Exhibit 4.5

 

PROFOUND MEDICAL CORP.

INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS

June 30, 2019

PRESENTED IN CANADIAN DOLLARS

1

Profound Medical Corp.

Interim Condensed Consolidated Balance Sheet

(Unaudited)

	June 30, 2019 $			December 31, 2018 $
Assets
Current assets
Cash		20,493,470			30,687,183
Trade and other receivables (note 3)		2,934,283			2,686,112
Investment tax credits receivable		480,000			480,000
Inventory (note 4)		3,611,346			3,631,623
Prepaid expenses and deposits		161,685			434,871
Total current assets		27,680,784			37,919,789
Property and equipment (note 5)		914,848			1,207,357
Intangible assets (note 6)		3,449,342			4,013,561
Right-of-use assets (notes 2 and 7)		2,408,572			-
Goodwill		3,409,165			3,409,165
Total assets		37,862,711			46,549,872
Liabilities
Current liabilities
Accounts payable and accrued liabilities		2,339,451			3,912,350
Deferred revenue		420,741			312,558
Long-term debt (note 9)		3,475,358			1,339,583
Provisions (note 8)		87,741			1,352,017
Other liabilities (notes 9 and 10)		614,285			567,296
Derivative financial instrument (note 9)		152,423			98,203
Lease liabilities (notes 2 and 11)		211,599			-
Income taxes payable		164,079			297,353
Total current liabilities		7,465,677			7,879,360
Long-term debt (note 9)		8,562,737			10,615,662
Deferred revenue		658,026			379,044
Provisions (note 8)		45,162			49,319
Other liabilities (notes 9 and 10)		432,545			1,000,153
Lease liabilities (notes 2 and 11)		2,279,037			-
Total liabilities		19,443,184			19,923,538
Shareholders’ Equity
Share capital (note 12)		120,942,484			120,932,404
Contributed surplus		17,208,040			16,756,294
Accumulated other comprehensive loss		(86,935	)		(28,703	)
Deficit		(119,644,062	)		(111,033,661	)
Total Shareholders’ Equity		18,419,527			26,626,334
Total Liabilities and Shareholders’ Equity		37,862,711			46,549,872

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

2

Profound Medical Corp.

Interim Condensed Consolidated Statement of Loss and Comprehensive Loss

(Unaudited)

	Three months ended June 30, 2019 $			Three months ended June 30, 2018 $			Six months ended June 30, 2019 $			Six months ended June 30, 2018 $
Revenue
Products		465,840			170,931			1,813,621			543,425
Services		108,269			42,412			236,276			46,253
		574,109			213,343			2,049,897			589,678
Cost of sales (note 14)		244,066			126,259			777,422			357,334
Gross profit		330,043			87,084			1,272,475			232,344
Operating Expenses (note 14)
Research and development – net of investment tax credits of $nil (2018 – $120,000)		3,186,355			2,347,909			5,864,101			4,864,690
General and administrative		1,586,323			2,236,529			3,100,436			3,539,733
Selling and distribution – net of revenue share obligation reversal (note 8)		1,154,869			1,113,225			625,524			2,060,127
Total operating expenses		5,927,547			5,697,663			9,590,061			10,464,550
Operating Loss		5,597,504			5,610,579			8,317,586			10,232,206
Other income and expense
Finance costs (note 15)		337,220			313,606			651,905			633,569
Finance income		(110,790	)		(117,357	)		(252,671	)		(157,161	)
		226,430			196,249			399,234			476,408
Loss before income taxes		5,823,934			5,806,828			8,716,820			10,708,614
Income taxes		20,200			24,200			54,000			60,600
Net loss for the period		5,844,134			5,831,028			8,770,820			10,769,214
Other comprehensive loss
Item that may be reclassified to profit or loss
Foreign currency translation adjustment - net of tax		(11,843	)		57,943			(58,232	)		14,695
Net loss and comprehensive loss for the period		5,832,291			5,888,971			8,712,588			10,783,909
Loss per share (note 16)
Basic and diluted net loss per share		0.05			0.05			0.08			0.12

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

3

Profound Medical Corp.

