Profound Medical Corp 6-K/A, filed Mar 10, 2025
Profound Medical Corp. (PROF)
About this 6-K/A
Profound Medical Corp filed this 6-K/A on March 10, 2025.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K/A
(Amendment No. 1)
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of March 2025
Commission File Number: 001-39032
PROFOUND MEDICAL CORP.
(Translation of registrant's name into English)
2400 Skymark Avenue, Unit 6, Mississauga, Ontario L4W 5K5
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover
of Form 20-F or Form 40-F.
Form 20-F [ ] Form 40-F [ X ]
EXPLANATORY NOTE
Profound Medical Corp. (the “Company”) furnished to the SEC a Report of Foreign Private Issuer on Form 6-K on May 9, 2024. The Company is furnishing this Form 6-K/A in order to replace all of the exhibits furnished on Form 6-K on May 9, 2024 with the exhibits set forth below. The purpose of this Form 6-K/A is to file the unaudited consolidated financial statements for the three months ended March 31, 2024 to correct an error which overstated revenue by $472,000 during the first quarter and to convert such financial statements from IFRS to U.S. GAAP.
Exhibits 99.1 and 99.2 of this Form 6-K/A are incorporated by reference into Profound Medical Corp.’s registration statement on Form F-10 (File No. 333-280236).
EXHIBIT INDEX
The following documents are attached as exhibits hereto and incorporated by reference herein:
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| PROFOUND MEDICAL CORP. | ||
| (Registrant) | ||
| Date: March 7, 2025 | /s/ Rashed Dewan | |
| Rashed Dewan | ||
| Chief Financial Officer | ||
Exhibit 99.1
PROFOUND MEDICAL CORP.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE QUARTER ENDED MARCH 31, 2024
PRESENTED IN US DOLLARS (000s)
Notice of No Auditor Review: In accordance with National Instrument 51-102 - Continuous Disclosure Obligations (“NI 51-102”), Profound Medical Corp. (the “Company”) discloses that its external auditors have not reviewed the accompanying unaudited interim condensed consolidated financial statements.
As at and for the year ended December 31, 2024, the Company has commenced preparing its financial statements filed with the Canadian Securities Administrators and with the Securities and Exchange Commission in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). As required pursuant to section 4.3(4) of NI 51-102, the Company must restate its unaudited interim condensed consolidated financial statements for the year ended December 31, 2024 in accordance with U.S. GAAP, such amended and restated unaudited interim condensed consolidated financial statements having previously been prepared in accordance with the International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS Accounting Standards”). The attached unaudited interim condensed consolidated financial statements as at March 31, 2024 and for three months ended March 31, 2024 and 2023 have been prepared in accordance with U.S. GAAP and should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed with the U.S. Securities and Exchange Commission and Canada’s System for Electronic Document Analysis and Retrieval+ on March 7, 2025.
In conjunction with the Company’s transition to U.S. GAAP, the Company identified an error which overstated revenue by $472,000 and resulted in an increase in net loss before tax and net loss attributed to shareholders by $386,000 in the previously reported first quarter of 2024 financial statements under IFRS Accounting Standards. This correction reduces revenue previously presented under IFRS Accounting Standards in the first quarter, and in the year-to-date figures in the second and third quarters of 2024. Other than as expressly set forth above, the attached unaudited interim condensed consolidated financial statements do not, and do not purport to, update or restate the information in the original unaudited condensed consolidated financial statements or reflect any events that occurred after the date of the filing of the original unaudited condensed consolidated financial statements.
Profound Medical Corp.
Condensed Consolidated Balance Sheets (Unaudited)
As at March 31, 2024 and December 31, 2023
In USD (000s)
| March 31, 2024 $ | December 31, 2023 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | 41,180 | 26,213 | ||||||
| Trade and other receivables, net (note 3) | 6,038 | 7,288 | ||||||
| Inventory (note 4) | 6,976 | 6,989 | ||||||
| Prepaid expenses and deposits | 961 | 1,406 | ||||||
| Total current assets | 55,155 | 41,896 | ||||||
| Property and equipment, net (note 5) | 866 | 909 | ||||||
| Intangible assets, net (note 6) | 428 | 490 | ||||||
| Right-of-use assets, net | 592 | 661 | ||||||
| Total assets | 57,041 | 43,956 | ||||||
| Liabilities | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | 542 | 865 | ||||||
| Accrued expenses and other current liabilities (note 7) | 2,334 | 2,419 | ||||||
| Deferred revenue | 644 | 721 | ||||||
| Long-term debt (note 8) | 2,054 | 2,104 | ||||||
| Lease liabilities | 253 | 259 | ||||||
| Income taxes payable | 13 | - | ||||||
| Total current liabilities | 5,840 | 6,368 | ||||||
| Deferred tax liabilities, net | 59 | 59 | ||||||
| Deferred revenue | 697 | 728 | ||||||
| Long-term debt (note 8) | 4,428 | 5,000 | ||||||
| Lease liabilities | 429 | 504 | ||||||
| Other non-current liabilities | 72 | 73 | ||||||
| Total liabilities | 11,525 | 12,732 | ||||||
| Shareholders’ equity | ||||||||
| Common shares, no par value, unlimited shares authorized, 24,428,899 and 21,370,565 issued and outstanding at March 31, 2024 and December 31, 2023, respectively (note 9) | 243,284 | 222,205 | ||||||
| Additional paid-in capital | 21,575 | 20,808 | ||||||
| Accumulated other comprehensive income | 4,596 | 5,565 | ||||||
| Accumulated deficit | (223,939 | ) | (217,354 | ) | ||||
| Total shareholders’ equity | 45,516 | 31,224 | ||||||
| Total liabilities and shareholders’ equity | 57,041 | 43,956 | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Profound Medical Corp.
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)
For the three months ended March 31, 2024 and 2023
In USD (000s)
| Three Months Ended March 31, | ||||||||
| 2024 $ | 2023 $ | |||||||
| Revenue (note 11) | ||||||||
| Recurring - non-capital | 1,439 | 1,467 | ||||||
| Capital equipment | - | 393 | ||||||
| 1,439 | 1,860 | |||||||
| Cost of sales | 573 | 665 | ||||||
| Gross profit | 866 | 1,195 | ||||||
| Operating expenses | ||||||||
| Research and development | 3,945 | 3,852 | ||||||
| Selling, general and administrative | 4,798 | 4,190 | ||||||
| Total operating expenses | 8,743 | 8,042 | ||||||
| Operating loss | 7,877 | 6,847 | ||||||
| Other (income) expenses | ||||||||
| Net finance (income) expense | (462 | ) | (157 | ) | ||||
| Net foreign exchange (gain) loss | (870 | ) | 121 | |||||
| Total other (income) expenses | (1,332 | ) | (36 | ) | ||||
| Net loss before income taxes | 6,545 | 6,811 | ||||||
| Income tax expense | 40 | 48 | ||||||
| Net loss attributed to shareholders for the period | 6,585 | 6,859 | ||||||
| Other comprehensive (income) loss | ||||||||
| Foreign currency translation adjustment - net of tax | 969 | (108 | ) | |||||
| Net loss and other comprehensive loss for the period | 7,554 | 6,751 | ||||||
| Loss per share (note 12) | ||||||||
| Basic and diluted net loss per common share | 0.27 | 0.33 | ||||||
| Basic and diluted weighted average common shares outstanding | 24,295,749 | 20,922,209 | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Profound Medical Corp.
Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)
For the three months ended March 31, 2024
In USD (000s)
Common Shares | Additional Paid-in Capital | Accumulated Other Comprehensive Income | Accumulated Deficit | Total | ||||||||||||||||||||
| Shares | Amount $ | $ | $ | $ | $ | |||||||||||||||||||
| Balance – December 31, 2023 | 21,370,565 | 222,205 | 20,808 | 5,565 | (217,354) | 31,224 | ||||||||||||||||||
| Net loss for the period | - | - | - | - | (6,585 | ) | (6,585 | ) | ||||||||||||||||
| Cumulative translation adjustment – net of tax of $nil | - | - | - | (969 | ) | - | (969 | ) | ||||||||||||||||
| Shares issued in public offering and private placement | 3,058,334 | 21,079 | - | - | - | 21,079 | ||||||||||||||||||
| Share-based compensation (note 10) | - | - | 767 | - | - | 767 | ||||||||||||||||||
| Balance – March 31, 2024 | 24,428,899 | 243,284 | 21,575 | 4,596 | (223,939 | ) | 45,516 | |||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Profound Medical Corp.
Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)
For the three months ended March 31, 2023
In USD (000s)
| Common Shares |
Additional Paid-in Capital | Accumulated Other Comprehensive Income | Accumulated Deficit | Total | ||||||||||||||||||||
| Shares | Amount $ | $ | $ | $ | $ | |||||||||||||||||||
| Balance – December 31, 2022 | 20,879,497 | 216,453 | 20,254 | 4,921 | (189,031 | ) | 52,597 | |||||||||||||||||
| Net loss for the period | - | - | - | - | (6,859 | ) | (6,859 | ) | ||||||||||||||||
| Cumulative translation adjustment – net of tax of $nil | - | - | - | 108 | - | 108 | ||||||||||||||||||
| Exercise of share options (note 10) | 500 | 1 | (1 | ) | - | - | - | |||||||||||||||||
| Exercise of warrants | 234,335 | 3,409 | (986 | ) | - | - | 2,423 | |||||||||||||||||
| Share-based compensation (note 10) | - | - | 941 | - | - | 941 | ||||||||||||||||||
| Balance – March 31, 2023 | 21,114,332 | 219,863 | 20,208 | 5,029 | (195,890 | ) | 49,210 | |||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Profound Medical Corp.
Condensed Consolidated Statements of Cash Flows (Unaudited)
For the three months ended March 31, 2024 and 2023
In USD (000s)
| Three Months Ended March 31, | ||||||||
| 2024 $ | 2023 $ | |||||||
| Cash flows from operating activities | ||||||||
| Net loss for the period | (6,585 | ) | (6,859 | ) | ||||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Depreciation of property and equipment (note 5) | 199 | 179 | ||||||
| Amortization of intangible assets (note 6) | 51 | 50 | ||||||
| Non-cash lease expense adjustment | (11 | ) | (11 | ) | ||||
| Share-based compensation (note 10) | 767 | 941 | ||||||
| Interest and accretion expense (note 8) | 169 | 180 | ||||||
| Change in amortized cost of trade and other receivables (note 3) | (68 | ) | (39 | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Trade and other receivables (note 3) | 1,325 | (600 | ) | |||||
| Inventory (note 4) | (180 | ) | (330 | ) | ||||
| Prepaid expenses and deposits | 467 | 364 | ||||||
| Accounts payable, accrued expenses and other liabilities (note 7) | (570 | ) | (16 | ) | ||||
| Deferred revenue | (107 | ) | 212 | |||||
| Income taxes payable | 14 | 48 | ||||||
| Net cash used in operating activities | (4,529 | ) | (5,881 | ) | ||||
| Cash flows from financing activities | ||||||||
| Issuance of common shares (note 9) | 22,938 | - | ||||||
| Payments of financing costs (note 9) | (1,859 | ) | - | |||||
| Repayments of long-term debt (note 8) | (623 | ) | (206 | ) | ||||
| Proceeds from the exercise of stock options (note 10) | - | 1 | ||||||
| Proceeds from the exercise of warrants | - | 2,423 | ||||||
| Net cash provided by (used in) financing activities | 20,456 | 2,218 | ||||||
| Net increase (decrease) in cash and cash equivalents | 15,927 | (3,663 | ) | |||||
| Effect of exchange rate changes on cash | (960 | ) | 130 | |||||
| Cash, beginning of period | 26,213 | 46,517 | ||||||
| Cash, end of period | 41,180 | 42,984 | ||||||
| Supplemental cash flow information: | ||||||||
| Interest paid, included in financing activities | 159 | 157 | ||||||
| Income taxes paid, included in operating activities | 14 | 11 | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Profound Medical Corp.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2024
In USD (000s)
| 1 | Description of business |
Profound Medical Corp. (Profound) and its subsidiaries (together, the Company) were incorporated under the Ontario Business Corporations Act on July 16, 2014. The Company is a commercial-stage medical device company focused on the development and marketing of customizable, incision-free therapeutic systems for the ablation of diseased tissue utilizing platform technologies.
The Company’s registered address is 2400 Skymark Avenue, Unit 6, Mississauga, Ontario, Canada, L4W 5K5.
| 2 | Summary of significant accounting policies |
Basis of preparation
The Company prepares its condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States (US GAAP). The condensed consolidated financial statements include the accounts of wholly owned subsidiaries, after elimination of intercompany accounts and transactions. The condensed consolidated financial information presented herein reflects all financial information that, in the opinion of management, is necessary for a fair statement of financial position, results of operations and cash flows for the periods presented.
Unaudited condensed consolidated financial statements
The accompanying balance sheet as of March 31, 2024, the condensed consolidated statements of operations and comprehensive loss and cash flows for the three months ended March 31, 2024, and 2023, and the condensed consolidated statements of shareholders’ equity as of March 31, 2024 and 2023, are unaudited. The financial data and other information disclosed in these notes to the condensed consolidated financial statements related to March 31, 2024, and the three months ended March 31, 2024, and 2023, are also unaudited.
These condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to a fair statement of the Company’s financial position as of March 31, 2024, and the results of its operations and cash flows for the three months ended March 31, 2024 and 2023. The results for the three months ended March 31, 2024, are not necessarily indicative of results to be expected for the year ending December 31, 2024, or for any other interim period or for any future year and should be read in conjunction with the annual consolidated financial statements to be included in the Company’s annual report.
Use of estimates
The preparation of the Company’s condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, assumptions related to the valuation of inventory, the determination of the amortized cost of trade and other receivables, determination of expected credit loss, and the valuation of stock options and warrants. The Company based its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.
| (1) |
Profound Medical Corp.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2024
In USD (000s)
Certain of the Company’s revenue is generated from sales to distributors. Where these sales have payment terms based on installation, the Company exercises judgement in determining when to recognize revenue. Once revenue is recognized, the Company records a contract asset until such time as the right to payment is not just subject to the passage of time, typically related to installation of the product.
Consolidation
The condensed consolidated financial statements include the accounts of the Company and all its consolidated subsidiaries after elimination of intercompany transactions and balances. The Company consolidates all entities that it controls either through a majority voting interest or as the primary beneficiary of variable interest entities (VIE).
Currently, the Company has no involvement with variable interest entities. All subsidiaries are evaluated under the voting interest entity model. The Company consolidates those entities it controls through a majority voting interest.
The condensed consolidated financial statements of the Company include the following wholly owned subsidiaries: Profound Medical Inc. (Canada), Profound Medical Oy (Finland), Profound Medical GmbH (Germany), Profound Medical (U.S.) Inc. (United States), Profound Medical Technology Services (Beijing) Co., Ltd. (China) and 2753079 Ontario Inc. (Canada).
Segment reporting
Operating segments reflect the way the Company is managed, and for which separate financial information is available and evaluated regularly by the Company’s chief operating decision maker (CODM) in deciding how to allocate resources and assess performance. The chief executive officer, who is the CODM, views the Company’s operations and manages its business in one operating segment, which is medical technology focused on magnetic resonance guided ablation procedures for the treatments to ablate the prostate gland, uterine fibroids, osteoid osteoma and nerves for palliative pain relief for patients with metastatic bone disease.
Foreign currency translation
The condensed consolidated financial statements are presented in US dollars. The functional currency of the Company is Canadian dollars. 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, liabilities and equity 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 condensed consolidated financial statements of the Company’s subsidiaries are recognized in other comprehensive loss.
| (2) |
Profound Medical Corp.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2024
In USD (000s)
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 condensed consolidated statements of operations and comprehensive loss, within net foreign exchange (gain) loss.
Fair value measurements
Certain assets and liabilities of the Company are carried at fair value under US GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
| · | Level 1 - Quoted prices in active markets for identical assets or liabilities. |
| · | Level 2 - Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. |
| · | Level 3 - Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. |
For assets and liabilities that are recognized in the condensed consolidated financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by reassessing the categorization at the end of each reporting period. There were no transfers between levels during the period presented. The Company currently does not have any level 3 financial instruments.
The Company considers its cash, trade and other receivables, net, prepaid expenses and deposits, accounts payable, accrued expenses and other liabilities and long-term debt to be financial instruments.
