EX-99.1 2 exh_991.htm EXHIBIT 99.1

Exhibit 99.1

 

 

 

 

 

PROFOUND MEDICAL CORP.

 

 

INTERIM CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

 

JUNE 30, 2020

 

PRESENTED IN CANADIAN DOLLARS

 

 

 

 

 

 

 

 

Profound Medical Corp.

Interim Condensed Consolidated Balance Sheets

(Unaudited)

 

 

   June 30,
2020
$		   December 31,
2019
$		 
         
Assets        
         
Current assets        
Cash   55,964,086    19,222,195 
Trade and other receivables (note 3)   4,594,426    4,058,136 
Investment tax credits receivable   240,000    240,000 
Inventory (note 4)   6,781,987    4,764,458 
Prepaid expenses and deposits   583,891    1,335,620 
Total current assets   68,164,390    29,620,409 
           
Property and equipment (note 5)   663,366    684,718 
Intangible assets (note 6)   2,551,997    3,128,820 
Right-of-use assets (note 7)   2,012,198    2,199,381 
Goodwill   3,409,165    3,409,165 
           
Total assets   76,801,116    39,042,493 
           
Liabilities          
           
Current liabilities          
Accounts payable and accrued liabilities   2,742,942    3,933,114 
Deferred revenue   1,028,766    654,763 
Long-term debt (note 8)   -    5,144,461 
Warranty provision   129,871    134,956 
Other liabilities (note 9)   106,513    286,858 
Derivative financial instrument (note 8)   487,235    254,769 
Lease liabilities (note 10)   346,587    258,685 
Income taxes payable   5,856    15,763 
Total current liabilities   4,847,770    10,683,369 
           
Long-term debt (note 8)   -    6,719,924 
Deferred revenue   490,835    829,784 
Warranty provision   28,509    19,005 
Lease liabilities (note 10)   1,937,279    2,125,873 
           
Total liabilities   7,304,393    20,377,955 
           
Shareholders’ Equity          
           
Share capital (note 11)   194,991,770    130,266,880 
Contributed surplus   16,483,466    19,580,338 
Accumulated other comprehensive gain/(loss)   42,201    (117,188)
Deficit   (142,020,714)   (131,065,492)
           
Total Shareholders’ Equity   69,496,723    18,664,538 
           
Total Liabilities and Shareholders’ Equity   76,801,116    39,042,493 

 

 

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

 

Profound Medical Corp.

Interim Condensed Consolidated Statements of Loss and Comprehensive Loss

(Unaudited)

 

 

   Three
months
ended
June 30,
2020
$		   Three
months
ended
June 30,
2019
$		   Six months
ended
June 30,
2020
$		   Six months
ended
June 30,
2019
$		 
                 
Revenue                
Products   1,131,801    465,840    2,489,340    1,813,621 
Services   191,554    108,269    353,148    236,276 
Pay per procedure   97,868    -    138,953    - 
    1,421,223    574,109    2,981,441    2,049,897 
Cost of sales (note 12)   845,392    244,066    1,811,000    777,422 
Gross profit   575,831    330,043    1,170,441    1,272,475 
                     
Operating Expenses (note 13)                    
Research and development   2,383,867    3,186,355    5,223,084    5,864,101 
General and administrative   2,275,087    1,586,323    5,328,314    3,100,436 
Selling and distribution   1,375,488    1,154,869    2,629,817    625,524 
Total operating expenses   6,034,442    5,927,547    13,181,215    9,590,061 
                     
Operating Loss   5,458,611    5,597,504    12,010,774    8,317,586 
                     
Net finance (income)/costs (note 14)   1,696,118    226,430    (1,372,087)   399,234 
                     
Loss before income taxes   7,154,729    5,823,934    10,638,687    8,716,820 
                     
Income taxes    192,800    20,200    316,535    54,000 
                     
Net loss for the period   7,347,529    5,844,134    10,955,222    8,770,820 
                     
Other comprehensive loss (income)                    
Item that may be reclassified to profit or loss                    
Foreign currency translation adjustment - net of tax of $nil (2019 - $nil)   (25,728)   (11,843)   159,389    (58,232)
Net loss and comprehensive loss for the period   7,321,801    5,832,291    11,114,611    8,712,588 
                     
Loss per share (note 15)                    
Basic and diluted net loss per share   0.46    0.54    0.71    0.81 

 

 

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

 

Profound Medical Corp.

