New Venturetec Ltd. Chollerstrasse 356300 Zug

phone +41 41 740 25 25fax +41 41 740 25 62info@newventuretec.comwww.newventuretec.com

Annual Report 2018 TechnologyBiotechnology

www.newventuretec.comenter

01 New Venturetec

assurance can be given that any operational development

of the Company or its portfolio is not affecting the price of

the New Venturetec Ltd. shares on the market.

Some of the investees may be in a development stage,

disclosing accumulated deficits and little or no revenues.

Their ability to continue as a going concern may depend on

additional funding. Companies which are in the need of

cash often face unfavourable financing terms to existing

shareholders – in our case New Venturetec Ltd. – which

basically means heavy dilution and unfavourable liquidation

preferences in case of a trade sale. This is only if the com-

pany is able to attract investments in the first place for which

no assurance can be given that this may occur. These

investments offer the opportunity of significant capital

gains, but involve a high degree of business and financial

risks that can result in substantial losses, including the risk

of a total unrecoverability of an investment. The financial

risk management objectives and policy of New Venturetec

Ltd. are to minimize dilution by structuring the initial invest-

ment accordingly. Other protective measures such as liqui-

dation preferences are also part of the Company’s policy.

However, the operational risk remains. Furthermore, the

Company does not hedge any foreign currencies or interest

rate risk exposure.

New Venturetec Ltd. Shareholders should be aware of

the risks which could result in a loss of 100% of the invest-

ment. This is a real possibility. Any investor should only

invest in New Venturetec Ltd. if he can afford the complete

loss of the investment without having to change his

lifestyle.

New Venturetec Ltd. is an investment company investing

in venture portfolio companies which are in their early

development stage, with no history of revenues, earnings

or significant operations, and are subject to all of the risks

inherent in the venture business. Currently, New Venturetec

Ltd. holds two investments in public companies. No invest-

ment in New Venturetec Ltd. shares should be made by any

person who is not in a position to bear the economic risk

including the possibility of the loss of the entire amount of

such investment. The risk is 100%.

Any forward looking statements or projections made

by the Company or its portfolio companies, including those

made in this report, are based on management’s expecta-

tions at the time they are made, and are subject to risks and

uncertainties that may cause actual results to differ materi-

ally from those projected. Specifically, discussions of

possible future growth and development in revenue and

customers are forward looking in nature, and actual results

could differ materially from current expectations. Each of

the portfolio companies’ future results may be impacted by

factors such as technological changes, market acceptance

of the companies’ services and products, ability to grow its

customer base, and competitive market pressures, among

other things.

The shares of New Venturetec Ltd. are listed on the

SIX Swiss Exchange. The price per share is based on supply

and demand on the market. Further, the trading of New

Venturetec Ltd. shares may be rather illiquid. New Ven-

turetec Ltd. does not make a market in its shares and the

Company has no agreement with any market maker. No

Disclaimer

New Venturetec 02

1 New Venturetec

2 Letter to Shareholders

4 New Venturetec Ltd.

5 Information summary

6 Risks

9 Investment approach

11 Investment guidelines

13 Portfolio

22 Valuation of investments

24 Investment performance

25 Corporate governance

36 Compensation report

40 Financial statements

74 Statutory financial statements

86 Annex

Contents

New Venturetec 2

However, Osiris is still working through the challenges

it faced after the restatement announcement in late 2015.

The immense costs are a huge burden. The past few years

seem like a waste. Thanks to the high quality products,

Osiris is still alive and growing. There is a process at work

to change the culture. It’s a must and can be painful and

will require time. There are also risks. Please refer to the risk

section in this report.

Myriad has developed nicely in its efforts to diversify

the product strategy. The company made some good

acquisitions. The future will tell how it will result in financial

terms. Unfortunately management is still selling shares.

New Venturetec Ltd. remains a risky investment with

the possibility of total loss.

Thank for your patience and continued support.

Sincerely yours,

Peter Friedli

Dear Shareholder

Please find herewith the Annual Report 2018 of New

Venturetec Ltd.

New Venturetec Ltd. repor ted a net prof it of

USD 26,055,742 for the financial year ended September

30, 2018. The profit resulted mainly from gains in the

Osiris Therapeutics stock price, which increased from

USD 4.60 to USD 11.10 (+141.30%) and the increase of

Myriad Genetics stock price from USD 36.18 to USD 46.00

(+27.14%).

The stock price of New Venturetec Ltd. increased by

+156.3% year on year, from CHF 1.99 to CHF 5.10.

During the financial year ended September 30, 2018,

New Venturetec Ltd. has dissolved its fully owned subsidiary

Venturetec, Inc. All assets formerly held by Venturetec, Inc.,

including the venture capital investments, have been trans-

ferred to the direct ownership of New Venturetec Ltd. and

as of September 2018, the company newly shows the direct

venture capital investments in its financial statements.

New Venturetec Ltd.’s net profit for the financial year

ended September 30, 2018 is USD 26,055,742 (FYE Sep

2017: Net profit of USD 242,183) or a profit of USD 5.21

per share (FYE Sep 2017: Net profit of USD 0.05 per share).

The average exchange rate CHF/USD the fi nancial year

ended September 30, 2018 was 0.9759 (FYE Sep 2017:

0.9882).

Both portfolio companies, Osiris Therapeutics and

Myriad Genetics, made progress during the reporting

period.

Letter to Shareholders

New Venturetec3

4New Venturetec

New Venturetec Ltd.

Venture capital can be private or public depending on

the stage of the company. The company naturally evolves

from its inception through generating profits if successful.

Several rounds of financing at different prices are conducted

in most cases.

The proceeds of such financings are used for working

capital to build the business as such companies still generate

losses. A company is out of the venture stage if for six to

eight consecutive quarters a substantial revenue and profit

increase is achieved and the outlook for the coming years

ahead is for sustainable growth. At this stage the company

can be private or public.

The characteristics of a venture capital investment are

typically 100% risk which may result in a complete loss of

the investment, lack of a market for the securities and

longterm investment horizon. Venture capital offers the

possibility to participate in the formation and growth of

companies.

Company

New Venturetec Ltd., Zug (“the Company”) was formed

on July 16, 1997 and incorporated on August 11, 1997 for

the purpose of direct and indirect investments in Swiss and

foreign companies, especially in high risk venture capital

companies in the industries of Biotechnology and Technology.

The Company is domiciled in Zug.

New Venturetec Ltd.’s business objective is to obtain

capital appreciation from well-selected companies that are

at the forefront of the technology and products in their

field.

Investment approach

The investment targets are carefully selected after in-depth

analysis of people, technology and markets of potentially

high quality companies in fields being viewed as of special

interest. Major attention is given to the management, its

capability and commitment. Influence on key management

decisions as well as on strategic planning is executed.

Milestones are being set and management is being

reviewed. Monitoring and control procedures as well as

providing up-to date reports on company progress and

financial situation are an integral part of the investment

management.

Venture Capital

Venture capital investing is the process of building a business

from scratch. The venture capital investments are made

through different forms of securities ranging from common

stock to preferred shares and convertible debt.

To understand risks does not prevent anyone from making losses as the human decision making process cannot be replaced.

5 New Venturetec

Information summary

Company New Venturetec Ltd.

Domicile Zug

Type of securities Bearer Shares

Outstanding shares 5,000,000 Shares

Initial public offering October 17, 1997

Dividend The Company does not intend to pay out any dividends, but rather reinvests

any realized cash from disinvestments

Management fee 1.0% p.a. payable on the quarterly net asset value

Board of Directors Peter Friedli, Chairman

Andreas von Sprecher, Member and Secretary

Michael Endres, Member

Investment Advisor Madison Investment Advisor, Inc.

Auditors KPMG AG, Zurich

Listing SIX Swiss Exchange (Segment Investment Companies)

Security number 703 683

Price information (ticker) Telekurs (NEV), Reuters (NEV.S), Bloomberg (NWV SW Equity)

Reporting Annual report, semi-annual report,

permanent information available on Internet

Outstanding notes convertible CHF 12,000,000, 4% p.a., Life until November 30, 2018

voluntarily convertible into shares of the Company with a conversion price

of CHF 9.50 per share

CHF 1,125,000, 4% p.a., Life until December 31, 2019

voluntarily convertible into shares of the Company with a conversion price

of CHF 9.50 per share

6New Venturetec

Risks

Management, technological risks

The quality of the management of venture companies

included in the portfolio of the Company is crucial for the

success of the investments of the Company. Although the

Company will use its expertise and experience in assessing

the quality of the management, the Company has to fully

rely on the management of the companies contained in the

Company’s investment portfolio.

Furthermore, no assurance can be given that the man-

agement will be successful in handling the technological

risks, which are inherent in projects of startup companies.

Research might not lead to satisfactory results and techno-

logical improvements or changes by competitors might

endanger the successful launch of a product or service.

Currency risks

The Net Asset Value per share is published in US Dollars.

The Company’s investments are usually made in US Dollars.

Any investment in other currencies than the US Dollar might

lead to positive or negative impacts on the Company’s

performance in its annual financial statements, including

its income statement. The Company’s IFRS financial state-

ments are presented in US Dollar. The fluctuation of foreign

currencies could substantially impact the Net Asset Value

per share.

Since the Company’s shares are listed in Swiss francs,

fluctuation in exchange rates between the Swiss franc and

the US Dollar could also materially impact the price of the

Company’s shares. Nevertheless, the Company does not

hedge against these currency risks.

Political, regulatory risks

The value of the Company’s assets may be affected by

uncertainties such as international political developments,

transfer risks, changes in government policies, taxation,

restriction on foreign investment and other developments

in the laws and regulations of the countries in which the

Company’s assets are invested. This is especially the case

in the biotechnology and communications sectors, where

successful launches of products are dependent on govern-

ment approval (such as FDA for biotechnology and FCC for

telecommunications firms).

The risk of venture capital investments is 100%

As briefly outlined earlier, New Venturetec Ltd. offers the

opportunity for capital gains. However, no assurance can

be given that such returns can be realized. The risk of

venture capital investments is 100%. In order for the Com-

pany to be successful in investing in start-up and emerging

companies, it must identify potentially profitable enterprises

at an early stage in their development, a process which is

very difficult even for people with considerable experience

in the venture capital field. Furthermore, the Company is

competing for investment opportunities with a number of

other venture capital firms. The Company may also invest

in businesses which are not start-up or emerging companies,

but which are for various reasons seeking to raise additional

capital without making a public offering of securities.

These reasons can include adverse conditions in the public

securities markets, or a record of earnings and/or growth,

which is less than adequate for a successful public offering

of securities.

Lack of liquidity of investments

Investments will usually consist of securities that are subject

to restrictions on resale as they are acquired from companies

in private placement transactions. Neither the Company

nor any investors, to whom the Company distributes

restricted securities, will be able to sell such restricted

securities to the public unless the sale is registered under

applicable Federal and State securities laws, or unless an

exemption from such registration is available. In connection

with any particular portfolio investment, the Company may

negotiate for rights to require registration under the Act.

No assurance can be given, however, that the Company

will be successful in such negotiations or that registration

will provide adequate means of liquidating such investment.

Currently, New Venturetec Ltd. holds two investments

in public companies.

New Venturetec7

Risks

Financial reporting

The accounting, auditing, financial and disclosure require-

ments and reporting standards of the Company are those

defined in the International Financial Reporting Standards

of the International Accounting Standards Board. The net

asset value is based on estimates of the Company. Investors

should recognize that the monthly calculation is based on

indicative values and may therefore contain only limited

information on the real value of the net assets of the Com-

pany. The difficulties involved in calculating the net asset

value are discussed further on page 22 and note 10.1 on

page 59.

Investment advisor

The Company is advised by Madison Investment Advisory,

Inc., owned by Peter Friedli. The Company uses the ability

of the investment advisor to evaluate investment opportu-

nities and to further develop the Company’s investments.

The investment advisor advises the Board on all investment

decisions for the Company as well as the net asset value

computation. The Board of Directors is responsible for

ensuring the Investment Policy set by the Company are

strictly followed. It should be realized that Peter Friedli is

the key person for both the investment advisor and the

Board of Directors and that between him and the Company

conflicts of interests may arise.

Liquidity risk

New Venturetec Ltd. operates on tight liquidity and has to

generate cash to cover its operational costs and interests.

Further, the Company has liabilities outstanding in the

amount of USD 20,965,314 as per September 30, 2018.

New Venturetec Ltd. does not have any operational income

and consequently the only way to generate liquidity is

through the sale of assets or funding through additional

debt or equity. Please see note 6.3 on page 55 for further

information on the liquidity risk.

Market risks

The markets and individual investment vehicles in which

the Company will primarily invest may prove to be highly

volatile from time to time as a result of market specific risk.

This may be, for example, due to a sudden change in under-

lying economic factors as well as changes in government

policies on taxation or changes in legislation relating to the

level of foreign ownership in companies.

The company’s share price

Considerable price fluctuations in the shares may arise due

to the general position of the investment sector, the

economy as a whole and the financial markets. Such price

fluctuations could have a positive and negative effect on

the share price regardless of the Company’s financial condi-

tion and results of operations.

Patent risks and proprietary rights

The success of the investments will depend largely on the

ability to obtain patents on products to protect trade secrets

and to operate without infringing the proprietary rights of

others.

Legal standards regarding the scope of claims and the

validity of patents, e.g. in the biotechnology market, are

uncertain and evolving. There can be no assurance that the

underlying firms’ patents will provide them with significant

competitive advantages, or that challenges will not be

instituted against the validity or enforceability of any patent

owned by the firms. The cost of litigation to uphold the

validity and prevent infringement of a patent is substantial.

8New Venturetec

Risks

In addition, as a greater than 10% shareholder, New

Venturetec Ltd. is further limited as to when it can engage

in purchasing or selling shares of Osiris Therapeutics. New

Venturetec Ltd. is subject to Osiris’ Trading Window and

must clear all purchase and/or sales transactions in the

company’s common stock with either the President & CEO

or the Chief Financial Officer. Osiris’ Trading Window usu-

ally closes 15-days prior to the end of each fiscal quarter

and then reopens on the third Trading Day after the finan-

cial results for the quarter are published, which typically is

35 – 45 days after the fiscal quarter end. The Trading

Window may also close during other times at the discretion

of the company.

Risks of Osiris Therapeutics

Extracts from Osiris Therapeutics 10k Reporting 2017 regard-

ing specific risk factors of the company shall be studied on

Annex I on page 86.

Liquidity of New Venturetec Ltd.’s investment in Osiris Therapeutics

New Venturetec Ltd. directly owns 4,103,301 shares of

Osiris Therapeutics, which represents approx. 12% of the

outstanding shares of Osiris Therapeutics. Based on this

ownership, New Venturetec Ltd. is a reporting person in

respect of Osiris Therapeutics and is subject to reporting

requirements of Section 16 of the Securities Exchange Act

of 1934, as amended (the “Exchange Act”). New Ven-

turetec Ltd. has reported its transactions and holdings of

Osiris Therapeutics with the United States Securities and

Exchange Commission (SEC) through the filing of Forms 3

and 4, consistently since first becoming a reporting person

following the IPO of Osiris Therapeutics.

The sale by New Venturetec Ltd. of shares of Osiris

Therapeutics common stock requires either registration

under the Securities Act of 1933, as amended (the “Securi-

ties Act”), or that the sale be exempt from registration.

Rule 144 under the Securities Act provides a safe harbor

from registration for sales by a person other than an issuer,

underwriter or dealer. Compliance with Rule 144 requires

compliance with various restrictions set forth in the rule,

including limitations on the number of shares sold in a given

period and the manner in which sales may be completed.

For sales by an affiliate of an issuer, which New Venturetec

Ltd. is presumed to be, Rule 144 provides that the volume

of securities sold during any preceding three-month period

may not exceed the greatest of certain limitations.

Rule 144 also requires, in the case of affiliate sales, that

a Form 144 be filed with the SEC in advance of the sale.

The sale must then take place within 90 days after the filing

of the Form 144. If and when a sale transaction occurs, the

sale must be reported to the SEC by the filing of a Form 4,

within two days.

New Venturetec9

position in a successful or promising entity. The Company

may also be called upon to provide follow-on investments

for reasons such as the provision of additional capital to

enable a portfolio company to fully implement its business

plan, to develop a new line of business or to recover from

unexpected business problems.

Currently, New Venturetec Ltd. holds two investments

in public companies.

Investment process

Any investment decision will be made by the Board of

Directors after careful evaluation of the situation. Using the

expertise of the investment advisor, New Venturetec Ltd.

will diversify its investments in several ways that may, but

need not include diversification among different industries

of interest.

The investments will be acquired in transactions usually

negotiated directly by the Company with the portfolio

company or an affiliate thereof. New Venturetec Ltd. will

seek to structure the terms of the investment in order to

provide for the capital needs and success of the portfolio

company, while at the same time maximizing the Company’s

opportunity of long-term capital appreciation and mini-

mizing adverse risks. An important factor in successful

investing is the proper structuring of the transaction in terms

of the type of security, restrictions on the use of funds,

commitments or rights to provide additional financing,

control and involvement in such a company’s business and

disinvestment strategy. A further aspect is the proper valu-

ation of the potential portfolio companies, and thus, the

pricing of the transaction.

Investment objectives

The objective of New Venturetec Ltd. is to achieve longterm

capital appreciation through equity and debt investments

in startup, emerging and growth companies which the

Company believes offer significant growth opportunities.

We identify successful and promising companies and then

actively work with management over a ten year time

horizon or more.

The investment decisions will be based upon (i) New

Venturetec Ltd.’s ability to identify companies which can

successfully utilize capital at an early stage in their life

cycle, (ii) carefully selected or assessed management

teams, (iii) strategic advice for positioning such companies

in high growth markets and (iv) an influence on the port-

folio companies.

Investments

Investments will typically be structured in negotiated trans-

actions directly with the portfolio company. The securities

acquired will primarily consist of common and preferred

stock or convertibles, a combination of equity and debt

securities and warrants, secured and unsecured debentures,

options and other rights to acquire such securities. Since

some of the investments may be in private firms or restricted

securities of publicly traded enterprises, the resale or

disposition of such investments will generally be restricted

for a period of time. Following its initial investments, the

Company anticipates that it may provide additional or

“followon” funds to portfolio companies. Follow-on invest-

ments may be made pursuant to the rights to acquire

additional securities, or in order to increase the Company’s

Investment approach

10New Venturetec

Long-term investment perspective

An important distinguishing element is our long-term invest-

ment perspective. New Venturetec Ltd. only makes invest-

ments where we believe that we can help the entrepreneur

build a market leader over a five to ten year investment

horizon. We invest with a view towards maintaining our

equity positions for a significant period of time following

an initial public offering. In addition, we may remain active

board members for many years after a company has gone

public.

We are not structured to focus on short-term liquidity.

The structure of New Venturetec Ltd. as an investment

company permits us to pursue long-term investment stra-

tegies in building value and realizing returns. Our invest-

ments and economic incentives are structured with a

long-term view and our assistance to management is always

provided with long-term corporate objectives in mind. This

long-term commitment provides the foundation for success

and plays a key role in our ability to build lasting relationship

with management and shareholders.

We invest into comprehensive technology and markets.

In most cases, the products are at the leading edge as well

as unique and provide a clear advantage to the customer.

The markets are thoroughly analyzed and need to be con-

sidered real and growing, but by no means too futuristic.

There must be a defined need and obvious payback for the

targeted customers. Competition is viewed as healthy and

inspiring. The portfolio companies seek patent applications

and protection of intellectual property to secure a leading

position.

Most important for the success of a portfolio company

is the quality of the management and their entrepreneurial

spirit. Therefore, our main focus in considering an invest-

ment is management. We weight management with 80%

of the investment factors. We invest in people and the

future of such a business. To evaluate people is a timecon-

suming and demanding process. The qualities of a CEO

depend on the specific situation but in essence consist of

key factors that are applicable at all times.

Investment approach

New Venturetec11

Investment guidelines

Investment allocation

The purpose to invest is to build companies over a long

period of time. This might result in a portfolio with only a

few investments, rather than many smaller positions. It

therefore might enhance the risk of a portfolio which

concentrates in a small number of investments.

Leverage

The Company may borrow capital to pursue the investment

objectives.

Hedging

The Company does not hedge any positions, investments,

currencies, interests and the like. The Company does not

do short selling, use of derivative instruments for the pur-

pose of securing its investments or security lending or

borrowing.

Currency

Investments are mainly done in US Dollars. The Company

is not following any defined currency ratios.

Disinvestments

For most positions held by the Company there are legal or

market driven limitations for sale or transfer of the securities,

such as low liquidity in the public market, large positions,

board representations, insider regulations, lock-up’s and

contractual sales limitations. The Company acts in the best

interest of the shareholders to structure and execute

disinvestments together with other shareholders and the

management of the portfolio companies.

Investment objective

The objective of New Venturetec Ltd. is to achieve long-term

capital appreciation through investments in venture

companies which the Company believes offer significant

growth opportunities. These may not be achieved (see also

risks).

Investment policy

The Company invests in venture companies only. The risks

of venture capital investments are 100% (see also risks).

Geographic area

The Company’s investments are predominately in the United

States of America. Exceptional investments may be domi-

ciled in Europe.

Industry focus

The Company invests in companies in the areas of biotech-

nology and technology.

Investment strategy

The Company invests in venture companies in all stages

from seed to late stage. Investments are made mainly in

private but also in public companies and in all classes of

securities, including common and preferred equity, secured

and unsecured debt, convertibles, options, warrants and

combinations thereof. The investment horizon may be up

to 20 years.

New Venturetec 12

Investment guidelines

Change of Investment Guidelines

The Company’s investment guidelines may be changed by

the Board of Directors of the Company at any time in whole

or in part subject to terms and conditions of agreements

and contracts.

Carry of responsibilities

The Board of Directors of the Company is responsible and

has to decide on all investments and disinvestments of the

Company. Madison Investment Advisory, is the investment

advisor for the Board and advises the Board among others

on investment selection and allocation, investment manage-

ment and process, structuring of investments, monitoring

and the disinvestments of investments. Peter Friedli, the

Chairman of the Company is the owner of Madison Invest-

ment Advisory. There may be a conflict of interest due to

the fact that the investment advisor is involved with other

investment companies and represents other investors. The

investment advisor or Peter Friedli may represent the

Company and other investors on the board of directors of

the portfolio companies. As a member of the board he will

represent all shareholders of each company. The investment

advisor may also supply investment banking services to the

portfolio companies and may be compensated for such

services. Such remuneration is explicitly authorized. Peter

Friedli may also invest personally in Portfolio Companies.

Risk

Some of the investees may be in the development stage,

disclosing accumulated deficits and little or no revenues.

Their ability to continue as a going concern may depend on

additional funding which may result in a dilution for holdings

of the Company. These investments are offer the opportu-

nity of significant capital gains, but involve a high degree

of business and financial risk, that can result in a 100% loss

of the investment. The Company may be limited or

restricted to make disinvestments or sell or transfer any

positions at any specific time and thereof risks to lose

momentum or favorable market conditions.

13 New Venturetec

Portfolio

Disclaimer and risk factors

Under the safe harbor provisions of the Private Securities

Litigation Reform Act of 1995, companies listed below

caution investors that any forward looking statements or

projections made by the company, including those that may

be made in this report, are based on management’s expec-

tations at the time they are made, and are subject to risks

and uncertainties that may cause actual results to differ

materially from those projected. Specifically, discussions of

possible future growth and development in revenue and

customers are forward looking in nature, and actual results

could differ materially from current expectations. Each of the

below listed companies’ future results may be impacted by

factors such as technological changes, market acceptance of

the company’s services, ability to grow its customer base,

competitive market pressures and general economic envi-

ronment, among other things. Each of the below listed

companies’ future results are also subject to other risk

factors, including those detailed from time to time in the

company’s reports. Despite making these forward-looking

statements, companies undertake no obligation or intention

to update these statements after the date of this report.

Some of the investees may be in a development stage,

disclosing accumulated deficits and little or no revenues.

Their ability to continue as a going concern may depend

on additional funding. Companies which are in the need of

cash often face unfavourable financing terms to existing

shareholders – in our case New Venturetec Ltd. – which

basically means heavy dilution and unfavourable liquidation

preferences in case of a trade sale. This is only if the company

is able to attract investments in the first place for which no

assurance can be given that this may occur. These invest-

ments offer the opportunity of significant capital gains, but

involve a high degree of business and financial risks that

can result in substantial losses, including the risk of a

total unrecoverability of an investment. The financial risk

management objectives and policy of New Venturetec Ltd.

are to minimize dilution by structuring the initial investment

accordingly. Other protective measures such as liquidation

preferences are also part of the Company’s policy. However,

the operational risk remains. Furthermore, the Company

does not hedge any foreign currencies or interest rate risk

exposure.

New Venturetec Ltd. Shareholders should be aware of

the risks which could result in a loss of 100% of the invest-

ment. This is a real possibility.

New Venturetec 14

Portfolio

Our business focuses on using unique tissue preserva-

tion technologies to develop viable human tissue products

designed to improve wound closure and surgical outcomes

for patients and physicians over standard of care alone. We

have built a substantial direct sales force dedicated exclu-

sively to sell our Grafix and Stravix products and entered

into exclusive agreements to market and distribute BIO4

and Cartiform.

Products

All of our current commercialized products are market-

ed as human cells, tissues and cellular and tissue-based

products (“HCT/Ps”), as defined by the United States

Food and Drug Administration (“FDA”), that are regula-

ted solely under Section 361 of the Public Health Service

Act (“361 HCT/Ps”), and consequently, do not require

pre-market approval or licensure from the FDA.

Current Products

Grafix is a product line of several products, Grafix PRIME,

Grafix XC and Grafix CORE, and was initially launched

in 2010. They are cryopreserved amniotic (amnion) or

chorionic (chorion) placental membranes that retain the

extracellular matrix, growth factors, endogenous cells,

including neonatal epithelial cells (in amnion only) mesen-

chymal stem cells, and fibroblasts of the native tissue, all of

which are beneficial in supporting natural wound repair.

Grafix PRIME and Grafix XC (a larger size for surgical appli-

cations) are derived from the amnion and Grafix CORE is

derived from the chorion. The amnion is the innermost

membrane and the chorion is the outermost membrane of

the placenta. Our Grafix products are flexible and confor-

ming wound covers designed for direct application to hard-

to-treat acute and chronic wounds, including but not limited

to diabetic foot ulcers (“DFUs”), venous leg ulcers (“VLUs”),

and burns.

Stravix is a viable cryopreserved human placental tissue,

comprised of amniotic and connective layers of umbilical

tissue that has been developed as a wound cover or

surgical wrap to support soft tissue repair. It retains native

components of the umbilical tissue including the extra-

cellular matrix, growth factors and endogenous viable cells

including epithelial cells, fibroblasts and mesenchymal stem

cells (“MSCs”). Stravix conforms to the site of injury and

requires minimal preparation prior to use. It is thicker and

has a stronger tensile strength than our Grafix products.

Stravix was launched in late 2015.

The following text is an extract from the Osiris Thera-

peutics, Inc. quarterly report for the period ended June

30, 2018 (Form 10Q). The terms “Osiris”, “we”, “us”,

and “our” means Osiris Therapeutics, Inc.

Please see Appendix I on page 86 for information on

the risk of Osiris Therapeutics.

Overview of Osiris

Osiris Therapeutics, Inc. researches, develops, manufac-

tures, markets and sells regenerative medicine products

intended to improve the health and lives of patients and

lower overall healthcare costs. We have achieved commercial

success with products in orthopedics, sports medicine and

wound care, including the Grafix product line, Stravix, BIO4

and Cartiform. We continue to advance our R&D by focus-

ing on innovation in regenerative medicine, including the

development of bioengineered stem cell and tissue-based

products.

We are a fully integrated company, having developed

capabilities in research and development, manufacturing,

marketing and sales of our products. We are focused on

the long-term commercial growth of the Company through

the delivery of differentiated products for use across mul-

tiple fields of medicine with clear value propositions to

patients, healthcare providers and thirdparty payors.

We began operations in 1992 and were a Delaware

corporation until, with the approval of our stockholders,

we reincorporated as a Maryland corporation in May 2010.

Osiris®, Grafix®, GrafixPL®, Grafix CORE®, Grafix

PRIME®, GrafixPL PRIMETM, Grafix XC®, Stravix®, Carti-

form®, Prestige LyotechnologySM, OvationOS®, Ovation™,

TruSkin® and Menvivo™ are trademarks of the Company.

BIO4® is a trademark of Howmedica Osteonics Corp., a

subsidiary of Stryker Corporation (“Stryker”). Any other

trademarks referred to in this Quarterly Report on Form

10-Q are the property of their owners.

Osiris Therapeutics (NASDAQ: OSIR)

www.osiris.com

New Venturetec Ltd. cost USD 24.2 million

New Venturetec Ltd. holding of Osiris Therapeutics approx. 12%

Valuation as of September 30, 2018 USD 45.5 million

% of total investments as of September 30, 2018 86%

15 New Venturetec

Portfolio

BIO4 is a viable bone matrix containing endogenous bone

forming cells including MSCs, osteoprogenitor cells,

osteoblasts, osteoinductive and angiogenic growth factors.

It possesses all four characteristics involved in bone repair

and regeneration: osteoconductive, osteoinductive, osteo-

genic, and angiogenic. BIO4 is an alternative to autograft

(or a graft of tissue from one’s own body) which requires

a procedure of harvesting a patient’s own bone and is

associated with donor site morbidity. Originally branded as

OvationOS and launched in 2014, BIO4 is marketed and

distributed exclusively by a subsidiary of Stryker Corporation

(“Stryker”) under the brand name BIO4 since 2015.

Cartiform is a viable osteochondral allograft that contains

extracellular matrix, chondrogenic factors and endogenous

viable chondrocytes native to the cartilage tissue. The intact

architecture of native cartilage is preserved in Cartiform.

Cartiform is intended to treat osteochondral defects.

Cartiform can fit to any surface contour. Cartiform was

launched in 2012 and is exclusively available through

Arthrex, Inc. (“Arthrex”).

Menvivo was developed for repair of the meniscus follow-

ing partial meniscectomy. Menvivo is processed from

donated human meniscus tissue and maintains the structural

and mechanical properties of the tissue. Extracellular matrix,

biological factors and endogenous viable cells of fresh

meniscal tissue are retained in Menvivo. Although Menvivo

is available to the market as a 361 HCT/P, we have no

current plans to actively distribute this product because the

proper use of this product requires the development of

new implantation techniques and instruments.

TruSkin is a cryopreserved viable skin allograft designed to

address unmet medical needs of chronic wounds, such as

DFUs, VLUs, pressure ulcers, surgical wounds, and wounds

with exposed bone, tendon, joint capsule and muscle.

TruSkin retains the extracellular matrix, growth factors and

endogenous living skin cells of native tissue, making it an

alternative to fresh skin allograft. We introduced TruSkin in

November 2015. Since late 2016, we are no longer actively

distributing it.

Other Product

GrafixPL: In 2017, we announced the development

of Prestige Lyotechnology, a preservation technique

for ambient storage of living tissues. We believe Pres-

tige Lyotechnology will allow for storage and shipment

of living tissue at room temperature. In June 2018,

we reported the validation, testing, and upscaling of

Prestige Lyotechnology for manufacturing of our prod-

ucts and to eliminate the need to preserve and transport

our products at constant ultra-low temperatures. We ex-

pect our GrafixPL PRIME product to be our first commer-

cially available product in the lyopreserved formulation.

We expect the two Grafix and GrafixPL product lines will

be comparably priced, depending on size of the graft,

with list prices ranging from $495 – $3,000.

Sales, Marketing and Distribution

Grafix and Stravix: We currently sell Grafix and Stravix

through the efforts of our internal direct sales and marke-

ting departments, as well as through a small number of

specialty distributors for certain target markets. We focus

our marketing efforts for these products in four specific

channels: hospital outpatient departments, inpatient

surgical procedures, private physician offices, and Depart-

ment of Veteran Affairs (“VA”) and Department of Defense

(“DOD”) hospitals. For our VA and DOD customers, our

products are distributed exclusively through resellers

designated as Service-Disabled, Veteran-Owned Small

Businesses (“SDVOSBs”). SDVOSBs are eligible for

set-asides and other preferences in the federal contracting

process. For the VA, SDVOSBs enter into Federal Supply

Schedule or Strategic Acquisition Center contracts and for

the DOD, SDVOSBs enter into Distribution and Pricing

contracts.