Concentrations of credit risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and trade and other receivables, net. The Company maintains its cash balances in various operating accounts including cash deposited at a major financial institution that management believes to be creditworthy. Management has not previously experienced non-performance by any financial institution. Concentrations of credit risk with respect to trade and other receivables, net are limited due to a large number of customers who are widely dispersed. The Company monitors the creditworthiness of its customers to which it grants credit terms in the normal course of business.
| (3) |
Profound Medical Corp.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2024
In USD (000s)
Trade and other receivables and allowance for expected credit losses
Trade and other receivables are stated net of an allowance for expected credit losses. The Company grants credit to customers in the normal course of business and maintains an allowance for expected credit losses which reflect the current estimate of credit losses expected to be incurred over the life of the receivables. The Company considers various factors in establishing, monitoring, and adjusting its allowance for expected credit losses, including the aging of the accounts and aging trends, the historical level of charge-offs, and specific credit exposures related to particular customers. The Company also monitors other risk factors, such as country risk, when determining credit limits for customers and establishing adequate allowances. Uncollectible accounts are written-off against the allowance 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 180 days past due.
Inventory
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.
The Company evaluates the carrying value of inventory on a regular basis, taking into account factors such as historical and anticipated future sales compared with quantities on hand, the price the Company expects to obtain for products in their respective markets compared with historical cost, obsolescence due to development of technology.
Property and equipment, net
Property and equipment are stated at cost, less accumulated depreciation and accumulated impairment losses. The initial cost of property and equipment consists of its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditures incurred after the assets have been put into operation, such as repairs and maintenance, are charged to the condensed consolidated statements of operations and comprehensive loss during the year in which they are incurred.
The major categories of property and equipment are depreciated on a straight-line basis as follows:
| Furniture and fittings | 5 years |
| Equipment under operating lease | 2 years |
| Leasehold improvements | Lesser of the estimated useful life or the lease term |
| (4) |
Profound Medical Corp.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2024
In USD (000s)
Residual values, methods of depreciation and useful lives of the assets are reviewed annually and adjusted if appropriate.
Intangible assets
The Company’s intangible assets are stated at cost, less accumulated amortization and accumulated impairment losses. Intangible assets are amortized on a straight-line basis in the condensed consolidated statements of operations 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 |
Impairment of long-lived assets
Property and equipment, net, right-of-use assets, and intangible assets with finite lives are tested for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. These assets are evaluated for impairment on an individual asset or group of assets with similar characteristics basis. If indicators of impairment are present, the asset is tested for recoverability by comparing the carrying value of the asset to the related estimated undiscounted future cash flows expected to be derived from the asset, which include the amount and timing of the projected future cash flows. If the expected undiscounted cash flows are less than the carrying value of the asset, then the asset is considered to be impaired and its carrying value is written down to fair value, based on the related estimated discounted future cash flows.
Accounts payable, accrued expenses and other current 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, accrued expenses and other current 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 principal amount is recognized in the condensed consolidated statements of operations and comprehensive loss over the contractual lives of the long-term debt using the effective interest method.
Long-term debt is removed from the condensed 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 condensed consolidated statements of operations and comprehensive loss, within other (income) expense, net.
| (5) |
Profound Medical Corp.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2024
In USD (000s)
Warrants
The Company issued warrants to its creditor and equity investors and accounts for warrant instruments as either equity-classified or liability-classified instruments based on an assessment of the specific terms of the warrants and applicable authoritative guidance in ASC 480 Distinguishing Liabilities from Equity (ASC 480) and ASC 815, Derivatives and Hedging (ASC 815). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own stock and whether the holders of the warrants could potentially require net cash settlement in a circumstance outside of the Company’s control, among other conditions for equity classification.
Leases
Leases where the Company is the Lessee
The Company accounts for leases in accordance with ASC 842, Leases (ASC 842). 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 determines the initial classification and measurement of its right-of-use assets and lease liabilities at the lease commencement date. The lease term includes any renewal options and termination options that the Company is reasonably certain to exercise.
Lease liabilities and the corresponding right-of-use assets are recorded based on the present values of lease payments over the terms. The present value of the lease payments is determined using the rate implicit in that lease. If the information necessary to determine the rate implicit in a lease is not available, the Company uses its incremental borrowing rate at the commencement of the lease, which represents the rate of interest that the Company would incur to borrow on a collateralized basis over a similar term.
All leases must be classified as either an operating lease or finance lease. The classification is determined based on whether substantive control has been transferred to the lessee. The classification governs the pattern of lease expense recognition. For leases classified as operating leases, total lease expense over the term of the lease is equal to the undiscounted payments due in accordance with the lease arrangement. Fixed lease expense is recognized on a straight-line basis over the term of each lease and includes: (i) imputed interest during the period on the lease liability determined using the effective interest rate method plus (ii) amortization of the right-of-use asset for that period. Amortization of the right-of-use asset during the period is calculated as the difference between the straight-line expense and the imputed interest on the lease liability for that period. Variable lease expense is recognized in the period in which the obligation for variable lease payments is incurred. All of the Company’s leases are classified as operating leases.
The Company has elected not to record on the condensed consolidated balance sheets a lease for which the term is 12 months or less.
Leases where the Company is the Lessor
Revenue from leasing arrangements is not subject to the revenue standard for contracts with customers and remains separately accounted for under ASC 842. In accordance with ASC 842, lessors should classify and account for a lease as an operating lease or a finance lease. All of the Company’s leases are qualified as operating leases. The Company does not derecognize the leased equipment at the time of the arrangement but depreciates the leased equipment over its useful life.
| (6) |
Profound Medical Corp.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2024
In USD (000s)
Revenue
Revenue is derived primarily from the sale of the TULSA-PRO and Sonalleve systems and one time use devices. All products generally contain a one-year warranty.
The Company recognizes revenue when the customer obtains control of promised goods or services and in an amount that reflects the consideration to which the Company expects to be entitled to receive in exchange for those goods or services. To achieve this core principle, the Company applies the five-step revenue model to contracts within its scope: (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 amount of revenue to be recognized is based on the transaction price the Company expects to receive in exchange for its goods and services. For contracts that contain multiple performance obligations, the Company allocates the transaction price to each performance obligation and recognizes the related revenue when or as control of each individual performance obligation is transferred to customers.
Recurring – non-capital
Recurring - non-capital revenue consists of the sale of one-time-use devices and services associated with extended warranties. Revenue from sale of one-time-use devices is recognized when control is transferred to the customers, which generally occurs at the time of shipment. Service revenue related to extended warranties is deferred and recognized on a straight-line basis over the extended warranty period covered by the customer contract.
Capital equipment
Capital equipment revenue consists of the sale of capital equipment including installation and training amounts. Revenue is recognized when the Company transfers control to the customer, which is generally at the time of shipment. The Company’s customer arrangements generally do not provide a right of return.
Contract Assets
Contract assets arise from billed amounts in customer arrangements and the Company’s right to payment is not just subject to the passage of time, typically related to installation of the product. The Company recognizes a receivable at the point in time at which it has an unconditional right to payment.
Sales to distributors
The Company markets and sells its products primarily through its direct sales force, which sells its products to end customers. A portion of the Company’s revenue is generated by sales to distributors primarily in Europe and Asia. When the Company transacts with a distributor, its contractual arrangement is with the distributor and not with the end customer. Whether the Company transacts business with and receives the order from a distributor or directly from an end customer, its revenue recognition policy and resulting pattern of revenue recognition for the order are generally the same.
| (7) |
Profound Medical Corp.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2024
In USD (000s)
Cost of sales
Cost of sales primarily includes the cost of finished goods, depreciation of equipment under lease, inventory write-downs, royalties, warranty expense, freight and direct overhead and labor expenses necessary to acquire or manufacture the finished goods.
Share-based compensation
The Company grants share options periodically to certain employees, directors and officers.
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 additional paid-in capital based on the number of awards expected to vest.
The Company has a long-term incentive plan (LTIP) with a requisite service period of 3 years. For each Restricted Share Unit (RSU) and 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 additional paid-in capital 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 is adjusted for subsequent changes in management’s estimate of the number of RSUs or DSUs that are expected to vest, for RSUs or DSUs anticipated to be cash settled and 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.
Share-based compensation is recognized in the condensed consolidated statements of operations and comprehensive (income)loss in the same manner as the award recipients’ other compensation costs. Forfeitures are recognized as a reduction of share-based compensation expense as they occur.
Research and development costs
Research and development costs are charged to expense as incurred.
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 condensed 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.
| (8) |
Profound Medical Corp.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2024
In USD (000s)
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 reporting period. 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 reporting period and all additional common shares that would have been outstanding if potentially dilutive common shares had been issued during the reporting period, except where the effect of such common shares would be antidilutive.
For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding as inclusion of the potentially dilutive common shares would be antidilutive.
Comprehensive (income) loss
Comprehensive (income) loss comprises of net (income) loss and other comprehensive (income) loss. Other comprehensive (income) loss includes foreign currency translation adjustments. Accumulated other comprehensive (income) loss is recorded as a component of shareholders’ equity.
Recently adopted accounting pronouncements
In September 2022, the Financial Accounting Standards Board (FASB) issued ASU 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50), which requires that a buyer in a supplier finance program disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude. The Company adopted this guidance on January 1, 2024. The adoption of this standard did not have an impact on the Company’s condensed consolidated financial statements.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting: Improvements to Reportable Segment Disclosures. This ASU modified the disclosure and presentation requirements primarily through enhanced disclosures of significant segment expenses and clarified that single reportable segment entities must apply ASC 280 in its entirety. This guidance is effective for the Company for the year beginning January 1, 2024, with early adoption permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statement. The Company adopted ASU 2023-07 on January 1, 2024 and the adoption did not have a material effect on the Company’s condensed consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (ASC 740): Improvements to Income Tax Disclosures, which includes amendments that further enhance income tax disclosures, primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. The amendments are effective for all public entities for fiscal years beginning after December 15, 2024, and early adoption is permitted. The Company elected to early adopt ASU 2023-09 on January 1, 2024 retrospectively and the adoption has an effect on the Company’s disclosures on income taxes (note 13).
| (9) |
Profound Medical Corp.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2024
In USD (000s)
Recently issued accounting pronouncements
In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements. The amendments in this update are the result of the FASB’s decision to incorporate into the Codification certain disclosures referred by the SEC that overlap with, but require incremental information to, US GAAP. The amendments in this update represent changes to clarify or improve disclosure and presentation requirements of a variety of topics in the Codification. For entities subject to the SEC’s existing requirements, the effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. The amendments in this update should be applied prospectively. The Company is currently evaluating the impact of this guidance.
The Company does not believe there are any other recently issued, but not yet effective, accounting standards that would have a significant impact on the Company’s condensed consolidated financial position or results of operations.
| 3 | Trade and other receivables, net |
Trade receivables and other receivables, net, as of March 31, 2024 and December 31, 2023 consist of the following:
March 31, 2024 | December 31, 2023 | |||||||
| Trade receivables, gross | 2,375 | 3,048 | ||||||
| Contract assets, gross | 3,710 | 4,097 | ||||||
| Trade receivables and contract assets | 6,085 | 7,145 | ||||||
| Allowance for credit losses | (74 | ) | (76 | ) | ||||
| Less amortized cost adjustment | (239 | ) | (315 | ) | ||||
| Trade receivables, net | 5,772 | 6,754 | ||||||
| Tax receivables | 66 | 414 | ||||||
| Other receivables | 200 | 120 | ||||||
| Total trade and other receivables, net | 6,038 | 7,288 | ||||||
| 4 | Inventory |
Inventory as of March 31, 2024 and December 31, 2023 consist of the following:
| March 31, 2024 $ | December 31, 2023 | |||||||
| Finished goods | 4,766 | 4,638 | ||||||
| Raw materials | 2,210 | 2,351 | ||||||
| Inventory | 6,976 | 6,989 | ||||||
| (10) |
Profound Medical Corp.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2024
In USD (000s)
During the three months ended March 31, 2024, $437 (three months ended March 31, 2023, $476) of inventory was recognized in cost of sales. The Company increased its inventory provision by $7 during the three months ended March 31, 2024 (three months ended March 31, 2023 – $6). There were no other inventory write-downs charged to cost of sales during the period ended March 31, 2024.
| 5 | Property and equipment, net |
The major components of property and equipment, net, as of March 31, 2024, and December 31, 2023 consist of the following:
| March 31, 2024 $ | December 31, 2023 | |||||||
| Leasehold improvements | 542 | 542 | ||||||
| Equipment under operating lease | 2,742 | 2,583 | ||||||
| Total | 3,284 | 3,125 | ||||||
| Accumulated depreciation | (2,418 | ) | (2,216 | ) | ||||
| Property and equipment, net | 866 | 909 | ||||||
Depreciation expense for the three months ended March 31, 2024 was $199.
| 6 | Intangible assets |
The major components of intangible assets as of March 31, 2024 and December 31, 2023 consist of:
| March 31, 2024 $ | December 31, 2023 $ | |||||||||||||||||||||||||||
| Weighted- Average Remaining Useful Lives (Years) | Gross Carrying Amount | Accumulated Amortization and Impairments | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization and Impairments | Net Carrying Amount | ||||||||||||||||||||||
| Exclusive licence agreement | 20 | 231 | (121 | ) | 110 | 231 | (114 | ) | 117 | |||||||||||||||||||
| Software | 5 | 978 | (660 | ) | 318 | 978 | (605 | ) | 373 | |||||||||||||||||||
| 1,209 | (781 | ) | 428 | 1,209 | (719 | ) | 490 | |||||||||||||||||||||
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 and exclusively licenced-in rights that enable the Company to use Sunnybrook’s technology for MRI-guided trans-urethral ultrasound therapy. The Company has the 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 license.
| (11) |
Profound Medical Corp.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2024
In USD (000s)
| 7 | Accrued expenses and other current liabilities |
Accrued expenses and other current liabilities, as of March 31, 2024 and December 31, 2023 consist of the following:
| March 31, 2024 $ | December 31, 2023 $ | |||||||
| Accrued employee compensation | 697 | 752 | ||||||
| Clinical trials | 480 | 663 | ||||||
| Other | 1,157 | 1,004 | ||||||
| Accrued expenses and other current liabilities | 2,334 | 2,419 | ||||||
| 8 | Long-term debt |
On November 3, 2022, the Company signed a term loan agreement with CIBC Innovation Banking (CIBC) to provide a secured loan for total gross proceeds of C$10,000 maturing on November 3, 2027 with an interest rate based on prime plus 2% (CIBC Loan). The Company was required to make interest only payments until October 31, 2023 and monthly repayments of C$208 plus accrued interest commenced on October 31, 2023. All obligations of the Company under the CIBC Loan are guaranteed by current and future subsidiaries of the Company and include security of first priority interests in the assets of the Company and its subsidiaries. Initially, the Company had financial covenants in relation to the CIBC loan where unrestricted cash is at all times greater than EBITDA for the most recent six-month period, reported on a monthly basis and that revenue for any fiscal quarter must be 15% greater than revenue for the same fiscal quarter in the prior fiscal year, reported on a quarterly basis. The term loan matures in November 2027.
On September 26, 2023 an amendment to the CIBC Loan resulted in a change to the financial covenants. The amended covenants are that unrestricted cash must at all times be greater of: (i) to the extent EBITDA is negative for such period, EBITDA for the most recent nine-month period or (ii) $7,500, reported on a monthly basis; and that recurring revenue for any fiscal quarter must be 15% greater than recurring revenue for the same fiscal quarter in the prior fiscal year, reported on a quarterly basis. The Company is compliant with the first covenant whereby unrestricted cash is at all times greater than EBITDA for the most recent nine-month period ended March 31, 2024. However, the Company is in breach with the second covenant whereby recurring revenue for any fiscal quarter must be 15% greater than recurring revenue for the same fiscal quarter in the prior fiscal year as at March 31, 2024.
