40-F

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 40-F

¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE

SECURITIES EXCHANGE ACT OF 1934

x ANNUAL REPORT PURSUANT TO SECTION 13(a) OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2015 Commission File Number: 001-36458

Neovasc Inc.

(Exact name of Registrant as specified in its charter)

Canada (Province or other Jurisdiction of Incorporation or Organization) 3841 (Primary Standard Industrial Classification Code Number) Not Applicable (I.R.S. Employer Identification No.)

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	Name of Each Exchange on Which Registered
Common Shares, No Par Value	Nasdaq Stock Market

Title of Each Class Name of Each Exchange on Which Registered

Common Shares, No Par Value Nasdaq Stock 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:

x Annual information form x Audited annual financial statements

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

The Registrant had 66,764,947 Common Shares outstanding as at December 31, 2015

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 x No ¨

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

Yes ¨ No ¨

A. Disclosure Controls and Procedures

Disclosure controls and procedures are defined in Rule 13a-15(e) under the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act"), as those controls and other procedures that are designed to ensure that information required to be disclosed by the Registrant in reports filed or submitted by it under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Rule 13a-15(e) also provides that disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Registrant is accumulated and communicated to the Registrant's management as appropriate to allow timely decisions regarding required disclosure.

The Registrant's Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Registrant’s disclosure controls and procedures and have concluded that such disclosure controls and procedures were effective as at December 31, 2015. See "Management's Discussion and Analysis of Operations and Financial Position—Disclosure Controls and Internal Controls over Financial Reporting" included in Exhibit 1.2 to this Annual Report.

B. Management's Annual Report on Internal Control Over Financial Reporting

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

Management assessed the effectiveness of the Registrant’s internal control over financial reporting as at December 31, 2015. In making this assessment, the Registrant’s management used the criteria established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. 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 Registrant's management has concluded that the Registrant’s internal control over financial reporting was effective as of December 31, 2015. See "Management's Discussion and Analysis of Operations and Financial Position—Disclosure Controls and Internal Controls Over Financial Reporting" included in Exhibit 1.2 to this Annual Report.

C. Attestation Report of the Registered Public Accounting Firm

The Registrant will not be required to comply with the auditor attestation requirements of the U.S. Sarbanes-Oxley Act of 2002 for so long as the Registrant remains an “emerging growth company”, which may be for as long as five years following its initial registration in the United States.

D. Changes in Internal Control Over Financial Reporting

During the period covered by this Annual Report, there have been no changes in the Registrant’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting.

E. Notice of Pension Fund Blackout Period

The Registrant was not required by Rule 104 of Regulation BTR to send any notice to any of its directors or executive officers during the fiscal year ended December 31, 2015.

F. Audit Committee Financial Expert

The Registrant's board of directors has determined that Mr. Doug Janzen, an individual serving on the audit committee of the Registrant's board of directors, is an audit committee financial expert within the meaning of General Instruction B(8)(b) of Form 40-F under the Exchange Act and is independent within the meaning of Rule 10A-3 under the Exchange Act and applicable Canadian requirements.

The SEC has indicated that the designation or identification of a person as an audit committee financial expert does not make such person an "expert" for any purpose, impose any duties, obligations or liability on such person that are greater than those imposed on members of the audit committee and the board of directors who do not carry this designation or identification, or affect the duties, obligations or liability of any other member of the audit committee or board of directors.

G. Code of Ethics

The Registrant’s board of directors has adopted a code of ethics that applies to all directors, officers and employees, including its Chief Executive Officer, Chief Financial Officer and other senior officers. The Registrant will provide a copy of the code of ethics without charge to any person that requests a copy by contacting the Corporate Secretary of the Registrant at the address that appears on the cover page of this Annual Report.

H. Principal Accountant Fees and Services

Audit Fees

The aggregate fees billed by Grant Thornton LLP, Chartered Accountants, the Registrant’s external auditors, for the fiscal years ended December 31, 2015 and 2014 for audit services, including professional services that are normally provided by external auditors in connection with statutory and regulatory filings or engagements for such years were $58,572 and $63,079, respectively.

Audit-Related Fees

The aggregate fees billed by Grant Thornton LLP for the fiscal years ended December 31, 2015 and 2014 for assurance and related services rendered by it that are reasonably related to the performance of the audit or review of the Registrant's financial statements and that are not reported above as audit fees were $59,409and $93,588, respectively. In 2014, $93,588 of these fees were paid for services rendered in connection with the bought deal financing completed on March 26, 2014, the filing of the Company’s shelf prospectus, the graduation of the Company to the TSX and listing of the Company on the Nasdaq Capital Market.

Tax Fees

The aggregate fees billed by Grant Thornton LLP for the fiscal years ended December 31, 2015 and 2014 for professional services rendered by it for tax compliance, tax advice, tax planning and other services were $nil and $nil , respectively. Tax services included preparation of corporate tax returns and review of tax provisions.

All Other Fees

The aggregate fees billed by Grant Thornton LLP for the fiscal years ended December 31, 2015 and 2014 other than for the services reported in the preceding three paragraphs, were $773 and $941, respectively.

Audit Committee Pre-Approval Policies and Procedures

All audit and non-audit services performed by the Registrant’s external auditor must be pre-approved by the audit committee of the Registrant.

For the fiscal year ended December 31, 2015, all audit and non-audit services performed by Grant Thornton LLP were pre-approved by the audit committee of the Registrant.

I. Off-Balance Sheet Arrangements

The Registrant is not a party to any off-balance sheet arrangements 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.

J. Tabular Disclosure of Contractual Obligations

See "Management's Discussion and Analysis of Operations and Financial Position—Contractual Obligations and Contingencies—Contractual Obligations," included in Exhibit 1.2 to this Annual Report.

K. Identification of the Audit Committee

The Registrant has established a separately-designated standing audit committee in accordance with Section 3(a)(58)(A) of the Exchange Act. The audit committee is comprised of Messrs. Paul Geyer, Douglas Janzen and Steven Rubin. Messrs. Geyer, Janzen and Rubin are independent as such term is defined under the rules and regulations of the Nasdaq Stock Market.

L. Critical Accounting Policies

See “Management’s Discussion and Analysis of Operations and Financial Position—Changes in Accounting Policies Including Initial Adoption,” included in Exhibit 1.2 to this Annual Report.

M. Interactive Data File

The Registrant is not currently required to submit to the Commission, nor post to its corporate website, an Interactive Data File.

N. Mine Safety

The Registrant is not currently required to disclose the information required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

O. Nasdaq Exemption

On April 30, 2014, the Registrant informed Nasdaq that as permitted by Rule 4350(a)(1) of the Nasdaq Marketplace Rules, it intended to follow federal Canadian practice with respect to quorum requirements in lieu of those required by Rule 4350(f) of the Nasdaq Marketplace Rules (which provides that a quorum for a shareholder meeting of a Nasdaq-listed company must be at least 33-1/3% of the outstanding common shares of the company). The Registrant’s 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 Registrant’s quorum requirements are not prohibited by the requirements of the Business Corporations Act (Canada) and the Registrant intends to continue to comply with the requirements of the Business Corporations Act (Canada). The rules of the Toronto Stock Exchange, upon which the Common Shares are also listed, do not contain specific quorum requirements.

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 SEC staff, and to furnish promptly, when requested to do so by the SEC staff, information relating to 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 with the SEC a Form F-X in connection with its common shares. Any change to the name or address of the agent for service of process shall be communicated promptly to the SEC by an amendment to the Form F-X.

EXHIBITS

The following exhibits are filed as part of this Annual Report:

Number	Document
1.1	Annual Information Form for the year ended December 31, 2015
1.2	Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2015
1.3	Audited Consolidated Financial Statements for the year ended December 31, 2015, prepared in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board, including the report of the auditors thereon
23.1	Consent of Grant Thornton LLP
31.1	Certification of the CEO and CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of the CEO and CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibits 1.1, 1.2 and 1.3 are incorporated by reference into the Registration Statement on Form F-10 of the Registrant, which was originally filed with the Securities and Exchange Commission on April 17, 2014 (File No. 333-195360), and the Registration Statement on Form S-8 of the Registrant, which was originally filed with the Securities and Exchange Commission on June 24, 2014 (File No. 333-196986).

SIGNATURE

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.

	NEOVASC INC.
Dated: March 29, 2016	By:	/s/ Chris Clark
	Name:	Chris Clark
	Title:	Chief Financial Officer

EXHIBIT INDEX

Number	Document
1.1	Annual Information Form for the year ended December 31, 2015
1.2	Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2015
1.3	Audited Consolidated Financial Statements for the year ended December 31, 2015, prepared in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board, including the report of the auditors thereon
23.1	Consent of Grant Thornton LLP
31.1	Certification of the CEO and CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of the CEO and CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibits 1.1, 1.2 and 1.3 are incorporated by reference into the Registration Statement on Form F-10 of the Registrant, which was originally filed with the Securities and Exchange Commission on April 17, 2014 (File No. 333-195360), and the Registration Statement on Form S-8 of the Registrant, which was originally filed with the Securities and Exchange Commission on June 24, 2014 (File No. 333-196986).

EX-1.1

Exhibit 1.1

 

NEOVASC INC.

ANNUAL INFORMATION FORM

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2015

March 29, 2016

GLOSSARY	1
TERMS OF REFERENCE	2
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND RISK FACTORS	3
CORPORATE STRUCTURE	4
Intercorporate Relationships	4
GENERAL DEVELOPMENT AND DESCRIPTION OF THE BUSINESS	5
Three Year Development	6
Additional Products and Third-Party Sales	13
Product Development	13
Specialized Skill & Knowledge	13
Intangible Property	14
New Products/Components/Cycles	14
Economic Dependence	15
Foreign Operations	16
Lending	16
Reorganizations	16
Employees	17
Social or Environmental Policies	17
RISK FACTORS	17
DIVIDEND POLICY	31
DESCRIPTION OF CAPITAL STRUCTURE AND MARKET FOR SECURITIES	31
PRIOR SALES	32
ESCROWED SECURITIES	33
DIRECTORS AND OFFICERS	33
CEASE TRADE ORDERS, BANKRUPTCIES, PENALTIES OR SANCTIONS	37
Cease Trade Orders and Bankruptcies	37
Penalties and Sanctions	38
Individual Bankruptcies	38
CONFLICTS OF INTEREST	38
AUDIT COMMITTEE INFORMATION	38
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS	40
MATERIAL CONTRACTS	40
LEGAL PROCEEDINGS	40
NAMES AND INTEREST OF EXPERTS	41
TRANSFER AGENT AND REGISTRAR	41
ADDITIONAL INFORMATION	41
ADDITIONAL FINANCIAL INFORMATION	41
SCHEDULE “A”  AUDIT COMMITTEE CHARTER	A-1

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.

Atrium: chamber in the heart.

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; 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.

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 in a rigorous, controlled manner.

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 ⅓ mm.

Health Canada: the federal department of health of Canada responsible for the regulation of drugs, natural health products, cosmetics and medical devices and includes the Therapeutic Products Directorate, which in turn includes the Medical Devices Bureau.

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.

Investigational Device Exemption (IDE): 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 Premarket Approval (PMA) application or a Premarket 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.

Mitral: of or pertaining to the mitral heart valve.

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

Nasdaq: the NASDAQ Stock Market.

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

Peripatch^TM: 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™: Neovasc’s proprietary technology for the treatment of refractory angina.

Stent: expandable, metallic tube inserted into a diseased artery to hold vessel open and maintain proper blood flow; may be used to deliver medication to the artery wall (a “drug-eluting stent”).

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

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

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.

TSX: the Toronto Stock Exchange.

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 is as of March 29, 2016, unless another date is indicated. All references to dollars ($) in this document are expressed in U.S. funds, unless otherwise indicated.

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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 U.S. securities legislation 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 include, but are not limited to, statements relating to:

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

· our plans to develop and commercialize products and the timing of these development programs;

· our ability to replace declining revenues from the tissue business with revenues from the Reducer and Tiara in a timely manner;

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

· the cost of post-market regulation if we receive necessary regulatory approvals;

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

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

· our ability to get our products approved for use;

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

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

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

· our estimates of the size of the potential markets for our products;

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

· the rate and degree of market acceptance of our products;

· the timing and amount of reimbursement for our products;

· the success and pricing of other competing therapies that may become available;

· our retention and hiring of qualified employees in the future;

· the manufacturing capacity of third-party manufacturers for our products;

· the competition we face from other companies, research organizations, academic institutions and government agencies, and the risks such competition pose to our products;

· the confidential information we possess about patients, customers and core business functions, and the information technologies we use to protect it;

· the conduct or possible outcomes of any actual or threatened legal proceedings;

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

· government legislation in all countries that we already, or hope to, sell our products in, and its effect on our ability to set prices, enforce patents and obtain product approvals or reimbursements; and

· risks related to lawsuits that could direct our resources and result in the payment of significant damages and other remedies.

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Such 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:

· our regulatory and clinical strategies will continue to be successful;

· our current positive interactions with regulatory agencies will continue;

· recruitment to clinical trials and studies will continue;

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

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

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

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

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

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

· genericisation of markets for Tiara and Reducer will develop; and

· capital will be available on terms that are favourable to us.

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 Inc. (“Neovasc” or the “Company”) 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 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 five wholly-owned subsidiaries as follows:

Name:	Date of Incorporation:	Jurisdiction of Incorporation:
Neovasc Medical Inc. (formerly PM Devices Inc.)	May 7, 1998	British Columbia

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Name:	Date of Incorporation:	Jurisdiction of Incorporation:
Neovasc Tiara Inc.	March 11, 2013	Canada (federal)
Neovasc Medical Ltd.	September 9, 2002	Israel
Neovasc (US) Inc. (formerly Medical Ventures (US) Inc.)	July 2, 2007	United States
B-Balloon Ltd.	March 30, 2004	Israel

B-Balloon Ltd. is in the process of being voluntarily liquidated. Angiometrx Inc., a wholly-owned subsidiary of Neovasc, amalgamated with Neovasc Medical Inc. (NMI) on January 1, 2015.

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 Tiara technology in development for the transcatheter treatment of mitral valve disease, the Neovasc Reducer for the treatment of refractory angina.

In 2009, Neovasc started initial activities to develop novel technologies for catheter-based treatment of mitral valve disease. Based on the early positive results of these activities, the Company formally launched a program to develop the Tiara. Neovasc established a separate entity, Neovasc Tiara Inc. (NTI), in March 2013 to develop and own the intellectual property related to the Tiara (Neovasc has transferred all intellectual property related to Tiara to NTI). On February 3, 2014, Neovasc announced the first human implant of the Tiara under special access compassionate use exemptions. Subsequently eleven additional patients have been implanted with the Tiara (nine under compassionate use approvals in Vancouver, Canada and in Europe and two in the TIARA-I study) bringing the total number of patients treated with the device to twelve as of this date. 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 will include up to 15 patients enrolled at centers in the United States and up to 15 patients at centers in Canada and Europe. The first European patient was enrolled in the study in Antwerp, Belgium in late-2014 and the first patient in the United States was enrolled in mid-2015. The Tiara is currently available in two sizes; additional sizes are under development. Following completion of the TIARA-I study the Company intends to continue advancing the Tiara to commercialization and will be undertaking additional studies to support authorization to affix the CE Mark and FDA approval as appropriate.

In July 2008, Neovasc acquired Neovasc Medical Ltd. (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. The Company estimates that there are approximately 620,000 refractory angina patients in the United States who are potential candidates for this treatment. The Company has 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 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 trial 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.

5

Neovasc’s business operations started in March 2002, with the acquisition of NMI. NMI manufactures 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 sells biological tissue to industry partners and other customers who incorporate this tissue into their own products such as transcatheter heart valves. Neovasc’s biological products are made from chemically treated biocompatible pericardial tissue. In 2012, Neovasc sold the rights to manufacture a specific line of conventional surgical patch products to LeMaitre Vascular, Inc. (“LeMaitre”) for $4.6 million. Neovasc has refocused its use of this treated pericardial tissue to constitute key components in third-party medical products, such as transcatheter heart valves. The Company also provides customers with consulting services related to the development of these products with specific expertise related to the transcatheter heart valve field as well as contract manufacturing services for these valves at all stages of development through to commercial scale production.

Neovasc’s Strategy

The Company’s core strategy is to focus on the continued development and commercialization of its products, the Tiara and 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:

· continuing the Company’s initial clinical experience of the Tiara, completing enrollment of a multi-center feasibility study in 2016, and if the enrollment and results of the feasibility study are successful, initiating a CE Mark study in 2016.

· continuing development of the Reducer, initiating a U.S. FDA IDE study in 2016 and supporting the successful COSIRA trial with additional experience through the Company’s targeted commercial launch of Reducer in Europe; and

· continuing efforts to support Neovasc customers through their regulatory pathways and commercialization of their products, with the view to ultimately supplying pericardial tissue and engaging in full scale manufacturing of their sub-components or complete transcatheter heart valves for commercial sale.

Three Year Development

Recent Developments Subsequent to December 31, 2015

On January 11, 2016, the Company announced that the U.S. FDA had granted approval for participating physicians to treat patients with its 40mm Tiara in the TIARA-I study.

Year Ended December 31, 2015 Developments

On February 3, 2015, the Company closed a previously announced equity financing for gross proceeds to the Company of $74,883,850. The financing was underwritten by Leerink Partners LLC as sole book-running manager for a syndicate of underwriters, which placed 10,415,000 common shares of Neovasc from treasury and 1,660,000 common shares sold by certain directors, officers and employees of the Company each at a price per common share of $7.19. Neovasc is using the net proceeds received by the Company (i) to enroll patients in the TIARA-I study; (ii) to initiate a CE Mark study and U.S. IDE study for Tiara; (iii) to further develop and refine Tiara; (iv) to advance the commercialization of Reducer in Europe; (v) to initiate a U.S. IDE study for Reducer; and (vi) for general corporate purposes.

On February 5, 2015, the final results from the Company’s COSIRA trial assessing the efficacy and safety of the Reducer for treatment of Refractory Angina, were published in the New England Journal of Medicine.

In October 2015, the Company’s Tiara was featured in a “live case” broadcast to the 27th Annual Transcatheter Cardiovascular Therapeutics scientific symposium, the world's largest educational meeting specializing in interventional cardiovascular medicine. During the live broadcast, Dr. Anson Cheung and Dr. John Webb of St. Paul’s Hospital (Vancouver, Canada) implanted a 35mm Tiara in a patient suffering from severe mitral regurgitation.

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Year Ended December 31, 2014 Developments

On February 3, 2014, Neovasc announced the first human implant of the Tiara and, on February 20, 2014, a second human implant was completed, both under special compassionate use exemptions. Subsequently ten additional patients have been implanted with Tiara in early feasibility and compassionate use cases bringing the total number of patients treated with the device to twelve as of the date of this Annual Information Form.

On March 26, 2014, the Company closed a previously announced bought deal equity financing for gross cash proceeds of C$25,152,000. The financing was underwritten by Cormark Securities Inc., which placed 4,192,000 common shares of Neovasc at a price of C$6.00 per common share.

The Company submitted applications for listing of its common shares on the TSX and the Nasdaq Capital Market. Our Common Shares began trading on the TSX on June 23, 2014 and on Nasdaq on May 21, 2014.

On October 9, 2014, the Company received conditional IDE approval from the U.S. FDA to initiate the U.S. arm of its TIARA-I study for the Company’s Tiara and on November 27, 2014, the first patient was enrolled in the European arm of the study.

Year Ended December 31, 2013 Developments

On February 28, 2013, the Company announced that the clinical protocol for its COSIRA trial had been published in the peer-reviewed journal Trials (Jolicoeur et al. Trials, 2013, 14:46).

On May 13, 2013, the Company completed patient enrollment in its COSIRA trial designed to further assess the efficacy and safety of the Reducer.

On May 21, 2013, the Company presented initial data from open label patient Registries that are tracking the progress of refractory angina patients implanted with the Reducer at EuroPCR 2013. The data presented six-month follow up data from fifteen Registry patients showing that their angina and physical disability were significantly improved after Reducer implantation. Among other measures, patients were assessed on the Canadian Cardiovascular Society (CCS) grading scale, which is widely used to describe and classify the severity of effort-related angina. Despite the small size of this sample, the change in CCS scores was statistically significant compared to baseline (average CCS score was 3.07 at baseline and 1.64 at follow up (n= 14, p=<0.0001)). Patient subsets who received stress thallium and echo dobutamine testing also showed significant improvement with the Reducer (p=0.042 (n=10) and p=0.004 (n=13), respectively).

On May 23, 2013, the Company presented positive animal data from its Tiara at EuroPCR 2013. Data on long-term implantation of the Tiara in an animal model of mitral regurgitation showed that all seven animals implanted with the Tiara were thriving at the end of the 150-day study, with no signs of inflammation or other adverse reactions to the implanted valve. The Tiara was well incorporated into the native anatomy. At 150 days, valve leaflets were functioning well with no significant degradation in hydrodynamic performance or calcification. In all of the animals, left ventricular outflow was unimpeded, and the aortic valve continued to function normally.