16New Venturetec

Cartiform: In October 2014, we entered into an exclusive

agreement for our cartilage product, Cartiform, with

Arthrex. The agreement with Arthrex provides Arthrex with

exclusive commercial distribution rights to Cartiform. We

are responsible for manufacturing, continued research and

product improvement activities. We collaborate with

Arthrex on the design and conduct of clinical development

programs. The agreement provides for an initial eight-year

exclusive term with automatic renewals of additional two-

year periods. Pursuant to the agreement, Arthrex is entitled

to a certain commission on Cartiform sales.

Portfolio

BIO4: In December 2014, we entered into an exclusive

agreement with Howmedica Osteonics Corp., also referred

to as Stryker Orthopaedics, a subsidiary of Stryker, for the

marketing and distribution of BIO4. We are responsible for

supply, manufacturing, inventory management, shipments

to customers, continued research and product improvement

activities. Stryker is responsible for the sales and marketing

of BIO4 for use in all surgical applications, including spine,

trauma, extremity, cranial, and foot and ankle surgery. We

collaborate with Stryker on the design and conduct of

clinical development programs.

The agreement with Stryker provides for an initial

four-year exclusive term, which commenced on the date of

Stryker’s initial commercial sale of BIO4 in February 2015.

The term may be extended by Stryker for an additional

exclusive period of four years or an additional non-exclusive

period of two years. If Stryker extends the term on an

exclusive basis, it has the option to further extend the term

on an exclusive basis for two more years. We received an

initial exclusivity fee of $5.0 million in 2015 and are entitled

to receive additional fees upon any exercise by Stryker of

its right to extend the initial term, whether on an exclusive

or non-exclusive basis. These additional fees are reduced

on a sliding scale if Stryker meets certain revenue thresholds

during the initial term or if revenue goals are not met as a

result of us not fulfilling our supply obligations. Stryker is

entitled to a certain percentage of sales of allograft services

for BIO4 and has limited early termination rights.

New Venturetec17

Our Business Strategy

Our strategy is focused on executing the following five

critical success factors:

1. Build upon a solid hereditary cancer foundation – In

fiscal year 2018, approximately 65 percent of our

revenue was derived from the sale of products to assess

a patient’s risk for hereditary cancer. Given that this is

our most important market and that we are the world-

wide leader in hereditary cancer testing, we are focused

on maintaining this global leadership position. We are

currently working on expanding professional guidelines

for hereditary cancer testing to expand the addressable

market, and have signed long-term contracts with

commercial insurers to ensure pricing visibility going

forward.

2. Grow new product volume – In fiscal year 2018, volume

from new products outside of hereditary cancer com-

prised greater than two-thirds of our overall volume.

We are currently less than 10 percent penetrated in the

U.S. market with our new products and see significant

opportunity for future revenue growth. We are focused

on further penetrating these markets and believe in the

future our new products could represent the largest

component of our revenue.

3. Expand reimbursement coverage for new products –

Our new tests, in the United States, have insurance

coverage for anywhere from 5% to 90% of the total

addressable market. We are actively working on

demonstrating scientific evidence supporting both

the clinical efficacy and utility of these products to

commercial payers to broaden insurance coverage.

4. Increase RNA kit sales internationally – Outside of the

United States, we are primarily focused on selling kit-

based versions of our RNA expression based tests. We

currently market one RNA expression based test,

EndoPredict, which we acquired through our acquisition

of Sividon Diagnostics. In addition, we are working on

kit based versions of Prolaris and myPath Melanoma

which we also plan to sell in international markets.

The following text is an extract from the Myriad Genetics,

Inc. annual report 2018 for the fiscal year ended June 30,

2018 (Form 10k). The terms “Myriad”, “we”, “us”, and

“our” means Myriad Genetics, Inc.

We are one of the largest specialty molecular diagnostic

laboratories in the world and since our founding in 1992,

have tested over 3.0 million patients. We are headquartered

in Salt Lake City, Utah and generated worldwide revenues

of $772.6 million during our fiscal year ended June 30, 2018.

We are a leading personalized medicine company acting

as a trusted advisor to transform patient lives through

pioneering molecular diagnostics. Through our proprietary

technologies, we believe we are positioned to identify

important disease genes, the proteins they produce, and

the biological pathways in which they are involved to better

understand the genetic basis of human disease. We believe

that identifying these biomarkers (DNA, RNA and proteins)

will enable us to develop novel molecular diagnostic tests

that can provide important information to solve unmet

medical needs.

Our Mission

Our goal is to provide physicians with critical information

to guide the healthcare management of their patients by

addressing four major questions a patient may have about

their healthcare:

– What is the likelihood of my getting a disease?

– Do I have a disease?

– How aggressively should my disease be treated?

– Which therapy will work best to treat my disease?

Over time, we have developed and plan to develop

additional products that answer these important questions

in six medical specialties: oncology, women’s health,

urology, dermatology, autoimmune and neuroscience. We

believe that these commercial channels represent markets

where there is a significant opportunity for high-value

molecular diagnostic tests to positively impact patient care

and drive value for the healthcare system.

Myriad Genetics (NASDAQ: MYGN)

www.myriad.com

New Venturetec Ltd. cost USD 4.7 million

New Venturetec Ltd. holding of Myriad Genetics < 1%

Valuation as of September 30, 2018 USD 7.4 million

% of total investments as of September 30, 2018 14%

Portfolio

New Venturetec 18

tests is approximately $5 billion annually. myRisk Hereditary

Cancer was initially released through an early access launch

that began in September 2013.

BRACAnalysis®

DNA sequencing test for assessing the risk of developing

breast and ovarian cancer. Our BRACAnalysis test is an

analysis of the BRCA1 and BRCA2 genes for assessing a

woman’s risk of developing hereditary breast and ovarian

cancer. A woman who tests positive for a deleterious

mutation with the BRACAnalysis test has up to an 87% risk

of developing breast cancer and up to a 44% risk of

developing ovarian cancer by age 70. As published in the

New England Journal of Medicine, researchers have shown

that pre-symptomatic individuals who have a high risk of

developing breast or ovarian cancer can reduce their risk

by more than 90% with appropriate preventive therapies.

Additionally, BRACAnalysis may be used to assist patients

already diagnosed with breast or ovarian cancer and their

physicians in determining the most appropriate therapeutic

interventions to address their disease.

riskScore™

Clinically validated personalized medicine tool that enhances

our myRisk Hereditary Cancer test. The riskScore test is

clinically validated to predict a woman’s risk of developing

breast cancer using family history, clinical risk factors and

genetic-markers. The proprietary algorithm combines

proprietary single nucleotide polymorphisms (SNP’s) and

clinical factors to provide women with their remaining

lifetime and 5-year risk for developing breast cancer.

BRACAnalysis CDxTM

DNA sequencing test for use as a companion diagnostic with

the PARP inhibitor Lynparza™ (olaparib) currently indicated

for use in identifying ovarian cancer patients with deleterious

or suspected deleterious germline BRCA variants eligible

for treatment with Lynparza™, and as a complementary

diagnostic test in ovarian cancer patients associated with

enhanced progression-free survival (PFS) from Tesaro’s PARP

inhibitor Zejula™ (niraparib) maintenance therapy. Approx-

imately 15% of patients with epithelial ovarian cancer are

BRCA positive.

5. Improve profitability – In the fourth-quarter of fiscal

year 2017 we launched a new operating margin

improvement program called Elevate 2020. The goal

of this program is to identify projects that can lead to

$50 million in incremental operating income by fiscal

year 2020 through leveraging centralized resources,

implementing new technology solutions, executing

strategic sourcing agreements, and focusing on labora-

tory efficiency.

Molecular Diagnostic Testing

Our molecular diagnostic tests are designed to analyze

genes, their expression levels and corresponding proteins

to assess an individual’s risk for developing disease later in

life, accurately diagnose disease, determine a patient’s

likelihood of responding to a particular drug, or disease

recurrence and assess a patient’s risk of disease progression.

Provided with this valuable information, physicians may

more effectively manage their patient’s healthcare.

Below are the descriptions of our molecular diagnostic

tests:

myRisk™ Hereditary Cancer

DNA sequencing test for assessing the risks for hereditary

cancers. Our myRisk Hereditary Cancer test represents the

next generation of our existing hereditary cancer testing

franchise which we anticipate will eventually replace our

current predictive medicine test offerings (BRACAnalysis,

BART, Colaris and Colaris AP, and Melaris) with a single

comprehensive test. myRisk Hereditary Cancer is designed

to determine a patient’s hereditary cancer risk for breast

cancer, ovarian cancer, colon cancer, uterine cancer, mela-

noma, pancreatic cancer, prostate cancer and gastric cancer.

The test analyzes 28 separate genes to look for deleterious

mutations that would put a patient at a substantially higher

risk than the general population for developing one or more

of the above cancers. All 28 genes in the panel are well

documented in clinical literature for the role they play in

hereditary cancer and have been shown to have actionable

clinical interventions for the patient to lower disease risk or

risk of cancer recurrence. The myRisk report presents the

myRisk Genetic Test Result and myRisk Management Tool

that summarizes published management guidelines related

to the patient’s genetic mutation as well as their personal and

family history of cancer. myRisk Hereditary Cancer testing

identifies more mutation carriers than BRAC Analysis® and

COLARIS® combined. We believe the global market for

myRisk Hereditary Cancer and all of our hereditary cancer

Portfolio

New Venturetec19

EndoPredict®

RNA expression test for assessing the aggressiveness of

breast cancer . The EndoPredict test is a next-generation

RNA expression test used to determine which women with

breast cancer would benefit from chemotherapy. EndoPre-

dict predicts the likelihood of metastases to help guide

treatment decisions for chemotherapy and extended

antihormonal therapy. EndoPredict has been shown to

accurately predict recurrence in Her 2-, ER+, node negative

and node positive breast cancer patients with no confusing

intermediate results in 13 published clinical studies with

more than 2,200 patients and is CE marked. We believe the

global market opportunity for EndoPredict is greater than

$600 million annually with the majority of that market

existing in major European countries, Canada, and the

United States.

myPath™ Melanoma

RNA expression test for diagnosing melanoma. Our myPath

Melanoma test is a gene expression based profile that is

performed on biopsy tissue for the purpose of aiding a

dermatopathologist in the diagnosis of melanoma. Every

year in the United States, there are approximately two

million skin biopsies performed specifically for the diagnosis

of melanoma. Approximately 14% of these biopsies are

classified as indeterminate where a dermatopathologist

cannot make a definitive call as to whether the biopsy is

benign or malignant. Outcomes for patients are poor if

melanoma is not caught in early stages with five year

survival rates dropping from 98% for localized to less than

20% for distant stage disease cancer based upon data

from the American Cancer Society. We believe myPath

Melanoma may provide an accurate tool to assist physicians

in correctly diagnosing indeterminate skin lesions. Based

upon three clinical validation studies which were published

in the Journal of Cutaneous Pathology in 2015, Cancer in

2016 and Cancer Epidemiology Biomarkers and Prevention

in 2017, myPath Melanoma has been shown to have a

diagnostic accuracy of 90 to 95 percent.

We believe the global market for myPath Melanoma is

approximately $1 billion annually. myPath Melanoma was

released through an early access launch that began in

November 2013.

GeneSight®

DNA genotyping test to optimize psychotropic drug

selection for neuroscience patients. Our GeneSight test

helps healthcare providers take a personalized approach to

prescribing medicine for patients. Because genes influence

the way a person’s body responds to specific medications,

the medications may not work the same for everyone. Using

DNA gathered with a simple cheek swab, GeneSight

analyzes a patient’s genes and provides individualized

information to help healthcare providers select medications

that better match their patient’s genes. Multiple clinical

studies have shown that when clinicians used GeneSight

to help guide treatment decisions, patients were more

likely to respond to the selected medication compared to

standard of care.

Vectra® DA

Protein quantification test for assessing the disease activity

of rheumatoid arthritis. Our Vectra DA test is a quantitative,

objective multi-biomarker blood test validated to measure

rheumatoid arthritis (RA) disease activity. Vectra DA

assesses multiple mechanisms and pathways associated with

RA disease activity and integrates the concentrations of

12 serum proteins into a single score reported on a scale of

1 to 100. The test may be used throughout the course of a

patient’s disease and provides clinicians with expanded

insight on disease severity and the risk of radiographic

progression.

We believe the global market for Vectra DA is approx-

imately $3 billion annually.

Prolaris®

RNA expression test for assessing the aggressiveness of

prostate cancer. Our Prolaris test is a gene expression assay

that assesses whether a patient is likely to have a slow

growing, indolent form of prostate cancer that can be safely

monitored through active surveillance, or a more aggressive

form of the disease that would warrant aggressive interven-

tion such as a radical prostatectomy or radiation therapy.

The Prolaris test was developed to improve physicians’

ability to predict disease outcome and to thereby optimize

patient treatment. A study published by Urologic Oncology

in June 2018 demonstrated that Prolaris can identify 50%

more patients as suitable for active surveillance without any

change in prostate cancer mortality.

We believe the global market for Prolaris is approxi-

mately $1.5 billion annually.

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New Venturetec 20

of total revenue. In addition to the fees received from

analyzing these samples, we also use this information

to create and validate potential molecular diagnostic

tests.

– Privatklinik Dr. Robert Schindlbeck GmbH & Co. KG

(the “Clinic”) located approximately 15 miles from our

European laboratories in Munich, Germany. It is an

internal medicine emergency hospital that is considered

a specialized hospital for internal medicine and hemo-

dialysis.

The Molecular Diagnostic Industry and Competition

The markets in which we compete are rapidly evolving, and

we face competition from multiple public companies, private

companies, and academic/university laboratories for a

number of our laboratory testing services.

In the hereditary cancer testing market we have faced

increased competition since a U.S. Supreme Court decision

in June 2013 invalidated some of the key patent claims

covering our hereditary cancer testing products. These

patents were originally set to begin expiring in 2015 and

beyond. Since this Supreme Court decision, numerous large

reference laboratories, small private laboratories, and

academic/university laboratories have launched competing

hereditary cancer tests. Despite the impact from competi-

tion, we continue to believe we are the world leader in

hereditary cancer testing.

The market for hereditary cancer testing has evolved

dramatically over time. Broad reimbursement coverage for

hereditary cancer tests began emerging in the early 2000s

and coupled with increased public awareness around

genetics and our marketing and promotional efforts, there

has been significant growth in testing volumes. One of the

largest drivers of growth has been increased testing in

asymptomatic patients in the preventive care setting which

now comprise over half of all tests performed in the United

States. We are working to continue to expand awareness

around hereditary cancer testing and expand the number

of patients that qualify for hereditary cancer testing under

medical guidelines and health insurance coverage policies.

myChoice® HRD

Companion diagnostic to measure three modes of homo-

logous recombination deficiency (HRD) including loss of

heterozygosity, telomeric allelic imbalance and largescale

state transitions in cancer cells. Our myChoice HRD test

is the most comprehensive homologous recombination

deficiency test to detect when a tumor has lost the ability

to repair double-stranded DNA breaks, resulting in increased

susceptibility to DNA-damaging drugs such as platinum

drugs or PARP inhibitors. The myChoice HRD score is

a composite of three proprietary technologies: loss of

heterozygosity, telomeric allelic imbalance and large-scale

state transitions. Positive myChoice HRD scores, reflective

of DNA repair deficiencies, are prevalent in all breast

cancer subtypes, ovarian and most other major cancers. In

previously published data, Myriad showed that the myChoice

HRD test predicted drug response to platinum therapy in

certain patients with triplenegative breast and ovarian

cancers. It is estimated that 1.4 million people in the United

States and Europe who are diagnosed with cancers annually

may be candidates for treatment with DNA-damaging

agents.

Tumor BRACAnalysis CDxTM

DNA sequencing test designed to be utilized to predict

response to DNA damaging agents such as platinum based

chemotherapy agents and poly ADP ribose (PARP) inhibitors.

Tumor BRACAnalysis CDx evaluates both germline and

somatic mutations in the BRCA1 and BRCA2 genes giving

a more complete picture of potential loss of DNA repair

ability within the tumor. Approximately 22% of epithelial

ovarian cancer patients will test positive for Tumor

BRACAnalysis CDx.

Pharmaceutical and Clinical Services

Our pharmaceutical and clinical services consist of the

following:

– Through Myriad RBM, we provide biomarker discovery

and pharmaceutical and clinical services to the phar-

maceutical, biotechnology, and medical research

industries utilizing our multiplexed immunoassay tech-

nology. Our technology enables us to efficiently screen

large sets of well-characterized clinical samples from

both diseased and non-diseased populations against

our extensive menu of biomarkers. During the year

ended June 30, 2018, Myriad RBM accounted for 4.0%

Portfolio

New Venturetec21

only laboratory with an FDA approved germline test for this

indication and have received approvals in ovarian and

metastatic breast cancer from the U.S. FDA. We also have

proprietary tests in development including our myChoice

HRD assay which we believe could be even better predictors

of response to PARP inhibitors but are not yet broadly com-

mercially available. We compete in this market based upon

the quality and turnaround time of our testing, our ability

to garner regulatory approvals for new indications, and

based upon our proprietary testing methodologies.

In the urology market, we compete against a small

number of public and private companies for our prostate

cancer prognostic test, Prolaris. We compete in this market

primarily based upon the quality of the clinical data

supporting the test, our first mover advantage in the

marketplace and the strength of our sales support and

customer service.

In the autoimmune market, our Vectra DA test

competes primarily against traditional methodologies for

assessing rheumatoid arthritis disease activity such as a

physician’s clinical assessment of the patient and single

marker laboratory tests such as C-reactive protein (CRP).

We believe we have the most predictive product on the

market to assess rheumatoid arthritis disease activity.

In the neuroscience market, our GeneSight test meets

a significant unmet clinical need and is the leading product

for psychotropic drug selection. It is used by healthcare

providers to help patients who are affected by neuropsy-

chiatric conditions including depression, anxiety, ADHD,

bipolar disorder, schizophrenia, post-traumatic stress disor-

der (PTSD) and other behavioral health conditions, as well

as chronic pain. The test is clinically proven to enhance

medication selection, helping healthcare providers get their

patients on the right medication faster.

In the pharmaceutical and clinical services segment,

our Myriad RBM division competes against other contract

research organizations and academic laboratories for

business from pharmaceutical and research customers.

Another factor influencing the marketplace has been

the advent of next generation sequencing. This has allowed

the transition from single syndrome tests to targeted

pan-cancer panels in a cost effective manner without

sacrificing test accuracy. We launched our first pan-cancer

panel, myRisk Hereditary Cancer, in September, 2013, and

we believe panel based tests will become standard of care

in the marketplace based upon their greater sensitivity at

finding cancer causing mutations. We have presented

multiple studies showing that myRisk Hereditary Cancer

can detect greater than 60 percent more deleterious muta-

tions when compared to our legacy hereditary cancer tests.

We compete in the hereditary cancer testing market

based upon several factors including:

– the analytical accuracy of our tests

– our ability to classify genetic variants in hereditary

cancer genes

– the quality of our sales and marketing for our products

– the quality of our customer service and support

– turnaround time

– Additional information about cancer risks provided by

riskScore; and

– value associated with our test quality

We believe that we have substantial advantages in

terms of our test accuracy and ability to classify variants.

Based on our testing experience of over 2.0 million patients,

and our substantial investments in our variant classification

program, we have compiled a proprietary database of over

50,000 unique genetic variants in the genes tested by

myRisk Hereditary Cancer. We believe this database allows

us to provide more accurate results to patients and return

a variant of unknown significance (VUS) result to patients

less frequently. We have demonstrated that this classifica-

tion advantage leads to lower long-term healthcare costs

and lower utilization of unnecessary healthcare services.

Given our scale relative to other laboratories in the

hereditary cancer testing market, we believe we also have

substantial competitive advantages in terms of cost efficien-

cies and laboratory automation, which leads to faster

turnaround times for our tests.

In the oncology companion diagnostic market, we

currently sell our FDA approved BRACAnalysis CDx test as

a companion diagnostic for the prediction of response to a

class of drugs called PARP inhibitors. Currently we are the

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New Venturetec 22

Most important valuation factors

– performance-based terms & structures

– price negotiation and action

– experience and performance of management

– existing tangible and intangible assets

– technology validation

– last paid price

– financial forecasts

– market potential, position within market

– comparison to competitors

The original cost or the subsequent capital increase

price is considered an approximation of the fair value at

the time of the transaction.

Start-up capital: Technology assessment, negotiations

with management, industry comparables and competitors’

bids are the main factors that affect the valuation. Net

asset value calculation at cost, less any write-off deemed

necessary if subsequent performance is below business

plan.

Capital increase: Re-evaluation of technology assess-

ment, negotiations with management, industry compara-

bles and competitors’ bids, achievement of milestones and

business plan guidelines. Net asset value calculation is

principle based on the capital increase price less discount,

if deemed necessary based on the valuation factors listed

below.

Write up: A write up is recognized when a significant

event occurs such as the issuing of a patent, corporate

partnering, increased profitability and achievement of

milestones.

Write down: A write down is recognized when a

significant event occurs such as a permanent impairment

of assets, performance significantly below the business plan

and a change in the valuation of comparable companies.

Furthermore, it has to be taken into consideration that

private companies are not subject to any external (third-

party) valuation procedures, and the intrinsic value may

therefore be difficult to assess. The valuation of the private

investments as shown in the report is made by the Company

according to above guidelines. The valuation may change

from day to day depending on the Company’s development

and market circumstances. However, the risk remains, that

the valuations are not accurate and can change any day.

Risk of venture capital investments

The Company makes investments in a variety of areas

offering the opportunity of significant capital gains, but

which involve a high degree of business and financial risk

that can result in substantial losses, which can be 100%.

Among these are the risks associated with investments in

companies at an early stage of development or with little

or no operating history, companies operating at a loss or

with substantial variations in operating results from period

to period, and companies with the need for additional

capital to support expansion or to achieve or maintain a

competitive position. For a more detailed discussion of the

risks in connection with venture capital investments please

refer to page 6.

Determination of the net asset value

The net asset value per share is a figure which is calculated

on a regular, consistent basis to approximately reflect the

intrinsic value of one share of the Company. The net asset

value is expected to serve as an indicator for the price of

the shares of the Company. The net asset value is calculated

by the Company by dividing the value of the net assets of

the Company (the value of its assets less its liabilities) by

the total number of shares outstanding.

The Company calculates the fair value of every single

investment on a regular basis (at least monthly). The

calculation takes into consideration all assets and liabilities

on a pro rata basis, accrued expenses and accrued income

(e.g. interest on cash, if any) incurred by the Company.

The fair value of New Venturetec Ltd.’s investments is

calculated on the basis of the following principles and

guidelines:

a) Valuation of public companies

For the purpose of the net asset value calculation of public

companies, the closing bid price on the reporting day as

reported by the exchange where the stock is quoted and

traded is used.

b) Valuation of private companies

For the purpose of the fair value calculation of private

companies the following principles apply:

Valuation of investments

23 New Venturetec

Description of valuations

Public companies

Public companies are valued at the closing bid price each

day. The reported valuation is based on the closing price as

of September 30, 2018. These investments are subject to

general stock market conditions.

Osiris Therapeutics (symbol OSIR) and Myriad Gene-

tics (symbol MYGN) are both listed on NASDAQ.

Investment valuation

change in %

01.10.17 – 30.09.18

Public companies

Osiris Therapeutics +141.30%

Myriad Genetics +27.14%

Private Companies

Valuations are based on the company’s status at a given

date.

– Increases in valuations are due to achievements of

milestones, capital increases or other significant positive

business developments.

– Companies valued at cost have generally achieved the

expected milestones.

– Decreases in valuations are generally due to financial

market conditions, unfavorable capital increases and

the company generally being behind plan.

There are currently no private companies in the portfolio.

Valuation of investments

24New Venturetec

October 1, 2017 – September 30, 2018 in CHF NEV Prices

Since IPO & reporting yearInvestment performance

Prices and volumes 2017/2018 2016/2017 2015/2016

High/low share price in CHF (SIX) 5.80/1.81 2.99/1.27 6.90/1.80

High/low net asset value in CHF 6.35/1.42 2.42/0.14 12.59/0.94

Closing share price (SIX) at the end of the period in CHF 5.10 1.99 2.01

Net asset value CHF at the end of the period 6.46 1.07 0.91

Premium/(discount) – 21.05 % 85.98 % 120.88 %

Average daily trading volume 6,887 11,258 6,226

January 1, 2014 – September 30, 2018 in USD and CHFNet Asset Value Performance

NAV Performance

Net asset value total return net Total return Total return

CHF 30.09.2018 USD 30.09.2018

January 1997 28.94 – 77.68 % 20.00 – 67.10 %

Since IPO, Oct. 1997 33.00 – 80.43 % 22.76 – 71.09 %

since capital increase February 1999 39.80 – 83.77 % 27.54 – 76.11 %

Fiscal year 2016/17 1.07 503.64 % 1.10 498.18 %

NAV as per September 30, 2018 6.46 6.58

Based on

Time weightet Return net p.a. / IRR Based on NAV Based on NAV market price

CHF USD CHF

January 1997 – 6.67 % – 4.98 % – 12.11 %

Since IPO, Oct. 1997 – 7.49 % – 5.75 % – 13.13 %

since capital increase February 1999 – 8.84 % – 7.02 % – 14.83 %

0

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2014 2015 2016 2017 2018

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NEV Stock Price (CHF)Net asset value (CHF)Swiss Market Index (right hand scale)

0

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2014 2015 2016 2017 2018

NAV CHF NAV USD

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25 New Venturetec

Corporate governance

companies rather than on the general capital market and

the investors’ sentiment. Any investor should only invest

in New Venturetec Ltd. if he can afford the complete

loss of the investment without having to change his life-

style. Significant risk is involved and the timelines may

exceed the expectations. In addition, the market of New

Venturetec Ltd. shares is very illiquid. The risks of venture

investments are 100%. The total loss of the investment

has to be considered as a realistic possibility.

Structure and shareholders

New Venturetec Ltd.

New Venturetec Ltd. is a holding company established 1997

under Swiss law, domiciled in Zug (ZG). The Company

has dissolved and closed the fully owned subsidiary,

Venturetec Inc., BVI in the second half of its financial year

ending September 30, 2018. The Company is currently

holding investments in two portfolio companies. New

Venturetec Ltd. is listed on the SIX Swiss Exchange (NEV),

ISIN # CH0007036830, Valoren # 703683. As of Septem-

ber 30, 2018 the Company’s market capitalization was

CHF 25,500,000.

Investment advisor

Madison Investment Advisor, Inc., Panama, owned by Peter

Friedli, Chairman of the Board of New Venturetec Ltd., is

the investment advisor of New Venturetec Ltd. The invest-

ment advisor supports and advises the Board on specific

duties with regards to the selection, purchase, sale, structure

and disposal of Company’s investments. The Board and the

Investment Advisor agreed an all-inclusive fee of 1.0% per

annum on the Company’s net asset value as estimated

based on the valuation guidelines of the Company on a

monthly basis. The advisory fee is subject to the retrospec-

tively yearly approval by the annual shareholder meeting

in accordance with the Swiss Ordinance against Excessive

Compensation in Stock Exchange Listed Companies

(“OaEC”). For more details on the investment advisory

agreement see page 30.

The following information completes the Annual Report in

terms of Corporate Governance. New Venturetec Ltd. is

listed on the SIX Swiss Exchange, Symbol NEV, which

requires certain disclosures on this subject. Additional

information can be found in other parts of the report or on

our website www.newventuretec.com.

Company summary

New Venturetec Ltd. is an investment holding company

incorporated in Zurich on August 11, 1997. Since December

2008, New Venturetec Ltd. has its domicile in the canton of

Zug. The Company holds participations in venture companies

in the area of biotechnology which are domiciled in the USA.

The Company’s business objective is to obtain capital

appreciation from well selected companies that are at

the forefront of technology and products in their field.

The management builds positions early enough in leading

technology companies with a long term investment

commitment. These investments bear a high degree of risk.

Venture capital

Venture Capital investing is the process of building a business

from scratch. The investments of venture capital are made

through different forms of securities ranging from common

stock to preferred shares and convertible debt.

Venture capital can be private or public depending on

the stage of the company. The company naturally evolves

from its inception through generating profits if successful.

In most cases several rounds of financing at different prices

are conducted.

The proceeds of such financing are mostly used for

working capital to build the business as such companies still

generate losses. The characteristics of venture investments

are typically of high risk, lack of a market for the securities

and a long-term investment horizon. No assurance can be

given that returns are realized. The risks of venture capital

investments are 100%.

Investing in New Venturetec Ltd.

New Venturetec Ltd. is currently holding investments in two

portfolio companies. The participations are managed to

assure the best possible value creation for its shareholders.

The investment horizon should be 10 years or more. A

shareholder is recommended to follow the development

with interest and base an investment or disinvestment

decision on results of the development of the portfolio

New Venturetec 26

Conditional capital

On December 4, 2013, the annual meeting of shareholders

resolved the creation of conditional capital in the amount

of CHF 10,200,000 consisting of 1,700,000 bearer shares

with par value of CHF 6.00 each. These shares stand in

relation to outstanding convertible notes in the aggregate

amount of CHF 13,125,000 issued by the Company. For

further details on the terms of the conditional capital, which

have been revised on the annual shareholders meeting of

December 1, 2017, please see art. 3a of the articles of

association of New Venturetec Ltd. http://www.newven-

turetec.com/company/articles-of-association

Authorized capital

New Venturetec Ltd. does not have any authorized capital

outstanding.

There is no other authorized or conditional capital

outstanding. Except of the above stated, there was no

change in the capital structure of the Company for the last

three years. No other warrants, options or convertible

securities are outstanding. The outstanding loans and the

convertible notes are described in a separate paragraph

below.

Shares

Each share entitles the holder to one vote at the general

assembly of the Company. There are no shares which carry

preferential rights. Shareholders are entitled to the rights

as set forth in the Swiss Code of Obligation.

Treasury stocks

The Company does not own any of its shares.

Significant shareholders

As of September 30, 2018 the following shareholders filed

a holding of 3% or more of the total outstanding shares to

the Company to SIX Swiss Exchange:

Between 5% and 10%

– Reinhard and Rosa Siegrist, with Georges Mari and

Rossier, Mari & Associates AG, Zürich, all together as

a group represented by Georges Mari, Zürich.

– Alexander and Chantal Biner,

through 4iS Four Eyes AG, St.Gallen

Between 3% and 5%

– RM Strategic Fund

– HERCULIS, Partners “Aries” Fund, Liechtenstein

Please see https://www.six-exchange-regulation.com/en/

home/publications/significant-shareholders.html?

companyId=NEWVENTUR for more detailed information.

Cross-shareholdings

The Company is not aware of any cross-shareholdings that

exceed 3% of the capital shareholdings or voting rights on

both sides.

Capital Structure

The paid-in capital is CHF 30,000,000 consisting of

5,000,000 bearer shares with a par value of CHF 6.00 each.

In the fiscal year 2013/14, the paid-in capital of the New

Venturetec Ltd. was reduced from CHF 62,500,000 to CHF

30,000,000 or from CHF 12.50 per share to CHF 6.00 per

share, by transferring CHF 32,500,000 to the reserves of

additional paid in capital. All shares are fully paid in.

Corporate governance

Portfolio companies

MADISON INVESTMENT

ADVISOR, INC.

InvestmentAdvisory

NEV/SIXSHAREHOLDERS

Agreement

NEW VENTURETEC LTD.

New Venturetec27

Corporate governance

Andreas von Sprecher, member and Secretary, Swiss,

non executive

Andreas von Sprecher is a founding partner at the law firm

Hüppi & von Sprecher since more than 20 years. Prior to

that Andreas von Sprecher worked as an attorney of law.

He is involved in some entrepreneurial projects in the area

of tourism and viniculture. Andreas von Sprecher graduated

in Law at the University of Zurich and has been admitted

to the bar of the Canton of Zurich in 1989.

Andreas von Sprecher is no, and has never been, mem-

ber of the management of New Venturetec Ltd., the

dissolved subsidiary Venturetec, Inc. or Madison Investment

Advisor, Inc., further Andreas von Sprecher or any related

party of Andreas von Sprecher has no and never had any

material business relationship to New Venturetec Ltd.,

Venturetc, Inc. or Madison Investment Advisor other

than being a member of the Board of Directors of New

Venturetec Ltd.

Andreas von Sprecher is Partner at Hüppi & von

Sprecher. He is a member of the Board of Directors of

SHV Interholding AG.

Andreas von Sprecher has been a member of the Board

of Directors since 2002. He is elected until the ordinary

shareholder meeting 2018.

Michael Endres, member, Swiss, non executive

Michael Endres is a senior partner at the law firm HütteLAW

AG since 2005. Prior to that Michael Endres worked as an

attorney of law in different law firms in Zurich and Zug.

