, 2018			$	304,460,533		$	26,260,806		$	(7,653,028)		$	(331,401,149)		$	(8,332,838)
Issue of share capital on public offering	18(a)			7,802,417			—			—			—			7,802,417
(net of share issuance costs)
Issue of share capital on private placement	18(a)			1,664,662			—			—			—			1,664,662
(net of share issuance costs)
Issue of share capital on exercise of 2017 Warrants	18(a)			1,437,131			—			—			—			1,437,131
Issue of share capital on conversion of 2017 Notes	18(a)			13,095,938			—			—			—			13,095,938
Issue of broker warrants	18(a)			—			315,611			—			—			315,611
Share-based payments	21			—			3,189,808			—			—			3,189,808
Transactions with owners during the year				24,000,148			3,505,419			—			—			27,505,567
Loss for the year				—			—			—			(35,131,015)			(35,131,015)
Other comprehensive loss for the year				—			—			1,512,521			—			1,512,521
Balance at December 31, 2019			$	328,460,681		$	29,766,225		$	(6,140,507)		$	(366,532,164)		$	(14,445,765)
Issue of share capital on public offering
(net of share issuance costs)	18(a)			31,765,981			—			—			—			31,765,981
Issue of share capital on conversion of notes	18(a)			1,293,093			—			—			—			1,293,093
Issue of broker warrants and compensation warrants	18(a)			(584,167)			584,167			—			—			—
Issue of share capital on exchange of warrants	18(a)			8,687,479			—			—			—			8,687,479
Issue of share capital on exercise of options	18(a)			378			(174)			—			—			204
Issue of share capital on vesting of restricted share units	18(a)			151,938			(151,938)									—
Share-based payments	21			—			4,846,776			—			—			4,846,776
Transactions with owners during the year				41,314,702			5,278,831			—			—			46,593,533
Loss for the year				—			—			—			(28,695,041)			(28,695,041)
Other comprehensive loss for the year				—			—			(1,475,210)			—			(1,475,210)
Balance at December 31, 2020			$	369,775,383		$	35,045,056		$	(7,615,717)		$	(395,227,205)		$	1,977,517

See Accompanying Notes to the Consolidated Financial Statements

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NEOVASC INC.
Consolidated Statements of Cash Flows
For the years ended December 31,
(Expressed in U.S. dollars)

	Notes	2020			2019			2018
OPERATING ACTIVITIES
Loss for the year			$	(28,695,041)		$	(35,131,015)		$	(107,983,475)
Adjustments for:
Depreciation	21			768,101			641,621			384,126
Share-based payments	21			4,905,812			3,189,808			3,292,877
Impairment of right-of-use asset				—			75,407			—
Gain on sale of assets				—			—			(238,907)
Loss on disposal of assets				11,966			—			51,106
Accrued employee termination expenses				—			—			373,171
Accretion on collaboration, license and settlement agreement provision				157,994			298,849			4,129,758
Unrealized (gain)/loss on warrants, derivative liability warrants and convertible notes	16			(8,528,255)			3,235,591			814,827
Realized loss on exercise or conversion of warrants, derivative Liability warrants and convertible notes	16			(814,083)			1,692,628			28,003,594
Amortization of deferred loss				3,494,501			—			46,894,189
Non-cash legal costs from financing activity				1,565,224			—			—
Write-down accounts receivable				—			64,600			489,449
Income tax (recovery)/expense				(524,057)			28,793			107,093
Interest income and expenses				(358,078)			(56,000)			(183,065)
				(28,015,916)			(25,959,718)			(23,865,257)
Net change in non-cash working capital items:
Accounts receivable				(271,361)			(133,153)			198,331
Inventory				(220,822)			(359,908)			139,814
Research and development supplies				504,467			662,201			(59,393)
Prepaid expenses and other assets				(75,429)			(167,336)			282,091
Accounts payable and accrued liabilities				(704,587)			3,979,669			504,655
Payment of amounts due on collaboration, license and settlement agreements				(1,250,000)			(2,150,000)			—
				(2,017,732)			1,831,473			1,065,498
Income tax and Interest paid and received:
Income tax (paid)/recovered				524,057			(28,793)			183,065
Interest (paid)/received				67,735			184,912			(178,054)
				591,792			156,119			5,011
Net cash applied to operating activities				(29,441,856)			(23,972,126)			(22,794,748)
INVESTING ACTIVITIES
(Increase)/decrease in restricted cash				(7,586)			(23,138)			38,524
Purchase of property and equipment	13			(341,767)			(243,501)			(190,382)
Proceeds from sale of assets				—			—			865,610
Net cash (applied to)/from investing activities				(349,353)			(266,639)			713,752
FINANCING ACTIVITIES
Proceeds from public offering net of share issuance costs	18(a)			35,397,547			8,118,030			—
Proceeds from private placement	16(d)			5,000,000			11,483,496			—
Proceeds from exercise of warrants	16(e)			4,973,035			1,200,400			13,816,648
Proceeds from government assistance	25			1,328,338			—			—
Proceeds from exercise of options	18(a)			204			—			—
Repayment of 2017 convertible note	16(b)			(2,897,000)			—			—
Repayment of 2019 convertible note	18(e)			(4,877,225)			—			—
Interest payment on 2019 convertible note				(940,451)			—			—
Payment of lease obligation				(550,212)			(513,137)			—
Net cash from financing activities				37,434,236			20,288,789			13,816,648
NET CHANGE IN CASH AND CASH EQUIVALENTS				7,643,027			(3,949,976)			(8,264,348)
CASH AND CASH EQUIVALENTS
Beginning of the year				5,292,833			9,242,809			17,507,157
End of the year	6		$	12,935,860		$	5,292,833		$	9,242,809

See Accompanying Notes to the Consolidated Financial Statements

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NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

1. INCORPORATION AND GOING CONCERN

(a)

Business description

Neovasc Inc. (“Neovasc” or the “Company”) is a company incorporated and domiciled in Canada. The Company was incorporated as Medical Ventures Corp. under the Company Act (British Columbia) on November 2, 2000 and was continued under the Canada Business Corporations Act on April 19, 2002. On July 1, 2008, the Company changed its name to Neovasc Inc. Neovasc is the parent company.

The consolidated financial statements of the Company as at December 31, 2020 and for the years ended December 31, 2020, 2019 and 2018 comprise the Company and its subsidiaries, all of which are wholly owned. The Company’s principal place of business is located at Suite 5138 – 13562 Maycrest Way, Richmond, British Columbia, V6V 2J7 and the Company’s registered office is located at Suite 2600 – 595 Burrard Street, Vancouver, British Columbia, V7X 1L3, Canada. The Company’s shares are listed on the Toronto Stock Exchange (TSX: NVCN) and the Nasdaq Capital Market (NASDAQ: NVCN).

(b)

Going concern and uncertainty

As at December 31, 2020, the Company had approximately $12.9 million in cash and cash equivalents being sufficient cash on hand to sustain operations until May 2021 at the current burn rate. In addition, COVID-19 has impacted the Company’s ability to generate revenue, enroll patients in clinical studies, complete certain Tiara development milestones on our expected schedule, and raise capital (the Company can give no assurance that it will be able to obtain the additional funds needed in the future, on terms agreeable to the Company, or at all). These circumstances indicate the existence of material uncertainty and cast substantial doubt about the Company’s ability to continue as a going concern.

These consolidated financial statements do not reflect adjustments that would be necessary if the going concern assumption were not appropriate. Should the Company be unable to obtain additional capital in the future and the Company’s ability to continue as a going concern be impaired, material adjustments may be necessary to these consolidated financial statements.

Subsequent to the year end, on February 12, 2021 the Company announced the closing of a registered direct offering (the “February 2021 Financing”) for aggregate gross proceeds of $72 million (see Note 26). The proceeds from the February 2021 Financing could be sufficient to extent the operations of the Company for up to three years at the current burn rate. However, given the FDA’s recent adverse panel decision and not approvable letter for the Reducer, it is likely that the Company will initiate programs that will require additional significant expenditures and that the cash needs of the Company will likely shorten the time the proceeds will meet the requirements of the Company.

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NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

1. INCORPORATION AND GOING CONCERN (Continued)

(c)

Share consolidation (reverse stock split)

On September 18, 2018, the Company effected a share consolidation (reverse stock split) of its issued and outstanding common shares in the capital of the Company (“Common Shares”) on the basis of one post-consolidation Common Share for every one hundred pre-consolidation Common Shares. On June 25, 2019, the Company effected a share consolidation (reverse stock split) of its issued and outstanding Common Shares the basis of one post-consolidation Common Share for every ten pre-consolidation Common Shares. All references in these consolidated financial statements to Common Shares and options have been retroactively adjusted to reflect the share consolidations. The number of 2017 Warrants (as defined below) and aggregate principal amount of 2017 Notes, 2019 Notes and 2020 Notes (as defined below) were not affected by the consolidations, but the Common Shares issuable upon exercise of the 2017 Warrants or conversion of the 2017 Notes will be adjusted proportionally to each share consolidation ratio.

(d)

Nasdaq listing

On August 22, 2019, the Company received written notification (the “Market Value Notification Letter”) from the Nasdaq Listing Qualifications Department notifying the Company that it was not in compliance with the $35 million minimum market value requirement set forth in the Nasdaq Marketplace Rules. In accordance with Nasdaq Listing Rule 5810(c)(3)(C), the Company was provided 180 calendar days, or until February 17, 2020, to regain compliance. The Company did not regain compliance by February 17, 2020. On February 19, 2020, the Company received notice from the Listing Qualifications Staff (the “Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that the Staff had determined to delist the Company’s common shares from Nasdaq unless the Company requests a hearing before the Nasdaq Hearings Panel. On February 26, 2020, the Company requested such a hearing and the date of the hearing was set by the Nasdaq for April 2, 2020. On April 30, 2020, the Panel granted the Company’s request for an extension through August 17, 2020 to evidence compliance with the $35 million minimum market value of listed securities requirement for continued listing on the Nasdaq. On June 25, 2020, the Nasdaq Notice confirmed that the Company has regained compliance with Listing Rule 5550(a)(2) pursuant to Listing Rule 5810 as the Company’s market value exceeded $35 million for 10 consecutive business days between May 29, 2020 through June 11, 2020.

On December 10, 2020, the Company received written notification (the “Market Value Notification Letter”) from the Nasdaq Listing Qualifications Department notifying the Company that it was not in compliance with the $35 million minimum market value requirement set forth in the Nasdaq Marketplace Rules. In accordance with Nasdaq Listing Rule 5810(c)(3)(C), the Company was provided 180 calendar days, or until June 8, 2021, to regain compliance.

On December 14, 2020 the Company received written notification (the “Bid Price Notification Letter”) from the Nasdaq Listing Qualifications Department notifying the Company that it was not in compliance with the $1.00 minimum bid price requirement set forth in the Nasdaq Marketplace Rules. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company was provided 180 calendar days, or until June 14, 2021, to regain compliance.

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NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

1. INCORPORATION AND GOING CONCERN (Continued)

(e)

Impacts of COVID-19 pandemic

The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on the Company’s business is highly uncertain and difficult to predict, as the response to the pandemic is in its early stages and information is rapidly evolving. Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is possible that it could cause a local and/or global economic recession. Such economic disruption could have a material adverse effect on our business.

The severity of the impact of the COVID-19 pandemic on the Company’s business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company’s customers, all of which are uncertain and cannot be predicted. As at December 31, 2020, the Company has seen a marked impact on Reducer revenues due to restrictions on elective procedures which included Reducer implants. Furthermore, the Company’s recruitment to clinical trials and studies continues to be on temporary hold due to the pandemic restrictions and the Company’s ability to complete certain Tiara development milestones on our expected schedule has been impacted.

The Company’s future results of operations and liquidity could be adversely impacted by a decrease in Reducer sales, delays in payments of outstanding receivable amounts beyond normal payment terms, supply chain disruptions and uncertain demand, and the impact of any initiatives or programs that the Company may undertake to address financial and operational challenges faced by its customers. As of the date of issuance of these consolidated financial statements, the extent to which the COVID-19 pandemic may materially impact the Company’s financial condition, liquidity, or results of operations is uncertain.

2. BASIS OF PREPARATION

(a)

Statement of compliance with IFRS

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).

(b)

Basis of measurement

The Company’s consolidated financial statements have been prepared on the historical cost basis except as explained in the accounting policies set out in Note 3.

(c)

Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its wholly-owned subsidiaries, Neovasc Medical Inc., Neovasc Tiara Inc., Neovasc (US) Inc., Neovasc Medical Ltd., B-Balloon Ltd. (which is in the process of being voluntarily liquidated), Neovasc GmbH, and Neovasc Management Inc. All intercompany balances and transactions have been eliminated upon consolidation.

(d)

Presentation of financial statements

The Company has elected to present the ‘Statement of Comprehensive Income’ in a single statement.

(e)

Use of estimates and management judgment

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NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

2. BASIS OF PREPARATION (Continued)

Inventories

Allowance for doubtful accounts receivable

Impairment of long-lived assets

Useful lives of depreciable assets

The Company reviews its estimate of the useful lives of depreciable assets at each reporting date, based on the expected utilization of the assets.

Share-based payments

Determination of functional currency

Deferred tax assets

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NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

2. BASIS OF PREPARATION (Continued)

Contingent Liabilities

Determination of discount rate to measure lease liabilities

Accounting for financing and determination of fair value of derivative liabilities

3. SIGNIFICANT ACCOUNTING POLICIES

The accounting policies set out below have been applied consistently to all years presented in these consolidated financial statements.

(a)

Foreign currency translation

The presentation currency of the consolidated financial statements is the United States dollar. Where functional currency is different than presentation currency, all revenues, expenses and cash flows for each year are translated into the presentation currency using average rates for the year, or the rates in effect at the date of the transaction for significant transactions. Assets and liabilities are translated using the exchange rate at the end of the year and stockholders’ equity was translated at historical rates. The resulting translation adjustment was recorded as accumulated foreign currency translation adjustment in accumulated other comprehensive income.

Foreign currency denominated non-monetary assets and liabilities are translated at the historical rates of exchange in effect on the date the asset was acquired or liability incurred. Foreign currency denominated revenues and expenses are translated at the rate of exchange on the date on which such transactions occur. Foreign currency gains or losses arising on the settlement of foreign-currency denominated monetary assets and liabilities are recognized in profit or loss in the year in which they arise.