On May 3, 2024, the Company received a waiver from CIBC and an amendment to the CIBC Loan which resulted in an amendment to the financial covenants. The amended covenants are that the recurring revenue covenant shall not be tested for any fiscal quarter in the 2024 fiscal year so long as unrestricted cash is no less than 2.5 multiplied by the principal amount of outstanding CIBC Loan at all times.
| (12) |
Profound Medical Corp.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2024
In USD (000s)
| March 31, 2024 $ | December 31, 2023 $ | |||||||
| Balance - Beginning of period | 7,104 | 7,174 | ||||||
| Interest and accretion expense | 169 | 727 | ||||||
| Foreign exchange | (168 | ) | 115 | |||||
| Repayment | (623 | ) | (912 | ) | ||||
| Balance - End of period | 6,482 | 7,104 | ||||||
| Less: Current portion | 2,054 | 2,104 | ||||||
| Long-term portion | 4,428 | 5,000 | ||||||
| 9 | Share capital |
Common shares
The Company is authorized to issue an unlimited number of common shares.
| Issued and outstanding (with no par value) | March 31, 2024 $ | December 31, 2023 | ||||||
| 24,428,899 (December 31, 2023 – 21,370,565) common shares | 243,284 | 222,205 | ||||||
On January 2, 2024, the Company closed a public offering, resulting in the issuance of 2,666,667 common shares at a price of $7.50, for gross proceeds of $20,000 ($18,238, net of transaction costs).
On January 16, 2024, the Company closed a non-brokered private placement, resulting in the issuance of 391,667 common shares at a price of $7.50, for gross proceeds of $2,938 ($2,841, net of transaction costs).
Voting Power
Except as otherwise required by law, the holders of common shares possess all voting power for the election of the Company’s directors and all other matters requiring shareholder action. Holders of common shares are entitled to one vote per share on matters to be voted on by shareholders.
Dividends
Holders of common shares will be entitled to receive such dividends, if any, as may be declared from time to time by the Company’s board of directors in its discretion out of funds legally available therefor. In no event will any stock dividends or stock splits or combinations of stock be declared or made on common stock unless the shares of common stock at the time outstanding are treated equally and identically.
| (13) |
Profound Medical Corp.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2024
In USD (000s)
Liquidation, Dissolution and Winding Up
In the event of the Company’s voluntary or involuntary liquidation, dissolution, distribution of assets or winding-up, the holders of the common stock will be entitled to receive an equal amount per share of all of the Company’s assets of whatever kind available for distribution to shareholders, after the rights of the creditors have been satisfied.
| 10 | Share-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 the share option plan and the long-term incentive plan is 3,175,757 common shares or such other number as may be approved by the holders of the voting shares of the Company.
As at March 31, 2024, there are 1,490,859 (December 31, 2023 – 1,474,809) options outstanding. Each share 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 (or other exchange where the common shares are listed), 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 activity 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 C$ | |||||||
| Balance - January 1, 2024 | 1,474,809 | 16.19 | ||||||
| Granted | 28,700 | 11.24 | ||||||
| Forfeited/expired | (12,650 | ) | 17.40 | |||||
| Balance - March 31, 2024 | 1,490,859 | 16.08 | ||||||
| Exercisable - March 31, 2024 | 1,273,347 | 15.63 | ||||||
| Expected to vest - March 31, 2024 | 1,490,859 | 16.08 | ||||||
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. The Company estimated the expected future stock price volatility for its common stock by using its historical volatility based on daily price observations for the most recent historical period equal to the length of the instrument's expected life of options.
| (14) |
Profound Medical Corp.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2024
In USD (000s)
Grant date | March 18, 2024 | |
| Exercise price | C$11.24 | |
| Expected volatility | 70% | |
| Expected life of options | 6 years | |
| Risk-free interest rate | 3.54% | |
| Dividend yield | - |
The weighted-average grant date fair values of share options granted for the three months ended March 31, 2024 were C$7.01 (three months ended March 31, 2023 - C$7.89).
Long-term incentive plan
Effective May 17, 2023, the Company adopted the amended long term incentive plan (the LTIP). The LTIP is an incentive-based equity compensation plan that provides for the grant of restricted share units (the RSUs) and deferred share units (the DSUs, together with the RSUs, the Units). The maximum number of units which may be reserved for issuance under this LTIP in respect of grants of RSUs and DSUs shall not exceed 4.9% of the issued and outstanding common shares on a non-diluted basis, provided that, the maximum number of shares which may be reserved for issuance pursuant to all of the Company’s security-based compensation arrangements shall not in the aggregate exceed 13% of the issued and outstanding common shares on a non-diluted basis. The Company may grant Units to officers, directors or employees of the Company. Each Unit represents the right to receive one common share in accordance with the terms of the LTIP. The number of Units granted at any particular time will be calculated by dividing the dollar amount of such grant by the market value of a common share on the applicable grant date, which is equal to the volume weighted average trading price of all common shares traded on the TSX (or other exchange where the Common Shares are listed) for the five trading days immediately preceding such date. RSUs and DSUs granted under the LTIP vest over a period of up to three years.
The following table summarizes RSUs activities:
| Number of RSUs | Weighted- average grant-date fair value per share C$ | |||||||
| Balance - December 31, 2023 | 493,396 | 12.20 | ||||||
| Granted | 30,000 | 10.89 | ||||||
| Forfeited | (11,666 | ) | 11.88 | |||||
| Balance - March 31, 2024 | 511,730 | 12.13 | ||||||
Effective May 17, 2023, the Company adopted the approval of revision to the amended LTIP. Previously, vested DSUs were settled either in common shares or in cash or a combination thereof at the discretion of the holder and were classified as a cash-settled liability. Under the amended LTIP, vested DSUs are settled either in common shares or in cash or a combination thereof at the discretion of the Company. The change in terms resulted in the DSUs being classified as equity settled and the effect of this change was recognized in 2023 resulting in a reclassification between accrued expenses and other current liabilities and additional paid-in capital of $241.
| (15) |
Profound Medical Corp.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2024
In USD (000s)
As at March 31, 2024, there are 75,000 (December 31, 2023 – 75,000) DSUs outstanding. There were no DSUs granted or vested during the three months ended March 31, 2024.
Share-based compensation
The following table presents the components and classification of share-based compensation recognized for share options, RSUs, and DSUs for the three months ended March 31, 2024 and March 31, 2023:
| Three months ended March 31, | ||||||||
| 2024 $ | 2023 $ | |||||||
| Share options | 169 | 415 | ||||||
| RSUs | 489 | 507 | ||||||
| DSUs | 109 | 19 | ||||||
| Share-based compensation | 767 | 941 | ||||||
| Cost of sales | 15 | 36 | ||||||
| Research and development | 167 | 225 | ||||||
| Selling, general and administrative | 585 | 680 | ||||||
| Share-based compensation | 767 | 941 | ||||||
| 11 | Revenue |
The following table provides information about disaggregated revenue by products and services:
| For the three months ended March 31, 2024 | ||||||||||||
| Contracts with customers | Leasing | Total | ||||||||||
| $ | $ | $ | ||||||||||
| Revenue | ||||||||||||
| Recurring - non-capital | 1,219 | 220 | 1,439 | |||||||||
| 1,219 | 220 | 1,439 | ||||||||||
| For the three months ended March 31, 2023 | ||||||||||||
| Contracts with customers | Leasing | Total | ||||||||||
| $ | $ | $ | ||||||||||
| Revenue | ||||||||||||
| Recurring - non-capital | 1,257 | 210 | 1,467 | |||||||||
| Capital equipment | 393 | - | 393 | |||||||||
| 1,650 | 210 | 1,860 | ||||||||||
| (16) |
Profound Medical Corp.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2024
In USD (000s)
| 12 | Loss per share |
The following table shows the calculation of basic and diluted loss per share:
| Three months ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Net loss for the period | $ | 6,585 | $ | 6,859 | ||||
| Weighted average number of common shares | 24,295,749 | 20,922,209 | ||||||
| Basic and diluted loss per share | $ | 0.27 | $ | 0.33 | ||||
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, RSUs and DSUs. Of the 1,490,859 share options (March 31, 2023 – 1,521,025), 511,730 RSUs (March 31, 2023 – 444,861), and 75,000 DSUs (March 31, 2023 – 60,000) not included in the calculation of diluted loss per share for the period ended March 31, 2024, 1,273,347 (March 31, 2023 – 1,162,041) were exercisable.
| 13 | Segment reporting |
The Company’s operations are categorized into one industry segment, which is medical technology focused on magnetic resonance guided ablation procedures for the treatments to ablate the prostate gland, uterine fibroids, osteoid osteoma and nerves for palliative pain relief for patients with metastatic bone disease. The CODM is regularly provided with only the condensed consolidated expenses as noted on the condensed consolidated statements of operations and comprehensive loss.
The following tables represent total revenue by geographic area, based on the location of the reporting entity for the three months ended March 31, 2024 and 2023 respectively:
| For the three months ended March 31, 2024 | ||||||||||||||||
| Canada $ | USA $ | Germany $ | Total $ | |||||||||||||
| Revenue | ||||||||||||||||
| Recurring - non-capital | 104 | 1,158 | 177 | 1,439 | ||||||||||||
| 104 | 1,158 | 177 | 1,439 | |||||||||||||
| For the three months ended March 31, 2023 | ||||||||||||||||
| Canada $ | USA $ | Germany $ | Total $ | |||||||||||||
| Revenue | ||||||||||||||||
| Recurring - non-capital | 41 | 1,060 | 366 | 1,467 | ||||||||||||
| Capital equipment | - | - | 393 | 393 | ||||||||||||
| 41 | 1,060 | 759 | 1,860 | |||||||||||||
| (17) |
Profound Medical Corp.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2024
In USD (000s)
The following tables represent other geographic information as at and for the three months ended March 31, 2024 and the year ended December 31, 2023:
| For the three months ended March 31, 2024 | ||||||||||||||||||||||||
| Canada $ | USA $ | Germany $ | China $ | Finland $ | Total $ | |||||||||||||||||||
| Total assets | 47,622 | 3,811 | 1,910 | 195 | 3,503 | 57,041 | ||||||||||||||||||
| Intangible assets | 428 | - | - | - | - | 428 | ||||||||||||||||||
| Property and equipment | 139 | 727 | - | - | - | 866 | ||||||||||||||||||
| Right-of-use assets | 592 | - | - | - | - | 592 | ||||||||||||||||||
| Amortization of intangible assets | 51 | - | - | - | - | 51 | ||||||||||||||||||
| Depreciation of property and equipment | 14 | 185 | - | - | - | 199 | ||||||||||||||||||
| For the year ended December 31, 2023 | ||||||||||||||||||||||||
| Canada $ | USA $ | Germany $ | China $ | Finland $ | Total $ | |||||||||||||||||||
| Total assets | 34,302 | 4,067 | 1,952 | 82 | 3,553 | 43,956 | ||||||||||||||||||
| Intangible assets | 490 | - | - | - | - | 490 | ||||||||||||||||||
| Property and equipment | 158 | 751 | - | - | - | 909 | ||||||||||||||||||
| Right-of-use assets | 661 | - | - | - | - | 661 | ||||||||||||||||||
| Amortization of intangible assets | 202 | - | - | - | - | 202 | ||||||||||||||||||
| Depreciation of property and equipment | 57 | 670 | - | - | - | 727 | ||||||||||||||||||
| 14 | Subsequent events |
On December 10, 2024, the Company closed a public offering, resulting in the issuance of 5,366,705 common shares at a price of $7.50, for gross proceeds of $40,250 ($36,132, net of transaction costs).
On February 1, 2025, the President of the United States issued three executive orders directing the United States to impose new tariffs on imports originating from Canada, Mexico and China. These orders call for additional 25% duty on imports into the United States of Canadian-origin and Mexican-origin products and 10% duty on Chinese origin products, except for Canadian energy resources that are subject to an additional 10% duty. The Company is assessing the direct and indirect impacts to its business of such tariffs, retaliatory tariffs or other trade protectionist measures implemented as this situation develops, and such impacts could be material.
| (18) |
Profound Medical Corp.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2024
In USD (000s)
On March 3, 2025, the Company entered into an amended and restated credit agreement with CIBC (the “CIBC Credit Agreement”), which amended the terms of the CIBC Loan and the existing long-term debt provided under the Original CIBC Credit Agreement was repaid with proceeds from a new revolving line of credit provided by CIBC to the Company. The line of credit bears interest at the Wall Street Journal Prime Rate subject to a floor of 6.25%. The CIBC Credit Agreement contains certain financial covenants, and the obligations thereunder are secured by, inter alia, a general security agreement over the assets of the Company and its subsidiaries. The revolving line of credit matures on March 3, 2027 and provides an option to increase the amount of the revolving commitment by $5,000 within 18 months from March 3, 2025, subject to achieving a minimum trailing 12 month revenue exceeding $15,000. The exercise of the option would result in the size of the revolving commitment increasing from $10,000 to a maximum of $15,000. Additionally, the CIBC Credit Agreement provides that the Company may request a one-time increase in the principal amount of the revolving line of credit up to a maximum amount of $10,000, which is subject to the approval of CIBC in its sole discretion.
(19)
Exhibit 99.2
PROFOUND MEDICAL CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS
MARCH 31, 2024
PRESENTED IN US DOLLARS (000s)
Notice to Reader
Profound Medical Corp. (the “Company”, “Profound” or the “Group”) now prepares its financial statements filed with the Canadian Securities Administrators and with the Securities and Exchange Commission in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). As required pursuant to section 4.3(4) of National Instrument 51-102 - Continuous Disclosure Obligations, the Company must restate its condensed consolidated interim financial statements for the three months ended March 31, 2024 and 2023 in accordance with U.S. GAAP (the “Interim Financial Statements”), such Interim Financial Statements having previously been prepared in accordance with the International Financial Reporting Standards as issued by the International Accounting Standards Board. This restated management’s discussion and analysis (this “MD&A”) for the three months ended March 31, 2024 and 2023 is current as of March 31, 2024 and provides financial information for the three months ended March 31, 2024 and 2023, except that:
| · | changes were made throughout this MD&A to reflect the fact that the Interim Financial Statements are now prepared in accordance with U.S. GAAP; and |
| · | in conjunction with the Company’s transition to U.S. GAAP, the Audit Committee of Profound’s Board of Directors identified an error which overstated revenue by $472,000 and resulted in an increase in net loss before tax and net loss attributed to shareholders by $386,000 in the previously reported first quarter of 2024 financial statements under IFRS Accounting Standards. Such financial information has been adjusted in the Interim Financial Statements and corresponding changes were made throughout this MD&A to reflect this correction. |
Other than as expressly set forth above, this MD&A does not, and does not purport to, update or restate the information in the original MD&A or reflect any events that occurred after the date of the filing of the original MD&A.
The Company’s Interim Financial Statements are available under the Company’s profile on SEDAR+ at www.sedarplus.com and on EDGAR at www.sec.gov. Readers are cautioned that this MD&A should be read in conjunction with the Interim Financial Statements, including the related notes thereto.
Profound Medical Corp.
Management’s Discussion and Analysis
For the three months ended March 31, 2024 and 2023
In USD$ (000s)
The following Management’s Discussion and Analysis (this “MD&A”) prepared as of May 9, 2024, as restated on March 7, 2025, to reflect the filing of the restated unaudited interim condensed consolidated financial statements of Profound for the three months ended March 31, 2024 and 2023 (the “Interim Financial Statements”) described above. Other than as expressly set forth above, this MD&A does not purport to, update or restate the information in the original MD&A or reflect any events that occurred after the date of the filing of the original MD&A. It is supplemental to, and should be read in conjunction with, the Company’s Interim Financial Statements and the accompanying notes for the three months ended March 31, 2024 and 2023. The Interim Financial Statements and related notes were prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”) applicable to the preparation of interim financial statements. Unless stated otherwise, all references to “$” are to United States dollars and all references to “C$” are to Canadian dollars. In this MD&A, unless the context requires otherwise, references to “Profound”, “the Company”, “we”, “us” or “our” are references to Profound Medical Corp. and its subsidiaries.