Michael Endres acts also as a civil law notary. Michael Endres

graduated in Law at the University of St. Gallen and has

been admitted to the bar of the Canton of Zug in 2001.

Michael Endres is no, and has never been, member of

the management of New Venturetec Ltd., the dissolved

subsidiary Venturetec, Inc. or Madison Investment Advisor,

Inc., further Michael Endres or any related party of Michael

Endres has no and never had any material business relation-

ship to New Venturetec Ltd., Venturetc, Inc. or Madison

Investment Advisor other than being a member of the Board

of Directors of New Venturetec Ltd.

Michael Endres has been a member of the Board of

Directors since 2017. He is elected until the ordinary

shareholder meeting 2018.

Board of Directors

The Board of Directors of New Venturetec Ltd. consists of

two independent members and Peter Friedli. The Board

leads all material aspects of the Company including

investment and disinvestment decisions, general manage-

ment and administrative matters and the delegation thereof,

as well as investor relation and corporate affairs. The Board

periodically discusses the investment holdings of New

Venturetec Ltd. as well as general business issues relating

to its shareholders and investment outlook. Peter Friedli

abstains from voting concerning any business issue between

himself, the investment advisor and New Venturetec Ltd.

Peter Friedli, Chairman, Swiss, executive

Peter Friedli has been a founder and principal of various

venture investment firms since 1986. Peter Friedli has over

30 years of entrepreneurial experience as an independent

investment manager in venture capital and has specialized

in investments predominantly domiciled in the United States

in the areas of biotechnology and technology. He has held

interests in more than 170 venture companies ranging from

start-up to public companies. Peter Friedli possesses an

active involvement in the management of a number of those

companies and also serves on the board of them. Prior to

that, he worked in the field of international management

consulting for service and industrial companies in Europe

and the United States.

Peter Friedli is a director of the portfolio company

Osiris Therapeutics, Inc. Further, Peter Friedli is President

of Madison Investment Advisor, Inc.

Peter Friedli is a founder of New Venturetec Ltd. and

has been a member of the Board of Directors since 1997.

He is elected until the ordinary shareholder meeting 2018.

New Venturetec 28

in the bylaws of the Company (http://www.newventuretec.

com/company/articles-of-association).

For further details on the remuneration of the board of

directors and the management please see the “Compensa-

tion report” on page 36 and note 18.5 on page 71.

Shareholdings

Peter Friedli: holding per September 30, 2017: 103,381

shares through Friedli Corporate Finance GmbH, Zug. No

trading during the reporting period.

Peter Friedli holds through Friedli Corporate Finance

GmbH, Zug, convertible notes issued by the company and

convertible into common shares of New Venturetec Ltd. as

described in note 13 on page 64 and on page 32 below.

Andreas von Sprecher: holding per September 30, 2018:

3,000 shares. No trading during the reporting period.

Andreas von Sprecher holds convertible notes issued

by the company and convertible into common shares of

New Venturetec Ltd. as described in note 13 on page 64

and on page 32 below.

Portfolio company influence

As a member of the Board Peter Friedli represents all share-

holders on the portfolio companies’ board. New Venturetec

Ltd. itself does not have management or strategic influence.

Internal organization

The business of New Venturetec Ltd. requires specific know

how from the members of the Board of Directors which is

covered as follows:

– Investment management, including venture capital

know how in the area of biotechnology and technology,

portfolio consulting and assessments, board participa-

tion, strategic consulting, hiring of management and

corporate finance. This is covered by Peter Friedli

– Management of investment company: Peter Friedli

– Corporate governance: Peter Friedli, Andreas von

Sprecher, Michael Endres

– Legal: Michael Endres

The Board of Directors constitutes itself. It appoints the

Chairman as well as a Secretary. Meetings of the Board of

Directors are convened by the Chairman. Individual mem-

bers of the Board of Directors may, stating their reasons,

demand that the Chairman call a meeting immediately.

Prior to the meetings, the members of the Board of Directors

External board representations

The by-laws of the Company regulate the maximal external

board representations for all members of the board of

directors of the Company in accordance with the Swiss

Ordinance against Excessive Compensation in Stock

Exchange Listed Companies (“OaEC”). Therefore, non of

the members of the Board of directors may take service on

more than 30 other boards of directors of companies not

related to New Venturetec Ltd., of which not more than ten

board seats may be in listed companies.

Elections

The members of the board of directors are individually

elected for one year, the next election will be at the general

meeting of Shareholders in 2018. Board members can be

re-elected.

Board remuneration

The annual Board of Directors fee is CHF 25’000 for

Andreas von Sprecher and CHF 15’000 for Michael Endres.

Peter Friedli is not paid for serving on the Board of Directors.

Effective July 1, 2018, New Venturetec Ltd. entered

into the existing investment advisory agreement which was

concluded between the dissolved subsidiary Venturetec,

Inc. and Madison Investment Advisor, Inc., on October 1,

2014 and renewed with effect October 1, 2017. Madison

Investment Advisor, Inc. is is fully owned by Peter Friedli,

the Chairman of the board of directors of New Venturetec

Ltd. In accordance with the investment advisory agreement,

the fee is determined to an all inclusive fee of 1% per annum

on the Company’s net asset value as estimated based on the

valuation guidelines of the Company on a monthly basis.

The advisory fees for the fiscal year 2017/18 paid or

payable to Madison Investment Advisor are USD 193,647.

Board members never received any stock options, free

shares, social security contributions other than required by

law, or any other compensation or benefits other than the

reported Board of Director’s fee.

In accordance with the Swiss Ordinance against Exces-

sive Compensation in Stock Exchange Listed Companies

(“OaEC”) and the articles of association of the company

all remunerations to members of the Board of Directors and

the management have to be retrospectively approved by

the annual shareholders meeting. No special rulings with

regard to loans or special social benefits for the members

of the Board of Directors or the management are defined

Corporate governance

New Venturetec29

Corporate governance

tion committee has no decision power. The compensation

committee meets once a year for 1 – 2 hours in October or

November. There was one meeting in the reporting period.

Responsibility and risk control

The Board of Director is the Company’s highest governing

body and is also charged with supervising and monitoring

the activities of the management. According to the Swiss

Code of Obligations and the article of association of the

Company the Board of Directors is responsible for the

strategy, direction, supervision and control of the Company

and its management. The Board of Directors of New Ven-

turetec Ltd. is specifically responsible for the investment

strategy and the investment guidelines, organizational

regulations, appointing the management, financial

planning and accounting policies, overall supervision and

the relationship to the shareholders. The Board is further

deciding on all investments and disinvestments of the

Company. Specifically with regard to the supervision and

monitoring the Board of Directors receives regular reports

on the Company’s business, examines the annual report

and semiannual report and the annual and semi-annual

financial statements and examines the reports produced by

the statutory auditors of the Company.

The board of directors may delegate any management

item of New Venturetec Ltd. to one or several members of

the board. The execution of investments or disinvestments

may be delegated to one or several members of the board

of directors or to any third parties in accordance to Art.

716b of the Swiss Code of Obligations, the Swiss Ordinance

against Excessive Compensation in Stock Exchange Listed

Companies (“OaEC”) and the articles of association. New

Venturetec Ltd. entered into an investment advisory agree-

ment with Madison Investment Advisor, Inc. Madison

Investment Advisor advises the Board on any investment

related items including investments and disinvestments and

the monitoring and management of the investees. Further

details on the investment advisory agreement are described

in the management section below. Any transactions which

are related to the investment advisor have to be approved

by the independent members of the Board.

Madison investment advisor informs the Board on the

status of the portfolio companies on a regular basis and as

business requires. The members of the Board and the invest-

ment advisor have regular informal discussions and reviews

on corporate and portfolio matters between the board

meetings.

receive comprehensive documentation on the agenda

items to be discussed at the meeting.

The Board of Directors passes its resolutions by a

majority of votes, whereby the Chairman has the deciding

vote in the event of a tie. The Board of Directors is quorate

when the majority of its members are present at a Board

meeting. Resolutions may also be passed in writing or by

telephonic meetings without a physical meeting of the Board

of Directors being held. Circular resolutions must be

unanimous in order to be valid.

The Board of Directors meets for several hours at least

four times a year or whenever business requires. The mem-

bers of the Board have regular informal discussions and

reviews between the Board meetings. Five meetings of the

Board of Directors took place in the reporting period, all of

them lasted several hours. The full Board of Directors was

present at all meetings.

The Chairman of New Venturetec Ltd. is annually

elected by the annual shareholders meeting in accordance

with the Swiss Ordinance against Excessive Compensation

in Stock Exchange Listed Companies (“OaEC”) and the

articles of association of the company.

Committees

In accordance with the Swiss Ordinance against Excessive

Compensation in Stock Exchange Listed Companies

(“OaEC”) and the articles of association of the company,

the board of directors is supported by a compensation

committee. Based on the business and organizational

structure of the company the Board of directors does not

appoint any other committees.

Compensation committee

The compensation committee consists of two independent

members of the Board of directors, which have been indi-

vidually elected by the ordinary shareholders meeting for

a term of one year until the ordinary shareholders meeting

2018. Members of the compensation committee until the

end of the ordinary shareholders meeting on November 30,

2018 are Andreas von Sprecher and Michael Endres.

The duties of the compensation committee is to support

the Board of directors to define and survey compensation

politic, the compensation rules and the performance goals

for the members of the Board of directors and the manage-

ment and to prepare the proposals for the compensation

of the members of the Board of directors and the manage-

ment to the ordinary shareholders meeting. The compensa-

New Venturetec 30

The key points of the investment advisory agreement are:

– The Company appoints the advisor to advise the Board

of the Company on all aspects of the portfolio invest-

ments of the Company including but not limited to

investment selection, due diligence, investment struc-

ture and contract negotiations, monitoring, disinvest-

ments and reporting.

– The advisor will represent the Company in all relations

with the invested portfolio companies, including

the representation on the Board of Directors of the

portfolio companies. Being a Director of any portfolio

company, the advisor will represent all shareholders of

the portfolio company, consisting with applicable laws

and regulations.

– The advisor shall have the full power of attorney on the

voting and shareholder rights at the portfolio companies

on behalf of the Company, including to sign any

documents or shareholder consents on behalf of the

Company.

– The advisor will regularly report the status or any mate-

rial developments on the invested portfolio companies

to the Board of Directors in compliance with and as

permitted by all applicable laws and regulations.

– The advisor will advise the Board of Directors with regard

to the investment strategy and the investment alloca-

tion of the Company.

– The advisor will support the Board of Directors in all

corporate, administrative and regulatory matters of the

Company.

– The Advisor will support the Board of Directors in

investor relations and communications to the public.

– The advisor will execute the above tasks in a manner

which is consisting with the investment guidelines of

the Company and all applicable laws and regulations.

The investment advisory agreement can be terminated

with one year written notice.

Information and control instruments

The Board of Directors adopted the investment guidelines

of the Company, see page 11. Any transactions which are

related to the investment advisor have to be approved by

the independent members of the Board. Madison Invest-

ment Advisor does not own any shares of New Venturetec

Ltd. nor of any portfolio companies. The Company, the

Board and the management strictly follows the trading and

insider rules of the SIX Swiss Exchange.

In addition to the Company’s comprehensive external

reporting, the Board discusses and reviews the financial

performance, major events at portfolio companies as the

law permits, net asset value of the portfolio and liquidity

planning of New Venturetec Ltd. at every Board meeting.

The Board regularly reviews and discusses the risks on the

portfolio company level, as well as the general financial

risks of New Venturetec Ltd. taking all internal and external

factors into account. Further, all decisions regarding the

investment advisor and Peter Friedli have to be approved

by the independent Board members. For further informa-

tion, please also see “Liquidity risk” on page 31 and “Risk

management” on page 34.

Management

The Board of Directors decides on all material matters of

the Company, including investments and disinvestments,

general corporate and business affairs and regulatory and

administrative matters. No additional management have

been appointed. The Board delegates the executions of

investments, disinvestment and general corporate and

administrative duties to one of the Board members, the

investment advisor or to any third party.

Under a separate investment advisory agreement, New

Venturetec Ltd. appointed Madison Investment Advisor,

Inc. as investment advisor to support and advise the Board

on specific duties with regards to the selection, purchase,

sale, structure and disposal of the Company’s investments.

Madison Investment Advisor also represents the Company

on the investees, including selected representations of New

Venturetec Ltd. on the Board of directors of the portfolio

companies. The investment advisor may execute and

implement resolutions taken by the Board.

Corporate governance

New Venturetec31

Corporate governance

Liquidity risk

New Venturetec Ltd. operates on tight liquidity and has to

generate cash to cover its operational costs and interest.

Further, the Company has liabilities outstanding in the

amount of USD 20,965,314 as per September 30, 2018.

New Venturetec Ltd. does not have any operational income

and consequently the only way to generate liquidity is

through the sale of assets or funding through additional

debt or equity. Please see note 6.3 on page 55 for further

information on the liquidity risk.

Liquidity of New Venturetec Ltd’s investment in Osiris

Therapeutics

New Venturetec Ltd. directly owns 4,103,301 shares of

Osiris Therapeutics, which represents approx. 12% of the

outstanding shares of Osiris Therapeutics. Based on this

ownership, New Venturetec Ltd. is a reporting person in

respect of Osiris Therapeutics and is subject to reporting

requirements of Section 16 of the Securities Exchange Act

of 1934, as amended (the “Exchange Act”). New Ven-

turetec Ltd. has reported its transactions and holdings of

Osiris Therapeutics with the United States Securities and

Exchange Commission (SEC) through the filing of Forms 3

and 4, consistently since first becoming a reporting person

following the IPO of Osiris Therapeutics.

The sale by New Venturetec Ltd. of shares of Osiris

Therapeutics common stock requires either registration

under the Securities Act of 1933, as amended (the “Secu-

rities Act”), or that the sale be exempt from registration.

Rule 144 under the Securities Act provides a safe harbor

from registration for sales by a person other than an issuer,

underwriter or dealer. Compliance with Rule 144 requires

compliance with various restrictions set forth in the rule,

including limitations on the number of shares sold in a given

period and the manner in which sales may be completed.

For sales by an affiliate of an issuer, which New Venturetec

Ltd. is presumed to be, Rule 144 provides that the volume

of securities sold during any preceding three-month period

may not exceed the greatest of certain limitations.

Rule 144 also requires, in the case of affiliate sales, that

a Form 144 be filed with the SEC in advance of the sale.

The sale must then take place within 90 days after the filing

of the Form 144. If and when a sale transaction occurs, the

sale must be reported to the SEC by the filing of a Form 4,

within two days.

Advisory fees

Effective July 1, 2018, New Venturetec Ltd. has entered as

new contracting party into the existing investment advisory

agreement which was concluded between the dissolved

subsidiary Venturetec, Inc. and Madison Investment Advisor,

Inc. on October 1, 2014 and renewed with effect October

1, 2017. Madison Investment Advisor, Inc. is fully owned

by Peter Friedli, the Chairman of the board of directors of

New Venturetec Ltd. In accordance with the investment

advisory agreement, the fee is determined to an all inclusive

fee of 1% per annum on the Company’s net asset value

as estimated based on the valuation guidelines of the

Company on a monthly basis.

The advisory fees for the fiscal year 2017/18 paid or

payable to Madison Investment Advisor are USD 193,647.

The advisory fee is subject to the retrospectively yearly

approval by the annual shareholder meeting in accordance

with OaEC and the by-laws of the company.

Conflict of interests

Peter Friedli is the Chairman of the Board of Directors of

New Venturetec Ltd. and owner of Madison Investment

Advisor, Inc. Further, Peter Friedli is a Member of the Board

of Osiris Therapeutics, Inc. As such, Peter Friedli represents

all shareholders of each portfolio company. Any related

party transaction is approved by the independent Board

Members of New Venturetec Ltd. or the board of the

portfolio company respectively with Peter Friedli ab staining

from any vote or as directed by corporate counsel. Peter

Friedli may provide investment banking services to port folio

companies if and when needed and may be compensated

for such services. Peter Friedli is explicitly authorized to

conduct investment banking and/or consulting services to

portfolio companies at its own terms if and when needed.

Peter Friedli may be paid for such services by the portfolio

company including if New Venturetec Ltd. invests in said

portfolio company. New Venturetec Ltd. shall not have

the right or claim to such payment. Peter Friedli did also

personally invest in portfolio companies at market terms.

New Venturetec Ltd. benefits from such investments.

Through the effort and services of Peter Friedli for port folio

companies, New Venturetec Ltd. benefits. New Venturetec

Ltd. has also benefited from the loans, which are provided

by Peter Friedli.

Further conflicts may arise in the course of doing

business from time to time.

New Venturetec 32

Principal amount CHF 12,000,000

Interest rate 4% per annum

Life until November 30, 2018

Conversion voluntarily convertible

into shares of the

Company

Conversion price CHF 9.50 per share

Peter Friedli, the chairman of New Venturetec Ltd.

subscribed to CHF 12,000,000 of the Convertible Note

of which CHF 12,000,000 was invested through the

conversion of existing short term debt owed by New

Venturetec Ltd. to Peter Friedli.

Total liabilities owed to related parties per September

30, 2018 are listed in the table below. Please see notes

12 and 18.3 on page 63 and 70 for further details.

None of the loans outstanding are based on accrued

management fees.

Total interests on liabilities owed to related parties in

the reporting period were USD 2,034,102. This amount

includes USD 1,123,730 which reflects the amortization

of the difference between the fair value of the loans

payable and their amortized cost at the time when the

maturity date of the loans were extended (please see

note 18.3 on page 70 for further details).

On March 16, 2017, Peter Friedli and the Company

signed a subordination agreement to address the capital

loss of the company in accordance with Art 725 para. 1 CO.

The total subordinated claim under this agreement

of CHF 18,589,310 is deferred and cannot be repaid as

long as a balance sheet or interim balance sheet audited

in accordance with Swiss Auditing Standards shows that

the Company is not in a situation of a capital loss in

accordance with Art 725 para. 1 CO.

In addition, as a greater than 10% Shareholder, New

Venturetec Ltd. is further limited as to when it can engage

in purchasing or selling shares of Osiris Therapeutics. New

Venturetec Ltd. is subject to Osiris’ Trading Window and

must clear all purchase and/or sales transactions in the

company’s common stock with either the President & CEO

or the Chief Financial Officer. Osiris’ Trading Window

usually closes 15-days prior to the end of each fiscal quarter

and then reopens on the third Trading Day after the finan-

cial results for the quarter are published, which typically is

40 – 45 days after the fiscal quarter end. The Trading

Window may also close during other times at the discretion

of the company.

These restrictions are unrelated and independent of

Peter Friedli’s involvement.

Related party transactions

Loans

On January 22, 2018, New Venturetec Ltd. issued con-

vertible notes with the following terms:

Aggregated principal amount CHF 1,125,000

Interest rate 4% per annum

Life until December 31, 2019

Conversion voluntarily convertible

into shares of the

Company

Conversion price CHF 9.50 per share

Andreas von Sprecher, member of the Board of New

Venturetec Ltd. subscribed to CHF 50,000 of the Con-

vertible Notes.

On April 20, 2018, New Venturetec Ltd. issued a

convertible note with the following terms:

Corporate governance

Liabilities owed to related parties as of September 30, 2018 (excl. accrued interests) Maturity

CHF 6,589,310 Loan paid from Peter Friedli to New Venturetec Ltd.1 4% 30.06.2019

CHF 1,000,000 Loan paid from Peter Friedli to New Venturetec Ltd.1 4% + 3% 31.12.2019

CHF 12,000,000 Convertible note payable to Peter Friedli 4% 30.11.2018

CHF 50,000 Participation of Andreas von Sprecher in the convertible note 2019 4% 31.12.2019

1 Secured by all tangible and intangible assets of New Venturetec Ltd.

New Venturetec33

Corporate governance

Agenda and proposals

The Board of Directors defines the agenda of a shareholder

meeting and publishes it in the Swiss Official Gazette of

Commerce at least 20 days before the shareholder meeting.

Shareholders, who hold shares with an aggregated amount

of at least CHF 1,000,000, have the right to put any item

on the agenda by written request to the Board of Directors.

Such items have to be received by the Board of Directors

in time to follow the rules of the publication of the agenda.

Proposals regarding items, which are not included in the

agenda, can be discussed upon the motion of the share-

holders but not be voted at the shareholder meeting, except

for motions as set forth in the Swiss Code of Obligations.

Change of control and defence measures

Opting-up clause

According to Art. 6 of the Articles of Association of the

Company the opting-up is at 49%. (http://www.newven-

turetec.com/company/articles-of-association).

Auditors

KPMG AG, Zurich act as independent statutory and group

auditors of the Company and have been in this role since

inception. Christoph Gröbli has been the leading auditor on

their behalf since the fiscal year 2015/16. The auditors are

elected for a period of one year by the general assembly.

The remuneration for KPMG for auditing New Venturetec

Ltd.’s IFRS and statutory financial statements for the fiscal

year 2017/18 amounted to CHF 135,000. No non-audit

fees were incurred during the reporting period.

Information instruments of the auditor

The auditors are meeting with the management of the

Company several times and have regular telephonic contact

during the normal course of the annual audit. In the fiscal

year 2017/18 the auditors had two meetings with the board

of directors. The management provides the auditors with all

documents requested. The management informs the auditors

regularly on the development of the portfolio companies

and the business.

Waived and accrued management fee

In 2009, Peter Friedli waived accrued and payable manage-

ment fees in the amount of USD 4,970,034. On August 22,

2011, Peter Friedli waived additional accrued and payable

management fees in the amount of USD 1,297,168. On the

same date, Inflabloc shares with a book value of USD

1,500,000 have been transferred to Peter Friedli against

accrued and due management fees. The Inflabloc shares

had to be written off subsequently. The total amount of

waived and abandoned management fees were USD

7,767,202. This represented the management fee of

approximately seven years.

Peter Friedli owns 103,381 shares of New Venturetec

Ltd. bought at an average price of CHF 33.00. Peter Friedli

never sold any New Venturetec Ltd. shares. On April 20,

2018, Peter Friedli subscribed to the CHF 12,000,000

Convertible Note of which CHF 12,000,000 was invested

through the conversion of existing short term debt owed

by New Venturetec Ltd. to Peter Friedli.

Shareholders’ participation rights

The Company follows the Swiss Code of Obligations regard-

ing the convening of shareholder meetings. New Venturetec

Ltd. does not have any voting restrictions at shareholder

meetings and follows the one share – one vote principle.

There are no restrictions on the participation rights of any

shareholders at the meetings.

Voting

A physical share certificate or a confirmation of a depository

that the shares are held and blocked until the day of the

shareholder meeting allows a shareholder to vote at the

shareholder meeting. Proxy for voting can be given to any

person, who does not have to be a shareholder of the

Company. Proxies for voting given to any depositories are

prohibited in accordance with the Swiss Ordinance against

Excessive Compensation in Stock Exchange Listed Compa-

nies (“OaEC”). The Shareholder Meeting takes decisions

with the majority of the present shareholders, except of

special quorum for certain resolutions as set forth in the

Swiss Code of Obligations. The Article of Association of the

Company does not require higher quorum for any other

resolutions.

New Venturetec 34

FATCA

New Venturetec Ltd. fully comply with the standards of

FATCA of the Internal Revenue Services of the United States

of America.

Market making

New Venturetec Ltd. does not make a market in its shares

and does not own any of its shares and never has. The

Company has no agreement with any market maker. There

are no costs and no liabilities in connection with any market

making activities. Several banks may act periodically as

market makers on their own behalf.

Reporting and Information

Publication

The official publication organ for announcements of the

Company is the Swiss Official Gazette of Commerce.

Financial reporting

New Venturetec Ltd. issues audited annual and unaudited

semiannual financial statements prepared according to

International Financial Reporting Standards (IFRS) and IAS

34. The annual reporting per September 30 and the semi-

annual reporting per March 31.

Investor meetings

The financial results and the status of portfolio companies

are reported at the Ordinary Annual Shareholders’ Meeting

in November/December each year. New Venturetec Ltd.

invites selected portfolio companies to present their com-

pany and business strategy at the shareholders’ meeting.

Price information

New Venturetec Ltd. traded share prices can be retrieved

through electronic channels such as Telekurs (NEV), Reuters

(NEV.S) and Bloomberg (NWV SW Equity).

Risk management

Most of the investees are in a development stage, disclosing

accumulated deficits and little or no revenues. Their ability

to continue as a going concern may depend on additional

funding. Companies which are in the need of cash often face

unfavourable financing terms to existing shareholders – in

our case New Venturetec Ltd. – which basically means heavy

dilution and unfavourable liquidation preferences in case of

a trade sale. This is only if the company is able to attract

investments in the first place for which no assurance can be

given that this may occur. These investments offer the

opportunity of significant capital gains, but involve a high

degree of business and financial risks that can result in sub-

stantial losses, including the risk of a total unrecoverability

of an investment. The financial risk management objectives

and policy of New Venturetec Ltd. are to minimize dilution

by structuring the initial investment accordingly. Other

protective measures such as liquidation preferences are also

part of the Company’s policy. However, the operational risk

remains. Furthermore, the Company does not hedge any

foreign currencies or interest rate risk exposure. The risks of

venture capital investments are 100%. The total loss of the

investment is a realistic possibility.

Liquidity risk

Liquidity risk is the risk that New Venturetec Ltd. will not

be able to meet its financial obligations as they fall due.

New Venturetec Ltd., as a greater than 10% shareholder

of Osiris Therapeutics is subject to certain trade restrictions.

Further, Peter Friedli is Chairman and a member of the Board

of Directors of Osiris Therapeutics and therefore also sub-

ject to certain trade restrictions. These trading restrictions

are also applicable to New Venturetec Ltd. and may have

a negative impact on the liquidity of the Company. For

further details please see “Liquidity of New Venturetec Ltd.’s

investment in Osiris Therapeutics” on page 8.

We have attached risk factors of the main holding of

New Venturetec Ltd., Osiris Therapeutics, for your informa-

tion. Please see Appendix I, page 86. The information is

also publicly available.

Corporate governance

New Venturetec35

Corporate governance

Net asset value and market price – premium / discount

The most common valuation guideline for investment

companies is the net asset value. The net asset value is not

an absolute value. It is an indicator based on guidelines. By

no means does the net asset value represent a “true” value.

The market price is the price paid by the market par-

ticipants. It is a market price determination by demand and

supply. There are times when supply is higher than demand

and vice versa. That simply does not correlate with the

actual business performance of a company on a daily basis

in any significant way. Reasons why somebody may decide

to buy or sell are, in many cases, unrelated or only super-

ficially related to the business performance.

New Venturetec Ltd. offers a participation in a port folio

of young companies, not a trading opportunity. New

Venturetec Ltd. is the wrong vehicle for traders. It is an

opportunity for investors, who understand investing in the

very old fashioned and traditional way. Investing in venture

capital is a longterm commitment with high risks of 100%

losses.

Webpage

The webpage of New Venutretec Ltd. is www.newventure-

tec.com. The webpage contains comprehensive information

on the investment approach and strategy, latest news and

detailed information about the portfolio holdings, including

the latest net asset value report. Additionally, investors may

find information about the portfolio companies, including

a description of their business activity and the links to their

webpages. Press releases and news on New Venturetec Ltd.

can be downloaded from the news section of the webpage

on http://www.newventuretec.com/news/news_2018.

Email-list

Investors can subscribe to the New Venturetec Ltd. mailing

list on www.newventuretec.com/investors/mailing-list.

New Venturetec Ltd. sends all ad hoc publication directly

to the mailing registrants of the mailing list.

Contact information

New Venturetec Ltd.

Chollerstrasse 35

6300 Zug

phone +41 41 740 25 25

info@newventuretec.com

www.newventuretec.com

New Venturetec 36

We have audited the remuneration report dated 30 September 2018 of New Venturetec Ltd. for the year ended 30 September 2018. The audit was limited to the information according to articles 14 – 16 of the Ordinance against Excessive compensation in Stock Exchange Listed Companies (Ordinance) contained in the tables labeled “audited” on pages 38 and 39 of the remuneration report.

Responsibility of the Board of Directors

The Board of Directors is responsible for the preparation and overall fair presentation of the remuneration report in accordance with Swiss law and the Ordinance against Excessive compensation in Stock Exchange Listed Companies (Ordinance). The Board of Directors is also responsible for designing the remuneration system and defining individual remuneration packages.

Auditor’s Responsibility

Our responsibility is to express an opinion on the accompanying remuneration report. We conducted our audit in accordance with Swiss Auditing Standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the remuneration report complies with Swiss law and articles 14 – 16 of the Ordinance.

An audit involves performing procedures to obtain audit evidence on the disclosures made in the remuneration report with regard to compensation, loans and credits in accordance with articles 14 – 16 of the Ordinance. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatements in the remuneration report, whether due to fraud or error. This audit also includes evaluating the reasonableness of the methods applied to value components of remuneration, as well as assessing the overall presentation of the remuneration report.

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

Opinion

In our opinion, the remuneration report for the year ended 30 September 2018 of New Venturetec Ltd. complies with Swiss law and articles 14 – 16 of the Ordinance.

KPMG AG

Christoph Gröbli Stefan BilandLicensed Audit Expert Licensed Audit ExpertAuditor in Charge

Zurich, November 2, 2018

for the year ended September 30, 2018 Compensation report

Report of the Statutory AuditorTo the General Meeting of New Venturetec Ltd., Zug

KPMG AG, Badenerstrasse 172, PO Box, CH-8036 Zurich

KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.

New Venturetec37

remuneration which is independent from the performance

of the Company and/or a variable compensation which is

related to the total net asset value of the Company. (See

art. 20 of the articles of association on http://www. newven-

turetec.com/company/articles-of-association).

The board of directors is responsible for ensuring that

the compensation process is fair and transparent, and subject

to effective supervision. The chosen compensation process

should serve to provide pay which is in line with the services

provided, as well as appropriate incentives to the individual

members of the board of directors and Management, taking

due account of the longer-term interests of the shareholders

and the Company’s performance.

The compensation committee consists of at least two

members of the board of directors. The shareholders’ meet-

ing elects the members of the compensation committee on

an individual basis for a term of office of one year. The term

of one year is deemed to signify the period from one ordinary

shareholders’ meeting to, and including, the next. Members

whose term of office expires are eligible for immediate

re-election.

The compensation committee elects one of its members

as the chairman of the committee. In case of any vacancies,

the board of directors elect one of its members to the

compensation committee for a term which ends at the

next annual shareholders meeting.

The compensation committee supports the board of

directors with the determination of the compensation prin-

ciples and the supervision thereof, as well as performance

targets if applicable. It further supports the board of direc-

tors with the preparation of proposals to the Shareholders’

Meeting concerning the compensation to be paid to the

board of directors and Management in accordance with

article 20 of the article of association.

The board of directors approves, cancels or change any

contract with the investment advisor, including the fees of

the advisory services. Any members of the board of directors

who might be related to the investment advisors, abstain from

voting on any aspect which are related to the investment

advisor, including the determination of the level of the fees.

All compensation to all the members of the board of

directors, whether directly or indirectly through fees paid to

the investment advisor are subject to retrospective approval

by the annual shareholders meeting in accordance with

article 20 of the article of association.

The following information sets out the information on the

compensation details and the compensation paid to the

member of the board of directors and the management of

New Venturetec Ltd. for the fiscal year 2017/18. The content

and scope of the information provided herein are in accord-

ance with the Swiss Ordinance against Excessive Compensa-

tion in Stock Exchange Listed Companies (“OaEC”) – that

came into effect on January 1, 2014 and the standards on

Corporate Governance issued by the SIX Swiss Exchange.

Introductory note regarding the specific structure of New Venturetec Ltd. as an investment company

New Venturetec Ltd. is a Swiss investment company listed

on the SIX Swiss Exchange. The Company is defined in

accordance with art. 2 para. 3 of the Collective Investment

Schemes Act (CISA). New Venturetec Ltd. is subject to the

supervision and regulation of the SIX Swiss Exchange. New

Venturetec Ltd. is excluded from the regulatory supervision

by FINMA and the regulations from the Collective Invest-

ment Schemes Act (CISA) and has the form and structure

as an investment company to be aligned with certain

provisions of the OaEC et al.

New Venturetec Ltd. is an investment company with

the objective to obtain capital appreciation from investments

in well selected companies that are at the forefront of tech-

nology and products in their field. Beyond this, the Company

does not pursue any other business or operational activities.