On October 29, 2013, the Company announced that a review of results from preclinical studies of the Tiara had been published in the Journal of the American College of Cardiology: Cardiovascular Interventions (J Am Coll Cardiol Intv. 2014;7(2):154-162). The review concludes that implantation of the Tiara is technically feasible, has an encouraging safety profile and results in a stable and well-functioning mitral bioprosthesis.

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On November 6, 2013, the Company reported topline results for its COSIRA trial assessing the efficacy and safety of the Reducer. As discussed in more detail below, the trial demonstrates that the Reducer achieved its primary endpoint, significantly improving the symptoms and functioning of patients disabled by previously untreatable refractory angina. The COSIRA trial also confirmed that the Reducer is well tolerated, with no reports of device-related serious adverse events. The safety and efficacy data from the randomized, controlled COSIRA trial is consistent with results seen in previous non-randomized pilot studies of the Reducer.

On November 13, 2013, the Company announced that the first patent covering the Tiara has been issued by the U.S. Patent and Trademark Office. The new patent protects key aspects of the Tiara. It is the first patent to issue from a portfolio of U.S. and international patent applications Neovasc has filed aimed at establishing an extensive intellectual property estate covering the entire Tiara, including the prosthesis, delivery system, associated accessories and methods of use.

Neovasc’s Products

Tiara

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 Tiara is in preclinical / early clinical stage development to provide a minimally invasive transcatheter device for the millions of patients who experience mitral regurgitation as a result of mitral heart valve disease (in 2014 it was estimated that mitral regurgitation affects approximately 4.1 million people in the United States and the European Union). Mitral regurgitation is often severe and can lead to heart failure and death. Unmet medical need in these patients is high. 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. There are approximately 1.7 million patients suffering from significant mitral regurgitation in the United States. Currently there is no transcatheter mitral valve replacement device approved for use in any market.

Clinical experience to date has been primarily with the 35mm Tiara valve and the 32 French delivery system. First clinical use of the 40mm Tiara occurred in the fourth quarter of 2015 and first use of the 45mm Tiara is targeted for 2016. The additional sizes will allow Neovasc to expand treatment to a broader population of patients.

To date, twelve patients have been implanted with Tiara in early feasibility and compassionate use cases and Neovasc believes that early results have been encouraging. The 30-day survival rate for the first twelve patients implanted with Tiara is 73% with one patient now over two years post implant. The Tiara has been successfully implanted in both functional and degenerative MR patients, as well as patients with pre-existing prosthetic aortic valves and mitral surgical rings.

The results from these early feasibility and compassionate use cases have been instrumental in helping to demonstrate the potential of the Tiara as well as refining the implantation procedure, patient selection criteria and the device itself. Careful patient selection continues to be critical as the Company and clinical community continue to learn moreabout treating this population of very sick patients.

While many challenges remain prior to achieving commercial production (including, but not limited to, positive clinical trial and study results and obtaining regulatory approval from the relevant authorities), the Company believes the Tiara is being widely recognized as one of the leading devices exploring this new treatment option for patients who are unable or unsuited to receive an open heart surgical valve replacement or repair. 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 with varying results.

Neovasc believes that there are several unique attributes of the Tiara that may provide advantages over other approaches to mitral valve replacement. There is no certainty that the Tiara will successfully proceed through clinical testing and ultimately receive regulatory approval to treat these patients, nor is it possible to determine at this time if any of the other development stage devices will succeed in obtaining regulatory approval.

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The Tiara valve is made up of two major components: the leaflets and skirt, which are made from the Company’s Peripatch tissue, 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 the further development of the Tiara. The Tiara delivery system is manufactured in-house by the Company using components that are readily available.

Regulatory Status

The Tiara is an early-stage development product without regulatory approvals in any country. The Company intends to continue to fund development of the product as cash flow allows and anticipates applying for CE Mark approval in Europe in the next two to three years. As at December 31, 2015, the Company has spent approximately $25.5 million developing the product and anticipates that it may require an additional $25-30 million as it moves forward to achieve CE Mark. There is no assurance that European regulatory approval will be granted in the time frame anticipated by management, or granted at any time in the future. There is no expectation that this product will be revenue-generating in the near term, although management believes that the product is addressing an important unmet clinical need and that the demand for the product is high.

On October 9, 2014 Neovasc announced that it has received conditional IDE approval from the U.S. FDA to initiate the U.S. arm of its TIARA-I study for the Company’s Tiara. The TIARA-I study is a multinational, multicenter early feasibility study being conducted to assess the safety and performance of Neovasc’s Tiara mitral valve system and implantation procedure in high-risk surgical patients suffering from severe MR. Severe MR is a critical condition that affects millions of patients and, if left untreated, can lead to heart failure or death. This FDA conditional approval allows clinical investigators to begin enrolling patients at participating U.S. medical centers once local hospital and related approvals are in place. This is an important step towards Tiara becoming one of the first transcatheter mitral valve replacement devices available for treating U.S. patients. The TIARA-I study will enroll up to 30 patients globally and is being overseen by a multidisciplinary committee of internationally recognized physicians. Tiara has also been implanted under compassionate use approvals in Canada and implantations under similar approvals are anticipated in other countries in the future.

Reducer

The Reducer is a treatment for patients with refractory angina, a painful and debilitating condition that occurs when the coronary arteries deliver an inadequate supply of blood to the heart muscle, despite treatment with standard revascularization or cardiac drug therapies. It affects approximately 620,000 individuals in the United States who are not eligible for conventional treatments and typically lead severely restricted lives as a result of their disabling symptoms, and its incidence is growing. The Reducer provides relief of angina symptoms by altering blood flow in the heart’s venous system, thereby increasing the perfusion of oxygenated blood to ischemic areas of the heart muscle.

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The pain associated with refractory angina can make it difficult for patients to engage in routine activities, such as walking or climbing stairs. Using a catheter-based procedure, the Reducer is implanted in the coronary sinus, the major blood vessel that sends de-oxygenated blood from the heart muscle back to the right atrium of the heart. Pilot clinical studies demonstrate that the Reducer provides significant relief of chest pain in refractory angina patients. There are approximately 620,000 refractory angina patients in the United States who are potential candidates for the Reducer, either because they cannot be revascularized or because they are otherwise poorly managed using conventional medical therapies. These patients represent a substantial market opportunity for the Reducer product. If physicians adopt the Reducer for use in these refractory patients, it is expected that there will be a natural spillover into the broader recurrent angina market, which represents a substantially larger patient population.

The Reducer is targeting a currently untreatable patient population. A refractory patient by definition is resistant to other therapies. A patient who has refractory angina is not a surgical candidate, cannot benefit from existing interventional cardiology therapies and is not receiving adequate relief from available drug regimens to manage their chest pain. As such there are currently no direct competitors to the Reducer as the patient will have exhausted all other treatment options before a Reducer is considered. Once the Reducer is established as a standard of care for the refractory angina patient, Neovasc believes that the Reducer may also be considered for use in the larger population of recurrent angina patients (patients who are receiving repeat treatments for angina pain) and thus increase its market potential.

The Company has completed a COSIRA trial to assess the efficacy of the Reducer device. The COSIRA trial’s primary endpoint was a two-class improvement six months after implantation in patients’ ratings on the CCS angina grading scale, a four-class functional classification that is widely used to characterize the severity of angina symptoms and disability. Only patients with severe angina, CCS Class 3 or 4, were enrolled in the COSIRA trial. The COSIRA trial analysis showed that the study met the primary endpoint, with patients receiving the Reducer achieving a statistically significant improvement in CCS scores (two classes or better) compared to patients receiving a sham control (18 of 52 (34.6%) of the Reducer patients improved ≥ 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.

 

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The Reducer is an hourglass-shaped, balloon-expandable, stainless steel, bare metal device, which is implanted in the coronary sinus, creating a restriction in venous outflow from the myocardium (the muscular layer of the heart wall). It is implanted using conventional percutaneous, or needle puncture, techniques. The Reducer is provided sterile and pre-loaded on a balloon catheter system. The system is 9 French sheath compatible and operates over a .035 inch guide wire. The implantation procedure is quick and requires minimal training. Once guide wire access to the coronary sinus is achieved, implantation typically takes less than 20 minutes.

Following implantation, the Reducer is incorporated into the endothelial tissue and creates a permanent (but reversible) 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 narrowing slightly elevates the venous outflow pressure, which restores a more normal ratio of epicardial to endocardial blood flow between the outer and inner layers of the ischemic areas of the heart muscle. This results in improved perfusion of the endocardium, which helps relieve ischemia and chest pain. The physiological mechanism behind this effect is well documented in medical literature.

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

The Reducer has demonstrated excellent results in multiple animal studies and in a clinical trial of fifteen patients suffering from chronic refractory angina who were followed for three years after implantation. The six-month results from this clinical trial were published in the Journal of the American College of Cardiology and three-year follow-up data was presented at the annual scientific meeting of the American College of Cardiology in March 2010. In this clinical trial, implantation of the Reducer resulted in significant clinical improvements in stress test and perfusion measurements, as well as in overall quality of life in the majority of the patients. These improvements were maintained for the three years of the study. During this period, the Reducer appeared safe and well tolerated in these patients. More recently, the Company completed the COSIRA trial – a multi-center, double blinded sham controlled study intended to assess the safety and efficacy of the Reducer in a rigorous, controlled manner. The results of COSIRA trial were positive and are discussed in more detail below.

Following this 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 Italy, Switzerland, the United Kingdom and Saudi Arabia and has initial sales into these countries. Launch of the product is also underway in select centers in Germany via direct sales. Based on the initial results from the targeted launch, Neovasc is presently developing an expanded sales plan and strategy for 2016 and beyond. It is anticipated that sales of the product in the United States would follow obtaining U.S. regulatory approval, if such approval is granted, as described further below.

Regulatory Status

The Reducer is approved for sale in Europe, having received CE Mark designation in November 2011. In preparation for product launch, Neovasc has completed development of the commercial-generation Reducer and the product is currently being transferred to commercial scale manufacture. The Company has completed the COSIRA trial that is expected to provide data to support broad commercialization of the Reducer product. The COSIRA trial is a double-blinded, randomized, sham controlled, multi-center trial of 104 patients at eleven clinical investigation sites. The study completed enrollment in early 2013 and on November 6, 2013, the Company reported topline results for its COSIRA trial assessing the efficacy and safety of the Reducer. In February 2015, the COSIRA trial results were published in the New England Journal of Medicine. As discussed above, the data shows that the Reducer achieved its primary endpoint, significantly improving the symptoms and functioning of patients disabled by previously untreatable refractory angina. The COSIRA trial also confirmed that the Reducer is safe and well tolerated. The safety and efficacy data from the randomized, controlled COSIRA trial is consistent with results seen in previous non-randomized pilot studies of the Reducer. Placement of the Reducer is performed using a minimally-invasive transvenous procedure that is similar to implanting a coronary stent and takes approximately 20 minutes. Neovasc has begun discussions with the FDA on the development of a randomized IDE trial in the United States. The Company expects to begin this trial in 2016. U.S marketing approval is expected about two to four years after the clinical trial begins. There is no assurance that U.S regulatory approval will be granted in the time frame anticipated by management, or granted at any time in the future. The cost of the U.S. clinical trial is expected to be $15-20 million.

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Tissue Products

Neovasc produces Peripatch, an advanced biological tissue product that is manufactured from pericardium, which is the protective sac that surrounds the heart of an animal. Neovasc uses its proprietary processes to convert raw pericardial tissue from animal sources into sheets of implantable tissue that can be incorporated into third-party medical devices (for example, for use as the material for artificial heart valve leaflets). Peripatch tissue retains the mechanical characteristics of natural tissue and is readily incorporated into the body without rejection. Peripatch tissue was originally developed to fabricate artificial heart valves and has a 25-year history of successful implantation for heart valve and other surgical applications. Peripatch tissue can be manufactured to meet the mechanical and biological characteristics required for a wide variety of applications, such as heart valve leaflets.

The product line includes Peripatch surgical patches, which are rectangular patches made from bovine tissue, applied as internal bandages to repair weak or damaged organs or vessels. On October 31, 2012, Neovasc amended its agreement with LeMaitre allowing LeMaitre to exercise its option to purchase certain specific rights to Neovasc’s biological vascular surgical patch technology on an accelerated basis. Under the terms of the amendment, LeMaitre is permitted to use the Peripatch technology for the sole purpose of manufacturing surgical patches that it markets as its XenoSure™ surgical patch product line. Neovasc ceased manufacturing surgical patches for LeMaitre in the second quarter of 2015.

The Company also provides a range of custom Peripatch products to industry customers for incorporation into their own products, such as transcatheter heart valves and other specialty cardiovascular devices. These include Peripatch tissue fabricated from bovine and porcine sources and offered in a wide variety of shapes and sizes. Neovasc works closely with its industry customers to develop and supply tissue to meet their specific needs, such as for transcatheter heart valve leaflets. This often includes providing tissue in custom shapes or molded to three dimensional configurations. The Company also provides product development and specialized manufacturing services related to Peripatch tissue-based products such as transcatheter heart valves. The Company actively consults with a range of heart valve programs in order to refine their products and provide tissue to meet their needs and also provides transcatheter valve prototyping, pilot manufacture and commercial manufacture services to a range of customers.

Although the generic method of processing tissue in a way similar to the Peripatch is widely used, the Company’s competitive position stems from its own proprietary process that is supported by a 25-year implant history for use as a surgical heart valve. A company that establishes its own process will have to go through a significant and costly series of studies to prove that their process produces tissue that is suitable as a medical device. The Peripatch product has already met these requirements and has already been validated through many years of successful use in multiple applications. Neovasc’s customers make the decision to use the Company’s tissue rather than take on the demanding and lengthy process of developing their own tissue processing operation. As stated elsewhere herein, Neovasc is not aware of any other company in the world that both provides such tissue and partners with customers to provide specialized heart valve development and manufacturing services.

The basic Peripatch technology was established over 25 years ago by a third party that was a predecessor company to NMI, when the material was used to fashion the leaflets and other components in surgical heart valves. Neovasc’s processing of the material is a trade secret and proprietary to the Company. However, the use of the product in transcatheter minimally invasive heart valves and other medical devices such as artificial hearts are new uses for the technology. Appropriate testing is conducted to ensure the appropriateness and durability of the tissue for a new application before the medical device can be approved for use, and there is some additional risk when applying the technology to a new product or when amending to, or adding to, the fixation process to meet a new demand, such as for three dimensional shape setting of the tissue.

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The supply of Peripatch products and the associated product development, consulting and specialized manufacturing services related to Peripatch tissue-based products represents 95% of the Company’s current revenues.

Regulatory Status

While the Company does not maintain stand-alone marketing approval for its tissue products, a number of third-party products which incorporate Peripatch tissue are approved for sale (i.e. such products have obtained regulatory approval, such as a CE Mark or Canadian medical device license) or have pending approvals in various markets. There is no assurance that further regulatory approvals for third-party products will be obtained.

Additional Products and Third-Party Sales

Neovasc provides consulting and original equipment manufacturing services to other medical device companies when these services fall within the scope of the Company’s expertise and capabilities. These activities are substantially focused on providing specialized development and manufacturing services for industry customers who incorporate the Company’s Peripatch tissue into their vascular device products such as heart valves. The goal of these activities is to drive near-term revenues as well as support development of a long-term revenue stream through the ongoing provision of tissue and manufacturing services to customers with commercially successful devices that incorporate Neovasc tissue. Revenue earned from various contract agreements varies throughout the year depending on customer needs.

Product Development

Product development at the Company is currently focused on completing commercialization of the Reducer as well as clinical stage and pre-commercialization development work on the Tiara. The Company may also investigate other potential new internal or external projects that leverage the Company’s existing technologies, infrastructure and expertise.

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. The process has been improved over time and can be adapted to meet the needs of our customers. The Company has an engineering team that is skilled and knowledgeable in the process and the product has a 25-year implant history that differentiates it from other processing techniques.

The Company’s management team has developed specific skills and knowledge based on each individual’s experiences. A description of each of their qualifications can be found under the heading “Directors and Officers”, below.

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). Accordingly, rights under any of Neovasc’s issued patents may provide it with commercially meaningful protection for its products or afford it a commercial advantage against the Company’s competitors or their competitive products or processes. 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, NEOVASC REDUCER, and PERIPATCH in the United States, Canada, and the European Union.

New Products/Components/Cycles

Tiara

The Tiara is an early stage development product that will require several more years of development before it obtains regulatory approval, if ever, for use in any jurisdiction. A first-in-human implantation of Tiara was successfully performed on January 30, 2014 by physicians at St. Paul’s Hospital in Vancouver, British Columbia. The transapical procedure resulted in the elimination of mitral regurgitation and significantly improved heart function in the patient, without the need for cardiac bypass support and with no procedural complications. Subsequently eleven additional patients have been successfully implanted with Tiara (ten under compassionate use approvals in Vancouver, Canada and in Europe and two in the TIARA-I study) bringing the total number of patients treated with the device to twelve as of this date. 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 will include up to 15 patients enrolled at centers in the United States and up to 15 patients at centers in Canada and Europe. The first European patient was enrolled in the study in Antwerp, Belgium in late-2014 and the first U.S. patient was enrolled in mid-2015. The Tiara is currently available in two sizes; additional sizes are under development. Following completion of the TIARA-I study the Company intends to continue advancing the Tiara to commercialization and will be undertaking additional studies to support authorization to affix the CE Mark and FDA approval as appropriate. Further information about Tiara can be found above under the heading “Neovasc’s Products”.

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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 Reducer sales in other non-US markets and has signed distribution agreements in several countries. It is anticipated that sales of the product in the United States would follow once U.S. regulatory approval has been granted, as described further below.

A well-known and well-established medical device contract manufacturer will manufacture the Reducer for the Company. The Reducer is already in pilot production in preparation for commercial launch. The majority of the components that make up the Reducer are readily available; however, two critical components of the device are not. The balloon portion of the delivery system is technically challenging to manufacture and the Reducer device, whilst a basic technology, must be manufactured in Israel due to restrictions on the transfer of intellectual property and manufacturing out of Israel stemming from certain research grants received by NML prior to the acquisition in July 2008. Further information about Reducer can be found above under the heading “Neovasc’s Products”.

Peripatch Products

The basic Peripatch technology was established over 25 years ago, when the material was used to fashion the leaflets and other components in surgical heart valves. Neovasc’s processing of the material is a trade secret and proprietary to the Company.

Neovasc sources its porcine tissue from one abattoir in Canada. The bovine tissue is sourced from abattoirs in the United States for sale of tissue destined for the U.S. market and from abattoirs in both Australia and New Zealand for the sale of tissue destined for Europe. There is a degree of capacity constraint related to the supply of raw tissue but with multiple approved suppliers for each type of tissue the risk of disruption is minimized.

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, 2015, revenues from the Company’s four largest customers accounted for approximately 30%, 29%, 18% and 10% of the Company’s sales. Some of these customers are either development stage companies or do not have established markets for their products. In addition, 58% of the Company’s revenues for the year ended December 31, 2015 are derived from consulting services. The Company’s consulting service revenues are contract-driven and they can fluctuate from quarter to quarter and year to year as current projects are completed and new projects start.

The Company anticipates that it will be able to convert more of its consulting services customers, whose products are currently in product development and clinical trials, into contract manufacturing customers as they commercialize their own products. This process is dependent on the product development and regulatory success of these existing customers, so revenues are therefore difficult to project. A change in the economic outlook of these four largest customers could have a material adverse impact on the anticipated revenues of the Company. Factors that may impact these customers may include, among others, the stage of development; additional capital requirements; the impact of any global economic downturn; the ability to develop, manufacture and commercialize its products in a cost-effective manner; the ability to integrate newly-acquired businesses and the ability to protect their intellectual property.

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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 the United States and Europe, primarily denominated in U.S. dollars and Euros, while the majority of the Company’s costs are denominated in 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 relevant foreign currency in relation to the Canadian 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 Canadian dollar financial statements prior to translation into the U.S. dollar presentation currency. In addition, any decrease in the value of the U.S. dollar or 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, 2015, approximately 50% of the Company’s revenue was generated from customers in the United States, 48% from customers in the European Union and 2% from customers in Israel. Approximately 58% of the Company’s revenue was denominated in U.S. dollars and 42% 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. On September 30, 2013, Neovasc transferred the intangible assets, including patents, trademarks and other know-how, for the Tiara device to its 100% wholly-owned subsidiary NTI. On January 1, 2015, Angiometrx Inc. was amalgamated with NMI.

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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 is the operating company for the group. It holds all the tangible assets and the Peripatch tissue technology and employs all 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 Reducer products respectively. NML received a royalty based on Reducer revenues generated by NMI.

Employees

The Company has seen rapid growth in its employee numbers. The Company has 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 Reducer and in support areas such as biology, chemistry, risk management, human resources and quality affairs to better assist the commercial and development activities. At the end of each of the last five years and as at March 29, 2016 the number of employees was as follows:

Year ended December 31:	Number of Employees:
2011	60
2012	77
2013	119
2014	146
2015	197
Current	205

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 Neovasc common shares could decline.

Investment in the common shares of the Company is 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.

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

The Company is engaged as a defendant in lawsuits filed by CardiAQ Valve Technologies, Inc. (“CardiAQ”), as further described below. Litigation resulting from CardiAQ’s claims could 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 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, loss of intellectual property rights, or injunctive relief against us that could have a material adverse effect on our business and financial condition.

