EX-99.3 4 tm214026d1_ex99-3.htm EXHIBIT 99.3

 

Exhibit 99.3

 

 

 

PROFOUND MEDICAL CORP.

 

CONSOLIDATED FINANCIAL STATEMENTS

 

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

 

PRESENTED IN US DOLLARS (000s)

 

 

 

 

 

 

 

To the Board of Directors and Shareholders of Profound Medical Corp.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Profound Medical Corp. and its subsidiaries (together, the Company) as of December 31, 2020 and 2019, and the related consolidated statements of loss and comprehensive loss, changes in shareholders’ equity and cash flows for the years then ended, including the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and its financial performance and its cash flows for the years then ended in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

 

Change in Presentation Currency

 

As discussed in note 23 to the consolidated financial statements, the Company changed its presentation currency of the consolidated financial statements from Canadian dollars to US dollars.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the US federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

 

 

 

PricewaterhouseCoopers LLP

PwC Centre, 354 Davis Road, Suite 600, Oakville, Ontario, Canada L6J 0C5

T: +1 905 815 6300, F: +1 905 815 6499

“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership. 

 

 

 

 

 

 

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/PricewaterhouseCoopers LLP

 

Chartered Professional Accountants, Licensed Public Accountants

 

Oakville, Canada

March 2, 2021

 

We have served as the Company’s auditor since 2013.

 

 

 

 

 

Profound Medical Corp.

Consolidated Balance Sheets

As at December 31, 2020 and 2019

In USD (000s)

 

   2020
$		   2019
$		 
Assets          
Current assets          
Cash   83,913    14,800 
Trade and other receivables (note 4)   7,431    3,125 
Investment tax credits receivable   -    185 
Inventory (note 5)   5,331    3,668 
Prepaid expenses and deposits   1,067    1,028 
Total current assets   97,742    22,806 
           
Property and equipment (note 6)   859    527 
Intangible assets (note 7)   1,898    2,409 
Right-of-use assets (note 8)   1,424    1,693 
Goodwill (note 7)   2,678    2,625 
           
Total assets   104,601    30,060 
           
Liabilities          
           
Current liabilities          
Accounts payable and accrued liabilities   3,382    3,028 
Deferred revenue   358    504 
Long-term debt (note 9)   -    3,961 
Provisions   195    104 
Other liabilities (note 10)   99    221 
Derivative financial instrument (note 9)   450    196 
Lease liabilities (note 11)   312    199 
Income taxes payable   13    11 
Total current liabilities   4,809    8,224 
           
Long-term debt (note 9)   -    5,174 
Deferred revenue   1,078    639 
Provisions   -    15 
Lease liabilities (note 11)   1,364    1,637 
           
Total liabilities   7,251    15,689 
           
Shareholders’ Equity          
           
Share capital (note 12)   211,527    100,298 
Contributed surplus   11,250    15,076 
Accumulated other comprehensive loss   4,567    7,369 
Deficit   (129,994)   (108,372)
           
Total Shareholders’ Equity   97,350    14,371 
           
Total Liabilities and Shareholders’ Equity   104,601    30,060 

 

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

 

 

 

 

Profound Medical Corp.

Consolidated Statements of Loss and Comprehensive Loss

For the years ended December 31, 2020 and 2019

In USD (000s)

 

   2020
$		   2019
$		 
Revenue          
Products   6,233    3,697 
Services   724    477 
Pay per procedure   347    - 
    7,304    4,174 
Cost of sales (note 14)   3,830    1,784 
Gross profit   3,474    2,390 
           
Operating expenses (note 14)          
Research and development   9,912    9,397 
General and administrative   7,565    5,793 
Selling and distribution   4,860    2,104 
Total operating expenses   22,337    17,294 
           
Operating Loss   18,863    14,904 
           
Net finance costs (note 15)   2,714    171 
           
Loss before taxes   21,577    15,075 
           
Income taxes (note 16)   45    147 
           
Net loss attributed to shareholders for the year   21,622    15,222 
           
Other comprehensive loss          
Item that may be reclassified to loss          
Foreign currency translation adjustment - net of tax   2,802    4,490 
           
Net loss and comprehensive loss for the year   24,424    19,712 
           
Loss per share (note 17)          
Basic and diluted loss per common share   1.25    1.37 

 

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

 

 

 

 

Profound Medical Corp.

Consolidated Statements of Changes in Shareholders’ Equity

For the years ended December 31, 2020 and 2019

In USD (000s)

 

   Number
of shares		   Share
capital
$		   Contributed
surplus
$		   Accumulated
other
comprehensive
income (loss)
$		   Deficit
$		   Total
$		 
Balance – January 1, 2019   10,805,494    88,647    12,283    11,859    (93,150)   19,639 
                               
Net loss for the year   -    -    -    -    (15,222)   (15,222)
Cumulative translation adjustment – net of tax of $nil   -    4,582    659    (4,490)   -    751 
Exercise of share options   1,800    8    (4)   -    -    4 
Share-based compensation (note 13)   -    -    1,266    -    -    1,266 
Issuance of units from offering (note 12)   1,045,455    7,061    872    -    -    7,933 
Balance – December 31, 2019   11,852,749    100,298    15,076    7,369    (108,372)   14,371 
                               
Net loss for the year   -    -    -    -    (21,622)   (21,622)
Cumulative translation adjustment – net of tax of $nil   -    7,040    94    (2,802)   -    4,332 
Exercise of share options   235,131    3,025    (1,199)   -    -    1,826 
Exercise of warrants   1,556,154    22,070    (5,739)   -    -    16,331 
Share-based compensation (note 13)   -    -    3,018    -    -    3,018 
Issuance of common shares from offering (note 12)   6,564,914    79,094    -    -    -    79,094 
Balance – December 31, 2020   20,208,948    211,527    11,250    4,567    (129,994)   97,350 

 

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

 

 

 

 

 

Profound Medical Corp.