Following article 716b of the Swiss Code of Obligations

(“CO”) and article 17 of the articles of association the board

of directors may entrust the management, wholly or in part,

and the representation of the Company to one or several

individual persons, members of the board of directors or

third parties. It may entrust the asset management, wholly

or in part, to a legal person.

The board of directors established a compensation

committee during the fiscal year 2017/18.

Determination principles and authority of compensation

In consideration for the duties, the general administrative

activities and the responsibilities in accordance to the appli-

cable laws and regulations, the members of the board of

directors and the management are entitled to receive a fix

Compensation report

New Venturetec 38

The remuneration to the board of directors and the

management can be made by the Company or any sub-

sidiary of the Company. Nevertheless, any remuneration,

compensation or fee directly or indirectly received by any

member of the board of directors or the management from

New Venturetec Ltd. or its dissolved subsidiary or from the

investment advisor is included in the total compensation to

the board of directors and the management and has to

retrospectively be approved by the annual shareholders

meeting in accordance with article 9 and 20 of the articles

of association. (See http://www.newventuretec.com/

company/articles-of-association).

New Venturetec Ltd. can pay any compensation, remu-

neration or fee to members of the board of directors or the

management prior to the approval by the annual sharehold-

ers meeting. Nevertheless, these payments would be subject

to the retrospectively approval by the annual shareholders

meeting and in case of a rejection by the annual sharehold-

ers meeting have to be paid back to the Company.

Employment contracts with the members of the

management, if any, the investment advisor and possible

contracts with members of the board of directors, which

form the basis of the compensation of the respective mem-

bers, are concluded for a fix term of a maximum of one year

or for an indefinite term with a notice period of a maximum

of twelve months.

Compensation to the board of directors

The individual members of the board of directors receive a

function and task related fix compensation which is defined

upon the discretion of the board of directors. The fix

compensation is paid in cash. Social security contribution

will be paid in accordance to the applicable law. No addi-

tional social securities or other benefits are contributed

to the members of the board of directors. The board of

directors may be entitled to receive reimbursement for

expenditures which are directly related to their duties if

these expenditures are not yet subject the other contracts

or agreements like the investment advisory agreement. The

board of directors as a whole defines the compensation of

its members subject to the approval by the annual share-

holders meeting. Members of the board of directors are not

excluded from voting for their own remuneration.

Compensation of the members of the management

New Venturetec Ltd. does not have a management or any

other employees. The management of the Company is

performed by the board of directors and specific members

of the board of directors. The board of directors is advised

by the investment advisor.

Common provision for the compensation

The board of directors or the management of New Ven-

turetec Ltd. are not entitled to receive any credits or loans

from the company and will not participate in any share

or option based, or any other participation plan of the

Company. (See article 20 of the articles of association on

http://www.newventuretec.com/company/articles-of-

association).

Compensation to the board of directors and the management for the fiscal year 2017/2018 (audited)

(In CHF) Indirect

earnings

from

Gross investment Social security Total

Period salary fix advisor contribution compensation

Peter Friedli, Chairman BoD 1.10.17 – 30.9.18 0 188,980 0 188,980

Andreas von Sprecher, Member BoD 1.10.17 – 30.9.18 25,000 0 1,556 26,556

Michael Endres, Member BoD 1.10.17 – 30.9.18 15,000 0 934 15,934

Compensation report

New Venturetec39

Compensation report

Contractual conditions upon leaving

New Venturetec Ltd.

No member of the board of directors or Management has

a contract with New Venutretec Ltd. which grants them

severance pay should they decide to leave the Company.

Advisory fees

New Venturetec Ltd. entered into an investment advisory

agreement with Madison Investment Advisor, Inc., which

is fully owned by Peter Friedli, the Chairman of the board

of directors of New Venturetec Ltd. In accordance with the

investment advisory agreement, the fee is determined to

an all inclusive fee of 1% per annum on the Company’s net

asset value as estimated based on the valuation guidelines

of the Company on a monthly basis. The advisory fee is

payable to the investment advisor quarterly by the end of

each quarter.

The advisory fees for the fiscal year 2017/18 paid or

payable to Madison Investment Advisor are CHF 188,980

(USD 193,647).

The investment advisory agreement can be terminated

with one year written notice.

The advisory fee is subject to the retrospectively yearly

approval by the annual shareholder meeting in accordance

with OaEC and the by-laws of the company.

Loans or receivables to members of the board of

directors and Management

As at September 30, 2018, there were no loans outstanding

to current or former members of the board of directors or

management, or persons related to them (September 30,

2017: none). No loans were granted during the year ended

September 30, 2018 to current or former members of the

board of directors or Management, or persons related to

them (September 30, 2018: none). As at September 30,

2018, there were no short-term receivable outstanding from

current or former member of the board of directors or

Management, or persons related to them (September 30,

2017: none).

Compensation to related parties

During the fiscal year 2017/2018, the Company paid

CHF 2,665 (USD 2,730) to HütteLAW AG for their legal

services during this period. Michael Endres, member of

the Board of New Venturetec Ltd., is a senior partner at

HüttelLAW AG. No other compensations were paid to

related parties other than described in this compensation

report (previous year: There was no other compensation to

related parties to disclose under this heading).

Compensation to former members of the board of

directors and Management

During the fiscal year 2017/2018, the Company paid

CHF 25,000 to Hans Lerch, former member of the Board of

New Venturetec Ltd., for accrued board member fees for the

period 2016/2017. No other payments were made to former

members of the board of directors or Management during

the 2017/2018 reporting year (previous year: No payments

were made to former members of the board of directors or

Management.).

Compensation to the board of directors and the management for the fiscal year 2016/2017 (audited)

(In CHF) Indirect

earnings

from

Gross investment Social security Total

Period salary fix advisor contribution compensation

Peter Friedli, Chairman BoD 1.10.16 – 30.9.17 0 51,828 0 51,828

Hans Lerch, Vice-Chairman BoD 1.10.16 – 30.9.17 25,000 0 1,562 26,562

Andreas von Sprecher, Member BoD 1.10.16 – 30.9.17 25,000 0 1,562 26,562

40New Venturetec

for the year ended September 30, 2018 Financial statements

Report on the Audit of the Financial Statements (IFRS)

Opinion

We have audited the financial statements of New Venturetec Ltd. (the Company), which comprise the balance sheet as at 30 September 2018 and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant account-ing policies.

In our opinion the financial statements (pages 44 to 72) give a true and fair view of the financial position of the Company as at 30 September 2018, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS) and comply with article 14 of the Directive on Financial Reporting issued by the SIX Swiss Exchange and with Swiss law.

Basis for Opinion

We conducted our audit in accordance with Swiss law, International Standards on Auditing (ISAs) and Swiss Auditing Standards. Our responsibilities under those provisions and standards are further described in the Auditor’s Responsi-bilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the provisions of Swiss law and the requirements of the Swiss audit profession, as well as the IESBA Code of Ethics for Professional Accountants, and we have fulfilled our other ethical responsibilities in accordance with these requirements.

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

Key Audit Matters

Valuation of investments at fair value through profit or loss

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Statutory Auditor’s ReportTo the General Meeting of New Venturetec Ltd., Zug

New Venturetec41

Financial statements

Valuation of investments at fair value through profit or loss

Key Audit Matters

As set out in note 11, the investments amount to USD 52,906,641 or 98.2% of total assets at September 30, 2018.

The main asset of New Venturetec Ltd. are the investments in Osiris Therapeutics, Inc., and Myriad Genetics, Inc., both quoted on NASDAQ, which are measured at fair value through profit or loss.

Due to the significance of the value of the investments in the financial statements, we consider the valuation of the investments at fair value through profit or loss a key audit matter.

Our response

Our procedures included, amongst others, obtaining an understanding of the Company’s processes and controls around the valuation of the investments.

We tested the valuation of the investments by agreeing the quoted prices of the investments to an independent source, which is different from the source used by the Company. We also involved our valuation specialist to evaluate the reliability of the quoted prices with regards to market liquidity.

We further considered the appropriateness of disclosures in relation to the valuation of the investments in the financial statements.

For further information on the valuation of investments at fair value through profit or loss refer to note 11 to the financial statements on pages 61 to 62.

Other Information in the Annual ReportThe Board of Directors is responsible for the other information in the annual report. The other information comprises all information included in the annual report, but does not include the financial statements, the stand-alone financial state-ments of the Company, the remuneration report and our auditor’s reports thereon.

Our opinion on the financial statements does not cover the other information in the annual report and we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information in the annual report and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibility of the Board of Directors for the Financial StatementsThe Board of Directors is responsible for the preparation of the financial statements that give a true and fair view in accordance with IFRS, Article 14 of the Directive on Financial Reporting issued by the

SIX Swiss Exchange and the provisions of Swiss law, and for such internal control as the Board of Directors determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

42New Venturetec

Financial statements

In preparing the financial statements, the Board of Directors is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Auditor’s Responsibilities for the Audit of the Financial StatementsOur objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reason-able assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Swiss law, ISAs and Swiss Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with Swiss law, ISAs and Swiss Auditing Standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

– Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepre-sentations, or the override of internal control.

– Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appro-priate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.

– Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made.

– Conclude on the appropriateness of the Board of Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.

– Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with the Board of Directors or its relevant committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the Board of Directors or its relevant committee with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with the Board of Directors or its relevant committee, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report, unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our

New Venturetec43

Financial statements

report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on Other Legal and Regulatory Requirements In accordance with article 728a para. 1 item 3 CO and the Swiss Auditing Standard 890, we confirm that an internal control system exists, which has been designed for the preparation of financial statements according to the instructions of the Board of Directors.

We recommend that the financial statements submitted to you be approved.

KPMG AG

Christoph Gröbli Stefan BilandLicensed Audit Expert Licensed Audit ExpertAuditor in Charge

Zurich, November 2, 2018

KPMG AG, Badenerstrasse 172, PO Box, CH-8036 Zurich

KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.

44New Venturetec

Financial statements

Balance Sheet

September 30, September 30,

2018 2017

Note USD USD

Assets

Cash and cash equivalents 7 956,756 21,600

Other accounts receivable 8 6,383 6,325

Current accounts with non-consolidated subsidiary 9.2 0 35,627

Current assets 963,139 63,552

Venture capital investments 11.2 52,906,641 0

Investment in non-consolidated subsidiary

at fair value through profit or loss 9/9.1 0 28,062,042

Non-current assets 52,906,641 28,062,042

Total assets 53,869,780 28,125,594

Liabilities and equity

Accrued advisory fees 77,280 0

Other accrued expenses 163,208 178,753

Convertible bonds 14 0 15,959,264

Convertible notes 13/18.3 12,278,526 0

Loans payable to related parties 12/18.3 6,401,723 6,471,413

Current liabilities 18,920,737 22,609,430

Convertible notes 13 1,053,358 0

Loans payable to related parties 12/18.3 991,219 0

Non-current liabilities 2,044,577 0

Total liabilities 20,965,314 22,609,430

Share capital 15 20,785,350 20,785,350

Additional paid-in capital 15 28,784,665 28,784,665

Translation reserve 1,397,499 1,634,566

Conversion options / own equity instruments 14/13 741,767 168,451

Accumulated losses (18,804,815) (45,856,868)

Equity attributable to shareholders of New Venturetec 32,904,466 5,516,164

Total liabilities and equity 53,869,780 28,125,594

Number of shares outstanding 5,000,000 5,000,000

Net asset value per share 6.58 1.10

New Venturetec45

Financial statements

Statement of Comprehensive Income

Year ended Year ended

September 30, September 30,

2018 2017

Note USD USD

Income

Gains on venture capital investments 11.2 4,056,541 0

Profit on investment in non-consolidated subsidiary at fair

value through profit or loss 9.1 24,624,485 0

Interest income on loans and current accounts with

non-consolidated subsidiary 0 20,684

Reversal of impairment of loans to non-consolidated subsidiary 0 3,005,637 1

28,681,026 3,026,321

Expenses

Loss on investment in non-consolidated subsidiary at fair

value through profit or loss 9.1 0 (983,537)

Advisory fees 18.1 (77,734) 0

Interest on loans from related parties 18.3/18.4 (2,034,102) (1,281,535)

Interest on loans from third parties (122,194) (132,238)

Interest on loans and current accounts with non-consolidated subsidiary (16,478) 0

Administration cost (367,517) (386,814)

Net foreign exchange loss (7,259) (14)

(2,625,284) (2,784,138)

Profit before tax 26,055,742 242,183

Income tax 16 0 0

Profit for the period attributable to shareholders 26,055,742 242,183

Other comprehensive income

Items that are or may be reclassified to profit or loss

Translation adjustment (237,067) 15,732

Total items that are or may be reclassified to profit or loss (237,067) 15,732

Other comprehensive income for the year (237,067) 15,732

Total comprehensive income / (loss) for the period

attributable to shareholders 25,818,675 257,915

Weighted average number of shares

outstanding during the year (basic) 5,000,000 5,000,000

Earnings per share (basic) 19 5.21 0.05

Weighted average number of shares

outstanding during the year (diluted) 6,143,950 6,584,737

Earnings per share (diluted) 19 4.39 0.14

1 Relates to the reversal of the impairment adjustment, carried forward as of October 1, 2016, for the loan granted to the fully owned sub-sidiary, Venturetec Inc., net of effects from currency translation. The loan was subject to the capital contribution through conversion of debt as described in Note 9.1.

46New Venturetec

Financial statements

Statement of Changes in Equity for the year ended September 30, 2018 and 2017

Conversion

options/ (Accumu- Total equity

Addtional own equity lated losses)/ attributable to

Share paid-in Translation instruments Retained shareholders of

capital capital reserve (note 13/14) earnings New Venturetec

USD USD USD USD USD USD

Balance as of 01.10.2016 20,785,350 28,784,665 1,618,834 168,451 (46,635,553) 4,721,747

Translation adjustment 0 0 15,732 0 0 15,732

Total other comprehensive

income 0 0 15,732 0 0 15,732

Profit for the period 0 0 0 0 242,183 242,183

Total comprehensive income 0 0 15,732 0 242,183 257,915

Shareholders’contribution 0 0 536,502 1 536,502

Transactions with owners of the

Company 0 0 0 0 536,502 536,502

Balance as of 30.09.2017 20,785,350 28,784,665 1,634,566 168,451 (45,856,868) 5,516,164

Translation adjustment 0 0 (237,067) 0 0 (237,067)

Total other comprehensive

income 0 0 (237,067) 0 0 (237,067)

Profit for the period 0 0 0 0 26,055,742 26,055,742

Total comprehensive income 0 0 (237,067) 0 26,055,742 25,818,675

Forfeiture of conversion options

on convertible bonds 0 0 0 (168,451) 168,451 0

Issue of convertible notes /

conversion option 0 0 0 741,767 0 741,767

Shareholders’ contributions 0 0 0 0 827,860 1 827,860

Transactions with owners of the

Company 0 0 0 573,316 996,311 1,569,627

Balance as of 30.09.2018 20,785,350 28,784,665 1,397,499 741,767 (18,804,815) 32,904,466

1 See Note 18.3 and Note 18.5

New Venturetec47

Financial statements

Cash Flow Statement 1

Year ended Year ended

September 30, September 30,

2018 2017

USD USD

Advisory fees paid (48,916) 0

Payments for general and administrative expenses (92,535) 1,297

Payment received from non-consolidated subsidiary 1,639,513 607,165

Cash provided by operating activities 1,498,062 608,462

Proceeds on disposal of venture capital investments 11.2 438,336 0

Cash transferred from the dissolved non-consolidated subsidiary 9.2 737,815 0

Cash provided by investing activities 1,176,151 0

Increase of loans payable to related parties 12 1,040,582 0

Proceeds from the issue of convertible notes 13 1,170,656 0

Redemption of convertible bonds 14 (3,178,980) 0

Interest paid

– for loans payable to related parties 12 (153,031) 0

– for convertible notes 13 (20,238) 0

– for convertible bonds 14 (617,070) (609,391)

Cash used in financing activities (1,758,081) (609,391)

Net change in cash and cash equivalents 916,132 (929)

Cash and cash equivalents at beginning of year 21,600 22,512

Exchange effect on cash and cash equivalents 19,024 17

Cash and cash equivalents at end of period 956,756 21,600

1 For significant non-cash transactions refer to Note 17

48New Venturetec

Financial statements

Basis of the financial statements

1 Principal activities

New Venturetec Ltd., Zug (“the Company”) was formed on July 16, 1997 and incorporated on August 11, 1997 for the

purpose of direct and indirect investments in Swiss and foreign companies, especially in high risk venture capital companies

in the industries of Biotechnology and Technology. The Company is domiciled in Zug.

2 Statement of compliance

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and

comply with Swiss law and the special provisions for investment companies according to the Listing Rules and the Directive

of Financial Reporting of the SIX Swiss Exchange.

3 Judgement involved in the application of accounting policies, management assumptions and estimates

The preparation of financial statements in accordance with IFRS requires management to make judgements, estimates and

assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and

expenses. Actual results may differ from these estimates.

Classification as an investment entity

Management concluded that New Venturetec Ltd. meets the definition of an investment entity, as the following conditions

are met:

– New Venturetec Ltd. holds multiple investments;

– New Venturetec Ltd.’s business purpose is to invest in securities of any form of Swiss or foreign corporations taking

advantage of particular corporate circumstances with the goal to achieve returns from capital appreciation and invest-

ment income;

– The performance of these investments is measured and evaluated on a fair value basis.

New Venturetec Ltd. has dissolved its fully owned subsidiary Venturetec Inc., Tortola, as of April 1, 2018 and transferred

all assets held by the dissolved subsidiary to its direct ownership during the second half of the financial year ending Sep-

tember 30, 2018. As of September 30, 2018, New Venturetec Ltd. holds directly multiple investments and ownership

interests in the form of shares.

Prior to the dissolution of Venturetec Inc., New Venturetec Ltd. held its investments through Venturetec Inc. Based on the

requirements of IFRS 10, the 100% owned legal subsidiary Venturetec Inc., Tortola was considered to meet the definition

of an investment entity for IFRS purposes, and was required to be fair valued.

Key sources of estimation uncertainty

The determination of fair value for financial assets and liabilities for which there is no observable market price requires the

use of valuation techniques as described in note 5.2. For financial instruments that trade infrequently and have little price

transparency, fair value is less objective, and requires varying degrees of judgment depending on liquidity, concentration,

uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument. See also note 10.1.

4 Basis of presentation

The financial statements are those of New Venturetec Ltd. The non-consolidated subsidiary Venturetec Inc., was carried as

financial investments at fair value through profit or loss until its dissolution in the second half of the financial year ending

September 30, 2018. The financial statements are presented in USD. They are prepared on a fair value basis for venture

capital investments. Other financial assets and liabilities are stated at amortized cost.

Notes to the financial statements for the year ended September 30, 2018

New Venturetec49

Financial statements

4 Basis of presentation (continued)

4.1 New and revised standards adopted

As of October 1, 2017, the Company adopted also the following new and revised IFRS standards and IFRS interpretations:

Revisions and amendments of Standards and Effective date Interpretations

Recognition of Deferred Tax Assets for Unrealized January 1, 2017

Losses (Amendments to IAS 12)

Disclosure Initiative (Amendments to IAS 7) January 1, 2017

Annual improvements to IFRS 2014-2016 Cycle January 1, 2017

The adoption of the above amendments did not have an impact on the financial statements except for additional disclosures

resulting from IAS 7.

4.2 New standards and interpretations issued but not yet adopted

The following new and revised Standards and Interpretations have been issued but are not yet effective. They have not been

applied early in these financial statements. They have not been applied early in these financial statements.

Planned application by

New Venturetec Ltd. in

Effective date reporting year Remarks

New Standards or Interpretations

IFRS 9, Financial instruments January 1, 2018 Reporting year 2018/19 The company does not expect that

the adoption / implementation of

this standard will have a material

effect to the financial statements

except for additional disclosures.

IFRS 15, Revenue from January 1, 2018 Reporting year 2018/19 The company does not expect that

contracts with customers the adoption / implementation of

this standard will have a material

effect to the financial statements.

IFRS 16, Leases January 1, 2019 Reporting year 2019/20 The company does not expect that

the adoption / implementation of

this standard will have a material

effect to the financial statements.

Revisions and amendments of Standards and Interpretations

none

50New Venturetec

Financial statements

Notes to the financial statements for the year ended September 30, 2018

5 Summary of significant accounting policies

5.1 Foreign currency translation

Transactions in foreign currencies are translated at the foreign exchange rate at the date of the transaction. Monetary assets

and liabilities in foreign currencies are translated at the foreign exchange rate at the balance sheet date. Foreign exchange

differences arising on translation are recognized in profit or loss.

The functional currency of New Venturetec Ltd. is CHF. Assets and liabilities of the Company are translated to the

presentation currency (USD) at the foreign exchange rates at the balance sheet date. The revenues and expenses are trans-

lated to USD at average rates. Foreign exchange differences arising on this translation are recognized directly in other

comprehensive income (equity) within the translation reserve.

Foreign exchange differences on cash and cash equivalents are presented separately in the cash flow statement.

The following exchange rates were applied:

Spot rate at balance sheet date Average rate for the twelve months ended

30.09.18 30.09.17 30.09.18 30.09.17

1 USD to CHF 0.9816 0.9682 0.9759 0.9882

5.2 Venture capital investments / Determination of fair value

The Company’s investments relate to U.S. venture capital companies.

All venture capital investments are classified as financial assets at fair value through profit or loss. The venture capital

investments are initially measured at fair value on the trade date, excluding transaction costs. Upon initial recognition

attributable transaction costs are recognized in profit or loss when incurred. These investments are subsequently measured

at fair value, with changes in the fair value recognized in profit or loss.

The venture capital investments are stated at fair value on an item by item basis, as determined by the Investment

Advisor and approved by the Board of Directors. Fair value is the price that would be received to sell an asset or paid to

transfer a liability in an orderly transaction between market participants at the measurement date in the principal, or in its

absence, the most advantageous market to which the Company has access at that date. Options and similar rights attached

to the investments are also considered in determining fair value.

Currently, New Venturetec Ltd. holds two investments in public companies.

The basis for the fair valuation of investments in public companies is the following:

The fair value of public companies equals the closing bid price on the reporting date as reported by the exchange where

the shares are quoted and traded. Estimated future selling costs are not deducted. The following aspects are excluded from

the determination of fair value:

– Investments may be subject to lock-up agreements during a certain period.

The reliability of the fair value depends on whether one or more buyers would be willing to acquire the entire share held

in the investee at the publicly listed price.

5.3 Dividend income

Dividend income is recognized in profit or loss on the date the Company’s right to receive payments is established. If a

foreign withholding tax is deducted, such amount is recorded separately and shown as income tax expense. For quoted

equity securities, the date of recognition usually equals to the ex-dividend date.

New Venturetec51

Financial statements

5 Summary of significant accounting policies (continued)

5.4 Loans payable

Interest-bearing borrowings are recognized initially at fair value, less any attributable transaction costs. Subsequent to

initial recognition, interest-bearing borrowings are carried at amortized cost using the effective interest method.

5.5 Cash and cash equivalents

Cash and cash equivalents include cash at banks, call money and fixed term deposits with a term of three months or less

from the date of acquisition. They are stated at their amortized cost.

5.6 Other accounts receivable

Other accounts receivable are stated at amortized cost, which equals nominal value for short-term receivables less any

allowance for doubtful debt. Allowances are made for specific known doubtful receivables.

5.7 Income taxes

The Company is taxed as a holding company in the Canton of Zug. Income, including dividend income and capital gains

from its investments, is exempt from taxation at the cantonal and communal level.

For Swiss federal tax purposes, income tax at an effective tax rate of 7.83% is levied. However, dividend income

qualifies for the participation exemption if the related investment represents at least 10% of the other company’s share

capital or has a value of not less than CHF 1 million. The participation exemption is extended to capital gains on the sale of

a substantial investment (i.e. at least 10%), which was held for a minimum holding period of one year and in case the sales

price of the participation exceed its original acquisition cost. The result of the participation exemption pursuant to the

aforementioned requirements is that dividend income and capital gains (except recovered depreciations) are almost fully

exempt from taxation.

Deferred income taxes are recognized at the expected applicable tax rates on any temporary differences, both tax-

able and deductible, between the carrying amount and the tax base of assets and liabilities. In measuring the deferred tax

assets or liabilities, the manner in which New Venuretec Ltd. expects, at the balance sheet date, to recover or settle the

carrying amount of its assets and liabilities is taken into account.

5.8 Derecognition of financial assets and liabilities

The Company derecognizes a financial asset when contractual rights to the cash flows from the asset expire, or it transfers

the right to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and

rewards of ownership of the financial assets are transferred.

The Group derecognizes a financial liability when its contractual obligations are discharged or cancelled or expire.

5.9 Convertible bonds and convertible notes

Compound financial instruments issued by the Company comprise convertible bonds and convertible notes denominated

in CHF that can be converted to ordinary shares at the option of the holder. The number of shares to be issued is fixed and

does not vary with changes in fair value.

The liability component of compound financial instruments is initially recognized at the fair value of a similar liability

that does not have an equity conversion option. The equity component is initially recognized at the difference between the

fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attrib-

utable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts.

Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortised cost

using the effective interest method. The equity component of a compound financial instrument is not remeasured.

Interest related to the financial liability is recognized in profit or loss. On conversion, the financial liability is reclassified

to equity and no gain or loss is recognized.

52New Venturetec

Financial statements

Notes to the financial statements for the year ended September 30, 2018

5 Summary of significant accounting policies (continued)

5.10 Segmental reporting

IFRS 8 requires entities to define operating segments and segment performance in the financial statements based on infor-

mation used by the chief operating decision-maker. The Investment Advisor is considered to be the chief operating decision-

maker. An operating segment is a group of assets and operations engaged in providing products or services that are subject

to risks and returns that are different from those of other operating segments. The Company invests in venture capital

investments. The investment strategy and the Company’s performance is evaluated on an overall basis and the Company

only invests in companies domiciled in the United States. Thus the sole operating segment of the Company is investing in

venture capital investments. See also note 11 for detailed disclosures.

6 Financial risk management

The Company's investing activities expose it to various types of risk that are associated with the financial instruments and

markets in which it invests:

– market risk, includes currency risk, interest rate risk and equity price risk

– credit risk and

– liquidity risk

This note presents information about the Company’s exposure to each of these risks, the Company’s objectives,

policies and processes for measuring and managing risk.

The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk manage-

ment framework. All investment decisions for the Company as well as the Net Asset Value computation are made unilater-

ally by the Investment Advisor. The Board of Directors is responsible for ensuring that the Investment Advisor follows the

investment policy set by the Company. However, it should be noted that Peter Friedli is Chairman of the Board of Directors

and acting on behalf of the Investment Advisor and that between him and the Company conflicts of interests may arise.

In order for the Company to be successful in investing in start-up and emerging companies, it must identify potentially

profitable enterprises at an early stage in their development, a process which is very difficult even for people with consider-

able experience in the venture capital field. Furthermore, the Company may compete for investment opportunities with a

number of other venture capital firms. The Company may also invest in businesses which are not start-up or emerging

companies, but which are for various reasons seeking to raise additional capital without making a public offering of securi-

ties. These reasons can include adverse conditions in the public securities markets, or a record of earnings and/or growth,

which is less than adequate for a successful public offering of securities.

6.1 Market risk

Market risk embodies the potential for both loss and gains and includes equity price risk, currency risk and interest rate risk.

The objective of risk management is to manage and control market risk exposures within acceptable parameters, while

optimizing the return on risk.

The objective of New Venturetec Ltd. is to achieve long-term capital appreciation through investments in venture

companies which the Investment Advisor believes offer significant growth opportunities. New Venturetec Ltd. invests in

venture companies. Although the risk of market fluctuation is balanced through the long term investment horizon the risk

of venture capital investments is 100%. The Investment Advisor monitors the capital market and adjusts the Net Asset

Value of the portfolio on a monthly basis.

6.1.1 Equity price risk

Equity price risk is the risk that the fair value of an equity investment will fluctuate as a result of changes in equity prices

(other than those arising from interest rate risk or currency risk), whether caused by factors specific to an individual invest-

ment, its issuer or all factors affecting all instruments traded in the market.

New Venturetec53

Financial statements

6 Financial risk management (continued)

6.1 Market risk (continued)

6.1.1 Equity price risk (continued)

As all of the Company’s equity investments are carried at fair value with fair value changes recognized in the income state-

ment, all changes in market conditions will directly affect profit or loss.

The investments offer the opportunity of significant capital gains, but involve a high degree of business and financial

risks that can result in substantial losses, including the risk of a total un-recoverability of an investment. The risk manage-

ment objectives and policy of New Venturetec Ltd. are to minimize dilution by structuring the initial investment accordingly.

Other protective measures such as liquidation preferences are also part of the Company’s policy. However, the operational

risk remains. The risks of venture capital investments are 100%.

Sensitivity analysis

If for Osiris Therapeutics the price quoted as of September 30, 2018 at the NASDAQ would have increased/decreased by

10% with all other variables held constant profit or loss and equity would have been USD 4,555,000 higher/lower (as of

September 30, 2017: USD 1,887,000).

If for Myriad Genetics the price quoted as of September 30, 2018 at the NASDAQ would have increased/decreased by

10% with all other variables held constant profit or loss and equity would have been USD 736,000 higher/lower (as of

September 30, 2017: 724,000).

For a detailed overview of the investment portfolio and its exposure refer to note 11.

6.1.2 Currency risk

The Company's venture capital investments are denominated in USD and the Net Asset Value per share is also published in

US Dollars. Any investment in other currencies than the US Dollar might lead to positive or negative impacts on the Com-

pany’s performance in its annual financial statements, including its statement of comprehensive income. The Company's

functional currency is CHF. The Company does not hedge any foreign currencies.

As of September 30, 2018 and 2017 only the following monetary financial assets and liabilities are denominated in

currencies other than the functional currency of New Venturetec Ltd.:

Cash and cash Intercompany

equivalents borrowings Net exposure

USD USD USD

30.09.2018

New Venturetec Ltd. – USD nominated 630,342 0 630,342

Net exposure 630,342 0 630,342

30.09.2017

New Venturetec Ltd. – USD nominated 6,930 0 6,930

Venturetec Inc. – CHF nominated 40,645 (35,627) 5,018

Net exposure 47,575 (35,627) 11,948

Sensitivity analysis

As of September 30, 2018, a 10 percent strengthening of the USD against the CHF would have increased net profit and

equity by approx. USD 57,600 (as of September 30, 2017: USD 200). A decrease by 10 percent would have had the same

but opposite impact on net profit and equity. This analysis assumes that all other variables, in particular interest rates, remain

constant.

54New Venturetec

Financial statements

6 Financial risk management (continued)

6.1 Market risk (continued)

6.1.3 Interest rate risk

At the reporting date the Company’s interest bearing financial instruments were as follows:

New

Venturetec Venturetec,

Ltd. Inc. Total

USD USD USD

30.09.2018

Loans payable to related parties (7,392,942) 0 (7,392,942)

Convertible notes (13,331,884) 0 (13,331,884)

Fixed rate instruments (20,724,826) 0 (20,724,826)

Cash and cash equivalents 956,756 0 956,756

Variable rate 956,756 0 956,756

30.09.2017

Loans payable to related parties (6,269,231) 0 (6,269,231)

Convertible bonds (15,532,517) 0 (15,532,517)

Fixed rate instruments (21,801,748) 0 (21,801,748)

Cash and cash equivalents 21,600 1,971,809 1,993,409

Variable rate 21,600 1,971,809 1,993,409

Fair value sensitivity analysis for fixed rate instruments

The group’s loans payable and liability portion of the convertible bond are carried at amortized cost. They are therefore not

subject to interest rate risk, given that neither the carrying amount nor the future cash flows will fluctuate because of a

change in market interest rates.

Cash flow sensitivity analysis for variable rate instruments

An increase of 100 basis points in interest rates at the reporting date would have decreased profit and loss by USD 15,000

(prior year: increased USD 20,000). A decrease by 100 basis points would have had the same but opposite impact on profit

and loss. This analysis assumes that all other variables, in particular foreign currency rates, remain constant.

The Company does not hedge any interest rate risk exposure.

Notes to the financial statements for the year ended September 30, 2018

New Venturetec55

Financial statements

6 Financial risk management (continued)

6.2 Credit risk

Credit risk is the risk that a counterparty will fail to discharge an obligation or commitment that it has entered into with the

Company.

As at September 30, 2018, only cash and cash equivalents and other accounts receivables as per following table were

exposed to credit risks. The carrying amounts of these assets represent their maximum credit risk exposure.