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NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

3. SIGNIFICANT ACCOUNTING POLICIES (Continued)

(b)

Financial Instruments

Financial assets and financial liabilities are recognized on the Company’s consolidated statement of financial position when the Company becomes party to the contractual provisions of the instrument. Financial assets are de-recognized when the contractual rights to the cash flows from the financial asset expire or when the contractual rights to those assets are transferred. Financial liabilities are de-recognized when the obligation specified in the contract is discharged, cancelled or expired.

Financial assets

The Company classifies its cash and cash equivalents, restricted cash, and accounts receivable at amortized cost. Such assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition loans and receivables are measured at amortized cost using the effective interest method.

Financial liabilities

The Company classifies its accounts payable and accrued liabilities as other financial liabilities. These financial liabilities are recognized initially at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortized cost using the effective interest method.

The Company classifies its convertible notes as a financial liability at fair value through profit and loss. The entire instrument is recognized initially at fair value with any subsequent changes in fair value recognized as an unrealized gain or loss in the statement of loss and comprehensive loss. All related transaction costs are expensed as incurred.

Derivative instruments, including derivative instruments embedded in other contracts and instruments designated for hedging activities, are recognized as either asset or liabilities in the statement of financial position and measured at fair value. The Company has not used derivative instruments to hedge exposures to cash flow or foreign currency risks. Any change in the fair value of a derivative or an embedded derivative not designated as a hedging instrument is recognized as an unrealized gain or loss in the statement of loss and comprehensive loss.

(c)

Cash and cash equivalents

Cash and cash equivalents include cash on hand and short-term, highly liquid investments that are readily convertible to known amounts of cash within 90 days of purchase.

(d)

Restricted cash

Restricted cash represents secured cash that cannot be accessed by the Company without prior authorization from parties not related to the Company. Restricted cash is disclosed separately as part of other non-current assets.

(e)

Inventory

Inventory is valued at the lower of cost and net realizable value for finished goods, work in progress and raw materials. Cost is determined on a first-in, first-out basis. Cost of finished goods and work in progress includes direct material and labor costs and an allocation of manufacturing overhead and applicable shipping and handling costs. In determining net realizable value, the Company considers factors such as obsolescence, future demand for inventory and contractual arrangements with customers.

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NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

3. SIGNIFICANT ACCOUNTING POLICIES (Continued)

(f)

Property and equipment

Items of property and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. As no finite useful life for land can be determined, related carrying amounts are not depreciated. Depreciation of property and equipment is recognized in profit or loss over the estimated useful lives using the following rates and methods:

	Building			4% declining balance
	Leasehold improvements			amortized over the life of the lease
	Production & development equipment			30% declining balance
	Computer hardware			30% declining balance
	Computer software			100% declining balance
	Office equipment			20% declining balance

Gains or losses arising on the disposal of property and equipment are determined as the difference between the disposal proceeds and the carrying amount of the assets and are recognized in profit or loss.

(g)

Impairment of assets

Financial instruments

The Company uses the expected credit loss (ECL) model for calculating impairment of financial assets and recognizes expected credit losses as loss allowances for assets measured at amortized cost. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Company expects to receive, which is determined based on historical information, external indicators, and forward-looking information through use of a provision matrix.

For trade receivables, the Company applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognized from initial recognition of the assets.

Non-financial assets

The carrying amounts of the Company’s non-financial assets, other than inventories are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs of disposal. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, if it is not possible to estimate the recoverable amount of an individual asset, the asset is included in the cash-generating unit to which it belongs and the recoverable amount of the cash-generating unit is estimated. As a result, some assets are tested individually for impairment and some are tested at the cash-generating unit level. A cash-generating unit is the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets.

An impairment loss is recognized if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss. Impairment losses recognized in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amounts of the other assets in the unit on a pro-rata basis.

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NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

3. SIGNIFICANT ACCOUNTING POLICIES (Continued)

(i)

Contingent Liabilities and Provisions

Provisions for product warranties, legal disputes, onerous contracts or other claims are recognized when the Company has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of economic resources will be required from the Company and amounts can be estimated reliably. No liability is recognized if an outflow of economic resources as a result of present obligations is not probable. Such situations are disclosed as contingent liabilities unless the outflow of resources is remote.

(j)

Employee benefits

The Company provides short-term employee benefits and post-employment benefits to current employees. The short-term employee benefits include wages, salaries, social security contributions, paid annual leave, paid sick leave and medical care. Short-term employee benefits obligations are measured on an undiscounted basis and are expensed as the related service is provided.

The Company provides post-employment benefits through defined contribution plans, including contributions to the Canadian Pension Plan and individual Registered Retirement Savings Plans of qualified employees. Contributions to defined contribution pension plans are recognized as an employee benefit expense in the years during which services are rendered by employees.

(k)

Revenue recognition

Revenues from the Reducer are recognized at a point in time as follows:

Effective January 1, 2018, upon adoption of IFRS 15 Revenue from Contracts with Customers, the Company recognizes revenue for goods provided when the performance obligations have been completed, when control of the goods transfer to the customer, when the goods have been accepted by the customer and when collectability is reasonably assured.

The consideration for goods provided is measured at the fair value of the consideration received. The standalone selling prices are determined based on the agreed upon list prices at which the Company sells its services in separate transactions. Payment terms with customers vary by country and contract. Standard payment terms are 60 days from invoice date. The transaction price is documented on the contract or purchase order and agreed to by the customer.

The adoption of this new standard has had no significant impact on the Company’s consolidated financial statements.

Revenue recognition policy subsequent to January 1, 2018

The Company earned revenue from one source: the Reducer. Revenues from this source were recognized as follows:

Revenue from the sale of goods was recognized when the Company transferred to the buyer the significant risks and rewards of ownership of the goods, the Company retained neither continuing managerial involvement nor effective control over the goods sold, the amount of revenue was measured reliably, it was probable that the economic benefits associated with the transaction will flow to the Company and the costs incurred or to be incurred in respect of the transaction was measured reliably.

Reducer

For the Reducer, this criteria was met upon time of shipment at shipping point.

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NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

3. SIGNIFICANT ACCOUNTING POLICIES (Continued)

(l)

Research and development

The Company is engaged in research and development. Research costs are expensed as incurred. Development costs are expensed in the year incurred, unless they meet the criteria for capitalization. The criteria include that development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Company intends to and has sufficient resources to complete development and to use or sell the asset. Other development expenditure is recognized in profit or loss as incurred. Management reviews the applicable criteria on a regular basis and if the criteria are no longer met, any remaining unamortized balance is written off as a charge to profit or loss. Research and development costs are reduced by any scientific research and experimental development tax credits to which the Company is entitled.

(m)

Interest income and interest expense

Interest income comprises interest income from high interest savings accounts and guaranteed investment certificates. Interest income is recognized in profit or loss, using the effective interest method.

(n)

Operating lease

Prior to January 1, 2019, leases where the Company does not assume substantially all the risks and rewards of ownership are classified as operating leases. Payments on operating leases are recognized as an expense on a straight-line basis over the lease term. Associated costs, such as maintenance and insurance, are expensed as incurred. See Note 3(t) IFRS 16 — Leases for discussion on treatment subsequent to January 1, 2019.

(o)

Income taxes

Tax expense represents current tax and deferred tax. Tax is recognized in profit or loss except to the extent it relates to items recognized in other comprehensive income or directly in equity. Current tax is based on the taxable profits for the year, and is calculated using tax rates that have been enacted or substantively enacted by the reporting date.

Deferred tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their respective carrying amounts in the consolidated financial statements. However, deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction, other than a business combination, that at the time of the transaction affects neither the accounting profit nor taxable profit. Deferred tax assets are recognized to the extent that it is probable that the future taxable profit will be available against which the deductible temporary differences and the carry forward of unused tax credits and unused tax losses can be utilized. Deferred tax assets and liabilities are offset when the Company has a right and intention to offset tax assets and liabilities from the same taxation authority.

Deferred tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the reporting date and are expected to apply when the related deferred tax asset is realized or the deferred tax liability settled.

(p)

Equity

Share capital represents the value of shares that have been issued. Any transaction costs associated with the issuing of shares are deducted from share capital.

From time to time the Company may issue units consisting of common shares and common share purchase warrants. The Company estimates the fair value of the common shares based on their market price on the date of the issuance of the units. The residual difference, if any, between the unit price and the fair value

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NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

3. SIGNIFICANT ACCOUNTING POLICIES (Continued)

of each common share represents the fair value attributable to each warrant. Any transaction costs associated with the issuance of units would be apportioned between the common shares and warrants based on their relative fair values.

Professional, consulting, regulatory fees and other costs that are directly attributable to financing transactions are deferred until such time as the transactions are completed. Share issue costs are charged to share capital when the related shares are issued. Costs relating to financing transactions that are abandoned are charged to profit and loss.

Contributed surplus includes the fair value of vested stock options and share units (see Note 3(q)).

Deficit includes all current and prior year losses.

(q)

Share-based payments

The Company has an equity-settled share-based stock option plan. The Company grants stock options to buy Common Shares of the Company to directors, officers, employees and consultants (see Note 18 (b)).

The fair value of the stock options awarded to employees, directors, officers and service providers is measured at grant date, using the Black-Scholes Option Pricing Model with assumptions for risk-free interest rates, dividend yields, volatility factors of the expected market price of the Company’s Common Shares, based on historic market price volatility, and an expected life of the options. The fair value of the options is recognized as an employee expense, with a corresponding increase in equity, over the year that the employees unconditionally become entitled to the options. The amount recognized as expense is adjusted to reflect the number of stock options expected to vest.

For stock options with non-vesting conditions, the grant date fair value of the options is recognized to reflect such conditions and there is no true-up for differences between expected and actual outcomes.

The Company uses a fair value-based method of accounting for restricted share units (“RSUs”) which are assumed to settle on an equity basis. The Company grants restricted share units to the Company’s directors, officers, employees and consultants (see Note 18(c)).

The fair value of the RSUs awarded to employees, directors, officers and service providers is measured at market date, using the Black-Scholes Option Pricing Model with assumptions for risk-free interest rates, dividend yields, volatility factors of the expected market price of the Company’s Common Shares, based on historic market price volatility, and an expected life of the restricted share units. The cost is recorded over the vesting period of the award to the same expense category of the award’s recipients compensation costs and the corresponding entry is recorded in equity.

(r)

Loss per share

Loss per share is computed using the weighted average number of Common Shares outstanding during the year. Diluted loss per share is computed using the treasury stock method and weighted average number of Common Shares outstanding during the year for the effects of all potentially dilutive shares.

(s)

Operating segment

The Company operates its business in one segment. The Company reports information about revenues from customers for the Reducer, from geographical areas, and from major customers.

(t)

Government assistance and government grants

Government grants are recognized when there is a reasonable assurance that the grant will be received and that the Company will comply with all conditions related to the grant. A grant without specified future

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NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

3. SIGNIFICANT ACCOUNTING POLICIES (Continued)

performance conditions is recognized in income when the grant proceeds are receivable. A grant that imposes specified future performance conditions is recognized in income when those conditions are met. Government grants related to current expenses are recognized as income over the period necessary to match them with the related expenses, for which they are intended to compensate, on a systematic basis. Government grants related to specific projects are recognized as income over the period necessary to match them with the related project costs, for which they are intended to compensate, on a systematic basis. Government grants in the form of forgivable loans are treated as a government grant when there is reasonable assurance that the entity will meet the terms for forgiveness of the loan. Government grants received before the income recognition criteria are satisfied are presented as a liability in the statement of financial position. Government refundable advances provided to the Company to finance research and development activities on a risk-sharing basis are considered part of the Company’s operating activities and are therefore presented as cash flows from operating activities in the statement of cash flows. (see Note 25)

(u)

Accounting standard issued and effective January 1, 2019

IFRS 16 — Leases

IFRS 16 ‘Leases’ replaces IAS 17 ‘Leases’ along with three Interpretations (IFRIC 4 ‘Determining whether an Arrangement contains a Lease’, SIC 15 ‘Operating Leases-Incentives’ and SIC 27 ‘Evaluating the Substance of Transactions Involving the Legal Form of a Lease’). The new Standard has been applied using the modified retrospective approach, with the cumulative effect of adopting IFRS 16 being recognized in equity as an adjustment to the opening balance of retained earnings for the current period. Prior periods have not been restated.

For contracts in place at the date of initial application, the Company has elected to apply the definition of a lease from IAS 17 and IFRIC 4 and has not applied IFRS 16 to arrangements that were previously not identified as lease under IAS 17 and

IFRIC 4.

The Company has elected to include initial direct costs in the measurement of the right-of-use asset for operating leases in existence at the date of initial application of IFRS 16, being January 1, 2019.

At this date, the Company has also elected to measure the right-of-use assets at an amount equal to the lease liability adjusted for any prepaid or accrued lease payments that existed at the date of transition.

The Company performed an impairment review on the right-of-use assets at the date of initial application.

On transition, for leases previously accounted for as operating leases with a remaining lease term of less than 12 months and for leases of low-value assets, the Company has applied the optional exemptions to not recognize right-of-use assets but to account for the lease expense on a straight-line basis over the remaining lease term.

On transition to IFRS 16 the weighted average incremental borrowing rate applied to lease liabilities recognized under IFRS 16 was 10%.

The Company has benefited from the use of hindsight for determining the lease term when considering options to extend and terminate leases.

The following is a reconciliation of total operating lease commitments at December 31, 2018 to the lease liabilities recognized at January 1, 2019:

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NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

3. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Total operating lease commitments disclosed at December 31, 2018	$	1,431,188
Recognition exemptions:
Leases of low value assets		—
Leases with remaining lease term of less than 12 months		—
Variable lease payments not recognized		—
Operating lease liabilities before discounting		1,431,188
Discounted using incremental borrowing rate		(142,082)
Operating lease liabilities		1,289,106
Total lease liabilities recognized under IFRS 16 at January 1, 2019	$	1,289,106

For any new contracts entered into on or after January 1, 2019, the Company considers whether a contract is, or contains a lease. A lease is defined as ‘a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration’. To apply this definition the Company assesses whether the contract meets three key evaluations which are whether:

the contract contains an identified asset, which is either explicitly identified in the contract or implicitly specified by being identified at the time the asset is made available to the Company.

the Company has the right to obtain substantially all of the economic benefits from use of the identified asset throughout the period of use, considering its rights within the defined scope of the contract.

the Company has the right to direct the use of the identified asset throughout the period of use. The Company assess whether it has the right to direct ‘how and for what purpose’ the asset is used throughout the period of use.