Consolidated Statements of Cash Flows

For the years ended December 31, 2020 and 2019

In USD (000s)

 

   2020
$		   2019
$		 
Operating activities          
Net loss for the year   (21,622)   (15,222)
Adjustments to reconcile net loss to net cash flows from operating activities:          
Depreciation of property and equipment (note 6)   352    394 
Amortization of intangible assets (note 7)   881    856 
Depreciation of right-of-use assets (note 8)   305    261 
Share-based compensation (note 13)   3,018    1,266 
Interest and accretion expense (note 15)   543    1,040 
Deferred revenue   257    598 
Change in fair value of derivative financial instrument (note 9)   237    118 
Change in fair value of contingent consideration (note 10)   90    (623)
Changes in non-cash working capital balances          
Investment tax credits receivable   179    181 
Trade and other receivables   (4,028)   (1,034)
Prepaid expenses and deposits   (17)   (833)
Inventory   (2,141)   (854)
Accounts payable and accrued liabilities   102    (83)
Provisions   71    (903)
Income taxes payable   1    (212)
Foreign exchange on cash   1,198    - 
Net cash flow used in operating activities   (20,574)   (15,050)
           
Investing activities          
Purchase of intangible assets   (350)   (189)
Total cash used in investing activities   (350)   (189)
           
Financing activities          
Issuance of common shares   85,523    8,709 
Transaction costs paid   (6,429)   (776)
Payment of other liabilities   (212)   (89)
Payment of long-term debt and interest   (9,317)   (1,009)
Proceeds from share options exercised   1,826    4 
Proceeds from warrants exercised   16,331    - 
Payment of lease liabilities   (289)   (241)
Total cash from financing activities   87,433    6,598 
           
Net change in cash during the year   66,509    (8,641)
Foreign exchange on cash   2,604    946 
Cash – Beginning of year   14,800    22,495 
Cash – End of year   83,913    14,800 

 

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

 

 

 

 

Profound Medical Corp.

Notes to Consolidated Financial Statements

December 31, 2020

In USD (000s)

 

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

 

The Company prepares its consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS). The Board of Directors approved these consolidated financial statements on March 2, 2021. These consolidated financial statements comply with IFRS.

 

Accounting policy

 

Use of estimates and judgments

 

The preparation of consolidated financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 3.

 

Consolidation

 

Subsidiaries are all entities over which the Company has control. The Company controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The wholly owned subsidiaries of Profound are consolidated from the date control is obtained. All intercompany transactions, balances, income and expenses on transactions with the subsidiaries are fully eliminated.

 

These consolidated financial statements include the following wholly owned subsidiaries of the Company: Profound Medical Inc., Profound Medical Oy, Profound Medical GmbH, Profound Medical (U.S.) Inc and 2753079 Ontario Inc.

 

(1)

 

 

Profound Medical Corp.

Notes to Consolidated Financial Statements

December 31, 2020

In USD (000s)

 

Business combinations

 

The acquisition method of accounting is used to account for business combinations. The consideration transferred in a business combination is measured at fair value at the date of acquisition. Acquisition-related transaction costs are recognized in the consolidated statements of loss and comprehensive loss as incurred. At the acquisition date, the identifiable assets acquired and the liabilities assumed are initially recognized at their fair value. Goodwill is measured as the excess of the sum of the consideration transferred and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition date amounts of the identifiable assets acquired and liabilities assumed. When the consideration transferred by the Company in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition date fair value and is included as part of the consideration transferred in a business combination. Changes in the acquisition date fair values of the identifiable assets, liabilities and contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the measurement period (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.

 

Other than measurement period adjustments, contingent consideration that is classified as a financial liability is remeasured at subsequent reporting dates, with the corresponding gain or loss recognized in the consolidated statements of loss and comprehensive loss.

 

Segment reporting

 

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker has been identified as the chief executive officer.

 

Foreign currency translation

 

The Company has a functional currency of Canadian dollars and the functional currency of each subsidiary is determined based on facts and circumstances relevant for each subsidiary. Where the Company’s presentation currency of US dollars differs from the functional currency of a subsidiary, the assets and liabilities of the subsidiary are translated from the functional currency into the presentation currency at the exchange rates as at the reporting date. The income and expenses of the subsidiaries are translated at rates approximating the exchange rates at the dates of the transactions. Exchange differences arising on the translation of the financial statements of the Company’s subsidiaries are recognized in other comprehensive loss (income). During the year the Company changed its presentation currency from Canadian dollars to US dollars. The effect of this change is disclosed in note 23.

 

Foreign currency transactions are translated into the functional currency of the Company or its subsidiaries, using the exchange rates prevailing at the dates of these transactions. Foreign exchange gains and losses resulting from the settlement of foreign currency transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in currencies other than an entity’s functional currency are recognized in the consolidated statements of loss and comprehensive loss, within finance costs.

 

(2)

 

 

Profound Medical Corp.

Notes to Consolidated Financial Statements

December 31, 2020

In USD (000s)

 

Investment tax credits

 

The benefits of refundable investment tax credits (ITCs) for scientific research and experimental development (SR&ED) expenditures are recognized in the year the qualifying expenditure is made providing there is reasonable assurance of recoverability. The refundable ITCs recorded are based on management’s estimates of amounts expected to be recovered and are subject to audit by taxation authorities. The refundable ITCs reduce the research and development expenses to which they relate.

 

Financial assets

 

The Company classifies its financial assets in the following measurement categories:

 

·those to be measured subsequently at fair value (either through other comprehensive income, or through profit or loss); and
·those to be measured at amortized cost.

 

The classification depends on the Company’s business model for managing the financial assets and the contractual terms of the cash flows. The Company does not currently have any assets measured subsequently at fair value.

 

At initial recognition, the Company measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset.

 

Financial assets are derecognized when the rights to receive cash flows from the financial assets have expired or have been transferred and the Company has transferred substantially all the risks and rewards of ownership.

 

The Company assesses on a forward-looking basis the expected credit losses associated with its financial assets carried at amortized cost. For trade and other receivables, the Company applies the simplified approach permitted by IFRS 9, Financial Instruments (IFRS 9), which requires lifetime expected credit losses to be recognized at the time of initial recognition of the receivables.

 

Inventories

 

Inventories are valued at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Cost is determined using the first-in, first-out method for finished goods and weighted average cost for raw materials.

 

Property and equipment

 

Property and equipment are stated at cost, less accumulated depreciation and accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. The carrying amount of a replaced asset is derecognized when replaced. Repairs and maintenance costs are charged to the consolidated statements of loss and comprehensive loss during the year in which they are incurred.

 

(3)

 

 

Profound Medical Corp.

Notes to Consolidated Financial Statements

December 31, 2020

In USD (000s)

 

The major categories of property and equipment are depreciated on a straight-line basis as follows:

 

Furniture and fittings  20% per year
Research and manufacturing equipment  30% per year
Computer equipment  45% per year
Computer software  100% per year
Equipment under lease  50% per year
Leasehold improvements  over the term of the lease

 

Residual values, methods of depreciation and useful lives of the assets are reviewed annually and adjusted if appropriate.

 

Goodwill

 

Goodwill represents the excess fair value of the consideration transferred over the fair value of the underlying net assets in a business combination and is measured at cost less accumulated impairment losses. Goodwill is not amortized but is tested for impairment on an annual basis or more frequently if there are indications the goodwill may be impaired. For the purposes of impairment testing, goodwill is allocated to each of the Company’s cash generating units (CGUs) or group of CGUs that are expected to benefit from the synergies of the acquisition. If the recoverable amount of the CGU or group of CGUs is less than the carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill and then to other assets of the CGU or group of CGUs.