Interim Condensed Consolidated Statements of Changes in Shareholders’ Equity

(Unaudited)

 

 

   Number
of shares		   Share
capital
$		   Contributed
surplus
$		   Accumulated
other
comprehensive
income (loss)
$		   Deficit
$		   Total
$		 
                         
Balance – January 1, 2019   10,805,494    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   1,800    10,080    (4,681)   -    -    5,399 
Share-based compensation (note 12)   -    -    456,427    -    -    456,427 
Balance – June 30, 2019   10,807,294    120,942,484    17,208,040    (86,935)   (119,644,062)   18,419,527 
                               
Balance – January 1, 2020   11,852,749    130,266,880    19,580,338    (117,188)   (131,065,492)   18,664,538 
                               
Net loss for the period   -    -    -    -    (10,955,222)   (10,955,222)
Cumulative translation adjustment – net of tax of nil   -    -    -    159,389    -    159,389 
Exercise of share options   140,282    2,541,693    (1,001,513)   -    -    1,540,180 
Exercise of warrants   752,732    14,236,546    (3,586,165)   -    -    10,650,381 
Share-based compensation (note 12)   -    -    1,490,806    -    -    1,490,806 
Issuance of common shares from offering (note 11)   3,392,500    47,946,651    -    -    -    47,946,651 
Balance – June 30, 2020   16,138,263    194,991,770    16,483,466    42,201    (142,020,714)   69,496,723 

 

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

 

Profound Medical Corp.

Interim Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

   Six months ended
June 30,
2020
$		   Six months ended
June 30,
2019
$		 
         
Operating activities        
Net loss for the period   (10,955,222)   (8,770,820)
Adjustments to reconcile net loss to net cash flows from operating activities:          
Depreciation of property and equipment (note 5)   245,277    257,299 
Amortization of intangible assets (note 6)   203,663    564,219 
Depreciation of right-of-use assets (note 7)   576,823    204,126 
Share-based compensation (note 12)   1,490,806    456,427 
Interest and accretion expense (note 14)   696,866    681,258 
Deferred revenue   35,054    387,165 
Change in fair value of derivative financial instrument (note 8)   232,466    54,220 
Change in fair value of contingent consideration (note 9)   11,580    (208,911)
Foreign exchange on cash   (1,701,391)   - 
Changes in non-cash working capital balances          
Trade and other receivables   (536,290)   (248,171)
Prepaid expenses and deposits   751,729    63,186 
Inventory   (2,206,342)   20,277 
Accounts payable and accrued liabilities   (1,071,273)   (1,612,144)
Provisions   4,419    (1,219,114)
Income taxes payable   (9,907)   (133,274)
Net cash flow used in operating activities   (12,231,742)   (9,504,257)
           
Financing activities          
Issuance of common shares (note 11)   52,098,723    - 
Transaction costs paid (note 11)   (4,152,072)   - 
Payment of other liabilities (note 9)   (191,925)   (16,203)
Payment of long-term debt and interest (note 8)   (12,497,993)   (534,709)
Proceeds from share options exercised (note 12)   1,540,180    5,399 
Proceeds from warrants exercised (note 11)   10,650,381    - 
Payment of lease liabilities (note 10)   (175,052)   (143,943)
Total cash from financing activities   47,272,242    (689,456)
           
Net change in cash during the period   35,040,500    (10,193,713)
Foreign exchange on cash   1,701,391    - 
Cash – Beginning of period   19,222,195    30,687,183 
Cash – End of period   55,964,086    20,493,470 

 

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

 

Profound Medical Corp.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

June 30, 2020

 

 

1Description 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.