FORWARD-LOOKING STATEMENTS
This MD&A contains “forward-looking statements” within the meaning of Section 27A of the US Securities Act and Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”) pursuant to the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995, and “forward-looking information” within the meaning of applicable Canadian securities laws, which include all statements other than statements of historical fact contained in this MD&A, such as statements that relate to the Company’s current expectations and views of future events. Often, but not always, forward-looking statements can be identified by the use of words such as “may”, “will”, “expect”, “anticipate”, “predict”, “aim”, “estimate”, “intend”, “plan”, “seek”, “believe”, “potential”, “continue”, “is/are likely to”, “is/are projected to” or the negative of these terms, or other similar expressions intended to identify forward-looking statements. These forward-looking statements include, among other things, statements relating to:
| · | our expectations regarding the commercialization and adoption of our approved products (particularly the TULSA-PRO® system following US Food and Drug Administration (“FDA”) clearance) and our ability to generate revenues and achieve profitability; |
| · | our expectations regarding the safety, efficacy and advantages of our products over our competitors and alternative treatment options; |
| · | our expectations regarding our products fulfilling unmet clinical needs and achieving market acceptance among patients, physicians and clinicians; |
| · | our expectations regarding reimbursement for our approved products from third-party payors; |
| · | our expectations regarding an out-of-pocket market for the Company’s products; |
| · | our expectations regarding our relationships with Koninklijke Philips N.V. (“Philips”), Siemens Healthcare GmBH (“Siemens”) and GE Healthcare (“GE”), and our ability to achieve compatibility of our systems with magnetic resonance imaging (“MRI”) scanners produced by other manufacturers; |
| · | our ability to attract, develop and maintain relationships with other suppliers, manufacturers, distributors and strategic partners; |
| · | our expectations regarding our pipeline of product development, including expanding the clinical application of our products to cover additional indications; |
| · | our expectations regarding current and future clinical trials, including the timing, enrollment and results thereof; |
| · | our expectations regarding changes to existing regulatory frameworks; |
| · | our expectations regarding obtaining regulatory approvals; |
| · | our expectations regarding maintenance of the current regulatory approvals we have received, including our compliance with the conditions under such approvals, and the receipt of additional regulatory approvals for our products and future product candidates; |
| · | our mission and future growth plans; |
| · | our ability to attract and retain personnel; |
| · | our expectations regarding our competitive position for each of our products in the jurisdictions where they are approved; |
| · | our ability to manage our working capital and our ongoing ability to satisfy our cash requirements and any future commitments, financial obligations, covenants and contingencies; |
| · | our ability to raise debt and equity capital to fund future product development, pursue regulatory approvals and commercialize our approved products; and |
| · | anticipated trends and challenges in our business and the markets in which we operate. |
Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Profound to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including those factors discussed in the section entitled “Risk Factors” in the Company’s Annual Information Form prepared as of March 7, 2024 for the year ended December 31, 2023 (the “AIF”), available on SEDAR+ at www.sedarplus.ca and filed as an exhibit to the Company’s annual report on Form 40-F, filed on March 7, 2024 (the “40-F”), available on EDGAR at www.sec.gov, such as:
| · | risks related to our limited operating history and history of net losses; |
| · | risks related to our liquidity and financing needs; |
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Profound Medical Corp.
Management’s Discussion and Analysis
For the three months ended March 31, 2024 and 2023
In USD$ (000s)
| · | risks related to our ability to commercialize our approved products, including realizing the anticipated benefits of our co-development agreement with GE (the “GE Agreement”), expanding our sales and marketing capabilities, increasing our manufacturing and distribution capacity, increasing reimbursement coverage for our approved products and achieving and maintaining market acceptance for our products; |
| · | risks related to the regulation of our products, including in connection with obtaining regulatory approvals as well as post-marketing regulation; |
| · | risks related to our successful completion of clinical trials with respect to our products and future product candidates; |
| · | risks related to managing growth, including in respect of obtaining additional funding and establishing and maintaining collaborative partnerships, to achieve our goals; |
| · | risks related to competition that may impact market acceptance of our products and limit our growth; |
| · | risks relating to fluctuating input prices and currency exchange rates; |
| · | risks related to the reimbursement models in relevant jurisdictions that may not be advantageous; |
| · | risks related to reliance on third parties, including our collaborative partners, manufacturers, distributors and suppliers, and increasing the compatibility of our systems with MRI scanners; |
| · | risks related to intellectual property, including license rights that are key to our business; |
| · | risks related to product liability; and |
| · | risks related to the loss of key personnel. |
Forward-looking statements contained herein are made as of the date of this MD&A and Profound disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or results or otherwise, unless required by applicable laws. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements due to the inherent uncertainty in them. Readers are cautioned that while Profound believes it has accurately summarized all clinical studies cited in this MD&A, readers should review the full publications of the studies prior to making an investment decision in the Company.
BUSINESS OVERVIEW
Profound (NASDAQ: PROF; TSX: PRN) is a commercial-stage medical device company focused on the development and marketing of customizable, incision-free therapeutic systems for the image guided ablation of diseased tissue utilizing its platform technologies and leveraging the healthcare system’s existing imaging infrastructure. Profound’s lead product (the “TULSA-PRO® system”) combines real-time MRI, robotically driven transurethral sweeping-action thermal ultrasound with closed-loop temperature feedback control for the ablation of prostate tissue. The product is comprised of one-time-use devices and durable equipment that are used in conjunction with a customer’s existing MRI scanner.
In August 2019, the TULSA-PRO® system received FDA clearance as a Class II device in the United States of America (“United States” or “US”) for thermal ablation of prescribed prostate tissue, using transurethral ultrasound ablation (“TULSA®”) based on the Company sponsored (“TACT”) whole gland ablation pivotal clinical study. It is also CE marked in the European Union (“EU”) for ablation of targeted prostate tissue (benign or malignant). The TULSA-PRO® system was approved by Health Canada in November 2019.
Profound believes that, based on the Company’s TACT clinical data and additional studies conducted in the EU, physicians may elect to use TULSA-PRO® to ablate benign or malignant prostate tissue in patients with a variety of prostate diseases. Prostate diseases include prostate cancer and benign prostatic hyperplasia (“BPH”). Prostate cancer is one of the most common types of cancer affecting men. The annual incidence of newly diagnosed cases in 2023 is estimated to reach 288,300 in the United States according to the American Cancer Society and in 2020 there were approximately 475,000 newly diagnosed cases of prostate cancer in Europe, according to the International Agency for Research on Cancer. The American Cancer Society further estimates that there are approximately 5.8 million men living with prostate cancer in these two geographic regions. Although ten-year survival outcomes for prostate cancer remain favorable, it is still one of most common causes of cancer deaths among men. BPH is a histologic diagnosis that refers to the proliferation of smooth muscle and epithelial cells within the prostatic transition zone. According to the American Urological Association, BPH is nearly ubiquitous in the aging male population with worldwide autopsy proven histological prevalence increases starting at ages 40 to 45 years, reaching 60% at age 60 and 80% at age 80.
Profound initiated the commercial launch of its lead product, the TULSA-PRO® system in the United States in Q4 2019, treating the first patient in a non-trial setting in January 2020. On June 2, 2023, Profound Medical announced new CPT Category 1 Codes from the American Medical Association (“AMA”) for TULSA to treat prostate diseases, which will be effective January 1, 2025. In addition, Profound continues to support additional clinical trials in the United States and abroad to further increase the body of clinical evidence that may be needed particularly for reimbursement and coverage of its technologies by private and government healthcare providers. The Company continues to expand the compatibility of its TULSA-PRO® system with additional MRI brands to broaden its ability to utilize the global MRI installed base and seek regulatory approvals of its products in additional international jurisdictions.
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Profound Medical Corp.
Management’s Discussion and Analysis
For the three months ended March 31, 2024 and 2023
In USD$ (000s)
Profound’s second product, the Sonalleve® system, is CE marked in the EU for the treatment of uterine fibroids and adenomyotic tissue, palliative pain relief associated with bone metastases, treatment of osteoid osteoma, and management of benign desmoid tumors and has also been approved by the regulatory bodies in China and South Korea for non-invasive treatment of uterine fibroids. In late 2020, Sonalleve® received Humanitarian Device Exemption (“HDE”) approval from the FDA for the treatment of Osteoid Osteoma in the United States. The Sonalleve® system is only compatible with certain Philips MRIs.
Profound deploys a recurring revenue business model in the United States to market TULSA-PRO®, charging a one-time payment that includes a supply of its one-time-use devices, use of the system, as well as the Company’s customer and technological support (“Genius”) services that support each TULSA center. The Sonalleve® product is marketed primarily outside North America in European and Asian countries, deploying a capital sales model. Outside of North America, Profound generates most of its revenues from its system sales in Europe and Asia, where the Company deploys a more traditional hybrid business model, charging for the system separately as a capital sale and an additional per patient charge for the one-time-use devices and associated Genius services.
Profound’s Technology
TULSA-PRO® and Sonalleve® share the common technological concept of using MRI to enable visualization by the surgeon of desired tissue in real time. Both products also use thermal ultrasound technology to gently heat and ablate tissue using the real-time thermometry capability of the MRI.
TULSA-PRO® delivers its ultrasound energy through a transurethral catheter, a one-time-use device that is placed in the patient’s prostate through a natural orifice. Focused ultrasound energy is then delivered by the catheter in the shape of a blade. Externally the catheter is connected to a software controlled robotic manipulator that rotates up to 360-degree in a sweeping action to impart thermal energy and thus ablation of tissue. The real time temperature measurement of the prostate is coupled with closed loop process control that measures the appropriate amount of ultrasound energy to gently heat the physician-prescribed region of prostate tissue to the target temperature to achieve cell kill without boiling or charring the tissue. As a measure to keep the urethra within the prostate viable, the temperature of the transurethral catheter is maintained at an appropriate level by circulating water inside the catheter. Similarly, a water-cooled specially designed catheter is placed in the patient’s rectum during the ablation process to keep it protected from thermal damage during the procedure. The TULSA-PRO in conjunction with its Thermal Boost module, enables surgeons to temporarily increase the ablation target temperature in prostate regions where advanced stage cancer might reside, further increasing their confidence that aggressive cancer cells have been ablated. Profound believes that TULSA-PRO®’s controlled and relatively gentle heating process may result in lower post procedural pain and complications, reduced potential of life affecting side effects, and in significantly desirable shrinkage of the prostate via resorption of the dead tissue over time, which may provide a longer-term durable benefit.
Sonalleve® delivers its ultrasound energy via a disc located outside the patient. Its ultrasound energy is focused to create small cylindrical hot spots a certain distance into the patient. Overlapping cylinders create ablation of the physician-prescribed desired tissue. Similar to TULSA-PRO, Sonalleve® also provides for controlled temperature increases to achieve cell kill.
The physician is in charge of using the Profound devices and decides which tissue needs to be ablated to impart therapeutic effect. Profound believes that in the hands of trained physicians, its systems have the ability to provide customizable, incision-free ablative therapies with the precision of real-time MRI visualization and thermometry, focused ultrasound and closed-loop temperature feedback control. Profound believes that its technology offers clinicians and appropriate patients a better alternative to traditional surgical or radiation therapies, with respect to clinical outcomes, side effects and recovery time.
TULSA-PRO®
The TULSA-PRO® system is designed to provide precise, flexible and durable ablation of a surgeon defined region of the prostate while actively protecting the urethra and rectum to help preserve the patient’s natural functional abilities. To date, over 3,000 global TULSA-PRO® procedures have been performed by more than 100 physicians at over 30 commercial and 20 clinical research sites.
Clinical Studies
In March 2014, Profound completed enrollment and treatment of 30 patients in the Phase I TULSA multi-jurisdictional safety and precision study. Based on the Phase I clinical trial results, in April 2016, Profound received a CE Certificate of Conformity for the TULSA-PRO® system from its notified body in the EU, and in the fourth quarter of 2016, Profound initiated a pilot commercial launch of TULSA-PRO® in key European markets where the CE mark is accepted.
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Profound Medical Corp.
Management’s Discussion and Analysis
For the three months ended March 31, 2024 and 2023
In USD$ (000s)
Profound received FDA clearance for the TULSA-PRO® system in August 2019 for transurethral ultrasound ablation of prostate tissue, based on the Company’s TACT Pivotal Clinical Trial. The TACT Pivotal Clinical Trial is a prospective, open-label, single-arm pivotal clinical study, of 115 treatment-naïve localized prostate cancer patients across 13 research sites in the United States, Canada and Europe, which enrolled patients between August 2016 and February 2018.
Localized Prostate Cancer, Ablation Safety and Efficacy: TACT Pivotal Study
The TACT Pivotal Clinical Trial demonstrates that MRI-guided TULSA is a minimally invasive procedure for effective prostate cancer ablation with a favorable side effect profile, minimal impact on quality of life and low rates of residual disease1. In the large, multi-center prospective study in men with predominately intermediate-risk prostate cancer, whole gland ablation sparing the urethra and apical sphincter with the TULSA-PRO® met its primary regulatory endpoint of prostate-specific antigen (“PSA”) reduction in 96% of men to a median nadir of 0.34 ng/ml and 0.5 ng/ml at 12 months. Median decrease in perfused prostate volume as assessed by a central radiologist using 12-month MRI was 91%, from a median 37 cc to 2.8 cc. At 12 months, extensive biopsy sampling of the markedly reduced prostate volume demonstrated a benefit for nearly 80% of men. There was no evidence of cancer in 65% of men and 14% had low-volume clinically-insignificant disease. The authors, however, noted that thermally-fixed non-viable cells can retain their apparently-malignant tissue morphology, confounding Gleason grading and potentially introducing false positives2. By two and five years, 7% and 21%, respectively, of men sought additional treatment for their prostate cancer (prostatectomy, radiation). The study patient population, with two-thirds of those with Gleason Grade Group (GGG) ≥ 2 having either bilateral disease or at least five positive cores, allowed for evaluation of oncologically relevant secondary outcomes including PSA stability, post-treatment biopsy, and salvage treatment. Notwithstanding the limitations of comparisons between ablative and extirpative therapies, the 21% 5-year rate of salvage treatment and 20% rate of residual clinically significant prostate cancer in intermediate-risk patients are in line with accepted rates of early failure or additional intervention after standard treatments and goals for retreatment after ablative therapies. By five years, the median PSA nadir further reduced to 0.26 ng/ml. PSA reduction was durable over the extended follow-up period, from 0.53 ng/ml at one year to 0.63 ng/ml at five years.
TULSA was associated with a high degree of safety and maintenance of quality-of-life, durable to five years, comparing favorably to radical prostatectomy and other whole-gland ablation techniques. At 12 months, 96% of men returned to baseline urinary continence, and 75% of potent men maintained or returned to erections sufficient for penetration, with these rates remaining stable or further improving to five years. A total of 12 grade 3 adverse events occurred in 8% of men, including genitourinary infection (4%), urethral stricture (2%), urinary retention (1.7%), urethral calculus and pain (1%), and urinoma (1%), all resolved by 12 months. There were no grade 4 events, rectal injuries, severe incontinence requiring surgical intervention, or severe erectile dysfunction unresponsive to medication.
Localized Prostate Cancer, Durability of Outcomes: Phase I Safety and Precision Study
The Phase I Clinical Trial demonstrates that MRI-guided TULSA is safe and precise for ablation in patients with localized prostate cancer, providing spatial ablation precision of ± 1.3 mm with a well-tolerated side-effect profile and minor or no impact on urinary, erectile and bowel function at 12 months3. There were no grade 4 or higher adverse events, one transient attributable grade 3 event (epididymitis), and notably no injury to rectal or periprostatic structures. Functional outcomes, International Prostate Symptom Score (“IPSS”) and IIEF-15, both showed a favorable anticipated trend of initial deterioration with subsequent gradual improvement toward baseline levels. Consistent with the conservative whole-gland treatment plan which included a 3 mm circumferential margin expected to spare 10% viable prostate at the gland periphery, intra-operative MRI thermometry measured 90% thermal ablation of the prostate gland, median PSA decreased 90% from 5.8 ng/ml to nadir of 0.6 ng/ml, and median prostate volume reduced by 88% on 1-year MRI. Prostate biopsy at one year identified decreased cancer burden with 61% reduction in cancer length; however, attributable to the circumferential safety margin, clinically significant cancer in 9 of 29 men (31%), and any cancer in 16 of 29 (55%).