 

Identifiable intangible assets

 

The Company’s intangible assets are stated at cost, less accumulated amortization and are amortized on a straight-line basis in the consolidated statements of loss and comprehensive loss over their estimated useful lives.

 

The major categories of intangible assets are amortized as follows:

 

Exclusive licence agreement  20 years
Software  5 years
Brand  5 years
Proprietary technology  5 years

 

Impairment of non-financial assets

 

Property and equipment and intangible assets are tested for impairment when events or changes in circumstances indicate the carrying amount may not be recoverable. For the purpose of measuring recoverable amounts, assets are grouped at the lowest levels for which there are separately identifiable cash flow CGUs.

 

The recoverable amount is the higher of an asset’s fair value, less costs of disposal and value in use (which is the present value of the expected future cash flows of the relevant asset or CGU). An impairment loss is recognized as the amount by which the asset’s carrying amount exceeds its recoverable amount. The Company evaluates impairment losses for potential reversals when events or circumstances warrant such consideration.

 

(4)

 

 

Profound Medical Corp.

Notes to Consolidated Financial Statements

December 31, 2020

In USD (000s)

 

Accounts payable and accrued liabilities

 

These amounts represent liabilities for goods and services provided to the Company before the end of the financial year, which are unpaid. Accounts payable and accrued liabilities are presented as current liabilities unless payment is not due within 12 months after the reporting period. They are recognized initially at their fair value and subsequently measured at amortized cost using the effective interest method.

 

Long-term debt

 

Long-term debt is initially recognized at fair value, net of transaction costs incurred. Long-term debt is subsequently measured at amortized cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognized in the consolidated statements of loss and comprehensive loss over the period of the long-term debt using the effective interest method.

 

Long-term debt is removed from the consolidated balance sheets when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished and the consideration paid is recognized in the consolidated statements of loss and comprehensive loss within finance costs.

 

Provisions

 

A provision is recognized when the Company has a legal or constructive obligation as result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

 

Leases

 

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.

 

(5)

 

 

Profound Medical Corp.

Notes to Consolidated Financial Statements

December 31, 2020

In USD (000s)

 

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.

 

Revenue

 

To determine revenue recognition for arrangements the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer.

 

The Company derives its revenues primarily from the sale of medical devices. Revenue is recognized when a contractual promise to a customer (performance obligation) has been fulfilled by transferring control over the promised goods or services, generally at the point in time of shipment to or receipt of the products by the customer or when the services are performed. When contracts contain customer acceptance provisions, revenue is recognized on the satisfaction of the specific acceptance criteria.

 

The amount of revenue to be recognized is based on the consideration the Company expects to receive in exchange for its goods and services. For contracts that contain multiple performance obligations, the Company allocates the consideration to which it expects to be entitled to each performance obligation based on relative standalone selling prices and recognizes the related revenue when or as control of each individual performance obligation is transferred to customers.

 

Service revenue related to installation and training is recognized over the period in which the services are performed. Service revenue related to extended warranty service is deferred and recognized on a straight-line basis over the extended warranty period covered by the respective customer contract.

 

Under the terms of certain of the Company’s partnership agreements, the Company retains a percentage of all amounts earned with the remaining percentage due to the partner. Accordingly, associated revenue is recognized net of the consideration due to the partner.

 

(6)

 

 

Profound Medical Corp.

Notes to Consolidated Financial Statements

December 31, 2020

In USD (000s)

 

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 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 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.

 

Cost of sales

 

Cost of sales primarily includes the cost of finished goods, depreciation of equipment under lease, inventory provisions, royalties, warranty expense, freight and direct overhead expenses necessary to acquire or manufacture the finished goods.

 

Income taxes

 

Income taxes are accounted for using the liability method. Deferred tax assets and liabilities are recognized for the differences between the tax basis and carrying amounts of assets and liabilities, for operating losses and for tax credit carry-forwards. Deferred tax assets are recognized to the extent that it is probable that future taxable income will be available against which temporary differences can be utilized. Deferred tax assets and liabilities are measured using enacted or substantively enacted tax rates and laws.

 

Share-based compensation

 

The Company grants share options periodically to certain employees, directors, officers and advisers.

 

Options currently outstanding vest over four years and have a contractual life of ten years. Each tranche in an award is considered a separate award with its own vesting period and grant date fair value. The fair value of each tranche is measured at the date of grant using the Black-Scholes option pricing model. Compensation expense is recognized over the tranche’s vesting period using the graded vesting method by increasing contributed surplus based on the number of awards expected to vest.

 

The Company has a long-term incentive plan (LTIP). 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.

 

(7)

 

 

Profound Medical Corp.

Notes to Consolidated Financial Statements

December 31, 2020

In USD (000s)

 

Research and development costs

 

Research costs are charged to expense as incurred. Development costs are capitalized and amortized when the criteria for capitalization are met, otherwise they are expensed as incurred. No development costs have been capitalized to date.

 

Clinical trial expenses result from obligations under contracts with vendors, consultants and clinical site agreements in connection with conducting clinical trials. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to the Company. The appropriate level of clinical trial expenses is reflected in the Company’s consolidated financial statements by matching period expenses with period services and efforts expended. These expenses are recorded according to the progress of the clinical trial as measured by patient progression and the timing of various aspects of the clinical trial. Clinical trial accrual estimates are determined through discussions with internal clinical personnel and outside service providers as to the progress or state of completion of clinical trials, or the services completed. Service provider status is then compared to the contractually obligated fees to be paid for such services. During the course of a clinical trial, the Company may adjust the rate of clinical expense recognized if actual results differ from management’s estimates.

 

Government grants

 

The Company recognizes government grants when there is reasonable assurance that the Company will comply with the conditions of the grant and the grant will be received. Government grants receivable are recorded in accounts receivable on the consolidated statements of financial position. The Company recognizes government grants in the consolidated statements of loss and comprehensive loss in the same period as the expenses for which the grant is intended to compensate and nets the amount off the related expenses. In cases where a government grant becomes receivable as compensation for expenses already incurred in prior periods, the grant is recognized in profit or loss in the period in which it becomes receivable.

 

Loss per share

 

Basic loss per share is calculated by dividing the net loss by the weighted average number of common shares outstanding during the year. Diluted loss per share is calculated by dividing the applicable net loss by the sum of the weighted average number of shares outstanding during the year and all additional common shares that would have been outstanding if potentially dilutive common shares had been issued during the year. 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.

 

COVID-19

 

The COVID-19 outbreak has been declared a pandemic by the World Health Organization. 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.

 

(8)

 

 

Profound Medical Corp.

Notes to Consolidated Financial Statements

December 31, 2020

In USD (000s)

 

Further, 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, may also be 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 could result in 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® and SONALLEVE® 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 system 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 system 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.

 

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.