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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. On June 23, 2014, CardiAQ also filed a complaint against Neovasc in Germany requesting that Neovasc assign its right to one of its European patent applications to CardiAQ. On July 7, 2014, the Company was made aware through a press release issued by CardiAQ of a stay in proceedings for Neovasc’s European patent application that is the subject of the German lawsuit. This stay of proceedings was granted without an opportunity for Neovasc to respond to CardiAQ’s allegations. The Company requested that the stay be lifted, but the request was denied by the European Patent office pending resolution of the German lawsuit. Neovasc filed its response to the German lawsuit in December 2014.

The Company intends to vigorously defend itself in both lawsuits. After motion practice and discovery, the District of Massachusetts case is currently scheduled to go to trial on May 2, 2016. The court in Munich is expected to render its decision after a hearing currently scheduled for August 2016.

The outcome of these matters is not currently determinable nor is it possible to accurately predict the outcome or quantum of these proceedings to the Company at this time. Until this matter has been resolved by the appropriate Courts, the Company cannot give any assurances as to such outcome.

When the Company assesses that it is more likely that no present obligation exists at the end of the reporting period and that the possibility of an outflow of economic resources embodying economic benefits is possible, but not probable, no provision is recognized and contingent liability disclosure is required. The Company has applied the disclosure exemption and not provided an estimate of the contingent liability disclosure as it may seriously prejudice the Company’s position in the dispute.

Third parties may claim we are infringing their intellectual property 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 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. 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. A former customer has alleged that we have wrongfully used its confidential information in connection with the Tiara. While we believe this allegation to be without merit, the ultimate outcome of a litigation depends on numerous factors and our success in the event of any such litigation is not guaranteed. 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.

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

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

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

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

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.

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

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

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

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

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

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

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

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

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

We could potentially seek additional funding through corporate collaborations and licensing arrangements, through public or private equity or debt financing, or through other transactions. However, if sales are slow to increase or if capital market conditions in general, or with respect medical device companies such as ours, are unfavourable, 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.

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, 2015, we had a net loss of $26,730,490 and at December 31, 2014, we had an accumulated deficit of $115,288,713. We have increased our research and development expenses in recent periods and we plan further increases in the future as cash flows allow. The planned increases in research and development expenses may result in larger losses in future periods. As a result, we will need to generate significantly greater revenues than we have to date to achieve and maintain profitability. There can be no assurance that revenues will increase. Our business strategies may not be successful and we may not be profitable in any future period. Our operating results have varied in the past and they may continue to fluctuate in the future. In addition, our operating results may not follow any past trends.

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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.

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

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:

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

· scope of approved uses and marketing approval;

· timing of market approvals and market entry;

· difficulty in, or excessive costs to, manufacture;

· infringement or alleged infringement of the patents or intellectual property rights of others;

· availability of alternative products from our competitors;

· acceptance of the price of our products; and

· 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.

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

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

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 recent 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, U.S. President Obama signed into law the Patient Protection and Affordable Care Act and the Health Care and Education Affordability Reconciliation Act of 2010. Certain provisions of the law will not be effective for a number of years and there are many programs and requirements for which the details have not yet been fully established or consequences not fully understood, and it is unclear what the full impacts will be from the law. The legislation imposes new taxes on medical device makers in the form of a 2.3% excise tax on all U.S. medical device sales. Under the legislation, the total cost to the medical device industry is expected to be approximately $20 billion over 10 years. The new tax could materially and adversely affect our business, cash flows and results of operations. The law 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 law includes a reduction in the annual rate of inflation for Medicare payments to hospitals that began in 2011 and the establishment of an independent payment advisory board to recommend ways of reducing the rate of growth in Medicare spending beginning in 2014. We cannot predict what health care programs and regulations will be ultimately implemented at the federal or state level, or the effect of any future legislation or regulation. However, any changes that lower reimbursement for our products or reduce medical procedure volumes could adversely affect our business and results of operations.

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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:

· the federal Anti-Kickback Statute, which 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 applied to medical device 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;

· 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;

· the federal Health Insurance Portability and Accountability Act of 1996, or 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;

· 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;

· 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

· 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 preempted by HIPAA.

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

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

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

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

With respect to any products for which we obtain regulatory approval, we will be subject to post-marketing regulatory obligations, including the requirements by the FDA, EMA and similar agencies in other jurisdictions to maintain records regarding product safety and to report to regulatory authorities serious or unexpected adverse events. The occurrence of unanticipated serious adverse events or other safety problems could cause the governing agencies to impose significant restrictions on the indicated uses for which the product may be marketed, impose other restrictions on the distribution or sale of the product or require potentially costly post-approval studies. In addition, post-market discovery of previously unknown safety problems or increased severity or significance of a pre-existing safety signal could result in withdrawal of the product from the market and product recalls. Compliance with extensive post-marketing record keeping and reporting requirements requires a significant commitment of time and funds, which may limit our ability to successfully commercialize approved products.

Our industry is subject to health and safety risks.

We produce products for human implantation and use. While we take substantial precautions such as laboratory and clinical testing, clinical studies, quality control and assurance testing and controlled production methods, the associated health and safety risks cannot be eliminated. Our products may be found to be, or to 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.

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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 NML prior to the acquisition in July 2008.

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

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

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

We use a broad range of raw and organic materials and other items in the design and manufacture of our products. Our products are manufactured from treated natural animal tissue and man-made materials. Our non-implantable products are manufactured from man-made raw materials including resins, chemicals, electronics and metals. We purchase certain of the materials and components used in the manufacture of our products from external suppliers, and we purchase certain supplies from single sources for reasons of quality assurance, cost-effectiveness, availability or constraints resulting from regulatory requirements. General economic conditions could adversely affect the financial viability of our suppliers, resulting in their inability to provide materials and components used in the manufacture of our products. While we work closely with suppliers to monitor their financial viability and to assure continuity of supply and maintain high quality and reliability, these efforts may not be successful. In addition, due to the rigorous regulations and requirements of regulatory authorities regarding the manufacture of our products (including the need for approval of any change in supply arrangements), we may have difficulty establishing additional or replacement sources on a timely basis or at all if the need arises. Although alternative supplier options are considered and identified, we typically do not pursue regulatory qualification of alternative sources due to the strength of our existing supplier relationships and the time and expense associated with the regulatory validation process. A change in suppliers could require significant effort or investment in circumstances where the items supplied are integral to product performance or incorporate unique technology, and the loss of any existing supply contract could have a material adverse effect on us.

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.

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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. The functional currency of Neovasc and its subsidiaries is the Canadian dollar and the presentation currency of our financial statements is 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.

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 Exchange Act, 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, and we would no longer be able to utilize the multijurisdictional disclosure system forms for registered offerings by Canadian companies in the United States, which could limit our ability to access the capital markets in the future.

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

Our business is subject to the FCPA which generally prohibits companies and company employees from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. The FCPA also requires companies to maintain accurate books and records and internal controls, including at foreign-controlled subsidiaries. In addition, we are subject to other anti-bribery laws of the nations in which we conduct business that apply similar prohibitions as the FCPA (e.g., the UK’s Bribery Act, the CFPOA and the OECD Anti-Bribery Convention). 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.

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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. In addition, other than our lead engineer on Tiara, we do not maintain “key person” life insurance on any of our officers, employees, or consultants, and so any delay in replacing such persons, or an inability to replace them with persons of similar expertise, would have a material adverse effect on our business, financial condition and results of operations.

We also have relationships with scientific collaborators at academic and other institutions, some of whom conduct research at our request or assist us in formulating our research and development strategies. These scientific collaborators are not our employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us. In addition, even though our collaborators are required to sign confidentiality agreements prior to working with us, they may have arrangements with other companies to assist such other companies in developing technologies that may prove competitive to us.

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.

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

If we experience a period of significant growth 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, train and manage its employee workforce. There can be no assurance that we will be able to effectively manage such growth. 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 GPOs, independent delivery networks, and large single accounts such as the U.S. Veterans Administration, continue to consolidate purchasing decisions for many of our health care provider customers. As a result, transactions with customers are larger, more complex, and tend to involve more long-term contracts. The purchasing power of these larger customers has increased, and may continue to increase, causing downward pressure on product pricing. If we are not one of the providers selected by one of these organizations, we may be precluded from making sales to its members or participants. Even if we are one of the selected providers, we may be at a disadvantage relative to other selected providers that are able to offer volume discounts based on purchases of a broader range of medical equipment and supplies. Further, we may be required to commit to pricing that has a material adverse effect on our revenues and profit margins, business, financial condition and results of operations. We expect that market demand, governmental regulation, third-party reimbursement policies and societal pressures will continue to change the worldwide health care industry, resulting in further business consolidations and alliances, which may exert further downward pressure on the prices of our products and could adversely impact our business, financial condition, and results of operations.

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

As a part of our growth strategy, we regularly explore potential acquisitions of complementary businesses, technologies, services or products as well as potential strategic alliances or divestitures of assets or a sale of the Company. We may be unable to find suitable acquisition candidates or appropriate partners with 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.

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

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

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

· higher than anticipated acquisition costs and expenses;

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

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

· disruption of our ongoing business;

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

· diversion of management’s time and attention.

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

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

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

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

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

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

Conflicts of interest may arise among the Company’s officers and directors as a result of their involvement with other issuers.

Certain of our directors and officers serve as directors, officers, promoters and members of management of other companies and, therefore, it is possible that a conflict may arise between their duties as a director or officer, and their duties as a director or officer of such other companies. There can be no assurance that in the carrying out of their duties with respect to us, these persons will not find themselves in situations which could give rise to conflicts of interest. There can be no assurance that if conflicts do arise, they will be resolved in a manner favourable to us. There can be no assurance that future transactions or arrangements between the companies and any of such entities will be advantageous to us.

Significant shareholders of the Company could influence our business operations and sales of our shares by such significant shareholders could influence our share price.

Frost Gamma Investments Trust (the “Frost Group”) is a significant shareholder of the Company holding approximately 22% of our common shares. The exercise of voting rights associated with shares held by the Frost Group at meetings of shareholders may have significant influences on our business operations. Also, the Frost Group owns shares for the purpose of investment, and therefore, if the Frost Group sells those shares in the market in the future, it could have significant influences on our share price, depending on the market environment at the time of such sale.

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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 Neovasc’s 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

The Company is authorized to issue an unlimited number of common shares without par value of which 66,836,745 were issued and outstanding as of March 29, 2016. The common shares all have equal voting rights and are entitled to receive notice of any shareholders meeting at which they have the right to vote. Subject to the rights of any other class of shares, upon any liquidation, dissolution, winding-up or other distribution of the Company’s assets, the holders of common shares are entitled to participate equally.

The Company is also authorized to issue an unlimited number of preferred shares, which do not have voting rights and are not entitled to receive notice of any shareholders meetings. Upon liquidation, dissolution, winding-up or other distribution of the Company’s assets, the holders of preferred shares are entitled to participate in priority to the holders of common shares. The preferred shares may be issued in series and the Company’s board of directors may attach special rights, privileges, restrictions or conditions to any preferred shares. There were no preferred shares issued and outstanding as of March 29, 2016.

Our Common Shares are listed on the TSX in Canada (trading symbol: NVC) and on Nasdaq in the United States (trading symbol: NVCN). 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.

2015	Max	Min	End	Total Volume
January	C$12.75	C$7.50	C$11.90	661,969
February	C$12.42	C$10.60	C$12.27	364,889
March	C$12.49	C$11.10	C$11.40	83,327
April	C$11.35	C$9.76	C$9.76	68,657
May	C$10.33	C$7.58	C$8.43	146,245
June	C$9.15	C$8.07	C$8.55	38,258
July	C$8.96	C$6.55	C$7.92	41,755
August	C$7.69	C$5.00	C$7.38	37,678
September	C$8.63	C$6.96	C$7.13	54,212
October	C$8.48	C$5.23	C$7.19	78,667
November	C$7.35	C$5.31	C$6.70	102,061
December	C$6.89	C$4.81	C$6.25	53,172

Our Common Shares began trading on 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 Nasdaq.

2015	Max	Min	End	Total Volume
January	$10.12	$6.45	$9.35	3,683,828
February	$9.90	$8.48	$9.90	1,492,519
March	$9.90	$8.29	$9.00	1,425,413

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2015	Max	Min	End	Total Volume
April	$9.38	$8.09	$8.36	2,416,512
May	$8.48	$6.28	$7.00	1,895,965
June	$7.63	$6.55	$6.84	1,310,214
July	$6.94	$5.03	$5.90	852,264
August	$6.33	$3.66	$5.67	1,161,751
September	$6.57	$4.60	$4.91	928,040
October	$6.48	$3.79	$5.55	1,326,278
November	$5.74	$4.00	$4.98	740,632
December	$5.03	$3.41	$4.50	1,035,303

PRIOR SALES

The following table sets forth information in respect of our common shares that we issued upon the exercise of options granted under our incentive stock option plan during the 2015 financial year.

Exercise Date	Number of Shares	Exercise Price
January 7, 2015	68,868	C$0.010
January 7, 2015	65,000	C$0.355
January 12, 2015	10,600	C$0.355
January 12, 2015	2,000	C$1.000
January 12, 2015	3,600	C$1.450
January 19, 2015	48,438	C$0.010
January 23, 2015	27,900	C$0.355
January 23, 2015	1,000	C$0.970
January 23, 2015	3,600	C$1.000
January 23, 2015	7,200	C$1.450
January 28, 2015	1,600,000	C$0.355
January 28, 2015	124,000	C$1.000
January 28, 2015	6,000	C$1.450
February 6, 2015	70,375	C$0.355
February 6, 2015	31,000	C$0.970
February 6, 2015	400	C$2.700
February 13, 2015	8,000	C$0.355
February 13, 2015	26,500	C$0.970
February 13, 2015	11,000	C$2.490
February 20, 2015	8,000	C$0.355
February 26, 2015	3,500	C$0.970
February 26, 2015	4,000	C$1.000
February 26, 2015	3,000	C$1.450
February 26, 2015	3,000	C$2.490
March 9, 2015	18,770	C$0.010
March 9, 2015	600	C$2.490
March 9, 2015	600	C$2.500
March 9, 2015	400	C$2.700
March 9, 2015	20	C$6.500
March 31, 2015	89,500	C$1.450
March 31, 2015	16,600	C$2.490
April 21, 2015	1,500	C$0.970
May 12, 2015	2,000	C$1.450
May 12, 2015	4,000	C$2.490
May 12, 2015	400	C$6.500
May 20, 2015	11,264	C$0.010
June 12, 2015	2,688	C$0.010
June 12, 2015	200	C$1.000
June 12, 2015	1,600	C$1.450
June 12, 2015	280	C$6.500

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Exercise Date	Number of Shares	Exercise Price
July 9, 2015	6,000	C$1.000
July 24, 2015	700	C$2.490
August 6, 2015	900	C$2.490
August 21, 2015	1,250	C$1.000
October 16, 2015	12,000	C$2.490
October 16, 2015	2,000	C$2.500
November 10, 2015	200	C$0.970
November 23, 2015	4,500	C$0.970
November 23, 2015	100,000	C$1.000
December 10, 2015	19,450	C$0.970
December 14, 2015	66,000	C$1.000
December 14, 2015	7,200	C$1.450
Total	2,507,603

The following table sets forth information in respect of options to acquire our common shares that we granted under our incentive stock option plan during the 2015 financial year.

Grant Date	Number of Options	Grant Price
February 24, 2015	200,000	C$11.76
March 3, 2015	25,000	C$12.16
March 17, 2015	50,000	C$12.02
April 16, 2015	332,047	C$10.61
May 14, 2015	4,500	C$8.45
June 1, 2015	70,500	C$8.43
July 1, 2015	97,500	C$8.55
August 1, 2015	103,500	C$7.92
September 1, 2015	28,500	C$7.38
October 1, 2015	68,500	C$7.13
November 2, 2015	12,000	C$7.19
December 1, 2015	75,000	C$6.70
December 28, 2015	356,630	C$5.19
Total	1,423,677

The following table sets forth information in respect of our common shares that we issued, other than on exercise of stock options as set out above, during the 2015 financial year.

Issuance Date	Number of Shares	Issue Price
February 3, 2015	10,415,000	$7.19
Total	10,415,000

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 2015 financial year.

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 Canada Business Corporations Act.

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

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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:

Paul Geyer – Chairman of the Board and Director

Mr. Geyer is Chairman of the Board. On July 1, 2008, he resigned as President and Chief Executive Officer of the Company. 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 committee.

Since June 2009, Mr. Geyer has been Chief Executive Officer 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.

Mr. Geyer is an active angel investor and supporter of local technology and life sciences firms. He is on the board of directors of the BC Technology Industry Association, and is a director for several private companies. He served previously on the board of directors for the Medical Device Development Center and MEDEC, the association representing medical device companies across Canada. Mr. Geyer is Chairman of the Board of BC Social Venture Partners. In April 2011, Mr. Geyer was awarded the LifeSciences BC Leadership Award.

Mr. Geyer graduated with a B.A.Sc. in electrical engineering from the University of British Columbia and has taken post graduate programs in finance and biomedical engineering. Mr. Geyer has completed a Certified Director program at the Anderson Graduate School of Management at the University of California, Los Angeles.

Alexei Marko – Chief Executive Officer and a Director

Alexei Marko’s 18 years of experience in the medical device field spans product development, sales and marketing and executive management.  Mr. Marko has 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.

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

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

Mr. Marko completed both his B.A.Sc. (Hons) at Queen’s University and an M.A.Sc. in electrical engineering at the University of British Columbia, specializing in medical device development. He is a registered professional engineer (P.Eng.)

Douglas Janzen - Director

Mr. Janzen has been involved in the life sciences industry for the past 19 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 a director of iCo Therapeutics Inc., a company listed on the TSXV, since March 2012. 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 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.

Steven Rubin - Director

Mr. Rubin has served as Executive Vice President - Administration since May 2007 and as a director of OPKO Health, Inc. (“OPKO”) since February 2007. Mr. Rubin served as the Senior Vice President, General Counsel and Secretary of IVAX from August 2001 until September 2006. Mr. Rubin currently serves on the Board of Directors of IDI, Inc., (NYSE MKT:IDI), a  data and analytics company, Cocrystal Pharma, Inc., a  biotechnology company developing antiviral therapeutics for human diseases, Non-Invasive Monitoring Systems, Inc. (OTCBB:NIMU), a medical device company, Sevion Therapeutics, Inc., a company that discovers, develops and acquires innovative product candidates for the treatment of cancer and immunological diseases, Tiger X Medical, Inc. (OTCBB:CDOM), previously an early-stage orthopedic medical device company specializing in designing, developing and marketing reconstructive joint devices and spinal surgical devices, Castle Brands, Inc. (NYSE MKT:ROX), a developer and marketer of premium brand spirits and Kidville, Inc., which operates large, upscale facilities, catering to newborns through five-year-old children and their families and offers a wide range of developmental classes for newborns to five-year-olds . Mr. Rubin previously served on the Board of Directors of Dreams, Inc., a vertically integrated sports licensing and products company (NYSE MKT: DRJ) and as a director of Safestitch Medical, Inc., a medical device Company (OTCQB:SFES), prior to its acquisition by TransEnterix, Inc. and PROLOR Biotech, Inc. prior to its merger with OKPO. 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 Governance and Nominating Committees.

Dr. Jane Hsiao - Director

Dr. Hsiao has served as Vice-Chairman and Chief Technical Officer of the Company since May 2007 and as a director since February 2007. Dr. Hsiao served as the Vice Chairman-Technical Affairs of IVAX from 1995 to January 2006. Dr. Hsiao served as Chairman, Chief Executive Officer and President of IVAX Animal Health, IVAX’s veterinary products subsidiary, from 1998 to 2006. Dr. Hsiao has served as Chairman of the Board of Non-Invasive Monitoring Systems, Inc. (OTCBB:NIMU), a medical device company, since October 2008 and was named Interim Chief Executive Officer of Non-Invasive Monitoring Systems, Inc. in February 2012. Dr. Hsiao is also a director of each of TransEnterix, Inc. (OTCBB:TRXC), a medical device company, and Cocrystal Pharma, Inc. (OTCBB: COCP), a publicly traded biotechnology company developing new treatments for viral diseases. Dr. Hsiao previously served as a director for Sorrento Therapeutics, Inc. (OTCBB:SRNE), a development stage biopharmaceutical company, PROLOR Biotech, Inc. prior to its acquisition by the Company in August 2013, and as Chairman of the Board of SafeSitch Medical, Inc. prior to its merger with TransEnterix, Inc. Dr. Hsiao was elected to the Company’s board of directors on July 1, 2008. She is a resident of the state of Florida, United States. Dr. Hsiao is also a member of the Company’s Compensation and Governance and Nominating Committee.