Measurement and recognition of leases as a lessee

At the lease commencement date, the Company recognizes a right-of-use asset and a lease liability on the statement of financial position.

The Company depreciates the right-of-use assets on a straight-line basis from the lease commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The Company also assesses the right-of-use asset for impairment when such indicators exist.

At the commencement date, the Company measures the lease liability at the present value of the lease payments unpaid at that date, discounted using the interest rate implicit in the lease if that rate is readily available. If the interest rate implicit in the lease is not readily available, the Company discounts using the Company’s incremental borrowing rate.

Lease payments included in the measurement of the lease liability are made up of fixed payments (including in-substance fixed), variable payments based on an index or rate, amounts expected to be payable under a residual value guarantee and payments arising from options reasonably certain to be exercised.

Subsequent to initial measurement, the liability will be reduced for payments made and increased for interest. It is remeasured to reflect any reassessment or modification, or if there are changes in in-substance fixed payments. When the lease liability is remeasured, the corresponding adjustment is reflected in the right-of-use asset, or profit and loss if the right-of-use asset is already reduced to zero.

The Company has elected to account for short-term leases and leases of low-value assets using the practical expedients. Instead of recognizing a right-of-use asset and lease liability, the payments in relation to these are recognized as an expense in profit or loss on a straight-line basis over the lease term.

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NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

3. SIGNIFICANT ACCOUNTING POLICIES (Continued)

On the statement of financial position, right-of-use assets have been included under non-current assets and lease liabilities have been included under current and non-current liabilities.

4. MANAGING CAPITAL

The Company’s objectives, when managing capital, are to safeguard cash as well as maintain financial liquidity and flexibility in order to preserve its ability to meet financial obligations and deploy capital to grow its business. In the definition of capital, the Company includes equity and the convertible notes. There has been no change in the definition since the prior year.

The Company’s financial strategy is designed to maintain a flexible capital structure consistent with the objectives stated above and to respond to business growth opportunities and changes in economic conditions. In order to maintain or adjust its capital structure, the Company may issue new shares, new units or new debt (secured, unsecured, convertible and/or other types of available debt instruments). For the years ended December 31, 2020, 2019 and 2018, there were no changes in the Company’s capital management policy.

The capital of the Company is comprised of:

	2020			2019			2018
2017 Convertible Notes		$	—		$	5,400,189		$	14,617,336
2017 Derivative warrant liability			—			—			190,303
2019 Convertible Notes			6,195,357			9,265,480			—
2020 Convertible notes and warrants and derivative warrant liabilities			1,522,054			—			—
Equity			1,977,517			(14,445,765)			(8,332,838)
Capital		$	9,694,928		$	(219,904)		$	6,284,498

5. FINANCIAL RISK MANAGEMENT

(a)

Fair value estimation

Level 1 |

Quoted prices (unadjusted) in active markets for identical assets or liabilities

Level 2 |

Inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices)

Level 3 |

Inputs for the assets or liability that are not based on observable market data (that is, unobservable inputs)

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NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

5. FINANCIAL RISK MANAGEMENT (Continued)

As at December 31, 2018:

	Level 1			Level 2			Level 3			Total
Financial liabilities at fair value through profit and loss
2017 Convertible Notes		$	—		$	—		$	14,617,336		$	14,617,336
Derivative warrant financial liability from financing		$	—		$	—		$	190,303		$	190,303

As at December 31, 2019:

	Level 1			Level 2			Level 3			Total
Financial liabilities at fair value through profit and loss
2017 Convertible Notes		$	—		$	—		$	5,400,189		$	5,400,189
2019 Convertible Notes		$	—		$	—		$	9,265,480		$	9,265,480

As at December 31, 2020:

	Level 1			Level 2			Level 3			Total
Financial liabilities at fair value through profit and loss
2019 Convertible Notes		$	—		$	—		$	6,195,357		$	6,195,357
2020 Convertible notes and warrants and derivative warrant liabilities		$	—		$	—		$	1,522,054		$	1,522,054

The carrying amounts of financial assets and financial liabilities in each category are as follows:

	Note	2020			2019			2018
Assets at amortized cost
Cash and cash equivalents	6		$	12,935,860		$	5,292,833		$	9,242,809
Accounts receivable	7			987,057			715,696			647,143
Restricted cash	11			470,460			462,874			439,736
			$	14,393,377		$	6,471,403		$	10,329,688
Other financial liabilities at amortized cost
Accounts payable and accrued liabilities (current)	14		$	7,243,500		$	7,794,456		$	4,610,560
Accounts payable and accrued liabilities (non-current)	14			—			1,186,601			2,241,979
Financial liabilities at fair value through profit and loss
2017 Convertible Notes (current)	16(b)		$	—		$	5,400,189		$	1,423,224
2017 Convertible Notes (non-current)	16(b)			—			—			13,194,112
2017 Derivative warrant liability (current)	16(b)			—			—			190,303
2019 Convertible Notes (current)	16(c)			38,633			1,090,561			—
2019 Convertible Notes (non-current)	16(c)			6,156,724			8,174,919			—
2020 Convertible Notes (current)	16(d)			37,525			—			—
2020 Convertible notes and warrants and derivative warrant liabilities (non-current)	16(d)			1,484,529			—			—
			$	14,960,911		$	23,646,726		$	21,660,178

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NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

5. FINANCIAL RISK MANAGEMENT (Continued)

(b)

Foreign exchange risk

A portion of the Company’s revenues are derived from product sales in Europe, denominated in Euros. Management has considered the stability of the foreign currency and the impact a change in the exchange rate may have on future earnings during the forecasting process. The Euro represents approximately 45% of revenues for the year ended December 31, 2020, (years ended December 31, 2019 and 2018 : 30% and 23%, respectively). A 10% change in the foreign exchange rates for the Euro for foreign currency denominated accounts receivable will impact net income as at December 31, 2020 by approximately $8,114 (as at December 31, 2019 and 2018: $6,288 and $6,000), and a similar change in foreign currency denominated accounts payable, which are denominated in Canadian dollars and Euros will impact net income by approximately $102,662 and $108,703 respectively, as at December 31, 2020 (as at December 31, 2019 $80,654 and $176,569 and as at December 31, 2018 :$13,000 and $30,000). A similar change in foreign currency denominated cash and cash equivalents, and restricted cash, which are denominated in Canadian dollars and Euros will impact net income by approximately $80,953 and $49,459, respectively, as at December 31, 2020 (as at December 31, 2019 $5,254 and $2,780 and as at December 31, 2018: $4,837 and $5,855). The Company does not hedge its foreign exchange risk.

(c)

Interest rate risk

(d)

Liquidity risk

The Company monitors its cash flow on a monthly basis and compares actual performance to the budget for the period. The Company expects that its cash on hand as at December 31, 2020 is sufficient to sustain operations until approximately May 2021 at the current burn rate. The Company may obtain additional debt or equity financing in future periods. Further into the future the Company is dependent on the profitable commercialization of its products or obtaining additional debt or equity financing to fund ongoing operations until profitability is achieved.

Subsequent to December 31, 2020, on February 12, 2021 the Company received aggregate gross proceeds of $72 million from the February 2021 Financing (see Note 26). The proceeds from the February 2021 Financing could be sufficient to extend the operations of the Company for up to three years at the current burn rate. However, it is likely that the Company will initiate programs that were on hold given cash constraints and that the cash needs of the Company will increase, shortening the time the proceeds will meet the requirements of the Company.

Trade payables were aged as follows as at December 31, 2020 and do not include accrued liabilities. All trades payables are current liabilities:

	Total
Current		$	1,612,254
31 – 60 days			869,498
Over 60 days			1,223,874
		$	3,705,626

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NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

5. FINANCIAL RISK MANAGEMENT (Continued)

The following is an analysis of the contractual maturities of the Company’s non-derivative accrued liabilities as at December 31, 2020:

	Within One Year
Collaboration, license and settlement agreements (undiscounted)		$	1,250,000
		$	1,250,000

(e)

Credit risk

The maximum exposure, if all the Company’s customers were to default at the same time is the full carrying value of the trade accounts receivable as at December 31, 2020 is $322,201 (as at December 31, 2019 and 2018: $597,505 and $637,421, respectively). As at December 31, 2020, the Company had $146,658 (as at December 31, 2019 and 2018: $148,815 and $311,642, respectively) of trade accounts receivable that were overdue according to the customers’ credit terms. During the year ended December 31, 2020, the Company wrote down $nil of accounts receivable owed by customers (years ended December 31, 2019 and 2018: $64,600 and $489,449, respectively).

6. CASH AND CASH EQUIVALENTS

	December 31, 2020			December 31, 2019			December 31, 2018
Cash held in:
United States dollars		$	11,631,843		$	4,489,501		$	8,173,582
Canadian dollars			809,429			525,371			483,730
Euros			494,588			277,961			585,497
		$	12,935,860		$	5,292,833		$	9,242,809

7. ACCOUNTS RECEIVABLE

	December 31, 2020			December 31, 2019			December 31, 2018
Trade accounts receivable		$	322,201		$	597,505		$	637,421
Other accounts receivable			116,905			118,191			9,722
Income tax receivable			547,951			—			—
		$	987,057		$	715,696		$	647,143

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NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

7. ACCOUNTS RECEIVABLE (Continued)

All amounts are short-term. The aging analysis of trade receivables is as follows:

	December 31, 2020			December 31, 2019			December 31, 2018
Not past due		$	195,545		$	472,257		$	361,469
Past due 0 – 30 days			—			14,139			18,614
30 – 60 days			35,114			20,000			—
60 – 90 days			11,543			—			54,428
90 – 120 days			—			—			—
Over 120 days			100,000			114,676			238,600
Loss allowance			(20,001)			(23,567)			(35,690)
		$	322,201		$	597,505		$	637,421

All the Company’s trade and other receivables have been reviewed for impairment. During the year ended December 31, 2020, the Company wrote off $nil, respectively of accounts receivable (the years ended December 31, 2019 and 2018: $64,600, and $489,449).

8. FINANCE LEASE RECEIVABLE

The Company entered into a sublease agreement which has been recognized as a finance lease. Finance lease receivables are presented in the statement of financial position as follows:

	December 31, 2020			December 31, 2019			December 31, 2018
Current		$	95,849		$	86,764		$	—
Non-current			42,841			138,690			—
		$	138,690		$	225,454		$	—

The following is a detailed maturity analysis of the undiscounted finance lease receivables as at December 31, 2020:

	Total
Less than 1 year		$	105,404
1 – 2 years			43,918
Total undiscounted finance lease receivables		$	149,322

9. INVENTORY AND RESEARCH AND DEVELOPMENT SUPPLIES

	December 31, 2020			December 31, 2019			December 31, 2018
Raw materials		$	694,043		$	500,263		$	301,693
Work in progress			—			—			2,435
Finished goods			145,429			118,387			14,007
		$	839,472		$	618,650		$	318,135
Research and development supplies		$	167,378		$	671,845		$	1,274,653

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NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

9. INVENTORY AND RESEARCH AND DEVELOPMENT SUPPLIES (Continued)

During the years ended December 31, 2020, 2019 and 2018 the Company did not write down any inventory. During the year ended December 31, 2020, $446,239 of inventory was expensed in cost of goods sold (year ended December 31, 2019 and 2018: $458,436 and $366,258).

10. PREPAID EXPENSES AND OTHER ASSETS

	December 31, 2020			December 31, 2019			December 31, 2018
Prepaid insurance			367,969			269,262			190,849
Deposits on rental agreements			128,680			119,660			276,500
Retainers for professional services			23,000			23,000			5,593
Other prepaid expenses and other assets			185,822			218,120			118,294
		$	705,471		$	630,042		$	591,236

11. RESTRICTED CASH

			December 31, 2020						December 31, 2019						December 31, 2018
Restricted cash				$	470,460					$	462,874					$	439,736

Restricted cash represents $600,000 CAD security held by a Canadian Chartered Bank as a guarantee for the Company’s same day electronic processing facility and corporate credit card facility.

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NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

12. RIGHT OF USE ASSET

	Total
COST
Balance at January 1, 2019 on adoption of IFRS 16		$	1,407,704
Impairment of right-of-use asset			(231,773)
Impairment reversal			156,366
Sublease			(274,965)
Balance as at December 31, 2019		$	1,057,333
Addition and lease modification			478,281
Balance as at December 31, 2020		$	1,535,614
ACCUMULATED DEPRECIATION
Balance at January 1, 2019 on adoption of IFRS 16			—
Depreciation for the year			336,860
Balance at December 31, 2019		$	336,860
Depreciation for the year			368,203
Balance as at December 31, 2020		$	705,063
NET BOOK VALUE
As at January 1, 2019,		$	1,407,704
As at December 31, 2019		$	720,473
As at December 31, 2020		$	830,551

TABLE OF CONTENTS

NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

12. RIGHT OF USE ASSET (Continued)

The Company’s right-of-use asset relates to the lease of buildings.

The Company entered into an agreement for office space in September 2014 in Richmond, Canada. The agreement did not contain any contingent rent clauses, or purchase options or escalation clauses. The term of the lease was 36 months commencing on October 1, 2014. The lease contained an option to renew for an additional 36 months. In February 2017, the Company renewed the lease and added additional office premises. The term of the combined lease is 60 months commencing June 1, 2017. The amended agreement does not contain any contingent rent clauses, purchase options or escalation clauses.

The Company entered into a sublease agreement for a portion of office space in September 2019. The term for the sublease agreement was 32 months commencing on October 7, 2019 (See Note 8).

The Company entered into an agreement for office space in September 2014 in Minneapolis. The agreement did not contain any contingent rent clauses, purchase options or escalation clauses. The original term of the lease was 66 months commencing on September 1, 2014. Additional office space was added in July 2015 in Minneapolis. The term of the combined lease is 69 months commencing on July 1, 2015. In August 2019, the Company renewed the lease for an additional 36 months commencing June 1, 2020.