 

3Critical accounting estimates and judgments

 

Critical accounting judgments

 

·Contingent Consideration

 

The Company makes various judgments when determining the accounting for certain complex financial instruments. The Company has concluded that the contingent consideration in a business combination represents a financial liability measured at fair value through profit or loss.

 

(9)

 

 

Profound Medical Corp.

Notes to Consolidated Financial Statements

December 31, 2020

In USD (000s)

 

Critical accounting estimates

 

The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed as follows:

 

·Impairment of non-financial assets

 

The Company reviews amortized non-financial assets for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may be impaired. It also reviews goodwill annually for impairment. If the recoverable amount of the respective non-financial asset is less than its carrying amount, it is considered to be impaired. In the process of measuring the recoverable amount, management makes assumptions about future events and circumstances. The actual results may vary and may cause significant adjustments.

 

4Trade and other receivables

 

The trade and other receivables balance comprises the following:

 

   2020
$		   2019
$		 
Trade receivables   6,446    1,993 
Interest receivable   17    25 
Tax receivables   774    853 
Other receivables   194    254 
Total trade and other receivables   7,431    3,125 

 

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 December 31, 2020 there were $695 of trade receivables that were past due but still collectible and at December 31, 2019, there were no trade receivables that were past due.

 

 

5Inventory

 

   2020
$		   2019
$		 
Finished goods   3,573    1,836 
Raw materials   1,774    1,850 
Inventory provision   (16)   (18)
Total inventory   5,331    3,668 

 

During the year ended December 31, 2020, $3,610 (2019 - $1,756) of inventory was recognized in cost of sales. The Company decreased its inventory provision by $2 during the year ended December 31, 2020 (2019 – $26). There were no other inventory writedowns charged to cost of sales during the year ended December 31, 2020.

 

(10)

 

 

Profound Medical Corp.

Notes to Consolidated Financial Statements

December 31, 2020

In USD (000s)

 

6Property and equipment

 

Property and equipment consist of the following:

 

  

Furniture

and

fittings

$

  

Research

and

manufacturing

equipment

$

  

Leasehold

improvements

$

   Equipment under lease
$		  

Total

$

 
Year ended December 31, 2019                    
Opening net book value   71    419    393    -    883 
Foreign exchange   6    (14)   46    -    38 
Depreciation   (32)   (283)   (79)   -    (394)
Closing net book value   45    122    360    -    527 
                          
At December 31, 2019                         
Cost   181    1,068    553    -    1,802 
Accumulated depreciation   (136)   (946)   (193)   -    (1,275)
Net book value   45    122    360    -    527 
                          
Year ended December 31, 2020                         
Opening net book value   45    122    360    -    527 
Additions   -    -    -    633    633 
Foreign exchange   1    14    12    24    51 
Depreciation   (34)   (136)   (59)   (123)   (352)
Closing net book value   12    -    313    534    859 
                          
At December 31, 2020                         
Cost   127    1,068    553    633    2,381 
Accumulated depreciation   (115)   (1,068)   (240)   (99)   (1,522)
Net book value   12    -    313    534    859 

 

7Intangible assets

 

Intangible assets consist of the following:

 

   Exclusive
licence
agreement
$		   Software
$		   Proprietary
technology
$		   Brand
$		   Total
$		 
Year ended December 31, 2019                    
Opening net book value   18    102    2,358    464    2,942 
Additions   189    -    -    -    189 
Foreign exchange   5    4    104    21    134 
Amortization   (7)   (39)   (677)   (133)   (856)
Closing net book value   205    67    1,785    352    2,409 
                          
As at December 31, 2019                         
Cost   231    198    3,456    681    4,566 
Accumulated amortization   (26)   (131)   (1,671)   (329)   (2,157)
Net book value   205    67    1,785    352    2,409 

 

(11)

 

 

Profound Medical Corp.

Notes to Consolidated Financial Statements

December 31, 2020

In USD (000s)

 

  

Exclusive

licence

agreement

$

  

Software

$

  

Proprietary

technology

$

  

Brand

$

  

Total

$

 
Year ended December 31, 2020                    
Opening net book value   205    67    1,785    352    2,409 
Additions   -    350    -    -    350 
Foreign exchange   2    4    12    2    20 
Amortization   (21)   (59)   (669)   (132)   (881)
Closing net book value   186    362    1,128    222    1,898 
                          
As at December 31, 2020                         
Cost   231    421    3,456    681    4,789 
Accumulated amortization   (45)   (59)   (2,328)   (459)   (2,891)
Net book value   186    362    1,128    222    1,898 

 

The Company has a licence agreement (the licence) with Sunnybrook Health Sciences Centre (Sunnybrook), pursuant to which Sunnybrook licenses to the Company certain intellectual property. Pursuant to the licence, the Company has exclusively licenced-in rights that enable the Company to use Sunnybrook’s technology for MRI-guided trans-urethral ultrasound therapy. Under the licence, the Company is subject to various obligations, including a milestone payment of C$250,000, which was paid on August 16, 2019 upon FDA approval. In addition, the Company has a further option to acquire rights to improvements to the relevant technology and intellectual property. If the Company fails to comply with any of its obligations or otherwise breaches this agreement, Sunnybrook may have the right to terminate the licence.

 

In accordance with the Company’s accounting policy, the carrying value of goodwill is assessed annually as well as assessed for impairment triggers at each reporting date to determine whether there exists any indicators of impairment. When there is an indicator of impairment of non-current assets within a CGU or group of CGUs containing goodwill, the Company tests the non-current assets for impairment first and recognizes any impairment loss on goodwill before applying any remaining impairment loss against the non-current assets within the CGU.

 

The Company completed its annual goodwill impairment testing on the goodwill related to the Sonalleve MR-HIFU CGU, which comprises all of the goodwill of the Company, on December 31, 2020. The recoverable amount of the Sonalleve MR-HIFU CGU was calculated using fair value less costs of disposal (FVLCD).

 

The calculation of the recoverable amount of the Sonalleve MR-HIFU CGU was determined using discounted cash flow projections based on financial forecasts approved by management covering a four-year period (Level 3 of the fair value hierarchy) and a terminal growth assumption of 4%. The key assumptions and estimates used in determining the FVLCD are related to revenue and EBITDA assumptions, which are based on the financial forecast and assumed growth rates and the discount rate of 16% applied to the cash flow projections. As a result of the impairment testing performed, it was determined that the recoverable amount of the Sonalleve MR-HIFU CGU of $22,037 exceeded the carrying value of $4,014 and no impairment writedown was required.

 

(12)

 

 

Profound Medical Corp.