Dr. William O’Neill – Director

Currently, Dr. O’Neill is the Medical Director, Center for Structural Heart Disease, Henry Ford Hospital, Detroit, Michigan. Previously, he was Executive Dean of Clinical Affairs and Chief Medical Officer, University of Miami Health System at the Miller School of Medicine, University of Miami. Prior to this position, from 1987 to 2006, Dr. O’Neill was the director of the division of Cardiovascular Disease at William Beaumont Hospital, Royal Oak, co-director of the Beaumont Heart Center, Royal Oak, and Corporate Chief of Cardiology, William Beaumont Hospitals, Royal Oak and Troy. Dr. O’Neill was named Vice Chair Department of Internal Medicine for Research in January 2003. Prior to joining Beaumont, he was Director of the cardiac catheterization laboratory at the University of Michigan in Ann Arbor and was an Associate Professor of Medicine at the University of Michigan Medical School. Dr. O’Neill is an international leader in the field of interventional cardiology and in the research of new techniques to diagnose and treat obstructed heart arteries.

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Dr. O’Neill was originally elected to the Company’s board of directors on July 1, 2008. He is a resident of the state of Michigan, United States. Dr. O’Neill is also a member of the Company’s Compensation and Governance and Nominating Committee.

He is certified in interventional cardiology and cardiovascular disease by the American Board of Internal Medicine. An author of more than 35 book chapters, 230 articles and 330 abstracts, Dr. O’Neill is a graduate of Wayne State University School of Medicine and completed a cardiology fellowship at the University of Michigan Hospital.

Chris Clark – Chief Financial Officer and Corporate Secretary

In April 2007, Mr. Clark was appointed Chief Financial Officer of the Company. Prior to that, Mr. Clark was Director of Finance of Mr. Lube Canada Inc. from 2005 to 2007. Mr. Clark was Director of Finance, Healthpricer Interactive Inc. (formerly One Person Health Services Inc.) from 2004 to 2005 and currently serves as a director of Aequus Pharmaceuticals Inc. (TSXV: AQS). He is a resident of British Columbia, Canada.

Mr. Clark has almost 20 years finance and accounting experience in public practice and in public and private companies, most recently focused in the medical device sector. He received his designation as a Chartered Accountant from the Institute of Chartered Accountants of England and Wales and articled with KPMG before moving to Canada in 1998. He has an honors degree in Economics from Swansea University and a post graduate diploma from Keble College, Oxford.

Brian McPherson – Chief Operating Officer

In June 2009, Mr. McPherson was appointed Chief Operations Officer of the Company. Prior to that Mr. McPherson was Director of Operations from 2008 to 2009. Mr. McPherson was Operations Manager for Pyng Medical from 2003 to 2006, where he also served on the board of directors. Prior to its acquisition by Medtronic, he was a Senior Operations Manager and served on the board of directors of Arterial Vascular Engineering Canada from 1995 to 1999.

Mr. McPherson has more than 20 years’ experience in medical device manufacturing and operations. He holds two diplomas in technology from the British Columbia Institute of Technology, with the most recent in Biomedical Engineering. He is a resident of British Columbia.

Randy Lane, Vice-President, Research and Development

In July 2007, Mr. Lane joined Neovasc, and in May 2014 he was promoted to the position of Vice-President, Research and Development. Prior to joining the Company, Mr. Lane held senior roles at global cardiovascular device firms, including 10 years in product development and manufacturing with Sorin Group Canada Inc.

Mr. Lane has almost 18 years in the medical device industry. Possessing expertise in prosthetic heart valve design and testing, Mr. Lane represents Canada on the ISO 5840 Committee as a technical expert in heart valves and has led teams throughout the complete development program, including the development of process improvements, product development and regulatory testing. Mr. Lane leads a team developing the Tiara.

Mr. Lane holds a Bachelor of Science degree from McGill University, Montreal, Quebec, and is a resident of British Columbia, Canada.

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Vicki Bebeau, Vice-President of Clinical Affairs

In May 2014, Ms. Bebeau joined Neovasc as Vice-President of Clinical Affairs. Ms. Bebeau has more than 18 years of experience, fulfilling leadership roles with multinational cardiovascular device firms such as St. Jude Medical, Boston Scientific, and Medtronic. Having planned and directed numerous successful clinical studies of prosthetic heart valves and other cardiovascular devices in support of IDE, PMA, and post market programs to support regulatory approvals, Ms. Bebeau’s efforts have contributed to the adoption of some of the industry’s most novel devices in the United States, Canada, Europe, Australia, and Japan.

Ms. Bebeau is a Registered Nurse whose specific areas of clinical research have included heart valves (open heart and percutaneous), vascular access and closure devices, FFR, OCT, renal denervation, and hypothermia.

Ms. Bebeau holds a Bachelor of Science in Nursing from Bethel College. She represents Canada on the ISO 5840 Committee as a clinical expert in heart valves. Ms. Bebeau is also a MedTech Industry Advisory Board Member for St. Cloud State University. She is a resident of White Bear Lake, Minnesota, USA.

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 Common Shares held under Options and Warrants(1)
Paul Geyer	2,144,604	3.21%	335,000
Alexei Marko	298,236	0.45%	761,250
Doug Janzen	120,050	0.18%	250,000
Steven Rubin	206,139	0.31%	315,000
Dr. Jane Hsiao	2,576,280	3.85%	275,000
Dr. William O’Neill	Nil	0.00%	275,000
Chris Clark	269,335	0.40%	609,000
Brian McPherson	31,000	0.05%	456,750
Randy Lane	Nil	0.00%	567,250
Vicki Bebeau	10,000	0.01%	200,000
TOTAL	5,655,644	8.47%	4,044,250

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:

Cease Trade Orders and Bankruptcies

No director 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.

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No director 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 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 securityholder in deciding whether to vote for a director.

Individual Bankruptcies

No director 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 Canada Business Corporations Act 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”.

Composition of the Audit Committee

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

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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, 2015.

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. Section 8 permits a company to apply to a securities regulatory authority for an exemption from the requirements of NI 52-110, in whole or in part.

Pre-Approval Policies and Procedures

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, 2014	Year ended December 31, 2015
Audit Fees	$63,079	$58,572
Audit-Related Fees	$93,588	$59,409
Tax Fees	Nil	Nil
All Other Fees	$941	$773
Total	$157,608	$118,754

Audit fees: All services performed by the Auditors in connection with the review of annual consolidated financial statements of the Company including services performed to comply with generally accepted auditing standards.

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Audit Related Fees: All services performed by the Auditors in connection with: the review of quarterly financial statements in accordance with generally accepted standards for a review; equity due diligence required by underwriters, regulators and other parties in connection with raising capital for the Company and internal control reviews.

Tax Fees: All services performed by the Auditors in connection with tax planning, compliance and advice.

Other Fees: All services performed by the Auditors 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, 2015.

LEGAL PROCEEDINGS

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.

The Company is engaged as a defendant in lawsuits filed by CardiAQ, as further described below. Litigation resulting from CardiAQ’s claims could 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 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, loss of intellectual property rights, or injunctive relief against us that could have a material adverse effect on our business and financial condition.

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. On June 23, 2014, CardiAQ also filed a complaint against Neovasc in Germany requesting that Neovasc assign its right to one of its European patent applications to CardiAQ. On July 7, 2014, the Company was made aware through a press release issued by CardiAQ of a stay in proceedings for Neovasc’s European patent application that is the subject of the German lawsuit. This stay of proceedings was granted without an opportunity for Neovasc to respond to CardiAQ’s allegations. The Company requested that the stay be lifted, but the request was denied by the European Patent office pending resolution of the German lawsuit. Neovasc filed its response to the German lawsuit in December 2014.

The Company intends to vigorously defend itself in both lawsuits. After motion practice and discovery, the District of Massachusetts case is currently scheduled to go to trial on May 2, 2016. The court in Munich is expected to render its decision after a hearing currently scheduled for August 2016.

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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 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 Accountants, 1600 – 333 Seymour St., Vancouver, BC, V6B 5A6. Grant Thornton LLP has reported on Neovasc’s fiscal 2015 audited consolidated financial statements, which have been filed with the securities regulatory authorities. As of March 29, 2016, 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 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 U.S. Securities and Exchange Commission at www.sec.gov.

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, 2015 and 2014.

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SCHEDULE “A”

AUDIT COMMITTEE CHARTER

Neovasc Inc. (formerly Medical Ventures Corporation)

2007

MEDICAL VENTURES CORPORATION

1. PURPOSE

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

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

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

· the qualifications and independence of the Corporation’s auditor;

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

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

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

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

2. 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.

3. 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:

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

· review and approve the auditor’s engagement letter;

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

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

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

· 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:

· 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;

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

· obtain written confirmation from the auditor that it is independent with respect to the 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

· 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.

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(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:

· planning and staffing of the audit;

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

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

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

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

· 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);

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

· the items required to be communicated to the Audit 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:

· 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

· 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:

· 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);

· 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;

· 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;

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

· review the effect of regulatory and accounting initiatives as well as off-balance sheet structures on the 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.

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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.

4. 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.

5. REPORTING

The Audit Committee will regularly report to the Board on:

· the auditor’s independence;

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

· the performance of the internal audit function;

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

· 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;

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

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

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

6. 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.

7. 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.

8. 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.

9. 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.

A-6

EX-1.2

Exhibit 1.2

 

Neovasc Inc.

Managements
Discussion and Analysis

Form 51-102F1

FOR THE YEARS ENDED DECEMBER 31,

2015 AND 2014

Q4

2015

FORM 51-102F1: MANAGEMENT’S DISCUSSION AND ANALYSIS

This discussion and analysis covers the audited consolidated financial statements of Neovasc Inc. (the “Company” or “Neovasc”) for the years ended December 31, 2015 and 2014.

The Management’s Discussion and Analysis (“MD&A”) of financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and notes thereto for the years ended December 31, 2015 and 2014 (included as part of Neovasc’s annual filing).

The Company has prepared this MD&A with reference to National Instrument 51-102 – Continuous Disclosure Obligations of the Canadian Securities Administrators. Under the United States/Canada Multijurisdictional Disclosure System, the Company is permitted to prepare this MD&A in accordance with the disclosure requirements of Canada, which requirements are different than those of the United States.

The names Tiara^TM (“Tiara”), Neovasc Reducer^TM (“Reducer”) and Peripatch^TM (“Peripatch”) are our trademarks; other trademarks, product names and company names appearing herein are the property of their respective owners.

Additional information about the Company, including the Company’s Financial Statements and Annual Information Form, are available on SEDAR at www.sedar.com and on the website of the U.S. Securities and Exchange Commission at www.sec.gov.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND RISK FACTORS

This MD&A contains forward-looking statements within the meaning of applicable Canadian securities legislation and U.S. securities legislation 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 MD&A include, but are not limited to, statements relating to:

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

· our plans to develop and commercialize products and the timing of these development programs;

· our ability to replace declining revenues from the tissue business with revenues from the Reducer and Tiara in a timely manner;

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

· the cost of post-market regulation if we receive necessary regulatory approvals;

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

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

· our ability to get our products approved for use;

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

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

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

· our estimates of the size of the potential markets for our products;

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

· the rate and degree of market acceptance of our products;

· the timing and amount of reimbursement for our products;

· the success and pricing of other competing therapies that may become available;

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· our retention and hiring of qualified employees in the future;

· the manufacturing capacity of third-party manufacturers for our products;

· the competition we face from other companies, research organizations, academic institutions and government agencies, and the risks such competition pose to our products;

· the confidential information we possess about patients, customers and core business functions, and the information technologies we use to protect it;

· the conduct or possible outcomes of any actual or threatened legal proceedings;

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

· government legislation in all countries that we already, or hope to, sell our products in, and its effect on our ability to set prices, enforce patents and obtain product approvals or reimbursements; and

· risks related to lawsuits that could direct our resources and result in the payment of significant damages and other remedies.

Such 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:

· our regulatory and clinical strategies will continue to be successful;

· our current positive interactions with regulatory agencies will continue;

· recruitment to clinical trials and studies will continue;

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

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

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

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

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

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

· genericisation of markets for Tiara and Reducer will develop; and

· capital will be available on terms that are favourable to us.

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 in our Annual Information Form, 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 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.

All financial information is prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and is expressed in U.S. dollars. The Company has changed its presentation currency from Canadian dollars to U.S. dollars (see ‘Changes in Accounting Policies including Initial Adoption’).

Date: March 29, 2016

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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 Tiara technology in development for the transcatheter treatment of mitral valve disease and the Reducer for the treatment of refractory angina.

Neovasc’s business operations started in March 2002, with the acquisition of Neovasc Medical Inc. (“NMI”) (formerly PM Devices Inc.). NMI manufactured a line of collagen based surgical patch products. The products are made from chemically treated pericardial tissue. In 2012, the Company sold the rights to the surgical patch products to LeMaitre Vascular, Inc. (“LeMaitre”), but retained rights to the underlying tissue technology for all other uses.

In May 2003, Neovasc acquired Angiometrx Inc. (“ANG”). ANG developed a technology called the Metricath, a catheter-based device that allowed clinicians to measure artery and stent size and confirm deployment during interventional treatment of coronary and peripheral artery disease. In 2009, Neovasc ceased all activities related to Metricath and on January 1, 2015 ANG was amalgamated into NMI.

In July 2008, Neovasc acquired two pre-commercial vascular device companies based in Israel: Neovasc Medical Ltd. (“NML”) and B-Balloon Ltd. (“BBL”). NML developed and owned intellectual property related to Reducer, a novel catheter-based treatment for refractory angina, a debilitating condition resulting from inadequate blood flow to the heart muscle. In 2009, Neovasc ceased all activities related to BBL’s technologies and is in the process of voluntarily liquidating BBL.

In late 2009, Neovasc started initial activities to develop novel technologies for the catheter-based treatment of mitral valve disease. Based on the positive results of these activities, the Company launched a program to develop the Tiara transcatheter mitral valve.

Product Portfolio

Tiara

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 Tiara is in preclinical / early clinical stage development to provide a minimally invasive transcatheter device for the millions of patients who experience mitral regurgitation as a result of mitral heart valve disease (in 2014 it was estimated that mitral regurgitation affects approximately 4.1 million people in the United States and the European Union). Mitral regurgitation is often severe and can lead to heart failure and death. Unmet medical need in these patients is high. 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. There are approximately 1.7 million patients suffering from significant mitral regurgitation in the United States. Currently there is no transcatheter mitral valve replacement device approved for use in any market.

Clinical experience to date has been primarily with the 35mm Tiara valve and the 32 French delivery system. First clinical use of the 40mm Tiara occurred in the fourth quarter of 2015 and first use of the 45mm Tiara is targeted for 2016. The additional sizes will allow Neovasc to expand treatment to a broader population of patients.

To date, twelve patients have been implanted with Tiara in early feasibility and compassionate use cases and Neovasc believes that early results have been encouraging. The 30-day survival rate for the first twelve patients implanted with Tiara is 73% with one patient now over two years post implant. The Tiara has been successfully implanted in both functional and degenerative mitral regurgitation patients, as well as patients with pre-existing prosthetic aortic valves and mitral surgical rings.

The results from these early feasibility and compassionate use cases have been instrumental in helping to demonstrate the potential of the Tiara as well as refining the implantation procedure, patient selection criteria and the device itself. Careful patient selection continues to be critical as the Company and clinical community continue to learn more about treating this population of very sick patients.

While many challenges remain prior to achieving commercial production (including, but not limited to, positive clinical trial and study results and obtaining regulatory approval from the relevant authorities), the Company believes the Tiara is being widely recognized as one of the leading devices exploring this new treatment option for patients who are unable or unsuited to receive an open heart surgical valve replacement or repair. 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 with varying results.

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Neovasc believes that there are several unique attributes of the Tiara that may provide advantages over other approaches to mitral valve replacement. There is no certainty that the Tiara will successfully proceed through clinical testing and ultimately receive regulatory approval to treat these patients, nor is it possible to determine at this time if any of the other development stage devices will succeed in obtaining regulatory approval.

The Tiara valve is made up of two major components: the leaflets and skirt, which are made from the Company’s Peripatch tissue, 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 the further development of the Tiara. The Tiara delivery system is manufactured in-house by the Company using components that are readily available.

Regulatory Status

The Tiara is an early-stage development product without regulatory approvals in any country. The Company intends to continue to fund development of the product as cash flow allows and anticipates applying for CE Mark approval in Europe in the next two to three years. As at December 31, 2015, the Company has spent approximately $25.5 million developing the product and anticipates that it may require an additional $25-30 million as it moves forward to achieve CE Mark. There is no assurance that European regulatory approval will be granted in the time frame anticipated by management, or granted at any time in the future. There is no expectation that this product will be revenue-generating in the near term, although management believes that the product is addressing an important unmet clinical need and that the demand for the product is high.

On October 9, 2014 Neovasc announced that it has received conditional investigational device exemption approval from the U.S. FDA to initiate the U.S. arm of its TIARA-I study for the Company’s Tiara. The TIARA-I study is a multinational, multicenter early feasibility study being conducted to assess the safety and performance of Neovasc’s Tiara mitral valve system and implantation procedure in high-risk surgical patients suffering from severe mitral regurgitation. Severe mitral regurgitation is a critical condition that affects millions of patients and, if left untreated, can lead to heart failure or death. This FDA conditional approval allows clinical investigators to begin enrolling patients at participating U.S. medical centers once local hospital and related approvals are in place. This is an important step towards Tiara becoming one of the first transcatheter mitral valve replacement devices available for treating U.S. patients. The TIARA-I study will enroll up to 30 patients globally and is being overseen by a multidisciplinary committee of internationally recognized physicians. Tiara has also been implanted under compassionate use approvals in Canada and implantations under similar approvals are anticipated in other countries in the future.

Reducer

The Reducer is a treatment for patients with refractory angina, a painful and debilitating condition that occurs when the coronary arteries deliver an inadequate supply of blood to the heart muscle, despite treatment with standard revascularization or cardiac drug therapies. It affects approximately 620,000 individuals in the United States who are not eligible for conventional treatments and typically lead severely restricted lives as a result of their disabling symptoms, and its incidence is growing. The Reducer provides relief of angina symptoms by altering blood flow in the heart’s venous system, thereby increasing the perfusion of oxygenated blood to ischemic areas of the heart muscle.

The pain associated with refractory angina can make it difficult for patients to engage in routine activities, such as walking or climbing stairs. Using a catheter-based procedure, the Reducer is implanted in the coronary sinus, the major blood vessel that sends de-oxygenated blood from the heart muscle back to the right atrium of the heart. Pilot clinical studies demonstrate that the Reducer provides significant relief of chest pain in refractory angina patients. There are approximately 620,000 refractory angina patients in the United States who are potential candidates for the Reducer, either because they cannot be revascularized or because they are otherwise poorly managed using conventional medical therapies. These patients represent a substantial market opportunity for the Reducer product. If physicians adopt the Reducer for use in these refractory patients, it is expected that there will be a natural spillover into the broader recurrent angina market, which represents a substantially larger patient population.

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The Reducer is targeting a currently untreatable patient population. A refractory patient by definition is resistant to other therapies. A patient who has refractory angina is not a surgical candidate, cannot benefit from existing interventional cardiology therapies and is not receiving adequate relief from available drug regimens to manage their chest pain. As such there are currently no direct competitors to the Reducer as the patient will have exhausted all other treatment options before a Reducer is considered. Once the Reducer is established as a standard of care for the refractory angina patient, Neovasc believes that the Reducer may also be considered for use in the larger population of recurrent angina patients (patients who are receiving repeat treatments for angina pain) and thus increase its market potential.

The Company has completed Coronary Sinus Reducer for Treatment of Refractory Angina clinical trial (“COSIRA”) to assess the efficacy of the Reducer device. The COSIRA trial’s primary endpoint was a two-class improvement six months after implantation in patients’ ratings on the Canadian Cardiovascular Society (“CCS”) angina grading scale, a four-class functional classification that is widely used to characterize the severity of angina symptoms and disability. Only patients with severe angina, CCS Class 3 or 4, were enrolled in the COSIRA trial. The COSIRA trial analysis showed that the study met the primary endpoint, with patients receiving the Reducer achieving a statistically significant improvement in CCS scores (two classes or better) compared to patients receiving a sham control (18 of 52 (34.6%) of the Reducer patients improved ≥ 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.

The Reducer is an hourglass-shaped, balloon-expandable, stainless steel, bare metal device, which is implanted in the coronary sinus, creating a restriction in venous outflow from the myocardium (the muscular layer of the heart wall). It is implanted using conventional percutaneous, or needle puncture, techniques. The Reducer is provided sterile and pre-loaded on a balloon catheter system. The system is 9 French sheath compatible and operates over a .035 inch guide wire. The implantation procedure is quick and requires minimal training. Once guide wire access to the coronary sinus is achieved, implantation typically takes less than 20 minutes.

Following implantation, the Reducer is incorporated into the endothelial tissue and creates a permanent (but reversible) 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 narrowing slightly elevates the venous outflow pressure, which restores a more normal ratio of epicardial to endocardial blood flow between the outer and inner layers of the ischemic areas of the heart muscle. This results in improved perfusion of the endocardium, which helps relieve ischemia and chest pain. The physiological mechanism behind this effect is well documented in medical literature.