Follow-up data to three and five years demonstrate durability of the outcomes, with continued treatment safety and stable quality of life, as well as predictable PSA and biopsy oncological outcomes based on treatment-day imaging and early PSA follow-up, without precluding any potential salvage therapy options4. Repeat prostate biopsy at three years demonstrated durable histological outcomes, with only one subject upgrading to GGG 1 from negative at 12 months, and one subject upgrading to GGG 2 from GGG 1 at 12 months. Between one and five years, there were no new serious adverse events. By five years, 16 men completed protocol follow-up, three withdrew with PSA <0.4 ng/ml, 10 had salvage therapy without complications (six prostatectomy, three radiation and one laser ablation), and one died of an unrelated cause. Of 16 men with complete follow-up data, five-year median PSA remained at 0.55 ng/ml. Median IPSS of 6 at baseline returned to 5 by three months, and 6.5 at five years. At baseline, 9 of 16 had erections sufficient for penetration, 11 of 16 at one year, and 7 of 16 at five years. All 16 subjects had leak-free, pad-free continence at one and five years. Predictors of salvage therapy included lower ablation coverage and higher PSA nadir. At five years after TULSA, cancer specific survival is 100%, and overall survival 97%.
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1 Klotz et al, “MRI-guided transurethral ultrasound ablation of prostate cancer,” The Journal of Urology, 2020
2 Anttinen et al, “Histopathological evaluation of prostate specimens after thermal ablation may be confounded by the presence of thermally-fixed cells,” International Journal of Hyperthermia, 2019
3 Chin et al, “Magnetic Resonance Imaging-Guided Transurethral Ultrasound Ablation of Prostate Tissue in Patients with Localized Prostate Cancer: A Prospective Phase 1 Clinical Trial,” European Urology, 2016; Bonekamp et al, “Twelve-month prostate volume reduction after MRI-guided transurethral ultrasound ablation of the prostate,” European Radiology, 2018
4 Nair et al, “MRI-Guided Transurethral Ultrasound Ablation in Patients with Localized Prostate Cancer: Three Year Outcomes of a Prospective Phase I Study”, BJU International, 2020; Nair et al, “PD17-03 Five-Year Outcomes from a Prospective Phase I Study of MRI-Guided Transurethral Ultrasound Ablation in Men with Localized Prostate Cancer”, AUA 2020 Virtual Experience, Abstract in The Journal of Urology, 2020; Hatiboglu et al, “Durability of functional outcomes after MRI-guided transurethral ultrasound ablation of the prostate,” JU Open Plus, 2023.
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Profound Medical Corp.
Management’s Discussion and Analysis
For the three months ended March 31, 2024 and 2023
In USD$ (000s)
Benign Prostatic Hyperplasia (BPH), Relief of Lower Urinary Tract Symptoms (LUTS): Phase I Studies
Promising safety and feasibility of the TULSA-PRO® to relieve Lower Urinary Tract Symptoms (“LUTS”) associated with BPH has been demonstrated in two clinical studies showing improvements in IPSS comparable to modern minimally invasive surgical therapies5. A retrospective analysis of a sub-group of nine men from the Phase I localized prostate cancer study who also had LUTS (baseline IPSS ≥ 12) demonstrated significant IPSS improvement of 58% from 16.1 to 6.3 at 12 months (p=0.003), with at least a moderate (≥ 6 points) symptom reduction in eight of nine patients. IPSS Quality of Life (“QoL”) improved in eight of nine patients. Erectile function (IIEF-EF) remained stable from 14.6 at baseline to 15.7 at 12 months. The proportion of patients with erections sufficient for penetration was unchanged. Full urinary continence (pad-free, leak-free) was achieved at 12 months in all patients. In five men who suffered from more severe symptoms (baseline IPSS ≥ 12 and Qmax < 15 ml/s), peak urine flow rate (“Qmax”) increased from 11.6 ml/s to 22.5 ml/s at 12 months. All adverse events were mild to moderate with no serious events reported.
A prospective Phase I/II study of TULSA-PRO® for BPH has been conducted with early outcomes published in 20226. All measures of urinary function and quality of life improved during the initial twelve-month follow up among the first ten patients treated, while no adverse effects were seen on sexual and bowel functions: average IPSS decreased from 17.5 to 4.0, IPSS QoL decreased from 4.0 to 0.5, and Qmax increased from 12.4 ml/s to 21.8 ml/s, among several other improved urinary measures. A single serious adverse event had occurred, abscess of the epididymis requiring drainage at two weeks post therapy. Enrollment of this study has been increased to 30 patients.
Radio-recurrent localized prostate cancer, Salvage TULSA (sTULSA): Phase I Study
Salvage ablation of radio-recurrent localized prostate cancer has been evaluated in a prospective Phase I/II study of TULSA-PRO® with early outcomes published in 20207. The report includes the first eleven patients from a 40-patient study, who were successfully treated, and discharged on the first postoperative day, with median catheterization time of seven days. Median PSA decreased from 7.6 ng/ml at baseline to a nadir of 0.2 ng/ml and was 0.23 ng/ml at 12 months. At 12 months, 10/11 patients were free of any PCa in the targeted ablation zone, confirmed with biopsy and imaging (MRI and PSMA-PET), and had low and stable PSA. Four patients had prolonged catheterization and subsequent urinary tract infection, and one of these patients had upper urinary tract dilation treated with double-J-stents.
Palliation of symptomatic locally advanced prostate cancer, Palliative TULSA (pTULSA): Phase I Study
Patients with symptomatic locally advanced prostate cancer can suffer from severe urinary retention due to bladder outlet obstruction, intractable hematuria and frequent hospitalization. While these complications are commonly treated by palliative transurethral resection of the prostate (“TURP”), the improvement is often insufficient and may exclude patients who cannot discontinue anticoagulants. The safety and feasibility of MRI-guided TULSA was evaluated as an alternative palliative treatment option for men suffering from symptomatic locally advanced prostate cancer8. Ten patients with locally advanced prostate cancer were enrolled, half with clinical stage T4 disease and half with clinical T3. Prior to TULSA, all patients had continuous indwelling catheterization due to urinary retention, and 90% had history of recurrent and/or ongoing gross hematuria. Three patients had palliative TURP performed six months prior to receiving palliative TULSA, all of which were unsuccessful. One week after palliative TULSA, 50% of men were catheter-free. At last follow-up, 100% of men were free of gross hematuria, and 80% had an improvement in catheterization, with 70% completely catheter-free. Notably, the average hospitalization time from local complications reduced from 7.3 to 1.4 days in the six-month period before and after palliative TULSA. All adverse events were related to urinary tract infections, with two patients requiring intravenous administration of antibiotics and three patients resolved with oral antibiotics alone. No other treatment related adverse events were recorded, with no rectal injury or fistula. Further, there was no need for blood transfusions and there was no perioperative mortality.
_________________________________
5 Elterman et al, “Relief of Lower Urinary Tract Symptoms after MRI-Guided Transurethral Ultrasound Ablation (TULSA) for localized prostate cancer: Subgroup Analyses in Patients with concurrent cancer and Benign Prostatic Hyperplasia,” Journal of Endourology, 2020; Anttinen et al, “Transurethral ultrasound therapy for benign prostatic obstruction in humans,” EAU 2020 Conference Presentation
6 Viitala et al, “Magnetic resonance imaging-guided transurethral ultrasound ablation for benign prostatic hyperplasia: 12-month clinical outcomes of a phase I study,” BJU Int, 2022.
7 Anttinen et al, “Salvage Magnetic Resonance Imaging–guided Transurethral Ultrasound Ablation for Localized Radiorecurrent Prostate Cancer: 12-Month Functional and Oncological Results,” European Urology Open Science, 2020.
8 Anttinen et al, “Palliative MRI-guided transurethral ultrasound ablation for symptomatic locally advanced prostate cancer,” Scandinavian Journal of Urology, 2020
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Profound Medical Corp.
Management’s Discussion and Analysis
For the three months ended March 31, 2024 and 2023
In USD$ (000s)
CAPTAIN Trial
CAPTAIN (A Comparison of TULSA Procedure vs. Radical Prostatectomy in Participants with Localized Prostate Cancer) is a prospective, multi-centre randomized controlled trial of 201 patients aimed at comparing the safety and efficacy of the TULSA procedure (performed with the TULSA-PRO® system) with radical prostatectomy (“RP”) in men with organ-confined, intermediate-risk, Gleason Score 7 (Grade Group 2 and 3) prostate cancer. In the CAPTAIN trial, 134 patients will be randomized to receive one or two TULSA procedures and 67 patients will be randomized to receive RP. The trial takes place primarily in the United States, with an additional two sites in Canada and one in Europe. Of those, sixteen sites have been activated to date and are currently recruiting patients.
RP is currently the gold-standard surgical treatment for intermediate-risk prostate cancer. RP effectively controls disease but carries risk of significant side effects such as long-term erectile dysfunction and urinary incontinence. The TULSA procedure combines transurethral, robotically-driven therapeutic ultrasound with real-time visualization of temperature and automated control of heating from magnetic resonance thermometry. The high spatial, thermal, and anatomic resolution of the target volume enables precise ablation of prostate tissue while sparing functionally important structures, potentially reducing the risk of side effects relative to RP.
The goal of the CAPTAIN trial is to demonstrate that the efficacy of the TULSA procedure is not inferior to RP, while demonstrating superior quality of life outcomes in patients receiving the TULSA procedure as compared to those patients receiving RP. The primary safety endpoint is the proportion of patients who preserve both erectile potency and urinary continence at one year after treatment. The primary efficacy endpoint is the proportion of patients who are free from any additional treatment for prostate cancer by three years after treatment. Secondary endpoints include comparison of rates of complications, cost effectiveness, and timing of the return to baseline activity. Long-term follow-up will be gathered for up to 10 years after treatment.
Sonalleve®
Profound’s Sonalleve® system combines real-time MRI and thermometry with focused ultrasound delivered from the outside of the patient to enable customized incision-free ablation of diseased tissue. Profound acquired the Sonalleve® technology from Philips in 2017.
The Sonalleve® system is CE marked in the EU for the treatment of uterine fibroids, adenomyotic tissue, palliative pain treatment of bone metastases, osteoid osteoma and management of benign tumors. The uterine fibroids application is also available for sale in Canada. In 2018, the Sonalleve® system was also approved in China by the National Medical Products Administration for the non-invasive treatment of uterine fibroids and by the Ministry of Food and Drug Safety in South Korea. Philips Oy registered Sonalleve® in several Middle East, North African, and South Asian countries. In 2020, Sonalleve® also received HDE from the US FDA for treatment of Osteoid Osteoma.
Sonalleve® Clinical Applications
Uterine Fibroids and Adenomyosis
Uterine fibroids are the most common non-cancerous tumors in women of childbearing age. Both surgical and medical treatments are available, and the choice depends on number, size, and location of uterine fibroids, patient’s age and preferences, and pregnancy expectations. To date, symptomatic uterine fibroids have been mostly treated with radical surgery (hysterectomy) in women who have completed childbearing, or conservative surgery (myomectomy and endometrial ablation) in women who wish to preserve fertility. Today, the radiologist also has interventional options available. Minimally or non-invasive interventional radiology procedures include uterine artery embolization.
There is currently no ideal treatment for adenomyosis, and new options are needed. Drawing on experience of treatment of uterine fibroids, MR-High Intensity Focused Ultrasound (“MR-HIFU”) has been explored as a potential new conservative treatment and MR-HIFU is an early-stage, non-invasive, therapeutic technology with the potential to improve the QoL and decrease the cost of care for patients with adenomyosis.
To achieve its current regulatory clearances, the Sonalleve® MR-HIFU System has undergone several studies and clinical trials for uterine applications at Sunnybrook Health Sciences Center (Toronto, Ontario), University Medical Center Utrecht (Utrecht, the Netherlands), National Institutes of Health (Bethesda, MD, USA), St. Luke’s Episcopal Hospital (Houston, TX, USA), University Hospital St. André (Bordeaux, France), Samsung Medical Center (Seoul, Korea), Peking University First Hospital Beijing (Beijing, China), First Affiliated Hospital of Medical College of Xi’an Jiaotong University (Xi’an, China), and Turku University Hospital (Turku, Finland), amongst others.
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Profound Medical Corp.
Management’s Discussion and Analysis
For the three months ended March 31, 2024 and 2023
In USD$ (000s)
In addition, a comprehensive literature review provides supportive evidence showcasing the beneficial action of MR-HIFU in uterine fibroid and adenomyosis therapy. These studies include the Verpalen et al. 2020, Nguyen 2020, Yeo et al. 2017, Kim et al. 2017, and Hocquelet et al. 2017 that utilized the Sonalleve® MR-HIFU System. Specifically, the studies show impressive performance in terms of ablation efficiency, therapeutic efficacy, symptom reduction, and/or QoL improvement. There were no treatment-related serious adverse events in any of these studies, although Browne et al. 2020 describes a procedure-related major complication in the form of deep vein thrombosis that was noted in one patient (0.8%) and subsequently and successfully treated with anticoagulation therapy. Minor adverse events, when present, typically include 1st and 2nd degree skin burns, local swelling, cramps, leg pain, abdominal pain, buttock pain, and back pain, which are all known and anticipated adverse events of MR-HIFU therapy.
Palliative Bone Pain Treatment
Pain caused by bone metastases is common in the event of malignancy and is inevitably associated with serious complications that may deteriorate the QoL of patients and become life threatening.
For patients with bone metastases, clinical evaluation reports were completed in October 2020, showing significant decrease in pain score and/or dosage of medication and increase in QoL are to be expected with MR-HIFU bone therapy. The randomized controlled Phase III study by Hurwitz et al. represents some of the most important clinical data that has been reported. In 112 subjects receiving MR-HIFU compared against 35 subjects receiving sham treatment, significant pain reduction at three months (decrease in worst NRS pain ≥ 2 without increase in pain medication) was 64.3% vs. 20.0% (p<0.001), with mean Numeric Pain Scale (“NRS”) reduction of 3.6 ± 3.1 vs. 0.7 ± 2.4 from an initial median NRS score of 7.0 in both groups. Improvement in average Brief Pain Inventory-Quality of Life at three months was 2.4 points superior in the MR-HIFU group (p<0.001), representing a clinically important reduction in impairment caused by bone metastasis pain.
The clinical data above shows that patients with bone metastases can expect a statistically significant decrease in pain scores and/or in medication dosage and increase in quality of life with MR-HIFU bone metastasis therapy.
Osteoid Osteoma Treatment
Osteoid osteoma is a relatively rare, painful bone tumor that typically occurs in the cortex of long bones, especially in children and adolescents, and accounts for approximately 10% of all benign bone tumors.
Current osteoid osteoma treatment options include surgery and radiofrequency ablation (“RFA”), which is a less invasive option than surgical resection. Although RFA can have a high success rate, the treatment is invasive and can potentially cause minor and major complications. It also exposes patients and operators to ionizing radiation associated with the CT imaging guidance.
Sonalleve® MR-HIFU provides an optimal therapy choice for osteoid osteoma which is a precise, completely non-invasive, and free from ionizing radiation treatment. The recent studies have assessed the use of Sonalleve® MR-HIFU in treatment of osteoid osteoma, showing a high clinical success rate and complete symptom resolution without any serious adverse effects and only few minor adverse effects that promptly resolve. The Sonalleve® MR-HIFU device offers a novel, minimally invasive, MRI-guided method to treat osteoid osteoma safely and effectively. A desmoid tumor, also called desmoid fibromatosis or aggressive fibromatosis, is a non-metastasizing but locally aggressive proliferation of myofibroblasts that affects children and adults, with a peak incidence in early adulthood. Traditional management of desmoid tumors includes observation, surgical resection, radiation, and/or chemotherapy. Observation allows assessment of the rate of tumor growth and may be acceptable in small, slow-growing, or asymptomatic lesions. Surgical resection is often a highly morbid procedure and has a high rate of recurrence even with negative margins. Radiotherapy provides somewhat improved local control rates but the morbidity from radiation, including burns, fibrosis, chronic edema, and pathologic fractures, is problematic. In addition, the small but finite risk of a radiation-induced malignancy is particularly troublesome in this young patient population, considering the tumor being treated is benign.
Recently, MR-HIFU has been assessed as a non-invasive therapy of desmoid tumors, showing good clinical success and even complete tumor eradication in some cases with low number and relative mild adverse events, which typically promptly resolve. The Sonalleve® MR-HIFU device offers a novel, non-invasive, MRI-guided method to treat desmoid tumors.