Notes to Consolidated Financial Statements

December 31, 2020

In USD (000s)

 

8Right-of-use assets

 

   Leased premises
$		 
Year ended December 31, 2019     
Opening net book value   1,918 
Foreign exchange   36 
Depreciation   (261)
Closing net book value   1,693 
      
As at December 31, 2019     
Cost   1,918 
Accumulated depreciation   (225)
Net book value   1,693 
      
Year ended December 31, 2020     
Opening net book value   1,693 
Foreign exchange   36 
Depreciation   (305)
Closing net book value   1,424 
      
As at December 31, 2020     
Cost   1,918 
Accumulated depreciation   (494)
Net book value   1,424 

 

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

 

9Long-term debt

 

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

 

     2020
$		     2019
$		 
CIBC loan   -    9,135 
Less: Current portion   -    3,961 
Long-term portion   -    5,174 

 

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 C$12,500 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 $9,317.

 

(13)

 

 

Profound Medical Corp.

Notes to Consolidated Financial Statements

December 31, 2020

In USD (000s)

 

   2020
$		   2019
$		 
Balance - Beginning of period   9,135    8,764 
Interest and accretion expense   472    940 
Foreign exchange   (290)   440 
Repayment   (9,317)   (1,009)
Balance - End of period   -    9,135 
Less: Current portion   -    3,961 
Long-term portion   -    5,174 

 

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 C$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 December 31, 2020 and December 31, 2019 was $450 and $196, respectively. The variables used to determine the fair values are as follows:

 

   2020   2019 
Share price  $20.56   $11.55 
Volatility   63%   54%
Expected life of warrants   2.6 years    3.6 years 
Risk free interest rate   0.20%   1.68%
Dividend yield   -    - 

 

 

10Other liabilities

 

   Contingent
consideration
$		   Knight
royalty
payable
$		   Total
$		 
As at January 1, 2018   921    14    935 
Amounts paid   (77)   (12)   (89)
Change in fair value (note 15)   (623)   -    (623)
Accretion recovery (note 15)   -    (2)   (2)
As at December 31, 2019   221    -    221 
Amounts paid   (212)   -    (212)
Change in fair value   90    -    90 
As at December 31, 2020   99    -    99 
Less: Current portion   99    -    99 
Long-term portion   -    -    - 

 

(14)

 

 

Profound Medical Corp.

Notes to Consolidated Financial Statements

December 31, 2020

In USD (000s)

 

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:

 

·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%.

 

11Lease liabilities

 

     $ 
As at January 1, 2019   1,897 
Repayments   (241)
Foreign exchange   80 
Interest and accretion expense   100 
As at December 31, 2019   1,836 
Repayments   (289)
Foreign exchange   58 
Interest and accretion expense   71 
As at December 31, 2020   1,676 
Less: Current portion   312 
Long-term portion   1,364 

 

(15)

 

 

Profound Medical Corp.

Notes to Consolidated Financial Statements

December 31, 2020

In USD (000s)

 

12Share capital

 

Common shares

 

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

 

Issued and outstanding (with no par value)

 

    2020
$		   2019
$		 
20,208,948 (2019 – 11,852,749) common shares    211,527    100,298 

 

 

On July 21, 2020, the Company closed an offering, resulting in the issuance of 3,172,414 common shares at a price of $14.50, for gross proceeds of $46,000 ($42,721, net of transaction costs).

 

On January 27, 2020, the Company closed an offering, resulting in the issuance of 3,392,500 common shares at a price of $11.65, for gross proceeds of $39,523 ($36,373, net of transaction costs).

 

On September 20, 2019, the Company closed an offering, resulting in the issuance of 1,045,455 units at a price of C$11.00 per unit, for gross proceeds of C$11,500 ($7,933, net of cash transaction costs). Each unit consisted of one common share of the Company and one-half of one warrant, with each whole warrant entitling the holder to acquire one common share at a price of C$15.50 per common share until the date that is 24 months from the closing of the offering.

 

Warrants

 

As a result of the September 20, 2019 offering, 522,727 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    2,257,171    10.22    2.92 
Granted    522,727    11.68    1.73 
Balance - December 31, 2019    2,779,898    10.49    2.49 
Exercised    (1,556,154)   11.06    1.82 
Balance - December 31, 2020    1,223,744    11.33    1.68 

 

(16)

 

 

Profound Medical Corp.

Notes to Consolidated Financial Statements

December 31, 2020

In USD (000s)

 

The Company estimated the fair value of the warrants granted during the period using the Black-Scholes option pricing model with the following assumptions:

 

   September 20,
2019		 
Share price on date of issuance  $8.27 
Expected volatility   58%
Expected life of warrants   2 years 
Risk-free interest rate   1.61%
Dividend yield   - 

 

Due to the absence of company specific volatility rates for the expected life of the warrants, the Company chose comparable companies in the medical device industry. The fair value of the warrants issued as part of the September 20, 2019 offering was $872, or $1.67 per warrant, and was recorded in contributed surplus.

 

Subsequent to year end, there were 80,301 warrants exercised for total cash proceeds of $962.

 

13Share-based payments

 

Share options

 

Effective May 20, 2020, the Company adopted amendments to the share option plan (the Share Option Plan). The maximum number of common shares reserved for issuance under this plan is 2,627,163 common shares or such other number as may be approved by the holders of the voting shares of the Company. As at December 31, 2020, 1,522,362 (2019 – 1,109,943) options are outstanding. Each option granted allows the holder to purchase one common share, at an exercise price not less than the lesser of the closing trading price of the common shares on the TSX, on the date a share option is granted and the volume-weighted average price of the common shares for the five trading days immediately preceding the date the share option is granted. Share options granted under the Share Option Plan generally have a maximum term of ten years and vest over a period of up to four years.

 

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    624,478    8.34 
Granted    580,440    7.26 
Exercised    (1,800)   2.26 
Forfeited/expired    (93,175)   8.12 
Balance - December 31, 2019    1,109,943    8.09 
Granted    687,255    14.44 
Exercised    (235,123)   8.18 
Forfeited/expired    (39,713)   10.05 
Balance - December 31, 2020    1,522,362    10.97 

 

(17)

 

 

Profound Medical Corp.

Notes to Consolidated Financial Statements

December 31, 2020

In USD (000s)

 

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.