New Venturetec Venturetec,

Ltd. Inc. Total

USD USD USD

30.09.2018

Cash and cash equivalents 956,756 0 956,756

Total 956,756 0 956,756

30.09.2017

Cash and cash equivalents 21,600 1,971,809 1,993,409

Total 21,600 1,971,809 1,993,409

Cash and cash equivalents are deposited in banks and financial institution with a rating equivalent to “A” or higher on S&P

ratings.

6.3 Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. Currently most

of the liabilities are due to Peter Friedli and it is not expected that they will be called upon prior to the successful settlement

of venture capital investments. The investments in Osiris and Myriad, as publicly traded companies, could be disposed of

if required. Nevertheless, Peter Friedli is Chairman and a member of the Board of Directors of Osiris Therapeutics and

therefore subject to certain trading restrictions. These trading restrictions are also applicable to New Venturetec Ltd. and

may have a negative impact on the liquidity of the Company.

The following table shows an analysis of the remaining contractual and undiscounted maturities of financial liabilities:

New

Venturetec Venturetec, Less than 3 months 1 year to

Ltd. Inc. Total 3 months to a year 2 years

USD USD USD USD USD USD

30.09.2017

Accrued advisory fees 77,280 0 77,280 77,280 0 0

Other accrued expenses 163,208 0 163,208 163,208 0 0

Loans payable to related parties 7,264,747 0 7,264,747 0 6,331,002 933,745

Convertible notes 13,095,943 0 13,095,943 12,059,728 42,501 993,714

Total 20,601,178 0 20,601,178 12,300,216 6,373,503 1,927,459

30.09.2017

Accrued advisory fees 0 23,687 23,687 23,687 0 0

Other accrued expenses 178,753 0 178,753 178,753 0 0

Loans payable to related parties 7,077,205 0 7,077,205 0 7,077,205 0

Convertible bonds 15,544,309 0 15,544,309 0 15,544,309 0

Total 22,800,267 23,687 22,823,954 202,440 22,621,514 0

56New Venturetec

Financial statements

Notes to the balance sheet

7 Cash and cash equivalents

30.09.2018 30.09.2017

USD USD

Cash at banks 956,756 21,600

Cash and cash equivalents 956,756 21,600

As of September 30, 2018, cash and cash equivalents are mainly held in CHF and USD.

8 Other accounts receivabe

30.09.2018 30.09.2017

USD USD

VAT Receivable 6,383 6,325

Other accounts receivable 6,383 6,325

9 Detailed information on non-consolidated and dissolved subsidiary Venturetec Inc.

New Venturetec Ltd. has dissolved its fully owned subsidiary Venturetec Inc., Tortola, as of April 1, 2018 and transferred all

assets held by the dissolved subsidiary to its direct ownership during the second half of the financial year ending September

30, 2018. As of September 30, 2018, New Venturetec Ltd. holds all of its venture capital investments directly.

Prior to the dissolution of Venturetec Inc., New Venturetec Ltd. held its investments through Venturetec Inc. Based on

the requirements of IFRS 10, the 100% owned legal subsidiary Venturetec Inc., Tortola was considered to meet the defini-

tion of an investment entity for IFRS purposes, and was to be fair valued and classified as level 2 investment.

9.1 Investment in non-consolidated (dissolved) subsidiary at fair value through profit or loss

This caption previously included the Company's wholly owned and dissolved subsidiary Venturetec Inc, which was dissolved

on Arpil 1, 2018, measured at fair value and classified as level 2 investment. The fair value of the investment in non-con-

solidated subsidiary is determined as the adjusted net assets of that subsidiary as the underlying assets and liabilities carried

in that subsidiary equal or approximate fair value. As the subsidiary holds mostly shares in listed investments, there is no

liquidity discount to be applied.

2017/18 2016/17

USD USD

Opening Balance as of October 1 28,062,042 1

Capital contribution through conversion of debt 0 29,000,000

Profit / (loss) on investment in non-consolidated subsidiary 23,658,007 1 (937,959) 1

Net assets transferred to the direct ownership of New Venturetec Ltd. upon dissolution (51,720,049) 0

Ending balance as at September 30 0 28,062,042

1 Including FX loss on translation of USD 966,478 (Prior year: FX profit of USD 45,578)

Notes to the financial statements for the year ended September 30, 2018

New Venturetec57

Financial statements

9 Detailed information on non-consolidated and dissolved subsidiary Venturetec Inc. (continued)

9.2 Reconciliation of the fair value of the (dissolved) subsidiary

The following table presents a reconciliation of the fair value of the dissolved Venturetec Inc. as reported by New Venturetec Ltd.

to the underlying assets and liabilities held by the subsidiary and transferred to the direct ownership of New Venturetec Ltd.

Current year values

as transferred to

New Venturetec September 30,

Fair value of Venturetec Inc. Ltd. 2017

USD USD

Venture capital investments 48,897,840 26,111,185

Cash and cash equivalents 737,815 1,971,808

Other accounts receivable 0 53,962

Accrued advisory fees (48,916) (23,687)

Other accrued expenses 0 (15,599)

Current account receivable from / (payable to) New Venturetec Ltd. (shareholder) 2,133,310 (35,627)

Total fair value of subsidiary 51,720,049 1 28,062,042

9.3 Venture capital investments held by the dissolved non-consolidated subsidiary

9.3.1 Movements of cost and changes in fair value, current year

Transferred to

New

Cost Venturetec Cost Fair value

01.10.2017 Additions Disposals Ltd. 30.09.2018 30.09.2018

USD USD USD USD USD USD

Biotechnology

Osiris Therapeutics 24,173,023 0 0 (24,173,023) 0 0

Myriad Genetics 5,868,501 0 (880,200) (4,988,301) 0 0

Total Investments 30,041,524 0 (880,200) (29,161,324) 0 0

Cumulative fair Transferred Cumulative

value to New fair value

adjustments Venturetec adjustments

01.10.2017 Gains Losses Disposals 2 Ltd. 30.09.2018

USD USD USD USD USD USD

Biotechnology

Osiris Therapeutics (5,297,838) 22,568,155 3 0 0 (17,270,317) 0

Myriad Genetics 1,367,499 1,225,952 4 0 (127,252) (2,466,199) 0

Total investments (3,930,339) 23,794,107 0 (127,252) (19,736,516) 0

1 Reflects net assets transferred to the direct ownership of New Venturetec Ltd. upon dissolution.2 Generally, a positive amount reflects cumulative loss on disposal of an investment, a negative amount a cumulative realized gain on disposal

of an investment.3 Based on quoted price of the Osiris Therapeutics shares on NASDAQ (OSIR).4 Based on quoted price of the Myriad Genetics shares on NASDAQ (MYGN).

58New Venturetec

Financial statements

Notes to the financial statements for the year ended September 30, 2018

9 Detailed information on non-consolidated and dissolved subsidiary Venturetec Inc. (continued)

9.3 Venture capital investments held by the dissolved non-consolidated subsidiary (continued)

9.3.2 Movements of cost and changes in fair value, prior year

Cost Cost Fair value

01.10.2016 Additions Disposals 30.09.2017 30.09.2017

USD USD USD USD USD

Biotechnology

Osiris Therapeutics 24,173,023 0 0 24,173,023 18,875,185

Myriad Genetics 5,868,501 0 0 5,868,501 7,236,000

Total Investments 30,041,524 0 0 30,041,524 26,111,185

Cumulative fair Cumulative fair

value value

adjustments adjustments

01.10.2016 Gains Losses Disposals 1 30.09.2017

USD USD USD USD USD

Biotechnology

Osiris Therapeutics (3,820,650) 0 (1,477,188) 2 0 (5,297,838)

Myriad Genetics (1,752,501) 3,120,000 3 0 1,367,499

Total investments (5,573,151) 3,120,000 (1,477,188) 0 (3,930,339)

1 Generally, a positive amount reflects cumulative loss on disposal of an investment, a negative amount a cumulative realized gain on disposal of an investment.

2 Based on quoted price of the Osiris Therapeutics shares on Pink OTC Markets Inc. system (OSIR).3 Based on quoted price of the Myriad Genetics shares on NASDAQ (MYGN).

New Venturetec59

Financial statements

10 Financial instruments and fair value

10.1 Fair value information

Fair values are measured using the following fair value hierarchy that reflects the significance of the inputs used in making

the measurements:

– Level 1: Quoted market price (unadjusted) in an active market for an identical instrument.

– Level 2: Valuation techniques based on observable inputs, either directly (i.e. as prices) or indirectly (i.e. derived from

prices). This category includes instruments valued using: quoted market prices in active markets for similar instru-

ments; quoted prices for identical or similar instruments in markets that are considered less than active; or other

valuation techniques where all significant inputs are directly or indirectly observable from market data.

– Level 3: Valuation techniques using significant unobservable inputs. This category includes all instruments where the

valuation technique includes inputs not based on observable data and the unobservable inputs have a significant

effect on the instrument’s valuation.

Fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices

or dealer price quotations.

For all other financial instruments, fair values are determined using valuation techniques.

Valuation techniques to estimate the fair values include net present value and discounted cash flow models, comparison

to similar instruments for which market observable prices exist if applicable, Black-Scholes and polynomial option pricing

models and other valuation models. Assumptions and inputs used in valuation techniques include risk-free and risk adjusted

interest rates and other premia used in estimating discount rates. The objective of valuation techniques is to arrive at a fair

value determination that reflects the price of the financial instrument at the reporting date that would have been determined

by market participants acting at arm’s length.

60New Venturetec

Financial statements

Notes to the financial statements for the year ended September 30, 2018

10 Financial instruments and fair value (continued)

10.2 Categories of financial instruments and fair value

The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their

levels in the fair value hierarchy. It does not include fair value information for financial assets and financial liabilities not

measured at fair value if the carrying amount is a reasonable approximation of fair value.

30.09.2018 Carrying Fair value

amount Level 1 Level 2 Level 3 Total

USD USD USD USD USD

Cash and cash equivalents 956,756

Total loans and receivables 956,756

Venture capital investments at

fair value through profit or loss 52,906,641 52,906,641 0 0 52,906,641

Total at fair value through profit or loss 52,906,641

Accrued advisory fees 77,280

Other accrued expenses 163,208

Loans payable to related parties 7,392,942 0 0 7,400,924 7,400,924

Convertible notes 13,331,884 0 0 13,341,425 13,341,425

Total financial liabilities at amortized cost 20,965,314

30.09.2017 Carrying Fair value

amount Level 1 Level 2 Level 3 Total

USD USD USD USD USD

Cash and cash equivalents 21,600

Current accounts with non-consolidated

subsidiary 35,627

Total loans and receivables 57,227

Investments in non-consolidated subsidiary

at fair value through profit or loss 28,062,042 0 28,062,042 0 28,062,042

Total at fair value through profit or loss 28,062,042

Other accrued expenses 178,753

Loans payable to related parties 6,471,413 0 0 6,471,413 6,471,413

Convertible bonds 15,959,264 0 0 15,567,145 15,567,145

Total financial liabilities at amortized cost 22,609,430

Due to their short maturity, the carrying amounts of cash and cash equivalents, current accounts with non-consolidated

subsidiary, accrued advisory fees and other accrued expenses approximate fair value.

For the determination of the fair value of the venture capital investments refer to notes 5.2 and 11.

For the determination of the fair value of the investment in non-consolidated subsidiary refer to notes 5.2 and 9.

The fair value of the loans payable to related party and convertible bonds/notes is determined by discounting the future

contractual cash flows. For loans payable to related party and the convertible bonds/notes in the year ended September 30, 2018,

the applied discount factor of 12.2% is determined based on the Capital Asset Pricing Model (CAPM) (Previous year ended

September 30, 2017: 12.9%).

New Venturetec61

Financial statements

11 Venture capital investments, held by New Venturetec Ltd.

11.1 List of venture capital investments

Approximate Approximate

paid-in capital percentage held

30.09.2018 30.09.2017 30.09.2018 30.09.2017

Biotechnology Place of business USD million USD million % %

Osiris Therapeutics USA 284 284 11.9 11.9 1

Myriad Genetics USA 916 852 0.2 0.3 1

As of September 30, 2018, the Company's venture capital investments in early stage companies are primarily in the form

of common or preferred shares. As of September 30, 2017, the Company held its venture capital investments through the

wholly-owned subsidiary Venturetec Inc.

11.2 Movements of cost and changes in fair value

Cost as

transferred from Cost Fair value

Venturetec Inc. 2 Additions Disposals 30.09.2018 30.09.2018

USD USD USD USD USD

Biotechnology

Osiris Therapeutics 41,443,340 0 0 41,443,340 45,546,641

Myriad Genetics 7,454,500 0 (293,425) 7,161,075 7,360,000

Total Investments 48,897,840 0 (293,425) 48,604,415 52,906,641

Cumulative fair

value

Translation adjustments

Gains Losses Disposals 3 adjustments 30.09.2018

USD USD USD USD USD

Biotechnology

Osiris Therapeutics 3,795,602 4 0 0 307,699 4,103,301

Myriad Genetics 260,939 5 0 (144,911) 82,897 198,925

Total investments 4,056,541 0 (144,911) 390,596 4,302,226

1 As of September 30, 2017, the investments were held through the wholly-owned subsidiary Venturetec, Inc.2 The amounts shown as cost reflect the fair value of the transferred items as of the date of the transfers took place (Historical cost as acquired

by the dissolved subsidiary amounted to USD 29,161,324 and cumulative fair value adjustments amounted to USD 19,736,516)3 Generally, a positive amount reflects cumulative loss on disposal of an investment, a negative amount a cumulative realized gain on disposal

of an investment.4 Based on quoted price of the Osiris Therapeutics shares on NASDAQ (OSIR).5 Based on quoted price of the Myriad Genetics shares on NASDAQ (MYGN).

62New Venturetec

Financial statements

Notes to the financial statements for the year ended September 30, 2018

11 Venture capital investments, held by New Venturetec Ltd. (continued)

11.2 Movements of cost and changes in fair value (continued)

Osiris Therapeutics, Inc. (“Osiris”), New Venturetec's major investment, identified accounting errors during the course of its ongo-

ingreview of its accounting for revenue recognition. This fact was previously disclosed in November 2015 in Osiris' Quarterly Report

on Form 10-Q for the quarter ended September 30, 2015 and its Report on Form 8-K filed with the SEC on November 20, 2015.

The trade of the common stock of Osiris on the NASDAQ Stock Market was suspended at the opening of business on

March, 14,2017 and Osiris common stock was consequently delisted from NASDAQ as a result that Osiris was not current

with its financial statements and therefore SEC filings. The common stock of Osiris was further quoted on the Pink OTC

Markets Inc. system, referred to as the "pink sheets".

On March 27, 2017, Osiris announced that it completed the restatement of its 2014 financial statements by filing an

amended Annual Report on Form 10-K/A for 2014 with the SEC.

On March 28, 2018, Osiris published its financial statements for the years 2015, 2016 and 2017 and filed Form 10-K

with the SEC and consequently brought its SEC filing up to date.

Osiris was re-listed on The Nasdaq Global Market (NASDAQ) on August 1, 2018 and the trading of Osiris's common

stock started same day under the ticker symbol "OSIR".

New Venturetec63

Financial statements

12 Loans payable to related parties

Year ended Year ended

September September

30, 2018 30, 2017

USD USD

Carrying amount of liability carried forward as of October 1 6,471,413 6,634,399

Proceeds from increase of loans 1,040,582 0

Interest paid by New Venturetec Ltd. (153,031) 0

Total changes from financing cash flows 887,551 0

Suspended redemption of convertible bonds and conversion into loan payable to

related parties (non-cash) 12,486,993 1 0

Conversion into convertible note (non-cash) (12,319,200) 1 0

Shareholders' contribution in relation to non-market interest rate (827,860) 2 (536,502) 2

Interest expenses for the current period 1,226,662 867,302

Interest paid by non-consolidated subsidiary (252,539) (382,756)

Interest paid through the offsetting with accounts receivable from related party 0 (133,360)

Currency translation adjustment (280,078) 22,330

Total other changes (non-cash) 33,978 (162,986)

Carrying amount of liability as of the end of the period 7,392,942 6,471,413

Thereof current 6,401,723 6,471,413

Thereof non-current 991,219 0

1 CHF 12,000,000 of the convertible bonds, which have been subscribed by Peter Friedli, the chairman of New Venturetec Ltd, is subordinated. In accordance with the terms of the subordination agreement, it was agreed to suspend the redemption of this amount which was due January 23, 2018 and to keep as loan payable by applying same terms. On April 20, 2018, the suspended amount was converted into a convertible note by applying same terms. See notes 13 and 14.

2 Given the current situation of the company, the market interest rate used to value the loans at recognition date or extension of their maturity amounted to 12.2% (Prior year: 12.9%). The difference between the amount lent and the fair value of the loans are recognized as a share-holders’ contribution in equity.

64New Venturetec

Financial statements

Notes to the financial statements for the year ended September 30, 2018

13 Convertible Notes

List of Convertible Notes as of September 30, 2018

Aggregated principal Date of Interest Conversion

amount issuance rate % Maturity Convertible into shares of the Company price

CHF 1,125,000 22.01.18 4.00 31.12.19 Voluntarily, at the discretion of the holder CHF 9.50 1

CHF 12,000,000 20.04.18 4.00 30.11.18 Voluntarily, at the discretion of the holder CHF 9.50 2

1 Andreas von Sprecher, member of the Board of New Venturetec Ltd. subscribed to CHF 50,000 of the convertible notes

issued January 22, 2018. In accordance with the terms and conditions of the convertible notes, Andreas von Sprecher

has the right to voluntarily convert his holdings into 5,263 shares of New Venturetec Ltd.

2 Peter Friedli, the chairman of New Venturetec Ltd., subscribed to CHF 12,000,000 of the convertible notes issued April

20, 2018. In accordance with the terms and conditions of the convertible notes, Peter Friedli has the right to voluntarily

convert his holdings into 1,263,157 shares of New Venturetec Ltd. The principal amount is subordinated and was drawn

by conversion of debt, resulting from the suspended redemption of convertible bonds due to Peter Friedli. See note 12.

Year ended Year ended

September 30, September 30,

Convertible Notes 2018 2017

USD USD

Carrying amount of liability carried forward as of October 1 0 0

Proceeds from issue of convertible notes (CHF 1,125,000) 1,170,656 0

Interest paid (20,238) 0

Total changes from financing cash flows 1,150,418 0

Issue of convertible notes (CHF 12,000,000), drawn by conversion

of debt (non-cash) 12,319,200 0

Conversion option recognized in equity (741,767) 0

Interest expenses for the current period 719,120 3 0

FX Adjustments (115,087) 0

Total other changes (non-cash) 12,181,466 0

Carrying amount of liability as of the end of the period 13,331,884 0

Thereof current 12,278,526 0

Thereof non-current 1,053,358 0

3 Given the current situation of the company, the market interest rate used to value the loans at recognition date amounted

to 12.2%. The difference between the amount lent and the fair value of the liability component of the convertible notes

on initial recognition has been recognized as a conversion option in equity.

New Venturetec65

Financial statements

14 Convertible Bonds

Year ended Year ended

September 30, September 30,

2018 2017

USD USD

Carrying amount of liability carried forward as of October 1 15,959,264 15,868,991

Interests paid out (617,070) (609,391)

Redemption in cash on due date (3,178,980) 0

Total changes from financing cash flows (3,796,050) (609,391)

Interest expenses for the current period 210,514 662,508

Suspended redemption of convertible bonds and conversion

into loan payable to related parties (non-cash) (12,486,993) 0

FX Adjustments 113,265 37,156

Total other changes (non-cash) (12,163,214) 699,664

Carrying amount of liability as of the end of the period 0 15,959,264

On January 23, 2014, New Venturetec Ltd. issued convertible bonds with the aggregated principal amount of CHF 15,055,000

and an interest rate of 4% per annum. The bonds were convertible at a conversion price of CHF 9.50 per share. The bonds

became payable on January 23, 2018, whereby none of the bonds were converted.

CHF 12,000,000 of the convertible bonds, which have been subscribed by Peter Friedli, the chairman of New Venturetec

Ltd, is subordinated. In accordance with the terms of the subordination agreement, it was agreed to suspend the redemption

of this amount due to Peter Friedli and to keep as loan payable by applying same terms. On April 20, 2018, the suspended

amount was converted into a convertible note by applying same terms. See Note 13.

1 Includes principal amount and accrued interests payable on January 23, 2018

66New Venturetec

Financial statements

Notes to the financial statements for the year ended September 30, 2018

15 Share capital and capital management

15.1 History of changes in share capital

The share capital as of September 30, 2018 of CHF 30,000,000 (USD 20,785,350) consisted of 5,000,000 bearer shares

with a par value of CHF 6.00 each fully paid in.

The conversion options / own equity instruments comprise the amount allocated to the equity component for the

convertible notes issued by New Venturetec Ltd. in January 2018 and April 2018 (see note 13).

Conditional share capital: The share capital may be increased by a maximum amount of CHF 10,200,000 through the

issue of a maximum of 1,700,000 registered shares to be fully paid-in with a nominal value of CHF 6.00 each through the

exercise of conversion or option rights in connection with convertible notes or bonds or similar instruments that are or may

be issued by the Company.

15.2 Significant shareholders

As of September 30, 2018 the following shareholders filed a holding of 3% or more of the total outstanding shares of the

Company to SIX Swiss Exchange:

Between 5% and 10%

– Reinhard and Rosa Siegrist, with Georges Mari and Rossier, Mari & Associates AG, Zurich, all together as a group

represented by Georges Mari, Zurich

– Alexander and Chantal Biner, through 4iS Four Eyes AG, St. Gallen

Between 3% and 5%

– RM Strategic Fund

– HERCULIS Partners “Aries” Fund, Liechtenstein

15.3. Capital management

The objective of the Company is to achieve long term capital appreciation through equity and debt investments in start-up,

emerging and growth companies which the Company believes offer significant growth opportunities. The Company iden-

tifies successful and promising companies and then actively work with management over a five to ten year time horizon.

The investment decisions will be based upon (i) the Company’s ability to identify companies which can successfully

utilize capital at an early stage in their life cycle, (ii) carefully selected or assessed management teams, (iii) strategic advice

for positioning such companies in high growth markets promising to generate public interest at a future date and (iv) an

influence on the portfolio companies.

The Company measures its performance based on the development of its Net Asset Value (NAV). The NAV per share

is a figure which is calculated on a regular, consistent basis to approximately reflect the intrinsic value of one share of the

Company. The NAV is expected to serve as an indicator for the price of the shares of the Company. The NAV per share is

calculated on a monthly basis by dividing the value of the net assets of the Company (the value of its assets less its liabilities)

by the total number of shares outstanding.

It is not the aim of the Company to leverage its equity for the purpose of making investments. Nevertheless, the Com-

pany may carry some debt in order to balance the availability of liquidity and to avoid dilution of its investments. The

Company’s debt financing is primarily provided by Peter Friedli through accrued management fees and accrued performance

fees that were converted into loans payable (see note 18.3) and convertible notes (see note 13).

It is not the Company’s policy to pay out any dividends.

New Venturetec67

Financial statements

Notes to the statement of comprehensive income

16 Income taxes

Year ended Year ended

September 30, September 30,

Reconciliation of income tax calculated with the applicable tax rate: 2018 2017

USD USD

Profit for the year 26,055,742 242,183

Applicable tax rate 7.83% 7.83%

Expected income tax expense (2,040,165) (18,963)

Expenses not deductible for tax purposes (99,858) (30)

Recognition of previously unrecognized tax losses 2,140,023 18,993

Total income tax for the year 0 0

As at September 30, 2018, the Company had USD 52.5 million remaining tax loss carry forwards (September 30, 2017: USD

80.8 million). Unused tax loss carry forward expire within 7 years, i.e. USD 52.5 million on September 30, 2023.

No tax asset on the tax loss carry forward was recognized due to the uncertainty related to the current economic

environment and the high risk related to the venture capital business.

68New Venturetec

Financial statements

Notes to the financial statements for the year ended September 30, 2018

Note to the cash flow statement

17 Additional information to the cash flow statement

Significant non-cash transactions:

Related to the year ended September 30, 2018

– USD 12,486,993 (CHF 12,000,000) of the convertible bonds which became due January 23, 2018, was suspended

from redemption and was converted into a loan payable to related parties. On April 20, 2018, this loan was converted

into convertible note by the conversion of debt.

– Venture Capital Investments of USD 48,897,840 were transferred from the dissolved non-consolidated subsidiary

to New Venturetec Ltd.

– Current accounts payable to the dissolved non-consolidated subsidiary in the amount of USD 2,133,310 were

offset against redemption of net asset value of the subsidiary in course of its dissolution.

Related to the year ended September 30, 2017

– none

New Venturetec69

Financial statements

Other notes

18 Related parties

18.1 Investment Advisor

Since January 1, 2013, Madison Investment Advisor, Inc., Panama is the investment advisor of New Venturetec Ltd. The

investment advisor supports and advises the Board on specific duties with regards to the selection, purchase, sale, structure

and disposal of the subsidiary’s investments. Starting October 1, 2014, the Board of Directors and the Investment Advisor

agreed to an all inclusive fee of 1.00% of the net asset value per annum without any additional costs to be reimbursed by

the Company. Advisory fees for the investment advisor were recognized in and paid by the non-consolidated subsidiary,

Venturetec, Inc., until June 30, 2018, as Venturetec, Inc, was the contracting partner of the advisory agreement with the

investment advisor. Due to the dissolution of Venturetec Inc., New Venturetec Ltd. entered as new contracting partner into

the advisory agreement effective July 1, 2018. The advisory fees for the investment advisor are recognized in and paid by

New Venturetec Ltd. starting July 1, 2018, which are included within New Venturetec Ltd.’s profit or loss statement.

Peter Friedli is the President and owner of Madison Investment Advisor, Inc., Panama and at the same time is the Chair-

man of the Board of Directors of New Venturetec Ltd. Furthermore, he is also Chairman of the Board of Directors of Osiris

Therapeutics Inc. As Chairman of the Board of Directors of the Investment Advisor of New Venturetec Ltd. and other invest-

ment companies, he may be able to exercise significant influence or control over the Company’s investees.

18.2 Board of Directors

USD 40,998 were accrued as fees to the Board Directors for the period under review and USD 51,235 were paid out related

to accrued fees for prior periods (2017: USD 50,597 accrued and USD 50,597 paid out). These fees are included in the

administration cost, however they were effectively paid

70New Venturetec

Financial statements

Notes to the financial statements for the year ended September 30, 2018

18 Related parties (continued)

18.3 Loans and convertible notes / bonds payable to related parties

All loans payable to related parties were entered into with Peter Friedli at their issuance date. On August 21, 2018, Peter

Friedli assigned all promissory notes and convertible notes payable by the Company to him to Friedli Corporate Finance

GmbH, Zug with all rights and obligations. Friedli Corporate Finance GmbH is fully owned and controlled by Peter Friedli

and he is the beneficial owner.

Accrued

Loans payable to related parties as of 30.09.2018 Principal Interests Total

USD USD USD

4% secured promissory note 1 4 5 6 4,892,579 51,847 4,944,426

4% secured promissory note 2 4 5 6 1,442,016 15,281 1,457,297

4% + 3% secured promissory note 3 4 5 959,977 31,242 991,219

Total 7,294,572 98,370 7,392,942

Thereof current 6,334,595 67,128 6,401,723

Thereof non-current 959,977 31,242 991,219

Accrued

Loans payable to related parties as of 30.09.2017 Principal Interests Total

USD USD USD

4% secured promissory note 1 4 5 6 4,842,094 156,157 4,998,251

4% secured promissory note 2 4 5 6 1,427,137 46,025 1,473,162

Total 6,269,231 202,182 6,471,413

Accrued

Convertible notes payable to related parties as of 30.09.2018 Principal Interests Total

USD USD USD

4% convertible notes (30.11.18 – current) payable to Peter Friedli 6 12,061,194 217,332 12,278,526

4% convertible notes (31.12.19 – non current) payable to Andreas von Sprecher 46,307 509 46,816

Accrued

Convertible bonds payable to related parties as of 30.09.2017 Principal Interests Total

USD USD USD

4% convertible bonds payable to Peter Friedli 6 12,380,618 340,150 12,720,768

4% convertible bonds payable to Andreas von Sprecher 51,586 1,417 53,003

1 On May 2, 2014, outstanding promissory notes of CHF 2,816,269 and CHF 2,273,041 due to Peter Friedli were

combined and replaced by a 4% secured promissory note due to Peter Friedli in the total amount of CHF 5,089,310,

due on December 31, 2014. The term of the note will be automatically extended by six months on each consecutive

maturity date and the current due date is June 30, 2019. The note can be terminated on each maturity date by either

party upon a 3 months written notice.

2 On April 23, 2015, New Venturetec Ltd. issued a 4% secured promissory note due to Peter Friedli in the amount of CHF

1,500,000, due on December 31, 2015. The term of the note will be automatically extended by six months on each

consecutive maturity date and the current date is June 30, 2019. The note can be terminated on each maturity date by

either party upon a 3 months written notice.

3 On January 22, 2018, New Venturetec Ltd. issued a 4% secured promissory note due to Peter Friedli in the amount of

CHF 1,000,000, due on December 31, 2019, redeemable with an annualized premium of 3% per annum.

New Venturetec71

Financial statements

18 Related parties (continued)

18.3 Loans and convertible notes / bonds payable to related parties (continued)

4 Given the current situation of the company, the market interest rate used to value the loans at the last extension date

amounted to 12.2% (September 30, 2017: 12.9%). The difference between the amount lent and the fair value of the

promissory notes on initial recognition has been recognized as shareholders’ contribution in equity.

5 Secured by all tangible and intangible assets of New Venturetec Ltd.

6 Subject to subordination agreement with regard to the capital loss in the statutory financial statements of New Venturetec

Ltd. in accordance with Art. 725 para. 1 CO. Therefore, Peter Friedli has no right to demand satisfaction from these

collaterals for the duration of the subordination agreement. The subordination agreement is only terminated if

New Venturetec Ltd. is not in the situation of a capital loss in accordance with Art. 725 para. 1 CO anymore. See also

note 20.

18.4 Interests on loans, convertible notes and bonds payable to related parties

During the reporting period under review, interests on loans, convertible notes and bonds payable to related parties were

recorded in profit or loss as follows:

Year ended Year ended

Interests on loans and convertible bonds payable to related parties 30.09.2018 30.09.2017

USD USD

4% secured promissory notes to Peter Friedli 792,344 751,264

4%+3% secured promissory notes to Peter Friedli 78,801 0

4% loan related to suspended redemption due to Peter Friedli 355,519 0

4% convertible note to Peter Friedli 635,214 0

4% convertible note to Andreas von Sprecher 3,729 0

4% convertible bonds to Peter Friedli 167,796 528,071

4% convertible bonds to Andreas von Sprecher 699 2,200

Total interests on loans from related parties 2,034,102 1,281,535

18.5 Related party transactions

– Interest on loans payable and convertible bonds to related parties in the amount of USD 2,034,102 (previous period:

USD 1,281,535) were recognized in the reporting period, whereof USD 900,372 (previous period USD 754,475) was

paid out through either New Venturetec Ltd. or its non-consolidated, dissolved subsidiary. The difference of

USD 1,123,730 (previous period: USD 527,060) reflects the amortization of the difference between the fair value

of the loans payable and their amortized cost at the time when the maturity date of the loans were extended.

See note 18.3.

– USD 40,998 were accrued as fees to the Board Directors for the period under review and USD 51,235 were paid out

related to accrued fees for prior periods (2017: USD 50,597 accrued and USD 50,597 paid out).

– Advisory fees, due to Madison Investment Advisor, in the total amount of USD 193,647 were recognized for the invest-

ment advisor for the year ended September 30, 2018 either in New Venturetec Ltd. (USD 77,734) or its nonconsolidated,

dissolved subsidiary (USD 115,940) (previous period: Total advisory fees USD 69,065, of which USD 52,447 was

due to Madison Investment Advisor).

72New Venturetec

Financial statements

Notes to the financial statements for the year ended September 30, 2018

19 Earnings per Share

The calculation of diluted earnings per share has been based on the following profit attributable to ordinary shareholders

and the weighted-average number of ordinary shares outstanding after adjustment for the effects of all dilutive potential

ordinary shares.

Year ended Year ended

September 30, September 30,

2018 2017

USD USD

Proft attributable to ordinary shareholders (basic) 26,055,742 242,183

Interest expenses on convertible bonds, net of tax 929,632 662,508

Profit attributable to ordinary shareholders (diluted) 26,985,374 904,691

Weighted-average number of ordinary shares

– outstanding as of September 30 (basic) 5,000,000 5,000,000

– that would be issued at conversion 1,143,950 1,584,737

Total weighted-average number of ordinary shares (diluted) 6,143,950 6,584,737

Earnings per share (basic) 5.21 0.05

Earnings per share (diluted) 4.39 0.14

20 Subsequent events

The financial statements were authorized for issue by the Board of Directors on November 2, 2018.