 

2Summary 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, 2019, which were prepared in accordance with IFRS.

 

These interim condensed consolidated financial statements were authorized for issue by the Board of Directors on August 6, 2020.

 

The interim condensed consolidated financial statements were prepared on a going concern basis under the historical cost convention, except for the derivative financial instrument and other liabilities which are measured at fair value

 

The accounting policies adopted are consistent with those of the previous financial year with the exception of new revenue recognition and share-based compensation accounting policies as outlined below in relation to the lease of medical devices and a long-term incentive plan.

 

Pay per procedure

 

The company generates revenue from the lease of medical devices and the sale of certain consumable goods. Customers are charged a fixed fee per use of the medical device, called a pay per procedure charge, which is charged each time a procedure is completed. Per use fees are recognized within pay per procedure revenue on the interim condensed consolidated statements of loss and comprehensive loss. The use of the medical device also requires the customer to purchase a consumable. The consumable is considered a non-lease component and is therefore recognized when control transfers to the customer. Consumable sales are recognized within product revenue on the interim condensed consolidated statements of loss and comprehensive loss. The consideration received is allocated between lease and non-lease components based on their stand-alone selling prices.

 

 

  (1)

Profound Medical Corp.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

June 30, 2020

 

Share-based compensation

 

The Company has a long-term incentive plan (LTIP) that was approved on May 20, 2020. For each Restricted Share Unit (RSU) or Deferred Share Unit (DSU) granted under the long-term incentive plan, the Company recognizes an expense equal to the market value of a Profound common share at the date of grant based on the number of RSUs and DSUs expected to vest, recognized over the term of the vesting period, with a corresponding credit to contributed surplus for share-based compensation anticipated to be equity settled or a corresponding credit to a liability for those anticipated to be cash settled. Share-based compensation expense is adjusted for subsequent changes in management’s estimate of the number of RSUs or DSUs that are expected to vest and, for RSUs or DSUs anticipated to be cash settled, changes in the market value of Profound common shares. The effect of these changes is recognized in the period of the change. Vested RSUs and DSUs are settled either in Profound common shares or in cash or a combination thereof at the discretion of the Company.

 

COVID-19

 

The COVID-19 outbreak has been declared a pandemic by the World Health Organization. It is too soon to gauge the impacts of the current outbreak, given the many unknowns related to COVID-19 including the duration and severity of the outbreak. COVID-19 is altering business and consumer activity in affected areas and beyond. The global response to the COVID-19 pandemic has resulted in, among other things, border closures, severe travel restrictions, the temporary shut-down of non-essential services and extreme fluctuations in financial and commodity markets. Additional measures may be implemented by one or more governments in jurisdictions where the Company operates. These measures have caused material disruption to businesses globally, resulting in an economic slowdown. The extent to which COVID-19 and any other pandemic or public health crisis impacts the Company’s business, affairs, operations, financial condition, liquidity, availability of credit and results of operations will depend on future developments that are highly uncertain and cannot be predicted with any meaningful precision, including new information which may emerge concerning the severity of the COVID-19 virus and the actions required to contain the COVID-19 virus or remedy its impact, among others.

 

From an operational perspective, the Company’s employees, direct sales and marketing teams and distribution partners, as well as the workforce of vendors, services providers and counterparties with which the Company does business, are also adversely affected by the COVID-19 pandemic or efforts to mitigate the pandemic, including government-mandated shutdowns, requests or orders for employees to work remotely, and other physical distancing measures, which has had an adverse impact on the Company’ ability to conduct its businesses, including its ability to cultivate adoption of the TULSA-PRO technology, support clinical customers with the TULSA-PRO procedures and increase the utilization of the systems and disposable components.