The Company entered into an agreement for office space in December 2016 in Richmond, Canada. The agreement does not contain any contingent rent clauses, renewal or purchase options or escalation clauses. The term of the lease is 24 months commencing on December 19, 2016. In December 2018, the Company renewed the lease for another 24 months commencing on December 19, 2018. In October 2020, the Company renewed the lease for another 24 months commencing on December 19, 2020.

The Company entered into an agreement for office space in June 2018 in Richmond, Canada. The agreement does not contain any contingent rent clauses, purchase options or escalation clauses. The term of the lease is 36 months commencing on August 1, 2018. The lease contains an option to renew for an additional 24 months. In June 2020, the Company renewed the lease for an additional 36 months commencing August 1, 2021.

TABLE OF CONTENTS

NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

13. PROPERTY AND EQUIPMENT

	Land			Building			Leasehold improvements			Production & development equipment			Computer hardware			Computer software			Office equipment			Total
COST
Balance as at January 1, 2018		$	249,493		$	438,471		$	169,938		$	1,649,728		$	543,922		$	612,273		$	316,085		$	3,979,910
Additions during the year			—			—			—			149,583			—			40,799			—			190,382
Disposals during the year			(249,493)			(438,471)			—			(310,353)			—			—			—			(998,317)
Balance as at December 31, 2018		$	—		$	—		$	169,938		$	1,488,958		$	543,922		$	653,072		$	316,085		$	3,171,975
Additions during the year			—			—			—			203,169			—			40,332			—			243,501
Disposals during the year			—			—			—			—			—			—			—			—
Balance at December 31, 2019		$	—		$	—		$	169,938		$	1,692,127		$	543,922		$	693,404		$	316,085		$	3,415,476
Additions during the year			—			—			—			202,329			106,149			33,289			—			341,767
Disposals during the year			—			—			—			(88,285)			—			—			—			(88,285)
Balance as at December 31, 2020		$	—		$	—		$	169,938		$	1,806,171		$	650,071		$	726,693		$	316,085		$	3,668,958
ACCUMULATED DEPRECIATION
Balance at January 1, 2018		$	—		$	53,564		$	66,416		$	998,944		$	386,095		$	572,017		$	217,694		$	2,294,730
Depreciation for the year			—			7,698			23,439			211,908			47,348			74,055			19,678			384,126
Disposals during the year			—			(61,262)			—			(259,247)			—			—			—			(320,509)
Balance at December 31, 2018		$	—		$	—		$	89,855		$	951,605		$	433,443		$	646,072		$	237,372		$	2,358,347
Depreciation for the year			—			—			18,132			184,429			33,144			40,371			15,744			291,820
Disposals during the year			—			—			—			(2,664)			—			—			—			(2,664)
Balance at December 31, 2019		$	—		$	—		$	107,987		$	1,133,370		$	466,587		$	686,443		$	253,116		$	2,647,503
Depreciation for the year			—			—			25,636			184,973			33,815			37,477			12,593			294,494
Disposals during the year			—			—			—			(76,319)			—			—			—			(76,319)
Balance at December 31, 2020		$	—		$	—		$	133,623		$	1,242,024		$	500,402		$	723,920		$	265,709		$	2,865,678
CARRYING AMOUNTS
As at December 31, 2018		$	—		$	—		$	80,083		$	537,353		$	110,479		$	7,000		$	78,713		$	813,628
As at December 31, 2019		$	—		$	—		$	61,951		$	558,757		$	77,335		$	6,961		$	62,969		$	767,973
As at December 31, 2020		$	—		$	—		$	36,315		$	564,147		$	149,669		$	2,773		$	50,376		$	803,280

TABLE OF CONTENTS

NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

14. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

	December 31, 2020			December 31, 2019			December 31, 2018
Current accounts payable and accrued liabilities
Trade payables		$	3,705,626		$	3,993,203		$	898,711
Accrued liabilities			1,421,433			2,163,886			1,117,673
Accrued vacation			335,681			211,168			142,730
Accrued employee termination expenses			—			13,887			373,171
Other accounts payable			535,124			320,306			190,496
Share appreciation rights liability			59,036			—			—
Collaboration, license, and settlement agreements provision			1,186,600			1,092,006			1,887,779
Total current accounts payable and accrued liabilities		$	7,243,500		$	7,794,456		$	4,610,560
Non-current accrued liabilities
Non-current collaboration, license and settlement agreements provision			—			1,186,601			2,241,979
		$	—		$	1,186,601		$	2,241,979
Total accounts payable and accrued liabilities		$	7,243,500		$	8,981,057		$	6,852,539

Included in accounts payable and accrued liabilities are $470,349 related to settlement charges as part of a collaboration agreement and $716,251 related to a settlement provision (see Note 24). This represents the calculated net present value of the amounts set out per the agreement with payments due over the next year.

15. LEASE LIABILITY

	Total
Balance at January 1, 2019		$	1,289,106
Interest expense			128,911
Lease payments			(513,138)
Balance at December 31, 2019		$	904,879
Lease Liability, current		$	436,352
Lease Liability, non-current		$	468,527
Addition and lease modification			478,280
Interest expense			106,843
Lease payments			(550,211)
Balance at December 31, 2020		$	939,791
Lease Liability, current		$	342,910
Lease Liability, non-current		$	596,881
The maturity analysis of the undiscounted contractual balances of the lease liabilities is as follows:
In one year or less		$	484,782
In more than one year, but not more than five years			664,848
		$	1,149,630

TABLE OF CONTENTS

NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

16. DERIVATIVE WARRANT LIABILITY FROM FINANCING AND CONVERTIBLE NOTE

(a)

Derivative Warrant Liability from Financing

On November 17, 2017, Neovasc completed an underwritten public offering (the “2017 Public Transaction”) of 6,609,588 Series A units (the “Series A Units”) and 19,066,780 Series B units (the “Series B Units”) of the Company, at a price of $1.46 per Unit for gross proceeds of $37,487,497 before deducting the underwriting discounts and commissions and other estimated offering costs.

Each Series A Unit was comprised of:

(i)

0.001 Common Share

(ii)

one Series A Common Share purchase warrant of the Company exercisable for 0.001 Common Shares at an exercise price of $1,610 per Series A Warrant Share for a period of five years following issuance (each, a “Series A Warrant”),

(iii)

one Series B Common Share purchase warrant of the Company exercisable for 0.001 Common Shares at an exercise price of $1,610 per Series B Warrant Share for a period of two years following issuance (each, a “Series B Warrant”); and

(iv)

0.40 Series C Warrant of the Company to purchase a unit at an exercise price of $1.46 per unit for a period of two years following issuance (each, a “Series C Unit”) comprised of 0.001 Common Shares, one Series A Warrant and one Series B Warrant.

Each Series B Unit was comprised of:

(i)

either 0.001 Common Shares or one Series D Common Share purchase warrant of the Company exercisable for 0.001 Common Shares (each, a “Series D Warrant”) at an exercise price of $1,460 per Series D Warrant Share, all of which were be pre-funded except for a nominal exercise price of $0.001 per Series D Warrant Share for a period of five years following issuance,

(ii)

one Series A Warrant,

(iii)

one Series B Warrant,

(iv)

0.40 Series C Warrant, and

(v)

1.1765 Series F Common Share purchase warrant of the Company with each warrant exercisable for 0.001 Common Shares at an exercise price of $1,610 per Series F Warrant Share for a period of two years following issuance (each, a “Series F Warrant”).

15,493 Common Shares and 3,573,830 Series D Warrants were issued as part of the Series B Unit. Since initial issuance and during the period up to December 31, 2018, all of the 3,573,830 Series D Warrants were exercised for gross proceeds of $35,738 and 3,573 Common Shares were issued from treasury. All the warrants (collectively, the “2017 Warrants”) issued pursuant to the 2017 Public Transaction and the 2017 Private Placement (as defined below) included various price adjustment clauses, some of which caused the number of shares to be issued upon exercise to be variable, and therefore do not meet the fixed for fixed test under IAS 32 — Financial instruments; presentation. Accordingly, the warrants have been accounted for as derivative financial liabilities and measured at fair value through profit and loss (“FVTPL”). The fair values of the warrants were calculated using a binomial option pricing model and have been classified as level 3 in the fair value hierarchy.

The total fair value of the warrants issued in connection with the 2017 Public Transaction, together with the Series E Warrants (as defined below) issued in connection with the Private Transaction (as defined below),

TABLE OF CONTENTS

NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

16. DERIVATIVE WARRANT LIABILITY FROM FINANCING AND CONVERTIBLE NOTE
(Continued)

was $89,470,273 which exceeded the transaction price giving rise to a loss of $45,132,259. Since the fair values of the derivatives were not determined using a valuation that only used data from observable markets, the loss on initial recognition has been recognized in income over the expected term of the instruments on a straight-line basis depending on the term of the warrants.

(b)

2017 Convertible Notes

On November 17, 2017, the Company also completed a brokered private placement (the “2017 Private Placement” and together with the 2017 Public Transaction the “2017 Financings”) for the sale of $32,750,000 aggregate principal amount of senior secured convertible notes of the Company (the “2017 Notes”) and Series E warrants (the “Series E Warrants”) to purchase one Common Share per Series E Warrant for gross proceeds of $27,837,500.

The 2017 Notes were issued with an original issue price of $850 per $1,000 principal amount of note. The 2017 Notes have an 18-month term and carry an interest rate of 0.0% per annum (increasing to 15% upon an event of default) from the closing date of the Private Transaction (“Private Transaction”). On September 12, 2018, the Company and the holders of 2017 Notes amended certain terms of the 2017 Notes, including a one-year extension of the maturity date of the 2017 Notes from May 17, 2019 until May 17, 2020 and certain other amendments. Upon any event of a default, the interest rate applicable to the 2017 Notes would automatically be increased to 15% per annum. Interest on the 2017 Notes, as applicable, will commence accruing on the date of issue, will be computed on the basis of a 360-day year and twelve 30-day months and became payable in cash on January 1, 2018 and on the first day of each calendar quarter thereafter up to, and including, the maturity date.

The conversion option contained within the 2017 Notes contains similar price adjustment characteristics to certain of the warrants, which precludes the 2017 Notes from being recognized within equity. The 2017 Notes contain a future-priced conversion mechanism that allows the holder of a 2017 Notes to replace the conversion price then in effect with a price (the “Alternate Conversion Price”) that is 85% of the lowest volume weighted average price (“VWAP”) of the Common Shares during the ten consecutive trading day period ending and including the date of delivery of the applicable conversion notice. The 2017 Notes are also subject to full ratchet anti-dilution provisions in certain circumstances.

Accordingly, the Company has elected to measure the 2017 Notes at FVTPL. The Series E Warrants are also classified as derivative financial liabilities and measured at FVTPL. The fair values of the warrants were calculated using a binomial option pricing model and have been classified as level 3 in the fair value hierarchy. The fair value of the convertible debt was $26,100,900 which exceeded the transaction price giving rise to a loss of $5,113,917. Since the fair value of the convertible debt is not determined using a valuation that only uses data from observable markets, the loss on initial recognition has been deferred and will be recognized in income over the expected term of the instrument. As at December 31, 2020 the loss on initial recognition has been fully amortized.

(c)

2019 Convertible Notes

On May 16, 2019, the Company completed a private placement of (i) 15% original issue discount convertible notes (“2019 Notes”) with a face value of $11.5 million, for gross proceeds to the Company of

TABLE OF CONTENTS

NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

16. DERIVATIVE WARRANT LIABILITY FROM FINANCING AND CONVERTIBLE NOTE
(Continued)

$9,775,000, and (ii) 334,951 Common Shares of the Company at a price of $5.15 per Common Share, for gross proceeds to the Company of $1,725,000.

The 2019 Notes have the following key terms:

•

For the first year after the closing date, interest at a rate of 8% of which 5% is payable in cash on or about May 17, 2020 (when the existing 2017 Notes issued by the Company mature). The remainder is deferred and will be due on maturity of the 2019 Notes.

•

After the first year and until maturity, interest at a rate of 10% of which 7% is payable in cash at the end of May and November each year. The remainder is deferred and will be due on maturity of the 2019 Notes.

•

The 2019 Notes were issued at an original discount of $1.725 million. A separate subscription for Common Shares of the Company by the holder of the 2019 Notes was made for this amount (at market price) concurrent with the issuance of the 2019 Notes.

•

The Company has a prepayment option whereby it may voluntarily prepay the 2019 Notes prior to maturity. Prepayment penalties of 3% (if prepaid prior to the 1st anniversary of issuance), 2% (if prepaid between the 1st and 2nd anniversaries of issuance) and 1% (if prepaid after the 2nd anniversary) apply.

•

The 2019 Notes are convertible into Common Shares of the Company at the option of the holder (however, the holder may not own > 19.99% of the total outstanding Common Shares of the Company as a result of the conversion). The conversion price fluctuates from $7.50 per common share (prior to the 2nd anniversary of issuance) to $8.50 between the 2nd and 3rd anniversaries of issuance to $9.70 after the 3rd anniversary of issuance. The conversion price would also be altered subject to certain anti-dilution provisions.

Accordingly, the 2019 Notes contain two embedded derivatives: the conversion option and the prepayment option. Accordingly, the Company has elected to measure the 2019 Notes at FVTPL. The fair values of the 2019 Notes were calculated using the Cox Ross Rubinstein binomial tree model and have been classified as level 3 in the fair value hierarchy.

(d) 2020 Convertible Notes

On May 28, 2020, the Company issued senior secured convertible notes (“2020 Notes”) with a principal amount of $5 million, convertible at $2.815 per Common Share for 1,776,041 Common Shares and 2,573,959 Warrants (“2020 Warrants”) exercisable at $2.634 per 2020 Warrant with a 4-year term.

The 2020 Notes have the following key terms:

•

The 2020 Notes will bear interest at the rate of 8% computed on the basis of a 360-day year and twelve 30-day months and shall be payable in additional 2020 Notes on the date that is six-months after issuance and on each six-month period thereafter up to, and including, the maturity date.

•

The 2020 Notes will have a maturity date of 48 months after issuance with the holder’s option for early redemption at 24 months.

•

Change of control redemption option with option premia of 125% in the first year, 115% in the second year, 105% in the third year, and 100% thereafter.