Interim Condensed Consolidated Statement of Changes in Shareholders’ Equity

(Unaudited)

	Number of shares		Share capital $		Contributed surplus $			Accumulated other comprehensive income (loss) $			Deficit $			Total $
Balance – January 1, 2018		73,117,377		98,365,770		6,103,970			(57,929	)		(90,270,672	)		14,141,139
Net loss for the period		-		-		-			-			(10,769,214	)		(10,769,214	)
Cumulative translation adjustment – net of tax		-		-		-			14,695			-			14,695
Exercise of share options		426,562		295,781		(193,406	)		-			-			102,375
Share-based compensation (note 13)		-		-		476,931			-			-			476,931
Issuance of units on bought deal financing (note 12)		34,500,000		22,276,555		9,767,750			-			-			32,044,305
Balance – June 30, 2018		108,043,939		120,938,106		16,155,245			(43,234	)		(101,039,886	)		36,010,231
Balance – January 1, 2019		108,054,939		120,932,404		16,756,294			(28,703	)		(111,033,661	)		26,626,334
Change in accounting policy for IFRS 16 (note 2)		-		-		-			-			160,419			160,419
Restated balance – January 1, 2019		108,054,939		120,932,404		16,756,294			(28,703	)		(110,873,242	)		26,786,753
Net loss for the period		-		-		-			-			(8,770,820	)		(8,770,820	)
Cumulative translation adjustment – net of tax		-		-		-			(58,232	)		-			(58,232	)
Exercise of share options		18,000		10,080		(4,681	)		-			-			5,399
Share-based compensation (note 13)		-		-		456,427			-			-			456,427
Balance – June 30, 2019		108,072,939		120,942,484		17,208,040			(86,935	)		(119,644,062	)		18,419,527

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

4

Profound Medical Corp.

Interim Condensed Consolidated Statement of Cash Flows

(Unaudited)

	Six months ended June 30, 2019 $			Six months ended June 30, 2018 $
Operating activities
Net loss for the period		(8,770,820	)		(10,769,214	)
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation of property and equipment (note 5)		257,299			284,167
Amortization of intangible assets (note 6)		564,219			564,219
Depreciation of right-of-use assets (note 7)		204,126			-
Share-based compensation (note 13)		456,427			476,931
Interest and accretion expense (note 15)		681,258			522,215
Change in deferred rent		-			20,670
Deferred revenue		387,165			28,520
Change in fair value of derivative financial instrument (note 9)		54,220			-
Change in fair value of contingent consideration (note 10)		(208,911	)		(24,546	)
Changes in non-cash working capital balances
Investment tax credits receivable		-			(120,000	)
Trade and other receivables		(248,171	)		3,227,089
Prepaid expenses and deposits		63,186			(93,660	)
Inventory		20,277			(1,144,721	)
Accounts payable and accrued liabilities		(1,612,144	)		(2,320,795	)
Provisions		(1,219,114	)		151,263
Income taxes payable		(133,274	)		62,089
Net cash flow used in operating activities		(9,504,257	)		(9,135,773	)
Financing activities
Issuance of common shares		-			34,500,000
Transaction costs paid		-			(2,455,695	)
Payment of other liabilities		(16,203	)		(164,389	)
Payment of long-term debt and interest		(534,709	)		(1,953,822	)
Proceeds from share options exercised		5,399			102,375
Payment of lease liabilities		(143,943	)		-
Total cash (used in) from financing activities		(689,456	)		30,028,469
Net change in cash during the period		(10,193,713	)		20,892,696
Cash – Beginning of period		30,687,183			11,103,223
Cash – End of period		20,493,470			31,995,919

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

5

Profound Medical Corp.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

June 30, 2019

1 Description of business

Profound Medical Corp. (Profound) and its subsidiaries (together, the Company) were incorporated under the Ontario Business Corporations Act on July 16, 2014. The Company is a medical technology company developing treatments to ablate the prostate gland, uterine fibroids and nerves for palliative pain relief for patients with metastatic bone disease.

The Company’s registered address is 2400 Skymark Avenue, Unit 6, Mississauga, Ontario, L4W 5K5.

2 Summary of significant accounting policies and basis of preparation

Basis of preparation

These interim condensed consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS), applicable to the preparation of interim condensed consolidated financial statements, including International Accounting Standard (IAS) 34, Interim Financial Reporting. These interim condensed consolidated financial statements are presented in Canadian dollars and should be read in conjunction with the Company’s annual financial statements for the year ended December 31, 2018, which were prepared in accordance with IFRS.

These interim condensed consolidated financial statements were authorized for issue by the Board of Directors on August 14, 2019.

The interim condensed consolidated financial statements were prepared on a going concern basis under the historical cost convention.

The accounting policies adopted are consistent with those of the previous financial year except as noted below.