 

To date, the economic downturn and uncertainty caused by the COVID-19 pandemic and global measures undertaken to contain its spread have affected all of the Company’s operations to some extent and, in particular, have caused volatility in demand for the TULSA-PRO systems and the disposable components related thereto. This has resulted in a reduction in anticipated sales and led to delays in the Company’s expectations regarding the rate at which agreements for new TULSA-PRO user sites will be entered into and when user sites will become operational for the initiation of patient treatments. Despite the COVID-19 pandemic, patient treatments are continuing and Profound continues to identify potential new TULSA-PRO user sites. The Company continues to evaluate the current and potential impact of the COVID-19 pandemic on its business, affairs, operations, financial condition, liquidity, availability of credit and results of operations.

  (2)

Profound Medical Corp.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

June 30, 2020

 

In addition, the actual and threatened spread of COVID-19 globally could also have a material adverse effect on the regional economies in which Profound operates, could continue to negatively impact stock markets, including the trading price of the Common Shares, could adversely impact the Company’s ability to raise capital, could cause continued interest rate volatility and movements that could make obtaining financing more challenging or more expensive.

 

3Trade and other receivables

 

The trade and other receivables balance comprises the following:

 

   June 30,
2020
$		   December 31,
2019
$		 
         
Trade receivables   3,711,903    2,588,470 
Interest receivable   -    32,287 
Tax receivables   801,559    1,108,340 
Other receivables   80,964    329,039 
Total trade and other receivables   4,594,426    4,058,136 

 

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, 2020 and December 31, 2019, there were no trade receivables that are past due.

 

4Inventory

 

   June 30,
2020
$		   December 31,
2019
$		 
         
Finished goods   3,872,424    2,384,704 
Raw materials   3,158,044    2,403,652 
Inventory provision   (248,481)   (23,898)
Total inventory   6,781,987    4,764,458 

 

During the three and six months ended June 30, 2020, $829,606 and $1,769,883 (three and six months ended June 30, 2019, $254,319 and $726,402, respectively) of inventory was recognized in cost of sales. The Company increased its inventory provision by $85,875 and $224,583 during the three and six months ended June 30, 2020 (three and six months ended June 30, 2019 – decrease of $3,606 and $17,842).

 

  (3)

Profound Medical Corp.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

June 30, 2020

 

5Property and equipment

 

Equipment under lease is depreciated on a straight-line basis over a period of two years.

 

Property and equipment consist of the following:

 

  

Furniture

and

fittings

$

  

Research

and

manufacturing

equipment

$

  

Leasehold

improvements

$

   Equipment
under
lease
$		  

Total

$

 
                     
At January 1, 2020                    
Cost   235,169    1,386,692    718,742    -    2,340,603 
Accumulated depreciation   (176,922)   (1,227,445)   (251,518)   -    (1,655,885)
Net book value   58,247    159,247    467,224    -    684,718 
                          
Six months ended June 30, 2020                         
Opening net book value   58,247    159,247    467,224    -    684,718 
Addition   -    -    -    188,813    188,813 
Foreign exchange   -    35,112    -    -    35,112 
Depreciation   (19,159)   (156,073)   (34,642)   (35,403)   (245,277)
Closing net book value   39,088    38,286    432,582    153,410    663,366 
                          
At June 30, 2020                         
Cost   235,169    1,386,692    718,742    188,813    2,529,416 
Accumulated depreciation   (196,081)   (1,348,406)   (286,160)   (35,403)   (1,866,050)
Net book value   39,088    38,286    432,582    153,410    663,366 

 

6Intangible assets

 

Intangible assets consist of the following:

 

   Exclusive
licence
agreement
$		   Software
$		   Proprietary
technology
$		   Brand
$		   Total
$		 
                     
As at January 1, 2020                    
Cost   300,000    257,254    4,489,295    883,140    5,929,689 
Accumulated amortization   (33,802)   (170,390)   (2,169,826)   (426,851)   (2,800,869)
Net book value   266,198    86,864    2,319,469    456,289    3,128,820 
                          
Six months ended June 30, 2020                         
Opening net book value   266,198    86,864    2,319,469    456,289    3,128,820 
Amortization   (13,854)   (25,726)   (448,929)   (88,314)   (576,823)
Closing net book value   252,344    61,138    1,870,540    367,975    2,551,997 
                          