•

The 2020 Notes are convertible into Common Shares of the Company at the option of the holder (however, the holder may not own greater than 9.99% of the total outstanding Common Shares of the Company as a result of the conversion).

TABLE OF CONTENTS

NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

16. DERIVATIVE WARRANT LIABILITY FROM FINANCING AND CONVERTIBLE NOTE
(Continued)

•

The conversion option caused the number of shares to be issued upon exercise to be variable, and therefore do not meet the fixed of fixed test under IAS 32 — Financial instruments — presentation.

Accordingly, the 2020 Notes contain three embedded derivatives: change in control redemption option, the early redemption option and the conversion option but will not be separated from the host debt instrument and the entire hybrid contract will be designated as at fair value through profit or loss. The fair values of the 2020 Notes were calculated using the Cox Ross Rubinstein binomial tree model and have been classified as level 3 in the fair value hierarchy. The fair value of the convertible debt was $6,449,634 which exceeded the transaction price giving rise to a loss of $3,511,670. Since the fair value of the convertible debt is not determined using a valuation that only uses data from observable markets, the loss on initial recognition has been deferred and will be recognized in income over the expected term of the instrument.

(e) Warrants and Convertible Notes Model

The 2017 Warrants were accounted for based on the level 3 fair value estimate of Series A Warrants, Series B Warrants, Series C Warrants, Series D Warrants, Series E Warrants and Series F Warrants by using a binomial option pricing model.

The 2017 Notes were accounted for based on the level 3 fair value estimate of the notes based on a binomial tree model.

Key assumptions used in the model at December 31, 2020, 2019 and 2018 are summarized below:

Valuation Date	March 31, 2020			December 31, 2019			December 31, 2018
Price of Common Shares		$	1.46		$	5.41		$	6.03
Dividend Yield			0%			0%			0%
Historical volatility of Common Shares			100.84%			129.54%			141.96%
Historical volatility of index			36.07%			11.65%			15.37%
Volatility input			75.16%			70.59%			78.67%
Risk-free rate			1.11%			1.79%			2.52%
Credit spread			29.58%			23.00%			24.51%

The 2019 Notes were accounted for based on the level 3 fair value estimate of the notes based on a binomial tree model.

Key assumptions used in the model at initial recognition and at December 31, 2020 and 2019 are summarized below:

Valuation Date	December 31, 2020			December 31, 2019			May 16, 2019
Price of Common Shares		$	0.95		$	5.41		$	49.46
Dividend Yield			0%			0%			0%
Historical volatility of Common Shares			103.42%			124.77%			142.38%
Historical volatility of index			23.11%			13.76%			15.66%
Volatility input			63.26%			69.26%			79.02%
Risk-free rate			0.19%			1.65%			2.13%
Credit spread			18.18%			27.15%			19.64%

TABLE OF CONTENTS

NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

16. DERIVATIVE WARRANT LIABILITY FROM FINANCING AND CONVERTIBLE NOTE
(Continued)

The 2020 Warrants were accounted for based on the level 3 fair value estimate of the Warrants by using a binomial option pricing model.

The 2020 Notes were accounted for based on the level 3 fair value estimate of the notes based on a binomial tree model.

Key assumptions used in the model at initial recognition and at December 31, 2020 are summarized below:

Valuation Date	December 31, 2020			May 28, 2020
Price of Common Shares		$	0.95		$	2.86
Dividend Yield			0%			0%
Historical volatility of Common Shares			116.72%			127.50%
Historical volatility of index			20.74%			18.91%
Volatility input			68.73%			73.21%
Risk-free rate			0.26%			0.32%
Credit spread			14.42%			19.35%

The carrying amounts for the 2017 derivative warrant liability from financing are as follows:

	Series A Units			Series B Units			Series E Warrants			Total
Fair value adjustment, December 31, 2018			1,190,630			(8,411,543)			(4,512,848)			(11,733,761)
Balance, Derivative financial liability December 31, 2018		$	35,693		$	82,523		$	72,087		$	190,303
Less:
Exercise of 822,192 Series C Warrants			(5,638)			—			—			(5,638)
Fair value adjustment, March 31, 2019			(5,575)			(5,253)			(6,677)			(17,505)
Cancellation of 35,950,340 Series A Warrants			(24,480)			(77,270)			—			(101,750)
Cancellation of 22,431,506 Series E Warrants			—			—			(65,410)			(65,410)
Balance, derivative warrant liability from financing as at December 31, 2019 and 2020		$	—		$	—		$	—		$	—

TABLE OF CONTENTS

NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

16. DERIVATIVE WARRANT LIABILITY FROM FINANCING AND CONVERTIBLE NOTE
(Continued)

The carrying amounts for the 2020 derivative warrant liability from financing are as follows:

	2020 January Warrants
Inception of the January 2020 Warrants (see Note 18(e))			6,145,620
Add: Deferred loss			(223,791)
Less: January 31 exercise 1,241,490 pre-funded warrants			(3,885,746)
Fair value adjustment, January 31 realized gain			(422,102)
Derecognition of deferred loss			93,813
Amortization of deferred loss			30,240
Less: Fair value adjustment, March 31, 2020 unrealized gain			(1,715,390)
Balance, March 31, 2020		$	22,644
Less: May 28 exercise 1,185,000 Series A; 991,940 Series B			(969,133)
FV revaluation at May 28 realized loss			957,847
Derecognition of deferred loss			76,473
Amortization of deferred loss			22,488
Less: Fair value adjustment, June 30, 2020 unrealized gain			(45,897)
Balance, June 30, 2020		$	64,422
Amortization of deferred loss			5,168
Less: Fair value adjustment, September 31, 2020 unrealized gain			(21,734)
Balance, September 30, 2020		$	47,856
Amortization of deferred loss			5,168
Less: Fair value adjustment, December 31, 2020 unrealized gain			(41,677)
Balance, December 31, 2020		$	11,347
Number of warrants outstanding as of December 31, 2020			250,000

TABLE OF CONTENTS

NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

16. DERIVATIVE WARRANT LIABILITY FROM FINANCING AND CONVERTIBLE NOTE
(Continued)

	2020 May Warrants
Inception of the May 2020 Warrants (see Note 18(e))			4,526,732
Add: Deferred loss			(2,464,696)
Amortization of deferred loss			55,709
Less: Fair value adjustment, June 30, 2020 unrealized gain			(1,069,013)
Balance, June 30, 2020		$	1,048,732
Less: July 23 exercise 1,424,049 warrants			(2,082,598)
August 17 exercise of 501,000 warrants			(565,221)
Derecognition of deferred loss			1,843,332
Amortization of deferred loss			35,644
Less: Fair value adjustment, September 30, 2020 unrealized gain			(106,350)
Balance, September 30, 2020		$	173,539
Amortization of deferred loss			35,644
Less: Fair value adjustment, December 31, 2020 unrealized gain			(465,822)
Balance, December 31, 2020		$	(256,639)
Number of warrants outstanding as of December 31, 2020			648,910

	2020 June Warrants
Inception of the June 2020 Warrants (see Note 18(e))			2,404,957
Add: Deferred loss			(448,877)
Amortization of deferred loss			8,609
Less: Fair value adjustment, June 30, 2020 unrealized gain			(164,711)
Balance, June 30, 2020		$	1,799,978
Amortization of deferred loss			56,571
Less: Fair value adjustment, September 30, 2020 unrealized gain			(489,496)
Balance, September 30, 2020		$	1,367,053
Amortization of deferred loss			56,571
Less: Fair value adjustment, December 31, 2020 unrealized gain			(1,472,800)
Balance, December 31, 2020		$	(49,176)
Number of warrants outstanding as of December 31, 2020			2,912,277

TABLE OF CONTENTS

NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

16. DERIVATIVE WARRANT LIABILITY FROM FINANCING AND CONVERTIBLE NOTE
(Continued)

	2020 August Warrants
Inception of the August 2020 Warrants (see Note 18(e))			3,511,115
Add: Deferred loss			(3,167,758)
Amortization of deferred loss			212,630
Less: Fair value adjustment, September 30, 2020 unrealized gain			(1,315,978)
Balance, September 30, 2020		$	(759,991)
Amortization of deferred loss			399,224
Less: Fair value adjustment, December 31, 2020 unrealized gain			(1,834,325)
Balance, December 31, 2020		$	(2,195,092)
Number of warrants outstanding as of December 31, 2020			3,399,579

	2020 December Warrants
Inception of the December 2020 Warrants (see Note 18(e))			2,051,657
Add: Deferred loss			(1,278,414)
Amortization of deferred loss			40,279
Less: Fair value adjustment, December 31, 2020 unrealized gain			370,769
Balance, December 31, 2020		$	1,184,291
Number of warrants outstanding as of December 31, 2020			6,230,803

	2020 Repayment Warrants
Inception of the 2020 Repayment Warrants (see Note 18(e))			161,720
Balance, September 30, 2020		$	161,720
Less: Fair value adjustment, December 31, 2020 unrealized gain			(152,272)
Balance, December 31, 2020		$	9,448
Number of warrants outstanding as of December 31, 2020			650,296

	2020 Settlement Warrants
Inception of the 2020 Settlement Warrants (see Note 18(e))			807,977
Less: Fair value adjustment, June 30, 2020 unrealized gain			(232,042)
Balance, June 30, 2020		$	575,935
Less: Fair value adjustment, September 30, 2020 unrealized gain			(58,645)
Balance, September 30, 2020		$	517,290
Less: Fair value adjustment, December 31, 2020 unrealized gain			(315,617)
Balance, December 31, 2020		$	201,673
Number of warrants outstanding as of December 31, 2020			500,000

TABLE OF CONTENTS

NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

16. DERIVATIVE WARRANT LIABILITY FROM FINANCING AND CONVERTIBLE NOTE
(Continued)

The carrying amounts for the 2017 Notes, 2019 Notes, and 2020 Notes are as follows:

	2017 Convertible Notes
Balance, convertible notes December 31, 2018			14,617,336
Less: Exercise of 11,197,000 convertible notes			(13,095,938)
Fair value adjustment			3,878,791
Balance, convertible notes December 31, 2019		$	5,400,189
Fair value adjustment, (unrealized) loss due to changes in credit spread			(17,122)
Fair value adjustment, March 31, 2020 unrealized gain			(1,599,573)
Balance, convertible notes March 31, 2020		$	3,783,494
Less: Exercise of 1,016,000 convertible notes			(1,293,093)
Fair value adjustment Settlement Warrants			(807,977)
Fair value adjustment at maturity realized loss			1,214,576
Re-payment of convertible note			(2,897,000)
Balance, convertible notes December 31, 2020		$	—
2017 Convertible Notes, current		$	—
2017 Convertible Notes, non-current		$	—

TABLE OF CONTENTS

NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

16. DERIVATIVE WARRANT LIABILITY FROM FINANCING AND CONVERTIBLE NOTE
(Continued)

	2019 Convertible Notes
Fair value, May 16, 2019			9,775,000
Fair value adjustment,			(509,520)
Balance, convertible notes December 31, 2019		$	9,265,480
Fair value adjustment, March 31, 2020 unrealized gain			(1,533,410)
Fair value adjustment, March 31, 2020 realized loss			143,750
Fair value adjustment, (unrealized) loss due to changes in credit spread			(1,421,063)
Balance, convertible notes March 31, 2020		$	6,454,757
Fair value adjustment, June 30, 2020 unrealized loss			1,370,016
Fair value adjustment, June 30, 2020 realized gain			(413,681)
Fair value adjustment, (unrealized) loss due to changes in credit spread			2,303,406
Balance, convertible notes June 30, 2020		$	9,714,498
Re-payment of convertible note July 23 conversion			(3,613,341)
Re-payment of convertible note August 17 conversion			(1,263,884)
Fair value adjustment, Repayment warrants			(161,720)
Fair value adjustment, September 30, 2020 unrealized loss			136,921
Fair value adjustment, September 30, 2020 realized loss			1,034,861
Fair value adjustment, (unrealized) loss due to changes in credit spread			110,229
Balance, convertible notes September 30, 2020		$	5,957,564
Fair value adjustment, December 31, 2020 unrealized loss			66,203
Fair value adjustment, December 31, 2020 realized gain			(128,776)
Fair value adjustment, (unrealized) loss due to changes in credit spread			300,366
Balance, convertible notes December 31, 2020		$	6,195,357
2019 Convertible Notes, current		$	38,633
2019 Convertible Notes, non-current		$	6,156,724

TABLE OF CONTENTS

NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

16. DERIVATIVE WARRANT LIABILITY FROM FINANCING AND CONVERTIBLE NOTE
(Continued)

	2020 Convertible Notes
Fair value, May 26, 2020			6,449,634
Add: Deferred loss			(3,511,670)
Amortization of deferred loss			79,373
Fair value adjustment, June 30, 2020 unrealized gain			(438,810)
Fair value adjustment, June 30, 2020 realized loss			34,985
Fair value adjustment, (unrealized) loss due to changes in credit spread			5,736
Balance, convertible notes June 30, 2020		$	2,619,248
Add: Amortization of deferred loss			216,282
Fair value adjustment, September 30, 2020 unrealized gain			(186,531)
Fair value adjustment, September 30, 2020 realized loss			99,712
Fair value adjustment, (unrealized) loss due to changes in credit spread			48,015
Balance, convertible note September 30, 2020		$	2,796,726
Add: Amortization of deferred loss			221,283
Fair value adjustment, December 31, 2020 unrealized gain			(450,279)
Fair value adjustment, December 31, 2020 realized gain			(97,172)
Fair value adjustment, (unrealized) loss due to changes in credit spread			145,644
Balance, convertible note December 31, 2020		$	2,616,202
2020 Convertible Notes, current		$	37,525
2020 Convertible Notes, non-current		$	2,578,677
Derivative liability – January 2020 warrants			11,347
Derivative liability – May 2020 warrants			(256,639)
Derivative liability – June 2020 warrants			(49,176)
Derivative liability – August 2020 warrants			(2,195,092)
Derivative liability – December 2020 warrants			1,184,291
Derivative liability – Repayment warrants			9,448
Derivative liability – Settlement warrants			201,673
Balance, 2020 Convertible notes and warrants and derivative liabilities		$	1,522,054
2020 Convertible notes and warrants and derivative liabilities, current		$	37,525
2020 Convertible notes and warrants and derivative liabilities , non-current		$	1,484,529