 

   November 16,
2020		   December 15,
2020		   December 22,
2020		 
Exercise price  $19.23   $18.24   $22.90 
Expected volatility   85%   85%   85%
Expected life of options   6 years    6 years    6 years 
Risk-free interest rate   0.46%   0.45%   0.48%
Dividend yield   -    -    - 
Number of share options issued   84,900    10,000    11,500 

 

   March 12,
2020		   May 20,
2020		   June 8,
2020		  

August 17,
2020

 
Exercise price  $10.96   $12.55   $12.61   $15.02 
Expected volatility   82%   84%   84%   83%
Expected life of options   6 years    6 years    6 years    6 years 
Risk-free interest rate   0.60%   0.46%   0.58%   0.48%
Dividend yield   -    -    -    - 
Number of share options issued   16,550    481,405    80,000    2,900 

 

   May 15,
2019		   May 16,
2019		   November 18,
2019		 
Share price on date of issuance  $6.72   $6.85   $8.50 
Expected volatility   82%   82%   82%
Expected life of share options   6 years    6 years    6 years 
Risk-free interest rate   1.59%   1.59%   1.40%
Dividend yield   -    -    - 
Number of share options issued   13,300    484,940    82,200 

 

The following table summarizes information about the share options outstanding as at December 31, 2020:

 

Exercise price

C$

  

Number of

options

outstanding

  

Weighted

average

remaining

contractual life

(years)

  

Number of

options

exercisable

 
 2.40    11,300    1.88    11,300 
 8.50    28,728    6.88    21,938 
 9.10    10,300    8.38    4,069 
 9.20    435,781    8.38    147,340 
 9.30    44,147    7.65    23,317 

 

(18)

 

 

Profound Medical Corp.

Notes to Consolidated Financial Statements

December 31, 2020

In USD (000s)

 

Exercise price

C$

  

Number of

options

outstanding

  

Weighted

average

remaining

contractual life

(years)

  

Number of

options

exercisable

 
 9.70    4,950    6.32    4,950 
 9.90    2,300    7.24    1,577 
 10.20    9,900    7.46    7,700 
 11.00    57,784    5.95    57,784 
 11.23    71,500    8.89    19,362 
 11.90    19,011    7.39    844 
 13.50    8,300    5.61    8,300 
 14.60    93,406    5.64    93,406 
 15.00    52,800    4.66    52,800 
 15.15    14,050    9.20    - 
 16.87    80,000    9.44    - 
 17.44    469,305    9.39    - 
 20.39    2,400    9.63    - 
 23.02    10,000    9.96    - 
 24.31    84,900    9.88    - 
 25.01    11,500    9.98    - 
      1,522,362    8.36    454,687 

 

Compensation expense related to share options for the year ended December 31, 2020 was $3,007 (2019 - $1,266).

 

Long-term incentive plan

 

Share-based compensation expense related to long-term incentive plan (LTIP) for the year ended December 31, 2020 was $11 (December 31, 2019 - $nil).

 

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

 

   Number of
RSUs		 
Balance - January 1, 2020  - 
Granted   8,917 
Forfeited   (200)
Balance - December 31, 2020   8,717 

 

(19)

 

 

Profound Medical Corp.

Notes to Consolidated Financial Statements

December 31, 2020

In USD (000s)

 

14Nature of expenses

 

   2020
$		   2019
$		 
Production and manufacturing costs   3,063    1,259 
Salaries and benefits   9,917    7,252 
Consulting fees   3,395    4,141 
Research and development expenses   2,318    2,211 
Sales and marketing expenses (recovery)   574    (146)
Amortization and depreciation   1,538    1,511 
Share-based compensation   3,018    1,266 
Rent   231    270 
Software/hardware   424    186 
Bad debt expense   -    245 
Insurance   1,278    383 
Other expenses   411    500 
    26,167    19,078 

 

Salaries and benefits are net of government assistance of $376 for year ended December 31, 2020 (December 31, 2020 - $nil).

 

Research and development expenses are net of reimbursements of $316 for the year ended December 31, 2020 (December 31, 2020 - $nil).

 

15Net finance costs

 

   2020
$		   2019
$		 
CIBC loan (note 9)   472    940 
Change in fair value of contingent consideration (note 10)   90    (623)
Change in fair value of derivative financial instrument (note 9)   237    118 
Lease liability interest expense (note 11)   71    100 
Royalty interest recovery (note 10)   -    (2)
Interest income   (692)   (363)
Foreign exchange loss   2,536    1 
    2,714    171 

 

(20)

 

 

Profound Medical Corp.

Notes to Consolidated Financial Statements

December 31, 2020

In USD (000s)

  

16Income taxes

 

Income tax expense differs from the tax recovery amount that would be obtained by applying the statutory income tax rate to the respective year’s loss before income taxes as follows:

 

   2020
$		   2019
$		 
Loss before income taxes   21,577    15,075 
           
Recovery based on combined federal and provincial statutory rate of 26.1% (2019 - 26.5%)   (5,632)   (3,995)
Permanent differences   (638)   (138)
Change in deferred tax assets not recognized   6,331    4,287 
Effect of tax rates in foreign jurisdictions   (16)   (7)
Net income tax expense   45    147 

 

Deferred tax assets are recognized for tax loss carry-forwards and unused tax credits to the extent that the realization of the related tax benefit through future taxable profits is probable. The Company has not recognized deferred tax assets that can be carried forward against future taxable income.

 

Permanent differences are primarily comprised of non-refundable tax credits and deductible finance fees not recorded in the consolidated statements of loss and comprehensive loss, offset by non-deductible share-based compensation and accretion expense.

 

The Company has non-capital loss carry-forwards of approximately $74,302 as at December 31, 2020 that expire in varying amounts from 2028 to 2040.

 

The Company has SR&ED expenditures of approximately $13,394 as at December 31, 2020, which can be carried forward indefinitely to reduce future years’ taxable income.

 

The Company has approximately $2,741 of federal and provincial tax credits that are available to be applied against federal and provincial taxes otherwise payable in future years and that expire in varying amounts from 2028 to 2040.

 

17Loss per share

 

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

 

   2020   2019 
Net loss for the year  $21,622   $15,222 
Weighted average number of common shares   17,294,653    11,098,719 
Basic and diluted loss per share  $1.25   $1.37 

 

Of the 1,522,362 (2019 – 1,109,943) share options, 8,717 (December 31, 2019 – nil) RSUs and 1,223,744 (2019 – 2,779,898) warrants not included in the calculation of diluted loss per share for the period ended December 31, 2020, 1,678,431 (2019 – 3,156,663) were exercisable.

 

(21) 

 

 

Profound Medical Corp.

Notes to Consolidated Financial Statements

December 31, 2020

In USD (000s)

  

18Financial assets and liabilities

 

Classification of financial instruments

 

       2020 
   Fair value
through
profit or loss
$		   Financial
assets at
amortized
cost
$		   Financial
liabilities at
amortized
cost
$		 
Cash   -    83,913    - 
Trade and other receivables   -    7,431    - 
Accounts payable and accrued liabilities   -    -    3,382 
Other liabilities   99    -    - 
Lease liabilities   -    -    1,676 
Derivative financial instrument   450    -    - 
    549    91,344    5,058 

 

       2019 
   Fair value
through
profit or loss
$		   Financial
assets at
amortized
cost
$		   Financial
liabilities at
amortized
cost
$		 
Cash   -    14,800    - 
Trade and other receivables   -    3,125    - 
Accounts payable and accrued liabilities   -    -    3,028 
Long-term debt   -    -    9,135 
Other liabilities   221    -    - 
Lease liabilities   -    -    1,836 
Derivative financial instrument   196    -    - 
    417    17,925    13,999 

 

Credit risk

 

Credit risk is the risk of a financial loss to the Company if a counterparty to a financial instrument fails to meet its contractual obligation. The Company is exposed to credit risk on its cash and trade and other receivable balances. The Company’s cash management policies include ensuring cash is deposited in Canadian chartered banks.