The subordination agreement which Peter Friedli and the Company have signed on March 16, 2017, addressing the

capital loss shown in previous years balance sheets, is only terminated if New Venturetec Ltd. is not in the situation of a

capital loss in accordance with Art. 725 para 1 CO anymore which itself needs to be evidenced by an audited financial

statement. As per the audited financial statements as of September 30, 2018, issued as of November 2, 2018, this condition

is met and the subordination agreement will be terminated with effective date November 2, 2018.

On November 2, 2018, Peter Friedli and New Venturetec Ltd. agreed to prolong the CHF 12 million convertible note

with following terms: due December 31, 2019; secured; voluntarily convertible at CHF 9.50 per share; interest rate 4% p.a.;

premium 1% p.a. payable at redemption; if converted no premium.

The Board of Directors is not aware of any further events between September 30, 2018 and November 2, 2018, which

would require adjustment to the carrying amounts of the Company's assets and liabilities as of September 30, 2018 or would

require disclosure under this heading.

New Venturetec73

Financial statements

74New Venturetec

Statutory financial statements

Report on the Audit of the Financial Statements

Opinion

We have audited the financial statements of New Venturetec Ltd., which comprise the balance sheet as at 30 September 2018, the income statement for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion the financial statements (pages 78 to 85) for the year ended 30 September 2018 comply with Swiss law and the company’s articles of incorporation.

Basis for Opinion

We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Our responsibilities under those provisions and standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the entity in accordance with the provisions of Swiss law and the require-ments of the Swiss audit profession and we have fulfilled our other ethical responsibilities in accordance with these requirements.

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

Report on Key Audit Matters based on the circular 1/2015 of the Federal Audit Oversight Authority

Dissolution of the non-consolidated subsidiary Venturetec Inc. including valuation of the transferred investments and related disclosures

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Statutory Auditor’s ReportTo the General Meeting of New Venturetec Ltd., Zug

for the year ended September 30, 2018

New Venturetec75

Dissolution of the non-consolidated subsidiary Venturetec Inc. including valuation of the transferred investments and related disclosures

Key Audit Matter

New Venturetec Ltd. has dissolved its fully owned sub-sidiary Venturetec Inc., Tortola, and transferred all assets and liabilities of the dissolved subsidiary to its direct ownership during the second half of the financial year ending September 30, 2018.

The non-consolidated subsidiary Venturetec Inc. was carried by New Venturetec Ltd. at historical costs or lower fair value and was subject to several valuation adjust-ments in the past to reflect the decline in the fair value of the subsidiary.

New Venturetec Ltd. applied the same valuation principles to the transferred assets and liabilities as prior Venturetec Inc. The investments in Osiris Therapeutics, Inc., and Myriad Genetics, Inc., both quoted on NASDAQ, are accounted for on a fair value basis. Other transferred financial assets and liabilities of Venturetec Inc. are stated at amortized cost.

Due to the significance of the transaction and the under-lying direct holdings, we consider the dissolution of the non-consolidated subsidiary Venturetec Inc. including valuation of the transferred investments and related disclosures a key audit matter.

Our response

We inspected the Board Meeting Minutes and Board resolution taken in-light of the dissolution of Venturetec Inc.

We reconciled the transferred assets and liabilities to vouchers and supporting documents, such as quoted prices for the investments, as of transaction date evidenc-ing the transfer from Venturetec Inc. to New Venturetec Ltd.

We received bank confirmations stating the transferred ownership of the NASDAQ quoted shares of Osiris Therapeutics, Inc. and Myriad Genetics, Inc. from Ven-turetec Inc. to New Venturetec Ltd. We also received bank confirmations regarding the investments and bank accounts as per September 30, 2018.

Furthermore, our procedures included, amongst others, obtaining an understanding of the Company’s processes and controls around the valuation of the transferred investments.

We tested the valuation of the investments at year-end by agreeing the quoted prices of the investments to an independent source, which is different from the source used by the Company. We also involved our valuation specialist to evaluate the reliability of the quoted prices with regards to market liquidity.

We further evaluated the appropriateness of disclosures in relation to the dissolution of the non-consolidated subsidiary Venturetec Inc. including valuation of the transferred investments as well as the presentation of the transaction in the financial statements.

For further information on the dissolution of the non-consolidated subsidiary Venturetec Inc. including valuation of the transferred investments and related disclosures refer to note 4 and note 5 to the financial statements on page 81.

Responsibility of the Board of Directors for the Financial Statements

The Board of Directors is responsible for the preparation of the financial statements in accordance with the provisions of Swiss law and the company’s articles of incorporation, and for such internal control as the Board of Directors deter-mines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Statutory financial statements

76New Venturetec

Statutory financial statements

In preparing the financial statements, the Board of Directors is responsible for assessing the entity’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors either intends to liquidate the entity or to cease operations, or has no realistic alternative but to do so.

Auditor’s Responsibilities for the Audit of the Financial StatementsOur objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reason-able assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Swiss law and Swiss Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with Swiss law and Swiss Auditing Standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

– Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepre-sentations, or the override of internal control.

– Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of internal control.

– Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made.

– Conclude on the appropriateness of the Board of Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the entity to cease to continue as a going concern.

We communicate with the Board of Directors or its relevant committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the Board of Directors or its relevant committee with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with the Board of Directors or its relevant committee, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report, unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

New Venturetec77

Statutory financial statements

KPMG AG, Badenerstrasse 172, PO Box, CH-8036 Zurich

KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.

Report on Other Legal and Regulatory Requirements In accordance with article 728a para. 1 item 3 CO and the Swiss Auditing Standard 890, we confirm that an internal control system exists, which has been designed for the preparation of financial statements according to the instructions of the Board of Directors.

We recommend that the financial statements submitted to you be approved.

KPMG AG

Christoph Gröbli Stefan Biland Licensed Audit Expert Licensed Audit Expert Auditor in Charge

Zurich, November 2, 2018

78New Venturetec

Financial statements

Statutory financial statements for the year ended September 30, 2018

Balance sheet

September 30, September 30,

2018 2017

Note CHF CHF

Assets

Cash and cash equivalents 939,151 20,913

Other accounts receivable 3 6,266 6,124

Accounts receivable from investment in subsidiary 0 34,494

Current assets 945,417 61,531

Venture capital investments 4 51,933,159 0

Investment in subsidiary 5 0 27,169,600

Non-current assets 51,933,159 27,169,600

Total assets 52,878,576 27,231,131

Liabilities and equity

Loan payable to related party, interest bearing 6 6,589,310 6,589,310

Convertible notes, interest bearing 7 12,000,000 0

Accrued expenses and deferred income 8 557,206 652,139

Convertible bonds, interest bearing 9 0 15,055,000

Short term liabilities 19,146,516 22,296,449

Loan payable to related party, interest bearing 6 1,000,000 0

Convertible notes, interest bearing 7 1,125,000 0

Long term liabilities 2,125,000 0

Total liabilities 21,271,516 22,296,449

Share capital 10 30,000,000 30,000,000

Legal capital reserves

Reserves from capital contributions 32,500,000 32,500,000

Accumulated losses

Accumulated losses brought forward (57,565,318) (57,805,033)

Net profit for the year 26,672,378 239,715

Shareholders' equity 31,607,060 4,934,682

Total liabilities and shareholders' equity 52,878,576 27,231,131

Statutory financial statements

New Venturetec79

Financial statements

Income statement

Year ended Year ended

September 30, September 30,

2018 2017

Note CHF CHF

Gains on venture capital investments 4 3,958,778 0

Interest income from investment in subsidiary 0 20,440

Reversal of impairment losses on investment in subsidiary 5 24,031,035 0

Reversal of impairment losses on financial assets 0 7,439,310

Total income 27,989,813 7,459,750

Interest expenses 11 (875,900) (865,772)

Foreign exchange losses (7,015) (13)

General and administrative expenses (433,631) (381,918)

Impairment losses on investment in subsidiary 5 0 (5,972,000)

Total expenses (1,316,546) (7,219,703)

Profit before tax 26,673,267 240,047

Direct taxes (889) (332)

Profit after tax 26,672,378 239,715

Statutory financial statements

80New Venturetec

Financial statements

Notes to the statutory financial statements for the year ended September 30, 2018

Statutory financial statements

1 Company information

New Venturetec Ltd., Zug (“the Company”) was formed on July 16, 1997 and incorporated on August 11, 1997 for the

purpose of direct and indirect investments in Swiss and foreign companies, especially in high risk venture capital companies

in the industries of Biotechnology and Technology.

2 Accounting policies

2.1 General principles

These financial statements were prepared according to the provisions of the Swiss Law on Accounting and Financial Reporting

(32nd title of the Swiss Code of Obligations).

The financial line item "investment in subsidiary" in previous year financial statements have been prepared according

to the valuation principle of historical cost. However, impairments were recognised when the useful values of reporting

items permanently fell below their cost values.

The financial line item "venture capital investments" in current year financial statements have been recognized according

to the fair value principle.

2.2 Cash flow statement

As the Company has prepared its financial statements in accordance with the recognised accounting standard IFRS, it has

decided to opt out of preparing a cash flow statement, presenting additional information on interest-bearing liabilities and

audit fees in the notes on a statutory basis.

Information on balance sheet and income statement items

3 Other account receivable

September 30, September 30,

2018 2017

CHF CHF

VAT Receivable 6,266 6,124

Other accounts receivable 6,266 6,124

New Venturetec81

Financial statements

4 Venture capital investments

Year ended Year ended

September 30, September 30,

2018 2017

CHF CHF

Cost as transferred from Venturetec Inc. 48,410,079 1 0

Disposals (435,625) 0

Cost as of the end of the period 47,974,454 0

Gains 3,958,778 0

Losses 0 0

Disposals (73) 0

Cumulative fair value adjustments as of the end of the period 3,958,705 0

Venture capital investments, book value as of the end of the period 51,933,159 0

As of September 30, 2018, New Venturetec Ltd.'s venture capital investments are held in public quoted shares. The Company

currently holds two investments, both quoted at the NASDAQ. The book value reflects their observable market value at

balance sheet date. The adjustment to the market value is recognized in the income statement.

5 Investment in subsidiary

Year ended Year ended

September 30, September 30,

2018 2017

CHF CHF

Book value as of the beginning of the period 27,169,600 5,000,000

Capital contribution through the conversion of debt 0 28,141,600

Impairment profit / (loss) 24,031,035 (5,972,000)

Venture capital investements as transferred to New Venturetec Ltd. (48,410,079) 0

Other assets and liablities as transferred to New Venturetec Ltd. (2,790,556) 0

Investement in subsidiary, book value as of the end of the period 0 27,169,600

New Venturetec Ltd. has dissolved its fully owned subsidiary Venturetec Inc., Tortola, as of April 1, 2018 and transferred all

assets and liabilities held by the dissolved subsidiary to its direct ownership during the second half of the financial year

ending September 30, 2018. As of September 30, 2018, New Venturetec Ltd. holds directly multiple investments and owner-

ship interests in the form of shares.

1 The amount shown as cost reflects the fair value of the assets as at the date the items have been transferred from the dissolved subsidiary. See note 5.

Statutory financial statements

82New Venturetec

Financial statementsStatutory financial statements

Notes to the statutory financial statements for the year ended September 30, 2018

6 Loans payable to related parties, interest bearing

September 30, September 30,

2018 2017

CHF CHF

4% secured promissory note 1 5,089,310 5,089,310

4% secured promissory note 1 1,500,000 1,500,000

4%+3% secured promissory note 2 1,000,000 0

Loan payable to related party 7,589,310 6,589,310

Thereof current 6,589,310 6,589,310

Thereof non-current 1,000,000 0

1 The 4% secured promissory notes are both held by and payable to Peter Friedli through Friedli Corporate Finance GmbH,

Zug. The term of the notes will be automatically extended by six month on each consecutive maturity date and the current

due date is June 30, 2019. The notes can be terminated on each maturity date by either party upon a 3 months written

notice.

Both notes are secured by all tangible and intangible assets of New Venturetec Ltd. However, as at balance sheet date,

the notes due to Friedli are covered by the subordination agreement with regards to the capital loss in accordance with

Art. 725 para. 1 CO. Therefore, Peter Friedli has no right to demand satisfaction from these collaterals for the duration

of the subordination agreement. The subordination agreement is only terminated if New Venturetec Ltd. is not in the

situation of a capital loss in accordance with Art. 725 para. 1 CO anymore. See also note 15.

2 The 4%+3% secured promissory note is held by and payable to Peter Friedli through Friedli Corporate Finance GmbH,

Zug. The note bears a 4% coupons and a 3% premium is payable on maturity date, which is December 31, 2019. The note

is secured by all tangible and intangible assets of New Venturetec Ltd.

7 Convertible notes, interest bearing

List of Convertible Notes as of September 30, 2018

Date of Interest Conversion Aggregated

issuance rate % Maturity Convertible into shares of the Company price principal amount

22.01.18 4.00 31.12.19 Voluntarily, at the discretion of the holder CHF 9.50 CHF 1,125,000 3

20.04.18 4.00 30.11.18 Voluntarily, at the discretion of the holder CHF 9.50 CHF 12,000,000 4

Convertible notes CHF 13,125,000

Thereof current CHF 12,000,000

Thereof non-current CHF 1,125,000

Thereof payable to related persons CHF 12,050,000

3 Andreas von Sprecher, member of the Board of New Venturetec Ltd. subscribed to CHF 50,000 of the convertible notes

issued January 22, 2018. In accordance with the terms and conditions of the convertible notes, Andreas von Sprecher has

the right to voluntarily convert his holdings into 5,263 shares of New Venturetec Ltd.

4 Peter Friedli, the chairman of New Venturetec Ltd., subscribed to CHF 12,000,000 of the convertible notes issued April

20, 2018. In accordance with the terms and conditions of the convertible notes, Peter Friedli has the right to voluntarily

convert his holdings into 1,263,157 shares of New Venturetec Ltd. The principal amount is subordinated and was drawn

by conversion of debt, resulting from the suspended redemption of convertible bonds due to Peter Friedli. See note 9.

New Venturetec83

Financial statements

8 Accrued expenses and deferred income

Year ended Year ended

September 30, September 30,

2018 2 017

CHF CHF

Accrued expenses 160,205 1 173,070 1

Accrued interests 397,001 2 479,069 2

Accrued expenses and deferred income 557,206 652,139

1 thereof payable to governing bodies 100,000 110,0002 thereof payable to related parties 386,251 396,599

9 Convertible bonds, interest bearing

On January 23, 2014, New Venturetec Ltd. issued convertible bonds with the following terms:

– Aggregated principal amount CHF 15,055,000

– Interest rate 4% per annum

– Life 4 years / until January 23, 2018

– Principal amount CHF 5,000

– Conversion Each Bond of CHF 5,000 principal amount is voluntarily convertible into shares

of the Company.

– Conversion price CHF 9.50 per share

The bonds became payable on January 23, 2018, whereby none of the bonds were converted. CHF 12,000,000 of the

convertible bonds, which have been subscribed by Peter Friedli, the chairman of New Venturetec Ltd, is subordinated.

In accordance with the terms of the subordination agreement, it was agreed to suspend the redemption of this amount

due to Peter Friedli and to keep as loan payable by applying same terms. On April 20, 2018, the suspended amount was

converted into a convertible note by applying same terms. See note 7.

Statutory financial statements

84New Venturetec

Statutory financial statements

Notes to the statutory financial statements for the year ended September 30, 2018

10 Share capital and authorized capital

The share capital as of September 30, 2018 in the amount of CHF 30,000,000 consisted of 5,000,000 bearer shares with

a par value of CHF 6.00 each fully paid in (previous year 5,000,000 bearer shares with a par value of CHF 6.00 each, fully

paid in). Contingent share capital: The share capital of the Company may be increased by a maximum amount of

CHF 10,200,000 through the issue of a maximum of 1,700,000 nominal shares to be fully paid-in with a nominal value of

CHF 6.00 each through the exercise of conversion or option rights in connection with notes, bonds or similar instruments

that are or may be issued by the Company.

11 Interest expenses

Year ended Year ended

September 30, September 30,

2018 2017

CHF CHF

Interest expenses on loans to related party (426,462) (263,572)

Interest expenses on convertible notes and bonds (433,357) 1 (602,200) 1

Interest expenses from investment in subsidiary (16,081) 0

Interest expenses (875,900) (865,772)

1 thereof payable to related parties (366,005) (482,000)

New Venturetec85

Statutory financial statements

Other information

12 Full time employees

As of September 30, 2018 and September 30, 2017, the Company does not have any employees.

13 Significant shareholders

At balance sheet date the following shareholders filed a holding of 3% or more of the total outstanding shares to the Com-

pany to SIX Swiss Exchange:

As at September 30, 2018 As at September 30, 2017

Between 5% and 10% Between 5% and 10%

– Reinhard and Rosa Siegrist, with Georges Mari and Rossier, – Reinhard and Rosa Siegrist

Mari & Associates AG, Zurich, all together as a group – Alexander and Chantal Biner, through 4iS

represented by Georges Mari, Zurich Four Eyes AG, St. Gallen

– Alexander and Chantal Biner, through 4iS Four Eyes AG,

St. Gallen

Between 3% and 5% Between 3% and 5%

– RM Strategic Fund – RM Strategic Fund

– HERCULIS Partners “Aries” Fund, Liechtenstein – HERCULIS Partners “Aries” Fund, Liechtenstein

14 Remuneration of, and shares held by the Board of Directors

CHF 40,000 were accrued as fees to the Board Directors for the year under review and CHF 50,000 were paid out related

to accrued fees for prior periods (2017: CHF 50,000 accrued and CHF 50,000 paid). Such fees are due to Andreas von

Sprecher, Member of the Board of New Venturetec Ltd., and Michael Endres, Member of the Board of New Venturetec Ltd.

Peter Friedli, Chairman of the Board of New Venturetec Ltd., was not remunerated for serving on the Board.

Peter Friedli held 103,381 shares and Andreas von Sprecher 3,000 shares of the Company as of September 30, 2018.

No transactions in such shares took place during the year under review.

Peter Friedli, the chairman of New Venturetec Ltd. subscribed to CHF 12,000,000 of the convertible notes. In accordance

with the terms and conditions of the convertible note, Peter Friedli, Chairman of the Board of New Venturetec Ltd. has the

right to voluntarily convert his holdings in the convertible note into 1,263,157 shares of New Venturetec Ltd.

Andreas von Sprecher, member of the Board of New Venturetec Ltd. subscribed to CHF 50,000 of the convertible notes.

In accordance with the terms and conditions of the convertible note, Andreas von Sprecher, member of the Board of New

Venturetec Ltd. has the right to voluntarily convert his holdings in the convertible note into 5,263 shares of New Venturetec Ltd.

15 Events after the balance sheet date

The financial statements were authorized for issue by the Board of Directors on November 2, 2018.

The subordination agreement which Peter Friedli and the Company have signed on March 16, 2017, addressing the

capital loss shown in previous years balance sheets, is only terminated if New Venturetec Ltd. is not in the situation of a

capital loss in accordance with Art. 725 para 1 CO anymore which itself needs to be evidenced by an audited financial

statement. As per the audited financial statements as of September 30, 2018, issued as of November 2, 2018, this condition

is met and the subordination agreement will be terminated with effective date November 2, 2018.

On November 2, 2018, Peter Friedli and New Venturetec Ltd. agreed to prolong the CHF 12 million convertible note

with following terms: due December 31, 2019; secured; voluntarily convertible at CHF 9.50 per share; interest rate 4% p.a.;

premium 1% p.a. payable at redemption; if converted no premium.

The Board of Directors is not aware of any further events between September 30, 2018 and November 2, 2018, which

would require adjustment to the carrying amounts of the Company’s assets and liabilities as of September 30, 2018 or would

require disclosure under this heading.

86New Venturetec

Financial statements

Risk factors of Osiris Therapeutics as per the Osiris Therapeutics annual report 2017The following text is an extract from the Osiris Therapeutics, Inc. annual report for the fiscal year ended December 31,

2017 (Form 10k). The terms “Osiris,” “we,” “us,” and “our” means Osiris Therapeutics, Inc.

Risk FactorsWe are subject to numerous risks and uncertainties. In addition to the other information contained in this report, you

should carefully consider the risks and uncertainties described below. These risks are not the only ones that we may face.

Additional risks not presently known to us or that we currently consider immaterial may also impact our business operations.

Our actual results could differ materially from those anticipated in our forward-looking statements as a result of known and

unknown risks including the risks described below or elsewhere in this report.

Risks Related To Our BusinessOur operating results may fluctuate significantly as a result of a variety of factors, many of which are outside of our

control.

The following factors, among others, may negatively affect our operating results:

– Failure to obtain reimbursement approvals by, and adequate and timely reimbursements from, third-party

payors, such as Medicare and private health plans, for our products;

– Removal of our products from the Federal Supply Schedule or change in the prices that government customers

will pay for our products;

– Our ability to attract and retain key personnel;

– The announcement or introduction of new or improved products by our competitors;

– Our ability to obtain the necessary quantities of human tissue to manufacture our products;

– Our ability to upgrade and develop our systems and infrastructure to accommodate our growth, including

adding more manufacturing capacity to enable us to continue to meet market demand;

– Our ability to manage our relationships with third parties that help us research, develop, manufacture, market and

distribute our products;

– The amount and timing of operating costs and capital expenditures relating to the expansion of our business,

operations and infrastructure;

– Our ability to comply with regulatory requirements related to the marketing, manufacturing and distribution of our

products and product candidates, including FDA regulations; and

– General economic conditions as well as economic conditions specific to the healthcare industry.

We have based our current and future expense levels largely on our investment plans and estimates of future events,

although certain of our expense levels are, to a large extent, fixed. We may be unable to adjust spending in a timely manner

to compensate for any unexpected revenue shortfall. Accordingly, any significant shortfall in revenue relative to our planned

expenditures would have an immediate adverse effect on our business, financial condition and results of operations. Further,

as a strategic response to changes in the competitive environment, we may from time to time make certain pricing, service

or marketing decisions that could have a material adverse effect on our business, financial condition and results of opera-

tions. Due to the foregoing factors, among others, our revenue and operating results are and will remain difficult to forecast.

We have a history of operating losses and may not achieve or sustain profitability.

We have incurred losses in each year since our inception (except fiscal years 2009, 2010, 2011, 2013 and 2017), and

may incur additional losses in the future. As of December 31, 2017, we had an accumulated deficit of approximately $242

million. In earlier years, these losses resulted principally from costs incurred in our R&D programs. In recent years, these

losses resulted principally from our growing sales and marketing expenses, primarily due to the expansion of our sales force

which was internalized in 2014, and from our growing general and administrative expenses. Our general and administrative

expenses included approximately $8.1 million and $9.5 million in 2016 and 2017, respectively, related to the Restatement.

We expect to continue to incur significant operating expenses in the foreseeable future as we seek to:

– continue to add sales, operational and financial personnel either through additional employees or outsourcing, consistent

with expanding our operations and improving our internal control over financial reporting;

– expand our manufacturing capacity;

Annex 1

New Venturetec87

Financial statements

– continue to pursue clinical studies for our products to support our reimbursement efforts;

– manage regulatory issues and requirements related to the marketing, manufacturing and distribution of our products

and product candidates, including issues related to FDA regulation and third-party payor reimbursement; and

– maintain, expand and protect our intellectual property.

The extent of our future operating losses or profits is highly uncertain, and we may not achieve or sustain profitability.

If we are unable to achieve and then maintain profitability, the market value of our common stock will decline.

We continue to expand our sales and marketing capabilities, and there can be no assurance that these efforts will result

in significant increases in sales.

Since 2014, we have been engaged in a major initiative to build and expand our internal sales and marketing capabilities.

As a result, we have and are continuing to hire direct sales personnel for certain of our products to allow us to reach new

customers. Due to the unique nature of our products, we spend significant time and resources on recruiting, training, retaining,

motivating and managing our sales personnel. The increased expenses associated with these selling efforts impact our

operating results, and there can be no assurance that we will be successful in significantly increasing sales of our products.

We may have difficulty managing growth in our business, which could have a material adverse effect on our business,

financial condition and results of operations.

As we expand our activities there will be additional demands on our financial, operational and management resources.

To manage the growth of our operations and personnel, we must both modify our existing operational and financial systems,

procedures and controls and implement new systems, procedures and controls. We must also expand our finance, administrative

and operations staff. Management may be unable to hire, train, retain, motivate and manage necessary personnel or to

identify, manage and exploit existing and potential strategic relationships and market opportunities. The failure

to manage growth effectively could have a material adverse effect on our business, financial condition and results of

operations.

Our revenues depend on obtaining coverage and adequate reimbursement from public and private insurers and health

systems.

Our success depends on the extent to which reimbursement for the costs of our products will be available from third-

party payors, such as government health administration authorities, private health insurers, health maintenance organizations

and pharmacy benefit management companies. A significant number of government and private third-party payors currently

do not provide coverage and reimbursement for our products. If we are not successful in obtaining coverage and adequate

reimbursement for our products from more third-party payors, our ability to sell our products will be adversely affected.

Therefore, our ability to grow our revenues is dependent on our ability to meet the requirements for coverage of additional

third-party payors, and to negotiate acceptable reimbursement with such payors once our products have been approved

for coverage. Even if we do succeed in obtaining widespread coverage and adequate reimbursement for our products, future

changes in coverage and reimbursement policies could have a negative impact on our business, financial condition and

results of operations.

Our products may have higher costs than more traditional products, due to the higher cost and complexity associated

with their research, development and production, and the complexity associated with their distribution. This higher cost

andcomplexity can make it more difficult to obtain adequate coverage and reimbursement.

Our products may have higher costs or fees associated with them compared with more traditional products, due to the

higher cost and complexity associated with their research, development and production, and the complexity associated with

their distribution–which requires special handling, storage and shipment procedures and protocols. This, in turn, makes it

more difficult for us to obtain approval for coverage and reimbursement from third-party payors for our products and the

procedures in which they are used, particularly if we cannot demonstrate a favorable cost-benefit relationship. Third-party

payors may also deny coverage because the product has not received approval from the FDA or other government regulators

that they believe is necessary, or they believe that the product is experimental, unnecessary or inappropriate.

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Even though we are not required to conduct clinical trials in order to market our products in the United States, we may

nevertheless be required to conduct one or more clinical studies, and to publish one or more peer reviewed journal articles

supporting the product, before we are able to obtain third- party reimbursement. We may also be required to conduct

additional clinical studies that compare the cost effectiveness of our products to other available therapies before third-

party payors will provide reimbursement. Conducting clinical studies is expensive and results in delays in wide scale

commercialization and reimbursement. In addition, even if our products otherwise meet the requirements for reimbursement,

pricing negotiations with third- party payors may take months or longer and result in significant delay in obtaining approval

for reimbursement.

Coverage and reimbursement policies also sometimes differ depending upon the setting in which the product is to be used.

The use of our products in a hospital setting as part of a surgical or other more extensive procedure may have a coverage and

reimbursement pathway that differs from a use in an outpatient setting for a more narrowly defined procedure. Thus, for example,

the coverage and reimbursement pathway for Grafix – which we expect to be used more often in an outpatient setting – may

differ from that for BIO4 – which we expect to be used more often in an in-patient hospital setting as part of a surgical procedure.

These differences may limit or make coverage and reimbursement more difficult for some products as compared to others, and

influence our product development and marketing efforts in ways that may ultimately prove to be detrimental to our business.

Payors' coverage and reimbursement policies also are subject to change, and the policies in effect at the time a product is marketed

may be different from the policies in place when a coverage and reimbursement strategy was developed.

In addition, third-party payors are increasingly challenging the price and cost-effectiveness of medical products and services,

and many limit coverage and reimbursement for newly approved healthcare products. In particular, third-party payors may limit the

indications for which they will reimburse patients who use our products, or they may not provide reimbursement for our products

separately from the procedures in which they are used, to encourage providers to select products based on cost-effectiveness or

for other reasons. Cost-control initiatives could decrease the price for our products, which would result in lower product revenue

to us.

To continue our commercial expansion, we must convince more physicians that our products are appropriate alternatives

to traditional methods and products and that our products should be used in their procedures.

While many physicians are using our products, we must continue our efforts to convince other physicians that our

products are appropriate alternatives to traditional methods and products. We believe physicians will only adopt our products

if they determine, based on experience, clinical data and published peer reviewed journal articles, that the use of our products

in a particular procedure is a favorable alternative to conventional methods. Physicians may be slow to change their practices

for the following reasons, among others:

– their lack of experience in the field using our products;

– lack of evidence supporting additional patient benefits and our products over conventional methods;

– perceived liability risks generally associated with the use of new products and procedures;

– limited availability of reimbursement from third-party payors;

– the exclusion of our products on the formulary of their affiliated hospital or group purchasing organization ("GPO"),

which would preclude their use of our product; and

– the time that must be dedicated to training physicians on how to use our products.

In addition, hospital acquisition decisions often are affected by physicians' assessments of products. If physicians do

not support adoption of our products or if we are unable to demonstrate favorable long-term clinical data, hospitals may

not use our products, which would significantly reduce our ability to achieve expected revenue.

The potential of our products and products under development may not be realized, including products based on our

Prestige Lyotechnology.

We are continually evaluating the potential of our current products and products under development. Our products are

susceptible to various risks, including undesirable and unintended side effects, inadequate efficacy or other characteristics

that may prevent or limit their commercial use, or if required, pre-marketing approval. We have invested substantial time

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and resources in developing additional products, including products using our novel Prestige Lyotechnology, a proprietary

method to preserve living cells and tissues at room temperatures. Further commercialization of any new products, especially

products based on new technologies, will require additional development, clinical evaluation, significant marketing efforts

and substantial additional investment before they can provide us with any revenue. Despite our efforts, any such products

may not become commercially successful products for a number of reasons, including:

– we may experience delays in our development programs;

– any products that are approved may not be accepted in the marketplace by patients, physicians or payors;

– we may not be able to manufacture any such products in sufficient commercial quantities; and

– rapid technological change may make such products obsolete.

If the potential of our products is not realized, the value of our products, technology and development programs could

be significantly reduced.

Some product development programs are based on novel technologies, such as our Prestige Lyotechnology, which are

inherently risky.

We are subject to the risks of failure inherent in the development of products based on new technologies, such as our

Prestige Lyotechnology. The novel nature of our technology platforms and product candidates creates significant challenges

in regards to product development and optimization, processing and manufacturing, government regulation and/or approval,

third-party reimbursement and market acceptance. Therefore, the pathway to development and commercialization of

our products may be more complex and lengthy than other products. Additionally, tissue-and cell-based products are

subject to donor-to-donor variability, which can make standardization more difficult. As a result, the development and

commercialization pathway for our products is subject to increased uncertainty.

We depend on key personnel.

Our current and future success depends to a significant extent on the skills, experience and efforts of our scientific,

management, technical and sales personnel. None of our employees is employed for a specified term, and we have experienced

significant turnover. Competition for personnel is intense. We may be unable to retain our current personnel or attract or

integrate other qualified scientific, management, technical or sales personnel in the future which could harm our business and

might significantly delay or prevent the achievement of research, development, sales or other business objectives.

We are in a highly competitive and evolving field and face competition from well-established tissue product manufacturers

as well as new market entrants.

Our business is in a very competitive and evolving field. Competition from other companies and from research

andvacademic institutions is intense and widespread, expected to increase, subject to rapid change and could be significantly

affected by new product introductions. The presence of this competition in our market may lead to pricing pressure,

whichvwould limit our ability to sell our products at a price that would make us profitable or prevent us from selling our

products atvall. Our ability to successfully compete will depend on whether we can perfect and protect our intellectual

property rightsvrelated to our technologies as well as to develop new technologies and new applications for our technolo-

gies. Our failure to compete effectively would have a material adverse effect on our business, financial condition and results

of operations.

Our products could become obsolete due to rapid technological change.

The technologies underlying our products are subject to rapid and profound technological change. Competition intensifies

as technical advances in each field are made and become more widely known. We can give no assurance that others will not

develop services, products or processes with significant advantages over the products that we offer or are developing. Any

such occurrence could have a material adverse effect on our business, financial condition and results of operations.

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Many of our competitors have greater resources or capabilities than we have, or may succeed in developing new or

better products more quickly than we do.