This technology is ideally suited for the treatment of desmoid tumors in a patient population that is generally young, otherwise healthy, and would like to avoid the morbidity of traditional surgical, radiation, and medical therapies for a benign disease. Magnetic resonance imaging provides visualization of critical neurovascular structures and allows sparing of these structures during therapy. While complete ablation of a desmoid tumor may not be possible in all cases because of involvement of these structures, significant reduction in tumor volume is often obtained with a corresponding improvement in pain and functional impairment. As the natural history of the disease often involves recurrence, the ability to re-treat with MR-HIFU without an upper dose limit is also an advantage. The clinical evidence to date demonstrates that MR-HIFU provides a safe and effective treatment of desmoid tumors.
| Page 7 |
Profound Medical Corp.
Management’s Discussion and Analysis
For the three months ended March 31, 2024 and 2023
In USD$ (000s)
Business Update and Sales Strategy
Profound initiated its launch of the TULSA-PRO® system in the United States in Q4 2019 and the first patient was treated in the United States in a non-clinical trial setting in January 2020. Since then, Profound’s business model has evolved to a recurring revenue model that includes durable hardware usage, one-time-use devices and Profound’s Genius services, which includes necessary support for a productive start-up of the practice.
Profound has generated revenues from capital sales, one-time-use devices and related services, in the EU (principally in Germany) and Asia. For the period ended March 31, 2024, approximately 61%, 34% and 5% of revenues were generated in the United States, EU and Asia, respectively, compared to approximately 57%, 41% and 2% of revenues which were generated in the United States, EU and Asia, respectively for the period ended March 31, 2023. Revenue on a quarter over quarter basis is expected to fluctuate given the Company is maintaining a limited European commercial effort and remains primarily focused on the US market.
Profound’s TULSA-PRO® system is primarily marketed to early adopter physicians who specialize in treatment of prostate disease including urologists and radiologists at opinion leading hospitals. TULSA-PRO® services are available at either independent imaging centers or at hospital-based imaging centers.
Historically, treatment of conditions such as localized prostate disease and uterine fibroids have included surgical intervention. Over time, surgery has evolved from an ‘open’ technique, to laparoscopic, to robotic surgery. The motivation of surgeons behind this evolution has been to perform procedures that reduce invasiveness, improve clinical outcomes and reduce recovery times. Profound is seeking to take this concept to the next level by enabling customizable, incision-free therapies for the MRI-guided ablation of diseased tissue with the TULSA-PRO® and Sonalleve® systems. These incision-free and radiation-free procedures offer surgeons the option of providing predictable and customizable procedures that eliminate invasiveness, offer the potential to improve clinical outcomes and further reduce hospital stays and patient recovery times.
Profound is establishing its own direct sales and marketing teams for sales of TULSA-PRO® systems and the one-time-use devices related thereto, as well as for Sonalleve® systems in the jurisdictions where it is approved. The primary focus of Profound’s direct sales team is to cultivate adoption of the TULSA-PRO® technology, support clinical customers with the TULSA-PRO® procedures and increase the utilization of the systems and one-time-use devices. Profound expects to generate recurring revenues from the use of the system, one-time-use devices, clinical support and service maintenance.
On January 21, 2019, the Company entered into an agreement with Siemens (the “Siemens Agreement”). Under the Siemens Agreement, there is a one-time fixed license fee and per annum payments calculated based on annual volume of Profound’s systems that are interfaced to a Siemens MRI scanner. The initial term of the Siemens Agreement is five years and will be automatically extended for successive one-year terms thereafter unless terminated earlier. The Company also obtained a non-exclusive license to Siemens Access I interface software and reasonable support for the term of the Siemens Agreement.
On December 21, 2020, Profound signed the GE Agreement to expand provider access to TULSA-PRO®. Pursuant to the terms of the GE Agreement, Profound has been supplied with additional information to utilize the ExSI interface, which has allowed Profound to interface with GE MRI scanners and GE is helping support the development efforts of Profound to achieve compatibility with its GE MRI scanners which was achieved on March 1, 2022 when the Company signed the first site agreement for a Tulsa-PRO® system interfaced with a GE scanner.
On February 8, 2024, Profound entered into a non-exclusive collaboration with Siemens Healthineers, aimed at laying the groundwork for Profound to begin marketing a complete therapeutics solution, combining its TULSA-PRO® system with the MAGNETOM Free.Max magnetic resonance scanner from Siemens Healthineers, via Profound’s own sales force. Profound will continue to market TULSA-PRO® as a stand-alone offering, providing its customers with the flexibility to use the technology with the MR hardware of their choice.
Competition
TULSA-PRO®
The TULSA-PRO® system is intended to ablate benign and malignant prostate tissue, however there are other treatment options for prostate disease. There are currently no marketed devices indicated for the treatment of prostate diseases or prostate cancer and Profound’s FDA indication and CE mark in the EU also do not include treatment of any particular disease or condition. However, there are a number of devices indicated for the destruction or removal of prostate tissue and devices indicated for use in performing surgical procedures that physicians and surgeons currently utilize when treating patients with prostate disease, including prostate cancer. Approaches that physicians and surgeons currently use to address prostate disease include: (1) watchful waiting/active surveillance; (2) simple prostatectomy; (3) radical prostatectomy (includes open, laparoscopic and robotic procedures); (4) radiation therapies including, external beam radiation therapy, brachytherapy and high dose radiation; (5) cryoablation; and (6) trans-rectal high intensity focused ultrasound (“HIFU”). In addition, certain adjunct or less common procedures are used or are under development to address prostate disease, such as androgen deprivation therapy and proton beam therapy.
| Page 8 |
Profound Medical Corp.
Management’s Discussion and Analysis
For the three months ended March 31, 2024 and 2023
In USD$ (000s)
Each of the foregoing competing options have their own limitations and benefits and may only be appropriate for limited patient populations. For example, active surveillance is generally recommended for patients who have been diagnosed with earlier stage, lower risk, disease where the possibility of side effects from intervention may outweigh the expected benefit of the chosen procedure. For clinicians and patients, the gap between active surveillance and the most commonly utilized options of radical prostatectomy or radiation therapy, imposes the possibility of substantial side effects, creating a need for a less invasive methodology to remove diseased prostate tissue that is both radiation and incision-free, provides a more favorable side-effect profile, and allows for safe and effective salvage treatment options if required in the future.
Profound believes that the flexibility of the TULSA-PRO® system may allow the Company to demonstrate its use as a tool for ablating benign and malignant diseased prostate tissue with greater speed and precision than current options while minimizing potential side effects. Profound believes that the TULSA-PRO® system may overcome certain limitations of other devices and methodologies for removing or addressing diseased prostate tissue including HIFU, such as complications associated with trans-rectal delivery and limitations relating to prostate size and total ablation volume. Profound believes that a transurethral (inside out) ablation approach with millimeter accuracy has advantages over HIFU in ablating the whole gland safely, as well as ablating larger prescribed treatment plans for patients with multi-focal disease, BPH, and those who have prostate cancer concurrent with BPH.
Sonalleve®
The treatment choices for uterine fibroids usually depend on the symptoms of the patient, size of the fibroid, desire for future pregnancy and preference of the treating gynecologist. The most common treatment options for uterine fibroids include: (1) hormonal medications including gonadotrophin releasing hormone agonists; (2) progesterone releasing intra-uterine devices; (3) surgical procedures such as hysterectomy and myomectomy; and (4) uterine artery embolization. Profound believes that the Sonalleve® system may provide a treatment option that is more convenient and comfortable with fewer side effects than hormonal medications or surgical procedures, such as hysterectomy or myomectomy.
Reimbursement
Profound’s ability to successfully commercialize the Company’s products depends in large part on the extent to which coverage and adequate reimbursement for such products and related treatments or procedures will be available from government health administration authorities, government and private health insurers, and other organizations or third-party payors. Pricing and reimbursement procedures and decisions vary from country to country. Many government health authorities and private payors condition payment on the cost-effectiveness of the product. Even if a device is FDA cleared or CE marked or has received other regulatory clearance or approval, there is no guarantee that third-party payors will reimburse providers or patients for the cost of the device and related procedures or that the amount of such reimbursement will be adequate to cover the cost of the device. The availability of coverage and adequate reimbursement to hospitals and clinicians using Profound’s products therefore is important to its ability to generate revenue and Profound plans to pursue coverage and reimbursement for the Company’s products in the key markets where the Company has regulatory approvals. Successful commercialization of the Company’s approved products will also depend on the cost of the system and the availability of coverage and adequate reimbursement from third-party payors.
Although Profound expects there to be an out-of-pocket market for the Company’s approved products, an out-of-pocket market alone is unlikely to be sufficient to support successful commercialization of the Company’s products. With sponsorship and support from multiple physician specialty societies, the AMA has established three new Current Procedural Terminology (“CPT’) Category 1 codes for MRI-Monitored Transurethral Ultrasound Ablation (“TULSA”) of prostate tissue, performed using Profound’s TULSA-PRO system. The first CPT Code describes the complete TULSA procedure when furnished by a single physician, such as a urologist. The other two CPT codes each describe a part of the TULSA procedure when TULSA is furnished by two physicians, such as a urologist in collaboration with a radiologist. The three new CPT Category 1 codes and their descriptors covering the TULSA procedure will be included in a future edition of the CPT Codebook and will be effective on January 1, 2025. In the meantime, U.S. hospitals and Ambulatory Surgical Centers performing the TULSA procedure on Medicare patients may utilize HCPCS C code, C9734, established by the U.S. Centers for Medicare and Medicaid Services for the Hospital Outpatient Prospective Payment System. Effective January 1, 2024, national average reimbursement to a hospital billing under C9734 is set to $12.5.
| Page 9 |
Profound Medical Corp.
Management’s Discussion and Analysis
For the three months ended March 31, 2024 and 2023
In USD$ (000s)
HIGHLIGHTS
| § | On January 2, 2024, Profound completed an underwritten public offering for aggregate gross proceeds of $20,000 ($18,238, net of transaction costs) with the issuance of 2,666,667 Common Shares at a price of $7.50 per share (the “Public Offering”). |
| § | On January 16, 2024, Profound completed a non-brokered private placement for aggregate gross proceeds of $2,938 ($2,841, net of transaction costs) with the issuance of 391,667 Common Shares at a price of $7.50 per share (the “Private Placement”). |
| § | On February 27, 2024, Profound entered into a collaboration with Siemens Healthineers to further expand physician and patient access to the TULSA procedure. |
| § | On March 7, 2024, Profound announced the promotion of Mathieu Burtnyk, PhD, from SVP Product Leader to Chief Operating Officer. |
SELECTED FINANCIAL INFORMATION
The following selected financial information as at and for the three months ended March 31, 2024 and 2023, have been derived from the unaudited interim condensed consolidated financial statements and should be read in conjunction with those unaudited interim condensed consolidated financial statements and related notes.
| For three months ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| $ | $ | |||||||
| Revenue | 1,439 | 1,860 | ||||||
| Operating expenses | 8,743 | 8,042 | ||||||
| Other (income) expenses | (1,322 | ) | (36 | ) | ||||
| Net loss for the period | 6,585 | 6,859 | ||||||
| Basic and diluted loss per share | 0.27 | 0.33 | ||||||
| March 31, 2024 $ | December 31, 2023 | |||||||
| Total assets | 57,041 | 43,956 | ||||||
| Total non-current financial liabilities | 4,857 | 5,504 | ||||||
Revenue has decreased for the three months ended March 31, 2024 due to lower capital sales compared to the three months ended March 31, 2023.
Operating expenses increased for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 due to the continued focus of commercialization of the TULSA-PRO® within the US market based on increased selling and distribution expenses.
The increase in other (income) expense for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was primarily the impact of the change in the foreign exchange rates for Profound’s foreign currency denominated cash and interest income from cash held in the bank.
The Company reported total assets of $57,041 as at March 31, 2024 compared to $43,956 as at December 31, 2023. The increase in 2024 was a result of the Public Offering and Private Placement for net proceeds of $21,079.
| Page 10 |
Profound Medical Corp.
Management’s Discussion and Analysis
For the three months ended March 31, 2024 and 2023
In USD$ (000s)
RESULTS OF OPERATIONS
| Three months ended March 31 | ||||||||||||||||
| 2024 | 2023 | Change | ||||||||||||||
| $ | $ | $ | % | |||||||||||||
| Revenue | 1,439 | 1,860 | (421 | ) | -23 | % | ||||||||||
| Cost of sales | 573 | 665 | (92 | ) | -14 | % | ||||||||||
| Gross profit | 866 | 1,195 | (329 | ) | -28 | % | ||||||||||
| Expenses | ||||||||||||||||
| Research and development | 3,945 | 3,852 | 93 | 2 | % | |||||||||||
| Selling, general and administrative | 4,798 | 4,190 | 608 | 15 | % | |||||||||||
| Total operating expenses | 8,743 | 8,042 | 701 | 9 | % | |||||||||||
| Other (income) expenses | (1,322 | ) | (36 | ) | (1,286 | ) | 3,572 | % | ||||||||
| Loss before income taxes | 6,545 | 6,811 | (266 | ) | -4 | % | ||||||||||
| Income taxes | 40 | 48 | (8 | ) | -17 | % | ||||||||||
| Net loss attributed to shareholders for the period | 6,585 | 6,859 | (274 | ) | -4 | % | ||||||||||
| Other comprehensive loss (income) | ||||||||||||||||
| Item that may be reclassified to profit or loss | ||||||||||||||||
| Foreign currency translation adjustment - net of tax | 969 | (108 | ) | 1,077 | -997 | % | ||||||||||
| Net loss and comprehensive loss for the period | 7,554 | 6,751 | 803 | 12 | % | |||||||||||
| Loss per share | ||||||||||||||||
| Basic and diluted net loss per common share | 0.27 | 0.33 | (0.06 | ) | -18 | % | ||||||||||
| Page 11 |
Profound Medical Corp.
Management’s Discussion and Analysis
For the three months ended March 31, 2024 and 2023
In USD$ (000s)
Revenue
Profound deploys a recurring revenue business model in the US to market TULSA-PRO®, charging a one-time payment that includes a supply of its one-time-use device, use of the system as well as Company’s Genius services that support each TULSA center with clinical and patient recruitment. The Sonalleve® product is marketed primarily outside North America in European and Asian countries deploying one-time capital sales model with limited recurring service revenue. Outside of North America, Profound generates most of its revenues from its system sales (both TULSA-PRO® and Sonalleve®) in Europe and Asia where the Company deploys a more traditional hybrid business model, charging for the system separately as capital and an additional per patient charge for the one-time-use devices and associated Genius services. Revenue is comprised of recurring – non-capital revenue, which consists of the sale of one-time-use devices, lease of medical devices, procedures and services associated with extended warranties and one-time sale of capital equipment.
For the three months ended March 31, 2024, the Company recorded revenue totaling $1,439 coming from recurring – non-capital revenue. For the three months ended March 31, 2023, the Company recorded revenue totaling $1,860 with $393 from the one-time sale of capital equipment and $1,467 from recurring – non-capital revenue. The decrease in revenue for the three months ended March 31, 2024, was a result lower capital equipment sales. Revenue on a quarter over quarter basis is expected to fluctuate in the near term given the Company is maintaining a limited European commercial effort and remains focused primarily on the US market which continues to see growth quarter over quarter.
Cost of sales
Cost of sales includes cost of finished goods, inventory provisions, warranty, freight and manufacturing overhead expenses.
For the three months ended March 31, 2024, the Company recorded cost of sales of $573, related to the sale of medical devices, capital and non-capital, which reflects a 60% gross profit. For the three months ended March 31, 2023, the Company recorded cost of sales of $665, related to the sale of medical devices, capital and non-capital, which reflects a 64% gross profit. The gross profit was lower in 2024 due to the revenue product mix.
Operating Expenses
Operating expenses consist of two components: research and development (“R&D”), selling, general and administrative (“SG&A”) and selling and distribution expenses.
R&D Expenses
R&D expenses are comprised of costs incurred in performing R&D activities, including new product development, continuous product improvement, investment in clinical trials and related clinical manufacturing costs, materials and supplies, salaries and benefits, consulting fees, patent procurement costs, and occupancy costs related to R&D activity.
For the three months ended March 31, 2024, R&D expenses were higher by $93 compared to the three months ended March 31, 2023. Clinical trial costs, travel and software costs increased by $227, $27 and $30, respectively. The increases were due to improved enrolment for the CAPTAIN trial and recruitment efforts, additional travel associated with system installation and clinical trials and increased software costs associated with thermal boost and artificial intelligence development software. Offsetting these amounts was a decrease in rent of $125 due to lower MRI time usage and a decrease of $68 to share based compensation due to few awards granted to employees.