A new standard became applicable for the current reporting period and the Company had to change its accounting policies as a result. The impact of the adoption of this standard and the new accounting policy is disclosed below.

· IFRS 16, Leases (IFRS 16)

IFRS 16 sets out the principles for the recognition, measurement and disclosure of leases. IFRS 16 provides revised guidance on identifying a lease and for separating lease and non-lease components of a contract. IFRS 16 introduces a single accounting model for all lessees, thereby removing the distinction between operating and finance leases. IFRS 16 requires a lessee to recognize an asset (right-to-use the leased item) and a financial liability to pay rentals on the interim condensed consolidated balance sheets with terms of more than 12 months, unless the underlying asset is of low value. The standard permits either a full retrospective or a modified retrospective approach for the adoption. IFRS 16 was effective for annual periods beginning on or after January 1, 2019.

6

Profound Medical Corp.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

June 30, 2019

The Company has adopted IFRS 16 retrospectively from January 1, 2019, but has not restated comparative information, as permitted under the specific transitional provisions in the standard in accordance with the modified retrospective approach for adoption. The reclassifications and the adjustments arising from the new leasing standard are therefore recognized in the opening interim condensed consolidated balance sheet on January 1, 2019.

Adjustments recognized on adoption of IFRS 16

On adoption of IFRS 16, the Company recognized lease liabilities in relation to leases, which had previously been classified as operating leases under the principles of IAS 17, Leases (IAS 17). These liabilities were measured at the present value of the remaining lease payments, discounted using the incremental borrowing rate as of January 1, 2019. The weighted average lessee’s incremental borrowing rate applied to the lease liabilities on January 1, 2019 was 4%.

	$
Operating lease commitments as at December 31, 2018		3,313,292
Asset retirement obligation		111,100
Discounted using the Company’s average incremental borrowing rate of 4.0%		(836,665	)
Lease liabilities recognized as at January 1, 2019		2,587,727

The change in accounting policy affected the following items in the interim condensed consolidated balance sheet on January 1, 2019:

	Increase (decrease) $
Right-of-use assets		2,616,773
Lease liabilities		2,587,727
Prepaid expenses and deposits		(210,000	)
Provisions		(49,319	)
Other liabilities		(292,054	)
Deficit		160,419

Practical expedients applied

The Company has elected to apply the practical expedient not to recognize right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less and leases of low value assets. The lease payments associated with these leases are recognized as an expense on a straight-line basis over the lease term.

The Company has also elected not to reassess whether a contract is, or contains a lease at the date of initial application. Instead, for contracts entered into before the transition date, the Company has relied on its assessment made applying IAS 17 and IFRIC 4, Determining whether an Arrangement contains a Lease.

7

Profound Medical Corp.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

June 30, 2019

Accounting policy

At inception of a contract, the Company assesses whether a contract is, or contains, a lease based on whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured based on the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The assets are depreciated to the earlier of the end of the useful life of the right-of-use asset or the lease term using the straight-line method as this most closely reflects the expected pattern of consumption of the future economic benefits. The lease term includes periods covered by an option to extend if the Company is reasonably certain to exercise that option. Lease terms range from four to ten years for offices. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate.

The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Company’s estimate of the amount expected to be payable under a residual value guarantee, or if the Company changes its assessment of whether it will exercise a purchase, extension or termination option.

When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.

8

Profound Medical Corp.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

June 30, 2019

3 Trade and other receivables

The trade and other receivables balance comprises the following:

	June 30, 2019 $		December 31, 2018 $
Trade receivables		2,350,477		1,791,688
Interest receivable		33,877		55,730
Indirect tax receivables		510,851		565,832
Other receivables		39,078		272,862
Total trade and other receivables		2,934,283		2,686,112

Amounts past due represent trade receivables past due based on the customer’s contractual terms. The Company applies the simplified approach to providing for expected credit losses prescribed by IFRS 9, which permits the use of the lifetime expected loss provision for all trade receivables. At June 30, 2019 and December 31, 2018, there were no trade receivables that are past due.

4 Inventory

	June 30, 2019 $			December 31, 2018 $
Finished goods		2,017,634			2,305,746
Raw materials		1,633,565			1,383,572
Inventory provision		(39,853	)		(57,695	)
Total inventory		3,611,346			3,631,623

During the three and six months ended June 30, 2019, $254,319 and $726,402 (three and six months ended June 30, 2018, $61,198 and $330,696, respectively) of inventory was recognized in cost of sales. The Company decreased its inventory provision by $3,606 and $17,842 during the three and six months ended June 30, 2019 (three and six months ended June 30, 2018 – decrease of $2,198 and $40,549). There were no other inventory writedowns charged to cost of sales during the period ended June 30, 2019.