As at June 30, 2020                         
Cost   300,000    257,254    4,489,295    883,140    5,929,689 
Accumulated amortization   (47,656)   (196,116)   (2,618,755)   (515,165)   (3,377,692)
Net book value   252,344    61,138    1,870,540    367,975    2,551,997 
  (4)

Profound Medical Corp.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

June 30, 2020

 

7Right-of-use assets

 

   Leased
premises
$		 
     
As at January 1, 2020    
Cost   2,616,773 
Accumulated depreciation   (417,392)
Net book value   2,199,381 
      
Six months ended June 30, 2020     
Opening net book value   2,199,381 
Foreign exchange   16,480 
Depreciation   (203,663)
Closing net book value   2,012,198 
      
As at June 30, 2020     
Cost   2,616,773 
Accumulated depreciation   (604,575)
Net book value   2,012,198 

 

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

 

8Long-term debt

 

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

 

   June 30,
2020
$		   December 31,
2019
$		 
         
CIBC loan   -    11,864,385 
Less: Current portion   -    5,144,461 
Long-term portion   -    6,719,924 

 

On July 30, 2018, the Company signed a term loan agreement with CIBC Innovation Banking (CIBC) to provide a secured loan for total gross proceeds of $12,500,000 maturing on July 29, 2022 with an interest rate based on prime plus 2.5%. All obligations of the Company under the term loan agreement were guaranteed by current and future subsidiaries of the Company and included security of first priority interests in the assets of the Company and its subsidiaries. On February 4, 2020, the full outstanding amount of the CIBC loan at that date, plus accrued interest, was repaid for a total payment of $12,041,032.

 

   June 30,
2020
$		   December 31,
2019
$		 
         
Balance - Beginning of period   11,864,385    11,955,245 
Interest and accretion expense   633,608    1,240,911 
Scheduled and final repayments   (12,497,993)   (1,331,771)
Balance - End of period   -    11,864,385 
Less: Current portion   -    5,144,461 
Long-term portion   -    6,719,924 

  (5)

Profound Medical Corp.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

June 30, 2020

 

In connection with this term loan agreement on July 31, 2018, the Company also issued 32,171 common share purchase warrants to CIBC, with each warrant entitling the holder to acquire one common share at a price of $9.70 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 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, 2020 and December 31, 2019 was $487,235 and $254,769, respectively. The variables used to determine the fair values are as follows:

 

   June 30,
2020		   December 31,
2019		 
         
Share price  $22.99   $14.75 
Volatility   62%   54%
Expected life of warrants   3.1 years    3.6 years 
Risk free interest rate   0.32%   1.68%
Dividend yield   -    - 

 

9Other liabilities

 

   Contingent
consideration
$		 
     
As at January 1, 2020   286,858 
Amounts paid   (191,925)
Change in fair value (note 14)   11,580 
As at June 30, 2020   106,513 
Less: Current portion   106,513 
Long-term portion   - 

 

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:

 

·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.
  (6)

Profound Medical Corp.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

June 30, 2020

 

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%.

 

10Lease liabilities

 

   June 30,
2020
$		   December 31,
2019
$		 
         
As at January 1   2,384,558    2,587,727 
Repayments   (175,052)   (318,245)
Foreign exchange   11,102    (17,391)
Interest expense (note 14)   63,258    132,467 
Balance - End of period   2,283,866    2,384,558 
Less: Current portion   346,587    258,685 
Long-term portion   1,937,279    2,125,873 

 

11Share 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,
2019
$		 
           
16,138,263 (December 31, 2019 – 11,852,749) common shares   194,991,770    130,266,880 

 

On January 27, 2020, the Company closed an offering, resulting in the issuance of 3,392,500 common shares at a price of US$11.65, for gross proceeds of US$39,522,625 ($47,946,651, net of transaction costs).