 

The Company applies the IFRS 9 simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance for all trade and other receivables. To measure the expected credit losses, trade and other receivables are grouped based on shared credit risk characteristics and the days past due. On that basis, the loss allowance as at December 31, 2020 and 2019 is nominal as the Company only transacts with hospitals and private clinics and has not incurred a sustained trend of any credit losses since revenue began.

 

(22) 

 

 

Profound Medical Corp.

Notes to Consolidated Financial Statements

December 31, 2020

In USD (000s)

  

Trade and other receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, failure to make contractual payments for a period of greater than 120 days past due.

 

Market risk

 

Market risk is the risk the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices, including interest rate risk and foreign currency risk.

 

·Interest rate price risk

 

Interest rate price risk is the risk the cash flows of a financial instrument will fluctuate due to changes in market interest rates. The Company is exposed to such fluctuations relating to the long-term debt, as it bears interest at a floating rate, whose interest rates are based on the prime rate.

 

If interest rates had been 1% higher on the average long-term debt balance, with all other variables held constant, loss before income taxes would have been $nil higher for the year ended December 31, 2020 (2019 - $96).

 

·Foreign currency risk

 

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, primarily the US dollar and Euro. Foreign currency risk arises from future commercial transactions and recognized assets and liabilities denominated in a currency that is not the functional currency. The risk is measured through a forecast of highly probable US dollar and Euro expenditures. The Company’s financial instruments denominated in foreign currencies are shown below in Canadian dollars.

 

   2020 
   US
dollars
$		   Euro
$		   Canadian
dollars
$		   Total
$		 
Cash   61,644    1,899    20,370    83,913 
Trade and other receivables   5,002    2,197    232    7,431 
Accounts payable and accrued liabilities   (734)   (1,700)   (948)   (3,382)
Other liabilities   -    (99)   -    (99)
Lease liabilities   -    (95)   (1,581)   (1,676)

 

(23) 

 

 

Profound Medical Corp.

Notes to Consolidated Financial Statements

December 31, 2020

In USD (000s)

  

   2019 
   US
dollars
$		   Euro
$		   Canadian
dollars
$		   Total
$		 
Cash   49    700    14,051    14,800 
Trade and other receivables   1,114    1,715    296    3,125 
Accounts payable and accrued liabilities   (545)   (1,768)   (715)   (3,028)
Other liabilities   -    (221)   -    (221)
Lease liabilities   -    (172)   (1,664)   (1,836)

 

As at December 31, 2020, if foreign exchange rates had been 5% higher, with all other variables held constant, loss before income taxes would have been $3,406 (2019 – $44) 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.

 

Liquidity risk

 

Liquidity risk is the risk the Company may encounter difficulties in meeting its financial liability obligations as they come due. The Company has a planning and budgeting process in place to help determine the funds required to support the Company’s normal operating requirements on an ongoing basis.

 

The Company controls liquidity risk through management of working capital, cash flows and the availability and sourcing of financing. The Company’s ability to accomplish all of its future strategic plans is dependent on obtaining additional financing or executing other strategic options; however, there is no assurance the Company will achieve these objectives.

 

The following table summarizes the Company’s significant contractual, undiscounted cash flows related to its financial liabilities.

 

   2020 
   Carrying
amount
$		   Future
cash
flows
$		   Less than
1 year
$		   Between
1 year and
5 years
$		   Greater
than 5
years
$		 
Accounts payable and accrued liabilities   3,382    3,382    3,382    -    - 
Lease liability   1,676    1,958    398    1,240    320 
Other liabilities   99    99    99    -    - 
    5,157    5,439    3,879    1,240    320 

 

(24) 

 

 

Profound Medical Corp.

Notes to Consolidated Financial Statements

December 31, 2020

In USD (000s)

  

                   2019 
   Carrying
amount
$		   Future
cash
flows
$		   Less than
1 year
$		   Between
1 year and
5 years
$		   Greater
than 5
years
$		 
Accounts payable and accrued liabilities   3,028    3,028    3,028    -    - 
Long-term debt   9,135    10,399    4,353    6,046    - 
Lease liability   1,836    2,206    294    1,599    313 
Other liabilities   221    232    232    -    - 
    14,220    15,865    7,907    7,645    313 

 

Fair value

 

The fair values of cash, trade and other receivables, accounts payable and accrued liabilities and lease liabilities approximate their carrying values, due to their relatively short periods to maturity. The fair value of long-term debt approximates its carrying amount as it has a floating interest rate.

 

 

19Related 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:

 

   2020
$		   2019
$		 
Salaries and employee benefits   1,418    999 
Directors’ fees   99    103 
Share-based compensation   1,594    908 
    3,111    2,010 

 

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

 

20Commitments and contingencies

 

All directors and officers of the Company are indemnified by the Company for various items including, but not limited to, all costs to settle lawsuits or actions due to their association with the Company, subject to certain restrictions. The Company has purchased directors’ and officers’ liability insurance to mitigate the cost of any potential future lawsuits or actions. The term of the indemnification is not explicitly defined, but is limited to events for the period during which the indemnified party served as a director or officer of the Company. The maximum amount of any potential future payment cannot be reasonably estimated but could have a material adverse effect on the Company.

 

The Company has also indemnified certain lenders and underwriters in relation to certain debt and equity offerings and their respective affiliates and directors, officers, employees, shareholders, partners, advisers and agents and each other person, if any, controlling any of the underwriters or lenders or their affiliates against certain liabilities.

 

(25) 

 

 

Profound Medical Corp.

Notes to Consolidated Financial Statements

December 31, 2020

In USD (000s)

   

21Capital management

 

The Company’s capital management objectives are to safeguard its ability to continue as a going concern and to provide returns for shareholders and benefits for other stakeholders by ensuring it has sufficient cash resources to fund its research and development activities, to pursue its commercialization efforts and to maintain its ongoing operations. The Company includes its share capital, deficit and long-term debt in the definition of capital.

 

A summary of the Company’s capital structure is as follows:

 

   2020
$		   2019
$		 
Common shares   211,527    100,298 
Deficit   (129,994)   (108,372)
Long-term debt   -    9,135 
    81,533    1,061 

 

22Segment 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, USA and Finland.