TABLE OF CONTENTS

NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

17. INCOME TAXES

The relationship between the expected tax expense based on the combined federal and provincial income tax rate in Canada and the reported tax expense in the consolidated statement of comprehensive income can be reconciled as follows:

	For the years ended December 31,
	2020			2019			2018
Loss before income taxes		$	(29,219,098)		$	(35,102,222)		$	(107,876,382)
Statutory tax rate			27.00%			27.00%			27.00%
Recovery of income taxes based on the combined Canadian
federal and provincial statutory rates			(7,889,156)			(9,477,600)			(29,126,623)
Share-based remuneration			1,324,569			861,248			1,073,142
Unrealized gain on derivatives			(2,320,685)			—			—
Effect of historical adjustments			—			—			(16,036)
Other permanent differences			(250,111)			190,096			20,930,238
Unrecognized deferred tax benefits			8,061,195			8,464,437			7,183,316
Difference in tax rates between foreign jurisdictions and Canada			550,131			(9,389)			63,056
Income tax (recovery)/ expense		$	(524,057)		$	28,793		$	107,093

The components of income tax expense are shown in the following table:

	For the years ended December 31,
	2020			2019			2018
Current tax		$	(524,057)		$	28,793		$	107,093
Deferred tax			—			—			—
Income tax expense		$	(524,057)		$	28,793		$	107,093

Recognized deferred tax assets and liabilities consist of the following:

	For the years ended December 31,
	2020			2019			2018
Investment tax credits		$	464,888		$	464,888		$	528,641
Capital assets			4,287			7,392			9,382
Lease liability			224,249			194,528			—
Recognized deferred tax assets		$	693,424		$	666,808		$	538,023
Set off of tax			(693,424)			(666,808)			(538,023)
Investment tax credits		$	(464,888)		$	(464,888)		$	(528,641)
Capital assets			(4,287)			(7,392)			(9,382)
Right of use asset			(224,249)			(194,528)			—
Recognized deferred tax liabilities		$	(693,424)		$	(666,808)		$	(538,023)
Set off of tax		$	693,424		$	666,808		$	538,023

The Company recognizes tax benefits on losses or other deductible amounts where the probable criteria for recognition of the deferred tax assets has been met. The Company’s unrecognized deductible temporary differences and unused tax losses for which no deferred tax asst is recognized consist of the following amounts:

TABLE OF CONTENTS

NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

17. INCOME TAXES (Continued)

	For the years ended December 31,
	2020			2019			2018
Deductible temporary differences		$	10,616,227		$	7,843,252		$	5,247,143
Unused tax credits			2,416,825			2,416,825			3,054,186
Tax losses			318,477,703			273,792,687			245,013,646
		$	331,510,755		$	284,052,764		$	253,314,975

Unused tax losses for the Company and their expiry dates are as follows: There also losses in Israel and the US which are not subject to expiration.

Expiration Date	Amount
2023			6,038,836
2024			6,906,649
2025			18,105,259
2026			32,396,580
2027			135,245,992
2028			33,339,203
2029			15,799,773
2030			21,718,728
US losses		$	12,885,335
Israel losses		$	36,041,348
		$	318,477,703

18. SHARE CAPITAL

All Common Shares are equally eligible to receive dividends and the repayment of capital and represent one vote at shareholders’ meetings. All Preferred Shares have no voting rights at shareholders’ meetings but on liquidation, winding-up or other distribution of the Company’s assets are entitled to participate in priority to Common Shares. There are no Preferred Shares issued and outstanding.

(a)

Authorized

Unlimited number of Common Shares without par value.

Unlimited number of Preferred Shares without par value.

We may issue our Preferred Shares from time to time in one or more series. The terms of each series of Preferred Shares, including the number of shares, the designation, rights, preferences, privileges, priorities, restrictions, conditions and limitations, will be determined at the time of creation of each such series by our board of directors, without shareholder approval, provided that all Preferred Shares will rank equally within their class as to dividends and distributions in the event of our dissolution, liquidation or winding-up.

All share and per share amounts are net of share issuance costs and have been adjusted to retroactively reflect the impact of the September 18, 2018 reverse stock split on a 1 for 100 basis and the June 25, 2019 reverse stock split on a 1 for 10 basis.

TABLE OF CONTENTS

NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

18. SHARE CAPITAL (Continued)

	Common Shares					Contributed Surplus
	Number		Amount			Contributed Surplus
Balance, January 1, 2018		102,916		$	171,803,816		$	23,056,846
Common Shares issued from exercise of Series B Warrants (i)		1,315,281			54,119,300			—
Common Shares issued from exercise of Series C Warrants (ii)		9,452			15,854,206			—
Common Shares issued from exercise of Series D Warrants (iii)		1,699			1,021,183			—
Common Shares issued from exercise of Series F Warrants (iv)		295,740			42,990,737			—
Common Shares issued from exercise of 2017 Notes (v)		1,076,583			18,582,374			—
Common Shares issued for cash on exercise of options		49			88,917			(88,917)
Share-based payments		—			—			3,292,877
Balance, December 31, 2018		2,801,720		$	304,460,533		$	26,260,806
Common Shares issued from public offerings (vi)		2,222,222			7,802,417			315,611
Common Shares issued from private placement (vii)		334,951			1,664,662			—
Common Shares issued from exercise Series B Warrants (viii)		223,304			16,931			—
Common Shares issued from exercise of Series C Warrants (ix)		822			1,186,027			—
Common Shares issued from exercise of 2017 Notes (x)		3,074,136			13,095,938			—
Common Shares issued from exchange of Series A and Series E Warrants (xi)		49,624			234,173			—
Share-based payments		—			—			3,189,808
Balance, December 31, 2019		8,706,779		$	328,460,681		$	29,766,225
Common Shares issued from public offerings Series A (xii)		1,185,000			4,111,950			—
Common Shares issued from exercise of Series B
Pre-funded warrants (xiii)		1,241,490			3,885,746			—
Transaction costs for both Series A and Series B		—			(462,880)			—
Broker warrants (See Note 17(f))		—			(82,597)			82,597
Common Shares issued from Warrant conversion (xiv)		672,937			969,133			—
Common Shares issued from conversion of 2017 Notes (xv)		500,014			1,293,093			—
Common Shares issued from public offering (xvi)		3,883,036			9,591,099			—
Transaction costs for public offering		—			(1,215,274)			—
Broker warrants (See Note 17(f))		—			(162,467)			162,467
Common Shares issued from public offering (xvii)		4,532,772			12,238,484			—
Transaction costs for public offering		—			(1,057,302)			—
Broker warrants (See Note 17(f))		—			(242,989)			242,989
Common Shares issued from Warrant conversion (xviii)		1,925,049			7,718,346			—
Common Shares issued from public offerings Series A (xix)		6,230,803			5,333,567			—
Transaction costs for public offerings Series A		—			(659,410)			—
Broker warrants (See Note 17(f))		—			(96,114)			96,114
Common Shares issued from exercise of restricted share units		50,986			151,938			(151,938)
Common Shares issued from exercise of stock options		50			378			(174)
Share-based payments		—			—			4,846,776
Balance, December 31, 2020		28,928,916		$	369,775,383		$	35,045,056

TABLE OF CONTENTS

NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

18. SHARE CAPITAL (Continued)

(i)

During the year ended December 31, 2018, 1,315,281 Common Shares were issued on the exercise of 35,128,148 Series B Warrants. The related derivative liability of $32,988,998 (see Note 18) was derecognized at the dates of exercise.

(ii)

During the year ended December 31, 2018, of the 10,273,972 Series C Warrants initially granted, 9,451,780 were exercised for 9,452 Common Shares, 9,451,780 Series A Warrants and 9,451,780 Series B Warrants and cash proceeds of $13,799,659. The related derivative financial liability of $4,459,249 (see Note 18) was derecognized at the dates of exercise.

(iii)

During the year ended December 31, 2018, 1,699 Common Shares were issued for the exercise of 1,698,841 of the Series D Warrants that were issued as part of the Series B Units for cash proceeds of $16,988. The related derivative financial liability of $1,004,195 was derecognized (see Note 18) at the date of exercise.

(iv)

During the year ended December 31, 2018, 295,740 Common Shares were issued on the exercise of the 22,431,506 Series F Warrants. The related derivative financial liability of $29,085,125 (see Note 18) was derecognized at the dates of exercise.

(v)

During the year ended December 31, 2018, 1,076,583 Common Shares were issued on the conversion of $17,640,000 of aggregate principal amount of 2017 Notes. The $20,555,832 aggregate principal amount of 2017 Notes (see Note 18) was derecognized at the date of exercise.

(vi)

During the year ended December 31, 2019, 2,222,222 Common Shares were issued for gross proceeds of $10,000,000 less $1,270,000 in underwriting commission, a $315,611 fair value charge for 144,444 Broker Warrants issued (see Note 18(e)) and $611,972 in other share issuance costs.

(vii)

On May 16, 2019, the Company completed a private placement of (i) 15% original issue discount convertible notes with a face value of $11.5 million, for gross proceeds to the Company of $9,775,000, and (ii) 334,951 Common Shares of the Company at a price of $5.15 per Common Share, for net proceeds of $1,664,662.

(viii)

During the year ended December 31, 2019, 223,304 Common Shares were issued on the exercise of 822,192 Series B Warrants. The related derivative liability of $16,931(see Note 16) was derecognized at the dates of exercise.

(ix)

During the year ended December 31, 2019, the remaining 822,192 Series C Warrants were exercised for 822 Common Shares, 822,192 Series A Warrants and 822,192 Series B Warrants and net cash proceeds of $1,186,027. The related derivative financial liability of $5,638 (see Note 16) was derecognized at the dates of exercise.

(x)

During the year ended December 31, 2019, 3,074,136 Common Shares were issued on the conversion of $11,197,000 of aggregate principal amount of 2017 Notes. The $13,095,938 aggregate principal amount of 2017 Notes (see Note 16) was derecognized at the date of exercise.

(xi)

During the year ended December 31, 2019,the Company entered into exchange agreements with the holders of the remaining Series A Warrants and Series E Warrants to issue 49,624 Common Shares for the surrender and cancellation of all 35,950,340 Series A Warrants and all 22,431,506 Series E Warrants outstanding on the basis of 0.00085 of a Common Share for each Warrant.

(xii)

On January 6, 2020, the Company completed a registered direct offering of an aggregate of 1,185,000 Series A Units and 1,241,490 Series B units at a price of $4.1351 per Series A Unit and $4.135 per Series B Unit for aggregate gross proceeds to the Company of approximately $10,000,000, less $462,880 in underwriting commission, a $82,597 fair value charge for 157,721 Broker Warrants issued (see Note 18(g)) and $185,883 in other share issuance costs.

(xiii)

During the three months ended March 31, 2020, 1,241,490 Common Shares were issued on the conversion of Series B Pre-funded warrants from the January 6, 2020 registered direct offering

(xiv)

On May 28, 2020, the Company issued an aggregate of 672,937 Exchange Shares for the surrender and cancellation of 2,176,490 January 2020 warrants outstanding on the basis of approximately 0.3092 of an Exchange Share for each warrant.

(xv)

On May 26, 2020, 500,014 Common Shares were issued on the conversion of $1,016,000 of aggregate principal amount of 2017 Notes. The fair value of 2017 Notes related to this conversion (see Note 16) was derecognized at the date of exercise.

(xvi)

(xvii)

(xviii)

On July 23, 2020 and August 12, 2020, 1,925,049 Commons shares were issued on the conversion of May 2020 warrants. Using the exercise proceeds of $4,877,225, the Company has prepaid a portion of the 2019 Convertible Note.

(xix)

On December 8, 2020 the Company completed a registered direct offering of an aggregate 6,230,803 Common Shares at a price of

TABLE OF CONTENTS

NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

18. SHARE CAPITAL (Continued)

$0.9801 per Common Share for aggregate gross proceeds to the Company for approximately $6,100,000 less $659,410 in underwriting commission, a $96,114 fair value charge for Compensation Warrants “2020 Compensation Warrants” (see Note 18(g)), and $200,386 in other share issuance costs.

(b)

Stock options

The Company adopted an equity-settled stock option plan under which the directors of the Company may grant options to purchase Common Shares to directors, officers, employees and service providers (the “optionees”) of the Company on terms that the directors of the Company may determine within the limitations set forth in the stock option plan. Effective June 4, 2018, at the Annual General Meeting (“AGM”), the board of directors and shareholders of the Company approved an amendment to the Company’s incentive stock option plan to increase the number of options available for grant under the plan to 15% of the number of Common Shares of the Company outstanding at any time.