Selling, general and administrative expense
Selling, general and administrative expenses are comprised of business development costs related to the market development activities and commercialization of our systems, including salaries and benefits, marketing support functions, occupancy costs, insurance, various management and administrative support functions and other miscellaneous marketing and management costs.
SG&A expenses for the three months ended March 31, 2024 increased by $ 608 compared to the three months ended March 31, 2023. Salaries and benefits, consulting fees, marketing and travel increased by $254, $313, $67 and $107, respectively, due to increased salesforce and commission payments, increased legal and accounting fees associated with the expected loss of Emerging Growth Company status in the United States, increased hosting, license and user costs, coupled with the increase in number of users, increased in-person conferences, meetings and largest event hosted, and overall increase in general expenses. Offsetting this amount was a decrease to insurance expense of $30 due to lower premium rates, decrease to the general office expenses of $30 and a decrease of $89 to share based compensation due to few awards granted to employees.
| Page 12 |
Profound Medical Corp.
Management’s Discussion and Analysis
For the three months ended March 31, 2024 and 2023
In USD$ (000s)
Other (income) expenses
Other (income) expenses is primarily comprised of the following: (i) the CIBC Loan Agreement (as defined herein) accreting to the principal amount repayable and its related interest expense; (ii) interest income from cash and cash equivalents; (iii) the lease liability interest expense; (iv) the interest income on trade and other receivables; and (v) foreign exchange gain or losses.
Other (income) expenses for the three months ended March 31, 2024, was higher by $1,286 compared to the three months ended March 31, 2023. The increase in other (income) expense was due to the change in the amortized cost of trade and other receivables being fully recognized, increase in interest income from cash and cash equivalents, decrease in the CIBC Loan interest and accretion expenses and a decrease in the foreign exchange gain.
Net loss
Net loss for the three months ended March 31, 2024, was $6,585 or $0.27 per Common Share, compared to a net loss of $6,859 or $0.33 per Common Share for the three months ended March 31, 2023.
SUMMARY OF QUARTERLY FINANCIAL RESULTS
The summary financial information provided below is derived from the Company’s interim financial statements for each of the last eight quarters that are prepared under US GAAP in US dollars.
| 2024 | 2023 | 2022 | ||||||||||||||||||||||||||||||
| Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | |||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
| Revenue | 1,439 | 2,009 | 1,728 | 1,602 | 1,860 | 1,257 | 2,035 | 2,025 | ||||||||||||||||||||||||
| Cost of sales | 573 | 968 | 686 | 568 | 665 | 840 | 1,086 | 1,230 | ||||||||||||||||||||||||
| Gross profit | 866 | 1,041 | 1,042 | 1,034 | 1,195 | 417 | 949 | 795 | ||||||||||||||||||||||||
| Operating expenses | 8,743 | 9,832 | 7,611 | 7,478 | 8,042 | 9,248 | 9,193 | 8,581 | ||||||||||||||||||||||||
| Other (income) expense | (1,332 | ) | 345 | (1,026 | ) | 517 | (36 | ) | 62 | (3,230 | ) | (1,856 | ) | |||||||||||||||||||
| Loss before income taxes | 6,545 | 9,136 | 5,543 | 6,961 | 6,811 | 8,893 | 5,014 | 5,931 | ||||||||||||||||||||||||
| Income taxes | 40 | (229 | ) | 18 | 35 | 48 | 206 | 34 | 17 | |||||||||||||||||||||||
| Net loss for the period | 6,585 | 8,907 | 5,561 | 6,996 | 6,859 | 9,099 | 5,048 | 5,947 | ||||||||||||||||||||||||
| Loss per Common Share | ||||||||||||||||||||||||||||||||
| Basic and diluted | 0.27 | 0.42 | 0.26 | 0.33 | 0.33 | 0.44 | 0.24 | 0.29 | ||||||||||||||||||||||||
The first quarter of 2024 revenue decreased compared to the majority of prior quarters as a result of timing for capital equipment sales. Operating expenses increased against the majority of prior quarters due to additional headcount within sales and distribution and expenses associated with the continued TULSA-PRO® commercialization with the US market.
In the fourth quarter of 2023 revenue continued to increase compared to prior quarters as new sites became operational and increased patient procedures. Operating expenses were higher than prior quarters due to ATM offering fees as well as overall increase to the salesforce.
In the third quarter of 2023 operating expenses were higher compared to the prior quarter due to increased consulting costs associated with regulatory and foreign consultants for additional approval in other countries. In addition, there was also an increase in finance income due to the US dollar and Euro foreign currency rate, triggering a foreign exchange gain.
The second quarter of 2023 revenue was lower compared to the prior quarter due to decreased one-time capital sales. Operating expenses were lower compared to the prior quarters due to decreased share based compensation expenses and lower amortization expenses as a result of intangible assets being fully amortized.
| Page 13 |
Profound Medical Corp.
Management’s Discussion and Analysis
For the three months ended March 31, 2024 and 2023
In USD$ (000s)
The first quarter of 2023 cost of sales decreased from the quarterly periods in 2022 as a result of manufacturing operating at a higher efficiency rate based on improvements to quality and training that were implemented in the manufacturing process.
The fourth quarter of 2022 revenue was lower compared to prior quarters due to decreased one-time capital sales, primarily resulting from lower capital sales than previous quarters. Operating expenses were higher due to goodwill impairment.
The third quarter of 2022 cost of sales decreased as a result of better yields and product quality. In addition, there was also an increase in finance income due to the US dollar and Euro foreign currency rates, triggering a foreign exchange gain.
The second quarter of 2022 revenue increased compared to the prior quarter as a result of the rise of recurring revenue from US procedures. Operating expenses were higher due to the increase in headcount and software fees. In addition, there was also an increase in finance income due to the US dollar and Euro foreign currency rate, triggering a foreign exchange gain.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2024, the Company had cash of $41,180 compared to $26,213 at December 31, 2023. Historically, the Company’s primary source of cash has been financing activities, e.g., equity offerings as well as the CIBC Loan (as defined below).
Use of Proceeds
2024 Offering and non-brokered private placement
The Company received net proceeds of $21,079 from the Public Offering and Private Placement. The Company intends to use net proceeds from the Public Offering and Private Placement to fund the continued commercialization of the TULSA-PRO® system in the United States, the continued development and commercialization of the TULSA-PRO® system and the SONALLEVE® system globally and for working capital and general corporate purposes. The Company confirms that there have been no material variances in the estimated use of proceeds from the net proceeds of the Public Offering since the date of the Company’s prospectus supplement dated December 27, 2023. In addition, there have been no material adjustments to the cost or timing of the business objective previously disclosed in such prospectus supplement.
Total spending as at March 31, 2024 | ||||
| $ | ||||
| TULSA-PRO® commercialization | 3,767 | |||
| Sonalleve® development and commercialization | 631 | |||
| Working capital and general corporate purposes | 3,620 | |||
| Total | 8,018 | |||
CIBC Loan
Profound Medical Inc. (“PMI”) entered into a loan agreement with Canadian Imperial Bank of Commerce (“CIBC”) on November 3, 2022 (the “CIBC Loan Agreement”), for gross proceeds of C$10,000, maturing on November 3, 2027, with an interest rate based on CIBC prime plus 2% (the “CIBC Loan”). The Company was required to make interest-only payments until October 31, 2023, and monthly repayments on the principal of C$208 plus accrued interest commenced on October 31, 2023. All obligations of the Company under the CIBC Loan Agreement are 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. Initially, the Company had financial covenants in relation to the CIBC loan where unrestricted cash is at all times greater than EBITDA for the most recent six-month period, reported on a monthly basis and that revenue for any fiscal quarter must be 15% greater than revenue for the same fiscal quarter in the prior fiscal year, reported on a quarterly basis.
On September 26, 2023 an amendment to the CIBC Loan resulted in an amendment to the financial covenants. The amended covenants are that unrestricted cash must at all times be greater of: (i) to the extent EBITDA is negative for such period, EBITDA for the most recent nine-month period or (ii) $7,500, reported on a monthly basis; and that recurring revenue for any fiscal quarter must be 15% greater than recurring revenue for the same fiscal quarter in the prior fiscal year, reported on a quarterly basis. The Company is compliant with the first covenant whereby unrestricted cash is at all times greater than EBITDA for the most recent nine-month period ended March 31, 2024. However, as at March 31, 2024, the Company is in breach with the second covenant whereby recurring revenue for any fiscal quarter must be 15% greater than recurring revenue for the same fiscal quarter in the prior fiscal year. The loan is classified as current since CIBC has the right to demand the repayment of the loan. If CIBC demands repayment of the loan, the Company has sufficient cash to cover the repayment of the loan and would have $34,517 cash remaining.
| Page 14 |
Profound Medical Corp.
Management’s Discussion and Analysis
For the three months ended March 31, 2024 and 2023
In USD$ (000s)
On May 3, 2024, the Company received a waiver from CIBC and an amendment to the CIBC Loan which resulted in an amendment to the financial covenants. The amended covenants are that the recurring revenue covenant shall not be tested for any fiscal quarter in the 2024 fiscal year so long as unrestricted cash is no less than 2.5 multiplied by the principal amount of outstanding CIBC Loan at all times.
Cash Flow
The Company manages liquidity risk by monitoring actual and projected cash flows. A cash flow forecast is performed regularly to ensure that the Company has sufficient cash to meet operational needs while maintaining sufficient liquidity. The Company’s cash requirements depend on numerous factors, including market acceptance of the Company’s products, the resources devoted to developing and supporting the products and other factors. Profound expects to continue to devote substantial resources to expand procedure adoption and acceptance of the Company’s products.
The Company may require additional capital to fund R&D activities and any significant expansion of operations. Potential sources of capital could include equity and/or debt financings, development agreements or marketing agreements, the collection of revenue resulting from future commercialization activities and/or new strategic partnership agreements to fund some or all costs of development. There can be no assurance that the Company will be able to obtain the capital sufficient to meet any or all of the Company’s needs. The availability of equity or debt financing will be affected by, among other things, the results of R&D, the Company’s ability to obtain regulatory approvals, the market acceptance of the Company’s products, the state of the capital markets generally, strategic alliance agreements and other relevant commercial considerations. In addition, if the Company raises additional funds by issuing equity securities, existing security holders will likely experience dilution, and any incurring of indebtedness would result in increased debt service obligations and could require the Company to agree to operating and financial covenants that would restrict operations. Any failure on the Company’s part to raise additional funds on terms favourable to the Company or at all may require the Company to significantly change or curtail current or planned operations in order to conserve cash until such time, if ever, that sufficient proceeds from operations are generated, and could result in the Company not being in a position to take advantage of business opportunities, in the termination or delay of clinical trials for its products, in curtailment of product development programs designed to identify new products, in the sale or assignment of rights to technologies, product and/or an inability to file market approval applications at all or in time to competitively market products.
| Three months ended | ||||||||
| March 31, 2024 $ | March 31, 2023 $ | |||||||
| Cash provided by (used in) operating activities | (4,529 | ) | (5,881 | ) | ||||
| Cash provided by (used in) financing activities | 20,456 | 2,218 | ||||||
| Foreign exchange on cash | (960 | ) | 130 | |||||
| Net increase (decrease) in cash | 14,967 | (3,533 | ) | |||||
Operating Activities
Net cash provided by (used in) operating activities for the three months ended March 31, 2024 was $(4,529) versus $(5,881) for the three months ended March 31, 2023. The principal use of the operating cash flows during this period related to improved trade and other receivable collection, foreign exchange and offsetting these were increased sales and marketing efforts in the US which decreased cash.
Financing Activities
Net cash provided by (used in) financing activities for the three months ended March 31, 2024 was $20,456 versus $2,218 for the three months ended March 31, 2023. These cash flows relate primarily to the 2024 Offering and non-brokered private placement pursuant to which the Company received net proceeds of $21,079.
Foreign Exchange on Cash
Cash was impacted by the change in the foreign exchange rates for the Company’s foreign currency denominated cash (non-USD). The value of the Company’s currencies decreased, resulting in a decrease in the Company’s cash holdings.
| Page 15 |
Profound Medical Corp.
Management’s Discussion and Analysis
For the three months ended March 31, 2024 and 2023
In USD$ (000s)
Contractual obligations
The following table summarizes the Company’s significant contractual obligations:
| March 31, 2024 | ||||||||||||||||
| Carrying amount $ | Future cash flows $ | Less than 1 Year $ | Between 1 year and 5 years $ | |||||||||||||
| Accounts payables and accrued expenses and other current liabilities | 2,876 | 2,876 | 2,876 | - | ||||||||||||
| Lease liabilities | 6821 | 810 | 291 | 519 | ||||||||||||
| Long-term debt | 6,482 | 7,8742 | 2,565 | 5,309 | ||||||||||||
| Total | 10,040 | 11,560 | 5,732 | 5,828 | ||||||||||||
1 Present value of the lease payments that are not paid, discounted using the interest rate implicit in the lease.
2 Subsequent to period end, a waiver was obtained which revert the payment terms back in alignment with the CIBC agreement.
Non-GAAP Financial Measures
Non-GAAP measures are not recognized measures under US GAAP and do not have a standardized meaning prescribed by US GAAP. These measures are defined with reference to the nearest comparable US GAAP measure such that a reconciliation to the nearest comparable US GAAP measure can be completed. Accordingly, these measures may not be comparable to similar measures presented by other companies. Profound uses non-GAAP measures in order to provide additional financial information to complement the closest US GAAP measures in order to provide investors with a further understanding of the Company’s operations from management’s perspective. Investors should not consider that these non-GAAP measures are a substitute for analyses of the financial information that Profound reports under US GAAP. Profound uses these non-GAAP measures in order to provide investors with a supplemental measure of its operating performance and thus highlight trends in the Company’s business that may not otherwise be apparent when relying solely on US GAAP measures.
The Company’s working capital (defined as current assets less current liabilities) is a non-GAAP financial measure. Working capital is used to fund operations and meet short-term obligations. If the Company has enough working capital, it can continue to pay its employees and suppliers and meet other obligations, such as interest payments and taxes, even if it runs into cash flow challenges. The working capital as at March 31, 2024 and December 31, 2023 is set forth in the table below.
| March 31, 2023 $ | December 31, 2022 | |||||||
| Current assets | 55,155 | 41,896 | ||||||
| Less: Current liabilities | 5,840 | 6,368 | ||||||
| Working capital | 49,315 | 35,528 | ||||||
Working capital increased by $13,787 with a surplus of $49,315 at March 31, 2024 compared to the surplus of $35,528 at December 31, 2023. The change in working capital is due to an increase in current assets of $13,259, which was primarily the result of the increase in the cash balance of $14,967 which was offset by decreased in trade and other receivables of $1,250. Current liabilities decreased by $528 due to a decrease in accounts payable.
COMMITMENTS & CONTINGENCIES
All directors and officers of the Company are indemnified by the Company for various items including, but not limited to, all costs to settle lawsuits or actions due to their association with the Company, subject to certain restrictions. The Company has purchased directors’ and officers’ liability insurance to mitigate the cost of any potential future lawsuits or actions. The term of the indemnification is not explicitly defined but is limited to events for the period during which the indemnified party served as a director or officer of the Company. The maximum amount of any potential future payment cannot be reasonably estimated but could have a material adverse effect on the Company.
| Page 16 |
Profound Medical Corp.
Management’s Discussion and Analysis
For the three months ended March 31, 2024 and 2023
In USD$ (000s)
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.
FINANCIAL INSTRUMENTS
The Company’s financial instruments consist of cash, trade and other receivables, accounts payable, accrued expenses and other liabilities and long-term debt. The fair values of these financial instruments, approximate carrying value as a result of their short-term nature. Financial assets measured at amortized cost include cash and trade and other receivables. The fair value of the long-term debt approximates its carrying amount as it has a floating interest rate.
Financial liabilities measured at amortized cost include accounts payable, accrued expenses and other liabilities and long-term debt.
The Company’s financial instruments are exposed to certain financial risks including credit risk, liquidity risk, currency risk and interest rate risk. There have been no significant changes to those risks impacting the Company since December 31, 2023, nor has there been a significant change in the composition of its financial instruments since December 31, 2023.