 

For the year ended December 31, 2020:

 

   Canada
$		   USA
$		   Germany
$		   Finland
$		   Total
$		 
Revenue                         
Product   4,763    -    1,470    -    6,233 
Services   112    -    612    -    724 
Pay per procedure   347    -    -    -    347 
    5,222    -    2,082    -    7,304 
Cost of sales   2,387    -    1,443    -    3,830 
Gross profit   2,835    -    639    -    3,474 
                          
Operating expenses                         
Research and development   7,288    625    -    1,999    9,912 
General and administrative   6,210    1,267    -    88    7,565 
Selling and distribution   1,839    1,336    1,599    86    4,860 
Total operating expenses   15,337    3,228    1,599    2,173    22,337 
                          
Operating loss   12,502    3,228    960    2,173    18,863 
Net finance costs                       2,714 
Loss for the year before income taxes                       21,577 

 

(26) 

 

 

Profound Medical Corp.

Notes to Consolidated Financial Statements

December 31, 2020

In USD (000s)

   

For the year ended December 31, 2019:

 

   Canada
$		   Germany
$		   Finland
$		   Total
$		 
Revenue                
Product   2,264    1,433    -    3,697 
Services   161    316    -    477 
    2,425    1,749    -    4,174 
Cost of sales   904    880    -    1,784 
Gross profit   1,521    869    -    2,390 
                     
Operating expenses                    
Research and development   7,315    -    2,082    9,397 
General and administrative   5,508    -    285    5,793 
Selling and distribution   544    1,385    175    2,104 
Total operating expenses   13,367    1,385    2 ,542    17,294 
                     
Operating loss   11,846    516    2,542    14,904 
Net finance costs                  171 
Loss for the year before income taxes                  15,075 

 

Other financial information by segment as at December 31, 2020:

 

   Canada
$		   USA
$		   Germany
$		   Finland
$		   Total
$		 
Total assets   98,890    456    1,682    3,573    104,601 
Goodwill and intangible assets   4,576    -    -    -    4,576 
Property and equipment   859    -    -    -    859 
Right-of-use assets   1,325    -    -    99    1,424 
Amortization of intangible assets   881    -    -    -    881 
Depreciation of property and equipment   236    -    -    116    352 
Depreciation of right-of-use assets   212    -    -    93    305 

 

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

 

   Canada
$		   Germany
$		   Finland
$		   Total
$		 
Total assets   26,866    814    2,380    30,060 
Goodwill and intangible assets   5,034    -    -    5,034 
Property and equipment   436    -    91    527 
Right-of-use assets   1,525    -    168    1,693 
Amortization of intangible assets   856    -    -    856 
Depreciation of property and equipment   194    -    200    394 
Depreciation of right-of-use asset   188    -    73    261 

 

(27) 

 

 

Profound Medical Corp.

Notes to Consolidated Financial Statements

December 31, 2020

In USD (000s)

   

23Change in presentation currency

 

During the year, the Company changed its presentation currency from Canadian dollars to United States dollars. The change in presentation currency was made to better reflect the Company's business activities and to improve investor's ability to compare the Company's financial results with other publicly traded businesses in the industry. In making the change to a US dollar presentation currency, the Company followed the guidance in IAS 21, The Effects of Changes in Foreign Exchange Rates (IAS 21) and has applied the change retrospectively as if the new presentation currency had always been the Company's presentation currency. In accordance with IAS 21, the financial statements for all the periods presented have been translated to the new US dollar presentation currency. For comparative balances, assets and liabilities have been translated into the presentation currency at the rate of exchange prevailing at the reporting date, or at the exchange rate prevailing at the date of the transactions. Exchange rate differences arising on translation are taken to other comprehensive loss (income). The Company has presented the effects of the change in the presentation currency below.

 

   Dec 31, 2019
USD$		   Dec 31, 2019
CAD$		   Jan 1, 2019
USD$		   Jan 1, 2019
CAD$		 
Assets                    
Current assets                    
Cash   14,800    19,222    22,495    30,687 
Trade and other receivables   3,125    4,058    1,969    2,686 
Investment tax credits receivable   185    240    352    480 
Inventory   3,668    4,765    2,662    3,632 
Prepaid expenses and deposits   1,028    1,336    319    435 
Total current assets   22,806    29,621    27,797    37,920 
Property and equipment   527    685    885    1,207 
Intangible assets   2,409    3,129    2,942    4,014 
Right-of-use assets   1,693    2,199    -    - 
Goodwill   2,625    3,409    2,499    3,409 
Total assets   30,060    39,043    34,123    46,550 
Liabilities                    
Current liabilities                    
Accounts payable and accrued liabilities   3,028    3,932    2,868    3,912 
Deferred revenue   504    655    229    313 
Long-term debt   3,961    5,145    982    1,340 
Provisions   104    135    991    1,352 
Other liabilities   221    287    416    567 
Derivative financial instrument   196    255    72    98 
Lease liabilities   199    259    -    - 
Income taxes payable   11    16    218    297 
Total current liabilities   8,224    10,684    5,776    7,879 
Long-term debt   5,174    6,720    7,782    10,616 
Deferred revenue   639    830    278    380 
Provisions   15    19    36    49 
Other liabilities   -    -    733    1,000 
Lease liabilities   1,637    2,126    -    - 
Total liabilities   15,689    20,379    14,605    19,924 
                     
Shareholders’ Equity                    
Share capital   100,298    130,267    88,647    120,932 
Contributed surplus   15,076    19,580    12,283    16,757 
Accumulated other comprehensive loss/(income)   7,369    (117)   11,859    (29)
Deficit   (108,372)   (131,066)   (93,271)   (111,034)
Total Shareholders’ Equity   14,371    18,664    19,518    26,626 
Total Liabilities and Shareholders’ Equity   30,060    39,043    34,123    46,550 

 

(28) 

 

 

Profound Medical Corp.

Notes to Consolidated Financial Statements

December 31, 2020

In USD (000s)

  

   Dec 31, 2019
USD$		   Dec 31, 2019
CAD$		 
Revenue          
Products   3,697    4,896 
Services   477    632 
    4,174    5,528 
Cost of sales   1,784    2,362 
Gross profit   2,390    3,166 
           
Operating expenses          
Research and development   9,397    12,466 
General and administrative   5,793    7,679 
Selling and distribution   2,104    2,789 
Total operating expenses   17,294    22,934 
           
Operating Loss   14,904    19,768 
           
Net finance costs   171    230 
           
Loss before taxes   15,075    19,998 
           
Income taxes   147    194 
           
Net loss attributed to shareholders for the year   15,222    20,192 
           
Other comprehensive loss (income)          
Item that may be reclassified to profit or loss          
Foreign currency translation adjustment - net of tax   4,490    (88)
           
Net loss and comprehensive loss for the year   19,712    20,104 
           
Loss per share          
Basic and diluted loss per common share   1.37    1.82 

 

(29)