In the marketplace, we compete with other companies and organizations that are marketing or developing products

competitive with Grafix, Stravix and our other products and products under development. In many cases, the competing

product or candidate is based on bioengineering or other technologies. Companies competing with our products include,

but are not limited to: Organogenesis Inc., the manufacturer of Apligraf® and Dermagraft®, MiMedx Group, Inc., the

manufacturer of EpiFix®, and Integra LifeSciences Corporation, the manufacturer of Integra, all of which compete with

Grafix and Stravix. BIO4 competes with bone tissue products such as Osteocel® marketed by NuVasive, Inc. and Trinity®

marketed by Orthofix International NV, while Cartiform competes with cartilage allografts such as ProChondrix® marketed

by AlloSource and DeNovo® marketed by Zimmer Biomet Holdings, Inc. In addition to those listed above, we have other

existing and potential competitors developing a variety of products for the same conditions for which we market our

products. Many of our current and potential competitors have greater financial and human resources than we have,

including more experience in R&D and more established marketing and distribution capabilities.

The biotechnology industry is characterized by rapid technological change, resulting in new product introductions and

other technological advancements. Because FDA approval is generally not required for tissue-based products which are not

more than minimally manipulated, competitors might choose to enter this market and produce a substantially similar

product, and we may not be able to prevent the marketing and distribution of any such similar products by others. Should

others produce a substantially similar product or a new product that renders our current or future products obsolete, we

could be subject to increased competition and our potential revenue from distribution of these products may be limited.

Our products are derived from human tissue and therefore have the potential for disease transmission.

Our products consist of human tissue: Grafix is manufactured from human placental tissue; Stravix is manufactured

from human placental tissue comprised of amniotic and connective layers of umbilical tissue; BIO4 is manufactured from

cadaveric donor bone; and Cartiform is manufactured from cadaveric donor cartilage.

The utilization of human tissue creates the potential for transmission of communicable disease, including, but not limited

to, human immunodeficiency virus, Zika virus, viral hepatitis, syphilis, Creutzfeldt-Jakob disease (the human form of "mad

cow" disease) and other viral, fungal or bacterial pathogens. We, and our suppliers of human adult cadaveric bone, cartilage

and placenta tissue are required to comply with federal and state regulations and applicable standards intended to prevent

communicable disease transmission. Although we and our suppliers have strict quality controls over the procurement and

processing of our tissue:

– we can provide no assurance that these quality controls will be adequate;

– we or our suppliers may fail to comply with such regulations and standards;

– even with compliance, our products might nevertheless be viewed by the public as being associated with transmission

of disease; and

– a patient that contracts an infectious disease might assert that the use of our products resulted in disease transmission,

even if the patient became infected through another source.

Any actual or alleged transmission of communicable disease could result in patient claims, litigation, distraction

of management's attention and potentially increased expenses. Further, any failure in screening, whether by us or

other manufacturers of similar products, could adversely affect our reputation, the support we receive from the medical

community and overall demand for our products. As a result, such actions or claims, whether or not directed at us, could

have a material adverse effect on our reputation with our customers and our ability to distribute our products, which could

have a material adverse effect on our business, financial condition and results of operations.

Ethical, legal and other concerns surrounding the use of human tissue may negatively affect public perception of us or

our products, or may result in increased scrutiny of our products and product candidates from a regulatory approval

perspective, thereby reducing demand for our products, restricting our ability to market our products or adversely affecting

the market price for our common stock.

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The commercial success of our products depends in part on general public acceptance of the use of human tissue as a

part of the treatment of human diseases and other conditions. The use of human tissue including placental tissue from

fullterm normal pregnancies, which is discarded otherwise, has been the subject of debate regarding related ethical, legal

and social issues. We do not use embryonic stem cells or fetal tissue, but the public may fail to differentiate our use of adult

tissue, including placental tissue from the use by others of embryonic stem cells or fetal tissue. Ethical concerns have been

raised by some about the use of donated human tissue in a for-profit setting. This could result in a negative perception of

our company or our products.

Future adverse events in the field of cellular-based therapy or changes in public policy could also result in greater

governmental regulation of our products and potential regulatory uncertainty or delay relating to any required testing or

approval.

Our dependence upon human tissue necessary to produce our products may impact our ability to produce these products

on a large scale.

As an accredited and licensed tissue bank, we acquire some of our tissue supply through our own collection efforts. The

remaining portion of our tissue supply is obtained through third-party donor agencies. We and our supplier agencies may

not be able to collect sufficient amounts of tissue to meet the demand. Shortages or disruptions in the supply of human

tissue can adversely impact our ability to fulfill orders, resulting in decreased sales. For example, in 2016, the FDA issued

guidance regarding the Zika virus, which limited our supply of placental tissue for a period of time. Since 2016, we have

added additional donor agencies and initiated our own collection efforts. Nevertheless, there can be no assurance that any

change in guidance from the FDA or future outbreaks of Zika would not hamper our ability to acquire human placental issue

to meet our manufacturing needs.

The availability of donated tissue could also be adversely impacted by public opinion of the donor process as well as

our own reputation in the industry.

Moreover, the use of human tissue as a part of the treatment for human disease and medical conditions has increased

over recent years and continues to increase, creating greater and continually increasing competition and demand for donated

human tissue. Even if we are successful in our efforts to expand our compliment of products, we may not be able to secure

quantities of human tissue sufficient to meet the demand.

We may not be able to process our products in sufficient quantities to meet market demand or expand our market for the

products.

We currently manufacture all of our supply of Grafix and Stravix products at our facility in Columbia, Maryland.

Currently, we outsource manufacturing of all of our supply of BIO4 and Cartiform to Aziyo Biologics. Having a single

manufacturing source for each of our products could limit our distribution capabilities, increase our distribution costs

or cause production delays, any of which can damage our reputation and adversely affect our results of operations. We have

entered into an agreement with another third party to manufacture BIO4 and Cartiform and are in advanced discussions with

the same third party to establish it as a manufacturer of all of our products in order to increase our manufacturing capacity.

A lengthy disruption or shutdown of, or a shortage of supply at, our current manufacturing facilities or the manufacturing

facilities of Aziyo or another outsourced contract manufacturer, whether due to the occurrence of natural disasters, the

need to comply with the requirements of directives from government agencies, such as the FDA, the lack of supply of human

tissue, or otherwise, could have a material adverse effect on our business, financial condition and results of operations.

In addition, our product supply chain and manufacturing infrastructure depends on the performance of a number of

complex contracts between us on the one hand and our suppliers on the other. If any of our suppliers, contract manufacturers

or other service providers cannot or do not perform their contractual obligations, then our production efforts may suffer. If

we cannot or do not perform our contractual obligations, then we may be subject to arbitration, mediation or litigation that

could have a material adverse effect on us.

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Reliance on third parties entails risks to which we would not be subject if we manufactured all of our products and

product components ourselves, including:

– reliance on third parties for regulatory compliance and quality assurance;

– the possible breach of the manufacturing agreement by the third party; and

– the possible termination or nonrenewal of the agreement by the third party, based on its own business priorities,

at a time that is costly or inconvenient for us.

We use or may use third parties to help us develop, manufacture, market and/or distribute our products, and our business

may be impaired if our third-party relationships are unsuccessful.

We have arrangements in place with third parties that help us with certain aspects of our business. Each third party supports

us in differing capacities, including our R&D, human tissue supply, regulatory compliance, tissue procurement, manufacturing,

testing, or marketing and distribution efforts. We are subject to a number of risks associated with our dependence upon our

third-party relationships, including:

– the third parties may not cooperate with us or perform their obligations under our agreements with them;

– we cannot control the quality, amount and timing of the third parties' resources that will be devoted toperforming their

responsibilities under our agreements with them, and they may choose to pursue alternativetechnologies in preference

to those being developed or commercialized with us;

– the third parties may refuse or fail to perform their responsibilities in a timely manner, including breach;

– a third party may terminate its agreement with us for reasons outside our control, and in some cases on limited notice;

– business combinations and changes in a third party's business strategy may adversely affect the third party's willingness

or ability to complete its obligations;

– loss of significant rights to the other party if we fail to meet our obligations under our agreements;

– the ability of a third party to successfully market and promote our products;

– withdrawal of support by the third party following development or acquisition by the third party of competing

products; and

– disagreements with a third party regarding our agreement with such third party or ownership of intellectual property

or other proprietary rights. Due to these factors and other possible events, we could suffer delays or experience

additional costs in the research, development, supply, manufacture, distribution or sale of our products or we may

become involved in litigation or arbitration, which would be time consuming and expensive.

We also rely upon third parties for services and raw materials needed for the manufacture and testing of our products.

In order to produce our products, we require biological media, reagents and other highly specialized materials. This

is in addition to the human tissue donations used to manufacture our products. These items must be manufactured and

supplied to us in sufficient quantities and in compliance with FDA cGTP regulations. To meet these requirements, we either

order from or have entered into supply agreements with firms that manufacture these components to cGTP standards and

testing service agreements to perform the necessary quality testing.

We rely on third-party suppliers, contract manufacturers and service providers and commodity markets to secure raw

materials, parts, components and sub-assembly systems used in our products or to manufacture our products, which expose

us to volatility in the prices and availability of these materials. Some of these suppliers or their sub-suppliers are limited or

sole-source suppliers. Some of these suppliers or their sub-suppliers are located outside of the United States. A disruption

in deliveries from our third-party suppliers, capacity constraints, production disruptions, price increases, or decreased

availability of raw materials or commodities, including as a result of catastrophic events, could have an adverse effect on

our ability to meet our commitments to customers or increase our operating costs. Quality and sourcing issues experienced

by third-party suppliers can also adversely affect the quality of our products and result in liability and reputational harm.

The purchase of components and products from international sources subjects us to extensive U.S. and foreign govern-

mental trade, import, export and customs regulations and laws. If we, our product candidates, or the manufacturing

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facilities for our product candidates or components, fail to comply with applicable regulatory requirements, a regulatory

agency may seize or detain products or refuse to permit the import of products.

Our most significant third-party arrangement is an exclusive agreement with a subsidiary of Stryker for the distribution

of BIO4, and our success with this product depends upon the success of this relationship.

We are party to an exclusive service agreement with Stryker for the commercialization of our viable bone matrix allograft

under the name BIO4. Pursuant to the agreement, Stryker is the exclusive worldwide marketer and distributor of allograft

services for BIO4 for use in surgical applications, including spine, trauma, extremity, cranial and foot and ankle surgery. This

agreement is subject to all of the risks and uncertainties applicable to third-party arrangements generally, including those

described above.

The agreement with Stryker provides for an initial four-year exclusive term, which commenced in 2015. The term may

be extended by Stryker for an additional exclusive period of four years or an additional non-exclusive period of two years.

If Stryker extends the term on an exclusive basis, it has the option to further extend the term on an exclusive basis for two

more years. We received an initial exclusivity fee of $5.0 million and are entitled to receive additional fees upon any exercise

by Stryker of its right to extend the initial term, whether on an exclusive or non-exclusive basis. These additional fees are

reduced on a sliding scale if Stryker meets certain revenue thresholds during the initial term or if revenue goals are not met

as a result of us not fulfilling our supply obligations. Stryker is entitled to a certain percentage of sales of allograft services

for BIO4 and has limited early termination rights. The success of this agreement for us will in part depend upon Stryker's

success in marketing and promoting BIO4.

Stryker has significantly greater resources than we do, and this agreement is not as core to its business as it is to ours.

We rely upon Stryker's continued performance under this agreement, and any determination by Stryker not to proceed or

perform, or any material adverse event that affects Stryker's ability or desire to perform may have a material adverse effect

on our business.

We may also enter into additional third-party agreements in the future. If we fail to maintain our existing or any future

relationships for any reason, we would need to undertake on our own and at our own expense, or find other third parties,

to perform the activities we currently anticipate will be performed by third parties. This may substantially increase our cash

requirements. We may not have the capability or financial capacity to undertake these activities on our own, or we may not

be able to enter third-party relationships on acceptable terms, or at all. This may limit the programs we can pursue and result

in significant delays in the development, sale and manufacture of our products, and may have a material adverse effect on

our business.

We distribute products through distribution arrangements that sometimes involve the consignment of inventory to third

parties, which results in additional risk and uncertainty as to the viability of consigned inventory, inventory accounting

and tax consequences.

We have historically distributed our products either ourselves or through qualified third-party distributors. In some

situations, we store consigned inventory on site in freezers at end-use hospital or clinic facilities. We commercialize Grafix

and Stravix through the efforts of our own direct distribution and marketing staff, as well as through a network of specialty

distributors for certain target markets. BIO4 is sometimes commercialized through a consignment arrangement, and our

agreement with Stryker and the end users includes consignment terms, as does our agreement with Arthrex and the end

users for Cartiform.

Inventory management, revenue recognition, and inventory and receivables accounting are complicated by a consign-

ment arrangement. Because our consigned inventory must be stored at –80° C, it is at risk of thawing, resulting in the total

loss of that inventory, which risk of loss is borne by us. From the revenue recognition perspective, no revenue is recognized

upon the placement of inventory into consignment, as we retain title and maintain the inventory on our balance sheet. For

these products, revenue is recognized when we receive appropriate notification that the product has been used in a surgical

procedure. The Restatement corrected, among other things, errors in our prior revenue recognition related to various

distributor agreements, including several with consigned inventory. If we are unable to track and maintain proper controls

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related to consigned inventory, we could experience difficulty in accurately managing and accounting for these consignment

arrangements and any related tax implications.

We monitor and verify the condition and status of all consigned inventory on at least a quarterly basis at our expense.

We have increased the controls related to consigned inventory, which has increased our operating expenses, and we will

likely incur additional expenses in connection with our future planned improvements in our controls related to consigned

inventory. In addition, the FDA's, The American Association of Tissue Banks' and other accrediting agencies' rules, regulations

or standards require that we monitor our consigned inventory, and require tracking of human tissue and inventory as it

moves through the supply chain.

Moreover, should the FDA or any other regulatory authority determine that we are unable for any reason to continue to

distribute consigned inventory, either on account of the viability of that inventory or because of the withdrawal of necessary

approvals or other qualifications allowing for the distribution and sale of that inventory, the value of that inventory may

have to be completely written off and our balance sheet adjusted accordingly. The complexity of our inventory management,

or the application of rules, regulations and standards to our product inventory, or the occurrence of any of these negative

events, could have an adverse effect on our business, financial condition and results of operations.

We have no control over whether third parties with whom we contract can comply with applicable regulatory requirements.

Our raw material suppliers, contract manufacturers and distributors, and other third parties that we contract with are

subject to many or all of the risks and uncertainties to which we are subject. Similar to us, they are subject to ongoing,

periodic, unannounced inspection by the FDA and corresponding state and foreign agencies or their designees to ensure

strict compliance with applicable regulations and other governmental regulations and corresponding foreign standards.

However, we do not control compliance with these regulations and standards by our suppliers, distributors and other third

parties with which we contract. They might not be able to comply with these regulatory requirements. If they fail to comply

with applicable regulations, the FDA or other regulatory authorities could issue orders of retention, recall, destruction or

cessation of manufacturing, or impose sanctions on us, including fines, injunctions, civil penalties, denial of any required

marketing approval, delays, suspension or withdrawal of approvals, license revocation, product seizures or recalls, operating

restrictions and criminal prosecutions. Any of these actions could significantly and adversely affect the supply and distribution

of our products and could have a material adverse effect on our business, financial condition and results of operations.

In addition to costs incurred in product development and management of the reimbursement processes, we will incur

additional operating expenses in connection with the expansion of our business.

We expect to continue to incur significant operating expenses in connection with our planned expansion of our business

as we seek to:

– continue to develop, expand and support our distribution network of third-party distributors and independent sales

professionals for the distribution of Grafix, BIO4, Cartiform and other products;

– continue to expand and support our internal sales force and marketing capabilities, through the hiring of sales and

marketing professionals and building an internal sales and marketing organization;

– hire or engage additional manufacturing, quality control, quality assurance and management personnel as necessary

to expand our manufacturing operations;

– expand our manufacturing capacity for our products, all of which must be manufactured in an FDA compliant and

validated product manufacturing facility; and

– expand and protect our intellectual property portfolio for our products.

Our ability to scale up our production capabilities for larger quantities of these products remains to be proven. Our costs

in marketing and distributing these products will also increase as production increases.

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Our future capital needs are uncertain and we may need to raise funds in the future, and such funds may not be available

on acceptable terms or at all, especially if we fail to relist our common stock for trading on NASDAQ.

Continued expansion of our business will be expensive and we may seek funds from public and private stock offerings,

borrowings under future credit facilities or other sources. Our capital requirements will depend on many factors, including:

– the revenues generated by sales of our products;

– the costs associated with expanding our sales and marketing efforts;

– the costs associated with the Restatement and the resolution of related legal proceedings;

– the expenses we incur in manufacturing and managing the supply chain for our products;

– the costs of developing and commercializing new products or technologies;

– the cost of maintaining current products as 361 HCT/Ps or obtaining regulatory approval through the BLA regulatory

pathway if any of our products lose their 361 HCT/P status;

– the number and timing of any acquisitions and other strategic transactions;

– the costs associated with capital expenditures; and

– unanticipated general and administrative expenses.

As a result of these factors, we may seek to raise capital, and such capital may not be available on favorable terms,

or at all, especially if we fail to relist our common stock for trading on NASDAQ. Furthermore, if we issue equity or debt

securities to raise capital, our existing stockholders may experience dilution, and the new equity or debt securities may have

rights, preferences and privileges senior to those of our existing stockholders. In addition, if we raise capital through

collaboration, licensing or other similar arrangements, it may be necessary to relinquish valuable rights to our products,

potential products or proprietary technologies, or grant licenses on terms that are not favorable to us. If we cannot raise

capital on acceptable terms, we may not be able to develop or enhance our products, execute our business plan, take

advantage of future opportunities, or respond to competitive pressure, changes in our supplier relationships, or unanticipated

customer requirements. Any of these events could adversely affect our ability to achieve our development and commer-

cialization goals, which could have a material adverse effect on our business, financial condition and results of operations.

If our manufacturing and storage facility is damaged or destroyed, our business and prospects would be negatively

affected.

If our manufacturing and storage facility or the equipment in the facility were to be significantly damaged or destroyed,

we could suffer a loss of some or all of the stored product, raw and other materials and work in process.

We lease 61,203 square feet of space in Columbia, Maryland that houses essentially all of our operations. Currently, we

maintain insurance coverage totaling $21.75 million against damage to our property and equipment, an additional $7.35

million to cover business interruption and extra expenses, including R&D restoration expenses. If we have underestimated

our insurance needs, we will not have sufficient insurance to cover losses above and beyond the limits on our policies.

The use of our products in human subjects may expose us to product liability claims, and we may not be able to obtain

adequate insurance.

We face an inherent risk of product liability claims and only have limited safety data for our products. We derive the

raw materials for our products from human donor sources, the production process is complex and the handling requirements

are specific, all of which increase the likelihood of quality failures and subsequent product liability claims. We may not be

able to obtain or maintain product liability insurance on acceptable terms with adequate coverage, or at all. If we are

unable to obtain insurance, or if claims against us substantially exceed our coverage, then our business could be adversely

impacted. Whether or not we are ultimately successful in any product liability litigation, such litigation could consume

substantial amounts of our financial and managerial resources and could result in, among other things:

– significant awards against us;

– substantial litigation costs;

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– recall of the product;

– injury to our reputation; or

– adverse regulatory action.

Any of these results could have a material adverse effect on our business, financial condition and results of operations.

We may implement a product recall or voluntary market withdrawal, which could significantly increase our costs, damage

our reputation and disrupt our business.

The manufacturing and marketing of our tissue products involve an inherent risk that our tissue products or processes

do not meet applicable quality standards and requirements. In that event, we may voluntarily implement a recall, report a

HCT/P deviation or market withdrawal or may be required to do so by a regulatory authority. A recall or market withdrawal

of one of our products would be costly and would divert management resources. A recall, HCT/P deviation or market

withdrawal regarding one of our products, or a similar product manufactured by another entity, also could impair sales of

our products as a result of confusion concerning the scope of the recall or withdrawal, or as a result of the damage to our

reputation for quality and safety.

We and our distributor sales representatives must comply with U.S. federal and state fraud and abuse laws, including

antikickback and false claims laws and equivalent foreign rules.

We are exposed to the risk that our employees, independent contractors, principal investigators, consultants, vendors or

third-party distributors may engage in fraudulent or other illegal activity. Misconduct by these parties could include, among

other infractions or violations, intentional, reckless and/or negligent conduct or unauthorized activity that violates

FDA regulations, manufacturing standards, federal and state healthcare fraud and abuse laws and regulations, laws that

require the true, complete and accurate reporting of financial information or data, other commercial or regulatory laws or

requirements and equivalent foreign rules. We have policies and procedures intended to prohibit and deter such conduct,

including a Code of Ethics for Interactions with Healthcare Professionals, a Code of Conduct, and a Whistleblower Policy.

However, it is not always possible to identify and deter misconduct by our employees and third parties. Our precautions to

detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us

from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or

regulations.

There are numerous U.S. federal and state laws pertaining to healthcare fraud and abuse, including anti-kickback and

false claims laws. These laws are complex, and even minor irregularities can potentially give rise to claims that a statute or

prohibition has been violated. Our and our distributor's relationships with physicians, other healthcare professionals and

hospitals are subject to scrutiny under these laws. The laws that may affect our ability to operate include:

– the federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully soliciting, receiving,

offering or paying remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an

individual for, or the purchase, order or recommendation of, items or services for which payment may be made, in whole

or in part, under federal healthcare programs, such as the Medicare and Medicaid programs. There can be both criminal

and civil penalties for violations;

– the federal civil False Claims Act, which prohibits, among other things, individuals or entities from knowingly presenting,

or causing to be presented, false or fraudulent claims for payment of government funds or knowingly making, using or

causing to be made or used, a false record or statement to induce a false claim payment. There are also criminal

penalties, including imprisonment and criminal fines, for making or presenting a false or fictitious or fraudulent claim

to the federal government;

– HIPAA, which created federal criminal laws that prohibit, among other actions, knowingly and willfully executing,

or attempting to execute, a scheme to defraud any healthcare benefit program including private third-party payors;

– the federal Physician Payment Sunshine Act, which requires manufacturers of drugs, biologics and medical supplies for

which payment is available under Medicare, Medicaid or the Children's Health Insurance Program to report annually

(with certain exceptions) to CMS information related to payments or other "transfers of value" made to physicians and

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teaching hospitals, and requires applicable manufacturers and group purchasing organizations to report annually to

CMS ownership and investment interests held by physicians and their immediate family members and payments or other

"transfers of value" to such physician owners;

– the federal Foreign Corrupt Practices Act and similar anti-bribery laws in other jurisdictions, which generally prohibit

companies and their intermediaries from making improper payments to government officials and/or other persons for

the purpose of obtaining or retaining business; and

– analogous state and foreign law equivalents of each of the above federal laws, such as:

– anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including

commercial insurers; or

– state laws that require biologic and drug manufacturers to report information related to payments and other transfers

of value to physicians and other healthcare providers or marketing expenditures, many of which differ from each other

in significant ways and may not have the same effect, thus complicating compliance efforts.

Violations of any of the laws described above or any other governmental regulations are punishable by significant civil,

criminal and administrative penalties, damages, fines and exclusion from government-funded healthcare programs, such as

Medicare and Medicaid. Although compliance programs can mitigate the risk of investigation and prosecution for violations

of these laws, the risks cannot be entirely eliminated. Moreover, achieving and sustaining compliance with applicable federal

and state privacy, security and fraud laws may prove costly.

In the course of conducting our business, we must adequately address quality issues that may arise with our products,

as well as defects in third-party components included in our products. Although we have established internal procedures to

minimize risks that may arise from quality issues, we may not be able to eliminate or mitigate occurrences of these issues

and associated liabilities. If the quality of our products does not meet the expectations of physicians or patients, then our

brand and reputation could suffer and our business could be adversely impacted.

A significant portion of our revenues and accounts receivable come from government accounts.

We have significant sales to the federal government (whether we are selling our products directly to government accounts

or through our current distributors). Any disruption of our products on the Federal Supply Schedule or a change in the way

the federal government purchases products like ours, or the price it is willing to pay for our products, could materially and

adversely affect our business, results of operations and financial condition.

Changes in internal purchasing procedures by the VA may have an adverse effect on our ability to sell our products to

VA hospitals and may have a material adverse effect on our sales and results of operations.

Recently, the VA announced a change in its internal purchasing procedures, which requires internal pre-authorization

by a warranted contracting officer for purchases of certain types of products, including Grafix and Stravix, for greater

than $3,500, except for VA-owned inventory or a consignment agreement negotiated by a VA contracting officer.

Pre-authorization delays the purchase of our products. In addition, a pre-authorized product may only be used for the patient

for whom authorization was granted. If such product is not used for the authorized patient, it may not be used for any other

patient and the product must be returned. These and other changes in purchasing procedures and policies by the VA could

have an adverse effect on our ability to sell our products to VA hospitals.

The ongoing cost-containment efforts of GPOs and integrated delivery networks ("IDNs") may have a material adverse

effect on our results of operations.

Many customers for our products use GPOs or are members of IDNs in an effort to contain costs. GPOs and IDNs

negotiate pricing arrangements with medical supply manufacturers and distributors, which negotiated prices are made

available to a GPO's or IDN's affiliated hospitals and other members. If we are not one of the providers selected by a GPO

or IDN, affiliated hospitals and other members may be less likely to purchase our products, and, if the GPO or IDN has

negotiated a strict compliance contract for another manufacturer's products, we may be precluded from making sales to

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members of the GPO or IDN for the duration of the contractual arrangement. Our failure to respond to the cost-containment

efforts of GPOs and IDNs may cause us to lose market share to our competitors and could have a material adverse effect

on our sales and results of operations.

Significant disruptions of information technology systems or breaches of information security could adversely affect our

business.

We rely to a large extent upon information technology systems to operate our business. We collect, store and transmit

large amounts of confidential information (including, but not limited to, personal information and intellectual property). We

also have outsourced significant elements of our operations to third parties, including vital components of our information

technology infrastructure. As a result, many third-party vendors may or could have access to our confidential information.

The size and complexity of our information technology and information security systems, and those of our third-party

vendors (and the large amounts of confidential information that is present on them), make such systems potentially vulnerable

to service interruptions or to security breaches from inadvertent or intentional actions by our employees or vendors, or from

malicious attacks by third parties. Such attacks are of ever-increasing levels of sophistication and are made by groups and

individuals with a wide range of motives (including, but not limited to, industrial espionage and market manipulation) and

expertise. Our efforts to prevent service interruptions or security breaches may not be sufficient. Any interruption or breach

in our systems could result in the loss of critical or sensitive confidential information or intellectual property, allow third

parties to gain material, inside information that they could use to trade our securities, and could result in financial, legal,

business, operational and reputational harm to us.

We may expand our business through acquisitions, licenses, investments and other commercial arrangements in other

companies or technologies, which contain significant risks.

We periodically evaluate strategic opportunities to acquire companies, divisions, technologies, products and rights

through licenses, distribution agreements, investments or outright acquisitions to grow our business. In connection with

one or more of those transactions, we may:

– issue additional equity securities that would dilute our stockholders' value;

– use cash that we may need in the future to operate our business;

– incur debt that could have terms unfavorable to us or that we might be unable to repay;

– structure the transaction in a manner that has unfavorable tax consequences, such as a stock purchase that does not

permit a step-up in the tax basis for the assets acquired;

– be unable to realize the anticipated benefits, such as increased revenues, cost savings or synergies from additional sales;

– be unable to secure the services of key employees related to the acquisition; and

– be unable to succeed in the marketplace with the acquisition.

Any of these items could materially and adversely affect our revenues, financial condition and profitability. Business

acquisitions also involve the risk of unknown liabilities associated with the acquired business, which could be material. Incurring

unknown liabilities or the failure to realize the anticipated benefits of an acquisition could materially and adversely affect

our business if we are unable to recover our initial investment. Inability to recover our investment, or any write off of such

investment, associated goodwill or assets, could have a material adverse effect on our business, financial condition and

results of operations.

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Risks Related to Regulatory Approval and Other Government Regulations

Should the FDA determine that any of our current products do not meet regulatory requirements that permit qualifying

human cells, tissues and cellular and tissue-based products to be manufactured, stored, labeled and distributed without

premarketing approval, we may be required to stop manufacturing and distributing such products.

The FDA has developed a tiered, risk-based regulatory framework for human cells, tissues and cellular and tissue-based

products, or so-called 361 HCT/Ps (meaning that they comply with section 361 of the Public Health Service Act and with 21

CFR Part 1271). The framework includes criteria for facility management, quality assurance, donor selection and manufacture

of 361 HCT/Ps. We believe that commercial sale of Grafix, Stravix, BIO4 and Cartiform meets the regulatory definition of

361 HCT/P products and as a result do not require the FDA's pre-marketing approval. Specifically, we believe all of our

current products:

– are minimally manipulated;

– are intended for homologous use only, as reflected in our labeling, advertising, and all other indications of our objective

intent (e.g., that Grafix be used only as a wound cover, that Stravix be used only as a surgical cover, that BIO4 be used

only for augmentation of bone defects, and that Cartiform be used only as an osteochondral allograft);

– are not combined with another article except for water, crystalloids, or a sterilizing, preserving or storage agent in

a manner that raises no new clinical safety concerns; and

– do not have a systemic effect and are not dependent on the metabolic activity of living cells for their primary function.

These criteria form the framework governing our advertising and promotional activities. If we advertise or promote any

product in a manner that conveys an intent that it be used for non-homologous uses, that suggests that the product's primary

function depends on systemic effects or the metabolic activity of living cells, or that indicates that our manufacturing

process manipulates the product more than minimally by altering the original relevant characteristics of the tissue relating to

its utility for reconstruction, repair, or replacement, we will risk causing our products to no longer qualify as 361 HCT/Ps.

On September 26, 2013, we received the Untitled Letter from the FDA. The agency uses untitled letters to communicate

violations that the FDA does not consider of regulatory significance sufficient to lead to an enforcement action. The Untitled

Letter stated that Grafix and Ovation did not meet the definition of a 361 HCT/P. Among the grounds for the FDA's position

were our marketing claims, including wound healing claims for Grafix. Specifically, the Untitled Letter indicated that Grafix

did not meet the requirements because it is dependent upon the metabolic activity of living cells for its primary function

and is not intended for autologous use or allogeneic use in a first or second degree relative. On September 30, 2013, we

provided clarifying information to the FDA addressing these concerns. Specifically, we communicated that while Grafix does

retain the natural cell population, it is not enriched or expanded in any way; instead, the tissue is preserved so that it closely

resembles the source tissue in its native state in accordance with the FDA's definition of minimal manipulation.

In order to make our marketing claims for Grafix clearer, we committed to the FDA to update our labeling and marketing

materials for Grafix to that of a wound cover. By October 2014, we completed all commitments made to the FDA, including

the discontinuance of Ovation. In April 2016, the FDA performed a routine inspection of us, which included follow-up on

the actions taken to address the Untitled Letter. In May 2016, we received an FDA Establishment Inspection Report which

stated that there were no observations, findings, warnings or untitled letters for either the routine inspection or the Untitled

Letter follow-up.

In March 2017, we completed the development of Prestige Lyotechnology as an alternative to cryopreservation, which

previously had been the only method available for long-term preservation of living cells and tissues, and which we are using

to process our current products. We designed our new technology to preserve living cells within tissues while stored at room

temperatures. We intend to use Prestige Lyotechnology in developing placental products. We believe that any products

based on our new technology will also comply with the above requirements for 361 HCT/Ps.

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We engage in ongoing communication with FDA representatives regarding the applicable regulatory requirements

and pathways for our products and product candidates. Determining whether a product complies with these regulatory

requirements and pathways is complex and dependent upon numerous factors and subject to varying interpretations and

conclusions. In November 2017, the FDA finalized its Guidance Document entitled "Regulatory Considerations for Human

Cell, Tissues, and Cellular Tissue-Based Products: Minimal Manipulation and Homologous Use." This document provides

the FDA's current guidance on 361 HCT/Ps. Specifically, it clarifies the FDA's definitions of minimal manipulation and

homologous use. The FDA has given affected companies until November 2020 to determine if they meet the requirements

and, if not, to file an IND.

We believe all of our current products (Grafix, Stravix, BIO4 and Cartiform), as well as our products being developed

using our Prestige Lyotechnology, meet, or will meet, the FDA's current interpretations. However, the FDA may not agree

with our views on these matters. Should the FDA decide that our current and future products do not meet the regulatory

definition of 361 HCT/Ps, we will not be able to produce and distribute these products unless and until we submit a BLA

and obtain pre-marketing approval from the FDA, which would require clinical trials and could take years to obtain, at

significant expense. This or any other determination by the FDA that adversely affects our ability to produce or to market

any of our products or product candidates would have a material adverse effect on our business, financial condition and

results of operations.