Options under the Company’s stock option plan granted to directors, officers and employees vest immediately on the grant date, unless a vesting schedule is specified by the board. The directors of the Company have discretion within the limitations set forth in the stock option plan to determine other vesting terms on options granted to directors, officers, employees, and others. The minimum exercise price of a stock option cannot be less than the applicable market price of the Common Shares on the date of the grant and the options have a maximum life of ten years from the date of grant. The following table summarizes stock option activity for the respective years as follows:

	Number of options		Weighted average exercise price			Average remaining contractual life (years)
Options outstanding, January 1, 2018		5,707		$	3,849.00		2.28
Granted		366,053			30.31
Exercised		(49)			7.33
Forfeited		(1,178)			1,712.35
Expired		(807)			1,813.70
Options outstanding, December 31, 2018		369,726		$	76.78		7.88
Options exercisable, December 31, 2018		146,263		$	127.04		7.62
Granted		697,150			4.27
Exercised		—			—
Forfeited		(13,344)			58.64
Expired		(1,867)			4,997.06
Options outstanding, December 31, 2019		1,051,665		$	20.63		7.09
Options exercisable, December 31, 2019		398,596		$	35.69		6.97
Granted		2,495,100			2.48
Exercised		(50)			4.10
Forfeited		(468,238)			23.10
Expired		(1,329)			3,498.28
Options outstanding, December 31, 2020		3,077,148		$	4.10		7.19
Options exercisable, December 31, 2020		1,081,760		$	6.01		6.93

TABLE OF CONTENTS

NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

18. SHARE CAPITAL (Continued)

The following table lists the options outstanding as at December 31, 2020 by exercise price:

Exercise price	Options outstanding		Weighted average remaining term (yrs)		Options exercisable		Weighted average remaining term (yrs)
$2.11		486,875		7.72		138,125		7.72
$2.17		695,000		7.76		173,750		7.76
$2.27		1,500		7.61		1,500		7.61
$2.42		640,000		7.47		176,032		7.47
$3.35		493,766		7.05		133,495		7.05
$4.10		481,150		6.23		251,550		6.23
$4.11 – $3,878.39		278,857		6.07		207,308		6.01
		3,077,148				1,081,760

The following table lists the options outstanding as at December 31, 2019 by exercise price:

Exercise price	Options outstanding		Weighted average remaining term (yrs)		Options exercisable		Weighted average remaining term (yrs)
$4.10		561,050		7.23		140,450		7.23
$5.00		130,950		7.41		32,738		7.41
$8.80		88,800		6.92		59,242		6.92
$27.20		263,250		6.75		162,268		6.75
$27.30 – $9,276.86		7,615		4.71		3,898		3.69
		1,051,665				398,596

The following table lists the options outstanding as at December 31, 2018 by exercise price:

Exercise price	Options outstanding		Weighted average remaining term (yrs)		Options exercisable		Weighted average remaining term (yrs)
$8.80		89,900		7.92		29,976		7.92
$27.20		270,000		7.75		112,566		7.75
$60.00		1,055		7.25		—		—
$60.01 – $8,917.93		8,771		4.39		3,721		1.48
		369,726				146,263

During the year ended December 31, 2020, the Company recorded $4,905,812, as compensation expense for share-based compensation awarded to eligible optionees (years ended December 31, 2019 and 2018: $3,189,808 and $3,292,877, respectively). The Company used the Black-Scholes Option Pricing Model to estimate the fair value of the options at each measurement date using the following weighted average assumptions:

TABLE OF CONTENTS

NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

18. SHARE CAPITAL (Continued)

	2020			2019			2018
Weighted average fair value		$	1.99		$	3.60		$	16.40
Weighted average exercise price		$	2.48		$	4.30		$	30.30
Weighted average share price at grant		$	2.48		$	4.30		$	30.30
Dividend yield			nil			nil			nil
Volatility			124%			141%			72%
Risk-free interest rate			0.94%			1.51%			2.24%
Expected life	4 years			4 years			4 years
Forfeiture rate			7.00%			7.00%			7.00%

On December 2, 2019, the Company adopted a Restricted Share Unit (“RSU”) Plan which provides for RSUs to be awarded to directors, officers, employees and service providers. The maximum number of Common Shares authorized and reserved for issuance under the RSU Plan is equal to 5% of the issued and outstanding Common Shares of the Company. The shareholders of the Company approved the amended RSU Plan at the annual meeting of the shareholders on September 3, 2020, which falls within 12 months of the effective date of the RSU Plan.

The granting of RSUs is considered an equity-settled share-based payment transaction. The fair value of the grant was determined by multiplying the Company’s share price at the grant date by the number of RSUs granted and is recognized over the vesting period of the grant. The expense recognized for the year ended December 31, 2020, was $973,219 (years ended December 31, 2019 and 2018: $22,848 and $nil, respectively). As of December 31, 2020, the total remaining unrecognized compensation cost related to RSUs amounted to approximately $1,136,595 which will be amortized over the remaining vesting periods.

RSU transactions are summarized as follows:

	Number of RSUs		Weighted Average Grant Date Fair Value Per Share
Outstanding, December 31, 2018		—			—
Granted		152,956		$	2.98
Vested		—			—
Outstanding, December 31, 2019		152,956		$	2.98
Granted		706,044		$	2.72
Vested/Exercised		(50,986)		$	0.85
Cancelled/Forfeited		(30,000)		$	2.74
Outstanding, December 31, 2020		778,014		$	2.76

(d) Share appreciation rights

On September 22, 2020, the Company adopted a Share Appreciation Rights (“SAR”) Plan which provides for SARs to be awarded to directors, officers, employees and service providers. The granting of SARs is considered a cash-settled payment transaction. The fair value of the SAR is measured applying an option pricing model, taking into account the terms and conditions on which the SARs are granted. The liability of the SAR is measured initially at grant date and at the end of each reporting period until settled. The fair value

TABLE OF CONTENTS

NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

18. SHARE CAPITAL (Continued)

of the SAR as of December 31, 2020, is $295,179 which will be recorded over the vesting period of the SAR. The Company recognizes a $59,036 expense at December 31, 2020.

SAR transactions are summarized as follows:

	Number of SARs		Weighted Average Grant Date Fair Value Per Share
Outstanding, December 31, 2019 and 2018		—			—
Granted		1,811,768		$	0.185
Vested		—			—
Outstanding, December 31, 2020		1,811,768		$	0.185

(e) Warrants

The following table lists the number of warrants issued on November 17, 2017 as well as the number issued, exercised, and exchanged since then and the remaining warrants outstanding at December 31, 2020.

Warrants	As at November 17, 2017		Issued		Exercised		Exchanged		As at December 31, 2019 and 2020
Series A		25,676,368		10,273,972		—		(35,950,340)		—
Series B		25,676,368		10,273,972		(35,950,340)		—		—
Series C		10,273,972		—		(10,273,972)		—		—
Series D		3,573,830		—		(3,573,830)		—		—
Series E		22,431,506		—		—		(22,431,506)		—
Series F		22,431,506		—		(22,431,506)		—		—

On September 18, 2018, the Company effected a share consolidation (reverse stock split in the ratio of 1 for 100 Common Shares outstanding) of the Common Shares on the basis of one post-consolidation Common Shares for every 100 pre-consolidation Common Shares. On June 25, 2019, the Company effected a share consolidation (reverse stock split) of its issued and outstanding Common Shares the basis of one post-consolidation Common Share for every ten pre-consolidation Common Shares. The number of 2017 Warrants and aggregate principal amount of 2017 Notes were not affected by the consolidations, but the Common Shares issuable upon exercise of the 2017 Warrants or conversion of the 2017 Notes was adjusted proportionally to the share consolidation ratios.

The September 2018 share consolidation adjusted the notional exercise price of the Series A Warrants, Series B Warrants and Series E Warrants. There were no Series D Warrants and Series F Warrants outstanding at the date of the September 2018 share consolidation. There were no 2017 Warrants outstanding at the time of the June 2019 share consolidation.

On March 12, 2019, the Company entered into exchange agreements with the holders of all of its outstanding Series A Warrants and Series E Warrants, pursuant to which the Company issued an aggregate of 49,624 Common Shares for the surrender and cancellation of all of the Series A Warrants and Series E Warrants outstanding, on the basis of 0.085 of a Common Share for each Series A Warrant or Series E Warrant (the “Exchange”). Following completion of the Exchange, there are no longer any warrants outstanding from the 2017 Financings. Under IFRIC 19, the surrender and cancellation of Series A warrants and Series E warrants created a loss on extinguishment of $39,367 and $24,565, respectively.

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NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

18. SHARE CAPITAL (Continued)

On January 6, 2020, the Company completed a registered direct offering of an aggregate of 1,185,000 Series A Units and 1,241,490 series B units: Series B Units at a price of $4.1351 per Series A Unit and $4.135 per Series B Unit for aggregate gross proceeds to the Company of approximately $10,000,000. Each Series A Unit consists of one Common Share of Neovasc and one warrant to purchase one Common Share. Each Warrant entitles the holder to acquire one Common Share of Neovasc at a price of US$4.1351 at any time prior to four years following the date of issuance. Each Series B Unit consists of one pre-funded warrant of Neovasc and one Warrant. Each Pre-Funded Warrant entitles the holder to acquire one Common Share of Neovasc at a price of US$0.0001 at any time until the exercise in full of each Pre-Funded Warrant.

All Pre-Funded Warrants were exercised as at December 31, 2020. The 2020 Warrants include a cashless exercise option. In accordance with IAS 32 — Financial instruments; presentation, the 2020 warrants have been accounted for as derivative financial liabilities and measured at FVTPL. The fair value of $6,145,620 for the 2020 Series A warrants and Series B Pre-Funded warrants was computed using the Black-Scholes pricing model with the following assumptions: a) average risk-free interest rate of 1.60%; b) expected life of 1 years; c) the price of the stock on the grant date of $3.47; d) expected volatility of 70%; and e) no expected dividend payments. On May 28, 2020, the Company issued an aggregate of 672,937 Exchange Shares for the surrender and cancellation of 2,176,490 January 2020 warrants outstanding on the basis of approximately 0.3092 of an Exchange Share for each warrant. Subsequent to the exchange, 250,000 Warrants remain outstanding.

On May 26, 2020, the Company granted 2,573,959 2020 Warrants with an exercise price of $2.634 and term of 4 years. The 2020 Warrants are convertible into Common Shares of the Company at the option of the holder (however, the holder may not own greater than 9.99% of the total outstanding Common Shares of the Company as a result of the conversion). The 2020 Warrants include a cashless exercise option. In accordance with IAS 32 — Financial instruments; presentation, the 2020 warrants have been accounted for as derivative financial liabilities and measured at FVTPL. The fair values of $4,526,732 of the warrants were calculated using a binomial option pricing model and have been classified as level 3 in the fair value hierarchy. On July 23, 2020 1,424,049 warrants were exercised and on August 17, 2020 501,000 warrants were exercised leaving 648,910 warrants remaining. The total exercise proceeds of $4,877,225 net of interest and prepayment penalty has been applied to the principal of the 2019 Note.

On May 28, 2020 the Company entered into a settlement agreement to issue 500,000 settlement warrants (“Settlement Warrants”). Each Settlement Warrant entitles the holder to purchase one Common Share in the capital of the Company at an exercise price of $2.634 per Settlement Warrant for a period of 4 years following issuance and are subject to transfer/leak-out restrictions, including volume and public float restrictions. The Settlement Warrants include a cashless exercise option. In accordance with IAS 32 — Financial instruments; presentation, the Settlement Warrants have been accounted for as derivative financial liabilities and measured at FVTPL. The fair value of $807,977 of the Settlement Warrants were calculated using the Cox Ross Rubinstein binomial tree model and have been classified as level 3 in the fair value hierarchy.

On June 16, 2020, the Company completed a registered direct offering of an aggregate 3,883,036 units (the “Units”) at a price of $2.973 per unit for aggregate gross proceeds to the Company of approximately $11,500,000 less $1,215,274 in underwriting commission, a $162,467 fair value charge for Compensation Warrants “2020 Compensation Warrants” (see Note 17 (a)), and $278,482 in other share issuance costs. Each Unit consists of one Common Share of the Company and three-quarters of one warrant (each whole warrant, a “Warrant”) to purchase one Common Share issuing 2,912,277 warrants in total. Each Warrant entitles the holder to acquire one Common Share of the Company at a price of $2.88 at any time prior to June 16, 2025. The 2020 Warrants include a cashless exercise option. In accordance with IAS 32 — Financial instruments; presentation, the 2020 warrants have been accounted for as derivative financial liabilities and measured at FVTPL. The fair value of $2,404,957 for the 2020 Series A warrants was computed using the Black-Scholes pricing model with the following assumptions: a) average risk-free interest rate of 0.32%; b) expected life of 2 years; c) the price of the stock on the grant date of $2.47; d) expected volatility of 70%; and e) no expected dividend payments.

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NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

18. SHARE CAPITAL (Continued)

On July 23, 2020, the Company issued the 2020 Repayment Warrants (“Repayment Warrants”) to purchase up to 481,778 Common Shares at an exercise price of $7.50 per Common Share for a period of five years following issuance. The fair value of $134,718 for the 2020 Repayment Warrants was computed using the Black-Scholes pricing model with the following assumptions: a) average risk-free interest rate of 0.29%; b) expected life of 2 years; c) the price of the stock on the grant date of $2.54; d) expected volatility of 70.0%; and e) no expected dividend payments.

On August 12, 2020 the Company completed a registered direct offering of an aggregate 4,532,772 Common Shares at a price of $2.775 per Common Share for aggregate gross proceeds to the Company for approximately $12,600,000 less $1,057,302 in underwriting commission, a $242,989 fair value charge for Compensation Warrants “2020 Compensation Warrants” (see Note 17 (a)), and $109,918 in other share issuance costs. Each Common Share was sold with 0.75 of a Common Share purchase warrant (each whole warrant, a “Warrant”) issuing 3,399,579 warrants in total. Each Warrant entitles the holder to acquire one Common Share of the Company at an exercise price of $2.69 per share at any time prior to the date which is five years following the date of issuance. The 2020 Warrants include a cashless exercise option. In accordance with IAS 32 — Financial instruments; presentation, the 2020 Warrants have been accounted for as derivative financial liabilities and measured at FVTPL. The fair value of $3,511,115 for the Warrants was computed using the Black-Scholes pricing model with the following assumptions: a) average risk-free interest rate of 0.32%; b) expected life of 2 years; c) the price of the stock on the grant date of $2.70; d) expected volatility of 70%; and e) no expected dividend payments.

On August 17, 2020, the Company issued the 2020 Repayment Warrants to purchase up to 168,518 Common Shares at an exercise price of $7.50 per Common Share for a period of five years following issuance. The fair value of $27,002 for the 2020 Repayment Warrants was computed using the Black-Scholes pricing model with the following assumptions: a) average risk-free interest rate of 0.31%; b) expected life of 2 years; c) the price of the stock on the grant date of $2.13; d) expected volatility of 68.0%; and e) no expected dividend payments.

On December 8, 2020 the Company completed a registered direct offering of an aggregate 6,230,803 Common Shares at a price of $0.9801 per Common Share for aggregate gross proceeds to the Company for approximately $6,100,000 less $659,410 in underwriting commission, a $96,114 fair value charge for Compensation Warrants “2020 Compensation Warrants” (see Note 17 (a)), and $178,968 in other share issuance costs. Each Common Share was sold with one Common Share purchase warrant (each whole warrant, a “December Warrant”) issuing 6,230,803 warrants in total. Each December Warrant entitles the holder to acquire one Common Share of the Company at an exercise price of $0.86 per share at any time prior to the date which is five years following the date of issuance. The December Warrants include a cashless exercise option. In accordance with IAS 32 — Financial instruments; presentation, the 2020 warrants have been accounted for as derivative financial liabilities and measured at FVTPL. The fair value of $2,051,657 for the December Warrants was computed using the Black-Scholes pricing model with the following assumptions: a) average risk-free interest rate of 0.33%; b) expected life of 2 years; c) the price of the stock on the grant date of $0.86; d) expected volatility of 70%; and e) no expected dividend payments.