RELATED PARTY TRANSACTIONS
Key management includes the Company’s directors and senior management team. The remuneration of directors and the senior management team were as follows:
| Three months ended March 31, | ||||||||
| 2024 $ | 2023 $ | |||||||
| Salaries and employee benefits | 350 | 478 | ||||||
| Directors’ fees | 69 | 81 | ||||||
| Share-based compensation | 767 | 941 | ||||||
| Total | 961 | 1,336 | ||||||
Executive employment agreements allow for additional payments in the event of a liquidity event, or if the executive is terminated without cause.
OUTSTANDING SHARES
As at May 9, 2024, the date of this MD&A, the Company had the following securities outstanding:
| Number | ||||
| Common Shares | 24,428,899 | |||
| Share purchase options | 1,485,509 | |||
| Deferred Share Units | 75,000 | |||
| Restricted Share Units | 511,730 | |||
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no off-balance sheet arrangements.
| Page 17 |
Profound Medical Corp.
Management’s Discussion and Analysis
For the three months ended March 31, 2024 and 2023
In USD$ (000s)
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and judgements that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the year. Actual results could differ from these estimates. As additional information becomes available or actual amounts are determinable, the recorded estimates are revised and reflected in operating results in the year in which they are determined.
Critical accounting policies
Revenue
Revenue is derived primarily from the sale of the TULSA-PRO and Sonalleve systems and one time use devices. All products generally contain a one-year warranty.
The Company recognizes revenue when the customer obtains control of promised goods or services and in an amount that reflects the consideration to which the Company expects to be entitled to receive in exchange for those goods or services. To achieve this core principle, the Company applies the five-step revenue model to contracts within its scope: (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 amount of revenue to be recognized is based on the transaction price the Company expects to receive in exchange for its goods and services. For contracts that contain multiple performance obligations, the Company allocates the transaction price to each performance obligation and recognizes the related revenue when or as control of each individual performance obligation is transferred to customers.
Recurring – non-capital
Recurring - non-capital revenue consists of the sale of one-time-use devices and services associated with extended warranties. Revenue from sale of one-time-use devices is recognized when control is transferred to the customers, which generally occurs at the time of shipment. Service revenue related to extended warranties is deferred and recognized on a straight-line basis over the extended warranty period covered by the customer contract.
Capital equipment
Capital equipment revenue consists of the sale of capital equipment including installation and training amounts. Revenue is recognized when the Company transfers control to the customer, which is generally at the time of shipment. The Company’s customer arrangements generally do not provide a right of return.
Contract Assets
Contract assets arise from billed amounts in customer arrangements and the Company’s right to payment is not just subject to the passage of time, typically related to installation of the product. The Company recognizes a receivable at the point in time at which it has an unconditional right to payment.
Sales to distributors
The Company markets and sells its products primarily through its direct sales force, which sells its products to end customers. A portion of the Company’s revenue is generated by sales to distributors primarily in Europe and Asia. When the Company transacts with a distributor, its contractual arrangement is with the distributor and not with the end customer. Whether the Company transacts business with and receives the order from a distributor or directly from an end customer, its revenue recognition policy and resulting pattern of revenue recognition for the order are generally the same.
Critical accounting estimates
Trade and other receivables
The key judgements and estimates are used in determining the allowance for expected credit losses. Trade and other receivables are stated net of an allowance for expected credit losses. The Company grants credit to customers in the normal course of business and maintains an allowance for expected credit losses which reflect the current estimate of expected credit losses expected to be incurred over the life of the receivables. The Company considers various factors in establishing, monitoring, and adjusting its allowance for expected credit losses, including the aging of the accounts and aging trends, the historical level of charge-offs, and specific credit exposures related to particular customers. The Company also monitors other risk factors and forward-looking information, such as country risk, when determining credit limits for customers and establishing adequate allowances. Uncollectible accounts are written-off against the allowance 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 180 days past due.
| Page 18 |
Profound Medical Corp.
Management’s Discussion and Analysis
For the three months ended March 31, 2024 and 2023
In USD$ (000s)
DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER FINANCIAL REPORTING
Disclosure controls and procedures have been designed to ensure that information required to be disclosed by the Company is accumulated and communicated to the Company’s management as appropriate to allow timely decisions regarding required disclosure.
The Chief Executive Officer and the Chief Financial Officer of the Company (collectively the “Certifying Officers”) are responsible for establishing and maintaining disclosure controls and procedures (“DC&P”) and internal control over financial reporting (“ICFR”), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuer’s Annual and Interim Filings.
The Certifying Officers have concluded that as at March 31, 2024, the Company's DC&P has been designed effectively to provide reasonable assurance that (a) material information relating to the Company is made known to them by others, particularly during the period in which the annual filings are being prepared; and (b) information required to be disclosed by the Company in its annual filings, interim filings or other reports are filed or submitted, recorded, processed, summarized and reported within the time periods specified in the securities legislation.
There have been no significant changes to the Company's ICFR for the period ended March 31, 2024, which have materially affected, or are reasonably likely to materially affect the Company's ICFR. Based on their evaluation of these controls for the period ended March 31, 2024, the Certifying Officers have also concluded that the Company's ICFR have been designed effectively to provide reasonable assurance regarding the reliability of the preparation and presentation of the financial statements for external purposes and that ICFR were effective as at March 31, 2024. The Company used the Committee of Sponsoring Organizations of the Treadway Commission control framework to evaluate DC&P and ICFR.
It should be noted that while the Company's Certifying Officers believe that the Company's DC&P provides a reasonable level of assurance that they are effective, they do not expect that the disclosure controls will prevent all errors and fraud. A control system, no matter how well conceived or operated, can only provide reasonable, not absolute, assurance that the objectives of the control system are met.
ICFR is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the annual financial statements for external reporting purposes in line with US GAAP. Management is responsible for establishing and maintaining adequate internal controls over financial reporting appropriate to the nature and size of the Company. However, any system of internal control over financial reporting has inherent limitations and can only provide reasonable assurance with respect to annual financial statement preparation and presentation.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE
Environmental, social and governance (“ESG”) issues are an integral part of human life. They’ve also become a more conscious and explicit part of business life, especially for public entities like Profound. The Company believes ESG sensitivities are an integral part of growing a successful, sustainable business. The importance Profound places on ESG principles stems from its foundation as a company, whose mission is focused on providing customizable incision-free therapies that are flexible to treat different types of patients and can treat each patient differently. ESG is embedded in the Company’s corporate strategy, which seeks to maximize long-term value by taking a disciplined and sustainable approach to changing the paradigm of prostate cancer treatment.
Through Profound’s ESG plan, the Company intends to create enduring value for shareholders by:
| · | attracting, retaining and empowering a diverse, engaged workforce to bring unique perspectives and experiences to strategic decisions; |
| · | ensuring safe and secure workplaces for its employees and contributing to their welfare; |
| · | caring for the environment in which the Company operates; |
| · | strengthening relationships with shareholders by working collaboratively to achieve positive social, economic and environmental outcomes; and |
| · | operating transparently. |
Environmental
Profound believes in the 3Rs: reduce, reuse, recycle. Profound strives to control the waste and, in its facilities, electronic equipment, paper, glass, plastic and metal items, as well as hazardous waste, are recovered and recycled. Given the finite resources in the world, Profound believes moving towards a circular economy in which Profound reduces waste production is critical for both business and society. Recognizing the opportunity for the medical technology industry to support the transition towards lower waste and circular business models, including by minimizing Profound’s waste footprint and exploring opportunities to reduce the volume of materials used. At Profound, focusing efforts on waste minimization through a repair first strategy, and by using materials that can be recycled to increase the supply of material for future reuse. The equipment that Profound provides to customers is collected, tested, repaired, or refurbished then redeployed thus contributing to a circular economy. Equipment which can no longer be redeployed is brought to organizations or third party vendors that partner with Profound to resell and recycle obsolete equipment.
| Page 19 |
Profound Medical Corp.
Management’s Discussion and Analysis
For the three months ended March 31, 2024 and 2023
In USD$ (000s)
Profound is focused on waste reduction, waste avoidance, and waste management strategies for all materials, including plastic, metal, water and cardboard. To manage the Company’s waste it segregates, recycles, and properly disposes of hazardous and non-hazardous materials and where possible, reuses materials such as alcohol and water through its recycling plan. Profound will continue managing its waste and material use through clear and consistent communication of best practices throughout the Company. Profound is committed to environmental sustainability and prioritizes efforts to prevent pollution and to conserve, recover, and recycle materials wherever possible. The Company attempts to distribute documents electronically to minimize paper consumption, waste and limit the use of single-use plastics. Since 2021, Profound has invested in upgrading its lighting in its manufacturing facilities by retrofitting its lighting to high-efficiency LED to reduce energy consumption and enhance the manufacturing facilities work environment for its employees. The Company plans to continue to invest in lighting where it can have a positive environmental impact and improve working conditions.
The repair first approach promotes reuse of existing materials and reduction of new materials (including packaging associated with replacing parts), therefore avoiding waste to landfill. To further support these key areas, the Company is exploring opportunities to recycle glass, water and metals. In Profound’s facilities, multiple waterless urinals have been installed which save over 100,000 litres of water per urinal each year.
Social
As the demand for talent increases, the need for innovative attraction and retention strategies also increases. The Company recognizes that in a rapidly changing environment, its employees are central to its business performance. Profound’s workforce is a key driver of its success, which is why providing a superior employee experience is one of its top priorities. This includes Profound’s commitment to providing a safe and healthy workplace for all employees, consultants, and business partners. Profound does not simply consider this to be its duty of care but an important business practice as it lowers costs, reduces absenteeism and turnover, increases productivity and quality and raises employee morale.
In addition to competitive salaries, Profound offers other benefits to its employees. These benefits include a range of incentives, flexible and home-based work options and other health-related benefits. The human resources department is responsible for promoting a wide range of opportunities for innovation at work – which is a significant aspect of Profound’s corporate strategy – and for helping employees to nurture their personal strengths while developing as individuals. In order to be best prepared for challenges, Profound emphasizes the acquisition of technical expertise as part of the qualification system.
Diversity and inclusion are long-standing core values that Profound embraces by fostering a respectful workplace where integrity, trust and inclusion are the norm. Profound believes that an inclusive workplace is one where everyone feels a sense of belonging, has a safe environment in which to work and develop, and shares equal opportunities for career advancement regardless of gender, skin colour, ethnicity, religion, age, disability or sexual orientation. Profound values diversity and inclusion as together they enable a highly collaborative and engaging work environment and drive innovation and the development of new ideas, which in turn directly correlates with improved Company performance.
Profound wants every employee to feel healthy, safe and productive at work. Cultivating a safe workplace helps advance the Company’s purpose of enabling everyone to live healthier, fuller lives. Given the increased incidence of mental illness in the workplace, Profound’s healthcare coverage offers access to quality counseling services.
Artificial intelligence is getting increasingly sophisticated at doing what humans do, but more efficiently, more quickly and at a lower cost. The potential for both AI and robotics in healthcare is vast. Just like in our every-day lives, AI and robotics are increasingly a part of our healthcare eco-system and a major factor for the Company. By analyzing large amounts of data in real time, AI can help improve clinical and nonclinical decision making, ablation planning, treatment time reduction and workflow ease of use optimization. Advances in technology are driving constant changes in the delivery of healthcare. Care providers must seek new training and education opportunities to adjust to this quickly evolving landscape. Artificial intelligence supports these efforts by revolutionizing the capture, storage, and analysis of training video.
Artificial intelligence has the potential to help solve some of the biggest challenges facing healthcare today, such as managing costs, physician burnout, and health equity. Our AI solutions are designed to give healthcare professionals the time and tools they need to deliver better care to more people around the world. The thermal boost technology enables predictable, customized ablation at the prostate capsule to ensure a reliable heating of the planned ablation volume. It demonstrates successful application for boosting the MRI-visible lesions to ensure reliable heating to the capsule, boosting in regions with larger prostate radii and boosting if the lethal heat did not initially reach the target boundary.
| Page 20 |
Profound Medical Corp.
Management’s Discussion and Analysis
For the three months ended March 31, 2024 and 2023
In USD$ (000s)
Governance
Profound’s Board of Directors are responsible for the stewardship of the Company and for overseeing the conduct of business and the activities of management. The Human Resource and Corporate Governance Committee of the board of directors of Profound is responsible for providing leadership in shaping the Company’s governance policies and practices. The Audit Committee is responsible for overseeing financial reporting and related internal controls, risk, independent and internal auditors, and ethics and compliance. The committees of the board of directors of Profound consist of many affluent senior leadership members within the industry that provide meaningful insight and guidance. Strong and effective governance practices are part of Profound’s organizational culture. This encompasses sound and effective internal processes and procedures, minimizing risks, continuous enhancement of human resource policies and practices, a cyber security strategy and promoting efficiency.
The Company holds itself to a high standard of governance and it is continually taking steps to strengthen its performance and accountability in critical areas. Profound’s Code of Business Conduct and Ethics and Whistleblower policies provide the standards for ethical behavior throughout Profound’s business activities and reflect its commitment to conducting a culture of honesty, integrity, and accountability.
As Profound continues to work towards its mission, the Company is committed to conducting its business in a responsible and sustainable manner by aspiring to develop healthy, resilient communities through its dedication to social, economic and environmental sustainability. By unlocking value through its core activities, Profound remains focused on execution on all fronts including in fulfilling its commitment to ESG best practices in the years to come.
RISK FACTORS
For a detailed description of risk factors associated with the Company, refer to the “Risk Factors” section of the AIF, which is available on SEDAR+ at www.sedarplus.ca and filed as an exhibit to the 40-F, available on EDGAR at www.sec.gov.
In addition, the Company is exposed to a variety of financial risks in the normal course of operations, including risks relating to cash flows from operations, liquidity, capital reserves, market rate fluctuations and internal controls over financial reporting. Profound’s overall risk management program and business practices seek to minimize any potential adverse effects on the Company’s consolidated financial performance. Financial risk management is carried out under practices approved by Profound’s audit committee. This includes reviewing and making recommendations to the board of directors regarding the adequacy of the Company’s risk management policies and procedures with regard to identification of the Company’s principal risks, and implementation of appropriate systems and controls to manage these risks.
ADDITIONAL INFORMATION
Additional information relating to the Company, including the AIF the other exhibits to the 40-F, is available on SEDAR+ at www.sedarplus.ca and on EDGAR at www.sec.gov. The Common Shares are listed for trading on the TSX under the symbol “PRN” and on Nasdaq under the symbol “PROF”.
Page 21
Exhibit 99.3
Form 52-109F2R
Certification of Refiled Interim Filings
This certificate is being filed on the same date that Profound Medical Corp. (the “issuer”) has refiled interim financial statements for the three months ended March 31, 2024.
I, Arun Menawat, Chief Executive Officer of the issuer, certify the following:
| 1. | Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of the issuer for the interim period ended March 31, 2024. |
| 2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. |
| 3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings. |
| 4. | Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer. |
| 5. | Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings |
| (a) | designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that |
| (i) | material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and |
| (ii) | information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
| (b) | designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP. |
| 5.1 | Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). |
| 5.2 | ICFR – material weakness relating to design: N/A |
| 5.3 | Limitation on scope of design: N/A |
| 6. | Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on January 1, 2024 and ended on March 31, 2024 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR. |
Date: March 7, 2025.
-(signed) “Arun Menawat”
Arun Menawat
Chief Executive Officer
Exhibit 99.4
Form 52-109F2R
Certification of Refiled Interim Filings
This certificate is being filed on the same date that Profound Medical Corp. (the “issuer”) has refiled interim financial statements for the three months ended March 31, 2024.
I, Rashed Dewan, Chief Financial Officer of the issuer, certify the following:
| 1. | Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of the issuer for the interim period ended March 31, 2024. |
| 2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. |
| 3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings. |
| 4. | Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer. |
| 5. | Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings |
| (a) | designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that |
| (i) | material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and |
| (ii) | information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
| (b) | designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP. |
| 5.1 | Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). |
| 5.2 | ICFR – material weakness relating to design: N/A |
| 5.3 | Limitation on scope of design: N/A |
| 6. | Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on January 1, 2024 and ended on March 31, 2024 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR. |
Date: March 7, 2025.
-(signed) “Rashed Dewan”
Rashed Dewan
Chief Financial Officer