9

Profound Medical Corp.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

June 30, 2019

5 Property and equipment

Property and equipment consist of the following:

	Furniture and fittings $			Research and manufact- uring equipment $			Leasehold improve- ments $			Computer equipment $			Computer software $			Total $
At January 1, 2019
Cost		235,169			1,386,692			718,742			212,541			176,462			2,729,606
Accumulated depreciation		(138,604	)		(815,450	)		(182,235	)		(209,498	)		(176,462	)		(1,522,249	)
Net book value		96,565			571,242			536,507			3,043			-			1,207,357
Six months ended June 30, 2019
Opening net book value		96,565			571,242			536,507			3,043			-			1,207,357
Foreign exchange		-			(35,210	)		-			-			-			(35,210	)
Depreciation		(19,159	)		(200,734	)		(34,641	)		(2,765	)		-			(257,299	)
Closing net book value		77,406			335,298			501,866			278			-			914,848
At June 30, 2019
Cost		235,169			1,388,922			718,742			212,541			176,462			2,731,836
Accumulated depreciation		(157,763	)		(1,053,624	)		(216,876	)		(212,263	)		(176,462	)		(1,816,988	)
Net book value		77,406			335,298			501,866			278			-			914,848

6 Intangible assets

Intangible assets consist of the following:

	Exclusive licence agreement $			Software $			Proprietary technology $			Brand $			Total $
As at January 1, 2019
Cost		50,000			257,254			4,489,295			883,140			5,679,689
Accumulated amortization		(25,000	)		(118,938	)		(1,271,967	)		(250,223	)		(1,666,128	)
Net book value		25,000			138,316			3,217,328			632,917			4,013,561
Six months ended June 30, 2019
Opening net book value		25,000			138,316			3,217,328			632,917			4,013,561
Amortization		(1,250	)		(25,725	)		(448,929	)		(88,315	)		(564,219	)
Closing net book value		23,750			112,591			2,768,399			544,602			3,449,342
As at June 30, 2019
Cost		50,000			257,254			4,489,295			883,140			5,679,689
Accumulated amortization		(26,250	)		(144,663	)		(1,720,896	)		(338,538	)		(2,230,347	)
Net book value		23,750			112,591			2,768,399			544,602			3,449,342

10

Profound Medical Corp.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

June 30, 2019

7 Right-of-use assets

	Leased premises $
As at January 1, 2019
Cost		2,616,773
Accumulated depreciation		-
Net book value		2,616,773
Six months ended June 30, 2019
Opening net book value		2,616,773
Foreign exchange		(4,075	)
Depreciation		(204,126	)
Closing net book value		(2,408,572	)
As at June 30, 2019
Cost		2,616,773
Accumulated depreciation		(208,201	)
Net book value		2,408,572

The Company leases office premises in Mississauga, Canada and Vantaa, Finland. These lease agreements are typically entered into for four to ten-year periods.

8 Provisions

	Asset retirement obligation $			Revenue share obligation $			Warranty provision $			Total $
As at January 1, 2019		49,319			1,241,657			110,360			1,401,336
Change in accounting policy for IFRS 16 (note 2)		(49,319	)		-			-			(49,319	)
Restated balance as at January 1, 2019		-			1,241,657			110,360			1,352,017
Additions		-			-			65,922			65,922
Expiry		-			(1,241,657	)		(40,998	)		(1,282,655	)
Foreign exchange		-			-			(2,381	)		(2,381	)
As at June 30, 2019		-			-			132,903			132,903
Less: Current portion		-			-			87,741			87,741
Long-term portion		-			-			45,162			45,162

Asset retirement obligation

The asset retirement obligation was related to the Company’s leasehold improvements. This amount was transferred as part of the adoption of IFRS 16 (note 2).

11

Profound Medical Corp.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

June 30, 2019

Revenue share obligation

During January 2019, the Company replaced the original co-marketing and co-selling agreement with Siemens with a new agreement. Under the new agreement, all prior financial commitments and obligations owed to Siemens are released and replaced with a non-exclusive licence resulting in a one-time fixed licence fee of US$100,000 and a per annum payment per device interfaced to a Siemens MRI scanner. In exchange for the one-time fixed licence fee and per annum payments, the Company obtained a non-exclusive licence and reasonable support for the term of the agreement.