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

The Reducer has demonstrated excellent results in multiple animal studies and in a clinical trial of fifteen patients suffering from chronic refractory angina who were followed for three years after implantation. The six-month results from this clinical trial were published in the Journal of the American College of Cardiology and three-year follow-up data was presented at the annual scientific meeting of the American College of Cardiology in March 2010. In this clinical trial, implantation of the Reducer resulted in significant clinical improvements in stress test and perfusion measurements, as well as in overall quality of life in the majority of the patients. These improvements were maintained for the three years of the study. During this period, the Reducer appeared safe and well tolerated in these patients. More recently, the Company completed the COSIRA trial – a multi-center, double blinded sham controlled study intended to assess the safety and efficacy of the Reducer in a rigorous, controlled manner. The results of COSIRA trial were positive and are discussed in more detail below.

Following this 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 Italy, Switzerland, the United Kingdom and Saudi Arabia and has initial sales into these countries. Launch of the product is also underway in select centers in Germany via direct sales. Based on the initial results from the targeted launch, Neovasc is presently developing an expanded sales plan and strategy for 2016 and beyond. It is anticipated that sales of the product in the United States would follow obtaining U.S. regulatory approval, if such approval is granted, as described further below.

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Regulatory Status

The Reducer is approved for sale in Europe, having received CE Mark designation in November 2011. In preparation for product launch, Neovasc has completed development of the commercial-generation Reducer and the product is currently being transferred to commercial scale manufacture. The Company has completed the COSIRA trial that is expected to provide data to support broad commercialization of the Reducer product. The COSIRA trial is a double-blinded, randomized, sham controlled, multi-center trial of 104 patients at eleven clinical investigation sites. The study completed enrollment in early 2013 and on November 6, 2013, the Company reported topline results for its COSIRA trial assessing the efficacy and safety of the Reducer. In February 2015, the COSIRA trial results were published in the New England Journal of Medicine. As discussed above, the data shows that the Reducer achieved its primary endpoint, significantly improving the symptoms and functioning of patients disabled by previously untreatable refractory angina. The COSIRA trial also confirmed that the Reducer is safe and well tolerated. The safety and efficacy data from the randomized, controlled COSIRA trial is consistent with results seen in previous non-randomized pilot studies of the Reducer. Placement of the Reducer is performed using a minimally-invasive transvenous procedure that is similar to implanting a coronary stent and takes approximately 20 minutes. Neovasc has begun discussions with the FDA on the development of a randomized investigational device exemption trial in the United States. The Company expects to begin this trial in 2016. U.S. marketing approval is expected about two to four years after the clinical trial begins. There is no assurance that U.S. regulatory approval will be granted in the time frame anticipated by management, or granted at any time in the future. The cost of the U.S. clinical trial is expected to be $15-20 million.

Tissue Products

Neovasc produces Peripatch, an advanced biological tissue product that is manufactured from pericardium, which is the protective sac that surrounds the heart of an animal. Neovasc uses its proprietary processes to convert raw pericardial tissue from animal sources into sheets of implantable tissue that can be incorporated into third-party medical devices (for example, for use as the material for artificial heart valve leaflets). Peripatch tissue retains the mechanical characteristics of natural tissue and is readily incorporated into the body without rejection. Peripatch tissue was originally developed to fabricate artificial heart valves and has a 25-year history of successful implantation for heart valve and other surgical applications. Peripatch tissue can be manufactured to meet the mechanical and biological characteristics required for a wide variety of applications, such as heart valve leaflets.

The product line includes Peripatch surgical patches, which are rectangular patches made from bovine tissue, applied as internal bandages to repair weak or damaged organs or vessels. On October 31, 2012, Neovasc amended its agreement with LeMaitre allowing LeMaitre to exercise its option to purchase certain specific rights to Neovasc’s biological vascular surgical patch technology on an accelerated basis. Under the terms of the amendment, LeMaitre is permitted to use the Peripatch technology for the sole purpose of manufacturing surgical patches that it markets as its XenoSure™ surgical patch product line. Neovasc ceased manufacturing surgical patches for LeMaitre in the second quarter of 2015.

The Company also provides a range of custom Peripatch products to industry customers for incorporation into their own products, such as transcatheter heart valves and other specialty cardiovascular devices. These include Peripatch tissue fabricated from bovine and porcine sources and offered in a wide variety of shapes and sizes. Neovasc works closely with its industry customers to develop and supply tissue to meet their specific needs, such as for transcatheter heart valve leaflets. This often includes providing tissue in custom shapes or molded to three dimensional configurations. The Company also provides product development and specialized manufacturing services related to Peripatch tissue-based products such as transcatheter heart valves. The Company actively consults with a range of heart valve programs in order to refine their products and provide tissue to meet their needs and also provides transcatheter valve prototyping, pilot manufacture and commercial manufacture services to a range of customers.

Although the generic method of processing tissue in a way similar to the Peripatch is widely used, the Company’s competitive position stems from its own proprietary process that is supported by a 25-year implant history for use as a surgical heart valve. A company that establishes its own process will have to go through a significant and costly series of studies to prove that their process produces tissue that is suitable as a medical device. The Peripatch product has already met these requirements and has already been validated through many years of successful use in multiple applications. Neovasc’s customers make the decision to use the Company’s tissue rather than take on the demanding and lengthy process of developing their own tissue processing operation. As stated elsewhere herein, Neovasc is not aware of any other company in the world that both provides such tissue and partners with customers to provide specialized heart valve development and manufacturing services.

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The basic Peripatch technology was established over 25 years ago by a third party that was a predecessor company to NMI, when the material was used to fashion the leaflets and other components in surgical heart valves. Neovasc’s processing of the material is a trade secret and proprietary to the Company. However, the use of the product in transcatheter minimally invasive heart valves and other medical devices such as artificial hearts are new uses for the technology. Appropriate testing is conducted to ensure the appropriateness and durability of the tissue for a new application before the medical device can be approved for use, and there is some additional risk when applying the technology to a new product or when amending to, or adding to, the fixation process to meet a new demand, such as for three dimensional shape setting of the tissue.

The supply of Peripatch products and the associated product development, consulting and specialized manufacturing services related to Peripatch tissue-based products represents 95% of the Company’s current revenues.

Regulatory Status

While the Company does not maintain stand-alone marketing approval for its tissue products, a number of third-party products which incorporate Peripatch tissue are approved for sale (i.e. such products have obtained regulatory approval, such as a CE Mark or Canadian medical device license) or have pending approvals in various markets. There is no assurance that further regulatory approvals for third-party products will be obtained.

Additional Products and Third-Party Sales

Neovasc provides consulting and original equipment manufacturing services to other medical device companies when these services fall within the scope of the Company’s expertise and capabilities. These activities are substantially focused on providing specialized development and manufacturing services for industry customers who incorporate the Company’s Peripatch tissue into their vascular device products such as heart valves. The goal of these activities is to drive near-term revenues as well as support development of a long-term revenue stream through the ongoing provision of tissue and manufacturing services to customers with commercially successful devices that incorporate Neovasc tissue. Revenue earned from various contract agreements varies throughout the year depending on customer needs.

Product Development

Product development at the Company is currently focused on completing commercialization of the Reducer as well as clinical stage and pre-commercialization development work on the Tiara. The Company may also investigate other potential new internal or external projects that leverage the Company’s existing technologies, infrastructure and expertise.

Trends, Risks and Uncertainties

The Company has incurred operating and comprehensive losses of $26,730,490 and $35,116,695 for the year ended December 31, 2015 respectively (2014: $17,175,745 and $18,154,725) and has a deficit of $115,288,713 at December 31, 2015 compared to a deficit of $88,558,223 as at December 31, 2014. As at December 31, 2015 the Company had $55,026,171 in cash and cash equivalents. The Company believes it is well funded to pursue its short and medium term objectives for the Tiara and Reducer, but may need to raise additional capital prior to the successful commercialization of these products. There is 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.

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.

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.

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Operating risks include but are not limited to: the clinical success of the Tiara; market acceptance of the Company’s technologies and products; litigation risk associated with the Company’s intellectual property and the Company’s defense and protection thereof; the conduct or possible outcomes of any actual or threatened legal proceedings; 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 continued availability of capital to finance the Company’s activities; 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.

These risk factors and others are described in greater detail in the Company’s Annual Information Form which is available on SEDAR at www.sedar.com and on the website of the U.S. Securities and Exchange Commission at www.sec.gov.

Foreign Operations

The majority of the Company’s revenues are derived from product sales in the United States and Europe, primarily denominated in U.S. dollars and European euros, while the majority of the Company’s costs are denominated in Canadian dollars. The Company expects that foreign currency denominated international sales will continue to account for the majority of its revenues. Consequently, a decrease in the value of a relevant foreign currency in relation to the Canadian 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 Canadian dollar financial statements. In addition, any decrease in the value of the U.S. dollar or European 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. 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, 2015 and 2014.

DISCUSSION OF OPERATIONS AND FINANCIAL CONDITION

Results for the years ended December 31, 2015 and 2014 follow:

Losses

The operating losses and comprehensive losses for the year ended December 31, 2015 were $26,730,490 and $35,116,695 respectively, or $0.41 basic and diluted loss per share, as compared with losses of $17,175,745 and $18,154,725, or $0.33 basic and diluted loss per share for the same period in 2014. The $9,554,745 increase in the operating loss incurred for the year ended December 31, 2015 compared to the same period in 2014 can be substantially explained by a $2,232,490 decrease in gross profit, a $3,187,418 increase in general and administrative expenses (of which $6,223,938 relates to an increase in litigation expenses), a $5,569,975 increase in product development and clinical trial expenses, and offset by a $2,100,768 increase in other income. Litigation expenses for the year ended December 31, 2015 represent a loss of $0.11 basic and diluted loss per share compared to a loss of $0.02 basic and diluted loss per share for the same period in 2014. The Company has incurred significant costs in defending itself in lawsuits filed by CardiAQ Valve Technologies, Inc.. Total litigation costs since the initial claims were filed in June 2014 are approximately $7.89 million and the Company may require an additional $7.5 million to cover additional litigation expenses up to and including the trial, scheduled for May 2016.

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Revenues

Revenues decreased 31% year-over-year to $9,929,940 for the year ended December 31, 2015, compared to revenues of $14,370,667 for the same period in 2014. The Company ceased its production of surgical patches for LeMaitre (product sales) in the second quarter of 2015. The Company started its sales of Reducer in the first quarter of 2015 as it initiated its focused commercialization of the product in Europe. The Company is focusing its business away from its traditional revenue streams towards development and commercialization of its own products, the Reducer and Tiara.

Reducer sales for the year ended December 31, 2015 were $526,412, compared to $nil for the same period in 2014. Included within these revenues are stocking orders from new territories and re-orders from certain territories in Europe. The success of the commercialization of 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.

Product sales for the year ended December 31, 2015 were $353,736, compared to $2,054,042 for the same period in 2014, representing a decrease of 83%. Product sales are solely comprised of sales of surgical patches to LeMaitre. Neovasc ceased manufacturing surgical patches in June 2015.

Contract manufacturing revenues for the year ended December 31, 2015 were $3,236,978, compared to $3,033,976 for the same period in 2014, representing an increase of 7%. The increase in revenue for the year ended December 31, 2015 compared to the same period in 2014 is primarily due to growing revenues from a single customer. The Company has seen a concentration of revenue into fewer larger accounts and expects that this reflects growing demand for those customers’ products. Neovasc anticipates that contract manufacturing will continue to grow in the long term as its customers’ products receive regulatory approvals and are commercialized, but recognizes that these revenues will be derived from a smaller customer base as the transcatheter aortic valve market matures.

Revenues from consulting services for the year ended December 31, 2015 were $5,812,814, compared to $9,282,649 for the same period in 2014, representing a decrease of 37%. The loss of a single contract accounts for the majority of this decline and is indicative of the trend the Company is seeing in consulting service revenue. The Company anticipates that its consulting services revenue will decline in the long term as its consulting customers continue to transition to becoming contract manufacturing customers.

Where possible the Company updates its charge out rates and product prices on an annual basis to maintain its margins and reflect increases in the cost of goods sold. Some customer contracts include a mechanism to calculate the price increase or to limit the maximum increase allowable each year.

Cost of Goods Sold

The cost of goods sold for the year ended December 31, 2015 was $6,938,134, compared to $9,146,371 for the same periods in 2014. The overall gross margin for the year ended December 31, 2015 was 30%, compared to 36% gross margin for the same period in 2014. The Company lost a significant higher margin contract manufacturing account toward the end of 2014 and has seen during the year its consulting services revenue margins decline as our ability to charge higher fees for these services has decreased as the transcatheter aortic valve market has matured. In addition the Company is experiencing higher cost of goods sold as its quality system has been improved to meet the expectations of rapidly maturing customers. These increases are not productive improvements and result in an overall downward trend in margins.

Expenses

Total expenses for the year ended December 31, 2015 were $31,750,140, compared to $22,494,468 for the same period in 2014, representing an increase of $9,255,672 or 41%. The increase in total expenses for the year ended December 31, 2015 compared to the same period in 2014 reflects a $498,279 increase in selling expenses as the Company commercializes Reducer, a $3,187,418 increase in general and administrative expenses (of which $6,223,938 relates to an increase in litigation expenses) and a $5,569,975 increase in product development and clinical trial expenses to advance the Tiara and Reducer development programs.

Selling expenses for the year ended December 31, 2015 were $655,669, compared to $157,390 for the same period in 2014, representing an increase of $498,279, or 317%. The increase in selling expenses for the year ended December 31, 2015 compared to the same period in 2014 reflects costs incurred for Reducer commercialization activities in 2015. The Company anticipates a significant increase in selling expenses in 2016 as it continues its commercialization of the Reducer in select countries in Europe.

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General and administrative expenses for the year ended December 31, 2015 were $13,913,076, compared to $10,725,658 for the same period in 2014, representing an increase of $3,187,418, or 30%. The increase in general and administrative expenses for the year ended December 31, 2015 compared to the same period in 2014 can be substantially explained by a $6,223,938 increase in litigation expenses and a $703,989 increase in cash-based employee expenses, offset by a $3,480,148 decrease in share-based payments. In 2015 the Company adjusted its compensation plan to directors, officers and senior management, decreasing the number of options granted by 75%, replacing these options with a smaller cash based bonus plan and increasing officers and senior management’s base salaries by 10%. Other cash based employee expenses are related to additional headcount in quality, finance and human resource departments and with other employee expenses.

Product development and clinical trial expenses for the year ended December 31, 2015 were $17,181,395, compared to $11,611,420 for the same period in 2014, representing an increase of $5,569,975, or 48%. The increase in product development and clinical trial expenses for the year ended December 31, 2015 was due to a $1,943,414 increase in cash–based employee expenses as the Company hired additional staff to advance product development, a $4,707,064 increase in other expenses as the Company invested in its two major new product initiatives, offset by a $1,198,786 decrease in share-based payments.

The Company’s expenses are subject to inflation and cost increases. Salaries and wages have increased on average by 6% in the year ended December 31, 2015 compared to the same period in 2014. 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 Income

The other income for the year ended December 31, 2015 was $2,195,195, compared to $94,427 for the same period in 2014. The Company’s investments in high interest savings accounts and guaranteed investment certificates generated $577,006 interest during the year ended December 31, 2015. The Company benefited from significant foreign exchange gains on its foreign currency-denominated cash and cash equivalents and accounts receivable during the year ended December 31, 2015 of $1,620,727.

Tax Expense

The tax expense for the year ended December 31, 2015 was $167,351, compared to $nil for the same period in 2014. Neovasc (US) Inc. was established in 2014 to provide clinical trial services to Neovasc Medical Inc. The cross boarder intercompany charges from Neovasc (US) Inc. to Neovasc Medical Inc. created a taxable profit In Neovasc (US) Inc. and US federal and state taxes were charged.

Results for the three months ended December 31, 2015 and 2014 follow:

Losses

The net loss for the quarter ended December 31, 2015 was $7,383,608, or $0.11 basic and diluted loss per share, compared with a loss of $6,710,674, or $0.12 basic and diluted loss per share for the same period in 2014.

Revenues

Revenues for the quarter ended December 31, 2015 were $2,224,046 compared to $2,953,039 for the same period in 2014. Reducer revenues increased to $192,013 for the quarter, representing a 20% increase from the quarter ended, September 30, 2015. The Company initiated its focused commercialization of Reducer in Europe in the first quarter of 2015. Contract manufacturing revenues were comparable to the prior period and consulting services declined by $670,422 or 39%, which is consistent with the year-over-year decline and consistent with the Company’s strategy to focus its business towards development and commercialization of its own products, the Reducer and Tiara.

Cost of Goods Sold

The cost of goods sold for the quarter ended December 31, 2015 was $1,942,140, compared to $2,344,816 for the same period in 2014. The gross margin for the quarter ended December 31, 2015 was 13%, compared to 21% for the same period in 2014. Historically margins have been lower in the fourth quarter than other periods. In addition, in 2015 we issued a credit note to a single customer, which reduced margins from 23% to 13% for the fourth quarter of 2015.

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Expenses

Total expenses for the quarter ended December 31, 2015 were $8,352,093, compared to $7,363,045 for the same period in 2014, an increase of 13%. The increase is substantially due to an increase of $683,674 in general and administrative expenses and an increase of $112,266 in clinical trial and product development expenses for the Company’s two new product development programs.

Selling expenses were $292,456 for the quarter ended December 31, 2015, compared to $99,348 for the same period in 2014, an increase of 194% as the Company commercializes Reducer in Europe. General and administrative expenses were $3,498,682 for the quarter ended December 31, 2015, compared to $2,815,008 in the same period in 2014, representing an increase of 24%. The increase in general and administrative expenses was principally due to a $1,502,911 increase in litigation expenses. The increase in research and development costs, including product development and clinical trial expenses is principally due to increased investment in the Tiara development program.

Annual Information

The following is a summary of selected financial information for the three fiscal years to December 31, 2015:

	2015			2014			2013
Revenues	$	9,929,940		$	14,370,667		$	11,406,955
Loss		(26,730,490	)		(17,175,745	)		(6,750,250	)
Basic and diluted loss per share		(0.41	)		(0.33	)		(0.14	)
Total assets		61,228,394			20,368,421			6,998,267
Total long-term liabilities		-			135,875			188,119
Cash dividend declared per share		$nil			$nil			$nil

Revenues grew significantly year-over-year until 2014, but decreased year-over-year in 2015 as the development of transcatheter aortic valves by our customers reached its peak. The Company ceased production of tissue products in June 2015. The Company also started its sales of Reducer in 2015. The Company anticipates revenue from Reducer will continue to grow with early commercialization in Europe. The Company anticipates that revenue from contract manufacturing will grow as existing customers increase their demand but the total number of customers is likely to decline. Revenue from consulting services will decrease as customers’ development projects near their end.

The Company has seen losses for each year grow as the Company has increased its research and development and clinical trial activities and has incurred significant costs in defending itself in lawsuits filed by CardiAQ Valve Technologies, Inc. (see ‘CONTRACTUAL OBLIGATIONS AND CONTINGENCIES’). Product development at the Company is currently focused on completing commercialization of the Reducer as well as clinical stage and pre-commercialization work on the Tiara development program.

There have been no material changes or discontinuation of operations over the periods except in the normal course of business, nor have there been changes in accounting policies or significant acquisitions or dispositions that have changed the direction of the Company. The Company remains focused on the development and commercialization of the Tiara and Reducer products over the next several years.

A financing in March 2014 and a further financing in February 2015 have grown our total assets and the Company intends to use this capital to execute our development and commercialization plans.

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QUARTERLY INFORMATION

The following is a summary of selected unaudited financial information for the eight fiscal quarters to December 31, 2015:

	December 31, 2015			September 30, 2015			June 30, 2015			March 31, 2015
REVENUE
Reducer	$	192,013		$	159,394		$	134,607		$	40,398
Product sales		-			10,228			120,097			223,411
Contract manufacturing		963,864			737,336			972,216			563,562
Consulting services		1,068,169			1,566,729			1,700,464			1,477,452
		2,224,046			2,473,687			2,927,384			2,304,823
COST OF GOODS SOLD		1,942,140			1,573,068			1,815,354			1,607,572
GROSS PROFIT		281,906			900,619			1,112,030			697,251
EXPENSES
Selling expenses		292,456			113,913			125,478			123,822
General and administrative expenses		3,498,682			4,552,966			3,535,042			2,326,386
Product development and clinical trials expenses		4,560,955			4,908,752			4,280,295			3,431,393
		8,352,093			9,575,631			7,940,815			5,881,601
OPERATING LOSS		(8,070,187	)		(8,675,012	)		(6,828,785	)		(5,184,350	)
OTHER INCOME/(EXPENSE)		853,930			1,041,842			76,447			222,976
Tax expense		167,351			-			-			-
LOSS FOR THE PERIOD	$	(7,383,608	)	$	(7,633,170	)	$	(6,752,338	)	$	(4,961,374	)
BASIC AND DILUTED LOSS PER SHARE	$	(0.11	)	$	(0.11	)	$	(0.10	)	$	(0.08	)
		December 31, 2014			September 30, 2014			June 30, 2014			March 31, 2014
REVENUE
Product sales	$	261,972		$	432,949		$	729,175		$	629,946
Contract manufacturing		952,476			1,254,905			658,262			168,333
Consulting services		1,738,591			2,232,700			2,632,564			2,678,794
		2,953,039			3,920,554			4,020,001			3,477,073
COST OF GOODS SOLD		2,344,816			2,267,050			2,799,182			1,735,323
GROSS PROFIT		608,223			1,653,504			1,220,819			1,741,750
EXPENSES
Selling expenses		99,348			17,709			22,282			18,051
General and administrative expenses		2,815,008			2,677,892			4,238,932			993,826
Product development and clinical trials expenses		4,448,689			3,203,077			2,841,880			1,117,774
		7,363,045			5,898,678			7,103,094			2,129,651
OPERATING LOSS		(6,754,822	)		(4,245,174	)		(5,882,275	)		(387,901	)
OTHER INCOME/(EXPENSE)		44,148			31,513			(24,638	)		43,404
LOSS FOR THE PERIOD	$	(6,710,674	)	$	(4,213,661	)	$	(5,906,913	)	$	(365,297	)
BASIC AND DILUTED LOSS PER SHARE	$	(0.12	)	$	(0.08	)	$	(0.11	)	$	(0.01	)

After a general trend of quarter-over-quarter revenue growth in 2014, revenue growth in 2015 has been trending negatively. The Company anticipates our overall revenues to be focused on a smaller customer base in 2015. Neovasc ceased manufacturing all surgical patches in the second quarter of 2015. In the long term the Company expects its consulting services to decline. Neovasc expects its consulting service customers to transition to become contract manufacturing customers and the Company is not actively looking for new customers as available research and development staff and resources are being diverted to our Tiara development program. The Company anticipates that it will be able to replace and grow total revenue from the commercialization of our Reducer product in the mid- to long-term.