 

Subsequent to period end, on July 21, 2020, the Company closed an underwritten offering of common shares of the Company at a price of US$14.50 per common share, resulting in the issuance of 3,172,414 common shares for gross proceeds of US$46,000,003.

 

 

  (7)

Profound Medical Corp.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

June 30, 2020

 

Warrants

 

A summary of warrants outstanding is shown below:

 

   Number of
warrants		   Weighted
average
exercise
price
$		  

Weighted

average

remaining

contractual

life

(years)

 
             
Balance - January 1, 2020   2,779,898    14.20    2.49 
Exercised   (752,732)   14.15    1.76 
Balance - June 30, 2020   2,027,166    14.22    2.07 

 

Subsequent to period end, there were 67,475 warrants exercised for $950,088 in cash proceeds.

 

12Share-based payments

 

Options

 

Compensation expense related to share options for the three and six months ended June 30, 2020 was $877,143 and $1,488,267, respectively (three and six months ended June 30, 2019 - $383,789 and $456,427, 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, 2020   1,109,943    10.51 
Granted   577,955    17.30 
Exercised   (140,282)   10.98 
Forfeited/expired   (8,929)   9.42 
Balance - June 30, 2020   1,538,687    13.02 

 

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.

 

   March 12,
2020		   May 20,
2020		   June 8,
2020		 
             
Exercise price  $15.15   $17.44   $16.87 
Expected volatility   82%   84%   84%
Expected life of options   6 years    6 years     6 years 
Risk-free interest rate   0.60%   0.46%   0.58%
Dividend yield   -    -    - 
Number of share options issued   16,550    481,405    80,000 

 

  (8)

Profound Medical Corp.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

June 30, 2020

 

The following table summarizes information about the share options outstanding as at June 30, 2020:

 

Exercise price

$

 

Number of

options

outstanding

  

Weighted

average

remaining

contractual life

(years)

  

Number of

options

exercisable

 
             
2.40   21,277    2.19    21,277 
6.00   3,300    8.39    1,100 
8.50   31,000    7.38    19,979 
9.10   10,300    8.88    2,788 
9.20   478,690    8.88    128,739 
9.30   50,000    8.15    22,920 
9.70   4,950    6.82    4,950 
9.90   2,300    7.75    1,288 
10.20   9,900    7.97    7,700 
11.00   58,409    6.44    34,909 
11.23   81,800    9.39    - 
11.90   51,300    7.90    26,722 
13.50   8,300    6.12    8,195 
14.60   93,406    6.15    89,515 
15.00   55,800    5.17    55,800 
15.15   16,550    9.70    - 
16.87   80,000    9.95    - 
17.44   481,405    9.89    - 
    1,538,687    8.69    425,882 

 

Long-term incentive plan

 

Share-based compensation expense related to long-term incentive plan (LTIP) for the three and six months ended June 30, 2020 was $2,539 and $2,539, respectively (three and six months ended June 30, 2019 - $nil and $nil, respectively).

 

A summary of the RSUs changes during the period are set forth below:

 

   Number of
RSUs		 
     
Balance - January 1, 2020  - 
Granted   3,917 
Balance - June 30, 2020   3,917 

 

  (9)

Profound Medical Corp.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

June 30, 2020

 

13Nature of expenses

 

   Three months
ended
June 30,
2020
$		   Three months
ended
June 30,
2019
$		   Six months
ended
June 30,
2020
$		   Six months
ended
June 30,
2019
$		 
                 
Production and manufacturing costs   635,611    68,171    1,279,164    464,477 
Salaries and benefits   2,633,932    2,473,969    5,858,283    5,012,176 
Consulting fees   1,291,759    1,378,418    2,555,569    2,297,765 
Research and development expense   (33,627)   613,821    438,994    1,096,785 
Sales and marketing expenses (recovery)   103,282    368,339    373,159    (696,955)
Amortization and depreciation   517,597    516,350    1,025,763    1,026,028 
Share-based compensation   879,682    383,789    1,490,806    456,427 
Rent   70,437    125,974    161,852    216,133 
Software/Hardware   219,974    43,245    363,002    132,252 
Insurance   425,968    28,787    862,433    55,734 
Other expenses   135,219    170,750    583,190    306,661 
    6,879,834    6,171,613    14,992,215    10,367,483 

 

Salaries and benefits are net of government assistance of $504,297 for the three and six months ended June 30, 2020 (three and six months ended June 30, 2019 - $nil).