Warranty provision

The warranty provision is related to the Company’s estimate of future warranty obligations on product sales, which generally have a term of 12 to 24 months.

9 Long-term debt

A summary of the long-term debt is as follows:

	June 30, 2019 $		December 31, 2018 $
CIBC loan		12,038,095		11,955,245
Less: Current portion		3,475,358		1,339,583
Long-term portion		8,562,737		10,615,662

On July 30, 2018, the Company signed a term loan agreement with CIBC Innovation Banking (CIBC) to provide a secured loan for total initial gross proceeds of $12,500,000 maturing on July 29, 2022 with an interest rate based on prime plus 2.5%. The Company is required to make interest only payments until October 31, 2019 and monthly repayments on the principal of $378,788 plus accrued interest commencing on October 31, 2019. All obligations of the Company under the term loan agreement are guaranteed by current and future subsidiaries of the Company and include security of first priority interests in the assets of the Company and its subsidiaries. The Company has the ability to draw an additional $6,250,000 subject to the achievement of certain financing and product development milestones. The Company has a financial covenant in relation to the CIBC loan where unrestricted cash is required to be greater than operating cash expenditures for a trailing three-month period, reported on a monthly basis. The Company is in compliance with this financial covenant as at June 30, 2019.

12

Profound Medical Corp.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

June 30, 2019

	June 30, 2019 $			December 31, 2018 $
Balance – Beginning of period		11,955,245			-
Proceeds received		-			12,500,000
Transaction costs		-			(930,520	)
Interest and accretion expense		617,559			517,409
Repayment		(534,709	)		(131,644	)
Balance – End of period		12,038,095			11,955,245
Less: Current portion		3,475,358			1,339,583
Long-term portion		8,562,737			10,615,662

In connection with this term loan agreement on July 31, 2018, the Company also issued 321,714 common share purchase warrants to CIBC, with each warrant entitling the holder to acquire one common share at a price of $0.97 per common share until the date that is 60 months from the closing of the term loan agreement, with a cashless exercise feature. The cashless exercise feature causes the conversion ratio to be variable and the warrants are therefore classified as a financial liability. Gains and losses on the warrants are recorded within finance costs on the interim condensed consolidated statements of loss and comprehensive loss. A pricing model with observable market based inputs was used to estimate the fair value of the warrants issued. The estimated fair value of the warrants as at June 30, 2019 and December 31, 2018 was $152,423 and $98,203, respectively. The variables used to determine the fair values are as follows:

	June 30, 2019			December 31, 2018
Share price	$	0.79		$	0.55
Volatility		88	%		86	%
Expected life of warrants		4.1 years			4.6 years
Risk free interest rate		1.41	%		1.88	%
Dividend yield		-			-

The Federal Economic Development Agency (FedDev) loan with total proceeds of $867,000 was unsecured and non-interest bearing. The final repayment of $563,550 was made on July 25, 2018.

During the three and six months ended June 30, 2019 and 2018, the Company recognized $nil of interest and accretion expense on this loan (three and six months ended June 30, 2018 - $77,783 and $90,775, respectively).

The Health Technology Exchange (HTX) loans with total proceeds of $1,500,000 were unsecured and bore interest at 4.50% per annum. The final repayment of $1,094,698, including accrued interest, was made on March 31, 2018.

During the three and six months ended June 30, 2019 and 2018, the Company recognized $nil of interest and accretion expense on these loans (three and six months ended June 30, 2018 - $nil and $18,078, respectively).

13

Profound Medical Corp.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

June 30, 2019

On April 30, 2015, Profound Medical Inc. signed an agreement with Knight Therapeutics Inc. (Knight) to provide a secured loan of $4,000,000 (the Knight Loan) for an initial period of four years with an interest rate of 15% per annum, with payments of interest and principal deferred until June 30, 2017. As part of the agreement, Knight was also granted a royalty of 0.5% on net sales resulting from global sales of the Company’s products until May 20, 2019 (the royalty). In addition, the Company also entered into a distribution, licence and supply agreement with Knight pursuant to which Knight will act as the exclusive distributor of the Company’s product in Canada for an initial ten-year term, renewable for successive ten-year terms by either party. In connection with these arrangements, the Company issued to Knight 4% of the common shares of the Company (1,717,450 common shares). On July 25, 2018, the full amount of the Knight Loan, including prepayment fees, was repaid for a total payment of $3,188,023.