Selling expenses increased in 2015 as the Company initiates a focused commercialization of the Reducer in select countries in Europe. General and administrative expense reached a peak in the third quarter of 2015 mainly due to litigation related costs of $3,706,356. Product development and clinical trial costs peaked in the third quarter of 2015 as activities to develop the Tiara and Reducer continue and we expect these expenses to increase in 2016 and beyond.

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USE OF PROCEEDS

On March 26, 2014, the Company closed a bought deal equity financing underwritten by Cormark Securities Inc., which placed 4,192,000 common shares of Neovasc at a price of C$6.00 per common share, for gross cash proceeds to the Company of C$25,152,000.

The following table sets out a comparison of how the Company used the proceeds following the closing date against the intended use of proceeds from the bought deal, including an explanation of any variances and the impact of any variance on the ability of the Company to achieve its business objectives and milestones.

	Proposed Use of net Proceeds	actual Use of net Proceeds
	March 26, 2014 Bought Deal	Use of Proceeds	Remaining to be Spent
Tiara Development Costs	$12,114,900	$12,114,900	$-
Reducer Development Costs	$6,730,500	$2,870,837	$3,859,663
Additional Proceeds	$3,271,336	$3,271,336	$-
Total	$22,116,736	$18,257,073	$3,859,663

The actual proceeds net of share issue costs from March 26, 2014 financing were $22,116,736. The additional proceeds will be used for working capital items and to fund the expansion of our clean rooms and office space. The majority of the proceeds have been invested in high interest savings accounts and guaranteed investment certificates that are shown as part of cash and cash equivalents and investments in the financial statements. The approximate expenditures from proceeds of the bought deal equity financing from March 26, 2014 to December 31, 2015 were $18,255,000, of which approximately $12,115,000 was spent on Tiara Development Costs, approximately $2,870,000 was spent on Reducer Development Costs and approximately $3,270,000 was spent on litigation expenses, working capital items and investment in property, plant and equipment funded from the additional proceeds.

On February 3, 2015, the Company closed an underwritten public offering, which placed 10,415,000 newly issued common shares of Neovasc from treasury at a price of $7.19 per common share for aggregate gross proceeds of approximately $74,883,850 to the Company. The February 2015 offering also included the sale of 1,660,000 Neovasc common shares on the same terms by certain directors, officers and employees of Neovasc. The Company did not receive any proceeds from the sale of the 1,660,000 Neovasc common shares.

The following table sets out a comparison of how the Company used the proceeds following the closing date against the intended use of proceeds from the public offering, including an explanation of any variances and the impact of any variance on the ability of the Company to achieve its business objectives and milestones.

	Proposed Use of net Proceeds	actual Use of net Proceeds
	February 3, 2015 Underwritten Public Offering	Use of Proceeds	Remaining to be Spent
Tiara Development Costs	$35,000,000	$6,468,056	$28,531,944
Reducer Development Costs	$10,000,000	-	$10,000,000
Additional Proceeds	$24,879,210	$12,244,646	$12,634,564
Total	$69,879,210	$18,712,702	$51,166,508

The actual proceeds net of share issue costs from the February 3, 2015 financing to the Company were $69,879,210. The majority of the proceeds have been invested in high interest savings accounts and guaranteed investment certificates that are shown as part of cash and cash equivalents and investments in the financial statements. From February 3, 2015 to December 31, 2015, the Company spent approximately $18,700,000, of which approximately $6,500,000 was spent on Tiara Development Costs and approximately $12,200,000 was spent on litigation expenses, working capital items and investment in property, plant and equipment funded from the additional proceeds.

The combined value of the cash and cash equivalents and investments as at December 31, 2015 is $55,026,171.

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DISCUSSION OF LIQUIDITY AND CAPITAL RESOURCES

Neovasc finances its operations and capital expenditures with cash generated from operations, lines of credit and equity financings. At December 31, 2015, the Company had cash and cash equivalents of $55,026,171 compared to cash and cash equivalents of $5,193,561 and short term investments of $10,343,999 at December 31, 2014.

Cash used in operating activities for the year ended December 31, 2015, was $21,282,958, compared to $8,063,446 for the same period in 2014. For the year ended December 31, 2015, operating expenses were $22,693,678, compared to $8,202,450 for the same period in 2014, cash expenditures on litigation (litigation expenses less change in accounts payable related to litigation) were approximately $5.9 million and cash expenditures on research and development and clinical trials (expenses less share based payments and depreciation and less change in accounts payable related to research & development) were approximately $6.6 million. Working capital items generated cash of $821,165, compared to $39,960 for the same period in 2014, as accounts receivable absorbed cash due at year end due to a late payment received immediately after the year end, inventory absorbed cash principally in the development of reasonable working quantities of Reducer inventory, prepaid expenses and other assets generated cash due to decreased prepayment and accounts payable preserved cash at year end due to significant litigation expenses incurred but not paid for of approximately $1.1 million as at December 31, 2015.

For the year ended December 31, 2015, net cash provided by investing activities was $7,179,364. There was a decrease in investments of $9,322,492 as investments were liquidated from investments into cash and cash equivalents. For the year ended December 31, 2015, the Company invested $2,143,128 in property, plant and equipment, compared to $1,120,345 for the same period in 2014. The Company purchased $382,415 in land and buildings in June 2015. The Company continues to invest capital to expand its clean room, chemical laboratory and manufacturing facilities and research and development capabilities.

For the year ended December 31, 2015, net cash provided by financing activities was $70,804,938, compared to $22,254,959 for the same period in 2014. On February 3, 2015, the Company closed an underwritten public offering of 12,075,000 common shares of the Company (of which 10,415,000 common shares were issued from treasury and 1,660,000 common shares were sold by certain directors, officers and employees of the Company) at a price per share of $7.19 for aggregate gross proceeds of approximately $74,883,850 for the Company and $11,935,400 for the selling security holders. The share issue costs incurred by the Company were $5,004,640.

The majority of the revenue and expenses of the Company are incurred in the parent and in one of its subsidiaries, NMI, both of which are Canadian companies. There were no significant restrictions on the transfer of funds between these entities and during the years ended December 31, 2015 the Company had no complications in transferring funds to and from its subsidiaries in Israel and the United States.

The majority of the Company’s cash and cash equivalents at December 31, 2015 were denominated in Canadian dollars. The Company is exposed to foreign currency fluctuations on $23,977,469 of its cash and cash equivalents held in U.S. dollars and European euros.

EVENTS DURING THE YEAR

Other than described elsewhere herein, there were no material events during the year.

SUBSEQUENT EVENTS

Other than described elsewhere herein, there were no material events after the year end to the date of this MD&A.

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OUTSTANDING SHARE DATA

As at March 29, 2016, the Company had 66,837,345 common voting shares issued and outstanding. Further, the following securities are convertible into common shares of the Company: 8,171,966 stock options with a weighted average price of C$3.96. The fully diluted share capital of the Company at March 29, 2016 is 75,008,711.

CONTRACTUAL OBLIGATIONS AND CONTINGENCIES

Contingencies

The Company is engaged as a defendant in lawsuits filed by CardiAQ Valve Technologies, Inc. (“CardiAQ”), as further described below. Litigation resulting from CardiAQ’s claims could be costly and time-consuming and could divert the attention of management and key personnel from our business operations. The Company cannot assure that it will succeed in defending any of these claims and that judgments will not be entered against us with respect to the litigation resulting from such claims. If the Company is unsuccessful in our defense of these claims or unable to settle the claims in a manner satisfactory to Neovasc, the Company may be faced with significant monetary damages, loss of intellectual property rights, or injunctive relief against us that could have a material adverse effect on our business and financial condition.

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. On June 23, 2014, CardiAQ also filed a complaint against Neovasc in Germany requesting that Neovasc assign its right to one of its European patent applications to CardiAQ. On July 7, 2014, the Company was made aware through a press release issued by CardiAQ of a stay in proceedings for Neovasc’s European patent application that is the subject of the German lawsuit. This stay of proceedings was granted without an opportunity for Neovasc to respond to CardiAQ’s allegations. The Company requested that the stay be lifted, but the request was denied by the European Patent office pending resolution of the German lawsuit. Neovasc filed its response to the German lawsuit in December 2014.

The Company intends to vigorously defend itself in both lawsuits. After motion practice and discovery, the District of Massachusetts case is currently scheduled to go to trial on May 2, 2016.  The court in Munich is expected to render its decision after a hearing currently scheduled for August 2016.

The outcome of these matters is not currently determinable nor is it possible to accurately predict the outcome or quantum of these proceedings to the Company at this time. Until this matter has been resolved by the appropriate Courts, the Company cannot give any assurances as to such outcome.

When the company assesses that it is more likely that no present obligation exists at the end of the reporting period and that the possibility of an outflow of economic resources embodying economic benefits is possible, but not probable, no provision is recognized and contingent liability disclosure is required. The Company has applied the disclosure exemption and not provided an estimate of the contingent liability disclosure as it may seriously prejudice the Company’s position in the dispute.

Contractual obligations

The following table summarizes our contractual obligations as of December 31, 2015:

	Payments due by Period
Contractual Obligations		Total		Less than 1 year		1-3 years		4-5 years	More than 5 years
Operating leases	$	580,668	$	209,753	$	257,237	$	113,678	-

OFF BALANCE SHEET ARRANGEMENTS

The Company has no off balance sheet arrangements.

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Related Party Transactions

There were no ongoing contractual commitments and transactions with related parties during the year ended December 31, 2015 and 2014, other than as described elsewhere herein and those compensation based payments disclosed in Note 20 of the financial statements.

PROPOSED TRANSACTIONS

The Company is not party to any transaction requiring additional disclosure.

Critical Accounting Estimates and management judgement

The preparation of consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.

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

Significant areas requiring the use of estimates relate to the determination of the net realizable value of inventory (obsolescence provisions), allowance for doubtful accounts receivable, impairment of non-financial assets, useful lives of depreciable assets and expected life, volatility and forfeiture rates for share-based payments.

Inventories

The Company estimates the net realizable values of inventories, taking into account the most reliable evidence available at each reporting date. The future realization of these inventories may be affected by future technology or other market-driven changes that may reduce future selling prices.

Allowance for doubtful accounts receivable

The Company provides for bad debts by setting aside accounts receivable past due more than 121 days. Actual collectability of customer balances can vary from the Company’s estimation.

Impairment of long-lived assets

In assessing impairment, the Company estimates the recoverable amount of each asset or cash generating unit based on expected future cash flows and uses an interest rate to discount them. Estimation uncertainty relates to assumptions about future operating results and the determination of a suitable discount rate.

Useful lives of depreciable assets

The Company reviews its estimate of the useful lives of depreciable assets at each reporting date, based on the expected utilization of the assets.

Share-based payment

The Company measures the cost of equity-settled transactions by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including the expected life of the share option, volatility and forfeiture rates and making assumptions about them.

Determination of functional currency

The Company determines its functional currency 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 users 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. As the Company is still a development stage entity, it considers the currency in which it expends cash on its research and development activities to be a key element in this assessment.

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Determination of presentation currency

The Company elected to adopt the U.S. dollar as its presentation currency, effective from the annual financial statements of the Company for the period ended December 31, 2015, to better reflect its business and to improve comparability of its financial information with other publicly traded businesses in the life sciences industry. Prior year financial statements and all comparative financial information contained herein have been recast to reflect the Company’s results as if they had been historically reported in U.S. dollars.

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 financial statements of the period in which the change in probability occurs. The Company has assessed the likelihood of outcome of an outflow of resources embodying economic benefits as possible but not probable. Given that further disclosure could seriously prejudice our position, the Company has applied the exception under IAS 37.92 and disclosed the general nature of the dispute, together with the fact that, and the reason why, information has not been disclosed.

Changes in Accounting Policies including Initial Adoption

The Company elected to adopt the U.S. dollar as its presentation currency, effective from the annual financial statements of the Company for the period ended December 31, 2015, to better reflect its business and to improve comparability of its financial information with other publicly traded businesses in the life sciences industry. Prior year financial statements and all comparative financial information contained herein have been recast to reflect the Company’s results as if they had been historically reported in U.S. dollars. All revenues, expenses and cash flows for each period were translated into the presentation currency using average rates for the period, or the rates in effect at the date of the transaction for significant transactions. Assets and liabilities were translated using the exchange rate at the end of the period 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.

During the year ended December 31, 2015, there have been no changes in accounting policies, except as disclosed herein. The Company has not adopted any new accounting policies during the year ended December 31, 2015.

financial instruments

The Company’s financial instruments include its cash and cash equivalents, investments, accounts receivable, and accounts payable and accrued liabilities.

Disclosure Controls and Internal controls over financial reporting

Disclosure controls and procedures ("DC&P") are designed to provide reasonable assurance that all material information is gathered and reported to senior management, including the Company's Chief Executive Officer and Chief Financial Officer (the "Certifying Officers"), on a timely basis so that appropriate decisions can be made regarding public disclosure within the required time periods specified under applicable Canadian securities laws. The Certifying Officers are responsible for establishing and monitoring the Company's DC&P. The internal control over financial reporting ("ICFR") is designed to provide reasonable assurance that such financial information is reliable and complete. The Certifying Officers are also responsible for establishing and maintaining adequate ICFR for the Company.

17

As at December 31, 2015, management of the Company, with the participation of the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the Company's DC&P and ICFR as required by Canadian securities laws. Based on that evaluation, the Certifying Officers have concluded that, as of the end of the period covered by this MD&A, the DC&P were effective to provide reasonable assurance that material information relating to the Company was made known to senior management by others and information required to be disclosed by the Company in its annual filings, interim filings (as such terms are defined under National Instrument 52-109 – Certification of Disclosure in Issuers' Annual and Interim Filings) or other reports filed or submitted by it under securities legislation were recorded, processed, summarized and reported within the time periods specified in securities legislation. The Certifying Officers have evaluated the effectiveness of the Company’s ICFR as at December 31, 2015 and have concluded that such ICFR is effective. The Certifying Officers have also concluded that, as of the end of the period covered by this MD&A, the ICFR provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. To design its ICFR, the Company used the 2013 Internal Control – Integrated Framework (COSO Framework) published by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has concluded that, as of December 31, 2015, the Corporation’s internal control over financial reporting was effective based on those criteria. Due to inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation relating to the effectiveness in future periods are subject to the risk that controls may become inadequate as a result of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate. Because the Company is an “emerging growth company” as defined in the U.S. Jumpstart Our Business Startups Act of 2012, the Company will not be required to comply with the auditor attestation requirements of the U.S. Sarbanes-Oxley Act of 2002 for as long as the Company remains an “emerging growth company”, which may be for as long as five years following its initial registration in the United States.

There have been no material changes in our internal control over financial reporting or disclosure controls and procedures during the year ended December 31, 2015, that have materially affected, or are reasonably likely to affect our internal control over financing reporting.

aDDITIONAL INFORMATION

Additional information about the Company, including the Company’s Financial Statements and Annual Information Form, are available on SEDAR at www.sedar.com and on the website of the U.S. Securities and Exchange Commission at www.sec.gov.

18

EX-1.3

Exhibit 1.3

 

Neovasc Inc.

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED

DECEMBER 31, 2015 AND 2014

(Expressed in United States dollars)

CONTENTS

	Page
Independent Auditor’s Report	2 – 3
Consolidated Statements of Financial Position	4
Consolidated Statements of Loss and Comprehensive Loss	5
Consolidated Statements of Changes in Equity	6
Consolidated Statements of Cash Flows	7
Notes to the Consolidated Financial Statements	8 – 27

 

Report of Independent
Registered Public Accounting Firm         Grant Thornton LLP Suite 1600, Grant Thornton Place 333 Seymour Street Vancouver, BC V6B 0A4   T +1 604 687 2711 F +1 604 685 6569 www.GrantThornton.ca

To the Board of Directors and Shareholders of
Neovasc Inc.

We have audited the accompanying consolidated financial statements of Neovasc Inc. (the “Company”), which comprise the consolidated statements of financial position as at December 31, 2015 and December 31, 2014 and the consolidated statements of loss and comprehensive loss, changes in equity and cash flows for the years then ended, and a summary of significant accounting policies and other explanatory information.

Management’s responsibility for the financial statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. The audit of the consolidated statement of financial position as at December 31, 2015 and the consolidated statements of loss and comprehensive loss, changes in equity and cash flows for the year then ended, was conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States) and Canadian generally accepted auditing standards. The audit of the consolidated statement of financial position as at December 31, 2014 and the consolidated statements of loss and comprehensive loss, changes in equity and cash flow for the year then ended, was conducted in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

Audit • Tax • Advisory

Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd

2

 

An audit involves performing procedures to obtain audit evidence about, and examining on a test basis, the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We were not engaged to provide an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Neovasc Inc. as at December 31, 2015 and December 31, 2014 and its financial performance and its cash flows for the years then ended, in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Vancouver, Canada
March 29, 2016	Chartered Professional Accountants

3

NEOVASC INC.

Consolidated Statements of Financial Position

As at December 31,

(Expressed in United States dollars)

	Notes	2015			2014
ASSETS
Current assets
Cash and cash equivalents	6	$	55,026,171		$	5,193,561
Investments	7		-			10,343,999
Accounts receivable	8		1,736,941			1,543,817
Inventory	9		598,136			410,290
Prepaid expenses and other assets			146,590			223,483
Total current assets			57,507,838			17,715,150
Non-current assets
Property, plant and equipment	10		3,720,556			2,653,271
Total non-current assets			3,720,556			2,653,271
Total assets		$	61,228,394		$	20,368,421
LIABILITIES AND EQUITY
Liabilities
Current liabilities
Accounts payable and accrued liabilities	11	$	3,232,971		$	2,166,268
Current portion of long-term debt	12		-			38,437
Total current liabilities			3,232,971			2,204,705
Non-current liabilities
Long-term debt	12		-			135,875
Total non-current liabilities			-			135,875
Total liabilities			3,232,971			2,340,580
Equity
Share capital	14		161,505,037			89,357,061
Contributed surplus	14		20,569,110			17,632,809
Accumulated other comprehensive loss			(8,790,011	)		(403,806	)
Deficit			(115,288,713	)		(88,558,223	)
Total equity			57,995,423			18,027,841
Total liabilities and equity		$	61,228,394		$	20,368,421

See Accompanying Notes to the Consolidated Financial Statements

4

NEOVASC INC.

Consolidated Statements of Loss and Comprehensive Loss

For the years ended December 31,

(Expressed in United States dollars)

	Notes	2015			2014
REVENUE
Reducer		$	526,412		$	-
Product sales			353,736			2,054,042
Contract manufacturing			3,236,978			3,033,976
Consulting services			5,812,814			9,282,649
	15		9,929,940			14,370,667
COST OF GOODS SOLD	17		6,938,134			9,146,371
GROSS PROFIT			2,991,806			5,224,296
EXPENSES
Selling expenses	17		655,669			157,390
General and administrative expenses	17		13,913,076			10,725,658
Product development and clinical trials expenses	17		17,181,395			11,611,420
			31,750,140			22,494,468
OPERATING LOSS			(28,758,334	)		(17,270,172	)
OTHER INCOME/(EXPENSE)
Interest income			577,006			198,677
Interest expense			(2,538	)		(6,991	)
Loss on disposal of property and equipment			-			(29,406	)
Gain/(Loss) on foreign exchange			1,620,727			(67,853	)
			2,195,195			94,427
LOSS BEFORE TAX			(26,563,139	)		(17,175,745	)
Tax expense			(167,351	)		-
LOSS FOR THE YEAR		$	(26,730,490	)	$	(17,175,745	)
OTHER COMPREHENSIVE LOSS FOR THE YEAR
Exchange difference on translation			(8,386,205	)		(978,980	)
LOSS AND COMPREHENSIVE LOSS FOR THE YEAR		$	(35,116,695	)	$	(18,154,725	)
LOSS PER SHARE
Basic and diluted loss per share	19	$	(0.41	)	$	(0.33	)

See Accompanying Notes to the Consolidated Financial Statements

5

NEOVASC INC.