 

Research and development expenses are net of reimbursements of $140,044 for the three and six months ended June 30, 2020 (three and six months ended June 30, 2019 - $nil).

 

14Finance costs/(income)

 

   Three months
ended
June 30,
2020
$		   Three months
ended
June 30,
2019
$		   Six months
ended
June 30,
2020
$		   Six months
ended
June 30,
2019
$		 
                 
Change in fair value of contingent consideration (note 9)   (3,044)   (185,197)   11,580    (208,911)
CIBC loan (note 8)   -    312,050    633,608    617,559 
Change in fair value of derivative financial instrument (note 8)   265,113    (3,251)   232,466    54,220 
Lease liability interest expense (note 10)   31,551    33,556    63,258    67,149 
Royalty interest accretion recovery   -    (6,361)   -    (3,450)
Interest income   (274,395)   (110,790)   (318,670)   (252,671)
Foreign exchange (gain) loss   1,676,893    186,423    (1,994,329)   125,338 
    1,696,118    226,430    (1,372,087)   399,234 

 

  (10)

Profound Medical Corp.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

June 30, 2020

 

Foreign currency risk occurs as a result of foreign exchange rate fluctuations between the time a transaction is recorded and the time it is settled.

 

The Company purchases goods and services denominated in foreign currencies and, accordingly, is subject to foreign currency risk. The Company’s financial instruments denominated in foreign currencies are shown below in Canadian dollars.

 

       June 30, 2020 
   US
dollars
$		   Euro
$		   Canadian
dollars
$		   Total
$		 
                 
Cash   35,308,079    1,384,964    19,271,043    55,964,086 
Trade and other receivables   2,551,613    1,648,220    394,593    4,594,426 
Accounts payable and accrued liabilities   (722,186)   (1,084,739)   (936,017)   (2,742,942)
Other liabilities   -    (106,513)   -    (106,513)
Lease liabilities   -    (176,804)   (2,107,062)   (2,283,866)

 

As at June 30, 2020, if foreign exchange rates had been 5% higher, with all other variables held constant, loss before income taxes would have been $1,940,132 higher, mainly as a result of the translation of foreign currency denominated cash, trade and other receivables, accounts payable and accrued liabilities, other liabilities and lease liabilities.

 

The Company does not use derivatives to reduce exposure to foreign currency risk.

 

15Loss per share

 

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

 

   Three months
ended
June 30,
2020
$		   Three months
ended
June 30,
2019
$		   Six months
ended
June 30,
2020
$		   Six months
ended
June 30,
2019
$		 
                 
Net loss for the period   7,347,529    5,844,134    10,955,222    8,770,820 
Weighted average number of common shares   16,096,990    10,806,154    15,376,114    10,805,822 
Basic and diluted loss per share   0.46    0.54    0.71    0.81 

 

Of the 1,538,687 (June 30, 2019 – 1,037,393) share options, 3,917 (June 30, 2019 – nil) RSUs and 2,043,747 (June 30, 2019 – 2,257,171) warrants not included in the calculation of diluted loss per share for the period ended June 30, 2020, 2,469,629 (June 30, 2019 – 2,572,674) were exercisable.

 

  (11)

Profound Medical Corp.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

June 30, 2020

 

16Related 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,
2020
$		   Three months
ended
June 30,
2019
$		   Six months
ended
June 30,
2020
$		   Six months
ended
June 30,
2019
$		 
                 
Salaries and employee benefits   369,159    347,258    1,241,830    696,848 
Directors’ fees   27,685    37,500    60,185    75,000 
Share-based compensation   547,591    315,536    967,948    372,170 
    944,435    700,294    2,269,963    1,144,018 

 

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

 

17Segment 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, USA, Germany and Finland.