The royalty was initially recorded at fair value and was subsequently carried at amortized cost using the effective interest rate method. The initial fair value of the royalty was determined using future revenue forecasts for the term of the loan and a discount rate of 18%. During the three and six months ended June 30, 2019, the Company revised the fair value of the royalty, using future revenue forecasts for the term of the loan and a discount rate of 18%, and recognized an interest accretion recovery of $6,361 and $3,450, respectively (three and six months ended June 30, 2018 - accretion recovery of $7,931 and $3,383, respectively). This liability is included within other liabilities on the interim condensed consolidated balance sheets.

10 Other liabilities

	Knight royalty payable $			Contingent consideration $			Deferred rent $			Total $
As at January 1, 2019		19,653			1,255,741			292,055			1,567,449
Change in accounting policy for IFRS 16 (note 2)		-			-			(292,055	)		(292,055	)
Restated balance as at January 1, 2019		19,653			1,255,741			-			1,275,394
Amounts paid		(16,203	)		-			-			(16,203	)
Change in fair value		-			(208,911	)		-			(208,911	)
Accretion recovery (note 15)		(3,450	)		-			-			(3,450	)
As at June 30, 2019		-			1,046,830			-			1,046,830
Less: Current portion		-			614,285			-			614,285
Long-term portion		-			432,545			-			432,545

Knight royalty payable

As part of the Knight Loan, Knight was granted a royalty of 0.5% on net sales resulting from global sales of the Company’s products until May 20, 2019.

Contingent consideration

On July 31, 2017, the Company entered into an Asset and Share Purchase Agreement (the agreement) to acquire all of the issued and outstanding shares and certain assets of Royal Philips’ (Philips) Sonalleve MR-HIFU business (Sonalleve). The agreement includes certain contingent consideration payments payable monthly in euro tied to future revenue levels of the Sonalleve business summarized as follows:

14

Profound Medical Corp.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

June 30, 2019

· 5% of revenue between the date of acquisition and December 31, 2017;

· 6% of revenue during the year ending December 31, 2018;

· 7% of revenue during the years ending December 31, 2019 and 2020; and

· if total revenues are in excess of a defined amount from the date of acquisition to December 31, 2020, then the Company will be required to pay 7% of revenue from the date of acquisition to December 31, 2019.

The contingent consideration is classified as a Level 3 financial liability within the fair value hierarchy given its fair value is estimated using the discounted value of estimated future payments. The key assumptions in valuing the contingent consideration include: estimated projected net sales; the likelihood of certain levels being reached; and a discount rate of 15%.

Deferred rent

The deferred rent obligation was related to the Company’s straight-line rent accrual for its current premises. This amount was transferred as part of the adoption of IFRS 16 (note 2).

11 Lease liabilities

	June 30, 2019 $
As at January 1, 2019		2,587,727
Repayments		(143,943	)
Foreign exchange		(20,297	)
Interest and accretion expense		67,149
Balance – End of period		2,490,636
Less: Current portion		211,599
Long-term portion		2,279,037

12 Share capital

Common shares

The Company is authorized to issue an unlimited number of common shares.

Issued and outstanding (with no par value)

	June 30, 2019 $		December 31, 2018 $
108,072,939 (December 31, 2018 – 108,054,939) common shares		120,942,484		120,932,404

15

Profound Medical Corp.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

June 30, 2019

Warrants

As a result of the March 20, 2018 bought deal financing, 17,250,000 warrants were issued.

A summary of warrants outstanding is shown below:

	Number of warrants		Weighted average exercise price $		Weighted average remaining contractual life (years)
Balance – January 1, 2019 and June 30, 2019		22,571,714		1.39		3.17

13 Share-based payments

Share options

Compensation expense related to share options for the three and six months ended June 30, 2019 was $383,789 and $456,427, respectively (three and six months ended June 30, 2018 - $235,873 and $476,931, respectively).

A summary of the share option changes during the period presented and the total number of share options outstanding as at those dates are set forth below:

	Number of options			Weighted average exercise price $
Balance – January 1, 2019		6,244,779			1.13
Granted		4,982,400			0.92
Exercised		(18,000	)		0.30
Forfeited/expired		(835,250	)		1.06
Balance – June 30, 2019		10,373,929			1.04

The company estimated the fair value of the share options granted during the period using the Black-Scholes option pricing model with the weighted average assumptions below. Due to the absence of company-specific volatility rates for the expected life of the share options, the company chose comparable companies in the medical device industry.