Consolidated Statements of Changes in Equity

(Expressed in United States dollars)

	Notes	Share Capital			Contributed Surplus			Accumulated Other Comprehensive Loss			Deficit			Total Equity
Balance at January 1, 2014		$	66,232,030		$	9,861,634		$	575,174		$	(71,382,478	)	$	5,286,360
Issue of share capital pursuant to a bought deal prospectus offering	14(b)(i)		22,571,405			-			-			-			22,571,405
Share issue costs	14(b)(i)		(454,669	)		-			-			-			(454,669	)
Issue of share capital on exercise of options	14(b)		1,008,295			(832,616	)		-			-			175,679
Share-based payments	14(b)		-			8,603,791			-			-			8,603,791
Transaction with owners during the year			23,125,031			7,771,175			-			-			30,896,206
Loss for the year			-			-			-			(17,175,745	)		(17,175,745	)
Other comprehensive loss for the year			-			-			(978,980	)		-			(978,980	)
Balance at December 31, 2014		$	89,357,061		$	17,632,809		$	(403,806	)	$	(88,558,223	)	$	18,027,841
Issue of share capital pursuant to an underwritten public offering	14(b)(iii)		74,883,850			-			-			-			74,883,850
Share issue costs	14(b)(iii)		(5,004,640	)		-						-			(5,004,640	)
Issue of share capital on exercise of options	14(b)		2,268,766			(1,177,864	)		-			-			1,090,902
Share-based payments	14(b)		-			4,114,165			-			-			4,114,165
Transaction with owners during the year			72,147,976			2,936,301			-			-			75,084,277
Loss and comprehensive loss for the year			-			-			-			(26,730,490	)		(26,730,490	)
Other comprehensive loss for the year			-			-			(8,386,205	)		-			(8,286,205	)
Balance at December 31, 2015		$	161,505,037		$	20,569,110		$	(8,790,011	)	$	(115,288,713	)	$	57,995,423

See Accompanying Notes to the Consolidated Financial Statements

6

NEOVASC INC.

Consolidated Statements of Cash Flows

For the years ended December 31,

(Expressed in United States dollars)

	Notes	2015			2014
OPERATING ACTIVITIES
Loss for the year		$	(26,730,490	)	$	(17,175,745	)
Adjustments for:
Depreciation	17		503,709			339,372
Share-based payments	17		4,114,165			8,603,791
Loss on disposal of fixed assets			-			29,406
Write-down accounts receivable			25,893			192,412
Interest income			(609,493	)		(198,677	)
Interest expense			2,538			6,991
			(22,693,678	)		(8,202,450	)
Net change in non-cash working capital items:
Accounts receivable			(468,478	)		(574,042	)
Inventory			(269,605	)		3,334
Prepaid expenses and other assets			31,592			(210,530	)
Accounts payable and accrued liabilities			1,527,656			821,198
			821,165			39,960
Interest paid and received:
Interest received			592,093			106,035
Interest paid			(2,538	)		(6,991	)
			589,555			99,044
Net cash applied to operating activities			(21,282,958	)		(8,063,446	)
INVESTING ACTIVITES
Redemption of / (Investment in) guaranteed investment certificates	7		9,322,492			(10,900,599	)
Purchase of property, plant and equipment	10		(2,143,128	)		(1,120,345	)
Net cash from / (applied to) investing activities			7,179,364			(12,020,944	)
FINANCING ACTIVITIES
Repayment of long-term debt	12		(164,364	)		(37,456	)
Proceeds from share issue pursuant to an underwritten public offering, net of share issue costs	14		69,879,210			22,116,736
Proceeds from exercise of options	14		1,090,092			175,679
Net cash from financing activities			70,804,938			22,254,959
NET CHANGE IN CASH AND CASH EQUIVALENTS			56,701,344			2,170,569
CASH AND CASH EQUIVALENTS
Beginning of the year			5,193,561			3,199,944
Exchange difference on cash and cash equivalents			(6,868,734	)		(176,952	)
End of the year		$	55,026,171		$	5,193,561
Represented by:
Cash	6		7,860,728			784,461
Cashable high interest savings accounts	6		25,490,443			4,409,100
Cashable guaranteed investment certificates	6		21,675,000			-
		$	55,026,171		$	5,193,561

See Accompanying Notes to the Consolidated Financial Statements

7

NEOVASC INC.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(Expressed in United States dollars)

1. INCORPORATION AND NATURE OF BUSINESS

Neovasc Inc. (“Neovasc” or the “Company”) is a limited liability company incorporated and domiciled in Canada. The Company was incorporated as Medical Ventures Corp. under the Company Act (British Columbia) on November 2, 2000 and was continued under the Canada Business Corporations Act on April 19, 2002. On July 1, 2008, the Company changed its name to Neovasc Inc.

Neovasc is the parent company. The consolidated financial statements of the Company as at December 31, 2015 and December 31, 2014 and for the years ended December 31, 2015 and 2014 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:NVC) and the Nasdaq Capital Market (NASDAQ:NVCN).

Neovasc is a specialty medical device company that develops, manufactures and markets products for the rapidly growing cardiovascular marketplace.  Its products include the Tiara™ for the transcatheter treatment of mitral valve disease and the Neovasc Reducer™ for the treatment of refractory angina.

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. and B-Balloon Ltd. (which is in the process of being voluntarily liquidated). 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.

8

NEOVASC INC.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(Expressed in United States dollars)

2. BASIS OF PREPARATION (continued)

(e) Use of estimates and management judgment

The preparation of consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.

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

Significant areas requiring the use of estimates relate to the determination of the net realizable value of inventory (obsolescence provisions), allowance for doubtful accounts receivable, impairment of non-financial assets, useful lives of depreciable assets and expected life, volatility and forfeiture rates for share-based payments.

Inventories

The Company estimates the net realizable values of inventories, taking into account the most reliable evidence available at each reporting date. The future realization of these inventories may be affected by future technology or other market-driven changes that may reduce future selling prices.

Allowance for doubtful accounts receivable

The Company provides for bad debts by setting aside accounts receivable past due more than 121 days. Actual collectability of customer balances can vary from the Company’s estimation.

Impairment of long-lived assets

In assessing impairment, the Company estimates the recoverable amount of each asset or cash generating unit based on expected future cash flows and uses an interest rate to discount them. Estimation uncertainty relates to assumptions about future operating results and the determination of a suitable discount rate.

Useful lives of depreciable assets

The Company reviews its estimate of the useful lives of depreciable assets at each reporting date, based on the expected utilization of the assets.

Share-based payment

The Company measures the cost of equity-settled transactions by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including the expected life of the share option, volatility and forfeiture rates and making assumptions about them.

Determination of functional currency

The Company determines its functional currency 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. As the Company is still a development stage entity it considers the currency in which it expends cash on its research and development activities to be a key element in this assessment.

Determination of presentation currency

The Company elected to adopt the United States dollar as its presentation currency, effective from the annual financial statements of the Company for the period ended December 31, 2015, to better reflect its business and to improve comparability of its financial information with other publicly traded businesses in the life sciences industry. Prior year financial statements and all comparative financial information contained herein have been recast to reflect the Company’s results as if they had been historically reported in United States dollars.

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.

9

NEOVASC INC.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(Expressed in United States dollars)

2. BASIS OF PREPARATION (continued)

(e) Use of estimates and management judgment (continued)

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 financial statements of the period in which the change in probability occurs. The Company has assessed the likelihood of outcome of an outflow of resources embodying economic benefits as possible but not probable. Given that further disclosure could seriously prejudice our position, the Company has applied the exception under IAS 37.92 and disclosed the general nature of the dispute, together with the fact that, and the reason why, information has not been disclosed.

3. SIGNIFICANT ACCOUNTING POLICIES

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements.

(a) Foreign currency translation

The functional currency of Neovasc and each of its subsidiaries is the Canadian dollar (See Note 2 (e)). Primary indicators in determining functional currency include the currency that influences sales prices, labour, material purchases and other costs. Other indicators include the currency in which funds from financing activities are generated, and the currency in which receipts from operations are usually retained.

Foreign currency denominated monetary assets and liabilities are translated into Canadian dollars at the period end rate of exchange. 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 period in which they arise.

The presentation currency of the consolidated financial statements is the United States dollar. The Company elected to adopt the United States dollar as its presentation currency, effective from the annual financial statements of the Company for the period ended December 31, 2015, to better reflect its business and to improve comparability of its financial information with other publicly traded businesses in the life sciences industry. Prior year financial statements and all comparative financial information contained herein have been recast to reflect the Company’s results as if they had been historically reported in United States dollars. All revenues, expenses and cash flows for each period were translated into the presentation currency using average rates for the period, or the rates in effect at the date of the transaction for significant transactions. Assets and liabilities were translated using the exchange rate at the end of the period 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.

As at December 31, 2015 the cumulative impact of the change in presentation currency was 8,386,205.

(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.

The Company classifies its cash and cash equivalents, investments and accounts receivable as loans and receivables. Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. 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. The Company classifies its long-term debt and 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.

10

NEOVASC INC.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(Expressed in United States dollars)

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

(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) Investments

Investments include investments in high interest savings accounts (“HISAs”) and guaranteed investment certificates (“GICs”) that are readily convertible to known amounts of cash after 90 days of purchase.

(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.

(f) Property, plant and equipment

Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses.

As no finite useful life for land can be determined, related carrying amounts are not depreciated.

Depreciation of property, plant and equipment is recognized in profit or loss over the estimated useful lives using the following rates and methods:

Building	4% declining balance
Leasehold improvements	amortized over the life of the lease
Production 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, plant and equipment are determined as the difference between the disposal proceeds and the carrying amount of the assets and are recognized in profit or loss.

(g) Impairment of assets

Financial assets (including accounts receivable)

The Company reviews its accounts receivable at least at each reporting date to determine whether there is objective evidence that it is impaired.

The Company considers evidence of impairment for accounts receivable when the amounts are past due or when other objective information is received that a specific counterparty may default. Accounts receivable that are not considered to be individually impaired are reviewed for impairment in groups, using historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management’s judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends.

An impairment loss is calculated as the difference between an asset’s carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognized in profit or loss and reflected in an allowance account against receivables. When subsequent events cause the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.

11

NEOVASC INC.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(Expressed in United States dollars)

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

(g) Impairment of assets (continued)

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.

(h) Employee benefits

The Company provides short-term employee benefits and post-employment benefits to current employees. The short-term employee benefits includes 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.

(i) Revenue recognition

The Company earns revenue from four sources: reducer, product sales, contract manufacturing and consulting services. Revenues from these four sources are recognized as follows:

Revenue from the sale of goods is recognized when the Company has transferred to the buyer the significant risks and rewards of ownership of the goods, the Company retains neither continuing managerial involvement nor effective control over the goods sold, the amount of revenue can be measured reliably, it is 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 can be measured reliably.

For consulting services, revenue is recognized when the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to the Company and the stage of completion and the costs incurred or to be incurred in respect of the transaction can be measured reliably.

Reducer, Product sales and Contract manufacturing

For reducer, product sales and contract manufacturing, these criteria are met upon time of shipment at shipping point.

Consulting services

For consulting services, these criteria are met as the services are delivered under the terms of the related consulting services contract.

12

NEOVASC INC.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(Expressed in United States dollars)

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

(j) Research and development

The Company is engaged in research and development. Research costs are expensed as incurred. Development costs are expensed in the period 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.

(k) Government assistance

Government assistance, consisting of grants and scientific research and experimental development tax credits, is recorded as a reduction of either the related expense or the cost of the asset to which it relates. The assistance is recorded in the accounts when reasonable assurance exists that the Company has complied with the terms and conditions of the assistance program and when there is reasonable assurance that the assistance will be realized.

(l) Interest income and interest expense

Interest income comprises interest income from HISAs and GICs. Interest income is recognized in profit or loss, using the effective interest method.

Interest expense comprises interest expense on the long-term debt. Interest expense is recognized in profit or loss using the effective interest method.

(m) Operating lease

Leases where the Company does not assume substantially all the risks and rewards of ownership are classified as operating leases. Payments on operating lease 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.

(n) 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.

13

NEOVASC INC.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(Expressed in United States dollars)

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

(o) 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 issues units consisting of common shares and common share purchase warrants. The Company estimates the fair value of the common shares based on their market price on the date of the issuance of the units. The residual difference, if any, between the unit price and the fair value of each common share represents the fair value attributable to each warrant. Any transaction costs associated with the issuance of units are apportioned between the common shares and warrants based on their relative fair values.

Professional, consulting, regulatory fees and other costs that are directly attributable to financing transactions are deferred until such time as the transactions are completed. Share issue costs are charged to share capital when the related shares are issued. Costs relating to financing transactions that are abandoned are charged to profit and loss.

Contributed surplus includes the fair value of vested stock options (see Note 3(p)).

Deficit includes all current and prior period losses.

(p) 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 14(c)).

The fair value of the stock options awarded to employees, directors, officers and service providers is measured at grant date, using the Black-Scholes Option Pricing Model with assumptions for risk-free interest rates, dividend yields, volatility factors of the expected market price of the Company's common shares, based on historic market price volatility, and an expected life of the options. The fair value of the options is recognized as an employee expense, with a corresponding increase in equity, over the period 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.

(q) 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 weighted average number of common shares outstanding during the year for the effects of all potentially dilutive shares, only when their conversion to shares would decrease earnings per share or increase loss per share.

(r) Operating segment

The Company operates its business in one segment. The Company reports information about revenues from customers for reducer, products sales, contract manufacturing and consulting services, from geographical areas, and from major customers (see Note 15).

14

NEOVASC INC.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(Expressed in United States dollars)

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

(s) Future accounting pronouncements

The Company has reviewed new and revised accounting pronouncements that have been issued but are not yet effective. The Company has not early adopted any of these standards, but will adopt by their respective mandatory application date. The Company is currently assessing their impact on its consolidated financial statements. 

IFRS 9 Financial Instruments will replace IAS 39 Financial Instruments: Recognition and Measurement. The new standard replaces the current multiple classification and measurement models for financial assets and liabilities with a single model that has only two classification categories: amortized cost and fair value. IFRS 9 has also been amended not to require the restatement of comparative period financial statements for the initial application of the classification and measuring requirements of IFRS 9, but instead requires modified disclosures on transition to IFRS 9. The new standard is required to be applied for annual reporting periods beginning on or after January 1, 2018. Early application of this standard is permitted.

IFRS 15 Revenue from Contracts with Customers will replace IAS 18 Revenue and IAS 11 Construction Contracts. The new standard provides guidance on whether revenue is to be recognized over time or at a point in time, and expands and improves disclosures about revenue. The standard does not apply to certain contracts such as lease, insurance, financing arrangements, and guarantees other than product warranties. The new standard is required to be applied for annual reporting periods beginning on or after January 1, 2018. Early application of this standard is permitted.

IFRS 16 Leases sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract. All leases result in the lessee obtaining the right to use an asset at the start of the lease and, if lease payments are made over time, also obtaining financing. Accordingly, from the perspective of the lessee, IFRS 16 eliminates the classification of leases as either operating leases or finance leases as is required by IAS 17 Leases and, instead, introduces a single lessee accounting model. From the perspective of the lessor, IFRS 16 substantially carries forward the accounting requirements in IAS 17. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and accounts for those two types of leases differently. The new standard is required to be applied for annual reporting periods beginning on or after January 1, 2019. Early application of this standard is permitted.

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 long-term debt. There has been no change in the definition since the prior period.

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, or new debt (secured, unsecured, convertible and/or other types of available debt instruments).

The capital of the Company is comprised of:

	December 31, 2015		December 31, 2014
Equity	$	57,995,423	$	18,027,841
Debt		-		174,312
	$	57,995,423	$	18,202,153

For the years ended December 31, 2015 and 2014 there were no changes in the Company’s capital management policy.

15

NEOVASC INC.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(Expressed in United States dollars)

5. FINANCIAL RISK MANAGEMENT

The carrying amounts of financial assets and financial liabilities in each category are as follows:

	Note	December 31, 2015		December 31, 2014
Loans and receivables
Cash and cash equivalents	6	$	55,026,171	$	5,193,561
Investments	7		-		10,343,999
Accounts receivable	8		1,736,941		1,543,817
		$	56,763,112	$	17,081,377
Other financial liabilities
Accounts payable and accrued liabilities	11	$	3,232,971	$	2,166,268
Debt	12		-		174,312
		$	3,232,971	$	2,340,580

The carrying amount of cash and cash equivalents, accounts receivable, investments, and accounts payable and accrued liabilities is considered a reasonable approximation of fair value due to their short term nature.

In 2014, the fair value of the debt was $161,472, estimated using a present value technique discounting cash flows using an interest rate of 3.5%, and was considered a level 2 fair value measurement.

(a) Foreign exchange risk

The majority of the Company’s revenues are derived from product sales in the United States and Europe, primarily denominated in United States and European Union currencies. 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. United States and European Union currency represents approximately 58% and 42% of the revenue for year ended December 31, 2015 (year ended December 31, 2014: 39% and 51% respectively). A 10% change in the foreign exchange rates for United States and European Union currencies will result in a change in revenues of approximately $570,000 and $419,000 respectively for the year ended December 31, 2015. A 10% change in the foreign exchange rates for the United States and European Union currencies for foreign currency denominated accounts receivable will impact net income by approximately $84,000 and $60,000 respectively (2014: $26,000 and $69,000), and a similar change for foreign currency denominated accounts payable will impact net income by approximately $164,000 and $24,000 respectively as at December 31, 2015 (2014: $83,000 and $22,000). The Company does not hedge its foreign exchange risk.

(b) Interest rate risk

The Company receives interest on its investment in HISAs at variable interest rates. A 1% change in the interest rate on the investment in HISAs will impact net income as at December 31, 2015 by approximately $255,000 (2014: $44,000).

In 2014, the debt had a floating interest rate of prime plus 0.500% per annum. Management considered the risks to cash flows from this variable interest portion and determined it was unlikely the interest rates would increase sufficiently to exceed the fixed monthly payment due on the debt. A 1% change in the interest rate on the debt would have impacted the 2014 income by approximately $1,700.

The Company is not exposed to cash flow interest rate risk on fixed rate cash balances, fixed rate GICs and short term accounts receivable without interest.

16

NEOVASC INC.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(Expressed in United States dollars)

5. FINANCIAL RISK MANAGEMENT (continued)

(c) Liquidity risk

As at December 31, 2015, the Company had $55,026,171 in cash and cash equivalents. The cash used in operations during the year ended December 31, 2015 was $21,282,958. As at December 31, 2015, the Company had working capital of $54,274,867 as compared to working capital of $15,510,445 at December 31, 2014.

The Company monitors its cash flow on the monthly basis and compares actual performance to the budget for the fiscal year. The Company believes it has sufficient funds for the next 12 months but 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.

As at December 31, 2015 and 2014, the Company’s non-derivative financial liabilities have maturities (including interest payments where applicable) as summarized below:

	Current				Non-current
December 31, 2015	Within 6 months		6 to 12 months		1 to 5 years		later than 5 years
Accounts payable and accrued liabilities	$	3,232,971	$	-	$	-	$	-
	$	3,232,971	$	-	$	-	$	-
December 31,2014
Accounts payable and accrued liabilities	$	2,166,268	$	-	$	-	$	-
Long-term debt		21,179		21,179		141,196		-
	$	2,187,447	$	21,179	$	141,196	$	-

(d) Credit risk

Credit risk arises from the possibility that the entities to which the Company sells products may experience financial difficulty and be unable to fulfill their contractual obligations. This risk is mitigated by proactive credit management policies that include regular monitoring of the debtor’s payment history and performance. The Company does not require collateral from its customers as security for trade accounts receivable but may require certain customers to pay in advance of any work being performed or product being shipped.

The maximum exposure, if all of the Company’s customers were to default at the same time is the full carrying value of the trade accounts receivable at December 31, 2015: $1,393,533 (2014: $1,236,500).

As at December 31, 2015, the Company had $91,813 (as at December 31, 2014: $2,057) of trade accounts receivable that was overdue, according to the customers’ credit terms. During the year ended December 31, 2015 the Company wrote down $25,893 of accounts receivable owed by a customer (2014: $192,412).

The Company may also have credit risk related to its cash and cash equivalents, and investments with a maximum exposure of $55,026,171 as at December 31, 2015 (2014: $15,537,560). The Company minimizes its risk to cash and cash equivalents by dealing with Canadian chartered banks.

6. CASH AND CASH EQUIVALENTS

	December 31, 2015		December 31, 2014
Cash held in:
Canadian dollars	$	635,614	$	397,748
United States dollars		7,104,699		282,614
European euros		120,415		104,099
Cashable high interest savings accounts (“HISAs”)		8,738,088		4,409,100
Cashable United States dollar high interest savings accounts (“HISAs”)		16,752,355		-
Cashable guaranteed investment certificate (“GICs”)		21,675,000		-
	$	55,026,171	$	5,193,561

The HISAs and GICs are held in major Canadian Chartered Banks. The HISAs are fully cashable at any time and have a variable interest rate. The HISAs are fully cashable within 90 days and have fixed interest rates.