 

For the three-months ended June 30, 2020:

 

   Canada
$		   USA
$		   Germany
$		   Finland
$		   Total
$		 
                     
Revenue                    
Product   798,794    -    333,007    -    1,131,801 
Services   44,200    -    147,354    -    191,554 
Pay per procedure   97,868    -    -    -    97,868 
    940,862    -    480,361    -    1,421,223 
Cost of sales   495,268    -    350,124    -    845,392 
Gross profit   445,594    -    130,237    -    575,831 
                          
Operating expenses                         
Research and development   1,654,658    236,200    -    493,009    2,383,867 
General and administrative   1,945,578    231,443    -    98,066    2,275,087 
Selling and distribution   598,979    433,748    341,991    770    1,375,488 
Total operating expenses   4,199,215    901,391    341,991    591,845    6,034,442 
                          
Operating loss   3,753,621    901,391    211,754    591,845    5,458,611 
Net finance costs                       1,696,118 
Loss for the period before income taxes                       7,154,729 

 

  (12)

Profound Medical Corp.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

June 30, 2020

 

For the six-months ended June 30, 2020:

 

   Canada
$		   USA
$		   Germany
$		   Finland
$		   Total
$		 
                     
Revenue                    
Product   1,187,524    -    1,301,816    -    2,489,340 
Services   86,965    -    266,183    -    353,148 
Pay per procedure   138,953    -    -    -    138,953 
    1,413,442    -    1,567,999    -    2,981,441 
Cost of sales   571,902    -    1,239,098    -    1,811,000 
Gross profit   841,540    -    328,901    -    1,170,441 
                          
Operating expenses                         
Research and development   4,732,415    397,041    -    93,628    5,223,084 
General and administrative   4,288,234    864,975    -    175,105    5,328,314 
Selling and distribution   1,123,899    594,721    910,427    770    2,629,817 
Total operating expenses   10,144,548    1,856,737    910,427    269,503    13,181,215 
                          
Operating loss   9,303,008    1,856,737    581,526    269,503    12,010,774 
Net finance income                       (1,372,087)
Loss for the period before income taxes                       10,638,687 

 

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 

 

 

  (13)

Profound Medical Corp.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

June 30, 2020

 

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   7,020,036    789,449    1,780,576    9,590,061 
                     
Operating loss   5,914,277    622,733    1,780,576    8,317,586 
Net finance costs                  399,234 
Loss for the period before income taxes                  8,716,820 

 

Other financial information by segment as at June 30, 2020:

 

   Canada
$		   USA
$		   Germany
$		   Finland
$		   Total
$		 
                     
Total assets   70,453,510    590,641    2,065,760    3,691,205    76,801,116 
Goodwill and intangible assets   5,961,162    -    -    -    5,961,162 
Property and equipment   630,541    -    -    32,825    663,366 
Right-of-use assets   1,833,708    -    -    178,490    2,012,198 
Amortization of intangible assets   576,823    -    -    -    576,823 
Depreciation of property and equipment   123,910    -    -    121,367    245,277 
Depreciation of right-of-use assets   146,697    -    -    56,966    203,663 

 

Other financial information by segment as at December 31, 2019:

 

   Canada
$		   Germany
$		   Finland
$		   Total
$		 
                 
Total assets   34,894,056    1,056,759    3,091,678    39,042,493 
Goodwill and intangible assets   6,537,985    -    -    6,537,985 
Property and equipment   565,638    -    119,080    684,718 
Right-of-use assets   1,980,405    -    218,976    2,199,381 
Amortization of intangible assets   1,134,741    -    -    1,134,741 
Depreciation of property and equipment   231,657    267    240,761    472,685 
Depreciation of right-of-use assets   293,393    -    113,004    406,397 

 

 

 

(14)