	May 15, 2019			May 16, 2019
Share price on date of issuance	$	0.91		$	0.94
Expected volatility		82	%		82	%
Expected life of share options		6 years			6 years
Risk-free interest rate		1.59	%		1.59	%
Dividend yield		-			-
Number of share options issued		133,000			4,849,400

16

Profound Medical Corp.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

June 30, 2019

The following table summarizes information about the share options outstanding as at June 30, 2019:

Exercise price $	Number of options outstanding		Weighted average remaining contractual life (years)		Number of options exercisable
0.24		212,750		3.19		212,750
0.60		33,000		9.40		-
0.85		315,000		8.38		124,663
0.91		133,000		9.88		-
0.92		4,849,400		9.88		-
0.93		500,000		9.16		-
0.97		66,000		7.82		55,000
0.99		28,000		8.75		8,747
1.02		115,500		8.97		71,500
1.10		1,971,724		7.47		1,243,874
1.19		518,000		8.90		140,291
1.35		132,500		7.15		107,961
1.46		934,055		7.15		661,622
1.50		565,000		6.17		528,621
		10,373,929		8.64		3,155,029

14 Nature of expenses

	Three months ended June 30, 2019 $		Three months ended June 30, 2018 $		Six months ended June 30, 2019 $			Six months ended June 30, 2018 $
Production and manufacturing costs		68,171		45,537		464,477			237,590
Salaries and benefits		2,473,969		2,657,601		5,012,176			5,095,979
Consulting fees		1,378,418		1,286,739		2,297,765			2,552,083
Research and development expense		613,821		266,463		1,096,785			320,255
Sales and marketing expenses		368,339		427,721		(696,955	)		685,885
Amortization and depreciation		516,350		424,548		1,026,028			848,386
Share-based compensation		383,789		235,873		456,427			476,931
Rent		125,974		193,075		216,133			348,741
Other expenses		242,782		286,365		494,647			256,035
		6,171,613		5,823,922		10,367,483			10,821,885

17

Profound Medical Corp.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

June 30, 2019

15 Finance costs

	Three months ended June 30, 2019 $			Three months ended June 30, 2018 $			Six months ended June 30, 2019 $			Six months ended June 30, 2018 $
Knight loan (note 9)		-			264,766			-			416,745
Change in fair value of contingent consideration		(185,197	)		(73,193	)		(208,911	)		(24,546	)
CIBC loan (note 9)		312,050			-			617,559			-
HTX and FedDev loans (note 9)		-			77,783			-			108,853
Change in fair value of derivative financial instrument (note 9)		(3,251	)		-			54,220			-
Lease liability interest expense (note 11)		33,556			-			67,149			-
Royalty interest accretion recovery (note 9 and 10)		(6,361	)		(7,931	)		(3,450	)		(3,383	)
Provisions (note 8)		-			1,261			-			2,488
Foreign exchange (gain) loss		186,423			50,920			125,338			133,412
		337,220			313,606			651,905			633,569

16 Loss per share

The following table shows the calculation of basic and diluted loss per share:

	Three months ended June 30, 2019 $		Three months ended June 30, 2018 $		Six months ended June 30, 2019 $		Six months ended June 30, 2018 $
Net loss for the period		5,844,134		5,831,028		8,770,820		10,769,214
Weighted average number of common shares		108,061,539		107,727,319		108,058,221		92,614,640
Basic and diluted loss per share		0.05		0.05		0.08		0.12

For the periods noted above, the computation of diluted loss per share is equal to the basic loss per share due to the anti-dilutive effect of the share options and warrants.

Of the 10,373,929 (June 30, 2018 – 5,535,029) share options and 22,571,714 (June 30, 2018 – 22,250,000) warrants not included in the calculation of diluted loss per share for the period ended June 30, 2019, 25,726,743 (June 30, 2018 – 24,347,875) were exercisable.

18

Profound Medical Corp.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

June 30, 2019

17 Related party transactions

Key management includes the Company’s directors and senior management team. The remuneration of directors and the senior management team was as follows:

	Three months ended June 30, 2019 $		Three months ended June 30, 2018 $		Six months ended June 30, 2019 $		Six months ended June 30, 2018 $
Salaries and employee benefits		347,258		705,127		696,848		908,853
Termination benefits		-		-		-		114,750
Directors’ fees		37,500		20,084		75,000		40,031
Share-based compensation		315,536		228,792		372,170		401,596
		700,294		954,003		1,144,018		1,456,230

Executive employment agreements allow for additional payments in the event of a liquidity event, or if the executive is terminated without cause.