(g)

Broker Warrants

In February and March of 2019, the Company completed two $5 million underwritten public offerings and issued 144,444 broker warrants (“Broker Warrants”) as part of the underwriter’s commission. The Company uses the Black-Scholes pricing model to calculate the fair value of the Broker Warrants. The model requires six key inputs: risk free interest rate, exercise price, market price at date of issue, expected dividend yield, expected life and expected volatility, all of which, other than the exercise price and market price, are estimates by management of the Company. The fair value for the February 28, 2019 $5 million public offering and 72,222 broker warrants was computed using the Black-Scholes pricing model with the following

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NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

18. SHARE CAPITAL (Continued)

assumptions: a) average risk-free interest rate of 2.51%; b) expected life of 3 years; c) the price of the stock on the grant date of $4.50; d) expected volatility of 81%; and e) no expected dividend payments. The fair value for the March 15, 2019 $5 million public offering and 72,222 broker warrants was computed using the Black-Scholes pricing model with the following assumptions: a) average risk-free interest rate of 2.43%; b) expected life of 3 years; c) the price of the stock on the grant date of $4.50; d) expected volatility of 82%; and e) no expected dividend payments. The Black-Scholes model was used to compute broker warrant fair values because it is the most commonly used pricing model and is considered to produce a reasonable estimate of fair value.

As part of the underwriter’s compensation in the January 2020 Financing, the Company issued the 2020 Broker Warrants to purchase up to 157,721 Common Shares at an exercise price of $5.1689 per Common Share for a period of three years following issuance. The fair value of $82,597 for the 2020 broker warrants was computed using the Black-Scholes pricing model with the following assumptions: a) average risk-free interest rate of 1.60%; b) expected life of 1 years; c) the price of the stock on the grant date of $3.47; d) expected volatility of 70%; and e) no expected dividend payments.

On June 16, 2020, the Company issued the 2020 Compensation Warrants to purchase up to 252,397 Common Shares at an exercise price of $3.71 per Common Share for a period of five years following issuance. The fair value of $162,467 for the 2020 compensation warrants was computed using the Black-Scholes pricing model with the following assumptions: a) average risk-free interest rate of 0.32%; b) expected life of 2 years; c) the price of the stock on the grant date of $2.47; d) expected volatility of 70.0%; and e) no expected dividend payments.

On August 12, 2020, the Company issued the 2020 Compensation Warrants to purchase up to 294,630 Common Shares at an exercise price of $3.47 per Common Share for a period of five years following issuance. The fair value of $242,989 for the 2020 compensation warrants was computed using the Black-Scholes pricing model with the following assumptions: a) average risk-free interest rate of 0.32%; b) expected life of 2 years; c) the price of the stock on the grant date of $2.70; d) expected volatility of 70.0%; and e) no expected dividend payments.

On December 8, 2020, the Company issued the 2020 Compensation Warrants to purchase up to 405,002 Common Shares at an exercise price of $1.22 per Common Share for a period of five years following issuance. The fair value of $96,114 for the 2020 compensation warrants was computed using the Black-Scholes pricing model with the following assumptions: a) average risk-free interest rate of 0.33%; b) expected life of 2 years; c) the price of the stock on the grant date of $0.86; d) expected volatility of 70.0%; and e) no expected dividend payments.

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NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

19. SEGMENT INFORMATION

The Company’s operations are in one business segment: the development, manufacturing and marketing of medical devices. Each of the Company’s product lines has similar characteristics, customers, distribution and marketing strategies, and are subject to similar regulatory requirements. Substantially all of the Company’s long-lived assets are located in Canada. The Company carries on business in Canada, the United States and Europe. The Company earns revenue from sales to customers in the following geographic locations:

	For the years ended December 31,
	2020			2019			2018
REVENUE
Europe		$	1,810,362		$	1,863,032		$	1,600,633
Rest of the World			147,000			229,000			148,500
		$	1,957,362		$	2,092,032		$	1,749,133

Sales to the Company’s three largest customers accounted for approximately 13%, 13%, and 9% of the Company’s sales for the year ended December 31, 2020. Sales to the Company’s three largest customers accounted for approximately 12%, 9%, and 8% of the Company’s sales for the year ended December 31, 2019. Sales to the Company’s three largest customers accounted for approximately 28%, 9%, and 9% of the Company’s sales for the year ended December 31, 2018.

20. EMPLOYEE BENEFITS EXPENSE

	For the years ended December 31,
	2020			2019			2018
Salaries and wages		$	10,536,409		$	9,583,936		$	8,477,335
Pension plan and employment insurance			506,025			458,276			418,303
Contribution to defined contribution pension plan			198,342			182,449			170,358
Health benefits			765,948			651,269			476,217
Cash-based employee expenses		$	12,006,724		$	10,875,930		$	9,542,213
Employee termination expenses			—			26,050			761,354
Share-based payments			4,905,812			3,189,808			3,292,877
Total employee expenses		$	16,912,536		$	14,091,788		$	13,596,444

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NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

21. DEPRECIATION, SHARE-BASED PAYMENTS, EMPLOYEE AND OTHER EXPENSES

	For the years ended December 31,
	2020			2019			2018
EXPENSES
Selling expenses
Share-based payment		$	320,886		$	188,930		$	170,416
Cash-based employee expenses			891,784			526,769			352,837
Other expenses			984,133			930,286			829,912
		$	2,196,803		$	1,645,985		$	1,353,165
General and administrative expenses
Depreciation			280,949			182,202			60,206
Share-based payments			2,820,369			1,748,660			2,147,832
Cash-based employee expenses			3,149,313			2,725,814			2,498,005
Litigation expenses			284,729			81,171			540,125
Employee termination expenses			—			26,050			761,354
Accretion on collaboration, license and settlement agreements provision			308,938			693,047			5,129,758
Legal costs from financing activities			3,617,485			1,089,245			1,608,260
Other expenses			3,619,370			3,467,543			3,693,396
		$	14,081,153		$	10,013,732		$	16,438,936
Product development and clinical trials expenses
Depreciation			487,152			459,419			323,920
Share-based payments			1,764,557			1,252,218			974,629
Cash-based employee expenses			7,965,627			7,623,347			6,691,371
Other expenses			10,184,259			10,685,975			8,011,544
			20,401,595			20,020,959			16,001,464
TOTAL EXPENSES		$	36,679,551		$	31,680,676		$	33,793,565
Depreciation per Statements of Cash Flows		$	768,101		$	641,621		$	384,126
Share-based payments per Statements of Cash Flows		$	4,905,812		$	3,189,808		$	3,292,877
Cash-based employee expenses (see Note 20)		$	12,006,724		$	10,875,930		$	9,542,213

22. LOSS PER SHARE

Both the basic and diluted loss per share have been calculated using the loss attributable to shareholders of the Company as the numerator. The weighted average number of Common Shares outstanding used for basic loss per share for the year ended December 31, 2020, amounts to 16,667,810 (years ended December 31, 2019 and 2018: 6,511,672 and 1,416,011, respectively)

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NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

22. LOSS PER SHARE (Continued)

	For the years ended December 31,
	2020			2019			2018
Weighted average number of Common Shares			16,667,810			6,511,672			1,416,011
Loss for the year		$	(28,695,041)		$	(35,131,015)		$	(107,983,475)
Basic and diluted loss per share		$	(1.72)		$	(5.40)		$	(76.26)

Instruments that could potentially have a dilutive effect on the Company’s weighted average shares outstanding include all of the outstanding convertible notes, restricted share units, stock options, stock appreciation rights, and warrants. These instruments are currently excluded from the calculation of diluted earnings per share as they are antidilutive for the periods presented.

23. RELATED PARTY TRANSACTIONS

The Company’s key management personnel include members of the board of directors, executive officers, and former executive officers. The Company provides salaries or cash compensation, and other non-cash benefits to directors and executive officers.

	For the years ended December 31,
	2020			2019			2018
Short-term employee benefits
Employee salaries and bonuses		$	2,348,709		$	2,235,926		$	2,112,605
Directors fees			265,833			245,000			270,000
Social security and medical care costs			80,949			77,284			63,529
			2,695,491			2,558,210			2,446,134
Post-employment benefits
Contributions to defined contribution pension plan			36,114			32,435			34,162
Employee termination expense			—			—			296,592
Share-based payments			1,726,690			1,555,857			2,270,023
Total key management remuneration		$	4,458,295		$	4,146,502		$	5,046,911

24. CONTINGENT LIABILITIES AND PROVISIONS

Litigation

Claims by CardiAQ in Germany

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NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

24. CONTINGENT LIABILITIES AND PROVISIONS (Continued)

Claims by CardiAQ in the United States

Other Matters

On August 3, 2018, the Company announced that it had entered into a collaboration and licensing agreement with Penn Medicine and the Gorman Cardiovascular Research Group at the University of Pennsylvania (collectively, “UPenn”), which resolved certain potential claims against the Company that had been previously disclosed. The collaboration and licensing agreement with UPenn contemplates certain fees being paid by Neovasc to UPenn, including fees in installments totaling $2.65 million over the four years following the agreement’s execution. In addition, Neovasc agreed to pay UPenn a royalty of 1.0-1.5% on the annual net sales of the Tiara following the first commercial sale of the Tiara. Also contained in the collaboration and licensing agreement are buy-out clauses that allow Neovasc, or an acquirer of Neovasc or

TABLE OF CONTENTS

NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

24. CONTINGENT LIABILITIES AND PROVISIONS (Continued)

the Tiara assets, to buy out these royalty obligations. As part of the collaboration and licensing agreement, certain potential claims against the Neovasc Defendants were resolved.

When the Company assesses that it is more likely that a present obligation exists at the end of the reporting period and that the possibility of an outflow of economic resources embodying economic benefits is probable, a provision is recognized and contingent liability disclosure is required. The Company has accrued $716,251 as at December 31, 2020 representing the discounted value of future payments anticipated under the settlement agreement with Endovalve. The Company has not accrued for any future royalty payments in the settlement agreement with Endovalve as the amounts are undeterminable at this time.

Shareholder Litigation

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NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

24. CONTINGENT LIABILITIES AND PROVISIONS (Continued)

promulgated thereunder against all defendants; and (ii) a violation of Section 20(a) of the Exchange Act against Messrs. Colen and Clark.

25. GOVERNMENT ASSISTANCE

The Company’s application for the Paycheck Protection Program (PPP) loan for approximately $530,000 was approved and forgiven by the U.S. Small Business Administration. This program helps businesses keep their workforce employed during the COVID-19 crisis by providing relief in the form of a forgivable loan used for payroll costs. The amount is advanced in the form of a loan that is forgivable if the borrowers, being certain wholly-owned subsidiaries of the Company, allocate the funds principally for the purposes of retaining employees in the US through the payment of payroll and group health care benefits costs and other expenses in accordance with the loan agreement. As a wholly forgivable loan this amount was recorded as Other Income on the Statement of loss and comprehensive loss in the period in which it was forgiven.

In response to the negative economic impact of COVID-19, the Government of Canada announced the Canada Emergency Wage Subsidy (“CEWS”) program in April 2020, retroactive to March 15, 2020. CEWS provides a wage subsidy to eligible employers based on certain criteria, including demonstration of revenue declines as result of COVID-19.

The Company has determined that it has qualified for this subsidy from March 15, 2020 through September 2020 and has, accordingly, applied for, and for certain periods received, the CEWS. The submissions are approved and the Company received approximately $765,715 from the CEWS program and recorded as Other Income on the Statement of loss and comprehensive loss.

26. SUBSEQUENT EVENTS

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NEOVASC INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
(Expressed in U.S. dollars)

26. SUBSEQUENT EVENTS (Continued)

27. AUTHORIZATION OF FINANCIAL STATEMENTS

The consolidated financial statements for the years ended December 31, 2020, 2019 and 2018 (including comparatives) were approved by the audit committee on behalf of the board of directors on March 8, 2021.

(signed) Chris Clark

Chris Clark, Chief Financial Officer

(signed) Paul Geyer

Paul Geyer, Director

Exhibit 99.4

Certification of the Chief Executive Officer of
Neovasc Inc.
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

CERTIFICATIONS

I, Fred Colen, certify that:

I have reviewed this annual report on Form 40-F of Neovasc Inc. (the “Company”);

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

NEOVASC INC.

Date: March 11, 2021

By:

/s/ Fred Colen

Fred Colen
Chief Executive Officer
Neovasc Inc.

Exhibit 99.5

Certification of the Principal Financial Officer of
Neovasc Inc.
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

CERTIFICATIONS

I, Chris Clark, certify that:

I have reviewed this annual report on Form 40-F of Neovasc Inc. (the “Company”);

(a)

(b)

(c)

(d)

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

NEOVASC INC.

Date: March 11, 2021

By:

/s/ Chris Clark

Chris Clark
Chief Financial Officer
Neovasc Inc.

Exhibit 99.6

CERTIFICATION OF CEO AND CFO
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report of Neovasc Inc. (the “Registrant”) filed under cover of Form 40-F for the period ended December 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Fred A. Colen as Chief Executive Officer of the Registrant and Chris Clark as Chief Financial Officer of the Registrant, each hereby certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, to the best of his knowledge that:

(1)

the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

/s/ Fred Colen

Name: Fred Colen

Title: Chief Executive Officer

Date: March 11, 2021

/s/ Chris Clark

Name: Chris Clark

Title: Chief Financial Officer

Date: March 11, 2021

This certification accompanies the Report pursuant to § 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Registrant for purposes of §18 of the Securities Exchange Act of 1934, as amended.

Exhibit 99.7

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CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have issued our report dated March 10, 2021, with respect to the consolidated financial statements included in the Annual Report of Neovasc Inc. on Form 40-F for the year ended December 31, 2020. We consent to the inclusion of said report in the Annual Report of Neovasc Inc. on Form 40-F and to the incorporation by reference of said report in the Registration Statements of Neovasc Inc. on Form S-8 (File No. 333-226075), Form F-10 (File No. 333251330) and F-3 (File No. 333-245385).

	Vancouver, Canada March 11, 2021
				Chartered Professional Accountants