17

NEOVASC INC.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(Expressed in United States dollars)

7. INVESTMENTS

	December 31, 2015		December 31, 2014
Guaranteed investment certificates	$	-	$	10,343,999

8. ACCOUNTS RECEIVABLE

	December 31, 2015		December 31, 2014
Trade receivables	$	1,393,533	$	1,236,500
Other receivables		343,408		307,317
	$	1,736,941	$	1,543,817

All amounts are short-term. The aging analysis of receivables is as follows:

	December 31, 2015		December 31, 2014
Not past due	$	1,301,720	$	1,234,443
Past due 0 - 30 days		89,643		2,057
30 - 60 days		1,846		-
60 - 90 days		324		-
	$	1,393,533	$	1,236,500

All of the Company's trade and other receivables have been reviewed for impairment. The Company wrote down $25,893 accounts receivable during the year ended December 31, 2015 (2014: $192,412).

There was no allowance for doubtful accounts at December 31, 2015 or December 31, 2014 and there was no movement in the allowance for doubtful accounts in either period.

9. INVENTORY

	December 31, 2015		December 31, 2014
Raw materials	$	492,785	$	228,212
Work in progress		88,856		111,029
Finished goods		16,495		71,049
	$	598,136	$	410,290

During the year ended December 31, 2015 $3,134,611 (2014: $4,925,388) of inventory was expensed in cost of goods sold, and $3,354,062 (2014: $1,805,066) of inventory was used in internal development projects and expensed in product development and clinical trial expenses.

During the years ended December 31, 2015 and 2014 the Company did not write down any obsolete inventory.

18

NEOVASC INC.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(Expressed in United States dollars)

10. PROPERTY, PLANT AND EQUIPMENT

	Land			Building			Leasehold improvements			Production equipment			Computer hardware			Computer software			Office equipment			Total
COST
Balance at January 1, 2014	$	194,948		$	1,529,710		$	72,356		$	1,059,282		$	299,350		$	290,218		$	207,232		$	3,653,096
Additions during the year		-			348,580			36,514			364,660			191,665			33,303			145,623			1,120,345
Disposals during the year		-			-			(70,671	)		-			-			-			(27,139	)		(97,810	)
Cumulative translation adjustment		(16,214	)		(136,868	)		(2,771	)		(104,960	)		(33,302	)		(25,968	)		(21,490	)		(341,573	)
Balance at December 31, 2014	$	178,734		$	1,741,422		$	35,428		$	1,318,982		$	457,713		$	297,553		$	304,226		$	4,334,058
Additions during the year		253,198			805,810			93,361			833,690			52,914			80,455			23,700			2,143,128
Cumulative translation adjustment		(57,166	)		(346,428	)		(10,780	)		(281,957	)		(79,537	)		(51,650	)		(51,681	)		(879,199	)
Balance at December 31, 2015	$	374,766		$	2,200,804		$	118,009		$	1,870,715		$	431,090		$	326,358		$	276,245		$	5,597,987
ACCUMULATED DEPRECIATION
Balance at January 1, 2014	$	-		$	326,144		$	29,247		$	587,224		$	183,916		$	280,789		$	142,642		$	1,549,962
Depreciation for the year		-			46,456			32,714			163,152			56,028			22,956			18,066			339,372
Disposals during the year		-			-			(60,504	)		-			-			-			(7,899	)		(68,403	)
Cumulative translation adjustment		-			(29,305	)		(499	)		(56,111	)		(17,790	)		(24,318	)		(12,121	)		(140,144	)
Balance at December 31, 2014	$	-		$	343,295		$	958		$	694,265		$	222,154		$	279,427		$	140,688		$	1,680,787
Depreciation for the year		-			51,010			34,119			270,231			78,158			36,817			33,374			503,709
Cumulative translation adjustment					(59,066	)		(2,062	)		(130,469	)		(42,706	)		(47,318	)		(25,444	)		(307,065	)
Balance at December 31, 2015	$	-		$	335,239		$	33,015		$	834,027		$	257,606		$	268,926		$	148,618		$	1,877,431
CARRYING AMOUNTS
As at December 31, 2014	$	178,734		$	1,398,127		$	34,470		$	624,717		$	235,559		$	18,126		$	163,538		$	2,653,271
As at December 31, 2015	$	374,766		$	1,865,565		$	84,994		$	1,036,688		$	173,484		$	57,432		$	127,627		$	3,720,556

19

NEOVASC INC.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(Expressed in United States dollars)

11. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

	December 31, 2015		December 31, 2014
Trade payables	$	2,515,815	$	1,843,823
Accrued vacation		167,604		240,101
Accrued liabilities		221,167		56,030
Tax payables		155,169		-
Other payables		173,216		26,314
	$	3,232,971	$	2,166,268

12. LONG-TERM DEBT

	December 31, 2015		December 31, 2014
Bank installment loan	$	-	$	174,312
Less current portion		-		(38,437	)
	$	-	$	135,875

Repayments consist of 180 regular blended payments of $3,202 each month, including interest and principal, commencing on September 1, 2007 and ending on or before August 1, 2022. The loan agreement as amended on September 27, 2013, is collateralized by a first charge over the Company’s land and buildings and a general security agreement over all personal property of the business now owned and all personal property acquired in the future. The loan bears interest at prime plus 0.500% per annum.

In June 2015, the Company repaid the long-term debt.

Principal maturities in the next five years and thereafter are approximately as follows:

	December 31, 2015		December 31, 2014
Year 1	$	-	$	38,437
Year 2		-		39,543
Year 3		-		40,503
Year 4		-		41,485
Year 5		-		14,344
	$	-	$	174,312

More information about the Company’s exposure to interest rate and liquidity risk is given in Notes 5(b) and 5(c).

20

NEOVASC INC.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(Expressed in United States dollars)

13. 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,
	2015			2014
Loss before income taxes	$	(26,563,139	)	$	(17,175,745	)
Statutory tax rate		26.00%			26.00%
Recovery of income taxes based on the combined Canadian federal
and provincial statutory rates		(6,906,416	)		(4,465,694	)
Share-based remuneration		1,061,468			2,229,252
Foreign exchange adjustment		126,654			64,424
Other permanent differences		(2,352,402	)		(166,443	)
Unrecognized deferred tax benefits		8,191,467			2,327,737
Difference in tax rates between foreign jurisdictions and Canada		46,580			10,724
Income tax expense	$	167,351		$	-

The Company recorded no deferred tax assets in the consolidated statement of financial position. The unrecognized deferred tax assets include tax losses, research and development pools and differences between the carrying amount and the tax basis of the following items:

	For the years ended December 31,
	2015		2014
Deferred tax assets
Investment tax credits	$	3,454,503	$	3,409,687
Capital assets		212,311		492,472
Share issue expenses		999,066		96,968
Non-capital loss carry forwards		9,962,235		12,320,068
Foreign exchange		1,093		(34,138	)
Research and development expenditures		3,523,925		2,958,635
Deferred compensation		29,907		-
	$	18,183,040	$	19,243,692

As at December 31, 2015, the Company has approximately $13 million of research and development expenditures available to reduce income taxes in the future periods, with no expiry date. The Company has loss carry forward balances for income tax purposes of approximately $38 million that are available to reduce income taxes in the future periods, if any, expiring at various times through to the year 2035. The Company also has investment tax credits of approximately $4 million available to reduce income taxes in the future periods, if any, expiring at various times through to the year 2035.

21

NEOVASC INC.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(Expressed in United States dollars)

14. 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.

(b) Issued and outstanding

	Common Shares					Contributed
	Number		Amount			Surplus
Balance, January 1, 2014		48,215,080	$	66,232,030		$	9,861,634
Issued for cash pursuant to bought deal prospectus offering (i)		4,192,000		22,571,405			-
Share issue costs (i)		-		(454,669	)		-
Issued for cash on exercise of options		601,459		846,473			(670,794	)
Issued on net exercise of options (ii)		833,805		161,822			(161,822	)
Share-based payments		-		-			8,603,791
Balance, December 31, 2014		53,842,344	$	89,357,061		$	17,632,809
Issued for cash pursuant to an underwritten public offering (iii)		10,415,000		74,883,850			-
Share issue costs (iii)		-		(5,004,640	)		-
Issued for cash on exercise of options		2,507,603		2,268,766			(1,177,864	)
Share-based payments		-		-			4,114,165
Balance, December 31, 2015		66,764,947	$	161,505,037		$	20,569,110

(i) On March 26, 2014, the Company closed a bought deal equity prospectus offering underwritten by Cormark Securities Inc., which placed 4,192,000 common shares of Neovasc at a price of C$6.00 per common share, for gross cash proceeds to the Company of C$25,152,000 . The share issue costs were $454,669.

(ii) On May 26, 2014, 962,500 options were exercised under a net exercise provision in the stock option plan. Under this provision the Company issued fully paid and non-assessable common shares to the option holder equal to the number of options exercised multiplied by the quotient obtained by dividing the result of the market price of one common share on the date of the exercise less the exercise price per common share by the market price of one common share on the date of the exercise. These options were issued on a net settlement basis which is less dilutive to existing shareholders. The Company did not receive cash proceeds from the exercise of the options but issued fewer common shares on the exercise of the options.

(iii) On February 3, 2015, the Company closed an underwritten public offering of 12,075,000 common shares of the Company (of which 10,415,000 common shares were issued from treasury) at a price per share of US$7.19 for aggregate gross proceeds of $74,883,850 for the Company and $11,935,400 for the selling security holders (including some directors, officers and employees). The share issue costs incurred by the Company were $5,004,640.

22

NEOVASC INC.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(Expressed in United States dollars)

14. SHARE CAPITAL (continued)

(c) 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 18, 2014, 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 10,515,860, representing approximately 20% of the number of common shares of the Company outstanding on May 16, 2014.

Options under the Company’s stock option plan granted to directors, officers and employees vest immediately on the grant date, unless a vesting schedule is specified by the board. The directors of the Company have discretion within the limitations set forth in the stock option plan to determine other vesting terms on options granted to directors, officers, employees and others. The minimum exercise price of a stock option cannot be less than the applicable market price of the common shares on the date of the grant and the options have a maximum life of ten years from the date of grant. The Company also assumed options from the acquisition of Neovasc Medical Ltd. and B-Balloon Ltd which were not issued under the Company’s stock option plan. The following table summarizes stock option activity for the respective periods as follows:

				Weighted average		Average remaining
	Number of options			exercise price		contractual life (years)
Options outstanding, January 1, 2014		8,784,920		C$	1.04		2.20
Granted		2,150,000			6.52
Exercised for cash		(601,459	)		0.32
Exercised under net exercise provision 14(b)(ii)		(962,500	)		0.95
Forfeited		(24,572	)		3.47
Options outstanding, December 31, 2014		9,346,389		C$	2.37		2.19
Options exercisable, December 31, 2014		8,331,895		C$	2.09		1.99
Granted		1,423,677		C$	8.57
Exercised		(2,507,603	)		0.53
Forfeited		(127,760	)		8.46
Options outstanding, December 31, 2015		8,134,703		C$	3.92		2.22
Options exercisable, December 31, 2015		6,491,040		C$	3.15		1.78

The following table lists the options outstanding at December 31, 2015 by exercise price:

Exercise price		Options outstanding		Weighted average remaining term (yrs)		Options exercisable		Weighted average remaining term (yrs)
	C$0.01		86,280		2.06		86,280		2.06
	C$0.97-1.45		3,608,500		0.68		3,570,700		0.61
	C$2.00-4.25		982,606		2.27		775,804		2.25
	C$5.00-7.00		2,550,570		3.62		1,806,347		3.40
	C$7.00-9.00		373,000		4.58		77,000		4.58
	C$10.00-13.00		533,747		4.23		174,909		4.21
			8,134,703				6,491,040

The following table lists the options outstanding at December 31, 2014 by exercise price:

Exercise price		Options outstanding		Weighted average remaining term (yrs)		Options exercisable		Weighted average remaining term (yrs)
	C$0.01		236,308		2.60		236,308		2.60
	C$0.20-0.40		1,789,875		0.18		1,789,875		0.18
	C$0.97-1.45		4,123,900		1.64		3,996,250		1.40
	C$2.00-4.25		1,051,006		3.27		720,402		3.22
	C$5.00-7.00		2,145,300		4.35		1,589,060		4.31
			9,346,389				8,331,895

23

NEOVASC INC.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(Expressed in United States dollars)

14. SHARE CAPITAL (continued)

(c) Stock options (continued)

The weighted average share price at the date of exercise for share options exercised for the year ended December 31, 2015 was $6.98 (2014: $6.15). During the year ended December 31, 2015, the Company recorded $4,114,165 as compensation expense for share-based compensation awarded to eligible optionees (2014: $8,603,791). 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:

	2015		2014
Weighted average fair value	$	4.85	$	4.69
Dividend yield		nil		nil
Volatility		76%		110%
Risk-free interest rate		0.75%		1.75%
Expected life		5 years		5 years
Forfeiture rate		1%		5%

15. SEGMENT INFORMATION

The Company’s operations are in one business segment; the development, manufacture and marketing of medical devices. Each of the Company’s product lines has similar characteristics, customers, distribution and marketing strategies, and are subject to similar regulatory requirements. Substantially all of the Company’s long-lived assets are located in Canada. The Company carries on business in Canada. The Company earns revenue from sales to customers in the following geographic locations:

	For the years ended December 31,
	2015		2014
REVENUE
United States	$	4,932,791	$	3,995,927
Europe		4,831,678		9,921,964
Israel		165,471		452,776
	$	9,929,940	$	14,370,667

Sales to the Company’s four largest customers accounted for approximately 30%, 29%, 18% and 10% of the Company’s sales for the year ended December 31, 2015. Sales to the Company’s four largest customers accounted for approximately 35%, 23%, 15% and 14% of the Company’s sales for the year ended December 31, 2014.

16. EMPLOYEE BENEFITS EXPENSE

	For the years ended December 31,
	2015		2014
Salaries and wages	$	8,688,806	$	6,331,502
Pension plan and employment insurance		517,592		380,206
Contribution to defined contribution pension plan		279,968		119,753
Health benefits		744,297		468,773
Cash-based employee expenses		10,230,663		7,300,234
Share-based payments		4,114,165		8,603,791
	$	14,344,828	$	15,904,025

24

NEOVASC INC.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(Expressed in United States dollars)

17. DEPRECIATION, SHARE-BASED PAYMENTS, EMPLOYEE AND OTHER EXPENSES

	For the years ended December 31,
	2015		2014
COST OF GOODS SOLD
Depreciation	$	165,884	$	122,579
Share-based payments		310,360		232,433
Cash-based employee expenses		3,810,720		3,493,560
Other expenses		2,651,170		5,297,799
TOTAL COST OF GOODS SOLD	$	6,938,134	$	9,146,371
EXPENSES
Selling expenses
Depreciation	$	-	$	348
Share-based payments		120,780		9,399
Cash-based employee expenses		31,447		65,581
Other expenses		503,442		82,062
		655,669		157,390
General and administrative expenses
Depreciation		78,544		75,447
Share-based payments		1,323,583		4,803,731
Cash-based employee expenses		2,128,392		1,424,403
Litigation expenses		7,058,226		834,288
Other expenses		3,324,331		3,587,789
		13,913,076		10,725,658
Product development and clinical trials expenses
Depreciation		259,281		140,998
Share-based payments		2,359,442		3,558,228
Cash-based employee expenses		4,260,104		2,316,690
Other expenses		10,302,568		5,595,504
		17,181,395		11,611,420
TOTAL EXPENSES	$	31,750,140	$	22,494,468
Depreciation per Statements of Cash Flows	$	503,709	$	339,372
Share-based payments per Statements of Cash Flows	$	4,114,165	$	8,603,791
Cash-based employee expenses (see Note 16)	$	10,230,663	$	7,300,234

Litigation expenses are legal and other expenses incurred in litigation matters during the year. It does not include any provision or contingent liability estimated by management (See Note 21).

25

NEOVASC INC.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(Expressed in United States dollars)

18. OPERATING LEASES

The Company entered into an agreement for additional office space in August 2013. 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 August 1, 2013. This lease was renegotiated in September 2014. The term of the lease is 24 months commencing on August 1, 2015.

The Company entered into an agreement for additional office space in September 2014. The agreement does not contain any contingent rent clauses, renewal or purchase options or escalation clauses. The term of the lease is 36 months commencing on October 1, 2014.

The Company entered into an agreement for additional office space in September 2014 in Minneapolis. The agreement does not contain any contingent rent clauses, renewal or purchase options or escalation clauses. The original term of the lease is 66 months commencing on September 1, 2014. Additional office space was added in July 2015 in Minneapolis. The term of the combined lease is 59 months commencing on July 1, 2015.

The Company entered into an agreement for additional office space in May 2015. The agreement does not contain any contingent rent clauses, renewal or purchase options or escalation clauses. The term of the lease is 32 months commencing on May 1, 2015.

The future minimum operating lease payments due over the next five years are as follows:

	As at December 31,
	2015		2014
Year 1	$	209,753	$	154,291
Year 2		179,718		179,506
Year 3		77,519		180,744
Year 4		79,843		60,407
Year 5		33,835		45,085
Thereafter		-		7,663
	$	580,668	$	627,696

Lease payments recognized as an expense during the year ended December 31, 2015 amount to $262,765 (2014: $108,045).

19. 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, 2015 amounted to 65,397,132 shares (2014: 52,289,492 shares).

	For the years ended December 31,
	2015			2014
Weighted average number of common shares		65,397,132			52,289,492
Loss for the period		(26,730,490	)		(17,175,745	)
Basic loss per share	$	(0.41	)	$	(0.33	)

As the Company is currently operating at a loss no dilutive potential ordinary shares have been identified as the conversion would lead to a decrease in loss per share.

26

NEOVASC INC.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(Expressed in United States dollars)

20. RELATED PARTY TRANSACTIONS

The Company’s key management personnel include members of the board of directors and 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,
	2015		2014
Short-term employee benefits
Employee salaries and bonuses	$	1,310,852	$	1,038,350
Directors fees		276,472		120,989
Social security and medical care costs		33,433		22,227
		1,620,757		1,181,566
Post-employment benefits
Contributions to defined contribution pension plan		26,294		28,816
Share-based payments		1,083,985		5,866,504
Total key management remuneration	$	2,731,036	$	7,076,886

21. CONTINGENT LIABILITIES

Litigation expenses are legal and other expenses incurred in litigation matters during the year. The legal costs associated with defending legal claims in the current year include 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 device and a complaint filed by CardiAQ against Neovasc in Germany requesting that Neovasc assign its right to one of its European patent applications to CardiAQ.

When the company assesses that it is more likely that no present obligation exists at the end of the reporting period and that the possibility of an outflow of economic resources embodying economic benefits is possible, but not probable, no provision is recognized and contingent liability disclosure is required. The Company has applied the disclosure exemption and not provided contingent liability disclosure as it may seriously prejudice the Company’s position in the dispute.

22. AUTHORIZATION OF FINANCIAL STATEMENTS

The consolidated financial statements for the year ended December 31, 2015 (including comparatives) were approved by the board of directors on March 29, 2016.

(signed) Alexei Marko

Alexei Marko, Director

(signed) Steve Rubin

Steve Rubin, Director

27

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We have issued our report dated March 29, 2016, 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, 2015. 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 F-10 (File No. 333-195360) and Form S-8 (File No. 333-196986).

Vancouver, Canada
March 29, 2016 /s/ Grant Thornton LLP
Chartered Accountants

EX-31.1

Exhibit 31.1

Certifications

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Alexei Marko, certify that:

1. I have reviewed this annual report on Form 40-F of Neovasc Inc.;

2. 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;

3. 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 issuer as of, and for, the periods presented in this report;

4. The issuer's other certifying officer(s) 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 issuer 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 issuer, 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 issuer'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 issuer'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 issuer's internal control over financial reporting; and

5. The issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer's auditors and the audit committee of the issuer'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 issuer'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 issuer's internal control over financial reporting.

Dated: March 29, 2016	/s/ Alexei Marko
	Alexei Marko
	Title:	Chief Executive Officer

I, Chris Clark, certify that:

1. I have reviewed this annual report on Form 40-F of Neovasc Inc.;

2. 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;

3. 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 issuer as of, and for, the periods presented in this report;

4. The issuer's other certifying officer(s) 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 issuer 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 issuer, 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 issuer'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 issuer'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 issuer's internal control over financial reporting; and

5. The issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer's auditors and the audit committee of the issuer'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 issuer'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 issuer's internal control over financial reporting.

Dated: March 29, 2016	/s/ Chris Clark
	By:	Chris Clark
	Title:	Chief Financial Officer

EX-32.1

Exhibit 32.1

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 "Issuer") on Form 40-F for the year ended December 31, 2015, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Alexei Marko, as Chief Executive Officer of the Issuer, and Chris Clark, as Chief Financial Officer of the Issuer, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 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 Issuer.

/s/ Alexei Marko
By:	Alexei Marko
Title:	Chief Executive Officer
Dated:	March 29, 2016

/s/ Chris Clark
By:	Chris Clark
Title:	Chief Financial Officer
Dated:	March 29, 2016

This certification accompanies the Report pursuant to Section 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 Issuer for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.