18 Segment reporting

The Company’s operations are categorized into one industry segment, which is medical technology focused on magnetic resonance guided ablation procedures for the treatment of prostate disease, uterine fibroids and palliative pain treatment for patients with metastatic bone disease. The Company is managed geographically in Canada, Germany and Finland.

For the three-month period ended June 30, 2019:

	Canada $		Germany $		Finland $		Total $
Revenue
Product		351,822		114,018		-		465,840
Services		19,590		88,679		-		108,269
		371,412		202,697		-		574,109
Cost of sales		59,698		184,368		-		244,066
Gross profit		311,714		18,329		-		330,043
Operating expenses
Research and development		2,548,997		-		637,358		3,186,355
General and administrative		1,507,414		-		78,909		1,586,323
Selling and distribution		659,343		412,861		82,665		1,154,869
Total operating expense		4,715,754		412,861		798,932		5,927,547
Operating loss		4,404,040		394,532		798,932		5,597,504
Net finance costs								226,430
Loss for the period before income taxes								5,823,934

19

Profound Medical Corp.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

June 30, 2019

For the six-month period ended June 30, 2019:

	Canada $			Germany $		Finland $		Total $
Revenue
Product		1,289,131			524,490		-		1,813,621
Services		31,768			204,508		-		236,276
		1,320,899			728,998		-		2,049,897
Cost of sales		215,140			562,282		-		777,422
Gross profit		1,105,759			166,716		-		1,272,475
Operating expenses
Research and development		4,444,216			-		1,419,885		5,864,101
General and administrative		2,908,411			-		192,025		3,100,436
Selling and distribution		(332,591	)		789,449		168,666		625,524
Total operating expense		7,020,035			789,449		1,780,577		9,590,061
Operating loss		5,914,276			622,733		1,780,577		8,317,586
Net finance costs									399,234
Loss for the period before income taxes									8,716,820

For the three-month period ended June 30, 2018:

	Canada $		Germany $		Finland $		Total $
Revenue
Product		-		170,931		-		170,931
Services		12,119		30,293		-		42,412
		12,119		201,224		-		213,343
Cost of sales		-		126,259		-		126,259
Gross profit		12,119		74,965		-		87,084
Operating expenses
Research and development		2,009,586		-		338,323		2,347,909
General and administrative		2,236,529		-		-		2,236,529
Selling and distribution		599,998		333,040		180,187		1,113,225
Total operating expense		4,846,113		333,040		518,510		5,697,663
Operating loss		4,833,994		258,075		518,510		5,610,579
Net finance costs								196,249
Loss for the period before income taxes								5,806,828

20

Profound Medical Corp.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

June 30, 2019

For the six-month period ended June 30, 2018:

	Canada $		Germany $		Finland $		Total $
Revenue
Product		-		543,425		-		543,425
Services		12,119		34,134		-		46,253
		12,119		577,559		-		589,678
Cost of sales		-		357,334		-		357,334
Gross profit		12,119		220,225		-		232,344
Operating expenses
Research and development		3,835,311		-		1,029,379		4,864,690
General and administrative		3,359,195		-		180,538		3,539,733
Selling and distribution		1,003,598		726,324		330,205		2,060,127
Total operating expense		8,198,104		726,324		1,540,122		10,464,550
Operating loss		8,185,985		506,099		1,540,122		10,232,206
Net finance costs								476,408
Loss for the period before income taxes								10,708,614

Other financial information by segment as at June 30, 2019:

	Canada $		Germany $		Finland $		Total $
Total assets		34,015,086		896,755		2,950,871		37,862,711
Goodwill and intangible assets		6,858,507		-		-		6,858,507
Property and equipment		662,624		-		252,224		914,848
Right-of-use assets		2,127,101		-		281,471		2,408,572
Amortization of intangible assets		564,219		-		-		564,219
Depreciation of property and equipment		134,672		267		122,360		257,299
Depreciation of right-of-use asset		146,697		-		57,429		204,126

Other financial information by segment as at December 31, 2018:

	Canada $		Germany $		Finland $		Total $
Total assets		42,437,691		1,093,184		3,018,997		46,549,872
Goodwill and intangible assets		7,422,726		-		-		7,422,726
Property and equipment		797,296		266		409,795		1,207,357
Amortization of intangible assets		1,128,437		-		-		1,128,437
Depreciation of property and equipment		296,093		3,100		246,808		546,001

21