Our business is subject to an inherently uncertain and evolving area of regulation.

The regulatory framework that the FDA has developed for 361 HCT/Ps is inherently uncertain and the FDA's regulation

of 361 HCT/Ps is evolving. The FDA may alter or recalibrate its regulatory interpretations and enforcement activities, including

in the event a competitor obtains pre-marketing approval for a product similar to any of our products. Further, the FDA

could require that our products, which lack pre-marketing approval by the FDA, be taken off the market.

In addition, while the FDA's advertising and promotional labeling regulations do not apply to 361 HCT/Ps, the agency

could become more exacting with regard to acceptable advertising and promotional activities for 361 HCT/Ps. Specifically,

under FDA regulations, a manufacturer may not promote a 361 HCT/P in a manner that communicates an objective intent of

the manufacturer for the HCT/P to be used for non-homologous uses. In addition, a manufacturer risks undermining its

product's 361 status if it describes its product in a way that suggests that the product does not otherwise meet the criteria

for qualifying as a 361 HCT/P, such as by emphasizing the metabolic activity of live cells in the product. Because various

government agencies that regulate HCT/Ps, such as the FDA and CMS, employ different terms to describe HCT/Ps and apply

different criteria to its decisions, a risk exists that our sales representatives and other employees may use terms applicable to

one regulatory regime that are detrimental in another regulatory regime. An example would be that describing an HCT/P as

treating a wound for purposes of justifying reimbursement could be interpreted by the FDA as implying that the manufacturer

intends the product to be used for non-homologous wound healing.

If the FDA determines that any of our current products are not 361 HCT/Ps, or that any of our future products are not

361 HCT/Ps, we will be required to seek and obtain pre-marketing regulatory approval.

If the FDA determines that one or more of our current products do not meet the criteria for 361 HCT/Ps, we will need

to pursue pre-marketing approval applicable to biologics in the United States, which is also referred to as licensure. We

are currently considering product candidates that require licensure from the FDA. In the United States, a company must

complete rigorous preclinical testing and extensive clinical trials that demonstrate the safety, purity and potency of a

biological product in order to apply for licensure to market the product. The steps generally required by the FDA include:

– performance of preclinical (animal and laboratory) tests, in accordance with the FDA's cGLP regulations and other

applicable requirements;

– submissions to the FDA of an IND, which must become effective before clinical trials may commence;

– approval by an independent IRB of each clinical site before a clinical trial is initiated;

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– performance of adequate and well-controlled clinical trials according to the FDA's cGCP regulations, and any additional

requirements for the protection of human research subjects and their health information to establish the safety, purity

and potency of the investigational biological product in the intended target population for its intended use:

– establishment and validation of a consistent and reproducible manufacturing process intended for commercial use,

including the collection of appropriate manufacturing data;

– preparation and submission to the FDA of a BLA for marketing approval that includes substantial evidence of safety,

purity and potency from results of nonclinical testing and clinical trials;

– satisfactory completion of an FDA inspection of the manufacturing facility or facilities where the biological product

candidate is produced to assess compliance with cGMPs and to assure that the facilities, methods and controls are

adequate to preserve the biological product candidate's identity, safety, strength, quality, potency and purity;

– potential FDA inspection of the nonclinical and clinical trial sites that generated the data in support of the BLA; and

– FDA review and approval of the BLA before any commercial sale or shipment of the product can begin again.

The processes are expensive and can take many years to complete. If we are required to obtain pre-marketing approval

from the FDA for any of our existing or future products, we may not be able to demonstrate the safety, purity and potency

of our products to the satisfaction of regulatory authorities. The start of clinical trials can be delayed or take longer than

anticipated for many and varied reasons, many of which are out of our control. Safety concerns may emerge that could

lengthen the ongoing clinical trials or require additional clinical trials to be conducted. Promising results in early clinical

trials may not be replicated in subsequent clinical trials. Regulatory authorities may also require additional testing, and we

may be required to demonstrate that our products represent an improved form of treatment over existing therapies, which

we may be unable to do without conducting further clinical trials. Moreover, if the FDA grants regulatory approval of a

product, the approval may be limited to specific indications or limited with respect to its distribution. Expanded or additional

indications for approved products may not be approved, which could limit our revenue opportunities.

Our business is subject to continuing regulatory compliance by the FDA and other authorities, which is costly and our

failure to comply could result in negative effects on our business.

As discussed above, the FDA has specific regulations governing our tissue-based products, or HCT/Ps. The FDA's

regulation of HCT/Ps includes requirements for registration and listing of products, donor screening and testing,

manufacture and distribution, labeling, record keeping and adverse-reaction reporting, and inspection and enforcement.

The FDA has broad regulatory and enforcement powers.

If we fail to comply with the FDA regulations regarding our tissue-based products, the FDA could take enforcement

action, including, without limitation, any of the following sanctions that may be relevant to our current or future business

operations, and the manufacture of our products or processing of our tissue could be delayed or terminated:

– untitled letters and warning letters;

– orders of retention, recall, destruction and cessation of manufacturing;

– product seizures, injunctions and civil penalties;

– operating restrictions;

– refusing applications for licensure of new products;

– suspending current applications for licensure, or revoking or suspending licenses already granted;

– refusal to allow the importation of our products or raw materials; and

– criminal prosecution.

It is likely that the FDA's regulation of HCT/Ps will continue to evolve in the future. Complying with any such new

regulatory requirements may entail significant time delays and expense, which could have a material adverse effect on our

business, financial condition and results of operation.

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In addition to FDA regulations, we are subject to other laws, rules, regulations and standards regarding the use of human

tissue.

We are registered with the FDA as a tissue bank. In addition, some states have their own tissue banking regulations. We

are licensed as a tissue bank in Maryland, California, New York and Florida. If we fail to comply with any of the requirements

for licensure as a tissue bank, we will not be able to operate as a tissue bank and collect and store donor tissue. The loss of

this licensure could adversely impact the quantity of human tissue available to us and our ability to process our products,

which could have a material adverse effect on our business, financial condition and results of operations.

In addition, procurement of certain human organs and tissues for transplantation is subject to the restrictions of NOTA,

which prohibits the transfer of certain human organs, including skin and related tissue, for valuable consideration, but

permits reasonable payment associated with the removal, transportation, implantation, processing, preservation, quality

control and storage of human tissue and skin. We reimburse tissue banks, hospitals and physicians for their services associated

with the recovery, storage and transportation of donated human tissue. If we were to be found to have violated NOTA's

prohibition on the sale or transfer of human tissue for valuable consideration, we would potentially be subject to criminal

enforcement sanctions, which could materially and adversely affect our business, financial condition and results of operations.

Our business involves the use of hazardous materials that could expose us to environmental and other liability.

We have facilities in Maryland that are subject to various local, state and federal laws and regulations relating to safe

working conditions, laboratory and manufacturing practices, and the use and disposal of hazardous or potentially hazardous

substances, including chemicals, micro-organisms and various radioactive compounds used in connection with our R&D

and manufacturing activities. These laws include the Occupational Safety and Health Act, the Toxic Test Substances Control

Act and the Resource Conservation and Recovery Act. We cannot assure you that accidental contamination or injury to our

employees and third parties from hazardous materials will not occur. We do not have insurance to cover claims arising from

our use and disposal of these hazardous substances other than limited clean-up expense coverage for environmental

contamination due to an otherwise insured peril, such as fire.

Federal and state laws that protect the privacy and security of personal information may increase our costs and limit our

ability to collect and use that information and subject us to liability if we are unable to fully comply with such laws.

Numerous federal and state laws, rules and regulations govern the collection, dissemination, use, security and

confidentiality of personal information, including individually identifiable health information. These laws include:

– Provisions of HIPAA that limit how covered entities and business associates may use and disclose PHI, provide certain

rights to individuals with respect to that information and impose certain security requirements;

– HITECH, which strengthens and expands the HIPAA Privacy Rule and Security Rules and imposes data breach

notification obligations;

– Other federal and state laws restricting the use and protecting the privacy and security of personal information,

including health information, many of which are not preempted by HIPAA;

– Federal and state consumer protection laws; and

– Federal and state laws regulating the conduct of research with human subjects.

As part of our business operations, including our medical record keeping, third-party billing and reimbursement and

R&D activities, we collect and maintain PHI in paper and electronic format. Standards related to health information, whether

implemented pursuant to HIPAA, HITECH, state laws, federal or state action or otherwise, could have a significant effect

on the manner in which we handle personal information, including healthcare-related data, and communicate with payors,

providers, patients, donors and others, and compliance with these standards could impose significant costs on us or limit

our ability to offer services, thereby negatively impacting the business opportunities available to us.

If we are alleged to not comply with existing or new laws, rules and regulations related to personal information we could

be subject to litigation and to sanctions that include monetary fines, civil or administrative penalties, civil damage awards

or criminal penalties.

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We face significant uncertainty in the industry due to government healthcare reform.

There have been and continue to be proposals by the federal government, state governments, regulators and third-party

payors to control healthcare costs, and generally, to reform the healthcare system in the United States. With the Trump

Administration and the 115th Congress, there have been certain regulatory and legislative changes to the Patient Protection

and Affordable Care Act (the "Affordable Care Act"). For example, the Tax Cuts and Jobs Act enacted on December 22,

2017, eliminated the shared responsibility payment for individuals who fail to maintain minimum essential coverage under

section 5000A of the Internal Revenue Code of 1986, commonly referred to as the individual mandate, beginning in 2019.

Additional legislative changes to and regulatory changes under the Affordable Care Act remain possible. However, it remains

unclear how any new regulations or legislation might affect the prices we may obtain for any of our products. Any reductionin

reimbursement from Medicare and other government programs may result in a similar reduction in payments from private

payors. The implementation of cost containment measures or other healthcare reforms may harm our business and prevent

us from being able to attain and maintain profitability. We also cannot predict what further reform proposals, if any, will

be adopted, when they will be adopted, or what impact they may have on us.

Risks Related to Intellectual Property

Given our limited patent position in regard to our products, if we are unable to protect the confidentiality of our proprietary

information and know-how related to these products, our competitive position would be impaired and our business,

financial condition and results of operations could be adversely affected.

Our success depends, in part, on our ability to obtain patents, maintain trade secret protection and operate without

infringing on the proprietary rights of third parties. Our policy is to file patent applications to protect technology, inventions

and improvements that we consider important to our business and operations. We hold an ownership interest in a number

of pending and issued patents in the United States and foreign countries with respect to our products and technologies.

We have pending patent applications in the United States Patent and Trademark Office, the European Patent Office, and

the patent offices of other foreign jurisdictions, and it is possible that we will need to defend patents from challenges by

others from time to time in the future. Certain of our U.S. patents may also be challenged by parties who file a request for

post-grant review or inter partes reexamination under the America Invents Act of 2011 or ex parte reexamination. Post-grant

proceedings are increasingly common in the United States and are costly to defend. Our patent rights may not provide us

with a proprietary position or competitive advantages against competitors. Furthermore, even if the outcome is favorable to

us, the enforcement of our intellectual property rights can be extremely expensive and time consuming.

A significant amount of our technology, including our information regarding the manufacturing process for our products,

is patent pending, unpatented or is maintained by us as trade secrets or confidential know-how. In an effort to protect this

proprietary information, we require our employees, consultants, service providers, advisors and other third parties to execute

confidentiality agreements upon the commencement of their relationships with us. These agreements require that all

confidential information developed by the individual or entity or made known to the individual or entity by us during the

individual's or entity's relationship with us be kept confidential and not disclosed to third parties without prior written consent

by us. These agreements, however, may not provide us with adequate protection against improper use or disclosure of trade

secrets or confidential information, and these agreements may be breached. For example, a portion of the manufacturing

methodology and know-how for Grafix is protected by trade secret or through confidentiality arrangements. A breach of

confidentiality could affect our competitive position. Also, others may independently develop substantially equivalent

proprietary information and techniques or otherwise gain access to our trade secrets or know-how.

Adequate remedies may not exist in the event of unauthorized use or disclosure of our confidential information. The

disclosure of our trade secrets or know-how could impair our competitive position and could have a material adverse effect

on our business, financial condition and results of operations.

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If our patent position does not adequately protect our products, others could compete against us more directly, which

would harm our business and have a material adverse effect on our business, financial condition and results of operations.

Patent law relating to the patentability and scope of claims in the biotechnology field is evolving and our patent rights

are subject to this additional uncertainty. The degree of patent protection that will be afforded to our products in the United

States and other important commercial markets is uncertain and is dependent upon the scope of protection decided upon

by the patent offices, courts and governments in these countries. There is no certainty that our existing patents or others,

if obtained, will provide us protection from competition or provide commercial benefit. Others may independently develop

similar products or processes to those developed by us, duplicate any of our products or processes or, if patents are issued

to us, design around any products and processes covered by our patents. We expect to, when appropriate, file product and

process applications with respect to our inventions. However, we may not file any such applications or, if filed, the patents

may not be issued. Patents issued to or licensed by us may be infringed by the products or processes of others.

Because of the extensive time required for development, testing and regulatory review of a potential product, it is

possible that, before any of our products can be commercialized, any related patent may expire or remain in force for only

a short period following commercialization, thereby reducing any advantages of the patent. A portion of our technology,

including certain know-how regarding the production processes for our products, is unpatented and is maintained by us as

trade secrets. The lack of patent protection for our products reduces the barrier for entry by others and makes these

products susceptible to increased competition, which could be harmful to our business.

If we infringe or are alleged to infringe intellectual property rights of third parties, it will adversely affect our business,

financial condition and results of operations.

Our research, development and commercialization activities, and the manufacture or distribution of our products, may

infringe or be alleged to infringe patents owned by third parties and to which we do not hold licenses or other rights. There

may be patent applications that have been filed but not published that, when issued, could be asserted against us. These

third parties could bring claims against us that would cause us to incur substantial expenses and, if successful against us,

could cause us to pay substantial damages. Further, if a patent infringement suit were brought against us, we could be

enjoined from certain activities including a stop or delay in research, development, manufacturing or sales activities related

to the product or technology that is the subject of the suit.

As a result of patent infringement claims, or in order to avoid potential claims, we may choose or be required to seek a

license from the third party. These licenses may not be available on acceptable terms, or at all. Even if we are able to obtain

a license, the license would likely obligate us to pay license fees or royalties or both, and the rights granted to us might be

nonexclusive, which could result in our competitors gaining access to the same intellectual property. Ultimately, we could

be prevented from commercializing a product, or be forced to cease some aspect of our business operations, if, as a result

of actual or threatened patent infringement claims, we are unable to enter into licenses on acceptable terms.

The cost to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. Some of

our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of

their greater financial resources. Patent litigation and other proceedings may also absorb significant management time.

Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material

adverse effect on our ability to compete in the marketplace and, as a result, on our business, financial condition and results

of operations.

We may become involved in lawsuits or administrative proceedings to protect or enforce our patents or the patents of

ourservice providers or licensors, which could be expensive and time consuming.

Litigation may be necessary to enforce patents issued or licensed to us, to protect trade secrets or know-how, or to

determine the scope and validity of proprietary rights. Litigation, post-grant review, reexamination, opposition or interference

proceedings could result in substantial additional costs and diversion of management focus. If we are ultimately unable to

protect our technology, trade secrets or know-how, we may be unable to operate profitably.

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Competitors may infringe our patents or the patents of our service providers or licensors. As a result, we may be required

to file infringement claims to protect our proprietary rights. This can be expensive, particularly for a company of our size,

and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours is invalid or is

unenforceable, or may refuse to enjoin the other party from using the technology at issue. An adverse determination of any

litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly.

Interference proceedings brought by the United States Patent and Trademark Office may be necessary to determine the

priority of inventions with respect to our patent applications or those of our service providers or licensors. Litigation or

interference proceedings may fail and, even if successful, may result in substantial costs and distraction to our management.

We may not be able, alone or with our service providers and licensors, to prevent misappropriation of our proprietary rights.

Furthermore, though we would seek protective orders where appropriate, because of the substantial amount of discovery

required in connection with intellectual property litigation, there is a risk that some of our confidential information could

be compromised by disclosure during this type of litigation. In addition, during this kind of litigation, there could be public

announcements of the results of hearings, motions or other interim proceedings or developments. If investors perceive these

results to be negative, the market price for our common stock could be significantly harmed.

The prosecution and enforcement of patents licensed to us by third parties are not within our control, and without these

technologies, our products may not be successful and our business would be harmed if the patents were infringed or

misappropriated.

We have obtained licenses from third parties for patents and patent application rights, allowing us to use intellectual

property rights owned by or licensed to these third parties. We do not control the maintenance, prosecution, enforcement

or strategy for many of these patents or patent application rights and as such are dependent in part on the owners of the

intellectual property rights to maintain their viability. Their failure to do so could significantly impair our ability to exploit

these technologies.

Risks Related to Our Common Stock

Our common stock has been delisted from trading on NASDAQ, which we expect to continue to have a material effect

on us and our stockholders.

As a result of the Restatement, we are delinquent in the filing of our Annual Reports on Form 10-K for the years ended

December 31, 2015 and December 31, 2016, and our Quarterly Reports on Form 10-Q for the quarters ended March 31,

2016, June 30, 2016, September 30, 2016, March 31, 2017,

June 30, 2017 and September 30, 2017. NASDAQ formally delisted our common stock on April 28, 2017 as a result of

our failure to timely file our SEC reports. There can be no assurance whether or when our common stock will again be listed

for trading on NASDAQ or any other national securities exchange. Further, the market price of our shares might decline and

become more volatile, and our stockholders may find that their ability to trade in our stock is limited. Furthermore, institutions

whose charters do not allow them to hold securities in unlisted companies might sell our shares, which could have a further

adverse effect on the price of our stock.

The trading price of the shares of our common stock is highly volatile, and purchasers of our common stock could incur

substantial losses.

Our stock price is volatile. The stock market in general and the market for biotechnology companies in particular have

experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a

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result of this volatility, investors may not be able to sell their common stock at or above the price they paid for it. The market

price for our common stock may be influenced by many factors, including:

– reduced access to a trading market for our common stock as a result of our delisting from NASDAQ;

– loss of investor confidence in us due to the Restatement;

– the recent changes in our senior management team and departures of other key personnel;

– the outcome of the existing lawsuits against us and the announcement of any future litigation matters, if any;

– the marketing and distribution of new products by our competitors;

– regulatory developments in the United States, generally or specific to us and our products;

– changes in the structure of healthcare payment systems;

– expiration or termination of our significant relationships with third parties;

– market conditions in the pharmaceutical and biotechnology sectors and issuance of securities analysts' reports or

recommendations;

– sales of substantial amounts of our stock by existing stockholders;

– sales of our stock by insiders;

– variations in our financial results or those of companies that are perceived to be similar to us;

– general economic, industry and market conditions;

– announcements by us of significant acquisitions, strategic partnerships, joint ventures or capital commitments;

– commercial, stockholder class action and derivative, intellectual property or product liability litigation against us; and

– the other factors described in this "Risk Factors" section.

There is no significant trading market or price discovery available for our common stock and purchasers of our common

stock may be unable to sell their shares.

Our common stock is currently quoted on the Pink OTC Markets Inc., referred to as the "pink sheets"; however trading to

date has been limited. If activity in the market for shares of our common stock does not increase, purchasers of our shares may

find it difficult to sell their shares. The pink sheets are a less recognized market than the NASDAQ and other stock exchanges

and are often characterized by low trading volume and significant price fluctuations. These and other factors may further impair

our stockholders' ability to sell their shares when they want to and/or could depress our stock price. As a result, stockholders may

find it difficult to dispose of their shares or obtain accurate quotations of the price of our securities because smaller quantities of

shares could be bought and sold, transactions could be delayed, and security analyst and news coverage of our Company may

be limited. These factors could result in lower prices and larger spreads in the bid and ask prices for our shares of common stock.

We do not intend to pay cash dividends.

We currently do not intend to pay cash dividends for the foreseeable future. We currently intend to retain earnings, if

any, to finance our operations and growth. As a result, capital appreciation, if any, of our common stock will be an investor's

only source of potential gain from our common stock for the foreseeable future.

Certain provisions of Maryland law and of our charter and bylaws contain provisions that could delay and discourage

takeover attempts and any attempts to replace our current directors by stockholders.

Certain provisions of Maryland General Corporation Law ("MGCL") and of our Maryland charter and Maryland bylaws

contain provisions that may make it more difficult to or prevent a third party from acquiring control of us or changing our

Board and management. These include, but are not limited to, the following:

– authorization of the board of directors to issue shares of preferred stock generally without stockholder approval;

– requirements that special meetings of stockholders may only be called by stockholders, upon request of stockholders

holding at least 20% of the capital stock issued and outstanding; and

– requirements that our stockholders comply with advance notice procedures in order to nominate candidates for election

to our Board or to place stockholders' proposals on the agenda for consideration at stockholder meetings.

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Maryland law also prohibits "business combinations" between us and an interested stockholder or an affiliate of an

interested stockholder for five years after the most recent date on which the interested stockholder becomes an interested

stockholder. These business combinations include a merger, consolidation, share exchange or, in certain circumstances

specified in the statute, an asset transfer or issuance or reclassification of equity securities.

Maryland law defines an interested stockholder as any person who beneficially owns 10% or more of the voting power

of the corporation's stock, or an affiliate or associate of the corporation who, at any time within the two-year period prior

to the date in question, was the beneficial owner of 10% or more of the voting power of the corporation's then-outstanding

voting stock. A person is not an interested stockholder if the board of directors of the corporation approved in advance the

transaction by which the person otherwise would have become an interested stockholder. However, such approval may be

conditional.

After the five-year prohibition, any business combination between the corporation and an interested stockholder or

an affiliate of an interested stockholder generally must be recommended by the board of directors and approved by

the affirmative vote of at least 80% of the votes entitled to be cast by holders of the then-outstanding shares of voting

stock, and two-thirds of the votes entitled to be cast by holders of the voting stock other than stock held by the interested

stockholder with whom or with whose affiliate the business combination is to be effected or stock held by an affiliate or

associate of the interested stockholder. These super-majority vote requirements do not apply if the holders of the common

stock receive a minimum price, as defined under Maryland law, for their stock in the form of cash or other consideration in

the same form as previously paid by the interested stockholder for its stock.

The statute permits various exemptions from its provisions, including business combinations that are approved or

exempted by the board of directors before the time that the interested stockholder becomes an interested stockholder. Our

Board has not exempted us from the business combination statute. Consequently, unless the Board adopts an exemption

from this statute in the future, the statute will be applicable and may affect business combinations between us and other

persons. The statute may discourage others from trying to acquire control of us or increase the difficulty of consummating

any such acquisition.

Subtitle 8 of Title 3 of the MGCL ("Subtitle 8") permits a Maryland corporation with a class of equity securities registered

under the Exchange Act, and with at least three independent directors to elect to be subject to any or all of five provisions:

– a classified board;

– a two-thirds vote requirement to remove a director;

– a requirement that the number of directors be fixed only by the vote of the directors;

– a requirement that a vacancy on the board be filled only by the remaining directors and for the remainder of the

full term of the directorship in which the vacancy occurred; and

– a majority requirement for the calling of a special meeting of stockholders.

An eligible Maryland corporation like us can elect into this statute by provision in its charter or bylaws or by a resolution of

its board of directors, without stockholder approval. Furthermore, we can elect to be subject to the above provisions regardless

of any contrary provisions in the charter or bylaws. Pursuant to Subtitle 8, we have elected to provide that vacancies on our

Board may be filled only by the remaining directors and for the remainder of the full term of the class of directors in which

the vacancy occurred.

Concentration of ownership of our common stock among our existing executive officers, directors and principal stockholders

may prevent others from influencing significant corporate decisions, and provisions in our charter allowing for a stockholder

vote by consent in lieu of a meeting may make it easier for stockholders holding a majority of our common stock to take

action.

Our executive officers, directors and beneficial owners of 5% or more of our common stock and their affiliates, in

aggregate, beneficially own approximately 52.3% of our outstanding common stock as of March 28, 2018. Included among

this 52.3%, Peter Friedli, the Chairman of the Board, and certain entities with which he is affiliated, beneficially own

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approximately 42.9% of our outstanding common stock as of March 28, 2018. These persons, acting together, will be able

to significantly influence all matters requiring stockholder approval, including the election and removal of directors and any

merger or other significant corporate transactions. The interests of this group of stockholders may not coincide with our

interests or the interests of other stockholders.

Moreover, as permitted by the MGCL, our charter provides that the holders of common stock entitled to vote generally

in the election of directors may take action or consent to any action by delivering a consent in writing or by electronic

transmission of the stockholders entitled to cast not less than the minimum number of votes (which is generally either a

majority of votes cast or a majority of votes entitled to be cast) that would be necessary to authorize or take the action at

a stockholders meeting if the corporation gives notice of the action not later than ten (10) days after the effective date of

the action to each holder of the class of common stock and to each stockholder who, if the action had been taken at a

meeting, would have been entitled to notice of the meeting.

Accordingly, these persons acting together, and Mr. Friedli specifically, currently has, and will continue to have, a

significant influence over the outcome of all corporate actions requiring stockholder approval, including any actions that

may be taken by stockholder consent in lieu of a meeting.

Risks Related to the Restatement of Financial Statements and

Failure to File SEC Reports

We have restated our prior financial statements, which may lead to additional risks and uncertainties, including loss of

investor confidence and negative impacts on our stock price.

As discussed in the 2014 Form 10-K/A, we have restated our audited financial statements for the year ended December

31, 2014, and as discussed in Note 15 to our financial statements included in Part II, Item 8 of this Form 10-K, our unaudited

interim financial statements for the periods ended March 31, 2015, June 30, 2015 and September 30, 2015. We have filed

this Form 10-K to, among other things, reflect the restatement of our 2015 interim financial statements.

As a result of the Restatement, we have become subject to a number of additional costs and risks, including costs for

accounting and legal fees in connection with or related to the Restatement and the remediation of our material weaknesses

in internal control over financial reporting. In addition, the attention of our management team has been diverted by these

efforts. We are subject to stockholder and other actions in connection with the Restatement and related matters.

In addition, the Restatement and related matters could impair our reputation or could cause our counterparties to lose

confidence in us. Each of these occurrences could have a material adverse effect on our business, financial condition, results

of operations and stock price.

Our management has identified material weaknesses in the Company's internal control over financial reporting which

could, if not remediated, result in additional material misstatements in our consolidated financial statements. We may

be unable to develop, implement and maintain appropriate controls in future periods.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, and

the Sarbanes-Oxley Act of 2002 and SEC rules require that our management report annually on the effectiveness of the

Company's internal control over financial reporting. Among other things, our management must conduct an assessment of

the Company's internal control over financial reporting to allow management to report on, and our independent registered

public accounting firm to audit, the effectiveness of the Company's internal control over financial reporting, as required by

Section 404 of the Sarbanes-Oxley Act. As disclosed in Part II, Item 9A, "Controls and Procedures" of this Form 10-K, our

management, with the participation of our current Interim Chief Executive Officer and our current Chief Financial Officer,

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has determined that we had material weaknesses in the Company's internal control over financial reporting as of December

31, 2017. Some of these material weaknesses contributed to the material misstatements in our previously filed annual audited

and interim unaudited consolidated financial statements, which were restated as part of the Restatement.

A "material weakness" is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such

that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements

will not be prevented or detected on a timely basis. We are actively engaged in developing and implementing a remediation

plan designed to address such material weaknesses. However, additional material weaknesses in the Company's internal

control over financial reporting may be identified in the future. Any failure to implement or maintain required new or improved

controls, or any difficulties we encounter in their implementation, could result in additional material weaknesses, or could

result in material misstatements in our consolidated financial statements. These misstatements could result in a further

restatement of our consolidated financial statements, cause us to fail to meet our reporting obligations, reduce our ability

to obtain financing or cause investors to lose confidence in our reported financial information, leading to a decline in our

stock price.

Although we are working to remedy the ineffectiveness of the Company's internal control over financial reporting, there

can be no assurance as to when the remediation plan will be fully developed and implemented. Until our remediation plan

is fully implemented, our management will continue to devote significant time, attention and financial resources to these

efforts. If we do not complete our remediation in a timely fashion, or at all, or if our remediation plan is inadequate, there

will continue to be an increased risk that we will be unable to timely file future periodic reports with the SEC and that our

future consolidated financial statements could contain errors that will be undetected. Further and continued determinations

that there are material weaknesses in the effectiveness of the Company's internal control over financial reporting could also

reduce our ability to obtain financing or could increase the cost of any financing we obtain and require additional expenditures

of both money and our management's time to comply with applicable requirements. For more information relating to the

Company's internal control over financial reporting, the material weaknesses that existed as of December 31, 2017 and the

remediation activities undertaken by us, see Part II, Item 9A, "Controls and Procedures" of this Form 10-K.

We and certain of our former executive officers and current and former directors have been named as defendants in litigation

actions that could result in substantial costs and divert management's attention.

We are currently party to legal and other proceedings which are described under Part II, Item 3, "Legal Proceedings,"

of this Form 10-K. We, and certain of our former executive officers and current and former directors, have been named as

defendants in a purported class action lawsuit that allege, among other things, that the defendants made materially false

or misleading statements and material omissions in the Company's SEC filings in violations of federal securities laws. Further,

stockholder derivative complaints have been filed in Maryland state and federal court against individual members of the

Company's Board and certain former executive officers alleging, among other things, that the defendants (i) violated their

fiduciary duties to the Company's stockholders; (ii) abused their ability to control and influence the Company; (iii) engaged

in gross mismanagement of the assets and business of the Company and (iv) were unjustly enriched at the expense of, and

to the detriment of, the Company. The resolution of these matters may result in significant damages, costs, and expenses,

which could have a material adverse impact on our business, financial condition and results of operations.

In addition, we could face suspension or disbarment from contracting with the VA and other government agencies as

a result of the legal and other proceedings which are described under Part II, Item 3, "Legal Proceedings," of this Form 10-K.

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Our failure to timely file certain periodic reports with the SEC poses significant risks to our business, each of which could

materially and adversely affect our financial condition and results of operations.

We failed to file our Annual Reports on Form 10-K for the years ended December 31, 2015 and December 31, 2016

and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2016, June 30, 2016, September 30, 2016,

March 31, 2017, June 30, 2017 and September 30, 2017.

Consequently, we were not compliant with the periodic reporting requirements under the Exchange Act. We are filing

this comprehensive Form 10-K as part of our effort to become current in our filing obligations under the Exchange Act. Our

failure to file those and possibly future periodic reports with the SEC could subject us to enforcement action by the SEC.

Any of these events could materially and adversely affect our financial condition and results of operations and our ability

to register with the SEC public offerings of our securities for our benefit or the benefit of our security holders. We have not

amended, and do not intend to amend, our Quarterly Reports on Form 10-Q for the 2015 interim periods. We also do not

intend to file separate Annual Reports on Form 10-K for the years ended December 31, 2015 and December 31, 2016 or

Quarterly Reports on Form 10-Q for the 2016 and 2017 interim periods.

Our failure to prepare and timely file our periodic reports with the SEC limits our access to the public markets to raise

debt or equity capital.

We did not file our Annual Reports on Form 10-K for the years ended December 31, 2015 and December 31, 2016 and

our Quarterly Reports on Form 10- Q for the quarters ended March 31, 2016, June 30, 2016, September 30, 2016, March

31, 2017, June 30, 2017 and September 30, 2017 as required by the SEC. Because we have not complied with our reporting

requirements with the SEC, we are limited in our ability to access the public markets to raise debt or equity capital. Our

limited ability to access the public markets could prevent us from pursuing transactions or implementing business strategies

that we might otherwise believe are beneficial to our business. Even if we regain and maintain compliance with our SEC

reporting obligations prospectively, until one year from the date we regain and maintain status as a current filer, we will

be ineligible to use shorter and less costly filing forms, such as Form S-3, to register our securities for sale. We may use Form

S-1 to register a sale of our stock to raise capital or complete acquisitions, but doing so would likely take longer than

using a shorter and less costly form, increase transaction costs and adversely impact our ability to raise capital or complete

acquisitions of other companies in a timely manner.

New Venturetec Ltd. Chollerstrasse 356300 Zug

phone +41 41 740 25 25fax +41 41 740 25 62info@newventuretec.comwww.newventuretec.com

Annual Report 2018 TechnologyBiotechnology

www.newventuretec.comenter